February 16, 2012 at 06:30 AM EST
Ceradyne, Inc. Reports Fourth Quarter, Twelve-Month 2011 Financial Results

COSTA MESA, CA -- (Marketwire) -- 02/16/12 -- Ceradyne, Inc. (NASDAQ: CRDN) reported financial results for the fourth quarter and twelve months ended December 31, 2011.

Sales for the fourth quarter 2011 were $128.5 million, compared with $100.7 million in the fourth quarter 2010. Net income for the fourth quarter 2011 increased to $20.8 million, or $0.85 per fully diluted share, on 24,345,961 shares, compared to a net income of $13.2 million, or $0.53 per fully diluted share on 24,968,532 shares in the fourth quarter 2010. On a non-GAAP basis, net income for the fourth quarter 2011 increased to $13.6 million, or $0.56 per fully diluted share, compared to a net income of $10.9 million, or $0.44 per fully diluted share in the fourth quarter 2010.

Sales for the twelve months ended December 31, 2011 were $572.0 million, compared with $402.9 million for 2010. Net income for the twelve months ended December 31, 2011 was $83.9 million, or $3.38 per fully diluted share, on 24,786,106 shares, compared to net income of $29.3 million, or $1.15 per fully diluted share on 25,370,229 shares in the prior year period. On a non-GAAP basis, net income for the twelve months ended December 31, 2011 was $78.1 million, or $3.15 per fully diluted share compared to net income of $27.6 million, or $1.09 per fully diluted share.

Net income included special charges and special credits that when combined had a positive impact by increasing diluted earnings per share by approximately $0.29 for the fourth quarter of 2011. The special charges totaled $8.7 million during the fourth quarter of 2011, which included a pre-tax $0.9 million restructuring charge for the closure of our facility in Billerica, Massachusetts and a pre-tax $7.8 million charge to write down the value of goodwill related to our acquisition of VIOX Corporation. The write down of goodwill was to reflect the current economic environment as a result of the recent downturn in the solar industry. The special credits totaled $19.4 million during the fourth quarter and were associated with the adjustment of economic assumptions regarding our purchase of the assets of Diaphorm, LLC in 2009, and our acquisitions of SemEquip in 2008 and VIOX in January 2011. During the fourth quarter, we revised the estimated future sales and earnings of Diaphorm, which caused an increase to the estimated acquisition liability and a charge to pre-tax earnings for the quarter and the year ended December 31, 2011 of $1.0 million. Also during the fourth quarter of 2011, we revised the estimated future sales and earnings of VIOX and SemEquip, which caused a decrease to the estimated acquisition liability and a credit to pre-tax earnings for the quarter and the year ended December 31, 2011 of $11.5 million for VIOX and $6.9 million for SemEquip.

Gross profit margin was 32.6% of net sales in the fourth quarter 2011, compared to 32.8% in the same period in 2010. The provision for income taxes was 36.2% in the fourth quarter 2011, compared to a benefit from income taxes in the same period in 2010.

Gross profit margin was 36.1% of net sales in the twelve months ended December 31, 2011 compared to 26.8% in 2010. The provision for income taxes was 34.4% in the twelve months ended December 31, 2011, compared to a benefit from income taxes in 2010.

New orders for the three months ended December 31, 2011 were $58.1 million, compared to $151.3 million for the same period last year. For the year ended December 31, 2011, new orders were $670.6 million, compared to $455.3 million for 2010.

Total backlog as of December 31, 2011 was $284.9 million, compared to total backlog at December 31, 2010 of $185.8 million.

Total cash, cash equivalents and short-term investments increased to $275.0 million at December 31, 2011 compared to $246.3 million at December 31, 2010.

Ceradyne's initial 2012 guidance is for sales to range from $590 million to $625 million and earnings to range from $2.30 to $2.65 per fully diluted share. These projections are based on our current backlog plus projected new 2012 orders. Our guidance assumes receipt of an initial low rate production order on the enhanced combat helmet (ECH) within the next several weeks with full-scale, multi-year ECH production contracts executed in Q2 this year. We also anticipate a soft first half of 2012 for our photovoltaic solar crucibles, increasing throughout 2012.

Ceradyne's development pipeline of PetroCeram® ceramic sand screens, ceramic thrust bearings for oil and gas drilling, and several proprietary industrial and pharmaceutical products will all be in limited production in 2012.

Joel P. Moskowitz, Ceradyne president, chief executive officer and chairman of the board, commented, "In general, we are very pleased with our fourth quarter performance and the 2011 full-year performance. Our diversification strategy of products, markets and geography demonstrated its relevance in 2011. As the year progressed, our solar business declined as the result of significant over capacity and excessive inventory levels of our customers, particularly in China. Yet other areas of Ceradyne, such as defense, nuclear and industrial, showed additional strength which allowed us to meet our internal goals and continue to implement our 'Ceradyne $1 Billion' strategy."

Mr. Moskowitz further stated, "2012 should reflect continuation of certain trends we saw in 2011. Although we expect our solar business to exhibit weakness early this year, we believe our customers will work off their inventories with resultant firming of Ceradyne solar related business levels later this year. We also expect a strong defense sector in 2012, particularly in Ceradyne's lightweight ceramic body armor. Although the enhanced combat helmet (ECH) qualification process has taken longer than originally expected, we are very optimistic about this program."

Mr. Moskowitz continued, "A high priority for future new business at Ceradyne is our R&D pipeline of new advanced technical ceramics covering a wide range of our areas of interest. Continuing outstanding results in the oil field of our PetroCeram® ceramic sand screen has encouraged us to expand our internal capacity and increase our technology and marketing team in Kempten, Germany. We are substantively increasing our manufacturing capacity of the isotope B10 in Quapaw, Oklahoma in response to what we believe are increasing opportunities in the nuclear power plant industry, particularly in China."

Furthermore, Mr. Moskowitz stated, "Our strong balance sheet with $275 million in cash and short term investments will enable us to invest internally, pursue our acquisition strategy, and increase shareholder value through opportunistic stock buybacks."

Non-GAAP Financial Measures

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.

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 ended December 31, 2011. To participate in the teleconference, please call toll free 888-378-0320 (or 719-325-2343 for international callers) approximately 10 minutes prior to the above start time and provide Passcode 4527399. In a previous press release, incorrect dial-in numbers were distributed; please use the numbers as disclosed in this press release. 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. PST on February 16th through 12:00 p.m. PST on February 18th. The playback can be accessed by calling 888-203-1112 (or 719-457-0820 for international callers) and providing Passcode 4527399.

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     Twelve Months Ended
                                   December 31,           December 31,
                             ----------------------  ----------------------
                                2011        2010        2011        2010
                             ----------  ----------  ----------  ----------
NET SALES                    $  128,530  $  100,719  $  571,982  $  402,938
COST OF GOODS SOLD               86,656      67,686     365,337     295,078
                             ----------  ----------  ----------  ----------
  Gross profit                   41,874      33,033     206,645     107,860
OPERATING EXPENSES
  Selling, general and
   administrative                16,782      17,993      74,325      61,940
  Research and development        3,191       2,961      12,446      11,692
  Restructuring - plant
   closure and severance            914       3,498         914       3,505
  Acquisition related
   (credits) charges            (19,422)      1,655     (17,298)      1,567
  Goodwill impairment             7,797           -       7,797           -
                             ----------  ----------  ----------  ----------
                                  9,262      26,107      78,184      78,704
                             ----------  ----------  ----------  ----------
INCOME FROM OPERATIONS           32,612       6,926     128,461      29,156
                             ----------  ----------  ----------  ----------
OTHER INCOME (EXPENSE):
  Interest income                 1,247       2,793       3,991       5,355
  Interest expense               (1,782)     (1,534)     (6,620)     (6,247)
  Gain (loss) on auction
   rate securities                  630           -         630        (978)
  Miscellaneous                    (177)        592       1,494       1,085
                             ----------  ----------  ----------  ----------
                                    (82)      1,851        (505)       (785)
                             ----------  ----------  ----------  ----------
INCOME BEFORE PROVISION
 (BENEFIT) FOR INCOME TAXES      32,530       8,777     127,956      28,371
PROVISION (BENEFIT) FOR
 INCOME TAXES                    11,777      (4,409)     44,068        (905)
                             ----------  ----------  ----------  ----------
NET INCOME                   $   20,753  $   13,186  $   83,888  $   29,276
                             ==========  ==========  ==========  ==========
BASIC INCOME PER SHARE       $     0.86  $     0.53  $     3.41  $     1.16
                             ==========  ==========  ==========  ==========
DILUTED INCOME PER SHARE     $     0.85  $     0.53  $     3.38  $     1.15
                             ==========  ==========  ==========  ==========
WEIGHTED AVERAGE SHARES
 OUTSTANDING:
BASIC                            24,169      24,713      24,614      25,191
DILUTED                          24,346      24,969      24,786      25,370




                               CERADYNE, INC.
                         CONSOLIDATED BALANCE SHEETS
                    (In thousands, except for share data)

                                                            December 31,
                                                       ---------------------
                                                          2011       2010
                                                       ---------- ----------
                        ASSETS
Current assets:
  Cash and cash equivalents                            $   50,275 $   53,436
  Short term investments                                  224,772    192,860
  Accounts receivable, net of allowances for doubtful
   accounts of $1,547 and $685 in 2011 and 2010,
   respectively                                            73,646     53,019
  Other receivables                                         6,040     17,553
  Inventories                                             117,273     94,258
  Production tooling, net                                  11,792     10,037
  Prepaid expenses and other                               43,860     38,653
  Deferred tax asset                                        5,782      6,808
                                                       ---------- ----------
    Total current assets                                  533,440    466,624

Property, plant and equipment, net                        243,376    243,681
Long term investments                                      15,026     26,187
Intangible assets, net                                    100,690     83,475
Goodwill                                                   42,926     43,219
Other assets                                               12,673      2,127
                                                       ---------- ----------
    Total assets                                       $  948,131 $  865,313
                                                       ========== ==========

         LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable                                     $   29,191 $   25,738
  Accrued expenses and other liabilities                   30,470     24,603
  Income taxes payable                                      5,331      1,869
  Short-term debt                                          89,294          -
                                                       ---------- ----------
    Total current liabilities                             154,286     52,210

Long-term debt                                                  -     85,599
Employee benefits                                          24,462     22,269
Other long term liabilities                                37,224     41,902
Deferred tax liability                                     23,461     11,124
                                                       ---------- ----------
    Total liabilities                                     239,433    213,104
                                                       ---------- ----------
Commitments and contingencies (Note 8)

Stockholders' equity:
  Common Stock, $0.01 par value: 100,000,000
   authorized; 24,175,051 and 24,713,126 shares issued
   and outstanding at December 31, 2011 and 2010,
   respectively                                               242        247
  Additional paid in capital                              121,940    141,973
  Retained earnings                                       583,420    499,532
  Accumulated other comprehensive income                    3,096     10,457
                                                       ---------- ----------
    Total stockholders' equity                            708,698    652,209
                                                       ---------- ----------
    Total liabilities and stockholders' equity         $  948,131 $  865,313
                                                       ========== ==========




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

                                                       Twelve Months Ended
                                                          December 31,
                                                     ----------------------
                                                        2011        2010
                                                     ----------  ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income                                         $   83,888  $   29,276
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
 PROVIDED BY OPERATING ACTIVITIES:
  Depreciation and amortization                          38,750      36,148
  Amortization of bond premium                              985         620
  Non cash interest expense on convertible debt           3,695       3,436
  Deferred income taxes                                  16,209       9,773
  Stock compensation                                      4,146       3,844
  (Gain) losses on auction rate securities                 (630)        978
  Loss on other securities                                   80         328
  Goodwill impairment                                     7,797           -
  Loss on equipment disposal                                382       2,992
  Change in operating assets and liabilities (net of
   effect of businesses acquired):
    Accounts receivable, net                            (18,038)        814
    Other receivables                                    11,875      (1,724)
    Inventories, net                                    (21,284)       (611)
    Production tooling, net                               3,640       1,952
    Prepaid expenses and other assets                   (19,557)    (18,541)
    Accounts payable and accrued expenses                 8,702       1,789
    Income taxes payable                                  2,932       1,193
    Other long term liability                           (17,048)      2,280
    Employee benefits                                     2,168       1,588
                                                     ----------  ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES               108,692      76,135
                                                     ----------  ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of property, plant and equipment            (31,262)    (44,220)
  Changes in restricted cash                                  -       3,130
  Purchases of marketable securities                    (78,622)   (122,927)
  Proceeds from sales and maturities of marketable
   securities                                            52,466      39,489
  Cash paid for acquisitions                            (27,673)          -
  Proceeds from sale of equipment                         1,781         969
                                                     ----------  ----------
NET CASH USED IN INVESTING ACTIVITIES:                  (83,310)   (123,559)
                                                     ----------  ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from issuance of stock due to exercise of
   options                                                1,163         362
  Excess tax benefit due to exercise of stock
   options                                                  740         472
  Shares repurchased                                    (25,775)    (19,766)
                                                     ----------  ----------
NET CASH USED IN FINANCING ACTIVITIES                   (23,872)    (19,876)
                                                     ----------  ----------
EFFECT OF EXCHANGE RATES ON CASH AND CASH
 EQUIVALENTS                                             (4,671)     (1,418)
                                                     ----------  ----------
DECREASE IN CASH AND CASH EQUIVALENTS                    (3,161)    (68,718)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD           53,436     122,154
                                                     ----------  ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD             $   50,275  $   53,436
                                                     ==========  ==========




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

The financial information for all segments is presented below (in thousands):

                               Three Months Ended      Twelve Months Ended
                                  December 31,            December 31,
                             ----------------------  ----------------------
                                2011        2010        2011        2010
                             ----------  ----------  ----------  ----------
Revenue from External
 Customers
Advanced Ceramic Operations  $   60,233  $   28,838  $  277,541  $  152,578
ESK Ceramics                     37,685      35,904     163,592     130,747
Thermo Materials                 14,260      28,952      98,895      98,770
Boron                            22,714      11,857      55,430      35,010
Inter-segment elimination        (6,362)     (4,832)    (23,476)    (14,167)
                             ----------  ----------  ----------  ----------
Total                        $  128,530  $  100,719  $  571,982  $  402,938
                             ==========  ==========  ==========  ==========

Depreciation and
 Amortization
Advanced Ceramic Operations  $    2,034  $    2,340  $    9,790  $    9,238
ESK Ceramics                      3,087       3,208      12,742      12,625
Thermo Materials                  2,167       1,617       8,015       6,176
Boron                             2,032       2,004       8,203       8,109
                             ----------  ----------  ----------  ----------
Total                        $    9,320  $    9,169  $   38,750  $   36,148
                             ==========  ==========  ==========  ==========

Segment Income (Loss) from
 Operations and Income
 Before Provision for Income
 Taxes
Advanced Ceramic Operations  $   14,576  $  (12,872) $   60,253  $  (23,113)
ESK Ceramics                      6,886       7,429      30,865      21,133
Thermo Materials                 (2,857)     12,026      20,029      33,951
Boron                            13,990          82      16,822      (2,385)
Inter-segment elimination            17         261         492        (430)
                             ----------  ----------  ----------  ----------
Income from Operations           32,612       6,926     128,461      29,156
Other Income (Expense)              (82)      1,851        (505)       (785)
                             ----------  ----------  ----------  ----------
Income before Provision for
 Income Taxes                $   32,530  $    8,777  $  127,956  $   28,371
                             ==========  ==========  ==========  ==========

Segment Assets
Advanced Ceramic Operations  $  474,633  $  414,425  $  474,633  $  414,425
ESK Ceramics                    170,193     173,387     170,193     173,387
Thermo Materials                172,806     149,960     172,806     149,960
Boron                           130,499     127,541     130,499     127,541
                             ----------  ----------  ----------  ----------
Total                        $  948,131  $  865,313  $  948,131  $  865,313
                             ==========  ==========  ==========  ==========

Expenditures for Property,
 Plant & Equipment
Advanced Ceramic Operations  $    1,312  $    1,333  $    6,276  $    6,811
ESK Ceramics                      1,573       1,081       5,278       2,497
Thermo Materials                  2,414      10,713      13,780      32,087
Boron                             2,123         428       5,928       2,825
                             ----------  ----------  ----------  ----------
Total                        $    7,422  $   13,555  $   31,262  $   44,220
                             ==========  ==========  ==========  ==========




                               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       Twelve Months Ended
                                 December 31,             December 31,
                            ----------------------   ----------------------
                              2011    2010  Change     2011    2010  Change
                            ------- ------- ------   ------- ------- ------
Defense                     $  51.1 $  19.1  167.2%  $ 225.3 $ 117.3   92.0%
Industrial                     38.3    39.4   (3.0%)   163.2   138.6   17.8%
Energy                         25.1    30.7  (18.4%)   129.0    99.9   29.1%
Automotive/Diesel               9.8     8.8   12.8%     40.1    35.9   11.7%
Commercial                      4.2     2.7   55.7%     14.4    11.2   28.8%
                            ------- ------- ------   ------- ------- ------
Total                       $ 128.5 $ 100.7   27.6%  $ 572.0 $ 402.9   42.0%
                            ======= ======= ======   ======= ======= ======

Percentage Contribution:

                                  Three Months Ended    Twelve Months Ended
                                     December 31,          December 31,
                                 --------------------  --------------------
                                    2011       2010       2011       2010
                                 ---------  ---------  ---------  ---------
Defense                               39.8%      19.0%      39.4%      29.1%
Industrial                            29.7       39.1       28.6       34.4
Energy                                19.5       30.5       22.5       24.8
Automotive/Diesel                      7.7        8.7        7.0        8.9
Commercial                             3.3        2.7        2.5        2.8
                                 ---------  ---------  ---------  ---------
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    Twelve Months Ended
                                     December 31,          December 31,
                                 --------------------  --------------------
                                    2011       2010       2011       2010
                                 ---------  ---------  ---------  ---------
GAAP income from operations      $  32,612  $   6,926  $ 128,461  $  29,156
1. Acquisition related charge
 (credit)                          (19,422)     1,655    (17,298)     1,567
2. Restructuring, plant closure
 and severance                         914      3,498        914      3,505
3. Goodwill impairment               7,797          -      7,797          -
                                 ---------  ---------  ---------  ---------
Non-GAAP income from operations
 before acquisition,
 restructuring and goodwill
 impairment charges              $  21,901  $  12,079  $ 119,874  $  34,228
                                 =========  =========  =========  =========

GAAP net income                  $  20,753  $  13,186  $  83,888  $  29,276

Reconciling items:
  Special charges (credits)
    1. Acquisition related
     charge (credit)               (19,422)     1,655    (17,298)     1,567
    2. Restructuring, plant
     closure and severance             914      3,498        914      3,505
    3. Goodwill impairment           7,797          -      7,797          -
    4. (Gain) loss on auction
     rate securities                  (630)         -       (630)       978
                                 ---------  ---------  ---------  ---------
Total special charges (credits)    (11,341)     5,153     (9,217)     6,050
                                 ---------  ---------  ---------  ---------

  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
    Tax effect on other non-GAAP
     adjustments                     4,166      2,033      3,386      2,387
Total tax effect on non-GAAP
 adjustments (A)                     4,166      7,419      3,386      7,773
                                 ---------  ---------  ---------  ---------
Non-GAAP net income              $  13,578  $  10,920  $  78,057  $  27,553
                                 =========  =========  =========  =========

Diluted non-GAAP income per
 share                           $    0.56  $    0.44  $    3.15  $    1.09
Increase (decrease) due to non-
 GAAP adjustments                     0.29       0.09       0.23       0.06
                                 ---------  ---------  ---------  ---------
Diluted GAAP income per share    $    0.85  $    0.53  $    3.38  $    1.15
                                 =========  =========  =========  =========


(A) The tax effect on pre-tax non-GAAP adjustments is calculated using the
relevant tax jurisdictions' statutory tax rates.

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