-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, I+QNL+UNEMHiCcUTreu/FnWLM1YPyG9tLNXRl8KPK02aMG/FNGjtgkvVY1Sq6Fkh 31wAC8oXUglzztMLoCE+/Q== 0001017062-98-001078.txt : 19980514 0001017062-98-001078.hdr.sgml : 19980514 ACCESSION NUMBER: 0001017062-98-001078 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980513 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CERADYNE INC CENTRAL INDEX KEY: 0000018937 STANDARD INDUSTRIAL CLASSIFICATION: ABRASIVE ASBESTOS & MISC NONMETALLIC MINERAL PRODUCTS [3290] IRS NUMBER: 330055414 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-13059 FILM NUMBER: 98617981 BUSINESS ADDRESS: STREET 1: 3169 RED HILL CITY: COSTA MESA STATE: CA ZIP: 92626 BUSINESS PHONE: 7145490421 MAIL ADDRESS: STREET 2: 3169 RED HILL CITY: COSTA MESA STATE: CA ZIP: 92626 10-Q 1 10-Q FOR PERIOD ENDED MARCH 31, 1998 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1998 or [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the transition period from ________________ to ____________________ Commission File No. 0-13059 CERADYNE, INC. -------------- (Exact name of Registrant as specified in its charter) Delaware 33-0055414 - -------------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 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) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ----- ------ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at March 31, 1998 - --------------------------------- --------------------------------- Common Stock, $.01 par value 7,965,759 Shares Page 1 of 13 Pages CERADYNE, INC. INDEX PAGE NO. ----- -------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Statement Regarding Financial Information............... 3 Consolidated Balance Sheets - March 31, 1998............ 4-5 and December 31, 1997 Consolidated Statements of Income - Three months ended March 31, 1998 and 1997............. 6 Consolidated Statements of Cash Flow - Three months ended March 31, 1998 and 1997............. 7 Condensed Notes to Consolidated Financial Statements............................................. 8-9 Item 2. Management's Discussion and Analysis of Financial Condition & Results of Operations............ 10-11 PART II. OTHER INFORMATION Item 1. Legal Proceedings....................................... 11-13 Item 6. Exhibits and Reports on Form 8-K........................ 13 SIGNATURE........................................................ 13 2 CERADYNE, INC. FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1998 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. These financial statements include all adjustments which are, in the opinion of management, necessary for a fair presentation. All such adjustments are of a normal recurring nature. Certain information normally included in the Financial Statements prepared in accordance with generally accepted accounting principles has been omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. It is suggested that the Financial Statements 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, 1997, as filed with the Securities and Exchange Commission on March 31, 1998. 3 CERADYNE, INC. CONSOLIDATED BALANCE SHEETS ASSETS (Amounts in thousands)
3-31-1998 12-31-1997 (Unaudited) (Audited) ================================================================================ CURRENT ASSETS: Cash & cash equivalents $ 3,399 $ 3,569 Accounts receivable, net of allowances of 5,476 4,685 approximately $180 & $179 for doubtful accts at 3-31-1998 & 12-31-1997 Other Receivables 20 96 Inventories 7,490 7,366 Production Tooling 835 882 Prepaid expenses and other 781 716 --- --- TOTAL CURRENT ASSETS 18,001 17,314 -------- -------- PROPERTY, PLANT & EQUIPMENT, at cost: Land 422 422 Buildings & improvements 1,825 1,825 Lease rights --- 2,659 Machinery & equipment 18,996 18,456 Leasehold improvements 1,658 1,629 Office equipment 2050 2,001 Construction in progress 224 401 --- --- 25,175 27,393 Less accumulated depreciation & amortization (17,093) (19,427) -------- -------- 8,082 7,966 COSTS IN EXCESS OF NET ASSETS ACQUIRED, 1,884 1,923 net of accumulated amortization of $1,790 & $1,751 at 3-31-1998 & 12-31-1997 OTHER ASSETS, net of accumulated amortization 1,808 1,814 ----- ----- of $598 and $592 at 3-31-1998 & 12-31-1997 TOTAL ASSETS $ 29,775 $ 29,017 ======== ======== ===============================================================================
See accompanying condensed notes to Consolidated Financial Statements. 4 CERADYNE, INC. CONSOLIDATED BALANCE SHEETS LIABILITIES AND SHAREHOLDERS' EQUITY (Amounts in thousands, except share data)
3-31-1998 12-31-1997 (Unaudited) (Audited) =============================================================================== CURRENT LIABILITIES: Current portion of long-term debt $ --- $ --- Accounts payable 1,508 1,197 Accrued expenses: Payroll and payroll related 641 622 Other 177 168 --- --- Total current liabilities 2,326 1,987 -------- -------- LONG-TERM DEBT --- --- -------- -------- DEFERRED REVENUE 201 270 -------- -------- SHAREHOLDERS' EQUITY: Common stock, $.01 par value: Authorized - 12,000,000 shares; Outstanding - 7,965,759 shares & 7,963,459 shares at 3-31-1998 & 12-31-1997, respectively 37,414 37,408 Accumulated deficit (10,166) (10,648) -------- -------- TOTAL SHAREHOLDERS' EQUITY 27,248 26,760 -------- -------- TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 29,775 $ 29,017 ======== ======== ===============================================================================
See accompanying condensed notes to Consolidated Financial Statements. 5 CERADYNE, INC. CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED 3-31-1998 & 1997 (Amounts in thousands, except per share data) ===============================================================================
THREE MONTHS ENDED MARCH 31 - ------------------------------------------------------------------------------- 1998 1997 ------------------------ Unaudited =============================================================================== NET SALES $7,341 $6,621 COST OF PRODUCT SALES 5,580 5,230 ------ ------ Gross Profit 1,761 1,391 ------ ------ OPERATING EXPENSES: R&D 67 --- Selling 358 419 General & Administration 934 735 ------ ------ 1,359 1,154 ------ ------ Income from operations 402 237 ------ ------ OTHER (INCOME) EXPENSE: Other (income) (91) (93) Interest expense --- 37 ------ ------ (91) (56) ------ ------ Income before provision 493 293 for income taxes PROVISION FOR INCOME TAXES 10 9 ------ ------ NET INCOME 483 284 ------ ------ BASIC & DILUTED INCOME PER SHARE $ .06 $ .04 ====== ====== ==============================================================================
See accompanying condensed notes to Consolidated Financial Statements. 6
CERADYNE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED FOR THE THREE MONTHS ENDED 3-31-1998 & 1997 MARCH 31 (Amounts in thousands) - ------------------------------------------------------------------------------- 1998 1997 Unaudited Unaudited =============================================================================== CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 483 $ 284 ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH PROVIDED FROM (USED IN) OPERATING ACTIVITIES: Depreciation and amortization 371 398 Increase in accounts receivable, net (710) (144) (Increase) decrease in other receivables (7) 1,373 Increase in inventories (127) (525) (Increase) decrease in production tooling 47 (122) Increase in prepaid expenses & other assets (63) (32) Increase (decrease) in accounts payable 312 (231) Increase in accrued expenses 28 18 Decrease in deferred revenue (69) (65) ------ ------ NET CASH PROVIDED BY OPERATING ACTIVITIES 265 954 ------ ------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant & equipment (441) (617) ------ ------ NET CASH USED IN INVESTING ACTIVITIES (441) (617) ------ ------ CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of common stock, net 6 22 Net payments on long-term debt --- --- ------ ------ Net cash provided by (used in) financing activities 6 22 --- --- Increase (decrease) in cash and cash equivalents (170) 359 Cash & cash equivalents, beginning of period 3,569 4,643 Cash & cash equivalents, end of period 3,399 5,002 ===== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Interest paid --- 37 Income taxes paid $ 2 $ 64 ------ ====== ==============================================================================
See accompanying condensed notes to Consolidated Financial Statements. 7 CERADYNE, INC. CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1998 (Unaudited) 1. Basis of Presentation --------------------- The consolidated financial statements include the financial statements of Ceradyne, Inc. (the Company) and its subsidiaries. All material intercompany accounts and transactions have been eliminated. 2. Inventories ----------- Inventories are valued at the lower of cost (first in, first out) or market. Inventory costs include the cost of material, labor and manufacturing overhead. The following is a summary of the inventory components as of March 31, 1998 and December 31, 1997:
MARCH 31, 1998 DECEMBER 31, 1997 ============================================================================== Raw Materials $3,726,000 $3,338,000 Finished Goods $ 405,000 $ 411,000 Work-in-Process $3,359,000 $3,617,000 Total Inventories $7,490,000 $7,366,000 ========== ========== ==============================================================================
3. Net Income Per Share -------------------- The Company accounts for net income per share in accordance with SFAS No. 128 "Earnings Per Share". Basic net income per share is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding. Diluted net income per share is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding plus the effect of any dilutive stock options and common stock warrants using the treasury stock method. The following is a summary of the number of shares entering into the computation of net income per common and common equivalent share:
THREE MONTHS ENDED MARCH 31 1998 1997 ============================================================================== Weighted average number of shares outstanding 7,963,847 7,905,570 Dilutive stock options and common stock warrants 92,324 135,628 --------- --------- Number of shares used in diluted computations 8,056,171 8,041,198 ========= ========= ==============================================================================
8 Warrants to purchase 60,000 shares of common stock at an exercise price of $6.00 per share were outstanding during the quarter, but were not included in the computation of diluted EPS because the warrants' exercise price was greater than the average market price of the common shares. 4. Debt and Bank Borrowing Arrangements ------------------------------------ In November, 1997 the Company terminated its revolving credit agreement with an asset based lender, and entered into a revolving credit agreement with Comerica Bank. The new credit facility amount remains at $4,000,000 and no collateral will be required of the Company. During the transition of changing financial institutions, the Company paid off its short-term minimum borrowing requirement debt of $1,000,000. As of March 31, 1998 there had been no borrowing under the new credit facility 5. Income Tax ---------- The Company, in conformance with its adopted Statement of Financial Accounting Standard (SFAS) No. 109, "Accounting for Income Taxes", has reversed a portion of the valuation allowance previously established applicable to the net deferred tax asset. The income tax benefit resulting from the reversal results from the Company's recent history of profitable operations. The Company has available net operating loss carryforwards of approximately $11.1 million as of March 31, 1998 for federal income tax purposes. 6. Comprehensive Income -------------------- Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income". This statement requires that all items which meet the definition of components of comprehensive income be reported in a financial statement for the period in which they are recognized. Components of comprehensive income include all changes in net assets, in addition to net income, which occur during the period. There are no items of comprehensive income that are not reported on the consolidated statement of income and therefore comprehensive income equals net income. 7. Disclosure About Segments of Enterprise and Related Information --------------------------------------------------------------- In June 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 131, "Disclosures About Segments of an Enterprise and Related Information". SFAS No. 131 establishes standards for the way that public business enterprises report information about operating segments. The company will adopt SFAS No. 131 in fiscal 1998, as required. This statement will affect disclosure and presentation in the financial statements, but will not have a material impact on the Company's consolidated financial position, liquidity cash flows or results of operations. 8. Reclass ------- Certain prior year amounts have been reclassified to conform to the current year presentation. 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations --------------------------------------------- Preliminary Note Regarding Forward-Looking Statements This Quarterly Report on Form 10-Q contains statements which may constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934. Forward-looking statements regarding future events and the future performance of the Company involve risks and uncertainties that could cause actual results to differ materially. These risks and uncertainties are described in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, as filled with the Securities and Exchange Commission, under "Item 1-Business," including the section therein entitled "Certain Factors That May Affect the Company's Business and Future Results," and "Item 7-Management's Discussion and Analysis of Financial Condition and Result of Operations." Results of Operations for Quarter Ended March 31, 1998 - ------------------------------------------------------ Reference is made to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, for an analysis and detailed discussion of the Company's financial condition and results of operations for the period covered by that report. Net Sales. Net sales for the quarter ended March 31, 1998 were $7.3 million, - --------- which represents a 10.9% or a $720,000 increase in net sales over the corresponding period of the prior year. Highlighting the increase in sales was primarily from the Company's Thermo Materials Division in Scottdale, Georgia. Contributing to this amount were defense products, and fused silica ceramic components for the tempered glass market (see explanations under Gross Profit below for these increases). International sales have and are expected to continue to be an important part of the Company's business, representing 22.7% of the Company's net sales for the quarter ending March 31, 1998, up from 22.5% for the comparable period of the prior year. Gross Profit. The Company's gross profit was $1.8 million or 24.0% of net sales - ------------ for the first quarter ended March 31, 1998, compared to $1.4 million or 21.0% of the prior year first quarter. The key element of this increase was from the Company's Thermo Materials Division in Scottdale, Georgia. This increase in Gross Profit is due to volume increases in defense products (ceramic missile nose cones), and fused silica ceramic components in the tempered glass market. The volume in defense products has risen largely from the prior year pilot production now increasing, and the increase in fused silica ceramic components is the result of a worldwide aggressive sales effort. Research and Development Expenses. R&D expenses were $67,000 for the quarter - ---------------------------------- ended March 31, 1997, compared to none for the same period one year ago. This is a new department set up for the current year to focus on new materials technology. For the first quarter this year, the expenses were salaries, travel, and small tools related. Selling Expenses. Selling expenses were $358,000 for the quarter ended March - ---------------- 31, 1998, and this compares to $419,000 for the same period one year ago. Commission sales have decreased over the same period from one year ago because of direct sales increases, and is the primary reason for the decrease. 10 General and Administrative Expenses. General and administrative expenses were - ----------------------------------- $934,000 for the quarter ended March 31, 1998, and this compares to $735,000 for the corresponding quarter of last year. The increase was primarily due to legal and temporary personnel expenses. Other Income/Expense. Other income was $91,000 for the quarter ended March 31, - -------------------- 1998 compared to $93,000 for the quarter ended March 31, 1997. Interest Expense. For the quarter ended March 31, 1998, there was no interest - ---------------- expense as compared to $37,000 one year ago. The reason for the decrease is the reduction of debt. Income Taxes. The Company recorded a $10,000 provision for income taxes for the - ------------ quarter ended March 31, 1998. The Company is utilizing net operating losses from prior years to offset normal tax provisions. The Company has approximately $11.1 million remaining in net operating loss carryforward for utilization in offsetting normal tax provisions. Net Income. Reflecting all of the matters discussed above, net income was - ---------- $483,000 (or $.06 per share) for the quarter ended March 31, 1998 compared to net income of $284,000 (or $.04 per share) for the comparable period of the prior year. Liquidity and Capital Resources - ------------------------------- The Company meets its operating and capital requirements for cash flow from operating activities and borrowings under its credit facilities. In November, 1997 the Company terminated its revolving credit agreement with an asset based lender, and entered into a revolving credit agreement with Comerica Bank. The new credit facility amount remains at $4,000,000 and no collateral will be required of the Company. During the transition of changing financial institutions, the Company paid off its short term minimum borrowing requirement debt of $1,000,000. As of March 31, 1998 there had been no borrowing under the new credit facility. Management believes that its current cash and cash equivalents on hand, as well as cash generated from operations and the ability to borrow under the existing credit facility, will be sufficient to finance anticipated capital and operating requirements for at least the next 12 months. New Accounting Pronouncements - ----------------------------- Statement of Position (SOP 98-5) "Reporting on the Cost of Start-up Activities" was issued in April 1998, and is effective for periods ending after December 15, 1998. The Company will adopt SOP 98-5 for the period beginning January 1, 1999 and anticipates that such adoption will not materially impact the Company's financial statements. PART II. OTHER INFORMATION Item 1. Legal Proceedings ----------------- The Company is, from time to time, involved in various legal and other proceedings that relate to the ordinary course of operating its business, including, but not limited to, 11 employment-related actions and workers' compensation claims. In October 1995 the Company was served with a complaint that was filed by four persons and the spouses of those persons, who are/were employed by one of the Company's customers. The complaint, filed in the United States District Court, Eastern District of Tennessee, alleges that the employees contracted chronic beryllium disease as a result of their exposure, during the course of their employment with the Company's customer, to beryllium-containing products sold by Ceradyne. The complaint seeks compensatory damages in the amount of $3.0 million for each of the four plaintiffs who were employed by the Company's customer, compensatory damages of $1.0 million each for the two spouses, and punitive damages in the amount of $5.0 million. The case is in the early stages of discovery. Based upon information currently available, the Company believes that the plaintiffs' claims are without merit and that the resolution of this matter will not have a material adverse effect on the financial condition or operations of the Company. Defense of this case has been tendered to the Company's insurance carriers, some of whom are providing a defense subject to a reservation of rights. There can be no assurance, however, that this claim or any of the claims related to exposure to beryllium oxide will be covered by insurance, or that, if covered, the amount of insurance will be sufficient to cover any potential judgment. In February 1997 the Company was served with a complaint that was filed by a former employee of one of the Company's customers and his wife. The complaint, filed in the United States District Court, Eastern District of Tennessee, alleges that the husband contracted chronic beryllium disease as a result of his exposure to beryllium-containing products sold by Ceradyne. The complaint seeks compensatory damages in the amount of $5.0 million for the husband, $1.0 million for the wife, and punitive damages in the amount of $10.0 million. The Company believes that the plaintiffs' claims are without merit and that the resolution of this matter will not have a material adverse effect on the financial condition or operations of the Company. Defense of this case has been tendered to the Company's insurance carriers, some of which are providing a defense subject to a reservation of rights. There can be no assurances, however, that this claim will be covered by insurance, or that, if covered, the amount of insurance will be sufficient to cover any potential judgment. In July 1997 the Company was served with a complaint filed by an employee of one of the Company's former parent companies and landlords. The complaint, filed in the Los Angeles County Superior Court on behalf of the employee by his wife, alleges that the husband contracted chronic beryllium disease as a result of his exposure to beryllium through Ceradyne's products, equipment and premises. The complaint seeks unspecified damages against the Company, its officers and its directors. The Company believes that the plaintiff's claims are without merit and that the resolution of this matter will not have a material adverse effect on the financial condition or operations of the Company. Defense of this case has been tendered to the Company's insurance carriers, some of which are providing defense and indemnification subject to a reservation of rights. There can be no assurances, however, that this claim will be covered by insurance, or that, if covered, the amount of insurance will be sufficient to cover any potential judgment. In August 1997 the Company was served with a complaint filed by a former employee of one of the Company's customers and his wife. The complaint, filed in the United States District Court, Eastern District of Tennessee, alleges that the husband contracted chronic berylliium disease as a result of his exposure to beryllium-containing products sold by Ceradyne. The complaint seeks compensatory damages in the amount of $5.0 million for the husband, $1.0 million for the wife, and punitive damages in the amount of $10.0 million. 12 The Company believes that the plaintiffs' claims are without merit and that the resolution of this matter will not have a material adverse effect on the financial condition or operations of the Company. Defense of this case has been tendered to the Company's insurance carriers, some of which are providing defense and indemnification subject to a reservation of rights. There can be no assurances, however, that this claim will be covered by insurance, or that, if covered, the amount of insurance will be sufficient to cover any potential judgment. Items 2-5. N/A Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits: 27 Financial Data Schedule (b) Reports on Form 8-K: None SIGNATURE - --------- 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 thereunto duly authorized. CERADYNE, INC. By: /s/ Howard F. George ------------------------------------------ Howard F. George Vice President Chief Financial Officer (Principal Financial and Accounting Officer) Dated: May 12, 1998 13 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 10-Q - QUARTER ENDED MARCH 31, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 3,399 0 5,676 180 7,490 18,001 25,175 17,093 29,775 2,326 0 0 0 37,414 0 29,775 7,341 7,341 5,580 6,848 0 0 0 493 10 0 0 0 0 483 .06 .06
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