EMS TECHNOLOGIES INC - 10-K Annual Report

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

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[X] No[ ]

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: [X]

Indicate by check mark whether the registrant is an accelerated filer (as defined by Rule 12b-2 of the Act): Yes[X] No[ ]

The aggregate market value of voting stock held by persons other than directors or executive officers on June 28, 2003 was $142 million, based on a closing price of $13.52 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 8, 2004, the number of shares of the registrant’s common stock outstanding was 11,067,798 shares.

Certain information contained in the Company’s definitive proxy statement for the 2004 Annual Meeting of Shareholders of the registrant is incorporated herein by reference in Part III of this Annual Report on Form 10-K.

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.

EMS Technologies, Inc. (the “Company” or “EMS”) designs, manufactures and markets products that are important in many kinds of wireless communications. The Company focuses on the needs of the mobile information user, with an increasing emphasis on broadband applications for high-data-rate, high-capacity wireless communications.

The Company is organized into five reportable business segments: Space & Technology, LXE, EMS Wireless, SATCOM and SatNet. Each segment is separately managed and comprises a range of products and services that share distinct operating characteristics. However, the Company believes that one of its competitive strengths is the technological and marketing synergy that occurs among the segments, as well as among the Company’s various product lines. The Company believes that this synergy creates a path to broader markets for highly advanced technologies developed for niche markets in space and defense.

		This segment manufactures custom-designed, highly engineered hardware for use in space electronics (both commercial and defense satellite applications), and aerospace (both commercial and defense electronics applications). Orders in this segment typically involve long-term contracts with development and production schedules that can extend a year or more, and most revenues are recognized under percentage-completion accounting. The Space & Technology segment’s products are sold primarily to space and defense prime contractors or commercial communications systems integrators rather than end-users. The Space & Technology segment accounted for 19%, 22% and 17% of consolidated net sales in 2003, 2002 and 2001, respectively.

		A major source of business is the defense electronics market. Orders in this market remained strong in 2003, with defense sales exceeding the prior year. The Company believes that applications for secure communications, surveillance, and electronic counter-measures will continue to offer opportunities that are well-suited to the Company’s unique technology base and its considerable experience on such programs.

		In the third quarter of 2003, EMS announced that its Board of Directors had approved a formal plan to seek to sell the Company’s commercial space operations located in Montreal. As a result, all of the activities, operations and financial results of the Montreal commercial space business, which had been included in the Space & Technology segment in prior years, were moved to discontinued operations for all periods presented in the Company’s consolidated financial statements.

The LXE business is conducted through a wholly owned subsidiary, LXE Inc., and manufactures wireless mobile computers and wireless local area network (“LAN”) products for logistics and other enterprise applications. Typical uses include real-time data communications on inventory movement in a large warehouse, manufacturing facility, or container yard. 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 LXE segment accounted for 39%, 37% and 43% of consolidated net sales in 2003, 2002 and 2001, respectively.

The EMS Wireless segment manufactures base-station 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 EMS Wireless segment accounted for 20%, 20% and 22% of consolidated net sales in 2003, 2002 and 2001, respectively.

The SATCOM segment is a division of the Company’s wholly owned Canadian subsidiary, EMS Technologies Canada, Ltd. (“EMS Canada”), and manufactures earth-based antennas, terminals and other hardware for communications via satellite link. Typical applications include voice/data communications aboard corporate jets, high-speed data systems for military applications, search-and-rescue systems that use satellite surveillance, and tracking/messaging for long-haul trucks. The manufacturing cycle for most orders is generally just a few days, and revenues are recognized upon shipment of hardware. Hardware is marketed to third parties who incorporate their products and services with the Company’s hardware for delivery to end-users. The SATCOM segment accounted for 17%, 14% and 11% of consolidated net sales in 2003, 2002 and 2001, respectively.

In mid-2002, the “EMS Satellite Networks” (“SatNet”) division was formed as a result of the Company’s strategic emphasis on the development of broadband technologies for use in high-data-rate, high-capacity satellite communication systems. This segment focuses on high speed, two-way Internet via satellite hubs and terminals that use the DVB-RCS open standard pioneered by EMS. 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. The SatNet segment accounted for 5%, 6% and 6% of consolidated net sales in 2003, 2002 and 2001, respectively.

		In 1999, the Company added expertise in space systems, payload integration and ground terminal technologies by acquiring the Space Systems and Products Division of Spar Aerospace Limited, based in Montreal. This division (now the Space & Technology/Montreal division of EMS Canada) has long been a leading participant in the Canadian and international, commercial and civil space industries. 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. In the third quarter of 2003, EMS announced that its Board of Directors had approved a formal plan to sell this business. As a result, all of the activities, operations and financial results of the Montreal commercial/civil space business were moved to discontinued operations for all periods presented.

		The Space & Technology/Montreal business designs and manufactures innovative satellite communications products. These products include satellite systems, subsystems and components that address the need for reliable, high-speed communications. The products marketed and manufactured by this business comprise the following lines: space systems, antenna products and electronic products for space.

The discussion of the Company’s business set forth in this Item 1 is qualified by the materials appearing below under the headings “Risk Factors” and “Forward-Looking Statements.”

In its Space & Technology segment, the Company has developed strong expertise in microwave components and subsystems over a period of more than 30 years. In the mid-1970’s, the Company pioneered the use of ferrite materials for electronic beam-forming. Electronic beam-forming networks (“BFNs”) allow a satellite to steer and adjust the shape of its antenna pattern. BFN technology was originally used in military communication satellites to avoid interference from the ground. This segment also produced the first all-electronic switch matrix to provide flexible interconnectivity between microwave uplink and downlink channels in communication satellites.

The core technologies of the Space & Technology segment are directly applicable to a range of current defense applications, including line-of-sight communications, radar, signal intelligence and electronic countermeasure systems. These applications are generally referred to as “information dominance.” Further, the Space & Technology segment has produced highly-engineered antenna, signal-management, and signal processing hardware that are used in numerous mission-critical weapon systems.

In the early 1980’s, the Company sought to diversify its predominantly defense-related business base by moving into commercial markets. As a result, the Company used its expertise in wireless technologies to develop the LXE product line of wireless mobile computers and network products. By communicating with the host computer network in real-time, these LXE products enhance the productivity of mobile workers and improve the accuracy and timeliness of transaction-processing data. LXE’s principal market is for material management functions in warehouses and distribution centers (the “logistics” market), including seaports. A major factor in the long-term growth of the logistics market and the LXE product line has been expanding use by many industries of more advanced information technologies, including wireless networking, enterprise software and auto-identification technologies (such as bar-coding and RFID).

The EMS Wireless segment includes PCS/cellular base station antennas and repeaters. The leading product in this line (marketed under the “DualPol” trademark) employs polarization-diversity technology. These antennas allow cell-site tower structures that are simpler, less expensive, and less obtrusive than conventional antenna towers. In addition, these antennas offer superior coverage and resistance to signal-fading, as compared with networks with conventional vertically-polarized antennas. The Company also offers a line of repeaters and in-building products, as well as a full line of lower-priced, conventional antennas for both cellular and PCS networks. These infrastructure products, along with a family of accessory products, are marketed to service providers and to OEMs domestically and internationally.

The Company has also established an industry-leading position in the market for mobile earth-based SATCOM (“satellite communications”) antennas and terminals. The initial SATCOM products

were developed for international search and rescue, in which satellite technology helps locate downed aircraft or ocean-going ships in distress. The most successful component of the Company’s current SATCOM product lines was developed for advanced communications by corporate jets. In these aeronautical applications, the Company’s antennas are mounted atop the jet’s tail fin and are automatically steered to remain pointed at a communications satellite during flight; these systems provide voice, data and video communications via satellite.

The Company has introduced other SATCOM products, including (1) a high-speed data product and variants to provide both voice and data connections with speeds up to 256 kbps, (2) Global Area Network (“GAN”) satellite data terminal products, which allow access to corporate networks and the Internet from anywhere in the world, either at the standard ISDN speed of 64 kbps, or at speeds of up to 128 kbps, using the Inmarsat satellite network, (3) a packet-data terminal to provide two-way real-time data communications for messaging, tracking and monitoring in the transportation, public safety and remote industrial controls markets, and (4) a maritime high-speed terminal for digital communications at sea over the Inmarsat network. SATCOM has also made initiatives with software products used for incident management for search-and-rescue applications with customers around the world.

EMS’s SatNet division originated from the Space & Technology segment, which had been studying the implementation of multimedia satellite systems since 1993. In 1994, EMS was commissioned to study the feasibility of developing new satellite system architectures built upon the existing DVB broadcast standard. The intent of the study was to pave the way for two-way satellite Internet access through a central satellite ground hub gateway. This study led to the development by EMS and satellite operators of a satellite return channel concept based on multi-
frequency TDMA and a set of scheduling algorithms designed for the emerging multimedia environment. The resulting DVB Return Channel System (“DVB-RCS”) air interface standard was adopted by European Telecommunication Standards Institute in 2000. In 2002, EMS created the SatNet group, initially within its Space & Technology segment to focus on this new business opportunity.

SatNet has now deployed more than 30 systems in Europe, North America and Asia. SatNet supplied Societe Europeene des Satellites (“SES”) – the world’s largest satellite service provider, with its Broadband Interactive Return Link Sub System (“RLSS”), which has subsequently been included as part of the SatLynx joint venture with Gilat, SES and Alcatel. SatNet has also signed an agreement with Alcatel Space, to integrate EMS RLSS’s into systems being marketed and delivered worldwide.

SatNet has now developed its fourth generation satellite interactive user terminal. The first generation was deployed in 2000 with EMS’s first demonstration hub in Europe. EMS is now offering an enterprise model (Series 2000), and a professional model (Series 3000). Both the Series 2000 and the Series 3000 are available in various transmit/receive frequency bands (e.g. Ku/Ku, Ka/Ku, etc). As a result of enhanced design and improved manufacturing techniques, these new terminals have a significantly lower cost than those from earlier generations, which has enabled EMS to offer terminals at lower prices than most legacy VSAT offerings.

The Company believes that its Space & Technology business will be able to make significant contributions in defense systems of national importance, such as secure satellite communications, secure intelligence and imagery collection satellites, advanced electronic warfare, radar, and secure line-of-sight communications. These systems are applied across

space, airborne, terrestrial and naval domains. Many such 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.

EMS’s base of technologies, including ferrite ceramics for microwave radio frequency management, and advanced antennas for low-observable aircraft, are well suited to many advanced defense applications. As a result, EMS continues to supply hardware to important U.S. and international military programs for communication, sensing and surveillance.

The Company’s products are incorporated in a number of significant weapon and defense systems such as the F/A-22 (air dominance fighter), B-2 (stealth bomber), Phalanx (Close-in Weapon System), Advanced EHF (military communication satellites), Special Operations Forces Aircraft (Suite of Integrated RF Counter-Measures Subsystems), Skynet 5 (United Kingdom military communication satellites), and Predator Unmanned Aerial Vehicle (observation and attack aircraft).

Additionally, EMS products are also used in a selection of technology-based commercial/civil ventures such as LiveTV (direct broadcast television reception on commercial aircraft), XM Radio (direct broadcast radio in North America), COSMO (Italian imagery satellites), and SARLupe (German imagery satellites).

Through its Space & Technology segment, the Company designs and manufactures innovative microwave products for space and defense applications. This segment’s products comprise three main lines:

EMS pioneered the use of ferrite materials in space and defense systems. Ferrite products provide phase and amplitude control of communications signals. The design, development and manufacture of ferrite products require considerable specialized in-house capabilities. These products include ferrite circulators, isolators, phase shifters, switches and switching networks, and transmit-receive networks. Ferrite products are integrated into satellite, shipboard, ground-based and airborne applications, including direct broadcast, direct audio, commercial and military communications, earth observation, multimedia, and defense systems. The Company’s ferrite products have been utilized in XM Radio, DirecTV, ENVISAT, CloudSAT, Anik F2, TDRSS, MILSTAR/AEHF, F-14, F-16 and B-2.

The Company’s electronic subsystems are an integral part of many space systems. These subsystems control the microwave communications signals processed in satellites and spacecraft, and include switch networks, beam-forming networks, auto-track modulators, and solid-state power amplifiers. The Company’s microwave subsystems have been utilized in Intelsat, Telstar, DSCS, MILSTAR/AEHF and ACTS.

This segment has developed unique signal processing capabilities that are key to advanced electronic warfare systems. These capabilities, combined with our antenna, ferrite, and microwave products, create significant subsystems in aircraft electronic protection suites. Major programs that use these products include AN/ALQ-172 Low Band, and AN/ALQ-211 Suite of Integrated RF Countermeasures, (“SIRFC”). In addition, this segment has developed and manufactures the radar illuminator subsystems that provide directed radar energy used to assist the tracking and control of land-based rocket systems.

The Company’s aeronautical antenna subsystems are used in a variety of commercial and military aircraft. The multi-channel commercial aircraft video system, which is now deployed with airlines based in New York and Denver, combines the Company’s antennas with electronics and small flat-panel video screens installed in each seat back. The aeronautical antenna subsystems used in, the USAF F/A-22 air dominance fighter combine the Company’s antenna with modem and signal processing equipment on-board the aircraft to enable an intra-flight datalink capability between aircraft. The antenna subsystems in unmanned aerial vehicles combine the Company’s antenna with modem and signal processing equipment on board the aircraft to enable satellite communication links and/or line-of-sight datalinks.

The Space & Technology segment is also developing terrestrial antenna subsystems for ground vehicles. The antenna subsystems are combined with modem and signal processing equipment on board ground vehicles such as HUMVEEs and tanks, to enable various functions such as satellite communications, line-of-sight communications, and combat identification while on the move.

Major technological advances and changes in the regulatory environment have led to the development and proliferation of wireless data networks that extend the reach of existing hard wired networks. Wireless local area networks (“LANs”) now accommodate notebook, pen-based, and other handheld computers, as well as rugged computers mounted on vehicles, such as forklifts. By providing network connectivity for mobile users, these products increase the accuracy, timeliness and convenience of data collection and information access. In the past, wireless LAN systems were developed for operation using proprietary narrow-band UHF radios at 450 or 900 MHz. Current wireless LAN systems comply with open system (IEEE 802.11) standards and operate at data rates of 11 Mbps at 2.4 GHz. Evolving IEEE 802.11-based products increase data transmission rates to 54 Mbps in both the 2.4 GHz and 5.7 GHz bands. The development of these advanced products and widespread adoption of the 802.11 wireless LAN standard is creating new applications in established industrial markets and in other vertical markets, such as transportation and service applications.

The Company’s rugged computers and wireless LANs have been installed at more than 6,500 sites world-wide, including the facilities of many Fortune 500 companies and some of the world’s largest materials-handling installations.

The Company’s wireless data systems, which generally incorporate barcode scanning or other auto-identification capabilities, are increasingly based on the IEEE 802.11 open system standard and feature rugged mobile computers specifically designed for demanding industrial

environments. A typical system consists of mobile computers which incorporate wireless LAN radios and auto-identification capabilities, network access points which provide a radio link to the wired network and host computers, and software that manages and facilitates the communications process.

The Company offers several types of mobile computers, all of which utilize radio frequency technology:

	1.		Hand-held mobile computers are small and lightweight, and are available in several form factors with varying degrees of ruggedization; and

	2.		Vehicle-mounted mobile computers are larger, heavy-duty products for use on forklifts, cranes and other mobile materials handling equipment. These can also be used in fixed positions where network cabling is impractical, or in cart-mounted solutions using a self-contained battery and power supply.

All mobile computers incorporate built-in radios that operate on wireless networks using either the IEEE 802.11 network standard at 2.4 GHz, or a licensed, narrowband frequency. The Company’s mobile computers incorporate Intel® processors that allow support for terminal emulation, client-server, or browser-based applications.

The Company’s latest generation of mobile computers has significantly more computing power than previous models, as well as improved power-management features and superior ergonomics. The MX3 mobile handheld computer supports the Windows® CE operating system and offers many of the performance features of a desktop PC in a handheld computer. Recent handheld product introductions include the Windows® CE-based MX5 and MX6, both designed for extremely demanding environmental conditions in the warehouse and in the terminal yard. The “VX” series of vehicle-mounted computers feature even better environmental specifications and ruggedization, and includes a Pentium-class model that supports the Windows® 2000, XP and .Net operating systems.

The wireless communications link between a mobile computer and a host network consists of: (1) a series of access points that are attached to a customer’s hardwired network at appropriate locations, and (2) wireless transceivers located in each mobile computer. The access points connect the wireless network to the hardwired network. The wireless transceivers act as wireless LAN interface cards.

LXE provides and supports wireless network equipment compatible with the existing IEEE 802.11 standards, as well as its proprietary system at 900 MHz. LXE also offers a complete suite of supporting products and services for its wireless networks, including wireless network management tools, wireless security tools, facility analysis, installation and support.

LXE also provides terminal emulation software and communications gateways that allow any of LXE’s mobile computers to interface seamlessly to a customer’s legacy applications. LXE’s host connectivity software supports UNIX, IBM midrange, and IBM mainframe legacy systems.

In addition to the basic system hardware and software, the Company offers a wide range of accessory products and services, including barcode scanners, battery chargers, portable printers, pre- and post-sale professional services, and repair and maintenance services.

National and international infrastructure for terrestrial-based wireless communications has expanded since the mid-1990’s to support growing worldwide demand, although the infrastructure build-out has slowed from its peak in about the year 2000. The demand for wireless communications has been fueled by:

	•		decreasing prices for wireless handsets,

	•		a more favorable regulatory environment,

	•		greater competition among service providers, and

	•		more availability of services and RF spectrum.

In addition, many developing countries are installing wireless telephone networks as an alternative to installing, expanding or upgrading traditional hardwired networks. Emerging wireless data applications may also expand the market by allowing service providers to increase revenue-generating traffic on their networks.

Specific technological trends have also affected the wireless industry. For example, in the late 1990’s the continuing growth of the wireless communications market strained the capacity of traditional analog cellular systems that can carry only one call per channel of radio spectrum. As a result, most service providers have installed digital equipment to increase per-channel 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.

The Company is a preferred supplier to the leading wireless service providers in North America, and based on industry analysts’ reports, and information from customers and other distribution-channel participants, the Company believes that it is, for North American PCS/cellular communications systems, the leading supplier of base station antennas of the types designed and manufactured by the Company. The Company has manufacturing facilities in Brazil, from which it is also exporting to other South American countries and to Eastern Europe.

In addition to technical performance of the antennas, key competitive factors in this market are manufacturing capacity and ability to provide quick turnaround time in response to an order. The Company believes its turnaround times are among the fastest in the industry.

The Company has developed several advanced base station antennas for the PCS/cellular wireless infrastructure market and has a line of repeaters and other wireless signal distribution products.

The Company’s DualPol™ antenna utilizes polarization diversity to combine the functionality of three vertically polarized antennas (two receive and one transmit) into a single, compact device. With fewer antennas required, DualPol™ technology allows the supporting antenna tower to be much smaller and less expensive than for a traditional PCS/cellular antenna site, which must support the weight and wind-loading of a large mounting structure atop the tower. An increasingly important factor in establishing the location of a cell site is the aesthetics of the tower structure. Unlike traditional vertical-polarization cellular antennas, the Company’s DualPol™ antennas can be mounted in a very compact configuration that can fit on top of existing utility poles, or be disguised, for example, in a clock tower. The mounting flexibility benefits the service provider in obtaining site approvals, and lowers installation and structure costs. Further, these antennas offer superior coverage and resistance to signal-fading, as compared with networks with conventional vertical-polarization antennas.

The Company’s AcCELLerator™ antenna combines multiple DualPol™ antennas pre-packaged in a compact cylindrical enclosure that provides the same multi-sector coverage as a large, nine-antenna, spatially diverse base station, yet with a less visually obtrusive structure.

The Company’s Micro AcCELLerator™ antenna is a much smaller version of the AcCELLerator™, and was originally designed to help a service provider gain zoning approval for new cell sites. Micro AcCELLerator™ antennas provide a complete, three-sector cell site in a highly integrated package as small as six inches in diameter, which is mounted atop an unobtrusive monopole. This configuration led to a line of custom site solutions consisting of the micro version of the AcCELLerator™ in an aesthetically pleasing mounting fixture (most often used atop a light pole) that has application in shopping malls and office centers.

The Company’s lower-cost vertically polarized antennas apply “beam-shaping” techniques of amplitude and phase weighting to achieve the most effective antenna performance for specific applications. The Company’s OptiFill™ antennas are designed for use in a typical crowded coverage area. These antennas utilize null filling, upper sidelobe suppression and electronic down tilt to lower co-channel interference, reduce the number of dropped calls, and improve sound quality. The Company’s OptiRange™ antennas are designed to maximize gain, and are useful in systems that have large cells, such as rural areas or initial urban system roll-outs with a small number of base stations.

The 2001 acquisition of a small manufacturer of repeaters and other wireless signal distribution products provided two new product lines from which we are starting to see growth. The first product line enables carriers to extend indoor RF coverage through the use of indoor repeaters and fiber-optic-based RF distribution systems. One example of this is our new Link2Cell product, which provides an easy and economical means to provide wireless coverage in small, borderline coverage areas. Customers simply plug it in and experience improved coverage.

The Company has continued to see an increase in the demand for indoor RF coverage solutions. The expanded data services now offered by the wireless carriers require a higher RF signal strength to maintain quality service. This higher signal strength requirement coupled with the inherent signal losses associated within buildings and other structures require that an RF distribution system be used to maintain service quality. In many cases a RF indoor repeater drives the RF distribution systems.

The second product line helps carriers extend their coverage in rural areas or uneven terrain through the use of outdoor repeaters. Rural areas are typically characterized by a low call density and inconsistent signal strength. In these situations, it is not cost effective for the wireless carrier to install a new base station to increase the coverage footprint. A cost-effective solution for the wireless carrier is to use outdoor repeaters to expand its coverage footprint.

Repeater products can also provide other cost efficiencies. A typical base station uses an expensive T1 data line to transfer the telephone calls from the base station back into the hardwire network for all call routing “backhaul” service. The Company has introduced DataNex, a wireless backhaul solution that will utilize a portion of the unused PCS frequency spectrum that the wireless carrier already owns for backhaul services, thereby eliminating the expense of installing and maintaining a T1 connection to the base station. This product has undergone several successful trials and is gaining market acceptance.

The first aeronautical systems for telephony utilized a ground-based network. 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, aeronautical satellite communications systems of some type are now commonly used in corporate jets around the world. Current developments are directed towards higher-speed satellite-based video and Internet-access applications. The market acceptance of the Company’s HSD-128 high speed data products has positioned EMS as a market leader for this application, serving both military and commercial applications.

The Company believes that it is the top supplier of antennas for voice/data communications aboard corporate aircraft, with an over-90% share of this market. To date, there are more than 1,000 EMS installations on over 50 different types of aircraft. The Company has contracts with Rockwell Collins, Honeywell and Bombardier - the industry’s largest users of general aviation communications equipment. In addition, the Company supplies over 90% of all Inmarsat Airborne High Speed Data systems used by the U.S. Military.

The Company has also pursued opportunities in the land mobile market. The Company offers two types of satellite terminals; satellite packet data terminals and GAN terminals. The GAN (global area network) satellite data terminal products allow access to corporate networks and the Internet from anywhere in the world, either at the standard ISDN speed of 64 kbps, or at speeds of up to 128 kbps, using the Inmarsat satellite system. More recently, the Company has been successful in deploying its land-based high speed data products into the U.S. and certain European military organizations. These systems have been particularly useful in supplying data communications to mobile command posts. Packet data terminals are used in functions such as tracking and two-way messaging for transportation or public safety, or remote monitoring of industrial process controls. A growing concern in this market is that terminals utilize an open architecture that would be compatible with other communications systems. The Company’s satellite packet data terminals (“PDT-100”) addresses many of this market’s needs, with its compact size, strong and reliable performance, and open architecture.

For over two decades, satellite-based surveillance systems have saved lives and led to the safe recovery of thousands of disaster and accident victims. One of the world’s largest search-and-rescue systems is COSPAS-SARSAT, sponsored by Canada, France, Russia and the U.S. The COSPAS-SARSAT satellites continuously listen for distress transmissions, determine the location of those transmissions, and provide alerts to worldwide search-and-rescue operations. The Company believes that it is a leading provider to COSPAS-SARSAT search-and-rescue systems of ground station equipment, including high-performance terminals that handle a system’s vital communications function.

The Company has developed a family of aeronautical communications products, including an industry-leading Inmarsat antenna, the AMT-50, which is a mechanically-steered antenna that is connected to an aircraft’s navigational system and automatically remains directed toward a geostationary communications satellite for voice and low data-rate communications. This antenna is either mounted within the aircraft’s tail or under a small, unobtrusive radome atop an aircraft’s tail. The Company believes that this product has the leading market share in the high-end corporate jet market.

The Company has also developed a steerable antenna system designed to provide live television to a private jet aircraft from a broadcast satellite. The system includes a mechanically steerable antenna system, mechanical positioner, and a beam-steering unit to keep the antenna properly pointed at the satellite during the motion associated with flight. This DBS antenna and the AMT-50 Inmarsat antenna can be mounted together under a single radome (designed and supplied by the Company) atop a jet’s tail fin. These products are sold by the Company as part of a full system provided by Honeywell for delivery of live video service to aircraft.

EMS has an aeronautical product, called the HSD-128, that provides aircraft operators with high-speed data capability using the Inmarsat Aeronautical Swift64 and Mobile Packet Data Services. These services will support data rates of up to 64 kbps per channel (which the HSD-128’s multi-channel capability increases to 128 kbps), a considerable advance on other service offerings currently available in the market. These services are heavily used by military and other governmental command aircraft as well as corporate aircraft. One example is our Viper II terminal, which can handle 16 simultaneous STU-III calls, multi-media video/voice/data applications. The roll-on/roll-off capability of the Viper II enables this communications platform to be used while flying enroute and at the command post on the ground. These services also provide economical airborne access to the business support services typically found in a ground-based office, including voice, data, e-mail, Internet and corporate Intranet products. The Company has developed further capability in its new products and can now provide data rates to 256 kbps.

With its STORM global area network portable satellite terminal EMS customers can work and keep in touch from remote locations, far from telephone networks, and access corporate networks, manage vital communications for disaster relief and peacekeeping, send up-to-the-minute broadcast quality audio, pictures and video clips for on-air transmission and quickly establish secure communications channels in government and defense applications. Depending on configuration, customers can utilize up to 256 kbps data rates while on the move. The Company has also added a maritime high-speed terminal to complement its land-mobile and industry-leading aeronautical products. The maritime terminal delivers clear digital voice communications, as well as e-mail and Internet capabilities, through Inmarsat’s global maritime service. In 2003, the Company launched new land mobile products, marketed under the names Cyclone and Thunder, to provide mobile broadband communications capabilities, largely intended for the public safety and military markets.

EMS’s packet-data terminal provides fail-safe, two-way messaging and location information anywhere in North America. The PDT-100 terminal features GPS technology and combines what the Company believes are the fastest response times with the lowest terminal and airtime prices currently offered in this market. The PDT-100 is commercially available and in use throughout North and Central America providing tracking and messaging to the transportation industry.

The PDT-100 also serves as a valuable tool for the public safety market, offering communications to police, enforcement officers and other public safety employees who must travel outside of traditional wireless coverage maps.

The Company is a leading provider of the ground-station equipment associated with satellite-based search-and-rescue systems, including the local-user terminals (“LUTs”) that process information received from satellites. Using a low-earth-orbit satellite system, a LUT can determine the location of the maritime or aviation beacons that transmit distress signals, and display the results for intervention by emergency authorities. This terminal technology can also be adapted for routine tracking and management of aviation and maritime fleets.

Another LUT model uses satellites in geostationary orbit, which reduces the critical time needed to detect and identify distress beacon signals. This system is PC-based and can be efficiently managed through Internet protocols. In addition to satellite ground stations for search-and-rescue, EMS offers software for incident management and rescue coordination. The Company has also combined new communications technologies with Web-based geographic information systems and graphical tools. The Company believes that fast, widespread distribution of graphical data via the Web allows for more effective coordination of rescue efforts.

SatNet offers ground segment equipment for the satellite broadband communications market in the broadcast and fixed services sector. Within this market, SatNet targets operators of high-speed, two-way, multimedia access networks. These operators range in size and scope from niche satellite service providers providing voice-over-IP telephony services to developing countries, to incumbent telecommunications companies offering satellite overlay high-speed Internet services to complement their existing terrestrial networks. SatNet has also become increasingly involved in national projects in many countries to provide high speed satellite Internet connections for distance education and health services. SatNet targets these customers primarily through integrators and resellers, although SatNet also maintains a small direct sales force for unique opportunities.

The Company designs and manufactures ground segment equipment for the satellite broadband communications market. SatNet has two principal product lines – DVB-RCS hubs and terminals.

SatNet offers hub products ranging from stand-alone Return Link Sub-Systems (“RLSSs”) that

are sold to integrators or operators wishing to integrate into an existing one-way platform, to complete gateways. These hubs can economically support network sizes ranging from less than one hundred terminals to substantially more then ten thousand terminals.

SatNet is currently marketing two families of DVB-RCS terminals - the Series 2000 enterprise terminal, which is designed to support a full range of features and performance, and the Series 3000 professional/SOHO terminal, which is designed to minimize cost while maintaining DVB-RCS compliance and performance.

The Company’s sales and marketing strategy varies depending upon the segment. Due to the technical nature of the Company’s products, internal personnel with strong engineering backgrounds must conduct some of these sales efforts. This is particularly true of the Space & Technology segment. The Company also utilizes independent marketing representatives, both in the U.S. and internationally. These individuals are selected for their knowledge of the local markets and their ability to provide technical support and ongoing, direct contact with the Company’s current and potential customers.

In the Space & Technology segment, the development of major business opportunities often involves significant bid-and-proposal effort; this work can include complex, pre-award engineering to determine the technical feasibility and cost-effectiveness of various design approaches. Most of the Company’s bid-and-proposal costs are reported in cost of sales, although a portion of these costs is classified as selling, general and administrative expense. Total bid-and-proposal costs from continuing operations were $3.6 million in 2003, $2.5 million in 2002 and $1.9 million in 2001.

The markets for space and defense electronics comprise a relatively small number of customers, which are typically well known large corporations. The Company’s Space & Technology marketing efforts rely on ongoing communications with this base of potential customers, both to determine the customers’ future needs and to inform customers of the Company’s capabilities and recent developments. Because the Company can often receive multiple orders from many of these customers, technical support and service after the sale are also crucial to maintaining a strong relationship.

The Company’s sales and marketing strategy for its other business segments involves:

	1.		direct sales to end users, and

	2.		indirect sales through third parties that often incorporate their products and services with the Company’s hardware for delivery to end-users. Third parties include:

	a.		strategic partners,

	b.		value-added resellers,

	c.		original equipment manufacturers, and

	d.		distributors and sales representatives in approximately 35 countries.

Direct sales of LXE systems are performed by an internal sales support staff, by 20 regional salespersons in North America, and by nine international subsidiaries (seven in Europe). For EMS Wireless, an internal staff and three regional sales offices in North America perform sales and marketing. For marketing of SATCOM products, the Company relies on its relationships with major airframe manufacturers, avionics manufacturers, a network of completion centers that install aeronautical products, and value-added resellers. SatNet sells through strategic partners such as Alcatel, as well as directly to service providers using an internal staff.

The backlog of consolidated orders related to continuing operations at December 31, 2003, was $83.2 million, compared with $85.4 million one year earlier. EMS Wireless, LXE and many SATCOM and SATNET customers typically require short delivery cycles; as a result, these segments 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 in the Space & Technology segment, due to the long-term nature of that business. The backlog for Space & Technology at December 31, 2003 was $50.1 million compared with $49.4 million one year earlier.

Materials used in the Company’s Space & Technology products consist of magnetic microwave ferrites, metals such as aluminum and brass, permanent magnet materials and electronic components such as transistors, diodes, IC’s, resistors, capacitors and printed circuit boards. Most of the magnetic microwave ferrite materials are purchased from two suppliers, and permanent magnet materials are purchased from a limited number of suppliers. Electronic components and metals are available from a larger number of suppliers and manufacturers.

The electronic components and supplies, printed circuit assemblies, and molded parts needed for the Company’s various standard products 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 a competitor of the Company; however, there are alternative suppliers that manufacture and sell barcode scanners under license agreements with Symbol. The Company believes that LXE’s competitors also rely on scanning equipment purchased from or licensed by Symbol. In addition, Symbol and the Company have a license agreement, which allows the Company to utilize Symbol’s patented integrated scanning technology in certain products.

The Company’s 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 Space & Technology programs, and application-specific integrated circuitry and computers incorporated in LXE products. In such cases, the performance, reliability and timely delivery of the Company’s products can be heavily dependent on the effectiveness of those third parties.

The Company believes that its present sources of required materials are adequate. The Company does not believe that the loss of any supplier or subassembly manufacturer would have a material adverse effect on its business. In the past, shortages of supplies and delays in the receipt of necessary components have not had a material adverse effect on shipments of the Company’s products. However from time to time, the Company’s rollout of new standard products or its performance on Space & Technology programs has been affected by quality and scheduling problems with developers/suppliers of critical subsystems.

The Company believes itself to be, in sales, a major independent supplier of (1) satellite components, subsystems and systems, (2) wireless local-area computer network products for logistics systems, (3) base station antennas and other wireless infrastructure products for cellular and PCS mobile networks, (4) aeronautical SATCOM communications systems for voice, telephony and video and (5) satellite networking equipment for two way broadband connectivity. However, the Company’s markets are highly competitive. Some of the Company’s competitors have substantial resources and facilities that exceed those of the Company, but the Company also competes against smaller, specialized firms.

In the Space & Technology segment, the Company competes with divisions of certain U.S. industrial concerns, such as Boeing Electron Dynamic Devices, Inc., L3 Communications, Harris Corporation, Raytheon, M/A-Com, Hieco Corporation, and Titan Corporation, as well as non-U.S. companies such as COMDEV of Canada, and Chelton, Ltd of the U.K. Some of these companies, as well as others, are both potential competitors of the Company for certain contracts and potential customers on other contracts. Certain major customers could also elect to internally develop and manufacture the products that they presently purchase from the Company.

In the LXE market, the Company’s principal competitors are Unova, Symbol Technologies (which holds patents protecting the barcode scanning devices supplied to LXE for incorporation in these products), and Psion Teklogix. In the EMS Wireless segment, the Company competes with divisions of certain large U.S. and international companies, including Allen Telecom, Andrew Corporation and Alcatel. In the SATCOM market, the Company competes with Honeywell, Thales, Thrane & Thrane, Qualcomm and TSI. In the SatNet market, the Company competes with EB Nera, Newtec, ViaSat, Gilat and Hughes Network Systems.

The Company believes that the key competitive factors in all of its segments continue to be product performance, technical expertise and support to customers, adherence to delivery schedules and price.

The Space & Technology segment conducts most of its research and development in direct response to the unique technical requirements of a customer’s order, and most of these costs are included with the overall manufacturing costs for specific orders. The remaining segments conduct substantial internally funded research and development, and product development activities. In 2003, 2002 and 2001, the Company spent $19.3 million, $20.4 million and $20.4 million, respectively, on internally sponsored research and development and product development activities.

As of December 31, 2003, the Company and its subsidiaries employed approximately 1,700 persons. Over 70% of the Company’s employees are directly involved in engineering or manufacturing activities.

The business operations of EMS Technologies, Inc. involve significant risks and uncertainties that could adversely affect its financial condition, results of operations, and future development, and this could also cause a decline or slow growth in the future market value of our shares. In addition to domestic economic conditions, which can change unexpectedly and generally affect U.S. businesses, these risks and uncertainties include the following:

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.

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. 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.

If our customers fail to find adequate funding for major potential programs, 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.

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.

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 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 radio frequency emissions are ongoing. Consumers may be discouraged from purchasing new wireless services if consumers’ health concerns over radio frequency 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.

We can encounter technical problems or contractual uncertainties, which can cause delays, added costs, lost sales, and liability to customers.

Technical difficulties can cause 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 Space & Technology segment that require novel approaches and solutions. Technical difficulties could 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 infringe on patents held or currently being processed by others. The U.S. Patent Office does not publish patents until 18 months after their initial filing. Thus, we may be unaware of a pending 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 interfere with

marketing plans, or may, from time to time, create significant expense to defend or pay damages on infringement claims or to respond to customer indemnification claims.

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 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. 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, 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 (“FCC”) 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 restricting 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 profits 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, products for use on commercial satellites are 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.

Economic or political conditions in other countries could cause our revenues or profitability to decline.

International sales significantly affect our financial performance. Almost $94 million in revenues for fiscal year 2003, or 37% of consolidated revenues, were derived from customers residing outside of North America. 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 from changes in foreign income tax laws, as well as 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, a significant level of disallowances in the future could have an unfavorable effect on our statement 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, and a stronger Canadian dollar would increase 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. 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.

Our order backlog represents firm orders for products and services. However, our customers may cancel or defer orders for wireless products, in most cases without penalty. Cancellation or deferral of an order in our Space & Technology 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 personnel, purchasing of materials, and other matters that may increase our production capabilities and costs. Cancellations, delays or reductions of orders could adversely affect our results of operations and financial condition.

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 synergistic acquisitions to complement our technical and product capabilities. We may not be able to secure sufficient additional credit or other financing, on acceptable terms, to support our growth objectives.

Our violation of debt covenants on the Company’s Canadian debt could require us to obtain alternative financing on unfavorable terms.

For the last two quarters of 2003, substantial third-quarter write-downs, related to the operations and discontinuance of our Space & Technology/Montreal division, caused our Canadian operations to fail to meet certain covenants contained in the credit agreement with the Canadian bank that finances those operations. On each occasion, the Canadian bank has waived our covenant violation. However, if the Company has not sold its Space & Technology/Montreal division, in future quarters the Company’s Canadian operations will continue to fail to meet the covenant requirements, and we cannot guarantee that we will continue to receive bank waivers in the future. In the absence of a waiver, the bank may require the debt to be repaid in its entirety at any time. If that occurs, we may not be able to secure sufficient additional credit or other financing from another lender, on terms similar to these we now have. This could increase our financing cost and could adversely affect our results of operations and financial condition.

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 have amortization expenses and write-downs of acquired assets, which could cause our earnings per share to decline.

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 are likely to decline.

The quarterly earnings contributions of some of our segments are heavily dependent on customer orders or product shipments in the final weeks or days of the quarter. This can create volatility in quarterly results, and hinders our ability to determine in advance whether quarterly earnings will meet prevailing analyst 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:

	1.		actual or anticipated operating results,

	2.		announcements of technological innovations, new products or new contracts by us, our customers, our competitors or our customers’ competitors,

	3.		government regulatory action,

	4.		developments with respect to wireless and satellite communications, and

	5.		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.

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.

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, and

	5.		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 “Risk Factors” heading.

Information concerning the executive officers of the Company is set forth below:

Alfred G. Hansen, age 70, 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 61, 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 since 1995, 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 Chief 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 58, 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 59, 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 41, is a Vice President of the Company, and Senior Vice President and General Manager of the Space & Technology/Atlanta 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 43, 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 63, 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 63, 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 44, is a Vice President of the Company, Senior Vice President and General Manager for the SatNet division. 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.

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 30,000 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 surrounded by 34 acres of undeveloped land in a suburb of Montreal, which 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 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 5. Market for Registrant’s Common Equity and Related Stockholder Matters

The common stock of EMS Technologies, Inc. is traded in the over-the-counter market (NASDAQ symbol ELMG). At March 5, 2004, there were approximately 500 shareholders of record, and the Company believes that there were approximately 3,500 beneficial shareholders, based upon broker requests for distribution of Annual Meeting materials. The price range of the stock is shown below:

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. 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.

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): $45,201, $67,405, $67,541, $54,590 and $51,449 for 2003, 2002, 2001, 2000 and 1999, respectively.

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.

	•		Sales grew overall from the previous year, with our LXE and SATCOM divisions setting new sales records. LXE benefited from favorable European market conditions and currency exchange rates. SATCOM took advantage of new opportunities for its products in U.S. defense applications.

	•		Our Space & Technology and EMS Wireless divisions remained profitable, although sales did not grow substantially. Our only unprofitable performer was the start-up SatNet division.

	•		We announced a formal plan to dispose of our Space & Technology/Montreal division, and we sold our healthcare product line. We accounted for these divisions as discontinued operations.

	•		The results reflected approximately $34 million (pre-tax) of losses from additional costs and reserve provisions for legacy commercial space programs, additional costs of downsizing the Montreal operation.

•

We also recorded a $13.5 million (pre-tax) loss to write down the assets held for sale to their estimated fair value, and a $2.9 million loss related to the sale of our healthcare product line.

Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S., which often requires the judgment of management in the selection and application of certain accounting principles and methods. We consider that the following accounting policies are critical to understanding our financial statements, because these policies require significant judgment, and as a result, actual future financial results may be different from expectations.

Revenue recognition for fixed-price, long-term contracts in the Space & Technology/Atlanta 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 completion 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, 2003 the Company had recognized a cumulative total of $18.6 million in revenues under percentage completion accounting, but which revenues were unbilled as of that date due to the billing milestones specified in the respective customer contracts.

During 2003, 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. The Company has provided reserves for identified risks that could cause cost increases in the future. These contracts are technically challenging, and 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 associated with these contracts.

Our accrual of research incentives from the Canadian government is a critical accounting policy involving management estimates for our Montreal-based operations. 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, 2003, total incentives earned were approximately $2.2 million, compared with $6.2 million for the year ended December 31, 2002. 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.

All long-lived assets on the balance sheet are periodically reviewed for impairment. To test recoverability, we estimate 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 classified as held and used were determined to be impaired as of December 31, 2003.

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.” 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. In November 2003, the sale of the healthcare product line was completed. The loss on the sale of the healthcare product line was approximately $2.9 million, and the fair value write down 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. The fair value of the Space &Technology/Montreal division upon disposal was estimated in Canadian dollars using an expected present value technique and a discount rate of 20%. The resulting fair value was converted to U.S. dollars using the December 31, 2003 foreign currency rate. A 2% change in the discount rate would cause a change in the valuation of approximately $1.5 million.

Our less-than-5% equity investment in a limited partnership, SkyBridge LLP was 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.

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 $33 million at December 31, 2003), because they are unlikely to be realized. However, this reserve may be reduced - resulting in an income tax benefit to a future 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.

Most revenues were derived from commercial and international markets (87% in 2003, 81% in 2002 and 88% in 2001), 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.

Consolidated net sales increased to $256 million in 2003, compared with $236 million in 2002 and $201 million in 2001. 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 a new partner and service plans. 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.

For 2002 compared with 2001, the most significant growth was in the Company’s SATCOM segment, which benefited from the continued success of its aeronautical communications products (including a new high-speed terminal introduced during the year), as well as new contracts for its emergency management products. The net revenue growth in 2002 for the Space & Technology segment reflected much higher revenues recognized under new long-term defense contracts and lower revenues recognized from older commercial space contracts (which was expected, following the preceding year’s strong revenues and declining order rate in commercial space).

Our segment net sales and operating income (loss) were as follows (in thousands):

Space & Technology: Orders for long-term defense contracts increased substantially in 2001, 2002, and 2003 with the result that defense-related revenues and profits grew over this period. However, overall segment sales decreased from 2002 to 2003 due to lower non-defense orders.

LXE: Net sales for the LXE segment increased from 2001 to 2002 and again in 2003 due to the introduction of new rugged computers for logistics and new partner and service programs as well as favorable European market conditions and currency exchange rates. Revenues from North and South America also increased in 2003 compared with 2002.

EMS Wireless: The 2002 results compared favorably with 2001 despite uncertainty in the telecommunications market; management believes this improvement was due to the introduction of new products, improved order delivery times, and the segment establishing itself as an approved vendor to all major wireless carriers in the U.S. Net sales continued to increase in 2003 due to greater unit sales of repeater products. Antenna sales were down for the full year in 2003 compared with 2002 due to a lower level of rollout activity by our customers; however, the Company has increased antenna sales in the latter part of 2003 through the introduction of new products and through our approved vendor status for major wireless carriers.

SATCOM: Most of SATCOM’s sales over the three years ended December 31, 2003 have been for installation on corporate jets and on military command aircraft. Management believes that SATCOM is the leading supplier of advanced aeronautical communications products in the corporate jet market. In 2001, SATCOM’s profits were reduced by additional costs to develop new products, including a high-speed data aeronautical terminal and enhanced land-mobile terminals. The rollout of these new products in 2002 helped increase sales and profits compared with 2001. The 2002 results also benefited from new contracts for emergency management products (in particular, satellite-based search and rescue systems). The increase in sales in 2003 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. We expect that our corporate jet revenues will significantly slow in 2004, but SATCOM’s overall revenues should continue to grow based on defense and security opportunities for our emergency management and land-mobile products.

SatNet: This segment is our start-up venture providing DVB-RCS-standard hubs and terminals for broadband communications via satellite. Sales increased from 2001 to 2002 due to the introduction of enhanced hub and terminal products. SatNet sales decreased in 2003 compared with 2002 primarily due to lower unit sales of terminals. However, there was an increase in sales of hubs in 2003, and we believe that there is considerable potential for future terminal sales as our customers use their hubs to roll out broadband services to new markets.

Cost of sales, as a percentage of consolidated net sales, was 64% in 2003, 64% in 2002 and 66% in 2001. In 2003, improved margins on newer SatNet products helped offset the effect of a stronger Canadian dollar on the costs associated with the Canada-based SATCOM segment. The cost-of-sales percentage decreased in 2002 compared with 2001, because of a more favorable mix of contracts in the Space & Technology division.

Selling, general and administrative expenses (“SG&A”), as a percentage of consolidated net sales, remained relatively stable at 23% in 2003, 22% in 2002 and 22% in 2001. The dollar value increases in SG&A for each of the past three years have related mainly to greater selling and marketing expenses to support the recent sales growth, especially in SATCOM, LXE and SatNet.

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 Space & Technology segment and, accordingly, are reflected in cost of sales. The decrease in 2003 compared to 2002 was due to reductions in internally funded R&D as development was completed on high-speed aeronautical terminals for SATCOM and on certain repeater products for EMS Wireless. The overall level of R&D effort was materially unchanged in 2002 compared with 2001.

In December 2001, we accrued a $3.5 million contract reserve, which represented an estimate of the loss to be incurred in settlement of a Space & Technology contract. We had worked to develop the crucial antenna technology for systems that provide multi-channel, live television to commercial airline flights. However, the rollout by our customer – a television system joint venture – was proceeding much slower than expected, as the airline industry faced difficult economic conditions. As a result of the considerable uncertainties at the end of 2001 about the timing of the airline industry’s recovery and adoption of our technology, we concluded that sales under the contract were unlikely to develop at the previously expected rate. We decided to seek a settlement of the contract with our customer, including possible use of the contract’s provisions for dispute resolution, and accrued the reserve.

In 2002, while settlement negotiations were still in an early stage, the television-system joint venture was acquired by a new airline that had been the joint venture’s largest customer. Subsequently, we reached a new, long-term agreement to supply the airline with advanced antennas. Based on the terms of this agreement and the strong financial position and creditworthiness of the new airline, we concluded that we no longer needed the $3.5 million reserve. The elimination of this reserve resulted in a benefit to the statement of operations in the fourth quarter of 2002.

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.

Most of our Canadian operations’ contracts are in U.S. dollars, and foreign exchange gains result from a stronger U.S. dollar against the Canadian dollar. Our Canadian operations also do a significant amount of business in the United Kingdom, and foreign exchange gains result from a stronger 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 a net foreign currency loss in 2003 of $446,000, 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. Foreign currency losses of $14,000 in 2001 were the result of various changes in the U.S. dollar against both the Canadian dollar and the Euro.

Interest expense decreased to $2.1 million in 2003 from $2.3 million in 2002 and $3.5 million in 2001. The decrease in 2002 and 2003 from 2001 was due to decreased debt levels that resulted from positive cash flow and lower interest rates.

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 2003 and in 2002, we earned most of our taxable income in the U.S. and other locations, and the consolidated effective income tax rate was 32%. In 2001, we recognized a consolidated net tax benefit despite reporting consolidated taxable income because: (1) we incurred a loss in 2001 for our combined operations in the U.S., where we have a higher effective tax rate, and (2) we earned substantial taxable income in Canada, where we have a lower effective rate. Therefore, the net tax benefit on the loss in the U.S. exceeded the net tax expense on earnings in Canada, resulting in a consolidated net tax benefit in 2001. In 2004, we expect the effective income tax rate to be similar to the rate reported in 2003.

In 2001, we recorded an after-tax loss from the cumulative effect of a change in accounting principle of $351,000 related to Statement of Financial Accounting Standards (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging Activities”, which requires us to recognize all derivatives on the balance sheet at fair value. SFAS No. 133 also establishes new accounting rules for hedging instruments which, depending on the nature of the hedge, require that changes in the fair value of derivatives must be either: (1) offset against the change in the fair value of the hedged assets, liabilities or firm commitments through earnings, or (2) recognized in other comprehensive income (a component of stockholders’ equity) until the hedged item is recognized in earnings. Any ineffective portion of a hedging instrument’s change in fair value must be immediately recognized in earnings. For derivative instruments that do not qualify as hedging instruments, any change in the value is recognized in current earnings.

Upon the adoption of the provisions of SFAS No. 133 on January 1, 2001, we recorded a net liability for all derivatives totaling $1,135,000, of which $352,000 ($351,000 after income taxes) was charged to the statement of operations as a transition adjustment for the cumulative effect of the change in accounting principle. The remaining net liability for all derivatives was charged to the unbilled revenue component of accounts receivable ($375,000) and to the other comprehensive income component of stockholders’ equity ($408,000).

During 2003, net cash provided by continuing operating activities was $16.3 million, compared with $16.3 million in 2002 and $2.5 million in 2001. The Company purchased $8.1 million in fixed assets during 2003. The Company received $800,000 from the sale of its healthcare operations and $959,000 from the sale of other investments. In addition, the Company received $3.8 million from the exercise of stock options primarily during the second half of the year.

During 2003, the net repayment of long-term debt was $2.3 million. Balances due under revolving credit arrangements were essentially unchanged.

During 2003, net cash used by discontinued operations was $9.9 million, primarily related to the Company’s Space & Technology/Montreal space operations, which is currently held for sale.

At December 31, 2003, the Company had $9.3 million available for borrowing under its U.S. revolving credit agreement and $2.0 million available for borrowing under its Canadian revolving credit agreement. At December 31, 2003, the Company was either in compliance with or had received a bank waiver of compliance relating to all covenants. During 2003, the Company amended its U.S. credit agreement to extend the term to August 2004, and to give the lender a security interest in certain U.S. based assets.

The Company also amended the Canadian credit agreement by increasing the total amount available to $35.9 million, with $18.6 million available under a revolving credit agreement payable on demand, $3.8 million under a term installment loan maturing in 2005, and the remainder of the facility for letters of credit. The facility has no specific maturity date, but is reviewed annually. The Company has agreed to apply the proceeds from the potential sale of its Space & Technology/Montreal division to revolving debt under this agreement. Subsequent to December 31, 2003, the Company further amended its Canadian credit agreement, including pricing, as a condition of obtaining a covenant waiver; at current borrowing levels, the annual cost of this facility would increase by approximately $250,000.

Furthermore, upon determination of whether or not a sale of the Space & Technology/Montreal division will occur, the Company expects to enter into negotiations to refinance or restructure its existing U.S. and Canadian credit agreements.

The Company expects that capital expenditures in 2004 will range from $9 million to $11 million. These expenditures will be used primarily to purchase equipment that increases or enhances capacity and productivity.

The cash flow from continuing operations during 2003 improved the Company’s cash position and 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.

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, 2003 (in

Following is a summary of the Company’s material other commercial commitments as of December 31, 2003 (in thousands):

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 effect 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 2004, 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;

	•		volatility of foreign exchange rates relative to the U.S. dollar and their effect on purchasing power by international customers, and on the gross margin on products manufactured outside the U.S. but sold mainly to U.S. customers;

	•		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 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 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;

	•		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.

Additional information concerning these and other potential risk factors is included in Item 1 of this Annual Report on Form 10-K.

In April 2002, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections.” SFAS No. 145 rescinds SFAS No. 4, “Reporting Gains and Losses from Extinguishment of Debt,” and an amendment of that statement, SFAS No. 64, “Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements.” This statement also amends SFAS No. 13, “Accounting for Leases,” to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. In addition, this statement amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. SFAS No. 145 is effective for the Company’s fiscal year beginning in 2003. Adoption did not have a material impact on the consolidated financial statements of the Company.

In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities.” FIN 46(R) was issued in December 2003. The interpretation provides guidance on consolidating variable interest entities and applies immediately to variable interests created after January 31, 2003. The interpretation requires variable interest entities to be consolidated if the equity investment at risk is not sufficient to permit an entity to finance its activities without support from other parties, or if the equity investors lack certain specified characteristics. The Company does not have any variable internet entities and therefore does not believe that there will be a material impact on the Company’s consolidated financial statements.

In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities”, which amends SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” to address decisions reached by the Derivatives Implementation Group, developments in other Board projects that address financial instruments,

and implementation issues related to the definition of a derivative. This statement is effective for contracts entered into or modified after June 30, 2003, and for hedging relationships designated after June 30, 2003. This standard did not have a material impact on the consolidated financial statements of the Company.

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity.” SFAS No. 150 established standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity, and imposes certain additional disclosure requirements. The provisions of SFAS No. 150 are generally effective for all financial instruments entered into or modified after May 31, 2003, and are otherwise effective at the beginning of the first interim period beginning after June 15, 2003. This standard did not have a material impact on the consolidated financial statements of the Company.

At December 31, 2003, the Company had the following market risk sensitive instruments (in thousands):

At December 31, 2003, the Company also had intercompany accounts that eliminate in consolidation but that are considered market risk sensitive instruments.

Short-term due to/(from) parent, payable/(receivable) 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, 2003 are:

At December 31, 2003, the Company had foreign currency risks associated with forward contracts as follows (in thousands, except average contract rate):

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

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

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 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 as of the end of the period covered by this 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.

During the three months ended December 31, 2003, there was no change in our internal control over financial reporting (as defined in Rule 13a – 15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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.

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 2004 Annual Meeting of Shareholders and is incorporated herein by reference.

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.

The information called for by this Item will be contained in the Company’s definitive Proxy Statement for its 2004 Annual Meeting of Shareholders and is incorporated herein by reference.

The following table sets forth certain information about the Company’s equity compensation plans as of December 31, 2003:

All other information called for by this Item will be contained in the Company’s definitive Proxy Statement for its 2004 Annual Meeting of Shareholders and is incorporated herein by reference.

The information called for by this Item will be contained in the Company’s definitive Proxy Statement for its 2004 Annual Meeting of Shareholders and is incorporated herein by reference.

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 2004 Annual Meeting of Shareholders and is incorporated herein by reference.

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.

Schedule II. Valuation and Qualifying Accounts - Years ended December 31, 2003, 2002 and 2001

All other schedules are omitted as the required information is inapplicable, or the information is presented in the financial statements or related notes.

Under date of March 5, 2004, we reported on the consolidated balance sheets of EMS Technologies, Inc. and subsidiaries (the “Company”) as of December 31, 2003 and 2002, 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, 2003, as contained in this annual report on Form 10-K for the year 2003. In our report specified above, we state that we did not audit the financial statements of EMS Technologies Canada, Ltd., a wholly-owned subsidiary, which statements were audited by other auditors whose report has been furnished to us. 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. In connection with our audits of the aforementioned consolidated financial statements, we also audited Schedule II — Valuation and Qualifying Accounts for each of the years in the three-year period ended December 31, 2003. This financial statement schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion on this financial statement schedule based on our audits.

In our opinion, based on our audits and the report of other auditors, the financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

(a) Deductions represent receivables that were charged off to the allowance during the year, most of which related to EMS Wireless and LXE customers that encountered financial difficulties.

(b) Deductions represent inventory items that were charged off to the reserve during the year, most of which relate to inventory held by the LXE segment.

(c) The 2003, 2002 and 2001 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 2003, 2002 or 2001 statements of operations.

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 Annual Report on Form 10-K for the year ended December 1998).

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

4.1 EMS Technologies, Inc. Stockholder Rights Plan dated as of April 6, 1999 (incorporated by reference to Exhibit 4.1 to the Company’s Report on Form 8-K dated 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 Second Amended and Restated Loan Agreement, dated November 9, 1998, between the Company and SunTrust Bank, Atlanta, together with Amendment and Consent dated as of January 29, 1999, and Second Amendment dated as of February 24, 1999 (incorporated by reference to Exhibit 4.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1998).

4.4 Third Amendment, dated as of July 31, 2000, to Second Amended and Restated Loan Agreement, dated November 9, 1998, between the Company and SunTrust Bank, Atlanta (incorporated by reference to Exhibit 4.1 to the Company’s Quarterly Report on Form 10-Q for quarter ended June 30, 2001).

4.5 Fourth Amendment dated as of October 31, 2003, to Second Amended and Restated Loan Agreement, dated November 9, 1998, between the Company and SunTrust Bank, Atlanta.*

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.*

10.4 EMS Technologies, Inc. Officers’ Deferred Compensation Plan, effective November 13, 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).

10.6 Amendments adopted May 2, 1997, to the EMS Technologies, Inc. 1992 Stock Incentive Plan.*

10.7 EMS Technologies, Inc. 1997 Stock Incentive Plan, as adopted January 24, 1997, and amended through April 28, 2000 (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2000).

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.*

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, following five years 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.*

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 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended July 2, 1999).

10.16 Form of Indemnification Agreement between the Company and each of its directors*

10.17 Form of Indemnification Agreement between the Company and, each of Don T. Scartz and William S. Jacobs. *

10.18 Split-Dollar Insurance Plan, dated as of June 29, 1988 between the Company and Don T. Scartz.*

10.19 Form of Split-Dollar Life Insurance agreement effective January 1, 1993, between the Company and William S. Jacobs (incorporated by reference to Exhibit 10.9 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1998).

10.20 Letter, dated July 24, 2002, governing credit facility between EMS Technologies Canada, Ltd., a consolidated subsidiary of the Company, and Canadian Imperial Bank of Commerce, including Schedule-Standard Credit Terms.*

14 EMS Technologies, Inc. Code of Business Ethics and Conduct, as revised February 6, 2004. *

23.1 Independent Auditors’ (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.*

The following reports on Form 8-K were filed by the Company during the quarter ended December 31, 2003.


	October 28, 2003, reporting under Item 12, Results of Operations and Financial Condition.

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.

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.

We have audited the accompanying consolidated balance sheets of EMS Technologies, Inc. and subsidiaries (the “Company”) as of December 31, 2003 and 2002, 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, 2003. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We did not audit the consolidated financial statements of EMS Technologies Canada, Ltd., a wholly-owned subsidiary, which statements reflect total assets constituting 34% and 35%, and total revenues constituting 27%, 36% and 40% in 2003, 2002 and 2001, respectively, of the related consolidated totals. Those statements 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 auditing standards generally accepted in the United States of America. 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, 2003 and 2002, and the results of their operations and their 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 6 to the consolidated financial statements, the Company changed its method of accounting for goodwill and other intangible assets in 2002, and as discussed in Note 13, the Company changed its method of accounting for derivative instruments and hedging activities in 2001.

EMS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)

EMS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, continued
(in thousands, except share data)

EMS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

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 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 will be amortized over an estimated useful life of 6 years.

EMS TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME (LOSS)
(in thousands)

The consolidated financial statements include the accounts of EMS Technologies, Inc. and its wholly owned subsidiaries, LXE Inc., EMS Holdings, Inc. and EMS Technologies Canada, Ltd. (collectively, “the Company”). All significant intercompany balances and transactions have been eliminated in consolidation. Certain amounts in the statements of operations and the statements of cash flows in 2002 and 2001 were reclassified to conform to classifications adopted in 2003. Certain balance sheet amounts in 2002 were reclassified to conform with classifications adopted in 2003. Following is a summary of the Company’s significant accounting policies:

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities in the financial statements and accompanying notes, including revenue recognition under long-term contracts. Actual future results could differ from those estimates.

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 Space & Technology 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. Revenues under cost-reimbursement contracts in the Space & Technology segment are recorded as costs are incurred and include an estimate of fees earned. Revenues under all other contracts in the Space & Technology and SATCOM segment, as well as in the LXE, EMS Wireless and SatNet, are recognized when units are shipped or services are performed. 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.

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.

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 $5,318,000 in 2003 and $7,434,000 in 2002 in U.S. Government Securities, money market instruments

and interest-bearing deposits each purchased with an initial on remaining term of less than three months.

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 are stated at cost. Depreciation is provided primarily using the straight-line method over the following estimated useful lives of the respective assets:

Leasehold improvements are amortized over the shorter of their estimated useful lives or the terms of the respective leases.

The Company reviews long-lived assets and certain identifiable intangibles 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 the fair value of the assets. If assets are to be disposed of, such assets are reported at the lower of carrying amount or fair value less costs to sell.

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.

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.

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 will be 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 products designs purchased as part of the acquisitions of Ottercom Ltd. in 2002 and Digital Space Systems, Inc. in 2000. 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 are 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.

Prior to January 1, 1996, 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. On January 1, 1996, the Company adopted SFAS No. 123, “Accounting for Stock-Based Compensation,” which permits entities to recognize as expense, over the vesting period, the fair value of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 also allows 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 has 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, and earnings (loss) per share if the Company had applied the fair value method to measure stock-based compensation (in thousands, except net earnings per share):

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 (loss) 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 and 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) consists of net income and foreign currency translation adjustments, and changes in the fair value of derivative instruments that qualify as cash flow hedges, and is presented in the consolidated statements of stockholders’ equity and comprehensive income (loss).

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.

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 2003 or 2002.

In the third quarter of 2003, EMS announced that its Board of Directors had approved a formal plan to sell the Company’s commercial space operations located in Montreal. 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. The fair value of the Space & Technology/Montreal division upon disposal was estimated in Canadian dollars using an expected present value technique and a discount rate of 20%. The resulting fair value was converted to U.S. dollars using the December 31, 2003 foreign currency rate. A 2% change in the discount rate would cause a change in the valuation of approximately $1.5 million.

The results of these discontinued operations for 2003, 2002 and 2001 were as follows (in thousands):

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, 2003 and 2002 (in thousands):

The Company’s acquisitions have been accounted for as purchases. Acquisitions after January 1, 2002 were accounted for in accordance with SFAS No. 141, “Business Combinations.” Acquisitions before this date were accounted for in accordance with APB Opinion No. 16, “Business Combinations.” Both accounting pronouncements require that the purchase price be allocated to the assets acquired and the liabilities assumed based on estimates of fair values as of the acquisition date.

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 will help strengthen the Company’s presence in global mobile Internet/e-mail access and communications, and will enable 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 balance sheet. This intangible represents the value at the acquisition date of Ottercom Ltd.’s satellite communications technologies, intellectual property and product designs.

The Company could owe additional purchase consideration contingent upon specific future business developments related to Ottercom products. The contingent consideration is payable quarterly through March 31, 2004 in the Company’s common stock, and equals 15% of the amount by which actual quarterly gross profits from specific Ottercom product sales exceed specific targets. Additional contingent consideration is due in the amount of 15% of the net gross profit related to potential new development funding from a specific customer. The Company did not incur additional purchase consideration for business developments through December 31, 2003.

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. The Company could owe additional purchase consideration if future sales of repeater products reach specified levels. The contingent consideration is payable, at the Company’s discretion, in cash or equivalent value of the Company’s stock. The maximum total contingent consideration payable under the purchase agreement is $7 million if these sales reach $20 million and $25 million for the 12-month measurement periods ending in 2003 and 2004, respectively. In 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.

In November 2000, the Company acquired (through its subsidiary EMS Technologies Canada,

Ltd.) Digital Space Systems, Inc. (“DSSI”), an Ottawa, Ontario software firm specializing in search-and-rescue applications. The transaction was accounted for as an asset purchase valued at approximately $1.3 million. The cash paid at closing totaled approximately $900,000. No goodwill was recognized in this transaction; rather the $900,000 payment was recorded as an intangible asset on the balance sheet.

The final cash payment of approximately $400,000, which was contingent upon the DSSI principals remaining employed with the Company, was paid in December 2002. Generally accepted accounting principles required that the contingent payment be accounted for as compensation expense and not as part of the asset purchase price.

The Company made its final cash payment of $3.5 million in 2001 relating to the deferred portion of the purchase price, for its acquisition of the Space Systems and Products Division of Spar Aerospace Limited and Spar Holdings, Inc.

Trade accounts receivable at December 31, 2003 and 2002 included the following (in thousands):

(6) GOODWILL & OTHER INTANGIBLES

Goodwill:

In July 2001, the Financial Accounting Standards Board (“FASB”) issued 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 are no longer amortized but instead 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 $13.5 million of unamortized goodwill that was subject to the transition provisions of SFAS No. 142. At June 30, 2002, the Company 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 is no longer subject to amortization.

Following is a summary of the Company’s net earnings and net earnings per share for the year ended December 31, 2001, on a pro forma basis without goodwill amortization (in thousands, except per share data):


	2001
Net earnings	$	4,516
Add goodwill amortization		650

Adjusted net earnings	$	5,166

Net earnings per share:
Basic:
Net earnings per share	$	0.48
Add goodwill amortization		0.07

Adjusted net earnings per share	$	0.55

Net earnings per share:
Diluted:
Net earnings per share	$	0.47
Add goodwill amortization		0.07

Adjusted net earnings per share	$	0.54

Other Intangibles:

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, 2003 the net amount of this intangible asset

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was $2.7 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 $500,000 in 2003, and $375,000 in 2002 with amortization expense of $634,000 expected for each of the next four years, and $157,000 thereafter.

In November 2000, the Company acquired DSSI, and recorded an intangible asset of $900,000 on the balance sheet. As of December 31, 2003 the net amount of this intangible asset was $428,000 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 $290,000 in 2003, $172,000 in 2002, and $196,000 in 2001 with amortization expense of approximately $223,000 expected in 2004 and $205,000 expected in 2005.

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(7) LONG-TERM DEBT

The following is a summary of long-term debt at December 31, 2003 and 2002 (in thousands):


	2003		2002
Revolving credit loan with a U.S. bank, secured by the accounts receivable and inventory of the Company, maturing in August 2004, interest payable quarterly at a variable interest rate (4.09% at the end of 2003 and 4.04% at the end of 2002)	$	16,100		20,000
Promissory 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%		9,878		10,351
Revolving credit loan with a bank, secured by the assets of EMS Technologies Canada, Ltd., no specific maturity, but subject to annual review, interest payable monthly at a variable interest rate (6.5% at the end of 2003 and 5.75% at the end of 2002)		16,522		9,853
Term 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%		5,848		6,234
Term installment loan with a bank in Canada, maturing in December 2005, principal and interest payable quarterly at a variable interest rate (6.5% at the end of 2003 and 6.0% at the end of 2002)		2,437		2,659
Capital 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%		1,197		1,861
Revolving credit loan with a bank in the United Kingdom, maturing in April 2004, interest payable monthly at a variable rate (4.75% at the end of 2003 and 6.0% at the end of 2002)		1,611		1,584

Total long-term debt		53,593		52,542
Less current installments of long-term debt		38,056		33,783

Long-term debt, excluding current installments	$	15,537		18,759

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In October 2003, the terms of the U.S. revolving credit agreement were extended from November 2003 to August 2004. The bank also obtained a security interest in the inventory and accounts receivable of the Company. As of December 31, 2003, $10 million borrowed under the U.S. revolving credit agreement is due August 2004, with no principal payments required until maturity. The remaining $6.1 million of outstanding borrowings are due on demand.

Interest under the U.S. revolving credit agreement is, 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 available is payable quarterly in arrears.

The U.S. revolving credit agreement includes a covenant that annually establishes a minimum required consolidated net worth. The minimum consolidated net worth required at December 31, 2003 was approximately $112 million, as compared with the reported consolidated net worth of approximately $120 million. Other covenants limit the amount of debt as compared with total capitalization, or set a minimum ratio by which earnings before interest and income taxes must exceed interest expense. At December 31, 2003, the Company was in compliance with these covenants.

In February 2003, the Company amended its credit facility with a bank in Canada. As a result, the total Canadian credit facility was increased to $35.9 million, with $18.6 million available under a revolving credit agreement payable on demand, $3.8 million under a term installment loan payable in 20 quarterly payments, and the remainder of the facility for letters of credit. The revolving credit agreement is secured by a general pledge of the assets of EMS Technologies Canada, Ltd. and $3.2 million of this credit facility is guaranteed by EMS Technologies, Inc. The revolving credit agreement has no specific maturity date, but is subject to review annually. The term loan expires in December 2005. The Company has agreed to apply the proceeds from the planned sale of its Space & Technology/Montreal division to revolving debt under this agreement. Furthermore, upon determination of whether or not a sale of the Space & Technology/Montreal division will occur, the Company expects to enter into negotiations to refinance or restructure its U.S. and Canadian credit agreements.

Interest under the Canadian revolving credit agreement and term loan is a function of the bank’s prime rate. A commitment fee equal to .33% per annum of the daily average unused credit available is payable monthly in arrears.

The Canadian revolving credit agreement includes a covenant that annually establishes a minimum required net worth for EMS Technologies Canada, Ltd. The minimum net worth required at December 31, 2003 was approximately $31.9 million, as compared with the reported net worth of approximately $7.3 million. Other covenants limit the amount of debt as compared with total capitalization, set a minimum ratio by which earnings before interest and income taxes must exceed interest expense, and set a minimum ratio of current assets as compared with current liabilities. Subsequent to December 31, 2003, the Company further amended its Canadian credit agreement, including pricing, as a condition in obtaining the quarterly waiver. At current borrowing levels, the annual cost of this facility would increase by approximately $250,000 as a result of this amendment.

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Following is a summary of the combined principal maturities of all long-term debt (in thousands):

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):

(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, 2003, options for a total of approximately 1,280,000 shares of stock were exercisable, and there were approximately 273,000 shares available for future grants.

Following is a summary of activity in all of the Company’s stock option plans for the years ended December 31, 2003, 2002 and 2001 (shares in thousands):


				Weighted Average
				Exercise Price
	Shares			Per Share
Options outstanding at December 31, 2000		1,689		$	15.64
Granted		393			15.75
Canceled or expired		(186	)		17.64
Exercised		(95	)		10.83

Options outstanding at December 31, 2001		1,801			15.71
Granted		410			20.88
Canceled or expired		(209	)		17.77
Exercised		(214	)		11.28

Options outstanding at December 31, 2002		1,788			17.19

Granted		318			14.24
Canceled or expired		(356	)		15.49
Exercised		(12	)		18.46

Options outstanding at December 31, 2003		1,738		$	16.85

The weighted average fair value of options granted in 2003, 2002 and 2001 was $10.58, $13.91 and $8.03, respectively. These fair values were based on the Black-Scholes option pricing model and a weighted average risk-free rate of return of 2.8% in 2003, 2.8% in 2002 and 3.7% in 2001, terms from four to eight years, expected volatility of 68% in 2003, 68% in 2002 and 64% in 2001, and no expected dividend yield.

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Following is a summary of options outstanding at December 31, 2003 (shares in thousands):


	Outstanding						Exercisable
			Weighted		Weighted Average				Weighted
Range of			Average Price		Remaining Years In				Average Price
Exercise Prices	Shares		Per Share		Contractual Life		Shares		Per Share
$ 11.63 - 13.90		393	$	12.38		4.2		283	$	12.08
14.00 - 14.94		231		14.16		6.2		84		14.04
15.10 - 15.81		303		15.45		2.2		272		15.42
16.08 - 17.88		232		16.93		3.0		216		16.96
18.00 - 19.90		258		18.96		3.4		199		18.97
20.19 - 27.63		321		23.84		4.2		226		23.85

$ 11.63 - 27.63		1,738	$	16.85		3.8		1,280	$	16.89

In the Company’s capital structure, stock options are the only securities that are potentially dilutive in the future to basic earnings per share for the years ended December 31, 2003, 2002 and 2001, summarized as follows (shares in thousands):


	2003		2002		2001
Dilutive stock options, included in earnings per share calculations:
Shares		1,367		437		1,159
Average price per share	$	15.10		12.61		13.59
Anti-dilutive stock options, excluded from earnings per share calculations:
Shares		371		1,351		642
Average price per share	$	23.31		18.67		19.53

Following is a reconciliation of the denominator for basic and diluted earnings per share calculations for the years ended December 31, 2003, 2002 and 2001 (shares in thousands):


	2003		2002		2001
Basic earnings per share denominator		10,702		10,561		9,464
Common equivalent shares from dilutive stock options		83		170		99

Diluted earnings per share denominator		10,785		10,731		9,563

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

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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 2003, 2002 and 2001 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 three years. Therefore, the pro forma net earnings and net earnings 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.

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(9) INCOME TAXES

Total income tax (expense) benefit for continuing operations provided for in the Company’s consolidated financial statements consists of the following for the years ended December 31, 2003, 2002 and 2001 (in thousands):


	2003			2002			2001
Consolidated income tax (expense) benefit	$	(4,237	)		(4,699	)		1,641
Income tax benefit resulting from exercise of stock options credited to stockholders’ equity		383			651			160

Total	$	(3,854	)		(4,048	)		1,801

The components of income tax (expense) benefit for continuing operations for the years ended December 31, 2003, 2002 and 2001 were (in thousands):


	2003			2002			2001
Current:
Federal	$	(3,005	)		(2,197	)		622
State		(465	)		(363	)		58
Foreign		(1,848	)		(397	)		(1,117	)

Total		(5,318	)		(2,957	)		(437	)

Deferred:
Federal		532			(1,554	)		1,256
State		90			(127	)		237
Foreign		459			(61	)		585

Total		1,081			(1,742	)		2,078

Total income tax (expense) benefit	$	(4,237	)		(4,699	)		1,641

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Income tax (expense) benefit for continuing operations differed as follows from the amounts computed by applying the U.S. federal income tax rate of 34% to earnings (loss) from continuing operations before income taxes for the years ended December 31, 2003, 2002 and 2001 (in thousands):


	2003			2002			2001
Computed “expected” income tax (expense) benefit	$	(4,456	)		(4,881	)		543
Tax credits from research activities		101			44			164
State income taxes, net of federal income tax effect		(248	)		(323	)		195
Difference in effective foreign tax rates		415			900			617
Amortization of goodwill		—			—			(214	)
Other		(49	)		(439	)		336

Income tax (expense) benefit	$	(4,237	)		(4,699	)		1,641

In the years 2003, 2002 and 2001, income tax (expense) benefit for continuing operations is net of tax benefits, totaling $80,000, $355,000 and $408,000, respectively, recognized from foreign net operating loss carry forwards.

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, 2003 and 2002 are presented below (in thousands):


	2003			2002
Deferred tax assets:
Accounts receivable	$	711			172
Inventories		1,161			540
Accrued compensation costs		710			675
Accrued warranty costs		619			454
Accrued post-retirement benefits		1,188			872
Foreign research expense and tax credit carry forward		33,302			16,552
Foreign net operating loss carry forward		2,358			2,086
Gain on sales to foreign subsidiaries		247			306
Credit for corporate minimum tax		306			347
Other		189			57

Total gross deferred tax assets		40,791			22,061
Valuation allowance		(26,483	)		(10,898	)

Net deferred tax assets		14,308			11,163

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Deferred tax liabilities:
Property, plant and equipment		8,099	6,572
Net gain from foreign transactions and remeasurement		283	283
Pension asset		1,039	835

Total gross deferred tax liabilities		9,421	7,690

Net deferred tax assets	$	4,887	3,473

The U.S. continuing operations are consolidated for federal income tax purposes. These U.S. continuing operations had earnings before income taxes of $8,162,000 in 2003, $10,467,000 in 2002 and a combined loss before income taxes of $5,035,000 in 2001. The continuing combined foreign operations reported earnings before income taxes of $4,945,000, $3,889,000, and $3,439,000 in 2003, 2002 and 2001, respectively.

The Company’s net deferred tax assets at December 31, 2003 include $2,358,000 related to a cumulative $7,762,000 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 performance of these operations and the utilization of tax planning strategies will generate adequate earnings to fully realize the deferred tax asset, net of valuation allowance, relating to foreign net operating losses.

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(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. 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 accrued an expense for the defined contribution plan of $2.6 million for 2003, $2.5 million for 2002 and $2.0 million for 2001.

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 $1.5 million in 2003, $1.3 million in 2002 and $839,000 in 2001.

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(11) FAIR VALUE OF FINANCIAL INSTRUMENTS

The following summarizes certain information regarding the fair value of the Company’s financial instruments at December 31, 2003 and 2002:

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, 2003 and 2002 of $5.8 million and $6.2 million, respectively. The other mortgage has an 8.0% rate and a carrying amount at December 31, 2003 and 2002 of $9.9 million and $10.4 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.

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(12) BUSINESS SEGMENT AND GEOGRAPHIC AREA INFORMATION

The Company is organized into five reportable segments: Space & Technology, 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 Space & Technology 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.

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. Revenues are recognized upon shipment of hardware. Hardware is marketed to operators of high-speed, two-way, multimedia access networks.

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 31
	2003			2002			2001
Net sales:
Space & Technology	$	49,381			54,210			37,658
Less sales to discontinued operations		(1,819	)		(1,431	)		(2,495	)

Space & Technology external sales		47,562			52,779			35,163

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	Years ended December 31
	2003			2002			2001
LXE		101,075			88,229			85,914
EMS Wireless		51,381			48,001			45,122
SATCOM		44,736			32,724			21,600
SatNet		12,572			14,153			12,568
Other		(1,113	)		(115	)		1,024

Total	$	256,213			235,771			201,391

Operating income (loss):
Space & Technology	$	3,915			5,010			(4,992	)
Contract reserve adjustment		—			3,500			(3,500	)

Subtotal		3,915			8,510			(8,492	)
LXE		6,966			4,797			5,398
EMS Wireless		2,529			2,432			2,188
SATCOM		5,026			3,962			2,965
SatNet		(2,100	)		(1,824	)		61
Other		(1,054	)		(256	)		(762	)
Corporate		58			(1,268	)		(17	)

Total	$	15,340			16,353			1,341

Non-operating income (expense), net of foreign exchange gain (loss)
Space & Technology	$	1			—			2
LXE		270			246			197
EMS Wireless		459			311			(328	)
SATCOM		(627	)		12			454
SatNet		(301	)		19			18
Other		409			—			—
Corporate		(297	)		(256	)		208

Total	$	(86	)		332			551

Interest expense:
Space & Technology	$	(417	)		(688	)		(963	)
LXE		(430	)		(428	)		(469	)
EMS Wireless		(389	)		(262	)		(353	)
SATCOM		(87	)		(64	)		(304	)
SatNet		(224	)		(83	)		(81	)
Corporate		(600	)		(804	)		(1,318	)

Total	$	(2,147	)		(2,329	)		(3,488	)

Income tax (expense) benefit:
Space & Technology	$	(1,331	)		(1,639	)		2,284

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	Years ended December 31
	2003			2002			2001
Contract reserve adjustment		—			(1,330	)		1,330

Subtotal		(1,331	)		(2,969	)		3,614
LXE		(2,587	)		(1,778	)		(1,938	)
EMS Wireless		(987	)		(943	)		(574	)
SATCOM		(547	)		(505	)		(389	)
SatNet		394			3			—
Other		244			97			290
Corporate		577			1,396			638

Total	$	(4,237	)		(4,699	)		1,641

Net earnings (loss):
Space & Technology	$	2,168			4,853			(5,839	)
LXE		4,219			2,837			3,188
EMS Wireless		1,612			1,538			933
SATCOM		3,765			3,405			2,726
SatNet		(2,231	)		(1,885	)		(2	)
Other		(401	)		(159	)		(472	)
Corporate, including change in accounting principle		(262	)		(932	)		(840	)

Earnings (loss) from continuing operations		8,870			9,657			(306	)
Discontinued operations, net		(46,262	)		(1,070	)		4,822

Total	$	(37,392	)		8,587			4,516

Capital expenditures:
Space & Technology	$	1,965			3,218			2,020
LXE		1,449			1,256			1,598
EMS Wireless		890			534			1,592
SATCOM		1,788			2,076			831
SatNet		1,127			1,252			1,350
Corporate		865			221			390

Total	$	8,084			8,557			7,781

Depreciation and amortization:
Space & Technology	$	2,630			2,713			2,700
LXE		2,551			2,630			4,003

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(13) DERIVATIVE FINANCIAL INSTRUMENTS

In January 2001, the Company adopted the provisions of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” As a result, the Company recognized a net liability for all derivatives totaling $1,135,000, of which, $352,000 ($351,000 after income taxes) was charged to the statement of operations as a transition adjustment for the cumulative effect of the change in accounting principle. The remaining net liability for all derivatives was charged to the unbilled revenue component of accounts receivable for $375,000 and to the other comprehensive income component of stockholders’ equity for $408,000.

At December 31, 2003, the Company’s net value of all derivatives was an asset of $108,000. The derivative activity as reported in the Company’s financial statements for the years ended December 31 was (in thousands):


	2003			2002			2001
Net liability for derivatives at January 1	$	(248	)		(18	)		(461	)
Changes in statements of operations:
Sales:
Gain (loss) in value of embedded derivatives		2			19			(11	)
Foreign exchange gain (loss):
Gain in value of ineffective portion of derivative instruments that qualify as hedging instruments		—			—			3
Gain (loss) in value of derivative instruments that do not qualify as hedging instruments		787			(496	)		(8	)
Matured foreign exchange contracts		(433	)		247			1

Net statements of operations gain (loss) from changes in value of derivative instruments		356			(230	)		(15	)

Other comprehensive income:
Matured foreign exchange contracts		—			—			374
Gain in value of highly effective hedging instruments		—			—			84

Net other comprehensive income		—			—			458

Net asset (liability) for derivatives at December 31	$	108			(248	)		(18	)

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, 2003 will expire by the end of December 2004.

The table below summarizes, by major currency, the notional amounts of foreign currency forward contracts in U.S. dollars at December 31, 2003. The “buy” amounts represent the U.S. dollar equivalent of commitments to purchase foreign currencies, and the “sell” amounts represent the U.S. dollar equivalent of commitments to sell foreign currencies (in thousands).


	Buy		Sell
Canadian dollar	$	6,000		—
Euro		—		1,603

Total	$	6,000		1,603

The fair market value of these foreign exchange contracts was a net liability of $98,000 at December 31, 2003.

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(14) CONTRACT RESERVE ADJUSTMENT

In December 2001, the Company accrued a $3.5 million contract reserve, which represented an estimate of the loss to be incurred in settlement of a Space & Technology contract. Under this contract, the Company was to develop and supply the crucial antenna technology for systems that provide multi-channel, live television to commercial airline flights. The customer was a partner in a joint venture that marketed these television systems to the airline industry. The Company had worked with this customer on the contract for over three years and invested considerable time and expense, and expected that the product rollout to the airline industry would have substantially begun by 2001. However, the rollout had proceeded much slower than expected, and the airline industry faced difficult economic conditions that had deteriorated significantly in late 2001. As a result, there were considerable uncertainties at the end of 2001 about the timing of the airline industry’s recovery and adoption of the technology. Based upon these factors, the Company concluded that sales under the contract were unlikely to develop at the previously expected rate, and the Company decided to seek a settlement of the contract with the customer, including possible use of the contract’s provisions for dispute resolution, and accrued the reserve.

In 2002, while settlement negotiations were still in an early stage, the television-system joint venture was acquired by a new airline that had been the joint venture’s largest customer. Subsequently, the Company reached a new, long-term agreement to supply the airline with advanced antennas. Based on the terms of this agreement and the strong financial position and creditworthiness of the new airline, the Company concluded that it no longer needed the $3.5 million reserve. The elimination of this reserve resulted in a statement of earnings benefit in the fourth quarter of 2002.

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(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 $3,305,000 in 2004, $3,137,000 in 2005, $2,679,000 in 2006, $2,137,000 in 2007, $1,226,000 in 2008 and $350,000 thereafter. Minimum annual lease payments under such leases related to the Company’s discontinued operations are $675,000 in 2004, $399,000 in 2005, $333,000 in 2006, $59,000 in 2007, $4,000 in 2008 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 $5,134,000, $5,074,000 and $4,622,000 in 2003, 2002 and 2001, respectively.

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 prevent the Company from making a reasonable estimate of the maximum potential amount for which it could be obligated.

During 2003, 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. The Company has provided reserves for identified risks that could cause cost increases in the future. These contracts are technically challenging, and 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 associated with these contracts.

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, 2001	$	1,042
Accruals for warranties issued during the period		1,514
Settlements made during the period		(1,190	)

Balance at December 31, 2002	$	1,366
Accruals for warranties issued during the period		1,178
Settlements made during the period		(567	)

Balance at December 31, 2003	$	1,977

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(16) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

Following is a summary of interim financial information for the years ended December 31, 2003 and 2002 (in thousands, except net earnings per share):


	2003 Quarters ended
	March 29			June 28			September 27			December 31
Net sales	$	55,749			66,059			61,534			72,871
Operating income		3,078			4,778			3,384			4,100
Earnings from continuing operations		1,686			2,488			1,932			2,764
Loss 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			0.26
Discontinued 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			0.25
Discontinued operations		(0.16	)		(1.55	)		(2.09	)		(0.50	)
Net earnings (loss)		—			(1.32	)		(1.91	)		(0.25	)


	2002 Quarters ended
	March 30		June 29		September 28			December 31
Net sales	$	53,156		61,326		56,521			64,768
Operating income		2,452		3,489		3,506			6,906
Earnings from continuing operations		674		2,289		2,722			3,972
Loss from discontinued operations		1,438		202		(756	)		(1,954	)
Net earnings		2,112		2,491		1,966			2,018
Net earnings per share:
Basic:
Continuing operations		0.06		0.22		0.26			0.37
Discontinued operations		0.14		0.02		(0.08	)		(0.18	)
Net earnings		0.20		0.24		0.18			0.19
Diluted:
Continuing operations		0.06		0.21		0.25			0.37
Discontinued operations		0.14		0.02		(0.07	)		(0.18	)
Net earnings		0.20		0.23		0.18			0.19


•		Quarterly information has been restated to reflect the impact of moving our Space & Technology/Montreal space operations and our healthcare product line to discontinued operations.

•		Operating income in the fourth quarter of 2002 included a reversal of the $3.5 million contract reserve adjustment for a long-term supply contract to the commercial airline industry.

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Georgia		58-1035424

(State or other jurisdiction of		(IRS Employer ID Number)
incorporation or organization)


Norcross, Georgia		30092

(Address of principal executive offices)		(Zip Code)


	ITEM 1. Business
	ITEM 2. Properties
	ITEM 3. Legal Proceedings
	ITEM 4. Submission of Matters to a Vote of Security Holders
PART II
	ITEM 5. Market for Registrant’s Common Equity and Related Stockholder Matters
	ITEM 6. Selected Financial Data
	ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	ITEM 7a. Quantitative and Qualitative Disclosures about Market Risk
	ITEM 8. Financial Statements and Supplementary Data
	ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
	ITEM 9A. Controls and Procedures
PART III
	ITEM 10. Directors and Executive Officers of the Registrant
	ITEM 11. Executive Compensation
	ITEM 12. Security Ownership of Certain Beneficial Owners and Management
	ITEM 13. Certain Relationships and Related Transactions
	ITEM 14. Principal Accountant Fees and Services
PART IV
	ITEM 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
INDEPENDENT AUDITORS’ REPORT
SIGNATURES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
INDEPENDENT AUDITORS’ REPORT
CONSOLIDATED STATEMENTS OF OPERATIONS
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF CASH FLOWS
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME (LOSS)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
EX-4.5 4TH AMENDMENT DATED 10/31/03
EX-10.3 DEFERRED COMPENSATION PLAN
EX-10.4 OFFICERS DEFERRED COMPENSATION PLAN
EX-10.6 AMENDMENTS ADOPTED 5/2/97
EX-10.8 OPTIONS GRANTED PRIOR TO 2001 TO OFFICERS
EX-10.12 OPTIONS GRANTED 1992 STOCK INCENTIVE PLAN
EX-10.16 INDEMNIFICATION AGMT B/T CO & DIRECTORS
EX-10.17 INDEMNIFICATION AGMT B/T CO & OFFICERS
EX-10.18 SPLIT DOLLAR INSURANCE PLAN
EX-10.20 LETTER DATED 7/24/2002
EX-14 CODE OF ETHICS
EX-21.1 SUBSIDIARIES OF THE REGISTRANT
EX-23.1 INDEPENDENT AUDITORS' CONSENT
EX-23.2 INDEPENDENT AUDITORS' CONSENT
EX-31.1 SECTION 302 CERTIFICATION OF THE CEO
EX-31.2 SECTION 302 CERTIFICATION OF THE CFO
EX-32 SECTION 906 CERTIFICATION OF THE CEO/CFO
EX-99.1 INDEPENDENT AUDITORS REPORT


	2003 Price Range				2002 Price Range

	High		Low		High		Low

First Quarter	$	18.39		11.30		22.65		14.77
Second Quarter		15.03		10.00		25.60		17.10
Third Quarter		19.24		12.96		22.65		10.02
Fourth Quarter		22.64		16.86		17.36		10.30


			Years ended December 31
(in thousands, except
earnings per share)			2003			2002			2001			2000			1999

Net sales			$	256,213			235,771			201,391			186,800			147,815
Cost of sales				163,744			151,172			132,153			122,161			94,306
Selling, general and administrative expenses				57,851			51,374			43,962			39,413			35,947
Research and development expenses				19,278			20,372			20,435			14,682			14,424
Contract reserve adjustment				—			(3,500	)		3,500			—			—
Write-down of NetSat 28 assets				—			—			—			2,891			—

	Operating income			15,340			16,353			1,341			7,653			3,138
Non-operating income (expense)				360			(58	)		565			173			1,881
Foreign exchange (loss) gain				(446	)		390			(14	)		—			—
Interest expense				(2,147	)		(2,329	)		(3,488	)		(3,450	)		(2,522	)

	Earnings (loss) from continuing operations before income taxes			13,107			14,356			(1,596	)		4,376			2,497
Income tax (expense) benefit				(4,237	)		(4,699	)		1,641			(984	)		(923	)

	Earnings from continuing operations before accounting change			8,870			9,657			45			3,392			1,574
Discontinued operations:
	Gain/(loss) from discontinued operations			(50,614	)		(1,596	)		5,643			1,418			4,255
	Income tax benefit (expense)			4,352			526			(821	)		(319	)		(989	)

	Earnings (loss) before accounting change			(37,392	)		8,587			4,867			4,491			4,840
Cumulative effect of change in accounting principle				—			—			(351	)		—			—

	Net earnings (loss)		$	(37,392	)		8,587			4,516			4,491			4,840

Earnings (loss) per share:
	Basic:
		From continuing operations	$	0.83			0.91			0.01			0.39			0.18
		From discontinued operations		(4.32	)		(0.10	)		0.51			0.12			0.38
		Net earnings (loss)		(3.49	)		0.81			0.48			0.51			0.56
	Diluted:
		From continuing operations	$	0.82			0.90			0.01			0.38			0.18
		From discontinued operations		(4.29	)		(0.10	)		0.50			0.12			0.37
		Net earnings (loss)		(3.47	)		0.80			0.47			0.50			0.55
Weighted average number of shares:
	Common			10,702			10,561			9,464			8,766			8,703
	Common and dilutive common equivalent			10,785			10,731			9,563			8,912			8,775

	1.		Ferrite components,

	2.		Electronic subsystems, and

	3.		Antenna subsystems.


	As of December 31

	2003		2002		2001		2000		1999

Working capital related to continuing operations (1)	$	46,123		44,419		51,789		44,388		49,643
Total assets		228,549		256,303		236,816		216,113		189,828
Long-term debt (excluding current installments)		15,537		18,759		30,739		36,591		30,572
Stockholders’ equity		120,042		145,985		132,321		111,429		105,815


ITEM 7.		Management’s Discussion and Analysis of Financial Condition and Results of Operations


		Payments due by period

				Less than						After 5
Contractual obligations		Total		1 year		1-3 years		4-5 years		years

Long-term debt, excluding capital leases		$	52,396		37,557		1,940		2,304		10,595
Capital lease obligations			1,197		499		698		—		—
Operating lease obligations			12,834		3,305		5,816		3,363		350
Foreign currency forward contracts, net			98		98		—		—		—

	Total contractual cash obligations	$	66,525		41,459		8,454		5,667		10,945


Revolving credit loan with a U.S. bank, $10,000 maturing in August 2004, the remainder payable upon demand, interest payable quarterly at a variable rate (4.09% at the end of 2003)	$	16,100
Revolving credit loan with a bank in Canada, no specific maturity but subject to annual review, interest payable monthly at a variable rate (6.5% at the end of 2003)		16,522
Term installment loan with a bank in Canada, maturing in December 2005, principal and interest payable quarterly at a variable rate (6.5% at the end of 2003)		2,437
Revolving credit loan with a bank in the United Kingdom, maturing in April 2004, interest payable monthly at a variable rate (4.75% at the end of 2003)		1,611

Total market-sensitive debt	$	36,670


		Exchange Rate
		($U.S. per unit of	$U.S. in thousands
		Local Currency)	(Reporting Currency)

Belgium		1.2579 /Euro	$	225
Germany		1.2579 /Euro		442
France		1.2579 /Euro		285
Australia		0.7529 /Dollar		884
Italy		1.2579 /Euro		647
Netherlands		1.2579 /Euro		261
Sweden		0.1389 /Krona		154
United Kingdom		1.786 /Pound		(24	)
Singapore		0.5889 /Dollar		82
Canada		0.7738 /Dollar		1,633

	Total short-term due to parent		$	4,589


		Average		($U.S.)
	Notional	Contract		Fair
	Amount	Rate		Value

Foreign currency forward exchange contracts
Continuing Operations:
Euros (sell for U.S. dollars)	1,300 Euros		1.2334	$	(32	)
U.S. dollars (sell for Canadian dollars)	6,000 USD		1.3280		130

				$	98

Discontinued Operations:
Euros (sell for Canadian dollars)	3,000 Euros		1.6160	$	(32	)
British pounds (sell for Canadian dollars)	3,670 GBP		2.3132		37

				$	5


			Years ended December 31, 2003, 2002 and 2001

			Additions
	Balance at		charged to								Balance
	beginning		costs and								at end
Classification	of year		expenses			Deductions			Other		of year

Allowance for Doubtful Accounts:
2001	$	810		62			(2	)		—		870
2002		870		411			(174	) (a)		—		1,107
2003		1,107		902			(472	) (a)				1,537
Reserve for Inventory:
2001	$	1,115		382			—			—		1,497
2002		1,497		540			(502	) (b)		—		1,535
2003		1,535		2,174			(643	) (b)		—		3,096
Valuation Allowance for Deferred Tax Assets:
2001	$	5,784		3,147	(c)		—			—		8,931
2002		8,931		1,967	(c)		—			—		10,898
2003		10,898		15,585	(c)		—			—		26,483


EMS TECHNOLOGIES, INC.

By: /s/ Alfred G. Hansen		Date: 3/15/04

President and Chief Executive Officer


	Signature	Title	Date
/s/	Alfred G. Hansen Alfred G. Hansen	President and Chief Executive Officer, and Director (Principal Executive Officer)	3/15/04

/s/	Don T. Scartz Don T. Scartz	Executive Vice President, Chief Financial Officer, and Treasurer (Principal Financial and Accounting Officer)	3/15/04

/s/	Hermann Buerger Hermann Buerger	Director	3/15/04

/s/	Robert P. Crozer Robert P. Crozer	Director	3/15/04


	KPMG LLP


	Signature	Title	Date

/s/	John P. Frazee, Jr. John P. Frazee, Jr.	Director	3/15/04

/s/	John R. Kreick John R. Kreick	Director	3/15/04

/s/	John B. Mowell John B. Mowell	Director, Chairman of the Board	3/15/04

/s/	Norman E. Thagard Norman E. Thagard	Director	3/15/04

/s/	John L. Woodward, Jr. John L. Woodward, Jr.	Director	3/15/04


	Page
Independent Auditors’ Report		48
Consolidated Statements of Operations – Years ended December 31, 2003, 2002 and 2001		49
Consolidated Balance Sheets – December 31, 2003 and 2002		50
Consolidated Statements of Cash Flows – Years ended December 31, 2003, 2002 and 2001		52
Consolidated Statements of Stockholders’ Equity and Comprehensive Income (Loss) – Years ended December 31, 2003, 2002 and 2001		54
Notes to Consolidated Financial Statements		55


	Three years ended December 31, 2003

													Accum-
													ulated
													other
										Annual			compre-						Total
	Common Stock						Additional			compre-			hensive						stock-
							paid-in			hensive			income			Retained			holders’
	Shares			Amount			capital			income			(loss)			earnings			equity

Balance December 31, 2000		8,809		$	881			35,373						(1,595	)		76,770			111,429
Net earnings		—			—			—			4,516			—			4,516			4,516
Income tax benefit from exercise of non- qualified stock options (note 9)		—			—			160			—			—			—			160
Exercise of common stock options		95			9			1,015			—			—			—			1,024
Redemption of shares upon exercise of common stock options		(51	)		(5	)		(763	)		—			—			—			(768	)
Foreign currency translation adjustment loss		—			—			—			(5,219	)		(5,219	)		—			(5,219	)
Stock issued for an acquisition (note 3)		226			23			3,537			—			—			—			3,560
Stock issued in a private offering, net of offering costs of $973		1,328			133			17,486			—			—			—			17,619

Comprehensive loss for 2001											(703	)

Balance December 31, 2001		10,407		$	1,041			56,808						(6,814	)		81,286			132,321
Net earnings		—			—			—			8,587			—			8,587			8,587
Income tax benefit from exercise of non- qualified stock options (note 9)		—			—			651			—			—			—			651
Exercise of common stock options		214			21			2,393			—			—			—			2,414
Redemption of shares upon exercise of common stock options		(44	)		(4	)		(877	)		—			—			—			(881	)
Foreign currency translation adjustment gain		—			—			—			993			993			—			993
Stock issued for an acquisition (note 3)		81			8			1,892			—			—			—			1,900

Comprehensive income for 2002											9,580

Balance December 31, 2002		10,658		$	1,066			60,867						(5,821	)		89,873			145,985
Net loss		—			—			—			(37,392	)		—			(37,392	)		(37,392	)
Income tax benefit from exercise of non- qualified stock options (note 9)		—			—			383			—			—			—			383
Exercise of common stock options		356			36			5,474			—			—			—			5,510
Redemption of shares upon exercise of common stock options		(86	)		(9	)		(1,703	)		—			—			—			(1,712	)
Foreign currency translation adjustment gain		—			—			—			7,301			7,301			—			7,301
Repurchases 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			120,042


Buildings		20 to 40 years

Machinery and equipment		3 to 8 years

Furniture and fixtures		10 years


		2003		2002

Accounts receivable, net		$	9,646		30,245
Inventories			4,722		10,997
Investments			4,409		17,909
Property, plant and equipment, net			16,743		14,951
Accrued pension assets			3,245		2,740
Other assets			1,294		1,024

	Total assets held for sale	$	40,059		77,866

Accounts payable		$	10,984		14,712


		2003		2002

Long term debt			2,573		2,146
Post retirement obligations			3,709		2,767
Other current liabilities			499		641

	Total liabilities related to assets held for sale	$	17,765		20,266


		2003			2002

Amounts billed		$	58,146			51,738
Unbilled revenues under long-term contracts			18,610			23,328
Customer advanced payments			(3,788	)		(2,376	)
Allowance for doubtful accounts			(1,537	)		(1,107	)

	Trade accounts receivable, net	$	71,431			71,583


	2003		2002
Parts and materials	$	22,139		20,131
Work in process		5,306		4,344
Finished goods		6,064		5,531

Inventories	$	33,509		30,006


2004	$	38,056
2005		1,285
2006		1,353
2007		1,108
2008		1,196
Thereafter		10,595

Total principal maturities	$	53,593