SOURCE: Ceradyne, Inc.

Ceradyne, Inc.

October 26, 2010 06:30 ET

Ceradyne, Inc. Reports Third Quarter, Nine-Month 2010 Financial Results

COSTA MESA, CA--(Marketwire - October 26, 2010) - Ceradyne, Inc. (NASDAQ: CRDN) reported financial results for the third quarter and nine months ended September 30, 2010.

Sales for the third quarter 2010 were $91.8 million, compared with $108.0 million in the third quarter 2009. Net income for the third quarter 2010 was $4.5 million, or $0.18 per fully diluted share, compared to net income of $4.9 million, or $0.19 per fully diluted share in the third quarter 2009.

Fully diluted average shares outstanding for the third quarter 2010 were 25,141,214 compared to 25,797,988 in the same period in 2009.

On July 27, 2010, Ceradyne revised its 2010 guidance to a range of $0.80 to $1.18 per fully diluted share on shipments of $400 million to $430 million in sales. Although the level of Q4 2010 ceramic body armor shipments remains uncertain, we believe we will meet our guidance.

Based on the growth of sales in solar crucibles, nuclear products and the continued turnaround at its ESK Ceramics subsidiary, Ceradyne's 2011 guidance is for sales to range from $445 to $515 million and earnings to range from $1.35 to $1.75 per fully diluted share. The range in sales and earnings per share is caused by a lack of sufficient information to project its body armor and enhanced combat helmets business for most of 2011. This guidance assumes a range in the annual tax rate of 27% to 29% with fully diluted average outstanding shares of 25.3 million.

Gross profit margin was 25.7% of net sales in the third quarter 2010 compared to 26.5% in the same period in 2009. The provision for income taxes was 10.2% in third quarter 2010, compared to a benefit for income taxes of 22.4% in the same period in 2009.

Sales for the nine months ended September 30, 2010 were $302.2 million, compared with $303.0 million in the same period last year. Net income for the nine months ended September 30, 2010 was $16.1 million, or $0.63 per fully diluted share, on 25.5 million shares, compared to a net loss of $5.6 million, or $0.22 per basic share, on 25.7 million shares in the prior year period. The loss included special charges that had a negative impact by reducing earnings per share by approximately $0.51 for the nine months ended September 30, 2009. The special pre-tax charges totaled $17.3 million during the nine month period ending September 30, 2009 which included a pre-tax $11.9 million restructuring charge for the closure of its plant in Bazet, France and other severance expenses and a non-cash pre-tax impairment charge of $3.8 million to write down the value of goodwill of its Ceradyne Canada reporting unit to reflect the current industry and economic environment and accelerated depreciation of $1.6 million resulting from a revision of the estimated useful lives of certain assets.

Gross profit margin was 24.8% of net sales in the nine months ended September 30, 2010 which was the same in the same period in 2009. The provision for income taxes was 17.9% in the nine months ended September 30, 2010, compared to a provision for income taxes of 9.7% in the same period in 2009.

New orders for the three months ended September 30, 2010 were $110.8 million, compared to $100.5 million for the same period last year. For the nine months ended September 30, 2010, new orders were $304.0 million, compared to $330.6 million for the comparable period last year.

Total backlog as of September 30, 2010 was $136.3 million, compared to total backlog at September 30, 2009 of $156.3 million.

Joel P. Moskowitz, Ceradyne President and Chief Executive Officer, commented: "The third quarter continued the recent trend of substantively reduced body armor shipments. At the same time, we continue the trend of extremely strong growth in solar crucible revenues and profits, as well as the major turnaround in our ESK industrial ceramic operations. We are also pleased with recent activities at Ceradyne Boron Products related to our neutron absorbing boron isotopes for nuclear power plant applications.

"We believe these trends will continue into 2011 with increased solar crucible capacity in China based on completion of our new Tianjin 218,000 square foot facility in Q1 2011. We also anticipate strength in the industrial ceramics being produced by our German ESK Ceramics subsidiary with potentially new business emanating from PetroCeram® oil and gas sand filters, directional drilling bearings, and other oil and gas related technical ceramics."

Mr. Moskowitz further stated, "A few recent Ceradyne developments which are of interest include:

--  The German Federal Supreme Court in Karlsruhe, Germany, has upheld ESK
    Ceramics' basic 'EKagrip®' patents in a long-term battle with an ESK
    competitor. EKagrip® amounts to approximately 10% of ESK's sales and
    is expected to grow. The court's ruling protects ESK's position for an
    additional eight years.

--  The Company's first PetroCeram® oil sand filter has been in place in
    the North Sea off the Danish coast for over four months and is
    performing as expected.

--  Ceradyne's proposed new Enhanced Combat Helmet prototypes are being
    extensively tested and evaluated by the military with initial very
    positive results.

--  Ceradyne Thermo Materials is developing next generation high purity
    ceramic crucibles for photovoltaic solar applications.

--  Ceradyne Thermo Materials has been asked to respond to recent increases
    for deliveries in ceramic missile nose cone (radome) requirements in
    2011.

"It is interesting to note that as recently as 2007 defense related products, primarily body armor, accounted for 74% of Ceradyne's revenue. This percentage is now about 33% year to date and is projected to be between 20% and 30% in 2011.

"With cash and short-term investments at approximately $258 million, we continue to maintain a healthy balance sheet with over $10 per fully diluted share in cash. We intend to use our cash to support our internal growth plans, particularly related to solar expansion, periodically repurchase Ceradyne stock (494,000 shares repurchased in Q3 2010), and to acquire companies according to our acquisition strategy."

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 third quarter ended September 30, 2010. To participate in the teleconference, please call toll free 877-681-3372 (or 719-325-4886 for international callers) approximately 10 minutes prior to the above start time and provide Conference ID 9789411. 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. PDT on October 26, 2010 through 11 a.m. PDT on October 28, 2010. The playback can be accessed by calling 888-203-1112 (or 719-457-0820 for international callers) and providing Conference ID 9789411.

Information about Ceradyne, Inc.

Ceradyne develops, manufactures and markets advanced technical ceramic products and components for defense, industrial, 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, 2009, 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       Nine Months Ended
                                September 30,            September 30,
                            ----------------------  ----------------------
                               2010        2009        2010        2009
                            ----------  ----------  ----------  ----------
                                  (Unaudited)             (Unaudited)
NET SALES                   $   91,766  $  107,954  $  302,219  $  302,993
COST OF GOODS SOLD              68,150      79,329     227,392     227,717
                            ----------  ----------  ----------  ----------
     Gross profit               23,616      28,625      74,827      75,276
OPERATING EXPENSES
     Selling, general and
      administrative            14,418      17,537      43,947      51,619
     Acquisition related
      charge (credit)               31        (795)        (88)       (795)
     Research and
      development                2,613       2,862       8,731       9,512
     Restructuring - plant
      closure and severance          -          88           7      11,931
     Goodwill impairment             -           -           -       3,832
                            ----------  ----------  ----------  ----------
                                17,062      19,692      52,597      76,099
                            ----------  ----------  ----------  ----------
INCOME (LOSS) FROM
 OPERATIONS                      6,554       8,933      22,230        (823)
                            ----------  ----------  ----------  ----------
OTHER INCOME (EXPENSE):
     Interest income               935         901       2,562       2,424
     Interest expense           (1,518)     (1,520)     (4,713)     (5,469)
     Gain on early
      extinguishment of
      debt                           -          96           -       1,881
     Loss on auction rate
      securities                     -      (1,849)       (978)     (3,480)
     Miscellaneous                (917)       (197)        493        (694)
                            ----------  ----------  ----------  ----------
                                (1,500)     (2,569)     (2,636)     (5,338)
                            ----------  ----------  ----------  ----------
INCOME (LOSS) BEFORE
 PROVISION FOR INCOME TAXES      5,054       6,364      19,594      (6,161)
PROVISION (BENEFIT) FOR
 INCOME TAXES                      517       1,428       3,504        (595)
                            ----------  ----------  ----------  ----------
NET INCOME (LOSS)           $    4,537  $    4,936  $   16,090  $   (5,566)
                            ==========  ==========  ==========  ==========
BASIC INCOME (LOSS) PER
 SHARE                      $     0.18  $     0.19  $     0.64  $    (0.22)
                            ==========  ==========  ==========  ==========
DILUTED INCOME (LOSS) PER
 SHARE                      $     0.18  $     0.19  $     0.63  $    (0.22)
                            ==========  ==========  ==========  ==========
WEIGHTED AVERAGE SHARES
 OUTSTANDING:
BASIC                           24,960      25,681      25,329      25,737
DILUTED                         25,141      25,798      25,506      25,737








                                CERADYNE, INC.
                          CONSOLIDATED BALANCE SHEETS
                   (Amounts in thousands, except share data)


                                                 September 30, December 31,
                                                     2010         2009
                                                  ------------ ------------
                                                        (Unaudited)
CURRENT ASSETS
     Cash and cash equivalents                    $     32,168 $    122,154
     Restricted cash                                         -        3,130
     Short-term investments                            225,549      117,666
     Accounts receivable, net of allowances for
      doubtful accounts of $792 and $851
      at September 30, 2010 and
      December 31, 2009, respectively                   50,136       53,269
     Other receivables                                  16,934       11,424
     Inventories, net                                   84,401      100,976
     Production tooling, net                            11,445       12,006
     Prepaid expenses and other                         19,140       19,932
     Deferred tax asset                                 11,353       13,796
                                                  ------------ ------------
     TOTAL CURRENT ASSETS                              451,126      454,353
                                                  ------------ ------------

PROPERTY, PLANT AND EQUIPMENT, net                     240,661      239,322
LONG TERM INVESTMENTS                                   27,275       20,019
INTANGIBLE ASSETS, net                                  84,853       89,409
GOODWILL                                                43,394       43,880
OTHER ASSETS                                             2,506        2,721
                                                  ------------ ------------

TOTAL ASSETS                                      $    849,815 $    849,704
                                                  ============ ============

CURRENT LIABILITIES
     Accounts payable                             $     23,959 $     24,683
     Accrued expenses                                   25,052       23,463
                                                  ------------ ------------
         TOTAL CURRENT LIABILITIES                      49,011       48,146
LONG-TERM DEBT                                          84,713       82,163
EMPLOYEE BENEFITS                                       21,215       21,769
OTHER LONG TERM LIABILITY                               38,539       39,561
DEFERRED TAX LIABILITY                                   8,568        8,348
                                                  ------------ ------------

TOTAL LIABILITIES                                      202,046      199,987
                                                  ------------ ------------

COMMITMENTS AND CONTINGENCIES (Note 13)
SHAREHOLDERS' EQUITY
     Common stock, $0.01 par value, 100,000,000
      authorized, 24,902,142 and 25,401,005
      shares issued and outstanding at September
      30, 2010 and December 31, 2009,
      respectively                                         249          254
     Additional paid-in capital                        146,414      157,679
     Retained earnings                                 486,346      470,256
     Accumulated other comprehensive income             14,760       21,528
                                                  ------------ ------------
     TOTAL SHAREHOLDERS' EQUITY                        647,769      649,717
                                                  ------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY        $    849,815 $    849,704
                                                  ============ ============




                                 CERADYNE, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Amounts in thousands)

                                                      Nine Months Ended
                                                        September 30,
                                                  ------------------------
                                                      2010         2009
                                                  -----------  -----------
                                                        (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net income (loss)                            $    16,090  $    (5,566)
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET
 CASH PROVIDED BY OPERATING ACTIVITIES:
     Depreciation and amortization                     26,979       28,649
     Amortization of bond premium                         273            -
     Non cash interest expense on convertible
      debt                                              2,550        2,817
     (Gain) on early extinguishment of debt                 -       (1,881)
     Payments of accreted interest on repurchased
      convertible debt                                      -       (2,956)
     Deferred income taxes                              1,376       (3,047)
     Stock compensation                                 2,994        2,906
     Loss on marketable securities                        978        3,480
     Goodwill impairment                                    -        3,832
     Loss on equipment disposal                           510          425
     Change in operating assets and liabilities
      (net of effect of businesses acquired):
        Accounts receivable, net                        2,855           94
        Other receivables                              (5,534)       1,352
        Inventories, net                               15,132        5,387
        Production tooling, net                           506          995
        Prepaid expenses and other assets                 483          477
        Accounts payable and accrued expenses           2,480        8,985
        Income taxes payable                             (106)       1,900
        Other long term liability                      (1,063)        (510)
        Employee benefits                                 386        1,071
                                                  -----------  -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES              66,889       48,410
                                                  -----------  -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
     Purchases of property, plant and equipment       (30,665)     (13,588)
     Changes in restricted cash                         3,130         (428)
     Purchases of marketable securities              (119,956)    (136,173)
     Proceeds from sales and maturities of
      marketable securities                             4,489       64,051
     Cash paid for acquisitions                             -       (9,655)
     Proceeds from sale of equipment                      465           72
                                                  -----------  -----------
NET CASH USED IN INVESTING ACTIVITIES                (142,537)     (95,721)
                                                  -----------  -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from issuance of stock due to
    exercise of options                                   224           14
     Excess tax benefit due to exercise of stock
      options                                               7           24
     Shares repurchased                               (14,837)      (5,099)
     Reduction on long term debt                            -      (20,239)
                                                  -----------  -----------

NET CASH USED IN FINANCING ACTIVITIES                 (14,606)     (25,300)
                                                  -----------  -----------
EFFECT OF EXCHANGE RATES ON CASH AND CASH
 EQUIVALENTS                                              268        1,047
                                                  -----------  -----------
DECREASE IN CASH AND CASH EQUIVALENTS                 (89,986)     (71,564)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD        122,154      215,282
                                                  -----------  -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD          $    32,168  $   143,718
                                                  ===========  ===========





                                  CERADYNE, INC.
                          SEGMENT FINANCIAL INFORMATION
                              (Amounts in thousands)

                                 Three Months Ended     Nine Months Ended
                                    September 30,         September 30,
                                --------------------  --------------------
                                  2010       2009       2010       2009
                                ---------  ---------  ---------  ---------
Revenue from External Customers
Advanced Ceramic Operations     $  25,949  $  60,591  $ 116,832  $ 169,453
ESK Ceramics                       32,134     27,971     94,843     75,636
Semicon Associates                  2,328      1,834      6,908      5,854
Thermo Materials                   26,458     16,446     69,818     47,970
Ceradyne Canada                     1,903        300      3,275        618
Boron                               7,291      5,748     19,878     19,200
Inter-segment elimination          (4,297)    (4,936)    (9,335)   (15,738)
                                ---------  ---------  ---------  ---------
Total                           $  91,766  $ 107,954  $ 302,219  $ 302,993
                                =========  =========  =========  =========

Depreciation and Amortization
Advanced Ceramic Operations     $   1,984  $   2,583  $   6,646  $   7,851
ESK Ceramics                        3,158      3,818      9,417     10,905
Semicon Associates                     85         84        252        270
Thermo Materials                    1,522      1,160      4,559      3,411
Ceradyne Canada                       343        347      1,026        988
Boron                               1,648      1,298      5,079      5,224
                                ---------  ---------  ---------  ---------
Total                           $   8,740  $   9,290  $  26,979  $  28,649
                                =========  =========  =========  =========

Segment Income (Loss) from
 Operations
Advanced Ceramic Operations     $  (9,676) $   7,751  $ (11,261) $  17,371
ESK Ceramics                        6,351     (1,997)    13,704    (20,503)
Semicon Associates                    365        114      1,020        587
Thermo Materials                    8,938      3,815     21,925     11,614
Ceradyne Canada                       (15)      (680)    (1,482)    (6,323)
Boron                               1,055        (62)      (985)    (3,714)
Inter-segment elimination            (464)        (8)      (691)       145
                                ---------  ---------  ---------  ---------
Total                               6,554      8,933     22,230       (823)
Other Income (Expense)             (1,500)    (2,569)    (2,636)    (5,338)
                                ---------  ---------  ---------  ---------

Income (Loss) before Provision
 for Income Taxes               $   5,054  $   6,364  $  19,594  $  (6,161)
                                =========  =========  =========  =========

Segment Assets
Advanced Ceramic Operations     $ 394,276  $ 399,021  $ 394,276  $ 399,021
ESK Ceramics                      185,682    214,064    185,682    214,064
Semicon Associates                  5,732      5,724      5,732      5,724
Thermo Materials                  135,995    107,104    135,995    107,104
Ceradyne Canada                    17,285     17,038     17,285     17,038
Boron                             110,845    113,438    110,845    113,438
                                ---------  ---------  ---------  ---------
Total                           $ 849,815  $ 856,389  $ 849,815  $ 856,389
                                =========  =========  =========  =========

Expenditures for Property,
 Plant & Equipment
Advanced Ceramic Operations     $   1,841  $     629  $   4,993  $   2,761
ESK Ceramics                          429       (356)     1,416      2,568
Semicon Associates                     44         49        485        124
Thermo Materials                    8,708        795     21,374      7,512
Ceradyne Canada                        33        (44)       153        119
Boron                                 297        184      2,244        504
                                ---------  ---------  ---------  ---------
Total                           $  11,352  $   1,257  $  30,665  $  13,588
                                =========  =========  =========  =========





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

We categorize our products into four 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    Nine Months Ended
                                    September 30,         September 30,
                                --------------------  --------------------
                                  2010        2009       2010       2009
                                ---------  ---------  ---------  ---------
Defense                         $  18,660  $  56,637  $  98,165  $ 159,087
Industrial                         61,037     41,642    168,406    116,882
Automotive/Diesel                   9,458      6,779     27,145     17,948
Commercial                          2,611      2,896      8,503      9,076
                                ---------  ---------  ---------  ---------
Total                           $  91,766  $ 107,954  $ 302,219  $ 302,993
                                =========  =========  =========  =========


                                  Three Months Ended    Nine Months Ended
                                    September 30,         September 30,
                                --------------------  --------------------
                                  2010        2009       2010       2009
                                ---------  ---------  ---------  ---------
Defense                              20.4%      52.4%      32.5%      52.5%
Industrial                           66.5       38.6       55.7       38.6
Automotive/Diesel                    10.3        6.3        9.0        5.9
Commercial                            2.8        2.7        2.8        3.0
                                ---------  ---------  ---------  ---------
Total                               100.0%     100.0%     100.0%     100.0%
                                =========  =========  =========  =========