-----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, RYHqmz4623AaqeR/2fAsqjjZGQsT4SyPA33zB81PWFDWcyAA/zYAkeRw1k6Lr9Yp jPNl8VEqlEHyKFVugWPb+A== 0001021408-00-001700.txt : 20000515 0001021408-00-001700.hdr.sgml : 20000515 ACCESSION NUMBER: 0001021408-00-001700 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000512 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: 627028 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 FORM 10-Q DATED MARCH 31, 2000 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, 2000 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. 000-13059 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 April 2, 2000 - ------------------------------ ----------------------------------- Common Stock, $.01 par value 8,166,938 Shares Page 1 of 17 Pages CERADYNE, INC.
INDEX PAGE NO. ----- -------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Statement Regarding Financial Information........................ 3 Consolidated Balance Sheets -March 31, 2000 and December 31, 1999............................................ 4-5 Consolidated Statements of Income - Three Months Ended March 31, 2000 and 1999....................... 6 Consolidated Statements of Cash Flow - Three Months Ended March 31, 2000 and 1999....................... 7 Condensed Notes to Consolidated Financial Statements............. 8-11 Item 2. Management's Discussion and Analysis of Financial Condition & Results of Operations.......................................... 11-14 Item 3. Quantitative and Qualitative Disclosures About Market Risk................................................ 14 PART II. OTHER INFORMATION Item 1. Legal Proceedings................................................ 15 Items 2, N/A.............................................................. 16 3, 4 and 5 Item 6. Exhibits and Reports on Form 8-K................................. 16 SIGNATURE..................................................................... 16
2 CERADYNE, INC. FORM 10-Q FOR THE QUARTER ENDED March 31, 2000 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 generally accepted accounting principles has been omitted pursuant to such rules and regulations. However, the Company believes the disclosures are adequate to make the information presented not misleading. It is suggested 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, 1999, as filed with the Securities and Exchange Commission on March 30, 2000. 3 ================================================================================ CERADYNE, INC. CONSOLIDATED BALANCE SHEETS ASSETS (Amounts in thousands)
- ------------------------------------------------------------------------------------------------------------------------- March 31, 2000 December 31, 1999 (Unaudited) ========================================================================================================================= CURRENT ASSETS - ------------------------------------------------------------------------------------------------------------------------- Cash & cash equivalents $ 1,465 $ 1,407 - ------------------------------------------------------------------------------------------------------------------------- Accounts receivable, net of allowances for 7,995 5,837 Doubtful accounts of approximately $90 and $39 at March 31, 2000 and December 31, 1999 - ------------------------------------------------------------------------------------------------------------------------- Other receivables 113 98 - ------------------------------------------------------------------------------------------------------------------------- Inventories 8,782 8,452 - ------------------------------------------------------------------------------------------------------------------------- Production tooling 1,504 1,343 - ------------------------------------------------------------------------------------------------------------------------- Prepaid expenses and other 719 1,147 -------- -------- - ------------------------------------------------------------------------------------------------------------------------- TOTAL CURRENT ASSETS 20,578 18,284 -------- -------- - ------------------------------------------------------------------------------------------------------------------------- PROPERTY, PLANT & EQUIPMENT, at cost - ------------------------------------------------------------------------------------------------------------------------- Land 422 422 - ------------------------------------------------------------------------------------------------------------------------- Buildings & improvements 1,825 1,825 - ------------------------------------------------------------------------------------------------------------------------- Machinery & equipment 23,754 23,462 - ------------------------------------------------------------------------------------------------------------------------- Leasehold improvements 2,163 1,870 - ------------------------------------------------------------------------------------------------------------------------- Office equipment 2,722 2,456 - ------------------------------------------------------------------------------------------------------------------------- Construction in progress 246 700 -------- -------- - ------------------------------------------------------------------------------------------------------------------------- 31,132 30,735 - ------------------------------------------------------------------------------------------------------------------------- Less accumulated depreciation & amortization (20,209) (19,733) - ------------------------------------------------------------------------------------------------------------------------- 10,923 11,002 -------- -------- - ------------------------------------------------------------------------------------------------------------------------- COSTS IN EXCESS OF NET ASSETS ACQUIRED, 1,804 1,846 net of accumulated amortization of $2,113 and $2,071 at March 31, 2000 and December 31,1999, respectively - ------------------------------------------------------------------------------------------------------------------------- OTHER ASSETS, net of accumulated amortization 1,755 1,761 of $651 and $645 at March 31, 2000 and December 31, 1999, -------- -------- respectively - ------------------------------------------------------------------------------------------------------------------------- TOTAL ASSETS $ 35,060 $ 32,893 ======== ======== =========================================================================================================================
See accompanying condensed notes to Consolidated Financial Statements. 4 ================================================================================ CERADYNE, INC. CONSOLIDATED BALANCE SHEETS LIABILITIES AND SHAREHOLDERS' EQUITY (Amounts in thousands, except share data)
- ------------------------------------------------------------------------------------------------------------------------- March 31, 2000 December 31, 1999 (Unaudited) ========================================================================================================================= CURRENT LIABILITIES - ------------------------------------------------------------------------------------------------------------------------- Current portion of long-term debt $ 100 $ 100 - ------------------------------------------------------------------------------------------------------------------------- Accounts payable 2,758 2,214 - ------------------------------------------------------------------------------------------------------------------------- Accrued expenses: - ------------------------------------------------------------------------------------------------------------------------- Payroll and payroll related 793 665 - ------------------------------------------------------------------------------------------------------------------------- Other 259 149 ------- -------- - ------------------------------------------------------------------------------------------------------------------------- TOTAL CURRENT LIABILITIES 3,910 3,128 ------- -------- - ------------------------------------------------------------------------------------------------------------------------- LONG-TERM DEBT, NET OF CURRENT PORTION 333 358 ------- -------- - ------------------------------------------------------------------------------------------------------------------------- DEFERRED REVENUE 202 270 ------- -------- - ------------------------------------------------------------------------------------------------------------------------- SHAREHOLDERS' EQUITY - ------------------------------------------------------------------------------------------------------------------------- Common stock, $.01 par value, Authorized - 12,000,000 shares, Outstanding - 8,166,938 shares and 8,095,848 shares at March 31, 2000 and December 31, 1999, respectively. 38,222 37,900 - ------------------------------------------------------------------------------------------------------------------------- Accumulated deficit (7,607) (8,763) ------- -------- - ------------------------------------------------------------------------------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY 30,615 29,137 ------- -------- - ------------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $35,060 $ 32,893 ======= ======== =========================================================================================================================
See accompanying condensed notes to Consolidated Financial Statements. 5 ========================================================================= CERADYNE, INC. CONSOLIDATED STATEMENTS OF INCOME (Amounts in thousands, except per share data) ========================================================================= THREE MONTHS ENDED MARCH 31 ------------------------------------------------------------------------- 2000 1999 -------------------------- (Unaudited) ========================================================================= NET SALES $11,148 $6,305 ------------------------------------------------------------------------- COST OF PRODUCT SALES 8,263 5,126 ------- ------ ------------------------------------------------------------------------- Gross Profit 2,885 1,179 ------- ------ ------------------------------------------------------------------------- OPERATING EXPENSES ------------------------------------------------------------------------- General and Administrative 1,148 823 ------------------------------------------------------------------------- Selling 356 346 ------------------------------------------------------------------------- Research & Development 268 135 ------- ------ ------------------------------------------------------------------------- 1,772 1,304 ------- ------ ------------------------------------------------------------------------- Income (loss) from operations 1,113 (125) ------- ------ ------------------------------------------------------------------------- OTHER (INCOME) EXPENSE: ------------------------------------------------------------------------- Other (income) (75) (90) ------------------------------------------------------------------------- Interest expense 9 --- ------- ------ ------------------------------------------------------------------------- (66) (90) ------- ------ ------------------------------------------------------------------------- Income before provision (benefit) for income taxes 1,179 (35) ------------------------------------------------------------------------- PROVISION (BENEFIT) FOR INCOME TAXES 23 (83) ------- ------ ------------------------------------------------------------------------- NET INCOME $ 1,156 $ 48 ------- ------ ------------------------------------------------------------------------- BASIC & DILUTED INCOME PER SHARE $ .14 $ .01 ======= ====== ========================================================================= See accompanying condensed notes to Consolidated Financial Statements. 6
==================================================================================================== CERADYNE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands) THREE MONTHS ENDED MARCH 31, - ---------------------------------------------------------------------------------------------------- 2000 1999 (Unaudited) (Unaudited) ==================================================================================================== CASH FLOWS FROM OPERATING ACTIVITIES: - ---------------------------------------------------------------------------------------------------- Net Income $ 1,156 $ 48 - ---------------------------------------------------------------------------------------------------- ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH PROVIDED FROM (USED IN) OPERATING ACTIVITIES: - ---------------------------------------------------------------------------------------------------- Depreciation and amortization 524 418 - ---------------------------------------------------------------------------------------------------- Increase in accounts receivable, net (2,158) (172) - ---------------------------------------------------------------------------------------------------- (Increase) decrease in other receivables (15) 91 - ---------------------------------------------------------------------------------------------------- Increase in inventories (330) (246) - ---------------------------------------------------------------------------------------------------- (Increase) decrease in production tooling (161) 29 - ---------------------------------------------------------------------------------------------------- (Increase) decrease in prepaid expenses & other assets 428 (244) - ---------------------------------------------------------------------------------------------------- Increase in accounts payable 544 298 - ---------------------------------------------------------------------------------------------------- Increase in accrued expenses 238 115 - ---------------------------------------------------------------------------------------------------- Decrease in deferred revenue (68) (68) ------- ------ - ---------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 158 269 ------- ------ - ---------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: - ---------------------------------------------------------------------------------------------------- Purchases of property, plant & equipment (397) (881) ------- ------ - ---------------------------------------------------------------------------------------------------- NET CASH USED IN INVESTING ACTIVITIES (397) (881) ------- ------ - ---------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: - ---------------------------------------------------------------------------------------------------- Proceeds from issuance of common stock 322 --- - ---------------------------------------------------------------------------------------------------- Net payments on long-term debt (25) --- ------- ------ - ---------------------------------------------------------------------------------------------------- Net cash provided by financing activities 297 --- ------- ------ - ---------------------------------------------------------------------------------------------------- Increase (decrease) in cash and cash equivalents 58 (612) ------- ------ - ---------------------------------------------------------------------------------------------------- Cash & cash equivalents, beginning of period 1,407 2,870 ------- ------ - ---------------------------------------------------------------------------------------------------- Cash & cash equivalents, end of period $ 1,465 $2,258 ======= ====== - ---------------------------------------------------------------------------------------------------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: - ---------------------------------------------------------------------------------------------------- Interest paid $ 9 $ --- - ---------------------------------------------------------------------------------------------------- Income taxes paid $ 4 $ --- ------- ------ ====================================================================================================
See accompanying condensed notes to Consolidated Financial Statements. 7 CERADYNE, INC. CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2000 (Unaudited) 1. Basis of Presentation --------------------- The consolidated financial statements include the financial statements of Ceradyne, Inc. (the Company) and its divisions. 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, 2000 and December 31, 1999 (in thousands): ========================================================================== MARCH 31, 2000 DECEMBER 31, 1999 ========================================================================== Raw Materials $4,581 $4,454 -------------------------------------------------------------------------- Work-in-Process 3,041 3,198 -------------------------------------------------------------------------- Finished Goods 1,160 800 -------------------------------------------------------------------------- Total Inventories $8,782 $8,452 ====== ====== ========================================================================== 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 table below reconciles the weighted shares outstanding in the computation of basic net income per share to diluted net income per share. =========================================================================== THREE MONTHS ENDED MARCH 31, --------------------------------------------------------------------------- 2000 1999 =========================================================================== Weighted average number of shares 8,113,641 8,054,838 outstanding --------------------------------------------------------------------------- Dilutive stock options and common 221,651 55,207 stock warrants --------- --------- --------------------------------------------------------------------------- Number of shares used in diluted 8,335,292 8,110,045 computations ========= ========= =========================================================================== 8 4. Long Term Debt ---------------- ============================================================= Capital Equipment loan bearing $ 433,000 interest at 8.18% APR. Payable in monthly installments of $8,333, expiring August 2004. ------------------------------------------------------------- Less Current Portion (100,000) --------- ------------------------------------------------------------- Long Term Debt $ 333,000 ============================================================= 5. 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 adopted No. 131 in fiscal 1998, as required. The Company serves its markets and manages its business through three divisions, each of which has its own manufacturing facilities and administrative and selling functions. The Company's Advanced Ceramic Operations, located in Costa Mesa, California, primarily produces armor and orthodontic products, components for semiconductor equipment, and houses the Company's SRBSN research and development activities. The Company's cathode development and production are handled through its Semicon Associates division located in Lexington, Kentucky. Fused silica products, including missile radomes, are produced at the Company's Thermo Materials division located in Scottdale, Georgia. Ceradyne's manufacturing structure is summarized in the following table:
======================================================================================================= FACILITY LOCATION PRODUCTS ------------------------------------------------------------------------------------------------------- Advanced Ceramic Operations . Semiconductor Equipment Components Costa Mesa, California . Lightweight ceramic armor Approximately 74,000 square feet . Orthodontic ceramic brackets . Ceralloy(R) 147 SRBSN wear parts . Precision ceramics . Ceralloy(R) 147 SRBSN diesel/automotive engine parts ------------------------------------------------------------------------------------------------------- Semicon Associates . Microwave ceramic-impregnated dispenser cathodes Lexington, Kentucky . Ion laser ceramic-impregnated dispenser cathodes Approximately 35,000 square feet . Samarium cobalt magnets ------------------------------------------------------------------------------------------------------- Thermo Materials . Glass tempering rolls (fused silica ceramics) Scottdale, Georgia . Metallurgical tooling (fused silica ceramics) Approximately 85,000 square feet . Missile radomes (fused silica ceramics) . Castable and other fused silica product ======================================================================================================
9 Ceradyne, Inc. Segment Disclosures for the Three Months Ended March 31, 2000 and 1999 (Amounts in thousands) Three Months Ended March 31,
Advanced Ceramic Ops Semicon Associates Thermo Materials TOTAL - ------------------------------------------------------------------------------------------------------------------ 2000 1999 2000 1999 2000 1999 2000 1999 - ------------------------------------------------------------------------------------------------------------------ Revenue from $ 7,525 $ 3,246 $1,769 $1,562 $1,854 $1,497 $11,148 $ 6,305 External ------- ------- ------ ------ ------ ------ ------- ------- Customers Depreciation $ 370 $ 277 $ 96 $ 81 $ 58 $ 60 $ 524 $ 418 and ------- ------- ------ ------ ------ ------ ------- ------- Amortization Segment Income $ 662 $ (250) $ 307 $ 81 $ 210 $ 134 $ 1,179 $ (35) (loss) before ------- ------- ------ ------ ------ ------ ------- ------- Provision (benefit) for Income Taxes Segment Assets $24,909 $19,774 $5,856 $6,627 $4,295 $3,485 $35,060 $29,886 ------- ------- ------ ------ ------ ------ ------- ------- Expenditures $ 258 $ 656 $ 14 $ 108 $ 125 $ 117 $ 397 $ 881 for PP&E ------- ------- ------ ------ ------ ------ ------- ------- --------------------------------------------------------------------------------------------
10 Segment Disclosures for Net Sales by Area for the Three Months Ended March 31, 2000 and 1999 Three Months Ended March 31,
Advanced Ceramic Ops Semicon Associates Thermo Materials TOTAL - ---------------------------------------------------------------------------------------------------------- 2000 1999 2000 1999 2000 1999 2000 1999 - ---------------------------------------------------------------------------------------------------------- U.S. Net Sales 62% 47% 14% 21% 12% 19% 88% 87% Western Europe 5% 4% 1% 2% 1% 2% 7% 8% Net Sales Asia Net Sales 1% --- 1% 1% 1% 2% 3% 3% Israel Net --- --- --- --- --- --- --- --- Sales Canada Net Sales --- --- --- --- 1% 1% 1% 1% Other --- --- --- --- 1% 1% 1% 1% ------ ------ ------ ------- ------- ------- ------ ------- Total Net Sales 68% 51% 16% 24% 16% 25% 100% 100% ====== ====== ====== ======= ======= ======= ====== ======= -------------------------------------------------------------------------------------------
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, 1999, as filed with the Securities and Exchange Commission under "Item 1- Business", including the section therein entitled "Risk Factors", and "Item 7-Management's Discussion and Analysis of Financial Condition and Result of Operations". Results of Operations for the Three Months Ended March 31, 2000 --------------------------------------------------------------- Reference is made to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999, for an analysis and detailed discussion of the Company's financial condition and results of operations for the period covered by that report. 11 Net Sales. Net sales for the three months ended March 31, 2000 were $11.1 --------- million which represents a 77% or a $4.8 million increase over the corresponding quarter of the prior year. The increase in sales was primarily attributable to the Company's Advanced Ceramic Operations in Costa Mesa, California. This increase was approximately $4.3 million over the corresponding first quarter of the prior year. Contributing to the increase was armor products due to the increased demand by the U.S. Armed Forces for protective armor. Orthodontic brackets also contributed to the increase sales over the year ago quarter because of increased demand by orthodontists for the "Clarity" orthodontic brackets. Additionally, the automotive product line had increased demand over the prior year first quarter due to new orders that were booked in the fourth quarter of 1999 for technical ceramic components by a major diesel engine manufacturer. Also, sales of structural ceramics for semiconductor manufacturing equipment had a slight increase over the prior year quarter due to the continued expansion in the semiconductor industry. The Company's Semicon Associates division in Lexington, Kentucky, posted a sales increase of $.2 million as compared to the year ago period. The increase was mainly due to price increases, and to the product mix. The Company's Thermo Materials division in Scottdale, George, posted a $.3 million sales increase over the year ago quarter. The increase was attributable to demand by the tool and dye business for composites in forming aerospace alloys. Also contributing was an increase in market share that resulted from a more aggressive sales effort. Gross Profit. The Company's gross profit was $2.9 million or 26% of sales ------------ for the first quarter ended March 31, 2000 compared to $1.2 million or 19% of sales for the prior year's first quarter. The Company's Advanced Ceramic Operations in Costa Mesa, California posted gross profit of $1.9 million compared to $.5 million or 280% increase over the year ago quarter. This result was mainly due to higher volume and higher capacity utilization resulting in favorable cost absorption. Gross profit for Semicon Associates in Lexington, Kentucky, was $.5 million as compared to $.3 million a year ago. The increase was attributable to volume, price increases, and higher production yields. Gross profit for Thermo Materials in Scottdale, Georgia was $.5 million versus $.4 million from the prior year's first quarter. This increase was mainly attributable to volume and the product mix of larger quantities yielding better manufacturing efficiencies than in the year ago quarter. Research and Development Expenses. Expenses for the first quarter ended --------------------------------- March 31, 2000 and 1999 for the Research and Development Department were $268,000 and $135,000, respectively. This department was set up in 1998 to develop new product lines to grow the business, and the increases for the current period are related to salaries, travel, outside services, materials and tooling. 12 In addition, the Company historically has and continues to engage in application engineering to improve and reduce the cost of production and to develop new manufacturing processes. The costs associated with application engineering are generally expensed as incurred and are included in cost of product sales. Expenses for the first quarters ended March 31, 2000 and 1999 for the Application Engineering Department were $87,000 and $109,000, respectively. The decrease in the current year period was mainly attributable to organizational changes. Selling Expenses. Selling expenses were $356,000 for the quarter ended ---------------- March 31, 2000. The above compares to the prior year ago amount of $346,000 for the quarter. Recruiting, travel, salaries, product literature and the addition of a direct salesperson in the United Kingdom contributed to the increase over the prior year quarter and was offset slightly by reclassifying a sales engineer to general and administrative expense, and miscellaneous freight expenses to manufacturing overhead. General and Administrative Expenses. General Administrative expenses were ----------------------------------- $1,148,000 for the quarter ended March 31, 2000. The above compares to the prior year amount of $823,000. Approximately forty percent of the increase was attributable to employee profit sharing, which is in total charged to general and administrative expense. The other increases involved two additional personnel at the Thermo Materials division, organizational reclassifications from other departments at the Advanced Ceramic Operations, investor relations consulting fees, salary increases, and fringe benefits. Other Income. Other income for the quarters ended March 31, 2000 and 1999 ------------ were $75,000 and $90,000, respectively. The decrease of $15,000 was caused by a decrease of interest income due to lower cash balances in the current quarter. Interest Expense. Interest expense was $9,000 for the quarter period as ---------------- compared to none in the prior year period. The increase was caused by entering into a capital equipment loan during the third quarter of the prior year. Income Taxes. The Company recorded a $23,000 provision for taxes for the ------------ quarter ended March 31, 2000. The Company has available net operating loss carry forwards of approximately $9.5 million as of March 31, 2000 for Federal income tax purposes. It is anticipated that the Company will utilize all of the net operating loss carry forwards for Federal income tax purposes in the year 2001. Net Income. Reflecting all of the matters discussed above, net income was ---------- $1,156,000 or $.14 per share diluted and basic for the quarter ended March 31, 2000. Year 2000 Disclosure. Many currently installed computer systems and -------------------- software products are coded to accept only two digit entries in the date code field. These date code fields will need to accept four digit entries to distinguish 21st century dates from 20th century dates. This inability to recognize or properly treat the Year 2000 may cause the Company's systems and applications to process critical financial and 13 operational information incorrectly. The Company has and continues to assess any impact of the Year 2000 issue on its reporting systems and operations. The Company did not experience any Year 2000 issues within or outside the Company in the millennium change or the leap year day of February 29, 2000. The costs associated with getting prepared for Year 2000 issues were as previously stated, approximately $150,000. Also, the Company has not experienced any unusual patterns or trends from the Year 2000 issue. The Company will continue to monitor this issue and any changes or trends will be disclosed. Liquidity and Capital Resources ------------------------------- The Company generally meets its operating and capital requirements for cash flow from operating activities and borrowings under its credit facilities. In November, 1997 the Company entered into a revolving credit agreement with Comerica Bank. The credit facility amount remains at $4,000,000 as of quarter ended March 31, 2000 and no collateral is required of the Company. As of March 31, 2000 there had been no borrowing under this credit facility. Under a separate credit facility with Comerica Bank, the Company entered into a $500,000 capital equipment loan agreement during the third quarter of 1999. The term of the loan is for 60 months with no prepayment penalty. 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 facilities, will be sufficient to finance anticipated capital and operating requirements for at least the next 12 months. New Accounting Pronouncements ----------------------------- In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 is effective for fiscal years beginning after June 15, 2000. SFAS No. 133 requires that all derivative instruments be recorded on the balance sheet at their fair value. Currently, the Company does not have any instruments that would qualify as derivatives under SFAS No. 133. Accordingly, the Company does not believe SFAS No. 133 will have a material impact on the Company's financial position, results of operations, or liquidity at the current time. Item 3. Quantitative and Qualitative Disclosures About Market Risk ---------------------------------------------------------- The Company is exposed to market risks related to fluctuations in interest rates on its debt. Currently, the Company does not utilize interest rate swaps, forward or option contracts on foreign currencies or commodities, or other types of derivative financial instruments. The purpose of the following analysis is to provide a framework to understand the Company's sensitivity to hypothetical changes in interest rates as of March 31, 2000. 14 The Company utilized debt financing during 1999 primarily for the purpose of acquiring manufacturing equipment. For fixed rate debt, changes in interest rates generally affect the fair market value of the debt instrument, but not the Company's earnings or cash flows. The Company does not have an obligation to prepay fixed rate debt prior to maturity, and as a result, interest rate risk and changes in fair market value should not have a significant impact on the fixed rate debt until the Company would be required to refinance such debt. The fair market value estimates for debt securities are based on discounting future cash flows utilizing current rates offered to the Company for debt of the same type and remaining maturity. As of March 31, 2000, the Company's debt consisted of a $433,000 capital equipment loan at a fixed interest rate of 8.18% due June 28, 2004. The carrying amount is a reasonable estimate of fair value as the rate of interest paid on the note approximates the current rate available for financing with similar terms and maturities. 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, employment-related actions and workers' compensation claims. In October 1995, February 1997, August 1997, February 1999, and December 1999, the Company, along with others, was served with six different complaints that were filed by nine former employees of one of the Company's customers, and eight spouses. The complaints, filed in the United States District Court, Eastern District of Tennessee, allege that the customers' employees contracted chronic beryllium disease as a result of their exposure to beryllium-containing products sold by Ceradyne and others. One complaint seeks compensatory damages in the amount of $3.0 million for the four husbands, $1.0 million for the four spouses, and punitive damages in the amount of $5.0 million. Four other complaints each seek compensatory damages in the amount of $5.0 million for four husbands, $1.0 million for the spouses, and punitive damages in the amount of $10.0 million. The final complaint seeks compensatory damages in the amount of $5.0 million for an individual 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 these matters will not have a material adverse effect on the financial condition or operations of the Company. Defense of these cases 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 these claims will be covered by insurance, or that, if covered, the amount of insurance will be sufficient to cover any potential judgments. 15 Items 2, 3, 4 and 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, 2000 16 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 10-Q - QUARTER ENDED MARCH 31, 2000, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1999 JAN-01-2000 MAR-31-2000 1,465 0 8,198 90 8,782 20,578 31,132 20,209 35,060 3,910 0 0 0 38,222 0 35,060 11,148 11,148 8,263 9,960 0 0 9 1,179 23 0 0 0 0 1,156 .14 .14
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