SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended March 30, 1996
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File Number: O-13715
VITRONICS CORPORATION
(Exact name of registrant as specified in its charter)
COMMONWEALTH OF MASSACHUSETTS 04-2726873
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1 Forbes Road, Newmarket, NH 03857
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (603) 659-6550
NONE
(Former name, former address and former fiscal year,
if changed since last report)
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 ________
------------
Number of shares outstanding of each of the registrant's classes of common
stock as of March 30, 1996:
Common Stock, $.01 par value: 10,313,863 shares
VITRONICS CORPORATION
INDEX
Page
----
Part I - Financial Information:
- -------------------------------
Item 1 - Financial Statements:
Condensed Consolidated Balance Sheets -March 30, 1996 (Unaudited)
and December 31, 1995 3
Condensed Consolidated Statements of Operations (unaudited) -
Three Months Ended March 30, 1996 and April 1, 1995 4
Condensed Consolidated Statements of Cash Flows (unaudited) - Three
Months Ended March 30, 1996 and April 1, 1995 5
Notes to Condensed Consolidated Financial Statements (unaudited) 6
Calculation of Net Income Per Share - Three Months Ended March 30,
1996 and April 1, 1995 7
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Part II - Other Information
- ---------------------------
Items 1 through 6 9
Signatures 11
2
VITRONICS CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(000's omitted)
March 30, December 31,
1996 1995
(Unaudited) (*)
--------------- -----------------
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 2,319 $ 2,825
Accounts receivable, net 3,152 3,384
Inventories 3,175 2,650
Deferred taxes 439 548
Other current assets 210 194
------- -------
Total current assets 9,295 9,601
Property and equipment, net 469 402
Deferred taxes 175 175
Other assets 83 68
------- -------
$10,022 $10,246
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
- ----------------------------------------
Current liabilities:
Accounts payable $ 2,105 $ 1,978
Income taxes payable 111 69
Other current liabilities 1,191 1,899
Current maturities of
long-term liabilities 165 150
------- -------
Total current liabilities 3,572 4,096
Long-term liabilities, net of current
maturities 270 246
COMMITMENTS AND CONTINGENCIES
Stockholders' Equity:
Common Stock, $.01 par value 103 103
Additional paid-in capital 6,794 6,793
Foreign currency translation (230) (202)
Retained earnings (deficit) (487) (790)
------- -------
6,180 5,904
------- -------
$10,022 $10,246
======= =======
* Condensed from audited financial statements
The accompanying notes are an integral part of these condensed
financial statements.
3
VITRONICS CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(000's omitted except per share amounts)
Three Months Ended
March 30, April 1,
1996 1995
---------- ---------
Net sales $ 5,859 $ 4,853
Cost of goods sold 3,518 2,982
Gross profit 2,341 1,871
Selling, general and administrative
expenses 1,442 1,215
Research and development costs 369 303
Patent litigation 20 75
------- -------
1,831 1,593
------- -------
Income from operations 510 278
Non-operating expense - net (5) (51)
------- -------
Income before taxes 505 227
Income taxes 202 3
------- -------
Net income $ 303 $ 224
======= =======
Net earnings per common share:
Primary $.03 $.03
======= =======
Fully diluted $.03 $.02
======= =======
Weighted average number of common and
common equivalent shares used in
calculation of earnings per common share:
Primary 10,861 8,169
======= =======
Fully diluted 10,874 10,572
======= =======
The accompanying notes are an integral part of these condensed financial
statements.
4
VITRONICS CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(000's omitted)
Three Months Ended
---------------------
March 30, April 1,
1996 1995
---------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 303 $ 224
Adjustments to reconcile net income to
net cash flows provided by (used for)
operating activities:
Depreciation and amortization 46 54
Provision for excess and obsolescence 58 54
Provision for bad debts -- 3
Changes in current assets and liabilities:
Accounts receivable 232 717
Inventories (583) (677)
Other current assets (16) 10
Accounts payable 127 (149)
Income taxes 151 --
Other current liabilities (709) 71
------ -----
Total adjustments (694) 80
------ -----
Net cash provided by operating activities (391) 304
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (49) (17)
Additions to other assets (24) (18)
------ -----
Net cash used for investing activities (73) (35)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt (15) (30)
Issuance of common stock 1 4
------ -----
Net cash used for financing activities (14) (26)
Foreign currency translation adjustment (28) 33
------ -----
CASH:
Net increase (decrease) (506) 276
Balance, beginning period 2,825 671
------ -----
Balance, end of period $2,319 $ 947
====== =====
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the periods for:
Interest 7 34
Income taxes 50 3
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Capital lease obligations 55 --
The accompanying notes are an integral part of these condensed financial
statements
5
VITRONICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A. Basis Presentation
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and pursuant to the rules and regulations of
the Securities and Exchange Commission. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements.
In the opinion of management, all adjustments (consisting of only normal
recurring adjustments) considered necessary for a fair presentation have been
included. Operating results for the three month period ended March 30, 1996 are
not necessarily indicative of the results expected for the year ended December
31, 1996. For further information, refer to the Company's consolidated
financial statements and notes thereto contained in the Company's Form 10-K for
the year ended December 31, 1995, filed with the Securities and Exchange
Commission (File #0-13715) on April 1, 1996.
B. Inventories
Inventories valued at the lower of cost (determined using the first-in,
first-out method) or market, were as follows (in thousands):
March 30, December 31,
1996 1995
---- ----
Finished Goods $ 517 $ 498
Work in process 1,189 926
Raw materials 1,469 1,226
------ ------
$3,175 $2,650
====== ======
6
VITRONICS CORPORATION AND SUBSIDIARIES
CALCULATION OF NET EARNINGS PER COMMON SHARE
FOR THE THREE MONTHS ENDED MARCH 30, 1996 AND APRIL 1, 1995
March 30, 1996
--------------
Fully
Primary Diluted
------- -------
Net income $ 303,000 $ 303,000
Weighted average shares outstanding:
Common stock 10,313,819 10,313,819
Stock options 546,914 559,830
----------- -----------
Weighted average shares outstanding 10,860,733 10,873,649
=========== ===========
Earnings per share $0.03 $0.03
April 1, 1995
-------------
Fully
Primary Diluted
------- -------
Net income $ 224,000 $ 254,000
Weighted average shares outstanding:
Common stock 7,551,583 7,551,583
Convertible debentures -- 2,400,000
Warrants 220,270 220,960
Stock options 397,139 399,722
----------- -----------
Weighted average shares 8,186,992 10,572,265
outstanding =========== ===========
Earnings per share $0.03 $0.02
7
VITRONICS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Sales for the quarter ended March 30, 1996 were $5,859,000 compared with
$4,853,000 for the same period in 1995, an increase of 21%. Bookings for the
three months ended March 30, 1996 were $6,606,000 versus $5,333,000 for the same
period in 1995, an increase of 24%. The increase in bookings and revenues were a
result of increased demand for its Unitherm(R) and Isotherm/TM/ product lines.
The Company also experienced an increased demand for its aqueous cleaner
product. The Company does not anticipate that the percentage increase in net
revenues and bookings for the three months ended March 30, 1996 is necessarily
indicative of the trend for the entire fiscal year as the Company has begun
seeing signs that the economy might be softening. Backlog as of March 30, 1996
was $3,594,000 versus $2,847,000 at December 31, 1995, and $3,068,000 at April
1, 1995.
Gross margin for the three months ended March 30, 1996 increased to 40%
from 39% for the same period in 1995. The increased margin is due to a
significantly higher volume of sales, increased labor efficiencies and reduced
material costs. The Company increased its deductions/write-offs for excess and
obsolete inventory to $58,000 for the first quarter of 1996, as compared to
$54,000 for the first quarter of 1995. Such increases are principally related
to the Company's production process and product line evolution. As the Company
made changes in designs and processes, certain existing inventories were
affected. The Company also changed its production process as the UNITHERM
product evolved. This change necessitated the rework of certain inventory items
and the obsolescence of other items. The Company increased its reserves for
obsolescence in recognition of these events and charged items to the reserves
upon disposal of the inventory. The Company's provision for inventory reserves
was $695,000 at the end of the first quarter of 1996, and $760,000 at the end of
1995.
Operating expenses for the three months ended March 30, 1996 were
$1,831,000 versus $1,518,000 for the same period in 1995, an increase of 15%.
Operating expenses as a percentage of sales for such periods were 31% and 33%.
The increase in actual spending is partially the result of the increased sales
which resulted in increased staffing levels, commission and marketing expenses.
For the first quarter of 1996, selling, general and administrative expenses
as a percentage of sales were 25% versus 25% in 1995. The increase in actual
spending is a result of the increased sales volume which resulted in higher
commission and marketing expenses. Research and development expenses as a
percentage of sales for such periods were 6% in 1996 versus 6% in 1995.
Costs relating to the Company's patent infringement lawsuit were $20,000
for the three months ended March 30, 1996, as compared to $75,000 for the
comparable 1995 period. With the conclusion of the Conceptronic trial in August
1995, and a verdict rendered for the defendant, the Company does not anticipate
that additional costs relating to the appeal process will be significant until
such time as an appeal may be granted, which will be approximately 1-1 1/2 years
from the date the appeal was filed.
8
The Company had non-operating expenses of $5,000 for the three months ended
March 30, 1996 compared with $51,000 for the comparable period in 1995.
The Company recorded tax expense of $202,000 for the quarter ended March
30, 1996, as compared to $3,000 for the comparable quarter of 1995. The
increase in tax expense is primarily due to the recognition of net operating
loss carryforwards for book purposes in the first quarter of 1995 which
eliminated federal tax expense for that period. During the fourth quarter of
1995, the Company reduced its income tax valuation allowance and therefore the
tax expense in the first quarter of 1996 reflects the Company's effective income
tax rate. The Company used $109,000 of net operating loss carryforwards for tax
purposes, which reduced the actual tax payable.
Net income for the first quarter of 1996 was $303,000, compared to $224,000
for the comparable period of 1995. For the first quarter of 1996, net income
was $0.03 per primary share, and $0.03 per fully diluted share. For the
comparable 1995 period, net income was $0.03 per primary share, and $0.02 per
fully diluted share.
Liquidity and Capital Resources
The Company continues to monitor its operations spending levels very
closely with the goal of cash conservation. During the quarter ended March 30,
1996, cash decreased $506,000 to $2,319,000. This was a result of the Company's
increasing its inventory levels for the introduction of its new SELECTSeries/TM/
of reflow ovens. The Company also reduced its current liabilities during the
quarter.
The Company has reviewed its capital spending budget for the remainder of
1996 and expects to finance its capital equipment acquisition through lease
financing. The Company believes that its current cash balances and cash from
operations will be adequate to meet the Company's working capital requirements
during the year.
On February 8, 1996, the Company announced that its Board of Directors
authorized the repurchase of up to five percent of its common stock, or
approximately 500,000 shares. Depending on business conditions, stock market
conditions, price per share and other factors, the Company will repurchase
shares in open market transactions. If the Company were to repurchase the
entire 500,000 shares at current prices per share, the cost of the repurchase
could be $1,125,000 and would be funded through the Company's cash balances. As
of May 10, 1996, the Company has not repurchased any shares.
9
VITRONICS CORPORATION AND SUBSIDIARIES
PART II
OTHER INFORMATION
Items 1 through 4: Not applicable
Item 5: Other Information
None
Item 6:
(a). Exhibits
27 Financial Data Schedule
(b). Reports of Form 8-K
None
10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VITRONICS CORPORATION
Date: May 14, 1996 By: /s/James J. Manfield, Jr.
---------------------------
James J. Manfield, Jr.
Chairman of the Board,
Chief Executive Officer,
Chief Financial Officer,
and Treasurer
Date: May 14, 1996 By: Ronald W. Lawler
--------------------------
Ronald W. Lawler,
President and
Chief Operating Officer
Date: May 14, 1996 By: Daniel J. Sullivan
---------------------------
Daniel J. Sullivan,
Vice President, Controller and
Principal Accounting Officer
11