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 June 29, 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 June 29, 1996:
Common Stock, $.01 par value: 10,326,663 shares
1
VITRONICS CORPORATION
INDEX
Page
----
- -Part I - Financial Information:
------------------------------
Item 1 - Financial Statements:
Condensed Consolidated Balance Sheets - June 29, 1996 (unaudited)
and December 31, 1995 3
Condensed Consolidated Statements of Operations (unaudited) -
Three Months and Six Months Ended June 29, 1996 and July 1, 1995 4
Condensed Consolidated Statements of Cash Flows (unaudited) -
Six Months Ended June 29, 1996 and July 1, 1995 5
Notes to Condensed Consolidated Financial Statements (unaudited) 6
Calculation of Net Income Per Share - Three Months Ended
June 29, 1996 and July 1, 1995 7
Calculation of Net Income Per Share - Six Months Ended
June 29, 1996 and July 1, 1995
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Part II - Other Information
---------------------------
Items 1 through 6 11
Signatures 12
2
VITRONICS CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(000's omitted)
June 29, December 31,
1996 1995
(Unaudited) (*)
--------------- -----------------
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 1,921 $ 2,825
Accounts receivable, net 4,152 3,384
Inventories 2,778 2,650
Deferred taxes 439 548
Other current assets 131 194
------- -------
Total current assets 9,421 9,601
Property and equipment, net 443 402
Deferred taxes 175 175
Other assets 78 68
------- -------
$10,117 $10,246
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 1,756 $ 1,978
Income taxes payable 182 69
Other current liabilities 1,360 1,899
Current maturities of long-term
liabilities 146 150
------- -------
Total current liabilities 3,444 4,096
Long-term liabilities, net of current
maturities 243 246
COMMITMENTS AND CONTINGENCIES
Stockholders' Equity:
Common Stock, $.01 par value 103 103
Additional paid-in capital 6,804 6,793
Foreign currency translation (205) (202)
Retained earnings (deficit) (272) (790)
------- -------
6,430 5,904
------- -------
$10,117 $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 Six Months Ended
------------------- ------------------
June 29, July 1, June 29, July 1,
1996 1995 1996 1995
--------- -------- -------- --------
Net sales $ 6,207 $ 5,767 $12,066 $10,620
Cost of goods sold 3,918 3,345 7,436 6,327
------- ------- ------- -------
Gross profit 2,289 2,422 4,630 4,293
Selling, general and administrative 1,501 1,423 2,943 2,638
expenses
Research and development costs 435 333 804 636
Patent Litigation 7 75 27 150
------- ------- ------- -------
1,943 1,831 3,774 3,424
------- ------- ------- -------
Income from operations 346 591 856 869
Non-operating expense - net 12 (52) 7 (103)
------- ------- ------- -------
Income before taxes 358 539 863 766
Income taxes 143 13 345 16
------- ------- ------- -------
Net income $ 215 $ 526 $ 518 $ 750
======= ======= ======= =======
Net earnings per common share:
Primary $.02 $.06 $.05 $.09
======= ======= ======= =======
Fully diluted $.02 $.05 $.05 $.08
======= ======= ======= =======
Weighted average number of common and
common equivalent shares used in
calculation of earnings per common
share:
Primary 10,757 8,095 10,809 8,132
======= ======= ======= =======
Fully diluted 10,757 10,537 10,815 10,155
======= ======= ======= =======
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)
Six Months Ended
-------------------
June 29, July 1,
1996 1995
--------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 518 $ 750
Adjustments to reconcile net income
to net cash flows provided by (used
for) operating activities:
Depreciation and amortization 105 111
Provision for excess and
obsolescence 118 155
Provision for bad debts 3 10
Changes in current assets and
liabilities:
Accounts receivable (771) (501)
Inventories (246) (838)
Other current assets 63 43
Accounts payable (222) 350
Income taxes 222 ---
Other current (539) 273
liabilities ------- -----
Total adjustments (1,267) (397)
------- -----
Net cash provided by/used for
operating activities (749) 353
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (73) (17)
Additions to other assets (28) (43)
------- -----
Net cash used for investing activities (101) (60)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt (62) (132)
Issuance of common stock 11 4
------- -----
Net cash used for financing activities (51) (128)
Foreign currency translation adjustment (3) 16
------- -----
CASH:
Net increase (decrease) (904) 181
Balance, beginning period 2,825 671
------- -----
Balance, end of period $ 1,921 $ 852
======= =====
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the periods for:
Interest 19 86
Income taxes 122 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 six month period ended June 29, 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):
June 29, December 31,
1996 1995
-------- ------------
Finished Goods $ 495 $ 498
Work in process 773 926
Raw materials 1,510 1,226
------ ------
$2,778 $2,650
====== ======
6
VITRONICS CORPORATION AND SUBSIDIARIES
CALCULATION OF NET EARNINGS PER COMMON SHARE
FOR THE THREE MONTHS ENDED JUNE 29, 1996 AND JULY 1, 1995
June 29, 1996
------------------------
Fully
Primary Diluted
----------- -----------
Net income $ 215,000 $ 215,000
Weighted average shares outstanding:
Common stock 10,319,619 10,319,619
Stock options 437,806 437,806
----------- -----------
Weighted average shares outstanding 10,757,425 10,757,425
=========== ===========
Earnings per share $ .02 $ .02
July 1, 1995
-----------
Fully
Primary Diluted
----------- -----------
Net income $ 526,000 $ 556,000
Weighted average shares outstanding:
Common stock 7,553,638 7,553,638
Convertible debentures 2,400,000
Warrants 203,945 212,830
Stock options 337,628 371,016
----------- -----------
Weighted average shares outstanding 8,095,211 10,537,484
=========== ===========
Earnings per share $ .06 $ .05
7
VITRONICS CORPORATION AND SUBSIDIARIES
CALCULATION OF NET EARNINGS PER COMMON SHARE
FOR THE SIX MONTHS ENDED JUNE 29, 1996 AND JULY 1, 1995
June 29, 1996
------------------------
Fully
Primary Diluted
----------- -----------
Net income $ 518,000 $ 518,000
Weighted average shares outstanding:
Common stock 10,316,735 10,316,735
Stock options 492,309 498,722
----------- -----------
Weighted average shares outstanding 10,809,044 10,815,457
=========== ===========
Earnings per share $ .05 $ .05
July 1, 1995
------------
Fully
Primary Diluted
----------- -----------
Net income $ 750,000 $ 810,000
Weighted average shares outstanding:
Common stock 7,552,611 7,552,611
Convertible debentures 2,400,000
Warrants 212,107 216,895
Stock options 367,383 385,369
----------- -----------
Weighted average shares outstanding 8,132,101 10,554,875
=========== ===========
Earnings per share $ .09 $ .08
8
VITRONICS CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Sales for the quarter ended June 29, 1996 were $6,207,000 compared with
$5,767,000 for the same period in 1995, an increase of 8%. Sales for the six
months ended June 29, 1996 were $12,066,000 compared with $10,620,000 for the
same period of 1995, an increase of 14%. Bookings for the three months ended
June 29, 1996 were $6,059,000 versus $6,736,000 for the same period in 1995, a
decrease of 10%. Bookings for the six months ended June 29, 1996 were
$12,665,000 versus $12,069,000 for the same period of 1995, an increase of 5%.
The increase in bookings and revenues for the six month period were a result of
increased demand for the Company's UNITHERM(R), UNITHERM(R)II and ISOTHERM(TM)
products. The Company also experienced an increased demand for its aqueous
cleaner product. The decrease in bookings during the second quarter of 1996 was
a result of a slowdown in our European market. During the second quarter,
bookings in the United States and Southeast Asian markets remained strong. The
Company does not anticipate that the percentage change in net revenue and
bookings for the three month and six month periods ended June 29, 1996 are
necessarily indicative of the percentage change in net revenues and bookings to
be expected for the entire fiscal year. Backlog as of June 29, 1996 was
$3,446,000 versus $2,847,000 at December 31, 1995, and $4,038,000 as of July 1,
1995.
Gross margin for the three months ended June 29, 1996 decreased to 37% from
42% for the same period in 1995. For the six month period ended June 29, 1996,
the gross margin percentage was 38% versus 40%. The decrease in gross margins
is a result of product mix as the Company sold more low-end products, which have
a lower gross margin.
Operating expenses for the three months ended June 29, 1996 were
$1,943,000 versus $1,831,000 for the same period in 1995, an increase of 6%.
Operating expenses as a percentage of sales were 31% and 32% for the respective
three month periods. Operating expenses for the six months ended June 29, 1996
were $3,774,000 versus $3,424,000 for the same period in 1995, an increase of
10%. Operating expenses as a percentage of sales were 31% and 32% for the
respective six month periods. The increase in actual expenses is a result of
the higher sales volume which resulted in higher commission and marketing
expenses, increased staffing levels and increased spending on research and
development related to the introduction of the new SELECTSeries(TM) of products
in early 1996.
For the second quarter of 1996, selling, general and administrative
expenses as a percentage of sales were 24% versus 25% in 1995. Research and
development expenses as a percentage of sales for such periods were 7% in 1996,
and 6% in 1995. For the six months ended June 29, 1996, selling, general and
administrative expenses as a percentage of sales were 24% as compared to 25% in
1995. Research and development expenses as a percentage of sales were 7% in
1996 and 7% in 1995.
Expenses relating to the Company's patent infringement lawsuit were $7,000
for the three months ended June 29, 1996, as compared to $75,000 for the
comparable 1995 period. Expenses for the six month period ending June 29, 1996
were $27,000 as compared to $150,000 for the comparable 1995 period. With the
9
conclusion of the Conceptronic trial in August 1995, and a verdict rendered for
the defendant. In July 1996, the Company received a favorable ruling from the
United States Court of Appeals for the Federal Circuit in its patent litigation
suit against a competitor, Conceptronic Inc. The appellate court reversed the
trial court's judgment of non-infringement by Conceptronic Inc. of Claim 1 of
U. S. Patent No. 4,654,502 and has remanded the case back to the United States
District Court for further proceedings. The Company does not anticipate that
additional costs relating to this process will be significant until such time
the case is returned to the trial court.
The Company had non-operating income, net of $12,000 for the three months
ended June 29, 1996, compared with non-operating expense, net of $51,000 for the
comparable period in 1995. During the first six months of 1996, the Company had
non-operating income, net of $7,000 compared to non-operating expenses, net of
$103,000 for the comparable 1995 period. The improvement is a result of the
conversion of the Subordinated Convertible Debenture in August 1995, which
reduced interest expense in 1996 as compared to 1995. As a result of the
Company's increased cash balances, the Company generated greater interest income
in 1996.
The Company recorded tax expense of $143,000 for the quarter ended June 29,
1996, as compared to $13,000 for the comparable quarter of 1995. For the six
month period ended June 29, 1996, the Company had income tax expense of $345,000
as compared to $16,000 for the same period in 1995. The Company reduced its
income tax valuation allowance during the fourth quarter of 1995, and therefore
the tax expense in the first half of 1996 reflects the Company's effective
income tax rate. During the first half of 1995, the Company recognized net
operating loss carryforwards for book purposes, which eliminated federal tax
expense for that period. During the first quarter of 1996, the Company used
$275,000 of net operating loss carryforwards for tax purposes, which reduced the
actual tax payable.
Net income for the second quarter of 1996 was $215,000, compared to
$526,000 for the comparable period of 1995. For the second quarter of 1996, net
income was $0.02 per primary share, and $0.02 per fully diluted share. For the
comparable 1995 period, net income was $0.06 per primary share, and $0.05 per
fully diluted share. Net income for the six month period ended June 29, 1996
was $518,000 compared to $750,000 for the same period in 1995. For the first
six months of 1996, net income was $.05 per primary share, and $.05 per fully
diluted share. For the comparable 1995 period, net income was $.09 per primary
share, and $.08 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 six months ended June
29, 1996, cash decreased $904,000 to $1,921,000. 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 saw an increase in accounts
receivable of $771,000 during the six month period. The increase was a result
of timing of shipments during the second 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.
10
VITRONICS CORPORATION AND SUBSIDIARIES
PART II
OTHER INFORMATION
ITEMS 1 THROUGH 3: NOT APPLICABLE
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 2, 1996, the Company held its Annual Meeting of Stockholders. Allen
H. Keough and James R. Kanely were elected as Class C Directors of the Company.
Set forth below are the results of each matter voted upon at the Annual Meeting:
1. Election of Directors
FOR WITHHELD
--- --------
Allen H. Keough 9,226,895 510,000
James R. Kanely 9,226,895 510,000
2. Ratification of the appointment of Coopers & Lybrand L.L.P. as the Company's
independent public accountants:
FOR AGAINST ABSTENTIONS
--- ------- -----------
9,718,395 9,300 9,200
ITEM 5: OTHER INFORMATION
None
ITEM 6:
(a). Exhibits
27 Financial Data Schedule
(b). Reports on Form 8-K
None
11
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: August 9 , 1996 By: /s/James J. Manfield, Jr.
---------------------------
James J. Manfield, Jr.
Chairman of the Board,
Chief Executive Officer,
Chief Financial Officer,
and Treasurer
Date: August 9, 1996 By: /s/Ronald W. Lawler
-----------------------------
Ronald W. Lawler,
President and
Chief Operating Officer
Date: August 9, 1996 By: /s/Daniel J. Sullivan
------------------------------
Daniel J. Sullivan,
Vice President, Controller and
Principal Accounting Officer
12