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SECURITIES & EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period October 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition from to
Commission File Number 1-8061
FREQUENCY ELECTRONICS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
11-1986657
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Charles Lindbergh Blvd., Mitchel Field, New York
11553
(Address of principle executive offices, Zip Code)
(516) 794-4500
(Registrant's telephone number including area code)
(Former name, former address and former fiscal year,
if changed since last report)
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
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Section 12, 13 or
15(d) of the Securities and Exchange Act of 1934 subsequent to
the distribution of securities under a plan confirmed by court.
Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of Registrant's Common Stock,
par value $1.00 as of December 12, 1995 - 4,846,395
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
INDEX
Part I. Financial information: Page No.
Item 1 - Financial Statements:
Consolidated Condensed Balance Sheets -
October 31, 1995 and April 30, 1995 3-4
Consolidated Condensed Statements of Operations
Six Months Ended
October 31, 1995 and 1994 5
Consolidated Condensed Statements of Operations
Three Months Ended
October 31, 1995 and 1994 6
Consolidated Condensed Statements of Cash Flows
Six Months Ended
October 31, 1995 and 1994 7
Notes to Consolidated Condensed Financial Statements 8
Item 2 - Management's Discussion and Analysis
of Financial Condition and Results of
Operations 9-11
Part II. Other Information:
Item 1 - Legal Proceedings 12
Item 6 - Exhibits and Reports on Form 8-K 12
Signatures 13
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Consolidated Condensed Balance Sheets
October 31, April 30,
1995 1995
(UNAUDITED) (NOTE A)
(In thousands)
ASSETS:
Current assets:
Cash and cash equivalents $12,193 $ 4,291
Short-term investments 6,696 11,387
Accounts receivable, net (NOTE B) 12,597 13,894
Inventories (NOTE C) 11,874 11,168
Prepaid and other 1,224 1,257
Refundable income taxes 304 318
Total current assets 44,888 42,315
Property, plant and equipment, net 8,776 9,192
Investment in direct finance lease 9,533 9,452
Other assets 3,537 1,777
Assets held for sale -0- 2,296
Total assets $66,734 $65,032
See accompanying notes to consolidated condensed financial
statements.
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Consolidated Condensed Balance Sheets (Continued)
October 31, April 30,
1995 1995
(UNAUDITED) (NOTE A)
(In thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Current maturities of long-term debt $ 750 $ 750
Accounts payable - trade 1,250 727
Accrued liabilities 1,553 1,782
Total current liabilities 3,553 3,259
Long-term debt,
net of current maturities 11,813 12,187
Other 3,025 2,772
Total liabilities 18,391 18,218
Stockholders' equity:
Preferred stock - $1.00 par value -0- -0-
Common stock - $1.00 par value 6,006 6,006
Additional paid-in capital 35,079 35,131
Retained earnings 14,670 13,443
55,755 54,580
Common stock reacquired and held
in treasury - at cost, 974,405
shares at October 31 and 964,305
shares at April 30 (4,416) (4,387)
Unamortized ESOP debt (2,249) (2,500)
Notes receivable - common stock (Note E) (740) (822)
Unrealized holding gain (loss) 123 (39)
Unearned compensation (130) (18)
Total stockholders' equity 48,343 46,814
Total liabilities and stockholders'
equity $66,734 $65,032
See accompanying notes to consolidated condensed financial statements.
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Consolidated Condensed Statements of Operations
Six Months Ended October 31,
(UNAUDITED)
1995 1994
(In thousands except per share data)
Net Sales $ 10,914 $12,574
Cost of sales 7,598 10,501
Selling and administrative expenses 2,904 4,646
Research and development expenses 301 463
Total Operating expenses 10,803 15,610
Operating profit (loss) 111 (3,036)
Investment income 653 275
Interest expense (489) (444)
Other income, net 994 936
Earnings (loss) before provision for
income taxes 1,269 (2,269)
Income tax provision 42 57
Earnings (loss) before cumulative effect 1,227 (2,326)
of change in accounting
principle
Cumulative effect of change
in accounting principle -0- 215
Net earnings (loss) $ 1,227 $ (2,111)
Earnings (loss) per common share before
cumulative effect of change in
accounting principle $ .24 $ (.43)
Cumulative effect of change in
accounting principle -0- .04
Net earnings (loss) per common share $ .24 $ (.39)
Average common shares outstanding 5,040,529 5,363,662
See accompanying notes to consolidated condensed financial
statements.
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Consolidated Condensed Statements of Operations
Three Months Ended October 31,
(UNAUDITED)
1995 1994
(In thousands except per share data)
Net Sales $ 5,576 $ 5,958
Cost of sales 3,597 5,260
Selling and administrative expenses 1,420 2,452
Research and development expenses 138 258
Total operating expenses 5,155 7,970
Operating profit (loss) 421 (2,012)
Investment income 331 136
Interest expense (231) (224)
Other income, net 471 413
Earnings (loss) before provision for
income taxes 992 (1,687)
Income tax provision 21 26
Net earnings (loss) $ 971 $ (1,713)
Net earnings (loss) per common share $ .19 $ (.32)
Average common shares outstanding 5,028,562 5,340,382
See accompanying notes to consolidated condensed financial statements.
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
Six Months Ended October 31,
(UNAUDITED)
1995 1994
(In thousands)
Net cash provided by
operating activities $ 2,924 $ 330
Net cash provided by (used in)
investing activities 5,366 (7,745)
Net cash used in financing activities (388) (1,813)
Net increase (decrease) in cash 7,902 (9,228)
Cash at beginning of period 4,291 11,171
Cash at end of period $ 12,193 $ 1,943
See accompanying notes to consolidated condensed financial statements.
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)
NOTE A - CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of management of the Company, the accompanying
unaudited consolidated condensed interim financial statements
reflect all adjustments (which include only normal recurring
adjustments) necessary to present fairly, in all material
respects, the consolidated financial position of the Company as
of October 31, 1995 and the results of its operations for the
three and six months ended October 31, 1995 and 1994 and its
cash flows for the six months ended October 31, 1995 and 1994.
The April 30, 1995 consolidated condensed balance sheet was
derived from audited financial statements. Certain information
and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is
suggested that these consolidated condensed financial statements
be read in conjunction with the financial statements and notes
thereto included in the Company's April 30, 1995 Annual Report
to Stockholders. The results of operations for such interim
periods are not necessarily indicative of the operating results
for the full year.
NOTE B - ACCOUNTS RECEIVABLE
Accounts receivable at October 31, 1995 and April 30, 1995
include costs and estimated earnings in excess of billings on
uncompleted contracts accounted for on the percentage of
completion basis of approximately $4,178,000 and
$5,456,000, respectively. Such amounts represent revenue
recognized on long-term contracts that had not been billed at
the balance sheet dates. Such amounts are billed pursuant to
contract terms.
NOTE C - INVENTORIES
Inventories consist of the following:
October 31, 1995 April 30, 1995
(In thousands)
Raw materials $ 1,494 $ 1,569
Work in progress 10,380 9,599
$ 11,874 $11,168
Title to all inventories related to United States Government
contracts that provide for progress payments vests in the U.S.
Government.
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
QUARTERLY COMPARISON
Net sales for the quarter ended October 31, 1995 were
$5,576,000 compared to $5,958,000 for the same quarter last
year, representing a decrease of $382,000. This reduction in
sales resulted primarily from the slower pace of U.S. Government
procurement and the time period required to build higher levels
of commercial sales. Several contracts from Loral and Hyundai
in connection with the Globalstar Satellite are in the early
stages, so the efforts expended, and consequently the related
revenues, are not significant in the quarter ended October 31,
1995. Related revenues are expected to be realized in the
remaining months of fiscal 1996 and in fiscal 1997. Levels of
commercial sales remain fairly consistent at 37% of consolidated
sales.
The gross profit for the quarter ended October 31, 1995
amounted to $1,979,000 as compared to $698,000 for the same
quarter last year. Gross margins were 35% and 12% for the three
months ended October 31, 1995 and 1994, respectively. Continued
improvements in margins have resulted from cost reductions
primarily in the area of personnel and compensation, operational
efficiencies and product mix. In addition, fiscal 1996 is not
burdened with the costs of restructuring and consolidating the
Company's former west coast facility which were incurred in
fiscal 1995 and earlier.
Selling and administrative expenses for the quarter ended
October 31, 1995 were $1,420,000 compared to $2,452,000 last
year. This decrease of
$1,032,000 is primarily the result of a reduced level of
activity during the quarter in connection with the Registrant's
legal proceedings, and lower insurance, personnel and operating
costs.
As a result of the above, the Company recorded operating
income for the three months ended October 31, 1995 of $421,000
compared to a loss of $2,012,000 for the same period last year.
Investment income was greater in the quarter ended October 31,
1995 than in the comparable quarter in the prior year by
approximately $195,000. This increase results primarily from a
significantly greater level of interest earning assets and
higher interest rates as a result of investment strategies.
Interest expense of $231,000 in the three month period ended
October 31, 1995 was consistent with the expense of $224,000 for
the same period last year. The increase results primarily from
higher interest rates offset to a lesser degree by lower average
borrowings.
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
(Continued)
YEAR TO DATE COMPARISON
Registrant's net sales for the six months ended October 31,
1995 were $10,914,000 compared to $12,574,000 for the same six
month period last year of which approximately one third in each
period is commercial sales. As noted in the quarterly
comparison, this decrease in net sales is due primarily to
reduced U.S. Government contract activity.
Gross profit for the six month period ended October 31, 1995
was $3,316,000 compared to $2,073,000 for the same period last
year. The gross margins were 30% and 16%, respectively for the
six month periods ended October 31, 1995 and 1994. The
improvement in gross margins resulted from cost reductions as
detailed in the preceeding quarterly comparison. In the
comparable fiscal 1995 period, margins were negatively impacted
by the downscoping of one of the Company's major contracts and
the restructuring and consolidation of the Company's former west
coast facility. These costs have been virtually eliminated in
fiscal 1996.
Selling and administrative expenses decreased by $1,742,000 for
the six month period ended October 31, 1995 as compared to the
same period last year. This is primarily the result of a
reduced level of activity during the period in connection with
the Registrant's legal proceedings as well as reduced personnel
and insurance costs and improved operating efficiencies.
As a result of the above, the operating profit for the six
month period ended October 31, 1995 was $111,000 compared to an
operating loss of $3,036,000 through October 31, 1994.
Investment income of $653,000 for the six month period ended
October 31, 1995 was $378,000 greater than the amount recorded
in the comparable period of fiscal 1995. This increase is due
to the significantly greater level of interest earning assets
and higher interest rates as a result of investment strategies.
Interest expense of $489,000 for the six month period ended
October 31, 1995 compares to $444,000 for the comparable period
of fiscal 1995. The increase results from higher interest rates
partially offset by lower average borrowings.
Other income, net for the period ended October 31, 1995 was
$994,000 compared to $953,000 for the same period last year.
While rental income was lower than in the previous year this was
offset by reduced miscellaneous expenses and by realized gains
on the sale of certain marketable securities.
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
(Continued)
LIQUIDITY AND CAPITAL RESOURCES
The Registrant's balance sheet continues to effect a highly
liquid position with a current ratio of 13 to 1 at both October
31, 1995 and April 30, 1995. Working capital was $41 million at
October 31, 1995 compared to $39 million at April 30, 1995.
Net cash provided by operating activities for the period
ended October 31, 1995 was $2,924,000 compared to $330,000 for
the comparable period ended October 31, 1994. This results from
net earnings of $1,227,000 realized during the period plus
certain noncash expenses of approximately $566,000 (net) plus
the net change in working capital components of approximately
$1,131,000.
During the period ended October 31, 1995 accounts
receivable balances were reduced by approximately $1,297,000
from April 30, 1995 balances. This reduction resulted primarily
from increased collection efforts, a reduced level of revenues
and receipt of certain milestone payments.
Inventories increased by $706,000 to $11,874,000 at October
31, 1995 due to Registrant's commercial business which requires
building certain products "for the shelf" to meet customer
requirements.
Additional cash and cash equivalents was provided by the
conversion of approximately $4.9 million of U.S. government and
agency securities to short-term money market investments. Also,
during the period Registrant sold the building of its former
west coast operations receiving cash of $500,000 and a
promissory note of $1,800,000 for the balance. Cash and cash
equivalents were decreased by the repayment of long-term debt of
approximately $374,000.
The Registrant will continue to expend its resources and
efforts on developing hardware for commercial satellite programs
and commercial ground communication and navigation systems which
management believes will result in future growth and increases
in profits. Internally generated cash will be adequate to fund
development efforts in these markets
As of October 31, 1995, the Registrant's backlog amounted to
approximately $18 million of which approximately $11 million is
funded as compared to approximately $15 million of backlog at
April 30, 1995. Backlog of commercial and foreign customers
approximates $6.8 million at October 31, 1995.
The Registrant has no material commitments for capital
expenditures.
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
(Continued)
PART II
ITEM 1 - Legal Proceedings
On November 17, 1993, Registrant was indicted on criminal
charges alleging conspiracy and fraud in connection with six
contracts for which Registrant was a subcontractor. In
addition, two derivative actions have been filed against the
Board of Directors essentially seeking recovery on behalf of the
Company for any losses it incurs as a result of the indictment.
On December 14, 1993, Registrant was notified by the U.S.
Department of the Air Force that it had been suspended from
contracting with any agency of the government. Certain
exceptions will apply if a compelling reason exists. The
suspension is temporary subject to the outcome of the legal
proceedings in connection with the indictment.
In March 1994, a qui tam action was filed against the
Registrant and its former chief executive officer.
The Company and the individual defendants have pleaded not
guilty to all actions and will vigorously contest all charges.
For all items noted above, reference is made to Item 3 -
Legal Proceedings of Registrant's Annual Report on Form 10K for
the year ended April 30, 1995 on file with the Securities and
Exchange Commission.
On July 27, 1995 Registrant was served with a summons and
complaint by way of a qui tam action instituted by a former
employee of Registrant. Registrant denies the truth, accuracy
and bonafides of plaintiff's allegations and has determined
vigorously to defend the action. Reference is made to
Registrant's report on form 8-K dated July 27, 1995.
ITEM 6 - Exhibits and Reports on Form 8-K
(a) Exhibits - None
(b) No reports on Form 8-K were filed during the quarter ended
October 31, 1995.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934 the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
FREQUENCY ELECTRONICS, INC.
(Registrant)
Date: December 14, 1995 BY /s/ Joseph P. Franklin
Joseph P. Franklin
Chief Executive Officer