UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002
or
( ) Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
FOR THE TRANSITION PERIOD FROM ________ TO _________
COMMISSION FILE NUMBER 1-9125
-----------------------------
AMERICAN TECHNICAL CERAMICS CORP.
---------------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 11-2113382
------------------------------- ----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
17 STEPAR PLACE, HUNTINGTON STATION, NY 11746
--------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(631) 622-4700
--------------
(Telephone number, including area code)
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
------- -------
As of May 6, 2002, the Registrant had outstanding 8,492,258 shares of Common
Stock, par value $.01 per share.
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
AMERICAN TECHNICAL CERAMICS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
MARCH 31, 2002 JUNE 30, 2001
---------------- ---------------
ASSETS (unaudited)
Current Assets
Cash (including cash equivalents of $1,268 and
$552, respectively) $ 2,648 $ 1,659
Investments 3,009 3,520
Accounts receivable, net 6,623 11,530
Inventories 22,604 24,568
Deferred income taxes, net 1,722 1,722
Other current assets 1,267 1,289
---------------- ---------------
TOTAL CURRENT ASSETS 37,873 44,288
---------------- ---------------
Property, plant and equipment, net of accumulated depreciation
and amortization of $31,163 and $27,639, respectively 31,110 32,089
Other assets, net 178 199
---------------- ---------------
TOTAL ASSETS $ 69,161 $ 76,576
================ ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt $ 984 $ 877
Accounts payable 991 1,755
Accrued expenses 3,236 6,235
Income taxes payable, net --- 1,759
---------------- ---------------
TOTAL CURRENT LIABILITIES 5,211 10,626
Long-term debt, net of current portion 6,560 7,211
Deferred income taxes 2,876 2,910
---------------- ---------------
TOTAL LIABILITIES 14,647 20,747
---------------- ---------------
Commitments and Contingencies
Stockholders' Equity
Common Stock -- $.01 par value; authorized 20,000
shares; issued 8,487 and 8,451 shares, respectively 85 85
Capital in excess of par value 11,555 11,260
Retained earnings 44,617 46,414
Accumulated other comprehensive income (loss):
Unrealized (loss) gain on investments available-for-sale, net (8) 56
Cumulative foreign currency translation adjustment (240) (294)
---------------- ---------------
(248) (238)
---------------- ---------------
Less: Treasury stock, at cost (427 and 444 shares, respectively) 1,418 1,447
Deferred compensation 77 245
---------------- ---------------
TOTAL STOCKHOLDERS' EQUITY 54,514 55,829
---------------- ---------------
$ 69,161 $ 76,576
================ ===============
See accompanying notes to unaudited consolidated financial statements.
-2-
AMERICAN TECHNICAL CERAMICS CORP. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
For the Quarter Ended For the Nine Months Ended
March 31, March 31,
2002 2001 2002 2001
------------- ------------- ------------- -------------
Net sales $ 11,956 $ 23,359 $ 37,443 $ 65,582
Cost of sales 9,412 13,385 28,202 37,611
------------- ------------- ------------- -------------
Gross profit 2,544 9,974 9,241 27,971
------------- ------------- ------------- -------------
Selling, general and administrative expenses 3,158 4,207 9,313 12,279
Research and development expenses 923 1,167 2,608 3,297
------------- ------------- ------------- -------------
Operating expenses 4,081 5,374 11,921 15,576
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
(Loss)/ Income from operations (1,537) 4,600 (2,680) 12,395
------------- ------------- ------------- -------------
Other (income) expense:
Interest expense 113 149 386 409
Interest income (22) (72) (158) (262)
Other (27) (29) (186) (58)
------------- ------------- ------------- -------------
64 48 42 89
------------- ------------- ------------- -------------
(Loss)/ Income before provision for income taxes (1,601) 4,552 (2,722) 12,306
Provision for income taxes (544) 1,593 (925) 4,307
------------- ------------- ------------- -------------
Net (loss)/ income $ (1,057) $ 2,959 $ (1,797) $ 7,999
============= ============= ============= =============
Basic net (loss)/ income per common share $ (0.13) $ 0.37 $ (0.22) $ 1.01
============= ============= ============= =============
Diluted net (loss)/ income per common share $ (0.13) $ 0.35 $ (0.22) $ 0.96
============= ============= ============= =============
Basic weighted average common
shares outstanding 8,058 7,973 8,045 7,950
============= ============= ============= =============
Diluted weighted average common
shares outstanding 8,058 8,355 8,045 8,336
============= ============= ============= =============
See accompanying notes to unaudited consolidated financial statements.
-3-
AMERICAN TECHNICAL CERAMICS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended March 31,
2002 2001
-------------------- --------------------
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES: (unaudited)
Net (Loss)/ income $ (1,797) $ 7,999
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,849 2,921
Loss (gain) on disposal of fixed assets 28 (11)
Stock award compensation expense 287 527
Realized gain on sale of investments (160) ---
Changes in operating assets and liabilities:
Accounts receivable 4,907 (483)
Inventories 1,964 (6,549)
Other assets 415 (19)
Accounts payable and accrued expenses (3,763) 88
Income taxes payable (2,080) 1,317
-------------------- --------------------
Net cash provided by operating activities 3,650 5,790
-------------------- --------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,926) (10,443)
Purchase of investments (4,325) (102)
Proceeds from sale of investments 4,898 ---
Proceeds from sale of fixed assets 29 48
-------------------- --------------------
Net cash used in investing activities (2,324) (10,497)
-------------------- --------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debt (2,544) (316)
Proceeds from the exercise of stock options 154 356
Proceeds from issuance of debt 2,000 3,784
-------------------- --------------------
Net cash (used in) provided by financing activities (390) 3,824
-------------------- --------------------
-------------------- --------------------
Effect of exchange rate changes on cash 53 (241)
-------------------- --------------------
Net increase/ (decrease) in cash and cash equivalents 989 (1,124)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 1,659 2,277
-------------------- --------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,648 $ 1,153
==================== ====================
Supplemental cash flow information:
Interest paid $ 418 $ 409
Taxes paid $ 1,165 $ 3,248
See accompanying notes to unaudited consolidated financial statements.
-4-
AMERICAN TECHNICAL CERAMICS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
(1) BASIS OF PRESENTATION:
The accompanying unaudited interim consolidated financial statements of
American Technical Ceramics Corp. and subsidiaries (the "Registrant") reflect
all adjustments (consisting of normal recurring accruals) which are, in the
opinion of management, necessary for a fair presentation of its consolidated
financial position as of March 31, 2002 and the results of its operations for
the three and nine month periods ended March 31, 2002 and 2001. These
consolidated financial statements should be read in conjunction with the summary
of significant accounting policies and notes to consolidated financial
statements included in the Registrant's Annual Report to Stockholders for the
fiscal year ended June 30, 2001. Results for the three and nine month periods
ended March 31, 2002 are not necessarily indicative of results which could be
expected for the entire year.
(2) IMPACT OF NEW ACCOUNTING STANDARDS:
The Financial Accounting Standards Board recently issued Statement No. 141,
"Business Combinations" ("SFAS No. 141") and Statement No. 142, "Goodwill and
Other Intangible Assets" ("SFAS No. 142"). SFAS No. 141 provides that all
business combinations initiated after June 30, 2001 must be accounted for using
the purchase method. Statement No. 142 provides that intangible assets with
estimable useful lives are amortized to their estimated residual values over
those estimated useful lives. Statement No. 142 also provides that intangible
assets with indefinite useful lives are not to be amortized, but rather, tested
for impairment at least annually in accordance with the provisions of the
Statement. Although SFAS No. 142 will become effective for the Registrant on
July 1, 2002, the Registrant does not presently have any goodwill or intangible
assets that would be affected by this Statement.
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 143, "Accounting for Asset Retirement
Obligations" ("SFAS No. 143"). SFAS No. 143 addresses financial accounting
requirements for retirement obligations associated with retirement of tangible
long-lived assets and for the associated asset retirement costs. SFAS No. 143
requires a company to record the fair value of an asset retirement obligation in
the period in which it incurred a legal obligation associated with the
retirement of tangible long-lived assets that results from the acquisition,
construction development and/or normal use of the asset. The company is also to
record a corresponding increase to the carrying amount of the related asset and
to depreciate that cost over the life of the asset. The amount of the liability
is changed at the end of each period to reflect the passage of time and changes
in estimated future cash flows. SFAS No. 143 is effective for fiscal years
beginning after June 15, 2002. The Registrant has not yet determined the impact
of its planned adoption of SFAS No. 143 (anticipated for July 1, 2002).
-5-
AMERICAN TECHNICAL CERAMICS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
In August 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" ("SFAS No. 144"), which addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
SFAS No. 144 establishes accounting guidelines for the impairment of long-lived
assets to be held and used; to be disposed of other than by sale; and to be
disposed of by sale. SFAS No. 144 is effective for fiscal years beginning after
December 15, 2001 and interim periods within those fiscal years. The Registrant
has not yet determined the impact of its planned adoption of SFAS No. 144
(anticipated for July 1, 2002).
(3) SUPPLEMENTAL CASH FLOW INFORMATION:
During the nine months ended March 31, 2002, the Registrant (i) granted
$119 in deferred compensation stock awards, (ii) recognized a $51 reduction of
income taxes payable related to stock options exercised, and (iii) issued
treasury stock in connection with stock awards with a cost basis of $29.
(4) INVENTORIES:
Inventories included in the accompanying consolidated financial statements
consist of the following:
March 31, June 30,
2002 2001
----------- ---------
(unaudited)
Raw materials $ 13,785 $ 13,388
Work-in-process 3,898 4,717
Finished goods 4,921 6,463
----------- ---------
$ 22,604 $ 24,568
=========== =========
-6-
AMERICAN TECHNICAL CERAMICS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
(5) EARNINGS PER SHARE:
The following represents a reconciliation of the numerators and
denominators of the basic and diluted earnings per share computation.
For the Three Months Ended March 31,
2002 2001
---- ----
(Loss) /
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
-------------- ------------- ------------ -------------- ------------- ----------
Basic EPS $ (1,057) 8,058 $ (.13) $ 2,959 7,973 $ .37
============ ==========
Effect of Dilutive Securities:
Stock options --- 359
Deferred compensation
stock awards --- 23
-------------- ------------- ------------ -------------- ------------- ----------
Diluted EPS $ (1,057) 8,058 $ (.13) $ 2,959 8,355 $ .35
============== ============= ============ ============== ============= ==========
For the Nine Months Ended December 31,
2002 2001
---- ----
(Loss) /
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
-------------- ------------- ------------ -------------- ------------- ----------
Basic EPS $ (1,797) 8,045 $ (.22) $ 7,999 7,950 $ 1.01
============ ==========
Effect of Dilutive Securities:
Stock options --- 363
Deferred compensation
stock awards --- 23
-------------- ------------- ------------ -------------- ------------- ----------
Diluted EPS $ (1,797) 8,045 $ (.22) $ 7,999 8,336 $ .96
============== ============= ============ ============== ============= ==========
Options covering 970 shares have been omitted from the calculation of
dilutive EPS for the three and nine months ended March 31, 2002 because their
inclusion would have been antidilutive.
-7-
AMERICAN TECHNICAL CERAMICS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
(6) COMPREHENSIVE INCOME:
The Registrant's comprehensive income is as follows:
For The Three Months Ended
March 31,
2002 2001
--------------- ---------------
Net (loss)/income $ (1,057) $ 2,959
--------------- ---------------
Other comprehensive income
Foreign currency translation adjustments (13) (295)
Unrealized (loss)/ gains on investments, net of tax: (34) 39
--------------- ---------------
Other comprehensive loss (47) (256)
--------------- ---------------
Comprehensive (loss)/ income $ (1,104) $ 2,703
=============== ===============
For The Nine Months Ended
March 31,
2002 2001
--------------- ---------------
Net (loss)/ income $ (1,797) $ 7,999
--------------- ---------------
Other comprehensive income
Foreign currency translation adjustments 54 (241)
Unrealized (loss)/ gains on investments, net of tax: (64) 159
--------------- ---------------
Other comprehensive loss (10) (82)
--------------- ---------------
Comprehensive (loss)/ income $ (1,807) $ 7,917
=============== ===============
(7) INDEBTEDNESS:
The Registrant's credit agreements contain certain financial covenants,
including a requirement to maintain a certain level of annualized earnings
before interest, taxes, depreciation and amortization (EBITDA) to current debt
plus annual interest payments. While the Registrant is currently in compliance
with this covenant, it is likely that the Registrant will be in default under
this covenant on June 30, 2002. In such case, the bank could require payment in
full of the outstanding balance under the credit agreement ($4,768 at March 31,
2002). The Registrant believes that, in the event of default, it will be able
to secure alternative financing, which together with available cash, will be
sufficient to enable it to refinance these amounts. There can be no assurance,
however, that the Registrant will be able to refinance or that the bank will
waive any default.
-8-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share data)
The following discussion and analysis should be read in conjunction with
the consolidated financial statements, related notes and other information
included in this Quarterly Report on Form 10-Q.
Statements in this Quarterly Report on Form 10-Q that are not historical
fact may constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. All such forward-looking
statements are subject to risks and uncertainties, including, but not limited
to, market and economic conditions, the impact of competitive products, product
demand and market acceptance risks, changes in product mix, costs and
availability of raw materials, fluctuations in operating results, delays in
development of highly-complex products, risks associated with international
sales and sales to the U.S. military, risk of customer contract or sales order
cancellations and other risks detailed from time to time in the Registrant's
filings with the Securities and Exchange Commission, including, without
limitation, those contained under the caption "Item 1. BUSINESS - CAUTIONARY
STATEMENTS REGARDING FORWARD - LOOKING STATEMENTS" in the Registrant's Annual
Report on Form 10-K. These risks could cause the Registrant's actual results
for future periods to differ materially from those expressed in any
forward-looking statements made by, or on behalf of, the Registrant. Any
forward-looking statement represents the Registrant's expectations or forecasts
only as of the date it was made and should not be relied upon as representing
its expectations or forecasts as of any subsequent date. The Registrant
undertakes no obligation to correct or update any forward-looking statement,
whether as a result of new information, future events or otherwise, even if its
expectations or forecasts change.
RESULTS OF OPERATIONS
-----------------------
Three Months Ended March 31, 2002 Compared with Three Months Ended March 31,
--------------------------------------------------------------------------------
2001
----
Net sales for the three months ended March 31, 2002 decreased 49% to
$11,956, compared to $23,359 in the comparable period in the prior fiscal year.
The decrease in net sales was primarily the result of decreased sales volume
across all major product lines. The decline in sales is due to the economic
downturn affecting the entire electronic component industry. Sales were down in
all market sectors, except the medical equipment sector.
Gross margin for the three months ended March 31, 2002 was 21.3% of net
sales, compared to 42.7% for the comparable period in the prior fiscal year.
The decrease in gross margin was principally due to lower sales volume. Cost
reduction measures put in place during the fourth quarter of fiscal year 2001
and the first quarter of fiscal year 2002 have partially offset the impact of
lower sales on gross margins. These measures included a reduction in headcount,
reduced capital spending and general cost controls on discretionary spending.
In comparison to the three months ended December 31, 2001 gross margins for the
three months ended March 31, 2002 were negatively impacted by several factors
including a reduction in benefits from reclaiming activities, resulting
primarily from reduced manufacturing levels, offset by a reduction in charges to
write down inventory to net realizable value.
-9-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
(In thousands, except per share data)
Selling, general and administrative expenses for the three months ended
March 31, 2002 decreased 25% to $3,158, compared to $4,207 in the comparable
period in the prior fiscal year. The decrease was due to decreased commission
expense as a result of the decrease in net sales, lower bonus accruals due to
decreased profitability and decreased payroll related expenses due to cost
reduction measures instituted in the fourth quarter of fiscal year 2001 and the
first quarter of fiscal year 2002.
Research and development expenses for the three months ended March 31, 2002
decreased 21% to $923, compared to $1,167 in the comparable period in the prior
fiscal year. A reduction in research and development spending was among the
cost reduction measures referred to above.
Bookings for the three months ended March 31, 2002 were $11,803, compared
to $22,079 for the three months ended March 31, 2001. Cancellations have
returned to historical levels, but bookings remain low, particularly in the
fiber optic and semiconductor manufacturing equipment sectors. Bookings have
recovered during the second quarter of fiscal year 2002, particularly for the
Registrant's core capacitors serving the wireless infrastructure, medical
equipment and military sectors. However, they remain well below the record
levels experienced during the fiscal year ended June 30, 2001. The Registrant
anticipates continued modest improvement in bookings over the next few quarters.
Delivery times and price are key factors in obtaining orders. The Registrant
believes its current levels of inventories should enable it to deliver orders in
the short time frames currently required by many of its customers.
The backlog of unfilled orders was $9,745 at March 31, 2002 compared to
$29,241 at March 31, 2001 and $16,153 at June 30, 2001. The decrease in backlog
compared to March 31, 2001 is primarily the result of bookings cancellations
incurred during the latter half of fiscal year 2001 as a result of the economic
weakness in the electronic component industry. The decrease in backlog compared
to June 30, 2001 was primarily due to shipments in excess of order bookings as
the Registrant continued to ship orders out of backlog scheduled for delivery
during the first half of fiscal year 2002. The Registrant anticipates that
customers will place orders with short delivery requirements for the foreseeable
future resulting in a slow growth in sales and bookings over the next few
quarters. As a result, the level of backlog is a less meaningful indicator of
the strength of the Registrant's business than it has been in the past.
As a result of the foregoing, net loss for the three months ended March 31,
2002 was $1,057, or ($.13) per common share (($.13) per common share assuming
dilution), compared to net income of $2,959, or $.37 per common share ($.35 per
common share assuming dilution), for the comparable period in the prior fiscal
year.
-10-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
(In thousands, except per share data)
Nine Months Ended March 31, 2002 Compared with Nine Months Ended March 31, 2001
--------------------------------------------------------------------------------
Net sales for the nine months ended March 31, 2002 decreased 43% to
$37,443, compared to $65,582 in the comparable period in the prior fiscal year.
The decrease in net sales was primarily the result of decreased sales volume
across all major product lines. The decline in sales is due to the economic
downturn affecting the entire electronic component industry. Sales were down in
all market sectors except the medical equipment sector. Sales to a major
medical equipment OEM accounted for 10% of the Registrant's net sales in the
nine months ended March 31, 2002.
Gross margin for the nine months ended March 31, 2002 was 24.7% of net
sales, compared to 42.7% for the comparable period in the prior fiscal year.
The decrease in gross margin was principally due to lower sales volume. Cost of
sales for the nine months ended March 31, 2002 was also negatively impacted by
the decline in precious metal recovery discussed above and charges of $1,357 to
write down certain inventory to estimated net realizable value as a result of
excess quantities, customer requirements and other causes. Similar charges
against inventory may be necessary in future periods depending upon various
factors, including demand for the Registrant's products and the efficiency of
its production process. Cost reduction measures put in place during the fourth
quarter of fiscal year 2001 and in the first quarter of fiscal year 2002 have
partially offset the impact of the lower sales. These measures included a
reduction in headcount, reduced capital spending and general cost controls on
discretionary spending.
Selling, general and administrative expenses for the nine months ended
March 31, 2002 decreased 24% to $9,313 compared to $12,279 in the comparable
period in the prior fiscal year. The decrease was due to decreased commission
expense as a result of the decrease in net sales, lower bonus accruals due to
decreased profitability and decreased payroll related expenses due to cost
reduction measures instituted in the fourth quarter of fiscal year 2001 and the
first quarter of fiscal year 2002, partially offset by severance costs of $203
incurred in connection with the headcount reduction in the United States and
England, and professional fees incurred in connection with closing the
Registrant's sales office in England.
Research and development expenses for the nine months ended March 31, 2002
decreased 21% to $2,608, compared to $3,297 in the comparable period in the
prior fiscal year. A reduction in research and development spending was among
the cost reduction measures referred to above.
The Registrant experienced a net loss for the nine months ended March 31,
2002 primarily due to the low sales level in relation to fixed costs,
particularly in the second and third quarters, and the low precious metal
recovery and inventory charges discussed above. The cost reduction measures
employed by the Registrant did not fully compensate for the decline in revenue.
As a result of the continued softness in sales, the Registrant has taken
further measures to reduce costs in the fourth quarter, including a further
reduction in headcount. The Registrant expects that it will receive some
benefit from these measures during the fourth quarter and the full benefit
during the next fiscal year. However, the Registrant also expects that it will
incur additional expenditures in connection with these measures which will
impact its results for the fourth quarter and fiscal year 2002.
-11-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
(In thousands, except per share data)
LIQUIDITY AND CAPITAL RESOURCES
----------------------------------
The Registrant's financial position at March 31, 2002 remains strong as
evidenced by working capital of $32,662 and stockholders' equity of $54,514.
The Registrant's current ratio at March 31, 2002 was 7.3:1, compared to a
current ratio of 4.2:1 at June 30, 2001. The Registrant's quick ratio (current
assets minus inventory divided by current liabilities) at March 31, 2002 was
2.9:1 as compared to 1.9:1 at June 30, 2001. The improvements in the
Registrant's current ratio and quick ratio were primarily due to a reduction in
current liabilities as a result of lower raw material purchases, lower bonus and
commission accruals due to the lower sales and profitability and reduced capital
spending, partially offset by a reduction in accounts receivable.
Cash, cash equivalents and investments increased by $478 to $5,657 at March
31, 2002 from $5,179 at June 30, 2001, primarily as a result of collection of
accounts receivable, reduced purchasing of raw material and reduced
discretionary spending, partially offset by payment of year end bonus and
commission accruals and investment in property, plant and equipment. Accounts
receivable decreased by $4,907 to $6,623 at March 31, 2002 from $11,530 at June
30, 2001, primarily due to lower sales volumes and collection of balances due at
June 30, 2001. Inventories decreased by $1,964 to $22,604 at March 31, 2002 from
$24,568 at June 30, 2001. Accounts payable and accrued expenses decreased by
$3,763 to $4,227 at March 31, 2002 from $7,990 at June 30, 2001, primarily due
to payment of fiscal year end bonus accruals, lower capital spending due to cost
reduction measures and lower purchasing levels of raw materials due to the lower
production volumes commensurate with lower sales volumes. Income taxes payable
have decreased $2,080 to a receivable of $372 at March 31, 2002 from a payable
of $1,759 at June 30, 2001, primarily due to payment of estimated taxes on
income earned during the first quarter of the fiscal year which was offset by
the losses incurred in the second and third quarters.
The Registrant has available two credit facilities with Bank of America,
N.A.: a revolving line of credit of $4,000 and an equipment line of credit of
$8,500. The outstanding principal balance under both lines bears interest at
1.5% above the one month rate for U.S. Dollar deposits on the London Interbank
Market ("LIBOR"). The outstanding principal balance of the equipment line rolls
over periodically into a self-amortizing term note of not less than four nor
more than seven years. Borrowings under the equipment line are secured by the
related equipment purchases.
The Registrant did not incur any borrowings under the revolving line of
credit or the equipment line during the three and nine months ended March 31,
2002. Through March 31, 2002, the Registrant's had no borrowings outstanding
under the line of credit and an aggregate of $4,768 under the equipment line.
-12-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
(In thousands, except per share data)
The Registrant has available two credit facilities with Citibank N.A. (as
successor to European American Bank, N.A.); a $5,000 line for equipment
purchases and a $2,000 unsecured term loan line. The lines bear interest at
either the Citibank prime rate or 1.5% above the Reserve Adjusted LIBOR rate (as
defined). Borrowings under the equipment line will be secured by the related
equipment purchases. The outstanding balance six months after the term loan
line is made available and at expiration, the line (January 2002) will roll into
fully amortizing term loans with a maturity of five years. The Registrant has
not incurred any borrowings under either of these facilities. These facilities
were scheduled to expire in January 2002. The Registrant is negotiating a new
credit facility with Citibank N.A. While there can be no assurance that an
agreement will be reached, Citibank N.A. has agreed to extend these lines on a
month-to-month basis while discussions are in progress.
Each of the credit facilities described above is subject to certain
financial covenants, including maintenance of asset and liability percentage
ratios. One such covenant requires the Registrant to maintain a certain level
of annualized earnings before interest, taxes, depreciation and amortization
(EBITDA) to current debt plus annual interest payments. While the Registrant is
currently in compliance with this covenant, given the nature of the covenant and
the losses incurred during the first nine months of this fiscal year, it is
likely that the Registrant will not be in compliance under this covenant at the
end of the current quarter with respect to the Bank of America facilities. In
such case, the Bank could require payment in full of the outstanding balance
under these facilities ($4,218 at March 31, 2002).
The Registrant believes that, in the event of a default, it will be able to
secure alternative financing which, together with available cash, will be
sufficient to enable it to refinance these facilities, or to obtain a waiver of
the default. There can be no assurance, however, that the Registrant will be
able to obtain such alternative financing or that the bank will waive any
default.
-13-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
(In thousands, except per share data)
Capital expenditures for the nine months ended March 31, 2002 totaled
$2,926, including expenditures for machinery and equipment and planned leasehold
improvements. The Registrant intends to use cash on hand to finance budgeted
capital expenditures, primarily for equipment acquisition, of approximately $500
for the remainder of fiscal year 2002.
Aggregate contractual obligations as of March 31, 2002 mature as follows:
Payments Due by Period
-----------------------------------------
Less
than 1 1- 3 4- 5 After 5
Contractual Obligations Total year years years years
----------------------------- ------ ------- ------ ------ --------
Long-Term Debt $4,893 $ 761 $2,282 $1,384 $ 467
Capital Lease Obligations 2,651 223 777 639 1,011
Operating Leases 225 147 78 --- ---
------ ------- ------ ------ --------
Total Contractual Obligations $7,769 $ 1,131 $3,137 $2,023 $ 1,478
====== ======= ====== ====== ========
Aggregate other commitments as of March 31, 2002 mature as follows:
Amount of Commitment Expiration
Other Commercial Total Amounts Per Period
Commitments Committed Less than 1 year
---------------- ----------------- -------------------------------
Lines of Credit $ 18,950 $ 18,950
The Registrant routinely enters into binding and non-binding purchase
obligations in the ordinary course of business, primarily covering anticipated
purchases of inventory and equipment. The terms of these commitments generally
do not extend beyond six months. None of these obligations are individually
significant. The Registrant does not expect that these commitments will
materially adversely affect its liquidity in the foreseeable future.
CRITICAL ACCOUNTING POLICIES
----------------------------
The Securities and Exchange Commission ("SEC") recently issued disclosure
guidance for "critical accounting policies." The SEC defines "critical
accounting policies" as those that require the application of management's most
difficult, subjective or complex judgments, often as a result of the need to
make estimates about the effect of matters that are inherently uncertain and may
change in subsequent periods. The Registrant's significant accounting policies
are described in Note 1 to its consolidated financial statements contained in
its Annual Report on Form 10-K for the fiscal year ended June 30, 2001. The
Registrant believes that the following accounting policies require the
application of management's most difficult, subjective or complex judgments:
-14-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
(In thousands, except per share data)
Allowances for Doubtful Accounts Receivable
-----------------------------------------------
The Registrant performs ongoing credit evaluations of its customers and
adjusts credit limits based upon payment history and a customer's current
creditworthiness, as determined by its review of the customer's current credit
information. The Registrant continuously monitors collections and payments from
its customers and maintains an allowance for estimated credit losses based upon
its historical experience and any specific customer collection issues that the
Registrant has identified. While such credit losses have historically been
within the Registrant's expectations and the allowances established, the
Registrant cannot guarantee that it will continue to experience the same credit
loss rates that it has in the past. Should the financial position of its
customers deteriorate resulting in an impairment of their ability to pay amounts
due, the Registrant's revised estimate of such losses may negatively impact its
operating results in the future.
Sales Returns and Allowances
-------------------------------
In the ordinary course of business, the Registrant accepts returns of
products sold for various reasons and grants sales allowances to customers.
While the Registrant engages in extensive product quality control programs and
processes, its level of sales returns is affected by, among other things, the
quality of its manufacturing process. The Registrant maintains an allowance for
sales returns and allowances based upon historical returns and allowances
granted. While such returns and allowances have historically been within the
Registrant's expectations, actual return and allowance rates in the future may
differ from current estimates, which could negatively impact its operating
results in the future.
Inventory Valuation
--------------------
The Registrant values inventory at the lower of aggregate cost (First-in,
First-out) or market. When the cost of inventory is determined by management to
be in excess of its market value, inventory is written down to its estimated net
realizable value. This requires the Registrant to make estimates and
assumptions about several factors (e.g., future sales quantities and selling
prices, and percentage complete and failure rates for work in process) based
upon historical experience and its projections for future periods. Changes in
factors such as the level of order bookings, the product mix of order bookings
and the Registrant's manufacturing processes could have a material impact on the
Registrant's assessment of the net realizable value of inventory in the future.
-15-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
(In thousands, except per share data)
Valuation of Deferred Tax Assets
------------------------------------
The Registrant regularly evaluates its ability to recover the reported
amount of its deferred income taxes considering several factors, including its
estimate of the likelihood of the Registrant generating sufficient taxable
income in future years during the period over which temporary differences
reverse. Presently, the Registrant believes that it is more likely than not
that it will realize the benefits of its deferred tax assets based primarily on
its history of and projections for taxable income in the future, and its
intention to carry back net operating losses to generate refunds of income taxes
previously paid. In the event that actual results differ from its estimates or
the Registrant adjusts these estimates in future periods, the Registrant may
need to establish a valuation allowance against a portion or all of its deferred
tax assets, which could materially impact its financial position or results of
operations in future periods.
Valuation of Long-lived and Intangible Assets
--------------------------------------------------
The Registrant assesses the recoverability of long-lived assets whenever
the Registrant determines that events or changes in circumstances indicate that
the carrying amount may not be recoverable. Its assessment is primarily based
upon its estimate of future cash flows associated with these assets. The
Registrant has not determined that there has been an indication of impairment of
any of its assets. However, should its operating results deteriorate, or
anticipated new product launches not occur or not attain the commercial
acceptance that the Registrant anticipates, the Registrant may determine that
some portion of its long-lived assets are impaired. Such determination could
result in non-cash charges to income that could materially affect its financial
position or results of operations for that period.
IMPACT OF NEW ACCOUNTING STANDARDS:
-----------------------------------
The Financial Accounting Standards Board recently issued Statement No. 141,
"Business Combinations" ("SFAS No. 141") and Statement No. 142, "Goodwill and
Other Intangible Assets" ("SFAS No. 142"). SFAS No. 141 provides that all
business combinations initiated after June 30, 2001 must be accounted for using
the purchase method. Statement No. 142 provides that intangible assets with
estimable useful lives are amortized to their estimated residual values over
those estimated useful lives. Statement No. 142 also provides that intangible
assets with indefinite useful lives are not to be amortized, but rather, tested
for impairment at least annually in accordance with the provisions of the
Statement. Although SFAS No. 142 will become effective for the Registrant on
July 1, 2002, the Registrant does not presently have any goodwill or intangible
assets that would be affected by this Statement.
-16-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
(In thousands, except per share data)
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 143, "Accounting for Asset Retirement
Obligations" ("SFAS No. 143"). SFAS No. 143 addresses financial accounting
requirements for retirement obligations associated with retirement of tangible
long-lived assets and for the associated asset retirement costs. SFAS No. 143
requires a company to record the fair value of an asset retirement obligation in
the period in which it incurred a legal obligation associated with the
retirement of tangible long-lived assets that results from the acquisition,
construction development and/or normal use of the asset. The company is also to
record a corresponding increase to the carrying amount of the related asset and
to depreciate that cost over the life of the asset. The amount of the liability
is changed at the end of each period to reflect the passage of time and changes
in estimated future cash flows. SFAS No. 143 is effective for fiscal years
beginning after June 15, 2002. The Registrant has not yet determined the impact
of its planned adoption of SFAS No. 143 (anticipated for July 1, 2002).
In August 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" ("SFAS No. 144"), which addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
SFAS No. 144 establishes accounting guidelines for the impairment of long-lived
assets to be held and used; to be disposed of other than by sale; and to be
disposed of by sale. SFAS No. 144 is effective for fiscal years beginning after
December 15, 2001 and interim periods within those fiscal years. The Registrant
has not yet determined the impact of its planned adoption of SFAS No. 144
(anticipated for July 1, 2002).
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Registrant has identified four market risks relative to its business:
interest rate risk, foreign currency exchange rate risk, commodity price risk
and security price risk. There has been no material changes in the way the
Registrant conducts its worldwide business, foreign exchange risk management,
investments in marketable securities or raw material commodity purchasing from
the descriptions thereof in the Registrant's Form 10-K for the fiscal year ended
June 30, 2001.
-17-
PART II - OTHER INFORMATION
ITEMS 1. THROUGH 5. Not Applicable
---------------
ITEM 6. Exhibits and Reports on Form 8-K
-------------------------------------
(a) EXHIBITS
--------
Unless otherwise indicated, the following exhibits were filed as part of
the Registrant's Registration Statement on Form S-18 (No. 2-96925-NY) (the
"Registration Statement") and are incorporated herein by reference to the same
exhibit thereto:
EXHIBIT NO. DESCRIPTION
----------- -----------
3(a)(i) - Certificate of Incorporation of the Registrant.
3(a)(ii) - Amendment to Certificate of Incorporation. (4)
3(b)(i) - By-laws of the Registrant.
9(a)(i) - Restated Shareholders' Agreement, dated April 15, 1985, among
Victor Insetta, Joseph Mezey, Joseph Colandrea and the
Registrant.
10(b)(i) - Amended and Restated Lease, dated September 25, 1998, between
Victor Insetta, d/b/a Stepar Leasing Company, and the Registrant
for premises at 15 Stepar Place, Huntington Station, N.Y. (9)
10(c)(i) - Form of 1985 Employee Stock Sale Agreement between the
Registrant and various employees.
10(c)(ii) - Form of Employee Stock Bonus Agreement, dated as of July 1,
1993, between the Registrant and various employees. (3)
10(c)(iii) - Form of Employee Stock Bonus Agreement, dated as of April 19,
1994, between the Registrant and various employees. (3)
10(c)(iv) - Form of Employee Stock Bonus Agreement, dated as of April 20,
1995, between the Registrant and various employees. (4)
10(e)(i) - Second Amended and Restated Lease, dated as of May 16, 2000,
between V.P.I. Properties Associates, d/b/a V.P.I. Properties
Associates, Ltd., and American Technical Ceramics (Florida), Inc.
(13)
10(f) - Purchase Agreement, dated May 31, 1989, by and among Diane
LaFond Insetta and/or Victor D. Insetta, as custodians for
Danielle and Jonathan Insetta, and American Technical Ceramics
Corp., and amendment thereto, dated July 31, 1989. (4)
-18-
10(g)(iii) - Profit Bonus Plan, dated April 19, 1995, and effective for the
fiscal years beginning July 1, 1994. (4)
10(g)(iv) - Employment Agreement, dated April 3, 1985, between Victor
Insetta and the Registrant, and Amendments No. 1 through 4
thereto. (2)
10(g)(v) - Amendment No. 5, dated as of September 11, 1998, to
Employment Agreement between Victor Insetta and the Registrant.
(8)
10(g)(vi) - Managers Profit Bonus Plan, dated December 7, 1999, and
effective January 1, 2000. (12)
10(h) - Employment Agreement, dated September 1, 2000, between the
Registrant and Richard Monsorno. (14)
10(k) - Consulting Agreement, dated October 2000, between the Registrant
and Stuart P. Litt. (14)
10(m)(i) - American Technical Ceramics Corp. 1997 Stock Option Plan. (7)
10(m)(ii) - American Technical Ceramics Corp. 2000 Incentive Stock Plan. (12)
10(o)(i) - Loan Agreement, dated November 25, 1998, between the
Registrant and NationsBank, N.A. (10)
10(o)(ii) - Amendment to Loan Agreement, dated February 4, 1999, between the
Registrant and NationsBank, N.A. (12)
10(o)(iii) - Second Amendment to Loan Agreement, dated April 13, 2000,
between the Registrant and Bank of America, N.A., as successor to
NationsBank, N.A. (12)
10(o)(iv) - Third Amendment to Loan Agreement, dated October 26, 2000,
between the Registrant and Bank of America, N.A., as successor to
NationsBank, N.A. (15)
10(o)(v) - Fourth Amendment to Loan Agreement, dated March 30, 2001,
between the Registrant and Bank of America, N.A., as successor to
NationsBank, N.A. (15)
10(p) - Second Amended and Restated Employment Agreement, dated as of
December 31, 2001 between Judah Wolf and the Registrant. (17)
-19-
10(q) - Mortgage Note between American Technical Ceramics Corp. and
European American Bank, N.A., dated as of August 17, 2000. (13)
10(r) - Employment Agreement, dated April 10, 2001, between the
Registrant and David Ott. (15)
10(r)(i) - Amendment to Employment Agreement, dated as of January 1, 2001,
between David Ott and the Registrant. (17)
10(s) - Loan Agreement, dated May 8, 2001, between the Registrant and
European American Bank, N.A. (16)
21 - Subsidiaries of the Registrant. (17)
---------------
1. Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended June 30, 1989.
2. Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended June 30, 1993.
3. Incorporated by reference to the Registrant's Annual Report on Form 10-KSB
for the fiscal year ended June 30, 1994.
4. Incorporated by reference to the Registrant's Annual Report on Form 10-KSB
for the fiscal year ended June 30, 1995.
5. Incorporated by reference to the Registrant's Annual Report on Form 10-KSB
for the fiscal year ended June 30, 1996.
6. Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
for the quarterly period ended March 31, 1997.
7. Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended June 30, 1997.
8. Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended June 30, 1998.
9. Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
for the quarterly period ended September 30, 1998.
10. Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
for the quarterly period ended December 31, 1998.
-20-
11. Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended June 30, 1999.
12. Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended June 30, 2000.
13. Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
for the quarterly period ended September 30, 2000.
14. Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
for the quarterly period ended December 31, 2000.
15. Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
for the quarterly period ended March 31, 2001.
16. Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended June 30, 2001.
17. Filed herewith.
(b) REPORTS ON FORM 8-K
-------------------
The Registrant did not file any reports on Form 8-K during the quarter
ended March 31, 2002.
-21-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant in
the capacities and on the dates indicated:
AMERICAN TECHNICAL CERAMICS CORP.
(Registrant)
DATE: May 14, 2002 BY: /s/ VICTOR INSETTA
-----------------------------
Victor Insetta
President and Director
(Principal Executive Officer)
DATE: May 14, 2002 BY: /s/ ANDREW R. PERZ
------------------------------
Andrew R. Perz
Vice President, Controller
(Principal Accounting Officer)
-22-