FREQUENCY ELECTRONICS INC - Quarter Report: 2011 July (Form 10-Q)

 

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QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

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TRANSITION REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

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)

 

 

Large accelerated filer ¨	Accelerated filer ¨	Non-accelerated filer ¨	Smaller Reporting Company x
	(do not check if a smaller reporting company)

 

 

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INDEX

		Page No.
Part I.  Financial Information:
Item 1 - Financial Statements:
Condensed Consolidated Balance Sheets - July 31, 2011 and April 30, 2011		3
Condensed Consolidated Statements of Operations Three Months Ended July 31, 2011 and 2010		4
Condensed Consolidated Statements of Cash Flows Three Months Ended July 31, 2011 and 2010		5
Notes to Condensed Consolidated Financial Statements		6-10
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations		10-16
Item 3 – Quantitative and Qualitative Disclosures about Market Risk		16
Item 4- Controls and Procedures		16-17
Part II.  Other Information:
Item 6 - Exhibits		17
Signatures		18
Exhibits

 

 

 

		July 31,				April 30,
		2011				2011
		(UNAUDITED)				(AUDITED)
						(NOTE A)
		(In thousands except share data)
ASSETS:
Current assets:
Cash and cash equivalents		$	7,659			$	5,275
Marketable securities			14,999				15,357
Accounts receivable, net of allowance for doubtful accounts of $258			8,738				11,663
Costs and estimated earnings in excess of billings, net			3,315				2,409
Inventories, net			30,247				28,172
Deferred income taxes			2,649				2,580
Prepaid income taxes, expenses and other			2,119				2,280
Total current assets			69,726				67,736
Property, plant and equipment, at cost, less accumulated depreciation and amortization			7,218				7,163
Deferred income taxes			750				750
Goodwill and other intangible assets			218				218
Cash surrender value of life insurance and cash held in trust			9,629				9,409
Investment in and loans receivable from affiliates			3,758				3,738
Other assets			817				817
Total assets		$	92,116			$	89,831
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable - trade		$	2,490			$	1,654
Accrued liabilities			5,061				5,457
Capital lease obligations			276				275
Total current liabilities			7,827				7,386
Capital lease obligation- noncurrent			113				181
Deferred compensation			9,897				9,827
Deferred rent and other liabilities			905				902
Total liabilities			18,742				18,296
Commitments and contingencies
Stockholders' equity:
Preferred stock  - $1.00 par value			-				-
Common stock  -  $1.00 par value, issued 9,163,940 shares			9,164				9,164
Additional paid-in capital			50,087				49,868
Retained earnings			12,630				11,286
			71,881				70,318
Common stock reacquired and held in treasury - at cost (853,033 shares at July 31, 2011 and 865,734 shares at April 30, 2011)			(3,913	)			(3,975	)
Accumulated other comprehensive income			5,406				5,192
Total stockholders' equity			73,374				71,535
Total liabilities and stockholders' equity		$	92,116			$	89,831

 

		2011				2010
		(In thousands except per share data)
Net revenues		$	15,939			$	12,124
Cost of revenues			9,795				7,378
Gross margin			6,144				4,746
Selling and administrative expenses			3,162				2,795
Research and development expense			1,198				1,162
Operating profit			1,784				789
Other income (expense):
Investment income			125				80
Equity income			19				28
Interest expense			(24	)			(35	)
Other income (expense), net			80				(5	)
Income before provision for income taxes			1,984				857
Provision for income taxes			640				350
Net income		$	1,344			$	507
Net income per common share:
Basic		$	0.16			$	0.06
Diluted		$	0.16			$	0.06
Average shares outstanding:
Basic			8,304,484				8,233,570
Diluted			8,503,101				8,280,332

 

		2011				2010
		(In thousands)
Cash flows from operating activities:
Net income		$	1,344			$	507
Non-cash charges to earnings, net			1,052				1,043
Net changes in operating assets and liabilities			266				(1,058	)
Net cash provided by operating activities			2,662				492
Cash flows from investing activities:
Purchase of marketable securities			(4,324	)			(2,500	)
Proceeds on redemption of marketable securities			4,511				1,500
Purchase of fixed assets			(520	)			(243	)
Net cash used in investing activities			(333	)			(1,243	)
Cash flows from financing activities:
Proceeds from exercise of stock options			13				-
Payment of lease obligations			(66	)			(70	)
Net cash used in financing activities			(53	)			(70	)
Net increase (decrease) in cash and cash equivalents before effect of exchange rate changes			2,276				(821	)
Effect of exchange rate changes on cash and cash equivalents			108				312
Net increase (decrease) in cash and cash equivalents			2,384				(509	)
Cash and cash equivalents at beginning of period			5,275				9,954
Cash and cash equivalents at end of period		$	7,659			$	9,445
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest		$	24			$	31
Income Taxes		$	1			$	450

 

 

		Three months ended July 31,
		2011				2010
Basic EPS Shares outstanding (weighted average)			8,304,484				8,233,570
Effect of Dilutive Securities			198,617				46,762
Diluted EPS Shares outstanding			8,503,101				8,280,332

 

 

		July 31, 2011				April 30, 2011
		(In thousands)
Costs and estimated earnings in excess of billings		$	4,782			$	3,711
Billings in excess of costs and estimated earnings			(1,467	)			(1,302	)
Net asset		$	3,315			$	2,409

 

 

 

 

 

 

 

		July 31, 2011				April 30, 2011
		(In thousands)
Raw Materials and Component Parts		$	13,781			$	13,477
Work in Progress			13,975				11,921
Finished Goods			2,491				2,774
		$	30,247			$	28,172

 

 

 

 

		Three months ended July 31,
		2011				2010
Net income		$	1,344			$	507
Foreign currency translation adjustment			331				(930	)
Change in market value of marketable securities			(183	)			86
Deferred tax effect of change in market value of marketable securities			66				-
Comprehensive income (loss)		$	1,558			$	( 337	)

 

 

(1)

FEI-NY – operates out of New York and its operations consist principally of precision time and frequency control products used in three principal markets- communication satellites (both commercial and U.S. Government-funded); terrestrial cellular telephone or other ground-based telecommunication stations and other components and systems for the U.S. military.

(2)

Gillam-FEI - operates out of Belgium and France and primarily sells wireline synchronization and network management systems in non-U.S. markets.  All sales from Gillam-FEI to the United States are to other segments of the Company.

(3)

FEI-Zyfer – operates out of California and its products incorporate Global Positioning System (GPS) technologies into systems and subsystems for secure communications, both government and commercial, and other locator applications.  This segment also provides sales and support for the Company’s wireline telecommunications family of products, including US5G, which are sold in the United States market.

 

 

 

 

 

		Three months ended July 31,
		2011				2010
Net revenues:
FEI-NY		$	10,615			$	7,642
Gillam-FEI			1,988				2,973
FEI-Zyfer			3,773				2,497
less intercompany revenues			(437	)			(988	)
Consolidated revenues		$	15,939			$	12,124
Operating profit:
FEI-NY		$	1,890			$	899
Gillam-FEI			(230	)			117
FEI-Zyfer			193				(161	)
Corporate			(69	)			(66	)
Consolidated operating profit		$	1,784			$	789

 

		July 31, 2011				April 30, 2011
Identifiable assets:
FEI-NY (approximately $3.6 million in China)		$	37,998			$	37,912
Gillam-FEI (all in Belgium or France)			21,046				20,875
FEI-Zyfer			7,638				8,434
less intersegment balances			(14,984	)			(16,295	)
Corporate			40,418				38,905
Consolidated identifiable assets		$	92,116			$	89,831

 

 

		Three months ended July 31,
		2011				2010
		(in thousands)
Purchases from:
Elcom		$	16			$	35
Morion			85				17
Sales to:
Elcom		$	-			$	58
Morion			766				128
Interest on Elcom notes receivable		$	21			$	25

 

 

 

 

		July 31, 2011
						Gross				Gross				Fair
						Unrealized				Unrealized				Market
		Cost				Gains				Losses				Value
Fixed income securities		$	11,449			$	281			$	(11	)		$	11,719
Equity securities			3,133				156				(9	)			3,280
		$	14,582			$	437			$	(20	)		$	14,999

 

		April 30, 2011
						Gross				Gross				Fair
						Unrealized				Unrealized				Market
		Cost				Gains				Losses				Value
Fixed income securities		$	11,741			$	256			$	(2	)		$	11,995
Equity securities			3,016				346				-				3,362
		$	14,757			$	602			$	(2	)		$	15,357

 

		Less than 12 months								12 Months or more								Total
		Fair				Unrealized				Fair				Unrealized				Fair				Unrealized
		Value				Losses				Value				Losses				Value				Losses
July 31, 2011
Fixed Income Securities		$	3,200			$	(11	)		$	-			$	-			$	3,200			$	(11	)
Equity Securities			531				(9	)			-				-				531				(9	)
		$	3,731			$	(20	)		$	-			$	-			$	3,731			$	(20	)
April 30, 2011
Fixed Income Securities		$	1,426			$	(2	)		$	-			$	-			$	1,426			$	(2	)
Equity Securities			-				-				-				-				-				-
		$	1,426			$	(2	)		$	-			$	-			$	1,426			$	(2	)

 

 

 

 

Current		$	2,008
Due after one year through five years			8,727
Due after five years through ten years			714
		$	11,449

 

 

 

Level 1

Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Company has the ability to access.

 

Level 2

Inputs to the valuation methodology include:

- Quoted prices for similar assets or liabilities in active markets;

- Quoted prices for identical or similar assets or liabilities in inactive markets

- Inputs other than quoted prices that are observable for the asset or liability;

- Inputs that are derived principally from or corroborated by observable market data by correlation or other means.

 

Level 3

Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

		Three months ended July 31,
		2011				2010
Net Revenues
FEI-NY			66.6	%			63.0	%
Gillam-FEI			12.5				24.5
FEI-Zyfer			23.7				20.6
Less intersegment revenues			(2.8	)			(8.1	)
			100.0				100.0
Cost of revenues			61.5				60.9
Gross margin			38.5				39.1
Selling and administrative expenses			19.8				23.0
Research and development expenses			7.5				9.6
Operating profit			11.2				6.5
Other income, net			1.2				0.6
Pretax income			12.4				7.1
Provision for income taxes			4.0				2.9
Net income			8.4	%			4.2	%

 

 

		(in millions)
		Three months ended July 31,
										Change
Segment		2011				2010				$				%
FEI-NY		$	10.6			$	7.6			$	3.0				39	%
Gillam-FEI			2.0				3.0				(1.0	)			(33	)%
FEI-Zyfer			3.8				2.5				1.3				51	%
Intersegment sales			(0.5	)			(1.0	)			0.5
		$	15.9			$	12.1			$	3.8				31	%

 

 

 

 

		Three months ended July 31,
										Change
		2011				2010				$				%
		$	6,144			$	4,746			$	1,398				29	%
GM Rate			38.5	%			39.1	%

 

 

 

		Three months ended July 31,
										Change
		2011				2010				$				%
		$	3,162			$	2,795			$	367				13	%

 

 

 

		Three months ended July 31,
										Change
		2011				2010				$				%
		$	1,198			$	1,162			$	36				3	%

 

 

 

		Three months ended July 31,
										Change
		2011				2010				$				%
		$	1,784			$	789			$	995				126	%

 

		Three months ended July 31,
										Change
		2011				2010				$				%
Investment income		$	125			$	80			$	45				56	%
Equity income			19				28				(9	)			(32	)%
Interest expense			(24	)			(35	)			11				31	%
Other income (expenses), net			80				(5	)			85			NM
		$	200			$	68			$	132				194	%

 

 

 

 

 

 

		Three months ended July 31,
										Change
		2011				2010				$				%
		$	640			$	350			$	290				83	%

 

 

 

		Three months ended July 31,
										Change
		2011				2010				$				%
		$	1,344			$	507			$	837				165	%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

31.1 -

Certification by the Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

31.2 -

Certification by the Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

32.1 -

Certification by the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

32.2 -

Certification by the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

101 –

The following materials from the Frequency Electronics, Inc. Quarterly Report on Form 10-Q for the quarter ended July 31, 2011 formatted in eXtensible Business Reporting Language (XBRL): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Cash Flows and (iv) Notes to Condensed Consolidated Financial Statements.

 

	FREQUENCY ELECTRONICS, INC.
	(Registrant)
Date: September 14, 2011	BY	/s/   Alan Miller
		Alan Miller
	Secretary/Treasurer and Chief Financial Officer
	Signing on behalf of the registrant and as principal
	financial officer