Attached files
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: January 31, 2010
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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.
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(Exact name of registrant as specified in its charter)
DELAWARE 23-2413500
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(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
3061 Industry Drive, Lancaster, Pennsylvania 17603
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (717) 397-2777
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(Former Address of Principal Executive Offices) (Zip Code)
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
--- ---
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or for such shorter period that the registrant was required
to submit and post such files). Yes No
--- ---
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definition of "large accelerated," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
[ ] Large accelerated filer [X] Accelerated filer
[ ] Non-accelerated filer [ ] Smaller reporting company
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes X No
--- ---
As of March 8, 2010, there were 13,577,294 shares of Common Stock outstanding.
HERLEY INDUSTRIES, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
PAGE
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements:
Condensed Consolidated Balance Sheets -
January 31, 2010 (Unaudited) and August 2, 2009 2
Condensed Consolidated Statements of Income (Unaudited) -
for the thirteen and twenty-six weeks ended January 31, 2010 and February 1, 2009 3
Condensed Consolidated Statements of Cash Flows (Unaudited) -
for the twenty-six weeks ended January 31, 2010 and February 1, 2009 4
Notes to Condensed Consolidated Financial Statements (Unaudited) 5
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 13
Item 3 - Quantitative and Qualitative Disclosures About Market Risk 18
Item 4 - Controls and Procedures 19
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 19
Item 1A - Risk Factors 19
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds 19
Item 3 - Defaults upon Senior Securities 19
Item 4 - Submission of Matters to a Vote of Security Holders 19
Item 5 - Other Information 20
Item 6 - Exhibits 20
Signature 20
Part I - Financial Information
Item I - Financial Statements
HERLEY INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
January 31,
2010 August 2,
(Unaudited) 2009
----------- -----------
ASSETS
Current Assets:
Cash and cash equivalents $ 12,134 $ 14,820
Trade accounts receivable, net 30,291 28,687
Income taxes receivable 3,771 36
Costs incurred and income recognized in excess
of billings on uncompleted contracts and claims 4,383 10,396
Inventories, net 56,049 57,804
Deferred income taxes 16,300 19,380
Other current assets 5,308 2,780
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Total Current Assets 128,236 133,903
Property, plant and equipment, net 32,830 32,872
Goodwill 43,722 43,722
Intangibles, net 8,744 9,619
Deferred income taxes 4,656 7,571
Other assets 508 598
----------- -----------
Total Assets $ 218,696 $ 228,285
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 1,321 $ 1,595
Current portion of employment settlement agreements 1,294 7,400
Current portion of litigation settlements 988 954
Accounts payable and accrued expenses 21,452 26,447
Billings in excess of costs incurred and
income recognized on uncompleted contracts 414 261
Accrual for contract losses 2,262 3,440
Advance payments on contracts 10,140 12,698
----------- -----------
Total Current Liabilities 37,871 52,795
Long-term debt, net of current portion 11,501 12,246
Long-term portion of employment settlement agreements 2,118 2,827
Other long-term liabilities 8,164 8,361
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Total Liabilities 59,654 76,229
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Commitments and Contingencies
Shareholders' Equity:
Common stock, $.10 par value; authorized 20,000,000 shares;
issued and outstanding 13,577,294 at January 31, 2010
and 13,719,926 at August 2, 2009 1,358 1,372
Additional paid-in capital 102,779 103,113
Retained earnings 55,223 47,882
Accumulated other comprehensive loss (318) (311)
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Total Shareholders' Equity 159,042 152,056
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Total Liabilities and Shareholders' Equity $ 218,696 $ 228,285
=========== ===========
See notes to condensed consolidated financial statements.
2
HERLEY INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except per share data)
Thirteen weeks ended Twenty-six weeks ended
-------------------- ----------------------
January 31, February 1, January 31, February 1,
2010 2009 2010 2009
------------- ------------ ------------- ------------
Net sales $ 46,609 $ 39,974 $ 94,288 $ 75,318
------------- ------------ ------------- ------------
Cost and expenses:
Cost of products sold 33,752 30,303 68,144 59,044
Selling and administrative expenses 7,746 7,047 15,427 14,370
Net loss (gain) on sale of assets - 45 - (573)
Litigation costs, net of recovery settlement (1,224) - (684) 558
Employment settlement costs 900 - 900 -
------------- ------------ ------------- ------------
41,174 37,395 83,787 73,399
Operating income 5,435 2,579 10,501 1,919
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Other (expense) income:
Interest income 9 18 20 36
Interest expense (165) (476) (330) (699)
Foreign exchange transaction losses (122) (30) (164) (390)
------------- ------------ ------------- ------------
(278) (488) (474) (1,053)
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Income from continuing operations
before income taxes 5,157 2,091 10,027 866
Provision (benefit) for income taxes 1,367 (62) 2,686 (404)
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Income from continuing operations 3,790 2,153 7,341 1,270
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Discontinued operations:
Loss from operations of discontinued subsidiary - - - (734)
Benefit for income taxes - - - (278)
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Loss from discontinued operations - - - (456)
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Net income $ 3,790 $ 2,153 $ 7,341 $ 814
============= ============ ============= ============
Earnings (loss) per common share - Basic
Income from continuing operations $ .28 $ .16 $ .54 $ .09
Loss from discontinued operations - - - (.03)
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Net income - basic $ .28 $ .16 $ .54 $ .06
============= ============ ============= ============
Basic weighted average shares 13,687 13,550 13,695 13,537
============= ============ ============= ============
Earnings (loss) per common share - Diluted
Income from continuing operations $ .27 $ .16 $ .53 $ .09
Loss from discontinued operations - - - (.03)
------------- ------------ ------------- ------------
Net income - diluted $ .27 $ .16 $ .53 $ .06
============= ============ ============= ============
Diluted weighted average shares 13,853 13,746 13,865 13,949
============= ============ ============= ============
See notes to condensed consolidated financial statements.
3
HERLEY INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
Twenty-six weeks ended
----------------------
January 31, February 1,
2010 2009
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Cash flows from operating activities:
Net income $ 7,341 $ 814
----------- -----------
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 3,633 4,161
Gain on sale of fixed assets - (573)
Impairment of goodwill of discontinued subsidiary - 1,000
Stock-based compensation costs 240 293
Excess tax benefit from exercises of stock options - (61)
Imputed interest on employment and litigation settlement
liabilities 88 190
Inventory valuation reserve charges 619 723
Warranty reserve charges 842 817
Deferred tax provision (benefit) 5,990 (474)
Changes in operating assets and liabilities:
Cash of discontinued subsidiary - (712)
Trade accounts receivable (1,630) (1,062)
Income taxes receivable (3,735) (290)
Costs incurred and income recognized in excess
of billings on uncompleted contracts and claims 5,969 3,620
Inventories, net 1,111 (3,143)
Other current assets (2,531) (650)
Accounts payable and accrued expenses (4,874) (5,525)
Billings in excess of costs incurred and
income recognized on uncompleted contracts 161 109
Accrual for contract losses (1,172) (92)
Employment settlement payments (7,769) (661)
Litigation settlement payments (2,000) -
Advance payments on contracts (557) 5,381
Other, net (80) (450)
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Total adjustments (5,695) 2,601
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Net cash provided by operating activities 1,646 3,415
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Cash flows from investing activities:
Acquisition of business, net of cash acquired - (30,010)
Proceeds from sale of discontinued business - 15,000
Capital expenditures (2,738) (2,622)
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Net cash used in investing activities (2,738) (17,632)
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Cash flows from financing activities:
Borrowings under bank line of credit 7,000 24,000
Borrowings - term loan - 10,000
Proceeds from exercise of stock options - 313
Excess tax benefit from exercises of stock options - 61
Payments of long-term debt (1,005) (1,010)
Payments under bank line of credit (7,000) (21,500)
Purchase of treasury stock (588) -
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Net cash (used in) provided by financing activities (1,593) 11,864
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Effect of exchange rate changes on cash (1) (72)
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Net decrease in cash and cash equivalents (2,686) (2,425)
Cash and cash equivalents at beginning of period 14,820 14,347
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Cash and cash equivalents at end of period $ 12,134 $ 11,922
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See notes to condensed consolidated financial statements.
4
HERLEY INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Principles of Consolidation and Basis of Presentation
The unaudited Condensed Consolidated Financial Statements include the
accounts of Herley Industries, Inc. ("Herley"), a Delaware corporation, and
its wholly-owned subsidiaries (collectively the "Company"), which are
engaged in the design, development and manufacture of microwave technology
solutions for the defense, aerospace and medical industries worldwide with
four domestic and three foreign manufacturing facilities and two
engineering offices in the U.S. Herley's corporate office is in Lancaster,
Pennsylvania. Herley's primary business units include: Herley Lancaster;
Herley New England; Herley Israel; Micro Systems, Inc. ("MSI"); Herley-CTI;
Eyal Industries ("Eyal"); and EW Simulation Technology ("EWST"). In the
first quarter of fiscal 2009 ended November 2, 2008, the Company sold its
Innovative Concepts, Inc. ("ICI") business. The results of operations for
ICI have been reported as discontinued operations in the Condensed
Consolidated Statements of Income for all periods presented. All
significant intercompany accounts and transactions have been eliminated.
The accompanying unaudited Condensed Consolidated Financial Statements have
been prepared in accordance with instructions to Form 10-Q and Article 10
of Regulation S-X and do not include all of the information and disclosures
normally included in annual financial statements as required by accounting
principles generally accepted in the United States of America ("U.S. GAAP")
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring items, as well as the recording
of the operations of a discontinued subsidiary and the acquisition of a
business as discussed in Notes 3 and 2, respectively) considered necessary
for a fair presentation have been included in the accompanying condensed
consolidated financial statements. Operating results for this quarter are
not necessarily indicative of the results of operations that may be
expected for any other interim period or for the full year. These
statements should be read in conjunction with the consolidated financial
statements and notes thereto, and the Company's description of critical
accounting policies included in the Company's 2009 Annual Report on Form
10-K/A for the fiscal year ended August 2, 2009 as filed with the
Securities and Exchange Commission ("SEC") on November 30, 2009. The
accounting policies used in preparing these unaudited condensed
consolidated interim financial statements are consistent with those
described in the August 2, 2009 audited financial statements. The Condensed
Consolidated Balance Sheet at August 2, 2009 has been derived from the
audited consolidated financial statements at that date but does not include
all of the information and footnotes required by U.S. GAAP for complete
financial statements. Certain prior-period balances have been reclassified
to conform to the current period's financial statement presentation.
The preparation of financial statements in conformity with U.S. GAAP
requires that management of the Company make certain estimates and
assumptions that affect the reported amounts of assets, liabilities and
disclosures of contingent assets and liabilities at the date of the
financial statements and reported amounts of revenues and expenses during
the reporting periods. These judgments can be subjective and complex, and
consequently actual results could differ from those estimates and
assumptions. The most significant estimates include: valuation and
recoverability of goodwill and long-lived assets; income taxes; recognition
of revenue and costs on production contracts; the valuation of inventory;
accrual of litigation settlements and other contingencies; and stock-based
compensation costs. Each of these areas requires the Company to make use of
reasoned estimates including estimating the cost to complete a contract and
loss accruals, forecasted cash flows and the net realizable value of its
inventory. Changes in estimates can have a material impact on the Company's
financial position and results of operations.
2. Business Combination
The Company entered into an Asset Purchase Agreement, dated as of August 1,
2008, to acquire the business and certain assets subject to the assumption
of certain liabilities of Eyal, a privately-held Israeli company for
$30,000,000. The transaction closed on September 16, 2008. The business
operates as a wholly-owned subsidiary of General Microwave Israel (1987)
Ltd. Eyal is a leading supplier of a broad range of innovative, high
reliability RF, microwave and millimeter wave components and customized
subsystems for the global defense industry. Based in Kibbutz Eyal, Israel,
the company had approximately 175 employees. Eyal's core capabilities
include complex integrated microwave assemblies and "off-the-shelf"
components for radar, ESM, ECM and communication systems which complement
and expand the Company's current product line. Eyal's customers and
programs further strengthen the Company's presence in the international
marketplace. Funding for the purchase was provided through a $20,000,000
loan under the Company's existing credit facility and a term loan in the
amount of $10,000,000 through a bank in Israel. The term loan is payable in
quarterly installments of $250,000 over a period of ten years with interest
at LIBOR plus 1.5%.
The acquisition has been accounted for using the purchase method. The
results of operations of Eyal are included in the Condensed Consolidated
5
Financial Statements from September 1, 2008, the designated "effective
date". The allocation of the aggregate purchase price (including
acquisition costs of approximately $427,000), based on a detailed review of
the fair value of assets acquired and liabilities assumed, including the
fair value of identifiable intangible assets, is as follows (in thousands):
Aggregate purchase price $ 30,427
========
Current assets (including cash of $418) $ 8,499
Furniture and equipment 3,721
Intangibles 5,446
Goodwill 17,039
Current liabilities (3,920)
Other long-term liabilities (358)
---------
$30,427
=========
The excess of the total purchase price over the fair value of the net
assets acquired, including the value of the identifiable intangible assets,
has been allocated to goodwill. Goodwill is being amortized over ten years
for tax purposes but not for financial reporting purposes. The intangible
assets subject to amortization are being amortized for tax and financial
reporting purposes and have been assigned useful lives as follows:
Technology $2,929 13 years
Backlog 1,259 2 years
Trademarks 1,258 13 years
------
$5,446
======
3. Discontinued Operations and Disposal of Long-Lived Assets
Discontinued operations
On September 18, 2008, the Company executed an agreement with a foreign
defense company to divest its ICI subsidiary located in McLean, Virginia.
ICI is a communications technology development firm specializing in
research, design, development, production and support of wireless data
communications products and services. On November 10, 2008, the Company
sold the stock of ICI for approximately $15,000,000 in cash, of which
$727,000 is held in escrow as security for certain indemnification
obligations. The escrow period will end on May 10, 2010. The disposal of
the business of ICI is presented as discontinued operations in the
Condensed Consolidated Statements of Income for the twenty-six weeks ended
February 1, 2009.
The following results of operations of ICI have been presented as
discontinued operations in the Condensed Consolidated Statements of Income
(in thousands):
Twenty-six
weeks ended
February 1,
2009
----------------
Net sales $ 5,953
Cost of products sold and other expenses 5,687
Impairment of goodwill 1,000
----------------
Loss before income taxes (734)
Benefit for income taxes (278)
----------------
Loss from discontinued operations $ (456)
================
No gain or loss was recorded on the sale of the subsidiary.
Disposal of long-lived assets
On October 31, 2008, the Company completed the sale of assets of its
machine shop located at its MSI operation to a third party in the amount of
$675,000. Payment terms are $1,000 due at closing and the balance of
$674,000 payable over six years in accordance with the terms of an interest
bearing note. The note provides for minimum monthly payments of $9,000. The
current portion of $108,000 is included in "Other current assets" and the
balance of $402,000 and $460,000 is included in "Other assets" in the
Condensed Consolidated Balance Sheets at January 31, 2010 and August 2,
2009, respectively. The sale of the machine shop resulted in a net gain of
approximately $618,000 and is included in "Net loss (gain) on sale of
assets" in the Condensed Consolidated Statements of Income for the
twenty-six weeks ended February 1, 2009.
6
4. Goodwill and Intangibles, net
The changes in Goodwill and Intangibles, net during the twenty-six weeks
ended January 31, 2010 is as follows (in thousands):
Goodwill Intangibles
-------- -----------
Balance at August 2, 2009 $ 43,722 $ 9,619
Less: amortization - (875)
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$ 43,722 $ 8,744
============ ============
Amortization expense related to intangibles subject to amortization was
$423,000 and $747,000 for the thirteen weeks ended January 31, 2010 and
February 1, 2009, respectively, and $875,000 and $1,369,000, for the
twenty-six weeks ended January 31, 2010 and February 1, 2009, respectively.
There have been no triggering events or indicators of impairment that have
occurred during the twenty-six weeks ended January 31, 2010 that would
require additional impairment testing of goodwill or long-lived intangible
assets.
5. Inventories, net
The major components of inventories, net are as follows (in thousands):
January 31, August 2,
2010 2009
------------- ---------------
Purchased parts and raw materials $ 35,367 $ 36,034
Work in process 26,637 28,686
Finished products 2,124 2,246
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64,128 66,966
Less:
Allowance for obsolete and slow moving inventory 7,574 7,314
Unliquidated progress payments 505 1,848
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$ 56,049 $ 57,804
============= ===============
6. Income Taxes
The provision for income taxes related to continuing operations for the
twenty-six weeks ended January 31, 2010 was $2,686,000 as compared to a
benefit of $404,000 for the twenty-six weeks ended February 1, 2009. The
estimated effective income tax rate for fiscal 2010 is 26.8%, which is
lower than the statutory rate of 35.0%, primarily due to the Company's
foreign earnings attributable to its Israeli subsidiary which is taxed at
an estimated rate of 10%, thereby reducing the effective income tax rate by
approximately 5.5% along with the benefit from the carryback of unused
research and development credits which reduced the effective tax rate by
approximately 1.7%.
As a result of the change in the carryback provisions of the Internal
Revenue Code in November 2009, the Company has filed a federal income tax
carryback claim and expects to receive a refund of approximately $3.6
million in the third quarter of fiscal 2010.
7. Product Warranties
The Company warrants its products generally for a period of one year.
Product warranty costs are accrued based on historical claims expense, and
are included in "Accounts payable and accrued expenses" on the Condensed
Consolidated Balance Sheets. Accrued warranty costs are reduced as warranty
repair costs are incurred. The following table presents the change in the
accrual for product warranty costs for the thirteen and twenty-six weeks
ended January 31, 2010 and February 1, 2009, respectively (in thousands):
Thirteen weeks ended Twenty-six weeks ended
-------------------- ----------------------
January 31, February 1, January 31, February 1,
2010 2009 2010 2009
--------------- -------------- --------------- ---------------
Balance at beginning of period $ 1,028 $ 1,016 $ 938 $ 1,142
Provision for warranty obligations 334 556 913 899
Warranty liability of business sold - - - (250)
Warranty costs charged to the reserve (326) (537) (815) (756)
--------------- -------------- --------------- ---------------
Balance at end of period $ 1,036 $ 1,035 $ 1,036 $ 1,035
=============== ============== =============== ===============
7
8. Litigation
In June and July 2006, the Company was served with several class-action
complaints against the Company and certain of its current and former
officers and directors ("other defendants") in the United States District
Court for the Eastern District of Pennsylvania. The claims are made under
Section 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule
10b-5 thereunder. The plaintiffs seek unspecified damages on behalf of a
purported class of purchasers of the Company's securities during various
periods before June 14, 2006. All defendants in the class-action complaints
filed motions to dismiss on April 6, 2007. On July 17, 2007, the Court
issued an order denying the Company's and its former Chairman's motion to
dismiss and granted, in part, the other defendants' motion to dismiss.
Specifically, the Court dismissed the Section 10(b) claim against the other
defendants and denied the motion to dismiss the Section 20(a) claim against
them. On July 9, 2008, plaintiffs filed a Motion for Class Certification.
On March 4, 2009, all defendants filed an Opposition to Plaintiffs' Motion
for Class Certification. On May 18, 2009, plaintiffs filed a reply in
support of their motion for class certification. Oral argument regarding
the plaintiffs' motion for class certification was held on July 17, 2009.
On October 9, 2009, the Court issued an order granting plaintiffs' motion
for class certification. The Court certified a class consisting of all
purchasers of Herley stock between October 1, 2001 and June 14, 2006, who
sustained a loss as a result of that acquisition. On October 30, 2009, the
plaintiffs and the Company each filed a Motion for Summary Judgment. On
January 29, 2010, the Court issued an order denying both summary judgment
motions and has set a trial date of mid-July of this year for this action.
The Company and the individual defendants are vigorously defending against
this lawsuit. At this stage of the proceedings, it is not possible to
predict what, if any, liability the Company may have from the Securities
Class Action.
In July and August 2006, the Company and certain of its current and former
officers and directors were also served with two separate derivative
complaints for breach of fiduciary duty brought pursuant to Rule 23.1 of
the Federal Rules of Civil Procedure. The complaints relate to the
Company's indictment in 2006 and were consolidated into one action on March
9, 2006. All defendants in the derivative complaints filed motions to
dismiss on February 26, 2007. On July 20, 2007, the Court issued an order
denying defendants' motions in part and granting them in part.
Specifically, the Court dismissed the claim that the named officers and
directors failed to oversee the former Chairman's actions and denied the
motions with respect to the other alleged claims. On October 30, 2009, the
Company filed a Motion for Summary Judgment. By Order dated February 22,
2010, the Court denied the motion and has set a trial date of mid-May of
this year for this action. The Company and the individual defendants are
vigorously defending against this lawsuit. At this stage of the
proceedings, it is not possible to predict what, if any, liability the
Company may have from the Derivative Action.
The Company believed it was entitled to recovery of certain legal fees
associated with the above matters under its Directors and Officers ("D&O")
insurance policy. The Company had received partial payments of
approximately $2,323,000 to date. The Company had entered into an agreement
dated January 11, 2007 with the insurance carrier whereby if it is
determined by final decision of an arbitration panel, or by final judgment
of a court, or other final decision of a tribunal having jurisdiction
thereof, that any amount paid by the insurance carrier was not a loss, as
that term was defined in the policy, the Company would repay to the
insurance carrier any such uncovered sums previously advanced. The
insurance carrier asserted in a letter their determination that they were
not liable for certain of the legal costs incurred by the Company. The
Company responded with a letter, supported by court case citations, that
all the submitted costs represent valid claims under the policy and that
the insurance company should be liable. In November 2008, the Company filed
a complaint against the insurance carrier to recover the legal costs. The
insurance carrier answered the complaint and filed a counterclaim seeking
to recover prior advances of approximately $2,323,000. Discovery on this
phase of the case concluded and the Company and the insurance carrier filed
cross motions for summary judgment relating to certain defenses. On August
25, 2009, the Court ruled against the Company and found that the legal fees
incurred on behalf of the Company in the Securities Class Action are not
covered. The fees paid on behalf of certain individual defendants in the
Securities Class Action were not challenged. The Company filed a Notice of
Appeal in the United States Court of Appeal for the Third Circuit. In
February 2010, the Company settled this litigation for an aggregate
settlement amount under the policy of $4,000,000. Under the terms of the
settlement and release, the insurance carrier shall not be liable to any of
the insured defendants, or any other insured under the policy, for any
other payment under the policy in regard to the outstanding securities
class action and derivative action litigations and the policy shall be
deemed exhausted. Any further defense costs, possible settlements or an
unfavorable outcome of the aforementioned litigations will be borne
entirely by the Company. The Company received a settlement payment of
$1,677,000 on February 19, 2010, which was the net amount due after what
was previously advanced.
By letter dated May 28, 2009, the Company was advised that a contract with
General Microwave Corporation, a wholly owned subsidiary of the Company,
doing business as Herley Farmingdale ("GMC") in the aggregate amount of
approximately $4,900,000 was being terminated for default. By letter dated
June 1, 2009, the customer demanded a return of approximately $3,800,000,
which represented an alleged progress payment made under the contract to
GMC. On June 8, 2009, GMC filed suit against EDO Communications and
Countermeasures, Inc. doing business as ITT Force Protection Systems
("EDO") in the United States District Court for the Eastern District of New
York (the "New York Action") seeking a Declaratory Judgment, pursuant to 28
U.S.C. ss. 2201 et. seq. and for breach of contract related to EDO's
decision to terminate the contract for default. On August 13, 2009, EDO
filed suit against GMC and the Company in the Superior Court of California,
Ventura County, for breach of contract, unjust enrichment, and money had
and received (the "California Action"). On October 8, 2009, all parties
entered into an agreement to settle this matter. Under the terms of the
settlement, the Company paid $2,000,000 to EDO and the parties mutually
agreed to a termination of the purchase order for convenience without
further liability to either party.
The Company is involved in various other legal proceedings and claims which
8
arise in the ordinary course of its business. While any litigation contains
an element of uncertainty, management believes that the outcome of such
other litigation will not have a material adverse effect on the Company's
financial position or results of operations.
9. Employment Settlement Agreement
Effective January 8, 2010, David H. Lieberman resigned as a director and as
Chairman of the Board of Directors of the Company. Mr. Lieberman was
appointed to the Company's Board of Directors on July 22, 2009 and elected
as an executive, serving in the capacity as Chairman of the Board. In
connection with his election as Chairman, Mr. Lieberman was awarded 100,000
shares of restricted common stock which were to vest in 2014, subject to
accelerated vesting under certain circumstances, and annual compensation of
$250,000. Having fulfilled various initiatives, the Company and Mr.
Lieberman determined that it would be in their mutual best-interests for
the Company to transition to a new Chairman of the Board and for Mr.
Lieberman to transition back as counsel to the Company, as well as being
able to engage in other business opportunities. During Mr. Lieberman's
Chairmanship, Mr. Lieberman was able to achieve, either alone or along with
others, results which exceeded the Company's expectations, with respect to
both the benefits to the Company and the time period during which these
benefits were able to be realized. In addition, as a result of his
resignation, Mr. Lieberman's restricted stock will not vest, and, thus, Mr.
Lieberman will forego the potential value of the restricted stock. In light
of the value of Mr. Lieberman's achievements on behalf of, and his
contributions to the Company, the Company entered into an agreement with
Mr. Lieberman under which he received a performance payment in the amount
of $900,000.
10. Line of Credit, Long-Term Debt and Stand-by Letters of Credit
The Company has a $40,000,000 Revolving Credit Loan Agreement with two
banks on an unsecured basis, as modified in October 2009, which may be used
for general corporate purposes, including business acquisitions and
stand-by letters of credit. The agreement requires the payment of interest
only on a monthly basis and payment of the outstanding principal balance on
March 31, 2012. The Company may elect to borrow with interest at (A) the
bank's prime rate of interest minus 0.50% or (B) the greater of (i) LIBOR
plus a margin of 2.50% or (ii) 3.50%. There is a fee of 20 basis points per
annum on the unused portion of the credit facility payable quarterly and a
fee of 1.25% per annum on outstanding stand-by letters of credit. The
agreement contains various financial covenants, including, among other
matters, minimum tangible net worth, total liabilities to tangible net
worth, debt service coverage and restrictions on other borrowings. The
Company is in compliance with all of its financial covenants at January 31,
2010.
The Company had no loans outstanding under its bank line of credit at
January 31, 2010 or at August 2, 2009. Stand-by letters of credit in the
amount of approximately $11,115,000, of which $8,983,000 reduces the amount
of credit available under its credit line, were outstanding at January 31,
2010. The Company had approximately $31,017,000 available under its line at
January 31, 2010.
11. Stock Buyback Program
In October 2007, the Company's Board of Directors approved an expansion of
its existing stock buyback program to make additional purchases of up to
1,000,000 shares of its common stock in the open market or in private
transactions, in accordance with applicable SEC rules, to an aggregate of
3,000,000 shares. As of August 2, 2009, the Company had repurchased and
retired approximately 2,386,000 shares. During the thirteen and twenty-six
weeks ended January 31, 2010, the Company repurchased and retired 11,730
and 47,632 shares of its common stock, respectively, pursuant to this
program at an aggregate cost of approximately $147,000 and $588,000,
respectively, including transaction costs. There were no stock repurchases
in fiscal 2009. Funds to acquire the shares came from excess cash reserves.
The timing, actual number and value of any additional shares that may be
repurchased under this program will depend on a number of factors,
including the Company's future financial performance, the Company's
available cash resources and competing uses for the cash, prevailing market
prices of the Company's common stock and the number of shares that become
available for sale at prices that the Company believes are attractive. As
of January 31, 2010, approximately 566,000 shares are eligible for future
purchase under the Company's buyback program.
12. Comprehensive Income (Loss)
Comprehensive income (loss) for the periods presented is as follows (in
thousands):
Thirteen weeks ended Twenty-six weeks ended
-------------------- ----------------------
January 31, February 1, January 31, February 1,
2010 2009 2010 2009
--------------- --------------- --------------- ---------------
Net income $ 3,790 $ 2,153 $ 7,341 $ 814
Unrealized gain (loss) on interest rate swap 5 (20) 9 (28)
Translation of foreign financial statements (19) (815) (16) (2,401)
--------------- --------------- --------------- ---------------
Comprehensive income (loss) $ 3,776 $ 1,318 $ 7,334 $ (1,615)
=============== =============== =============== ===============
The foreign currency translation gain (loss) relates to the Company's
investment in its U.K. subsidiary and fluctuations in exchange rates
between its local currency and the U.S. dollar.
9
The components of accumulated other comprehensive loss is as follows (in
thousands):
January 31, August 2,
2010 2009
------------ ------------
Unrealized loss on interest rate swap, net of tax $ (68) $ (77)
Translation of foreign financial statements (250) (234)
------------ ------------
Accumulated other comprehensive loss $ (318) $ (311)
============ ============
13. Share-Based Compensation
The Company has various fixed stock option plans which are described in
Note O of its August 2, 2009 Annual Report on Form 10-K/A that provide for
the grant of stock options and restricted stock to eligible employees and
directors.
The Company recorded total share-based costs related to stock option and
restricted stock awards, included as compensation costs in operating
expenses, of $116,000 and $145,000 for the thirteen weeks ended January 31,
2010 and February 1, 2009, respectively, and $240,000 and $293,000 for the
twenty-six weeks ended January 31, 2010 and February 1, 2009, respectively.
As of January 31, 2010, there were 3,118,000 stock options outstanding.
Options for 10,000 shares of common stock at an exercise price of $12.45
per share and 5,000 shares of restricted stock were granted to an employee
during the first quarter of fiscal 2010 with a fair value of approximately
$43,000 and $62,000, respectively. There were no options or restricted
stock awards granted during the second quarter of fiscal 2010. The
aggregate value of unvested options as of January 31, 2010, as determined
using a Black-Scholes option valuation model, was approximately $97,000
(net of estimated forfeitures), which is expected to be recognized over a
weighted-average period of 1.4 years. The aggregate value of unvested
restricted stock as of January 31, 2010 was approximately $55,000, net of
forfeitures which are expected to be recognized over a weighted-average
period of 2.7 years.
No options were exercised during the thirteen and twenty-six weeks ended
January 31, 2010 and options for 64,000 shares and 82,800 shares of common
stock expired or were forfeited during the thirteen and twenty-six weeks
ended January 31, 2010, respectively.
There are 2,957,800 vested stock options outstanding as of January 31, 2010
at a weighted average exercise price of $14.97. Included in the vested
stock options outstanding are 2,175,800 options with exercise prices
greater than the closing stock price of $12.24 as of January 31, 2010.
14. Earnings (loss) per Common Share ("EPS")
The following table shows the components used in the calculation of basic
and diluted earnings (loss) per common share (in thousands):
Thirteen weeks ended Twenty-six weeks ended
-------------------- ----------------------
January 31, February 1, January 31, February 1,
2010 2009 2010 2009
---- ---- ---- ----
Numerator:
Income from continuing operations $ 3,790 $ 2,153 $ 7,341 $ 1,270
Loss from discontinued operations - - - (456)
------ ------ ------ ------
Net income $ 3,790 $ 2,153 $ 7,341 $ 814
====== ====== ====== ======
Denominator:
Basic weighted-average shares 13,687 13,550 13,695 13,537
Effect of dilutive securities:
Employee stock options 166 196 170 412
------ ------ ------ ------
Diluted weighted-average shares 13,853 13,746 13,865 13,949
====== ====== ====== ======
Stock options not included in computation 2,373 2,449 2,388 1,911
====== ====== ====== ======
Exercise price range of options excluded $12.45 - $21.18 $12.58 - $21.18 $12.45 - $21.18 $12.58 - $21.18
=============== =============== =============== ===============
Certain options outstanding as of January 31, 2010 are excluded from the
computation as noted in the table above because their effect is
anti-dilutive. Such options expire at various dates through June 8, 2017.
15. Geographic Information and Major Customers
Net sales directly to the U.S. Government for the thirteen weeks ended
January 31, 2010 and February 1, 2009 were approximately 15.6% and 8.9% of
consolidated net sales from continuing operations, respectively; and in the
twenty-six weeks ended January 31, 2010 and February 1, 2009 were
approximately 16.0% and 9.8%, respectively.
10
Northrop Grumman Corporation and Lockheed Martin Corporation accounted for
approximately 20.5% and 9.5%, respectively, of consolidated net sales for
the thirteen weeks ended January 31, 2010; and approximately 18.5% and
10.9%, respectively, for the twenty-six weeks ended January 31, 2010. Each
accounted for approximately 12.0% of consolidated net sales in the thirteen
and twenty-six weeks ended February 1, 2009. No other customer accounted
for 10% or more of consolidated net sales in the periods presented. Foreign
sales amounted to approximately $17,233,000 (37%) and $14,092,000 (35%) for
the thirteen weeks ended January 31, 2010 and February 1, 2009,
respectively, and approximately $34,156,000 (36%) and $25,651,000 (34%) for
the twenty-six weeks ended January 31, 2010 and February 1, 2009,
respectively.
Geographic net sales from continuing operations for the second quarter and
year to date based on place of contract performance were as follows (in
thousands):
Thirteen weeks ended Twenty-six weeks ended
-------------------- ----------------------
January 31, February 1, January 31, February 1,
2010 2009 2010 2009
-------------- -------------- -------------- --------------
United States $ 34,813 $ 29,087 $ 69,873 $ 56,295
Israel 10,913 10,104 22,261 16,910
England 883 783 2,154 2,113
-------------- -------------- -------------- --------------
$ 46,609 $ 39,974 $ 94,288 $ 75,318
============== ============== ============== ==============
Net property, plant and equipment by geographic area were as follows (in
thousands):
January 31, August 2,
2010 2009
------------- ------------
United States $ 24,698 $ 25,011
Israel 7,818 7,703
England 314 158
------------- ------------
$ 32,830 $ 32,872
============= ============
16. Supplemental Cash Flow information is as follows (in thousands):
Twenty-six weeks ended
----------------- -----------------
January 31, 2010 February 1, 2009
----------------- -----------------
Net cash paid during the period for:
Interest $290 $164
Income taxes $136 $249
Non-cash financing transactions:
Retirement of 47,632 shares of treasury stock $588 $-
17. New Accounting Pronouncements
Newly issued effective accounting pronouncements:
In February 2010, the FASB issued Accounting Standards Update ("ASU") No.
2010-09, "Subsequent Events (Topic 855) -- Amendments to Certain
Recognition and Disclosure Requirements." The ASU amends, in part, Subtopic
855-10 that requires an SEC filer to evaluate subsequent events through the
date that the financial statements are issued, to no longer require
disclosure of the date through which subsequent events have been evaluated.
This change alleviates potential conflicts between Subtopic 855-10 and the
SEC's requirements.
In June 2009, the FASB issued Accounting Standards Codification 105,
"Generally Accepted Accounting Principles" ("ASC 105"). On July 1, 2009,
the FASB completed ASC 105 as the single source of authoritative U.S.
generally accepted accounting principles ("GAAP"), superseding all
then-existing authoritative accounting and reporting standards, except for
rules and interpretive releases for the SEC under authority of federal
securities laws, which are sources of authoritative GAAP for Securities and
Exchange Commission registrants. ASC 105 reorganizes the authoritative
literature comprising U.S. GAAP into a topical format that eliminates the
current GAAP hierarchy. ASC 105 was effective for the Company in its first
quarter ended November 1, 2009. ASC 105 is not intended to change U.S. GAAP
and will have no impact on the Company's consolidated financial position,
results of operations or cash flows. However, since it completely
supersedes existing standards, it will affect the way the Company
references authoritative accounting pronouncements in its financial
statements and other disclosure documents.
11
In April 2008, the FASB issued FSP No. FAS 142-3, "Determination of the
Useful Life of Intangible Assets", codified primarily in ASC Subtopic
350-30, "General Intangibles Other than Goodwill" ("ASC 350-30"), which
amends the factors that should be considered in developing renewal or
extension assumptions used to determine the useful life of a recognized
intangible asset. The intent of ASC 350-30 is to improve the consistency
between the useful life of a recognized intangible asset under ASC 350 and
the period of expected cash flows used to measure the fair value of the
asset under ASC 805, "Business Combinations", and other generally accepted
accounting principles. ASC 350-30 is effective for fiscal years beginning
after December 15, 2008 and only applies prospectively to intangible assets
acquired after the effective date. Early adoption is not permitted. The
Company's adoption of ASC 350-30 in its first quarter of fiscal year 2010
beginning August 3, 2009 did not have a material impact on its consolidated
financial position, cash flows and results of operations.
In December 2007, the FASB issued Accounting Standards Codification 805,
"Business Combinations" ("ASC 805"), which established principles and
requirements for the acquirer of a business to recognize and measure in its
financial statements the identifiable assets (including in-process research
and development and defensive assets) acquired, the liabilities assumed,
and any noncontrolling interest in the acquiree. ASC 805 is effective for
financial statements issued for fiscal years beginning after December 15,
2008. Prior to the adoption of ASC 805, in-process research and development
costs were immediately expensed and acquisition costs were capitalized.
Under ASC 805, all acquisition costs are expensed as incurred. The standard
also provides guidance for recognizing and measuring the goodwill acquired
in the business combination and determines what information to disclose to
enable users of financial statements to evaluate the nature and financial
effects of the business combination. In April 2009, the FASB updated ASC
805 to amend the provisions for the initial recognition and measurement,
subsequent measurement and accounting, and disclosures for assets and
liabilities arising from contingencies in business combinations. This
update also eliminates the distinction between contractual and
non-contractual contingencies. ASC 805 will have an impact on the Company's
consolidated financial statements, but the nature and magnitude of the
specific effects will depend upon the nature, terms and size of the
acquisitions the Company consummates after the August 3, 2009 effective
date.
Effect of newly issued but not yet effective accounting pronouncements:
In January 2010, the FASB issued ASU No. 2010-06, "Fair Value Measurements
and Disclosures (Topic 820) -- Improving Disclosures About Fair Value
Measurements." The ASU requires new disclosures about transfers into and
out of Levels 1 and 2 and separate disclosures about purchases, sales,
issuances, and settlements relating to Level 3 measurements. It also
clarifies existing fair value disclosures about the level of disaggregation
and about inputs and valuation techniques used to measure fair value. The
new disclosures and clarifications of existing disclosures are effective
for the Company's third quarter of fiscal year 2010, except for the
disclosures about purchases, sales, issuances, and settlements relating to
Level 3 measurements, which are effective for the Company's first quarter
of fiscal year 2012. Other than requiring additional disclosures, the
adoption of this new guidance does not have a material impact on the
Company's consolidated results of operations and financial position.
In October 2009, the FASB issued ASU 2009-13, "Revenue Recognition (Topic
605) -- Multiple-Deliverable Revenue Arrangements" ("ASU 2009-13") and ASU
2009-14, "Software (Topic 985) -- Certain Revenue Arrangements That Include
Software Elements" ("ASU 2009-14"). ASU 2009-13 modifies the requirements
that must be met for an entity to recognize revenue from the sale of a
delivered item that is part of a multiple-element arrangement when other
items have not yet been delivered. ASU 2009-13 eliminates the requirement
that all undelivered elements must have either: i) Vendor Specific
Objective Evidence ("VSOE") or ii) third-party evidence ("TPE") before an
entity can recognize the portion of an overall arrangement consideration
that is attributable to items that already have been delivered. In the
absence of VSOE or TPE of the standalone selling price for one or more
delivered or undelivered elements in a multiple-element arrangement,
entities will be required to estimate the selling prices of those elements.
Overall arrangement consideration will be allocated to each element (both
delivered and undelivered items) based on their relative selling prices,
regardless of whether those selling prices are evidenced by VSOE or TPE or
are based on the entity's estimated selling price. The residual method of
allocating arrangement consideration has been eliminated. ASU 2009-14
modifies the software revenue recognition guidance to exclude from its
scope tangible products that contain both software and non-software
components that function together to deliver a product's essential
functionality. These new updates are effective for revenue arrangements
entered into or materially modified in fiscal years beginning on or after
June 15, 2010. Early adoption is permitted. The Company is currently
evaluating the impact, if any, of the adoption of these ASUs on its
consolidated financial statements.
18. Related Party Transaction
The Company leases one of its buildings in Fort Walton Beach, Florida from
MSI Investments, a Florida General Partnership which is owned, in part, by
two current employees of MSI and one individual who serves MSI as a
consultant. Rent expense for the thirteen and twenty-six weeks ended
January 31, 2010 was approximately $74,000 and $148,000, respectively; and
approximately $72,000 and $143,000, respectively, for the thirteen and
twenty-six weeks ended February 1, 2009.
12
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
All statements other than statements of historical fact included in this
Quarterly Report, including without limitation statements under, "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
regarding our financial position, business strategy and our plans and objectives
of management for future operations, are forward-looking statements.
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 Quarterly Report 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 general economic conditions,
including the potential for significant changes in US defense under the current
Administration, which could affect future funding of programs and allocations
within the budget to various programs and the outcome of pending litigation, as
well as the factors set forth in our public filings with the Securities and
Exchange Commission ("SEC").
You are cautioned not to place undue reliance on the forward-looking statements,
which speak only as of the date of this Quarterly Report or the date of any
document incorporated by reference in this Quarterly Report. We are under no
obligation, and expressly disclaim any obligation, to update or alter any
forward-looking statements, whether as a result of new information, future
events or otherwise.
For these statements, we claim the protection of the safe harbor for
forward-looking statements contained in Section 21E of the Securities Exchange
Act of 1934.
Explanatory Note
We begin Management's Discussion and Analysis of Financial Condition and Results
of Operations ("MD&A") of Herley Industries, Inc. with a business overview. This
is followed by a discussion of the critical accounting estimates that we believe
are important to understanding the assumptions and judgments incorporated in our
reported financial results, which we discuss under "Results of Operations." We
then provide an analysis of cash flows under "Liquidity and Capital Resources."
This MD&A should be read in conjunction with our unaudited Condensed
Consolidated Financial Statements, the notes thereto, the other unaudited
financial data included elsewhere in this Quarterly Report on Form 10-Q and our
2009 Annual Report on Form 10-K/A filed with the SEC on November 30, 2009.
Business Overview
We are a leading supplier of microwave products and systems to defense and
aerospace entities worldwide. Our primary customers include large defense prime
contractors (including Northrop Grumman Corporation, Lockheed Martin
Corporation, Raytheon Company, The Boeing Company, BAE Systems and Harris
Corporation), the U.S. Government (including the Department of Defense, NASA and
other U.S. Government agencies) and international customers (including the
Israeli, Egyptian, German, Japanese, Taiwanese, Spanish, Australian and South
Korean militaries and suppliers to international militaries). We are a leading
provider of microwave technologies for use in command and control systems,
flight instrumentation, weapons sensors and electronic warfare systems. We have
served the defense industry since 1965 by designing and manufacturing microwave
devices for use in high technology defense electronics applications. Our
products and systems are currently deployed on a wide range of high profile
military platforms, including the F-16 Falcon, the F-18E/F Super Hornet, the
E-2C/D Hawkeye, the EA-18G Growler, the AEGIS class surface combatants, the
EA-6B Prowler, the AMRAAM (Advanced Medium Range Air-to-Air Missile), CALCM
(Conventional Air Launch Cruise Missile), MMA (Multi-mission Maritime Aircraft),
and UAVs (Unmanned Aerial Vehicles), as well as high priority national security
programs such as National Missile Defense and the Trident II D-5.
Critical Accounting Policies and Estimates
Our significant accounting policies are described in Note A of the Notes to
Consolidated Financial Statements included in our Annual Report on Form 10-K/A
for the fiscal year ended August 2, 2009 (the "Report") filed with the SEC on
November 30, 2009; and a discussion of these critical accounting policies and
estimates are included in Management's Discussion and Analysis of Results of
Operations and Financial Condition of that Report. As part of our oversight
responsibilities, we continually evaluate the propriety of our accounting
methods as new events occur. We believe that our policies are applied in a
manner which is intended to provide the user of our financial statements a
current, accurate and complete presentation of information in accordance with
accounting principles generally accepted in the United States of America.
Important accounting practices that require the use of assumptions and judgments
are outlined therein. Management has discussed the development and selection of
these policies with the Audit Committee of the Company's Board of Directors, and
the Audit Committee of the Board of Directors has reviewed the Company's
disclosures of these policies.
There have been no material changes to the critical accounting policies or
estimates reported in Management's Discussion and Analysis section of the Report
as filed with the SEC.
13
Results of Operations
Our senior management regularly reviews the performance of our operations,
including reviews of key performance metrics and the status of operating
initiatives. We review information on the financial performance of the
operations, new business development, customer relationships, IR&D activities,
human resources, manufacturing effectiveness, and cost reduction activities. We
compare performance against budget, against prior comparable periods and against
our most recent internal forecasts. The following table presents a financial
summary comparison (in thousands) of operating results from continuing
operations and certain key performance indicators.
Thirteen weeks ended Twenty-six weeks ended
----------------------------------------------------------------------------------
January 31, February 1, January 31, February 1,
2010 2009 % Change 2010 2009 % Change
----------------------------------------------------------------------------------
Net sales $46,609 $39,974 17 % $94,288 $75,318 25 %
Gross profit $12,857 $9,671 33 % $26,144 $16,274 61 %
Gross profit percentage 27.6% 24.2% 27.7% 21.6%
Operating income $5,435 $2,579 $10,501 $1,919
Bookings $43,980 $36,716 20 % $78,953 $97,767 (19)%
Backlog (end of period) $168,372 $177,760 (5)% $168,372 $177,760 (5)%
Last year, during the first quarter of fiscal 2009, we completed the acquisition
of Eyal Microwave in Israel and its operating results are included within the
results from continuing operations beginning in September 2008. In addition,
during the second quarter of fiscal 2009, we completed the divestiture of
Innovative Concepts, Inc. ("ICI") which is reported as discontinued operations.
The table above and discussion that follows excludes the results of ICI.
Thirteen weeks ended January 31, 2010 and February 1, 2009
Net sales for the second quarter of fiscal 2010 were approximately $46.6 million
compared to $40.0 million in fiscal 2009, an increase of $6.6 million, or 16.5%.
The increase in net sales is primarily related to increased deliveries under
major production programs, in addition to sales volume increases associated with
manufacturing process improvements.
Domestic and foreign sales were 63% and 37%, respectively, of net sales for the
quarter compared to 65% and 35%, respectively, in the prior-year quarter.
Bookings were approximately $44 million, of which 57% were domestic and 43% were
foreign. This compares to bookings of approximately $36.7 million in the
prior-year quarter, of which 45% were domestic and 55% were foreign. Bookings in
the current quarter were up $7.3 million, or 20.0%, primarily due to higher
AFSAT product bookings of $4.8 million at our Micro Systems division, a
favorable increase at our EWST location of $7.7 million, which included an order
of $2.7 million that was expected in the first quarter, and increases at our
Lancaster location, up $3.8 million, against an unfavorable variance from Israel
of $10.2 million. The booking variance for Israel was due to a delay in a
budgeted order in the second quarter of fiscal 2010 from MABAT of $5 million
which was received in February 2010. Fiscal 2009 included an order received in
the second quarter of fiscal 2009 of $7 million from ELTA.
Gross profit in the quarter was $12.9 million (27.6% gross profit margin)
compared to $9.7 million (24.2% gross profit margin) last year, an increase of
$3.2 million. The increase in gross profit and gross profit percentage during
fiscal 2010 is principally a result of the sales increase and improvements in
margins related to manufacturing efficiencies and a favorable program mix,
against additional costs associated with contract loss accruals of $.9 million
related to projected cost increases for two production programs.
Selling and administrative ("S&A") expenses for the quarter were $7.7 million,
or 16.6% of net sales, compared to $7 million, or 17.6% of net sales, in the
prior-year quarter. The $.7 million increase in S&A expenses is primarily
attributable to additional bid and proposal costs essential to future bookings
($.4 million), increased commissions ($.3 million) and additional incentive
accrual, $.2 million, against a positive impact from reduced intangible
amortization costs in the quarter related to the acquisition of Eyal in fiscal
2009.
We recognized a net benefit in the quarter of $1.2 million in litigation costs
due to a $4 million settlement of litigation under our Directors and Officers
("D&O") insurance policy, and received a settlement payment of $1.7 million in
February 2010, which was net of the $2.3 million that had been advanced for the
recovery of previously expensed litigation costs. Under the terms of the
settlement and release, the insurance carrier shall not be liable to any of the
insured defendants, or any other insured under the policy, for any other payment
under the policy in regard to the outstanding securities class action and
derivative action litigations and the policy shall be deemed exhausted. Any
further defense costs, possible settlements or an unfavorable outcome of the
aforementioned litigations will be borne entirely by the Company.
In connection with the resignation of David H. Lieberman and in recognition of
his significant contributions, we entered into an employment settlement
agreement with Mr. Lieberman in January 2010 under which he received a
performance payment in the amount of $.9 million.
We had operating income during the quarter of $5.4 million compared to $2.6
million last year, which reflects our improved gross margin of 3.4%, in addition
to the positive impact of $1.7 million associated with the settlement of all
claims related to our D&O policy.
14
Interest expense was $.2 million, decreasing $.3 million from last year,
primarily due to lower average borrowings during the respective periods, as well
as lower average interest rates.
We recognized a net foreign exchange loss in the quarter of $.1 million compared
to an insignificant loss last year. Foreign exchange losses and gains are
attributable to fluctuations in exchange rates between the U.S. dollar and the
local currency of our U.K. subsidiary.
The provision for income taxes related to continuing operations for the thirteen
weeks ended January 31, 2010 was $1.4 million as compared to a benefit of
$62,000 for the thirteen weeks ended February 1, 2009. The estimated effective
tax rate for fiscal year 2010 is approximately 26.8%, which is less than the
statutory rate of 35.0%, primarily due to foreign earnings attributable to our
Israeli subsidiary which are taxed at an estimated rate of 10% for fiscal 2010,
thereby reducing the effective income tax rate by approximately 5.5%, along with
the benefit from the carryback of unused research and development credits to
fiscal year 2005, which further reduced the effective tax rate by approximately
1.7%.
Basic and diluted earnings per common share from continuing operations for the
quarter were $.28 and $.27, respectively, as compared to $.16 per basic and
diluted common share for the prior-year quarter.
Twenty-six weeks ended January 31, 2010 and February 1, 2009
Net sales for the twenty-six weeks ended January 31, 2010 were $94.3 million
compared to $75.3 million in the first twenty-six weeks of fiscal 2009, an
increase of $19 million (25%). The increase in net sales is primarily related
to:
o an increase of $2 million in revenues due to the inclusion of six months
of operating results of Eyal in fiscal 2010 compared to five months
included in the first half of 2009, the year of acquisition;
o an increase of $9.3 million in revenues driven by improved productivity and
increased sales for two major programs (ACLS & F-16), against a smaller
reduction in Trident sales for the period;
o an increase of $4.2 million in revenues associated with additional
integrated microwave assembly volumes, but at lower average gross margin;
and
o an increase of $3.4 million in revenues generated from increased shipments
of SNTC product, against reduced shipments of SSST product.
Domestic and foreign sales were 64% and 36%, of net sales in the twenty-six
weeks ended January 31, 2010 compared to 66% and 34% for the twenty-six weeks
ended February 1, 2009. Bookings were approximately $79 million, of which 61%
were domestic and 39% were foreign. This compares to bookings of approximately
$97.8 million in the prior twenty-six weeks ended February 1, 2009. Bookings in
the current period were down $18.8 million, or 19.2%, primarily due to
significant bookings in the second quarter of fiscal 2009, including two orders
aggregating $12.1 million related to the Trident program. We expect to book
additional orders for this program in the fourth quarter of fiscal 2010.
Gross profit in the twenty-six weeks ended January 31, 2010 was $26.1 million
(28% of net sales) compared to $16.3 million (22% of net sales) in the first
half of fiscal 2009; an increase of $9.8 million. The increase in gross profit
and gross profit percentage during fiscal 2010 is principally a result of the
sales increase and improvements in margins related to manufacturing efficiencies
and a favorable program mix, against additional costs associated with contract
loss accruals of $.9 million related to projected cost increases for two
production programs.
S&A expenses for the twenty-six weeks ended January 31, 2010 were $15.4 million,
or 16.4% of sales, compared to $14.4 million, or 19.1% of sales, for the same
period in fiscal 2009. The twenty-six weeks ended January 31, 2010 includes $.5
million related to increased sales commissions, additional bid and proposal
costs essential to future bookings of $.4 million, against favorable period
expense impact of $.1 million each from Israel and Herley-CTI.
We recognized a net benefit in the current period of $.7 million in litigation
costs due to a $4 million settlement of litigation under our D&O insurance
policy, and received a payment of $1.7 million in February 2010, net of $2.3
million that had been previously advanced, for the recovery of
previously-expensed litigation costs.
In connection with the resignation of David H. Lieberman and in recognition of
his significant contributions we entered into an employment settlement agreement
with Mr. Lieberman in January 2010 under which he received a performance payment
in the amount of $.9 million.
Other (expense) income for the twenty-six weeks ended January 31, 2010 was a net
expense of $.5 million compared to $1.1 million for the twenty-six weeks ended
February 1, 2009, a decrease of $.6 million. Interest expense of $.3 million
reflects a decrease of $.4 million over the first half of the previous fiscal
year primarily due to the reduction of debt during the current-year period.
Currency exchange transaction losses of $.2 million recognized in the first half
of fiscal year 2010 were $.2 million lower than the prior fiscal year,
reflecting a stronger US dollar.
Income from continuing operations before income taxes for the twenty-six weeks
ended January 31, 2010 was $10 million compared to $.9 million for the
twenty-six weeks ended February 1, 2009, an improvement of $9.1 million. The
major positive impact for the first half of 2010 is the increase in gross profit
for the period of $9.8 million associated with improved sales volumes,
manufacturing efficiencies and pricing. Another positive factor was the
favorable settlement of our insurance litigation of $1.7 million in recovery of
15
legal costs previously expensed, and improved net interest income/expense of $.6
million, against the unfavorable variances with increased S&A expenses of $1.9
million and the impact of the prior-year gain on the sale of the machine shop at
Micro Systems of $.6 million.
The income tax expense related to continuing operations in the first half of
fiscal 2010 was $2.7 million compared to a tax benefit of $.4 million in the
prior year's first half. The estimated effective tax rate for fiscal year 2010
is approximately 26.8%, which is less than the statutory rate of 35.0%,
primarily due to foreign earnings attributable to our Israeli subsidiary which
are taxed at an estimated rate of 10% for fiscal 2010, thereby reducing the
effective income tax rate by approximately 5.5%, along with the benefit from the
carryback of unused research and development credits to fiscal year 2005, which
further reduced the effective tax rate by approximately 1.7%.
Basic and diluted earnings per common share for the twenty-six weeks ended
January 31, 2010 were $.54 and $.53 per common share, respectively, compared to
basic and diluted earnings per common share of $.06 each for the twenty-six
weeks ended February 1, 2009. The twenty-six weeks ended February 1, 2009
included a loss of $.03 per basic and diluted common share from discontinued
operations.
Liquidity and Capital Resources
We believe that anticipated cash flows from operations, together with existing
cash and cash equivalents and our bank line availability will be adequate to
finance presently anticipated working capital, capital expenditure requirements
and other contractual obligations and to repay our long-term debt as it matures.
A significant portion of our revenue for fiscal 2010 is expected to be generated
from our existing backlog of sales orders. The funded backlog of orders at the
beginning of our fiscal 2010 (August 3, 2009) was approximately $182 million, of
which approximately 80% is expected to ship in fiscal 2010. The funded backlog
of orders at January 31, 2010 was approximately $168 million. All orders
included in this backlog are covered by signed contracts or purchase orders.
Nevertheless, contracts involving government programs may be terminated at the
discretion of the government. In the event of the cancellation of a significant
amount of government contracts included in our backlog, we would be required to
rely more heavily on cash balances and our existing credit facility to fund our
operations. We are not aware of any events which are reasonably likely to result
in any cancellation of our government contracts, nor does our historical
experience with the government indicate any reasonable likelihood of such
cancellations.
A small number of customers have accounted for a substantial portion of
historical net sales and we expect that a limited number of customers will
continue to represent a substantial portion of sales for the foreseeable future.
Approximately 18.5% and 10.9% of consolidated net sales from continuing
operations for the first half of fiscal 2010 were made to Northrop Grumman
Corporation and to Lockheed Martin Corporation, respectively. Future operating
results will continue to substantially depend on the success of our largest
customers and our relationship with them. Orders from these customers are
subject to fluctuation and may be reduced materially. The loss of all or a
portion of the sales volume from any one of these customers would have an
adverse affect on our liquidity and operations.
As is customary in the defense industry, inventory is partially financed by
progress payments. In addition, it is customary for us to receive advanced
payments from customers on major contracts at the time a contract is entered
into. The unliquidated balance of progress payments was approximately $.5
million at January 31, 2010 and $1.8 million at August 2, 2009. The balance of
advanced payments was approximately $10.1 million at January 31, 2010 and $12.7
million at August 2, 2009. The fiscal 2010 decrease relates to the timing of
payments pursuant to the terms of various contracts.
As of January 31, 2010, we have approximately $12.1 million in cash and cash
equivalents and approximately $31 million available under our bank credit
facility, net of specific outstanding stand-by letters of credit of $9 million.
As of January 31, 2010 and August 2, 2009, working capital was $90.4 million and
$81.1 million, respectively, and the ratio of current assets to current
liabilities was 3.4 to 1 and 2.5 to 1, respectively.
Net cash provided by operations during the first half of fiscal 2010 was
approximately $1.6 million compared to net cash provided by operations of $3.4
million in the prior year, a net operating cash flow decrease of approximately
$1.8 million.
Significant changes in net cash from operating activities during fiscal 2010
include:
o net income in the current period of $7.3 million compared to $.8
million in the prior year;
o payments related to employment settlements of $7.8 million;
o a final payment on the EDO litigation settlement of $2 million;
o receipt of the Lockheed claim settlement of $1.5 million;
o a reduction in cost incurred and income recognized in excess of
billings on uncompleted contracts of approximately $6 million due to
the shipment and billing of contracts on percentage of completion;
o an increase in trade accounts receivable of approximately $1.6 million
primarily due to the increased sales volume;
o a decrease in accounts payable and accrued expenses of approximately
$4.9 million primarily as a result of the timing of purchases and
payments to vendors; and
o an increase in other current assets, including a receivable of $1.7
million that was received in February 2010 and related to the recovery
of legal fees in connection with the settlement of the D&O insurance
litigation.
As of August 2, 2009, we had available net operating loss carry-forwards for
federal income tax reporting purposes of approximately $20.7 million, net of
carryback, and available net operating loss carry-forwards for state income tax
16
purposes of approximately $30.7 million, with expiration dates through 2029. As
a result, we do not expect to make significant cash payments for federal or
state income taxes in fiscal 2010 based on our internal projections. Further, as
a result of the net operating losses, we filed a federal income tax carryback
claim in January 2010 that became available to us and expect to receive a refund
of approximately $3.6 million in the third quarter of fiscal 2010.
Net cash used in investing activities of approximately $2.7 million were solely
related to capital expenditures. Net cash used in investing activities in the
prior-year period of $17.6 million were related to the acquisition of Eyal for
$30 million and approximately $2.7 million of capital expenditures, partially
offset by the proceeds of $15 million from the sale of ICI.
Net cash used in financing activities of approximately $1.6 million includes
borrowings and repayments under our bank line of credit of approximately $7
million for working capital needs, primarily related to the settlement of
certain employment agreements and litigation; and payments of approximately $1
million of long-term debt, including payments of approximately $.5 million on
the term loan in Israel, and approximately $.6 million for the repurchase and
retirement of common stock under our stock buyback program. Financing activities
in the prior-year period were primarily related to borrowings to fund the
acquisition of Eyal.
Bank Line of Credit
We had no loans outstanding under our bank line of credit at January 31, 2010 or
at August 2, 2009. Stand-by letters of credit in the amount of approximately
$11.1 million were outstanding at January 31, 2010, of which $9 million reduces
the amount of credit available under our credit line. We had approximately $31
million available under our line at January 31, 2010.
The agreement contains various financial covenants, including, among other
matters, minimum tangible net worth, total liabilities to tangible net worth,
debt service coverage and restrictions on other borrowings. In October 2009, we
amended our agreement with the bank. We are in compliance with all of our
financial covenants at January 31, 2010 and expect to be in compliance with all
financial covenants through fiscal 2010 based on our current business outlook.
However, we could become non-compliant with one or more of the financial
covenants in the future if there is an unfavorable resolution of our outstanding
litigation. The covenants under the line of credit may affect our ability to
undertake additional debt in the future.
Employment Settlements, Litigation and Related Matters
In February 2010, we settled our litigation with our Director and Officers
("D&O") insurance carrier for an aggregate settlement amount under the policy of
$4 million. Under the terms of the settlement and release, the insurance carrier
shall not be liable to any of the insured defendants, or any other insured under
the policy, for any other payment under the policy in regard to the outstanding
securities class action and derivative action litigations and the policy shall
be deemed exhausted. Any further defense costs, possible settlements or an
unfavorable outcome of the aforementioned litigations will be borne entirely by
us. At this stage of the legal proceedings, it is not possible to predict what,
if any, liability we may have from the securities class action or derivative
actions. We received the settlement payment of $1.7 million in February 2010,
which was net of the $2.3 million that had been previously advanced.
Effective January 8, 2010, David H. Lieberman resigned as a director and as
Chairman of the Board of Directors of the Company. Mr. Lieberman was appointed
to the Company's Board of Directors on July 22, 2009 and elected as an
executive, serving in the capacity as Chairman of the Board. In connection with
his election as Chairman, Mr. Lieberman was awarded 100,000 shares of restricted
common stock which were to vest in 2014, subject to accelerated vesting under
certain circumstances, and annual compensation of $250,000. Having fulfilled
various initiatives, the Company and Mr. Lieberman determined that it would be
in their mutual best-interests for the Company to transition to a new Chairman
of the Board and for Mr. Lieberman to transition back as counsel to the Company,
as well as being able to engage in other business opportunities. During Mr.
Lieberman's Chairmanship, Mr. Lieberman was able to achieve, either alone or
along with others, results which exceeded the Company's expectations, with
respect to both the benefits to the Company and the time period during which
these benefits were able to be realized. In addition, as a result of his
resignation, Mr. Lieberman's restricted stock will not vest, and, thus, Mr.
Lieberman will forego the potential value of the restricted stock. In light of
the value of Mr. Lieberman's achievements on behalf of, and his contributions to
the Company, the Company entered into an agreement with Mr. Lieberman under
which he received a performance payment in the amount of $900,000.
In October 2009, we settled a lawsuit with a customer in its entirety,
exchanging mutual equivalent releases, to avoid the delays, expense and
uncertainty of litigation. Under the terms of the settlement, we paid $2 million
to our customer and mutually agreed to a termination of the purchase order for
convenience without further liability to either party.
In fiscal 2009, we had approximately $4.3 million due from a customer related to
claims and unpriced change orders in connection with changes in scope under a
contract. In September 2009, we settled all claims and unpriced change orders
with this customer for approximately $2.3 million, less $.8 million previously
advanced by this customer. As a result, we recorded certain charges in the
fourth quarter of fiscal 2009 and received a payment of approximately $1.5
million from this customer in fiscal 2010.
In August 2009, we entered into an agreement with Jeffrey L. Markel terminating
his employment agreement, effective as of August 1, 2009. The agreement provides
that in full satisfaction of all prior, current and future obligations to Mr.
Markel under the employment agreement, Mr. Markel is to receive an immediate
lump sum payment of approximately $1.4 million, which was paid in August 2009.
Mr. Markel also shall continue as a consultant to us for three years at an
annual compensation of $67,667 and is to receive certain other benefits as
provided in the employment agreement, including medical care reimbursement.
17
In July 2009, we entered into a settlement agreement with Myron Levy, our former
Chairman and Chief Executive Officer, terminating his employment agreement. The
settlement agreement provides that in full satisfaction of all prior, current
and future obligations to Mr. Levy under the employment agreement, Mr. Levy is
to receive a lump sum payment of approximately $4.7 million, which was paid in
August 2009, and thereafter monthly payments of $100,000 commencing on September
1, 2009 for thirty-five consecutive months through July 1, 2012. Payments are
through a non-interest bearing promissory note. Mr. Levy also shall continue as
a consultant to us for three years at an annual compensation of $50,000 and is
to receive certain other benefits as provided in the employment agreement,
including medical reimbursement and insurance.
In 2006, we were served with several class-action complaints against us and
certain of our current and former officers and directors and certain of our
current and former officers and directors were also served with two separate
derivative complaints for breach of fiduciary duty. At this stage of the
proceedings, it is not possible to predict what, if any, liability we may have
from the Securities Class Actions or the related Derivative Actions. As
previously mentioned, any settlements or unfavorable outcomes of the pending
litigations will be borne entirely by us.
Stock Buyback Program
In October 2007, our Board of Directors approved an expansion of our existing
stock buyback program to make additional purchases of up to 1,000,000 shares of
our common stock in the open market or in private transactions, in accordance
with applicable SEC rules, to an aggregate of 3,000,000 shares. As of August 2,
2009, we had repurchased and retired approximately 2,386,000 shares. During the
twenty-six weeks ended January 31, 2010, we repurchased and retired 47,632
shares of our common stock pursuant to this program at an aggregate cost of
approximately $588,000, including transaction costs. There were no stock
repurchases in fiscal 2009. Funds to acquire the shares came from excess cash
reserves. The timing, actual number and value of any additional shares that may
be repurchased under this program will depend on a number of factors, including
our future financial performance, our available cash resources and competing
uses for the cash, prevailing market prices of our common stock and the number
of shares that become available for sale at prices that we believe are
attractive. As of January 31, 2010, approximately 566,000 shares are eligible
for future purchase under the buyback program.
Contractual Financial Obligations, Commitments and Off-Balance Sheet
Arrangements
Our financial obligations and commitments to make future payments under
contracts include purchase orders, debt and lease agreements, and contingent
commitments, such as stand-by letters of credit. These financial obligations are
recorded in accordance with accounting rules applicable to the underlying
transaction, with the result that some are recorded as liabilities on the
Condensed Consolidated Balance Sheet, while others are required to be disclosed
in the Notes to Condensed Consolidated Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations. The
Company's contractual financial obligations and other contingent commitments are
disclosed in our Annual Report on Form 10-K/A for the fiscal year ended August
2, 2009 under Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Recent Accounting Pronouncements
The Financial Accounting Standards Board issues, from time to time, new
accounting standards updates. See Notes to Condensed Consolidated Financial
Statements in Item 1 for a discussion of these updates.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company's exposures to market risk have not changed significantly since
August 2, 2009.
18
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures. The term "disclosure
controls and procedures" are defined in Rules 13a-15(e) and 15d-15(e)
of the Securities Exchange Act of 1934 as amended (the "Exchange
Act"). These rules refer to the controls and other procedures of a
company that are designed to ensure that information required to be
disclosed by the company in the reports that it files under the
Exchange Act is recorded, processed, summarized and reported within
the required time periods. The Company's management, with
participation of the Company's Chief Executive Officer and Chief
Financial Officer, has evaluated the design, operation and
effectiveness of the Company's disclosure controls and procedures and
have concluded, based on such evaluation, that such controls and
procedures were effective at providing reasonable assurance that
required information will be disclosed in the Company's reports filed
under the Exchange Act as of January 31, 2010.
(b) Changes in internal controls. There were no changes in the Company's
internal controls over financial reporting (as such term is defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the
fiscal quarter ended January 31, 2010 that have materially affected,
or are reasonably likely to materially affect, the Company's internal
control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
See Note 8 to Condensed Consolidated Financial Statements (Unaudited) in
Part I - Item 1 for a discussion of Legal Proceedings.
Item 1A. Risk Factors
In addition to the other information set forth in this report, you should
carefully consider the risk factors disclosed under Part 1 -"Item 1A. Risk
Factors" in our Annual Report on Form 10-K/A for the year ended August 2, 2009,
which could materially adversely affect our business, financial condition,
operating results and cash flows. The risks and uncertainties described in our
Form 10-K/A for the year ended August 2, 2009 are not the only ones we face.
Risks and uncertainties not currently known to us or that we currently deem
immaterial also may materially adversely affect our business, financial
condition, operating results or cash flows.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) None
(b) None
(c) Issuer Purchases of Equity Securities
The following table provides information about our purchases of our Common
Stock during each month of the quarter ended January 31, 2010:
(c) (d)
Total Number of Maximum Number
(a) (b) Shares of Shares
Total Number of Average Price Purchased as Part that may yet be
Shares Paid of Publicly Announced Purchased under the
Period Purchased (1) per Share Plans or Programs Plans or Programs
------ ------------- --------- ----------------- -----------------
November 2009 - - 2,422,171 577,829
December 2009 - - 2,422,171 577,829
January 2010 11,730 $12.54 2,433,901 566,829
------------- ------
Total for quarter ended January 31, 2010 11,730 $12.54
============= ======
(1) We have a stock repurchase program that was initially instituted in
October 2002, as further modified, for the purchase of up to 3 million shares of
our common stock. As of January 31, 2010, we acquired an aggregate of
approximately 2.4 million shares in the open market, all of which have been
previously retired. The timing and amount of share repurchases, if any, will
depend on business and market conditions, as well as legal and regulatory
considerations, among other things.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
19
Item 5. Other Information
None
Item 6. Exhibits
10.1 Sixth Amendment to Revolving Credit Loan Agreement dated February 17, 2010
among the Registrant, Manufacturers and Traders Trust Company and PNC Bank
National Association, successor to Bank of Lancaster County, N.A.
31 Certifications pursuant to Rules 13a-14(a) as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
32 Certifications pursuant to 18 U.S.C. Section 1350 as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
SIGNATURE
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.
BY:/s/ Anello C. Garefino
--------------------------------------------
Anello C. Garefino, Chief Financial Officer
(Principal Financial Officer)
Date: March 11, 2010
2