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: February 2, 1997
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 March 6, 1997 - 3,167,012 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 -
February 2, 1997 and July 28, 1996 2
Consolidated Statements of Operations For the
thirteen and twenty-seven weeks ended
February 2, 1997, and the thirteen and
twenty-six weeks ended January 28, 1996 3
Consolidated Statements of Cash Flows For the
thirteen and twenty-seven weeks ended
February 2, 1997, and the thirteen and
twenty-six weeks ended January 28, 1996 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
February 2, July 28,
1997 1996
----------- ----------
Unaudited Audited
----------- ----------
ASSETS
Current Assets:
Cash and cash equivalents $ 443,585 $ 1,104,445
Accounts receivable 4,519,629 3,249,225
Notes receivable-officers 2,066,526 2,083,543
Other receivables 133,057 124,992
Inventories 8,783,608 8,010,687
Deferred taxes and other 1,740,451 1,689,988
---------- ----------
Total Current Assets 17,686,856 16,262,880
Property, Plant and Equipment, net 12,113,364 12,579,044
Intangibles, net of amortization 4,444,186 4,580,236
Available-for-sale Securities - 4,912,387
Other Investments 3,000,000 3,000,000
Other Assets 1,161,645 1,174,395
========== ==========
$ 38,406,051 $ 42,508,942
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 300,000 $ 300,000
Accounts payable and accrued expenses 4,295,201 5,123,868
Billings in excess of costs and earnings
on contracts in process 528,336 -
Income taxes payable 32,170 166,295
Reserve for contract losses 279,900 489,110
Advance payments on contracts 959,234 1,480,033
---------- ----------
Total Current Liabilities 6,394,841 7,559,306
---------- ----------
Long-term Debt 6,546,000 11,021,000
Deferred Income Taxes 1,866,993 1,923,058
Excess of fair value of net assets of business
acquired over cost, net of amortization 730,249 973,667
---------- ----------
15,538,083 21,477,031
---------- ----------
Commitments and Contingencies
Shareholders' Equity:
Common stock, $.10 par value; authorized
10,000,000 shares; issued
3,115,846 at February 2, 1997
and 2,936,122 at July 28, 1996 311,584 293,612
Additional paid-in capital 11,615,605 11,448,827
Retained earnings 10,940,779 9,289,472
---------- ----------
Total Shareholders' Equity 22,867,968 21,031,911
========== ==========
$ 38,406,051 42,508,942
========== ==========
The accompanying notes are an integral part of these financial
statements.
2
<PAGE>
HERLEY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Thirteen weeks ended 27 weeks ended 26 weeks ended
February 2, January 28, February 2, January 28,
1997 1996 1997 1996
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $ 7,146,208 $ 7,197,155 $ 14,654,112 $ 14,260,046
--------- --------- ---------- ----------
Cost and expenses:
Cost of products sold 4,916,166 5,028,481 10,087,340 9,916,902
Selling and administrative expenses 1,352,441 1,541,345 2,751,210 2,955,906
--------- --------- ---------- ----------
6,268,607 6,569,826 12,838,550 12,872,808
--------- --------- ---------- ----------
Operating income 877,601 627,329 1,815,562 1,387,238
--------- --------- ---------- ----------
Other income (expense):
Gain (loss) on sale of available-for-sale
securities and other investments (173) 1,109,443 15,267 1,164,997
Dividend and interest income 89,930 99,608 137,885 162,394
Interest expense (187,779) (218,531) (317,407) (445,549)
--------- --------- ---------- ----------
(98,022) 990,520 (164,255) 881,842
--------- --------- ---------- ----------
Income before income taxes 779,579 1,617,849 1,651,307 2,269,080
Provision for income taxes - 80,700 - 216,100
--------- --------- ---------- ----------
Net income $ 779,579 $ 1,537,149 $ 1,651,307 $ 2,052,980
========= ========= ========== ==========
Earnings per common and common
equivalent share $ .22 $ .49 $ .47 $ .70
========= ========= ========== =========
Weighted average number of common and
common equivalent shares outstanding 3,575,365 3,131,001 3,548,711 2,944,782
========= ========= ========== ==========
</TABLE>
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>
27 weeks ended 26 weeks ended
February 2, January 28,
1997 1996
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,651,307 $ 2,052,980
---------- ----------
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization 754,083 773,071
(Gain) loss on sale of available-for-sale
securities and other investments (15,440) (1,164,997)
Decrease (increase) in deferred tax assets - 214,380
Increase (decrease) in deferred tax liabilities (56,065) 112,818
Recovery of unrealized loss on securities - 550
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable (1,270,404) 851,504
Decrease (increase) in notes receivable-officers 17,017 (1,723,148)
Decrease (increase) in other receivables (8,065) (57,410)
Decrease (increase) in inventories (772,921) 1,244,671
Decrease (increase) in deferred taxes and other (50,463) (271,060)
(Decrease) in accounts payable and accrued expenses (828,667) (1,211,505)
Increase in billings in excess of costs and earnings
on contracts in process 528,336 -
Increase (decrease) in income taxes payable (134,125) 204,370
Increase (decrease) in reserve for contract losses (209,210) 55,660
Increase (decrease) in advance payments on contracts (520,799) 1,094,896
Other, net - 40,001
---------- ----------
Total adjustments (2,566,723) 163,801
---------- ----------
Net cash provided by (used in) operating activities (915,416) 2,216,781
---------- ----------
Cash flows from investing activities:
Purchase of available-for-sale securities (159,364) (6,617,407)
Proceeds from sale of available-for-sale securities 5,083,908 3,745,645
Proceeds from sale of other investments - 3,823,233
Proceeds from sale of fixed assets 9,392 -
Capital expenditures (389,130) (287,803)
---------- ----------
Net cash provided by investing activities 4,544,806 663,668
---------- ----------
Cash flows from financing activities:
Borrowings under bank line of credit 2,325,000 7,875,000
Proceeds from exercise of stock options 184,750 -
Payments under lines of credit (6,800,000) (8,975,000)
Payments of long-term debt - (28,979)
Purchase of treasury stock - (1,224,345)
---------- ----------
Net cash (used in) financing activities (4,290,250) (2,353,324)
---------- ----------
Net increase (decrease) in cash and cash equivalents (660,860) 527,125
Cash and cash equivalents at beginning of period 1,104,445 272,755
---------- ----------
Cash and cash equivalents at end of period $ 443,585 $ 799,880
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
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 28, 1996) 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 February 2, 1997 and July 28,1996 are summarized as
follows:
February 2, 1997 July 28,1996
---------------- ------------
Purchased parts and raw materials $ 4,077,807 $ 3,358,256
Work in process 4,610,603 4,580,538
Finished products 95,198 71,893
--------- ---------
$ 8,783,608 $ 8,010,687
========= =========
3. The following is a summary of available-for-sale securities at July 28,
1996:
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gains Losses Value
--------- -------- -------- ----------
Government bonds $ 3,783,402 $ - $ - $ 3,783,402
Other 1,125,700 - - 1,125,700
--------- -------- -------- ----------
Total debt
securities 4,909,102 - - 4,909,102
Equity securities 3,285 - - 3,285
--------- -------- -------- ----------
$ 4,912,387 $ - $ - $ 4,912,387
========= ======== ======== ==========
The Company liquidated all of its available-for-sale securities during
the first quarter and used the proceeds to pay down its bank debt.
4. In January 1997, the Company renewed its revolving credit agreement with
a bank that provides for the extension of credit in the aggregate
principal amount of $11,000,000 and may be used for general corporate
purposes, including business acquisitions. The facility requires the
payment of interest only on a monthly basis and payment of the
outstanding principal balance on January 31, 1999. Interest is at 1% over
the FOMC Target Rate applied to outstanding balances (none at February 2,
1997) up to 80% of the net equity value of available- for-sale
securities, and at the bank's Base Rate (8.25% at February 2, 1997) for
outstanding balances in excess of this limit. The premium rate portion of
the facility would be secured by any available-for-sale securities. The
credit facility also provides for the issuance of stand-by letters of
credit with a fee of 1.0% per annum of
5
<PAGE>
the amounts outstanding under the facility. At February 2, 1997, stand-by
letters of credit aggregating $2,888,633 were outstanding.
The agreement contains various financial covenants, including, among
other matters, the maintenance of working capital, tangible net worth,
and restrictions on cash dividends.
5. No income tax provision was recorded in 1997 due to the decrease in the
valuation allowance for net operating loss carryforwards expected to be
realized.
6. Supplemental cash flow information is as follows:
February 2, 1997 January 28, 1996
---------------- ----------------
Cash paid during the period for:
Interest $ 331,106 $ 483,488
Income Taxes 134,527 5,488
Cashless exercise of stock options $ 1,884,708 $ -
6
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
- -------------------------------
As of February 2, 1997 and July 28, 1996, working capital was approximately
$11,292,015 and $8,704,000, respectively, and the ratio of current assets to
current liabilities was 2.77 to 1 and 2.15 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 $959,000 at February 2, 1997, and $1,480,000 at July 28, 1996, a
reduction of $521,000 during the period.
Net cash used in operations during the quarter was approximately $915,000, which
was primarily funded through the reduction in cash and cash equivalents and the
exercise of stock options.
Net cash provided from investing activities of approximately $4,545,000 during
the period results primarily from the liquidation of all of the Company's
available-for-sale securities. The Company used the proceeds to pay down
$4,900,000 of its long term bank debt.
The Company maintains a revolving credit facility with a bank for an aggregate
of $11,000,000 which expires January 31, 1999. As of February 2, 1997 and July
28, 1996, the Company had borrowings outstanding of $2,475,000 and $6,950,000,
respectively.
At February 2, 1997, the Company had cash and cash equivalents of approximately
$444,000.
The Company believes that presently anticipated future cash requirements will be
provided by internally generated funds, and existing credit facilities.
The Board of Directors has authorized the purchase of up to an aggregate of
300,000 shares of the Company's common stock from time to time, at prevailing
market prices, in the open market or in parivate transactions.
Results of Operations
- ---------------------
Thirteen weeks ended February 2, 1997 and January 28, 1996
- ----------------------------------------------------------
Net sales for the thirteen weeks ended February 2, 1997 were essentially
unchanged from the comparable period of the prior year.
Cost of products sold for the thirteen weeks ended February 2, 1997 decreased as
a percentage of net sales from 70% in 1996 to 69% in 1997. This decrease is
attributable to more aggressive pricing as well as control of our variable
costs.
Selling and administrative expenses for the thirteen weeks ended February 2,
1997 decreased by $188,900 as compared to the prior year second quarter. The
reduction is attributable primarily to reduced representative fees and personnel
costs.
Other income (expense) for the thirteen weeks ended February 2, 1997 decreased
$1,089,000 from the prior year due to net gains on the sale of a partnership
interest in M. D. SASS RE/ENTERPRISE PARTNERS, L.P. and other marketable
securities of approximately $1,109,000 in 1996 and a reduction in investment
income of $10,000 in 1997; offset by a decrease in interest expense of $30,000.
No income tax provision has been recorded in the thirteen weeks ended February
2, 1997 due to the anticipated utilization of certain net operating loss
carryforwards.
7
<PAGE>
Twenty-seven weeks ended February 2, 1997 and twenty-six weeks ended January 28,
1996
- --------------------------------------------------------------------------------
Net sales for the twenty-seven weeks ended February 2, 1997 increased by
approximately $394,000, or 3%.
Cost of products sold for the twenty-seven weeks ended February 2, 1997
decreased as a percentage of net sales from 70% in 1996 to 69% in 1997. This
decrease is attributable to higher margins due to more aggressive pricing as
well as control of our variable costs.
Selling and administrative expenses for the twenty-seven weeks ended February 2,
1997 decreased approximately $205,000 from the prior year which is attributable
to decreased representative fees and personnel costs.
Other income (expense) for the twenty-seven weeks ended February 2, 1997
decreased approximately $1,046,000 from the prior year period due to net gains
on the sale of a partnership interest in M. D. SASS RE/ENTERPRISE PARTNERS, L.P.
and other marketable securities of approximately $1,165,000 in 1996 and a
$25,000 decrease in investment income in 1997; offset by a decrease in interest
expense of $128,000.
PART I I - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS:
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. In January, 1997 the parties negotiated a settlement of all claims in
consideration for a payment of $170,000 subject to Certification of the Class,
Notice and Court approval. A Stipulation of Settlement is being prepared for
submission to the Court requesting a Preliminary Order and a Subsequent hearing
prior to final Approval.
ITEM 2 - CHANGES IN SECURITIES:
None
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES:
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
(a) The Registrant held its Annual Meeting of Stockholders on
December 17, 1996.
8
<PAGE>
(b) Five directors were elected at the Annual Meeting of Stockholders as
follows:
Class I - To serve until the Annual Meeting of Stockholders in 1997 or
until their successors are chosen and qualified:
Name Votes For Votes Withheld
------------------------ --------- --------------
David H. Lieberman 2,425,780 10,050
Class II - To serve until the Annual Meeting of Stockholders in 1998
or until their successors are chosen and qualified:
Name Votes For Votes Withheld
------------------------ --------- --------------
Myron Levy 2,425,780 10,050
Adm. Thomas J. Allshouse 2,425,780 10,050
Class III - To serve until the Annual Meeting of Stockholders in 1999
or until their successors are chosen and qualified:
Name Votes For Votes Withheld
----------------------- --------- --------------
Lee N. Blatt 2,425,780 10,050
John A. Thonet 2,425,780 10,050
(c) A proposal to ratify the issuance of Warrants to the Company's
executive officers and certain directors was approved at the Annual
Meeting. Votes cast at this meeting were 1,538,427 for, 125,596 shares
against, and 12,610 shares abstaining.
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: March 11, 1997
10
Exhibit 11
- ----------
HERLEY INDUSTRIES, INC.
AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Thirteen weeks ended
February 2, 1997 January 28, 1996
---------------- ----------------
<S> <C> <C>
Net Income $ 779,579 $ 1,537,149
======= =========
Weighted average shares outstanding:
Shares outstanding from beginning of period 2,951,247 2,802,274
Shares issued for options exercised 240,594 -
Treasury shares acquired (103,617) -
Common equivalents - options and warrants 487,141 328,727
--------- ---------
Weighted average common and common
equivalent shares outstanding 3,575,365 3,131,001
========= =========
Earnings per common and
common equivalent share: $ .22 $ .49
=== ===
</TABLE>
<TABLE>
<CAPTION>
Twenty-seven Twenty-six
weeks ended weeks ended
February 2, 1997 January 28, 1996
---------------- ----------------
<S> <C> <C>
Net Income $ 1,651,307 $ 2,052,980
========= =========
Weighted average shares outstanding:
Shares outstanding from beginning of period 2,936,122 3,015,988
Shares issued for options exercised 130,980 -
Treasury shares acquired (72,531) (185,022)
Common equivalents - options and warrants 554,140 113,816
--------- ---------
Weighted average common and common
equivalent shares outstanding 3,548,711 2,944,782
========= =========
Earnings per common and
common equivalent share: $ .47 $ .70
=== ===
</TABLE>
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS FOR THE 27 WEEKS ENDED FEBRUARY 2, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-03-1997
<PERIOD-START> JUL-29-1996
<PERIOD-END> FEB-02-1997
<CASH> 443,585
<SECURITIES> 0
<RECEIVABLES> 3,591,206
<ALLOWANCES> 0
<INVENTORY> 8,783,608
<CURRENT-ASSETS> 17,686,856
<PP&E> 24,183,559
<DEPRECIATION> 12,070,195
<TOTAL-ASSETS> 38,406,051
<CURRENT-LIABILITIES> 6,394,841
<BONDS> 0
0
0
<COMMON> 311,584
<OTHER-SE> 22,556,384
<TOTAL-LIABILITY-AND-EQUITY> 38,406,051
<SALES> 14,654,112
<TOTAL-REVENUES> 14,654,112
<CGS> 10,087,340
<TOTAL-COSTS> 12,838,550
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 317,407
<INCOME-PRETAX> 1,651,307
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,651,307
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,651,307
<EPS-PRIMARY> 0.47
<EPS-DILUTED> 0.47
</TABLE>
