EX-99 2 hrly8kearnings-oct05ex99.txt PRESS RELEASE HERLEY REPORTS 4TH QUARTER AND YEAR-END RESULTS QUARTERLY REVENUES INCREASED 25.0% TO $42.8 MILLION YEAR-END BACKLOG REACHES RECORD LEVEL - UP 44.7% Lancaster, PA, October 25, 2005. Herley Industries, Inc. (Nasdaq: HRLY) today reported net sales from continuing operations for the fourth quarter ended July 31, 2005 were $42.8 million, up 25.0% from the fourth quarter of fiscal year 2004, and a sequential increase of 3.7% from the third quarter of fiscal 2005. Operating income for the fourth quarter was $2.6 million, or 6.2% of net sales, down $591,000 or 18.3% from the fourth quarter of last year. Net income for the fourth quarter was $1.5 million, or $0.10 per diluted share compared to net income of $2.3 million, or $0.15 per diluted share for the fourth quarter of last year. For the fiscal year ended July 31, 2005 net sales were a record $151.4 million, up 23.9% from net sales of $122.2 million in the previous year. Net income for the year was $10.8 million, or $0.72 per diluted share compared to $13.7 million or $0.92 per diluted share for fiscal year 2004. The effective tax rate for the fourth quarter of fiscal 2005 was 29.7% compared to 30.7% for the prior year fourth quarter. The effective income tax rate for fiscal 2005 was 28.3% as compared to 30.8% for fiscal 2004. Book-to-bill for the fourth quarter was 1.24 to 1, the best book-to-bill ratio in seven quarters. For the fiscal year, Herley's book to bill was 1.05 to 1. Funded backlog as of July 31, 2005 reached a record $144.7 million. Net cash from continuing operations for fiscal 2005 was $13.0 million. Capital expenditures for the year were $5.4 million, producing $7.6 million of free cash flow. John M. Kelley, Herley President, said, "Herley financial results for the fourth quarter and fiscal year were mixed. Below are events that had an impact on fiscal 2005 earnings." -- ACQUISITIONS. Herley acquired three companies and a new millimeter wave seeker technology in fiscal 2005. The absorption and integration process was a considerable effort, and it continues to this day. However, we have worked through most of the problems and are now on the downside of this activity. We believe these acquisitions are essential to increasing our technological diversity and will increase our growth prospects as we prepare the company for the defense business of the future. -- ADMINISTRATION. Increased legal and Sarbanes-Oxley costs. These costs are a fact of business life. However, we will continue our efforts to reduce costs whenever possible. -- OPERATIONS. Delivery delays related primarily to two simulation projects at EWST negatively impacted margins in the fourth quarter and fiscal 2005. We believe the problems have been solved, and we expect to complete factory acceptance tests and ship both simulators within the next 30 days. These simulators are the last of the original orders requiring extensive hardware, software and integration development. Going forward, new simulator orders will be based on existing product designs which include actual costs for material, labor and overhead. Recent actions have been taken that should improve EWST's performance in fiscal 2006. Kelley continued "We are disappointed in our performance in 2005. For those problems which we were able to immediately identify, we have taken the corrective actions necessary to fix them. We continue to remain optimistic about our business prospects for fiscal year 2006. Revenue growth is expected to be strong based on the company's existing contracts with the U.S. Government, major prime contractors and countries worldwide." The Conference Call which had been scheduled for Friday, October 28, 2005 has been rescheduled. The call will take place on Tuesday, November 1, 2005 at 9:00 a.m. Eastern Time. Participating in the call will be Myron Levy, Vice Chairman and CEO and John M. Kelley, President. Interested parties may join the conference through InterCall, Phone Number: 1 (888) 425-4188, referencing Conference ID # 1379125. Replay of the conference call is scheduled to begin on November 1, 2005 at 11:00 a.m. and end on November 7, 2005 at 11:59 p.m. Eastern Time. To listen to the replay dial: 1 (800) 642-1687 (U.S.) or 1 (706) 645-9291 (International), and Conference ID # 1379125 This conference call will be broadcast live over the Internet and can be accessed by interested parties through the following URL: http://phx.corporate- ir.net/playerlink.zhtml?c=111170&s=wm&e=1146721 To listen to the live call, please go to the Web site at least fifteen minutes prior to the start of the call to register, download, and install any necessary audio software. For those who are not available to listen to the live broadcast, a replay will be available shortly after the call on the site. Herley Industries, Inc. is a leader in the design, development and manufacture of microwave technology solutions for the defense, aerospace and medical industries worldwide. Based in Lancaster, PA, Herley has nine locations and over a thousand employees worldwide. Additional information about the company can be found on the Internet at www.herley.com Tables follow For information at Herley contact: Peg Guzzetti Tel: (717) 735-8117 Investor Relations www.herley.com Safe Harbor Statement - Except for the historical information contained herein, this release may contain forward-looking statements. Such statements are inherently subject to risks and uncertainties. When used in this release, words such as "anticipate," "believes," "estimate," "expect," "should," "intend," "projects," "objective," and similar expressions, as they relate to the Company or its management, identify forward-looking statements. The Company's results could differ materially based on various factors, including, but not limited to cancellation or deferral of customer orders, difficulties in the timely development of new products, difficulties in manufacturing, increased competitive pressures, and general economic conditions. The Company does not undertake any obligation to release publicly any revisions to these forward-looking statements to reflect future events or circumstances or to reflect the occurrence of unanticipated events. HERLEY INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (In thousands except per share data)
Thirteen weeks ended Fifty-two weeks ended -------------------- --------------------- July 31, August 1, July 31, August 1, 2005 2004 2005 2004 ------------- ------------- ------------ ------------- Net sales $ 42,805 $ 34,246 $ 151,415 $ 122,154 ------------- ------------- ------------ ------------- Cost and expenses: Cost of products sold 31,407 23,370 106,441 79,505 Selling and administrative expenses 8,764 7,651 30,305 23,047 ------------- ------------- ------------ ------------- 40,171 31,021 136,746 102,552 ------------- ------------- ------------ ------------- Operating Income 2,634 3,225 14,669 19,602 ------------- ------------- ------------ ------------- Other income (expense), net: Investment income 165 158 934 674 Interest expense (75) (78) (286) (326) Foreign exchange gain (loss) (555) 31 (291) (194) ------------- ------------- ------------ ------------- (465) 111 357 154 ------------- ------------- ------------ ------------- Income before income taxes 2,169 3,336 15,026 19,756 Provision for income taxes 645 1,026 4,245 6,083 ------------- ------------- ------------ ------------- Net income $ 1,524 $ 2,310 $ 10,781 $ 13,673 ============= ============= ============ ============= Earnings per common share - Basic $ .11 $ .16 $ .75 $ .97 ============= ============= ============ ============= Basic weighted average shares 14,340 14,205 14,310 14,105 ============= ============= ============ ============= Earnings per common share - Diluted $ .10 $ .15 $ .72 $ .92 ============= ============= ============ ============= Diluted weighted average shares 14,952 14,962 14,969 14,896 ============= ============= ============ =============
HERLEY INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share data)
July 31, August 1, 2005 2004 ------------ ---------- ASSETS Current Assets: Cash and cash equivalents $ 20,331 $ 66,181 Trade accounts receivable 27,258 24,664 Costs incurred and income recognized in excess of billings on uncompleted contracts 16,058 14,210 Other receivables 1,414 576 Inventories, net of allowance of $4,492 in 2005 and $3,938 in 2004 53,668 44,909 Deferred taxes and other 3,782 3,579 ------------ ---------- Total Current Assets 122,511 154,119 Property, Plant and Equipment, net 29,461 25,968 Goodwill 70,831 35,165 Intangibles, net of accumulated amortization of $1,680 in 2005 and $752 in 2004 20,554 4,555 Other Investments 62 264 Other Assets 682 900 ------------ ---------- $ 244,101 $ 220,971 ============ ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Current portion of long-term debt $ 797 $ 804 Accounts payable and accrued expenses 24,477 17,514 Billings in excess of costs incurred and income recognized on uncompleted contracts 538 1,303 Income taxes payable 3,760 2,091 Reserve for contract losses 630 954 Advance payments on contracts 3,966 1,180 ------------ ---------- Total Current Liabilities 34,168 23,846 Long-term Debt 5,000 5,845 Other Long-term Liabilities 1,042 932 Deferred Income Taxes 6,254 4,848 ------------ ---------- 46,464 35,471 ------------ ---------- Commitments and Contingencies Shareholders' Equity: Common stock, $.10 par value; authorized 20,000,000 shares; issued and outstanding 14,389,625 in 2005 and 14,220,508 in 2004 1,439 1,422 Additional paid-in capital 109,118 107,671 Retained earnings 85,932 75,151 Accumulated other comprehensive income 1,148 1,256 ------------ ---------- Total Shareholders' Equity 197,637 185,500 ------------ ---------- $ 244,101 $ 220,971 ============ ==========
HERLEY INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Fifty-two weeks ended --------------------- July 31, August 1, 2005 2004 ----------- ---------- Cash flows from operating activities: Income from continuing operations $ 10,781 $ 13,673 ----------- ---------- Adjustments to reconcile net income to net cash provided by operations: Depreciation and amortization 5,683 4,244 Foreign exchange (gain) loss (20) 753 (Gain) on sale of marketable securities (22) - (Gain) loss on sale of fixed assets (8) - Equity in income of limited partnership (54) (10) Decrease (increase) in deferred tax assets 403 (316) Increase (decrease) in deferred tax liabilities 1,397 (109) Changes in operating assets and liabilities: Decrease (increase) in trade accounts receivable 2,590 (6,923) Increase in costs incurred and income recognized in excess of billings on uncompleted contracts (1,626) (7,250) (Increase) decrease in other receivables (576) 251 Increase in inventories (3,789) (5,806) (Increase) decrease in deferred taxes and other (430) 31 Increase in accounts payable and accrued expenses 925 3,431 (Decrease) increase in billings in excess of costs incurred and income recognized on uncompleted contracts (1,596) 1,303 Increase in income taxes payable 2,306 108 (Decrease) in accrual for contract losses (500) (240) (Decrease) increase in advance payments on contracts (2,749) 324 Other, net 253 146 ----------- ---------- Total adjustments 2,187 (10,063) ----------- ---------- Net cash provided by continuing operations 12,968 3,610 ----------- ---------- Cash flows from investing activities: Acquisition of businesses, net of cash acquired (51,407) (14,914) Acquisition of technology license (2,300) - Proceeds from sale of securities 165 - Proceeds from sale of fixed assets 17 19 Partial distribution from limited partnership 109 55 Capital expenditures (5,404) (5,884) ----------- ---------- Net cash used in investing activities (58,820) (20,724) ----------- ---------- Cash flows from financing activities: Proceeds from exercise of stock options and warrants, net 3,534 2,458 Payments of long-term debt (804) (686) Purchase of treasury stock (2,728) - ----------- ---------- Net cash provided by financing activities 2 1,772 ----------- ---------- Net decrease in cash and cash equivalents (45,850) (15,342) Cash and cash equivalents at beginning of period 66,181 81,523 ----------- ---------- Cash and cash equivalents at end of period $ 20,331 $ 66,181 =========== ==========