SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A-1
AMENDMENT NO. 1 TO
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report: January 6, 1999
(Date of earliest event reported)
HERLEY INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 0-5411 23-2413500
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State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification Number)
10 Industry Drive, Lancaster, Pennsylvania 17603
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (717) 397-2777
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(Former name of former address, if changed since last report.)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
(a) On January 6, 1999, the Registrant acquired all of the issued and
outstanding shares of common stock of General Microwave Corporation
("GMC") due to the consummation of a merger between GMC and GMC
Acquisition Corporation ("Acquisition"), a wholly-owned subsidiary of
the Registrant. The merger was effected pursuant to the terms and
provisions of an Agreement and Plan of Merger dated as of August 21,
1998 by and among GMC, eleven GMC shareholders, the Registrant and
Acquisition. Pursuant to the terms of the Merger Agreement, each
former shareholder of GMC is entitled to receive $18.00 in cash and a
three-year warrant to purchase one share of the Registrant's common
stock at a price of $14.40 per share if the Warrant is exercised on or
before January 11, 1999, and $15.60 per share if the Warrant is
exercised after January 11, 1999. The cash portion of the purchase
price was financed by borrowing under the Registrant's existing line
of credit facility with its bank.
(b) GMC's facilities are used by it in the design, development,
manufacture and marketing of microwave and electronic systems,
equipment and components. The Registrant is currently negotiating the
sale of GMC's property in Amityville, N. Y. with the intentions of
relocating the plant to a nearby leased facility. The Registrant
intends to continue operations at its other facilities, including
under leases thereof.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS.
(a) Financial Statements of Business Acquired
The following financial statements are incorporated by reference herein:
(1) The Consolidated Financial Statements on pp. 19 to 45 in the
Annual Report on Form 10-K of General Microwave Corporation
and Subsidiaries for the fiscal years ended February 28, 1998
and 1997 (previously filed with the Commission on May 28,
1998, Commission File No. 001-08821, and incorporated by
reference herein);
(2) The unaudited interim Consolidated Financial Statements on pp.
1 to 10 in the Quarterly Report on Form 10-Q of General
Microwave Corporation and Subsidiaries for the fiscal quarter
ended August 29, 1998 (previously filed with the Commission on
October 13, 1998, Commission File No.001-08821, and
incorporated by reference herein).
(b) Pro Forma Financial Information
The following unaudited pro forma combined condensed financial
information of Herley Industries, Inc. is filed herewith and is set
forth on pages 5 through 11:
Unaudited Pro Forma Combined Condensed Financial Information:
(1) Unaudited Pro Forma Combined Condensed Balance Sheet as of
November 1, 1998;
(2) Unaudited Pro Forma Combined Condensed Statement of Income for
the year ended August 2, 1998 and the three months ended November
1, 1998, and
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(3) Notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
(c) Exhibits.
23.1* Consent of KPMG LLP.
* Filed herewith.
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SIGNATURE
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 hereunto duly authorized.
HERLEY INDUSTRIES, INC.
By: /s/ Myron Levy
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Myron Levy, President
By: /s/ Anello C. Garefino
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Anello C. Garefino
Principal Financial Officer
DATE: March 4, 1999
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UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial
statements were prepared to illustrate the estimated effects of (i) Herley's
acquisition of General Microwave Corporation ("GMC") accounted for under the
purchase method of accounting, (ii) the borrowing of approximately $10,408,000
under Herley's bank credit facility which provides for aggregate borrowings of
up to $20,000,000, and (iii) the use of the proceeds from the credit facility,
as described in the notes to the unaudited pro forma combined condensed
financial statements (collectively, the "Pro Forma Transactions"). The unaudited
pro forma combined condensed balance sheet combines Herley's November 1, 1998
consolidated balance sheet with GMC's November 28, 1998 consolidated balance
sheet and gives effect to the Pro Forma Transactions as if they had occurred on
November 1, 1998, the last day of Herley's most recently completed fiscal
quarter. The unaudited pro forma combined condensed statements of income combine
Herley's historical results for the fiscal year ended August 2, 1998, and three
months ended November 1, 1998 with the historical results of GMC for the
twelve-month period ended August 29, 1998 and three months ended November 28,
1998 giving effect to the Pro Forma Transactions as if they had occurred as of
August 4, 1997, the first day of Herley's most recently completed fiscal year.
Herley's most recently completed fiscal year ended on August 2, 1998, the most
recently completed fiscal year of GMC ended on February 28, 1998.
The unaudited pro forma combined condensed financial statements were
prepared utilizing the accounting principles of the respective entities as
outlined in each entity's historical financial statements. The pro forma
adjustments are based upon available information and certain assumptions that
Herley believes are reasonable under the circumstances. The allocation of
purchase price will be revised when additional information concerning asset and
liability valuations is obtained. Adjustments, which could be significant, will
be made during the allocation period based on detailed reviews of the fair
values of assets acquired and liabilities assumed and could result in a
substantial change in the excess of cost over the fair value of net assets
acquired.
The unaudited pro forma combined condensed financial statements do not
reflect the cost savings and synergies which might be achieved from the merger.
The unaudited pro forma combined condensed financial statements do not purport
to be indicative of the operating results or financial position that would have
been achieved had the merger been effected on the date or dates indicated or the
results which may be obtained in the future.
These pro forma combined condensed statements are based on, and should
be read in conjunction with, the audited consolidated financial statements,
including the notes thereto, of Herley and GMC.
The audited consolidated financial statements of GMC are incorporated
herein by reference.
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<PAGE>
<TABLE>
<CAPTION>
HERLEY INDUSTRIES, INC. AND GENERAL MICROWAVE CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
GMC
Herley For the
For the Fiscal Twelve-Month
Year Ended Period Ended
August 2, August 29, Pro Forma Pro Forma
1998 1998 Adjustments Combined
<S> <C> <C> <C> <C>
---- ---- ----------- --------
(In thousands, except share and per share data)
Net sales $ 40,798 $ 22,679 $ 63,477
Cost of products sold 24,169 14,090 238 (8) 38,497
Selling and administrative expenses 8,339 6,161 311 (7) 14,811
-------- -------- ------
Operating income 8,290 2,428 10,169
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Other income (expense):
Interest expense (446) (94) (666) (9) (1,206)
Dividend and interest income 453 169 (340) (10) 282
Other 133 (82) 51
-------- -------- -------
140 (7) (873)
-------- -------- -------
Income before income taxes 8,430 2,421 9,296
Provision for income taxes 2,934 191 (14) (435) (11) 2,690
-------- -------- -------
Income from continuing operations $ 5,496 $ 2,230 $ 6,606
======== ======== =======
Earnings per common share-Basic $ 1.11 $ 1.84 $ 1.33
===== ===== =====
Basic weighted average common
shares 4,969,248 1,210,210 4,969,248
========= ========= =========
Earnings per common share-Diluted $ 1.02 $ 1.79 $ 1.22
===== ===== =====
Diluted weighted average common
shares 5,407,283 1,244,322 5,407,283
========= ========= =========
</TABLE>
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<TABLE>
<CAPTION>
HERLEY INDUSTRIES, INC. AND GENERAL MICROWAVE CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
(Continued)
GMC
Herley For the
For the Fiscal Three-Month
Quarter Ended Period Ended
November 1, November 28, Pro Forma Pro Forma
1998 1998 Adjustments Combined
<S> <C> <C> <C> <C>
---- ---- ----------- --------
(In thousands, except share and per share data)
Net sales $ 11,651 $ 5,847 $ 17,498
Cost of products sold 6,771 3,815 60 (8) 10,646
Selling and administrative expenses 2,124 1,792 78 (7)
(442) (13) 3,552
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Operating income 2,756 240 3,300
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Other income (expense):
Interest expense (102) (12) (167) (9) (281)
Dividend and interest income 103 41 (85) (10) 59
Other - (12) (12)
------ ------ ------
1 17 (234)
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Income before income taxes 2,757 257 3,066
Provision for income taxes 965 85 (14) (109) (11)
146 (13) 1,087
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Income from continuing operations $ 1,792 $ 172 $ 1,979
====== ====== ======
Earnings per common share-Basic $ .34 $ .14 $ .37
==== ==== ====
Basic weighted average common
shares 5,295,245 1,212,348 5,295,245
========= ========= =========
Earnings per common share-Diluted $ .32 $ .13 $ .36
==== ==== ====
Diluted weighted average common
shares 5,538,266 1,291,868 5,538,266
========= ========= =========
</TABLE>
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<TABLE>
<CAPTION>
HERLEY INDUSTRIES, INC. AND GENERAL MICROWAVE CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
Herley GMC
November 1, November 28, Pro Forma Pro Forma
1998 1998 Adjustments Combined
<S> <C> <C> <C> <C>
------------ ----------- ----------- --------
(In thousands)
Assets
Current Assets:
Cash and cash equivalents $ 4,183 $ 3,384 $ (6,400) (4) $ 1,167
Accounts receivable, net 7,285 4,250 - 11,535
Costs incurred and income recognized
in excess of billings on uncompleted
contracts 2,937 - - 2,937
Prepaid expenses and other current
assets 247 291 - 538
Inventories 14,654 5,681 - 20,335
Deferred taxes 2,365 794 120 (3) 3,279
------- ------- -------
Total current assets 31,671 14,400 39,791
------- ------- -------
Property, plant and equipment, net 12,258 5,934 4,268 (3) 22,460
Intangible assets 5,988 675 6,998 (3) 13,661
Other assets 9,082 55 (6,298) (4) 2,839
------- ------- -------
Total assets $ 58,999 $ 21,064 $ 78,751
======= ======= =======
Liabilities and shareholder's equity
Current liabilities:
Current portion of long-term debt $ 406 $ 663 - $ 1,069
Accounts payable and accrued expenses 6,825 4,067 300 (3) 11,192
Reserve for contract losses 1,086 - - 1,086
Advance payments on contracts 1,595 75 - 1,670
------- ------- -------
Total current liabilities 9,912 4,805 15,017
------- ------- -------
Long-term debt 3,402 181 10,408 (5) 13,991
Deferred income taxes 3,477 590 1,961 (3) 6,028
Minority interest - 57 - 57
------- ------- -------
Total liabilities 16,791 5,633 35,093
------- ------- -------
Shareholders' Equity:
Common stock 529 17 (17) (6) 529
Additional paid-in-capital 20,297 9,651 (8,201) (6) 21,747
Retained earnings 21,382 8,952 (8,952) (6) 21,382
Less treasury stock at cost - (3,189) 3,189 (6) -
------- ------- -------
Total shareholders' equity 42,208 15,431 43,658
------- ------- -------
Total liabilities and shareholders'
equity $ 58,999 $ 21,064 $ 78,751
======= ======= =======
</TABLE>
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<PAGE>
NOTES TO THE PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. The unaudited pro forma combined condensed financial statements reflect the
acquisition by Herley of all of the issued and outstanding common stock of
General Microwave Corporation ("GMC"), including outstanding stock options,
for $18.00 per share and 966,675 three-year Warrants to purchase one share
of Herley's common stock. The Warrants are exercisable at $15.60 per share
of common stock of Herley and expire in January, 2002. The Warrants were
valued at an estimated fair market value of $1.50 per Warrant at the date
of closing, based on the trading price of similar warrants currently on the
market. The aggregate estimated purchase price is calculated as follows (in
thousands, except per share and per share data):
365,600 shares previously acquired
in the open market $ 6,273
848,675 shares at $18.00 per share 15,276
118,000 stock options at $18.00 per share,
net of exercise price 1,279
966,675 Warrants at $1.50 1,450
Estimated transaction expenses 278
------
Estimated purchase price $24,556
======
2. Herley's fiscal year ends on the Sunday closest to July 31. In the
accompanying unaudited combined condensed pro forma statements of income
the results of Herley's fiscal year ended August 2, 1998, and its first
quarter fiscal 1999 ended November 1, 1998, have been combined with the
unaudited results of GMC for the twelve-month period ended August 29, 1998,
and three-month period ended November 28, 1998, respectively. The unaudited
pro forma combined condensed financial statements have been derived from
the audited consolidated financial statements of Herley as of and for the
fiscal year ended August 2, 1998, and the unaudited consolidated financial
statements as of and for the quarter ended November 1, 1998; and from the
unaudited consolidated financial statements of GMC as of and for the
twelve-month period ended August 29, 1998, and three-month period ended
November 28, 1998. GMC's fiscal year ends on February 28, however, in order
to present GMC's operating results on a basis more consistent with Herley's
fiscal year, the unaudited consolidated statement of operations of GMC for
the twelve-month period ended August 29, 1998, and three-month period ended
November 28, 1998, were used. The GMC unaudited consolidated statement of
operations for the twelve-month period ended August 29, 1998 was derived
from the unaudited interim consolidated financial statements of GMC for the
three-month periods ended November 29, 1997, February 28, 1998, May 30,
1998 and August 29, 1998.
3. This adjustment reflects the excess of cost over the fair value of net
assets acquired, and is calculated as follows (in thousands except per
share data):
Estimated purchase price $ 24,556
Preliminary purchase accounting adjustments:
Fair value adjustment to property, plant
and equipment (4,268)
Fair value adjustment to patents (633)
Accrual of pension costs 300
Deferred tax impact of fair value adjustments 1,841
Net assets of GMC acquired (excluding intangible
assets of $547) as of November 28, 1998 (14,884)
------
Excess of cost over the fair value of
net assets acquired $ 6,912
======
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The total consideration will be allocated to the assets and liabilities of
GMC based on their estimated fair value. A preliminary allocation by Herley
of the purchase price has been presented in the pro forma combined
condensed financial statements in which the historical GMC property, plant
and equipment, and patents, have been adjusted to their estimated fair
value. The impact of this fair value adjustment has also been reflected in
pro forma deferred tax balances. An additional adjustment of the purchase
price has been made to accrue for estimated costs associated with a freeze
in benefits under GMC's pension plan. The deferred tax impact of this
adjustment has also been reflected in the pro forma combined condensed
financial statements. The excess of consideration over the adjusted fair
value of GMC net assets acquired has been preliminarily allocated to
goodwill.
A final allocation of the purchase price to the GMC assets acquired and
liabilities assumed is dependent upon certain valuations and studies that
have not progressed to a stage where there is sufficient information to
make such an allocation in the accompanying pro forma financial information
The allocation of the purchase price of GMC will be revised when additional
information concerning asset and liability valuations is obtained.
Adjustments, which could be significant, will be made during the allocation
period based on detailed reviews of the fair values of assets acquired and
liabilities assumed and could result in a substantial change in excess of
cost over fair value of assets acquired.
4. This entry represents the payment of cash from current available funds to
the shareholders of the GMC common stock of $6,400,000, the acquisition of
365,610 shares of GMC common stock in the open market, prior to the
acquisition, at an aggregate cost of approximately $6,273,000, and $25,000
of acquisition expenses.
5. This adjustment represents additional borrowings under Herley's line of
credit facility of $10,408,000 for the purpose of financing the remaining
cash portion of the estimated purchase price.
6. These adjustments represent the elimination of GMC's shareholders' equity
accounts. Also reflected within the adjustment to additional paid-in
capital is the recording of the estimated fair value of the Warrants of
$1,450,000 granted as part of the purchase price. The unaudited pro forma
combined condensed financial statements do not assume the exercise of any
Warrants (see Note 1).
7. This entry reflects the adjustments to amortization for the effects of the
excess of consideration over net assets acquired, and for the valuation
adjustment to the patents. For purposes of the pro forma combined condensed
financial statements, the Herley management expects that amounts allocated
to costs in excess of fair value of net assets acquired will be amortized
over 20 years on a straight-line basis. The patents are amortized over the
average remaining lives of the patents of approximately 14 years (see Note
3).
8. This entry reflects the adjustment to depreciation expense for the effect
of the fair value adjustment of GMC's property, plant and equipment based
on a preliminary valuation of the fair value (see Note 3).
9. These adjustments represent the recognition of interest expense on the
additional borrowings of Herley to finance the estimated purchase price
(see Note 5). The interest expense was calculated based on Herley's
incremental borrowing rate under its line of credit facility at the Federal
Funds Target Rate plus 1.65% or approximately 6.4%. A change of 1/8% in the
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incremental rate would affect interest expense by $13,010 for the fiscal
year, and $3,252 for the quarter.
10. The adjustment reflects the loss of interest income generated from the cash
and cash equivalents that were used to purchase the GMC common stock (see
Note 4).
11. This entry represents the tax benefit of $435,000 and $109,000 for the year
and fiscal quarter, respectively, related to the pro forma adjustments,
excluding nondeductible goodwill amortization.
12. Pro forma per share data are based on the number of Herley common and
common equivalent shares that would have been outstanding had the
Herley/GMC merger occurred on the earliest date presented.
13. This adjustment represents the elimination of one time expenses of
approximately $442,000, and the related tax effect of approximately
$146,000, incurred by GMC during the three-month period ended November 28,
1998, in connection with the acquisition of GMC by Herley.
14. The effective tax rate for GMC is lower than the statutory rate due to the
reversal of a valuation allowance of $698,000 during the twelve months
presented that was previously provided against deferred tax assets.
15. Certain amounts have been reclassified to conform to the pro forma
presentation.
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Exhibit 23.1
Consent of Independent Public Accountants
The Board of Directors
General Microwave Corporation:
We consent to incorporation by reference in the Form 8-K of Herley Industries,
Inc. dated March 4, 1999 of our report dated May 11, 1998, which is based
partially upon the report of other auditors, with respect to the consolidated
balance sheets of General Microwave Corporation and subsidiaries as of February
28, 1998 and 1997, and the related consolidated statements of earnings,
stockholders' equity, and cash flows for each of the years in the three-year
period ended February 28, 1998, which report appears in the February 28, 1998
annual report on Form 10-K of General Microwave Corporation and subsidiaries.
/s/ KPMG LLP
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KPMG LLP
Melville, New York
March 2, 1999
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