SOURCE: Ceradyne, Inc.

Ceradyne, Inc.

February 24, 2011 08:21 ET

Ceradyne, Inc. Reports Fourth Quarter, Twelve-Month 2010 Financial Results

COSTA MESA, CA--(Marketwire - February 24, 2011) - Ceradyne, Inc. (NASDAQ: CRDN) reported financial results for the fourth quarter and twelve months ended December 31, 2010.

Sales for the fourth quarter 2010 were $100.7 million, compared with $97.6 million in the fourth quarter 2009. Net income for the fourth quarter 2010 was $13.2 million, or $0.53 per fully diluted share, compared to net income of $14.1 million, or $0.55 per fully diluted share in the fourth quarter 2009. Net income in the fourth quarter 2010 was favorably impacted by a tax benefit of $7.4 million, which included $5.4 million from the settlement of a claim for reapportionment of state income taxes and a benefit of $2.0 million from acquisition and restructuring charges. The fourth quarter 2010 results also include pre-tax charges totaling $5.2 million, comprised of $1.7 million for acquisition related charges and $3.5 million in restructuring charges due to the closure of the Company's hot press facility in Costa Mesa, California. The after-tax net impact of these items increased net income by $2.2 million during the fourth quarter 2010 or $0.09 per fully diluted share. Net income for the three months ended December 31, 2009 was favorably impacted by a tax benefit of $5.1 million, which included $3.8 million from the reversal of liabilities for uncertain tax positions due to the settlement of audits by the IRS in the fourth quarter and a tax benefit of $1.3 million resulting from the closure of the Company's Bazet, France, manufacturing facility, and losses from auction rate securities. The after-tax net impact of these items increased net income by $2.0 million during the fourth quarter of 2009, or $0.08 per fully diluted share.

Fully diluted average shares outstanding for the fourth quarter 2010 were 24,968,532 compared to 25,642,736 in the same period in 2009.

The Company is reiterating its guidance for the full fiscal year 2011 that was updated on January 10, 2011 to a range of $1.50 per fully diluted share to approximately $1.90 per fully diluted share and sales from $470.0 million to $540.0 million.

Gross profit margin was 32.8% of net sales in the fourth quarter 2010 compared to 27.0% in the same period in 2009.

Sales for the twelve months ended December 31, 2010 were $402.9 million, compared with $400.6 million in the same period last year. Net income for the twelve months ended December 31, 2010 was $29.3 million, or $1.15 per fully diluted share, compared with net income in the prior year of $8.5 million, or $0.33 per fully diluted share. Net income for the twelve months ended December 31, 2010 was favorably impacted by a tax benefit of $7.8 million, which included $5.4 million from the settlement of a claim for reapportionment of state income taxes and a benefit of $2.4 million from acquisition and restructuring charges and losses on auction rate securities. Full year 2010 results also include pre-tax charges totaling $6.1 million, comprised of $1.6 million for acquisition related charges, $3.5 million in restructuring charges due to the closure of the Company's hot press facility in Costa Mesa, California and $1.0 million from loss on auction rate securities. The after-tax net impact of these items increased net income by $1.7 million during the twelve months ended December 31, 2010 or $0.06 per fully diluted share.

Income from operations before acquisition and restructuring charges for the twelve months ended December 31, 2010 was $34.2 million compared to income from operations before acquisition and restructuring charges, and goodwill impairment charges of $23.7 million in 2009.

Net income for the twelve months ended December 31, 2009 was favorably impacted by a tax benefit of $13.5 million, which included $3.8 million from the reversal of liabilities for uncertain tax positions due to the settlement of audits by the IRS and a tax benefit of $9.7 million resulting from the closure of our Bazet, France, manufacturing facility, goodwill impairment and losses from auction rate securities, partially offset by an acquisition related credit. Net income for the twelve months ended December 31, 2009 included charges for restructuring and impairment, partially offset by an acquisition related credit, that had a negative impact by reducing fully diluted earnings per share by approximately $0.37 for the twelve months ended December 31, 2009. These items totaled $23.1 million during the twelve months ended December 31, 2009 which included a pre-tax $10.3 million restructuring charge for the closure of our plant in Bazet, France, $2.7 million in other severance expenses, a non-cash pre-tax impairment charge of $3.8 million to write down the value of goodwill of its Ceradyne Canada reporting unit, accelerated depreciation of $1.9 million resulting from a revision of the estimated useful lives of certain assets and losses of $5.2 million from auction rate securities, partially offset by an acquisition related credit of $0.8 million.

Gross profit margin was 26.8% of net sales in the twelve months ended December 31, 2010 compared to 25.4% in twelve months ended December 31, 2009.

New orders for the three months ended December 31, 2010 were $151.3 million, compared to $76.7 million for the same period last year. For the year ended December 31, 2010, new orders were $455.3 million, compared to $407.3 million for the comparable period last year.

Total backlog as of December 31, 2010 was $185.8 million, compared to total backlog at December 31, 2009 of $135.5 million.

Joel P. Moskowitz, Ceradyne president and chief executive officer, commented: "We are very pleased with our fourth quarter and full year 2010 financial performance. It allowed us to meet our 2010 guidance and laid the groundwork for continuing growth in sales and earnings for 2011.

"2010 was a year of transition for Ceradyne, with reduced reliance on defense related sales, offset by strong sales of our high purity fused silica ceramic crucibles used for the manufacture of photovoltaic solar cells, and a dramatic turnaround in our ESK Ceramics, Kempten, Germany operation."

Mr. Moskowitz continued, "Several recent events are anticipated to provide momentum to our growth in 2011 and beyond:

  • On January 4, 2011, we announced the acquisition of VIOX Corporation, located in Seattle, Washington. VIOX is heavily focused on the solar cell market, with recent developments in bio-glass compounds for healthcare. We believe VIOX will be immediately accretive.

  • On January 10, 2011 at a Ceradyne Investor Reception in New York City, a preliminary growth strategy "Ceradyne $1 Billion" was announced. This strategy is designed to increase Ceradyne sales 2.5 times, from its current $400 million annual sales level to $1 billion in a five year time frame.

  • On January 18, 2011, Ceradyne opened its new 218,000 square foot solar-related manufacturing facility in Tianjin, China. This modern plant is designed to double solar crucible manufacturing capacity later in 2011."

Mr. Moskowitz further remarked: "The increase in new orders and ending backlog in the fourth quarter should give us a good start to 2011. We continue to see excellent testing results on our Enhanced Combat Helmet (ECH) and increased interest in body armor requirements.

"We are producing strong cash flows, with year-end cash and short-term investments of $246 million.

"In summary, we enter 2011 as a diversified advanced technical ceramic company with a strong focus on energy related markets, including solar, nuclear power plants and oil and gas recovery. Although at a reduced level, our defense sales should grow modestly from 2010 levels, and the industrial ceramics market, particularly at our ESK Ceramics operation, is very encouraging."

Conference Call and Webcast Information

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 fourth quarter and the year ended December 31, 2010. To participate in the teleconference, please call toll free 888-455-2263 (or 719-325-4930 for international callers) approximately 10 minutes prior to the above start time and provide Conference ID 9651153. 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 telephone playback will be available beginning at 11 a.m. PST on February 24, 2011 through 11 a.m. PST on February 26, 2010. The playback can be accessed by calling 888-203-1112 (or 719-457-0820 for international callers) and providing Conference ID 9651153.

Information about Ceradyne, Inc.

Ceradyne develops, manufactures and markets advanced technical ceramic products and components for defense, industrial, energy, automotive/diesel and commercial applications.

In many high performance applications, products made of advanced technical ceramics meet specifications that similar products made of metals, plastics or traditional ceramics cannot achieve. Advanced technical ceramics can withstand extremely high temperatures, combine hardness with light weight, are highly resistant to corrosion and wear, and often have excellent electrical capabilities, special electronic properties and low friction characteristics. 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, 2010, 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.

To supplement the consolidated financial results prepared in accordance with Generally Accepted Accounting Principles ("GAAP"), the table at the end of this press release includes a reconciliation between the non-GAAP financial measures discussed in this press release and the GAAP financial results. These non-GAAP financial measures exclude certain items and special charges, such as restructuring - plant closure and severance, impairment charges, acquisition related charges, and losses on auction rate securities. Management does not consider the excluded items part of day-to-day business or reflective of the core operational activities of the Company as they result from transactions outside the ordinary course of business. Management uses non-GAAP financial measures internally for strategic decision making, forecasting future results and evaluating current performance. By disclosing non-GAAP financial measures, management intends to provide investors with a more meaningful, consistent comparison of the Company's core operating results and trends for the periods presented. Non-GAAP financial measures are not prepared in accordance with GAAP; therefore, the information is not necessarily comparable to other companies and should be considered as a supplement to, not a substitute for, or superior to, the corresponding measures calculated in accordance with GAAP.

CERADYNE, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except per share data)
 
    Three Months Ended December 31,   Twelve Months Ended December 31,  
    2010   2009   2010   2009  
    (Unaudited)   (Unaudited)  
NET SALES   $ 100,719   $ 97,582   $ 402,938   $ 400,575  
COST OF GOODS SOLD     67,686     71,239     295,078     298,956  
  Gross profit     33,033     26,343     107,860     101,619  
OPERATING EXPENSES                          
  Selling, general and administrative     17,993     14,024     61,940     65,643  
  Research and development     2,961     2,746     11,692     12,258  
  Acquisition related charge (credit)     1,655     27     1,567     (768 )
  Restructuring - plant closure and severance     3,498     993     3,505     12,924  
  Goodwill impairment     -     -     -     3,832  
      26,107     17,790     78,704     93,889  
INCOME FROM OPERATIONS     6,926     8,553     29,156     7,730  
OTHER INCOME (EXPENSE):                          
  Interest income     2,793     1,667     5,355     4,091  
  Interest expense     (1,534 )   (1,650 )   (6,247 )   (7,119 )
  Gain on early extinguishment of debt     -     -     -     1,881  
  Loss on auction rate securities     -     (1,707 )   (978 )   (5,187 )
  Miscellaneous     592     (285 )   1,085     (979 )
      1,851     (1,975 )   (785 )   (7,313 )
INCOME BEFORE PROVISION FOR INCOME TAXES     8,777     6,578     28,371     417  
PROVISION (BENEFIT) FOR INCOME TAXES     (4,409 )   (7,503 )   (905 )   (8,098 )
NET INCOME   $ 13,186   $ 14,081   $ 29,276   $ 8,515  
BASIC INCOME PER SHARE   $ 0.53   $ 0.55   $ 1.16   $ 0.33  
DILUTED INCOME PER SHARE   $ 0.53   $ 0.55   $ 1.15   $ 0.33  
WEIGHTED AVERAGE SHARES OUTSTANDING:                          
BASIC     24,713     25,526     25,191     25,684  
DILUTED     24,969     25,643     25,370     25,802  

 

CERADYNE, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share data)  
 
    December 31, 2010   December 31, 2009
    (Unaudited)
CURRENT ASSETS            
  Cash and cash equivalents   $ 53,436   $ 122,154
  Short-term investments     192,860     117,666
  Restricted cash     -     3,130
  Accounts receivable, net of allowances for doubtful accounts of $685 and $851 at December 31, 2010 and December 31, 2009, respectively    
 53,019
   
 53,269
  Other receivables     17,553     11,424
  Inventories, net     94,258     100,976
  Production tooling, net     10,037     12,006
  Prepaid expenses and other     38,653     19,932
  Deferred tax asset     6,808     13,796
  TOTAL CURRENT ASSETS     466,624     454,353
PROPERTY, PLANT AND EQUIPMENT, net     243,681     239,322
LONG TERM INVESTMENTS     26,187     20,019
INTANGIBLE ASSETS, net     83,475     89,409
GOODWILL     43,219     43,880
OTHER ASSETS     2,127     2,721
TOTAL ASSETS   $ 865,313   $ 849,704
             
CURRENT LIABILITIES            
  Accounts payable   $ 25,738   $ 24,683
  Accrued expenses     24,603     23,463
  Income taxes payable     1,869     -
  TOTAL CURRENT LIABILITIES     52,210     48,146
LONG-TERM DEBT     85,599     82,163
EMPLOYEE BENEFITS     22,269     21,769
OTHER LONG TERM LIABILITY     41,902     39,561
DEFERRED TAX LIABILITY     11,124     8,348
TOTAL LIABILITIES     213,104     199,987
COMMITMENTS AND CONTINGENCIES (Note 13)            
SHAREHOLDERS' EQUITY            
  Common stock, $0.01 par value, 100,000,000 authorized, 24,713,126 and 25,401,005 shares issued and outstanding at December 31, 2010 and December 31, 2009, respectively     247     254
  Additional paid-in capital     141,973     157,679
  Retained earnings     499,532     470,256
  Accumulated other comprehensive income     10,457     21,528
  TOTAL SHAREHOLDERS' EQUITY     652,209     649,717
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY   $ 865,313   $ 849,704
             
             
             
CERADYNE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
 
    Twelve Months Ended December 31,  
    2010     2009  
    (Unaudited)  
CASH FLOWS FROM OPERATING ACTIVITIES:                
  Net income   $ 29,276     $ 8,515  
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH PROVIDED BY OPERATING ACTIVITIES:                
  Depreciation and amortization     36,148       35,146  
  Amortization of bond premium     620       -  
  Non cash interest expense on convertible debt     3,436       3,643  
  Gain on early extinguishment of debt     -       (1,881 )
  Payments of accreted interest on repurchased convertible debt     -       (2,957 )
  Deferred income taxes     9,773       (1,572 )
  Stock compensation     3,844       3,839  
  Losses on auction rate securities     978       5,187  
  Losses on other securities     328       -  
  Goodwill impairment     -       3,832  
  Loss on equipment disposal     2,992       514  
  Change in operating assets and liabilities (net of effect of businesses acquired):                
    Accounts receivable, net     (219 )     12,170  
    Other receivables     (6,056 )     (5,973 )
    Inventories, net     4,810       2,513  
    Production tooling, net     1,896       2,587  
    Prepaid expenses and other assets     (18,541 )     3,731  
    Accounts payable and accrued expenses     1,789       3,946  
    Income taxes payable     1,193       (213 )
    Other long term liability     2,280       (7,357 )
    Employee benefits     1,588       2,103  
NET CASH PROVIDED BY OPERATING ACTIVITIES     76,135       67,773  
CASH FLOWS FROM INVESTING ACTIVITIES:                
  Purchases of property, plant and equipment     (44,220 )     (14,534 )
  Changes in restricted cash     3,130       (428 )
  Purchases of marketable securities     (122,927 )     (179,194 )
  Proceeds from sales and maturities of marketable securities     39,489       73,170  
  Cash paid for acquisitions     -       (9,654 )
  Proceeds from sale of equipment     969       72  
NET CASH (USED IN) INVESTING ACTIVITIES     (123,559 )     (130,568 )
CASH FLOWS FROM FINANCING ACTIVITIES:                
  Proceeds from issuance of stock due to exercise of options     362       33  
  Excess tax benefit due to exercise of stock options     (472 )     149  
  Shares repurchased     (19,766 )     (9,753 )
  Reduction on long term debt     -       (20,239 )
NET CASH (USED IN) FINANCING ACTIVITIES     (19,876 )     (29,810 )
EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS     (1,418 )     (523 )
(DECREASE) IN CASH AND CASH EQUIVALENTS     (68,718 )     (93,128 )
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD     122,154       215,282  
CASH AND CASH EQUIVALENTS, END OF PERIOD   $ 53,436     $ 122,154  

 

CERADYNE, INC.
MARKET APPLICATION INFORMATION
(Amounts in thousands, except percentages)

We categorize our products into five market applications. The tables below show the amount of our total sales of each market application and the percentage contribution in the different time periods.

    Three Months Ended December 31,     Twelve Months Ended December 31,  
    2010     2009     2010     2009  
Defense   $ 19,151     $ 39,646     $ 117,316     $ 198,733  
Industrial     36,901       29,628       138,630       102,689  
Energy     33,223       18,379       99,900       62,200  
Automotive/Diesel     8,754       7,203       35,900       25,151  
Commercial     2,690       2,726       11,192       11,802  
Total   $ 100,719     $ 97,582     $ 402,938     $ 400,575  
                                 
   
      Three Months Ended December 31,       Twelve Months Ended December 31,  
      2010       2009       2010       2009  
Defense     19.0 %     40.6 %     29.1 %     49.6 %
Industrial     36.6       30.3       34.4       25.6  
Energy     33.0       18.9       24.8       15.5  
Automotive/Diesel     8.7       7.4       8.9       6.3  
Commercial     2.7       2.8       2.8       3.0  
Total     100.0 %     100.0 %     100.0 %     100.0 %

 

CERADYNE, INC.
NON-GAAP FINANCIAL INFORMATION
(Amounts in thousands, except per share data)
 
    Three Months Ended December 31,   Twelve Months Ended December 31,  
    2010     2009   2010     2009  
    (Unaudited)   (Unaudited)  
GAAP income from operations   $ 6,926     $ 8,553   $ 29,156     $ 7,730  
1. Acquisition related charge (credit)     1,655       27     1,567       (768 )
2. Restructuring, plant closure and severance     3,498       993     3,505       12,924  
3. Goodwill impairment     -       -     -       3,832  
Non-GAAP income from operations before acquisition, restructuring and goodwill impairment charges                              
  $ 12,079     $ 9,573   $ 34,228     $ 23,718  
                               
GAAP net income   $ 13,186     $ 14,081   $ 29,276     $ 8,515  
                               
Reconciling items:                              
  Gross profit                              
    Accelerated depreciation     -       328     -       1,899  
  Special charges                              
    1. Acquisition related charge (credit)     1,655       27     1,567       (768 )
    2. Restructuring, plant closure and severance     3,498       993     3,505       12,924  
    3. Goodwill impairment     -       -     -       3,832  
    4. Loss on auction rate securities     -       1,707     978       5,187  
Total special charges     5,153       3,055     6,050       23,074  
                               
  Provision for income taxes:                              
    Credit due settlement of a claim for reapportionment of state income taxes     8,286       -     8,286       -  
    Increase in federal taxes due to credit for reapportionment of state income taxes     (2,900 )     -     (2,900 )     -  
    Net tax effect due to reapportionment of state income taxes     5,386       -     5,386       -  
    Reversal of liabilities for uncertain tax positions due to settlement of IRS audits     -       3,823     -       3,823  
    Tax effect on other non-GAAP adjustments     2,033       1,243     2,387       9,649  
Total tax effect on non-GAAP adjustments (A)     7,419       5,066     7,773       13,472  
                               
Non-GAAP net income   $ 10,920     $ 12,070   $ 27,553     $ 18,117  
                               
Diluted non-GAAP income per share   $ 0.44     $ 0.47   $ 1.09     $ 0.70  
Increase (decrease) due to Non-GAAP adjustments     0.09       0.08     0.06       (0.37 )
Diluted GAAP income per share   $ 0.53     $ 0.55   $ 1.15     $ 0.33  
                               
(A)   The tax effect on pre-tax non-GAAP adjustments is calculated using the relevant tax jurisdictions' statutory tax rates.