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, 2001
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 9, 2001 - 8,286,660
Page 1 of 15
Frequency Electronics, Inc. and Subsidiaries
INDEX
Part I. Financial Information: Page No.
Item 1 - Financial Statements:
Consolidated Condensed Balance Sheets -
January 31, 2001 and April 30, 2000 3-4
Consolidated Condensed Statements of Operations
Nine months Ended January 31, 2001 and 2000 5
Consolidated Condensed Statements of Operations
Three Months Ended January 31, 2001 and 2000 6
Consolidated Condensed Statements of Cash Flows
Nine months Ended January 31, 2001 and 2000 7
Notes to Consolidated Condensed 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
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Frequency Electronics, Inc. and Subsidiaries
Consolidated Condensed Balance Sheets
January 31, April 30,
2001 2000
---- ----
(UNAUDITED) (NOTE A)
(In thousands)
ASSETS:
Current assets:
Cash and cash equivalents $ 3,951 $ 4,994
Marketable securities 33,875 36,013
Accounts receivable, net 15,975 9,590
Inventories 21,127 13,307
Deferred income taxes 1,234 1,940
Prepaid and other 1,324 1,329
-------- -------
Total current assets 77,486 67,173
Property, plant and equipment, net 11,845 9,040
Deferred income taxes 1,459 600
Intangible assets 5,532 -
Other assets 4,576 4,034
-------- -------
Total assets $100,898 $80,847
======== =======
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,
2001 2000
---- ----
(UNAUDITED) (NOTE A)
(In thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Current maturities of long-term debt $ 793 -
Accounts payable - trade 3,662 $ 1,019
Accrued liabilities and other 7,876 3,989
-------- -------
Total current liabilities 12,331 5,008
Deferred compensation 5,725 5,276
Deposit liability and other 12,523 11,573
-------- -------
Total liabilities 30,579 21,857
-------- -------
Minority interest in subsidiary 208 -
Stockholders' equity:
Preferred stock - $1.00 par value -0- -0-
Common stock - $1.00 par value 9,164 9,009
Additional paid - in capital 42,913 37,929
Retained earnings 20,321 17,239
-------- -------
72,398 64,177
Common stock reacquired and held in treasury
-at cost, 877,279 shares at January 31,
2001 and 1,016,552 shares at April 30, 2000 (3,258) (3,644)
Other stockholders' equity (126) (135)
Accumulated other comprehensive income (loss) 1,097 (1,408)
-------- -------
Total stockholders' equity 70,111 58,990
-------- -------
Total liabilities and stockholders' equity $100,898 $80,847
======== =======
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)
2001 2000
---- ----
(In thousands except per share data)
Net Sales $34,905 $18,617
Cost of sales 20,470 10,400
------- -------
Gross margin 14,435 8,217
Selling and administrative expenses 7,145 3,822
Research and development expenses 3,500 3,625
------- -------
Operating profit 3,790 770
Other income (expense):
Investment income 2,423 2,891
Interest expense (242) (235)
Other income (expense), net (39) (191)
------- -------
Earnings before minority interest and
provision for income taxes 5,932 3,235
Minority interest in income of
consolidated subsidiary 4 -
------- -------
Earnings before provision for income taxes 5,928 3,235
Income tax provision 2,018 1,110
------- -------
Net earnings $ 3,910 $ 2,125
======= =======
Net earnings per common share
Basic $ 0.48 $ 0.28
====== ======
Diluted $ 0.46 $ 0.27
====== ======
Average shares outstanding
Basic 8,167,970 7,583,586
========= =========
Diluted 8,464,346 7,950,670
========= =========
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)
2001 2000
---- ----
(In thousands except per share data)
Net Sales $15,193 $ 7,117
Cost of sales 9,361 3,973
------- -------
Gross Margin 5,832 3,144
Selling and administrative expenses 2,967 1,498
Research and development expenses 1,134 1,135
------- ------
Operating profit 1,731 511
Other income (expense)
Investment income 929 1,581
Interest expense (92) (74)
Other income (expense), net (9) (215)
------- -------
Earnings before minority interest and
provision for income taxes 2,559 1,803
Minority interest in income of
consolidated subsidiary 3 -
------- -------
Earnings before provision for income taxes 2,556 1,803
Income tax provision 923 600
------- -------
Net earnings $ 1,633 $ 1,203
======= =======
Net earnings per common share
Basic $ 0.20 $ 0.16
====== ======
Diluted $ 0.19 $ 0.15
====== ======
Average shares outstanding
Basic 8,285,506 7,543,659
========= =========
Diluted 8,554,436 7,945,919
========= =========
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)
2001 2000
---- ----
(In thousands)
Cash flows from operating activities:
Net earnings $ 3,910 $ 2,125
Gain on sale of marketable securities (456) (1,273)
Non-cash charges to earnings 2,135 2,192
Net changes in other assets and liabilities (610) 839
------- -------
Net cash provided by operating activities 4,979 3,883
Cash flows from investing activities:
Payment for acquisition, net of cash acquired (8,208) -
Proceeds from sale of marketable securities 7,150 6,717
Purchase of marketable securities (2,317) (3,303)
Other - net (1,027) (592)
------- -------
Net cash (used in) provided by investing activities (4,402) 2,822
Cash flows from financing activities:
Payment of cash dividend (1,627) (1,532)
Payment of debt (573) (529)
Proceeds from stock option exercises 716 382
Other - net (175) -
------- -------
Net cash used in financing activities (1,659) (1,679)
Effect of exchange rate changes
on cash and cash equivalents 39 -
------- -------
Net (decrease) increase in cash (1,043) 5,026
Cash at beginning of period 4,994 567
------- -------
Cash at end of period $ 3,951 $ 5,593
======= =======
See accompanying notes to consolidated condensed
financial statements.
7 of 15
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, 2001 and the results of its operations and
cash flows for the nine and three months ended January 31, 2001 and 2000.
The April 30, 2000 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, 2000 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
----------- ------------
2001 2000 2001 2000
---- ---- ---- ----
Basic EPS Shares outstanding
(weighted average) 8,167,970 7,583,586 8,285,506 7,543,659
Effect of Dilutive Securities 296,376 367,084 268,930 402,260
--------- --------- --------- ---------
Diluted EPS Shares outstanding 8,464,346 7,950,670 8,554,436 7,945,919
========= ========= ========= =========
Options to purchase 265,000 and 258,375 shares of common stock were
outstanding during the nine- and three-month periods ended January 31, 2001
and 2000, respectively, 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, 2001 and April 30, 2000 include costs
and estimated earnings in excess of billings on uncompleted contracts
accounted for on the percentage of completion basis of approximately
$2,499,000 and $2,584,000, 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 $1,180,000 and
$1,188,000 at January 31, 2001 and April 30, 2000, respectively, consist of the
following:
January 31, 2001 April 30, 2000
---------------- --------------
(In thousands)
Raw materials and Component parts $ 8,582 $ 6,188
Work in progress 12,545 7,119
-------- --------
$21,127 $13,307
======= =======
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Frequency Electronics, Inc. and Subsidiaries
Notes to Consolidated Condensed Financial Statements
(Unaudited)
NOTE E -COMPREHENSIVE INCOME
For the nine months ended January 31, 2001 and 2000, total comprehensive
income was $5,524,000 and $965,000, respectively. For the third quarter of
fiscal years 2001 and 2000, comprehensive income was $1,910,000 and
$1,551,000, 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. Wireline and network synchronization systems - consists of the business
of the Company's Belgian subsidiary, Gillam-FEI.
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,
2001 2000
---- ----
Net sales:
Commercial Communications $27,865 $15,837
U.S. Government 2,610 2,780
Wireline and Network Synchronization 4,508 0
less intercompany sales (78) -
------- -------
Consolidated Sales $34,905 $18,617
======= =======
Operating profit (loss):
Commercial Communications $ 4,206 $ 657
U.S. Government 513 689
Wireline and Network Synchronization 186 0
Corporate (1,115) (576)
------- ------
Consolidated Operating Profit $ 3,790 $ 770
======= ======
January 31, 2001 April 30, 2000
---------------- --------------
Identifiable assets:
Commercial Communications $ 23,353 $18,447
U.S. Government 1,898 4,450
Wireline and Network Synchronization 21,305 0
Corporate 54,342 57,950
--------- --------
Consolidated Identifiable Assets $100,898 $80,847
======== =======
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:
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Frequency Electronics, Inc. and Subsidiaries
Notes to Consolidated Condensed Financial Statements
(Unaudited)
(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 to 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 $487,000 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 487
-------
Total purchase price $12,352
=======
The Gillam acquisition is treated as a purchase. The purchase price is
allocated to net assets acquired of approximately $7,422,000 and to
intangible assets, principally goodwill, of approximately $4,930,000.
Goodwill will be amortized on the straightline method over 15 years.
The accompanying condensed consolidated statements of operations for the
nine- and three-month periods ended January 31, 2001, include the results
of operations of Gillam from September 13, 2000 through December 31, 2000.
(Gillam will retain its April 1 to March 31 fiscal year for financial
reporting purposes.) 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 and 2000, adjusted to give
effect to the acquisition of Gillam as of the beginning of each of the
periods presented.
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, 1999, nor does it purport
to represent the results of operations for future periods.
Pro forma
Nine months ended January 31
2001 2000
---- ----
(In thousands except per share data)
Net Sales $39,374 $29,260
------- -------
Operating Profit $3,505 $ 1,276
------ -------
Income from continuing operations $3,510 $ 2,118
====== =======
Earnings per share- basic $ 0.43 $ 0.27
====== ======
Earnings per share- diluted $ 0.41 $ 0.26
====== ======
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Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
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 2001 and 2000:
Nine months Three months
Periods ended January 31,
2001 2000 2001 2000
---- ---- ---- ----
Net Sales
Commercial Communications 79.6% 85.1% 67.5% 83.9%
US Government 7.5 14.9 6.7 16.1
Wireline and Network
Synchronization 12.9 0.0 25.8 0.0
----- ----- ----- -----
100.0 100.0 100.0 100.0
Cost of Sales 58.6 55.9 61.6 55.8
Selling and administrative expenses 20.5 20.5 19.5 21.1
Research and development expenses 10.0 19.5 7.5 15.9
----- ----- ----- -----
Operating profit 10.9 4.1 11.4 7.2
Other income (expense)- net 6.1 13.2 5.4 18.1
----- ----- ----- -----
Pretax Income 17.0 17.3 16.8 25.3
Provision for income taxes 5.8 5.9 6.1 8.4
----- ----- ----- -----
Net earnings 11.2% 11.4% 10.7% 16.9%
==== ==== ==== ====
On September 13, 2000, the Company completed its acquisition of Gillam S.A.,
since renamed Gillam-FEI. The consolidated financial statements of the Company
were impacted by this acquisition by inclusion of the results of operations for
Gillam-FEI for the period from September 13, 2000 through December 31, 2000, the
end of Gillam-FEI's fiscal third quarter.
For the nine- and three-month periods ended January 31, 2001, the Company's
revenues increased by 87% and 113%, respectively, over the same periods of
fiscal 2000. Similarly, operating profit increased by $3.0 million (392%) and
$1.2 million (239%), respectively, and net income improved by $1.78 million
(84%) and $430,000 (36%), respectively. Excluding Gillam-FEI, revenues for the
fiscal 2001 periods increased by 63% and 59%, respectively, over the same
periods of fiscal 2000 and net income increased by 82% and 33%, respectively.
These outstanding results derive from continued growth in demand for the
Company's leading edge technology products, which include timing, frequency and
synchronization applications for wireless, wireline and optical networks, along
with ongoing space and defense projects. The Company expects demand for such
products to continue to grow. Consequently, the Company will experience
continued growth in revenue and profitability. The rate of such growth is
dependent on the specific requirements of the Company's customers which may vary
over time.
Gross margins for the nine- and three-month periods of fiscal 2001 were 41% and
38%, respectively, compared to 44% for each of the same periods ended January
31, 2000. Cost of sales in fiscal 2001 includes the writedown of a portion of
the "step-up" value of acquired inventory resulting from the acquisition of
Gillam-FEI. This reduced gross margin by $142,000 in both fiscal 2001 periods.
Margins on commercial revenues, including Gillam-FEI, were 42% for the
nine-month period and 38% for the three-month period ended January 31, 2001
while gross margins on US Government revenues were 38% in each of the periods.
11 of 15
Frequency Electronics, Inc. and Subsidiaries
(Continued)
The reduced gross margin rates in the fiscal 2001 periods are attributable to
product mix, including the impact of revenues from the Company's European
subsidiaries where the cost structure is typically greater than in the United
States. In addition, during the fiscal 2001 periods, the Company has been
engaged in two significant development efforts which are customer-funded. The
costs of these efforts, which approximate the revenue recognized on the
contracts, are a component of cost of sales. If these development contracts are
excluded, aggregate gross margins for each of the fiscal 2001 periods would
exceed 40%. The Company targets its overall gross margin rate to exceed 40% of
consolidated sales but the actual rate realized from quarter to quarter will
vary, as illustrated above.
Selling and administrative costs for the nine- and three-month periods ended
January 31, 2001, increased by $3.32 million (87%) and $1.47 million (98%)
compared to the same periods of fiscal year 2000. Excluding expenses incurred by
Gillam-FEI, including amortization of goodwill of approximately $100,000, the
increases would be 66% and 52%, respectively. Of the increase, approximately
$219,000 is attributable to settlement of certain litigation (see Part II, Item
1- Legal Proceedings) and related legal costs of $432,000 incurred during the
nine-month period. Excluding these litigation-related costs, selling and
administrative expense as a percentage of sales would be less than 20% for the
nine-month period ended January 31, 2001, which is within the Company's target
for these costs. However, the absolute dollar spending for selling and
administrative expenses is expected to increase as the Company continues to
grow. Examples of this growth include the cost of additional support personnel,
greater sales and marketing expenditures, including commissions to sales
representatives, and increases for management incentive compensation programs
based on increased profitability. In addition, amortization of certain
non-employee stock options was approximately $230,000 greater in the nine-month
period ended January 31, 2001 than that recorded in the comparable period of the
prior year as a result of the rising value of the Company's common stock.
Research and development costs in the nine-month period ended January 31, 2001
decreased by $125,000 (3%) compared to the same period of fiscal 2000. For the
three-months ended January 31, 2001 and 2000, development spending was
essentially the same in each period. Development spending by Gillam-FEI was not
significant for the fiscal 2001 periods. The apparent slowing of research and
development spending is not indicative of a decrease in the Company's
development efforts. As indicated above, some of the Company's development
spending during fiscal 2001 was customer-funded, thus decreasing self-funded
research and development expenditures but increasing cost of sales. The Company
continues to devote significant resources to develop new products and enhance
existing products for the commercial communications market. The products in
development will be used to increase the capability of existing TDMA and GSM
systems (2.5G and EDGE) and to support the development of third generation (3G)
wireless networks. The Company is supplying these products for beta-site
field-testing of 2.5G and 3G systems. In response to the large domestic demand
and growing need for highly sophisticated wireline synchronization units, the
Company is accelerating its development effort to configure Gillam-FEI's
wireline synchronization units to U.S. standards for introduction into domestic
networks. In addition, during the second quarter of fiscal 2001, the Company
delivered the first R/T (receive/transmit) modules that utilize the Company's
proprietary microwave technology to increase the throughput of fiber optic
networks. The Company anticipates that research and development spending will
continue at approximately the same level for the remainder of fiscal 2001,
targeting aggregate spending at approximately 10% of revenues. Internally
generated cash and cash reserves will be adequate to fund this development
effort.
Net nonoperating income and expense decreased by $323,000 (13%) and $464,000
(36%) in the nine- and three-month periods ended January 31, 2001 from the
comparable fiscal 2000 periods. Investment income decreased by $468,000 (16%)
and $652,000 (41%), respectively, in the fiscal year 2001 periods over the
comparable 2000 periods. This is principally the result of lower net realized
gains on the sale of certain marketable securities during the third quarter of
12 of 15
Frequency Electronics, Inc. and Subsidiaries
(Continued)
fiscal 2001 versus gains realized in fiscal 2000. Interest expense, including
Gillam-FEI, was approximately the same in both the fiscal 2001 and 2000 periods.
Other income (expense), net, which consists principally of certain non-recurring
transactions, was a net expense of $39,000 and $9,000 for the nine- and
three-month periods of fiscal 2001 versus expense of $191,000 and $215,000 in
the same periods of fiscal 2000. The fiscal 2000 periods included professional
fees incurred in connection with the acquisition and subsequent sale of certain
marketable securities and $90,000 in settlement of prior year property taxes
related to the Company's former real estate holdings. The net amount of these
items is generally nominal.
LIQUIDITY AND CAPITAL RESOURCES
The Company's balance sheet continues to reflect a strong working capital
position of $65 million at January 31, 2001 compared to working capital at April
30, 2000, of $62 million. Included in working capital at January 31, 2001 is
approximately $38 million of cash, cash equivalents and marketable securities,
including $12 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,
2001, was $5.0 million compared to a net cash inflow of $3.9 million in the
comparable fiscal 2000 period. The increase in cash flow in fiscal 2001 is
primarily due to the $1.8 million improvement in earnings plus growth in accrued
liabilities and accounts payable offset by a $2.5 million increase in inventory.
Due to long lead time requirements for certain component parts and work in
process inventory, the Company has built up its inventory levels in order to
meet the increased demand for its products. The Company anticipates that it will
continue to generate positive cash flow from operating activities for the
balance of fiscal year 2001 and into the following fiscal year.
Net cash used in investing activities for the nine months ended January 31,
2001, was $4.4 million. The major transaction during the nine-month period was
the acquisition of the shares of Gillam S.A. for which the Company paid an
aggregate of $8.9 million, including transaction costs. This purchase was
partially funded by the redemption of certain marketable securities of
approximately $6.2 million and was also offset by the acquired cash of
Gillam-FEI of approximately $758,000. The Company also acquired and sold other
marketable securities that resulted in a net application of cash of $1.4
million. The Company may continue to acquire or redeem marketable securities as
dictated by its investment opportunities as well as by the cash requirements for
its development activities. In addition, the Company acquired capital equipment
for approximately $1.03 million. The Company will continue to acquire more
efficient equipment to automate its test and production processes and to expand
its production capabilities. The Company intends to spend approximately $1.5
million on capital equipment during fiscal 2001 and is targeting to spend an
additional $1.5 million in 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,
2001, was $1.66 million which is comparable to the amount used in the same
period of fiscal 2000. Included in the fiscal 2001 amount is payment of the
Company's semi-annual dividend in the aggregate amount of $1.63 million. An
additional $748,000 was used to make regularly scheduled long-term liability
payments, including $573,000 paid by Gillam-FEI. These outflows were partially
offset by receipts of $716,000 from certain employees and independent
contractors in connection with stock option exercises.
Backlog
At January 31, 2001, the Company's backlog amounted to approximately $48 million
compared to the approximately $24 million backlog at April 30, 2000. Of this
backlog, approximately $9 million is attributable to Gillam-FEI. The Company
expects to realize more than 90% of this backlog in the next 12 months.
13 of 15
Frequency Electronics, Inc. and Subsidiaries
(Continued)
Foreign Currency Exchange Exposure
Included in the Company's balance sheet and statement of cash flows are
adjustments for foreign currency fluctuations. During the nine-month period
ended January 31, 2001, such fluctuations added $39,000 of cash to the Company's
reported balance sheet. In the equity section of the balance sheet, included in
accumulated other comprehensive income is a foreign currency translation gain of
$1,162,000. As indicated by the recent volatility experienced in rates of
exchange between the US dollar and the Euro, future currency adjustments could
be substantial. The Company has not entered into any hedging transactions
relative to foreign exchange issues but may do so in the future.
"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, 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 August 2, 2000, a Stipulation of Settlement was executed by all parties
and filed with the Court in the action pending against FEI and others in the
Court of Chancery, State of Delaware, New Castle county, entitled In re
Frequency Electronics, Inc., Derivative Litigation, Civil Action No. 13266: the
proposed settlement called for a total payment by FEI for legal fees and
disbursements not exceeding $245,000; the proposed settlement was subject to
notice to stockholders and Court approval. On October 4, 2000, the Court issued
an Order and Final Judgment of Dismissal of Derivative Action and awarded
attorneys' fees and expenses in the amount of $218,684. FEI paid such fees and
expenses in October 2000.
ITEM 6 - Exhibits and Reports on Form 8-K
(a) Exhibits - None
(b) On March 14, 2001, Registrant's report on Form 8-K, containing
disclosure under Item 5 thereof (declaration of semi-annual dividend),
was filed with the Securities and Exchange Commission.
(c) On November 27, 2000, Registrant filed with the SEC an amendment to
Form 8-K containing disclosures under Item 2- Acquisition or
Disposition of Assets and Item 7- Financial Statements and Exhibits,
reporting the audited financial statements of Gillam S.A. for the year
ended March 31, 2000 and the pro forma financial statements of the
Registrant for the year ended April 30, 2000.
(d) On November 1, 2000, the Company's report on Form 8-K, containing
disclosure under Item 5 thereof (litigation settlement), was filed with
the Securities and Exchange Commission.
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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 19, 2001 BY /s/ Joseph P. Franklin
----------------------
Joseph P. Franklin
Chairman of the Board
Date: March 19, 2001 BY /s/ Alan Miller
---------------
Alan Miller
Chief Financial Officer
and Treasurer
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