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: JULY 2, 1999
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 0-1298
ADVANCED TECHNICAL PRODUCTS, INC.
--------------------------------------------------
(Exact name of Issuer as Specified in Its Charter)
DELAWARE 11-1581582
------------------------------- ---------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
200 Mansell Ct. East, Suite 505, Roswell, Georgia 30076
-------------------------------------------------------
(Address of Principal Executive Offices)
(770) 993-0291
------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
------------------------------------------------
(Former Address, if Changed Since Last Report)
Indicate by check mark whether the Registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act during the past
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 [ ]
The aggregate number of shares of Common Stock outstanding as of August 12, 1999
was 5,285,708.
<PAGE>
ADVANCED TECHNICAL PRODUCTS, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements..........................................3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations........................................10
Financial Condition and Liquidity............................11
Year 2000 Issues.............................................12
Forward Looking Statements - Cautionary Factors..............13
Item 3. Quantitative and Qualitative Disclosures About Market Risk...13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................14
Item 2. Changes in Securities and Use of Proceeds....................14
Item 3. Defaults Upon Senior Securities..............................14
Item 4. Submission of Matters to a Vote of Security Holders..........14
Item 5. Other Information............................................14
Item 6. Exhibits and Reports on Form 8-K.............................14
Page 2 of 15
<PAGE>
ADVANCED TECHNICAL PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
------------------ ------------------
July 2, July 3, July 2, July 3,
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues ................................... $48,770 $39,632 $91,108 $70,445
Cost of revenues ........................... 37,258 30,535 70,172 54,293
------- ------- ------- -------
Gross profit ..................... 11,512 9,097 20,936 16,152
General and administrative expenses ........ 7,373 6,148 14,043 12,217
------- ------- ------- -------
Operating income ................. 4,139 2,949 6,893 3,935
Interest expense ........................... 951 831 1,903 1,637
------- ------- ------- -------
Income before income taxes ....... 3,188 2,118 4,990 2,298
Income taxes ............................... 1,227 816 1,921 885
======= ======= ======= =======
Net income ....................... $ 1,961 $ 1,302 $ 3,069 $ 1,413
======= ======= ======= =======
Earnings per share:
Basic ............................ $ 0.37 $ 0.24 $ 0.58 $ 0.26
======= ======= ======= =======
Diluted .......................... $ 0.35 $ 0.23 $ 0.55 $ 0.25
======= ======= ======= =======
Weighted average number of common and common
equivalent shares outstanding:
Basic ............................ 5,261 5,258 5,255 5,239
======= ======= ======= =======
Diluted .......................... 5,510 5,531 5,490 5,510
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
Page 3 of 15
<PAGE>
ADVANCED TECHNICAL PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JULY 2, 1999 AND DECEMBER 31, 1998
(UNAUDITED, IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
JULY 2, DECEMBER 31,
ASSETS 1999 1998
- ---------------------------------------------------------------------------------------------- --------- ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents .................................................................. $ 538 $ 2,030
Accounts receivable (net of allowance for doubtful accounts of $618 and $722
as of July 2, 1999 and December 31, 1998, respectively) .................................. 25,050 26,053
Inventories and costs relating to long-term contracts and programs in
process, net of progress payments ........................................................ 44,351 40,635
Prepaid expenses ........................................................................... 913 1,054
Deferred income taxes ...................................................................... 2,570 2,570
--------- ------------
Total current assets ........................................................... 73,422 72,342
--------- ------------
NONCURRENT ASSETS:
Property, plant and equipment .............................................................. 40,830 37,444
Less-accumulated depreciation .............................................................. (13,635) (11,516)
--------- ------------
Net property, plant and equipment .............................................. 27,195 25,928
--------- ------------
Other assets ............................................................................... 8,593 8,606
========= ============
Total assets ................................................................... $ 109,210 $ 106,876
========= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ........................................................................... $ 11,547 $ 12,665
Accrued expenses ........................................................................... 7,917 7,626
Current portion of capital lease obligation ................................................ 294 294
Short-term debt ............................................................................ 29,003 28,767
--------- ------------
Total current liabilities ...................................................... 48,761 49,352
LONG-TERM LIABILITIES:
Long-term debt, net of current portion ..................................................... 20,526 20,703
Capital lease obligation, net of current portion ........................................... 1,374 1,483
Deferred income taxes ...................................................................... 194 194
Other liabilities .......................................................................... 2,347 2,347
--------- ------------
Total liabilities .............................................................. 73,202 74,079
Mandatorily redeemable preferred stock, 8% cumulative, $1.00 par value,
1,000,000 shares authorized, issued and outstanding ........................................ 1,000 1,000
SHAREHOLDERS' EQUITY:
Preferred stock, undesignated, 1,000,000 shares authorized, no shares issued and outstanding -- --
Common stock, $.01 par value, 30,000,000 shares authorized, 5,277,491 and 5,240,188 shares
issued and outstanding as of July 2, 1999 and December 31, 1998, respectively ............ 53 52
Additional paid-in capital ................................................................. 16,703 16,522
Retained earnings .......................................................................... 19,012 15,983
Notes receivable from officers ............................................................. (135) (135)
Accumulated other comprehensive income - additional minimum pension liability .............. (625) (625)
--------- ------------
Total shareholders' equity .................................................... 35,008 31,797
--------- ------------
Total liabilities and shareholders' equity .................................... $ 109,210 $ 106,876
========= ============
</TABLE>
The accompanying notes are an integral part of these statements.
Page 4 of 15
<PAGE>
ADVANCED TECHNICAL PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JULY 2, 1999 AND JULY 3, 1998
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .......................................................... $ 3,069 $ 1,413
Adjustments to reconcile net income to net cash provided by (used in)
operating activities -
Depreciation and amortization ................................... 2,210 1,722
Deferred income taxes ........................................... -- 60
Common stock issued under employee stock plan ................... 155 --
Decrease in accounts receivable ................................. 1,003 2,260
Increase in inventories ......................................... (3,716) (9,309)
(Increase) decrease in prepaid expenses ......................... 141 (214)
(Increase) decrease in other noncurrent assets .................. (79) 15
Increase (decrease) in accounts payable ......................... (1,118) 328
Increase in accrued expenses .................................... 291 375
-------- --------
Net cash provided by (used in) operating activities ........ 1,956 (3,350)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ................................................ (3,386) (2,844)
Cash payments for businesses acquired, net of cash acquired ......... -- (1,010)
-------- --------
Net cash used in investing activities ...................... (3,386) (3,854)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds of borrowings .............................................. 365 15,978
Repayment of borrowings ............................................. (306) (8,016)
Proceeds from exercise of stock options and warrants ................ 27 10
Cash dividends paid ................................................. (40) --
Payments under capital lease obligations ............................ (108) (145)
-------- --------
Net cash provided by (used in) financing activities ........ (62) 7,827
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ......................... (1,492) 623
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ............................... 2,030 494
======== ========
CASH AND CASH EQUIVALENTS, END OF PERIOD ..................................... $ 538 $ 1,117
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest .............................................. $ 2,218 $ 1,991
Cash paid for income taxes .......................................... $ 2,046 $ 1,622
</TABLE>
The accompanying notes are an integral part of these statements.
Page 5 of 15
<PAGE>
ADVANCED TECHNICAL PRODUCTS, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited Condensed Consolidated Financial Statements
of Advanced Technical Products, Inc. and Subsidiaries (the "Company" or "ATP")
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary for a fair
presentation have been included. Operating results for the quarter and six
months ended July 2, 1999 are not necessarily indicative of the results that may
be expected for the year ending December 31, 1999. For further information,
refer to the consolidated financial statements and footnotes thereto included in
the Company's Form 10-K for the year ended December 31, 1998.
2. ACQUISITION
On May 29, 1998, the Company acquired all of the capital stock of
Brigantine Aircraft, a manufacturer of honeycomb products and engineered panels
located in France. The acquired company, renamed Alcore Brigantine, operates as
a subsidiary of Alcore, Inc., a wholly owned subsidiary of the Company. The
acquisition has expanded the Company's access to the European aerospace and
commercial markets. The acquisition has been accounted for using the purchase
method of accounting and the Company's condensed consolidated financial
statements include the operating results for Alcore Brigantine since the date of
the acquisition.
Page 6 of 15
<PAGE>
3. INVENTORIES
Inventories at July 2, 1999 and December 31, 1998 consisted of the
following (in thousands):
JULY 2, DEC. 31,
1999 1998
-------- --------
Finished goods ........................... $ 1,234 $ 956
Work in process .......................... 30,577 26,113
Raw materials ............................ 22,131 24,860
Progress payments ........................ (9,591) (11,294)
-------- --------
Total inventories .................. $ 44,351 $ 40,635
======== ========
4. DEBT
Debt is summarized as follows (in thousands):
JULY 2, DEC. 31,
1999 1998
------- --------
Short-term debt:
Revolving loans ................................ $24,982 $24,845
Current maturities of long-term debt ........... 4,021 3,922
------- --------
$29,003 $28,767
======= ========
Long-term debt:
Term loans ..................................... $16,714 $16,714
Equipment loans ................................ 2,926 2,819
Deferred obligation ............................ 333 500
Bond payable ................................... 2,300 2,400
Other long-term debt ........................... 2,274 2,192
------- --------
Total long-term debt ........................ 24,547 24,625
Less current portion ........................... 4,021 3,922
------- --------
Long-term debt, net of current portion ...... $20,526 $20,703
======= ========
In March 1998, the Company refinanced its revolving and term loans,
consolidating them with one lending institution. The financing agreement was
amended in June 1998 to increase the capital expenditure facility from $3.0
million to $5.0 million. The agreement was further amended on March 24, 1999 to
increase the balance of the term loan to $18.0 million from the paid-down
balance of $16.1 million existing just prior to the increase. The Company's
credit facility with this lending institution totals $50.0 million consisting
of: (1) $27.0 million of revolving credit against eligible receivable and
inventory balances, (2) an $18.0 million term loan and (3) a $5.0 million
capital expenditure facility. As of July 2, 1999, the Company had approximately
$3.2 million of unused borrowing availability on this credit facility.
Page 7 of 15
<PAGE>
The loans are secured by collateral consisting of substantially all of the
Company's assets including inventory, equipment, receivables, general
intangibles, investment property and real property. The interest rates on the
loans are set quarterly based on the Company's performance against
debt-to-earnings ratios specified in the agreement. Interest rates can range
from LIBOR (the London Interbank Offered Rates) plus 2.25% to LIBOR plus 1.0% on
the revolving loan and from LIBOR plus 2.75% to LIBOR plus 1.5% on the term and
equipment loans. Alternatively, the Company may elect interest rates based on
the lending institution's prime rate with the revolving loan fixed at prime plus
0.25% and the term and equipment loans fixed at prime plus 0.50%. Interest is
paid monthly in arrears on all loans. The credit facility matures on December
31, 2000.
5. EARNINGS PER SHARE
Earnings per share ("EPS") are calculated as follows (in thousands,
except per share amounts):
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
------------------- -------------------
JULY 2, JULY 3, JULY 2, JULY 3,
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income .......................................... $ 1,961 $ 1,302 $ 3,069 $ 1,413
Less: preferred stock dividends accrued ............ (20) (20) (40) (40)
------- ------- ------- -------
Net income available for common shares
(same for both basic and diluted
EPS calculation) ................................. $ 1,941 $ 1,282 $ 3,029 $ 1,373
======= ======= ======= =======
Weighted average number of common shares outstanding:
--Basic .......................................... 5,261 5,258 5,255 5,239
Add: assumed stock conversions, net of
assumed treasury stock purchases:
--stock options ............................... 212 234 201 233
--stock warrants .............................. 37 39 34 38
------- ------- ------- -------
--Diluted ........................................ 5,510 5,531 5,490 5,510
======= ======= ======= =======
Basic EPS ........................................... $ 0.37 $ 0.24 $ 0.58 $ 0.26
======= ======= ======= =======
Diluted EPS ......................................... $ 0.35 $ 0.23 $ 0.55 $ 0.25
======= ======= ======= =======
</TABLE>
Page 8 of 15
<PAGE>
6. SEGMENT REPORTING
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information," which establishes revised standards for the manner in
which public business enterprises report information about operating segments.
Interim reporting of certain segment information is required following the
initial year of adoption of the Statement. Segment financial information for the
quarterly and six month periods ended July 2, 1999 and July 3, 1998 is as
follows (in thousands):
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
--------------------- ---------------------
July 2, July 3, July 2, July 3,
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net revenues
Aerospace / Defense:
-from external customers .......... $ 38,878 $ 31,666 $ 72,259 $ 56,565
-intersegment revenues ............ 261 162 384 162
Other operating segments:
-from external customers .......... 9,892 7,966 18,849 13,880
-intersegment revenues ............ -- -- -- --
Elimination of intersegment revenues (261) (162) (384) (162)
-------- -------- -------- --------
Total ............................. $ 48,770 $ 39,632 $ 91,108 $ 70,445
======== ======== ======== ========
Operating income (loss)
Aerospace / Defense .......... $ 3,409 $ 2,404 $ 5,676 $ 3,704
Other operating segments ............ 1,542 1,146 2,758 1,409
Corporate ........................... (812) (601) (1,541) (1,178)
-------- -------- -------- --------
Total ............................. $ 4,139 $ 2,949 $ 6,893 $ 3,935
======== ======== ======== ========
</TABLE>
7. COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income." This statement
establishes items that are required to be recognized under accounting standards
as components of comprehensive income. Statement 130 requires, among other
things, that an enterprise report a total for comprehensive income in financial
statements of interim periods issued to shareholders. For the quarterly and six
month periods ended July 2, 1999 and July 3, 1998, the Company's consolidated
comprehensive income does not differ materially from the consolidated net income
set forth on the accompanying condensed consolidated statements of income.
Page 9 of 15
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Condensed Consolidated Financial Statements and Notes thereto included
elsewhere herein.
RESULTS OF OPERATIONS
QUARTER AND SIX MONTHS ENDED JULY 2, 1999 COMPARED WITH THE QUARTER AND SIX
MONTHS ENDED JULY 3, 1998
Revenues for the quarter ended July 2, 1999 increased $9.2 million over
the quarter ended July 3, 1998, or 23.1%, from $39.6 million in 1998 to $48.8
million in 1999. Revenues for the six months ended July 2, 1999 increased $20.7
million over the six months ended July 3, 1998, or 29.3%, from $70.4 million in
1998 to $91.1 million in 1999. The increase in revenue in 1999 over 1998 was
primarily attributable to the following factors: (i) increased revenues on
chemical defense contracts, including two large contracts which were in the
design or start-up phase during the first half of 1998 and are now in full
production, (ii) increased deliveries of composite components on several
long-term aerospace / defense programs, including the C-17 and F-18 E/F military
aircraft and (iii) increased sales of the Company's commercial products,
including natural gas vehicle ("NGV") fuel tanks and specialty vehicle
electronics.
Gross profit as a percentage of revenues was 23.6% in the second quarter
of 1999, compared to 23.0% in the second quarter of 1998. The gross profit
percentage for the first six months increased from 22.9% in 1998 to 23.0% in
1999. The increase is primarily the result of improved efficiencies resulting
from increased volume and minor changes in product sales mix.
General and administrative expenses increased $1.2 million, or 19.9%, for
the quarter and $1.8 million, or 14.9%, for the first six months in 1999,
reflecting a general increase in business activity. As a percentage of revenues,
general and administrative expenses decreased from 15.5% in 1998 to 15.1% in
1999 for the quarter, and from 17.3% in 1998 to 15.4% in 1999 for the six
months. The percentage decrease is primarily attributable to the increase in
revenues.
Operating income was $4.1 million, or 8.5% of sales, for the second
quarter of 1999, compared to $2.9 million, or 7.4% of sales, for the second
quarter of 1998. Operating income for the first six months of 1999 was $6.9
million, or 7.6% of sales, compared to $3.9 million, or 5.6% of sales, for the
first six months ended of 1998. The increase in operating income for the quarter
and six months ended July 2, 1999 is primarily attributed to the increase in
revenues and gross profit margin.
Interest expense in 1999 increased $120,000 for the quarter and $266,000
for the six months, primarily the result of an increase in average loan balances
outstanding in the first half of 1999 compared to the same period of 1998.
Income taxes increased $0.4 million for the quarter and $1.0 million for
the six months in 1999 as a result of higher pre-tax earnings. The effective tax
rate was 38.5% for both periods.
Page 10 of 15
<PAGE>
FINANCIAL CONDITION AND LIQUIDITY
Cash flow provided by operations was $2.0 million for the first six months
of 1999 compared to $3.3 million used in operations for the same period in 1998.
Working capital, excluding short-term debt balances, increased $1.9 million in
the first six months of 1999 to $53.7 million. This increase was the result of
(i) an increase of $3.7 million in inventory, reflecting a continued build-up on
a few major aerospace composites programs which are in the start-up or early
production phases, (ii) a decrease of $1.0 million in accounts receivable,
resulting from the conversion of a major portion of the receivables build-up at
December 31, 1998 to cash during the first quarter of 1999, (iii) a decrease of
$0.8 million in accounts payable and accrued expenses, (iv) a decrease in cash
balances of $1.2 million and (v) a net decrease in other working capital
components of $0.1 million. Cash flow of $3.4 million used in investing
activities in the first six months of 1999 resulted exclusively from capital
expenditures.
The Company's primary loan agreement was amended on March 24, 1999 to
increase the balance of the term loan to $18.0 million from the paid-down
balance of $16.1 million existing just prior to the increase. The Company's
total credit facility under the amended agreement is $50.0 million consisting
of: (i) $27.0 million of revolving credit against eligible receivable and
inventory balances, (ii) an $18.0 million term loan and (iii) a $5.0 million
capital expenditure line of credit. The term loan is payable quarterly based on
a seven-year amortization period. The interest rates on the loans are set
quarterly based on the Company's performance against debt-to-earnings ratios
specified in the agreement. Interest rates can range from LIBOR (the London
Interbank Offered Rates) plus 2.25% to LIBOR plus 1.0% on the revolving loan and
from LIBOR plus 2.75% to LIBOR plus 1.5% on the term and equipment loans.
Alternatively, the Company may elect interest rates based on the lending
institution's prime rate with the revolving loan fixed at prime plus 0.25% and
the term and equipment loans fixed at prime plus 0.50%. Interest is paid monthly
in arrears on all loans. The credit facility matures on December 31, 2000. As of
July 2, 1999, the Company had approximately $3.2 million of unused borrowing
availability on this credit facility.
At July 2, 1999, the Company's backlog of orders and long-term contracts
was approximately $591 million, compared to $585 million at December 31, 1998.
The backlog includes firm released orders of approximately $182 million and $191
million at July 2, 1999 and December 31, 1998, respectively.
As discussed above, the Company has made capital expenditures totaling
$3.4 million during the first six months of 1999, which have been financed by a
combination of cash flows from operations and increased borrowings under the
revolving and equipment loan portions of the Company's credit facility.
ATP announced on June 15, 1999 that its negotiations with a third party
financial buyer regarding the possible sale of the Company have terminated. ATP
also announced that it has received indications of interest from several other
third parties and ATP's board of directors has instructed its management to
explore these potential opportunities. On August 3, 1999, ATP announced that
management is continuing to explore indications of interest from several other
parties regarding the sale of the Company. However, there can be no assurance
that any of these discussions will result in the sale or merger of the Company.
Page 11 of 15
<PAGE>
Pending the possible sale or merger of the Company, ATP is continuing to
look for acquisition candidates that will enhance its operations. The timing,
size or success of any acquisitions and the resulting additional capital
commitments are unpredictable. The Company expects to fund any future
acquisitions primarily through a combination of issuances of additional equity,
working capital, cash flow from operations and borrowings, including any unused
portion of the credit facility. To the extent new sources of financing are
necessary to fund future acquisitions, there can be no assurance that the
Company can secure such additional financing if and when it is needed or on
terms deemed acceptable to the Company.
Management of ATP believes that cash flows from operations and available
borrowings under its credit facility are adequate to sustain the ATP's current
operating level and future short-term growth. However, should circumstances
arise affecting cash flow or requiring capital expenditures beyond those
anticipated by the Company, there can be no assurance that such funds will be
available.
YEAR 2000 ISSUES
ATP is currently in the process of evaluating its computer hardware and
software systems to ensure such programs and systems will be able to process
transactions in the year 2000 ("Y2K"). The Company is also currently identifying
other equipment that contains embedded electronics that may render the equipment
inoperable in the year 2000 and is evaluating the plans of its material
suppliers and vendors to become Y2K compliant. ATP has organized its efforts to
prepare for Y2K problems under a plan that involves the following steps:
assessment, modification / implementation and testing. Each division has a core
of employees who have been assigned specific Y2K responsibilities, in addition
to their regular assignments. The Y2K readiness project is a company-wide effort
and is monitored centrally.
ATP has completed the assessment phase under its plan. ATP estimates that
it has currently completed 80% of the modification / implementation phase and
60% of the testing phase of its plan. ATP anticipates that it will complete all
phases of its plan by the end of 1999. ATP anticipates that it will be Y2K
compliant by the end of 1999 with respect to internal information technology
("IT") and non-IT systems that are critical to its operations. ATP is currently
evaluating the time table upon which all other IT and non-IT systems can be made
Y2K compliant and will target a date when the evaluation is complete. However,
ATP does not currently anticipate any material adverse effect on its business
operations, products or financial prospects as a result of the Y2K problem.
In addition, ATP has undertaken efforts to monitor and evaluate the Y2K
compliance efforts of its key suppliers and vendors. In particular, ATP is
requesting certification of Y2K compliance from its key suppliers and vendors.
Although it is not possible to accurately estimate the costs of this
information systems analysis, at this time ATP expects that such costs will not
be material to its financial position or results of operations. There can be no
assurance, however, that ATP, its suppliers and vendors or their respective
software vendors will complete all modifications to all material IT and non-IT
systems in a timely manner, or as to the costs associated with ATP becoming Y2K
compliant, or the costs of the failure of any of ATP's vendors failing to become
Y2K compliant.
Page 12 of 15
<PAGE>
Some of the possible consequences of non-compliance by ATP or significant
third parties include, among other things, temporary plant closings, delays in
the receipt and delivery of raw materials and products, invoice and collection
errors, and obsolescence of inventory. Given this risk, ATP is developing
contingency plans to mitigate possible disruption in business operations that
may result from Y2K related interruptions. Contingency plans may include
increasing safety stocks of raw materials, securing alternative suppliers or
other appropriate measures.
ATP's Y2K activities are an ongoing process and the estimates of costs and
completion dates for various activities described above are subject to change.
FORWARD LOOKING STATEMENTS - CAUTIONARY FACTORS
This Report on Form 10-Q contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Forward-looking statements are those that do
not state historical fact and are inherently subject to risk and uncertainties.
The forward-looking statements contained herein are based on current
expectations and entail various risks and uncertainties which could cause actual
results to differ materially from those projected in such forward-looking
statements. For additional information identifying such risks and uncertainties,
see the Company's 1998 Annual Report on Form 10-K (Item 7, under the heading
"Factors Affecting Future Operating Results").
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to changes in interest rates primarily relating to
its $50 million credit facility. However, the carrying value of borrowings under
the credit facility generally approximate fair value due to the variable rate
nature of such borrowings.
The Company has not entered into transactions which subject it to material
foreign currency transaction gains and losses.
Page 13 of 15
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Neither the Company nor any of its subsidiaries is a party to, nor is their
property the subject of, any material pending legal proceedings.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
ATP announced on June 15, 1999 that its negotiations with a third party
financial buyer regarding the possible sale of the Company have terminated. ATP
also announced that it has received indications of interest from several other
third parties and ATP's board of directors has instructed its management to
explore these potential opportunities. On August 3, 1999, ATP announced that
management is continuing to explore indications of interest from several other
parties regarding the sale of the Company. However, there can be no assurance
that any of these discussions will result in the sale or merger of the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 -- Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K.
None.
Page 14 of 15
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ADVANCED TECHNICAL PRODUCTS, INC.
----------------------------------------
(Registrant)
Dated: August 16, 1999 By:/s/ GARRETT L. DOMINY
Garrett L. Dominy, Executive Vice
President, Chief Financial and
Accounting Officer, Treasurer and
Assistant Secretary
Page 15 of 15
<PAGE>
EXHIBIT INDEX
27.1 -- Financial Data Schedule (for SEC use only).
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM CONDENSED CONSOLIDATED BALANCE SHEET AND INCOME STATEMENT AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUL-02-1999
<CASH> 538
<SECURITIES> 0
<RECEIVABLES> 25,668
<ALLOWANCES> 618
<INVENTORY> 44,351
<CURRENT-ASSETS> 73,422
<PP&E> 40,830
<DEPRECIATION> 13,635
<TOTAL-ASSETS> 109,210
<CURRENT-LIABILITIES> 48,761
<BONDS> 2,300
1,000
0
<COMMON> 53
<OTHER-SE> 34,955
<TOTAL-LIABILITY-AND-EQUITY> 109,210
<SALES> 91,108
<TOTAL-REVENUES> 91,108
<CGS> 70,172
<TOTAL-COSTS> 84,215
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,903
<INCOME-PRETAX> 4,990
<INCOME-TAX> 1,921
<INCOME-CONTINUING> 3,069
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,069
<EPS-BASIC> 0.58
<EPS-DILUTED> 0.55
</TABLE>
