UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549-1004
FORM 11-K
(X) ANNUAL REPORT PURSUANT TO SECTION 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2003
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from-------------------to----------------------
Commission file number 1-8061
FREQUENCY ELECTRONICS, INC. 401(k) SAVINGS PLAN
(Full title of the plan)
Frequency Electronics, Inc.
55 Charles Lindbergh Blvd., Mitchel Field, NY 11553
(Name of issuer of the securities held pursuant to
the plan and the address of its principal
executive offices)
Registrant's telephone number, including area code (516) 794-4500
Notices and communications from the Securities and Exchange
Commission relative to this report should be forwarded to:
Alan Miller
Chief Financial Officer
Frequency Electronics, Inc.
55 Charles Lindbergh Blvd.
Mitchel Field, NY 11553
FREQUENCY ELECTRONICS, INC.
401(k) SAVINGS PLAN
YEAR ENDED DECEMBER 31, 2003
CONTENTS
Page
a) FINANCIAL STATEMENTS:
Report of Independent Registered Public Accounting Firm 3
Statements of Net Assets Available for Benefits 4
Statement of Changes in Net Assets Available for Benefits 5
Notes to Financial Statements 6 - 9
SUPPLEMENTAL SCHEDULE:
Schedule of Assets (Held at Year End) 10
b) EXHIBITS:
Exhibit 23.1 Consent of Independent Registered Public
Accounting Firm 11
Exhibit 99.1 Certification of Chief Executive Officer and
Chief Financial Officer 12
Exhibit 99.2 Certification by a Trustee of the Plan 13
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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
By: /s/ Alan L. Miller
----------------------
Alan L. Miller
Chief Financial Officer
and Controller
Dated: July 13, 2004
The Plan. Pursuant to the requirements of the Securities Exchange Act of 1934,
the trustees have duly caused this annual report to be signed on its behalf by
the undersigned hereunto duly authorized.
Frequency Electronics, Inc. 401(k) Savings Plan
(Name of Plan)
Date: July 13, 2004 By:
/s/Robert Klomp
------------------------------------
Robert Klomp, Trustee
/s/Markus Hechler
------------------------------------
Markus Hechler, Trustee
/s/Marvin Meirs
------------------------------------
Marvin Meirs, Trustee
Report of Independent Registered Public Accounting Firm
To the Trustees of
Frequency Electronics, Inc.
401(k) Savings Plan
We have audited the accompanying statements of net assets available for benefits
of Frequency Electronics, Inc. 401(k) Savings Plan (the "Plan") as of December
31, 2003 and 2002, and the related statement of changes in net assets available
for benefits for the year ended December 31, 2003. These financial statements
are the responsibility of the Plan's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above, present fairly, in
all material respects, the net assets available for benefits of the Plan as of
December 31, 2003 and 2002 and the changes in net assets available for benefits
for the year ended December 31, 2003 in conformity with accounting principles
generally accepted in the United States of America.
Our audits were performed for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedule of assets (held
at end of year) at December 31, 2003 is presented for the purpose of additional
analysis and is not a required part of the basic financial statements but is
supplementary information required by the Department of Labor's Rules and
Regulations for Reporting and Disclosure under the Employee Retirement Income
Security Act of 1974. This supplemental schedule is the responsibility of the
Plan's management. The supplemental schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
/S/Holtz Rubenstein & Co., LLP
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Holtz Rubenstein & Co., LLP
June 30, 2004
Melville, New York
-4-
FREQUENCY ELECTRONICS, INC.
401(k) SAVINGS PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
December 31,
2003 2002
---- ----
ASSETS:
Cash and Cash Equivalents $ 48,153 $ 39,937
Investments 9,135,044 6,606,642
Loans Receivable from Participants 322,332 209,779
Contribution Receivable - Employer 86,386 81,689
Contribution Receivable - Participants - 13,922
----------- ------------
Net Assets Available for Benefits $ 9,591,915 $ 6,951,969
=========== ============
The accompanying notes are an integral part of these financial statements.
-5-
FREQUENCY ELECTRONICS, INC.
401(k) SAVINGS PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
YEAR ENDED DECEMBER 31, 2003
ADDITIONS:
Additions to net assets attributed:
Investment Income:
Net appreciation in fair value of investments $ 1,396,161
Interest 51,352
Dividends 178,233
-----------
1,625,746
Contributions:
Participant contributions 675,186
Rollover contributions 628,484
Employer contributions 360,409
-----------
1,664,079
Total Additions 3,289,825
-----------
DEDUCTIONS:
Deductions from net assets attributed to:
Benefits paid to participants 649,879
-----------
NET INCREASE 2,639,946
NET ASSETS AVAILABLE FOR BENEFITS, beginning of year 6,951,969
-----------
NET ASSETS AVAILABLE FOR BENEFITS, end of year $ 9,591,915
===========
The accompanying notes are an integral part of these financial statements.
-6-
FREQUENCY ELECTRONICS, INC.
401(k) SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2003
1. Plan Description
The following description of the Frequency Electronics, Inc. (the
"Company") 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 amendments - Effective January 1, 2003, the Plan was amended and
restated in order to comply with all currently applicable laws and
regulations. The amendment and restatement had no effect on benefits or net
assets.
Effective May 9, 2003, employees of FEI-ZYFER, Inc., which was acquired by
the Company, became eligible to participate on that date without regard to
the service requirement. Included in rollover contributions during the year
ended December 31, 2003 were assets totaling approximately $625,000
representing the account balances of participants who previously
participated in a qualified retirement plan sponsored by FEI-ZYFER, Inc.
Effective August 1, 2003, the Plan changed its custodian and recordkeeper
from MFS Retirement Services, Inc. ("MFS") to Metropolitan Life Insurance
Company ("Met Life"). The Plan also changed investment options to accounts
offered by Met Life. The Company and Reliance Trust Company hold 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, 2003,
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 their own 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.
-7-
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 11 percent. Principal and interest are paid ratably through payroll
deductions.
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, 2003, forfeited non-vested accounts,
and earnings thereon, totaled approximately $29,800. 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.
Plan expenses - Expenses associated with administering the Plan are paid by
the Company.
2. Summary of Significant Accounting Polices
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 with an insurance company, which is
valued at contract value, which approximates fair 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
American Stock Exchange on the last business day of the year. Common stock
approximated $1,780,000 (19%) and $988,000 (14%) of investments at December
31, 2003 and 2002, respectively.
-8-
Information about the significant components of the change in net assets
related to the nonparticipant-directed investment during the year ended
December 31, 2003 is as follows:
Balance, January 1, 2003 $ 988,399
Employer Contributions 355,712
Net Appreciation in Fair Value of Investments 494,919
Investment Income 21,706
Distributions (80,765)
-----------
Balance, December 31, 2003 1,779,971
===========
Payment of benefits - Benefits are recorded when paid.
3. Investments
The following presents investments that represent 5 percent or more of the
Plan's net assets at December 31, 2003:
Met Life Stable Value Option - Premier Pooled
Guaranteed Investment Contract (GIC) NAV Product;
257,849 shares $ 2,670,754
Federated Capital Appreciation Fund; 81,704 shares 1,950,281
Calvert Income Fund; 33,365 shares 569,203
American Funds - Growth Fund of America; 35,248 shares 864,974
Frequency Electronics, Inc. Common Stock; 122,757 shares 1,779,971
The following presents investments that represent 5 percent or more of the
Plan's net assets at December 31, 2002:
MFS Emerging Growth Fund; 19,199 shares $ 411,838
MFS Massachusetts Investors Trust; 86,575 shares 1,114,231
MFS High Income Fund; 122,012 shares 427,043
MFS Capital Opportunities Fund; 57,744 shares 539,337
MFS Fixed Fund; 2,318,512 shares 2,318,512
Frequency Electronics, Inc. Common Stock; 96,595 shares 988,399
4. Investment Contract with Insurance Company
The Plan has entered into a benefit-responsive investment contract with
Metropolitan Life Insurance Company ("Met Life") referred to as the Met
Life Stable Value Option. Met Life maintains the contributions in a pooled
account. The account is credited with earnings on the underlying
investments and charged for participant withdrawals and administrative
expenses. The contract is included in the financial statements at contract
value as reported to the Plan by Met Life. Contract value represents
contributions made under the contract, plus earnings, less participant
withdrawals and administrative expenses. Participants may ordinarily direct
the withdrawal or transfer of all or a portion of their investment at
contract value.
There are no reserves against contract value for credit risk of the
contract issuer or otherwise. The average yield and crediting interest rate
was approximately 3.25% for the period August 1, 2003 to December 31, 2003.
The crediting interest rate is based on an agreed-upon formula with the
issuer, but cannot be less than zero. The interest rate is reviewed on a
quarterly basis for resetting. The crediting interest rate at December 31,
2003 was 3.25%.
5. Tax Status
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").
6. Plan Termination
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.
-9-
7. Parties in Interest/Related Party Transactions
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 American Stock Exchange on the last business day of the year.
Investment in Frequency Electronics, Inc. common stock is permitted under
the provisions of the Plan.
The Plan has entered into a benefit-responsive investment contract with
Metropolitan Life Insurance Company ("Met Life"). Met Life is the custodian
as defined by the Plan and, therefore, these transactions qualify as
party-in-interest transactions. Such transactions are permitted under the
provisions of the Plan.
During the year ended December 31, 2003, the three trustees were also
members of the Plan.
8. Cash Dividend
During calendar year 2003, the Board of Directors of Frequency Electronics,
Inc. declared a cash dividend of $.10 (ten cents) per share payable June 1
and December 1. This dividend aggregated approximately $21,700 in 2003.
9. Risks and Uncertainties
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.
-10-
FREQUENCY ELECTRONICS, INC.
401(k) SAVINGS PLAN
SCHEDULE H, LINE 4i - PN 003; EIN-1986657; FORM 5500 SCHEDULE OF
ASSETS (HELD AT END OF YEAR)
DECEMBER 31, 2003
(a) (b) (c) (d) (e)
Identity of issuer, borrower, lessor, Current
or similar party Description of investment Cost Value
- ------- --------------------------------------- -- --------------------------------------------- -- ------------- ------------
* Met Life Stable Value Option - Guaranteed interest account with a
Premier Pooled GIC NAV Product crediting interest rate of 3.25% as of
December 31, 2003. $ 2,670,754 $ 2,670,754
Blackrock Index Equity Fund Interest in registered investment company. 80,952 89,233
American Funds - American Balanced Interest in registered investment company. 306,386 336,210
Fund
Federated Capital Appreciation Fund Interest in registered investment company. 1,735,502 1,950,281
Calvert Income Fund Interest in registered investment company. 568,578 569,203
Lord Abbett Small Cap Value Fund Interest in registered investment company. 341,716 384,423
JPMorgan Mid Cap Value Fund Interest in registered investment company. 38,055 41,503
Alger Mid Cap Growth Fund Interest in registered investment company. 107,898 120,334
American Funds - Growth Fund of Interest in registered investment company. 759,584 864,974
America Fund
Oppenheimer Global Fund Interest in registered investment company. 149,027 179,544
Oppenheimer Developing Markets Fund Interest in registered investment company. 69,738 77,984
Blackrock Government Income Fund Interest in registered investment company. 44,200 43,956
MFS Strategic Value Fund Interest in registered investment company. 24,510 26,674
* Frequency Electronics, Inc. Common Common stock of Frequency Electronics, Inc
Stock Par value $1.00. 1,406,808 1,779,971
* Participant loans Loans to plan participants. Various
maturity dates through June 2031 with
interest at prevailing commercial rates
(4.0% - 11.0%) and secured by the
participants vested account balance. - 322,332
* Denotes party in interest.
-11-
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statement No.
333-40506 on Form S-8 pertaining to the Frequency Electronics, Inc. 401(k)
Savings Plan of our report dated June 30, 2004 with respect to the financial
statements and supplemental schedule of the Frequency Electronics, Inc. 401(k)
Savings Plan included in this Annual Report on Form 11-K for the year ended
December 31, 2003.
/s/HOLTZ RUBENSTEIN & CO., LLP
------------------------------
HOLTZ RUBENSTEIN & CO., LLP
Melville, New York
July 13, 2004
-12-
Exhibit 99.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
OF FREQUENCY ELECTRONICS, INC.
Each of the undersigned hereby certifies, for the purposes of Section 1350 of
Chapter 63 of Title 18 of the United States Code, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, in his capacity as an officer of
Frequency Electronics, Inc. that, to his knowledge, the Annual Report for the
Frequency Electronics, Inc. 401(k) Savings Plan on Form 11-K for the year ended
December 31, 2003 fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934 and that the information contained in
such report fairly presents, in all material respects, the net assets available
for benefits and changes in net assets available for benefits of the Plan. This
written statement is being furnished to the Securities and Exchange Commission
as an exhibit to such Form 11-K.
Date: July 13, 2004
By: /s/Martin Bloch
- -------------------
Martin Bloch
Chief Executive Officer
Date: July 13, 2004
By: /s/Alan Miller
- ------------------
Alan Miller
Chief Financial Officer
-13-
Exhibit 99.2
CERTIFICATION BY A TRUSTEE OF THE FREQUENCY ELECTRONICS,
INC. 401(k) SAVINGS PLAN PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT
The Certification below is being submitted to the Securities and Exchange
Commission solely for the purpose of complying with Section 1350 of Chapter 63
of Title 18 of the United States Code.
In my capacity as a trustee of the Frequency Electronics, Inc. 401(k) Savings
Plan, I hereby certify that, to the best of my knowledge, Frequency Electronics,
Inc. 401(k) Savings Plan's annual report on Form 11-K for the fiscal year ended
December 31, 2003 as filed with the Securities and Exchange Commission on the
date hereof fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934 and the information contained in such annual
report fairly presents, in all material respects, the financial condition and
results of operations of the Frequency Electronics, Inc. 401(k) Savings Plan.
/s/ Robert Klomp
- ----------------
Robert Klomp
Trustee, Frequency Electronics, Inc.
401(k) Savings Plan
Dated: July 13, 2004