UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark one)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
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Commission File Number 0-6072
EMS TECHNOLOGIES, INC.
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(Exact name of registrant as specified in its charter)
Georgia 58-1035424
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(State or other jurisdiction of (IRS Employer Identification Number)
incorporation of organization)
660 Engineering Drive
Norcross, Georgia 30092
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(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, Including Area Code - (770) 263-9200
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
--- --
The number of shares outstanding of each of the issuer's classes of
common stock, as of the close of business on May 1, 2000:
Class Number of Shares
---------------------------- ----------------
Common Stock, $.10 Par Value 8,763,428
PART I
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Financial Information
Item 1. Financial Statements
EMS TECHNOLOGIES, INC.
Consolidated Statements of Earnings (Unaudited)
(In thousands, except net earnings per share)
Quarter Ended
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March 31 April 2
2000 1999
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Net sales $62,434 55,193
Cost of sales 41,121 35,511
Selling, general and
administrative expenses 11,607 11,455
Research and development expenses 7,986 4,707
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Operating income 1,720 3,520
Non-operating income (expense), net 182 (11)
Interest expense (898) (554)
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Earnings before income taxes 1,004 2,955
Income tax expense (220) (993)
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Net earnings $ 784 1,962
====== ======
Net earnings per share:
Basic $ .09 .23
Diluted .09 .22
Weighted average number shares:
Common 8,729 8,699
Common and dilutive common equivalent 8,932 9,306
See accompanying notes to interim consolidated financial statements.
EMS TECHNOLOGIES, INC.
Consolidated Balance Sheets (Unaudited)
(In thousands)
March 31 December 31
2000 1999
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ASSETS
- ------
Current assets:
Cash and cash equivalents $ 4,668 4,832
Trade accounts receivable, net 72,002 67,804
Inventories:
Work in process 7,810 6,803
Parts and materials 21,408 21,946
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Total inventories 29,218 28,749
Deferred income taxes 1,020 1,020
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Total current assets 106,908 102,405
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Property, plant and equipment:
Land 3,649 3,667
Buildings and leasehold improvements 21,080 21,077
Machinery and equipment 63,007 59,102
Furniture and fixtures 5,395 7,553
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Total property, plant and equipment 93,131 91,399
Less accumulated depreciation
and amortization 44,405 42,345
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Net property, plant and equipment 48,726 49,054
Investment in limited partnership 13,000 13,000
Deferred income taxes, net 2,409 2,409
Accrued pension asset 2,945 3,084
Other assets 9,609 8,854
Goodwill, net of accumulated amortization 10,892 11,022
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$194,489 189,828
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Accompanying notes to interim consolidated financial statements.
EMS TECHNOLOGIES, INC.
Consolidated Balance Sheets (Unaudited), continued
(In thousands, except share data)
March 31 December 31
2000 1999
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LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Current installments of long-term debt $ 16,901 16,613
Accounts payable 18,083 18,811
Income taxes 218 -
Accrued compensation costs 6,089 6,184
Accrued retirement costs 1,006 594
Accrued post-retirement benefit 2,309 2,309
Deferred revenue 4,320 3,471
Other liabilities 1,583 2,324
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Total current liabilities 50,509 50,306
Long-term debt, excluding
current installments 37,244 33,707
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Total liabilities 87,753 84,013
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Stockholders' 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 8,753,000 in
2000 and 8,706,000 in 1999 875 871
Additional paid-in capital 34,672 34,503
Accumulated other comprehensive loss -
foreign currency translation adjustment (1,874) (1,838)
Retained earnings 73,063 72,279
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Total stockholders' equity 106,736 105,815
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$194,489 189,828
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See accompanying notes to interim consolidated financial statements
EMS TECHNOLOGIES, INC.
Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
Quarter Ended
March 31 April 2
2000 1999
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Cash flows from operating activities:
Net earnings $ 784 1,962
Adjustments to reconcile net earnings
to net cash (used in) provided by
operating activities:
Depreciation and amortization 2,138 2,182
Goodwill amortization 130 130
Deferred income taxes - 566
Changes in operating assets
and liabilities:
Trade accounts receivable (4,198) (441)
Inventories (469) (2,555)
Accounts payable (728) 3,175
Income taxes 218 (566)
Accrued costs, deferred revenue
and other current liabilities 425 (174)
Other (518) 182
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Net cash (used in) provided by
operating activities (2,218) 4,461
Cash flows used in investing activities:
Purchase of property, plant and equipment (1,735) (2,438)
Initial payment for asset acquisition - (6,227)
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Net cash used in investing activities (1,735) (8,665)
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Cash flows from financing activities:
Borrowing of long-term debt 3,825 7,641
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Net change in cash and cash equivalents (128) 3,437
Effect of exchange rates on cash (36) 71
Cash and cash equivalents at
beginning of period 4,832 4,384
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Cash and cash equivalents at
end of period $ 4,668 7,892
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Consolidated Statements of Cash Flows (Unaudited), continued
(In thousands)
Supplemental disclosure of
cash flow information:
Cash paid for interest $ 679 457
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Cash paid for income taxes $ 216 1,059
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Noncash Investing and Financing:
In January 1999, the Company acquired (through its subsidiary, EMS
Technologies Canada, Ltd.) the Space Systems and Products Division of
Spar Aerospace Limited and Spar Holdings, Inc. (a wholly-owned
subsidiary of Spar Aerospace Limited), located near Montreal, Quebec.
The transaction was accounted for as an asset purchase valued at $17.4
million. In 1999, the Company made cash payments to the seller of $6.2
million of the purchase price at closing and $4.2 million in two
installments relating to the deferred portion of the purchase price,
with funds provided under the Company's U.S. revolving credit
agreement. The remaining $7.0 million of the purchase price was
financed by the seller in equal installments that are due, with annual
interest of 5.5%, on December 31, 2000 and 2001. These installments
are payable, at the Company's option, either in cash or equivalent
value of the Company's common stock.
See accompanying notes to interim consolidated financial statements.
EMS TECHNOLOGIES, INC.
Notes to Interim Consolidated Financial Statements (Unaudited)
(1) Basis of Presentation
The interim consolidated financial statements include the accounts of
EMS Technologies, Inc. and its wholly-owned subsidiaries LXE Inc. and
EMS Technologies Canada, Ltd. (formerly known as CAL Corporation)
(collectively, "the Company"). In the opinion of management, the
interim consolidated financial statements reflect all normal and
recurring adjustments necessary for a fair presentation of results for
such periods. Certain balance sheet amounts in 1999 were reclassified
to conform with classifications adopted in 2000. 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, 1999.
(2) Acquisition
In January 1999, the Company acquired (through its subsidiary, EMS
Technologies Canada, Ltd.) the Space Systems and Products Division of
Spar Aerospace Limited, located near Montreal, Quebec, and Spar
Holdings, Inc. (a wholly-owned subsidiary of Spar Aerospace Limited) --
collectively, the Montreal Space Division. The transaction was
accounted for as an asset purchase under the purchase method of
accounting; accordingly, the Company's 1999 consolidated statement of
earnings includes the results of operations of the former Montreal
Space Division only subsequent to the acquisition date. The asset
purchase was valued at $17.4 million, representing the $20.3 million
price per the purchase agreement, as adjusted for approximately
$400,000 of debt owed by the seller and assumed by the Company (which
debt related to Canadian government support for Montreal Space Division
research activities) and for the $2.5 million that the Space Division's
actual working capital at the closing date was less than the working
capital that had been projected in the purchase agreement.
The Company has made cash payments to the seller of $6.2 million of the
purchase price at closing, and a total of $4.2 million for installments
in 1999 relating to the deferred portion of the purchase price, with
funds provided under the Company's U.S. revolving credit agreement.
The remaining $7.0 million of the purchase price is financed by the
seller in equal installments that are due, with annual interest of
5.5%, on December 31 of 2000 and 2001. These installments are payable,
at the Company's option, either in cash or equivalent value of the
Company's common stock.
The sole asset of Spar Holdings, Inc. (now named EMS Holdings, Inc.)
was an equity investment of less than 5% in a limited partnership. The
general partner in this venture is a large, international aerospace
firm. The goal of the investment is to enable the Company to
participate in the development and implementation of a satellite
network that will provide high-data-rate wireless services. In
subsequent negotiations with the general partner concerning the
Company's future scope of work, the Company agreed to invest an
additional $9 million, comprising a $3 million payment in late 1999, a
$3 million payment in May 2000, and a $3 million in-kind contribution
in the form of a specific technological development. After making
these additional investments, the Company's equity stake in the limited
partnership will remain below 5%. The Company does not expect to make
any further cash or in-kind investments. The Company's equity
investment is accounted for at historical cost and has a carrying value
of $13 million at March 31, 2000 and December 31, 1999.
The following schedule (in thousands, except per share data) presents
pro forma consolidated financial data for the 1999 first quarter, as
though the acquisition had occurred at the beginning of that period:
First Quarter Ended
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March 31 April 2
2000 1999
(Actual) (Pro Forma)
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Consolidated Data:
Revenue $ 62,434 59,233
Net income 784 1,567
Earnings per share:
Basic .09 .18
Diluted .09 .18
(3) Earnings per Share
Basic earnings per share is the per share allocation of income
available to common stockholders based only on the weighted average
number of common shares actually outstanding during the period.
Diluted earnings per share represents the per share allocation of
income attributable to common stockholders based on the weighted
average number of common shares actually outstanding plus all dilutive
potential common shares outstanding during the period.
The Company has granted stock options that are potentially dilutive to
basic earnings per share, summarized as follows (shares in thousands):
March 31 April 2
2000 1999
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Dilutive stock options,
included in earnings per
share calculations:
Shares 1,125 241
Average price per share $ 13.31 $ 11.20
Antidilutive stock options,
excluded from earnings per
share calculations:
Shares 263 738
Average price per share $ 23.73 $ 17.24
The Company's earnings per share in any particular period could be
diluted by the effect of the convertible debt issued in the acquisition
of the Montreal Space Division (see note 2), calculated as if the debt
were converted on the first day of the period, with net income adjusted
for interest expense (net of taxes) that would have been avoided if
such conversion had occurred. The convertible debt did not have a
dilutive effect on first quarter earnings in 2000, however it was
dilutive to first quarter earnings in 1999.
Following is a reconciliation of the numerator and denominator for
first quarter basic and diluted earnings per share calculations (in
thousands, except earnings per share data):
Net Common Earnings
Earnings Shares Per
(Numerator) (Denominator) Share
------------- ------------- -----------
2000 1999 2000 1999 2000 1999
---- ---- ---- ---- ---- ----
Basic $ 784 1,962 8,729 8,699 $.09 .23
Common equivalent shares:
From stock options 203 47
From convertible debt - 560
Add: Interest expense on
convertible debt, net
of income taxes - 60
----- ----- ----- -----
Diluted $ 784 2,022 8,932 9,306 $.09 .22
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(4) Comprehensive Income
Beginning in fiscal 1998, the Company adopted SFAS 130, "Reporting
Comprehensive Income," which established standards for the reporting
and display of comprehensive income and its components. Under SFAS 130,
all items that are recognized under accounting standards as components
of comprehensive income must be reported in the financial statements.
The only element of comprehensive income that is applicable to the
Company is the change in the foreign currency translation adjustment.
Following is a summary of comprehensive income (in thousands):
Quarter Ended
March 31 April 2
2000 1999
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Net income $ 784 1,962
Other comprehensive income (loss) -
foreign currency translation adjustment (36) 85
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Comprehensive income $ 748 2,047
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(5) Interim Segment Disclosures
The Company is organized into two reportable segments: Space and
Technologies, and Wireless Products. 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.
Following is a summary of the Company's interim segment data (in
thousands)
First Quarter Ended
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March 31 April 2
2000 1999
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Revenues:
Space and technologies $ 29,365 26,196
Wireless products 33,069 28,997
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Total $ 62,434 55,193
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Operating income
Space and technologies $ 277 1,893
Wireless products 1,443 1,627
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Total $ 1,720 3,520
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Net earnings
Space and technologies $ 216 1,113
Wireless products 735 807
Corporate (167) 42
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Total $ 784 1,962
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Assets:
Space and technologies $103,129 87,399
Wireless products 83,377 85,191
Corporate 7,983 7,449
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Total $194,489 180,039
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Supplemental Information -
Revenue by Product Line:
Space and Technologies $ 29,365 26,196
Wireless Products:
Network Products and
Systems Integration 18,197 21,807
PCS/Cellular Antennas 11,626 4,508
SATCOM 3,246 2,682
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Total Wireless Products 33,069 28,997
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Total Consolidated Revenue $ 62,434 55,193
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ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
- ---------------------
Consolidated net sales for the first quarter were $62.4 million in
2000, compared with $55.2 million in 1999. This growth was
attributable to a net increase in the wireless products segment, in
which the sales increase from PCS/cellular antennas more than offset
the sales decrease related to network products and systems integration.
In addition, in the first quarter of 2000, the space and technologies
segment benefited from three months of revenues for the Montreal
operations, as compared with only two months in 1999 due to the
acquisition of these operations at the end of January 1999.
Cost of sales, as a percentage of consolidated net sales, was 66% for
the first quarter of 2000 and 64% for the first quarter of 1999. The
increase related mainly to network products and systems integration,
which is a product group within the wireless products segment. This
product group experienced a less favorable product mix in 2000 compared
with 1999, as well as a higher proportion of indirect sales, which
generally have a higher cost of sales percentage as compared with
direct sales to end-users.
Selling, general and administrative expenses increased slightly in 2000
compared with 1999. However, these costs did not increase
proportionately with the growth in revenues, and as a percentage of
sales, these costs decreased to 19% in 2000, compared with 21% in 1999.
Research and development expenses represent the cost of the Company's
internally funded efforts. Significant research and development effort
also occurs under many specific customer orders in the space and
technologies segment and, accordingly, is reflected in cost of sales.
The increase in research and development expenses is related to
specific products being developed for new applications in space,
satellite communications, and private local area networks.
Interest expense increased in 2000 compared with 1999 due to the
increased debt levels associated with funding operations in the
Company's Canadian subsidiary.
The effective income tax rate for 2000 was 22%, compared with 28% for
the year 1999. This decrease related to a relatively higher level of
research-related income tax incentives that benefited the Company's
Canadian operations.
Liquidity and Capital Resources
- -------------------------------
The Company used cash in operating activities primarily due to
receivables growth that resulted from higher sales, particularly in
wireless products. However, the cash balance did not change
substantially from the level at the end of 1999 due to additional
borrowing from the Company's lines of credit. Management believes that
the Company's present liquidity, together with cash from operations and
sources of external financing, will support its current business
activities and near-term capital investment plans. However, additional
sources of liquidity will be needed over the next few years if the
Company and its markets continue to grow, and particularly if the
Company completes the acquisition of a controlling interest in NetSat
28 Company, LLC and proceeds with the proposed design, construction and
launch of a geostationary Ka-band satellite for broadband
communications.
Risk Factors and Forward-Looking Statements
- -------------------------------------------
Forward looking statements with respect to expected cash flows and tax
rates are included in management's discussion and analysis of financial
condition and results of operations. Actual results could differ
materially from those suggested in any forward-looking statements as a
result of a variety of factors. Such factors include, but are not
limited to:
- - the Company's ability to achieve product development and
manufacturing objectives within the cost and timing parameters created
by customers and end-users;
- - the timeliness of orders and payments from customers;
- - the availability of funding for major new space programs;
- - the strength and timing of end-user demand for new communications
services, such as broadband services;
- - the effects of technology and communications systems that may be
developed by competitors;
- - the outcome of Federal Communications Commission proceedings in which
several parties have filed opposing motions related to the Company's
proposed control of NetSat 28 Company, LLC; and
- - the Company's ability to achieve expected levels of research efforts
that qualify for tax incentives, and apportionment of pre-tax income
among various tax jurisdictions.
Effect of New Accounting Pronouncement
- --------------------------------------
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting
for Derivative Instruments and Hedging Activities," which requires that
all derivatives be recognized as either assets or liabilities on the
balance sheet and be measured at fair value. In June 1999, SFAS No.
133 was amended by SFAS No. 137, "Accounting for Derivative Instruments
and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133." SFAS No. 137 delays the effective date of SFAS No.
133 until fiscal years beginning after June 15, 2000. The Company will
adopt SFAS No. 133 effective January 1, 2001, but it has not determined
the impact of the statement on its results of operations or financial
position.
PART II
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Other Information
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
At March 31, 2000, 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
(7.83% at the end of the quarter) $ 23,242
Revolving credit loan, maturing in February 2001,
interest payable at a variable rate
(7.45% at the end of the quarter) 12,257
------
Total market-sensitive debt $ 35,499
======
At March 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 .024 /Franc $ 152
France .146 /Franc 568
Germany .489 /Mark 1,225
Netherlands .434 /Guilder 1,518
Sweden .116 /Krona 152
United Kingdom 1.591 /Pound 306
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Total short-term due to parent $ 3,921
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ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits - The following exhibit is 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 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 Exhibit 3.2 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1998).
10.1 Letter dated January 17, 2000 between the Company and Alfred
G. Hansen concerning the terms of his employment as President and Chief
Operating Officer (incorporated by reference to Exhibit 10.7 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1999).
10.2 EMS Technologies, Inc. Directors' Stock Purchase Plan
effective January 1, 2000 (incorporated by reference to Exhibit 10.8 to
the Company's Annual Report on Form 10-K for the year ended December
31, 1999).
10.3 EMS Technologies, Inc. 1997 Stock Incentive Plan, as adopted
January 24, 1997, and amended through April 28, 2000.
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
No reports of Form 8-K were filed during the quarter ended March 31,
2000.
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: 5/15/00
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Thomas E. Sharon
Chairman and Chief Executive
Officer
By: /s/ Don T. Scartz Date: 5/15/00
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Don T. Scartz
Senior Vice President and Chief
Financial Officer, Treasurer