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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2000
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 (I.R.S. Employer
of incorporation or organization) Identification No.)
17 Stepar Place, Huntington Station, NY 11746
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (631) 622-4700
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, par value $.01 American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
On September 8, 2000, the aggregate market value of the Registrant's
Common Stock (based upon the closing sales price of the Registrant's Common
Stock on the American Stock Exchange on such date) held by nonaffiliates of the
Registrant was approximately $ 79,864,000. (For purposes of this report, all
officers and directors have been classified as affiliates, which classification
shall not be construed as an admission of the affiliate status of any such
person.)
On September 8, 2000, the Registrant had outstanding 7,938,438 shares
of Common Stock (which reflects the 2-for-1 stock split of the Company's Common
Stock effected in the form of a 100 percent stock dividend effective April 24,
2000).
Documents Incorporated by Reference: Portions of the Registrant's Proxy
Statement relating to its Annual Meeting of Stockholders to be held on November
15, 2000 are incorporated into Part III of this report by reference.
PART 1
ITEM 1. BUSINESS
GENERAL
The Registrant was incorporated in New York in 1966 as Phase Industries,
Inc., and changed its name to American Technical Ceramics Corp. in June 1984.
Unless the context indicates otherwise, references to the Registrant herein
include American Technical Ceramics Corp., a Delaware corporation, and its
subsidiaries, all of which are wholly-owned.
The Registrant designs, develops, manufactures and markets
RF/Microwave/Millimeter/Wave ceramic capacitors, thin film products, and other
passive components. The Registrant's products are focused primarily in the high
reliability market for ultra-high frequency ("UHF") and microwave applications,
including wireless electronics, fiber optics, medical electronics, semiconductor
equipment and satellite equipment. Capacitors function within electronic
circuits by storing and discharging precise amounts of electrical power. The
Registrant believes that it is a leading manufacturer of multilayer capacitors
("MLCs") for UHF and microwave applications. Selling prices for the Registrant's
MLCs typically range from $.15 to $7.50 or higher, whereas selling prices for
commodity-type MLC units typically range from $.005 to $.10. Thin film products
are ceramic substrates on which circuit patterns are printed by means of thin
film processes, and are used by customers as building blocks in electronic
circuits. Management believes the Registrant operates in only one industry
segment - the electronic components industry.
During the fiscal year ended June 30, 2000, the electronic components
industry experienced unprecedented demand for product. In general, component
manufacturers conducted programs to increase capacity, and lead times for
product delivery were often extended. The Registrant responded to this situation
by increasing capacity, strengthening infrastructure and increasing investment
in new product initiatives. See "Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS".
STOCK SPLIT
On April 11, 2000, the Company's Board of Directors declared a 2-for-1
stock split of the Company's common stock, which was effected in the form of a
100 percent stock dividend. The stock dividend was paid on May 15, 2000 to
holders of record on April 24, 2000. All share and per share information in this
Report have been adjusted to reflect the stock split.
PRODUCTS
The Registrant's traditional line of MLCs are available in predominantly
four physical sizes designated "A" (.055 inch cube), "B" (.110 inch cube), "C"
(.250 inch cube) and "E" (.380 inch cube); in three types of dielectrics:
low-loss porcelain (the 100 series), zero temperature coefficient (the 700
series) and high dielectric constant (the 200 series); and in a variety of
capacitance values. The 100 series, the Registrant's basic product line, is
widely used in microwave equipment and is one of the three product lines that
accounts for more than 10% of the Registrant's consolidated revenue, accounting
for 47%, 50% and 51% of the Registrant's revenues in fiscal years 2000, 1999 and
1998, respectively. The 700 series has a slightly higher dissipation factor
(i.e., is slightly less energy-efficient) than the 100 series, but because of
its lower temperature coefficient is used in certain UHF/Microwave and lower
frequency applications. The 700 series sales account for 11%, 13% and 17% of the
Registrant's revenues in fiscal years 2000, 1999 and 1998, respectively. The 200
series has high packaging density and is used in microcircuits where high
capacitance value is needed in a small space.
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The Registrant's MLCs are generally designed for critical performance
applications, and are characterized by a high degree of reliability, low power
dissipation and ruggedness. The MLCs can be broadly classified as either
commercial or "hi-rel", based primarily upon the amount of testing involved. All
are subject to precise measurement of capacitance, dissipation factor and
insulation resistance. The Registrant's products are used in commercial and
military applications, including wireless cellular and personal communications
systems (PCS), medical imaging (i.e., magnetic resonance imaging), radio
frequency power sources for semiconductor manufacturing, satellite
communications, numerous aerospace systems, including radar and electronic
warfare, and certain high-speed digital processing equipment.
Approximately 67%, 56% and 53% of sales in fiscal years 2000, 1999 and
1998, respectively, were to commercial (i.e., applications other than hi-rel)
domestic customers; and approximately 26%, 30% and 30% of sales in such fiscal
years, respectively, were to foreign customers. For the fiscal years ended June
30, 2000, 1999 and 1998, the Registrant estimates that approximately 8%, 14% and
17% of sales, respectively, were sales of hi-rel products. See "Item 1. BUSINESS
- -- CUSTOMERS AND MARKETING -- FOREIGN SALES" and Note 9 of Notes to Consolidated
Financial Statements.
Hi-rel MLCs are principally utilized in applications such as satellites
(including commercial communications satellites), high performance military
aircraft, spacecraft and missiles, and other defense applications such as radar
and electronic countermeasures. The Registrant produces its hi-rel MLCs to
precise customer specifications and subjects each hi-rel MLC to a battery of
performance and environmental tests. Such performance tests measure capacitance,
dissipation factor, insulation resistance and dielectric withstanding voltage.
The environmental tests are either designated by customers or specified by the
military and include temperature shock tests, humidity tests and tests of life
expectancy at elevated temperature and voltage levels.
For commercial applications, the Registrant produces MLCs to precise
performance specifications similar to hi-rel MLCs, individually tests them for
certain electrical performance characteristics and conducts additional tests on
samples from production lots. However, the Registrant does not subject all such
commercial MLCs to environmental tests.
The Registrant has historically pursued the high-performance MLC market in
which its products are typically applied in the manufacture of high-value
capital equipment and which has commanded higher unit selling prices. The MLCs
required for many of these applications constitute a small part of the circuit
cost and, because performance requirements are stringent and the cost of
component failure high, customers have been willing to pay higher prices
associated with higher performance products. In recent years, the Registrant has
mechanized its manufacturing processes to enable it to produce certain of its
existing MLCs for the growing medium - priced niche market driven by
telecommunications applications.
The Registrant is also developing new capacitor products targeted towards
the high volume markets. The first of these new products is the 600S which is
targeted towards the high-performance, lower priced segment in the wireless
industry. The 600S capacitor is smaller (.06" x .03" rectangle) and lower priced
(approximately 2/3 the price of the lowest-priced comparable part) than the
Registrant's traditional MLC's, and uses a new ATC-developed ceramic formulation
to optimize performance for cellular and PCS operating frequencies. Sales from
this product line, which was formally launched on June 16, 2000, amounted to
less than 1% of the Registrant's revenues in fiscal year ended June 30, 2000.
3
The Registrant also offers specialized capacitors designed to perform at
frequencies higher than the useful range of typical microwave MLC's. The
Registrant's Microcap(R), a single layer ceramic capacitor, was developed to
meet certain applications where small size is critical and which operate at
frequencies extending higher than those for which MLCs are typically chosen.
Manufactured and sold in both hi-rel and commercial versions, these products are
used in wideband wireless data communications, satellite communications,
military systems and other microwave and millimeter-wave applications. Another
product tailored to the same market, the 500S Broadband Microwave Capacitor
(BMC), was introduced in June 1998. This product is based on a patented
construction designed to be compatible with customers' high-volume surface-mount
assembly technologies. In each of the fiscal years ended June 30, 2000, 1999,
and 1998, sales of these two product types combined amounted to less than 5% of
revenues.
The Registrant has diversified its product line in recent years through the
development of custom product capability based on thin film technologies. The
Registrant produces metallized circuits and passive components on high-quality
ceramic substrates to customers' drawings and specifications. Thin film layers
deposited on the ceramic substrate may consist of a variety of materials with
specific conductive, resistive, capacitive, and other properties enabling the
build-up of the desired circuit pattern. As with a typical circuit board, the
customer may then attach discrete components and chips to complete the circuit.
Thin film products are used by the Registrant's customers in a broad range of
applications, including microwave components, fiber optic repeaters and
high-density packaging of devices, typically where requirements for high
reliability, small size and dimensional precision are paramount. The recent
growth in the broad band telecommunications industry, including fiber optic
applications, has led to increased demand for high performance circuit boards
exemplified by thin film technology. In the fiscal years ended June 30, 2000,
1999, and 1998, thin film sales represented approximately 24%, 12%, and 6%,
respectively, of revenues.
In June 2000, the Registrant introduced a line of high power, passive
resistive products. The Registrant's products, including standard resistors,
terminations, attenuators and other customized products, consist of resistive
and conductive layers deposited on a substrate of aluminum nitride, a base
material chosen for its high thermal conductivity and its non-toxic properties.
High power resistive products are used in many of the same types of equipment as
are the Registrant's capacitor products. Other applications for these products
reflect an expansion of the Registrant's customer base. Applications include RF
and microwave products, including power amplifiers, up and down converters, and
high power combiner/dividers. The markets for these products include the
wireless and telecommunication markets, including base station and satellite
communications, and a broad range of medical, military and other commercial
applications. See "Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS".
MANUFACTURING
The manufacturing process for MLCs involves four primary stages. The first,
or "white room" stage, includes tape casting, multi-layer lamination, dicing,
and firing of ceramic chips. In this phase layers of electrically conducting
material are printed onto ceramic tape in patterns which eventually form the
electrodes of the capacitor. The screen-printing technology used for the
printing of such layers is referred to as "thick film". In the second, or
"termination" stage, the ceramic chips are coated with silver. In the third, or
"finishing" stage, the parts are then customized to specific order requirements
for commercial applications. This stage includes, but is not limited to, chip
plating, soldering of leads, laser marking, and chip packaging. The chips are
tested electrically and inspected throughout the entire process. If the
customer's specifications call for a higher level of performance assurance, the
parts are put through a fourth stage, the hi-rel stage, where additional testing
is performed.
The Registrant currently manufactures MLCs at its facilities in Huntington
Station, New York and Jacksonville, Florida. Its primary MLC manufacturing site
is Huntington Station, consisting of three facilities, which aggregate
approximately 54,000 square feet. Two of these facilities house the Registrant's
state-of-the-art chip fabrication operations. These facilities are designed to
provide optimum control of the Registrant's manufacturing processes and product
quality, while substantially increasing its output capability.
4
The Registrant is increasing capacity in its New York facilities for core
MLC production in response to increases in market demand. During fiscal year
2000, the Registrant completed capacity expansion projects which, along with
manufacturing staff additions, increased chip unit throughput approximately
threefold during the 18 months ended June 2000. Additional capacity expansion
projects to be completed by the third quarter of fiscal year 2001 will increase
chip volume capability by another 50% over levels achieved at the end of fiscal
year 2000. In addition, in August of fiscal year 2001, the Registrant purchased
another building next to its existing facilities in New York which can add a
minimum of 22,000 additional square feet of production space to the New York
facility complex as such space is required.
The Registrant also manufactures capacitors at its facilities in
Jacksonville, Florida. During fiscal year 2000, the Registrant manufactured the
500S and 600S series capacitors at its Jacksonville facility, and also performed
the first, or "white room", phase of manufacture for the 200 and 900 series. The
Jacksonville facility is also the site of manufacture for the Registrant's thin
film, resistor and Microcap(R) SLC product lines and serves as the Registrant's
new product technology center.
Portions of the Jacksonville facility have been redesigned over the last
few years in order to accommodate what the Registrant refers to as its "Factory
of the Future". Utilizing recently developed and acquired materials, processes
and equipment, the Registrant can manufacture MLC products at this facility at
higher degrees of precision and control and at a substantially lower cost with
accompanying high output. Moreover, the manufacturing operations at this
facility are flexible enabling the Registrant to produce ceramic structures of a
wide variety of sizes, shapes and internal configurations.
As differentiated from the "thick film" technology used in MLC manufacture,
the manufacture of thin film circuits involves a method for the deposition of
layers of conducting and other materials using "sputtering" technology. Also key
to manufacture of these products is the use of laser machining of ceramic
substrates. Unlike the manufacture of capacitors, where all products flow
through the same manufacturing sequences, manufacturing processes for custom
thin film products vary significantly in accordance with each customer's
specifications. The thin film product line has grown rapidly during the last
several years due to strong customer demand. The Registrant is currently
constructing a 22,000 square foot facility on its Jacksonville Campus to expand
its thin film manufacturing space. This facility, which should be adequate to
triple capacity, is expected to come on line in early calendar year 2001. The
Registrant plans to acquire additional equipment as required to meet production
needs and, toward this end, recently acquired an advanced dual beam laser
machining system as well as some other new equipment.
Resistive products, Microcap(R) SLCs and BMCs all utilize various
combinations of the production methods described in the preceding discussions.
The manufacture of each product line typically involves dedicated equipment as
well as certain manufacturing capabilities shared with the product lines
previously discussed. During fiscal year 2000, the Registrant expanded its
production capabilities for the Microcap(R) SLCs and established an initial
production line for resistive products.
In order to realize the potential of its expanding and diversifying product
lines, and to more fully integrate all facets of its operations, the Registrant
plans to replace its existing information system with a modern Enterprise
Resource Planning System. Utilizing modern, commercially available information
technology, the new system is intended to provide improved functionality and
efficiency for better planning, control and responsiveness.
The Registrant utilizes a large variety of specialized equipment for the
fabrication, handling and testing of its products, including equipment which it
has designed and constructed. The Registrant considers its capability to create
its own unique equipment solutions, tailored to the particular needs of its
product lines and technologies, to be a competitive advantage.
Before full market introduction of a new product, the Registrant generally
establishes a production line for the product and manufactures substantial
quantities to evaluate and verify its ability to consistently meet quality and
performance standards. Such efforts involve the dedication of equipment,
materials and labor, and to the extent that these efforts do not result in
saleable product, all costs are expensed. During fiscal year 2000, the
Registrant's 600S and resistive product lines were in this phase of development.
To complement its own manufacturing efforts and to provide a wide variety
of product offerings to its customers, the Registrant has from time to time
entered into arrangements with other manufacturers to produce certain products
to the Registrant's specifications. These products accounted for approximately
2% of the Registrant's revenues in both fiscal years 2000 and 1999.
5
Although the Registrant was able during fiscal year 2000 to selectively
raise prices to cover increased costs of palladium (see "Item 1. BUSINESS -- RAW
MATERIALS"). The historical pattern of industry price declines has largely
prevented MLC producers, including the Registrant, from increasing prices and
has forced the Registrant and competitors to rely on advances in productivity
and efficiency in order to improve profit margins. Accordingly, the Registrant
continuously looks to improve the production yields and efficiency of its
manufacturing processes. The Registrant conducts continuous improvement programs
targeted at streamlining manufacturing processes and increasing yields, and has
established statistical process control techniques for maintaining key process
steps within specified bounds and providing data to support continuous
improvement. For additional information with respect to yields and efficiencies,
see "Item 1. BUSINESS -- RESEARCH AND DEVELOPMENT".
During fiscal year 2000, the Registrant's manufacturing facilities were
operated under ISO-9002 registration.
CUSTOMERS AND MARKETING
The Registrant markets its products primarily to customers in the wireless
fiber optic telecommunications, military, medical, semiconductor manufacturing
and space industries. The customers included within these industries are
manufacturers of microwave, high frequency and fiber optic systems, subsystems
and equipment, including original equipment manufacturers and suppliers thereto,
and government contractors and subcontractors. Most of the Registrant's products
are used in the manufacture of capital equipment.
The Registrant promotes its products through specialized trade shows,
industry trade journal advertisements, a site on the Internet's World Wide Web
and catalog direct mail programs. This past year, the Registrant started taking
orders, on a limited basis, via its web site.
During fiscal year 2000, the Registrant experienced substantially increased
demand for its products. This increase was experienced over virtually all
product types and applications, but was felt most strongly from manufacturers of
wireless base-station equipment and their suppliers, and secondarily from
manufacturers of fiber optic systems and products, semiconductor manufacturing
equipment and medical electronics. As a consequence of this increased demand,
and despite the Registrant's efforts to increase production output, production
lead times were increased sharply for the Registrant's traditional capacitor
lines. Additionally, shortfalls developed against some customer requirements,
forcing the Registrant to allocate capacity among such customers. At the end of
the fiscal year, as a result of increases in capacity, the Registrant was able
to remove allocations on some products and began selectively to shorten lead
times.
In fiscal year 2000, the Registrant shipped to over 1800 customers as
compared to approximately 1700 customers in fiscal years 1999 and 1998. The top
ten customers combined accounted for approximately 35%, 27% and 25% of net sales
in fiscal years 2000, 1999 and 1998, respectively. Sales to a major
telecommunications OEM, Tyco International LTD., accounted for 15% of the
Registrant's net sales in the twelve months ended June 30, 2000.
The Registrant is a qualified producer of capacitors with the Defense
Logistics Agency of the United States Department of Defense. This qualified
status covers several varieties and types of capacitors. Maintenance of its
qualified producer status is critical in order for the Registrant to continue to
sell its hi-rel military product line. To date, the Registrant has not
encountered any difficulty in maintaining its status as a qualified producer,
and for some of these product types the Registrant believes it is presently the
only supplier with such qualification.
The Registrant typically sells its products through a combination of
long-term contracts and a large number of individual purchase orders. The
individual purchase orders are often subject to pricing agreements or logistics
arrangements. Neither pricing agreements nor logistics arrangements are firm
purchase orders, but each still requires that the Registrant commit to produce
semi-finished or finished goods inventory in anticipation of receiving a
purchase order for immediate shipment. Until the latter part of fiscal year
2000, the proportion of products shipped under long-term purchase orders had
been declining for several years. The impact of this trend on the Registrant's
business had been a long-term reduction in backlog and an increase in inventory,
in relationship to revenues. During the latter part of fiscal year 2000, as
shortages of passive components became prevalent in the electronics industry, in
general, and among suppliers of MLCs, in particular this trend was reversed as
many customers reverted to past practices of placing
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long-term firm orders in order to protect their sources of supply. The
Registrant views this recent development as temporary and anticipates a return
to the trend away from long-term ordering once current shortages subside. See
"Item 1. BUSINESS -- SALES BACKLOG" and "Item 7. LIQUIDITY AND CAPITAL
RESOURCES".
Customers are invoiced simultaneously with merchandise shipments, and
invoices are generally payable on a 30-day basis. Customers may also charge
their purchases through the use of a credit/debit card. Sales returns are
authorized and accepted by the Registrant in the normal course of business. An
evaluation of the returned product is performed which typically results in
either a credit or a shipment of replacement product to customers. The
Registrant believes that it has provided an adequate reserve for returns in the
accompanying consolidated financial statements.
In the United States, the Registrant principally sells its products through
independent sales representatives who are compensated on a commission basis. In
foreign countries, the Registrant utilizes both resellers, who purchase products
from the Registrant for resale, and sales representatives. Sales in the United
Kingdom are made through a wholly-owned subsidiary of the Registrant. In July
1999, the Registrant formed a wholly-owned Swedish subsidiary to serve the
Nordic countries (Sweden, Finland, Denmark and Norway). The Registrant utilizes
local independently-owned resellers in all other foreign markets.
At June 30, 2000, the Registrant utilized approximately 21 sales
representative organizations in the United States and approximately 17 sales
representative and reseller organizations in foreign countries, principally
Western Europe, Canada and the Far East. The Registrant's sales representatives
and resellers generally have substantial engineering expertise which enables
them to assist the Registrant in providing a high level of service to assist
customers in generating product specifications and in providing applications
assistance and maintaining contact with key customers. The Registrant employs
regional sales managers to supervise its sales representatives and resellers and
a staff of sales and applications specialists to provide direct contact with and
support to customers. See "Item 1. BUSINESS -- FOREIGN SALES" and Note 9 of
Notes to Consolidated Financial Statements.
FOREIGN SALES
In fiscal years 2000, 1999 and 1998, sales to customers located outside the
United States constituted 26%, 30% and 30% of net sales, respectively. The
Registrant's overseas customers are located primarily in Western Europe, Canada
and the Far East. See "Item 1. BUSINESS -- CUSTOMERS AND MARKETING" and Note 9
of Notes to Consolidated Financial Statements. Export sales are made through the
Registrant's foreign sales corporation subsidiary. All foreign sales, except
sales by the Registrant's wholly-owned subsidiaries in Sussex, England and
Stockholm, Sweden, are, or are anticipated to be, denominated in United States
dollars. In certain circumstances, the Registrant attempts to reduce the risk of
doing business in foreign countries through the use of prepayment and by working
closely with its foreign representatives and distributors in assessing business
environments.
SALES BACKLOG
The Registrant's sales backlog was $26,130,000, $10,370,000, and $6,308,000
at June 30, 2000, 1999 and 1998, respectively. Backlog generally represents a
combination of the Registrant's standard products and custom manufactured parts
that require a longer lead time to produce. Prior to fiscal year 2000, customer
requirements for the Registrant's standard products had been trending towards
shorter lead times, which generally result in lower backlog for these products
in relationship to sales levels. However, in fiscal year 2000, the Registrant
experienced a shift in customer buying patterns for standard products. Due to
the unprecedented supply shortage, many customers began placing orders months in
advance. As a consequence of these advance orders, backlog increased as a
proportion of sales. The Registrant expects this trend will reverse itself once
the supply shortage is corrected. See "Item 1.
BUSINESS -- CUSTOMERS AND MARKETING".
The Registrant offers its Quik-Pick 48 Hour System(R) program pursuant to
which products are shipped within 48 hours from the time the order is placed.
This program has consistently gained in popularity with its customers. In order
to offer this program, the Registrant has to maintain higher inventory levels of
certain products in proportion to total sales than it had in the past and higher
than those maintained by some other capacitor manufacturers. The future
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contribution of the Quik-Pick program to the financial results of the Registrant
depends critically on the Registrant's ability to accurately predict customer
demand for the various products offered through the program. During most of
fiscal year 2000, as a consequence of strong demand for the Registrant's
capacitors in relationship to its manufacturing capabilities, inventory levels
supporting the Quik-Pick program were substantially depleted impacting the
Registrant's ability to fill Quik-Pick orders for these products on a timely
basis. At the end of the fiscal year 2000 and continuing into the current fiscal
year, the Registrant has begun to replenish these inventories.
RESEARCH AND DEVELOPMENT
The technology upon which the Registrant's products are based is subject to
continued development of materials and processes to meet the demands of new
applications and increased competition. The Registrant pursues a
process-oriented strategy in which it conducts multi-year efforts aimed at
developing integrated sets of materials and associated processes and equipment
to provide the capability to create new or enhanced classes of products. Once a
new set of technologies is established, the Registrant then seeks to develop and
introduce various products using such technologies. The Registrant believes its
future successes depend upon its ability to identify the requirements for future
products and product enhancements, and to define, implement and successfully
employ the technologies needed to meet those requirements. Accordingly, the
Registrant believes that its research and development efforts are critical to
its continued success.
The Registrant conducts most of its research and development activities at
its facility in Jacksonville, Florida. Activities are focused on the development
of new product lines as well as improvement of existing products. Improvements
in materials and process technology, and the development of specialized
production equipment, are directed toward reducing product size and cost, as
well as meeting new performance requirements that are identified through
frequent customer contacts by the Registrant's sales and technical personnel.
Products are introduced after extensive in-house testing and evaluations at
selected customer sites.
In fiscal year 1998, the Registrant completed construction of, and began
operations in, a new research and development facility at its Jacksonville site
housing development and pilot production lines for new products. The first new
product line to be produced in the new facility, the Series 500S Broadband
Microwave Capacitor, was introduced in June 1998. This product was the result of
several years of development of new materials and processes suited to
higher-frequency performance and lower manufacturing costs.
During the quarter ended June 30, 1999, pilot production commenced on a
second new product line, the 600S, designed to offer a unique combination of
efficiency, voltage capability and energy storage capacity for newer, more
price-sensitive applications in an industry standard package. The 600S was
formally introduced on June 16, 2000. See "Item 1. BUSINESS -- PRODUCTS".
During fiscal year 2000, the Registrant also conducted development
activities on its new resistive product line and on enhancing its line of
specialty higher frequency capacitors. See "Item 1. BUSINESS -- PRODUCTS". The
Registrant also pursued several programs working closely with individual
customers whom it considers to be leaders in their respective industries to
develop special products to meet their specific requirements. The Registrant
typically conducts such programs when it believes such products have potential
applications reaching well beyond the initial customer's requirements. The
Registrant's 500S product line arose from one such program conducted in past
years.
8
In fiscal year 2000, the Registrant began the development of a new
high-density electronic packaging technology for radio frequency (RF) and
microwave frequency broadband applications. This technology, commonly referred
to as Low Temperature Co-fired Ceramic (LTCC), is based on high performance
dielectric ceramic materials, some manufactured by the Registrant and others
purchased from leading electronic materials manufacturers. Traditional RF and
microwave circuits have been limited in size and performance by the use of only
two dimensions to incorporate all RF elements and passive components, such as
inductors, capacitors and resistors. LTCC technology enables the user to design
circuits in the third dimension with the integration of the RF elements and
passive components in the body of the electronic circuit. LTCC technology also
provides the ability to design circuits with integrated RF components such as
couplers, power dividers/combiners, filters and impedance transformers, and
passive devices. In the fourth quarter of fiscal year 2000, the Registrant
formed a LTCC product team led by individuals with expertise in LTCC materials
and manufacturing technologies, and began the acquisition of equipment with a
view toward establishing a dedicated prototype and limited production capability
in early fiscal 2001.
Expenditures for research and development were approximately $2,770,000,
$1,981,000 and $1,813,000 in fiscal years 2000, 1999 and 1998, respectively,
representing approximately 4% of net sales for fiscal year 2000 and 5% of net
sales for both fiscal years 1999 and 1998. The Registrant anticipates that
research and development expenditures in fiscal year 2001, expressed as a
percentage of net sales, will increase somewhat compared to fiscal year 2000.
RAW MATERIALS
The principal raw materials used by the Registrant include silver,
palladium, gold, other precious metals and titanate and other powders which are
used in ceramic manufacture. Precious metals are available from many sources,
although palladium is generally available from a limited number of metal dealers
who obtain their product requirements from the Republic of South Africa or the
Russian Federation.
In February 2000, the Registrant commenced purchasing palladium, which is
used in the manufacturing of the majority of the Registrant's capacitors, after
not having done so for approximately 12 months. Prevailing market prices for
palladium are significantly higher than prices the Registrant paid for palladium
held in inventory at June 30, 1999. The Registrant has offset the increased
costs of this material in part by increasing the prices of certain products that
utilize large amounts of this material relative to their sales prices. The
Registrant's newer products are being designed to minimize or eliminate the
usage of palladium. At its current usage rate, the Registrant expects that, to
the extent that it is not able to reflect increases in the market price of
palladium in the prices of its products, these higher material prices will
negatively impact gross margins.
COMPETITION
Competition in the broad MLC industry continues to be intense and, in
general, is based primarily on price. In the hi-rel and UHF/Microwave market
segment, where price has historically been less important, competition has been
based primarily on high performance product specifications, achieving consistent
product reliability, fast deliveries and high levels of customer service. The
Registrant believes any competitive advantage it may have results from its
ability to achieve consistent quality and reliability, fast deliveries and high
levels of customer service. Potential growth of some commercial market
applications may in the future increase the competitive importance of price in
this market. The Registrant believes it competes in the UHF/Microwave market
with several other manufacturers, both domestically and abroad, including AVX
Corporation, Dover Corporation, Tekelek, Spectrum Control, Murata Electronics
North America and Taiyo Yuden, most of which are larger and have broader product
lines and greater financial, marketing and technical resources than the
Registrant. There are other large commodity-type MLC manufacturers who have
attempted to develop products for the UHF/Microwave market segment. While the
Registrant believes these efforts have not produced significant results to date,
there can be no assurance that such efforts will not be successful in the
future. New product developments may lead the Registrant into markets where
there are existing competitors that may have significantly greater financial and
technical resources and greater expertise in mass production techniques than the
Registrant.
9
ENVIRONMENTAL COMPLIANCE
The Registrant produces hazardous waste in limited quantities in the
production of capacitors. Accordingly, the Registrant's manufacturing operations
are subject to various federal, state and local laws restricting the discharge
of such waste into the environment. The Registrant recycles some of its
hazardous wastes and disposes of the remainder through licensed carriers, which
are required to deposit such waste at licensed waste sites. The Registrant
believes that it is in material compliance with all applicable federal, state
and local environmental laws and does not currently anticipate having to make
material capital expenditures to remain in compliance therewith.
PATENTS AND PROPRIETARY INFORMATION
Although the Registrant has manufacturing and design patents and pending
patent applications, and although the Registrant will continue to seek the
supplemental protection afforded by patents, the Registrant generally considers
protection of its products, processes and materials to be more dependent upon
proprietary knowledge and on rapid assimilation of innovations than on patent
protection. The Registrant's porcelain and ceramic formulations are considered
trade secrets, which are protected by internal non-disclosure safeguards and
employee confidentiality agreements. There can be no assurance that the steps
taken by the Registrant to protect its rights will be adequate to deter
misappropriation, or that an independent third party will not develop
functionally equivalent technology.
EMPLOYEES
At June 30, 2000, the Registrant employed 437 persons at its facilities in
New York, of which nine were employed on a part-time basis; 258 persons at its
facility in Florida, of which three were employed on a part-time basis; and six
persons in sales offices in Europe. Of the 701 persons employed by the
Registrant, 52 were involved in research and development activities, 570 in
manufacturing, testing and as support personnel and 79 in selling and general
administrative activities. None of the Registrant's employees are covered by
collective bargaining agreements. The Registrant considers its relations with
its employees to be satisfactory.
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS
Statements in this Annual Report on Form 10-K under the captions "Business"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations", as well as statements made in press releases and oral statements
that may be made by the Registrant or by officers, directors or employees of the
Registrant acting on the Registrant's behalf that are not statements of
historical fact, constitute "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors that
could cause the actual results of the Registrant to be materially different from
the historical results or from any future results expressed or implied by such
forward-looking statements. The cautionary statements set forth below identify
certain factors that could cause such differences. In addition to statements
which explicitly describe risks and uncertainties, readers are urged to consider
statements labeled with terms such as "believes", "belief", "expects", "plans",
"anticipates", or "intends" to be uncertain and forward-looking. All cautionary
statements made in this Annual Report on Form 10-K should be read as being
applicable to all related forward-looking statements wherever they appear.
The Registrant's products are used in the production of a variety of highly
complex electronic products manufactured for the military and for commercial
use. Accordingly, demand for the Registrant's products is highly dependent upon
demand for the products in which they are used. The Registrant's results, from
time to time, have been negatively impacted by a general decrease in demand for
technology and electronic products in the United States and abroad. There can be
no assurance that the demand will continue to increase or that, even if it does
continue to increase, the demand for the Registrant's products will continue to
increase. In addition, there can be no assurance that the Registrant will not
have an order cancelled after receipt into backlog.
The Registrant offers a broad variety of products to its customers. Gross
margins can vary significantly from product to product and across product lines.
Accordingly, a change in the mix of products sold by the Registrant during a
particular period could lead to distinctly different financial results for that
period as compared to other periods.
10
The Registrant expects that international sales will continue to constitute
a substantial portion of its total sales. These sales expose the Registrant to
certain risks, including, without limitation, barriers to trade, fluctuations in
foreign currency exchange rates (which may make the Registrant's products less
price competitive), political and economic instability, changes in monetary
policy, tariff regulations and other United States and foreign laws and
regulations that may apply to the export of the Registrant's products, as well
as the generally greater difficulties of doing business abroad.
During the Company's fiscal year ended June 30, 2000, the Company's ten
largest customers accounted for approximately 35% of net sales. The Company
expects that sales to a relatively small number of customers will continue to
account for a significant portion of its net sales for the foreseeable future. A
loss of one or more of such key customers could affect the Company's
profitability. See "Item 1. BUSINESS -- CUSTOMERS AND MARKETING".
The technology upon which the Registrant's products are based is subject to
continuous development of materials and processes. The Registrant's business is
in large part contingent upon the continuous refinement of its technological and
engineering expertise and the development of new or enhanced products and
technologies to meet the rapidly developing demands of new applications and
increased competition. There can be no assurance that the Registrant will
continue to be successful in its efforts to develop new or refine existing
products, that such new products will meet with anticipated levels of market
acceptance or that the Registrant will otherwise be able to timely identify and
respond to technological improvements made by its competitors. Significant
technological breakthroughs by others could also have a material adverse effect
on the Registrant's business.
The Registrant's business may be adversely affected by difficulties in
obtaining raw materials and other items needed for the production of its
products, the effects of quality deviations in raw materials and fluctuations in
prices of such materials. Palladium, a precious metal used in the production of
the Registrant's capacitors, is currently available from a limited number of
metal dealers who obtain product from the Republic of South Africa or the
Russian Federation. A prolonged cessation or reduction of exports of palladium
by the Republic of South Africa or the Russian Federation could have a material
adverse effect on the Registrant's business.
Certain raw materials used by the Registrant may fluctuate in price. See
"Item 1. BUSINESS -- RAW MATERIALS" for information concerning recent increases
in prevailing market prices for palladium. To the extent that the Registrant is
unable to pass on increases in the costs of such materials to its customers,
this may adversely affect the gross profit margins of those products using such
materials.
Competition in the MLC industry is intense and, in general, is based
primarily on price. In the hi-rel and UHF/Microwave market segments, where price
has historically been less important, competition has been based primarily on
high performance product specifications, achieving consistent product
reliability, fast deliveries and high levels of customer service. The Registrant
competes with a number of large MLC manufacturers who have broader product lines
and greater financial, marketing and technical resources than the Registrant.
Growth of some commercial market applications has increased, and is expected to
continue to increase, the competitive importance of price. There can be no
assurance that the Registrant will be able to improve the productivity and
efficiency of its manufacturing processes in order to respond to pricing
pressures, or to successfully design new processes and products, and the failure
to do so could have a material adverse effect on the Registrant's business.
The Registrant produces limited quantities of hazardous wastes in the
production of its capacitors. Accordingly, the inherent risks of environmental
liability and remediation costs associated with the Registrant's manufacturing
operations may result in substantial unforeseen liabilities.
The Registrant has not received any claims that its products or the
technologies upon which they are based infringe the intellectual property rights
of others. Any such claims in the future may result in the Registrant being
required to enter into royalty arrangements, cease manufacturing the infringing
products or utilizing the infringing technologies, pay damages or defend
litigation, any of which could have a material adverse effect on the
Registrant's business.
The Registrant's business may also be adversely affected by matters and
events affecting businesses generally, including, without limitation, political
and economic events, labor unrest, acts of God, war and other events outside of
the Registrant's control.
ITEM 2. PROPERTIES
The Registrant's primary production facilities are located in Huntington
Station, New York and Jacksonville, Florida. The Registrant's principal
executive office is located in Huntington Station, New York, and its principal
research and development facility is located in Jacksonville, Florida. The
following table sets forth the address of each facility, its primary function,
the square footage occupied by the Registrant and whether the facility is leased
or owned.
11
Address of Facility Primary Function Square Footage Occupied Type of Occupancy
------------------- ---------------- ----------------------- -----------------
10 Stepar Place
Huntington Station, New York Production 10,900 Owned
11 - 13 Stepar Place Purchased in August 2000.
Huntington Station, New York Future use to be determined. 22,000 Owned
15 Stepar Place Leased from Principal
Huntington Station, New York Production 35,000 Stockholder (1)
One Norden Lane
Huntington Station, New York Production 8,400 Owned
17 Stepar Place
Huntington Station, New York Corporate, sales, administration 18,000 Owned
2201 Corporate Square Blvd. Production, research Leased from Principal
Jacksonville, Florida and development 61,500 Stockholder (1)
Unit 5, Redkiln Way Sales and distribution
Sussex, England office 2,400 Owned
Ellipsvaegen 5
SE-141 75 Sales and distribution
Kugens Kurva, Sweden office 2,400 Leased
(1) See "Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS" and
Notes 4 and 7 of Notes to Consolidated Financial Statements.
In fiscal year 1998, the Registrant added 10,000 square feet at its
Jacksonville facility through new construction and renovation which houses,
among other things, a pilot product production line for use in product
development and refinement.
In fiscal year 1999, the Registrant renovated part of its facility at One
Norden Lane which will provide increased capabilities for its manufacturing
operations.
In fiscal year 2000, the Registrant began additional renovation on its
facility at One Norden Lane in order to move part of its production into the
facility and increase capacity. This renovation is expected to be completed in
fiscal 2001.
In fiscal year 2001, the Registrant will add 22,000 square feet to its
existing New York facilities and 31,000 square feet to its Jacksonville
facilities in order to meet its near term capacity requirements. See "Item 1.
BUSINESS -- PRODUCTS -- RESEARCH AND DEVELOPMENT -- MANUFACTURING".
ITEM 3. LEGAL PROCEEDINGS
The Registrant is not currently a party to any significant legal
proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
12
EXECUTIVE OFFICERS
The executive officers of the Registrant are as follows:
Victor Insetta, age 60, co-founded the Registrant in 1966 and has served as
President and Chief Executive Officer and a director of the Registrant since its
organization.
Richard Monsorno, age 48, has been employed by the Registrant in various
capacities since 1983. In August 1996, he was appointed Senior Vice President -
Technology.
Stuart P. Litt, age 59, joined the Registrant in September 1996 as Senior
Vice President - Operations. From 1992 until his employment by the Registrant,
he served as an associate of OEM Capital, an investment banking firm
specializing in the electronics industry. Mr. Litt has also served as a director
of the Registrant since 1993.
Kathleen M. Kelly, age 46, has been employed by the Registrant in various
capacities since 1974. She has served as Vice President - Administration and as
corporate Secretary since November 1989.
Michael C. Giacalone, age 62, joined the Registrant in March 1999 as Vice
President - Advanced Products Operations. From 1985 until his employment by the
Registrant, he served as President and Director of Res-Net Microwave, Inc., a
manufacturer of resistive products.
David P. Ott, age 58, joined the Registrant in June 1999 as Vice President
- - New York Manufacturing. From 1997 until his employment by the Registrant, he
served as Chief Operating Officer of Great Lakes Industries, LLC, a manufacturer
of metal and ceramic materials. In 1997, prior to joining Great Lakes he was a
Senior Management Consultant for Murak and Associates, LLC, an executive
consulting firm. From 1985 to 1996, he was the Vice President of Operations for
the Tam Ceramics unit of Cookson, plc (UK), a manufacturer of ceramic capacitor
materials.
Judah Wolf, age 54, has been managing the Registrant's thin film operations
in Jacksonville, Florida since 1993. In 1999, he was appointed Vice President -
Thin Film Operations.
The officers serve at the discretion of the Board of Directors and there
are no family relationships among the officers listed and any directors of the
Registrant.
13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
MARKET INFORMATION
The Registrant's common stock is traded on the American Stock Exchange
("AMEX") under the symbol "AMK". The table below sets forth the quarterly high
and low sales prices for the common stock on the AMEX for the fiscal years ended
June 30, 2000 and June 30, 1999, as adjusted for the 2-for-1 stock split of the
Company's common stock effected in the form of a 100 percent stock dividend
effective April 24, 2000.
Fiscal 2000 Fiscal 1999
----------- -----------
Quarter Ended: High Low High Low
- -------------- ---- --- ---- ---
September $ 6.69 $ 3.75 $ 4.66 $ 3.25
December 8.50 3.75 4.07 2.94
March 22.38 6.50 3.82 2.69
June 53.75 15.50 4.57 2.82
NUMBER OF STOCKHOLDERS
As of September 8, 2000, there were approximately 319 holders of record of
the Registrant's common stock. The Registrant believes numerous shares are held
of record by brokerage and other institutional firms for their customers.
DIVIDENDS
During fiscal year 2000, the Company declared a 2-for-1 stock split of the
Company's common stock, which was effected in the form of a 100 percent stock
dividend effective April 24, 2000. The Registrant has not paid any cash
dividends on its common stock during the past two fiscal years. It is the
present policy of the Registrant's Board of Directors to retain earnings to
finance the expansion of the Registrant's operations and not to pay cash
dividends on its common stock.
SALES OF UNREGISTERED SECURITIES
Pursuant to an employment agreement with an officer entered into in 1996 in
connection with the commencement of his employment, the Registrant issued to the
officer an aggregate of 5,704 and 20,834 shares of common stock during the
fiscal years ended June 30, 1999 and 1998, respectively.
Pursuant to the employment agreement between the Registrant and its
President and Chief Executive Officer, the officer is entitled to an annual
bonus based upon the Registrant's net income. In September 1998, the Registrant
amended the employment agreement, effective for fiscal years beginning with the
fiscal year ended June 30, 1998, to allow the Registrant, at its option, to pay
such bonus in stock, cash or a combination thereof, subject to certain
limitations. For the fiscal year ended June 30, 1998, the Registrant elected to
pay 50% of such bonus in shares of common stock. Accordingly, on September 11,
1998, the Registrant issued 40,908 shares of common stock to this officer in
partial payment of such bonus.
Pursuant to the terms of an employment agreement with another officer, in
September 1998, the Registrant elected to purchase from the officer certain
inventories of ceramic substrate owned by the officer and to pay for such
inventories in part by the issuance of 25,400 shares of common stock.
In November 1998, the Registrant issued 2,000 shares of common stock to
each of four employees as a stock bonus.
14
In March 1999, and again in June 1999, the Registrant issued 20,000 shares
of common stock to each of two officers as a stock bonus.
In May 1999, the Registrant issued 1,500 shares of common stock to one
employee, and 1,000 shares of common stock to each of two employees, as a stock
bonus.
In June 1999, the Registrant issued 4,000 shares of common stock to an
employee as a stock bonus.
None of the shares listed above were registered under the Securities Act
of 1933 in reliance on the exemption provided by Section 4(2) thereunder or
because they were issued in a transaction that did not constitute a sale
requiring registration under the Securities Act of 1933.
ITEM 6. SELECTED FINANCIAL DATA
The following information should be read in conjunction with the
Consolidated Financial Statements and Notes thereto and other information set
forth following Item 14 of this report. The Consolidated Financial Statements
include the operations of the Registrant and its wholly-owned subsidiaries,
American Technical Ceramics (Florida), Inc., ATC International Technical
Ceramics, Inc., Phase Components Ltd. and ATC Nordic A.B.
Fiscal Years Ended June 30,
---------------------------
(In thousands, except per share amounts)
----------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
INCOME STATEMENT DATA:
Net sales..................................... $66,508 $37,565 $40,399 $36,529 $33,884
------- ------- ------- ------- -------
Gross profit.................................. $30,104 $13,923 $17,032 $14,260 $11,350
------- ------- ------- ------- -------
Income from operations........................ $14,065 $ 3,136 $ 6,499 $ 5,578 $ 3,178
------- ------- ------- ------- -------
Net income.................................... $ 9,071 $ 2,129 $ 4,202 $ 3,429 $ 2,063
------- ------- ------- ------- -------
Basic net income per common share (1)......... $ 1.18 $ 0.28 $ 0.54 $ 0.44 $ 0.27
------- ------- ------- ------- -------
Diluted net income per common share (1)....... $ 1.11 $ 0.28 $ 0.52 $ 0.44 $ 0.27
------- ------- ------- ------- -------
Cash dividends paid per common share.......... $ - $ - $ - $ - $ -
------- ------- ------- ------- -------
BALANCE SHEET DATA:
Property, plant and equipment, net............ $22,902 $18,791 $17,703 $15,404 $14,152
------- ------- ------- ------- -------
Total assets.................................. $59,787 $43,622 $42,329 $37,124 $33,058
------- ------- ------- ------- -------
Long-term debt, less current portion.......... $ 3,486 $ 3,691 $ 3,338 $ 3,825 $ 3,642
------- ------- ------- ------- -------
Working capital............................... $27,087 $19,160 $18,119 $16,293 $13,557
------- ------- ------- ------- -------
15
QUARTERLY FINANCIAL DATA:
(unaudited) (In thousands, except per share amounts)
Basic Diluted
Net Income Net Income
Quarter Ended Net Sales Gross Profit Net Income Per Share (1) Per Share (1)
- ------------- --------- ------------ ---------- ------------- -------------
Fiscal 2000
- -----------
September $11,863 $ 4,000 $ 830 $ 0.11 $ 0.11
December 14,893 6,330 1,659 0.22 0.21
March 18,424 9,393 3,202 0.41 0.39
June 21,328 10,381 3,380 0.44 0.40
------- ------- ------- ------- ------
Total $66,508 $30,104 $ 9,071 $ 1.18 $ 1.11
------- ------- ------- ------- ------
Fiscal 1999
- -----------
September $ 8,639 $ 2,417 $ (82) $ (0.01) $(0.01)
December 8,504 3,038 516 0.06 0.07
March 9,954 4,288 966 0.13 0.12
June 10,468 4,180 729 0.10 0.10
------- ------- ------- ------- ------
Total $37,565 $13,923 $ 2,129 $ 0.28 0.28
------- ------- ------- ------- ----
(1) Per share data was revised to reflect the 2-for-1 stock split of the
Company's common stock effected in the form of a 100 percent stock
dividend effective April 24, 2000.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following information should be read in conjunction with the
Consolidated Financial Statements and Notes thereto and other information set
forth following Item 14 of this report. Per share data has been revised to
reflect the 2-for-1 stock split of the Company's common stock effected in the
form of a 100 percent stock dividend effective April 24, 2000.
RESULTS OF OPERATIONS
FISCAL YEAR 2000 COMPARED WITH FISCAL YEAR 1999
Net sales for the fiscal year ended June 30, 2000 were $66,508,000, an
increase of 77% from the $37,565,000 recorded in the fiscal year ended June 30,
1999. Domestic sales increased by 87% to $49,462,000 in fiscal year 2000 from
$26,445,000 in fiscal year 1999. International sales increased by 53% to
$17,046,000 in fiscal year 2000 from $11,120,000 in fiscal year 1999. The
increase in total net sales resulted primarily from an increase in demand for
the Registrant's core capacitor products in both foreign and domestic markets.
Sales of thin film products increased by 252% to $16,015,000 in fiscal year 2000
from $4,555,000 in fiscal year 1999. Thin film products experienced steady and
consistent growth throughout each quarter of the fiscal year.
Throughout fiscal year 2000, the Registrant experienced a significant
increase in customer orders. This increase was experienced in all market sectors
but was most pronounced in the wireless infrastructure, fiber optic and
semiconductor manufacturing equipment sectors. As a result of the strong
increase in demand for core capacitors and thin film products, the Registrant
recorded record high bookings of $81,636,000 in fiscal year 2000, an increase of
96% over fiscal year 1999's record bookings of $41,580,000.
16
During the fiscal year ended June 30, 2000, some of the Registrant's
products were on allocation, delivery times had been extended and customers had
changed their ordering patterns. In recent years, customers have been using
various arrangements, such as rolling forecasts and kan-ban systems, to shorten
their horizons for hard orders. To protect themselves against potential supply
shortages, many have reverted back to prior practice of placing long-term orders
to lock in supplier commitments.
This ordering trend appeared to the Registrant to have reached a peak in
the fourth quarter of fiscal year 2000, generating a large backlog for many of
the Registrant's products. Based on early observations of market activity, in
the first quarter of fiscal year 2001, it appears to the Registrant that most of
its customers are satisfied with the quantities of product they already have on
order and are placing new orders on an incremental basis.
Gross margins were 45% of net sales in fiscal year 2000 compared with 37%
in fiscal year 1999. The increase in gross margins was primarily attributable to
higher sales volume, particularly in thin film products, and the resulting
increases in efficiency.
Operating expenses totaled $16,039,000, or 24% of net sales, in fiscal year
2000 compared with $10,787,000, or 29% of net sales, in fiscal year 1999. The
increase in operating expenses from the prior fiscal year was primarily
attributable to increases in research and development staff due to the formation
of a dedicated Radio Frequency design group, increased sales commission expense
as a result of the increase in net sales, an increase in bonus expense due to
increases in net income, a new executive incentive plan and expenses associated
with the Registrant's sales office in Stockholm, Sweden, which commenced
operations in August 1999.
Net interest expense was $40,000 in fiscal year 2000 compared to net
interest expense of $111,000 in fiscal year 1999. The decrease in net interest
expense was attributable to decreases in loan balances during fiscal year 2000
as compared to fiscal year 1999 and an increase in interest income on cash and
investments.
The Registrant recorded other expense of $69,000 in fiscal year 2000 as
compared to other income of $251,000 in fiscal year 1999. Other expense in
fiscal year 2000 consisted of losses on disposals of fixed assets.
The effective income tax rate for both fiscal year 2000 and fiscal year
1999 was approximately 35%.
As a result of the foregoing, the Registrant reported net income of
$9,071,000, or $1.18 per common share ($1.11 per common share assuming
dilution), for fiscal year 2000 as compared with net income of $2,129,000, or
$0.28 per common share ($0.28 per common share assuming dilution), for fiscal
year 1999.
FISCAL YEAR 1999 COMPARED WITH FISCAL YEAR 1998
Net sales for the fiscal year ended June 30, 1999 were $37,565,000, a
decrease of 7% from the $40,399,000 recorded in the fiscal year ended June 30,
1998. Domestic sales decreased by 6% to $26,445,000 in fiscal year 1999 from
$28,248,000 in fiscal year 1998. International sales decreased by 8% to
$11,120,000 in fiscal year 1999 from $12,151,000 in fiscal year 1998. The
decrease in total net sales resulted primarily from a decline in demand during
the first six months of the fiscal year for the Registrant's core capacitor
products in both foreign and domestic markets. Sales of thin film products
increased by 88% to $4,555,000 in fiscal year 1999 from $2,423,000 in fiscal
year 1998. Thin film products experienced consistent growth throughout each
quarter of the fiscal year.
Beginning in the second half of fiscal year 1999, the Registrant
experienced a significant increase in customer orders. This increase was most
pronounced in the wireless infrastructure and semiconductor manufacturing
equipment sectors. Those two sectors had been observed to be among the hardest
hit during the economic turmoil in Asia in the immediately preceding twelve
months. As a result of the second half increase in demand for core products and
a strong twelve months for thin film products, the Registrant recorded bookings
of $41,580,000 in fiscal year 1999, the highest level of bookings it had ever
achieved up to that point.
17
Gross margins were 37% of net sales in fiscal year 1999 compared with 42%
in fiscal year 1998. The decrease in gross margins was primarily attributable to
the lower average selling prices of the Registrant's core products and raw
material price increases, which principally occurred in the first six months of
fiscal year 1999. The lower average selling prices were a result of competitive
pressures and an increase for some product lines in the proportion of larger
volume orders which were priced at substantial discounts.
Operating expenses totaled $10,787,000, or 29% of net sales, in fiscal year
1999 compared with $10,533,000, or 26% of net sales, in fiscal year 1998. The
increase in operating expenses was primarily attributable to increases in
research and development staff, advertising and promotional expenses, and
expenses related to stock awards granted during the fiscal year.
Net interest expense was $111,000 in fiscal year 1999 compared to net
interest income of $55,000 in fiscal year 1998. The increase in net interest
expense was attributable to lower interest income as a result of decreased cash
available for investment, and decreased income from marketable securities.
The Registrant recorded other income of $251,000 in fiscal year 1999 as
compared to other income of $12,000 in fiscal year 1998. Other income in fiscal
year 1999 consisted of realized gains on the sale of securities.
The effective income tax rate for fiscal year 1999 was approximately 35%
as compared to an effective rate of approximately 36% in fiscal year 1998.
As a result of the foregoing, the Registrant reported net income of
$2,129,000, or $0.28 per common share ($0.28 per common share assuming
dilution), for fiscal year 1999 as compared with net income of $4,202,000, or
$0.54 per common share ($0.52 per common share assuming dilution), for fiscal
year 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Registrant's financial position at June 30, 2000 remains strong as
evidenced by working capital of $27,087,000 as compared to working capital of
$19,160,000 at June 30, 1999. The Registrant's current ratio at June 30, 2000
was 3.8:1 compared to 4.5:1 at June 30, 1999. The decrease in the current ratio
was primarily due to accrued expenses increasing at a higher rate than current
assets. The Registrant's quick ratio at June 30, 2000 was 2.1:1 compared to
2.2:1 at June 30, 1999.
Cash and investments decreased to $5,523,000 at June 30, 2000 compared to
$6,027,000 at June 30, 1999. The decrease in cash and investments was primarily
the result of funding $7,262,000 of additions to property, plant, and equipment,
including expenditures for the planned replacement of information technology
systems, facility expansions and purchases of raw materials, principally
palladium offset in part by proceeds from stock option exercises. Accounts
receivable increased by $7,412,000 to $12,686,000 at June 30, 2000 as compared
to $5,274,000 at June 30, 1999. The increase in accounts receivable was
attributable to the higher sales volume, particularly in the fourth quarter of
fiscal year 2000. Inventories increased by $3,697,000 to $16,133,000 at June 30,
2000 as compared to $12,436,000 at June 30, 1999. This increase was attributable
to an increase in work in process as a result of the increase in customer orders
and increased inventories of raw materials, particularly palladium, purchased as
a hedge against unavailability and unstable pricing for this primary raw
material for the Registrant's products. See "Item 1. BUSINESS -- RAW MATERIALS".
Accounts payable increased by $914,000 to $2,229,000 at June 30, 2000 as
compared to $1,315,000 at June 30, 1999. The increase in accounts payable was
the result of higher spending for general operating purposes. Accrued expenses
increased by $3,795,000 to $6,672,000 at June 30, 2000 as compared to $2,877,000
at June 30, 1999 as a result of higher accrued bonuses and stock awards for
executives, managers and employees due to higher pretax profits in fiscal year
2000 as compared to fiscal year 1999. Income taxes payable decreased by $506,000
at June 30, 2000 to $220,000 as compared to $726,000 at June 30, 1999 as a
result of the tax benefit of disqualifying dispositions of stock option
exercises partially offset by increases in income tax liabilities resulting from
higher taxable income for fiscal year 2000 compared to fiscal year 1999.
18
The Registrant leases a manufacturing facility from a partnership
controlled by the Registrant's President and Chief Executive Officer and
principal stockholder under a capital lease. The lease was amended as of
September 30, 1998, primarily to reflect certain additions to the facility which
were placed into service in fiscal year 1997. See "Item 2. PROPERTIES". Under
the amended lease, the Registrant is obligated to pay approximately $461,000 per
annum. The payments due over the remaining ten years of this capital lease,
including the portion related to interest, total approximately $4,727,000. See
"Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS" and Note 4 of Notes to
Consolidated Financial Statements.
In November 1998, the Registrant renewed a $2,000,000 revolving line of
credit with NationsBank, NA ("NationsBank"), the successor to Barnett Bank of
Jacksonville, N.A. ("Barnett Bank"), and secured a $3,500,000 line of credit
with NationsBank for equipment purchases. Both lines bore interest at 2% above
the three month rate for U. S. Dollar deposits on the London Interbank Market.
Principal balances under the revolving line of credit will be repayable in eight
quarterly installments commencing upon expiration of the revolving period. The
outstanding principal under the equipment line of credit rolls over periodically
into a self-amortizing term note of not less than four nor more than seven
years. The equipment loan is secured by the related equipment purchases.
Borrowing under both lines is subject to compliance with certain financial
covenants, including maintenance of asset and liability percentage ratios.
In April 2000, the Registrant amended its loan agreement with Bank of
America, N.A. ("Bank of America"), the successor to NationsBank. The amendment
increased the revolving line of credit to $4,000,000 and changed the interest
rate. Both lines now bear interest at 1.5% above the one month rate for U.S.
Dollar deposits on the London Interbank Market. All other terms and conditions
of the loan agreement are substantially the same as those contained in the
original agreement entered into during November 1998. At the same time, the then
outstanding principal balance under the equipment line of credit of $796,000 was
rolled over into a seven-year term note. Principal on this note is payable in
quarterly installments of $28,500, commencing July 1, 2000. As of June 30, 2000,
the Registrant did not incur any borrowings under the revolving line of credit
and has borrowed an aggregate of $984,000 under the equipment line.
In August 1999, the Registrant paid the remaining balance due under an
unsecured loan from Bank of America (successor to Barnett Bank), which it
initially obtained in September 1994. In October 1999, the Registrant paid the
remaining balance due under two separate loans from European American Bank
("EAB") which it initially obtained in February 1995 that were secured by
capital equipment.
In August 2000, the Registrant secured a mortgage loan in the principal
amount of approximately $800,000 with EAB secured by the recently purchased
facility at 11 - 13 Stepar Place. The term of the loan is 10 years to be repaid
in 120 equal installments. The mortgage is subject to certain financial
covenants, including maintenance of asset and liability percentage ratios. The
mortgage loan bears interest at 1 1/2 % above the six month rate for U.S. Dollar
deposits on the London Interbank Market.
The Registrant intends to use cash on hand and available lines of credit to
finance budgeted capital expenditures, primarily for equipment acquisition and
facility expansion, of approximately $7,500,000 in fiscal year 2001.
In June 1990, the Registrant announced its first stock purchase program
pursuant to which it was authorized to purchase up to $1,000,000 of its common
stock. In September 1998, the Board of Directors authorized the purchase of up
to an additional $1,000,000 of the Registrant's common stock under a second
stock purchase program. As of June 30, 1999, the Registrant had expended the
entire amount available under both programs and had purchased an aggregate of
950,000 shares.
INFLATION
The Registrant does not expect the effects of inflation to have a
significant impact on its liquidity or results of operations.
19
ACCOUNTING STANDARDS ISSUED BUT NOT YET ADOPTED
In fiscal year 2001, the Registrant will be required to adopt SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS 133
establishes standards for the recognition and measurement of derivatives and
hedging activities and requires all derivative instruments to be recorded on the
balance sheet at fair value. The Registrant has not yet completed its evaluation
of the impact of this statement on its financial statements.
FASB Interpretation No. 44, "Accounting for Certain Transactions Involving
Stock Compensation" ("FIN No. 44"), provides guidance for applying APB Opinion
No. 25, "Accounting for Stock Issued to Employees." With certain exceptions, FIN
No. 44 applies prospectively to new awards, exchanges of awards in a business
combination, modifications to outstanding awards and changes in grantee status
on or after July 1, 2000. The Registrant does not believe that the
implementation of FIN No. 44 will have a significant effect on its results of
operations.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements" ("SAB No. 101"), which summarizes
certain of the SEC staff's views in applying generally accepted accounting
principles to revenue recognition in financial statements. The Registrant will
be required to adopt the accounting provisions of SAB No. 101 during fiscal year
2001. The Registrant does not believe that the implementation of SAB No. 101
will have a significant effect on its results of operations.
MARKET RISKS
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. The Registrant has managed its market risk exposures in
order to minimize their potential impact on its financial condition and results
of operations. Specifically:
a) Interest rate risk. In light of the Registrant's existing cash
balances, the results of its operations, the terms of its debt
obligations and its projected capital needs, it does not believe that a
significant change in interest rates would have a significant impact on
its consolidated financial position. See "Item 7. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- LIQUIDITY AND CAPITAL RESOURCES"
b) Foreign currency exchange rate risk. With the exception of sales by two
of the Registrant's wholly-owned subsidiaries, one in the United
Kingdom (which are denominated in Pounds) and the other in Sweden
(which are denominated in Krona), all transactions are denominated in
U.S. Dollars. At the present time, the contribution of these
subsidiaries to the Registrant's consolidated results of operations is
not significant. See Note 9 of Notes to Consolidated Financial
Statements. Accordingly, fluctuations in exchange rates would not
presently have a material adverse effect on the Registrant's
operations.
c) Commodity price risk. In light of recent increases in the price of
palladium, the Registrant has purchased additional inventories of this
raw material as a hedge against future unavailability and unstable
pricing. See "Item 1. BUSINESS -- RAW MATERIALS" and "Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS --LIQUIDITY AND CAPITAL RESOURCES". The Registrant
believes that, based upon its current levels of production, it owns a
sufficient supply of palladium, such that the Registrant would not have
to buy any additional quantities for the next six months should there
be a short term increase in price. However the Registrant continues to
purchase palladium, as it does not believe the price will decrease in
the near term.
d) Security price risk. The Registrant's current portfolio of marketable
securities consists of U.S. Treasury notes with varying maturities of
up to ten years. The Registrant currently plans to manage any exposure
resulting from declining prices by holding any securities which decline
substantially in value until maturity.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Registrant's Consolidated Financial Statements and the Notes thereto
begin on page F-2 of this report.
20
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information set forth under the caption "Election of Directors" in the
Registrant's Proxy Statement to be furnished in connection with its Annual
Meeting of Stockholders to be held November 15, 2000 is hereby incorporated by
reference.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the caption "Executive Compensation" in the
Registrant's Proxy Statement to be furnished in connection with its Annual
Meeting of Stockholders to be held November 15, 2000 is hereby incorporated by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the caption "Security Ownership of Certain
Beneficial Owners and Management" and the information relating to beneficial
ownership of the Registrant's common stock in the table under the caption
"Election of Directors" in the Registrant's Proxy Statement to be furnished in
connection with its Annual Meeting of Stockholders to be held November 15, 2000
is hereby incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption "Certain Relationships and
Related Transactions" in the Registrant's Proxy Statement to be furnished in
connection with its Annual Meeting of Stockholders to be held November 15, 2000
is hereby incorporated by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) FINANCIAL STATEMENTS PAGE NO.
-------------------- --------
Index to Consolidated Financial Statements................... F
Independent Auditors' Report................................. F-1
Consolidated Financial Statements
Balance Sheets as of June 30, 2000 and 1999............ F-2
Statements of Earnings
Years Ended June 30, 2000, 1999 and 1998 .......... F-3
Statements of Stockholders' Equity
Years Ended June 30, 2000, 1999 and 1998............ F-4
Statements of Cash Flows
Years Ended June 30, 2000, 1999 and 1998 ........... F-5
Notes to Consolidated Financial Statements ............ F-6
(b) REPORTS ON FORM 8-K
-------------------
The Registrant did not file any reports on Form 8-K during the last
quarter of the period covered by this report.
21
(c) 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) - Amended and Restated Lease, effective as of July 1, 1996,
between V.P.I. Properties Associates, d/b/a V.P.I. Properties
Associates, Ltd., and American Technical Ceramics (Florida),
Inc. (6)
10(e)(ii) - First Amendment to Amended and Restated Lease, dated as of May
1, 1998, between V.P.I. Properties Associates, d/b/a V.P.I.
Properties Associates, Ltd., and American Technical Ceramics
(Florida), Inc. (8)
10(e)(iii) - Second Amendment to Amended and Restated Lease, dated as of
September 30, 1998, but effective as of May 1, 1998 between,
V.P.I. Properties Associates, d/b/a V.P.I. Properties
Associates, Ltd., and American Technical Ceramics (Florida),
Inc. (9)
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)
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)
22
10(g)(vi) - Managers Profit Bonus Plan, dated December 7, 1999, and
effective January 1, 2000. (12)
10(k)(i) - Letters of Agreement, dated June 26, 1996 and August 22, 1996,
between the Registrant and Stuart P. Litt. (5)
10(k)(ii) - Letter Agreement, dated September 11, 1997, between the
Registrant and Stuart P. Litt. (7)
10(m) (i) - American Technical Ceramics Corp. 1997 Stock Option Plan. (7)
10(m) (ii) - American Technical Ceramics Corp. 2000 Stock Option Plan. (12)
10(o)(i) - Loan Agreement, dated November 25, 1998, between the
Registrant and NationsBank, N.A. (10)
10(o)(ii) - Loan Agreement, dated April 13, 2000, between the Registrant
and Bank of America, N.A. (12)
10(p) - Amended and Restated Employment Agreement, dated as of January
1, 1998, between Judah Wolf and the Registrant. (11)
21 - Subsidiaries of the Registrant. (2)
23 - Consent of KPMG LLP (12)
27 - Financial Data Schedule. (12)
- -------------------
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.
11. Incorporated by reference to the Registrant's Annual Report on Form 10-K for
the fiscal year ended June 30, 1999.
12. Filed herewith.
23
(d) FINANCIAL STATEMENT SCHEDULES
-----------------------------
Schedules have been omitted since they either are not applicable, not
required or the information is included elsewhere herein.
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
AMERICAN TECHNICAL CERAMICS CORP.
By: /S/ VICTOR INSETTA
------------------
VICTOR INSETTA
President
Dated: September 21, 2000
-------------------
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:
Name Title Date
---- ----- ----
/S/ VICTOR INSETTA
- ------------------------- President and Director September 21, 2000
Victor Insetta (Principal Executive Officer) -------------------
/S/ ANDREW R. PERZ
- ------------------------- Controller September 21, 2000
Andrew R. Perz (Principal Accounting Officer) -------------------
/S/ STUART P. LITT
- ------------------------- Director September 21, 2000
Stuart P. Litt -------------------
/S/ O. JULIAN GARRARD III
- ------------------------- Director September 21, 2000
O. Julian Garrard III -------------------
/S/ RUBIN BLUMKIN
- ------------------------- Director September 21, 2000
Rubin Blumkin -------------------
25
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
AMERICAN TECHNICAL CERAMICS CORP. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page Number
Independent Auditors' Report . . . . . . . . . . . . . . . . F-1
Consolidated Balance Sheets as of June 30, 2000 and 1999 . . . F-2
Consolidated Statements of Earnings
Years Ended June 30, 2000, 1999 and 1998 . . . . . . . . . F-3
Consolidated Statements of Stockholders' Equity
Years Ended June 30, 2000, 1999 and 1998 . . . . . . . . . F-4
Consolidated Statements of Cash Flows
Years Ended June 30, 2000, 1999 and 1998 . . . . . . . . . F-5
Notes to Consolidated Financial Statements . . . . . . . . . F-6
F
Independent Auditors' Report
The Board of Directors and Stockholders
American Technical Ceramics Corp.:
We have audited the accompanying consolidated balance sheets of American
Technical Ceramics Corp. and subsidiaries (the Company) as of June 30, 2000 and
1999, and the related consolidated statements of earnings, stockholders' equity
and cash flows for each of the years in the three-year period ended June 30,
2000. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of American Technical
Ceramics Corp. and subsidiaries as of June 30, 2000 and 1999, and the results of
their operations and their cash flows for each of the years in the three-year
period ended June 30, 2000, in conformity with accounting principles generally
accepted in the United States of America.
KPMG LLP
Melville, New York
August 22, 2000
F-1
AMERICAN TECHNICAL CERAMICS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS June 30, 2000 June 30, 1999
----------------- -----------------
CURRENT ASSETS
Cash (including cash equivalents of $448,000 and
$786,000, respectively) $ 2,277,000 $ 2,898,000
Investments 3,246,000 3,129,000
Accounts receivable, net 12,686,000 5,274,000
Inventories 16,133,000 12,436,000
Deferred income taxes, net 693,000 539,000
Other current assets 1,661,000 344,000
----------- -----------
Total current assets 36,696,000 24,620,000
----------- -----------
PROPERTY, PLANT AND EQUIPMENT
Land 738,000 738,000
Buildings 7,591,000 7,506,000
Leasehold improvements 3,620,000 3,124,000
Machinery and equipment 31,180,000 26,361,000
Computer equipment and software 2,463,000 1,313,000
Furniture, fixtures and other 1,267,000 1,028,000
----------- -----------
46,859,000 40,070,000
Less: Accumulated depreciation and amortization 23,957,000 21,279,000
----------- -----------
22,902,000 18,791,000
----------- -----------
OTHER ASSETS 189,000 211,000
----------- -----------
Total assets $59,787,000 $43,622,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 488,000 $ 542,000
Accounts payable 2,229,000 1,315,000
Accrued expenses 6,672,000 2,877,000
Income taxes payable 220,000 726,000
----------- -----------
Total current liabilities 9,609,000 5,460,000
LONG-TERM DEBT, NET OF CURRENT PORTION 3,486,000 3,691,000
DEFERRED INCOME TAXES 2,371,000 2,086,000
----------- -----------
Total liabilities 15,466,000 11,237,000
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common Stock -- $.01 par value; authorized 20,000,000
shares; issued 8,369,528 and 8,135,958 shares, respectively 84,000 82,000
Capital in excess of par value 10,366,000 6,903,000
Retained earnings 36,082,000 27,011,000
Accumulated other comprehensive income (loss):
Unrealized (loss) gain on investments available-for-sale, net (56,000) 2,000
Cumulative foreign currency translation adjustment (112,000) (98,000)
----------- -----------
(168,000) (96,000)
----------- -----------
Less: Treasury stock, at cost (484,890 shares) 1,515,000 1,515,000
Deferred compensation 528,000 --
----------- -----------
Total stockholders' equity 44,321,000 32,385,000
----------- -----------
$59,787,000 $43,622,000
=========== ===========
See accompanying notes to consolidated financial statements
F-2
AMERICAN TECHNICAL CERAMICS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED JUNE 30, 2000, 1999, 1998
2000 1999 1998
---- ---- ----
Net sales $ 66,508,000 $ 37,565,000 $ 40,399,000
Cost of sales 36,404,000 23,642,000 23,367,000
------------ ------------ ------------
Gross profit 30,104,000 13,923,000 17,032,000
------------ ------------ ------------
Selling, general and administrative expenses 13,269,000 8,806,000 8,720,000
Research and development expenses 2,770,000 1,981,000 1,813,000
------------ ------------ ------------
Operating expenses 16,039,000 10,787,000 10,533,000
------------ ------------ ------------
Income from operations 14,065,000 3,136,000 6,499,000
------------ ------------ ------------
Other expense (income)
Interest expense 406,000 420,000 428,000
Interest income (366,000) (309,000) (483,000)
Other 69,000 (251,000) (12,000)
------------ ------------ ------------
109,000 (140,000) (67,000)
------------ ------------ ------------
Income before provision for income taxes 13,956,000 3,276,000 6,566,000
Provision for income taxes 4,885,000 1,147,000 2,364,000
------------ ------------ ------------
Net income $ 9,071,000 $ 2,129,000 $ 4,202,000
============ ============ ===========
Basic net income per common share $ 1.18 $ 0.28 $ 0.54
Diluted net income per common share $ 1.11 $ 0.28 $ 0.52
------------ ------------ ------------
Basic weighted average common shares outstanding 7,706,000 7,658,000 7,794,000
============ ============ ============
------------ ------------ ------------
Diluted weighted average common shares outstanding 8,186,000 7,658,000 8,018,000
============ ============ ============
See accompanying notes to consolidated financial statements
F-3
AMERICAN TECHNICAL CERAMICS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 2000, 1999, AND 1998
Capital in
Comprehensive Common Stock Excess of Par
Income / (Loss) Shares Amount Value
--------------- ------ ------ -----
BALANCE AT JUNE 30, 1997 8,135,958 $82,000 $6,492,000
Net income $4,202,000 --- --- ---
Purchase of treasury stock --- --- --- ---
Issuance of shares for deferred compensation --- --- --- 65,000
Stock award compensation expense --- --- --- ---
Exercise of stock options --- --- --- 3,000
Other comprehensive income, net of tax:
Unrealized gains on investments
available-for-sale, net of reclassification
adjustment 118,000 --- --- ---
Foreign currency translation adjustment 2,000 --- --- ---
----------
Other comprehensive income, net of tax 120,000 --- --- ---
----------
Comprehensive income $4,322,000
==========
-----------------------------------------------------------------------------
BALANCE AT JUNE 30, 1998 8,135,958 $82,000 $6,560,000
Net income $2,129,000 --- --- ---
Purchase of treasury stock --- --- --- ---
Issuance of shares for compensation --- --- --- 130,000
Stock award compensation expense --- --- --- 162,000
Issuance of shares for inventory purchase --- --- --- 51,000
Other comprehensive income, net of tax:
Unrealized losses on investments
available-for-sale, net of reclassification
adjustment (181,000) --- --- ---
Foreign currency translation adjustment (89,000) --- --- ---
----------
Other comprehensive loss, net of tax (270,000) --- --- ---
----------
Comprehensive income $1,859,000
==========
-----------------------------------------------------------------------------
BALANCE AT JUNE 30, 1999 8,135,958 $82,000 $6,903,000
Net income $9,071,000 --- --- ---
Tax benefit of stock options exercised --- --- --- 1,366,000
Stock award compensation --- --- --- 1,137,000
Exercise of stock options --- 233,570 2,000 960,000
Other comprehensive income, net of tax:
Unrealized losses on investments
available-for-sale, net of reclassification
adjustment (58,000) --- --- ---
Foreign currency translation adjustment (14,000) --- --- ---
----------
Other comprehensive loss, net of tax (72,000) --- --- ---
----------
Comprehensive income $8,999,000
==========
-----------------------------------------------------------------------------
BALANCE AT JUNE 30, 2000 8,369,528 $84,000 $10,366,000
----------------------------------------------------------
AMERICAN TECHNICAL CERAMICS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 2000, 1999, AND 1998 (continued)
Accumulated
Other
Retained Comprehensive Treasury Deferred
Earnings Income (Loss) Stock Compensation Total
-------- ------------- ----- ------------ -----
BALANCE AT JUNE 30, 1997 $20,680,000 $54,000 $(599,000) $(106,000) $26,603,000
Net income 4,202,000 --- --- --- 4,202,000
Purchase of treasury stock --- --- (41,000) --- (41,000)
Issuance of shares for deferred compensation --- --- 28,000 --- 93,000
Stock award compensation expense --- --- --- 92,000 92,000
Exercise of stock options --- --- 1,000 --- 4,000
Other comprehensive income, net of tax:
Unrealized gains on investments
available-for-sale, net of reclassification
adjustment --- --- --- --- ---
Foreign currency translation adjustment --- --- --- --- ---
Other comprehensive income, net of tax --- 120,000 --- --- 120,000
Comprehensive income
---------------------------------------------------------------------------
BALANCE AT JUNE 30, 1998 $24,882,000 $174,000 $(611,000) $(14,000) $31,073,000
Net income 2,129,000 --- --- --- 2,129,000
Purchase of treasury stock --- --- (1,198,000) --- (1,198,000)
Issuance of shares for compensation --- --- 84,000 --- 214,000
Stock award compensation expense --- --- 161,000 14,000 337,000
Issuance of shares for inventory purchase --- --- 49,000 --- 100,000
Other comprehensive income, net of tax:
Unrealized losses on investments
available-for-sale, net of reclassification
adjustment --- --- --- --- ---
Foreign currency translation adjustment --- --- --- --- ---
Other comprehensive loss, net of tax --- (270,000) --- --- (270,000)
Comprehensive income
---------------------------------------------------------------------------
BALANCE AT JUNE 30, 1999 $27,011,000 $(96,000) $(1,515,000) $ --- $32,385,000
Net income 9,071,000 --- --- --- 9,071,000
Tax benefit of stock options exercised --- --- --- --- 1,366,000
Stock award compensation --- --- --- (528,000) 609,000
Exercise of stock options --- --- --- --- 962,000
Other comprehensive income, net of tax:
Unrealized losses on investments
available-for-sale, net of reclassification
adjustment --- --- --- --- ---
Foreign currency translation adjustment --- --- --- --- ---
Other comprehensive loss, net of tax --- (72,000) --- --- (72,000)
Comprehensive income
---------------------------------------------------------------------------
BALANCE AT JUNE 30, 2000 $36,082,000 $(168,000) $(1,515,000) $(528,000) $44,321,000
---------------------------------------------------------------------------
See accompanying notes to consolidated financial statements
F-4
AMERICAN TECHNICAL CERAMICS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 2000, 1999, 1998
CASH FLOWS FROM OPERATING ACTIVITIES: 2000 1999 1998
----------------- ----------------- -----------------
Net income $ 9,071,000 $ 2,129,000 $ 4,202,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,062,000 2,542,000 2,064,000
Loss (gain) on disposal of fixed assets 69,000 (10,000) (16,000)
Stock award compensation expense 609,000 337,000 92,000
Provision for deferred income taxes 163,000 318,000 205,000
Provision for doubtful accounts receivable 140,000 --- 50,000
Realized gain on sale of investments (7,000) (257,000) ---
Changes in operating assets and liabilities:
Accounts receivable (7,552,000) (854,000) 50,000
Inventories (3,697,000) (1,452,000) (1,857,000)
Other assets (1,295,000) 18,000 181,000
Accounts payable, accrued expenses and
income taxes payable 5,568,000 (166,000) 1,087,000
------------ ------------ ------------
Net cash provided by operating activities 6,131,000 2,605,000 6,058,000
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (7,262,000) (3,570,000) (4,085,000)
Purchase of investments (1,810,000) (203,000) (2,659,000)
Proceeds from sale of investments 1,611,000 3,356,000 ---
Proceeds from sale of fixed assets 20,000 55,000 50,000
------------ ------------ ------------
Net cash used in investing activities (7,441,000) (362,000) (6,694,000)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt (447,000) (923,000) (760,000)
Payments to acquire treasury stock --- (1,198,000) (41,000)
Proceeds from exercise of stock options 962,000 --- 4,000
Proceeds from issuance of debt 188,000 796,000 ---
------------ ------------ ------------
Net cash provided by (used in) financing activities 703,000 (1,325,000) (797,000)
------------ ------------ ------------
Effect of exchange rate changes on cash (14,000) (89,000) 2,000
------------ ------------ ------------
Net (decrease) increase in cash and cash equivalents (621,000) 829,000 (1,431,000)
CASH AND CASH EQUIVALENTS, beginning of year 2,898,000 2,069,000 3,500,000
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of year $ 2,277,000 $ 2,898,000 $ 2,069,000
============ ============ ============
Supplemental cash flow information:
Interest paid $ 406,000 $ 420,000 428,000
Taxes paid $ 3,854,000 $ 648,000 $ 1,982,000
See accompanying notes to consolidated financial statements
F-5
AMERICAN TECHNICAL CERAMICS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS
American Technical Ceramics Corp. and its wholly-owned subsidiaries (the
"Company") are engaged in the design, development, manufacture and sale of
ceramic multilayer capacitors for commercial and military purposes in the United
States and for export, primarily to Western Europe, Canada and the Far East.
During fiscal year 2000, Tyco International LTD. accounted for 15% of
consolidated revenues. During fiscal years 1999 and 1998, no customer accounted
for more than 10% of consolidated revenues. In the fiscal years ended June 30,
2000, 1999 and 1998, approximately 4%, 7% and 10%, respectively, of the
Company's net sales were to United States military and aerospace contractors.
The Company operates in one industry segment - the electronic components
industry.
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
American Technical Ceramics Corp. and its wholly-owned subsidiaries. All
significant intercompany balances and transactions have been eliminated in
consolidation.
Certain reclassifications have been made to prior year amounts to conform
to the current year presentation.
STOCK SPLIT
On April 11, 2000, the Company's Board of Directors declared a 2-for-1
stock split of the Company's common stock, effected in the form of a 100 percent
stock dividend. The stock dividend was paid on May 15, 2000 to holders of record
on April 24, 2000. Accordingly, all share and per share information has been
adjusted to reflect the stock split.
REVENUE RECOGNITION
Revenue is recognized as products are shipped.
CASH EQUIVALENTS
The Company considers all highly liquid debt instruments with a maturity of
three months or less when purchased to be cash equivalents, including money
market accounts and certificates of deposit.
INVESTMENTS
The Company classifies its investments in debt and equity securities as
available-for-sale. Accordingly, these investments are reported at fair value
with unrealized holding gains and losses excluded from earnings and reported as
a component of accumulated other comprehensive income within stockholders'
equity, net of tax. Classification of investments is determined at acquisition
and reassessed at each reporting date. Realized gains and losses are included in
the determination of net earnings at the time of sale and are derived using the
specific identification method for determining cost of securities sold.
INVENTORIES
Inventories are stated at the lower of aggregate cost (first-in, first-out)
or market.
F-6
COMPREHENSIVE INCOME
Effective July 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130").
SFAS No. 130 presents standards for reporting and display of comprehensive
income and its components in a full set of general-purpose financial statements.
The components of the change in the net unrealized (losses)gains on investments
available-for-sale, net of tax for the fiscal years ended June 30, 2000, 1999
and 1998 are as follows:
Year Ended June 30,
2000 1999 1998
------------------ -------------------
Unrealized holding (losses)gains
arising during the period, net of tax $ (53,000) $ (14,000) $ 118,000
Less: reclassification adjustment for
gains included in net income, net of tax (5,000) (167,000) --
---------- ----------- ----------
Change in net unrealized (losses)gains on investments
available-for-sale $ (58,000) $ (181,000) $ 118,000
========== ========== ==========
LONG-LIVED ASSETS
Property, plant and equipment are stated at cost. Depreciation and
amortization are provided primarily using the straight-line method over the
estimated useful lives of the related assets as follows:
Buildings 30 years
Leasehold improvements Lesser of the remaining lease term or 5 years
Machinery and equipment 10 years
Furniture, fixtures and other 3 to 8 years
Computer equipment and software 3 years
The Company reviews its long-lived assets (property, plant and equipment,
and related intangible assets that arose from business combinations accounted
for under the purchase method) for impairment whenever events or circumstances
indicate that the carrying amount of an asset may not be recoverable. If the sum
of the expected cash flows, undiscounted and without interest, is less than the
carrying amount of the asset, an impairment loss is recognized as the amount by
which the carrying amount of the asset exceeds its fair value.
All direct internal and external costs incurred during the application
development stage of software for internal use are capitalized. All other costs
associated with internal use software are expensed.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be realized or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
F-7
FOREIGN CURRENCY TRANSLATION
The Company translates the financial statements of its foreign subsidiaries
(located in England and Sweden) by applying the current exchange rate as of the
balance sheet date to the assets and liabilities of the subsidiary and a
weighted average rate to such subsidiary's results of operations. The resulting
translation adjustment is recorded as a component of stockholders' equity.
STOCK-BASED COMPENSATION
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees", in accounting for employee stock-based
compensation and makes pro-forma disclosures of net income and net income per
share as if the fair value method under Statement of Financial Accounting
Standards No. 123, "Accounting for Stock Based Compensation", had been applied.
EARNINGS PER SHARE
Basic earnings per share ("EPS") is computed by dividing income available
to common shareholders (which for the Company equals its net income) by the
weighted average number of common shares outstanding, and dilutive EPS adds the
dilutive effect of stock options and other common stock equivalents.
Antidilutive shares aggregating 378,000 have been omitted from the calculation
of dilutive EPS for the fiscal year ended June 30, 1999. A reconciliation
between numerators and denominators of the basic and diluted earnings per share
is as follows:
Year Ended June 30, 2000 Year Ended June 30, 1999 Year Ended June 30, 1998
------------------------ ------------------------ ------------------------
Income Shares Per-Share Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ------- ----------- ------------- ------ ----------- -------------- ---------
Basic EPS $9,071,000 7,706,000 $1.18 $2,129,000 7,658,000 $.28 $4,202,000 7,794,000 $.54
===== ==== ====
Effect of Dilutive
Securities:
Stock Options -- 440,000 -- -- -- -- -- 218,000 --
Stock Awards -- 40,000 -- -- -- -- -- 6,000 --
-------------------------------------------------------------------------------------------------------------
Diluted EPS $9,071,000 8,186,000 $1.11 $2,129,000 7,658,000 $.28 $4,202,000 8,018,000 $.52
=============================================================================================================
IMPACT OF NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS No. 133"), which is effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000, as amended by SFAS
No. 137. In June 2000, SFAS No. 138 was issued which amended certain provisions
of SFAS No. 133. SFAS No. 133 establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. In accordance with SFAS No. 133, an
entity is required to recognize all derivatives as either assets or liabilities
in the statement of financial position and measure those instruments at fair
value. SFAS No. 133 requires that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting criteria are
met. Special accounting for qualifying hedges allows a derivative's gains and
losses to offset related results on the hedged item in the income statement and
requires that a company formally document, designate and assess the
effectiveness of transactions that receive hedge accounting. The Company has not
yet completed its evaluation of the impact of SFAS No. 133 on its consolidated
financial statements.
F-8
FASB Interpretation No. 44, "Accounting for Certain Transactions Involving
Stock Compensation" ("FIN No. 44"), provides guidance for applying APB Opinion
No. 25, "Accounting for Stock Issued to Employees." With certain exceptions, FIN
No. 44 applies prospectively to new awards, exchanges of awards in a business
combination, modifications to outstanding awards and changes in grantee status
on or after July 1, 2000. The Company does not believe that the implementation
of FIN No. 44 will have a significant effect on its results of operations.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements" ("SAB No. 101"), which summarizes
certain of the SEC staff's views in applying generally accepted accounting
principles to revenue recognition in financial statements. The Company will be
required to adopt the accounting provisions of SAB No. 101 during fiscal year
2001. The Company does not believe that the implementation of SAB No. 101 will
have a significant effect on its results of operations.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
SUPPLEMENTAL CASH FLOW INFORMATION
During fiscal year 2000, significant non cash activities included (i) a tax
benefit of $1,366,000 resulting from stock options exercised, (ii) the accrual
of $528,000 of deferred compensation in connection with awards of an aggregate
of 12,000 shares of common stock.
During fiscal year 1999, significant non-cash activities included (i) the
purchase of approximately $100,000 of inventory from an officer of the Company
in exchange for 25,400 shares of common stock issued from treasury, (ii) the
issuance of 40,908 shares of treasury stock to pay approximately $214,000 in
accrued compensation, (iii) the purchase of property, plant and equipment
through an increase in capital lease obligations of approximately $105,000 and
(iv) the issuance of 95,500 shares of treasury stock in payment of $337,000 in
bonuses.
NOTE 2. INVESTMENTS
Investments consist of the following:
Gross Gross
Unrealized Unrealized
June 30, 2000 Cost Gains Losses Fair Value
- ------------- ---------------- ---------------- ---------------- ---------------
U.S. Government obligations $ 3,332,000 $ 1,000 $ 87,000 $ 3,246,000
---------------- ---------------- ---------------- ---------------
Gross Gross
Unrealized Unrealized
June 30, 1999 Cost Gains Losses Fair Value
- ------------- ---------------- ---------------- ---------------- ---------------
U.S. Government obligations $ 3,125,000 $ 28,000 $ 24,000 $ 3,129,000
---------------- ---------------- ---------------- ---------------
Gross realized gains of approximately $7,000 and $257,000 are included in
other income for fiscal years 2000 and 1999, respectively.
F-9
The Company's investments in U. S. Government obligations at June 30, 2000
contractually mature as follows:
Cost Fair Value
---- ----------
Within one year $ -- $ --
Between one and five years 501,000 494,000
Between five and ten years 2,831,000 2,752,000
------------ ------------
$ 3,332,000 $ 3,246,000
============ ============
NOTE 3. INVENTORIES
Inventories consist of the following:
June 30, 2000 June 30, 1999
------------- -------------
Raw materials $ 7,892,000 $ 5,874,000
Work in process 5,608,000 3,551,000
Finished goods 2,633,000 3,011,000
------------ ------------
$ 16,133,000 $ 12,436,000
============ ============
NOTE 4. LONG-TERM DEBT
Long-term debt consists of the following:
June 30, 2000 June 30, 1999
------------- -------------
Notes payable to banks $ 984,000 $ 1,183,000
Obligations under capital leases 2,990,000 3,050,000
------------ -----------
3,974,000 4,233,000
Less: Current portion 488,000 542,000
------------ -----------
Long-term debt $ 3,486,000 $ 3,691,000
============ ===========
NOTES PAYABLE TO BANKS
Notes payable to banks at June 30, 2000 consists of a $3,500,000
equipment line of credit secured by capital equipment with Bank of America,
N.A., the successor of NationsBank, NA. As of June 30, 2000, $984,000 has
been borrowed against the line of credit. As of April 13, 2000, the
principal amount of $796,000 outstanding under the equipment line was
rolled over into a self amortizing term note to be repaid over seven years,
Principal on this term note is payable in quarterly installments of $28,500
commencing July 1, 2000. The line and the term note bear interest at 1.5%
above the one month rate for U.S. Dollar deposits on the London Interbank
Market (8.1% at June 30, 2000). The line of credit expires on November 30,
2002. Borrowing under the line is subject to compliance with certain
financial covenants, including maintenance of asset and liability
percentage ratios.
The Company also has $4,000,000 available under a revolving
line-of-credit with a bank. The line contains certain financial covenants
and a facility fee of 1/4% of the average unused amount. As of June 30,
2000 and June 30, 1999, the Company had no borrowings outstanding under
this line.
As of June 30, 2000, the Company was in compliance with all financial
covenants of its notes payable to banks.
F-10
The following table presents aggregate annual maturities of notes
payable to banks after fiscal year 2000:
2001 $ 302,000
2002 114,000
2003 114,000
2004 114,000
2005 114,000
2006 and thereafter 226,000
----------
$ 984,000
==========
OBLIGATIONS UNDER CAPITAL LEASES
The Company leases a manufacturing facility located in Jacksonville,
Florida from a partnership controlled by the Company's President and Chief
Executive Officer and principal stockholder under a capital lease. The leased
facility has an aggregate cost of $3,666,000 and a net book value of $2,033,000
at June 30, 2000. The lease is for a period of 30 years and was capitalized
using an interest rate of 10.5%. The lease provides for base rent of
approximately $461,000 payable in twelve monthly installments of approximately
$38,000 for the fiscal year ending June 30, 2000. The lease further provides for
annual increases in total annual rent for years beginning after May 1, 1999
based on the increase in the CPI since May 1, 1998 applied to base rent. The
annual increase for fiscal year 2001 results in monthly payments of
approximately $40,000 per month.
The Company leased computer equipment from an unrelated party. At June 30,
2000, the equipment had an original cost of $83,000 and a net book value of $0.
The lease was for a period of five years beginning October 1994 and was
capitalized using an interest rate of 10%. The original lease obligation was
satisfied in September 1999.
The Company entered into a new lease agreement for computer equipment with
an unrelated party. At June 30, 2000, the equipment had an original cost of
$111,000 and a net book value of $93,000. The lease is for a period of five
years beginning September 1999 and is being capitalized using an interest rate
of 8.8%.
The following sets forth the future minimum lease payments (excluding
rental adjustments) under these capital leases by fiscal year and the present
value of the minimum lease payments as of June 30, 2000:
2001 $ 489,000
2002 489,000
2003 489,000
2004 489,000
2005 466,000
2006 and thereafter 2,422,000
-----------
Total minimum lease payments 4,844,000
Less: Amount representing interest 1,854,000
-----------
Present value at June 30, 2000 2,990,000
Less: Current portion 186,000
-----------
$ 2,804,000
===========
F-11
NOTE 5. INCOME TAXES
The provision for income taxes consists of the following:
Years Ended June 30,
--------------------
2000 1999 1998
---- ---- ----
CURRENT:
Federal $ 4,283,000 $ 645,000 $ 1,875,000
State 272,000 103,000 116,000
Foreign 167,000 168,000
81,000
------------ ------------ ------------
Total Current 4,722,000 829,000 2,159,000
------------ ------------ ------------
DEFERRED:
Federal 142,000 272,000 178,000
State
21,000 46,000 27,000
------------ ------------ ------------
Total Deferred 163,000 318,000 205,000
------------ ------------ ------------
$ 4,885,000 $ 1,147,000 $ 2,364,000
============ ============ ============
The following table reconciles the Federal statutory rate to the Company's
effective tax rate:
Years Ended June 30,
--------------------
2000 1999 1998
---- ---- ----
Tax provision computed at statutory rate 34.0% 34.0% 34.0%
State tax, net of Federal tax effect 1.4 3.0 1.4
FSC benefit (1.3) (1.3) (1.0)
Tax credits and other, net 0.9 (0.7) 1.6
---- ---- ----
35.0% 35.0% 36.0%
==== ==== ====
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at June 30,
2000 and 1999, are presented below.
2000 1999
---- ----
Deferred tax assets:
Allowance for doubtful accounts receivable and sales returns $ 186,000 $ 137,000
Inventories, principally due to additional costs inventoried for tax purposes
pursuant to the Tax Reform Act of 1986 212,000 178,000
Accrued expenses 300,000 257,000
Unrealized depreciation on investments available-for-sale 30,000 --
------------ ------------
Total deferred tax assets 728,000 572,000
------------ ------------
Deferred tax liabilities:
Plant and equipment, principally due to differences
in depreciation and capital leases (2,371,000) (2,086,000)
Unrealized appreciation on investments available-for-sale -- (1,000)
Other (35,000) (32,000)
------------ ------------
Total deferred tax liabilities (2,406,000) (2,119,000)
------------ ------------
Net deferred tax liability $ (1,678,000) $ (1,547,000)
============ ============
F-12
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, expected future taxable income
and tax planning strategies in making this assessment. Based upon the level of
historical taxable income, expected future taxable income over the periods which
the deferred tax assets are deductible, and reversals of deferred tax
liabilities, management believes (although there can be no assurance) that it is
more likely than not that the Company will realize the benefits of these
deductible differences.
NOTE 6. STOCK-BASED COMPENSATION
STOCK OPTIONS
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. Options granted under the 1997 Option Plan 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), and
options may vest in accordance with a vesting schedule established by the plan
administrator. The 1997 Option Plan will terminate on March 31, 2007.
On April 1, 1997, the Board of Directors granted incentive stock options
under the 1997 Option Plan to purchase 532,000 shares of common stock at an
exercise price of $4.125 per share. On July 29, 1998, the Board of Directors
granted incentive stock options under the 1997 Option Plan to purchase 124,000
shares of common stock at an exercise price of $4.063 per share and 8,000 shares
of common stock at an exercise price of $4.49 per share. On November 20, 1998,
the Board of Directors granted incentive stock options under the 1997 Option
Plan to purchase 36,000 shares of common stock at an exercise price of $4.00 per
share and 4,000 shares of common stock at an exercise price of $4.40 per share.
On September 27, 1999, the Board of Directors granted incentive options under
the 1997 Option Plan to purchase 138,000 shares of common stock at an exercise
price of $4.313 per share. On December 7, 1999, the Board of Directors granted
incentive options under the 1997 Option Plan to purchase 40,000 shares of common
stock at an exercise price of $6.44 per share. These options may be exercised
for a period of 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), and vest 25% per year during the first four years of their term accept
for the options granted in November 1998, which vest 50% per year during the
first two years of their term.
On April 11, 2000, the Board of Directors approved the American Technical
Ceramics Corp. 2000 Incentive Stock Plan (the "2000 Plan") subject to
shareholder approval, pursuant to which the Company may grant options or stock
awards covering up to 1,200,000 shares of the Company's common stock. Options
granted under the 2000 Plan, may be either incentive or non-qualified stock
options. The term of each incentive stock option shall not exceed ten years form
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), and options may vest in accordance
with a vesting schedule established by the plan administrator. The 2000 Plan
will terminate on April 10, 2010. The Company's President and principal
stockholder intends to vote in favor of approving the 2000 Plan at the Company's
2000 Annual Meeting of Stockholders. Accordingly, its approval is virtually
assured.
On April 11, 2000, the Board of Directors granted incentive stock options
under the 2000 Plan to purchase 356,000 shares of common stock at the exercise
price of $19.50 per share. On April 26, 2000, the Board of Directors granted
incentive stock options under the 2000 Plan to purchase 320,000 shares at the
exercise price of $23.50 per share. On June 5, 2000 the Board of Directors
granted 58,000 options to purchase shares at the exercise price of $44.00 per
share. These options may be exercised for a period of 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), and vest 25% per year during the first
four years of their term.
F-13
No disposition of shares acquired pursuant to the exercise of these options
may 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. Since the Company measures compensation cost
under Opinion No. 25, the Company has not recognized compensation cost for these
options as the exercise price was equal to the fair market value of the stock at
the date of grant.
The Company's stock option activity for fiscal years 2000, 1999,
and 1998 is as follows:
2000 1999 1998
------------------------------ ---------------------------- ----------------------------
Weighted Weighted Weighted
Average Average Average
Amount Price Amount Price Amount Price
------ ----- ------ ----- ------ -----
Outstanding, beginning of year 631,000 $ 4.12 497,000 $ 4.13 532,000 $ 4.13
Granted 912,000 19.56 172,000 4.08 - -
Canceled (31,000) 4.18 (38,000) 4.11 (34,000) 4.13
Expired
(3,500) 4.13 - - - -
Exercised (233,570) 4.12 - - (1,000) 4.13
----------- ---------- ----------
Outstanding, end of year 1,274,930 $ 15.19 631,000 $ 4.12 497,000 $ 4.13
=========== ========== ==========
At June 30, 2000, 152,030 options were exercisable and 490,500 shares were
available for option grant or awards under the Company's stock plans.
The average per-share value of stock options granted during fiscal years
2000 and 1999 was $12.15 and $1.88, respectively, as determined by the
Black-Scholes option pricing model (assuming a risk-free interest rate of 6.28%
and 5.15%, respectively, expected life of five years, expected volatility of 68%
and 45%, respectively, and no dividends). The weighted average remaining
contractual life of options outstanding as of June 30, 2000 was 9.0 years.
On a pro-forma basis, net income would have been $8,245,000, $1,855,000 and
$3,976,000; basic net income per share would have been $1.07, $0.24 and $0.51
per share; and dilutive net income per share would have been $1.01, $0.24 and
$0.50 per share, respectively, for fiscal years 2000, 1999 and 1998 had the
Company measured compensation cost using the fair valure method of SFAS No. 123.
The full impact of calculating compensation cost for stock options under SFAS
No. 123 is not reflected in the pro-forma amounts because compensation cost is
calculated over the option vesting periods and compensation costs for options
granted prior to July 1995 are not considered.
OTHER STOCK BASED COMPENSATION
In fiscal year 1997, the Company agreed to award 68,000 shares of its
common stock to an employee pursuant to the terms of his employment agreement.
The shares were issued over a 24 month period. The market value of the shares
awarded was recorded as deferred compensation and was amortized to compensation
expense over the 24 month period that the shares were issued. During fiscal
years 1999, 1998 and 1997, 5,704, 20,834 and 36,000 shares were issued from
treasury stock to the employee under the agreement, respectively. In fiscal
years 1999 and 1998, such amount is net of 296 and 5,166 shares, respectively,
which were withheld in respect of taxes. The fair value of the withheld shares,
amounting to $1,000, and $41,000, respectively, was recorded as an addition to
treasury stock for fiscal years 1999 and 1998, respectively. Compensation
expense relating to these stock awards was $14,000 and $92,000 for fiscal years
1999 and 1998, respectively.
In fiscal year 1999, the Company awarded 95,500 shares of its common stock
to employees for services rendered. This award resulted in compensation expense
of $323,000, measured by the market value of the shares on the date of grant.
Treasury shares have been utilized for all stock awards granted in fiscal years
1999 and 1997. Accordingly, treasury stock was reduced for the cost of the
shares on a specific identification basis, first-in first-out.
F-14
In fiscal year 2000, the Company awarded an aggregate of 10,000 shares of
common stock to its non-employee directors. This award resulted in compensation
expense of $163,000 (including $56,000 of tax offset bonus), measured by the
market value of the shares on the date of grant.
Also in fiscal year 2000, the Company awarded an aggregate of 18,000 shares
of common stock to an officer and certain operating directors. This award
resulted in compensation expense of $777,000 (including $275,000 of tax offset
bonus), measured by the market value of the shares at June 30, 2000, the date
the award was no longer subject to a contingency.
In fiscal year 2000, the Company awarded an aggregate of 12,000 shares of
common stock, to three managers. This award resulted in an accrual of deferred
compensation of $528,000 to be amortized to compensation expense over the 24
month period these shares will be earned.
In June 1990, the Registrant announced its first stock purchase program
pursuant to which it was authorized to purchase up to $1,000,000 of its common
stock. In September 1998, the Board of Directors authorized the purchase of up
to an additional $1,000,000 of the Registrant's common stock under a second
stock purchase program. As of March 31, 1999, the Registrant had expended the
entire amount available under both programs and had purchased an aggregate of
950,000 shares. No shares were purchased under this program in fiscal years 1998
and 2000. In fiscal year 1999 321,800 shares were acquired for $1,198,000.
NOTE 7. COMMITMENTS
OPERATING LEASES
The Company has a related party operating lease for a rented facility
which, as amended, expires December 31, 2001. Rent expense under this related
party operating lease was approximately $495,000, $484,000 and $462,000 for the
fiscal years ended June 30, 2000, 1999, and 1998, respectively. Under this lease
future minimum rent payments will be approximately $501,000 per year.
Rent expense to unrelated parties was approximately $11,000, $10,000 and
$13,000 for the fiscal years ended June 30, 2000, 1999 and 1998, respectively.
EMPLOYMENT AGREEMENTS
The Company has an employment agreement with its President, which provides
for annual base compensation of $312,000 as well as additional annual
compensation equal to 5% of net income before such bonus and income taxes. The
agreement expires March 1st of each year but is renewed automatically for an
additional one year in the absence of written notice to the contrary by either
party at least 120 days prior to the March 1st renewal date. In addition, if
there is a change in control of the Company or the President's employment is
terminated by the Company before the expiration of the agreement other than for
cause (as defined in the agreement), the President is entitled to the greater of
(a) all compensation due under the remaining term of the agreement, or (b) a
payment equal to three times his average annual compensation (including any
incentives) over the last five years. In September 1998, the Company amended the
employment agreement effective for the fiscal year ending June 30, 1998 to allow
the Company, at its option, to pay the additional annual compensation in stock,
cash or a combination thereof subject to certain limitations. Such compensation
for fiscal 1998 was paid by the issuance of 40,908 treasury shares in fiscal
1999.
In September 1996, the Company entered into a three year employment
agreement with another executive officer. The agreement provides for annual base
compensation of $165,000, additional annual compensation equal to .5% of pretax
profits, and an award of 68,000 shares of the Company's common stock (see Note
6). If after three years of employment, the officer is terminated by the
Company, he is entitled to a severance payment of $100,000. As of September
1999, the agreement between this officer and the Company expired (other than the
provision relating to severance). This officer is currently being employed by
the Company under the principal economic terms of the original agreement, and it
is the current intention of both parties to continue his employment on such
terms.
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In January 1998, the Company entered into a four year employment agreement
with an officer. The agreement provides for annual base compensation of $90,000,
plus additional compensation based upon specific performance measures. The
agreement includes termination provisions providing for payout arrangements
depending on the nature of the termination.
In April 2000, the Company entered into a three-year employment agreements
with three managers. The agreement for each manager provides for an annual base
compensation of $110,000, additional quarterly incentive compensation based upon
specific performance measures, and an award of an aggregate of 12,000 shares of
the Company's common stock.
NOTE 8. OTHER DATA
ACCRUED EXPENSES
Accrued expenses consist of the following:
June 30, 2000 June 30, 1999
------------- -------------
Accrued commissions and bonuses $ 3,909,000 $ 1,102,000
Accrued payroll and related expenses 2,410,000 1,671,000
Other 353,000 104,000
----------- -----------
$ 6,672,000 $ 2,877,000
=========== ===========
VALUATION AND QUALIFYING ACCOUNTS
Valuation and qualifying accounts included in the accompanying consolidated
financial statements consist of the following:
June 30, 2000 June 30, 1999
------------- -------------
Allowance for doubtful accounts receivable and sales returns $ 530,000 $ 390,000
----------- -----------
EMPLOYEE BENEFIT DEFINED CONTRIBUTION PLAN
Effective November 1, 1985, the Company established a voluntary savings and
defined contribution plan under Section 401(k) of the Internal Revenue Code.
This Plan covers all employees meeting certain eligibility requirements and
allows participants to contribute an amount not to exceed 15% of annual
compensation. For the fiscal years ended June 30, 2000, 1999 and 1998, the
Company provided a matching contribution of $467,000, $371,000 and $350,000,
respectively, which was equal to 50% of each participant's contribution up to a
maximum of 6% of annual compensation. Employees are 100% vested in their own
contributions and become fully vested in the employer contributions over five
years.
PROFIT BONUS PLAN
Effective commencing in fiscal year 1995, the Company adopted a profit
bonus plan for the benefit of eligible employees, as defined. The plan provides
that for each fiscal year the Board of Directors, in its discretion, may
establish a bonus pool not to exceed 10% of pretax income of the Company for the
subject fiscal year. The bonus pool is then allocated among eligible employees
in accordance with the terms of the plan. For fiscal years 2000, 1999 and 1998,
the Company recognized related compensation expense of $1,414,000, $338,000 and
$657,000, respectively, in respect of this plan.
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Effective January 1, 2000, the Company adopted a Managers Profit Bonus Plan
for the benefit of eligible employees, as defined. The plan provides that for
each fiscal year the Board of Directors may allocate a percentage of the
Company's pre-tax profits (not to exceed 2.5% of such profits) for equal
distribution among participants in the plan. Participants in the Managers Profit
Bonus Plan are no longer eligible to participate in the Profit Bonus Plan
described above. For fiscal year 2000 the Company recognized compensation
expense of $258,000, in respect of this plan.
NOTE 9. FOREIGN OPERATIONS
The Company markets and distributes a portion of its foreign sales through
its wholly-owned subsidiaries Phase Components Ltd., located in the United
Kingdom and Nordic AB, located in Sweden. The following table summarizes certain
financial information covering the Company's operations in the United States,
the United Kingdom and Sweden for fiscal years 2000, 1999 and 1998. Net sales
information is based upon country of origin.
2000 1999 1998
---- ---- ----
Net sales
United States $62,886,000 $35,680,000 $37,893,000
United Kingdom 2,992,000 1,885,000 2,506,000
Sweden 630,000 --- ---
----------- ------------ ------------
Total $66,508,000 $37,565,000 $40,399,000
=========== ============ ============
Long-lived assets
United States $22,556,000 $18,424,000 $17,290,000
United Kingdom 334,000 367,000 413,000
Sweden 12,000 --- ---
----------- ----------- -----------
Total $22,902,000 $18,791,000 $17,703,000
=========== =========== ===========
U.S. sales include $13,424,000, $9,235,000 and $9,645,000 for export in
fiscal years 2000, 1999 and 1998, respectively. Export sales were primarily to
customers in Western Europe, Canada and the Far East.
NOTE 10. DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
CASH AND CASH EQUIVALENTS, ACCOUNTS RECEIVABLE-NET, ACCOUNTS PAYABLE,
AND ACCRUED EXPENSES
The carrying amount approximates fair value due to the short maturity of
these instruments.
INVESTMENTS
Cost and fair value of the Company's investments is presented in Note 2.
Fair value is based upon quoted market prices.
LONG-TERM DEBT
The carrying amounts of each of the Company's long-term debt instruments
approximate fair value as the underlying interest rates approximate rates which
would be offered to the Company for the same or similar instruments.
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
These estimates are subjective in nature and involve uncertainties and matters
of significant judgment and, therefore, cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
F-17