-----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, IUGJZ26/5jjBjrIi/2p9diwhaMW2sGlzTjWykhrymHhG9uaMOyrqpCJrsqnd0d+B mbge/BX5k32Qxv/nvlyOVw== 0000047035-03-000016.txt : 20031217 0000047035-03-000016.hdr.sgml : 20031217 20031217113307 ACCESSION NUMBER: 0000047035-03-000016 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20031102 FILED AS OF DATE: 20031217 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: 1934 Act SEC FILE NUMBER: 000-05411 FILM NUMBER: 031059083 BUSINESS ADDRESS: STREET 1: 101 NORTH POINTE BOULEVARD CITY: LANCASTER STATE: PA ZIP: 17601-4133 BUSINESS PHONE: 7177358117 MAIL ADDRESS: STREET 1: 101 NORTH POINTE BOULEVARD CITY: LANCASTER STATE: PA ZIP: 17601-4133 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 filing10q110203.txt QUARTER ENDED NOVEMBER 2, 2003 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, 2003 ---------------- 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) 101 North Pointe Boulevard, Lancaster, Pennsylvania 17601 - --------------------------------------------------- ----- (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, including Area Code: (717) 735-8117 -------------- ------------------------------------------------------ (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 8, 2003 - 14,057,301 shares of Common Stock. HERLEY INDUSTRIES, INC AND SUBSIDIARIES INDEX TO FORM 10-Q PAGE PART I - FINANCIAL INFORMATION Item 1 - Financial Statements: Condensed Consolidated Balance Sheets - November 2, 2003 and August 3, 2003 2 Condensed Consolidated Statements of Income - For the Thirteen weeks ended November 2, 2003 and Fourteen weeks ended November 3, 2002 3 Condensed Consolidated Statement of Shareholders' Equity- For the Thirteen weeks ended November 2, 2003 4 Condensed Consolidated Statements of Cash Flows - For the Thirteen weeks ended November 2, 2003 and Fourteen weeks ended November 3, 2002 5 Notes to Condensed Consolidated Financial Statements 6 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 12 Item 3 - Quantitative and Qualitative Disclosures About Market Risk 16 Item 4 - Controls and Procedures 16 PART II -OTHER INFORMATION Item 1 - Legal Proceedings 17 Item 6 - Exhibits and Reports on Form 8K 18 Signatures 19
HERLEY INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share data) November 2, August 3, 2003 2003 ----------- --------- (Unaudited) (Audited) ASSETS Current Assets: Cash and cash equivalents $ 82,538 $ 81,523 Accounts receivable 14,251 16,525 Costs incurred and income recognized in excess of billings on uncompleted contracts 12,389 6,960 Other receivables 735 827 Inventories, net of allowance of $2,815 at November 2003 and $2,739 at August 2003 39,280 37,545 Deferred taxes and other 3,450 3,207 --------- --------- Total Current Assets 152,643 146,587 Property, Plant and Equipment, net 22,720 22,406 Goodwill 25,729 25,729 Intangibles, net of accumulated amortization of $472 at November 2003 and $403 at August 2003 1,473 1,542 Available-For-Sale Securities 75 75 Other Investments 142 162 Other Assets 1,009 1,063 --------- --------- $ 203,791 $ 197,564 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Current portion of long-term debt $ 758 $ 686 Accounts payable and accrued expenses 13,699 14,026 Billings in excess of costs incurred and income recognized on uncompleted contracts 1,294 -- Income taxes payable 3,322 2,670 Reserve for contract losses 977 736 Advance payments on contracts 585 856 --------- --------- Total Current Liabilities 20,635 18,974 Long-term Debt 5,892 6,403 Deferred Income Taxes 4,928 4,945 --------- --------- 31,455 30,322 --------- --------- Commitments and Contingencies Shareholders' Equity: Common stock, $.10 par value; authorized 20,000,000 shares; issued and outstanding 14,052,801 at November 2003 and 13,969,151 at August 2003 1,405 1,397 Additional paid-in capital 105,486 104,551 Retained earnings 65,419 61,478 Accumulated other comprehensive income (loss) 26 (184) --------- --------- Total Shareholders' Equity 172,336 167,242 --------- --------- $ 203,791 $ 197,564 ========= =========
The accompanying notes are an integral part of these financial statements. 2
HERLEY INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (In thousands except per share data) 13 weeks ended 14 weeks ended November 2, November 3, 2003 2002 -------------- -------------- Net sales $ 28,267 $ 27,290 -------- -------- Cost and expenses: Cost of products sold 17,625 18,099 Selling and administrative expenses 4,743 3,735 Litigation costs 37 650 -------- -------- 22,405 22,484 -------- -------- Operating Income 5,862 4,806 -------- -------- Other (expense) income, net: Investment income 176 368 Interest expense (87) (95) Foreign exchange (loss) (173) -- -------- -------- (84) 273 -------- -------- Income before income taxes 5,778 5,079 Provision for income taxes 1,837 1,727 -------- -------- Net income $ 3,941 $ 3,352 ======== ======== Earnings per common share - Basic $ .28 $ .23 ======== ======== Basic weighted average shares 14,013 14,668 ======== ======== Earnings per common share - Diluted $ .27 $ .22 ======== ======== Diluted weighted average shares 14,782 15,506 ======== ========
The accompanying notes are an integral part of these financial statements. 3
HERLEY INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY 13 weeks ended November 2, 2003 (In thousands except share data) Accumulated Additional Other Common Stock Paid-in Retained Comprehensive ------------ Capital Earnings Income (Loss) Total ------- -------- ------------- ----- Shares Amount ------ ------ Balance at August 03, 2003 13,969,151 $ 1,397 104,551 61,478 (184) $ 167,242 Net income 3,941 3,941 Exercise of stock options 83,650 8 710 718 Tax benefit upon exercise of stock options 225 225 Other comprehensive income (loss): Unrealized (loss) on interest rate swap (35) (35) Foreign currency translation gain 245 245 ----------- ----------- ----------- ----------- ----------- ----------- Balance at November 2, 2003 14,052,801 $ 1,405 105,486 65,419 26 $ 172,336 =========== =========== =========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements. 4
HERLEY INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) 13 weeks ended 14 weeks ended November 2, November 3, 2003 2002 ----------- ----------- Cash flows from operating activities: Net income $ 3,941 $ 3,352 -------- -------- Adjustments to reconcile net income to net cash provided by operations: Depreciation and amortization 966 968 Foreign exchange loss 130 -- Equity in income of limited partnership -- (2) Changes in operating assets and liabilities: Decrease (increase) in accounts receivable 2,274 (4,374) (Increase) decrease in costs incurred and income recognized in excess of billings on uncompleted contracts (5,429) 832 Decrease (increase) in other receivables 92 (106) (Increase) in inventories (1,735) (2,035) Decrease in prepaid income taxes -- 382 (Increase) in prepaid expenses and other (243) (31) (Decrease) increase in accounts payable and accrued expenses (327) 1,812 Increase in billings in excess of costs incurred and income recognized on uncompleted contracts 1,294 -- Increase in income taxes payable 877 1,261 Increase in reserve for contract losses 241 9 (Decrease) increase in advance payments on contracts (271) 354 Other, net 275 77 -------- -------- Total adjustments (1,856) (853) -------- -------- Net cash provided by operations 2,085 2,499 -------- -------- Cash flows from investing activities: Acquisition of businesses, net of cash acquired -- (2,384) Partial distribution from limited partnership 20 -- Capital expenditures (1,187) (1,106) -------- -------- Net cash used in investing activities (1,167) (3,490) -------- -------- Cash flows from financing activities: Proceeds from exercise of stock options 718 335 Payments of long-term debt (621) (124) Purchase of treasury stock -- (3,156) -------- -------- Net cash provided by (used in) financing activities 97 (2,945) -------- -------- Net (decrease) increase in cash and cash equivalents 1,015 (3,936) Cash and cash equivalents at beginning of period 81,523 86,210 -------- -------- Cash and cash equivalents at end of period $ 82,538 $ 82,274 ======== ========
The accompanying notes are an integral part of these financial statements. 5 Herley Industries, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements - (Unaudited) 1. The condensed 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's management, the accompanying condensed consolidated financial statements reflect all adjustments (which include only normal recurring adjustments) necessary to present fairly the consolidated financial position and results of operations and cash flows for the periods presented. These financial statements (except for the balance sheet presented at August 3, 2003) 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. In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." The statement is effective for fiscal years beginning after December 31, 2002. SFAS No. 146 requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Adoption of this Standard did not have a material impact on the Company's financial position or results of operations. In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 requires the recognition of liabilities for guarantees that are issued or modified subsequent to December 31, 2002. The liabilities should reflect the fair value, at inception, of the guarantors' obligations to stand ready to perform, in the event that the specified triggering events or conditions occur. Adoption of this Interpretation did not have a material effect on the Company's results of operations or financial condition. In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure, an amendment of FASB Statement No. 123." The new statement is effective, with respect to the transition provisions, for fiscal years ending after December 15, 2002; and with respect to the disclosure provisions, for financial reports containing condensed financial statements for interim periods beginning after December 15, 2002. SFAS No. 148 provides transition alternatives for companies adopting the fair value recognition provisions of FASB Statement No. 123 for stock-based employee compensation; and requires the pro forma disclosures of SFAS No. 123 in interim condensed financial statements for companies continuing to rely on APB Opinion No. 25 as if the provisions of SFAS No. 123 had been adopted. The statement also requires that the pro-forma disclosures of the impact on earnings and earnings-per-share be provided in a tabular format and included in the Summary of Significant Accounting Policies or equivalent. The effect of the adoption of SFAS No. 148 was the inclusion of the required disclosures in the Company's condensed consolidated interim financial statements in its quarterly reports, and the addition of a significant accounting policies note included in the Company's Annual Report on Form 10K. The Company has various fixed option plans which reserve shares of common stock for issuance to executives, key employees and directors. The Company continues to use the intrinsic value method in accordance with the recognition and measurement principles of APB Opinion No. 25 and related Interpretations in accounting for these plans. Statement of Financial Accounting Standards No.123, "Accounting for Stock-Based Compensation" 6 ("SFAS 123") was issued by the FASB in 1995 and , if fully adopted, changes the methods for recognition of cost on plans similar to those of the Company. The Company has adopted the disclosure-only provisions of SFAS 123 and SFAS 148. Accordingly, no stock-based employee compensation cost has been recognized for options granted under the stock option plans. Pro forma information regarding net income and earnings per share as required by Statements 123 and 148 has been determined as if the Company had accounted for its employee stock options under the fair value method of Statement 123. The fair value for options granted is estimated at the date of grant using a Black-Scholes option pricing model. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. For purposes of computing pro-forma (unaudited) consolidated net earnings, the following assumptions were used to calculate the fair value of each option granted for all periods presented: Expected life of options 1.51 years Volatility .68 Risk-free interest rate 2.8% Dividend yield zero Had compensation cost for stock options granted in the first quarter of fiscal years 2004 and 2003 been determined based on the fair value at the grant date consistent with the provisions of SFAS 123, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below using the statutory income tax rate of 34% (in thousands except per share data):
Thirteen weeks ended Fourteen weeks ended November 2, 2003 November 3, 2002 ---------------- ---------------- Net income - as reported $ 3,941 $ 3,352 Deduct: total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects (206) (898) ------- -------- Net income - pro forma $ 3,735 $ 2,454 ======= ======== Earnings per share - as reported Basic $ .28 $ .23 Diluted .27 .22 Earnings per share - pro forma Basic $ .27 $ .17 Diluted .25 .16
The effects of applying the pro forma disclosures of SFAS 123 are not likely to be representative of the effects on reported net income for future years due to the various vesting schedules. In January 2003, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 46, "Consolidation of Variable Interest Entities." The Interpretation clarifies the application of Accounting Research Bulletin No. 51, "Consolidated Financial Statements," to certain entities in which the equity investors do not 7 have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The Interpretation applies immediately to variable interest entities created after January 31, 2003, or in which the Company obtains an interest after that date. The Interpretation is effective July 1, 2003 to variable interest entities in which the Company holds a variable interest acquired before February 1, 2003. Management has determined that the adoption of this Interpretation will not have a significant impact on its financial position or results of operations. In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 Derivative Instruments and Hedging Activities." The Statement amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under Statement 133. The Statement is effective for contracts entered into or modified after June 30, 2003, except as stated below and for hedging relationships designated after June 30, 2003. The provisions of Statement 149 that relate to Statement 133 implementation issues that have been effective for fiscal quarters that began prior to June 15, 2003, will continue to be applied in accordance with their respective effective dates. In addition, certain provisions relating to forward purchases or sales of when-issued securities or other securities that do not yet exist, will apply to existing contracts, as well as new contracts entered into after June 30, 2003. Management has determined that the adoption of this Statement will not have a significant impact on the financial position, results of operations or cash flows of the Company. In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." The Statement establishes standards for how an issuer classifies and measures in its statement of financial position certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances) because that financial instrument embodies an obligation of the issuer. Many of such instruments were previously classified as equity. The statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003, except for mandatorily redeemable financial instruments of nonpublic entities. The Statement is to be implemented by reporting the cumulative effect of a change in accounting principle for financial instruments created before the issuance of the date of the Statement and still existing at the beginning of the interim period of adoption. Restatement is not permitted. Management believes that the adoption of this Statement will not have a significant impact on the financial position, results of operations or cash flows of the Company. 2. Inventories at November 2, 2003 and August 3, 2003 are summarized as follows (in thousands):
November 2, 2003 August 3, 2003 ---------------- -------------- Purchased parts and raw materials $ 19,801 $ 19,690 Work in process 19,692 18,646 Finished products 2,602 1,948 -------- -------- 42,095 40,284 Less reserve for excess and obsolete materials 2,815 2,739 -------- -------- $ 39,280 $ 37,545 ======== ========
3. The Company recognizes all derivatives on the balance sheet at fair value. On the date the derivative instrument is entered into, the Company generally designates the derivative as either (1) a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment ("fair value hedge") or (2) a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or 8 liability ("cash flow hedge"). Changes in the fair value of a derivative that is designated as, and meets all the required criteria for, a cash flow hedge are recorded in accumulated other comprehensive income (loss) and reclassified into earnings as the underlying hedged item affects earnings. In October 2001, the Company entered into an interest rate swap with a bank pursuant to which it exchanged floating rate interest in connection with the East Hempfield Township Industrial Development Authority Variable Rate Demand/Fixed Rate Revenue Bonds Series 2001 (the "Bonds") on a notional amount of $3,000,000 for a fixed rate of 4.07% for a 10 year period ending October 1, 2011. The notional amount reduces each year in tandem with the annual installments due on the Bonds. The fixing of the interest rate for this period offsets the Company's exposure to the uncertainty of floating interest rates on the Bonds, and as such has been designated as a cash flow hedge. The hedge is deemed to be highly effective and any ineffectiveness will be recognized in interest expense in the reporting period. The fair value of the interest rate swap was a liability of approximately $125,000, net of income taxes, as of November 2, 2003. There was no material hedge ineffectiveness related to cash flow hedges during the period to be recognized in earnings. There was no gain or loss reclassified from accumulated other comprehensive income into earnings during the quarter ended November 2, 2003 as a result of the discontinuance of a cash flow hedge due to the probability of the original forecasted transaction not occurring. 4. The Company adopted the provisions of SFAS No. 142 "Goodwill and Other Intangible Assets" on July 30, 2001. SFAS No. 142 requires the use of a non-amortization approach to account for purchased goodwill and certain intangibles. Under a non-amortization approach, goodwill and certain intangibles are not amortized into results of operations, but instead are reviewed for impairment and written down and charged to results of operations in the periods in which the recorded value of goodwill and certain intangibles is more than its fair value. The adoption of SFAS No.142 resulted in the Company's discontinuation of amortization of its goodwill and certain intangible assets. An annual impairment test is performed in the fourth quarter of each fiscal year and any future impairment of goodwill will be charged to operations. There was no change in the carrying amount of goodwill of $25,729,000 for the quarter ended November 2, 2003. Intangibles, consisting of patents and intangibles related to the acquisition of EWST (See Note 9), are carried at an aggregate gross amount of $1,945,000 with accumulated amortization at November 2, 2003 of $472,000. Amortization expense for the thirteen weeks ended November 2, 2003 and for the fourteen weeks ended November 3, 2002 was approximately $69,000 and $11,000, respectively. Estimated aggregate amortization expense for each of the next five fiscal years is as follows (in thousands): 2004 $ 277 2005 129 2006 116 2007 115 2008 109 The carrying amount of intangibles is evaluated on a recurring basis. 5. The Company is involved in various legal proceedings and claims which arise in the ordinary course of its business. While any litigation contains an element of uncertainty, management believes that the outcome of such litigation will not have a material adverse effect on the Company's financial position or results of operations. In connection with the Robinson Laboratories, Inc. litigation, as discussed in Part II, Item 1. "Legal 9 Proceedings", at a proceeding on April 28, 2003, the Court decided to delay ruling on all of the petitions for fees and costs until after appeals are exhausted. Accordingly, by Order dated May 6, 2003, the Court denied without prejudice all of the parties' petitions. On May 12, 2003, Herley filed its appeal to the United States Court of Appeals for the Second Circuit. On May 28, 2003, RLI filed a notice of cross-appeal. Robinson has not appealed. Herley filed its brief in support of its appeal before the Second Circuit on August 22, 2003. RLI timely filed its brief in response to Herley's appeal and in support of RLI's cross-appeal. Herley timely filed a response to RLI's brief and thereafter RLI timely filed a response to Herley's brief. The briefing schedule is now completed and oral argument is scheduled for December 18, 2003. 6. The following tables show the components used in the calculation of basic and diluted weighted-average shares outstanding (in thousands):
Thirteen weeks ended Fourteen weeks ended November 2, 2003 November 3, 2002 ---------------- ---------------- Basic weighted-average shares 14,013 14,668 Effect of dilutive securities: Employee stock options and warrants 769 838 ------ ------ Diluted weighted-average shares 14,782 15,506 ====== ======
Options to purchase 697,302 weighted shares of common stock, with exercise prices ranging from $18.85 to $19.52, were outstanding during the first quarter of fiscal 2004, but were not included in the computation of diluted EPS because the exercise price is greater than the average market price of the common stock. The options, which expire through November 15, 2008, were still outstanding as of November 2, 2003. Options to purchase 675,541 weighted shares of common stock, with exercise prices ranging from $19.03 to $19.52, were outstanding during the first quarter of fiscal 2003, but were not included in the computation of diluted EPS because the exercise price is greater than the average market price of the common stock. The options, which expire through May 21, 2012, were still outstanding as of November 3, 2002. 7. The components of comprehensive income are as follows (in thousands):
Thirteen weeks ended Fourteen weeks ended November 2, 2003 November 3, 2002 ---------------- ---------------- Net income $ 3,941 $ 3,352 Unrealized loss on interest rate swap (35) (12) Foreign currency translation gain 244 1 -------- -------- Comprehensive income $ 4,150 $ 3,341 ======== ========
The components of accumulated other comprehensive income (loss) is as follows (in thousands): November 2, 2003 ---------------- Unrealized loss on available-for-sale securities $ (48) Unrealized loss on interest rate swap (85) Foreign currency translation gain 159 -------- Accumulated other comprehensive income (loss) $ 26 ======== 8. Revenues for the first quarter of fiscal years 2004, and 2003 were as follows: defense electronics, $27,299,000, 10 and $24,547,000, respectively; and commercial technologies, $968,000, and $2,743,000, respectively. Defense electronics includes revenue of $3,140,000 and $1,322,000 in fiscal 2004 and 2003, respectively, attributable to the EWST acquisition. Geographic net sales, based on place of contract performance, were as follows (in thousands):
Thirteen weeks ended Fourteen weeks ended November 2, 2003 November 3, 2002 ---------------- ---------------- United States $ 22,071 $ 23,157 Israel 3,056 2,811 England 3,140 1,322 -------- --------- $ 28,267 $ 27,290 ======== =========
Net property, plant and equipment by geographic area was as follows (in thousands):
November 2, 2003 August 3, 2003 ---------------- -------------- United States $ 19,217 $ 18,945 Israel 3,100 3,071 England 403 390 --------- --------- $ 22,720 $ 22,406 ========= =========
9. The Company entered into an agreement as of September 1, 2002, to acquire all of the issued and outstanding common stock of EW Simulation Technology, Limited ("EWST"), a British company of Aldershot, UK, which operates as a wholly-owned subsidiary of the Company. EWST designs, develops and produces electronic warfare simulator systems for prime defense contractors and countries worldwide. The acquisition of EW Simulation Technology was driven by a two part strategic initiative: a) to leverage the Company's microwave expertise vertically into the international threat and jamming simulator markets, and b) to increase the amount of microwave content supplied by the Company on each simulator platform. The transaction, which closed on September 20, 2002, provides for payment of $3,000,000 in cash and a note for $1,500,000, including interest at 1.8% based on LIBOR at the date of acquisition. The note has a balance of $1,130,000 at November 2, 2003 (adjusted for foreign exchange rate fluctuations) payable in two remaining installments annually on October 1, of $565,000. The transaction has been accounted for in accordance with the provisions of SFAS No. 141, "Business Combinations", which requires that all business combinations be accounted for using the purchase method. 10. Supplemental cash flow information is as follows (in thousands):
Thirteen weeks ended Fourteen weeks ended November 2, 200 November 3, 2002 --------------- ---------------- Cash paid during the period for: Interest $ 80 $ 99 Income taxes 987 65 Tax benefit related to stock options 225 464 Deferred purchase price of business acquired - 1,500
11 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 Certain statements contained in this report are "forward-looking statements" that involve various important assumptions, risks, uncertainties and other factors which could cause the Company's actual results to differ materially from those expressed in such forward-looking statements. Forward-looking statements can be identified by terminology such as "may", "will","should","expects","intends","anticipates","believes","estimates", "predicts","continue", or the negative of these terms or other comparable terminology. These important factors include, without limitation, a large percentage of sales are under government contracts, cost overruns under fixed price contracts, doing business in foreign markets, customer concentration, competitive factors and pricing pressures, effective integration of acquired businesses, management of future growth, recruiting and retaining qualified technical personnel, general economic conditions, as well as other risks previously disclosed in the Company's securities filings and press releases. Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, it cannot guarantee future results, performance or achievements. Further, the Company is under no duty to update any of the forward-looking statements after the date of this quarterly report to conform such statements to actual results. Results of Operations - --------------------- Thirteen weeks ended November 2, 2003 and Fourteen weeks ended November 3, 2003 - ------------------------------------------------------------------------------- Net sales for the thirteen weeks ended November 2, 2003 were approximately $28,267,000 compared to $27,290,000 in the fourteen weeks ended November 3, 2002, an increase of $977,000 (3.5%). Net sales attributable to the acquisition of EWST accounted for $1,818,000 of the increase, and defense electronics microwave systems and components was $934,000 of the increase. This was offset by a decrease of $1,775,000 in commercial technologies. Inter-company sales, which were eliminated in consolidation, were approximately $2,000,000 in the quarter ended November 2, 2003 as compared to approximately $350,000 in the prior year quarter. The gross profit margin in the thirteen weeks ended November 2, 2003 was 37.6% compared to 33.7% in the first quarter of fiscal 2003. The increase in gross margin is attributable to the increased revenue at EWST, higher margins in the foreign market, as well as improvement in margins through a combination of production efficiencies related to product mix and more profitable microwave components shipped in the quarter. Selling and administrative expenses for the thirteen weeks ended November 2, 2003 were 16.8% of net sales as compared to 13.7% in the first quarter of fiscal 2003. Major components of the net increase in expenses of $1,008,000 includes increased expenses attributable to the acquisition of EWST of $201,000 (including amortization of acquired intangibles and additional personnel); an increase in incentive compensation under employment contracts and discretionary bonuses of $398,000; and additional personnel and related costs, primarily in domestic and international marketing, of $314,000. Litigation costs related to the Robinson Labs litigation were $37,000 in the first quarter of fiscal 2004, as compared to $650,000 in the first quarter of fiscal 2003. (See Part II, Item 1. "Legal Proceedings"). Investment income decreased by $192,000 in fiscal 2004 as a result of a 50% decline in the rate of interest earned on the investment of excess cash reserves and a decrease on average of $5,000,000 in funds invested. The foreign exchange loss in the first quarter of fiscal 2004 of $173,000 is attributable to the weaker U. S. dollar during the current quarter causing the Company's foreign denominated liabilities to increase in value resulting in 12 a net foreign exchange loss realized of $43,000, and an unrealized foreign exchange loss of $130,000. Liquidity and Capital Resources - ------------------------------- As of November 2, 2003 and August 3, 2003, working capital was $132,008,000 and $127,613,000, respectively, and the ratio of current assets to current liabilities was 7.4 to 1 and 7.7 to 1, respectively. As is customary in the defense industry, inventory is partially financed by customer deposits and progress payments. The unliquidated balance of these deposits and payments was approximately $585,000 at November 2, 2003, and $856,000 at August 3, 2003. Net cash provided by operations during the thirteen weeks ended November 2, 2003 was approximately $2,085,000 as compared to $2,499,000 during the comparable period in the prior year. Significant items contributing to the sources of funds include income from operations of $5,037,000 (adjusted for depreciation, amortization, and foreign exchange losses), and an increase in income taxes payable of $877,000. Offsetting these sources of funds are a net increase in costs incurred and income recognized on uncompleted contracts of $4,135,000, and an increase in inventory of $1,735,000. Net cash used in investing activities consists of $1,187,000 for capital expenditures. Net cash generated from financing activities of $97,000 consists primarily of the exercise of stock options for $718,000 and the payment of the deferred purchase price of EWST. The Company has a future commitment for $1,130,000 (adjusted for foreign exchange rate fluctuations), including interest at 1.8%, in connection with the acquisition of EWST payable in annual installments of $565,000. In June 2002, the Company entered into a new $50,000,000 revolving credit loan syndication agreement with two banks on an unsecured basis which may be used for general corporate purposes, including business acquisitions. The revolving credit facility requires the payment of interest only on a monthly basis and payment of the outstanding principal balance on January 31, 2005. The Company may elect to borrow up to a maximum of $5,000,000 with interest based on the Federal Funds Target Rate, as established by the Federal Open Market Committee ("FMOC") of the Federal Reserve Board, plus a margin of 1.50% to 1.80%, or up to a maximum of $45,000,000 with interest based on LIBOR plus a margin of 1.35% to 1.65%. The applicable incremental margin is based on the ratio of total liabilities to tangible net worth, as those terms are defined in the agreement, ranging from less than .40 to 1.0, to greater than 1.0 to 1.0. The FOMC Federal Funds Target Rate and the LIBOR rate was 1.00% and 1.12%, respectively, at November 2, 2003. There is a fee of 15 basis points per annum on the unused portion of the $45,000,000 LIBOR based portion of the credit facility payable quarterly. There were no borrowings outstanding as of November 2, 2003 and August 3, 2003. Stand-by letters of credit were outstanding in the amount of approximately $12,464,000 under the credit facility at November 2, 2003. The Company believes that presently anticipated future cash requirements will be provided by internally generated funds, its existing unsecured credit facility, and cash balances of approximately $83,000,000. A significant portion of the Company's revenue for fiscal 2004 will be generated from its existing backlog of sales orders. The backlog of orders at November 2, 2003 was approximately $92,000,000. All orders included in backlog are covered by signed contracts or purchase orders. Nevertheless, contracts involving government programs may be terminated at the discretion of the government. In the event of the cancellation of a significant amount of government contracts included in the Company's backlog, the Company will be required to rely more heavily on cash reserves and its existing credit facility to fund its operations. The Company is not aware of any events which are reasonably likely to result in any cancellation of its government contracts. The Company has $37,536,000 available under its bank credit facility, net of outstanding stand-by letters of credit of approximately $12,464,000. 13 Future payments required on long-term debt are as follows (in thousands):
Twelve months Industrial ended Mortgage revenue Other October Total note bonds obligations ------- ----- ---- ----- ----------- 2004 $ 758 $ 88 $ 105 $ 565 2005 770 95 110 565 2006 217 102 115 - 2007 231 111 120 - 2008 244 119 125 - Thereafter 4,430 2,075 2,230 125 ------- ------- ------- ------- $ 6,650 $ 2,590 $ 2,805 $ 1,255 ======= ======= ======= =======
Stand-by letters of credit expire as follows (in thousands): During fiscal year Amount ---- ------ 2004 $ 7,181 2005 514 2006 1,922 2007 2,847 -------- $ 12,464 ======== Minimum annual rentals under noncancellable operating leases are as follows (in thousands): During fiscal year Amount ---- ------ 2004 $ 1,275 2005 1,056 2006 978 2007 983 2008 958 Thereafter 1,171 ------- $ 6,421 ======= Critical Accounting Policies - ---------------------------- Revenue under certain long-term, fixed price contracts is recognized using the percentage of completion method of accounting. Revenue recognized on these contracts is based on estimated completion to date (the total contract amount multiplied by percent of performance, based on total costs incurred in relation to total estimated cost at completion). Prospective losses on long-term contracts are based upon the anticipated excess of inventoriable manufacturing costs over the selling price of the remaining units to be delivered and are recorded when first reasonably determinable. Contract costs include all direct material and labor costs and those indirect costs related to contract performance. Actual losses could differ from those estimated due to changes in the ultimate manufacturing costs. Risks and uncertainties inherent in the estimation process could affect the amounts reported in our financial statements. The key assumptions used in the estimate of costs to complete relate to labor costs and 14 indirect costs required to complete the contract. The estimate of rates and hours as well as the application of overhead costs is reviewed on a regular basis. If our business conditions were different, or if we used different assumptions in the application of this and other accounting policies, it is likely that materially different amounts would be reported on our financial statements. New Accounting Pronouncements - ----------------------------- In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." The statement is effective for fiscal years beginning after December 31, 2002. SFAS No. 146 requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Adoption of this Standard did not have a material impact on the Company's financial position or results of operations. In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 requires the recognition of liabilities for guarantees that are issued or modified subsequent to December 31, 2002. The liabilities should reflect the fair value, at inception, of the guarantors' obligations to stand ready to perform, in the event that the specified triggering events or conditions occur. Adoption of this Interpretation did not have a material effect on the Company's results of operations or financial condition. In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure, an amendment of FASB Statement No. 123." The new statement is effective, with respect to the transition provisions, for fiscal years ending after December 15, 2002; and with respect to the disclosure provisions, for financial reports containing condensed financial statements for interim periods beginning after December 15, 2002. SFAS No. 148 provides transition alternatives for companies adopting the fair value recognition provisions of FASB Statement No. 123 for stock-based employee compensation; and requires the pro forma disclosures of SFAS No. 123 in interim condensed financial statements for companies continuing to rely on APB Opinion No. 25 as if the provisions of SFAS No. 123 had been adopted. The statement also requires that the pro-forma disclosures of the impact on earnings and earnings-per-share be provided in a tabular format and included in the Summary of Significant Accounting Policies or equivalent. The effect of the adoption of SFAS No. 148 was the inclusion of the required disclosures in the Company's condensed consolidated interim financial statements in its quarterly reports, and the addition of a significant accounting policies note included in the Company's Annual Report on Form 10K. In January 2003, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 46, "Consolidation of Variable Interest Entities." The Interpretation clarifies the application of Accounting Research Bulletin No. 51, "Consolidated Financial Statements," to certain entities in which the equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The Interpretation applies immediately to variable interest entities created after January 31, 2003, or in which the Company obtains an interest after that date. The Interpretation is effective July 1, 2003 to variable interest entities in which the Company holds a variable interest acquired before February 1, 2003. Management has determined that the adoption of this Interpretation will not have a significant impact on its financial position or results of operations. In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 Derivative Instruments and Hedging Activities." The Statement amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under Statement 133. The Statement is effective for contracts entered into or modified after June 30, 2003, except as stated below and for hedging relationships 15 designated after June 30, 2003. The provisions of Statement 149 that relate to Statement 133 implementation issues that have been effective for fiscal quarters that began prior to June 15, 2003, will continue to be applied in accordance with their respective effective dates. In addition, certain provisions relating to forward purchases or sales of when-issued securities or other securities that do not yet exist, will apply to existing contracts, as well as new contracts entered into after June 30, 2003. Management has determined that the adoption of this Statement will not have a significant impact on the financial position, results of operations or cash flows of the Company. In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." The Statement establishes standards for how an issuer classifies and measures in its statement of financial position certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances) because that financial instrument embodies an obligation of the issuer. Many of such instruments were previously classified as equity. The statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003, except for mandatorily redeemable financial instruments of nonpublic entities. The Statement is to be implemented by reporting the cumulative effect of a change in accounting principle for financial instruments created before the issuance of the date of the Statement and still existing at the beginning of the interim period of adoption. Restatement is not permitted. Management believes that the adoption of this Statement will not have a significant impact on the financial position, results of operations or cash flows of the Company. Item 3: Quantitative and Qualitative Disclosures About Market Risk The Company is subject to market risk associated with changes in interest rates, and foreign currency exchange. The Company has not entered into any market risk sensitive instruments for trading purposes. In October 2001, the Company entered into an interest rate swap with a bank pursuant to which it exchanged floating rate interest in connection with the Bonds discussed in Note 3 on a notional amount of $3,000,000 for a fixed rate of 4.07% for a 10 year period ending October 1, 2011. The notional amount reduces each year in tandem with the annual installments due on the Bonds. The fixing of the interest rate for this period offsets the Company's exposure to the uncertainty of floating interest rates on the Bonds, and as such has been designated as a cash flow hedge. The hedge is deemed to be highly effective and any ineffectiveness will be recognized in interest expense in the reporting period. The fair value of the interest rate swap was a liability of approximately $125,000, net of income taxes, as of November 2, 2003. There was no material hedge ineffectiveness related to cash flow hedges during the period to be recognized in earnings. There was no gain or loss reclassified from accumulated other comprehensive income into earnings during the quarter ended November 2, 2003, as a result of the discontinuance of a cash flow hedge due to the probability of the original forecasted transaction not occurring. Item 4: Controls and Procedures Within the 90 days prior to the date of this Report, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's chief executive officer and chief financial officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Rule 13a-14 adopted under the Securities Exchange Act of 1934. Based upon that evaluation, the chief executive officer and chief financial officer concluded that the Company's disclosure controls and procedures are effective. There were no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation. 16 PART II - OTHER INFORMATION Item 1 - Legal Proceedings: On August 14, 2001, Robinson Laboratories, Inc. ("RLI") and Ben Robinson ("Robinson") filed an Amended Complaint against Herley Industries, Inc. ("Herley"). Although the Amended Complaint sets forth fifteen counts, the core allegations are (i) that Herley failed to issue 97,841 shares of common stock in connection with certain earn out requirements contained in an Asset Purchase Agreement dated February 1, 2000; (ii) that Herley breached an Employment Agreement with Robinson by terminating his employment on August 5, 2001; and (iii) that Herley breached a Stock Option Agreement dated January 31, 2000, with Robinson. RLI and Robinson asserted (i) violations of state and federal securities laws; (ii) fraud claims; (iii) breach of contract claims; and (iv) other equitable claims arising from the above core factual allegations. On September 17, 2001, Herley filed an Answer, Affirmative Defenses and Counterclaims in this matter. In the Answer and Affirmative Defenses, Herley denied the material allegations of the Amended Complaint. Herley also filed Counterclaims against both RLI and Robinson. In these counterclaims, Herley's core allegations concern Robinson's misconduct (i) in connection with the manner he attempted to satisfy RLI's earn out requirements; (ii) misrepresentations made in connection with the Asset Purchase Agreement; (iii) wrongdoing as a Herley employee leading to his termination and (iv) post-Herley employment wrongdoing in connection with a new company known as RH Laboratories. In addition to seeking a Declaratory Judgment pursuant to 28 U.S.C. ss. 2201 et. seq., Herley also asserted claims for, among other things, fraud, breach of contract, breach of fiduciary duty, unfair competition and tortious interference with actual and prospective contractual relationships. On August 5, 2002, a jury trial commenced. A jury verdict was rendered on August 21, 2002 in which the jury determined, among other things, that (i) Herley was not required to pay any additional stock; (ii) Herley breached the Employment Agreement with Robinson and awarded Robinson $1.5 million in damages; (iii) Herley breached the Lease Agreement with Robinson and awarded Robinson approximately $552,000 in compensatory damages; (iv) Robinson breached fiduciary duties to Herley and awarded Herley $400,000 in compensatory damages; (v) Robinson and RLI breached indemnity obligations and awarded Herley $100,000 in damages; (vi) RLI breached representations and warranties given to Herley and awarded Herley $320,000 in damages. On October 18, 2002, the Court entered a final judgment consistent with the above, and both parties filed post-trial motions. Additionally, as the prevailing party in connection with the claims asserted by RLI relating to the earn-out stock, as well as claims advanced relating to the various breaches of the Asset Purchase Agreement, Herley filed a petition for fees and costs against both RLI and Robinson on November 27, 2002 for approximately $2,000,000. RLI and Robinson also filed petitions to recover attorneys fees of approximately $240,000 for certain claims in which they contend that they were the prevailing party. On February 5, 2003, the Court denied the post-trial motions filed by the parties, thus leaving the jury verdict undisturbed. At a proceeding on April 28, 2003, the Court decided to delay ruling on all of the petitions for fees and costs until after appeals are exhausted. Accordingly, by Order dated May 6, 2003, the Court denied without prejudice all of the parties' petitions. On May 12, 2003, Herley filed its appeal to the United States Court of Appeals for the Second Circuit. On May 28, 2003, RLI filed a notice of cross-appeal. Robinson has not appealed. Herley filed its brief in support of its appeal before the Second Circuit on August 22, 2003. RLI timely filed its brief in response to Herley's appeal and in support of RLI's cross-appeal. Herley timely filed a response to RLI's brief and thereafter RLI timely filed a response to Herley's brief. The briefing schedule is now completed and oral argument is scheduled for December 18, 2003. 17 The Company is involved in various other legal proceedings and claims which arise in the ordinary course of its business. While any litigation contains an element of uncertainty, management believes that the outcome of such litigation will not have a material adverse effect on the Company's financial position or results of operations. 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 31.1 Certification of Myron Levy pursuant to Rule 13a-14(a). 31.2 Certification of Anello C. Garefino pursuant to Rule 13a-14(a). 32.1 Certification of Myron Levy pursuant to 18 U.S.C. Section 1350. 32.2 Certification of Anello C. Garefino pursuant to 18 U.S.C. Section 1350. (b) Reports on Form 8-K During the first quarter of fiscal 2004, the Registrant filed the following report on Form 8-K: The Company filed a report on October 10, 2003 in connection with the release of its financial results for the fourth quarter and fiscal year ended August 3, 2003. 18 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, Chief Executive Officer BY: /S/ Anello C. Garefino ------------------------------------------------ Anello C. Garefino, Principal Financial Officer DATE: December 17, 2003 19 EX-31 3 ex31-1levy.txt CERTIFICATION OF MYRON LEVY EXHIBIT 31.1 ------------ CERTIFICATION PURSUANT TO RULE 13a-14(a) I, Myron Levy, certify that: 1. I have reviewed this Quarterly Report on Form 10-Q of Herley Industries, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c. disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the quarter ended November 2, 2003 that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: December 17, 2003 By: /s/ Myron Levy ---------------------- Name: Myron Levy Title: Vice Chairman of the Board and Chief Executive Officer EX-31 4 ex31-2garefino.txt CERTIFICATION OF ANELLO C. GAREFINO EXHIBIT 31.2 ------------ CERTIFICATION PURSUANT TO RULE 13a-14(a) I, Anello C. Garefino, certify that: 1. I have reviewed this Quarterly Report on Form 10-Q of Herley Industries, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c. disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the quarter ended November 2, 2003 that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: December 17, 2003 By: /s/ Anello C. Garefino -------------------------- Name: Anello C. Garefino Title: Vice President Finance and Chief Financial Officer EX-32 5 ex32-1levy.txt CERTIFICATION OF MYRON LEVY EXHIBIT 32.1 ------------ CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 In connection with the Quarterly Report of Herley Industries, Inc. (the "Company") on Form 10-Q for the quarter ended November 2, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Myron Levy, Vice Chairman of the Board and Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: December 17, 2003 By: /s/ Myron Levy ------------------------------ Name: Myron Levy Title: Vice Chairman of the Board and Chief Executive Officer EX-32 6 ex32-2garefino.txt CERTIFICATION OF ANELLO C. GAREFINO EXHIBIT 32.2 ------------ CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 In connection with the Quarterly Report of Herley Industries, Inc. (the "Company") on Form 10-Q for the quarter ended November 2, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Anello C. Garefino, Vice President Finance and Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: December 17, 2003 By: /s/ Anello C. Garefino -------------------------- Name: Anello C. Garefino Title: Vice President Finance and Chief Executive Officer -----END PRIVACY-ENHANCED MESSAGE-----