SOURCE: Ceradyne, Inc.

Ceradyne, Inc.

July 24, 2012 06:00 ET

Ceradyne, Inc. Reports Second Quarter, Six-Month 2012 Financial Results

COSTA MESA, CA--(Marketwire - Jul 24, 2012) - Ceradyne, Inc. (NASDAQ: CRDN) reported financial results for the second quarter and six months ended June 30, 2012.

Sales for the second quarter 2012 were $130.6 million, compared with $145.4 million in the second quarter 2011. Net income for the second quarter 2012 decreased to $6.8 million, or $0.28 per fully diluted share, compared to a net income of $19.1 million, or $0.76 per fully diluted share in the second quarter 2011. Fully diluted average shares outstanding for the second quarter 2012 were 24,307,290 compared to 25,223,757 in the same period in 2011.

Gross profit margin was 28.1% of net sales in the second quarter 2012, compared to 36.4% in the same period in 2011. The provision for income taxes was 40.1% in the second quarter 2012, compared to a provision for income taxes of 34.8% in the same period in 2011.

Sales for the six months ended June 30, 2012 were $237.0 million, compared with $295.5 million in the same period last year. Net income for the six months ended June 30, 2012 was $10.6 million, or $0.44 per fully diluted share, on 24,300,045 shares, compared to net income of $42.7 million, or $1.70 per fully diluted share on 25,171,897 shares in the prior year period.

Gross profit margin was 27.8% of net sales in the six months ended June 30, 2012 compared to 37.6% in the same period in 2011. The provision for income taxes was 39.0% in the six months ended June 30, 2012, compared to a provision for income taxes of 33.4% in the same period in 2011.

New orders for the three months ended June 30, 2012 were $79.4 million, compared to $108.8 million for the same period last year. For the six months ended June 30, 2012, new orders were $160.2 million, compared to $340.5 million for the comparable period last year.

Total backlog as of June 30, 2012 was $208.8 million, compared to total backlog at June 30, 2011 of $230.8 million.

Total cash, cash equivalents and short-term investments decreased to $268.1 million at June 30, 2012 compared to $275.0 million at December 31, 2011.

Joel P. Moskowitz, Ceradyne president, chairman and chief executive officer, commented: "Although we are encouraged by the sequential increase in earnings from Q1's $0.16 per share to Q2's $0.28 per share, we continue to have short-term concerns regarding the anticipated solar rebound, its timing and the reduced gross profit margins we foresee. In the second quarter alone, operating losses from our solar crucible business, which twelve months ago had the highest gross profit margin in the Company, reduced our fully diluted earnings per share by $0.14.

"Without improved shipment levels in solar and defense, our second half 2012 operating results will likely be similar or somewhat greater than our first half 2012.

"Although the demand for photovoltaic solar energy, as measured by solar installations, increased 21% from 2010 to 2011 and is anticipated to have a more modest growth in 2012, our Chinese customers continue to have excess capacity and high levels of inventory, which have yet to be reduced to levels justified by demand. However, we continue to see increased solar use in China, the United States, India and other Asian countries offset to some degree by reduced European demand. However, the macro outlook for the solar business is very positive, primarily due to reduced costs resulting in "grid parity" even with reduced or no government subsidies.

"Our strategy will be to reduce costs primarily through technology and automation and to continue certain discussions with our Chinese customers to result in closer, long-term relationships."

Mr. Moskowitz further commented: "The large (approximately $170 million) Enhanced Combat Helmet (ECH) award has been delayed due to technical issues which are being addressed by our staff. We anticipate that with certain tooling adjustments, we will be in volume production in Q3 this year."

Mr. Moskowitz discussed his recent visit to our ESK Ceramics subsidiary's operation in Kempten, Germany to celebrate its 90th year since their founding in 1922. Mr. Moskowitz stated, "The progress in our new product pipeline is excellent. I saw the largest component Ceradyne has ever made, a 10 meter long PetroCeram® ceramic sand screen for installation in Bolivia in Q3 as well as a stream of oil and gas opportunities. I reviewed with Dr. Christoph Lesniak, ESK's Chief Technology Officer, our technology innovation advances in (patented) ceramic microreactors for next generation pharmaceutical production and (patented) diamond coated steel wires for slicing semiconductor and solar silicon wafers. The progress in polymer filled (with boron nitride ceramics) components for use as lithium ion battery casings and light emitting diode (LED) heat sinks is excellent.

"These are some of the products of the future which we believe will provide the basis for our diversification strategy and profitable future growth."

Mr. Moskowitz concluded: "Our significant new product pipeline and strong balance sheet bode well for the future. However, as always, management will focus on both short-term and long-term results, with increasing emphasis on our solar crucible operation."

Conference Call and Webcast Information

Ceradyne will host a conference call today at 8:00 a.m. PDT (11:00 a.m. EDT) to review the financial results for the second quarter ended June 30, 2012. To participate in the teleconference, please call toll free 800-946-0716 (or 719-457-2630 for international callers) approximately 10 minutes prior to the above start time and provide Passcode 9434924. 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 12:00 p.m. PDT on July 24th through 12:00 p.m. PDT on July 26th. The playback can be accessed by calling 888-203-1112 (or 719-457-0820 for international callers) and providing Passcode 9434924.

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, 2011, 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.

 
 
CERADYNE, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except per share data)
 
    Three Months Ended
 June 30,
    Six Months Ended
June 30,
 
    2012     2011     2012     2011  
    (Unaudited)     (Unaudited)  
NET SALES   $ 130,643     $ 145,376     $ 236,952     $ 295,478  
COST OF GOODS SOLD     93,941       92,419       171,106       184,433  
  Gross profit     36,702       52,957       65,846       111,045  
OPERATING EXPENSES                                
  Selling, general and administrative     18,839       19,456       36,349       38,292  
  Research and development     4,717       3,214       8,347       6,281  
  Restructuring - plant closure and severance     -       -       673       -  
  Acquisition related charges     231       838       231       1,422  
      23,787       23,508       45,600       45,995  
INCOME FROM OPERATIONS     12,915       29,449       20,246       65,050  
OTHER INCOME (EXPENSE):                                
  Interest income     1,128       877       2,194       1,675  
  Interest expense     (1,825 )     (1,669 )     (3,568 )     (3,117 )
  Miscellaneous     (791 )     677       (1,449 )     590  
      (1,488 )     (115 )     (2,823 )     (852 )
INCOME BEFORE PROVISION FOR INCOME TAXES     11,427       29,334       17,423       64,198  
PROVISION FOR INCOME TAXES     4,581       10,203       6,795       21,472  
NET INCOME   $ 6,846     $ 19,131     $ 10,628     $ 42,726  
BASIC INCOME PER SHARE   $ 0.28     $ 0.77     $ 0.44     $ 1.72  
DILUTED INCOME PER SHARE   $ 0.28     $ 0.76     $ 0.44     $ 1.70  
WEIGHTED AVERAGE SHARES OUTSTANDING:                                
BASIC     24,204       24,898       24,207       24,869  
DILUTED     24,307       25,224       24,300       25,172  
                                 
                                 
 
 
CERADYNE, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share data)
 
    June 30,
2012
    December 31,
2011
    (Unaudited)
CURRENT ASSETS              
  Cash and cash equivalents   $ 35,261     $ 50,275
  Short-term investments     232,821       224,772
  Accounts receivable, net of allowances for doubtful accounts of $2,789and $1,547 at June 30, 2012 and December 31, 2011, respectively    
73,834
     
73,646
  Other receivables     5,084       6,040
  Inventories     130,130       117,273
  Production tooling, net     10,833       11,792
  Prepaid expenses and other     35,300       43,860
  Deferred tax asset     5,191       5,782
  TOTAL CURRENT ASSETS     528,454       533,440
PROPERTY, PLANT AND EQUIPMENT, net     235,525       243,376
LONG TERM INVESTMENTS     21,785       15,026
INTANGIBLE ASSETS, net     98,136       100,690
GOODWILL     42,720       42,926
OTHER ASSETS     13,520       12,673
TOTAL ASSETS   $ 940,140     $ 948,131
               
CURRENT LIABILITIES              
  Accounts payable   $ 22,999     $ 29,191
  Accrued expenses     26,340       30,470
  Income taxes payable     7,082       5,331
  Short-term debt     91,241       89,294
  TOTAL CURRENT LIABILITIES     147,662       154,286
EMPLOYEE BENEFITS     24,078       24,462
OTHER LONG TERM LIABILITIES     37,569       37,224
DEFERRED TAX LIABILITY     23,429       23,461
TOTAL LIABILITIES     232,738       239,433
COMMITMENTS AND CONTINGENCIES (Note 13)              
SHAREHOLDERS' EQUITY              
  Common stock, $0.01 par value, 100,000,000 authorized, 24,179,414 and 24,175,051 shares issued and outstanding at June 30, 2012 and December 31, 2011, respectively     242       242
  Additional paid-in capital     121,263       121,940
  Retained earnings     586,793       583,420
  Accumulated other comprehensive income (loss)     (896 )     3,096
  TOTAL SHAREHOLDERS' EQUITY     707,402       708,698
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY   $ 940,140     $ 948,131
               
               
 
 
CERADYNE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
 
    Six Months Ended June 30,  
    2012     2011  
    (Unaudited)  
CASH FLOWS FROM OPERATING ACTIVITIES:                
  Net income   $ 10,628     $ 42,726  
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES:                
  Depreciation and amortization     18,215       19,678  
  Amortization of bond premium     223       661  
  Non cash interest expense on convertible debt     1,952       1,795  
  Deferred income taxes     (266 )     249  
  Stock compensation     2,266       2,026  
  (Gain) loss on marketable securities     (54 )     103  
  (Gain) loss on equipment disposal     (12 )     178  
  Change in operating assets and liabilities (net of effect of businesses acquired):                
    Accounts receivable, net     (647 )     914  
    Other receivables     904       1,638  
    Inventories     (13,908 )     (11,287 )
    Production tooling, net     946       (2,866 )
    Prepaid expenses and other assets     8,494       (9,600 )
    Accounts payable and accrued expenses     (10,386 )     6,001  
    Income taxes payable     1,919       3,384  
    Other long term liability     373       2,762  
    Employee benefits     645       422  
NET CASH PROVIDED BY OPERATING ACTIVITIES     21,292       58,784  
CASH FLOWS FROM INVESTING ACTIVITIES:                
  Purchases of property, plant and equipment     (10,524 )     (17,055 )
  Purchases of marketable securities     (29,354 )     (63,053 )
  Proceeds from sales and maturities of marketable securities     16,499       35,757  
  Cash paid for acquisitions     -       (27,673 )
  Cash paid for other investments     (939 )     -  
  Proceeds from sale of equipment     42       1,442  
NET CASH USED IN INVESTING ACTIVITIES:     (24,276 )     (70,582 )
CASH FLOWS FROM FINANCING ACTIVITIES:                
  Proceeds from issuance of stock due to exercise of options     317       991  
  Excess tax benefit due to exercise of stock options     618       1,827  
  Common stock cash dividends paid     (7,255 )     -  
  Shares repurchased     (4,027 )     (3,889 )
NET CASH USED IN FINANCING ACTIVITIES     (10,347 )     (1,071 )
EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS     (1,683 )     3,896  
DECREASE IN CASH AND CASH EQUIVALENTS     (15,014 )     (8,973 )
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD     50,275       53,436  
CASH AND CASH EQUIVALENTS, END OF PERIOD   $ 35,261     $ 44,463  
                 
                 
 
 
CERADYNE, INC.
SEGMENT FINANCIAL INFORMATION
(Amounts in thousands)
 
The financial information for all segments is presented below (in thousands):
 
    Three Months Ended
June 30,
    Six Months Ended
June 30,
 
    2012     2011     2012     2011  
Revenue from External Customers                                
Advanced Ceramic Operations   $ 70,395     $ 66,637     $ 119,100     $ 143,267  
ESK Ceramics     37,524       45,880       79,932       86,003  
Thermo Materials     15,290       29,295       30,156       60,406  
Boron     13,820       11,420       21,023       19,360  
Inter-segment elimination     (6,386 )     (7,856 )     (13,259 )     (13,558 )
Total   $ 130,643     $ 145,376     $ 236,952     $ 295,478  
                                 
Depreciation and Amortization                                
Advanced Ceramic Operations   $ 2,358     $ 2,514     $ 4,651     $ 5,385  
ESK Ceramics     2,925       3,276       5,900       6,415  
Thermo Materials     1,934       2,094       3,954       3,778  
Boron     1,855       2,047       3,710       4,100  
Total   $ 9,072     $ 9,931     $ 18,215     $ 19,678  
                                 
Segment Income (Loss) from Operations and Income Before Provision for Income Taxes                                
Advanced Ceramic Operations   $ 9,749     $ 14,041     $ 13,144     $ 31,055  
ESK Ceramics     4,066       9,201       11,243       17,006  
Thermo Materials     (2,474 )     6,066       (4,257 )     16,920  
Boron     1,930       726       1,054       726  
Inter-segment elimination     (356 )     (585 )     (938 )     (657 )
Income from Operations     12,915       29,449       20,246       65,050  
Other Income (Expense)     (1,488 )     (115 )     (2,823 )     (852 )
Income before Provision for Income Taxes   $ 11,427     $ 29,334     $ 17,423     $ 64,198  
                                 
Segment Assets                                
Advanced Ceramic Operations   $ 486,404     $ 468,385     $ 486,404     $ 468,385  
ESK Ceramics     162,998       190,440       162,998       190,440  
Thermo Materials     164,637       169,420       164,637       169,420  
Boron     126,101       127,670       126,101       127,670  
Total   $ 940,140     $ 955,915     $ 940,140     $ 955,915  
                                 
Expenditures for Property, Plant & Equipment                                
Advanced Ceramic Operations   $ 911     $ 2,076     $ 2,724     $ 3,475  
ESK Ceramics     1,501       1,322       3,675       1,984  
Thermo Materials     351       4,672       911       9,622  
Boron     1,855       1,324       3,214       1,974  
Total   $ 4,618     $ 9,394     $ 10,524     $ 17,055  
                                 
                                 
 
 
CERADYNE, INC.
MARKET APPLICATION INFORMATION
(Dollar amounts in millions)
 
We categorize our products into five market applications. The tables below show our sales by market application and the percentage contribution to our total sales of each market application in the different time periods.
 
Sales by Market Application (in millions):
 
    Three Months Ended
June 30,
    Six Months Ended
June 30,
 
    2012   2011   Change     2012   2011   Change  
Defense   $ 55.6   $ 55.9   (0.5 %)   $ 92.2   $ 120.6   (23.6 %)
Industrial     40.8     42.8   (4.8 %)     81.0     82.3   (1.6 %)
Energy     21.0     34.0   (38.3 %)     35.8     67.2   (46.6 %)
Automotive/Diesel     8.0     10.3   (21.3 %)     17.9     20.0   (10.3 %)
Commercial     5.2     2.4   115.8 %     10.1     5.4   85.9 %
Total   $ 130.6   $ 145.4   (10.1 %)   $ 237.0   $ 295.5   (19.8 %)
                                     
                                     
 
Percentage Contribution:
 
    Three Months Ended
June 30,
    Six Months Ended
June 30,
 
    2012     2011     2012     2011  
Defense   42.6 %   38.5 %   38.9 %   40.9 %
Industrial   31.2     29.4     34.1     27.8  
Energy   16.0     23.3     15.1     22.7  
Automotive/Diesel   6.2     7.1     7.6     6.8  
Commercial   4.0     1.7     4.3     1.8  
Total   100.0 %   100.0 %   100.0 %   100.0 %