CRDN Ceradyne, Inc. (MM)

Ceradyne, Inc. (Nasdaq:CRDN) reported financial results for the fourth quarter and twelve months ended December 31, 2008.

Sales for fourth-quarter 2008 were $138.9 million, compared with $191.4 million in fourth-quarter 2007.�Net income for fourth-quarter 2008 decreased by $13.9 million or 39.7% to $21.3 million, or $0.81 per fully diluted share, compared to $35.2 million, or $1.28 per fully diluted share, in the fourth-quarter of 2007. Net income for fourth-quarter 2008 includes a pre-tax charge of $2.3 million from an other-than-temporary reduction in the value of our investments in auction rate securities. This charge had a negative impact on net income of approximately $0.06 per fully diluted share in the fourth-quarter 2008.

Gross profit margin was 37.1% of net sales in fourth-quarter 2008 compared to 39.6% in the same period in 2007. The provision for income taxes was 30.3% in fourth-quarter 2008, compared to 33.7% in the same period in 2007.

Sales for the twelve months ended December 31, 2008 were $680.2 million, compared with $756.8 million for the twelve months ended December 31, 2007. Net income for the twelve months ended December 31, 2008 was $106.8 million, or $4.00 per fully diluted share, on 26.7 million shares, down from $144.3 million, or $5.20 per fully diluted share, on 27.7 million shares, for the twelve-month period in 2007. Net income for the twelve months ended December 31, 2008 includes a pre-tax acquisition related compensation charge of $9.8 million associated with a pre-closing commitment by SemEquip, Inc., which we acquired in August 2008, to pay incentive compensation to certain employees and advisors, and a pre-tax charge of $5.9 million from an other-than-temporary reduction in the value of our investments in auction rate securities. These charges had a combined negative impact on net income of approximately $0.38 per fully diluted share in the year ended December 31, 2008.

New bookings for fourth-quarter 2008 were $90.2 million, compared to $258.0 million for the same period last year. For the twelve months ended December 31, 2008, new bookings were $566.8 million, compared to $651.3 million for the twelve months ended December 31, 2007.

Total backlog as of December 31, 2008 was $126.4 million, compared to total backlog at December 31, 2007 of $238.9 million.

Joel P. Moskowitz, Ceradyne president and chief executive officer, commented,

�We are pleased that even as we entered the significant global economic downturn, our Company was able to meet its revised 2008 earnings guidance with full-year 2008 financial results of $4.00 per fully diluted share on sales of $680 million.

�Perhaps as important as our income statement in this economic environment is our strong year-end balance sheet with cash and cash equivalents and short-term investments of $221.4 million. With over $8 per share in cash and cash equivalents and short-term investments, and a book value exceeding $23 per share, we are comfortable in our ability to continue to invest in our future, take advantage of acquisition targets of opportunity and maintain our strong liquidity position in an uncertain global economy.

�Although as of today we have not received the XSAPI production armor order, we have received the draft of the amended production Request for Quotation and believe the orders will be released later in Q1 or early Q2 2009, with related XSAPI sets to be delivered in calendar 2009.

�However, Ceradyne is concerned about the delays in armor orders, as well as what we view as uncertainty in our industrial markets, particularly our European markets headed by ESK Ceramics in Kempten, Germany. Therefore, because the situation is unclear, we believe it is advisable to revise the 2009 guidance we provided in December 2008 of $2.30 per fully diluted share on sales of approximately $600 million to a range of sales of $465 million to $500 million with earnings of $1.60 to $2.00 per fully diluted share.�

Moskowitz further commented: �We have recently committed to the acquisition of an additional 13.7 acres in Tianjin, China, on which we plan to build a production plant of approximately 200,000 square feet for the production of our ceramic crucibles used in the manufacturing of polysilicon photovoltaic solar cells. We anticipate we will spend $22 million on this state-of-the-art factory which will include our proprietary �pre-coating� technology. Although we expect a modest increase in solar demand early in 2009, we believe the combination of lower cost silicon, worldwide demand for clean alternative energy, and U.S. and other country�s subsidies and stimulus investments will result in an improving 2009 picture and robust 2010 demand. Our newest factory will be located near our current Tianjin factory and is expected to be up and running later this year.�

Moskowitz concluded by stating, �Ceradyne management is aware of the uncertainties the current global economy is presenting. In the short run, we intend to bring our costs and headcount into line with actual sales. However, we will continue to invest in the future while preserving our strong cash position and liquidity.�

Ceradyne will host a conference call today at 8:15 a.m. PST (11:15 a.m. EST) to review the financial results for the quarter and the year ended December 31, 2008. 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 telephonic playback will be available beginning at 11:00 a.m. PST today through 9:00 p.m. PST on February 27, 2009. The playback can be accessed by calling 800-642-1687 (or 706-645-9291 for international callers) and providing Conference ID 86920958.

Ceradyne develops, manufactures and markets advanced technical ceramic products and components for defense, industrial, automotive/diesel and commercial applications. 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, 2008, 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 EndedDecember 31,

Twelve Months EndedDecember 31,

2008 � 2007 2008 � 2007 (Unaudited) (Unaudited) NET SALES $ 138,939 $ 191,428 $ 680,197 $ 756,835 COST OF GOODS SOLD � 87,381 � � 115,662 � � 414,885 � � 450,787 � Gross profit 51,558 75,766 265,312 306,048 OPERATING EXPENSES Selling 6,265 7,300 31,231 26,917 General and administrative 8,681 10,584 43,889 40,801 Acquisition related charge 41 - 9,824 - Research and development � 3,803 � � 3,991 � � 14,782 � � 17,552 � � 18,790 � � 21,875 � � 99,726 � � 85,270 � INCOME FROM OPERATIONS � 32,768 � � 53,891 � � 165,586 � � 220,778 � OTHER INCOME (EXPENSE): Royalty income 1 69 66 174 Interest income 1,280 2,853 7,553 12,394 Interest expense (1,025 ) (1,051 ) (4,155 ) (4,204 ) Miscellaneous � (2,517 ) � (2,653 ) � (4,425 ) � (2,599 ) (2,261 ) (782 ) (961 ) 5,765 INCOME BEFORE PROVISION FOR INCOME TAXES 30,507 53,109 164,625 226,543 PROVISION FOR INCOME TAXES � 9,254 � � 17,885 � � 57,875 � � 82,278 � NET INCOME $ 21,253 � $ 35,224 � � 106,750 � � 144,265 � BASIC INCOME PER SHARE $ 0.81 � $ 1.29 � $ 4.04 � $ 5.29 � DILUTED INCOME PER SHARE $ 0.81 � $ 1.28 � $ 4.00 � $ 5.20 � WEIGHTED AVERAGE SHARES OUTSTANDING: BASIC 26,082 27,317 26,446 27,252 DILUTED 26,291 27,614 26,689 27,732 �

CERADYNE, INC.

UNAUDITED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands)

� � December 31, 2008 December 31, 2007 (Unaudited) CURRENT ASSETS Cash and cash equivalents $ 215,282 $ 155,103 Restricted cash 2,702 2,660 Short-term investments 6,140 29,582

Accounts receivable, net of allowances for doubtful accounts of approximately $686 and $792 at December 31, 2008 and December 31, 2007, respectively

64,631 85,346 Other receivables 5,316 5,704 Inventories, net 101,017 92,781 Production tooling, net 14,563 16,632 Prepaid expenses and other 24,170 12,391 Deferred tax asset � 11,967 � 12,455 TOTAL CURRENT ASSETS � 445,788 � 412,654 PROPERTY, PLANT AND EQUIPMENT, net 251,928 243,892 LONG TERM INVESTMENTS 24,434 38,089 INTANGIBLE ASSETS, net 84,384 37,578 GOODWILL 45,324 46,848 OTHER ASSETS � 3,139 � 4,225 TOTAL ASSETS $ 854,997 $ 783,286 � � CURRENT LIABILITIES Accounts payable $ 22,954 $ 35,990 Accrued expenses 21,999 22,483 Income taxes payable � - � 258 TOTAL CURRENT LIABILITIES 44,953 58,731 LONG-TERM DEBT 121,000 121,000 EMPLOYEE BENEFITS 19,088 13,650 OTHER LONG TERM LIABILITY 41,816 4,985 DEFERRED TAX LIABILITY � 64 � 6,291 TOTAL LIABILITIES 226,921 204,657 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS� EQUITY Common stock, $0.01 par value, 100,000,000 authorized, 25,830,374 and 27,318,530 shares issued and outstanding at December 31, 2008 and December 31, 2007, respectively 259 272 Additional paid in capital 146,063 185,702 Retained earnings 468,051 361,301 Accumulated other comprehensive income � 13,703 � 31,354 TOTAL SHAREHOLDERS� EQUITY � 628,076 � 578,629 TOTAL LIABILITIES AND SHAREHOLDERS� EQUITY $ 854,997 $ 783,286 �

CERADYNE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

�

Years ended December 31

2008

� 2007 � 2006 (Unaudited) Cash flows from operating activities: Net income $ 106,750 $ 144,265 $ 128,404 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 36,668 26,751 18,054 Deferred income taxes (1,685 ) (2,288 ) (4,938 ) Stock compensation 3,109 2,451 3,901 Net unrealized loss on auction rate securities 5,870 - - Loss on equipment disposal 257 908 152 Changes in operating assets and liabilities, net of assets acquired: Accounts receivable, net 20,830 (1,584 ) (17,392 ) Other receivables 333 (2,149 ) (607 ) Inventories, net (6,623 ) (6,270 ) (2,987 ) Production tooling, net 2,018 4,473 (5,670 ) Prepaid expenses and other (10,825 ) 337 (4,388 ) Other assets (265 ) (974 ) 27 Accounts payable (13,256 ) (3,797 ) 10,749 Accrued expenses (3,029 ) (827 ) 2,209 Income tax payable (232 ) (12,754 ) 3,762 Other liabilities 114 1,125 7,265 Other long term liability 9,667 4,985 686 Employee benefits � 6,269 � � (1,066 ) � - � Net cash provided by operating activities � 155,970 � � 153,586 � � 139,227 � � Cash flows from investing activities: Purchases of property, plant and equipment (44,047 ) (42,245 ) (36,008 ) Changes in restricted cash (42 ) (2,660 ) - Purchases of marketable securities - (700,443 ) (673,214 ) Proceeds from sales and maturities of marketable securities 21,738 823,499 490,488 Acquisition of businesses, net of cash acquired (27,208 ) (99,098 ) (6,679 ) Proceeds from sale of equipment � 84 � � 9 � � - � � Net cash (used in) investing activities � (49,475 ) � (20,938 ) � (225,413 ) � Cash flows from financing activities: Proceeds from issuance of common stock for stock plans --- 401 571 Proceeds from issuance of stock due to exercise of stock options 366 1,297 2,312 Tax benefit due to exercise of stock options 769 3,531 2,884 Shares repurchased � (44,705 ) � - � � - � � Net cash (used in) provided by financing activities � (43,570 ) � 5,229 � � 5,767 � � Effect of exchange rates on cash and cash equivalents � (2,746 ) � 3,679 � � 2,424 � � Increase (decrease) in cash and cash equivalents 60,179 141,556 (77,995 ) Cash and cash equivalents, beginning of period � 155,103 � � 13,547 � � 91,542 � � Cash and cash equivalents, end of period $ 215,282 � $ 155,103 � $ 13,547 � � Supplemental disclosures of cash flow information: Interest paid $ 3,484 � $ 3,520 � $ 3,452 � Income taxes paid $ 63,545 � $ 90,775 � $ 65,333 � Supplemental schedule of non-cash financing activities: Fulfillment of 401(k) obligations through the issuance of stock $ 1,291 � $ 1,085 � $ 828 �