-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, Fqswt2v4RoRfb+7SkUNSD9QBOu/yBopuIuFeYuON2w+p1M75q9+rG1/GOqcv1PyT b2pI4fQqKvCd0vRNkwn5VQ== 0000047035-95-000008.txt : 19950614 0000047035-95-000008.hdr.sgml : 19950614 ACCESSION NUMBER: 0000047035-95-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950430 FILED AS OF DATE: 19950613 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: HERLEY INDUSTRIES INC /NEW CENTRAL INDEX KEY: 0000047035 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPONENTS, NEC [3679] 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: 95546642 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 LIVE 10-Q FILING 4/30/95 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the quarterly period ended April 30, 1995 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) (717) 397-2777 ---------------------------------------------------- (Registrant's Telephone Number, including Area Code) 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 Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. June 9, 1995 3,123,458 - --------------------------- ------------------- (Date) (Number of Shares) 2 HERLEY INDUSTRIES, INC AND SUBSIDIARIES INDEX TO FORM 10-Q -------------------------- For the Quarter Ended April 30, 1995 PART I - FINANCIAL INFORMATION PAGE Item 1 - Financial Statements: Consolidated Balance Sheets - April 30, 1995 and July 31, 1994 3-4 Consolidated Statements of Operations - For the thirteen and thirty-nine weeks ended April 30, 1995 and May 1, 1994 5-6 Consolidated Statements of Cash Flows - For the thirty-nine weeks ended April 30, 1995 and May 1, 1994 7-8 Notes to Consolidated Financial Statements 9 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 13 PART II - OTHER INFORMATION 16 Signatures 19 Computation of per share earnings 20 3 HERLEY INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS April 30, 1995 July 31, 1994 (Unaudited) (Audited) ----------- --------- ASSETS Current Assets: Cash and cash equivalents $ 362,020 $ 539,729 Accounts receivable 3,687,402 4,940,304 Other receivables 165,689 300,037 Inventories 8,049,506 9,938,190 Prepaid expenses and other 301,400 252,666 ---------- ---------- Total Current Assets 12,566,017 15,970,926 Property, Plant and Equipment, net 14,171,963 15,542,245 Intangibles, net of amortization 4,920,361 5,124,436 Available-for-sale Securities 5,185,350 11,895,084 Other Investments 3,727,506 3,727,506 Note Receivable - 1,000,000 Deferred Income Taxes 1,172,422 860,211 Other Assets 468,287 492,257 ---------- ---------- $ 42,211,906 $ 54,612,665 ========== ========== The accompanying notes are an integral part of these financial statements. 4 HERLEY INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (CONTINUED) April 30, 1995 July 31, 1994 (Unaudited) (Audited) ----------- --------- LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Current portion of long-term debt $ 307,231 $ 552,311 Accounts payable and accrued expenses 7,201,512 6,489,039 Reserve for contract losses 264,000 500,000 Advance payments on contracts 1,145,555 2,513,705 Income taxes payable 37,678 162,543 ---------- ---------- Total Current Liabilities 8,955,976 10,217,598 Long-term Debt 11,247,867 14,822,834 Deferred Income Taxes 1,493,943 1,291,095 ---------- ---------- 21,697,786 26,331,527 ---------- ---------- Commitments and Contingencies Shareholders' Equity: Common stock, $.10 par value; authorized 10,000,000 shares; issued 3,615,815 at April 30, 1995 and 4,278,189 at July 31 1994. 361,582 427,819 Additional paid-in capital 15,301,806 17,989,374 Retained earnings 5,454,471 10,510,682 ---------- ---------- 21,117,859 28,927,875 Less (add): Unrealized (gain) loss on available- for-sale securities (24,946) 201,117 Treasury stock at cost 628,685 445,620 ---------- ---------- Total Shareholders' Equity 20,514,120 28,281,138 ---------- ---------- $ 42,211,906 $ 54,612,665 ========== ========== The accompanying notes are an integral part of these financial statements. 5 HERLEY INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Thirteen weeks ended -------------------- April 30, 1995 May 1, 1994 -------------- ----------- Net sales $ 6,439,622 $ 7,108,987 ---------- ---------- Cost and expenses: Cost of products sold 4,817,881 4,852,940 Selling and administrative expenses 1,331,650 1,862,059 Unusual items 4,870,800 745,663 ---------- ---------- 11,020,331 7,460,662 ---------- ---------- Operating (loss) (4,580,709) (351,675) ---------- ---------- Other income (expense): Gain on sale of marketable securities 62,430 734,211 Dividend and interest income 56,767 188,497 Other income - 690 Interest expense (220,226) (323,329) ---------- ---------- (101,029) 600,069 ---------- ---------- Income (loss) before income taxes (4,681,738) 248,394 Income tax provision (benefit) 77,000 84,000 ---------- ---------- Net income (loss) $(4,758,738) $ 164,394 ========== ========== Earnings (loss) per common and common equivalent share $(1.33) $ 0.04 ===== ===== Weighted average number of common and common equivalent shares outstanding 3,565,234 4,284,733 ========= ========= The accompanying notes are an integral part of these financial statements. 6 HERLEY INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Thirty-nine weeks ended ----------------------- April 30, 1995 May 1, 1994 -------------- ----------- Net sales $ 18,243,592 $ 22,550,872 ---------- ---------- Cost and expenses: Cost of products sold 13,785,211 14,752,586 Selling and administrative expenses 3,540,740 5,761,246 Unusual items 5,447,005 745,663 ---------- ---------- 22,772,956 21,259,495 ---------- ---------- Operating income (loss) (4,529,364) 1,291,377 ---------- ---------- Other income (expense): Gain (loss) on sale of marketable securities (467,296) 850,302 Dividend and interest income 525,101 603,748 Other income - 140,331 Interest expense (743,652) (949,587) ---------- ---------- (685,847) 644,794 ---------- ---------- Income (loss) before income taxes (5,215,211) 1,936,171 Income tax provision (benefit) (159,000) 488,000 ---------- ---------- Net income (loss) $ (5,056,211) $ 1,448,171 ========== =========== Earnings (loss) per common and common equivalent share $(1.29) $ 0.34 ===== ===== Weighted average number of common and common equivalent shares outstanding 3,905,161 4,319,875 ========= ========= The accompanying notes are an integral part of these financial statements. 7 HERLEY INDUSTRIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Thirty-nine weeks ended ----------------------- April 30, 1995 May 1, 1994 -------------- ----------- Cash flows from operating activities: Net income (loss) $(5,056,211) $ 1,448,171 ---------- --------- Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 1,576,583 1,564,579 (Gain) loss on sale of marketable securities 539,017 (849,762) Decrease (increase) in deferred tax assets (323,811) (365,175) Increase (decrease) in deferred tax liabilities 202,848 491,939 Common stock issued as compensation - 6,625 Recovery of unrealized loss on securities 226,063 - Litigation settlement 5,447,005 - Changes in operating assets and liabilities: Decrease (increase) in accounts receivable 1,252,902 (1,725,689) Decrease (increase) in other receivables 134,348 (44,091) Decrease (increase) in inventories 1,888,684 (64,598) Decrease (increase) in prepaid expenses (37,134) 940,129 (Decrease) in accounts payable and accrued expenses (2,494,639) (1,398,032) (Decrease)in reserve for contract losses (236,000) (1,306,159) (Decrease) in advance payments on contracts (1,368,150) (451,669) Increase (decrease) in income taxes payable (124,865) 38,874 Other, net (585) (112,805) --------- --------- Total adjustments 6,682,266 (3,275,834) --------- --------- Net cash provided by (used in) operating activities $ 1,626,055 $(1,827,663) --------- --------- The accompanying notes are an integral part of these financial statements. 8 HERLEY INDUSTRIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (CONTINUED) Thirty-nine weeks ended ----------------------- April 30, 1995 May 1, 1994 -------------- ----------- Cash flows from investing activities: Purchase of available-for-sale securities $(21,194,485) $(21,005,041) Proceeds from sale of available-for-sale securities 27,365,202 20,680,315 Capital expenditures (114,751) (409,459) ---------- ---------- Net cash provided by (used in) investing activities 6,055,966 (734,185) ---------- ---------- Cash flows from financing activities: Borrowing under bank line of credit 1,818,102 4,165,361 Proceeds from exercise of stock options - 92,820 Payments under lines of credit (7,638,149) (1,631,252) Purchase of treasury stock (2,039,683) - ---------- ---------- Net cash provided by (used in) financing activities (7,859,730) 2,626,929 --------- ---------- Net increase (decrease) in cash and cash equivalents (177,709) 65,081 Cash and cash equivalents at beginning of period 539,729 595,715 --------- ---------- Cash and cash equivalents at end of period $ 362,020 $ 660,796 ========== ========== The accompanying notes are an integral part of these financial statements. 9 Herley Industries, Inc. and Subsidiaries Notes to Consolidated Financial Statements - (Unaudited) - -------------------------------------------------------- Note 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 July 31, 1994) 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. Note 2. Inventories at April 30, 1995 and July 31, 1994 are summarized as follows: April 30, 1995 July 31, 1994 -------------- -------------- Purchased parts and raw materials $ 4,367,217 $ 5,412,767 Work in process 3,563,110 4,324,393 Finished products 119,179 201,030 ---------- ---------- $ 8,049,506 $ 9,938,190 ========== ========== Note 3. In May 1993 the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 115, "Accounting for certain Investments in Debt and Equity Securities." The Company adopted the provisions of the new standard for investments held as of or acquired after August 1, 1994. Adoption of this statement did not have a material effect on the financial statements of the Company. Management determines the appropriate classification of debt securities at the time of purchase and reevaluates such designation as of each balance sheet date. Debt securities are classified as held-to-maturity when the Company has the positive intent and ability to hold the securities to maturity. Marketable equity securities and debt securities not classified 10 as held-to-maturity are classified as available-for-sale. Available-for-sale securities are carried at fair value, with the unrealized gains and losses, net of tax, reported as a separate component of shareholders' equity. Realized gains and losses and declines in value judged to be other-than- temporary are included in other income (expense). The cost of securities sold is based on the specific identification method. Interest and dividends on securities are included in other income (expense). The following is a summary of available-for-sale securities: Available-for-Sale Securities ------------------------------------------------ Gross Gross Estimated Unrealized Unrealized Fair Cost Gains Losses Value ---------- ---------- ---------- ------------ April 30, 1995 -------------- Government bonds $ 4,870,578 $ 67,288 $ 25,712 $ 4,912,154 Other 269,104 - - 269,104 ---------- ------ ------- ---------- Total debt securities 5,139,682 67,288 25,712 5,181,258 Equity securities 4,092 - - 4,092 ---------- ------ ------- ---------- $ 5,143,774 $ 67,288 $ 25,712 $ 5,185,350 ========== ====== ======= ========== July 31, 1994 ------------- Government bonds $ 6,086,532 $ 20,384 $ 68,528 $ 6,038,388 Municipal bonds 4,646,008 - 247,943 4,398,065 Other 1,327,978 - - 1,327,978 ---------- ------ ------- ---------- Total debt securities 12,060,518 20,384 316,471 11,764,431 Equity securities 107,404 23,249 - 130,653 ---------- ------ ------- ---------- $ 12,167,922 $ 43,633 $ 316,471 $ 11,895,084 ========== ====== ======= ========== In December 1994, the Company decided to liquidate $6,000,000 of its long-term investments and used the proceeds to pay down a portion of its long-term bank debt. During the quarter ended April 30, 1995, the Company liquidated $685,000 of its long-term investments using the proceeds for the purchase of treasury stock. Note 4. The Company has a revolving credit facility with a bank, secured by its portfolio of marketable securities, that provides for the extension of credit in the aggregate principal amount of $12,000,000. The facility 11 requires the payment of interest only on a monthly basis and payment of the outstanding principal balance on January 31, 1997. Interest is set daily at 1% over the bank s earliest daily rate quoted for Federal Funds applied to outstanding balances up to 80% of the net equity value of certain investments and at the bank's National Commercial Rate for outstanding balances in excess of this limit. In addition, the agreement provides for a fee of 1/8 of 1% of the unused availability under the facility payable quarterly. Borrowings of $5,415,000 were outstanding at April 30, 1995. Interest at the Federal Funds rate (5.9375% at April 30, 1995) plus 1% was applied to $4,424,000 of the outstanding balance, and at the National Commercial Rate of 9.0% on the excess. The agreement contains various financial covenants, including, among other matters, the maintenance of working capital, tangible net worth and restrictions on cash dividends. The Company also maintains a letter of credit facility with this bank that provides for the issuance of stand-by letters of credit in the aggregate of $2,000,000. The facility requires the payment of a fee of 1.25% per annum of the amounts outstanding under the facility. The facility expires January, 1996. At April 30, 1995 stand-by letters of credit aggregating $542,611 were outstanding under this facility. Note 5. Under the terms of an agreement in 1993 to acquire Carlton Industries, Inc. and its wholly owned subsidiary Vega Precision Laboratories, Inc., certain selling stockholders exercised their option to sell back to the Company a total of 331,402 (309,074 in December 1994, and 22,328 in March 1995) shares of common stock of the Company at a price of $5.00 per share. Of the proceeds, $1,000,000 was used to pay back the note receivable from the selling stockholders which was secured by the pledge of 200,000 of the shares of common stock sold back to the Company. Note 6. During the third quarter of fiscal 1995, the Company settled an action brought by Litton Systems, Inc. Electron Devices Division in April, 1992. The settlement provides for the payment of $2,000,000 in July, 1995 and $2,000,000 in July, 1996, and the entry of an injunction precluding the use by the Company of the alleged misappropriated drawings in connection with the manufacture of beacon magnetrons. In May, 1995, the Company negotiated a tentative settlement of all claims in connection with two Class Action Complaints filed in May and June, 1994 against the Company and certain of its officers and directors. The settlement, which is subject to the negotiation and execution of a satisfactory Settlement Agreement and Court approval provides for the payment of $450,000, including legal fees, which is partially covered by insurance. 12 The Consolidated Statements of Operations for the third quarter fiscal 1995 includes an unusual charge of $5,447,005 for settlement costs, legal fees, and related expenses in connection with these matters. In May, 1995, the Company was served with a Class Action Complaint against the Company and its Chief Executive Officer in the United States District Court for the Eastern District of Pennsylvania. The claim was made under Section 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10 (b)-5 thereunder. The claim relates to the Company's settlement of the Litton Action in the Essex Superior Court of Massachusetts and alleges, inter alia, that there was insufficient disclosure by the Company of its true potential exposure in that claim. The Company believes it has a meritorious defense and intends to vigorously defend against the action. During the third quarter of fiscal 1994, the Company incurred unusual charges of $745,663 in connection with warranty claims for products shipped by Vega Precision Laboratories, Inc. prior to the acquisition of Vega by the Company. Note 7. Supplemental cash flow information is as follows: April 30, 1995 May 1, 1994 -------------- ----------- Cash paid during the period for: Interest $ 696,114 $ 721,202 Income Taxes 121,809 69,699 ======= ======= 13 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations LIQUIDITY AND CAPITAL RESOURCES As of April 30, 1995 and July 31, 1994, working capital was approximately $3,610,000 and $5,753,000, respectively, and the ratio of current assets to current liabilities was 1.40 to 1 and 1.56 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 $1,146,000 on April 30, 1995, a decrease of $1,368,000 from July 31, 1994. As receivables are collected from shipments on contracts subject to progress payments, these advanced payments are liquidated. The reduction in accounts receivable of approximately $1,253,000 is consistent with the decline in sales volume. Net cash provided by investing activities results from the Company's decision to liquidate approximately $6,685,000 of its long-term investments, net of the reinvestment of earnings on its portfolio, and the investment in capital equipment. The proceeds from the sale of investments were used to reduce long-term bank debt and the purchase of treasury stock. The Company maintains a revolving credit facility with a bank, secured by certain marketable securities, for an aggregate of $12,000,000 which expires January, 1997. As of April 30, 1995 and July 31, 1994, the Company had borrowings outstanding of $5,415,000 and $11,000,000 respectively. Net cash used in financing activities during the quarter is principally attributable to net payments of the credit facility, and the purchase of treasury stock. At April 30, 1995, the Company owned high grade investment securities having a market value of approximately $5,200,000, and cash and cash equivalents of approximately $362,000. The Company believes that presently anticipated future cash requirements will be provided by internally generated funds and existing credit facilities. The Company intends to borrow $2,000,000 under its credit facility to pay the initial installment of the legal settlement costs in July, 1995. (See Part II, Item 1 - "Legal Proceedings"). RESULTS OF OPERATIONS Thirteen weeks ended April 30, 1995 and May 1, 1994 - --------------------------------------------------- Net sales for the thirteen weeks ended April 30, 1995 decreased by approximately $669,000 or 9% from the comparable period of the prior year due to decreases in flight instrumentation products of approximately $450,000 and decreases in microwave components of approximately $219,000. 14 Cost of products sold for the thirteen weeks ended April 30, 1995 increased as a percentage of net sales from 68% in 1994 to 75% in 1995. This increase is attributable to a reduction in higher margin foreign sales of approximately $441,000, and a decrease in absorption of fixed costs due to the lower sales volume. Selling and administrative expenses for the thirteen weeks ended April 30, 1995 decreased approximately $530,000 from the comparable period of the prior year, of which $465,000 is attributable to decreased representative fees on foreign sales, and the transfer of $253,000 of legal fees to the unusual item, offset by an increase of $62,000 in employee medical benefits, a provision of $100,000 for customer disputed charges, and $26,000 in other expenses. Included in unusual items in 1995 are settlement costs in connection with certain legal actions of $4,310,000, legal fees of $253,000, and related expenses of $308,000. (See Part II, Item 1 - "Legal Proceedings"). The unusual item in 1994 consists of charges of $745,663 in connection with warranty claims for products shipped by Vega Precision Laboratories, Inc. prior to the acquisition of Vega by the Company. Other income (expense) for the thirteen weeks ended April 30, 1995 decreased $701,000 from the comparable prior year period due to a decrease in gains on the sale of certain long-term investments of $672,000 as compared to 1994, and a decrease in dividend and interest income of $132,000, offset by a decrease in interest expense of $103,000. Thirty-nine weeks ended April 30, 1995 and May 1, 1994 - ------------------------------------------------------ Net sales for the thirty-nine weeks ended April 30, 1995 decreased by approximately $4,307,000 or 19% from the comparable period of the prior year due to decreases in flight instrumentation products of approximately $2,973,000 and decreases in microwave components of approximately $1,334,000. Cost of products sold for the thirty-nine weeks ended April 30, 1995 increased as a percentage of net sales from 65% in 1994 to 76% in 1995. This increase is attributable to a reduction in higher margin foreign sales of approximately $3,803,000, and a decrease in absorption of fixed costs due to the significantly lower sales volume. Selling and administrative expenses for the thirty-nine weeks ended April 30, 1995 decreased approximately $2,220,000 from the comparable period of the prior year, of which $1,447,000 is attributable to decreased representative fees on foreign sales, $384,000 to a reduction in personnel and related expenses, the transfer of $829,000 of legal fees to the unusual item, which includes an increase in such fees of $354,000 over 1994 (See Part II, Item 1 - "Legal Proceedings"), and $14,000 in other expenses; offset by a provision of $100,000 for customer disputed charges. 15 Included in unusual items in 1995 are settlement costs in connection with certain legal actions of $4,310,000, legal fees of $829,000, and related expenses of $308,000. (See Part II, Item 1 - "Legal Proceedings"). The unusual item in 1994 consists of charges of $745,663 in connection with warranty claims for products shipped by Vega Precision Laboratories, Inc. prior to the acquisition of Vega by the Company. Other income (expense) for the thirty-nine weeks ended April 30, 1995 decreased $1,331,000 from the comparable prior year period due to losses on the sales of certain long-term investments of $467,000 as compared to a gain of $850,000 in 1994, decreased dividend and interest income of $79,000, and a decrease of $140,000 in other income (primarily rental income in 1994); offset by a decrease in interest expense of $206,000. 16 PART II - OTHER INFORMATION - --------------------------- ITEM 1 - LEGAL PROCEEDINGS: In April 1992, Litton Systems, Inc. Electron Devices Division ("Litton") commenced an action in the Essex Superior Court of Massachusetts against the Company ("the Litton Action") alleging, among other claims for relief, theft of trade secrets, unfair trade practices and related common law claims in connection with the defendants alleged misappropriation of Litton s beacon magnetron drawings. After trial, the jury rendered a verdict on liability against the Company and the other defendants. Prior to a separate, subsequent trial to determine damages, the Company settled the action for the sum of $4,000,000, and agreed to the entry of an injunction precluding the use by the Company of the alleged misappropriated drawings in connection with the manufacture of beacon magnetrons. In May and June, 1994, the Company was served respectively, with two Class Action Complaints against the Company and certain of its officers and directors in the United States District Court for the Eastern District of Pennsylvania. The claims were made under Section 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10 (b)-5 thereunder. Another claim was based upon alleged negligence. The claims related to the Company's acquisition of Carlton Industries, Inc. and its subsidiary, Vega Precision Laboratories, Inc. The claims were consolidated into one matter and a consolidated Complaint. In April, 1995, the Court certified that the claims based on the Securities Exchange Act may proceed as a Class Action pursuant to Rule 23(b) (3), but without prejudice to the rights of the parties thereafter to seek modification of the Class or revocation of leave to proceed. The Court refused to certify the negligence claim as a Class Action. In May, 1995, the parties negotiated a tentative settlement of all claims in consideration for a payment of $450,000 subject to the negotiation and execution of a satisfactory Settlement Agreement and Court approval after notice to Class Members. The parties are negotiating the terms of the Settlement Agreement for submission to the Court. In May, 1995, the Company was served with a Class Action Complaint against the Company and its Chief Executive Officer in the United States District Court for the Eastern District of Pennsylvania. The claim was made under Section 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10 (b)-5 thereunder. The claim relates to the Company's settlement of the Litton Action in the Essex Superior Court of Massachusetts and alleges, inter alia, that there was insufficient disclosure by the Company of its true potential exposure in that claim. The Company believes it has a meritorious defense and intends to vigorously defend against the action. In or about March, 1994, the principal selling shareholders of Carlton Industries, Inc. ("Carlton") and its subsidiary, Vega Precision Laboratories, Inc. ("Vega"), as claimants, commenced an arbitration proceeding before the American Arbitration Association in New York City pursuant to the terms of 17 the Stock Purchase Agreement ("Agreement") by which the Company acquired the stock of Carlton and Vega. The claimants principally are seeking to recover damages for the Company's alleged failure to register timely the claimants' shares of the Company's common stock in accordance with the provisions of the Agreement and other breaches of the Agreement. The Company has denied and has contested vigorously the legitimacy of the claimants' claims and has interposed several counterclaims seeking indemnification under the Agreement against the principal selling shareholders, for damages suffered by the Company in an aggregate amount exceeding $1 million as a result of breaches of contractual representations. After several days of hearings, the matter has yet to be determined finally by the Arbitrators. There is no certainty as to the outcome of these matters. However, in the opinion of management, the ultimate liability on these matters, if any, will not have a material adverse effect on the financial position of the Company. 18 ITEM 2 - CHANGES IN SECURITIES: None ITEM 3 - DEFAULTS UPON SENIOR SECURITIES: None ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS: None ITEM 5 - OTHER INFORMATION: None ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K: (a) Exhibit 11: Computation of per share earnings. (b) During the quarter for which this report is filed, the Registrant filed the following reports under Form 8-K: None 19 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 13, 1995 20 HERLEY INDUSTRIES, INC. AND SUBSIDIARIES ------------------------------- Exhibit 11 -------------- COMPUTATION OF PER SHARE EARNINGS ---------------------------------- Thirteen weeks ended -------------------- April 30, 1995 May 1, 1994 -------------- ----------- Net Income (loss) $(4,758,738) $ 167,394 ========= ========== Weighted average number of common shares outstanding 3,565,234 4,284,733 ========= ========= Number of shares outstanding 3,615,815 4,278,189 ========= ========= Earnings (loss) per common and common equivalent share: Net income (loss) $(1.33) $ .04 ===== ===== Thirty-nine weeks ended ----------------------- April 30, 1995 May 1, 1994 ------------- ----------- Net Income (loss) $(5,056,211) $ 1,448,171 ========= ========= Weighted average number of common shares outstanding 3,905,161 4,319,875 ========= ========= Number of shares outstanding 3,615,815 4,278,189 ========= ========= Earnings (loss) per common and common equivalent share: Net income (loss) $(1.29) $ .34 ==== ==== EX-27 2 FDS 9 MOS. APR 95
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED APRIL 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS JUL-30-1995 AUG-01-1994 APR-30-1995 362,020 0 3,687,402 0 8,049,506 12,566,017 23,252,685 9,080,722 42,211,906 8,955,976 11,247,867 361,582 0 0 20,756,277 42,211,906 18,243,592 18,243,592 13,785,211 17,325,951 5,447,005 0 743,652 (5,215,211) ( 159,000 ) (5,056,211) 0 0 0 (5,056,211) (1.29 ) (1.29 )
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