CERADYNE INC - 10-Q Quarterly Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934

	For the quarterly period ended March 31, 2003

	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 incorporation or organization)		(I.R.S. Employer 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 o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).

Yes o

No x

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, 2003

Common Stock, $.01 par value		8,577,734 Shares

Page 1 of 21 Pages

CERADYNE, INC.

INDEX		PAGE NO.

PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Statement Regarding Financial Information	3

	Consolidated Balance Sheets – March 31, 2003 and December 31, 2002	4-5

	Consolidated Statements of Income – Three Months Ended March 31, 2003 and 2002	6

	Consolidated Statements of Cash Flows – Three Months Ended March 31, 2003 and 2002	7

	Condensed Notes to Consolidated Financial Statements	8-14

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14-17

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	17-18

Item 4.	Controls and Procedures	18

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	18

Items 2, 3, 4 and 5.	N/A	19

Item 6.	Exhibits and Reports on Form 8-K	19

SIGNATURE		19

	Certification of Principal Executive Officer	20
	Certification of Principal Financial Officer	21

CERADYNE, INC.

FORM 10-Q
FOR THE QUARTER ENDED

March 31, 2003

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 accounting principles generally accepted in the United States has been omitted pursuant to such rules and regulations. However, the Company believes the disclosures are adequate to make the information presented not misleading. All adjustments have been made which are, in the opinion of management, necessary to a fair statement of the results of the interim periods presented. The Financial Statements should be read in conjunction with the Consolidated 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, 2002, as filed with the Securities and Exchange Commission on March 31, 2003.

CERADYNE, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
(Amounts in thousands)

	March 31, 2003 (Unaudited)			December 31, 2002

CURRENT ASSETS
Cash and cash equivalents	$	462		$	350
Accounts receivable, net of allowances for doubtful accounts of approximately $94 and $111 at March 31, 2003 and December 31, 2002, respectively		14,791			11,599
Other receivables		267			271
Inventories		16,334			16,107
Production tooling		3,333			3,239
Prepaid expenses and other		2,068			2,200
Deferred tax asset		548			1,357

TOTAL CURRENT ASSETS		37,803			35,123

PROPERTY, PLANT & EQUIPMENT, at cost
Land		422			422
Buildings and improvements		1,857			1,857
Machinery and equipment		35,247			34,431
Leasehold improvements		4,419			4,386
Office equipment		3,471			3,418
Construction in progress		118			300

		45,534			44,814
Less accumulated depreciation and amortization		(26,973	)		(26,154	)

		18,561			18,660

COSTS IN EXCESS OF NET ASSETS ACQUIRED		1,511			1,511

TOTAL ASSETS	$	57,875		$	55,294

See accompanying condensed notes to Consolidated Financial Statements

CERADYNE, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS’ EQUITY
(Amounts in thousands, except share data)

	March 31, 2003 (Unaudited)		December 31, 2002

CURRENT LIABILITIES
Bank line of credit	$	1,500	$	2,390
Current portion of long-term debt		100		100
Accounts payable		6,926		5,441
Accrued expenses:
Payroll and payroll related		1,884		1,317
Other		453		297
Deferred revenue		159		213
Warranty reserve		181		596

TOTAL CURRENT LIABILITIES		11,203		10,354

LONG-TERM DEBT, NET OF CURRENT PORTION		33		58
DEFERRED TAX LIABILITY		1,794		1,794
SHAREHOLDERS’ EQUITY
Common stock, $.01 par value, Authorized - 12,000,000 shares, Outstanding - 8,577,734 shares and 8,521,034 shares at March 31, 2003 and December 31, 2002, respectively		40,289		40,044

Retained Earnings		4,556		3,044

TOTAL SHAREHOLDERS’ EQUITY		44,845		43,088

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	57,875	$	55,294

See accompanying condensed notes to Consolidated Financial Statements

CERADYNE, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except share data)

	THREE MONTHS ENDED March 31

	2003			2002

	(Unaudited)
NET SALES	$	19,182		$	14,678
COST OF PRODUCT SALES		14,265			11,789

Gross profit		4,917			2,889

OPERATING EXPENSES
Selling		506			448
General and administrative		1,636			1,138
Research and development		471			482

		2,613			2,068

Income from operations		2,304			821

OTHER INCOME (EXPENSE):
Royalty income		30			55
Interest income		3			5
Interest expense		(10	)		(12	)
Miscellaneous		(1	)		22
		22			70
Income before provision for income taxes		2,326			891
PROVISION FOR INCOME TAXES		814			312

NET INCOME	$	1,512		$	579

BASIC INCOME PER SHARE	$	0.18		$	0.07

DILUTED INCOME PER SHARE	$	0.17		$	0.07

See accompanying condensed notes to Consolidated Financial Statements

CERADYNE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)

	THREE MONTHS ENDED MARCH 31,

	2003 (Unaudited)			2002 (Unaudited)

CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income	$	1,512		$	579
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Depreciation and amortization		819			686
Deferred income taxes		809			312
Change in operating assets and liabilities:
Accounts receivable, net		(3,192	)		(2,852	)
Other receivables		4			(44	)
Inventories		(227	)		391
Production tooling		(94	)		(702	)
Prepaid expenses and other		132			(283	)
Accounts payable		1,485			1,194
Accrued expenses		723			(103	)
Warranty reserve		(415	)		—
Deferred revenue		(54	)		(68	)

NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES		1,502			(890	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment		(720	)		(2,175	)

NET CASH USED IN INVESTING ACTIVITIES:		(720	)		(2,175	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock		245			258
Payments on long-term debt		(25	)		(25	)
Ne

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