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, 2004 | ||
| 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 ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).
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, 2004 | |
| Common Stock, $.01 par value |
15,947,654 Shares |
Page 1 of 27 Pages
1
| INDEX |
PAGE NO. | |||
| PART I. | FINANCIAL INFORMATION | |||
| Item 1. | Unaudited Condensed Consolidated Financial Statements | |||
| Condensed Consolidated Balance Sheets—March 31, 2004 and December 31, 2003 | 3-4 | |||
| Condensed Consolidated Statements of Income—Three Months Ended March 31, 2004 and 2003 | 5 | |||
| Condensed Consolidated Statements of Cash Flows—Three Months Ended March 31, 2004 and 2003 | 6 | |||
| Condensed Notes to Consolidated Financial Statements | 7-13 | |||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 14-19 | ||
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 19 | ||
| Item 4. | Controls and Procedures | 19 | ||
| PART II. | OTHER INFORMATION | |||
| Item 1. | Legal Proceedings | 20 | ||
| Items 2, 3, 4 and 5. | N/A | 20 | ||
| Item 6. | Exhibits and Reports on Form 8-K | 20 | ||
| SIGNATURE | 21 | |||
| Certification of Principal Executive Officer | 23 & 25 | |||
| Certification of Principal Financial Officer | 24 & 26 | |||
2
CERADYNE, INC.
FORM 10-Q
FOR THE QUARTER ENDED
March 31, 2004
| PART I. | FINANCIAL INFORMATION |
| Item 1. | Unaudited Condensed Consolidated Financial Statements |
CERADYNE, INC.
ASSETS
(Amounts in thousands)
| March 31, 2004 (Unaudited) |
December 31, (a) |
|||||||
| CURRENT ASSETS |
||||||||
| Cash and cash equivalents |
$ | 3,287 | $ | 11,462 | ||||
| Short-term investments |
27,893 | 19,202 | ||||||
| Accounts receivable, net of allowances for doubtful accounts of approximately $97 and $112 at March 31, 2004 and December 31, 2003, respectively |
23,709 | 18,694 | ||||||
| Other receivables |
418 | 449 | ||||||
| Inventories, net |
18,514 | 16,921 | ||||||
| Production tooling |
3,670 | 3,690 | ||||||
| Prepaid expenses and other |
3,962 | 3,328 | ||||||
| Deferred tax asset |
1,325 | 1,325 | ||||||
| TOTAL CURRENT ASSETS |
82,778 | 75,071 | ||||||
| PROPERTY, PLANT & EQUIPMENT, at cost |
||||||||
| Land |
2,586 | 2,586 | ||||||
| Buildings and improvements |
5,582 | 5,581 | ||||||
| Machinery and equipment |
41,565 | 38,322 | ||||||
| Leasehold improvements |
5,763 | 4,840 | ||||||
| Office equipment |
4,171 | 3,958 | ||||||
| Construction in progress |
2,674 | 1,820 | ||||||
| 62,341 | 57,107 | |||||||
| Less accumulated depreciation and amortization |
(30,435 | ) | (29,482 | ) | ||||
| 31,906 | 27,625 | |||||||
| GOODWILL |
1,511 | 1,511 | ||||||
| TOTAL ASSETS |
$ | 116,195 | $ | 104,207 | ||||
| (a) | Derived from audited financial statements. |
See accompanying condensed notes to Consolidated Financial Statements
3
CERADYNE, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS’ EQUITY
(Amounts in thousands, except share data)
| March 31, 2004 (Unaudited) |
December 31, 2003 (a) | |||||
| CURRENT LIABILITIES |
||||||
| Accounts payable |
13,917 | 10,931 | ||||
| Accrued expenses |
7,542 | 3,621 | ||||
| TOTAL CURRENT LIABILITIES |
21,459 | 14,552 | ||||
| DEFERRED TAX LIABILITY |
2,878 | 2,878 | ||||
| TOTAL LIABILITIES |
24,337 | 17,430 | ||||
| SHAREHOLDERS’ EQUITY |
||||||
| Common stock, $.01 par value, Authorized—18,000,000 shares, Outstanding—15,947,654 shares and 15,931,110 shares at March 31, 2004 and December 31, 2003, respectively |
106 | 85 | ||||
| Additional paid in capital |
72,459 | 72,411 | ||||
| Retained earnings |
19,293 | 14,281 | ||||
| TOTAL SHAREHOLDERS’ EQUITY |
91,858 | 86,777 | ||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |
$ | 116,195 | $ | 104,207 | ||
| (a) | Derived from audited financial statements. |
See accompanying condensed notes to Consolidated Financial Statements
4
CERADYNE, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except share data)
| THREE MONTHS ENDED March 31, |
|||||||
| 2004 |
2003 |
||||||
| (Unaudited) | |||||||
| NET SALES |
$ | 36,687 | $ | 19,182 | |||
| COST OF PRODUCT SALES |
25,034 | 14,265 | |||||
| Gross profit |
11,653 | 4,917 | |||||
| OPERATING EXPENSES |
|||||||
| Selling |
711 | 506 | |||||
| General and administrative |
2,607 | 1,636 | |||||
| Research and development |
441 | 471 | |||||
| 3,759 | 2,613 | ||||||
| Income from operations |
7,894 | 2,304 | |||||
| OTHER INCOME (EXPENSE): |
|||||||
| Royalty income |
30 | 30 | |||||
| Interest income |
165 | 3 | |||||
| Interest expense |
— | (10 | ) | ||||
| Miscellaneous |
34 | (1 | ) | ||||
| 229 | 22 | ||||||
| Income before provision for income taxes |
8,123 | 2,326 | |||||
| PROVISION FOR INCOME TAXES |
3,111 | 814 | |||||
| NET INCOME |
$ | 5,012 | $ | 1,512 | |||
| BASIC INCOME PER SHARE |
$ | 0.31 | $ | 0.12 | |||
| DILUTED INCOME PER SHARE |
$ | 0.31 | $ | 0.11 | |||
See accompanying condensed notes to Consolidated Financial Statements
5
CERADYNE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
| THREE MONTHS ENDED MARCH 31, |
||||||||
| 2004 (Unaudited) |
2003 (Unaudited) |
|||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net Income |
$ | 5,012 | $ | 1,512 | ||||
| ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES: | ||||||||
| Depreciation and amortization |
953 | 819 | ||||||
| Deferred income taxes |
— | 809 | ||||||
| Change in operating assets and liabilities: |
||||||||
| Accounts receivable, net |
(5,015 | ) | (3,192 | ) | ||||
| Other receivables |
31 | 4 | ||||||
| Inventories, net |
(1,593 | ) | (227 | ) | ||||
| Production tooling |
20 | (94 | ) | |||||
| Prepaid expenses and other |
(634 | ) | 132 | |||||
| Accounts payable |
2,986 | 1,485 | ||||||
| Accrued expenses |
3,921 | 723 | ||||||
| Warranty reserve |
— | (415 | ) | |||||
| Deferred revenue |
— | (54 | ) | |||||
| NET CASH PROVIDED BY OPERATING ACTIVITIES | 5,681 | 1,502 | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchases of property, plant and equipment |
(5,234 | ) | (720 | ) | ||||
| Purchases of short-term investments |
(8,691 | ) | — | |||||
| NET CASH USED IN INVESTING ACTIVITIES |
(13,925 | ) | (720 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from issuance of stock due to exercise of options |
69 | 245 | ||||||
| Payments on long-term debt |
— | (25 | ) | |||||
| Reduction in bank line of credit |
— | (890 | ) | |||||
| NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES | 69 | (670 | ) | |||||
| INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | (8,175 | ) | 112 | |||||
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 11,462 | 350 | ||||||
| CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 3,287 | $ | 462 | ||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | ||||||||
| Interest paid |
$ | — | $ | 10 | ||||
| Income taxes paid |
$ | 36 | $ | 12 | ||||
See accompanying condensed notes to Consolidated Financial Statements
6
CERADYNE, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004
(Unaudited)
| 1. | Basis of Presentation |
The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three-month period ended March 31, 2004 are not necessarily indicative of the results that may be expected for the year ended December 31, 2004.
The balance sheet at December 31, 2003 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the Consolidated Financial Statements and Notes to Financial Statements included in Ceradyne’s Annual Report on Form 10-K for the year ended December 31, 2003.
| 2. | Stock-Based Compensation |
The Company applies the provisions of Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” in accounting for stock-based compensation; therefore, no compensation expense has been recognized for its fixed stock option plans as options are granted at fair market value based upon the closing price on the grant date. The Company has adopted the disclosure requirements for SFAS No. 123, “Accounting for Stock-Based Compensation”. On December 31, 2002, the FASB issued SFAS No. 148, “Accounting for Stock Based Compensation-Transition and Disclosure,” which amends SFAS No. 123. SFAS No. 148 requires more prominent and frequent disclosures about the effects of stock-based compensation, which the Company adopted in the year ended December 31, 2002. Accordingly, if compensation expense for the Company’s stock options had been recognized, based upon the fair value of awards granted, the Company’s net income and earnings per share would have been reduced to the following pro forma amounts:
7
| THREE MONTHS ENDED MARCH 31, |
||||||||
| 2004 |
2003 |
|||||||
| Net income, as reported |
$ | 5,012,000 | $ | 1,512,000 | ||||
| Deduct: Total stock-based employee compensation expense determined under the fair value based method for all awards, net of related tax effects |
(189,000 | ) | (60,000 | ) | ||||
| Pro forma net income |
$ | 4,823,000 | $ | 1,452,000 | ||||
| Net income per share: |
||||||||
| Basic—as reported |
$ | 0.31 | $ | 0.12 | ||||
| Basic—pro forma |
$ | 0.30 | $ | 0.11 | ||||
| Diluted—as reported |
$ | 0.31 | $ | 0.11 | ||||
| Diluted—pro forma |
$ | 0.30 | $ | 0.11 | ||||
| Weighted average shares outstanding: |
||||||||
| Basic |
15,940,478 | |||||||