##### Table of Contents



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 July 3, 2004 Commission file number 0-6072 EMS TECHNOLOGIES,
INC.   Georgia
    
    58-1035424(State or other jurisdiction of
incorporation or organization)
    
    (IRS Employer ID Number)
 660 Engineering DriveNorcross, 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 August 6, 2004: Class
    
    Number of SharesCommon Stock, $.10 par Value
    
    11,114,656
 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 4. Submission of Matters to a Vote of Security Holders
    
    
    21ITEM 5. Other Information
    
    
    22ITEM 6. Exhibits and Reports on Form 8-K
    
    
    29SIGNATURES
    
    
    30EMS TECHNOLOGIES, INC. 1997 STOCK INCENTIVE PLANEX-31.1 SECTION 302 CERTIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF THE CFOEX-32 SECTION 906 CERTIFICATION OF THE CEO & 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
    
    Six Months EndedJuly 3
    
    June 28
    
    July 3
    
    June 282004
    
    2003
    
    2004
    
    2003Net sales
    
    $
    64,528
    
    
    
    66,059
    
    
    
    128,603
    
    
    
    121,808Cost of sales
    
    
    42,437
    
    
    
    42,012
    
    
    
    82,914
    
    
    
    77,266Selling, general and administrative expenses
    
    
    15,671
    
    
    
    14,497
    
    
    
    31,255
    
    
    
    27,227Research and development expenses
    
    
    4,448
    
    
    
    4,772
    
    
    
    10,022
    
    
    
    9,459Operating income
    
    
    1,972
    
    
    
    4,778
    
    
    
    4,412
    
    
    
    7,856Non-operating income (expense), net
    
    
    117
    
    
    
    (255
    )
    
    
    983
    
    
    
    (278
    )Foreign exchange loss
    
    
    (198
    )
    
    
    (375
    )
    
    
    (95
    )
    
    
    (412
    )Interest expense
    
    
    (585
    )
    
    
    (510
    )
    
    
    (1,223
    )
    
    
    (1,017
    )Earnings from continuing operations before income taxes
    
    
    1,306
    
    
    
    3,638
    
    
    
    4,077
    
    
    
    6,149Income tax expense
    
    
    (418
    )
    
    
    (1,150
    )
    
    
    (1,305
    )
    
    
    (1,975
    )Earnings from continuing operations
    
    
    888
    
    
    
    2,488
    
    
    
    2,772
    
    
    
    4,174Discontinued operations (note 2):Loss from discontinued operations
    
    
    (1,194
    )
    
    
    (16,277
    )
    
    
    (776
    )
    
    
    (18,754
    )Income tax benefit (expense)
    
    
    84
    
    
    
    (281
    )
    
    
    
    
    
    
    532Loss from discontinued operations
    
    
    (1,110
    )
    
    
    (16,558
    )
    
    
    (776
    )
    
    
    (18,222
    )Net earnings (loss)
    
    $
    (222
    )
    
    
    (14,070
    )
    
    
    1,996
    
    
    
    (14,048
    )Earnings (loss) per share (note 4):Basic:From continuing operations
    
    $
    0.08
    
    
    
    0.23
    
    
    
    0.25
    
    
    
    0.39From discontinued operations
    
    
    (0.10
    )
    
    
    (1.55
    )
    
    
    (0.07
    )
    
    
    (1.71
    )Net earnings (loss)
    
    $
    (0.02
    )
    
    
    (1.32
    )
    
    
    0.18
    
    
    
    (1.32
    )Diluted:From continuing operations
    
    $
    0.08
    
    
    
    0.23
    
    
    
    0.25
    
    
    
    0.39From discontinued operations
    
    
    (0.10
    )
    
    
    (1.55
    )
    
    
    (0.07
    )
    
    
    (1.71
    )Net earnings (loss)
    
    $
    (0.02
    )
    
    
    (1.32
    )
    
    
    0.18
    
    
    
    (1.32
    )Weighted average number of shares (note 4):Basic
    
    
    11,090
    
    
    
    10,658
    
    
    
    11,060
    
    
    
    10,658Diluted
    
    
    11,263
    
    
    
    10,671
    
    
    
    11,264
    
    
    
    10,671
 See accompanying notes to interim consolidated financial statements. 2




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EMS Technologies, Inc.
and Subsidiaries 
 Consolidated Balance Sheets (Unaudited)
(in thousands)
 July 3
    
    Dec 312004
    
    2003ASSETSCurrent assets:Cash and cash equivalents
    
    $
    9,376
    
    
    
    14,180Trade accounts receivable, net (note 6)
    
    
    71,292
    
    
    
    71,431Inventories, net (note 7)
    
    
    37,080
    
    
    
    33,509Deferred income taxes
    
    
    2,208
    
    
    
    2,208Assets held for sale (note 2)
    
    
    45,294
    
    
    
    40,059Total current assets
    
    
    165,250
    
    
    
    161,387Property, plant and equipment:Land
    
    
    1,490
    
    
    
    2,174Building and leasehold improvements
    
    
    15,106
    
    
    
    15,000Machinery and equipment
    
    
    76,404
    
    
    
    73,474Furniture and fixtures
    
    
    7,741
    
    
    
    7,318Total property, plant and equipment
    
    
    100,741
    
    
    
    97,966Less accumulated depreciation and amortization
    
    
    63,289
    
    
    
    59,485Net property, plant and equipment
    
    
    37,452
    
    
    
    38,481Deferred income taxes  non-current
    
    
    2,679
    
    
    
    2,679Intangible assets, net
    
    
    2,599
    
    
    
    3,121Goodwill
    
    
    13,526
    
    
    
    13,526Other assets
    
    
    7,082
    
    
    
    9,355$
    228,588
    
    
    
    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) July 3
    
    Dec 312004
    
    2003LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current installments of long-term debt
    
    $
    35,492
    
    
    
    38,056Accounts payable
    
    
    20,511
    
    
    
    18,812Accrued compensation costs
    
    
    5,276
    
    
    
    7,823Accrued retirement costs
    
    
    1,511
    
    
    
    2,637Deferred service revenue
    
    
    6,470
    
    
    
    4,730Liabilities related to assets held for sale (note 2)
    
    
    17,042
    
    
    
    17,765Other liabilities
    
    
    3,353
    
    
    
    3,147Total current liabilities
    
    
    89,655
    
    
    
    92,970Long-term debt, excluding current installments
    
    
    15,412
    
    
    
    15,537Total liabilities
    
    
    105,067
    
    
    
    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 11,114,000 in 2004 and
10,927,000 in 2003
    
    
    1,111
    
    
    
    1,093Additional paid-in capital
    
    
    67,927
    
    
    
    64,988Accumulated other comprehensive income
    
    
    6
    
    
    
    1,480Retained earnings
    
    
    54,477
    
    
    
    52,481Total stockholders equity
    
    
    123,521
    
    
    
    120,042$
    228,588
    
    
    
    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)
 Six Months EndedJuly 3
    
    June 282004
    
    2003Cash flows from operating activities:Net earnings (loss)
    
    $
    1,996
    
    
    
    (14,048
    )Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:Depreciation and amortization
    
    
    4,813
    
    
    
    4,511Deferred income taxes
    
    
    
    
    
    
    (95
    )Loss from discontinued operations
    
    
    776
    
    
    
    18,222Gain on sale of assets
    
    
    (969
    )
    
    
    Changes in operating assets and liabilities:Trade accounts receivable
    
    
    (917
    )
    
    
    5,834Inventories
    
    
    (3,970
    )
    
    
    (1,860
    )Accounts payable
    
    
    2,139
    
    
    
    36Non-trade foreign government receivable
    
    
    1,470
    
    
    
    2,959Income taxes payable
    
    
    2,600
    
    
    
    594Accrued costs, deferred revenue and other current liabilities
    
    
    (1,656
    )
    
    
    (1,099
    )Other
    
    
    (1,545
    )
    
    
    (1,283
    )Net cash provided by operating activities
    
    
    4,737
    
    
    
    13,771Cash flows from investing activities:Purchase of property, plant and equipment
    
    
    (3,743
    )
    
    
    (5,079
    )Payments for asset acquisitions
    
    
    (133
    )
    
    
    Sales of assets
    
    
    722
    
    
    
    Net cash used in investing activities
    
    
    (3,154
    )
    
    
    (5,079
    )Cash flows from financing activities:Net (decrease) increase in revolving debt
    
    
    (1,114
    )
    
    
    961Repayment of term debt
    
    
    (1,701
    )
    
    
    (820
    )Proceeds from exercise of stock options, net of withholding taxes paid
    
    
    2,957
    
    
    
    Net cash provided by financing activities
    
    
    142
    
    
    
    141Operating cash used in discontinued operations
    
    
    (6,024
    )
    
    
    (10,192
    )Net change in cash and cash equivalents
    
    
    (4,299
    )
    
    
    (1,359
    )Effect of exchange rates on cash
    
    
    (505
    )
    
    
    222Cash and cash equivalents at beginning of period
    
    
    14,180
    
    
    
    12,430Cash and cash equivalents at end of period
    
    $
    9,376
    
    
    
    11,293
 See accompanying notes to interim consolidated financial statements. 5




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EMS Technologies, Inc. and Subsidiaries 
 Notes to Consolidated Financial Statements (Unaudited)
 July 3, 2004 and June 28, 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. 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 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 per share): Quarters Ended
    
    Six Months EndedJuly 3
    
    June 28
    
    July 3
    
    June 282004
    
    2003
    
    2004
    
    2003Net earnings (loss):As reported
    
    $
    (222
    )
    
    
    (14,070
    )
    
    
    1,996
    
    
    
    (14,048
    )Less: Stock-based employee compensation expense determined
under the fair value method, net of tax
    
    
    (445
    )
    
    
    (486
    )
    
    
    (960
    )
    
    
    (1,076
    )Pro forma
    
    $
    (667
    )
    
    
    (14,556
    )
    
    
    1,036
    
    
    
    (15,124
    )Basic net earnings (loss) per share:As reported
    
    $
    (0.02
    )
    
    
    (1.32
    )
    
    
    0.18
    
    
    
    (1.32
    )Pro forma
    
    
    (0.06
    )
    
    
    (1.37
    )
    
    
    0.09
    
    
    
    (1.42
    )Diluted net earnings (loss) per share:As reported
    
    $
    (0.02
    )
    
    
    (1.32
    )
    
    
    0.18
    
    
    
    (1.32
    )Pro forma
    
    
    (0.06
    )
    
    
    (1.36
    )
    
    
    0.09
    
    
    
    (1.42
    )
 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
are accounted for as discontinued operations, and the net assets held for sale
were written down to their estimated fair value upon disposal. The fair value
of the Space & Technology/Montreal division 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 $1.5 million. The results of these discontinued operations for the second quarters and six
months ended of were as follows (in thousands): Quarters Ended
    
    Six Months EndedJuly 3
    
    June 28
    
    July 3
    
    June 282004
    
    2003
    
    2004
    
    2003Net sales
    
    $
    13,209
    
    
    
    (1,678
    )
    
    
    27,987
    
    
    
    9,109Costs and expenses
    
    
    14,403
    
    
    
    14,599
    
    
    
    28,763
    
    
    
    27,863Loss before income taxes
    
    
    (1,194
    )
    
    
    (16,277
    )
    
    
    (776
    )
    
    
    (18,754
    )Income tax (expense) benefit
    
    
    84
    
    
    
    (281
    )
    
    
    
    
    
    
    532Net loss
    
    $
    (1,110
    )
    
    
    (16,558
    )
    
    
    (776
    )
    
    
    (18,222
    )
 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 July 3, 2004 and December 31, 2003 (in thousands): July 3
    
    Dec 312004
    
    2003Accounts receivable, net
    
    $
    11,627
    
    
    
    9,646Inventories
    
    
    4,243
    
    
    
    4,722Investments
    
    
    4,409
    
    
    
    4,409Property, plant and equipment, net
    
    
    16,002
    
    
    
    16,743Accrued pension assets
    
    
    3,050
    
    
    
    3,245Other assets
    
    
    5,963
    
    
    
    1,294Total assets held for sale
    
    $
    45,294
    
    
    
    40,059Accounts payable
    
    $
    10,902
    
    
    
    10,984Long term debt
    
    
    2,369
    
    
    
    2,573Post retirement obligations
    
    
    3,762
    
    
    
    3,709Other current liabilities
    
    
    9
    
    
    
    499Total liabilities related to assets held for sale
    
    $
    17,042
    
    
    
    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 current earnings (loss). 7




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For continuing operations, the derivative activity as reported in the Companys
consolidated financial statements during the second quarters and six months
ended was (in thousands): Quarters Ended
    
    Six Months EndedJuly 3
    
    June 28
    
    July 3
    
    June 282004
    
    2003
    
    2004
    
    2003Beginning net asset (liability) for derivatives
    
    $
    82
    
    
    
    109
    
    
    
    108
    
    
    
    (248
    )Sales:Gain (loss) in value of embedded derivatives
    
    
    (4
    )
    
    
    6
    
    
    
    (6
    )
    
    
    7Foreign exchange gain (loss) on derivative instruments:Gain/(loss) in value of derivative instruments that
do not qualify as hedging instruments
    
    
    (47
    )
    
    
    514
    
    
    
    27
    
    
    
    669Matured foreign exchange contracts
    
    
    (60
    )
    
    
    (114
    )
    
    
    (158
    )
    
    
    87Net consolidated statements of operations gain
(loss) from changes
in value of derivative instruments
    
    
    (111
    )
    
    
    406
    
    
    
    (137
    )
    
    
    763Ending net (liability) asset for derivatives
    
    $
    (29
    )
    
    
    515
    
    
    
    (29
    )
    
    
    515
 For discontinued operations, the net liability for derivatives at July 3, 2004
was $84,000 compared to a net asset of $570,000 at June 28, 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 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): July 3
    
    June 282004
    
    2003Dilutive stock options, included in earnings (loss) per share calculations:Shares
    
    
    1,218
    
    
    
    286Average exercise price per share
    
    $
    15.09
    
    
    
    11.83Anti-dilutive stock options and warrants, excluded from per share calculations:Shares
    
    
    461
    
    
    
    1,818Average exercise price per share
    
    $
    22.53
    
    
    
    17.61
 For each earnings (loss) per share calculation reported for the second 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 second
quarters and six months ended July 3, 2004 and June 28, 2003 (in thousands): Quarters Ended
    
    Six Months EndedJuly 3
    
    June 28
    
    July 3
    
    June 282004
    
    2003
    
    2004
    
    2003Basic-weighted average common shares outstanding
    
    
    11,090
    
    
    
    10,658
    
    
    
    11,060
    
    
    
    10,658Common equivalent shares from stock options
    
    
    173
    
    
    
    13
    
    
    
    204
    
    
    
    13Diluted-weighted average common and common
equivalent shares outstanding
    
    
    11,263
    
    
    
    10,671
    
    
    
    11,264
    
    
    
    10,671
 8




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5. Comprehensive Income (Loss) Following is a summary of comprehensive income (loss) (in thousands): Quarters Ended
    
    Six Months EndedJuly 3
    
    June 28
    
    July 3
    
    June 282004
    
    2003
    
    2004
    
    2003Net income (loss)
    
    $
    (222
    )
    
    
    (14,070
    )
    
    
    1,996
    
    
    
    (14,048
    )Other comprehensive income (loss):Foreign currency translation adjustment
    
    
    (640
    )
    
    
    3,004
    
    
    
    (1,474
    )
    
    
    6,234Change in the value of investment
securities available for sale
    
    
    
    
    
    
    155
    
    
    
    
    
    
    
    Comprehensive income (loss)
    
    $
    (862
    )
    
    
    (10,911
    )
    
    
    522
    
    
    
    (7,814
    )
 6. Trade Accounts Receivable Trade accounts receivable include the following (in thousands): July 3
    
    Dec 312004
    
    2003Amounts billed
    
    $
    51,400
    
    
    
    58,146Unbilled revenues under long-term contracts
    
    
    24,403
    
    
    
    18,610Customer advanced payments
    
    
    (3,108
    )
    
    
    (3,788
    )Allowance for doubtful accounts
    
    
    (1,403
    )
    
    
    (1,537
    )Trade accounts receivable, net
    
    $
    71,292
    
    
    
    71,431
 7. Inventories Inventories include the following (in thousands): July 3
    
    Dec 312004
    
    2003Parts and materials
    
    $
    25,579
    
    
    
    22,139Work in process
    
    
    5,408
    
    
    
    5,306Finished goods
    
    
    6,093
    
    
    
    6,064Inventories, net
    
    $
    37,080
    
    
    
    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 is
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
    
    Six Months EndedJuly 3
    
    June 28
    
    July 3
    
    June 282004
    
    2003
    
    2004
    
    2003Net sales:Space & Technology
    
    $
    12,260
    
    
    
    11,567
    
    
    
    25,061
    
    
    
    24,065LXE
    
    
    27,725
    
    
    
    24,250
    
    
    
    52,625
    
    
    
    46,349EMS Wireless
    
    
    12,869
    
    
    
    15,306
    
    
    
    25,079
    
    
    
    24,112SATCOM
    
    
    9,456
    
    
    
    11,207
    
    
    
    19,571
    
    
    
    21,789SatNet
    
    
    2,454
    
    
    
    4,303
    
    
    
    6,503
    
    
    
    6,523Other
    
    
    (236
    )
    
    
    48
    
    
    
    (236
    )
    
    
    2Total
    
    $
    64,528
    
    
    
    66,059
    
    
    
    128,603
    
    
    
    121,808Operating income (loss):Space & Technology
    
    $
    620
    
    
    
    881
    
    
    
    1,452
    
    
    
    1,861LXE
    
    
    1,699
    
    
    
    1,776
    
    
    
    2,828
    
    
    
    3,063EMS Wireless
    
    
    368
    
    
    
    1,626
    
    
    
    483
    
    
    
    1,725SATCOM
    
    
    477
    
    
    
    880
    
    
    
    710
    
    
    
    2,391SatNet
    
    
    (1,086
    )
    
    
    118
    
    
    
    (1,156
    )
    
    
    (771
    )Other
    
    
    (106
    )
    
    
    (503
    )
    
    
    95
    
    
    
    (413
    )Total
    
    $
    1,972
    
    
    
    4,778
    
    
    
    4,412
    
    
    
    7,856Earnings (loss) from continuing operations:Space & Technology
    
    $
    318
    
    
    
    488
    
    
    
    769
    
    
    
    1,001LXE
    
    
    932
    
    
    
    1,014
    
    
    
    1,600
    
    
    
    1,783EMS Wireless
    
    
    153
    
    
    
    934
    
    
    
    124
    
    
    
    991SATCOM
    
    
    450
    
    
    
    593
    
    
    
    662
    
    
    
    1,857SatNet
    
    
    (1,235
    )
    
    
    (50
    )
    
    
    (1,464
    )
    
    
    (871
    )Other
    
    
    (124
    )
    
    
    (51
    )
    
    
    (158
    )
    
    
    (102
    )Corporate
    
    
    394
    
    
    
    (440
    )
    
    
    1,239
    
    
    
    (485
    )Total
    
    $
    888
    
    
    
    2,488
    
    
    
    2,772
    
    
    
    4,174
 10




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July 3
    
    Dec 312004
    
    2003Assets:Space & Technology
    
    $
    42,399
    
    
    
    40,157LXE
    
    
    65,366
    
    
    
    66,081EMS Wireless
    
    
    24,612
    
    
    
    25,353SATCOM
    
    
    28,435
    
    
    
    26,543SatNet
    
    
    13,902
    
    
    
    14,827Other
    
    
    746
    
    
    
    1,164Assets held for sale
    
    
    45,294
    
    
    
    40,059Corporate
    
    
    7,834
    
    
    
    14,365Total
    
    $
    228,588
    
    
    
    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 EndedJuly 3
    
    June 282004
    
    2003Balance at beginning of quarter
    
    $
    2,005
    
    
    
    1,360Accruals for warranties issued during the period
    
    
    277
    
    
    
    201Settlements made during the period
    
    
    (115
    )
    
    
    (70
    )Balance at end of quarter
    
    $
    2,167
    
    
    
    1,491
 Six Months EndedJuly 3
    
    June 282004
    
    2003Balance at
December 31, 2003 and 2002
    
    $
    1,977
    
    
    
    1,366Accruals for warranties issued during the period
    
    
    443
    
    
    
    434Settlements made during the period
    
    
    (253
    )
    
    
    (309
    )Balance at end of period
    
    $
    2,167
    
    
    
    1,491
 10. Litigation The Company is party to
litigation styled Andrew Corporation 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. The Company is currently engaged in discussions with
Andrew, and has received an extension of the time to file our initial
answer in response to its complaint. 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. 11




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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. Our 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 occurs 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
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 our company in the
second quarter and first six months of 2004: For continuing operations:  
    
    Results for the second quarter and first six months reflect a lower
than expected order rate at our SatNet segment and, to a lesser
extent, at EMS Wireless. 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 six months included $938,000
pre-tax gain for the sale of real estate in Montreal.For discontinued operations:
    
    Results for the second quarter and first six months included contract
losses at Space & Technology/Montreal totaling approximately $800,000,
which related to supplier delays on a difficult legacy program that is
expected to be completed before the end of 2004.
    
    We continue to pursue our plans to sell our Space &
Technology/Montreal division, and continue to accommodate the due
diligence effort of potential purchasers. Discontinued Operations Our healthcare product line and Space & Technology/Montreal operation have been
accounted for as discontinued operations. During the fourth quarter of 2003, we
completed the sale of our healthcare product line, and the net assets held for
sale of the Space & Technology/Montreal division were adjusted to their
estimated fair value upon disposal. The fair value of the Space &
Technology/Montreal division 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 $1.5 million. We continue to pursue a plan of sale for the Space
& Technology/Montreal division, and communications are ongoing with several
potential purchasers. Under the present circumstances, management believes that
it is appropriate to continue accounting for the Space & Technology/Montreal
division as a discontinued operation. 12




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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 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. 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 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 July 3, 2004, we had
recognized a cumulative total of $24.4 million in revenues under percentage of
completion accounting, but which revenues were unbilled as of that date due to
the billing milestones specified in the respective customer contracts. During the 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 that could cause cost increases in the future. These contracts
are technically challenging and there is a risk that further unforeseen
difficulties could cause increases to the cost at completion that exceed our
provisions, 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 six
months ended July 3, 2004, total incentives earned were approximately $2.3
million, compared with $1.3 million for the six months ended June 28, 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 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 July 3,
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 upon disposal. The fair value
of the Space & Technology/Montreal division 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 $1.5 million. We have continued to review the market factors
affecting the valuation of the Space & Technology/Montreal division and believe
that there has not been a material change in the fair value of this division,
and therefore no adjustment is needed at this time. 13




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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 established a
valuation allowance for substantially all the net deferred tax assets
associated with these research-related tax benefits (totaling approximately $33
million at July 3, 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 decreased to $64.5 million in the second quarter of
2004, compared with $66.1 million in the second quarter of 2003. For the first
six months, sales increased to $128.6 million in 2004, compared with $121.8
million for the comparable period in 2003. Our LXE and Space & Technology
divisions had net increases from the prior year. Net Sales and Operating Income (Loss) by Segment Our segment net sales and operating income (loss) were as follows (in
thousands): Percentage IncreaseQuarters Ended
    
    Six Months Ended
    
    (Decrease)July 3
    
    June 28
    
    July 3
    
    June 28
    
    Three
    
    Six2004
    
    2003
    
    2004
    
    2003
    
    Months
    
    MonthsNet sales:Space & Technology
    
    $
    12,260
    
    
    
    10,945
    
    
    
    25,061
    
    
    
    23,033
    
    
    
    12
    %
    
    
    9
    %LXE
    
    
    27,725
    
    
    
    24,250
    
    
    
    52,625
    
    
    
    46,349
    
    
    
    14
    %
    
    
    14
    %EMS Wireless
    
    
    12,869
    
    
    
    15,306
    
    
    
    25,079
    
    
    
    24,112
    
    
    
    (16
    )%
    
    
    4
    %SATCOM
    
    
    9,456
    
    
    
    11,207
    
    
    
    19,571
    
    
    
    21,789
    
    
    
    (16
    )%
    
    
    (10
    )%SatNet
    
    
    2,454
    
    
    
    4,303
    
    
    
    6,503
    
    
    
    6,523
    
    
    
    (43
    )%
    
    
    **Other
    
    
    (236
    )
    
    
    48
    
    
    
    (236
    )
    
    
    2
    
    
    
    **
    
    
    
    **Total
    
    $
    64,528
    
    
    
    66,059
    
    
    
    128,603
    
    
    
    121,808
    
    
    
    (2
    )%
    
    
    6
    %Operating income (loss):Space & Technology
    
    $
    620
    
    
    
    881
    
    
    
    1,452
    
    
    
    1,861
    
    
    
    (30
    )%
    
    
    (22
    )%LXE
    
    
    1,699
    
    
    
    1,776
    
    
    
    2,828
    
    
    
    3,063
    
    
    
    (4
    )%
    
    
    (8
    )%EMS Wireless
    
    
    368
    
    
    
    1,626
    
    
    
    483
    
    
    
    1,725
    
    
    
    (77
    )%
    
    
    (72
    )%SATCOM
    
    
    477
    
    
    
    880
    
    
    
    710
    
    
    
    2,391
    
    
    
    (46
    )%
    
    
    (70
    )%SatNet
    
    
    (1,086
    )
    
    
    118
    
    
    
    (1,156
    )
    
    
    (771
    )
    
    
    **
    
    
    
    (50
    )%Other
    
    
    (106
    )
    
    
    (503
    )
    
    
    95
    
    
    
    (413
    )
    
    
    **
    
    
    
    **Total
    
    $
    1,972
    
    
    
    4,778
    
    
    
    4,412
    
    
    
    7,856
    
    
    
    (59
    )%
    
    
    (44
    )%
 ** = Not Meaningful Space & Technology:This segment primarily serves defense markets, and revenues
in these markets were somewhat higher in 2004 compared with 2003; however, most
of the net sales growth for the second quarter and first six 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 second quarter and first six months of 2004
compared with the same periods in 2003. More than 80% of this growth was due to
stronger international revenues, particularly from increased hardware unit
sales and service revenues in our international markets, which we believe were
strongly influenced by 14




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favorable exchange rates for the
Euro and other foreign currencies versus the U.S. dollar. In addition, 2004
domestic revenues were also somewhat higher than for the same periods in 2003
due to increased hardware unit sales and service revenues. EMS Wireless:Net sales for the second 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. In particular
for the second quarter, U.S. base station revenues dropped $4.5 million in 2004
from 2003, but over 40% of this sales decline was offset by combined higher
sales by our Brazilian antenna operations (mainly for South American markets)
and by our repeater product line (mainly for U.S. markets). For the six
months, U.S. base station revenues were also lower in 2004 versus 2003, and
substantially all of the approximately $1 million of growth in overall net
sales for this period related to combined higher Brazilian antenna and U.S.
repeater sales. We believe that our U.S. customers for base station antennas
will resume system rollouts and increase their order rate before the end of
2004. SATCOM:Net sales decreased for the second quarter and first six months of 2004
compared with the same periods in 2003, as a result of what we believe was a
temporary slowing of the order rate for a particular mobile broadband terminal
for the U.S. military. SatNet:Our venture to provide DVB-RCS standard hubs and terminals for
broadband communications via satellite reported lower net sales for both the
second quarter and the six months ended 2004, respectively, compared with the
same periods in 2003. As is typical in a start-up situation, this divisions
order stream is growing but uneven, which makes periodic sales volatile. A
lower number of hubs were sold in 2004 verse 2003, but this was offset by a
significant increase in the number of terminals that have been sold in 2004, as
current systems customers expand their business base. We believe the net sales
variances in the interim periods for 2004 versus 2003 were the result of
current customer circumstances and timing decisions. Further, we believe that
the present rate of orders will increase during the second half of 2004. 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
66% and 64% in the second quarter and first half, respectively, of 2004, as
compared with 64% and 63% for the same respective interim periods in 2003.
Moderately unfavorable effects on the consolidated cost-of-sales percentage
were caused by:  
    
    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 and  
    
    Lower sales volumes at EMS Wireless to absorb fixed costs. Selling, General and Administrative Expenses Selling, general and administrative expenses (SG&A) increased for the second
quarter and first six months of 2004 compared 2003, primarily due to the LXE
divisions expanded sales efforts in Europe, the Middle East and
Asia, where the headcount and cost
structure for the sales and marketing organizations have increased with the
record levels of revenues that LXE has received from these markets. A
significant, but secondary factor in SG&A growth related to stronger Canadian
dollars 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 our SATCOM and SatNet divisions;
accordingly, the costs of these externally-funded efforts are reflected in cost
of sales. For the second quarter and first six months, our S&T/Atlanta and LXE divisions
incurred significant planned increases in R&D in 2004 compared with 2003 to
advance new product initiatives. These combined divisional increases, which
totaled approximately $300,000 for the second quarter and $1.2 million for the
first six months, were partially offset for the first six months and more than
completely offset for the second quarter by R&D decreases at our SATCOM and
SatNet divisions. These divisional R&D decreases reflected a higher proportion
of 15




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the engineering effort under development agreements with external funding that
were therefore reported in cost of sales. Non-Operating Income (Expense) Non-operating income for the first six months of 2004 includes a $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 an 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 result from a stronger 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 result from a stronger Canadian
dollar against the British pound. 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. 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 of $198,000 and $95,000 in the second
quarter and the first six months of 2004, respectively, 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 $375,000 and $412,000 because the
U.S. dollar was then weaker against the Canadian dollar. Interest Expense Interest expense increased for the second quarter and first six months of 2004
compared with the same periods in 2003 due to increased 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 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 upon disposal. 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 a loss of
approximately $1.2 million for the second quarter and an $800,000 loss for the
first six months, compared with a $16.3 million loss for the second quarter of
2003 and $18.8 million loss for the first six months of 2003. 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 commercial satellite
program. If the effect of the $14 million write down in the second quarter of 16




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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 the percentage of completion
accounting. The results for the second quarter and first six months of 2004
included contract losses totaling approximately $800,000, which related to
supplier delays on a difficult legacy program that is expected to be completed
before the end of 2004. Liquidity and Capital Resources During the first six months of 2004, net cash provided by continuing operating
activities was approximately $5 million, with the most significant factors
being the LXE divisions profitable operations and additional long-term service
agreements. Another significant source of cash was proceeds from the exercise
of employee stock options. Our discontinued operations used approximately $6
million and we reduced our debt by approximately $3 million. At July 3, 2004, we had standby letters of credit outstanding of approximately
$8.5 million. In addition, we had $9.7 million available for borrowing under
our U.S. revolving credit agreement and $2.0 million available for borrowing
under our Canadian revolving credit agreement. At July 3, 2004, we were either
in compliance with or had received a bank waiver of compliance 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
revolving debt facility. During the first quarter of 2004, we further 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. We have
entered into negotiations to refinance or restructure our existing U.S. and
Canadian credit agreements, with one of the main objectives being to modify the
covenant structure so that quarterly waivers will no longer be needed from our
Canadian lender. Our U.S. credit agreement expires in August 2004, but based on
communications with the lender we believe the lender will agree to extend the
term, although there can be no assurance the lender will grant such
extension. This extension will allow sufficient time to successfully complete the
refinancing or restructuring of our credit agreements before the end of 2004. 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. Other than purchase commitments presented in the table below, our material
contractual cash commitments and material other commercial commitments have not
changed significantly from those disclosed in the Annual Report on Form 10-K
for the year ended December 31, 2003. Purchase commitments(1) at July 3, 2004
    
    
    
    
    
    Less than
    
    1-3
    
    3-5
    
    After 5(in thousands)
    
    Total
    
    1 year
    
    years
    
    years
    
    yearsContinuing Operations:
    
    $
    24,800
    
    
    
    20,800
    
    
    
    2,100
    
    
    
    1,900
    
    
    
    Discontinued Operations:
    
    $
    6,300
    
    
    
    5,800
    
    
    
    500
    
    
    
    
    
    
    
    
 (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. 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 17




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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 effect 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, during 2004,
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;  
    
    U.S. defense budget pressures on near-term spending priorities;  
    
    volatility of foreign exchange rates relative to the U.S. dollar and
their effect on purchasing power by international customers, and on the
gross margin on products manufactured outside the U.S. but sold mainly
to U.S. customers;  
    
    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 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;  
    
    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 this Quarterly Report on Form 10-Q. 18




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ITEM 3. Quantitative and Qualitative Disclosures about Market Risk As of July 3, 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 (5.75% at the end of the quarter)
    
    $
    16,112Revolving credit loan with a U.S. bank, maturing in August 2004, variable-rate interest payable
quarterly
(average rate of 4.10% at the end of the quarter)
    
    
    15,076Term installment loan with a bank in Canada, maturing in December 2005, principal and variable-rate
interest payable quarterly (5.75% at the end of the quarter)
    
    
    1,143Revolving credit loan with a bank in the United Kingdom, no specific maturity but subject to review in
April 2005, variable-rate interest payable monthly (5.5% at the end of the quarter)
    
    
    1,558Total market-sensitive debt
    
    $
    33,889
 A 1% increase in the interest rates for our market-sensitive debt obligations
would have increased interest expense by $81,000 for the quarter based on the
average outstanding borrowings under these obligations. As of July 3, 2004, the Company also had intercompany accounts that eliminate
in consolidation but that are considered market risk sensitive instruments.
Short-term due to/(from) the parent, payable/(receivable) by international
subsidiaries arising from purchase of the parents products for sale and from
cash advances to the parent, were as follows: Exchange Rate($U.S. per unit of
    
    $U.S. in thousandslocal currency)
    
    (Reporting Currency)Australia
    
    0.7126/Dollar
    
    $
    1,355Canada
    
    0.7546/Dollar
    
    
    1,179Belgium
    
    1.2309/Euro
    
    
    377Italy
    
    1.2309/Euro
    
    
    322Netherlands
    
    1.2309/Euro
    
    
    284France
    
    1.2309/Euro
    
    
    235Sweden
    
    0.1340/Krona
    
    
    122Singapore
    
    0.5835/Dollar
    
    
    87Germany
    
    1.2309/Euro
    
    
    37United Kingdom
    
    1.8302/Pound
    
    
    33Total short-term due to parent
    
    
    
    
    
    $
    4,031
 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
    
    
    1.2075
    
    
    $
    (21
    )Australian dollars (sell for U.S. dollars)
    
    1,800 Dollars
    
    
    0.6798
    
    
    
    (59
    )U.S. dollars (sell for Canadian dollars)
    
    3,500 USD
    
    
    1.3429
    
    
    
    47$
    (33
    )Discontinued Operations:British Pounds (sell for Canadian dollars)
    
    1,550 Pound
    
    
    2.3200
    
    
    $
    (102
    )
 The Company enters into foreign currency forward contracts in order to mitigate
the risks associated with currency fluctuations on future cash flows. 19




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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 controls and
procedures are adequate to accomplish their objective and are functioning
effectively. During the three months ended July 3, 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 other factors
that could significantly affect these internal controls. 20




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PART II OTHER INFORMATION 
 ITEM 1. Legal Proceedings We are party to litigation styled Andrew Corporation 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. We are currently engaged in discussions with Andrew, and
have received an extension of the time to file our initial answer in
response to its complaint. 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 4. Submission of Matters to a Vote of Security Holders The Registrants Annual Meeting of Shareholders was held on May 10, 2004.
At the Meeting, each of the following individuals was elected to serve
as a member of the Board of Directors during the forthcoming year, by the
vote indicated: Abstain orBrokerFor
    
    Withheld
    
    Non-VotesHermann Buerger
    
    
    6,907,686
    
    
    
    193,704
    
    
    
    3,190,196Robert P. Crozer
    
    
    6,828,442
    
    
    
    272,948
    
    
    
    3,190,196John P. Frazee, Jr.
    
    
    6,833,342
    
    
    
    268,048
    
    
    
    3,190,196Alfred G. Hansen
    
    
    7,080,481
    
    
    
    20,909
    
    
    
    3,190,196John R. Kreick
    
    
    6,985,396
    
    
    
    115,994
    
    
    
    3,190,196John B. Mowell
    
    
    6,833,012
    
    
    
    268,378
    
    
    
    3,190,196Norman E. Thagard
    
    
    7,099,848
    
    
    
    1,542
    
    
    
    3,190,196John L. Woodward, Jr.
    
    
    7,095,540
    
    
    
    5,850
    
    
    
    3,190,196
 At the Meeting, the Shareholders also considered and approved the
adoption of an amendment of the EMS Technologies, Inc. 1997 Stock
Incentive Plan to (i) increase by 200,000 the number of shares available
thereunder; (ii) increase by 30,000 the maximum number of shares that may
be optioned thereunder to a single individual in a single calendar year;
and (iii) provide that each non-employee director shall receive an
automatic grant of an option for 3,000 shares for each year of service
beginning with the directors first election for an additional term, by
the following vote: For
    
    Against
    
    Abstain6,606,565
    
    
    1,826,728
    
    
    
    1,858,293
 21




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ITEM 5. Other Information RISK FACTORS The business operations of EMS Technologies, Inc. involve significant
risks and uncertainties that could adversely affect its financial condition,
results of operations, and future development, and this could also cause a
decline or slow growth in the future market value of our shares. In addition to
domestic economic conditions, which can change unexpectedly and generally
affect U.S. businesses, these risks and uncertainties include those set forth
below, which we believe to be the most significant risks we face. If any of
the following risks actually occurs, our business could be harmed. Additional
risks and uncertainties not presently known to us, or that we currently
consider immaterial, may also impair our operations or results. In all of
those cases, the trading price of our common stock could decline, and investors
could lose all or part of their investments. Risks Related to Our Business In addition to general economic conditions, both domestic and foreign, which
can change unexpectedly and generally affect U.S. businesses with worldwide
operations, we are subject to a number of risks and uncertainties that are
specific to us or the businesses we operate: Competing technology could be superior to ours, and could cause customer orders
and revenues to decline. The markets in which we compete are very sensitive to technological advances.
As a result, technological developments by competitors can cause our products
to be less desirable to customers, or even to become obsolete. Those
developments could cause our customer orders and revenues to decline. If our commercial customers fail to find adequate funding for major potential
programs, or our government customers do not receive necessary funding
approvals, our sales could decline. Major communications infrastructure programs, such as proposed satellite
communications systems or PCS/cellular systems for large urban areas, are
important sources of our current and anticipated future revenues. We also
participate in a number of large defense programs. Programs of these types
cannot proceed unless the customer can raise adequate funds, from either
governmental or private sources. As a result, our expected revenues can be
adversely affected by political developments or by conditions in private
capital markets. Expected revenues can also be adversely affected if private
capital markets are not receptive to a customers proposed business plans.
Large defense programs are often partially funded, requiring periodic further
funding approvals, which may be withheld for a variety of political, budgetary
or technical reason, and such multi-year programs can also be terminated by the
government. These developments would reduce our sales below the levels we
would otherwise be expecting. Slow public acceptance of new communications systems could limit purchases by
our customers. Construction and expansion of new communications systems depend on public
demand for the new services. As a result, growth rates in our revenues from
wireless infrastructure products and proposed high-speed satellite
communications systems are likely to be heavily affected by the timing and
extent of public willingness to buy mobile or broadband communications
services. If public acceptance of the new systems does not develop as expected,
our customers are unlikely to place the level of orders we expect, and our
revenues and profits would also fall short of expectations. Among the factors that could affect the growth of markets for new wireless
communications systems is the potential concern about alleged health risks
relating to radio frequency (RF) emissions. Media reports and some studies
have suggested that RF emissions from wireless handsets and cell sites may be
associated with various health problems, including cancer, and may interfere
with electronic medical devices, including hearing aids and pacemakers. In
addition, lawsuits have been filed against participants in the wireless
industry alleging various adverse health consequences as a result of wireless
equipment emissions. Additional studies of RF emissions are ongoing. Consumers
may be discouraged from purchasing new wireless services if consumers health
concerns over 22




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RF emissions increase. In addition, concerns over RF emissions could lead
government authorities to increase restrictions on the location and operation
of wireless-related hardware, or could result in wireless companies being held
liable for costs or damages associated with these concerns. Our competitors marketing and pricing strategies could make their products
more attractive than ours. This could cause reductions in customer orders or
profits. We operate in highly competitive technology markets, and some of our
competitors have substantial resources and facilities that exceed ours. Our
competition may pursue aggressive marketing strategies, such as significant
price discounting. These competitive activities could cause our customers to
purchase our competitors products rather than ours, and reduce our sales and
profit margins below expected levels. We can encounter technical problems or contractual uncertainties, which can
cause delays, added costs, lost sales, and liability to customers. From time to time we have encountered technical difficulties that have caused
delays and additional costs in our technology development efforts. We are
particularly exposed to this risk in new product development efforts, and in
fixed-price contracts on technically advanced programs in our Space &
Technology segment that require novel approaches and solutions. In these
cases, the additional costs that we incur are not covered by revenue
commitments from our customers, and reduce our earnings. In addition,
technical difficulties can cause us to miss expected delivery dates for new
product offerings, which could cause customer orders to fall short of
expectations. Our products may perform mission-critical functions in space
applications. If we experience technical problems and are unable to adhere to a
customers schedule, the customer could experience costly launch delays or
re-procurements from other vendors. The customer may then be contractually
entitled to substantial financial damages from us. The customer would also be
entitled to cancel future deliveries, which would reduce our future revenues
and could make it impossible for us to recover our design, tooling or inventory
costs, or our remaining commitments to third-party suppliers. Due to technological uncertainties in new or unproven applications of
technology, a contract may be broadly defined in its early stages, with a
structure to accommodate future changes in the scope of work or contract value
as technical development progresses. In such cases, management must evaluate
these contract uncertainties and estimate the future expected levels of scope
of work and likely contract value changes to determine the appropriate level of
revenue associated with costs incurred. Actual changes may vary from expected
changes, resulting in a reduction of revenues and earnings recognized in future
periods. Our transitions to new product offerings can be costly and disruptive, and
could adversely affect our revenues or profitability. Because our businesses involve constant efforts to improve existing technology,
we regularly introduce new generations of products. During these transitions,
customers may reduce purchases of older equipment more rapidly than we expect,
or may choose not to migrate to our new products, which can cause lower
revenues and excessive inventories. In addition, product transitions create
uncertainty about both production costs and customer acceptance. These
potential problems are generally more severe if our product introduction
schedule is delayed by technical development problems. These problems could
cause our revenues or profitability to be less than expected. Our products may unexpectedly infringe third party patents, which could cause
us to have substantial liability to our customers or the patent owners. As we regularly develop and introduce new technology, we have a risk that our
new products or manufacturing techniques may infringe on valid patents held or
currently being processed by others. The earliest that the U.S. Patent Office
publishes patents is 18 months after their initial filing, and exceptions exist
so that some applications are not published before they issue as patents. Thus,
we may be unaware of a pending patent until well after we have introduced an
infringing product. In addition, questions of whether a particular product
infringes a particular patent can involve significant uncertainty. As a result
of these factors, third-party patents may require us to redesign our products
and to incur both added expense and delays that interfere with marketing plans.
Third-party patents may also, from time to time, create significant expense to
defend or pay damages or royalties on infringement claims, or 23




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to respond to customer indemnification claims. We are currently engaged in
litigation with a patent owner that is alleging that certain of our products
infringe its patents, as is described more fully at Part II, Item 1. Legal
Proceedings, of this Report on Form 10-Q. We may not be successful in protecting our intellectual property. Our unique intellectual property is a critical resource in our efforts to
produce and market technically advanced products. We primarily seek to protect
our intellectual property, including product designs and manufacturing
processes, through patents and as trade secrets. If we are unable to obtain
enforceable patents on certain technologies, or if information we protect as
trade secrets becomes known to our competitors, then competitors may be able to
copy or otherwise appropriate our technology, we would lose competitive
advantages, and our revenues and operating margins could decline. In any
event, litigation to enforce our intellectual property rights could result in
substantial costs and diversion of resources that could have a material adverse
effect on our operations regardless of the outcome of the litigation. We may
also enter into transactions in countries where intellectual property laws are
not well developed and legal protection of our rights may be ineffective. We depend on highly skilled employees, who could become unavailable. Because our products and programs are technically sophisticated, we must
attract and retain employees with advanced technical and program-management
skills. Other employers also often recruit persons with these skills, both
generally and in focused engineering fields. If skilled employees were to
become unavailable to us, our performance obligations to our customers could be
affected and our revenues could decline. We depend on highly skilled suppliers, who may become unavailable or fail to
achieve desired levels of technical performance. In addition to our requirements for basic materials and electronic components,
our advanced technological products often require sophisticated subsystems
supplied or cooperatively developed by third parties. To meet those
requirements, our suppliers must have specialized expertise, production skills
and economies of scale, and in some cases there are only a limited number of
qualified potential suppliers. Our ability to perform according to contract
requirements, or to introduce new products on the desired schedule, can be
heavily dependent on our ability to identify and engage appropriate suppliers,
and on the effectiveness of those suppliers in meeting our development and
delivery objectives. If key suppliers were unavailable when we needed them, or
failed to perform as expected, our ability to meet our performance obligations
to our customers could be affected and our revenues and earnings could decline. Changes in government regulations that limit the availability of radio
frequency licenses or cause us to incur increased expenses could cause our
revenues or profitability to decline. Many of our products are incorporated into wireless communications systems that
are regulated in the U.S. by the Federal Communications Commission (FCC) and
internationally by other government agencies. Changes in government regulations
could reduce the growth potential of our markets by limiting either the access
to or availability of frequency spectrum. Changes in government regulations
could make the competitive environment more difficult by increasing costs or
inhibiting our customers efforts to develop or introduce new technologies and
products. Also, changes in government regulations could substantially increase
the difficulty and cost of compliance with government regulations for both our
customers and us. All of these factors could result in reductions in our
profits and revenues. The export license process for space products has become uncertain, increasing
the chance that we may not obtain required export licenses in a timely or
cost-effective manner. As a result of 1998 legislation, products for use on commercial satellites are
included on the U.S. Munitions List and are subject to State Department
licensing requirements. The licensing process is time-consuming, and political
considerations can increase the time and difficulty of obtaining licenses for
export of technically advanced products. The license process may prevent
particular sales, and in general has created schedule uncertainties that are
encouraging foreign customers, such as those in Western Europe, to develop
internal or other foreign sources rather 24




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than use U.S. suppliers. If we are unable to obtain required export licenses
when we expect them or at the costs we expect, our revenues and profits could
be harmed. Export controls on space technology restrict our ability to hold technical
discussions with customers, suppliers and internal engineering resources, which
reduces our ability to obtain sales from foreign customers or to perform
contracts with the desired level of efficiency or profitability. U.S. export controls severely limit unlicensed technical discussions with any
persons who are not U.S. citizens. As a result, we are restricted in our
ability to hold technical discussions between U.S. personnel and current or
prospective non-U.S. customers or suppliers, between Canadian personnel and
current or prospective U.S. customers or suppliers, and between U.S. employees
and non-U.S. (including Canadian) employees. These restrictions reduce our
ability to win cross-border space work, to utilize cross-border supply sources,
to deploy technical expertise in the most effective manner, and to pursue
cooperative development programs involving our U.S. and Canadian space
facilities. Economic or political conditions in other countries could cause our revenues or
profitability to decline. International sales significantly affect our financial performance. Almost $94
million in revenues for fiscal year 2003, or 37% of consolidated revenues, were
derived from customers residing outside of North America. Adverse economic
conditions in our customers countries, mainly in Western Europe, Latin America
and the Pacific Rim, have affected us in the past, and could adversely affect
future international revenues in all of our businesses, especially from our
wireless local-area network and PCS/cellular infrastructure businesses.
Unfavorable currency exchange rate movements can adversely affect the
marketability of our products by increasing the local-currency cost. In
addition to these economic factors directly related to our markets, there are
risks and uncertainties inherent in doing business internationally that could
have an adverse effect on us, such as potential adverse effects of political
instability or changes in governments, of changes in foreign income tax laws,
and of restrictions on funds transfers by us or our customers, as well as of
unfavorable changes in laws and regulations governing a broad range of business
concerns, including proprietary rights, legal liability, and employee
relations. All of these factors could cause significant harm to our revenues or
profitability. In addition, our ability to develop successful working
relationships with local business and government personnel can be important to
our success in foreign markets. Research incentives from the Canadian government subject to financial and
scientific audits could be disallowed. Research incentives from the Canadian government are subject to financial and
scientific audits by the Canadian government concerning whether certain
expenses qualify for incentive programs. Historically, these audits have not
resulted in disallowances that had a material effect on the benefits recognized
in the financial statements. However, 2002 and 2003 remain open to audit, and a
significant level of disallowances in the future could have an unfavorable
effect on our statement of operations. Unfavorable currency exchange rate movements could result in foreign exchange
losses and cause our profitability to decline. We have international operations, and we can use forward currency contracts to
reduce  but not entirely eliminate  the earnings risk from holding certain
assets and liabilities in different currencies. Furthermore, our SATCOM
division derives a major portion of its sales from agreements with U.S.
customers in U.S. dollars; a stronger Canadian dollar would increase our costs
relative to our U.S. revenues, and we are unlikely to recover these increased
costs through higher U.S.-dollar prices due to competitive conditions. As a
result of these factors, our financial results will continue to have an element
of risk related to foreign exchange. One aspect of this risk is that from time
to time favorable exchange movements can enhance our results of operations in
ways that will not continue in future periods. The level and profitability of our sales in certain markets depend on the
availability and performance of other companies with which we have marketing
relationships. In some applications, including mobile satellite communications, we are seeking
to develop marketing relationships with other companies that have, for example,
specialized software and established customer service systems. In 25




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other markets, such as wireless local-area networks, a major element of our
distribution channels is a network of value-added retailers and independent
distributors. In foreign markets for many of our products we are often
dependent on successful working relationships with local distributors and other
business personnel. If we are unable to identify and structure effective
relationships with other companies that are able to market our products, our
revenues could fail to grow in the ways we expect. Customer orders in backlog may not result in sales. Our order backlog represents firm orders for products and services. However,
our customers may cancel or defer orders for products and services, in most
cases without penalty. Cancellation or deferral of an order in our Space &
Technology business typically involves penalties and termination charges for
costs incurred to date, but these termination penalties would still be
considerably less than what we would have expected to earn if the order could
have been completed. We make management decisions based on our backlog,
including hiring of personnel, purchasing of materials, and other matters that
may increase our production capabilities and costs whether or not the backlog
is converted into revenue. Cancellations, delays or reductions of orders could
adversely affect our results of operations and financial condition. Our products typically carry warranties, and the costs to us to repair or
replace defective products could exceed the amounts we have experienced
historically. Most of our products carry a 1 year warranty, however, we do have some products
with warranties ranging from 5 to 10 years, and we depend on our reputation for
reliability and customer service in our competition for sales. If our products
are returned for repair or replacement under warranty or otherwise under
circumstances in which we assume responsibility, we can incur significant costs
that may be in excess of the reserves that we have established based on our
historical warranty cost levels. In that case, the additional costs would
reduce our earnings. Our business and revenue growth could be limited by our inability to obtain
additional financing. Our current cash and available credit facilities are not large enough to
finance either potential growth in certain business areas, or significant
synergistic acquisitions to complement our technical and product capabilities.
Although the proceeds of this offering will provide us with substantially
greater flexibility in funding growth efforts and moderate-sized acquisitions,
we would continue to need other sources of financing to support any large
acquisitions that we believed would contribute to our growth and profitability.
We may not be able to secure sufficient additional credit or other financing,
on acceptable terms, to take advantage of major growth opportunities of this
nature. Our violation of debt covenants on the Companys Canadian debt could require us
to obtain alternative financing on unfavorable terms. For the last two quarters of 2003 and the first two quarters of 2004,
substantial third-quarter 2003 write-downs, related to the operations and
discontinuance of our Space & Technology/Montreal division, caused our Canadian
operations to fail to meet certain covenants contained in the credit agreement
with the Canadian bank that finances those operations. On each occasion, the
Canadian bank has waived our covenant violation. However, if the Company has
not sold its Space & Technology/Montreal division, in future quarters the
Companys Canadian operations will continue to fail to meet the covenant
requirements, and we cannot guarantee that we will continue to receive bank
waivers in the future. In the absence of a waiver, the bank may require the
debt to be repaid in its entirety at any time. If that occurs, we may not be
able to secure sufficient additional credit or other financing from another
lender, on terms similar to these we now have. This could increase our
financing cost and could adversely affect our results of operations and
financial condition. We may be unable to sell our Space & Technology/Montreal division at the price
level or on the timetable we have been expecting. When we decided to seek to sell our Space & Technology/Montreal division, we
incurred a pre-tax earnings charge of $13.5 million to reflect the difference
between our investment in that division and the amount we believed we
reasonably could expect to receive in a third-party negotiated sale. We
expected to complete the sale within one 26




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year. However, we have not yet sold the division, although we continue with
sales-related activities involving several prospective purchasers. If we
ultimately sell the division at a lower price than we originally expected, we
would incur a further non-operating charge to our earnings. If we are unable
to accomplish a sale in the near future, then the terms of our debt financing
arrangements could be adversely affected due to the higher debt levels and
debt-to-equity ratio associated with our ongoing support of the Space &
Technology/Montreal division. We may be required to reconsolidate our Space & Technology/Montreal division,
revise our financial statement presentation, and restate historical financial
results. In our financial statements, we report our Space & Technology/Montreal division
as discontinued operations, separate from our other divisions. Management is
currently committed to pursuing its plan of sale of this division for an
indefinite period in the future. However, if future market conditions for the
sale of the division are persistently unfavorable, then generally accepted
accounting principles would require that we revise our financial statement
presentation and restate our historical financial results to fully consolidate
our Space & Technology/Montreal division. The effects of the restatement would
move the $43.6 million loss related Space & Technology/Montreal from
discontinued operations and result in a net loss from continuing operations of
$34.7 million. We may not effectively manage possible future growth, which could result in
reduced earnings. Historically, we have experienced broad fluctuations in demand for our products
and services. These changes in demand have depended on many factors and have
been difficult to predict. In recent years, there has been a general growth
trend in certain of our businesses, as well as increasing complexity in the
technologies and applications involved. These changes in our businesses place
significant demands on both our management personnel and our management systems
for information, planning and control. If we are to achieve further strong
growth on a profitable basis, our management must identify and exploit
potential market opportunities for our products and technologies, while
continuing to manage our current businesses effectively. Furthermore, our
management systems must support the changes to our operations resulting from
our business growth. If our management and management systems fail to meet
these challenges our business and prospects will be adversely affected. We may make acquisitions and investments that could adversely affect our
business. To support growth, we may continue in the future to make acquisitions of and
investments in businesses, products and technologies that could complement or
expand our businesses. However, if we should be unable to successfully
negotiate with a potential acquisition candidate, finance the acquisition, or
effectively integrate the acquired businesses, products or technologies into
our existing business and products, we could be adversely affected.
Furthermore, to complete future acquisitions, we may issue equity securities,
incur debt, assume contingent liabilities or the risk of unknown liabilities,
or have amortization expenses and write-downs of acquired assets, which could
cause our earnings per share to decline. Risks Related to our Common Stock Our quarterly results are volatile and difficult to predict. If our quarterly
performance results fall short of market expectations, the market value of our
shares is likely to decline. The quarterly earnings contributions of some of our segments are heavily
dependent on customer orders or product shipments in the final weeks or days of
the quarter. Due to various of the risks related to our businesses discussed
above, it can be difficult for us to predict the timing of receipt of major
customer orders, and we are unable to control timing decisions made by our
customers. This can create volatility in quarterly results, and hinders our
ability to determine prior to the end of each quarter whether quarterly
earnings will in fact meet either our expectations or those of analysts and
investors. The market price for our shares is likely to be adversely affected
by quarterly earnings results that are below analyst and market expectations. 27




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Our share price may fluctuate significantly, and an investor may not be able to
sell our shares at a price that would yield a favorable return on investment. The market price of our stock will fluctuate in the future, and such
fluctuations could be substantial. Price fluctuations may occur in response to
a variety of factors, including:  
    
    actual or anticipated operating results,  
    
    the limited average trading volume and public float for our
stock, which means that orders from a relatively few investors can
significantly impact the price of our stock, independently of our
operating results,  
    
    announcements of technological innovations, new products or
new contracts by us, our customers, our competitors or our
customers competitors,  
    
    government regulatory action,  
    
    developments with respect to wireless and satellite communications, and  
    
    general market conditions. In addition, the stock market has from time to time experienced significant
price and volume fluctuations that have particularly affected the market prices
for the stocks of technology companies, and that have been unrelated to the
operating performance of particular companies. Future sales of our common stock may cause our stock price to decline. Our outstanding shares are freely tradable without restriction or further
registration, and shares reserved for issuance upon exercise of stock options
will also be freely tradable upon issuance. Sales of substantial amounts of
common stock by our shareholders, including those who have acquired a
significant number of shares in connection with business acquisitions or
private investments, or even the potential for such sales, may depress the
market price of our common stock and could impair our ability to raise capital
through the sale of our equity securities. Provisions in our governing documents and law could prevent or delay a change
of control not supported by our Board of Directors. Our shareholder rights plan and provisions of our amended and restated articles
of incorporation and amended bylaws could make it more difficult for a third
party to acquire us. These documents include provisions that:  
    
    allow our shareholders the right to acquire common stock from us at
discounted prices in the event a person acquires 20% or more of our common
stock or announces an attempt to do so without our Board of Directors
prior consent;  
    
    authorize the issuance of up to 10,000,000 shares of blank check
preferred stock by our Board of Directors without shareholder approval,
which stock could have terms that could discourage or thwart a takeover
attempt;  
    
    limit who may call a special meeting of shareholders;  
    
    require unanimous written consent for shareholder action without a meeting;  
    
    establish advance notice requirements for nominations for election to the
Board of Directors or for proposing matters that can be acted upon at
shareholder meetings;  
    
    adopt the fair price requirements and rules regarding business
combinations with interested shareholders set forth in Article 11, Parts 2
and 3 of the Georgia Business Corporation Code; and 28




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
    
    require approval by the holders of at least 75% of the outstanding common
stock to amend any of the foregoing provisions. 
 ITEM 6. Exhibits and Reports on Form 8-K (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).10.1
    
    EMS Technologies, Inc. 1997 Stock Incentive Plan, as adopted January 14, 1997, and amended through
May 10, 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.
 (b) Reports on Form 8-K. On May 7, 2004, the Registrant filed a Report on Form 8-K, reporting with
respect to Item 12, Results of Operations and Financial Condition. 29




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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: August 12, 2004Alfred G. HansenPresident, Chief Executive Officer (Principal Executive Officer)By:
    
    /s/ Don T. Scartz
    
    Date: August 12, 2004Don T. ScartzExecutive Vice President, Chief FinancialOfficer and Treasurer (Principal Financial and Accounting Officer)
 30