ARXX Aeroflex Inc. (MM)

Aeroflex Incorporated (Nasdaq: ARXX), today announced operating results for its fiscal 2007 third quarter which ended March 31, 2007. Quarter Ended March 31, 2007� 2006� � Sales (in millions) $ 150.3� $ 140.5� Diluted earnings per share � GAAP $ 0.07� $ 0.10� � Non-GAAP $ 0.17� $ 0.15� Operating income of $13.3 million for the fiscal 2007 third quarter increased $1.0 million (8.5%) compared to last year. As previously announced, Aeroflex has entered into an agreement to be acquired by General Atlantic LLC and Francisco Partners II, L.P. (�Company Sale Transaction�). Including the Company Sale Transaction expenses of $4.3 million ($3.4 million after tax), net income for the fiscal 2007 third quarter amounted to $5.5 million, or $0.07 per diluted share, compared with $7.7 million, or $0.10 per diluted share last year. On a GAAP basis, gross profit margins for the fiscal 2007 third quarter were 47.1% compared to 47.7% last year. The quarterly results were impacted by: 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 $3.4 million ($2.1 million after tax or $0.03 per share) in fiscal 2006; a $1.3 million ($807,000 after tax or $0.01 per share) charge for share based compensation in fiscal 2007, compared to $1.6 million ($943,000 after tax or $0.01 per share) in fiscal 2006; a $2.0 million ($1.3 million after tax or $0.02 per share) charge for restructuring costs related to the consolidation of the company�s subsidiaries in the United Kingdom in fiscal 2007, compared to $1.2 million ($723,000 after tax or $0.01 per share) in fiscal 2006; and a $4.3 million ($3.4 million after tax or $0.04 per share) charge for Company Sale Transaction expenses in fiscal 2007. Non-GAAP gross profit margins, excluding the aforementioned items, were 47.2%, compared to 48.0 % last year and non-GAAP operating income of $19.8 million increased 7.6% compared to last year. The third quarter non-GAAP results exclude the following items from net income per diluted share: Quarter Ended March 31, 2007� 2006� � Amortization of acquired intangibles $ 0.03� $ 0.03� Share based compensation 0.01� 0.01� Restucturing costs 0.02� 0.01� Company Sale Transaction expenses � 0.04� � -� Total EPS impact $ 0.10� $ 0.05� Year-to-date results were: Nine Months Ended March 31, 2007� 2006� � Sales (in millions) $ 432.4� $ 401.3� Diluted earnings per share: GAAP $ 0.29� $ 0.26� Non-GAAP $ 0.46� $ 0.40� On a GAAP basis, gross profit margins for the nine months of fiscal 2007 were 47.0% compared to 47.5% last year. Operating income of $38.9 million for the nine months of fiscal 2007 increased 22% compared to last year. Net income for the nine months of fiscal 2007 amounted to $21.8 million, or $0.29 per diluted share, compared with $20.0 million, or $0.26 per diluted share. The nine months results were impacted by: a $9.6 million ($6.2 million after tax or $0.08 per share) charge for amortization of acquired intangibles in fiscal 2007, compared to $10.3 million ($6.3 million after tax or $0.08 per share) in fiscal 2006; a fiscal 2006 charge of $1.1 million ($685,000 after tax or $0.01 per share) for an acquisition related inventory adjustment (for which there was no comparable item in the current fiscal year); a $3.2 million ($2.1 million after tax or $0.03 per share) charge for share based compensation in fiscal 2007, compared to $5.0 million ($3.1 million after tax or $0.04 per share) in fiscal 2006; a $2.1 million ($1.4 after tax or $0.02 per share) charge for restructuring costs in fiscal 2007, compared to $1.2 million ($723,000 after tax or $0.01 per share) in fiscal 2006; and a $4.3 million ($3.4 million after tax or $0.04 per share) charge for Company Sale Transaction expenses in fiscal 2007. Non-GAAP gross profit margins, excluding the aforementioned items, were 47.0%, compared to 47.9% last year and non-GAAP operating income of $53.9 million increased 9.0% compared to last year. The year-to-date non-GAAP results exclude the following items from net income per diluted share: Nine Months Ended March 31, 2007� 2006� � Acquisition-related items: Amortization of intangibles $ 0.08� $ 0.08� Purchase adjustments to inventory -� 0.01� Share based compensation 0.03� 0.04� Restructuring charges 0.02� 0.01� Company Sale Transaction costs � 0.04� � -� Total EPS impact $ 0.17� $ 0.14� Operating cash flow for the nine months was approximately $23 million. During the nine months, we repurchased approximately 1.8 million shares of our common stock for $17.2 million. In October 2006, we paid $9.2 million in a final determination of the Racal acquisition earn-out. This amount has been added to goodwill. �Our third quarter and nine months performance positions us well for another solid year,� said Len Borow, President and Chief Operating Officer. Both segments of our business performed well as the nine months book-to-bill ratio was 1.03 to 1.0. We head into the remainder of the fiscal year with a backlog of $253 million, 46% of which is scheduled to ship in the fourth quarter of fiscal 2007.� Our estimate of operating results for the June 2007 quarter is as follows: net sales are expected to be approximately $162 million, and GAAP net income per diluted share is anticipated to be $0.15. Non-GAAP earnings per diluted share are anticipated to be $0.20. Non-GAAP earnings exclude estimated amortization of acquired intangibles and share based compensation, of a combined $0.05 per diluted share. 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, completion of the proposed Company Sale Transaction, 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. 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 Non-GAAP Measures, presented in this release. � AEROFLEX INCORPORATED AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except per share data) � March 31, June 30, 2007� 2006� � � ASSETS Current assets: Cash and cash equivalents $ 13,476� $ 10,387� Marketable securities 10,576� 28,332� Accounts receivable, less allowance for doubtful accounts 129,192� 120,296� Inventories 147,763� 133,420� Deferred income taxes 24,159� 24,732� Prepaid expenses and other current assets 13,159� 11,187� Total current assets 338,325� 328,354� � Property, plant and equipment, net 79,129� 77,940� Other assets 16,271� 14,276� Intangible assets with definite lives, net 46,228� 54,215� Goodwill 177,522� 163,237� Total assets $ 657,475� $ 638,022� LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 607� $ 607� Accounts payable 39,325� 37,832� Advance payments by customers 21,724� 21,128� Income taxes payable 817� 9,162� Accrued payroll expenses 20,392� 17,440� Accrued expenses and other current liabilities 39,041� 33,046� Total current liabilities 121,906� 119,215� � Long-term debt 3,327� 3,558� Deferred income taxes 1,251� 4,631� Other long-term liabilities 24,002� 22,948� Total liabilities 150,486� 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 shares; none issued -� -� Common Stock, par value $.10 per share; authorized 110,000 shares; issued 73,689 and 75,270 shares � 7,369� 7,527� Additional paid-in capital 372,187� 384,870� Accumulated other comprehensive income 23,800� 13,468� Retained earnings 103,633� 81,805� Total stockholders' equity 506,989� 487,670� Total liabilities and stockholders' equity $ 657,475� $ 638,022� � AEROFLEX INCORPORATED AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED INCOME STATEMENTS (In thousands, except per share data) � � � � For the Quarter Ended 03/31/07� 03/31/06� � � Net sales $ 150,271� $ 140,527� Cost of sales 79,460� 73,461� Gross profit 70,811� 67,066� Selling, general and administrative expenses 33,907� 30,863� Research and development costs 20,360� 20,488� Amortization of acquired intangibles 3,225� 3,440� Operating income 13,319� 12,275� Company Sale Transaction expenses (4,319) -� Interest and other income (expense), net 582� 442� � Income before income taxes 9,582� 12,717� Provision for income taxes 4,093� 4,971� Net income $ 5,489� $ 7,746� � Net income per common share: Basic $ 0.07� $ 0.10� Diluted $ 0.07� $ 0.10� � � Weighted average number of shares outstanding - Basic 73,775� 75,133� - Diluted 75,714� 77,230� � AEROFLEX INCORPORATED AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED INCOME STATEMENTS (In thousands, except per share data) � For the Nine Months Ended 3/31/07� 3/31/06� � � Net sales $ 432,420� $ 401,332� Cost of sales 229,310� 210,785� Gross profit 203,110� 190,547� Selling, general and administrative costs 98,057� 91,672� Research and development costs 56,552� 56,742� Amortization of acquired intangibles 9,650� 10,329� Operating income 38,851� 31,804� Sale Transaction expenses (4,319) Interest and other income (expense), net 160� 887� Income before income taxes 34,692� 32,691� Provision for income taxes 12,864� 12,642� Net income $ 21,828� $ 20,049� � Net income per common share: Basic $ 0.29� $ 0.27� Diluted $ 0.29� $ 0.26� � � Weighted average number of shares outstanding - Basic 74,066� 74,922� - Diluted 75,713� 76,306� � AEROFLEX INCORPORATED AND SUBSIDIARIES RECONCILIATION OF REPORTED GAAP RESULTS TO NON-GAAP � MEASURES (Unaudited) � (In thousands, except per share data) � � � For the Quarter Ended � For the Nine Months Ended 3/31/07� 3/31/06� 3/31/07� 3/31/06� � Gross Profits GAAP Gross Profits $ 70,811� $ 67,066� $ 203,110� $ 190,547� � Non-GAAP adjustments: Acquisition related inventory adjustment -� -� -� 1,088� Share based compensation 74� 72� 217� 223� Restructuring costs -� 259� -� 259� Total Non-GAAP adjustments 74� 331� 217� 1,570� � � � � Non-GAAP Gross Profits $ 70,885� $ 67,397� $ 203,327� $ 192,117� � � Operating Income GAAP Operating Income $ 13,319� $ 12,275� $ 38,851� $ 31,804� � Non-GAAP adjustments: Amortization of acquired intangible assets 3,225� 3,440� 9,650� 10,329� Acquisition related inventory adjustment -� -� -� 1,088� Share based compensation 1,258� 1,552� 3,212� 5,010� Restructuring costs 2,040� 1,179� 2,140� 1,179� Total Non-GAAP adjustments 6,523� 6,171� 15,002� 17,606� � � � � Non-GAAP Operating Income $ 19,842� $ 18,446� $ 53,853� $ 49,410� � Net Income GAAP Net Income $ 5,489� $ 7,746� $ 21,828� $ 20,049� � Non-GAAP adjustments: Amortization of acquired intangible assets 3,225� 3,440� 9,650� 10,329� Acquisition related inventory adjustment -� -� -� 1,088� Share based compensation 1,258� 1,552� 3,212� 5,010� Restructuring costs 2,040� 1,179� 2,140� 1,179� Company Sale Transaction expenses 4,319� -� 4,319� -� Income tax benefit (3,231) (2,413) (6,193) (6,791) Total Non-GAAP adjustments 7,611� 3,758� 13,128� 10,815� � � � � Non-GAAP net income $ 13,100� $ 11,504� $ 34,956� $ 30,864� � AEROFLEX INCORPORATED AND SUBSIDIARIES RECONCILIATION OF REPORTED GAAP RESULTS TO NON-GAAP MEASURES (Unaudited) (In thousands, except per share data) � For the Quarter Ended � For the Nine Months Ended 3/31/07� 3/31/06� 3/31/07� 3/31/06� � Net Income Per Diluted Common Share: � � GAAP net income $ 0.07� $ 0.10� $ 0.29� $ 0.26� � Non-GAAP adjustments, net of taxes: Amortization of acquired intangible assets 0.03� 0.03� 0.08� 0.08� Acquisition related inventory adjustment -� -� 0.01� Share based compensation 0.01� 0.01� 0.03� 0.04� Restructuring costs 0.02� 0.01� 0.02� 0.01� Company Sale Transaction expenses 0.04� -� 0.04� -� Total Non-GAAP adjustments 0.10� 0.05� 0.17� 0.14� � � � � Non-GAAP net income $ 0.17� $ 0.15� $ 0.46� $ 0.40� � � � � � � � Projection for the Quarter Ending � June 30, 2007 � Net Income Per Diluted Common Share: � � GAAP net income $ 0.15� � Non-GAAP adjustments, net of taxes: Amortization of acquired intangible assets 0.04� Share based compensation 0.01� Total Non-GAAP adjustments 0.05� � Non-GAAP net income $ 0.20�