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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 September 28, 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 November 1, 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 September 28, 2002, the Company's net asset related to all derivatives was $47,000. At September 29, 2001, the Company's net liability related to all derivatives was $516,000. The total changes were reported in the Company's financial statements as follows (in thousands):

		Quarters Ended				Nine Months Ended
		Sep 28  2002		Sep 29  2001		Sep 28  2002		Sep 29  2001
Net asset (liability) for derivative, beginning of period	$	(125	)	129		(166	)	(1,135	)
Sales:
Gain (loss) in value of embedded derivatives		(39	)	(57	)	120		978
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		31		(413	)	(37	)	(583	)
Matured foreign exchange contracts		180		(44	)	130		139
Net income statement gain (loss) from       changes in value of derivative instruments		172		(514	)	213		566
Other comprehensive income:
Matured foreign exchange contracts		--		--		--		11
Gain (loss) in value of highly effective hedge   instruments		--		(131	)	--		31
Hedges determined to be ineffective		--		--		--		11
Net other comprehensive income		--		(131	)	--		53
Net asset (liability) for derivatives, end period	$	47		(516	)	47		(516	)
		====		====		====		====

 

The net asset for derivatives at September 28, 2002 comprises a $82,000 net asset for embedded derivatives associated with certain long-term contracts, and a $35,000 net liability for foreign currency forward exchange contracts. All of the foreign currency hedge contracts currently in place will expire by the end of the second quarter of 2003.

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):

		Sep 28		Sep 29
		2002		2001
Dilutive stock options, included in earnings   per share calculations:
Shares		1,342		613
Average price per share	$	15.29		11.63
Anti-dilutive stock options, excluded from   per share calculations:
Shares		517		1,351
Average price per share	$	23.04		17.91

 

For each earnings per share calculation reported for the third quarters and first nine-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 third quarters and nine months ended September 28, 2002 and September 29, 2001 (in thousands):

	Quarters Ended				Nine Months Ended
	Sep 28   2002		Sep 29  2001		Sep 28   2002		Sep 29   2001
Basic-weighted average common shares outstanding	10,636		9,733		10,532		9,182
Common equivalent shares from stock options	170		85		222		93
Diluted-weighted average common and common   equivalent shares outstanding	10,806		9,818		10,754		9,275
	=====		=====		=====		=====

 

4. Comprehensive Income (Loss)

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

		Quarters Ended					Nine Months Ended
		Sep 28  2002			Sep 29  2001		Sep 28  2002		Sep 29     2001
Net income	$	1,966			1,005		6,569		4,512
Other comprehensive income (expense):
Foreign currency translation adjustment		(2,082	)		(254	)	125		(827)
Cumulative effect of accounting change		--			--		--		(408)
Adjustment for cashflow hedging instruments		--			(131	)	--		53
Comprehensive income (loss)	$	(116	)		620		6,694		3,330
		====			====		====		====

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5. Trade Accounts Receivable

Trade accounts receivable include the following (in thousands):

		Sep 28   2002		Dec 31   2001
Amounts billed under contracts	$	60,547		65,903
Unbilled revenues		43,297		29,813
Deferred revenues		(10,649	)	(10,400	)
Allowance for doubtful accounts		(1,051	)	(901	)
Trade accounts receivable, net	$	92,144		84,415
		=====		=====

 

6. Inventories

Inventories include the following (in thousands):

		Sep 28   2002		Dec 31   2001
Parts and materials	$	27,042		27,582
Work in process		12,318		10,702
Finished goods		4,105		3,181
Inventories, net	$	43,465		41,465
		=====		=====

 

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):

 

		Quarters Ended						Nine Months Ended
		Sep 28   2002			Sep 29   2001			Sep 28   2002			Sep 29   2001
Revenues:
Space & Technology	$	33,258			29,733			99,010			94,564
LXE		21,065			22,276			62,861			62,756
EMS Wireless		10,306			10,242			37,967			33,518
SATCOM		8,052			5,396			23,193			15,538
Other		2,380			1,239			5,339			4,241
Total	$	75,061			68,886			228,370			210,617
		=====			=====			=====			=====
Operating income (loss):
Space & Technology	$	(68	)		(87	)		2,280			2,536
LXE		1,390			977			2,662			2,454
EMS Wireless		31			722			2,673			2,531
SATCOM		717			508			2,518			2,289
Other		250			(217	)		98			(256	)
Total	$	2,320			1,903			10,231			9,554
		=====			=====			=====			=====
Net earnings (loss):
Space & Technology	$	(517	)		(283	)		513			1,021
LXE		703			577			1,691			1,243
EMS Wireless		259			384			1,801			1,405
SATCOM		1,076			371			2,254			1,888
Other		145			(139	)		50			(174	)
Corporate		300			95			260			(871	)
Total	$	1,966			1,005			6,569			4,512
		=====			=====			=====			=====

		Sep 28			Dec 31
		2002			2001
Assets:
Space & Technology	$	122,119			113,813
LXE		62,489			66,142
EMS Wireless		23,746			23,334
SATCOM		23,487			13,050
Other		5,939			3,502
Corporate		13,162			16,975
Total	$	250,942			236,816
		=====			=====
Goodwill:
Space & Technology	$	--			--
LXE		9,982			9,982
EMS Wireless		3,544			3,015
SATCOM		--			--
Other		--			--
Total	$	13,526			12,997
		=====			=====

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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 September 28, 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 su bject to amortization. If the Company had not adopted SFAS No. 142, $186,000 and $558,000 of goodwill amortization would have been recorded for the third quarter and nine months ended September 28, 2002, respectively.

Following is a summary of the Company's third quarter and nine months net earnings and net earnings per share for the periods ended September 28, 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					Nine Months Ended
		Actual		Pro Forma				Actual		Pro Forma
		Sep 28  2002			Sep 29  2001			Sep 28  2002			Sep 29  2001
Net earnings	$	1,966			1,005			6,569			4,512
Add goodwill amortization		--  '			130			--  '			390
Adjusted net earnings	$	1,966			1,135			6,569			4,902
		====			====			====			====
Net earnings per share:
Basic:
Net earnings per share	$	0.18			0.10			0.62			0.49
Add goodwill amortization		--  '			0.01			--  '			0.04
Adjusted net earnings per share	$	0.18			0.11			0.62			0.53
		====			====			====			====
Diluted:
Net earnings per share	$	0.18			0.10			0.61			0.49
Add goodwill amortization		--  '			0.01			--  '			0.04
Adjusted net earnings per share	$	0.18			0.11			0.61			0.53
		====			====			====			====

 

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 Financial Accounting Standards Board 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.

During the first nine months of 2002, the Company has generated $4.6 million in cash from operations, mainly due to net earnings. Additionally, the Company's cash position for that period benefited from a lower requirement for estimated payments of income taxes, but management expects that with a profitable fourth quarter, the required payment of estimated income taxes will 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. The Company expects to bill these receivables within the next 12 months. Cash was also affected by a build-up of inventories 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. On September 28, 2002, this short-term loan was paid off with cash provided by operations.

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.

The Company's revolving credit agreements are subject to the Company maintaining compliance with certain covenants. At September 30, 2002, the Company was either in compliance or had received a bank waiver of compliance relating to all covenants.

At September 28, 2002, the Company had $5.0 million available for borrowing under the U.S. revolving credit agreement and $4.7 million 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.

Statements concerning future revenues, tax rates and other financial results included in management's discussion and analysis of financial condition and results of operations are forward looking statements. 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;
• technical problems that may be encountered on contracts, particularly in the Space & Technology segment;
• 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;
• the levels of success achieved by the Company in its technological development programs, and the effects of technology that may be developed by competitors;
• the effectiveness of the Company's efforts to transition products from development stages to an efficient manufacturing environment;
• customer response to new products and services, and general conditions in our target markets (such as logistics, PCS/cellular telephony and space-based communications);
• the availability of financing for satellite data communications systems and for expansion of terrestrial PCS/cellular phone systems;
• the extent to which terrestrial systems succeed in providing extensive broadband Internet access on a dependable and economical basis;
• the effectiveness of the Company's efforts to develop successful working relationships with local business and government personnel in connection with the distribution and manufacture of products in foreign countries;
• the growth rate of demand for various mobile and high-speed data communications services;
• the Company's ability to attract and retain qualified personnel, particularly those with key technical skills; and
• the availability of sufficient additional credit or other financing, on acceptable terms, to support the Company's expected growth.

As of September 28, 2002, the Company had the following market risk sensitive instruments (in thousands):

As of September 28, 2002, the Company also had intercompany accounts that eliminate in consolidation but are considered market-risk sensitive. Short-term due to/from parent, payable/(receivable) 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.

The Company has established and maintains disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14). The objective of these controls and procedures is to ensure that information relating to the Company, including its consolidated subsidiaries, and required to be filed by it in reports under the Securities Exchange Act, as amended, is effectively communicated to the Company's management, including the CEO and CFO, and is recorded, processed, summarized and reported on a timely basis.

The CEO and CFO have evaluated the Company's disclosure controls and procedures within 90 days prior to the filing date of this quarterly report. Based upon this evaluation, the CEO and CFO have concluded that the Company's disclosure controls and procedures are adequate to accomplish their objective and are functioning effectively.

Subsequent to the most recent evaluations by the CEO and CFO, there have been no significant changes in the Company's internal controls (including corrective actions for significant deficiencies or material weaknesses) or other factors that could significantly affect these internal controls.

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 Company's Chief Executive and Chief Financial Officers, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

1. Reports on Form 8-K--The Company filed no reports on Form 8-K during the third quarter 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.

I, Alfred G. Hansen, certify that:

1. I have reviewed this quarterly report on Form 10-Q of EMS Technologies, Inc;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statement made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

c) Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weakness in internal controls; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

I, Don T. Scartz, certify that:

1. I have reviewed this quarterly report on Form 10-Q of EMS Technologies, Inc;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statement made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

c) Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weakness in internal controls; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

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 September 28, 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 12th day of November, 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.