Aeroflex Announces Fourth Quarter And Full Year Fiscal 2011 Results

Aeroflex Holding Corp. ("Aeroflex") (NYSE: ARX), a leading global provider of microelectronic components and test and measurement equipment, today announced its financial results for the fourth quarter and full year of fiscal 2011.

Net sales increased 4.7% from the fourth quarter of fiscal 2010 to a new quarterly record of $198.7 million. Sales from the AMS segment were strong, offsetting the weakness in the ATS business from products that did not ship. Non-GAAP operating income increased 11.2% from the fourth quarter of fiscal 2010 to $53.2 million, also a new quarterly record. Adjusted EBITDA also reached a new quarterly record of $57.9 million, a 10.5% increase from the fourth quarter of fiscal 2010.

Net sales, Non-GAAP operating income and Adjusted EBITDA also reached full fiscal year records as sales increased 11.4% to $729.4 million, Non-GAAP operating income increased 11.9% to $164.8 million and Adjusted EBITDA increased 10.6% to $183.7 million.

“Our annual performance was exceptional despite the disappointment with our ATS business in the fourth quarter,” said Len Borow, Chief Executive Officer. “We achieved double digit growth in sales, Non-GAAP operating income and Adjusted EBITDA in fiscal 2011. Fourth quarter gross margins were extremely strong and contributed to a 120 basis point improvement to 53.9% for the full year of fiscal 2011. This quarter, in a key growth market, we received the first significant order from a major global manufacturer of wireless infrastructure equipment for next generation LTE(A) products. This order demonstrates our ability to continue to innovate and develop key products that are essential for us to continue our market leadership into LTE(A). As we prepare to enter a challenging year due to the uncertainty in the U.S. Government budget and the world economy, we have rededicated ourselves to maintaining market leadership positions, building upon our product portfolio and strengthening our partnerships with customers.”

The following tables present selected financial information for the three and twelve months ended June 30, 2011 and 2010 prepared in accordance with generally accepted accounting principles (“GAAP”) and on a basis other than GAAP (“Non-GAAP”). The full fiscal year 2011 Non-GAAP effective tax rate based on Aeroflex’s geographic mix of Non-GAAP pre-tax income is 31%. This rate was applied to Aeroflex’s Non-GAAP pre-tax income for the three and twelve month periods ended June 30, 2011 and 2010. A reconciliation between GAAP and Non-GAAP amounts is presented at the end of this press release.

       
Selected GAAP Results
(In thousands, except per share data)
Three Months         Year
Ended June 30, Ended June 30,
2011         2010 2011         2010
Net sales $ 198,685 $ 189,758 $ 729,414 $ 655,048
 
Gross profit 111,076 100,954 392,100 342,985
Gross margin 55.9 % 53.2 % 53.8 % 52.4 %
 
Operating income 30,031 28,796 52,715 67,974
 
Net income (loss) $ (21,575 ) $ 16,032 $ (34,668 ) $ (12,269 )
 
Net income (loss) per common share - basic $ (0.25 ) $ 0.25   $ (0.45 ) $ (0.19 )
 
Weighted average number of common shares
outstanding - basic 84,789 65,000 77,153 65,000
 
 
Selected Non-GAAP Results
(In thousands, except per share data)
Three Months Year
Ended June 30, Ended June 30,
2011 2010 2011 2010
Net sales $ 198,773 $ 189,788 $ 729,571 $ 655,173
 
Gross profit 111,154 101,555 393,366 345,020
Gross margin 55.9 % 53.5 % 53.9 % 52.7 %
 
Operating income 53,205 47,857 164,844 147,323
 
Net income $ 29,900 $ 19,461 $ 71,283 $ 47,444
 
Net income per common share - basic $ 0.35   $ 0.30   $ 0.92   $ 0.73  
 
Weighted average number of common shares
outstanding - basic 84,789 65,000 77,153 65,000
 
Adjusted EBITDA $ 57,860   $ 52,351   $ 183,698   $ 166,130  
 

Business Outlook

For the full fiscal year ending June 30, 2012, Aeroflex expects net sales to be between $790 million and $830 million, Adjusted EBITDA to be between $187 million and $203 million, and Non-GAAP net income per share to be between $1.09 and $1.22. For the fiscal first quarter ending September 30, 2011, Aeroflex expects net sales to be between $160 million and $165 million, Adjusted EBITDA to be between $24 million and $27 million, and Non-GAAP net income per share to be between $0.09 and $0.11. The range of expected Non-GAAP net income per share was calculated using a Non-GAAP effective tax rate of 31%.

Non-GAAP Presentation

This press release contains Non-GAAP financial measures that are not in accordance with, or an alternative for, measures prepared in accordance with generally accepted accounting principles and may be different from Non-GAAP measures used by other companies. In addition, these Non-GAAP measures: (i) are not based on any comprehensive set of accounting rules or principles; and (ii) have limitations in that they do not reflect all of the amounts associated with Aeroflex's results of operations as determined in accordance with GAAP. As such, these measures should only be used to evaluate Aeroflex's results of operations in conjunction with the corresponding GAAP measures.

Aeroflex believes that the presentation of Non-GAAP financial measures, when shown in conjunction with the corresponding GAAP measures, provides useful supplemental information to investors and management regarding financial and business trends relating to its financial condition and results of operations because they exclude certain non-cash charges or items that management does not believe are reflective of its ongoing operating results when assessing the performance of its business.

Aeroflex believes that these Non-GAAP financial measures also facilitate the comparison by management and investors of results between periods and among its peer companies. However, its peer companies may calculate similar Non-GAAP financial measures differently than Aeroflex, limiting the information’s usefulness as comparative measures.

Webcast and Conference Call Information

Aeroflex will host a live webcast and conference call at 8:15 a.m. eastern standard time on Thursday, August 18 th during which management will discuss the financial results. To participate in the live webcast, please visit the events page of the website located at http://ir.aeroflex.com. Please plan to join five to ten minutes before the start of the webcast to facilitate a timely connection. If you are unable to participate and would like to hear a replay of the call, an audio replay of the webcast will be available on the Aeroflex website for approximately 90 days or can be accessed telephonically for domestic callers at (888) 286-8010 or internationally at (617) 801-6888 with pass code 65308436.

About Aeroflex

Aeroflex Holding Corp. is a leading global provider of microelectronic components and test and measurement equipment used by companies in the space, avionics, defense, commercial wireless communications, medical and other markets.

Forward-looking Statements

All statements other than statements of historical fact included in this press release regarding Aeroflex’s 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, adverse developments in the global economy; changes in government spending; dependence on growth in customers’ businesses; the ability to remain competitive in the markets Aeroflex serves; the inability to continue to develop, manufacture and market innovative, customized products and services that meet customer requirements for performance and reliability; any failure of suppliers to provide raw materials and/or properly functioning component parts; the termination of key contracts, including technology license agreements, or loss of key customers; the inability to protect intellectual property; the failure to comply with regulations such as International Traffic in Arms Regulations and any changes in regulations; the failure to realize anticipated benefits from completed acquisitions, divestitures or restructurings, or the possibility that such acquisitions, divestitures or restructurings could adversely affect Aeroflex; the loss of key employees; exposure to foreign currency exchange rate risks; and terrorist acts or acts of war. Such statements reflect the current views of management with respect to the future and are subject to these and other risks, uncertainties and assumptions. Aeroflex does not undertake any obligation to update such forward-looking statements. Any projections in this release are based on limited information currently available to Aeroflex, which is subject to change. Although any such projections and the factors influencing them will likely change, Aeroflex will not necessarily update the information, since Aeroflex will only provide guidance at certain points during the year.
 
Aeroflex Holding Corp. and Subsidiaries
 
Consolidated Balance Sheets
 
(In thousands, except share and per share data )
 
 
June 30,

Assets
2011 2010
Current assets:
Cash and cash equivalents $ 66,278 $ 100,663
Accounts receivable, less allowance for doubtful
accounts of $1,210 and $1,821 168,141 141,595
Inventories 186,370 126,568
Deferred income taxes 51,855 28,018
Prepaid expenses and other current assets   10,044     10,983  
Total current assets 482,688 407,827
 
Property, plant and equipment, net of accumulated
depreciation of $82,581 and $60,755 105,162 101,662
Non-current marketable securities, net - 9,769
Deferred financing costs, net 15,289 20,983
Other assets 29,000 21,818
Intangible assets with definite lives, net 183,614 238,313
Intangible assets with indefinite lives 114,730 109,894
Goodwill   465,443     445,874  
 
Total assets $ 1,395,926   $ 1,356,140  
 

Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt $ 7,635 $ 21,817
Accounts payable 48,737 28,803
Advance payments by customers and deferred revenue 25,859 30,741
Income taxes payable 8,371 4,615
Accrued payroll expenses 22,063 23,082
Accrued expenses and other current liabilities   45,772     58,817  
Total current liabilities 158,437 167,875
 
Long-term debt 717,750 880,030
Deferred income taxes 117,150 138,849
Defined benefit plan obligations 5,539 5,763
Other long-term liabilities   13,526     12,639  
Total liabilities   1,012,402     1,205,156  
 
Stockholders' equity:
Preferred stock, par value $.01 per share; 50,000,000 shares
authorized, no shares issued and outstanding - -
Common stock, par value $.01 per share; 300,000,000 shares
authorized; 84,789,180 and 65,000,000 shares issued
and outstanding 848 650
Additional paid-in capital 644,262 398,291
Accumulated other comprehensive income (loss) (32,536 ) (53,575 )
Accumulated deficit   (229,050 )   (194,382 )
Total stockholders' equity   383,524     150,984  
 
Total liabilities and stockholders' equity $ 1,395,926   $ 1,356,140  
 
Aeroflex Holding Corp. and Subsidiaries
                 
Consolidated Statements of Operations
 
(In thousands, except per share data)
 
 
 
Three Months Ended June 30,
 
2011 2010
 
 
Net sales $ 198,685 $ 189,758
Cost of sales   87,609     88,804  
Gross profit   111,076     100,954  
 
 
Selling, general and administrative costs 39,475 35,872
Research and development costs 21,611 20,869
Amortization of acquired intangibles 15,966 15,388
Restructuring charges   3,993     29  
  81,045     72,158  
Operating income   30,031     28,796  
 
Other income (expense):
Interest expense (10,401 ) (20,676 )
Loss on extinguishment of debt and write-off of deferred
financing costs (34,217 ) -
Gain from a bargain purchase of a business - 3,993
Other income (expense), net   (249 )   (169 )
Total other income (expense)   (44,867 )   (16,852 )
 
Income (loss) before income taxes (14,836 ) 11,944
Provision (benefit) for income taxes   6,739     (4,088 )
 
Net income (loss) $ (21,575 ) $ 16,032  
 
 
Net income (loss) per common share - basic $ (0.25 ) $ 0.25  
 
Weighted average number of common shares
outstanding - basic   84,789     65,000  
 
         
Aeroflex Holding Corp. and Subsidiaries
 
Consolidated Statements of Operations
 
(In thousands, except per share data)
 
 
 
Years Ended June 30,
 
2011 2010
 
 
Net sales $ 729,414 $ 655,048
Cost of sales   337,314     312,063  
Gross profit   392,100     342,985  
 
 
Selling, general and administrative costs 152,709 128,860
Research and development costs 90,088 76,155
Amortization of acquired intangibles 63,672 61,915
Termination of Sponsor Advisory Agreement 18,133 -
Restructuring charges 14,783 385
Loss on liquidation of foreign subsidiary   -     7,696  
  339,385     275,011  
Operating income   52,715     67,974  
 
Other income (expense):
Interest expense (66,204 ) (83,948 )
Loss on extinguishment of debt and write-off of deferred
financing costs (59,395 ) -
Gain from a bargain purchase of a business 173 3,993
Other income (expense), net   (775 )   532  
Total other income (expense)   (126,201 )   (79,423 )
 
Income (loss) before income taxes (73,486 ) (11,449 )
Provision (benefit) for income taxes   (38,818 )   820  
 
Net income (loss) $ (34,668 ) $ (12,269 )
 
 
Net income (loss) per common share - basic $ (0.45 ) $ (0.19 )
 
Weighted average number of common shares
outstanding - basic   77,153     65,000  
 
Aeroflex Holding Corp. and Subsidiaries
           
Consolidated Statements of Cash Flows
 
(In thousands)
Years Ended June 30,
 
2011 2010
Cash flows from operating activities:
Net income (loss) $ (34,668 ) $ (12,269 )
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities:
Depreciation and amortization 83,459 82,696
Gain from a bargain purchase of a business (173 ) (3,993 )
Acquisition related adjustment to cost of sales 998 575
Acquisition related adjustment to sales 157 125
Loss on liquidation of foreign subsidiary - 7,696
Loss on extinguishment of debt and write-off of deferred
financing costs 59,395 -
Deferred income taxes (53,626 ) (4,607 )
Share-based compensation 2,254 2,076
Non - cash restructuring charges 4,860 -
Amortization of deferred financing costs 4,755 4,771
Paid in kind interest 2,434 18,089
Other, net 1,103 670
Change in operating assets and liabilities,
net of effects from purchases of businesses:
Decrease (increase) in accounts receivable (20,577 ) (11,898 )
Decrease (increase) in inventories (54,993 ) 8,432
Decrease (increase) in prepaid expenses
and other assets (5,519 ) (4,927 )
Increase (decrease) in accounts payable, accrued
expenses and other liabilities   4,683     (5,385 )
 
Net cash provided by (used in) operating activities   (5,458 )   82,051  
 
Cash flows from investing activities:
Payments for purchase of businesses, net of cash acquired (23,717 ) (19,813 )
Capital expenditures (25,957 ) (21,015 )
Proceeds from sale of marketable securities 10,357 8,580
Proceeds from the sale of property, plant and equipment 995 1,485
Other, net   -     (385 )
 
Net cash provided by (used in) investing activities   (38,322 )   (31,148 )
 
Cash flows from financing activities:
Credit facility borrowings 725,000 -
Net proceeds from issuance of common stock 243,995 -
Repurchase of senior unsecured notes and senior
subordinated unsecured term loans, including
premiums and fees (432,526 ) -
Debt repayments (510,923 ) (5,590 )
Deferred financing costs   (18,903 )   -  
 
Net cash provided by (used in) financing activities   6,643     (5,590 )
Effect of exchange rate changes on cash
and cash equivalents   2,752     (2,398 )
 
Net increase (decrease) in cash and cash equivalents (34,385 ) 42,915
Cash and cash equivalents at beginning of year   100,663     57,748  
Cash and cash equivalents at end of year $ 66,278   $ 100,663  
 
          Reconciliation of GAAP Operating Income
to Non-GAAP Operating Income
(In thousands)
Three Months         Year
Ended June 30, Ended June 30,
2011         2010 2011         2010
Operating income - GAAP $ 30,031 $ 28,796 $ 52,715 $ 67,974
Amortization of acquired intangibles 15,966 15,388 63,672 61,915
Impact of purchase accounting adjustments 157 772 1,645 3,059
Financial sponsor fees - 747 1,222 2,858
Restructuring costs and related pro forma savings (a) 5,253 29 21,085 385
Share-based compensation 599 513 2,254 2,076
Termination of sponsor advisory agreement - - 18,133 -
Non-cash loss on liquidation of foreign subsidiary - - - 7,696
Other adjustments 1,199 1,612 4,118 1,360
                       
Operating income - Non-GAAP $ 53,205   $ 47,857   $ 164,844   $ 147,323  
 
 
Reconciliation of GAAP Net Income (Loss)
to Non-GAAP Net Income (Loss)
(In thousands)
Three Months Year
Ended June 30, Ended June 30,
2011 2010 2011 2010
 
Net income (loss) - GAAP $ (21,575 ) $ 16,032 $ (34,668 ) $ (12,269 )
Amortization of acquired intangibles 15,966 15,388 63,672 61,915
Impact of purchase accounting adjustments 157 772 1,645 3,059
Financial sponsor fees - 747 1,222 2,858
Restructuring costs and related pro forma savings (a) 5,253 29 21,085 385
Share-based compensation 599 513 2,254 2,076
Termination of sponsor advisory agreement - - 18,133 -
Loss on extinguishment of debt and write-off of deferred
financing costs 34,217 - 59,395 -
Amortization of deferred financing costs 779 1,192 4,755 4,771
Non-cash loss on liquidation of foreign subsidiary - - - 7,696
Gain from a bargain purchase of a business(b) - (3,993 ) (173 ) (3,993 )
Other adjustments 1,199 1,612 4,806 1,440
Tax impact of adjustments   (6,695 )   (12,831 )   (70,843 )   (20,494 )
Net income - Non-GAAP $ 29,900   $ 19,461   $ 71,283   $ 47,444  
 
          Reconciliation of Net Income (Loss) to Adjusted EBITDA
(In thousands)
Three Months         Year
Ended June 30, Ended June 30,
2011         2010 2011         2010
 
Net income (loss) - GAAP $ (21,575 ) $ 16,032 $ (34,668 ) $ (12,269 )
Interest expense 10,401 20,676 66,204 83,948
Provision (benefit) for income taxes 6,739 (4,088 ) (38,818 ) 820
Depreciation and amortization   21,033     20,518     83,459     82,696  
EBITDA 16,598 53,138 76,177 155,195
 
Non-cash purchase accounting adjustments 88 358 1,155 700
Financial sponser fees - 747 1,222 2,858
Restructuring costs and related pro forma savings (a) 5,253 29 21,085 385
Share-based compensation 599 513 2,254 2,076
Termination of sponsor advisory agreement - - 18,133 -
Loss on extinguishment of debt and write-off of deferred
financing costs 34,217 - 59,395 -
Non-cash loss on liquidation of foreign subsidiary - - - 7,696
Gain from a bargain purchase of a business (b) - (3,993 ) (173 ) (3,993 )

Other defined items (c)
  1,105     1,559     4,450     1,213  
Adjusted EBITDA $ 57,860   $ 52,351   $ 183,698   $ 166,130  
 
(a)   Primarily reflects costs associated with the reorganization of our European operations and consolidation of certain of our U.S. component facilities. Pro forma savings reflect the amount of costs that we estimate would have been eliminated during the fiscal year in which a restructuring occurred had the restructuring occurred as of the first day of that fiscal year. Pro forma savings were estimated to be $6.3 million for the year ended June 30, 2011, $1.3 million of which is applicable to the three months ended June 30, 2011, $1.7 million applicable to the three months ended March 31, 2011, $1.9 million applicable to the three months ended December 31, 2010 and $1.4 million applicable to the three months ended September 30, 2010.
 
(b) The gain from a bargain purchase of Willtek Communications reflects the excess of the fair value of net assets acquired over the purchase price. The purchase price was negotiated at such a level to be reflective of the cost of the restructuring efforts that we expected to incur at that time.
 
(c) Reflects other adjustments required in calculating our debt covenant compliance. These other defined items include pro forma EBITDA for periods prior to the acquisition dates for companies acquired during our fiscal year, increase in fair value of acquisition contingent consideration liability and business acquisition expenses.

Copyright Business Wire 2010

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