FORM 10-KSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(MARK ONE)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED JUNE 30, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM ________ TO ________
COMMISSION FILE NUMBER 1-9125
AMERICAN TECHNICAL CERAMICS CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 11-2113382
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
17 STEPAR PLACE, HUNTINGTON STATION, NY 11746
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 516/547-5700
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF CLASS NAME OF EXCHANGE ON WHICH REGISTERED
-------------- ------------------------------------
COMMON STOCK, PAR VALUE $.01 AMERICAN STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO
SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO
--- ---
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-B IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO
THE BEST OF THE REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-KSB OR ANY
AMENDMENT TO THIS FORM 10-KSB. [ ].
THE REGISTRANT'S REVENUES FOR THE FISCAL YEAR ENDED JUNE 30, 1996 WERE
APPROXIMATELY $33,884,000.
ON SEPTEMBER 20, 1996, THE AGGREGATE MARKET VALUE OF THE REGISTRANT'S
COMMON STOCK (BASED UPON THE CLOSING SALES PRICE OF SUCH SHARES ON THE
AMERICAN STOCK EXCHANGE ON SEPTEMBER 20, 1996) HELD BY NONAFFILIATES OF THE
REGISTRANT WAS APPROXIMATELY $10,754,000. (FOR PURPOSES OF THIS REPORT, ALL
OFFICERS AND DIRECTORS HAVE BEEN CLASSIFIED AS AFFILIATES, WHICH
CLASSIFICATION SHALL NOT BE CONSTRUED AS AN ADMISSION OF THE AFFILIATE STATUS
OF ANY PERSON.)
ON SEPTEMBER 20, 1996, THE REGISTRANT HAD OUTSTANDING 3,884,461 SHARES OF
COMMON STOCK.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE):
YES NO X
--- ---
DOCUMENTS INCORPORATED BY REFERENCE: PORTIONS OF THE REGISTRANT'S PROXY
STATEMENT RELATING TO ITS ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON
DECEMBER 6, 1996 ARE INCORPORATED INTO PART III OF THIS REPORT BY REFERENCE.
EXHIBIT INDEX APPEARS ON PAGES 16-17.
<PAGE>
PART 1
ITEM 1. BUSINESS
GENERAL
The Registrant was incorporated in New York in 1966 as Phase Industries,
Inc., and changed its name to American Technical Ceramics Corp. in June 1984.
In April 1985, the Registrant was merged into a new Delaware corporation and
recapitalized its common stock. Unless the context indicates otherwise,
references to the Registrant herein include American Technical Ceramics Corp.,
a Delaware corporation, its predecessor, American Technical Ceramics Corp., a
New York corporation, and the subsidiaries of the Registrant, all of which are
wholly-owned.
The Registrant designs, develops, manufactures and markets
RF/Microwave/Millimeter-Wave ceramic and porcelain capacitors and thin film
products. Capacitors function within electronic circuits by storing and
discharging precise amounts of electrical power. The Registrant believes that
it is a leading manufacturer of multilayer capacitors ("MLCs") for ultra-high
frequency ("UHF") and microwave applications. Selling prices for the
Registrant's MLCs typically range from $.30 to $10 or higher, whereas selling
prices for commodity-type MLC units typically range from $.01 to $.25.
During the fiscal years ended June 30, 1996 and June 30, 1995, the
Registrant experienced a significant increase in sales and profits for, among
other reasons, the general increase in demand for technology and electronic
products in the United States and abroad. The Registrant has responded to the
increased demand for its products by expanding production capacities. During
fiscal year 1994, the Registrant purchased a building for use as a
manufacturing facility, which facility was placed in production in June 1995.
See "Item 2. PROPERTIES" and "Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS".
Management believes the Registrant operates primarily in only one industry
segment - the electronic components industry.
PRODUCTS
The Registrant's MLCs are currently available in predominantly three
physical sizes designated "A" (a .055 inch cube), "B" (a .110 inch cube) and
"E" (a .380 inch cube); in three types of dielectrics: low-loss porcelain (the
100 Series), zero temperature coefficient (the 700 Series) and high dielectric
constant (the 200 Series); and in a variety of capacitance values. The 100
Series, the Registrant's basic product line, is the only product line that
accounts for more than 15% of consolidated revenue, and is widely used in
microwave equipment. This product line accounted for 53%, 56% and 58% of the
Registrant's revenues in fiscal years 1996, 1995 and 1994, respectively. The
700 Series has a slightly higher dissipation factor than the 100 Series, but
because of its lower temperature coefficient, is used in certain UHF/Microwave
and lower frequency applications. The 200 Series has high packaging density,
and is used in microcircuits where high capacitance value is needed in a small
space.
The Registrant's MLCs are designed for critical performance applications,
and are characterized by high reliability ("hi-rel"), low power dissipation
and ruggedness. These products are used in military and commercial
applications, including missiles, satellite broadcasting, high performance
aircraft radar and navigation systems, electronic counter-measure jamming
systems and a variety of other "smart weapons". More recently, the Registrant
has secured orders for its products for certain medical applications including
magnetic resonance imaging (MRI). For the fiscal years ended June 30, 1996,
1995 and 1994, the Registrant estimates that approximately 13%, 14% and 13% of
sales, respectively, were hi-rel products to United States military and
aerospace contractors; approximately 54%, 50% and 52% of sales, respectively,
were to other domestic customers; and approximately 33%, 36% and 35% of sales,
respectively, were to foreign customers. See Note 10 of Notes to Consolidated
Financial Statements.
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<PAGE>
The Registrant's MLCs can be broadly classified as either hi-rel or
commercial, based upon the amount of testing involved. The Registrant produces
its hi-rel MLCs to precise customer specifications, and subjects each hi-rel
MLC to a battery of performance and environmental tests. Such performance
tests measure capacitance, dissipation factor, insulation resistance and
dielectric withstanding voltage. The environmental tests are either designated
by customers or specified by the military and include temperature shock tests,
humidity tests and tests of life expectancy at elevated voltage levels. The
Registrant maintains a hi-rel testing facility in Huntington Station, New
York.
Hi-rel MLCs are principally utilized in military electronics applications
such as missiles, satellites, high performance military aircraft radar and
navigation systems, electronic counter-measure jamming devices and other
"smart weapons". The Registrant's Microcap(R), for example, a single layer
ceramic capacitor, is currentlY utilized in satellite broadcasting, telemetry
and missiles. This product was developed for very high frequency applications
with low capacitance requirements, where very small size is important. The
Microcap(R) may in the future be used in other applications such as direct
satellite broadcasting and cellular communications. See "Item 1. BUSINESS --
PATENTS AND PROPRIETARY INFORMATION".
The Registrant has also developed hi-rel MLC products which apply the
Registrant's UHF/Microwave manufacturing technology to lower frequency digital
applications. These products offer higher capacitance and reliability than
other MLCs for similar applications through the use of more ceramic layers and
smaller spacing between electrodes. These products have been used across a
range of voltage and environmental conditions.
Hi-rel MLCs for military electronics applications constitute a small part
of the circuit cost and, because performance requirements are stringent and
the cost of component failure high, customers are willing to specify higher
performance that results in higher priced products.
The Registrant also produces commercial MLCs to similar precise performance
specifications as for hi-rel MLCs, and individually tests them for certain
performance characteristics. However, the Registrant does not subject them to
environmental tests. Commercial MLCs are utilized in applications which
require high performance capacitors and where periodic maintenance is
possible. These applications include aircraft radar, navigation devices and
communication systems.
The Registrant has historically pursued the high performance and
high-priced MLC market. Mechanization of the Registrant's manufacturing
processes, an ongoing development more greatly emphasized in recent years,
permits the manufacture of lower cost MLCs for the medium-priced
communications market, supplementing rather than supplanting present products.
The Registrant's product line has become more diversified in recent years
through the development of thin film technologies. These additional products
enable the Registrant to offer custom metalization and patterned substrates
for a broad range of hybrid circuit requirements. Typical applications
include, among others, microwave attenuators, filters, resistors, amplifiers
and capacitors. The Registrant's thin film business has been growing briskly
during the past few years.
MANUFACTURING
The Registrant currently manufactures capacitors primarily at three New
York facilities which aggregate approximately 54,000 square feet. The
manufacturing process involves four primary stages. The first stage, the
"white room" stage, involves the casting, dicing, firing, and inspection of
raw ceramic powder. In the second stage, the "termination" stage, the chips
are coated with silver. In the third stage, the "finishing" stage, the parts
are then customized to specific order requirements for commercial
applications. This stage includes, but is not limited to, chip plating,
soldering of leads, laser marking and chip packing. If the customer
requirements necessitate a higher level of precision, the parts are put
through a fourth stage, the "hi-rel" stage, where additional testing is
performed. Throughout the entire process, the chips are tested electrically
and inspected.
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In fiscal year 1994, the Registrant purchased a building in the vicinity of
its existing manufacturing facilities in New York and began construction of a
new state-of-the-art chip fabrication facility. This facility, which was
placed in operation at the end of fiscal year 1995, is designed to provide
better control of the Registrant's manufacturing processes and product
quality, while substantially increasing its output.
The Registrant also maintains a smaller white room operation at its Florida
facility. In addition, all of the Registrant's thin film products are
manufactured at this location.
The historical pattern of industry price declines has largely prevented MLC
producers, including the Registrant, from increasing prices, and has forced
the Registrant and competitors to rely on advances in productivity and
efficiency in order to improve profit margins. Accordingly, the Registrant
continuously looks to improve the production yields and efficiency of its
manufacturing processes.
RESEARCH AND DEVELOPMENT
The Registrant's facility in Jacksonville, Florida houses most of the
Registrant's research and development activities. See "Item 2. PROPERTIES".
The Registrant places great emphasis on cost reduction and efficiency. See
"Item 1. BUSINESS -- MANUFACTURING". The principal focus of its research
efforts, however, is on developing new products and improving its present
product line. In this regard, it is continually seeking to improve its ceramic
technology and reduce capacitor size and precious metal content. Frequent
contacts between the Registrant's engineering personnel and its customers
typically provide the Registrant with its new product concepts.
Expenditures for research and development were approximately $1,537,000,
$1,445,000 and $1,238,000 in fiscal years 1996, 1995 and 1994, respectively,
representing approximately 5% of net sales for each fiscal year. The
Registrant anticipates that research and development expenditures, expressed
as a percentage of net sales, will continue at levels approximately comparable
to that of the latest fiscal year.
CUSTOMERS AND MARKETING
The Registrant markets its products primarily to microwave systems
manufacturers, including prime government contractors, original equipment
manufacturers and subcontractors. The Registrant promotes its products through
specialized trade shows, industry trade journal advertisements and catalog
direct mail programs.
In fiscal year 1996, the Registrant shipped products to approximately 1,500
customers as compared to approximately 1,400 customers in 1995 and 1994. The
top ten customers combined accounted for approximately 27%, 22% and 21% of net
sales in fiscal years 1996, 1995 and 1994, respectively. No customer accounted
for more than 10% of net sales in any of these periods. The Registrant does
not typically sell its products under long-term contracts, but rather sells
pursuant to a large number of individual purchase orders.
Customers are invoiced simultaneously with merchandise shipments, and
invoices are generally payable on a 30-day basis. Customers are given the
option to remit payment beyond normal credit terms and incur a nominal
financing charge. Sales returns are authorized and accepted by the Registrant
as a normal course of doing business. An evaluation of the returned product is
performed which typically results in either a credit or a shipment of
replacement product to customers. The Registrant believes that it has provided
an adequate reserve for returns in the accompanying financial statements.
The Registrant sells its products through independent sales representative
or distributor organizations. In general, the Registrant employs sales
representatives in the United States and in foreign countries which are
compensated on a commission basis. The Registrant also sells its products
through distributors in foreign countries who purchase these products from the
Registrant for resale. At June 30, 1996, the Registrant had approximately 16
sales representative organizations in the United States and approximately 18
distributors and sales representatives organizations in foreign countries,
principally Western Europe. The Registrant's sales representatives and
distributors generally have substantial engineering expertise which enables
the Registrant to provide a high level of
4
<PAGE>
service to assist customers in generating product specifications and to
provide applications assistance. The Registrant has historically employed
three regional sales managers to supervise both its sales representative
organizations in the United States and its distributors abroad. The Registrant
is currently in the process of reviewing the structure of its sales and
marketing department and its relationship with its customers and
representative organizations in an attempt to further improve customer
service. See "Item 1. BUSINESS -- FOREIGN SALES" and Note 10 of Notes to
Consolidated Financial Statements.
The Registrant is presently a qualified producer of capacitors with the
Defense Logistics Agency of the United States Department of Defense. This
qualified status covers several varieties and types of capacitors. Maintenance
of its qualified producer status is critical in order for the Registrant to
continue to sell its hi-rel military product line. The failure to continue to
be listed as a qualified producer would have a materially adverse effect on
the Registrant's military business. To date, the Registrant has not
encountered any difficulty in maintaining its status as a qualified producer.
SALES BACKLOG
The Registrant's sales backlog of $6,538,000, $8,189,000 and $4,676,000 at
June 30, 1996, 1995 and 1994, respectively, generally consisted of a large
quantity of small orders which are manufactured for shipment within
approximately six months following the receipt of a firm purchase order. Many
of the customers order products through the Registrant's "Quick-Pick" system
in which products are shipped within forty-eight hours from the time the order
is placed. Over the several years that the Registrant has offered this
program, it has consistently gained in popularity with its customers. In order
to maintain this program, the Registrant has had to maintain higher inventory
levels in proportion to total sales than it had in the past and higher than
those maintained by some other capacitor manufacturers.
FOREIGN SALES
In fiscal years 1996, 1995 and 1994, sales to customers located outside the
United States constituted 33%, 36% and 35% of net sales, respectively. The
Registrant's overseas customers are located primarily in Western Europe. See
"Item 1. BUSINESS -- CUSTOMERS AND MARKETING". Export sales are made through
the Registrant's foreign sales corporation subsidiary ("FSC"). All foreign
sales are denominated in United States dollars. See Note 10 of Notes to
Consolidated Financial Statements.
RAW MATERIALS
The principal raw materials used by the Registrant include silver,
palladium, other precious metals and titanate powders which are used in
ceramics. Precious metals are available from many sources, although palladium
is generally available from a limited number of metal dealers who obtain their
product requirements from the Republic of South Africa or the former Soviet
Union. A cessation or a reduction of exports of palladium by the Republic of
South Africa or the territory formerly referred to as the Soviet Union could
materially adversely affect the Registrant's operations. The Registrant has
not experienced any difficulty in obtaining any of the raw materials necessary
for its manufacturing processes.
Certain raw materials used by the Registrant may fluctuate in price. To the
extent that the Registrant is unable to pass on increases in the costs of such
materials to its customers, this may adversely affect the gross profit margins
of those products using such materials.
COMPETITION
Competition in the MLC industry is intense and is based primarily on price.
In the hi-rel and UHF/Microwave market segment, where price tends to be less
important, competition is based primarily on high performance product
specifications, achieving consistent product reliability, fast deliveries and
high levels of customer service. The
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<PAGE>
Registrant believes it competes in the UHF/Microwave market with several other
manufacturers, most of which are larger and have greater financial and
technical resources than the Registrant.
There are a number of large commodity-type MLC manufacturers which have
attempted to develop products for the UHF/Microwave market segment. While the
Registrant believes these efforts have not produced significant results to
date, there can be no assurance that such efforts will not be successful in
the future. In addition, while some of the Registrant's new product
developments may break new ground in non-competitive industries, other
developments may lead it into markets where there are existing competitors
which may have significantly greater financial and technical resources and
greater expertise in mass production techniques.
EMPLOYEES
At June 30, 1996, the Registrant employed 354 persons at its facilities in
New York, of which five were employed on a part-time basis. The Registrant
also employed 135 persons at its facility in Florida, of which six were
employed on a part-time basis. There were six persons employed at its facility
in the United Kingdom. See "Item 2. PROPERTIES". Of the 495 persons employed
by the Registrant, 29 persons are involved in hi-rel testing activities, 31 in
research and development activities, 377 in manufacturing and as support
personnel and 58 in selling and general administration activities. None of the
Registrant's employees are covered by collective bargaining agreements. The
Registrant considers its relations with its employees to be satisfactory.
ENVIRONMENTAL COMPLIANCE
The Registrant believes that it is in material compliance with all
applicable federal, state and local environmental laws. In the production of
capacitors, the Registrant produces hazardous waste in limited quantities. The
Registrant disposes of its hazardous waste through licensed carriers which are
required to deposit such waste at licensed waste sites. The Registrant does
not currently anticipate having to make material capital expenditures to
remain in compliance with applicable federal, state and local environmental
laws. However, the risk of environmental liability and remediation costs is
inherent in the nature of the Registrant's business and, therefore, there can
be no assurance that material environmental costs including remediation costs
will not arise in the future.
PATENTS AND PROPRIETARY INFORMATION
The Registrant's porcelain and ceramic formulations are considered trade
secrets which are protected by internal non-disclosure safeguards and employee
confidentiality agreements. Although the Registrant has manufacturing and
design patents and pending patent applications, and although the Registrant
will continue to seek the supplemental protection afforded by patents, the
Registrant generally considers protection of its products, processes and
materials to be more dependent upon proprietary knowledge and on rapid
assimilation of innovations than on patent protection.
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ITEM 2. PROPERTIES
The Registrant conducts its administrative, production and research and
development activities in New York and Florida. The Registrant's primary
production facilities are located at 10 Stepar Place, 15 Stepar Place and One
Norden Lane, Huntington Station, New York and 2201 Corporate Square Boulevard,
Jacksonville, Florida; its principal executive office is located at 17 Stepar
Place, Huntington Station, New York; and its principal research and
development facility is located at 2201 Corporate Square Boulevard,
Jacksonville, Florida. The following table sets forth the address of each
facility, its primary function, the square footage occupied by the Registrant
and whether the facility is leased or owned.
<TABLE>
<CAPTION>
Primary Square Footage Type of
Address of Facility Function Occupied Occupancy
- ------------------- -------- -------- ---------
<S> <C> <C> <C>
One Norden Lane Production 8,400 Owned
Huntington Station, N.Y.
10 Stepar Place Production 10,900 Owned
Huntington Station, N.Y.
15 Stepar Place Production 35,000 Leased from
Huntington Station, N.Y. Principal Stockholder(1)
17 Stepar Place Corporate, sales, 18,000 Owned
Huntington Station, N.Y. administration
2201 Corporate Square Blvd. Production, research 53,700 Leased from
Jacksonville, Florida and development Principal Stockholder(1)
Unit 5, Redkiln Way Sales and distribution 1,600 Owned
Sussex, England office
</TABLE>
(1) See "Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS" and
Note 8 of Notes to Consolidated Financial Statements.
In April 1994, the Registrant purchased the facility at 10 Stepar Place
for the purpose of its white room production. The Registrant began production
in this facility in June 1995. The Registrant believes that with the addition
of this new facility, it now has adequate capabilities to meet its
manufacturing requirements.
ITEM 3. LEGAL PROCEEDINGS
The Registrant is not currently a party to any significant legal
proceedings.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
EXECUTIVE OFFICERS
The executive officers of the Registrant are as follows:
Victor Insetta, age 56, co-founded the Registrant in 1966 and has served
as President and Chief Executive Officer and a Director since its
organization.
Kathleen M. Kelly, age 42, joined the Registrant as secretary to the
President in 1974. Later she assumed the duties of Purchasing Manager until
November 1989 when she was promoted to Corporate Secretary. On March 7, 1991,
she assumed additional responsibilities and was promoted to Vice President
Administration.
Richard Monsorno, age 44, joined the Registrant in 1983 as a Project
Engineer. In early 1984, he assumed the duties of Manager of R&D Special
Projects. In April 1989, he was promoted to Vice President of Product
Development.
Chester E. Spence, age 57, joined the Registrant in 1993 as Vice
President of Marketing and Sales. Prior to his employment with the Registrant
he served, from January 1988 to December 1990, as the Manager - Account
Marketing - Latin America for International Business Machines Corp. ("IBM")
and from January 1991 to August 1993 was a Consultant for IBM.
Stuart P. Litt, age 55, joined the Registrant in 1996 as Senior Vice
President. From January 1989 to August 1990, he served as President of Tech
Systems, a division of Datron Inc., a manufacturer of microwave and electrical
equipment. From September 1990 until his employment by the Registrant, he
served as a consultant to electronic companies. From 1992 until his employment
by the Registrant, he served as an associate of OEM Capital, an investment
banking firm specializing in the electronics industry. Mr. Litt is currently
completing several assignments which commenced prior to his employment by the
Registrant which are not expected to interfere with his responsibilities for
the Registrant. Upon completion of these assignments, he will devote his full
time to the business of the Registrant.
The officers serve at the discretion of the Board of Directors and there
are no family relationships among the officers listed and any directors of the
Registrant.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
MARKET INFORMATION
The Registrant's common stock has been traded on the American Stock
Exchange ("AMEX") under the symbol "AMK" since May 15, 1986. The table below
sets forth the quarterly high and low sales prices for the common stock on the
AMEX for the fiscal years ended June 30, 1996 and June 30, 1995.
FISCAL 1996 FISCAL 1995
----------- -----------
Quarter Ended: High Low High Low
- -------------- ---- --- ---- ---
September $ 17 $ 10 1/2 $ 4 3/8 $ 3 1/8
December 12 5/8 9 4 3 1/4
March 10 1/2 6 4 3/4 3 7/16
June 10 1/4 6 15 7/8 4 1/4
NUMBER OF STOCKHOLDERS
As of September 20, 1996, there were approximately 390 holders of record
of the Registrant's common stock. The Registrant believes numerous shares are
held of record by brokerage and other institutional firms for their customers.
DIVIDENDS
The Registrant has not paid dividends on its common stock during the past
three fiscal years. It is the present policy of the Registrant's Board of
Directors to retain earnings to finance the expansion of the Registrant's
operations and not to pay cash dividends on its common stock.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following information should be read in conjunction with the
Consolidated Financial Statements and Notes thereto and other information set
forth following Item 13 of this report. The Consolidated Financial Statements
for the fiscal years ended June 30, 1996 and 1995 include the operations of
the Registrant and its wholly-owned subsidiaries, American Technical Ceramics
(Florida), Inc., ATC International Technical Ceramics, Inc., and Phase
Components Ltd.
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SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30,
---------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
----------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
INCOME STATEMENT DATA:
<S> <C> <C> <C> <C> <C>
Net sales .......................... $33,884 $28,630 $23,111 $20,599 $19,359
======== ======== ======= ======== ========
Gross profit ....................... $11,350 $11,178 $ 8,736 $ 7,323 $ 6,275
======== ======== ======= ======== ========
Income from operations ............. $ 3,178 $ 2,855 $ 1,634 $ 1,366 $ 532
======== ======== ======= ======== ========
Net income (1) ..................... $ 2,063 $ 1,880 $ 997 $ 991 $ 394
======== ======== ======= ======== ========
Net income per common and
common equivalent share (1) ...... $ 0.53 $ 0.48 $ 0.26 $ 0.25 $ 0.10
======== ======== ======= ======== ========
Cash dividends paid per common share $ - $ - $ - $ - $ -
======== ======== ======= ======== ========
BALANCE SHEET DATA:
Property, plant and equipment, net.. $14,152 $13,379 $ 9,953 $ 8,821 $ 9,130
======== ======== ======= ======== ========
Total assets ....................... $33,058 $31,624 $26,510 $24,795 $23,871
======== ======== ======= ======== ========
Long-term debt, less current portion $ 3,642 $ 4,497 $ 3,048 $ 3,423 $ 3,621
======== ======== ======= ======== ========
Working capital .................... $13,557 $12,979 $12,565 $13,446 $12,335
======== ======== ======= ======== ========
</TABLE>
QUARTERLY FINANCIAL DATA:
(unaudited) (In thousands, except per share amounts)
NET INCOME
QUARTER ENDED NET SALES GROSS PROFIT NET INCOME PER SHARE
------------- --------- ------------ ---------- ---------
Fiscal 1996
-----------
September $ 7,855 $ 2,637 $ 506 $ 0.13
December 7,759 2,120 98 0.03
March 8,822 3,123 639 0.16
June 9,448 3,470 820 0.21
------------ ------------ ------------ ------------
Total $ 33,884 $ 11,350 $ 2,063 $ 0.53
============ ============ ============ ============
Fiscal 1995
-----------
September $ 6,487 $ 2,157 $ 395 (1) $ 0.10 (1)
December 6,515 2,320 126 0.03
March 7,781 3,100 655 0.17
June 7,847 3,601 704 0.18
------------ ------------ ------------ ------------
Total $ 28,630 $ 11,178 $ 1,880 $ 0.48
============ ============ ============ ============
(1) Net income and net income per common and common equivalent share for
fiscal year 1995 includes the cumulative effect of a change in accounting
to adopt the provisions of Statement of Financial Accounting Standards No.
115, for certain investments in debt and equity securities effective July
1, 1994, amounting to $152,000, or $.03 per share.
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FISCAL YEAR 1996 COMPARED WITH FISCAL YEAR 1995
Net sales for the fiscal year ended June 30, 1996 were $33,884,000, an
increase of 18% over the $28,630,000 recorded in fiscal year 1995. Domestic
sales increased by 22% to $22,559,000 in fiscal year 1996 from $18,448,000 in
fiscal year 1995. International sales increased by 11% to $11,325,000 in
fiscal year 1996 from $10,182,000 in fiscal year 1995. These increases in net
sales resulted primarily from the worldwide increase in demand for commercial
capacitors which corresponded to the continued growth in areas such as
wireless communications, satellite broadcasting, and medical electronics.
Demand for the Registrant's thin film products was also strong. Sales of thin
film products increased by 116% to $1,452,000 in fiscal year 1996 from
$673,000 in fiscal year 1995. The Registrant is currently experiencing
weakened demand for its multilayer capacitor products, which management
believes is primarily attributable to an excess supply of products in the
distribution channel. The Registrant believes that the current weakness is
temporary and anticipates that current trends should begin to reverse when
many of the Registrant's distributors and customers feel that they have
reduced their inventory supplies down to more manageable levels. The
Registrant also expects that the recent increase in demand for its thin film
products should continue which should offset in part the current weakness in
demand for the Registrant's multilayer capacitors. There can be no assurance,
however, that this period of weaker demand will not be prolonged or that it
will not effect the Registrant's long-term business trends.
Gross margins were 33.5% of net sales in fiscal year 1996 compared with
39.0% in fiscal year 1995. The substantial increase in demand for the
Registrant's products exposed and exacerbated pre-existing problems in the
Registrant's manufacturing processes. These problems negatively impacted
product yields which, in turn, resulted in higher material, labor and overhead
costs. Gross margins were also adversely affected by the costs and expenses
associated with the addition of a new chip manufacturing facility and the
Registrant's increased investment in its thin film product line which was made
to increase production capacity for these products. See "Item 1. BUSINESS --
MANUFACTURING". In addition, average unit selling prices declined in fiscal
year 1996 compared to fiscal year 1995 as a result of the change in product
mix from higher priced hi-rel and defense related products to lower priced
commercial products.
The Registrant has taken steps to correct the process problems referred to
above and believes it currently has them under control. Nevertheless, the
Registrant continues to work to improve production yields while also focusing
on reducing manufacturing labor costs. The Registrant's margins began to
improve during the second half of fiscal year 1996, a trend the Registrant
expects to continue to some extent as raw material usage returns to more
historical levels. The Registrant believes that the addition of its new
manufacturing facility and investment in the thin film product line will
enable it to meet current demand for its products.
Operating expenses totaled $8.2 million, or 24% of net sales, compared
with $8.3 million, or 29% of net sales, in fiscal year 1995. Selling expenses
decreased by $368,000 to $3,783,000 in fiscal year 1996 as compared to
$4,151,000 in fiscal year 1995. The decrease in selling expenses was the
result of a lower sales commission rate to representative organizations and
selling employees, a scaled back but more focused advertising and promotional
program and the absence of an executive sales quota bonus in the fiscal year
ended June 30, 1996 as compared to the fiscal year ended June 30, 1995.
General and administrative expenses increased by $125,000 to $2,852,000 in
fiscal year 1996, as compared to $2,727,000 in fiscal year 1995, primarily as
a result of a stock bonus granted to a vice president.
Research and development expenses increased by $92,000 to $1,537,000 in
fiscal year 1996 as compared to $1,445,000 in fiscal year 1995. The increase
in expenses was the result of an increase in research and development
personnel and the resultant increase in salaries and related payroll and
benefits costs. The Registrant anticipates that research and development
expenditures, expressed as a percentage of net sales, will continue at levels
approximately comparable to that of the latest fiscal year.
11
<PAGE>
Net interest expense was $254,000 in fiscal year 1996 compared to net
interest expense of $188,000 in fiscal year 1995. The increase in the net
interest expense was the result of the incremental interest incurred on two
$1.0 million capital equipment loans secured in March 1995. See "Item 6.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- LIQUIDITY AND CAPITAL RESOURCES".
The Registrant recorded other income of $323,000 in fiscal year 1996 as
compared to other expense of $199,000 in fiscal year 1995. Other income in the
current fiscal year includes $333,000 of net realized gains on sales of
investments. Other expense in fiscal year 1995 included net realized losses on
sales of investments of $191,000.
The effective income tax rate for fiscal year 1996 was approximately 37%
as compared to an effective rate of approximately 30% for fiscal year 1995.
The higher rate in fiscal year 1996 was primarily the result of the foreign
sales corporation benefit and certain tax credits which the Registrant availed
itself of in fiscal year 1995 that were not available in fiscal year 1996.
As a result of the foregoing, the Registrant reported net income of
$2,063,000, or $.53 per share, for fiscal year 1996 as compared with net
income of $1,880,000, or $.48 per share, in fiscal year 1995.
FISCAL YEAR 1995 COMPARED WITH FISCAL YEAR 1994
Net sales for the fiscal year ended June 30, 1995 were $28,630,000, an
increase of 24% over the $23,111,000 recorded in fiscal year 1994. Domestic
sales increased by 22% to $18,448,000 in fiscal year 1995 from $15,070,000 in
fiscal year 1994. International sales increased by 27% to $10,182,000 in
fiscal year 1995 from $8,041,000 in fiscal year 1994. Significantly higher
unit shipment volumes more than offset a decrease in average unit selling
prices for the majority of the Registrant's product lines. The increase in
sales in fiscal year 1995 was the result of several positive sales trends
including unparalleled demand for capacitors in commercial applications, such
as wireless technologies and satellite transmissions, as well as renewed
demand for high-reliability or non-commercial products. The increased demand
was apparent on a global scale as the Registrant's rate of sales growth
accelerated both in the United States and in foreign markets.
Gross margins were 39.0% of net sales in fiscal year 1995 compared with
37.8% in fiscal year 1994. The increase in gross margins was attributable to
lower per unit production costs as a result of higher factory utilization and
greater economies of scale in fiscal year 1995 as compared to fiscal year
1994. Operating expenses totaled $8.3 million, or 29% of net sales in fiscal
year 1995 compared with $7.1 million, or 31% of net sales, in fiscal year
1994. Selling expenses increased by $692,000 to $4,151,000 in fiscal year 1995
as compared to $3,459,000 in fiscal year 1994. The increase in selling
expenses in fiscal year 1995 as compared to fiscal year 1994 was the result of
higher variable selling expenses directly attributable to the higher level of
net sales. These expenses primarily consisted of higher commissions paid to
representative organizations and to the Registrant's sales executives and
personnel. General and administrative expenses increased by $322,000 to
$2,727,000 in fiscal year 1995, as compared to $2,405,000 in fiscal year 1994.
This increase was the result of several factors, including a sales tax
assessment by the state of Florida and higher bonuses earned by various
executives on the basis of higher profits in fiscal year 1995 compared to
fiscal year 1994.
Expenditures for product research and development increased by $207,000 to
$1,445,000 in fiscal year 1995 as compared to $1,238,000 in fiscal year 1994.
The increase in research and development expenses was the result of higher
salaries in fiscal year 1995 as compared to fiscal year 1994.
The Registrant recorded net interest expense of $188,000 in fiscal year
1995 compared to net interest income of $91,000 in fiscal year 1994. Net
interest expense in fiscal year 1995, as compared to net interest income in
fiscal year 1994 was due primarily to lower funds available for investment as
a result of significantly higher expenditures for capital equipment and
facilities renovation. Other expense was $199,000 in fiscal year 1995 as
compared to $265,000 in fiscal year 1994. Other expense in fiscal year 1995
included $191,000 of net realized losses on the sale of investments. Other
expense in fiscal year 1994 included unrealized losses on marketable
securities of $224,000.
12
<PAGE>
The effective income tax rate for fiscal year 1995 was approximately 30%
as compared to approximately 32% for fiscal year 1994. The slightly lower rate
in fiscal year 1995 was primarily due to a higher tax benefit related to the
Registrant's foreign sales corporation subsidiary. Effective July 1, 1994, the
Registrant adopted the provisions of Statement of Financial Accounting
Standards No. 115 Accounting for Certain Investments in Debt and Equity
Securities ("SFAS No. 115"). The adoption of SFAS No. 115 resulted in a
cumulative effect of a change in accounting principle of $152,000, net of
income taxes.
As a result of the foregoing, the Registrant reported net income of
$1,880,000, or $.48 per share, for fiscal year 1995 as compared with net
income of $997,000, or $.26 per share, in fiscal year 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Registrant's financial position at June 30, 1996 remains strong as
evidenced by working capital of $13,557,000 as compared to working capital of
$12,979,000 at June 30, 1995. The Registrant's current ratio at June 30, 1996
was 3.7:1 compared to 3.6:1 at June 30, 1995. The Registrant's quick ratio at
June 30, 1996 was 2.0:1 compared to 2.1:1 at June 30, 1995.
Cash and investments decreased to $3,548,000 at June 30, 1996 as compared
to $5,221,000 at June 30, 1995. The decrease in cash and investments was
primarily the result of cash expended for operating purposes to replenish
inventory levels which were at unusually low levels due to the increased
demand for the Registrant's products and to upgrade and add machinery and
equipment to expand production capacities. Accounts receivable increased by
$1,016,000 to $4,913,000 at June 30, 1996 as compared to $3,897,000 at June
30, 1995, as a result of the higher sales in fiscal year 1996 relative to
fiscal year 1995 particularly during May and June. Inventories increased by
$1,053,000 to $8,758,000 at June 30, 1996 as compared to $7,705,000 at June
30, 1995. The increase in inventory was primarily the result of a planned
increase in stock levels to bring them more in line with the higher sales
levels and to assure that the Registrant continues to meet high standards for
customer delivery, availability and quality.
Accounts payable and accrued expenses decreased by $376,000 to $3,343,000
at June 30, 1996 as compared to $3,719,000 at June 30, 1995. This decrease was
due primarily to lower accounts payable for capital expenditures at June 30,
1996 as compared to June 30, 1995. At June 30, 1996, the Registrant had
current income taxes payable of $857,000 relating to the fiscal year's pretax
profits including taxes payable by the Registrant's United Kingdom subsidiary.
Under a lease agreement, dated October 1, 1980, the Registrant leases a
manufacturing facility from a partnership controlled by the Registrant's
President and principal stockholder. Under the lease, the Registrant is
obligated to pay approximately $227,000 per annum. The payments due over the
remaining fifteen years of this capital lease total approximately $3,232,000.
See Note 4 of Notes to Consolidated Financial Statements and "Item 12. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS".
The Registrant has two loan agreements with a bank aggregating $1,505,000.
The loans are payable through February 2000 and require monthly payments of
principal and interest aggregating approximately $42,000 in fiscal year 1997.
See Note 4 of Notes to Consolidated Financial Statements.
The Registrant has a term loan with a bank with a remaining balance of
$1,235,000 payable through fiscal year 1999 and requires monthly installments
of principal and interest of approximately $42,000 in fiscal year 1997. The
Registrant used the majority of the proceeds of this loan to prepay the
outstanding balance under a pre-existing mortgage note. The balance of the
proceeds of approximately $350,000 was used to finance capital equipment
expenditures. The loan is subject to certain financial covenants. See Note 4
of Notes to Consolidated Financial Statements.
13
<PAGE>
The Registrant intends to use cash on hand as well as funds generated from
operations to finance budgeted capital expenditures of approximately $2.0
million in fiscal year 1997. Additionally, the Registrant is in negotiations
with a bank for a $2.0 million general purpose line-of-credit.
In June 1990, the Registrant announced a stock purchase program pursuant
to which it is authorized to purchase up to $1,000,000 of its common stock.
Through June 30, 1996, the Registrant has expended approximately $741,000 to
purchase an aggregate of 297,700 shares under this program.
IMPACT OF NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 121 Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of
("SFAS No. 121"), effective for fiscal years beginning after December 15,
1995, requires among other things, that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Impairment losses should
be based upon the fair value of the asset, and reported in the period in which
the recognition criteria are first applied and met. Management of the
Registrant believes that the implementation of SFAS No. 121 will not have a
material impact on the Registrant's financial position or results of
operations.
Statement of Financial Accounting Standards No. 123 Accounting for
Stock-Based Compensation ("SFAS No. 123") establishes financial accounting and
reporting standards for stock-based compensation plans. SFAS No. 123 defines
and encourages a fair value based method of accounting for an employee stock
option or similar instrument. However, it allows an entity to continue to
measure compensation cost for those plans using the intrinsic value based
method of accounting prescribed by APB Opinion No. 25 Accounting for Stock
Issued to Employees ("Opinion 25"). SFAS No. 123 requires that financial
statements include certain disclosures about stock-based employee compensation
arrangements regardless of which method is used to account for them.
Management currently intends to continue accounting for stock-based
compensation awarded to employees using Opinion 25.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Registrant's Consolidated Financial Statements and the Notes thereto
begin on page F of this report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
14
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS OF THE
REGISTRANT; COMPLIANCE WITH SECTION 16 (A) OF THE EXCHANGE ACT
The information set forth under the caption "Election of Directors" in the
Registrant's Proxy Statement to be furnished in connection with its Annual
Meeting of Stockholders to be held December 6, 1996 is hereby incorporated by
reference.
ITEM 10. EXECUTIVE COMPENSATION
The information set forth under the caption "Executive Compensation" in
the Registrant's Proxy Statement to be furnished in connection with its Annual
Meeting of Stockholders to be held December 6, 1996 is hereby incorporated by
reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the caption "Security Ownership of Certain
Beneficial Owners and Management" and the information relating to beneficial
ownership of the Registrant's common stock in the table under the caption
"Election of Directors" in the Registrant's Proxy Statement to be furnished in
connection with its Annual Meeting of Stockholders to be held December 6, 1996
is hereby incorporated by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption "Certain Relationships and
Related Transactions" in the Registrant's Proxy Statement to be furnished in
connection with its Annual Meeting of Stockholders to be held December 6, 1996
is hereby incorporated by reference.
15
<PAGE>
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) FINANCIAL STATEMENTS
PAGE NO.
--------
Independent Auditors' Report .................................. F-1
Consolidated Financial Statements
Balance Sheets as of June 30, 1996 and 1995 .............. F-2
Statements of Earnings for the
Years Ended June 30, 1996, 1995 and 1994 ............ F-3
Statements of Stockholders' Equity
for the Years Ended June 30, 1996, 1995 and 1994 .... F-4
Statements of Cash Flows for the
Years Ended June 30, 1996, 1995 and 1994 ............ F-5
Notes to Consolidated Financial Statements .................... F-6 - F-15
(b) REPORTS ON FORM 8-K
The Registrant did not file any reports on Form 8-K during the last
quarter of the period covered by this report.
(c) EXHIBITS
Unless otherwise indicated, the following exhibits were filed as part of
the Registrant's Registration Statement on Form S-18 (No. 2-96925-NY) (the
"Registration Statement") and are incorporated herein by reference to the
same exhibit thereto:
EXHIBIT NO. DESCRIPTION
- ----------- -----------
3(a)(i) - Certificate of Incorporation of the Registrant.
3(a)(ii) - Amendment to Certificate of Incorporation. Incorporated by
reference to Exhibit 3(a)(ii) to the Registrant's Annual Report
on Form 10-KSB for the fiscal year ended June 30, 1995 (the
"1995 10-KSB").
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. Incorporated by reference to Exhibit 9(a)(iii) to
the Registration Statement.
10(b)(i) - Lease Agreement between Victor Insetta and the Registrant for
premises at 15 Stepar Place, Huntington Station, N.Y.
10(b)(ii) - Amendment to Lease Agreement, dated May 8, 1984, but effective
as of July 14, 1981, between Victor Insetta, d/b/a Stepar
Leasing Company, and the Registrant.
10(b)(iii) - Amendment to Lease Agreement, dated June 15, 1987, but
effective as of May 1, 1987, between Victor Insetta, d/b/a
Stepar Leasing Company, and the Registrant. Incorporated by
reference to Exhibit 10 (b) (iii) to the Registrant's Annual
Report on Form 10-K for the fiscal year ended June 30, 1987.
10(b)(iv) - Amendment to Lease Agreement, dated February 9, 1989, between
Victor Insetta, d/b/a Stepar Leasing Company, and the
Registrant. Incorporated by reference to Exhibit 10 (b) (iv) to
the Registrant's Annual Report on Form 10-K for the fiscal year
ended June 30, 1989 (the "1989 10-K").
16
<PAGE>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10(c)(i) - 1985 Employee Stock Sale Agreement between the Registrant
and various employees. Incorporated by reference to Exhibit 10
(e) (ii) to the Registration Statement.
10(c)(ii) - Form of Employee Stock Bonus Agreement, dated as of July 1,
1993, between the Registrant and various employees.
Incorporated by reference to Exhibit 10(c)(iii) the
Registrant's Annual Report on Form 10-KSB for the fiscal year
ended June 30, 1994 (the "1994 10-KSB").
10(c)(iii) - Form of Employee Stock Bonus Agreement, dated as of April
19, 1994, between the Registrant and various employees.
Incorporated by reference to Exhibit 10(c)(iv) to the 1994
10-KSB.
10(c)(iv) - Form of Employee Stock Bonus Agreement, dated as of
April 20, 1995, between the Registrant and various employees.
Incorporated by reference to Exhibit 10(c)(v) to the 1995
10-KSB.
10(e)(i) - Lease, effective as of October 1, 1980, between VPI Properties
Associates, d/b/a VPI Properties Associates, Ltd. and American
Technical Ceramics (Florida), Inc. Incorporated by reference to
Exhibit 10 (g) (ii) to the Registration Statement.
10(e)(ii) - Amendment entered into on June 20, 1984 to Lease, effective
as of October 1, 1980, between VPI Properties Associates, d/b/a
VPI Properties Associates, Ltd. and American Technical Ceramics
(Florida), Inc. Incorporated by reference to Exhibit 10 (g)
(iii) to the Registration Statement.
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. Incorporated
by reference to Exhibit 10 (g) to the 1989 10-K.
10(g)(i) - Incentive Stock Option Plan of the Registrant. Incorporated by
reference to Exhibit 10 (j) (i) to the Registration Statement.
10(g)(ii) - Stock Appreciation Rights Plan of the Registrant.
Incorporated by reference to Exhibit 10 (j) (iii) to the
Registration Statement.
10(g)(iii) - Profit Bonus Plan, dated April 19, 1995, and effective for
the fiscal years beginning July 1, 1994. Incorporated by
reference to Exhibit 10(i)(iv) to the 1995 10-KSB.
10(g)(iv) - Employment Agreement, dated April 3, 1985, between Victor
Insetta and the Registrant, as amended. Incorporated by
reference to Exhibit 10 (i) (vi) to the Registrant's Annual
Report on Form 10-K for the fiscal year ended June 30, 1993
(the "1993 10-K").
10(h) - Loan Agreement, dated September 27, 1994, between the Registrant
and Barnett Bank of Jacksonville, N.A. Incorporated by
reference to Exhibit 10(p) to the 1994 10-KSB.
10(i) - Secured Commercial Note, dated as of February 17, 1995, between
the Registrant and European American Bank. Incorporated by
reference to Exhibit 10(q) to the 1995 10-KSB.
10(j) - Secured Commercial Note, dated as of February 17, 1995,
between the Registrant and European American Bank. Incorporated
by reference to Exhibit 10(r) to the 1995 10-KSB.
*10(k) - Letters of Agreement, dated June 26, 1996 and August 22,
1996 between the Registrant and Stuart P. Litt.
21 - Subsidiaries of the Registrant. Incorporated by reference
to Exhibit 21 to the 1993 10-K.
*23 - Consent of KPMG Peat Marwick LLP.
- ----------------
*Filed herewith.
17
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15 (d) 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.
AMERICAN TECHNICAL CERAMICS CORP.
BY: /S/ VICTOR INSETTA
---------------------------
VICTOR INSETTA
President
Dated: September 26, 1996
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 AND ON THE DATES AND CAPACITIES INDICATED:
NAME TITLE DATE
---- ----- ----
/S/ VICTOR INSETTA President and Director September 26, 1996
- ------------------------- (Principal Executive Officer)
Victor Insetta
/S/ CHESTER E. SPENCE September 26, 1996
- ----------------------
Chester E. Spence Director
/S/ JAMES CONDON Controller September 26, 1996
- ------------------------- (Principal Financial Officer)
James Condon
/S/ O. JULIAN GARRARD III
- -------------------------
O. Julian Garrard III Director September 26, 1996
/S/ STUART P. LITT
- -------------------------
Stuart P. Litt Director September 26, 1996
18
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
AMERICAN TECHNICAL CERAMICS CORP. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page Number
-----------
Independent Auditors' Report ............................ F-1
Consolidated Balance Sheets - June 30, 1996 and 1995 .... F-2
Consolidated Statements of Earnings for the
Years Ended June 30, 1996, 1995 and 1994 .............. F-3
Consolidated Statements of Stockholders' Equity
for the Years Ended June 30, 1996, 1995 and 1994 ...... F-4
Consolidated Statements of Cash Flows for the
Years Ended June 30, 1996, 1995 and 1994 .............. F-5
Notes to Consolidated Financial Statements .............. F-6 - F-15
F
<PAGE>
[LETTERHEAD]
Independent Auditors' Report
----------------------------
The Board of Directors and Stockholders
American Technical Ceramics Corp.:
We have audited the accompanying consolidated balance sheets of American
Technical Ceramics Corp. and subsidiaries (the Company) as of June 30, 1996
and 1995 and the related consolidated statements of earnings, stockholders'
equity and cash flows for each of the years in the three-year period ended
June 30, 1996. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of American
Technical Ceramics Corp. and subsidiaries as of June 30, 1996, and 1995, and
the results of their operations and their cash flows for each of the years in
the three-year period ended June 30, 1996 in conformity with generally
accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Company
adopted the provisions of Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity Securities, in fiscal
1995.
KPMG PEAT MARWICK LLP
Jericho, New York
August 30, 1996
F-1
<PAGE>
AMERICAN TECHNICAL CERAMICS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, 1996 JUNE 30, 1995
------------- -------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash (including cash equivalents of approximately
$1,082,000 and $1,054,000, respectively) $2,661,000 $1,813,000
Investments 887,000 3,408,000
Accounts receivable, net 4,913,000 3,897,000
Inventories 8,758,000 7,705,000
Deferred income taxes 738,000 738,000
Other current assets 641,000 399,000
------------- -------------
Total current assets 18,598,000 17,960,000
------------- -------------
PROPERTY, PLANT AND EQUIPMENT:
Land 738,000 738,000
Buildings and building under capital lease 5,812,000 5,745,000
Leasehold improvements 2,090,000 1,923,000
Machinery and equipment 19,661,000 17,429,000
Furniture, fixtures and other 898,000 1,186,000
------------- -------------
29,199,000 27,021,000
Less: Accumulated depreciation 15,047,000 13,642,000
------------- -------------
14,152,000 13,379,000
------------- -------------
OTHER ASSETS 308,000 285,000
------------- -------------
$33,058,000 $31,624,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $841,000 $815,000
Accounts payable 1,128,000 1,547,000
Accrued expenses 2,215,000 2,172,000
Income taxes payable 857,000 447,000
------------- -------------
Total current liabilities 5,041,000 4,981,000
------------- -------------
LONG-TERM DEBT 3,642,000 4,497,000
DEFERRED INCOME TAXES 1,283,000 1,080,000
------------- -------------
Total liabilities 9,966,000 10,558,000
------------- -------------
COMMITMENTS AND CONTINGENCIES --- ---
STOCKHOLDERS' EQUITY:
Common stock- par value $.01;authorized 20,000,000 shares;
issued 4,067,501 and 4,067,201 shares, respectively 41,000 41,000
Capital in excess of par value 6,439,000 6,345,000
Retained earnings 17,251,000 15,188,000
------------- -------------
23,731,000 21,574,000
Unrealized gain on investments available-for-sale 12,000 134,000
Less: Treasury stock, at cost (183,518 and 193,518 shares, respectively) 572,000 590,000
Deferred compensation --- 26,000
Foreign currency translation adjustment 79,000 26,000
------------- -------------
Total stockholders' equity 23,092,000 21,066,000
------------- -------------
$33,058,000 $31,624,000
============= =============
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
AMERICAN TECHNICAL CERAMICS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE YEARS ENDED JUNE 30,
-------------------------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net sales $33,884,000 $28,630,000 $23,111,000
Cost of goods sold 22,534,000 17,452,000 14,375,000
----------- ----------- -----------
Gross profit 11,350,000 11,178,000 8,736,000
----------- ----------- -----------
Selling expenses 3,783,000 4,151,000 3,459,000
General and administrative expenses 2,852,000 2,727,000 2,405,000
Research and development expenses 1,537,000 1,445,000 1,238,000
----------- ----------- -----------
Total expenses 8,172,000 8,323,000 7,102,000
----------- ----------- -----------
Income from operations 3,178,000 2,855,000 1,634,000
----------- ----------- -----------
Other (income)expense:
Interest expense 432,000 397,000 315,000
Interest income (178,000) (209,000) (406,000)
Other (323,000) 199,000 265,000
----------- ----------- -----------
(69,000) 387,000 174,000
----------- ----------- -----------
Income before provision for income taxes and
cumulative effect of change in accounting method 3,247,000 2,468,000 1,460,000
Provision for income taxes 1,184,000 740,000 463,000
----------- ----------- -----------
Income before cumulative effect
of change in accounting method $2,063,000 $1,728,000 $997,000
Cumulative effect of change in method of
accounting for investments, net of income taxes -- 152,000 --
----------- ----------- -----------
Net income $2,063,000 $1,880,000 $997,000
=========== =========== ===========
Income per common and common equivalent share,
before cumulative effect of change in accounting method $0.53 $0.45 $0.26
Cumulative effect of change in accounting method
per common and common equivalent share -- $0.03 --
----------- ----------- -----------
Net income per common and common equivalent share $0.53 $0.48 $0.26
=========== =========== ===========
Weighted average common and common
equivalent shares outstanding 3,880,000 3,877,000 3,900,000
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
AMERICAN TECHNICAL CERAMICS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
UNREALIZED
GAIN ON
COMMON STOCK CAPITAL IN INVESTMENTS
------------ EXCESS OF RETAINED AVAILABLE- TREASURY
SHARES AMOUNT PAR VALUE EARNINGS FOR-SALE STOCK
------ ------ --------- -------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JUNE 30, 1993 4,065,211 $41,000 $6,216,000 $12,311,000 $ --- $(278,000)
Purchase of
treasury stock --- --- --- --- --- (329,000)
Deferred compensation --- --- 99,000 --- --- 149,000
Stock award
compensation expense --- --- --- --- --- ---
Foreign currency
translation adjustment --- --- --- --- --- ---
Net income --- --- --- 997,000 --- ---
------------ ------------ ------------ ------------ ------------ ------------
BALANCE AT JUNE 30, 1994 4,065,211 $41,000 $6,315,000 $13,308,000 $ --- $(458,000)
Purchase of
treasury stock --- --- --- --- --- (148,000)
Deferred compensation --- --- 19,000 --- --- 16,000
Stock award
compensation expense --- --- --- --- --- ---
Exercise of stock options 1,990 --- 11,000 --- --- ---
Unrealized gain on
investments available-for-sale --- --- --- --- 134,000 ---
Foreign currency
translation adjustment --- --- --- --- --- ---
Net income --- --- --- 1,880,000 --- ---
------------ ------------ ------------ ------------ ------------ ------------
BALANCE AT JUNE 30, 1995 4,067,201 $41,000 $6,345,000 $15,188,000 $134,000 $(590,000)
Stock award
compensation expense --- --- 92,000 --- --- 18,000
Exercise of stock options 300 --- 2,000 --- --- ---
Unrealized loss on
investments available-for-sale --- --- --- --- (122,000) ---
Foreign currency
translation adjustment --- --- --- --- --- ---
Net income --- --- --- 2,063,000 --- ---
------------ ------------ ------------ ------------ ------------ ------------
BALANCE AT JUNE 30, 1996 4,067,501 $41,000 $6,439,000 $17,251,000 $12,000 $(572,000)
------------ ------------ ------------ ------------ ------------ ------------
</TABLE>
(RESTUBBED FROM ABOVE)
FOREIGN
CURRENCY
DEFERRED TRANSLATION
COMPENSATION ADJUSTMENT TOTAL
------------ ---------- -----
BALANCE AT JUNE 30, 1993 $ --- $(124,000) $18,166,000
Purchase of
treasury stock --- --- (329,000)
Deferred compensation (248,000) --- ---
Stock award
compensation expense 90,000 --- 90,000
Foreign currency
translation adjustment --- 50,000 50,000
Net income --- --- 997,000
------------ ------------ ------------
BALANCE AT JUNE 30, 1994 $(158,000) $(74,000) $18,974,000
Purchase of
treasury stock --- --- (148,000)
Deferred compensation (35,000) --- ---
Stock award
compensation expense 167,000 --- 167,000
Exercise of stock options --- --- 11,000
Unrealized gain on
investments available-for-sale --- --- 134,000
Foreign currency
translation adjustment --- 48,000 48,000
Net income --- --- 1,880,000
------------ ------------ ------------
BALANCE AT JUNE 30, 1995 $(26,000) $(26,000) $21,066,000
Stock award
compensation expense 26,000 --- 136,000
Exercise of stock options --- --- 2,000
Unrealized loss on
investments available-for-sale --- --- (122,000)
Foreign currency
translation adjustment --- (53,000) (53,000)
Net income --- --- 2,063,000
------------ ------------ ------------
BALANCE AT JUNE 30, 1996 --- $(79,000) $23,092,000
------------ ------------ ------------
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
AMERICAN TECHNICAL CERAMICS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
---------------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $2,063,000 $1,880,000 $997,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Unrealized loss on marketable securities - - 224,000
Provision for doubtful accounts receivable
and sales returns 52,000 28,000 45,000
Depreciation and amortization 1,812,000 1,657,000 1,398,000
(Gain) loss on disposal of fixed assets (8,000) (5,000) 13,000
Stock award compensation expense 136,000 167,000 90,000
Provision for deferred income taxes 197,000 110,000 (278,000)
Cumulative effect of change in accounting method
for investments, net of income taxes - (152,000) -
Realized (gain) loss on sale of investments (333,000) 191,000 (9,000)
Changes in operating assets and liabilities:
Accounts receivable, net (1,080,000) (344,000) (776,000)
Inventories (1,062,000) (1,377,000) (206,000)
Other assets (262,000) (124,000) (57,000)
Accounts payable, accrued expenses and
income taxes payable 40,000 795,000 1,165,000
----------- ----------- -----------
Net cash provided by operating activities 1,555,000 2,826,000 2,606,000
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,586,000) (4,995,000) (2,381,000)
Purchase of investments (502,000) (3,941,000) (6,890,000)
Proceeds from sale of investments 3,216,000 4,366,000 7,120,000
Purchase of Miltech Corp. - - (339,000)
Proceeds from sale of fixed assets 22,000 12,000 -
----------- ----------- -----------
Net cash provided by (used in) investing activities 150,000 (4,558,000) (2,490,000)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt (829,000) (2,114,000) (224,000)
Proceeds from issuance of debt - 3,910,000 8,000
Payments to acquire treasury stock - (148,000) (329,000)
Proceeds from exercise of stock options 2,000 11,000 -
----------- ----------- -----------
Net cash (used in) provided by financing activities (827,000) 1,659,000 (545,000)
----------- ----------- -----------
Effect of exchange rate changes on cash (30,000) 21,000 18,000
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 848,000 (52,000) (411,000)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 1,813,000 1,865,000 2,276,000
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $2,661,000 $1,813,000 $1,865,000
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
AMERICAN TECHNICAL CERAMICS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS
American Technical Ceramics Corp. and its wholly-owned subsidiaries (the
"Company") is engaged in the design, development, manufacture and sale of
ceramic multilayer capacitors for commercial and military purposes in the
United States and for export primarily to Western Europe. During fiscal years
1996, 1995 and 1994, there were no customers which accounted for 10 percent or
more of consolidated revenues. In each of the fiscal years ended June 30,
1996, 1995 and 1994, approximately 13%, 14% and 13%, respectively, of the
Company's net sales were to United States military and aerospace contractors.
The Company operates in one industry, the manufacture of electronic
components.
In September 1993, the Company acquired substantially all of the assets
and business of Miltech Corp., a manufacturer of metalized substrates and
circuits for approximately $339,000 in cash. The Company accounted for the
acquisition under the purchase method of accounting.
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
American Technical Ceramics Corp. and its wholly-owned subsidiaries. All
significant intercompany balances and transactions have been eliminated in
consolidation.
REVENUE RECOGNITION
Revenue is recognized as products are shipped.
CASH EQUIVALENTS
The Company considers all highly liquid debt instruments with a maturity
of three months or less when purchased to be cash equivalents, including money
market accounts and certificates of deposit.
INVESTMENTS
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 115 Accounting for Certain Investments in Debt and Equity
Securities ("SFAS No. 115") effective July 1, 1994. Under SFAS No. 115, the
Company classifies its investments in debt and equity securities as
available-for-sale. Accordingly, these investments are reported at fair value
with unrealized holding gains and losses excluded from earnings and reported
as a separate component of stockholders' equity, net of tax. Classification of
investments is determined at acquisition and reassessed at each reporting
date. Realized gains and losses are included in the determination of net
earnings at the time of sale and are derived using the specific identification
method for determining cost of securities sold.
INVENTORIES
Inventories are stated at the lower of aggregate cost (first-in,
first-out) or market.
F-6
<PAGE>
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation and
amortization are provided primarily using the straight-line method over the
estimated useful lives of the related assets as follows:
<TABLE>
<CAPTION>
<S> <C>
Buildings and building under capital lease 30 years
Leasehold improvements The lesser of the remaining lease term or 5 years
Machinery and equipment 3 to 10 years
Furniture, fixtures and other 3 to 8 years
</TABLE>
OTHER ASSETS
Included in other assets as of June 30, 1996 and 1995 is approximately
$47,000 and $67,000, respectively, of goodwill and $10,000 and $17,000,
respectively, of other intangible assets related to the acquisition of Miltech
Corp. These amounts are net of accumulated amortization of $57,000 and $36,000
for goodwill and $18,000 and $12,000 for the other intangibles as of June 30,
1996 and 1995, respectively. The Company amortizes goodwill over five years
and other intangibles over approximately four years using the straight-line
method. The Company assesses the recoverability of intangible assets by
determining whether the amortization of the intangible balance over its
remaining life can be recovered through undiscounted future cash flows of the
acquired business.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 Accounting for Income Taxes ("SFAS No.
109"). Under the asset and liability method of SFAS No. 109, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be realized or settled. Under SFAS No. 109, the effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date.
FOREIGN CURRENCY TRANSLATION
The Company translates the financial statements of its foreign subsidiary
(located in England) by applying the current exchange rate as of the balance
sheet date to the assets and liabilities of the subsidiary and a weighted
average rate to such subsidiary's results of operations. The resulting
translation adjustment is recorded as a component of stockholders' equity.
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
Net income per common and common equivalent share has been computed based
upon the weighted average number of common and common equivalent shares
outstanding. Recognition has been given to the assumed exercise (as of the
beginning of each period or date of issuance if later) of outstanding options
and warrants, except when their effect would be antidilutive or immaterial.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-7
<PAGE>
NOTE 2. INVESTMENTS
As discussed in Note 1, the Company adopted the provisions of SFAS No. 115
effective July 1, 1994. The cumulative effect of this change in the method of
accounting for certain investments in debt and equity securities, net of
income taxes was $152,000.
The following table presents the cost, gross unrealized gains and losses
and fair value of the investments available-for-sale as of June 30, 1996 and
1995, respectively.
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED
1996 COST GAINS LOSSES FAIR VALUE
- ---- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Mutual funds $ 364,000 $ 21,000 $ -- $ 385,000
Equity securities 3,000 -- 1,000 2,000
U.S. Government
obligations 502,000 -- 2,000 500,000
------------ ------------ ------------ ------------
$ 869,000 $ 21,000 $ 3,000 $ 887,000
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED
1995 COST GAINS LOSSES FAIR VALUE
- ---- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Mutual funds $ 566,000 $ 31,000 $ 8,000 $ 589,000
Equity securities 955,000 135,000 2,000 1,088,000
U.S. Government 1,332,000 37,000 -- 1,369,000
obligations
Certificates of deposit 360,000 2,000 -- 362,000
------------ ------------ ------------ ------------
$3,213,000 $ 205,000 $ 10,000 $3,408,000
============ ============ ============ ============
</TABLE>
Gross realized gains of approximately $333,000, $23,000 and $135,000,
respectively, are included in other income for fiscal years 1996, 1995 and
1994, respectively. Gross realized losses of approximately $214,000 and
$126,000 for fiscal years 1995 and 1994, respectively, are included in other
income.
All of the Company's investments in U. S. Government obligations
contractually mature within one to five years from June 30, 1996.
NOTE 3. INVENTORIES
Inventories consist of the following:
JUNE 30, 1996 JUNE 30, 1995
------------- -------------
Raw materials $ 1,642,000 $ 1,296,000
Work in process 3,413,000 3,316,000
Finished goods 3,703,000 3,093,000
------------- -------------
$ 8,758,000 $ 7,705,000
============= =============
F-8
<PAGE>
NOTE 4. LONG-TERM DEBT
Long-term debt consists of the following:
JUNE 30, 1996 JUNE 30, 1995
------------- -------------
Notes payable to banks $ 2,740,000 $ 3,490,000
Obligations under capital leases 1,739,000 1,802,000
Other notes payable 4,000 20,000
------------- -------------
4,483,000 5,312,000
Less: Current portion 841,000 815,000
------------- -------------
Long-term debt $ 3,642,000 $ 4,497,000
============= =============
Interest payments during fiscal years 1996, 1995 and 1994 approximated
interest expense for those years.
NOTES PAYABLE TO BANKS
Notes payable to banks at June 30, 1996 consists of:
(i) an unsecured $1.9 million term loan with a remaining balance of
$1,235,000 payable in equal monthly installments of principal of
approximately $32,000 through September 1999, plus accrued interest at
the bank's prime rate (8.25% at June 30, 1996). The loan is subject to
certain financial covenants which require, among other things, a minimum
level of tangible net worth; and
(ii) two term loans, aggregating $1,505,000, secured by capital equipment
with an approximate net book value of $1,700,000 at June 30, 1996. The
remaining balance of the first loan of $733,000, is payable in equal
monthly principal installments of approximately $17,000 through February
2000, and bears interest at a fixed rate of 6.85% through February 1997
and 8.85% thereafter. The remaining balance of the second loan of
$772,000 bears interest at a fixed rate of 8.85% and is payable in equal
monthly installments of approximately $21,000, including interest,
through February 2000. Both loans are subject to certain financial
covenants which require, among other things, the maintenance of certain
financial ratios.
The following table presents aggregate annual maturities of long-term debt
due after fiscal year 1996, excluding the obligations under capital leases:
1997 $ 771,000
1998 784,000
1999 803,000
2000 386,000
----------
$2,744,000
==========
OBLIGATIONS UNDER CAPITAL LEASES
Under a lease agreement dated October 1, 1980, as amended, the Company
leases a manufacturing facility in Jacksonville, Florida from a partnership
controlled by the Company's President and Chief Executive Officer and
principal stockholder. This lease agreement gives the Company substantially
all of the benefits and obligations of ownership, and is therefore treated as
a capital lease.
F-9
<PAGE>
The leased facility had an original cost of approximately $1,973,000 and
has a net book value of approximately $1,001,000 at June 30, 1996. The lease
is for a period of 30 years and was capitalized using an interest rate of
10.5%. Monthly payments (including interest) are approximately $19,000 before
rental adjustments. The lease agreement provides for a rental adjustment
upward (but not downward) based upon the ratio of the Consumer Price Index
between October 1988 and October 1996.
In October 1994, the Company renewed a computer equipment lease to upgrade
existing equipment as well as obtain additional equipment. The new equipment
has an original cost of $83,000 and a net book value of $54,000 at June 30,
1996. The lease is for a period of five years and was capitalized using an
interest rate of 10%. Annual payments, including interest, are approximately
$21,000.
The following sets forth the future minimum lease payments (excluding
rental adjustments) under these capital leases by fiscal year and the present
value of the minimum lease payments as of June 30, 1996:
1997 $ 249,000
1998 249,000
1999 249,000
2000 233,000
2001 227,000
2002 and thereafter 2,094,000
-----------
Total minimum lease payments 3,301,000
Less: Amount representing interest 1,562,000
-----------
Present value at June 30, 1996 1,739,000
Less: Current portion 70,000
-----------
$ 1,669,000
===========
F-10
<PAGE>
NOTE 5. INCOME TAXES
The provision for income taxes consists of the following:
YEARS ENDED JUNE 30,
--------------------
1996 1995 1994
---- ---- ----
CURRENT:
Federal $ 767,000 $ 447,000 $ 578,000
State 112,000 50,000 75,000
Foreign 108,000 133,000 88,000
----------- ----------- -----------
987,000 630,000 741,000
=========== =========== ===========
DEFERRED:
Federal 197,000 110,000 (278,000)
----------- ----------- -----------
Total $1,184,000 $ 740,000 $ 463,000
=========== =========== ===========
The following table reconciles the Federal statutory rate to the Company's
effective tax rate:
YEARS ENDED JUNE 30,
--------------------
1996 1995 1994
---- ---- ----
Tax provision computed at statutory rate 34.0% 34.0% 34.0%
State tax, net of Federal tax effect 3.2 3.4 3.0
FSC benefit (0.7) (2.7) (0.9)
Tax credits and other -- (4.7) (4.4)
--------- ---------- ----------
36.5% 30.0% 31.7%
========= ========== ==========
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at June 30,
1996 and 1995 are presented below.
1996 1995
----------- -----------
Deferred tax assets:
Allowance for doubtful accounts
receivable and sales returns $ 116,000 $ 108,000
Inventories, principally due to
additional costs inventoried for
tax purposes pursuant to the Tax
Reform Act of 1986 380,000 303,000
Compensated absences accrued
for financial reporting purposes 109,000 200,000
Other 133,000 127,000
----------- -----------
Total deferred tax assets 738,000 738,000
=========== ===========
Deferred tax liabilities:
Plant and equipment, principally due
to differences in depreciation and
capitalized interest (1,277,000) (1,020,000)
Unrealized appreciation on
investments available-for-sale (6,000) (60,000)
----------- -----------
Total deferred tax liabilities (1,283,000) (1,080,000)
=========== ===========
Net deferred tax liability $ (545,000) $ (342,000)
=========== ===========
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The ultimate realization of deferred
tax assets is dependent upon the generation of future taxable income during
the periods in which those temporary differences
F-11
<PAGE>
become deductible. Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income and tax planning strategies in
making this assessment. Based upon the level of historical taxable income,
projections for future taxable income over the periods which the deferred tax
assets are deductible, and reversals of deferred tax liabilities, management
believes it is more likely than not the Company will realize the benefits of
these deductible differences. Income taxes paid were approximately $774,000,
$696,000 and $353,000 for fiscal years 1996, 1995 and 1994, respectively.
NOTE 6. COMMON STOCK
In April 1985, the Board of Directors adopted an Incentive Stock Option
Plan, which provided for the granting of stock options to employees and
officers to purchase not more than 100,000 shares of common stock. This plan
terminated in April 1995 and no further options may be granted thereunder.
Options under this plan were granted at a price per share equal to the fair
market value of the common stock on the date of grant. In addition, each
option granted terminates ten years from the date of grant. Further, upon
exercise of options under this plan, the recipient is required to enter into a
Voting and Transfer Agreement which requires the optionee to vote for certain
directors (as defined by the agreement) and in certain cases offer the Company
and the principal stockholder the right of first and second refusal,
respectively, to purchase any shares acquired under this plan.
Information with respect to options is as follows:
<TABLE>
<CAPTION>
JUNE 30, 1996 JUNE 30, 1995 JUNE 30, 1994
----------------- ------------------ -----------------
AMOUNT PRICE AMOUNT PRICE AMOUNT PRICE
-------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Outstanding and exercisable,
beginning of year 778 $5.50 2,768 $5.50 2,768 $5.50
Exercised (300) 5.50 (1,990) 5.50 - -
---------- ---------- ----------
Outstanding and exercisable,
end of year 478 $5.50 778 $5.50 2,768 $5.50
========== ========== ==========
</TABLE>
In June 1990, the Company announced that its Board of Directors had
approved a stock purchase program, authorizing the purchase of up to
$1,000,000 of the Company's common stock. Purchases can be made in the open
market or in privately negotiated transactions. The program may be suspended
from time to time or discontinued. As of June 30, 1996, the Company has
expended approximately $741,000 to purchase an aggregate of 297,700 shares
under this program.
NOTE 7. COMPENSATION RELATED TO COMMON STOCK AWARDS
Treasury shares have been utilized for all stock awards and accordingly
treasury stock has been reduced for the cost of the shares on a specific
identification basis, first-in first-out.
In fiscal year 1996, the Company awarded 10,000 shares of its common stock
to an employee for past services rendered. This award resulted in compensation
expense of $110,000, measured by the fair market value of the shares on the
date of grant.
In fiscal year 1995, the Company awarded an aggregate of 10,000 shares of
its common stock to employees related to services to be provided over the one
year period from the date of grant and, as a result, the stock award agreement
provided that the Company had an option to repurchase the awarded shares for
one cent per share if the recipient was not an employee, for any reason, any
time within one year from the date of grant. The market value
F-12
<PAGE>
of the shares awarded in fiscal year 1995 of $35,000, was recorded as deferred
compensation, and amortized to expense over the one year period the employees
provided the related services. In July 1993 and April 1994, the Board of
Directors granted a total of
30,000 and 70,000 restricted shares of the Company's common stock,
respectively, to certain employees for past services rendered. The July 1993
stock award had a market value of $49,000 and was recorded as stock award
compensation expense. The April 1994 stock award had a market value of
$199,000 and was recorded as deferred compensation and was amortized to
expense over the one year period the employees provided the related services.
Compensation expense related to stock awards was $136,000, $167,000 and
$90,000 for fiscal years 1996, 1995 and 1994, respectively. Deferred
compensation of $26,000, representing the unamortized portion of compensation
expense relating to the 1995 award, is reflected as a reduction of
stockholders' equity in the accompanying consolidated balance sheet as of June
30, 1995.
NOTE 8. COMMITMENTS
OPERATING LEASES
Rent expense under related party operating leases was approximately
$569,000, $546,000 and $485,000 for the fiscal years ended June 30, 1996, 1995
and 1994, respectively. At June 30, 1996, the Company was in the process of
renegotiating its related party operating leases. It is anticipated that these
leases will be extended for terms similar to those of the agreements they
replaced. This will obligate the Company for future minimum rent payments of
approximately $575,000 per year.
Rent expense to non-related parties was approximately $25,000, $20,000 and
$57,000 for the fiscal years ended June 30, 1996, 1995 and 1994, respectively.
EMPLOYMENT AGREEMENTS
In September 1992, the Company amended its President's employment
agreement, effective October 1992, to provide for an increase in the annual
base compensation to $234,000 as well as additional annual compensation equal
to 5% of net income before such bonus and income taxes. In February 1993, the
agreement was further amended to extend the President's term of employment
until March 1, 1995. This amendment further provides for automatic one year
renewals of the employment agreement on March 1st of every year subsequent to
March 1, 1995, in the absence of written notice to the contrary by either
party at least 120 days prior to the March 1st renewal date. In addition, if
there is a change in control of the Company or the President's employment is
terminated by the Company before the expiration of the agreement other than
for cause (as defined in the agreement), the President is entitled to the
greater of (a) all compensation due under the remaining term of the agreement,
or (b) a payment equal to three times his average annual compensation
(including any incentives) over the last five years.
In connection with the acquisition of Miltech Corp., the active principal
became an employee of the Company. The Company entered into an employment
agreement with the former principal of Miltech Corp., dated September 10,
1993, which expires on December 31, 1997. Pursuant to the agreement, the
former principal is entitled to annual compensation in the amount of $75,000
and an annual bonus equal to the aggregate of $12,500 plus 1 1/2% of gross
revenues received by the Company from operations of its metalized substrates
business.
F-13
<PAGE>
NOTE 9. OTHER DATA
ACCRUED EXPENSES
Accrued expenses included in the accompanying consolidated financial
statements consist of the following:
JUNE 30, 1996 JUNE 30, 1995
------------ -------------
Accrued commissions $1,004,000 $ 993,000
Accrued payroll and related expenses 1,049,000 1,011,000
Other 162,000 168,000
------------ -------------
$2,215,000 $2,172,000
============ =============
VALUATION AND QUALIFYING ACCOUNTS
Valuation and qualifying accounts included in the accompanying
consolidated financial statements consist of the following:
JUNE 30, 1996 JUNE 30, 1995
------------- -------------
Allowance for doubtful accounts
receivable and sales returns $ 310,000 $ 290,000
============= =============
EMPLOYEE BENEFIT DEFINED CONTRIBUTION PLAN
Effective November 1, 1985, the Company established a voluntary savings
and defined contribution plan under Section 401(k) of the Internal Revenue
Code. This Plan covers all employees meeting certain eligibility requirements
and allows participants to contribute an amount not to exceed 15% of annual
compensation. For the fiscal years ended June 30, 1996, 1995 and 1994, the
Company provided a matching contribution of $291,000, $265,000 and $225,000,
respectively, which was equal to 50% of each participant's contribution up to
a maximum of 6% of annual compensation. Employees are 100% vested in their own
contributions and become fully vested in the employer contributions after five
years.
PROFIT BONUS PLAN
Effective commencing in fiscal year 1995, the Company adopted a profit
bonus plan for the benefit of eligible employees, as defined. The plan
provides that for each fiscal year the Board of Directors, in its discretion,
shall establish a bonus pool not to exceed 10% of pretax income of the Company
for the subject fiscal year. The bonus pool is then allocated among eligible
employees in accordance with the terms of the plan. For fiscal years 1996 and
1995, the Company recognized related compensation expense of $313,000 and
$279,000, respectively.
NOTE 10. FOREIGN OPERATIONS
The Company markets and distributes a portion of its foreign sales through
Phase Components Ltd., a wholly-owned subsidiary in the United Kingdom.
F-14
<PAGE>
The following table summarizes certain financial information covering the
Company's operations in the U.S. and U.K. for fiscal years 1996, 1995 and
1994.
1996 1995 1994
---- ---- ----
Net sales
U.S. $31,544,000 $26,264,000 $21,079,000
U.K. 2,340,000 2,366,000 2,032,000
------------ ----------- ------------
Total $33,884,000 $28,630,000 $23,111,000
============ =========== ============
Pretax income
U.S. $ 3,006,000 $2,142,000 $1,302,000
U.K. 241,000 326,000 158,000
------------ ----------- ------------
Total $ 3,247,000 $2,468,000 $1,460,000
============ =========== ============
Identifiable assets
U.S. $31,014,000 $29,394,000 $24,760,000
U.K. 2,044,000 2,230,000 1,750,000
------------ ----------- ------------
Total $33,058,000 $31,624,000 $26,510,000
============ =========== ============
U.S. sales include $8,985,000, $7,816,000, and $6,009,000 for export in
fiscal years 1996, 1995 and 1994, respectively. Export sales were primarily to
customers in Europe, Canada and the Far East.
NOTE 11. DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
CASH AND CASH EQUIVALENTS, ACCOUNTS RECEIVABLE, NET, ACCOUNTS PAYABLE,
AND ACCRUED EXPENSES
The carrying amount approximates fair value due to the short maturity of
these instruments.
INVESTMENTS
Cost and fair value of the Company's investments is presented in Note 2.
Fair value is based upon quoted market prices.
LONG-TERM DEBT
The carrying amounts of each of the Company's long-term debt instruments
approximate fair value as the underlying interest rates approximate rates
which would be offered to the Company for the same or similar instruments.
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
These estimates are subjective in nature and involve uncertainties and matters
of significant judgement and, therefore, cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
F-15
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
TO
ANNUAL REPORT ON 10-KSB
JUNE 30, 1996
AMERICAN TECHNICAL CERAMICS CORP.
TABLE OF CONTENTS
EXHIBIT NO.: DESCRIPTION
- ------------ -----------
10(k) - Letters of Agreement between the Registrant and Stuart P. Litt
23 - Consent of KPMG Peat Marwick LLP.
[LETTERHEAD]
EXHIBIT 10(k)
June 26, 1996
Stuart Litt
Two Blenheim Terrace
Farmington, CT 06032
Dear Stu:
I am pleased to offer you, on behalf of American Technical Ceramics
Corp. (ATC), the position of Vice President of Operations reporting directly
to me. Your compensation package would include an annualized base salary of
$150,000.00, a company car , and a quarterly cash bonus equal to one half of
one percent (.5%) of pre-tax profits. In addition, you will receive 10,000
shares of ATC stock upon commencing employment and 1,000 shares each
subsequent month for the next 24 months, assuming you are still actively at
work and employed by ATC.
Should you accept this offer, your job performance and salary will be
formally reviewed on your anniversary date of hire.
When eligible, you will also be offered the opportunity to enroll in
our Group Health Plan, which includes hospitalization, major medical, and
dental insurance for a nominal, pre-tax charge of $12.00/week for family
coverage. This is the employee contribution currently required, but it will
increase periodically at the discretion of management. I have enclosed a
booklet which describes these programs in more detail. You will also receive
life insurance in the amount of one times your annualized salary and AD & D.
After a year of employment, at the next enrollment date, you will receive Long
Term Disability Insurance and be eligible to participate in our 401(k) plan.
Currently, ATC contributes fifty cents for every dollar you contribute to a
maximum of 6% of your salary. Although you may contribute up to 15%, ATC's
maximum contribution would be three per cent of your salary.
I have also enclosed an Employee Handbook for your review which
outlines other important benefits and policies.
This offer of employment is contingent upon you taking and passing a
drug screening test. If you fail to do so, this offer is null and void. Should
you advise us that you are interested in accepting the position, we will make
arrangements for you to have the drug screening.
<PAGE>
[LETTERHEAD]
If you have any questions or concerns regarding any of these matters,
please don't hesitate to contact me. I look forward to hearing from you.
Very truly yours,
/s/ Victor Insetta
Victor Insetta
President
encls: Employee Handbook,Medical Handbook
Federal Express
<PAGE>
[LETTERHEAD]
August 22, 1996
Mr. Stuart Litt
2 Blenheim Terrace
Farmington, CT 06032
Dear Stu:
This will confirm your conversations with Vic Insetta regarding your
employment with American Technical Ceramics Corp.
Your title will be Senior Vice President with the compensation
package described in the initial offer letter dated June 26, 1996.
It is understood that during the initial period of employment you may
be required to devote time away from ATC business during the work week to
fulfill your obligations connected with your current occupation; but that you
expect such time away to be limited to only an occasional day from time to
time after the first four months. It is understood that by March 1, 1997, your
only occupation and your sole source of employment will be as Sr. Vice
President of American Technical Ceramics Corp. You will not engage in any
outside business activities unless approved by Victor Insetta. Failure to
comply will void all terms of this agreement.
You will be reimbursed for the reasonable expenses of relocating your
home to the Long Island vicinity, and for the reasonable expenses of temporary
lodging until such relocation, but not to exceed three months duration.
If American Technical Ceramics, or a substantial portion of its
operating assets is sold during the first two years of your employment, the
remaining unpaid monthly stock payments shall come due and be paid prior to
such sale.
<PAGE>
[LETTERHEAD]
August 22, 1996
page 2....
This letter, when accepted by you, shall constitute a firm mutual
commitment at the stated base salary and additional terms for a three year
period and shall serve as an employment contract for this term. It will only
be terminated in the event you are physically unable to continue your
employment, or for aggravated cause, or by both parties by mutual agreement.
If at any time after the first three years of employment, you are terminated
by ATC, you shall receive a severance payment of $100,000.
Please sign and return a copy of this letter to my attention.
Yours truly,
/s/ Kathleen M. Kelly
Kathleen M. Kelly
Vice President-Administration
Agreed to:
/s/ Stuart Litt
- ------------------
Stuart Litt 9/6/96
KMK/sh
[LETTERHEAD]
EXHIBIT 23
Independent Auditors' Consent
The Board of Directors
American Technical Ceramics Corp.:
We consent to incorporation by reference in the Registration Statement (No.
33-2300) on Form S-8 of American Technical Ceramics Corp. of our report dated
August 30, 1996, relating to the consolidated balance sheets of American
Technical Ceramics Corp. and subsidiaries as of June 30, 1996 and 1995, and
the related consolidated statements of earnings, stockholders' equity and cash
flows for each of the years in the three-year period ended June 30, 1996,
which report appears in the June 30, 1996 annual report on Form 10-KSB of
American Technical Ceramics Corp. Our report refers to a change in method of
accounting for certain investments in debt and equity securities in fiscal
1995.
KPMG PEAT MARWICK LLP
Jericho, New York
September 27, 1996
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<S> <C>
<MULTIPLIER> 1,000
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 2,661
<SECURITIES> 887
<RECEIVABLES> 4,913<F1>
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<BONDS> 3,642
0
0
<COMMON> 41
<OTHER-SE> 23,051
<TOTAL-LIABILITY-AND-EQUITY> 33,058
<SALES> 33,884
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<FN>
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