Herley Reports Earnings for Third Quarter FY 2010

Conference Call Scheduled for Friday, June 11, 2010

News provided by

Jun 10, 2010, 04:37 ET

LANCASTER, Pa., June 10 /PRNewswire-FirstCall/ -- Herley Industries, Inc. (Nasdaq: HRLY) today reported financial results for the Third Quarter of Fiscal Year 2010.

Net sales for the third quarter of fiscal 2010 were $45.4 million as compared to $41.8 million for the third quarter of fiscal 2009. Net income for the third quarter was $2.6 million, or $.19 per diluted share, compared to $2.4 million or $.18 per diluted share, last year.

The Company's EBITDA for the third quarter of 2010 was $5.5 million compared to $5.4 million last year. Adjusted for the impact of litigation costs and net settlements in the respective quarters, adjusted EBITDA for the third quarter of 2010 was $7.1 million compared to $6.1 million last year. EBITDA is defined as net income plus net interest, taxes, depreciation and amortization.

The Company reported a revenue increase of $3.6 million in the third quarter of fiscal 2010 compared to the same period in the prior fiscal year. The 8.7% increase was primarily related to increased deliveries under major production programs, including increases attributable to manufacturing process improvements as well as revenue recognized under certain percentage-of-completion contracts.

Gross profit in the quarter was $13.7 million (30.0% gross profit margin) compared to $11.2 million (26.8% gross profit margin) last year, an increase of $2.5 million. The increase in gross profit and gross profit margin during the quarter was principally a result of the sales volume increase and improvements in margins related to manufacturing efficiencies as well as a reduction in the estimated costs to complete a contract nearing completion. On a comparative basis, the third quarter of fiscal 2009 included a provision of $2.0 million for estimated losses on various contracts due to changes in estimated costs required to complete the contracts.

Selling and administrative ("S&A") expenses for the third quarter were $8.0 million, or 17.6% of net sales, compared to $7.5 million, or 18.0% of net sales, in the prior-year third quarter. The $.5 million increase in S&A expenses is primarily attributable to increased bid and proposal costs of $.3 million essential to future bookings and increased audit fees of $.2 million.

The Company reported operating income during the third quarter of fiscal 2010 of $4.1 million compared to $3.0 million last year.

At May 2, 2010, the Company's balance sheet was strong, with total cash and cash equivalents of $19.4 million, working capital of $92.8 million and long-term debt of $12.5 million. Capital expenditures were $.7 million for the third quarter of fiscal 2010 compared to $1.9 million last year.

John Thonet, Chairman of Herley's Board of Directors, commented, "The Board of Directors is pleased with the third quarter performance and commends CEO Richard Poirier and his division managers for a job well done."

Richard F. Poirier, Chief Executive Officer and President, commented, "In our third quarter, we experienced year-over-year improvement in net sales, net income and gross profit margins. Strong bookings during the quarter brought us to a backlog of $184.1 million as we entered the fourth quarter of the fiscal year."

We present the non-GAAP (generally accepted accounting principles) measure EBITDA (as defined herein) in this report and anticipate referring to this measure in the conference call referenced below. Presentation of EBITDA is consistent with how we evaluate our performance internally and EBITDA is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry. EBITDA is a non-GAAP operating measure under Regulation G of the Securities and Exchange Commission. We compute EBITDA by adding back net interest, taxes, depreciation and amortization to net income. Each of these GAAP financial measures is included in our financial statements and thus EBITDA can be reconciled to net income attributable to common shareholders, the most comparable GAAP financial measure to it. However, other companies in our industry may calculate EBITDA differently than we do. EBITDA is not a measurement of financial performance under GAAP and should not be considered as a substitute for cash flow from operating activities as a measure of liquidity or a substitute for net income as an indicator of operating performance or any other measure of performance derived in accordance with GAAP. Net income attributable to common shareholders is reconciled to EBITDA for the third fiscal quarter of 2010 and 2009, respectively, in the following table (in thousands):

		Thirteen Weeks Ended
		May 2,	May 3,
		2010	2009
Net Income		$2,637	$2,423
	Add:
Interest, net		97	188
Taxes		1,191	567
Depreciation		1,341	1,585
Amortization		262	628

	EBITDA	$5,528	$5,391

Adjust for net Litigation Costs		1,548	664

	Adjusted EBITDA	$7,076	$6,055

Mr. Thonet will host a conference call on June 11, 2010 at 10:00 a.m. Eastern time to discuss financial results for the Third Quarter of Fiscal 2010 ended May 2, 2010. He will be joined on the call by Mr. Richard H. Poirier, Chief Executive Officer and President, and Mr. Anello C. Garefino, Chief Financial Officer. To join the conference call dial 1 (888) 425-4188, referencing Conference ID #79502871.

A taped replay of the call will be available one hour after completion of the call through June 18 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 #79502871.

In addition, the conference call will be broadcast live over the Internet and can be accessed through the following URL: http://www.videonewswire.com/event.asp?id=69742. To listen to the live call on the Internet, go to the website at least 15 minutes early to register, download and install any necessary audio software.

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 seven manufacturing locations worldwide and approximately 1000 employees. Additional information about the company can be found on the Internet at 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. Forward-looking statements involve various important assumptions, risks, uncertainties and other factors which could cause our actual results to differ materially from those expressed in such forward-looking statements. Forward-looking statements in this discussion can be identified by words such as "anticipate," "believe," "could," "estimate," "expect," "plan," "intend," "may," "should" or the negative of these terms or similar expressions. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, performance or achievement. Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors including but not limited to, competitive factors and pricing pressures, changes in legal and regulatory requirements, cancellation or deferral of customer orders, technological change or difficulties, difficulties in the timely development of new products, difficulties in manufacturing, the outcome of pending litigation, commercialization and trade difficulties and current economic conditions, including the potential for significant changes in US defense spending under the current Administration which could affect future funding of programs and allocations within the budget to various programs as well as the factors set forth in our public filings with the Securities and Exchange Commission. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

HERLEY INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
			May 2,
			2010		August 2,
			(Unaudited)		2009
ASSETS
Current Assets:
	Cash and cash equivalents		$ 19,439	$	14,820
	Trade accounts receivable, net		25,405		28,687
	Income taxes receivable		3,614		36
	Costs incurred and income recognized in excess
	of billings on uncompleted contracts and claims		5,386		10,396
	Inventories, net		55,822		57,804
	Deferred income taxes		15,221		19,380
	Other current assets		3,667		2,780
		Total Current Assets	128,554		133,903
Property, plant and equipment, net			32,051		32,872
Goodwill			43,722		43,722
Intangibles, net			8,455		9,619
Deferred income taxes			5,564		7,571
Other assets			467		598
		Total Assets	$ 218,813	$	228,285

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
	Current portion of long-term debt		$ ,322	$	1,595
	Current portion of employment settlement agreements		1,304		7,400
	Current portion of litigation settlements		975		954
	Accounts payable and accrued expenses		20,875		26,447
	Billings in excess of costs incurred and
	income recognized on uncompleted contracts		868		261
	Accrual for contract losses		2,097		3,440
	Advance payments on contracts		8,323		12,698
		Total Current Liabilities	35,764		52,795
Long-term debt, net of current portion			11,187		12,246
Long-term portion of employment settlement agreements			1,786		2,827
Other long-term liabilities			8,097		8,361
		Total Liabilities	56,834		76,229
Commitments and Contingencies
Shareholders' Equity:
	Common stock, $.10 par value; authorized 20,000,000 shares;
	issued and outstanding 13,682,402 at May 2, 2010
	and 13,719,926 at August 2, 2009		1,368		1,372
	Additional paid-in capital		103,094		103,113
	Retained earnings		57,859		47,882
	Accumulated other comprehensive loss		(342)		(311)
		Total Shareholders' Equity	161,979		152,056
		Total Liabilities and Shareholders' Equity	$ 218,813	$	228,285

HERLEY INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except per share data)


			Thirteen weeks ended				Thirty-nine weeks ended
			May 2,		May 3,		May 2,		May 3,
			2010		2009		2010		2009

Net sales		$	45,438	$	41,811	$	139,726	$	117,129
Cost and expenses:
	Cost of products sold		31,786		30,613		99,930		89,658
	Selling and administrative expenses		7,989		7,513		23,416		22,049
	Net gain on sale of assets		-		-		-		(573)
	Litigation costs, net of recovery settlement		1,548		664		864		1,055
	Employment settlement costs		-		-		900		-
			41,323		38,790		125,110		112,189

	Operating income		4,115		3,021		14,616		4,940
Other (expense) income:
	Interest income		9		58		29		94
	Interest expense		(106)		(246)		(436)		(945)
	Foreign exchange transaction (losses) gains		(190)		157		(355)		(233)
			(287)		(31)		(762)		(1,084)

	Income from continuing operations
	before income taxes		3,828		2,990		13,854		3,856
	Provision (benefit) for income taxes		1,191		567		3,877		163

	Income from continuing operations		2,637		2,423		9,977		3,693
Discontinued operations:
	Loss from operations of discontinued subsidiary		-		-		-		(734)
	Benefit for income taxes		-		-		-		(278)
	Loss from discontinued operations		-		-		-		(456)

Net income		$	2,637	$	2,423	$	9,977	$	3,237

Earnings (loss) per common share - Basic
	Income from continuing operations	$	.19	$	.18	$	.73	$	.27
	Loss from discontinued operations		-		-		-		(.03)
	Net income - basic	$	.19	$	.18	$	.73	$	.24

	Basic weighted average shares		13,580		13,559		13,691		13,545

Earnings (loss) per common share - Diluted
	Income from continuing operations	$	.19	$	.18	$	.72	$	.27
	Loss from discontinued operations		-		-		-		(.03)
	Net income - diluted	$	.19	$	.18	$	.72	$	.24

	Diluted weighted average shares		13,885		13,721		13,873		13,774

HERLEY INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
						Thirty-nine weeks ended
						May 2,		May 3,
						2010		2009
Cash flows from operating activities:
	Net income				$	9,977	$	3,237
	Adjustments to reconcile net income to
	net cash provided by operating activities:
		Depreciation and amortization				5,236		6,374
		Loss (gain) on sale of fixed assets				28		(573)
		Impairment of goodwill of discontinued subsidiary				-		1,000
		Stock-based compensation costs				291		458
		Excess tax benefit from exercises of stock options				(893)		(61)
		Litigation settlement costs				975		-
		Imputed interest on employment and litigation settlement liabilities				124		275
		Inventory valuation reserve charges				1,102		1,164
		Warranty reserve charges				1,324		1,130
		Deferred tax provision (benefit)				7,049		16
		Changes in operating assets and liabilities:
			Cash of discontinued subsidiary			-		(712)
			Trade accounts receivable			3,203		(2,285)
			Income taxes receivable			(3,578)		2,056
			Costs incurred and income recognized in excess of billings on uncompleted contracts and claims			4,878		3,477
			Other receivables			192		1,020
			Inventories, net			799		(6,167)
			Other current assets			(1,096)		(965)
			Accounts payable and accrued expenses			(6,171)		(6,094)
			Billings in excess of costs incurred and
			income recognized on uncompleted contracts			649		175
			Income taxes payable			428		18
			Accrual for contract losses			(1,329)		1,420
			Employment settlement payments			(8,115)		(964)
			Litigation settlement payments			(3,000)		(1,000)
			Advance payments on contracts			(2,372)		9,361
			Other, net			(108)		(224)
				Total adjustments		(384)		8,899
		Net cash provided by operating activities				9,593		12,136
Cash flows from investing activities:
	Acquisition of business, net of cash acquired					-		(30,010)
	Proceeds from sale of discontinued business					-		15,000
	Proceeds from sale of fixed assets					152		-
	Capital expenditures					(3,484)		(4,524)
		Net cash used in investing activities				(3,332)		(19,534)
Cash flows from financing activities:
	Borrowings under bank line of credit					7,000		31,000
	Borrowings - term loan					-		10,000
	Proceeds from exercise of stock options					-		313
	Excess tax benefit from exercises of stock options					893		61
	Payments of long-term debt					(1,302)		(1,595)
	Payments under bank line of credit					(7,000)		(32,500)
	Purchase of treasury stock					(1,207)		-
		Net cash (used in) provided by financing activities				(1,616)		7,279
Effect of exchange rate changes on cash						(26)		(89)
		Net increase (decrease) in cash and cash equivalents				4,619		(208)
Cash and cash equivalents at beginning of period						14,820		14,347
Cash and cash equivalents at end of period					$	19,439	$	14,139