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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

For the fiscal year ended: March 31, 2001
OR

For the transition period from      to     
Commission file number: 333-32207

HCC INDUSTRIES INC.
(Exact name of Registrant as specified in its charter)

4232 Temple City Blvd., Rosemead, California 91770
(Address of principal executive offices)

(626) 443-8933
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12 (b) of the Act:

Securities registered pursuant to Section 12 (g) of the Act:
10 3/4% Senior Subordinated Notes Due 2007

    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    

    Registrant's Common Stock, outstanding at March 31, 2001 was 137,945 shares.

DOCUMENTS INCORPORATED BY REFERENCE:

Documents referenced on Exhibits Index, which begins on page 41

HCC INDUSTRIES INC.
INDEX TO ANNUAL REPORT ON FORM 10-K

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PART I

Item 1—Business

General

    Except where the context indicates otherwise, the term "Company" means HCC Industries Inc. and its wholly owned subsidiaries Hermetic Seal Corporation, Glasseal Products, Inc., Sealtron, Inc., Norfolk Avon Realty Trust, HCC Industries International, HCC Machining Company, Inc. and HCC Foreign Sales Corporation.

    The Company was incorporated in Delaware in 1985 and is one of the largest custom manufacturers of high precision hermetically sealed electronic connection devices in the United States. High precision hermetic seals are used primarily to permit the flow of electricity across a barrier used to separate different atmospheric media (such as gas or liquid to air or vacuum) existing on opposite sides of the barrier. A hermetic seal is generally accomplished through the creation of a glass-to-metal seal ("GTMS").The hermetic seals manufactured by the Company generally fall into four categories—terminals, headers, connectors and microelectronics packages. A "terminal" is a device characterized by having only a single contact pin, while a "header" has multiple contact pins inserted in a frame. A "connector" is a type of terminal or header which can be mechanically coupled to or uncoupled from another connection. A "microelectronic package" is a container for thick and thin film substrates onto which hybrid circuitry has been etched. The Company operates in the premium segment of the market by providing high precision GTMS, custom designed to meet specific customer requirements. Each GTMS generally consists of a metal body or housing, metal contact pins, and an insulator fabricated from glass, ceramic or glass/ceramic mixtures. GTMS range in size from a two foot long, eight inch diameter cylindrical connector utilized for through-hull communication links for nuclear submarines, to a 40/1000 inch outside diameter (12/1000 inch inside diameter) implant to measure pressure in the heart chamber.

    The Company believes that it has been an industry leader in the design and manufacture of GTMS since it developed its GTMS process in 1945. The Company has developed over 75,000 different configurations, primarily for the following industries: (1) automotive (for use in, for example, the initiators in airbags and seat belt pretensioners); (2) aerospace and military electronics (for use in, for example, gyro guidance devices, flight instrumentation, jet engine controls, and space suit controls); (3) test and measurement (for use in, for example, temperature and pressure transducers, infrared detection instrumentation, electro-optical devices and fuel injection monitoring devices); (4) medical electronics (for use in, for example, pacemakers, kidney dialysis machines and devices for monitoring vital life signs); (5) telecommunications (for use, in for example, fiber optics); and (6) energy (for use in, for example, oil drilling equipment and downhole logging instrumentation and for conventional and nuclear electric power generating plants).

    The demand for the Company's products is largely dependent on the telecommunication, automotive and aerospace industries. Sales to the Company's two largest customers accounted for approximately 26% and 11%, respectively, of the Company's consolidated sales for the fiscal year ended March 31, 2001. Sales to the Company's ten largest customers accounted for approximately 59% of consolidated sales during the 2001 fiscal year. Approximately 70% of the Company's consolidated sales for fiscal 2001 were to customers with which the Company had contractual agreements, sole source relationships, letters of intent or long-term purchase orders. A substantial portion of these business relationships are informal and certain of the Company's contractual arrangements may be terminated at will. On January 16, 2001, the Company entered into a new 12-month supply agreement with Special Devices, Inc. ("SDI"). The agreement implements an immediate 12% price decrease and contains provisions for future price decreases subject to implementation of cost reduction initiatives and/or increased unit volumes.

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Competitive Strengths

    The Company believes that it has the following competitive strengths:

    Long-Term Customer Relationships.  Many of the Company's customers, including SDI, have been customers for over ten years. The Company believes that both automotive and aerospace OEMs continue to seek long-term partnerships with fewer core suppliers. The Company's relationships are strengthened by the fact that many of its arrangements with its customers provide for the Company to act as the sole source of supply for the customer. The Company estimates that approximately 70% of the Company's consolidated sales for fiscal year 2001 were from contractual agreements, sole source relationships, letters of intent or long-term purchase orders.

    Market Leadership.  A number of the Company's products hold leading market positions in their respective niche markets. The Company currently believes based upon internal estimates that it produces hermetically sealed products for approximately 50% of the airbag initiators produced in the United States. The Company believes, based upon long-term relationships with SDI and other airbag initiator suppliers, that it is well positioned to continue to increase its market share, as well as expand its sales internationally.

    Commitment to Quality and Service.  The Company believes that its commitment to provide consistent, high quality products and services and flexible manufacturing and custom designed products at competitive prices, forms the basis for its strong and diversified customer relationships. The Company manufactures most of its parts to specific customer requirements. The Company utilizes Statistical Process Control, Design Failure Mode Effects Analysis, Process Failure Mode Analysis, and a strict adherence to complete manufacturing documentation in order to manufacture high quality products for internal use as well as external customer sales. The Company's three operating subsidiaries are registered to ISO 9001.

    Proprietary Technology.  The Company operates in the automotive, aerospace and general industrial technologies markets in which products typically require sophisticated engineering and production techniques. The Company designs and manufactures new products to fulfill customer needs, and has developed proprietary manufacturing technology since its founding in 1945. The Company believes that this proprietary technology helps enable it to attract and retain customers who require customized, high tolerance products. The Company estimates that it has produced over 75,000 different variations of GTMS.

    Low Cost Operations.  The Company believes that its extensive "in-house" capabilities and vertical integration are competitive advantages that have allowed it to become a low cost producer. By controlling the tolerance of the component parts, the Company has been able to reduce scrap and to increase the yields of its products. Furthermore, the Company is continually developing and assessing its programs designed to increase efficiency and enhance economies of scale in order to further reduce costs.

    Diverse Products and Customers.  The Company has a diverse customer base, with sales of numerous product variations to approximately 1,200 customers in fiscal 2001. Over the past several years, the Company has recognized consistent growth in sales of GTMS products to the telecommunication, automotive, aerospace and general industrial markets.

Business Strategy

    The Company's strategy is to expand its business through:

    Focusing on Core Strengths.  The Company continues to focus on what it believes are its core strengths and to invest in those businesses that are consistent with those strengths and which exhibit

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high growth potential. Core strengths include the timely custom design and manufacturing of high tolerance, high reliability components and the effective program management of long term contracts and supply agreements.

    Leveraging Customer Relationships.  The Company works closely with its customers to jointly develop and design new products and to improve the performance and lower the cost of the Company's customers' products. The Company has sole source supply contracts, shares product development, and enters into other teaming arrangements with its key customers to further strengthen and broaden its relationships. The Company believes that this strategy, together with the successful performance under existing contracts has led to additional long-term business from key existing customers and new customers.

    Pursuing Selective Acquisitions.  The Company intends to pursue selective acquisitions and to add products and capabilities that are complementary to its existing operations. Priority is expected to be given to acquiring businesses whose products can be manufactured in the Company's existing facilities ("fold-in" acquisitions). The Company's operations are characterized by a relatively high level of operating leverage; therefore, such fold-in acquisitions should allow the Company to allocate costs across broader synergistic product lines and represent additional volume through the Company's existing facilities which should provide opportunities to improve profitability.

    Expanding Internationally.  The Company is considering the expansion of its operations in Europe. The primary motivation in a geographic expansion would most likely be to service the growth of its current customers' operations as they expand their production operations abroad.

Industries

    The Company estimates the total size of the GTMS market to be $600 million, with approximately one-half estimated to be the specialized, high precision segments in which the Company competes. The Company believes based upon internal analysis that the market for high-end hermetically sealed products is extremely fragmented, with no other competitor offering the same breadth of products as the Company. The Company believes that its focus on the high-end, custom segment of the GTMS market enables it to achieve higher margins.

    The Company sells its products to five principal industries: (i) the telecommunication industry for use in optical networking components, (ii) the automotive parts industry for use in airbag initiators, seat belt pretensioners, climate control devices and anti-lock braking systems; (iii) the aerospace industry for use primarily in commercial and military aviation and electronics; (iv) general industry for use primarily in process control, and other industrial and medical applications; and (v) the petrochemical industry, for use primarily in oil and gas downhole logging equipment.

Telecommunication

    The Company designs and manufactures highly engineered hermetic packaging used to facilitate the infrastructure outbuild of fiber optic telecommunications, supporting global internet communications. The Company has a strong position in the current OC-192 technology, as well as qualified designs for a variety of next generation products for increased speed and bandwidth.

Automotive

    The Company provides GTMS products used in initiators for airbag devices. At present, each airbag device requires at least one initiator (the device that deploys the airbag). The automotive airbag industry has undergone dynamic growth over the recent past stemming from increased consumer demand for automotive safety devices and federal regulations requiring such devices. Regulations adopted by the National Highway Traffic Safety Administration require that airbags be the automatic

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frontal crash protection system used for both the driver and front passenger in 100% of all passenger automobiles, light trucks and vans manufactured for sale in the United States.

    Although not mandated by law, initiator-based safety systems are also employed in automobiles produced and sold in Europe and Asia, although fewer than in the U. S. The systems utilized in Europe and Asia include airbag systems similar to those in use in the U. S. and seat-belt pretensioners that employ initiators. While the majority of airbag initiators manufactured for use in cars outside the U. S. employ plastic initiators, there is a trend toward using GTMS in such products due to their increased reliability.

Commercial and Military Aviation and Electronics

    The Company provides hermetic seals that are used for a number of different applications in commercial and military aviation and electronics, primarily to protect guidance and sensor devices from the effects of changes in atmospheric conditions. The Company believes based upon internal estimates that GTMS products are utilized in almost every model of commercial aircraft currently in production and its customers include essentially all major aerospace suppliers. The Company's sales to the aerospace industry are dependent to a certain extent on new construction of commercial and military aircraft. The Company competes with a number of different suppliers in this market, based on quality, delivery and price.

General and Industrial

    The Company provides GTMS used in pressure and temperature transducers (sensors), industrial process control equipment, capacitor end-seals for electronic devices and other industrial and medical applications. The Company believes that its ability to help customers develop products to meet demanding specifications allow for significant opportunities within this market segment, including those customers not currently served by the Company's products. The Company also believes that the increased sophistication of equipment and increased level of automation being used in industrial applications will increase demand for GTMS products.

Petrochemical

    The Company provides GTMS used for downhole logging equipment in the oil and gas industry primarily under long-term contracts to oil field equipment and service companies. The Company's sales to this industry during any period are somewhat dependent on the current level of exploration and drilling in the oil and gas industry and current demand for and price of crude oil. The Company believes that it is one of only two significant providers of GTMS to this industry. The Company expects that the trend toward more sophisticated measurement-while-drilling equipment in the petrochemical industry is likely to lead to more demand for the Company's products.

Customers and Applications

    The Company has approximately 1,200 active customers. The Company's ten largest customers accounted for approximately 59% of net sales for fiscal year 2001. The Company's largest customer, Special Devices, Inc. ("SDI") (a manufacturer of airbag initiators), represented approximately 26% of consolidated sales for the fiscal year ended March 31, 2001.

    Approximately 70% of the Company's consolidated sales for fiscal year 2001 were to customers with which the Company had contractual agreements, sole source relationships, letters of intent or long-term purchase orders. The Company only begins to manufacture products upon receipt of a purchase order. The Company's relationship with SDI includes a contract expiring January 15, 2002 to produce approximately 85% of SDI's GTMS for its initiators provided the Company maintains pricing

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and quality which are generally equivalent to or better than other suppliers. The Company believes that it currently provides nearly all of SDI's GTMS components.

    The following table sets forth the Company's principal end-user markets, certain applications for its products and certain of the Company's customers in fiscal year 2001.

*

Other than SDI, Agere and W J Communications, all of the customers listed represented individually less than 5% of the Company's consolidated sales for fiscal year 2001.

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Manufacturing Process

    A GTMS is made by assembling three sets of component parts (metal contacts or pins, glass bead(s) and an outer metal housing or shell) on a graphite fixture. This assembly is put through a controlled atmosphere furnace at approximately 1,800 degrees Fahrenheit until the glass becomes molten. The graphite fixture is used to hold the components in place while the glass is molten. As the assembly cools, a physical and chemical bond is formed between the glass and the shell as well as the glass and the pin, thus forming a hermetic seal.

    The Company believes that its extensive "in-house" capabilities are a key competitive advantage that has allowed it to become a low cost producer. By specifically controlling the tolerance of the component parts, the Company believes that it is able to increase the end yields of its product. This attention to quality throughout the manufacturing process also helps to ensure the timely delivery of its products. It also enables the Company to respond very quickly to prototype and new product development opportunities.

    The Company manufactures most of its parts to specific customer requirements. All three of the Company's operating subsidiaries use Computer Aided Design ("CAD") to produce the drawings and specifications required by the customer. The Company estimates that it has produced over 75,000 different variations to GTMS since 1945. This extensive library of designs enables the Company to suggest design changes to its customers that reduce manufacturing costs without sacrificing quality and therefore reduce the cost to the customer (value engineering).

    The Company has made a significant investment in Computer Numerically Controlled ("CNC") machine tools in order to manufacture the metal shells and pins to demanding customer specifications. The Company also machines most of its own graphite fixtures thereby allowing it to maintain process quality. Many of the glass preforms used in the Company's products are manufactured internally as well. The Company has many proprietary formulas for glass and glass/ceramic mixtures that it has developed in over 50 years of manufacturing. In addition, the Company has extensive capabilities in selective plating of precious and non precious metals.

    The Company utilizes Statistical Process Control ("SPC"), Design Failure Mode Effects Analysis, Process Failure Mode Effects Analysis and a strict adherence to complete manufacturing documentation in order to manufacture high quality products for internal use as well as external customer sales. The Company believes that its knowledge and use of these procedures give the Company a competitive advantage. Hermetic, Glasseal, Sealtron and HCC Machining are ISO 9001 registered. The ISO 9001 registration, an international standard of quality, should facilitate business expansion in Europe.

Marketing and Sales

    The Company's products are marketed throughout the Unites States to customers in a wide variety of industries, both by Company-employed salespersons, who work out of the Company's plants, and by a number of independent regional manufacturers' sale representatives. The 14 Company-employed salespersons receive a base salary plus bonus potential. Sales in Europe are through a two person office in Northampton, England. As part of the Company's growth strategy, the Company believes that it can capture an increasing share of the business outside the United States. Economic, political, governmental and regulatory conditions in such international markets could adversely affect the Company's ability to successfully enter or operate in such markets. Therefore, no assurances can be given that the Company's attempts to expand its business into such international markets will be successful. The Company currently has 8 independent regional manufacturers-sales representatives spread geographically across North America and Europe. These representatives, who do not exclusively sell the Company's products, are remunerated on a commission basis. The Company believes there is a

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significant opportunity to increase its sales through expansion of its sales and distribution efforts, both within the markets it currently serves and in new markets.

Competition

    The Company believes based upon internal analysis that most of the Company's competitors in the GTMS sector of the industry in which it competes are smaller and have less technological and manufacturing expertise than the Company. The Company believes that it occupies a favorable competitive position because of its experience in engineering and production techniques and also its extensive vertical integration. Price has generally been a less significant competitive factor than the quality and design of the GTMS because their cost typically is a small percentage of the total cost of the end products in which they are used and because of the importance of the uses to which many of the Company's products are put. In addition, products for airbag initiators are qualified for particular new automotive models and new products are subject to design and process verification testing (prior to which there are no sales) which typically takes 8 to 24 months and, therefore, helps to inhibit new entry into the market.

Backlog

    As of March 31, 2001, the Company had a backlog of $52.4 million compared to $36.2 million as of April 1, 2000. The Company sells a majority of its products pursuant to contractual agreements, sole source relationships, letters of intent or long-term purchase orders, each of which may permit early termination by the customer. However, due to the specialized, highly engineered nature of the Company's product, it is not practical in many cases for customers to shift their business to other suppliers without incurring significant switching and opportunity costs.

Employees

    At March 31, 2001, the Company had approximately 800 employees, substantially all of whom were located in the United States. None of the Company's employees is subject to a union contract. The Company considers its relations with its employees to be excellent.

Raw Materials

    The Company obtains raw materials, component parts and supplies from a variety of sources and generally from more than one supplier. The Company's principal raw materials are steel and glass. The Company's suppliers and sources of raw materials are based in the United States and the Company believes that its sources are adequate for its needs for the foreseeable future. The loss of any one supplier would not have a material adverse effect on the Company's financial condition or results of operations.

Environmental Matters

    The Company's operations are subject to numerous environmental laws, including those regulating air emissions and discharges to water, and the storage, handling and disposal of solid and hazardous waste. The Company believes that it is in substantial compliance with such laws and regulations. Because environmental laws are becoming increasingly more stringent, the Company's environmental capital expenditures and costs for environmental compliance may increase in the future.

    Under certain environmental laws, in particular CERCLA, a current or previous owner or operator of real property may be liable for the costs of removal or remediation of hazardous or toxic substances on, under or in such property. Generally, liability under CERCLA is joint and several and remediation can extend to properties owned by third parties. Persons who arrange for the disposal or treatment of hazardous or toxic substances or otherwise cause the release of such substances into the environment

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may also be liable under such laws for the costs of removal or remediation of such substances at a disposal or treatment facility or other location where the substances have migrated or come to be located, whether or not such facility or location is or ever was operated by such person and regardless of whether the method of disposal or treatment was legal at the time. Such laws often impose liability whether or not the owner or operator knew of, or was responsible for the presence of such hazardous or toxic substances, and the liability under such laws has been interpreted to be strict, joint and several unless the harm is divisible and there is a reasonable basis for the allocation of responsibility. In addition, the presence of hazardous or toxic substances, or the failure to properly remedy such property may adversely affect the market value of the property, as well as the owner's ability to sell or lease the property. The Company has potential liability under environmental laws for the remediation of contamination at two of its facilities (see Item 3 for further discussion of environmental matters).

Item 2—Properties

Facilities

    The Company's principal executive offices are owned by the Company and are located in the Hermetic Seal facility located in Rosemead, California. Additionally, the Company has operating facilities in El Monte, California; Lakewood, New Jersey, and Reading, Ohio, as set forth below. The Company also owns approximately 47,400 square feet of plant and office space in Avon, Massachusetts, which is currently vacant.

Item 3—Legal Proceedings

Environmental Matters

Rosemead, California

    Regional Groundwater Contamination. A portion of the San Gabriel Valley in which the Rosemead facility is located was designated by the EPA as a federal Superfund site in 1984. The Company has been named as a potentially responsible party ("PRP") under CERCLA for the El Monte Operable Unit. If the Rosemead facility contributed to the regional contamination, such contribution is in connection with alleged spills of the degreasing solvent tetracholoroethylene (PCE).

    Many other companies are believed to be contributors to the groundwater contamination in the El Monte Operable Unit. The Company and 18 other such companies have formed the Northwest El Monte Community Task Force (the "Task Force") to undertake the investigation of the remediation, to identify other potential contributors and potentially to undertake required remediation. In March of 1995, the Task Force entered into a Consent Administrative Order with the EPA to perform a Remedial Investigation and Feasibility Study (RI/FS) of the operable unit. The RI/FS was completed in 1999 and the EPA issued an interim record of decision. The RI/FS costs of approximately $2.4 million to date have been funded with about one-quarter of the costs coming from governmental entities and the balance paid pursuant to a confidential interim allocation agreement of Task Force members. To date an additional $1,100,000 has been spent to undertake early remediation efforts on a voluntary basis and an additional $1,600,000 will be spent in 2001. This money has been raised pursuant to a matching funds, cost sharing agreement with a public entity.

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    On-site/Soil and Groundwater Cleanup Costs.  In addition to the Operable Unit Remediation costs, the Company has voluntarily undertaken both on-site soil and groundwater remediation. In 1995, the Company installed a soil vapor extraction system. To date, the remediation system has removed over 97% of contaminants in the soil.

    The Company has installed a groundwater extraction system in conjunction with a neighboring facility. This system extracts contaminated water from the shallow aquifer and pumps the water for use in our neighbor's manufacturing process prior to discharge to the municipal sanitary sewer. The system has been operational since August 1996 and is designed to capture contaminated groundwater from under the Company's property before it impacts the regional groundwater flow. Although the system has been successful, it is premature to determine how long it will be needed to remediate the groundwater to acceptable levels, or if the operation of the system will be discontinued and replaced with a regional groundwater remediation program.

    The Company believes that its financial liability with respect to regional groundwater contamination may be substantially reduced by acting on its own initiative to commence early remediation of groundwater contamination under its property.

Avon, Massachusetts

    The Company's facility in Avon, Massachusetts, currently inactive, was purchased in 1985 and operated as its Hermetite facility until June 1988. The facility became inactive in August of 1989. Subsequent to its closure, the Company identified significant levels of solvents in the groundwater. Subsurface investigations have delineated a plume of contaminants extending from the facility, beneath a neighboring property and into a town public water supply wellfield about 800 feet to the southeast of the property. Despite the fact that contaminants continue to move toward the wellfield, the levels at the well field remain within acceptable drinking water standards.

    The Avon property is subject to Massachusetts "Chapter 21E," the state's hazardous site cleanup program. The property is classified as a "Tier 1B" category based on the level of contaminants. Under Tier 1B procedures, the Company may design its own remediation program subject to state oversight, auditing, and scheduling.

    Pursuant to this procedure, the Company, through its licensed consultants, designed a remediation system which is intended to capture the contaminants before they reach the town wells. In 1996, the program was approved, constructed and became operational. In 1999, to accelerate the cleanup, the Company installed additional extraction wells closer to the source area and removed the suspected source of contamination. No additional infrastructure is anticipated at this time. To date, the system has been very successful in reducing contaminant levels.

Financial Impact

    Uncertainty as to (a) the extent to which the Company caused, if at all, the conditions being investigated, (b) the extent of environmental contamination and risks, (c) the applicability of changing and complex environmental laws (d) the number and financial viability of other PRP's, (e) the stage of the investigation and/or remediation, (f) the unpredictability of investigation and/or remediation costs (including as to when they will be incurred), (g) applicable clean-up standards, (h) the remediation (if any) that will ultimately be required, and (i) available technology make it difficult to assess the likelihood and scope of further investigation or remediation activities or to estimate the future costs of such activities if undertaken. In addition, liability under CERCLA is joint and several, and any potential inability of other PRP's to pay their pro rata share of the environmental remediation costs may result in the Company being required to bear costs in excess of its pro rata share.

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    In fiscal 1997, the Company with the help of independent consultants, determined a cost estimate and accrued $10,000,000 for existing estimated environmental remediation and other related costs. The time frame over which the Company expects to incur such costs varies with each site, ranging up to 20 years. This estimate is based on progress made in determining the magnitude of such costs, experience gained from sites on which remediation is ongoing or has been completed, and the timing and extent of remedial actions required by the applicable governmental authorities.

    As of March 31, 2001, the accrual for estimated environmental costs was $8,702,000. The Company believes its accrual is adequate, but as the scope of its obligations becomes more clearly defined, this accrual may be modified and related charges against earnings may be made.

    Claims for recovery of costs already incurred and future costs have been asserted against various insurance companies. The Company has neither recorded any asset nor reduced any liability in anticipation of recovery with respect to such claims made.

Other

    On March 3, 1998, Walter Neubauer, a former stockholder of the Company and a current stockholder of SDI, filed a lawsuit in California Superior Court (Case BC186937; Walter Neubauer vs. Andrew Goldfarb, et. al.) against the Company and certain other stockholders alleging (i) breach of fiduciary duty, (ii) fraud, (iii) negligent misrepresentation, (iv) negligence, (v) violations of corporations code and (vi) breach of contract. The allegations primarily relate to the Company's exercise of an option to acquire Mr. Neubauer's stock in August 1996. In September 1999, five of the six claims were dismissed upon a summary judgment motion made by the Company, including all of the claims against the Company. The remaining claim is against Andrew Goldfarb, the former Chief Executive Officer, as an individual, for alleged violations of oral representations.

    On May 7, 1998, the Company filed a lawsuit against Mr. Neubauer in California Superior Court alleging (i) breach of contract, (ii) intentional interference with business relations and (iii) interference with prospective business advantage. All allegations relate to violations of the noncompetition agreement executed by Mr. Neubauer in August 1996. A preliminary injunction was granted in September 1998. The Company is seeking damages of $50.0 million. The case was consolidated with Mr. Neubauer's action, discussed above.

    There are other various claims and legal proceedings against the Company relating to its operations in the normal course of business, none of which the Company believes will be material to its financial position and results of its operations.

    The Company currently maintains insurance coverage for product liability claims. There can be no assurance that coverage under insurance policies will be adequate to cover any future product liability claims against the Company. In addition, product liability insurance coverage is expensive, difficult to maintain and may be unobtainable in the future on acceptable terms.

Indemnification

    Pursuant to the terms of a recapitalization in early 1997, the selling stockholders agreed to indemnify the Company with respect to the after-tax costs of contingent liabilities, subject to a cap for all indemnified liabilities of $30 million. In February 1997, a $6.0 million interest bearing escrow account was established by the selling stockholders (the "Deferred Amount") to secure indemnity claims of the Company. Although there can be no assurances, the Company believes that the Deferred Amount should be adequate to cover these liabilities. In the event the Deferred Amount is inadequate to cover the liabilities, the Company has been informed by the selling stockholders that they will draw upon personal funds to cover such excess costs.

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Item 4—Submission of Matters to a Vote of Security Holders

None

PART II

Item 5—Market for the Registrant's Common Equity and Related Stockholders Matters

Not Applicable

Item 6—Selected Financial Data

    The following selected consolidated financial information for each of the five fiscal years in the period ended March 31, 2001 has been derived from the audited consolidated financial statements of the Company. The information presented below should be read in conjunction with Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements of the Company and related notes thereto appearing elsewhere herein (in thousands).

(1)

Represents $10.0 million non-recurring expense for environmental remediation for fiscal 1997 and $1.3 million non-recurring expense for financial advisory fee for fiscal 1998.

(2)

Represents gain/(loss) on early retirement of debt, net of taxes (tax benefit).

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Item 7—Management's Discussion and Analysis of Financial Condition and Results of Operations

    The following table and discussion should be read in conjunction with the information contained in the consolidated financial statements and notes thereto of the Company appearing elsewhere herein. Unless otherwise stated, all references to years means the Company's fiscal year ending March 31, 2001 (2001), April 1, 2000 (2000), and April 3, 1999 (1999), respectively.

Results of Operations (In millions)

(1)

Represents extraordinary gain on early retirement of debt, net of taxes.

Comparison of the Fiscal Year Ended 2001 with 2000

Net Sales

    The Company's net sales increased by approximately 47.4% or $25.9 million to $80.5 million for 2001 compared to sales of $54.6 million for 2000. The significant increase was due to increasing demand in all markets, other than automotive products. Sales to existing aerospace, industrial process control, and petrochemical customers increased by approximately 47% in 2001 compared to 2000. Based on current order volume, the Company expects the strong demand in the aerospace, industrial process control and petrochemical markets to continue in the next several quarters.

    The Company has continued to develop a significant market presence in the telecom markets through component products designed for optical networking infrastructure. Sales of these products increased by $14.3 million in 2001 compared to 2000. Based on recent industry reports, the Company expects significant weakness in these markets to prevail for the next few quarters.

    On the automotive side, unit shipments of airbag initiator products decreased moderately due to customer demand on several existing programs. The Company's airbag initiator shipments to its largest customer, Special Devices, Inc. ("SDI") decreased approximately 5% for 2001 compared to the 2000. Overall, revenue from all automotive shipments decreased approximately 5% in 2001 compared to 2000. On January 16, 2001, the Company entered into a new 12-month supply agreement with SDI. The agreement resulted in an immediate 12% price decrease and contains provisions for future price decreases subject to implementation of cost reduction initiatives and/or increased unit volumes. Based on current order volume, the Company expects no significant change in revenue from automotive products over the near term.

Gross Profit

    Gross profit increased by approximately 83.1% or $12.3 million, to $27.1 million for 2001 compared to $14.8 million for 2000. Gross margin increased to 33.7% for 2001 from 27.1% for 2000.

    The increase in gross profit is attributable to the increased sales volume. The increase in gross margin was primarily attributable to the significant increase in revenue and the corresponding impact of fixed overhead costs leveraged against higher revenue.

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Selling, General and Administrative Expenses

    Selling, general and administrative ("S,G&A") expenses increased by approximately 2.5% or $0.2 million to $8.3 million for 2001 compared to $8.1 million for 2000. S,G&A expenses as a percent to sales decreased to 10.3% in 2001 from 14.8% for 2000.

    The $0.2 million increase in S,G&A expenses was primarily attributable to a $0.3 million increase in selling commissions incurred on the higher sales volume, and a $0.7 million increase in management incentive plans incurred with the improved operating results of the Company. These increased costs were mostly offset by non-recurring due diligence costs associated with two abandoned acquisitions as well as compensation costs incurred during the management transition in 2000. The improvement in the percentage of S,G&A expenses to sales reflects the increased growth in net sales.

Earnings from Operations

    Operating earnings increased $12.1 million to $18.8 million for 2001 compared to $6.7 million for 2000. The significant increase in operating earnings and margin was attributable to the same factors (as discussed above) that contributed to the increase in gross profit, gross margin and S,G&A expenses as a percent to sales.

Other Expense, net

    Other expense, net (which is predominantly net interest expense) decreased 4.7% or $0.5 million to $10.1 million in 2001 compared to $10.6 million in 2000. The $0.5 million decrease was primarily attributable to lower interest expense realized from the early retirement of debt during 2001. The Company has $91.0 million of indebtedness as of March 31, 2001 compared to $104.5 million at April 1, 2000.

Extraordinary Gain, net

    During 2001, the Company purchased for retirement $10.2 million face value of it's 10.75% Senior Subordinated Notes for $4.6 million in cash. The transaction resulted in an extraordinary gain on the early retirement of debt of $3.2 million, net of taxes of $2.1 million. The purchase of this indebtedness will reduce interest costs by $1.1 million annually.

Net Earnings

    Net earnings increased by approximately $11.2 million to $8.9 million for 2001 from net a net loss of $2.3 million in 2000. The increase in net earnings was primarily attributable to the increase in earnings from operations, the decrease in interest expense and the extraordinary gain, all as discussed above.

Comparison of the Fiscal Year Ended 2000 with 1999

Net Sales

    The Company's net sales decreased by approximately 19.4% or $13.1 million to $54.6 million for 2000 compared to sales of $67.7 million for 1999. The significant decrease was due to decreasing demand in all product lines. Sales to existing aerospace, industrial process control, and petrochemical customers decreased significantly in 2000. Net non-automotive shipments decreased by approximately 23% in 2000 compared to 1999.

    On the automotive side, sales of airbag initiator products decreased significantly due to weak customer demand on existing programs. The Company's airbag initiator shipments (in units) to its largest customer, Special Devices, Inc. ("SDI") was flat for 2000 compared to 1999. The flat units

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volume was compounded by a price reduction effected under a supply agreement with SDI and decreases in automotive shipments to other customers. The agreement with SDI was effective March 18, 1999 and was due to expire on December 31, 2002 (a revised supplier agreement was executed in 2001). Overall, revenue from all automotive shipments decreased approximately 14% in 2000 compared to 1999.

Gross Profit

    Gross profit decreased by approximately 43.7% or $11.5 million, to $14.8 million for 2000 compared to $26.3 million for 1999. Gross margin decreased to 27.1% for 2000 from 38.9% for 1999.

    The decrease in gross profit is attributable to the decreased sales volume. The decrease in gross margin was primarily attributable to the significant decrease in revenue and the corresponding impact of fixed overhead costs leveraged against lower revenue. Additionally, gross margin was impacted by price concessions on automotive products that have exceeded the Company's ability to reduce its production costs.

Selling, General and Administrative Expenses

    Selling, general and administrative ("S,G&A") expenses increased by approximately 12.5% or $0.9 million to $8.1 million for 2000 compared to $7.2 million for 1999. S,G&A expenses as a percent to sales increased to 14.8% in 2000 from 10.7% for 1999.

    The $0.9 million increase in S,G&A expenses was primarily attributable to the write off of due diligence costs associated with two abandoned acquisitions as well as compensation costs incurred during the management transition in 2000. The increase in the percentage of S,G&A expenses to sales reflects the impact of the increased costs spread over decreased sales compared to 1999.

Earnings from Operations

    Operating earnings decreased $12.4 million to $6.7 million for 2000 compared to $19.1 million for 1999. The significant decrease in operating earnings and margin was attributable to the same factors (as discussed above) that contributed to the decrease in gross profit, gross margin and S,G&A expenses as a percent to sales.

Other Expense, net

    Other expense, net (which is predominantly net interest expense) increased 1.9% or $0.2 million to $10.6 million in 2000 compared to $10.4 million in 1999. The $0.2 million increase was attributable to additional interest expense incurred from additional indebtedness, net of increased interest income. The Company has $104.5 million of indebtedness as of April 1, 2000 compared to $103.2 million at April 3, 1999.

Net Earnings

    Net earnings decreased by approximately $7.7 million to a net loss of $2.3 million for 2000 from net earnings of $5.4 million in 1999. The decrease in net earnings was primarily attributable to the decrease in earnings from operations.

Liquidity and Capital Resources

    Net cash provided by operating activities was $8.7 million for 2001 compared to $0.1 million for 2000. The increase of $8.6 million was primarily attributable to increased net earnings.

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    Net cash used in investing activities was $2.6 million for 2001 compared to $1.6 million for 2000, was due to an increase in purchases of property, plant and equipment.

    Net cash used in financing activities was $11.8 million for 2001 compared to $1.3 million for 2000. The increase in 2001 is primarily attributable to debt maturities and the early retirement of debt.

    As of March 31, 2001, the Company's outstanding indebtedness was $91.0 million, consisting of $79.8 million principal amount of the senior subordinated notes and $10.2 million of other borrowings. The Company also maintains a $20 million Revolving Credit Facility ("the Revolver") to augment its liquidity requirements. Borrowings under the Revolver may be used for general and other corporate purposes. The Revolver provides for interest on outstanding balances at the bank's prime rate plus 1¹/4% and is collateralized by accounts receivable and inventories of the Company. At March 31, 2001 there was $19.1 million available under the Revolver. The Revolver includes covenants requiring maintenance of certain financial ratios. At March 31, 2001 and April 1, 2000 there were no borrowings outstanding under the Revolver and the Company was in compliance with the required financial ratios.

    The Company believes that cash flow from operations and the availability of borrowings under the Revolving Credit Facility will provide adequate funds for ongoing operations, planned capital expenditures and debt service during the term of the Revolver.

    Capital expenditures for fiscal 2002 are expected to focus on vertical integration with investments in equipment to expand manufacturing capacity in machining, glass production, sealing and plating, as well as automation equipment to lower production costs on the high volume production lines. Expected capital expenditures for fiscal 2002 are approximately $4.3 million and will be financed through working capital.

Impact Of Recently Issued Accounting Standards

    In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". Adoption of SFAS No. 133 is required for the Company's fiscal year beginning April 1, 2001. The Company has no Derivative Instruments and Hedging Activities as defined in SFAS No. 133 and; therefore, the adoption will not have any impact on the Company's financial position, results of operations or cash flows.

    In December 1999, the Securities Exchange Commission issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements". The bulletin was effective during the Company's fiscal year 2001. The Company was in compliance with the bulletin; accordingly, the adoption of SAB No. 101 did not have an impact on the Company's consolidated financial position, results of operations or cash flows.

Factors Affecting Future Performance

    Although increases in operating costs could adversely affect the Company's operations, management does not believe inflation has had a material effect on operating profit during the past several years.

Disclosure Regarding Forward Looking Statements

    This filing contains statements that are "forward looking statements", and includes, among other things, discussions of the Company's business strategy and expectations concerning market position, future operations, margins, profitability, liquidity and capital resources. Although the Company believes that the expectations reflected in such forward looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct.

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    All phases of the operations of the Company are subject to a number of uncertainties, risks and other influences, including general economic conditions, regulatory changes and competition, many of which are outside the control of the Company, any one of which, or a combination of which, could materially affect the results of the Company's operations and whether the forward looking statements made by the Company ultimately prove to be accurate.

Item 7a—Quantitative and Qualitative Disclosures About Market Risk

    The Company is exposed to market risk from changes in interest rates on the Company's Revolving Credit Facility. At March 31, 2001, the Company had no outstanding borrowings under the Revolver and, therefore, changes in interest rates would have no impact on the Company's results of operations.

Item 8—Financial Statements and Supplemental Data

    All other financial statement schedules not listed have been omitted since the required information is included in the consolidated financial statements, the notes thereto, is not applicable, or not required.

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REPORT OF INDEPENDENT ACCOUNTANTS

Board of Directors and Stockholders
HCC Industries Inc. and Subsidiaries
Rosemead, California

    In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of HCC Industries Inc. and Subsidiaries at March 31, 2001 and April 1, 2000, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2001 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP
Los Angeles, California
May 11, 2001

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HCC INDUSTRIES INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(in thousands, except share data)