ARXX Aeroflex Inc. (MM)

Aeroflex Incorporated (Nasdaq Symbol: ARXX), today announced operating results for its fiscal 2006 fourth quarter and fiscal year, which ended June 30, 2006. -0- *T For the fourth quarter: 2006 2005 % Increase ------- ------- ---------- Sales (in millions) $150.5 $128.0 18% (a) ======= ======= ========= Diluted earnings per share from continuing operations: GAAP $0.10 $0.03 233% ======= ======= ========= Pro forma $0.16 $0.11 45% ======= ======= ========= (a) Includes contributions from fourth quarter 2005 acquisitions; organic growth amounted to 16%. *T Pro forma gross profit margins were 45.7%, compared to 47.6% last year and pro forma operating income of $19.7 million increased 37% compared to last year. The fourth quarter 2006 margins and operating income were adversely affected by a $3.9 million (2.6% of sales) adjustment to a development contract in our Radar Test Systems division that we expect to recover in fiscal 2007. The fourth quarter pro forma results from continuing operations exclude the following items: -0- *T 2006 2005 ------ ------ Acquisition-related items: Amortization of intangibles $0.03 $0.02 Write-off of in-process R&D - 0.04 Adjustments to inventory - 0.01 Stock based compensation 0.01 - Restructuring charges (a) 0.02 0.01 ------ ------ Total EPS impact $0.06 $0.08 ====== ====== (a) Represents charges for the integration of our operations in the United Kingdom. *T On a GAAP basis, gross profit margins for the fiscal 2006 fourth quarter were 45.1% compared to 46.9% last year. The effect of the adjustment related to the development contract in our Radar division adversely impacted our gross profit margins in the fourth quarter by 2.6%. Operating income for the fiscal 2006 fourth quarter increased 96% compared to last year. Income from continuing operations for the fiscal 2006 fourth quarter amounted to $8.0 million, or $.10 per diluted share, compared with $2.2 million, or $.03 per diluted share, last year representing a per share increase of 233%. The quarterly results were meaningfully impacted by: -- a $1.8 million ($1.1 million after tax or $0.01 per share) charge for share based compensation in fiscal 2006 (for which there was no comparable expense in the prior year); -- a $3.5 million ($2.2 million after tax or $0.03 per share) charge for amortization of acquired intangibles in fiscal 2006, compared to $2.7 million ($1.5 million after tax or $0.02 per share) in fiscal 2005 related to our acquisitions in the fourth quarter of fiscal 2005; -- a $2.0 million ($1.3 million after tax or $0.02 per share) charge in fiscal 2006 for restructuring costs, compared to $1.4 million ($0.8 million after tax or $0.01 per share) in fiscal 2005; and -- fiscal 2005 charges of $3.0 million ($3.0 million after tax or $0.04 per share) for acquired in-process research and development and $0.8 million ($0.5 million after tax or $0.01 per share) for an acquisition related inventory adjustment (for which there were no comparable items in the current fiscal year). -0- *T For the year: 2006 2005 % Increase ------- ------- ---------- Sales (in millions) $551.8 $463.4 19% (a) ======= ======= ========= Diluted earnings from continuing operations: GAAP $0.37 $0.25 48% ======= ======= ========= Pro forma $0.57 $0.39 46% ======= ======= ========= (a) Includes contributions from fourth quarter 2005 acquisitions; organic growth amounted to 10%. *T Pro forma gross profit margins were 47.3%, compared to 47.4% last year and pro forma operating income of $69.1 million increased 44% compared to last year. The development contract adjustment had a 70 basis points adverse affect on the 2006 gross margins. The full year pro forma results from continuing operations exclude the following items: -0- *T 2006 2005 ------ ------ Acquisition-related items: Amortization of intangibles $0.11 $0.07 Write-off of in-process R&D - 0.04 Adjustments to inventory 0.01 0.01 Stock based compensation 0.05 - Restructuring charges (a) 0.03 0.02 ------ ------ Total EPS impact $0.20 $0.14 ====== ====== (a) Represents charges for the integration of our operations in the United Kingdom. *T On a GAAP basis, gross profit margins for fiscal 2006 were 46.8% compared to 47.2% last year. The effect of the adjustment to the development contract in our Radar division adversely impacted our gross profit margins in fiscal 2006 by 70 basis points. Operating income for fiscal 2006 increased 38% compared to last year. Income from continuing operations for fiscal 2006 increased 51% to $28.1 million, or $.37 per diluted share, compared with $18.6 million, or $.25 per diluted share last year. The full year results were meaningfully impacted by: -- a $6.8 million ($4.2 million after tax or $0.05 per share) charge for share based compensation in fiscal 2006 (for which there was no comparable expense in the prior year); -- a $13.8 million ($8.5 million after tax or $0.11 per share) charge in fiscal 2006 for amortization of acquired intangibles compared with $8.9 million ($5.3 million after tax or $0.07 per share) in fiscal 2005 related to our acquisitions in the fourth quarter 2005; -- a $1.1 million ($0.7 million after tax or $0.01 per share) charge in fiscal 2006 for an acquisition related inventory adjustment compared with $0.8 million ($0.5 million after tax charge or $0.01 per share) in fiscal 2005; -- a $3.2 million ($2.0 million after tax or $0.03 per share) charge in fiscal 2006 for restructuring costs compared with a $3.1 million ($1.9 million after tax charge or $0.02 per share) in fiscal 2005; and -- a fiscal 2005 charge of $3.0 million ($3.0 million after tax or $0.04 per share) for acquired in process research and development (for which there was no comparable item in the current year). "Aeroflex continued to report outstanding results," said Len Borow, President and Chief Operating Officer. Mr. Borow continued "We finished with a strong fourth quarter performance, and realized record sales and earnings for the year. The $0.16 pro forma EPS represented a 45% increase over last year. The charge on the development contract in our Radar division adversely affected the earnings per share by $0.03 per share. Organic sales growth was 16% and 10% for the quarter and year, respectively. Financial performance was solid in both segments of our business as our bookings and year end backlog, which stands at $240.3 million, also set records." Our estimate of operating results for the September 2006 quarter is as follows: -- net sales are expected to be approximately $136 million; and -- pro forma earnings per diluted share are anticipated to be $0.12. Pro forma earnings exclude estimated amortization of acquired intangibles, share based compensation and additional restructuring charges of a combined $0.04 per diluted share. GAAP earnings from continuing operations per diluted share are anticipated to be $0.08. Commenting on the pro forma earnings per share expectation, Mr. Borow stated "This represents a 9.1% improvement over last year's first quarter, which is traditionally the Company's weakest quarter of the fiscal year. The comparison is negatively affected by a "tough comp" due to a highly profitable satellite shipment in last year's first quarter." Our conference call discussing fourth quarter results is scheduled for 8:30 a.m. (New York time) on August 17, 2006 and can be accessed by dialing 888-396-2384 in the United States and by dialing 617-847-8711 outside of the United States. The participant passcode is 34314081. There will be a replay of the conference call beginning one hour after the call's conclusion and will be available for one week. The replay can be accessed by dialing 888-286-8010 within the United States and by dialing 617-801-6888 outside of the United States. The access code for both telephone numbers is 60197896. This call is being webcast by CCBN and can be accessed at Aeroflex's website at www.aeroflex.com. This webcast will be archived on that site for one year. In conjunction with this conference call, the Company has also posted on its website certain financial information related to fourth quarter results. About Aeroflex Aeroflex Incorporated is a global provider of high technology solutions to the aerospace, defense and broadband communications markets. The Company's diverse technologies allow it to design, develop, manufacture and market a broad range of test, measurement and microelectronic products. The Company's common stock trades on the Nasdaq National Market System under the symbol ARXX and is included in the S&P SmallCap 600 index. Additional information concerning Aeroflex Incorporated can be found on the Company's Web site: www.aeroflex.com. All statements other than statements of historical fact included in this press release regarding Aeroflex's financial position, business outlook, business strategy and plans and objectives of its management for future operations are forward-looking statements. When used in this press release, words such as "anticipate," "believe," "estimate," "expect," "intend" and similar expressions, as they relate to Aeroflex or its management, identify forward-looking statements. Such forward-looking statements are based on the current beliefs of Aeroflex's management, as well as assumptions made by and information currently available to its management. 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, the integration of acquired businesses, changes in legal and regulatory requirements, technological change or difficulties, product development risks, commercialization difficulties, general economic conditions, and other risk factors disclosed in Aeroflex's most recently filed Form 10-Q. Such statements reflect the current views of management with respect to the future and are subject to these and other risks, uncertainties and assumptions relating to Aeroflex's financial condition, results of operations, growth strategy and liquidity. Aeroflex does not undertake any obligation to update such forward-looking statements. The pro forma results are a supplement to financial statements based on GAAP. The Company uses pro forma information to evaluate its operating performance and believes this presentation provides investors with additional insight into its underlying operating results. A full reconciliation between the pro forma and GAAP results from continuing operations is included in the accompanying financial data. -0- *T AEROFLEX INCORPORATED AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except per share data) June 30, June 30, 2006 2005 -------- -------- ASSETS ----------------------------------------------- Current assets: Cash and cash equivalents $ 10,387 $ 12,974 Marketable securities 28,332 - Accounts receivable, less allowance for doubtful accounts 120,296 101,317 Inventories 133,420 118,906 Deferred income taxes 24,732 18,499 Prepaid expenses and other current assets 11,187 11,107 -------- -------- Total current assets 328,354 262,803 Property, plant and equipment, net 77,940 78,195 Other assets 14,276 13,537 Intangible assets with definite lives, net 54,215 67,266 Goodwill 163,237 168,048 -------- -------- Total assets $638,022 $589,849 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY --------------------------------------------------- Current liabilities: Current portion of long-term debt $ 607 $ 634 Accounts payable 37,832 35,907 Advance payments by customers 21,128 15,183 Income taxes payable 9,162 3,657 Accrued payroll expenses 17,440 15,222 Accrued expenses and other current liabilities 33,046 30,451 -------- -------- Total current liabilities 119,215 101,054 Long-term debt 3,558 4,190 Deferred income taxes 4,631 17,146 Other long-term liabilities 22,948 23,479 -------- -------- Total liabilities 150,352 145,869 -------- -------- Stockholders' equity: Preferred stock, par value $.10 per share; authorized 1,000 shares: Series A Junior Participating Preferred Stock, par value $.10 per share, authorized 110; none issued Common stock, par value $.10 per share; - - authorized 110,000 shares; issued 75,270 and 74,618 shares 7,527 7,462 Additional paid-in capital 384,870 372,666 Accumulated other comprehensive income 13,468 9,020 Retained earnings 81,805 54,846 -------- -------- 487,670 443,994 Less: Treasury stock, at cost (4 shares) - 14 -------- -------- Total stockholders' equity 487,670 443,980 -------- -------- Total liabilities and stockholders' equity $638,022 $589,849 ======== ======== *T -0- *T AEROFLEX INCORPORATED AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED INCOME STATEMENTS ---------------------------------------------------------------------- (In thousands, except per share data) For the Quarter Ended ---------------------- 6/30/06 6/30/06 6/30/05 6/30/05 -------- -------- --------- -------- (GAAP) (Pro (GAAP) (Pro forma) forma) Net sales $ 150,514 $150,514 $ 127,965 $127,965 Cost of sales 82,642 81,713 67,957 67,117 -------- -------- --------- -------- Gross profit 67,872 68,801 60,008 60,848 Selling, general and administrative expenses 32,809 30,022 31,675 30,230 Research and development costs 19,158 19,078 16,277 16,277 Amortization of acquired intangibles 3,450 - 2,732 - Acquired in-process R&D - - 2,974 - -------- -------- --------- -------- Operating income 12,455 19,701 6,350 14,341 Interest and other income (expense), net 172 172 315 315 -------- -------- --------- -------- Income from continuing operations before income taxes 12,627 19,873 6,665 14,656 Provision for income taxes 4,579 7,221 4,430 6,606 -------- -------- --------- -------- Income from continuing operations 8,048 12,652 2,235 8,050 Income (loss) from discontinued operations, net of tax - - (106) (106) Cumulative effect of change in accounting principle, net of tax (a) (1,137) (1,137) - - -------- -------- --------- -------- Net income $ 6,911 $ 11,515 $ 2,129 $ 7,944 ======== ======== ========= ======== Income (loss) per common share: Basic Continuing operations $ 0.11 $ 0.17 $ 0.03 $ 0.11 Discontinued operations - - - - Cumulative effect of change in accounting principle, net of tax (a) (0.02) (0.02) - - -------- -------- --------- -------- Net income $ 0.09 $ 0.15 $ 0.03 $ 0.11 ======== ======== ========= ======== Diluted Continuing operations $ 0.10 $ 0.16 $ 0.03 $ 0.11 Discontinued operations - - - - Cumulative effect of change in accounting principle, net of tax (a) (0.01) (0.01) - - -------- -------- --------- -------- Net income $ 0.09 $ 0.15 $ 0.03 $ 0.11 ======== ======== ========= ======== Weighted average number of shares Outstanding - Basic 75,344 75,344 74,749 74,749 ======== ======== ========= ======== - Diluted 77,387 77,387 75,399 75,399 ======== ======== ========= ======== (a) Change in accounting principle related to the adoption of FASB Interpretation No. 47, " Accounting for Conditional Asset Retirement Obligations - an interpretation of FASB Statement No. 143" *T -0- *T AEROFLEX INCORPORATED AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED INCOME STATEMENTS ---------------------------------------------------------------------- (In thousands, except per share data) For the Year Ended (Unaudited) --------------------------------------- 6/30/06 6/30/06 6/30/05 6/30/05 -------- -------- --------- -------- (GAAP) (Pro (GAAP) (Pro forma) forma) Net sales $551,846 $551,846 $ 463,371 $463,371 Cost of sales 293,428 290,928 244,759 243,919 -------- -------- --------- -------- Gross profit 258,418 260,918 218,612 219,452 Selling, general and administrative expenses 124,481 116,292 113,271 110,147 Research and development costs 75,900 75,515 61,399 61,399 Amortization of acquired intangibles 13,778 - 8,896 - Acquired in-process R&D - - 2,974 - -------- -------- --------- -------- Operating income 44,259 69,111 32,072 47,906 Interest and other income (expense), net 1,058 1,058 949 949 -------- -------- --------- -------- Income from continuing operations before income taxes 45,317 70,169 33,021 48,855 Provision for income taxes 17,221 26,653 14,377 19,513 -------- -------- --------- -------- Income from continuing operations 28,096 43,516 18,644 29,342 Income (loss) from discontinued operations, net of tax - - (1,603) (1,603) Cumulative effect of change in accounting principle, net of tax (a) (1,137) (1,137) - - -------- -------- --------- -------- Net income $ 26,959 $ 42,379 $ 17,041 $ 27,739 ======== ======== ========= ======== Income (loss) per common share: Basic Continuing operations $ 0.37 $ 0.58 $ 0.25 $ 0.39 Discontinued operations - - (0.02) (0.02) Cumulative effect of change in accounting principle, net of tax (a) (0.01) (0.02) - - -------- -------- --------- -------- Net income $ 0.36 $ 0.56 $ 0.23 $ 0.37 ======== ======== ========= ======== Diluted Continuing operations $ 0.37 $ 0.57 $ 0.25 $ 0.39 Discontinued operations - - (0.03) (0.02) Cumulative effect of change in accounting principle, net of tax (a) (0.02) (0.02) - - -------- -------- --------- -------- Net income $ 0.35 $ 0.55 0.22 $ 0.37 ======== ======== ========= ======== Weighted average number of shares Outstanding - Basic 75,028 75,028 74,634 74,634 ======== ======== ========= ======== - Diluted 76,576 76,576 75,885 75,885 ======== ======== ========= ======== (a) Change in accounting principle related to the adoption of FASB Interpretation No. 47, " Accounting for Conditional Asset Retirement Obligations - an interpretation of FASB Statement No. 143" *T -0- *T AEROFLEX INCORPORATED AND SUBSIDIARIES RECONCILIATION OF REPORTED GAAP RESULTS TO PRO FORMA ---------------------------------------------------------------------- INCOME FROM CONTINUING OPERATIONS (Unaudited) ---------------------------------------------------------------------- (In thousands, except per share data) For the Quarter For the Year Ended Ended -------- --------- --------- --------- 6/30/06 6/30/05 6/30/06 6/30/05 -------- -------- -------- -------- GAAP income from continuing operations $ 8,048 $ 2,235 $ 28,096 $ 18,644 Pro forma adjustments: Acquired in-process R&D - 2,974 - 2,974 Stock-based compensation 1,761 - 6,772 - Amortization of acquired intangible assets 3,450 2,732 13,778 8,896 Restructuring costs 2,035 1,445 3,214 3,124 Acquisition related inventory adjustment - 840 1,088 840 Income tax benefit of pro forma adjustments (2,642) (2,176) (9,432) (5,136) -------- -------- -------- -------- Pro forma income from continuing operations $ 12,652 $ 8,050 $ 43,516 $ 29,342 ======== ======== ======== ======== Income per common share: Basic GAAP income from continuing operations after tax $ 0.11 $ 0.03 $ 0.37 $ 0.25 Pro forma adjustments, net of tax 0.06 0.08 0.21 0.14 -------- -------- -------- -------- Pro forma income from continuing operations after tax $ 0.17 $ 0.11 $ 0.58 $ 0.39 ======== ======== ======== ======== Diluted GAAP income from continuing operations after tax $ 0.10 $ 0.03 $ 0.37 $ 0.25 Pro forma adjustments, net of tax 0.06 0.08 0.20 0.14 -------- -------- -------- -------- Pro forma income from continuing operations after tax $ 0.16 $ 0.11 $ 0.57 $ 0.39 ======== ======== ======== ======== Weighted average number of shares outstanding - Basic 75,344 74,749 75,028 74,634 ======== ======== ======== ======== - Diluted 77,387 75,399 76,576 75,885 ======== ======== ======== ======== *T