##### 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 September 30, 2006
 Commission file number 0-6072
 EMS TECHNOLOGIES, INC.
  Georgia
    
    58-1035424(State or other jurisdiction of
    
    (IRS Employer ID Number)incorporation or organization)660 Engineering DriveNorcross, Georgia
    
    30092(Address of principal executive offices)
    
    (Zip Code)
 (770) 263-9200  Registrants Telephone Number, Including Area Code
 þ o
  o þ o
 o þ
  Class
    
    Number of SharesCommon Stock, $.10 par Value
    
    15,232,023
 AVAILABLE INFORMATION
 www.ems-t.com




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##### 



TABLE OF CONTENTS
 PART I  FINANCIAL INFORMATION
    
    
    3ITEM 1. Financial Statements
    
    
    3Consolidated Statements of Operations
    
    
    3Consolidated Balance Sheets
    
    
    4Consolidated Statements of Cash Flows
    
    
    6Notes to Consolidated Financial Statements
    
    
    7ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    20ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    34ITEM 4. Controls and Procedures
    
    
    35PART II  OTHER INFORMATION
    
    
    36ITEM 1A. Risk Factors
    
    
    36ITEM 6. Exhibits
    
    
    37SIGNATURES
    
    
    38EX-10.1 AGREEMENT BETWEEN REGISTRANT AND PAUL B. DOMORSKIEX-10.2 DEFERRED COMPENSATION PLANEX-10.3 FORM OF RESTRICTED STOCK AGREEMENTEX-10.4 DESCRIPTION OF SUPPLEMENTAL BONUS ARRANGEMENTEX-10.5 AGREEMENT BETWEEN REGISTRANT AND TRAVIS G. HICKMANEX-31.1 SECTION 302 CERTIFICATION OF CEOEX-31.2 SECTION 302 CERTIFICATION OF CFOEX-32 SECTION 906 CERTIFICATIONS OF CEO/CFO
  2




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PART I
 FINANCIAL INFORMATION
 
 ITEM 1. Financial Statements
 EMS Technologies, Inc. and Subsidiaries
 
 Consolidated Statements of Operations (Unaudited)
(in thousands, except per share data)
 Quarters Ended
    
    
    Nine Months EndedSep 30
    
    
    Oct 1
    
    
    Sep 30
    
    
    Oct 12006
    
    
    2005
    
    
    2006
    
    
    2005Net sales
    
    $
    76,124
    
    
    
    84,419
    
    
    
    228,757
    
    
    
    226,162Cost of sales
    
    
    48,342
    
    
    
    58,256
    
    
    
    147,619
    
    
    
    153,441Selling, general and administrative expenses
    
    
    19,031
    
    
    
    16,253
    
    
    
    55,014
    
    
    
    48,403Research and development expenses
    
    
    5,015
    
    
    
    3,979
    
    
    
    15,080
    
    
    
    11,656Operating income
    
    
    3,736
    
    
    
    5,931
    
    
    
    11,044
    
    
    
    12,662Non-operating income, net
    
    
    633
    
    
    
    295
    
    
    
    1,599
    
    
    
    453Foreign exchange loss
    
    
    (147
    )
    
    
    (196
    )
    
    
    (821
    )
    
    
    (270
    )Interest expense
    
    
    (455
    )
    
    
    (1,024
    )
    
    
    (1,691
    )
    
    
    (2,976
    )Earnings from continuing operations before income taxes
    
    
    3,767
    
    
    
    5,006
    
    
    
    10,131
    
    
    
    9,869Income tax (expense) benefit
    
    
    2,390
    
    
    
    (1,702
    )
    
    
    481
    
    
    
    (3,356
    )Earnings from continuing operations
    
    
    6,157
    
    
    
    3,304
    
    
    
    10,612
    
    
    
    6,513Discontinued operations (note 2):Loss from discontinued operations before income taxes
    
    
    (585
    )
    
    
    (4,193
    )
    
    
    (3,110
    )
    
    
    (13,594
    )Income tax (expense) benefit
    
    
    
    
    
    
    (112
    )
    
    
    (30
    )
    
    
    130Loss from discontinued operations
    
    
    (585
    )
    
    
    (4,305
    )
    
    
    (3,140
    )
    
    
    (13,464
    )Net earnings (loss)
    
    $
    5,572
    
    
    
    (1,001
    )
    
    
    7,472
    
    
    
    (6,951
    )Net earnings (loss) per share (note 4):Basic:Earnings from continuing operations
    
    $
    0.40
    
    
    
    0.30
    
    
    
    0.74
    
    
    
    0.58Loss from discontinued operations
    
    
    (0.03
    )
    
    
    (0.39
    )
    
    
    (0.22
    )
    
    
    (1.20
    )Net earnings (loss)
    
    $
    0.37
    
    
    
    (0.09
    )
    
    
    0.52
    
    
    
    (0.62
    )Diluted:Earnings from continuing operations
    
    $
    0.40
    
    
    
    0.29
    
    
    
    0.73
    
    
    
    0.58Loss from discontinued operations
    
    
    (0.03
    )
    
    
    (0.38
    )
    
    
    (0.21
    )
    
    
    (1.20
    )Net earnings (loss)
    
    $
    0.37
    
    
    
    (0.09
    )
    
    
    0.52
    
    
    
    (0.62
    )Weighted average number of shares (note 4):Basic
    
    
    15,226
    
    
    
    11,165
    
    
    
    14,426
    
    
    
    11,165Diluted
    
    
    15,263
    
    
    
    11,245
    
    
    
    14,481
    
    
    
    11,214
  3




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EMS Technologies, Inc. and Subsidiaries
 
 Consolidated Balance Sheets (Unaudited)
(in thousands)
 Sep 30
    
    
    Dec 312006
    
    
    2005ASSETSCurrent assets:Cash and cash equivalents
    
    $
    64,071
    
    
    
    12,978Restricted cash
    
    
    161
    
    
    
    2,620Trade accounts receivable, net (note 6)
    
    
    86,053
    
    
    
    92,973Inventories (note 7)
    
    
    39,454
    
    
    
    34,673Deferred income taxes, net
    
    
    1,433
    
    
    
    1,433Other current assets
    
    
    
    
    
    
    716Assets held for sale (note 2)
    
    
    
    
    
    
    6,732Total current assets
    
    
    191,172
    
    
    
    152,125Property, plant and equipment:Land
    
    
    1,150
    
    
    
    1,150Buildings and leasehold improvements
    
    
    15,361
    
    
    
    15,242Machinery and equipment
    
    
    80,265
    
    
    
    76,342Furniture and fixtures
    
    
    8,620
    
    
    
    8,511Total property, plant and equipment
    
    
    105,396
    
    
    
    101,245Less accumulated depreciation and amortization
    
    
    71,386
    
    
    
    66,965Net property, plant and equipment
    
    
    34,010
    
    
    
    34,280Deferred income taxes, net  non-current
    
    
    7,154
    
    
    
    3,634Intangible assets, net
    
    
    2,643
    
    
    
    3,298Goodwill
    
    
    13,526
    
    
    
    13,526Other assets
    
    
    11,072
    
    
    
    12,597Total assets
    
    $
    259,577
    
    
    
    219,460
  4




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EMS Technologies, Inc. and Subsidiaries
Consolidated Balance Sheets (Unaudited), continued
(in thousands, except share data)
 Sep 30
    
    
    Dec 312006
    
    
    2005LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Current installments of long-term debt
    
    $
    3,252
    
    
    
    6,825Accounts payable
    
    
    26,386
    
    
    
    34,089Income taxes payable
    
    
    2,802
    
    
    
    1,866Accrued compensation costs
    
    
    9,425
    
    
    
    9,402Accrued retirement costs
    
    
    2,231
    
    
    
    2,603Deferred service revenue
    
    
    7,726
    
    
    
    5,755Liabilities related to assets held for sale (note 2)
    
    
    
    
    
    
    2,130Other current liabilities
    
    
    6,544
    
    
    
    4,801Total current liabilities
    
    
    58,366
    
    
    
    67,471Long-term debt, excluding current installments
    
    
    12,036
    
    
    
    36,583Other liabilities
    
    
    1,891
    
    
    
    1,750Total liabilities
    
    
    72,293
    
    
    
    105,804Shareholders 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 15,232,000 in 2006 and
11,343,000 in 2005
    
    
    1,523
    
    
    
    1,134Additional paid-in capital
    
    
    131,559
    
    
    
    71,389Accumulated other comprehensive income (loss)  foreign currency translation
adjustment
    
    
    5,500
    
    
    
    (97
    )Retained earnings
    
    
    48,702
    
    
    
    41,230Total shareholders equity
    
    
    187,284
    
    
    
    113,656Total liabilities and shareholders equity
    
    $
    259,577
    
    
    
    219,460
  5




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EMS Technologies, Inc. and Subsidiaries
 
 Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
 Nine Months EndedSep 30
    
    
    Oct 12006
    
    
    2005Cash flows from operating activities:Net earnings (loss)
    
    $
    7,472
    
    
    
    (6,951
    )Adjustments to reconcile net earnings (loss) to net cash provided by (used
in)
operating activities:Depreciation and other intangibles amortization
    
    
    7,179
    
    
    
    7,327Loss from discontinued operations
    
    
    3,140
    
    
    
    13,464Stock-based compensation expense
    
    
    529
    
    
    
    (Gain)/loss on sale of assets
    
    
    (330
    )
    
    
    385Deferred income taxes, net  non-current
    
    
    (3,520
    )
    
    
    Changes in operating assets and liabilities:Trade accounts receivable
    
    
    8,470
    
    
    
    (17,177
    )Inventories
    
    
    (4,084
    )
    
    
    1,170Accounts payable
    
    
    (6,113
    )
    
    
    5,746Income taxes payable
    
    
    1,031
    
    
    
    2,030Accrued costs, deferred revenue, and other current liabilities
    
    
    1,659
    
    
    
    3,491Other
    
    
    (1,016
    )
    
    
    (2,585
    )Net cash provided by operating activities in
continuing operations
    
    
    14,417
    
    
    
    6,900Net cash used in operating activities in discontinued
operations
(Revised-Note 1)
    
    
    (2,763
    )
    
    
    (9,582
    )Net cash provided by (used in) operating activities
    
    
    11,654
    
    
    
    (2,682
    )Cash flows from investing activities:Purchase of property, plant and equipment
    
    
    (5,760
    )
    
    
    (7,607
    )Payments for asset acquisitions
    
    
    (188
    )
    
    
    (213
    )Proceeds from sales of assets
    
    
    9,631
    
    
    
    377Net cash provided by (used in) investing activities in
continuing operations
    
    
    3,683
    
    
    
    (7,443
    )Net cash used in investing activities in discontinued
operations (Revised
-Note 1)
    
    
    
    
    
    
    (958
    )Net cash provided by (used in) investing activities
    
    
    3,683
    
    
    
    (8,401
    )Cash flows from financing activities:Net increase (decrease) in revolving debt
    
    
    (26,745
    )
    
    
    8,186Repayment of term debt
    
    
    (1,056
    )
    
    
    (999
    )Decrease in restricted cash
    
    
    2,459
    
    
    
    2,108Deferred financing costs paid
    
    
    (30
    )
    
    
    (73
    )Proceeds from public stock offering, net of expenses
    
    
    58,736
    
    
    
    Proceeds from exercise of stock options, net of withholding taxes paid
    
    
    1,388
    
    
    
    12Net cash provided by financing activities
    
    
    34,752
    
    
    
    9,234Net change in cash and cash equivalents
    
    
    50,089
    
    
    
    (1,849
    )Effect of exchange rates on cash and cash equivalents
    
    
    1,004
    
    
    
    3,066Cash and cash equivalents at beginning of period
    
    
    12,978
    
    
    
    14,553Cash and cash equivalents at end of period
    
    $
    64,071
    
    
    
    15,770
  6




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EMS Technologies, Inc. and Subsidiaries
 
 Notes to Consolidated Financial Statements (Unaudited)  September 30, 2006 and October 1, 2005
 1. Basis of Presentation
      Managements Use of Estimates
   Cash Equivalents
  Effect of New Accounting Pronouncements
  7




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2. Discontinued Operations
   8




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Liabilities resulting
    
    Liability
    
    
    Costs incurred
    
    
    Costs
    
    
    Adjustments
    
    
    Liabilityfrom the sale of the
    
    at
    
    
    and expensed
    
    
    paid
    
    
    in
    
    
    atS&T/Montreal division
    
    Dec 31, 2005
    
    
    in 2006
    
    
    in 2006
    
    
    2006
    
    
    Sep 30, 2006Termination benefits
    
    $
    1,047
    
    
    
    64
    
    
    
    (889
    )
    
    
    
    
    
    
    222Other associated costs
    
    
    161
    
    
    
    894
    
    
    
    (662
    )
    
    
    (393
    )
    
    
    Total
    
    $
    1,208
    
    
    
    958
    
    
    
    (1,551
    )
    
    
    (393
    )
    
    
    222
      9




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Quarters Ended
    
    
    Nine Months EndedSep 30
    
    
    Oct 1
    
    
    Sep 30
    
    
    Oct 12006
    
    
    2005
    
    
    2006
    
    
    2005Net sales
    
    $
    
    
    
    
    14,746
    
    
    
    799
    
    
    
    51,756Expenses
    
    
    
    
    
    
    14,939
    
    
    
    2,295
    
    
    
    51,350Estimated loss on disposal
    
    
    
    
    
    
    4,000
    
    
    
    
    
    
    
    14,000Loss from sale of assets
    
    
    585
    
    
    
    
    
    
    
    1,614
    
    
    
    Loss before income taxes
    
    
    (585
    )
    
    
    (4,193
    )
    
    
    (3,110
    )
    
    
    (13,594
    )Income tax (expense) benefit
    
    
    
    
    
    
    (112
    )
    
    
    (30
    )
    
    
    130Loss from discontinued operations
    
    $
    (585
    )
    
    
    (4,305
    )
    
    
    (3,140
    )
    
    
    (13,464
    )
   Sep 30
    
    
    Dec 312006
    
    
    2005Trade accounts receivable, net
    
    $
    
    
    
    
    3,417Inventories
    
    
    
    
    
    
    3,035Other assets
    
    
    
    
    
    
    280Total assets held for sale
    
    $
    
    
    
    
    6,732Accounts payable
    
    $
    
    
    
    
    1,587Other current liabilities
    
    
    
    
    
    
    543Total liabilities related to assets held for sale
    
    $
    
    
    
    
    2,130
 3. Derivative Financial Instruments
   10




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Quarters Ended
    
    
    Nine Months EndedSep 30
    
    
    Oct 1
    
    
    Sep 30
    
    
    Oct 12006
    
    
    2005
    
    
    2006
    
    
    2005Beginning net asset (liability) for derivatives
    
    $
    (194
    )
    
    
    98
    
    
    
    (4
    )
    
    
    (128
    )Changes in consolidated statements of operations:Sales:Gain (loss) in value of embedded derivatives
    
    
    2
    
    
    
    (17
    )
    
    
    (3
    )
    
    
    (18
    )Foreign exchange gain (loss):Gain (loss) in value of derivative instruments that do not
qualify
as hedging instruments
    
    
    (68
    )
    
    
    84
    
    
    
    (272
    )
    
    
    256Matured foreign exchange contracts
    
    
    77
    
    
    
    (119
    )
    
    
    96
    
    
    
    (64
    )Net consolidated statements of operations gain (loss) from
changes in value of derivative instruments
    
    
    11
    
    
    
    (52
    )
    
    
    (179
    )
    
    
    174Ending net asset (liability) for derivatives
    
    $
    (183
    )
    
    
    46
    
    
    
    (183
    )
    
    
    46
   4. Earnings (Loss) Per Share
   Quarters Ended
    
    Nine Months EndedSep 30
    
    Oct 1
    
    Sep 30
    
    Oct 12006
    
    2005
    
    2006
    
    2005Basic-weighted average common shares outstanding
    
    
    15,226
    
    
    
    11,165
    
    
    
    14,426
    
    
    
    11,165Incremental effect of dilutive common stock
equivalents:Unexercised in-the-money stock options
    
    
    37
    
    
    
    80
    
    
    
    55
    
    
    
    49Diluted-weighted average common and dilutive
shares outstanding
    
    
    15,263
    
    
    
    11,245
    
    
    
    14,481
    
    
    
    11,214
 Common Stock Public Offering
  11




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5. Comprehensive Income (Loss)
  Quarters Ended
    
    
    Nine Months EndedSep 30
    
    
    Oct 1
    
    
    Sep 30
    
    
    Oct 12006
    
    
    2005
    
    
    2006
    
    
    2005Net income (loss)
    
    $
    5,572
    
    
    
    (1,001
    )
    
    
    7,472
    
    
    
    (6,951
    )Other comprehensive income:Reclassification due to sale of discontinued operations
    
    
    
    
    
    
    
    
    
    
    2,008
    
    
    
    Foreign currency translation adjustment
    
    
    (89
    )
    
    
    1,157
    
    
    
    3,589
    
    
    
    1,935Comprehensive income (loss)
    
    $
    5,483
    
    
    
    156
    
    
    
    13,069
    
    
    
    (5,016
    )
 6. Trade Accounts Receivable
  Sep 30
    
    
    Dec 312006
    
    
    2005Amounts billed
    
    $
    63,905
    
    
    
    71,662Unbilled revenues under long-term contracts (1)
    
    
    27,484
    
    
    
    25,086Customer advanced payments
    
    
    (4,293
    )
    
    
    (2,998
    )Allowance for doubtful accounts
    
    
    (1,043
    )
    
    
    (777
    )Trade accounts receivable, net
    
    $
    86,053
    
    
    
    92,973
 
 (1)
    
    Unbilled net sales under long-term contracts are usually billed and collected within one year 7. Inventories
  Sep 30
    
    
    Dec 312006
    
    
    2005Parts and materials
    
    $
    23,615
    
    
    
    23,020Work-in-process
    
    
    3,950
    
    
    
    2,783Finished goods
    
    
    11,889
    
    
    
    8,870Inventories, net
    
    $
    39,454
    
    
    
    34,673
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8. Interim Segment Disclosures
       Quarters Ended
    
    
    Nine Months EndedSep 30
    
    
    Oct 1
    
    
    Sep 30
    
    
    Oct 12006
    
    
    2005
    
    
    2006
    
    
    2005Net sales:LXE
    
    $
    33,003
    
    
    
    30,720
    
    
    
    99,728
    
    
    
    89,111Defense & Space Systems
    
    
    13,666
    
    
    
    13,450
    
    
    
    37,027
    
    
    
    38,023SATCOM
    
    
    17,992
    
    
    
    14,355
    
    
    
    51,997
    
    
    
    36,408EMS Wireless
    
    
    11,463
    
    
    
    25,894
    
    
    
    40,005
    
    
    
    62,620Total
    
    $
    76,124
    
    
    
    84,419
    
    
    
    228,757
    
    
    
    226,162Operating income (loss):LXE
    
    $
    2,411
    
    
    
    1,553
    
    
    
    7,159
    
    
    
    4,705Defense & Space Systems
    
    
    1,024
    
    
    
    1,567
    
    
    
    1,760
    
    
    
    2,524SATCOM
    
    
    1,122
    
    
    
    1,546
    
    
    
    3,976
    
    
    
    2,887EMS Wireless
    
    
    (48
    )
    
    
    1,275
    
    
    
    (498
    )
    
    
    3,005Other
    
    
    (773
    )
    
    
    (10
    )
    
    
    (1,353
    )
    
    
    (459
    )Total
    
    $
    3,736
    
    
    
    5,931
    
    
    
    11,044
    
    
    
    12,662Net earnings (loss) from continuing operations:LXE
    
    $
    1,459
    
    
    
    933
    
    
    
    4,253
    
    
    
    2,728Defense & Space Systems
    
    
    556
    
    
    
    920
    
    
    
    887
    
    
    
    1,393SATCOM
    
    
    1,237
    
    
    
    1,179
    
    
    
    3,658
    
    
    
    2,431EMS Wireless
    
    
    (56
    )
    
    
    713
    
    
    
    (465
    )
    
    
    1,586Other
    
    
    (54
    )
    
    
    (178
    )
    
    
    (163
    )
    
    
    (300
    )Corporate
    
    
    3,015
    
    
    
    (263
    )
    
    
    2,442
    
    
    
    (1,325
    )Total
    
    $
    6,157
    
    
    
    3,304
    
    
    
    10,612
    
    
    
    6,513
 13




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9. Warranty Liability
   Quarters Ended
    
    
    Nine Months EndedSep 30
    
    
    Oct 1
    
    
    Sep 30
    
    
    Oct 12006
    
    
    2005
    
    
    2006
    
    
    2005Balance at beginning of period
    
    $
    3,780
    
    
    
    2,535
    
    
    
    3,369
    
    
    
    2,088Accruals for warranties issued during the period
    
    
    691
    
    
    
    1,810
    
    
    
    2,355
    
    
    
    3,082Settlements made during the period
    
    
    (686
    )
    
    
    (1,042
    )
    
    
    (1,939
    )
    
    
    (1,867
    )Balance at end of period
    
    $
    3,785
    
    
    
    3,303
    
    
    
    3,785
    
    
    
    3,303
 10. Long-Term Debt
     14




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##### Table of Contents



11. Stock-Based Compensation
      Options with service-based vesting only
   15




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##### Table of Contents



Three Months
    
    
    Nine MonthsEnded
    
    
    EndedOct 1, 2005
    
    
    Oct 1, 2005Net loss:As reported (1)
    
    $
    (1,001
    )
    
    
    (6,951
    )Less: Stock-based employee compensation
expense determined
under the fair value method, net of tax
    
    
    (216
    )
    
    
    (754
    )Pro forma
    
    $
    (1,217
    )
    
    
    (7,705
    )Basic net loss per share:As reported
    
    $
    (0.09
    )
    
    
    (0.62
    )Pro forma
    
    
    (0.11
    )
    
    
    (0.69
    )Diluted net loss per share:As reported
    
    $
    (0.09
    )
    
    
    (0.62
    )Pro forma
    
    
    (0.11
    )
    
    
    (0.69
    )
 
 (1)
    
    Stock compensation expense has not been recognized in net loss   WeightedAverageWeighted
    
    Remaining
    
    AggregateAverage
    
    Contractual
    
    IntrinsicShares
    
    Exercise Price
    
    Term (years)
    
    ValueOptions outstanding at December 31, 2005
    
    
    1,243
    
    
    $
    18.08Granted
    
    
    45
    
    
    
    19.00Exercised
    
    
    (131
    )
    
    
    15.88
    
    
    
    
    
    
    $
    396Forfeited or expired
    
    
    (176
    )
    
    
    19.13Options outstanding at September 30, 2006
    
    
    981
    
    
    
    18.23
    
    
    
    4.4
    
    
    
    1,038Options exercisable at September 30, 2006
    
    
    876
    
    
    
    18.42
    
    
    
    4.1
    
    
    
    901
 16




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##### Table of Contents



WeightedAverageGrant-DateShares
    
    Fair ValueNon-vested outstanding at December 31, 2005
    
    
    175
    
    
    $
    12.22Granted
    
    
    45
    
    
    
    13.23Vested
    
    
    (115
    )
    
    
    13.54Forefeited or expired
    
    
    Non-vested outstanding at September 30, 2006
    
    
    105
    
    
    $
    11.18
  Options with performance-based and service-based vesting
   WeightedAverageWeighted
    
    Weighted
    
    RemainingAverage
    
    Average
    
    Contractual
    
    AggregateExercise
    
    Grant-Date
    
    Term
    
    IntrinsicShares
    
    Price
    
    Fair Value
    
    (years)
    
    ValueOptions outstanding at December 31, 2005
    
    
    
    
    
    $
    Granted
    
    
    183
    
    
    
    18.90
    
    
    $
    10.09Exercised
    
    
    
    
    
    
    Forfeited or expired
    
    
    (1
    )
    
    
    18.05
    
    
    
    9.57Options outstanding at September 30, 2006
    
    
    182
    
    
    
    18.91
    
    
    
    10.09
    
    
    
    5.5
    
    
    $
    
   17




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##### Table of Contents



Nonvested stock
  12. Litigation
  13. Income Taxes
  14. Subsequent Events
     18




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##### Table of Contents



ITEM
2. Management s Discussion and Analysis of Financial Condition and Results of Operations.
   
    
    LXE Rugged mobile computer terminals and other equipment for wireless local area
networks;
    
    Defense & Space Systems Highly engineered hardware for satellites and defense
electronics applications;
    
    SATCOM Satellite communications antennas and terminals for aircraft and ground-based
vehicles, other portable satellite terminals, and satellite ground stations for search and
rescue operations;
    
    EMS Wireless Base station antennas and signal repeaters for PCS/cellular systems;
  Overview:
 
    
    In February 2006, the Company completed the sale of 3,795,000 shares of its common
stock, including the underwriters over-allotment option of 495,000 shares, in a registered
public offering. The offering price was $16.70 per share, and the Company received net
proceeds of approximately $58.7 million after deducting underwriting discounts, commissions
and other offering expenses. The Company used a portion of these net proceeds to repay all
of its borrowings under its U.S. and Canadian revolving credit facilities.
    
    On March 9, 2006, the Company completed the sale of the assets and operating liabilities
of its SatNet division, reported in discontinued operations.
    
    Subsequent to the end of the third quarter of 2006, the Company entered into a
definitive agreement to sell its EMS Wireless division to Andrew, for a purchase price of
$50.5 million, payable in cash at closing. The agreement includes certain customary
conditions to closing, including obtaining required third party consents. The Company
expects the sale to close during the fourth quarter of 2006, subject to the satisfaction or
waiver of all such conditions to closing and the receipt of all such third party consents.As a result of the Board of Directors approval, in the fourth
quarter, of a formal plan to sell EMS Wireless, the
Company will account for this division as discontinued operations and will reclassify their
assets from assets held and used to assets held for sale as of the fourth quarter of
2006.
 For continuing operations:
 
    
    Net sales increased for the first nine months of 2006 as compared to the same period of
2005 due to the strong growth in net sales reported by our SATCOM and LXE divisions.
    
    Our LXE, SATCOM and D&SS divisions reported operating income in the third quarter and
first nine months of 2006. The Company reported net income from continuing operations at
the consolidated level, despite the losses reported at our EMS Wireless division.
    
    A $3.5 million tax credit was recorded in the third quarter of 2006 as a result of a
comprehensive analysis of qualified research and development costs eligible for tax credit
under U. S. tax authority.
 19




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##### Table of Contents



For discontinued operations:
 
    
    Our discontinued operations reported a $0.6 million loss before income tax for the
quarter, resulting from the effect of adjustments to settle various contingent items, as
well as the expense of legal, audit, and other outside services. The first nine months of
2006 resulted in a loss of $3.1 million that included a $1.7 million loss from our SatNet
operations through their date of disposition on March 9, 2006.
 Description of Net Sales, Costs and Expenses
 Net sales
   Cost of sales
     Selling, general and administrative expenses
  20




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##### Table of Contents



Research and development expenses
  Non-operating income, net
  Foreign exchange gains and losses
   Interest expense
  Income tax expense
   Discontinued operations
  21




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##### Table of Contents



Results of Operations
 Quarters Ended
    
    Nine Months EndedSep 30
    
    Oct 1
    
    Sep 30
    
    Oct 12006
    
    2005
    
    2006
    
    2005Net sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    63.5
    
    
    
    69.0
    
    
    
    64.5
    
    
    
    67.8Selling, general and administrative expenses
    
    
    25.0
    
    
    
    19.3
    
    
    
    24.1
    
    
    
    21.4Research and development expenses
    
    
    6.6
    
    
    
    4.7
    
    
    
    6.6
    
    
    
    5.2Operating income
    
    
    4.9
    
    
    
    7.0
    
    
    
    4.8
    
    
    
    5.6Non-operating income, net
    
    
    0.8
    
    
    
    0.3
    
    
    
    0.7
    
    
    
    0.2Foreign exchange loss
    
    
    (0.2
    )
    
    
    (0.2
    )
    
    
    (0.4
    )
    
    
    (0.1
    )Interest expense
    
    
    (0.6
    )
    
    
    (1.2
    )
    
    
    (0.7
    )
    
    
    (1.3
    )Earnings from continuing operations before
income taxes
    
    
    4.9
    
    
    
    5.9
    
    
    
    4.4
    
    
    
    4.4Income tax (expense) benefit
    
    
    3.2
    
    
    
    (2.0
    )
    
    
    0.2
    
    
    
    (1.5
    )Earnings from continuing operations
    
    
    8.1
    
    
    
    3.9
    
    
    
    4.6
    
    
    
    2.9Discontinued operations:Loss from discontinued operations before
income taxes
    
    
    (0.8
    )
    
    
    (5.0
    )
    
    
    (1.3
    )
    
    
    (6.0
    )Income tax expense
    
    
    
    
    
    
    (0.1
    )
    
    
    
    
    
    
    Loss from discontinued operations
    
    
    (0.8
    )
    
    
    (5.1
    )
    
    
    (1.3
    )
    
    
    (6.0
    )Net earnings (loss)
    
    
    7.3
    %
    
    
    (1.2
    )%
    
    
    3.3
    %
    
    
    (3.1
    )%
 Three Months ended September 30, 2006 and
October 1, 2005:
      22




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##### Table of Contents



Nine Months ended September 30, 2006 and October 1, 2005:
         23




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##### Table of Contents



Net Sales, Cost of Sales, and Operating Income (Loss) by Segment
  Percentage IncreaseQuarters Ended
    
    
    Nine Months Ended
    
    
    (Decrease)Sep 30
    
    
    Oct 1
    
    
    Sep 30
    
    
    Oct 1
    
    
    Three
    
    
    Nine(in thousands, except percentages)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005
    
    
    Months
    
    
    MonthsNet sales:LXE
    
    $
    33,003
    
    
    
    30,720
    
    
    
    99,728
    
    
    
    89,111
    
    
    
    7.4
    %
    
    
    11.9Defense & Space Systems
    
    
    13,666
    
    
    
    13,450
    
    
    
    37,027
    
    
    
    38,023
    
    
    
    1.6
    
    
    
    (2.6
    )SATCOM
    
    
    17,992
    
    
    
    14,355
    
    
    
    51,997
    
    
    
    36,408
    
    
    
    25.3
    
    
    
    42.8EMS Wireless
    
    
    11,463
    
    
    
    25,894
    
    
    
    40,005
    
    
    
    62,620
    
    
    
    (55.7
    )
    
    
    (36.1
    )Total
    
    $
    76,124
    
    
    
    84,419
    
    
    
    228,757
    
    
    
    226,162
    
    
    
    (9.8
    )%
    
    
    1.1Cost of sales percentage:LXE
    
    
    58.3
    %
    
    
    61.2
    
    
    
    59.1
    
    
    
    60.3
    
    
    
    (2.9
    )
    
    
    (1.2
    )Defense & Space Systems
    
    
    78.3
    
    
    
    75.5
    
    
    
    78.7
    
    
    
    79.3
    
    
    
    2.8
    
    
    
    (0.6
    )SATCOM
    
    
    58.7
    
    
    
    61.0
    
    
    
    59.6
    
    
    
    60.4
    
    
    
    (2.3
    )
    
    
    (0.8
    )EMS Wireless
    
    
    69.3
    
    
    
    79.4
    
    
    
    71.9
    
    
    
    76.1
    
    
    
    (10.1
    )
    
    
    (4.2
    )Total
    
    
    63.5
    %
    
    
    69.0
    
    
    
    64.5
    
    
    
    67.8
    
    
    
    (5.5
    )
    
    
    (3.3
    )Operating income (loss):LXE
    
    $
    2,411
    
    
    
    1,553
    
    
    
    7,159
    
    
    
    4,705
    
    
    
    55.3
    %
    
    
    52.2Defense & Space Systems
    
    
    1,024
    
    
    
    1,567
    
    
    
    1,760
    
    
    
    2,524
    
    
    
    (34.7
    )
    
    
    (30.3
    )SATCOM
    
    
    1,122
    
    
    
    1,546
    
    
    
    3,976
    
    
    
    2,887
    
    
    
    (27.4
    )
    
    
    37.7EMS Wireless
    
    
    (48
    )
    
    
    1,275
    
    
    
    (498
    )
    
    
    3,005
    
    
    
    (103.8
    )
    
    
    (116.6
    )Corporate and other
    
    
    (773
    )
    
    
    (10
    )
    
    
    (1,353
    )
    
    
    (459
    )
    
    
    (7,630.0
    )
    
    
    (194.8
    )Total
    
    $
    3,736
    
    
    
    5,931
    
    
    
    11,044
    
    
    
    12,662
    
    
    
    (37.0
    )%
    
    
    (12.8
    )
 
 ** = Not Meaningful
 LXE:
  Defense & Space Systems:
  SATCOM:
 24




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EMS Wireless:
  Discontinued Operations
    Liquidity and Capital Resources
   25




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##### Table of Contents



Off-Balance Sheet Arrangements
    26




---



##### Table of Contents



Commitments and Contractual Obligations
  Payments Due by Period2007-
    
    2009-Total
    
    2006
    
    2008
    
    2010
    
    ThereafterContinuing Operations:September 30, 2006:Long-term debt, excluding capital lease
obligations
    
    $
    15,265
    
    
    
    413
    
    
    
    4,256
    
    
    
    2,680
    
    
    
    7,916Interest on outstanding long-term debt
    
    
    5,178
    
    
    
    277
    
    
    
    1,796
    
    
    
    1,443
    
    
    
    1,662Purchase commitments (1)
    
    
    29,848
    
    
    
    27,962
    
    
    
    1,837
    
    
    
    49
    
    
    
    Capital lease obligations
    
    
    23
    
    
    
    4
    
    
    
    19
    
    
    
    
    
    
    
    Deferred compensation agreements
    
    
    517
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    517Operating lease obligations
    
    
    36,868
    
    
    
    1,181
    
    
    
    9,126
    
    
    
    6,551
    
    
    
    20,010December 31, 2005 (no significant change to date):Agreement to acquire satellite service
sub-license
    
    $
    8,000
    
    
    
    
    
    
    
    2,000
    
    
    
    2,000
    
    
    
    4,000
 
 (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. Critical Accounting Policies
  Revenue recognition on long-term contracts
  27




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##### Table of Contents



Accounting for government research incentives
  Inventory valuation
  Evaluation of long-lived assets for impairment
  28




---



##### Table of Contents



Evaluation of contingencies related to discontinued operations
  Establishment of reserves for deferred income tax assets
  Forward-Looking Statements
  
    
    economic conditions in the U.S. and abroad and their effect on capital spending in the
Companys principal markets;
    
    difficulty predicting the timing of receipt of major customer orders, and the effect of
customer timing decisions on our quarterly results;
    
    uncertainties associated with the completion of the sale of EMS Wireless which, as with
all such major business transactions, is subject to various closing conditions that must be
met by the parties, including continued accuracy of various representations and warranties,
performance of various covenants of the parties, and the obtaining of certain third party
consents;
 29




---



##### Table of Contents




    
    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;
    
    U.S. defense budget pressures on near-term spending priorities;
    
    uncertainties inherent in the process of converting contract awards into firm
contractual orders in the future;
    
    volatility of foreign exchange rates relative to the U.S. dollar and their effect on
purchasing power by international customers, and the cost structure of the Companys
non-U.S. operations, as well as the potential for realizing foreign exchange gains and
losses associated with non-U.S. assets or liabilities held by the Company;
    
    successful resolution of technical problems, proposed scope changes, or proposed
funding changes that may be encountered on contracts;
    
    changes in the Companys consolidated effective income tax rate caused by the extent to
which actual taxable earnings in the U.S., Canada and other taxing jurisdictions may vary
from expected taxable earnings;
    
    successful transition of products from development stages to an efficient manufacturing
environment;
    
    changes in the rate at which the Companys products are returned for repair or
replacement under warranty;
    
    customer response to new products and services, and general conditions in our target
markets (such as logistics and space-based communications);
    
    the success of certain of the Companys customers in marketing our line of high-speed
commercial airline communications products as a complimentary offering with their own lines
of avionics products;
    
    the availability of financing for satellite data communications systems;
    
    the development of successful working relationships with local business and
government personnel in connection with distribution and manufacture of products in foreign countries;
    
    the demand growth for various mobile and high-speed data communications services, and
the possible effect of public health concerns about alleged health risks of radio frequency
emissions;
    
    the Companys ability to attract and retain qualified senior management and other
personnel, particularly those with key technical skills;
    
    the availability of sufficient additional credit or other financing, on acceptable
terms, to support any large acquisitions that we believe would contribute to our growth and
profitability;
    
    the ability to negotiate successfully with potential acquisition candidates, and to effectively integrate the acquired businesses, products or technologies
into the Companys existing businesses and products;
    
    the availability, capabilities and performance of suppliers of basic materials,
electronic components and sophisticated subsystems on which the Company must rely in order
to perform according to contract requirements, or to introduce new products on the desired
schedule; and
 30




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##### Table of Contents




    
    uncertainties associated with U.S. export controls and the export license process,
which restrict the Companys ability to hold technical discussions with customers,
suppliers and internal engineering resources and can reduce the Companys ability to obtain
sales from foreign customers or to perform contracts with the desired level of efficiency
or profitability.
  Effect of New Accounting Pronouncements
      31




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##### Table of Contents



ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
  Revolving credit loan with a bank in the United Kingdom, maturing
in April 2007, interest payable monthly at a variable rate (5.75%
at the end of the quarter)
    
    $
    1,840
   Exchange Rate
    
    
    $U.S.($U.S. per unit of
    
    
    in thousandslocal currency)
    
    
    (reporting currency)Belgium
    
    1.2687 /Euro
    
    $
    3,981Italy
    
    1.2687 /Euro
    
    
    1,821Australia
    
    0.7460 /Dollar
    
    
    1,179Canada
    
    0.8966/Dollar
    
    
    542France
    
    1.2687 /Euro
    
    
    62Singapore
    
    0.6305 /Dollar
    
    
    49Sweden
    
    0.1367 /Krona
    
    
    44Netherlands
    
    1.2687 /Euro
    
    
    16United Kingdom
    
    1.8716 /Pound
    
    
    5Germany
    
    1.2687 /Euro
    
    
    4Total short-term due to parent
    
    
    
    
    
    $
    7,703
  Average
    
    
    ($U.S.)Notional
    
    
    Contract
    
    
    FairAmount
    
    
    Rate
    
    
    ValueForeign currency forward contracts
Continuing Operations:U.S. dollars (sell for Canadian dollars)
    
    
    17,500
    

    USD
    
    
    1.1118
    
    
    $
    (86
    )Euros (sell for U.S. dollars)
    
    
    3,811
    
    EURO
    
    
    1.2579
    
    
    
    (41
    )Australian dollars (sell for U.S. dollars)
    
    
    800
    

    AUD
    
    
    0.7064
    
    
    
    (30
    )British pounds (buy with Canadian dollars)
    
    
    1,000
    

    GBP
    
    
    2.1030
    
    
    
    (10
    )$
    (167
    )
  32




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ITEM 4. Controls and Procedures
     33




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##### Table of Contents



PART II
 OTHER INFORMATION
 
 ITEM 1A. Risk Factors
 New
European environmental regulations may adversely affect our operations
 Uncertainties associated with the completion of the sale of EMS Wireless.
  34




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##### Table of Contents



ITEM 6. Exhibits
            
 *
    
    Filed herewith 35




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##### Table of Contents



SIGNATURES
  EMS TECHNOLOGIES, INC.By:
    
    /s/ Paul B. Domorski
    
    
    
    Date: November 8, 2006Paul B. DomorskiPresident, Chief Executive Officer (Principal
Executive Officer)By:
    
    /s/ Don T. Scartz
    
    
    
    Date: November 8, 2006Don T. ScartzExecutive Vice President, Chief FinancialOfficer and Treasurer (Principal Financial Officer)
 36