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


July 24, 2012 - Costa Mesa, CA

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 Six Months Ended
June 30, 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, December 31,
2012 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 Six Months Ended
June 30, 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 Six Months Ended
June 30, 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 Six Months Ended
June 30, 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%
======== ======== ======== ========


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