x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2002

or

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934

For the transition period from ______________ to ______________

CERADYNE, INC.

(Exact name of Registrant as specified in its charter)

Delaware

33-0055414

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

3169 Redhill Avenue, Costa Mesa, CA

92626

(Address of principal executive)

(Zip Code)

Registrant’s telephone number, including area code  (714) 549-0421

N/A

(Former name, former address and former fiscal year, if changed since last report)

Yes

x

No

o

Class

Outstanding at September 30, 2002

Common Stock, $.01 par value

8,512,411 Shares

INDEX

PAGE NO.

PART I.

FINANCIAL INFORMATION

Item 1.

Financial Statements

Statement Regarding Financial Information

3

Consolidated Balance Sheets –
September 30, 2002 and December 31, 2001

4-5

Consolidated Statements of Income –
Three and Nine Months Ended September 30, 2002 and 2001

6

Consolidated Statements of Cash Flow –
Nine Months Ended September 30, 2002 and 2001

7

Condensed Notes to Consolidated Financial Statements

8-15

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

15-20

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

20

Item 4.

Controls and Procedures

20

PART II.

OTHER INFORMATION

Item 1.

Legal Proceedings

21

Items 2, 3, 4 and 5.

N/A

21

Item 6.

Exhibits and Reports on Form 8-K

21

SIGNATURE

22

Certification of Principal Executive Officer

23

Certification of Principal Financial Officer

24

PART I.

FINANCIAL INFORMATION

Item 1.

Financial Statements

The Financial Statements included herein have been prepared by Ceradyne, Inc. (the “Company”), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission.  Certain information normally included in the Financial Statements prepared in accordance with accounting principles generally accepted in the United States has been omitted pursuant to such rules and regulations.  However, the Company believes the disclosures are adequate to make the information presented not misleading.  All adjustments have been made which are, in the opinion of management, necessary to a fair statement of the results of the interim periods presented.  The Financial Statements should be read in conjunction with the Financial Statements and notes thereto included in the Company’s Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 on Form 10-K for the fiscal year ended December 31, 2001, as filed with the Securities and Exchange Commission on March 27, 2002.

September 30, 2002

December 31, 2001

(Unaudited)

CURRENT ASSETS

Cash and cash equivalents

$

186

$

1,017

Accounts receivable, net of allowances for doubtful accounts of approximately $116 and $101 at September 30, 2002 and December 31, 2001, respectively

9,029

8,305

Other receivables

259

215

Inventories

17,114

14,581

Production tooling

3,319

2,889

Prepaid expenses and other

2,424

1,689

Deferred tax asset

793

1,728

TOTAL CURRENT ASSETS

33,124

30,424

PROPERTY, PLANT & EQUIPMENT, at cost

Land

422

422

Buildings and improvements

1,851

1,851

Machinery and equipment

34,841

30,126

Leasehold improvements

4,100

3,224

Office equipment

3,445

3,291

Construction in progress

380

1,067

45,039

39,981

Less accumulated depreciation

(26,084

)

(23,965

)

18,955

16,016

COSTS IN EXCESS OF NET ASSETS ACQUIRED
      net of accumulated amortization of $2,406 at September 30, 2002 and December 31, 2001, respectively

1,511

1,511

TOTAL ASSETS

$

53,590

$

47,951

September 30, 2002

December 31, 2001

(Unaudited)

CURRENT LIABILITIES

Bank line of credit

$

2,232

$

—  

Current portion of long-term debt

100

100

Accounts payable

5,385

5,361

Accrued expenses:

Payroll and payroll related

1,500

1,320

Other

818

476

Warranty reserve

650

—  

TOTAL CURRENT LIABILITIES

10,685

7,257

LONG-TERM DEBT, NET OF CURRENT PORTION

83

158

DEFERRED REVENUE

67

270

DEFERRED TAX LIABILITY

609

609

SHAREHOLDERS’ EQUITY

Common stock, $.01 par value,
Authorized - 12,000,000 shares,
Outstanding - 8,512,411 shares
and 8,402,705 shares at September 30, 2002
and December 31, 2001 respectively

40,039

39,298

Retained Earnings

2,107

359

TOTAL SHAREHOLDERS’ EQUITY

42,146

39,657

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

$

53,590

$

47,951

THREE MONTHS
ENDED
September 30,

NINE MONTHS
ENDED
September 30,

2002

2001

2002

2001

(Unaudited)

(Unaudited)

NET SALES

$

14,300

$

10,178

$

43,598

$

33,264

COST OF PRODUCT SALES

11,058

7,377

34,466

23,375

Gross profit

3,242

2,801

9,132

9,889

COST OF PRODUCT SALES

Selling

514

497

1,504

1,554

General and administrative

1,233

1,200

3,514

3,667

Research and development

506

302

1,537

838

2,253

1,999

6,555

6,059

Income from operations

989

802

2,577

3,830

OTHER INCOME (EXPENSE):

Royalty income

55

45

140

125

Interest income

3

35

11

172

Interest expense

(31

)

(6

)

(64

)

(20

)

Miscellaneous

2

1

25

31

29

75

112

308

Income before provision for income taxes

1,018

877

2,689

4,138

PROVISION FOR INCOME TAXES

356

219

941

1,034

NET INCOME

$

662

$

658

$

1,748

$

3,104

BASIC INCOME PER SHARE

$

0.08

$

0.08

$

0.21

$

0.37