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 April 3, 1998
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Commission File Number 0-6072
ELECTROMAGNETIC SCIENCES, INC.
------------------------------
(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, 1998:
Class Number of Shares
---------------------------- ----------------
Common Stock, $.10 Par Value 8,653,844
PART I
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Financial Information
Item 1. Financial Statements
Consolidated Statements of Earnings (Unaudited)
(In thousands, except net earnings per share)
Quarter ended
April 3 March 28
1998 1997
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Net sales $42,676 39,631
Cost of sales 27,266 26,035
Selling, general and
administrative expenses 9,343 8,635
Research and development expenses 2,821 2,350
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Operating income 3,246 2,611
Non-operating income (expense), net 51 (84)
Interest expense (476) (395)
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Earnings before income taxes 2,821 2,132
Income taxes 1,078 829
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Net earnings $ 1,743 1,303
====== ======
Net earnings per share:
Basic $ .20 .15
Diluted .20 .15
Weighted average number shares:
Common 8,631 8,471
Common and dilutive common equivalent 8,873 8,933
See accompanying notes to interim consolidated financial statements.
ELECTROMAGNETIC SCIENCES, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited)
(In thousands)
April 3 December 31
1998 1997
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ASSETS
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Current assets:
Cash and cash equivalents $ 3,331 4,300
Trade accounts receivable, net 56,986 58,431
Inventories:
Work in process 4,284 5,994
Parts and materials 21,647 16,330
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Total inventories 25,931 22,324
Deferred income taxes 2,697 2,697
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Total current assets 88,945 87,752
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Property, plant and equipment:
Land 1,150 1,150
Building and leasehold improvements 15,387 15,332
Machinery and equipment 57,415 55,150
Furniture and fixtures 4,363 5,134
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Total property, plant and equipment 78,315 76,766
Less accumulated depreciation
and amortization 45,621 44,179
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Net property, plant and equipment 32,694 32,587
Other assets 5,725 6,602
Goodwill, net of accumulated amortization 16,457 16,713
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$143,821 143,654
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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)
April 3 December 31
1998 1997
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LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Current installments of long-term debt $ 3,631 4,521
Accounts payable 11,401 14,436
Income taxes payable 1,875 2,474
Accrued compensation costs 3,305 4,150
Accrued retirement costs 1,160 700
Deferred revenue 3,022 1,558
Other liabilities 1,376 1,357
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Total current liabilities 25,770 29,196
Long-term debt, excluding
current installments 19,149 17,160
Deferred income taxes 2,078 2,078
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Total liabilities 46,997 48,434
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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 8,641,000 in
1997 and 8,626,000 in 1996 864 863
Additional paid-in capital 34,565 34,487
Accumulated other comprehensive
income (note 3) (1,611) (1,393)
Retained earnings 63,006 61,263
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Total stockholders' equity 96,824 95,220
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$143,821 143,654
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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)
Quarter Ended
April 3 March 28
1998 1997
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Cash flows from operating activities:
Net earnings $ 1,743 1,303
Adjustments to reconcile net earnings
to net cash (used in) provided by
operating activities:
Depreciation and amortization 1,443 1,420
Goodwill amortization 256 272
Changes in operating assets
and liabilities:
Trade accounts receivable 1,238 (5,152)
Inventories (3,607) 43
Accounts payable (2,520) (720)
Income taxes (599) 1,274
Accrued costs, deferred revenue
and other current liabilities 1,079 2,535
Other 725 (304)
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Net cash (used in) provided by
operating activities (242) 671
Cash flows used in investing activities:
Purchase of property, plant and equipment (1,550) (2,076)
Cash flows from financing activities:
Borrowing of long-term debt 1,099 2,582
Proceeds from exercise of stock options 79 79
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Net cash provided by
financing activities 1,178 2,661
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Net change in cash and
cash equivalents (614) 1,256
Effect of exchange rates on cash (355) (227)
Cash and cash equivalents at
beginning of period 4,300 4,321
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Cash and cash equivalents at
end of period $ 3,331 5,350
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Supplemental disclosure of
cash flow information:
Cash paid for interest $ 476 395
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Cash paid for income taxes $ 1,677 175
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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., and its wholly-owned subsidiaries, EMS
Technologies, Inc., 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 Company's Annual Report on Form 10-K for the year ended December 31, 1997.
(2) Earnings per Share
In 1997, the Company adopted Statement of Financial Accounting Standards (SFAS)
No. 128, "Earnings per Share," which established new standards for computing and
presenting earnings per share information. Basic earnings per share is the per
share allocation of income available to common stockholders based only on the
weighted average number of common shares actually outstanding during the
period. Diluted earnings per share represents the per share allocation of
income attributable to common stockholders based on the weighted average number
of common shares actually outstanding plus all dilutive potential common shares
outstanding during the period. All dilutive potential common shares relate to
the Company's stock option plan.
(3) Comprehensive Income
Beginning in fiscal 1998, the Company has adopted SFAS 130, "Reporting
Comprehensive Income," which establishes standards for the reporting and
display of comprehensive income and its components. Under SFAS 130, all items
that are recognized under accounting standards as components of comprehensive
income must be reported in the financial statements. The only element of
comprehensive income that is applicable to the Company is the change in the
foreign currency translation adjustment. Following is a summary of
comprehensive income (in thousands):
Quarter Ended
April 3 March 28
1998 1997
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Net income $ 1,743 1,303
Other comprehensive expense -
foreign currency translation adjustment (218) (583)
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Comprehensive income $ 1,525 720
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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 $42.7 million in 1998,
compared with $39.6 million in 1997. Most of this revenue growth came from
the Company's wireless products segment and, in particular, from increased
sales of infrastructure products for PCS/cellular communications.
Cost of sales, as a percentage of net sales, was 64% for the first quarter of
1998, compared with 66% in 1997. This decrease resulted from comparatively
higher sales of certain products within the wireless products segment
(specifically, wireless infrastructure products for PCS/cellular
communications) and within the space and technology segment (specifically,
airborne SATCOM antenna systems).
Selling, general and administrative expenses were greater in 1998 than in
1997 in absolute dollars, but remained at 22% of net sales in both 1998 and
1997.
The increase in research and development expenses related to the enhancement
of the Company's wireless products lines and the development of new
capabilities in the space and technology segment. These expenses represent
the cost of the Company's internally funded efforts. In the Company's space
and technology segment, significant research and development effort also
occurs under many specific customer orders and, accordingly, is reflected in
cost of sales.
Other non-operating income for the first quarter of 1998 included a gain on
the sale of investment securities, compared with a net non-operating expense
in 1997 that resulted mainly from foreign currency losses associated with
subsidiary operations in Europe. Interest expense increased in 1998 compared
with 1997 due to a higher level of borrowing.
The effective income tax rate for 1998 was 38%, compared with 40% for fiscal
1997, due mainly to utilization of a previously reserved capital loss
carryforward. Management expects that the tax rate for the remainder of
fiscal 1998 will be comparable with the rate for the preceding fiscal year.
Liquidity and Capital Resources
- -------------------------------
The Company's liquidity and capital resources were affected during 1998 by a
reduction of accounts payable due to the timing of payment of vendor
invoices, as well as an inventory increase, a major portion of which related
to materials purchased to support anticipated orders that were not received
until after the quarter end. As a result, the Company's borrowing increased
during the first quarter of 1998. For the remaining nine months of 1998, the
Company expects to generate positive cash flow before financing activities.
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 near-term capital investment plans, but management
expects that additional sources of liquidity will be needed over the next few
years if sales and production levels continue to grow at rates similar to
those of the past two years.
Risk Factors and Forward-Looking Statements
- -------------------------------------------
Forward looking statements with respect to expected cash flows and tax rates
are included in management's discussion and analysis of financial condition
and results of operations. Actual results could differ materially from those
suggested in any forward-looking statements as a result of a variety of
factors. Such factors include, but are not limited to, the Company's ability
to achieve product development and manufacturing objectives within the cost
and timing parameters created by customers and end-users, the timeliness of
orders and payments from customers, the availability of funding fo major new
space programs, and the strength and timing of end-user acceptance of new
communications services, such as high-data-rate mobile services.
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.
The Company has not filed any reports on Form 8-K during the quarter ended
April 3, 1998.
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: 5/15/98
-----------------------------
Thomas E. Sharon
President and Chief Executive
Officer
By: /s/ Date: 5/15/98
------------------------------
Don T. Scartz
Senior Vice President and Chief
Financial Officer, Treasurer
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