HRLY Herley Industries, Inc. (MM)

LANCASTER, Pa., March 2, 2011 /PRNewswire/ -- Herley Industries, Inc. (Nasdaq: HRLY) today reported financial results for the Second Quarter Fiscal 2011 ended January 30, 2011.

Net sales for the second quarter of fiscal 2011 were a record $50.7 million compared to $46.6 million for the second quarter of fiscal 2010. Net income was $5.2 million, or $.37 per diluted share, compared to net income of $3.8 million, or $.27 per diluted share, in the second quarter of fiscal 2010.

The Company also reported record net sales for the first half of fiscal 2011 of $99.6 million compared to $94.3 million for the first half of fiscal 2010. Net income for the six months was also a record $8.7 million, or $.62 per diluted share, compared to net income of $7.3 million, or $.53 per diluted share, in the first six months of fiscal 2010.

Net income in the first six months of fiscal 2011 was negatively impacted by a charge of $1.1 million related to a settlement of certain previously-disclosed litigation.  Excluding the charge of $1.1 million for the litigation settlement, net income for the first six months of fiscal 2011 would have been $9.4 million compared to $7.3 million in the prior fiscal year period, or $.67 and $.53 per diluted share, respectively. (See table below for a reconciliation of this non-GAAP EPS measure to the corresponding GAAP measure.)

The Company's EBITDA for the second quarter of fiscal 2011 was $9.2 million compared to $7.1 million in the prior year second quarter. The Company's Adjusted EBITDA for the second quarter of 2011 was $9.3 million compared to $6.8 million for the same quarter last year. (See table below for a reconciliation of these non-GAAP measures to net income.)

The Company reported a revenue increase of $4.1 million in the second quarter of fiscal 2011 compared to the same quarter last year. The increase in net sales was primarily related to increased deliveries under major production programs, including increases attributable to manufacturing process improvements, in addition to revenue recognized under certain percentage-of-completion contracts. Gross profit in the quarter was $16.4 million, or a 32.4% gross profit margin ("GPM"), which is the highest reported GPM in any quarter since fiscal 2004.  The gross profit in the second quarter of fiscal 2010 was $12.9 million, or a GPM of 27.6%. The increase of $3.5 million in gross profit and 48 basis points increase in GPM during fiscal 2011 was principally a result of continuous improvements in margins related to manufacturing efficiencies and a favorable program mix.  Costs of products sold in the first half of fiscal 2010 included the impact of cost overruns on a major contract and lower margins on certain development programs.

Selling and administrative ("S&A") expenses for the second quarter of fiscal 2011 were $9.0 million, or 17.7 % of net sales, compared to $7.7 million, or 16.6% of net sales, for the same quarter of fiscal 2010.  The $1.3 million increase in S&A expenses was primarily attributable to increased stock compensation cost and audit and tax professional fees, partially offset by reduced employee incentive payments and lower commission expense.

The Company reported income from operations during the second quarter of fiscal 2011 of $7.3 million compared to income from operations of $5.4 million during the same quarter last year.

At January 30, 2011, the Company's balance sheet continues to be strong, with total cash and cash equivalents of $26.4 million, working capital of $100.4 million and long-term debt, exclusive of settlement commitments, of $11.4 million. Capital expenditures were $2.1 million in the first half of fiscal 2011 compared to $2.7 million in the first half of last year.

Richard F. Poirier, Chief Executive Officer and President, commented, "We are very pleased to report our second quarter with record revenues and earnings for both the quarter and first half of fiscal year 2011."  

John A. Thonet, Chairman of the Board, commented, "I want to congratulate Rich Poirier and his management team on a great quarter.  The revenues and earnings reported for this quarter and the first half of fiscal 2011 are the highest reported ever in Herley's 45-year history."

On February 25, 2010, Kratos Defense & Security Solutions, Inc., acting through its indirect wholly-owned subsidiary, Lanza Acquisition Co., commenced its tender offer for all outstanding shares of the Company at a price of $19.00 per share in cash, without interest, less any applicable withholding taxes. The tender offer is being made pursuant to a previously announced merger agreement dated February 7, 2011 among Kratos, Lanza and the Company. The Company's Board of Directors has unanimously determined that the tender offer, the related merger and the other transactions contemplated by the tender offer and merger agreement are fair to and in the best interests of the Company's stockholders.  The Company's board of directors also approved the merger agreement, declared the merger agreement advisable, and recommended that holders of shares of the Company's common stock tender their shares in the offer and, if necessary to consummate the merger, approve the merger and adopt the merger agreement.

The tender offer is subject to certain conditions set forth in Kratos' Offer to Purchase which has been filed with the SEC, including the tender of a majority of the outstanding shares of the Company's common stock on a fully diluted basis and the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.  The tender offer is not conditioned on the receipt of financing.  Unless the tender offer is extended, the tender offer and any withdrawal rights to which the Company's stockholders may be entitled will expire at 12:00 midnight, New York City time, on Thursday, March 24, 2011 (the end of the day on Thursday). Following the acceptance for payment of shares in the tender offer and completion of the transactions contemplated in the merger agreement, the Company will be an indirect wholly-owned subsidiary of Kratos.

We present the non-GAAP (Generally Accepted Accounting Principles) measures EBITDA and Adjusted EBITDA, each as defined herein, in this report. Presentation of EBITDA and Adjusted EBITDA is consistent with how we evaluate our performance internally and EBITDA and Adjusted EBITDA are frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry. EBITDA and Adjusted EBITDA are non-GAAP operating measures under Regulation G of the Securities and Exchange Commission. We compute EBITDA by adding back interest, taxes, depreciation and amortization to net income. Adjusted EBITDA is defined as net income plus interest, taxes, depreciation and amortization, litigation costs and litigation settlements. Each of these GAAP financial measures is included in our financial statements and thus EBITDA and Adjusted EBITDA can be reconciled to net income attributable to common shareholders, the most comparable GAAP financial measure to them. However, other companies in our industry may calculate EBITDA and Adjusted EBITDA differently than we do. EBITDA and Adjusted EBITDA are not measurements of financial performance under GAAP and should not be considered as substitutes for cash flow from operating activities as a measure of liquidity or substitutes for net income as an indicator of operating performance or any other measure of performance derived in accordance with GAAP.

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

We also present net income and earnings per diluted share for the first half of fiscal 2011, excluding the impact of the litigation settlement in the first quarter of fiscal 2011, compared to the first half of fiscal 2010.  The following table sets forth a reconciliation of these adjusted non-GAAP amounts to the corresponding GAAP measures.

Herley Industries, Inc. is a leader in the design, development and manufacture of microwave technology solutions for the defense, aerospace and medical industries worldwide.  Based in Lancaster, PA, Herley has seven manufacturing locations and approximately 1000 employees.  Additional information about the company can be found on the Internet at www.herley.com

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

Additional Information Filed with the SEC

This press release is neither an offer to purchase, nor a solicitation of an offer to sell, any securities. The solicitation and the offer to buy shares of the Company's common stock is being made pursuant to an offer to purchase and other related materials that Lanza Acquisition Co., an indirect, wholly-owned subsidiary of Kratos Defense & Security Solutions, Inc., has  filed with the Securities and Exchange Commission ("SEC").  Lanza Acquisition Co. has filed a Tender Offer Statement on Schedule TO containing an offer purchase, forms of letters of transmittal and other documents relating to the tender offer (the "Tender Offer Statement") with the SEC in connection with the commencement of the offer, and the Company has filed a Solicitation / Recommendation statement on Schedule 14D-9 (the "Recommendation Statement") with respect to the tender offer. Security holders of the Company are advised to read the Tender Offer Statement and Recommendation Statement, including any amendments thereto, because they contain important information that should be read carefully and considered before any decision is made with respect to the tender offer. Investors and security holders of the Company also are advised that they may obtain free copies of the Tender Offer Statement and other documents filed by Kratos Defense & Security Solutions, Inc. with the SEC and the Recommendation Statement and other documents filed by the Company on the SEC's website at http://www.sec.gov. In addition, free copies of the Tender Offer Statement and related materials may be downloaded (when these documents become available) from the Company's website at: http://www.Herley.com/index.cfm?act=investor; and free copies of the Recommendation Statement and related materials may be obtained from Herley by written request to: Herley Industries, Inc., Attn: Investor Relations, 3061 Industry Drive, Suite 200, Lancaster, PA 17603.

SOURCE Herley Industries, Inc.