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 January 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 ____
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of Registrant's Common Stock, par value $1.00
as of March 10, 2006 - 8,551,527
Page 1 of 24
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
INDEX
Part I. Financial Information: Page No.
Item 1 - Financial Statements:
Condensed Consolidated Balance Sheets -
January 31, 2006 and April 30, 2005 3-4
Condensed Consolidated Statements of Operations
Nine Months Ended January 31, 2006 and 2005 5
Condensed Consolidated Statements of Operations
Three Months Ended January 31, 2006 and 2005 6
Condensed Consolidated Statements of Cash Flows
Nine Months Ended January 31, 2006 and 2005 7
Notes to Condensed Consolidated Financial Statements 8-11
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 12-18
Item 3- Quantitative and Qualitative Disclosures about Market Risk 18
Item 4- Controls and Procedures 18-19
Part II. Other Information:
Items 1, 2, 3, 4 and 5 are omitted because they are not applicable
Item 6 - Exhibits 19
Signatures 20
Exhibits 21-24
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Condensed Consolidated Balance Sheets
January 31, April 30,
2006 2005
---- ----
(UNAUDITED) (NOTE A)
(In thousands)
ASSETS:
Current assets:
Cash and cash equivalents $ 4,166 $ 6,701
Marketable securities 22,161 23,532
Accounts receivable, net of allowance
for doubtful accounts of $282 at
January 31, 2006 and $172 at April 30, 2005 14,850 12,728
Inventories 23,445 22,948
Deferred income taxes 3,057 2,269
Prepaid expenses and other 1,154 1,362
-------- --------
Total current assets 68,833 69,540
Property, plant and equipment, at cost,
less accumulated depreciation and
amortization 6,187 6,770
Deferred income taxes 2,710 2,644
Cash surrender value of life insurance 6,198 5,838
Goodwill and other Intangible assets, net 533 591
Other assets 3,427 2,991
------- -------
Total assets $87,888 $88,374
======= =======
See accompanying notes to condensed consolidated
financial statements.
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Condensed Consolidated Balance Sheets (Continued)
January 31, April 30,
2006 2005
---- ----
(UNAUDITED) (NOTE A)
(In thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Short-term credit obligations $ 1,000 $ -
Accounts payable - trade 2,082 1,896
Accrued liabilities and other 4,021 3,912
Income taxes payable 1,232 3,184
Dividend payable - 852
------- -------
Total current liabilities 8,335 9,844
Deferred compensation 8,020 7,812
Deferred gain and other liabilities 1,049 1,525
------- -------
Total liabilities 17,404 19,181
------- -------
Stockholders' equity:
Preferred stock - $1.00 par value - -
Common stock - $1.00 par value 9,164 9,164
Additional paid-in capital 45,523 45,289
Retained earnings 15,308 12,440
------- -------
69,995 66,893
Common stock reacquired and held in treasury
-at cost, 616,413 shares at January 31, 2006
and 646,709 shares at April 30, 2005 (2,511) (2,601)
Accumulated other comprehensive income 3,000 4,901
------- -------
Total stockholders' equity 70,484 69,193
------- -------
Total liabilities and stockholders' equity $87,888 $88,374
======= =======
See accompanying notes to condensed consolidated
financial statements.
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Consolidated Condensed Statements of Operations
Nine Months Ended January 31,
(Unaudited)
2006 2005
---- ----
(In thousands except per share data)
Net sales $37,668 $43,266
Cost of sales 24,011 28,537
------- -------
Gross margin 13,657 14,729
Selling and administrative expenses 8,154 8,759
Research and development expenses 4,124 4,850
------- -------
Operating profit 1,379 1,120
Other income (expense):
Investment income 2,951 1,219
Equity in Morion 423 225
Interest expense (83) (248)
Other income, net 928 29
------- -------
Income before minority interest and
provision for income taxes 5,598 2,345
Minority interest in loss of
consolidated subsidiary - (1)
------- -------
Income before provision for income taxes 5,598 2,346
Provision for income taxes 1,876 830
------- -------
Net income $ 3,722 $ 1,516
======= =======
Net income per common share
Basic $ 0.44 $ 0.18
====== ======
Diluted $ 0.43 $ 0.17
====== ======
Average shares outstanding
Basic 8,530,926 8,473,679
========= =========
Diluted 8,668,685 8,682,099
========= =========
See accompanying notes to consolidated condensed
financial statements.
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Condensed Consolidated Statements of Operations
Three Months Ended January 31,
(Unaudited)
2006 2005
---- ----
(In thousands except per share data)
Net sales $15,113 $11,222
Cost of sales 9,651 7,529
------- -------
Gross margin 5,462 3,693
Selling and administrative expenses 3,077 2,567
Research and development expense 1,173 2,025
------- -------
Operating profit (loss) 1,212 (899)
Other income (expense):
Investment income 285 390
Equity in Morion 194 97
Interest expense (24) (97)
Other income (expense), net 161 (29)
------- -------
Income (Loss) before provision (benefit)
for income taxes 1,828 (538)
Provision (Benefit) for income taxes 580 (170)
------- -------
Net income (loss) $ 1,248 $ (368)
======= =======
Net income (loss) per common share
Basic $ 0.15 $(0.04)
====== ======
Diluted $ 0.14 $(0.04)
====== ======
Average shares outstanding
Basic 8,541,519 8,499,274
========= =========
Diluted 8,674,434 8,499,274
========= =========
See accompanying notes to condensed consolidated
financial statements.
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Nine Months Ended January 31,
(Unaudited)
2006 2005
---- ----
(In thousands)
Cash flows from operating activities:
Net income $ 3,722 $ 1,516
Non-cash charges to earnings (1,346) 2,387
Net changes in other assets and liabilities (4,224) (113)
------- -------
Net cash (used in) provided by operating activities (1,848) 3,790
------- -------
Cash flows from investing activities:
Payment for acquisitions (103) (974)
Proceeds from sale of marketable securities 12,818 3,525
Purchase of marketable securities (11,518) (4,905)
Purchase of fixed assets (1,260) (1,140)
Other - net - 70
------- -------
Net cash used in investing activities (63) (3,424)
------- -------
Cash flows from financing activities:
Proceeds from short-term credit obligations 1,000 1,547
Payment of cash dividend (1,706) (1,692)
Payment on long-term obligations (9) (1,954)
Other - net 26 174
------- -------
Net cash used in financing activities (689) (1,925)
------- -------
Net decrease in cash and cash equivalents
before effect of exchange rate changes (2,600) (1,559)
Effect of exchange rate changes
on cash and cash equivalents 65 255
------- -------
Net decrease in cash (2,535) (1,304)
Cash at beginning of period 6,701 5,699
------- -------
Cash at end of period $ 4,166 $ 4,395
======= =======
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 January 31, 2006 and the results of its operations and cash flows for the
nine and three months ended January 31, 2006 and 2005. The April 30, 2005
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, 2005 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:
Nine months Three months
----------- ------------
Periods ended January 31,
2006 2005 2006 2005
---- ---- ---- ----
Basic EPS Shares outstanding
(weighted average) 8,530,926 8,473,679 8,541,519 8,499,274
Effect of Dilutive Securities 137,759 208,420 132,915 ***
--------- --------- --------- ---------
Diluted EPS Shares outstanding 8,668,685 8,682,099 8,674,434 8,499,274
========= ========= ========= =========
*** Dilutive securities are excluded for the three month period ended
January 31, 2005 since the inclusion of such shares would be antidilutive
due to the net loss for the period then ended.
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:
Nine months Three months
Periods ended January 31,
2006 2005 2006 2005
---- ---- ---- ----
Outstanding Options excluded 570,550 505,550 570,550 325,550
======= ======= ======= =======
NOTE C - ACCOUNTS RECEIVABLE
Accounts receivable at January 31, 2006 and April 30, 2005 include costs
and estimated earnings in excess of billings on uncompleted contracts accounted
for on the percentage of completion basis of approximately $2,686,000 and
$4,138,000, 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 $4,393,000 and
$4,289,000 at January 31, 2006 and April 30, 2005, respectively, consist of the
following:
January 31, 2006 April 30, 2005
(In thousands)
Raw materials and Component parts $11,010 $10,353
Work in progress 12,435 12,595
------- -------
$23,445 $22,948
======= =======
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE E- RELATED PARTY TRANSACTION
During the nine months ended January 31, 2006, the Company sold the
remaining building formerly owned by its French subsidiary to the president of
Gillam-FEI. The sale price of the building was approximately $990,000 and was
based upon an independent appraisal of the building. The Company recognized a
gain of approximately $680,000 on the sale.
NOTE F - -COMPREHENSIVE INCOME
For the nine months ended January 31, 2006 and 2005 total comprehensive
income was $1,821,000 and $4,507,000, respectively. 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 G - EQUITY-BASED COMPENSATION
The Company applies the disclosure-only provisions of FAS 123, "Accounting
for Stock-Based Compensation," as amended by FAS 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure," and continues to measure
compensation cost in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees." Historically, this has not resulted
in compensation cost upon the grant of options under a qualified stock option
plan. However, in accordance with FAS 123, as amended by FAS 148, the Company
provides pro forma disclosures of net earnings (loss) and earnings (loss) per
share as if the fair value method had been applied beginning in fiscal 1996.
The following table illustrates the effect on the Company's consolidated
statements of operations had compensation cost for stock option awards under the
plans been determined based on the fair value at the grant dates consistent with
the provisions of FAS 123 as amended by FAS 148:
Nine months Three months
Periods ended January 31,
2006 2005 2006 2005
---- ---- ---- ----
(In thousands except per share data)
Net income (loss), as reported $3,722 $1,516 $1,248 $ (368)
Cost of stock options, net of tax (240) (477) (59) (136)
------ ------ ------ ------
Net income (loss)- pro forma $3,482 $1,039 $1,189 $ (504)
====== ====== ====== ======
Earnings (loss) per share, as reported:
Basic $ 0.44 $ 0.18 $ 0.15 $(0.04)
====== ====== ====== ======
Diluted $ 0.43 $ 0.17 $ 0.14 $(0.04)
====== ====== ====== ======
Earnings (loss) per share- pro forma
Basic $ 0.41 $ 0.12 $ 0.14 $(0.06)
====== ====== ====== ======
Diluted $ 0.40 $ 0.11 $ 0.14 $(0.06)
====== ====== ====== ======
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 fiscal years 2006 and 2005:
dividend yield of 1.83%; expected volatility of 59%; risk free interest rate of
3.9%; and expected lives of six and one-half years.
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE H - SEGMENT INFORMATION
The Company operates under four reportable segments:
(1) Commercial Communications - consists principally of time and frequency
control products used in two principal markets- commercial
communication satellites and terrestrial cellular telephone or other
ground-based telecommunication stations.
(2) U.S. Government - consists of time and frequency control products used
for national defense or space-related programs.
(3) Gillam-FEI - the Company's Belgian subsidiary primarily sells wireline
synchronization and network monitoring systems.
(4) 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.
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:
Nine months Three months
Periods ended January 31,
2006 2005 2006 2005
---- ---- ---- ----
(in thousands)
Net sales:
Commercial Communications $20,119 $25,436 $ 9,244 $ 5,315
U.S. Government 4,815 4,300 1,111 985
Gillam-FEI 6,206** 7,656 2,147 2,624
FEI-Zyfer 7,895 6,630 2,763 2,453
less intersegment sales (1,367)** (756) (152) (155)
------- ------- ------- -------
Consolidated sales $37,668 $43,266 $15,113 $11,222
======= ======= ======= =======
Operating profit (loss):
Commercial Communications $ 2,734** $ 3,391 $ 1,844 $ (16)
U.S. Government (1,330) (978) (646) (579)
Gillam-FEI (613)** (1,215) (185) (376)
FEI-Zyfer 1,013 334 298 214
Corporate (425) (412) (99) (142)
------- ------- ------- -------
Consolidated operating profit $ 1,379 $ 1,120 $ 1,212 $ (899)
======= ======= ======= =======
** For the nine month period ended January 31, 2006, includes Gillam-FEI
intersegment sales of $372,000 to the Commercial Communications
segment for development of a wireline synchronization product for
ultimate production and sale in the U.S. This amount was recorded as
research and development expense of the Commercial Communications
segment. In the fiscal year 2006 periods, these transactions resulted
in lower operating profits in the Commercial Communications segment
and reduced the reported operating loss in the Gillam-FEI segment.
(in thousands)
January 31, 2006 April 30, 2005
---------------- --------------
Identifiable assets:
Commercial Communications $31,303 $26,261
U.S. Government 5,505 6,245
Gillam-FEI 12,243 13,877
FEI-Zyfer 4,876 4,796
less intercompany balances (10,431) (9,892)
Corporate 44,392 47,087
------- -------
Consolidated Identifiable Assets $87,888 $88,374
======= =======
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE I - 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 fiscal years beginning after June 15, 2005; i.e., fiscal year
2007 for the Company. The adoption of FAS 151 is not expected to have a material
impact on the Company's financial position or results of operations.
In December 2004, the FASB issued Statement No. 123(R), "Stock-Based
Payment" ("FAS 123(R)"). FAS 123(R) supercedes APB Opinion No. 25, "Accounting
for Stock Issued to Employees," and amends FAS No. 95, "Statement of Cash
Flows." Generally, the approach in FAS 123(R) is similar to the approach
described in FAS 123. FAS 123(R) establishes standards for the accounting for
transactions in which an entity exchanges its equity instruments for goods or
services. This statement focuses primarily on accounting for transactions in
which an entity obtains employee services in share-based payment transactions.
FAS 123(R) requires that the fair value of such equity instruments be recognized
as an expense in the historical financial statements as services are performed.
Prior to FAS 123(R), only certain pro forma disclosures of fair value were
required. The provisions of this statement are effective for fiscal years
beginning after June 15, 2005; i.e., fiscal year 2007 for the Company. The
adoption of FAS 123(R) will have an impact on the Company's financial position
and results of operations similar to the pro forma disclosure in the
Equity-based Compensation disclosure in Note G.
In December 2004, the FASB issued Statement No. 153, "Exchange of
Non-monetary Assets", ("FAS 153") an amendment of Accounting Principles Board
Opinion No. 29 ("APB 29"), which differed from the International Accounting
Standards Board's ("IASB") method of accounting for exchanges of similar
productive assets. FAS 153 replaces the exception from fair value measurement in
APB 29, with a general exception from fair value measurement for exchanges of
non-monetary assets that do not have commercial substance. The statement is to
be applied prospectively and is effective for non-monetary asset exchanges
occurring in fiscal periods beginning after June 15, 2005; i.e., August 1, 2005
for the Company. The adoption of FAS 153 is not expected to have a material
impact on the Company's financial position or result 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.
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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.
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, 2005
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, generally defined as orders in
excess of $100,000, are reported in operating results using the percentage of
completion method. For U.S. Government and other fixed-price contracts that
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 other business segments 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.
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
(Continued)
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.
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:
Nine months Three months
Periods ended January 31,
2006 2005 2006 2005
---- ---- ---- ----
Net Sales
Commercial Communications 53.4% 58.8% 61.2% 47.3%
U.S. Government 12.8 9.9 7.3 8.8
Gillam-FEI 16.5 17.7 14.2 23.4
FEI-Zyfer 21.0 15.3 18.3 21.9
Less intersegment sales (3.7) (1.7) (1.0) (1.4)
----- ----- ----- -----
100.0 100.0 100.0 100.0
Cost of Sales 63.7 66.0 63.9 67.1
----- ----- ----- -----
Gross Margin 36.3 34.0 36.1 32.9
Selling and administrative expenses 21.6 20.2 20.3 22.9
Research and development expenses 11.0 11.2 7.8 18.0
----- ----- ----- -----
Operating Profit (Loss) 3.7 2.6 8.0 (8.0)
Other income, net & Minority interest 11.2 2.8 4.1 3.2
----- ----- ----- -----
Pretax Income (Loss) 14.9 5.4 12.1 (4.8)
Provision (Benefit) for income taxes 5.0 1.9 3.8 (1.5)
----- ----- ----- -----
Net Income (Loss) 9.9% 3.5% 8.3% (3.3)%
===== ===== ===== =====
(Note: All dollar amounts in following tables are in thousands,
except Net Sales which are in millions)
Operating Profit
- ----------------
Nine months Three months
Periods ended January 31,
2006 2005 Change 2006 2005 Change
---- ---- ------ ---- ---- ------
$1,379 $1,120 $259 23% $1,212 ($899) $2,111 NM
The 23% increase in operating profits for the nine months ended January 31,
2006 compared to the same period of fiscal year 2005 is the result of an
improved gross margin rate and reduced selling and administrative costs and
research and development expenses during fiscal year 2006. For the quarter ended
January 31, 2006, the $2.1 million increase in operating profits over the same
period of fiscal year 2005, is due to the 35% increase in revenues, improved
gross margin and lower research and development spending partially offset by
higher selling and administrative expenses, as discussed below. The Company
expects fiscal year 2006 operating profits to exceed the prior year based on its
revenue backlog and the cost structure currently in place.
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
(Continued)
Net income
- ----------
Nine months Three months
Periods ended January 31,
2006 2005 Change 2006 2005 Change
---- ---- ------ ---- ---- ------
$3,722 $1,516 $2,206 146% $1,248 ($368) $1,616 NM
The improvement in net income in the fiscal year 2006 periods is directly
attributable to increased operating profits. In addition, during the nine month
period ended January 31, 2006, the Company recorded an aggregate of $2.8 million
in pretax gains on the sale of certain assets. During the first two quarters of
fiscal year 2006, the Company realized gains of $2.1 million on the sale of
certain marketable securities that were obtained upon the conversion of REIT
units for the common stock of Reckson Associates Realty Corp. ("REIT stock").
(Refer to Item 2 of the Company's fiscal year 2005 Form 10-K as filed with the
Securities and Exchange Commission.) In addition, in the second quarter of
fiscal year 2006, the Company recorded a gain of approximately $680,000 on the
sale of real property as discussed in Note E to the financial statements.
Net sales
- --------- (in millions)
Nine months Three months
Periods ended January 31,
2006 2005 Change 2006 2005 Change
---- ---- ------ ---- ---- ------
Commercial Communications $20.1 $25.4 ($5.3) (21%) $9.2 $5.3 $3.9 74%
US Government 4.8 4.3 0.5 12% 1.1 1.0 0.1 13%
Gillam-FEI 6.2 7.7 (1.4) (19%) 2.1 2.6 (0.5) (18%)
FEI-Zyfer 7.9 6.6 1.3 19% 2.8 2.5 0.3 13%
Intersegment sales (1.4) (0.8) (0.6) (0.1) (0.2) 0.1
----- ----- ----- ----- ----- ----
$37.6 $43.2 ($5.6) (13%) $15.1 $11.2 $3.9 35%
===== ===== ===== ===== ===== ====
The decline in revenue for the nine month period ended January 31, 2006
compared to the same period of fiscal year 2005 is due principally to reduced
capital spending in the wireless infrastructure industry as end-users delayed
deployment of next-generation cellular base stations. Although revenues during
the third quarter of fiscal year 2006 were higher sequentially and as compared
to the same period of fiscal year 2005, they did not reach the levels attained
in the first half of fiscal year 2005. This reduction directly impacted revenues
in the Commercial Communications segment. Reduced telecommunications
infrastructure spending in Europe similarly impacted the Gillam-FEI segment.
During the third quarter of fiscal year 2006, the Commercial Communications
segment recognized increased revenue from recently awarded commercial satellite
orders as well as increased revenue from the wireless industry as compared to
the three month period ended January 31, 2005. Additional revenue was derived
from US Government programs as the Company continued work on several
developmental, pre-production programs under US Government contracts. The
Company's FEI-Zyfer segment, which derives approximately two-thirds of its
revenues from government sources, also saw revenues increase with increased US
Government buying. The Company expects fiscal year 2006 fourth quarter revenues
to similarly exceed fiscal year 2005 fourth quarter revenues based on its
current backlog and new bookings, principally in the commercial satellite and US
Government industries.
Gross margin
- ------------
Nine months Three months
Periods ended January 31,
2006 2005 Change 2006 2005 Change
---- ---- ------ ---- ---- ------
$13,657 $14,729 ($1,072) (7%) $5,462 $3,693 $1,769 48%
GM Rate 36.3% 34.0% 36.1% 32.9%
The decline in gross margin for the nine months ended January 31, 2006,
compared to the same period of fiscal year 2005, is due to lower revenues and is
offset by the improved gross margin rate. The improved gross margin for the
third quarter of fiscal year 2006 compared to the three months ended January 31,
2005, is due to both increased sales volume and the improved gross margin rate.
Variations in gross margin rates are attributable to both sales volume and
product mix. In particular, the Gillam-FEI segment realized higher margins in
fiscal year 2006 on certain of its network monitoring programs. This
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
(Continued)
improvement was offset by lower margins in the Company's US Government segment
where the Company continued work on several developmental, pre-production
programs under US Government contracts. Gross margin rates, while improving, are
lower than the Company's target of 40%. With further increases in sales,
including conversion of the US Government developmental contracts into initial
low-rate production orders, the Company expects to realize improving gross
margin rates in future periods.
Selling and administrative expenses
- -----------------------------------
Nine months Three months
Periods ended January 31,
2006 2005 Change 2006 2005 Change
---- ---- ------ ---- ---- ------
$8,154 $8,759 ($605) (7%) $3,077 $2,567 $510 20%
Most of the decrease in selling and administrative costs for the first nine
months of fiscal year 2006 compared to the same period of fiscal year 2005 is
attributable to decreased personnel costs both in terms of reduced headcount as
well as smaller accruals for incentive compensation plans due to lower operating
profits. Additional decreases were experienced in selling and marketing
expenses, including lower sales commissions as a result of decreased sales and
lower European-area marketing costs as the Company consolidated its efforts
there into its Gillam-FEI subsidiary. In the three month period ended January
31, 2006, this trend was reversed. Higher revenues and profits in the fiscal
2006 period compared to the same period of fiscal year 2005, resulted in
increased commission expenses and personnel costs, including incentive
compensation accruals. The ratio of selling and administrative costs to net
sales for the nine and three months ended January 31, 2006, were 22% and 20%,
respectively, which approaches the Company's target ratio of under 20% of
revenues. In the comparable fiscal year 2005 periods, the ratio of selling and
administrative costs to revenues was 20% and 23%, respectively. The variations
from the targeted cost ratio are directly correlated to revenue levels in each
of the periods. In the last quarter of fiscal year 2006 and into fiscal year
2007, as revenues increase from the current level, the Company expects to
achieve its targeted ratio of costs to net sales.
Research and development expense
- --------------------------------
Nine months Three months
Periods ended January 31,
2006 2005 Change 2006 2005 Change
---- ---- ------ ---- ---- ------
$4,124 $4,850 ($726) (15%) $1,173 $2,025 ($852) (42%)
During the third quarter of fiscal year 2006, the Company reallocated its
engineering resources from self-funded research and development to third-party
funded production or development programs. In the same period of fiscal year
2005, as revenues declined from the preceding quarters, similar engineering
resources became available for internal research and development activities and
the Company recorded such expenses at a higher rate than had been incurred
earlier in fiscal year 2005. This reallocation of resources resulted in reduced
research and development spending during the nine and three month periods ended
January 31, 2006 compared to the same periods of fiscal year 2005. For the
fourth quarter of fiscal year 2006 and into fiscal year 2007, the Company will
make additional investments to expand its US5G wireline synchronization
productline; improve and miniaturize rubidium atomic clocks, develop new
GPS-based synchronization products, further enhance the capabilities of its line
of crystal oscillators and develop lead-free time and frequency products. The
Company targets research and development spending at approximately 10% of sales,
but the rate of spending can increase or 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.
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
(Continued)
Other income (expense)
- ----------------------
Nine months Three months
Periods ended January 31,
2006 2005 Change 2006 2005 Change
---- ---- ------ ---- ---- ------
Investment income $2,951 $1,219 $1,732 142% $285 $390 ($105) (27%)
Equity in Morion 423 225 198 88% 194 97 97 100%
Interest expense (83) (248) 165 67% (24) (97) 73 75%
Other income (expense) 928 29 899 NM 161 ( 29) 190 NM
------ ------ ------ ---- ---- -----
$4,219 $1,225 $2,994 244% $616 $361 $255 71%
The increase in investment income for the nine months ended January 31,
2006, is due to realized gains of approximately $2.1 million recorded in the
first half of the fiscal year on the sale of a portion of the shares of REIT
stock. 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. Such gains were partially offset by lower interest
and dividend income due to a lower level of marketable securities held by the
Company as a result of the REIT stock sales. This decline is apparent during the
three month period ended January 31, 2006 when no additional investment gains
were realized.
The Company began to record equity income in Morion, Inc. during the second
quarter of fiscal year 2005, when the Company increased its ownership interest
in Morion to 36% of Morion's outstanding shares. Accordingly, the Company
changed its method of accounting from the cost to the equity method and restated
prior year financial statements to reflect the appropriate accounting method.
The 88% increase in equity income from Morion for the nine months of fiscal year
2006 compared to the nine months ended January 31, 2005 is due to two factors:
a) the increased profitability of Morion during the three month period ended
January 31, 2006 compared to the year ago period and b) during the first five
months of fiscal year 2005 the Company held only 19% of Morion's shares and
equity income was recorded at this lower rate.
The decrease in interest expense for the nine and three month periods ended
January 31, 2006 resulted from a reduction in borrowings under the Company's
line of credit during the fiscal year 2006 periods compared to fiscal year 2005,
as well as the conversion of its REIT units to REIT stock, the impact of which
is explained in the next paragraph.
Under the provisions of sale and leaseback accounting, until the REIT units
were converted, the Company's lease was accounted for as a financing.
Accordingly, a portion of its prior year annual rent payments were considered
interest expense. For fiscal year 2006, the Company no longer recognizes
interest expense but the entire lease payment is charged to rent expense. In
addition, under the caption "Other, income" the Company will recognize the
remaining deferred gain from the sale and leaseback transaction. For the nine
and three months ended January 31, 2006, the amount of deferred gain recognized
was $265,000 and $88,000, respectively.
During the nine months ended January 31, 2006, the Company sold the
building formerly owned by the Company's French subsidiary. Following the fiscal
year 2004 staffing cutbacks in this entity, the building had been largely vacant
and available for sale. Upon receipt of an independent appraisal, the building
was sold to the president of the Company's subsidiary, Gillam-FEI. The Company
realized a gain on the sale of the building of approximately $680,000 which is
included in the caption Other income. Other income and expense items included
under this caption, with the exception of the deferred gain recognition and the
gain on the sale of the building, are nonrecurring and generally are not
significant to pretax earnings.
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.
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
(Continued)
LIQUIDITY AND CAPITAL RESOURCES
The Company's balance sheet continues to reflect a strong working capital
position of $60 million at January 31, 2006, which is comparable to working
capital at April 30, 2005. Included in working capital at January 31, 2006 is
$26.3 million of cash, cash equivalents and marketable securities. The Company's
current ratio at January 31, 2006 is 8.3 to 1.
For the nine months ended January 31, 2006, the Company used $1.8 million
in cash from operating activities compared to $3.8 million provided by
operations in the comparable fiscal year 2005 period. This significant decrease
in cash flows is due primarily to the first quarter payment of income taxes
related to the investment gains realized in the prior fiscal year as well as
increases in the value of the Company's accounts receivable and inventory. Cash
flow from operations for the second and third quarters of fiscal year 2006 was a
positive $2.9 million. For the full fiscal year 2006, the Company expects to
generate positive cash flow from operating activities.
Net cash used in investing activities for the nine months ended January 31,
2006, was $63,000 compared to a use of cash of $3.4 million for the same period
of fiscal year 2005. The principal source of cash was the sale or redemption of
certain marketable securities aggregating $1.3 million, net of purchases of
other marketable securities. The redemption of marketable securities was
primarily to pay the corporate income taxes mentioned above. The Company also
acquired capital equipment for approximately $1.3 million. 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 2006 are expected to be less
than $2.0 million. Internally generated cash is adequate to acquire this level
of capital equipment.
Net cash used in financing activities for the nine months ended January 31,
2006, was $689,000 compared to cash used in financing activities in the amount
of $1.9 million during the comparable fiscal year 2005 period. Included in both
fiscal periods is payment of the Company's semiannual dividend in the amount of
$1.7 million. During the third quarter of fiscal year 2006, the Company obtained
$1.0 million from its line of credit compared to fiscal year 2005, during which
the Company borrowed funds and repaid them under certain short-term debt
obligations resulting in a net cash outflow of $407,000.
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 January 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 2006, 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
At January 31, 2006, the Company's backlog amounted to approximately $42
million compared to $31 million at April 30, 2005. 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.
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
(Continued)
Contractual obligations
-----------------------
As of January 31, 2006 (in thousands)
Less than 1 to 3 3 to 5 More than
Contractual Obligations Total 1 Year Years Years 5 Years
----------------------- ------ -------- ------ ------ -------
Operating Lease Obligations $1,509 $ 672 $ 837 0 0
Deferred Compensation 8,020* 901 1,197 $1,197 $4,725
------- ------ ------ ------ ------
Total $9,529 $1,573 $2,034 $1,197 $4,725
====== ====== ====== ====== ======
*Deferred Compensation liability reflects payments due to current retirees
receiving benefits. The amount of $4,725 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 $22.1 million and $20,000, respectively, at
January 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
January 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 January 31, 2006, the amount
related to foreign currency exchange rates is a $3,398,000 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.
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 in recording, processing, summarizing and reporting, on
a timely basis, information required to be disclosed by the Company in the
reports that it files or submits under the Exchange Act.
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
(Continued)
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, 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: March 17, 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, Chief Executive Officer, 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 March 17, 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, Chief Financial Officer, 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 March 17, 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 January 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 March 17, 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 January 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 March 17, 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.