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 September 28, 2002
|
EMS TECHNOLOGIES, INC. |
|
|
|
(Exact name of registrant as specified in its charter) |
||
|
Georgia |
58-1035424 |
|
(State or other jurisdiction of |
(IRS Employer ID Number) |
|
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 November 1, 2002:
|
Class |
Number of Shares |
|
Common Stock, $.10 par Value |
10,658,038 |
PART I
FINANCIAL INFORMATION
ITEM 1. Financial Statements
EMS Technologies, Inc.
Consolidated Statements of Earnings (Unaudited)
(In thousands, except per share data)
|
Quarters Ended |
Nine Months Ended |
||||||||
|
Sep 28 |
Sep 29 |
Sep 28 |
Sep 29 |
||||||
|
Net sales |
$ |
75,061 |
68,886 |
228,370 |
210,617 |
||||
|
52,309 |
46,850 |
153,018 |
140,724 |
|||||
|
14,689 |
13,622 |
45,190 |
39,894 |
|||||
|
Research and development expenses |
5,743 |
6,511 |
19,931 |
20,445 |
|||||
|
Operating income |
2,320 |
1,903 |
10,231 |
9,554 |
|||||
|
Non-operating income (expense), net |
262 |
43 |
251 |
(50 |
) |
||||
|
Foreign exchange gain |
1,241 |
328 |
1,725 |
161 |
|||||
|
Interest expense |
(1,015 |
) |
(1,145 |
) |
(2,824 |
) |
(3,756 |
) |
|
|
Earnings before income taxes |
2,808 |
1,129 |
9,383 |
5,909 |
|||||
|
Income tax expense |
(842 |
) |
(124 |
) |
(2,814 |
) |
(1,046 |
) |
|
|
Earnings before cumulative effect of accounting change |
1,966 |
1,005 |
6,569 |
4,863 |
|||||
|
Cumulative effect of change in accounting principle (SFAS No. 133) as of Jan. 1, 2001 |
-- |
-- |
-- |
(351 |
) |
||||
|
Net earnings |
$ |
1,966 |
1,005 |
6,569 |
4,512 |
||||
|
===== |
===== |
===== |
===== |
||||||
|
Net earnings per share: |
|||||||||
Basic: |
|||||||||
Earnings before cumulative effect of accounting change |
$ |
0.18 |
0.10 |
0.62 |
0.53 |
||||
Cumulative effect of change in accounting principle |
-- |
-- |
-- |
(0.04 |
) |
||||
Net earnings |
$ |
0.18 |
0.10 |
0.62 |
0.49 |
||||
|
===== |
===== |
===== |
===== |
||||||
Diluted: |
|||||||||
Earnings before cumulative effect of accounting change |
$ |
0.18 |
0.10 |
0.61 |
0.53 |
||||
Cumulative effect of change in accounting principle |
-- |
-- |
-- |
(0.04 |
) |
||||
Net earnings |
$ |
0.18 |
0.10 |
0.61 |
0.49 |
||||
|
===== |
===== |
===== |
===== |
||||||
|
Weighted average number of shares: |
|||||||||
|
Common |
10,636 |
9,733 |
10,532 |
9,182 |
|||||
|
Common and dilutive common equivalent |
10,806 |
9,818 |
10,754 |
9,275 |
|||||
See accompanying notes to interim consolidated financial statements.
EMS Technologies, Inc.
Consolidated Balance Sheets (Unaudited)
(In thousands)
|
Sep 28 |
Dec 31 |
||||
|
ASSETS |
|||||
|
Current assets: |
|||||
|
Cash and cash equivalents |
$ |
9,326 |
11,777 |
||
|
Trade accounts receivable, net |
92,144 |
84,415 |
|||
|
Inventories |
43,465 |
41,465 |
|||
|
Deferred income taxes |
1,860 |
1,487 |
|||
|
Total current assets |
146,795 |
139,144 |
|||
|
Property, plant and equipment: |
|||||
|
Land |
3,453 |
3,431 |
|||
|
Building and leasehold improvements |
20,509 |
21,181 |
|||
|
Machinery and equipment |
80,371 |
72,082 |
|||
|
Furniture and fixtures |
6,454 |
6,103 |
|||
|
Total property, plant and equipment |
110,787 |
102,797 |
|||
|
Less accumulated depreciation and amortization |
59,866 |
54,362 |
|||
|
Net property, plant and equipment |
50,921 |
48,435 |
|||
|
Investment in limited partnership |
17,909 |
17,909 |
|||
|
Deferred income taxes - non-current |
3,766 |
3,766 |
|||
|
Accrued pension asset |
2,684 |
2,905 |
|||
|
Other assets |
15,341 |
11,660 |
|||
|
Goodwill |
13,526 |
12,997 |
|||
|
$ |
250,942 |
236,816 |
|||
|
====== |
====== |
See accompanying notes to interim consolidated financial statements.
EMS Technologies, Inc.
Consolidated Balance Sheets (Unaudited), continued
(In thousands, except share data)
|
Sep 28 |
Dec 31 |
||||
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
|||||
|
Current liabilities: |
|||||
|
Current installments of long-term debt |
$ |
23,385 |
21,158 |
||
|
Accounts payable |
33,234 |
31,890 |
|||
|
Accrued compensation costs |
4,665 |
7,100 |
|||
|
Accrued retirement costs |
1,496 |
1,921 |
|||
|
Accrued post-retirement benefits |
2,697 |
2,440 |
|||
|
Deferred revenue |
4,571 |
4,002 |
|||
|
Income taxes payable |
825 |
-- |
|||
|
Other current liabilities |
2,485 |
3,092 |
|||
|
Total current liabilities |
73,358 |
71,603 |
|||
|
Long-term debt, excluding current installments |
35,136 |
32,892 |
|||
|
Total liabilities |
108,494 |
104,495 |
|||
|
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 10,658,000 in 2002 |
|||||
|
and 10,407,000 in 2001 |
1,066 |
1,041 |
|||
|
Additional paid-in capital |
60,216 |
56,808 |
|||
|
Accumulated other comprehensive loss: |
|||||
|
Foreign currency translation adjustment |
(6,689 |
) |
(6,814 |
) |
|
|
Retained earnings |
87,855 |
81,286 |
|||
|
Total stockholders' equity |
142,448 |
132,321 |
|||
|
$ |
250,942 |
236,816 |
|||
|
====== |
====== |
See accompanying notes to interim consolidated financial statements.
EMS Technologies, Inc.
Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
|
|
|
Nine Months Ended |
|
|||
|
Sep 28 |
Sep 29 |
|||||
|
Cash flows from operating activities: |
||||||
|
Net earnings |
$ 6,569 |
4,512 |
||||
|
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: |
||||||
|
Depreciation and amortization |
7,856 |
6,569 |
||||
|
Goodwill amortization |
-- |
390 |
||||
|
Changes in operating assets and liabilities: |
||||||
|
Trade accounts receivable |
(4,118 |
) |
(19,686 |
) |
||
|
Inventories |
(1,933 |
) |
(5,115 |
) |
||
|
Non-trade foreign government receivable |
(143 |
) |
2,311 |
|||
|
Accounts payable |
(1,135 |
) |
7,225 |
|||
|
Income taxes payable |
2,036 |
(742 |
) |
|||
|
Accrued costs, deferred revenue and other current liabilities |
(2,736 |
) |
(55 |
) |
||
|
Other |
(1,817 |
) |
(175 |
) |
||
|
Net cash provided by (used in) operating activities |
4,579 |
(4,766 |
) |
|||
|
Cash flows used in investing activities: |
||||||
|
Purchase of property, plant and equipment |
(9,931 |
) |
(7,136 |
) |
||
|
Payment under provisions of asset purchase agreement |
(529 |
) |
-- |
|||
|
Net cash used in investing activites |
(10,460 |
) |
(7,136 |
) |
||
|
Cash flows from financing activities: |
||||||
|
Proceeds from new term debt |
2,446 |
17,735 |
||||
|
Repayments of term debt |
(1,707 |
) |
(1,207 |
) |
||
|
Net increase (decrease) in revolving debt |
1,950 |
(18,392 |
) |
|||
|
Proceeds from private stock offering |
-- |
17,618 |
||||
|
Proceeds from exercise of stock options, net of tax withholding |
1,533 |
233 |
||||
|
Net cash provided by financing activities |
4,222 |
15,987 |
||||
|
Net change in cash and cash equivalents |
(1,659 |
) |
4,085 |
|||
|
Effect of exchange rates on cash |
(792 |
) |
461 |
|||
|
Cash and cash equivalents at beginning of period |
11,777 |
5,593 |
||||
|
Cash and cash equivalents at end of period |
$ 9,326 |
10,139 |
||||
|
===== |
===== |
|||||
|
Supplemental disclosures of cash flow information: |
||||||
|
Cash paid for interest |
$ 2,840 |
3,736 |
||||
|
Cash paid for income taxes |
149 |
126 |
||||
EMS Technologies, Inc.
Consolidated Statements of Cash Flows (Unaudited), continued
Non-Cash Investing and Financing Activities:
On April 23, 2002, the Company announced the acquisition of Ottercom Ltd., a leading provider of Inmarsat communication terminals located in Tewkesbury, UK. Ottercom Ltd. products include critical components for EMS SATCOM's high-speed aeronautical data products. The acquired company is now called EMS SATCOM UK, Ltd., and operates as a unit of the Company's SATCOM segment. Management believes that this acquisition will help strengthen the Company's presence in global mobile Internet/e-mail access and communications, and will enable the Company to broaden its wireless product offerings and in-house development capability.
To accomplish this transaction, EMS issued 81,245 new shares of its common stock (valued at $1.9 million) and assumed liabilities totaling approximately $1.2 million. No goodwill was recognized in this transaction; rather, the approximately $3.1 million total of net assets acquired was booked as an intangible asset within "Other Assets" on the balance sheet. This intangible represents the value of Ottercom Ltd.'s current satellite communications technologies, intellectual property and product designs. This intangible will be amortized over an estimated useful life of 6 years.
In May 2001, the Company acquired a small manufacturer of repeaters and other wireless signal distribution products. The transaction was accounted for as a stock purchase initially valued at $4.0 million, with subsequent additional purchase consideration payable annually in cash or stock, at the Company's option, and contingent on the acquired product line achieving certain sales targets over the next three years. In payment of the initial purchase price, the Company issued 226,000 common shares and assumed debt of approximately $400,000. The fair value of the net assets acquired was approximately $800,000, resulting in goodwill of approximately $3.2 million.
See accompanying notes to interim consolidated financial statements. |
The interim consolidated financial statements include the accounts of EMS Technologies, Inc. and its wholly-owned subsidiaries LXE Inc. and EMS Technologies Canada, Ltd. (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, 2001.
The Company uses derivative financial instruments (forward exchange contracts) to hedge currency fluctuations in future cash flows denominated in foreign currencies, thereby limiting the Company's risk that would otherwise result from changes in exchange rates. The Company has established policies and procedures for risk assessment and for the approval, reporting and monitoring of derivative financial instrument activities. The Company does not enter into derivative financial instruments for trading or speculative purposes.
In the first quarter of 2001, the Company adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," and made related changes in its accounting policies. SFAS No. 133 requires the Company to recognize all derivatives on the balance sheet at fair value. Under SFAS No. 133, certain of the Company's routine long-term contracts to deliver Space & Technology products are considered to be derivative instruments, because these contracts create long-term obligations for non-U.S. customers to pay the Company's Canadian subsidiary in U.S. dollars. Changes in the fair values of these embedded derivatives are included in current earnings.
As a result of the adoption of SFAS No. 133, the Company recognized in 2001 a net liability for all derivatives totaling $1,135,000, of which $351,000, net of income taxes, was charged to the statement of earnings as a transition adjustment for the cumulative effect, as of January 1, 2001, of the change in accounting principle. The remaining net liability for all derivatives was charged to the unbilled revenue component of accounts receivable, in the amount of $375,000 and to the other comprehensive income component of stockholders' equity, in the amount of $408,000.
At September 28, 2002, the Company's net asset related to all derivatives was $47,000. At September 29, 2001, the Company's net liability related to all derivatives was $516,000. The total changes were reported in the Company's financial statements as follows (in thousands):
|
Quarters Ended |
Nine Months Ended |
||||||||
|
Sep 28 |
Sep 29 |
Sep 28 |
Sep 29 |
||||||
|
Net asset (liability) for derivative, beginning of period |
$ |
(125 |
) |
129 |
(166 |
) |
(1,135 |
) |
|
|
Sales: |
|||||||||
|
Gain (loss) in value of embedded derivatives |
(39 |
) |
(57 |
) |
120 |
978 |
|||
|
Foreign exchange gain (loss) on derivative instruments: |
|||||||||
|
Gain in value of ineffective portion of derivative instruments that qualify as hedging instruments |
-- |
-- |
-- |
32 |
|||||
|
Gain (loss) in value on derivative instruments that do not qualify as hedging instruments |
31 |
(413 |
) |
(37 |
) |
(583 |
) |
||
|
Matured foreign exchange contracts |
180 |
(44 |
) |
130 |
139 |
||||
|
Net income statement gain (loss) from changes in value of derivative instruments |
172 |
(514 |
) |
213 |
566 |
||||
|
Other comprehensive income: |
|||||||||
|
Matured foreign exchange contracts |
-- |
-- |
-- |
11 |
|||||
|
Gain (loss) in value of highly effective hedge instruments |
-- |
(131 |
) |
-- |
31 |
||||
|
Hedges determined to be ineffective |
-- |
-- |
-- |
11 |
|||||
|
Net other comprehensive income |
-- |
(131 |
) |
-- |
53 |
||||
|
Net asset (liability) for derivatives, end period |
$ |
47 |
(516 |
) |
47 |
(516 |
) |
||
|
==== |
==== |
==== |
==== |
||||||
The net asset for derivatives at September 28, 2002 comprises a $82,000 net asset for embedded derivatives associated with certain long-term contracts, and a $35,000 net liability for foreign currency forward exchange contracts. All of the foreign currency hedge contracts currently in place will expire by the end of the second quarter of 2003.
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.
The Company has granted stock options that are potentially dilutive to basic earnings per share, summarized as follows (shares in thousands):
|
|
Sep 28 |
Sep 29 |
||
|
2002 |
2001 |
|||
|
||||
|
Shares |
1,342 |
613 |
||
|
Average price per share |
$ |
15.29 |
11.63 |
|
|
Anti-dilutive stock options, excluded from |
||||
|
Shares |
517 |
1,351 |
||
|
Average price per share |
$ |
23.04 |
17.91 |
For each earnings per share calculation reported for the third quarters and first nine-month periods of 2002 and 2001 (i.e., earnings per share before accounting change, loss per share from cumulative effect of change in accounting principle, and net earnings per share), the numerators were the same as reported in the income statement. Following is a reconciliation of the denominator for basic and diluted earnings per share calculations for the third quarters and nine months ended September 28, 2002 and September 29, 2001 (in thousands):
|
Quarters Ended |
Nine Months Ended |
|||||||
|
Sep 28 |
Sep 29 |
Sep 28 |
Sep 29 |
|||||
|
Basic-weighted average common shares outstanding |
10,636 |
9,733 |
10,532 |
9,182 |
||||
|
Common equivalent shares from stock options |
170 |
85 |
222 |
93 |
||||
|
Diluted-weighted average common and common equivalent shares outstanding |
10,806 |
9,818 |
10,754 |
9,275 |
||||
|
===== |
===== |
===== |
===== |
|||||
Following is a summary of comprehensive income (loss) (in thousands):
|
Quarters Ended |
Nine Months Ended |
|||||||||
|
Sep 28 |
Sep 29 |
Sep 28 |
Sep 29 |
|||||||
|
Net income |
$ |
1,966 |
1,005 |
6,569 |
4,512 |
|||||
|
Other comprehensive income (expense): |
||||||||||
|
Foreign currency translation adjustment |
(2,082 |
) |
(254 |
) |
125 |
(827) |
||||
|
Cumulative effect of accounting change |
-- |
-- |
-- |
(408) |
||||||
|
Adjustment for cashflow hedging instruments |
-- |
(131 |
) |
-- |
53 |
|||||
|
Comprehensive income (loss) |
$ |
(116 |
) |
620 |
6,694 |
3,330 |
||||
|
==== |
==== |
==== |
==== |
|||||||
Trade accounts receivable include the following (in thousands):
|
Sep 28 |
Dec 31 |
||||
|
Amounts billed under contracts |
$ |
60,547 |
65,903 |
||
|
Unbilled revenues |
43,297 |
29,813 |
|||
|
Deferred revenues |
(10,649 |
) |
(10,400 |
) |
|
|
Allowance for doubtful accounts |
(1,051 |
) |
(901 |
) |
|
|
Trade accounts receivable, net |
$ |
92,144 |
84,415 |
||
|
===== |
===== |
Inventories include the following (in thousands):
|
Sep 28 |
Dec 31 |
||||
|
Parts and materials |
$ |
27,042 |
27,582 |
||
|
Work in process |
12,318 |
10,702 |
|||
|
Finished goods |
4,105 |
3,181 |
|||
|
Inventories, net |
$ |
43,465 |
41,465 |
||
|
===== |
===== |
The Company is organized into four reportable segments: Space & Technology, LXE, EMS Wireless and SATCOM. Each segment is separately managed and comprises a range of products and services that share distinct operating characteristics. The Company evaluates each segment primarily upon operating income.
Following is a summary of the Company's interim segment data (in thousands):
|
Quarters Ended |
Nine Months Ended |
|||||||||||
|
Sep 28 |
Sep 29 |
Sep 28 |
Sep 29 |
|||||||||
|
Revenues: |
||||||||||||
|
Space & Technology |
$ |
33,258 |
29,733 |
99,010 |
94,564 |
|||||||
|
LXE |
21,065 |
22,276 |
62,861 |
62,756 |
||||||||
|
EMS Wireless |
10,306 |
10,242 |
37,967 |
33,518 |
||||||||
|
SATCOM |
8,052 |
5,396 |
23,193 |
15,538 |
||||||||
|
Other |
2,380 |
1,239 |
5,339 |
4,241 |
||||||||
|
Total |
$ |
75,061 |
68,886 |
228,370 |
210,617 |
|||||||
|
===== |
===== |
===== |
===== |
|||||||||
|
Operating income (loss): |
||||||||||||
|
Space & Technology |
$ |
(68 |
) |
(87 |
) |
2,280 |
2,536 |
|||||
|
LXE |
1,390 |
977 |
2,662 |
2,454 |
||||||||
|
EMS Wireless |
31 |
722 |
2,673 |
2,531 |
||||||||
|
SATCOM |
717 |
508 |
2,518 |
2,289 |
||||||||
|
Other |
250 |
(217 |
) |
98 |
(256 |
) |
||||||
|
Total |
$ |
2,320 |
1,903 |
10,231 |
9,554 |
|||||||
|
===== |
===== |
===== |
===== |
|||||||||
|
Net earnings (loss): |
||||||||||||
|
Space & Technology |
$ |
(517 |
) |
(283 |
) |
513 |
1,021 |
|||||
|
LXE |
703 |
577 |
1,691 |
1,243 |
||||||||
|
EMS Wireless |
259 |
384 |
1,801 |
1,405 |
||||||||
|
SATCOM |
1,076 |
371 |
2,254 |
1,888 |
||||||||
|
Other |
145 |
(139 |
) |
50 |
(174 |
) |
||||||
|
Corporate |
300 |
95 |
260 |
(871 |
) |
|||||||
|
Total |
$ |
1,966 |
1,005 |
6,569 |
4,512 |
|||||||
|
===== |
===== |
===== |
===== |
|||||||||
|
Sep 28 |
Dec 31 |
|||||
|
2002 |
2001 |
|||||
|
Assets: |
||||||
|
Space & Technology |