Press Releases

Frequency Electronics, Inc. Announces Fiscal Year 2009 Results

Jul 29, 2009

MITCHEL FIELD, N.Y., Jul 29, 2009 (GlobeNewswire via COMTEX News Network) -- Frequency Electronics, Inc. (Nasdaq:FEIM) reported revenues for fiscal year 2009 of $52.7 million, compared to $64.4 million in fiscal 2008, primarily reflecting a decline in sales to commercial customers in both the telecommunications and satellite payload markets. After recording a $7.6 million valuation allowance against deferred tax assets, the Company recorded a net loss for the fiscal year ended April 30, 2009, of $11.0 million, or ($1.33) per diluted share, compared to net income of $887,000, or $0.10 per diluted share in fiscal 2008. As previously announced, fiscal year 2009 results include approximately $3.4 million in additional inventory reserves related to the Company's products for the wireless telecommunications market. Accounting criteria requires a valuation allowance on deferred tax assets based on the Company's recent financial results. Net income for fiscal year 2008 included a pre-tax gain of $3.0 million on a sale of assets.

The GAAP-basis operating loss for fiscal 2009 was $5.9 million compared to a $2.6 million loss in fiscal 2008. On a non-GAAP basis, excluding the wireless telecommunications inventory reserve, the operating loss for fiscal 2009 was $2.5 million compared to the $2.6 million for the prior year. The gross margin rate on a non-GAAP basis is 26% in fiscal 2009 compared to 27% in fiscal 2008.

For the fourth quarter of fiscal year 2009, revenues were $12.4 million, the operating loss was $3.4 million and net loss was $9.5 million or ($1.17) per diluted share. In the same period of last year, revenues were $14.3 million, operating loss was $3.0 million and net loss was $1.7 million or ($0.19) per diluted share. On a non-GAAP basis, excluding the wireless telecommunications inventory reserve, the operating loss for the fourth quarter of fiscal year 2009 was $503,000 compared to the operating loss of $3.0 million in the same period of fiscal year 2008. The gross margin rate on a non-GAAP basis was 30% in fiscal 2009 compared to a rate of 16% in the fourth quarter of fiscal 2008.

Chairman of the Board General Joseph Franklin made the following comments: "In fiscal 2009, the severe global economic downturn had a major impact on some of our commercial customers. Wireless telecommunication infrastructure sales continued a steep decline which led to a large inventory reserve in the fourth quarter. Although we took very substantial measures to reduce costs during the year, we were unable to achieve profitability by fiscal year end. Both the inventory reserve and the valuation allowance on our tax assets are non-cash items. We were able to generate $7 million in operating cash flow and ended the year with an increase in net cash (cash and marketable securities less borrowings under a credit line) over last year even after reacquiring over $3 million worth of our stock. Although revenues from U.S. Government satellites rose, revenues from commercial satellites fell significantly, as schedules for many commercial satellite programs were delayed. Industry studies predict more than 1,100 new satellites will be launched over the next ten years, which is a remarkable opportunity for Frequency. We expect to take full advantage of this opportunity with new and existing products, within our R&D budget, while maintaining our strong cash position and attaining profitability."

Reports on the Company's major business areas:

 * Satellite Payloads: Revenues from U.S. Government space programs
   doubled in fiscal 2009 over the prior year; however, revenues from
   commercial projects fell almost to one-fourth the level in fiscal
   2008 as tight credit and economic uncertainties caused commercial
   programs to be rescheduled and moved into the future. Overall
   revenues in this business area declined approximately 25%. For
   fiscal 2009, satellite payloads represented about one-third of
   consolidated revenues.

   New industry studies estimate that, not including micro-satellites,
   an average of over 100 satellites will be built and launched per
   year over the next 10 years. Historically, Frequency has addressed a
   small, highly specialized segment of the satellite market. In order
   to generate substantial revenue growth, the Company will address a
   much broader portion of satellite payload electronics.

   Development of the next generation of satellite timing systems
   (clocks) is funded in three current cost-plus government contracts,
   aggregating over $20 million. These next generation clock products
   will give the Company a commanding lead in government and commercial
   satellite programs. Frequency will devote its internal research and
   development to enhance its RF microwave product line. Specifically,
   the Company will focus on completing the development of up/down
   converters, beacon transmitters, telemetry transmitters and reduce
   the size and cost of existing microwave frequency generators and
   DC-to-DC converters. This will enable Frequency to compete for a
   much larger dollar value per satellite.

 * U.S. Government/DOD non-satellite programs: Revenues from this
   business area rose in the fourth quarter of fiscal 2009, but were
   relatively flat year-over-year and represented approximately 20% of
   consolidated revenues. Development work continued on the major DOD
   programs that have been awarded to Frequency, involving products for
   secure communications, high resolution radar, smart munitions and
   electronic intelligence. These programs remain in the prototype
   development and pilot production stages and are not yet in large
   scale production. Frequency will make additional investments within
   our target R&D budget for 2010 to improve the manufacturability and
   affordability of these products in large-scale production.

 * Telecommunications infrastructure: Revenues from this business area
   continued to decline, down over 20% from the prior year, and
   represented approximately one-third of the Company's consolidated
   revenues for fiscal 2009. Demand for Frequency's wireless telecom
   products was curtailed as network build outs slowed considerably
   during the past year. There is a major trend in deployment of
   networks providing significantly lower levels of service
   performance. These networks utilize lower precision timing
   generators at a fraction of the cost of Frequency's high-precision
   devices. The Company does not intend to compete in that arena and
   will apply its energy and technology to higher value products. First
   year sales of Frequency's new US5G family of wireline products met
   expectations. These wireline synchronization systems have
   successfully penetrated major service provider networks, with
   excellent performance feedback from units in the field.

Reporting segments:

(Including inter-segment sales of $3.8 million in fiscal 2009 compared to $2.4 million in fiscal 2008.)

 * FEI-NY revenues were $35.8 million in fiscal 2009, compared to $46.3
   million in fiscal 2008. The FEI-NY segment includes revenues from
   satellite payloads, wireless telecommunications and U.S.
   Government/DOD non-space programs. During fiscal 2009, sales and
   support of the US5G synchronization systems were transferred to

 * Gillam-FEI recorded revenues of $11.3 million in fiscal 2009
   compared to $11.5 million in fiscal 2008. The Gillam-FEI segment
   includes revenues primarily from wireline telecommunications
   infrastructure and from other network management products

 * FEI-Zyfer revenues were $9.4 million in fiscal 2009, compared to
   $9.1 million in fiscal 2008. The majority of FEI-Zyfer's sales are
   derived from U.S. Government/DOD programs and a family of commercial
   wireline products.

Chief Financial Officer Alan Miller stated: "Excluding the additional allowance for wireless telecommunications inventory, fourth quarter gross margin continued to improve. During the year we reduced our annual cost run rate by over $10 million primarily from a reduction in personnel and related costs and reducing other indirect costs, which was only partially realized in fiscal 2009, which will enable us to show substantial improvement in operating results in fiscal 2010 even at lower revenues levels. We generated positive operating cash flow of $7.2 million, paid down our credit line, repurchased stock and ended the year with more net cash and marketable securities than at the beginning of the year. This positions us to continue the support of new product development which will enhance Frequency's growth opportunities and enable us to return to profitability."

Investor Conference Call

As previously announced, the Company will hold a conference call to discuss these results on Wednesday, July 29, 2009, at 12:00 Noon Eastern Time. Investors and analysts may access the call by dialing 1-888-349-9587. International callers may dial 1-719-325-2170. Ask for the Frequency Electronics conference call.

The call will be archived on the Company's website through August 28, 2009. The archived call may also be retrieved at 1-888-203-1112 (domestic) or 1-719-457-0820 (international) using Passcode ID 3818084.

About Frequency Electronics

Frequency Electronics, Inc. is a world leader in the design, development and manufacture of high precision timing, frequency control and synchronization products for space and terrestrial applications. Frequency's products are used in commercial, government and military systems, including satellite payloads, missiles, UAVs, aircraft, GPS, secure radios, SCADA, energy exploration and wireline and wireless communication networks. Frequency has received over 60 awards of excellence for achievements in providing high performance electronic assemblies for over 120 space programs. The Company invests significant resources in research and development and strategic acquisitions world-wide to expand its capabilities and markets. Subsidiaries and Affiliates: Gillam-FEI provides expertise in wireline network synchronization and SCADA; FEI-Zyfer provides GPS and secure timing ("SAASM") capabilities for critical military and commercial applications; FEI-Asia provides cost effective manufacturing and distribution capabilities in a high growth market. Frequency's Morion affiliate supplies high-quality, cost effective quartz oscillators and components. Elcom Technologies provides added resources for state-of-the-art RF microwave products. Additional information is available on the Company's website: www.frequencyelectronics.com.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: The Statements in this press release regarding 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 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 release.

             Frequency Electronics, Inc. and Subsidiaries
           Consolidated Condensed Summary of Operations Data

                           Quarter Ended           Year Ended
                             April 30,              April 30,
                         2009        2008        2009        2008
                      ----------  ----------  ----------  ----------
                           (unaudited)              (audited)
                          (in thousands except per share data)

 Net Revenues         $   12,443  $   14,291  $   52,740  $   64,397
 Cost of Revenues         11,628      12,025      42,560      46,735
                      ----------  ----------  ----------  ----------
   Gross Margin              815       2,266      10,180      17,662

 Selling and
  Administrative           2,635       3,659      11,431      13,139
 Research and
  Development              1,598       1,574       4,666       7,101
                      ----------  ----------  ----------  ----------
   Operating Loss         (3,418)     (2,967)     (5,917)     (2,578)
 Interest and
  Other, Net                 (46)         30         190       4,025
                      ----------  ----------  ----------  ----------
 Income (Loss) before
  Income Taxes            (3,464)     (2,937)     (5,727)      1,447
 Income Tax Provision
  (Benefit)                6,005      (1,277)      5,309         560
                      ----------  ----------  ----------  ----------
   Net (Loss) Income  $   (9,469) $   (1,660) $  (11,036) $      887
                      ==========  ==========  ==========  ==========

 Net (Loss) Income
  per Share:
   Basic              $    (1.17) $    (0.19) $    (1.33) $     0.10
                      ==========  ==========  ==========  ==========
   Diluted            $    (1.17) $    (0.19) $    (1.33) $     0.10
                      ==========  ==========  ==========  ==========
 Average Shares
   Basic               8,118,012   8,732,774   8,315,571   8,710,260
                      ==========  ==========  ==========  ==========
   Diluted             8,118,012   8,732,774   8,315,571   8,778,059
                      ==========  ==========  ==========  ==========

             Frequency Electronics, Inc. and Subsidiaries
                 Condensed Consolidated Balance Sheets

                                        April 30,    April 30,
                                          2009         2008
                                         -------      -------
                                            (in thousands)
 Cash & Marketable Securities            $14,909      $15,443
 Accounts Receivable                      10,775       10,271
 Costs and Estimated Earnings
      in Excess of Billings                2,193        9,556
 Inventories                              26,051       30,218
 Other Current Assets                      2,143        6,116
 Property, Plant & Equipment               7,961        9,531
 Other Assets                             13,888       15,785
                                         -------      -------
                                         $77,920      $96,920
                                         =======      =======

 Current Liabilities                     $ 8,040      $12,077
 Long-term Obligations and Other          10,714       11,233
 Stockholders' Equity                     59,166       73,610
                                         -------      -------
                                         $77,920      $96,920
                                         =======      =======

             Frequency Electronics, Inc. and Subsidiaries
           Consolidated Condensed Summary of Operations Data
                Reconciliation of GAAP to Non-GAAP Data

                              Quarter Ended        Year Ended
                                April 30,           April 30,
                             2009      2008      2009      2008
                           --------  --------  --------  --------
                            (in thousands except per share data)

 GAAP-basis Gross Margin   $    815  $  2,266  $ 10,180  $ 17,662

   (a)Writedown of
      inventory               2,915        --     3,415        --
                           --------  --------  --------  --------

 Non-GAAP Gross Margin        3,730     2,266    13,595    17,662
   Non-GAAP Gross Margin
    as a percent
    of revenues                30.0%     15.9%     25.8%     27.4%

 Selling and
  Administrative Costs        2,635     3,659    11,431    13,139

 Research and
  Development                 1,598     1,574     4,666     7,101
                           --------  --------  --------  --------

 Non-GAAP Operating Loss       (503)   (2,967)   (2,502)   (2,578)

 (a) The writedown of wireless telecommunications inventory does not
     include additional adjustments to the allowance for inventory
     obsolescence made in the ordinary course of business of $150,000
     and $1.1 million for the three month periods ended April 30, 2009
     and 2008, respectively and $1.6 million for each of the years
     ended April 30, 2009 and 2008, respectively.

This news release was distributed by GlobeNewswire, www.globenewswire.com

SOURCE: Frequency Electronics, Inc.

Frequency Electronics, Inc.
          Alan Miller, CFO
          General Joseph P. Franklin, Chairman
          (516) 794-4500

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