Ems Technologies Inc - Quarterly Report (10-Q)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


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

For the quarterly period ended March 29, 2008

Commission file number 0-6072

EMS TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)


Georgia		58-1035424

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

660 Engineering Drive, Norcross, Georgia		30092

(Address of principal executive offices)		(Zip Code)

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

Securities registered pursuant to Section 12(b) of the Act:


Title of Class		Exchange on Which Registered

Common Stock, $.10 par value		The Nasdaq Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:


Large accelerated filer o	Accelerated filer þ	Non-accelerated filer o	Smaller reporting company o
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

The number of shares outstanding of each of the issuer’s classes of common stock, as of the close of business on April 29, 2008:


Class		Number of Shares

Common Stock, $.10 par Value		15,596,308

AVAILABLE INFORMATION

EMS Technologies, Inc. makes available free of charge, on or through its website at www.ems-t.com , its annual, quarterly and current reports, and any amendments to those reports, as soon as reasonably practicable after electronically filing such reports with the Securities and Exchange Commission. Information contained on the Company’s website is not part of this report.

TABLE OF CONTENTS


PART I — FINANCIAL INFORMATION			2
ITEM 1. Financial Statements			2
Consolidated Statements of Operations			2
Consolidated Balance Sheets			3
Consolidated Statements of Cash Flows			5
Notes to Consolidated Financial Statements			6
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			14
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk			26
ITEM 4. Controls and Procedures			27
PART II — OTHER INFORMATION			28
ITEM 1A. Risk Factors			28
ITEM 6. Exhibits			28
SIGNATURES			29
EX-3.2 BYLAWS OF EMS TECHNOLOGIES, INC.
EX-10.1 COMPENSATION ARRANGEMENTS WITH CERTAIN OFFICERS
EX-31.1 SECTION 302 CERTIFICATION OF CEO
EX-31.2 SECTION 302 CERTIFICATION OF CFO
EX-32 SECTION 906 CERTIFICATION OF CEO & CFO

PART I

FINANCIAL INFORMATION

ITEM 1. Financial Statements

EMS Technologies, Inc. and Subsidiaries

Consolidated Statements of Operations (Unaudited)

(in thousands, except per share data)


	Quarters Ended
	Mar 29			Mar 31
	2008			2007
Product net sales	$	63,715			56,342
Service net sales		11,779			10,232

Net sales		75,494			66,574
Product cost of sales		39,642			34,715
Service cost of sales		7,196			6,921

Cost of sales		46,838			41,636
Selling, general and administrative expenses		20,198			17,603
Research and development expenses		5,021			4,257

Operating income		3,437			3,078
Interest income		999			1,367
Interest expense		(369	)		(453	)
Foreign exchange gain (loss)		51			(152	)

Earnings from continuing operations before income taxes		4,118			3,840
Income tax benefit (expense)		42			(960	)

Earnings from continuing operations		4,160			2,880

Discontinued operations (note 2):
Loss from discontinued operations before income taxes		—			(568	)
Income tax benefit		—			101

Loss from discontinued operations		—			(467	)


Net earnings	$	4,160			2,413


Net earnings (loss) per share:
Basic:
From continuing operations	$	0.27			0.19
From discontinued operations		—			(0.03	)

Net earnings	$	0.27			0.16


Diluted:
From continuing operations	$	0.26			0.19
From discontinued operations		—			(0.03	)

Net earnings	$	0.26			0.16


Weighted average number of shares (note 3):
Basic		15,545			15,295
Diluted		15,768			15,380

See accompanying notes to interim consolidated financial statements.

EMS Technologies, Inc. and Subsidiaries

Consolidated Balance Sheets (Unaudited)

(in thousands)


	Mar 29		Dec 31
	2008		2007
ASSETS
Current assets:
Cash and cash equivalents	$	121,558		133,959
Restricted cash		1,951		81
Trade accounts receivable, net (note 5)		92,819		85,085
Inventories, net (note 6)		31,600		28,949
Deferred income taxes		1,868		1,868
Other current assets		7,430		7,115

Total current assets		257,226		257,057

Property, plant and equipment:
Land		1,150		1,150
Buildings and leasehold improvements		15,971		15,954
Machinery and equipment		89,133		87,377
Furniture and fixtures		9,821		9,665

Total property, plant and equipment		116,075		114,146
Less accumulated depreciation and amortization		76,255		74,223

Net property, plant and equipment		39,820		39,923

Deferred income taxes — non-current		6,232		5,490
Intangible assets, net		9,281		5,837
Goodwill		21,525		9,982
Other assets		3,731		5,511

Total assets	$	337,815		323,800

See accompanying notes to interim consolidated financial statements.

EMS Technologies, Inc. and Subsidiaries
Consolidated Balance Sheets (Unaudited), continued
(in thousands, except share data)


	Mar 29		Dec 31
	2008		2007
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current installments of long-term debt	$	3,187		3,174
Accounts payable		26,329		22,389
Billings in excess of contract costs		6,941		6,643
Accrued compensation costs		10,456		9,553
Accrued retirement costs		2,883		2,472
Deferred service revenue		10,278		8,578
Other current liabilities		8,528		5,757

Total current liabilities		68,602		58,566
Long-term debt, excluding current installments		10,235		10,546
Other liabilities		6,363		7,562

Total liabilities		85,200		76,674

Shareholders’ equity:
Preferred stock of $1.00 par value per share
Authorized 10,000,000 shares; none issued		—		—
Common stock of $.10 par value per share
Authorized 75,000,000 shares, issued and outstanding 15,585,000 in 2008 and 15,581,000 in 2007		1,558		1,558
Additional paid-in capital		140,148		139,727
Accumulated other comprehensive income - foreign currency translation adjustment		13,767		12,859
Retained earnings		97,142		92,982

Total shareholders’ equity		252,615		247,126


Total liabilities and shareholders’ equity	$	337,815		323,800

See accompanying notes to interim consolidated financial statements.

EMS Technologies, Inc. and Subsidiaries

Consolidated Statements of Cash Flows (Unaudited)

(in thousands)


	Three Months Ended
	Mar 29			Mar 31
	2008			2007
Cash flows from operating activities:
Net earnings	$	4,160			2,413
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation		2,191			1,672
Intangibles amortization		562			428
Deferred income taxes		(742	)		—
Loss from discontinued operations		—			467
Stock-based compensation expense		387			278
Changes in operating assets and liabilities, net of effects of acquisition:
Trade accounts receivable		(3,919	)		8,625
Billings in excess of contract costs		364			215
Inventories		(1,674	)		(2,598	)
Accounts payable		197			(4,510	)
Income taxes payable		573			452
Deferred revenue		1,923			1,585
Accrued compensation and retirement costs		439			994
Accrued costs, and other		1,435			(1,037	)

Net cash provided by operating activities in continuing operations		5,896			8,984
Net cash used in operating activities in discontinued operations		—			(3,006	)

Net cash provided by operating activities		5,896			5,978

Cash flows from investing activities:
Purchase of property, plant and equipment		(2,530	)		(2,686	)
Payments for asset acquisitions		(15,147	)		—
Proceeds from sale of assets		66			845

Net cash used in investing activities		(17,611	)		(1,841	)

Cash flows from financing activities:
Repayment of term debt		(247	)		(197	)
Change in restricted cash		—			82
Change in book overdrafts		—			569
Deferred financing costs paid		(839	)		—
Proceeds from exercise of stock options, net of withholding taxes paid		34			224

Net cash (used in) provided by financing activities		(1,052	)		678

Net change in cash and cash equivalents		(12,767	)		4,815
Effect of exchange rates on cash and cash equivalents		366			—
Cash and cash equivalents at beginning of period		133,959			109,431

Cash and cash equivalents at end of period	$	121,558			114,246

See accompanying notes to interim consolidated financial statements.

EMS Technologies, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

March 29, 2008 and March 31, 2007

1. Basis of Presentation

EMS Technologies, Inc. (“EMS”) designs, manufactures and markets products to satellite and wireless communications markets for both commercial and defense applications. EMS’s products are focused on the needs of the mobile information user, with an increasing emphasis on broadband applications for high-data-rate, high-capacity wireless communications.

The consolidated financial statements include the accounts of EMS Technologies, Inc. and its wholly-owned subsidiaries, LXE Inc. and EMS Technologies Canada, Ltd. (collectively, the “Company”). All significant intercompany balances and transactions have been eliminated in consolidation.

In the opinion of management, the accompanying consolidated financial statements reflect all normal and recurring adjustments necessary for a fair presentation of results for such periods. The results of operations for any interim period are not necessarily indicative of results for the full year. These consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007.

In accordance with the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, the Company has accounted for its Space & Technology/Montreal (“S&T/Montreal”), Satellite Networks (“SatNet”) and EMS Wireless divisions as discontinued operations in the accompanying consolidated financial statements.

Following is a summary of the Company’s significant accounting policies:

— Management’s Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities as of the balance sheet date and reporting of revenue and expenses during the period. Actual future results could differ from those estimates.

— Cash Equivalents

The Company considers all highly liquid debt instruments with initial or remaining terms of three months or less to be cash equivalents. Cash equivalents at March 29, 2008 and December 31, 2007 included investments of $94.6 million and $115.3 million, respectively, in a government obligations money-market fund, in other money market instruments, and in interest-bearing deposits.

— Effect of New Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157, “Fair Value Measurements”. This Statement defines fair value, establishes a framework for measuring fair value and requires expanded disclosure about fair value measurements. SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements and accordingly, does not require any new fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and for interim periods within those years. In February 2008, the FASB issued FASB Staff Position (“FSP”) No. 157-1, “Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13” and FSP No. 157-2, “Effective Date of FASB Statement No. 157.” FSP No. 157-1 amends SFAS No. 157 to exclude SFAS No. 13, “Accounting for Leases,” and its related interpretive accounting pronouncements that address leasing transactions. FSP No. 157-2 delays the effective date of SFAS No. 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually) until the beginning of the first quarter of 2009. The Company’s adoption of SFAS No. 157 for

financial assets and liabilities on January 1, 2008 did not have a material impact on the Company’s consolidated financial statements. The Company is currently evaluating the impact of SFAS No. 157 for non-financial assets and liabilities on its 2009 consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115”. SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. SFAS No. 159 does not affect any existing accounting literature that requires certain assets and liabilities to be carried at fair value. SFAS No. 159 is effective at the beginning of fiscal years beginning after November 15, 2007. The Company’s adoption of SFAS No. 159 did not have a material impact on its 2008 consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141R, “Business Combinations,” which establishes principles for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired and liabilities assumed in a business combination, recognizes and measures the goodwill acquired in a business combination, and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of a business combination. The Company is required to apply this Statement prospectively to business combinations for which the acquisition date is on or after January 1, 2009. The Company is in the process of evaluating the impact of SFAS No. 141R on its 2009 consolidated financial statements.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements”. SFAS No. 160 requires noncontrolling ownership interests (previously referred to as minority interests) to be treated as a separate component of equity, not as a liability or other item outside of permanent equity. In addition, it requires that the amount of consolidated net income attributable to the parent and to the noncontrolling interest be clearly identified and presented on the face of the statement of operations. SFAS No. 160 is effective for all periods beginning after December 15, 2008. The Company’s adoption of SFAS No. 160 is not expected to have a material impact on its 2009 consolidated financial statements.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities-An Amendment of SFAS No. 133”. The new standard is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. It is effective for all periods beginning after November 15, 2008, with early application encouraged. The Company is in the process of evaluating the impact of adopting SFAS. No. 161 on its 2009 consolidated financial statements.

2. Discontinued Operations

In 2005 and 2006, we disposed of our S&T/Montreal, SatNet, and EMS Wireless divisions, which have been reported as discontinued operations. The sales agreements for each of these disposals contained standard indemnification provisions for various contingencies that could not be resolved before the dates of closing and for various representations and warranties provided by the Company and the purchasers. The Company accrues for a liability related to a contingency, representation or warranty when management considers that the liability is both probable and can be reasonably estimated. Management believes that it is reasonably possible, but not probable, that an additional accrual for these purposes may be made, relating to the repair of certain products manufactured by the Company’s former EMS Wireless divisions. Under the terms of the sales agreement, the Company is potentially liable for up to $1.2 million should the purchaser encounter unanticipated warranty obligations during the first two years after the closing (through November 2008) on products previously sold by EMS Wireless. At present, the Company cannot reasonably estimate the range of this potential liability, or whether such liability would be material. No accrual has been recorded for this potential liability as of March 29, 2008.

As part of the agreement to sell the net assets of S&T/Montreal, the Company released the purchaser from a corporate guarantee, as a result the Company has a $2.2 million liability as of March 29, 2008. This liability represents the Company’s estimated loss under an agreement to acquire a sub-license from the purchaser for $8 million in payments over a seven-year period, which would entitle the Company to receive a portion of the satellite service revenues from a specific market territory over the same period. The purchaser had previously guaranteed

that the revenues derived under the sub-license would equal or exceed the acquisition cost of the sub-license; however, without the guarantee, the Company currently estimates that its portion of the satellite service revenues will be less than the acquisition cost, and the Company has accordingly accrued a net liability.

Discontinued operations had no effect on the Company’s net earnings in the first quarter of 2008, and reported a loss of $568,000 in the first quarter of 2007, which mainly related to expenses to settle various contingent items.

3. Earnings Per Share

Following is a reconciliation of the denominators for basic and diluted earnings per share calculations (in thousands):


	Quarters Ended
	Mar 29		Mar 31
	2008		2007
Basic-weighted average common shares outstanding		15,545		15,295
Dilutive shares using the treasury stock method		223		85

Diluted-weighted average common shares outstanding		15,768		15,380

4. Comprehensive Income

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


	Quarters Ended
	Mar 29		Mar 31
	2008		2007
Net earnings	$	4,160		2,413
Other comprehensive income:
Foreign currency translation adjustment		908		702

Comprehensive income	$	5,068		3,115

5. Trade Accounts Receivable

Trade accounts receivable include the following (in thousands):


	Mar 29			Dec 31
	2008			2007
Amounts billed	$	64,224			62,188
Unbilled revenues under long-term contracts (1)		29,740			24,001
Allowance for doubtful accounts		(1,145	)		(1,104	)

Trade accounts receivable, net	$	92,819			85,085


(1)		Unbilled net sales under long-term contracts are usually billed and collected within one year (except $1.0 million and $2.0 million has been included in long-term assets at March 29, 2008 and December 31, 2007, respectively).

6. Inventories

Inventories include the following (in thousands):


	Mar 29		Dec 31
	2008		2007
Parts and materials	$	20,661		18,864
Work-in-process		2,960		3,733
Finished goods		7,979		6,352

Inventories, net	$	31,600		28,949

7. Interim Segment Disclosures

The Company is organized into three reportable segments: Defense & Space Systems (“D&SS”), LXE and SATCOM. Each segment is separately managed and comprises a range of products and services that share distinct operating characteristics. The Company evaluates each segment primarily upon operating profit.

The D&SS segment manufactures custom-designed, highly engineered hardware for use in space, airborne, and terrestrial applications for communications, radar, surveillance, precision tracking and electronic countermeasures. Orders typically involve development and production schedules that can extend a year or more, and most revenues are recognized under percentage-of-completion accounting. Hardware is sold to prime contractors or systems integrators rather than to end-users.

The LXE segment manufactures mobile terminals and wireless data collection equipment for supply chain execution. 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 SATCOM segment principally 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. SATCOM also derives a portion of its net sales from performance on longer-term development contracts. Net sales on these contracts are accounted for using percentage-of-completion accounting.

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


	Quarters Ended
	Mar 29			Mar 31
	2008			2007
Net sales:
Defense & Space Systems	$	15,462			13,709
LXE		34,210			32,561
SATCOM		25,822			20,304

Total	$	75,494			66,574

Operating income (loss):
Defense & Space Systems	$	564			976
LXE		477			875
SATCOM		3,083			2,561
Corporate		(687	)		(1,334	)

Total	$	3,437			3,078

Net earnings (loss) from continuing operations:
Defense & Space Systems	$	342			565
LXE		242			531
SATCOM		3,364			2,523
Other		—			(46	)
Corporate		212			(693	)

Total	$	4,160			2,880

8. Warranty Liability

The Company generally 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, which is included in other current liabilities on the Company’s consolidated balance sheets. 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 (in thousands):


	Quarters Ended
	Mar 29			Mar 31
	2008			2007
Balance at beginning of the period	$	2,647			2,051
Accruals for warranties issued during the period		1,030			669
Settlements made during the period		(808	)		(589	)

Balance at end of period	$	2,869			2,131

9. Revolving Credit Facilities

On February 29, 2008, the Company entered into a new revolving credit agreement with a syndicate of banks. This new agreement replaced the previous U.S. revolving credit and Canadian revolving credit agreements. Under the new agreement, the Company has $60.0 million total capacity for borrowing in the U.S. and $15.0 million total capacity for borrowing in Canada. The agreement also has a provision permitting an increase in the total borrowing capacity of up to an additional $50.0 million with additional commitments from the current lenders or from new lenders. The existing lenders have no obligation to increase their commitment. The credit agreement provides for borrowings through February 28, 2013 (the Maturity Date), with no principal payments required until maturity. The credit agreement is secured by substantially all of the Company’s tangible and intangible assets, with certain exceptions for real estate that secures existing mortgages and other permitted liens and for certain assets in foreign countries.

Interest will be, at the Company’s option, a function of either the bank’s prime rate or LIBOR. A commitment fee equal to 0.30% per annum of the daily unused credit is payable quarterly. At March 29, 2008, the Company had no borrowings under its revolving credit facility.

The credit agreement includes a financial covenant that establishes a maximum ratio of total funded debt to historical consolidated earnings before interest, taxes, depreciation, and amortization (EBITDA). The credit agreement also establishes a minimum ratio of consolidated EBITDA less capital expenditures and taxes paid to specific fixed charges, primarily interest, scheduled principal payments under all debt agreements and dividends. The credit agreement includes various other covenants that are customary in such borrowings. The agreement also restricts the ability of the Company to declare or pay cash dividends. At March 29, 2008, the Company was in compliance with all the covenants under its credit agreement.

The Company has $6.4 million of standby letters of credit to satisfy performance guarantee requirements under certain customer contracts. While these obligations are not normally called, they could be called by the beneficiaries at any time before the expiration date should we fail to meet certain contractual requirements. The Company has an additional $70,000 of standby letters of credit outstanding under another Canadian bank as a contract performance guarantee. As collateral for these standby letters of credit, the Company has deposited $81,000 at a Canadian bank, which is classified as restricted cash on the Company’s consolidated balance sheet; this cash will become available in the first quarter of 2010 when the underlying letters of credit expire or are settled. After deducting outstanding letters of credit, at March 29, 2008 the Company had $59.3 million available for borrowing in the U.S. and $9.3 million available for borrowing in Canada under the revolving credit agreement.

10. Stock-Based Compensation

The Company has granted non-qualified stock options to key employees and directors under several stock option plans. At March 29, 2008, there were options exercisable under all plans for approximately 599,000 shares of stock, and there were approximately 1,916,000 shares available for future option grants. Upon exercise of an option, the Company’s policy is to issue new shares.

Also from these plans, the Company occasionally makes grants of nonvested stock to selected personnel. These grants are valued on the date of grant at the fair value of the underlying stock. Typically, the only restriction related to these grants is a service condition. The Company expenses the value of a nonvested grant on a straight-line basis over the related service period. During 2008 and 2007, the Company has granted 46,000 nonvested shares to senior executives, of which 7,000 shares were vested as of March 29, 2008.

For all grants of stock options and nonvested shares, the Company recognized share-based, pre-tax charges to income in the first quarter of $387,000 in 2008 and $278,000 in 2007, respectively. The related tax benefits for the first quarter were $66,000 in 2008 and $70,000 in 2007, respectively.

11. Income Taxes

The Company adopted the provisions of FASB Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109” on January 1, 2007. FIN 48 prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return, and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. As a result of the adoption of FIN 48, the Company recognized no material adjustment in the liability for unrecognized income tax benefits. The Company had $2,802,000 of unrecognized tax benefits at March 29, 2008, of which $2,340,000 would affect the Company’s effective tax rate if recognized.

The Company’s policy is to recognize interest and penalties related to uncertain tax positions in income tax expense. As of March 29, 2008, the Company had approximately $121,500 of accrued interest related to uncertain tax positions.

The Company or one of its subsidiaries files income tax returns in the U.S. Federal jurisdiction, and various states and foreign jurisdictions. The Company is generally no longer subject to U.S. Federal, state and local, or non-US income tax examination by tax authorities for years before 2002.

12. Fair Value of Financial Instruments

The Company adopted SFAS No. 157, “Fair Value Measurements,” for financial assets and liabilities on January 1, 2008. SFAS No. 157 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, SFAS No. 157 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

	•		Level 1 — Observable inputs such as quoted prices in active market;

	•		Level 2 — Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

	•		Level 3 — Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring basis at March 29, 2008 consistent with the fair value hierarchy provisions of SFAS No. 157:

Fair Value Measurements at Reporting Date Using

Assets (Liabilities)

Quoted Prices

Significant

in Active

Other

Significant

Markets for

Observable

Unobservable

Identical Assets

Inputs

Carrying

(in thousands)

(Level 1)

(Level 2)

(Level 3)

Value

Cash equivalents

94,614

—

94,614

Foreign currency forward contracts

(648

)

—

(648

)

Cash equivalents include investments in government obligations money-market fund, in other money market instruments, and in interest-bearing deposits with initial or remaining terms of three months or less. The fair value of cash equivalents approximates its carrying value due to the short-term nature of the instruments.

The Company uses derivative financial instruments in the form of foreign currency forward contracts in order to mitigate the risks associated with currency fluctuations on future cash flows. The Company’s policy is to execute such instruments with creditworthy financial institutions and does not enter into derivative contracts for speculative purposes. The fair value of foreign currency forward contracts is based on quoted market prices and is recorded in other current liabilities on the Company’s consolidated balance sheet.

These assets and liabilities can be liquidated without restriction.

13. Litigation

The Company is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.

14. Acquisition

On February 8, 2008, the Company completed the acquisition of Akerstroms Trux AB (“Trux”), of Bjorbo, Sweden. Trux manufactures and markets vehicle-mount computing solutions for warehousing and production environments in the Nordic region. The total purchase price was $15.1 million, of which $12.0 million was paid at closing and $3.1 million of cash was deposited in escrow through an escrow agent which is payable to the seller fourteen months following the date of acquisition, barring no claims against the seller. The total purchase price is subject to adjustment upon finalizing the closing balance sheet.

The purchase price was allocated to the underlying assets and liabilities based on their estimated fair values.
Approximately $3.8 million of the cost to acquire Trux was allocated to intangible assets, and $11.5 million was allocated to goodwill. These allocations are preliminary and subject to change as better information is obtained by the Company.

Trux is now an operating entity of the Company’s LXE segment, and is being included in the Company’s results of operations from the acquisition date. No pro forma financial statements have been included, as this acquisition is not significant to the Company’s consolidated financial statements.

ITEM 2. Management ‘ s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with the Company’s consolidated financial statements and related notes included in Item 1 of Part 1 of this quarterly report and the audited consolidated financial statements and notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2007.

We are a leading innovator in the design, manufacture, and marketing of wireless communications solutions and address the markets for enterprise mobility, communications-on-the-move and in-flight connectivity markets for both commercial and government end-users. We focus on the needs of the mobile information user and the increasing demand for wireless broadband communications. Our products enable communications across a variety of coverage areas, ranging from global to regional to within a single facility. Our continuing operations include the following three segments:

	•		Defense & Space Systems (“D&SS”) — Highly engineered hardware for satellites and defense electronics applications;

	•		LXE — Rugged mobile computer terminals and related equipment for wireless local area networks; and

	•		SATCOM — Satellite communications antennas and terminals for aircraft and ground-based vehicles, and satellite ground stations for search and rescue operations.

Following is a summary of significant factors affecting the Company in the first quarter of 2008:

For continuing operations:

	•		Consolidated net sales increased by 13.4% to $75.5 million mainly due to the strong growth in net sales reported by our SATCOM and D&SS segments.

	•		Operating income was 11.7% higher for the first quarter of 2008 as compared with 2007 mainly due to the continued high profitability in our SATCOM segment and lower corporate expenses.

For discontinued operations:

•

The financial results for discontinued operations reflect the resolution of various contingencies under the asset-sale agreements, and discontinued operations had no effect on the 2008 first quarter results.

Description of Net Sales, Costs and Expenses

Net sales

The amount of net sales is the most significant factor affecting our operating income in a period. We recognize product-related net sales under most of our customer agreements when we ship units or complete the installation of our products. If multiple deliverables are involved or included software is not incidental to a product as a whole (both mainly experienced at SATCOM), we recognize revenue in accordance with Financial Accounting Standards Board (“FASB”) Emerging Issues Task Force (“EITF”) Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables,” or Statement of Position No. 97-2, “Software Revenue Recognition,” as applicable. If the customer agreement is in the form of a construction contract (mainly at D&SS and to a lesser degree at SATCOM), we recognize revenue under the percentage-of-completion method, using the ratio of cost-incurred-to-date to total-estimated-cost-at-completion as the measure of performance.

We also generate net sales from product-related service contracts and repair services for D&SS, LXE and SATCOM, and engineering services projects for D&SS. We recognize revenue from product-related service contracts ratably over the life of the contract. We recognize revenue from contracts for engineering services using

the percentage-completion method for fixed price contracts, or as costs are incurred for cost-type contracts. We recognize revenue from repair services as services are rendered and extended warranties.

Cost of sales

For our LXE and D&SS products, we conduct most of our manufacturing efforts in our Atlanta-area facilities. We manufacture all SATCOM products at our facility in Ottawa, Canada.

Product cost of sales includes the cost of materials, payroll and benefits for direct and indirect manufacturing labor, engineering and design costs, outside costs such as subcontracts, consulting or travel related to specific contracts, and manufacturing overhead expenses such as depreciation, utilities and facilities maintenance.

We sell a wide range of advanced wireless communications products into markets with varying competitive conditions, and cost of sales, as a percentage of net sales, varies with each product. Consequently, the mix of products sold in a given period is a significant factor affecting our operating income. In recent years, the cost-of-sales percentage has generally been lower for LXE and SATCOM products, as compared with products from D&SS.

The cost-of-sales percentage is principally a function of competitive conditions, but SATCOM is also affected by changes in foreign currency exchange rates. SATCOM derives most of its net sales from contracts denominated in U.S. dollars, but the Canada-based SATCOM segment incurs most of its costs in Canadian dollars. As the U.S. dollar weakens against the Canadian dollar, our reported manufacturing costs may increase relative to our net sales, which increases the cost-of-sales percentage.

Service cost of sales is based on labor and non-labor costs recognized as incurred to fulfill obligations under most of the Company’s service contracts. Cost of sales for long-term engineering services contracts are based on labor and non-labor costs incurred, relative to the estimated cost-to-complete the contractual deliverables.

Selling, general and administrative expenses

Selling, general and administrative (“SG&A”) expenses include salaries, commissions, bonuses and related overhead costs for our personnel engaged in sales, administration, finance, information systems and legal functions. Also included in SG&A are the costs of engaging outside professional services for consultation on legal, accounting, tax and management information system matters, auditing and tax compliance, and general corporate expenditures to other outside suppliers and service providers.

Research and development expenses

Research and development (“R&D”) expenses represent the cost of our development efforts, net of reimbursement under specific customer-funded R&D agreements. R&D expenses include salaries of engineers and technicians and related overhead expenses, the cost of materials utilized in research, and additional engineering or consulting services provided by independent companies. R&D costs are expensed as they are incurred. We also often incur significant development costs to meet the specific requirements of customer contracts in D&SS and SATCOM, and we report these costs in the consolidated statements of operations as cost of sales.

Interest income

Interest income mainly includes interest income from investments in government obligations money-market funds, in other money market instruments, and in interest-bearing deposits.

Interest expense

We incur interest expense principally related to mortgages on certain facilities, and amortize deferred financing costs related to our revolving credit facilities. We do not presently incur interest related to our revolving credit facilities because in February 2006, the Company repaid all of its borrowings under these facilities from the proceeds of a public stock offering.

Foreign exchange gains and losses

We recognize foreign exchange gains and losses, mainly in our SATCOM and LXE segments, related to assets or liabilities that are denominated in a currency different from the local functional currency. For our Canada-based SATCOM segment, most trade receivables relate to contracts denominated in U.S. dollars; when the U.S. dollar weakens against the Canadian dollar, the value of SATCOM’s trade receivables decreases and foreign exchange losses result. For our LXE segment’s international subsidiaries, most trade payables are in U.S. dollars and relate to their purchases of hardware from LXE’s U.S. operations for sale in Europe and Asia; when the U.S. dollar weakens against the Euro or other international currency, the value of the LXE subsidiaries’ trade payables decreases and foreign exchange gains result.

We regularly assess the Company’s exposures to changes in foreign exchange rates and as a result, we enter into forward currency contracts to reduce those exposures. The notional amount of each forward currency contract is based on the amount of exposure for net assets or liabilities subject to changes in foreign currency exchange rates. We record changes in the fair value of these contracts in our consolidated statements of operations.

Income taxes

Typically, the main factor affecting our effective income tax rate each year is the relative proportion of taxable income that we expect to earn in Canada, where the effective rate is lower than in the U.S., or other locations. The lower effective rate in Canada results from certain Canadian tax benefits for research-related expenditures.

Discontinued operations

In 2005 and 2006, we disposed of Space & Technology/Montreal (“S&T/Montreal”), Satellite Networks (“SatNet”), and EMS Wireless, which have been reported as discontinued operations. In 2007, the expenses reported under discontinued operations mainly relate to the resolution of various contingencies, representations or warranties under standard indemnification provisions in the sales agreements. The Company records a liability related to a contingency, representation or warranty when management considers that the liability is both probable and can be reasonably estimated. Management believes that it is reasonably possible, but not probable, that additional accruals for these purposes may be made, in particular, for the cost of repair of certain products manufactured by one of the disposed divisions. At present, the Company cannot reasonably estimate the range of cost for this potential liability or whether such liability would be material. No accrual has been recorded for this potential liability as of March 29, 2008.

Results of Operations


	Quarters Ended
	Mar 29			Mar 31
	2008			2007
Product net sales		84.4	%		84.6	%
Service net sales		15.6			15.4

Net sales		100.0			100.0
Product cost of sales, as a percentage of product net sales		62.2			61.6
Service cost of sales, as a percentage of service net sales		61.1			67.6
Cost of sales		62.0			62.5
Selling, general and administrative expenses		26.8			26.5
Research and development expenses		6.7			6.4

Operating income		4.5			4.6
Interest income		1.3			2.1
Interest expense		(0.5	)		(0.7	)
Foreign exchange gain (loss)		0.1			(0.2	)

Earnings from continuing operations before income taxes		5.4			5.8
Income tax benefit (expense)		0.1			(1.5	)

Earnings from continuing operations		5.5			4.3


Discontinued operations:
Loss from discontinued operations before income taxes		—			(0.9	)
Income tax benefit		—			0.2

Loss from discontinued operations		—			(0.7	)


Net earnings		5.5	%		3.6	%

Three Months ended March 29, 2008 and March 31, 2007:

Net sales increased by 13.4% to $75.5 million from $66.6 million for the first quarter of 2008 as compared with the same period in 2007, as net sales grew in each of the Company’s three segments. The largest quarterly growth was a 27.2% increase in net sales to $25.8 million for the SATCOM segment, mainly due to the continued high level of aeronautical product sales, and revenues generated from the development of the Inmarsat global satellite/GSM phone. D&SS’ quarterly net sales increased by 12.8% mainly due to increased activity on two new commercial satellite programs. Net sales for LXE were slightly higher reflecting growth in net sales from international markets.

Product net sales increased by $7.4 million to $63.7 million in the first quarter of 2008 as compared with the first quarter of 2007. This was mainly due the continued high level of aeronautical product sales, and revenues generated from the development of the Inmarsat global satellite/GSM phone. Service net sales increased by 15.1% to $11.8 million in the first quarter of 2008 as compared with the same period of 2007 mainly due to growth in the SATCOM and LXE service businesses, which supports the increased number of products placed into service. As a percentage of total net sales, both product net sales and service net sales remained relatively unchanged in the first quarter of 2008 as compared with the first quarter of 2007.

Overall cost of sales, as a percentage of consolidated net sales, remained relatively unchanged in the first quarter of 2008 as compared with the same period of 2007. Product cost of sales, as a percentage of its respective net sales, was also relatively unchanged in the first quarter of 2008 as compared with the same period of 2007. Service cost of sales, as a percentage of its respective net sales, decreased in the first quarter of 2008 as compared with the same period of 2007, mainly due to lower repair rates experienced under existing maintenance contracts by LXE.

SG&A, as a percentage of consolidated net sales, was relatively unchanged for the first quarter of 2008 as compared with the first quarter of 2007. Actual expenses increased by $2.6 million mainly due to the effect of changes in foreign exchange rates that increased the reported costs of the international activities of our SATCOM and LXE segments, and sales-related efforts, such as selling and marketing, to support the growth in net sales. SG&A expenses for the first quarter of 2008 also included costs from Akerstroms Trux AB (“Trux”) which was acquired in February 2008 (see Note 14 of the consolidated financial statements), as well as professional fees related to additional U.S. Federal tax credits for prior year qualifying research and development costs which were not included in the first quarter of 2007. These costs were offset somewhat by lower corporate expenses.

R&D expenses increased by $764,000 mainly due to additional internal development programs for new product introductions, and the effect of changes in foreign exchange rates on the reported costs of our SATCOM segment.

Interest income decreased by $368,000 as a result of lower average interest rates earned on the Company’s investment balances.

The Company recognized a 17% effective income tax rate in the first quarter of 2008, excluding the benefit of a $742,000 increase in estimated research and development credits available in the U.S., as compared with 25% in the first quarter of 2007. This estimated effective income tax rate for 2008 is based upon management’s expectations for taxable income associated with various tax jurisdictions for the full year. The decrease is due to a higher expected proportion of profits to be earned in Canada, where we have a much lower effective rate than in the U.S. or other locations, and to a higher expected U.S. Federal tax credit for current year qualifying research and development costs. The lower effective tax rate in Canada is due to research-related tax benefits. The overall effective rate is subject to change during the remainder of the year, as actual results and revised forecasts may change management’s expectations for the taxable income associated with various tax jurisdictions.

Net Sales, Cost of Sales, and Operating Income (Loss) by Segment

Our segment net sales, cost of sales as a percentage of respective segment net sales, and segment operating income (loss) were as follows (in thousands):


							Percentage
							Increase
	Quarters Ended						(Decrease)
	Mar 29			Mar 31			Three
	2008			2007			Months
Net sales:
Defense & Space Systems	$	15,462			13,709			12.8	%
LXE		34,210			32,561			5.1
SATCOM		25,822			20,304			27.2

Total	$	75,494			66,574			13.4	%


Cost-of-sales percentage:
Defense & Space Systems		78.3	%		76.8	%		1.5
LXE		58.6			59.6			(1.0	)
SATCOM		56.5			57.1			(0.6	)
Total		62.0			62.5			(0.5	)

Operating income (loss):
Defense & Space Systems	$	564			976			(42.2	)%
LXE		477			875			(45.5	)
SATCOM		3,083			2,561			20.4
Corporate		(687	)		(1,334	)		(48.5	)

Total	$	3,437			3,078			11.7	%

Defense & Space Systems: Net sales increased by 12.8% for the first quarter of 2008 as compared with the first quarter of 2007 mainly due to activity on two new commercial satellite programs. Strong orders in 2008 for long-term defense contracts resulted in a record backlog totaling $74.1 million at March 29, 2008.

Cost of sales as a percentage of net sales was relatively unchanged in the first quarter of 2008 as compared with the same period of 2007.

LXE: Net sales in the first quarter of 2008 were 5.1% higher than the same period of 2007. The increase in net sales reflects higher net sales in international markets. This increase in international net sales can be attributed to the continued strengthening of international currencies. Net sales in the Americas markets were approximately the same in both periods.

Cost of sales, as a percentage of net sales, were comparable in the first quarter of 2008 and the first quarter of 2007.

SG&A expenses increased by $1.9 million in the first quarter of 2008 as compared with the same period of 2007 primarily due to the effect of changes in foreign exchange rates, and the costs related to Trux which was acquired in February 2008.

SATCOM: Net sales in the first quarter of 2008 increased by 27.2% compared with the first quarter of 2007. This increase was mainly a result of continued strong demand for high-speed-data aeronautical products, and revenues generated from the development of the Inmarsat global satellite/GSM phone.

Cost of sales as a percentage of net sales was relatively unchanged in the first quarter of 2008 as compared with the same period of 2007.

Discontinued Operations

In 2005 and 2006, we disposed of our S&T/Montreal, SatNet, and EMS Wireless divisions, which have been reported as discontinued operations, and their net assets were classified as assets held for sale through their dates of disposition. In 2007, the activity reported under discontinued operations mainly relates to the resolution of various contingencies, representations, or warranties under standard indemnification provisions in the sales agreements. The Company accrues for a liability related to a contingency, representation or warranty when management considers that the liability is both probable and can be reasonably estimated.

Liquidity and Capital Resources

During the first quarter of 2008, net cash and cash equivalents decreased by $12.8 million. Continuing operating activities contributed $5.9 million in positive cash flow mainly due to earnings generated by SATCOM, and an increase in deferred revenue from LXE’s service contract business. This was partially offset by an increase in receivables and inventory balances in the first quarter of 2008. The cash flow generated from operating activities was offset by $15.1 million of cash used in investing activities to acquire Trux in February 2008, and $.8 million of cash was used to pay financing costs for the Company’s new revolving credit agreement.

During the first quarter of 2007, continuing operating activities contributed $9.0 million in positive cash flow mainly due to significant collections received by D&SS, and the net earnings generated by each of the three divisions. This was partially offset by a decrease in payables and an increase in inventory balances in the first quarter of 2007. The $3.0 million of net cash used in operating activities in discontinued operations was mainly for payments of working capital adjustments in accordance with the terms of the sales agreements for our SatNet and EMS Wireless divisions.

On February 29, 2008, the Company entered into a new revolving credit agreement with a syndicate of banks. This new agreement replaced the previous U.S. revolving credit and Canadian revolving credit agreements. Under the new agreement, the Company has $60.0 million total capacity for borrowing in the U.S. and $15.0 million total capacity for borrowing in Canada. The agreement also has a provision permitting an increase in the total borrowing capacity of up to an additional $50.0 million with additional commitments from the current lenders or from new lenders. The existing lenders have no obligation to increase their commitment. The credit agreement provides for borrowings through February 28, 2013, with no principal payments required prior to that date. The credit agreement is secured by substantially all of the Company’s tangible and intangible assets, with certain exceptions for real estate that secures existing mortgages and other permitted liens and for certain assets in foreign countries.

At March 29, 2008, the Company had a $60 million maximum borrowing capacity in the U.S. and a $15 million maximum borrowing capacity in Canada under its revolving credit facility, and no borrowings were outstanding. The Company had $6.4 million of outstanding letters of credit at the end of the first quarter of 2008, and the net total available for borrowing under this revolving credit facility was $68.6 million.

The Company expects that capital expenditures in 2008 will range from $15.0 million to $17.0 million. These expenditures will be used to purchase equipment that increases or enhances capacity and productivity.

Management believes that existing cash and cash equivalent balances, cash provided from operations, and borrowings available under its credit agreement will provide sufficient liquidity to meet the operating and capital expenditure needs for existing operations during the next 12 months. On February 8, 2008, the Company used $15.1 million of cash to acquire Trux. Additional information on this acquisition is contained in Note 14 of the Company’s consolidated financial statements.

Off-Balance Sheet Arrangements

The Company has $6.4 million of standby letters of credit outstanding under its revolving credit facility to satisfy performance guarantee requirements under certain customer contracts. While these obligations are not normally called, they could be called by the beneficiaries at any time before the expiration date, if we fail to meet certain contractual requirements. The Company has an additional $70,000 of standby letters of credit outstanding under another Canadian bank as a contract performance guarantee. As collateral for these standby letters of credit, the Company has deposited $81,000 at a Canadian bank, which is classified as restricted cash on the Company’s consolidated balance sheet. This cash will become available to the Company in the first quarter of 2010 when the underlying letters of credit expire or are settled. After deducting the outstanding letters of credit, at March 29, 2008 the Company had $59.3 million available for borrowing in the U.S. and $9.3 million available for borrowing in Canada under the revolving credit agreement.

On February 8, 2008, the Company completed the acquisition of Trux for a total purchase price of $15.1 million of cash paid at closing. $3.1 million of which was deposited in escrow through an escrow agent and is payable to the seller fourteen months following the date of acquisition, barring no claims against the seller.

The sales agreements for the disposal of the S&T/Montreal, SatNet, and EMS Wireless divisions contain standard indemnification provisions for various contingencies that could not be resolved before the dates of closing and for various representations and warranties by the Company and the purchasers. The Company accrues for a liability related to a contingency, representation or warranty when management considers that the liability is both probable and can be reasonably estimated.

Commitments and Contractual Obligations

As of March 29, 2008, the Company’s material contractual cash commitments and material other commercial commitments have not changed significantly from those disclosed in the Annual Report on Form 10-K for the year ended December 31, 2007.

Critical Accounting Policies

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

Revenue recognition on long-term contracts

Revenue recognition for fixed-price, construction contracts is a critical accounting policy involving significant management estimates by D&SS and SATCOM. Construction contracts use the ratio of cost-incurred-to-date to total-estimated-cost-at-completion as the measure of performance that determines how much revenue should be recognized (“percentage-of-completion” method of accounting). Cost incurred and estimates of cost to complete include overhead expenses, which are applied at a budgeted rate; the budgeted overhead rate has historically been closely comparable with the periodic actual overhead rate, but any budget-versus-actual rate variance during an accounting period is expensed in that period, with no effect on revenues recognized.

The determination of total estimated cost relies on engineering estimates of the cost to complete the contract, with allowances for identifiable risks and uncertainties. If changes in engineering estimates result in an expected cost overrun (i.e., the estimated cost to complete exceeds the revenue to be recognized on the remainder of the contract), then revenue recognized-to-date will be adjusted downward, so that the revenue to be recognized on the remainder of the contract will equal the estimated cost to complete. 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.

Billings under a long-term contract are often subject to the accomplishment of contractual milestones or specified billing arrangements that are not directly related to the rate of costs being incurred under a contract. As a result, revenue recognized under percentage-of-completion for any particular period may vary from billings for the same period. At March 29, 2008, the Company had recognized a cumulative total of $30.7 million in revenues from continuing operations under percentage-of-completion accounting, but which revenues were unbilled as of that date due to the billing milestones specified in the respective customer contracts.

Net sales under cost-reimbursement contracts in D&SS are recorded as costs are incurred and include an estimate of fees earned under specific contract terms. Costs incurred include overhead, which is applied at rates approved by the customer. Fixed fees are earned ratably over the life of a contract. Incentive fees are based upon achievement of objective criteria for technical product performance or delivery milestones, although such fees may also be based upon subjective criteria (for example, the customer’s qualitative assessment of the Company’s project management). In all cases related to incentive fee arrangements, the Company does not record revenue until the fee has been earned under the terms of the contract.

Net sales under all other contracts are recognized when units are shipped or services are performed, unless multiple deliverables are involved or included software is more than incidental to a product as a whole (mainly experienced at SATCOM), in which case we recognize revenue in accordance with either FASB EITF Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables,” or Statement of Position No. 97-2, “Software Revenue Recognition” as applicable. Net sales do not include sales tax collected.

Inventory valuation

Management assesses the value of inventory based upon an analysis of the aging of the inventory and assumptions that management develops concerning how the value of inventory for specific products, markets or applications may decrease over time. Inventory write-downs are accounted for as adjustments to the related inventory’s cost basis, and reserves are reduced only upon subsequent sale, disposal or usage of the inventory, rather than upon any subsequent improvement in the inventory aging.

Evaluation of long-lived assets for impairment

All long-lived assets on the consolidated balance sheet are periodically reviewed for impairment. If an indication of impairment arises, we test recoverability by estimating the cash flows expected to result from the long-lived assets under several different scenarios, including the potential sale of assets, as well as continued holding of the assets under several different kinds of business conditions.

Evaluation of contingencies related to discontinued operations

In 2005 and 2006, we disposed of S&T/Montreal, SatNet, and EMS Wireless, all of which have been reported as discontinued operations. In 2007, the expenses reported under discontinued operations mainly relate to the resolution of various contingencies, representations or warranties under standard indemnification provisions in the sales agreements. The Company records a liability related to a contingency, representation or warranty when management considers that the liability is both probable and can be reasonably estimated. As of March 29, 2008, we had accrued amounts related to the expected resolution of the dispositions of discontinued operations that could vary from the actual amounts. The most significant accrued cost is a $2.2 million liability for the estimated loss under a sub-license agreement with the purchaser of S&T/Montreal which, as part of the sales agreement, we released from a corporate guarantee that previously protected us against such loss.

Management believes that it is reasonably possible, but not probable, that an additional accrual may be made, relating to the repair of certain products manufactured by the Company’s former EMS Wireless division. Under the terms of the sales agreement for this division, the Company is potentially liable for up to $1.2 million should the purchaser encounter unanticipated warranty obligations during the first two years after the closing (through November 2008) on products previously sold by EMS Wireless. At present, the Company cannot reasonably estimate the range of this potential liability, or whether such liability would be material. No accrual has been recorded for this potential liability as of March 29, 2008.

Establishment of valuation allowance for deferred income tax assets

It had been management’s expectation until 2005 that our Canadian operations would generate enough research-related tax benefits each year to offset any Canadian federal tax liability for any given year. We had a valuation allowance for substantially all the net deferred tax assets associated with these research-related tax benefits (totaling approximately $40.8 million at the beginning of 2005), because the extent to which these deferred income tax assets were to be realized in the future was not more likely than not.

With the disposal of unprofitable operations beginning in 2005 and the profitability of continuing operations in Canada, the Company reassessed the valuation of its research-related deferred tax assets in Canada. The Company concluded in both 2005 and 2006 that future pre-tax profitability in Canada was expected to increase, and qualified research in Canada was expected to decrease. As a result of these factors, the Company expected to utilize at least a portion of its research-related deferred tax assets, and, therefore, the valuation allowance for deferred tax assets was reduced by $1.7 million and $400,000 in 2006 and 2005, respectively. The Company did not further reduce the valuation allowance in 2007 or in the first quarter of 2008 because of legislation enacted in 2007 to harmonize the tax regimes of the province of Ontario and the Canadian federal government, and the resulting uncertainty caused by harmonization regarding the future availability of certain deferred tax assets. The valuation allowance for Canadian deferred tax assets may be reduced in the future — resulting in an income tax benefit to future consolidated statements of operations — if the uncertainty regarding the effect of harmonization is favorably resolved, and if profitability expectations for the future continue to increase.

Forward-Looking Statements

The Company has included forward-looking statements in management’s discussion and analysis of financial condition and results of operations. All statements, other than statements of historical fact, included in this report that address activities, events or developments that we expect or anticipate will or may occur in the future, or that necessarily depend upon future events, including such matters as our expectations with respect to future financial performance, future capital expenditures, business strategy, competitive strengths, goals, expansion, market and industry developments and the growth of our businesses and operations, are forward-looking statements. Actual results could differ materially from those suggested in any forward-looking statements as a result of a variety of factors. Such factors include, but are not limited to:

	§		economic conditions in the U.S. and abroad and their effect on capital spending in the Company’s principal markets;

	§		difficulty predicting the timing of receipt of major customer orders, and the effect of customer timing decisions on the Company’s quarterly results;

	§		successful completion of technological development programs by the Company and the effects of technology that may be developed by, and patent rights that may be held or obtained by, competitors;

	§		U.S. defense budget pressures on near-term spending priorities;

	§		uncertainties inherent in the process of converting contract awards into firm contractual orders in the future;

	§		volatility of foreign exchange rates relative to the U.S. dollar and their effect on purchasing power by international customers, and the cost structure of the Company’s non-U.S. operations, as well as the potential for realizing foreign exchange gains and losses associated with non-U.S. assets or liabilities held by the Company;

	§		successful resolution of technical problems, proposed scope changes, or proposed funding changes that may be encountered on contracts;

	§		changes in the Company’s consolidated effective income tax rate caused by the extent to which actual taxable earnings in the U.S., Canada and other taxing jurisdictions may vary from expected taxable earnings;

	§		successful transition of products from development stages to an efficient manufacturing environment;

	§		changes in the rate at which the Company’s products are returned for repair or replacement under warranty;

	§		customer response to new products and services, and general conditions in the Company’s target markets (such as logistics, and space-based communications), and whether these responses and conditions develop according to our expectations;

	§		the success of certain of the Company’s customers in marketing our line of high-speed commercial airline communications products as a complementary offering with their own lines of avionics products;

	§		the availability of financing for our customers’ major programs, such as satellite data communications systems;

	§		development of successful working relationships with local business and government personnel in connection with distribution and manufacture of products in foreign countries;

	§		the demand growth for various mobile and high-speed data communications services;

	§		the Company’s ability to attract and retain qualified personnel, particularly those with key technical skills;

	§		the ability to negotiate successfully with potential acquisition candidates, finance acquisitions, or effectively integrate the acquired businesses, products or technologies into the Company’s existing businesses and products, and the risk that any acquired businesses, products or technologies do not perform as expected, are subject to undisclosed or unanticipated liabilities, or are otherwise dilutive to our earnings;

	§		the potential effects, on cash and results of discontinued operations, of final resolution of potential liabilities under warranties and representations made by the Company, and obligations assumed by purchasers, in connection with the Company’s dispositions of discontinued operations;

	§		the availability, capabilities and performance of suppliers of basic materials, electronic components and sophisticated subsystems on which the Company must rely in order to perform according to contract requirements, or to introduce new products on the desired schedule; and

	§		uncertainties associated with U.S. export controls and the export license process, which restrict the Company’s ability to hold technical discussions with customers, suppliers and internal engineering resources and can reduce the Company’s ability to obtain sales from foreign customers or to perform contracts with the desired level of efficiency or profitability.

Additional information concerning these and other potential risk factors is included in Item 1A. of the Company’s Annual Report on Form 10-K for the year ended December 31, 2007.

Effect of New Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”. This Statement defines fair value, establishes a framework for measuring fair value and requires expanded disclosure about fair value measurements. SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements and accordingly, does not require any new fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and for interim periods within those years. In February 2008, the FASB issued FASB Staff Position (“FSP”) No. 157-1, “Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13” and FSP No. 157-2, “Effective Date of FASB Statement No. 157.” FSP No. 157-1 amends SFAS No. 157 to exclude SFAS No. 13, “Accounting for Leases,” and its related interpretive accounting pronouncements that address leasing transactions. FSP No. 157-2 delays the effective date of SFAS No. 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually) until the beginning of the first quarter of 2009. The Company’s adoption of SFAS No. 157 for financial assets and liabilities on January 1, 2008 did not have a material impact on the Company’s consolidated financial statements. The Company is currently evaluating the impact of SFAS No. 157 for non-financial assets and liabilities on its 2009 consolidated financial statements.

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

As of March 29, 2008, the Company had the following market risk sensitive instrument (in thousands):


Revolving credit loan with a bank in the United Kingdom, matured in April 2008, interest payable monthly at a variable rate (6.25% at the end of the quarter)	$	1,899

Government obligations money-market funds, other money market instruments, and interest-bearing deposits, with maturity dates of less than 3 months, interest payable month at variable rates (an average rate of 2.73% at March 29, 2008)		94,614

A 1% increase in the interest rates of our market risk sensitive instruments would have increased interest expense by $5,000, and increased interest income by $237,000 for the quarter based upon their respective average outstanding balances.

At March 29, 2008, the Company also had intercompany accounts that eliminate in consolidation but that are considered market risk sensitive instruments as follows. These include short-term amounts due to the parent (payable by international subsidiaries arising from purchase of the parent’s products for sale), intercompany sales of products from foreign subsidiaries to a U.S. subsidiary, and cash advances to a foreign subsidiary.


	Exchange Rate	$U.S.
	($U.S. per unit of	in thousands
	local currency)	(reporting currency)
Australia	0.9187 /Dollar	$	1,810
Italy	1.5761 /Euro		1,420
Canada	0.9822 /Dollar		963
France	1.5761 /Euro		835
Germany	1.5761 /Euro		712
Belgium	1.5761 /Euro		290
Netherlands	1.5761 /Euro		153
United Kingdom	1.9892 /Pound		89
Sweden	0.1679 /Krona		(100	)

Total intercompany payable (receivable) subject to foreign currency risk		$	6,172

At March 29, 2008, Company has foreign currency risks associated with forward contracts as follows (in thousands, except average contract rate):


		Average		($U.S.)
	Notional	Contract		Fair
	Amount	Rate		Value
Foreign currency forward contracts
Australian dollars (sell for U.S. dollars)	1,550 AUD		0.8292	$	(107	)
British pounds (buy with Canadian dollars)	1,000 GBP		2.0351		(5	)
Euros (sell for U.S. dollars)	1,250 EURO		1.5401		(46	)
U.S. dollars (sell for Canadian dollars)	23,200 USD		0.9984		(490	)

				$	(648	)

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

ITEM 4. Controls and Procedures

The Company has established and maintains disclosure controls and procedures (as defined in Securities Exchange Act Rules 13a-15e). 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 in this report. Based upon this evaluation, the CEO and CFO have concluded that the Company’s disclosure controls over financial reporting and procedures are adequate to accomplish their objective and are functioning effectively.

During the first quarter of 2008, there were no changes that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting (as defined in Rule 13a – 15(f) under the Exchange Act).

PART II

OTHER INFORMATION

ITEM 1A. Risk Factors

In addition to the other information set forth in this report, carefully consider the factors discussed in Part I, Item 1A Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2007, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

ITEM 6. Exhibits

The following exhibits are filed as part of this report:

3.1 Second Amended and Restated Articles of Incorporation of EMS Technologies, Inc. effective March 22, 1999 (incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended April 3, 2004).

3.2 Bylaws of EMS Technologies, Inc., as amended through November 2, 2007. *

4.01 Credit Agreement, dated as of February 29, 2008, among the Company and EMS Technologies Canada, LTD., the lenders from time to time party thereto, and Bank of America as Domestic and Canadian Administrative Agent (incorporated by reference to Exhibit 4.01 to the Company’s Report on Form 8-K dated March 6, 2008).

10.1 Compensation Arrangements with Certain Executive Officers. *

31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *

31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *

32 Certification of the Company’s Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *


*		Filed herewith

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


EMS TECHNOLOGIES, INC.

By:	/s/ Paul B. Domorski	Date: May 8, 2008
	Paul B. Domorski
	President, Chief Executive Officer and Director
	(Principal Executive Officer)

By:	/s/ Gary B. Shell	Date: May 8, 2008

	Gary B. Shell
	Senior Vice President, Chief Financial
	Officer and Treasurer (Principal Financial Officer)