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: OCTOBER 1, 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 November 12,
1999 was 5,296,942.
<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.............................................13
Forward Looking Statements - Cautionary Factors..............14
Item 3. Quantitative and Qualitative Disclosures About Market Risk...14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................15
Item 2. Changes in Securities and Use of Proceeds....................15
Item 3. Defaults Upon Senior Securities..............................15
Item 4. Submission of Matters to a Vote of Security Holders..........15
Item 5. Other Information............................................15
Item 6. Exhibits and Reports on Form 8-K.............................15
<PAGE>
ADVANCED TECHNICAL PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
--------------------------- ---------------------------
OCTOBER 1, OCTOBER 2, OCTOBER 1, OCTOBER 2,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues ................................... $ 46,195 $ 47,801 $ 137,303 $ 118,246
Cost of Revenues ........................... 35,538 36,570 105,710 90,863
------------ ------------ ------------ ------------
Gross profit ..................... 10,657 11,231 31,593 27,383
General and administrative expenses ........ 6,669 7,102 20,712 19,319
------------ ------------ ------------ ------------
Operating income ................. 3,988 4,129 10,881 8,064
Interest expense ........................... 999 960 2,902 2,597
------------ ------------ ------------ ------------
Income before income taxes ....... 2,989 3,169 7,979 5,467
Income taxes ............................... 1,152 1,220 3,073 2,105
------------ ------------ ------------ ------------
Net income ....................... $ 1,837 $ 1,949 $ 4,609 $ 3,362
============ ============ ============ ============
Earnings per share:
Basic ............................ $ 0.34 $ 0.36 $ 0.92 $ 0.63
============ ============ ============ ============
Diluted .......................... $ 0.33 $ 0.35 $ 0.88 $ 0.60
============ ============ ============ ============
Weighted average number of common and common
equivalent shares outstanding:
Basic ............................ 5,284 5,311 5,265 5,250
============ ============ ============ ============
Diluted .......................... 5,515 5,542 5,496 5,508
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
ADVANCED TECHNICAL PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF OCTOBER 1, 1999 AND DECEMBER 31, 1998
(UNAUDITED, IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
OCTOBER 1, DECEMBER 31,
ASSETS 1999 1998
- ---------------------------------------------------------------------------------------------- ------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents .................................................................. $ 251 $ 2,030
Accounts receivable (net of allowance for doubtful accounts of $642 and $722
as of October 1, 1999 and December 31, 1998, respectively) ............................... 29,625 26,053
Inventories and costs relating to long-term contracts and programs in
process, net of progress payments ........................................................ 46,061 40,635
Prepaid expenses ........................................................................... 1,766 1,054
Deferred income taxes ...................................................................... 2,570 2,570
------------ ------------
Total current assets .......................................................... 80,273 72,342
------------ ------------
NONCURRENT ASSETS:
Property, plant and equipment .............................................................. 43,107 37,444
Less--accumulated depreciation .............................................................. (14,849) (11,516)
------------ ------------
Net property, plant and equipment ............................................. 28,258 25,928
------------ ------------
Other assets ................................................................................. 8,534 8,606
------------ ------------
Total assets .................................................................. $ 117,065 $ 106,876
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
- ----------------------------------------------------------------------------------------------
CURRENT LIABILITIES:
Accounts payable ........................................................................... $ 16,403 $ 12,665
Accrued expenses ........................................................................... 8,281 7,626
Current portion of capital lease obligation ................................................ 294 294
Short-term debt ............................................................................ 27,298 28,767
------------ ------------
Total current liabilities ..................................................... 52,276 49,352
LONG-TERM LIABILITIES
Long-term debt, net of current portion ..................................................... 23,062 20,703
Capital lease obligation, net of current portion ........................................... 1,304 1,483
Deferred income taxes ...................................................................... 194 194
Other liabilities .......................................................................... 2,347 2,347
------------ ------------
Total liabilities ............................................................. 79,183 74,079
Mandatorlly redeemable preferred stock, 8% cumulative, $1.00 par value,
1,000,000 shares authorized, issued and outsanding ......................................... 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, 5,295,792 and 5,240,188 shares.. -- --
issued and outstanding as of October 1, 1999 and December 31, 1998, respectively ......... 53 52
Additional paid-in capital.................................................................. 16,760 16,522
Retained earnings .......................................................................... 20,829 15,983
Notes receivable from officers ............................................................. (135) (135)
Accumulated other comprehensive loss - additional minimum pension liability ................ (625) (625)
------------ ------------
Total shareholders' equity .................................................... 36,882 31,797
------------ ------------
Total liabilities and shareholders' equity .................................... $ 117,065 $ 106,876
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
ADVANCED TECHNICAL PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED OCTOBER 1, 1999 AND OCTOBER 2, 1998
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .......................................................... $ 4,906 $ 3,362
Adjustments to reconcile net income to net cash provided by (used in)
operating activities -
Depreciation and amortization ................................. 3,507 2,692
Deferred income taxes, net .................................... -- 164
Common stock issued under employee stock plan ................. 205 --
Increase in accounts receivable ............................... (3,572) (3,004)
Increase in inventories........................................ (5,426) (7,113)
Increase in prepaid expenses .................................. (712) (178)
(Increase) decrease in other noncurrent assets ................ (103) 243
Increase (decrease) in accounts payable ....................... 3,178 (1,550)
Increase in accruel expenses .................................. 635 2,489
-------- --------
Net cash provided by (used in) operating activities .. 3,178 (2,895)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ................................................ (5,635) (7,488)
Cash payments for businesses acquired, net of cash acquired ......... -- (1,377)
-------- --------
Net cash used in investing activities ................ (5,635) (8,865)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds of borrowings .............................................. 3,303 20,782
Repayment of borrowings ............................................. (2,413) (8,052)
Proceeds from exercise of stock options and warrants ................ 33 14
Cash dividends paid ................................................. (40) --
Payments under capital lease obligations ............................ (205) (190)
-------- --------
Net cash provided by financing activities ............ 678 12,554
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .......................... (1,779) 794
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ................................ 2,030 494
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD ...................................... $ 251 $ 1,288
======== ========
SUPPLEMENT DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest .............................................. $ 3,199 $ 2,951
Cash paid for income taxes .......................................... $ 3,305 $ 1,359
</TABLE>
The accompanying notes are an integral part of these statements.
5
<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 nine
months ended October 1, 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.
3. INVENTORIES
Inventories at October 1, 1999 and December 31, 1998 consisted of the
following (in thousands):
OCTOBER 1, DEC. 31,
1999 1998
------------ ------------
Finished goods ............................... $ 1,754 $ 956
Work in process .............................. 30,611 26,113
Raw materials ................................ 20,395 24,860
Progress payments ............................ (6,699) (11,294)
------------ ------------
Total inventories ...................... $ 46,061 $ 40,635
============ ============
6
<PAGE>
4. DEBT
Debt is summarized as follows (in thousands):
OCTOBER 1, DEC. 31,
1999 1998
------------ ------------
Short-term debt:
Revolving loans ........................... $ 22,936 $ 24,845
Current maturities of long-term debt ...... 4,362 3,922
------------ ------------
$ 27,298 $ 28,767
------------ ------------
Long-term debt:
Term loans ................................ $ 19,408 $ 16,714
Equipment loans ........................... 3,428 2,819
Deferred obligation ....................... 333 500
Bond payable .............................. 2,250 2,400
Other long-term debt ...................... 2,005 2,192
------------ ------------
Total long-term debt ................... 27,424 24,625
Less current portion ...................... 4,362 3,922
------------ ------------
Long-term debt, net of current portion . $ 23,062 $ 20,703
============ ============
In March 1998, the Company refinanced its revolving and term loans,
consolidating them with one lending institution. The financing agreement has
been amended three times, most recently on September 22, 1999, when the term
loan balance was increased to $19.4 million from the paid-down balance of $16.7
million existing just prior to the increase. The Company's credit facility, as
amended, with this lending institution totals $50.0 million consisting of: (1)
$27.0 million of revolving credit against eligible receivable and inventory
balances, (2) a $19.4 million term loan and (3) a $3.6 million capital
expenditure facility. As of October 1, 1999, the Company had approximately $3.4
million of unused borrowing availability on this credit facility.
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. Alternativel, 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.
7
<PAGE>
5. EARNINGS PER SHARE
Earnings per share ("EPS") are calculated as follows (in thousands,
except per share amounts):
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
------------------ ------------------
OCT. 1, OCT. 2, OCT. 1, OCT. 2,
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income .......................................... $ 1,837 $ 1,949 $ 4,906 $ 3,362
Less: preferred stock dividends accrued ............ (20) (20) (60) (60)
------- ------- ------- -------
Net income available for common shares
(same for both basic and diluted
EPS calculation) ............................... $ 1,817 $ 1,929 $ 4,846 $ 3,302
======= ======= ======= =======
Weighted average number of common shares outstanding:
--Basic ........................................ 5,284 5,311 5,265 5,250
Add: assumed stock conversions, net of
assumed treasury stock purchases:
--stock options ........................... 194 200 196 222
--stock warrants .......................... 37 31 35 36
------- ------- ------- -------
--Diluted ...................................... 5,515 5,542 5,496 5,508
======= ======= ======= =======
Basic EPS ........................................... $ 0.34 $ 0.36 $ 0.92 $ 0.63
======= ======= ======= =======
Diluted EPS ......................................... $ 0.33 $ 0.35 $ 0.88 $ 0.60
======= ======= ======= =======
</TABLE>
8
<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 nine-month periods ended October 1, 1999 and October 2, 1998 is as
follows (in thousands):
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
---------------------- ----------------------
OCT. 1, OCT. 2, OCT. 1, OCT. 2,
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net revenues
Aerospace / Defense:
-from external customers ...... $ 39,329 $ 40,064 $ 111,588 $ 96,629
-intersegment revenues ........ 250 50 634 212
Other operating segments:
-from external customers ...... 6,866 7,737 25,715 21,617
-intersegment revenues ........ -- -- -- --
Elimination of intersegment revenues (250) (50) (634) (212)
--------- --------- --------- ---------
Total ......................... $ 46,195 $ 47,801 $ 137,303 $ 118,246
========= ========= ========= =========
Operating income (loss)
Aerospace / Defense ............... $ 4,293 $ 4,814 $ 9,969 $ 8,518
Other operating segments ............ 524 549 3,282 1,958
Corporate ........................... (829) (1,234) (2,370) (2,412)
--------- --------- --------- ---------
Total ......................... $ 3,988 $ 4,129 $ 10,881 $ 8,064
========= ========= ========= =========
</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 nine
month periods ended October 1, 1999 and October 2, 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.
9
<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 ENDED OCTOBER 1, 1999 COMPARED WITH THE QUARTER ENDED OCTOBER 2, 1998
Revenues for the quarter ended October 1, 1999 decreased $1.6 million
compared to the quarter ended October 2, 1998, or 3.3%, from $47.8 million in
1998 to $46.2 million in 1999. The decrease in revenues was primarily
attributable to a decrease in shipments on shelter contracts relating to the
timing of contract awards and performance periods. This decrease was partially
offset by increased revenues on chemical defense contracts and increased
deliveries of composite components on several long-term aerospace / defense
programs, including the C-17 and F-18 E/F military aircraft.
Gross profit as a percentage of revenues was 23.1% in the third quarter
of 1999, compared to 23.5% in the third quarter of 1998. The decrease was
primarily attributable to increased depreciation expense resulting from a higher
level of fixed assets in 1999 compared to 1998 and minor changes in product
sales mix.
General and administrative expenses decreased $0.4 million, or 6.1%,
from $7.1 million to $6.7 million. As a percentage of revenues, general and
administrative expenses decreased from 14.9% in 1998 to 14.4% in 1999. The
decrease was primarily the result of cost reductions implemented at the division
level and lower corporate expense relating to non-recurring expenses incurred in
the third quarter of 1998, including charges in connection with potential
business acquisitions, which did not materialize.
Operating income was $4.0 million, or 8.6% of sales, for the third
quarter of 1999, compared to $4.1 million, or 8.6% of sales, for the third
quarter of 1998. The decrease in operating income was primarily attributable to
the decrease in revenues and gross profit margin, which was partially offset by
reduced general and administrative expenses.
Interest expense for the quarter was $999,000 in 1999 compared to
$960,000 in 1998. The increase reflects higher average loan balances outstanding
during 1999 compared to the same period of 1998.
Income taxes decreased $68,000 for the quarter as a result of lower
pre-tax earnings. The effective tax rate was 38.5% for both periods.
10
<PAGE>
NINE MONTHS ENDED OCTOBER 1, 1999 COMPARED WITH THE NINE MONTHS ENDED OCTOBER 2,
1998
Revenues for the nine months ended October 1, 1999 increased $19.1
million over the nine months ended October 2, 1998, or 16.1%, from $118.2
million in 1998 to $137.3 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 most of the first nine months of 1998 and have
been in full production during all of 1999, (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 specialty vehicle electronics and
natural gas vehicle ("NGV") fuel tanks. These increases were partially offset by
a decrease in shipments on shelter contracts.
Gross profit as a percentage of revenues was 23.0% for the first nine
months of 1999, compared to 23.2% for the comparable period in 1998. The
decrease was primarily attributable to increased depreciation expense resulting
from a higher level of fixed assets in 1999 compared to 1998 and minor changes
in product sales mix.
General and administrative expenses increased $1.4 million, or 7.2%, for
the first nine months in 1999, reflecting a general increase in business
activity. As a percentage of revenues, general and administrative expenses
decreased from 16.3% in 1998 to 15.1%. The percentage decrease was primarily
attributable to the increase in revenues.
Operating income was $10.9 million, or 7.9% of sales, for the first nine
months of 1999, compared to $8.1 million, or 6.8% of sales, for the same period
in 1998. The increase in operating income was primarily attributable to the
increase in revenues and gross profit margin, which was partially offset by
increased general and administrative expenses.
Interest expense in 1999 increased $305,000 for the nine months,
primarily as a result of an increase in average loan balances outstanding during
1999 compared to 1998.
Income taxes increased $1.0 million for the nine months in 1999 as a
result of higher pre-tax earnings. The effective tax rate was 38.5% for both
periods.
FINANCIAL CONDITION AND LIQUIDITY
Cash flow provided by operations was $3.2 million for the first nine
months of 1999 compared to $2.9 million used in operations for the same period
in 1998. Working capital, excluding short-term debt balances, increased $3.5
million in the first nine months of 1999 to $55.3 million. This increase was the
result of (i) an increase of $5.4 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) an increase of $3.6 million in accounts
receivable, resulting primarily from an increase in revenues during 1999, (iii)
an increase of $4.3 million in accounts payable and accrued expenses, partially
as a result of increased inventory levels, (iv) a decrease in cash balances of
$1.8 million and (v) a net increase in other working capital components of $0.6
million. Net cash used in investing activities totaled $5.6 million in the first
nine months of 1999 and resulted exclusively from capital expenditures.
11
<PAGE>
The Company's primary loan agreement was amended on September 22, 1999
to increase the balance of the term loan to $19.4 million from the paid-down
balance of $16.7 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) a $19.4 million term loan and (iii) a $3.6 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
October 1, 1999, the Company had approximately $3.4 million of unused borrowing
availability on this credit facility.
At October 1, 1999, the Company's backlog of orders and long-term
contracts was approximately $611 million, compared to $585 million at December
31, 1998. The backlog includes firm released orders of approximately $184
million and $191 million at October 1, 1999 and December 31, 1998, respectively.
As discussed above, the Company has made capital expenditures totaling
$5.6 million during the first nine months of 1999, which have been financed by a
combination of cash flows from operations and increased borrowings under the
revolving, term and equipment loan portions of the Company's credit facility.
ATP announced on September 3, 1999 that it had entered into a definitive
merger agreement with a subsidiary of The Veritas Capital Fund, L.P. to sell the
Company for approximately $135 million, including debt (the "Merger Agreement").
The agreement specifies that the stockholders of ATP would receive in cash
$14.50 per share without interest. On October 22, 1999, ATP announced that its
shareholders had approved the Agreement and Plan of Merger. Notice of Early
Termination of the waiting period under the Hart-Scott-Rodino Premerger
Notification statute was received by representatives of the Company on October
14, 1999. The transaction is subject to the completion of financing arrangements
by the buyer. Pursuant to the terms of the agreement, the merger is expected to
be completed before January 31, 2000. However, there can be no assurance that
the merger will be completed.
Management of ATP believes that cash flows from operations and available
borrowings under its credit facility are adequate to sustain the Company'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.
12
<PAGE>
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 90% of the modification / implementation phase
and 80% 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.
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.
13
<PAGE>
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 that subject it to
material foreign currency transaction gains and losses.
14
<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 September 3, 1999 that it had entered into a definitive
merger agreement with a subsidiary of The Veritas Capital Fund, L.P. to sell the
Company for approximately $135 million, including debt. The agreement specifies
that the stockholders of ATP would receive in cash $14.50 per share without
interest. Notice of Early Termination of the waiting period under the
Hart-Scott-Rodino Premerger Notification statute was received by representatives
of the Company on October 14, 1999. On October 22, 1999, ATP announced that its
shareholders had approved the Agreement and Plan of Merger. The transaction is
subject to the completion of financing arrangements by the buyer. Pursuant to
the terms of the agreement, the merger is expected to be completed before
January 31, 2000. However, there can be no assurance that the merger will be
completed.
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.
Current Report on Form 8-K filed September 15, 1999 reporting under
Item 5 the Company's entering into the Merger Agreement on
September 3, 1999.
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: November 15, 1999 By: /S/ GARRETT L. DOMINY
Garrett L. Dominy, Executive Vice President, Chief
Financial and Accounting Officer, Treasurer and
Assistant Secretary
16
<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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> OCT-01-1999
<CASH> 251
<SECURITIES> 0
<RECEIVABLES> 30,267
<ALLOWANCES> 642
<INVENTORY> 46,061
<CURRENT-ASSETS> 80,273
<PP&E> 43,107
<DEPRECIATION> 14,849
<TOTAL-ASSETS> 117,065
<CURRENT-LIABILITIES> 52,276
<BONDS> 2,250
1,000
0
<COMMON> 53
<OTHER-SE> 36,829
<TOTAL-LIABILITY-AND-EQUITY> 117,065
<SALES> 137,303
<TOTAL-REVENUES> 137,303
<CGS> 105,710
<TOTAL-COSTS> 126,422
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,902
<INCOME-PRETAX> 7,979
<INCOME-TAX> 3,073
<INCOME-CONTINUING> 4,906
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,906
<EPS-BASIC> 0.92
<EPS-DILUTED> 0.88
</TABLE>
