Herley Reports Year-End Results With Record Fourth Quarter and Fiscal Year Sales

Conference Call Scheduled for Friday, October 15, 2010

Oct 14, 2010, 20:02 ET from Herley Industries, Inc.

LANCASTER, Pa., Oct. 14 /PRNewswire-FirstCall/ -- Herley Industries, Inc. (Nasdaq: HRLY) today reported financial results for the Fourth Quarter and Fiscal Year ended August 1, 2010.

Net sales for the fourth quarter of fiscal 2010 were the highest of all quarters in fiscal 2010 as part of a record setting year with sales of $48.4 million, an increase of 12.6% over the prior year fourth quarter net sales of $43.0 million.  The revenue increase for the quarter of $5.4 million over the prior year fourth quarter was related to increased deliveries under several production programs, including increases attributable to continued focus on manufacturing process improvements as well as revenue recognized under certain percentage-of-completion contracts. In the fourth quarter of fiscal 2010, the Company also resolved the class action litigation which had originated in 2006. This negotiated settlement resulted in a charge to operations of approximately $10.0 million.  Including the settlement, the net loss for the quarter was approximately $(3.0) million, or $(.22) per diluted share, compared to a net loss of $(44.4) million, or $(3.26) per diluted share, in the fourth quarter of the prior fiscal year. Excluding the impact of this settlement, net income for the quarter would have been $3.0 million, or $.22 per diluted share.  The net loss in the fourth quarter of 2009 related to several significant charges aggregating $66.9 million, including a non-cash impairment charge for goodwill and other intangible assets of $44.2 million.

Herley achieved record net sales for fiscal 2010 of $188.1 million, up 17.5% compared to $160.1 million in fiscal 2009. The Company has achieved several performance milestones that resulted in improved sales volume and profitability, while clearing the way for renewed operating focus with the settlement of the major claims against the Company. Customer backlog has also increased to $186.7 million compared to $182.0 million at the end of fiscal 2009. The Company reported net income for the year of $7.0 million, providing earnings per basic and diluted share of $.51 and $.50, respectively.  Excluding the impact of the litigation settlements of approximately $11.0 million, net income for the fiscal year would have been $13.6 million, or $ .97 per diluted share.

Gross profit for fiscal 2010 was $53.8 million (28.6% gross profit margin) compared to $27.4 million (17.1% gross profit margin) in the prior fiscal year, an increase of $26.4 million.  The primary factors contributing to the favorable increase over the prior year include sales volume increases and continued improvement in manufacturing efficiencies in comparison to lower sales volumes and various inventory adjustments impacting margin performance in 2009.

Selling and administrative ("S&A") expenses in fiscal 2010 were $31.4 million or 16.7% of net sales, compared to $29.0 million, or 18.1% of net sales, in fiscal 2009.  The $2.4 million increase in S&A expenses is primarily attributable to increased bid and proposal costs, increased foreign sales commissions, and increased payroll costs.

The Company's balance sheet continues to be very strong, with total cash and cash equivalents of $25.7 million, working capital of $87.6 million, and long-term debt of $12.2 million at August 1, 2010.  The Company also experienced improved cash flow performance for the year with net cash provided by operations of $17.2 million, an increase of approximately 16% over the prior fiscal period.

The Company's EBITDA was $16.5 million for fiscal 2010 and, when adjusted for the impact of net litigation costs and litigation settlements, results in adjusted EBITDA of $28.2 million. (See table below for a reconciliation of the non-GAAP measure to net income.)

Richard Poirier, Chief Executive officer and President, commented, "I am very pleased with Herley's record fiscal year 2010.  By the end of the fiscal year, we ended the significant litigation that has impacted the Company since 2006. This was a major accomplishment for the Company this year. Even with the effect that the legal fees and settlement costs had on the fiscal year, the Company achieved record revenues and saw the return to profitability. As predicted, our book to bill was greater than 1 to 1 and our cash provided from operations was approximately $17 million.  With our healthy backlog and bookings we intend to grow organically and will continue to explore opportunities to make strategic acquisitions within the industry."

John Thonet, Chairman of the Board, commented, "Herley's Board of Directors commends our CEO, Richard Poirier and his division managers for delivering four solid quarters in fiscal 2010 and positioning Herley for a good year in 2011 as well." 

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.

Reconciliation of net income to EBITDA and adjusted EBITDA (unaudited):

Fiscal Year Ended  August 1, 2010

Net income

$7,014

Add:

Interest, net

436

Taxes

2,065

Depreciation

5,549

Amortization

1,389

EBITDA

$16,453

Adjustment for net litigation costs and settlements

11,760

Adjusted EBITDA

$28,213

We also present net income and earnings per diluted share, excluding the impact of litigation settlements, for the fourth quarter and the fiscal year.  The following sets forth a reconciliation of these adjusted non-GAAP amounts to the corresponding GAAP measures:

Thirteen

Fifty-two

weeks ended

weeks ended

August 1, 2010

August 1, 2010

(Loss) income from continuing operations before income taxes

$

(4,775)

$

9,079

Add:

Litigation settlements

10,000

10,975

Adjusted income from continuing operations before income taxes

5,225

20,054

Pro-forma provision for income taxes

2,180

6,436

Pro-forma net income

$

3,045

$

13,618

Earnings per common share - Diluted

$

.22

$

.97

Diluted weighted average shares

13,968

14,051

John Thonet, Chairman of the Board, and Richard Poirier, Chief Executive Officer and President, will host a conference call on Friday, October 15, 2010 at 10:00 a.m. Eastern Time to discuss financial results for the Fourth Quarter and Fiscal Year ended August 1, 2010. To join the conference call, dial 1 (888) 425-4188 and reference Conference ID # 16300394.  

Replay of the conference call is scheduled to begin on October 15, 2010, one hour after completion of the call, and end on October 22 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 #16300394.

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=73036. 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 1,000 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 U.S. defense spending under the new 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 release and in our public filings with the Securities and Exchange Commission.

For information at Herley, contact:

Peg Guzzetti, Investor Relations  

Tel:  (717) 397-2777   

HERLEY INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(In thousands, except per share data)

Thirteen weeks ended

Fifty-two weeks ended

August 1,

August 2,

August 1,

August 2,

2010

2009

2010

2009

Net sales

$

48,397

$

42,960

$

188,123

$

160,089

Cost and expenses:

Cost of products sold

34,399

42,990

134,329

132,648

Selling and administrative expenses

7,987

7,505

31,403

28,981

Impairment of goodwill and other intangible assets

-

44,151

-

44,151

Litigation costs, net of recovery settlement

893

731

782

1,786

Litigation settlements

10,000

-

10,975

-

Employment contracts settlement costs

-

10,553

900

10,553

53,279

105,930

178,389

218,119

Operating (loss) income 

(4,882)

(62,970)

9,734

(58,030)

Other income (expense):

Interest income

48

12

77

106

Interest expense

(77)

(447)

(513)

(1,392)

Foreign exchange transactions gain (losses)

136

(43)

(219)

(276)

107

(478)

(655)

(1,562)

(Loss) income from continuing operations before income taxes

(4,775)

(63,448)

9,079

(59,592)

(Benefit) provision  for income taxes

(1,812)

(19,035)

2,065

(18,872)

(Loss) income from continuing operations 

$

(2,963)

$

(44,413)

$

7,014

$

(40,720)

Discontinued operations:

(Loss) from operations of discontinued subsidiary

-

-

-

(734)

(Benefit) for income taxes

-

-

-

(278)

(Loss) from discontinued operations

$

-

$

-

$

-

$

(456)

Net (loss) income

$

(2,963)

$

(44,413)

$

7,014

$

(41,176)

(Loss) earnings per common share - Basic

(Loss) income  from continuing operations

$

(.22)

$

(3.26)

$

.51

$

(3.00)

(Loss) from discontinued operations

-

-

-

(.03)

Net (loss) income  - basic

$

(.22)

$

(3.26)

$

.51

$

(3.03)

Basic weighted average shares 

13,739

13,607

13,788

13,560

(Loss) earnings per common share - Diluted

(Loss) income  from continuing operations

$

(.22)

$

(3.26)

$

.50

$

(3.00)

(Loss) from discontinued operations

-

-

-

(.03)

Net (loss) income  - diluted

$

(.22)

$

(3.26)

$

.50

$

(3.03)

Diluted weighted average shares 

13,739

13,607

14,051

13,560

HERLEY INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS  (UNAUDITED)

(In thousands, except share data)

August 1,

August 2,

2010

2009

ASSETS

Current Assets:

Cash and cash equivalents

$

25,690

$

14,820

Trade accounts receivable, net

28,705

28,687

Costs incurred and income recognized in excess

  of billings on uncompleted contracts and claims

9,334

10,396

Inventories, net

51,453

57,804

Deferred income taxes

15,726

19,380

Other current assets

3,875

2,816

Total Current Assets

134,783

133,903

Property, plant and equipment, net

32,441

32,872

Goodwill

43,722

43,722

Intangibles, net

8,197

9,619

Deferred income taxes

7,045

7,571

Other assets

426

598

Total Assets

$

226,614

$

228,285

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:

Current portion of long-term debt

$

1,321

$

1,595

Current portion of employment settlement agreements -

   (net of imputed interest of $60 in 2010 and $98 in 2009)

1,331

7,400

Current portion of litigation settlements

   (net of imputed interest of $46 in fiscal 2009)

-

954

Accounts payable and accrued expenses

30,296

25,509

Billings in excess of costs incurred and

   income recognized on uncompleted contracts

648

261

Income tax payable

539

-

Accrual for contract losses

2,080

3,440

Accrual for warranty costs

1,039

938

Advance payments on contracts

9,922

12,698

Total Current Liabilities

47,176

52,795

Long-term debt, net of current portion

10,881

12,246

Long-term portion of employment settlement agreements

 (net of imputed interest of $19 in 2010 and $79 in 2009)

1,437

2,827

Other long-term liabilities

8,136

8,361

Total Liabilities

67,630

76,229

Commitments and Contingencies

Shareholders' Equity:

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

 issued and outstanding 13,774,394 in 2010

 and 13,719,926 in 2009

1,377

1,372

Additional paid-in capital

103,029

103,113

Retained earnings

54,896

47,882

Accumulated other comprehensive loss

(318)

(311)

Total Shareholders' Equity

158,984

152,056

Total Liabilities and Shareholders' Equity

$

226,614

$

228,285

HERLEY INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS  (UNAUDITED)

(In thousands)

Fifty-two weeks ended

August 1,

August 2,

2010

2009

Cash flows from operating activities:

Net income (loss)

$

7,014

$

(41,176)

Adjustments to reconcile net income (loss) to

  net cash provided by operating activities:

Depreciation and amortization

6,938

8,468

Loss (gain) on sale of fixed assets

26

(574)

Impairment of goodwill of discontinued subsidiary

-

1,000

Impairment of goodwill of continuing operations

-

42,050

Impairment of intangible assets

-

2,101

Abandonment of long-lived assets

-

345

Stock-based compensation costs

358

718

Excess tax benefit from exercises of stock options

(893)

(212)

Litigation and claim settlements

10,975

8,982

Employment contract settlement costs

-

10,553

Imputed interest on employment and litigation settlement liabilities

145

327

Foreign exchange transaction loss (gain)

1

(1)

Inventory valuation reserve charges

1,635

2,495

Warranty reserve charges

1,703

1,635

Deferred tax provision

4,166

(24,514)

Changes in operating assets and liabilities:

Cash of discontinued subsidiary

-

(712)

Trade accounts receivable

(52)

(3,426)

Receipt of contract claim settlement

1,476

-

Costs incurred and income recognized in excess

  of billings on uncompleted contracts and claims

(547)

5,559

Inventories, net

4,662

(6,739)

Other current assets

(1,072)

2,651

Accounts payable and accrued expenses

(5,098)

2,920

Warranty costs

(1,599)

-

Billings in excess of costs incurred and

 income recognized on uncompleted contracts

409

304

Accrual for contract losses

(1,347)

755

Litigation settlement payments

(3,000)

(1,000)

Employment settlement payments

(8,458)

(4,476)

Advance payments on contracts

(774)

6,618

Other, net

512

229

Total adjustments

10,166

56,056

Net cash provided by operating activities

17,180

14,880

Cash flows from investing activities:

Acquisition of business, net of cash acquired

-

(30,010)

Proceeds from sale of discontinued subsidiary

-

15,000

Proceeds from sale of fixed assets

161

-

Capital expenditures

(5,311)

(5,432)

Other

-

27

Net cash used in investing activities

(5,150)

(20,415)

Cash flows from financing activities:

Borrowings under bank line of credit

7,000

35,600

Borrowings - term loan

-

10,000

Proceeds from exercise of stock options

542

538

Excess tax benefit from exercises of stock options

893

212

Payments of long-term debt

(1,599)

(2,182)

Payments under bank line of credit

(7,000)

(38,100)

Purchase of treasury stock

(979)

-

Net cash (used in) provided by financing activities

(1,143)

6,068

Effect of exchange rate changes on cash

(17)

(60)

Net increase (decrease) in cash and cash equivalents

10,870

473

Cash and cash equivalents at beginning of period

14,820

14,347

Cash and cash equivalents at end of period

$

25,690

$

14,820

SOURCE Herley Industries, Inc.



RELATED LINKS

http://www.herley.com