-----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, WvVBvffAWtB3Peo9VUwc9I3ZRBrHw4NiWQo4H6If1XW+vacxx6KqasQgczy0AOEW 5akK+lOCtbHJ33xk/EGSpA== 0000047035-99-000019.txt : 19991215 0000047035-99-000019.hdr.sgml : 19991215 ACCESSION NUMBER: 0000047035-99-000019 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991031 FILED AS OF DATE: 19991214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HERLEY INDUSTRIES INC /NEW CENTRAL INDEX KEY: 0000047035 STANDARD INDUSTRIAL CLASSIFICATION: SEARCH, DETECTION, NAVIGATION, GUIDANCE, AERONAUTICAL SYS [3812] IRS NUMBER: 232413500 STATE OF INCORPORATION: DE FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-05411 FILM NUMBER: 99773860 BUSINESS ADDRESS: STREET 1: 10 INDUSTRY DR CITY: LANCASTER STATE: PA ZIP: 17603 BUSINESS PHONE: 7173972777 MAIL ADDRESS: STREET 1: 10 INDUSTRY DRIVE CITY: LANCASTER STATE: PA ZIP: 17603 FORMER COMPANY: FORMER CONFORMED NAME: HERLEY MICROWAVE SYSTEMS INC DATE OF NAME CHANGE: 19900510 FORMER COMPANY: FORMER CONFORMED NAME: HERLEY INDUSTRIES INC DATE OF NAME CHANGE: 19831103 10-Q 1 QUARTERLY REPORT FOR QUARTER ENDED OCT. 31, 1999 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: October 31, 1999 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from.............. to......................... Commission File Number 0-5411 HERLEY INDUSTRIES, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) DELAWARE #23-2413500 - ------------------------------- ---------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 10 Industry Drive, Lancaster, Pennsylvania 17603 - ------------------------------------------ ---------- (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, including Area Code: (717) 397-2777 -------------- --------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. [ ] Yes [ ] No APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. As of December 3, 1999 - 4,547,728 shares of Common Stock. HERLEY INDUSTRIES, INC AND SUBSIDIARIES INDEX TO FORM 10-Q PART I - FINANCIAL INFORMATION PAGE ---- Item 1 - Financial Statements: Consolidated Balance Sheets - October 31, 1999 and August 1, 1999 2 Consolidated Statements of Income - For the thirteen weeks ended October 31, 1999 and November 1, 1998 3 Consolidated Statements of Cash Flows - For the thirteen weeks ended October 31, 1999 and November 1, 1998 4 Notes to Consolidated Financial Statements 5 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Item 3 - Quantitative and Qualitative Disclosures About Market Risk 9 PART II -OTHER INFORMATION 10 Signatures 11
HERLEY INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS October 31, August 1, 1999 1999 --------- --------- Unaudited Audited ASSETS Current Assets: Cash and cash equivalents $ 1,809,591 $ 2,741,163 Accounts receivable 10,398,719 10,678,638 Other receivables 214,166 212,515 Inventories 20,761,753 19,880,370 Deferred taxes and other 2,983,004 2,703,179 ---------- ---------- Total Current Assets 36,167,233 36,215,865 Property, Plant and Equipment, net 18,188,615 21,888,553 Intangibles, net of amortization of $2,336,761 at October 31, 1999 and $2,137,459 at August 1, 1999 13,374,351 13,573,653 Available-for-sale Securities 147,576 148,105 Other Investments 961,045 947,983 Other Assets 1,253,076 1,282,078 ---------- ---------- $ 70,091,896 $ 74,056,237 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Current portion of long-term debt $ 146,201 $ 258,383 Accounts payable and accrued expenses 9,390,056 8,035,211 Income taxes payable 813,342 276,160 Reserve for contract losses 1,333,000 1,505,048 Advance payments on contracts 511,856 438,538 ---------- ---------- Total Current Liabilities 12,194,455 10,513,340 Long-term Debt 14,398,708 15,437,390 Deferred Income Taxes 5,572,880 5,143,837 Minority interest 62,062 62,062 ---------- ---------- 32,228,105 31,156,629 ---------- ---------- Commitments and Contingencies Shareholders' Equity: Common stock, $.10 par value; authorized 20,000,000 shares; issued and outstanding 4,577,728 at October 31, 1999 and 5,030,283 at August 1, 1999 457,773 503,028 Additional paid-in capital 8,124,842 15,071,964 Retained earnings 29,281,176 27,324,616 ---------- ---------- Total Shareholders' Equity 37,863,791 42,899,608 ---------- ---------- $ 70,091,896 $ 74,056,237 ========== ==========
The accompanying notes are an integral part of these financial statements. 2
HERLEY INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) Thirteen weeks ended ---------------------- October 31, November 1, 1999 1998 ----------- ----------- Net sales $ 16,139,277 $ 11,650,845 ---------- ---------- Cost and expenses: Cost of products sold 9,665,049 6,771,320 Selling and administrative expenses 3,246,001 2,123,773 ---------- ---------- 12,911,050 8,895,093 ---------- ---------- Operating income 3,228,227 2,755,752 ---------- ---------- Other income (expense): Investment income 54,254 103,117 Interest expense (271,921) (101,916) ---------- ---------- (217,667) 1,201 ---------- ---------- Income before income taxes 3,010,560 2,756,953 Provision for income taxes 1,054,000 965,000 ---------- ---------- Net income $ 1,956,560 $ 1,791,953 ========== ========== Earnings per common share - Basic $ .40 $ .34 === === Basic weighted average shares 4,883,268 5,295,245 ========= ========= Earnings per common share - Diluted $ .38 $ .32 === === Diluted weighted average shares 5,176,081 5,538,266 ========= =========
The accompanying notes are an integral part of these financial statements. 3
HERLEY INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Thirteen weeks ended -------------------------- October 31, November 1, 1999 1998 ---------- ---------- Cash flows from operating activities: Net income $ 1,956,560 $ 1,791,953 ---------- ---------- Adjustments to reconcile net income to net cash provided by operations: Depreciation and amortization 938,311 613,043 (Gain) loss on disposal of property and equipment (18,327) 7,841 Equity in income of limited partnership (13,062) (21,599) (Increase) in deferred tax assets (90,580) - Increase in deferred tax liabilities 429,043 318,500 Changes in operating assets and liabilities: Decrease (increase) in accounts receivable 279,919 (1,091,654) (Increase) in costs incurred and income recognized in excess of billings on uncompleted contracts - (1,271,921) (Increase) decrease in other receivables (1,651) 1,296 Decrease in prepaid income taxes - 377,448 (Increase) decrease in inventories (881,383) 414,943 (Increase) in prepaid expenses and other (189,245) (170,666) Increase in accounts payable and accrued expenses 1,354,845 97,419 Increase in income taxes payable 537,182 259,525 (Decrease) in reserve for contract losses (172,048) (59,080) Increase (decrease) in advance payments on contracts 73,318 (229,590) Other, net 529 (15,111) ---------- ---------- Total adjustments 2,246,851 (769,606) ---------- ---------- Net cash provided by operating activities 4,203,411 1,022,347 ---------- ---------- Cash flows from investing activities: Acquisition of stock - (6,298,205) Proceeds from sale of property and equipment 4,124,505 1,250 Capital expenditures (1,116,247) (499,059) ---------- ---------- Net cash provided by (used in) investing activities 3,008,258 (6,796,014) ---------- ---------- Cash flows from financing activities: Borrowings under bank line of credit - 3,500,000 Proceeds from exercise of stock options 158,873 316,149 Payments under lines of credit (1,000,000) (4,200,000) Payments of long-term debt (150,864) (8,428) Purchase of treasury stock (7,151,250) (340,469) ---------- ---------- Net cash used in financing activities (8,143,241) (732,748) ---------- ---------- Net decrease in cash and cash equivalents (931,572) (6,506,415) Cash and cash equivalents at beginning of period 2,741,163 10,689,193 ---------- ---------- Cash and cash equivalents at end of period $ 1,809,591 $ 4,182,778 ========== ==========
The accompanying notes are an integral part of these financial statements. 4 Herley Industries, Inc. and Subsidiaries Notes to Consolidated Financial Statements - (Unaudited) 1. The consolidated financial statements include the accounts of Herley Industries, Inc. and its subsidiaries, all of which are wholly-owned. All significant inter-company accounts and transactions have been eliminated in consolidation. In the opinion of the Company, the accompanying consolidated financial statements reflect all adjustments (which include only normal recurring adjustments) necessary to present fairly the results of operations and cash flows for the periods presented. These financial statements (except for the balance sheet presented at August 1,1999) are unaudited and have not been reported on by independent public accountants. Results of operations for interim periods are not necessarily indicative of the results of operations for a full year due to external factors which are beyond the control of the Company. 2. Inventories at October 31, 1999 and August 1,1999 are summarized as follows: October 31, 1999 August 1,1999 ---------------- ------------- Purchased parts and raw materials $ 10,611,809 $ 9,862,727 Work in process 9,461,143 8,780,767 Finished products 688,801 1,236,876 ---------- ---------- $ 20,761,753 $ 19,880,370 ========== ========== 3. The following table shows the calculation of basic earnings per share and earnings per share assuming dilution: Thirteen weeks ended ---------------------------------- October 31, 1999 November 1, 1998 ---------------- ---------------- Numerator: Net Income $ 1,956,560 $ 1,791,953 ========= ========= Denominator: Basic weighted-average shares 4,883,268 5,295,245 Effect of dilutive securities: Employee stock options and warrants 292,813 243,021 --------- --------- Diluted weighted-average shares 5,176,081 5,538,266 ========= ========= Earnings per common share - Basic $ .40 $ .34 === === Earnings per common share - Diluted $ .38 $ .32 === === Options and warrants to purchase 2,652,175 shares of common stock, with exercise prices ranging from $13.88 to $16.46 were outstanding during the first quarter of fiscal 2000 but were not included in the computation of diluted EPS because the exercise prices are greater than the average market price of the common shares during the period. The options and warrants, which expire at various dates through September 24, 2009, were still outstanding as of October 31, 1999. Options and warrants to purchase 1,967,333 shares of common stock, with exercise prices ranging from $9.25 to $14.40 were outstanding during the first quarter of fiscal 1999 but were not included in the computation of diluted EPS because the exercise prices were greater than the average market price of the common shares during the period. 5 4. Supplemental cash flow information is as follows: October 31, 1999 November 1, 1998 ---------------- ---------------- Cash paid during the period for: Interest $ 267,598 $ 29,110 Income Taxes 98,146 10,300 Cashless exercise of stock options - 34,384 Tax benefit related to stock options - 93,000 6 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 The statements contained in this report which are not historical fact are "forward-looking statements" that involve various important assumptions, risks, uncertainties and other factors which could cause the Company's actual results for fiscal 2000 and beyond to differ materially from those expressed in such forward-looking statements. These important factors include, without limitation, competitive factors and pricing pressures, changes in legal and regulatory requirements, technological change or difficulties, product development risks, commercialization and trade difficulties and general economic conditions, as well as other risks previously disclosed in the Company's securities filings and press releases. Results of Operations - --------------------- Thirteen weeks ended October 31, 1999 and November 1, 1998 - ---------------------------------------------------------- Net sales for the 13 weeks ended October 31, 1999 were approximately $16,139,000 compared to $11,651,000 in the first quarter of fiscal 1999. The sales increase of $4,488,000 (38.5%) is primarily attributable to revenue generated by General Microwave of $4,054,000, which was acquired in the second quarter of fiscal 1999, and increased volume in microwave products of $1,580,000, offset by a reduction in flight instrumentation products of $1,146,000. Gross profit of 40.1% for the 13 weeks ended October 31, 1999 declined from that of the first quarter in the prior year of 41.9%, despite the increased absorption of fixed costs from the higher sales volume, due to slightly lower margins on microwave products. Selling and administrative expenses for the 13 weeks ended October 31, 1999 were $3,246,000 compared to $2,124,000 in the first quarter of fiscal 1999, an increase of $1,122,000. Included in the quarter are selling and administrative expenses of General Microwave of $1,050,000. Liquidity and Capital Resources - ------------------------------- As of October 31, 1999 and August 1, 1999, working capital was approximately $23,973,000 and $25,703,000, respectively, and the ratio of current assets to current liabilities was 2.97 to 1 and 3.44 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 $512,000 at October 31, 1999, and $439,000 at August 1, 1999. Net cash provided by operations during the quarter was approximately $4,203,000 as compared to $1,022,000 in the first quarter of fiscal 1999. The increase in cash provided by operations was primarily due to decreases in the Company's working capital. Net cash provided by investing activities consists of the net proceeds of $4,125,000 from the sale of the General Microwave facility in Amityville, N.Y., offset by $1,116,000 incurred for capital expenditures. The Company has a revolving loan agreement with a bank for an aggregate of $20,000,000 which expires January 31, 2001. As of October 31, 1999 and August 1, 1999, the Company had borrowings outstanding of $11,500,000 and $12,500,000, respectively. During the quarter ended October 31, 1999, the Company received net proceeds of approximately $159,000 from the exercise of common stock options by employees and acquired 477,000 shares of treasury stock through open market purchases at a cost of $7,151,000. Such shares have been retired. The Company has acquired an aggregate of 823,050 7 shares under the 1,250,000 share buyback programs approved by the Board of Directors. At October 31, 1999, the Company had cash and cash equivalents of approximately $1,810,000. The Company believes that presently anticipated future cash requirements will be provided by internally generated funds and existing credit facilities. Year 2000 Readiness - ------------------- The "Year 2000" problem relates to computer systems that have time and date-sensitive programs that were designed to read years beginning with "19", but may not properly recognize the year 2000. If a computer system or software application used by the Company or a third party dealing with the Company fails because of the inability of the system or application to properly read the year 2000 the results could have a material adverse effect on the Company. A substantial part of the Company's revenues are derived from firm fixed price contracts with U.S. government agencies, prime contractors or subcontractors on military or aerospace programs, and many foreign governments. If the Company is unable to perform under these contracts due to a Year 2000 problem, the customer could terminate the contract for default. While lost revenues from such an event are a concern for the Company, the greater risks are the consequential damages for which the Company could be liable for failure to perform under the contracts. Such damages could have a material adverse impact on the Company's results of operations and financial position. The most likely reason for a customer to terminate a contract for default would be due to the Company's inability to manufacture and deliver product under the contract. Breakdowns in any number of the Company's computer systems and applications could prevent the Company from being able to manufacture and ship its products. Examples are failures in the Company's manufacturing application software, computer chips embedded in engineering test equipment, lack of supply of materials from its suppliers, or lack of power, heat, or water from utilities servicing its facilities. The Company's products do not contain computer devices that require remediation to meet Year 2000 requirements. A review of the Company's status with respect to remediating its computer systems for Year 2000 compliance is presented below. For its information technology requirements at its facilities in Lancaster, PA and Woburn, MA, the Company currently utilizes a Hewlett Packard HP3000-based computing environment. The HP3000 hardware is in compliance with Year 2000 requirements. The Company's financial, manufacturing, and other software applications related to the HP3000 were updated to comply with Year 2000 requirements during the fiscal year ended August 2, 1998 at a cost of approximately $350,000. All modules have been fully tested and are compliant. In addition, the Company utilizes a wide area network ("WAN") to connect its operating facilities to the HP3000. The WAN has been updated to comply with Year 2000 requirements. A local area network ("LAN") is used to supplement the HP3000 environment and has also been upgraded and is fully Year 2000 compliant. The financial and operational systems of GMC in Farmingdale, NY have also been reviewed and tested and are in compliance with Year 2000 requirements. The Company has also reviewed its utility systems (heat, light, phones, liquid nitrogen, etc.) for the impact of Year 2000, as well as determining the state of readiness of its material suppliers and test equipment manufacturers. The Company has received responses to its questionnaire from its major suppliers and test equipment manufacturers regarding their compliance and attempts to identify any problem areas with respect to their systems and equipment. No major problems have been identified. However, the Company cannot control the conduct of its suppliers. Therefore, there can be no guarantee that Year 2000 problems originating with a supplier will not occur. The Company has developed multiple sources for a substantial portion of its raw material requirements and has obtained Year 2000 compliance statements from its critical suppliers, and therefore, does not believe there would be a significant disruption in supply. The information set forth above identifies the key steps taken by the Company to address the Year 2000 problem. There can be no absolute assurance that third parties will convert their systems in a timely manner. The Company believes 8 that its actions will minimize these risks and that any additional cost of Year 2000 compliance for its information and production systems will not be material to its consolidated results of operations and financial position. Item 3: Quantitative and Qualitative Disclosures About Market Risk The Company is subject to market risk associated with changes in interest rates and stock prices. The Company has not entered into any derivative financial instruments to manage the above risks and the Company has not entered into any market risk sensitive instruments for trading purposes. There have been no material changes in market risk to the Company since its fiscal year end as disclosed in the Company's Annual Report Form 10K as of August 1, 1999. As of October 31, 1999, the Company holds an investment in the common stock of a public company that is exposed to price risk with a cost basis and a fair market value basis of $143,330. 9 PART II - OTHER INFORMATION ITEM 1 - LEGAL PROCEEDINGS: The Company is not involved in any material legal proceedings. ITEM 2 - CHANGES IN SECURITIES: None ITEM 3 - DEFAULTS UPON SENIOR SECURITIES: None ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS: None ITEM 5 - OTHER INFORMATION: None ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K: (a) During the quarter for which this report is filed, the Registrant filed the following reports under Form 8-K: None 10 FORM 10-Q SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. HERLEY INDUSTRIES, INC. ----------------------- Registrant BY: /S/ Myron Levy ------------------------ Myron Levy, President BY: /S/ Anello C. Garefino ------------------------- Anello C. Garefino Principal Financial Officer DATE: December 13, 1999 11 EX-27 2 FDS--OCT-31-1999
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE 13 WEEKS ENDED OCTOBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS JUL-30-2000 AUG-2-1999 OCT-31-1999 1,809,591 0 10,398,719 0 20,761,753 36,167,233 36,296,666 18,108,051 70,091,896 12,194,455 0 0 0 457,773 37,406,018 70,091,896 16,139,277 16,139,277 9,665,049 12,911,050 0 0 271,921 3,010,560 1,054,000 1,956,560 0 0 0 1,956,560 0.40 0.38
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