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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 2, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to ______________
------------------------------
Commission File Number 0-17297
BTU INTERNATIONAL, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 04-2781248
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
23 Esquire Road, North Billerica, Massachusetts 01862-2596
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (978) 667-4111
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 the number of shares outstanding of the Registrant's Common Stock,
par value $.01 per share, as of the latest practicable date: As of August 10,
2000: 6,886,090 shares.
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BTU INTERNATIONAL, INC.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Condensed Consolidated Balance Sheets 1-2
Condensed Consolidated Statements of Operations 3
Condensed Consolidated Statement of Stockholders' Equity
and Consolidated Statements of Comprehensive Income 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6-7
Management's Discussion and Analysis of Financial Condition
and Results of Operations 8-10
PART II. OTHER INFORMATION
Signatures 11
Exhibits and Reports on Form 8-K 12
Calculation of Net Income per Common and Common
Equivalent Share 13
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BTU INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
ASSETS
(Unaudited)
July 2, December 31,
2000 1999
---------- ------------
Current assets
Cash and cash equivalents $ 9,621 $12,431
Accounts receivable, less reserves of
$206 in 2000 and $160 in 1999 19,998 14,563
Inventories (Note 2) 10,875 9,617
Other current assets (Note 6) 1,452 678
------- -------
Total current assets 41,946 37,289
------- -------
Property, plant and equipment, at cost
Land 210 210
Buildings and improvements 7,512 7,329
Machinery and equipment 7,343 6,513
Furniture and fixtures 830 830
------- -------
15,895 14,882
Less-Accumulated depreciation 9,968 9,341
------- -------
Net property, plant and equipment 5,927 5,541
Other assets, net of accumulated amortization of $444
in 2000 and $441 in 1999 313 319
------- -------
$48,186 $43,149
======= =======
The accompanying notes are an integral part of these
condensed consolidated financial statements.
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BTU INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands except share data)
LIABILITIES AND STOCKHOLDERS' EQUITY
(Unaudited)
July 2, December 31,
2000 1999
----------- ------------
Current liabilities
Current maturities of long-term debt and
capital lease obligations (Note 3) $ 266 $ 267
Accounts payable 7,132 6,665
Other current liabilities 5,598 3,664
------- -------
Total current liabilities 12,996 10,596
------- -------
Long-term debt and capital lease obligations, less
current maturities (Note 3) 4,825 4,953
Deferred income taxes 1,797 1,797
------- -------
19,618 17,346
------- -------
Stockholders' Equity (Note 4)
Class A preferred stock, $1.00 par value-
Authorized - 2,000,000 shares-
Issued and outstanding - none
Series preferred stock, $1.00 par value-
Authorized - 5,000,000 shares-
Issued and outstanding - none -- --
Common stock, $.01 par value-
Authorized - 25,000,000 shares;
Issued - 7,856,720, outstanding - 6,880,810
at July 2, 2000 and
Issued - 7,770,446, outstanding - 6,794,536
at December 31, 1999 78 78
Additional paid-in capital 20,831 20,543
Accumulated earnings 11,039 8,432
Treasury stock- 975,910 and 975,910 shares
at cost, at July 2, 2000 and
December 31, 1999, respectively (3,538) (3,538)
Accumulated other comprehensive income 158 288
------- -------
Total stockholders' equity 28,568 25,803
------- -------
$48,186 $43,149
======= =======
The accompanying notes are an integral part of these
condensed consolidated financial statements.
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BTU INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATION
FOR THE THREE AND SIX MONTHS ENDED JULY 2, 2000 AND JUNE 27, 1999
(in thousands, except share and per share data)
(Unaudited)
Three Months Ended Six Months Ended
------------------------- ----------------------
July 2, June 27, July 2, June 27,
2000 1999 2000 1999
--------- ---------- --------- ---------
Net sales $ 23,645 $ 16,199 $ 45,006 $ 32,075
Cost of goods sold 13,972 9,683 26,649 19,456
--------- --------- --------- ---------
Gross profit 9,673 6,516 18,357 12,619
Operating expenses:
Selling, general and administrative 6,085 4,371 11,662 8,701
Research, development and engineering 1,359 1,247 2,689 2,300
--------- --------- --------- ---------
Income from operations 2,229 898 4,006 1,618
--------- --------- --------- ---------
Interest income 86 69 205 201
Interest expense (105) (108) (211) (218)
Other income (expense), net 7 6 11 45
--------- --------- --------- ---------
Income before taxes 2,217 865 4,011 1,646
Income tax provision 766 257 1,404 494
--------- --------- --------- ---------
Net income $ 1,451 $ 608 $ 2,607 $ 1,152
========= ========= ========= =========
Earnings Per Share:
Basic $ 0.21 $ 0.09 $ 0.38 $ 0.17
Diluted $ 0.20 $ 0.09 $ 0.36 $ 0.17
========= ========= ========= =========
Weighted Average Number of
Shares Outstanding:
Basic 6,869,417 6,795,272 6,849,262 6,799,744
Effect of Dilutive Options 453,616 129,512 448,998 111,768
--------- --------- --------- ---------
Diluted Shares 7,323,033 6,924,784 7,298,260 6,911,512
========= ========= ========= =========
The accompanying notes are an integral part of these
condensed consolidated financial statements.
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BTU INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JULY 2, 2000
(in thousands)
(Unaudited)
Accumulated
Additional Other Total
Common Paid - In Accumulated Treasury Comprehensive Stockholders'
Stock Capital Earnings Stock Income Equity
------ ---------- ----------- -------- ------------- -------------
Balance,
beginning of
the period $78 $20,543 $ 8,432 $(3,538) $288 $25,803
Net income -- -- 2,607 -- -- 2,607
Sale of common
stock and exercise
of stock options -- 288 -- -- -- 288
Translation
Adjustment -- -- -- -- (130) (130)
--- ------- ------- ------- ---- -------
Balance,
end of
the period $78 $20,831 $11,039 $(3,538) $158 $28,568
=== ======= ======= ======= ==== =======
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE AND SIX MONTHS ENDED JULY 2, 2000 AND JUNE 27, 1999
(in thousands)
(Unaudited)
Three Months Ended Six Months Ended
------------------------ ---------------------
July 2, June 27, July 2, June 27,
2000 1999 2000 1999
------- ------- ------- --------
Net Income $ 1,451 $ 608 $ 2,607 $ 1,152
Other comprehensive income
Foreign currency translation adjustment (75) 59 (130) 60
------- ----- ------- -------
Comprehensive Income $ 1,376 $ 667 $ 2,477 $ 1,212
======= ===== ======= =======
The accompanying notes are an integral part of these
condensed consolidated financial statements.
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BTU INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JULY 2, 2000 AND JUNE 27, 1999
(in thousands)
(Unaudited)
July 2, June 27,
2000 1999
------- --------
Cash flows from operating activities:
Net income $ 2,607 $ 1,152
Adjustments to reconcile net income to net cash
provided by (used in) operating activities -
Depreciation and amortization 630 586
Net changes in operating assets and liabilities-
Accounts receivable (5,435) (1,093)
Inventories (1,258) 815
Other current assets (774) (19)
Accounts payable 467 (25)
Other current liabilities 1,933 (164)
Other assets 3 24
------- -------
Net cash used in operating activities (1,827) 1,276
------- -------
Cash flows from investing activities:
Purchases of property, plant and equipment, net (1,013) (393)
------- -------
Net cash used in investing activities (1,013) (393)
------- -------
Cash flows from financing activities:
Principal payments under long-term debt and capital lease
obligations (128) (119)
Proceeds from issuance of Common Stock
and Exercise of stock options 288 62
Purchase of treasury stock -- (145)
------- -------
Net cash provided by (used in) financing activities 160 (202)
------- -------
Effect of exchange rates on cash (130) 60
------- -------
Net decrease in cash and cash equivalents (2,810) 741
Cash and cash equivalents, at beginning of the period 12,431 10,594
------- --------
Cash and cash equivalents, at end of the period $ 9,621 $ 11,335
======= ========
Supplemental disclosures of cash flow information
Cash paid during the periods for -
Interest $211 $218
Income taxes 649 973
The accompanying notes are an integral part of these
condensed consolidated financial statements.
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BTU INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Basis for presentation
The condensed consolidated balance sheet as of July 2, 2000, the condensed
consolidated statement of stockholders' equity for the six months ended July 2,
2000, the condensed consolidated statements of cash flows for the six months
ended July 2, 2000 and June 27, 1999, the consolidated statements of
comprehensive income for the three and six months ended July 2, 2000 and June
27, 1999 and the related condensed consolidated statements of operations for the
three and six months ended July 2, 2000 and June 27, 1999 are unaudited. In the
opinion of management, all adjustments necessary for the fair presentation of
such financial statements have been included. Such adjustments consisted only of
normal recurring items. Interim results are not necessarily indicative of
results for the full year. These financial statements do not include all
disclosures associated with annual financial statements, and accordingly, should
be read in conjunction with the footnotes contained in the Company's
consolidated financial statements for the period ended December 31, 1999,
together with the auditors' report, included in the Company's Annual Report
contained in Form 10-K filed with the Securities and Exchange Commission.
(2) Inventories
Inventories at July 2, 2000 and December 31, 1999 consisted of:
(In Thousands)
-----------------------------
July 2, December 31,
2000 1999
-------- ------------
Raw materials and manufactured components $ 4,263 $ 4,431
Work-in-process 4,934 3,532
Finished goods 1,678 1,654
------- -------
$10,875 $ 9,617
======= =======
(3) Debt
Debt at July 2, 2000 and December 31, 1999 consisted of:
(In Thousands)
----------------------------
July 2, December 31,
2000 1999
------- ------------
Mortgage note payable $ 4,970 $ 5,089
Capital lease obligations, interest rates ranging from 10.2% to 11.1%,
net of interest of $34,000 and $38,000 in 2000 and 1999, respectively 121 131
------- -------
5,091 5,220
Less-current maturities 266 267
------- -------
$ 4,825 $ 4,953
======= =======
The mortgage note payable is secured by the Company's land and building
and required monthly payments of $53,922, including interest at 8.125%. This
mortgage note payable has a balloon payment of $3,825,000 due and payable at
maturity on July 1, 2004.
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BTU INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
(4) Earnings Per Share
Basic EPS is computed by dividing income available to common stockholders
by the weighted-average number of common shares outstanding during the period.
Diluted EPS is computed using the weighted average number of common and dilutive
potential common shares outstanding during the period, using the treasury stock
method. Options outstanding which were not included in the determination of
diluted EPS because they were antidilutive, were 1,170 as of July 2, 2000 and
289,778 as of December 31, 1999.
(5) Segment Reporting
Segments are defined as components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision-maker in deciding how to allocate resources and in assessing
performance. The Company operates as a single business segment called thermal
processing capital equipment.
The thermal processing capital equipment segment consists of the designing,
manufacturing, selling and servicing of thermal processing equipment and related
process controls for use in the electronics, power generation, automotive and
other industries. This business segment includes the supply of solder reflow
systems used for surface mount applications in printed circuit board assembly.
Thermal processing equipment is used in: low temperature curing/encapsulation;
hybrid integrated circuit manufacturing; integrated circuit packaging and
sealing; and processing multi-chip modules. In addition, the thermal process
equipment is used for sintering nuclear fuel for commercial power generation, as
well as brazing and the sintering of ceramics and powdered metals, and the
deposition of precise thin film coatings. The business segment's customers are
multinational original equipment manufacturers and contract electronics
manufacturers.
(6) Stock Offering Costs
During the first half of 2000, the Company initiated a plan to sell an
additional 2.5 million shares of common stock in a secondary offering. The Board
of Directors voted to withdraw the stock offering as current market conditions
were not sufficient to proceed at this time. The Company incurred approximately
$500,000 in costs associated with this proposed sale of stock, which has been
deferred in other current assets as of July 2, 2000.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net Sales. Net sales increased 45.9% from $16.2 million in the second
quarter of 1999 to $23.6 million in the second quarter of 2000. For the first
six months net sales increased 40.3% from $32.1 million in 1999 to $45.0 million
in 2000. The increase in both the second quarter and first six months of 2000
was primarily a result of increases in product shipments to global electronic
manufacturing customers of the Company's solder reflow systems, compared to the
same periods in 1999.
When comparing the second quarter of 2000 to the second quarter of 1999 the
percentage of net sales attributable to our customers in the United States
decreased by 0.4%, nets sales attributable to our customers in Europe increased
by 6.8%, nets sales attributable to our Asia Pacific customers decreased by
1.2%, and net sales attributable to our customer in the Other Americas decreased
by 5.2%. Comparing the first six months of 2000 to first six months of 1999 the
percentage of net sales attributable to our customers in the United States
remained the same, nets sales attributable to our customers in Europe increased
by 12.7%, nets sales attributable to our Asia Pacific customers decreased by
4.2%, and net sales attributable to our customer in the Other Americas decreased
by 8.5%. The effect of price changes for specific products has not materially
impacted the change in net sales for the periods presented.
Gross Profit. Gross profit increased 48.4% from $6.5 million in the second
quarter of 1999 to $9.7 million in the second quarter of 2000, and as a
percentage of net sales, increased from 40.2% to 40.9%. For the first six months
gross profit increased 45.5% from $12.6 million in 1999 to $18.4 million in 2000
and as a percentage of net sales, increased from 39.3% to 40.8%. The increase in
gross profit and gross profit percentage is a result of the increased volume and
increased operational efficiencies.
Selling, General and Administrative. Selling, general and administrative
increased 39.2% from $ 4.4 million in the second quarter of 1999 to $ 6.1
million in the second quarter of 2000. However as a percentage of net sales,
selling, general and administrative decreased from 27.0% in second quarter 1999
to 25.7% in the second quarter of 2000. For the first six months of 2000,
selling, general and administrative increased 34.0% from $8.7 million in 1999 to
$11.7 million in 2000, and decrease as a percentage of net sales, from 27.1% in
the first six months of 1999 to 25.9% in the same period 2000. The higher costs
in both the second quarter and first six months of 2000 were primarily the
result of the increases in our net sales. The higher sales levels result in an
increase in customer service support for our worldwide customer base and higher
selling expenses.
Research, Development and Engineering. Research, development and
engineering increased 9.0% from $1.2 million in the second quarter of 1999 to
$1.4 million in the second quarter of 2000. However as a percentage of net
sales, decreased from 7.7% to 5.7% for the same periods. For the first six
months of 2000 research, development and engineering increased 17.0% from $2.3
million in 1999 to $2.7 million in 2000, but as a percentage of net sales
decreased from 7.2% in 1999 to 6.0% in 2000. In both the second quarter and
first six months of 2000, we continued to support new product development which
contributed to the increase in expenses.
Operating Income. Operating income increased 148.2% from $0.9 million in
the second quarter of 1999 to $2.2 million in the second quarter of 2000, and as
a percentage of net sales, increased from 5.5% to 9.4%. Operating income
increased 147.6% from $1.6 million in the first six months of 1999 to $4.0
million for the same period in 2000. This increase was a result of the growth in
net sales, higher gross margins and a decrease in operating costs as a
percentage of sales.
Income Taxes. Income taxes increased from $257,000 in the second quarter of
1999 to $766,000 in the second quarter of 2000, primarily as a result of our
increase in profitability. Our effective tax rates were 29.7% and 34.6% in the
second quarters of 1999 and 2000 respectively. Income taxes increased from
$494,000 in the first six months of 1999 to $1,404,000 in the first six months
of 2000. Our effective tax rates were 30.0% and 35.0% in the first six months of
1999 and 2000 respectively. The 1999 effective tax rates reflect the benefit of
net operating loss carryforwards available to our UK subsidiary, resulting in
the lower effective tax rates. Our statutory federal income tax rate is 34.0%.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
LIQUIDITY AND CAPITAL RESOURCES
As of July 2, 2000, we had $9.6 million in cash and cash equivalents.
We have an unsecured revolving line of credit that allows for aggregate
borrowings, including letters of credit, up to $14.0 million. We may elect to
borrow at either the bank's base rate or the Eurodollar rate in effect from time
to time. This loan agreement was extended in 1999 until April 30, 2004 and is
subject to certain financial covenants. No amounts were outstanding under this
agreement as of July 2, 2000 or at any time in 1999 and 2000.
We have a mortgage note that is secured by our real property. The mortgage
note had an outstanding balance at July 2, 2000 of approximately $5.0 million.
The mortgage requires monthly payments of $53,922, which includes interest
calculated at the rate of 8.125% per annum. A final balloon payment of
approximately $3.8 million is due on July 1, 2004 upon maturity of the mortgage
note.
We expect that our current cash position, ability to borrow necessary
funds, as well as cash flows from operations will be sufficient to meet our
corporate, operating and capital requirements into 2001.
Other matters
The impact of inflation and the effect of foreign exchange rate changes
during 2000 has had an immaterial impact on our business and financial results.
RECENT ACCOUNTING DEVELOPMENTS
In December 1999, the SEC issued Staff Accounting Bulletin (SAB) No. 101,
"Revenue Recognition in Financial Statements," which provides additional
guidance in applying generally accepted accounting principles for revenue
recognition to a company's consolidated financial statements. SAB No. 101
addresses several issues, including the timing for recognizing revenue derived
from arrangements that provide for customer acceptance or product installation
after shipment and transfer of title.
Our existing revenue recognition policy is to recognize revenue at the time
the customer takes title of the product, generally at the time of shipment,
because we have routinely met our installation obligations and obtained customer
acceptance. Applying the requirements of SAB No. 101 to the present arrangements
used in our thermal processing systems sales may result in a change in our
accounting policy for revenue recognition and the deferral of the revenue for
some equipment sales until installation is complete and accepted by the
customer. We are currently evaluating the impact that SAB No. 101 might have on
our revenue recognition policies. However, there will be no impact on our cash
flows from operations as a result of this change.
We are required to report the impact of SAB No. 101, as amended by SAB No.
101A and SAB No. 101B no later than the fourth fiscal quarter of the fiscal year
2000. The effect of the change will be recognized as a cumulative effect of a
change in accounting principle as of January 1, 2000. Accordingly, the first
quarter of year 2000 financial results as well as the second and third quarters
of 2000, may be restated to the extent that SAB No. 101 is relevant and
material. Prior year financial statements will not be restated.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
In June 1998, the Financial Standards Accounting Board issued Statement of
Financial Accounting Standard (SFAS) No. 133 "Accounting for Derivative
Instruments and Hedging Activities." This statement as amended by SFAF No. 138
establishes accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheet as either an asset or liability
measured at its fair value. The statement requires that changes in the
derivative's fair value be recognized currently in income unless specific hedge
accounting criteria are met. Special accounting for qualifying hedges allows a
derivative's gains and losses to offset related results on the hedged item in
the statement of income and requires that a company must formally document,
designate and assess the effectiveness of transactions that receive hedge
accounting. SFAS No. 133, as amended by SFAS No. 137 "Accounting for Derivative
Instruments and Hedging Activities Deferral of the Effective Date of FASB
Statement No. 133," shall be effective for all fiscal quarters of all fiscal
years beginning after June 15, 2000. SFAS No. 133 cannot be applied
retroactively. SFAS No. 133, as amended, must be applied to (a) derivative
instruments and (b) certain derivative instruments embedded in hybrid contracts
that were issued, acquired, or substantively modified after December 31, 1997
(and, at our election, before January 1, 1998). We have not yet quantified the
impact of adopting SFAS No. 133 on our consolidated financial statements and
have not determined the timing nor method of its adoption of the statement.
However, we do not expect that the adoption of this statement will have a
material impact on our financial position or results of operations.
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. These statements are based on
the Company's current plans and expectations and involve risks and uncertainties
that could cause actual future activities and results of operations to be
materially different from those set forth in the forward-looking statements.
Important factors that could cause actual results to differ include, among
others, general market conditions governing supply and demand, the timely
availability and acceptance of new products, and the impact of competitive
products and pricing and other risks detailed in the Company's filings with the
Securities and Exchange Commission.
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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.
BTU INTERNATIONAL, INC.
DATE: August 15, 2000 BY: /s/ Paul J. van der Wansem
--------------------------------------
Paul J. van der Wansem
President, Chief Executive Officer
(principal executive officer) and Director
DATE: August 15, 2000 BY: /s/ Thomas P. Kealy
--------------------------------------
Thomas P. Kealy
Vice President, Corporate Controller and
Chief Accounting Officer (principal
financial and accounting officer)
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PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO VOTE SECURITY HOLDERS
(a) The annual meeting of stockholders was held on June 2, 2000
(b) All directors of the Company nominated were elected at the annual
meeting. The actual vote is set forth in paragraph (c) below.
(c) The voting for the directors was as follows:
FOR WITHHELD
Paul J. van der Wansem 5,695,400 518,637
David A.B. Brown 5,691,900 522,137
J. Chuan Chu 5,687,610 526,427
Joseph F. Wrinn 5,687,000 527,037
(d) The Stockholders approved an amendment to the Company's 1993 Equity
Incentive Plan, increasing the shares available under the plan.
The voting for the amendment was as follows:
For 3,223,991
Against 1,242,974
Abstain 45,389
Non-Votes 1,701,683
(e) The Stockholders approved an amendment to the Company's 1988 Employee
Stock Purchase Plan, increasing the shares available under the plan.
The voting for the amendment was as follows:
For 4,382,947
Against 88,268
Abstain 41,089
Non-Votes 1,701,733
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 11.0 - Calculation of net income per common and
common equivalent share.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the
period covered by this report
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