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, 1999
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
December 7, 1999 - 7,689,024
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, 1999 and April 30, 1999 3-4
Consolidated Condensed Statements of Operations
Six Months Ended October 31, 1999 and 1998 5
Consolidated Condensed Statements of Operations
Three Months Ended October 31, 1999 and 1998 6
Consolidated Condensed Statements of Cash Flows
Six Months Ended October 31, 1999 and 1998 7
Notes to Consolidated Condensed Financial Statements 8-10
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
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<PAGE>
FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Consolidated Condensed Balance Sheets
October 31, April 30,
1999 1999
(UNAUDITED) (NOTE A)
(In thousands)
ASSETS:
Current assets:
Cash and cash equivalents $ 1,540 $ 567
Marketable securities 37,382 38,720
Accounts receivable, net 9,706 12,190
Inventories 10,177 9,696
Deferred income taxes 2,986 2,336
Prepaid and other 823 1,182
------- -------
Total current assets 62,614 64,691
Property, plant and equipment, net 9,391 9,489
Deferred income taxes 545 500
Other assets 3,770 3,675
------- -------
Total assets $76,320 $78,355
======= =======
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,
1999 1999
(UNAUDITED) (NOTE A)
(In thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Current maturities of long-term debt $ 239 $ 489
Accounts payable - trade 406 837
Dividend payable 769 766
Accrued liabilities and other 2,214 2,797
------- -------
Total current liabilities 3,628 4,889
Deferred compensation 5,188 5,165
Deposit liability and other 11,685 11,794
------- -------
Total liabilities 20,501 21,848
------- -------
Stockholders' equity:
Preferred stock - $1.00 par value -0- -0-
Common stock - $1.00 par value 9,009 9,009
Additional paid - in capital 37,251 36,940
Retained earnings 15,817 15,653
------- -------
62,077 61,602
Common stock reacquired and held in
treasury - at cost, 1,320,234 shares
at October 31, 1999 and 1,346,850 shares
at April 30, 1999 (3,984) (4,058)
Unamortized ESOP debt (250) (500)
Notes receivable - common stock (280) (287)
Unearned compensation (33) (47)
Accumulated other comprehensive loss (1,711) (203)
------- -------
Total stockholders' equity 55,819 56,507
------- -------
Total liabilities and stockholders' equity $76,320 $78,355
======= =======
See accompanying notes to consolidated condensed financial
statements.
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FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Consolidated Condensed Statements of Operations
Six Months Ended October 31,
(Unaudited)
1999 1998
(In thousands except per share data)
Net Sales $11,500 $13,195
------- -------
Cost of sales 6,427 8,781
Insurance reimbursement - (4,500)
Selling and administrative expenses 2,324 2,320
Research and development expenses 2,490 1,966
------- -------
Total operating expenses 11,241 8,567
------- -------
Operating profit 259 4,628
Other income (expense):
Investment income 1,310 1,091
Interest expense (161) (174)
Other income (expense), net 24 (18)
------- -------
Earnings before provision for
income taxes 1,432 5,527
Income tax provision
Current 200 1,400
Deferred 310 400
------- -------
510 1,800
------- -------
Net earnings $ 922 $ 3,727
======= =======
Net earnings per common share
Basic $ 0.12 $ 0.50
======= =======
Diluted $ 0.12 $ 0.47
======= =======
Average shares outstanding
Basic 7,566,569 7,507,383
========= =========
Diluted 7,933,654 7,847,101
========= =========
See accompanying notes to consolidated condensed financial
statements.
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FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Consolidated Condensed Statements of Operations
Three Months Ended October 31,
(Unaudited)
1999 1998
(In thousands except per share data)
Net Sales $ 6,036 $ 6,180
------- -------
Cost of sales 3,355 4,155
Insurance reimbursement - (4,500)
Selling and administrative expenses 1,112 1,126
Research and development expenses 1,240 1,171
------- -------
Total operating expenses 5,707 1,952
------- -------
Operating profit 329 4,228
Other income (expense)
Investment income 570 442
Interest expense (78) (85)
Other income, net (63) 24
------- -------
Earnings before provision for
income taxes 758 4,609
Income tax provision
Current 150 1,350
Deferred 130 50
------- -------
280 1,400
------- -------
Net earnings $ 478 $ 3,209
======= =======
Net earnings per common share
Basic $ 0.06 $ 0.43
======= ======
Diluted $ 0.06 $ 0.41
======= ======
Average shares outstanding
Basic 7,577,010 7,499,924
========= =========
Diluted 7,979,270 7,776,478
========= =========
See accompanying notes to consolidated condensed financial
statements.
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FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
Six Months Ended October 31,
(Unaudited)
1999 1998
---- ----
(In thousands)
Cash flows from operating activities:
Net earnings $ 922 $ 3,727
Non-cash charges to earnings 1,496 1,811
Litigation settlement - (8,000)
Insurance reimbursement accrual - (4,500)
Net changes in other assets and liabilities 987 (209)
-------- -------
Net cash provided by (used in) operating activities 3,405 (7,171)
Cash flows from investing activities:
(Purchase) sale of marketable securities (978) 2,317
Other - net (438) (610)
-------- -------
Net cash (used in) provided by investing activities (1,416) 1,707
Cash flows from financing activities:
Payment of cash dividend (766) (771)
Other - net (250) (607)
-------- -------
Net cash used in financing activities (1,016) (1,378)
-------- -------
Net increase (decrease) in cash 973 (6,842)
Cash at beginning of period 567 8,725
-------- -------
Cash at end of period $ 1,540 $ 1,883
======== =======
See accompanying notes to consolidated condensed financial
statements.
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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, 1999 and the results of its operations and
cash flows for the three and six months ended October 31, 1999 and 1998.
The April 30, 1999 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, 1999 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
---------- ------------
1999 1998 1999 1998
---- ---- ---- ----
Basic EPS Shares outstanding
(weighted average) 7,566,569 7,507,383 7,577,010 7,499,924
Effect of Dilutive Securities 367,085 339,718 402,260 276,554
---------- --------- ---------- ----------
Diluted EPS Shares outstanding 7,933,654 7,847,101 7,979,270 7,776,478
========= ========= ========= =========
Options to purchase 258,375 shares of common stock were outstanding during
the six and three months ended October 31, 1999, compared to 265,500 and
118,500 shares for the comparable periods in fiscal year 1999. These
shares 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
The Company records 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 certain employee benefits, inventory
reserves, depreciation of property, plant and equipment, the deferred gain
on the building sale, research and development tax credit carryforwards and
the net operating loss carryforward. As a result of continued profitability
and a deferred gain from the 1998 real estate transactions, the Company
expects to fully utilize its tax net operating loss carryforward.
NOTE D - ACCOUNTS RECEIVABLE
Accounts receivable at October 31, 1999 and April 30, 1999 include costs
and estimated earnings in excess of billings on uncompleted contracts
accounted for on the percentage of completion basis of approximately
$5,490,000 and $6,657,000, 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.
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FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)
NOTE E - INVENTORIES
Inventories, which are reported net of reserves of $1,054,000 at
October 31, 1999 and April 30, 1999, consist of the following:
October 31, 1999 April 30, 1999
(In thousands)
Raw materials and Component parts $ 2,951 $ 3,028
Work in progress 7,226 6,668
------- -------
$10,177 $ 9,696
======= =======
NOTE F -COMPREHENSIVE INCOME
For the six months ended October 31, 1999 and 1998, total comprehensive
income (loss) was ($586,000) and $3,253,000, respectively. For the second
quarter of fiscal years 2000 and 1999, comprehensive income (loss) was
($853,000) and $2,929,000, respectively.
NOTE G - SEGMENT INFORMATION
The Company operates under two reportable segments:
1. Commercial wireless communications - consists principally of time and
frequency control products used in two principal markets- commercial
communication satellites and terrestrial cellular telephone or other
ground-based telecommunication stations.
2. U.S. Government - consists of time and frequency control products used
for national defense or space-related programs.
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):
Six months ended October 31,
1999 1998
Net sales:
Wireless Communications $ 9,868 $11,104
U.S. Government 1,632 2,091
------- -------
Consolidated Sales $11,500 $13,195
======= =======
Operating (loss) profit:
Wireless Communications $ 189 $ 179
U.S. Government 290 (3)
Corporate (220) 4,452
------- -------
Consolidated Operating Profit $ 259 $ 4,628
======= =======
October 31, 1999 April 30, 1999
Identifiable assets:
Wireless Communications $14,709 $16,968
U.S. Government 5,174 4,918
Corporate 56,437 56,469
------- -------
Consolidated Identifiable Assets $76,320 $78,355
======= =======
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FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)
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 Note 9 of the Company's Annual Report on Form 10K
for the year ended April 30, 1999 for information regarding the litigation
settlement and other legal proceedings.
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 2000 and 1999:
Six months Three months
Periods ended October 31,
1999 1998 1999 1998
---- ---- ---- ----
Net Sales
Wireless Communications 85.8% 84.2% 87.0% 6.1%
US Government 14.2 15.8 13.0 13.9
----- ----- ----- -----
100.0 100.0 100.0 100.0
Cost of Sales 55.9 66.5 55.6 67.2
Insurance reimbursement - (34.1) - (72.8)
Selling and administrative expenses: 20.2 17.6 18.4 18.2
Research and development expenses 21.7 14.9 20.6 19.0
----- ----- ----- -----
Operating profit 2.2 35.1 5.4 68.4
Other income (expense)- net 10.2 6.8 7.1 6.2
----- ----- ----- -----
Pretax Income 12.4 41.9 12.5 74.6
Provision for income taxes 4.4 13.6 4.6 22.7
----- ----- ----- -----
Net earnings 8.0% 28.3% 7.9% 51.9%
===== ===== ===== =====
On November 17, 1998, the Company received $4.5 million representing
reimbursement of prior year litigation costs under the Company's Directors' and
Officers' liability insurance policies. (See Part II, ITEM 1 - Legal
Proceedings) This amount was reported as a reduction of operating expenses for
the six- and three-month periods of the 1999 fiscal year. Excluding this
one-time item, for the six- and three-month
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FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
(Continued)
periods ended October 31, 1999, operating profit increased by $131,000 (102%)
and $601,000 (NM), respectively, over the comparable periods of fiscal year 1999
while net earnings increased by $230,000 (33%) and $402,000 (529%),
respectively. These positive outcomes were principally the result of
improvements in gross margin rates as discussed below. The higher gross margin
was partially offset by increased research and development spending during the
fiscal year 2000 periods, a continuation of the development programs which were
initiated during fiscal 1999.
Net sales declined $1.7 million (13%) and $144,000 (2%), respectively, during
the six- and three-month periods ended October 31, 1999 as compared to the same
periods of fiscal 1999. These results reflect the Company's fiscal year 1999
announcement and execution of its plan to apply internal resources toward
development of additional products to fulfill expected future demand for
commercial space hardware as well as next-generation terrestrial wireless
communications products. As those resources were applied during fiscal 1999,
sales began to trend downward. Sales in the first half of fiscal year 2000 are
now rebounding from the low levels of the latter half of fiscal 1999 as demand
increases for the Company's terrestrial wireless communications products. This
trend is expected to continue for fiscal 2000 and beyond.
Gross margins for the six- and three-month periods ended October 31, 1999
improved significantly over the fiscal 1999 periods, increasing to 44% from 33%.
The fiscal year 2000 margins on wireless communications revenues were 45% and
44%, respectively, as compared to 39% and 48%, respectively, for U.S. Government
programs. During the six- and three-month periods ended October 31, 1998, gross
margins on wireless communications sales were 36% and 35%, respectively, while
margins on U.S. Government programs were 20%. The increase in wireless
communications margins is due to significant improvements in the manufacturing
processes for these products. The improvement in U.S. Government margins in the
fiscal 2000 period is attributable to the conclusion of certain unprofitable
contracts for which loss reserves were recorded in prior years. With the present
mix of wireless communications versus U.S. Government projects and recent
contract bookings, the Company expects to maintain this improved profit margin
level for the remainder of fiscal 2000.
Selling and administrative costs for the six- and three-month periods ended
October 31, 1999, were approximately the same as the comparable periods of
fiscal year 1999. The Company anticipates that fiscal year 2000 selling and
administrative expenses will be comparable to that incurred in fiscal 1999,
although, as a percentage of sales, the ratio should decrease.
Research and development costs in the fiscal 2000 periods increased by $524,000
(27%) and $69,000 (6%) over the comparable six- and three-month periods ended
October 31, 1998. As indicated previously, the Company continued to devote
significant resources to develop a line of generic products to be used as the
building blocks for the commercial satellite transponder market as well
developing new products and enhancing existing products for the terrestrial
wireless communications market. The Company anticipates that although research
and development spending will continue at a high level for the remainder of
fiscal 2000, the rate will be less than that incurred in fiscal 1999. Total
research and development spending in fiscal 2000 is expected to be approximately
$4 million. Internally generated cash and cash reserves will be adequate to fund
this development effort.
Net nonoperating income and expense increased by $274,000 (30%) and $48,000
(13%) in the six- and three-month periods ended October 31, 1999 from the
comparable fiscal 1999 periods. Investment income increased by $219,000 (20%)
and $128,000 (29%), respectively, in the fiscal year 2000 periods over the
comparable 1999 periods. This is the result of realized gains on the sale of
certain marketable securities during the first quarter of fiscal 2000 and
reduced investment in tax-free municipal bonds which carry a lower nominal
interest rate. Interest expense decreased by $13,000 (7%) and $7,000 (8%),
respectively, during the fiscal 2000 periods compared to the same periods ended
October 31, 1998 as a result of less long-term debt. Other income (expense),
net, increased by $42,000 in the six-month period
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FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
(Continued)
ended October 31, 1999 and decreased by $87,000 in the three-month period then
ended compared to the same periods of fiscal 1999. This category consists
principally of certain non-recurring transactions. In fiscal 1999, this included
the costs of relocating the Company's operations to new office and production
space. In fiscal 2000, this category included a benefit from the recovery of
certain non-operating debts.
LIQUIDITY AND CAPITAL RESOURCES
The Company's balance sheet continues to reflect a strong working capital
position of $59 million at October 31, 1999 compared to working capital at April
30, 1999, of $60 million. Included in working capital at October 31, 1999 is $39
million of cash, cash equivalents and marketable securities, including $10
million of REIT units which are convertible to Reckson Associates Realty Corp.
common stock.
Net cash provided by operating activities for the six months ended October 31,
1999, was $3.4 million compared to a net cash outflow of $7.2 million in the
comparable fiscal 1999 period. The fiscal 1999 net outflow is the result of the
$8 million litigation settlement. Excluding that payment, cash flows provided by
operating activities would have been $829,000. The principle cause for the
improved cash flow in fiscal 2000 is due to collections on accounts receivable
coupled with operating profits during the period. The Company anticipates that
it will continue to generate positive cash flow from operating activities for
the balance of fiscal year 2000.
Net cash used in investing activities for the six months ended October 31, 1999,
was $1.4 million. This amount was comprised purchases of certain U.S. government
and agency securities aggregating $1.0 million and the acquisition of capital
equipment for approximately $438,000. 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 will
continue to acquire more efficient equipment to automate its production process
and intends to spend approximately $1 million on capital equipment during fiscal
2000. Internally generated cash will be adequate to acquire this capital
equipment.
Net cash used in financing activities for the six months ended October 31, 1999,
was $1.0 million compared to $1.4 million for the comparable fiscal 1999 period.
Included in the fiscal 2000 amount is payment of the Company's semi-annual
dividend in the aggregate amount of $766,000. An additional $349,000 was used to
make regularly scheduled long-term liability payments. These outflows were
partially offset by payments of $99,000 received from certain employees in
connection with stock option exercises and payment against notes receivable for
subscribed common stock.
Backlog
At October 31, 1999, the Company's backlog amounted to approximately $17 million
compared to the approximately $21 million backlog at April 30, 1999. Of this
backlog, approximately 60% is realizable in the next 12 months. The current
backlog is approximately 75% of the backlog at October 31, 1998, which is
indicative of the changing character of the backlog. In previous years, the
backlog of custom-built products could represent 12 to 18 months of production.
As the Company evolves into a more product-oriented manufacturer and seller of
generic wireless communication products, its cycle-time will be significantly
reduced. Consequently, the backlog will be less predictive of future results.
Concurrent with the change in backlog based on booked orders and contractual
agreements, the Company is partnering with its major customers to share
production requirements for rolling 12-month periods. These schedules not only
provide the Company with confidence that its business will continue to grow but
they also enable the Company to operate its production floor in the most
efficient manner.
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FREQUENCY ELECTRONICS, INC. and SUBSIDIARIES
(Continued)
Year 2000 Issue
During the first quarter of fiscal 2000, the Company completed installation of
newly acquired, integrated financial and manufacturing software, the cost of
which did not exceed $500,000. Final implementation and testing of the software
was concluded by the end of the second quarter of fiscal 2000. The purchase of
the financial software satisfactorily addresses the issue of compliance with the
year 2000 problem for financial transactions and reporting purposes.
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 new financial software. The cost of these
computers, included in capital equipment, was approximately $220,000. The
Company also determined that operational, nonfinancial software and hardware was
required to resolve the year 2000 issue in certain production and support areas,
the cost of which did not exceed $50,000.
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.
In the event its financial and manufacturing software fails to perform
appropriately and the Company is unable to prepare appropriately dated invoices,
payments or other documentation, the Company will employ alternative strategies.
This will consist principally of hiring additional clerical personnel to assure
that the Company's records and documentation are properly and accurately
maintained until such time that the software can be upgraded. In the event one
or more of its vendors suffers a "Y2K" failure, the Company will obtain its
component parts from other sources. Since the majority of the important
components used in the Company's products can be obtained from multiple sources,
the Company does not anticipate a problem in purchasing needed parts as a result
of Y2K issues. For those component parts which can be obtained from only a
limited number of sources, the Company will evaluate the need to increase its
on-hand inventory prior to the end of calendar 1999.
"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 other risks as more
fully described in the Company's Annual Report on Form 10K filed with the
Securities and Exchange Commission.
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<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 December 12, 1998,
the U.S. Department of the Air Force notified FEI that its debarment was
terminated, 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, 1999 on
file with the Securities and Exchange Commission.
ITEM 6 - Exhibits and Reports on Form 8-K
(a) Exhibits - None
(b) On October 20, 1999, the Company's report on Form 8-K, containing
disclosure under Item 5 thereof (change in chief executive officer and
declaration of semi-annual dividend), was filed with the Securities and
Exchange Commission.
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<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 15, 1999 BY /s/ Joseph P. Franklin
----------------------
Joseph P. Franklin
Chief Executive Officer
Date: December 15, 1999 BY /s/ Alan Miller
---------------
Alan Miller
Chief Financial Officer
and Treasurer
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<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> APR-30-2000
<PERIOD-START> MAY-01-1999
<PERIOD-END> OCT-31-1999
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