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X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 29, 2002

Registrant's Telephone Number, Including Area Code: (770) 263-9200

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

The number of shares outstanding of each of the issuer's classes of common stock, as of the close of business on July 31, 2002:

See accompanying notes to interim consolidated financial statements.

EMS Technologies, Inc.
Notes to Interim Consolidated Financial Statements (Unaudited)
 

1. Basis of Presentation

The interim consolidated financial statements include the accounts of EMS Technologies, Inc. and its wholly-owned subsidiaries LXE Inc. and EMS Technologies Canada, Ltd. (collectively, "the Company"). In the opinion of management, the interim consolidated financial statements reflect all normal and recurring adjustments necessary for a fair presentation of results for such periods. The results of operations for any interim period are not necessarily indicative of results for the full year. These consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2001.

2. Derivative Financial Instruments

The Company uses derivative financial instruments (forward exchange contracts) to hedge currency fluctuations in future cash flows denominated in foreign currencies, thereby limiting the Company's risk that would otherwise result from changes in exchange rates. The Company has established policies and procedures for risk assessment and 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.

In the first quarter of 2001, the Company adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," and made related changes in its accounting policies. SFAS No. 133 requires the Company to recognize all derivatives on the balance sheet at fair value. Under SFAS No. 133, certain of the Company's routine long-term contracts to deliver Space & 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. Changes in the fair values of these embedded derivatives are included in current earnings.

As a result of the adoption of SFAS No. 133, the Company recognized in 2001 a net liability for all derivatives totaling $1,135,000, of which $351,000, net of income taxes, was charged to the statement of earnings as a transition adjustment for the cumulative effect, as of January 1, 2001, of the change in accounting principle. The remaining net liability for all derivatives was charged to the unbilled revenue component of accounts receivable, in the amount of $375,000 and to the other comprehensive income component of stockholders' equity, in the amount of $408,000.

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At June 29, 2002, the Company's net liability related to all derivatives was $125,000. At June 30, 2001, the Company's net asset related to all derivatives was $129,000. The total changes were reported in the Company's financial statements as follows (in thousands):

		Quarters Ended				Six Months Ended
		June 29		June 30		June 29		June 30
		2002		2001		2002		2001
Net asset (liability) for derivatives, beginning of period	$	142		(681	)	(166	)	(1,135	)
Sales:
Gain in value of embedded derivatives		--		--		159		1,035
Foreign exchange gain (loss) on derivative instruments:
Gain in value of ineffective portion of derivative instruments that qualify as hedging instruments		--		--		--		32
Gain (loss) in value on derivative instruments that do not qualify as hedging instruments.		(217	)	148		(68	)	(170	)
Matured foreign exchange contracts		(50	)	183		(50	)	183
Net income statement gain (loss) from changes in value of derivative instruments		(267	)	668		41		1,080
Other comprehensive income:
Matured foreign exchange contracts		--				--
Gain in value of highly effective hedge instruments		--				--
Hedges determined to be ineffective		--		11		--		11
Net other comprehensive income		--		142		--		184
Net asset (liability) for derivatives , end of period	$	(125	)	129		(125	)	129
		====		====		====		====

All of the foreign currency contracts currently in place will expire by the end of the year.

3. 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.

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The Company has granted stock options that are potentially dilutive to basic earnings per share, summarized as follows (shares in thousands):

		June 29		June 30
		2002		2001
Dilutive stock options, included in earnings   per share calculations:
Shares		1,603		844
Average price per share	$	15.74		12.59
Anti-dilutive stock options, excluded from   per share calculations:
Shares		395		1,056
Average price per share	$	23.81		18.32

 

For each earnings per share calculation reported for the second quarters and first six-month periods of 2002 and 2001 (i.e., earnings per share before accounting change, loss per share from cumulative effect of change in accounting principle, and net earnings per share), the numerators were the same as reported in the income statement. Following is a reconciliation of the denominator for basic and diluted earnings per share calculations for the second quarters and six months ended June 29, 2002 and June 30, 2001 (in thousands):

	Quarters Ended				Six Months Ended
	June 29		June 30		June 29		June 30
	2002		2001		2002		2001
Basic-weighted average common shares outstanding	10,527		8,881		10,486		8,852
Common equivalent shares from stock options	275		89		248		96
Diluted-weighted average common and common equivalent shares outstanding	10,802		8,970		10,734		8,948
	=====		====		=====		====

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4. Comprehensive Income

Following is a summary of comprehensive income (in thousands):

		Quarters Ended					Six Months Ended
		June 29 2002			June 30 2001		June 29 2002		June 30 2001
Net income	$	2,491			1,701		4,603		3,507
Other comprehensive income (expense):     Foreign currency translation adjustment		1,937			1,376		2,207		(573	)
Cumulative effect of accounting change		--			--		--		(408	)
Adjustment for cash flow hedging     instruments		--			142		--		184
Comprehensive income	$	4,428			3,219		6,810		2,710
		====			====		====		====

 

5. Trade Accounts Receivable

Trade accounts receivable include the following (in thousands):

		June 29 2002			Dec 31 2001
Amounts billed under contracts	$	60,022			65,903
Unbilled revenues		44,043			29,813
Deferred revenues		(10,897	)		(10,400	)
Allowance for doubtful accounts		(1,007	)		(901	)
Trade accounts receivable, net	$	92,161			84,415
		=====			=====

 

6. Inventories

Inventories include the following (in thousands):

		June 29 2002			Dec 31 2001
Parts and materials	$	29,417			29,519
Work in process		15,135			10,702
Finished goods		3,783			3,181
Valuation allowance		(1,660	)		(1,937	)
Inventories, net	$	46,675			41,465
		=====			=====

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7. Interim Segment Disclosures

The Company is organized into four reportable segments: Space & Technology, LXE, EMS Wireless and SATCOM. Each segment is separately managed and comprises a range of products and services that share distinct operating characteristics. The Company evaluates each segment primarily upon operating income.

Following is a summary of the Company's interim segment data (in thousands):

		June 29 2002			June 30 2001			June 29 2002			June 30 2001
Revenues:
Space & Technology	$	35,781			35,162			65,752			64,831
LXE		21,911			21,250			41,796			40,480
EMS Wireless		14,928			11,653			27,661			23,276
SATCOM		8,836			5,222			15,141			10,142
Other		1,414			1,280			2,959			3,002
Total	$	82,870			74,567			153,309			141,731
		=====			=====			======			======
Operating income (loss):
Space & Technology	$	1,116			1,791			2,348			2,623
LXE		569			968			1,272			1,477
EMS Wireless		1,734			618			2,642			1,809
SATCOM		957			685			1,801			1,781
Other		(101	)		(131	)		(152	)		(39	)
Total	$	4,275			3,931			7,911			7,651
		=====			=====			=====			=====
Net earnings (loss):
Space & Technology	$	154			629			1,030			1,304
LXE		696			470			988			666
EMS Wireless		1,035			353			1,542			1,021
SATCOM		469			530			1,178			1,517
Other		(56	)		(87	)		(95	)		(35	)
Corporate		193			(194	)		(40	)		(966	)
Total	$	2,491			1,701			4,603			3,507
		=====			=====			=====			=====

 

 

		June 29			Dec 31
		2002			2001
Assets:
Space & Technology	$	111,073			113,813
LXE		66,185			66,142
EMS Wireless		24,033			23,334
SATCOM		41,884			13,050
Other		3,956			3,502
Corporate		10,789			16,975
Total	$	257,920			236,816
		======			======
Goodwill:
Space & Technology	$	--			--
LXE		9,982			9,982
EMS Wireless		3,015			3,015
SATCOM		--			--
Other		--			--
Total	$	12,997			12,997
		======			======

 

8. Goodwill

In July 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets," which was adopted by the Company effective January 1, 2002. Under SFAS No. 142, goodwill and intangible assets with indefinite useful lives will no longer be amortized but will instead be tested periodically for impairment. SFAS No. 142 also requires that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and be reviewed periodically for impairment. At December 31, 2001, the Company reported $13 million of unamortized goodwill that is subject to the transition provisions of SFAS No. 142. At June 29, 2002, the Company had completed the first step of the transitional impairment test and determined that there was no impairment of goodwill. All of the Company's goodwill was deemed to have indefinite lives and therefore will no longer be subject to amortization. If the Company had not adopted SFAS No. 142, $186,000 and $372,000 of goodwill amortization would have been recorded for the second quarter and six months ended June 29, 2002.

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Following is a summary of the Company's second quarter and six months net earnings and net earnings per share for the periods ended June 29, 2002, as compared with pro forma data for the same periods in 2001 assuming that goodwill amortization was excluded in 2001 (in thousands, except per share data):

		Quarters Ended				Six Months Ended
		Actual		Pro Forma		Actual		Pro Forma
		June 29 2002		June 30 2001		June 29 2002		June 30 2001
Net earnings	$	2,491		1,701		4,603		3,507
Add goodwill amortization		- '		130		- '		260
Adjusted net earnings	$	2,491		1,831		4,603		3,767
		====		====		====		====
Net earnings per share:
Basic:
Net earnings per share	$	0.24		0.19		0.44		0.40
Add goodwill amortization		- '		0.01		- '		0.02
Adjusted net earnings per share	$	0.24		0.20		0.44		0.42
		====		====		====		====
Diluted:
Net earnings per share	$	0.23		0.19		0.43		0.39
Add goodwill amortization		-		0.01		- '		0.02
Adjusted net earnings per share	$	0.23		0.20		0.43		0.41
		====		====		====		====

 

9. Acquisition

• Revenue recognition on long-term contracts

• Accrual of government incentives for research

• Evaluation of long-lived assets for impairment

• Establishment of reserves for deferred income tax assets

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS 146 requires that a liability for costs associated with an exit or disposal activity be recognized when the liability is incurred rather than when a company commits to such an activity and also establishes fair value as the objective for initial measurement of the liability. SFAS No. 146 will be adopted by the Company for exit or disposal activities that are initiated after December 31, 2002. Adoption will not have a material impact on the consolidated financial statements of the Company.

The Company generated $2.3 million in cash from operations, mainly due to favorable net earnings. Additionally, the Company's cash position during the first half of the year benefited from a lower requirement for estimated payments of income taxes, but management expects that with a profitable second half of the year, the required payments of estimated income taxes will substantially increase. In 2002, cash was unfavorably affected by an increase in unbilled receivables within the Space & Technology segment. Unbilled receivables are the result of revenue that is required to be accrued under percentage-of-completion accounting but that cannot be billed yet to the customer under terms of the contract. Cash was also affected by inventories from a build up related to new broadband product offerings.

During March 2002, the Company entered into a demand installment loan with a Canadian bank for $2.4 million secured by a receivable related to the Quebec Labour Tax Credits refund for fiscal year 2001. There is approximately $2.8 million of additional funds available to the Company under this loan. This short-term loan matures at the earlier of receipt of the Quebec Labour Tax Credits refund (expected during the third quarter) or September 30, 2002.

The Company's material contractual cash commitments and material other commercial commitments have not changed significantly from those disclosed in the Annual Report on Form 10-K for the year ended December 31, 2001.

At June 29, 2002, the Company had $8.0 million available for borrowing under the U.S. revolving credit agreement and $204,000 available under the Canadian revolving credit agreement. The Canadian revolving credit agreement matures in April 2003, and management expects that the agreement will be renewed with substantially the same terms. Management believes that cash expected to be 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 issuance of common stock or placement of convertible securities.

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:

• economic conditions in the U.S. and abroad and their effect on capital spending in the Company's principal markets;
• volatility of foreign exchange rates relative to the U.S. dollar and their effect on purchasing power by international customers, as well as the potential for realizing foreign exchange gains or losses associated with net foreign assets held by the Company;
• difficulties encountered in completing technological development programs by the Company and the effects of technology that may be developed by competitors;
• difficulties encountered in transitioning products from development stages to an efficient manufacturing environment;
• customer response to new products and services, and general conditions in our target markets (such as logistics, PCS/cellular telephony and space-based communications);
• the availability of financing for satellite data communications systems and for expansion of terrestrial PCS/cellular phone systems;
• the growth rate of demand for various mobile and high-speed data communications services;
• the Company's ability to achieve expected levels of research efforts that qualify for tax incentives and apportionment of pre-tax income among various tax jurisdictions;
• the outcome of efforts to participate with potential strategic partners in offering Ka-band high-speed data communications, and the extent to which competing terrestrial systems succeed in providing extensive broadband Internet access on a dependable and economical basis;
• the Company's ability to negotiate satisfactory resolutions of claims by and against customers in connection with programs in which unanticipated technical or production issues are encountered;
• the Company's ability to attract and retain qualified personnel, particularly those with key technical skills; and
• the availability of sufficient additional credit or other financing, on acceptable terms, to support the Company's expected growth.

As of June 29, 2002, the Company had the following market risk sensitive instruments (in thousands):

As of June 29, 2002, the Company also had intercompany accounts that eliminate in consolidation but are considered market-risk sensitive. Short-Term Due to Parent, payable by European and Australian subsidiaries and arising from purchase of the Parent's products for sale, were as follows:

Foreign currency risk associated with hedge contracts (fair value in thousands).

The Company enters into foreign currency forward contracts in order to mitigate the risks associated with currency fluctuations on future cash flows.

1. During the reporting period the Registrant issued equity securities that were not registered under the Securities Act of 1933, as follows:

Private Issuance of Common Stock

1. On April 23, 2002, the Registrant issued 81,245 shares of its Common Stock, $.10 par value, and obligated itself to issue additional such shares in the future depending upon the future financial performance of the company acquired by the Registrant in the transaction.
2. There were no underwriters, and the securities were not publicly offered. The sole purchaser at the closing was TRL Technology Limited, a sister subsidiary of the company that was acquired by the Registrant in the transaction.
3. The Common Stock was valued for the purposes of the transaction at $23.396 per share, or $1,900,000 in the aggregate for the shares issued at closing in consideration of the transfer of certain intellectual property used in products sold by the subsidiary acquired by the Registrant. No brokerage or similar fees were paid in the transaction.
4. The Common Stock was issued in reliance on the exemption set forth in Section 4(2) of the Securities Act. The sole offeree was the corporation that held the intellectual property acquired by the Registrant in the transaction; such offeree was a sophisticated investor; no general solicitations, general advertisements or other public solicitations were made; and all securities were restricted as to further distribution other than in transactions registered or exempt from registration under the Securities Act.

1. Exhibits -- The following exhibits are filed as part of this report:

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 Annual Report on Form 10-K for the year ended December 31, 1998)
2. Bylaws of EMS Technologies, Inc., as amended through March 15, 1999 (incorporated by reference Exhibit 3.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998)

1. Certifications of the Registrant's Chief Executive and Chief Financial Officers, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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.

Each of the undersigned Chief Executive Officer and Chief Financial Officer of EMS Technologies, Inc. hereby individually certifies that the Quarterly Report on Form 10-Q of the Company for the quarter ended June 29, 2002, to which this Certification is attached, fully complies with the requirements of Section 15(d) of the Securities Exchange Act of 1934, as amended, and that the information contained in such Report fairly presents, in all material respects, the financial condition and results of operations of EMS Technologies, Inc.

In witness whereof, each of the undersigned has executed and delivered this Certification on this 13th day of August, 2002.

/s/ Alfred G. Hansen /s/ Don T. Scartz

______________________________ _____________________________

Alfred G. Hansen Don T. Scartz

Chief Executive Officer         Chief Financial Officer

EMS Technologies, Inc. EMS Technologies, Inc.