ARXX Aeroflex Inc. (MM)

Aeroflex Incorporated (Nasdaq Symbol: ARXX), today announced operating results for its fiscal 2007 first quarter which ended September 30, 2006. Quarter Ended September 30, � 2006� � 2005� % Increase � Sales (in millions) $ 136.8� $ 125.6� 9% Diluted earnings per share GAAP $ 0.09� $ 0.06� 50% Pro forma $ 0.13� $ 0.11� 18% Pro forma gross profit margins were 46.6%, compared to 47.8% last year and pro forma operating income of $15.6 million increased 13% compared to last year. The pro forma gross margin comparison is negatively affected by a �tough comp� due to a highly profitable satellite related shipment in last year�s first quarter. The first quarter pro forma results exclude the following items from net income per diluted share: Quarter Ended September 30, � 2006� � 2005� � Acquisition-related items: Amortization of intangibles $ 0.03� $ 0.03� Adjustments to inventory -� 0.01� Share based compensation � 0.01� � 0.01� Total EPS impact $ 0.04� $ 0.05� On a GAAP basis, gross profit margins for the fiscal 2007 first quarter were 46.6% compared to 46.9% last year. Operating income for the fiscal 2007 first quarter increased 57% compared to last year. Net income for the fiscal 2007 first quarter amounted to $7.2 million, or $0.09 per diluted share, compared with $4.5 million, or $0.06 per diluted share, last year representing a per share increase of 50%. The quarterly results were impacted by: a $940,000 ($601,000 after tax or $0.01 per share) charge for share based compensation in fiscal 2007, compared to $2.0 million ($1.3 million after tax or $0.01 per share) in fiscal 2006; a $3.2 million ($2.1 million after tax or $0.03 per share) charge for amortization of acquired intangibles in fiscal 2007, compared to $3.5 million ($2.2 million after tax or $0.03 per share) in fiscal 2006; a $100,000 ($64,000 after tax or $0.00 per share) charge in fiscal 2007 for restructuring costs (for which there was no comparable expense in the prior year); and a fiscal 2006 charge of $1.1 million ($685,000 after tax or $0.01 per share) for acquisition related inventory adjustments (for which there was no comparable item in the current fiscal year). Operating cash flow for the current quarter was approximately $13 million. During the first quarter, approximately 1.8 million shares of our common stock were repurchased for $17.2 million, leaving approximately 1.2 million shares to be repurchased under the Board�s most recent authorization. In October 2006, $9.2 million was paid in a final determination of the Racal acquisition earn-out. This amount has been added to goodwill as of September 30, 2006. �Our first quarter performance positions us well for another solid year,� said Len Borow, President and Chief Operating Officer. �Organic sales growth was 9% and the $0.13 pro forma EPS represented an 18% increase over last year. Both segments of our business performed well as the quarterly book-to-bill ratio was 1.10 to 1.0. We head into the remainder of the fiscal year with a record backlog of $254 million.� Our estimate of operating results for the December 2006 quarter is as follows: net sales are expected to be approximately $145 to $146 million; and pro forma earnings per diluted share are anticipated to be $0.16. Pro forma earnings exclude estimated amortization of acquired intangibles and share based compensation of a combined $.04 per diluted share. GAAP net income per diluted share is anticipated to be $.012. Our conference call discussing first quarter results is scheduled for 8:30 a.m. (New York time) on November 3, 2006 and can be accessed by dialing 866-800-8651 in the United States and by dialing 617-614-2704 outside of the United States. The participant passcode is 40742023. 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 97719311. 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 its first 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-K. 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 non-GAAP financial measures used in this press release are not prepared in accordance with generally accepted accounting principles and may be different from non-GAAP financial measures used by other companies. The Company�s management refers to these non-GAAP financial measures in making operating decisions because they provide meaningful supplemental information regarding the Company�s operating performance. In addition, these non-GAAP financial measures facilitate management�s internal comparisons to the Company�s historical operating results and comparisons to competitors� operating results. We include these non-GAAP financial measures (which should be viewed as a supplement to, and not a substitute for, their comparable GAAP measures) in this press release because we believe they are useful to investors in allowing for greater transparency to supplemental information used by management in its financial and operational decision-making. For a reconciliation of our GAAP and non-GAAP financial results, please refer to our Reconciliation of Reported GAAP Results to Pro Forma Net Income, presented in this release. AEROFLEX INCORPORATED AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except per share data) � September 30, June 30, 2006� 2006� � � ASSETS Current assets: Cash and cash equivalents $ 14,741� $ 10,387� Marketable securities 16,271� 28,332� Accounts receivable, less allowance for doubtful accounts 117,127� 120,296� Inventories 137,366� 133,420� Deferred income taxes 24,770� 24,732� Prepaid expenses and other current assets 10,008� 11,187� Total current assets 320,283� 328,354� � Property, plant and equipment, net 77,733� 77,940� Other assets 15,968� 14,276� Intangible assets with definite lives, net 51,330� 54,215� Goodwill 173,300� 163,237� Total assets $ 638,614� $ 638,022� LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 607� $ 607� Accounts payable 34,621� 37,832� Advance payments by customers 21,472� 21,128� Income taxes payable 9,281� 9,162� Accrued payroll expenses 19,268� 17,440� Accrued expenses and other current liabilities 42,826� 33,046� Total current liabilities 128,075� 119,215� � Long-term debt 3,488� 3,558� Deferred income taxes 3,340� 4,631� Other long-term liabilities 22,991� 22,948� Total liabilities 157,894� 150,352� � 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 73,523 and 75,270 shares 7,352� 7,527� Additional paid-in capital 368,756� 384,870� Accumulated other comprehensive income 15,648� 13,468� Retained earnings 88,964� 81,805� Total stockholders' equity 480,720� 487,670� Total liabilities and stockholders' equity $ 638,614� $ 638,022� AEROFLEX INCORPORATED AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED INCOME STATEMENTS (In thousands, except per share data) � For the Quarter Ended 9/30/06� 9/30/06� 9/30/05� 9/30/05� (GAAP) (Pro forma) (GAAP) (Pro forma) � Net sales $ 136,835� $ 136,835� $ 125,648� $ 125,648� Cost of sales 73,081� 73,018� 66,722� 65,555� Gross profit 63,754� 63,817� 58,926� 60,093� Selling, general and administrative expenses 31,400� 30,493� 30,251� 28,424� Research and development costs 17,748� 17,678� 17,964� 17,856� Amortization of acquired intangibles 3,237� -� 3,457� -� Operating income 11,369� 15,646� 7,254� 13,813� Interest and other income (expense), net (182) (182) (69) (69) � Income before income taxes 11,187� 15,464� 7,185� 13,744� Provision for income taxes 4,028� 5,568� 2,658� 5,084� Net income $ 7,159� $ 9,896� $ 4,527� $ 8,660� � Net income per common share: Basic $ 0.10� $ 0.13� $ 0.06� $ 0.12� Diluted $ 0.09� $ 0.13� $ 0.06� $ 0.11� � � Weighted average number of shares Outstanding - Basic 74,736� 74,736� 74,758� 74,758� - Diluted 75,984� 75,984� 75,699� 75,699� AEROFLEX INCORPORATED AND SUBSIDIARIES RECONCILIATION OF REPORTED GAAP RESULTS TO PRO FORMA NET INCOME (Unaudited) (In thousands, except per share data) � For the Quarter Ended 9/30/06� 9/30/05� � � GAAP net income $ 7,159� $ 4,527� � Pro forma adjustments: Share based compensation 940� 2,014� Amortization of acquired intangible assets 3,237� 3,457� Restructuring costs 100� -� Acquisition related inventory adjustment -� 1,088� Income tax benefit (1,540) (2,426) � Pro forma net income $ 9,896� $ 8,660� � � Net income per common share: Basic GAAP net income, after tax $ 0.10� $ 0.06� Pro forma adjustments, net of tax 0.03� 0.06� � Pro forma net income, after tax $ 0.13� $ 0.12� � � Diluted GAAP net income, after tax $ 0.09� $ 0.06� Pro forma adjustments, net of tax 0.04� 0.05� � Pro forma net income, after tax $ 0.13� $ 0.11� � � Weighted average number of shares outstanding - Basic 74,736� 74,758� - Diluted 75,984� 75,699� Aeroflex Incorporated (Nasdaq Symbol: ARXX), today announced operating results for its fiscal 2007 first quarter which ended September 30, 2006. -0- *T Quarter Ended September 30, ------------------ 2006 2005 % Increase ---------------------------- Sales (in millions) $136.8 $ 125.6 9% ============================ Diluted earnings per share GAAP $ 0.09 $ 0.06 50% ============================ Pro forma $ 0.13 $ 0.11 18% ============================ *T Pro forma gross profit margins were 46.6%, compared to 47.8% last year and pro forma operating income of $15.6 million increased 13% compared to last year. The pro forma gross margin comparison is negatively affected by a "tough comp" due to a highly profitable satellite related shipment in last year's first quarter. The first quarter pro forma results exclude the following items from net income per diluted share: -0- *T Quarter Ended September 30, ---------------------------- 2006 2005 ---------------------------- Acquisition-related items: Amortization of intangibles $ 0.03 $ 0.03 Adjustments to inventory - 0.01 Share based compensation 0.01 0.01 ---------------------------- Total EPS impact $ 0.04 $ 0.05 ============================ *T On a GAAP basis, gross profit margins for the fiscal 2007 first quarter were 46.6% compared to 46.9% last year. Operating income for the fiscal 2007 first quarter increased 57% compared to last year. Net income for the fiscal 2007 first quarter amounted to $7.2 million, or $0.09 per diluted share, compared with $4.5 million, or $0.06 per diluted share, last year representing a per share increase of 50%. The quarterly results were impacted by: -- a $940,000 ($601,000 after tax or $0.01 per share) charge for share based compensation in fiscal 2007, compared to $2.0 million ($1.3 million after tax or $0.01 per share) in fiscal 2006; -- a $3.2 million ($2.1 million after tax or $0.03 per share) charge for amortization of acquired intangibles in fiscal 2007, compared to $3.5 million ($2.2 million after tax or $0.03 per share) in fiscal 2006; -- a $100,000 ($64,000 after tax or $0.00 per share) charge in fiscal 2007 for restructuring costs (for which there was no comparable expense in the prior year); and -- a fiscal 2006 charge of $1.1 million ($685,000 after tax or $0.01 per share) for acquisition related inventory adjustments (for which there was no comparable item in the current fiscal year). Operating cash flow for the current quarter was approximately $13 million. During the first quarter, approximately 1.8 million shares of our common stock were repurchased for $17.2 million, leaving approximately 1.2 million shares to be repurchased under the Board's most recent authorization. In October 2006, $9.2 million was paid in a final determination of the Racal acquisition earn-out. This amount has been added to goodwill as of September 30, 2006. "Our first quarter performance positions us well for another solid year," said Len Borow, President and Chief Operating Officer. "Organic sales growth was 9% and the $0.13 pro forma EPS represented an 18% increase over last year. Both segments of our business performed well as the quarterly book-to-bill ratio was 1.10 to 1.0. We head into the remainder of the fiscal year with a record backlog of $254 million." Our estimate of operating results for the December 2006 quarter is as follows: -- net sales are expected to be approximately $145 to $146 million; and -- pro forma earnings per diluted share are anticipated to be $0.16. Pro forma earnings exclude estimated amortization of acquired intangibles and share based compensation of a combined $.04 per diluted share. GAAP net income per diluted share is anticipated to be $.012. Our conference call discussing first quarter results is scheduled for 8:30 a.m. (New York time) on November 3, 2006 and can be accessed by dialing 866-800-8651 in the United States and by dialing 617-614-2704 outside of the United States. The participant passcode is 40742023. 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 97719311. 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 its first 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-K. 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 non-GAAP financial measures used in this press release are not prepared in accordance with generally accepted accounting principles and may be different from non-GAAP financial measures used by other companies. The Company's management refers to these non-GAAP financial measures in making operating decisions because they provide meaningful supplemental information regarding the Company's operating performance. In addition, these non-GAAP financial measures facilitate management's internal comparisons to the Company's historical operating results and comparisons to competitors' operating results. We include these non-GAAP financial measures (which should be viewed as a supplement to, and not a substitute for, their comparable GAAP measures) in this press release because we believe they are useful to investors in allowing for greater transparency to supplemental information used by management in its financial and operational decision-making. For a reconciliation of our GAAP and non-GAAP financial results, please refer to our Reconciliation of Reported GAAP Results to Pro Forma Net Income, presented in this release. -0- *T AEROFLEX INCORPORATED AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except per share data) September 30, June 30, 2006 2006 ------------- --------- ASSETS ------------------------------------------ Current assets: Cash and cash equivalents $ 14,741 $ 10,387 Marketable securities 16,271 28,332 Accounts receivable, less allowance for doubtful accounts 117,127 120,296 Inventories 137,366 133,420 Deferred income taxes 24,770 24,732 Prepaid expenses and other current assets 10,008 11,187 ------------- --------- Total current assets 320,283 328,354 Property, plant and equipment, net 77,733 77,940 Other assets 15,968 14,276 Intangible assets with definite lives, net 51,330 54,215 Goodwill 173,300 163,237 ------------- --------- Total assets $ 638,614 $ 638,022 ============= ========= LIABILITIES AND STOCKHOLDERS' EQUITY --------------------------------------------- Current liabilities: Current portion of long-term debt $ 607 $ 607 Accounts payable 34,621 37,832 Advance payments by customers 21,472 21,128 Income taxes payable 9,281 9,162 Accrued payroll expenses 19,268 17,440 Accrued expenses and other current liabilities 42,826 33,046 ------------- --------- Total current liabilities 128,075 119,215 Long-term debt 3,488 3,558 Deferred income taxes 3,340 4,631 Other long-term liabilities 22,991 22,948 ------------- --------- Total liabilities 157,894 150,352 ------------- --------- 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 73,523 and 75,270 shares 7,352 7,527 Additional paid-in capital 368,756 384,870 Accumulated other comprehensive income 15,648 13,468 Retained earnings 88,964 81,805 ------------- --------- Total stockholders' equity 480,720 487,670 ------------- --------- Total liabilities and stockholders' equity $ 638,614 $ 638,022 ============= ========= *T -0- *T AEROFLEX INCORPORATED AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED INCOME STATEMENTS ------------------------------------ (In thousands, except per share data) For the Quarter Ended ------------------- 9/30/06 9/30/06 9/30/05 9/30/05 -------- -------- --------- -------- (GAAP) (Pro (GAAP) (Pro forma) forma) Net sales $136,835 $136,835 $ 125,648 $125,648 Cost of sales 73,081 73,018 66,722 65,555 -------- -------- --------- -------- Gross profit 63,754 63,817 58,926 60,093 Selling, general and administrative expenses 31,400 30,493 30,251 28,424 Research and development costs 17,748 17,678 17,964 17,856 Amortization of acquired intangibles 3,237 - 3,457 - -------- -------- --------- -------- Operating income 11,369 15,646 7,254 13,813 Interest and other income (expense), net (182) (182) (69) (69) -------- -------- --------- -------- Income before income taxes 11,187 15,464 7,185 13,744 Provision for income taxes 4,028 5,568 2,658 5,084 -------- -------- --------- -------- Net income $ 7,159 $ 9,896 $ 4,527 $ 8,660 ======== ======== ========= ======== Net income per common share: Basic $ 0.10 $ 0.13 $ 0.06 $ 0.12 ======== ======== ========= ======== Diluted $ 0.09 $ 0.13 $ 0.06 $ 0.11 ======== ======== ========= ======== Weighted average number of shares Outstanding - Basic 74,736 74,736 74,758 74,758 ======== ======== ========= ======== - Diluted 75,984 75,984 75,699 75,699 ======== ======== ========= ======== *T -0- *T AEROFLEX INCORPORATED AND SUBSIDIARIES RECONCILIATION OF REPORTED GAAP RESULTS TO PRO FORMA ---------------------------------------------------------------------- NET INCOME (Unaudited) ---------------------------------------------------------------------- (In thousands, except per share data) For the Quarter Ended ----------------- 9/30/06 9/30/05 -------- -------- GAAP net income $ 7,159 $ 4,527 Pro forma adjustments: Share based compensation 940 2,014 Amortization of acquired intangible assets 3,237 3,457 Restructuring costs 100 - Acquisition related inventory adjustment - 1,088 Income tax benefit (1,540) (2,426) -------- -------- Pro forma net income $ 9,896 $ 8,660 ======== ======== Net income per common share: Basic GAAP net income, after tax $ 0.10 $ 0.06 Pro forma adjustments, net of tax 0.03 0.06 -------- -------- Pro forma net income, after tax $ 0.13 $ 0.12 ======== ======== Diluted GAAP net income, after tax $ 0.09 $ 0.06 Pro forma adjustments, net of tax 0.04 0.05 -------- -------- Pro forma net income, after tax $ 0.13 $ 0.11 ======== ======== Weighted average number of shares outstanding - Basic 74,736 74,758 ======== ======== - Diluted 75,984 75,699 ======== ======== *T