##### 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 1, 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
 
  þ o
  o þ o
 o þ
  Class
    
    Number of SharesCommon Stock, $.10 par Value
    
    15,223,962
 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
    
    
    17ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    29ITEM 4. Controls and Procedures
    
    
    30PART II  OTHER INFORMATION
    
    
    31ITEM 1A. Risk Factors
    
    
    31ITEM 5. Submission of Matters to a Vote of Security Holders
    
    
    31ITEM 6. Exhibits
    
    
    32SIGNATURES
    
    
    33EX-10.1 LETTER DATED 4-29-06 P.DOMORSKIEX-10.2 RESTRICTED STOCK AGREEMENTEX-10.3 DEFERRED COMPENSATION PLANEX-10.4 LETTER DATED 6-6-06 A.HANSENEX-31.1 SECTION 302 CERTIFICATION OF CEOEX-31.2 SECTION 302 CERTIFICATION OF CFOEX-32 SECTION 906 CERTIFICATION 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
    
    
    Six Months EndedJuly 1
    
    
    July 2
    
    
    July 1
    
    
    July 22006
    
    
    2005
    
    
    2006
    
    
    2005Net sales
    
    $
    77,963
    
    
    
    81,559
    
    
    
    152,633
    
    
    
    141,743Cost of sales
    
    
    50,429
    
    
    
    54,442
    
    
    
    99,277
    
    
    
    95,185Selling, general and administrative expenses
    
    
    18,767
    
    
    
    16,097
    
    
    
    35,983
    
    
    
    32,150Research and development expenses
    
    
    5,100
    
    
    
    4,058
    
    
    
    10,065
    
    
    
    7,677Operating income
    
    
    3,667
    
    
    
    6,962
    
    
    
    7,308
    
    
    
    6,731Non-operating income, net
    
    
    625
    
    
    
    90
    
    
    
    966
    
    
    
    158Foreign exchange loss
    
    
    (333
    )
    
    
    (81
    )
    
    
    (674
    )
    
    
    (74
    )Interest expense
    
    
    (514
    )
    
    
    (1,054
    )
    
    
    (1,236
    )
    
    
    (1,952
    )Earnings from continuing operations before income taxes
    
    
    3,445
    
    
    
    5,917
    
    
    
    6,364
    
    
    
    4,863Income tax expense
    
    
    (975
    )
    
    
    (2,012
    )
    
    
    (1,909
    )
    
    
    (1,654
    )Earnings from continuing operations
    
    
    2,470
    
    
    
    3,905
    
    
    
    4,455
    
    
    
    3,209Discontinued operations (note 2):Loss from discontinued operations before income taxes
    
    
    (798
    )
    
    
    (9,515
    )
    
    
    (2,525
    )
    
    
    (9,401
    )Income tax (expense) benefit
    
    
    
    
    
    
    (36
    )
    
    
    (30
    )
    
    
    242Loss from discontinued operations
    
    
    (798
    )
    
    
    (9,551
    )
    
    
    (2,555
    )
    
    
    (9,159
    )Net earnings (loss)
    
    $
    1,672
    
    
    
    (5,646
    )
    
    
    1,900
    
    
    
    (5,950
    )Net earnings (loss) per share (note 4):Basic:Earnings from continuing operations
    
    $
    0.16
    
    
    
    0.35
    
    
    
    0.32
    
    
    
    0.29Loss from discontinued operations
    
    
    (0.05
    )
    
    
    (0.86
    )
    
    
    (0.19
    )
    
    
    (0.82
    )Net earnings (loss)
    
    $
    0.11
    
    
    
    (0.51
    )
    
    
    0.13
    
    
    
    (0.53
    )Diluted:Earnings from continuing operations
    
    $
    0.16
    
    
    
    0.35
    
    
    
    0.31
    
    
    
    0.29Loss from discontinued operations
    
    
    (0.05
    )
    
    
    (0.85
    )
    
    
    (0.18
    )
    
    
    (0.82
    )Net earnings (loss)
    
    $
    0.11
    
    
    
    (0.50
    )
    
    
    0.13
    
    
    
    (0.53
    )Weighted average number of shares (note 4):Basic
    
    
    15,185
    
    
    
    11,165
    
    
    
    14,083
    
    
    
    11,164Diluted
    
    
    15,252
    
    
    
    11,186
    
    
    
    14,147
    
    
    
    11,199
  3




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EMS Technologies, Inc. and Subsidiaries
 
 Consolidated Balance Sheets (Unaudited)
 (in thousands)
 July 1
    
    
    Dec 312006
    
    
    2005ASSETSCurrent assets:Cash and cash equivalents
    
    $
    55,190
    
    
    
    12,978Restricted cash
    
    
    159
    
    
    
    2,620Trade accounts receivable, net (note 6)
    
    
    88,167
    
    
    
    92,973Inventories (note 7)
    
    
    38,504
    
    
    
    34,673Deferred income taxes, net
    
    
    1,433
    
    
    
    1,433Other current assets
    
    
    
    
    
    
    716Assets held for sale (note 2)
    
    
    
    
    
    
    6,732Total current assets
    
    
    183,453
    
    
    
    152,125Property, plant and equipment:Land
    
    
    1,150
    
    
    
    1,150Buildings and leasehold improvements
    
    
    15,339
    
    
    
    15,242Machinery and equipment
    
    
    80,512
    
    
    
    76,342Furniture and fixtures
    
    
    8,540
    
    
    
    8,511Total property, plant and equipment
    
    
    105,541
    
    
    
    101,245Less accumulated depreciation and amortization
    
    
    71,117
    
    
    
    66,965Net property, plant and equipment
    
    
    34,424
    
    
    
    34,280Deferred
income taxes, net  non-current
    
    
    3,634
    
    
    
    3,634Intangible assets, net
    
    
    2,934
    
    
    
    3,298Goodwill
    
    
    13,526
    
    
    
    13,526Other assets
    
    
    10,863
    
    
    
    12,597Total assets
    
    $
    248,834
    
    
    
    219,460
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EMS Technologies, Inc. and Subsidiaries
Consolidated Balance Sheets (Unaudited), continued
(in thousands, except share data)
 July 1
    
    
    Dec 312006
    
    
    2005LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Current installments of long-term debt
    
    $
    3,087
    
    
    
    6,825Accounts payable
    
    
    24,712
    
    
    
    34,089Income taxes payable
    
    
    1,717
    
    
    
    1,866Accrued compensation costs
    
    
    7,570
    
    
    
    9,402Accrued retirement costs
    
    
    1,479
    
    
    
    2,603Deferred service revenue
    
    
    7,585
    
    
    
    5,755Liabilities related to assets held for sale (note 2)
    
    
    
    
    
    
    2,130Other current liabilities
    
    
    7,063
    
    
    
    4,801Total current liabilities
    
    
    53,213
    
    
    
    67,471Long-term debt, excluding current installments
    
    
    12,319
    
    
    
    36,583Other liabilities
    
    
    1,842
    
    
    
    1,750Total liabilities
    
    
    67,374
    
    
    
    105,804Shareholders equity:Preferred stock of $1.00 par value per shareAuthorized 10,000,000 shares; none issued
    
    
    
    
    
    
    Common stock of $.10 par value per shareAuthorized 75,000,000 shares, issued and outstanding 15,224,000 in 2006 and
11,343,000 in 2005
    
    
    1,522
    
    
    
    1,134Additional paid-in capital
    
    
    131,219
    
    
    
    71,389Accumulated other comprehensive income (loss)  foreign currency translation
adjustment
    
    
    5,589
    
    
    
    (97
    )Retained earnings
    
    
    43,130
    
    
    
    41,230Total shareholders equity
    
    
    181,460
    
    
    
    113,656Total liabilities and shareholders equity
    
    $
    248,834
    
    
    
    219,460
  5




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EMS Technologies, Inc. and Subsidiaries
 
 Consolidated Statements of Cash Flows (Unaudited)
 (in thousands)
 Six Months EndedJuly 1
    
    
    July 22006
    
    
    2005Cash flows from operating activities:Net earnings (loss)
    
    $
    1,900
    
    
    
    (5,950
    )Adjustments to reconcile net earnings (loss) to net cash provided by (used in)
operating activities:Depreciation and other intangibles amortization
    
    
    4,725
    
    
    
    4,749Loss (earnings) from discontinued operations
    
    
    2,555
    
    
    
    9,159Stock-based compensation expense
    
    
    177
    
    
    
    Gain on sale of assets
    
    
    (316
    )
    
    
    Changes in operating assets and liabilities:Trade accounts receivable
    
    
    6,848
    
    
    
    (16,343
    )Inventories
    
    
    (3,077
    )
    
    
    332Accounts payable
    
    
    (8,306
    )
    
    
    4,437Income taxes payable
    
    
    (81
    )
    
    
    362Accrued costs, deferred revenue, and other current liabilities
    
    
    (1,066
    )
    
    
    1,088Other
    
    
    (592
    )
    
    
    (1,876
    )Net cash provided by (used in) operating activities in continuing operations
    
    
    2,767
    
    
    
    (4,042
    )Net cash used in operating activities in discontinued operations
(Revised-Note 1)
    
    
    (2,707
    )
    
    
    (5,397
    )Net cash provided by (used in) operating activities
    
    
    60
    
    
    
    (9,439
    )Cash flows from investing activities:Purchase of property, plant and equipment
    
    
    (3,973
    )
    
    
    (4,682
    )Payments for asset acquisitions
    
    
    (125
    )
    
    
    Proceeds from sales of assets
    
    
    10,525
    
    
    
    364Net cash provided by (used in) investing activities in continuing operations
    
    
    6,427
    
    
    
    (4,318
    )Net cash used in investing activities in discontinued operations (Revised
-Note 1)
    
    
    
    
    
    
    (1,001
    )Net cash provided by (used in) investing activities
    
    
    6,427
    
    
    
    (5,319
    )Cash flows from financing activities:Net increase (decrease) in revolving debt
    
    
    (27,035
    )
    
    
    10,207Repayment of term debt
    
    
    (797
    )
    
    
    (662
    )Decrease in restricted cash
    
    
    2,461
    
    
    
    2,160Deferred 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
    
    
    1,305
    
    
    
    12Net cash provided by financing activities
    
    
    34,640
    
    
    
    11,644Net change in cash and cash equivalents
    
    
    41,127
    
    
    
    (3,114
    )Effect of exchange rates on cash and cash equivalents
    
    
    1,085
    
    
    
    1,569Cash and cash equivalents at beginning of period
    
    
    12,978
    
    
    
    14,553Cash and cash equivalents at end of period
    
    $
    55,190
    
    
    
    13,008
  6




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EMS Technologies, Inc. and Subsidiaries
 
 Notes to Consolidated Financial Statements (Unaudited)
 July 1, 2006 and July 2, 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
   Liabilities resulting
    
    Liability
    
    
    Costs incurred
    
    
    Costs
    
    
    Liabilityfrom the sale of the
    
    at
    
    
    and expensed
    
    
    paid
    
    
    atS&T/Montreal division
    
    Dec 31, 2005
    
    
    in 2006
    
    
    in 2006
    
    
    July 1, 2006Termination benefits
    
    $
    1,047
    
    
    
    64
    
    
    
    (727
    )
    
    
    384Other associated costs
    
    
    161
    
    
    
    469
    
    
    
    (539
    )
    
    
    91Total
    
    $
    1,208
    
    
    
    533
    
    
    
    (1,266
    )
    
    
    475
     8




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Quarters Ended
    
    
    Six Months EndedJuly 1
    
    
    July 2
    
    
    July 1
    
    
    July 22006
    
    
    2005
    
    
    2006
    
    
    2005Net sales
    
    $
    
    
    
    
    17,430
    
    
    
    799
    
    
    
    37,010Expenses
    
    
    
    
    
    
    16,945
    
    
    
    2,295
    
    
    
    36,411Estimated loss on disposal
    
    
    
    
    
    
    10,000
    
    
    
    
    
    
    
    10,000Loss from sale of assets
    
    
    798
    
    
    
    
    
    
    
    1,029
    
    
    
    Loss before income taxes
    
    
    (798
    )
    
    
    (9,515
    )
    
    
    (2,525
    )
    
    
    (9,401
    )Income tax (expense) benefit
    
    
    
    
    
    
    (36
    )
    
    
    (30
    )
    
    
    242Loss from discontinued operations
    
    $
    (798
    )
    
    
    (9,551
    )
    
    
    (2,555
    )
    
    
    (9,159
    )
   July 1
    
    
    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
   9




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Quarters Ended
    
    
    Six Months EndedJuly 1
    
    
    July 2
    
    
    July 1
    
    
    July 22006
    
    
    2005
    
    
    2006
    
    
    2005Beginning net liability for derivatives
    
    $
    (53
    )
    
    
    (58
    )
    
    
    (4
    )
    
    
    (128
    )Changes in consolidated statement of operations:Sales:Loss in value of embedded derivatives
    
    
    (11
    )
    
    
    
    
    
    
    (5
    )
    
    
    (1
    )Foreign exchange gain (loss):Gain (loss) in value of derivative instruments that do not
qualify
as hedging instruments
    
    
    (167
    )
    
    
    153
    
    
    
    (204
    )
    
    
    172Matured foreign exchange contracts
    
    
    37
    
    
    
    3
    
    
    
    19
    
    
    
    55Net consolidated statements of operations gain (loss) from
changes in value of derivative instruments
    
    
    (141
    )
    
    
    156
    
    
    
    (190
    )
    
    
    226Ending net asset (liability) for derivatives
    
    $
    (194
    )
    
    
    98
    
    
    
    (194
    )
    
    
    98
   4. Earnings (Loss) Per Share
   Quarters Ended
    
    
    Six Months EndedJuly 1
    
    
    July 2
    
    
    July 1
    
    
    July 22006
    
    
    2005
    
    
    2006
    
    
    2005Basic-weighted average common shares outstanding
    
    
    15,185
    
    
    
    11,165
    
    
    
    14,083
    
    
    
    11,164Incremental effect of dilutive common stock
equivalents:Unexercised in-the-money stock options
    
    
    67
    
    
    
    21
    
    
    
    64
    
    
    
    35Diluted-weighted average common and dilutive
shares outstanding
    
    
    15,252
    
    
    
    11,186
    
    
    
    14,147
    
    
    
    11,199
 Common Stock Public Offering
  10




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5. Comprehensive Income (Loss)
  Quarters Ended
    
    
    Six Months EndedJuly 1
    
    
    July 2
    
    
    July 1
    
    
    July 22006
    
    
    2005
    
    
    2006
    
    
    2005Net income (loss)
    
    $
    1,672
    
    
    
    (5,646
    )
    
    
    1,900
    
    
    
    (5,950
    )Other comprehensive income:Reclassification due to sale of discontinued operations
    
    
    
    
    
    
    
    
    
    
    2,008
    
    
    
    Foreign currency translation adjustment
    
    
    3,039
    
    
    
    1,283
    
    
    
    3,678
    
    
    
    778Comprehensive income (loss)
    
    $
    4,711
    
    
    
    (4,363
    )
    
    
    7,586
    
    
    
    (5,172
    )
 6. Trade Accounts Receivable
  July 1
    
    
    Dec 312006
    
    
    2005Amounts billed
    
    $
    63,980
    
    
    
    71,662Unbilled revenues under long-term contracts (1)
    
    
    30,237
    
    
    
    25,086Customer advanced payments
    
    
    (4,993
    )
    
    
    (2,998
    )Allowance for doubtful accounts
    
    
    (1,057
    )
    
    
    (777
    )Trade accounts receivable, net
    
    $
    88,167
    
    
    
    92,973
 (1)
    
    Unbilled net sales under long-term contracts are usually billed and
collected within one year 7. Inventories
  July 1
    
    
    Dec 312006
    
    
    2005Parts and materials
    
    $
    21,239
    
    
    
    23,020Work-in-process
    
    
    4,920
    
    
    
    2,783Finished goods
    
    
    12,345
    
    
    
    8,870Inventories, net
    
    $
    38,504
    
    
    
    34,673
 11




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8. Interim Segment Disclosures
       Quarters Ended
    
    
    Six Months EndedJuly 1
    
    
    July 2
    
    
    July 1
    
    
    July 22006
    
    
    2005
    
    
    2006
    
    
    2005Net sales:LXE
    
    $
    35,106
    
    
    
    31,572
    
    
    
    66,725
    
    
    
    58,391Defense & Space Systems
    
    
    11,501
    
    
    
    13,293
    
    
    
    23,364
    
    
    
    24,573SATCOM
    
    
    18,442
    
    
    
    12,189
    
    
    
    34,005
    
    
    
    22,053EMS Wireless
    
    
    12,917
    
    
    
    24,505
    
    
    
    28,542
    
    
    
    36,726Other
    
    
    (3
    )
    
    
    
    
    
    
    (3
    )
    
    
    Total
    
    $
    77,963
    
    
    
    81,559
    
    
    
    152,633
    
    
    
    141,743Operating income (loss):LXE
    
    $
    2,903
    
    
    
    2,170
    
    
    
    4,748
    
    
    
    3,152Defense & Space Systems
    
    
    352
    
    
    
    1,456
    
    
    
    736
    
    
    
    957SATCOM
    
    
    1,337
    
    
    
    901
    
    
    
    2,854
    
    
    
    1,341EMS Wireless
    
    
    (714
    )
    
    
    2,605
    
    
    
    (450
    )
    
    
    1,730Corporate
    
    
    (211
    )
    
    
    (170
    )
    
    
    (580
    )
    
    
    (449
    )Total
    
    $
    3,667
    
    
    
    6,962
    
    
    
    7,308
    
    
    
    6,731Net earnings (loss) from continuing operations:LXE
    
    $
    1,685
    
    
    
    1,290
    
    
    
    2,794
    
    
    
    1,795Defense & Space Systems
    
    
    151
    
    
    
    846
    
    
    
    331
    
    
    
    473SATCOM
    
    
    1,121
    
    
    
    739
    
    
    
    2,421
    
    
    
    1,252EMS Wireless
    
    
    (479
    )
    
    
    1,516
    
    
    
    (409
    )
    
    
    873Other
    
    
    (51
    )
    
    
    (61
    )
    
    
    (109
    )
    
    
    (122
    )Corporate
    
    
    43
    
    
    
    (425
    )
    
    
    (573
    )
    
    
    (1,062
    )Total
    
    $
    2,470
    
    
    
    3,905
    
    
    
    4,455
    
    
    
    3,209
 12




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9. Warranty Liability
   Quarters Ended
    
    
    Six Months EndedJuly 1
    
    
    July 2
    
    
    July 1
    
    
    July 22006
    
    
    2005
    
    
    2006
    
    
    2005Balance at beginning of period
    
    $
    3,555
    
    
    
    2,023
    
    
    
    3,369
    
    
    
    2,088Accruals for warranties issued during the period
    
    
    1,204
    
    
    
    938
    
    
    
    1,838
    
    
    
    1,271Settlements made during the period
    
    
    (979
    )
    
    
    (426
    )
    
    
    (1,427
    )
    
    
    (824
    )Balance at end of period
    
    $
    3,780
    
    
    
    2,535
    
    
    
    3,780
    
    
    
    2,535
 10. Long-Term Debt
     13




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##### Table of Contents



11. Stock-Based Compensation
      Options with service-based vesting only
   14




---



##### Table of Contents



Three Months
    
    
    Six MonthsEnded
    
    
    EndedJuly 2, 2005
    
    
    July 2, 2005Net loss:As reported (1)
    
    $
    (5,646
    )
    
    
    (5,950
    )Less: Stock-based employee compensation expense determined
under the fair value method, net of tax
    
    
    (221
    )
    
    
    (538
    )Pro forma
    
    $
    (5,867
    )
    
    
    (6,488
    )Basic net loss per share:As reported
    
    $
    (0.51
    )
    
    
    (0.53
    )Pro forma
    
    
    (0.53
    )
    
    
    (0.58
    )Diluted net loss per share:As reported
    
    $
    (0.50
    )
    
    
    (0.53
    )Pro forma
    
    
    (0.52
    )
    
    
    (0.58
    )
 
 (1)
    
    Stock compensation expense has not been recognized in net loss   WeightedWeighted
    
    
    AverageAverage
    
    
    Remaining
    
    
    AggregateExercise
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Price
    
    
    Term (years)
    
    
    ValueOptions outstanding at December 31, 2005
    
    
    1.243
    
    
    $
    18.08Granted
    
    
    45
    
    
    
    19.00Exercised
    
    
    (109
    )
    
    
    15.84
    
    
    
    
    
    
    $
    3.19Forfeited or expired
    
    
    (124
    )
    
    
    18.82Options outstanding at July 1, 2006
    
    
    1,055
    
    
    
    18.26
    
    
    
    4.3
    
    
    
    2,244Options exercisable at July 1, 2006
    
    
    942
    
    
    
    18.48
    
    
    
    4.0
    
    
    
    1,812
  WeightedAverageGrant-DateShares
    
    
    Fair ValueNon-vested outstanding at December 31, 2005
    
    
    175
    
    
    $
    12.22Granted
    
    
    45
    
    
    
    13.23Vested
    
    
    (107
    )
    
    
    13.71Forfeited or expired
    
    
    Non-vested outstanding at July 1, 2006
    
    
    113
    
    
    $
    11.21
 15




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##### Table of Contents



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
    
    
    
    
    
    
    $
    9.56Exercised
    
    
    
    
    
    
    Forfeited or expired
    
    
    (1
    )
    
    
    Options outstanding at July 1, 2006
    
    
    182
    
    
    
    18.91
    
    
    
    
    
    
    
    5.7
    
    
    $
    
    Nonvested
stock
  12. Litigation
  16




---



##### 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.
 For continuing operations:
 
    
    Net sales increased by 7.7% for the first six months of 2006 as compared to the same
period of 2005 mainly due to record net sales reported by our SATCOM and LXE divisions.
    
    Three of the four divisions reported operating income in the second quarter and first
six months of 2006, and the Company reported net income from continuing operations at the
consolidated level, despite the losses reported at our EMS Wireless division.
 For discontinued operations:
 
    
    Our discontinued operations reported a $0.8 million loss before income tax for the
quarter, resulting from the expense of legal, audit, and other outside services, as well as
the effect of adjustments to settle various contingent items. The first six months of 2006
resulted in a loss of $2.5 million that included a $1.7 million loss from our SatNet
operations through their date of disposition on March 9, 2006.
 17




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##### Table of Contents



Description of Net Sales, Costs and Expenses
 Net sales
   Cost of sales
     Selling, general and administrative expenses
  Research and development expenses
  18




---



##### Table of Contents



Non-operating income, net
  Foreign exchange gains and losses
   Interest expense
  Income tax expense
  Discontinued operations
  19




---



##### Table of Contents



Results of Operations
 Quarters Ended
    
    
    Six Months EndedJuly 1
    
    
    July 2
    
    
    July 1
    
    
    July 22006
    
    
    2005
    
    
    2006
    
    
    2005Net sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    64.7
    
    
    
    66.8
    
    
    
    65.0
    
    
    
    67.2Selling, general and
administrative expenses
    
    
    24.1
    
    
    
    19.7
    
    
    
    23.6
    
    
    
    22.7Research and development expenses
    
    
    6.5
    
    
    
    5.0
    
    
    
    6.6
    
    
    
    5.4Operating income
    
    
    4.7
    
    
    
    8.5
    
    
    
    4.8
    
    
    
    4.7Non-operating income, net
    
    
    0.8
    
    
    
    0.1
    
    
    
    0.6
    
    
    
    0.1Foreign exchange loss
    
    
    (0.4
    )
    
    
    (0.1
    )
    
    
    (0.4
    )
    
    
    Interest expense
    
    
    (0.7
    )
    
    
    (1.2
    )
    
    
    (0.8
    )
    
    
    (1.4
    )Earnings from continuing
operations before
income taxes
    
    
    4.4
    
    
    
    7.3
    
    
    
    4.2
    
    
    
    3.4Income tax expense
    
    
    (1.2
    )
    
    
    (2.5
    )
    
    
    (1.3
    )
    
    
    (1.1
    )Earnings from continuing operations
    
    
    3.2
    
    
    
    4.8
    
    
    
    2.9
    
    
    
    2.3Discontinued operations:Loss from discontinued operations
before
income taxes
    
    
    (1.1
    )
    
    
    (11.7
    )
    
    
    (1.7
    )
    
    
    (6.6
    )Income tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.1Loss from discontinued operations
    
    
    (1.1
    )
    
    
    (11.7
    )
    
    
    (1.7
    )
    
    
    (6.5
    )Net earnings (loss)
    
    
    2.1
    %
    
    
    (6.9
    )%
    
    
    1.2
    %
    
    
    (4.2
    )%
 Three Months ended July 1, 2006 and July 2, 2005:
      20




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##### Table of Contents



Six Months ended July 1, 2006 and July 2, 2005:
      21




---



##### Table of Contents



Net Sales, Cost of Sales, and Operating Income (Loss) by Segment
  Percentage IncreaseQuarters Ended
    
    
    Six Months Ended
    
    
    (Decrease)July 1
    
    
    July 2
    
    
    July 1
    
    
    July 2
    
    
    Three
    
    
    Six(in thousands, except percentages)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005
    
    
    Months
    
    
    MonthsNet sales:LXE
    
    $
    35,106
    
    
    
    31,572
    
    
    
    66,725
    
    
    
    58,391
    
    
    
    11.2
    %
    
    
    14.3Defense & Space Systems
    
    
    11,501
    
    
    
    13,293
    
    
    
    23,364
    
    
    
    24,573
    
    
    
    (13.5
    )
    
    
    (4.9
    )SATCOM
    
    
    18,442
    
    
    
    12,189
    
    
    
    34,005
    
    
    
    22,053
    
    
    
    51.3
    
    
    
    54.2EMS Wireless
    
    
    12,917
    
    
    
    24,505
    
    
    
    28,542
    
    
    
    36,726
    
    
    
    (47.3
    )
    
    
    (22.3
    )Other
    
    
    (3
    )
    
    
    
    
    
    
    (3
    )
    
    
    
    
    
    
    
    **
    
    
    
    **Total
    
    $
    77,963
    
    
    
    81,559
    
    
    
    152,633
    
    
    
    141,743
    
    
    
    (4.4
    )%
    
    
    7.7Cost of sales percentage:LXE
    
    
    58.7
    %
    
    
    60.0
    
    
    
    59.5
    
    
    
    59.9
    
    
    
    (1.3
    )
    
    
    (0.4
    )Defense & Space Systems
    
    
    78.7
    
    
    
    75.6
    
    
    
    79.0
    
    
    
    81.4
    
    
    
    3.1
    
    
    
    (2.4
    )SATCOM
    
    
    61.1
    
    
    
    61.2
    
    
    
    60.1
    
    
    
    60.0
    
    
    
    (0.1
    )
    
    
    0.1EMS Wireless
    
    
    74.2
    
    
    
    73.6
    
    
    
    73.0
    
    
    
    73.7
    
    
    
    0.6
    
    
    
    (0.7
    )Total
    
    
    64.7
    %
    
    
    66.8
    
    
    
    65.0
    
    
    
    67.2
    
    
    
    (2.1
    )
    
    
    (2.2
    )Operating income (loss):LXE
    
    $
    2,903
    
    
    
    2,170
    
    
    
    4,748
    
    
    
    3,152
    
    
    
    33.8
    %
    
    
    50.6Defense & Space Systems
    
    
    352
    
    
    
    1,456
    
    
    
    736
    
    
    
    957
    
    
    
    (75.8
    )
    
    
    (23.1
    )SATCOM
    
    
    1,337
    
    
    
    901
    
    
    
    2,854
    
    
    
    1,341
    
    
    
    48.4
    
    
    
    112.8EMS Wireless
    
    
    (714
    )
    
    
    2,605
    
    
    
    (450
    )
    
    
    1,730
    
    
    
    (127.4
    )
    
    
    (126.0
    )Corporate and other
    
    
    (211
    )
    
    
    (170
    )
    
    
    (580
    )
    
    
    (449
    )
    
    
    (24.1
    )
    
    
    (29.2
    )Total
    
    $
    3,667
    
    
    
    6,962
    
    
    
    7,308
    
    
    
    6,731
    
    
    
    (47.3)
    %
    
    
    8.6
 
 ** =

    Not Meaningful LXE:
  Defense & Space Systems:
  22




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##### Table of Contents



SATCOM:
  EMS Wireless:
  Discontinued Operations
    Liquidity and Capital Resources
    23




---



##### Table of Contents



Off-Balance Sheet Arrangements
     24




---



##### Table of Contents



Commitments and Contractual Obligations
  Payments Due by Period2007-
    
    2009-Continuing Operations:
    
    Total
    
    2006
    
    2008
    
    2010
    
    ThereafterJuly 1, 2006:Long-term debt, excluding capital lease
obligations
    
    $
    15,378
    
    
    
    822
    
    
    
    3,960
    
    
    
    2,680
    
    
    
    7,916Interest on outstanding long-term debt
    
    
    5,459
    
    
    
    559
    
    
    
    1,794
    
    
    
    1,443
    
    
    
    1,662Purchase commitments (1)
    
    
    27,430
    
    
    
    26,647
    
    
    
    704
    
    
    
    79
    
    
    
    Capital lease obligations
    
    
    28
    
    
    
    9
    
    
    
    19
    
    
    
    
    
    
    
    Deferred compensation agreements
    
    
    476
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    476Operating lease obligations
    
    
    8,010
    
    
    
    2,250
    
    
    
    5,036
    
    
    
    724
    
    
    
    December 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
   25




---



##### Table of Contents



Accounting for government research incentives
  Inventory valuation
  Evaluation of long-lived assets for impairment
   Evaluation
of contingencies related to discontinued operations
  Establishment of reserves for deferred income tax assets
  26




---



##### Table of Contents



Forward-Looking Statements
  
    
    economic conditions in the U.S. and abroad and their effect on capital spending in the
Companys principal markets;
    
    the success of LXEs efforts to develop new product
designs and manufacturing processes to comply with the European
Unions directive for restriction of hazardous substances
(RoHS), and the availability of compliant materials for
LXEs sales to Europe;
    
    difficulty predicting the timing of receipt of major customer orders, and the effect of
customer timing decisions on our quarterly results;
    
    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;
    
    the ability of the Company to obtain patent licenses, with satisfactory license rights
and royalty rates, from owners of RFID-related patents that the Company concludes are valid
and would otherwise be infringed by Company products;
    
    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, PCS/cellular telephony and space-based communications);
 27




---



##### Table of Contents




    
    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 and for
expansion of terrestrial PCS/cellular phone systems;
    
    the extent to which terrestrial systems reduce market opportunities for space-based
broadband communications systems by providing extensive broadband Internet access on a
dependable and economical basis;
    
    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, finance
acquisitions, or 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;
    
    the effects of consolidation in the telecommunications service provider industry,
including effects on the numbers of suppliers used by the Companys customers, the overall
demand by such customers for the Companys products, and the possibility that such
customers may demand greater price concessions; and
    
    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
   28




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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 (5.5% at
the end of the quarter)
    
    $
    1,544Total market-sensitive debt
    
    $
    1,544
   Exchange Rate
    
    $U.S.($U.S. per unit of
    
    in thousandslocal currency)
    
    (reporting currency)Belgium
    
    1.2777 /Euro
    
    $
    4,781Canada
    
    0.8969 /Dollar
    
    
    1,890Italy
    
    1.2777 /Euro
    
    
    1,817Australia
    
    0.7422 /Dollar
    
    
    1,516France
    
    1.2777 /Euro
    
    
    1,368United Kingdom
    
    1.8488 /Pound
    
    
    1,145Germany
    
    1.2777 /Euro
    
    
    264Netherlands
    
    1.2777 /Euro
    
    
    236Sweden
    
    0.1386 /Krona
    
    
    176Singapore
    
    0.6316 /Dollar
    
    
    49Total short-term due to parent
    
    
    
    $
    13,242
  Average
    
    
    ($U.S.)Notional
    
    
    Contract
    
    
    FairAmount
    
    
    Rate
    
    
    ValueForeign currency forward contractsContinuing Operations:Euros (sell for U.S. dollars)
    
    
    7,000
    
    
    Euros
    
    
    1.2567
    
    
    $
    (189
    )Australian dollars (sell for U.S. dollars)
    
    
    1,000
    
    
    AUD
    
    
    0.7081
    
    
    
    (32
    )British pounds (sell for U.S. dollars)
    
    
    750
    
    
    GBP
    
    
    1.8209
    
    
    
    (21
    )British pounds (sell for Canadian dollars)
    
    
    1,000
    
    
    GBP
    
    
    2.0405
    
    
    
    (21
    )U.S. dollars (sell for Canadian dollars)
    
    
    14,000
    
    
    USD
    
    
    1.1236
    
    
    
    87$
    (176
    )
  29




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##### Table of Contents



ITEM 4. Controls and Procedures
     30




---



##### Table of Contents



PART II
 OTHER INFORMATION
 
 ITEM 1A. Risk Factors
  New European environmental regulations may adversely affect our operations.
  
 ITEM 5. Submission of Matters to a Vote of Security Holders
  Abstain orBrokerFor
    
    Withheld
    
    Non-VotesHermann Buerger
    
    
    10,030,758
    
    
    
    4,282,247
    
    
    
    82,127Francis J. Erbrick
    
    
    14,311,847
    
    
    
    1,158
    
    
    
    82,127Alfred G. Hansen
    
    
    10,471,951
    
    
    
    3,841,054
    
    
    
    82,127John R. Kreick
    
    
    10,038,308
    
    
    
    4,274,697
    
    
    
    82,127John B. Mowell
    
    
    10,032,098
    
    
    
    4,280,907
    
    
    
    82,127Bradford W. Parkinson
    
    
    14,309,347
    
    
    
    3,658
    
    
    
    82,127Norman E. Thagard
    
    
    10,475,323
    
    
    
    3,837,682
    
    
    
    82,127John L. Woodward, Jr.
    
    
    10,538,900
    
    
    
    3,774,105
    
    
    
    82,127
 31




---



##### Table of Contents



ITEM 6. Exhibits
            
 *
    
    Filed herewith 32




---



##### Table of Contents



SIGNATURES
  EMS TECHNOLOGIES, INC.By:
    
    /s/ Paul B. Domorski
    
    
    
    Date: 8/10/2006Paul B. DomorskiPresident, Chief Executive Officer (Principal Executive Officer)By:
    
    /s/ Don T. Scartz
    
    
    
    Date: 8/10/2006Don T. ScartzExecutive Vice President, Chief FinancialOfficer and Treasurer (Principal Financial Officer)
 33