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

COSTA MESA, CA -- (Marketwire) -- 07/24/12 -- 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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