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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(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, 1997
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: 516/547-5700
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 9, 1997, 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 $22,258,000. (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 PERSON.)
ON SEPTEMBER 9, 1997, THE REGISTRANT HAD OUTSTANDING SUCH 3,891,761
SHARES OF COMMON STOCK.
DOCUMENTS INCORPORATED BY REFERENCE: PORTIONS OF THE REGISTRANT'S
PROXY STATEMENT RELATING TO ITS ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON
NOVEMBER 21, 1997 ARE INCORPORATED INTO PART III OF THIS REPORT BY REFERENCE.
EXHIBIT INDEX APPEARS ON PAGES 18-19.
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. In April 1985, the Registrant was merged into a new Delaware
corporation and recapitalized its common stock. Unless the context indicates
otherwise, references to the Registrant herein include American Technical
Ceramics Corp., a Delaware corporation, its predecessor, American Technical
Ceramics Corp., a New York corporation, and the subsidiaries of the Registrant,
all of which are wholly-owned.
The Registrant designs, develops, manufactures and markets
RF/Microwave/Millimeter-Wave ceramic and porcelain capacitors and thin film
products. 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 ultra-high
frequency ("UHF") and microwave applications. Selling prices for the
Registrant's MLCs typically range from $.30 to $10 or higher, whereas selling
prices for commodity-type MLC units typically range from $.01 to $.25.
During the fiscal year ended June 30, 1997, the Registrant continued
to experience significant increases in sales and profits (a trend which began
during the fiscal year ended June 30, 1996) for, among other reasons, the
general increase in demand for technology and electronic products in the United
States and abroad. The Registrant has responded to the increased demand for its
products by expanding production capacities. See " Item 1. BUSINESS --
MANUFACTURING", "Item 2. PROPERTIES" and "Item 7. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS".
Management believes the Registrant operates primarily in only one
industry segment - the electronic components industry.
PRODUCTS
The Registrant's MLCs are currently available in predominantly four
physical sizes designated "A" (a .055 inch cube), "B" (a .110 inch cube), "C"
(a .250 inch cube) and "E" (a .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 the only product line that accounts
for more than 15% of the Registrant's consolidated revenue, accounting for 52%,
53% and 56% of the Registrant's revenues in fiscal years 1997, 1996 and 1995,
respectively. The 700 Series has a slightly higher dissipation factor than the
100 Series, but because of its lower temperature coefficient is used in certain
UHF/Microwave and lower frequency applications. The 200 Series has high
packaging density and is used in microcircuits where high capacitance value is
needed in a small space.
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 satellite communications, Personal
Communications Systems (PCS) and other wireless communications systems, medical
imaging (i.e., magnetic resonance imaging), radio frequency power sources for
semiconductor manufacturing, numerous aerospace systems, including radar and
electronic warfare, and certain high-speed digital processing equipment. For
the fiscal years ended June 30, 1997, 1996 and 1995, the Registrant estimates
that approximately 13%, 13% and 14% of sales, respectively, were sales of
hi-rel products. The customers for these products included domestic aerospace
contractors, manufacturers of communications satellites and satellite
equipment, the U.S. military and other critically sensitive applications users.
Approximately 55%, 54%
2
and 50% of sales in fiscal years 1997, 1996 and 1995, respectively, were to
other domestic customers; and approximately 32%, 33% and 36% of sales in such
fiscal years, respectively, were to foreign customers. 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 which has commanded high unit selling prices. The MLCs required for
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 the higher prices associated with higher
performance products. In recent years, the Registrant has accelerated the
mechanization of its manufacturing processes to produce certain of its existing
MLCs at lower cost for the medium-priced communications market to supplement
the range of applications met by its product offerings.
The Registrant currently intends to continue to pursue selected
opportunities in this extended market and is evaluating concepts for additional
products to service this potentially lower-cost market.
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 satellite communications and millimeter-wave applications.
The Registrant has diversified its product line in recent years
through the development of product based on thin film technologies. These
additional products enable the Registrant to offer custom metalization and
patterned substrates for a broad range of hybrid circuit requirements. Typical
applications include, among others, microwave attenuators, filters, resistors,
amplifiers and capacitors.
MANUFACTURING
The Registrant currently manufactures capacitors primarily at two
facilities in Huntington Station, New York, which aggregate approximately
46,000 square feet. The manufacturing process for ceramic chip capacitors
involves four primary stages. The first stage, the "white room" stage, involves
the inspection of raw ceramic powder, casting, dicing and firing. In the second
stage, the "termination" stage, the chips are coated with silver. In the third
stage, the "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 packing.
If the customer's specifications call for a higher level of precision, the
parts are put through a fourth stage, the "hi-rel" stage, where additional
testing is performed. The chips are tested electrically and inspected
throughout the entire process.
In fiscal year 1994, the Registrant purchased a building in the
vicinity of its existing manufacturing facilities in New York and began
construction of a new state-of-the-art chip fabrication facility. This
facility, which was placed
3
in operation at the end of fiscal year 1995, is designed to provide better
control of the Registrant's manufacturing processes and product quality, while
substantially increasing its output capability.
The Registrant operates another white room and a termination operation
at its facility in Jacksonville, Florida, where it produces larger size
capacitors and certain other product series. In addition, all of the
Registrant's thin film products are manufactured at this location.
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. See "Item 1. BUSINESS -- RESEARCH AND DEVELOPMENT".
CUSTOMERS AND MARKETING
The Registrant markets its products primarily to manufacturers of
microwave and high frequency systems, subsystems and equipment, including
original equipment manufacturers, government contractors, and subcontractors.
The Registrant promotes its products through specialized trade shows, industry
trade journal advertisements and catalog direct mail programs. The Registrant
also maintains a site on the world-wide web.
In fiscal years 1997 and 1996, the Registrant shipped products to
approximately 1,500 customers as compared to approximately 1,400 customers in
fiscal year 1995. The top ten customers combined accounted for approximately
26%, 27% and 22% of net sales in fiscal years 1997, 1996 and 1995,
respectively. No customer accounted for more than 10% of net sales in any of
these periods. The Registrant does not typically sell its products under
long-term contracts, but rather sells pursuant to a large number of individual
purchase orders.
Customers are invoiced simultaneously with merchandise shipments, and
invoices are generally payable on a 30-day basis. Customers are given the
option to remit payment beyond normal credit terms and incur a nominal
financing charge. Customers may also charge their purchases through the use of
a credit / debit card or Electronic Data Interchange. 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.
The Registrant sells its products through independent sales
representatives, who are compensated on a commission basis, and distributors,
who purchase products from the Registrant for resale. In general, the
Registrant employs sales representatives in the United States, and both sales
representatives and distributors in foreign countries. At June 30, 1997, the
Registrant employed approximately 15 sales representative organizations in the
United States and approximately 17 sales representative and distributor
organizations in foreign countries, principally Western Europe, Canada and the
Far East. The Registrant's sales representatives and distributors 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
maintain contact with key customers. The Registrant employs regional sales
managers to supervise its sales representatives and distributors 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.
The Registrant is presently 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.
4
FOREIGN SALES
In fiscal years 1997, 1996 and 1995, sales to customers located
outside the United States constituted 32%, 33% and 36% 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 subsidiary in
Sussex, England, are denominated in United States dollars. In certain
circumstances, the Registrant attempts to reduce the risk of doing business in
foreign countries by availing itself to irrevocable letters of credit in its
favor and by working closely with its foreign representatives and distributors
in assessing business environments.
SALES BACKLOG
The Registrant's sales backlog was $7,721,000, $6,538,000 and
$8,189,000 at June 30, 1997, 1996 and 1995, respectively. Backlog generally
represents a large quantity of small orders which are manufactured for shipment
within approximately six months following the receipt of a firm purchase order.
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
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.
RESEARCH AND DEVELOPMENT
The technology upon which MLC products is based is subject to
continued development of materials and processes to meet the demands of new
applications and increased competition. The Registrant's business position 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. 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. The principal focus of its
research efforts is on developing new products and improving its present
product line. In this regard, it is continually seeking to improve its ceramic
technology and reduce capacitor size and precious metal content. Frequent
contacts between the Registrant's engineering personnel and its customers
provide the Registrant with many of its new product concepts. At the end of
fiscal year 1997, the Registrant began construction at the Jacksonville
facility of a pilot production line to evaluate new materials, processes and
products for their potential to meet the needs of lower priced applications.
See "Item 1. BUSINESS -- PRODUCTS" and "Item 2. PROPERTIES".
Expenditures for research and development were approximately
$1,433,000, $1,537,000 and $1,445,000 in fiscal years 1997, 1996 and 1995,
respectively, representing approximately 4% of net sales for fiscal year 1997
and 5% of net sales for fiscal years 1996 and 1995. The Registrant anticipates
that research and development expenditures, expressed as a percentage of net
sales, will continue at levels approximately comparable to that of the latest
fiscal year.
5
RAW MATERIALS
The principal raw materials used by the Registrant include silver,
palladium, other precious metals and titanate powders which are used in
ceramics. 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 Russia. The
Registrant has not experienced any difficulty in obtaining raw materials
necessary for its manufacturing processes.
COMPETITION
Competition in the MLC industry is 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. Potential
growth of some commercial market applications may in the future increase the
competitive importance of price. The Registrant believes it competes in the
UHF/Microwave market with several other manufacturers, including AVX
Corporation, Dover Corporation, Tekelek and Murata Electronics North America,
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. Some of the Registrant's new
product developments may break new ground in non-competitive industries. Other
developments may lead it into markets where there are existing competitors
which may have significantly greater financial and technical resources and
greater expertise in mass production techniques.
ENVIRONMENTAL COMPLIANCE
In the production of capacitors, the Registrant produces hazardous
waste in limited quantities. 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, 1997, the Registrant employed 322 persons at its
facilities in New York, of which nine were employed on a part-time basis. The
Registrant also employed 130 persons at its facility in Florida, of which four
were employed on a part-time basis, and five persons at its facility in the
United Kingdom. Of the 457 persons employed by the Registrant, 31 were involved
in research and development activities, 363 in manufacturing, testing
6
and as support personnel and 63 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 the terms
"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
recent results have been impacted positively by the general increase in demand
for technology and electronic products in the United States and abroad. There
can be no assurance that this demand will continue or that, even if it does
continue, the demand for the Registrant's products will continue to increase.
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.
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.
The Registrant sells a significant amount of hi-rel products to the
United States military. Such sales require the Registrant to be qualified with
the Defense Logistics Agency of the United States Department of Defense. The
failure to maintain such qualification would have a materially adverse effect
on the Registrant's military business. Sales to the military are also subject
to various risks, including, without limitation, unpredictable reductions in
the funds available to purchase products and contract termination for the
convenience of the government.
The technology upon which the Registrant's products is 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 or that it 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.
7
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 Registrant's capacitors, is currently available from a limited number of
metal dealers who obtain product from the Republic of South Africa or Russia. A
cessation or reduction of exports of palladium by the Republic of South Africa
or Russia could have a material adverse effect on the Registrant's business.
Certain raw materials used by the Registrant may fluctuate in price.
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. Potential growth of some commercial market applications may in the
future 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 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 unforseen 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 effected by matters
and events effecting businesses generally, including, without limitation,
political and economic events, labor unrest, Acts of God, war and other events
outside of the Registrant's control.
8
ITEM 2. PROPERTIES
The Registrant's primary production facilities are located in
Huntington Station, New York and Jacksonville, Florida. An additional
production facility in Huntington Station, New York is currently under
renovation. 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.
SQUARE FOOTAGE
ADDRESS OF FACILITY PRIMARY FUNCTION OCCUPIED TYPE OF OCCUPANCY
- ------------------- ---------------- -------- -----------------
10 Stepar Place Production 10,900 Owned
Huntington Station, N.Y.
15 Stepar Place Production 35,000 Leased from
Huntington Station, N.Y. Principal Stockholder (1)
One Norden Lane Under Renovation 8,400 Owned
Huntington Station, N.Y. (Production)
17 Stepar Place Corporate, sales, 18,000 Owned
Huntington Station, N.Y. administration
2201 Corporate Square Blvd. Production, research 53,700 Leased from
Jacksonville, Florida and development Principal Stockholder (1)
Unit 5, Redkiln Way Sales and distribution 1,600 Owned
Sussex, England office
(1) See "Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS" and
Notes 4 and 7 of Notes to Consolidated Financial Statements.
In fiscal year 1996, construction was begun on an addition to the
Registrant's facility in Jacksonville, Florida, which is leased from a
partnership controlled by the Registrant's President and Chief Executive
Officer and principal stockholder. This addition, which was placed into service
on or about July 1, 1996, houses additional manufacturing operations. Another
10,000 square foot addition is currently under construction at the Jacksonville
facility which will house, among other things, a pilot product production line
for use in product development and refinement. See "Item 1. BUSINESS --
PRODUCTS -- RESEARCH AND DEVELOPMENT".
The Registrant believes that its present facilities provide adequate
capability to meet its current and near term manufacturing requirements. The
Registrant is beginning renovation of its facility at One Norden Lane which
will provide even greater capacity and greater flexibility for its
manufacturing operations.
ITEM 3. LEGAL PROCEEDINGS
The Registrant is not currently a party to any significant legal
proceedings.
9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
EXECUTIVE OFFICERS
The executive officers of the Registrant are as follows:
Victor Insetta, age 57, co-founded the Registrant in 1966 and has
served as President and Chief Executive Officer and a director of the
Registrant since its organization.
Kathleen M. Kelly, age 43, joined the Registrant as secretary to the
President in 1974. Later she assumed the duties of Purchasing Manager until
November 1989 when she was appointed Corporate Secretary. In March 1991, she
assumed additional responsibilities and was also appointed Vice President -
Administration.
Richard Monsorno, age 45, joined the Registrant in 1983 as a Project
Engineer. In early 1984, he assumed the duties of Manager of R&D Special
Projects. In April 1989, he was appointed Vice President of Product Development
and in August 1996, was appointed Senior Vice President - Technology.
Chester E. Spence, age 58, joined the Registrant in 1993 as Vice
President of Marketing and Sales. Prior to his employment with the Registrant
he served, from January 1988 to December 1990, as the Manager - Account
Marketing - Latin America for International Business Machines Corp. ("IBM"),
and from January 1991 to August 1993, was a Consultant for IBM. Mr. Spence has
also served as a director of the Registrant since 1985.
Stuart P. Litt, age 56, joined the Registrant in September 1996 as Senior
Vice President - Operations. From 1992 until his employment by the Registrant,
he also 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.
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.
10
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, 1997 and June 30, 1996.
FISCAL 1997 FISCAL 1996
----------- -----------
Quarter Ended: High Low High Low
- -------------- ---- --- ---- ---
September $ 8 11/16 $ 6 3/4 $ 17 $10 1/2
December 7 3/8 5 5/8 12 5/8 9
March 10 5/8 6 1/8 10 1/2 6
June 14 3/4 7 13/16 10 1/4 6
NUMBER OF STOCKHOLDERS
As of September 9, 1997, there were approximately 370 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
The Registrant has not paid dividends on its common stock during the
past three 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.
RECENT SALES OF UNREGISTERED SECURITIES
During the fiscal year ended June 30, 1997, the Registrant issued an
aggregate of 18,000 shares of common stock to an officer pursuant to a stock
bonus granted to him in connection with his employment. Pursuant to this
arrangement, the officer received 1,000 shares on the 15th of each month from
October 1996 through May 1997 and an additional 10,000 shares on December 15,
1996. The shares were not registered under the Securities Act of 1933 and were
issued in reliance on the exemption provided by Section 4(2) thereunder.
Pursuant to the terms of this arrangement, the officer is entitled to receive
an additional 16,000 shares of common stock. See "Item 11. EXECUTIVE
COMPENSATION" and Notes 6 and 7 of Notes to Consolidated Financial Statements.
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., and Phase Components Ltd.
11
FISCAL YEARS ENDED JUNE 30,
--------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
----------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
INCOME STATEMENT DATA:
Net sales .......................... $36,529 $33,884 $28,630 $23,111 $20,599
======= ======= ======= ======= =======
Gross profit ....................... $14,260 $11,350 $11,178 $ 8,736 $ 7,323
======= ======= ======= ======= =======
Income from operations ............. $ 5,578 $ 3,178 $ 2,855 $ 1,634 $ 1,366
======= ======= ======= ======= =======
Net income (1) ..................... $ 3,429 $ 2,063 $ 1,880 $ 997 $ 991
======= ======= ======= ======= =======
Net income per common and
common equivalent share (1) ...... $ 0.88 $ 0.53 $ 0.48 $ 0.26 $ 0.25
======= ======= ======= ======= =======
Cash dividends paid per common share $ -- $ -- $ -- $ -- $ --
======= ======= ======= ======= =======
BALANCE SHEET DATA:
Property, plant and equipment, net . $15,404 $14,152 $13,379 $ 9,953 $ 8,821
======= ======= ======= ======= =======
Total assets ....................... $37,124 $33,058 $31,624 $26,510 $24,795
======= ======= ======= ======= =======
Long-term debt, less current portion $ 3,825 $ 3,642 $ 4,497 $ 3,048 $ 3,423
======= ======= ======= ======= =======
Working capital .................... $16,293 $13,557 $12,979 $12,565 $13,446
======= ======= ======= ======= =======
QUARTERLY FINANCIAL DATA:
(unaudited) (In thousands, except per share amounts)
NET INCOME
QUARTER ENDED NET SALES GROSS PROFIT NET INCOME PER SHARE
- ------------- --------- ------------ ---------- ---------
Fiscal 1997
September . $ 8,289 $ 2,437 $ 335 $ 0.09
December .. 8,637 3,375 717 0.18
March ..... 9,541 3,853 1,147 0.29
June ...... 10,062 4,595 1,230 0.32
------- ------- ------- --------
Total .. $36,529 $14,260 $ 3,429 $ 0.88
======= ======= ======= ========
Fiscal 1996
September . $ 7,855 $ 2,637 $ 506 $ 0.13
December .. 7,759 2,120 98 0.03
March ..... 8,822 3,123 639 0.16
June ...... 9,448 3,470 820 0.21
------- ------- ------- --------
Total .. $33,884 $11,350 $ 2,063 $ 0.53
======= ======= ======= ========
(1) Net income and net income per common and common equivalent share for
fiscal year 1995 includes the cumulative effect of a change in accounting
to adopt the provisions of Statement of Financial Accounting Standards
No. 115, for certain investments in debt and equity securities effective
July 1, 1994, amounting to $152,000, or $.03 per share.
12
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.
RESULTS OF OPERATIONS
FISCAL YEAR 1997 COMPARED WITH FISCAL YEAR 1996
Net sales for the fiscal year ended June 30, 1997 were $36,529,000, an
increase of 8% over the $33,884,000 recorded in fiscal year 1996. Domestic
sales increased by 11% to $24,977,000 in fiscal year 1997 from $22,559,000 in
fiscal year 1996. International sales increased by 2% to $11,552,000 in fiscal
year 1997 from $11,325,000 in fiscal year 1996. The increase in total net sales
resulted primarily from significantly strong demand for specialized application
capacitors used in critically sensitive hi-rel areas. Demand for these products
across a wide range of product lines was especially strong in the latter part
of fiscal year 1997. Hi-rel applications include various military programs,
which vary from year-to-year and which the Registrant does not anticipate will
represent a significant area of growth in the future, and satellite
communications, which the Registrant believes will continue to grow over the
next several years. Other areas in which the Registrant believes significant
growth may be anticipated include thin film products (which serve many end-use
applications) and products for the wireless/PCS infrastructure.
Gross margins were 39.0% of net sales in fiscal year 1997 compared
with 33.5% in fiscal year 1996. The increase in gross margins was attributable
to both a shift in product mix to more specialized, critically sensitive hi-rel
products, a resolution of some of the general process problems that negatively
affected the Registrant for a large part of the prior fiscal year and the
general effect of greater production and sales volumes on a generally fixed
cost manufacturing base. The Registrant believes that the process problems
encountered in the prior fiscal year have been mostly resolved.
Operating expenses totaled $8.7 million, or 24% of net sales, in
fiscal year 1997 compared with $8.2 million, also 24% of net sales, in fiscal
year 1996. The increase in operating expenses was primarily attributable to
higher bonus expenses for executives, management personnel and employees as a
result of a higher pretax profit, higher advertising and promotion costs to
promote both older and newer product lines, and the salary and stock
compensation associated with the appointment of a new executive officer. These
expense increases were partially offset by a reduction in research and
development expenses due primarily to a reassignment of certain engineering
personnel and related salary expense from research and development to
manufacturing overhead.
Net interest expense was $234,000 in fiscal year 1997 compared to net
interest expense of $254,000 in fiscal year 1996. The decrease in net interest
expense was attributable to higher interest income as a result of increased
cash available for investment, increased income from marketable securities and
lower interest expense as a result of lower average outstanding loan balances,
partially offset by higher interest expense as a result of additions to
obligations under capital lease.
The Registrant recorded other expense of $6,000 in fiscal year 1997 as
compared to other income of $323,000 in fiscal year 1996. Other income in the
prior fiscal year consisted of realized gains on the sale of investments.
The effective income tax rate for fiscal year 1997 was approximately
35.8% as compared to an effective rate of approximately 36.5% for fiscal year
1996. The slightly lower effective income tax rate in fiscal year 1997 was the
result of a decrease in the state tax rate and an increase in tax benefits
available through the Registrant's foreign sales corporation subsidiary.
13
As a result of the foregoing, the Registrant reported net income of
$3,429,000, or $.88 per share, for fiscal year 1997 as compared with net income
of $2,063,000, or $.53 per share, for fiscal year 1996.
FISCAL YEAR 1996 COMPARED WITH FISCAL YEAR 1995
Net sales for the fiscal year ended June 30, 1996 were $33,884,000, an
increase of 18% over the $28,630,000 recorded in fiscal year 1995. Domestic
sales increased by 22% to $22,559,000 in fiscal year 1996 from $18,448,000 in
fiscal year 1995. International sales increased by 11% to $11,325,000 in fiscal
year 1996 from $10,182,000 in fiscal year 1995. These increases in net sales
resulted primarily from the worldwide increase in demand for commercial
capacitors which corresponded to the continued growth in areas such as wireless
communications, satellite broadcasting and medical electronics. Demand for the
Registrant's thin film products was also strong. Sales of thin film products
increased by 116% to $1,452,000 in fiscal year 1996 from $673,000 in fiscal
year 1995.
Gross margins were 33.5% of net sales in fiscal year 1996 compared
with 39.0% in fiscal year 1995. The substantial increase in demand for the
Registrant's products exposed and exacerbated pre-existing problems in the
Registrant's manufacturing processes. These problems negatively impacted
product yields which, in turn, resulted in higher material, labor and overhead
costs. Gross margins were also adversely affected by the costs and expenses
associated with the addition of a new chip manufacturing facility and the
Registrant's increased investment in its thin film product line which was made
to increase production capacity for these products. See "Item 1. BUSINESS --
MANUFACTURING". In addition, average unit selling prices declined in fiscal
year 1996 compared to fiscal year 1995 as a result of the change in product mix
from higher priced hi-rel and defense related products to lower priced
commercial products.
Operating expenses totaled $8.2 million, or 24% of net sales, in
fiscal year 1996 compared with $8.3 million, or 29% of net sales, in fiscal
year 1995. Selling expenses decreased by $368,000 to $3,783,000 in fiscal year
1996 as compared to $4,151,000 in fiscal year 1995. The decrease in selling
expenses was the result of a lower sales commission rate to representative
organizations and selling employees, a scaled back but more focused advertising
and promotional program and the absence of an executive sales quota bonus in
the fiscal year ended June 30, 1996 as compared to the fiscal year ended June
30, 1995.
General and administrative expenses increased by $125,000 to
$2,852,000 in fiscal year 1996, as compared to $2,727,000 in fiscal year 1995,
primarily as a result of a stock bonus granted to a vice president.
Research and development expenses increased by $92,000 to $1,537,000
in fiscal year 1996 as compared to $1,445,000 in fiscal year 1995. The increase
in expenses was the result of an increase in research and development personnel
and the resultant increase in salaries and related payroll and benefits costs.
Net interest expense was $254,000 in fiscal year 1996 compared to net
interest expense of $188,000 in fiscal year 1995. The increase in the net
interest expense was the result of the incremental interest incurred on two
$1.0 million capital equipment loans secured in March 1995.
The Registrant recorded other income of $323,000 in fiscal year 1996
as compared to other expense of $199,000 in fiscal year 1995. Other income in
fiscal year 1996 includes $333,000 of net realized gains on sales of
investments. Other expense in fiscal year 1995 included net realized losses on
sales of investments of $191,000.
The effective income tax rate for fiscal year 1996 was approximately
37% as compared to an effective rate of approximately 30% for fiscal year 1995.
The higher rate in fiscal year 1996 was primarily the result of a decreased
foreign sales corporation benefit and certain tax credits of which the
Registrant availed itself in fiscal year 1995 that were not available in fiscal
year 1996.
As a result of the foregoing, the Registrant reported net income of
$2,063,000, or $.53 per share, for fiscal year 1996 as compared with net income
of $1,880,000, or $.48 per share, for fiscal year 1995.
14
LIQUIDITY AND CAPITAL RESOURCES
The Registrant's financial position at June 30, 1997 remains strong as
evidenced by working capital of $16,293,000 as compared to working capital of
$13,557,000 at June 30, 1996. The Registrant's current ratio at June 30, 1997
was 4.2:1 compared to 3.7:1 at June 30, 1996. The Registrant's quick ratio at
June 30, 1997 was 2.4:1 compared to 1.9:1 at June 30, 1996.
Cash and investments increased to $6,957,000 at June 30, 1997 compared
to $3,548,000 at June 30, 1996. The increase in cash and investments was
primarily the result of the incremental cash generated from profitable
operations. Accounts receivable decreased by $393,000 to $4,520,000 at June 30,
1997 as compared to $4,913,000 at June 30, 1996. The decrease in accounts
receivable was attributable to slightly faster collections of customer accounts
as a result of an increased focus in this area and a shift on the part of some
customers to paying electronically and by credit card. Inventories decreased by
$40,000 to $9,027,000 at June 30, 1997 as compared to $9,067,000 at June 30,
1996. This decrease was attributable to lower stocks of finished goods,
partially offset by higher stocks of raw materials, particularly palladium as a
hedge against availability uncertainties and unstable pricing for this primary
raw material for the Registrant's products.
Accounts payable decreased by $294,000 to $834,000 at June 30, 1997 as
compared to $1,128,000 at June 30, 1996. The decrease in accounts payable was
the result of lower spending for general operating purposes and capital
equipment. Accrued expenses increased by $646,000 to $2,861,000 at June 30,
1997 as compared to $2,215,000 at June 30, 1996 as a result of higher accrued
bonuses for executives, managers and employees due to higher pretax profits in
fiscal year 1997 as compared to fiscal year 1996. At June 30, 1997, the
Registrant had current income taxes payable of $571,000 relating to pretax
profits for the fiscal year then ended, including taxes payable by the
Registrant's United Kingdom subsidiary.
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 and restated
as of July 1, 1996, 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
$379,000 per annum. The payments due over the remaining thirteen years of this
capital lease, including the portion related to interest, total approximately
$5,016,000. See "Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS" and
Note 4 of Notes to Consolidated Financial Statements.
In September 1996, the Registrant secured a $2,000,000 revolving
line-of-credit from Barnett Bank of Jacksonville, N.A. ("Barnett Bank"). The
line-of-credit is subject to certain fees on the unused portion while the
outstanding balance bears interest at a rate equal to Barnett Bank's prime rate
minus one-half percent (1/2%). Borrowings under the line-of-credit are subject
to, among other things, continued compliance with certain financial covenants,
including maintenance of asset and liability percentage ratios. There is
currently no balance outstanding under this line-of-credit.
In February 1995, the Registrant entered into two separate loan
agreements with European American Bank ("EAB") pursuant to which the Registrant
borrowed $2.0 million. Each loan was for $1.0 million, is secured by capital
equipment, is subject to certain financial covenants and is payable over a
five-year period. The agreement representing the first such loan with EAB
provides for payment of 60 monthly installments of a fixed principal payment
amount and interest accrued at a fixed rate of 6.85% per annum of the
outstanding balance for the first two years and 8.85% per annum thereafter. The
agreement representing the second such loan with EAB provides for payment of 60
equal monthly installments of principal and interest accrued at a fixed rate of
8.85% per annum of the outstanding balance for the term of the loan. The
aggregate remaining principal balances on these two loans at June 30, 1997 was
$1,119,000. The two loan agreements require monthly payments of principal and
interest aggregating approximately $42,000 in fiscal year 1998. See Note 4 of
Notes to Consolidated Financial Statements.
15
In September 1994, the Registrant entered into a term loan agreement
with Barnett Bank pursuant to which the Registrant borrowed $1.9 million. The
loan is unsecured, is subject to certain financial covenants and is payable
over five years in equal monthly installments of principal plus accrued
interest at Barnett Bank's prime rate. The aggregate remaining principal
balance on the term loan at June 30, 1997 was $855,000. The term loan agreement
requires monthly installments of principal and interest of approximately
$38,000 in fiscal year 1998. See Note 4 of Notes to Consolidated Financial
Statements.
The Registrant intends to use cash on hand as well as funds generated
from operations to finance budgeted capital expenditures of approximately $3.0
million in fiscal year 1998.
In June 1990, the Registrant announced a stock purchase program
pursuant to which it is authorized to purchase up to $1,000,000 of its common
stock. Through June 30, 1997, the Registrant has expended approximately
$805,000 to purchase an aggregate of 308,400 shares under this program.
IMPACT OF NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 128 Earnings Per Share
("SFAS No. 128") establishes new standards for computing and presenting
earnings per share ("EPS") and applies to all entities with publicly held
common stock or potential common stock. SFAS No. 128 replaces the presentation
of primary EPS with a presentation of basic EPS and requires a dual
presentation of basic and diluted EPS on the face of the income statement for
all entities with complex capital structures and requires a reconciliation of
the numerator and denominator of the basic EPS computation to the numerator and
denominator of the diluted EPS computation. This Statement is effective for
financial statements issued for periods ending after December 15, 1997; earlier
application is not permitted. Once adopted, this Statement requires restatement
of all prior-period EPS data presented. Management of the Registrant is
presently assessing the impact of the adoption of SFAS No. 128 on previously
reported EPS information.
Statement of Financial Accounting Standards No. 130 Reporting
Comprehensive Income ("SFAS No. 130") establishes standards for reporting and
display of comprehensive income and its components in a full set of general-
purpose financial statements. This Statement requires that all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed
with the same prominence as other financial statements. This Statement is
effective for fiscal years beginning after December 15, 1997. Management of the
Registrant is presently assessing the impact of the adoption of SFAS No. 130 on
its consolidated financial statements.
Statement of Financial Accounting Standards No. 131 Disclosures about
Segments of an Enterprise and Related Information ("SFAS No. 131") establishes
standards for the way that public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports issued to shareholders. It also establishes standards for
related disclosures about products and services, geographic areas, and major
customers. This Statement is effective for fiscal years beginning after
December 15, 1997. Management of the Registrant is presently assessing the
impact of the adoption of SFAS No. 131 on its consolidated financial
statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Registrant's Consolidated Financial Statements and the Notes
thereto begin on page F of this report.
16
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 21, 1997 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 21, 1997 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 21, 1997 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 21, 1997
is hereby incorporated by reference.
17
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, 1997 and 1996.................... F-2
Statements of Earnings
Years Ended June 30, 1997, 1996 and 1995..................... F-3
Statements of Stockholders' Equity
Years Ended June 30, 1997, 1996 and 1995..................... F-4
Statements of Cash Flows
Years Ended June 30, 1997, 1996 and 1995..................... F-5
Notes to Consolidated Financial Statements.....................F-6 - F-16
(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.
(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. (1)
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) - Lease Agreement between Victor Insetta and the Registrant for
premises at 15 Stepar Place, Huntington Station, N.Y.
10(b)(ii) - Amendment to Lease Agreement, dated May 8, 1984, but
effective as of July 14, 1981, between Victor Insetta, d/b/a
Stepar Leasing Company, and the Registrant.
10(b)(iii) - Amendment to Lease Agreement, dated June 15, 1987, but
effective as of May 1, 1987, between Victor Insetta, d/b/a
Stepar Leasing Company, and the Registrant. (2)
10(b)(iv) - Amendment to Lease Agreement, dated February 9, 1989, between
Victor Insetta, d/b/a Stepar Leasing Company, and the
Registrant. (3)
10(b)(v) - Amendment to Lease Agreement, as of January 1, 1997, between
Victor Insetta, d/b/a Stepar Leasing Company, and the
Registrant. (4)
10(c)(i) - 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. (5)
18
10(c)(iii) - Form of Employee Stock Bonus Agreement, dated as of April 19,
1994, between the Registrant and various employees. (5)
10(c)(iv) - Form of Employee Stock Bonus Agreement, dated as of April 20,
1995, between the Registrant and various employees. (1)
10(e) - 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. (4)
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
(3).
10(g)(iii) - Profit Bonus Plan, dated April 19, 1995, and effective for
the fiscal years beginning July 1, 1994. (1)
10(g)(iv) - Employment Agreement, dated April 3, 1985, between Victor
Insetta and the Registrant, as amended. (6)
10(h) - Loan Agreement, dated September 27, 1994, between the
Registrant and Barnett Bank of Jacksonville, N.A. (5)
10(i) - Secured Commercial Note, dated as of February 17, 1995,
between the Registrant and European American Bank. (1)
10(j) - Secured Commercial Note, dated as of February 17, 1995,
between the Registrant and European American Bank. (1)
10(k)(i) - Letters of Agreement, dated June 26, 1996 and August 22,
1996, between the Registrant and Stuart P. Litt. (7)
10(k)(ii) - Letter Agreement, dated September 11, 1997, between the
Registrant and Stuart P. Litt. (9)
10(l) - Loan Agreement, dated September 25, 1996, between the
Registrant and Barnett Bank, N.A. (8)
10(m) - American Technical Ceramics Corp. 1997 Stock Option Plan. (9)
21 - Subsidiaries of the Registrant. (6)
27 - Financial Data Schedule. (9)
- --------------
1. Incorporated by reference to the Registrant's Annual Report on Form 10-KSB
for the fiscal year ended June 30, 1995.
2. Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended June 30, 1987.
3. Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended June 30, 1989.
4. Incorporated by reference to the Registrant's Form 10-Q for the quarterly
period ended March 31, 1997.
5. Incorporated by reference to the Registrant's Annual Report on Form 10-KSB
for the fiscal year ended June 30, 1994.
6. Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended June 30, 1993.
7. Incorporated by reference to the Registrant's Annual Report on Form 10-KSB
for the fiscal year ended June 30, 1996.
8. Incorporated by reference to the Registrant's Form 10-Q for the quarterly
period ended September 30, 1996.
9. Filed herewith.
(d) FINANCIAL STATEMENT SCHEDULES
-----------------------------
Schedules have been omitted since they either are not applicable, not
required or the information is included elsewhere herein.
19
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 23, 1997
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 23, 1997
- ------------------ (Principal Executive Officer)
Victor Insetta
/s/ CHESTER E. SPENCE September 23, 1997
- ---------------------
Chester E. Spence Director
/s/ STUART P. LITT Director September 23, 1997
- ------------------ (Acting Principal Financial
Stuart P. Litt Officer)
/s/ O. JULIAN GARRARD III
- -------------------------
O. Julian Garrard III Director September 23, 1997
20
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, 1997 and 1996........ F-2
Consolidated Statements of Earnings
Years Ended June 30, 1997, 1996 and 1995..................... F-3
Consolidated Statements of Stockholders' Equity
Years Ended June 30, 1997, 1996 and 1995..................... F-4
Consolidated Statements of Cash Flows
Years Ended June 30, 1997, 1996 and 1995..................... F-5
Notes to Consolidated Financial Statements..................... F-6 - F-16
KPMG Peat Marwick LLP
Certified Public Accountants
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, 1997 and
1996, 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,
1997. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the 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, 1997 and 1996, and the results
of their operations and their cash flows for each of the years in the
three-year period ended June 30, 1997, in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Company
adopted the provisions of Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity Securities, in fiscal
1995.
KPMG PEAT MARWICK LLP
Jericho, New York
August 20, 1997
F-1
AMERICAN TECHNICAL CERAMICS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 JUNE 30, 1996
------------- -------------
ASSETS
CURRENT ASSETS:
Cash (including cash equivalents of approximately
$1,749,000 and $1,082,000, respectively) $ 3,500,000 $ 2,661,000
Investments 3,457,000 887,000
Accounts receivable, net 4,520,000 4,913,000
Inventories 9,027,000 9,067,000
Deferred income taxes 438,000 738,000
Other current assets 519,000 332,000
----------- -----------
Total current assets 21,461,000 18,598,000
----------- -----------
PROPERTY, PLANT AND EQUIPMENT:
Land 738,000 738,000
Buildings 6,959,000 5,812,000
Leasehold improvements 2,188,000 2,090,000
Machinery and equipment 21,556,000 19,661,000
Furniture, fixtures and other 905,000 898,000
----------- -----------
32,346,000 29,199,000
Less: Accumulated depreciation 16,942,000 15,047,000
----------- -----------
15,404,000 14,152,000
----------- -----------
OTHER ASSETS 259,000 308,000
----------- -----------
$37,124,000 $33,058,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 902,000 $ 841,000
Accounts payable 834,000 1,128,000
Accrued expenses 2,861,000 2,215,000
Income taxes payable 571,000 857,000
----------- -----------
Total current liabilities 5,168,000 5,041,000
----------- -----------
LONG-TERM DEBT 3,825,000 3,642,000
DEFERRED INCOME TAXES 1,528,000 1,283,000
----------- -----------
Total liabilities 10,521,000 9,966,000
----------- -----------
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' EQUITY:
Common stock - par value $.01;authorized 20,000,000 shares;
issued 4,067,979 and 4,067,501 shares, respectively 41,000 41,000
Capital in excess of par value 6,533,000 6,439,000
Retained earnings 20,680,000 17,251,000
----------- -----------
27,254,000 23,731,000
Unrealized gain on investments available-for-sale, net 65,000 12,000
Less: Treasury stock, at cost (176,218 and 183,518 shares, respectively) 599,000 572,000
Deferred compensation 106,000 --
Cumulative foreign currency translation adjustment 11,000 79,000
----------- -----------
Total stockholders' equity 26,603,000 23,092,000
----------- -----------
$37,124,000 $33,058,000
=========== ===========
See accompanying notes to consolidated financial statements
F-2
AMERICAN TECHNICAL CERAMICS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED JUNE 30,
--------------------------------------------
1997 1996 1995
---- ---- ----
Net sales $ 36,529,000 $ 33,884,000 $ 28,630,000
Cost of goods sold 22,269,000 22,534,000 17,452,000
------------ ------------ ------------
Gross profit 14,260,000 11,350,000 11,178,000
------------ ------------ ------------
Selling expenses 4,067,000 3,783,000 4,151,000
General and administrative expenses 3,182,000 2,852,000 2,727,000
Research and development expenses 1,433,000 1,537,000 1,445,000
------------ ------------ ------------
Total expenses 8,682,000 8,172,000 8,323,000
------------ ------------ ------------
Income from operations 5,578,000 3,178,000 2,855,000
------------ ------------ ------------
Other (income)expense:
Interest expense 493,000 432,000 397,000
Interest income (259,000) (178,000) (209,000)
Other 6,000 (323,000) 199,000
------------ ------------ ------------
240,000 (69,000) 387,000
------------ ------------ ------------
Income before provision for income taxes and
cumulative effect of change in accounting method 5,338,000 3,247,000 2,468,000
Provision for income taxes 1,909,000 1,184,000 740,000
------------ ------------ ------------
Income before cumulative effect
of change in accounting method $ 3,429,000 $ 2,063,000 $ 1,728,000
Cumulative effect of change in method of
accounting for investments, net of income taxes -- -- 152,000
------------ ------------ ------------
Net income $ 3,429,000 $ 2,063,000 $ 1,880,000
============ ============ ============
Income per common and common equivalent share,
before cumulative effect of change in accounting method $ 0.88 $ 0.53 $ 0.45
Cumulative effect of change in accounting method
per common and common equivalent share -- -- $ 0.03
------------ ------------ ------------
Net income per common and common equivalent share $ 0.88 $ 0.53 $ 0.48
============ ============ ============
Weighted average common and common
equivalent shares outstanding 3,887,000 3,880,000 3,877,000
============ ============ ============
See accompanying notes to consolidated financial statements.
F-3
AMERICAN TECHNICAL CERAMICS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
Unrealized
Gain on
Common Stock Capital in Investments
------------ Excess of Retained Available-
Shares Amount Par Value Earnings for-Sale, Net
------ ------ --------- -------- -------------
BALANCE AT JUNE 30, 1994 4,065,211 $ 41,000 $6,315,000 $13,308,000 $ --
Purchase of
treasury stock -- -- -- -- --
Deferred compensation -- -- 19,000 -- --
Stock award
compensation expense -- -- -- -- --
Exercise of stock options 1,990 -- 11,000 -- --
Unrealized gain on
investments available-for-sale -- -- -- -- 134,000
Foreign currency
translation adjustment -- -- -- -- --
Net income -- -- -- 1,880,000 --
---------- -------- ---------- ----------- ----------
BALANCE AT JUNE 30, 1995 4,067,201 $ 41,000 $6,345,000 $15,188,000 $ 134,000
Stock award
compensation expense -- -- 92,000 -- --
Exercise of stock options 300 -- 2,000 -- --
Unrealized loss on
investments available-for-sale -- -- -- -- (122,000)
Foreign currency
translation adjustment -- -- -- -- --
Net income -- -- -- 2,063,000 --
---------- -------- ---------- ----------- ----------
BALANCE AT JUNE 30, 1996 4,067,501 $ 41,000 $6,439,000 $17,251,000 $ 12,000
Purchase of
treasury stock -- -- -- -- --
Deferred compensation -- -- 92,000 -- --
Stock award
compensation expense -- -- -- -- --
Exercise of stock options 478 -- 2,000 -- --
Unrealized gain on
investments available-for-sale -- -- -- -- 53,000
Foreign currency
translation adjustment -- -- -- -- --
Net income -- -- -- 3,429,000 --
---------- -------- ---------- ----------- ----------
BALANCE AT JUNE 30, 1997 4,067,979 $ 41,000 $6,533,000 $20,680,000 $ 65,000
---------- -------- ---------- ----------- ----------
[TABLE RESTUBED FROM ABOVE]
Cumulative
Foreign
Currency
Treasury Deferred Translation
Stock Compensation Adjustment Total
----- ------------ ---------- -----
BALANCE AT JUNE 30, 1994 $(458,000) $(158,000) $(74,000) $18,974,000
Purchase of
treasury stock (148,000) -- -- (148,000)
Deferred compensation 16,000 (35,000) -- --
Stock award
compensation expense -- 167,000 -- 167,000
Exercise of stock options -- -- -- 11,000
Unrealized gain on
investments available-for-sale -- -- -- 134,000
Foreign currency
translation adjustment -- -- 48,000 48,000
Net income -- -- -- 1,880,000
--------- --------- -------- -----------
BALANCE AT JUNE 30, 1995 $(590,000) $ (26,000) $(26,000) $21,066,000
Stock award
compensation expense 18,000 26,000 -- 136,000
Exercise of stock options -- -- -- 2,000
Unrealized loss on
investments available-for-sale -- -- -- (122,000)
Foreign currency
translation adjustment -- -- (53,000) (53,000)
Net income -- -- -- 2,063,000
--------- --------- -------- -----------
BALANCE AT JUNE 30, 1996 $(572,000) -- $(79,000) $23,092,000
Purchase of
treasury stock (63,000) -- -- (63,000)
Deferred compensation 36,000 (241,000) -- (113,000)
Stock award
compensation expense -- 135,000 -- 135,000
Exercise of stock options -- -- -- 2,000
Unrealized gain on
investments available-for-sale -- -- -- 53,000
Foreign currency
translation adjustment -- -- 68,000 68,000
Net income -- -- -- 3,429,000
--------- --------- -------- -----------
BALANCE AT JUNE 30, 1997 $(599,000) $(106,000) $(11,000) $26,603,000
--------- --------- -------- -----------
See accompanying notes to consolidated financial statements.
F-4
AMERICAN TECHNICAL CERAMICS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30,
--------------------
1997 1996 1995
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,429,000 $ 2,063,000 $ 1,880,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for doubtful accounts receivable
and sales returns 35,000 52,000 28,000
Depreciation and amortization 1,918,000 1,812,000 1,657,000
Loss (gain) on disposal of fixed assets 3,000 (8,000) (5,000)
Stock award compensation expense 135,000 136,000 167,000
Provision for deferred income taxes 522,000 197,000 110,000
Cumulative effect of change in accounting method
for investments, net of income taxes -- -- (152,000)
Realized (gain) loss on sale of investments -- (333,000) 191,000
Changes in operating assets and liabilities:
Accounts receivable, net 395,000 (1,080,000) (344,000)
Inventories 59,000 (1,062,000) (1,377,000)
Other assets (135,000) (262,000) (124,000)
Accounts payable, accrued expenses and
income taxes payable (78,000) 40,000 795,000
----------- ----------- -----------
Net cash provided by operating activities 6,283,000 1,555,000 2,826,000
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,029,000) (2,586,000) (4,995,000)
Purchase of investments (2,494,000) (502,000) (3,941,000)
Proceeds from sale of investments -- 3,216,000 4,366,000
Proceeds from sale of fixed assets 3,000 22,000 12,000
----------- ----------- -----------
Net cash (used in) provided by investing activities (4,520,000) 150,000 (4,558,000)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt (876,000) (829,000) (2,114,000)
Proceeds from issuance of debt -- -- 3,910,000
Payments to acquire treasury stock (63,000) -- (148,000)
Proceeds from exercise of stock options 2,000 2,000 11,000
----------- ----------- -----------
Net cash (used in) provided by financing activities (937,000) (827,000) 1,659,000
----------- ----------- -----------
Effect of exchange rate changes on cash 13,000 (30,000) 21,000
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 839,000 848,000 (52,000)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 2,661,000 1,813,000 1,865,000
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 3,500,000 $ 2,661,000 $ 1,813,000
=========== =========== ===========
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") is 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 years 1997, 1996 and 1995, there were no customers which
accounted for 10% or more of consolidated revenues. In each of the fiscal years
ended June 30, 1997, 1996 and 1995, approximately 13% 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.
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 adopted the provisions of Statement of Financial
Accounting Standards No. 115 Accounting for Certain Investments in Debt and
Equity Securities ("SFAS No. 115") effective July 1, 1994. The cumulative
effect of this change, net of income taxes, was $152,000. Under SFAS No. 115,
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 separate component of 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
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 3 to 10 years
Furniture, fixtures and other 3 to 8 years
Included in other assets as of June 30, 1997 and 1996, is
approximately $26,000 and $47,000, respectively, of goodwill and $3,000 and
$10,000, respectively, of other intangible assets related to the acquisition of
Miltech Corp. These amounts are net of accumulated amortization of $77,000 and
$57,000 for goodwill and $25,000 and $18,000 for the other intangibles as of
June 30, 1997 and 1996, respectively. The Company amortizes goodwill over five
years and other intangibles over approximately four years using the
straight-line method.
The Company implemented the provisions of Statement of Financial
Accounting Standards No. 121 Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of effective July 1, 1996. 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. The adoption of
SFAS No. 121 had no impact on the Company's financial position or results of
operations.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 Accounting for Income Taxes ("SFAS No.
109"). Under the asset and liability method of SFAS No. 109, 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. Under SFAS No. 109, 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.
FOREIGN CURRENCY TRANSLATION
The Company translates the financial statements of its foreign
subsidiary (located in England) 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
Effective July 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 123 Accounting for Stock-based Compensation ("SFAS No.
123"). SFAS No. 123 allows companies to measure expense related to employee
stock-based compensation using a fair value method or to continue to use the
intrinsic value method of measuring compensation cost as outlined in Accounting
Principles Board Opinion No. 25 Accounting for Stock Issued to Employees
("Opinion No. 25"), and make pro-forma disclosures of net income and net income
per share as if the fair value method had been applied. The Company has elected
to continue to measure compensation cost related to
F-7
employee stock-based compensation using the intrinsic value method of Opinion
No. 25, and make pro-forma disclosures of net income and net income per share
as if the fair value method had been applied.
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
Net income per common and common equivalent share has been computed
based upon the weighted average number of common and common equivalent shares
outstanding. Recognition has been given to the assumed exercise (as of the
beginning of each period or date of issuance if later) of outstanding options
and warrants, except when their effect would be antidilutive or immaterial.
IMPACT OF ACCOUNTING STANDARDS ISSUED NOT YET ADOPTED
The Company will be required to implement the provisions of Statement
of Financial Accounting Standards ("SFAS") No. 128, Earnings Per Share, in
fiscal year 1998; SFAS No. 130, Reporting Comprehensive Income, in fiscal year
1999; and SFAS No. 131, Disclosures About Segment Information, in fiscal year
1999. The Company is presently assessing the impact of the adoption of these
SFAS's on it consolidated financial statements.
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.
NOTE 2. INVESTMENTS
Investments consist of the following:
GROSS GROSS
UNREALIZED UNREALIZED
JUNE 30, 1997 COST GAINS LOSSES FAIR VALUE
- ------------- ---- ----- ------ ----------
Mutual funds $ 269,000 $ 22,000 $ -- $ 291,000
Equity securities 310,000 81,000 2,000 389,000
U.S. Government
obligations 2,783,000 -- 6,000 2,777,000
---------- ---------- ---------- ----------
$3,362,000 $ 103,000 $ 8,000 $3,457,000
========== ========== ========== ==========
GROSS GROSS
UNREALIZED UNREALIZED
JUNE 30, 1996 COST GAINS LOSSES FAIR VALUE
- ------------- ---- ----- ------ ----------
Mutual funds $364,000 $ 21,000 $ -- $385,000
Equity securities 3,000 -- 1,000 2,000
U.S. Government
obligations 502,000 -- 2,000 500,000
-------- -------- -------- --------
$869,000 $ 21,000 $ 3,000 $887,000
======== ======== ======== ========
F-8
Gross realized gains of approximately $333,000 and $23,000,
respectively, are included in other income for fiscal years 1996 and 1995,
respectively. Gross realized losses of approximately $214,000 for fiscal year
1995 are included in other income.
The Company's investments in U. S. Government obligations at June 30,
1997, contractually mature as follows:
COST FAIR VALUE
---- ----------
Within one year $ 487,000 $ 488,000
Between one and five years 1,299,000 1,303,000
Between five and ten years 997,000 986,000
---------- ----------
$2,783,000 $2,777,000
========== ==========
NOTE 3. INVENTORIES
Inventories consist of the following:
JUNE 30, 1997 JUNE 30, 1996
------------- -------------
Raw materials $2,635,000 $1,951,000
Work in process 3,498,000 3,413,000
Finished goods 2,894,000 3,703,000
---------- -----------
$9,027,000 $9,067,000
========== ==========
NOTE 4. LONG-TERM DEBT
Long-term debt consists of the following:
JUNE 30, 1997 JUNE 30, 1996
------------- -------------
Notes payable to banks $1,974,000 $2,740,000
Obligations under capital leases 2,753,000 1,739,000
Other notes payable -- 4,000
---------- ----------
4,727,000 4,483,000
Less: Current portion 902,000 841,000
---------- ----------
Long-term debt $3,825,000 $3,642,000
========== ==========
Interest payments during fiscal years 1997, 1996 and 1995 approximated
interest expense for those years.
NOTES PAYABLE TO BANKS
Notes payable to banks at June 30, 1997 consists of:
(i) an unsecured $1.9 million term loan with a remaining balance of
$855,000 payable in equal monthly installments of principal of
approximately $32,000 through September 1999, plus accrued interest
at the bank's prime rate (8.50% at June 30, 1997). The loan is
subject to certain financial covenants which require, among other
things, a minimum level of tangible net worth; and
F-9
(ii) two term loans, with a remaining principal balance aggregating
$1,119,000, secured by capital equipment with an approximate net
book value of $1,500,000 at June 30, 1997. The remaining balance of
the first loan of $534,000, is payable in equal monthly principal
installments of approximately $17,000 through February 2000, and
bears interest at a fixed rate of 6.85% through February 1997 and
8.85% thereafter. The remaining balance of the second loan of
$585,000 bears interest at a fixed rate of 8.85% and is payable in
equal monthly installments of approximately $21,000, including
interest, through February 2000. Both loans are subject to certain
financial covenants which require, among other things, the
maintenance of certain financial ratios.
The Company has $2,000,000 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, 1997, the Company had no
borrowings outstanding under this line.
The following table presents aggregate annual maturities of notes
payable to banks after fiscal year 1997:
1998 $ 784,000
1999 803,000
2000 387,000
----------
$1,974,000
==========
OBLIGATIONS UNDER CAPITAL LEASES
Under a lease agreement dated October 1, 1980, as amended as of July
1, 1996, the Company leases a manufacturing facility in Jacksonville, Florida
from a partnership controlled by the Company's President and Chief Executive
Officer and principal stockholder. This lease agreement gives the Company
substantially all of the benefits and obligations of ownership, and is
therefore accounted for as a capital lease.
The leased facility had an original cost of $1,973,000 before the July
1, 1996 amendment. After consideration of additional leased space, the leased
facility had an aggregate cost of $3,093,000 and a net book value of $2,015,000
at June 30, 1997. The lease is for a period of 30 years and was capitalized
using an interest rate of 10.5%. The original (unamended) lease agreement
provided for a rental adjustment based on the Consumer Price Index ("CPI")
between October 1988 and October 1996. The amended lease provides for base rent
of approximately $379,000 payable in twelve monthly installments of
approximately $32,000 for the fiscal year ending June 30, 1997. The amended
lease further provides for annual increases in total annual rent for years
beginning after July 1, 1997, based on the increase in the CPI for the last
reported month available to the public on June 1 of that year over the CPI for
June 1, 1996, applied to base rent.
In October 1994, the Company renewed a computer equipment lease to
upgrade existing equipment as well as obtain additional equipment. At June 30,
1997, the new equipment had an original cost of $83,000 and a net book value of
$37,000. The lease is for a period of five years and was capitalized using an
interest rate of 10%. Annual payments, including interest, are approximately
$21,000.
F-10
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, 1997:
1998 $ 400,000
1999 400,000
2000 384,000
2001 379,000
2002 379,000
2003 and thereafter 3,122,000
----------
Total minimum lease payments 5,064,000
Less: Amount representing interest 2,311,000
----------
Present value at June 30, 1997 2,753,000
Less: Current portion 118,000
----------
$2,635,000
==========
NOTE 5. INCOME TAXES
The provision for income taxes consists of the following:
YEARS ENDED JUNE 30,
--------------------
1997 1996 1995
---- ---- ----
CURRENT:
Federal $1,110,000 $ 767,000 $ 447,000
State 85,000 112,000 50,000
Foreign 192,000 108,000 133,000
---------- ---------- ----------
Total Current 1,387,000 987,000 630,000
---------- ---------- ----------
DEFERRED:
Federal 462,000 197,000 110,000
State 60,000 -- --
---------- ---------- ----------
Total Deferred 522,000 197,000 110,000
---------- ---------- ----------
$1,909,000 $1,184,000 $ 740,000
========== ========== ==========
The following table reconciles the Federal statutory rate to the
Company's effective tax rate:
YEARS ENDED JUNE 30,
--------------------
1997 1996 1995
------ ------ ------
Tax provision computed at statutory rate 34.0% 34.0% 34.0%
State tax, net of Federal tax effect 1.8 2.3 3.4
FSC benefit (1.0) (0.6) (2.7)
Tax credits and other, net 1.0 0.8 (4.7)
------ ------ ------
35.8% 36.5% 30.0%
====== ====== ======
F-11
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at June 30,
1997 and 1996, are presented below.
1997 1996
---- ----
Deferred tax assets:
Allowance for doubtful accounts receivable and
sales returns $ 127,000 $ 116,000
Inventories, principally due to additional costs
inventoried for tax purposes pursuant to the Tax
Reform Act of 1986 57,000 380,000
Compensated absences accrued for financial
reporting purposes 101,000 109,000
Other 153,000 133,000
----------- -----------
Total deferred tax assets 438,000 738,000
----------- -----------
Deferred tax liabilities:
Plant and equipment, principally due to differences
in depreciation and capitalized interest (1,499,000) (1,277,000)
Unrealized appreciation on investments
available-for-sale (29,000) (6,000)
----------- -----------
Total deferred tax liabilities (1,528,000) (1,283,000)
----------- -----------
Net deferred tax liability $(1,090,000) $ (545,000)
=========== ===========
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 the Company will realize the
benefits of these deductible differences. Income taxes paid were approximately
$1,735,000, $774,000 and $696,000 for fiscal years 1997, 1996 and 1995,
respectively.
NOTE 6. COMMON STOCK AND STOCK-BASED COMPENSATION
On April 1, 1997, the Board of Directors approved the American
Technical Ceramics Corp. 1997 Stock Option Plan (the "1997 Option Plan")
pursuant to which the Company may grant options to purchase up to 400,000
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.
The effectivity of the 1997 Option Plan (and therefore the options
granted thereunder) is subject to stockholder approval, which approval will be
sought at the Company's 1997 Annual Meeting of Stockholders. The Company's
President and principal stockholder intends to vote in favor of approving the
1997 Option Plan at said meeting. Accordingly, its effectiveness is virtually
assured.
On April 1, 1997, the Board of Directors granted incentive stock
options to purchase 266,000 shares of common stock under the 1997 Option Plan
at an exercise price of $8.25 per share. The options may be exercised for a
period of ten years from the date of grant and vest 25% per year during the
first four years of their term. No disposition of
F-12
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 transfer of shares without 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 per-share value of stock options granted by the Company on April
1, 1997 was $3.61, as determined by the Black-Scholes option pricing model
(assuming a risk-free interest rate of 7.09%; expected life of five years;
expected volatility of 37%; and no dividends).
In April 1985, the Board of Directors adopted an Incentive Stock
Option Plan, which provided for the granting of stock options to employees and
officers to purchase up to 100,000 shares of common stock. This plan terminated
in April 1995 and no further options may be granted thereunder. Options under
this plan were granted at a price per share equal to the fair market value of
the common stock on the date of grant. In addition, each option granted
terminated ten years from the date of grant. Further, upon exercise of options
under this plan, the recipient is required to enter into a Voting and Transfer
Agreement which requires the optionee to vote for certain directors (as defined
by the agreement) and in certain cases offer the Company and the principal
stockholder the right of first and second refusal, respectively, to purchase
any shares acquired under this plan.
Information with respect to options under the stock option plans is as
follows:
JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1995
-------------------- ------------------ ------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
AMOUNT PRICE AMOUNT PRICE AMOUNT PRICE
------ ----- ------ ----- ------ -----
Outstanding and exercisable,
beginning of year 478 $ 5.50 778 $ 5.50 2,768 $ 5.50
Granted 266,000 8.25 -- -- -- --
Exercised (478) 5.50 (300) 5.50 (1,990) 5.50
------- ------ -------
Outstanding, end of year 266,000 $ 8.25 478 $ 5.50 778 $ 5.50
======= ====== =======
At June 30, 1997, no options are exercisable.
In fiscal year 1997, the Company agreed to award up to 34,000 shares
of its common stock to an employee as part of his employment agreement. The
shares are earned over a twenty-four month period provided the employee remains
employed with the Company. The market value of shares to be awarded of $241,000
was recorded as deferred compensation, and is being amortized to compensation
expense over the twenty-four month period that the shares are earned. During
fiscal year 1997, 18,000 shares were released under the agreement.
In fiscal year 1996, the Company awarded 10,000 shares of its common
stock to an employee for past services rendered. This award resulted in
compensation expense of $110,000, measured by the market value of the shares on
the date of grant.
In fiscal year 1995, the Company awarded an aggregate of 10,000 shares
of its common stock to employees related to services to be provided over the
one year period from the date of grant and, as a result, the stock award
agreement provided that the Company had an option to repurchase the awarded
shares for one cent per share if the recipient was not an employee, for any
reason, any time within one year from the date of grant. The market value of
the shares awarded in fiscal year 1995 of $35,000 was recorded as deferred
compensation and amortized to compensation expense over the one year period the
employees provided the related services.
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Compensation expense related to stock awards was $135,000, $136,000
and $167,000 for fiscal years 1997, 1996 and 1995, respectively. Deferred
compensation of $106,000, representing the unamortized portion of compensation
expense relating to the 1997 award, is reflected as a reduction of
stockholders' equity in the accompanying consolidated balance sheet as of June
30, 1997. Treasury shares have been utilized for all stock awards and
accordingly treasury stock has been reduced for the cost of the shares on a
specific identification basis, first-in first-out.
On a pro-forma basis, net income and net income per share would have
been $3,390,000 and $0.87 for fiscal year 1997 had the Company measured
compensation cost using the fair value method of SFAS No. 123. In 1996, net
income and net income per share would have been unchanged as (i) there were no
stock options granted in fiscal year 1996, and (ii) for stock awards granted in
fiscal year 1996, compensation costs over the vesting period is already
reflected in the historical amounts. 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.
In June 1990, the Company announced that its Board of Directors had
approved a stock purchase program, authorizing the purchase of up to $1,000,000
of the Company's common stock. Purchases can be made in the open market or in
privately negotiated transactions. The program may be suspended from time to
time or discontinued. As of June 30, 1997, the Company has expended
approximately $805,000 to purchase an aggregate of 308,400 shares under this
program.
NOTE 7. COMMITMENTS
OPERATING LEASES
In fiscal 1997, the Company amended its related party operating lease.
The term of the lease agreement was extended through December 31, 2001. Rent
expense under this related party operating lease was approximately $466,000,
$453,000 and $441,000 for the fiscal years ended June 30, 1997, 1996 and 1995,
respectively. Under this lease future minimum rent payments will be
approximately $473,000 per year.
Rent expense to unrelated parties was approximately $23,000, $25,000
and $20,000 for the fiscal years ended June 30, 1997, 1996 and 1995,
respectively.
EMPLOYMENT AGREEMENTS
In September 1992, the Company amended its President's employment
agreement, effective October 1992, to provide for an increase in the annual
base compensation to $234,000 as well as additional annual compensation equal
to 5% of net income before such bonus and income taxes. In February 1993, the
agreement was further amended to extend the President's term of employment
until March 1, 1995. This amendment further provides for automatic one year
renewals of the employment agreement on March 1st of every year subsequent to
March 1, 1995, 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.
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In September 1996, the Company entered into a three year employment
agreement with a new officer. The agreement provides for annual base
compensation of $150,000, additional annual compensation equal to .5% of pretax
profits, and an award of up to 34,000 shares of the Company's common stock,
issuable in monthly installments provided the officer continues to be employed
by the Company (see Note 6). If at any time after the first three years of
employment the officer's employment is terminated by the Company, the
individual is entitled to a severance payment of $100,000. As of June 1997, the
release of shares under this agreement had been terminated pending
renegotiation of the agreement. No additional compensation expense is expected
to be incurred as a result of the renegotiation.
NOTE 8. OTHER DATA
ACCRUED EXPENSES
Accrued expenses consist of the following:
JUNE 30, 1997 JUNE 30, 1996
------------- -------------
Accrued commissions $1,344,000 $1,004,000
Accrued payroll and related expenses 1,303,000 1,049,000
Other 214,000 162,000
---------- ----------
$2,861,000 $2,215,000
========== ==========
VALUATION AND QUALIFYING ACCOUNTS
Valuation and qualifying accounts included in the accompanying
consolidated financial statements consist of the following:
JUNE 30, 1997 JUNE 30, 1996
------------- -------------
Allowance for doubtful accounts
receivable and sales returns $340,000 $310,000
======== ========
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, 1997, 1996 and
1995, the Company provided a matching contribution of $303,000, $291,000 and
$265,000, 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, shall
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 1997, 1996
and 1995, the Company recognized related compensation expense of $538,000,
$313,000 and $279,000, respectively.
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NOTE 9. FOREIGN OPERATIONS
The Company markets and distributes a portion of its foreign sales
through Phase Components Ltd., a wholly-owned subsidiary in the United Kingdom.
The following table summarizes certain financial information covering
the Company's operations in the U.S. and U.K. for fiscal years 1997, 1996 and
1995.
1997 1996 1995
---- ---- ----
Net sales
U.S. $33,730,000 $31,544,000 $26,264,000
U.K. 2,799,000 2,340,000 2,366,000
Total $36,529,000 $33,884,000 $28,630,000
=========== =========== ===========
Pretax income
U.S. $ 4,869,000 $ 3,006,000 $ 2,142,000
U.K. 469,000 241,000 326,000
----------- ----------- -----------
Total $ 5,338,000 $ 3,247,000 $ 2,468,000
=========== =========== ===========
Identifiable Assets
U.S. $35,176,000 $31,014,000 $29,394,000
U.K. 1,948,000 2,044,000 2,230,000
----------- ----------- -----------
Total $37,124,000 $33,058,000 $31,624,000
=========== =========== ===========
U.S. sales include $8,753,000, $8,985,000 and $7,816,000 for export in
fiscal years 1997, 1996 and 1995, 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 judgement and, therefore, cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
F-16
NOTES
F-17
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
TO
ANNUAL REPORT ON 10-K
JUNE 30, 1997
AMERICAN TECHNICAL CERAMICS CORP.
TABLE OF CONTENTS
EXHIBIT NO.: DESCRIPTION
- ------------ -----------
10(k)(ii) - Letter Agreement, dated September 11, 1997, between the
Registrant and Stuart P. Litt
10(m) - American Technical Ceramics Corp. 1997 Stock Option Plan
27 - Financial Data Schedule