<PAGE>
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, 1995
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
incorporation or organization) 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)
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, 1995
- ------------------------------ ---------------------------------
Common Stock, $.01 par value 6,248,534 Shares
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CERADYNE, INC.
INDEX
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<TABLE>
<CAPTION>
PAGE NO.
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<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Statement Regarding Financial Information...... 3
Consolidated Balance Sheets - March 31, 1995... 4-5
and December 31, 1994
Consolidated Statements of Income -............ 6
Three months ended March 31, 1995 and 1994
Consolidated Statements of Cash Flow -......... 7-8
Three months ended March 31, 1995 and 1994
Condensed Notes to Consolidated Financial...... 9-11
Statements
Item 2. Management's Discussion and Analysis of........ 12-14
Financial Condition & Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.............................. 15
Item 6. Exhibits and Reports on Form 8-K............... 16
SIGNATURE................................................. 16
</TABLE>
2
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CERADYNE, INC.
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1995
I. FINANCIAL INFORMATION
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 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, 1994, as filed with the Securities and
Exchange Commission on March 31, 1995.
3
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=============================================================================
CERADYNE, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
3-31-1995 12-31-1994
(UNAUDITED) (AUDITED)
=============================================================================
<S> <C> <C>
CURRENT ASSETS:
Cash & cash equivalents $ -0- $ -0-
Accounts receivable, net of allowances of $ 3,505 $ 2,891
approximately $185 & $199 for doubtful accts
at 3-31-1995 & 12-31-1994
Receivables from related parties $ 4 $ 6
Inventories $ 6,091 $ 5,736
Production Tooling $ 335 $ 243
Prepaid expenses and other $ -0- $ 21
---------- -----------
TOTAL CURRENT ASSETS $ 9,935 $ 8,897
---------- -----------
PROPERTY, PLANT & EQUIPMENT, AT COST:
Land $ 422 $ 422
Buildings & improvements $ 1,825 $ 1,825
Lease rights $ 2,659 $ 2,659
Machinery & equipment $ 14,246 $ 14,083
Leasehold improvements $ 1,130 $ 1,118
Office equipment $ 1,344 $ 1,344
Construction in progress $ 6 $ -0-
---------- -----------
$ 21,632 $ 21,451
Less accumulated depreciation & amortization $ 16,727 $ 16,410
---------- -----------
$ 4,905 $ 5,041
INTANGIBLES RESULTING FROM ACQUISITIONS, $ 2,350 $ 2,389
net of accumulated amortization of $1,325
& $1,286 at 3-31 1995 & 12-31-1994
OTHER ASSETS, net of accumulated amortization $ 518 $ 535
of $520 and $503 at 3-31-1995 & 12-31-1994 ---------- -----------
TOTAL ASSETS $ 17,708 $ 16,862
========== ===========
=============================================================================
</TABLE>
SEE ACCOMPANYING CONDENSED NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS.
4
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=======================================================================
CERADYNE, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
3-31-1995 12-31-1994
(UNAUDITED) (AUDITED)
=======================================================================
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt $ 1,153 $ 1,029
Accounts payable $ 1,707 $ 1,930
Accrued expenses:
Payroll and payroll related $ 988 $ 433
Other $ 490 $ 452
---------- -----------
Total current liabilities $ 4,338 $ 3,844
---------- -----------
LONG-TERM DEBT $ 873 $ 905
---------- -----------
DEFERRED REVENUE $ 532 $ 511
---------- -----------
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value:
Authorized - 12,000,000 shares;
Outstanding - 6,248,534 shares &
6,234,734 shares at 3-31-1995 &
12-31-1994, respectively $ 30,441 $ 30,429
Accumulated deficit $ (18,476) $ (18,827)
---------- -----------
TOTAL SHAREHOLDERS' EQUITY $ 11,965 $ 11,602
---------- -----------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 17,708 $ 16,862
========== ===========
=======================================================================
</TABLE>
SEE ACCOMPANYING CONDENSED NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS.
5
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====================================================================
CERADYNE, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED 3-31-1995 & 1994
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
====================================================================
THREE MONTHS ENDED
MARCH 31
1995 1994
------------------
UNAUDITED
====================================================================
<S> <C> <C>
NET SALES $5,379 $4,500
COST OF PRODUCT SALES $3,996 $3,930
------ ------
Gross Profit $1,383 $ 570
------ ------
OPERATING EXPENSES:
Selling $ 387 $ 393
General & Administration $ 573 $ 522
------ ------
$ 960 $ 915
------ ------
Income (Loss) from operations $ 423 $ (345)
------ ------
OTHER (INCOME) EXPENSE:
Other (income) expense $ (4) $ (224)
Interest expense $ 76 $ 68
------ ------
$ 72 $ (156)
------ ------
Income (Loss) before provision $ 351 $ (189)
for income taxes
PROVISION (CREDIT) FOR INCOME TAXES $ - $ -
NET INCOME (LOSS) $ 351 $ (189)
====== ======
NET INCOME (LOSS) PER COMMON &
EQUIVALENT SHARE
Primary $ .06 $ (.03)
====== ======
====================================================================
</TABLE>
SEE ACCOMPANYING CONDENSED NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS.
6
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<TABLE>
<CAPTION>
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CERADYNE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED 3-31-1995 & 1994
(AMOUNTS IN THOUSANDS)
=================================================================================
THREE MONTHS ENDED
MARCH 31
1995 1994
Unaudited Unaudited
=================================================================================
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ 351 $ (189)
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET
CASH PROVIDED FROM (USED IN) OPERATING ACTIVITIES:
Depreciation and amortization $ 373 $ 347
Decrease (Increase) in accounts receivable, net $ (614) $ (350)
(Increase) decrease in receivables from related $ 2 $ (14)
parties
Increase in inventories $ (355) $ (453)
(Increase) decrease in production tooling $ (92) $ 50
Decrease (Increase) in prepaid expenses & other $ 21 $ (80)
assets
Increase (decrease) in accounts payable $ (223) $ 274
Increase (decrease) in accrued expenses $ 593 $ 41
Increase (decrease) in deferred revenue $ 21 $ 218
------ ------
NET CASH PROVIDED FROM (USED IN) OPERATING $ 77 $ (156)
ACTIVITIES ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant & equipment $ (181) $ (22)
------ ------
NET CASH USED IN INVESTING ACTIVITIES $ (181) $ (22)
------ ------
=================================================================================
SEE ACCOMPANYING CONDENSED NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
7
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CERADYNE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED 3-31-1995 & 1994
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
==============================================================================
THREE MONTHS ENDED
MARCH 31
1995 1994
UNAUDITED UNAUDITED
==============================================================================
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock, net $ 12 $ 9
Net borrowings (payments) on long-term debt $ 92 $ 158
----- -----
Net cash provided by (used in) financing activities $ 104 $ 167
----- -----
Decrease in cash and cash equivalents $ -0- $( 11)
Cash & cash equivalents, beginning of period $ -0- $ 94
Cash & cash equivalents, end of period $ -0- $ 83
===== =====
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 76 $ 68
Income taxes paid $ - $ -
==============================================================================
</TABLE>
SEE ACCOMPANYING CONDENSED NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS.
8
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CERADYNE, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995
(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, 1995 and December 31, 1994:
<TABLE>
<CAPTION>
MARCH 31, 1995 DECEMBER 31, 1994
=========================================================
<S> <C> <C>
Raw materials $2,025,000 $1,984,000
Work-in-process $3,042,000 $3,090,000
Finished goods $1,024,000 $ 662,000
---------- ----------
Total inventories $6,091,000 $5,736,000
========== ==========
=========================================================
</TABLE>
3. Net Income (Loss) Per Share
---------------------------
The number of shares used in computing primary net income (loss) per share
equals the total of the weighted average number of shares outstanding
during the periods plus common stock equivalents relating to options.
Common stock equivalents relating to options issued under the 1983 Stock
Option Plan (as amended), the 1994 Stock Incentive Plan, and the 1985
Employee Stock Purchase Plan represent additional shares which may be
issued in connection with their exercise, reduced by the number of shares
which could be repurchased with the proceeds at the average market price
per share. Common stock equivalents relating to options are not included
when their effect is antidilutive.
9
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The following is a summary of the number of shares entering into the
computation of net income (loss) per common and common equivalent share for
the three month periods ended March 31, 1995 and 1994.
<TABLE>
<CAPTION>
===================================================================
THREE MONTHS ENDED MARCH 31
1995 1994
===================================================================
<S> <C> <C>
Weighted average number of 6,243,841 6,231,146
shares outstanding
Common stock equivalents:
Employee Stock Purchase 11,565 -
Plan ---------- ----------
Stock Options 52,147 -
---------- ----------
Number of shares primary & 6,307,553 6,231,146
fully diluted ========== ==========
===================================================================
</TABLE>
4. Long-term Debt and Bank Borrowing Arrangements
----------------------------------------------
<TABLE>
<CAPTION>
================================================================================
<S> <C>
Long-term debt consisting of the following at March 31, 1995:
Note payable to asset-based lender, bearing interest at the $1,896,000
institution's prime rate (9.00 percent at March 31, 1995),
plus 3.6 percent, payable in monthly installments of $26,428.
Four contract capital leases, bearing interest between 5.38 $ 130,000
percent and 11.64 percent, payable in monthly installments of
$18,948 expiring from May 1995 through September 1996,
secured by equipment with a net book value of $300,000.
----------
$2,026,000
Less - Current portion $1,153,000
----------
Long-term debt $ 873,000
==========
================================================================================
</TABLE>
On September 22, 1994, the Company amended its existing revolving credit
agreement with an asset-based lender for the purpose of financing the
Company's working capital needs. The facility, now limited to $4,000,000,
is composed of two parts: a $1,585,600 (previously $1,553,300) five-year
term loan dated September 22, 1993 and a $2,414,400 (previously $2,446,700)
revolving line of credit expiring on November 29, 1996. Included in the
revolving line of credit is a foreign accounts sublimit which is the lesser
of $500,000 or 33.3% of the total outstanding borrowing against "eligible
domestic accounts." Borrowings under both sections of the facility are tied
to
10
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availability formulas - eighty percent (80%) of the appraised value of
fixed assets for the term loan, and for the revolving line of credit,
seventy-five percent (75%) of eligible trade receivables and twenty-five
percent (25%) of eligible inventory (up to $250,000). The term loan and the
revolving line of credit are secured by all of the Company's assets and
require the Company, among other things, to maintain certain financial
ratios and limit capital expenditures. The interest rate under this credit
facility is equal to the lender's prime rate (nine percent (9.0%) at March
31, 1995) plus three and six-tenths percent (3.6%). A one and one-half
percent (1.5%) facility fee is payable annually on the total value of the
credit facility.
5. Income Tax
----------
Effective the first quarter of 1993, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income
Taxes." The new standard provides revised criteria for the recognition of
net deferred tax assets. The Company's net deferred tax asset, which is
approximately $6,840,000, relates to its net operating loss carryforward
and has been offset with a valuation allowance since there is uncertainty
regarding the Company's ability to recognize this tax benefit since the
benefit is dependent upon the Company's ability to continue to generate
future taxable income.
11
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ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
---------------------------------------------------------------
Reference is made to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1994, for an analysis and detailed discussion of the
Company's financial condition and results of operations for the period covered
by that report.
Results of Operations
- ---------------------
Net sales increased $.879 million or 19.5% to $5.4 million in the quarter ending
March 31, 1995, from $4.5 million for the quarter ending March 31, 1994. This
increase in sales is the result of an increase in demand for the various product
offerings. These changes are highlighted by the following summary of net sales:
<TABLE>
<CAPTION>
=======================================================
QUARTER ENDED MARCH 31
(In Millions)
1995 1994
=======================================================
<S> <C> <C>
Lightweight ceramic armor $ 1.1 $ 1.0
Ceramic-to-Metal Assemblies $ -0- .4
Orthodontic products .3 .2
Fused silica ceramics 1.5 1.1
Cathodes 1.1 .9
Magnets .2 .2
Silicon Nitride Products .6 .3
Machined Products .6 .4
----- -----
TOTAL $ 5.4 $ 4.5
===== =====
=======================================================
</TABLE>
The increase in sales of lightweight ceramic armor in the first quarter of 1995
versus the comparable prior year period results from an increase in 1995
shippable bookings. The decrease in Ceramic-to-Metal shipments for the first
quarter of 1995 versus the comparable prior year period results from the fact
that the product line was sold to a competitor during the fourth quarter of 1994
with the understanding that the Company would cease selling the product by the
end of 1994. The increase in fused silica ceramic sales in the first quarter of
1995 versus the comparable prior year period result from an increase in the
level of first quarter of 1995 shippable bookings. The increase in cathode
sales in the first quarter of 1995 versus the comparable prior year period
result from an increase in the level of first quarter of 1995
12
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shippable bookings. The increase in silicon nitride product sales in the first
quarter of 1995 versus the comparable prior year period result from an increase
in the level of first quarter of 1995 shippable bookings. The increase in
machined products sales in the first quarter of 1995 versus the comparable prior
year period result from an increase in the level of first quarter of 1995
shippable bookings. In conclusion, the sales increase is due to a bookings
increase in the current product offerings.
Gross profit increased 142.6% to $1.383 million for the quarter ending March 31,
1995, from $.570 million for the quarter ending March 31, 1994. This increase
is the result of many factors including, but not limited to, the following:
. Increase in net sales of $.879 million in the three months ended March 31,
1995 versus a year earlier.
. A change in sales mix towards sales in the more profitable product lines.
Selling, general and administrative expenses, in total, increased $45 thousand
in the quarter ending March 31, 1995 from the value shown for the quarter ending
March 31, 1994. The increase results from a higher level of commission expense
than incurred in the prior year.
Other income decreased to $4 thousand for the quarter ending March 31, 1995 from
$.224 million for the quarter ending March 31, 1994. The decrease results from
the fact that in the first quarter 1994 the Company recorded: the finalization
of a contract cancellation, the settlement of a claim for costs incurred to make
non-conforming material usable, an increase in the licensing fees received by
the Company versus the amount accrued. Interest expense increased for the three
months ending March 31, 1995 versus the comparable prior year period. This
increase was due to an increase in the interest rate charged by the Company's
asset-based lender.
Liquidity and Capital Resources
- -------------------------------
The Company has a revolving credit agreement with an asset-based lender for the
purpose of financing the Company's working capital needs. The facility, which
is limited to $4 million, is composed of two parts: a $1,585,600 five-year term
loan, and a $2,414,400 revolving line of credit expiring on November 29, 1996.
Borrowings under both sections of the facility are tied to availability
formulas: eighty percent (80%) of the appraised value of fixed assets for the
term loan, and seventy-five percent (75%) of
13
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eligible trade receivables, and twenty-five percent (25%) of eligible inventory
(up to $250,000) for the revolving line of credit. The term loan and the
revolving line of credit are secured by all of the Company's assets and require
the Company, among other things, to maintain certain financial ratios and limit
capital expenditures. Borrowing under the facility totaled $1.896 million at
March 31, 1995.
At March 31, 1995, the Company had short-term cash resources (i.e., cash and
cash equivalents) equal to $-0-. To keep interest expense to the lowest level
possible, all excess cash is used to reduce the Company's indebtedness to its
asset-based lender. Management believes that funds generated from operations,
and the ability to borrow under the revolving credit facility will be sufficient
to finance currently anticipated cash requirements for at least the next twelve
months.
14
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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.
Currently the Company is involved in one action filed by a current employee in
the Superior Court of the State of California, County of Orange. The employee
and his wife filed suit in December 1994 alleging that he contracted chronic
beryllium disease during the course and scope of his employment. Defense of the
case has been tendered to the Company's insurance carriers.
While the Company is unable to predict the outcome of current proceedings, based
upon the facts currently known to it, the Company, after consultation with legal
counsel, does not believe that resolution of these proceedings will have a
material adverse effect on the financial condition or operations of the Company.
15
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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: _______________________________
James F. Gardner
Vice President
Chief Financial Officer
(Principal Financial and Accounting Officer)
Dated: May 9, 1995
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 3,690
<ALLOWANCES> 185
<INVENTORY> 6,091
<CURRENT-ASSETS> 9,935
<PP&E> 21,632
<DEPRECIATION> 16,727
<TOTAL-ASSETS> 17,708
<CURRENT-LIABILITIES> 4,338
<BONDS> 873
<COMMON> 30,441
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 17,708
<SALES> 5,379
<TOTAL-REVENUES> 5,379
<CGS> 3,996
<TOTAL-COSTS> 960
<OTHER-EXPENSES> (4)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 76
<INCOME-PRETAX> 351
<INCOME-TAX> 0
<INCOME-CONTINUING> 351
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 351
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
