UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1999
Commission File #0-6072
EMS TECHNOLOGIES, INC.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Georgia 58-1035424
---------------------- -------------------
(State of incorporation) (IRS Employer ID No.)
or organization)
660 Engineering Drive
Norcross, Georgia 30092
--------------------- --------
(Address of principal (Zip Code)
executive offices)
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]
The aggregate market value of voting stock held by persons other than
directors or executive officers on March 23, 2000 was $191.5 million, based
on a closing price of $22.38 per share. The basis of this calculation does
not constitute a determination by the registrant that all of its directors
and executive officers are affiliates as defined in Rule 405.
As of March 10, 2000, the number of shares of the registrant's common stock
outstanding was 8,751,581 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information contained in the Company's 1999 Annual Report to
Shareholders and definitive proxy statement for the 2000 Annual Meeting of
Shareholders of the registrant is incorporated herein by reference in Parts
II, III and IV of this Annual Report on Form 10-K.
PART I
ITEM 1. Business.
GENERAL
SUMMARY
EMS Technologies, Inc. (the "Company") 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 around two reportable business segments: Space
and Technologies, and Wireless Products. Each segment is separately managed
and comprises 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 between
the segments, as well as between the Company's various product lines. The
Company believes that this synergy creates a path for highly advanced
technologies to migrate to products for broader markets.
(1) Space and Technologies
This segment manufactures custom-designed, highly engineered hardware
for use in space and satellite communications, radar, surveillance and
military counter-measures. A major strategic emphasis in this segment
is the development of broadband technologies for use in high-data-rate,
high-capacity satellite communications systems. The Company believes
such systems will have an important role in the future delivery of a
wide range of services, including Internet access, and that these
systems will have technical features that make them competitive with
hard-wired alternatives. Orders in this segment typically involve
long-term contracts with production schedules that can extend a year or
more, and most revenues are recognized under percentage-completion
accounting. Hardware is sold to prime contractors or systems
integrators rather than end-users. The Space and Technologies segment
accounted for 49%, 33% and 37% of consolidated net sales in 1999, 1998
and 1997, respectively.
(2) Wireless Products
The Wireless Products segment manufactures standardized antennas,
terminals, and other wireless network products for use in logistics,
healthcare information management, transportation, PCS/cellular
communications, and satellite communications. 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 who incorporate their products and services
with the Company's hardware for delivery to an end-user. The Wireless
Products segment accounted for 51%, 67% and 63% of consolidated net
sales in 1999, 1998 and 1997, respectively.
The discussion of the Company's business set forth in this Item 1 is
qualified by the materials appearing below under the heading "RISK FACTORS
AND FORWARD-LOOKING STATEMENTS."
BACKGROUND
In its Space and Technologies segment, the Company has developed strong
expertise in components and subsystems. In the mid-1970's, the Company
pioneered the use of electronic beam-forming networks ("BFNs"). A BFN
allows a satellite to electronically adjust its antenna pattern in orbit.
BFN technology was originally used by defense communications satellites to
combat interference from the ground, but it has become important in a wide
range of modern communications satellites. The Company's heritage in BFN
technology has led to the development of "spot-beam" technology that allows
commercial satellites to cover specific areas on the earth's surface; when
coupled with the use of high frequencies such as the Ka band, this spot-
beam technology allows for high-data-rate communications and very high
capacity. The Company also produced the first all-electronic switch matrix
to provide flexible interconnectivity between uplink and downlink channels
in a commercial communications satellite.
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 has long been one of the leading competitors in the Canadian and
international 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.
In the Wireless Products segment, there are three main product lines: (1)
wireless networks, (2) wireless infrastructure, and (3) SATCOM. In the
first of these, the Company has developed wireless local-area computer
networks that provide mobility and real-time data communications. These
products enhance productivity of mobile workers and improve accuracy of
transaction processing operations. The principal market is for material
management functions in warehouses and distribution centers (the
"logistics" market). Another important market relates to automation of
patient care records in the healthcare environment (the "healthcare"
market). More recently, the Company has applied its technologies in route-
accounting and transportation (the "transportation" market), in which
mobile computers are used by delivery and trucking personnel to track sales
and inventory.
The Company's fastest growing wireless product line over the past three
years has been a line of cellular/PCS base station antennas ("wireless
infrastructure"). The leading product in this line (marketed under the
"DualPol" trademark) employs polarization-diversity technology. These
antennas allow cell-site tower structures that are much simpler 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 vertical polarization antennas. The Company also
offers a full line of lower-priced, conventional antennas for both cellular
and PCS networks. These products, along with a family of accessory
products, are marketed to service providers and to original equipment
manufacturers ("OEMs") domestically and internationally.
The Company has also established an industry-leading position in the market
for SATCOM (satellite communications) antennas and terminals. Initially
these products were developed for international search and rescue, in which
satellite technology helps locate downed aircraft or oceangoing ships in
distress. The most successful component of the Company's 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 stabilizer and automatically change position to remain pointed at
a communications satellite during flight; these systems provide voice, data
and video communications via satellite. The Company has recently begun
introducing other SATCOM products, including an airborne antenna system to
deliver multi-channel video to commercial aircraft, a packet-data terminal
to provide messaging/tracking services to over-the-road trucks, and an
antenna for satellite-based monitoring of locomotives.
MARKETS AND PRODUCTS
Space and Technologies Markets.
In the U.S., satellite technology was historically funded by the military
for defense applications. Commercial use was cost-effective only for
specialized high-capacity applications in the telecommunications and
broadcast industries. However, satellite-based voice and data networks are
increasingly being used for a variety of lower-cost, high-volume commercial
applications as a result of improvements in satellite technology. New
commercial applications include mobile telephony and data communications.
Satellites provide a number of advantages over terrestrial facilities for
many high-speed communications service applications:
(1) Satellites enable high-speed communications service where a
terrestrial alternative is not available or is not adequate.
(2) Unlike the cost of terrestrial networks, the cost to provide
services by satellite does not increase with the distance between sending
and receiving stations.
(3) Finally, in contrast to the installation of fiber optic cable,
satellite networks can be rapidly and cost-effectively deployed.
Demand for commercial satellites will be determined by several factors,
including:
(1) growth in demand for new satellite-based applications, such as
mobile communications or data services,
(2) growth in business networking,
(3) growth in direct-to-home television and related voice, video and
data systems,
(4) development of new satellite-based communications architectures to
provide basic telephone and television services in developing regions of
the world, and
(5) replenishment of orbiting satellite constellations nearing the end
of their useful lives.
Several large-scale telecommunications projects are in various stages of
development and implementation. They are contributing to the projected
demand for commercial satellites. Satellite size and weight have a direct
effect on launch cost and capacity. As a result, for these new systems to
be commercially viable, the satellite designs must use systems and
components that are lighter, smaller, and more highly integrated than in
the past.
Proposed system architecture is also affecting the design of ground-based
terminals for future satellite networks. New proposed systems will operate
at high frequencies. Several systems will be based on a constellation of
satellites, each with its own complicated antenna system, to produce
coverage patterns on the earth that are similar to cellular telephone
systems. Because of the high frequencies and small cells used by these new
systems, the ground terminals will be much smaller and more affordable than
their lower-frequency predecessors, and will require smaller antennas with
lower transmitter power. Ground terminals for LEO (low earth orbiting)
systems will also need to include low-cost scanning antennas to track the
satellites as they move overhead, handing-off from one satellite to the
next as the constellation progresses.
Space and Technologies Products.
The Company designs and manufactures innovative satellite communications
products. These products include satellite systems, subsystems and
components that address the need for reliable, high-speed communications
systems. The Company believes that the next generation of commercial
communications satellites will be able to utilize technologies, such as
multiple spot-beam antennas, highly integrated on-board switching, and
advanced hub-and-terminal equipment, in which the Company has significant
experience. The products developed by the Company for Space and
Technologies comprise six main lines:
1. Antenna products
2. Microwave and power products
3. Ferrite products
4. Digital command and control products
5. Optical products, and
6. Broadband products.
- - Antenna Products
For over thirty years, EMS has been providing innovative products for
satellite antennas. The Company has experience in a variety of frequency
ranges, including UHF, S, C, X, Ku, Ka, Q, V and W bands. Employing a wide
variety of technologies and architectures for fixed, mobile and broadcast
applications, the Company's antenna products include:
- shaped reflectors,
- dual aperture shaped reflectors,
- direct radiating arrays,
- steerable antennas,
- omni antennas,
- Gregorian and Cassegrain antennas,
- lens antennas,
- deployable reflectors,
- dual polarized antennas, and
- phased arrays.
EMS is providing or has provided antenna products to such prominent space
programs as Radarsat, TDRSS, MSAT, Inmarsat, International Space Station,
Koreasat, SkyBridge and Anik-B,C,D and E. Currently under development are
antennas systems for the anticipated high-capacity multimedia satellite
systems such as SkyBridge.
- - Microwave and Power Products
Microwave products and subsystems are an instrumental part of many
commercial, defense and space systems. Microwave products control the
microwave communications signals processed in a spacecraft. Microwave
products include low-noise amplifiers, repeaters, transponders, and solid-
state power amplifiers.
Power products provide highly efficient (up to 95%) conditioning of
electric power aboard a spacecraft. In addition to their efficiency, the
Company's power products have low mass, very low noise and are hardened
against the radiation that spacecraft experience at various orbit levels.
The Company is providing or has provided microwave and power products to
such programs as ACeS, Brazilsat, Anik-E, TDRSS, ERS-1, Radarsat,
International Space Station, MSAT, Telstar, Intelsat, Galaxy and Astolink.
- - Ferrite Products
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
requires 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 such programs as
GEOSAT, ENVISAT, TDRS, MILSTAR, and ACTS.
- - Digital Command and Control Products
The Company has a long heritage of supplying space-qualified computers,
controllers and digital signal processors. This equipment is used for
antenna pointing mechanism electronics, payload control, attitude control,
power switching, command decoding, and telemetry gathering. Major space
programs that use the Company's products include Brazilsat, Intelsat IV,
TEDRSS, ERS-1, Radarsat, the Space Shuttle, the International Space
Station, and Anik B and E.
- - Optical Products
The Company has developed optical instruments and components for space
agencies and commercial customers. The Company's latest optical product is
a high-speed star tracker, which uses the position of the stars to provide
attitude control information for stabilizing a satellite's flight. The
Company has provided optical instruments to such programs as WINDII,
Viking, and NASA Image.
- - Broadband Products
The latest Space and Technologies product line is devoted to emerging
broadband, multimedia satellite applications. The Company is developing
products for both the satellite payload and the ground terminal/hub station
elements of future broadband systems. An important element of EMS's
terminal products is the MF-TDMA (multi-frequency time division multiple
access) architecture that the Company has developed to enhance system
capacity. Another key element in the Company's broadband initiative is its
experience in the development of high-frequency (Ka) antenna and beam-
shaping technology that allows for frequency re-use and high capacity.
The Company is currently developing a new broadband application for SES
Astra, Europe's largest provider of direct-to-home satellite broadcast
services. The new system will utilize existing SES satellites, and it will
create the first commercial Ka-band system for high-speed two-way
communications - including Internet access - via satellite. EMS will
supply the up-link system that provides a packet data, "bandwidth-on-
demand" protocol.
Wireless Products and Markets.
The Company's wireless products are focused on the markets for (1) wireless
local area computer networks for logistics and healthcare,
(2) wireless infrastructure, and (3) SATCOM products.
Wireless Local Area Networks.
Markets for Wireless Local Area Networks
Major technological advances and changes in the regulatory environment have
led to the development and proliferation of wireless computer networks that
extend the reach of existing wired networks. Wireless local area networks
(LANs) now accommodate notebook computers, pen-based notepads and handheld
computer terminals. By providing network connectivity for mobile users,
these products increase the accuracy, timeliness and convenience of data
collection and information access. Traditionally, these wireless LAN
systems were developed for operation using narrow band UHF radios at 450
MHz. The current generation of wireless LAN systems typically operate at
900 MHz with data rates in the range of 56-64 Kbps. The next generation of
wireless LAN systems support even higher data rates of 1 Mbps and operate
at 2.4 GHz. Future video transmissions and conferencing systems will
likely use the 5.7 GHz frequency band where transmission rates of up to 25
Mbps are foreseen.
The development of these advanced products has created new applications in
established industrial markets and in vertical markets, such as healthcare.
In healthcare, for example, wireless LANs now allow medical professionals
to access clinical data and input patient charting information at the
point-of-care anywhere in a hospital environment. Data-intensive
applications in markets such as healthcare require robust and scalable
wireless networks that can support an increasing number of applications and
users over time.
Healthcare systems are typically sold by software providers that have the
direct relationship with end-user customers. To enhance its role with the
software providers, the Company provides other hardware and accessories
needed for complete wireless systems.
Wireless Local Area Network Products.
The Company's wireless LANs provide mobility and real-time data
communications to enhance productivity. The Company's wireless LANs have
been installed at more than 5,000 sites world wide, including the
facilities of many Fortune 500 companies and some of the world's largest
materials handling installations, such as distribution centers and
seaports.
The Company's wireless logistics systems, which generally incorporate bar-
code scanning capabilities, are compatible with commonly used customer-
owned computers and can be configured for a variety of applications. A
typical system consists of mobile computer terminals that incorporate
radio transmitters and receivers, a base station that communicates with
these terminals, a controller that provides an interface between the base
station and host computer, and software that manages and facilitates the
communications process.
- - Mobile Computers.
The Company offers several types of mobile computers, all of which utilize
radio frequency technology:
(1) Hand-held mobile computers are small, lightweight and intended to
be carried by people,
(2) Vehicle-mounted mobile computers are larger, heavy-duty products
for use on fork-lifts, cranes and other mobile materials handling
equipment,
(3) A table-top model is used for fixed positions where computer
cabling is not practical, and
(4) Wireless modems provide wireless communication capabilities for
other devices, such as small computers or process controllers.
All mobile computers incorporate built-in radios that operate either in a
licensed, narrow frequency band or in an unlicensed broader, "spread
spectrum" frequency band. The Company's mobile computers incorporate Intel
(registered trademark) processors that allow support for either terminal
emulation or client-server applications.
- - Radio Base Stations and Controllers.
The wireless communications link between the mobile computer terminal and
the host computer or network is completed by a radio base station and
controller. The radio base station and controller may be integrated into a
single unit for smaller systems. A base station converts the radio signals
from a mobile computer terminal to digital signals recognizable by the host
computer, and also converts data from the host computer into radio signals
for transmission to the terminals. Radio base stations can operate
effectively in facilities of many sizes and structural designs.
Controllers provide the critical interface between the radio base station
and the host computer. The Company's controllers provide transparent
connectivity to all widely accepted computer architectures without
modifications of existing applications software and network structure.
Controllers also manage complex transmission traffic with sophisticated
programming algorithms.
- - Other Logistics Products.
In addition to the basic system hardware, the Company offers various
accessories:
(1) Bar code scanners,
(2) Battery chargers,
(3) Portable printers,
(4) Software products for system communications, integrated
applications and terminal emulation, and
(5) Repair and maintenance services.
- - Healthcare Products and Services.
The Company designs and implements wireless networks for healthcare
information applications, which involve integration of its own products
with specialized terminals and radios from other manufacturers. The
Company's leading healthcare product is a mobile clinical workstation. This
mobile computer provides full desktop functionality, a wireless connection
to the host network, and the mobility of an adjustable cart with its own
power supply.
The Company has strategic alliances or VAR (value added reseller)
arrangements with several of the leading healthcare information management
companies that incorporate EMS products in their systems. The Company has
completed wireless LAN installations in a significant number of hospitals
and healthcare facilities.
Wireless Infrastructure
Wireless Infrastructure Market.
National and international infrastructure for wireless communications has
been expanding to support growing worldwide demand. This demand is being
fueled by
(1) decreasing prices for wireless handsets,
(2) a more favorable regulatory environment,
(3) greater competition among service providers, and
(4) more availability of services and RF spectrum.
In addition, certain developing countries are installing wireless telephone
networks as an alternative to installing, expanding or upgrading
traditional hard-wired 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 are also affecting the wireless industry. For
example, the continuing growth of the wireless communications market has
strained the capacity of traditional analog cellular systems that can carry
only one call per channel of radio spectrum. As a result, many service
providers are installing new digital equipment to increase per-channel
capacity by factors ranging from three to eight. In addition, service
providers have begun to construct 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.
Although existing systems have been almost exclusively devoted to the
mobile voice/paging market, several proposed systems would offer high-speed
wireless services to both businesses and consumers as an alternative to
wireline approaches. Initial system applications appear to be in point-to-
multipoint communications, for which several service providers have
licensed spectrum and are conducting field tests. Base station antennas in
point-to-multipoint systems emulate the multiple-beam antennas designed for
space, and TDMA switching technology could be implemented with hardware
very similar to the Company's satellite technologies described previously
in this document.
Wireless Infrastructure Products.
The Company has developed several advanced base station antennas for the
wireless infrastructure market:
- - Dual Polarization Antenna Products.
The Company's "DualPol (trademark)" 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 (trademark)" technology allows the supporting
antenna tower to be much smaller and less expensive than a traditional
cellular/PCS 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 (trademark)" 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
not only benefits the service provider in obtaining site approvals, but
also results in lower 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 (trademark)" antenna combines multiple "DualPol
(trademark)" 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 much smaller, less visually-
obtrusive structure.
- - Vertical Polarization Antenna Products.
The Company's lower-cost vertical polarization antennas apply "beam-
shaping" techniques of amplitude and phase weighting to achieve the most
effective antenna performance for specific applications. The Company's
"OptiFill (trademark)" 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 (trademark)" 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 Company leases a 60,000 square foot facility specifically designed to
allow high-volume production of its wireless infrastructure antenna
product, as well as quick response to customer orders.
SATCOM Products
Market for SATCOM Products.
The first aeronautical systems for telephony utilized a ground-based
network of antennas. 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. The next step in the evolution of
aeronautical telephony was the use of a special antenna aboard the aircraft
that allowed not only voice but limited data and FAX capabilities. With
the need for mobile communications in the business world, aeronautical
SATCOM systems are now commonly used in corporate jets around the world.
SATCOM Products.
The Company's line of SATCOM products include the following:
- - Aeronautical Antennas.
The Company 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
mounted under a small, unobtrusive radome atop an aircraft's tail
stabilizer. The Company believes that this product has the leading market
share in the high-end corporate jet market. The Company has also developed
its "CALQUEST (trademark)" product, which is a complete satellite telephone
system for use over North and Central America on a wide range of turbo-prop
and jet aircraft.
The Company has also developed a steerable antenna system designed to
provide live television to jet aircraft by wireless link to a broadcast
satellite. The system includes a low-profile 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.
The DBS antenna and AMT-50 can be mounted together under a single radome
(designed and supplied by the Company) atop a jet's stabilizer. This
antenna system is part of the full system for delivery of live video
service to aircraft, provided by the Company's industrial partner,
Honeywell.
The latest aeronautical antenna from the Company is used in a multi-channel
video system for commercial aircraft. The video systems include small flat-
panel video screens installed in each seat-back, and they are installed and
marketed by industrial partners. In late 1999, the Company began
delivering these antennas for installation with two startup carriers based
in New York and Dallas. Both airlines have put these systems into
certification testing, and they expect to begin offering regular video
service to customers in the second quarter of 2000.
- - Other SATCOM Products.
The Company is a leading provider of the ground station equipment
associated with satellite-based "search and rescue" systems, including the
local-user terminals that process information received from satellites.
The local-user terminal determines the location of the maritime or aviation
beacons that transmit distress signals to the satellite system, and
typically displays the results for intervention by emergency authorities.
This terminal technology can also be adapted for routine tracking and
management of aviation and maritime fleets.
The Company has also developed SATCOM antennas for use aboard locomotives.
These antennas provide the link for satellite-based remote monitoring
services offered by General Electric Transportation Systems.
The latest SATCOM product to be introduced is a new packet-data terminal
for tracking and two-way communications by over-the-road vehicles in North
and Central America. The terminal's omni antenna, with built-in geo-
positioning system and radio circuitry, is packaged in a small, economical
enclosure weighing less than three pounds. The Company has completed
development, as well as type-testing with the satellite service provider.
The Company is beginning beta testing with value-added resellers, and it
expects to begin commercial production of this product by mid-2000.
SALES AND MARKETING
The Company's sales and marketing strategy varies depending upon the
product line. Due to the technical nature of the Company's products, some
of these sales efforts must be conducted primarily by internal personnel
with a strong engineering background. Particularly in the Space and
Technologies group, many of these personnel have other engineering or
management responsibilities within the Company. The Company also utilizes
independent marketing representatives, both in the U.S. and
internationally. These individuals are selected for their knowledge of the
local market and their ability to provide technical support and ongoing,
direct contact with the Company's current and potential customers.
In Space and Technologies, the development of major business opportunities
often involves significant bid and proposal effort; this work can include
complex 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 expenses. Total
bid and proposal costs were $2.6 million in 1999, $2.5 million in 1998, and
$1.8 million in 1997.
The markets for space and satellite communications comprise a relatively
small number of customers, which are typically well-known large
corporations. The Company's Space and 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. 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 supply relationship.
The Company's sales and marketing strategy for wireless products involves:
(1) direct sales to end users, and
(2) indirect sales through third parties who often incorporate their
products and services with the Company's hardware for delivery to an end-
user. Third parties include:
(a) strategic partners,
(b) value-added re-sellers,
(c) original equipment manufacturers, and
(d) distributors, including representatives in 35 countries.
For wireless infrastructure, sales and marketing are performed by internal
staff plus three regional sales offices in North America. Direct sales of
logistics systems are performed by an internal sales support staff, 20
regional sales persons in North America, and six European subsidiaries. For
healthcare, the Company relies solely on its strategic partners for their
sales efforts, and works closely with them to identify and meet customer
needs and to provide necessary customer support. 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.
BACKLOG
The backlog of consolidated orders at December 31, 1999 was $133 million,
compared with $58 million one year earlier. Wireless Products customers
typically require short delivery cycles, and this segment does not develop
substantial order backlog. However, backlog is very important in the Space
and Technologies segment, due to the long-term nature of that business.
The backlog for Space and Technologies at December 31, 1999 was $112
million, compared with $43 million one year earlier. This increase was
primarily due to the purchase of the Montreal-based operations.
MATERIALS
Materials used in the Company's space and electronics products consist
primarily 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, keypad
assemblies and molded parts needed for the Company's wireless products are
generally available from a variety of sources. Bar code scanners are
included in almost all orders, and a significant number of the scanners are
purchased from Symbol Technologies, Inc., which is also a competitor of the
Company; however, there are alternative suppliers that manufacture and sell
bar code scanners under license agreements with Symbol. The Company
believes that its logistics 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 future 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 application-specific integrated circuitry, and computers
incorporated in wireless network 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
introduction of new terminal products for its wireless networks business,
or its performance on Space and Technologies programs, has been affected by
quality and schedule problems with developers/suppliers of critical
subsystems.
COMPETITION
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, mainly for logistics systems, (3) base
station antennas and other wireless infrastructure products for cellular
and PCS mobile networks, and (4) aeronautical SATCOM communications systems
for voice, telephony and video. 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, and the Company also
competes against smaller, specialized firms.
In the Space and Technologies segment, the Company competes with divisions
of certain large U.S. industrial concerns, such as Raytheon, Hughes, Loral,
M/A-Com, Inc., and Rockwell, as well as non-U.S. companies such as COMDEV
and RACAL. Some of these companies, as well as others, are 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 Wireless Products segment, the Company competes with divisions of
certain large U.S. and international companies, including Allen Telecom and
Ericcson in the wireless infrastructure market, and Unova, Symbol
Technologies, Teklogix Corp. and Telxon Corporation in the logistics
market.
The Company believes that the key competitive factors in both the space and
technology segment and the Wireless Products segment continue to be product
performance, technical expertise and support to customers, adherence to
delivery schedules, and price.
RESEARCH AND DEVELOPMENT
The Company conducts most of its research and development in the Space and
Technologies segment 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.
However, the Company also conducts substantial internally funded research
and development activities. In 1999, 1998 and 1997, the Company spent
$21.8 million, $13.1 million and $9.1 million, respectively, in internally
sponsored research and development.
EMPLOYEES
As of December 31, 1999, the Company and its subsidiaries employed a total
of approximately 1,600 persons. Over 70% of the Company's employees are
directly involved in engineering or manufacturing activities.
RISK FACTORS
The business operations of EMS Technologies involve significant risks and
uncertainties that could adversely affect its financial condition, results
of operations, and future development. In addition to domestic economic
conditions, which can change unexpectedly and affect US businesses
generally, these risks and uncertainties include the following:
- - Competitive Technology Could be Superior.
The markets in which EMS competes 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.
- - Competitors' Marketing Strategies Can Affect Our Results.
EMS operates in competitive markets. Its competitors may pursue aggressive
marketing strategies, such as significant price discounting. These
competitive activities can reduce EMS's sales and profit margins below
expected levels.
- - Major Potential Sales Require that Customers Find Adequate Funding.
Major communications infrastructure programs, such as proposed
constellations of low-earth-orbiting satellites or PCS/cellular systems for
large urban areas, are important sources of our current and planned future
revenues. We also participate in a number of large defense programs.
Programs of this nature cannot proceed unless the customer can raise
adequate funds, from either governmental or private sources. As a result,
our expected revenues can be affected by political developments or by
conditions in private capital markets. They can also be affected by
whether private capital markets are receptive to a customer's proposed
business plans.
- - Public Acceptance of New Communications Systems Affects Purchases
by Our Customers.
Construction and expansion of new communications systems depends 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.
- - We Often Encounter Technical Problems.
Technical difficulties can cause delays and additional costs for EMS. We
are particularly exposed to this risk in product development efforts, and
in fixed-price contracts on technically advanced programs that require
novel approaches and solutions.
- - We May Be Liable For Financial Damages If We Are Unable To Deliver
On A Customer's Schedule.
The Company's products may perform mission-critical functions in space
applications. If the Company experiences technical problems and is 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 the
Company.
- - New Product Transitions Can Be Costly and Disruptive.
Because our businesses involve constant efforts to improve existing
technology, EMS regularly introduces new generations of products. During
these transitions, customers may reduce purchases of older equipment more
rapidly than we expect, 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.
- - Our Products May Unexpectedly Infringe on Third-Party Patents.
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 US Patent Office does not publish
patents that are in process, and its processing typically takes at least
two years and often even longer. Thus, we may be affected by a patent
granted well after EMS has 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 infringement claims or respond to
customer indemnification claims.
- - We Depend on Highly Skilled Employees.
Because our products and programs are technically sophisticated, EMS 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.
- - We Depend on Highly Skilled Suppliers.
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 having
specialized expertise, production skills and economies of scale. In such
cases, 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.
- - The Export License Process for Space Products Has Become Very Uncertain.
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. We experience delays in processing licenses
because the State Department has not yet added staff to handle its
increased workload, and political considerations can also 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 US suppliers.
- - Export Controls on Space Technology Restrict our Ability to Hold
Technical Discussions with Customers, Suppliers and Internal
Engineering Resources.
U.S. export controls severely limit unlicensed technical discussions with
any persons who are not US citizens. As a result, the Company is
restricted in its ability to hold technical discussions between US
personnel and current or prospective non-US customers or suppliers, between
Canadian personnel and current or prospective US customers or suppliers,
and between US employees and non-US (including Canadian) employees. These
restrictions reduce the Company's 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 its US and Canadian space facilities.
- - Conditions in Other Countries Affect Our Revenues.
International sales significantly affect EMS's financial performance.
Economic conditions in customer countries, and exchange rate movements
that affect the local-currency cost of our products, are particularly
important in our wireless local-area network and PCS/cellular
infrastructure businesses.
- - In Some Markets, We Depend on Marketing Relationships with
Other Companies.
In the healthcare, mobile satellite communications, and route accounting
markets, the Company does not have established distribution channels.
Rather, we are seeking to develop marketing relationships with other
companies that have, for example, specialized software and established
customer service systems. EMS's success in these markets will be heavily
affected by whether we can identify and structure effective relationships
with these other companies.
- - The Company's Plan to Acquire Control of NetSat 28 is Subject to
FCC Regulatory Approval.
The Company has signed an agreement to purchase a majority interest in
NetSat 28 Company, LLC, which holds a license from the Federal
Communications Commission to operate a high-capacity Ka-band satellite. As
a result, the Company cannot assume control of NetSat 28 without FCC
approval. The FCC's review process has been extended because several other
parties filed objections with the FCC, primarily based on alleged failures
by NetSat 28 to meet construction milestones included in its license to
operate the proposed satellite. In the meantime, EMS is devoting resources
required to maintain progress in satellite design and construction, and to
develop business plans and financing relationships for the NetSat 28
program. In the event the FCC revokes the NetSat 28 license, or does not
approve EMS's acquisition of control, EMS could be unable to recover much
of this ongoing investment, and could experience a material adverse
financial impact.
- - We May Need To Obtain Substantially More Outside Financing To Support
Our Planned Business Activities.
If the FCC approves the Company's assuming control of NetSat 28 Company
LLC, the Company will need to obtain substantial additional outside
financing to complete the NetSat 28 project. Depending upon market
conditions, the necessary level of financing may not be available to the
Company, or it may be available at a much higher interest rate or with
other less favorable terms than the Company has on its current debt, or at
a higher-than-anticipated cost in terms of equity dilution.
- - The Netsat 28 Business Model Involves Numerous Assumptions About Future
Technical And Market Conditions
If the Company is successful in acquiring a controlling equity interest in
the NetSat 28 program and in obtaining adequate financing to build and
launch the satellite, the revenues and financial returns will depend on
competing technologies and services, and on customer broadband demand and
price sensitivity, in 2003 and later years. Actual conditions at that time
could vary substantially and adversely from those that are assumed for the
purposes of developing and implementing the NetSat 28 program, and in that
case, the program could result in low returns or even substantial losses.
- - EMS's Quarterly Results Are Volatile and Difficult to Predict.
The quarterly earnings contributions of some of our product lines 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.
FORWARD-LOOKING STATEMENTS
The discussions of the Company's business in this Report, and in other
public documents or statements that may from time to time incorporate or
refer to these disclosures, contain various statements that are or may be
deemed to be forward-looking. Forward-looking statements include, but are
not limited to:
(1) statements about what the Company or management believes or
expects,
(2) statements about anticipated technological developments or
anticipated market response to or impact of current or future technological
developments or product offerings,
(3) statements about trends in markets that are served or pursued by
the Company,
(4) statements implying that the Company's technology or products are
well suited for particular emerging markets, 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.
EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning the executive officers of the Company is set forth
below:
Thomas E. Sharon, age 54, became Chairman of the Board in 1998, Chief
Executive Officer in July 1994, and had previously served as President
since 1987. He joined the Company as an engineer in 1971 and later served
as Executive Vice President from 1985 to 1987. He became a Director in
1984. He also serves as a director and officer of each of the Company's
operating subsidiaries.
Alfred G. Hansen, age 66, 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 57, has served as Senior Vice President and Chief
Financial Officer of the Company since 1995; he has also served as
Treasurer since 1981, 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 became a Director of the Company in 1995.
John J. Farrell, age 48, is Senior Vice President of the Company and
President of its Wireless Products Group. He joined the Company in May
1995 as President and Chief Operating Officer of the LXE subsidiary (which
conducts the logistics and healthcare businesses). Previously, he had been
Senior Vice-President and Chief Operating Officer of Oki Telecom Group, a
world-wide supplier of cellular telephones, since 1993. During the three
years prior to 1993, he directed Oki's marketing and sales efforts.
William S. Jacobs, age 53, 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.
Gerald S. Bush, age 43, is Vice President of the Company, and President of
its Space and Technologies Group. He joined the Company in January 1999,
when the Company acquired the Satellite Products business of Spar Aerospace
Limited (Spar) where Mr. Bush had been Vice President and General Manager
since 1998. Mr. Bush joined Spar in 1981 as a structural and thermal
analyst. He served as a program manager until 1995, when he became Director
of Manufacturing for Spar's Satellite Products business, and in 1996 he
became Vice President of Operations for that business.
Paul R. Cox, age 40, has been Vice President and General Manager, Space and
Technologies, Atlanta since 1998. He joined the Company in 1985 as an
engineer, and prior to his current position he was Director, Space Products
until 1997, when he became Vice President, Space Systems.
T. Gerald Hickman, age 59, was appointed in March 2000 to the position of
Vice President and General Manager, EMS Wireless. 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 59, is Vice President and General Manager, SATCOM
Products. He joined the Company in September 1992 as President of an
Ottawa, Ontario based subsidiary engaged in the Company's Space and
Technologies business.
Donald F. Osborne, age 40, is Vice President and General Manager, Space and
Technologies, Montreal, since late 1999. He joined the Company in January
1999, when the Company acquired the Satellite Products business of Spar
Aerospace Limited (Spar) where Mr. Osborne had been Vice President,
Marketing since 1998. Mr. Osborne joined Spar in 1988 as a mechanical
engineer.
ITEM 2. Properties.
The Company's corporate headquarters and its Georgia operations are located
in two buildings owned by the Company (comprising 250,000 square feet of
floor space on 21 acres), as well as in 119,000 square feet of leased
office space (leases to expire prior to 2004) 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, dark rooms
and painting facilities.
The Company's Canadian operations include a 330,000 square foot facility
surrounded by 34 acres of undeveloped land in Montreal. One-fourth of the
facility comprises manufacturing, assembly and laboratory space, including
an advanced near-field and far-field test range area 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 also leases
approximately 63,000 square feet of office and manufacturing space for its
operations located in Ottawa, Ontario; the lease on this facility expires
in 2007.
ITEM 3. Legal Proceedings.
Not Applicable
ITEM 4. Submission of Matters to a Vote of Security Holders.
Not Applicable
PART II
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 10, 2000 there were
approximately 1,000 shareholders of record, and the Company believes that
there were approximately 4,000 beneficial shareholders, based upon broker
requests for distribution of Annual Meeting materials. The price range of
the stock is shown below:
1999 Price Range 1998 Price Range
High Low High Low
---- --- ---- ---
First Quarter $ 17.75 12.31 24.75 17.50
Second Quarter 14.63 11.38 24.38 16.63
Third Quarter 14.38 11.00 21.25 11.13
Fourth Quarter 12.75 7.69 16.25 10.25
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.
ITEM 6. Selected Financial Data.
Information required for this item is incorporated herein by reference to
the Selected Financial Data contained in the Company's 1999 Annual Report
to Shareholders, and is included in Exhibit 13.1.
ITEM 7. Management's Discussion and Analysis of Results of
Operations and Financial Condition
Information required for this item is incorporated herein by reference to
the Selected Financial Data contained in the Company's 1999 Annual Report
to Shareholders, and is included in Exhibit 13.1.
ITEM 7a. Quantitative and Qualitative Disclosures About
Market Risk
At December 31, 1999, the Company had the following market risk sensitive
instruments (in thousands):
Revolving credit loan, maturing in November 2003,
interest payable quarterly at a variable rate
(7.65% at the end of 1999) $ 19,751
Revolving credit loan, maturing in February 2001,
interest payable at a variable rate
(7.0% at the end of 1999) 11,620
------
Total market-sensitive debt $ 31,371
======
At December 31, 1999, the Company also had intercompany accounts that
eliminate in consolidation but that are considered market risk sensitive
instruments:
Short-Term Due to Parent, payable by European
subsidiaries in the following countries and
arising from purchase of the Parent's products
for sale in Europe:
Exchange Rate
($U.S. per unit $U.S. in thousands
of local currency) (Reporting Currency)
------------------ --------------------
Belgium .025 /Franc $ 113
Holland .457 /Guilder 985
Germany .515 /Mark 1,426
Sweden .118 /Krona 44
France .154 /Franc 596
United Kingdom 1.615 /Pound 2,181
------
Total short-term due to parent $ 5,345
======
ITEM 8. Financial Statements and Supplementary Data.
Information required for this item is incorporated herein by reference to
the Consolidated Financial Statements and Notes to Consolidated Financial
Statements contained in the Company's 1999 Annual Report to Shareholders,
and is included in Exhibit 13.1.
ITEM 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
Not applicable.
PART III
ITEM 10. Directors and Executive Officers of the Registrant.
The information concerning directors called for by this Item is contained
in the Company's definitive Proxy Statement for its 2000 Annual Meeting of
Shareholders and is incorporated herein by reference. The information
concerning executive officers called for by this Item is set forth under
the caption "Executive Officers of the Registrant" in Item 1 hereof.
ITEM 11. Executive Compensation.
The information called for by this Item is contained in the Company's
definitive Proxy Statement for its 2000 Annual Meeting of Shareholders and
is incorporated herein by reference.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
The information called for by this Item is contained in the Company's
definitive Proxy Statement for its 2000 Annual Meeting of Shareholders and
is incorporated herein by reference.
ITEM 13. Certain Relationships and Related Transactions.
The information called for by this Item is contained in the Company's
definitive Proxy Statement for its 2000 Annual Meeting of Shareholders and
is incorporated herein by reference.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.
(a)1. Financial Statements
The following consolidated financial statements are contained in the
Company's 1999 Annual Report to Shareholders, and are incorporated herein
by reference to Exhibit 13.1:
Independent Auditors' Report.
Consolidated Statements of Earnings -
Years ended December 31, 1999, 1998 and 1997.
Consolidated Balance Sheets - December 31, 1999 and 1998.
Consolidated Statements of Stockholders' Equity and
Comprehensive Income - Years ended December 31, 1999, 1998 and
1997.
Consolidated Statements of Cash Flows - Years ended December 31,
1999, 1998 and 1997
Notes to Consolidated Financial Statements.
Selected Financial Data.
Management's Discussion and Analysis of Results of Operations and
Financial Condition.
(a)2. Financial Statement Schedules
Independent Auditors' Report
II. Valuation and Qualifying Accounts -
Years ended December 31, 1999, 1998
and 1997
All other schedules are omitted as the required information is
inapplicable, or the information is presented in the financial statements
or related notes.
- ---------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
EMS Technologies, Inc.:
Under date of February 25, 2000, we reported on the consolidated balance
sheets of EMS Technologies, Inc. and subsidiaries as of December 31, 1999
and 1998, and the related consolidated statements of earnings,
stockholders' equity and comprehensive income, and cash flows for each of
the years in the three-year period ended December 31, 1999, as contained in
the 1999 annual report to stockholders. These consolidated financial
statements and our report thereon are incorporated by reference in the
annual report on Form 10-K for the year 1999. 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 use. 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 the related consolidated financial statement
schedule as listed in the accompanying index. 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.
KPMG LLP
Atlanta, Georgia
February 25, 2000
- ---------------------------------------------------------
SCHEDULE II
EMS Technologies, Inc.
Valuation and Qualifying Accounts
(In thousands)
Years ended December 31, 1999, 1998 and 1997
----------------------------------------------------
Additions
Balance at charged to Balance
beginning costs and at end
Classification of year expenses Deductions Other of year
- -------------- ---------- ---------- ---------- ----- -------
Allowance for
Doubtful Accounts:
1997 $ 270 - - - 270
1998 $ 270 40 - - 310
1999 $ 310 - 17 - 293
Reserve for Deferred
Tax Assets:
1997 $ 6,912 - (920)(a) - 5,992
1998 $ 5,992 - (4,664)(a) - 1,328
1999 $ 1,328 1,671(b) - - 2,999
(a) The 1997 change in the reserve for deferred tax assets related to the
net change in the underlying deferred tax assets associated with the
Company's Canadian subsidiary. These deferred tax assets had been fully
reserved when the subsidiary was acquired in 1993 due to uncertainty about
realization. As a result, this change in reserves had no effect on the
Company's 1997 statement of earnings. In 1998, based upon the Canadian
operation's significantly improved profit-ability and management's revised
assessment of the subsidiary's business prospects, the valuation allowance
related to these deferred tax assets was decreased; the resulting benefit
was allocated to goodwill and there was no effect on the Company's 1998
statement of earnings.
(b) The 1999 increase in the reserve 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 1999 statement of earnings.
- ---------------------------------------------------------
(a)3. Exhibits
The following exhibits are filed as part of this report:
2.1 Asset Purchase Agreement, dated December 30, 1998, by and
between Electromagnetic Sciences, Inc. and Spar Aerospace
Limited, including Exhibits 1 and 2 but excluding all Schedules.
(The list of Schedules appears in Section 1.12 of the Agreement;
(i) the registrant hereby agrees to furnish supplementally a
copy of any Schedule to the commission upon its request.)
(incorporated by reference to the Company's Current Report on
Form 8-K dated January 29, 1999.)
2.2 Letter of Amendment to Purchase Agreement, dated January 29,
1999 (incorporated by reference to the Company's Current Report
on Form 8-K dated January 29, 1999).
2.3 Member Interest Purchase Agreement, dated September 30, 1999, by
and among EMS Technologies, Inc., NetSat 28, LLC and NationNet
LLC (incorporated by reference to Exhibit 2.1 on the Company's
Report on Form 10-Q for the quarter ended October 1, 1999).
2.4 Amendment No. 1 dated January 31, 2000, to Member Interest
Purchases Agreement, dated September 30, 1999, by and among EMS
Technologies, Inc., NetSat 28 Company, L.L.C. and Nation Net,
LLC.
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 31, 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, 1995).
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).
10.1 Employment Agreement dated as of January 1, 1989, by and between
the Company and Thomas E. Sharon (incorporated by reference to
Exhibit 10.1 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1997).
10.2 Amendment, dated July 29, 1992, of Employment Agreement
dated as of January 1, 1989, by and between the Company and
Thomas E. Sharon (incorporated by reference to Exhibit 10.2 to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1998).
10.3 Second Amendment, dated November 15, 1994, of Employment
Agreement dated as of January 1, 1989, by and between the
Company and Thomas E. Sharon (incorporated by reference to
Exhibit 10.3 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1994).
10.4 Third Amendment, dated as of August 10, 1998, of Employment
Agreement dated as of January 1, 1989, by and between the
Company and Thomas E. Sharon (incorporated by reference to
Exhibit 10.4 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1998).
10.5 Employment Agreement, dated as of August 10, 1998, by and
between the Company and John J. Farrell, Jr. (incorporated by
reference to Exhibit 10.5 to the Company's Annual Report on Form
10-K for the year ended December 31, 1998).
10.6 Employment Agreement, dated as of August 10, 1998, by and
between the Company and Don T. Scartz(incorporated by reference
to Exhibit 10.6 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1998).
10.7 Letter dated January 17, 2000 between the Company and Alfred G.
Hansen concerning the terms of his employment as President and
Chief Operating Officer.
10.8 EMS Technologies, Inc. Directors' Stock Purchase Plan effective
January 1, 2000.
10.9 1981 Incentive Stock Option Plan, as amended and restated
February 6, 1987, and further amended through March 23, 1989
(incorporated by reference to Exhibit 10.6 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1995).
10.10 Electromagnetic Sciences, Inc. 1986 Non-Qualified Stock Option
Plan, as amended through July 31, 1992 (incorporated by
reference to Exhibit 10.10 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995).
10.11 Electromagnetic Sciences, 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).
10.12 Amendments adopted May 2, 1997, to the Electromagnetic Sciences,
Inc. 1992 Stock Incentive Plan (incorporated by reference to
Exhibit 10.11 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1997).
10.13 EMS Technologies, Inc. 1997 Stock Incentive Plan, as adopted
January 24, 1997, and amended through February 19, 1999.
10.14 Form of Stock Option Agreement evidencing options granted to
executive officers under the EMS Technologies, Inc. 1997 Stock
Incentive Plan (incorporated by reference to Exhibit 10.13 to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1997).
10.15 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.
10.16 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.
10.17 Form of Stock Option Agreement evidencing options granted to
executive officers under the Electromagnetic Sciences, Inc. 1992
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, 1997.)
10.18 Form of Stock Option Agreement dated May 15, 1995, evidencing
option granted to John J. Farrell, Jr. under the 1992 Stock
Incentive Plan (incorporated by reference to Exhibit 10.14 to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1995).
10.19 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 10.15 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1995).
10.20 Form of Stock Option Agreement evidencing option granted
September 26, 1990 to an executive officer under the LXE Inc.
1989 Stock Incentive Plan, and thereafter converted into an
option for a reduced number of shares, at the same aggregate
exercise price, under the Company's 1992 Stock Incentive Plan
(incorporated by reference Exhibit 10.17 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996).
10.21 Form of Stock Option Agreement dated May 15, 1995, evidencing
option granted to John J. Farrell, Jr. under the LXE Inc. 1989
Stock Incentive Plan, and thereafter converted into an option
for a reduced number of shares, at the same aggregate exercise
price, under the Company's 1992 Stock Incentive Plan
(incorporated by reference to Exhibit 10.6 to the LXE Inc.
Annual Report on Form 10-K for the year ended December 31,
1995).
10.22 Stock Option Agreement dated January 7, 2000, evidencing option
granted to Alfred G. Hansen.
10.23 Electromagnetic Sciences, Inc. Executive Annual Incentive
Compensation Plan, as amended through April 30, 1999
(incorporated by reference to Exhibit 10.1 to the Company's
Report on Form 10-Q for the quarter ended July 2, 1999).
10.24 Form of Indemnification Agreement between the Company and its
directors (incorporated by reference to Exhibit 10.24 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1997).
10.25 Form of Indemnification Agreement between the Company and its
Vice President and General Counsel (incorporated by reference to
Exhibit 10.25 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1997).
10.26 Form of split-dollar life insurance agreement between the
Company and certain of its officers (incorporated by reference
to Exhibit 10.7 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1997).
10.27 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).
10.28 Form of note evidencing indebtedness to the Company of its Chief
Executive Officer and certain other executive officers
(incorporated by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended October 2,
1998).
10.29 Letter, dated February 24, 1999, 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 (incorporated by
reference to Exhibit 10.28 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1998).
13.1 Those portions of the Company's 1999 Annual Report to
Shareholders incorporated by reference into this Annual Report
on Form 10-K.
22.1 Subsidiaries of the registrant.
23.1 Independent Public Accountants' (KPMG LLP) Consent to incorporation
by reference in Registration Statements Nos. 2-76455, 2-78442,
2-94049, 33-31216, 33-38829, 33-41042, 33-50528, 333-20843 and
333-32425, each on Form S-8.
23.2 Independent Chartered Accountants' (Ernst and Young LLP) Consent to
incorporation by reference in Registration Statements Nos.
2-76455, 2-78442, 2-94049, 33-31216, 33-38829, 33-41042,
33-50528, 333-20843 and 333-32425, each on Form S-8.
27.1 Financial Data Schedule - 12 months ended December 31, 1999
99.1 Ernst and Young LLP independent chartered accountants' report.
(b). Reports on Form 8-K.
No Reports on Form 8-K were filed by the Company during the quarter ended
December 31, 1999.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
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/ Thomas E. Sharon Date: 3/30/00
------------------------------------- -------
President and Chief Executive Officer
Pursuant to the requirements of the Securities and 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.
By: /s/ Thomas E. Sharon Date: 3/30/2000
-------------------------------------- ---------
Chairman of the Board, Chief Executive Officer
and Director (Principal Executive Officer)
By: /s/ Don T. Scartz Date: 3/30/2000
-------------------------------------- ---------
Don T. Scartz, Senior Vice President and Chief
Financial Officer, Treasurer and Director
(Principal Financial and Accounting Officer)
By: /s/ Alfred G. Hansen Date: 3/30/2000
-------------------------------------- ---------
Alfred G. Hansen, President,
Chief Operating Officer and Director
By: /s/ Jerry H. Lassiter Date: 3/30/2000
-------------------------------------- ---------
Jerry H. Lassiter, Director
By: /s/ John B. Mowell Date: 3/30/2000
-------------------------------------- ---------
John B. Mowell, Director
By: /s/ Norman E. Thagard Date: 3/30/2000
-------------------------------------- ---------
Norman E. Thagard, Director