UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period ended July 31, 2006
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
--- ---
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):
Large accelerated filer Accelerated filer Non-accelerated filer X
--- --- ---
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes No X
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of Registrant's Common Stock, par value $1.00
as of September 8, 2006 - 8,584,625
Page 1 of 23
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
INDEX
Part I. Financial Information: Page No.
Item 1 - Financial Statements:
Condensed Consolidated Balance Sheets -
July 31, 2006 and April 30, 2006 3
Condensed Consolidated Statements of Operations
Three Months Ended July 31, 2006 and 2005 4
Condensed Consolidated Statements of Cash Flows
Three Months Ended July 31, 2006 and 2005 5
Notes to Condensed Consolidated Financial Statements 6-11
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 11-17
Item 3- Quantitative and Qualitative Disclosures about Market Risk 17
Item 4- Controls and Procedures 18
Part II. Other Information:
Items 1, 1A, 2, 3, 4 and 5 are omitted because they are not applicable
Item 6 - Exhibits 18
Signatures 19
Exhibits 20-23
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Condensed Consolidated Balance Sheets
--------------------------
July 31, April 30,
2006 2006
---- ----
(UNAUDITED) (NOTE A)
(In thousands)
ASSETS:
Current assets:
Cash and cash equivalents $ 6,256 $ 2,639
Marketable securities 18,111 21,836
Accounts receivable, net of allowance
for doubtful accounts of $276 at
July 31 and April 30, 2006 17,050 15,868
Inventories 24,885 22,971
Deferred income taxes 2,086 2,135
Income tax receivable - 68
Prepaid expenses and other 1,345 1,246
-------- --------
Total current assets 69,733 66,763
Property, plant and equipment, at cost,
less accumulated depreciation and
amortization 6,682 6,663
Deferred income taxes 2,840 2,842
Goodwill and other Intangible assets, net 498 513
Cash surrender value of life insurance 6,438 6,318
Other assets 3,811 3,642
-------- --------
Total assets $ 90,002 $ 86,741
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Short-term credit obligations $ 1,609 $ -
Accounts payable - trade 2,912 2,202
Accrued liabilities and other 3,804 3,929
Income taxes payable 242 -
Dividend payable - 857
-------- --------
Total current liabilities 8,567 6,988
Deferred compensation 8,250 8,122
Deferred gain and other liabilities 910 998
-------- --------
Total liabilities 17,727 16,108
-------- --------
Stockholders' equity:
Preferred stock - $1.00 par value - -
Common stock - $1.00 par value 9,164 9,164
Additional paid-in capital 45,906 45,688
Retained earnings 16,424 15,527
-------- --------
71,494 70,379
Common stock reacquired and held in treasury
-at cost, 579,315 shares at July 31, 2006
and 592,194 shares at April 30, 2006 (2,397) (2,437)
Accumulated other comprehensive income 3,178 2,691
-------- --------
Total stockholders' equity 72,275 70,633
-------- --------
Total liabilities and stockholders' equity $ 90,002 $ 86,741
======== ========
See accompanying notes to condensed consolidated
financial statements.
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Condensed Consolidated Statements of Operations
Three Months Ended July 31,
(Unaudited)
2006 2005
---- ----
(In thousands except
per share data)
Net sales $14,314 $11,057
Cost of sales 9,461 6,960
------- -------
Gross margin 4,853 4,097
Selling and administrative expenses 2,782 2,544
Research and development expense 1,380 1,442
------- -------
Operating profit 691 111
Other income (expense):
Investment income 299 1,325
Equity in Morion 203 144
Interest expense (36) (28)
Other income, net 81 69
------- -------
Income before provision for income taxes 1,238 1,621
Provision for income taxes 340 479
------- -------
Net income $ 898 $ 1,142
======= =======
Net income per common share
Basic $ 0.10 $ 0.13
====== ======
Diluted $ 0.10 $ 0.13
====== ======
Average shares outstanding
Basic 8,576,705 8,520,020
========= =========
Diluted 8,719,934 8,657,340
========= =========
See accompanying notes to condensed consolidated
financial statements.
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Three Months Ended July 31,
(Unaudited)
2006 2005
---- ----
(In thousands)
Cash flows from operating activities:
Net income $ 898 $ 1,142
Non-cash charges to earnings 594 (561)
Net changes in other assets and liabilities (2,518) (5,315)
------- -------
Net cash used in operating activities (1,026) (4,734)
------- -------
Cash flows from investing activities:
Proceeds from sale of marketable securities 3,854 6,256
Purchase of marketable securities - (2,879)
Purchase of fixed assets (374) (520)
------- -------
Net cash provided by investing activities 3,480 2,857
------- -------
Cash flows from financing activities:
Proceeds from short-term credit obligations 1,600 -
Payment of cash dividend (857) (852)
Proceeds from stock option exercises 142 -
------- -------
Net cash provided by (used in) financing activities 885 (852)
------- -------
Net increase (decrease) in cash and cash equivalents
before effect of exchange rate changes 3,339 (2,729)
Effect of exchange rate changes
on cash and cash equivalents 278 (283)
------- -------
Net increase (decrease) in cash 3,617 (3,012)
Cash at beginning of period 2,639 6,701
------- -------
Cash at end of period $ 6,256 $ 3,689
======= =======
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 July 31, 2006 and the results of its operations and cash flows for the three
months ended July 31, 2006 and 2005. The April 30, 2006 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, 2006 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:
Three months ended July 31,
2006 2005
---- ----
Basic EPS Shares outstanding
(weighted average) 8,576,705 8,520,020
Effect of Dilutive Securities 143,229 137,320
--------- ---------
Diluted EPS Shares outstanding 8,719,934 8,657,340
========= =========
The computation of diluted earnings per share excludes those options with
an exercise price in excess of the average market price of the Company's common
shares during the periods presented. The inclusion of such options in the
computation of earnings per share would have been antidilutive. The number of
excluded options were:
Three months ended July 31,
2006 2005
---- ----
Outstanding Options excluded 571,550 570,550
======= =======
NOTE C - ACCOUNTS RECEIVABLE
Accounts receivable at July 31, 2006 and April 30, 2006 include costs and
estimated earnings in excess of billings on uncompleted contracts accounted for
on the percentage of completion basis of approximately $2,367,000 and
$4,857,000, 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 $4,122,000 and
$3,923,000 at July 31, 2006 and April 30, 2006, respectively, consist of the
following:
July 31, 2006 April 30, 2006
------------- --------------
(In thousands)
Raw materials and Component parts $12,170 $11,172
Work in progress 12,715 11,799
------- -------
$24,885 $22,971
======= =======
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE E - -COMPREHENSIVE INCOME
For the three months ended July 31, 2006 total comprehensive income was
$1,385,000 and for the three months ended July 31, 2005, total comprehensive
loss was ($154,000). Comprehensive income is composed of net income or loss for
the period plus the impact of foreign currency translation adjustments and the
change in the valuation allowance on marketable securities.
NOTE F - EQUITY-BASED COMPENSATION
Effective May 1, 2006, the Company adopted the fair value recognition
provisions of Statement of Financial Accounting Standards No. 123(R),
"Share-Based Payment" ("FAS 123(R)"), using the modified prospective transition
method. Under the modified prospective transition method, compensation cost of
$115,000 was recognized during the three months ended July 31, 2006 and
includes: (a) compensation cost for all share-based payments granted prior to,
but not yet vested as of May 1, 2006, based on the grant date fair value
estimated in accordance with the original provisions of FAS 123, and (b)
compensation cost for all share-based payments granted subsequent to May 1,
2006, based on the grant-date fair value estimated in accordance with the
provisions of FAS 123(R). Results for prior periods have not been restated.
Upon adoption of FAS 123(R), the Company elected to continue to value its
share-based payment transactions using the Black-Scholes valuation model, which
was previously used by the Company for purposes of preparing the pro forma
disclosures under FAS 123. Such value is recognized as expense on a
straight-line basis over the service period of the awards, which is generally
the vesting period, net of estimated forfeitures. This is the same attribution
method that was used by the Company for purposes of its pro forma disclosures
under FAS 123.
At July 31, 2006, unrecognized compensation cost for all the Company's
stock-based compensation awards was approximately $1.7 million. The unrecognized
compensation cost for stock-based compensation awards at July 31, 2006 is
expected to be recognized over a weighted average period of 3.2 years.
In addition, the Company applied the provisions of Staff Accounting
Bulletin No. 107 ("SAB 107"), issued by the Securities and Exchange Commission
in March 2005 in its adoption of FAS 123(R). SAB 107 requires stock-based
compensation to be classified in the same expense line items as cash
compensation. Accordingly, during the three months ended July 31, 2006,
stock-based compensation expense was $53,000 in cost of sales and $62,000 in
selling, general and administrative expense.
Prior to the adoption of FAS 123(R), the Company presented all tax benefits
resulting from tax deductions associated with the exercise of stock options by
employees as cash flows from operating activities in the Consolidated Statements
of Cash Flows. Under FAS 123(R) "excess tax benefits" are to be classified as
cash flows from financing activities in the Consolidated Statement of Cash
Flows. For this purpose, the excess tax benefits are tax benefits related to the
difference between the total tax deduction associated with the exercise of stock
options by employees and the amount of compensation cost recognized for those
options. For the three months ended July 31, 2006, there were no excess tax
benefits to be included within Other Financing Activities of the Cash Flows from
Financing Activities pursuant to this requirement of FAS 123(R).
Effect of Adoption of FAS 123(R)
The application of FAS 123(R) had the following effect on the reported
amounts for the three months ended July 31, 2006, relative to amounts that would
have been reported using the intrinsic value method under previous accounting
(in thousands, except for per share amounts.)
Using Intrinsic FAS 123(R) As
Value Method Adjustments Reported
-------------- ----------- --------
Operating Profit $ 806 ($115) $ 691
Income before provision
for income taxes 1,353 (115) 1,238
Net Income 1,013 (115) 898
Basic Earnings per Share $0.12 ($0.02) $0.10
Diluted Earnings per Share $0.12 ($0.02) $0.10
The weighted average fair value of each option has been estimated on the
date of grant using the Black-Scholes options pricing model with the following
weighted average assumptions used for grants in the three months ended July 31,
2006, and each of the years ended, April 30, 2006, and 2005: dividend yield of
1.4%, 1.4%, and 1.1%; expected volatility of 59%; risk free interest rate of
5.0%, 4.1%, and 3.9%; and expected lives of six and one-half years,
respectively.
The expected life assumption was determined based on the Company's
historical experience. For purposes of both FAS 123 and FAS 123(R), the expected
volatility assumption was based on the historical volatility of the Company's
common stock. The dividend yield assumption was determined based upon the
Company's past history of dividend payments and its intention to make future
dividend payments. The risk-free interest rate assumption was determined using
the implied yield currently available for zero-coupon U.S. government issues
with a remaining term equal to the expected life of the stock options.
Employee Stock Option Plans
The Company has various stock option plans for key management employees,
including officers and directors who are employees. The plans include
Nonqualified Stock Option ("NQSO") plans, Incentive Stock Option ("ISO") plans,
and Stock Appreciation Rights ("SARs"). Under these plans, options and awards
are granted at the discretion of the Stock Option committee at an exercise price
not less than the fair market value of the Company's common stock on the date of
grant. Under one NQSO plan the options are exercisable one year after the date
of grant. Under the remaining plans the options/awards are exercisable over a
four-year period beginning one year after the date of grant. The options/awards
expire ten years after the date of grant and are subject to certain restrictions
on transferability of the shares obtained on exercise. As of July 31, 2006,
eligible employees had been granted awards to purchase 167,500 shares of Company
stock under SARs, all of which are outstanding and are not exercisable. As of
July 31, 2006, eligible employees had been granted options to purchase 1,182,500
shares of Company stock under ISO plans of which approximately 392,000 options
are outstanding and approximately 261,000 are exercisable. Through July 31,
2006, eligible employees have been granted options to acquire 1,090,000 shares
of Company stock under NQSO plans. Of the NQSO options, approximately 737,000
are both outstanding and exercisable (see tables below).
The excess of the consideration received over the par value of the common
stock or cost of treasury stock issued under both types of option plans has been
recognized as an increase in additional paid-in capital prior to the adoption of
FAS 123(R). No charges have been made to income with respect to the SARs grant
in fiscal year 2007. Unrecognized compensation charges for nonvested awards
relating to the SARs grant is approximately $1,032,000 which will be recognized
during a weighted average period of 4 years. Unrecognized compensation charges
for nonvested awards relating to the ISO plan is approximately $649,000 which
will be recognized over a weighted average period of 2.1 years. The Company
recorded compensation charges related to these plans totaled approximately
$115,000, using the fair value method, for the quarter ended July 31, 2006.
Although the Company continues to maintain a stock repurchase program, no
stock repurchases will be necessary to process stock exercises during the fiscal
year. Shares issued to individuals during stock exercises will be taken from
available treasury stock.
Transactions under these stock award plans, including the weighted average
exercise prices of the options, are as follows:
Three months ended July 31, 2006
Wtd Avg
Shares Price
------ -----
Outstanding at beginning of period 1,133,387 $11.32
Granted 167,500 $11.95
Exercised (4,000) $6.74
Expired or canceled - -
---------
Outstanding at end of period 1,296,887 $11.41
=========
Exercisable at end of period 998,512 $11.30
=======
Available for grant at end of period 231,500
=======
Weighted average fair value
of options granted during the period $6.54
=====
The following table summarizes information about stock-based awards
outstanding at July 31, 2006:
Options Outstanding Options Exercisable
-------------------------------------- -----------------------
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Actual Range of Outstanding Contractual Exercise Exercisable Exercise
Exercise Prices at 7/31/06 Life Price at 7/31/06 Price
--------------- ---------- ---- ----- ---------- -----
$4.375 - 9.970 484,700 4.1 $ 7.64 433,700 $ 7.44
10.167 - 16.625 730,187 5.8 12.53 482,812 12.65
23.75 82,000 4.0 23.75 82,000 23.75
Fiscal year 2006
Stock-based compensation in the first quarter of fiscal year 2006 was
determined using the intrinsic value method. The following table provides
supplemental information for the three months ended July 31, 2005 as if
stock-based compensation had been computed under FAS 123(R) (in thousands,
except per share data):
Net income, as reported $1,142
Cost of stock options, net of tax (93)
------
Net income - pro forma $1,049
======
Earnings per share, as reported:
Basic $ 0.13
======
Diluted $ 0.13
======
Earnings per share- pro forma
Basic $ 0.12
======
Diluted $ 0.12
======
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE G - SEGMENT INFORMATION
The Company operates under three reportable segments:
(1) FEI-NY - consists 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 - the Company's Belgian subsidiary primarily sells wireline
synchronization and network monitoring systems.
(3) FEI-Zyfer - the products of the Company's subsidiary incorporate Global
Positioning System (GPS) technologies into systems and subsystems for
secure communications, both government and commercial, and other locator
applications.
Beginning with the first quarter of fiscal year 2007, the Company is
reporting its segment information on a geographic basis. The former Commercial
Communications and U.S. Government segments, which operate out of the Company's
New York headquarters facility, have been combined into the new segment, FEI-NY.
This segment also includes the operations of the Company's wholly-owned
subsidiary, FEI-Asia, which functions primarily as a manufacturing facility for
the FEI-NY segment.
Previously, the Company identified its New York-based U.S. Government
business as a separate segment even though that segment shared the same
facility, equipment and personnel with the Commercial Communications segment.
With the acquisition of FEI-Zyfer in fiscal year 2004, the Company now does
business on U.S. Government programs out of two separate subsidiaries. The
Company's Chief Executive Officer measures segment performance based on total
revenues and profits generated by each geographic center rather than on the
specific types of customers or end-users. Consequently, the Company determined
that limiting the number of segments to the three indicated above more
appropriately reflects the way the Company's management views the business.
Prior year segment information has been reclassified to conform to the new
segment presentation. This includes reclassifying the property, plant and
equipment located in the New York facility to the FEI-NY segment and not to
corporate assets.
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):
Three months ended July 31,
2006 2005
---- ----
Net sales:
FEI-NY $10,666 $ 6,856
Gillam-FEI 2,030 2,215
FEI-Zyfer 1,907 2,445
less intercompany sales (289) (459)
------- -------
Consolidated Sales $14,314 $11,057
======= =======
Operating profit (loss):
FEI-NY $ 861 $ (66)
Gillam-FEI (8) (66)
FEI-Zyfer (58) 333
Corporate (104) (90)
------ ------
Consolidated Operating Profit $ 691 $ 111
====== ======
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
July 31, 2006 April 30, 2006
------------- --------------
Identifiable assets:
FEI-NY $42,752 $44,111
Gillam-FEI 13,069 13,755
FEI-Zyfer 5,553 5,356
less intercompany balances (10,187) (14,585)
Corporate 38,815 38,104
------- -------
Consolidated Identifiable Assets $90,002 $86,741
======= =======
NOTE H - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In November 2004, the FASB issued Statement No. 151 "Inventory Costs."
("FAS 151") This statement amends Accounting Research Bulletin No. 43, Chapter
4, "Inventory Pricing" and removes the "so abnormal" criterion that under
certain circumstances could have led to the capitalization of these items. FAS
151 requires that idle facility expense, excess spoilage, double freight and
re-handling costs be recognized as current-period charges regardless of whether
they meet the criterion of "so abnormal." FAS 151 also requires that allocation
of fixed production overhead expenses to the costs of conversion be based on the
normal capacity of the production facilities. The provisions of this statement
are effective for the Company in fiscal year 2007. The adoption of FAS 151 is
not expected to have a material impact on the Company's financial position or
results of operations.
In May 2005, the FASB issued Statement No. 154, "Accounting Changes and
Error Corrections - a replacement of APB Opinion No. 20 and FASB Statement No.
3." ("FAS 154") This Statement requires retrospective application to prior
period financial statements of a voluntary change in accounting principle unless
it is impracticable and is effective for fiscal years beginning after December
15, 2005. Previously, most voluntary changes in accounting principle were
recognized by including in net income of the period of the change the cumulative
effect of changing to the new accounting principle. The Company will comply with
the provisions of FAS 154 although the impact of such adoption is not
determinable at this time.
---------------------------------------
Item 2
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 quarterly report on Form 10-Q 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.
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
(Continued)
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, 2006
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. Each of these areas requires the Company to make use
of reasoned 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.
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. 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 and FEI-Zyfer segments, smaller
contracts or orders in the FEI-NY segment and 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 and installation completed.
Costs and Expenses
Contract costs include all direct material, direct labor, manufacturing
overhead and other direct costs related to contract performance. Selling,
general and administrative costs are charged to expense as incurred.
Inventory
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.
Stock-based Compensation
Effective May 1, 2006, the Company adopted the fair value recognition
provisions of Statement of Financial Accounting Standards No. 123(R),
"Share-Based Payment" ("FAS 123(R)"), using the modified prospective transition
method. Under the modified prospective transition method, compensation cost of
$115,000 was recognized during the three months ended July 31, 2006 and
includes: (a) compensation cost for all share-based payments granted prior to,
but not yet vested as of May 1, 2006, based on the grant date fair value
estimated in accordance with the original provisions of FAS 123, and (b)
compensation cost for all share-based payments granted subsequent to May 1,
2006, based on the grant-date fair value estimated in accordance with the
provisions of FAS 123(R). Results for prior periods have not been restated.
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
(Continued)
RESULTS OF OPERATIONS
---------------------
The table below sets forth for the respective periods of fiscal years 2006
and 2005 the percentage of consolidated net sales represented by certain items
in the Company's consolidated statements of operations:
Three months ended July 31,
2006 2005
---- ----
Net Sales
FEI-NY 74.5% 62.0%
Gillam-FEI 14.2 20.0
FEI-Zyfer 13.3 22.1
Less Intersegment Sales (2.0) (4.1)
----- -----
100.0 100.0
Cost of Sales 66.1 63.0
----- -----
Gross Margin 33.9 37.0
Selling and administrative expenses 19.4 23.0
Research and development expenses 9.7 13.0
----- -----
Operating Profit 4.8 1.0
Other income, net 3.8 13.6
----- -----
Pretax Income 8.6 14.6
Provision for income taxes 2.3 4.3
----- -----
Net Income 6.3% 10.3%
===== =====
(Note: All dollar amounts in following tables are in thousands,
except Net Sales which are in millions)
Net Sales (in millions)
Three months ended July 31,
2006 2005 Change
---- ---- ------
FEI-NY $10.7 $6.9 $3.8 56%
Gillam-FEI 2.0 2.2 (0.2) (8%)
FEI-Zyfer 1.9 2.4 (0.5) (22%)
Intersegment sales (0.3) (0.5) 0.2
------ ------ -----
$14.3 $11.0 $3.3 29%
===== ===== ====
As illustrated in the table above, the 29% increase in revenues in the
three month period ended July 31, 2006, was driven by the 56% improvement in
revenues in the FEI-NY segment. Revenues from space programs were significantly
higher than in the prior fiscal year while sales to wireless infrastructure
equipment manufacturers also strengthened. Revenues in the Gillam-FEI and
FEI-Zyfer segments declined primarily due to customer delays in releasing orders
for additional product. Total revenues from U.S. Government related programs,
which are recorded in both the FEI-NY and FEI-Zyfer segments, were lower in the
fiscal year 2007 period compared to the three month period ended July 31, 2005.
As U.S. Government programs receive funding, the Company expects to realize
increased revenues from such programs in the future periods of fiscal year 2007.
In particular, the Company expects revenues from both U.S. Government and
commercial satellite programs to continue to grow throughout fiscal year 2007.
Similarly, revenues from wireless equipment manufacturers are expected to
increase, particularly when China and India make decisions regarding the
implementation of their new networks.
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
(Continued)
Gross margin
Three months ended July 31,
2006 2005 Change
---- ---- ------
$4,853 $4,097 $756 18%
GM Rate 33.9% 37.0%
The 18% improvement in gross margin in for the three months ended July 31,
2006, is due to the increase in revenues over the same period of fiscal year
2006. The fiscal year 2007 gross margin rate of 33.9% is indicative of the high
engineering costs applied to certain of the Company's long-term contracts during
the period. As the level of engineering effort decreases, the Company
anticipates that its gross margin rate will improve. As revenues increase, the
Company expects the gross margin rate to approach and exceed its target of 40%.
Also, for the three months ended July 31, 2006, gross margin was reduced by
$53,000 due to the inclusion in cost of sales of a charge for stock compensation
expense. As disclosed in the footnotes to the financial statements, as of May 1,
2006, the Company is complying with the provisions of FAS 123(R), Accounting for
Stock-Based Compensation. In the prior fiscal year, the Company applied the
disclosure-only provisions of FAS No. 148, "Accounting for Stock-Based
Compensation- Transition and Disclosure" and measured compensation cost in
accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees."
This method did not result in compensation cost upon the grant of options under
a qualified stock option plan.
Selling and administrative expenses
Three months ended July 31,
2006 2005 Change
---- ---- ------
$2,782 $2,544 $238 9%
For the three months ended July 31, 2006, selling and administrative
expenses were 19.4% of revenues which achieved the Company's target for such
expenses. For the comparable period of fiscal year 2006, selling and
administrative expenses were 23% of revenues, reflecting the lower level of
sales for that period compared to the administrative structure of the Company.
The primary increases in expenses in the fiscal year 2007 period were related to
compensation, including accruals for incentive compensation, normal salary
increases as well as additional personnel.
Included in selling and administrative expenses for the three months ended
July 31, 2006, is $62,000 related to stock compensation expense as described
above and in the footnotes to the financial statements.
With fiscal year 2007 revenues at current or increasing levels, the Company
expects selling and administrative expenses to be incurred at 20% or less of
revenues.
Research and development expense
Three months ended July 31,
2006 2005 Change
---- ---- ------
$1,380 $1,442 ($62) (4%)
Research and development expenditures represent investments that keep the
Company's products at the leading edge of time and frequency technology and
enhance competitiveness for future sales. For the three months ended July 31,
2006, research and development expenditures decreased by 4% from the level of
spending in the same period of fiscal year 2006. The decline results from less
spending on development of the new US5G wireline synchronization product, which
was near completion at the end of fiscal year 2006, but offset by new
initiatives in developing a ruggedized rubidium clock for secure military
communications, enhancing and miniaturizing products for wireless
communications, upgrading its GPS-based synchronization product line, and
developing enhanced network monitoring equipment and software.
Research and development spending for the quarter ended July 31, 2006, was
9.7% of revenues compared to 13% of revenues for the same period of fiscal year
2006. The Company targets research and development spending at approximately 10%
of sales, but the rate of spending can increase or
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
(Continued)
decrease from quarter to quarter as new projects are identified and others are
concluded. The Company will continue to devote significant resources to develop
new products, enhance existing products and implement efficient manufacturing
processes. Where possible, the Company attempts to obtain development contracts
from its customers. For programs without such funding, internally generated cash
and cash reserves are adequate to fund these development efforts.
Operating Profit
Three months ended July 31,
2006 2005 Change
---- ---- ------
$691 $111 $580 523%
The improvement in operating profit for the three months ended July 31,
2006, compared to the same period of fiscal year 2006 is due to increased
revenues of $3.3 million. The gains realized by the 29% increase in year over
year revenue were partially offset by a decline in the gross margin rate from
37% to 34%. Selling, general and administrative expenses in the fiscal year 2007
period increased by 9% while research and development spending decreased by 4%
as compared to the three months ended July 31, 2005.
Other income (expense)
Three months ended July 31,
2006 2005 Change
---- ---- ------
Investment income $299 $1,325 ($1,026) (77%)
Equity in Morion 203 144 59 41%
Interest expense (36) (28) (8) 29%
Other income 81 69 12 17%
---- ----- ------
$547 $1,510 ($963) (64%)
The decrease in investment income for the three months ended July 31, 2006,
is due to realized gains of approximately $1.0 million recorded in the first
quarter of the prior fiscal year on the sale of a portion of the shares of
Reckson Associates Realty Corp. stock ("REIT"). Such shares were obtained during
fiscal year 2005 upon the conversion of certain REIT units related to the
Company's fiscal year 1998 sale and leaseback of its headquarters building.
The Company records equity income in Morion, Inc. based on its 36%
ownership interest in Morion's outstanding shares. The 41% increase in equity
income from Morion for the three months ended July 31, 2006 compared to the same
period of fiscal year 2006 is due to a 50% increase in Morion's profitability
based on higher revenues and improved margins.
The increase in interest expense for the three month period ended July 31,
2006 resulted primarily from an increase in borrowings under the Company's line
of credit during the fiscal year 2007 period compared to the three month period
ended July 31, 2005.
Under the provisions of sale and leaseback accounting, a portion of the
capital gain realized on the real estate transaction referred to above is
deferred and recognized in income over the initial lease term. Under the caption
"Other, income" the Company recognized deferred gain of $88,000 for each of the
three months ended July 31, 2006 and 2005. Other insignificant income and
expense items are also recorded under this caption.
Net income
Three months ended July 31,
2006 2005 Change
---- ---- ------
$898 $1,142 ($244) (21%)
Net income for the three months ended July 31, 2006, was lower than that
realized in the same period of fiscal year 2006 primarily as the result of
recognition of a $1.0 million gain on the sale of certain marketable securities
in the prior year period. Excluding the effects of that gain, net income for the
three months ended July 31, 2006, was higher than the same period of fiscal year
2006 largely on the basis of the 29% increase in revenues.
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
(Continued)
Income Taxes
The Company is subject to taxation in several countries as well as the
states of New York and California. The statutory federal rates vary from 34% in
the United States to 35% in Europe. The effective rate is impacted by the income
or loss of certain of the Company's European and Asian subsidiaries which are
currently not taxed. In addition, the Company utilizes the availability of
research and development tax credits in the United States to lower its tax rate.
The Company's European subsidiaries have available net operating loss
carryforwards of approximately $2.4 million to offset future taxable income.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company's balance sheet continues to reflect a strong working capital
position of $61 million at July 31, 2006, which is comparable to working capital
at April 30, 2006. Included in working capital at July 31, 2006 is $24.4 million
of cash, cash equivalents and marketable securities. The Company's current ratio
at July 31, 2006 is 8.1 to 1.
For the three months ended July 31, 2006, the Company used $1.0 million in
cash from operating activities compared to $4.7 million used by operations in
the comparable fiscal year 2006 period. The most significant use of cash in the
fiscal year 2007 period was for the acquisition of additional parts inventory to
support large programs currently in process. In addition, accounts receivable
increased but partially offset by an increase in accounts payable. In the three
month period ended July 31, 2005, the significant decrease in operating cash
flow was due primarily to the payment of income taxes related to the investment
gains realized in the previous fiscal year as well as increases in the value of
the Company's accounts receivable and inventory. For the full fiscal year 2007,
the Company expects to generate positive cash flow from operating activities,
particularly as billing milestones are achieved on certain of its large
production contracts.
Net cash provided by investing activities for the three months ended July
31, 2006, was $3.5 million compared to $2.9 million for the same period of
fiscal year 2006. The principal source of cash in the fiscal year 2007 period
was the sale or redemption of certain marketable securities aggregating $3.9
million. In the same period of the prior year, net sales of marketable
securities were $3.4 million. During the three months ended July 31, 2006, the
Company also acquired capital equipment for approximately $374,000 compared to
$520,000 during the same period of the prior year. 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. Capital
equipment purchases for all of fiscal year 2007 is expected to aggregate
approximately $2.0 million. Internally generated cash is adequate to acquire
this level of capital equipment.
Net cash provided by financing activities for the three months ended July
31, 2006, was $885,000 compared to cash used in financing activities in the
amount of $852,000 during the comparable fiscal year 2006 period. Included in
both fiscal periods is payment of the Company's semiannual dividend in the
amount of $857,000 and $852,000, respectively. During the three months ended
July 31, 2006, the Company borrowed $1.6 million under its line of credit to
fund current operations rather than liquidating additional marketable
securities. Such borrowings were repaid early in the second quarter of fiscal
year 2007.
The Company has been authorized by its Board of Directors to repurchase up
to $5 million worth of shares of its common stock for treasury whenever
appropriate opportunities arise but it has neither a formal repurchase plan nor
commitments to purchase additional shares in the future. During the quarter
ended July 31, 2006, the Company did not acquire any shares of its stock under
this authorization.
The Company will continue to expend resources to develop and improve
products for wireless and wireline communication systems which management
believes will result in future growth and continued profitability. During fiscal
year 2007, the Company has made and intends to make a substantial investment of
capital and technical resources to develop new products to meet the needs of the
U.S. Government, commercial space and commercial communications marketplaces and
to invest in more efficient product designs and manufacturing procedures. Where
possible, the Company will secure partial customer funding for such development
efforts but is targeting to spend its own funds at a rate of approximately 10%
of revenues to achieve its development goals. Internally generated cash will be
adequate to fund these development efforts
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
(Continued)
At July 31, 2006, the Company's backlog amounted to approximately $37
million compared to $36 million at April 30, 2006. Of this backlog,
approximately 80% is realizable in the next twelve months.
Off-Balance Sheet Arrangements
------------------------------
The Company does not have any off-balance sheet arrangements that have or
are reasonably likely to have a current or future effect on the Company's
financial condition, changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or capital resources that
is material to investors.
Contractual obligations
-----------------------
As of July 31, 2006
Total Less than More than
Contractual Obligations (in thousands) 1 Year 1 to 3 Years 3 to 5 Years 5 Years
----------------------- -------------- ------ ------------ ------------ -------
Operating Lease Obligations $1,452 $ 666 $ 672 $ 72 $ 42
Deferred Compensation 8,250* 325 342 205 7,378
------ ----- ------ ---- ------
Total $9,702 $ 991 $1,014 $277 $7,420
====== ===== ====== ==== ======
*Deferred Compensation liability reflects payments due to current retirees
receiving benefits. The amount of $7,378 in the more than 5 years column
includes benefits due to participants in the plan who are not yet receiving
benefits although some participants may opt to retire and begin receiving
benefits within the next 5 years.
--------------------------------
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
----------------------------------------------------------
Interest Rate Risk
The Company is exposed to market risk related to changes in interest rates
and market values of securities. The Company's investments in fixed income and
equity securities were approximately $18.1 million and $49,000, respectively, at
July 31, 2006. The investments are carried at fair value with changes in
unrealized gains and losses recorded as adjustments to stockholders' equity. The
fair value of investments in marketable securities is generally based on quoted
market prices. Typically, the fair market value of investments in fixed interest
rate debt securities will increase as interest rates fall and decrease as
interest rates rise. Based on the Company's overall interest rate exposure at
July 31, 2006, a 10% change in market interest rates would not have a material
effect on the fair value of the Company's fixed income securities or results of
operations.
Foreign Currency Risk
The Company is subject to foreign currency translation risk. The Company
does not have any near-term intentions to repatriate invested cash in any of its
foreign-based subsidiaries. For this reason, the Company does not intend to
initiate any exchange rate hedging strategies which could be used to mitigate
the effects of foreign currency fluctuations. The effects of foreign currency
rate fluctuations will be recorded in the equity section of the balance sheet as
a component of other comprehensive income. As of July 31, 2006, the amount
related to foreign currency exchange rates is a $3,554,000 unrealized gain.
The results of operations of foreign subsidiaries, when translated into US
dollars, will reflect the average rates of exchange for the periods presented.
As a result, similar results of operations measured in local currencies can vary
significantly upon translation into US dollars if exchange rates fluctuate
significantly from one period to the next.
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
(Continued)
Item 4.
Controls and Procedures
-----------------------
Disclosure Controls and Procedures.
The Company's management, with the participation of the Company's chief
executive officer and chief financial officer, has evaluated the effectiveness
of the Company's disclosure controls and procedures (as such term is defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) as of the end of the period covered by this
report. Based on such evaluation, the Company's chief executive officer and
chief financial officer have concluded that, as of the end of such period, the
Company's disclosure controls and procedures are effective (i) to ensure that
information required to be disclosed by the Company in the reports that it files
or submits under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the SEC's rules and forms and
(ii) to ensure that information required to be disclosed by the Company in the
reports that it submits under the Exchange Act is accumulated and communicated
to its management, including the Company's principal executive and principal
financial officers, or persons performing similar functions, as appropriate, to
allow timely decisions regarding required disclosure.
Internal Control Over Financial Reporting.
There have not been any changes in the Company's internal control over
financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act) during the period to which this report relates that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
PART II
ITEMS 1, 1A, 2, 3, 4 and 5 are omitted because they are not applicable.
ITEM 6 - Exhibits
31.1 - Certification by the Chief Executive Officer Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
31.2 - Certification by the Chief Financial Officer 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 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 Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FREQUENCY ELECTRONICS, INC.
(Registrant)
Date: September 14, 2006 BY /s/ Alan Miller
------------------------
Alan Miller
Chief Financial Officer
and Controller
Exhibit 31.1
CERTIFICATION PURSUANT TO
SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
Certification of CEO
I, Martin B. Bloch, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Frequency
Electronics, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as
of the end of the period covered by this report based on such
evaluation;
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board
of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
/s/ Martin Bloch September 14, 2006
--------------------
Martin B. Bloch
Chief Executive Officer
Exhibit 31.2
CERTIFICATION PURSUANT TO
SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
Certification of CFO
I, Alan L. Miller, certify that
1. I have reviewed this quarterly report on Form 10-Q of Frequency
Electronics, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as
of the end of the period covered by this report based on such
evaluation;
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board
of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
/s/ Alan Miller September 14, 2006
------------------------
Alan L. Miller
Chief Financial Officer
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Certification of CEO
In connection with the Quarterly Report of Frequency Electronics, Inc. (the
"Company") on Form 10-Q for the period ended July 31, 2006 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Martin
B. Bloch, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that to my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
/s/ Martin Bloch September 14, 2006
-------------------------
Martin B. Bloch
Chief Executive Officer
A signed original of this written statement required by Section 906,
or other document authenticating, acknowledging, or otherwise adopting
the signature that appears in typed form within the electronic version
of this written statement required by Section 906, has been provided
to the Company and will be retained by the Company and furnished to
the Securities and Exchange Commission or its staff upon request.
This certification accompanies this Report on Form 10-Q pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to
the extent required by such Act, be deemed filed by the Company for
purposes of Section 18 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Such certification will not be deemed to
be incorporated by reference into any filing under the Securities Act
of 1933, as amended, or the Exchange Act, except to the extent that
the Company specifically incorporates it by reference.
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Certification of CFO
In connection with the Quarterly Report of Frequency Electronics, Inc. (the
"Company") on Form 10-Q for the period ended July 31, 2006 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Alan L.
Miller, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that to my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
/s/ Alan Miller September 14, 2006
----------------------
Alan L. Miller
Chief Financial Officer
A signed original of this written statement required by Section 906,
or other document authenticating, acknowledging, or otherwise adopting
the signature that appears in typed form within the electronic version
of this written statement required by Section 906, has been provided
to the Company and will be retained by the Company and furnished to
the Securities and Exchange Commission or its staff upon request.
This certification accompanies this Report on Form 10-Q pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to
the extent required by such Act, be deemed filed by the Company for
purposes of Section 18 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Such certification will not be deemed to
be incorporated by reference into any filing under the Securities Act
of 1933, as amended, or the Exchange Act, except to the extent that
the Company specifically incorporates it by reference.