Ceradyne, Inc. (Nasdaq: CRDN) reported financial results for the
fourth quarter and twelve months ended December 31, 2007. Sales for
fourth-quarter 2007 increased 7.1% or $12.7 million to $191.4
million from $178.7 million in fourth-quarter 2006. Net income for
fourth-quarter 2007 decreased by $2.5 million, or 6.7%, to $35.2
million, or $1.28 per fully diluted share, compared to $37.7
million, or $1.38 per fully diluted share, in the fourth quarter of
2006. Fully diluted average shares outstanding for the fourth
quarter were 27.6 million compared to 27.4 million in the same
period in 2006. Gross profit margin was 39.6% of net sales in the
fourth quarter of 2007 compared to 40.7% in the fourth quarter of
2006. The provision for income taxes was 33.7% in the fourth
quarter of 2007, compared to 33.3% in the fourth quarter of 2006.
Sales for the twelve months ended December 31, 2007 reached a
record $756.8 million, up from $662.9 million in the same period
last year. Net income for the year ended December 31, 2007
increased to a record $144.3 million, or $5.20 per fully diluted
share, on 27.7 million shares, from $128.4 million, or $4.69 per
fully diluted share, on 27.4 million shares, for the year ended
December 31, 2006. New bookings for the fourth quarter of 2007 were
$258.0 million, compared to $313.5 million for the same period last
year. For the twelve months ended December 31, 2007, new bookings
were $651.3 million, compared to $730.1 million in 2006. Total
backlog as of December 31, 2007 was $238.9 million, compared to
total backlog at December 31, 2006 of $344.3 million. Joel P.
Moskowitz, Ceradyne president and chief executive officer,
commented, �We are pleased that the fourth-quarter financial
performance resulted in Ceradyne meeting its 2007 guidance of $720
million to $740 million revenue with an earnings range of $5.20 to
$5.40 per fully diluted share, consistent with our October 30, 2007
comment that �we will meet our 2007 guidance with sales at the
upper range and earnings at the lower range.� �On October 30, 2007,
we also stated our initial 2008 guidance as follows: �In the past,
we have issued forward full-year guidance in the prior year once we
felt we had reasonable visibility. Due to the potential magnitude
of the BULL� combat vehicle, as well as the five-year XSAPI/ESAPI
proposal, neither of which has been awarded, we are providing the
following guidance with an unusually wide range. The lower range
reflects all of our current business units, as well as body armor
reduced somewhat from the current shipping level (even though
multi-year XSAPI/ESAPI orders will not be issued until early 2008),
but does not include any production of the BULL� combat vehicle.
The higher end of the range includes the lower end plus production
of the BULL� combat vehicle in the second half of 2008.� �During
our October 30, 2007 conference call, we stated that �our initial
2008 guidance is: Sales range from $780.0 million to $1.067
billion, and Earnings range from $5.60 to $6.65 per fully diluted
share.� �We now believe, based on recent discussions and events,
that the above 2008 guidance should be modified for the following
reasons. Early this month, Ceradyne submitted its proposal for a
five-year supply of both ESAPI (Enhanced Small Arms Protective
Inserts) and XSAPI. The total of the anticipated award is estimated
at $1.2 billion as an ID/IQ (Indefinite Delivery/Indefinite
Quantity) contract. We believe that this contract will be awarded
to multiple bidders in a similar pattern as the prior and current
SAPI and ESAPI contracts. Because of our past performance and
manufacturing capacity in our Lexington, Kentucky, and Costa Mesa,
California, facilities, we anticipate a favorable �win� percentage
of delivery orders, primarily XSAPI. However, due to the multiple
delays and extensions the government has granted, we believe that
shipments against this anticipated order will not begin until the
fourth quarter of 2008. �Based on the delivery schedule under our
current ESAPI contract, there will be a four-month �gap� between
completion of this contract and the expected commencement of XSAPI
shipments. Relying on non-binding discussions with the government,
we do not believe there will be extensions of the current order as
there were in Q3 and Q4 2007. Our intention, with the Army�s
concurrence, is to �stretch� out the current ESAPI contract through
Q3 2008 with the anticipation that a new contract for XSAPI will be
in place by Q4 2008. Although we anticipate additional ESAPI
sustainment orders, as well as other body armor orders, the net
result will be a reduction in 2008 body armor shipments of
approximately $80 million from the amount included in our initial
2008 guidance. �To rationalize our armor-related costs, we are
reducing our workforce by approximately 234 employees and reducing
certain other body armor variable costs. Over 50% of these
reductions will be temporary workers and the balance mostly hourly
workers hired in the past 12 months. We have also informed the Army
that we can return to our former level of production, if required,
within 60 days. �Due to projected offsetting 2008 increases in
solar ceramic crucibles and other non-defense business, the net
estimated reduction in our initial 2008 revenue guidance is $65
million. �After the award of the $18.1 million prototype BULL�
contract (MRAP II) to Ceradyne and its partners, Oshkosh Truck and
Ideal Innovations, Inc., on December 19, 2007, we and our partners
were able to obtain substantially better pricing on materials and
subcomponents which we have passed on to the government, making us
much more competitive, but resulting in lower potential revenue
from this program. This reduction in revenue is also reflected in
the revised 2008 guidance which follows: �Due to the potential
magnitude of the BULL� combat vehicle program, as well as the
five-year XSAPI/ESAPI proposal, neither of which has been awarded,
we are providing the following revised guidance with an unusually
wide range. The lower range reflects all of our current business
units (even though multi-year XSAPI/ESAPI orders will not be issued
before Q3 2008), but does not include any production orders for the
BULL� combat vehicle. The higher end of the range includes the
lower end plus production of the BULL� combat vehicle in the second
half of 2008. �Based on the foregoing factors, our revised 2008
guidance is: Sales range from $715 million to $836 million Earnings
range from $4.55 to $5.05 per fully diluted share.� Moskowitz
further commented: �We continue to pursue our growth strategy of
internal expansion of our manufacturing capacity as well as
selected strategic acquisitions. Our strong position of cash and
marketable securities at year end should enable us to act quickly
as opportunities present themselves. Our goal continues to be
revenues in excess of $1 billion by 2010 evenly distributed between
defense and non-defense markets, with an international and product
diversification focus. A few selected recent activities follow:
�Solar Energy Ceramic Crucibles: We have selected an approximately
12-acre site near our current plant in Tianjin, China, and plan to
construct 200,000 square feet of additional manufacturing capacity
to meet the increasing demand for ceramic crucibles to produce
polycrystalline photovoltaic silicon for solar panels. Our plan is
to have this factory running towards the end of 2008. Additionally,
we are expanding our ceramic crucible manufacturing capacity at our
factories near Atlanta, Georgia. We believe our shipments of these
solar-related products will increase from $11 million in 2007 to an
estimated $50 million to $60 million in 2008 to well over $100
million in 2009. Our 2007 acquisition of our raw material supplier
Minco will provide us a reliable source of high purity raw
materials to support this expansion. �ESK Ceramics � Kempten,
Germany: During the first half of 2008, we will complete about $20
million of capital expenditures for the expansion of manufacturing
capacity at our ESK Ceramics subsidiary in Kempten, Germany. The
products are principally boron nitride powders for cosmetic
applications as well as powders and components for metallurgy and
thermal management. The second product expansion is primarily
silicon carbide industrial seal and bearing components. The total
additional capacity for these growth markets is $25 million per
year. �The BULL� Combat Vehicle: Team BULL (Ceradyne, Inc., Oshkosh
Truck and Ideal Innovations) shipped its first BULL� (MRAP II)
vehicles early this month and plans to complete the six prototypes
on time. We believe the testing is progressing smoothly with
excellent performance. We anticipate a production decision by the
government early in the second quarter of 2008. Ultimately, the
production decision will rely not only on our performance, but also
on the government�s perception of the need in the field for this
advanced state-of-the-art combat vehicle and our BULL� product
offering compared to the competitive environment. �Acquisitions:
The 2007 acquisitions of Ceradyne Boron Products (formerly
EaglePicher Boron) and Minco have been successfully integrated into
Ceradyne�s other operations and are performing at or above our
expectations. �We continue to explore strategic acquisition
opportunities in both defense-related and industrial applications,
and expect additional acquisitions to be made this year.� Ceradyne
will host a conference call today at 8:00 a.m. PST (11:00 a.m. EST)
to review the financial results for the quarter and the year ended
December 31, 2007. Investors or other interested parties may listen
to the teleconference live via the Internet at www.ceradyne.com or
www.earnings.com. These web sites will also host an archive of the
teleconference. A telephonic playback will be available beginning
at 11:00 a.m. PST today through 9:00 p.m. PST on February 28, 2008.
The playback can be accessed by calling 800-642-1687 (or
706-645-9291 for international callers) and providing Conference ID
33671977. Ceradyne develops, manufactures and markets advanced
technical ceramic products and components for defense, industrial,
automotive/diesel and commercial applications. Additional
information can be found at the Company�s web site:
www.ceradyne.com. Except for the historical information contained
herein, this press release contains forward-looking statements
regarding future events and the future performance of Ceradyne that
involve risks and uncertainties that could cause actual results to
differ materially from those projected. Words such as
"anticipates," "believes," "plans," "expects," "intends," "future,"
and similar expressions are intended to identify forward-looking
statements. These risks and uncertainties are described in the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2007, and its Quarterly Reports on Form 10-Q, as filed
with the U.S. Securities and Exchange Commission. Readers are
cautioned not to place undue reliance on the forward-looking
statements, which speak only as of the date thereof. Below is a
summary of unaudited comparative results. CERADYNE, INC.
CONSOLIDATED STATEMENTS OF INCOME (Amounts in thousands, except per
share data) � � Three Months Ended December 31, Twelve Months Ended
December 31, 2007 � 2006 2007 � 2006 (Unaudited) (Unaudited) � NET
SALES $ 191,428 $ 178,729 $ 756,835 $ 662,888 COST OF GOODS SOLD �
115,662 � � 106,029 � � 450,787 � � 401,991 � Gross profit 75,766
72,700 306,048 260,897 � OPERATING EXPENSES Selling 7,300 5,551
26,917 22,919 General and administrative 10,584 9,176 40,801 35,293
Research and development � 3,991 � � 2,178 � � 17,552 � � 9,909 � �
21,875 � � 16,905 � � 85,270 � � 68,121 � Income from operations �
53,891 � � 55,795 � � 220,778 � � 192,776 � OTHER INCOME (EXPENSE):
Royalty income 69 30 174 120 Interest income 2,853 2,332 12,394
6,687 Interest expense (1,051 ) (1,024 ) (4,204 ) (4,105 )
Miscellaneous � (2,653 ) � (542 ) � (2,599 ) � (919 ) (782 ) 796
5,765 1,783 � INCOME BEFORE PROVISION FOR INCOME TAXES 53,109
56,591 226,543 194,559 PROVISION FOR INCOME TAXES � 17,885 � �
18,851 � � 82,278 � � 66,155 � NET INCOME $ 35,224 � $ 37,740 � $
144,265 � $ 128,404 � BASIC INCOME PER SHARE $ 1.29 � $ 1.40 � $
5.29 � $ 4.77 � DILUTED INCOME PER SHARE $ 1.28 � $ 1.38 � $ 5.20 �
$ 4.69 � WEIGHTED AVERAGE SHARES OUTSTANDING: BASIC 27,317 27,034
27,252 26,924 DILUTED 27,614 27,443 27,732 27,352 CERADYNE, INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS (Amounts in thousands) � �
December 31, 2007 December 31, 2006 (Unaudited) CURRENT ASSETS Cash
and cash equivalents $ 155,103 $ 13,547 Short-term investments
29,582 190,565 Restricted cash 2,660 - Accounts receivable, net of
allowances for doubtful accounts of approximately $792 and $1,158
at December 31, 2007 and December 31, 2006, respectively 85,346
77,162 Other receivables 5,704 3,289 Inventories, net 92,781 73,109
Production tooling, net 16,632 20,975 Prepaid expenses and other
12,391 11,859 Deferred tax asset � 12,455 � 11,469 TOTAL CURRENT
ASSETS � 412,654 � 401,975 PROPERTY, PLANT AND EQUIPMENT, net
243,892 183,011 LONG-TERM INVESTMENTS 38,089 - INTANGIBLE ASSETS,
net 37,578 8,389 GOODWILL 46,848 16,518 OTHER ASSETS � 4,225 �
3,922 TOTAL ASSETS $ 783,286 $ 613,815 CURRENT LIABILITIES Accounts
payable $ 35,990 $ 35,470 Accrued expenses 22,483 21,821 Income
taxes payable � 258 � 12,621 TOTAL CURRENT LIABILITIES 58,731
69,912 LONG-TERM DEBT 121,000 121,000 EMPLOYEE BENEFITS 13,650
13,274 OTHER LONG-TERM LIABILITY 4,985 - DEFERRED TAX LIABILITY �
6,291 � 3,018 TOTAL LIABILITIES 204,657 207,204 COMMITMENTS AND
CONTINGENCIES SHAREHOLDERS� EQUITY Common stock, $0.01 par value,
100,000,000 authorized, 27,318,530 and 27,119,012 shares issued and
outstanding at December 31, 2007 and December 31, 2006,
respectively 272 272 Additional paid in capital 185,702 178,252
Retained earnings 361,301 217,036 Accumulated other comprehensive
income � 31,354 � 11,051 TOTAL SHAREHOLDERS� EQUITY � 578,629 �
406,611 TOTAL LIABILITIES AND SHAREHOLDERS� EQUITY $ 783,286 $
613,815
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