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, 1997
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Commission File Number 0-6072
ELECTROMAGNETIC SCIENCES, 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, 1997:
Class Number of Shares
---------------------------- ----------------
Common Stock, $.10 Par Value 8,528,083
ELECTROMAGNETIC SCIENCES, INC.
AND SUBSIDIARIES
PART I
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Financial Information
Item 1. Financial Statements
Consolidated Statements of Earnings (Unaudited)
(In thousands, except net earnings per share)
Three months ended March 31
1997 1996
---- ----
Net sales $39,631 33,189
Cost of sales 26,035 21,506
Selling, general and administrative
expenses 8,635 7,874
Research and development expenses 2,350 2,969
------ ------
Operating income 2,611 840
Interest and other non-operating (84) 292
Interest expense (395) (265)
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Earnings before income taxes
and LXE minority interest 2,132 867
Income taxes (829) (365)
Minority interest in LXE net loss - 209
------ ------
Net earnings $ 1,303 711
====== ======
Net earnings per common and
common equivalent share $ .15 .10
====== ======
Weighted average number of common
and common equivalent shares 8,933 7,435
See accompanying notes to interim consolidated financial statements.
ELECTROMAGNETIC SCIENCES, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited)
(In thousands)
March 31 December 31
1997 1996
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ASSETS
- ------
Current assets:
Cash and cash equivalents $ 5,350 4,321
Trade accounts receivable, net 49,860 45,452
Inventories:
Work in process 7,559 5,688
Parts and materials 12,436 14,548
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Total inventories 19,995 20,236
Deferred income taxes 2,098 2,098
------ ------
Total current assets 77,303 72,107
Property, plant and equipment:
Land 1,150 1,150
Building and leasehold improvements 14,938 14,829
Machinery and equipment 60,943 59,137
Furniture and fixtures 4,510 4,426
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Total property, plant
and equipment 81,541 79,542
Less accumulated depreciation and
amortization 50,492 49,107
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Net property, plant and equipment 31,049 30,435
Other assets 8,053 7,304
Goodwill, net of accumulated amortization 16,958 17,231
------ ------
$133,363 127,077
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See accompanying notes to consolidated financial statements.
ELECTROMAGNETIC SCIENCES, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited), continued
(In thousands except share data)
March 31 December 31
1997 1996
---- ----
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Current installments of long-term debt $ 4,149 4,497
Accounts payable 13,550 14,798
Income taxes payable 1,465 -
Accrued compensation costs 4,475 3,404
Accrued retirement costs 679 327
Deferred revenue 2,214 1,340
Other liabilities 1,495 1,104
------ ------
Total current liabilities 28,027 25,470
Long-term debt, excluding current
installments 15,160 12,230
Deferred income taxes 2,127 2,127
------ ------
Total liabilities 45,314 39,827
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 8,515,000 in
1997 and 8,445,000 in 1996 852 844
Additional paid-in capital 32,652 32,581
Foreign currency translation adjustment (630) (47)
Retained earnings 55,175 53,872
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Total stockholders' equity 88,049 87,250
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$133,363 127,077
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See accompanying notes to interim consolidated financial statements.
ELECTROMAGNETIC SCIENCES, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
Three Months Ended March 31
1997 1996
---- ----
Cash flows from operating activities:
Net earnings $ 1,303 711
Adjustments to reconcile net earnings
to net cash used in operating
activities:
LXE minority interest - (209)
Depreciation and amortization 1,420 1,354
Goodwill amortization 272 110
Changes in operating assets and
liabilities:
Trade accounts receivable (5,152) 1,413
Inventories 43 (101)
Accounts payable (720) 2,030
Income taxes 1,274 258
Accrued costs, deferred revenue
and other current liabilities 2,535 932
Other (304) (237)
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Net cash provided by
operating activities 671 6,261
Cash flows from investing activities:
Purchase of property, plant and
equipment (2,076) (1,762)
Purchase of subsidiary common stock
(note 3) - (500)
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Net cash used in investing
activities (2,076) (2,262)
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Cash flows from financing activities :
Borrowing (Repayment) of long-term debt 2,582 (2,562)
Proceeds from exercise of stock options 79 28
----- -----
Net cash provided by (used in)
by financing activities 2,661 (2,534)
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Net change in cash and
cash equivalents 1,256 1,465
Effect of exchange rates on cash (227) -
Cash and cash equivalents at January 1 4,321 5,766
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Cash and cash equivalents at March 31 $ 5,350 7,231
===== ======
Supplemental disclosure of cash flow
information:
Cash paid for interest $ 395 265
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Cash paid for income taxes $ 175 525
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See accompanying notes to interim consolidated financial statements.
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
subsidiaries, EMS Technologies, Inc., LXE Inc. and its majority-owned
subsidiary 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, 1996. Certain reclassification of 1996 financial
data were made to conform to classifications adopted in 1997.
(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.
(3) Acquisition of LXE Minority Shares
On October 3, 1996, the company announced its offer to
exchange .75 shares of its common stock (ELMG stock) for each of
the 1.0 million outstanding shares of the common stock of LXE
Inc. held by third parties. The exchange offer expired on
December 30, 1996, at which time approximately 800,000 shares had
been tendered; upon acceptance of those shares, the Company held
96% of the outstanding LXE shares. On December 31, 1996, the
Company exercised its right as the holder of at least 90% of the
LXE shares to cause a merger in which all remaining LXE shares
not held by the Company were each converted into .75 ELMG shares.
The acquisition of LXE shares was accounted for as a
purchase transaction, resulting in additional goodwill of
approximately $12.5 million that will be amortized on the
straight-line method over twenty-five years.
(4) Foreign Currency Translation Adjustment
As a result of the continued growth, greater operational
autonomy and expanding business activity of the Company's LXE
sales subsidiaries in Europe, the Company has changed its
accounting policy related to the translation of the subsidiaries'
financial statements. The functional currency of the
subsidiaries is now considered to be the local currency instead
of the U.S. dollar, as in previous years; consequently,
adjustments resulting from the translation of the subsidiaries'
financial statements are now reflected as a separate component of
stockholders' equity and not as a part of the results of
operations.
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 $39.6 million
in 1997, compared with $33.2 million in 1996. Approximately 75%
of this revenue growth came from increased sales of the Company's
new products for the PCS/cellular, healthcare information, and
aeronautical satellite communications markets. In addition,
sales of wireless logistics systems to materials handling markets
in Europe and North America recovered in 1997 from the low level
reported one year earlier.
Cost of sales, as a percentage of net sales, was 66% for the
first quarter of 1997, compared with 65% in 1996. This net
increase includes a higher cost of sales percentage in the
wireless logistics segment, reflecting more distribution through
indirect channels that typically carry lower gross profit
margins, as well as a competitive pricing environment. The space
and advanced communications segment, on the other hand, achieved
more favorable operating margins than in 1996, due to a more
profitable mix of development contracts, and the introduction of
new antenna products.
Selling, general and administrative expenses decreased in 1997 as
a percentage of net sales, mainly as a result of low growth in
the expense base related to wireless logistics. Research and
development expenses, which represent internally-funded efforts,
decreased in 1997 as the Company directed a comparatively higher
proportion of its total R&D effort towards customer-funded
projects, the cost of which is reported in cost of sales.
Other non-operating income for the first quarter of 1997 was
lower than in 1996, when there were currency translation and
remeasurement gains associated with subsidiary operations in
Europe. As a result of the continued growth, greater operational
autonomy and expanding business activity of the Company's LXE
sales subsidiaries in Europe, the Company has changed its
accounting policy related to the translation of the subsidiaries'
financial statements. The functional currency of the
subsidiaries is now considered to be the local currency instead
of the U.S. dollar, as in previous years; consequently,
adjustments resulting from the translation of the subsidiaries'
financial statements are now reflected as a separate component of
stockholders' equity and not as a part of the results of
operations.
Interest expense increased in 1997 compared with 1996 due to a
higher level of borrowing. The effective income tax rate for
1997 was 39%, which is comparable with the rate for 1996 and
previous years, excluding the beneficial effect in 1996 of a
non-recurring adjustment of deferred income tax liability.
Liquidity and Capital Resources
- -------------------------------
Cash and cash equivalents increased to $5.4 million at March 31,
1997, as the Company used borrowings of long-term debt to finance
the investment in property, plant and equipment needed to support
the Company's sales growth. The Company expects a net cash
increase for the remaining nine months of the fiscal 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.
ELECTROMAGNETIC SCIENCES, INC.
AND SUBSIDIARIES
PART II
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Other Information
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits - The following exhibit is filed as part of this
report:
27.1 Financial Data Schedule
(b) Reports on form 8-K.
On January 14, 1997, the Company filed its Report on Form 8-K
dated December 31, 1996, reporting the acquisition of the
outstanding minority shares of LXE Inc., pursuant to Item 2 of
such report.
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: 5/15/97
-----------------------------
Thomas E. Sharon
President and Chief Executive
Officer
By: /s/ Date: 5/15/97
------------------------------
Don T. Scartz
Senior Vice President and Chief
Financial Officer, Treasurer
ELECTROMAGNETIC SCIENCES, INC.
AND SUBSIDIARIES
Exhibit Index
Page
Exhibit 27.1 Financial Data Schedule 12
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