EMS TECHNOLOGIES INC - 10-Q Quarterly Report

[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

660 Engineering Drive
Norcross, Georgia 30092
(Address of principal executive offices) (Zip Code)

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 [ ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). 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 5, 2003:

EMS Technologies, Inc. makes available free of charge, on or through its website at www.ems-t.com, its annual, quarterly and current reports, and any amendments to those reports, as soon as reasonably practicable after electronically filing such reports with the Securities and Exchange Commission. Information contained on the Company’s website is not part of this report.

EMS Technologies, Inc.
Consolidated Statements of Operations (Unaudited)
(in thousands, except per share data)


			Quarters Ended						Nine Months Ended

			Sep 27			Sep 28			Sep 27			Sep 28
			2003			2002			2003			2002

Net sales			$	61,536			56,521			183,343			171,038
Cost of sales				39,409			35,711			116,674			107,498
Selling, general and administrative expenses				14,304			12,551			41,531			39,053
Research and development expenses				4,438			4,725			13,896			15,202

		Operating income		3,385			3,534			11,242			9,285
Non-operating (expense) income, net				(9	)		271			(287	)		266
Foreign exchange (loss) gain				(10	)		677			(422	)		701
Interest expense				(518	)		(600	)		(1,551	)		(1,672	)

		Earnings from continuing operations before income taxes		2,848			3,882			8,982			8,580
Income tax expense				(899	)		(1,122	)		(2,874	)		(3,015	)

		Earnings from continuing operations		1,949			2,760			6,108			5,565
Discontinued operations (note 2):
	Gain (loss) from discontinued operations			(25,016	)		(1,074	)		(43,755	)		803
	Income tax benefit			2,476			280			3,008			201

		Net earnings (loss)	$	(20,591	)		1,966			(34,639	)		6,569

Earnings (loss) per share:
Basic:
	From continuing operations		$	0.18			0.25			0.57			0.53
	From discontinued operations			(2.11	)		(0.07	)		(3.82	)		0.09

		Net earnings (loss)		(1.93	)		0.18			(3.25	)		0.62

Diluted:
	From continuing operations		$	0.18			0.25			0.57			0.52
	From discontinued operations			(2.09	)		(0.07	)		(3.81	)		0.09

		Net earnings (loss)		(1.91	)		0.18			(3.24	)		0.61

Weighted average number of shares:
	Basic			10,668			10,636			10,662			10,532
	Diluted			10,778			10,806			10,707			10,754


			Sep 27		Dec 31
			2003		2002

ASSETS
Current assets:
	Cash and cash equivalents		$	9,190		12,430
	Trade accounts receivable			69,354		71,719
	Inventories			35,065		30,051
	Deferred income taxes			1,693		1,693
	Assets held for sale			44,257		77,128

		Total current assets		159,559		193,021

Property, plant and equipment:
	Land			2,126		1,988
	Building and leasehold improvements			15,012		14,835
	Machinery and equipment			73,518		65,586
	Furniture and fixtures			7,125		6,554

		Total property, plant and equipment		97,781		88,963
	Less accumulated depreciation and amortization			59,294		52,226

		Net property, plant and equipment		38,487		36,737

Deferred income taxes — non-current				1,740		1,780
Accrued pension asset				495		425
Intangible assets, net				3,114		3,499
Goodwill, net				13,526		13,526
Prepaid income taxes				3,015		—
Other assets				4,489		7,315

			$	224,425		256,303

EMS Technologies, Inc.
Consolidated Balance Sheets (Unaudited), continued
(in thousands, except share data)


			Sep 27		Dec 31
			2003		2002

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Current installments of long-term debt		$	41,749		33,783
	Accounts payable			18,634		21,038
	Accrued compensation			5,584		7,236
	Accrued retirement costs			2,108		2,511
	Accrued post-retirement benefits			560		443
	Deferred service revenue			4,926		4,108
	Liabilities related to assets held for sale			14,903		19,816
	Other liabilities			2,404		2,624

		Total current liabilities		90,868		91,559
Long-term debt, excluding current installments				15,880		18,759

		Total liabilities		106,748		110,318

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 10,691,000 in 2003 and 10,658,000 in 2002			1,069		1,066
Additional paid-in capital				61,206		60,867
Accumulated other comprehensive income (loss)				168		(5,821	)
Retained earnings				55,234		89,873

		Total stockholders’ equity		117,677		145,985

			$	224,425		256,303

EMS Technologies, Inc.
Consolidated Statements of Cash Flows (Unaudited)
(in thousands)


					Nine Months Ended

					Sep 27			Sep 28
					2003			2002

Cash flows from operating activities:
	Net earnings (loss)				$	(34,639	)		6,569
	Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:
		Depreciation and amortization				6,620			5,636
		Deferred income taxes				40			1,274
		Loss (income) from discontinued operations				40,747			(1,004	)
		Changes in operating assets and liabilities:
				Trade accounts receivable		4,732			(317	)
				Inventories		(3,182	)		1,166
				Accounts payable		(2,952	)		(773	)
				Income taxes payable		972			2,832
				Accrued costs, deferred revenue and other current liabilities		(1,912	)		(1,759	)
				Other		247			(3,466	)

				Net cash provided by operating activities		10,673			10,158

Cash flows used in investing activities:
	Purchase of property, plant and equipment					(6,626	)		(6,590	)

Cash flows from financing activities:
	Repayments of term debt					(1,495	)		(1,663	)
	Net increase in revolving debt					4,138			1,974
	Proceeds from exercise of stock options, net of withholding					654			1,533

				Net cash provided by financing activities		3,297			1,844

Cash used by discontinued operations						(10,779	)		(7,266	)

				Net change in cash and cash equivalents		(3,435	)		(1,854	)
Effect of exchange rates on cash						195			(597	)
Cash and cash equivalents at beginning of period						12,430			11,777

Cash and cash equivalents at end of period					$	9,190			9,326

Supplemental disclosures of cash flow information:
			Cash paid for interest		$	2,587			2,840
			Cash paid for income taxes			2,282			149

In April 2002, the Company acquired 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 company, now called EMS SATCOM UK, Ltd., operates as a unit of the Company’s SATCOM segment. Management believes that this acquisition has helped strengthen the Company’s presence in global mobile Internet/e-mail access and communications, and will enable the Company to continue 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 $3.1 million total of net assets acquired was recorded as an intangible asset on the balance sheet. This intangible represents the value of Ottercom Ltd.’s satellite communications technologies, intellectual property and product designs. This intangible will be amortized over an estimated useful life of 6 years.

EMS Technologies, Inc.
Notes to Interim Consolidated Financial Statements (Unaudited)

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. Certain prior period financial statement balances have been reclassified to conform to the current period’s classification. 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, 2002.

In accordance with the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, the Company has classified the revenues, expenses and related assets and liabilities of its Montreal space operations and its wireless networks healthcare operations, which are currently held for sale, as discontinued operations for all periods presented in the accompanying consolidated financial statements.

Prior to January 1, 1996, the Company accounted for its stock option plans in accordance with the provisions of Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. As such, compensation expense would be recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. On January 1, 1996, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation,” which permits entities to recognize as expense, over the vesting period, the fair value of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the provisions of APB Opinion No. 25 and provide pro forma net earnings and pro forma earnings per share disclosures for employee stock option grants made in 1995 and future years as if the fair-value-based method defined in SFAS No. 123 had been applied. The Company has elected to continue to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure required by SFAS No. 123.

The Company has adopted SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure,” including the interim reporting requirements. The following table illustrates the effect on net earnings and earnings per share if the Company had applied the fair value method to measure stock-based compensation (in thousands, except net earnings per share):


		Quarters Ended						Nine Months Ended

		Sep 27			Sep 28			Sep 27			Sep 28
		2003			2002			2003			2002

Net earnings (loss):
	As reported	$	(20,591	)		1,966			(34,639	)		6,569
	Less: Stock-based employee compensation expense determined under the fair value method, net of tax		(475	)		(856	)		(1,753	)		(1,971	)

	Pro forma	$	(21,066	)		1,110			(36,392	)		4,598

Basic net earnings (loss) per share:
	As reported	$	(1.93	)		0.18			(3.25	)		0.62
	Pro forma		(1.97	)		0.10			(3.41	)		0.44
Diluted net earnings (loss) per share:
	As reported	$	(1.91	)		0.18			(3.24	)		0.61
	Pro forma		(1.95	)		0.10			(3.40	)		0.43

In the third quarter of 2003, EMS announced that its board of directors had approved a formal plan to sell the Company’s commercial space division based in Montreal. Also during the third quarter of 2003, EMS’s board of directors approved plans to dispose of the Company’s Atlanta-based healthcare product line. As a result, these business components were accounted for as discontinued operations, and the net assets held for sale were written down to their estimated fair value upon disposal. The combined fair value adjustment was a $19 million pre-tax charge (comprising write-downs of $17 million related to assets associated with the Space & Technology/Montreal division and $2 million for the healthcare product line), with a related U.S. income tax benefit of approximately $2.9 million. The fair values upon disposal were estimated using discounted present value models.

The results of these discontinued operations for the third quarter and first nine months of 2003 and 2002 were as follows (in thousands):


Georgia		58-1035424
(State or other jurisdiction of incorporation or organization)		(IRS Employer ID Number)


Class		Number of Shares
Common Stock, $.10 par Value		10,691,219


PART I FINANCIAL INFORMATION
PART II OTHER INFORMATION
SIGNATURES
EX-31.1 SECTION 302 CERTIFICATION OF THE CEO
EX-31.2 SECTION 302 CERTIFICATION OF THE CFO
EX-32 SECTION 906 CERTIFICATION OF THE CEO/CFO

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