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 SEPTEMBER 30, 2003
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 Company as Specified in Its Charter)
DELAWARE 11-2113382
------------------------------- ----------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
17 STEPAR PLACE, HUNTINGTON STATION, NY 11746
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(Address of Principal Executive Offices) (Zip Code)
(631) 622-4700
--------------
(Telephone Number, Including Area Code)
Indicate by check mark whether the Company (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 Company 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 Company is an accelerated filer (as defined
in Rule 12b-2 of the Exchange Act). Yes ( ) No (X)
As of November 4, 2003, the Company had outstanding 8,109,018 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)
SEPT. 30, 2003 JUNE 30, 2003
-------------- -------------
ASSETS (unaudited)
Current assets
Cash (including cash equivalents of $998 and
$996, respectively) $ 8,330 $ 8,685
Investments 3,001 3,011
Accounts receivable, net 6,496 6,721
Inventories 15,336 15,144
Deferred income taxes, net 1,989 1,989
Other current assets 963 940
-------- --------
TOTAL CURRENT ASSETS 36,115 36,490
-------- --------
Property, plant and equipment, net of accumulated depreciation
and amortization of $38,423 and $37,213, respectively 26,538 27,021
Other assets, net 29 37
-------- --------
TOTAL ASSETS $ 62,682 $ 63,548
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term related party debt $ 364 $ 355
Accounts payable 878 1,025
Accrued expenses 3,199 2,843
Income taxes payable 422 782
-------- --------
TOTAL CURRENT LIABILITIES 4,863 5,005
Long-term related party debt, net of current portion 3,195 3,290
Deferred income taxes 3,300 3,300
-------- --------
TOTAL LIABILITIES 11,358 11,595
-------- --------
Commitments and Contingencies
Stockholders' Equity
Common Stock -- $.01 par value; authorized 20,000 shares; issued 8,523
and 8,503 shares, outstanding 8,109 and 8,089 shares, respectively 85 85
Capital in excess of par value 11,606 11,418
Retained earnings 40,887 41,670
Accumulated other comprehensive (income)/loss:
Unrealized loss on investments available-for-sale, net (1) --
Cumulative foreign currency translation adjustment 219 176
-------- --------
218 176
-------- --------
Less: Treasury stock, at cost (414 and 414 shares, respectively) 1,396 1,396
Deferred compensation 76 --
-------- --------
TOTAL STOCKHOLDERS' EQUITY 51,324 51,953
-------- --------
$ 62,682 $ 63,548
======== ========
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 Three Months Ended
September 30,
2003 2002
---- ----
Net sales $ 12,549 $ 12,487
Cost of sales 9,673 8,401
-------- --------
Gross profit 2,876 4,086
-------- --------
Selling, general and administrative expenses 3,209 2,962
Research and development expenses 710 669
Other (4) (51)
-------- --------
Operating expenses 3,915 3,580
-------- --------
-------- --------
(Loss)/income from operations (1,039) 506
-------- --------
Other (income) expense:
Interest expense 95 60
Interest income (22) (37)
-------- --------
73 23
-------- --------
(Loss)/income before provision for income taxes (1,112) 483
(Benefit from)/provision for income taxes (329) 145
-------- --------
Net (loss)/income $ (783) $ 338
======== ========
Basic net (loss)/income per common share $ (0.10) $ 0.04
======== ========
Diluted net (loss)/income per common share $ (0.10) $ 0.04
======== ========
Basic weighted average common
shares outstanding 8,096 8,071
======== ========
Diluted weighted average common
shares outstanding 8,096 8,157
======== ========
See accompanying notes to unaudited consolidated financial statements.
3
AMERICAN TECHNICAL CERAMICS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended September 30,
2003 2002
-------- --------
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES: (unaudited)
Net (loss)/income $ (783) $ 338
Adjustments to reconcile net (loss)/income to net cash
provided by operating activities:
Depreciation and amortization 1,269 1,312
Loss on disposal of fixed assets 75 115
Stock award compensation expense 83 4
Changes in operating assets and liabilities:
Accounts receivable 225 (136)
Inventories (192) 505
Other assets (19) 78
Accounts payable and accrued expenses 209 (75)
Income taxes payable (354) 171
------- -------
Net cash provided by operating activities 513 2,312
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (868) (331)
Purchase of investments (1,486) (993)
Proceeds from sale of investments 1,500 1,000
Proceeds from sale of fixed assets 11 --
------- -------
Net cash used in investing activities (843) (324)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debt (86) (4,145)
Proceeds from the exercise of stock options 23 --
------- -------
Net cash used in financing activities (63) (4,145)
------- -------
------- -------
Effect of exchange rate changes on cash 38 (15)
------- -------
Net decrease in cash and cash equivalents (355) (2,172)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 8,685 7,129
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 8,330 $ 4,957
======= =======
Supplemental cash flow information:
Interest paid $ 94 $ 98
Taxes paid $ 24 $ --
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 "Company") 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 September 30, 2003, and the results of its operations for the
three month periods ended September 30, 2003 and 2002. 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 Company's Annual Report on Form 10-K for the fiscal year ended
June 30, 2003. Results for the three month period ended September 30, 2003 are
not necessarily indicative of results which could be expected for the entire
year.
(2) IMPACT OF NEW ACCOUNTING STANDARDS:
On July 1, 2003, the Company elected to adopt Statement of Financial
Accounting Standards No. 123, "Accounting for Stock Based Compensation" ("SFAS
No. 123"), and to transition to a fair value-based method of accounting for
stock-based employee compensation. The Company elected the prospective method
for the transition as permitted by Statement of Financial Accounting Standards
No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure"
("SFAS No. 148"). Under the prospective method, stock compensation expense will
be recognized for any option grant or stock award granted on or after July 1,
2003 based upon the award's fair value. Outstanding stock options granted prior
to July 1, 2003 will continue to be accounted for under the intrinsic value
method. Stock compensation expense for new awards will be calculated using the
Black-Scholes option pricing model to estimate fair value. The adoption of this
standard will increase recognized stock compensation expense to the extent stock
options or awards are granted after June 30, 2003. During the quarter ended
September 30, 2003, the Company recorded $1 of compensation expense for options
granted after June 30, 2003.
In January 2003, the Financial Accounting Standards Board issued
Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN No.
46"). Previously, consolidation of variable interest entities was largely based
on controlling voting rights. This interpretation clarifies the application of
Accounting Research Bulletin No. 51, "Consolidated Financial Statements", to
entities where the company is vulnerable to a majority of the entity's risk of
loss or is entitled to receive a majority of the entity's residual returns even
if there is no controlling voting interest. The Company will adopt the
provisions of FIN No. 46 related to entities reporting prior to February 1,
2003, effective December 31, 2003. The Company is currently assessing the impact
of the adoption of FIN No. 46 on its consolidated financial position and results
of operations.
(3) SUPPLEMENTAL CASH FLOW INFORMATION:
During the three months ended September 30, 2003, the Company (i)
granted deferred compensation stock awards with an aggregate value of $41 with
respect to which expense shall be recognized ratably throughout fiscal year
2004, (ii) granted stock options with respect to which compensation expense of
$46 will be recognized evenly over the next five years, and (iii) recognized
$116 in compensation expense (including $44 relating to bonuses granted to
defray taxes) in connection with the grant of stock awards totaling 12,250
shares of common stock.
5
AMERICAN TECHNICAL CERAMICS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
(4) INVENTORIES:
Inventories included in the accompanying consolidated financial
statements consist of the following:
September 30, June 30,
2003 2003
------------- ------------
(unaudited)
Raw materials $ 7,067 $ 7,055
Work-in-process 4,430 4,361
Finished goods 3,839 3,728
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$15,336 $15,144
======= =======
(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 September 30,
2003 2002
---- ----
Net Loss Shares Per-Share Net Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ------ ----------- ------------- ------
Basic EPS $(783) 8,096 $(0.10) $ 338 8,071 $ 0.04
====== ======
Effect of Dilutive Securities:
Stock options -- -- -- 79
Deferred compensation
stock awards -- -- -- 7
----- ----- ------ ----- ----- ------
Diluted EPS $(783) 8,096 $(0.10) $ 338 8,157 $ 0.04
===== ===== ====== ===== ===== ======
Options covering 1,385 and 914 shares have been omitted from the
calculation of dilutive EPS for the three months ended September 30, 2003 and
2002, respectively, because their inclusion would have been antidilutive.
6
AMERICAN TECHNICAL CERAMICS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
(6) COMPREHENSIVE LOSS:
The Company's comprehensive (loss)/income is as follows:
For the Three Months Ended
September 30,
2003 2002
------------- ------------
Net (loss)/income $(783) $ 338
----- -----
Other comprehensive income/(loss):
Foreign currency translation
adjustments 43 (16)
Unrealized (losses)/gains on investments,
net of tax (1) 1
----- -----
Other comprehensive income/(loss) 42 (15)
----- -----
Comprehensive (loss)/income $(741) $ 323
===== =====
(7) INDEBTEDNESS:
The Company leases an administrative office, manufacturing and research
and development complex located in Jacksonville, Florida (the "Jacksonville
Facility") from a partnership controlled by the Company's President, Chief
Executive Officer and principal stockholder under a capital lease. At June 30,
2003, the Jacksonville Facility has an aggregate cost of $5,104 and a net book
value of $2,705. The lease is for a period of 30 years, was capitalized using an
interest rate of 10.5% and expires on September 30, 2010. The lease provides for
base rent of approximately $719, per annum. The lease further provides for
annual increases in base rent for years beginning after May 1, 1999, based on
the increase in the Consumer Price Index ("CPI") since May 1, 1998 applied to
base rent. The lease also provides for increases to the base rent in connection
with any new construction at the Jacksonville Facility. Under the lease, upon
any new construction being placed into use, the base rental is subject to
increase to the fair market rental of the Jacksonville Facility, including the
new construction. Effective October 1, 2003, the Company is obligated to pay
approximately $734 per annum under this lease. The payments due over the
remaining seven years of this capital lease, including the portion related to
interest, total approximately $5,140.
7
AMERICAN TECHNICAL CERAMICS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
(8) STOCK-BASED COMPENSATION:
On April 1, 1997, the Board of Directors approved the American
Technical Ceramics Corp. 1997 Stock Option Plan (the "1997 Option Plan")
pursuant to which the Company may grant options to purchase up to 800,000 shares
of the Company's common stock. On April 11, 2000, the Board of Directors
approved the American Technical Ceramics Corp. 2000 Incentive Stock Plan (the
"2000 Plan", and collectively with the 1997 Option Plan, the "Plans") pursuant
to which the Company may grant options or stock awards covering up to 1,200,000
shares of the Company's common stock. Each of the Plans is administered by the
Board of Directors or by a committee appointed by the Board. Options granted
under the Plans may be either incentive or non-qualified stock options. The term
of each incentive stock option shall not exceed ten years from the date of grant
(five years for grants to employees who own 10% or more of the voting power of
the Company's common stock). Options vest in accordance with a vesting schedule
established by the plan administrator (traditionally 25% per year during the
first four years of their term). Unless terminated earlier by the Board, the
1997 Option Plan will terminate on March 31, 2007, and the 2000 Plan will
terminate on April 10, 2010.
Disposition of shares acquired pursuant to the exercise of incentive
stock options under both Plans may not be made by the optionees within two years
following the date that the option is granted, nor within one year after the
exercise of the option, without the written consent of the Company. The Company
measures compensation cost for options granted prior to July 1, 2003 pursuant to
Accounting Principals Board Opinion No. 25, "Accounting for Stock Issued to
Employees ("Opinion No. 25"). The Company has not recognized compensation cost
for these options upon grant as the exercise price was equal to the fair market
value of the underlying stock at the date of grant.
Stock option activity for the three months ended September 30, 2003 and
2002 is as follows:
2003 2002
-------------------------- -------------------------
Weighted Weighted
Shares Average Shares Average
Subject to Exercise Subject to Exercise
Options Price Options Price
---------- --------- ---------- --------
Outstanding, beginning of period 1,381,200 $ 6.64 919,800 $ 8.98
Granted 13,000 5.85 479,000 2.35
Canceled (1,250) 9.59 (1,750) 9.55
Expired (500) 11.40 (2,000) 16.99
Exercised (7,650) 4.74 -- --
--------- ---------
Outstanding, end of period 1,384,800 $ 6.63 1,395,050 $ 6.68
========= =========
8
AMERICAN TECHNICAL CERAMICS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
In July 2003, the Company adopted SFAS No. 123, using the prospective
method as prescribed in SFAS No. 148. The Company applies SFAS No. 123 in
accounting for employee stock-based compensation awarded or granted after June
30, 2003, and applies Opinion No. 25 in accounting for employee stock-based
compensation awarded or granted prior to July 1, 2003, and makes pro-forma
disclosures of net income and net income per share as if the fair value method
under SFAS No. 123, as amended by SFAS No. 148, had been applied. The Company
has recorded $1 of compensation expense for options granted after June 30, 2003.
Had compensation expense with respect to options and awards granted under the
Plans been determined based on the fair value method on the date of grant
consistent with the methodology prescribed under SFAS No. 123 prior to July 1,
2003, the Company's net income/(loss) and earnings/(loss) per share would have
approximated the pro forma amounts indicated below:
Three Months Ended September 30,
--------------------------------
2003 2002
--------- --------
Net (loss)/income, as reported $ (783) $ 338
Add: Stock-based employee compensation expense
included in reported net income, net of related tax effects 63 3
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all
awards, net of related tax effects (487) (402)
--------- --------
Pro forma loss $ (1,207) $ (61)
(Loss)/income per share:
Basic - as reported $ (0.10) $ 0.04
Basic - pro forma $ (0.15) $ (0.01)
Diluted - as reported $ (0.10) $ 0.04
Diluted - pro forma $ (0.15) $ (0.01)
The weighted-average fair value of each stock option included in the
preceding pro forma amounts was estimated using the Black-Scholes option pricing
model and is amortized over an expected grant life of five years.
9
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
Company'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 Company's
Annual Report on Form 10-K. These risks could cause the Company's actual results
for future periods to differ materially from those expressed in any
forward-looking statements made by, or on behalf of, the Company. Any
forward-looking statement represents the Company'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 Company 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.
Overview
For more than the past two years the Company and the electronic
components industry in general have been adversely affected by the economic
downturn. Net sales reached their lowest point early in fiscal year 2002 and
have only recovered modestly since then. The Company undertook cost reduction
measures in the early part of the downturn to preserve the Company's cash while
waiting for an economic recovery. During this period, sales have remained in a
narrow range with no significant upswing. More recently, the Company has been
taking measures designed to increase market share and further develop its
business. The Company believes that these measures will lead to increased
revenues when the economy rebounds. These efforts have led to selected additions
to personnel which, in turn, impacts profitability.
The Company's results continue to reflect the short time horizons upon
which customers are basing their orders. While historically the Company has not
viewed its business as seasonal, the combination of the shortened ordering
cycles and the vacation laden months of July and August impacted sales for the
first quarter of fiscal year 2004. These ordering patterns are expected to
continue for the foreseeable future. Accordingly, the Company's results could be
adversely impacted during similar periods of reduced business activity in the
future.
The Company has continued to develop its ability to respond to its
customers needs quickly by identifying key products to stock in inventory for
rapid delivery. Over the past year, the Company has added personnel in certain
strategic areas in order to maintain and improve delivery times. The cost of the
additional personnel is reflected in the expenses of the most recent quarters.
The Company believes the faster delivery afforded to its customers creates
goodwill and increased sales volume.
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
(In thousands, except per share data)
Finally, the price of palladium, a precious metal used in the Company's
manufacture of capacitors, has declined significantly during the economic
downturn. If palladium prices remain at current levels, it will have a positive
impact on the Company's margins in quarters to follow.
RESULTS OF OPERATIONS
Three Months Ended September 30, 2003 Compared with Three Months Ended September
30, 2002
Net sales for the three months ended September 30, 2003 were $12,549,
essentially flat compared to $12,487 in the comparable period in the prior
fiscal year.
Gross margin for the three months ended September 30, 2003 was 23% of
net sales, compared to 33% for the comparable period in the prior fiscal year.
Gross margins decreased due to higher labor and overhead costs and lower
precious metal recovery, partially offset by lower raw material costs. Labor and
overhead expense increases primarily relate to increased headcount. As noted
above, the Company has recently added personnel and incurred other expenses in
connection with its efforts to reduce lead times, improve market share and
further develop its business in preparation for an upturn in the economy.
Precious metal recovery decreased partially due to a lower amount of metal
reclaimed, sending one less shipment of materials for recovery than during the
comparable period last fiscal year, and the lower inventory carrying cost of
palladium as compared to a year ago. The lower inventory carrying cost of
palladium was also the primary reason for the decrease in raw material costs.
Selling, general and administrative expenses for the three months ended
September 30, 2003 increased 8% to $3,209, compared to $2,962 in the comparable
period in the prior fiscal year. The increase was primarily the result of salary
increases, expansion of the Company's foreign sales office in China, and stock
bonus awards, partially offset by lower professional fees.
Research and development expenses for the three months ended September
30, 2003 increased 6% to $710, compared to $669 in the comparable period in the
prior fiscal year as a result of increased efforts to develop new products in
response to customer needs and requests, and process improvements designed to
enhance product performance and reduce costs.
Bookings for the three months ended September 30, 2003 were $12,256,
compared to $12,233 for the three months ended September 30, 2002 and $11,468
for the three months ended June 30, 2003. The improvement in sequential quarter
bookings was due primarily to improved bookings in the military and wireless
infrastructure markets.
The backlog of unfilled orders at September 30, 2003 was $8,848,
compared to $9,035 at September 30, 2002 and $9,129 at June 30, 2003. The
backlog has remained essentially flat as customers continue to place orders with
short delivery requirements.
As a result of the foregoing, net loss for the three months ended
September 30, 2003 was $783, or $.10 per common share and per common share
assuming dilution, compared to net income of $338, or $.04 per common share and
per common share assuming dilution, for the comparable period in the prior
fiscal year.
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
(In thousands, except per share data)
Three Months Ended September 30, 2002 Compared with Three Months Ended September
30, 2001
Net sales for the three months ended September 30, 2002 decreased 10%
to $12,487, compared to $13,905 in the comparable period in the prior fiscal
year. The decrease in net sales was primarily the result of decreased sales due
to continued weakness in the telecommunication markets.
Gross margin for the three months ended September 30, 2002 was 33% of
net sales, compared to 31% for the comparable period in the prior fiscal year.
The increase in gross margin was principally due to lower labor and overhead
costs as the result of cost reduction measures taken during fiscal year 2002.
These measures included a reduction in headcount, reduced capital spending and
general cost controls on discretionary spending. Additionally, the Company wrote
down certain inventory to net realizable value in the first quarter of fiscal
year 2002. There were no significant inventory write-downs in the first quarter
of fiscal year 2003.
Selling, general and administrative expenses for the three months ended
September 30, 2002 decreased 2% to $2,962, compared to $3,021 in the comparable
period in the prior fiscal year. The decrease was the result of the cost
reduction measures implemented during fiscal year 2002 referred to above.
Research and development expenses for the three months ended September
30, 2002 decreased 21% to $669, compared to $852 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. Additionally, certain costs for
developing products and processes are now included in cost of sales to the
extent these products and processes have entered into the production stage of
their development.
Bookings for the three months ended September 30, 2002 were $12,233,
compared to $10,157 for the three months ended September 30, 2001. Cancellations
have returned to historical levels, but bookings remain low, particularly in the
fiber optic and semiconductor manufacturing equipment sectors. Bookings improved
in nearly all product lines as compared to the first quarter of fiscal year 2002
and have increased modestly in most product lines over the past three quarters.
The backlog of unfilled orders at September 30, 2002 was $9,035,
compared to $12,545 at September 30, 2001 and $9,310 at June 30, 2002. The
decrease in backlog compared to September 30, 2001 is primarily the result of
customers placing orders with shorter delivery requirements. During the early
part of fiscal year 2002, the Company was still shipping orders from backlog
that had accumulated months earlier.
As a result of the foregoing, net income for the three months ended
September 30, 2002 was $338, or $.04 per common share and per common share
assuming dilution, compared to net income of $298, or $.04 per common share and
per common share assuming dilution, for the comparable period in the prior
fiscal year.
12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
(In thousands, except per share data)
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial position at September 30, 2003 remains strong
as evidenced by working capital of $31,252, and stockholders' equity of $51,324.
The Company's current ratio at September 30, 2003 was 7.4:1, compared to a
current ratio of 7.3:1 at June 30, 2003. The Company's quick ratio was 3.7:1, at
September 30, 2003 and June 30, 2003.
Cash, cash equivalents and investments decreased by $365 to $11,331 at
September 30, 2003 from $11,696 at June 30, 2003, primarily as a result of
capital expenditures in excess of positive operating cash flows. Accounts
receivable decreased by $225 to $6,496 at September 30, 2003 from $6,721 at June
30, 2003, due to lower sales in the quarter ended September 30, 2003.
Inventories increased by $192 to $15,336 at September 30, 2003 from $15,144 at
June 30, 2003. Accounts payable and accrued expenses increased by $209 to $4,077
at September 30, 2003 from $3,868 at June 30, 2003. Income taxes payable
decreased by $360 to $422 at September 30, 2003 from $782 at June 30, 2003 due
to the effect of the net loss incurred in the first quarter.
The Company leases a facility in Jacksonville, Florida from a
partnership controlled by the Company's President, Chief Executive Officer and
principal stockholder under a capital lease. The rental payments under this
lease have been adjusted several times, most recently as of October 2003,
primarily to reflect fair market rental adjustments as a result of certain
additions or improvements to the facility or annual increases based on the
consumer price index as required by the terms of the lease. Each fair market
rental adjustment has been based upon an independent appraisal of the fair
market rental of the facility giving effect to the addition or improvement at
issue. Effective October 1, 2003, the Company is obligated to pay approximately
$734 per annum under this lease. The payments due over the remaining seven years
of this capital lease, including the portion related to interest, total
approximately $5,140.
Capital expenditures for the three months ended September 30, 2003
totaled $868, including expenditures for machinery and equipment and planned
leasehold improvements. The Company intends to use cash on hand to finance
budgeted capital expenditures of approximately $3,000 for the remainder of
fiscal year 2004, primarily for equipment acquisitions.
Aggregate contractual obligations as of September 30, 2003 mature as
follows:
Payments Due by Period (in 000's)
---------------------------------------------------------
Less
than 1 1- 3 4- 5 After 5
Contractual Obligations Total year years years years
----------------------------- ------- ------ ------- ------- -------
Bank Debt $ -- $ -- $ -- $ -- $ --
Capital Lease Obligations 3,559 364 1,350 1,165 680
Operating Leases 1,656 426 1,230 -- --
------- ------ ------- ------- ------
Total Contractual Obligations $ 5,215 $ 790 $ 2,580 $ 1,165 $ 680
======= ====== ======= ======= ======
The Company currently has no outstanding long-term bank debt or
available committed lines of credit.
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
(In thousands, except per share data)
The Company 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 Company does not expect that these commitments will materially
adversely affect its liquidity in the foreseeable future.
CRITICAL ACCOUNTING POLICIES
The Securities and Exchange Commission (the "SEC") 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 Company'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, 2003. The Company
believes that the following accounting policies require the application of
management's most difficult, subjective or complex judgments:
Allowances for Doubtful Accounts Receivable
The Company 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 Company 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
Company has identified. While such credit losses have historically been within
the Company's expectations and the allowances established, the Company 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 Company's
revised estimate of such losses and any actual losses in excess of previous
estimates may negatively impact its operating results.
Sales Returns and Allowances
In the ordinary course of business, the Company accepts returns of
products sold for various reasons and grants sales allowances to customers.
While the Company 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 Company 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
Company's expectations, actual return and allowance rates in the future may
differ from current estimates, which could negatively impact its operating
results.
14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
(In thousands, except per share data)
Inventory Valuation
The Company 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, such inventory is written down to its
estimated net realizable value. This requires the Company 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 Company's manufacturing processes could have a material impact on the
Company's assessment of the net realizable value of inventory in the future.
Valuation of Deferred Tax Assets
The Company 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 Company generating sufficient taxable income
in future years during the period over which temporary differences reverse.
Presently, the Company 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 Company
adjusts these estimates in future periods, the Company 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 Assets
The Company assesses the recoverability of long-lived assets whenever
the Company 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 Company
believes that the carrying amount of its long-lived assets is recoverable.
However, should its operating results deteriorate, or anticipated new product
launches not occur or not attain the commercial acceptance that the Company
anticipates, the Company 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.
INFLATION
The Company does not expect the effects of inflation to have a
significant impact on its liquidity or results of operations.
15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
(In thousands, except per share data)
IMPACT OF NEW ACCOUNTING STANDARDS
In December 2002, the Financial Accounting Standards Board issued SFAS
No. 148 - an amendment of FASB Statement No. 123, which provides alternative
methods of transition for a voluntary change to the fair value-based method of
accounting for stock-based employee compensation. In addition, SFAS No. 148
amends the disclosure requirements of FASB Statement 123 to require more
prominent and more frequent disclosures in financial statements about the
effects of stock-based compensation. The Company adopted the disclosure
provisions of SFAS No. 148 effective, January 1, 2003. The Company continued to
apply the intrinsic value-based method to account for stock options through
fiscal year 2003.
On July 1, 2003, the Company elected to adopt SFAS No. 123 and to
transition to a fair value-based method of accounting for stock-based employee
compensation. The Company elected the prospective method for the transition as
permitted by SFAS 148. Under the prospective method, stock compensation expense
for new awards will be recognized for any new option grants or stock awards
granted on or after July 1, 2003 based upon the award's fair value. Outstanding
stock options granted prior to July 1, 2003 will continue to be accounted for
under the intrinsic value method. Stock compensation expense for new awards will
be calculated using the Black-Scholes option pricing model to estimate fair
value. The adoption of this standard will increase recognized stock compensation
expense to the extent stock options or awards are granted after June 30, 2003.
In the quarter ended September 30, 2003, the Company recorded $1 of stock
compensation expense related to stock options granted during the quarter.
In January 2003, the Financial Accounting Standards Board issued FIN
No. 46. Previously, consolidation of variable interest entities was largely
based on controlling voting rights. This interpretation clarifies the
application of Accounting Research Bulletin No. 51, "Consolidated Financial
Statements", to entities where the company is vulnerable to a majority of the
entity's risk of loss or is entitled to receive a majority of the entity's
residual returns even if there is no controlling voting interest. The Company
will adopt the provisions of FIN No. 46 related to entities reporting prior to
February 1, 2003, effective December 31, 2003. The Company is currently
assessing the impact of the adoption of FIN No. 46 on its consolidated financial
position and results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's market risk exposure at September 30, 2003 is consistent
with the types of market risk and amount of exposures, including foreign
currency exchange rate, commodity price and security price risks, presented in
its Annual Report on Form 10-K for the fiscal year ended June 30, 2003.
16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
(In thousands, except per share data)
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
In response to the requirements of the Sarbanes-Oxley Act of 2002, as
of the end of the period covered by this Quarterly Report on Form 10-Q (the
"Evaluation Date"), the Company's President and Chief Executive Officer and Vice
President - Controller carried out an evaluation of the effectiveness of the
Company's "disclosure controls and procedures" (as defined in the Securities
Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)). Based on that evaluation,
these officers concluded that, as of the Evaluation Date, the Company's
disclosure controls and procedures were adequate and effective to ensure that
material information relating to the Company and the Company's consolidated
subsidiaries was made known to them by others within those entities,
particularly during the period in which this report was being prepared.
Changes in Internal Controls
There were no changes in the Company's internal controls over financial
reporting identified in connection with the evaluation of such internal controls
that occurred during the Company's last fiscal quarter that have materially
affected, or are reasonably likely to materially affect, the Company's internal
controls over financial reporting.
PART II - OTHER INFORMATION
ITEMS 1. THROUGH 5. Not Applicable
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
EXHIBIT NO. DESCRIPTION
----------- -----------
31.1 - Section 302 Certification of Chief Executive Officer.*
31.2 - Section 302 Certification of Principal Accounting Officer.*
32 - Section 906 Certifications.*
* - Filed herewith.
(b) REPORTS ON FORM 8-K
1. On September 3, 2003, the Company furnished a report on Form 8-K together
with the Company's Press Release announcing it's year end financial results
for the period ended June 30, 2003. The Form 8-K contained the information
required by Item 9. "Regulation FD Disclosure" and Item 12. "Disclosure of
Results of Operations and Financial Condition," in accordance with SEC
Release 33-8216.
17
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 Company in the
capacities and on the dates indicated:
AMERICAN TECHNICAL CERAMICS CORP.
(Company)
DATE: November 13, 2003 BY: /s/ VICTOR INSETTA
----------------------------
Victor Insetta
President and Director
(Principal Executive Officer)
DATE: November 13, 2003 BY: /s/ ANDREW R. PERZ
-----------------------------
Andrew R. Perz
Vice President, Controller
(Principal Accounting Officer)
18