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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 July 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 September 8, 1995 - 5,026,895
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
INDEX
Part I. Financial Information: Page No.
Item 1 - Financial Statements:
Consolidated Condensed Balance Sheets -
July 31, 1995 and April 30, 1995 3-4
Consolidated Condensed Statements of Operations
Three Months Ended
July 31, 1995 and 1994 5
Consolidated Condensed Statements of Cash Flows
Three Months Ended
July 31, 1995 and 1994 6
Notes to Consolidated Condensed Financial Statements 7
Item 2 - Management's Discussion and Analysis
of Financial Condition and Results of
Operations 8-9
Part II. Other Information:
Item 1 - Legal Proceedings 10
Item 6 - Exhibits and Reports on Form 8-K 10
Signatures 11
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Consolidated Condensed Balance Sheets
July 31, April 30,
1995 1995
(UNAUDITED) (NOTE A)
(In thousands)
ASSETS:
Current assets:
Cash and cash equivalents $ 9,029 $ 4,291
Marketable Securities 8,247 11,387
Accounts receivable, net (NOTE B) 12,154 13,894
Inventories (NOTE C) 11,676 11,168
Prepaid and other 1,048 1,257
Refundable income taxes 310 318
Total current assets 42,464 42,315
Property, plant and equipment, net 8,989 9,192
Investment in direct finance lease 9,498 9,452
Other assets 3,564 1,777
Assets held for sale -0- 2,296
Total assets $ 64,515 $65,032
See accompanying notes to consolidated condensed financial
statements.
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Consolidated Condensed Balance Sheets (Continued)
July 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 372 727
Accrued liabilities 1,291 1,782
Total current liabilities 2,413 3,259
Long-term debt,
net of current maturities 12,000 12,187
Other 2,897 2,772
Total liabilities 17,310 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 35,081 35,131
Retained earnings 13,700 13,443
54,787 54,580
Common stock reacquired and held
in treasury - at cost, 979,405
shares at July 31 and 964,305
shares at April 30 (4,442) (4,387)
Unamortized ESOP debt (2,375) (2,500)
Notes receivable - common stock (806) (822)
Unrealized holding gain (loss) 57 (39)
Unearned compensation (16) (18)
Total stockholders' equity 47,205 46,814
Total liabilities and stockholders'
equity $64,515 $65,032
See accompanying notes to consolidated condensed financial
statements.
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Consolidated Condensed Statements of Operations
Three Months Ended July 31,
(UNAUDITED)
1995 1994
(In thousands except per share data)
Net Sales $ 5,338 $ 6,616
Cost of sales 4,001 5,241
Selling and administrative expenses 1,484 2,194
Research and development expenses 163 205
Total operating expenses 5,648 7,640
Operating loss (310) (1,024)
Investment income 322 139
Interest expense (258) (220)
Other income, net 523 523
Earnings (loss) before provisions 277 (582)
for income taxes
Income tax provision 21 31
Earnings (loss) before cumulative
effect of change in accounting
principle 256 (613)
Cumulative effect of change
in accounting principle -0- 215
Net earnings (loss) $ 256 $ (398)
Earnings (loss) per common share before
cumulative effect of change in
accounting principle $ .05 $ (.11)
Cumulative effect of change in
accounting principle .04
Net earnings (loss) per common
share $ .05 $ (.07)
Weighted average common shares
outstanding 5,052,495 5,386,995
See accompanying notes to consolidated condensed financial
statements.
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
Three Months Ended July 31,
(UNAUDITED)
1995 1994
(In thousands)
Net cash provided by (used in)
operating activities $ 1,235 $ (786)
Net cash provided by (used in)
investing activities 3,745 (16)
Cash flows from financing activities:
Repayments of long-term debt (187) (273)
Purchase of treasury stock (55)
Cash used in financing activities (242) (273)
Net increase (decrease) in cash 4,738 (1,075)
Cash at beginning of period 4,291 11,171
Cash at end of period $ 9,029 $10,096
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 July 31, 1995 and the results of its operations for the three
months ended July 31, 1995 and 1994 and its cash flows for the
three months ended July 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 July 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 $5,103,000 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:
July 31, 1995 April 30, 1995
(In thousands)
Raw materials $ 1,519 $1,569
Work in progress 10,157 9,599
$ 11,676 $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 July 31, 1995 were
$5,338,000 compared to $6,616,000 for the same quarter last
year, representing a decrease of $1,278,000. This reduction in
sales resulted primarily from the completion of the redundant
frequency generator unit for the EMS Satellite in early fiscal
1995 and a reduced level of effort expended on the AMRAAM and
Milstar programs in comparison to last year at this time. In
fiscal 1996, Registrant has been awarded a significant contract
for DC/DC converters and oscillators of over $2.7 million, an
order for stable OCXO's for the JTIDS program and several
contracts from Loral and Hyundai in connection with the
Globalstar Satellite. Since these programs are in the early
stages, the efforts expended, and consequently the related
revenues, are not significant in the quarter ended July 31,
1995. Related revenues are expected to be realized in the
remaining months in fiscal 96 and fiscal 97. Levels of
commercial sales remain fairly consistent at 34% of consolidated
sales. As of July 31, 1995, the Registrant's backlog amounted
to approximately $16 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 $4.5 million at July 31, 1995.
The gross profit for the quarter ended July 31, 1995
amounted to $1,337,000 as compared to $1,375,000 for the same
quarter last year. Gross margins were 25% and 21% for the three
months ended July 31, 1995 and 1994, respectively. Improved
margins have resulted from cost reductions, primarily in the
area of personnel and compensation, and product mix. The
negative impact in fiscal 1995 and earlier, of the restructuring
and consolidation of the west coast facility, has been virtually
eliminated in fiscal 1996.
Selling and administrative expenses for the quarter ended
July 31, 1995 were $1,484,000 compared to $2,194,000 last year.
This decrease of $710,000 is primarily the result of a reduced level of activity
in the quarter in connection with the Registrant's legal
proceedings, lower insurance costs and reduced personnel costs.
As a result of the above, the operating loss for the three
months ended July 31, 1995 was $310,000 compared to a loss of
$1,024,000 for the same period last year.
Investment income was greater in the quarter ended July 31,
1995 than in the comparable quarter in the prior year by
approximately $183,000. This increase results primarily from a
significantly higher level of interest earning assets and
greater interest rates as a result of investment strategies.
Interest expense was $258,000 in the three month period ended
July 31, 1995 compared to $220,000 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)
LIQUIDITY AND CAPITAL RESOURCES
The Registrant's balance sheet at July 31, 1995 effects a
highly liquid position with a current ratio of 18 to 1 compared
to 13 to 1 at April 30, 1995. Working capital was $40 million
at July 31, 1995 compared to $39 million at April 30, 1995.
The net cash provided by operating activities for the
period ended July 31, 1995 was $1,235,000 compared to a use of
cash of $786,000 in the period ended July 31, 1994. This
results from the net earnings in the period of $256,000 and a
reduction in accounts receivable of $1,740,000 offset by an
increase in inventories of $508,000 and reductions in accounts
payable and accrued expenses of $846,000.
During the period ended July 31, 1995 accounts receivable
balances were reduced by approximately $1,740,000 from April 30,
1995. This reduction resulted primarily from increased
collection efforts, a reduced level of revenues and receipt of
certain milestone payments.
Inventories increased to $11,676,000 at July 31, 1995 due
to Registrant's commercial business which requires building
certain products "for the shelf" to meet customer requirements.
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, 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) Reports on Form 8-K - One report on Form 8-K was filed
during the quarter ended July 31, 1995 as follows:
Date of Report Item
July 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: September 15, 1995 BY /s/ Dawn Rhodes Johnston
Dawn Rhodes Johnston
Vice President Finance
Date: September 15, 1995 BY /s/ Joseph P. Franklin
Joseph P. Franklin
Chief Executive Officer