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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, 1996
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 12, 1996 - 4,846,395
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FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
INDEX
Part I. Financial Information:
Page No.
Item 1 - Financial Statements:
Consolidated Condensed Balance Sheets -
January 31, 1996 and April 30, 1995
3-4
Consolidated Condensed Statements of Operations
Nine Months Ended
January 31, 1996 and 1995
5
Consolidated Condensed Statements of Operations
Three Months Ended
January 31, 1996 and 1995
6
Consolidated Condensed Statements of Cash Flows
Nine Months Ended
January 31, 1996 and 1995
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
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FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Consolidated Condensed Balance Sheets
January 31, April 30,
1996 1995
(UNAUDITED) (NOTE A)
(In thousands)
ASSETS:
Current assets:
Cash and cash equivalents $ 13,294 $ 4,291
Short-term investments 5,737 11,387
Accounts receivable, net (NOTE B) 13,082 13,894
Inventories (NOTE C) 11,225 11,168
Prepaid and other 1,163 1,257
Refundable income taxes 325 318
Total current assets 44,826 42,315
Property, plant and equipment, net 8,860 9,192
Investment in direct finance lease 9,569 9,452
Other assets 3,509 1,777
Assets held for sale - 2,296
Total assets $ 66,764 $65,032
See accompanying notes to consolidated condensed financial statements.
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FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Consolidated Condensed Balance Sheets (Continued)
January 31, April 30,
1996 1995
(UNAUDITED) (NOTE A)
(In thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Current maturities of long-term debt $ 750 $750
Accounts payable - trade 671 727
Accrued liabilities 1,770 1,782
Total current liabilities 3,191 3,259
Long term debt:
net of current maturities 11,625 12,187
Other 3,236 2,772
Total liabilities 18,052 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 35,029 35,131
Retained earnings 15,583 13,443
56,618 54,580
Common stock reacquired and held
in treasury - at cost, 1,159,905
shares at January 31 and 964,305
shares at April 30 (5,075) (4,387)
Unamortized ESOP debt (2,125) (2,500)
Notes receivable - common stock (740) (822)
Unrealized holding gain (loss) 162 (39)
Unearned compensation (128) (18)
Total stockholders' equity 48,712 46,814
Total liabilities and stockholders'
equity $66,764 $65,032
See accompanying notes to consolidated condensed financial statements.
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FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Consolidated Condensed Statements of Operations
Nine Months Ended January 31,
(Unaudited)
1996 1995
(In thousands except per share data)
Net Sales $ 17,427 $ 18,053
Cost of sales 11,887 15,367
Selling and adminstrative expenses 4,449 6,329
Research and development expense 610 1,096
Total operating expenses 16,946 22,792
Operating profit (loss) 481 (4,739)
Investment income 985 461
Interest expense (749) (725)
Other income, net 1,486 2,289
Earnings (loss) before provision for
income taxes 2,203 (2,714)
Income tax provision 63 82
Earnings (loss) before cumulative effect
of change in accounting principle 2,140 (2,796)
Cumulative effect of change
in accounting principle 0 215
Net earnings (loss) $ 2,140 $ (2,581)
Earnings (loss) per common share before
cumulative effect of change in
accounting principle $ .43 $ (.52)
Cumulative effect of change in
accounting principle - .04
Net earnings (loss) per common share $ .43 $ (.48)
Average common shares outstanding 5,003,256 5,331,440
See accompanying notes to consolidated condensed financial statements.
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FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Consolidated Condensed Statements of Operations
Three Months Ended January 31,
(Unaudited)
1996 1995
(In thousands except per share data)
Net Sales $ 6,513 $ 5,479
Cost of sales 4,289 4,866
Selling and adminstrative expenses 1,545 1,683
Research and development expense 309 633
Total operating expenses 6,143 7,182
Operating profit (loss) 370 (1,703)
Investment income 332 186
Interest expense (260) (281)
Other income, net 492 1,353
Earning (loss) before provision for
income taxes 934 (445)
Income tax provision 21 25
Net earnings (loss) $ 913 $ (470)
Net earnings (loss) per common share $ .19 $ (.09)
Average common shares outstanding 4,928,711 5,266,995
See accompanying notes to consolidated condensed financial statements.
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FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
Nine Months Ended January 31,
(Unaudited)
1996 1995
(In thousands)
Net cash provided by
operating activities $ 3,923 $ 982
Net cash provided by (used in)
investing activities 6,315 (8,037)
Net cash used in financing activities (1,235) (3,043)
Net increase (decrease) in cash 9,003 (10,098)
Cash and cash equivalents at beginning of period 4,291 11,171
Cash and cash equivalents at end of period $ 13,294 $ 1,073
See accompanying notes to consolidated condensed financial statements.
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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, 1996 and the results
of its operations for the three and nine months ended January 31, 1996
and 1995 and its cash flows for the nine months ended January 31, 1996
and 1995. 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 January 31, 1996 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 $4,806,000 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:
January 31, 1996 April 30,1995
(In thousands)
Raw materials $ 1,494 $ 1,569
Work in progress 9,731 9,599
$ 11,225 $11,168
Title to all inventories related to United States Government contracts
that provide for progress payments vests in the U.S. Government.
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FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Item 2
Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
Comparative details of results of operations for the three and nine
months ended January 31:
(Dollar amounts in thousands)
NM = Not meaningful
Three months ended Nine months ended
January 31, % January 31, %
1996 1995 change 1996 1995 change
Net Sales
US Government $3,439 $3,754 (8%) $10,465 $12,941 (19%)
Commercial 3,074 1,725 78% 6,962 5,112 36%
6,513 5,479 19% 17,427 18,053 (3%)
Cost of Sales 4,289 4,866 (12%) 11,887 15,367 (23%)
Selling and administrative
expense 1,545 1,683 (8%) 4,449 6,329 (30%)
Research and development
expense 309 633 (51%) 610 1,096 (44%)
Operating income (loss) 370 (1,703) NM 481 (4,739)
NM
Non-operating income- net 564 1,258 (55%) 1,722
2,025
(15%)
Net earnings (loss) $ 913 ($ 470) NM $2,140 ($2,581)
NM
Operating income for the fiscal quarter ended January 31, 1996
improved by $2,073 over the comparable period of fiscal 1995; net
earnings increased by $1,383. This result was achieved through a 19%
increase in sales over the quarter ended January 31, 1995, coupled with
reduced costs in all operating categories except for legal costs related to
the Company's legal proceedings. For the nine months ended January
31, 1996, operating income improved by $5,220 over the comparable
period of fiscal 1995 and net earnings increased by $4,721. This result
was achieved despite a small 3% decline in total sales which were offset
by significant decreases in operating costs.
As a percentage of total sales, commercial sales have increased to 47%
in the three months ended January 31, 1996 from 31% in the comparable
1995 quarter; and to 40% for the nine months ended January 31, 1996
from 28% for the comparable 1995 period. The Company expects that
revenues from commercial projects will continue to grow and that
commercial sales will comprise a greater portion of the Company's
total revenues in the future.
Gross margins for the three and nine months ended January 31, 1996
have increased to 34% and 32%, respectively, as compared to 11% and
15% for the respective 1995 periods. These results have been obtained
through cost reductions primarily in the areas of personnel and
compensation coupled with
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FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
(Continued)
operational efficiencies and product mix (commercial versus government
contracts). In addition, the fiscal 1995 periods included costs associated
with the restructuring and consolidation of the Company's former west
coast facility. The assets and activities of that entity were relocated to
the Company's headquarters location during fiscal 1995. Accordingly,
similar costs during the 1996 periods were minimal. With the current
mix of projects and the new contract bookings, the Company expects
margins to remain at the 1996 levels for the balance of the fiscal year.
Selling and administrative costs declined by 8% for the quarter ended
January 31, 1996, over the comparable 1995 period. This was achieved
through a reduction in personnel, reduced insurance costs and improved
operating efficiencies which were partially offset by an increase in legal
fees related to the Company's ongoing litigation with the government
and related actions. For the nine month period ended January 31, 1996,
selling and administrative expenses decreased by 30% over the
comparable 1995 period. This was attained by the same personnel and
other cost reductions cited above coupled with a reduction in legal costs,
reflecting an overall reduced level of activity in 1996 versus especially
the first half of fiscal 1995. The Company is unable to predict the future
level of legal costs for any specific period as this is dependent on factors
beyond its control. Excluding legal costs, the ratio of selling and
administrative expenses to net sales is expected to decrease as sales
increase.
Research and development costs in the fiscal 1996 periods decreased by
$324 and $486, respectively over the comparable three month and nine
month periods ended January 31, 1995. These decreases are the result of
an effort to focus research and development activities on a narrower band
of projects which will provide the best return on investment. The
Company expects to continue to invest in research and development at
the same rate for the balance of 1996 and for the foreseeable future.
Net non-operating income and expense decreased by $694 and $303,
respectively, in the three months and nine months ended January 31,
1996 from the comparable 1995 fiscal periods. The principal reason for
the decreases was the approximately $1,200 gain realized on the sale of
certain marketable securities during the 1995 quarter. Excluding that
one-time gain, 1996 net non-operating income and expense were
significantly improved over the 1995 results. In particular, investment
income increased by $146 in the 1996 quarter over the comparable 1995
quarter and by $524 for the 1996 nine month period over the comparable
1995 period. This is the result of both higher interest rates as well as a
better than 40% increase in interest-earning assets in the 1996 three-
month and nine-month periods over the comparable 1995 periods. In
addition, interest expense decreased by $21 in the fiscal 1996 quarter
compared to the 1995 quarter but increased by $24 for the nine months
ended January 31, 1996 compared to the comparable 1995 period. This
also was the result of increased interest rates during 1996 but was offset
by declining long-term debt balances as the Company made scheduled
principal payments. Although the Company is unable to predict the
future levels of interest rates, at current rates the Company anticipates
that investment income will continue to increase and interest expense
will continue to decrease when compared to earlier fiscal periods. Other
income, which consists principally of rental income under a long-term
lease, should continue at present levels for the balance of 1996 and into
the next fiscal year.
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FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
(Continued)
LIQUIDITY AND CAPITAL RESOURCES
The Company's balance sheet continues to reflect a highly liquid position
with a current ratio of 14 to 1 at January 31, 1996 compared to a 13 to 1
ratio at April 30, 1995. Working capital on those dates was $41.6
million and $39.1 million, respectively. Included in working capital at
January 31, 1996 is $19 million of cash, cash equivalents and short-term
investments which are readily convertible to cash should the need arise.
Net cash provided by operating activities for the nine months ended
January 31, 1996, was $3,923 compared to $982 for the comparable
1995 period. This significant cash inflow is the result of the return to
profitability in 1996 with net income of $2,140 plus certain noncash
charges of $1,247 plus the net change in working capital components of
$536.
During the nine months ended January 31, 1996, accounts receivable
balances decreased a net amount of $812. The principal cause of the
decrease is a reduction in costs and estimated earnings in excess of
billings on uncompleted contracts by $650. Additional reductions were
achieved through improved collection efforts. These amounts were offset
by increased billings for delivery of parts under a $15 million parts
procurement program on behalf of one of the Company's major
customers.
Net cash provided by investing activities for the nine months ended
January 31, 1996, was $6,315. Of this amount, $5.8 million was
provided by the conversion of certain U.S. government and agency
securities to short-term money market investments. The Company may
continue to convert short-term investments to cash equivalents or vice
versa as dictated by its investment strategies. An additional $500 was
received upon the sale of the building owned by the Company's former
west coast operation. In addition to cash, the Company received a
promissory note in the amount of $1.8 million for the balance of the sale
price. The promissory note for the building sale will be repaid in
monthly installments over a period of 5 years with a balloon payment at
the end. The Company has no material commitments for capital
expenditures.
Net cash used in financing activities for the nine months ended January
31, 1996, was $1,235 compared to $3,043 for the comparable 1995
period. Of this amount, $562 was used to make regularly scheduled
long-term debt payments and $698 was used to acquire 195,600 shares of
common stock to be held in treasury. The Company may continue to
purchase shares for its treasury whenever appropriate opportunities arise
but it has neither a formal repurchase plan nor commitments to purchase
additional shares in the future.
The Company will continue to expend its resources and efforts to
develop hardware for commercial satellite programs and commercial
ground communication, including VSATs, and navigation systems
which management believes will result in future growth and continued
profitability. Internally generated cash will be adequate to fund
development efforts in these markets.
At January 31, 1996, the Company's backlog amounted to approximately
$17 million of which approximately $14 million is funded. This is
compared to the approximately $15 million backlog at April 30, 1995.
Backlog of commercial and foreign customers approximates $7.7
million at January 31, 1996.
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FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
(Continued)
PART II
ITEM 1 - Legal Proceedings
On November 17, 1993, the Company was indicted on criminal charges
alleging conspiracy and fraud in connection with six contracts for which
the Company 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, the Company 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 Company 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 the Company'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, the Company was served with a summons and
complaint by way of a qui tam action instituted by a former employee of
the Company. The Company denies the truth, accuracy and bonafides of
plaintiff's allegations and has determined vigorously to defend the action.
Reference is made to the Company'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 January 31, 1996 as follows:
Date of Report Item
December 14, 1995 5
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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 15, 1996 BY /s/ Joseph P. Franklin
Joseph P. Franklin
Chief Executive Officer
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