XNAS:FEIM Frequency Electronics Quarterly Report 10-Q Filing - 1/31/2012

Effective Date 1/31/2012

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

 WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark one)

 

xQUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period ended January 31, 2012

 

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer ¨ Smaller Reporting Company x

(do not check if a smaller reporting company)

 

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 March 9, 2012 – 8,346,623

 

 

 

 
 

 

Frequency Electronics, Inc. and Subsidiaries

 

INDEX

 

    Page No.
Part I.  Financial Information:    
     
Item 1 - Financial Statements:    
     
Condensed Consolidated Balance Sheets -    
January 31, 2012 and April 30, 2011   3
     
Condensed Consolidated Statements of Operations    
Nine Months Ended January 31, 2012 and 2011   4
     
Condensed Consolidated Statements of Operations    
Three Months Ended January 31, 2012 and 2011   5
     
Condensed Consolidated Statements of Cash Flows    
Nine Months Ended January 31, 2012 and 2011   6
     
Notes to Condensed Consolidated Financial Statements   7-12
     
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations   12-19
     
Item 3 – Quantitative and Qualitative Disclosures about Market Risk   19
     
Item 4- Controls and Procedures   20
     
Part II.  Other Information:    
     
Item 6 - Exhibits   21
     
Signatures   22
     
Exhibits   23-25

 

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Condensed Consolidated Balance Sheets

 


 

   January 31,   April 30, 
   2012   2011 
   (UNAUDITED)   (NOTE A) 
         
   (In thousands except share data) 
ASSETS:          
Current assets:          
Cash and cash equivalents  $4,548   $5,275 
Marketable securities   18,077    15,357 
Accounts receivable, net of allowance for doubtful accounts of $368 at January 31, 2012 and $258 at April 30, 2011   7,662    11,663 
Costs and estimated earnings in excess of billings, net   7,433    2,409 
Inventories   31,072    28,172 
Deferred income taxes   2,574    2,580 
Prepaid income taxes, expenses and other   1,448    2,280 
Total current assets   72,814    67,736 
Property, plant and equipment, at cost, less accumulated depreciation and amortization   6,623    7,163 
Deferred income taxes   750    750 
Goodwill and other intangible assets   218    218 
Cash surrender value of life insurance and cash held in trust   9,893    9,409 
Investment in and loans receivable from affiliates   3,012    3,738 
Other assets   817    817 
Total assets  $94,127   $89,831 
LIABILITIES AND STOCKHOLDERS' EQUITY:          
Current liabilities:          
Short-term credit obligations  $2,581   $275 
Accounts payable - trade   1,170    1,654 
Accrued liabilities   5,182    5,457 
Total current liabilities   8,933    7,386 
Capital lease obligation- noncurrent   -    181 
Deferred compensation   10,126    9,827 
Deferred rent and other liabilities   712    902 
Total liabilities   19,771    18,296 
Commitments and contingencies          
Stockholders' equity:          
Preferred stock  - $1.00 par value   -    - 
Common stock  -  $1.00 par value, issued 9,163,940 shares   9,164    9,164 
Additional paid-in capital   50,542    49,868 
Retained earnings   14,480    11,286 
    74,186    70,318 
Common stock reacquired and held in treasury - at cost (817,317 shares at January 31, 2012 and 865,734 shares at April 30, 2011)   (3,739)   (3,975)
Accumulated other comprehensive income   3,909    5,192 
Total stockholders' equity   74,356    71,535 
Total liabilities and stockholders' equity  $94,127   $89,831 

 

See accompanying notes to condensed consolidated financial statements.

 

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Condensed Consolidated Statements of Operations

 

Nine Months Ended January 31,

(Unaudited)

 

   2012   2011 
   (In thousands except per share data) 
         
Revenues  $46,442   $37,287 
Cost of revenues   27,970    22,888 
Gross margin   18,472    14,399 
           
Selling and administrative expenses   10,017    8,380 
Research and development expense   2,954    3,622 
Operating profit   5,501    2,397 
           
Other income (expense):          
Investment income   473    269 
Equity (loss) income   (451)   21 
Impairment of investment in and loans receivable from affiliate   (350)   - 
Interest expense   (77)   (91)
Other expense, net   (132)   (92)
Income before provision for income taxes   4,964    2,504 
Provision for income taxes   1,770    1,160 
Net income  $3,194   $1,344 
           
Net income per common share          
Basic  $0.38   $0.16 
Diluted  $0.37   $0.16 
           
Weighted average shares outstanding          
Basic   8,319,740    8,249,225 
Diluted   8,537,591    8,325,665 

 

See accompanying notes to consolidated condensed financial statements.

 

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Condensed Consolidated Statements of Operations

 

Three Months Ended January 31,

(Unaudited)

 

   2012   2011 
   (In thousands except per share data) 
         
Revenues  $15,448   $12,635 
Cost of revenues   9,233    7,786 
Gross margin   6,215    4,849 
           
Selling and administrative expenses   3,390    2,820 
Research and development expense   882    1,233 
Operating profit   1,943    796 
           
Other income (expense):          
Investment income   214    89 
Equity loss   (335)   (7)
Interest expense   (26)   (27)
Other expense, net   (222)   (3)
Income before provision for income taxes   1,574    848 
Provision for income taxes   500    340 
Net income  $1,074   $508 
           
Net income per common share          
Basic  $0.13   $0.06 
Diluted  $0.13   $0.06 
           
Weighted average shares outstanding          
Basic   8,323,912    8,262,713 
Diluted   8,508,297    8,372,187 

 

See accompanying notes to condensed consolidated financial statements.

 

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Condensed Consolidated Statements of Cash Flows

 

Nine Months Ended January 31,

(Unaudited)

 

   2012   2011 
   (In thousands) 
Cash flows from operating activities:          
Net income  $3,194   $1,344 
Non-cash charges to earnings, net   4,886    2,997 
Net changes in operating assets and liabilities   (6,804)   (2,317)
Net cash provided by operating activities   1,276    2,024 
           
Cash flows from investing activities:          
Proceeds from sale of marketable securities   6,111    3,000 
Purchase of marketable securities   (8,757)   (6,147)
Loan to affiliate   (92)   - 
Purchase of fixed assets   (1,124)   (1,114)
Net cash used in investing activities   (3,862)   (4,261)
           
Cash flows from financing activities:          
Proceeds from short-term credit obligations   2,350    - 
Debt payments   (203)   (181)
Exercise of stock options   13    15 
Net cash provided by (used in) financing activities   2,160    (166)
           
Net decrease in cash and cash equivalents before effect of exchange rate changes   (426)   (2,403)
           
Effect of exchange rate changes on cash and cash equivalents   (301)   860 
           
Net decrease in cash and cash equivalents   (727)   (1,543)
           
Cash and cash equivalents at beginning of period   5,275    9,954 
           
Cash and cash equivalents at end of period  $4,548   $8,411 
           
Supplemental disclosures of cash flow information:          
Cash paid during the period for:          
Interest  $72   $201 
Income Taxes  $1,128   $1,899 

 

See accompanying notes to condensed consolidated financial statements.

 

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

NOTE A - CONSOLIDATED FINANCIAL STATEMENTS

 

In the opinion of management of Frequency Electronics, Inc. (“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, 2012 and the results of its operations and cash flows for the nine and three months ended January 31, 2012 and 2011. The April 30, 2011 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 Annual Report on Form 10-K for the year ended April 30, 2011. The results of operations for such interim periods are not necessarily indicative of the operating results for the full fiscal 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, 
   2012   2011   2012   2011 
Basic EPS Shares outstanding (weighted average)   8,319,740    8,249,225    8,323,912    8,262,713 
Effect of Dilutive Securities   217,851    76,440    184,385    109,474 
Diluted EPS Shares outstanding   8,537,591    8,325,665    8,508,297    8,372,187 

 

Dilutive securities consist of unexercised stock options and stock appreciation rights (“SARS”). The computation of diluted shares outstanding excludes those options and SARS 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 and SARS in the computation of earnings per share would have been antidilutive. The number of excluded options and SARS were:

 

   Nine months   Three months 
   Periods ended January 31, 
   2012   2011   2012   2011 
                     
Outstanding Options and SARS excluded   733,375    900,775    746,375    900,775 

 

NOTE C – COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS, NET

 

At January 31, 2012 and April 30, 2011, costs and estimated earnings in excess of billings, net, consist of the following:

 

   January 31, 2012   April 30, 2011 
   (In thousands) 
Costs and estimated earnings in excess of billings  $7,921   $3,711 
Billings in excess of costs and estimated earnings   (488)   (1,302)
Net asset  $7,433   $2,409 

 

Such amounts represent revenue recognized on long-term contracts that had not been billed at the balance sheet dates or represent a liability for amounts billed in excess of the revenue recognized. Amounts are billed to customers pursuant to contract terms, whereas the related revenue is recognized on the percentage of completion basis at the measurement date. In general, the recorded amounts will be billed and collected or revenue recognized within twelve months of the balance sheet date. During the nine and three months ended January 31, 2012, revenue recognized under percentage of completion contracts was approximately $26.9 million and $9.0 million, respectively. For the nine and three months ended January 31, 2011, such revenue was approximately $15.4 million and $4.9 million, respectively.

 

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

NOTE D - INVENTORIES

 

Inventories, which are reported at the lower of cost or market, consist of the following:

 

   January 31, 2012   April 30, 2011 
   (In thousands) 
         
Raw Materials and Component Parts  $13,497   $13,477 
Work in Progress   15,127    11,921 
Finished Goods   2,448    2,774 
   $31,072   $28,172 

 

As of January 31, 2012 and April 30, 2011, approximately $19.4 million and $19.7 million, respectively, of total inventory is located in the United States, approximately $11.0 million and $7.8 million, respectively, is located in Belgium and $650,000 and $700,000, respectively, is located in China.

 

NOTE E – COMPREHENSIVE INCOME

 

For the nine and three months ended January 31, 2012 and 2011, comprehensive income (loss) is composed of (in thousands):

 

   Nine months   Three months 
   Periods ended January 31, 
   2012   2011   2012   2011 
Net income  $3,194   $1,344   $1,074   $508 
Foreign currency translation adjustment   (1,300)   558    (996)   (524)
Change in market value of marketable securities   26    120    194    (79)
Deferred tax effect of change in marketable securities   (9)   -    (70)   - 
Comprehensive income (loss)  $1,911   $2,022   $202   $(95)

 

NOTE F – SEGMENT INFORMATION

 

The Company operates under three reportable segments based on the geographic locations of its subsidiaries:

 

(1)FEI-NY – operates out of New York and its operations consist 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 - operates out of Belgium and France and primarily sells wireline synchronization and network management systems in non-U.S. markets. All sales from Gillam-FEI to the United States are to other segments of the Company.
(3)FEI-Zyfer – operates out of California and its products incorporate Global Positioning System (GPS) technologies into systems and subsystems for secure communications, both government and commercial, and other locator applications. This segment also provides sales and support for the Company’s wireline telecommunications family of products, including US5G, which are sold in the United States market.

 

The FEI-NY segment also includes the operations of the Company’s wholly-owned subsidiary, FEI-Asia. FEI-Asia functions primarily as a manufacturing facility for the FEI-NY segment.

 

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

The Company’s Chief Executive Officer measures segment performance based on total revenues and profits generated by each geographic location rather than on the specific types of customers or end- users. Consequently, the Company determined that the segments indicated above most appropriately reflect the way the Company’s management views the business.

 

The table below presents information about reported segments with reconciliation of segment amounts to consolidated amounts as reported in the statement of operations or the balance sheet for each of the periods (in thousands):

 

   Nine months   Three months 
   Periods ended January 31, 
   2012   2011   2012   2011 
Revenues:                    
FEI-NY  $33,050   $23,080   $11,075   $7,913 
Gillam-FEI   7,039    8,790    3,370    3,586 
FEI-Zyfer   8,588    7,819    2,001    2,162 
less intersegment revenues   (2,235)   (2,402)   (998)   (1,026)
Consolidated revenues  $46,442   $37,287   $15,448   $12,635 
Operating income (loss):                    
FEI-NY  $6,404   $2,317   $2,348   $852 
Gillam-FEI   (244)   206    243    166 
FEI-Zyfer   (230)   156    (472)   (135)
Corporate   (429)   (282)   (176)   (87)
Consolidated operating income  $5,501   $2,397   $1,943   $796 

 

   January 31, 2012   April 30, 2011 
Identifiable assets:          
FEI-NY (including assets in China, see note below)  $41,769   $37,912 
Gillam-FEI (all in Belgium or France)   18,861    20,875 
FEI-Zyfer   6,975    8,434 
less intersegment balances   (13,115)   (16,295)
Corporate   39,637    38,905 
Consolidated identifiable assets  $94,127   $89,831 

 

(As of January 31, 2012 and April 30, 2011, FEI-NY assets include assets held in China of
approximately $3.0 million and $3.6 million, respectively.)

 

Note g – ReLATED PARTY TRANSACTIONS

 

The Company has equity interests in two strategically important companies: Elcom Technologies, Inc. (“Elcom”) and Morion Inc. (“Morion”), accounted for on the equity and cost basis, respectively. During the nine and three month periods ended January 31, 2012 and 2011, the Company acquired technical services from Elcom, purchased crystal oscillator products from Morion and sold certain of its products to both companies. The Company also receives interest from Elcom under two notes receivable. The table below summarizes these transactions:

 

   Nine months   Three months 
   Periods ended January 31, 
   2012   2011   2012   2011 
Purchases from:                    
Morion  $169,000   $61,000   $24,000   $24,000 
Elcom   16,000    317,000    -    3,000 
Sales to:                    
Morion  $1,070,000   $250,000   $63,000   $50,000 
Elcom   4,500    133,000    -    - 
                     
Interest on Elcom note receivable  $75,400   $68,000   $32,500   $21,000 

 

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Notes to Condensed Consolidated Financial Statements

 (Unaudited)

 

The Company measures the current market value of Elcom based on comparisons to comparable companies as well as Elcom’s forecasts of future financial results. For the six months ended October 31, 2011, in addition to its equity share in the income or loss of Elcom during the period, the Company determined that its investment was impaired and recorded an investment impairment charge of $200,000 and an additional $150,000 allowance against notes receivable. No additional impairment charges were recorded during the three months ended January 31, 2012 and no impairment charges were recorded during the nine and three months ended January 31, 2011. The total gross amount due to the Company from Elcom under notes receivable is $1.9 million and is included in investments in and loans receivable from affiliates. (See also Note H- Subsequent Event- Acquisition of Elcom.)

 

NOTE H – SUBSEQUENT EVENT- ACQUISITION OF ELCOM

 

In February 2012, the Company acquired the remaining outstanding shares of Elcom that it did not previously own. The Company paid a total of $5.1 million including repayment of Elcom’s outstanding indebtedness to certain other shareholders of Elcom. The Company’s notes receivable from Elcom, discussed in Note G above, were added to the Company’s investment in Elcom. Transaction costs are estimated to be between $250,000 and $300,000 of which approximately $109,000 were incurred during the nine and three months ended January 31, 2012 and are included in other expense, net. As part of the acquisition process, the Company is conducting a review of Elcom’s assets for the purpose of determining the allocation of the purchase price to tangible and intangible assets. Such allocation will be reflected in the Company’s consolidated financial statements as of the date of acquisition. Elcom’s operating results will be included in operations from that date forward.

 

NOTE I – FAIR VALUE OF FINANCIAL INSTRUMENTS

 

The cost, gross unrealized gains, gross unrealized losses and fair market value of available-for-sale securities at January 31, 2012 and April 30, 2011 are as follows (in thousands):

 

   January 31, 2012 
       Gross   Gross   Fair 
       Unrealized   Unrealized   Market 
   Cost   Gains   Losses   Value 
Fixed income securities  $12,098   $288   $(6)  $12,380 
Equity securities   5,353    473    (129)   5,697 
   $17,451   $761   $(135)  $18,077 

 

   April 30, 2011 
       Gross   Gross   Fair 
       Unrealized   Unrealized   Market 
   Cost   Gains   Losses   Value 
Fixed income securities  $11,741   $256   $(2)  $11,995 
Equity securities   3,016    346    -    3,362 
   $14,757   $602   $(2)  $15,357 

 

The following table presents the fair value and unrealized losses, aggregated by investment type and length of time that individual securities have been in a continuous unrealized loss position (in thousands):

 

   Less than 12 months   12 Months or more   Total 
   Fair   Unrealized   Fair   Unrealized   Fair   Unrealized 
   Value   Losses   Value   Losses   Value   Losses 
January 31, 2012                              
Fixed Income Securities  $405   $(6)  $-   $-   $405   $(6)
Equity Securities   990    (129)   -    -    990    (129)
   $1,395   $(135)  $-   $-   $1,395   $(135)
April 30, 2011                              
Fixed Income Securities  $1,426   $(2)  $-   $-   $1,426   $(2)
Equity Securities   -    -    -    -    -    - 
   $1,426   $(2)  $-   $-   $1,426   $(2)

 

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Notes to Condensed Consolidated Financial Statements

 (Unaudited)

 

The Company regularly reviews its investment portfolio to identify and evaluate investments that have indications of possible impairment. The Company does not believe that its investments in marketable securities with unrealized losses at January 31, 2012 are other-than-temporary due to market volatility of the security’s fair value, analysts’ expectations and the Company’s ability to hold the securities for a period of time sufficient to allow for any anticipated recoveries in market value.

 

During the nine and three months ended January 31, 2012, the Company redeemed available-for-sale securities in the amounts of $6,100,000 and $1,000,000, respectively, and realized gains of $19,000 and $11,500, respectively, which amounts are included in the determination of net income for those periods. During the nine and three months ended January 31, 2011, the Company redeemed available-for-sale securities in the amounts of $3,000,000 and $1,500,000, respectively, and realized losses of $47,600 and $19,800, respectively, which amounts are included in the determination of net income for those periods of fiscal year 2011.

 

Maturities of fixed income securities classified as available-for-sale at January 31, 2012 are as follows, at cost (in thousands):

 

Current  $2,003 
Due after one year through five years   9,126 
Due after five years through ten years   969 
   $12,098 

 

The fair value accounting framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy are described below:

 

Level 1Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Company has the ability to access.
   
Level 2Inputs to the valuation methodology include:
-Quoted prices for similar assets or liabilities in active markets;
-Quoted prices for identical or similar assets or liabilities in inactive markets
-Inputs other than quoted prices that are observable for the asset or liability;
-Inputs that are derived principally from or corroborated by observable market data by correlation or other means.

 

Level 3Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

 

The asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. All of the Company’s investments in marketable securities are valued on a Level 1 basis.

 

Note J - Recently Issued Accounting Pronouncements

 

In June 2011, the FASB issued standards which require entities to present net income and other comprehensive income in either a single continuous statement or in two separate, but consecutive, statements of net income and other comprehensive income. The option to present items of other comprehensive income in the statement of changes in equity is eliminated. The new standard is effective as of the beginning of a fiscal year beginning after December 15, 2011 with earlier adoption permitted. This standard, upon adoption by the Company at the beginning of its fiscal year 2013, will have no impact on the Company’s financial condition, results of operations and cash flows but will require the Company to present comprehensive income in a different manner than it currently does in interim and annual financial reports.

 

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Notes to Condensed Consolidated Financial Statements

 (Unaudited)

 

NOTE K – INCOME TAXES

 

As of the end of fiscal year 2011, the Company reduced the valuation allowance on the deferred tax assets of its U.S. subsidiaries. Consequently, for the nine and three months ended January 31, 2012, the Company recorded a provision for income taxes based on both current taxes due in the United States as well as the tax provision or benefit to be realized from temporary tax differences. In the same periods of fiscal year 2011, the provision for income taxes consisted solely of taxes currently due to taxing authorities in the United States because of the full valuation allowance against deferred tax assets in effect at that time. As of January 31, 2012 and April 30, 2011, the remaining deferred tax asset valuation allowance is approximately $4.6 million.

 

NOTE L – TREASURY STOCK TRANSACTIONS

 

During the nine month period ended January 31, 2012, the Company made contributions of 30,101 shares of its common stock held in treasury to the Company’s profit sharing plan and trust under section 401(k) of the Internal Revenue Code. Such contributions are in accordance with the Company’s discretionary match of employee voluntary contributions to this plan. During the same period, the Company issued 3,066 shares from treasury upon the exercise of stock options and SARs by certain employees. In December 2011, in celebration of the Company’s 50th anniversary, 50 shares of its common stock was awarded to each of its employees in the United States and Europe or a total of 15,250 shares from treasury. An expense of approximately $119,000 was recorded for the nine and three months ended January 31, 2012, in connection with this stock award.

 

*********************

 

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. The words "believe," "may," "will," "could," "should," "would," "anticipate," "estimate," "expect," "project," "intend," "objective," "seek," "strive," "might," "likely result," "build," "grow," "plan," "goal," "expand," "position," or similar words, or the negatives of these words, or similar terminology, identify forward-looking statements. These statements are based on assumptions that the Company believes are reasonable, but are subject to a wide range of risks and uncertainties, and a number of factors could cause the Company's actual results to differ materially from those expressed in the forward-looking statements referred to above. 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. Readers are cautioned not to place undue reliance on these forward-looking statements, which relate only to events as of the date on which the statements are made and which reflect management's analysis, judgments, belief, or expectation only as of such date. 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.

 

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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 Annual Report on Form 10-K for the year ended April 30, 2011. 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 through a process of aggregating actual costs incurred and updating estimated costs to completion based upon the current available information and status of the contract. The effect of any change in the estimated gross margin percentage for a contract is reflected in revenues in the period in which the change is known. Provisions for anticipated losses on contracts are made in the period in which they become determinable.

 

On production-type orders, revenue is recorded as units are delivered with the related cost of sales recognized on each shipment based upon a percentage of estimated final program costs. Changes in job performance 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 customer orders in the Company’s Gillam-FEI and FEI-Zyfer segments or smaller contracts or orders in the FEI-NY segment, sales of products and services to customers are reported in operating results based upon (i) shipment of the product or (ii) performance of the services pursuant to terms of the customer order. When payment is contingent upon customer acceptance of the installed system, revenue is deferred until such acceptance is received and installation completed.

 

Costs and Expenses

 

Contract costs include all direct material, direct labor costs, manufacturing overhead and other direct costs related to contract performance. Selling, general and administrative costs are charged to expense as incurred.

 

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 write downs are established for slow-moving and obsolete items and are based upon management’s experience and expectations for future business. Any changes arising from revised expectations are reflected in cost of sales in the period the revision is made.

 

Marketable Securities

 

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

 

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Frequency Electronics, Inc. and Subsidiaries

(Continued)

 

RESULTS OF OPERATIONS

 

The table below sets forth for the respective periods of fiscal years 2012 and 2011 (which end on April 30, 2012 and 2011, respectively) the percentage of consolidated revenues represented by certain items in the Company’s consolidated statements of operations:

 

   Nine months   Three months 
   Periods ended January 31, 
   2012   2011   2012   2011 
Revenues                    
FEI-NY   71.1%   61.9%   71.7%   62.6%
Gillam-FEI   15.2    23.6    21.8    28.4 
FEI-Zyfer   18.5    21.0    13.0    17.1 
Less intersegment revenues   (4.8)   (6.5)   (6.5)   (8.1)
    100.0    100.0    100.0    100.0 
Cost of revenues   60.2    61.4    59.8    61.6 
Gross Margin   39.8    38.6    40.2    38.4 
Selling and administrative expenses   21.5    22.5    21.9    22.3 
Research and development expenses   6.4    9.7    5.7    9.8 
Operating Profit   11.9    6.4    12.6    6.3 
Other (expense) income, net   (1.2)   0.3    (2.4)   0.4 
Pretax Income   10.7    6.7    10.2    6.7 
Provision for income taxes   3.8    3.1    3.2    2.7 
Net Income   6.9%   3.6%   7.0%   4.0%

 

(Note: All dollar amounts in following tables are in thousands, except Revenues which are in millions.

Dollar amounts in the narratives are in approximate actual amounts.)

 

Revenues  (in millions) 
   Nine months   Three months 
   Periods ended January 31, 
Segment  2012   2011   Change    2012   2011   Change  
FEI-NY  $33.0   $23.1   $9.9    43%  $11.1   $7.9   $3.2    40%
Gillam-FEI   7.0    8.8    (1.8)   (20)%   3.3    3.5    (0.2)   (6)%
FEI-Zyfer   8.6    7.8    0.8    10%   2.0    2.2    (0.2)   (7)%
Intersegment revenues   (2.2)   (2.4)   0.2         (1.0)   (1.0)   -      
   $46.4   $37.3   $9.1    25%  $15.4   $12.6   $2.8    22%

 

Fiscal year 2012 compared to fiscal year 2011: The 25% and 22% increases in consolidated revenues for the nine and three months ended January 31, 2012, respectively, compared to the same periods of fiscal year 2011, were generated primarily from the FEI-NY segment’s satellite payload programs. In the fiscal year 2012 periods, revenues from commercial and U.S. Government satellite programs accounted for approximately half of consolidated revenues compared to approximately 30% during the same periods of fiscal year 2011. Revenues on these long-term contracts are recognized primarily under the percentage of completion method. Increased network infrastructure revenues generated by the FEI-Zyfer segment were offset by declines in that business area in the Gillam-FEI segment and lower wireless infrastructure sales in the FEI-NY segment. Network infrastructure revenues were less than 20% of consolidated revenues for the nine months ended January 31, 2012 compared to approximately 25% for the same period of fiscal year 2011. In the fiscal year 2012 periods, revenues from the U.S. Government/DOD business area, which are recorded in the FEI-NY and FEI-Zyfer segments, were approximately 20% of consolidated revenues compared to more than 25% for the same periods of fiscal year 2011. The lower ratio of U.S. Government/DOD revenues to consolidated revenues in fiscal year 2012 is due mostly to higher satellite payload revenues in the current fiscal year.

 

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Frequency Electronics, Inc. and Subsidiaries

(Continued)

 

Fiscal year 2011 compared to fiscal year 2010: The increase in revenues for the nine months ended January 31, 2011 compared to the same period of fiscal year 2010, was the result of increased revenue from both U.S. Government/DOD satellite and non-satellite programs partially offset by continuing declines in revenue from wireless infrastructure products recorded in the FEI-NY and FEI-Zyfer segments. Revenues for the three month periods ended January 31, 2011 and 2010, were approximately the same but network infrastructure revenues increased substantially due to increased sales to certain wireless infrastructure OEM’s. Revenues from satellite payload programs, which are recorded in the FEI-NY segment, and recognized primarily under the percentage of completion method, accounted for one-third of the Company’s revenues with U.S. Government space programs increasing 10% year-over-year. However, for the third quarter ended January 31, 2011, the Company recognized less satellite payload revenue than it did in the prior year period. This decrease was primarily attributable to program funding limitations on certain U.S. Government programs. The Company recognizes revenue only to the amounts funded even though it has firm contracts for higher amounts. Revenues from U.S. Government/DOD non-space programs, which are recorded in the FEI-NY and FEI-Zyfer segments, increased approximately 10% year-over-year for the nine months ended January 31, 2011 but decreased by 7% in the third quarter of fiscal year 2011 due to delays in booking new U.S. Government business in FEI-Zyfer.

 

For the remainder of fiscal year 2012, the Company expects to realize increased revenues from both U.S. Government and commercial satellite payload programs as compared to the previous fiscal year. Similarly, the Company expects to realize continued sales growth in U.S. Government/DOD non-space programs and from wireline telecommunication infrastructure products.

 

Gross margin

   Nine months   Three months 
   Periods ended January 31, 
   2012   2011   Change    2012   2011   Change  
   $18,472   $14,399   $4,073    28%  $6,215   $4,849   $1,366    28%
                                         
GM Rate   39.8%   38.6%           40.2%   38.4%        

 

The improvement in gross margins and gross margin rates for the nine and three months ended January 31, 2012 compared to the same periods a year ago reflect the more than 20% increase in sales and the change in product mix. Of the Company’s three segments, the FEI-NY segment experienced the largest gross margin rate improvement as the higher volume of business covered more of that segment’s fixed costs. The gross margin rates recorded in the fiscal year 2012 and 2011 periods are in the range of the Company’s targeted rate of 40%. The Company anticipates that its gross margin rates for the remainder of fiscal year 2012 will reach or exceed its target rate and total gross margin will be greater than the prior fiscal year on higher sales volume.

 

Selling and administrative expenses

  Nine months   Three months 
  Periods ended January 31, 
  2012   2011   Change   2012   2011   Change 
  $10,017   $8,380   $1,637    20%  $3,390   $2,820   $570    20%

 

For the nine and three months ended January 31, 2012, selling and administrative expenses were approximately 22% of consolidated revenues, similar to the ratios in the same periods of fiscal year 2011. The increase in expenses for the nine and three months ended January 31, 2012 compared to the same periods of fiscal year 2011 is due to increased accruals for incentive compensation resulting from greater profitability as well as increased stock-based compensation and deferred compensation expenses. Expenses during the fiscal year 2012 periods also include approximately $119,000 related to a stock award to its employees in celebration of the Company’s 50th anniversary. For the remainder of fiscal year 2012, the Company expects selling and administrative expenses to be incurred at approximately the same rate and may exceed the Company’s target of 20% of revenues or less.

 

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Frequency Electronics, Inc. and Subsidiaries

(Continued)

 

Research and development expense

  Nine months   Three months 
  Periods ended January 31, 
  2012   2011   Change   2012   2011   Change 
  $2,954   $3,622   $(668)   (18)%  $882   $1,233   $(351)   (28)%

 

Research and development expenditures represent investments intended to keep the Company’s products at the leading edge of time and frequency technology and enhance competitiveness for future revenues. Research and development (“R&D”) spending for the nine and three month periods ended January 31, 2012 was approximately 6% of revenues compared to approximately 10% of revenues for the same periods of fiscal year 2011. R&D spending in the fiscal year 2012 periods continued to facilitate development of new satellite payload products from DC to Ka band, development and improvement of miniaturized rubidium atomic clocks, development of new GPS-based synchronization products and further enhancement of the capabilities of its line of low g-sensitivity and ruggedized rubidium oscillators. The lower rate and lower R&D expenditures in the fiscal year 2012 periods are due primarily to the dedication of resources to customer-funded programs rather than to internal research and development programs. The cost of this customer-funded development effort appears in cost of revenues, thus reducing the level of internal research and development spending. Although funding is obtained from customers, the rights to any products developed are retained by the Company. The Company will continue to devote significant resources to develop new products, enhance existing products and implement efficient manufacturing processes. For the remainder of fiscal year 2012, the Company anticipates that internal research and development spending will be less than 10% of revenues. The Company believes that internally generated cash and cash reserves are adequate to fund these development efforts.

 

Operating profit

  Nine months   Three months 
  Periods ended January 31, 
  2012   2011   Change   2012   2011   Change 
  $5,501   $2,397   $3,104    129%  $1,943   $796   $1,147    144%

 

Increased revenues and improved gross margin rates enabled the Company to realize operating profits in the nine and three month periods ended January 31, 2012, that were more than double operating profits for the same periods of fiscal year 2011. The Company anticipates that at the current increased level of business and having implemented certain operational efficiencies, that it can achieve operating profit in excess of 10% of revenues. The Company anticipates that its operating profit for the full fiscal year 2012 will exceed that of fiscal year 2011.

 

Other income (expense)

   Nine months   Three months 
   Periods ended January 31, 
   2012   2011   Change   2012   2011   Change 
Investment income  $473   $269   $204    76%  $214   $89   $125    140%
Equity (loss) income   (451)   21    (472)   NM    (335)   (7)   (328)   NM 
Impairment charge   (350)   0    (350)   NM    0    0    0    NM 
Interest expense   (77)   (91)   14    15%   (26)   (27)   1    4%
Other expense, net   (132)   (92)   (40)   (43)%   (222)   (3)   (219)   NM 
   $(537)  $107   $(644)   NM   $(369)  $52   $(421)   NM 

 

NM = Not Meaningful

 

Investment income is derived primarily from the Company’s holdings of marketable securities. Earnings on these securities may vary based on fluctuating interest rates and dividend levels and the timing of purchases or sales of securities. Redemption of marketable securities during the nine months ended January 31, 2012, resulted in a realized gain of approximately $19,000 compared to a loss of approximately $48,000 from redemptions in the same period of fiscal year 2011.

 

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Frequency Electronics, Inc. and Subsidiaries

(Continued)

 

Equity (loss) or income in the nine and three months ended January 31, 2012 and 2011 represents the Company’s share of the quarterly income or loss recorded by Elcom Technologies, Inc. (“Elcom”) in which the Company owned a 25% interest. In addition, based on comparisons to comparable companies as well as Elcom’s recent financial results and forecasts of future results, for the nine months ended January 31, 2012, the Company recorded an impairment charge against its investment in the amount of $200,000 and also increased an allowance against notes receivable in the amount of $150,000. In February 2012, the Company acquired the remaining shares of Elcom it did not previously own. (See Recent Development and Subsequent Event below.)

 

The decrease in interest expense for the nine and three months ended January 31, 2012 compared to the same periods of fiscal year 2011 is due to lower levels of lease obligations in the fiscal year 2012 periods.

 

Other expense in the nine and three months ended January 31, 2012 resulted from certain transaction costs related to the acquisition of Elcom and the amortization of certain non-operating assets. During the nine month period of fiscal year 2012, such expenses were partially offset by gains of approximately $137,000 derived from the excess of proceeds over the cash values of life insurance policies covering a former employee. During the Company’s fourth quarter of fiscal year 2012, it will incur additional non-operating expenses, primarily for professional fees related to its acquisition of Elcom. (See Recent Development and Subsequent Event below.)

 

Income tax provision 

   Nine months   Three months  
   Periods ended January 31, 
  2012   2011   Change    2012   2011   Change
   $1,770   $1,160   $610    53%  $500   $340   $160    47%
                                         
Effective tax rate on pre-tax book income:                     
   35.7%   46.3%             31.8%   40.0%          

 

The provision for income taxes for the nine and three months ended January 31, 2012 increased over the same period of fiscal year 2011 due to the similar increase in pretax income. However, the effective tax rate in fiscal year 2012 is expected to be lower than that recorded in the first three quarters of fiscal year 2011 primarily due to the reduction of the previous full valuation allowance on the deferred tax assets of the Company’s U.S. subsidiaries during the fourth quarter of fiscal year 2011. In addition, the tax rate for fiscal year 2012 is reduced by utilization of research and development tax credits and domestic production credits. For the nine and three months ended January 31, 2012, the Company recorded provisions for income taxes based on both current taxes due in the United States as well as the tax provision or benefit to be realized from temporary tax differences. In the same periods of fiscal year 2011, the provision for income taxes consisted solely of taxes currently due to taxing authorities in the United States because of the full valuation allowance against deferred tax assets in place at January 31, 2011. As of January 31, 2012 and April 30, 2011, the remaining deferred tax asset valuation allowance is approximately $4.6 million.

 

The Company is subject to taxation in several countries as well as the states of New York and California. The statutory federal rates are 34% in the United States and Belgium. The effective rate is impacted by pretax losses incurred by the Company’s European and Asian subsidiaries and the Company’s impairment charges related to Elcom for which no current tax benefits are derived. In addition, the Company utilizes the availability of research and development tax credits and domestic production credits in the United States to lower its tax rate. The Company’s effective tax rate is affected by the expected utilization of certain state net operating loss carryforwards. As of April 30, 2011, the Company’s European subsidiaries had available net operating loss carryforwards of approximately $1.3 million, which will offset future foreign taxable income. As of April 30, 2011, the domestic U.S. tax loss carryforward for state income tax purposes is approximately $1.9 million in New York and $2.3 million in California.

 

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Frequency Electronics, Inc. and Subsidiaries

(Continued)

 

Net income

  Nine months  Three months 
  Periods ended January 31,
  2012    2011   Change    2012   2011   Change  
$ 3,194    $1,344   $1,850    138%  $1,074   $508   $566    111%

 

As detailed above, for the nine and three months ended January 31, 2012, higher revenues accompanied by only moderately higher expenses and a lower effective tax rate, enabled the Company to more than double its net income compared to the same periods of fiscal year 2011. The Company expects to record higher revenue and to realize improved gross and operating margins in the final quarter of fiscal year 2012 and anticipates that it will report higher profits than that achieved in fiscal year 2011.

 

LIQUIDITY AND CAPITAL RESOURCES

 

The Company’s balance sheet continues to reflect a strong working capital position of $64 million at January 31, 2012, compared to working capital of $60 million at April 30, 2011. Included in working capital at January 31, 2012 is $22.6 million of cash, cash equivalents and marketable securities. The Company’s current ratio at January 31, 2012 is 8.2 to 1.

 

For the nine months ended January 31, 2012, the Company had positive cash flow from operating activities of $1.3 million compared to $2.0 million provided by operations in the comparable fiscal year 2011 period. The primary sources of cash in the fiscal year 2012 period were profitable operations, collection of billed accounts receivable and reduced estimated tax payments. These inflows were partially offset by increases in inventory, costs and estimated earnings in excess of billings (unbilled receivables) and accrued expenses. The increase in costs and estimated earnings in excess of billings is due to the increase in the Company’s long-term satellite payload contracts which are accounted for using the percentage of completion method. Under this method revenue was recognized but contractual milestones were not yet billed in accordance with the terms of the contracts. For the nine months ended January 31, 2012 and 2011, the Company incurred approximately $4.9 million and $3.0 million, respectively, of non-cash operating expenses, such as depreciation and amortization, impairment charges on its investment in Elcom and accruals for employee benefit programs. For the balance of fiscal year 2012, the Company expects to generate positive cash flow from operating activities.

 

Net cash used in investing activities for the nine months ended January 31, 2012, was $3.9 million compared to $4.3 million used by such activity for the same period of fiscal year 2011. During the fiscal year 2012 period, marketable securities were redeemed in the amount of $6.1 million compared to $3.0 million of such redemptions during the fiscal year 2011 period. These proceeds and other cash was reinvested in additional marketable securities for the periods ended January 31, 2012 and 2011 in the amount of $8.8 million and $6.1 million, respectively. In both fiscal years 2012 and 2011, the Company acquired property, plant and equipment in the amount of approximately $1.1 million. During the nine months ended January 31, 2012, the Company provided an additional loan to Elcom in the amount of $92,000. In February 2012, this additional loan plus the previous loans from the Company to Elcom were converted to the Company’s investment in Elcom upon consummation of the acquisition of the remaining shares of Elcom that the Company did not previously own. (See Recent Development and Subsequent Event below.) 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 2012 are expected to be less than $2.0 million. Internally generated cash is adequate to acquire this level of capital equipment.

 

Net cash provided by financing activities for the nine months ended January 31, 2012, was $2.2 million compared to $166,000 used by financing activities during the comparable fiscal year 2011 period. During 2012, the Company borrowed $2.3 million under its lines of credit with financial institutions. Rather than liquidate a portion of its investment portfolio to fund the acquisition of Elcom, the Company chooses to borrow money at short-term interest rates that are lower than the current yield on its investment portfolio. For the nine months ended January 31, 2012 and 2011, the Company made payments of $203,000 and $181,000, respectively, against capital lease obligations. In addition, during the nine months ended January 31, 2012 and 2011, cash of $13,000 and $15,000, respectively, was received upon exercise of employee stock options or completion of a restricted stock transaction.

 

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Frequency Electronics, Inc. and Subsidiaries

 (Continued)

 

During the fourth quarter of fiscal year 2012, the Company borrowed additional monies under its line of credit to complete the Elcom acquisition.

 

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. As of January 31, 2012, the Company has repurchased approximately $4 million of its common stock out of the $5 million authorization.

 

The Company will continue to expend resources to develop and improve products for space applications, guidance and targeting systems, and communication systems which management believes will result in future growth and continued profitability. During fiscal year 2012, the Company intends to make a substantial investment of capital and technical resources to develop and acquire new products to meet the needs of the U.S. Government, commercial space and network infrastructure 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 less than 10% of revenues to achieve its development goals. Internally generated cash will be adequate to fund these development efforts. The Company may also pursue acquisitions to expand its range of products and may use internally generated cash and external funding in connection with such acquisitions.

 

As of January 31, 2012, the Company's consolidated backlog is approximately $58 million. Approximately 60% of this backlog is expected to be realized in the next twelve months. Included in the backlog at January 31, 2012 is approximately $2 million under cost-plus-fee contracts which the Company believes represent firm commitments from its customers for which the Company has not received full funding to date. The Company excludes from backlog any contracts or awards for which it has not received authorization to proceed. On fixed price contracts, the Company excludes any unfunded portion which, as of January 31, 2012, was in excess of $7 million. The Company expects these contracts to become fully funded over time and will be added to its backlog at that time.

 

The Company believes that its liquidity is adequate to meet its operating and investment needs through at least January 31, 2013.

 

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.

 

Recent Development and Subsequent Event

 

On February 21, 2012, the Company purchased all of the outstanding capital stock of Elcom that was not previously owned by the Company, resulting in 100% ownership. The Company paid a total of $5.1 million including repayment of outstanding indebtedness of Elcom due and owing to certain other shareholders of Elcom. The amounts due to the Company under notes receivable from Elcom were contributed to the Company’s investment in Elcom. Transaction costs are expected to be between $250,000 and $300,000 of which $109,000 was incurred during the nine and three month periods ended January 31, 2012.

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

Not applicable.

 

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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. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based on their evaluation, the Company’s chief executive officer and chief financial officer have concluded that, for the reasons discussed below, as of January 31, 2012, the Company’s disclosure controls and procedures were not effective to ensure that information relating to the Company, including its consolidated subsidiaries, required to be included in its reports that it filed or submitted under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

 

Material Weaknesses in Internal Control over Financial Reporting

 

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Company’s internal control system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

As disclosed in its Annual Report on Form 10-K for the year ended April 30, 2011, the Company has identified several material weaknesses in its internal control over financial reporting. While the Company did not conduct a full assessment of the effectiveness of internal controls over financial reporting at January 31, 2012, for the first nine months of fiscal year 2012 there were no substantial changes made to the Company’s internal control over financial reporting since management’s assessment of April 30, 2011, and therefore the weaknesses previously identified by management continued to exist at January 31, 2012. In order to remediate the material weaknesses, during fiscal year 2012, management will continue to review and document the policies and procedures at its Gillam-FEI and FEI-Zyfer subsidiaries and ensure that testing of their internal controls are completed during fiscal year 2012. Please refer to the Company’s Annual Report on Form 10-K for the year ended April 30, 2011 for a more detailed discussion of the weaknesses previously identified by management.

 

Changes in Internal Control Over Financial Reporting. There were no 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 nine months ended January 31, 2012 to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

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Frequency Electronics, Inc. and Subsidiaries

(Continued)

 

PART II

 

ITEM 6 - Exhibits

 

  31.1 - Certification by the Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
  31.2 - Certification by the Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
  32 - Certifications by the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
  101- The following materials from the Frequency Electronics, Inc. Quarterly Report on Form 10-Q for the quarter ended January 31, 2012 formatted in eXtensible Business Reporting Language (XBRL): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Cash Flows and (iv) Notes to Condensed Consolidated Financial Statements

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934 the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  FREQUENCY ELECTRONICS, INC.
  (Registrant)
       
Date: March 16, 2012 BY /s/  Alan Miller  
      Alan Miller  
    Chief Financial Officer and Treasurer
    Signing on behalf of the registrant and as principal financial officer

 

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XNAS:FEIM Frequency Electronics Quarterly Report 10-Q Filling

Frequency Electronics XNAS:FEIM Stock - Get Quarterly Report SEC Filing of Frequency Electronics XNAS:FEIM stocks, including company profile, shares outstanding, strategy, business segments, operations, officers, consolidated financial statements, financial notes and ownership information.

XNAS:FEIM Frequency Electronics Quarterly Report 10-Q Filing - 1/31/2012
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