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 June 30, 2004

¨	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.


Common Stock, $.01 par value		16,141,888 Shares

Page 1 of 25 Pages

CERADYNE, INC.


	INDEX	PAGE NO.
PART I.	FINANCIAL INFORMATION

Item 1.	Unaudited Condensed Consolidated Financial Statements

	Condensed Consolidated Balance Sheets – June 30, 2004 and December 31, 2003	3-4

	Condensed Consolidated Statements of Income – Three and Six Months Ended June 30, 2004 and 2003	5

	Condensed Consolidated Statements of Cash Flows – Six Months Ended June 30, 2004 and 2003	6

	Condensed Notes to Consolidated Financial Statements	7-15

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16-22

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	22-23

Item 4.	Controls and Procedures	23

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	23

Item 2.	Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities	23

Item 3.	N/A	23

Item 4.	Submission of Matters to a Vote of Security Holders	24

Item 5.	N/A	24

Item 6.	Exhibits and Reports on Form 8-K	24

SIGNATURE		25

CERADYNE, INC.

FORM 10-Q

FOR THE QUARTER ENDED

June 30, 2004

PART I.

FINANCIAL INFORMATION

Item 1.

Unaudited Condensed Consolidated Financial Statements

CERADYNE, INC.

CONSOLIDATED BALANCE SHEETS

ASSETS

(Amounts in thousands)


	June 30, 2004			December 31, 2003
	(Unaudited)			(a)
CURRENT ASSETS
Cash and cash equivalents	$	3,259		$	11,462
Short-term investments		27,890			19,202
Accounts receivable, net of allowances for doubtful accounts of approximately $153 and $112 at June 30, 2004 and December 31, 2003, respectively		23,351			18,694
Other receivables		1,545			449
Inventories, net		22,547			16,921
Production tooling		3,877			3,690
Prepaid expenses and other		5,948			3,328
Deferred tax asset		1,325			1,325

TOTAL CURRENT ASSETS		89,742			75,071

PROPERTY, PLANT & EQUIPMENT, at cost
Land		2,586			2,586
Buildings and improvements		5,588			5,581
Machinery and equipment		46,374			38,322
Leasehold improvements		5,834			4,840
Office equipment		4,558			3,958
Construction in progress		4,834			1,820

		69,774			57,107
Less accumulated depreciation and amortization		(31,428	)		(29,482	)

		38,346			27,625

GOODWILL		3,321			1,511

TOTAL ASSETS	$	131,409		$	104,207

(a) Derived from audited financial statements.

(a) See accompanying condensed notes to Consolidated Financial Statements

CERADYNE, INC.

CONSOLIDATED BALANCE SHEETS

LIABILITIES AND SHAREHOLDERS’ EQUITY

(Amounts in thousands, except share data)


	June 30, 2004		December 31, 2003
	(Unaudited)		(a)
CURRENT LIABILITIES
Accounts payable		17,958		10,931
Accrued expenses		7,921		3,621

TOTAL CURRENT LIABILITIES		25,879		14,552
DEFERRED TAX LIABILITY		2,878		2,878

TOTAL LIABILITIES		28,757		17,430
SHAREHOLDERS’ EQUITY
Common stock, $.01 par value, Authorized - 40,000,000 shares, Outstanding - 16,141,888 shares and 15,931,110 shares at June 30, 2004 and December 31, 2003, respectively		161		159
Additional paid in capital		76,716		72,337
Retained earnings		25,775		14,281

TOTAL SHAREHOLDERS’ EQUITY		102,652		86,777

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	131,409	$	104,207

(a)

Derived from audited financial statements.

See accompanying condensed notes to Consolidated Financial Statements

CERADYNE, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Amounts in thousands, except share data)


	THREE MONTHS ENDED June 30,					SIX MONTHS ENDED June 30,
	2004		2003			2004		2003
	(Unaudited)					(Unaudited)
NET SALES	$	39,225	$	22,106		$	75,911	$	41,288
COST OF PRODUCT SALES		25,831		15,812			50,865		30,077

Gross profit		13,394		6,294			25,046		11,211

OPERATING EXPENSES
Selling		797		574			1,508		1,080
General and administrative		2,723		1,869			5,330		3,505
Research and development		582		460			1,023		931

		4,102		2,903			7,861		5,516

Income from operations		9,292		3,391			17,185		5,695

OTHER INCOME (EXPENSE):
Royalty income		30		30			60		60
Interest income		171		3			335		6
Interest expense		—		(18	)		—		(28	)
Miscellaneous		1,013		10			1,048		9

		1,214		25			1,443		47
Income before provision for income taxes		10,506		3,416			18,628		5,742
PROVISION FOR INCOME TAXES		4,024		1,196			7,134		2,010

NET INCOME	$	6,482	$	2,220		$	11,494	$	3,732

BASIC INCOME PER SHARE	$	0.40	$	0.17		$	0.72	$	0.29

DILUTED INCOME PER SHARE	$	0.40	$	0.17		$	0.71	$	0.28

See accompanying condensed notes to Consolidated Financial Statements

CERADYNE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)


	SIX MONTHS ENDED JUNE 30,
	2004			2003
	(Unaudited)			(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income	$	11,494		$	3,732
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Depreciation and amortization		1,946			1,647
Deferred income taxes		—			460
Change in operating assets and liabilities, net of acquisition:
Accounts receivable, net		(4,657	)		(2,745	)
Other receivables		(1,096	)		29
Inventories, net		(5,626	)		792
Production tooling		(187	)		(145	)
Prepaid expenses and other		(2,620	)		(6	)
Accounts payable		7,027			571
Accrued expenses		1,991			1,048
Income taxes payable		2,025			1,026
Tax benefit due to exercise of stock options		1,437			—
Warranty reserve		—			(596	)
Deferred revenue		—			(106	)

NET CASH PROVIDED BY OPERATING ACTIVITIES		11,734			5,707

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment		(11,953	)		(5,341	)
Purchases of short-term investments		(8,688	)		—
Acquisition of business		(100	)		—

NET CASH USED IN INVESTING ACTIVITIES		(20,741	)		(5,341	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of stock due to exercise of options		442			753
Proceeds from issuance of stock for stock plans		362			—
Payments on long-term debt		—			(50	)
Reduction in bank line of credit		—			(775	)

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		804			(72	)

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(8,203	)		294

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		11,462			350

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