CLEVELAND, Apr 24, 2008 (BUSINESS WIRE) --
Brush Engineered Materials Inc. (NYSE:BW) today reported operating results for the first quarter of 2008 that were in line with the Company's expectations and consistent with the previously provided guidance for the full year.
Sales for the first quarter of 2008 were $226.3 million and net income was $4.6 million or $0.22 per share diluted. Expected softer demand for the Company's materials, in particular from the media market, reduced sales and profits as compared to the prior year. The first quarter sales and profits were also negatively affected by an accounts receivable correction related to the prior year, a change in a deferred tax asset valuation and non-recurring purchase accounting costs. These factors resulted in charges that negatively affected reported sales by $2.6 million and reported earnings by $0.13 per share in the quarter. Excluding the above non-recurring
items, the operating run rate for the quarter was $0.35 per share.
First quarter 2007 sales were $250.3 million. The largest factor in the $24.0 million decline in first quarter 2008 sales compared to the prior year is the previously disclosed and expected decline in the sale of ruthenium-based materials for the media market. In addition, program delays in the Beryllium and Beryllium Composites segment and, as expected, lower shipments of cell phone handset materials to a Specialty Engineered Alloys' customer contributed to the lower sales compared to the prior year. Helping to offset some of the impact of these factors was stronger demand from the cell phone handset market for the Company's Advanced Material Technologies and Services' products and stronger demand for the Engineered Materials Systems' disk drive arm products.
First quarter 2007 net income was $23.1 million
or $1.12 per share diluted. Earnings comparisons to the prior year are affected by the non-recurring benefit of approximately $0.52 a share related to the sale of low cost ruthenium inventory reported in the prior year. In addition, the prior-year first quarter earnings benefitted from approximately $62.0 million of sales to the media market, the majority of which was ruthenium-based materials for perpendicular media applications. The Company had limited sales to this market during the first quarter of 2008 primarily due to the re-qualification of products for this application.
OUTLOOK
The Company is affirming the previously provided guidance for the year. The Company, at this time, still expects the sales growth rate for the full year 2008 to exceed 10%, and still expects earnings to be as much as 30% above the prior-year operating run rate, and thus in the range of $1.80
to $2.30 per share. This, of course, assumes that a significant macro-economic downturn does not develop.
As previously communicated, the Company expected first quarter shipments to the media market to be weak. In addition, demand from specific customers and for applications served by Specialty Engineered Alloys was expected to be, and, in fact, was below last year's levels due to the very strong order pattern that was occurring then. Also, sales from specific customers and applications served by Beryllium and Beryllium Composites were weaker than expected due to several program delays. In magnetic media, or hard disk drives, the need to re-qualify materials for customers to support their conversion to perpendicular media technology was expected to, and did, in fact, lead to lower sales volumes. In the media market, conditions strengthened as the first quarter developed and as
re-qualifications of ruthenium-based products and qualifications of new materials for other perpendicular media layers progressed. As a result, the Company is seeing stronger demand as the second quarter begins and expects to resume higher shipments of perpendicular media materials in the second quarter.
Helping to offset the impact of the weaker sales levels into the markets noted above was stronger demand from the cell phone handset market for Advanced Materials Technologies and Services' products, as well as stronger demand for the Company's products from the medical, oil and gas, heavy equipment and other industrial markets. Conditions in these markets also strengthened as the first quarter progressed and backlogs climbed.
Based on the above, the Company is encouraged about the operating outlook for the balance of the year and, at this time, expects to show significant
quarter over quarter improvement in operating earnings as the year progresses.
It is important to continue to reiterate though that the Company's sales and earnings estimates are subject to significant variability. Metal price changes, metal supply conditions, fluctuations in demand levels driven by such factors as customer inventory swings, product qualifications rates, and new product ramp up rates in critical markets such as the media market can and have had a significant effect on actual results. The outlook for the year is based on the Company's best estimates at this time and is subject to significant fluctuations due to these as well as other factors.
ACQUISITION
In the first quarter of 2008 the Company completed the purchase of the assets of Techni-Met, Inc. of Windsor, Connecticut for $87.4 million. Techni-Met manufactures a wide range of products for
high-end applications in advanced technology industries, including supporting downstream customers in developing more accurate diagnostic devices for diabetes management. This acquisition provides a strong platform for future growth opportunities targeted for the medical market. Techni-Met's capabilities include technology which may be leveraged with the Company's other existing technologies to provide additional opportunities in other markets. Techni-Met provided an immediate benefit to sales and profitability in the first quarter of 2008.
BUSINESS SEGMENT REPORTING
Advanced Material Technologies and Services
The Advanced Material Technologies and Services' segment sales for the first quarter of 2008 were $120.7 million compared to $143.7 million for the first quarter of the prior year. The sales reduction was driven primarily by lower sales to the media market.
Operating profit for the first quarter was $5.3 million versus $32.0 million for the same period last year. The non-recurring benefit related to the sale of the lower cost ruthenium reported in the prior year affects the operating profit comparison to the prior year by approximately $16.9 million. The accounts receivable correction noted above also negatively affected 2008 first quarter sales and profits in this segment by $2.6 million. In addition profits were negatively impacted by the lower media sales.
The decline in sales for the first quarter 2008 primarily was due to lower sales of the ruthenium-based materials for the perpendicular media market. This factor led to a $56.8 million reduction in sales compared to the prior year. Metal price increases partially offset this factor in the quarter. The segment had experienced very strong perpendicular media demand in the first
quarter of 2007 as the industry initially ramped up its use of ruthenium-based materials for the conversion from longitudinal to perpendicular magnetic recording technology. During the fourth quarter of 2007, a specification change by a major customer resulted in the need to re-qualify the ruthenium-based materials and delay the qualification process for the oxide and soft underlayer materials for this market. Although re-qualifications progressed more slowly than anticipated, good progress is being made and it is anticipated at this time that media sales will steadily increase throughout the balance of 2008.
Sales in the first quarter of 2008 for vapor deposition and other materials for handsets and for photonics including LED applications for traditional lighting, automotive, medical and back lighting for LCD televisions and wireless product applications were significantly
stronger than the first quarter of 2007. The acquisition of Techni-Met contributed to the growth in medical market sales for the quarter. In addition, orders for precision optics applications using our Visi-Lid(TM) products increased in the quarter.
Specialty Engineered Alloys
Specialty Engineered Alloys' sales for the first quarter were $71.3 million, up slightly compared to the first quarter 2007 sales of $70.4 million. Operating profit for the first quarter was $0.7 million, compared to $5.3 million for the prior year.
The increase in sales is due primarily to higher selling prices and the pass through of higher base metal prices. Shipment volumes in the first quarter of 2008 were actually slightly lower than the volumes in the first quarter of 2007. The aerospace, oil and gas and heavy equipment markets were strong throughout the quarter benefitting from lean
customer inventories in the distribution channel and the lower value of the dollar. It is anticipated that these markets will remain strong through the end of 2008. Shipments to the wireless handset market remained weak during the first quarter 2008 due to significantly lower demand from a major customer. Efforts are well underway to expand the customer base for the wireless handset market. The order book strengthened throughout the quarter and we look forward to an improved second quarter.
Operating profit in the quarter was negatively impacted by the lower handset shipments, an unfavorable change in the product mix and lower volume.
Beryllium and Beryllium Composites
Beryllium and Beryllium Composites' sales for the first quarter of 2008 was $13.4 million compared to $15.2 million for the first quarter of 2007. Operating profit for the first quarter was $0.2
million versus $2.1 million for the same period of the prior year.
The decline in sales is primarily due to specific defense programs that were pushed out or delayed until later in the year, and an inventory correction in the x-ray window business. However, with current booking levels, it is anticipated that defense sales will improve over the balance of 2008.
Operating profit was negatively impacted by the lower sales volume.
Engineered Material Systems
Engineered Material Systems' sales for the first quarter of 2008 were $17.7 million compared to $16.7 million for the same period last year. Operating profit in the quarter was $1.4 million compared to an operating profit of $0.6 million in the first quarter of 2007.
The sales increase is largely due to higher sales of materials for disk drive arms. This strength should continue to improve throughout
the year. In addition, automotive sales for this segment were stronger than expected in the quarter, and are being helped by additional European sales.
The higher sales volume contributed to the improved margins. The segment also experienced yield and productivity improvements during the quarter from the implementation of a new high technology machining center at its Lincoln, Rhode Island manufacturing facility.
CHAIRMAN'S COMMENTS
Commenting on the results, Dick Hipple, Chairman, President and CEO, stated, "While I am disappointed in the first quarter results, especially the slower than anticipated progress in the qualification process for the perpendicular magnetic media materials, I am encouraged by the progress that has been made as well as our ability to introduce new innovative material solutions for this market. I am also encouraged with the continued growth
and demand for our industrial materials for the aerospace, oil and gas, and heavy equipment markets. Also, we believe our pricing and productivity initiatives will help offset increasing cost pressures. We remain committed to profitably growing this Company and creating value for our shareholders."
CONFERENCE CALL
Brush Engineered Materials' quarterly earnings conference call will be held today at 10:00 a.m. Eastern Time. The conference call will be available via webcast through the Company's website at www.beminc.com or through www.InvestorCalendar.com. By phone, please dial (877) 407-8033, callers outside the U.S. can dial (201) 689-8033.
FORWARD-LOOKING STATEMENTS
Portions of the narrative set forth in this document that are not statements
of historical or current facts are forward-looking statements. Our actual future performance may materially differ from
that contemplated by the forward-looking statements as a result of a variety of factors. These factors include, in addition to those mentioned herein:
-- The global and domestic economies;
-- The condition of the markets which we serve, whether defined geographically or by segment, with the major market segments being telecommunications and computer, data storage, aerospace and defense, automotive electronics, industrial components, appliance and medical;
-- Changes in product mix and the financial condition of customers;
-- Actual sales, operating rates and margins for the year 2008;
-- Our success in developing and introducing new products and new product ramp up rates, especially in the media market;
-- Our success in passing through the costs of raw materials to customers or
otherwise mitigating fluctuating prices for those materials, including the impact of fluctuating inventory values;
-- Our success in integrating newly acquired businesses, including the recent acquisition of the assets of Techni-Met, Inc.;
-- Our success in implementing our strategic plans and the timely and successful completion of any capital projects;
-- The availability of adequate lines of credit and the associated interest rates;
-- Other financial factors, including cost and availability of raw materials (both base and precious metal), tax rates, interest rates, metal financing fees, exchange rates, pension and other employee benefit costs, energy costs, regulatory compliance costs, the cost and availability of insurance, and the impact of the Company's stock
price on the cost of incentive and deferred compensation plans;
-- The uncertainties related to the impact of war and terrorist activities;
-- Changes in government regulatory requirements and the enactment of new legislation that may impact our obligations; and
-- The conclusion of pending litigation matters in accordance with our expectation that there will be no material adverse effects.
Brush Engineered Materials Inc. is headquartered in Cleveland, Ohio. The Company, through its wholly-owned subsidiaries, supplies worldwide markets with beryllium products, alloy products, electronic products, precious metal products, and engineered material systems.
Brush Engineered Materials Inc.
Digest of Earnings
March 28, 2008
2008 2007
------------ ------------
First Quarter
Net Sales $226,347,000 $250,314,000
Net Income $4,596,000 $23,114,000
Share Earnings - Basic $0.23 $1.15
Average Shares - Basic 20,389,000 20,153,000
Share Earnings - Diluted $0.22 $1.12
Average Shares - Diluted 20,583,000 20,613,000
Consolidated Balance Sheets
(Unaudited)
Mar. 28, Dec. 31,
(Dollars in thousands) 2008 2007
----------------------------------------------------------------------
Assets
Current assets
Cash and cash equivalents $ 12,270 $ 31,730
Accounts receivable 113,930 97,424
Other receivables - 11,263
Inventories 175,823 165,189
Prepaid expenses 20,137 17,723
Deferred income taxes 6,178 6,107
-------- --------
Total current assets 328,338 329,436
Other assets 33,574 11,804
Related-party notes receivable 98 98
Long-term deferred income taxes - 1,139
Property, plant and equipment 608,172 583,961
Less allowances for depreciation, depletion and
amortization 407,461 397,786
-------- --------
200,711 186,175
Goodwill 40,380 21,899
-------- --------
$603,101 $550,551
======== ========
Liabilities and Shareholders' Equity
Current liabilities
Short-term debt $ 39,772 $ 24,903
Current portion of long-term debt 600 600
Accounts payable 30,226 27,066
Other liabilities and accrued items 43,637 55,936
Unearned revenue 788 2,569
Income taxes 1,567 2,109
-------- --------
Total current liabilities 116,590 113,183
Other long-term liabilities 12,682 11,629
Retirement and post-employment benefits 59,331 57,511
Long-term income taxes 4,327 4,327
Deferred income taxes 492 182
Long-term debt 50,005 10,005
Shareholders' equity 359,674 353,714
-------- --------
$603,101 $550,551
======== ========
See notes to consolidated financial statements.
Consolidated Statements of Income
(Unaudited)
First Quarter Ended
Mar. 28 Mar. 30,
(Dollars in thousands except share and per 2008 2007
share amounts)
----------------------------------------------------------------------
Net sales $ 226,347 $ 250,314
Cost of sales 189,329 180,930
----------- -----------
Gross margin 37,018 69,384
Selling, general and administrative
expense 26,789 28,670
Research and development expense 1,497 1,326
Other-net 761 2,533
----------- -----------
Operating profit 7,971 36,855
Interest expense 336 683
----------- -----------
Income before income taxes 7,635 36,172
Income taxes 3,039 13,058
----------- -----------
Net income $ 4,596 $ 23,114
=========== ===========
Per share of common stock: basic $ 0.23 $ 1.15
Weighted average number of common shares
outstanding 20,389,000 20,153,000
Per share of common stock: diluted $ 0.22 $ 1.12
Weighted average number of common shares
outstanding 20,583,000 20,613,000
See notes to consolidated financial statements.
Consolidated Statements of Cash Flows
(Unaudited)
First Quarter Ended
Mar. 28, Mar. 30,
(Dollars in thousands) 2008 2007
----------------------------------------------------------------------
Net income $ 4,596 $ 23,114
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation, depletion and amortization 7,032 6,158
Amortization of mine costs 1,925 -
Amortization of deferred financing costs in
interest expense 90 107
Derivative financial instrument ineffectiveness 222 34
Stock-based compensation expense 1,257 939
Decrease (increase) in accounts receivable (8,491) (9,253)
Decrease (increase) in other receivables 11,263 -
Decrease (increase) in inventory (5,743) (17,970)
Decrease (increase) in prepaid and other
current assets (2,580) (1,047)
Decrease (increase) in deferred income taxes 40 -
Increase (decrease) in accounts payable and
accrued expenses (12,688) (14,001)
Increase (decrease) in unearned revenue (1,781) 1,061
Increase (decrease) in interest and taxes
payable 1,339 10,272
Increase (decrease) in other long-term
liabilities 3,221 (1,896)
Other - net (2,781) (2,184)
--------- ---------
Net cash used in operating activities (3,079) (4,666)
Cash flows from investing activities:
Payments for purchase of property, plant and
equipment (7,048) (4,845)
Payments for mine development (21) (1,974)
Payments for purchase of business net of cash
received (87,445) -
Proceeds from sale of inventory to consignment 24,325 -
Proceeds from sale of business - 2,150
Proceeds from sale of property, plant and
equipment - 51
Other investments - net 66 2
--------- ---------
Net cash used in investing activities (70,123) (4,616)
Cash flows from financing activities:
Proceeds from issuance (repayment) of short-
term debt 14,304 (5,009)
Proceeds from issuance of long-term debt 40,000 15,000
Repayment of long-term debt - (5,037)
Issuance of common stock under stock option
plans 12 3,288
Tax benefit from exercise of stock options 3 1,713
--------- ---------
Net cash provided from financing activities 54,319 9,955
Effects of exchange rate changes (577) (209)
--------- ---------
Net change in cash and cash equivalents (19,460) 464
Cash and cash equivalents at beginning of period 31,730 15,644
--------- ---------
Cash and cash equivalents at end of period $ 12,270 $ 16,108
========= =========
See notes to consolidated financial statements.
Notes to Consolidated Financial Statements
(Unaudited)
Note A - Accounting Policies
In management's opinion, the accompanying consolidated financial
statements contain all adjustments necessary to present fairly the
financial position as of March 28, 2008 and December 31, 2007 and the
results of operations for the three month periods ended March 28,
2008 and March 30, 2007. All of the adjustments were of a normal and
recurring nature.
Note B - Inventories
March 28, Dec. 31,
(Dollars in thousands) 2008 2007
----------------------------------------------------------------------
Principally average cost:
Raw materials and supplies $ 35,081 $ 30,338
Work in process 160,266 156,789
Finished goods 60,573 54,530
--------- --------
Gross inventories 255,920 241,657
Excess of average cost over LIFO inventory value 80,097 76,468
--------- --------
Net inventories $ 175,823 $165,189
========= ========
Note C - Pensions and Other Post-retirement Benefits
Pension Benefits Other Benefits
------------------- -------------------
First Quarter Ended First Quarter Ended
Mar. 28, Mar. 30, Mar. 28, Mar. 30,
(Dollars in thousands) 2008 2007 2008 2007
---------- -------- ---------- --------
Components of net periodic
benefit cost
Service cost $ 1,270 $ 1,153 $ 76 $ 75
Interest cost 1,976 1,838 532 478
Expected return on plan assets (2,180) (2,141) - -
Amortization of prior service
cost (161) (163) (9) (9)
Amortization of net loss 294 433 - -
---------- -------- ---------- --------
Net periodic benefit cost $ 1,199 $ 1,120 $ 599 $ 544
========== ======== ========== ========
Notes to Consolidated Financial Statements
(Unaudited)
Note D - Segment Reporting
Advanced
Material Specialty Beryllium
Technologies Engineered and Beryllium
(Dollars in thousands) and Services Alloys Composites
----------------------------------------------------------------------
First Quarter 2008
----------------------------
Revenues from external
customers $ 120,704 $ 71,297 $ 13,364
Intersegment revenues 1,630 2,069 123
Operating profit 5,326 704 227
Assets 257,209 242,653 40,033
First Quarter 2007
----------------------------
Revenues from external
customers $ 143,657 $ 70,364 $ 15,178
Intersegment revenues 1,301 3,449 307
Operating profit (loss) 31,975 5,302 2,133
Assets 177,967 236,486 32,747
Notes to Consolidated Financial Statements
(Unaudited)
Note D - Segment Reporting
Engineered
Material All
(Dollars in thousands) Systems Subtotal Other Total
----------------------------------------------------------------------
First Quarter 2008
----------------------------
Revenues from external
customers $ 17,686 $ 223,051 $ 3,296 $226,347
Intersegment revenues 335 4,157 7 4,164
Operating profit 1,362 7,619 352 7,971
Assets 26,718 566,613 36,488 603,101
First Quarter 2007
----------------------------
Revenues from external
customers $ 16,749 $ 245,948 $ 4,366 $250,314
Intersegment revenues 790 5,847 - 5,847
Operating profit (loss) 580 39,990 (3,135) 36,855
Assets 27,222 474,422 43,626 518,048
SOURCE: Brush Engineered Materials Inc.
Brush Engineered Materials Inc.
Investors:
Michael C. Hasychak, 216-383-6823
or
Media:
Patrick S. Carpenter, 216-383-6835
http://www.beminc.com
Copyright Business Wire 2008
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