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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, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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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: (508) 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 9,
1995: 7,277,380 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' Investment 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
(Dollars in thousands)
ASSETS
(Unaudited)
July 2, December 31,
1995 1994
-----------------------------------------------------------------------------------------------
Current assets
Cash and cash equivalents $6,308 $6,896
Accounts receivable, less reserves of $214 in
1995 and $114 in 1994 10,686 9,692
Inventories (Note 2) 8,579 5,518
Other current assets 794 1,378
-----------------------------------------------------------------------------------------------
Total current assets 26,367 23,484
-----------------------------------------------------------------------------------------------
Property, plant and equipment, at cost
Land 210 210
Buildings and improvements 5,225 5,211
Machinery and equipment 4,629 3,884
Furniture and fixtures 602 629
-----------------------------------------------------------------------------------------------
10,666 9,934
Less Accumulated depreciation 6,435 6,167
-----------------------------------------------------------------------------------------------
Net property, plant and equipment 4,231 3,767
Investment in joint venture 3,476 3,476
Other assets, net of accumulated amortization of $402
in 1995 and $396 in 1994 238 238
-----------------------------------------------------------------------------------------------
$34,312 $30,965
===============================================================================================
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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BTU INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
LIABILITIES AND STOCKHOLDERS' INVESTMENT
(Unaudited)
July 2, December 31,
1995 1994
-------------------------------------------------------------------------------------------------
Current liabilities
Current maturities of long-term debt and
capital lease obligations (Note 3) $324 $311
Accounts payable 6,707 4,556
Other current liabilities 3,923 5,184
-------------------------------------------------------------------------------------------------
Total current liabilities 10,954 10,051
-------------------------------------------------------------------------------------------------
Long-term debt and capital lease obligations, less
current maturities (Note 3) 5,888 6,050
Deferred income taxes 1,714 1,714
-------------------------------------------------------------------------------------------------
18,556 17,815
-------------------------------------------------------------------------------------------------
Redeemable Class A and Class AA preferred
stock (Note 6) 200 1,200
-------------------------------------------------------------------------------------------------
Stockholders' investment
Series preferred stock, $1 par value-
Authorized - 5,000,000 shares
Issued and outstanding - none - -
Common stock, $.01 par value-
Authorized - 25,000,000 shares;
Issued - 7,505,831 shares at 1995 and
7,185,954 at 1994 75 72
Additional paid-in capital 19,395 18,226
Accumulated deficit (3,302) (5,729)
Treasury stock 279,281 shares, at cost (935) (935)
-------------------------------------------------------------------------------------------------
15,233 11,634
Cumulative foreign currency translation adjustment 323 316
-------------------------------------------------------------------------------------------------
Total stockholders investment 15,556 11,950
-------------------------------------------------------------------------------------------------
$34,312 $30,965
=================================================================================================
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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BTU INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JULY 2, 1995 AND JULY 3, 1994
(Dollars in thousands, except share and per share data)
(Unaudited)
Three Months Ended Six Months Ended
----------------------- ------------------------
July 2, July 3, July 2, July 3,
1995 1994 1995 1994
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Net sales $14,951 $9,505 $27,924 $19,332
Cost of goods sold 8,204 5,294 14,976 10,624
----------------------------------------------------------------------------------------------------
Gross profit 6,747 4,211 12,948 8,708
Operating expenses:
Selling, general and administrative 3,933 2,878 7,630 5,913
Research, development and engineering 1,101 803 2,060 1,672
----------------------------------------------------------------------------------------------------
Income from operations 1,713 530 3,258 1,123
----------------------------------------------------------------------------------------------------
Interest income 75 80 171 119
Interest expense (143) (193) (293) (350)
Other income, net 25 19 40 29
----------------------------------------------------------------------------------------------------
Income before taxes 1,670 436 3,176 921
Income tax provision 311 52 661 131
----------------------------------------------------------------------------------------------------
Net income 1,359 384 2,515 790
Dividends accrued - Class A and
Class AA redeemable preferred stock 44 44 88 100
----------------------------------------------------------------------------------------------------
Net income applicable to common
stockholders $1,315 $340 $2,427 $690
====================================================================================================
Net income per share $0.18 $0.05 $0.33 $0.10
====================================================================================================
Weighted average number of shares
and share equivalents outstanding 7,328,120 7,134,700 7,294,924 7,139,388
====================================================================================================
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' INVESTMENT
FOR THE SIX MONTHS ENDED JULY 2, 1995
(Dollars in thousands)
(Unaudited)
ADDITIONAL CUMULATIVE TOTAL
COMMON PAID-IN ACCUMULATED TREASURY TRANSLATION STOCKHOLDERS'
STOCK CAPITAL DEFICIT STOCK ADJUSTMENT INVESTMENT
-----------------------------------------------------------------------------------------------------
Balance,
beginning of
the period $72 $18,226 ($5,729) ($935) $316 $11,950
Net income - - 2,515 - - 2,515
Dividends
Declared - - (88) - - (88)
Translation
Adjustment - - - - 7 7
Sales of
Common
Stock 1 171 - - - 172
Conversion of
Class AA
Stock (Note 6) 2 998 - - - 1,000
-----------------------------------------------------------------------------------------------------
Balance,
end of
the period $75 $19,395 ($3,302) ($935) $323 $15,556
======================================================================================================
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, 1995 AND JULY 3, 1994
(Dollars in thousands)
(Unaudited)
JULY 2, JULY 3,
1995 1994
-----------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $2,515 $ 790
Adjustments to reconcile net income to net cash from
operating activities -
Depreciation and amortization 343 302
Accounts receivable (994) 243
Inventories (3,061) (87)
Other current assets 584 (57)
Accounts payable 2,151 109
Other current liabilities (424) (160)
Other assets (6) (7)
Foreign currency translation 7 (1)
-----------------------------------------------------------------------------------------------
Net cash provided by operating activities 1,115 1,132
-----------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of property, plant and equipment, net (801) (469)
-----------------------------------------------------------------------------------------------
Net cash used in investing activities (801) (469)
-----------------------------------------------------------------------------------------------
Cash flows from financing activities:
Principal payments under long-term debt and capital lease
obligations (149) (140)
Proceeds from issuance of common stock 172 -
Redemption of Class A Preferred Stock (567) (473)
Payments of preferred stock dividends (358) (273)
-----------------------------------------------------------------------------------------------
Net cash used in financing activities (902) (886)
-----------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (588) (223)
Cash and cash equivalents, at beginning of the period 6,896 4,754
-----------------------------------------------------------------------------------------------
Cash and cash equivalents, at end of the period $6,308 $4,531
===============================================================================================
Supplemental disclosures of cash flow information
Cash paid (received/refunded) during the periods for -
Interest $293 $ 193
Income taxes (200) 225
Supplemental schedule of noncash investing and financing activities
Accrual of preferred stock dividend $88 $100
Capital lease obligations - 29
Class AA Preferred Stock converted to common stock 1,000 -
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, 1995, the condensed
consolidated statement of stockholders' investment for the six months ended
July 2, 1995, the condensed consolidated statement of cash flows for the six
months ended July 2, 1995 and July 3, 1994, and the related condensed
consolidated statements of operations for the three and six months ended July
2, 1995 and July 3, 1994 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, 1994, together with the auditors' report,
included in the Company's "1994 Annual Report," and filed in conjunction with
Form 10K.
(2) Inventories
Inventories at July 2, 1995 and December 31, 1994 consisted of:
($000)
---------------------------------------
July 2, December 31,
1995 1994
-------------------------------------------------------------------------------------------------
Raw materials and manufactured components $4,480 $2,731
Work-in-process 3,077 2,065
Finished goods 1,022 722
-------------------------------------------------------------------------------------------------
$8,579 $5,518
=================================================================================================
(3) Debt
Debt at July 2, 1995 and December 31,1994 consisted of:
($000)
-------------------------------------------------
July 2, December 31,
1995 1994
-------------------------------------------------------------------------------------------------
9.0% Mortgage note payable $6,101 $6,233
Capital lease obligations, interest rates ranging from 6.9% to 13.8%,
net of interest of $15,000 and $20,000 in 1995 and 1994, respectively 111 128
-------------------------------------------------------------------------------------------------
6,212 6,361
Less current maturities 324 311
-------------------------------------------------------------------------------------------------
$5,888 $6,050
=================================================================================================
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BTU INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
(4) Preferred Stock
The Company has two classes of preferred stock. Its Class A Cumulative
Redeemable Preferred Stock has a par value of $1 per share, and has 2,000,000
shares authorized. As of July 2, 1995 and December 31, 1994, 0 and 567,150
shares were outstanding, respectively. During the second quarter of 1995 the
final 567,150 shares were redeemed at $1 per share plus accrued dividends of
$0.05 per share, or $283,575, in response to redemption notifications by the
stockholders of the Class A Redeemable Preferred Stock. The Company has Class
AA Redeemable Convertible Preferred Stock, which has a par value of $0.01 per
share, and is entitled to a dividend of $0.50 per share per year, payable
quarterly beginning November 1, 1988, and for which 40,000 and 240,000 shares
were outstanding at July 2, 1995 and December 31, 1994, respectively.
The following table depicts the status of preferred stock at July 2, 1995 and December 31, 1994:
(Thousands)
Class A Class AA Total
-------------------------------------------------------------------------------------------------
at July 2, 1995
Total redemption value $- $200 $200
Accrued dividends
-------------------------------------------------------------------------------------------------
- - -
Total redemption value plus accrued dividends - 200 200
Less-amounts recorded in accrued expenses - - -
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$ $200 $200
=================================================================================================
at December 31, 1994
Total redemption value $567 $1,200 $1,767
Accrued dividends 269 269
-------------------------------------------------------------------------------------------------
Total redemption value plus accrued dividends 836 1,200 2,036
Less-amounts recorded in accrued expenses (836) - (836)
-------------------------------------------------------------------------------------------------
$ $1,200 $1,200
=================================================================================================
During the second quarter of 1995, the holders of 200,000 of the Class AA
Redeemable Convertible Preferred Stock, requested a conversion of this
preferred stock to common shares. As a result, the Company issued common stock
on a one share-for-one share basis to these holders and paid accrued dividends
of $14,200. Subsequent to July 2, 1995, the Company was notified by the
holders of the remaining 40,000 shares of the Class AA Redeemable Convertible
Preferred Stock of their intent to convert to common shares, as well. As a
result, a conversion of these shares has been transacted in July of 1995, with
the issuance of common stock on a one share-for-on share basis and the payment
of accrued dividends of $4,341. These transactions have no impact on the
calculation of earnings per share, as these shares were historically treated as
common stock equivalents.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net Sales - In the second quarter of 1995, net sales increased by
$5,446,000, an increase of 57.3% over the second quarter of 1994. Net sales
for the first six months of 1995 increased by $8,592,000, or 44.4%, as compared
to the first six months of 1994. Sales for the Company's products remained
strong for the quarter and six months. Surface mount technology product sales
increased due primarily from wide customer acceptance of our new mid range
solder reflow systems. Geographically, sales in all regions have increased in
1995. While domestic sales have increased, their proportionate share has
declined, as sales to the expanding economies in the Far East have increased
substantially. Expectations are that the expansion in Asian markets will
continue and the Company is organizing its operations to meet the increased
demand. The effect of price changes has had an immaterial impact on the
changes in revenues for the periods presented.
Gross Profit - Gross profit increased by $2,536,000, or 60.2% in the second
quarter of 1995, as compared to the second quarter of 1994. As well, gross
profit increased by $4,240,000, or 48.7% for the first six months of 1995, as
compared to the same period in 1994. Gross profit as a percent of sales
increased 0.8%, from 44.3% to 45.1%, for the second quarter of 1995, and 1.4%,
from 45.0% to 46.4% for the first six months of 1995, when compared to the same
periods in 1994. The increase in margin is directly related to the continued
growth in revenue for the Company's products. Gross profit generated was
fairly constant among product lines, with the exception of our newly introduced
VIP products which performed at proportionally lower gross margins during its
"ramp-up" stages in the first and second quarters of 1995. The VIP product
gross margins are improving along a traditional learning curve and are expected
to be in line with our other mature product lines by year end.
Selling, General and Administrative - In the second quarter of 1995,
selling, general and administrative expense increased by $1,055,000, or 36.7%,
to $3,933,000, as compared to the same period in 1994. For the first six
months of 1995, selling, general and administrative expense increased by
$1,717,000, or 29.0% to $7,630,000. The increase in expenses is due to several
key elements, and are as follows for the second quarter and first six months,
respectively: higher sales commissions which resulted from (a) the higher sales
volumes and (b) higher commission rates related to the increased proportion of
sales to the Far East, accounted for increased expenses of $392,000 and
$485,000; increased profit sharing earned by employees, which is the direct
result of the achievement of higher profitability targets for the Company in
1995, resulted in $63,000 and $375,000 in additional expenses; and, increased
travel costs due to the required service and installation to support our
increasing international presence and increases in the cost of air travel due
to higher rates being required by the major airline carriers caused an increase
in expenses of $97,000 and $153,000.
Research, Development and Engineering - Expenses in this area for the
second quarter of 1995 increased by $298,000, or 37.1%, as compared to the
second quarter of 1994. Expenses for research, development and engineering
increased by $388,000, or 23.2% for the first six months of 1995, as compared
to the same period in 1994. This increase in expense is the result of costs
which the Company has incurred in the development of new products, primarily
for our surface mount technology business.
Interest Income - In the second quarter of 1995 interest income decreased
by $5,000, or 6.3%, and in the first six months of 1995 interest income
increased by $52,000, or 43.7%, as compared to the same periods in 1994. The
decrease in the second quarter is related to slightly lower average cash
balances in the second quarter of 1995, as compared to the second quarter of
1994. The increase for the first six months is the result of two factors:
higher average cash balances and higher earned interest rates, as compared to
the first six months of 1994.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Interest Expense - Interest expense decreased by $50,000, or 25.9%, and
$57,000, or 16.3%, for the second quarter and first six months of 1995,
respectively, as compared to the same periods in 1994. The decrease in expense
is due to the lower level of interest due on the mortgage as its principal
balance decreases.
Income Taxes -
The Company has recorded an effective tax rate of 18.6% and 20.8% for the three
and six months ended July 2, 1995, and 11.9% and 14.2% for the three and six
months ended July 3, 1994. This compares to the statutory rate of 34%. During
1994 and 1995, the Company has recorded reductions in the deferred tax
valuation allowance resulting in the lower effective tax rate.
The valuation allowance relates to uncertainty surrounding the realization of
certain tax loss and credit carryforwards. At December 31, 1994, the Company
had a deferred tax asset related to federal net operating losses (NOL) of
$2,087,000 and tax credit carryforwards of $1,226,000. The NOL expires
beginning in 2006, while the credit carryforwards begin to expire in 1996.
Since the tax credit carryforwards begin to expire in 1996, the Company
believes it is more likely than not that these credits will expire prior to
utilization, and thus, a valuation allowance has been established against this
asset and the NOL.
Since the Company has generated income during the recent periods, the ability
to utilize a portion of the NOL carryforward in the future has begun to be
demonstrated. During the six months ended July 3, 1994 and July 2, 1995, the
Company reduced its valuation reserve related to the net operating loss based
on this factor. The Company will continue to monitor the realizability of this
asset in the future.
LIQUIDITY AND CAPITAL RESOURCES
The Company has an unsecured revolving line of credit with a bank which
allows for the aggregate of borrowings and/or letters of credit of up to
$5,000,000, at either the Bank's base rate or an adjusted Eurodollar rate, as
elected by the Company. This loan agreement is available to the Company until
July 1, 1998, and is subject to certain financial covenants. In addition, the
Company has a secured equipment loan facility with the same bank, with the
ability to borrow up to $1,000,000 for purchases of equipment. This facility
is available to fund up to 75% of the cost of qualifying equipment purchases,
with a collateralized first security interest on the equipment, at either the
Bank's base rate or an adjusted Eurodollar rate, and must be repaid over a
period not to exceed 84 months. At July 2, 1995, no amounts were outstanding
under either of these loan agreements.
The current mortgage had an outstanding balance of $6,101,000 at July 2,
1995. This mortgage has an annual interest rate of 9% with a balloon payment
of $5,664,000 due at maturity on April 1, 1997.
During 1995 the Company has invested over $3 million dollars to fund an
increase in inventories necessary to meet the increase in sales volume. As
well, our accounts receivable balance has increased by nearly $1 million
dollars in the first six months of 1995, as a direct result of our higher
overall sales volume, for which the majority of revenues in any given quarter
is shipped within the last six weeks of the quarter. In addition, our accounts
payable balance has risen by over $2 million since the beginning of 1995. This
increase in payables is directly attributable to the increase in inventories
within the period.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
The majority of the cash provided in other current assets was as a result of a
federal tax refund received within the second quarter of 1995. Approximately
$1.3 million was used in the second quarter of 1995 in the redemption of Class
A preferred stock and the payment of preferred stock dividend obligations.
Within the first six months the Company has invested approximately $0.8 million
in capital equipment, primarily in the areas of computer hardware, computer
software and machinery and equipment. The Company does not presently have any
outstanding commitments for capital expenditures which would have a material
impact on the Company's liquidity and future capital resources.
The Company expects its current cash position, ability to borrow necessary
funds, as well as cash flows from operations will be sufficient to meet its
corporate, operating and capital requirements through 1996.
OTHER MATTERS
The effect of foreign exchange rate changes has had an immaterial impact on
the results of operations and liquidity of the Company for the periods being
reported upon.
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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 11, 1995 BY: /s/ Paul J. van der Wansem
--------------------------
Paul J. van der Wansem
President, Chief Executive Officer
(principal executive officer) and Director
DATE: August 11, 1995 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 of Security Holders
---------------------------------------------------------
(a) The annual meeting of stockholders was held on May 19, 1995.
(b) All directors of the Company were re-elected at the annual
meeting. The actual vote is set forth in paragraph (c), below.
(c) The voting for directors was as follows:
For Withheld
--- --------
Paul van der Wansem 6,464,600 113,097
Alexander V. D'Arbeloff 6,461,702 115,995
David A.B. Brown 6,464,702 112,995
J. Chuan Chu 6,431,002 146,695
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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