CRDN Ceradyne, Inc. (MM)

Ceradyne, Inc. (Nasdaq: CRDN) reported financial results for the first quarter ended March 31, 2010.

Sales for the first quarter 2010 were $110.0 million, compared with $99.8 million in first quarter 2009. Net income for the first quarter 2010 increased to $5.0 million, or $0.20 per fully diluted share, compared to $0.7 million, or $0.03 per fully diluted share in the first quarter 2009. The net income for the first quarter 2010 included a pre-tax charge for losses on auction rate securities of $1.9 million or a reduction of approximately $0.05 to fully diluted earnings per share. Fully diluted average shares outstanding for first quarter 2010 were 25,585,369 compared to 26,033,194 in the same period in 2009.

The Company is again reiterating its guidance for the full fiscal year 2010 initially given on October 27, 2009 and reiterated on January 11, and again on February 27, 2010 of $.60 per fully diluted share to approximately $1.05 per fully diluted share and sales from $380.0 to $430.0 million.

Gross profit margin was 23.1% of net sales in the first quarter 2010 compared to 23.6% in the same period in 2009. The provision for income taxes was 23.5% in first quarter 2010, compared to 39.8% in the first quarter 2009.

New orders for first quarter 2010 were $105.7 million, compared to $150.7 million for the same period last year. Total order backlog as of March 31, 2010 was $130.8 million, compared to $177.2 million at March 31, 2009.

Joel P. Moskowitz, Ceradyne president and chief executive officer, commented: “Although today’s reported financial results for the first quarter of 2010 were well within our projections, I believe a more interesting and positive analysis can be obtained by examining what areas contributed to the total Company performance.

“Lightweight Ceramic Body Armor. Sales in Q1 2010 were $30.9 million, down $15.4 million from $46.3 million in shipments in Q1 2009. To date, we have not received additional delivery orders for either XSAPI or ESAPI against the remaining $2.2 billion ID/IQ (Indefinite Delivery/Indefinite Quantity) contract which runs through October 2013. The wide range in our projections is based on the uncertainty of body armor delivery orders in time to ship in 2010. We have recently accelerated our marketing efforts related to lightweight ceramic body armor.

“ESK Ceramics. Sales of ESK’s products increased $8.1 million in Q1 2010 from $23.6 million in Q1 2009 to $31.7 million in Q1 2010. ESK’s pre-tax income turned sharply around from a pre-tax loss in Q1 of last year of $4.4 million to a pre-tax income in Q1 2010 of $2.1 million. Furthermore, gross margins this quarter were 23.3% compared to 14.3% in last year’s first quarter.

“Although ESK experienced about $1.4 million in revenue in Q1 2010 that may not repeat going forward, we believe that many of ESK’s core product lines, as well as some pricing strength, will continue to produce positive results from our Germany based operation.

“Solar Energy (Thermo Materials Division). Ceradyne’s Thermo Materials division, which includes ceramic crucibles used in the manufacture of photovoltaic solar cells, ceramic missile radomes, and PIC (precision investment casting) materials saw their sales increase 36.8% to $22.2 million from Q1 2009’s $16.2 million. Related gross profits increased to $7.8 million from last year’s Q1 of $5.8 million. In Q1 2010, the Company began construction of its new 218,000 square foot solar crucible manufacturing plant in Tianjin, China. This new facility is expected to be operational early in 2011.

“Nuclear (Power Plant) Energy. Ceradyne’s entry into the nuclear energy market is predicated on the neutron absorbing properties of the element boron (B) and its isotope 10B. Our products consist of nuclear chemicals and ceramics based on our ability to separate the 10B isotope at our Ceradyne Boron Products subsidiary, nuclear waste containment structural components produced at our Ceradyne Canada subsidiary, and boron carbide powder used for control rods made in Kempten, Germany, by our ESK Ceramics subsidiary.

“New bookings for our nuclear product lines increased to $14.7 million in Q1 2010 from $4.9 million in Q1 2009 with backlog of nuclear related materials at $23.8 million at March 31, 2010 up from $12.7 million at March 31, 2009.”

Moskowitz further stated, “Our goal of a more balanced, diversified product line with increasing levels of non-defense products while maintaining our military products at a reduced level from prior years is falling into place. Our strong balance sheet with $252.0 million in cash, cash equivalents and short-term investments should provide the financial strength to continue to invest in internal expansion, possible acquisitions, and stock and/or convertible bond repurchases.”

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 first quarter ended March 31, 2010. To participate in the teleconference, please call toll free 877-717-3046 (or 706-634-6364 for international callers) approximately 10 minutes prior to the above start time and provide Conference ID 67770207. 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 April 27 through 11 a.m. PDT on April 30, 2010. The playback can be accessed by calling 800-642-1687 (or 706-645-9291 for international callers) and providing Conference ID 67770207.

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 March 31,

2010   2009   (Unaudited) NET SALES $ 110,038 $ 99,772 COST OF GOODS SOLD   84,672     76,185     Gross profit 25,366 23,587 OPERATING EXPENSES Selling 5,855 6,907 General and administrative 8,042 9,722 Acquisition related credit (88 ) - Research and development 2,944 3,378 Restructuring - severance   7     939       16,760     20,946     INCOME FROM OPERATIONS   8,606     2,641     OTHER INCOME (EXPENSE): Interest income 899 728 Interest expense (1,586 ) (2,085 ) Loss on auction rate securities (1,927 ) (104 ) Miscellaneous   529     (3 )     (2,085 )   (1,464 )   INCOME BEFORE PROVISION FOR INCOME TAXES 6,521 1,177 PROVISION FOR INCOME TAXES   1,531     469     NET INCOME $ 4,990   $ 708     BASIC INCOME PER SHARE $ 0.20   $ 0.03     DILUTED INCOME PER SHARE $ 0.20   $ 0.03     WEIGHTED AVERAGE SHARES OUTSTANDING: BASIC 25,411 25,822 DILUTED 25,585 26,033     CERADYNE, INC. CONSOLIDATED BALANCE SHEETS (Amounts in thousands, except share data)        

March 31, 2010

December 31, 2009

(Unaudited) CURRENT ASSETS Cash and cash equivalents $ 133,767 $ 122,154 Restricted cash - 3,130 Short-term investments 118,277 117,666 Accounts receivable, net of allowances for doubtful accounts of $749 and $851 at March 31, 2010 and December 31, 2009, respectively 59,552 53,269 Other receivables 20,063 11,424 Inventories, net 89,517 100,976 Production tooling, net 10,449 12,006 Prepaid expenses and other 16,278 19,932 Deferred tax asset   12,874   13,796   TOTAL CURRENT ASSETS   460,777   454,353   PROPERTY, PLANT AND EQUIPMENT, net 231,180 239,322 LONG TERM INVESTMENTS 19,612 20,019 INTANGIBLE ASSETS, net 87,696 89,409 GOODWILL 43,307 43,880 OTHER ASSETS   2,687   2,721

 

TOTAL ASSETS $ 845,259 $ 849,704   CURRENT LIABILITIES Accounts payable $ 23,399 $ 24,683 Accrued expenses   23,766   23,463   TOTAL CURRENT LIABILITIES 47,165 48,146 LONG-TERM DEBT 82,990 82,163 EMPLOYEE BENEFITS 20,786 21,769 OTHER LONG TERM LIABILITY 39,229 39,561 DEFERRED TAX LIABILITY   9,151   8,348   TOTAL LIABILITIES   199,321   199,987   COMMITMENTS AND CONTINGENCIES (Note 15) SHAREHOLDERS’ EQUITY Common stock, $0.01 par value, 100,000,000 authorized, 25,434,497 and 25,401,005 shares issued and outstanding at March 31, 2010 and December 31, 2009, respectively 256 254 Additional paid-in capital 158,245 157,679 Retained earnings 475,246 470,256 Accumulated other comprehensive income   12,191   21,528

 

TOTAL SHAREHOLDERS’ EQUITY   645,938   649,717   TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 845,259 $ 849,704         CERADYNE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands)  

Three Months Ended March 31,

2010       2009   (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 4,990 $ 708 ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Depreciation and amortization 9,178 9,465 Non cash interest expense on convertible debt 827 1,001 Deferred income taxes 174 (1,545 ) Stock compensation 964 865 Loss on marketable securities 1,927 104 Loss (gain) on equipment disposal 4 (12 ) Change in operating assets and liabilities (net of effect of businesses acquired): Accounts receivable, net (7,035 ) 4,613 Other receivables (8,863 ) 680 Inventories, net 9,672 (356 ) Production tooling, net 1,498 1,173 Prepaid expenses and other assets 3,300 1,040 Accounts payable and accrued expenses (134 ) (1,222 ) Income taxes payable - 1,717 Other long term liability (328 ) 72 Employee benefits   140     275    

NET CASH PROVIDED BY OPERATING ACTIVITIES

  16,314     18,578     CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment (6,851 ) (7,711 ) Changes in restricted cash 3,130 - Purchases of marketable securities (344 ) (24,583 ) Proceeds from sales and maturities of marketable securities 12 1,340 Proceeds from sale of equipment   284     14     NET CASH USED IN INVESTING ACTIVITIES   (3,769 )   (30,940 )   CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of stock due to exercise of options 24 5 Excess tax benefit due to exercise of stock options 7 - Shares repurchased   -     (832 )   NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES   31     (827 )   EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS   (963 )   (903 )   INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 11,613 (14,092 ) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD   122,154     215,282     CASH AND CASH EQUIVALENTS, END OF PERIOD $ 133,767   $ 201,190     SUPPLEMENTAL DISCLOSURES OF CASH FLOW ACTIVITIES: Interest paid $ 4 $ 7 Income taxes paid $ 1,369 $ 627       CERADYNE, INC. SEGMENT FINANCIAL INFORMATION (Amounts in thousands)  

The financial information for all segments is presented below:

  Three Months Ended March 31, 2010     2009 Revenue from External Customers Advanced Ceramic Operations $ 51,829 $ 56,250 ESK Ceramics 31,748 23,586 Semicon Associates 2,259 2,076 Thermo Materials 22,174 16,211 Ceradyne Canada 333 313 Boron 6,186 6,049 Inter-segment elimination   (4,491 )   (4,713 )   Total $ 110,038   $ 99,772     Depreciation and Amortization Advanced Ceramic Operations $ 2,348 $ 2,599 ESK Ceramics 3,303 3,138 Semicon Associates 84 93 Thermo Materials 1,345 1,348 Ceradyne Canada 341 310 Boron   1,757     1,977     Total $ 9,178   $ 9,465     Segment Income (Loss) before Provision for Income Taxes Advanced Ceramic Operations $ 2,059 $ 4,247 ESK Ceramics 2,071 (4,389 ) Semicon Associates 214 234 Thermo Materials 4,477 3,632 Ceradyne Canada (886 ) (769 ) Boron (1,220 ) (1,753 ) Inter-segment elimination   (194 )   (25 )   Total $ 6,521   $ 1,177     Segment Assets Advanced Ceramic Operations $ 411,180 $ 392,274 ESK Ceramics 192,166 209,922 Semicon Associates 5,695 6,046 Thermo Materials 107,995 98,064 Ceradyne Canada 16,866 21,139 Boron   111,357     118,261     Total $ 845,259   $ 845,706     Expenditures for Property, Plant & Equipment Advanced Ceramic Operations $ 1,312 $ 1,184 ESK Ceramics 487 1,424 Semicon Associates 188 51 Thermo Materials 3,389 4,793 Ceradyne Canada 46 100 Boron   1,429     159     Total $ 6,851   $ 7,711               CERADYNE, INC. MARKET APPLICATION INFORMATION (Amounts in thousands)  

We categorize our products into four market applications. The table below shows our sales by market application and the percentage contribution to our total sales of each market application in the different time periods.

  Three Months Ended March 31, 2010   2009   Sales % Sales % Defense $ 45,734 41.6 $ 52,228 52.3 Industrial 51,982 47.2 38,981 39.1 Automotive/Diesel 9,429 8.6 5,520 5.5 Commercial   2,893 2.6     3,043 3.1     Total $ 110,038 100.0 % $ 99,772 100.0 %