EX-99.1 2 v064459_ex99-1.htm

NEWS RELEASE


FOR IMMEDIATE RELEASE
 
FOR FURTHER INFORMATION CONTACT:

Investor Inquiries:
Leonard Borow
President and Chief Operating Officer
(516) 694-6700

AEROFLEX
REPORTS RECORD SECOND QUARTER SALES
GAAP AND PRO FORMA NET INCOME INCREASED 18% AND 12% FROM PRIOR YEAR

PLAINVIEW, NEW YORK, February 5, 2007 -- Aeroflex Incorporated (Nasdaq Symbol: ARXX), today announced operating results for its fiscal 2007 second quarter which ended December 31, 2006.

   
Quarter Ended December 31,
      
   
2006
  
2005
  
% Increase
  
               
Sales (in millions)
  
$
145.3
  
$
135.2
    
8
%
Diluted earnings per share
                    
GAAP
  
$
0.12
  
$
0.10
    
20
%
Pro forma
  
$
0.16
  
$
0.14
    
14
%

Pro forma gross profit margins were 47.2%, compared to 47.8% last year and pro forma operating income of $18.4 million increased 7% compared to last year. The second quarter pro forma results exclude the following items from net income per diluted share:
 
   
Quarter Ended December 31,
  
   
2006
  
2005
  
           
Amortization of acquired intangibles
  
$
0.03
  
$
0.03
  
Share based compensation
    
0.01
   
0.01
 
Total EPS impact
  
$
0.04
  
$
0.04
  

On a GAAP basis, gross profit margins for the fiscal 2007 second quarter were 47.2% compared to 47.8% last year. Operating income for the fiscal 2007 second quarter increased 15% compared to last year. Net income for the fiscal 2007 second quarter amounted to $9.2 million, or $0.12 per diluted share, compared with $7.8 million, or $0.10 per diluted share, last year representing a per share increase of 20%. 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, and
 
·
a $1.0 million ($670,000 after tax or $0.01 per share) charge for share based compensation in fiscal 2007, compared to $1.4 million ($860,000 after tax or $0.01 per share) in fiscal 2006.

For the six months ended:
 
   
 December 31,
      
   
 2006
  
2005
  
% Increase
  
                
Sales (in millions)
  
$
282.1
  
$
260.8
    
8
%
Diluted earnings from
                   
continuing operations:
                    
GAAP
  
$
0.22
  
$
0.16
    
38
%
Pro forma
  
$
0.29
  
$
0.26
    
12
%

Pro forma gross profit margins were 46.9%, compared to 47.8% last year and pro forma operating income of $34.0 million increased 10% compared to last year. The six months ended December 31, 2006 pro forma results exclude the following items:
 
   
2006
  
2005
  
           
Acquisition-related items:
              
Amortization of intangibles
  
$
0.05
  
$
0.06
  
Adjustments to inventory
    
-
   
0.01
 
Share based compensation
    
0.02
   
0.03
 
Restructuring charges
   
-
   
-
 
Total EPS impact
  
$
0.07
  
$
0.10
  

On a GAAP basis, gross profit margins for the first half of fiscal 2007 were 46.9% compared to 47.3% last year. Operating income for the first half of fiscal 2007 increased 31% compared to last year. Net income for the first half of fiscal 2007 amounted to $16.3 million, or $0.22 per diluted share, compared with $12.3 million, or $0.16 per diluted share, last year representing a per share increase of 38%. The first half results were impacted by:

 
·
a $6.4 million ($4.2 million after tax or $0.05 per share) charge for amortization of acquired intangibles in fiscal 2007, compared to $6.9 million ($4.3 million after tax or $0.06 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 $2.0 million ($1.3 million after tax or $0.02 per share) charge for share based compensation in fiscal 2007, compared to $3.5 million ($2.1 million after tax or $0.03 per share) in fiscal 2006; and
 
·
a $100,000 ($65,000 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).


Operating cash flow for the six months was approximately $9.1 million. During the six months, 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.

“Our second quarter performance positions us well for another solid year,” said Len Borow, President and Chief Operating Officer. “Organic sales growth was 8% and the $0.16 pro forma EPS represented a 14% increase over last year. Both segments of our business performed well as the first half book-to-bill ratio was 1.05 to 1.0. We head into the remainder of the fiscal year with a backlog of $254 million.”
 
Our estimate of operating results for the March 2007 quarter is as follows:

·
net sales are expected to be approximately $152 million to $154 million, and
·
pro forma earnings per diluted share are anticipated to be $0.17. Pro forma earnings exclude estimated amortization of acquired intangibles, share based compensation and restructuring costs of a combined $0.05 per diluted share. GAAP net income per diluted share is anticipated to be $0.12.
 
Restructuring activity initiated in the Wireless division in the third quarter of fiscal 2007 is expected to cost approximately $1.4 million ($0.01 per diluted share) for severance costs and generate annual savings of approximately $4.6 million.

Our conference call discussing second quarter results is scheduled for 8:30 a.m. (New York time) on February 6, 2007 and can be accessed by dialing 800-510-9661 in the United States and by dialing 617-614-3452 outside of the United States. The participant passcode is 37816342. 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 23059870. 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 second 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)

   
December 31,
  
June 30,
  
   
2006
  
2006
  
           
ASSETS
              
Current assets:
              
Cash and cash equivalents
  
$
14,923
  
$
10,387
  
Marketable securities
    
-
   
28,332
 
Accounts receivable, less allowance for
              
doubtful accounts
    
118,120
   
120,296
 
Inventories
    
146,528
   
133,420
 
Deferred income taxes
    
24,948
   
24,732
 
Prepaid expenses and other current assets
    
13,823
   
11,187
 
Total current assets
    
318,342
   
328,354
 
               
Property, plant and equipment, net
    
79,051
   
77,940
 
Other assets
    
16,350
   
14,276
 
Intangible assets with definite lives, net
    
49,479
   
54,215
 
Goodwill
    
177,594
   
163,237
 
Total assets
  
$
640,816
  
$
638,022
  
               
LIABILITIES AND STOCKHOLDERS' EQUITY
              
Current liabilities:
              
Current portion of long-term debt
  
$
607
  
$
607
  
Accounts payable
    
30,237
   
37,832
 
Advance payments by customers
    
22,190
   
21,128
 
Income taxes payable
    
3,144
   
9,162
 
Accrued payroll expenses
    
16,893
   
17,440
 
Accrued expenses and other current liabilities
    
38,007
   
33,046
 
Total current liabilities
    
111,078
   
119,215
 
               
Long-term debt
    
3,397
   
3,558
 
Deferred income taxes
    
2,644
   
4,631
 
Other long-term liabilities
    
23,656
   
22,948
 
Total liabilities
    
140,775
   
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 and outstanding
              
73,628 and 75,270 shares
    
7,363
   
7,527
 
Additional paid-in capital
    
370,476
   
384,870
 
Accumulated other comprehensive income
    
24,058
   
13,468
 
Retained earnings
    
98,144
   
81,805
 
Total stockholders' equity
    
500,041
   
487,670
 
Total liabilities and stockholders' equity
  
$
640,816
  
$
638,022
  
 
 
AEROFLEX INCORPORATED
AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED INCOME STATEMENTS
(In thousands, except per share data)

   
For the Quarter Ended
  
   
12/31/06
  
12/31/06
  
12/31/05
  
12/31/05
  
   
(GAAP)
  
(Pro forma)
  
(GAAP)
  
(Pro forma)
  
                   
Net sales
  
$
145,314
  
$
145,314
  
$
135,156
  
$
135,156
  
Cost of sales
    
76,769
   
76,689
   
70,602
   
70,529
 
Gross profit
    
68,545
   
68,625
   
64,554
   
64,627
 
Selling, general and administrative
                          
expenses
    
32,750
   
31,889
   
30,556
   
29,297
 
Research and development costs
    
18,444
   
18,371
   
18,290
   
18,180
 
Amortization of acquired intangibles
    
3,188
   
-
   
3,433
   
-
 
Operating income
    
14,163
   
18,365
   
12,275
   
17,150
 
Interest and other income
                          
(expense), net
    
(240
)
  
(240
)
  
514
   
514
 
                           
Income before income taxes
    
13,923
   
18,125
   
12,789
   
17,664
 
Provision for income taxes
    
4,743
   
6,165
   
5,015
   
6,965
 
Net income
  
$
9,180
  
$
11,960
  
$
7,774
  
$
10,699
  
                           
Net income per common share:
                          
Basic
  
$
0.12
  
$
0.16
  
$
0.10
  
$
0.14
  
Diluted
  
$
0.12
  
$
0.16
  
$
0.10
  
$
0.14
  
                           
                           
Weighted average number of shares
                          
outstanding - Basic
    
73,689
    
73,689
    
74,875
    
74,875
  
- Diluted
    
75,441
    
75,441
    
75,990
    
75,990
  
 
 
 
AEROFLEX INCORPORATED
AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED INCOME STATEMENTS
(In thousands, except per share data)

   
For the Six Months Ended
 
 
 
12/31/06
 
12/31/06
 
12/31/05
 
12/31/05
 
 
 
(GAAP)
 
(Pro forma)
 
(GAAP)
 
(Pro forma)
  
                   
Net sales
  
$
282,149
  
$
282,149
  
$
260,804
  
$
260,804
  
Cost of sales
    
149,850
   
149,707
   
137,324
   
136,084
 
Gross profit
    
132,299
   
132,442
   
123,480
   
124,720
 
Selling, general and administrative
                          
costs
    
64,150
   
62,382
   
60,808
   
57,721
 
Research and development costs
    
36,192
   
36,049
   
36,254
   
36,035
 
Amortization of acquired intangibles
    
6,425
   
-
   
6,889
   
-
 
Operating income
    
25,532
   
34,011
   
19,529
   
30,964
 
Interest and other income
                          
(expense), net
    
(422
)
  
(422
)
  
445
   
445
 
Income before income taxes
    
25,110
   
33,589
   
19,974
   
31,409
 
Provision for income taxes
    
8,771
   
11,733
   
7,672
   
12,049
 
Net income
  
$
16,339
  
$
21,856
  
$
12,302
  
$
19,360
  
                           
Net income per common share:
                          
Basic
  
$
0.22
  
$
0.29
  
$
0.16
  
$
0.26
  
Diluted
  
$
0.22
  
$
0.29
  
$
0.16
  
$
0.26
  
                           
                           
Weighted average number of shares
                          
Outstanding - Basic
    
74,212
    
74,212
    
74,816
    
74,816
  
- Diluted
    
75,713
    
75,713
    
75,845
    
75,845
  
 
 
 
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
  
For the Six Months Ended
  
   
12/31/06
 
12/31/05
 
12/31/06
 
12/31/05
  
                   
                   
GAAP net income
  
$
9,180
  
$
7,774
  
$
16,339
  
$
12,302
  
                           
Pro forma adjustments:
                          
Add back:
                          
Share based compensation
    
1,014
   
1,442
   
1,954
   
3,458
 
Amortization of acquired
                          
intangible assets
    
3,188
   
3,433
   
6,425
   
6,889
 
Acquisition related inventory adjustment
    
-
   
-
   
-
   
1,088
 
Restructuring costs
    
-
     -    
100
     -  
Income tax benefit
    
(1,422
)
  
(1,950
)
  
(2,962
)
  
(4,377
)
Total pro forma adjustments
    
2,780
   
2,925
   
5,517
   
7,058
 
                           
Pro forma net income
  
$
11,960
  
$
10,699
  
$
21,856
  
$
19,360
  
                           
                           
Net income per common share:
                          
Basic
                          
                           
GAAP net income
  
$
0.12
  
$
0.10
  
$
0.22
  
$
0.16
  
Pro forma adjustments, net of tax
    
0.04
   
0.04
   
0.07
   
0.10
 
                           
Pro forma net income
  
$
0.16
  
$
0.14
  
$
0.29
  
$
0.26
  
                           
                           
Diluted
                          
                           
GAAP net income
  
$
0.12
  
$
0.10
  
$
0.22
  
$
0.16
  
Pro forma adjustments, net of tax
    
0.04
   
0.04
   
0.07
   
0.10
 
                           
Pro forma net income
  
$
0.16
  
$
0.14
  
$
0.29
  
$
0.26
  
                           
                           
Weighted average number of shares
                          
outstanding - Basic
    
73,689
    
74,875
    
74,212
    
74,816
  
- Diluted
    
75,441
    
75,990
    
75,713
    
75,845