ELECTROMAGNETIC SCIENCES, INC.
POST OFFICE BOX 7700
NORCROSS, GA 30091-7700
May 14, 1996
Securities and Exchange Commission
Washington, D.C. 20549
Gentlemen:
Pursuant to the requirements of the Securities and Exchange Act of 1934,
we are transmitting herewith the following Form 10-Q for the quarter
ended March 31, 1996.
Sincerely,
ELECTROMAGNETIC SCIENCES, INC.
Gail Fairchild
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, 1996
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 - (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, 1996:
Class Number of Shares
Common Stock, $.10 Par Value 7,466,554
Page 1 of 9, excluding exhibits
FORM 10-Q
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)
Three months ended March 31
1996 1995
Net sales $33,189 32,757
Cost of sales 21,305 20,702
Selling, general and administrative
expenses 7,874 7,511
Research and development expenses 3,170 2,383
Operating income 840 2,161
Interest and other income 292 131
Interest expense (265) (123)
Earnings before income taxes
and LXE minority interest 867 2,169
Income taxes 365 839
LXE minority interest (209) 253
Net earnings $ 711 1,077
Net earnings per common and
common equivalent share $ .10 .15
Weighted average number of common
and common equivalent shares 7,435 7,085
See accompanying notes to interim consolidated financial statements.
FORM 10-Q
ELECTROMAGNETIC SCIENCES, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited)
(In thousands)
March 31 December 31
1996 1995
ASSETS
Current assets:
Cash and cash equivalents $ 7,231 5,766
Trade accounts receivable, net 38,705 40,118
Inventories:
Work in process 5,461 5,701
Parts and materials 10,469 10,128
Total inventories 15,930 15,829
Deferred income taxes 1,363 1,363
Total current assets 63,229 63,076
Property, plant and equipment:
Land 1,150 1,150
Building and leasehold improvements 14,712 14,690
Machinery and equipment 54,769 53,037
Furniture and fixtures 4,190 4,182
Total property, plant
and equipment 74,821 73,059
Less accumulated depreciation and
amortization 45,113 43,794
Net property, plant and equipment 29,708 29,265
Other assets 8,119 7,487
Goodwill, net of accumulated amortization 7,106 5,126
$108,162 104,954
See accompanying notes to consolidated financial statements.
FORM 10-Q
ELECTROMAGNETIC SCIENCES, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited), continued
(In thousands except share data)
March 31 December 31
1996 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $ 2,603 3,546
Accounts payable 12,399 10,369
Accrued compensation costs 4,050 3,402
Accrued retirement costs 866 589
Deferred revenue 1,784 1,296
Other liabilities 1,039 872
Total current liabilities 22,741 20,074
Long-term debt, excluding current
installments 9,370 10,989
Deferred income taxes 4,408 4,408
Total liabilities 36,519 35,471
Minority interest in LXE 5,982 9,274
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 7,467,000 in
1996 and 7,004,000 in 1995 747 700
Additional paid-in capital 15,371 10,681
Foreign currency translation adjustment (13) (17)
Retained earnings 49,556 48,845
Total stockholders' equity 65,661 60,209
$108,162 104,954
See accompanying notes to interim consolidated financial statements.
FORM 10-Q
ELECTROMAGNETIC SCIENCES, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
Three Months Ended March 31
1996 1995
Cash flows from operating activities:
Net earnings $ 711 1,077
Adjustments to reconcile net earnings
to net cash used in operating
activities:
LXE minority interest (209) 253
Depreciation and amortization 1,354 1,223
Goodwill amortization 110 105
Changes in operating assets and
liabilities:
Trade accounts receivable 1,413 (3,210)
Inventories (101) (1,607)
Accounts payable 2,030 (407)
Income taxes 258 (565)
Accrued costs, deferred revenue
and other current liabilities 932 (772)
Other (237) (321)
Net cash provided by (used in)
operating activities 6,261 (4,224)
Cash flows from investing activities:
Purchase of property, plant and
equipment (1,762) (2,337)
Purchase of subsidiary common stock
(note 3) (500) -
Net cash used in investing
activities (2,262) (2,337)
Cash flows from financing activities
(note 3):
Repayment of long-term debt (2,562) (60)
Proceeds from exercise of stock options 28 275
Net cash provided by (used in)
by financing activities (2,534) 215
Net change in cash and
cash equivalents 1,465 (6,346)
Cash and cash equivalents at January 1 5,766 13,071
Cash and cash equivalents at March 31 $ 7,231 6,725
Supplemental disclosure of cash flow
information:
Cash paid for interest $ 265 123
Cash paid for income taxes $ 525 1,354
See accompanying notes to interim consolidated financial statements.
FORM 10-Q
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, 1995.
(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 equivalents shares derived from dilutive stock options. For
purposes of calculating primary earnings per share, the Company's
proportionate share of net earnings of LXE Inc. is 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) Purchase of LXE Inc. Common Stock
On February 11, 1996, the Company increased its ownership of LXE
Inc. from 72% to 81% by purchasing 548,000 shares of the common stock
of LXE Inc. in a private transaction. The purchase price was paid with
a combination of $500,000 of cash and 457,000 newly issued shares of
the Company's common stock. Goodwill, to be amortized over 25 years,
was recognized to the extent that the purchase price of the LXE stock
exceeded the fair value of the additional net assets acquired. The
greater level of ownership will increase the Company's participation in
LXE's future operating results and will enable the Company to
consolidate LXE for corporate income tax purposes.
(4) Accounting for Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board adopted
Statement of Financial Accounting Standards No. 123 (SFAS 123),
"Accounting for Stock-Based Compensation," effective for fiscal years
beginning after December 15, 1995. The Company intends to comply with
the provisions of SFAS 123 in fiscal 1996 by continuing to recognize
compensation cost from stock options under the "intrinsic value"
method, with additional footnote disclosures to be provided, including
the pro forma effects of applying the "fair value" method of SFAS 123.
Based upon this accounting policy, the Company does not expect to
recognize any compensation cost associated with stock options granted
in 1996.
FORM 10-Q
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 first quarter were $33.2 million in 1996
compared with $32.8 million in 1995. This net increase was the result
of continued growth in the Company's advanced communications business
segment, mainly from the markets for space and other wireless
technologies. Sales in this segment increased 23% to $19.0 million in
1996 compared with $15.5 million in 1995. In the Company's wireless
networks and logistics segment, first quarter revenues at the LXE
subsidiary were higher in international markets but lower in the North
American market, resulting in a net decrease in this segment's revenue
to $14.2 million in 1996 compared with $17.3 million in 1995. LXE is
seeking to improve its North American revenues by continuing to expand
its product line to support more industry-standard technology platforms
and systems, and by seeking to form strategic partnerships in new
markets such as health care information management.
Cost of sales, as a percentage of net sales, was not significantly
affected by the change in revenue mix in the first quarter of 1995
compared with 1995. First quarter selling, general and administrative
expenses of $7.9 million were also comparable with the 1995 level of
$7.5 million. Research and development expenses in the first quarter
of 1996 were higher than in 1995 due to efforts to expand the LXE
product line,to complete development of the new CALQUEST aeronautical
terminal for commercial satellite-based communication, and to develop
other new technologies for wireless networks and infrastructure.
Other income for the first quarter of 1996 was higher than in 1995
because of currency translation gains associated with the LXE
subsidiary's European operations. Interest expense has increased with
the LXE subsidiary's higher level of borrowing in 1996 compared with
the first quarter of 1995. The effective income tax rate for the first
quarter of 1996 was 42%, which was comparable with the 39% rate for the
preceding fiscal year.
Liquidity and Capital Resources
Cash provided by operations resulted in an increase in cash and cash
equivalents to $7.2 million at March 31, 1996, from $5.8 million at the
beginning of the year. In addition, the Company reduced long-term debt
by $2.6 million during the quarter. 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 capital investment plans.
FORM 10-Q
ELECTROMAGNETIC SCIENCES, INC.
AND SUBSIDIARIES
PART II
Other Information
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits - The following exhibit is filed as part of this report:
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 March 31, 1996.
FORM 10-Q
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: /s/ Date: 5/14/96
Thomas E. Sharon
President and Chief Executive
Officer
By: /s/ Date: 5/14/96
Don T. Scartz
Senior Vice President and Chief
Financial Officer, Treasurer
FORM 10-Q
ELECTROMAGNETIC SCIENCES, INC.
AND SUBSIDIARIES
Exhibit Index
Page
Exhibit 11.1 Statement re: Computation of Per
Share Earnings 12
Exhibit 27.1 Financial Data Schedule 13
Exhibit 11.1
ELECTROMAGNETIC SCIENCES, INC.
AND SUBSIDIARIES
Statement re: Computation of Per Share Earnings
(In thousands, except per share data)
Three months ended
March 31
1996 1995
Common and common equivalent shares:
Common stock - weighted average shares
outstanding 7,121 6,831
Dilutive effect of outstanding common
stock options (as determined by the
treasury stock method using the
average market price for the period) 314 254
Total common and
common equivalent shares 7,435 7,085
For purposes of calculating primary
earnings per share, the Company's
proportionate share of 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. $1,105 423
Adjusted proportionate share of net
earnings (loss) of LXE Inc. (394) 623
Total net earnings applicable
to earnings per common and
common equivalent share $ 711 1,046
Net earnings per common and common
equivalent share $ .10 .15