Ceradyne, Inc. Reports Third Quarter, Nine-Month 2007 Financial Results - Nine Month Record Levels
COSTA MESA, Calif.-Ceradyne, Inc. (Nasdaq:CRDN) reported financial results for the third quarter and nine months ended September 30, 2007, including record nine month results.
Sales for third-quarter 2007 rose $5.8 million or 3.1% to $191.6 million from $185.8 million in third-quarter 2006.
Net income for third-quarter 2007 decreased by $4.2 million, or 11.6%. to $32.7 million, or $1.16 per fully diluted share, compared to $36.9 million, or $1.34 per fully diluted share, in the third-quarter of 2006. The $1.16 per fully diluted share includes the effect of certain after tax expenses totaling approximately $6.2 million. These certain expenses include:
-- After tax expenses of $0.9 million incurred in connection with the two acquisitions that we completed during the quarter ended September 30, 2007. These expenses relate primarily to a higher cost of goods sold from the step up of inventory and the amortization of backlog. There were no such expenses in the third quarter of 2006.
-- After tax expenses of $0.5 million due to severance charges incurred during the quarter ended September 30, 2007.
-- Research and development expenses in third quarter 2007 were $5.7 million compared to $2.5 million in third quarter 2006. This increase of $3.2 million or $1.9 million after tax was primarily related to the development and proposal of Ceradyne’s BULL(TM) combat vehicle (including submittal of two prototype versions of the actual combat vehicles) and development and proposal of XSAPI body armor. The proposal for the BULL(TM) combat vehicle, including prototype vehicles and other items, was submitted on September 28, 2007, and the XSAPI/ESAPI proposal is due November 13, 2007.
-- The provision for income taxes in third quarter 2007 was 39.6% compared to 31.7% in third quarter 2006. This increase in the provision for income taxes for the third quarter 2007 included a tax adjustment of $2.9 million. This adjustment was due to an out of period after tax adjustment caused by an under accrual of state income taxes related to an apportionment factor. We expect the provision for income taxes to return to approximately 36.0% in future periods.
Fully diluted average shares outstanding for the third quarter were 28.1 million compared to 27.5 million in the same period in 2006.
Gross profit margins increased to 39.6% of net sales in third-quarter 2007 from 38.0% in third-quarter of 2006.
Sales for the nine months ended September 30, 2007 reached a record $565.4 million, up from $484.2 million in the same period last year. Net income for the first nine months of 2007 increased to a record $109.0 million, or $3.93 per fully diluted share, on 27.8 million shares, from $90.7 million, or $3.31 per fully diluted share, on 27.4 million shares, for the nine-month period in 2006.
New bookings for third quarter 2007 were $163.6 million, compared to $138.3 million for the same period last year. For the first nine months of 2007, new bookings were $395.3 million, compared to $416.5 million for the comparable period last year.
Total backlog as of September 30, 2007 was $173.1 million, compared to total backlog at September 30, 2006 of $209.1 million.
Joel P. Moskowitz, Ceradyne president and chief executive officer, commented, "The third quarter 2007 was very exciting for Ceradyne and we believe laid the groundwork for future growth in 2008 and beyond.
"We completed the acquisitions of Minco, Inc. and EaglePicher Boron, LLC as previously announced. Although early in the integration process for both acquisitions, we continue to be very enthused regarding their growth prospects.
"Minco provides Ceradyne its starting powders of high purity fused silica for our production of crucibles used in the manufacture of photovoltaic solar cells. Due to our projected strong growth of the solar cell crucible business, particularly in China, Ceradyne has committed approximately $5.0 million to expand Minco’s manufacturing capacity for fused silica powder from 5.0 million pounds per year to 30.0 million pounds per year by 2009.
"Our new Ceradyne Boron Products subsidiary (formerly EaglePicher Boron, LLC) produces the 10B boron isotope for peaceful electricity generating nuclear reactor uses and the 11B boron isotope for use in ion implantation in the fabrication of semiconductors. Although we continue to believe that nuclear uses of the 10B isotope will be a growth area and complement our Ceradyne Canada operation, we have recently become aware of additional new uses of the 11B isotope in semiconductor applications. We are currently evaluating semiconductor opportunities.
“We have recently promoted Ceradyne’s chief technology officer Dr. Thomas Juengling to the position of President, ESK Ceramics, in Kempten, Germany. Dr. Juengling has 10 years combined experience with ESK and Ceradyne and will be focused on ESK’s continued expansion of its BORONEIGE(R) cosmetic ceramic powder business and ESK’s industrial ceramic operations. He will also continue to lead Ceradyne’s efforts to develop its ceramic components for use in the primary smelting of aluminum.”
Moskowitz continued, "In the forty years since I participated in the founding of Ceradyne, the Company has never been involved with a program as exciting and with the financial potential as large as our involvement with the BULL(TM) combat vehicle. Together with our team partners Oshkosh Truck Company and Ideal Innovations, Inc., we have developed an EFP (explosively formed penetrator) resistant vehicle, which we submitted on September 28, 2007 in response to a government request for proposal. The military is currently evaluating the two vehicles we ubmitted along with our proposal, as well as several competitive proposals.
"We anticipate a response from the government in late 2007 or first quarter 2008. If there is a positive response, we anticipate a modest order with deliveries in early 2008. As the process continues, more substantive production orders could be issued with deliveries in the second half of 2008.
“Ceradyne’s manufacturing of the BULL(TM) combat vehicle is anticipated to be performed in Michigan.”
Regarding Guidance, Moskowitz added: "On February 26, 2007, Ceradyne increased its guidance for 2007 to a sales range of $720 million to $740 million with an earnings range of $5.20 to $5.40 per fully diluted share. We continue to believe, based on our 2007 nine-month results and our internal projections for the fourth quarter, that we will meet our full year 2007 guidance with sales at the upper range of the guidance and earnings at the lower range.
"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(TM) 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(TM) combat vehicle. The higher end of the range includes the lower end plus production of the BULL(TM) combat vehicle in the second half of 2008.
"Therefore 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"
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