Aeroflex Announces Fourth Quarter And Full Year Fiscal 2012 Results

Aeroflex Holding Corp. ("Aeroflex") (NYSE: ARX), a leading global provider of high performance microelectronic components, and test and measurement equipment, today announced its financial results for the fourth quarter and full fiscal year 2012, which ended June 30, 2012.

For the fourth quarter of fiscal 2012:
  • Net sales were $184.7 million compared to $198.7 million in the fourth quarter of fiscal 2011. As in prior quarters during this fiscal year, the performance of our wireless test business was the primary contributor to the decline in sales in the comparative quarters.
  • Operating income was $31.0 million and net income was $17.2 million, or $0.20 per share, compared to operating income of $30.0 million and a net loss of $(21.6) million, or $(0.25) per share, in the fourth quarter of fiscal 2011. The fourth quarter of fiscal 2011 contained a $34.2 million loss on extinguishment of debt and related costs due to the refinancing of Aeroflex’s term loan.
  • On a Non-GAAP basis, operating income was $39.0 million, net income was $19.2 million, or $0.23 per share, and Adjusted EBITDA was $43.6 million compared to operating income of $53.2 million, net income of $29.9 million, or $0.35 per share, and Adjusted EBITDA of $57.9 million, in the fourth quarter of fiscal 2011.

For the full fiscal year 2012:
  • Net sales were $673.0 million compared to $729.4 million in fiscal 2011.
  • Operating loss was $(21.3) million compared to operating income of $52.7 million in fiscal 2011. The primary reason for the difference is due to a goodwill impairment charge of $56.7 million in fiscal 2012. Net loss was $(53.6) million, or $(0.63) per share, compared to a net loss of $(34.7) million, or $(0.45) per share, in fiscal 2011.
  • On a Non-GAAP basis, operating income was $112.7 million, net income was $48.8 million or $0.58 per share, and Adjusted EBITDA was $131.5 million compared to operating income of $164.8 million, net income of $71.3 million, or $0.92 per share, and Adjusted EBITDA of $183.7 million, in fiscal 2011.

”Over the last few months we have been working to reposition our wireless test business for the future. We have made significant operational changes that will reduce costs and enable the business to improve profitability. We have continued to focus on our customers, technology and products,” said Len Borow, Chief Executive Officer of Aeroflex. “Our AMS business has performed well despite the strong economic uncertainty that exists within our end markets. Overall, our business model continues to deliver strong cash flow which enabled us to prepay over $80 million in debt this past fiscal year and an additional $20 million to date in the first quarter of fiscal 2013.”

The following tables present selected financial information for the three months and year ended June 30, 2012 and 2011 prepared in accordance with generally accepted accounting principles (“GAAP”) and on a basis other than GAAP (“Non-GAAP”). The GAAP and Non-GAAP effective tax rates for the year ended June 30, 2012 were 8% and 38%, respectively. The GAAP and Non-GAAP effective tax rates for the year ended June 30, 2011 were 53% and 31%, respectively. The GAAP and Non-GAAP tax rates are a result of Aeroflex’s geographic mix of pre-tax income. A reconciliation between GAAP and Non-GAAP amounts is presented at the end of this press release.

 

Selected GAAP Results

(In thousands, except percentages and per share data)
        Three Months Ended       Year Ended
June 30, June 30,
2012       2011 2012       2011
 
Net sales $ 184,731 $ 198,685 $ 673,015 $ 729,414
 
Gross profit 95,503 111,076 338,886 392,100
Gross margin 51.7 % 55.9 % 50.4 % 53.8 %
 
Operating income (loss) 30,963 30,031 (21,316 ) 52,715
 
Net income (loss) $ 17,201   $ (21,575 ) $ (53,637 ) $ (34,668 )
 
Net income (loss) per common share:
Basic $ 0.20   $ (0.25 ) $ (0.63 ) $ (0.45 )
Diluted $ 0.20   $ (0.25 ) $ (0.63 ) $ (0.45 )
 
Weighted average number of common shares outstanding:
Basic   84,828     84,789     84,811     77,153  
Diluted   84,872     84,789     84,811     77,153  
 
 

Selected Non-GAAP Results

(In thousands, except percentages and per share data)
 
        Three Months Ended       Year Ended
June 30, June 30,
2012       2011 2012       2011
Net sales $ 184,731 $ 198,773 $ 673,015 $ 729,571
 
Gross profit 95,718 111,154 339,212 393,366

Gross margin
51.8 % 55.9 % 50.4 % 53.9 %
 
Operating income 38,993 53,205 112,679 164,844
 
Net income $ 19,218   $ 29,900   $ 48,806   $ 71,283  
 
Net income per common share:
Basic $ 0.23   $ 0.35   $ 0.58   $ 0.92  
Diluted $ 0.23   $ 0.35   $ 0.58   $ 0.92  
 
Weighted average number of common shares outstanding:
Basic   84,828     84,789     84,811     77,153  
Diluted   84,872     84,789     84,846     77,153  
 
Adjusted EBITDA $ 43,571   $ 57,860   $ 131,482   $ 183,698  
 

Business Outlook

Mr. Borow continued, “We expect our performance to improve in fiscal 2013 and are planning to deliver better financial results.” For the first fiscal quarter ending September 30, 2012, Aeroflex expects net sales to be between $134 million and $142 million, GAAP net loss to be between $(15) million and $(13) million, Adjusted EBITDA to be between $15 million and $18 million, GAAP net (loss) per share to be between $(0.18) and $(0.15) and Non-GAAP net income per share to be between $0.00 and $0.02.

The range of expected GAAP and Non-GAAP net income per share for the fiscal first quarter was calculated using GAAP and Non-GAAP effective tax rates of 20% and 34%, respectively.

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 16 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 or can be accessed telephonically for domestic callers at (888) 286-8010 or internationally at (617) 801-6888 with pass code 83778348.

About Aeroflex

Aeroflex Holding Corp. is a leading global provider of high performance 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, financial results 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 inability to meet covenants contained in debt agreements; 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 Statements of Operations

(In thousands, except per share data)
 
        Three Months Ended June 30,
2012      

2011
 
Net sales $ 184,731 $ 198,685
Cost of sales   89,228     87,609  
Gross profit   95,503     111,076  
 
Operating expenses:
Selling, general and administrative costs 38,518 38,834
Research and development costs 20,822 21,611
Amortization of acquired intangibles 15,653 15,966
Restructuring charges 1,397 3,993
Adjustment to impairment of goodwill and other long-lived assets (3,000 ) -
Change in fair value of acquisition contingent
consideration liability   (8,850 )   641  
Total operating expenses   64,540     81,045  
Operating income   30,963     30,031  
 
Other income (expense):
Interest expense (8,851 ) (10,401 )
Loss on extinguishment of debt and write-off of deferred financing costs (368 ) (34,217 )
Other income (expense), net   (801 )   (249 )
Total other income (expense), net   (10,020 )   (44,867 )
 
Income (loss) before income taxes 20,943 (14,836 )
Provision for income taxes   3,742     6,739  
Net income (loss) $ 17,201   $ (21,575 )
 
Net income (loss) per common share:
Basic $ 0.20   $ (0.25 )
Diluted $ 0.20   $ (0.25 )
 
Weighted average number of common shares outstanding:
Basic   84,828     84,789  
Diluted   84,872     84,789  
 
 

Aeroflex Holding Corp. and Subsidiaries

Consolidated Statements of Operations

(In thousands, except per share data)
 
        Year Ended June 30,
2012       2011
 
Net sales $ 673,015 $ 729,414
Cost of sales   334,129     337,314  
Gross profit   338,886     392,100  
 
Operating expenses:
Selling, general and administrative costs 151,818 150,875
Research and development costs 89,762 90,088
Amortization of acquired intangibles 62,696 63,672
Termination of Sponsor Advisory Agreement - 18,133
Restructuring charges 6,779 14,783
Impairment of goodwill and other long-lived assets 56,700 -
Change in fair value of acquisition contingent consideration liability   (7,553 )   1,834  
Total operating expenses   360,202     339,385  
Operating income (loss)   (21,316 )   52,715  
 
Other income (expense):
Interest expense (34,237 ) (66,204 )
Loss on extinguishment of debt and write-off of deferred financing costs (1,232 ) (59,395 )
Gain from a bargain purchase of a business - 173
Other income (expense), net   (1,745 )   (775 )
Total other income (expense), net   (37,214 )   (126,201 )
 
Income (loss) before income taxes (58,530 ) (73,486 )
Provision (benefit) for income taxes   (4,893 )   (38,818 )
Net income (loss) $ (53,637 ) $ (34,668 )
 
Net income (loss) per common share:
Basic $ (0.63 ) $ (0.45 )
Diluted $ (0.63 ) $ (0.45 )
 
Weighted average number of common shares outstanding:
Basic   84,811     77,153  
Diluted   84,811     77,153  
 
 

Selected Segment Data

( In thousands except percentages)
        Three Months Ended       Year Ended
June 30, June 30,
2012       2011 2012       2011
Net sales:
Microelectronic solutions ("AMS") $ 109,060 $ 105,649 $ 366,745 $ 370,035
Test solutions ("ATS")   75,671     93,036     306,270     359,379  
Total net sales $ 184,731   $ 198,685   $ 673,015   $ 729,414  
 
Gross profit:
- AMS $ 59,078 $ 57,108 $ 188,743 $ 192,494
- ATS   36,425     53,968     150,143     199,606  
Total gross profit $ 95,503   $ 111,076   $ 338,886   $ 392,100  
 
Gross Margin:
- AMS 54.2 % 54.1 % 51.5 % 52.0 %
- ATS 48.1 % 58.0 % 49.0 % 55.5 %
Total gross margin 51.7 % 55.9 % 50.4 % 53.8 %
 
 

Aeroflex Holding Corp. and Subsidiaries

Consolidated Balance Sheets

(In thousands, except share and per share data)
 
        June 30,       June 30,
2012 2011

Assets
Current assets:
Cash and cash equivalents $ 41,324 $ 66,278
Accounts receivable, less allowance for doubtful accounts of
$981 and $1,210 146,597 168,141
Inventories 158,090 186,370
Deferred income taxes 33,315 51,855
Income taxes receivable 4,935 -
Prepaid expenses and other current assets   11,942     10,044  
Total current assets 396,203 482,688
 
Property, plant and equipment, net of accumulated depreciation of
$102,310 and $82,581 101,632 105,162
Deferred financing costs, net 15,720 15,289
Other assets 34,955 29,000
Intangible assets with definite lives, net 119,476 183,614
Intangible assets with indefinite lives 113,461 114,730
Goodwill   408,361     465,443  
 
Total assets $ 1,189,808   $ 1,395,926  
 

Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt $ - $ 7,635
Accounts payable 26,822 48,737
Advance payments by customers and deferred revenue 23,433 25,859
Income taxes payable 593 8,371
Accrued payroll expenses 18,635 22,063
Accrued expenses and other current liabilities   37,559     45,772  
Total current liabilities 107,042 158,437
 
Long-term debt 641,375 717,750
Deferred income taxes 94,022 117,150
Other long-term liabilities   20,592     19,065  
Total liabilities   863,031     1,012,402  
 
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;
84,845,687 and 84,789,180 shares issued and outstanding 848 848
Additional paid-in capital 648,092 644,262
Accumulated other comprehensive income (loss) (39,476 ) (32,536 )
Accumulated deficit   (282,687 )   (229,050 )
Total stockholders' equity   326,777     383,524  
 
Total liabilities and stockholders' equity $ 1,189,808   $ 1,395,926  
 
 

Aeroflex Holding Corp. and Subsidiaries

Consolidated Statements of Cash Flows

(In thousands)
 
        Year Ended June 30,
2012       2011
Cash flows from operating activities:
Net income (loss) $ (53,637 ) $ (34,668 )
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization 84,298 83,459
Gain from a bargain purchase of a business - (173 )
Change in fair value of acquisition contingent consideration liability (7,553 ) 1,834
Acquisition related adjustment to cost of sales - 998
Acquisition related adjustment to sales - 157
Impairment of goodwill and other long-lived assets 56,700 -
Loss on extinguishment of debt and write-off of deferred financing costs 1,232 59,395
Deferred income taxes (3,724 ) (53,626 )
Share-based compensation 3,527 2,254
Non - cash restructuring charges 1,015 4,860
Amortization of deferred financing costs 2,023 4,755
Paid in kind interest - 2,434
Other, net 613 1,103
Change in operating assets and liabilities, net of effects from purchases of businesses:
Decrease (increase) in accounts receivable 19,884 (20,577 )
Decrease (increase) in inventories 25,494 (54,993 )
Decrease (increase) in prepaid expenses and other assets (6,359 ) (5,519 )
Increase (decrease) in accounts payable, accrued expenses and other liabilities   (33,066 )   2,849  
 
Net cash provided by (used in) operating activities   90,447     (5,458 )
 
Cash flows from investing activities:
Payments for purchase of businesses, net of cash acquired (5,106 ) (23,717 )
Capital expenditures (21,773 ) (25,957 )
Proceeds from sale of marketable securities - 10,357
Proceeds from the sale of property, plant and equipment   420     995  
 
Net cash provided by (used in) investing activities   (26,459 )   (38,322 )
 
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 )
Payment of contingent consideration related to business acquisition (948 ) -
Debt repayments (84,010 ) (510,923 )
Deferred financing costs (3,685 ) (18,903 )
Other, net   (37 )   -  
 
Net cash provided by (used in) financing activities   (88,680 )   6,643  
 
Effect of exchange rate changes on cash and cash equivalents   (262 )   2,752  
 
Net increase (decrease) in cash and cash equivalents (24,954 ) (34,385 )
Cash and cash equivalents at beginning of year   66,278     100,663  
 
Cash and cash equivalents at end of year $ 41,324   $ 66,278  
 
 

Aeroflex Holding Corp. and Subsidiaries

Reconciliation of GAAP Operating Income (Loss) to Non-GAAP Operating Income

(In thousands)
 
        Three Months Ended       Year Ended
June 30, June 30,
2012       2011 2012       2011
Operating income (loss) -GAAP $ 30,963 $ 30,031 $ (21,316 ) $ 52,715
Amortization of acquired intangibles 15,653 15,966 62,696 63,672
Impact of purchase accounting adjustments 71 157 282 1,645
Change in fair value of acquisition contingent
consideration liability (8,850 ) 641 (7,553 ) 1,834
Merger related expenses - - - 1,222
Restructuring costs and related pro forma savings (a) 2,832 5,253 14,783 21,085
Share-based compensation 878 599 3,527 2,254
Termination of Sponsor Advisory Agreement - - - 18,133
Impairment of goodwill and other long-lived assets (3,000 ) - 56,700 -
Other adjustments   446     558   3,560     2,284
Operating income - non-GAAP $ 38,993   $ 53,205 $ 112,679   $ 164,844
 
 

Reconciliation of GAAP Net Income (Loss) to Non-GAAP Net Income

(In thousands)
        Three Months Ended       Year Ended
June 30, June 30,
2012       2011 2012       2011
Net income (loss) -GAAP $ 17,201 $ (21,575 ) $ (53,637 ) $ (34,668 )
Amortization of acquired intangibles 15,653 15,966 62,696 63,672
Impact of purchase accounting adjustments 71 157 282 1,645
Change in fair value of acquisition contingent
consideration liability (8,850 ) 641 (7,553 ) 1,834
Merger related expenses - - - 1,222
Restructuring costs and related pro forma savings (a) 2,832 5,253 14,783 21,085
Share-based compensation 878 599 3,527 2,254
Termination of Sponsor Advisory Agreement - - - 18,133
Impairment of goodwill and other long-lived assets (3,000 ) - 56,700 -
Loss on extinguishment of debt and write-off of deferred
financing costs 368 34,217 1,232 59,395
Gain from a bargain purchase of a business - - - (173 )
Amortization of deferred financing costs 508 779 2,023 4,755
Other adjustments 446 558 3,560 2,972
Tax impact of adjustments   (6,889 )   (6,695 )   (34,807 )   (70,843 )
Net income -non-GAAP $ 19,218   $ 29,900   $ 48,806   $ 71,283  
 
 

Reconciliation of GAAP Net Income (Loss) to Adjusted EBITDA

(In thousands)
        Three Months Ended       Year Ended
June 30, June 30,
2012       2011 2012       2011
Net income (loss) -GAAP $ 17,201 $ (21,575 ) $ (53,637 ) $ (34,668 )
Interest expense 8,851 10,401 34,237 66,204
Provision (benefit) for income taxes 3,742 6,739 (4,893 ) (38,818 )
Depreciation and amortization   21,435     21,033     84,298     83,459  
EBITDA 51,229 16,598 60,005 76,177
 
Non-cash purchase accounting adjustments - 88 - 1,155
Change in fair value of acquisition contingent
consideration liability (8,850 ) 641 (7,553 ) 1,834
Merger related expenses - - - 1,222
Restructuring costs and related pro forma savings (a) 2,832 5,253 14,783 21,085
Share-based compensation 878 599 3,527 2,254
Termination of Sponsor Advisory Agreement - - - 18,133
Impairment of goodwill and other long-lived assets (3,000 ) - 56,700 -
Loss on extinguishment of debt and write-off of deferred
financing costs 368 34,217 1,232 59,395
Gain from a bargain purchase of a business - - - (173 )
Other defined items (b)   114     464     2,788     2,616  
Adjusted EBITDA $ 43,571   $ 57,860   $ 131,482   $ 183,698  
 
(a)   Primarily reflects costs associated with the reorganization of our European operations and consolidation of certain of our U.S. components facilities. Pro forma savings reflect the 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 $8.0 million for the year ended June 30, 2012, $1.4 million of which is applicable to the three months ended June 30, 2012, $1.9 million applicable to the three months ended March 31, 2012, $2.1 million applicable to the three months ended December 31, 2011 and $2.6 million applicable to the three months ended September 30, 2011. 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) Reflects other adjustments required in calculating our debt covenant compliance. These other defined items include legal fees related to litigation, business acquisition costs and pro forma EBITDA for periods prior to the acquisition dates for companies acquired during the respective fiscal year.

Copyright Business Wire 2010

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