UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002
or
( ) Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
FOR THE TRANSITION PERIOD FROM ________ TO _________
COMMISSION FILE NUMBER 1-9125
-----------------------------
AMERICAN TECHNICAL CERAMICS CORP.
---------------------------------
(Exact name of Registrant as specified in Its charter)
DELAWARE 11-2113382
-------- ----------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
17 STEPAR PLACE, HUNTINGTON STATION, NY 11746
-------------------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
(631) 622-4700
--------------
(Telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------ -------
As of November 1, 2002, the Registrant had outstanding 8,072,118 shares of
Common Stock, par value $.01 per share.
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
AMERICAN TECHNICAL CERAMICS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
SEPT. 30, 2002 JUNE 30, 2002
---------------- ---------------
ASSETS (unaudited)
Current assets
Cash (including cash equivalents of $469 and
$3,606, respectively) $ 4,957 $ 7,129
Investments 3,017 3,025
Accounts receivable, net 6,464 6,328
Inventories 14,912 15,417
Deferred income taxes, net 2,284 2,284
Other current assets 2,523 2,564
---------------- ---------------
TOTAL CURRENT ASSETS 34,157 36,747
---------------- ---------------
Property, plant and equipment, net of accumulated depreciation
and amortization of $33,450 and $32,158, respectively 30,081 29,740
Other assets, net 52 87
---------------- ---------------
TOTAL ASSETS $ 64,290 $ 66,574
---------------- ---------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt $ 352 $ 4,276
Accounts payable 795 878
Accrued expenses 3,226 3,218
Income taxes payable, net 171 ---
---------------- ---------------
TOTAL CURRENT LIABILITIES 4,544 8,372
Long-term debt, net of current portion 3,584 2,368
Deferred income taxes 3,642 3,642
---------------- ---------------
TOTAL LIABILITIES 11,770 14,382
---------------- ---------------
Commitments and Contingencies
Stockholders' Equity
Common Stock -- $.01 par value; authorized 20,000,000
shares; issued 8,492,258 and 8,492,258 shares, respectively 85 85
Capital in excess of par value 11,402 11,380
Retained earnings 42,509 42,171
Accumulated other comprehensive loss:
Unrealized gain on investments available-for-sale, net 6 5
Cumulative foreign currency translation adjustment (62) (46)
---------------- ---------------
(56) (41)
---------------- ---------------
Less: Treasury stock, at cost (421,140 and 418,140 shares, respectively) 1,408 1,403
Deferred compensation 12 ---
---------------- ---------------
TOTAL STOCKHOLDERS' EQUITY 52,520 52,192
---------------- ---------------
$ 64,290 $ 66,574
================ ===============
See accompanying notes to unaudited consolidated financial statements.
2
AMERICAN TECHNICAL CERAMICS CORP. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
For the Three Months Ended
September 30,
2002 2001
--------------- ---------------
Net sales $ 12,487 $ 13,905
Cost of sales 8,401 9,544
--------------- ---------------
Gross profit 4,086 4,361
--------------- ---------------
Selling, general and administrative expenses 2,962 3,021
Research and development expenses 669 852
--------------- ---------------
Operating expenses 3,631 3,873
--------------- ---------------
--------------- ---------------
Income from operations 455 488
--------------- ---------------
Other (income) expense:
Interest expense 60 143
Interest income (37) (60)
Other (51) (46)
--------------- ---------------
(28) 37
--------------- ---------------
Income before provision for income taxes 483 451
Provision for income taxes 145 153
--------------- ---------------
Net income $ 338 $ 298
=============== ===============
Basic net income per common share $ 0.04 $ 0.04
=============== ===============
Diluted net income per common share $ 0.04 $ 0.04
=============== ===============
Basic weighted average common
shares outstanding 8,071 8,030
=============== ===============
Diluted weighted average common
shares outstanding 8,157 8,252
=============== ===============
See accompanying notes to unaudited consolidated financial statements.
3
AMERICAN TECHNICAL CERAMICS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended September 30,
2002 2001
---------------------- ---------------------
CASH FLOWS FROM OPERATING ACTIVITIES: (In thousands)
(unaudited)
Net income $ 338 $ 298
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,312 1,371
Loss on disposal of fixed assets 115 1
Stock award compensation expense 4 91
Changes in operating assets and liabilities:
Accounts receivable (136) 4,021
Inventories 505 222
Other assets 78 400
Accounts payable and accrued expenses (75) (3,299)
Income taxes payable 171 (826)
---------------------- ---------------------
Net cash provided by operating activities 2,312 2,279
---------------------- ---------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (331) (1,167)
Purchase of investments (993) ---
Proceeds from sale of investments 1,000 ---
---------------------- ---------------------
Net cash used in investing activities (324) (1,167)
---------------------- ---------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debt (4,145) (150)
Proceeds from the exercise of stock options --- 51
---------------------- ---------------------
Net cash used in financing activities (4,145) (99)
---------------------- ---------------------
---------------------- ---------------------
Effect of exchange rate changes on cash (15) 59
---------------------- ---------------------
Net (decrease)/ increase in cash and cash equivalents (2,172) 1,072
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 7,129 1,659
---------------------- ---------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 4,957 $ 2,731
====================== =====================
Supplemental cash flow information:
Interest paid $ 98 $ 154
Taxes paid $ --- $ 994
See accompanying notes to unaudited consolidated financial statements.
4
AMERICAN TECHNICAL CERAMICS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
(1) BASIS OF PRESENTATION:
The accompanying unaudited interim consolidated financial statements of
American Technical Ceramics Corp. and subsidiaries (the "Registrant") reflect
all adjustments (consisting of normal recurring accruals) which are, in the
opinion of management, necessary for a fair presentation of its consolidated
financial position as of September 30, 2002 and the results of its operations
for the three month periods ended September 30, 2002 and 2001. These
consolidated financial statements should be read in conjunction with the summary
of significant accounting policies and notes to consolidated financial
statements included in the Registrant's Annual Report to Stockholders for the
fiscal year ended June 30, 2002. Results for the three month period ended
September 30, 2002 are not necessarily indicative of results which could be
expected for the entire year.
(2) IMPACT OF NEW ACCOUNTING STANDARDS:
In July 2002, the Registrant adopted Statement of Financial Accounting
Standards No. 143, "Accounting for Asset Retirement Obligations" ("SFAS No.
143"). SFAS No. 143 addresses financial accounting requirements for retirement
obligations associated with retirement of tangible long-lived assets and for the
associated asset retirement costs. The adoption of SFAS No. 143 did not have
any impact on the Registrant's consolidated results of operations or financial
position for the quarter ended September 30, 2002.
In July 2002, the Registrant adopted Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" ("SFAS No. 144"), which addresses financial accounting and reporting
for the impairment or disposal of long-lived assets. SFAS No. 144 establishes
accounting guidelines for the impairment of long-lived assets to be held and
used; to be disposed of other than by sale; and to be disposed of by sale. The
adoption of SFAS No. 144 did not have any impact on the Registrant's
consolidated results of operations or financial position for the quarter ended
September 30, 2002.
In June 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 146, "Accounting for Costs Associated with
Exit or Disposal Activities" ("SFAS No. 146"), which is effective for exit or
disposal activities initiated after December 31, 2002. SFAS No. 146 applies to
costs associated with an exit activity (including restructuring costs) or with a
disposal of long-lived assets. Companies will record a liability for exit or
disposal activity as such amounts are incurred and can be measured at fair
value. The Registrant does not expect the adoption of SFAS No. 146 to have a
material impact on its consolidated results of operations or financial position.
5
AMERICAN TECHNICAL CERAMICS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
(3) SUPPLEMENTAL CASH FLOW INFORMATION:
During the three months ended September 30, 2002, the Registrant (i)
granted $16 in deferred compensation stock awards, and (ii) adjusted a capital
lease relating to its Jacksonville, Florida facility to reflect certain
additions to the facility. The adjustment increased both fixed assets and the
related long-term debt by $1,437. See Note (7).
(4) INVENTORIES:
Inventories included in the accompanying consolidated financial statements
consist of the following:
September 30, June 30,
2002 2002
--------------- ---------
(unaudited)
Raw materials $ 7,151 $ 7,753
Work-in-process 4,179 3,968
Finished goods 3,582 3,696
--------------- ---------
$ 14,912 $ 15,417
=============== =========
(5) EARNINGS PER SHARE:
The following represents a reconciliation of the numerators and
denominators of the basic and diluted earnings per share computation.
For the Quarter Ended September 30,
2002 2001
---- ----
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) Denominator) Amount
------------ ------------- ---------- ------------ ------------ ----------
Basic EPS $ 338 8,071 $ .04 $ 298 8,030 $ 04
========== ==========
EFFECT OF DILUTIVE SECURITIES:
Stock options 79 204
Deferred compensation
stock awards 7 18
------------ ------------- ---------- ------------ ------------ ----------
DILUTED EPS $ 338 8,157 $ .04 $ 298 8,252 $ .04
============ ============= ========== ============ ============ ==========
Options covering 914 and 867 shares, respectively, have been omitted from
the calculation of dilutive EPS for the three months ended September 30, 2002
and 2001, respectively, because their inclusion would have been antidilutive.
6
AMERICAN TECHNICAL CERAMICS CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
(6) COMPREHENSIVE INCOME:
The Registrant's comprehensive income is as follows:
For The Three Months Ended
September 30,
2002 2001
--------------- -------------
Net income $ 338 $ 298
--------------- -------------
Other comprehensive (loss)/ income
Foreign currency translation adjustments (16) 71
Unrealized gains on investments, net of tax: 1 108
--------------- -------------
Other comprehensive (loss)/income (15) 179
--------------- -------------
Comprehensive income $ 323 $ 477
=============== =============
(7) INDEBTEDNESS:
The Registrant maintained two credit facilities with Bank of America, N.A.,
a revolving line of credit and an equipment facility. Each of these facilities
was subject to certain financial covenants, including a requirement to maintain
a certain level of annualized earnings before interest, taxes, depreciation and
amortization (EBITDA) to current debt plus annual interest payments. As of June
30, 2002, due to the losses incurred by the Registrant during fiscal year 2002,
the Registrant was not in compliance with this covenant. The Registrant held
discussions with Bank of America, N.A. concerning possible amendments to the
terms of the facilities which proved to be unsuccessful. Accordingly, in August
2002, the Registrant repaid the outstanding balance under the equipment facility
and terminated both facilities.
The Registrant leases a facility in Jacksonville, Florida from a
partnership controlled by the Registrant's President, Chief Executive Officer
and principal stockholder under a capital lease. The rental payments under this
lease have been adjusted several times, most recently as of September 2002,
primarily to reflect certain additions to the facility and market value
adjustments as required by the terms of the lease based upon independent
appraisals. Effective September 1, 2002, the Registrant is obligated to pay
approximately $720 per annum under this lease, an increase from $461 per annum
during fiscal year 2002. The payments due over the remaining nine years of this
capital lease, including the portion related to interest, total approximately
$5,753.
(8) STOCK BASED COMPENSATION:
On January 16, 2002, the Board of Directors filed a Schedule TO with
the Securities and Exchange Commission, and commenced an offer to exchange
outstanding options under its existing stock option plans having an exercise
price per share of $19.50 or more for new options. The offer expired on
February 13, 2002. The Registrant accepted for exchange options to purchase an
aggregate of 432,000 shares of Common Stock. On August 15, 2002, the Registrant
issued 407,000 new options in exchange for the options tendered and accepted for
exchange. The new options were issued at the closing price of the Registrant's
Common Stock on August 15, 2002, which was $2.35 per share.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share data)
The following discussion and analysis should be read in conjunction with
the consolidated financial statements, related notes and other information
included in this Quarterly Report on Form 10-Q.
Statements in this Quarterly Report on Form 10-Q that are not historical
fact may constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. All such forward-looking
statements are subject to risks and uncertainties, including, but not limited
to, market and economic conditions, the impact of competitive products, product
demand and market acceptance risks, changes in product mix, costs and
availability of raw materials, fluctuations in operating results, delays in
development of highly complex products, risks associated with international
sales and sales to the U.S. military, risk of customer contract or sales order
cancellations and other risks detailed from time to time in the Registrant's
filings with the Securities and Exchange Commission, including, without
limitation, those contained under the caption "Item 1. BUSINESS - CAUTIONARY
STATEMENTS REGARDING FORWARD - LOOKING STATEMENTS" in the Registrant's Annual
Report on Form 10-K. These risks could cause the Registrant's actual results for
future periods to differ materially from those expressed in any forward-looking
statements made by, or on behalf of, the Registrant. Any forward-looking
statement represents the Registrant's expectations or forecasts only as of the
date it was made and should not be relied upon as representing its expectations
or forecasts as of any subsequent date. The Registrant undertakes no obligation
to correct or update any forward-looking statement, whether as a result of new
information, future events or otherwise, even if its expectations or forecasts
change.
Overview
- --------
The Registrant returned to profitability in the first quarter of fiscal
year 2003 for the first time in four quarters. The improvement was primarily the
result of increased sequential quarterly sales and the impact of cost reduction
measures put in place during fiscal year 2002.
The first quarter of this fiscal year continued the trend started in the
third quarter of last fiscal year of slow growth in sequential quarterly sales
and bookings. The wireless infrastructure and fiber optic markets continue to
be very slow compared to the peak levels experienced in fiscal year 2001, while
most of the other markets the Registrant serves remain steady. Shipments in the
first quarter of last year were being made extensively from the existing backlog
of orders. In contrast, in the first quarter of fiscal year 2003, shipments
were filled from current orders as customers have been placing orders on short
lead times.
During the quarter ended September 30, 2002, the Registrant used available
cash on hand to pay off its outstanding bank debt of $4,047 and terminated its
lines of credit. Even giving effect to this repayment, the Registrant ended the
quarter with cash, cash equivalents and investments of just under $8,000. This
had the effect of significantly improving the Registrant's current and quick
ratios. The Registrant also took further steps to reduce inventory and control
capital spending.
The Registrant leases a Jacksonville, Florida facility from an entity
controlled by its President, Chief Executive Officer and principal stockholder.
Effective September 1, 2002, the rental payments under this lease were adjusted
upward to reflect the addition of a new manufacturing plant at the facility. The
adjustment was made in accordance with the terms of the lease for the facility
based upon a fair market value appraisal. The lease continues to be recorded as
a capital lease and consequently increased the Registrant's long-term debt as
well as fixed assets by $1,437.
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
(In thousands, except per share data)
RESULTS OF OPERATIONS
- -----------------------
Three Months Ended September 30, 2002 Compared with Three Months Ended
- --------------------------------------------------------------------------------
September 30, 2001
- ------------------
Net sales for the three months ended September 30, 2002 decreased 10% to
$12,487, compared to $13,905 in the comparable period in the prior fiscal year.
The decrease in net sales was primarily the result of decreased sales due to
continued weakness in the telecommunication markets.
Gross margin for the three months ended September 30, 2002 was 33% of net
sales, compared to 31% for the comparable period in the prior fiscal year. The
increase in gross margin was principally due to lower labor and overhead costs
as the result of cost reduction measures taken during fiscal year 2002. These
measures included a reduction in headcount, reduced capital spending and general
cost controls on discretionary spending. Additionally, the Registrant wrote
down certain inventory to net realizable value in the first quarter of fiscal
year 2002. There were no significant inventory write-downs in the first quarter
of fiscal year 2003.
Selling, general and administrative expenses for the three months ended
September 30, 2002 decreased 2% to $2,962, compared to $3,021 in the comparable
period in the prior fiscal year. The decrease was the result of the cost
reduction measures implemented during fiscal year 2002, as discussed above.
Research and development expenses for the three months ended September 30,
2002 decreased 21% to $669, compared to $852 in the comparable period in the
prior fiscal year. A reduction in research and development spending was among
the cost reduction measures referred to above. Additionally, certain costs for
developing products and processes are now included in cost of sales to the
extent these products and processes have entered into the production stage of
their development.
Bookings for the three months ended September 30, 2002 were $12,233,
compared to $10,157 for the three months ended September 30, 2001.
Cancellations have returned to historical levels, but bookings remain low,
particularly in the fiber optic and semiconductor manufacturing equipment
sectors. Bookings improved in nearly all product lines as compared to the first
quarter of fiscal year 2002 and have increased modestly in most product lines
over the past three quarters.
The backlog of unfilled orders at September 30, 2002 was $9,035, compared
to $12,545 at September 30, 2001 and $9,310 at June 30, 2002. The decrease in
backlog compared to September 30, 2001 is primarily the result of customers
placing orders with shorter delivery requirements. During the early part of
fiscal year 2002, the Registrant was still shipping orders from backlog that had
accumulated months earlier.
As a result of the foregoing, net income for the three months ended
September 30, 2002 was $338, or $.04 per common share ($.04 per common share
assuming dilution), compared to net income of $298, or $.04 per common share
($.04 per common share assuming dilution), for the comparable period in the
prior fiscal year.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
(In thousands, except per share data)
LIQUIDITY AND CAPITAL RESOURCES
- ----------------------------------
The Registrant's financial position at September 30, 2002 remains strong as
evidenced by working capital of $29,613, and stockholders' equity of $52,520.
The Registrant's current ratio at September 30, 2002 was 7.5:1, compared to a
current ratio of 4.4:1 at June 30, 2002. The Registrant's quick ratio at
September 30, 2002 was 3.2:1 as compared to 2.0:1 at June 30, 2002. The
improvement in the Registrant's current and quick ratios was primarily due to
the use of available cash to pay off bank debt (all of which was recorded as
current liabilities at June 30, 2002).
Cash, cash equivalents and investments decreased by $2,180 to $7,974 at
September 30, 2002 from $10,154 at June 30, 2002, primarily the result of
retiring the bank debt as described below, offset partially by positive
operating cash flows in excess of capital expenditures. Accounts receivable
increased by $136 to $6,464 at September 30, 2002 from $6,328 at June 30, 2002.
Inventories decreased by $505 to $14,912 at September 30, 2002 from $15,417 at
June 30, 2002. Accounts payable and accrued expenses decreased by $75 to $4,021
at September 30, 2002 from $4,096 at June 30, 2002.
The Registrant had available two credit facilities with Bank of America,
N.A.: a revolving line of credit of $4,000 and an equipment line of credit of
$8,500. The outstanding principal balance under both lines bore interest at
1.5% above the one month rate for U.S. Dollar deposits on the London Interbank
Market ("LIBOR"). These credit facilities were subject to certain financial
covenants, including a requirement to maintain a certain level of annualized
earnings before interest, taxes, depreciation and amortization (EBITDA) to
current debt plus annual interest payments. As of June 30, 2002, due to the
losses incurred by the Registrant during fiscal year 2002, the Registrant was
not in compliance with this covenant. The Registrant held discussions with Bank
of America, N.A concerning possible amendments to the terms of the facility
which proved to be unsuccessful. Accordingly, in August 2002, the Registrant
repaid the outstanding balance of the equipment facility and terminated both the
equipment facility and the revolving line of credit. The Registrant believes
that cash on hand, investments and cash flow from operations will be sufficient
to fund its ongoing cash requirements for the foreseeable future.
The Registrant leases a facility in Jacksonville, Florida from a
partnership controlled by the Registrant's President, Chief Executive Officer
and principal stockholder under a capital lease. The rental payments under this
lease have been adjusted several times, most recently as of September 2002,
primarily to reflect certain additions to the facility and market value
adjustments based upon independent appraisals. Effective September 1, 2002, the
Registrant is obligated to pay approximately $720 per annum under this lease, an
increase from $461 per annum during fiscal year 2002. The payments due over the
remaining nine years of this capital lease, including the portion related to
interest, total approximately $5,753.
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
(In thousands, except per share data)
Capital expenditures for the three months ended September 30, 2002 totaled
$331, excluding adjustments to the capital lease discussed above, expenditures
for machinery and equipment and planned leasehold improvements. The Registrant
intends to use cash on hand to finance budgeted capital expenditures, primarily
for equipment acquisition, of approximately $2,000 for the remainder of fiscal
year 2003.
Aggregate contractual obligations as of September 30, 2002 mature as follows:
Payments Due by Period (in 000's)
-----------------------------------------
Less
than 1 1- 3 4- 5 After 5
Contractual Obligations Total year years years years
- ----------------------------- ------ ------- ------ ------ --------
Bank Debt $ --- $ --- $ --- $ --- $ ---
Capital Lease Obligations 3,936 352 1,241 1,050 1,293
Operating Leases 2,610 544 1,246 820 ---
------ ------- ------ ------ --------
Total Contractual Obligations $6,546 $ 896 $2,487 $1,870 $ 1,293
====== ======= ====== ====== ========
As described previously, in July 2002, the Registrant repaid the
outstanding balance of its equipment line from Bank of America, N.A.
Accordingly, the Registrant currently has no outstanding long-term bank debt, or
available committed lines of credit.
The Registrant routinely enters into binding and non-binding purchase
obligations in the ordinary course of business, primarily covering anticipated
purchases of inventory and equipment. The terms of these commitments generally
do not extend beyond six months. None of these obligations are individually
significant. The Registrant does not expect that these commitments will
materially adversely affect its liquidity in the foreseeable future.
CRITICAL ACCOUNTING POLICIES
- ------------------------------
The Securities and Exchange Commission (the "SEC") recently issued
disclosure guidance for "critical accounting policies." The SEC defines
"critical accounting policies" as those that require the application of
management's most difficult, subjective or complex judgments, often as a result
of the need to make estimates about the effect of matters that are inherently
uncertain and may change in subsequent periods. The Registrant's significant
accounting policies are described in Note 1 to its consolidated financial
statements contained in its Annual Report on Form 10-K for the fiscal year ended
June 30, 2002. The Registrant believes that the following accounting policies
require the application of management's most difficult, subjective or complex
judgments:
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
(In thousands, except per share data)
Allowances for Doubtful Accounts Receivable
- -----------------------------------------------
The Registrant performs ongoing credit evaluations of its customers and
adjusts credit limits based upon payment history and customer's current
creditworthiness, as determined by its review of the customer's current credit
information. The Registrant continuously monitors collections and payments from
its customers and maintains an allowance for estimated credit losses based upon
its historical experience and any specific customer collection issues that the
Registrant has identified. While such credit losses have historically been
within the Registrant's expectations and the allowances established, the
Registrant cannot guarantee that it will continue to experience the same credit
loss rates that it has in the past. Should the financial position of its
customers deteriorate resulting in an impairment of their ability to pay amounts
due, the Registrant's revised estimate of such losses may negatively impact its
operating results in the future.
Sales Returns and Allowances
- -------------------------------
In the ordinary course of business, the Registrant accepts returns of
products sold for various reasons and grants sales allowances to customers.
While the Registrant engages in extensive product quality control programs and
processes, its level of sales returns is affected by, among other things, the
quality of its manufacturing processes. The Registrant maintains an allowance
for sales returns and allowances based upon historical returns and allowances
granted. While such returns and allowances have historically been within the
Registrant's expectations, actual return and allowance rates in the future may
differ from current estimates, which could negatively impact its operating
results in the future.
Inventory Valuation
- --------------------
The Registrant values inventory at the lower of aggregate cost (First-in,
First-out) or market. When the cost of inventory is determined by management to
be in excess of its market value, inventory is written down to its estimated net
realizable value. This requires the Registrant to make estimates and
assumptions about several factors (e.g., future sales quantities and selling
prices, and percentage complete and failure rates for work in process) based
upon historical experience and its projections for future periods. Changes in
factors such as the level of order bookings, the product mix of order bookings
and the Registrant's manufacturing processes could have a material impact on the
Registrant's assessment of the net realizable value of inventory in the future.
Valuation of Deferred Tax Assets
- ------------------------------------
The Registrant regularly evaluates its ability to recover the reported
amount of its deferred income taxes considering several factors, including its
estimate of the likelihood of the Registrant generating sufficient taxable
income in future years during the period over which temporary differences
reverse. Presently, the Registrant believes that it is more likely than not
that it will realize the benefits of its deferred tax assets based primarily on
its history of and projections for taxable income in the future, and its
intention to carry back net operating losses to generate refunds of income taxes
previously paid. In the event that actual results differ from its estimates or
the Registrant adjusts these estimates in future periods, the Registrant may
need to establish a valuation allowance against a portion or all of its deferred
tax assets, which could materially impact its financial position or results of
operations in future periods.
12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
(In thousands, except per share data)
Valuation of Long-lived and Intangible Assets
- --------------------------------------------------
The Registrant assesses the recoverability of long-lived assets whenever
the Registrant determines that events or changes in circumstances indicate that
the carrying amount may not be recoverable. Its assessment is primarily based
upon its estimate of future cash flows associated with these assets. The
Registrant has not determined that there has been an indication of impairment of
any of its assets. However, should its operating results deteriorate, or
anticipated new product launches not occur or not attain the commercial
acceptance that the Registrant anticipates, the Registrant may determine that
some portion of its long-lived assets are impaired. Such determination could
result in non-cash charges to income that could materially affect its financial
position or results of operations for that period.
IMPACT OF NEW ACCOUNTING STANDARDS:
- ---------------------------------------
In July 2002, the Registrant adopted Statement of Financial Accounting
Standards No. 143, "Accounting for Asset Retirement Obligations" ("SFAS No.
143"). SFAS No. 143 addresses financial accounting requirements for retirement
obligations associated with retirement of tangible long-lived assets and for the
associated asset retirement costs. The adoption of SFAS No. 143 did not have
any impact on the Registrant's consolidated results of operations or financial
position for the quarter ended September 30, 2002.
In July 2002, the Registrant adopted Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" ("SFAS No. 144"), which addresses financial accounting and reporting
for the impairment or disposal of long-lived assets. SFAS No. 144 establishes
accounting guidelines for the impairment of long-lived assets to be held and
used; to be disposed of other than by sale; and to be disposed of by sale. The
adoption of SFAS No. 144 did not have any impact on the Registrant's
consolidated results of operations or financial position for the quarter ended
September 30, 2002.
In June 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 146, "Accounting for Costs Associated with
Exit or Disposal Activities" ("SFAS No. 146"), which is effective for exit or
disposal activities initiated after December 31, 2002. SFAS No. 146 applies to
costs associated with an exit activity (including restructuring costs) or with a
disposal of long-lived assets. Companies will record a liability for exit or
disposal activity as such amounts are incurred and can be measured at fair
value. The Registrant does not expect the adoption of SFAS No. 146 to have a
material impact on its consolidated results of operations or financial position.
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
(In thousands, except per share data)
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Registrant has identified two market risks relative to its business:
foreign currency exchange rate risk and commodity price risk. The Registrant
has managed its market risk exposures in order to minimize their potential
impact on its consolidated financial condition and results of operations.
Specifically:
a) Foreign currency exchange rate risk. With the exception of sales by
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the Registrant's wholly-owned subsidiary, in Sweden (which are
denominated in Krona), all transactions are, or are anticipated to be,
denominated in U.S. Dollars. The Registrant has not experienced any
significant impact from exchange rate fluctuation in the past, and
does not anticipate a significant impact due to exchange rate
fluctuation in the foreseeable future.
b) Commodity price risk. Following substantial reductions in the price of
---------------------
palladium, prices for this precious metal, which is used in the
manufacture of the Registrant's capacitors, have stabilized. The
Registrant believes that, based upon its current levels of production
and inventories of palladium, it will need to buy additional
quantities of palladium later in the fiscal year at prevailing market
prices. Additionally, the Registrant believes that the price of
palladium will remain stable due to the lower demand coming from the
electronics industry.
The Registrant had identified two other market risks in its Annual Report
on Form 10-K for the fiscal year ended June 30, 2002: interest rate risk and
security price risk. During the quarter ended September 30, 2002, the
Registrant repaid all of its outstanding bank debt. See Note 7 to Notes to
Unaudited Consolidated Financial Statements and "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources." Consequently, at the present time, the Registrant does not
consider interest rate risk to be a market risk relative to its business. In
addition, all of the securities currently held by the Registrant for investment
are government securities with maturities of less than one year. Accordingly,
at the present time, the Registrant does not consider security price risk to be
a market risk relative to its business.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
- -----------------------------------------------------
In response to the requirements of the Sarbanes-Oxley Act of 2002, the
Registrant reviewed and modified its "disclosure controls and procedures" (as
defined in Securities Exchange Act of 1934 Rules 13a-14(c) and 15(d)-4(c)).
Within 90 days prior to the date of this report (the "Evaluation Date"), the
Registrant's President and Chief Executive Officer and Vice President,
Controller carried out an evaluation of the effectiveness of these disclosure
controls and procedures. Based on that evaluation, these officers concluded
that, as of the Evaluation Date, the Registrant's disclosure controls and
procedures were adequate and designed to ensure that material information
relating to the Registrant and the Registrant's consolidated subsidiaries would
be made known to them by others within those entities.
14
Changes in Internal Controls
- -------------------------------
Subsequent to the Evaluation Date, there were no significant changes in the
Registrant's internal controls, or to the Registrant's knowledge, in other
factors that could significantly affect these controls.
PART II - OTHER INFORMATION
ITEMS 1. THROUGH 5. Not Applicable
---------------
ITEM 6. Exhibits and Reports on Form 8-K
-------------------------------------
(a) Exhibits
--------
Unless otherwise indicated, the following exhibits were filed as part of
the Registrant's Registration Statement on Form S-18 (No. 2-96925-NY) (the
"Registration Statement") and are incorporated herein by reference to the same
exhibit thereto:
EXHIBIT NO. DESCRIPTION
- ------------ -----------
3(a)(i) - Certificate of Incorporation of the Registrant.
3(a)(ii) - Amendment to Certificate of Incorporation. (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) - Lease, dated September 1, 2002, between Stepar Leasing, LLC
and the Registrant for premises at 15 Stepar Place,
Huntington Station, N.Y. (13)
10(c)(i) - Form of 1985 Employee Stock Sale Agreement between the
Registrant and various employees.
10(c)(ii) - Form of Employee Stock Bonus Agreement, dated as of July 1,
1993, between the Registrant and various employees. (2)
10(c)(iii) - Form of Employee Stock Bonus Agreement, dated as of April
19, 1994, between the Registrant and various employees. (2)
10(c)(iv) - Form of Employee Stock Bonus Agreement, dated as of April
20, 1995, between the Registrant and various employees. (3)
10(e)(i) - Second Amended and Restated Lease, dated as of May 16, 2000,
between V.P.I. Properties Associates, d/b/a V.P.I.
Properties Associates, Ltd., and American Technical Ceramics
(Florida), Inc. (8)
15
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. (3)
10(g)(iv) - Employment Agreement, dated April 3, 1985, between Victor
Insetta and the Registrant, and Amendments No. 1 through 4
thereto. (1)
10(g)(v) - Amendment No. 5, dated as of September 11, 1998, to
Employment Agreement between Victor Insetta and the
Registrant. (5)
10(g)(vi) - Managers Profit Bonus Plan, dated December 7, 1999, and
effective January 1, 2000. (7)
10(h) - Employment Agreement, dated September 1, 2000, between the
Registrant and Richard Monsorno. (9)
10(k) - Consulting Agreement, dated October 2000, between the
Registrant and Stuart P. Litt. (9)
10(m)(i) - American Technical Ceramics Corp. 1997 Stock Option Plan.
(4)
10(m)(ii) - American Technical Ceramics Corp. 2000 Incentive Stock Plan.
(7)
10(o)(i) - Loan Agreement, dated November 25, 1998, between the
Registrant and NationsBank, N.A. (6)
10(o)(ii) - Amendment to Loan Agreement, dated February 4, 1999, between
the Registrant and NationsBank, N.A. (7)
10(o)(iii) - Second Amendment to Loan Agreement, dated April 13, 2000,
between the Registrant and Bank of America, N.A., as
successor to NationsBank, N.A. (7)
10(o)(iv) - Third Amendment to Loan Agreement, dated October 26, 2000,
between the Registrant and Bank of America, N.A., as
successor to NationsBank, N.A. (10)
10(o)(v) - Fourth Amendment to Loan Agreement, dated March 30, 2001,
between the Registrant and Bank of America, N.A., as
successor to NationsBank, N.A. (10)
10(p) - Second Amended and Restated Employment Agreement, dated as
of December 31, 2001 between Judah Wolf and the Registrant.
(11)
10(q) - Mortgage Note between American Technical Ceramics Corp. and
European American Bank, N.A., dated as of August 17, 2000.
(8)
10(r) - Employment Agreement, dated April 10, 2001, between the
Registrant and David Ott. (10)
16
10(r)(i) - Amendment to Employment Agreement, dated as of January 1,
2001, between David Ott and the Registrant. (11)
21 - Subsidiaries of the Registrant. (12)
- ------------------------
1. Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended June 30, 1993.
2. Incorporated by reference to the Registrant's Annual Report on Form 10-KSB
for the fiscal year ended June 30, 1994.
3. Incorporated by reference to the Registrant's Annual Report on Form 10-KSB
for the fiscal year ended June 30, 1995.
4. Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended June 30, 1997.
5. Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended June 30, 1998.
6. Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
for the quarterly period ended December 31, 1998.
7. Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended June 30, 2000.
8. Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
for the quarterly period ended September 30, 2000.
9. Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
for the quarterly period ended December 31, 2000.
10. Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
for the quarterly period ended March 31, 2001.
11. Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q/A for the quarterly period ended March 31, 2002.
12. Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended June 30, 2002.
13. Filed herewith.
(b) REPORTS ON FORM 8-K
----------------------
On September 27, 2002, the Registrant furnished a report on Form 8-K
together with the Registrant's Annual Report on Form 10-K for the fiscal year
ended June 30, 2002. The report on Form 8-K contained the certification
required by Section 906 of the Sarbanes-Oxley Act of 2002.
17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant in
the capacities and on the dates indicated:
AMERICAN TECHNICAL CERAMICS CORP.
(Registrant)
DATE: November 13, 2002 BY: /s/ VICTOR INSETTA
------------------
Victor Insetta
President and Director
(Principal Executive Officer)
DATE: November 13, 2002 BY: /s/ ANDREW R. PERZ
------------------
Andrew R. Perz
Vice President, Controller
(Principal Accounting Officer)
18
I, Andrew R. Perz, certify that:
1. I have reviewed this quarterly report on Form 10-Q of American Technical
Ceramics Corp.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the Registrant as of, and for, the periods presented in this
quarterly report.
4. The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the Registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the Registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The Registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the Registrant's auditors and the audit
committee of the Registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to
record, process, summarize and report financial data and have
identified for the Registrant's auditors any material weakness in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal
controls; and
6. The Registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Dated: November 13, 2002 /s/ ANDREW R. PERZ
-------------------
Vice President, Controller
(Principal Accounting Officer)
19
I, Victor Insetta, certify that:
1. I have reviewed this quarterly report on Form 10-Q of American Technical
Ceramics Corp.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the Registrant as of, and for, the periods presented in this
quarterly report.
4. The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the Registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the Registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The Registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the Registrant's auditors and the audit
committee of the Registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to
record, process, summarize and report financial data and have
identified for the Registrant's auditors any material weakness in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal
controls; and
6. The Registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Dated: November 13, 2002 /s/ VICTOR INSETTA
-------------------
President and Chief Executive Officer
(Principal Executive Officer)
20