8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported)

June 30, 2004

CERADYNE, INC.

(Exact name of registrant as specified in its charter)

Delaware	000-13059	33-0055414
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

3169 Red Hill Avenue, Costa Mesa, CA	92626
(Address of principal executive offices)	(Zip Code)

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

Exhibit Index on page 4

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Item 5. Other Events

On June 30, 2004, Ceradyne, Inc. entered into a definitive agreement to purchase ESK Ceramics GmbH and Co. KG (“ESK Ceramics”), a wholly-owned subsidiary of Wacker-Chemie GmbH, for a purchase price of approximately $111.4 million Euros, or approximately $136 million, payable in cash at closing. The acquisition is subject to certain closing conditions, and is expected to be completed in the third quarter of 2004. The purchase price will be financed using a portion of Ceradyne’s existing cash and debt from a new credit facility of $160 million to be provided by a syndicate of banks led by Wachovia Capital Markets, LLC.

Item 7. Financial Statements and Exhibits

(c) Exhibits. The following exhibits are “furnished” as Regulation FD disclosure:

Exhibit Number	Description
99.1	Press release of Ceradyne dated July 1, 2004.
99.2	Copy of slides presented by Ceradyne during Webcast on July 1, 2004.

Item 9. Regulation FD Disclosure.

On July 1, 2004, Ceradyne, Inc. issued a press release announcing that is has entered into a definitive agreement to purchase ESK Ceramics GmbH and Co. KG. A copy of the press release is being furnished as Exhibit 99.1 to this Current Report on Form 8-K. Ceradyne held a teleconference and Webcast on July 1, 2004 to discuss the acquisition. A copy of the slides presented during the Webcast is being furnished as Exhibit 99.2 to this current Report on Form 8-K.

In accordance with General Instruction B.2 of Form 8-K, the information in Item 9 of this Current Report on Form 8-K, including Exhibit 99.1 and Exhibit 99.2, shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	CERADYNE, INC.
July 1, 2004	By:	/s/    JERROLD J. PELLIZZON
		Jerrold J. Pellizzon Chief Financial Officer and Secretary

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EXHIBIT INDEX

Exhibit Number	Description
99.1	Press release of Ceradyne dated July 1, 2004.
99.2	Copy of slides presented by Ceradyne during Webcast on July 1, 2004.

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EX-99.1

Exhibit 99.1

Joel P. Moskowitz	Dan Matsui/Eugene Heller
Chief Executive Officer	Silverman Heller Associates
(714) 549-0421 x-261	(310) 208-2550
	E-mail: dmatsui@sha-ir.com

CERADYNE, INC. TO ACQUIRE ESK CERAMICS

IN MAJOR MOVE TO DIVERSIFY, SUSTAIN GROWTH

Costa Mesa, Calif. — July 1, 2004—Ceradyne, Inc. (Nasdaq:CRDN) announced today that it has signed a definitive agreement to acquire ESK Ceramics (ESK), a German-based industrial technical ceramic manufacturer, for approximately 111.4 million Euros, or approximately $136 million, in cash payable at closing. The purchase price will be financed using existing cash and debt from a new credit facility of $160 million to be provided by a syndicate of banks led by Wachovia Capital Markets, LLC. The acquisition is subject to certain closing conditions, is expected to be completed in the third quarter of 2004 and is projected to be immediately accretive to Ceradyne. The purchase price Ceradyne is paying represents approximately 7.9 x ESK’s 2003 EBITDA (earnings before interest, taxes, depreciation and amortization). Note: All dollar to Euro conversions assume an exchange rate of $1.22 U.S. = 1 Euro.

ESK, which had 2003 sales of approximately $90 million, is being sold to Ceradyne by its parent, Wacker-Chemie, a German silicon and chemical manufacturer with 2003 group sales of approximately $3 billion. ESK was founded in 1922 to produce non-oxide powders and technical ceramics. The company, then known as Electroschmelzwerk Kempten AG (ESK), was acquired by Wacker-Chemie GmbH in 1933 and has been operating under the name Wacker Ceramics since 2001. Ceradyne intends to revert back to the original ESK name and the well-recognized “ESK” logo. The company’s major product lines include its worldwide position as a prime supplier of boron carbide powder, which is the starting material for much of Ceradyne’s lightweight ceramic armor that accounts for over 60% of Ceradyne’s sales. ESK is considered a world leader in several industrial categories of advanced technical ceramics accounting for over 90% of its sales.

Joel Moskowitz, Ceradyne CEO, Chairman of the Board and a company founder commented, “We are very excited about acquiring a world-class leader in non-oxide advanced technical ceramics for industrial applications. Ceradyne has been working with Wacker Ceramics (then known as ESK) for over 33 years. In 1971, we began producing our first boron carbide ceramic armor using ESK’s boron carbide powders.

“From a strategic perspective,” said Moskowitz, “the compelling rationale for this acquisition follows:

a. Diversification: Of Ceradyne’s 2003 sales of $101.5 million, over 65% were defense related, with this year’s projected increased sales composed of over 67% defense related business. In contrast, only about $2.3 million, or 2.6%, of ESK’s 2003 sales of approximately $90 million came directly from defense production. The acquisition of ESK will reduce our reliance on military products from Ceradyne’s projected 67% on a stand-alone basis, to approximately 40% for the combined companies. The combined companies will derive significant revenues from the automotive industry, industrial abrasive finishing, food packaging using ESK’s ceramic evaporation boats to produce metallic coated materials, aluminum and steel melting ceramic components, and a large complement of ceramic mechanical seals and bearings as well as Ceradyne’s traditional defense, orthodontic, diesel engine components and industrial products.

b. Control of Key Raw Material Source for Armor: We believe that Ceradyne’s boron carbide lightweight ceramic armor is the lightest, most ballistically effective armor system. Until this acquisition, we were dependent on ESK as a supplier for the raw material. Post-acquisition, Ceradyne will be assured of a large, growing, reliable source of starting powders.

c. Global Presence: Ceradyne ships approximately 5% of its products outside the U.S.A., while ESK ships approximately 20% of its products to the U.S.A. The Ceradyne·ESK combined company will result in a global company with marketing opportunities for Ceradyne in Europe and the former ESK in the U.S.A.; and for both companies, a more active presence in Asia.

d. Technology & Manufacturing Synergy: We believe this acquisition offers significant opportunities for technology sharing and other production-related efficiencies that can benefit Ceradyne from several perspectives. Both Ceradyne and ESK produce non-oxide advanced technical ceramics primarily for structural applications, and both have extensive hot pressing and diamond machining capabilities. We believe that important R&D and technology sharing synergies along with certain production efficiencies may be realized following completion of this acquisition, as we coordinate these operations in the U.S.A. and Europe.

On the other hand, ESK produces hundreds of tons of powders annually, while Ceradyne manufactures silicon nitride using its proprietary sintered reaction bonded silicon nitride (SRBSN) process.

While both companies are in similar markets for advanced ceramics—industrial, defense, automotive, commercial—there is very little overlap of actual products. As a result, this acquisition offers an opportunity to broaden our product offerings in each major region and thereby realize not only additional sales growth potential but also related production efficiencies.

Mr. Moskowitz added, “It’s been 37 years since the founding of Ceradyne (1967) and 82 years since the founding of Wacker Ceramics (1922). In pursuing generally different paths in advanced technical ceramics during those years, both companies have achieved success and are well positioned in their respective technological, product, and market niches. As a result, we view this acquisition as the largest, most significant growth opportunity Ceradyne has undertaken to date. I believe the resulting post-acquisition company will be a world-class competitor with a stronger, more balanced presence in our core markets—industrial, defense, automotive/diesel, commercial—with greater technological and product development expertise to meet the growing demands of a large, diversified, global customer base.

“We recognize and appreciate the challenges that an acquisition of this magnitude entails. In addition to the task of business, technology, management and marketing integration, there will be issues of culture, geography and language, which we recognize and will manage forthrightly.

“I will shortly announce anticipated changes in the Ceradyne management team reflecting the new organizational structure post-acquisition.

“The Ceradyne team that headed Ceradyne’s negotiation was capably led by our Chief Financial Officer, Jerrold J. Pellizzon, who employed the services of our attorneys, Stradling Yocca Carlson & Rauth (USA), Hogan & Hartson Raue L.L.P. (Germany), accountants PricewaterhouseCoopers (USA, Germany), and Ceradyne financial advisor, Needham & Company, Inc.”

Ceradyne develops, manufactures and markets advanced technical ceramic products and components for defense, industrial, automotive/diesel and commercial applications. Additional information about the Company can be found at www.ceradyne.com.

Conference Call and Webcast

The Company has scheduled a teleconference, accompanied by a Webcast PowerPoint presentation, today at 8:00 a.m. PDT (11:00 a.m. EDT) to discuss this announcement.

To participate in the call, please call (800) 299-9630, or for international callers (617) 786-2904, approximately 10 minutes prior to the start time and provide the call password, “Ceradyne.” The slide presentation, as well as the teleconference audio, will be available at www.ceradyne.com under the Investor Relations link. You may also join the conference via the Internet at www.FullDisclosure.com. These web sites will host an archive of the call.

A replay of the audio portion of the call will be available beginning at 10:00 a.m. PDT on July 1. Call (888) 286-8010, or for international callers (617) 801-6888, and provide pass code 86081962. The playback will be available through July 7.

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 include the ability of Ceradyne to successfully integrate the Ceradyne and ESK businesses and achieve anticipated operating synergies, and fluctuations between the value of the dollar and Euro. Other risks and uncertainties are described in Ceradyne’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003, and its Quarterly Report on Form 10-Q for the quarter ended March 31, 2004, as filed with the Securities and Exchange Commission.

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EX-99.2

Exhibit 99.2

Exhibit 99.2

Acquisition of ESK Ceramics

Diversification

Vertical Integration Ceramic Armor

Global Presence

ESK’s World Class Facilities & Technology

Technology & Product Synergy (Ceradyne revenue in millions)

Continuity of Stand Alone Management

Structure of Acquisition

Financial Parameters

Teleconference July 1, 2004

Safe Harbor Statement

This presentation 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. The Company may use words such as “anticipates,” “believes,” “plans,” “expects,” “intends,” “future,” and similar expressions to identify forward-looking statements. These risks and uncertainties include the ability of Ceradyne to successfully integrate the Ceradyne and ESK businesses and achieve anticipated operating synergies, and fluctuations between the value of the dollar and Euro. Other risks and uncertainties are described in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003, and in its Quarterly Report on Form 10-Q for the quarter ended March 31, 2004, as filed with the Securities and Exchange Commission.

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Diversification

Pro Forma Combined 2003 Sales of $192.1 million

ESK + ESK

Commercial 9% $9.5 M

Commercial 5% $9.5 M

Automotive 5% $5.2 M

Automotive 9.8% $8.8 M

Automotive 7% $14.0 M

Industrial 21% $21.0 M

Defense 2.6% $2.3 M

+

=

Industrial 52% $99.8 M

Defense 36% $68.1 M

Defense 65% $65.8 M

Industrial 87.6% $79.5 M

CERADYNE + ESK CERADYNE *ESK COMBINED

Industrial $21.0 (21%) $79.5 (87.6%) $100.5 (52%) Defense 65.8 (65%) 2.3 (2.6%) 68.1 (36%) Automotive 5.2 (5%) 8.8 (9.8%) 14.0 (7%) Commercial 9.5 (9%) 0.0 9.5 (5%) Totals $101.5 $90.6 $192.1

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*Assumes a Euro to U.S. dollar exchange rate of: 1.22

Vertical Integration Ceramic Armor

ESK—a primary source of “armor grade” boron carbide powder (the starting material for Ceradyne’s lightweight ceramic armor) for over 30 years.

Acquisition of ESK—gives Ceradyne a direct supply of the world’s finest “armor grade” boron carbide powder, with ESK capacity of 500 to 800 tons annually.

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Post Acquisition Armor Manufacture Flow

Boron Carbide Powder Kempten, Germany Design, Manufacture, Sales of Lightweight Ceramic Armor Costa Mesa, California U.S.A.

Body Armor

Military Vehicle Armor Helicopter Armor

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Global Presence

2003 Customer Base

+

Asia 10% Other 2% Rest of World 5% U.S.A 20%

Inter-national 41%

+ = U.S.A 59%

Germany 38%Rest of Europe 30%

U.S.A 95%

Ceradyne’s primary market is the U.S.A. with 5.4% of sales outside the U.S.A. ESK’s primary market is Europe (68% of sales) with about 20% in the U.S.A. We anticipate that the new pro forma Ceradyne + ESK will have a more widespread global presence of both customers and sales / marketing locations.

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Global Presence

Sales and Marketing Locations

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ESK’s World Class Facilities & Technology

Headquarters and Manufacturing Facilities

Division headquarters: All Kempten business functions Functional Coatings Ceramics: All products and all technologies 504 employees Kempten, Germany 73 employees Bazet, France DIN ISO EN 14001, DIN ISO EN

9001, NF ISO EN 9002 Land area: 21.25 acres in Kempten Building sq. footage: 968,000

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Technology & Product Synergy

Technology & Process Product

Ceradyne ESK

Primary manufacturer of non- oxide powders through thermal reaction Ceradyne does not produce any of its starting powders but relies on suppliers such as ESK for critical powders such as “armor grade” boron carbide. ESK produces 500 to 800 tons annually of boron carbide, titanium diboride and boron nitride for internal use and sale to customers such as Ceradyne. (2003 sales approximately $13 million)

Hot Pressing Ceradyne’s large hot press capability results in lightweight ceramic armor and other products for industrial, semi-conductor and microwave applications. (2003 sales approximately $60 million) ESK’s large hot press capability produces “evaporation boats” for aluminum coating, foundry, neutron absorption elements and others. (2003 sales approximately $40 million)

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Technology & Product Synergy

Technology & Process Product

Ceradyne ESK

Functional Coatings Ceradyne does not produce functional coatings. ESK produces a wide range of nickel impregnated with diamond or ceramic chips for textile, automotive, and mechanical engineering applications. (2003 sales approximately $10 million)

Translucent Ceramic Ceradyne’s ceramic orthodontic brackets have been used by over 1 million customers with a growth rate of over 10% per year. (2003 sales approximately $8 million) Not produced by ESK

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Technology & Product Synergy

Technology & Process Product

Ceradyne ESK

Sintered non-oxide ceramics—Silicon Nitride (Si3N4), Silicon Carbide (SiC) Ceradyne produces large quantities of Sintered Reaction Bonded Silicon Nitride (SRBSN) for use in diesel engines and other industrial applications. (2003 sales approximately $ 9 million) ESK produces sintered Silicon Carbide for automobile seals and bearings as well as a wide range of industrial components.

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Continuity of Stand Alone Management

1. ESK was founded in 1922.

2. Except for certain corporate services provided by the parent, Wacker Chemie, ESK is operated as an independent entity on its own independent sites in Kempten, Germany and Bazet, France, with its own operational staff including six (6) officers with combined service of 70 years.

3. It is Ceradyne’s intention to allow ESK to continue to run as it is currently constituted, reporting to a senior Ceradyne officer in the U.S.A.

4. Ceradyne anticipates that there will be synergies and cost savings related to the acquisition but intends to basically run ESK as they have run it prior to the acquisition.

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Structure of Acquisition

Sales Price: Ceradyne will pay Wacker-Chemie GmbH approximately €111.35 million or $135.8 million @ $1.22 = €1.00 cash for ESK Ceramic GmbH & Co. KG (ESK).

Senior Secured Debt: Wachovia Bank & Wachovia Capital Markets, LLC will provide a $160 million senior secured credit facility consisting of a $50 million revolving credit line and a $110 million institutional term loan.

Estimated Terms:

Revolving Credit LIBOR + 2.00% Term Loan, 7 Years LIBOR + 2.50%

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Financial Parameters

ESK Stand Alone Recent Results *

Year ended December 2003 Quarter ended March 31, 2004

Net Sales $ 90.6 mm $ 23.8 mm

Gross margin % 27.9% 28.0%

EBITDA $ 17.2 mm $ 4.9 mm

EBITDA % 19.0 % 20.5%

* Exchange rate used for the Euro was 1.22 Assumes German GAAP

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Acquisition of ESK Ceramics

Diversification

Vertical Integration Ceramic Armor Global Presence ESK’s World Class Facilities & Technology

Technology & Product Synergy (Ceradyne revenue in millions)

Continuity of Stand Alone Management Structure of Acquisition Financial Parameters

Teleconference July 1, 2004