UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- ---- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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 ID 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 bee
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, 1996:
Class Number of Shares
Common Stock, $.10 par Value 7,482,870
<PAGE>
FORM 10-Q
-2-
ELECTROMAGNETIC SCIENCES, INC.
AND SUBSIDIARIES
INDEX
Page No.
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Earnings -
Three Months and Six Months Ended
June 30, 1996 and 1995 3
Consolidated Balance Sheets - June 30,
1996 and December 31, 1995 4-5
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1996 and 1995 6
Notes to Interim Consolidated Financial
Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Part II Other Information
Item 4. Submission of Matters to a Vote of Security
Holders 9
Item 6. Exhibits and Reports on Form 8-K 9
<PAGE>
FORM 10-Q
-3-
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 Six months ended
June 30 June 30
----------------- ----------------
1996 1995 1996 1995
------ ------ ------ ------
Net sales $35,674 33,006 68,863 65,763
Cost of sales 22,662 21,122 44,168 41,824
Selling, general and
administrative expenses 7,802 7,290 15,676 14,801
Research and development
expenses 3,105 2,269 6,074 4,652
------ ------ ------ ------
Operating income 2,105 2,325 2,945 4,486
Interest and other income,
net of foreign exchange
gains and losses (151) 311 141 442
Interest expense (273) (212) (538) (335)
------ ------ ------ ------
Earnings before income
taxes and LXE minority
interest 1,681 2,424 2,548 4,593
Income taxes 681 890 1,046 1,729
LXE minority interest 16 240 (193) 493
------ ------ ------ ------
Net earnings $ 984 1,294 1,695 2,371
====== ====== ====== ======
Net earnings per common and
common equivalent share $ .13 .18 .22 .32
====== ====== ====== ======
Weighted average number
of common and common
equivalent shares 7,808 7,298 7,597 7,196
See accompanying notes to interim consolidated financial statements.
<PAGE>
FORM 10-Q
-4-
ELECTROMAGNETIC SCIENCES, INC.
AND SUBSIDIARIES
Consolidated Balance sheets (Unaudited)
(In thousands)
June 30 December 31
1996 1995
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 7,014 5,766
Trade accounts receivable, net 40,719 40,118
Inventories:
Work in process 5,794 5,701
Parts and materials 10,552 10,128
------- -------
Total inventories 16,346 15,829
------- -------
Deferred income taxes 1,363 1,363
------- -------
Total current assets 65,442 63,076
------- -------
Property, plant and equipment:
Land 1,150 1,150
Building and leasehold improvements 14,714 14,690
Machinery and equipment 56,221 53,037
Furniture and fixtures 4,251 4,182
------- -------
Total property, plant
and equipment 76,336 73,059
Less accumulated depreciation and
amortization 46,500 43,794
------- -------
Net property, plant and
equipment 29,836 29,265
Other assets 8,361 7,487
Goodwill, net of accumulated amortization 6,969 5,126
------- -------
$110,608 104,954
======= =======
See accompanying notes to interim consolidated financial statements.
<PAGE>
FORM 10-Q
-5-
ELECTROMAGNETIC SCIENCES, INC.
AND SUBSIDIARIES
Consolidated Balance sheets (Unaudited)
(In thousands except share data)
June 30 December 31
1996 1995
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $ 3,016 3,546
Accounts payable 11,640 10,369
Accrued compensation costs 3,163 3,402
Accrued retirement costs 683 589
Deferred revenue 2,034 1,296
Other liabilities 1,340 872
------- -------
Total current liabilities 21,876 20,074
Long-term debt, excluding current
installments 11,621 10,989
Deferred income taxes 4,408 4,408
------- -------
Total liabilities 37,905 35,471
------- -------
Minority interest in LXE 6,000 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 7,479,000 in
1996 and 7,004,000 in 1995 748 700
Additional paid-in capital 15,443 10,681
Foreign currency translation adjustment (28) (17)
Retained earnings 50,540 48,845
------- -------
Total stockholders' equity 66,703 60,209
------- -------
$110,608 104,954
======= =======
See accompanying notes to interim consolidated financial statements.
<PAGE>
FORM 10-Q
-6-
ELECTROMAGNETIC SCIENCES, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
Six Months Ended June 30
1996 1995
-------- --------
Cash flow from operating activities:
Net earnings $ 1,695 2,371
Adjustments to reconcile net earnings to
net cash used in operating activities:
LXE minority interest (193) 493
Depreciation and amortization 2,706 2,608
Goodwill amortization 282 157
Changes in operating assets and
liabilities:
Trade accounts receivable (601) (2,281)
Inventories (517) (3,323)
Accounts payable 1,564 156
Income taxes (148) (1,023)
Accrued costs, deferred revenue
and other current liabilities 825 (932)
Other (909) (492)
------ ------
Net cash provided by (used in)
operating activities 4,704 (2,266)
------ ------
Cash flows from investing activities:
Purchase of property, plant and equipment (3,277) (4,738)
Purchase of subsidiary common stock (note 3) (500) -
Capitalized product software costs and
other market related investments - (3,143)
------ ------
Net cash used in investing
activities (3,777) (7,881)
------ ------
Cash flows from financing activities (note 3):
Borrowing under line of credit 800 2,900
Repayment of long-term debt (698) (1,168)
Proceeds from exercise of stock options 219 817
------ ------
Net cash provided by
financing activities 321 2,549
------ ------
Net change in cash and cash
equivalents 1,248 (7,598)
Cash and cash equivalents at January 1 5,766 13,071
------ ------
Cash and cash equivalents at June 30 $ 7,014 5,473
====== ======
Supplemental disclosure of cash flow
information:
Cash paid for interest $ 538 335
Cash paid for income taxes $ 1,034 2,106
See accompanying notes to interim consolidated financial statements.
<PAGE>
FORM 10-Q
-7-
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 equivalent 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.
<PAGE>
FORM 10-Q
-8-
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 second quarter and first six months
of 1996 were $35.7 million and $68.9 million respectively, compared with
$33.0 million and $65.8 million for the same respective periods in 1995.
These net increases were due to continued growth in the Company's
advanced communications business segment, especially in the markets for
space and other wireless technologies. This segment's sales in the
second quarter and first six months of 1996 increased to $19.2 million
and $38.2 million respectively, compared with $16.5 million and $32.0
million for the same respective periods one year earlier. In the
Company's wireless logistics segment, second quarter sales at LXE
continued to grow in European markets and were improved compared with the
preceding quarter in North American markets. Second quarter 1996 sales
of wireless logistics products and services were $16.5 million and $30.7
million for the interim periods ended June 30, 1996, compared with $16.5
million and $33.8 million for the same interim periods in 1995. LXE is
seeking to improve its North American revenues by expanding its product
line to support more industry-standard technology platforms and systems,
and forming strategic partnerships in new markets such as health care
information management.
The changing revenue mix in 1996 compared with 1995 has not significantly
affected cost of sales as a percentage of net sales, which was
approximately 64% in both years. Selling, general and administrative
expense for the second quarter and first six months were comparable in
1996 and 1995. Research and development expenses for the interim periods
ended June 30, 1996 were higher for the comparable periods in 1995 due to
efforts to expand the LXE product line, to complete development of the
new CALQuest(TM) aeronautical terminal for commercial satellite-based
communications, and to develop other new technologies for wireless
network infrastructure.
Interest and other income was reported net of a foreign exchange loss in the
second quarter of 1996 and lower gains for the first six months of 1996
compared with 1995, resulting from currency fluctuations that affected the
accounting translation of European subsidiaries' financial statements into
U.S. dollars. Interest expense increased with LXE's higher level of borrowing
in 1996 compared with 1995. The effective consolidated income tax rate
for the first half of 1996 was 41%, which was comparable with the 38% for
the 1995 fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations resulted in an increase in cash and cash
equivalents to $7.0 million at June 30, 1996, compared with $5.8 million
at the beginning of the year. 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.
<PAGE>
FORM 10-Q
-9-
ELECTROMAGNETIC SCIENCES, INC.
AND SUBSIDIARIES
PART II
OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders
The annual meeting of shareholders was held on April 26, 1996. 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 5,940,803 18,126 44,519
Jerry H. Lassiter 5,950,674 8,255 44,519
John H. Levergood 5,953,906 5,023 44,519
John B. Mowell 5,955,374 3,555 44,519
John E. Pippin 5,950,564 8,365 44,519
Don T. Scartz 5,955,374 3,555 44,519
Thomas E. Sharon 5,955,764 3,165 44,519
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:
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, 1996.
<PAGE>
FORM 10-Q
-10-
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: 8/14/96
----------------------------- -----------
Thomas E. Sharon
President and Chief Executive
Officer
By: /s/ Date: 8/14/96
----------------------------- -----------
Don T. Scartz
Treasurer and Chief Financial
Officer
<PAGE>
Exhibit 11.1
-11-
ELECTROMAGNETIC SCIENCES, INC.
AND SUBSIDIARIES
Statement re: Computation of Per Share Earnings
(In thousands, except per share data)
Three months ended Six months ended
June 30 June 30
1996 1995 1996 1995
Common and common equivalent
shares:
Common stock - weighted average
shares outstanding 7,470 6,900 7,271 6,870
Dilutive effect of outstanding
common stock options (as deter-
mined by the treasury stock
method using the average market
price for the period) 338 398 326 326
Total common and common
equivalent shares 7,808 7,298 7,597 7,196
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. $ 910 717 1,806 1,140
Adjusted proportionate share
of net earnings (loss) of LXE
Inc. 72 563 (111) 1,183
Total net earnings
applicable to earnings
per common and common
equivalent share $ 982 1,280 1,695 2,323
Net earnings per common and
common equivalent share $ .13 .18 .22 .32
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 7,014
<SECURITIES> 0
<RECEIVABLES> 40,719
<ALLOWANCES> 0
<INVENTORY> 16,346
<CURRENT-ASSETS> 65,442
<PP&E> 76,336
<DEPRECIATION> 46,500
<TOTAL-ASSETS> 110,608
<CURRENT-LIABILITIES> 21,876
<BONDS> 11,621
0
0
<COMMON> 16,191
<OTHER-SE> 50,512
<TOTAL-LIABILITY-AND-EQUITY> 110,608
<SALES> 68,863
<TOTAL-REVENUES> 68,863
<CGS> 44,168
<TOTAL-COSTS> 44,168
<OTHER-EXPENSES> 21,750
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 538
<INCOME-PRETAX> 2,548
<INCOME-TAX> 1,046
<INCOME-CONTINUING> 1,695
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,695
<EPS-PRIMARY> .22
<EPS-DILUTED> .22
</TABLE>
