UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the quarterly period ended April 30, 1995
Commission File Number 0-5411
HERLEY INDUSTRIES, INC.
-----------------------------------------------------
(Exact Name of Registrant as specified in its Charter)
DELAWARE #23-2413500
- -------------------------------- ------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
10 Industry Drive, Lancaster, Pennsylvania 17603
- ------------------------------------------- ---------------
(Address of Principal Executive Offices) (Zip Code)
(717) 397-2777
----------------------------------------------------
(Registrant's Telephone Number, including Area Code)
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.
[X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
June 9, 1995 3,123,458
- --------------------------- -------------------
(Date) (Number of Shares)
<PAGE> 2
HERLEY INDUSTRIES, INC
AND SUBSIDIARIES
INDEX TO FORM 10-Q
--------------------------
For the Quarter Ended April 30, 1995
PART I - FINANCIAL INFORMATION PAGE
Item 1 - Financial Statements:
Consolidated Balance Sheets -
April 30, 1995 and July 31, 1994 3-4
Consolidated Statements of Operations -
For the thirteen and thirty-nine weeks ended
April 30, 1995 and May 1, 1994 5-6
Consolidated Statements of Cash Flows -
For the thirty-nine weeks ended
April 30, 1995 and May 1, 1994 7-8
Notes to Consolidated Financial Statements 9
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 13
PART II - OTHER INFORMATION 16
Signatures 19
Computation of per share earnings 20
<PAGE> 3
HERLEY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
April 30, 1995 July 31, 1994
(Unaudited) (Audited)
----------- ---------
ASSETS
Current Assets:
Cash and cash equivalents $ 362,020 $ 539,729
Accounts receivable 3,687,402 4,940,304
Other receivables 165,689 300,037
Inventories 8,049,506 9,938,190
Prepaid expenses and other 301,400 252,666
---------- ----------
Total Current Assets 12,566,017 15,970,926
Property, Plant and Equipment, net 14,171,963 15,542,245
Intangibles, net of amortization 4,920,361 5,124,436
Available-for-sale Securities 5,185,350 11,895,084
Other Investments 3,727,506 3,727,506
Note Receivable - 1,000,000
Deferred Income Taxes 1,172,422 860,211
Other Assets 468,287 492,257
---------- ----------
$ 42,211,906 $ 54,612,665
========== ==========
The accompanying notes are an integral part of these financial
statements.
<PAGE> 4
HERLEY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
April 30, 1995 July 31, 1994
(Unaudited) (Audited)
----------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 307,231 $ 552,311
Accounts payable and accrued expenses 7,201,512 6,489,039
Reserve for contract losses 264,000 500,000
Advance payments on contracts 1,145,555 2,513,705
Income taxes payable 37,678 162,543
---------- ----------
Total Current Liabilities 8,955,976 10,217,598
Long-term Debt 11,247,867 14,822,834
Deferred Income Taxes 1,493,943 1,291,095
---------- ----------
21,697,786 26,331,527
---------- ----------
Commitments and Contingencies
Shareholders' Equity:
Common stock, $.10 par value; authorized
10,000,000 shares; issued 3,615,815 at
April 30, 1995 and 4,278,189 at
July 31 1994. 361,582 427,819
Additional paid-in capital 15,301,806 17,989,374
Retained earnings 5,454,471 10,510,682
---------- ----------
21,117,859 28,927,875
Less (add):
Unrealized (gain) loss on available-
for-sale securities (24,946) 201,117
Treasury stock at cost 628,685 445,620
---------- ----------
Total Shareholders' Equity 20,514,120 28,281,138
---------- ----------
$ 42,211,906 $ 54,612,665
========== ==========
The accompanying notes are an integral part of these financial statements.
<PAGE> 5
HERLEY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Thirteen weeks ended
--------------------
April 30, 1995 May 1, 1994
-------------- -----------
Net sales $ 6,439,622 $ 7,108,987
---------- ----------
Cost and expenses:
Cost of products sold 4,817,881 4,852,940
Selling and administrative expenses 1,331,650 1,862,059
Unusual items 4,870,800 745,663
---------- ----------
11,020,331 7,460,662
---------- ----------
Operating (loss) (4,580,709) (351,675)
---------- ----------
Other income (expense):
Gain on sale of marketable
securities 62,430 734,211
Dividend and interest income 56,767 188,497
Other income - 690
Interest expense (220,226) (323,329)
---------- ----------
(101,029) 600,069
---------- ----------
Income (loss) before income taxes (4,681,738) 248,394
Income tax provision (benefit) 77,000 84,000
---------- ----------
Net income (loss) $(4,758,738) $ 164,394
========== ==========
Earnings (loss) per common and common
equivalent share $(1.33) $ 0.04
===== =====
Weighted average number of common and
common equivalent shares outstanding 3,565,234 4,284,733
========= =========
The accompanying notes are an integral part of these financial statements.
<PAGE> 6
HERLEY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Thirty-nine weeks ended
-----------------------
April 30, 1995 May 1, 1994
-------------- -----------
Net sales $ 18,243,592 $ 22,550,872
---------- ----------
Cost and expenses:
Cost of products sold 13,785,211 14,752,586
Selling and administrative expenses 3,540,740 5,761,246
Unusual items 5,447,005 745,663
---------- ----------
22,772,956 21,259,495
---------- ----------
Operating income (loss) (4,529,364) 1,291,377
---------- ----------
Other income (expense):
Gain (loss) on sale of marketable
securities (467,296) 850,302
Dividend and interest income 525,101 603,748
Other income - 140,331
Interest expense (743,652) (949,587)
---------- ----------
(685,847) 644,794
---------- ----------
Income (loss) before income taxes (5,215,211) 1,936,171
Income tax provision (benefit) (159,000) 488,000
---------- ----------
Net income (loss) $ (5,056,211) $ 1,448,171
========== ===========
Earnings (loss) per common and common
equivalent share $(1.29) $ 0.34
===== =====
Weighted average number of common and
common equivalent shares outstanding 3,905,161 4,319,875
========= =========
The accompanying notes are an integral part of these financial statements.
<PAGE> 7
HERLEY INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Thirty-nine weeks ended
-----------------------
April 30, 1995 May 1, 1994
-------------- -----------
Cash flows from operating activities:
Net income (loss) $(5,056,211) $ 1,448,171
---------- ---------
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 1,576,583 1,564,579
(Gain) loss on sale of marketable
securities 539,017 (849,762)
Decrease (increase) in deferred tax assets (323,811) (365,175)
Increase (decrease) in deferred
tax liabilities 202,848 491,939
Common stock issued as compensation - 6,625
Recovery of unrealized loss on securities 226,063 -
Litigation settlement 5,447,005 -
Changes in operating assets and
liabilities:
Decrease (increase) in accounts
receivable 1,252,902 (1,725,689)
Decrease (increase) in other receivables 134,348 (44,091)
Decrease (increase) in inventories 1,888,684 (64,598)
Decrease (increase) in prepaid expenses (37,134) 940,129
(Decrease) in accounts payable and
accrued expenses (2,494,639) (1,398,032)
(Decrease)in reserve for contract losses (236,000) (1,306,159)
(Decrease) in advance payments on
contracts (1,368,150) (451,669)
Increase (decrease) in income taxes
payable (124,865) 38,874
Other, net (585) (112,805)
--------- ---------
Total adjustments 6,682,266 (3,275,834)
--------- ---------
Net cash provided by (used in)
operating activities $ 1,626,055 $(1,827,663)
--------- ---------
The accompanying notes are an integral part of these financial statements.
<PAGE> 8
HERLEY INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(CONTINUED)
Thirty-nine weeks ended
-----------------------
April 30, 1995 May 1, 1994
-------------- -----------
Cash flows from investing activities:
Purchase of available-for-sale
securities $(21,194,485) $(21,005,041)
Proceeds from sale of available-for-sale
securities 27,365,202 20,680,315
Capital expenditures (114,751) (409,459)
---------- ----------
Net cash provided by (used in)
investing activities 6,055,966 (734,185)
---------- ----------
Cash flows from financing activities:
Borrowing under bank line of credit 1,818,102 4,165,361
Proceeds from exercise of stock options - 92,820
Payments under lines of credit (7,638,149) (1,631,252)
Purchase of treasury stock (2,039,683) -
---------- ----------
Net cash provided by (used in)
financing activities (7,859,730) 2,626,929
--------- ----------
Net increase (decrease) in cash
and cash equivalents (177,709) 65,081
Cash and cash equivalents at beginning
of period 539,729 595,715
--------- ----------
Cash and cash equivalents at end
of period $ 362,020 $ 660,796
========== ==========
The accompanying notes are an integral part of these financial statements.
<PAGE> 9
Herley Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements - (Unaudited)
- --------------------------------------------------------
Note 1.
The consolidated financial statements include the accounts of Herley
Industries, Inc. and its subsidiaries, all of which are wholly-owned. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
In the opinion of the Company, the accompanying consolidated financial
statements reflect all adjustments (which include only normal recurring
adjustments) necessary to present fairly the results of operations and cash
flows for the periods presented. These financial statements (except for the
balance sheet presented at July 31, 1994) are unaudited and have not been
reported on by independent public accountants.
Results of operations for interim periods are not necessarily indicative
of the results of operations for a full year due to external factors which
are beyond the control of the Company.
Note 2.
Inventories at April 30, 1995 and July 31, 1994 are summarized as
follows:
April 30, 1995 July 31, 1994
-------------- --------------
Purchased parts and raw materials $ 4,367,217 $ 5,412,767
Work in process 3,563,110 4,324,393
Finished products 119,179 201,030
---------- ----------
$ 8,049,506 $ 9,938,190
========== ==========
Note 3.
In May 1993 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115, "Accounting for certain Investments
in Debt and Equity Securities." The Company adopted the provisions of the
new standard for investments held as of or acquired after August 1, 1994.
Adoption of this statement did not have a material effect on the financial
statements of the Company.
Management determines the appropriate classification of debt securities
at the time of purchase and reevaluates such designation as of each balance
sheet date. Debt securities are classified as held-to-maturity when the
Company has the positive intent and ability to hold the securities to
maturity. Marketable equity securities and debt securities not classified
<PAGE> 10
as held-to-maturity are classified as available-for-sale. Available-for-sale
securities are carried at fair value, with the unrealized gains and losses,
net of tax, reported as a separate component of shareholders' equity.
Realized gains and losses and declines in value judged to be other-than-
temporary are included in other income (expense). The cost of securities
sold is based on the specific identification method. Interest and dividends
on securities are included in other income (expense).
The following is a summary of available-for-sale securities:
Available-for-Sale Securities
------------------------------------------------
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ------------
April 30, 1995
--------------
Government bonds $ 4,870,578 $ 67,288 $ 25,712 $ 4,912,154
Other 269,104 - - 269,104
---------- ------ ------- ----------
Total debt
securities 5,139,682 67,288 25,712 5,181,258
Equity securities 4,092 - - 4,092
---------- ------ ------- ----------
$ 5,143,774 $ 67,288 $ 25,712 $ 5,185,350
========== ====== ======= ==========
July 31, 1994
-------------
Government bonds $ 6,086,532 $ 20,384 $ 68,528 $ 6,038,388
Municipal bonds 4,646,008 - 247,943 4,398,065
Other 1,327,978 - - 1,327,978
---------- ------ ------- ----------
Total debt
securities 12,060,518 20,384 316,471 11,764,431
Equity securities 107,404 23,249 - 130,653
---------- ------ ------- ----------
$ 12,167,922 $ 43,633 $ 316,471 $ 11,895,084
========== ====== ======= ==========
In December 1994, the Company decided to liquidate $6,000,000 of its
long-term investments and used the proceeds to pay down a portion of its
long-term bank debt. During the quarter ended April 30, 1995, the Company
liquidated $685,000 of its long-term investments using the proceeds for the
purchase of treasury stock.
Note 4.
The Company has a revolving credit facility with a bank, secured by its
portfolio of marketable securities, that provides for the extension of credit
in the aggregate principal amount of $12,000,000. The facility
<PAGE> 11
requires the payment of interest only on a monthly basis and payment of the
outstanding principal balance on January 31, 1997. Interest is set daily at
1% over the bank s earliest daily rate quoted for Federal Funds applied to
outstanding balances up to 80% of the net equity value of certain investments
and at the bank's National Commercial Rate for outstanding balances in excess
of this limit. In addition, the agreement provides for a fee of 1/8 of 1% of
the unused availability under the facility payable quarterly. Borrowings of
$5,415,000 were outstanding at April 30, 1995. Interest at the Federal Funds
rate (5.9375% at April 30, 1995) plus 1% was applied to $4,424,000 of the
outstanding balance, and at the National Commercial Rate of 9.0% on the
excess.
The agreement contains various financial covenants, including, among
other matters, the maintenance of working capital, tangible net worth and
restrictions on cash dividends.
The Company also maintains a letter of credit facility with this bank
that provides for the issuance of stand-by letters of credit in the aggregate
of $2,000,000. The facility requires the payment of a fee of 1.25% per annum
of the amounts outstanding under the facility. The facility expires January,
1996. At April 30, 1995 stand-by letters of credit aggregating $542,611 were
outstanding under this facility.
Note 5.
Under the terms of an agreement in 1993 to acquire Carlton Industries,
Inc. and its wholly owned subsidiary Vega Precision Laboratories, Inc.,
certain selling stockholders exercised their option to sell back to the
Company a total of 331,402 (309,074 in December 1994, and 22,328 in March
1995) shares of common stock of the Company at a price of $5.00 per share.
Of the proceeds, $1,000,000 was used to pay back the note receivable from the
selling stockholders which was secured by the pledge of 200,000 of the shares
of common stock sold back to the Company.
Note 6.
During the third quarter of fiscal 1995, the Company settled an action
brought by Litton Systems, Inc. Electron Devices Division in April, 1992.
The settlement provides for the payment of $2,000,000 in July, 1995 and
$2,000,000 in July, 1996, and the entry of an injunction precluding the use
by the Company of the alleged misappropriated drawings in connection with the
manufacture of beacon magnetrons.
In May, 1995, the Company negotiated a tentative settlement of all
claims in connection with two Class Action Complaints filed in May and June,
1994 against the Company and certain of its officers and directors. The
settlement, which is subject to the negotiation and execution of a
satisfactory Settlement Agreement and Court approval provides for the payment
of $450,000, including legal fees, which is partially covered by insurance.
<PAGE> 12
The Consolidated Statements of Operations for the third quarter fiscal
1995 includes an unusual charge of $5,447,005 for settlement costs, legal
fees, and related expenses in connection with these matters.
In May, 1995, the Company was served with a Class Action Complaint
against the Company and its Chief Executive Officer in the United States
District Court for the Eastern District of Pennsylvania. The claim was made
under Section 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule
10 (b)-5 thereunder. The claim relates to the Company's settlement of the
Litton Action in the Essex Superior Court of Massachusetts and alleges, inter
alia, that there was insufficient disclosure by the Company of its true
potential exposure in that claim. The Company believes it has a meritorious
defense and intends to vigorously defend against the action.
During the third quarter of fiscal 1994, the Company incurred unusual
charges of $745,663 in connection with warranty claims for products shipped
by Vega Precision Laboratories, Inc. prior to the acquisition of Vega by the
Company.
Note 7.
Supplemental cash flow information is as follows:
April 30, 1995 May 1, 1994
-------------- -----------
Cash paid during the period for:
Interest $ 696,114 $ 721,202
Income Taxes 121,809 69,699
======= =======
<PAGE> 13
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations
LIQUIDITY AND CAPITAL RESOURCES
As of April 30, 1995 and July 31, 1994, working capital was
approximately $3,610,000 and $5,753,000, respectively, and the ratio of
current assets to current liabilities was 1.40 to 1 and 1.56 to 1,
respectively.
As is customary in the defense industry, inventory is partially financed
by progress payments. The unliquidated balance of these advanced payments
was approximately $1,146,000 on April 30, 1995, a decrease of $1,368,000 from
July 31, 1994. As receivables are collected from shipments on contracts
subject to progress payments, these advanced payments are liquidated. The
reduction in accounts receivable of approximately $1,253,000 is consistent
with the decline in sales volume.
Net cash provided by investing activities results from the Company's
decision to liquidate approximately $6,685,000 of its long-term investments,
net of the reinvestment of earnings on its portfolio, and the investment in
capital equipment. The proceeds from the sale of investments were used to
reduce long-term bank debt and the purchase of treasury stock.
The Company maintains a revolving credit facility with a bank, secured
by certain marketable securities, for an aggregate of $12,000,000 which
expires January, 1997. As of April 30, 1995 and July 31, 1994, the Company
had borrowings outstanding of $5,415,000 and $11,000,000 respectively. Net
cash used in financing activities during the quarter is principally
attributable to net payments of the credit facility, and the purchase of
treasury stock.
At April 30, 1995, the Company owned high grade investment securities
having a market value of approximately $5,200,000, and cash and cash
equivalents of approximately $362,000.
The Company believes that presently anticipated future cash requirements
will be provided by internally generated funds and existing credit
facilities. The Company intends to borrow $2,000,000 under its credit
facility to pay the initial installment of the legal settlement costs in
July, 1995. (See Part II, Item 1 - "Legal Proceedings").
RESULTS OF OPERATIONS
Thirteen weeks ended April 30, 1995 and May 1, 1994
- ---------------------------------------------------
Net sales for the thirteen weeks ended April 30, 1995 decreased by
approximately $669,000 or 9% from the comparable period of the prior year due
to decreases in flight instrumentation products of approximately $450,000 and
decreases in microwave components of approximately $219,000.
<PAGE> 14
Cost of products sold for the thirteen weeks ended April 30, 1995
increased as a percentage of net sales from 68% in 1994 to 75% in 1995. This
increase is attributable to a reduction in higher margin foreign sales of
approximately $441,000, and a decrease in absorption of fixed costs due to
the lower sales volume.
Selling and administrative expenses for the thirteen weeks ended April
30, 1995 decreased approximately $530,000 from the comparable period of the
prior year, of which $465,000 is attributable to decreased representative
fees on foreign sales, and the transfer of $253,000 of legal fees to the
unusual item, offset by an increase of $62,000 in employee medical benefits,
a provision of $100,000 for customer disputed charges, and $26,000 in other
expenses.
Included in unusual items in 1995 are settlement costs in connection
with certain legal actions of $4,310,000, legal fees of $253,000, and related
expenses of $308,000. (See Part II, Item 1 - "Legal Proceedings").
The unusual item in 1994 consists of charges of $745,663 in connection
with warranty claims for products shipped by Vega Precision Laboratories,
Inc. prior to the acquisition of Vega by the Company.
Other income (expense) for the thirteen weeks ended April 30, 1995
decreased $701,000 from the comparable prior year period due to a decrease in
gains on the sale of certain long-term investments of $672,000 as compared to
1994, and a decrease in dividend and interest income of $132,000, offset by
a decrease in interest expense of $103,000.
Thirty-nine weeks ended April 30, 1995 and May 1, 1994
- ------------------------------------------------------
Net sales for the thirty-nine weeks ended April 30, 1995 decreased by
approximately $4,307,000 or 19% from the comparable period of the prior year
due to decreases in flight instrumentation products of approximately
$2,973,000 and decreases in microwave components of approximately $1,334,000.
Cost of products sold for the thirty-nine weeks ended April 30, 1995
increased as a percentage of net sales from 65% in 1994 to 76% in 1995. This
increase is attributable to a reduction in higher margin foreign sales of
approximately $3,803,000, and a decrease in absorption of fixed costs due to
the significantly lower sales volume.
Selling and administrative expenses for the thirty-nine weeks ended
April 30, 1995 decreased approximately $2,220,000 from the comparable period
of the prior year, of which $1,447,000 is attributable to decreased
representative fees on foreign sales, $384,000 to a reduction in personnel
and related expenses, the transfer of $829,000 of legal fees to the unusual
item, which includes an increase in such fees of $354,000 over 1994 (See Part
II, Item 1 - "Legal Proceedings"), and $14,000 in other expenses; offset by
a provision of $100,000 for customer disputed charges.
<PAGE> 15
Included in unusual items in 1995 are settlement costs in connection
with certain legal actions of $4,310,000, legal fees of $829,000, and related
expenses of $308,000. (See Part II, Item 1 - "Legal Proceedings").
The unusual item in 1994 consists of charges of $745,663 in connection
with warranty claims for products shipped by Vega Precision Laboratories,
Inc. prior to the acquisition of Vega by the Company.
Other income (expense) for the thirty-nine weeks ended April 30, 1995
decreased $1,331,000 from the comparable prior year period due to losses on
the sales of certain long-term investments of $467,000 as compared to a gain
of $850,000 in 1994, decreased dividend and interest income of $79,000, and
a decrease of $140,000 in other income (primarily rental income in 1994);
offset by a decrease in interest expense of $206,000.
<PAGE> 16
PART II - OTHER INFORMATION
- ---------------------------
ITEM 1 - LEGAL PROCEEDINGS:
In April 1992, Litton Systems, Inc. Electron Devices Division ("Litton")
commenced an action in the Essex Superior Court of Massachusetts against the
Company ("the Litton Action") alleging, among other claims for relief, theft
of trade secrets, unfair trade practices and related common law claims in
connection with the defendants alleged misappropriation of Litton s beacon
magnetron drawings. After trial, the jury rendered a verdict on liability
against the Company and the other defendants. Prior to a separate,
subsequent trial to determine damages, the Company settled the action for the
sum of $4,000,000, and agreed to the entry of an injunction precluding the
use by the Company of the alleged misappropriated drawings in connection with
the manufacture of beacon magnetrons.
In May and June, 1994, the Company was served respectively, with two
Class Action Complaints against the Company and certain of its officers and
directors in the United States District Court for the Eastern District of
Pennsylvania. The claims were made under Section 10(b) and 20(a) of the
Securities Exchange Act of 1934 and Rule 10 (b)-5 thereunder. Another claim
was based upon alleged negligence. The claims related to the Company's
acquisition of Carlton Industries, Inc. and its subsidiary, Vega Precision
Laboratories, Inc. The claims were consolidated into one matter and a
consolidated Complaint. In April, 1995, the Court certified that the claims
based on the Securities Exchange Act may proceed as a Class Action pursuant
to Rule 23(b) (3), but without prejudice to the rights of the parties
thereafter to seek modification of the Class or revocation of leave to
proceed. The Court refused to certify the negligence claim as a Class
Action. In May, 1995, the parties negotiated a tentative settlement of all
claims in consideration for a payment of $450,000 subject to the negotiation
and execution of a satisfactory Settlement Agreement and Court approval after
notice to Class Members. The parties are negotiating the terms of the
Settlement Agreement for submission to the Court.
In May, 1995, the Company was served with a Class Action Complaint
against the Company and its Chief Executive Officer in the United States
District Court for the Eastern District of Pennsylvania. The claim was made
under Section 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule
10 (b)-5 thereunder. The claim relates to the Company's settlement of the
Litton Action in the Essex Superior Court of Massachusetts and alleges, inter
alia, that there was insufficient disclosure by the Company of its true
potential exposure in that claim. The Company believes it has a meritorious
defense and intends to vigorously defend against the action.
In or about March, 1994, the principal selling shareholders of Carlton
Industries, Inc. ("Carlton") and its subsidiary, Vega Precision Laboratories,
Inc. ("Vega"), as claimants, commenced an arbitration proceeding before the
American Arbitration Association in New York City pursuant to the terms of
<PAGE> 17
the Stock Purchase Agreement ("Agreement") by which the Company acquired the
stock of Carlton and Vega. The claimants principally are seeking to recover
damages for the Company's alleged failure to register timely the claimants'
shares of the Company's common stock in accordance with the provisions of the
Agreement and other breaches of the Agreement. The Company has denied and
has contested vigorously the legitimacy of the claimants' claims and has
interposed several counterclaims seeking indemnification under the Agreement
against the principal selling shareholders, for damages suffered by the
Company in an aggregate amount exceeding $1 million as a result of breaches
of contractual representations. After several days of hearings, the matter
has yet to be determined finally by the Arbitrators.
There is no certainty as to the outcome of these matters. However, in
the opinion of management, the ultimate liability on these matters, if any,
will not have a material adverse effect on the financial position of the
Company.
<PAGE> 18
ITEM 2 - CHANGES IN SECURITIES:
None
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES:
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
None
ITEM 5 - OTHER INFORMATION:
None
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibit 11: Computation of per share earnings.
(b) During the quarter for which this report is filed, the
Registrant filed the following reports under Form 8-K:
None
<PAGE> 19
FORM 10-Q
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.
HERLEY INDUSTRIES, INC.
------------------------------------
Registrant
BY: /S/ Myron Levy
------------------------------
Myron Levy, President
BY: /S/ Anello C. Garefino
----------------------------
Anello C. Garefino
Principal Financial Officer
DATE: June 13, 1995
<PAGE> 20
HERLEY INDUSTRIES, INC.
AND SUBSIDIARIES
-------------------------------
Exhibit 11
--------------
COMPUTATION OF PER SHARE EARNINGS
----------------------------------
Thirteen weeks ended
--------------------
April 30, 1995 May 1, 1994
-------------- -----------
Net Income (loss) $(4,758,738) $ 167,394
========= ==========
Weighted average number of
common shares outstanding 3,565,234 4,284,733
========= =========
Number of shares outstanding 3,615,815 4,278,189
========= =========
Earnings (loss) per common and
common equivalent share:
Net income (loss) $(1.33) $ .04
===== =====
Thirty-nine weeks ended
-----------------------
April 30, 1995 May 1, 1994
------------- -----------
Net Income (loss) $(5,056,211) $ 1,448,171
========= =========
Weighted average number of
common shares outstanding 3,905,161 4,319,875
========= =========
Number of shares outstanding 3,615,815 4,278,189
========= =========
Earnings (loss) per common and
common equivalent share:
Net income (loss) $(1.29) $ .34
==== ====
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS
ENDED APRIL 30,
1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-30-1995
<PERIOD-START> AUG-01-1994
<PERIOD-END> APR-30-1995
<CASH> 362,020
<SECURITIES> 0
<RECEIVABLES> 3,687,402
<ALLOWANCES> 0
<INVENTORY> 8,049,506
<CURRENT-ASSETS> 12,566,017
<PP&E> 23,252,685
<DEPRECIATION> 9,080,722
<TOTAL-ASSETS> 42,211,906
<CURRENT-LIABILITIES> 8,955,976
<BONDS> 11,247,867
<COMMON> 361,582
0
0
<OTHER-SE> 20,756,277
<TOTAL-LIABILITY-AND-EQUITY> 42,211,906
<SALES> 18,243,592
<TOTAL-REVENUES> 18,243,592
<CGS> 13,785,211
<TOTAL-COSTS> 17,325,951
<OTHER-EXPENSES> 5,447,005
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 743,652
<INCOME-PRETAX> (5,215,211)
<INCOME-TAX> ( 159,000 )
<INCOME-CONTINUING> (5,056,211)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,056,211)
<EPS-PRIMARY> (1.29 )
<EPS-DILUTED> (1.29 )
</TABLE>
