-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JIVuUetd+Ijhu9BUJq31xumVJyXdcsDiAwWdEviLMkLfRIzq1hz90X2UjwqDa3dq /sNgI+fcB4BQE0DeZREFIw== 0000047035-98-000010.txt : 19980611 0000047035-98-000010.hdr.sgml : 19980611 ACCESSION NUMBER: 0000047035-98-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980503 FILED AS OF DATE: 19980610 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: HERLEY INDUSTRIES INC /NEW CENTRAL INDEX KEY: 0000047035 STANDARD INDUSTRIAL CLASSIFICATION: SEARCH, DETECTION, NAVIGATION, GUIDANCE, AERONAUTICAL SYS [3812] IRS NUMBER: 232413500 STATE OF INCORPORATION: DE FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-05411 FILM NUMBER: 98645145 BUSINESS ADDRESS: STREET 1: 10 INDUSTRY DR CITY: LANCASTER STATE: PA ZIP: 17603 BUSINESS PHONE: 7173972777 MAIL ADDRESS: STREET 1: 10 INDUSTRY DRIVE CITY: LANCASTER STATE: PA ZIP: 17603 FORMER COMPANY: FORMER CONFORMED NAME: HERLEY MICROWAVE SYSTEMS INC DATE OF NAME CHANGE: 19900510 FORMER COMPANY: FORMER CONFORMED NAME: HERLEY INDUSTRIES INC DATE OF NAME CHANGE: 19831103 10-Q 1 QUARTERLY REPORT FOR 13 WEEKS ENDED MAY 03, 1998 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 quarterly period ended: May 3, 1998 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 June 1, 1998 - 5,239,275 shares of Common Stock. HERLEY INDUSTRIES, INC AND SUBSIDIARIES INDEX TO FORM 10-Q PART I - FINANCIAL INFORMATION PAGE Item 1 - Financial Statements: Consolidated Balance Sheets - May 3, 1998 and August 3, 1997 2 Consolidated Statements of Income For the thirteen and thirty-nine weeks ended May 3, 1998, and the thirteen and forty weeks ended May 4, 1997 3 Consolidated Statements of Cash Flows For the thirteen and thirty-nine weeks ended May 3, 1998, and the thirteen and forty weeks ended May 4, 1997 4 Notes to Consolidated Financial Statements 5 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Item 3 - Quantitative and Qualitative Disclosures About Market Risk 11 PART II -OTHER INFORMATION 11 Signatures 12
HERLEY INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS May 3, August 3, 1998 1997 --------- ----------- Unaudited Audited ASSETS Current Assets: Cash and cash equivalents $ 10,757,596 $ 1,194,650 Accounts receivable 6,305,061 5,176,523 Notes receivable-officers - 2,100,913 Costs incurred and income recognized in excess of billings on uncompleted contracts 1,338,184 - Other receivables 254,230 152,148 Inventories 15,506,597 9,790,382 Deferred taxes and other 3,503,135 2,061,066 ---------- ---------- Total Current Assets 37,664,803 20,475,682 Property, Plant and Equipment, net 12,639,223 11,704,755 Intangibles, net of amortization 4,104,061 4,308,136 Available-for-sale Securities 416,962 - Other Investments 1,413,391 1,313,502 Other Assets 2,891,594 1,455,111 ---------- ---------- $ 59,130,034 $ 39,257,186 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Current portion of long-term debt $ 369,141 $ 335,000 Note payable to related party - 846,000 Accounts payable and accrued expenses 6,666,095 4,986,740 Income taxes payable 559,559 76,635 Reserve for contract losses 978,000 478,000 Advance payments on contracts 2,600,784 3,091,001 ---------- ---------- Total Current Liabilities 11,173,579 9,813,376 ---------- ---------- Long-term Debt 5,489,953 2,890,000 Deferred Income Taxes 3,749,455 2,696,394 Excess of fair value of net assets of business acquired over cost, net of amortization 121,708 486,833 ---------- ---------- 20,534,695 15,886,603 ---------- ---------- Commitments and Contingencies Shareholders' Equity: Common stock, $.10 par value; authorized 20,000,000 shares; issued and outstanding 5,233,263 at May 3, 1998 and 4,209,365 at August 3, 1997 523,326 420,936 Additional paid-in capital 19,975,914 8,856,516 Retained earnings 18,096,099 14,093,131 ---------- ---------- Total Shareholders' Equity 38,595,339 23,370,583 ---------- ---------- $ 59,130,034 $ 39,257,186 ========== ==========
The accompanying notes are an integral part of these financial statements. 2
HERLEY INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) Thirteen weeks ended -------------------- 39 weeks ended 40 weeks ended May 3, May 4, May 3, May 4, 1998 1997 1998 1997 ----------- ---------- ----------- ----------- Net sales $ 10,008,148 $ 8,426,047 $ 29,632,618 $ 23,080,159 ---------- ---------- ---------- ---------- Cost and expenses: Cost of products sold 5,861,938 5,278,289 17,348,367 15,365,629 Selling and administrative expenses 2,040,055 1,531,622 6,302,465 4,282,832 ---------- ---------- ---------- ---------- 7,901,993 6,809,911 23,650,832 19,648,461 ---------- ---------- ---------- ---------- Operating income 2,106,155 1,616,136 5,981,786 3,431,698 ---------- ---------- ---------- ----------- Other income (expense): Net gain (loss) on available-for-sale securities and other investments 30,787 80,630 99,889 95,897 Dividend and interest income 140,812 62,156 306,339 200,041 Interest expense (120,924) (125,955) (322,046) (443,362) ---------- ---------- ---------- ---------- 50,675 16,831 84,182 (147,424) ---------- ---------- ---------- ---------- Income before income taxes 2,156,830 1,632,967 6,065,968 3,284,274 Provision for income taxes 734,000 182,400 2,063,000 182,400 ---------- ---------- ---------- ---------- Net income $ 1,422,830 $ 1,450,567 $ 4,002,968 $ 3,101,874 ========== ========== ========== ========== Earnings per common share - Basic $.27 $.35 $.82 $.76 === === === === Weighted average shares outstanding 5,200,310 4,173,364 4,876,134 4,072,763 ========= ========= ========= ========= Earnings per common share - Assuming Dilution $.24 $.31 $.72 $.66 === === === === Weighted average shares outstanding- Assuming Dilution 5,886,003 4,684,112 5,564,347 4,714,117 ========= ========= ========= =========
The accompanying notes are an integral part of these financial statements. 3
HERLEY INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) 39 weeks ended 40 weeks ended May 3, May 4, 1998 1997 ---------- ---------- Cash flows from operating activities: Net income $ 4,002,968 $ 3,101,874 ---------- ---------- Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 1,347,259 1,159,504 (Gain) on sale of available-for-sale securities and other investments (96,070) Equity in income of limited partnership (96,606) - Increase (decrease) in deferred tax liabilities 556,207 167,917 Changes in operating assets and liabilities: (Increase) in accounts receivable (879,111) (2,484,855) (Increase) in costs incurred and income recognized in excess of billings on uncompleted contracts 1,338,184) - Decrease in notes receivable-officers 2,100,913 17,534 (Increase) in other receivables (29,064) (8,890) (Increase) in inventories (3,628,518) (1,096,981) (Increase) in deferred taxes and other (181,361) (259,448) Increase (decrease) in accounts payable and accrued expenses 971,311 (710,824) Increase in billings in excess of costs and earnings on contracts in process - 108,865 Increase in income taxes payable 553,261 62,931 Increase (decrease) in reserve for contract losses 500,000 (220,760) Increase (decrease) in advance payments on contracts (587,832) 1,079,026 Other, net 113,206 (356,365) ---------- ---------- Total adjustments (598,519) (2,638,416) ---------- ---------- Net cash provided by operating activities 3,404,449 463,458 ---------- ---------- Cash flows from investing activities: Purchase of available-for-sale securities - (159,364) Proceeds from sale of available-for-sale securities - 5,083,908 Proceeds from sale of other investments - 2,080,630 Proceeds from sale of fixed assets 1,100 9,392 Capital expenditures (1,284,093) (540,603) ---------- ---------- Net cash provided by (used in) investing activities (1,282,993) 6,473,963 ---------- ---------- Cash flows from financing activities: Net proceeds from public offering of common stock 7,462,284 - Borrowings under bank line of credit 3,950,000 2,325,000 Proceeds from exercise of stock options 503,458 214,063 Payments under lines of credit (1,450,000) (9,275,000) Payments of long-term debt (1,913,893) - Purchase of treasury stock (1,110,359) (678,653) ---------- ---------- Net cash provided by (used in) financing activities 7,441,490 (7,414,590) ---------- ---------- Net increase (decrease) in cash and cash equivalents 9,562,946 (477,169) Cash and cash equivalents at beginning of period 1,194,650 1,104,445 ---------- ---------- Cash and cash equivalents at end of period $ 10,757,596 $ 627,276 ========== ==========
The accompanying notes are an integral part of these financial statements. 4 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 May 3, 1998 and August 3, 1997 are summarized as follows: May 3, 1998 August 3, 1997 ----------- -------------- Purchased parts and raw materials $ 7,060,023 $ 4,780,336 Work in process 7,897,025 4,899,551 Finished products 549,549 110,495 ---------- ---------- $15,506,597 $ 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, 2000 as amended in May 1998. Interest is set at 1.65% over the FOMC Federal Funds Target Rate (5.50% at May 3, 1998). As of May 3, 1998 the Company borrowed $2,500,000 under the line. 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 May 3, 1998, stand-by letters of credit aggregating $1,667,000 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 May 3, 1998, 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 the thirteen and forty weeks ended May 4, 1997 would have been approximately $9,444,000, $1,452,000, and 5 $0.29, and approximately $26,689,000, $3,150,000, and $0.63 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. On January 14, 1998, the underwriters exercised their over-allotment option to purchase 165,000 additional shares of common stock from certain selling stockholders, and 165,000 additional Common Stock Purchase Warrants from the Company. The Company received $15,510 for the warrants, after underwriting discounts and commissions of $990 based on a price to the public of $0.10 for each warrant. 7. At the annual meeting of stockholders held on February 18, 1998, the stockholders of the Company approved a proposal to amend the Certificate of Incorporation to increase the authorized shares of Common Stock from 10,000,000 to 20,000,000 shares. 8. An income tax provision of $182,400 was recorded in the thirteen and forty weeks ended May 4, 1997, at an effective rate of 6% 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 and thirty-nine weeks ended May 3, 1998 at an anticipated effective rate of 34% for fiscal 1998. 9. In March 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS 128). The new rules are effective for both interim and annual financial statements for periods ending after December 15, 1997. SFAS 128 supersedes APB No. 15 to conform earnings per share with international standards as well as to simplify the complexity of the computation under APB No. 15. The previous primary earnings per share ("EPS") calculation is replaced with a basic EPS calculation. The basic EPS differs from the primary EPS calculation in that the basic EPS does not include any potentially dilutive securities. Fully dilutive EPS is replaced with diluted EPS and should be disclosed regardless of dilutive impact to basic EPS. Accordingly, the Company has adopted SFAS 128 effective February 1, 1998. Prior year EPS amounts have been restated to conform to the Statement 128 presentation. 6 The following table sets forth the computation of basic and diluted earnings per share: Thirteen weeks ended -------------------- May 3, 1998 May 4, 1997 ----------- ----------- Numerator: Net Income $ 1,422,830 $ 1,450,567 ========== ========== Denominator: Denominator for basic earnings per share: Shares outstanding from beginning of period 5,241,147 4,154,461 Shares issued for options and warrants exercised 54,071 95,923 Treasury shares acquired (94,908) (77,020) ---------- ---------- Basic weighted-average shares 5,200,310 4,173,364 Effect of dilutive securities: Employee stock options and warrants 685,693 510,748 ---------- ---------- Adjusted weighted-average shares 5,886,003 4,684,112 ========== ========== Basic earnings per share $.27 $.35 === === Diluted earnings per share $.24 $.31 === === Thirty-nine Forty weeks ended weeks ended May 3, 1998 May 4, 1997 ----------- ----------- Numerator: Net Income $ 4,002,968 $ 3,101,874 ========== ========== Denominator: Denominator for basic earnings per share: Shares outstanding from beginning of period 4,525,872 3,914,829 Shares issued for options and warrants exercised 31,898 284,921 Treasury shares acquired (31,636) (126,987) Public offering of 700,000 shares of common stock 350,000 - ---------- ---------- Basic weighted-average shares 4,876,134 4,072,763 Effect of dilutive securities: Employee stock options and warrants 688,213 641,354 ---------- ---------- Adjusted weighted-average shares 5,564,347 4,714,117 ========== ========== Basic earnings per share $.82 $.76 === === Diluted earnings per share $.72 $.66 === === 7 10. Supplemental cash flow information is as follows: Thirty-nine Forty weeks ended weeks ended May 3, 1998 May 4, 1997 ----------- ----------- Cash paid during the period for: Interest $ 220,673 $ 382,225 Income Taxes 980,630 156,027 Noncash financing activities: Cashless exercise of stock options $ 54,250 $1,884,708 Tax benefit related to stock options 1,195,721 - 8 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 - -------------------------------------------------------------------------------- The statements contained in this report which are not historical fact are "forward-looking statements" that involve various important assumptions, risks, uncertainties and other factors which could cause the Company's actual results for 1998 and beyond to differ materially from those expressed in such forward-looking statements. These important factors include, without limitation, competitive factors and pricing pressures, changes in legal and regulatory requirements, technological change or difficulties, product development risks, commercialization and trade difficulties and general economic conditions, as well as other risks previously disclosed in the Company's securities filings and press releases. Liquidity and Capital Resources - ------------------------------- As of May 3, 1998 and August 3, 1997, working capital was approximately $25,296,000 and $10,662,000, respectively, and the ratio of current assets to current liabilities was 3.25 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 $2,601,000 at May 3, 1998, and $3,091,000 at August 3, 1997. Net cash provided by operations during the period was approximately $3,404,000. This includes the repayment of notes receivable from certain officers in the amount of $2,101,000. Inventories increased approximately $3,629,000 during the thirty-nine weeks ended May 3, 1998 which is related to four new products transitioned from engineering into production primarily during the third quarter. Inventories should drop during the fourth quarter as production throughput on these products increases. Unbilled costs and revenue on long-term contracts in process increased by $1,338,000 in the third quarter. This will continue through the fourth quarter. Net cash used in investing activities consists of $1,284,000 for capital expenditures. Financing activities provided net cash of $7,441,000 primarily from the sale of common stock and common stock purchase warrants to the public on December 16, 1997 for the net amount of $7,462,000, $503,000 from the exercise of common stock options and warrants, and net borrowings under the bank line of $2,500,000. This was offset by reductions of long -term debt of $1,914,000, and treasury stock acquisitions of $1,110,000. The Company maintains a revolving credit facility with a bank for an aggregate of $11,000,000 which expires January 31, 2000. Borrowings in the amount of $2,500,000 were outstanding as of May 3, 1998. There were no borrowings at August 3, 1997. At May 3, 1998, the Company had cash and cash equivalents of approximately $10,758,000. The Company conducted a review of its information systems to identify the systems which may be affected by the "Year 2000" issue and developed an implementation plan to resolve the issue. The Company was informed that its accounting software and computer hardware is year 2000 compliant at all but one of its facilities. Internal staff costs, as well as external consulting and other expenses, were incurred to convert that facility as discussed under "Results of Operations" below. Any additional cost of this project is not expected to have a material impact on the Company's financial condition, results of operations or cash flows. The Company believes its engineering software is unaffected by the year 2000 issue. However, there can be no guarantees that all the Company's systems that may be affected have been identified. In addition, the Company is reliant, in part, on the effective execution by its customers and suppliers in dealing with the year 2000 issue; over which 9 the Company has no control. The Company believes that presently anticipated future cash requirements will be provided by internally generated funds, as well as the net proceeds of the public offering, and existing credit facilities. Results of Operations - --------------------- Thirteen weeks ended May 3, 1998 and May 4, 1997 - ------------------------------------------------ Net sales for the thirteen weeks ended May 3, 1998 were $10,008,000 compared to $8,426,000 in the third quarter of fiscal year 1997. The sales increase of $1,582,000 (18.8%) is attributed to additional volume of $855,000 from the acquisition of Metraplex, and increased shipments of microwave components. The gross profit margin of 41.4% for the thirteen weeks ended May 3, 1998 exceeded that of the third quarter of fiscal 1997 of 37.4% primarily due to increased absorption of fixed overhead costs and improvement in margins of microwave components. Selling and administrative expenses for the thirteen weeks ended May 3, 1998 were $2,040,000, an increase of $508,000 over the third quarter of the prior year. Of this amount, $260,000 is attributable to the operations of Metraplex. The balance of the increase includes $25,000 for computer systems upgrades at the Herley-MDI facility, $100,000 in personnel related costs, $118,000 in performance incentives, and $148,000 in higher representative fees, offset by a reduction of $165,000 in legal fees. Other income (net of expenses) for the thirteen weeks ended May 3, 1998 increased $34,000 from the prior year due to increased investment income of $29,000, and lower interest expense of $5,000. A provision for income taxes has been provided at the anticipated effective rate of 34% for fiscal 1998. A nominal income tax provision was recorded in the third quarter fiscal 1997 after giving effect 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. Thirty-nine weeks ended May 3, 1998 and forty weeks ended May 4, 1997 - --------------------------------------------------------------------- Net sales for the thirty-nine weeks ended May 3, 1998 were $29,633,000 compared to $23,080,000 for the period ended May 4, 1997, an increase of $6,553,000, or 28.4%. Of this increase, $3,077,000 is attributable to the Metraplex acquisition. The remaining increase is due to increased foreign shipments and microwave components. The gross profit margin for the first nine months of fiscal 1998 was 41.5%, which exceeded the gross profit margin of 33.4% in fiscal 1997 by 8.1%. This is attributable to the mix of foreign shipments which accounted for 31% of sales in fiscal 1998 as compared to 26% in 1997, as well as product mix and increased absorption of fixed overhead. Selling and administrative expenses for the thirty-nine weeks ended May 3, 1998 were $6,302,000, an increase of $2,020,000 over the prior year of which $857,000 is attributable to the Metraplex acquisition. Other increases include $277,000 in license fees for MAGIC2, $332,000 in performance incentives, $156,000 for computer systems upgrades at the Herley-MDI facility, $353,000 in personnel related costs, and representative fees of $237,000. 10 Other income (net of expenses) for the thirty-nine weeks ended May 3, 1998 increased $232,000 over the prior year due to increased investment income of $110,000, and lower interest expense of $122,000. Item 3: Quantitative and Qualitative Disclosures About market Risk. Not Applicable. PART II - 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) Exhibits : None (b) During the quarter for which this report is filed, the Registrant filed the following reports under Form 8-K: None 11 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 9, 1998 12 EX-27 2 FDS--MAY-03-1998
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE 39 WEEKS ENDED MAY 3, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS AUG-02-1998 AUG-04-1997 MAY-03-1998 1,191,576 9,566,020 6,305,061 0 15,506,597 37,664,803 27,066,095 14,426,872 59,130,034 11,173,579 0 0 0 523,326 38,072,013 59,130,034 29,632,618 29,632,618 17,348,367 23,650,832 0 0 322,046 6,065,968 2,063,000 4,002,968 0 0 0 4,002,968 0.82 0.72
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