-----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, VPDuOO+/GtRQiH4CuZXrp4wtY4RiWY0VRHbwJv/fY48HA+az35n0GiPUKUV8N1pT arRBJ0uwwGnKbHHYvALZAg== 0000047035-98-000024.txt : 19981216 0000047035-98-000024.hdr.sgml : 19981216 ACCESSION NUMBER: 0000047035-98-000024 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981101 FILED AS OF DATE: 19981215 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: 98769744 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 QUARTER ENDED NOV. 1, 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 period ended: November 1, 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 December 1, 1998 - 5,295,540 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 - November 1, 1998 and August 2, 1998 2 Consolidated Statements of Income - For the thirteen weeks ended November 1, 1998 and November 2, 1997 3 Consolidated Statements of Cash Flows - For the thirteen weeks ended November 1, 1998 and November 2, 1997 4 Notes to Consolidated Financial Statements 5 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Item 3 - Quantitative and Qualitative Disclosures About Market Risk 9 PART II -OTHER INFORMATION 10 Signatures 11
HERLEY INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS November 1, August 2, 1998 1998 ---------- ---------- ASSETS Current Assets: Cash and cash equivalents $ 4,182,778 $ 10,689,193 Accounts receivable 7,285,601 6,193,947 Costs incurred and income recognized in excess of billings on uncompleted contracts 2,936,929 1,665,008 Other receivables 247,002 248,298 Prepaid income taxes - 377,448 Inventories 14,653,675 15,068,618 Deferred taxes and other 2,364,670 2,194,004 ---------- ---------- Total Current Assets 31,670,655 36,436,516 Property, Plant and Equipment, net 12,258,075 12,549,343 Intangibles, net of amortization of $1,616,851 at November 1, 1998 and $1,524,393 at August 2, 1998 5,987,760 6,080,218 Available-for-sale Securities 143,330 143,330 Other Investments 7,169,128 849,324 Other Assets 1,769,560 1,493,798 ========== ========== $ 58,998,508 $ 57,552,529 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Current portion of long-term debt $ 405,848 $ 404,984 Accounts payable and accrued expenses 6,565,602 6,468,183 Income taxes payable 259,525 - Reserve for contract losses 1,086,048 1,145,128 Advance payments on contracts 1,595,156 1,824,746 ---------- ---------- Total Current Liabilities 9,912,179 9,843,041 Long-term Debt 3,401,593 4,110,885 Deferred Income Taxes 3,476,853 3,158,353 ---------- ---------- 16,790,625 17,112,279 ---------- ---------- Commitments and Contingencies Shareholders' Equity: Common stock, $.10 par value; authorized 20,000,000 shares; issued and outstanding 5,295,540 at November 1, 1998 and 5,266,159 at August 2, 1998 529,554 526,616 Additional paid-in capital 20,296,637 20,323,895 Retained earnings 21,381,692 19,589,739 ---------- ---------- Total Shareholders' Equity 42,207,883 40,440,250 ========== ========== $ 58,998,508 $ 57,552,529 ========== ==========
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 November 1, November 2, 1998 1997 ----------- ----------- Net sales $ 11,650,845 $ 10,573,305 ----------- ----------- Cost and expenses: Cost of products sold 6,771,320 6,488,615 Selling and administrative expenses 2,123,773 2,002,796 ----------- ----------- 8,895,093 8,491,411 ----------- ----------- Operating income 2,755,752 2,081,894 ----------- ----------- Other income (expense): Investment income 103,117 91,370 Interest expense (101,916) (136,515) ----------- ----------- 1,201 (45,145) ----------- ----------- Income before income taxes 2,756,953 2,036,749 Provision for income taxes 965,000 692,500 ----------- ----------- Net income $ 1,791,953 $ 1,344,249 =========== =========== Earnings per common share - Basic $ .34 $ .30 =========== =========== Basis weighted average shares 5,295,245 4,535,898 =========== =========== Earnings per common share - Diluted $ .32 $ .26 =========== =========== Diluted weighted average shares 5,538,266 5,228,220 =========== ===========
The accompanying notes are an integral part of these financial statements. 3
HERLEY INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Thirteen weeks ended November 1, November 2, 1998 1997 -------------- -------------- Cash flows from operating activities: Net income $ 1,791,953 $ 1,344,249 -------------- -------------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 613,043 443,399 Loss on disposal of equipment 7,841 - Equity in income of limited partnership (21,599) (41,711) (Increase) in deferred tax assets - (1,205,226) Increase in deferred tax liabilities 318,500 1,387,433 Changes in operating assets and liabilities: (Increase) in accounts receivable (1,091,654) (2,263,180) (Increase) in notes receivable-officers - (34,906) (Increase) in costs incurred and income recognized in excess of billings on uncompleted contracts (1,271,921) - Decrease in other receivables 1,296 19,949 Decrease in prepaid income taxes 377,448 - Decrease (increase) in inventories 414,943 (222,056) (Increase) in deferred taxes and other (170,666) (132,770) Increase in accounts payable and accrued expenses 97,419 557,675 Increase in income taxes payable 259,525 420,270 (Decrease) in reserve for contract losses (59,080) - (Decrease) in advance payments on contracts (229,590) (1,519) Other, net (15,111) 359,606 -------------- -------------- Total adjustments (769,606) (713,036) -------------- -------------- Net cash provided by operating activities 1,022,347 631,213 -------------- -------------- Cash flows from investing activities: Acquisition of stock (Note 4) (6,298,205) - Proceeds from sale of equipment 1,250 - Capital expenditures (499,059) (248,496) -------------- -------------- Net cash used in investing activities (6,796,014) (248,496) -------------- -------------- Cash flows from financing activities: Borrowings under bank line of credit 3,500,000 1,200,000 Proceeds from exercise of stock options 316,149 99,266 Payments under lines of credit (4,200,000) (800,000) Payments of long-term debt (8,428) (1,052,032) Purchase of treasury stock (340,469) - -------------- -------------- Net cash used in financing activities (732,748) (552,766) -------------- -------------- Net decrease in cash and cash equivalents (6,506,415) (170,049) Cash and cash equivalents at beginning of period 10,689,193 1,194,650 -------------- -------------- Cash and cash equivalents at end of period $ 4,182,778 $ 1,024,601 ============== ==============
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 inter-company 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 2,1998) 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 1, 1998 and August 2,1998 are summarized as follows: November 1, August 2, 1998 1998 ----------- ----------- Purchased parts and raw materials $ 6,817,534 $ 7,377,882 Work in process 7,309,761 7,303,533 Finished products 526,380 387,203 ---------- ---------- $ 14,653,675 $ 15,068,618 ========== ========== 3. In July 1998, the Company renewed the revolving credit agreement with a bank that provides for the extension of credit in the aggregate principal amount of $21,000,000 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. Interest is set biweekly at 1.65% over the FOMC Target Rate. 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 1, 1998, stand-by letters of credit aggregating $1,505,285 were outstanding under this facility. The agreement contains various financial covenants, including, among other matters, the maintenance of working capital, tangible net worth, and restrictions on other borrowings. 4. As of August 21, 1998, the Company entered into an agreement to acquire all of the issued and outstanding common stock of General Microwave Corp., a New York corporation, for $18.00 per share and a three-year warrant to purchase one share of the Company's common stock at an aggregate purchase price of approximately $23,500,000. The estimated purchase price includes shares of common stock of General Microwave purchased in the open market, acquisition of the remaining shares of common stock outstanding, an estimate of the value of the warrants, and estimated transaction expenses. The warrant is exercisable at $14.40 per share through January 11, 1999, and thereafter at $15.60 per share, until expiration. General Microwave designs, manufactures and markets microwave components and subsystems, and related electronic test and measurement equipment. The company is headquartered in Amityville, New York, and operates two other facilities, one in Billerica, Massachusetts, and one in Israel. The transaction is subject to the approval of the stockholders of General Microwave Corp. at a meeting to be held on January 6, 1999, and is expected to close on or about January 8, 1999. The transaction will be accounted for under the purchase method. As of December 1, 1998, the Company has acquired 365,600 shares of General Microwave in the open market for approximately $6,298,000 including certain acquisition costs. 5 5. The following table shows the calculation of basic earnings per share and earnings per share assuming dilution: Thirteen weeks ended -------------------------- November 1, November 2, 1998 1997 ----------- ----------- Numerator: Net Income $ 1,791,953 $ 1,344,249 ========= ========= Denominator: Basic weighted-average shares 5,295,245 4,535,898 Effect of dilutive securities: Employee stock options and warrants 243,021 692,322 --------- --------- Diluted weighted-average shares 5,538,266 5,228,220 ========= ========= Earnings per common share - Basic $ .34 $ .30 === === Earnings per common share - Diluted $ .32 $ .26 === === Options and warrants to purchase 1,967,333 shares of common stock, with exercise prices ranging from $9.25 to $14.40 were outstanding during the first quarter of fiscal 1999 but were not included in the computation of diluted EPS because the exercise prices are greater than the average market price of the common shares. The options and warrants, which expire at various dates through August 14, 2008, were still outstanding as of November 1, 1998. All outstanding options and warrants as of November 2, 1997 were dilutive and included in the denominator. 6. Supplemental cash flow information is as follows: November 1, 1998 November 2, 1997 ---------------- ---------------- Cash paid during the period for: Interest $ 29,110 $ 17,513 Income Taxes 10,300 85,230 Cashless exercise of stock options 34,384 - Tax benefit related to stock options 93,000 - 6 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. Results of Operations - --------------------- Thirteen weeks ended November 1, 1998 and Fourteen weeks ended November 2, 1997 - ------------------------------------------------------------------------------- Net sales for the 13 weeks ended November 1, 1998 were approximately $11,651,000 compared to $10,573,000 in the first quarter of fiscal 1998. The sales increase of $1,078,000 (10.2%) is primarily attributable to increased volume in microwave components. Gross profit of 41.9% for the 13 weeks ended November 2, 1997 exceeded that of the first quarter in the prior year of 38.6% due to higher margins on microwave components and certain foreign contracts as well as an increase in absorption of fixed costs due to the overall higher sales volume. Selling and administrative expenses for the 13 weeks ended November 1, 1998 were $2,124,000 compared to $2,003,000 in the first quarter of fiscal 1998, an increase of $121,000. Increases in representative fees of $313,000 and personnel costs of $79,000 were partially offset by reductions in license fees for MAGIC2 of $227,000, and performance incentives of $46,000. Business Acquisition - -------------------- As of August 21, 1998, the Company entered into an agreement to acquire all of the issued and outstanding common stock of General Microwave Corp., a New York corporation, for $18.00 per share and a three-year warrant to purchase one share of the Company's common stock at an aggregate purchase price of approximately $23,500,000. The estimated purchase price includes shares of common stock of General Microwave purchased in the open market, acquisition of the remaining shares of common stock outstanding, an estimate of the value of the warrants, and estimated transaction expenses. The warrant is exercisable at $14.40 per share through January 11, 1999, and thereafter at $15.60 per share, until expiration. General Microwave designs, manufactures and markets microwave components and subsystems, and related electronic test and measurement equipment. The company is headquartered in Amityville, New York, and operates two other facilities, one in Billerica, Massachusetts, and one in Israel. The transaction is subject to the approval of the stockholders of General Microwave Corp. at a meeting to be held on January 6, 1999, and is expected to close on or about January 8, 1999. The transaction will be accounted for under the purchase method. As of December 1, 1998, the Company has acquired 365,600 shares of General Microwave in the open market for approximately $6,298,000 including certain acquisition costs. Liquidity and Capital Resources - ------------------------------- As of November 1, 1998 and August 2, 1998, working capital was approximately $21,758,000 and $26,593,000, respectively, and the ratio of current assets to current liabilities was 3.20 to 1 and 3.70 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 $1,595,000 at November 1, 1998, and $1,825,000 at August 2, 1998. 7 Net cash provided by operations during the quarter was approximately $1,022,000. Net cash used in investing activities consists of the purchase of 365,600 shares of common stock of General Microwave Corporation in the open market and certain expenses aggregating approximately $6,298,000 in connection with the acquisition as discussed above, and $499,000 for capital expenditures. The Company maintains a revolving credit facility with a bank for an aggregate of $21,000,000 which expires January 31, 2000. As of November 1, 1998 and August 2, 1998, the Company had borrowings outstanding of $800,000 and $1,500,000, respectively. During the quarter ended November 1, 1998, the Company received net proceeds of approximately $316,000 from the exercise of common stock options and warrants by employees and acquired 42,500 shares of treasury stock through open market purchases at a cost of $340,000. Such shares have been retired. At November 1, 1998, the Company had cash and cash equivalents of approximately $4,183,000. The Company believes that presently anticipated future cash requirements will be provided by internally generated funds and existing credit facilities. Year 2000 Readiness - ------------------- The "Year 2000" problem relates to computer systems that have time and date-sensitive programs that were designed to read years beginning with "19", but may not properly recognize the year 2000. If a computer system or software application used by the Company or a third party dealing with the Company fails because of the inability of the system or application to properly read the year 2000 the results could have a material adverse effect on the Company. A substantial part of the Company's revenues are derived from firm fixed price contracts with U.S. government agencies, prime contractors or subcontractors on military or aerospace programs, and many foreign governments. If the Company is unable to perform under these contracts due to a Year 2000 problem, the customer could terminate the contract for default. While lost revenues from such an event are a concern for the Company, the greater risks are the consequential damages for which the Company could be liable for failure to perform under the contracts. Such damages could have a material adverse impact on the Company's results of operations and financial position. The most likely reason for a customer to terminate a contract for default would be due to the Company's inability to manufacture and deliver product under the contract. Breakdowns in any number of the Company's computer systems and applications could prevent the Company from being able to manufacture and ship its products. Examples are failures in the Company's manufacturing application software, computer chips embedded in engineering test equipment, lack of supply of materials from its suppliers, or lack of power, heat, or water from utilities servicing its facilities. The Company's products do not contain computer devices that require remediation to meet Year 2000 requirements. A review of the Company's status with respect to remediating its computer systems for Year 2000 compliance is presented below. For its information technology, the Company currently utilizes a Hewlett Packard HP3000-based computing environment. The HP3000 hardware is in compliance with Year 2000 requirements. The Company's financial, manufacturing, and other software applications related to the HP3000 were updated to comply with Year 2000 requirements during the fiscal year ended August 2, 1998 at a cost of approximately $350,000. Certain modules have been fully tested, with the remaining modules to be tested by the end of fiscal 1999. In addition, the Company utilizes a wide area network ("WAN") to connect its operating facilities to the HP3000. The WAN has been updated to comply with Year 2000 requirements. A local area network ("LAN") is used to supplement the HP3000 environment and has also been upgraded and is fully Year 2000 compliant. 8 The Company is also reviewing its utility systems (heat, light, phones, liquid nitrogen, etc.) for the impact of Year 2000, as well as determining the state of readiness of its material suppliers. The Company has mailed a questionnaire to its significant suppliers, and will be mailing the questionnaire to its test equipment manufacturers concerning embedded technology, regarding their compliance and attempt to identify any problem areas with respect to them. This process will be ongoing and the Company's efforts with respect to specific problems identified, and future costs associated with them, will depend in part upon its assessment of the risk that any such problems may cause a disruption in manufacturing or other problem which the Company believes would have a material adverse impact on its operations. However, the Company cannot control the conduct of its suppliers. Therefore, there can be no guarantee that Year 2000 problems originating with a supplier will not occur. The Company has not yet developed contingency plans in the event of a Year 2000 failure caused by a supplier or third party, but would intend to do so if a specific problem is identified through the process described above. The Company has developed multiple sources for a substantial portion of its raw material requirements and, therefore, does not believe there would be a significant disruption in supply. The information set forth above identifies the key steps taken by the Company to address the Year 2000 problem. There can be no absolute assurance that third parties will convert their systems in a timely manner. The Company believes that its actions will minimize these risks and that any additional cost of Year 2000 compliance for its information and production systems will not be material to its consolidated results of operations and financial position. Item 3: Quantitative and Qualitative Disclosures About Market Risk The Company is subject to market risk associated with changes in interest rates and stock prices. The Company has not entered into any derivative financial instruments to manage the above risks and the Company has not entered into any market risk sensitive instruments for trading purposes. There have been no material changes in market risk to the Company since its fiscal year end as disclosed in the Company's Annual Report Form 10K as of August 2, 1998. 9 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) During the quarter for which this report is filed, the Registrant filed the following reports under Form 8-K: None 10 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 14, 1998 10 EX-27 2 FDS--NOV-1-1998
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE 13 WEEKS ENDED NOVEMBER 1, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS AUG-1-1999 AUG-3-1998 NOV-1-1998 4,182,778 0 7,285,601 0 14,653,675 31,670,655 27,620,232 15,362,157 58,998,508 9,912,179 0 0 0 529,554 41,678,329 58,998,508 11,650,845 11,650,845 6,771,320 8,895,093 0 0 101,916 2,756,953 965,000 1,791,953 0 0 0 1,791,953 0.34 0.32
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