Aeroflex Reports Record Second Quarter Sales GAAP and Pro Forma Net Income Increased 18% and 12% from Prior Year

06/02/2007 - 10:48

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

-0-
*T
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%
========= ======= ==========
*T

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:

-0-
*T
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
========== ==========
*T

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.

-0-
*T
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%
======= ======= =========
*T

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:

-0-
*T
2006 2005
------ ------

Acquisition-related items:
Amortization of intangibles $0.05 $0.06
Purchase adjustments to inventory - 0.01
Share based compensation 0.02 0.03
Restructuring charges - -
------ ------
Total EPS impact $0.07 $0.10
====== ======
*T

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.

-0-
*T
AEROFLEX INCORPORATED
AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)

December June 30,
31, 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
==================
*T

-0-
*T
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 (GAAP) (Pro
forma) 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
========= ========= ========= =========
*T

For the Six Months Ended
---------------------------------------
12/31/06 12/31/06 12/31/05 12/31/05
--------- --------- --------- ---------
(GAAP) (Pro (GAAP) (Pro
forma) 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
========= ========= ========= =========
*T

-0-
*T
AEROFLEX INCORPORATED
AND SUBSIDIARIES
RECONCILIATION OF REPORTED GAAP RESULTS TO PRO FORMA
----------------------------------------------------------------------
NET INCOME (Unaudited)
----------------------------------------------------------------------
(In thousands, except per share data)

For the Quarter For the Six Months
Ended 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
========= ========= ========= =========
*T