Herley Reports Fourth Quarter and Year-End Results

CONFERENCE CALL SCHEDULED FOR FRIDAY, OCTOBER 16, 2009

• Press Release
• Source: Herley Industries, Inc.
• On 11:33 pm EDT, Thursday October 15, 2009

LANCASTER, Pa., Oct. 15 /PRNewswire-FirstCall/ -- Herley Industries, Inc. (Nasdaq: HRLY - News) today reported financial results for the Fourth Quarter and Fiscal Year ended August 2, 2009.

Fourth Quarter of Fiscal 2009

Net sales for the fourth quarter of fiscal 2009 were $43.0 million compared to $37.9 million in the fourth quarter of fiscal 2008. In the fourth quarter of fiscal 2009, the Company recorded several significant charges (see below) aggregating $66.9 million, including a non-cash impairment charge for goodwill and other intangible assets of $44.2 million. As a result, the loss from continuing operations for that quarter was $44.4 million, or $3.26 per diluted share, compared to a loss from continuing operations of $1.5 million, or $.11 per diluted share, last year. Income from discontinued operations that resulted from the sale of the ICI business in November 2008 was $1.2 million, or $ .09 per diluted share, last year. Net loss for the quarter was $44.4 million, or $3.26 per diluted share, compared to a net loss of $.3 million, or $.02 per diluted share, last year.

In the fourth quarter of fiscal 2009, the Company reported a revenue increase of $5.1 million compared to last year, which primarily resulted from the inclusion of revenues from Eyal that was acquired early in fiscal 2009. Operating results for the fourth quarter of fiscal 2009 were impacted by several significant charges, as follows: (a) approximately $44.2 million related to the impairment of goodwill and other intangible assets; (b) approximately $10.6 million related to employment agreement settlements with two former officers of the Company; (c) approximately $4.3 million to cost of products sold related to the settlement of litigation with a customer; (d) approximately $2.8 million to net sales and $.3 million to cost of products sold related to the settlement of a claim for equitable adjustment for unpriced change orders; (e) approximately $3.1 million to cost of products sold related to the transition of the Farmingdale, NY manufacturing operation, including contract losses of approximately $1.1 million and inventory write-offs of approximately $2.0 million; (f) approximately $1.3 million to cost of products sold for additional inventory adjustments and obsolescence reserves; and (g) approximately $.3 million to selling and administrative expenses related to the abandonment of fixed assets. The non-cash impairment of goodwill and other intangible assets does not affect the Company's cash position, cash flow from operating activities, credit availability or liquidity and none of these charges will have any adverse effect on its future operations.

Of further significance, in July 2009, the Company's Board of Directors appointed new senior management. New management was successful in resolving two litigation/claim matters, resulting in a net cash outflow of $.5 million to the Company and, more importantly, restoring a favorable relationship with these customers.

Richard Poirier, Chief Executive Officer and President, commented, "This has certainly been a very busy and exciting period since David Lieberman and I were appointed. We are pleased with the progress we have made in the resolution of past matters, most of which are ancillary to our operational activities going forward. David and I are committed to reporting substantial profitability in fiscal year 2010, and remain focused on strengthening our management team, improving our sales and production processes and reducing costs. We ended the year with a backlog of $182 million, and bookings have been strong in the first quarter. We believe that we are now well positioned for success in fiscal 2010."

Fiscal Year 2009

Net sales for fiscal 2009 were $160.1 million compared to $136.1 million in fiscal 2008. Fiscal 2009 results were significantly impacted by the fourth quarter charges described above. The loss from continuing operations for fiscal 2009 was $40.7 million, or $3.00 per diluted share, compared to a loss from continuing operations of $10.7 million, or $.78 per diluted share, last year. Loss from discontinued operations that resulted from the sale of the ICI business in November 2008 was $.5 million, or $.03 per diluted share, in fiscal 2009 compared to income of $.3 million, or $.02 per diluted share, last year. Net loss for fiscal 2009 was $41.2 million, or $3.03 per diluted share, compared to a net loss of $10.3 million, or $.76 per diluted share, last year.

Balance Sheet and Capital Expenditures

At August 2, 2009, the Company's total cash and cash equivalents balance was $14.8 million and its long-term debt, exclusive of settlement commitments, was $12.2 million. Capital expenditures were $.9 million for the fourth quarter of fiscal 2009 and were $5.4 million for fiscal 2009.

Richard Poirier, Chief Executive Officer and President, will host a conference call on October 16, 2009 at 9:00 a.m. Eastern Time to discuss financial results for the Fourth Quarter and Fiscal Year ended August 2, 2009. To join the conference call, dial 1 (888) 425-4188 and reference Conference ID #33627285.

A taped replay of the call will be available on October 16, 2009 approximately one hour after the conclusion of the call through October 23, 2009 at 11:59 p.m. Eastern Time. To listen to the replay, dial: 1 (800) 642-1687 (U.S.) or 1 (706) 645-9291 (International) and reference Conference ID #33627285.

In addition, the conference call will be broadcast live over the internet and can be accessed through the following URL: http://www.videonewswire.com/event.asp?id=62624. To listen to the live call on the internet, go to the website at least 15 minutes early to register, download and install any necessary audio software.

Herley Industries, Inc. is a leader in the design, development and manufacture of microwave technology solutions for the defense, aerospace and medical industries worldwide. Based in Lancaster, PA, Herley has seven manufacturing locations and approximately 1,000 employees. Additional information about the Company can be found on the internet at www.herley.com.

Safe Harbor Statement - Except for the historical information contained herein, this release may contain forward-looking statements. Such statements are inherently subject to risks and uncertainties. Forward-looking statements involve various important assumptions, risks, uncertainties and other factors which could cause our actual results to differ materially from those expressed in such forward-looking statements. Forward-looking statements in this discussion can be identified by words such as "anticipate," "believe," "could," "estimate," "expect," "plan," "intend," "may," "should" or the negative of these terms or similar expressions. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, performance or achievement. Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors including, but not limited to, competitive factors and pricing pressures, changes in legal and regulatory requirements, cancellation or deferral of customer orders, technological change or difficulties, difficulties in the timely development of new products, difficulties in manufacturing, commercialization and trade difficulties and current economic conditions, including the potential for significant changes in US defense spending under the new Administration which could affect future funding of programs and allocations within the budget to various programs, as well as the factors set forth in this release and in our public filings with the Securities and Exchange Commission.

    For information at Herley, contact:
    Peg Guzzetti, Investor Relations
    Tel:  (717) 735-8117

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

                                                     Fifty-two   Fifty-three
                              Thirteen weeks ended  weeks ended  weeks ended
                              August 2,  August 3,     August 2,    August 3,
                                   2009       2008         2009         2008
                                   ----       ----         ----         ----

    Net sales                   $42,960    $37,867     $160,089     $136,088
                                -------    -------     --------     --------
    Cost and expenses:
      Cost of products sold      42,990     30,866      132,648      107,848
      Selling and
       administrative
       expenses                   7,505      6,371       28,981       28,349
      Impairment of goodwill
       and other intangible
       assets                    44,151          -       44,151            -
      Litigation costs              731      3,289        1,786        5,550
      Litigation settlement           -          -            -       15,542
      Employment contract
       settlement costs          10,553          -       10,553            -
                                 ------        ---       ------          ---
                                105,930     40,526      218,119      157,289

    Operating loss              (62,970)    (2,659)     (58,030)     (21,201)
                                -------     ------      -------      -------
    Other (expense) income:
      Interest income                12         65          106        1,050
      Interest expense             (447)      (195)      (1,392)        (661)
      Foreign exchange
       transactions losses          (43)      (120)        (276)        (126)
                                    ---       ----         ----         ----
                                   (478)      (250)      (1,562)         263
                                   ----       ----       ------          ---

    Loss from continuing
     operations before income
     taxes                      (63,448)    (2,909)     (59,592)     (20,938)
      Benefit for income
       taxes                    (19,035)    (1,422)     (18,872)     (10,254)
                                -------     ------      -------      -------

    Loss from continuing
     operations                $(44,413)   $(1,487)    $(40,720)    $(10,684)
                               --------    -------     --------     --------
    Discontinued operations:
      Income (loss) from
       operations of
       discontinued
       subsidiary                     -      1,895         (734)         589
      Provision for income
       taxes (benefit)                -        731         (278)         251
                                    ---        ---         ----          ---
      Income (loss) from
       discontinued
       operations                    $-     $1,164        $(456)        $338
                                     --     ------        -----         ----

    Net loss                   $(44,413)     $(323)    $(41,176)    $(10,346)
                               ========      =====     ========     ========

    (Loss) earnings per
     common share - Basic
     and Diluted
      Loss from continuing
       operations                $(3.26)     $(.11)      $(3.00)       $(.78)
      Income (loss) from
       discontinued
       operations                     -        .09         (.03)         .02
                                    ---        ---         ----          ---
      Net loss                   $(3.26)     $(.02)      $(3.03)       $(.76)
                                 ======      =====       ======        =====

    Basic and diluted
     weighted average shares     13,607     13,518       13,560       13,652
                                 ======     ======       ======       ======



                    HERLEY INDUSTRIES, INC. AND SUBSIDIARIES
               CONSOLIDATED BALANCE SHEETS  (UNAUDITED)
                        (In thousands, except share data)

                                                         August 2,  August 3,
                                                             2009       2008
                                                             ----       ----
         ASSETS
    Current Assets:
      Cash and cash equivalents                           $14,820    $14,347
      Trade accounts receivable, net                       28,687     27,003
      Costs incurred and income recognized in excess
       of billings on uncompleted contracts and
       claims                                              10,396     19,490
      Inventories, net                                     57,804     61,559
      Deferred income taxes                                19,380     11,263
      Other current assets                                  2,816      4,618
                                                            -----      -----
        Total Current Assets                              133,903    138,280
    Property, plant and equipment, net                     32,872     30,552
    Goodwill                                               43,722     73,900
    Intangibles, net                                        9,619     16,145
    Deferred income taxes                                   7,571          -
    Other assets                                              598        541
                                                              ---        ---
        Total Assets                                     $228,285   $259,418
                                                         ========   ========
      LIABILITIES AND SHAREHOLDERS' EQUITY
    Current Liabilities:
      Current portion of long-term debt                    $1,595     $1,394
      Current portion of employment settlement
       agreements -
       (net of imputed interest of $98 in 2009 and
        $238 in 2008)                                       7,400      1,119
      Current portion of litigation settlements
       (net of imputed interest of $46 in fiscal 2009
       and 2008)                                              954        954
      Accounts payable and accrued expenses                25,509     27,589
      Billings in excess of costs incurred and
       income recognized on uncompleted contracts             261        613
      Accrual for contract losses                           3,440      2,994
      Accrual for warranty costs                              938      1,142
      Advance payments on contracts                        12,698      8,120
                                                           ------      -----
        Total Current Liabilities                          52,795     43,925
    Long-term debt, net of current portion                 12,246      7,092
    Long-term portion of employment settlement agreements
     (net of imputed interest of $79 in 2009 and $287
      in 2008)                                              2,827      3,074
    Long-term portion of litigation settlement -
      (net of imputed interest of $108)                         -        892
    Other long-term liabilities                             8,361      2,161
    Deferred income taxes                                       -      8,839
                                                              ---      -----
        Total Liabilities                                  76,229     65,983
                                                           ------     ------
    Commitments and Contingencies
    Shareholders' Equity:
      Common stock, $.10 par value; authorized
       20,000,000 shares; issued and outstanding
       13,719,926 in 2009 and 13,521,902 in 2008            1,372      1,352
      Additional paid-in capital                          103,113    101,403
      Retained earnings                                    47,882     89,058
      Accumulated other comprehensive (loss) income          (311)     1,622
                                                             ----      -----
        Total Shareholders' Equity                        152,056    193,435
                                                          -------    -------
        Total Liabilities and Shareholders' Equity       $228,285   $259,418
                                                         ========   ========



                   HERLEY INDUSTRIES, INC. AND SUBSIDIARIES
              CONSOLIDATED STATEMENTS OF CASH FLOWS  (UNAUDITED)
                                (In thousands)
                                                   Fifty-two   Fifty-three
                                                  weeks ended  weeks ended
                                                    August 2,    August 3,
                                                        2009         2008
                                                        ----         ----
    Cash flows from operating activities:
      Net loss                                      $(41,176)    $(10,346)
                                                    --------     --------
      Adjustments to reconcile net loss to
         net cash provided by (used in) operating
         activities:
        Depreciation and amortization                  8,468        7,266
        Gain on sale of fixed assets                    (574)           -
        Impairment of goodwill of discontinued
         subsidiary                                    1,000            -
        Impairment of goodwill of continuing
         operations                                   42,050            -
        Impairment of intangible assets                2,101            -
        Abandonment of long-lived assets                 345            -
        Stock-based compensation costs                   718          990
        Excess tax benefit from exercises of
         stock options                                  (212)         (91)
        Litigation and claim settlements               8,982       15,442
        Employment contract settlement costs          10,553            -
        Imputed interest on employment and
         litigation settlement liabilities               327          446
        Foreign exchange transaction (gains)
         losses                                           (1)         122
        Inventory valuation reserve charges            2,495        1,515
        Reduction in accrual for contract losses           -         (826)
        Warranty reserve charges                       1,635        1,260
        Deferred tax provision                       (24,514)      (4,275)
        Changes in operating assets and liabilities:
          Cash of discontinued subsidiary               (712)           -
          Trade accounts receivable                   (3,426)         961
          Costs incurred and income recognized in
           excess of billings on uncompleted
           contracts and claims                        5,559       (5,042)
          Inventories, net                            (6,739)     (11,342)
          Other current assets                         2,651           86
          Accounts payable and accrued expenses        2,920        3,485
          Billings in excess of costs incurred and
           income recognized on uncompleted
           contracts                                     304          514
          Accrual for contract losses                    755        2,660
          Litigation settlement payments              (1,000)     (13,500)
          Employment settlement payments              (4,476)      (1,336)
          Advance payments on contracts                6,618          957
          Other, net                                     229          438
                                                         ---          ---
            Total adjustments                         56,056         (270)
                                                      ------         ----
        Net cash provided by (used in)
         operating activities                         14,880      (10,616)
                                                      ------      -------
    Cash flows from investing activities:
      Acquisition of business, net of cash
       acquired                                      (30,010)           -
      Proceeds from sale of discontinued
       subsidiary                                     15,000            -
      Capital expenditures                            (5,432)      (4,637)
      Other                                               27            3
                                                          --            -
        Net cash used in investing activities        (20,415)      (4,634)
                                                     -------       ------
    Cash flows from financing activities:
      Borrowings under bank line of credit            35,600       20,400
      Borrowings - term loan                          10,000            -
      Proceeds from exercise of stock options            538          321
      Excess tax benefit from exercises of
       stock options                                     212           91
      Payments of long-term debt                      (2,182)      (1,357)
      Payments under bank line of credit             (38,100)     (17,900)
      Purchase of treasury stock                           -       (7,139)
                                                         ---       ------
        Net cash provided by (used in)
         financing activities                          6,068       (5,584)
                                                       -----       ------
    Effect of exchange rate changes on cash              (60)           -
                                                         ---          ---
        Net increase (decrease) in cash and
         cash equivalents                                473      (20,834)
    Cash and cash equivalents at beginning of
     period                                           14,347       35,181
                                                      ------       ------
    Cash and cash equivalents at end of period       $14,820      $14,347
                                                     =======      =======
    Supplemental cash flow information:
      Retirement of shares of treasury stock          $1,831       $7,139
                                                      ======       ======

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