Herley Reports Record Revenues in First Quarter FY2011 and Achieves Highest Gross Profit Margin In Six Years

Conference Call Scheduled For Friday, December 10, 2010

Dec 09, 2010, 16:29 ET from Herley Industries, Inc.

LANCASTER, Pa., Dec. 9, 2010 /PRNewswire-FirstCall/ -- Herley Industries, Inc. (Nasdaq: HRLY) today reported financial results for the First Quarter FY2011 ended October 31, 2010.

Net sales for the first quarter of fiscal 2011 were a record $48.9 million compared to $47.7 million for the first quarter of fiscal 2010. Net income was $3.5 million, or $.25 per diluted share, compared to net income of $3.6 million, or $.26 per diluted share in the first quarter of fiscal 2010. Net income in the current quarter was negatively impacted by a loss contingency accrual of $1.1 million related to a potential settlement of certain previously-disclosed litigation.  Excluding the contingency reserve, net income for the quarter would have been $4.2 million, or $.30 per diluted share. (See table below for a reconciliation of the non-GAAP EPS measure.)

The Company's EBITDA for the first quarter of 2011 was $7.3 million compared to $6.9 million in the prior year first quarter. The Company's Adjusted EBITDA for the first quarter of 2011 was $9.3 million compared to $7.4 million for the same quarter last year. Adjusted EBITDA is defined as net income plus interest, taxes, depreciation and amortization, litigation costs and the litigation loss contingency. (See table below for a reconciliation of the non-GAAP measure to net income.)

The Company reported a revenue increase of $1.2 million in the first quarter of fiscal 2011 compared to the same quarter last year. The increase in net sales was primarily related to increased deliveries under major production programs, including increases attributable to manufacturing process improvements, in addition to revenue recognized under certain percentage-of-completion contracts. Gross profit in the quarter was $15.8 million; representing a 32.2% gross profit margin ("GPM") which is the highest reported GPM in any quarter since fiscal 2004.  The gross profit in the first quarter of fiscal 2010 was $13.3 million; a GPM of 27.9%. The increase of $2.5 million in gross profit and 430 basis points increase in GPM during fiscal 2011 was principally a result of continuous improvements in margins related to manufacturing efficiencies and a favorable program mix.  Costs of products sold in the first quarter of fiscal 2010 included the impact of cost overruns on a major contract.

Selling and administrative expenses for the first quarter were $8.2 million (excluding the $1.1 million loss contingency accrual), or 16.7% of sales, compared to $7.7 million, or 16.1% of sales for the same quarter last year.

The Company reported income from operations during the first quarter of fiscal 2011 of $5.6 million compared to income from operations of $5.1 million during the same quarter last year. The current year quarter included the loss contingency accrual noted above.

At October 31, 2010, the Company's balance sheet continues to be strong, with total cash and cash equivalents of $18.2 million, working capital of $91.8 million and long-term debt, exclusive of settlement commitments, of $10.4 million. Capital expenditures were $1.2 million in the first quarter of fiscal 2011 compared to $1.4 million last year.

Richard F. Poirier, Chief Executive Officer and President, commented, "We are very pleased with our first quarter results.  As we continue to pursue new opportunities and develop new products, we are realizing the benefits of improved efficiencies on major production programs."

John A. Thonet, Chairman of the Board, said, "I congratulate Rich Poirier and all of the General Managers for another successful quarter.  I am especially pleased to note that our gross margin for the quarter reached 32.2%, the highest since 2004."

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 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.

Following is a reconciliation of net income to EBITDA and adjusted EBITDA (unaudited):



Thirteen weeks ended




October 31,


November 1,




2010


2009







Net income


$

3,498

$

3,551

Add:







Interest expense


22


165


Taxes


2,067


1,319


Depreciation and amortization


1,748


1,845


 EBITDA


7,335


6,880

Adjustments:







Litigation costs


820


540


Litigation contingency accrual


1,100


-


Adjusted EBITDA

$

9,255

$

7,420





















We also present net income and earnings per diluted share excluding the impact of a loss contingency accrual related to certain litigation in the first quarter of fiscal 2011.  The following sets forth a reconciliation of these adjusted non-GAAP amounts to the corresponding GAAP measures.





Thirteen weeks






ended






October 31,






2010









Income before income taxes


$

5,565



Add loss contingency accrual



1,100



    Adjusted income before income taxes



6,665



Pro-forma provision for income taxes



2,434



    Pro-forma net income


$

4,231









Earnings per common share - Diluted


$

0.30









Diluted weighted average shares



14,084




Chairman of the Board, John Thonet and Richard F. Poirier, Chief Executive Office and President will host a conference call on December 10, 2010 at 10:00 a.m. Eastern time to discuss the financial results for the First Quarter FY 2011, ended October 31, 2010.  They will be joined on the call by Anello C. Garefino, Chief Financial Officer.  To join the conference call dial 1 (888) 425-4188, referencing Conference ID #27875628. 

A taped replay of the call will be available one hour after completion of the call through December 17 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 #27875628.

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=74718.  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 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, 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 this report and 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.

For information at Herley contact:

Peg Guzzetti  

Tel:  (717) 397-2777

Investor Relations  

www.herley.com



HERLEY INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)






October 31,







2010


August 1,





(Unaudited)


2010


ASSETS






Current Assets:







Cash and cash equivalents

$

18,154

$

25,690


Trade accounts receivable, net


29,687


28,705


Costs incurred and income recognized in excess






  of billings on uncompleted contracts and claims


11,399


9,334


Inventories, net


51,854


51,453


Deferred income taxes


15,963


15,726


Other current assets


4,900


3,875



Total Current Assets


131,957


134,783

Property, plant and equipment, net


32,109


32,441

Goodwill



43,722


43,722

Intangibles, net



7,951


8,197

Deferred income taxes



6,718


7,045

Other assets



403


426



Total Assets

$

222,860

$

226,614


LIABILITIES AND SHAREHOLDERS' EQUITY





Current Liabilities:







Current portion of long-term debt

$

1,329

$

1,321


Current portion of employment settlement agreements


1,374


1,331


Accounts payable and accrued expenses


23,596


31,874


Billings in excess of costs incurred and






   income recognized on uncompleted contracts


1,194


648


Accrual for contract losses


2,309


2,080


Advance payments on contracts


10,359


9,922



Total Current Liabilities


40,161


47,176

Long-term debt, net of current portion


10,425


10,881

Long-term portion of employment settlement agreements


1,033


1,437

Other long-term liabilities


8,403


8,136



Total Liabilities


60,022


67,630

Commitments and Contingencies





Shareholders' Equity:







Common stock, $.10 par value; authorized 20,000,000 shares;






 issued and outstanding 13,792,464 at October 31, 2010






 and 13,774,394 at August 1, 2010


1,379


1,377


Additional paid-in capital


103,375


103,029


Retained earnings


58,393


54,896


Accumulated other comprehensive loss


(309)


(318)



Total Shareholders' Equity


162,838


158,984



Total Liabilities and Shareholders' Equity

$

222,860

$

226,614



HERLEY INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(In thousands, except per share data)














Thirteen weeks ended




October 31,


November 1,




2010


2009







Net sales

$

48,921

$

47,679

Cost and expenses:






Cost of products sold


33,163


34,392


Selling and administrative expenses


9,291


7,681


Litigation costs


820


540




43,274


42,613








Income from operations


5,647


5,066

Other (expense) income:






Interest income


8


11


Interest expense


(22)


(165)


Foreign exchange transactions losses


(68)


(42)




(82)


(196)








Income before income taxes


5,565


4,870


Provision for income taxes


2,067


1,319







Net income

$

3,498

$

3,551







Earnings per common share - Basic

$

.25

$

.26








Basic weighted average shares


13,792


13,704







Earnings per common share - Diluted

$

.25

$

.26








Diluted weighted average shares


14,084


13,878



HERLEY INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  (UNAUDITED)

(In thousands)



Thirteen weeks ended



October 31,


November 1,



2010


2009

Cash flows from operating activities:






Net income

$

3,498

$

3,551


Adjustments to reconcile net income to






  net cash used in operating activities:







Depreciation and amortization


1,748


1,845



Stock-based compensation costs


338


124



Excess tax benefit from exercise of stock options


(10)


-



Inventory valuation reserve charges


259


299



Warranty reserve charges


230


542



Deferred tax provision


293


1,162



Changes in operating assets and liabilities:








Trade accounts receivable


(970)


(1,304)




Income taxes receivable


(146)


-




Costs incurred and income recognized in excess








  of billings on uncompleted contracts and claims


(1,993)


4,158




Inventories, net


(642)


35




Other current assets


(880)


(952)




Accounts payable and accrued expenses


294


(4,639)




Billings in excess of costs incurred and








 income recognized on uncompleted contracts


532


(158)




Income taxes payable


2,074


-




Accrual for contract losses


229


(1,150)




Employment settlement payments


(379)


(6,502)




Litigation settlement payments


(10,975)


(2,000)




Advance payments on contracts


437


(443)




Other, net


104


(79)





Total adjustments


(9,457)


(9,062)



Net cash used in operating activities


(5,959)


(5,511)

Cash flows from investing activities:






Proceeds from sale of fixed assets


44


-


Capital expenditures


(1,194)


(1,398)



Net cash used in investing activities


(1,150)


(1,398)

Cash flows from financing activities:






Borrowings under bank line of credit


-


7,000


Excess tax benefit from exercise of stock options


10


-


Payments of long-term debt


(432)


(642)


Purchase of treasury stock


-


(441)



Net cash (used in) provided by financing activities


(422)


5,917

Effect of exchange rate changes on cash


(5)


4



Net (decrease) in cash and cash equivalents


(7,536)


(988)

Cash and cash equivalents at beginning of period


25,690


14,820

Cash and cash equivalents at end of period

$

18,154

$

13,832



SOURCE Herley Industries, Inc.



RELATED LINKS

http://www.herley.com