<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, 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 September 30, 2000
-------------------------------- ----------------------------------------
Common Stock, $.01 par value 8,268,548 Shares
Page 1 of 18 Pages
<PAGE>
CERADYNE, INC.
<TABLE>
<CAPTION>
INDEX PAGE NO.
----- -------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Statement Regarding Financial Information.................. 3
Consolidated Balance Sheets - September 30, 2000 and
December 31, 1999.......................................... 4-5
Consolidated Statements of Income - Three and Nine months
ended September 30, 2000 and 1999.......................... 6
Consolidated Statements of Cash Flow - Nine months ended
September 30, 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.................................... 12-15
Item 3. Quantitative and Qualitative Disclosures About Market
Risk....................................................... 15-16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.......................................... 16
Items 2, 3, N/A........................................................ 16
4 and 5
Item 6. Exhibits and Reports on Form 8-K.......................... 17
SIGNATURE.............................................................. 18
</TABLE>
2
<PAGE>
CERADYNE, INC.
FORM 10-Q
FOR THE QUARTER ENDED
September 30, 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. The Financial Statements should 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
<PAGE>
<TABLE>
<CAPTION>
================================================================================================================
CERADYNE, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
(Amounts in thousands)
----------------------------------------------------------------------------------------------------------------
September 30, 2000 December 31, 1999
(Unaudited)
================================================================================================================
<S> <C> <C>
CURRENT ASSETS
----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents $ 4,238 $ 1,407
----------------------------------------------------------------------------------------------------------------
Accounts receivable, net of allowances for doubtful 7,655 5,837
accounts of approximately $106 and $39 at September
30, 2000 and December 31, 1999, respectively.
----------------------------------------------------------------------------------------------------------------
Other receivables 76 98
----------------------------------------------------------------------------------------------------------------
Inventories 8,552 8,452
----------------------------------------------------------------------------------------------------------------
Production tooling 1,654 1,343
----------------------------------------------------------------------------------------------------------------
Prepaid expenses and other 768 1,147
-------- --------
----------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 22,943 18,284
-------- --------
----------------------------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT, at cost
----------------------------------------------------------------------------------------------------------------
Land 422 422
----------------------------------------------------------------------------------------------------------------
Buildings and improvements 1,825 1,825
----------------------------------------------------------------------------------------------------------------
Machinery and equipment 24,914 23,462
----------------------------------------------------------------------------------------------------------------
Leasehold improvements 2,191 1,870
----------------------------------------------------------------------------------------------------------------
Office equipment 2,937 2,456
----------------------------------------------------------------------------------------------------------------
Construction in progress 152 700
-------- --------
----------------------------------------------------------------------------------------------------------------
32,441 30,735
----------------------------------------------------------------------------------------------------------------
Less accumulated depreciation and amortization (21,205) (19,733)
-------- --------
----------------------------------------------------------------------------------------------------------------
11,236 11,002
-------- --------
----------------------------------------------------------------------------------------------------------------
COSTS IN EXCESS OF NET ASSETS ACQUIRED, 1,721 1,846
net of accumulated amortization of $2,196 and $2,071 at
September 30, 2000 and December 31, 1999, respectively.
----------------------------------------------------------------------------------------------------------------
OTHER ASSETS, net of accumulated amortization 1,741 1,761
of $665 and $645 at September 30, 2000 and -------- --------
December 31, 1999, respectively.
----------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 37,641 $ 32,893
======== ========
================================================================================================================
</TABLE>
See accompanying condensed notes to
consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
========================================================================================================================
CERADYNE, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
(Amounts in thousands, except share data)
------------------------------------------------------------------------------------------------------------------------
September 30, 2000 December 31, 1999
(Unaudited)
========================================================================================================================
<S> <C> <C>
CURRENT LIABILITIES
------------------------------------------------------------------------------------------------------------------------
Current maturities of long-term debt $ 100 $ 100
------------------------------------------------------------------------------------------------------------------------
Accounts payable 2,139 2,214
------------------------------------------------------------------------------------------------------------------------
Accrued expenses:
------------------------------------------------------------------------------------------------------------------------
Payroll and payroll related 915 665
------------------------------------------------------------------------------------------------------------------------
Other 342 149
------- -------
------------------------------------------------------------------------------------------------------------------------
Total current liabilities 3,496 3,128
------- -------
------------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT, NET OF CURRENT MATURITIES 283 358
------- -------
------------------------------------------------------------------------------------------------------------------------
DEFERRED REVENUE 67 270
-------
------------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
------------------------------------------------------------------------------------------------------------------------
Common stock, $.01 par value,
Authorized - 12,000,000 shares,
Outstanding - 8,268,548 shares
and 8,095,848 shares at September 30, 2000
and December 31, 1999, respectively. 38,655 37,900
------------------------------------------------------------------------------------------------------------------------
Accumulated deficit (4,860) (8,763)
----- -----
------------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 33,795 29,137
------- -------
------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $37,641 $32,893
======= =======
=========================================================================================================================
</TABLE>
See accompanying condensed notes to
consolidated financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
=========================================================================================
CERADYNE, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except per share data)
=========================================================================================
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
-----------------------------------------------------------------------------------------
2000 1999 2000 1999
=========================================================================================
(Unaudited) (Unaudited)
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET SALES $11,493 $7,810 $34,340 $21,446
-----------------------------------------------------------------------------------------
COST OF PRODUCT SALES 8,263 6,034 25,061 16,803
------ ----- ------ ------
-----------------------------------------------------------------------------------------
Gross profit 3,230 1,776 9,279 4,643
----- ----- ----- -----
-----------------------------------------------------------------------------------------
OPERATING EXPENSES
-----------------------------------------------------------------------------------------
Research and development 330 113 949 429
-----------------------------------------------------------------------------------------
Selling 444 395 1,197 1,075
-----------------------------------------------------------------------------------------
General and administrative 1,142 866 3,371 2,531
----- --- ----- -----
-----------------------------------------------------------------------------------------
1,916 1,374 5,517 4,035
----- ----- ----- -----
-----------------------------------------------------------------------------------------
Income from operations 1,314 402 3,762 608
----- --- ----- ---
-----------------------------------------------------------------------------------------
OTHER (INCOME) EXPENSE:
-----------------------------------------------------------------------------------------
Other (income) (132) (110) (247) (279)
-----------------------------------------------------------------------------------------
Interest expense 8 6 26 6
- - -- -
-----------------------------------------------------------------------------------------
(124) (104) (221) (273)
-----------------------------------------------------------------------------------------
Income before provision 1,438 506 3,983 881
(benefit) for income taxes
-----------------------------------------------------------------------------------------
PROVISION (BENEFIT) FOR INCOME TAXES 29 10 80 (64)
-- -- -- --
-----------------------------------------------------------------------------------------
NET INCOME $ 1,409 $ 496 $ 3,903 $ 945
===== === ===== ===
-----------------------------------------------------------------------------------------
BASIC INCOME PER SHARE $ 0.17 $ 0.06 $ 0.48 $ 0.12
==== ==== ==== ====
-----------------------------------------------------------------------------------------
DILUTED INCOME PER SHARE $ 0.17 $ 0.06 $ 0.47 $ 0.12
==== ==== ==== ====
=========================================================================================
</TABLE>
See accompanying condensed notes to
consolidated financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================
CERADYNE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED
(Amounts in thousands) SEPTEMBER 30,
--------------------------------------------------------------------------------------------------------------------
2000 1999
(Unaudited) (Unaudited)
====================================================================================================================
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
--------------------------------------------------------------------------------------------------------------------
Net income $ 3,903 $ 945
--------------------------------------------------------------------------------------------------------------------
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
--------------------------------------------------------------------------------------------------------------------
Depreciation and amortization 1,617 1,344
--------------------------------------------------------------------------------------------------------------------
CHANGES IN OPERATING ASSETS AND LIABILITIES:
--------------------------------------------------------------------------------------------------------------------
Increase in accounts receivable, net (1,818) (870)
--------------------------------------------------------------------------------------------------------------------
Decrease in other receivables 22 55
--------------------------------------------------------------------------------------------------------------------
Increase in inventories (100) (821)
--------------------------------------------------------------------------------------------------------------------
Increase in production tooling (311) (319)
--------------------------------------------------------------------------------------------------------------------
Decrease (increase) in prepaid expenses and other assets 379 (238)
--------------------------------------------------------------------------------------------------------------------
(Decrease) increase in accounts payable (75) 707
--------------------------------------------------------------------------------------------------------------------
Increase in accrued expenses 443 68
--------------------------------------------------------------------------------------------------------------------
Decrease in deferred revenue (203) (203)
--- ---
--------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,857 668
----- ---
--------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
--------------------------------------------------------------------------------------------------------------------
Purchases of property, plant and equipment (1,706) (2,607)
----- -----
--------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (1,706) (2,607)
----- -----
--------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
--------------------------------------------------------------------------------------------------------------------
Proceeds from issuance of common stock 755 125
--------------------------------------------------------------------------------------------------------------------
Payments on long-term debt (75) 483
-- ---
--------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 680 608
--- ---
--------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 2,831 (1,331)
-----
--------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, beginning of period 1,407 2,870
----- -----
--------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 4,238 $ 1,539
===== =====
--------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
--------------------------------------------------------------------------------------------------------------------
Interest paid $ 26 $ 6
===================================================================================================================
Income taxes paid $ 51 $ 2
===================================================================================================================
</TABLE>
See accompanying condensed notes to
consolidated financial statements.
7
<PAGE>
CERADYNE, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 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 September 30, 2000 and December 31, 1999 (in thousands):
SEPTEMBER 30, 2000 DECEMBER 31, 1999
===========================================================================
Raw Materials $4,209 $4,454
---------------------------------------------------------------------------
Work-in-Process 3,329 3,198
---------------------------------------------------------------------------
Finished Goods 1,014 800
---------------------------------------------------------------------------
Total Inventories $8,552 $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.
<TABLE>
<CAPTION>
===========================================================================================
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------------------------------------------------------------------------
2000 1999 2000 1999
============================================================================================
<S> <C> <C> <C> <C>
Weighted average number of shares outstanding 8,260,110 8,080,000 8,187,258 8,064,000
--------------------------------------------------------------------------------------------
Dilutive stock options and common stock 208,390 147,000 189,072 99,000
warrants ------- ------- ------- ------
--------------------------------------------------------------------------------------------
Number of shares used in diluted computations 8,468,500 8,227,000 8,376,330 8,163,000
========= ========= ========= =========
============================================================================================
</TABLE>
8
<PAGE>
4. Long-Term Debt
--------------
===========================================================
Capital equipment loan bearing $ 383,000
interest at 8.18% APR. Payable in
monthly installments of $8,333,
expiring August 2004.
-----------------------------------------------------------
Less Current Portion (100,000)
-------
-----------------------------------------------------------
Long-Term Debt $ 283,000
===========================================================
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:
<TABLE>
<CAPTION>
===============================================================================================
FACILITY LOCATION PRODUCTS
-----------------------------------------------------------------------------------------------
<S> <C>
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
===============================================================================================
</TABLE>
9
<PAGE>
Ceradyne, Inc.
Segment Disclosures
(Amounts in thousands)
Three Months Ended September 30,
<TABLE>
<CAPTION>
Advanced Ceramic Ops Semicon Associates Thermo Materials Total
--------------------------------------------------------------------------------------------------
2000 1999 2000 1999 2000 1999 2000 1999
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue from $ 7,991 $ 4,519 $1,741 $1,650 $1,761 $1,641 $11,493 $ 7,810
External ------- ------- ------ ------ ------ ------ ------- -------
Customers
Depreciation $ 388 $ 334 $ 104 $ 89 $ 85 $ 49 $ 577 $ 472
and ------- ------- ------ ------ ------ ------ ------- -------
Amortization
Segment Income $ 962 $ 266 $ 222 $ 136 $ 254 $ 104 $ 1,438 $ 506
before ------- ------- ------ ------ ------ ------ ------- -------
provision
(benefit) for
income taxes
Segment Assets $27,107 $21,630 $6,057 $6,160 $4,477 $3,828 $37,641 $31,618
------- ------- ------ ------ ------ ------ ------- -------
Expenditures $ 359 $ 630 $ 157 $ 60 $ 193 $ 98 $ 709 $ 788
for PP&E ------- ------- ------ ------ ------ ------ ------- -------
--------------------------------------------------------------------------------------------------
</TABLE>
Nine Months Ended September 30,
<TABLE>
<CAPTION>
Advanced Ceramic Ops Semicon Associates Thermo Materials Total
--------------------------------------------------------------------------------------------------
2000 1999 2000 1999 2000 1999 2000 1999
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue from $23,541 $12,072 $5,481 $4,855 $5,318 $4,519 $34,340 $21,446
External ------- ------- ------ ------ ------ ------ ------- -------
Customers
Depreciation $ 1,157 $ 919 $ 247 $ 253 $ 213 $ 172 $ 1,617 $ 1,344
and ------- ------- ------ ------ ------ ------ ------- -------
Amortization
Segment Income $ 2,539 $ 272 $ 841 $ 368 $ 603 $ 241 $ 3,983 $ 881
before ------- ------- ------ ------ ------ ------ ------- -------
provision
(benefit) for
income taxes
Expenditures $ 946 $ 1,901 $ 313 $ 284 $ 447 $ 422 $ 1,706 $ 2,607
for PP&E ------- ------- ------ ------ ------ ------ ------- -------
----------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
Segment Statement for Net Sales by Area
Three Months Ended September 30,
<TABLE>
<CAPTION>
Advanced Ceramic Ops Semicon Associates Thermo Materials Total
---------------------------------------------------------------------------------------
2000 1999 2000 1999 2000 1999 2000 1999
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Net Sales 67% 54% 12% 18% 10% 16% 89% 88%
Western Europe 2% 3% 3% 1% -- 1% 5% 5%
Net Sales
Asia Net Sales 1% 1% 1% 1% 2% 3% 4% 5%
Israel Net -- -- -- -- -- -- -- --
Sales
Canada Net -- -- -- 1% 2% 1% 2% 2%
Sales
Other -- -- -- -- -- -- -- --
---- ---- ---- ---- ---- ---- ---- ----
Total Net Sales 70% 58% 16% 21% 14% 21% 100% 100%
==== ==== ==== ==== ==== ==== ==== ====
------------------------------------------------------------------------
<CAPTION>
Nine Months Ended September 30,
Advanced Ceramic Ops Semicon Associates Thermo Materials Total
---------------------------------------------------------------------------------------
2000 1999 2000 1999 2000 1999 2000 1999
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Net Sales 64% 52% 13% 19% 12% 17% 89% 88%
Western Europe 3% 3% 2% 2% 1% 2% 6% 7%
Net Sales
Asia Net Sales 1% 1% 1% 1% 2% 2% 4% 4%
Israel Net -- -- -- -- -- -- -- --
Sales
Canada Net -- -- -- 1% 1% -- 1% 1%
Sales
Other -- -- -- -- -- -- -- --
---- ---- ---- ---- ---- ---- ---- ----
Total Net Sales 68% 56% 16% 23% 16% 21% 100% 100%
==== ==== ==== ==== ==== ==== ==== ====
------------------------------------------------------------------------
</TABLE>
11
<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, 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 Quarter and Nine Months Ended September 30,
---------------------------------------------------------------------
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.
Net Sales. Net sales for the quarter ended September 30, 2000 were $11.5
---------
million, which represents a 47% or a $3.7 million increase over the
corresponding quarter of the prior year. For the nine months ended
September 30, 2000, net sales were $34.3 million, and this represents a
60% or $12.9 million increase from the prior year's nine months.
The increase in sales as stated above was primarily attributable to the
Company's Advanced Ceramic Operations in Costa Mesa, California for both
the third quarter and nine months compared with the like periods one
year ago. The increase for the third quarter was $3.5 million, and for
the nine month period was $11.5 million over the year ago periods,
respectively. The major increase was in armor products due to increasing
demand for protective body armor for both the quarter and nine month
periods. The industrial/automotive products denoted strong increases in
sales for both the quarter and nine months, mainly due to demand for
ceramic cam rollers for diesel engines. Additionally, orthodontic
products contributed to the increase over the prior nine month period
due to the increased demand by orthodontists for the Clarity orthodontic
brackets; however, the sales volume for the third quarter was
approximately the same as the prior year quarter.
The Company's Semicon Associates Division in Lexington, Kentucky, posted
a sales increase for the quarter of $.1 million and a nine month
increase of $.6 million as compared to the prior year periods. The
increases were due to an increase in demand by the Company's customers
for dispenser cathodes, which are used in microwave tubes for radar and
satellite communications. In addition, sales increases were due to
modest price increases.
12
<PAGE>
Additionally, the Company's Thermo Materials Division in Scottdale,
Georgia, posted a sales increase for the quarter of $.1 million, and a nine
month increase of $.8 million as compared to the prior year periods. The
increases were attributable to increased demand from a major customer
because of their low supply of fused silica inventory. Also contributing
was an increase in demand from existing and new customers for the fused
silica product line that the Company acquired from Harbison Walker
Refractories Company in 1998.
International sales have been, and are expected to continue to be, an
important part of the Company's business, representing 11% of total sales
for the third quarter of 2000, which was 12% for the comparable period of
the prior year. For the nine months of 2000, international sales were 11%
of total sales versus 12% for the prior year.
Gross Profit. The Company's gross profit was $3.2 million or 28% of sales
------------
for the third quarter ended September 30, 2000, compared to $1.8 million or
23% of sales for the prior year's third quarter. For the nine months ended
September 30, 2000, gross profit was $9.3 million or 27% of sales, compared
to $4.6 million or 22% of sales in the nine months of 1999.
The Company's Advanced Ceramic Operations posted gross profit of $2.3
million compared to $1.2 million, or a 92% increase over the year ago
quarter. For the nine month period gross profit was $6.4 million compared
to $2.8 million, or a 129% increase over the year ago period. The
favorable results for both periods were mainly due to higher volume and
higher capacity utilization resulting in economies of scale.
Semicon Associates in Lexington, Kentucky, posted gross profit of $.4
million compared to $.3 million, or a 33% increase over the year ago
quarter. For the nine month period, gross profit was $1.5 million compared
to $.9 million, or a 67% increase over the year ago period. The increase
for both periods is attributed to higher volume and greater capacity
utilization. Additionally, price increases and improvement in production
yields were contributing factors.
Thermo Materials in Scottdale, Georgia, posted gross profit of $.5 million
compared to $.3 million, or a 67% increase over the year ago quarter. For
the nine month period, gross profit was $1.4 million compared to $.9
million, or a 56% increase over the year ago period. The favorable
increases in both periods were attributable to volume and the product mix
of larger quantities yielding better manufacturing efficiencies than in the
prior year periods.
Research and Development Expenses. Ceradyne's engineering and research
---------------------------------
efforts consist primarily of ongoing Application Engineering in response to
customer requirements, and to the Research and Development Department's
focus on new materials technology. All of these efforts are directed to
the creation of new products, the modification of existing products to fit
specific customer needs, or the development of enhanced ceramic process
technology.
13
<PAGE>
Cost associated with Application Engineering and the Research and
Development Departments are expensed as incurred. Expenses for the third
quarter ended September 30, 2000 and 1999 for the Research and Development
Department were $330,000 and $113,000, respectively, and for the nine
months period ended September 30, 2000 and 1999 were $949,000 and $429,000,
respectively. The increases for the current year periods related to
salaries, travel, outside services, materials and small tools. Expenses
for the third quarter ended September 30, 2000 and 1999 for the Application
Engineering Department were $94,000 and $68,000, respectively, and for the
nine months period ended September 30, 2000 and 1999 were $264,000 and
$208,000, respectively, and are included in cost of product sales. The
increases for the current year periods were mainly attributable to an
additional engineer and other salary increases.
Selling Expenses. Selling expenses were $444,000 for the quarter, and
----------------
$1,197,000 for the nine months ended September 30, 2000. The above
compares to prior year amounts of $395,000 for the quarter, and $1,075,000
for the nine months ended September 30, 1999. Travel, salaries, product
literature, commissions, and the addition of a direct salesperson in the
United Kingdom contributed to the increase in the three and nine month
periods over the prior year periods.
General and Administrative Expenses. General and Administrative expenses
-----------------------------------
were $1,142,000 for the quarter, and $3,371,000 for the nine months ended
September 30, 2000. The above compares to prior year amounts of $866,000
for the quarter and $2,531,000 for the nine months ended September 30,
1999. The statements below account for both the quarter and nine months'
increase over the year ago periods. Approximately fifty percent of the
increase was attributable to employee profit sharing, which was charged to
general and administrative expense. Profit sharing was resumed in fiscal
2000 because of the increased profitability of the Company. The other
increases involved two additional personnel at the Thermo Materials
division, investor relations consulting fees, salary increases, and fringe
benefits.
Other Income. Other income for the quarters ended September 30, 2000 and
------------
1999 was $132,000 and $110,000, respectively. For the nine months ended
September 30, 2000 and 1999, other income was $247,000 and $279,000,
respectively. The increase for the current third quarter over the prior
year ago quarter was mainly due to interest income from increases in cash
accounts. The decrease for the nine month period from the year ago period
is the result of a royalty income reduction. The Company, along with its
partner 3M, has introduced new orthodontic brackets called Clarity and this
effort has resulted in a reduction of competitors who had paid the Company
royalties. Thus, the company has increased its share of this market.
Interest Expense. Interest expense for the quarter ended September 30,
----------------
2000 was $8,000 as compared to $6,000 in the prior year period. For the
nine months ended September 30, 2000 interest expense was $26,000 compared
to $6,000 in the year ago period. The increase was caused by entering into
a capital equipment loan during the third quarter of the prior year.
14
<PAGE>
Income Taxes. The Company recorded a $29,000 provision for taxes for the
------------
quarter ended September 30, 2000 resulting in a provision of $80,000 for
the nine months that ended September 30, 2000. The Company has available
net operating loss carry forward of approximately $6.7 million as of
September 30, 2000 for federal income tax purposes. It is anticipated
that the Company will utilize all of the net operating loss carry
forward for Federal income tax purposes during fiscal year 2001.
Net Income. Reflecting all of the matters discussed above, net income
----------
was $1,409,000 (or $0.17 per share basic and diluted) for the quarter
ended September 30, 2000, and $3,903,000 (or $0.48 per share basic and
0.47 diluted) for the nine months ended September 30, 2000.
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 September 30, 2000. As of September 30, 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,
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.
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 September 30, 2000.
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 carrying value of the debt instrument or
the Company's earnings or cash flow. 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
15
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type and remaining maturity.
As of September 30, 2000, the Company's debt consisted of a $383,000
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.
From October 1995 through December 1999, the Company, along with
others, was served with seven different complaints that were filed by
ten former employees of one of the Company's customers, and seven
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. The total of
all the above complaints seeks compensatory damages in the amount of
$53 million and punitive damages in the amount of $120 million.
Also, in September 2000, the Company was served with a cross complaint
from the Company's lessor who received a complaint from an employee of
the Company alleging he contacted chronic beryllium disease. The
complaint seeks legal expense reimbursement from the Company. This
complaint was filed in the Superior Court of the State of California in
Santa Ana, California.
The Company believes that all above 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.
Item 2. N/A
Item 3. N/A
Item 4. NA
Item 5. N/A
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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
17
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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 13, 2000
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