SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period ended October 31, 1998
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 __
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of Registrant's Common Stock, par value $1.00
as of December 7, 1998 - 7,681,846
Page 1 of 15
<PAGE>
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
INDEX
Part I. Financial Information: Page No.
Item 1 - Financial Statements:
Consolidated Condensed Balance Sheets -
October 31, 1998 and April 30, 1998 3-4
Consolidated Condensed Statements of Operations
Six Months Ended October 31, 1998 and 1997 5
Consolidated Condensed Statements of Operations
Three Months Ended October 31, 1998 and 1997 6
Consolidated Condensed Statements of Cash Flows
Six Months Ended October 31, 1998 and 1997 7
Notes to Consolidated Condensed Financial Statements 8-9
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-13
Part II. Other Information:
Item 1 - Legal Proceedings 14
Item 6 - Exhibits and Reports on Form 8-K 14
Signatures 15
2 of 15
<PAGE>
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Consolidated Condensed Balance Sheets
October 31, April 30,
1998 1998
(UNAUDITED) (NOTE A)
(In thousands)
ASSETS:
Current assets:
Cash and cash equivalents $ 1,883 $ 8,725
Marketable securities 34,205 36,661
Accounts receivable, net 18,162 18,640
Inventories 6,992 6,475
Deferred income taxes 4,792 5,000
Insurance receivable, prepaid and other 5,275 986
------- -------
Total current assets 71,309 76,487
Property, plant and equipment, net 9,262 9,159
Other assets 3,228 3,134
------- -------
Total assets $83,799 $88,780
======= =======
See accompanying notes to consolidated condensed financial statements.
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FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Consolidated Condensed Balance Sheets (Continued)
October 31, April 30,
1998 1998
(UNAUDITED) (NOTE A)
(In thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Current maturities of long-term debt $ 479 $ 479
Accounts payable - trade 531 1,283
Accrued liabilities and other 4,441 11,770
------- -------
Total current liabilities 5,451 13,532
Long term debt net of current maturities 250 500
Deferred expenses 6,571 6,305
Deposit liability and other 11,934 12,036
------- -------
Total liabilities 24,206 32,373
Stockholders' equity:
Preferred stock - $1.00 par value -0- -0-
Common stock - $1.00 par value 9,009 9,009
Additional paid - in capital 36,761 36,306
Retained earnings 18,964 15,983
------- -------
64,734 61,298
Common stock reacquired and held in treasury
-at cost, 1,327,413 shares at October 31, 1988
and 1,296,913 shares at April 30, 1998 (3,921) (3,632)
Unamortized ESOP debt (750) (1,000)
Notes receivable - common stock (287) (287)
Unearned compensation (68) (89)
Accumulated other comprehensive (loss) income (115) 117
------- -------
Total stockholders' equity 59,593 56,407
------- -------
Total liabilities and stockholders' equity $83,799 $88,780
======= =======
See accompanying notes to consolidated condensed financial statements.
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<PAGE>
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Consolidated Condensed Statements of Operations
Six Months Ended October 31,
(Unaudited)
1998 1997
(In thousands except per share data)
Net Sales $13,195 $15,317
------- -------
Cost of sales 8,781 9,902
Insurance reimbursement (4,500) -
Selling and administrative expenses 2,320 2,831
Research and development expenses 1,966 608
------- -------
Total operating expenses 8,567 13,341
------- -------
Operating profit 4,628 1,976
Other income (expense):
Investment income 1,091 899
Interest expense (174) (459)
Other income (expense), net (18) 795
------- -------
Earnings before provision for
income taxes 5,527 3,211
Income tax provision
Current 1,400 180
Deferred 400 -
------- -------
1,800 180
------- -------
Net earnings $ 3,727 $ 3,031
======= =======
Net earnings per common share
Basic $ 0.50 $ 0.42
======= =======
Diluted $ 0.47 $ 0.39
======= =======
Average shares outstanding
Basic 7,507,383 7,277,519
========= =========
Diluted 7,847,101 7,688,532
========= =========
See accompanying notes to consolidated condensed financial statements.
5 of 15
<PAGE>
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Consolidated Condensed Statements of Operations
Three Months Ended October 31,
(Unaudited)
1998 1997
(In thousands except per share data)
Net Sales $ 6,180 $ 8,016
------- -------
Cost of sales 4,155 5,082
Insurance reimbursement (4,500) -
Selling and administrative expenses 1,126 1,488
Research and development expenses 1,171 315
------- -------
Total operating expenses 1,952 6,885
------- -------
Operating profit 4,228 1,131
Other income (expense)
Investment income 442 458
Interest expense (85) (226)
Other income, net 24 400
------- -------
Earnings before provision for
income taxes 4,609 1,763
Income tax provision
Current 1,350 130
Deferred 50 -
------- -------
1,400 130
------- -------
Net earnings $ 3,209 $ 1,633
======= =======
Net earnings per common share
Basic $ 0.43 $ 0.22
====== ======
Diluted $ 0.41 $ 0.21
====== ======
Average shares outstanding
Basic 7,499,924 7,346,360
========= =========
Diluted 7,776,478 7,736,792
========= =========
See accompanying notes to consolidated condensed financial statements.
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<PAGE>
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
Six Months Ended October 31,
(Unaudited)
1998 1997
(In thousands)
Cash flows from operating activities:
Net earnings $ 3,727 $ 3,031
Non-cash charges to earnings 1,811 1,376
Litigation settlement (8,000) -
Insurance reimbursement accrual (4,500) -
Net changes in other assets and liabilities (209) (1,913)
------- -------
Net cash (used in) provided by operating activities (7,171) 2,494
Cash flows from investing activities:
Sale (purchase) of marketable securities 2,317 (3,038)
Other - net (610) (468)
------- -------
Net cash provided by (used in) investing activities 1,707 (3,506)
Cash flows from financing activities:
Payment of cash dividend (771) (746)
Principal payments of long-term debt
and deposit liability (330) (298)
Purchase of stock for treasury (349) -
Payments from employees for exercise
of stock options or notes receivable 72 956
------- -------
Net cash used in financing activities (1,378) (88)
Net decrease in cash (6,842) (1,100)
Cash at beginning of period 8,725 3,448
------- -------
Cash at end of period $ 1,883 $ 2,348
======= =======
See accompanying notes to consolidated condensed financial statements.
7 of 15
<PAGE>
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)
NOTE A - CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of management of the Company, the accompanying unaudited
consolidated condensed 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 October 31, 1998 and the results of its operations and
cash flows for the three and six months ended October 31, 1998 and 1997.
The April 30, 1998 consolidated condensed 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 consolidated condensed financial statements be read
in conjunction with the financial statements and notes thereto included in
the Company's April 30, 1998 Annual Report to Stockholders. The results of
operations for such interim periods are not necessarily indicative of the
operating results for the full year.
NOTE B - EARNINGS PER SHARE
Reconciliation of the weighted average shares outstanding for basic and
diluted Earnings Per Share are as follows:
Periods ended October 31,
Six months Three months
---------- ------------
<TABLE>
<S> <C> <C> <C> <C>
1998 1997 1998 1997
--------- --------- --------- ---------
Basic EPS Shares outstanding
(weighted average) ........... 7,507,383 7,277,519 7,499,924 7,346,360
Effect of Dilutive Securities .. 339,718 411,013 276,554 390,432
--------- --------- --------- ---------
Diluted EPS Shares outstanding . 7,847,101 7,688,532 7,776,478 7,736,792
========= ========= ========= =========
</TABLE>
Options to purchase 265,500 and 118,500 shares of common stock were
outstanding during the six and three months ended October 31, 1998,
respectively, but were not included in the computation of diluted earnings
per share because the exercise price of the options was greater than the
average market price of the Company's common shares during the respective
periods. Since the inclusion of such options would have been antidilutive
they are excluded from the computation.
NOTE C - DEFERRED INCOME TAXES
As a result of continued operating profits, the 1998 real estate
transactions, the recent litigation settlement and proceeds from directors'
and officers' insurance, the Company expects to fully utilize its tax net
operating loss carryforward. As a consequence, beginning in the third
quarter of fiscal 1998, the Company recorded deferred income taxes based
upon the differences between the financial statement and tax bases of
assets and liabilities using enacted tax rates in effect for the year in
which the differences are expected to reverse. The principal components of
deferred taxes relate to the timing of deductibility of the litigation
settlement, certain employee benefits, accounting for long-term contracts
and depreciation of property, plant and equipment.
NOTE D - ACCOUNTS RECEIVABLE
Accounts receivable at October 31, 1998 and April 30, 1998 include costs
and estimated earnings in excess of billings on uncompleted contracts
accounted for on the percentage of completion basis of approximately
$13,494,000 and $13,618,000, respectively. Such amounts represent revenue
recognized on long-term contracts that had not been billed at the balance
sheet dates. Such amounts are billed pursuant to contract terms.
8 of 15
<PAGE>
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)
NOTE E - INVENTORIES
Inventories, which are reported net of reserves of $904,000 and $1,400,000 at
October 31, 1998 and April 30, 1998, respectively, consist of the following:
October 31, 1998 April 30, 1998
(In thousands)
Raw materials and Component parts $ 2,494 $ 2,857
Work in progress 4,498 3,618
------- -------
$ 6,992 $ 6,475
======= =======
NOTE F - ADOPTION OF SFAS 130, "REPORTING COMPREHENSIVE INCOME"
As of May 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS NO. 130"). SFAS
No. 130 establishes new standards for reporting and displaying
comprehensive income and its components within the Company's financial
statements; however, the adoption of SFAS No. 130 has no impact on the
Company's net income or stockholders' equity. SFAS No. 130 requires
unrealized gains and losses on the Company's marketable securities to be
reported in comprehensive income. Prior to adoption of this statement, such
gains and losses were reported separately in stockholders' equity. Prior
year financial statements have been reclassified to conform to the
requirements of SFAS No.
130.
During the six-month periods ended October 31, 1998 and 1997, comprehensive
income was $3,253,000 and $3,314,000, respectively. For the second quarter
of fiscal years 1999 and 1998, comprehensive income was $2,929,000 and
$1,717,000, respectively.
NOTE G - RECENTLY ISSUED PRONOUNCEMENTS
The Financial Accounting Standards Board recently issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information,"
which is effective for the Company in future periods. This pronouncement
deals with disclosure matters and, upon adoption, will not have any effect
on the Company's financial position, results of operations or cash flows.
NOTE H -INSURANCE REIMBURSEMENT AND CONTINGENCIES
On October 21, 1998, Frequency Electronics, Inc. ("FEI") settled its claim
with the Associated International Insurance Company under applicable
directors and officers coverage and, on November 17, 1998, received payment
in the amount of $4.5 million. The reimbursement was for legal fees
previously incurred in defense of criminal and civil suits brought against
FEI and certain of its officers by the U.S. Government and certain
individuals. On June 19, 1998, FEI and the U.S. Government entered into a
Plea Agreement, Civil Settlement Agreement and related documents thereby
concluding a global disposition of these previously reported pending
litigations and matters. See also Part II, Item 1 of this Form 10Q.
Reference is also made to Notes 9 and 10 of the Company's Annual Report on
Form 10K for the year ended April 30, 1998 for information regarding the
litigation settlement and other legal proceedings.
9 of 15
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FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Item 2
Management's Discussion and Analysis of Financial Condition and Results of
Operations
RESULTS OF OPERATIONS
The table below sets forth the percentage of consolidated net sales represented
by certain items in the Company's consolidated statements of operations for the
respective six- and three-month periods of fiscal years 1999 and 1998:
<TABLE>
<CAPTION>
Six months Three months
Periods ended October 31,
<S> <C> <C> <C> <C>
1998 1997 1998 1997
---- ---- ---- ----
Net Sales
Commercial ........................ 84.2% 84.4% 86.1% 84.5%
US Government ..................... 15.8 15.6 13.9 15.5
----- ----- ----- -----
100.0 100.0 100.0 100.0
Cost of Sales ........................ 66.5 64.6 67.2 63.4
Insurance reimbursement .............. (34.1) -- (72.8) --
Selling and administrative expenses: . 17.6 18.5 18.2 18.6
Research and development expenses .... 14.9 4.0 19.0 3.9
----- ----- ----- -----
Operating profit .................. 35.1 12.9 68.4 14.1
Other income (expense)- net .......... 6.8 8.1 6.2 7.9
----- ----- ----- -----
Pretax Income ........................ 41.9 21.0 74.6 22.0
Provision for income taxes ........... 13.6 1.2 22.7 1.6
----- ----- ----- -----
Net earnings ...................... 28.3% 19.8% 51.9% 20.4%
===== ===== ===== =====
</TABLE>
For the six- and three-month periods ended October 31, 1998, operating profit
increased by $2.7 million (134%) and $3.1 million (274%), respectively, over the
comparable periods of fiscal year 1998 while net earnings increased by $696,000
(23%) and $1.6 million (97%), respectively. These positive outcomes were largely
the result of the reimbursement of $4.5 million of prior year litigation costs
under the Company's Directors' and Officers' liability insurance policies. The
gain from this transaction was offset by lower revenues and higher research and
development costs as the Company continues to redirect internal resources
towards the development of a generic line of satellite transponder products. In
addition, the Company will fully utilize its tax net operating loss carryforward
during fiscal 1999, consequently recognizing a larger current tax obligation as
well as recognizing deferred income taxes as compared to the fiscal 1998
periods.
Net sales declined $2.1 million (14%) and $1.8 million (23%), respectively,
during the six- and three-month periods ended October 31, 1998 as compared to
the same periods of fiscal 1998. Sales of commercial products during these six-
and three-month periods decreased by $1.8 million (14%) and $1.5 million (22%),
respectively, from fiscal 1998 levels. These results reflect the Company's plan
to apply internal resources toward development of additional products to fulfill
expected future demand for commercial space hardware. Continued delays in
certain world-wide satellite manufacturing programs are providing a window of
opportunity for the Company to complete its development program during this
fiscal year.
Gross margin rates were 33% for both the six- and three-month periods ended
October 31, 1998 as compared to 35% and 37% for the comparable fiscal 1998
periods. Gross margins on US government sales were 20% and 19% for the six- and
10 of 15
<PAGE>
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
(Continued)
three-month periods ended October 31, 1998, respectively, compared to 19% and
24% for the comparable periods of fiscal 1998. Margins on the Company's
commercial revenues were 36% and 35% for the six- and three-month periods ended
October 31, 1998 as compared to 38% for each of the comparable fiscal 1998
periods. With the present mix of commercial versus government projects and
recent contract bookings, the Company expects to realize improved profit margins
for the remainder of fiscal 1999.
Selling and administrative costs decreased by $511,000 (18%) and $362,000 (24%)
for the six- and three-month periods ended October 31, 1998, over the same
periods of fiscal 1998. This decrease is attributable to reduced accruals for
bonuses and the decline in legal expenses related to the Company's litigation
with the U.S. government which was settled in June 1998. All costs related to
the settlement were accrued as of April 30, 1998. The Company anticipates that
selling and administrative expenses will increase in the latter half of the
current fiscal year as the Company intensifies its marketing efforts for its
commercial space hardware products.
Research and development costs in the fiscal 1999 periods increased by
$1,358,000 (223%) and $856,000 (272%), respectively, over the comparable six-
and three-month periods ended October 31, 1997. As indicated previously, the
Company intends to devote significant resources to develop a line of generic
products to be used as the building blocks for the commercial satellite
transponder market. In prior years, the Company secured partial customer funding
for its development efforts. For the satellite transponder development effort
and other development projects during fiscal 1999, the Company is targeting to
spend up to $6 million of its own funds in order to begin bringing such products
to the market by the fourth quarter of the current fiscal year. Internally
generated cash and cash reserves will be adequate to fund this development
effort.
Net nonoperating income and expense decreased by $336,000 (27%) and $251,000
(40%) in the six- and three-month periods ended October 31, 1998 from the
comparable fiscal 1998 periods. Investment income increased by $192,000 (21%) in
the fiscal 1999 six month period but decreased by $16,000 (3%) during the fiscal
1999 second quarter over the comparable fiscal 1998 periods. This is the result
of a 34% increase in income-earning assets from October 31, 1997 to October 31,
1998 which was offset by lower interest rates, some of which was initiated by
the Company through a substantial investment in tax-free municipal bonds.
Interest expense decreased by $285,000 and $141,000 (62% each) during the fiscal
1999 six- and three-month periods compared to the same periods ended October 31,
1997. This decrease is the result of the repayment during the third quarter of
fiscal 1998 of over $10 million of debt related to the Company's former real
estate holdings. Other income (expense), net, decreased by $813,000 (102%) and
$376,000 (94%) during the fiscal 1999 periods as compared to the fiscal 1998
six- and three-month periods. In fiscal 1998, this category consisted
principally of rental income under a long-term lease. Since this lease was part
of the real estate sales effected in January 1998, no further income will be
derived from that source. For the balance of fiscal 1999, the values in Other
income (expense), net, are expected to be nominal.
Prior to fiscal 1999, income taxes consisted principally of state taxes on
capital and alternative minimum tax as a result of substantial tax net operating
loss carryforwards. Consequently, the effective tax rate in prior years was
nominal. The effective tax rate for fiscal 1999 is expected to be approximately
30%. This rate is lower than was initially anticipated at the beginning of the
fiscal year due to three factors- the investment in tax-free municipal bonds,
the reduced amortization costs of the Employee Stock Ownership Plan as a result
of the lower market value of the Company's common stock and the tax credit for
incremental research and development expenses, the provisions of which were
recently reinstated by Congress.
11 of 15
<PAGE>
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
(Continued)
LIQUIDITY AND CAPITAL RESOURCES
The Company's balance sheet continues to reflect a strong working capital
position of $66 million at October 31, 1998 compared to working capital at April
30, 1998, of $63 million. Included in working capital at October 31, 1998 is $36
million of cash, cash equivalents and marketable securities, including $12
million of REIT units which are convertible to Reckson Associates Realty Corp.
common stock after January 6, 1999.
Net cash used in operating activities for the six months ended October 31, 1998,
was $7.2 million compared to a net cash inflow of $2.5 million in the comparable
fiscal 1998 period. The fiscal 1999 net outflow is the result of the $8 million
litigation settlement coupled with larger research and development spending.
Without those two items, cash flows from operating activities would have been
positive. The Company will continue to expend its resources and efforts to
develop hardware for commercial satellite programs and commercial ground
communication and navigation systems which management believes will result in
future growth and continued profitability. Internally generated cash and cash
reserves will be adequate to fund development efforts in these markets. As a
result of this investment in its future during the remainder of fiscal 1999, the
Company does not anticipate that it will generate positive cash flow from
operating activities this fiscal year.
Net cash provided by investing activities for the six months ended October 31,
1998, was $1.7 million. This amount was generated through the sale of certain
U.S. government and agency securities aggregating $2.3 million which was
partially offset by the acquisition of capital equipment for approximately
$610,000. The Company may continue to acquire or redeem marketable securities as
dictated by its investment strategies as well as by the cash requirements for
its development activities. The Company may spend up to $2 million on capital
equipment related to the development and manufacture of new products. The
Company has sufficient resources to acquire such capital equipment.
Net cash used in financing activities for the six months ended October 31, 1998,
was $1.4 million compared to $88,000 for the comparable fiscal 1998 period.
Included in the fiscal 1999 amount is payment of the Company's semiannual
dividend in the aggregate amount of $771,000, the acquisition of 50,000 shares
of Company stock for treasury at a cost of $349,000 and $330,000 used to make
regularly scheduled long-term liability payments. These outflows were partially
offset by transactions related to the Company's common stock and involving
certain officers and other employees who exercised stock option rights
($72,000).
Year 2000 Issue
During the second half of fiscal 1999, the Company intends to install the next
upgrade of its current financial software or to acquire new, integrated
financial and manufacturing software, the cost of which is not expected to
exceed $500,000. The upgrade or purchase of new financial software will
satisfactorily address the issue of compliance with the year 2000 problem for
financial transactions and reporting purposes. The upgraded or new financial
software is expected to be fully functional by the summer of 1999. The Company
has sufficient resources to acquire, install and implement such software.
Beginning in the latter portion of fiscal 1998 and concluding during the second
quarter of fiscal 1999, the Company acquired new desktop computers of sufficient
size and speed to operate the anticipated new financial software. The cost of
these computers, included in capital equipment, was approximately $220,000. The
Company has determined that additional operational, nonfinancial software must
be obtained to resolve the year 2000 issue in certain production and support
areas, the cost of which will not exceed $50,000.
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<PAGE>
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
(Continued)
Year 2000 Issue (continued)
The Company's products do not contain imbedded microchips or other components
which are date sensitive. The same is generally true of the products which are
acquired from third-party vendors. Consequently, the Company's products are
already compliant with the year 2000. In addition, the Company has received
assurances from its "critical" vendors that their systems are or will be Y2K
compliant prior to the year 2000. Consequently, the Company does not anticipate
any interruption in services or supplies from vendors.
The Company's "worst case" scenario is that its financial and manufacturing
software is not timely installed which prevents the Company from preparing
appropriately dated invoices, payments or other documentation. In that event,
the Company will employ alternative strategies, principally hiring additional
clerical personnel, to assure that its records and documentation are properly
and accurately maintained until such time that the software implementation can
be completed.
Backlog
At October 31, 1998, the Company's backlog amounted to approximately $23 million
compared to the approximately $22 million backlog at April 30, 1998. Of this
backlog, approximately 50% is realizable in the next twelve months.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995:
The statements contained in this release which are forward-looking statements
and not based on historical facts, are subject to risks and uncertainties that
could cause actual results to differ materially from those set forth herein.
Such risks include changes in contractual agreements or a change in status under
the US government-imposed suspension and other risks as more fully described in
the Company's Annual Report on Form 10K filed with the Securities and Exchange
Commission.
13 of 15
<PAGE>
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
(Continued)
PART II
ITEM 1 - Legal Proceedings
On June 19, 1998, Frequency Electronics, Inc. ("FEI" or "Registrant")
and the U.S. Government entered into a Plea Agreement, Civil Settlement
Agreement and related documents ("Settlement Agreement") thereby concluding
a global disposition of certain previously reported pending litigations and
matters. All criminal charges brought by the U.S. Government against
certain officers, employees and former employees of FEI were dismissed,
with prejudice. The criminal charges brought by the U.S. Government against
FEI were dismissed, with prejudice, with the exception of a single charge
of submitting a false statement which failed to disclose the full
explanation of FEI's costs on a highly classified government project, as to
which FEI pled guilty and paid the U.S. Government a fine of $400,000 and
$1.1 million as reimbursement for costs of its investigation, with all
known criminal investigations of FEI having been resolved. As part of the
Settlement Agreement, the Fox Civil Case was dismissed, with prejudice, as
to all defendants and FEI paid the U.S. Government $1.5 million to settle
this case; and the Geldart qui tam action was dismissed, with prejudice, as
to all defendants and FEI paid the U.S. Government $5 million to settle
this case.
The Settlement Agreement does not affect other previously reported
pending litigations and matters including a second qui tam action and two
separate derivative shareholder actions which seek recovery on behalf of
the Company for any losses it incurs as a result of the U.S. Government
indictments.
On July 9, 1998, FEI was notified by the U.S. Department of the Air
Force of FEI's proposed debarment based upon FEI's guilty plea entered in
connection with the global disposition and the Settlement Agreement. On
October 21, 1998, the U.S. Department of the Air Force notified FEI that
its debarment will be terminated on December 12, 1998, without condition.
On October 21, 1998, FEI settled its claim with the Associated
International Insurance Company ("Associated") under applicable directors
and officers coverage and, on November 17, 1998, FEI received payment in
the amount of $4.5 million.
For all items noted above, reference is made to Item 3 - Legal
Proceedings of Registrant's Annual Report on Form 10K for the year ended
April 30, 1998 on file with the Securities and Exchange Commission.
ITEM 6 - Exhibits and Reports on Form 8-K
(a) Exhibits - None
(b) On October 23, 1998, the Company's report on Form 8-K, containing
disclosure under Item 5 thereof (termination of debarment), was filed with
the Securities and Exchange Commission.
14 of 15
<PAGE>
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: December 14, 1998 BY /s/ Joseph P. Franklin
----------------------
Joseph P. Franklin
Chief Executive Officer
Date: December 14, 1998 BY /s/ Alan Miller
---------------
Alan Miller
Chief Financial Officer
and Treasurer
15 of 15
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-mos
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