<PAGE>
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 September 30, 1997
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 September 30, 1997
- ---------------------------- ---------------------------------
Common Stock, $.01 par value 7,952,959 Shares
Page 1 of 15 Pages
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CERADYNE, INC.
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Statement Regarding Financial Information................ 3
Consolidated Balance Sheets - September 30, 1997 and
December 31, 1996........................................ 4-5
Consolidated Statements of Income - Three and nine months
ended September 30, 1997 and 1996........................ 6
Consolidated Statements of Cash Flow - Nine months ended
September 30, 1997 and 1996.............................. 7
Condensed Notes to Consolidated Financial Statements..... 8-9
Item 2. Management's Discussion and Analysis of Financial
Condition & Results of Operations........................ 10-12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................ 13-14
Items 2,3, N/A...................................................... 15
4 and 5
Item 6. Exhibits and Reports on Form 8-K......................... 15
SIGNATURE............................................................ 15
</TABLE>
2
<PAGE>
CERADYNE, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1997
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, 1996, as filed with the Securities and Exchange Commission on
March 31, 1997.
3
<PAGE>
CERADYNE, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
(Amounts in thousands)
<TABLE>
<CAPTION>
9-30-1997 12-31-1996
(Unaudited) (Audited)
----------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash & cash equivalents $ 4,558 $ 4,643
Accounts receivable, net of allowances of
approximately $53 & $125 for doubtful accts
at 9-30-1997 & 12-31-1996, respectively $ 4,869 $ 4,854
Other Receivables $ 14 $ 1,397
Inventories $ 9,157 $ 7,756
Production Tooling $ 754 $ 538
Prepaid expenses and other $ 759 $ 401
------- -------
TOTAL CURRENT ASSETS $20,111 $19,589
------- -------
PROPERTY, PLANT & EQUIPMENT, at cost:
Land $ 422 $ 422
Buildings & improvements $ 1,825 $ 1,825
Lease rights $ 2,659 $ 2,659
Machinery & equipment $17,459 $15,718
Leasehold improvements $ 1,504 $ 1,278
Office equipment $ 1,981 $ 1,829
Construction in progress $ 570 $ 600
------- -------
$26,420 $24,331
Less accumulated depreciation & amortization $19,050 $18,073
------- -------
$ 7,370 $ 6,258
COSTS IN EXCESS OF NET ASSETS ACQUIRED,
net of accumulated amortization of $1,712 & $1,595
at 9-30-1997 & 12-31-1996, respectively $ 1,962 $ 2,079
OTHER ASSETS, net of accumulated amortization
of $670 and $565 at 9-30-1997 & 12-31-1996,
respectively $ 367 $ 472
------- -------
TOTAL ASSETS $29,810 $28,398
======= =======
</TABLE>
See accompanying condensed notes to
Consolidated Financial Statements.
4
<PAGE>
CERADYNE, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
(Amounts in thousands, except share data)
<TABLE>
<CAPTION>
9-30-1997 12-31-1996
(Unaudited) (Audited)
----------- ----------
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt $ 1,000 $ 1,000
Accounts payable $ 1,726 $ 1,662
Accrued expenses:
Payroll and payroll related $ 629 $ 662
Other $ 148 $ 373
-------- --------
Total current liabilities $ 3,503 $ 3,697
-------- --------
LONG-TERM DEBT $ -0- $ -0-
-------- --------
DEFERRED REVENUE $ 67 $ 261
-------- --------
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value:
Authorized - 12,000,000 shares;
Outstanding - 7,952,959 shares &
7,901,790 shares at 9-30-1997 &
12-31-1996, respectively $ 37,386 $ 37,138
Accumulated deficit $(11,146) $(12,698)
-------- --------
TOTAL SHAREHOLDERS' EQUITY $ 26,240 $ 24,440
-------- --------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 29,810 $ 28,398
======== ========
</TABLE>
See accompanying condensed notes to
Consolidated Financial Statements.
5
<PAGE>
CERADYNE, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED 9-30-1997 & 1996
AND NINE MONTHS ENDED 9-30-97 AND 1996
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30 SEPTEMBER 30
------------------ --------------------
1997 1996 1997 1996
------ ------ ------- -------
Unaudited Unaudited
<S> <C> <C> <C> <C>
NET SALES $7,100 $7,385 $21,001 $20,706
COST OF PRODUCT SALES $5,271 $5,158 $15,747 $14,421
Gross Profit $1,829 $2,227 $ 5,254 $ 6,285
OPERATING EXPENSES:
Selling $ 395 $ 388 $ 1,215 $ 1,212
General & Administration $1,032 $ 817 $ 2,668 $ 2,355
$1,427 $1,205 $ 3,883 $ 3,567
------ ------ ------- -------
Income from operations $ 402 $1,022 $ 1,371 $ 2,718
OTHER (INCOME) EXPENSE:
Other (income)/expense $ (82) $ (119) $ (290) $ (304)
------ ------ ------- -------
Interest expense $ 36 $ 35 $ 109 $ 154
------ ------ ------- -------
$ (46) $ (84) $ (181) $ (150)
------ ------ ------- -------
Income before provision
for income taxes $ 448 $1,106 $ 1,552 $ 2,868
PROVISION FOR INCOME TAXES $ (60) $ 22 $ -- $ 68
------ ------ ------- -------
NET INCOME $ 508 $1,084 $ 1,552 $ 2,800
------ ------ ------- -------
NET INCOME PER COMMON &
EQUIVALENT SHARE $ .06 $ .14 $ .19 $ .35
====== ====== ======= =======
</TABLE>
See accompanying condensed notes to
Consolidated Financial Statements.
Certain prior year amounts have been reclassified to conform to the current year
presentation.
6
<PAGE>
CERADYNE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED 9-30 1997 & 1996
(Amounts in thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
---------------------
1997 1996
--------- ---------
Unaudited Unaudited
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 1,552 $ 1,716
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET
CASH PROVIDED FROM (USED IN) OPERATING ACTIVITIES:
Depreciation and amortization $ 1,199 $ 640
(Increase) decrease in accounts receivable, net $ (15) $(2,105)
(Increase) decrease in other receivables $ 1,383 $ (2)
(Increase) in inventories $(1,401) $(1,537)
(Increase) decrease in production tooling $ (216) $ 28
(Increase) decrease in prepaid expenses & other
assets $ (358) $ (181)
Increase in accounts payable $ 64 $ 9
Increase (decrease) in accrued expenses $ (258) $ 176
(Decrease) in deferred revenue $ (194) $ -0-
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 1,756 $(1,256)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant & equipment $(2,089) $(1,392)
------- -------
NET CASH USED IN INVESTING ACTIVITIES $(2,089) $(1,392)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock, net $ 248 $ 219
Net payments on long-term debt $ -0- $(1,133)
------- -------
Net cash provided by (used in) financing activities $ 248 $ (914)
------- -------
Increase (decrease) in cash and cash equivalents $ (85) $(3,562)
Cash & cash equivalents, beginning of period $ 4,643 $ 6,219
Cash & cash equivalents, end of period $ 4,558 $ 2,657
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 109 $ 122
Income taxes paid $ 72 $ 92
</TABLE>
See accompanying condensed notes to
Consolidated Financial Statements.
7
<PAGE>
CERADYNE, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(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 September 30, 1997 and December 31, 1996:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------ -----------------
<S> <C> <C>
Raw Materials $3,928,000 $2,742,000
Finished Goods $ 374,000 $ 483,000
Work-in-Process $4,855,000 $4,531,000
---------- ----------
Total Inventories $9,157,000 $7,756,000
========== ==========
</TABLE>
3. Net Income Per Share
--------------------
The number of shares used in computing primary net income per share equals
the total of the weighted average number of shares outstanding during the
periods and 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, the 1985 Employee Stock Purchase
Plan and the 1995 Employee Stock Purchase Plan represent additional shares
which may be issued in connection with their exercise. This total is
reduced by the number of shares which could be repurchased with the
proceeds at the average market price per share. Also, warrants to purchase
common stock (issued to the underwriters of the Company's November 1995
public offering) have been included as common stock equivalents. Common
stock equivalents relating to options are not included when their effect is
antidilutive. The following is a summary of the number of shares entering
into the computation of net income per common and common equivalent share:
8
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
--------------------- ---------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Weighted average number of shares
outstanding 7,944,488 7,831,000 7,921,285 7,785,000
Common stock equivalents 116,618 207,000 110,655 188,000
--------- --------- --------- ---------
Number of shares 8,061,106 8,038,000 8,031,940 7,973,000
========= ========= ========= =========
</TABLE>
4. Debt and Bank Borrowing Arrangements
------------------------------------
Long-term debt consisting of the following at September 30, 1997:
<TABLE>
<S> <C>
Credit facility with asset-based lender, bearing interest
at the institution's prime rate (8.50 percent at
September 30, 1997) plus 2.0 percent. $1,000,000
Less - Current portion $1,000,000
----------
Long-term debt $ -0-
==========
</TABLE>
5. Income Tax
----------
The Company accounts for income taxes under Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." The
Company's income tax provision (benefit) uses the estimated tax provision rate
for the year which reflects the availability of the net operating loss
carryforward. The Company's deferred tax asset, which is approximately $5.1
million, 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.
9
<PAGE>
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, 1996, as filed
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 and Nine Months Ended September 30, 1997
- --------------------------------------------------------------------------
Reference is made to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996, 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 third quarter ended September 30, 1997 were $7.1
- ---------
million, which represents a 3.9% or $285,000 decrease over the corresponding
quarter of the prior year. For the nine months ended September 30, 1997, net
sales were $21.0 million, an increase of 1.4% or $295,000 over the same period
last year.
The following comments compare the decrease in net sales for the quarter and
increase for the nine months of this year versus the prior year. Lightweight
ceramic armor had decreased sales for the quarter and year to date because of a
partially unexercised US Government option for approximately $6.1 million that
expired in March 1997. Cathodes for televisions had decreased sales for the
quarter and year to date because a major customer has delayed one project and
canceled another; therefore, the Company has commenced discussions with the
major customer regarding consideration for the actions taken, including
recoverability of inventory maintained for the contract. Because these
discussions are in the preliminary stage, it is not possible to predict the
outcome. These decreases amounted to approximately $1.9 million and $3.9 million
for the third quarter and nine months as compared to the prior year,
respectively.
The Company had increases in sales for the quarter and year to date, as compared
to the prior year periods, mainly from the following product lines: Sales of
orthodontic translucent ceramic brackets (that are marketed by 3M's Unitek
Division under the brand name "Clarity") were increased to meet demand by
Orthodontists. Structural ceramics for use in semiconductor equipment were
introduced this year. Sales of wear resistant ceramic components were flat for
the third quarter, but have increased over the nine month year to date period.
Sales at the Company's Thermo Materials Division increased in the current
quarter from the comparable prior year quarter. However, sales from this
division for the nine month period ended September 30, 1997 were down slightly
from the prior year period. The increases above amounted to approximately $1.6
million and $4.2 million over the third quarter and nine months of the prior
year, respectively.
10
<PAGE>
International sales represented 18.0% of the net sales for the quarter ending
September 30, 1997, down from 19.0% for the comparable period of the prior year.
For the nine months ended September 30, 1997, international sales were 19.0% of
net sales compared to 21.0% for the comparable period last year. The main
highlights for the percentage decrease in international sales for the quarter
and nine months ended September 30, 1997 versus last year periods were an
increase in domestic sales for this year and reduced shipments of CRT cathodes
for television applications.
Gross Profit. The Company's gross profit was $1.8 million or 25.8% of net sales
- ------------
for the third quarter ended September 30, 1997, compared to $2.2 million or
30.2% of the prior year's third quarter. The decrease in gross profit between
the comparable quarters was mainly due to the semiconductor product line's
early start up nature, low volume, and low internal yields. Orthodontic
translucent ceramic brackets increased gross profit which helped to offset the
decline in gross profit between the comparable quarters. Thermo Materials
contributed to an increase in gross profit for the quarter with its product
lines consisting of ceramic rolls for the glass making industry and missile nose
cones for the defense industry.
For the nine months ended September 30, 1997, the gross profit was $5.3 million
or 25.0% as compared to the prior year's period of $6.3 million or 30.4%. The
product mix between the nine month periods above were different, and the gross
profit difference was higher last year. The comments for the gross profit
differences between the nine month periods are the same as the above quarter
comments except the first quarter of this year had greater declines in gross
profit over the prior first quarter from the Company's Thermo Materials and
Semicon Associates Divisions. As stated in the March 30, 1997 10Q, these gross
profit declines were due to light volume for CRT applications for large screen
television and tempered glass furnace components.
Selling Expenses. Selling expenses were $395,000 for the quarter, and
- ----------------
$1,215,000 for the nine months ended September 30, 1997. The above compares to
last year's total of $388,000 for the quarter, and $1,212,000 for the nine
months ended September 30, 1996. There were no major variances between the
respective periods.
General/Administrative. General/administrative expenses were $1,032,000 for the
- ----------------------
third quarter and $2,668,000 for the nine months ended September 30, 1997. The
above compares to last year's total of $817,000 for the quarter, and $2,355,000
for the nine months ended September 30, 1996. The main variance for the quarter
and year to date periods was a non-recurring charge of approximately $220,000
related to legal fees associated with a litigation settlement.
Other Income. Other income was $82,000 for the quarter, and $290,000 for the
- ------------
nine months ended September 30, 1997. This compares to other income of $119,000
for the quarter, and $304,000 for the nine months ended September 30, 1996.
The main variance between the quarter and year to date periods was due to
changes in the amounts of royalty income.
Interest Expense. Interest expense was $36,000 for the quarter, and $109,000
- ----------------
for the nine months ended September 30, 1997. This compares to $35,000 for the
quarter, and $154,000 for the nine months ended September 30, 1996. The
variance for the quarter and year to date periods was directly associated to
debt.
11
<PAGE>
Income Taxes. The Company reversed out its provision for income tax in the
- ------------
third quarter of this year due to tax versus book reconciling items on inventory
accounts. Therefore, the Company's provision for income taxes for nine months
ended September 30, 1997 is $0. Also, for federal income tax purposes, 90% of
the Company's income before tax provision may be offset by the available net
operating losses carryforward due to the assessment of alternative minimum
income taxes.
Net Income. Reflecting all of the matters discussed above, net income was
- ----------
$508,000 (or $.06 per share) for the quarter, and $1,552,000 (or $.19 per share)
for the nine months ended September 30, 1997. This compares to $1,084,000 (or
$.14 per share) for the quarter, and $2,800,000 (or $.35 per share) for the nine
months ended September 30, 1996.
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. As of
September 30, 1997, the Company had cash and cash equivalents of approximately
$4.6 million.
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.
Statement of Accounting Pronouncements
- --------------------------------------
Statement of Financial Accounting Standards ("SFAS") No. 128 Earnings per Share
and SFAS No. 129 Disclosure of Information about Capital Structure were issued
in February 1997 and are effective for periods ending after December 15, 1997.
The Company will adopt SFAS No. 128 and SFAS No. 129 for the period ending
December 31, 1997 and anticipates that such adoption will not materially impact
the Company's financial statements. SFAS No. 130 Reporting Comprehensive Income
and SFAS No. 131 Disclosures about Segments of an Enterprise and Related
Information were issued in June 1997. The Company will adopt SFAS No. 130 and
SFAS No. 131 in 1998 and anticipates that such adoption will not materially
impact the Company's financial statements.
12
<PAGE>
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 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 which 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 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 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 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.
13
<PAGE>
During the third quarter of 1996, an action was concluded regarding a current
employee and his wife who filed suit in 1994 alleging that he had contracted
chronic beryllium disease as a result of his employment with the Company.
Ceradyne was dismissed as a direct defendant in March 1996, but a cross-
complaint filed by a previous landlord remained until August 1997, when the
matter was resolved through arbitration. The Company paid the former landlord
approximately $220,000 attributable to its legal fees, (which is reflected in
general and administrative expense for the third quarter ended September 30,
1997).
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 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 or 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.
14
<PAGE>
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: November 14, 1997
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 10Q - FIRST
AND SECOND QUARTER 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 4,558
<SECURITIES> 0
<RECEIVABLES> 4,830
<ALLOWANCES> 53
<INVENTORY> 9,157
<CURRENT-ASSETS> 20,111
<PP&E> 26,420
<DEPRECIATION> 19,050
<TOTAL-ASSETS> 29,810
<CURRENT-LIABILITIES> 3,503
<BONDS> 0
0
0
<COMMON> 37,386
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 29,810
<SALES> 21,001
<TOTAL-REVENUES> 21,001
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<INCOME-TAX> 0
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<CHANGES> 0
<NET-INCOME> 1,552
<EPS-PRIMARY> .19
<EPS-DILUTED> .19
</TABLE>
