Frequency Electronics’ Increased Engineering Costs May Soon Be Abated
MITCHEL FIELD, N.Y., - Frequency Electronics, Inc. (Nasdaq:FEIM), has incurred increased engineering costs which continue to impact near-term operating results. These larger than anticipated costs, consisting mostly of internally funded development work, represent investments expected to yield substantial profits on satellite payload projects already awarded and enhance Frequency’s ability to acquire and perform on future projects in this expanding market. These extra engineering costs are expected to substantially abate during the next ninety days.
Validating the Company’s expectations of significant growth in space business, Frequency has recently succeeded in winning additional contract awards for large satellite payload systems on which it expects to realize high profit margins. The Company has acquired additional skilled, highly specialized engineering resources to meet this increased demand and will continue to expand engineering and manufacturing capabilities. Further, Frequency is funding the development of advanced manufacturing designs to respond to the higher volumes of production units required by larger satellite payload programs.
Frequency conducted final testing at the Company’s facility on units to be delivered to the two early large satellite payload projects initially awarded in September 2005. Frequency determined that additional engineering and manufacturing efforts will be required to meet performance specifications and to facilitate production of a high quantity of units in a compressed time frame. Accordingly, the Company increased its estimated final costs to complete these projects. This revision of estimated costs to complete required the deferral of revenue recognition which would have been recorded in the Company’s third quarter ended on January 31, 2007. Although deferral of revenue recognition is not a cash event, it compounds the negative impact of costs on reported operating income for the quarter. As these two early contracts are completed, the deferred revenues will be recognized. Such recognition is currently expected to occur over the next ninety days.
The results for Frequency’s third quarter of fiscal 2007 will be reported on March 14, 2007. At that time, the Company will be participating in the B. Riley & Co. 8th Annual Investor Conference. Frequency will present and detail its very positive outlook for the balance of this year and next.
A separate press release will provide investors with information regarding Frequency’s third quarter earnings release conference call and how to tune in to the investor conference presentation.
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