Search the web
Welcome, Guest
[Sign Out, My Account]

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
FEIM > SEC Filings for FEIM > Form 10-K on 29-Jul-2013All Recent SEC Filings




Annual Report

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995:

The statements in this Annual Report on Form 10-K 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, inability to integrate operations and personnel, actions by significant customers or competitors, general domestic and international economic conditions, consumer spending trends, reliance on key customers, 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 the outcome of any litigation and arbitration proceedings. The factors listed above are not exhaustive. Other sections of this Form 10-K include additional factors that could materially and adversely impact the Company's business, financial condition and results of operations. Moreover, the Company operates in a very competitive and rapidly changing environment. New factors emerge from time to time and it is not possible for management to predict the impact of all these factors on the Company's business, financial condition or results of operations or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not rely on forward-looking statements as a prediction of actual results. Any or all of the forward-looking statements contained in this Form 10-K and any other public statement made by the Company or its management may turn out to be incorrect. The Company expressly disclaims any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Critical Accounting Policies and Estimates

The Company's significant accounting policies are described in Note 1 to the Consolidated Financial Statements. The Company believes its most critical accounting policies to be the recognition of revenue and costs on production contracts and the valuation of inventory. Each of these areas requires the Company to make use of reasonable estimates including estimating the cost to complete a contract, the realizable value of its inventory or the market value of its products. Changes in estimates can have a material impact on the Company's financial position and results of operations.

Table of Contents

Revenue Recognition

Revenues under larger, long-term contracts which generally require billings based on achievement of milestones rather than delivery of product, are reported in operating results using the percentage of completion method. On fixed-price contracts, which are typical for commercial and U.S. Government satellite programs and other long-term U.S. Government projects, and which 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 through a process of aggregating actual costs incurred and estimating additional costs to completion based upon the current available information and status of the contract. 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 orders, revenue is recorded as units are delivered with the related cost of sales recognized on each shipment based upon a percentage of estimated final program costs.

Changes in job performance on long-term contracts and production-type orders 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 customer orders are made in the period in which they become determinable.

For customer orders in the Company's Gillam-FEI and FEI-Zyfer segments or smaller contracts or orders in the FEI-NY segment, sales of products and services to customers are reported in operating results based upon (i) shipment of the product or (ii) performance of the services pursuant to terms of the customer order. When payment is contingent upon customer acceptance of the installed system, revenue is deferred until such acceptance is received and installation completed.

Costs and Expenses

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 write downs are established for slow-moving materials, obsolete items and costs incurred on programs for which production-level orders cannot be determined as probable. Such write downs are based upon management's experience and expectations for future business. Any changes arising from revised expectations are reflected in cost of sales in the period the revision is made.

Marketable Securities

All of the Company's investments in marketable securities are Level 1 securities which trade on public markets and have current prices that are readily available. In general, investments in fixed price securities are only in the commercial paper of financially sound corporations or the bonds of U.S. Government agencies. Although the value of such investments may fluctuate significantly based on economic factors, the Company's own financial strength enables it to wait for the securities to either recover their value or to mature such that any interim unrealized gains or losses are deemed to be temporary.

Table of Contents

Impact of FEI-Elcom Acquisition

Fiscal year 2013 results include the results of operations of the Company's subsidiary, FEI-Elcom Tech, Inc. (formerly Elcom Technologies, Inc. or "Elcom" and after the acquisition, "FEI-Elcom"), which was acquired during the fourth quarter of fiscal year 2012. FEI-Elcom's operations are included in the FEI-NY segment. For the year ended April 30, 2013, FEI-Elcom's third-party revenues were approximately $8.7 million and this subsidiary recorded an operating loss of approximately $490,000. In the comparable twelve-month period of the prior fiscal year, including the periods before and after the acquisition, Elcom recorded revenues of approximately $7.4 million, an operating loss of approximately $660,000 and a net loss of approximately $400,000. In the discussion below, all amounts for the year ended April 30, 2012, include FEI-Elcom only for the two and one-half months from the date of acquisition through the end of the fiscal year, with the exception of the Company's "Other income (expenses)" which includes a $730,000 gain on its Elcom investment, a $650,000 equity loss from the Company's minority interest in Elcom through the date of acquisition and a $350,000 impairment charge against the Company's investment in Elcom and certain notes receivable from Elcom.


The table below sets forth for the fiscal years ended April 30, 2013 and 2012, the percentage of consolidated net sales represented by certain items in the Company's consolidated statements of operations:

                                                      2013        2012
              FEI-NY                                    76.3 %      70.3 %
              Gillam-FEI                                17.1        20.1
              FEI-Zyfer                                 15.3        18.1
              Less intersegment revenues                (8.7 )      (8.5 )
                                                       100.0       100.0
              Cost of Revenues                          63.6        61.3
              Gross Margin                              36.4        38.7
              Selling and Administrative expenses       21.3        22.1
              Research and Development expenses          8.3         6.1
              Operating Profit                           6.8        10.5
              Other Income (Expenses), net               0.6         0.2
              (Provision) Benefit for Income Taxes      (2.0 )       0.9
              Net Income                                 5.4 %      11.6 %


                                           Fiscal years ended April 30,
                                                  (in thousands)
                                      2013         2012          $         %
               FEI-NY               $ 52,567     $ 44,711     $ 7,856       18 %
               Gillam-FEI             11,825       12,811        (986 )     (8 %)
               FEI-Zyfer              10,523       11,494        (971 )     (8 %)
               Intersegment sales     (5,983 )     (5,421 )      (562 )
                                    $ 68,932     $ 63,595     $ 5,337        8 %

Table of Contents

Fiscal year 2013 compared to fiscal year 2012:

For the year ended April 30, 2013, FEI-NY revenues from commercial and U.S. Government satellite programs increased 11% over the prior year. Revenues from these programs accounted for 50% of fiscal year 2013 consolidated sales, approximately the same ratio as for fiscal year 2012. Revenues on these long-term contracts are recognized primarily under the percentage of completion method. For the year ended April 30, 2013, sales from the non-space U.S. Government/DOD business area accounted for more than 25% of consolidated revenues and increased by more than 40% over fiscal year 2012. This increase is due to the impact of FEI-Elcom which was acquired by the Company in late fiscal year 2012 and is part of the FEI-NY segment. For the year ended April 30, 2013, total revenues from both satellite and non-space programs for which the U.S. Government is the end-user, accounted for approximately 60% of consolidated revenues compared to approximately 45% in the prior fiscal year. Such revenues are recorded in the FEI-Zyfer segment as well as FEI-NY (including FEI-Elcom). For the year ended April 30, 2013, network infrastructure sales, which are recorded in all three segments, accounted for approximately 17% of consolidated revenues as compared to approximately 20% of revenues in the prior fiscal year. Network infrastructure sales were 8% lower in fiscal year 2013 compared to fiscal year 2012 and is the partial cause of decreased revenue at the FEI-Zyfer and Gillam-FEI segments. The decline in revenues at the Gillam-FEI segment is also partially attributable to a 6% year-over-year decrease in the rate of exchange between the U.S. dollar and the euro. The revenue decline at FEI-Zyfer is also due to delays in orders from U.S. Government customers as a result of recent U.S. budget issues.

Fiscal year 2012 compared to fiscal year 2011:

The 20% increase in consolidated revenues in fiscal year 2012 over the prior year is primarily due to satellite payload revenues generated by the FEI-NY segment. For the year ended April 30, 2012, revenues from commercial and U.S. Government satellite programs accounted for approximately half of consolidated revenues compared to approximately 30% of revenues during fiscal year 2011. Revenues on these long-term contracts are recognized primarily under the percentage of completion method. Fiscal year 2012 revenues from FEI-Elcom, after the acquisition, were less than $1.0 million and are included in the FEI-NY segment's revenues. Increased network infrastructure revenues generated by the FEI-Zyfer segment were offset by declines in that business area in the Gillam-FEI segment and lower wireless infrastructure sales in the FEI-NY segment. Network infrastructure revenues were less than 20% of consolidated revenues for the year ended April 30, 2012 compared to approximately 25% for fiscal year 2011. In fiscal year 2012, revenues from the non-space U.S. Government/DOD business area, which are recorded in the FEI-NY and FEI-Zyfer segments, were approximately 20% of consolidated revenues compared to 25% for fiscal year 2011. Fiscal year 2012 revenues were lower due to completion of certain long-term programs and delays in new program awards.

Based on the Company's current backlog, over three-fourths of which represent satellite payload business, and the potential for additional new orders, fiscal year 2014 revenues are expected to grow. Satellite payload revenues will remain the dominant portion of the Company's business and represent the Company's best opportunity for long-term growth, benefiting from both commercial and U.S. Government programs. Fiscal year 2014 revenues from the other major business areas, U.S. Government/DOD non-space and network infrastructure, are expected to remain in approximately the same range as realized in fiscal year 2013.

Gross Margin

                                     Fiscal years ended April 30,
                                            (in thousands)
                                  2013          2012         $        %
                               $   25,110     $ 24,618     $ 492       2 %
                     GM Rate         36.4 %       38.7 %

Table of Contents

For each of the years ended April 30, 2013 and 2012, gross margin increased as a result of increased revenues. In the fourth quarter of fiscal year 2013 gross margin was reduced by $1.4 million (2% of consolidated revenues) as a result of the write down of certain inventory recorded in the Gillam-FEI segment due to lack of certainty regarding the realizability of such inventory. Based on slower than anticipated rollout of implementation of the French government's plans to initiate a "smart grid," the Company has less visibility regarding the probable schedule for obtaining production-level orders which are now anticipated to occur no earlier than fiscal year 2015. Improved gross margins from satellite payload revenues in the FEI-NY segment were offset by historically lower gross margins at FEI-Elcom. Gross margin rates in the FEI-Zyfer and Gillam-FEI segments were also lower on reduced sales. For fiscal year 2012, the gross margin rate improved over the 37.5% rate recorded in the prior fiscal year. The largest gross margin rate improvement during fiscal year 2012 occurred in the Company's FEI-NY segment as a higher volume of business covered more of that segment's fixed costs. During the fiscal year ended April 30, 2013, cost of sales included approximately $2.4 million of inventory write downs, including the Gillam-FEI inventory write down.. During fiscal year 2012, cost of sales included increases to warranty reserves and inventory write downs which aggregated approximately $1.1 million. These charges reduced gross margin rates by 3.4% in fiscal year 2013 and by 1.8% in fiscal year 2012. Fiscal year 2012 gross margin was also reduced by the fourth quarter acquisition of FEI-Elcom whose operating results are included in the FEI-NY segment. With the current mix of programs and orders in its backlog, the Company expects its gross margin rate to approach its target rate of 40%. As revenues increase in future periods, the Company expects to realize a higher gross margin as more of its fixed costs are covered.

Selling and Administrative Expenses

                                   Fiscal years ended April 30,
                                         (in thousands)
                              2013            2012         $        %
                           $   14,704       $ 14,055     $ 649       5 %

In the fiscal years ended April 30, 2013 and 2012, selling and administrative costs were 21% and 22%, respectively, of consolidated revenues. Fiscal year 2013 expenses include a full year of selling and administrative expenses incurred by FEI-Elcom. For the years ended April 30, 2013 and 2012, selling and administrative expenses include stock compensation expense of $538,000 and $359,000, respectively. Fiscal year 2012 expenses also include approximately $230,000 of transaction costs related to the FEI-Elcom acquisition as well as approximately $140,000 related to a stock award to the Company's employees in celebration of its 50th anniversary. The Company expects fiscal year 2014 selling and administrative expenses to be incurred at approximately the same rate relative to revenues.

Research and Development Expenses

                                  Fiscal years ended April 30,
                                         (in thousands)
                              2013        2012          $         %
                            $  5,727     $ 3,860     $ 1,867       48 %

Research and development ("R&D") expenditures represent investments intended to keep the Company's products at the leading edge of time and frequency technology and enhance competitiveness for future revenues. R&D spending for the year ended April 30, 2013 was approximately 8% of revenues compared to approximately 6% of revenues for fiscal year 2012. Approximately half of the increased R&D spending in fiscal year 2013 was due to product development expenditures at recently acquired FEI-Elcom on its own product line. Additionally, the FEI-NY segment, including engineering resources at FEI-Elcom, accelerated development of new satellite payload microwave receivers/converters from DC to Ka band, development and improvement of miniaturized rubidium atomic clocks, development of new GPS-based synchronization products and further enhancement of the capabilities of its line of low g-sensitivity and ruggedized rubidium oscillators. The lower rate and lower R&D expenditures in fiscal year 2012 were due primarily to the dedication of resources to customer-funded programs rather than to internal R&D programs. Some customer-funded development activity continued into fiscal year 2013 but with the added resources from FEI-Elcom, the Company spent more on internal R&D. The costs of customer-funded development efforts appear in cost of revenues, thus reducing the level of internal R&D spending. Although funding is obtained from customers, the Company retains the rights to any products developed. The Company will continue to devote significant resources to develop new products, enhance existing products and implement efficient manufacturing processes. For fiscal year 2014, the Company anticipates that internal research and development spending will be less than 10% of revenues. The Company believes that internally generated cash and cash reserves are adequate to fund these development efforts.

Table of Contents

Operating Profit

Fiscal years ended April 30,
(in thousands)

2013 2012 $ %
$ 4,679 $ 6,703 $ (2,024 ) (30 %)

For the year ended April 30, 2013, operating profit was reduced by the $1.4 million inventory write down in the Gillam-FEI segment, higher selling and administrative costs and increased R&D spending. All of the fiscal year 2013 operating profit was generated by the FEI-NY segment which enjoyed the benefit of rising satellite payload revenues. The Company's other segments, FEI-Zyfer and Gillam-FEI, both incurred operating losses on reduced revenues, higher costs and the inventory write down.

For the year ended April 30, 2012, higher revenues, improved gross margin rates and operating expenses in line with expectations enabled the Company to record an operating profit that was nearly twice the operating profit recorded in the preceding fiscal year. On a segment basis, the operating profit of FEI-NY increased as a result of a 35% increase in revenues and improved gross margin rates. The fiscal year 2012 operating profit at Gillam-FEI was favorably impacted by an improved product mix despite lower revenues than for fiscal year 2011. FEI-Zyfer realized an operating loss due to lower gross margins partially due to increased warranty reserves as well as product mix.

On anticipated increased revenues and favorable product mix, the Company expects to realize an improved gross margin while maintaining other operating expenses within their targeted amounts. Thus, the Company expects to report higher operating profits in fiscal year 2014.

Other Income (Expense)

                                                 Fiscal years ended April 30,
                                                        (in thousands)
                                             2013         2012        $          %
         Investment income                 $    671      $  646     $   25         4 %
         Gain on investment in affiliate          -         730       (730 )      NM
         Equity loss                              -        (650 )      650        NM
         Impairment charge                        -        (350 )      350        NM
         Interest expense                      (195 )      (121 )      (74 )     (61 %)
         Other expense, net                     (69 )      (144 )       75        52 %
                                           $    407      $  111     $  296       267 %

Investment income includes interest and dividend income on marketable securities. Earnings on these securities may vary based on fluctuating dividends and interest rates and the timing of purchases or sales of securities. During the year ended April 30, 2012, the Company broadened its investment portfolio to include higher yielding marketable securities thus generating greater investment income than in fiscal year 2011. During fiscal years 2013 and 2012, investment income included gains upon the sale or redemption of marketable securities of approximately $46,000 and $20,000, respectively. During fiscal year 2014, the Company anticipates that investment income will be approximately the same as that earned in fiscal year 2013, depending on the yield of its investment portfolio.

The fiscal year 2012 step acquisition of FEI-Elcom resulted in the recognition of a gain of approximately $730,000. Equity losses of $650,000 represent the Company's share of the losses recorded by FEI-Elcom prior to the Company's fiscal year 2012 fourth quarter acquisition of that company See "NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - 11. Acquisition of Elcom Technologies, Inc. In addition, during the second quarter of fiscal year 2012, based on comparisons to comparable companies as well as FEI-Elcom's forecasts of future financial results, the Company recorded an impairment charge in the amount of $350,000. Since FEI-Elcom is a wholly-owned subsidiary of the Company for all of fiscal year 2013, there is no comparable income or expense items for the year ended April 30, 2013.

Table of Contents

In fiscal years 2013 and 2012, interest expense was incurred on borrowings under short-term credit obligations, on deferred compensation payments and capital leases for equipment. During the year ended April 30, 2012, to complete the acquisition of FEI-Elcom, the Company decided to draw on its bank line of credit rather than liquidate any of its investment in marketable securities. In addition, subsequent to April 30, 2013, the Company established a five-year, $25 million credit facility with a bank, replacing the previous $9.3 million credit line. As a result of the new credit facility, the Company expects to maintain a higher level of debt and anticipates that interest expense in fiscal year 2014 will be higher than that incurred in fiscal year 2013.

Other expenses for the year ended April 30, 2013, consists primarily of an uninsured loss sustained by the Company's Gillam-FEI segment. For the year ended April 30, 2012, other expenses consisted primarily of amortization of certain non-operating assets that was partially offset by gains of approximately $137,000 derived from the excess of proceeds over the cash values of life insurance policies covering a former employee. The Company anticipates that in future years items in this category will not be significant to pretax earnings.

Income Tax Provision (Benefit)

Fiscal years ended April 30,
(in thousands)

2013 2012 $ %
$ 1,400 $ (560 ) $ 1,960 NM

During the year ended April 30, 2013, certain tax law changes were enacted which enabled the Company to obtain larger federal tax credits. The changes reduced the Company's effective tax rate on pre-tax income to 27.5%.

During the fourth quarter of fiscal year 2012, the Company reduced its valuation allowance against deferred tax assets in the amount of $3.1 million. This reduction was based on a review of all available evidence, both positive and negative, and management's assessment that it is more likely than not that it will be able to realize the tax benefits from the future deductibility of most items included in its deferred tax assets. Excluding the valuation allowance reduction, for the year ended April 30, 2012, the Company recorded a net tax provision of $2.5 million or an effective tax rate of 37%. The Company is subject to taxation in several countries. The statutory federal rates are 34% in the U.S., 33% in Europe and 25% in China. The Company utilizes the availability of research and development tax credits in the U.S. to lower its tax rate. The actual rate incurred may be impacted by the non-deductibility of losses incurred in overseas operations. (See Note 13 to the Consolidated Financial Statements for a reconciliation of the actual tax benefit to the expected tax provision at the federal statutory rate.)

The Company's European subsidiaries have available net operating loss ("NOL") carryforwards of approximately $2.7 million to offset future taxable income. The associated deferred tax asset for the foreign subsidiary NOL is fully reserved by the deferred tax valuation allowance. These loss carryforwards have no expiration date. As a result of the acquisition of FEI-Elcom, the Company has a . . .

  Add FEIM to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for FEIM - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.