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: September 30, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-6072
ELECTROMAGNETIC SCIENCES, INC.
(Exact name of registrant as specified in its charter)
Georgia 58-1035424
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
660 Engineering Drive
Norcross, Georgia 30092
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, Including Area Code - (404) 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 November 1, 1994:
6,798,127 shares of Common Stock, $.10 Par Value
2
ELECTROMAGNETIC SCIENCES, INC.
AND SUBSIDIARIES
PART I.
Financial Information
ITEM 1. Financial Statements
Consolidated Statements of Earnings (Unaudited)
(In thousands, except net earnings per share data)
Three months ended Nine months ended
September 30 September 30
1994 1993 1994 1993
Net sales $ 31,076 20,956 84,705 71,065
Cost of sales 19,548 13,849 52,431 44,978
Selling, general and
administrative expenses 6,923 6,579 20,302 19,226
Research and
development expenses 2,100 2,309 6,009 6,150
Operating income (loss) 2,505 (1,781) 5,963 711
Interest and other income 62 76 138 205
Interest expense (120) (109) (343) (333)
Earnings (loss) before
income taxes and
LXE minority interest 2,447 (1,814) 5,758 583
Income tax expense (benefit) 1,009 (663) 2,469 223
LXE minority interest 293 (384) 728 (77)
Net earnings (loss) $ 1,145 (767) 2,561 437
Net earnings (loss) per common
and common equivalent share $ .16 (.11) .35 .06
Weighted average number of
common and common equivalent
shares 7,010 6,710 7,004 6,856
See accompanying notes to interim consolidated financial statements.
3
ELECTROMAGNETIC SCIENCES, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited)
(In thousands)
September 30 December 31
1994 1993
ASSETS
Current assets:
Cash and cash equivalents $ 11,391 8,411
Marketable securities 0 1,590
Trade accounts receivable, net 34,191 29,237
Inventories:
Work in process 3,738 3,547
Parts and materials 7,350 8,932
Total inventories 11,088 12,479
Deferred income tax benefit 1,223 1,079
Total current assets 57,893 52,796
Marketable securities 400 400
Property, plant and equipment:
Land 1,150 1,150
Building and
leasehold improvements 13,540 13,519
Machinery and equipment 46,423 43,188
Furniture and fixtures 3,300 3,052
Total cost of property,
plant and equipment 64,413 60,909
Less accumulated depreciation and
amortization 38,180 34,308
Net property, plant and equipment 26,233 26,601
Other assets 2,183 2,098
Goodwill, net 5,651 5,966
Total assets $ 92,360 87,861
4
ELECTROMAGNETIC SCIENCES, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited), Continued
(In thousands, except share data)
September 30 December 31
1994 1993
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments
of long-term debt 3,846 3,718
Accounts payable 9,197 8,747
Accrued compensation costs 3,693 3,352
Accrued retirement costs 1,234 1,365
Deferred revenue 1,072 1,020
Other current liabilities 1,408 1,439
Total current liabilities 20,450 19,641
Long-term debt, excluding
current installments 4,724 5,060
Other liabilities 50 51
Deferred income taxes 4,506 4,406
Total liabilities 29,730 29,158
Minority interest in LXE 8,116 7,155
Stockholders' equity:
Preferred stock $1.00 par value per
share. Authorized 10,000,000 shares;
none issued or outstanding 0 0
Common stock $.10 par value per share.
Authorized 75,000,000 shares; issued
and outstanding 6,791,000 in 1994 and
6,715,000 in 1993 679 671
Additional paid-in capital 8,976 8,582
Foreign currency
translation adjustment 26 23
Retained earnings 44,833 42,272
Total stockholders' equity 54,514 51,548
Total liabilities and
stockholders' equity $ 92,360 87,861
See accompanying notes to interim consolidated financial statements.
5
ELECTROMAGNETIC SCIENCES, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
Nine Months Ended
September 30
1994 1993
Cash flows from operating activities:
Net earnings $ 2,561 437
Adjustments to reconcile net earnings to
net cash provided by operating activities:
LXE minority interest 728 (77)
Depreciation and amortization 3,990 3,947
Goodwill amortization 315 280
Changes in assets and liabilities:
Trade accounts receivable (4,954) 795
Inventories 1,391 (1,848)
Accounts payable 450 (1,818)
Income taxes 116 (245)
Accrued costs and
other current liabilities 115 (657)
Other 97 (678)
Net cash provided by
operating activities 4,809 136
Cash flows from investing activities:
Purchase of property, plant and equipment (3,683) (4,009)
Purchase of CAL common stock
from minority shareholders 0 (537)
Net proceeds from sale
of marketable securities 1,590 1,416
Net cash used in
investing activities (2,093) (3,130)
Cash flows from financing activities:
Net increase in long-term debt (208) 2,789
Proceeds from exercise
of stock options, net 472 125
Net cash provided by
financing activities 264 2,914
Net change in cash and
cash equivalents 2,980 (80)
Cash and cash equivalents at January 1 8,411 8,267
Cash and cash equivalents at September 30 $ 11,391 8,187
Supplemental disclosure of cash flow information:
Cash paid for interest $ 460 333
Cash paid for income taxes $ 2,453 1,210
See accompanying notes to interim consolidated financial statements.
6
ELECTROMAGNETIC SCIENCES, INC.
AND SUBSIDIARIES
Notes to Interim Consolidated Financial Statements (Unaudited)
(1) Basis of Presentation
The interim consolidated financial statements include the accounts of
Electromagnetic Sciences, Inc. its wholly-owned subsidiary, EMS Technologies,
Inc. and its majority-owned subsidiaries, LXE Inc. and 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. 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, 1994.
(2) Earnings per share
Earnings per common and common equivalent share for the interim periods
were based on the weighted average number of shares outstanding and equivalent
shares derived from dilutive stock options (except for loss periods). For
purposes of calculating primary earnings per share, the Company's proportionate
share of the net earnings of LXE Inc. has been adjusted to reflect the dilutive
effect of LXE's outstanding stock options. Fully diluted earnings per share
are not significantly different from the primary earnings per share presented.
7
ELECTROMAGNETIC SCIENCES, INC.
AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
Consolidated net sales for the quarter and nine months ended September 30,
1994 increased by 48% and 19% respectively, compared with the same interim
periods in 1993. Most of this growth related to one of the Company's
subsidiaries, LXE Inc., which increased its third quarter sales of wireless data
communications systems to $17.0 million in 1994, compared with $7.5 million in
1993; LXE's revenues for the first nine months of 1994 increased to $45.4
million in 1994, compared with $31.4 million for the same period one year
earlier. The favorable comparison of LXE revenues was due in part to lower
third quarter 1993 revenues resulting from shipment delays caused by redesign
and testing of software for a new generation of products. In addition, LXE
has had revenue growth from international markets (particularly through
European subsidiaries) and third-party distribution channels in domestic
markets. Along with LXE's improvement, the Company's EMS Technologies
subsidiary achieved substantial sales increases in 1994 compared with 1993,
mainly due to revenue recognized on space communications and antenna
programs. The Company's CAL subsidiary had breakeven results in the third
quarter of 1994, even though its quarterly and year-to-date revenues were lower
than in 1993 because of the disposal of its defense electronics business
group in late 1993.
Cost of sales and selling, general and administrative expenses, as
percentages of consolidated net sales, decreased during the third quarter and
nine months of 1994 as compared with 1993 primarily due to a higher sales
base in 1994 to absorb fixed costs. Research and development expenditures
through September 30 were lower than in 1993 as a result of the completion
of work in 1993 on LXE's "open systems" wireless data communications products.
The Company's effective tax rate was 41% and 43% for the 1994 third quarter
and first nine months, respectively, compared with approximately 38% for 1993;
the higher effective rate in 1994 related to higher marginal tax rates on
European earnings by LXE and to CAL's year-to-date net operating loss, which
reduced operating income but for which no income tax benefit was recorded.
LIQUIDITY AND CAPITAL RESOURCES
The total of cash, cash equivalents and marketable securities increased to
$11.2 million at September 30, 1994 from $10.4 million at the beginning of the
year. Management believes that the Company will generate sufficient cash from
operations to have positive cash flow in the fourth quarter of 1994.
8
ELECTROMAGNETIC SCIENCES, INC.
AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit - The following exhibit is filed as a part of this report:
11.1 Statement re: Computation of Per Share Earnings
(b) Reports on form 8-K - The Company has not filed any reports on Form 8-K
during the three months ended September 30, 1994.
9
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.
ELECTROMAGNETIC SCIENCES, INC.
By: THOMAS E. SHARON Date: 11/14/94
President and
Chief Executive Officer
By: DON T. SCARTZ Date: 11/14/94
Vice President - Finance
and Treasurer