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 January 31, 2002
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 CORPORATE ISSUERS:
The number of shares outstanding of Registrant's Common Stock, par value $1.00
as of March 8, 2002 - 8,327,133
Page 1 of 15
Frequency Electronics, Inc. and Subsidiaries
INDEX
Part I. Financial Information: Page No.
Item 1 - Financial Statements:
Condensed Consolidated Balance Sheets -
January 31, 2002 and April 30, 2001 3-4
Condensed Consolidated Statements of Operations
Nine Months Ended January 31, 2002 and 2001 5
Condensed Consolidated Statements of Operations
Three Months Ended January 31, 2002 and 2001 6
Condensed Consolidated Statements of Cash Flows
Nine Months Ended January 31, 2002 and 2001 7
Notes to Condensed Consolidated Financial Statements 8-10
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 11-14
Part II. Other Information:
Item 1 - Legal Proceedings 14
Item 6 - Exhibits and Reports on Form 8-K 14
Signatures 15
Frequency Electronics, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
January 31, April 30,
2002 2001
(UNAUDITED) (NOTE A)
(In thousands)
ASSETS:
Current assets:
Cash and cash equivalents $ 4,363 $ 2,121
Marketable securities 29,835 33,407
Accounts receivable, net of allowance for
doubtful accounts of $270 at January 31,
2002 and $190 at April 30, 2001 12,325 15,160
Inventories 21,278 20,471
Deferred income taxes 4,575 4,313
Prepaid expenses and other 1,551 4,662
------- --------
Total current assets 73,927 80,134
Property, plant and equipment, at cost,
less accumulated depreciation and
amortization 12,167 11,997
Intangible assets 5,028 4,987
Other assets 5,285 4,921
------- --------
Total assets $96,407 $102,039
======= ========
See accompanying notes to condensed consolidated financial statements.
Frequency Electronics, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Continued)
January 31, April 30,
2002 2001
(UNAUDITED) (NOTE A)
(In thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable - trade $ 2,103 $ 2,408
Accrued liabilities and other 4,790 11,126
-------- --------
Total current liabilities 6,893 13,534
Deferred compensation 6,008 5,726
Other liabilities 11,821 12,348
-------- --------
Total liabilities 24,722 31,608
-------- --------
Minority interest in subsidiary 227 226
Stockholders' equity:
Preferred stock - $1.00 par value -0- -0-
Common stock - $1.00 par value 9,164 9,164
Additional paid-in capital 42,981 42,860
Retained earnings 22,353 21,226
-------- --------
74,498 73,250
Common stock reacquired and held in treasury
-at cost, 836,806 shares at
January 31, 2002 and 872,669
shares at April 30, 2001 (2,829) (3,127)
Other stockholders' equity (117) (122)
Accumulated other comprehensive (loss) income (94) 204
-------- --------
Total stockholders' equity 71,458 70,205
-------- --------
Total liabilities and stockholders' equity $ 96,407 $102,039
======== ========
See accompanying notes to condensed consolidated financial statements.
Frequency Electronics, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
Nine Months Ended January 31,
(Unaudited)
2002 2001
(In thousands except per share data)
Net sales $32,100 $34,905
Cost of sales 19,963 20,470
------- -------
Gross margin 12,137 14,435
Selling and administrative expenses 6,404 7,145
Research and development expenses 4,235 3,500
------- -------
Operating profit 1,498 3,790
Other income (expense):
Investment income 1,659 2,423
Interest expense (221) (242)
Other income (expense), net (56) (39)
------- -------
Income before minority interest and
provision for income taxes 2,880 5,932
Minority interest in income of
consolidated subsidiary 2 4
------- -------
Income before provision for income taxes 2,878 5,928
Provision for income taxes 920 2,018
------- -------
Net income $ 1,958 $ 3,910
======= =======
Net earnings per common share
Basic $ 0.23 $ 0.48
======= =======
Diluted $ 0.23 $ 0.46
======= =======
Average shares outstanding
Basic 8,345,439 8,167,970
========= =========
Diluted 8,531,732 8,464,346
========= =========
See accompanying notes to consolidated condensed financial statements.
Frequency Electronics, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
Three Months Ended January 31,
(Unaudited)
2002 2001
(In thousands except per share data)
Net sales $ 9,565 $15,193
Cost of sales 5,939 9,361
------- -------
Gross margin 3,626 5,832
Selling and administrative expenses 2,163 2,967
Research and development expense 1,365 1,134
------- -------
Operating profit 98 1,731
Other income (expense):
Investment income 482 929
Interest expense (67) (92)
Other income (expense), net (27) (9)
------- -------
Income before minority interest and
provision for income taxes 486 2,559
Minority interest in income of
consolidated subsidiary 10 3
------- -------
Income before provision for income taxes 476 2,556
Provision for income taxes 150 923
------- -------
Net income $ 326 $ 1,633
======= =======
Net earnings per common share
Basic $ 0.04 $ 0.20
======= =======
Diluted $ 0.04 $ 0.19
======= =======
Average shares outstanding
Basic 8,357,402 8,285,506
========= =========
Diluted 8,539,114 8,554,436
========= =========
See accompanying notes to condensed consolidated financial statements.
Frequency Electronics, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
Nine Months Ended January 31,
(Unaudited)
2002 2001
(In thousands)
Cash flows from operating activities:
Net income $1,958 $3,910
Non-cash charges to earnings 1,081 1,679
Net changes in other assets and liabilities (199) (610)
------ ------
Net cash provided by operating activities 2,840 4,979
Cash flows from investing activities:
Payment for acquisition, net of cash acquired - (8,208)
Proceeds from sale of marketable securities 10,641 7,150
Purchase of marketable securities (7,540) (2,317)
Other - net (1,447) (1,027)
------ ------
Net cash provided by (used in) investing activities 1,654 (4,402)
Cash flows from financing activities:
Payment of cash dividend (1,660) (1,627)
Payment of debt (509) (573)
Proceeds from stock option exercises 96 716
Other - net (185) (175)
------ ------
Net cash used in financing activities (2,258) (1,659)
------ ------
Net increase (decrease) in cash and cash equivalents
before effect of exchange rate changes 2,236 (1,082)
Effect of exchange rate changes on cash
and cash equivalents 6 39
------ ------
Net increase (decrease) in cash 2,242 (1,043)
Cash at beginning of period 2,121 4,994
------ ------
Cash at end of period $4,363 $3,951
====== ======
See accompanying notes to condensed consolidated financial statements.
Frequency Electronics, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE A - CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of management of the Company, the accompanying unaudited
condensed consolidated 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, 2002 and the results of its operations and cash flows for the
nine and three months ended January 31, 2002 and 2001. The April 30, 2001
condensed consolidated 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 condensed
consolidated financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's April 30, 2001 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 - EARNINGS PER SHARE
Reconciliation of the weighted average shares outstanding for basic and
diluted Earnings Per Share are as follows:
Periods ended January 31,
Nine months Three months
2002 2001 2002 2001
Basic EPS Shares outstanding
(weighted average) 8,345,439 8,167,970 8,357,402 8,285,506
Effect of Dilutive Securities 186,293 296,376 181,712 268,930
--------- --------- --------- ---------
Diluted EPS Shares outstanding 8,531,732 8,464,346 8,539,114 8,554,436
========= ========= ========= =========
Options to purchase 243,250 and 265,000 shares of common stock were
outstanding during the nine and three months ended January 31, 2002 and 2001,
but were not included in the computation of diluted earnings per share. Since
the exercise price of these options was greater than the average market price of
the Company's common shares during the respective periods, their inclusion in
the computation would have been antidilutive. Consequently, these options are
excluded from the
computation of earnings per share.
NOTE C - ACCOUNTS RECEIVABLE
Accounts receivable at January 31, 2002 and April 30, 2001 include costs
and estimated earnings in excess of billings on uncompleted contracts accounted
for on the percentage of completion basis of approximately $4,262,000 and
$3,814,000, 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 D - INVENTORIES
Inventories, which are reported net of reserves of $3,896,000 and
$4,001,000 at January 31, 2002 and April 30, 2001, respectively, consist of the
following:
January 31, 2002 April 30, 2001
(In thousands)
Raw materials and Component parts $ 9,937 $ 9,227
Work in progress and Finished goods 11,341 11,244
------- -------
$21,278 $20,471
======= =======
Frequency Electronics, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE E - COMPREHENSIVE INCOME
For the nine months ended January 31, 2002 and 2001, total comprehensive
income was $1,660,000 and $5,524,000, respectively.
NOTE F - SEGMENT INFORMATION
The Company operates under three reportable segments:
1. Commercial Communications - consists principally of time and
frequency control products used in two principal markets-
commercial communication satellites and terrestrial cellular
telephone or other ground-based telecommunication stations.
2. U.S. Government - consists of time and frequency control products
used for national defense or space-related programs.
3. Gillam-FEI - the products of the Company's Belgian subsidiary
consist primarily of wireline synchronization and network
monitoring systems.
The table below presents information about reported segments with
reconciliation of segment amounts to consolidated amounts as reported in the
statement of operations or the balance sheet for each of the periods (in
thousands):
Nine months ended January 31,
2002 2001
---- ----
Net sales:
Commercial Communications $22,652 $27,865
U.S. Government 2,894 2,610
Gillam-FEI 7,322 4,508
less intercompany sales (768) (78)
------- -------
Consolidated Sales $32,100 $34,905
======= =======
Operating profit (loss):
Commercial Communications $1,906 $4,206
U.S. Government 709 513
Gillam-FEI (359) 186
less intercompany transactions (213) -
Corporate (545) (1,115)
------ ------
Consolidated Operating Profit $1,498 $3,790
====== ======
January 31, 2002 April 30, 2001
Identifiable assets:
Commercial Communications $ 23,765 $ 25,025
U.S. Government 2,418 1,580
Gillam-FEI 18,437 19,237
less intercompany balances (1,061) (234)
Corporate 52,848 56,431
-------- --------
Consolidated Identifiable Assets $ 96,407 $102,039
======== ========
Frequency Electronics, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE G - ACQUISITION OF GILLAM S.A.
On September 13, 2000, the Company completed its acquisition of
substantially all of the outstanding shares of Gillam S.A. ("Gillam"), a
privately-held company organized under the laws of Belgium. Gillam's business is
based in the telecommunications market and targeted to four main areas:
(i) "Wireline Network Synchronization" - managing timing and
interconnectivity for communication networks; (ii) "Remote
Control" - consisting of network monitoring systems; (iii) "Rural
Telephony" - equipment designed to connect isolated subscribers t a
telephone network via satellite and (iv)"Power Supplies" - produced through
a subsidiary, for telecom service providers. The acquired company has been
renamed Gillam-FEI.
The Gillam acquisition was consummated pursuant to the terms of a Share
Purchase Agreement dated as of August 29, 2000. Under terms of the agreement,
the Company paid $8,400,264 in cash and issued 154,681 shares of common stock
("FEI stock") to acquire the outstanding stock of Gillam. Based upon the market
value of FEI's stock on July 25, 2002, the Share Purchase Agreement may require
the Company to issue to the Gillam shareholders up to 35,000 additional shares
of FEI stock. In addition, the Company paid approximately $496,000 in direct
transaction costs. Thus, the total purchase price is approximately as follows:
(in thousands)
Cash paid for Gillam shares $ 8,400
Fair value of restricted shares issued 3,465
Direct transaction costs 496
-------
Total purchase price $12,361
=======
The Gillam acquisition is treated as a purchase. The purchase price is
allocated to net assets acquired of approximately $7,282,000 and to intangible
assets, principally goodwill, of approximately $5,079,000. On May 1, 2001, the
Company adopted Statement 142 of the Financial Accounting Standards Board ("SFAS
142"), "Goodwill and Other Intangible Assets", under which goodwill is no longer
amortized but is to be tested at least annually for impairment. The adoption of
SFAS 142 reduces general and administrative expenses by approximately $85,000
per quarter.
The accompanying condensed consolidated statements of operations for the
nine- and three-month periods ended January 31, 2002, include the results of
operations of Gillam-FEI. The nine- and three-month periods ended January 31,
2001, include the results of operations of Gillam-FEI only from the date of
acquisition. The pro forma financial information set forth below is based upon
the Company's historical consolidated statements of operations for the nine
months ended January 31, 2001, adjusted to give effect to the acquisition of
Gillam-FEI as of the beginning of the period.
The pro forma financial information is presented for informational purposes
only and may not be indicative of what actual results of operations would have
been had the acquisition occurred on May 1, 2000, nor does it purport to
represent the results of operations for future periods.
Pro forma
Nine months ended
January 31, 2001
(In thousands except per share data)
Net Sales $39,374
-------
Operating Profit $3,505
------
Income from continuing operations $3,510
======
Earnings per share- basic $ 0.43
======
Earnings per share- diluted $ 0.41
======
Frequency Electronics, Inc. and Subsidiaries
Item 2
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Critical Accounting Policies and Estimates
The Company's significant accounting policies are described in Note 1 to the
consolidated financial statements included in the Company's April 30, 2001
Annual Report to Stockholders. The Company believes its most critical accounting
policies to be the recognition of revenue and costs on production contracts and
the valuation of inventory.
Revenues under larger, long-term contracts, generally defined as orders in
excess of $100,000, are reported in operating results using the percentage of
completion method. For U.S. Government and other fixed-price contracts that
require initial design and development of the product, revenue is recognized on
the cost-to-cost method. Under this method, revenue is recorded based upon the
ratio that incurred costs bear to total estimated contract costs with related
cost of sales recorded as the costs are incurred. Each month management reviews
estimated contract costs. The effect of any change in the estimated gross margin
percentage for a contract is reflected in revenues in the period in which the
change is known. Provisions for anticipated losses on contracts are made in the
period in which they become determinable.
On production-type contracts, revenue is recorded as units are delivered with
the related cost of sales recognized on each shipment based upon a percentage of
estimated final contract costs. Changes in job performance may result in
revisions to costs and income and are recognized in the period in which
revisions are determined to be required. Provisions for anticipated losses on
contracts are made in the period in which they become determinable.
For contracts in the Company's Gillam-FEI segment, and smaller contracts or
orders in the other business segments, sales of products and services to
customers are reported in operating results based upon shipment of the product
or performance of the services pursuant to contractual terms. When payment is
contingent upon customer acceptance of the installed system, revenue is deferred
until such acceptance is received.
Contract costs include all direct material, direct labor costs, manufacturing
overhead and other direct costs related to contract performance. Selling,
general and administrative costs are charged to expense as incurred.
In accordance with industry practice, inventoried costs contain amounts relating
to contracts and programs with long production cycles, a portion of which will
not be realized within one year. Inventory reserves are established for
slow-moving and obsolete items and are based upon management's experience and
expectations for future business. Any changes in reserves arising from revised
expectations are reflected in cost of sales in the period the revision is made.
Frequency Electronics, Inc. and Subsidiaries
(Continued)
RESULTS OF OPERATIONS
The table below sets forth the percentage of consolidated net sales represented
by certain items in the Company's consolidated statements of operations for the
respective nine- and three-month periods of fiscal years 2002 and 2001:
Nine months Three months
Periods ended January 31,
2002 2001 2002 2001
Net sales
Commercial Communications 68.9% 79.6% 62.4% 67.5%
US Government 9.0 7.5 12.0 6.7
Gillam-FEI 22.1 12.9 25.6 25.8
----- ----- ----- -----
100.0 100.0 100.0 100.0
Cost of sales 62.2 58.6 62.1 61.6
----- ----- ----- -----
Gross margin 37.8 41.4 37.9 38.4
Selling and administrative
expenses 19.9 20.5 22.6 19.5
Research and development
expenses 13.2 10.0 14.3 7.5
----- ----- ----- -----
Operating profit 4.7 10.9 1.0 11.4
Other income (expense)- net 4.3 6.1 4.1 5.4
----- ----- ----- -----
Pretax income 9.0 17.0 5.1 16.8
Provision for income taxes 2.9 5.8 1.7 6.1
----- ----- ----- -----
Net income 6.1% 11.2% 3.4% 10.7%
===== ===== ===== =====
For the nine- and three-month periods ended January 31, 2002, revenues declined
by $2.8 million (8%) and by $5.6 million (37%), respectively, over the same
periods of fiscal year 2001. These results reflect the general slowdown in the
telecommunications industry. Gross margins were similarly impacted by the weaker
economic environment. In spite of this weakness the Company continued to invest
in research and development during the fiscal 2002 periods in order to prepare
for the expected economic upturn when it occurs. The immediate consequence of
these economic and strategic spending factors is lower profitability. For the
nine- and three-month periods ended January 31, 2002, operating profit decreased
by $2.3 million (60%) and $1.6 million (94%), respectively, and net income
decreased by $2.0 million (50%) and $1.3 million (80%), respectively, compared
to the same periods of fiscal 2001.
For the nine- and three-month periods ended January 31, 2002, margins on
Commercial Communications revenues were 41% and 40%, respectively, as compared
to 41% and 39%, respectively, for U.S. Government programs and 28% and 33%,
respectively, for Gillam-FEI. During the comparable periods ended January 31,
2001, gross margins on Commercial Communications sales were 44% while margins on
U.S. Government programs were 38% and 37%, respectively, and Gillam-FEI realized
margins of 25% and 23%, respectively. The Commercial Communications and U.S.
Government margins are within the Company's expectations given the current mix
of production and long-term contracts as well as the lower sales volume which
causes a higher level of overhead absorption. Margins on Gillam-FEI sales are
historically lower than the rest of the Company due to the higher cost structure
in Europe. One of the goals of the Company is to introduce products and
procedures which will increase Gillam-FEI's margins to a level comparable to
that of the other segments. With the present mix of orders and recent contract
bookings, the Company expects to maintain its profit margins at or near the
current level for the remainder of fiscal 2002.
Selling and administrative costs decreased by $741,000 (10%) and by $804,000
(27%) for the nine- and three-month periods ended January 31, 2002, compared to
the same periods of fiscal 2001. Excluding Gillam-FEI, selling and
administrative expenses decreased by $1.55 million (22%) and $702,000 (31%),
respectively, over the nine- and three-month periods ended January 31, 2002. The
principal causes of these decreases were the reduction in amortization of
certain non-employee stock options as the options became exercisable in the
prior year, reduced travel-related costs, lower accruals for employee incentive
Frequency Electronics, Inc. and Subsidiaries
(Continued)
plans due to lower profits, and reduced legal fees and costs due to a litigation
settlement in fiscal 2001 for which the Company paid $245,000. The Company
anticipates that fiscal 2002 selling and administrative expenses will continue
to be less than those incurred in fiscal 2001 and should approximate 20% of
revenues.
Research and development costs in the fiscal 2002 periods increased by $735,000
(21%) and $231,000 (20%), respectively, over the comparable nine- and
three-month periods ended January 31, 2001. The Company has used the slowdown in
the telecommunications market as an opportunity to allocate additional resources
to develop new products that achieve higher performance and are more
cost-effective. Approximately 20% of development spending in the fiscal 2002
periods was incurred by Gillam-FEI. The Company intends to introduce
Gillam-FEI's wireline synchronization product to the growing U.S market during
calendar year 2002. In addition, during fiscal 2002 the Company completed
development and began marketing a high precision quartz oscillator which has
performance characteristics approaching that of a rubidium oscillator but at a
fraction of the cost. Development continues on products to support third
generation (3G) wireless infrastructure systems, products which increase the
capability of existing TDMA and GSM systems (2.5G or EDGE), and products for
interconnectivity with wireline and fiber optic networks. The Company expects
the level of research and development spending to decline from current levels as
several of these projects near completion. However, to remain at the leading
edge of its technologies, the Company will continue to invest in new products
and markets as opportunities present themselves. Internally generated cash and
cash reserves are adequate to fund this development effort.
Net nonoperating income and expense decreased by $760,000 (35%) and by $440,000
(53%), respectively, in the nine- and three-month periods ended January 31, 2002
as compared to the fiscal 2001 periods. Investment income declined by $764,000
(32%) and $447,000 (48%), respectively, from the same periods of fiscal 2001.
The sale or redemption of marketable securities during the fiscal 2002 periods
resulted in capital gains which were lower by $260,000 and $300,000,
respectively, than those realized during the fiscal 2001 nine- and three-month
periods. In addition, lower interest rates on marketable securities and a
decrease in invested assets reduced investment income by $500,000 and $140,000,
respectively, during the fiscal 2002 periods. The decrease in the level of
marketable securities in fiscal 2002 is due to the investment in Gillam-FEI
which was made in September 2000. Interest expense during the nine- and
three-month periods ended January 31, 2002, is lower by $21,000 (9%) and $25,000
(27%), respectively, over the same periods of fiscal 2001. These reductions are
principally the result of the paydown of debt by Gillam-FEI during fiscal 2002.
Other income (expense), net, consists principally of certain non-recurring
transactions and is generally not significant to net income.
The Company is subject to income taxes in both the United States and Europe. The
federal statutory rates vary from 34% to 40%. The Company's effective tax rate
is lower than the statutory rates primarily due to the availability of Research
and Development Tax Credits in the United States.
LIQUIDITY AND CAPITAL RESOURCES
The Company's balance sheet continues to reflect a strong working capital
position of $67.0 million at January 31, 2002 which is comparable to the $66.6
million working capital at April 30, 2001. Included in working capital at
January 31, 2002 is $34.2 million of cash, cash equivalents and marketable
securities, including $11.8 million of REIT units which are convertible to
Reckson Associates Realty Corp. common stock.
Net cash provided by operating activities for the nine months ended January 31,
2002, was $2.84 million. In fiscal 2002, the Company received $3.0 million for
reimbursement of certain legal expenses covered under directors' and officers'
liability insurance. This inflow was partially offset by payments against
certain accrued expenses, including income taxes payable of $2.6 million and the
payment of cash bonuses under incentive compensation plans. Cash was also
generated by collections on accounts receivable, offset by repayment of amounts
due to customers. The Company anticipates that it will continue to generate
positive cash flow from operating activities this fiscal year.
Frequency Electronics, Inc. and Subsidiaries
(Continued)
Net cash provided by investing activities for the nine months ended January 31,
2002, was $1.65 million. Approximately $10.6 million was obtained from the sale
or redemption of certain marketable securities, most of which ($7.5 million) was
reinvested in higher yielding marketable securities. The net inflows were offset
by the acquisition of capital equipment for approximately $1.1 million and an
approximately $300,000 investment in a minority interest in a Russian crystal
manufacturer. The Company may continue to acquire or sell marketable securities
as dictated by its investment strategies as well as by the cash requirements for
its development activities. The Company will continue to acquire more efficient
equipment to automate its production process and expand its capacity. The
Company intends to spend approximately $2 million on capital equipment during
fiscal 2002. Internally generated cash will be adequate to acquire this capital
equipment.
Net cash used in financing activities for the nine months ended January 31,
2002, was $2.3 million. This amount includes payment of the Company's semiannual
dividend in the aggregate amount of $1.7 million. In addition, the Company made
scheduled debt payments of $509,000. Offsetting the cash outflows is
approximately $96,000 received on the exercise of stock options to acquire
approximately 14,000 shares of Company stock.
At January 31, 2002, the Company's backlog amounted to approximately $34
million, as compared to the backlog at April 30, 2001 of $39 million.
Approximately 65% of the backlog represent orders for the Commercial
Communications segment, 20% for the Gillam-FEI segment and 15% for the U.S.
Government segment. Of this backlog, approximately 80% is realizable in the next
12 months.
"Safe Harbor" Statement under the Private Securities
Litigation Reform Act of 1995:
The statements in this quarterly report on Form 10Q regarding future earnings
and operations and other statements relating to the future constitute
"forward-looking" statements pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. Forward-looking statements
inherently involve risks and uncertainties that could cause actual results to
differ materially from the forward-looking statements. Factors that would cause
or contribute to such differences include, but are not limited to, continued
acceptance of the Company's products in the marketplace, competitive factors,
new products and technological changes, product prices and raw material costs,
dependence upon third-party vendors, competitive developments, changes in
manufacturing and transportation costs, changes in contractual terms, the
availability of capital, and other risks detailed in the Company's periodic
report filings with the Securities and Exchange Commission. By making these
forward-looking statements, the Company undertakes no obligation to update these
statements for revisions or changes after the date of this report.
PART II
ITEM 1 - Legal Proceedings
On March 14, 2000, FEI commenced an action in the state court against
National Union Fire Insurance of Pittsburgh, PA ("National"). The complaint set
forth causes of action for declaratory judgment and breach of contract relating
to certain directors and officers' liability insurance policies in connection
with the Muller qui tam action and certain other litigations. Pursuant to a
Settlement Agreement dated April 18, 2001, the action against National was
settled, FEI was paid $3.0 million representing the full amount of the available
coverage under the applicable National policy, FEI released its claims and the
action was discontinued.
ITEM 6 - Exhibits and Reports on Form 8-K
(a) Exhibits - None
(b) Registrant's Form 8-K, dated March 6, 2002, containing disclosure
under Item 5 thereof (declaration of semi-annual dividend), was
filed with the Securities and Exchange Commission.
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, 2002 BY /s/ Joseph P. Franklin
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Joseph P. Franklin
Chairman of the Board of Directors
Date: March 15, 2002 BY /s/Alan Miller
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Alan Miller
Chief Financial Officer
and Controller