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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
Commission File #0-6072
ELECTROMAGNETIC SCIENCES, INC.
(Exact name of registrant as specified in its charter)
Georgia 58-1035424
(State of incorporation) (IRS Employer ID #)
or organization)
660 Engineering Drive
Norcross, Georgia 30092
(Address of principal (Zip Code)
executive offices)
Registrant's Telephone Number, Including Area Code-(770) 263-9200
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.10 par value
(Title of Class)
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 if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or amendment to this Form
10-K: [X]
The aggregate market value of voting stock held by persons other
than directors or executive officers on March 8, 1996, was
$92,170,000, based on a closing price of $12.75 per share. The
basis of this calculation does not constitute a determination by
the registrant that all of its directors and executive officers
are affiliates as defined in Rule 405.
As of March 8, 1996, the number of shares of the registrant's
common stock outstanding was 7,465,646 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information contained in the Company's 1995 Annual Report
to Shareholders and definitive proxy statement for the 1996
Annual Meeting of Shareholders of the registrant is incorporated
herein by reference in Parts II, III and IV of this Annual Report
on Form 10-K.
PART I
ITEM 1. Business.
GENERAL
Electromagnetic Sciences, Inc. (the "Company") was organized in
1968 by a group of scientists, engineers, and technicians led by
Dr. John E. Pippin, now chairman of the Company's Board of
Directors. The Company is organized under Georgia law, and its
headquarters and principal operating facilities are in Technology
Park, Norcross, Georgia.
The operations of the Company are conducted through its wholly-owned
subsidiary, EMS Technologies, Inc. ("EMS"), a 74%-owned
subsidiary, CAL Corporation ("CAL"), a Canadian corporation
acquired in 1993, and an 81%-owned subsidiary, LXE Inc. ("LXE").
LXE began as a division of the Company, producing wireless data
communication systems for materials handling markets. In 1991,
LXE completed an initial public offering of its common stock,
which along with subsequent exercises of employee stock options
and the repurchase in February 1996 of 548,000 shares, resulted
in the Company's present ownership percentage.
The Company designs and produces a wide range of advanced
communications and signal processing products with an emphasis on
wireless networks. Antennas, microwave systems, subsystems, and
components are used in space and satellite communications,
cellular telecommunications, radar, surveillance, search and
rescue systems, and military countermeasures. The Company also
produces wireless logistics systems. These systems provide real
time, wireless data and transaction processing, mainly for
materials handling operations. Advanced communications and
signal processing products accounted for 52%, 46% and 54% of
consolidated net sales in 1995, 1994 and 1993, respectively,
while wireless logistics systems accounted for 48%, 54% and 46%
of consolidated sales in the same respective years.
ADVANCED COMMUNICATIONS AND SIGNAL PROCESSING PRODUCTS
The Company's advanced communications and signal processing
products require expertise in microwave and mechanical design,
analog and digital electronics, microelectronics, and materials
science. More than 50% of the revenues from this product area
are currently derived from space or satellite-related
applications. Following is a description of the Company's
principal advanced communications and signal processing products.
COMPONENTS
The Company manufactures a variety of microwave components
including phase shifters, switches, circulators, and
isolators. Phase shifters control how a signal will combine
with others to form a wavefront. These devices allow very
fast changes of phase, and many thousands of changes can be
made per second. Electronically variable phase shifters are
used in such applications as beam-steering in radar.
Electronically controlled switches change the direction of
microwave signals and connect various elements of a system.
High speed microwave switches are used to control signal
paths in satellite communications and other systems.
Circulators are usually three-port devices that route
microwave signals along specific channels. One of the ports
may be terminated to an absorber of microwaves, and the
resulting two-port device becomes an isolator. Circulators
and isolators are used in a variety of ways in many
microwave systems.
MICROWAVE SUBSYSTEMS
Subsystems are complex collections of components (such as
phase shifters, switches, circulators and isolators) and
electronic circuits that are designed to perform a major
function within a microwave system, such as beam-forming
networks for satellite communications systems, which allow
antenna patterns to be electronically changed. Other
subsystems include phase shifter subsystems for beam
steering radar, complex switching assemblies for electronic
countermeasures systems, amplifier and power converter
assemblies for remote sensing satellites, and solid state
power amplifiers for satellite communications.
SPACE AND SATELLITE-BASED SYSTEMS
The Company pro vides a variety of specialized systems for
applications in space, including scientific instruments,
spacecraft antennas, microgravity facilities, and satellite
power conditioning equipment. CAL is a leading provider of the
ground station component for satellite-based search and rescue
(SARSAT) systems, and its local user terminal (LUT) determines
the location of marine or aviation beacons that transmit distress
signals to a satellite. CAL also produces aeronautical mobile
terminals (AMT) that provide worldwide voice/data
communications capabilities to private aircraft via a digital
satellite link; a distinctive component of the AMT system is
an antenna which automatically remains directed toward
a geostationary communications satellite, yet is small
enough to be located under a low-profile radome in the optimally
effective position atop the jet's tail.
ANTENNA SYSTEMS
The Company provides entire antenna systems for certain
applications. These antennas include phased array and
multiple beam technologies, and encompass electronically and
mechanically steered applications.
CELLULAR BASE-STATION ANTENNAS
The Company's antennas for cellular telecommunications base
stations utilize microstrip radiating elements for a very
uniform coverage pattern as compared with conventional
antennas. The Company believes that this antenna design
minimizes interference of other cells, reduces dead spots
within a cell, and improves signal hand-off as a user moves
from one cell to another.
1995 CURRENT DEVELOPMENTS
Space electronics and satellite communications (SATCOM)
currently represent over 50% of total revenue generated from
advanced commu nications and signal processing products.
Significant programs in 1995 continued to be hardware
supplied for Milstar, a satellite communications project of
the combined armed services, and Space Station. In
addition, the Company is providing an array of hardware
for a global satellite communications system.
During 1995 CAL received several large orders for its SARSAT
technology. In its SATCOM business area, CAL entered into
an exclusive arrangement with American Mobile Satellite
Corporation (AMSC)to provide the aeronautical telephone
units for corporate, general aviation, and commercial
aircraft, which will provide digital satellite communications
with aircraft throughout North America. In addition, CAL will
manufacture a secure communications interface with AMSC's MSAT
satellite communications system.
Government electronics continued to provide profitable opportunities
for the Company in 1995. Substantial sales were generated from
radar related programs, including the JSTARS surveillance system
for real-time tracking of movement of ground forces, and the Army's
Advanced tactical Radar Jammer Program (ATRJ), which is designed to
protect helicopters. Substantial revenues were also generated from
a contract to provide Identify Friend or Foe (IFF)
technology for F-16 fighter planes.
Electronics developed for a number of defense industry programs
are being adapted for commercial uses. The Company expects
this trend to continue as commercial markets demand
higher data transmission rates for more sophisticated
communications of mobile users. For example,
during 1995, the Company successfully completed development
of a Ku-band phased array used to communicate via satellite
with an unmanned aerial vehicle developed by the military. A
variant of this antenna is being proposed for direct TV
transmission to commercial aircraft. Also in 1995, the Company
teamed with Technology Systems Intnational to supply microwave
hardware and antennas for its facility management systems which
will initially be marketed for use in prisons to facilitate
monitoring the activities of inmates, among other uses. It
is expected that eventually this same technology will have many
other applications from hospitals to amusement parks.
Sales of cellular and PCS antenna products increased in the
second half of 1995, to triple the 1994 sales level. In
addition, the Company announced several long-term agreements
to sell its cellular base station antennas in selected
markets of three major providers of cellular telecommunications
services - Nextel, AT&T Wireless, and a large company serving the
Midwest. The Company continued to enhance its product line with
the release late in the year of a new generation of dual polarized
micro-strip antennas, trade named DualPol, which combines the equivalent
of the three antennas now required for adequate coverage in
a conventional cellular installation into one compact enclosure.
These antennas significantly lower installation costs, are less visually
obtrusive, and are much more flexible in choice of installation sites
when compared to current hardware. The Company expects this
product to be very attractive to the emerging PCS antennas market.
In addition to base station antennas, EMS Wireless is working
with the Company's broad base of technology in wireless
data communications to develop wide area multimedia networks,
wireless local loop networks, and specialized wireless systems for
high-value inventory tracking.
WIRELESS LOGISTICS SYSTEMS
One of the Company's strategic moves to diversify its business
base has been the development, beginning in the early 1980's, of
wireless data communications systems for materials handling
operations. These systems, which are designed, manufactured,
sold and supported by LXE, permit both mobility and real-time
transaction processing. They have been installed at more than
3,500 sites worldwide, including the facilities of many Fortune
500 companies and some of the world's largest materials handling
installations.
Wireless logistics systems, which generally incorporate bar-code scanning
capabilities, are compatible with commonly used customer-owned
computers and can be configured for a variety of applications. A
typical system consists of terminals that incorporate radio
transmitters and receivers, a base station that communicates with
these terminals, a controller that provides an interface between
the base station and host computer, and software that manages and
facilitates the communications process.
TERMINALS
The Company offers several types of terminals, all of which
utilize radio frequency technology. Hand-held terminals are
small, lightweight and intended to be carried by people.
Vehicle-mounted terminals are larger, heavy duty terminals
for use on fork-lifts, cranes and other mobile materials
handling equipment. Other terminals include a table-top
model for fixed positions where computer cabling is not practical,
and wireless modems which provide wireless communication capabilities
for other devices such as small computers or process controllers.
All terminals incorporate built-in radios that opererate either
in a licensed, narrow frequency band or in an unlicensed broader,
"spread spectrum" frequency band.
RADIO BASE STATIONS AND CONTROLLERS
The wireless communications link between the terminal and
the computer is completed by a radio base station and
controller, which may be integrated into a single unit for
smaller systems. A base station converts the radio signals
from a terminal to digital signals recognizable by the host
computer, and also converts data from the host computer into
radio signals for transmission to the terminals. Radio base
stations can operate effectively in facilities of many sizes
and structural designs.
Controllers provide the critical interface between the radio
base station and the host computer. The Company's
controllers provide transparent connectivity to all widely
accepted computer architectures without modifications of
existing applications software and network structure.
Controllers also manage complex transmission traffic with
sophisticated programming algorithms.
OTHER PRODUCTS
In addition to the basic system hardware, the Company offers
various accessories, such as bar code scanners and battery
chargers, portable printers, software products for system
communications, integrated applications and terminal
emulation, and repair and maintenance services.
1995 DEVELOPMENTS
During 1995, the Company placed significant emphasis on
developing its capabilities to support DOS, Windows, and
client server networks. Two new DOS terminals with a 2.4 Ghz
backbone were introduced in the second half of the year.
These will be followed in the second half of 1996 with more
DOS/Windows based terminals. In addition, the Company added
an Access Point (wireless local bridge) to its product line
which allows both mobile industrial computers and standard
portable PC's to run a network designed for hardwired PC's. The
Company's mainstream 6200 product line introduced in 1993
continues to be a reliable choice for logistics operations
worldwide. Demand for these products
remains strong in Europe and other export markets where
systems have not been as prevalant as in the United States. Sales
to foreign customers were $23 million in 1995 compared with
$18 million in 1994. Major orders during 1995 were received
from 3M, Georgia Pacific, M&M Mars, Mercedes Benz, Nike,
Proctor and Gamble, Seimens and Wal Mart.
In addition to upgrading its traditional wireless logistics
product line, the Company has undertaken significant
development efforts aimed at "moving out of the warehouse"
into new markets by combining its networking expertise with its
rf technology to create indoor high-speed wireless LANs,
and with its cellular and SATCOM technologies for wide-area
communications. For example, in the health care field, the
Company is currently conducting field trials for wireless
electronic medical records retrieval in large hospital systems
where the need to provide data quickly to mobile users is important.
MARKETING
The marketing and sales efforts for advanced communications and
signal processing products are conducted by both internal
marketing staffs and through independent marketing representa-
tives. Wireless logistics systems are marketed, sold and
serviced through an internal staff, 21 regional sales offices (20
in the U.S. and one in Canada), five European sales subsidiaries,
and also through selected value-added retailers and international
distributors. The Company currently has 19 internatinoal
distributors in 40 countries. Several members of the Company's
senior management, engineering and administrative staffs are
significantly involved in sales activities.
During 1995 the Company had one customer in its advanced
communications and signal processing business segment that
accounted for 12.4% of consolidated net sales. During 1995,
approximately 69% of the Company's consolidated net sales were
from commercial and international markets and 31% were for U.S.
Government end-use. For further information concerning sales by
business segments and geographic areas, see Note 9 of
"Notes to Consolidated Financial Statements" included in Item 8
of this Report.
BACKLOG
The consolidated orders backlog at December 31, 1995 was $96.1
million, including $74.0 million in orders for advanced
communications and signal-processing products, and $22.1 million
for wireless logistics systems. These totals compare with a
consolidated orders backlog one year earlier of $75.0 million,
comprising $51.3 million for advanced communications and signal-
processing products, and $23.7 million for wireless logistics
systems. A significant portion of the 1995 backlog is expected
to be realized as sales in 1996.
MATERIALS
Materials used in the Company's advanced communications and
signal-processing products consist primarily of magnetic
microwave ferrites, metals such as aluminum and brass, permanent
magnet materials, and electronic components such as transistors,
diodes, IC's, resistors, capacitors and printed circuit boards.
Most of the magnetic microwave ferrite materials are purchased
from two suppliers, and permanent magnet materials are purchased
from a limited number of suppliers. Electronic components and
metals are available from a larger number of suppliers and
manufacturers.
The electronic components and supplies, printed circuit
assemblies, keypad assemblies and molded parts needed for the
Company's LXE products are generally available from a variety of
sources. Bar code scanners are included in almost all of LXE's
orders, and a significant number of the scanners are purchased
from Symbol Technologies, Inc. (Symbol), which is also competitor
of the Company; however, there are alternative suppliers that
manufacture and sell bar code scanners under license agreements
with Symbol. The Company believes that LXE's other competitors
also rely on scanning equipment purchased from or licensed by
Symbol. In addition, Symbol and LXE have a license agreement
which allows the Company to utilize Symbol's patented integrated
scanning technology in future products.
The Company believes that its present sources of required
materials are adequate. The Company does not believe that the
loss of any supplier or subassembly manufacturer would have a
material adverse affect on its business. In the past, shortages
of supplies and delays in the receipt of necessary components
have not had a material adverse effect on shipments of the
Company's products.
COMPETITION
The Company believes itself to be, in sales, a major independent
supplier of microwave subsystems and of wireless logistics
systems for materials handling operations. However, the
Company's markets are highly competitive. Some of the Company's
competitors have substantial resources and facilities that may
exceed those of the Company; the Company also competes against
smaller, specialized firms.
In microwave and antenna markets, the Company's EMS and CAL
subsidiaries compete with divisions of certain large U.S.
industrial concerns such as Raytheon Company, M/A-Com, Inc and
Rockwell, as well as non-U.S. companies such as Spar, COMDEV and
RACAL. There are larger companies which are potential
competitors of EMS or CAL for certain contracts but are potential
customers on other contracts. Certain major customers could also
elect to develop and manufacture the products that they presently
purchase from the Company.
Principal competitors in the Company's wireless logistics
business segment include Norand Corporation, Symbol Technologies,
Litton Industries, Teklogix Corp. and Telxon Corporation.
The Company believes that the key competitive factors within the
Company's advanced communications and signal processing markets
continue to be product performance, technical expertise and
support to customers, adherence to delivery schedules, and price.
Principal customers for wireless logistics systems are medium and
large businesses that use data communications systems in complex
applications where the performance and quality of products and
services are believed to be more a important purchase criteria than
price , however, pricing is also an increasingly important
competitive factor.
RESEARCH AND DEVELOPMENT
The Company conducts a major portion of its research and
development in direct response to the unique technical
requirements of a customer's order, and most of these costs are
included with the overall manufacturing costs for specific
orders. Nevertheless, internally sponsored research and
development in the microwave and antenna area was $1.8 million in
1995, reflecting increased efforts to enhance cellular and PCS
antennas and develop other mobile communications technologies,
and exceeded $1.0 million in both 1994 and 1993. Most of the
Company's internally sponsored research and development has been
conducted by LXE, which has delivered significant new product
designs and performance enhancements during the past three years,
including spread spectrum radios, expanded host computer
connectivity options, a new generation of RF infrastructure
components, and terminals that support DOS, Windows and
client/server networks. In 1995, 1994 and 1993, the Company
invested a total of $10.4 million, $8.1 million and $8.2 million,
respectively, in internally sponsored research and development.
The Company holds several patents and licenses and several
patents are pending for proprietary technologies developed by the
Company.
EMPLOYEES
As of December 31, 1995, the Company and its subsidiaries
employed a total of approximately 1,100 persons. Over 75% of the
Company's employees are directly involved in engineering or
manufacturing activities.
EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning the executive officers of the Company is
set forth below:
Thomas E. Sharon, age 50, became Chief Executive Officer in July
1994, and had previously served as President since 1987. He
joined the Company as an engineer in 1971 and later served as
Executive Vice President from 1985 to 1987. He became a Director
in 1984. He also serves as a Director of each of the Company's
operating subsidiaries, and is the Chief Executive Officer of LXE
Inc.
Don T. Scartz, age 53, has served as Senior Vice President and
Chief Financial Officer of the Company since 1995; he has also
served as Treasurer since 1981, and as Vice President-Finance of
the Company from 1981 to 1995, and as Secretary from 1982 to
1991. He joined the Company as Controller in 1978. He also
serves as the Chief Financial Officer of each of the Company's
operating subsidiaries. He became a director of the Company in
1995.
William S. Jacobs, age 50, became General Counsel and Secretary
of the Company in 1992, and Vice President in 1993. He also
serves as General Counsel and Secretary of EMS Technologies, Inc.
and LXE Inc. Previously, he was engaged in the private practice
of law with Trotter Smith & Jacobs, Atlanta, Georgia, and in such
capacity had served as the Company's principal corporate legal
counsel since 1982.
Neilson A. Mackay, age 55, has served since September 1992 as
President of CAL Corporation, a controlling interest in which was
acquired by the Company in January 1993. Prior to joining CAL,
he had served since 1988 as President of Innotech Aviation
Limited, a Montreal, Quebec-based privately held aerospace
company with approximately 650 employees. Innotech is active in
all post-manufacturing sectors of the corporate aviation market,
including aircraft sales, flight management, maintenance, and
interior and avionics modifications.
Jeffrey A. Leddy, age 40, has served since July 1994 as President
of EMS Technologies, Inc. He joined the Company as an engineer
in September 1980.
John J. Farrell, age 44, joined LXE as President and Chief
Operating Officer in May 1995. Prior to joining LXE, he had been
Senior Vice-President and Chief Operating Officer of Oki Telecom,
a world-wide supplier of cellular telephones and base stations,
since 1993. During the three years prior to 1993, he directed
Oki's marketing and sales efforts.
ITEM 2. Properties.
The Company's Georgia operations, EMS and LXE, are conducted in
four buildings located in Technology Park, Norcross, Georgia, a
suburb of Atlanta. EMS is located in a company-owned 140,000
square foot building on 13.5 acres. It also rents 16,000 square
feet in another building under a lease which expires in 2000.
LXE is located primarily in a 110,000 square foot building which
it owns on 7.6 acres. In addition, LXE rents 36,000 square feet
in a fourth building under a lease which expires in February
1998, but which may be renewed at the Company's option for two
additional years. LXE currently rents 20,000 square feet of this
space to EMS.
The combined Georgia facilities comprise clean rooms, a
microelectronics laboratory, materials control areas, assembly
and test areas, offices, engineering laboratories, a ferrites
laboratory, drafting and design facilities, machine shops, a
metals finishing area, dark rooms and painting facilities.
CAL Corporation operates in approximately 52,700 square feet of
leased space in a single building located outside Ottawa, Canada.
The lease expires in August 1997.
ITEM 3. Legal Proceedings.
Not Applicable
ITEM 4. Submission of Matters to a Vote of Security Holders.
Not Applicable
PART II
ITEM 5. Market for Registrant's Common Equity and Related
Stockholder Matters.
The common stock of Electromagnetic Sciences, Inc. is traded in
the over-the-counter market (Nasdaq symbol ELMG). At March 8,
1996 there were approximately 1,000 shareholders of record, and
the Company believes that there were approximately 3,000
beneficial shareholders, based upon broker requests for
distribution of Annual Meeting materials. The price range of the
stock is shown below:
1995 Price Range 1994 Price Range
High Low High Low
First Quarter $12-1/8 10 9-3/8 7-3/4
Second Quarter 15-3/8 10 9-1/4 7-7/8
Third Quarter 17-5/8 10-3/8 9-1/8 8
Fourth Quarter 12-1/8 9-1/2 12-1/8 8
The Company has never paid a cash dividend with respect to shares
of its common stock and has retained its earnings to provide cash
for the operation and expansion of its business. Future
dividends, if any, will be determined by the Board of Directors
in light of the circumstances then existing, including the
Company's earnings and financial requirements and general
business conditions.
ITEM 6. Selected Financial Data.
Information required for this item is incorporated herein by reference to
the Selected Financial Data contained in the Company's 1995 Annual Report
to Shareholders, and is included in Exhibit 13.1.
ITEM 7. Management's Discussion and Analysis of Results of
Operations and Financial Condition
Information required for this item is incorporated herein by reference
to the Management's Discussion and Analysis of Results of Operations
and Financial Condition contained in the Company's 1995 Annual Report
to Shareholders, and is included in Exhibit 13.1.
ITEM 8. Financial Statements and Supplementary Data.
Information required for this item is incorporated herein by reference
to the Consolidated Financial Statements and Notes to Consolidated
Financial Statements contained in the Company's 1995 Annual Report
to Shareholders, and is included in Exhibit 13.1.
ITEM 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
Not applicable.
PART III
ITEM 10. Directors and Executive Officers of the Registrant.
The information concerning directors called for by this Item is
contained in the Company's definitive Proxy Statement for its
1996 Annual Meeting of Shareholders and is incorporated herein by
reference. The information concerning executive officers called
for by this Item is set forth under the caption "Executive
Officers of the Registrant" in Item 1. hereof.
ITEM 11. Executive Compensation.
The information called for by this Item is contained in the
Company's definitive Proxy Statement for its 1996 Annual Meeting
of Shareholders and is incorporated herein by reference.
ITEM 12. Security Ownership of Certain Beneficial Owners and
Management.
The information called for by this Item is contained in the
Company's definitive Proxy Statement for its 1996 Annual Meeting
of Shareholders and is incorporated herein by reference.
ITEM 13. Certain Relationships and Related Transactions.
Information concerning the Company's consulting arrangment with
John E. Pippin, Chairman of the Board, is contained in the
Company's definitive Proxy Statement for its 1996 Annual Meeting
of Shareholders and is incorporated herein by reference.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.
(a)1. Financial Statements
The following consolidated financial statements are contained in
the Company's 1995 Annual Report to Shareholders, and are
incorporated herein by reference to Exhibit 13.1:
Independent Auditors' Report.
Consolidated Statements of Earnings -
Years ended December 31, 1995, 1994 and 1993.
Consolidated Balance Sheets - December 31, 1995 and 1994.
Consolidated Statements of Stockholders' Equity -
Years ended December 31, 1995, 1994 and 1993.
Consolidated Statements of Cash Flows -
Years ended December 31, 1995, 1994 and 1993.
Notes to Consolidated Financial Statements.
(a)2. Financial Statement Schedules
Page
Independent Auditors' Report 14
I. Condensed Financial Information of
Registrant 15-17
II. Valuation and Qualifying Accounts -
Years ended December 31, 1995, 1994
and 1993 18
All other schedules are omitted as the required information is
inapplicable, or the information is presented in the financial
statements or related notes.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Electromagnetic Sciences, Inc.:
Under date of January 27, 1996, we reported on the consolidated
balance sheets of Electromagnetic Sciences, Inc. and subsidiaries
as of December 31, 1995 and 1994, and the related consolidated
statements of earnings, stockholders' equity, and cash flows for
each of the years in the three-year period ended December 31,
1995, as contained in the 1995 annual report to stockholders.
These consolidated financial statements and our report thereon
are incorporated by reference in the annual report on Form 10-K
for the year 1995. In connection with our audits of the
aforementioned consolidated financial statements, we also audited
the related consolidated financial statement schedules as listed
in the accompanying index. These financial statement schedules
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statement schedules based on our audits.
In our opinion, such financial statement schedules, when
considered in relation to the basic consolidated financial
statements taken as a whole, present fairly, in all material
respects, the information set forth therein.
KPMG Peat Marwick LLP
Atlanta, Georgia
January 27, 1996
Schedule I
Electromagnetic Sciences, Inc. And Subsidiaries
Condensed Financial Information of Registrant
(In thousands)
Balance Sheets
December 31
1995 1994
ASSETS
Cash and cash equivalents $ 3,577 4,903
Marketable securities - 400
Prepaid taxes 494 214
Total current assets 4,071 5,517
Land 900 900
Building 8,208 7,652
Accumulated depreciation (1,608) (1,410)
Net land and building 7,500 7,142
Intercompany receivables 15,875 13,203
Investment in subsidiaries 41,210 39,497
Other assets 410 333
Total assets $69,066 65,692
LIABILITIES
Current liabilities $ 1,496 2,227
Long-term debt 3,770 3,770
Deferred income taxes 3,591 3,264
Total liabilities 8,857 9,261
Stockholders' equity
Common stock 700 682
Additional paid-in capital 10,681 9,329
Foreign currency translation
adjustment (17) (115)
Retained earnings 48,845 46,535
Total stockholders' equity 60,209 56,431
Total liabilities and stockholders'
equity $69,066 65,692
Electromagnetic Sciences, Inc. And Subsidiaries
Condensed Financial Information of Registrant
(In thousands)
Statements of Earnings
Years Ended December 31
1995 1994 1993
Equity in earnings of subsidiaries $1,973 3,896 1,145
Intercompany charges and other,
net 701 667 461
Interest expense (157) (27) (66)
Earnings before income
taxes $2,517 4,536 1,540
Income taxes 207 273 149
Net earnings $2,310 4,263 1,391
Electromagnetic Sciences, Inc. And Subsidiaries
Condensed Financial Information of Registrant
(In thousands)
Statements of Cash Flows
Years Ended December 31
1995 1994 1993
Cash flows from operating activities:
Net earnings $ 2,310 4,263 1,391
Adjustment to reconcile net
earnings to cash
used in operating activities:
Equity in earnings of
subsidiaries (1,973) (3,896) (1,145)
Depreciation expense 198 191 192
Increase in intercompany
receivables (2,672) (1,613) (2,244)
Increase (decrease) in deferred
taxes and other 435 (931) 1,819
Cash used in operating
activities (1,702) (1,986) 13
Cash flows from investing activities:
Investment in building (556) - -
Investment in CAL - (191) (1,871)
Proceeds from marketable securities 400 790 1,210
Cash provided by (used in)
Investing activities (156) 599 (661)
Cash flows from financing activities:
Proceeds from long-term debt - - 3,670
Proceeds from exercise of
stock options 532 743 39
Cash provided by financing
activities 532 743 3,709
Net change in cash and cash
equivalents (1,326) (644) 3,061
Beginning cash and cash
equivalents 4,903 5,547 2,486
Ending cash and cash equivalents $ 3,577 4,903 5,547
Schedule II
Electromagnetic Sciences, Inc.
Valuation and Qualifying Accounts
(In thousands)
Years ended December 31,1995, 1994 and 1993
Additions
Balance at charged to Balance
beginning costs and at end
Classification of year expenses Deductions Other of year
Allowance for
Doubtful Accounts:
1993 $ 220 296 (196)(a) - 320
1994 $ 320 325 - - 645
1995 $ 645 390 (315)(a) - 720
Reserve for Deferred
Tax Assets:
1993 $ - - (34) 4,393(b) 4,359
1994 $ 4,359 969 - - 5,328
1995 $ 5,328 833 - - 6,161
(a) In 1993, deductions represented an LXE charge-off of an uncollectible
balance. In 1995, deductions represented a reduction of certain non-U.S.
receivables.
(b) Other additions relate to deferred tax assets established in connection
with the acquisition of CAL Corporation.
(a)3. Exhibits
The following exhibits are filed as part of this report:
3.1 Amended and Restated Articles of Incorporation of Electromagnetic
Sciences, Inc., effective July 3, 1989.
3.2 Bylaws of Electromagnetic Sciences, Inc., as amended through
March 20, 1995 (incorporated by reference to Exhibit 3.2 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1994).
4.1 Electromagnetic Sciences, Inc. Stockholder Rights Plan dated as of
July 3, 1989.
4.2 Agreement with respect to long-term debt pursuant to Item
601(b)(4)(iii)(A).
10.1 Employment Agreement dated as of January 1, 1989, by and between the
Company and Thomas E. Sharon (incorporated by reference to
Exhibit 19.9 to the Company's Report on Form 10-Q for the quarter
ended June 30, 1992).
10.2 Amendment, dated July 29, 1992, of Employment Agreement
dated as of January 1, 1989, by and between the Company and Thomas
E. Sharon (incorporated by reference to Exhibit 10.4 to the
Company's Report on Form 10-K for the year ended December 31, 1993).
10.3 Second Amendment, dated November 15, 1994, of Employment Agreement
dated as of January 1, 1989, by and between the Company and
Thomas E. Sharon (incorporated by reference to Exhibit 10.3 to the
Company's annual Report on Form 10-K for the year ended December 31,
1994).
10.4 Separation Agreement between LXE Inc. and Malcolm M. Bibby,
effective December 13, 1994 (incorporated by reference to
Exhibit 10.12 to the Annual Report on Form 10-K of LXE Inc. for the
year ended December 31, 1994).
10.5 Consulting Agreement, effective January 1, 1995, by and between the
Company and John E. Pippin (incorporated by reference to Exhibit
10.5 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1994).
10.6 1981 Incentive Stock Option Plan, as amended and restated
February 6, 1987, and further amended through March 23, 1989.
10.7 Form of split-dollar life insurance agreement between the Company
and certain of its officers (incorporated by reference to
Exhibit 10.4 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1991).
10.8 Form of split-dollar life insurance agreement effective
January 1, 1993, between the Company and an executive officer
(incorporated by reference to Exhibit 10.5 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1993).
10.9 Electromagnetic Sciences, Inc. 1986 Directors' Stock Option Plan, as
amended through July 31, 1992.
10.10 Electromagnetic Sciences, Inc. 1986 Non-Qualified Stock Option
Plan, as amended through July 31, 1992.
10.11 Electromagnetic Sciences, Inc. 1992 Stock Incentive Plan
(incorporated by reference to Exhibit 19.1 to the Company's Report
on Form 10-Q for the quarter ended March 31, 1992).
10.12 LXE Inc. 1989 Stock Incentive Plan, as amended and restated
March 1, 1991 and further amended March 6, 1992 (incorporated by
reference to Exhibit 19.2 to the Report on Form 10-Q of LXE Inc. for
the quarter ended March 31, 1992).
10.13 Form of Stock Option Agreement evidencing options granted in 1992,
1993 and 1995 to certain executive officers under the
Electromagnetic Sciences, Inc. 1992 Stock Incentive Plan
(incorporated by reference to Exhibit 19.3 to the Company's Report
on Form 10-Q for the quarter ended June 30, 1992).
10.14 Form of Stock Option Agreement dated May 15, 1995, evidencing
option granted to John J. Farrell, Jr. under the 1992 Stock
Incentive Plan.
10.15 Form of Stock Option Agreement evidencing options granted
automatically under the 1992 Stock Incentive Plan to newly-elected
non-employee members of the Board of Directors.
10.16 Form of Stock Option Agreement evidencing option granted January 27,
1995, to John E. Pippin.
10.17 Form of Stock Option Agreement evidencing options granted January 1,
1989 to certain executive officers under the LXE Inc. 1989 Stock
Incentive Plan (incorporated by reference to Exhibit 10.8 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1990).
10.18 Form of Stock Option Agreement evidencing options granted
September 26, 1990 to an executive officer under the LXE Inc. 1989
Stock Incentive Plan (incorporated by reference to Exhibit 19.2 to
the Report on Form 10-Q of LXE Inc. for the quarter ended
June 30, 1991).
10.19 Form of Stock Option Agreement evidencing options granted
September 26, 1990 to John B. Mowell under the LXE Inc. 1989 Stock
Incentive Plan (incorporated by reference to Exhibit 19.3 to the
Report on Form 10-Q of LXE Inc. for the quarter ended June 30,
1991).
10.20 Form of Stock Option Agreement evidencing options granted in 1992 to
certain executive officers under the LXE Inc. 1989 Stock Incentive
Plan (incorporated by reference to Exhibit 19.1 to the Report on
Form 10-Q of LXE Inc. for the quarter ended June 30, 1992).
10.21 Form of Stock Option Agreement dated May 15, 1995, evidencing
options granted to John J. Farrell, Jr. under the LXE Inc. 1989
Stock Incentive Plan (incorporated by reference to Exhibit 10.6 to
the LXE Inc. Annual Report on Form 10-K for the year ended December
31, 1995).
10.22 Form of Restricted Stock Award Restriction Agreement governing
awards of restricted stock made to the Company's executive officers
effective January 27, 1995 (incorporated by reference to Exhibit
10.19 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1994).
10.23 Forms of Amendments dated April 21, 1995 and January 26, 1996, to
Restricted Stock Award Restriction Agreements effective January 27,
1995.
10.24 Restricted Stock Award Restriction Agreement dated May 15, 1995,
between the company and John J. Farrell, Jr.
10.25 Form of Indemnification Agreement between the Company and its
directors (incorporated by reference to Exhibit 19.5 to the
Company's Report on Form 10-Q for the quarter ended June 30, 1992).
10.26 Form of Indemnification Agreement between the Company and its Vice
President and General Counsel (incorporated by reference to Exhibit
19.6 to the Company's Report on Form 10-Q for the quarter ended June
30, 1992).
10.27 Form of Indemnification Agreement between LXE Inc. and certain
of the Company's officers and directors in their capacity as
directors of LXE Inc. (incorporated by reference to Exhibit 19.2
to the Report on Form 10-Q of LXE Inc. for the quarter ended
June 30, 1992).
10.28 Form of Indemnification Agreement between LXE Inc. and certain
officers of the Company in their capacity as officers of LXE Inc.
(incorporated by reference to Exhibit 19.3 to the Report on
Form 10-Q of LXE Inc. for the quarter ended June 30, 1992).
10.29 Letters dated April 17, 1995 and April 19, 1995 between LXE Inc. and
John J. Farrell, Jr. concerning the terms of his employment as
President of LXE Inc. (incorporated by reference to Exhibit 10.1 to
Report on Form 10-Q of LXE Inc. for the quarter ended June 30,
1995).
11.1 Statement re: Computation of Per Share Earnings.
13.1 Those portions of the Company's 1995 Annual Report to Shareholders
incorporated by reference into this Annual Report on Form 10-K.
22.1 Subsidiaries of the registrant.
23.1 Independent Auditors' Consent to incorporation by reference in
Registration Statements Nos. 2-76455, 2-78442, 2-94049, 33-31216,
33-38829, 33-41041, 33-41042 and 33-50528, each on Form S-8.
(b). Reports on Form 8-K.
No reports on Form 8-K were filed by the Registrant during the quarter ended
December 31, 1995.
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/ Thomas E. Sharon Date: 3/28/96
President and Chief Executive Officer
Pursuant to the requirements of the Securities and Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates
indicated.
By: /s/ Thomas E. Sharon Date: 3/28/96
President and Chief Executive
Officer and Director
(Principal Executive Officer)
By: /s/ John E. Pippin Date: 3/28/96
John E. Pippin, Chairman of the Board
By: /s/ Don T. Scartz Date: 3/28/96
Senior Vice President and Chief
Financial Officer, Treasurer and
Director
(Principal Financial and Accounting Officer)
By: /s/ Anthony J. Iorillo Date: 3/28/96
Director
By: /s/ Jerry H. Lassiter Date: 3/28/96
Director
By: /s/ John H. Levergood Date: 3/28/96
Director
By: /s/ John B. Mowell Date: 3/28/96
Director
Exhibit 11.1
ELECTROMAGNETIC SCIENCES, INC.
AND SUBSIDIARIES
Statement re: Computation of Per Share Earnings
(In thousands, except net earnings per share)
Years Ended December 31
1995 1994 1993
Common equivalent shares:
Common stock - weighted average
shares outstanding 6,929 6,766 6,716
Dilutive effect of outstanding
common stock options (as determined
by the treasury stock method using
the average market price for the
period) 232 277 140
Total common and common equivalent
shares 7,161 7,043 6,856
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 outstand-
ing stock options. Following is a
summary of net earnings applicable to
earnings per common and common equiva-
lent share:
Net earnings excluding LXE Inc. $2,431 1,226 1,142
Adjusted proportionate share of
net earnings (loss) of LXE Inc. (121) 2,841 233
Total net earnings applicable to
earnings per common and common
equivalent share $2,310 4,067 1,375
Net earnings per common and
common equivalent share $ .32 .58 .20