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a)
FINANCIAL STATEMENTS:
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Report
of Independent Registered Public Accounting Firm
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3
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Statements
of Net Assets Available for Benefits
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4
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Statement
of Changes in Net Assets Available for Benefits
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5
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Notes
to Financial Statements
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6
-
9
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SUPPLEMENTAL
SCHEDULE:
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Schedule
H, Line 4i: Schedule of Assets (Held at End of Year)
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10
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b)
EXHIBITS:
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Exhibit
23.1
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Consent
of Independent Registered Public Accounting Firm
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11
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Exhibit
99.1
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Certification
of Chief Executive Officer and
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Chief
Financial Officer
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12
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Exhibit
99.2
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Certification
by a Trustee of the Plan
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13
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| FREQUENCY ELECTRONICS, INC. | ||
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Registrant
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| By: | /s/ Alan L. Miller | |
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Alan L. Miller |
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| Dated: September 6, 2007 | Chief Financial Officer and Treasurer | |
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Frequency
Electronics, Inc. 401(k) Savings Plan
(Name
of
Plan)
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| Date: September 6, 2007 | By: | /s/ Robert Klomp |
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Robert Klomp, Trustee |
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| /s/Markus Hechler | ||
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Markus Hechler, Trustee |
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| /s/Marvin Meirs | ||
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Marvin Meirs, Trustee |
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December
31,
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2006
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2005
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ASSETS:
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Cash
and Cash Equivalents
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$
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58,235
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$
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84,164
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Investments,
at Fair Value
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13,715,479
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11,544,869
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Loans
Receivable from Participants
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376,585
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391,081
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Contribution
Receivable - Employer
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90,505
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82,716
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Contribution
Receivable - Employee
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23,796
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-
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Other
Receivable
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7,513
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-
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Net
Assets Available for Benefits at Fair Value
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14,272,113
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12,102,830
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Adjustment
from Fair Value to Contract Value for Benefit
Responsive Investment Contract
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45,225
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-
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Net
Assets Available for Benefits
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$
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14,317,338
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$
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12,102,830
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ADDITIONS:
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Additions
to net assets attributed to:
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Contributions:
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Participant
contributions
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$
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987,531
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Rollover
contributions
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98,346
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Employer
contributions
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438,528
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Total
Contributions
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1,524,405
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Investment
Income:
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Net
appreciation in fair value of investments
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628,017
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Interest
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121,631
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Dividends
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704,870
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Net
Investment Gain
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1,454,518
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Total
Additions
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2,978,923
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DEDUCTIONS:
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Benefits
paid to participants
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764,415
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NET
INCREASE
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2,214,508
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NET
ASSETS AVAILABLE FOR BENEFITS, beginning of year
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12,102,830
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NET
ASSETS AVAILABLE FOR BENEFITS, end of year
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$
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14,317,338
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1.
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Plan
Description
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The
following description of the Frequency Electronics, Inc. (the
"Company" or
the “Employer”) 401(k) Savings Plan (the "Plan") provides only general
information. Participants should refer to the Plan agreement
for a more
complete description of the Plan's provisions.
General
- The
Plan, adopted on January 1, 1985, is a defined contribution
savings plan
qualified under Section 401(k) of the Internal Revenue Code
covering
employees of the Company who have completed six months of service
and are
age twenty-one or older. The Plan is subject to the provisions
of the
Employee Retirement Income Security Act of 1974 (“ERISA”).
Plan
administration
-
Effective December 1, 2006, the Plan changed its custodian
and
recordkeeper from Metropolitan Life Insurance Company “Met Life” to
Principal Retirement Group “Principal”. The Plan also changed investment
options to accounts offered by Principal. Principal holds the
Plan’s
investment in Frequency Electronics, Inc. common stock.
Contributions
-
Each year, participants may contribute up to 25 percent of
pretax annual
compensation, as defined by the Plan, subject to certain limitations
imposed by law. Participants who have attained age 50 before
the end of
the Plan year are eligible to make catch-up contributions.
Participants
may also contribute amounts representing distributions from
other
qualified benefit plans. The Company may make matching contributions,
as
defined by the Plan. Company contributions, if any, may consist
of cash or
qualifying employer securities. During the year ended December
31, 2006,
Company contributions were made in the form of Company stock.
The Company
contributed 100 percent of the first 3 percent of base compensation
that a
participant contributed to the Plan, not to exceed a maximum
of $2,500.
Additionally, the Company contributed $500 on behalf of each
eligible
participant, regardless of the participant’s contribution, if any. The
maximum Company contribution is $3,000 per participant.
Participant
accounts - Each
participant's account is credited with the participant's contribution
and
allocations of the Company's contribution and Plan earnings.
Allocations
of Plan earnings are made to each participant's account based
upon
participant account balances, as defined. The benefit to which
a
participant is entitled is the benefit that can be provided
from the
participant's vested account.
Vesting
-
Participants are vested immediately in their contributions
plus actual
earnings thereon. Vesting in the Company's contribution portion
of their
accounts is based on years of continuous service. Participants
vest 20
percent after two years of service and 20 percent each year
thereafter. A
participant is 100 percent vested after six years of credited
service.
Participant
loans -
Loans are permitted against a participant's contributory account
balance.
Participants may borrow a minimum of $1,000 up to a maximum
equal to the
lesser of $50,000 or 50% of the participant's contributory
account
balance. The loans are secured by the balance in the participant's
account
and bear interest at rates that range from 4 percent to 9.5
percent.
Principal and interest are paid ratably through payroll
deductions.
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Payment
of benefits -
A
participant may elect to receive the value of the vested interest
in his
or her account upon termination of service due to death, disability
or
retirement. An employee who became a participant on or after
January 1,
1998, will generally receive their benefit as a lump-sum distribution.
An
employee who became a participant prior to January 1, 1998,
will generally
receive their benefit, unless otherwise elected, as a Qualified
Joint and
Survivor Annuity, if the participant is married, or as a life
annuity, if
unmarried. Participants who elect not to receive the annuity
form of
payment, may elect to receive a lump-sum distribution or a
distribution in
substantially equal monthly, quarterly, semi-annual or annual
installments
(over a term that does not extend beyond the participant's
or designated
beneficiary's actuarial life expectancy).
Forfeited
accounts - At
December 31, 2006 and 2005, forfeited non-vested accounts,
and earnings
thereon, totaled approximately $31,218 and $32,894, respectively.
These
accounts may be used to pay administrative costs of the Plan.
Any such
accounts not used to pay administrative costs will be reallocated
to
participants in the same manner as employer contributions.
During the year
ended December 31, 2006, forfeitures of non-vested accounts
totaled
approximately $14,819 and accounts totaling approximately $21,598
were
reallocated to participants.
Plan
expenses - Expenses
associated with administering the Plan are paid by the
Company.
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2.
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Summary
of Significant Accounting Polices
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Basis
of presentation - The
accompanying financial statements have been prepared on the
accrual basis
of accounting.
Use
of estimates -
The preparation of financial statements in conformity with
generally
accepted accounting principles requires management to make
estimates and
assumptions that affect the reported amounts of assets and
liabilities and
changes therein, and disclosure of contingent assets and liabilities.
Actual results could differ from those estimates.
Investment
valuation and income recognition -
The Plan's investments are stated at fair value based upon
quoted market
prices, except for the Plan's benefit responsive investment
contract,
referred to as the Morley Financial Service, Inc. Principal
Stable Value
Fund, which is valued at contract value. Participant loans
are valued at
their outstanding balances, which approximate fair value.
Purchases
and sales of investments are recorded on a trade-date basis.
Interest
income is recognized in the period earned. Dividends are recorded
on the
ex-dividend date. Gains and losses on the sales of investments
are
recognized when realized, while unrealized gains and losses
are recognized
daily based on fluctuations in market value. Realized and unrealized
gains
and losses are netted in the financial statements.
Frequency
Electronics, Inc. Common Stock Fund -
The Frequency Electronics, Inc. Common Stock Fund is a nonparticipant
directed fund. All employer matching contributions that were
made prior to
January 1, 1990 and subsequent to January 1, 2001 are in the
form of
Frequency Electronics, Inc. common stock. This stock is valued
at the last
sale price on the NASDAQ on the last business day of the year.
Frequency
Electronics, Inc. common stock approximated $2,545,000 (18%)
and
$1,825,000 (15%) of total assets at December 31, 2006 and 2005,
respectively.
Information
about the significant components of the change in net assets
related to
the nonparticipant-directed investment during the year ended
December 31,
2006 is as follows:
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Balance,
January 1, 2006
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$
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1,824,520
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Employer
Contributions Received During 2006
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436,742
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Net
Depreciation in Fair Value of Investments
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307,479
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Investment
Income
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39,532
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Distributions
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(63,701
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)
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Balance,
December 31, 2006
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$
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2,544,572
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Payment
of benefits -
Benefits are recorded when paid.
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3.
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Investments
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The
following presents investments that represent 5 percent or
more of the
Plan's net assets at December 31,
2006:
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Morley
Financial Services Principal Stable Value Fund; 187,129
shares
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$
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2,849,274
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Principal
Global Investors SmallCap Value AdvPr Fund; 38,816 shares
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735,185
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Principal
Global Investors Diversified IntlAdv Pref Fund; 50,844
shares
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703,683
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Principal
Global Investors S&P Idx AdvPr Fund; 223,400 shares
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2,240,703
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Principal
Global Investors Principal Investors LifeTime 2030 Adv Pref
Fund; 70,384
shares
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956,516
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Capital
Research and Mgmt Co American Funds Growth Fund of America
R3 Fund; 39,099
shares
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1,268,751
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Frequency
Electronics, Inc. Common Stock; 212,934 shares
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2,544,572
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The
following presents investments that represent 5 percent or
more of the
Plan's net assets at December 31,
2005:
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Met
Life Stable Value Option - Premier Pooled Guaranteed Investment
Contract
(GIC) NAV Product; 278,398 shares
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$
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3,075,776
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Federated
Capital Appreciation Fund; 78,366 shares
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1,965,426
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Calvert
Income Fund; 41,241 shares
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691,201
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American
Funds - Growth Fund of America; 37,201 shares
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1,148,018
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Met
Life - American Funds Balanced; 34,569 shares
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616,028
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Frequency
Electronics, Inc. Common Stock; 173,929 shares
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1,824,520
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4.
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Investment
Contract with Insurance Company
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As
described in Financial Accounting Standards Board Staff Position,
FSP AAG
INV-1 and SOP 94-4-1, Reporting
of Fully Benefit-Responsive Investment Contracts Held by
Certain
Investment Companies Subject to the AICPA Investment Company
Guide and
Defined-Contribution Health and Welfare and Pension Plans
(the
FSP),
investment
contracts held by a defined-contribution plan are required
to be reported
at fair value. However, contract value is the relevant measurement
attribute for that portion of the net assets available for
benefits of a
defined-contribution plan attributable to fully benefit-responsive
investment contracts because contract value is the amount
participants
would receive if they were to initiate permitted transactions
under the
terms of the plan. As required by the FSP, the Statement
of Net Assets
Available for Benefits presents the fair value of the investment
contracts
from fair value to contract value. Prior year balances have
been
reclassified accordingly. The Statement of Changes in Net
Assets Available
for Benefits is prepared on a contract value basis.
Effective
November 30, 2006, the Plan obtained an investment position
in the Morley
Financial Services Principal Stable Value Fund (the “Stable Value Fund”).
The Stable Value Fund’s net assets include fully benefit-responsive
investment contracts that are accounted for on their contract
value basis.
Accordingly, the Plan accounts for its investment position
in the Stable
Value Fund using the contract value. The Plan’s investment in the Stable
Value Fund at contract value exceeded its fair value by approximately
$45,000 at December 31, 2006.
The
Plan was engaged in a benefit-responsive investment contract
with
Metropolitan Life Insurance Company ("Met Life") referred
to as the Met
Life Stable Value Option in prior years. Met Life maintained
the
contributions in a pooled account. This contract has been
terminated as of
November 30, 2006 as a result of the Plan’s change in
recordkeeper.
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5.
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Tax
Status
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The
Internal Revenue Service has determined and informed the
Company by a
letter dated January 29, 2004, that the Plan and related
trust are
designed in accordance with applicable sections of the Internal
Revenue
Code ("IRC").
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6.
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Plan
Termination
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Although
it has not expressed any intent to do so, the Company has
the right under
the Plan to discontinue its contributions at any time and
to terminate the
Plan subject to the provisions of the ERISA. In the event
of Plan
termination, participants will become 100 percent vested
in their
accounts.
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7.
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Parties
in Interest/Related Party Transactions
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The
Plan's investments include shares of common stock issued
by the Plan
Sponsor, Frequency Electronics, Inc. This stock is valued
at the last sale
price on the NASDAQ on the last business day of the year.
Investment in
Frequency Electronics, Inc. common stock is permitted under
the provisions
of the Plan.
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MetLife
- The
Plan had entered into a benefit-responsive investment contract
with
Metropolitan Life Insurance Company ("Met Life"). Met Life
was the
custodian as defined by the Plan for January 1, 2006 through
November 30,
2006 and, therefore, these transactions qualify as party-in-interest
transactions. Such transactions are permitted under the provisions
of the
Plan. This contract has been terminated as of November 30,
2006 as a
result of the Company’s change in recordkeeper. No such contract exists
with the Plan’s new recordkeeper (Principal).
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Principal
financial group -
Certain plan investments are shares of pooled separate accounts
managed by
Principal Financial Group. Principal is the custodian and
record keeper as
defined by the Plan, and, therefore, these transactions qualify
as
party-in-interest transactions. Purchases and sales of these
accounts and
the underlying investments comprising these accounts are
open market
transactions at fair market value. Such transactions are
permitted under
the provisions of the Plan and are exempt from the prohibition
of
party-in-interest transactions under ERISA and applicable
exemptions
promulgated thereunder. Fees paid by the Plan to Principal
for
recordkeeping services totaled approximately $1,500 during
the year ended
December 31, 2006.
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8.
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Cash
Dividend
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During
calendar year 2006, the Board of Directors of Frequency Electronics,
Inc.
declared semi-annual cash dividends of $.10 (ten cents) per
share payable
June 1 and December 1. These dividends aggregated approximately
$39,532 in
2006.
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9.
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Risks
and Uncertainties
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The
Plan provides for various investment options in any combination
of stocks,
bonds, mutual funds, and other investment securities. Investment
securities are exposed to various risks, such as interest
rate, market and
credit risks. Due to the level of risk associated with certain
investment
securities, it is at least reasonably possible that changes
in the values
of investments securities will occur in the near term and
that such
changes could materially affect participants' account balances
and the
amounts reported in the statement of net assets available
for
benefits.
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(a)
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(b)
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(c)
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(d)
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(e)
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Identity
of issuer, borrower, lessor, or
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Current
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similar
party
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Description
of investment
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Cost
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Value
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*
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Morley
Financial Services, Inc. Principal
Stable Value Fund
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Common
/ Collective Trust
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$
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2,849,274
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Principal
Global Investors Smallcap Value AdvPr Fund
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Interest
in registered investment company.
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735,185
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Principal
Global Investors Diversified IntlAdv Pref Fund
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Interest
in registered investment company.
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703,683
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Principal
Global Investors Intl Emerging Mkts AdvPr Fund
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Interest
in registered investment company.
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615,566
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Principal
Global Investors S&P 500 Idx AdvPr Fund
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Interest
in registered investment company.
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2,240,703
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Alliance
Bernstein LargeCap Value AdvPr Fund
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Interest
in registered investment company.
|
116,189
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||||||||||
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Neuberger
Berman/Jacobs Levy MidCap Value AdvPr Fund
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Interest
in registered investment company.
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205,533
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Principal
Global Investors Government & HQ BD AdvPr Fund
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Interest
in registered investment company.
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353,549
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Principal
Global Investors Bond and Mtg Secs AdvPr Fund
|
Interest
in registered investment company.
|
648,861
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Turner
Investment Partners MidCap Growth AdvPr Fund
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Interest
in registered investment company.
|
334,540
|
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Principal
Global Investors Prin Inv LifeTm 2010 AdvPr Fund
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Interest
in registered investment company.
|
25,770
|
||||||||||
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Principal
Global Investors Prin Inv LifeTm 2020 AdvPr Fund
|
Interest
in registered investment company.
|
17,402
|
||||||||||
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Principal
Global Investors Prin Inv LifeTm 2030 AdvPr Fund
|
Interest
in registered investment company.
|
956,516
|
||||||||||
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Principal
Global Investors Prin Inv LifeTm 2040 AdvPr Fund
|
Interest
in registered investment company.
|
14,827
|
||||||||||
|
Principal
Global Investors Prin Inv LifeTm 2050 AdvPr Fund
|
Interest
in registered investment company.
|
84,559
|
||||||||||
|
Capital
Research and Mgmt Co Am Fds Grth Fund of America R3 Fund
|
Interest
in registered investment companies.
|
1,268,751
|
||||||||||
|
*
|
Frequency
Electronics, Inc. Common Stock
|
Common
stock of Frequency Electronics, Inc Par value $1.00.
|
2,448,415
|
2,544,572
|
||||||||
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$
|
13,715,479
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*
|
Participant
loans
|
Loans
to plan participants. Various maturity dates through
August 2014 with
interest at prevailing commercial rates (4.0% - 9.5%)
and secured by the
participants vested account balance.
|
$
|
-
|
$
|
376,585
|
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|
*
Denotes party in interest.
|
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