<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the period ended: October 29, 1995
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 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)
Registrant's Telephone Number, including Area Code: (717) 397-2777
--------------
----------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report.)
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
APPLICABLE ONLY TO ISSUERS INVOLVED
IN BANKRUPTCY PROCEEDINGS DURING
THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
[ ] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of December 5, 1995 - 2,802,274 shares of Common Stock
<PAGE>
HERLEY INDUSTRIES, INC
AND SUBSIDIARIES
INDEX TO FORM 10-Q
PART I - FINANCIAL INFORMATION PAGE
Item 1 - Financial Statements:
Consolidated Balance Sheets -
October 29, 1995 and July 30,1995 2
Consolidated Statements of Operations -
For the thirteen weeks ended
October 29, 1995 and October 30, 1994 3
Consolidated Statements of Cash Flows -
For the thirteen weeks ended
October 29, 1995 and October 30, 1994 4
Notes to Consolidated Financial Statements 5
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II - OTHER INFORMATION 8
Signatures 10
Computation of per share earnings 11
<PAGE>
HERLEY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
October 29, July 30,
1995 1995
----------- -----------
Unaudited Audited
--------- -------
ASSETS
Current Assets:
Cash and cash equivalents $ 928,651 $ 272,755
Accounts receivable 4,122,772 4,679,917
Other receivables 187,729 163,402
Inventories 8,627,950 9,330,053
Prepaid expenses and other 1,079,943 1,006,503
------------ ------------
Total Current Assets 14,947,045 15,452,630
Property, Plant and Equipment, net 13,464,068 13,775,710
Intangibles, net of amortization 4,784,311 4,852,336
Available-for-sale Securities 3,113,995 4,114,614
Other Investments 3,727,506 3,727,506
Other Assets 258,604 306,486
------------ ------------
$ 40,295,529 $ 42,229,282
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 343,708 $ 357,078
Accounts payable and accrued expenses 6,833,756 7,644,148
Reserve for contract losses 312,660 496,000
Advance payments on contracts 2,484,076 1,476,640
------------ ------------
Total Current Liabilities 9,974,200 9,973,866
------------ ------------
Long-term Debt 9,325,000 10,525,000
Deferred Income Taxes 1,385,954 1,282,179
Excess of fair value of net assets of business
acquired over cost, net of amortization 1,338,792 1,460,500
------------ ------------
22,023,946 23,241,545
------------ ------------
Commitments and Contingencies
Shareholders' Equity:
Common stock, $.10 par value; authorized 10,000,000 shares; issued 2,802,274
at October 29, 1995 and 3,015,988 at
July 30, 1995 280,227 301,599
Additional paid-in capital 11,837,649 13,040,622
Retained earnings 6,136,347 5,620,516
------------ ------------
18,254,223 18,962,737
Less:
Unrealized gain on available-for-sale
securities (17,360) (25,000)
------------ ------------
Total Shareholders' Equity 18,271,583 18,987,737
------------ ------------
$ 40,295,529 $ 42,229,282
============ ============
The accompanying notes are an integral part of these financial
statements.
2
<PAGE>
HERLEY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
13 weeks ended
----------------
October 29, October 30,
1995 1994
----------- -----------
Net sales $ 7,062,891 $ 6,298,609
---------- ----------
Cost and expenses:
Cost of products sold 4,888,421 4,641,688
Selling and administrative expenses 1,414,561 1,228,094
---------- ----------
6,302,982 5,869,782
---------- ----------
Operating income 759,909 428,827
---------- ----------
Other income (expense):
Gain (loss) on sale of marketable 55,554 (190,628)
securities
Dividend and interest income 62,786 237,734
Interest expense (227,018) (286,850)
---------- ----------
(108,678) (239,744)
---------- ----------
Income before income taxes 651,231 189,083
Provision for income taxes 135,400 5,000
---------- ----------
Net income $ 515,831 $ 184,083
========== ==========
Earnings per common and common
equivalent share $ .17 $ .04
==== ====
Weighted average number of common and
common equivalent shares outstanding 2,960,242 4,175,689
========= =========
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
HERLEY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
13 weeks ended
--------------
October 29, October 30,
1995 1994
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 515,831 $ 184,083
---------- ----------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 384,168 525,058
(Gain) loss on sale of marketable securities (55,554) 262,349
Decrease (increase) in deferred tax assets (19,291) (91,908)
Increase in deferred tax liabilities 103,798 32,530
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 557,145 1,139,598
Decrease (increase) in other receivables (24,327) 101,150
Decrease (increase) in inventories 702,103 122,939
Decrease (increase) in prepaid expenses and other (54,172) (101,171)
Increase (decrease) in accounts payable and accrued expenses (810,392) (378,262)
(Decrease) in reserve for contract losses (183,340) -
Increase (decrease) in advance payments on contracts 1,007,436 (981,836)
Other, net 40,000 2,468
---------- ----------
Total adjustments 1,647,574 632,915
---------- ----------
Net cash provided by operating activities 2,163,405 816,998
---------- ----------
Cash flows from investing activities:
Purchase of available-for-sale securities (1,071,498) (12,751,696)
Proceeds from sale of available-for-sale securities 2,120,031 12,547,732
Capital expenditures (118,327) (10,521)
---------- ----------
Net cash provided by (used in) investing activities 930,206 (214,485)
---------- ----------
Cash flows from financing activities:
Borrowings under bank line of credit 275,000 -
Payments under lines of credit (1,475,000) (700,000)
Payments of long-term debt (13,370) (30,384)
Purchase of treasury stock (1,224,345) -
---------- ----------
Net cash provided by (used in) financing activities (2,437,715) (730,384)
---------- ----------
Net increase (decrease) in cash and cash equivalents 655,896 (127,871)
Cash and cash equivalents at beginning of period 272,755 539,729
---------- ----------
Cash and cash equivalents at end of period $ 928,651 $ 411,858
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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Herley Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements - (Unaudited)
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 30,1995) 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.
2. Inventories at October 29, 1995 and July 30,1995 are summarized as follows:
October 29, 1995 July 30,1995
---------------- ------------
Purchased parts and raw materials $ 4,942,473 $ 5,749,455
Work in process 3,571,026 3,478,268
Finished products 114,451 102,330
--------- ---------
$ 8,627,950 $ 9,330,053
========= =========
3. The following is a summary of available-for-sale securities:
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gains Losses Value
--------- --------- --------- ---------
October 29, 1995
Government bonds $2,651,897 $ 37,679 $ 8,746 $2,680,830
Other 429,073 - - 429,073
--------- --------- --------- ---------
Total debt
securities 3,080,970 37,679 8,746 3,109,903
Equity securities 4,092 - - 4,092
--------- --------- --------- ---------
$3,085,062 $ 37,679 $ 8,746 $3,113,995
========= ========= ========= =========
July 30, 1995
Government bonds $3,878,937 $ 72,968 $ 31,302 $3,920,603
Other 189,919 - - 189,919
--------- --------- --------- ---------
Total debt
securities 4,068,856 72,968 31,302 4,110,522
Equity securities 4,092 - - 4,092
--------- --------- --------- ---------
$4,072,948 $ 72,968 $ 31,302 $4,114,614
========= ========= ========= =========
During the quarter ended October 29, 1995, the Company liquidated
$1,100,000 of its available-for-sale securities and used the proceeds to
purchase shares of its common stock in the open market. The Company
purchased a total of 213,714 shares of its common stock during the
quarter, all of which have been retired.
4. The Company has a revolving credit facility with a bank, secured by its
portfolio of available-for-sale securities, that provides for the
extension of credit in the aggregate principal amount of $9,000,000. The
facility requires the payment of interest only on a monthly basis and
payment of the outstanding principal balance on January 31, 1998.
Interest is set daily at 1% over the bank's earliest daily rate quoted
for Federal Funds (5.75% at October 29, 1995) applied to outstanding
5
<PAGE>
balances up to 80% of the net equity value of certain investments, and at
.5% over the bank's National Commercial Rate (8.75% at October 29, 1995)
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.
The agreement contains various financial covenants, including, among
other matters, the maintenance of working capital, tangible net worth,
aggregate debt levels, and restrictions on cash dividends.
The Company maintains a letter of credit facility with a bank that
provides for the issuance of stand-by letters of credit in the aggregate
of $4,200,000. The facility requires the payment of a fee of 1.25% per
annum of the amounts outstanding under the facility. The facility expires
January 31, 1997. At October 29, 1995 stand-by letters of credit
aggregating $2,277,401 were outstanding under this facility.
5. Supplemental cash flow information is as follows:
October 29, 1995 October 30, 1994
---------------- ----------------
Cash paid during the period for:
Interest $ 119,404 $ 721,202
Income Taxes 1,538 69,699
6
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
As of October 29, 1995 and July 30, 1995, working capital was approximately
$4,973,000 and $5,479,000, respectively, and the ratio of current assets to
current liabilities was 1.50 to 1 and 1.55 to 1, respectively.
The Company maintains a revolving credit facility with a bank, secured by
available-for-sale securities, for an aggregate of $9,000,000 which expires
January 31, 1998. As of October 29, 1995 and July 30, 1995, the Company had
borrowings outstanding of $5,800,000 and $7,000,000, respectively under this
facility.
At October 29, 1995, the Company owned high grade investment securities
having a market value of approximately $3,114,000, and cash and cash equivalents
of approximately $929,000.
The Company believes that presently anticipated future cash requirements
will be provided by internally generated funds, and existing credit facilities.
Results of Operations
Thirteen weeks ended October 29, 1995 and October 30, 1994
Net sales for the thirteen weeks ended October 29, 1995 increased by
$764,282 or 12% over the comparable period of the prior year due to an increase
in flight instrumentation products net sales of approximately $1,663,000 of
which the acquisition of Stewart Warner Electronics Co. contributed
approximately $1,193,000; offset by a decrease in net sales of microwave
components of approximately $899,000.
Cost of products sold for the thirteen weeks ended October 29, 1995
decreased as a percentage of net sales from 74% in 1994 to 69% in 1995. This
decrease is attributable to higher margins on foreign sales, which were
$1,410,000 in the quarter as compared to $615,000 in 1994, and increased
absorption of fixed costs due to the increase in sales volume.
Selling and administrative expenses for the thirteen weeks ended October
29, 1995 increased approximately $186,000 over the comparable period of the
prior year. This increase is attributable to representative fees of $198,000 on
foreign sales, personnel costs of $153,000, and other costs of $74,000; offset
by a reduction in legal fees of $239,000.
Other income (expense) for the thirteen weeks ended October 29, 1995
increased $131,000 from the comparable prior year period due to increased
investment income of $71,000, and a decrease in interest expense of $60,000.
7
<PAGE>
Herley Industries, Inc. and Subsidiaries
PART I I - 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. In a jury trial which ended April 3, 1995, a verdict on
liability was rendered against the Company and the other defendants. Prior to a
separate, subsequent trial to determine damages, the Company settled the action
on April 12, 1995 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. The settlement
provides for two equal payments of $2,000,000 each without interest, the first
of which was paid, and the second is due in July, 1996.
In May and June 1994, the Company was served 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 10b-5 thereunder. One of the claims is also based upon alleged
negligence. The claims relate to the Company's acquisition of Carlton
Industries, Inc. and its subsidiary, Vega Precision Laboratories, Inc. The
claims were combined 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 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.
Hearings have been closed and final briefs were submitted. The matter has yet to
be determined by the Arbitrators.
There is no certainty as to the outcome of the above unresolved matters.
However, in the opinion of management, the ultimate liability on these matters,
if any, will not have a material adverse effect on the consolidated financial
position or results of operations of the Company.
ITEM 2 - CHANGES IN SECURITIES:
None
8
<PAGE>
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
9
<PAGE>
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: December 6, 1995
------------------
10
<PAGE>
HERLEY INDUSTRIES, INC.
AND SUBSIDIARIES
Exhibit 11
COMPUTATION OF PER SHARE EARNINGS
Thirteen weeks ended
--------------------
October 29, October 30,
1995 1994
----------- -----------
Net Income $ 515,831 $ 184,083
======= =======
Weighted average number of
common shares outstanding 2,960,242 4,175,689
========= =========
Number of shares outstanding 2,802,274 4,175,689
========= =========
Earnings per common and common equivalent share:
Net income $ .17 $ .04
=== ===
11
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS FOR THE 13 WEEKS ENDED OCTOBER 29, 1995 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-28-1996
<PERIOD-START> JUL-31-1995
<PERIOD-END> OCT-29-1995
<CASH> 928,651
<SECURITIES> 0
<RECEIVABLES> 4,122,772
<ALLOWANCES> 0
<INVENTORY> 8,627,950
<CURRENT-ASSETS> 14,947,045
<PP&E> 23,438,502
<DEPRECIATION> 9,974,434
<TOTAL-ASSETS> 40,295,529
<CURRENT-LIABILITIES> 9,974,200
<BONDS> 0
<COMMON> 280,227
0
0
<OTHER-SE> 17,991,356
<TOTAL-LIABILITY-AND-EQUITY> 40,295,529
<SALES> 7,062,891
<TOTAL-REVENUES> 7,062,891
<CGS> 4,888,421
<TOTAL-COSTS> 6,302,982
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 227,018
<INCOME-PRETAX> 651,231
<INCOME-TAX> 135,400
<INCOME-CONTINUING> 515,831
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 515,831
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0.17
</TABLE>
