UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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FORM SD

 

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Specialized disclosure report

(Exact name of Registrant as specified in its charter)

 

 

Check the appropriate box to indicate the rule pursuant to which this form is being filed, and provide the period to which the information in this form applies:

ý  Rule 13p-1 under the Securities Exchange Act (17 CFR 240.13p-1) for the reporting period from January 1 to December 31, 2017.

Section 1.   Conflict Minerals Disclosure

(c) Conflict Minerals Report

Frequency Electronics, Inc. (the “Company”) evaluated its current product lines and determined that certain products we manufacture contain tin, tungsten, tantalum and/or gold (3TG) necessary to the production or functionality of the product.

In accordance with Rule 13p-1 under the Securities Exchange Act of 1934, as amended, the instructions to Form SD, and the Public Statement on the Effect of the Recent Court of Appeals Decision on the Conflict Minerals Rule issued by the Director of the Division of Corporation Finance of the Securities and Exchange Commission on April 29, 2014, the Company is filing herewith a Conflict Minerals Report, which is attached as Exhibit 1.01 and incorporated herein by reference.

The Company’s Conflict Minerals Policy and this Form SD, including the Company’s Conflict Minerals Report provided as Exhibit 1.01 hereto, is publicly available at the Company’s website: www.freqelec.com under Investor Relations/Financial/SEC Filings.  The content of our website as referred to in this Form SD is included for general information only and is not incorporated by reference into this Form SD.

Exhibit 1.01 Conflict Minerals Report

Exhibit 1.01 – Conflict Minerals Report as required by Items 1.01 and 1.02 of Form SD.

 

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 duly authorized undersigned.

 

 

Exhibit 1.01

Frequency Electronics, Inc.

Conflict Minerals Report

For the Year Ended December 31, 2017

This Conflict Minerals Report for the year ended December 31, 2017 has been prepared by Frequency Electronics, Inc. (“Frequency” or the “Company,” “we,” “us,” or “our”) and is filed with the Securities and Exchange Commission (“SEC”) pursuant to Rule 13p-1 under the Securities Exchange Act of 1934, as amended (the “Rule”), on a consolidated basis, in accordance with the instructions to Form SD, as modified by the Public Statement on the Effect of the Recent Court of Appeals Decision on the Conflict Minerals Rule issued by the Director of the Division of Corporation Finance of the SEC on April 29, 2014 (the “SEC Statement”).

The Rule was adopted by the SEC to implement reporting and disclosure requirements related to conflict minerals as directed by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act).  The Rule imposes certain reporting obligations on SEC registrants whose manufactured products contain conflict minerals which are necessary to the functionality or production of their products.  Conflict Minerals are defined as cassiterite, columbite-tantalite, gold, wolframite, and their derivatives, which are limited to tin, tantalum, tungsten, and gold (3TGs) for the purposes of this assessment.  These requirements apply to registrants whatever the geographic origin of the conflict minerals and whether or not they fund armed conflict in the Democratic Republic of Congo or an adjoining country (collectively, the “Covered Countries”).

In accordance with the instructions to Form SD, as modified by the SEC Statement, this Report outlines the diligence measures undertaken by the Company to assess the source and chain of custody of necessary Conflict Minerals in its supply chain.  This Report is not subject to an independent private sector audit in accordance with the instructions to Form SD and the guidance set forth in the SEC Statement.

1. Company Overview

Frequency designs, develops and manufactures high precision timing, frequency control and synchronization products for space and terrestrial applications.  Frequency’s products are used in satellite payloads and in other commercial, government and military systems including C4ISR (“Command, Control, Communication, Computer, Intelligence, Security and Reconnaissance”), missiles, aircraft, GPS, secure radios, energy exploration and wireline and wireless communication networks.  Frequency has received over 100 awards of excellence for achievements in providing high performance electronic assemblies for over 150 space and DOD programs.  The Company invests significant resources in research and development and strategic acquisitions world-wide to expand its capabilities and markets.

2. Products Overview

The Company’s largest business area is satellite payloads.  We provide master timing systems, power converters, and frequency generation, synthesis and distribution systems.  We are currently addressing new opportunities for frequency converters, transmitters and receivers,. These products support primary and hosted payloads for both commercial and U.S. government end-use.  Frequency’s products are also incorporated into a variety of C4ISR and, electronic warfare systems, as well as other defense electronics applications for the U.S. government on land, sea and air-borne platforms.

Our commercial markets also include network infrastructure and other industrial uses.  The Company’s products support precise signal synchronization in mobile communication networks to maintain quality of service.  Our products support expanded bandwidth and security in public and enterprise networks.  Frequency provides remote terminal units (“RTU”) for management of networks such as power grids and gas lines as well as specialized timing technology for oil and gas exploration.

Based upon Frequency’s internal assessment, most of the electronic system and subsystem products that we manufacture contain one or more of the 3TGs that are necessary to their functionality or production.

3. Supply Chain Overview and Survey

In order to manage the scope of the required diligence and information gathering, Frequency has relied upon our suppliers to provide information on the origin of the 3TGs contained in components and materials supplied to us, including sources of 3TGs that are supplied to them from sub-tier suppliers.  We integrated a responsible sourcing of minerals requirement through the adoption of our Conflict Minerals Policy and all purchase orders recommend that we source 3TG material in the DRC and covered countries that have been certified to be conflict free.  Our suppliers are expected to provide the 3TG-sourcing information to us in accordance with our Policy and to work with their suppliers to trace the source of the raw materials.  We have also created follow-up processes (including e-mail communication) to identify and escalate any identified issues associated with non-responsive or problematic responses to our supplier survey and chain of custody diligence.  The Policy is posted on our website at: www.freqelec.com under the Vendors & Suppliers link.  The content of our website as referred to in this Report is included for general information only and is not incorporated by reference into this Report.

Frequency has performed a comprehensive analysis of our product components, and the role that suppliers play throughout our manufacturing and product delivery processes.  We defined the scope of our 3TG due diligence by identifying and reaching out to our current suppliers that provide components or engage in manufacturing activities that are likely to contain 3TGs.  We utilized the standard tools provided by the Responsible Minerals Initiative (RMI), including the template developed by RMI, known as the Conflict Minerals Reporting Template (the “CMRT”).  The CMRT has been widely adopted by many companies in their due diligence processes related to 3TGs.  The CMRT was developed to facilitate disclosure and communication of information regarding smelters that provide material to a company’s supply chain.  It includes questions regarding a company’s conflict-free policy, engagement with its direct suppliers, and a listing of the smelters the company and its suppliers use.  In addition, the CMRT contains questions about the origin of conflict minerals included in the products, as well as supplier due diligence.  Written instructions and recorded training illustrating the use of the tool is available on RMI’s, website. 

To determine whether the necessary 3TGs in our products originated in the Covered Countries, we utilized a third-party service provider. For the reporting period ended December 31, 2017, we sent a request for CMRTs to each of our suppliers through our service provider.  Our position in the supply chain is remote; we do not have a direct relationship with 3TG smelters and refiners, nor do we perform direct audits of these entities that provide our supply chain with the 3TG.  However, we do rely upon industry efforts, such as RMI, to influence smelters and refiners to be audited and certified through RMI’s Responsible Minerals Assurance Process (RMAP).

Due to the size, breadth and complexity of our products, and the constant evolution of our supply chain, it is difficult to identify all of the actors upstream from our direct suppliers.  We have identified 233 direct suppliers for our instruments, systems and subsystems that are within the scope of our conflict minerals supply chain.  Of these 233 suppliers, we received 166 responses to our request for information.  We have relied on the responses from these suppliers to provide us with information about the source of 3TGs contained in the components supplied to us.  Our direct suppliers are similarly reliant upon information provided by their suppliers.

For 2017, we expanded our program to include automated data validation on all submitted CMRTs. The goal of data validation is to increase the accuracy of submissions and identify any contradictory answers in the CMRT. This data validation is based on the following six-question framework:

·	Questions 1 and 2 are minimum requirements for the CMRT

o	If suppliers state (via Q1 and Q2) that their products do not contain 3TGs necessary to the function or production of said products, then no further information is required and no further data validation is completed.

·	Question 3 – Do any of your 3TGs originate from the covered countries?

o	Any supplier that has any 3TGs from the covered countries, even 1 positive response from their supply chain must answer yes.

·	Question 4– is 100% of the 3TG in question from a recycled source?

·	Question 5 – Have you received info from all relevant 3TG Suppliers?

o	If you have not answered “100%”, then you cannot make definitive statements for Questions 3, 4 and 6

·	Question 6 – Have you identified all your Smelters and refiners?

o	If the answer here is yes, then question 5 must be yes. This also impacts question 3.

All submitted forms are accepted and classified as valid or invalid so that data is still retained. Suppliers are contacted with regards to invalid forms and are encouraged to submit a valid form. As of April 27, 2018, there were 11 invalid supplier submissions that could not be corrected.

With the help of our service provider, we compared the list of smelters and refiners provided in our suppliers’ responses to the lists of smelters maintained by RMI and, if a supplier indicated that a facility was certified as conflict-free, confirmed that the facility was listed on RMI’s list of validated conflict free smelters and refiners of 3TG.  As of the date of this filing, our suppliers identified a total of 317 smelters and refiners that appear on the lists maintained by RMI. Of these 317 smelters and refiners, 256 are validated as conflict-free by RMI, and, based on information provided by RMI, a further 9 have agreed to undergo or are currently undergoing a third-party audit.

We continued to receive supply chain responses to the CMRT request through April 27, 2018.  Despite having conducted a good faith diligence inquiry, we have been unable to determine the origin of all of the 3TGs used in our instruments, systems and subsystems. This is owing to the fact that most CMRTs received were created on a company-wide or division-wide level.  This does not enable us to identify which smelters or refiners listed by our suppliers actually processed the 3TG contained in our products.

We have learned through this engagement with our suppliers that the breadth and complexity of Frequency’s products and supply chain have made it complicated to obtain the necessary verifications from many of our suppliers on the origin of all of the minerals.  By using our supply chain due diligence processes, driving accountability within the supply chain by leveraging the industry standard RMI/RMAP program, and continuing our outreach efforts, we hope to develop further transparency into our supply chain as our diligence efforts continue in the future.

4.  Design of Our Due Diligence and Description of the Due Diligence Process

As noted above, our due diligence processes and efforts have been developed by utilizing the standard tools provided by RMI, including CMRT.  We designed our due diligence process, management systems and measures to conform in all material respects with the 5-step framework set forth in the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals for Conflict-Affected and High-Risk Areas, including the Supplement on Tin, Tantalum and Tungsten, and the Supplement on Gold (Third Edition 2016) (the “Guidance”), together with additional guidance and information from RMI.

Our conflict minerals due diligence process includes: the development of a Conflict Minerals Policy, establishment of governance structures with cross-functional team members and senior executives, communication and engagement with suppliers, due diligence compliance process and measurement, recordkeeping, and escalation procedures.  As part of our diligence process, we have set forth a documentation and record maintenance mechanism to ensure the retention of relevant documentation in a structured electronic database.

 

We established a management protocol, which included the development of a Conflict Minerals Task Force led by our Executive Vice President, Chief Financial Officer, Director of Purchasing, and a team of leaders from relevant functions such as, purchasing, quality assurance, manufacturing and marketing.  The Task Force, under the leadership of the Director of Purchasing, is responsible for implementing our conflict minerals compliance strategy. Senior management is briefed about the results of our due diligence efforts on a regular basis, including periodic reports to the Audit Committee of the Board of Directors on our due diligence process and compliance obligations.

As we move forward with the continued implementation of our due diligence program, we intend to take the following steps to mitigate any possible risk that the necessary 3TGs in our products could benefit armed groups in the DRC or adjoining countries:

• Enhance supplier communication, training and escalation process to improve due diligence data accuracy and completion.

• Continue to influence additional smelters to obtain conflict-free status through our supply chain, where possible.

Frequency will work with suppliers who are verified as sourcing from non-conflict-free smelters to move towards using conflict-free smelters within a reasonable time frame.  The time frame will be dependent on the criticality of the specific part and the availability of alternative suppliers.

Due Diligence Process

At the outset of our 2017 diligence process, we elected to survey our entire known component and outsourced manufacturing (OEM, ODM, CM) supply chain, which consisted of 233 suppliers who were within the scope of our 3TG supply chain.  Our foreign subsidiaries, Gillam-FEI (Belgium) and FEI-Asia (China) did not participate in the process during previous years, including 2017.  For the 2017 reporting year, Frequency received CMRT forms from 71% of the suppliers surveyed. We have not received sufficient information at this time from our suppliers to confirm with certainty the country of origin or source smelters for the 3TGs in our products.

(a) Efforts to determine country of origin of mine or 3TG

Tracing materials back to their mine of origin is a complex aspect of responsible sourcing in our supply chain.  By adopting methodology outlined by RMI’s joint industry programs and outreach initiatives and requiring that our suppliers conform with the standards set forth in the OECD Guidance and report to us using the CMRT, we are continuing our efforts to determine the smelters and refiners used by our supply chain and verify the most reasonable known mine of origin information available.  Through this industry joint effort, we have made a reasonable determination of certain of the mines or locations of origin of the 3TG in our supply chain.  We have also requested that all of our suppliers support this initiative by adopting policies and procedures consistent with the industry-wide sourcing initiative and working to align their sources with the “Known” and “Conflict Free” lists of sourced minerals.

(b) Smelters or Refiners Identified

In adopting RMI’s industry approach to chain of custody, we have attempted to trace back the origin of 3TGs by identifying smelters, refiners or recyclers and scrap supplier sources.  Using the CMRT and the RMAP program, we sought to trace the mine of origin of the 3TG to its ore level.  The RMAP program audits smelters and refiners to ensure that all certified smelters and refiners only use ores that are conflict-free from the DRC and covered countries.  Our vendors have identified the names of 317 smelters and refiners which provide 3TGs for the parts manufactured by these vendors.  A list of the 55 countries in which these smelters and refiners are located is attached as Appendix A to this Report.  Not all of our vendors have fully responded to our due diligence survey and we will continue to compile the names of additional smelters and refiners identified by those vendors who did respond and are working to verify the information provided.  Certain of our vendors indicated that not all of their smelters and refiners have been certified as conflict-free and we are continuing our diligence to verify this information.

Attached as Appendix B is a list of all of the smelters and refiners listed by our suppliers in their completed CMRTs that appear on the lists of smelters maintained by RMI. Since most of the CMRTs we received from our suppliers were made on a company or division level basis, rather than on a product-level basis, we are not able to identify which smelters or refiners listed on Appendix B actually processed the 3TGs contained in our products. Therefore, our list of processing smelters and refiners disclosed in Appendix B may contain more facilities than those that actually processed the conflict minerals contained in our products.

In accordance with OECD Guidelines, it is important to identify and assess risks associated with conflict minerals in the supply chain. Risks were identified by assessing the due diligence practices of smelters and refiners identified in the supply chain by upstream suppliers that listed mineral processing facilities on their CMRT declarations. Our third-party provider compared these facilities listed in the responses to the list of smelters and refiners maintained by RMI to ensure that the facilities met the RMI definition of a 3TG processing facility that was operational during the 2017 calendar year.

In order to assess the risk that any of these smelters posed to our supply chain, our third-party provider determined if the smelter had been audited against a standard in conformance with the OECD Guidance, such as the RMAP. We do not typically have a direct relationship with 3TG smelters and refiners and do not perform or direct audits of these entities within our supply chain. Smelters that have completed an RMAP audit are considered to be DRC-Conflict Free. In cases where the smelter’s due diligence practices have not been audited against the RMAP standard, a potential supply chain risk exists.

Each facility that meets the RMI definition of a smelter or refiner of a 3TG mineral is assessed according to red flag indicators defined in the OECD Guidance. The smelters and refiners receive an assessment of high-risk, medium-risk or low-risk based on the following 3 scoring criteria:

·	Geographic proximity to the DRC and covered countries;

·	RMAP audit status; and

·	Known or plausible credible evidence of unethical or conflict sourcing.

 

For suppliers that identified high-risk smelters of concern on their CMRT, we created a new escalation plan. These suppliers were contacted by our third-party service provider to evaluate whether or not these smelters could be connected to our products. The suppliers were asked to complete a product-level CMRT, rather than at company-level, to better identify the connection to products that they supply to the Company.

As we continue our due diligence efforts in 2018, we will continue to identify the smelters and refiners used by our vendors and compile a comprehensive list of those which are identified and verified with a source of origin in the Covered Countries.

Due to the size, breadth and complexity of our products and the constant evolution of our supply chain, the process of successfully tracing all of the conflict minerals used in our products back to their country of origin will require additional time and resources.  We are committed to implementing processes to improve the quantity and quality of responses from our supply chain and to verify the accuracy and completeness of the information we receive directly from suppliers or which is otherwise available to us through industry and other initiatives. 

Our ability to make determinations about the presence and source of origin of 3TGs in our products depends upon a number of factors including, but not limited to, (i) the respective due diligence efforts of our tier one suppliers and their supply chain, as well as their willingness to disclose such information to us, and (ii) the ability and willingness of our supply chain to adopt the OECD Guidance and other initiatives or guidance that may develop over time with respect to responsible sourcing.  The failure to obtain reliable information from any level of our supply chain could have a material impact on our ability to provide meaningful information on the presence and origin of 3TGs in our products’ supply chain with any reasonable degree of certainty.  There can be no assurance that our suppliers will continue to cooperate with our diligence inquiries and our requests for certifications or to provide us with the documentation or other evidence that we consider reliable or in a time frame sufficient to allow us to make a reasonable and reliable assessment following appropriate further diligence measures, as may be required.

Frequency Electronics, Inc.

List of countries in which smelters and refineries are located

For the Year Ended December 31,  2017

Our 233 vendors identified an aggregate of 317 smelters and refiners which provide 3TG material to them for the manufacture of their products.  These smelters and refineries are located in 55 countries:

Argentina, Australia, Austria, Benin, Bolivia (Plurinational State of), Brazil,  Burkina Faso, Burundi, Cambodia, Canada, Chile, China, Colombia, Congo, Democratic Republic of the, Ecuador, Eritrea, Ethiopia, France, Germany, Ghana, Guatemala, Guinea, Guyana, Honduras, India, Indonesia, Japan, Kazakhstan, Laos, Madagascar, Malaysia, Mali, Mexico, Mongolia, Mozambique, Myanmar, Namibia, Nicaragua, Nigeria, Panama, Peru, Portugal, Russian Federation, Rwanda, Senegal, Sierra Leone, South Africa, Spain, Thailand, Togo, Uganda, United Kingdom of Great Britain and Northern Ireland, United States of America, Uzbekistan, Viet Nam, Zimbabwe

Frequency Electronics, Inc.

List of smelters and refineries with country and Smelter ID#

For the Year Ended December 31,  2017

The below list reflects information from our suppliers that include smelters from their entire product lines.  Which may or may not be included in our products.