SECURITIES AND 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 ended July 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File No. 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 Identification No.)
incorporation or organization)
55 CHARLES LINDBERGH BLVD., MITCHEL FIELD, N.Y. 11553
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 516-794-4500
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 6, 1996 - 4,858,390.
Page 1 of 12
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
INDEX
Part I. Financial Information: Page No.
Item 1 - Financial Statements:
Consolidated Condensed Balance Sheets -
July 31, 1996 and April 30, 1996 3-4
Consolidated Condensed Statements of Operations
Three Months Ended July 31, 1996 and 1995 5
Consolidated Condensed Statements of Cash Flows
Three Months Ended July 31, 1996 and 1995 6
Notes to Consolidated Condensed Financial Statements 7
Item 2 - Management's Discussion and Analysis
of Financial Condition and Results of Operations 8-10
Part II. Other Information:
Item 1 - Legal Proceedings 11
Item 6 - Exhibits and Reports on Form 8-K 11
Signatures 12
2 of 12
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Consolidated Condensed Balance Sheets
July 31, April 30,
1996 1996
(UNAUDITED) (NOTE A)
(In thousands)
ASSETS:
Current assets:
Cash and cash equivalents $ 380 $15,915
Marketable Securities 20,667 5,632
Accounts receivable, net (NOTE B) 13,976 13,415
Inventories (NOTE C) 10,321 10,281
Prepaid and other 1,145 1,026
------- -------
Total current assets 46,489 46,269
Property, plant and equipment, net 8,659 8,839
Investment in direct finance lease 9,642 9,607
Other assets 4,063 4,055
------- -------
Total assets $68,853 $68,770
======= =======
See accompanying notes to consolidated condensed financial statements.
3 of 12
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Consolidated Condensed Balance Sheets (Continued)
July 31, April 30,
1996 1996
(UNAUDITED) (NOTE A)
(In thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Current maturities of long-term debt $ 9,750 $ 750
Accounts payable - trade 778 1,379
Accrued liabilities and other 2,051 2,341
------- -------
Total current liabilities 12,579 4,470
Long term debt net of current maturities 2,250 11,438
Other 3,549 3,439
------- -------
Total liabilities 18,378 19,347
Stockholders' equity:
Preferred stock - $1.00 par value -0- -0-
Common stock - $1.00 par value 6,006 6,006
Additional paid - in capital 35,009 35,024
Retained earnings 17,204 16,265
------- -------
58,219 57,295
Common stock reacquired and held in treasury
- at cost, 1,159,905 shares
at July 31 and April 30, 1996 (5,075) (5,075)
Unamortized ESOP debt (1,875) (2,000)
Notes receivable - common stock (724) (740)
Unrealized holding gain 38 56
Unearned compensation (108) (113)
------- -------
Total stockholders' equity 50,475 49,423
------- -------
Total liabilities and stockholders' equity $68,853 $68,770
======= =======
See accompanying notes to consolidated condensed financial statements.
4 of 12
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Consolidated Condensed Statements of Operations
Three Months Ended July 31,
(Unaudited)
1996 1995
(In thousands except
per share data)
Net Sales $ 6,124 $ 5,338
------- -------
Cost of sales 3,887 4,001
Selling and adminstrative expenses 1,306 1,484
Research and development expense 360 163
------- -------
Total operating expenses 5,553 5,648
------- -------
Operating profit (loss) 571 (310)
Other income (expense):
Interest income 337 322
Interest expense (223) (258)
Other income, net 319 523
------- -------
Earnings before provision for
income taxes 1,004 227
Income tax provision 65 21
------- -------
Net earnings $ 939 $ 256
======= =======
Net earnings per common share $ .20 $ .05
======= =======
Weighted average common shares outstanding 4,669,175 5,052,495
========= =========
See accompanying notes to consolidated condensed financial statements.
5 of 12
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
Three Months Ended July 31,
(Unaudited)
1996 1995
(In thousands)
Cash flows from operating activities:
Net earnings $ 939 $ 256
Non-cash charges to earnings 408 376
Net changes in assets and liabilities (1,619) 603
------- -------
Net cash provided by (used in) operating activities (272) 1,235
Cash flows from investing activities:
(Purchase) sale of marketable securities (15,053) 3,236
Other - net (22) 509
------- -------
Net cash provided by (used in) investing activities (15,075) 3,745
Net cash used in financing activities (188) (242)
------- -------
Net increase (decrease) in cash and cash equivalents (15,535) 4,738
Cash and cash equivalents at beginning of period 15,915 4,291
------- -------
Cash and cash equivalents at end of period $ 380 $ 9,029
======= =======
See accompanying notes to consolidated condensed financial statements.
6 of 12
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, 1996 and the results of its operations and cash
flows for the three months ended July 31, 1996 and 1995. The April 30, 1996
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, 1996 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, 1996 and April 30, 1996 include costs and
estimated earnings in excess of billings on uncompleted contracts accounted
for on the percentage of completion basis of approximately $6,469,000 and
$5,315,000, 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, which are reported net of reserves of $940,000 at July 31 and
April 30, 1996, consist of the following:
July 31 April 30
(In thousands)
Raw materials and Component parts $ 1,848 $ 1,998
Work in progress 8,473 8,283
------- -------
$10,321 $10,281
======= =======
7 of 12
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 months ended July 31:
(Dollar amounts in thousands)
NM = Not meaningful
Three months ended
July 31, %
1996 1995 change
------- ------- -------
Net Sales
US Government $ 2,699 $ 3,516 (23%)
Commercial 3,425 1,822 88%
------- -------
6,124 5,338 15%
Cost of Sales 3,887 4,001 (3%)
Selling and administrative
expense 1,306 1,484 (12%)
Research and development
expense 360 163 121%
------- -------
Operating income (loss) 571 (310) NM
Non-operating income- net 433 587 (26%)
Net earnings $ 939 $ 256 267%
======= =======
Operating income for the fiscal quarter ended July 31, 1996 improved by $881
over the comparable period of fiscal 1996; net earnings increased by $683. These
results were achieved through a 15% increase in sales over the quarter ended
July 31, 1995, coupled with reduced costs in all operating categories except for
legal costs related to the Company's legal proceedings.
As illustrated in the table above, commercial sales continue to grow, increasing
by 88% in the fiscal 1997 period over the comparable fiscal 1996 period. As a
percentage of total sales, commercial sales have increased to 56% in the three
months ended July 31, 1996 from 34% in the comparable fiscal 1996 quarter. The
Company expects that revenue from commercial projects will continue to grow and
that commercial sales will comprise a greater portion of total revenues in the
future.
Gross margins for the three months ended July 31, 1996 have increased to 37% as
compared to 25% for the fiscal 1996 period. These results have been obtained
through cost reductions primarily in the areas of personnel and compensation
coupled with operational efficiencies and product mix (commercial versus
government contracts). With the current mix of projects and the new contract
bookings, the Company expects margins to remain at or above the current level
for the balance of fiscal 1997.
8 of 12
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
(Continued)
Selling and administrative costs declined by $178 or 12% for the quarter ended
July 31, 1996, over the comparable fiscal 1996 period. A decrease of $236 was
achieved through a reduction in the number of personnel, reduced insurance costs
and improved operating efficiencies which were partially offset by an increase
of $58 in legal fees related to the Company's ongoing litigation with the
government and related actions. 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 1997 period increased by $197 over
the comparable three month period ended July 31, 1995. This increase is the
result of intensified efforts to develop new products and to enhance functional
capabilities of existing products which will serve primarily the Company's
commercial customers. The Company expects to continue to invest in research and
development at approximately the same rate for the balance of fiscal 1997 and
for the foreseeable future.
Net non-operating income and expense decreased by $154 in the three months ended
July 31, 1996 from the comparable 1996 fiscal period. The decrease is
attributable to reduced rental income and increased property tax charges against
rental property. Interest income increased by $15 in the fiscal 1997 quarter
over the comparable fiscal 1996 quarter. This is the result of interest income
earned on a $1.8 million mortgage note which began in August 1995 offset by
reduced interest income on investments. The reduced interest income from
investments is due to lower interest rates even though cash, cash equivalents
and short-term investments have increased. Interest expense decreased by $35
(14%) in the fiscal 1997 quarter compared to the 1996 fiscal quarter. This was
the result of both lower interest rates and declining long-term debt balances as
the Company makes 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 increase modestly for the balance of fiscal 1997 after the adjustments to
earnings cited above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's balance sheet continues to reflect a strong working capital
position of $33.9 million at July 31, 1996 although this is a decrease from the
working capital level at April 30, 1996 of $41.8 million. This decline is wholly
attributable to the reclassification to current liabilities of the real estate
construction loan of $9 million which is due on July 31, 1997. Excluding that
reclassification, working capital would have increased by $1.1 million from the
level at the end of the fiscal year. Included in working capital at July 31,
1996 is $21 million of cash, cash equivalents and marketable securities which
are readily convertible to cash should the need arise.
Net cash used in operating activities for the three months ended July 31, 1996,
was $272 compared to net cash provided by operating activities of $1,235 for the
comparable fiscal 1996 period. Cash inflows from net earnings and non-cash
charges to earnings amounted to $1,347 but were offset by net changes in the
balances of assets and liabilities of $1,619. Accounts receivable increased by
$561 principally due to an increase in costs and estimated earnings in excess of
billings on uncompleted contracts of $1,154 offset by collections on billed
receivables. Payments were made against accounts payable for purchases under a
procurement contract which is winding down. Cash payments were also made against
accrued vacation pay to coincide with the Company's annual mid-summer plant
shutdown. The Company anticipates that operating activities for all of fiscal
1997 will generate positive cash flow.
9 of 12
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
(Continued)
Net cash used in investing activities for the three months ended July 31, 1996,
was $15,075. Of this amount, $15,053 was used to acquire certain U.S. government
and agency securities. The Company may continue to acquire or redeem marketable
securities as dictated by its investment strategies. The Company is continuing
the installation of new computer software which it expects to complete during
the second quarter of fiscal 1997 at a total capitalized cost of less than $500.
The Company has no other material commitments for capital expenditures.
Net cash used in financing activities for the three months ended July 31, 1996,
was $188 which was used to make regularly scheduled long-term debt payments. On
July 31, 1997, the Company is obligated to repay the $9,000 real estate
construction loan which was used to finance the building which is leased to a
third party under a direct finance lease. The Company is evaluating its options
which may include paying the loan out of current assets, refinancing the loan or
some combination thereof.
The Company will continue to expend its resources and efforts to develop
hardware for commercial satellite programs and commercial ground communication
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 July 31, 1996, the Company's total backlog amounted to approximately $20
million of which approximately $17 million is funded. This is compared to the
approximately $15 million backlog at April 30, 1996. The backlog of commercial
projects approximates $14 million at July 31, 1996.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995:
The statements contained in this release which are forward-looking statements
are subject to risks and uncertainties that could cause actual results to differ
materially from those set forth herein, as more fully described in the Company's
Annual Report on Form 10K filed with the Securities and Exchange Commission.
10 of 12
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 and, in July 1995, a separate qui tam
action was served upon the Registrant and certain employees of Registrant.
The Company and the individual defendants have pleaded not guilty to
all actions and are vigorously contesting 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, 1996 on file with the Securities and Exchange Commission.
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 July 31,
1996.
11 of 12
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 13, 1996 BY /s/ Joseph P. Franklin
----------------------
Joseph P. Franklin
Chief Executive Officer and
Chief Financial Officer
Date: September 13, 1996 BY /s/ Alan Miller
---------------
Alan Miller
Controller
12 of 12
5
1000
3-MOS
APR-30-1997
MAY-1-1996
JUL-31-1996
380
20,667
14,459
483
10,321
46,489
24,099
15,440
68,853
12,579
12,000
0
0
6,006
44,469
68,853
6,124
6,124
3,887
5,553
0
2
223
1,004
65
939
0
0
0
939
.20
.20
