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: November 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 December 16, 1997 - 5,241,146 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 -
November 2, 1997 and August 3,1997 2
Consolidated Statements of Operations For the
thirteen weeks ended November 2, 1997
and the fourteen weeks ended November 3, 1996 3
Consolidated Statements of Cash Flows For the
thirteen weeks ended November 2, 1997
and the fourteen weeks ended November 3, 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 9
Computation of per share earnings 10
<PAGE>
HERLEY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
November 2, August 3,
1997 1997
----------- -----------
Unaudited Audited
ASSETS
Current Assets:
Cash and cash equivalents $ 1,024,601 $ 1,194,650
Accounts receivable 7,689,130 5,176,523
Notes receivable-officers 2,135,819 2,100,913
Other receivables 205,217 152,148
Inventories 12,100,135 9,790,382
Deferred taxes and other 2,332,444 2,061,066
---------- ----------
Total Current Assets 25,487,346 20,475,682
Property, Plant and Equipment, net 12,611,302 11,704,755
Intangibles, net of amortization 4,240,111 4,308,136
Available-for-sale Securities 416,962 -
Other Investments 1,355,213 1,313,502
Other Assets 2,649,844 1,455,111
========== ==========
$ 46,760,778 $ 39,257,186
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 367,517 $ 335,000
Note payable to related party 846,000 846,000
Accounts payable and accrued expenses 6,252,459 4,986,740
Income taxes payable 496,905 76,635
Reserve for contract losses 478,000 478,000
Advance payments on contracts 3,187,097 3,091,001
---------- ----------
Total Current Liabilities 11,627,978 9,813,376
---------- ----------
Long-term Debt 3,407,438 2,890,000
Deferred Income Taxes 3,375,455 2,696,394
Excess of fair value of net assets of business
acquired over cost, net of amortization 365,125 486,833
---------- ----------
18,775,996 15,886,603
---------- ----------
Commitments and Contingencies
Shareholders' Equity:
Common stock, $.10 par value; authorized
10,000,000 shares; issued and outstanding
4,541,146 at November 2, 1997 and
4,209,365 at August 3, 1997 454,115 420,936
Additional paid-in capital 12,093,287 8,856,516
Retained earnings 15,437,380 14,093,131
---------- ----------
Total Shareholders' Equity 27,984,782 23,370,583
---------- ----------
$ 46,760,778 $ 39,257,186
========== ==========
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 14 weeks ended
November 2, November 3,
1997 1996
-------------- --------------
Net sales $ 10,573,305 $ 7,507,904
-------------- --------------
Cost and expenses:
Cost of products sold 6,488,615 5,171,174
Selling and administrative
expenses 2,002,796 1,398,769
-------------- --------------
8,491,411 6,569,943
-------------- --------------
Operating income 2,081,894 937,961
-------------- --------------
Other income (expense):
Gain on available-for-sale
securities and other investments 41,711 15,440
Dividend and interest income 49,659 47,955
Interest expense (136,515) (129,628)
-------------- --------------
(45,145) (66,233)
-------------- --------------
Income before income taxes 2,036,749 871,728
Provision for income taxes 692,500 -
-------------- --------------
Net income $ 1,344,249 $ 871,728
============== ==============
Earnings per common and common
equivalent share $.26 $.19
==== ====
Weighted average number of common and
common equivalent shares outstanding 5,228,220 4,616,733
========= =========
The accompanying notes are an integral part of these financial
statements.
3
<PAGE>
<TABLE>
<CAPTION>
HERLEY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
13 weeks ended 14 weeks ended
November 2, November 3,
1997 1996
<S> <C> <C>
-------------- --------------
Cash flows from operating activities:
Net income $ 1,344,249 $ 871,728
-------------- --------------
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization 443,399 377,224
(Gain) on sale of available-for-sale securities - (15,440)
Equity in income of limited partnership (41,711) -
(Increase) in deferred tax assets (1,205,226) -
Increase in deferred tax liabilities 1,387,433 323,828
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable (2,263,180) (609,390)
(Increase) in notes receivable-officers (34,906) (48,822)
(Increase) in other receivables 19,949 (72,008)
Decrease (increase) in inventories (222,056) (444,484)
(Increase) in deferred taxes and other (132,770) (388,187)
Increase (decrease) in accounts payable and accrued expenses 557,675 86,430
Increase (decrease) in income taxes payable 420,270 (89,907)
(Decrease) in reserve for contract losses - (66,500)
Increase (decrease) in advance payments on contracts (1,519) (807,909)
Other, net 359,606 -
-------------- --------------
Total adjustments (713,036) (1,755,165)
-------------- --------------
Net cash provided by (used in) operating activities 631,213 (883,437)
-------------- --------------
Cash flows from investing activities:
Purchase of available-for-sale securities - (159,650)
Proceeds from sale of available-for-sale securities - 5,083,778
Capital expenditures (248,496) (289,748)
-------------- --------------
Net cash provided by investing activities (248,496) 4,634,380
-------------- --------------
Cash flows from financing activities:
Borrowings under bank line of credit 1,200,000 1,975,000
Proceeds from exercise of stock options 99,266 96,358
Payments under lines of credit (800,000) (6,575,000)
Payments of long-term debt (1,052,032) -
-------------- --------------
Net cash (used in) financing activities (552,766) (4,503,642)
-------------- --------------
Net increase (decrease) in cash and cash equivalents (170,049) (752,699)
Cash and cash equivalents at beginning of period 1,194,650 1,104,445
-------------- --------------
Cash and cash equivalents at end of period $ 1,024,601 $ 351,746
============== ==============
</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 August 3,1997) 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 November 2, 1997 and August 3,1997 are summarized as
follows:
November 2, 1997 August 3,1997
---------------- -------------
Purchased parts and raw materials $ 6,554,581 $ 4,780,336
Work in process 5,025,086 4,899,551
Finished products 520,468 110,495
---------- ---------
$ 12,100,135 $ 9,790,382
========== =========
3. In January 1997, the Company entered into a 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 set biweekly at 1% over the FOMC
Target Rate applied to outstanding balances (none at November 2, 1997) up
to 80% of the net equity value of available-for-sale securities, and at the
bank's Base Rate (8.50% at November 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 the amounts outstanding under the facility. At November 2,
1997, stand-by letters of credit aggregating $3,455,175 were outstanding.
The agreement contains various financial covenants, including, among other
matters, the maintenance of working capital and tangible net worth.
4. On August 4, 1997, the Company completed the acquisition of Metraplex
Corporation , a Maryland corporation for 313,193 (adjusted for 4-for-3
stock split) shares of common stock of the Company, with a fair market
value of $3,170,684, in exchange for all of the issued and outstanding
common stock of Metraplex. Metraplex is a leading manufacturer of pulse
code modulation and frequency modulation, telemetry and data acquisition
systems for severe environment applications. Metraplex products are used
worldwide for testing space launch vehicle instrumentation, aircraft flight
testing, and amphibian, industrial and automotive vehicle testing. The
transaction has been accounted for by the purchase method. Accordingly, the
consolidated balance sheet includes the assets and liabilities of Metraplex
at November 2, 1997, and the consolidated statements of operations include
the results of Metraplex operations from August 4, 1997.
On the basis of a pro forma consolidation of the results of operations as
if the acquisition had taken place at the beginning of fiscal 1997,
unaudited consolidated net sales, net income, and earnings per share for
5
<PAGE>
the 14 weeks ended November 3, 1996 would have been approximately
$8,781,000, $894,500, and $0.18, respectively. The pro forma information
includes adjustments for additional depreciation based on the fair market
value of the property, plant, and equipment acquired, and the amortization
of intangibles arising from the transaction. The pro forma financial
information is not necessarily indicative of the results of operations as
they would have been had the transaction been effected at the beginning of
fiscal 1997.
5. On September 4, 1997 the Board of Directors declared a 4-for-3 stock split
effected as a stock dividend payable September 29, 1997 to holders of
record on September 15, 1997. The effect of the split is presented within
shareholders' equity at August 3, 1997. The distribution increased the
number of shares outstanding from 3,157,024 to 4,209,365. The amount of
$105,234 was transferred from the additional paid-in capital to the common
stock account to record this distribution. All share and per share data,
including stock options and warrants, included in this annual report have
been restated to reflect the stock split.
6. On December 16, 1997 the Company completed the sale of 1,100,000 shares of
common stock to the public, of which 700,000 shares were sold by the
Company and 400,000 shares were sold by certain selling stockholders. The
Company received $7,999,400 after underwriting discounts and commissions of
$510,600 based on a price to the public of $12.00. In addition, the Company
sold 1,100,000 Common Stock Purchase Warrants for $103,400 after
underwriting discounts and commissions of $6,600 based on a price to the
public of $0.10 for each warrant. The warrants are exercisable for 25
months and entitle the holder to purchase one share of Common Stock at an
exercise price of $14.40 per share for thirteen months from date of
issuance and thereafter at $15.60 per share. The Company has also issued to
the underwriters, for their own account, warrants to purchase 110,000
shares of common stock of the Company at a price of $14.40 per share,
exercisable for a period of four years beginning December 16, 1998 and the
right to purchase warrants for $.12 per warrant for thirteen months
beginning December 16, 1998.
7. No income tax provision was recorded in the fourteen weeks ended November
3, 1996 reflecting the utilization of prior year net operating loss ("NOL")
carryforwards and the reversal of a valuation allowance for the NOL
carryforwards established in 1995. The valuation allowance was established
based on management's uncertainty that past performance would be indicative
of future earnings. Income taxes have been provided for the thirteen weeks
ended November 2, 1997 at an anticipated effective rate of 34% for fiscal
1998.
8. Supplemental cash flow information is as follows:
November 2, 1997 November 3, 1996
---------------- ----------------
Cash paid during the period for:
Interest $ 17,513 $ 103,594
Income Taxes 85,230 90,310
6
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
Liquidity and Capital Resources
As of November 2, 1997 and August 3, 1997, working capital was approximately
$13,859,000 and $10,662,000, respectively, and the ratio of current assets to
current liabilities was 2.19 to 1 and 2.09 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 $3,187,000 at November 2, 1997, and $3,091,000 at August 3, 1997.
Net cash provided by operations during the quarter was approximately $631,000.
Net cash used in investing activities consists of $248,000 for capital
expenditures.
The Company maintains a revolving credit facility with a bank for an aggregate
of $11,000,000 which expires January 31, 1999. There were no borrowings
outstanding as of Novemver 2, 1997 or August 3, 1997.
At November 2, 1997, the Company had cash and cash equivalents of approximately
$1,025,000.
On December 16, 1997 the Company completed the sale of 700,000 shares of common
stock, and 1,100,000 Common Stock Purchase Warrants, to the public, and received
approximately $7,499,000 in net proceeds. Concurrent with the closing, the
Company also received approximately $2,170,000 from certain officers of the
Company in payment of notes receivable from the officers.
The Company believes that presently anticipated future cash requirements will be
provided by internally generated funds, the net proceeds of the offering on
December 16, 1997 and existing credit facilities.
Results of Operations
Thirteen weeks ended November 2, 1997 and Fourteen weeks ended November 3, 1996
Net sales for the 13 weeks ended November 2, 1997 were approximately $10,573,000
compared to $7,508,000 in the first quarter of fiscal 1997. The sales increase
of $3,065000 (40.8%) is attributable to additional volume from the Metraplex
acquisition of $1,166,000, and increased flight instrumentation products sales
in the foreign market.
Gross profit of 38.6% for the 13 weeks ended November 2, 1997 exceeded that of
the first quarter in the prior year of 31.1% due to an increase of $2,509,000 in
higher margin foreign sales and an increase in absorption of fixed costs due to
the higher sales volume.
Selling and administrative expenses for the 13 weeks ended November 2, 1997 were
$2,003,000 compared to $1,399,000 in the first quarter of fiscal 1997, an
increase of $604,000. Of this increase, $285,000 is attributable to the
acquisition of Metraplex, $118,000 for performance incentives, and $277,000 in
license fees for MAGIC2. Offsetting these increases were reductions in operating
expenses of the Stewart Warner facility in Chicago of $50,000, and lower
consulting fees of $26,000.
Other (expense) for the 13 weeks ended November 2, 1997 is $21,000 lower than
the first quarter in the prior year due to a decrease in interest expense of
$7,000, and equity income in a limited partnership of $42,000 as compared to a
gain on sale of available-for-sale securities of $15,000 in the prior year.
7
<PAGE>
A provision for income taxes has been provided at the anticipated effective rate
of 34% for fiscal 1998. No income tax provision was recorded in the first
quarter fiscal 1997 due to the decrease in the valuation allowance for net
operating loss carryforwards expected to be realized. A valuation allowance was
provided previously to reduce deferred tax assets to their net realizable value
for amounts which management believed may expire unutilized. The uncertainty
that past performance would be indicative of future earnings due to the
unpredictable nature of the industry in which the Company operates was a
determining factor in assessing the need for a valuation allowance.
PART I I - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS:
The Company is not involved in any material legal proceedings.
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
8
<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 17, 1997
9
HERLEY INDUSTRIES, INC.
AND SUBSIDIARIES
Exhibit 11
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Thirteen weeks ended Fourteen weeks ended
November 2, 1997 November 3, 1996
---------------- ----------------
<S> <C> <C>
Net Income $ 1,344,249 $ 871,728
========== ========
Weighted average shares outstanding:
Shares outstanding from beginning of period 4,525,871 3,914,829
Shares issued for options exercised 12,194 5,495
Treasury shares acquired - -
Common equivalents - options and warrants 690,155 696,409
---------- ----------
Weighted average common and common
equivalent shares outstanding 5,228,220 4,616,733
========= =========
Earnings per common and
common equivalent share: $ .26 $ .19
=== ===
</TABLE>
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS FOR THE 13 WEEKS ENDED NOVEMBER 2, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-2-1998
<PERIOD-START> AUG-4-1997
<PERIOD-END> NOV-2-1997
<CASH> 1,024,601
<SECURITIES> 0
<RECEIVABLES> 7,689,130
<ALLOWANCES> 0
<INVENTORY> 12,100,135
<CURRENT-ASSETS> 25,487,346
<PP&E> 26,039,849
<DEPRECIATION> 13,428,547
<TOTAL-ASSETS> 46,760,778
<CURRENT-LIABILITIES> 11,627,978
<BONDS> 0
0
0
<COMMON> 454,115
<OTHER-SE> 27,530,667
<TOTAL-LIABILITY-AND-EQUITY> 46,760,778
<SALES> 10,573,305
<TOTAL-REVENUES> 10,573,305
<CGS> 6,488,615
<TOTAL-COSTS> 8,491,411
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 136,515
<INCOME-PRETAX> 2,036,749
<INCOME-TAX> 692,500
<INCOME-CONTINUING> 1,344,249
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,344,249
<EPS-PRIMARY> 0.26
<EPS-DILUTED> 0.26
<FN>
(1)Primary and diluted EPS reflect
a 4-for-3 stock split payable September 29, 1997. Prior Financial Data
Schedules have not been restated for this stock split.
</FN>
</TABLE>
