ARXX Aeroflex Inc. (MM)

Aeroflex Incorporated (Nasdaq Symbol: ARXX), a leading designer, developer and manufacturer of automated testing solutions and microelectronics for the aerospace, defense and broadband communications markets, today announced operating results for its fiscal 2006 third quarter, which ended March 31, 2006. The highlights of the Company's quarterly financial performance from continuing operations for the third quarter of fiscal 2006 are as follows: -- net sales increased 24% to a quarterly record $140.5 million (including contributions from our fourth quarter 2005 acquisitions) from $113.8 million last year and $135.2 million in the second quarter of this fiscal year; -- pro forma gross profit margins were 48.0% compared to 47.3% last year and 47.8% last quarter; and -- pro forma operating income increased 85% compared to last year and 8% compared to last quarter. On a pro forma basis, for the fiscal 2006 third quarter, income from continuing operations increased 87% to $11.5 million, or $.15 per diluted share, compared to $6.2 million, or $.08 per diluted share, last year. The fiscal 2006 third quarter pro forma results exclude charges of: -- $3.4 million ($2.1 million, after tax) for amortization of acquired intangibles; -- $1.6 million ($0.9 million, after tax) for share based compensation; and -- $1.2 million ($0.7 million, after tax) for restructuring charges related to the consolidation of the Company's subsidiaries in the United Kingdom. The prior year's third quarter pro forma results excluded a pre-tax charge of $2.1 million ($1.2 million, after tax) for amortization of acquired intangibles and $1.7 million ($1.0 million, after tax) for restructuring charges. On a GAAP basis, gross profit margins for the fiscal 2006 third quarter were 47.7% compared to 47.3% last year and 47.8% last quarter. Operating income for the fiscal 2006 third quarter increased 97% compared to last year and is the same as the last quarter. Income from continuing operations for the fiscal 2006 third quarter amounted to $7.7 million, or $.10 per diluted share, compared with $3.9 million, or $.05 per diluted share, last year representing a per share increase of 100 %. The fiscal 2006 third quarter included a $0.9 million after tax charge for share based compensation (for which there was no comparable expense in the prior year), a $2.1 million after tax charge for amortization of acquired intangibles, (an increase of $0.9 million related to our acquisitions in the fourth quarter of fiscal 2005); and a $0.7 million after tax charge for restructuring costs (compared to a $1.0 million after tax charge in fiscal 2005). The Company's financial performance from continuing operations for the nine months of fiscal 2006 is as follows: -- net sales increased 20% to $401.3 million from $335.4 million last year, including contributions from our fourth quarter 2005 acquisitions; -- pro forma gross profit margins were 47.9% compared to 47.3% last year; and -- pro forma operating income increased 47% compared to last year. On a pro forma basis, for the fiscal 2006 nine months, income from continuing operations increased 45% to $30.9 million, or $.40 per diluted share, compared to $21.3 million, or $.28 per diluted share, last year. The fiscal 2006 nine month pro forma results exclude charges of: -- $10.3 million ($6.3 million, after tax) for amortization of acquired intangibles; -- $5.0 million ($3.1 million, after tax) for share based compensation; -- $1.1 million ($0.7 million, after tax) for an acquisition related inventory adjustment: and -- $1.2 million ($0.7 million, after tax) for restructuring charges. The prior year's nine months pro forma results excluded a pre-tax charges of $6.2 million ($3.8 million, after tax) for amortization of acquired intangibles and $1.7 million ($1.0 million, after tax) for restructuring charges. On a GAAP basis, gross profit margins for the fiscal 2006 nine months were 47.5% compared to 47.3% last year. Operating income for the fiscal 2006 nine months increased 24% compared to last year. Income from continuing operations for the fiscal 2006 nine months increased 22% to $20.0 million, or $.26 per diluted share, compared with $16.4 million, or $.22 per diluted share last year. The fiscal 2006 nine months included: $3.1 million after tax charge for share based compensation (for which there was no comparable expense in the prior year); a $6.3 million after tax charge for amortization of acquired intangibles (an increase of $2.5 million from last year's nine months); a $0.7 million after tax charge for an acquisition related inventory adjustment; and a $0.7 million after tax charge for restructuring costs (compared to a $1.0 million after tax charge in fiscal year 2005). "We are pleased with our operating results for the third quarter," said Len Borow, President and Chief Operating Officer. "Our sales, excluding acquisitions, grew 11% from last year's third quarter and we also achieved 8% sequential growth in net pro forma earnings. Our backlog is $223.6 million, with a book-to-bill ratio of .98 to 1. The book-to-bill was negatively impacted by a $15 million test set order slipping into early April." Our estimate of operating results for the June 2006 quarter is as follows: -- net sales are expected to be approximately $149 million; and -- pro forma earnings from continuing operations per diluted share are anticipated to be $.17. Pro forma earnings exclude estimated amortization of acquired intangibles, share based compensation and additional restructuring charges of a combined $.05 per diluted share. GAAP earnings from continuing operations per diluted share are anticipated to be $.12. Our conference call discussing third quarter results is scheduled for 5:00 p.m. (New York time) on May 10, 2006 and can be accessed by dialing 800-638-4930 in the United States and by dialing 617-614-3944 outside of the United States. The participant passcode is 29543227. 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 43676806. 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 third 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 STATEMENTS OF OPERATIONS (In thousands, except per share data) For the Quarter Ended --------------------- 3/31/06 3/31/06 3/31/05 3/31/05 -------- -------- --------- --------- (GAAP) (Pro forma) (GAAP) (Pro forma) Net sales $140,527 $140,527 $113,755 $113,755 Cost of sales 73,461 73,130 59,963 59,963 -------- -------- --------- -------- Gross profit 67,066 67,397 53,792 53,792 Selling, general and administrative costs 30,863 28,550 30,110 28,432 Research and development costs 20,488 20,401 15,379 15,379 Amortization of acquired intangibles 3,440 - 2,063 - -------- -------- --------- -------- Operating income 12,275 18,446 6,240 9,981 Interest and other income (expense), net 442 442 90 90 -------- -------- --------- -------- Income from continuing operations before income taxes 12,717 18,888 6,330 10,071 Provision for income taxes 4,971 7,384 2,464 3,914 -------- -------- --------- -------- Income from continuing operations 7,746 11,504 3,866 6,157 Income (loss) from discontinued operations, net of tax - - 106 106 -------- -------- --------- -------- Net income $ 7,746 $ 11,504 $ 3,972 $ 6,263 ======== ======== ========= ======== Income (loss) per common share: Basic Continuing operations $ 0.10 $ 0.15 $ 0.05 $ 0.08 Discontinued operations - - - - -------- -------- --------- -------- Net income $ 0.10 $ 0.15 $ 0.05 $ 0.08 ======== ======== ========= ======== Diluted Continuing operations $ 0.10 $ 0.15 $ 0.05 $ 0.08 Discontinued operations - - - - -------- -------- --------- -------- Net income $ 0.10 $ 0.15 $ 0.05 $ 0.08 ======== ======== ========= ======== Weighted average number of shares Outstanding - Basic 75,133 75,133 74,714 74,714 ======== ======== ========= ======== - Diluted 77,230 77,230 75,842 75,842 ======== ======== ========= ======== AEROFLEX INCORPORATED AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) For the Nine Months Ended ---------------------------------------- 3/31/06 3/31/06 3/31/05 3/31/05 --------- --------- --------- --------- (GAAP) (Pro forma) (GAAP) (Pro forma) Net sales $401,332 $401,332 $335,406 $335,406 Cost of sales 210,785 209,215 176,802 176,802 --------- -------- --------- -------- Gross profit 190,547 192,117 158,604 158,604 Selling, general and administrative costs 91,672 86,270 81,597 79,919 Research and development costs 56,742 56,437 45,122 45,122 Amortization of acquired intangibles 10,329 - 6,164 - --------- -------- --------- -------- Operating income 31,804 49,410 25,721 33,563 Interest and other income (expense), net 887 887 633 633 --------- -------- --------- -------- Income from continuing operations before income taxes 32,691 50,297 26,354 34,196 Provision for income taxes 12,642 19,433 9,947 12,907 --------- -------- --------- -------- Income from continuing operations 20,049 30,864 16,407 21,289 Income (loss) from discontinued operations, net of tax - - (1,496) (1,496) --------- -------- --------- -------- Net income $ 20,049 $ 30,864 $ 14,911 $ 19,793 ========= ======== ========= ======== Income (loss) per common share: Basic Continuing operations $ 0.27 $ 0.41 $ 0.22 $ 0.29 Discontinued operations - - (0.02) (0.02) --------- -------- --------- -------- Net income $ 0.27 $ 0.41 $ 0.20 $ 0.27 ========= ======== ========= ======== Diluted Continuing operations $ 0.26 $ 0.40 $ 0.22 $ 0.28 Discontinued operations - - (0.02) (0.02) --------- -------- --------- -------- Net income $ 0.26 $ 0.40 $ 0.20 $ 0.26 ========= ======== ========= ======== Weighted average number of shares Outstanding - Basic 74,922 74,922 74,595 74,595 ========= ======== ========= ======== - Diluted 76,306 76,306 76,047 76,047 ========= ======== ========= ======== 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 For the Nine Quarter Ended Months Ended ------------------ ----------------- 3/31/06 3/31/05 3/31/06 3/31/05 ------- ------- ------- ------- GAAP income from continuing operations $ 7,746 $ 3,866 $ 20,049 $ 16,407 Pro forma adjustments: Share-based compensation 1,552 - 5,010 - Amortization of acquired intangible assets 3,440 2,063 10,329 6,164 Restructuring costs 1,179 1,678 1,179 1,678 Acquisition related inventory adjustment - - 1,088 - Income tax benefit (2,413) (1,450) (6,791) (2,960) -------- -------- -------- -------- Pro forma income from continuing operations $ 11,504 $ 6,157 $ 30,864 $ 21,289 ======== ======== ======== ======== Income per common share: Basic GAAP income from continuing operations after tax $ 0.10 $ 0.05 $ 0.27 $ 0.22 Pro forma adjustments, net of tax 0.05 0.03 0.14 0.07 -------- -------- -------- -------- Pro forma income from continuing operations after tax $ 0.15 $ 0.08 $ 0.41 $ 0.29 ======== ======== ======== ======== Diluted GAAP income from continuing operations after tax $ 0.10 $ 0.05 $ 0.26 $ 0.22 Pro forma adjustments, net of tax 0.05 0.03 0.14 0.06 -------- -------- -------- -------- Pro forma income from continuing operations after tax $ 0.15 $ 0.08 $ 0.40 $ 0.28 ======== ======== ======== ======== Weighted average number of shares outstanding - Basic 75,133 74,714 74,922 74,595 ======== ======== ======== ======== - Diluted 77,230 75,842 76,306 76,047 ======== ======== ======== ======== AEROFLEX INCORPORATED AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except per share data) March 31, 2006 June 30, 2005 -------------- ------------- ASSETS ------ Current assets: Cash and cash equivalents $ 15,636 $ 12,974 Marketable securities 18,588 - Accounts receivable, less allowance for doubtful accounts 103,796 101,317 Inventories 129,594 118,906 Deferred income taxes 20,255 18,499 Prepaid expenses and other current assets 11,018 11,107 ----------- ----------- Total current assets 298,887 262,803 Property, plant and equipment, net 75,387 78,195 Other assets 13,807 13,537 Intangible assets with definite lives, net 55,882 67,266 Goodwill 164,277 168,048 ----------- ----------- Total assets $ 608,240 $ 589,849 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current liabilities: Current portion of long-term debt $ 618 $ 634 Accounts payable 29,023 35,907 Advance payments by customers 22,943 15,183 Income taxes payable 1,697 3,657 Accrued payroll expenses 17,536 15,222 Accrued expenses and other current liabilities 29,638 30,451 ----------- ----------- Total current liabilities 101,455 101,054 Long-term debt 3,923 4,190 Deferred income taxes 13,711 17,146 Other long-term liabilities 20,236 23,479 ----------- ----------- Total liabilities 139,325 145,869 ----------- ----------- 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 75,159 and 74,618 shares 7,516 7,462 Additional paid-in capital 381,987 372,666 Accumulated other comprehensive income 4,517 9,020 Retained earnings 74,895 54,846 ----------- ----------- 468,915 443,994 Less: Treasury stock, at cost (4 shares) - 14 ----------- ----------- Total stockholders' equity 468,915 443,980 ----------- ----------- Total liabilities and stockholders' equity $ 608,240 $ 589,849 =========== =========== *T