- THE MAGAZINE
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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 12 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 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 12 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, said, “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.’ 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, Ky., and Costa Mesa, Calif., 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’ 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, and earnings range from $4.55 to $5.05 per fully diluted share.
“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 toward the end of 2008. Additionally, we are expanding our ceramic crucible manufacturing capacity at our factories near Atlanta, Ga. 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, and 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: 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, 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.”
For additional information, visit www.ceradyne.com.