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The following items were the subject of a Form 12b-25 and are included herein:
Items 6, 7, 7a, 8, 9, and 15(a) 1 and 2, as well as certain
information called for by Items 1, 9A and 15(a)3.   UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-K/A Amendment No. 1
 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2004
 Commission File #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)
 Registrants Telephone Number, Including Area Code: (770) 263-9200
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.10 par value
(Title of Class) 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or amendment to this Form 10-K: þ Indicate by check mark whether the registrant is an accelerated filer (as defined by Rule 12b-2 of
the Act): Yes þ No o The aggregate market value of voting stock held by persons other than directors or executive
officers on July 3, 2004 was $203 million, based on a closing price of $18.51 per share. The basis
of this calculation does not constitute a determination by the registrant that all of its directors
and executive officers are affiliates as defined in Rule 405. As of March 10, 2005, the number of shares of the registrants common stock outstanding was
11,164,421 shares. DOCUMENTS INCORPORATED BY REFERENCE Certain information contained in the Companys definitive proxy statement for the 2005 Annual
Meeting of Shareholders of the registrant is incorporated herein by reference in Part III of this
Annual Report on Form 10-K/A Amendment No. 1. 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.   1 of 70




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TABLE OF CONTENTS  Part I.ITEM 1. BusinessITEM 2. PropertiesITEM 3. Legal ProceedingsITEM 4. Submission of Matters to a Vote of Security HoldersITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters and Issuer Purchases of Equity SecuritiesITEM 6. Selected Financial DataITEM 7. Managements Discussion and Analysis of Financial Condition and Results of OperationsITEM 7a. Quantitative and Qualitative Disclosures about Market RiskITEM 8. Financial Statements and Supplementary DataITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureITEM 9A. Controls and ProceduresPART IIIITEM 10. Directors and Executive Officers of the RegistrantITEM 11. Executive CompensationITEM 12. Security Ownership of Certain Beneficial Owners and ManagementITEM 13. Certain Relationships and Related TransactionsITEM 14. Principal Accountant Fees and ServicesPART IVITEM 15. Exhibits, Financial Statement SchedulesEX-4.1 EMS TECHNOLOGIES, INC. STOCKHOLDER RIGHTS PLANEX-4.3 REVOLVING CREDIT AGREEMENTEX-4.4 SECURITY AGREEMENTEX-4.5 PLEDGE AGREEMENTEX-4.6 FORM OF NOTEEX-4.7 AMENDMENT NO.1 TO REVOLVING CREDIT AGREEMENTEX-4.8 CANADIAN REVOLVING CREDIT AGREEMENTEX-4.9 CANADIAN SECURITY AGREEMENTEX-5.0 DEED OF MOVABLE HYPOTHECEX-5.1 CANADIAN INTELLECTUAL PROPERTY SECURITY AGREEMENTEX-5.2 PLEDGE AGREEMENTEX-5.3 TRADEMARK SECURITY AGREEMENTEX-5.4 PATENT SECURITY AGREEMENTEX-5.5 FORM OF NOTEEX-5.6 AMENDMENT NO.1 TO CANADIAN REVOLVING CREDIT AGREEMENTEX-10.15 EXECUTIVE ANNUAL INCENTIVE COMPENSATION PLANEX-10.19 FORM OF SPLIT-DOLLAR LIFE INSURANCE AGREEMENTEX-10.20 SUMMARY OF COMPENSATION ARRANGEMENTSEX-10.21 SUMMARY OF COMPENSATION ARRANGEMENTS / EXECUTIVE OFFICERSEX-21.1 SUBSIDIARIES OF THE REGISTRANTEX-23.1 INDEPENDENT PUBLIC ACCOUNTING FIRM CONSENT / KPMG LLPEX-23.2 INDEPENDENT AUDITORS CONSENT / ERNST & YOUNG LLPEX-31.1 SECTION 302 CERTIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF THE CFOEX-32 SECTION 906 CERTIFICATION OF THE CEO & CFO    Table of Contents  
 Part I. 
 ITEM 1. Business Overview EMS Technologies, Inc. (the Company or EMS) is a leading designer, manufacturer and marketer of
advanced wireless communications products for diverse commercial, defense and government markets.
The Company focuses on the needs of the mobile information user and the increasing demand for
wireless broadband communications. The Companys products enable communications across a variety of
coverage areas, ranging from global to regional to within a single building. Representative
products include hardware for use in satellite communications, PCS/cellular networks and
in-building wireless local area networks. EMS was founded in 1968, and initially concentrated on microwave components and subsystems,
primarily for defense applications, including the first electronically steerable antenna deployed
in space. The expertise and technology EMS has developed during the past 36 years in that original
business remain directly applicable to a range of our current defense and commercial products,
including products for satellite, ground and airborne communications, as well as radar, signal
intelligence and electronic countermeasure systems. Over time, the Company has utilized its expertise in wireless communications to develop additional
product lines. In the early 1980s, we developed a line of wireless mobile computers and local-area
network products for use in materials-handling applications. These products enable our industrial
customers to connect mobile employees to central data networks and take advantage of sophisticated
enterprise software and automatic-identification technologies such as bar-code scanning and radio
frequency identification (RFID). Since the mid-1990s, EMS has expanded into several new markets through the development or
acquisition of additional product lines. In 1994, the Company began designing and manufacturing
PCS/cellular base-station antennas, and since 2001 we have also offered a line of in-building and
outdoor repeaters for use with PCS/cellular systems. In addition, we have established an
industry-leading position in the market for high-speed, two-way satellite communications antennas
and terminals for use on aircraft and other mobile platforms, and we develop and market hardware
and software for use by search-and-rescue and emergency-management organizations around the world.
One of our newest product lines consists of hubs and terminals for high-speed, two-way satellite
communications systems using the DirectVideo Broadcast-Return Channel by Satellite (DVB-RCS) air
interface standard that we helped pioneer. EMSs foundation in advanced wireless communications allows the Company to continually develop and
commercialize new products, which typically are incorporated into larger, more complex
communications systems to provide a wide array of mobile communications. We believe there are
significant technological and marketing synergies among our product lines that improve our
performance and create new market opportunities. Market Opportunities The need for mobile communications in commercial, defense, government and consumer markets has
driven rapid growth in the wireless communications industry. The spread of wireless data systems
has enhanced ways that data services are utilized, and is creating greater demand for bandwidth
among mobile and remote users. In both defense and commercial markets, the demand for continuous
access to high-speed, two-way data connections is reflected in numerous new products and
applications. In all these cases, the common theme is providing bandwidth to mobile users. As
equipment that expands mobility and bandwidth becomes more widely available, new applications are
developed and dependence on continuous high-speed data access grows. This evolution favors
companies that innovate through research and development and that have the ability to bring
practical solutions to market quickly and efficiently. EMSs products address multiple markets and niches in the wireless communications industry, with
focuses on mobility and bandwidth. EMS believes the nature and diversity of its products and
markets, and the strength of its technology, position the Company well to benefit from the
continuing growth of advanced wireless communications. 2 of 70




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Competitive Strengths Technological Leadership Since EMSs founding in 1968, the Company has been an innovative leader in the development and
commercialization of wireless communications technologies. Early in our history, we pioneered the
use of ferrite materials for electronic beam-forming, a practice that remains important in many
sophisticated applications today. Our more recent innovations include the first handheld wireless
data terminal for use in the logistics market, the first dual-polarized antennas for PCS/cellular
base stations, the first commercial airborne terminals for high-speed, two-way satellite data, the
first antenna systems allowing commercial airlines to provide satellite television to passengers,
the first working systems using the emerging DVB-RCS open standard for broadband, two-way data
communications by satellite, and the first handheld wireless data terminal with an integrated, EPC
Global-capable RFID reader. Commitment to Research and Development EMS continually devotes significant resources to research and development activity that enhances
and maintains our technological advantages, and enables the Company to overcome the substantial
technical barriers that are often encountered in the commercialization of sophisticated wireless
communications hardware. Over the past five years, we have invested approximately $94 million in
company-sponsored research and development for continuing operations. In addition, our work under
government and commercial contracts for new wireless communications hardware often leads to
innovations that benefit us on future contracts and product development efforts. Approximately 37%
of our employees hold engineering degrees, including over 35 doctorates, and our engineers are
frequently involved in professional and industry technical conferences and working groups. Our
personnel have been awarded over 70 current U.S. patents, and we hold numerous foreign counterparts
to these patents. Core Wireless Expertise EMS offers a broad portfolio of wireless solutions to its customers, including products for use in
satellite, wide-area and local-area communications. Although the Company conducts its businesses
through separately managed business units, the Company has established a variety of processes to
encourage technical exchanges and cooperation among them. We believe that our shared wireless
technology knowledge base and our core expertise can create valuable synergies among our various businesses and
many of our products, even though we may be subject to U.S. laws and regulations that restrict the flow of technical data
from our U.S.-based business units to our Canada-based businesses.
Synergies provide us an advantage in
multiple aspects of our business, including research and development, manufacturing, and sales and
marketing, and better positions us as an important supplier of wireless technology and equipment to
commercial, defense and government customers. Diverse Customer Base EMS offers multiple wireless product lines to a diverse customer base. No one customer has been
responsible for more than 10% of our annual consolidated revenues during any of the past five
years. In 2004, approximately 14% of our revenues were related to
sales from various customers for U.S. government end use.
Approximately 38% of our consolidated revenues for 2004 were derived from sales to customers
outside the U.S. We believe this diverse customer base helps mitigate the effects on our overall
results of a downturn in any one of our addressable markets. Leading Positions in Growing End Markets We believe we have a leading position in a number of important wireless communications markets:  
    We are recognized as an important supplier of highly engineered components and
subsystems for certain sophisticated applications that support the U.S. military
objective of transformational communications for information dominance, which is
receiving strong backing in the defense budgeting and planning processes. 3 of 70




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
    We are one of the leading providers of rugged computers used for logistics
applications, such as wireless local-area networks used in warehouses and container
ports.
    We are a leading provider of wireless base station antennas and repeaters to the
domestic PCS/cellular infrastructure market.
    We are the leading provider worldwide of antennas and terminals for high-speed,
two-way data services to aircraft.
    We are the leading worldwide provider of hubs and ground terminals based on the
DVB-RCS open standard, which we believe to be an emerging solution for high-speed,
two-way data communications. Strong Manufacturing Capabilities For some of the
Companys products, particularly their defense and space applications, the Company
has developed unique and highly specialized manufacturing capabilities. For others, the Company
primarily performs final assembly and test manufacturing functions. Through our continuous efforts
to improve our manufacturing processes, in recent years we have dramatically reduced the time
required for us to ship products in several commercial markets in which a short delivery cycle for
custom-manufactured products is an important customer requirement and competitive factor. We have
also achieved major reductions in the incidence of rework on highly engineered space and defense
products. These efforts have both enhanced our ability to compete for new business and improved our
profitability. Strong Customer Relationships Our 36 years of experience have enabled us to develop mutually beneficial relationships with many
of our commercial and government customers. We expect to continue to build and strengthen these
relationships by anticipating and recognizing our customers needs, by working with them to
understand how we should focus our internal innovation efforts, and by providing customers with
technologically advanced and cost-effective solutions coupled with excellent customer service. We
continue to receive important orders and contracts from companies that first became our customers
20 or more years ago. We are particularly proud of the recognitions that we have received from our
customers, such as the Gold Supplier Awards we received in 2004 from
Northrup-Grumman. These
awards, two of fifteen awarded from an eligible pool of approximately 1,500 suppliers, recognized
our successful efforts on a highly challenging and technically advanced contract. Growth Strategy EMS will seek to continue to grow with the markets in which we have a leading position, expand our
share in other markets, and penetrate new markets, through the following strategies: Focus on Core Strengths and Growth Markets Our core strengths include our technological expertise in high-speed wireless communications and
our reputation and experience in advanced wireless markets. We will continue to focus our efforts
on serving customers in growth markets where these core strengths enhance our ability to
commercialize new technologies and maintain a competitive advantage. Develop and Expand Our Technology We intend to continue investing in the development and commercialization of our mobile high-speed
data technologies. We have assembled a team of over 550 engineers who
participate in our development efforts. In 2004, we invested $19 million in company-sponsored
research and development. We believe this investment will enable us to maintain technological
leadership in our current products and develop new capabilities, while we reduce our manufacturing
costs and time-to-market. 4 of 70




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Enhance Our Product Offerings We will continue our efforts to improve our existing products and to introduce innovative new
products for our existing and prospective customers. We will also continue to invest in our ability
to provide excellent after-sale support. These efforts will include working cooperatively with our
customers to identify and respond to evolving market needs. Selectively Pursue Acquisitions We intend to continue to pursue strategic acquisitions that broaden our product offerings, increase
our market share within the markets that we currently serve, and provide us incremental
technological or industry expertise. Examples of our approach include:  
    the 2004 acquisition of intellectual property and engineering capabilities
enabling us to produce precision antenna positioners for use with certain of our
products and defense programs;  
    the 2002 acquisition of critical technology used in our aeronautical
high-speed-data terminals, and of related engineering capabilities that enable us
to participate in the development of hardware and standards for future
Inmarsat-based satellite data systems;  
    the 2001 acquisition of a line of indoor and outdoor PCS/cellular repeaters and
related technical capabilities, to broaden our PCS/cellular product line; and  
    the 2000 acquisition of incident-management software capabilities, to complement
our COSPAS-SARSAT search-and-rescue ground terminals. *************** We are unable to provide any assurance that these strategies, our perceived competitive advantages
previously discussed in this Report, or our efforts to grow in general, will be successful in the
conditions prevailing in future periods. Moreover, we may change one or more of these strategies or
adopt new strategies, and we undertake no obligation to update this disclosure to reflect any such
changes, except as may be required by law. Please see the section below headed RISK FACTORS for a
discussion of currently known material risks that could affect our future growth and financial
performance. 5 of 70




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Our Markets and Products Our business is the design, manufacture and sale of advanced wireless communications products. We
participate in selected markets within the broad wireless communications industry that typically
require a high level of technical expertise, innovative product development, and in many cases,
specialized manufacturing capabilities. Although our businesses share a common heritage and focus
on wireless communications, they address a variety of markets with different technical and
manufacturing requirements, distribution channels, customers and purchasing processes. Accordingly,
we are organized into five separately managed business units, as follows: Business Unit
    
    Primary Operations
    
Percentage
of net sales2004
    
    2003
    
    2002Defense & Space Systems
    
    Highly engineered
hardware for
satellites and
defense
applications
(majority defense)
    
    
    19
    %
    
    
    19
    %
    
    
    22
    %LXE
    
    Rugged mobile
computer terminals
and other equipment
for wireless local
area networks
(predominantly
commercial)
    
    
    43
    
    
    
    39
    
    
    
    37EMS Wireless
    
    Base station
antennas and signal
repeaters for
PCS/cellular
systems
(commercial)
    
    
    17
    
    
    
    20
    
    
    
    21SATCOM
    
    Satellite
communications
antennas and
terminals for
aircraft and
ground-based
vehicles (majority
commercial)
    
    
    15
    
    
    
    17
    
    
    
    14SatNet
    
    Hubs and
user-terminals for
broadband, two-way
satellite data
systems based on
the DVB-RCS open
standard
(predominantly
commercial)
    
    
    6
    
    
    
    5
    
    
    
    6
 Defense & Space Systems The Defense & Space Systems unit (formerly known as Space & Technology/Atlanta) of EMS principally
develops advanced microwave-based hardware for use in terrestrial, airborne and satellite-based
defense applications. Its products are also incorporated in a number of commercial and civil
ventures, including high-capacity communications satellites, and systems for bringing satellite
television signals to the seat backs of commercial airliners. Defense & Space Systems products are
sold primarily to defense and space prime contractors or commercial communications systems
integrators rather than to end-users. Defense markets are vital to our Defense & Space Systems business. Secure communications and
intelligence and surveillance systems are being newly developed or significantly upgraded as part
of the U.S. Department of Defense transformational communications and information dominance
initiatives. European defense ministries are also pursuing significant new and upgraded systems.
Our Defense & Space Systems unit provides defense customers with critical subsystems and components
for terrestrial, airborne and space-based communication, and for radar and electronic warfare
systems, and supports advanced surveillance, electronic counter-measure and secure communications
capabilities. Our Defense & Space Systems facilities meet requirements for performing on
classified, including Top Secret, military programs, and over 170 of our personnel hold Department
of Defense security clearances. Products
    
    Key Features/Benefits
    
    Selected Applications
    
    ProgramsSpace
Solutions
    
    Microwave communications signals in satellites and
spacecraft; Includes switch networks, beam-forming
networks, auto-track modulators and radar illuminator
subsystems that track land-based rockets
    
    Commercial satellites,
Military satellites
    
    Skynet5, AEHF, TSAT, SARLupe,
COSMO, DirecTV, XMRadioAirborne
and Terrestrial Solutions
    
    Satellite, radar, signal intelligence and
line-of-sight communications; Combat identifications
for terrestrial based vehicles
    
    Commercial/military aircraft,
Military satellites
    
    F/A-22, ALQ-211, F-16, LiveTV,
B2 EHF, JCM, NMTProducts
and Services
    
    Phase and amplitude control of
communications signals.
Includes ferrite circulators, isolators, phase
shifters, switches, and positioners.
    
    Direct broadcast,
Direct video/audio,
Earth observation, Launch tracking
    
    B2, F-14, Phalanx, Astra, XMRadio,
BMD, NASA RTF
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LXE EMSs LXE division designs, manufactures and installs rugged mobile computers for use with wireless
local area networks (LANs) that enable a customer to collect data and transact supply-chain
execution events in real-time. Its products are designed to operate in harsh environments and in
settings with difficult radio-connectivity characteristics. They are used primarily in logistics
applications such as warehouses and container port operations, a market that LXE products were the
first to address in the early 1980s. By providing network connectivity for mobile users, LXEs
products increase the accuracy, timeliness and convenience of data collection and information
access. The increased use of improved computing and advanced automatic-identification technologies
(such as RFID) and the widespread adoption of the 802.11 wireless LAN standards are creating new
demand and applications in established industrial markets, as well as in other vertical markets,
such as transportation and service applications. A typical LXE system consists of mobile computers that incorporate wireless LAN radios and
automatic-identification capabilities, network access points that provide a radio link to the wired
network and host computers, and software that manages and facilitates the communications process.
Typical uses include employment of real-time data communications in directing and tracking
inventory movement in a large warehouse, manufacturing facility, or container yard. LXE products
normally are used in conjunction with IT infrastructure products provided by others, such as host
computer systems and inventory-management or other applications software. LXE designs and manufactures the mobile computers it sells for use in wireless systems, with the
exception of several models that LXE jointly designed with, and purchases from, original equipment
manufacturers. LXEs computers are intended to be either handheld or mounted on a forklift or other
vehicle, and are ruggedized to withstand harsh conditions in warehouses and port facilities. Our
latest generation of mobile computers has significantly more computing power than previous models,
supports the WindowsÒ and Windows CEÒ operating systems, and offers improved
power-management features and superior ergonomics. LXEs rugged computers and wireless networks have been installed at more than 6,500 sites
worldwide, including the facilities of many Fortune 500 companies and some of the worlds largest
materials-handling installations. LXEs wireless data systems, which generally incorporate barcode
scanning or other automatic-identification capabilities, are increasingly based on the 802.11 open
system standards. Hardware is marketed both to end-users and to integrators (such as value-added
resellers who provide inventory management software) that incorporate it with their products and
services for sale and delivery to end-users. Products
    
    Key Features/Benefits
    
    Selected Applications
    
    CustomersHand-held computers
    
    Small, lightweight and rugged true mobility
    
    Warehousing,
Logistics
    
    CPG Manufacturers,
Third-party Logistics
providers, Retailers,
Container Port
OperatorsVehicle-Mounted
Computers
    
    Larger, heavy-duty for forklifts, etc.
    
    Warehousing,
LogisticsWireless Networks
    
    Communications link between mobile
computers and local network, Supports
IEEE 802.11, as well as proprietary system
at 900MHz
    
    Warehousing,
LogisticsOther
    
    Host connectivity software; wide array of
accessory products and services
    
    Warehousing,
Logistics
 EMS Wireless The EMS Wireless division is a leading supplier of base-station antennas used by service providers
in PCS/cellular communications networks. EMS Wireless also designs and markets repeater products
that enable PCS/cellular service providers to extend their usable signals into buildings, or into
sparsely populated geographical areas. This business unit was first organized in 1994, and expanded
into repeater products in 2001. The infrastructure to support terrestrial-based wireless communications has expanded to support
growing demand, both domestically and internationally. During the mid-1990s, the continuing growth
of demand for cellular communications strained the capacity of traditional analog cellular systems
that can carry only one call per channel of radio spectrum. As a result, in recent years most
service providers have 7 of 70




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installed digital equipment
to increase per-channel call capacity by factors ranging from three to eight. In addition, service providers
have constructed PCS digital networks that operate at twice the frequency level of cellular
systems; this provides the greater bandwidth necessary for an expanded range of voice and data
services. However, PCS technology requires smaller cells than analog technology and, as a result,
approximately four times the number of base stations to complete its geographical build-out.
Emerging wireless data applications are expected to further expand demand for PCS/cellular
infrastructure by providing service providers with additional opportunities to generate revenue
from their networks. EMS Wireless has an extensive line of base station antennas. Our leading antenna products employ
polarization-diversity technology, which we introduced to the PCS/cellular markets. These antennas
offer comparable or superior coverage and resistance to signal-fading, as compared with networks
with conventional vertically-polarized antennas. In addition, this technology allows cell towers to
be simpler, less expensive, and less obtrusive than conventional antenna towers. We also offer a
full line of lower-priced, conventional antennas for both cellular and PCS networks. Newer products
include antennas whose downtilt angle, and thus area of coverage, can be remotely adjusted to adapt
to changing usage patterns and network configurations, and dual-band antennas that operate at both
PCS and cellular frequencies, which is of increasing importance as industry consolidation results
in carriers that hold multiple spectrum rights in single markets. Our EMS Wireless outdoor repeater products enable service providers to extend or improve coverage
in areas where usage does not warrant the expense of a new base station. Our in-building repeater
products include cable distribution products for use in small and medium buildings, and fiber-based
products that can provide effective coverage in large facilities such as convention centers. We
believe that in-building coverage is of increasing importance to service providers, particularly
for those using PCS frequencies, which do not effectively penetrate into buildings. Our wireless infrastructure products, along with accessory products, are marketed directly to
service providers and to OEMs, both domestically and internationally. Products
    
    Key Features/Benefits
    
    Selected Applications
    
    CustomersDual Polarization
Antenna
    
    Functionality of
three vertically
polarized antennas
in one device.
Compact
configuration, less
expensive investment
    
    PCS/Cellular towers
    
    PCS/Cellular CarriersVertical
Polarization
Antenna
    
    Lower-cost polarized
antenna. Apply
beam-shaping
techniques of
amplitude and phase
weighting
    
    Rural or initial
urban systems
    
    PCS/Cellular CarriersRepeaters/Signal
Distribution
Products
    
    Extend RF coverage
either indoors or
into rural or uneven
terrain locations
    
    Indoor and
rural/remote RF
coverage extension
    
    PCS/Cellular
Carriers and
integrators
 SATCOM The EMS SATCOM unit supplies a broad array of terminals and antennas to enable customers in
aircraft and other mobile platforms, such as military command vehicles or over-the-road trucks, to
communicate over satellite networks at a variety of data speeds. Portions of this business date to
the early 1990s, but SATCOM was first organized as a business unit in 2001, and the majority of
its growth and major product expansions have occurred since that time. The first aeronautical systems for telephony utilized ground-based networks. These networks were
not only limited in the voice quality of their communications, but they were unable to provide
coverage over water for international travel. Evolution of aeronautical telephony involved a
special antenna aboard the aircraft that allowed the use of satellite transmissions, not only for
voice but also for limited data and fax capabilities. Reflecting the need for mobile communications
in the business world, satellite communications systems of various types are now commonly used on
corporate and commercial jets around the world. Current industry efforts are directed towards
higher-speed satellite-based applications such as video, enterprise data systems, and Internet
access. To address these trends, SATCOM has introduced products that currently support in-air
communications at true data speeds of up to 256 kbps, which are adequate to provide e-mail and
Internet access in addition to voice services. 8 of 70




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SATCOM is the top supplier of antennas for voice/data communications aboard corporate aircraft,
with about 90% of this market. Approximately 1,000 of our antennas have been installed on over 50
different types of aircraft. In
 addition, SATCOM supplies over 90% of all Inmarsat high-speed data terminals used aboard U.S.
military command aircraft, and has supplied this equipment to the U.S. Department of Defense
executive jet fleet. Our antennas typically are mounted atop the jets tail fin and are
automatically steered to remain pointed at a communications satellite during flight; however, we
have also developed a portable antenna that can be attached to, and removed from, military
transport aircraft on an as-needed basis. Our SATCOM division has also pursued opportunities to meet satellite-based communications needs for
ground-based vehicles, and offers two types of terminals for this market: low-speed satellite
packet data terminals, and higher-speed Global Area Network (GAN) terminals. SATCOM has been
successful in supplying its land-based high-speed-data products to the U.S. and certain European
military organizations, particularly for use in supplying data communications to mobile command
posts. SATCOM also manufactures search-and-rescue ground terminals and emergency-management
software for use with the COSPAS-SARSAT satellite system. SATCOMs hardware typically is marketed to third parties that incorporate it with their products
and services for sale and delivery to end-users. However SATCOMs emergency-management products are
often marketed directly to end-user organizations. Products
    
    Key Features/Benefits
    
    Selected Applications
    
    CustomersAeronautical
Antennas
    
    Mechanically-steered
antennas connected
to an aircrafts
navigational system
Steerable antenna
systems for live
television from
broadcast satellites
    
    High-end corporate
jets,
Private jets
    
    Gulfstream,
Bombardier
Honeywell, DassaultAeronautical
Terminals
    
    Provide aircraft
operators with
HSD-128 capability
    
    Corporate aircraft,
Government aircraft
    
    DoD,
Northrup-GrummanGlobal Area Network
(GAN) Terminals
    
    Worldwide access to
corporate networks
and the Internet
using Inmarsat
    
    Transportation
    
    U.S. Army, CNNSatellite Packet
Data Terminals
    
    Two-way messaging
and location
information in North
America
    
    Transportation,
Public Safety
    
    Long-haul trucking
companiesEmergency
Management Products
    
    Hardware and
software features
for Search and
Rescue (SAR) systems
    
    Rescue and Mission
Control centers
    
    Over 18 Governments
Worldwide
 Satellite Networks EMSs Satellite Networks, or SatNet, division offers ground segment equipment for two-way,
satellite-based broadband data communications, particularly well suited for multimedia content,
using the DVB-RCS open-standard system that EMS helped pioneer. Our design maximizes power and
bandwidth efficiency, resulting in superior performance and lower recurring costs for service
providers and their end-users. To date, SatNet customers have been satellite service providers
providing various specialized services, as well as business enterprises and other organizations
having needs for high-speed data connections among widespread facilities, or with facilities in
remote locations. Target customers for service providers are typically small businesses, home
offices and high-end consumers who are otherwise unable to meet their communications needs due to
location, limited access to terrestrial broadband systems, or high levels of required data
transmissions. SatNet has also become increasingly involved in national projects in countries to
provide high-speed satellite Internet connections for applications such as distance learning and
health services. SatNet has delivered more than 30 systems in Europe, North America and Asia. SatNet supplied
Societe Europeene des Satellites (SES), which is the worlds largest satellite service provider,
with the Return Link Subsystem (RLSS) portion of the hub, offered by the SatLynx joint venture
among Gilat, SES and Alcatel. SatNet is also working with Alcatel Space to integrate our RLSSs
into systems being marketed to incumbent telecommunications companies offering satellite overlay
high-speed Internet services to complement their existing terrestrial networks. SatNet systems include hubs and end-user satellite interactive terminals. The hubs manage the
communications between the satellite and the service providers terrestrial network, and also
control and coordinate transmissions between the satellite and the individual users terminals.
These terminals include an outdoor antenna unit and an indoor terminal that connects with the
users computer. We delivered our first system in 2000. SatNet has since developed lower-cost hubs
and hubs that can be used by multiple service providers. SatNet continues to develop 9 of 70




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upgraded versions of the terminals, which are available in multiple models and various
transmit/receive frequency bands (e.g., Ku/Ku, Ka/Ku, etc). As a result of enhanced design and
improved manufacturing techniques, the newer terminals have a significantly lower cost than those
from earlier generations. SatNet hardware is marketed both directly through a small sales force, and also to third-party
integrators that incorporate it with their products and services for sale and delivery to service
providers. Products
    
    Key Features/Benefits
    
    Selected Applications
    
    CustomersHubs
    
    DVB-RCS standards,
from one-way
platforms to
complete gateways,
support network and
subsystem sizes from
under 100 terminals
to more than 10,000
    
    TV and Internet
services, distance
learning
    
    Satellite operators
Major government
initiativesSatellite
Interactive
Terminals (SITs)
    
    DVB-RCS standards,
both forward and
return channel
capabilities;
enterprise and
Professional Series
for different users
    
    
    
    Small niche service
providers
Enterprise networks
providers
Major corporations
 Sales and Marketing Our Defense & Space Systems unit produces highly technical products that often are custom designed
or modified for the particular intended use. For these products, internal personnel with strong
engineering backgrounds, including business unit executives, conduct significant sales efforts.
Defense & Space Systems also uses independent marketing representatives, both in the U.S. and
internationally, selected for their knowledge of specific markets and their ability to provide
technical support and ongoing, direct contact with current and potential customers. The development of major business opportunities for Defense & Space Systems often involves
significant bid-and-proposal effort. This work often requires Company-funded, complex, pre-award
engineering to determine the technical feasibility and cost-effectiveness of various design
approaches. The customer base for defense and space electronics comprise a relatively small number of large
corporations, which are typically first- or second-tier contractors. Our Defense & Space Systems
marketing efforts rely on ongoing communications with this base of potential customers, both to
determine the customers future needs and to inform customers of our capabilities and recent
developments. Technical support and service after the sale are also important factors that affect
our ability to maintain strong relationships and generate additional sales. The sales and marketing strategies for our other units involve direct sales to end users, and
indirect sales through third parties that often integrate our hardware with their products and
services for delivery to end-users. Third parties include: strategic partners, value-added
resellers, original equipment manufacturers, and distributors and independent marketing
representatives in approximately 35 countries. LXE maintains a direct sales force of approximately 15 salespersons located across North America
and 30 salespersons working through nine international subsidiaries (seven in Europe), all assisted
by inside sales and sales support staff. For EMS Wireless, sales and marketing is performed by an
internal staff and three regional sales offices in North America, with international sales being
handled by two employees based in Atlanta, one in Venezuela and one in Brazil. For marketing of
SATCOM products, we rely on our relationships with major airframe manufacturers, avionics
manufacturers, a network of completion centers that install aeronautical products, and value-added
resellers. SatNet sells through strategic partner integrators, such as Alcatel Space, as well as
directly to service providers and enterprise end-users through an internal staff. Research, Development and Intellectual Property We conduct substantial research and development activities. Overall, in 2004, 2003 and 2002, we
spent $19.0 million, $19.3 million, and $20.4 million, respectively, on internally funded research
and development. In addition, our work under government and commercial contracts for new wireless
communications hardware often leads to innovations that benefit us on future contracts and product development efforts; most of the costs
for this work are included with the overall manufacturing costs for specific orders. 10 of 70




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We use both domestic and foreign patents to protect our technology and product development efforts.
As of December 31, 2004, we own 74 current U.S. patents, expiring during the years 2005 through
2022, and 85 non-U.S. patents expiring 2006 through 2020. In addition, we have filed pending
applications for approximately 50 U.S. and 75 foreign patents, covering various technology
improvements and other current or potential products. We have maintained internal patent expertise
since 2001, and expect to continue to expand our patent activities. However, we also believe that
many of our processes and much of our know-how are more efficiently and effectively protected as
trade secrets, and we seek to maintain that protection through the use of employee and third-party
non-disclosure agreements, physical controls, need-to-know and other access, disclosure and use
restrictions. Backlog The backlog of firm orders related to continuing operations at December 31, 2004, was $91.9
million, compared with $83.2 million at December 31, 2003. EMS Wireless, LXE and many SATCOM and
SatNet customers typically require short delivery cycles; as a result, these units usually convert
orders into revenues within a few weeks, and they do not build up an order backlog that extends
substantially beyond one fiscal quarter. However, backlog is very important for Defense & Space
Systems, due to the long delivery cycles for its products. The backlog for Defense & Space Systems
at December 31, 2004, was $56.0 million compared with $50.1 million at December 31, 2003. Of our
Defense & Space Systems backlog at December 31, 2003,
$33.2 million  was recognized as revenue during 2004. Manufacturing For some of our products, particularly those of Defense & Space Systems, we perform extensive
manufacturing operations, including the formulation and fabrication of unique ferrite-based ceramic
materials, precision machining, and the production of advanced integrated electronic circuitry. For
others, we primarily perform final assembly and test manufacturing functions. Our manufacturing
strategy is:  
    to perform those functions for which we have special capabilities and that are most
critical to quality and timely performance,
    to equip ourselves with the modern tools we need to perform our manufacturing functions
efficiently,
    to use outside sources for functions requiring special skills that we do not have, or
that do not offer attractive returns on internal investment in people and equipment, and
    to continually seek ways to further improve the cost-effectiveness and time-to-market of
our manufacturing operations. All of our production activities have been ISO 9000-certified. Our facilities, equipment and
processes enable us to meet all quality and process requirements applicable to our products under
demanding military and space hardware standards, and we are also certified by the Federal Aviation
Administration and Transport Canada to manufacture equipment for installation on commercial
aircraft. Materials Materials used in Defense & Space Systems products consist of magnetic microwave ferrites, metals
such as aluminum and brass, permanent magnet materials and electronic components such as motors,
servos, transistors, diodes, ICs, resistors, capacitors and printed circuit boards. Most of the
raw materials for the formulation of magnetic microwave ferrite materials are purchased from two
suppliers, while permanent magnet materials and space-qualified electronic components are purchased
from a limited number of suppliers. Electronic components and metals are available from a larger
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The electronic components and supplies, printed circuit assemblies, and molded parts needed for the
standard products produced by our other business units are generally available from a variety of
sources. However, LXE systems include barcode scanners in almost all orders, and a significant
number of the scanners are purchased from Symbol Technologies, Inc., (Symbol) which is also an
LXE competitor; however, there are alternative suppliers that manufacture and sell barcode scanners
under license agreements with Symbol. We believe that LXEs competitors also rely on scanning
equipment purchased from or licensed by Symbol. In addition, LXE has a license agreement with
Symbol that allows it to utilize Symbols patented integrated scanning technology in certain
products. Our advanced technology products often require sophisticated subsystems supplied or cooperatively
developed by third parties having specialized expertise, production skills and economies of scale.
Important examples include critical specialized components and subsystems required for successful
completion of particular Defense & Space Systems programs, and application-specific integrated
circuitry and computers incorporated in LXE products. In such cases, the performance, reliability
and timely delivery of our products can be heavily dependent on the effectiveness of those third
parties. We believe that our present sources of required materials are adequate, and that the loss of any
supplier or subassembly manufacturer would not have a material adverse effect on our business as a
whole. In the past, shortages of supplies and delays in the receipt of necessary components have
not had a material adverse effect on shipments of our established products. However, from time to
time, the rollout of new standard products, and our performance on Defense & Space Systems
programs, have been adversely affected by quality and scheduling problems with developers/suppliers
of critical subsystems. In some cases, these problems have resulted in significant additional costs
to us, and in difficulties with our customers. We cannot give any assurances that such problems
will not have a material adverse effect on us in the future. Competition We believe that each of our business units is an important supplier in its principal markets.
However, some of these markets are small and many are highly competitive, and some of our
competitors have substantial resources and facilities that exceed ours. We also compete against
smaller, specialized firms. Our Defense & Space Systems unit competes with specialized divisions of large U.S. industrial
concerns, such as Boeing, L3 Communications, Harris Corporation, Raytheon, M/A-Com, Heico
Corporation, and Titan Corporation, as well as with such non-U.S. companies as COMDEV of Canada,
and Chelton, Ltd. of the U.K. Some of these companies, as well as others, are both potential
competitors for certain contracts and potential customers on other contracts. In addition, our
Defense & Space Systems division experiences competition in the form of existing or potential
customers choice between developing and manufacturing a product internally or purchasing it from
us. For LXE, principal competitors are Unova, Symbol Technologies, and Psion Teklogix. EMS Wireless
competes with large U.S. and international companies, including Andrew Corporation, Powerwave,
Radio Frequency Systems (RFS), and Kathrein. In SATCOMs markets, we compete with Thrane & Thrane,
Chelton, Ltd., Tecom, Nera and Qualcomm. In the SatNet market, we compete with EB Nera, Newtec,
ViaSat, Gilat and Hughes Network Systems. We believe that the key competitive factors in all business units are product performance,
technical expertise and ongoing support to customers, time-to-market, time-to-ship and adherence to
delivery schedules, and price. Space & Technology/Montreal (Discontinued Operations) Our Space & Technology/Montreal division designs and manufactures innovative satellite
communications products, including satellite payloads, systems, subsystems, antennas and electronic
products, and other components designed for use in space and that address the need for reliable,
high-speed communications. It has produced payloads and full antenna systems for major
communications and remote sensing satellites, as well as robotics for NASAs Space Shuttle and the
International Space Station. 12 of 70




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Although this business unit has long been a leading participant in the commercial and civil space
industries, both in Canada and internationally, its financial performance has been volatile, often
in response to wide swings in
 commercial space production cycles. It also has required the commitment of substantial managerial
and capital resources during periods of vigorous activity and numerous perceived opportunities for
our other divisions. As a result, in the third quarter of 2003 we initiated efforts to sell this
operating unit. At that time, all of its activities, operations and financial results, which in
prior years had been combined with Defense & Space Systems in a single unit for financial reporting
purposes, were moved to discontinued operations for all periods presented in our consolidated
financial statements, and it is not included in the discussions of our business appearing above. The sales and marketing for this division is similar to that of our Defense & Space Systems unit,
requiring significant bid-and-proposal costs, and relying heavily on technical personnel. The Space
& Technology/Montreal backlog at December 31, 2004, was
$40.6 million compared with $53.2 million at
December 31, 2003. Our discontinued operations incur research and development costs in response to the unique
technical requirements of a customers order, and includes most of these costs with the overall
manufacturing costs for the order. However, this unit receives significant governmental tax credits
and other research and development support that reduces the net cost of these efforts. The principal competitors for our discontinued operations are Alenia, Harris Corporation,
International Rectifier, and ComDev. Its key competitive factors are product performance, technical
expertise, on-going customer support, adherence to delivery schedules, and price. The situation for
this unit with respect to access to critical materials and subcontracted work is the same as that
for our Defense & Space Systems division. Our discontinued operations have approximately 376
employees, of whom approximately 200 hold engineering degrees, including approximately 20 doctorates.
Approximately 300 employees are represented by one
of three labor unions. Management believes that its relationship with its labor force is good. This division is housed in a
330,000 square-foot facility, on 19 acres of land, of which
approximately 5 acres are undeveloped,
 in a suburb of Montreal. One-fourth of this facility comprises manufacturing, assembly and
laboratory space, including state-of-the-art near-field and far-field test range areas and a
subsystem and payload integration area. Three-fourths of the facility is used for engineering and
administrative office space. The location in the province of Quebec affords significant research
and development tax incentives and credits sponsored by the provincial government. Employees As of December 31, 2004, our continuing operations employed approximately 1,000 persons.
Approximately 64% of our employees are directly involved in engineering or manufacturing
activities. An aggregate of 75 of the approximately 90 employees of our SatNet division, which is
located in Montreal, Quebec, are represented by one of three separate labor unions. Management
believes that its relationship with its employees is good. Government Regulation Certain of our products are subject to regulation by various agencies in both the U.S. and abroad.
The radios used in the wireless networks sold by LXE, and in the satellite communications terminals
sold by our SATCOM and SatNet divisions, must have various approvals from the Federal
Communications Commission (FCC) and similar agencies in other countries in which those systems
are sold. Our airborne satellite communications equipment requires certifications from the Federal
Aviation Administration for installation on civil aircraft. In addition, a large portion of
revenues of our Defense & Space Systems division is derived from government end-use contracts that
are subject to a variety of federal acquisition regulations, including pricing and cost-accounting
requirements, and in many cases to security requirements related to classified military programs.
The European Union imposes standards for electrical safety, electromagnetic compatibility, and
environmental impact that affect many of our products sold in those countries. We believe that our products and business operations are in material compliance with current
standards and regulations. However, governmental standards and regulations affect the design, cost
and schedule for new products. In addition, future regulatory changes could require modifications
in order to continue to market certain of our products. 13 of 70




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Our products for use in defense applications and in high-performance satellite applications are
subject to the U.S. State Departments International Traffic in Arms Regulations, and as a result
we must obtain licenses in order to export these products, or to disclose their non-public design
features to persons who are not citizens or permanent residents of the United States. We maintain
trained internal personnel to monitor compliance, to educate our personnel on the restrictions and
procedures, and to process license applications. At times, the licensing process has prevented us
from competing with non-U.S. suppliers on European or Asian space programs, and it also affects the
extent to which we can involve our Canadian-based engineers in Defense & Space Systems programs, or
use Defense & Space Systems engineers and capabilities to assist our Canadian divisions on their
products or programs. RISK FACTORS The business operations of EMS involve significant risks and uncertainties that could adversely
affect its financial condition, results of operations, and future development, and those risks and
uncertainties could also cause a decline or slow growth in the future market value of our shares. Risks Related to Our Business In addition to the risk of changes in general economic conditions, both domestic and foreign, which
can change unexpectedly and generally affect U.S. businesses with worldwide operations, the risks
and uncertainties that may adversely affect us 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 that are 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. 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 reasons, 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 and/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. Our sales of
wireless communications could be affected by public health concerns. 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 14 of 70




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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 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
Defense & Space Systems unit 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
therefore 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 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 15 of 70




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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 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 under the heading
Business  Legal Proceedings. If our customers are combined through merger or acquisition, their combined purchases of our
products may decline or they may increase their price concession demands, adversely affecting our
sales or profits. The telecommunications service provider industry has undergone, and continues to undergo, a
significant reduction in the number of service providers as a result of mergers of many of the
providers, who typically are purchasers of our products. Business combinations, such as mergers,
often lead the combined entity to reduce the number of suppliers it uses. If our customers are
combined, they may also demand greater price concessions from their suppliers, which increasingly
include the use of reverse auctions. Those actions could cause declines in our revenues and
profitability. 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 may be unable to sell our Space & Technology/Montreal business unit at the price we currently
anticipate. We have been actively seeking a purchaser for our Space & Technology/Montreal business unit, which
is classified as discontinued operations, since 2003. While we believe we have made substantial
progress in identifying and working with potential buyers, we do not have an agreement for its
sale. At such time as we enter into a sales agreement, its terms may be less favorable to the
Company than we currently anticipate, in which case our earnings would be reduced by additional
write-downs related to the disposition. The operation of our Space & Technology/Montreal business unit may cause us to incur additional
losses and cash requirements until we succeed in selling that business. For so long as we hold
S&T/Montreal, any losses that it incurs will be reflected in our
consolidated financial
statements, either through discontinued operations or, should we for any reason cease our efforts
to conclude a sale, through continued operations. Also, the operations of S&T/Montreal often result
in inconsistent cash collections, and until the unit is sold the funding of any cash deficits will
require us to use our credit facilities, which increases our borrowing costs and reduces our
ability to use cash and credit resources for other purposes. 16 of 70




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We may be unable to sell our Space & Technology/Montreal division on the timetable we have been
expecting. When we decided to seek to sell our Space & Technology/Montreal division, we expected to complete
the sale within one year. Although we continue with sales-related activities involving several
prospective purchasers, we have not yet sold the division. 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 may require that we revise our financial statement presentation and
restate our historical financial results to fully consolidate our Space & Technology/Montreal
division. In addition, if we are unable to accomplish a sale in the near future, 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 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 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
earnings 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 and related regulations, products for use on high-performance
commercial satellites are generally 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 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. 17 of 70




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Economic or political conditions in other countries could cause our revenues or profitability to
decline. International sales
significantly affect our financial performance. Approximately $100 million in revenues
for fiscal year 2004, or 38% of consolidated revenues, were derived from customers residing outside
of the U.S. 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. 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, prior years remain open to audit, and a
significant level of disallowances in the future could have an
unfavorable effect on our consolidated statements
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 increases 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. 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 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 Defense & Space Systems 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 18 of 70




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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 warranties of between 1 and 3 years; however, we have some products with
warranties of up 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. Changes in our consolidated effective income tax rate and the related effect on our results can be
difficult to predict far in advance. We earn taxable income in various tax jurisdictions around the world. The rate of income tax that
we pay in each jurisdiction can vary significantly, due to differing income tax rates and benefits
that may be available in some jurisdictions and not in others. In particular, our earnings in
Canada are subject to very low income taxes due to the substantial pool of research-related tax
incentives that we have accumulated. As a result, our overall effective income tax rate depends
upon the relative annual income that we expect to earn in each of the tax jurisdictions where we do
business. Our expectations for consolidated earnings before taxes could remain unchanged, but
income tax expenses and net earnings could still increase or decrease, depending upon changes in
where we expect to earn income. 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. We would need significant 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 credit or other financing, on acceptable terms, to support our growth
objectives. 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, and may incur amortization expenses and
write-downs of acquired asset as a result of future acquisitions, which
could cause our earnings per share to decline. 19 of 70




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Risks Related to our Common Stock In addition to risks and uncertainties related to our operations, there are investment risks that
could adversely affect the return to an investor in our common stock, and also could adversely
affect our ability to raise capital for financing future operations. 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 business units are heavily dependent on
customer orders or product shipments in the final weeks or days of the quarter. Due to some of the
risks related to our business 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
before the end of each quarter whether quarterly earnings will in fact meet prevailing
expectations. The market price for our shares is likely to be adversely affected by quarterly
earnings results that are below analyst and market expectations. 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. 20 of 70




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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
    in certain cases impose special voting requirements amend any of the foregoing provisions. FORWARD-LOOKING STATEMENTS The discussions of the Companys business in this Report, and in other public documents or
statements that may from time to time incorporate or refer to these disclosures, contain various
statements that are or may be deemed to be forward-looking. Forward-looking statements include, but
are not limited to:  1.
    statements about what the Company or management believes or expects,2.
    statements about anticipated technological developments or anticipated market
response to or impact of current or future technological developments or product
offerings,3.
    statements about trends in markets that are served or pursued by the Company,4.
    statements implying that the Companys technology or products are well suited for
particular emerging markets, and5.
    statements about the Companys plans for product developments or market initiatives. These forward-looking statements may differ materially from actual results due to the variety of
risks and uncertainties that affect the Company, including those set forth under the foregoing
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EXECUTIVE OFFICERS OF THE REGISTRANT Information concerning the executive officers of the Company is set forth below: Alfred G. Hansen, age 71, became President and Chief Executive Officer in January 2001. Mr. Hansen
joined the Company as President and Chief Operating Officer in January 2000. He became a Director
in 1999. From 1998 through 1999, Mr. Hansen was President of A.G. Hansen Associates, Inc.,
Marietta, Georgia, an aerospace marketing and manufacturing consultant. From 1995 to 1998, Mr.
Hansen served as Executive Vice President of Lockheed Martin Aeronautical Systems, with broad
operational responsibilities for its aerospace business, and as a Vice President of its parent
company, Lockheed Martin Corporation. Mr. Hansen retired from the U.S. Air Force in 1989 as a
four-star general, serving in his last assignment as commander of the Air Force Logistics Command. Don T. Scartz, age 62, was elected Executive Vice President of the Company in February 2003, and is
also Chief Financial Officer (since 1995) and Treasurer (since 1981). He served as Senior Vice
President from 1995 to 2003, as Vice President-Finance from 1981 to 1995, and as Secretary from
1982 to 1991. He joined the Company as Controller in 1978. He also serves as the principal
financial officer of each of the Companys operating subsidiaries. He served as Director of the
Company from 1995 to 2003. William S. Jacobs, age 59, became General Counsel and Secretary of the Company in 1992, and Vice
President in 1993. He is also responsible for the legal affairs of the operating subsidiaries.
Previously, he was engaged in the private practice of law, and in such capacity had served as the
Companys principal corporate legal counsel since 1982. James S. Childress, age 60, was appointed as a Vice President of the Company, and as President and
General Manager of the LXE subsidiary, in 2001. He joined the Company in August 2000 as Vice
President of Business Development at LXE. Prior to joining EMS, he served as Vice President of EG&G
Technical Services, Inc., a leading provider of technical and support services to the U.S.
Departments of Defense, Energy, Transportation, Treasury, Justice and Commerce, and to the National
Aeronautics and Space Administration. He joined EG&G in 1998 following a career in the U.S. Air
Force focused on logistics and systems acquisition. In the Air Force, he attained the rank of major
general, and last served as commander of the San Antonio Air Logistics Center. Jay R. Grove, age 42, is a Vice President of the Company, and Senior Vice President and General
Manager of the Defense & Space Systems division. He accepted this position upon joining the Company
in January 2001. Formerly, he was Director of Mobile SATCOM Systems for ViaSat, Inc., a
California-based provider of advanced satellite communications, defense electronics, and wireless
signal-processing equipment. Prior to his tenure at ViaSat, Mr. Grove contributed in management,
marketing, and system engineering roles for defense electronics applications at Lockheed-Martin in
Nashua, NH and TRW, Inc. in San Diego, CA. Alan L. Haase, age 44, is Vice President of the Company, and Senior Vice President and General
Manager, Space & Technology/Montreal (since 2003). Previously, he served as President (2000-2003),
Chief Executive Officer (2000-2003) and Chief Strategy Officer (2002-2003) of SkyCross, Inc., a
Melbourne, FL-based designer and manufacturer of antennas and other RF equipment for wireless
telecommunications products. From 1998 until 2000, Mr. Haase was a senior officer at Andrew
Corporation, a major manufacturer of radio and microwave transmission equipment, serving as Vice
President of its Terrestrial Microwave Systems unit and also as Group President  Communications
Products. T. Gerald Hickman, age 64, is a Vice President of the Company, and Senior Vice President and
General Manager, EMS Wireless (since March 2000). He joined the Company in 1988 as Vice President,
Marketing, and prior to his current position was a Vice President in the Companys EMS Wireless
division. Neilson A. Mackay, age 64, is a Vice President of the Company, and Senior Vice President and
General Manager, SATCOM Products (since 2001). He joined the Company in January 1993, when the
Company acquired an Ottawa, Ontario-based space satellite communications business of which he was
serving as President. Donald F. Osborne, age 45, is a Vice President of the Company, and Senior Vice President and
General Manager for the Satellite Networks division (since 2003). Prior to that position, he served
as Senior Vice President and General Manager of the Space & Technology/Montreal operations. He
joined the Company in January 1999, when the Company acquired the Spar Satellite Products business,
where Mr. Osborne had been Vice President, Marketing since 1986. Mr. Osborne joined Spar in 1983 as
a mechanical engineer. *********************** 22 of 70




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ITEM 2. Properties The Companys corporate headquarters and its Georgia operations are located in two buildings owned
by the Company (comprising 250,000 square feet of floor space on 21 acres), as well as in 136,000
square feet of leased office space (leases to expire in 2005, 2006 and 2009) in three other
buildings, all located in or near Technology Park, Norcross, Georgia, a suburb of Atlanta. The
combined Georgia facilities comprise clean rooms, a microelectronics laboratory, materials storage
and control areas, assembly and test areas, offices, engineering laboratories, a ferrites
laboratory, drafting and design facilities, a machine shop, a metals finishing facility and
painting facilities. The Companys Canadian divisions lease approximately 69,000 square feet of office and manufacturing
space, primarily for SATCOMs operations, located in Ottawa, Ontario (lease expiring in 2007), and
33,000 square feet of office and manufacturing space for SatNet operations located in Montreal
(lease expiring in 2009). The Companys assets held for sale include a 330,000 square-foot facility
on 19 acres of land, of which approximately 5 acres are undeveloped, in a suburb of Montreal. This
facility houses the Space & Technology/Montreal division. One-fourth of this facility comprises
manufacturing, assembly and laboratory space, including advanced near-field and far-field test
range areas and a subsystem and payload integration area. Three-fourths of the facility is used for
engineering and administrative office space. The facilitys location in the province of Quebec
affords it significant tax incentives and credits sponsored by the provincial government. The Companys EMS Wireless division leases an 11,000 square-foot manufacturing facility in
Curitiba, Brazil, from its local industrial partner (a manufacturer of antenna towers for wireless
telecommunications). The lease is annually renewable, and management expects to continue the lease
on terms comparable to those of the current lease. The Company has leased several small sites in the U.S., U.K., Europe, Singapore and Australia for
LXE sales offices and a SATCOM engineering facility. If any of these leases were terminated, the
Company believes that it could arrange for comparable replacement facilities on favorable terms. 
 ITEM 3. Legal Proceedings The Company is party to litigation styled Andrew Corporation (Andrew) v. EMS Technologies, Inc.
initiated in the U.S. District Court for the Northern District of Illinois on May 25, 2004,
alleging that EMS Wirelesss new remotely controlled electronic-downtilt base station antennas
infringe on patent rights held by Andrew, and seeking an injunction against manufacture or sale of
the allegedly infringing devices, and damages in an unspecified amount. Andrew alleges EMS
Wireless has committed willful infringement and thus additionally asks for damages to be enhanced
and for an award of attorneys fees. We have devoted substantial resources to studying the Andrew
patents as they might apply to our products. We believe that our products do not infringe any
valid or enforceable Andrew patent claims. In response to Andrews complaint, we have answered and
asserted defenses of invalidity and noninfringement. Additionally, EMS Wireless has asked the U.S.
Patent Office to reexamine at least one of the patents at issue. The parties have collectively
requested the Court to stay further proceedings while settlement discussions are underway.
Although we are confident of our legal position, we cannot assure the outcome of this litigation.
If the patents were successfully enforced against our products, we could be subject to payment of
substantial damages and an injunction against further distribution of what we consider to be an
important product for our future EMS Wireless sales. 
 ITEM 4. Submission of Matters to a Vote of Security Holders None. 23 of 70




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Part II 
 ITEM 5.
    
    Market for Registrants Common Equity and Related Stockholder Matters
and Issuer Purchases of Equity Securities
 The common stock of EMS
Technologies, Inc. is traded in the over-the-counter market (NASDAQ
symbol ELMG). At March 10, 2005, there were approximately
500 shareholders of record, and the Company believes that there
were approximately 3,600 beneficial shareholders, based upon broker requests
for distribution of Annual Meeting materials. The price range of the stock is shown below: 2004 Price Range
    
    
    2003 Price RangeHigh
    
    
    Low
    
    
    High
    
    
    LowFirst Quarter
    
    $
    26.31
    
    
    
    16.47
    
    
    $
    18.39
    
    
    
    11.30Second Quarter
    
    
    23.25
    
    
    
    17.50
    
    
    
    15.03
    
    
    
    10.00Third Quarter
    
    
    19.81
    
    
    
    13.84
    
    
    
    19.24
    
    
    
    12.96Fourth Quarter
    
    
    18.59
    
    
    
    14.86
    
    
    
    22.64
    
    
    
    16.86
 The Company has never paid a cash dividend with respect to shares of its common stock, and has
retained its earnings to provide cash for the operation and expansion of its business. The Company
cannot currently declare or make any cash dividends due to restrictions in its revolving credit
agreement. Future dividends, if any, will be determined by the Board of Directors in light of the
circumstances then existing, including the Companys earnings and financial requirements and
general business conditions. 24 of 70




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ITEM 6. Selected Financial Data (in thousands, except
    
    Years ended December 31earnings (loss) per share)
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000Net sales
    
    $
    260,418
    
    
    
    256,213
    
    
    
    235,771
    
    
    
    201,391
    
    
    
    186,800Cost of sales
    
    
    169,619
    
    
    
    163,744
    
    
    
    151,172
    
    
    
    132,153
    
    
    
    122,161Selling, general and administrative expenses
    
    
    62,835
    
    
    
    57,851
    
    
    
    51,374
    
    
    
    43,962
    
    
    
    39,413Research and development expenses
    
    
    18,953
    
    
    
    19,278
    
    
    
    20,372
    
    
    
    20,435
    
    
    
    14,682Contract reserve adjustment
    
    
    
    
    
    
    
    
    
    
    (3,500
    )
    
    
    3,500
    
    
    
    Write-down of NetSat 28 assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,891Operating income
    
    
    9,011
    
    
    
    15,340
    
    
    
    16,353
    
    
    
    1,341
    
    
    
    7,653Non-operating income (expense)
    
    
    949
    
    
    
    360
    
    
    
    (58
    )
    
    
    565
    
    
    
    173Foreign exchange (loss) gain
    
    
    (471
    )
    
    
    (446
    )
    
    
    390
    
    
    
    (14
    )
    
    
    Interest expense
    
    
    (2,676
    )
    
    
    (2,147
    )
    
    
    (2,329
    )
    
    
    (3,488
    )
    
    
    (3,450
    )Earnings (loss) from continuing
operations before income taxes
    
    
    6,813
    
    
    
    13,107
    
    
    
    14,356
    
    
    
    (1,596
    )
    
    
    4,376Income tax (expense) benefit
    
    
    (2,453
    )
    
    
    (4,237
    )
    
    
    (4,699
    )
    
    
    1,641
    
    
    
    (984
    )Earnings from continuing operations
before accounting change
    
    
    4,360
    
    
    
    8,870
    
    
    
    9,657
    
    
    
    45
    
    
    
    3,392Discontinued operations:Gain/(loss) from discontinued operations
    
    
    (4,625
    )
    
    
    (50,614
    )
    
    
    (1,596
    )
    
    
    5,643
    
    
    
    1,418Income tax benefit (expense)
    
    
    457
    
    
    
    4,352
    
    
    
    526
    
    
    
    (821
    )
    
    
    (319
    )Earnings (loss) before accounting change
    
    
    192
    
    
    
    (37,392
    )
    
    
    8,587
    
    
    
    4,867
    
    
    
    4,491Cumulative effect of change in accounting
principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (351
    )
    
    
    Net earnings (loss)
    
    $
    192
    
    
    
    (37,392
    )
    
    
    8,587
    
    
    
    4,516
    
    
    
    4,491Earnings (loss) per share:Basic:From continuing operations
    
    $
    0.39
    
    
    
    0.83
    
    
    
    0.91
    
    
    
    0.01
    
    
    
    0.39From discontinued operations
    
    
    (0.37
    )
    
    
    (4.32
    )
    
    
    (0.10
    )
    
    
    0.51
    
    
    
    0.12Cumulative
effect of change in accounting principal
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.04)
    
    
    
    Net earnings (loss)
    
    $
    0.02
    
    
    
    (3.49
    )
    
    
    0.81
    
    
    
    0.48
    
    
    
    0.51Diluted:From continuing operations
    
    $
    0.39
    
    
    
    0.82
    
    
    
    0.90
    
    
    
    0.01
    
    
    
    0.38From discontinued operations
    
    
    (0.37
    )
    
    
    (4.29
    )
    
    
    (0.10
    )
    
    
    0.50
    
    
    
    0.12Cumulative
effect of change in accounting principal
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.04)
    
    
    
    Net earnings (loss)
    
    $
    0.02
    
    
    
    (3.47
    )
    
    
    0.80
    
    
    
    0.47
    
    
    
    0.50Weighted average number of shares:Common
    
    
    11,094
    
    
    
    10,702
    
    
    
    10,561
    
    
    
    9,464
    
    
    
    8,766Common and dilutive common equivalent
    
    
    11,237
    
    
    
    10,785
    
    
    
    10,731
    
    
    
    9,563
    
    
    
    8,912
 As of December 312004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000Working capital related to continuing
operations (1)
    
    $
    89,314
    
    
    
    46,123
    
    
    
    44,419
    
    
    
    51,789
    
    
    
    44,388Total assets
    
    
    255,078
    
    
    
    228,549
    
    
    
    256,303
    
    
    
    236,816
    
    
    
    216,113Long-term debt, excluding current installments
    
    
    57,992
    
    
    
    15,537
    
    
    
    18,759
    
    
    
    30,739
    
    
    
    36,591Stockholders equity
    
    
    126,021
    
    
    
    120,042
    
    
    
    145,985
    
    
    
    132,321
    
    
    
    111,429
 No cash dividends have been declared or paid during any of the periods presented.   (1)
    
    Working capital for the Company including discontinued operations was as follows (in
thousands): $87,949, $45,201, $67,405, $67,541 and $54,590 for 2004, 2003, 2002, 2001 and
2000, respectively. 25 of 70




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ITEM 7. Managements Discussion and Analysis of Financial Condition and Results of Operations Overview: We design, manufacture and market products that are important in many kinds of wireless
communications. We focus on the needs of the mobile information user, with an increasing emphasis
on broadband applications for high-data-rate, high-capacity wireless communications. Following is a summary of significant factors affecting the Company in 2004: For continuing operations:  
    Consolidated sales increased slightly in 2004, with sales growth at the LXE and Defense
& Space Systems divisions being largely offset by sales declines at EMS Wireless and
SATCOM.
    We believe that EMS Wirelesss antenna markets were unfavorably affected in 2004 by
telecom industry consolidation. We believe that SATCOMs markets have continued to grow,
and the 2004 revenue total  the second highest on record  would have compared very
favorably with any other prior year except 2003, when SATCOM achieved record sales, in
part on the strength of new U.S. defense applications.
    LXE, Defense & Space Systems, and SATCOM remained significantly profitable in 2004, but
the start-up SatNet division had a net loss of $3.7 million for the year. SatNet competes
in an emerging market, which requires significant investment in R&D despite the inherent
uncertainty of the timing of new orders. Subsequent to the end of 2004, we announced
plans to restructure our participation in the SatNet business by investigating joint
ventures and other strategic options.
    Our effective income tax rate increased to 36% in 2004 due to lower profits earned in
Canada, where we have a very low effective tax rate. For discontinued operations:  
    We continued to pursue a formal plan to dispose of our Space & Technology/Montreal
division. Accordingly, we accounted for this division as discontinued operations.
    Space & Technology/Montreal reported a net after tax loss of $2.3 million, but a
significant factor in this result was the accrual of foreign exchange adjustments on
several long-term contracts, due to the presently unfavorable effect of a weak U.S. dollar
versus the Canadian dollar. Additionally during the year, we accrued a $1.7 million
charge to write down the assets held for sale to their estimated fair value. Results of Operations Most revenues were derived from commercial and international markets (86% in 2004, 87% in 2003 and
81% in 2002), as compared with sales for U.S. government end-use. More revenues were derived from
sales to systems integrators, third-party manufacturers and distributors than from sales directly
to end-users. Net Sales Consolidated net sales increased to $260 million in 2004, compared with $256 million in 2003 and
$236 million in 2002. For 2004 compared with 2003, the largest growth occurred in the LXE and
Defense & Space Systems segments. For LXE, the increase is due to increased hardware unit sales
and service revenues in both North America and our international markets as a result of our market
leadership with respect to the introduction of new products and the benefit of favorable exchange rates for the Euro and other foreign currencies
versus the U.S. dollar. For the Defense & Space Systems segment, the increased sales reflect
substantial new orders in 2004 related to the growth of specific opportunities for commercial
application of our 26 of 70




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antenna technologies. The
combined sales increase at LXE and Defense & Space Systems was offset by declines in sales at the EMS Wireless and SATCOM segments in 2004. We
believe that EMS Wirelesss antenna markets were unfavorably affected in 2004 by telecom industry
consolidation. SATCOMs 2004 revenues were the second highest in the segments history, but this
total was still less than the record revenue level set in 2003, when orders benefited from new U.S.
defense applications of SATCOM products. For 2003 compared with 2002, the most significant growth occurred in the LXE and SATCOM segments.
For LXE, the increase in sales was due to favorable European market conditions and currency
exchange rates, as well as the introduction of new products and new partner and service programs.
For the SATCOM segment, the increase in sales was mainly due to higher unit sales of aeronautical
and land mobile terminals for new U.S. defense applications. Net Sales and Operating Income by Segment Our segment net sales and operating income (loss) were as follows (in thousands): Years ended December 312004
    
    
    2003
    
    
    2002Net sales:Defense & Space Systems
    
    $
    50,051
    
    
    
    49,381
    
    
    
    54,210Less sales to discontinued operations
    
    
    (236
    )
    
    
    (1,819
    )
    
    
    (1,431
    )Defense & Space Systems external sales
    
    
    49,815
    
    
    
    47,562
    
    
    
    52,779LXE
    
    
    111,575
    
    
    
    101,075
    
    
    
    88,229EMS Wireless
    
    
    45,418
    
    
    
    51,381
    
    
    
    48,001SATCOM
    
    
    39,693
    
    
    
    44,736
    
    
    
    32,724SatNet
    
    
    14,184
    
    
    
    12,572
    
    
    
    14,153Less sales to discontinued operations
    
    
    (284
    )
    
    
    
    
    
    
    SatNet external sales
    
    
    13,900
    
    
    
    12,572
    
    
    
    14,153Other
    
    
    17
    
    
    
    (1,113
    )
    
    
    (115
    )Total
    
    $
    260,418
    
    
    
    256,213
    
    
    
    235,771Operating income (loss):Defense & Space Systems
    
    $
    2,614
    
    
    
    3,915
    
    
    
    5,010Contract reserve adjustment
    
    
    
    
    
    
    
    
    
    
    3,500Subtotal
    
    
    2,614
    
    
    
    3,915
    
    
    
    8,510LXE
    
    
    7,262
    
    
    
    6,966
    
    
    
    4,797EMS Wireless
    
    
    (720
    )
    
    
    2,529
    
    
    
    2,432SATCOM
    
    
    1,713
    
    
    
    5,026
    
    
    
    3,962SatNet
    
    
    (2,921
    )
    
    
    (2,100
    )
    
    
    (1,824
    )Corporate & other
    
    
    1,063
    
    
    
    (996
    )
    
    
    (1,524
    )Total
    
    $
    9,011
    
    
    
    15,340
    
    
    
    16,353
 Defense & Space Systems:Orders for long-term defense contracts have generally increased in 2004,
2003, and 2002, resulting not only in revenue growth over this period, but a record backlog of
defense orders at the end of 2004, which totaled almost $33 million. We believe the growing orders
activity in defense relates to the U.S. militarys commitment to enhance its communications, radar
and electronic warfare capabilities. Sales in 2004 also increased due to increasing activity on
non-defense orders, including significant work to supply antennas for systems that provide live
television on commercial aircraft. For 2003 compared with 2002, overall segment sales decreased due
to a drop in non-defense orders in 2003. LXE:Net sales for the LXE segment increased in 2004 from 2003 and 2002, and we believe the growth
over this period has been due to the continued expansion of our product line of rugged computers
for logistics, to our favorable position as a market leader, and to new partner and service
programs. Additionally, we believe that market conditions and currency exchange rates have
benefited our international customers purchasing power, which enhanced the marketability of our
products. 27 of 70




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EMS Wireless:Net sales decreased in 2004 compared with 2003 due to lower capital spending by our
customers, which we believe related to uncertainty during a period of consolidation in the telecom
industry. As a result, U.S. sales from the base station antenna product line decreased by
one-third in 2004 from 2003. However, the unfavorable effect of lower antenna sales was somewhat offset by substantial growth in the sales of
repeaters, which set a new record for sales in 2004. Sales of antennas manufactured in our
Brazilian subsidiary were also higher in 2004 compared with 2003, reflecting a build-out of
wireless networks in Latin American markets. In 2003, net sales increased as compared with 2002 due to greater unit sales of repeater products,
which more than offset slightly lower antenna sales in 2003 due to a lower level of rollout
activity by the major U.S. wireless service providers. SATCOM:Most of SATCOMs sales over the three years ended December 31, 2004 have been for
installation of our products on military command aircraft and on corporate jets. SATCOMs 2004
revenue total  the second highest on record  would have compared very favorably with any prior
year other than 2003, when SATCOM achieved record sales on the strength of new U.S. defense
applications. The increase in SATCOMs sales in 2003 from 2002 was due to the continued growth of unit sales of
high-speed data aeronautical terminals and land-mobile portable terminals. Sales of aeronautical
terminals, especially in the earlier part of 2003, benefited from demand for enhanced mobile
communications capabilities for senior U.S. military commanders. SatNet: This segment is our start-up venture providing DVB-RCS-standard hubs and terminals for
broadband communications via satellite. There were higher net sales in 2004 compared with 2003.
Although sales of hubs were relatively flat when comparing the two periods, there was a significant
increase in the number of terminals sold in 2004, as current systems customers expand their
business base. Sales of hubs were higher in 2003 as compared with 2002, however, overall sales declined because
there were lower sales of terminals in 2003. Cost of Sales Cost of sales, as a percentage of consolidated net sales, was 65% in 2004, 64% in 2003 and 64% in
2002. In 2004, a significant factor in the increase in the cost of sales percentage was the
unfavorable effect of a stronger Canadian dollar on the costs associated with the Canada-based
SATCOM and SatNet segments. Increases were somewhat offset by staff reductions. Selling, General and Administrative Expenses Selling, general and administrative expenses (SG&A), as a percentage of consolidated net sales,
has increased somewhat, to 24% in 2004, from 23% in 2003 and 22% in 2002. One of the main factors
for successive increases in SG&A has been higher selling and marketing expenses in support of sales
growth at LXE, SatNet, and SATCOM. Additionally, SG&A has increased due to the strengthening of
the Canadian dollar and Euro versus the U.S. dollar, which has raised the translated U.S. dollar
equivalent of SG&A expenses incurred outside the U.S. Increases were somewhat offset by staff
reductions. Research and Development Expenses Research and development expenses (R&D) represent the cost of our internally funded efforts.
Significant R&D efforts also occur under specific customer orders in the Defense & Space Systems
segment and, accordingly, are reflected in cost of sales. We have reported successive moderate
decreases in R&D during 2004, 2003 and 2002. These decreases were planned as major development
efforts, such as development of high-speed aeronautical terminals for SATCOM, enhanced product
designs for SatNet, and new repeater products for EMS Wireless were completed. 28 of 70




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Contract Reserve Adjustment In 2001, we had accrued a $3.5 million contract reserve for potential settlement of an agreement to
supply broadband aeronautical antennas to a customer. In 2002, that customer was acquired, and we
subsequently negotiated a new long-term supply agreement with the acquiring company. Based on the
terms of this new agreement and the strong financial position and creditworthiness of the acquiring
company, we concluded that we no longer needed the $3.5 million reserve. The elimination of this
reserve resulted in a consolidated statement of operations benefit in the fourth quarter of 2002. Non-Operating Income The most significant element of non-operating income for 2004 was a $938,000 pre-tax gain for the
sale of unutilized real estate adjoining our facility 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. We use foreign currency denominated
forward contracts to hedge our exposure to fluctuations in foreign currency exchange rates. Many of our Canadian operations contracts with our customers are in U.S. dollars, and foreign
exchange losses result from a weaker U.S. dollar against the Canadian dollar. Our Canadian
operations also do a significant amount of business in the United Kingdom, and foreign exchange
losses result from a weaker 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. These liabilities arise when the
subsidiaries buy hardware from the parent for resale in Europe. A weaker U.S. dollar against the
Euro usually results in foreign exchange gains. The Company enters into forward currency contracts to reduce the level of gains and losses from
changes in foreign currency exchange rates. Net of the effect of these forward contracts, the
Company reported net foreign currency losses in 2004 and 2003 of $471,000 and $446,000
respectively, which was mainly the result of a weaker U.S. dollar against the Canadian dollar. In
2002, the net foreign currency gain of $390,000 resulted primarily from a period during the year
when the U.S. dollar strengthened against the Canadian dollar. Interest Expense Interest expense increased to $2.7 million in 2004, up from $2.1 million in 2003 and $2.3 million
in 2002. The increase in 2004 from 2003 resulted mainly from an increase in the U.S. prime rate and
in LIBOR, as well as approximately $200,000 of bank fees associated with the extension of our
previous revolving loan agreement and the new revolving credit loan initiated in December of 2004.
The decrease in 2003 from 2002 was due to lower interest rates and to lower debt levels as a result
of positive cash flow. The average interest rate on the Canadian revolving credit loan did not
change significantly, as the decline in the Canadian prime rate was offset by the increase in
pricing of the facility based on the amendments to the Canadian credit agreement. Income Tax Expense The main factor affecting our consolidated effective income tax rate each year is the relative
proportion of taxable income that we earn in Canada, where we have a much lower effective rate than
in the U.S. or other locations due to tax benefits for research-related expenditures. In 2004, we
had a net taxable loss in Canada, because SatNets loss exceeded SATCOMs earnings; because of our
low effective rate in Canada, we recorded a small income tax benefit related to the net Canadian
loss. In addition, all of our remaining income was earned in the U.S. and 29 of 70




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other jurisdictions where we incur a higher income tax rate than in Canada. As a result, our overall
effective rate was 36% in 2004, as compared with 32% in 2003 and 33% in 2002, when we earned
substantially more of our taxable income in Canada. In 2005, we expect the effective income tax
rate to be similar to the rate reported in 2004. Loss from Discontinued Operations The $4.6 million loss from discontinued operations in 2004 related mainly to two factors affecting
the Space & Technology/Montreal division that is held for sale: two large commercial space
contracts experienced a combined $2.8 million of losses due to technical and supplier difficulties,
and we recorded an additional $1.7 million charge to write down the value of assets held for sale
to their estimated fair value less costs to dispose. The $50.6 million loss in 2003 reflected approximately $34 million
of losses at Space & Technology/Montreal from additional costs and reserve provisions for legacy
commercial space programs, and additional costs of downsizing. Also in 2003, we recorded a $13.5
million charge to write down the Space & Technology/Montreal assets to estimated fair value less costs to dispose, and a
$2.9 million loss related to the sale in 2003 of our healthcare product line. The $1.6 million
loss in 2002 related to losses on commercial space contracts at Space & Technology/Montreal. Liquidity and Capital Resources During 2004, net cash
provided by continuing operating activities was $13.9 million, compared with
$16.3 million in 2003 and $16.3 million in 2002. The Company purchased $7.0 million in fixed assets
during 2004 and paid $1.8 million related to acquisitions. The Company received proceeds of $2.9
million from the sale of assets, which included $735,000 related to
the sale of stock and $2.2 million related to the sale of unused land in Montreal. During 2004, the net borrowing of long-term debt
was $5.3 million which included proceeds of $4.7 million
deposited at a Canadian bank as
collateral for outstanding letters
of credits and foreign currency forward contracts. Such amounts were classified as
restricted cash on the Companys consolidated financial
statements. Most of this cash collateral will become
available to the Company in the first half of 2005 as the underlying letters of credit and forward
contacts expire or are settled. Approximately $1.1 million was paid for loan
closing fees associated with the new debt agreement which will be
amortized over the term of the loan (3 years). In December 2004, the Company entered into a new debt facility with an aggregate borrowing capacity
of $55.0 million under a senior secured revolving credit agreement. This new agreement replaced the
previous revolving credit loans with a U.S. bank and a Canadian bank. Under the new agreement, the
Company had $25.0 million in total capacity for borrowing in the
U.S. and $30.0 million in total capacity for
borrowing in Canada at the end of the year. The new U.S. revolver facilities are secured by
substantially all tangible and intangible assets, with certain exceptions for real estate that
secures existing mortgages and other permitted liens. The new revolver matures in three years with
no principal payments required until maturity. Interest under both the U.S. and the Canadian revolving loans are, at the Companys option, a
function of either the banks prime rate or LIBOR. A commitment fee equal to .50% per annum of the
daily average unused credit in both the U.S. and Canada is payable quarterly. At December 31, 2004, the Company had $3.3 million available for borrowing in the U.S. and $3.6
million available for borrowing in Canada under the revolving credit agreement after current
borrowings and outstanding letters of credit. In addition, the new
debt agreement requires the Company to maintain an aggregate reserve
of $5.0 million in unused revolving credit and cash related to an S&T/Montreal contract. The revolving credit agreement includes a covenant that establishes a quarterly minimum required
consolidated net worth. The minimum consolidated net worth required at December 31, 2004 was
approximately $113 million, as compared with the reported consolidated net worth of approximately
$126 million. Other covenants under the agreement include a maximum ratio of total funded debt to
historical earnings before interest, taxes, depreciation, and amortization (EBITDA) and a minimum
ratio of historical EBITDA less capital expenditures and taxes paid to specified fixed charges,
mainly interest and scheduled principal repayments under all debt agreements. There are various
other debt covenants that are customary in such borrowings. The agreement also restricts the
ability of the Company to declare or make cash dividends. At December
31, 2004, the Company was in compliance with these  covenants. 30 of 70




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On February 11, 2005, the Company amended its U.S. and Canadian revolving credit agreements to
increase the aggregate borrowing capacity from $55.0 million to $65.0 million, and to add another
financial institution in the U.S. and in Canada to the group of creditors in the agreement. Under
this amendment, the aggregate borrowing capacity of the revolving credit agreement is $32.5 million in
both the U.S. and Canada. During the year, the Company received $3.7 million from the exercise of stock options, net of withholding taxes paid. During 2004, discontinued operations (the Space & Technology/Montreal division, which is held for
sale) used net cash of $11.3 million. The Company expects that capital expenditures in 2005 will range from $11 million to $13 million.
These expenditures will be used primarily to purchase equipment that increases or enhances capacity
and productivity. Management believes that cash provided from operations and borrowings available under its credit
agreements will provide sufficient liquidity to meet the operating and capital expenditure needs
for existing operations during the next 12 months. To fund long-term growth, the Company may
consider such measures as public or private offerings of common stock or convertible securities. Commitments and Contractual Obligations The Company does not have any undisclosed off-balance sheet arrangements with an unconsolidated
entity that are reasonably likely to materially affect liquidity, the availability of capital
resources, or requirements for capital resources. Following is a summary of the Companys material contractual cash commitments as of December 31,
2004 (in thousands): Payments due by periodLess than
    
    
    
    
    
    
    
    
    
    
    After 5Contractual obligations
    
    Total
    
    
    1 year
    
    
    1-3 years
    
    
    4-5 years
    
    
    yearsLong-term debt, excluding capital
lease obligations
    
    $
    60,682
    
    
    
    2,980
    
    
    
    45,908
    
    
    
    2,485
    
    
    
    9,309Interest on
outstanding long-term debt (a)
    
    
    15,630
    
    
    
    4,061
    
    
    
    7,598
    
    
    
    1,638
    
    
    
    2,333Capital lease obligations
    
    
    815
    
    
    
    519
    
    
    
    296
    
    
    
    
    
    
    
    Operating lease obligations
    
    
    13,237
    
    
    
    4,421
    
    
    
    6,681
    
    
    
    2,135
    
    
    
    Deferred

compensation agreements
    
    
    213
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    213Foreign currency forward contracts, net
    
    
    202
    
    
    
    202
    
    
    
    
    
    
    
    
    
    
    
    Total contractual cash obligations
    
    $
    90,779
    
    
    
    12,183
    
    
    
    60,483
    
    
    
    6,258
    
    
    
    11,855
 (a) Assumes that the
revolving loan balances and related variable interest rates remain unchanged from December
31, 2004 until the loan matures in December of 2007. Following is a summary of the Companys purchase commitments as of December 31, 2004 (in
thousands): Less than
    
    
    
    
    
    
    
    
    
    
    After 5Purchase commitments
    
    Total
    
    
    1 year
    
    
    1-3 years
    
    
    4-5 years
    
    
    yearsContinuing Operations
    
    $
    20,565
    
    
    
    20,529
    
    
    
    36
    
    
    
    
    
    
    
    Discontinued Operations
    
    $
    8,070
    
    
    
    7,787
    
    
    
    283
    
    
    
    
    
    
    
    
 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. 31 of 70




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Following is a summary of the Companys material other commercial commitments as of December 31,
2004 (in thousands): Amount of commitment expiration per periodLess than
    
    
    
    
    
    
    
    
    
    
    After 5Other commercial commitments
    
    Total
    
    
    1 year
    
    
    1-3 years
    
    
    4-5 years
    
    
    yearsStandby letters of credit as
performance guarantees
    
    $
    8,761
    
    
    
    8,584
    
    
    
    107
    
    
    
    70
    
    
    
    
 We have deposited
$4.7 million at a Canadian bank as collateral for a portion of the above standby
letters of credit and for outstanding foreign currency forward
contracts. Such balances are classified as restricted cash on the
Companys consolidated balance sheet. Critical Accounting Policies Our consolidated financial statements have been prepared in accordance with U.S. generally accepted
accounting principles, which often requires the judgment of management in the selection and
application of certain accounting principles and methods. We consider the following accounting
policies to be critical to understanding our consolidated financial statements, because the
application of these policies requires significant judgment on the part of management, and as a
result, actual future developments may be different from those expected at the time critical
judgments are made. Revenue recognition on long-term contracts Revenue recognition for fixed-price, long-term contracts in the Defense & Space Systems and SATCOM
segments, as well as the Space & Technology/Montreal operations currently held for sale, is a
critical accounting policy involving significant management estimates. These segments long-term
contracts use the ratio of cost-incurred to total-estimated-cost as the measure of performance that
determines how much revenue should be recognized (percentage of completion method of accounting).
The determination of total-estimated-cost relies on engineering estimates of the cost to complete
the contract, with allowances for identifiable risks and uncertainties. These engineering estimates
are frequently reviewed and updated. However, unforeseen problems can occur to substantially reduce
the rate of future revenue recognition in relation to costs incurred. As of December 31, 2004, the
Company had recognized a cumulative total for continuing operations of $24.3 million in revenues
under percentage of completion method of accounting, but which revenues were unbilled as of that
date due to the billing milestones specified in the respective customer contracts. Two large contracts in discontinued operations that were accounted for under percentage completion
accounting experienced technical and supplier difficulties, resulting in increases to the estimated
cost at completion totaling over $8 million in 2003 and over $2.8 million in 2004. The Company
provided reserves for identified risks that could cause cost increases in the future. The larger
of the two contracts was very near completion at the end of 2004, but on the remaining smaller
contract, there is a risk that further unforeseen difficulties could cause increases to the cost at
completion that exceed the Companys provisions, resulting in further losses. Accounting for government research incentives Our accrual of research incentives from the Canadian government is a critical accounting policy
involving management estimates for Space & Technology/Montreal. 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 year
ended December 31, 2004, total incentives earned were approximately $3.7 million, compared with
$2.2 million for the year ended December 31, 2003. We have established procedures to identify
qualified costs and to submit appropriate claims for reimbursement; all of these claims are subject
to financial and scientific audits by the Canadian government concerning whether certain expenses
qualified for incentive programs. Although there have historically been no significant
disallowances of previously accrued incentives that resulted from these audits, such disallowances
in the future would have an unfavorable effect on our statement of operations. Inventory
valuation Management assesses inventory
valuation based upon an analysis of the aging of the inventory and
assumptions that management develops concerning how the value of
inventory for specific products, markets or applications may decrease over
time. Inventory write-downs are accounted for as adjustments to the related
inventorys cost basis, and reserves are reduced only upon
subsequent sale or disposal of the inventory, rather than an
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Evaluation of long-lived assets for impairment All long-lived assets on the consolidated balance sheet are periodically reviewed for impairment.
If an indication of impairment arises, we test recoverability by
estimating the cash flows
expected to result from the long-lived assets under several different scenarios, including the
potential sale of assets, as well as continuing to hold the assets under several different kinds of
business conditions. No long-lived assets that were classified as held and used were determined
to be impaired as of December 31, 2004. In the third quarter of 2003, the assets related to the Space & Technology/Montreal division and
the healthcare product line were reclassified from assets held and used to assets held for sale
due to a decision to dispose of these operations. 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 values upon disposal. Based on discussions in the third quarter of 2004 with
potential purchasers concerning the probable market value of the Space & Technology/Montreal
division, EMS recorded an additional $1.7 million valuation allowance in 2004 to reflect the
revised estimate of the fair value, less cost to sell, of this division. Our less-than-5% equity
investment in a limited partnership, SkyBridge LLP is included in the
assets reclassified to assets held for sale. The objective of this investment, which was
initially acquired in connection with the Companys acquisition of the Space & Technology/Montreal
operations in 1999, is to enable the Space & Technology/Montreal division to participate as a
hardware provider in the development and implementation by SkyBridge of a satellite network to
provide high-data-rate wireless services. Establishment of reserves for deferred income tax assets It is managements current expectation that our Canadian operations will earn more than enough
research-related tax benefits each year to offset any future Canadian federal tax liability for any
given year. As a result, we have reserved substantially all the net deferred tax assets associated
with these research-related tax benefits (totaling approximately $41 million at December 31, 2004),
because they are unlikely to be realized. However, this reserve may be reduced  resulting in an
income tax benefit to a future consolidated statement of operations  if (1) our profitability in
Canada increases, which would increase the tax liability incurred in future years, or (2) the level
of our qualified research in Canada decreases, which would lower the tax benefits earned in future
years. 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. Actual results could differ materially from those
suggested in any forward-looking statements as a result of a variety of factors. Such factors
include, but are not limited to:  
    uncertainties related to identifying a purchaser of the Space & Technology/Montreal
division, as well as external market conditions and internal priorities and constraints
that could affect a purchasers willingness and ability to complete the transaction on
terms and timing expected by the Company (in the event a suitable purchaser is not
identified, the Space & Technology/Montreal operations would, during 2005, be reclassified
back into continuing operations, and prior-year financial statements would be restated to
reflect that status);
    economic conditions in the U.S. and abroad and their effect on capital spending in the
Companys principal markets;
    difficulty predicting the timing of receipt of major customer orders, and the effect of
customer timing decisions on our quarterly results;
    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; 33 of 70




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
    successful resolution of technical problems, proposed scope changes, or proposed
funding changes that may be encountered on contracts;
    changes in the Companys consolidated effective income tax rate caused by the extent to
which actual taxable earnings in the U.S., Canada and other taxing jurisdictions may vary
from expected taxable earnings;
    successful completion of technological development programs by the Company and the
effects of technology that may be developed by, and patent rights that may be held or
obtained by, competitors;
    successful transition of products from development stages to an efficient manufacturing
environment;
    customer response to new products and services, and general conditions in our target
markets (such as logistics, PCS/cellular telephony and space-based communications);
    the success of certain of our customers in marketing our line of high-speed commercial
airline communications products as a complimentary offering with their own lines of
avionics products;
    the availability of financing for satellite data communications systems and for
expansion of terrestrial PCS/cellular phone systems;
    the extent to which terrestrial systems succeed in providing extensive broadband
Internet access on a dependable and economical basis;
    the demand growth for various mobile and high-speed data communications services; and
    the Companys ability to attract and retain qualified personnel, particularly those with key technical skills. Additional information concerning these and other potential risk factors is included in Item 1 of
this Annual Report on Form 10-K. Effect of New Accounting Pronouncements In October 2004, the FASB ratified Emerging Issues Task Force (EITF) Issue No. 03-13, Applying the
Conditions in Paragraph 42 of FASB Statement No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, in Determining Whether to Report Discontinued Operations. EITF Issue No. 03-13
is applicable to an entity that is held for sale or disposed of after
January 1, 2005, and it refines the
guidance of SFAS No. 144 related to continuing involvement between an ongoing entity and an entity
that is held for sale, and whether such continued involvement would permit the ongoing entity to
report the entity held for sale as discontinued operations. The Company does not expect a
significant migration of revenues to its continuing operations from the Space & Technology/Montreal
operation subsequent to disposal, and the Company does not expect to continue significant
activities with the Space & Technology/Montreal operation subsequent to disposal. As a result, the
Company has concluded that it has properly accounted for Space & Technology/Montreal as
discontinued operations, per the guidance in EITF Issue No. 03-13. In November 2004, the FASB issued SFAS No. 151, Inventory Costs  an amendment of ARB No. 43
Chapter 4. SFAS No. 151 more clearly defines when excessive idle facility expense, freight,
handling costs, and spoilage are to be current-period charges. In addition, SFAS No. 151 requires
the allocation of fixed production overhead to the cost of conversion to be based on the normal
capacity of the production facilities. SFAS No. 151 is effective for inventory costs incurred
during fiscal years beginning after June 15, 2005. The Company is still evaluating the impact of
SFAS No. 151 on the Companys consolidated financial statements. 34 of 70




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In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment, (SFAS No.
123R). SFAS No. 123R eliminates the intrinsic value method under Accounting Principles Board
Opinion (APB) No. 25, Accounting for Stock Issued for Employees, and requires the Company to use
a fair-value based method of accounting for share-based payments. Under APB No. 25, no compensation cost related to stock
options is recognized in the Consolidated Statements of Operations. SFAS No. 123R requires that
compensation cost for employee services received in exchange for an award of equity instruments be
recognized in the Consolidated Statements of Operations based on the grant-date fair value of that
award. That cost recognized at the grant-date will be amortized in the Consolidated Statements of
Operations over the period during which an employee is required to provide service in exchange for
that award. For the Company, SFAS No. 123R is effective as of the beginning of the third quarter
of 2005. The Company is still evaluating the impact on the Companys consolidated financial
statements and has the choice to use the modified prospective or modified retrospective methods
upon adoption of SFAS No. 123R. In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets  an amendment of
APB Opinion No. 29. SFAS No. 153 amends APB No. 29 to require that assets exchanged in a
nonmonetary transaction are to be measured at fair value except for those exchanges of nonmonetary
assets that lack commercial substance. SFAS No. 153 is effective for nonmonetary asset exchanges
occurring in fiscal years beginning after June 15, 2005. The Company is still evaluating the
impact of SFAS No. 153 on the Companys consolidated financial statements. In December 2004, the FASB issued FASB Staff Position 109-2 (FSP 109-2), providing guidance on the
application of SFAS No. 109, Accounting for Income Taxes, to a provision within the American Jobs
Creation Act of 2004 (the AJCA) related to a deduction for certain foreign earnings that are
repatriated. On October 22, 2004, the AJCA was signed into law. The AJCA includes a deduction of
85 percent of certain foreign earnings that are repatriated, defined in the AJCA. The AJCA could
potentially apply to repatriation of cumulative earnings by the Companys European sales
subsidiaries. The Company presently estimates that the potential amounts of unremitted earnings
being considered for repatriation could be in the range of $3 million to $5 million. However, the
Company has not yet begun its formal evaluation of the effect of the AJCA, and therefore the
Company has not yet determined (a) whether such earnings could actually be repatriated under
provisions of the AJCA, or (b) the range of income tax effects of such repatriation. The Company
expects to begin its evaluation of the potential application of the AJCA during the second half of
2005, with expected completion late in the same year. 
 ITEM 7a. Quantitative and Qualitative Disclosures about Market Risk At December 31, 2004, the Company had the following market risk sensitive instruments (in
thousands): Revolving
credit loan with U.S. and Canadian banks, maturing in
December 2007, interest payable quarterly at a variable rate (6.66% at December 31,
2004)
    
    $
    43,417Revolving credit loan with a bank in the United Kingdom, maturing in April 2005,
interest
payable monthly at a variable rate (5.75% at December 31, 2004)
    
    
    1,736Total market-sensitive debt
    
    $
    45,153
 A 1% increase in the interest rates of our market-sensitive debt obligations would have increased
interest expense by $362,000 for the year based upon the average outstanding borrowings under these
obligations. At December 31, 2004, the Company also had intercompany accounts that eliminate in consolidation
but that are considered market risk sensitive instruments. 35 of 70




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Short-term due to parent, payable by foreign subsidiaries in the following countries and arising
from purchase of the parents products for sale in Europe, Canada and Australia and from cash
advances to the parent at December 31, 2004 are: Exchange Rate($U.S. per unit of
    
    $U.S. in thousandsLocal Currency)
    
    (Reporting Currency)Canada.
    
    0.8308 /Dollar
    
    $
    1,076Belgium.
    
    1.3535 /Euro
    
    
    823Australia.
    
    0.7800 /Dollar
    
    
    799Italy.
    
    1.3535 /Euro
    
    
    717France.
    
    1.3535 /Euro
    
    
    659Netherlands.
    
    1.3535 /Euro
    
    
    335Sweden.
    
    0.1499 /Krona
    
    
    78Singapore.
    
    0.6124 /Dollar
    
    
    69Germany.
    
    1.3535 /Euro
    
    
    26United Kingdom.
    
    1.9161 /Pound
    
    
    17Total short-term due to parent
    
    
    
    $
    4,599
 At December 31, 2004,
the Company incurred unrealized losses from 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 contractsContinuing Operations:Euros (sell for U.S. dollars)
    
    1,600 Euros
    
    
    1.3494
    
    
    $
    (7
    )U.S. dollars (sell for Canadian dollars)
    
    3,000 USD
    
    
    1.1831
    
    
    
    (47
    )Euros (sell for Canadian dollars)
    
    750 Euros
    
    
    1.5611
    
    
    
    (43
    )Australian dollars (sell for U.S. dollars)
    
    1,000 AUD
    
    
    0.6750
    
    
    
    (105
    )$
    (202
    )Discontinued Operations:British pounds (sell for Canadian dollars)
    
    500 GBP
    
    
    2.2669
    
    
    $
    (7
    )$
    (7
    )
 The Company enters into foreign currency forward contracts in order to mitigate the risks
associated with currency fluctuations on future cash flows. 
 ITEM 8. Financial Statements and Supplementary Data Information required for this item is contained in the Consolidated Financial Statements and Notes
to Consolidated Financial Statements included immediately after the Signature Page of this Annual
Report on Form 10-K. 
 ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. 
 ITEM 9A. Controls and Procedures (a) Conclusion Regarding the
Effectiveness of Disclosure Controls and Procedure The Company has established disclosure controls and procedures to ensure, among other things, that material
information relating to the Company, including its consolidated
subsidiaries, is made known to the officers who certify the
Companys financial reports and to other members of senior management and the Board of Directors. The Companys management, including the Chief Executive Officer (CEO) and its Executive
Vice President and Chief Financial Officer (CFO), evaluated the effectiveness of the design and
 operation of the Companys disclosure controls and procedures as of December 31, 2004,
as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended  (disclosure controls). Based on that evaluation
and the two material weaknesses (discussed below) that were identified, the CEO and CFO have
concluded that the Companys disclosure controls were not effective as of December 31, 2004.
The Company believes that the accompanying financial statements fairly present the financial
condition and results of operations for the fiscal years presented in
this report on Form 10-K/A Amendment No. 1. (b) Managements Annual
Report on Internal Control Over Financial Reporting The Company is availing itself of the exemptive order granted by the Securities Exchange
Commission permitting qualified companies to file managements annual report on internal
control over financial reporting and the related attestation report of our independent
registered public accounting firm within 45 days of March 16, 2005. Such reports will be
filed on or before May 2, 2005 with the Companys Annual Report
on Form 10-K/A Amendment No. 1 for the
year ended December 31, 2004. 36 of 70




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While the Company has not completed its Sarbanes-Oxley Section 404
assessment, the Companys
management is currently assessing the effectiveness of its internal control over financial
reporting as of December 31, 2004 using the criteria set forth by the Committee of Sponsoring
 Organizations of the Treadway Commission in Internal Control-Integrated Framework. Management
has informed the Audit Committee of the Board of Directors that to date it has identified two
material weaknesses in the Companys internal control over financial reporting, as defined in
 Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, in the course of its
evaluation of the effectiveness of the Companys internal control over financial reporting as
of December 31, 2004. A material
weakness in internal control over financial
reporting is defined by the Public Company Accounting Oversight
Boards (PCAOB) Auditing
Standard No. 2 as a significant deficiency, or combination of significant deficiencies, that
result in a more than remote likelihood that a material misstatement of the annual or interim
financial statements will not be prevented or detected. The first material weakness relates to insufficient oversight and review related to revenue
recognition for multiple deliverables under certain contracts involving delayed delivery of
equipment, related software and future services that are supplemental to certain primary
equipment sold.  Specifically, the Company did not have controls in place to adequately
identify, evaluate and value elements of contracts involving multiple deliverables under the
applicable provisions of FASBs Emerging Issues Task Force Issue
No. 00-21, Revenue
Arrangements with Multiple Deliverables, and the AICPAs Statement of Position No. 97-02,
Software Revenue Recognition.  This material weakness resulted in errors in revenue recognition
 that were identified and corrected during the course of the
Companys 2004 audit, and they did
not affect the results of prior periods. The second material weakness relates to ineffective
oversight and review of the accounting for purchase price variances on certain purchased
materials.  Specifically, the Company did not maintain in one of its divisions adequate
review procedures to adjust the value of existing and certain newly acquired inventory
based on prices paid on purchases of parts that were not included in products
shipped during the period of purchase. In the context of exceptionally large such purchases,
this material weakness resulted in an error in the costing of inventory and recording and
 timing of cost of
sales.  The error was identified and corrected during the course of
the Companys 2004 audit,
and it did not affect the results for prior periods. Management has included in the accompanying consolidated financial statements as of
December 31, 2004 the appropriate adjustments to correct the errors resulting from these
 material weaknesses.  These adjustments had no impact on consolidated financial statements
for prior years. Management has not finalized its assessment of the Companys internal control over financial
reporting, which includes the process of
 evaluating the significance of other deficiencies that have been identified; however, based on the two material
weaknesses already identified, management expects to conclude that
the Companys internal control
over financial reporting
was not effective as of December 31, 2004.  Management also expects that KPMG LLP will agree
with managements assessment and conclude that the Companys internal control
over financial reporting
was not effective as of December 31, 2004. Additionally, KPMG LLP
has not yet completed its audit of the Companys internal control over financial
reporting, and other material weaknesses and significant deficiencies may be identified. (c) Changes in Internal Control Over Financial Reporting There were no significant changes in internal control, or in other factors that could
significantly affect internal control over financial reporting, during the fourth quarter of
 2004.  However, subsequent to December 31, 2004, the Company implemented additional controls and procedures
to address the two material weaknesses that have been identified:  
    The Company expanded its procedures to identify, evaluate and value all deliverables appropriately, as well as provided for additional management review of certain contracts with multiple deliverables.
    The Company improved its procedures to revise standard prices for purchased materials, and it implemented new procedures to revalue inventory more frequently and to provide for additional management review of the accounting for purchase price variances for purchased materials. 
 PART III 
 ITEM 10. Directors and Executive Officers of the Registrant The information concerning directors and the Audit Committee financial experts called for by this
Item will be contained in the Companys definitive Proxy Statement for its 2005 Annual Meeting of
Shareholders and is incorporated herein by reference. 37 of 70




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We have a written Code of Business Ethics and Conduct that applies to our directors and to all of
our employees, including our chief executive and chief financial officers. Our Code of Business
Ethics and Conduct has been distributed to all employees, is available free of charge on our
website at www.ems-t.com, under the link for Investor Relations, and is included as
Exhibit 14 to this Report. The information concerning executive officers called for by this Item is set forth under the
caption Executive Officers of the Registrant in Item 1 hereof. 
 ITEM 11. Executive Compensation The information called for by this Item will be contained in the Companys definitive Proxy
Statement for its 2005 Annual Meeting of Shareholders and is incorporated herein by reference. 
 ITEM 12. Security Ownership of Certain Beneficial Owners and Management The following table sets forth certain information about the Companys equity compensation plans as
of December 31, 2004: (c)(a)
    
    
    
    
    
    
    Number of securitiesNumber of securities
    
    
    (b)
    
    
    remaining available forto be issued upon
    
    
    Weighted average
    
    
    future issuance underexercise of
    
    
    exercise price of
    
    
    equity compensation plansoutstanding options,
    
    
    outstanding options,
    
    
    (excluding securitiesPlan Category
    
    warrants and rights
    
    
    warrants and rights
    
    
    reflected in column(a))Equity compensation plans approved
by security holders
    
    
    1,033,188
    
    
    
    $16.48
    
    
    
    413,659Equity compensation plans not approved
by security holders
    
    
    532,900
    
    
    
    $18.26
    
    
    
    73,362Total
    
    
    1,566,088
    
    
    
    $17.08
    
    
    
    487,021
 All other information called for by this Item will be contained in the Companys definitive Proxy
Statement for its 2005 Annual Meeting of Shareholders and is incorporated herein by reference. 
 ITEM 13. Certain Relationships and Related Transactions The information called for by this Item will be contained in the Companys definitive Proxy
Statement for its 2005 Annual Meeting of Shareholders and is incorporated herein by reference. 
 ITEM 14. Principal Accountant Fees and Services Information on the Audit Committees pre-approval policy for audit services, and information on the
principal accountants fees and services called for by this Item will be contained in the Companys
definitive Proxy Statement for its 2005 Annual Meeting of Shareholders and is incorporated herein
by reference. 
 PART IV 
 ITEM 15. Exhibits, Financial Statement Schedules (a) 1. Financial Statements The consolidated financial statements listed in the accompanying Index to Financial Statements,
appearing immediately after the Signature Page, are filed as part of this Annual Report on Form
10-K/A Amendment No. 1. 38 of 70




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(a) 2. Financial Statement Schedules Schedule II. Valuation and Qualifying Accounts  Years ended December 31, 2004, 2003 and 2002 All other schedules are omitted as the required information is inapplicable, or the information is
presented in the financial statements or related notes. SCHEDULE II  VALUATION AND QUALIFYING ACCOUNTS(in thousands): Years ended December 31, 2004, 2003 and 2002AdditionsBalance at
    
    
    charged to
    
    
    
    
    
    
    
    
    
    
    Balancebeginning
    
    
    costs and
    
    
    
    
    
    
    
    
    
    
    at endClassification
    
    of year
    
    
    expenses
    
    
    Deductions
    
    
    Other
    
    
    of yearAllowance for Doubtful Accounts:2002
    
    $
    870
    
    
    
    411
    
    
    
    (174
    )(a)
    
    
    
    
    
    
    1,1072003
    
    
    1,107
    
    
    
    902
    
    
    
    (472
    )(a)
    
    
    
    
    
    
    1,5372004
    
    
    1,537
    
    
    
    508
    
    
    
    (971
    )(a)
    
    
    
    
    
    
    1,074Valuation Allowance for Deferred Tax Assets:2002
    
    $
    8,931
    
    
    
    1,967
    (b)
    
    
    
    
    
    
    
    
    
    
    10,8982003
    
    
    10,898
    
    
    
    18,850
    (b)
    
    
    
    
    
    
    
    
    
    
    29,7482004
    
    
    29,748
    
    
    
    7,087
    (b)
    
    
    
    
    
    
    
    
    
    
    36,835Valuation Allowance for Assets Held for Sale:2002
    
    $
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2003
    
    
    
    
    
    
    13,500
    (c)
    
    
    
    
    
    
    
    
    
    
    13,5002004
    
    
    13,500
    
    
    
    1,700
    (c)
    
    
    
    
    
    
    
    
    
    
    15,200
 (a) Deductions represent receivables that were charged off to the allowance during the year, most
of which related to quantitatively-derived provisions based upon the aging of accounts receivable. (b) The 2004, 2003 and 2002 increases in the valuation allowance for deferred tax assets related
primarily to the net change in the underlying deferred tax assets associated with the Montreal
operations that the Company acquired in 1999. These deferred tax assets were fully reserved at
acquisition due to uncertainty about realization. As a result, this change in reserves had no
effect on the Companys 2004, 2003 or 2002 consolidated statements of operations. (c) The 2004 and 2003 charges are adjustments to write down to estimated fair value the Space &
Technology/Montreal assets held for sale. (a) 3. Exhibits The following exhibits are filed as part of this report: 3.1 Second Amended and Restated Articles of Incorporation of EMS Technologies, Inc., effective
March 22, 1999 (incorporated by reference to Exhibit 3.1 to the Companys Quarterly Report on Form
10-Q for the quarter ended April 3, 2004). 3.2 Bylaws of EMS Technologies, Inc., as amended through March 15, 1999 (incorporated by reference
to Exhibit 3.2 to the Companys Quarterly Report on Form 10-Q for the quarter ended April 3, 2004). 4.1 EMS Technologies, Inc. Stockholder Rights Plan dated as of April 6, 1999. * 4.2 Agreement with respect to long-term debt pursuant to Item 601(b)(4)(iii)(A) (incorporated by
reference to Exhibit 4.2 to the Companys Annual Report on Form 10-K for the year ended December
31, 2000). 4.3 U.S. Revolving Credit Agreement, dated as of December 10, 2004, among the Company, the lenders
from time to time party thereto, and SunTrust Bank as Administrative Agent. * 39 of 70




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4.4 Security Agreement, dated as of December 10, 2004, by the Company and certain of its
subsidiaries, in favor of SunTrust Bank as Collateral Agent. * 4.5 Pledge Agreement, dated as of December 10, 2004, by the Company and certain of its
subsidiaries, in favor of SunTrust Bank as Collateral Agent. * 4.6 Form of Note issued by the Company in favor of the lenders under the U.S. Revolving Credit
Agreement, dated as of December 31, 2004. * 4.7 Amendment No. 1, dated February 11, 2005, to U.S. Revolving Credit Agreement. * 4.8 Canadian Revolving Credit Agreement, dated as of December 10, 2004, among EMS Technologies
Canada, Ltd., the Company, the lenders from time to time party thereto, and Bank of America,
National Association (Canada Branch) as Canadian Administrative Agent and Funding Agent. * 4.9 Canadian Security Agreement, dated as of December 10, 2004, by EMS Technologies Canada, Ltd.,
in favour of Bank of America, National Association (Canada Branch) as Canadian Collateral Agent. * 5.0 Deed of Movable Hypothec, dated as of December 10, 2004, by EMS Technologies Canada, Ltd., in
favour of Bank of America, National Association (Canada Branch) as Canadian Collateral Agent. * 5.1 Canadian Intellectual Property Security Agreement, dated as of December 10, 2004, by EMS
Technologies Canada, Ltd., in favour of Bank of America, National Association (Canada Branch) as
Canadian Collateral Agent. * 5.2 Pledge Agreement, dated as of December 10, 2004, by the Company and certain of its domestic
subsidiaries in favour of Bank of America, National Association (Canada Branch) as Canadian
Collateral Agent. * 5.3 Trademark Security Agreement, dated as of December 10, 2004, by the Company and one of its
domestic subsidiaries in favour of Bank of America, National Association (Canada Branch) as
Canadian Collateral Agent. * 5.4 Patent Security Agreement, dated as of December 10, 2004, by the Company and one of its
domestic subsidiaries in favour of Bank of America, National Association (Canada Branch) as
Canadian Collateral Agent.* 5.5 Form of Note issued by the Company in favour of the lenders under the Canadian Revolving Credit
Agreement, dated as of December 31, 2004.* 5.6 Amendment No. 1, dated February 11, 2005, to Canadian Revolving Credit Agreement. * 10.1 Letter dated January 17, 2000 between the Company and Alfred G. Hansen concerning the terms of
his employment as President and Chief Operating Officer (incorporated by reference to Exhibit 10.7
to the Companys Annual Report on Form 10-K for the year ended December 31, 1999). 10.2 Form of Agreement between the Company and each of its executive officers, related to certain
change-of-control events (incorporated by reference to Exhibit 10.1 to the Companys Quarterly
Report on Form 10-Q for the quarter ended September 29, 2001). 10.3 EMS Technologies, Inc. Deferred Compensation Plan for Non-Employee Directors, effective
October 1, 2003 (incorporated by reference to Exhibit 10.3 to the Companys Annual Report on Form
10-K for the year ended December 31, 2003). 10.4 EMS Technologies, Inc. Officers Deferred Compensation Plan, effective November 13, 2003
(incorporated by reference to Exhibit 10.4 to the Companys Annual Report on Form 10-K for the year
ended December 31, 2003). 10.5 EMS Technologies, Inc. 1992 Stock Incentive Plan as amended through October 3, 1996
(incorporated by reference to Exhibit 10.11 to the Companys Registration Statement No. 333-14235
on Form S-4). 40 of 70




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10.6 Amendments adopted May 2, 1997, to the EMS Technologies, Inc. 1992 Stock Incentive Plan
(incorporated by reference to Exhibit 10.6 to the Companys Annual Report on Form 10-K for the year
ended December 31, 2003). 10.7 EMS Technologies, Inc. 1997 Stock Incentive Plan, as adopted January 24, 1997, and amended
through May 10, 2004 (incorporated by reference to Exhibit 10.1 to the Companys Quarterly Report
on Form 10-Q for the quarter ended July 3, 2004). 10.8 Form of Stock Option Agreement evidencing options granted prior to 2001 to executive officers
under the EMS Technologies, Inc. 1997 Stock Incentive Plan (incorporated by reference to Exhibit
10.8 to the Companys Annual Report on Form 10-K for the year ended December 31, 2003). 10.9 Form of Stock Option Agreement evidencing options granted after 2000 to executive officers
under the EMS Technologies, Inc. 1997 Stock Incentive Plan, together with related Terms of Officer
Stock Option, Form 1/25/01 (incorporated by reference to Exhibit 10.12 to the Companys Annual
Report on Form 10-K for the year ended December 31, 2000). 10.10 Form of Stock Option Agreement evidencing options granted automatically to non-employee
members of the Board of Directors upon their initial election to the Board, under the EMS
Technologies, Inc. 1997 Stock Incentive Plan (incorporated by reference to Exhibit 10.15 to the
Companys Annual Report on Form 10-K for the year ended December 31, 1999). 10.11 Form of Stock Option Agreement evidencing options granted automatically to non-employee
members of the Board of Directors, upon each election to an additional one-year term of service,
under the EMS Technologies, Inc. 1997 Stock Incentive Plan (incorporated by reference to Exhibit
10.16 to the Companys Annual Report on Form 10-K for the year ended December 31, 1999). 10.12 Form of Stock Option Agreement evidencing options granted to executive officers under EMS
Technologies, Inc. 1992 Stock Incentive Plan (incorporated by reference to Exhibit 10.12 to the
Companys Annual Report on Form 10-K for the year ended December 31, 2003). 10.13 Form of Stock Option Agreement evidencing options granted automatically under the 1992 Stock
Incentive Plan, on a one-time basis and prior to 1998, to non-employee members of the Board of
Directors (incorporated by reference to Exhibit 10.17 to the Companys Annual Report on Form 10-K
for the year ended December 31, 2000). 10.14 Stock Option Agreement dated January 7, 2000, evidencing options granted to Alfred G. Hansen
(incorporated by reference to Exhibit 10.22 to the Companys Annual Report on Form 10-K for the
year ended December 31, 1999). 10.15 EMS Technologies, Inc. Executive Annual Incentive Compensation Plan, as amended through April
30, 1999.* 10.16 Form of Indemnification Agreement between the Company and each of its directors (incorporated
by reference to Exhibit 10.16 to the Companys Annual Report on Form 10-K for the year ended
December 31, 2003). 10.17 Form of Indemnification Agreement between the Company and, each of Don T. Scartz and William
S. Jacobs (incorporated by reference to Exhibit 10.17 to the Companys Annual Report on Form 10-K
for the year ended December 31, 2003). 10.18 Form of Split-Dollar Insurance Plan, dated as of June 29, 1988 between the Company and Don T.
Scartz (incorporated by reference to Exhibit 10.18 to the Companys Annual Report on Form 10-K for
the year ended December 31, 2003). 10.19 Form of Split-Dollar Life Insurance agreement effective January 1, 1993, between the Company
and William S. Jacobs. * 41 of 70




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10.20 Summary of compensation arrangements with non-employee members of the Board of Directors. * 10.21 Summary of compensation arrangements with executive officers. * 14 EMS Technologies, Inc. Code of Business Ethics and Conduct, as revised February 6, 2004
(incorporated by reference to Exhibit 14 to the Companys Annual Report on Form 10-K for the year
ended December 31, 2003). 21.1 Subsidiaries of the registrant. * 23.1 Independent Registered Public Accounting Firm (KPMG LLP) Consent to incorporation by reference
in Registration Statement Nos. 2-76455, 33-50528, 333-20843, 333-32425, 333-35842, 333-86973 and
333-74770, each on Form S-8, and Registration Statement Nos. 333-61796 and 333-87160, each on Form
S-3. * 23.2 Independent Auditors (Ernst & Young LLP) Consent to incorporation by reference in
Registration Statement Nos. 2-76455, 33-50528, 333-20843, 333-32425, 333-35842, 333-86973 and
333-74770, each on Form S-8, and Registration Statement Nos. 333-61796 and 333-87160, each on Form
S-3. * 31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. * 31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. * 32 Certification of the Companys Chief Executive Officer and Chief Financial Officer pursuant to
18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *   *
    
    Filed herewith 42 of 70




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SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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: 3/31/05
 President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the Registrant and in the capacities and on the dates
indicated. Signature
    
    Title
    
    Date/s/ Alfred G. Hansen

Alfred G. Hansen
    
    President and Chief Executive Officer, and Director
(Principal Executive Officer)
    
    3/31/05/s/ Don T. Scartz

Don T. Scartz
    
    Executive Vice President, Chief Financial Officer,
and Treasurer (Principal Financial and Accounting
Officer)
    
    3/31/05/s/ Hermann Buerger

Hermann Buerger
    
    Director
    
    3/31/05/s/ Robert P. Crozer

Robert P. Crozer
    
    Director
    
    3/31/05/s/ John P. Frazee, Jr.

John P. Frazee, Jr.
    
    Director
    
    3/31/05/s/ John R. Kreick

John R. Kreick
    
    Director
    
    3/31/05/s/ John B. Mowell

John B. Mowell
    
    Director, Chairman of the Board
    
    3/31/05/s/ Norman E. Thagard

Norman E. Thagard
    
    Director
    
    3/31/05/s/ John L. Woodward, Jr.

John L. Woodward, Jr.
    
    Director
    
    3/31/05
 43 of 70




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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PageReport of
Independent Registered Public Accounting Firm
    
    
    45Independent
Auditors Report
    
    
    46Consolidated Statements of Operations  Years ended December 31, 2004, 2003 and 2002
    
    
    47Consolidated Balance Sheets  December 31, 2004 and 2003
    
    
    48Consolidated Statements of Cash Flows  Years ended December 31, 2004, 2003 and 2002
    
    
    50Consolidated Statements of Stockholders Equity and Comprehensive Income (Loss) 
Years ended December 31, 2004, 2003 and 2002
    
    
    51Notes to Consolidated Financial Statements
    
    
    52
 44 of 70




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Stockholders
EMS Technologies, Inc.: We have audited the accompanying consolidated balance sheets of EMS Technologies, Inc. and
subsidiaries (the Company) as of December 31, 2004 and 2003, and the related consolidated
statements of operations, stockholders equity and comprehensive income (loss), and cash flows for
each of the years in the three-year period ended December 31, 2004. In connection with our audits
of the consolidated financial statements, we have also audited the
accompanying financial statement schedule. These
consolidated financial statements and financial statement schedule are the responsibility of the
Companys management. Our responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits. We did not audit the consolidated
financial statements and financial statement schedule of EMS Technologies Canada, Ltd., a
wholly-owned subsidiary, which financial statements reflect total assets
constituting 34% as of December 31, 2003 and total revenues
constituting 27% and 36% for the years ended December 31, 2003,
and 2002, respectively, of the
related consolidated totals. Those financial statements and financial statement schedule were
audited by other auditors whose report has been furnished to us, and our opinion, insofar as it
relates to the amounts included for EMS Technologies Canada, Ltd., is based solely on the report of
the other auditors. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits and the report of the other auditors provide a reasonable
basis for our opinion. In our opinion, based on our audits and the report of the other auditors, the consolidated
financial statements referred to above present fairly, in all material respects, the financial
position of EMS Technologies, Inc. and subsidiaries as of December 31, 2004 and 2003, and the
results of their operations and their cash flows for each of the years in the three-year period
ended December 31, 2004, in conformity with U.S. generally accepted accounting principles. Also in
our opinion, based on our audits and the report of other auditors, the related financial statement
schedule, when considered in relation to the consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein. As discussed in Note 6 to the consolidated financial statements, the Company changed its method of
accounting for goodwill and other intangible assets in 2002. KPMG LLPAtlanta, GeorgiaMarch 30, 2005
 45 of 70




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INDEPENDENT AUDITORS
REPORT To the Directors of
EMS TECHNOLOGIES CANADA, LTD. We have audited the accompanying consolidated balance sheets of EMS TECHNOLOGIES CANADA, LTD. as of
December 31, 2003 and 2002, and the related consolidated statements of operations, stockholders
equity and comprehensive income and cash flows for each of the years in the three-year period ended
December 31, 2003. These financial statements are the responsibility of the Corporations
management. Our responsibility is to express an opinion on these financial statements based on our
audits. We conducted our audits in accordance with auditing standards generally accepted in the United
States of America. Those standards require that we plan and perform an audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, these consolidated financial statements referred to above present fairly, in all
material respects, the financial position of the Corporation as of December 31, 2003 and 2002, and
the results of its operations and its cash flows for each of the years in the three-year period
ended December 31, 2003, in conformity with accounting principles generally accepted in the United
States of America. As discussed in note 15, the Corporation changed its method of accounting for derivative
instruments and hedging activities in 2001. Since the accompanying consolidated financial statements have not been prepared in accordance with
accounting principles generally accepted in Canada and our audits have not been conducted in
accordance with auditing standards generally accepted in Canada, these financial statements will
not satisfy the reporting requirements of Canadian statutes and regulations. The financial position
of the Corporation as of December 31, 2003 and 2002, and the related consolidated statements of
operations, stockholders equity and comprehensive income and cash flows for each of the years in
the three-year period ended December 31, 2003, might be significantly different if the consolidated
financial statements had been prepared in accordance with accounting principles generally accepted
in Canada. Ottawa, Canada,
    
    Ernst & Young LLPFebruary 6, 2004
    
    Chartered Accountants
 46 of 70




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EMS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except net earnings (loss) per share) Years ended December 312004
    
    
    2003
    
    
    2002Net sales (note 12)
    
    $
    260,418
    
    
    
    256,213
    
    
    
    235,771Cost of sales
    
    
    169,619
    
    
    
    163,744
    
    
    
    151,172Selling, general and administrative expenses
    
    
    62,835
    
    
    
    57,851
    
    
    
    51,374Research and development expenses
    
    
    18,953
    
    
    
    19,278
    
    
    
    20,372Contract reserve adjustment (note 14)
    
    
    
    
    
    
    
    
    
    
    (3,500
    )Operating income
    
    
    9,011
    
    
    
    15,340
    
    
    
    16,353Non-operating income (expense)
    
    
    949
    
    
    
    360
    
    
    
    (58
    )Foreign exchange (loss) gain
    
    
    (471
    )
    
    
    (446
    )
    
    
    390Interest expense
    
    
    (2,676
    )
    
    
    (2,147
    )
    
    
    (2,329
    )Earnings from continuing operations before income taxes
    
    
    6,813
    
    
    
    13,107
    
    
    
    14,356Income tax expense (note 9)
    
    
    (2,453
    )
    
    
    (4,237
    )
    
    
    (4,699
    )Earnings from continuing operations
    
    
    4,360
    
    
    
    8,870
    
    
    
    9,657Discontinued operations (note 2):Loss from discontinued operations before income taxes
    
    
    (4,625
    )
    
    
    (50,614
    )
    
    
    (1,596
    )Income tax benefit
    
    
    457
    
    
    
    4,352
    
    
    
    526Loss from discontinued operations
    
    
    (4,168
    )
    
    
    (46,262
    )
    
    
    (1,070
    )Net earnings (loss)
    
    $
    192
    
    
    
    (37,392
    )
    
    
    8,587Net earnings (loss) per share (note 8):Basic:Earnings from continuing operations
    
    $
    0.39
    
    
    
    0.83
    
    
    
    0.91Loss from discontinued operations
    
    
    (0.37
    )
    
    
    (4.32
    )
    
    
    (0.10
    )Net earnings (loss)
    
    $
    0.02
    
    
    
    (3.49
    )
    
    
    0.81Diluted:Earnings from continuing operations
    
    $
    0.39
    
    
    
    0.82
    
    
    
    0.90Loss from discontinued operations
    
    
    (0.37
    )
    
    
    (4.29
    )
    
    
    (0.10
    )Net earnings (loss)
    
    $
    0.02
    
    
    
    (3.47
    )
    
    
    0.80Weighted average number of shares (note 8):Common
    
    
    11,094
    
    
    
    10,702
    
    
    
    10,561Common and dilutive common equivalent
    
    
    11,237
    
    
    
    10,785
    
    
    
    10,731
 See accompanying notes to consolidated financial statements. 47 of 70




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EMS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands) December 312004
    
    
    2003ASSETS (note 7)Current assets:Cash and cash equivalents (note 11)
    
    $
    14,553
    
    
    
    14,180Restricted cash (note 11)
    
    
    4,715
    
    
    
    Trade accounts receivable, net (notes 4 and 11)
    
    
    81,343
    
    
    
    71,431Inventories
(note 5)
    
    
    37,425
    
    
    
    33,509Deferred income taxes, net (note 9)
    
    
    1,362
    
    
    
    2,208Assets held for sale (note 2)
    
    
    48,658
    
    
    
    40,059Total current assets
    
    
    188,056
    
    
    
    161,387Property, plant and equipment:Land
    
    
    1,150
    
    
    
    2,174Buildings and leasehold improvements
    
    
    15,166
    
    
    
    15,000Machinery and equipment
    
    
    79,310
    
    
    
    73,474Furniture and fixtures
    
    
    8,061
    
    
    
    7,318103,687
    
    
    
    97,966Less accumulated depreciation and amortization
    
    
    66,519
    
    
    
    59,485Net property, plant and equipment
    
    
    37,168
    
    
    
    38,481Deferred income taxes, net  non-current (note 9).
    
    
    4,604
    
    
    
    2,679Intangible assets, net of accumulated
amortization of $2,568 in 2004 and $1,533 in
2003 (note 6)
    
    
    3,990
    
    
    
    3,121Goodwill
    
    
    13,526
    
    
    
    13,526Other assets
    
    
    7,734
    
    
    
    9,355$
    255,078
    
    
    
    228,549
 See accompanying notes to consolidated financial statements. 48 of 70




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EMS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS,continued
(in thousands, except share data) December 312004
    
    
    2003LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current installments of long-term debt (notes 7 and 11)
    
    $
    3,462
    
    
    
    38,056Accounts payable (note 11)
    
    
    25,638
    
    
    
    18,812Income taxes payable
    
    
    1,726
    
    
    
    Accrued compensation costs
    
    
    6,258
    
    
    
    7,823Accrued retirement costs (note 10)
    
    
    2,453
    
    
    
    2,637Deferred service revenue
    
    
    5,214
    
    
    
    4,730Liabilities related to assets held for sale (note 2)
    
    
    20,981
    
    
    
    17,765Other current liabilities
    
    
    5,333
    
    
    
    3,147Total current liabilities
    
    
    71,065
    
    
    
    92,970Long-term debt, excluding current installments (notes 7 and 11)
    
    
    57,992
    
    
    
    15,537Total liabilities
    
    
    129,057
    
    
    
    108,507Stockholders equity (note 8):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 11,164,000 in 2004 and
10,926,000 in 2003
    
    
    1,116
    
    
    
    1,093Additional paid-in capital
    
    
    69,058
    
    
    
    64,988Accumulated other comprehensive income  foreign currency translation adjustment
    
    
    3,174
    
    
    
    1,480Retained earnings
    
    
    52,673
    
    
    
    52,481Total stockholders equity
    
    
    126,021
    
    
    
    120,042Commitments
and contingencies (notes 3, 7, 13, 15 and 16)$
    255,078
    
    
    
    228,549
 See accompanying notes to consolidated financial statements. 49 of 70




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EMS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) Years ended December 312004
    
    
    2003
    
    
    2002Cash flows from operating activities:Net earnings (loss)
    
    $
    192
    
    
    
    (37,392
    )
    
    
    8,587Adjustments to reconcile net earnings (loss) to net cash provided by
operating activities:Depreciation and other intangibles amortization
    
    
    9,461
    
    
    
    8,692
    
    
    
    8,208Deferred income taxes
    
    
    (1,079
    )
    
    
    (1,414
    )
    
    
    1,780Gain on sale of assets
    
    
    (1,082
    )
    
    
    (659
    )
    
    
    Loss from discontinued operations
    
    
    4,168
    
    
    
    46,262
    
    
    
    1,070Changes in operating assets and liabilities, net of effects of
acquisition:Trade accounts receivable
    
    
    (6,994
    )
    
    
    4,190
    
    
    
    (5,163
    )Inventories
    
    
    (2,627
    )
    
    
    (999
    )
    
    
    2,729Accounts payable
    
    
    6,385
    
    
    
    (3,739
    )
    
    
    (1,224
    )Income taxes payable
    
    
    4,634
    
    
    
    1,044
    
    
    
    2,272Accrued costs, deferred revenue, and other current liabilities
    
    
    (1,198
    )
    
    
    1,667
    
    
    
    1,098Other
    
    
    2,076
    
    
    
    (1,319
    )
    
    
    (3,086
    )Net cash provided by operating activities
    
    
    13,936
    
    
    
    16,333
    
    
    
    16,271Cash flows from investing activities:Purchase of property, plant and equipment
    
    
    (7,010
    )
    
    
    (8,084
    )
    
    
    (8,557
    )Payments for asset acquisitions
    
    
    (1,754
    )
    
    
    
    
    
    
    (300
    )Proceeds from sale of assets
    
    
    2,846
    
    
    
    1,759
    
    
    
    Net cash used in investing activities
    
    
    (5,918
    )
    
    
    (6,325
    )
    
    
    (8,857
    )Cash flows from financing activities:Net increase (decrease) in revolving debt
    
    
    8,991
    
    
    
    (68
    )
    
    
    1,465Increase in
restricted cash
    
    
    (4,715
    )
    
    
    
    
    
    
    Proceeds from new term debt
    
    
    
    
    
    
    
    
    
    
    2,446Repayment of term debt
    
    
    (3,691
    )
    
    
    (2,321
    )
    
    
    (5,065
    )Deferred
financing costs paid
    
    
    (1,063
    )
    
    
    
    
    
    
    Proceeds from exercise of stock options, net of withholding taxes paid
    
    
    3,709
    
    
    
    3,765
    
    
    
    1,533Net cash provided by financing activities
    
    
    3,231
    
    
    
    1,376
    
    
    
    379Cash used in discontinued operations
    
    
    (11,270
    )
    
    
    (9,929
    )
    
    
    (6,779
    )Net change in cash and cash equivalents
    
    
    (21
    )
    
    
    1,455
    
    
    
    1,014Effect of exchange rates on cash
    
    
    394
    
    
    
    295
    
    
    
    (361
    )Cash and cash equivalents at January 1
    
    
    14,180
    
    
    
    12,430
    
    
    
    11,777Cash and cash equivalents at December 31
    
    $
    14,553
    
    
    
    14,180
    
    
    
    12,430Supplemental disclosure of cash flow information:Cash paid for interest
    
    $
    3,657
    
    
    
    3,386
    
    
    
    3,520Cash paid for income taxes
    
    
    562
    
    
    
    2,043
    
    
    
    535
 Noncash Investing and Financing: In April 2002, the Company acquired Ottercom Ltd., a leading provider of Inmarsat communication
terminals located in Tewkesbury, UK. Ottercom Ltd. products include critical components for EMS
SATCOMs high-speed aeronautical data products. The company, now called EMS SATCOM UK, Ltd.,
operates as a unit of the Companys SATCOM segment. Management believes that this acquisition has
strengthened the Companys presence in global mobile Internet/e-mail access and communications, and
enables the Company to broaden its wireless product offerings and in-house development capability. To accomplish this transaction, the Company issued 81,245 new shares of its common stock (valued at
$1.9 million) and assumed liabilities totaling approximately $1.2 million. No goodwill was
recognized in this transaction; rather, the $3.1 million total of net assets acquired was recorded
as an intangible asset on the consolidated balance sheet. This intangible represents the value at
the acquisition date of Ottercom Ltd.s satellite communications technologies, intellectual
property and product designs. This intangible is amortized over an estimated useful life of 6
years. See accompanying notes to consolidated financial statements. 50 of 70




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##### Table of Contents



EMS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AND COMPREHENSIVE INCOME (LOSS)
(in thousands) Three years ended December 31, 2004Accum-ulatedotherCompre-
    
    
    compre-
    
    
    
    
    
    
    TotalCommon Stock
    
    
    Additional
    
    
    hensive
    
    
    hensive
    
    
    
    
    
    
    stock-paid-in
    
    
    income
    
    
    income
    
    
    Retained
    
    
    holdersShares
    
    
    Amount
    
    
    capital
    
    
    (loss)
    
    
    (loss)
    
    
    earnings
    
    
    equityBalance December 31, 2001
    
    
    10,407
    
    
    $
    1,041
    
    
    
    56,808
    
    
    
    
    
    
    
    (6,814
    )
    
    
    81,286
    
    
    
    132,321Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,587
    
    
    
    
    
    
    
    8,587
    
    
    
    8,587Income tax benefit from exercise of
non- qualified stock options (note 9)
    
    
    
    
    
    
    
    
    
    
    651
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    651Exercise of common stock options
    
    
    214
    
    
    
    21
    
    
    
    2,393
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,414Redemption of shares upon exercise of
common stock options
    
    
    (44
    )
    
    
    (4
    )
    
    
    (877
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (881
    )Foreign currency translation adjustment
gain
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    993
    
    
    
    993
    
    
    
    
    
    
    
    993Stock issued for an acquisition (note 3)
    
    
    81
    
    
    
    8
    
    
    
    1,892
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,900Comprehensive income for 2002
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,580Balance December 31, 2002
    
    
    10,658
    
    
    $
    1,066
    
    
    
    60,867
    
    
    
    
    
    
    
    (5,821
    )
    
    
    89,873
    
    
    
    145,985Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (37,392
    )
    
    
    
    
    
    
    (37,392
    )
    
    
    (37,392
    )Income tax benefit from exercise of
non- qualified stock options (note 9)
    
    
    
    
    
    
    
    
    
    
    383
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    383Exercise of common stock options
    
    
    356
    
    
    
    36
    
    
    
    5,474
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,510Redemption of shares upon exercise of
common stock options
    
    
    (86
    )
    
    
    (9
    )
    
    
    (1,703
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,712
    )Foreign currency translation adjustment
gain
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,301
    
    
    
    7,301
    
    
    
    
    
    
    
    7,301Repurchases of stock
    
    
    (2
    )
    
    
    
    
    
    
    (33
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (33
    )Comprehensive loss for 2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (30,091
    )Balance December 31, 2003
    
    
    10,926
    
    
    $
    1,093
    
    
    
    64,988
    
    
    
    
    
    
    
    1,480
    
    
    
    52,481
    
    
    
    120,042Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    192
    
    
    
    
    
    
    
    192
    
    
    
    192Income tax benefit from exercise of
non- qualified stock options (note 9)
    
    
    
    
    
    
    
    
    
    
    384
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    384Exercise of common stock options
    
    
    255
    
    
    
    25
    
    
    
    4,083
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,108Redemption of shares upon exercise of
common stock options
    
    
    (15
    )
    
    
    (2
    )
    
    
    (332
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (334
    )Foreign currency translation adjustment
gain
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,694
    
    
    
    1,694
    
    
    
    
    
    
    
    1,694Repurchases of stock
    
    
    (2
    )
    
    
    
    
    
    
    (61
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (61
    )Other
    
    
    
    
    
    
    
    
    
    
    (4
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4
    )Comprehensive income for 2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,886Balance December 31, 2004
    
    
    11,164
    
    
    $
    1,116
    
    
    
    69,058
    
    
    
    
    
    
    
    3,174
    
    
    
    52,673
    
    
    
    126,021
 See accompanying notes to consolidated financial statements. 51 of 70




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 and 2002 (1) BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES EMS Technologies, Inc. (EMS) designs, manufactures and markets products to wireless and satellite
communications markets for both commercial and defense applications. EMSs products are focused on
the needs of the mobile information user, with an increasing emphasis on broadband applications for
high-data-rate, high-capacity wireless communications. The consolidated financial statements include the accounts of EMS Technologies, Inc. and its wholly
owned subsidiaries, LXE Inc., EMS Holdings, Inc., EMS Technologies Canada, Ltd., and EMS Wireless
do Brasil, Ltda. (collectively, the Company). All significant intercompany balances and
transactions have been eliminated in consolidation. Certain balance sheet amounts and the
statements of cash flows in 2003 were reclassified to conform with classifications adopted in 2004.
Following is a summary of the Companys significant accounting policies:  Managements Use of Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting
principles requires management to make estimates and assumptions relating to the reporting of
assets and liabilities and the disclosure of contingent assets and liabilities as of the balance
sheet date and reporting of revenue and expenses during the period. Actual future results could
differ from those estimates.  Revenue Recognition Revenues are derived from sales of the Companys products to end-users and to other manufacturers
or systems integrators. Revenues under certain long-term contracts of the Defense & Space Systems
and SATCOM segments, many of which provide for periodic payments, are recognized under the
percentage-of-completion method using the ratio of cost incurred to total estimated cost as the
measure of performance. Provisions for estimated losses on uncompleted contracts are made in the
period in which the probable amounts of such losses are determined. To properly match revenues with
costs, certain contracts may have revenue recognized in excess of billings (unbilled revenues), and
other contracts may have billings in excess of revenue recognized (customer advance payments).
Revenues collected in advance under service contracts are recorded as a liability and recognized
over the term of the contract. Revenues under cost-reimbursement contracts in the Defense & Space Systems segment are recorded as
costs are incurred and include an estimate of fees earned. Revenues under all other contracts in
the Defense & Space Systems and SATCOM segment, as well as in the LXE, and EMS Wireless segments
are recognized when units are shipped or services are performed. SatNet revenues are recognized
when units are shipped or services are performed, subject to the limitations of FASB Emerging
Issues Task Force (EITF) Issue No. 00-21 related to the accounting for multiple deliverables;
under the guidelines of EITF Issue No. 00-21, it is possible that SatNet may deliver or complete
performance relative to some, or even most, of the contract deliverables, but not recognize any revenue until performance or delivery has been completed relative to all
deliverables.  Government Research Incentives The Companys Canadian operations receive government-sponsored research incentives in the form of
cash reimbursement for a portion of certain qualified research expenditures. These incentives are
recorded as a reduction of cost of sales, because underlying research efforts primarily apply to
development of technological capabilities for specific business opportunities.  Cash Equivalents The Company considers all highly liquid debt instruments with original maturities of three months
or less to be cash equivalents. Cash equivalents as of December 31 included investments of
$1,649,000 in 2004 and $5,318,000 in 2003 in U.S. Government Securities, money market instruments and interest-bearing deposits each
purchased with an initial or remaining term of less than three months. 52 of 70




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 Inventories Inventories are valued at the lower of cost (first-in, first-out) or market (net realizable value).
Work in process consists of raw material and production costs, including indirect manufacturing
costs.  Property, Plant and Equipment Property, plant and equipment are stated at cost. Depreciation is provided primarily using the
straight-line method over the following estimated useful lives of the respective assets: Buildings
    
    20 to 40 yearsMachinery and equipment
    
    3 to 8 yearsFurniture and fixtures.
    
    10 years
 Leasehold improvements are amortized over the shorter of their estimated useful lives or the terms
of the respective leases.  Long-Lived Assets The Company reviews long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a comparison of the
carrying amount of an asset to future net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is measured by the amount by
which the carrying amount of the assets exceeds their fair value. If assets are to be disposed of,
such assets are reported at the lower of carrying amount or fair value less costs to sell, and no
longer depreciated. The assets and liabilities of a disposal group classified as held for sale
would be presented separately in the appropriate asset or liability sections of the consolidated
balance sheet.  Income Taxes The Company provides for income taxes using the asset and liability method. Under the asset and
liability method, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating loss and tax credit
carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected
to apply to taxable income in the years in which those temporary differences are expected to be
recovered or settled. Deferred tax assets and liabilities are classified as current or non-current
based upon the nature of the underlying temporary differences. The effect on deferred taxes of a
change in tax rates is recognized in earnings in the period that includes the enactment date.  Earnings Per Share Basic earnings 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 per share represents the per share allocation of income attributable to common
stockholders based on the weighted average number of common shares actually outstanding plus all
dilutive potential common shares outstanding during the period. 53 of 70




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 Goodwill and Intangible Assets Goodwill represents the excess purchase price paid by the Company over the fair value of the
tangible and intangible assets and liabilities acquired. Other intangible assets are valued at fair
value at the date of acquisition. In accordance with Statement of Financial Accounting Standards
(SFAS) No. 142, Goodwill and Other Intangible Assets, goodwill is not being amortized, but instead is subject to an annual assessment of
impairment by applying a fair-value based test. Intangible assets held by the Company represent
satellite communications technology, intellectual property and product designs purchased as part of
the acquisitions of Digital Space Systems, Inc. in 2000, Ottercom Ltd. in 2002,  and Multiple
Services Technologies, Inc. and other small purchases in 2004. These intangible assets are
amortized on a straight-line basis over their estimated useful lives of 5 to 6 years. The Company evaluates the carrying value of goodwill for impairment in the fourth quarter of each
fiscal year, or more frequently if circumstances indicate impairment may exist. As part of the
evaluation, the Company compares the carrying value of each reporting unit with its fair value to
determine whether there has been impairment. Intangible assets subject to amortization are reviewed
for impairment whenever events or circumstances indicate that the carrying amount may not be
recoverable. The ongoing recoverability of intangible assets subject to amortization is assessed by
determining whether the intangible asset balance can be recovered over the remaining amortization
period through projected undiscounted future cash flows. If projected future cash flows indicate
that the unamortized intangible asset balances will not be recovered, an adjustment is made to
reduce the net intangible asset to an amount consistent with discounted projected future cash
flows. Cash flow projections, although subject to a degree of uncertainty, are based on
managements estimates of future performance, giving consideration to existing and anticipated
competitive and economic conditions.  Stock Option Plans The Company accounted for its stock option plans in accordance with the provisions of Accounting
Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations. As such, compensation expense would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price. The Company adopted the
disclosure requirements of SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No. 123
allowed 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 elected to continue to apply the provisions of APB Opinion No. 25 and provide the pro
forma disclosure required by SFAS No. 123. The following table illustrates the effect on net earnings (loss), and earnings (loss) per share if
the Company had applied the fair value method to measure stock-based compensation (in thousands,
except net earnings (loss) per share): 2004
    
    
    2003
    
    
    2002Net earnings (loss):As reported
    
    $
    192
    
    
    
    (37,392
    )
    
    
    8,587Stock-based employee compensation
expense determined under the fair
value method, net of tax
    
    
    (2,137
    )
    
    
    (3,061
    )
    
    
    (3,299
    )Pro forma
    
    $
    (1,945
    )
    
    
    (40,453
    )
    
    
    5,288Basic net earnings (loss) per share:As reported
    
    $
    0.02
    
    
    
    (3.49
    )
    
    
    0.81Pro forma
    
    
    (0.18
    )
    
    
    (3.78
    )
    
    
    0.50Diluted net earnings (loss) per share:As reported
    
    
    0.02
    
    
    
    (3.47
    )
    
    
    0.80Pro forma
    
    
    (0.17
    )
    
    
    (3.75
    )
    
    
    0.49
 In December 2004, SFAS No. 123 was revised to require that the cost resulting from all share-based
payment transactions should be recognized in the financial statements, beginning with the first
interim or annual reporting period that begins after June 15, 2005. As a result, the Company will
implement the revised provisions of SFAS No. 123R beginning with the third quarter of 2005. The
Company has not yet determined the potential impact that adopting these new provisions will have on
the consolidated financial statements. 54 of 70




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 Foreign Currency Translation Assets and liabilities of the Companys foreign subsidiaries are translated into U.S. dollars at
current exchange rates. Income and expenses of the foreign subsidiaries are translated into U.S.
dollars at the approximate average exchange rates that prevailed during the years presented. The
functional currency of all subsidiaries is considered to be the local currency; consequently,
adjustments resulting from the translation of the subsidiaries financial statements (including
long-term financing from the parent) are reflected in accumulated other comprehensive income in
stockholders equity and not as a part of the results of operations. The Company accrues foreign
currency exchange gains or losses on direct export activity, on the LXE European subsidiaries
short-term intercompany liabilities that arise from the purchase of the parents products for
resale, and on work performed in the U.S. for Canadian subsidiaries.  Comprehensive Income (Loss) Comprehensive income (loss) consists of net income (loss) and foreign currency translation
adjustments, and is presented in the consolidated statements of stockholders equity and
comprehensive income (loss).  Derivative Financial Instruments The Company uses derivative
financial instruments (forward foreign currency contracts) to hedge currency
fluctuations in future cash flows denominated in foreign currencies, thereby limiting the Companys
risk that would otherwise result from changes in exchange rates. The Company has established
policies and procedures for risk assessment and for the approval, reporting and monitoring of
derivative financial instrument activities. The Company does not enter into derivative financial
instruments for trading or speculative purposes. Certain of the Companys routine long-term contracts to deliver space and technology products are
considered to be derivative instruments because these contracts create long-term obligations for
non-U.S. customers to pay the Companys Canadian subsidiary in U.S. dollars. These embedded
derivatives do not qualify as hedging instruments and are accounted for at fair value. None of the
Companys derivative instruments were designated as hedges in 2004 or 2003 and as a result all
unrealized gains or losses are reflected currently in foreign exchange (loss) gain on the
consolidated statements of operations. (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 Space & Technology/Montreal division. During the fourth quarter of 2003, the
Company completed the sale of its healthcare product line. 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 loss on the sale of the healthcare product line
was approximately $2.9 million, and the write down to fair value for the assets associated with the
Space & Technology/Montreal division was $13.5 million, with an approximately $3.5 million U.S.
income tax benefit related to these losses. In 2004, EMS recorded an additional $1.7 million write
down of the Space & Technology/Montreal division to reflect a revised estimate of the fair value,
less cost to sell, of this division. This revised estimate of fair value was based upon
discussions with potential purchasers concerning the probable market value of the division. 55 of 70




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The results of these discontinued operations for 2004, 2003 and 2002 were as follows (in
thousands): 2004
    
    
    2003
    
    
    2002Net sales
    
    $
    51,886
    
    
    
    26,454
    
    
    
    74,663Expenses
    
    
    54,811
    
    
    
    60,641
    
    
    
    76,259Loss on sale of assets
    
    
    
    
    
    
    2,927
    
    
    
    Estimated loss on disposal
    
    
    1,700
    
    
    
    13,500
    
    
    
    Loss before income taxes
    
    
    (4,625
    )
    
    
    (50,614
    )
    
    
    (1,596
    )Income tax benefit
    
    
    457
    
    
    
    4,352
    
    
    
    526Loss from discontinued operations
    
    $
    (4,168
    )
    
    
    (46,262
    )
    
    
    (1,070
    )
 The table below presents the components of the balance sheet accounts classified as current assets
and liabilities related to assets held for sale as of December 31, 2004 and 2003 (in thousands): 2004
    
    
    2003Trade accounts receivable, net
    
    $
    12,906
    
    
    
    9,646Inventories
    
    
    4,005
    
    
    
    4,722Investments
    
    
    2,709
    
    
    
    4,409Property, plant and equipment, net
    
    
    18,599
    
    
    
    16,743Non-current accounts receivable, net
    
    
    6,516
    
    
    
    32Accrued pension assets
    
    
    3,255
    
    
    
    3,213Other assets
    
    
    668
    
    
    
    1,294Total assets held for sale
    
    $
    48,658
    
    
    
    40,059Accounts payable
    
    $
    13,387
    
    
    
    10,984Long term debt
    
    
    2,783
    
    
    
    2,573Post-retirement obligations
    
    
    4,481
    
    
    
    3,709Other current liabilities
    
    
    330
    
    
    
    499Total liabilities related to assets held for sale
    
    $
    20,981
    
    
    
    17,765
 (3) ACQUISITIONS The Company occasionally expands its technology base by acquiring small companies or their assets.
In July 2004, the Company invested a total of $1.8 million on acquisitions, most of which related
to Multiple Services Technologies, Inc. D/B/A Multitech Corp. This acquisition was not significant
and as a result, pro forma disclosures have not been presented. In April 2002, the Company acquired Ottercom Ltd., a leading provider of Inmarsat communication
terminals located in Tewkesbury, UK. Ottercom Ltd. products include critical components for EMS
SATCOMs high-speed aeronautical data products. The company, now called EMS SATCOM UK, Ltd.,
operates as a unit of the Companys SATCOM segment. Management believes that this acquisition has
strengthened the Companys presence in global mobile Internet/e-mail access and communications, and
enables the Company to broaden its wireless product offerings and in-house development capability.
To accomplish this transaction, EMS issued 81,245 new shares of its common stock (valued at $1.9
million) and assumed liabilities totaling approximately $1.2 million. No goodwill was recognized in
this transaction; rather, the $3.1 million total of net assets acquired was recorded as an
intangible asset on the consolidated balance sheet. This intangible represents the value at the
acquisition date of Ottercom Ltd.s satellite communications technologies, intellectual property
and product designs. Since the acquisition was not considered significant, pro forma disclosures
have not been presented. In May 2001, the Company acquired a small manufacturer of repeaters and other wireless signal
distribution products. The transaction was accounted for as a stock purchase initially valued at
$4.0 million, with subsequent additional purchase consideration payable annually in cash or stock,
at the Companys option, and contingent on the acquired product line achieving certain sales
targets over the next three years. In payment of the initial purchase price, the Company issued
226,000 common shares and assumed debt of approximately $400,000. The fair value of the tangible
net assets acquired was approximately $800,000, resulting in goodwill of approximately $3.2
million. In 56 of 70




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2002, a cash payment of approximately $300,000 was paid due to the acquired product line achieving
sales targets in its first year, which increased goodwill to $3.5 million, but no additional
payments were required for subsequent years. Since the acquisition was not considered significant,
pro forma disclosures have not been presented. (4) TRADE ACCOUNTS RECEIVABLE Trade accounts receivable at December 31, 2004 and 2003 included the following (in thousands): 2004
    
    
    2003Amounts billed
    
    $
    60,121
    
    
    
    58,146Unbilled revenues under long-term contracts
    
    
    24,302
    
    
    
    18,610Customer advanced payments
    
    
    (2,006
    )
    
    
    (3,788
    )Allowance for doubtful accounts
    
    
    (1,074
    )
    
    
    (1,537
    )Trade accounts receivable, net
    
    $
    81,343
    
    
    
    71,431
 (5) INVENTORIES Inventories at December 31, 2004 and 2003 included the following (in thousands): 2004
    
    
    2003Parts and materials
    
    $
    25,111
    
    
    
    22,139Work in process
    
    
    6,506
    
    
    
    5,306Finished goods
    
    
    5,808
    
    
    
    6,064Inventories
    
    $
    37,425
    
    
    
    33,509
 (6) OTHER INTANGIBLE ASSETS In July of 2004, the Company acquired certain assets of Multitech, and recorded an intangible asset
of $989,000 on the consolidated balance sheet. As of December 31, 2004, the net amount of this
intangible asset was $890,000. This intangible will be amortized over an estimated useful life of
5 years. Amortization expense relating to this intangible asset was $99,000 in 2004, with
amortization expense of $198,000 expected for each of the next four years, and $98,000 in the fifth
year. In April 2002, the Company acquired Ottercom Ltd., and recorded an intangible asset of $3.1 million
on the balance sheet. As of December 31, 2004, the net amount of this intangible asset was $2.3
million based on the year-end foreign currency exchange rate. This intangible will be amortized
over an estimated useful life of 6 years. Amortization expense relating to this intangible asset
was $636,000 in 2004, $500,000 in 2003, and $375,000 in 2002, with amortization expense of $714,000
expected for each of the next three years, and $178,000 in the fourth year. In November 2000, the Company acquired Digital Space Systems, Inc., and recorded an intangible
asset of $900,000 on the balance sheet. As of December 31, 2004, the net amount of this intangible
asset was $229,000 based on the year-end foreign currency exchange rate. This intangible is
amortized over an estimated useful life of 5 years. Amortization expense relating to this
intangible asset was $279,000 in 2004, $290,000 in 2003, and $172,000 in 2002, with amortization
expense of approximately $229,000 expected in 2005. 57 of 70




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(7) LONG-TERM DEBT The following is a summary of long-term debt at December 31, 2004 and 2003 (in thousands): 2004
    
    
    2003Revolving
credit loans with a U.S. bank
and a Canadian bank, secured by substantially
all the assets of the Company, except for
certain real estate that secures existing
mortgages and other permitted liens, maturing
in December 2007, interest payable quarterly
at a variable rate (6.66% at the end of 2004)
    
    $
    43,417
    
    
    
    Revolving credit loan with a U.S. bank,
secured by the accounts receivable and
inventory of the Company, paid in December
2004, interest payable quarterly at a variable
interest rate (4.09% at the end of 2003)
    
    
    
    
    
    
    16,100Promissory note, secured by a first mortgage
on the Companys headquarters facility,
maturing in 2016, principal and interest
payable in equal monthly installments of
$103,975 with a fixed interest rate of 8.0%
    
    
    9,404
    
    
    
    9,878Revolving credit loan with a bank, secured by
the assets of EMS Technologies Canada, Ltd.,
repaid in December 2004, interest payable
monthly at a variable interest rate (6.5% at
the end of 2003)
    
    
    
    
    
    
    16,522Term loan with an insurance company, secured
by a U.S. building, maturing in February 2014,
principal and interest payable in equal
monthly installments of $67,832 with a fixed
interest rate of 7.1%
    
    
    5,438
    
    
    
    5,848Term installment loan with a bank in Canada,
repaid in October 2004, principal and interest
payable quarterly at a variable interest rate
(6.5% at the end of 2003)
    
    
    
    
    
    
    2,437Capital lease agreements, secured by machinery
and equipment, computer hardware, software and
peripherals, with various terms through 2006,
due in quarterly installments with implicit
interest rates of 3.0% to 13.0%
    
    
    772
    
    
    
    1,197Financing agreements, related to installation
of computer hardware and peripherals and
implementation of software, maturing in April
2007, principal and interest payable in equal
quarterly installments of $79,410 with a fixed
interest rate of 5.2%
    
    
    687
    
    
    
    Revolving credit loan with a bank in the
United Kingdom, maturing in April 2005,
interest payable monthly at a variable rate
(5.75% at the end of 2004 and 4.75% at the end
of 2003)
    
    
    1,736
    
    
    
    1,611Total long-term debt
    
    
    61,454
    
    
    
    53,593Less current installments of long-term debt
    
    
    3,462
    
    
    
    38,056Long-term debt, excluding current installments
    
    $
    57,992
    
    
    
    15,537
 In December 2004, the Company entered into a new debt agreement comprising a combined total of $55
million of senior secured revolving credit facilities. This new agreement replaced the previous
revolving credit loans with a U.S. bank and a Canadian bank. Under the new agreements, the Company
had $25 million total capacity for borrowing in the U.S. and $30 million total capacity for
borrowing in Canada at the end of the year. At December 31, 2004, the Company had $3.3 million
available for borrowing in the U.S. and $3.6 million available for borrowing in Canada under the
revolving credit agreement after current borrowings and outstanding
letters of credit. In addition, the new debt agreement requires the
Company to maintain an aggregate reserve of $5.0 million in unused
revolving credit and cash related to an S&T/Montreal contract. The new
U.S. revolver facilities are secured by substantially all tangible and intangible assets, with
certain exceptions for real estate that secures existing mortgages and other permitted liens. The
new agreement matures in three years, with no principal payments required until maturity. On February 11, 2005, the Company amended its U.S. and Canadian revolving credit agreements to
increase the aggregate borrowing capacity from $55.0 million to $65.0 million, and to add another
financial institution in the U.S. and in Canada to the group of creditors in the agreement. Under
this amendment, the aggregate borrowing capacity of the revolving credit agreement is $32.5 million in
both the U.S. and Canada. Interest under both the U.S. and the Canadian revolving loans are, at the Companys option, a
function of either the banks prime rate or LIBOR. A commitment fee equal to .50% per annum of the
daily average unused credit in both the U.S. and Canada is payable quarterly. 58 of 70




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The revolving credit agreement includes a covenant that establishes a quarterly minimum required
consolidated net worth. The minimum consolidated net worth required at December 31, 2004 was
approximately $113 million, as compared with the reported consolidated net worth of approximately
$126 million. Other covenants under the agreement include a maximum ratio of total funded debt to historical earnings before interest,
taxes, depreciation, and amortization (EBITDA) and a minimum ratio of historical EBITDA less
capital expenditures and taxes paid to specified fixed charges, mainly interest and scheduled
principal repayments under all debt agreements. There are various other debt covenants that are
customary in such borrowings. The agreement also restricts the ability of the Company to declare or
make cash dividends. At December 31, 2004, the Company was in compliance with these covenants. As of December 31, 2004, the Company had $4.8 million of standby letters of credit as performance
guarantees outstanding under the revolving credit agreement. The Company had an additional $4.0
million of standby letters of credit as performance guarantees outstanding through another Canadian
bank. The Company deposited $4.7 million, which was classified as
restricted cash, on its consolidated financial statements, at this Canadian bank as collateral for these standby
letters of credit and for outstanding foreign currency forward contracts. Most of this cash will
become available to the Company during the first half of 2005 as the underlying letters of credit
and forward contracts expire or are settled. Following is a summary of the combined principal maturities of all long-term debt (in thousands): 2005
    
    $
    3,4622006
    
    
    1,5922007
    
    
    44,6062008
    
    
    1,1962009
    
    
    1,289Thereafter
    
    
    9,309Total principal maturities
    
    $
    61,454
 Included in these totals are principal payments to be made under the Companys capital lease
agreements. Following is a summary of annual payment totals under capital lease agreements (in thousands): 2005
    
    $
    5192006
    
    
    296Total capital lease payments
    
    
    815Less: Interest payments
    
    
    (43
    )Capital lease obligations
    
    $
    772
 (8) STOCK PLANS The Company has granted non-qualified stock options to key employees and directors under several
stock option plans. All outstanding options have been granted at 100% of fair market value on each
options grant date. All outstanding options become exercisable from one to three years after the
date of grant and expire from six to ten years after the date of grant. Under all plans at December
31, 2004, options for a total of approximately 1,245,000 shares of stock were exercisable, and
there were approximately 487,000 shares available for future grants. 59 of 70




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Following is a summary of activity in all of the Companys stock option plans for the years ended
December 31, 2004, 2003 and 2002 (shares in thousands): Weighted AverageExercise PriceShares
    
    
    Per ShareOptions outstanding at December 31, 2001
    
    
    1,801
    
    
    $
    15.71Granted
    
    
    410
    
    
    
    20.88Canceled or expired
    
    
    (209
    )
    
    
    17.77Exercised
    
    
    (214
    )
    
    
    11.28Options outstanding at December 31, 2002
    
    
    1,788
    
    
    
    17.19Granted
    
    
    318
    
    
    
    14.24Canceled or expired
    
    
    (356
    )
    
    
    15.49Exercised
    
    
    (12
    )
    
    
    18.46Options outstanding at December 31, 2003
    
    
    1,738
    
    
    
    16.85Granted
    
    
    218
    
    
    
    20.07Canceled or expired
    
    
    (135
    )
    
    
    20.72Exercised
    
    
    (255
    )
    
    
    16.13Options outstanding at December 31, 2004
    
    
    1,566
    
    
    
    17.08
 The weighted average fair value of options granted in 2004, 2003 and 2002 was $13.85, $10.58, and
$13.91, respectively. These fair values were based on the Black-Scholes option pricing model and a
weighted average risk-free rate of return of 3.5% in 2004, 2.8% in 2003 and 2.8% in 2002, terms
from four to ten years, expected volatility of 61% in 2004, 68% in 2003 and 68% in 2002, and no
expected dividend yield. Following is a summary of options outstanding at December 31, 2004 (shares in thousands): Outstanding

    
    
    
    
    
    ExercisableWeighted

    
    Weighted Average

    
    
    
    
    
    WeightedRange of
    
    
    
    
    
    Average Price

    
    Remaining Years In

    
    
    
    
    
    Average PriceExercise Prices
    
    Shares

    
    Per Share

    
    Contractual Life
    
    Shares
    
    
    Per Share$11.63 - 13.90
    
    
    383
    
    
    $
    12.36
    
    
    
    3.1
    
    
    
    331
    
    
    $
    12.2414.00 - 14.94
    
    
    204
    
    
    
    14.17
    
    
    
    5.8
    
    
    
    133
    
    
    
    14.1515.10 - 15.81
    
    
    131
    
    
    
    15.68
    
    
    
    2.7
    
    
    
    113
    
    
    
    15.6816.08 - 17.88
    
    
    204
    
    
    
    16.95
    
    
    
    2.1
    
    
    
    191
    
    
    
    16.9818.00 - 19.90
    
    
    307
    
    
    
    18.89
    
    
    
    4.6
    
    
    
    253
    
    
    
    18.8820.19 - 27.63
    
    
    337
    
    
    
    23.20
    
    
    
    5.9
    
    
    
    224
    
    
    
    23.9011.63 - 27.63
    
    
    1,566
    
    
    
    17.08
    
    
    
    4.2
    
    
    
    1,245
    
    
    
    16.93
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In the Companys capital structure, stock options are the only securities that are potentially
dilutive in the future to basic earnings (loss) per share for the years ended December 31, 2004,
2003 and 2002, summarized as follows (shares in thousands): 2004
    
    
    2003
    
    
    2002Dilutive stock options,
included in earnings (loss) per
share calculations:Shares
    
    
    761
    
    
    
    1,367
    
    
    
    437Average price per share
    
    $
    13.64
    
    
    
    15.10
    
    
    
    12.61Anti-dilutive stock options,
excluded from earnings (loss) per
share calculations:Shares
    
    
    805
    
    
    
    371
    
    
    
    1,351Average price per share
    
    $
    20.34
    
    
    
    23.31
    
    
    
    18.67
 Following is a reconciliation of the denominator for basic and diluted earnings (loss) per share
calculations for the years ended December 31, 2004, 2003 and 2002 (shares in thousands): 2004
    
    
    2003
    
    
    2002Basic earnings per share denominator
    
    
    11,094
    
    
    
    10,702
    
    
    
    10,561Common equivalent shares from dilutive stock options
    
    
    143
    
    
    
    83
    
    
    
    170Diluted earnings per share denominator
    
    
    11,237
    
    
    
    10,785
    
    
    
    10,731
 Under SFAS No. 123, Accounting for Stock-Based Compensation, the Company is permitted to continue
accounting for the issuance of stock options in accordance with Accounting Principles Board (APB)
Opinion No. 25, which does not require recognition of compensation expense for option grants unless
the exercise price is less than the market price on the date of grant. As a result, the Company has
not recognized any compensation cost for stock options. If the Company had recognized compensation
cost for the fair value of option grants under the provisions of SFAS No. 123, the pro forma
financial results for 2004, 2003 and 2002 would have differed from the actual results, as presented
in Note 1 (Basis of Presentation and Summary of Significant Accounting Policies). Under SFAS No. 123, the fair value of stock options issued in any given year is expensed as
compensation over the vesting period, which for substantially all of the Companys options is two
or three years. Therefore, the pro forma net earnings (loss) and net earnings (loss) per share do not
reflect the total compensation cost for options granted in the respective years. The Company adopted a Shareholder Rights Plan effective April 6, 1999, to replace a similar plan
adopted in 1989 that expired on April 6, 1999. Under the new plan, the Company declared a dividend
distribution of one right for each outstanding share of the Companys common stock to stockholders
of record at the close of business on April 16, 1999. Subsequent transfers of common stock
certificates also transfer the associated rights. The rights become exercisable for one share of
common stock at a specific purchase price (initially $45) upon the acquisition of at least 20%
beneficial ownership in the Company without the consent of a majority of the Companys Board of
Directors not having an interest in the acquirer. The rights will become exercisable for shares of
common stock having a value equal to two times the purchase price, upon the following events: (1)
the acquisition of at least a 20% beneficial ownership in the Company without the consent of a
majority of the members of the Companys Board of Directors not having an interest in the acquirer,
(2) the acquisition of 2% of the outstanding common stock without such consent, following
acquisition of 20% with consent, or (3) certain merger, consolidation or asset sale transactions,
in each case without the consent of a majority of the members of the Companys Board of Directors
not having an interest in the acquirer. If the Company is purchased or merged into another company,
the rights may become exercisable for comparable securities of the surviving entity. The rights
expire on August 6, 2009. At any time before their expiration, the outstanding rights may be
redeemed by vote of the Board of Directors at a price of $.01 per right. 61 of 70




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(9) INCOME TAXES Total income tax (expense) benefit provided for in the Companys consolidated financial statements
consists of the following for the years ended December 31, 2004, 2003 and 2002 (in thousands): 2004
    
    
    2003
    
    
    2002Income tax expense, continuing operations
    
    $
    (2,453
    )
    
    
    (4,237
    )
    
    
    (4,699
    )Income tax benefit, discontinued operations
    
    
    457
    
    
    
    4,352
    
    
    
    526Income tax benefit resulting from exercise of
stock options credited to stockholders
equity
    
    
    384
    
    
    
    383
    
    
    
    651Total
    
    $
    (1,612
    )
    
    
    498
    
    
    
    (3,522
    )
 The components of income tax expense for continuing operations for the years ended December 31,
2004, 2003 and 2002 were (in thousands): 2004
    
    
    2003
    
    
    2002Current:Federal
    
    $
    (2,277
    )
    
    
    (3,005
    )
    
    
    (2,197
    )State
    
    
    (326
    )
    
    
    (465
    )
    
    
    (363
    )Foreign
    
    
    (929
    )
    
    
    (1,848
    )
    
    
    (397
    )Total
    
    
    (3,532
    )
    
    
    (5,318
    )
    
    
    (2,957
    )Deferred:Federal
    
    
    1,068
    
    
    
    532
    
    
    
    (1,554
    )State
    
    
    52
    
    
    
    90
    
    
    
    (127
    )Foreign
    
    
    (41
    )
    
    
    459
    
    
    
    (61
    )Total
    
    
    1,079
    
    
    
    1,081
    
    
    
    (1,742
    )Total income tax expense
    
    $
    (2,453
    )
    
    
    (4,237
    )
    
    
    (4,699
    )
 Income tax expense for continuing operations differed as follows from the amounts computed by
applying the U.S. federal income tax rate of 34% to earnings from continuing operations before
income taxes for the years ended December 31, 2004, 2003 and 2002 (in thousands): 2004
    
    
    2003
    
    
    2002Computed expected income tax expense
    
    $
    (2,317
    )
    
    
    (4,456
    )
    
    
    (4,881
    )Reduction (increase) in income tax:State income taxes, net of federal income tax effect
    
    
    (213
    )
    
    
    (248
    )
    
    
    (323
    )Tax credits from research activities
    
    
    105
    
    
    
    101
    
    
    
    44Difference in effective foreign tax rates
    
    
    (110
    )
    
    
    415
    
    
    
    900Other
    
    
    82
    
    
    
    (49
    )
    
    
    (439
    )Income tax expense
    
    $
    (2,453
    )
    
    
    (4,237
    )
    
    
    (4,699
    )
 In the years 2004, 2003 and 2002, income tax expense for continuing operations is net of tax
benefits, totaling $124,000, $352,000 and $431,000, respectively, recognized from foreign net
operating loss carry forwards. 62 of 70




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The Company expects to retain all deferred tax assets and liabilities after disposal of assets held
for sale. The tax effects of temporary differences that give rise to significant portions of the
deferred tax assets and deferred tax liabilities at December 31, 2004 and 2003 are presented below
(in thousands): 2004
    
    
    2003Deferred tax assets:Accounts receivable
    
    $
    252
    
    
    
    711Inventories
    
    
    1,690
    
    
    
    1,161Accrued compensation costs
    
    
    731
    
    
    
    710Gain on sales to foreign subsidiaries
    
    
    182
    
    
    
    247Accrued warranty costs
    
    
    1,025
    
    
    
    619Accrued post-retirement benefits
    
    
    1,445
    
    
    
    1,188Foreign research expense and tax credit carry forward
    
    
    40,843
    
    
    
    33,302Foreign net operating loss carry forward
    
    
    2,034
    
    
    
    2,358Investment
    
    
    3,265
    
    
    
    3,265Credit for corporate minimum tax
    
    
    306
    
    
    
    306Research and development credit carry forward
    
    
    900
    
    
    
    Intellectual property
    
    
    250
    
    
    
    Other
    
    
    285
    
    
    
    189Total gross deferred tax assets
    
    
    53,208
    
    
    
    44,056Valuation allowance
    
    
    (36,835
    )
    
    
    (29,748
    )Net deferred tax assets
    
    
    16,373
    
    
    
    14,308Deferred tax liabilities:Property, plant and equipment
    
    
    9,056
    
    
    
    8,099Net gain from foreign transactions and remeasurement.
    
    
    
    
    
    
    283Pension asset
    
    
    1,048
    
    
    
    1,039Customer
holdbacks receivable
    
    
    303
    
    
    
    Total gross deferred tax liabilities
    
    
    10,407
    
    
    
    9,421Net deferred tax assets
    
    $
    5,966
    
    
    
    4,887
 The U.S. continuing operations are consolidated for federal income tax purposes. These U.S.
continuing operations had earnings before income taxes of $5,105,000 in 2004, $8,162,000 in 2003
and $10,467,000 in 2002. The continuing combined foreign operations reported earnings before income
taxes of $1,708,000, $4,945,000 and $3,889,000 in 2004, 2003 and 2002, respectively. The Companys net deferred tax assets at December 31, 2004 include $2,034,000 related to a
cumulative $6,992,000 net operating loss incurred by certain international operations, for which
the Company has recognized an income tax benefit. Most of these net operating losses can be carried
forward indefinitely. Management believes it is more likely than not that the expected future
taxable income and the utilization of tax planning strategies will generate adequate earnings to
fully realize the deferred tax assets, net of valuation allowance. In December 2004, the FASB issued FASB Staff Position 109-2 (FSP 109-2), providing guidance on the
application of SFAS No. 109, Accounting for Income Taxes, to a provision within the American Jobs
Creation Act of 2004 (the AJCA) related to a deduction for certain foreign earnings that are
repatriated. On October 22, 2004, the AJCA was signed into law. The AJCA includes a deduction of
85 percent of certain foreign earnings that are repatriated, defined in the AJCA. The AJCA could
potentially apply to repatriation of cumulative earnings by the Companys European sales
subsidiaries. The Company presently estimates that the potential amounts of unremitted earnings
being considered for repatriation could be in the range of $3 million to $5 million. However, the
Company has not yet begun its formal evaluation of the effect of the AJCA, and therefore the
Company has not yet determined (a) whether such earnings could actually be repatriated under
provisions of the AJCA, or (b) the range of income tax effects of such repatriation. The Company
expects to begin its evaluation of the potential application of the AJCA during the second half of
2005, with expected completion late in the same year. (10) RETIREMENT PLANS The Company established a qualified defined contribution plan in 1993. All U.S.-based employees
that meet a minimum service requirement (approximately 800 employees) are eligible to participate
in the plan. Company contributions are allocated to each participant based upon an age-weighted
formula that discounts an equivalent benefit (as a percentage of eligible compensation) at age 65
to each employees current age. 63 of 70




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Accumulated contributions are invested at each participants discretion from among a diverse range of
investment options offered by an independent investment firm selected by the Company. The Companys contribution to this plan is determined each year by the Board of Directors. There is
no required minimum annual contribution, but the target contribution has been approximately 6% of
base payroll. The Companys total expense related to the defined
contribution plan totaled $2.5 million
for 2004, $2.6 million for 2003 and $2.5 million for 2002. The Company sponsors qualified retirement savings plans in the U.S., Canada and the United Kingdom,
in which the Company matches a portion of each eligible employees contributions. The Companys
matching contributions to these plans were $1.8 million in 2004, $1.5 million in 2003 and $1.3
million in 2002. (11) FAIR VALUE OF FINANCIAL INSTRUMENTS The following summarizes certain information regarding the fair value of the Companys financial
instruments at December 31, 2004 and 2003: Cash and cash equivalents, trade accounts receivable and accounts payable  The carrying amount
approximates fair value because of the short maturity of these instruments. Long-term debt  Most of the Companys long-term debt bears interest at variable rates that
management believes are commensurate with rates currently available on similar debt. Accordingly,
the carrying value of variable-rate long-term debt approximates fair value. The Company has two fixed-rate, long-term mortgages. One mortgage has a 7.1% current rate and a
carrying amount at December 31, 2004 and 2003 of $5.4 million and $5.8 million, respectively. The
other mortgage has an 8.0% rate and a carrying amount at December 31, 2004 and 2003 of $9.4 million
and $9.9 million, respectively. The carrying amounts of the mortgages approximate fair value, based
on current market rates at which the Company could borrow funds with similar remaining maturities. (12) BUSINESS SEGMENT AND GEOGRAPHIC AREA INFORMATION The Company is organized into five reportable segments: Defense & Space Systems, 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 profit. The Defense & Space Systems segment manufactures custom-designed, highly engineered hardware for
use in space and satellite communications, radar, surveillance and military counter-measures.
Orders typically involve development and production schedules that can extend a year or more, and
most revenues are recognized under percentage-of-completion long-term contract accounting. Hardware
is sold to prime contractors or systems integrators rather than to end-users. The LXE segment manufactures wireless local area network (LAN) products for use mainly in
logistics. The manufacturing cycle for each order is generally just a few days, and revenues are
recognized upon shipment of hardware. Hardware is marketed to end-users and to third parties that
incorporate their products and services with the Companys hardware for delivery to end-users. The EMS Wireless segment manufactures antennas and repeaters for PCS/cellular communications
systems. The manufacturing cycle for each order is generally just a few days, and revenues are
recognized upon shipment of hardware. Hardware is marketed to wireless service providers and to
original equipment manufacturers (OEMs) for mobile voice/paging services, as well as for other
emerging high-speed wireless systems. The SATCOM segment manufactures antennas and other hardware for satellite communications systems.
The manufacturing cycle for each order is generally just a few days, and revenues are recognized
upon shipment of hardware. Hardware is marketed to third parties that incorporate their products and services with
the Companys hardware for delivery to end-users. 64 of 70




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The SatNet segment manufactures ground segment equipment for the satellite broadband communications
market. The manufacturing cycle for a hub is generally several weeks and terminals are manufactured
on a shorter cycle. Hardware is marketed to operators of high-speed, two-way, multimedia access
networks. Revenues at SatNet are recognized under the provisions of FASB Emerging Issues Task
Force Issue No. 00-21, relating to multiple deliverables on the same contract. SatNet revenues are
recognized when units are shipped or services are performed, subject to the limitations of FASB
Emerging Issues Task Force Issue No. 00-21 relative to multiple deliverables. Accounting policies for segments are the same as those described in the summary of significant
accounting policies, except that deferred income tax assets and liabilities are provided for only
at the consolidated level. The following segment data is presented in thousands. Years ended December 312004
    
    
    2003
    
    
    2002Net sales:Defense & Space Systems
    
    $
    50,051
    
    
    
    49,381
    
    
    
    54,210Less sales to discontinued operations
    
    
    (236
    )
    
    
    (1,819
    )
    
    
    (1,431
    )Defense & Space Systems external sales
    
    
    49,815
    
    
    
    47,562
    
    
    
    52,779LXE
    
    
    111,575
    
    
    
    101,075
    
    
    
    88,229EMS Wireless
    
    
    45,418
    
    
    
    51,381
    
    
    
    48,001SATCOM
    
    
    39,693
    
    
    
    44,736
    
    
    
    32,724SatNet
    
    
    14,184
    
    
    
    12,572
    
    
    
    14,153Less sales to discontinued operations
    
    
    (284
    )
    
    
    
    
    
    
    SatNet external sales
    
    
    13,900
    
    
    
    12,572
    
    
    
    14,153Other
    
    
    17
    
    
    
    (1,113
    )
    
    
    (115
    )Total
    
    $
    260,418
    
    
    
    256,213
    
    
    
    235,771Operating income (loss):Defense & Space Systems
    
    $
    2,614
    
    
    
    3,915
    
    
    
    5,010Contract reserve adjustment
    
    
    
    
    
    
    
    
    
    
    3,500Subtotal
    
    
    2,614
    
    
    
    3,915
    
    
    
    8,510LXE
    
    
    7,262
    
    
    
    6,966
    
    
    
    4,797EMS Wireless
    
    
    (720
    )
    
    
    2,529
    
    
    
    2,432SATCOM
    
    
    1,713
    
    
    
    5,026
    
    
    
    3,962SatNet
    
    
    (2,921
    )
    
    
    (2,100
    )
    
    
    (1,824
    )Other
    
    
    (110
    )
    
    
    (1,054
    )
    
    
    (256
    )Corporate
    
    
    1,173
    
    
    
    58
    
    
    
    (1,268
    )Total
    
    $
    9,011
    
    
    
    15,340
    
    
    
    16,353Non-operating income (expense), net of foreign
exchange gain (loss):Defense & Space Systems
    
    $
    (1
    )
    
    
    1
    
    
    
    LXE
    
    
    89
    
    
    
    270
    
    
    
    246EMS Wireless
    
    
    (18
    )
    
    
    459
    
    
    
    311SATCOM
    
    
    (171
    )
    
    
    (627
    )
    
    
    12SatNet
    
    
    (402
    )
    
    
    (301
    )
    
    
    19Other
    
    
    873
    
    
    
    409
    
    
    
    Corporate
    
    
    108
    
    
    
    (297
    )
    
    
    (256
    )Total
    
    $
    478
    
    
    
    (86
    )
    
    
    332Interest expense:Defense & Space Systems
    
    $
    (450
    )
    
    
    (417
    )
    
    
    (688
    )LXE
    
    
    (439
    )
    
    
    (430
    )
    
    
    (428
    )EMS Wireless
    
    
    (505
    )
    
    
    (389
    )
    
    
    (262
    )SATCOM
    
    
    (93
    )
    
    
    (87
    )
    
    
    (64
    )SatNet
    
    
    (380
    )
    
    
    (224
    )
    
    
    (83
    )Corporate
    
    
    (809
    )
    
    
    (600
    )
    
    
    (804
    )Total
    
    $
    (2,676
    )
    
    
    (2,147
    )
    
    
    (2,329
    )
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Years ended December 312004
    
    
    2003
    
    
    2002Income tax (expense) benefit:Defense & Space Systems
    
    $
    (824
    )
    
    
    (1,331
    )
    
    
    (1,639
    )Contract reserve adjustment
    
    
    
    
    
    
    
    
    
    
    (1,330
    )Subtotal
    
    
    (824
    )
    
    
    (1,331
    )
    
    
    (2,969
    )LXE
    
    
    (2,626
    )
    
    
    (2,587
    )
    
    
    (1,778
    )EMS Wireless
    
    
    473
    
    
    
    (987
    )
    
    
    (943
    )SATCOM
    
    
    326
    
    
    
    (547
    )
    
    
    (505
    )SatNet
    
    
    52
    
    
    
    394
    
    
    
    3Other
    
    
    (435
    )
    
    
    244
    
    
    
    97Corporate
    
    
    581
    
    
    
    577
    
    
    
    1,396Total
    
    $
    (2,453
    )
    
    
    (4,237
    )
    
    
    (4,699
    )Net earnings (loss):Defense & Space Systems
    
    $
    1,339
    
    
    
    2,168
    
    
    
    4,853LXE
    
    
    4,286
    
    
    
    4,219
    
    
    
    2,837EMS Wireless
    
    
    (770
    )
    
    
    1,612
    
    
    
    1,538SATCOM
    
    
    1,775
    
    
    
    3,765
    
    
    
    3,405SatNet
    
    
    (3,651
    )
    
    
    (2,231
    )
    
    
    (1,885
    )Other
    
    
    328
    
    
    
    (401
    )
    
    
    (159
    )Corporate, including change in accounting principle
    
    
    1,053
    
    
    
    (262
    )
    
    
    (932
    )Earnings from continuing operations
    
    
    4,360
    
    
    
    8,870
    
    
    
    9,657Discontinued operations, net
    
    
    (4,168
    )
    
    
    (46,262
    )
    
    
    (1,070
    )Total
    
    $
    192
    
    
    
    (37,392
    )
    
    
    8,587Capital expenditures:Defense & Space Systems
    
    $
    1,278
    
    
    
    1,965
    
    
    
    3,218LXE
    
    
    2,677
    
    
    
    1,449
    
    
    
    1,256EMS Wireless
    
    
    317
    
    
    
    890
    
    
    
    534SATCOM
    
    
    353
    
    
    
    1,788
    
    
    
    2,076SatNet
    
    
    1,672
    
    
    
    1,127
    
    
    
    1,252Corporate
    
    
    713
    
    
    
    865
    
    
    
    221Total
    
    $
    7,010
    
    
    
    8,084
    
    
    
    8,557Depreciation and amortization:Defense & Space Systems
    
    $
    2,599
    
    
    
    2,630
    
    
    
    2,713LXE
    
    
    2,150
    
    
    
    2,551
    
    
    
    2,630EMS Wireless
    
    
    863
    
    
    
    930
    
    
    
    837SATCOM
    
    
    1,325
    
    
    
    1,697
    
    
    
    1,245SatNet
    
    
    1,303
    
    
    
    604
    
    
    
    574Other
    
    
    640
    
    
    
    15
    
    
    
    Corporate
    
    
    581
    
    
    
    265
    
    
    
    209Total
    
    $
    9,461
    
    
    
    8,692
    
    
    
    8,208
 As of December 312004
    
    
    2003Assets:Defense & Space Systems
    
    $
    42,067
    
    
    
    40,157LXE
    
    
    70,450
    
    
    
    66,081EMS Wireless
    
    
    27,884
    
    
    
    25,353SATCOM
    
    
    35,774
    
    
    
    26,543SatNet
    
    
    17,696
    
    
    
    14,827Other
    
    
    2,335
    
    
    
    1,164Assets held for sale
    
    
    48,658
    
    
    
    40,059Corporate
    
    
    10,214
    
    
    
    14,365Total
    
    $
    255,078
    
    
    
    228,549Goodwill:LXE
    
    $
    9,982
    
    
    
    9,982EMS Wireless
    
    
    3,544
    
    
    
    3,544Total
    
    $
    13,526
    
    
    
    13,526
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Following is a summary of enterprise-wide information (in thousands): Years ended December 312004
    
    
    2003
    
    
    2002Net sales to
customers in the
following countries:United States
    
    $
    160,250
    
    
    
    162,275
    
    
    
    165,400United Kingdom
    
    
    16,396
    
    
    
    16,905
    
    
    
    11,245Other foreign countries
    
    
    83,772
    
    
    
    77,033
    
    
    
    59,126Total
    
    $
    260,418
    
    
    
    256,213
    
    
    
    235,771
 As of December 312004
    
    
    2003Long-lived
assets are located in the following countries:United States
    
    $
    26,599
    
    
    
    26,565Canada
    
    
    13,181
    
    
    
    13,402Other foreign countries
    
    
    1,378
    
    
    
    1,635Total
    
    $
    41,158
    
    
    
    41,602
 No customer accounted for more than 10% of consolidated net sales in 2004, 2003 or 2002. (13) DERIVATIVE FINANCIAL INSTRUMENTS At December 31, 2004, the Companys net value of all derivatives was a liability of $205,000. The
derivative activity as reported in the Companys consolidated financial statements for the years ended December
31 was (in thousands): 2004
    
    
    2003
    
    
    2002Net liability for derivatives at January 1
    
    $
    108
    
    
    
    (248
    )
    
    
    (18
    )Changes in statements of operations:Sales:Gain (loss) in value of embedded derivatives
    
    
    (13
    )
    
    
    2
    
    
    
    19Foreign exchange gain (loss):Gain (loss) in value of derivative instruments
that do not qualify as hedging instruments
    
    
    49
    
    
    
    787
    
    
    
    (496
    )Matured foreign exchange contracts
    
    
    (349
    )
    
    
    (433
    )
    
    
    247Net consolidated statements of operations
gain (loss) from changes in value of
derivative instruments
    
    
    (313
    )
    
    
    356
    
    
    
    (230
    )Net asset (liability) for derivatives at December 31
    
    $
    (205
    )
    
    
    108
    
    
    
    (248
    )
 The Company recognized no gains or losses for cash flow hedges that have been discontinued because
the forecasted transactions did not occur. All of the derivative contracts in place at December 31,
2004 will expire by the end of December 2005. 67 of 70




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The table below summarizes, by major currency, the notional amounts of foreign currency forward
contracts outstanding at December 31, 2004 (in thousands). NotionalAmountEuros (sell for U.S. dollars)
    
    1,600 EurosU.S. (sell for Canadian dollars)
    
    3,000 USDEuros (sell for Canadian dollars)
    
    750 EurosAustralian dollars (sell for U.S. dollars)
    
    1,000 AUD
 The fair market value of
these foreign currency forward contracts for continuing operations was a net
liability of $202,000 at December 31, 2004. (14) CONTRACT RESERVE ADJUSTMENT In 2001, the Company had accrued a $3.5 million contract reserve for potential settlement of an
agreement to supply broadband aeronautical antennas to a customer. In 2002, that customer was
acquired, and the Company subsequently negotiated a new long-term supply agreement with the
acquiring company. Based on the terms of this new agreement and the strong financial position and
creditworthiness of the acquiring company, the Company concluded that it no longer needed the $3.5
million reserve. The elimination of this reserve resulted in a consolidated statement of operations
benefit in the fourth quarter of 2002. (15) COMMITMENTS AND CONTINGENCIES The Company is committed under several non-cancelable operating leases for office space, computer
and office equipment and automobiles. Minimum annual lease payments under such leases related to
the Companys continuing operations are $4,421,000 in 2005, $3,730,000 in 2006, $2,951,000 in 2007,
$1,608,000 in 2008, $527,000 in 2009 and $0 thereafter. Minimum annual lease payments under such
leases related to the Companys discontinued operations are $492,000 in 2005, $359,000 in 2006,
$178,000 in 2007 and $0 thereafter. The Company also has short-term leases for regional sales offices, equipment and automobiles. Total
rent expense under all operating leases was approximately $4,539,000, $5,134,000 and $5,074,000 in
2004, 2003 and 2002, respectively. As of December 31, 2004, the Company has outstanding purchase commitments of $20,565,000. These
represent existing commitments under purchase orders or contracts to purchase inventory and raw
materials for our products. The Companys Canadian operations have received cost-sharing assistance from the Government of
Canada under several programs that support the development of new commercial technologies and
products for space. This funding is repayable in the form of royalties, the level of which will
depend upon several factors, including future revenue and profit levels to be derived from the
potential new technologies and products. To the extent that the royalties may exceed the repayable
amounts already recorded in long-term debt, the Company will incur royalty expense; however, these
royalties accrue at rates generally less than one percent of related sales, and will be incurred
only if additional revenues and profits are also recognized from new technologies and products. As
a result, although the Company cannot accurately estimate the level of future possible royalties,
the Company does not believe that such royalties will have a material adverse effect on future
results of operations. The Company through its SatNet division is required to pay royalties based on total sales of 60,000
broadband terminals. The royalty fee is calculated at a fixed amount based on units sold in the
year. The Company periodically enters into agreements with customers and suppliers that include limited
intellectual property indemnification obligations that are customary in the industry. These
guarantees generally require the Company to compensate the other party for certain damages and
costs incurred as a result of third-party intellectual property claims arising from these
transactions. The nature of the intellectual property indemnification obligations prevents the
Company from making a reasonable estimate of the maximum potential amount for which it could be
obligated. 68 of 70




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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 $8 million in 2003 and over $2.8 million in 2004. The Company has
provided reserves for identified risks that could cause cost increases in the future. The larger of
the two contracts was very near completion at the end of 2004, but on the remaining smaller
contract, there is a risk that further unforeseen difficulties could cause increases to the cost at
completion that exceed the Companys provisions, resulting in further losses. The Company provides a limited warranty for each of its products. The basic warranty periods vary
from one to five years, depending upon the type of product. For certain products, customers can
purchase warranty coverage for specified additional periods. The Company records a liability for
the estimated costs to be incurred under warranties. The amount of this liability is based upon
historical, as well as expected, rates of warranty claims. The warranty liability is periodically
reviewed for adequacy and adjusted as necessary. Following is a reconciliation of the aggregate
product warranty liability for the years ended December 31 (in thousands): Balance at December 31, 2002
    
    $
    1,366Accruals for warranties issued during the period
    
    
    1,178Settlements made during the period
    
    
    (567
    )Balance at December 31, 2003
    
    
    1,977Accruals for warranties issued during the period
    
    
    2,416Settlements made during the period
    
    
    (2,071
    )Balance at December 31, 2004
    
    $
    2,322
 (16) LITIGATION The Company is party to litigation styled Andrew Corporation (Andrew) v. EMS Technologies, Inc.
initiated in the U.S. District Court for the Northern District of Illinois on May 25, 2004,
alleging that EMS Wirelesss new remotely controlled electronic-downtilt base station antennas
infringe on patent rights held by Andrew, and seeking an injunction against manufacture or sale of
the allegedly infringing devices, and damages in an unspecified amount. Andrew alleges EMS
Wireless has committed willful infringement and thus additionally asks for damages to be enhanced
and for an award of attorneys fees. We have devoted substantial resources to studying the Andrew
patents as they might apply to our products. We believe that our products do not infringe any
valid or enforceable Andrew patent claims. In response to Andrews complaint, we have answered and
asserted defenses of invalidity and noninfringement. Additionally, EMS Wireless has asked the U.S.
Patent Office to reexamine at least one of the patents at issue. The parties have collectively
requested the Court to stay further proceedings while settlement discussions are underway.
Although we are confident of our legal position, we cannot assure the outcome of this litigation.
If the patents were successfully enforced against our products, we could be subject to payment of
substantial damages and an injunction against further distribution of what we consider to be an
important product for our future EMS Wireless sales. Other Legal Matters The Company is involved in various other claims and legal actions arising in the ordinary course of
business. In the opinion of management, the ultimate disposition of these matters will not have a
material adverse effect on the Companys financial position, results of operations or cash flows. 69 of 70




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(17) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) Following is a summary of interim financial information for the years ended December 31, 2004 and
2003 (in thousands, except net earnings (loss) per share): 2004 Quarters endedApril 3
    
    
    July 3
    
    
    October 2
    
    
    December 31Net sales
    
    $
    64,075
    
    
    
    64,528
    
    
    
    62,368
    
    
    
    69,447Operating income
    
    
    2,440
    
    
    
    1,972
    
    
    
    1,662
    
    
    
    2,937Earnings from continuing operations
    
    
    1,884
    
    
    
    888
    
    
    
    671
    
    
    
    917Earnings (loss) from discontinued
operations
    
    
    334
    
    
    
    (1,110
    )
    
    
    (2,387
    )
    
    
    (1,005
    )Net earnings (loss)
    
    
    2,218
    
    
    
    (222
    )
    
    
    (1,716
    )
    
    
    (88
    )Net earnings (loss) per share:Basic:Continuing operations
    
    $
    0.17
    
    
    
    0.08
    
    
    
    0.06
    
    
    
    0.08Discontinued operations
    
    
    0.03
    
    
    
    (0.10
    )
    
    
    (0.21
    )
    
    
    (0.09
    )Net earnings (loss)
    
    $
    0.20
    
    
    
    (0.02
    )
    
    
    (0.15
    )
    
    
    (0.01
    )Diluted:Continuing operations
    
    $
    0.17
    
    
    
    0.08
    
    
    
    0.06
    
    
    
    0.08Discontinued operations
    
    
    0.03
    
    
    
    (0.10
    )
    
    
    (0.21
    )
    
    
    (0.09
    )Net earnings (loss)
    
    $
    0.20
    
    
    
    (0.02
    )
    
    
    (0.15
    )
    
    
    (0.01
    )
 2003 Quarters endedMarch 29
    
    
    June 28
    
    
    September 27
    
    
    December 31Net sales
    
    $
    55,749
    
    
    
    66,059
    
    
    
    61,534
    
    
    
    72,871Operating income
    
    
    3,078
    
    
    
    4,778
    
    
    
    3,384
    
    
    
    4,100Earnings from continuing operations
    
    
    1,686
    
    
    
    2,488
    
    
    
    1,932
    
    
    
    2,764Loss from discontinued operations
    
    
    (1,664
    )
    
    
    (16,558
    )
    
    
    (22,523
    )
    
    
    (5,517
    )Net earnings (loss)
    
    
    22
    
    
    
    (14,070
    )
    
    
    (20,591
    )
    
    
    (2,753
    )Net earnings (loss) per share:Basic:Continuing operations
    
    $
    0.16
    
    
    
    0.23
    
    
    
    0.18
    
    
    
    0.26Discontinued operations
    
    
    (0.16
    )
    
    
    (1.55
    )
    
    
    (2.11
    )
    
    
    (0.52
    )Net earnings (loss)
    
    $
    
    
    
    
    (1.32
    )
    
    
    (1.93
    )
    
    
    (0.26
    )Diluted:Continuing operations
    
    $
    0.16
    
    
    
    0.23
    
    
    
    0.18
    
    
    
    0.25Discontinued operations
    
    
    (0.16
    )
    
    
    (1.55
    )
    
    
    (2.09
    )
    
    
    (0.50
    )Net earnings (loss)
    
    $
    
    
    
    
    (1.32
    )
    
    
    (1.91
    )
    
    
    (0.25
    )
 70 of 70