August 11, 1995
Securities and Exchange Commission
450 5th Street, N.W.
Washington, D.C. 20549
Gentlemen:
We are transmitting herewith our Form 10-Q/A setting forth the amended
Report on Form 10-Q of Electromagnetic Sciences, Inc. for the quarter
ended June 30, 1995. The amendment sets forth, in the notes to the
financial statements and in the Liquidity and Capital Resources section
of the MD&A, certain revisions in the registrant's categorization of
its assets.
Should you have any questions, please contact Gary Shell at (404) 263-
9200, ext. 4325.
Sincerely,
ELECTROMAGNETIC SCIENCES, INC.
Gail M. Fairchild
Finance Department
<PAGE BREAK>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q/A
(Mark one)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
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 of 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 July 27, 1995:
Class Number of Shares
Common Stock, $.10 Par Value 6,982,900
2
Index
Page No.
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Earnings -
Three Months and Six Months Ended
June 30, 1995 and 1994 3
Consolidated Balance Sheets - June 30,
1995 and December 31, 1994 4-5
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1995 and 1994 6
Notes to Interim Consolidated Financial
Statements 7-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security
Holders 11
Item 6. Exhibits and Reports on Form 8-K 11
3
PART I.
FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Statements of Earnings (Unaudited)
(In thousands, except net earnings per share data)
Three months ended Six months ended
June 30 June 30
1995 1994 1995 1994
Net sales $33,006 27,389 65,763 53,629
Cost of sales 21,122 16,805 41,824 32,883
Selling, general and adminis-
trative expenses 7,290 6,809 14,801 13,379
Research and development expenses 2,269 1,891 4,652 3,909
Operating income 2,325 1,884 4,486 3,458
Interest and other income 311 44 442 76
Interest expense (212) (125) (335) (223)
Earnings before income taxes
and LXE minority interest 2,424 1,803 4,593 3,311
Income taxes 890 815 1,729 1,460
LXE minority interest 240 237 493 435
Net earnings $ 1,294 751 2,371 1,416
Earnings per common and common
equivalent share $ .18 .10 .32 .19
Weighted average number of
common and common equivalent
shares 7,298 7,017 7,196 7,001
See accompanying notes to interim consolidated financial statements.
4
Consolidated Balance Sheets (Unaudited)
(In thousands)
June 30 December 31
1995 1994
ASSETS
Current assets:
Cash and cash equivalents $ 5,473 13,071
Marketable securities 400 400
Trade accounts receivable, net 38,636 36,355
Inventories:
Work in process 6,529 4,905
Parts and materials 8,508 6,809
Total inventories 15,037 11,714
Deferred income tax benefit 992 992
Total current assets 60,538 62,532
Property, plant and equipment:
Land 1,150 1,150
Building and leasehold improvements 13,646 13,626
Machinery and equipment 51,755 47,256
Furniture and fixtures 3,586 3,367
Total cost of property, plant
and equipment 70,137 65,399
Less accumulated depreciation and
amortization 41,439 38,868
Net property, plant and equipment 28,698 26,531
Other assets 6,276 2,142
Goodwill, net of accumulated amortization 5,352 5,546
$100,864 96,751
See accompanying notes to interim consolidated financial statements.
5
Consolidated Balance Sheets (Unaudited), Continued
(In thousands, except share data)
June 30 December 31
1995 1994
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt
and short-term borrowing $ 5,882 3,830
Accounts payable 10,918 10,762
Income taxes - 1,490
Accrued compensation costs 2,953 3,656
Accrued retirement costs 627 1,305
Deferred revenue 1,405 1,147
Other liabilities 1,167 976
Total current liabilities 22,952 23,166
Long-term debt, excluding current
installments 4,272 4,592
Deferred income taxes 3,881 3,881
Total liabilities 31,105 31,639
Minority interest in LXE 9,816 8,681
Stockholders' equity:
Preferred stock of $1.00 par value
per share. Authorized 10,000,000 shares;
none issued or outstanding - -
Common stock of $.10 par value per
share. Authorized 75,000,000 shares;
issued and outstanding 6,959,000 in 1995
and 6,821,000 in 1994 696 682
Additional paid-in capital 10,356 9,329
Foreign currency translation adjustment (15) (115)
Retained earnings 48,906 46,535
Total stockholders' equity 59,943 56,431
$100,864 96,751
See accompanying notes to interim consolidated financial statements.
6
Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
Six Months Ended June 30
1995 1994
Cash flows from operating activities:
Net earnings $ 2,371 1,416
Adjustments to reconcile net earnings
to net cash provided (used in) operating
activities:
LXE minority interest 493 435
Depreciation and amortization 2,765 2,798
Changes in assets and liabilities:
Trade accounts receivable (2,281) (1,110)
Inventories (3,323) 315
Accounts payable 156 (522)
Income taxes (1,023) (54)
Accrued costs and other current
liabilities (932) (466)
Other (492) (165)
Net cash provided by (used in)
operating activities (2,266) 2,647
Cash flows from investing activities:
Purchase of property, plant and equipment (4,738) (2,385)
Net proceeds from sale of marketable
securities - 1,000
Capitalized product software costs and other
market related investments (3,143) -
Net cash used in investing
activities (7,881) (1,385)
Cash flows from financing activities:
Proceeds from short-term borrowing 2,900 -
Proceeds from (repayment of) long-term debt (1,168) 172
Proceeds from exercise of stock
options, net 817 232
Net cash provided by financing
activities 2,549 404
Net change in cash and cash
equivalents (7,598) 1,666
Cash and cash equivalents at January 1 13,071 8,411
Cash and cash equivalents at June 30 5,473 10,077
Supplemental disclosure of cash flow
information:
Cash paid for interest 335 223
Cash paid for income taxes 2,106 1,166
See accompanying notes to interim consolidated financial statements.
7
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. 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.
(3) Other Assets
In the second quarter of 1995, the Company's LXE subsidiary acquired a
minority ownership in a non-public U.S. company. This investment is
valued using the cost method, and is included in other assets in the
accompanying balance sheet.
(4) Capitalization of Software Costs
In 1995, the Company has capitalized $643,000 of certain costs
incurred to develop software which will be licensed to customers.
Capitalized software costs, which are included in other assets,
will be amortized using the greater of the ratio of current gross revenues
for the product to the total of current and anticipated future gross
revenues or the straight-line method over three years.
8
(5) New Accounting Standard
The Company has adopted SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which
was issued in March 1995. No adjustments to the carrying value of recorded
assets were required as a result of adopting SFAS 121.
9
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
Second quarter consolidated net sales increased 20.5% in 1995 to $33.0
million compared with $27.4 million in 1994. The second quarter increase
resulted primarily from higher sales in advanced antennas and space
communications products, which increased 32.4% over the second quarter of
1994. Through the first six months in 1995 consolidated sales are 22.6%
higher than 1994 sales during the same period. All of the Company's
operating units have contributed to 1995 sales growth. In the first six
months of 1995, sales of wireless data communications systems increased
19.0% to $33.8 million compared with $28.4 million in the first half of
1994, mainly due to increased sales through European subsidiaries and
domestic third party channels. Sales of advanced antennas and space
communications products were $32.0 million during the first half of 1995,
representing a 24.3% increase compared with the same period of 1994.
Cost of sales as a percentage of consolidated net sales was 64% in the
second quarter in 1995 and 63.6% in the first six months compared with
61.4% and 61.3%, respectively, in the same periods of 1994. The increase
in the cost of sales percentage reflects a greater proportion of sales of
wireless data communications systems through indirect distribution
channels, which generally have a lower profit margin than direct sales, and
a more competitive pricing environment in that market. Selling, general
and administrative expense in the 1995 interim periods decreased as a
percentage of sales, compared with the same periods in 1994, because fixed
components of these expenses were spread over a larger sales base.
Other income for the interim periods has been higher in 1995 compared with
1994 due to currency translation gains associated with the Company's European
operations.
The effective tax rate for the first half of 1995 was 38% compared
with 41% for the 1994 fiscal year, primarily as a result of a more
favorable tax position for certain foreign operations.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents and marketable securities were $5.9 million
at June 30, 1995, compared with $6.7 million at the beginning of the quarter,
and $13.5 million at the beginning of the year. The change in cash has
resulted from higher accounts receivable due to the timing of sales, higher
inventories to meet shorter customer lead times between order and delivery
of wireless data communications systems, and significant capital and market
related investments in the first half of the year. As a result of the use
of cash in the second quarter, the Company borrowed $2.9 million on an
unsecured line of credit with a commercial bank.
Management believes the Company will generate positive cash flow from
operations during the remainder of 1995, and that existing sources of cash
are sufficient to fund planned capital expenditures.
10
PART II
OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders
The annual meeting of shareholders was held on April 21, 1995. At the
meeting, each of the following individuals was elected to serve as a member
of the Board of Directors during the forthcoming year, by the vote
indicated:
For Withheld Abstain
Anthony J. Iorillo 5,191,711 14,197 45,925
Jerry H. Lassiter 5,194,706 11,202 45,925
John H. Levergood 5,191,711 14,197 45,925
John B. Mowell 5,194,706 11,202 45,925
John E. Pippin 5,194,707 11,201 45,925
Don T. Scartz 5,194,706 11,202 45,925
Thomas E. Sharon 5,194,706 11,202 45,925
There were no broker non-votes.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits - The following exhibits are filed as part of this report:
10.1 Letters dated April 17, 1995 and April 19, 1995 between LXE Inc.
and John J. Farrell, Jr., concerning the terms of his employment
as President of LXE Inc. (incorporated by reference to Exhibit 10.1
to LXE Inc.'s Report on Form 10-Q for the quarter ended June 30,
1995).
11.1 Statement re: Computation of Per Share Earnings
27.1 Financial Data Schedule
(b) Reports on Form 8-K - The Company has not filed any reports on Form 8-K
during the three months ended June 30, 1995.
11
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: Date: 8/3/95
Thomas E. Sharon
President and Chief Executive
Officer
By: Date: 8/3/95
Don T. Scartz
Senior Vice President, Chief
Financial Officer and Treasurer
12
Statement re: Computation of Per Share Earnings
(In thousands, except per share data)
Three months ended Six months ended
June 30 June 30
1995 1994 1995 1994
Common and common equivalent
shares:
Common stock - weighted average
shares outstanding 6,900 6,752 6,870 6,741
Dilutive effect of outstanding
common stock options (as deter-
mined by the treasury stock
method using the average market
price for the period) 398 265 326 260
Total common and common
equivalent shares 7,298 7,017 7,196 7,001
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. Following is
a summary of net earnings
applicable to earnings per
common and common equivalent
share:
Net earnings excluding LXE Inc. $ 717 70 1,140 166
Adjusted proportionate share
of net earnings of LXE Inc. 563 633 1,183 1,156
Total net earnings
applicable to earnings
per common and common
equivalent share $1,280 703 2,323 1,322
Net earnings per common and
common equivalent share $ .18 .10 .32 .19