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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 January 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 March 10, 1995 - 5,041,995
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
INDEX
Part I. Financial Information: Page No.
Item 1 - Financial Statements:
Consolidated Condensed Balance Sheets -
January 31, 1995 and April 30, 1994 3-4
Consolidated Condensed Statements of Operations
Nine Months Ended
January 31, 1995 and 1994 5
Consolidated Condensed Statements of Operations
Three Months Ended
January 31, 1995 and 1994 6
Consolidated Condensed Statements of Cash Flows
Nine Months Ended
January 31, 1995 and 1994 7
Notes to Consolidated Condensed Financial Statements 8-9
Item 2 - Management's Discussion and Analysis
of Financial Condition and Results of
Operations 10-12
Part II. Other Information:
Item 1 - Legal Proceedings 13
Item 6 - Exhibits and Reports on Form 8-K 13
Signatures 14
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Consolidated Condensed Balance Sheets
January 31, April 30,
1995 1994
(UNAUDITED) (NOTE A)
(In thousands)
ASSETS:
Current assets:
Cash and cash equivalents $ 1,073 $11,171
Short-term investments 12,209 1,293
Accounts receivable, net (NOTE B) 16,368 22,212
Inventories (NOTE C) 12,159 11,490
Prepaid and other 1,557 897
Refundable income taxes 303 287
Total current assets 43,669 47,350
Property, plant and equipment, net 9,358 10,039
Investment in direct finance lease 9,401 9,264
Other assets 1,570 3,270
Assets held for sale 2,732 2,732
Total assets $ 66,730 $72,655
See accompanying notes to consolidated condensed financial statements.
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Consolidated Condensed Balance Sheets (Continued)
January 31, April 30,
1995 1994
(UNAUDITED) (NOTE A)
(In thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Current maturities of long-term debt $ 833 $ 1,085
Accounts payable - trade 1,014 1,084
Accrued liabilities 1,985 2,582
Total current liabilities 3,832 4,751
Long-term debt,
net of current maturities 12,375 12,938
Other 2,422 2,389
Total liabilities 18,629 20,078
Stockholders' equity:
Preferred stock - $1.00 par value -0- -0-
Common stock - $1.00 par value 6,006 6,006
Additional paid-in capital 35,339 35,339
Retained earnings 14,705 17,286
56,050 58,631
Common stock reacquired and held
in treasury - at cost, 964,305
shares at January 31 and 619,305
shares at April 30 (4,381) (2,975)
Unamortized ESOP debt (2,625) (3,000)
Notes receivable - common stock (Note E) (822) -0-
Unrealized holding loss (88) -0-
Unearned compensation (33) (79)
Total stockholders' equity 48,101 52,577
Total liabilities and stockholders'
equity $66,730 $72,655
See accompanying notes to consolidated condensed financial statements.
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Consolidated Condensed Statements of Operations
Nine Months Ended January 31,
(UNAUDITED)
1995 1994
(In thousands except per share data)
Net Sales $ 18,053 $ 16,139
Cost of sales 15,367 14,870
Selling and administrative expenses 6,329 5,148
Research and development expenses 1,096 1,043
Total operating expenses 22,792 21,061
Operating loss (4,739) (4,922)
Investment income 461 712
Interest expense (725) (851)
Other income, net 2,289 1,568
Loss before provision for
income taxes (2,714) (3,493)
Income tax provision (benefit) 82 (219)
Loss before cumulative effect (2,796) (3,274)
of change in accounting
principle
Cumulative effect of change
in accounting principle 215 -0-
Net loss $ (2,581) $ (3,274)
Loss per common share before
cumulative effect of change in
accounting principle $ (.52) $ (.61)
Cumulative effect of change in .04
accounting principle
Net loss per common share $ (.48) $ (.61)
Average common shares outstanding 5,331,440 5,386,995
See accompanying notes to consolidated condensed financial statements.
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Consolidated Condensed Statements of Operations
Three Months Ended January 31,
(UNAUDITED)
1995 1994
(In thousands except per share data)
Net Sales $ 5,479 $ 6,319
Cost of sales 4,866 7,459
Selling and administrative expenses 1,683 2,234
Research and development expenses 633 623
Total operating expenses 7,182 10,316
Operating loss (1,703) (3,997)
Investment income 186 422
Interest expense (281) (263)
Other income, net 1,353 615
Loss before provision for (445) (3,223)
income taxes
Income tax provision (benefit) 25 (191)
Net loss $ (470) $ (3,032)
Loss per common share $ (.09) $ (.56)
Average common shares outstanding 5,266,995 5,386,995
See accompanying notes to consolidated condensed financial statements.
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
Nine Months Ended January 31,
(UNAUDITED)
1995 1994
(In thousands)
Net cash provided by
operating activities $ 982 $ 4,799
Net cash used in
investing activities (8,037) (243)
Cash flows from financing activities:
Notes from employees (822) -0-
Repayments of long-term debt (815) (3,375)
Purchase of treasury stock (1,406) (556)
Cash used in financing activities (3,043) (3,931)
Net (decrease)increase in cash (10,098) 625
Cash at beginning of period 11,171 16,489
Cash at end of period $ 1,073 $ 17,114
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 January 31, 1995 and the results of its operations for the three and
nine months ended January 31, 1995 and 1994 and its cash flows for the nine
months ended January 31, 1995 and 1994. The April 30, 1994 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, 1994 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 January 31, 1995 and April 30, 1994 include costs and
estimated earnings in excess of billings on uncompleted contracts accounted
for on the percentage of completion basis of approximately $8,022,000 and
$9,290,000, 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:
January 31, 1995 April 30, 1994
(In thousands)
Raw materials $ 774 $ 714
Work in progress 11,385 10,776
$ 12,159 $ 11,490
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
Notes to Consolidated Condensed Financial Statements (Continued)
(Unaudited)
NOTE D - ACCOUNTING CHANGE
Effective May 1, 1994, the Company adopted Financial Accounting Standards
Board Statement No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." This statement requires certain investments in debt and
equity securities to be classified as either trading, available-for- sale or
held-to-maturity. Investments classified as held-to-maturity are recorded at
amortized cost. Investments which are classified as available-for-sale will
be measured at fair market value with market value changes reflected as a
component of stockholders' equity. Investments classified as trading will be
measured at fair market value with unrealized gains and losses included in
income.
At January 31, 1995, the Company's investments have been classified as
available-for-sale with an unrealized holding loss included as a separate
component in stockholders' equity of $87,569.
The favorable cumulative effect of this change in accounting principle was
approximately $215,000 or $.04 per share.
NOTE E - NOTES RECEIVABLE COMMON STOCK
In October 1994, certain officers and employees acquired an aggregate of
250,000 shares of the Company's common stock in the open market. The purchase
price of these shares of approximately $822,000 was financed by advances from
the Company to such officers and employees. The notes, collateralized by the
shares of common stock purchased, accrue interest at 1/2% above prime
(8.25% at date of issuance) and is payable and adjusted annually.
The principal is due in its entirety at the earlier of termination of
employment or October 1999.
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 January 31 1995 were $5,479,000 compared
to $6,319,000 for the same quarter last year, representing a decrease of
$840,000. During the quarter ended January 31 1994, sales recorded on the
percentage of completion basis were greater than in the quarter ended
January 31 1995 due to the efforts expended on the projects that were
transferred from the company's west coast facility. Sales levels were
fairly consistent in the other product lines. The level of commercial sales
is also consistent with the prior year and represents approximately 31% of
total sales in the current quarter. As of January 31, 1995, the
Registrant's backlog amounted to approximately $18 million of which
approximately $13.5 million is funded as compared to approximately
$16 million of funded backlog at October 31, 1994. Backlog of commercial
and foreign customers approximates $3 million at January 31, 1995 and
October 31, 1994.
The gross profit for the quarter ended January 31, 1995 amounted to
$613,000 as compared to a loss of $1,140,000 for the same quarter last year.
Gross margins were 11% and (18%) for the three months ended January 31, 1995
and 1994, respectively. Gross margins in the current quarter remain
consistent with the quarter ended October 31, 1994. However, there were
significant improvements over the quarter ended January 31, 1994. In the
quarter ended January 31, 1994, Registrant experienced higher than anticipated
contract costs in connection with the Company's west coast consolidation and
the technical development during the engineering, design, and production stages
of certain projects.
Selling and administrative expenses for the quarter ended January 31, 1995
were $1,683,000 compared to $2,234,000 last year. This decrease of $551,000
is primarily the result of a reduced level of activity in the quarter in
connection with the Registrant's legal proceedings offset by increased
insurance costs and severance costs for terminated employees.
As a result of the above, the operating loss for the three months ended
January 31, 1995 was $1,703,000 compared to a loss of $3,997,000 for the
same period last year.
Investment income was greater in the quarter ended January 31, 1994 than in
the comparable quarter in the current year by approximately $236,000,
principally as a result of interest earned on federal income tax refunds.
Interest expense was $281,000 in the three month period ended January 31,
1995 compared to $263,000 for the same period last year. The increase
results primarily from higher interest rates offset to a lesser degree
by lower average borrowings.
Other income for the period ended January 31, 1995 was $1,353,000
compared to $615,000 for the same period last year. The increase is due
to a gain realized on the sale of certain marketable securities.
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
(Continued)
YEAR TO DATE COMPARISON
Registrant's net sales for the nine months ended January 31, 1995
were $18,053,000 compared to $16,139,000 for the same six month period last
year of which approximately one third in each period is commercial sales.
This increase is primarily attributable to the efforts expended in connection
with the AMRAAM missile system, the EMS Satellite, the DSP Program, and
continued sales of the new commercial rubidium atomic standard.
Gross profit for the nine month period ended January 31, 1995 was
$2,686,000 compared to $1,269,000 for the same period last year. The gross
margins were 15% and 8%, respectively for the nine month periods ended
January 31, 1995 and 1994. Gross margins in the nine month period ended
January 31, 1994 were negatively impacted by greater than expected costs in
connection with the transfer of certain projects from the Company's west coast
facility, and higher than anticipated development costs of certain projects.
The gross margin in the nine month period ended January 31, 1995 reflects the
downscoping of one of the Registrant's major contracts and lower margins
realized on the initial production runs of Registrant's commercial rubidium
atomic standard.
Selling and administrative expenses increased by $1,181,000 for the
nine month period ended January 31, 1995 as compared to the same period last
year. The increase results primarily from overall increased legal costs in
connection with the U.S. government investigation. Other increases in costs
occurred in insurance and severance for terminated employees. In addition,
the Company is continuing its efforts in the area of research and development
for its new commercial products which resulted in costs of $1,096,000 for the
nine months ended January 31, 1995.
As a result the operating loss for the nine month period ended January
31, 1995 was $4,739,000 compared to $4,922,000 through January 31, 1994.
As noted in the quarterly comparison, investment income was greater
in the nine month period ended January 31, 1994 as compared to the current
nine month period due to interest earned on federal income tax refunds. The
decrease of $126,000 in interest expense relates to lower borrowings offset
to a lesser degree by higher interest rates.
Other income, net for the period ended January 31, 1995 was
$2,289,000 compared to $1,568,000 for the same period last year. As discussed
in the quarterly comparison, a gain was realized on the sale of certain
marketable securities which accounted for the majority of the increase.
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
(Continued)
LIQUIDITY AND CAPITAL RESOURCES
The Registrant's balance sheet at January 31, 1995 effects a highly
liquid position with a current ratio of 11.4 to 1 compared to 10 to 1 at
April 30, 1994. Working capital was $39.8 million at January 31, 1995
compared to $42.6 million at April 30, 1994.
The net cash provided by operating activities for the period ended January
31, 1995 was $982,000 compared to $4,799,000 in the period ended January 1994.
This results from the net loss incurred during the period of $2,581,000, an
increase in inventories of $669,000 primarily for commercial products,
reductions in trade accounts payable and other accrued liabilities of
approximately $667,000, offset by a reduction in accounts receivable of
$5,844,000.
During the period ended January 31, 1995 accounts receivable balances
were reduced by approximately $5,844,000 from April 30, 1994. This reduction
resulted primarily from increased collection efforts and receipt of certain
milestone payments.
Inventories increased by $669,000 to $12,159,000 at January 31, 1995 due
to Registrant's commercial business which requires building certain products
"for the shelf" to meet customer requirements.
Other uses of cash that occurred in the nine month period ended January
31, 1995 were the purchase of approximately $10 million of U.S. government
and agency securities, the repurchase of 345,000 shares of the Company's
common stock and the issuance of notes to employees for the purchase of
company stock aggregating $822,000.
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.
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, 1994
on file with the Securities and Exchange Commission.
ITEM 6 - Exhibits and Reports on Form 8-K
(a) Exhibits - None
(b) Reports on Form 8-K - Two reports on Form 8-K were filed during
the quarter ended January 31, 1995 as follows:
Date of Report Item
November 7, 1994 5
January 27, 1995 5
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: March 14, 1995 BY /s/ Dawn Rhodes Johnston
Dawn Rhodes Johnston
Vice President Finance
Date: March 14, 1995 BY /s/ Joseph P. Franklin
Joseph P. Franklin
Chief Executive Officer