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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 October 1, 1995
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: (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
November 3, 1995: 7,285,875 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)
October 1, December 31,
1995 1994
- ----------------------------------------------------------------------------------------
Current assets
Cash and cash equivalents $3,951 $6,896
Accounts receivable, less reserves of $433 in
1995 and $114 in 1994 14,262 9,692
Inventories (Note 2) 9,051 5,518
Other current assets 610 1,378
- ----------------------------------------------------------------------------------------
Total current assets 27,874 23,484
- ----------------------------------------------------------------------------------------
Property, plant and equipment, at cost
Land 210 210
Buildings and improvements 5,354 5,211
Machinery and equipment 4,578 3,884
Furniture and fixtures 711 629
- ----------------------------------------------------------------------------------------
10,853 9,934
Less-Accumulated depreciation 6,613 6,167
- ----------------------------------------------------------------------------------------
Net property, plant and equipment 4,240 3,767
Investment in joint venture 3,476 3,476
Other assets, net of accumulated amortization of $406
in 1995 and $396 in 1994 234 238
- ---------------------------------------------------------------------------------------
$35,824 $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)
October 1, December 31,
1995 1994
- ------------------------------------------------------------------------------------------
Current liabilities
Current maturities of long-term debt and
capital lease obligations (Note 3) $330 $311
Accounts payable 6,658 4,556
Other current liabilities 4,043 5,184
- ------------------------------------------------------------------------------------------
Total current liabilities 11,031 10,051
- ------------------------------------------------------------------------------------------
Long-term debt and capital lease obligations, less
current maturities (Note 3) 5,803 6,050
Deferred income taxes 1,714 1,714
- ------------------------------------------------------------------------------------------
18,548 17,815
- ------------------------------------------------------------------------------------------
Redeemable Class A and Class AA preferred
stock (Note 4) - 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 - 7,564,656 shares at 1995 and
7,185,954 at 1994 76 72
Additional paid-in capital 19,637 18,226
Accumulated deficit (1,825) (5,729)
Treasury stock - 279,281 shares, at cost (935) (935)
- ------------------------------------------------------------------------------------------
16,953 11,634
Cumulative foreign currency translation adjustment 323 316
- ------------------------------------------------------------------------------------------
Total stockholders' investment 17,276 11,950
- ------------------------------------------------------------------------------------------
$35,824 $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 NINE MONTHS ENDED OCTOBER 1, 1995 AND OCTOBER 2, 1994
(Dollars in thousands, except share and per share data)
(Unaudited)
Three Months Ended Nine Months Ended
------------------ -----------------
October 1, October 2, October 1, October 2,
1995 1994 1995 1994
- --------------------------------------------------------------------------------------------
Net sales $16,100 $11,717 $44,024 $31,049
Cost of goods sold 8,969 6,346 23,945 16,970
- --------------------------------------------------------------------------------------------
Gross profit 7,131 5,371 20,079 14,079
Operating expenses:
Selling, general and administrative 4,169 3,187 11,799 9,100
Research, development and engineering 1,119 996 3,179 2,668
- --------------------------------------------------------------------------------------------
Income from operations 1,843 1,188 5,101 2,311
- --------------------------------------------------------------------------------------------
Interest income 57 47 228 166
Interest expense (137) (150) (430) (500)
Other income, net 9 10 49 39
- --------------------------------------------------------------------------------------------
Income before taxes 1,772 1,095 4,948 2,016
Income tax provision 290 269 951 400
- --------------------------------------------------------------------------------------------
Net income 1,482 826 3,997 1,616
Dividends accrued - Class A and
Class AA redeemable preferred
stock 5 30 93 130
- --------------------------------------------------------------------------------------------
Net income applicable to common
stockholders $1,477 $796 $3,904 $1,486
============================================================================================
Net income per share $0.20 $0.11 $0.53 $0.21
============================================================================================
Weighted average number of shares
and share equivalents outstanding 7,382,335 7,215,903 7,314,140 7,228,125
============================================================================================
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 NINE MONTHS ENDED OCTOBER 1, 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 - - 3,997 - - 3,997
Dividends
Declared - - (93) - - (93)
Translation
Adjustment - - - - 7 7
Sales of
Common
Stock 2 213 - - - 215
Conversion of
Class AA
Stock (Note 4) 2 1,198 - - - 1,200
- --------------------------------------------------------------------------------------------------
Balance,
end of
the period $76 $19,637 ($1,825) ($935) $323 $17,276
==================================================================================================
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 NINE MONTHS ENDED OCTOBER 1, 1995 AND OCTOBER 2, 1994
(Dollars in thousands)
(Unaudited)
OCTOBER 1, OCTOBER 2,
1995 1994
- -------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $3,997 $1,616
Adjustments to reconcile net income to net cash from
operating activities -
Depreciation and amortization 526 488
Accounts receivable (4,570) (2,923)
Inventories (3,533) 245
Other current assets 768 (340)
Accounts payable 2,102 692
Other current liabilities (304) 1,790
Other assets (6) (7)
Foreign currency translation 7 5
- -------------------------------------------------------------------------------------------------
Net cash provided by/(used in) operating activities (1,013) 1,566
- -------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of property, plant and equipment, net (989) (634)
- -------------------------------------------------------------------------------------------------
Net cash used in investing activities (989) (634)
- -------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Principal payments under long-term debt and capital lease
obligations (228) (213)
Proceeds from issuance of common stock 215 24
Redemption of Class A Preferred Stock (567) (473)
Payments of preferred stock dividends (363) (303)
- -------------------------------------------------------------------------------------------------
Net cash used in financing activities (943) (965)
- -------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (2,945) (33)
Cash and cash equivalents, at beginning of the period 6,896 4,754
- -------------------------------------------------------------------------------------------------
Cash and cash equivalents, at end of the period $3,951 $4,721
=================================================================================================
Supplemental disclosures of cash flow information
Cash paid (received/refunded) during the periods for -
Interest $430 $610
Income taxes 3 333
Supplemental schedule of noncash investing and financing activities
Accrual of preferred stock dividend $93 $130
Capital lease obligations - 50
Class AA Preferred Stock converted to common stock 1,200 -
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 October 1, 1995, the
condensed consolidated statement of stockholders' investment for the nine
months ended October 1, 1995, the condensed consolidated statement of cash
flows for the nine months ended October 1, 1995 and October 2, 1994, and the
related condensed consolidated statements of operations for the three and nine
months ended October 1, 1995 and October 2, 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 October 1, 1995 and December 31, 1994 consisted of:
($000)
-----------------------------------
October 1, December 31,
1995 1994
- ---------------------------------------------------------------------------------------------------------
Raw materials and manufactured components $4,282 $2,731
Work-in-process 3,947 2,065
Finished goods 822 722
- ---------------------------------------------------------------------------------------------------------
$9,051 $5,518
=========================================================================================================
(3) Debt
Debt at October 1, 1995 and December 31,1994 consisted of:
($000)
-----------------------------------
October 1, December 31,
1995 1994
- ---------------------------------------------------------------------------------------------------------
9.0% Mortgage note payable $6,031 $6,233
Capital lease obligations, interest rates ranging from 6.9% to 13.8%,
net of interest of $14,000 and $20,000 in 1995 and 1994, respectively 102 128
- ---------------------------------------------------------------------------------------------------------
6,133 6,361
Less-current maturities 330 311
- ---------------------------------------------------------------------------------------------------------
$5,803 $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 October 1, 1995 and December 31, 1994, 0 and 567,150
shares were outstanding, respectively. The Company also 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 0 and 240,000 shares were
outstanding at October 1, 1995 and December 31, 1994, respectively.
In response to redemption notifications by the stockholders, the final
567,150 shares of the Class A Redeemable Preferred Stock were redeemed at $1
per share plus accrued annual dividends of $0.05 per share, or $283,575, during
the second quarter of 1995. Also during the second quarter of 1995, the
Company issued common stock on a one-for-one basis, and paid accrued dividends
of $14,200, to the holders of 200,000 of the Class AA Redeemable Convertible
Preferred Stock, pursuant to a request for conversion. During the third
quarter of 1995, the Company converted the remaining 40,000 shares of the Class
AA Redeemable Convertible Preferred Stock to common stock on a one-for-one
basis, and paid accrued dividends of $4,341, pursuant to a request by the
remaining holders of these securities.. These transactions have no impact on
the calculation of earnings per share, as these shares were historically
treated as common stock equivalents.
The following table depicts the status of preferred stock at October 1, 1995 and December 31, 1994:
(Thousands)
Class A Class AA Total
- -----------------------------------------------------------------------------------------------------
at October 1, 1995
Total redemption value $- $- $-
Accrued dividends - - -
- -----------------------------------------------------------------------------------------------------
Total redemption value plus accrued dividends - - -
Less-amounts recorded in accrued expenses - - -
- -----------------------------------------------------------------------------------------------------
$- $- $-
=====================================================================================================
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
=====================================================================================================
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net Sales - In the third quarter of 1995, net sales increased by
$4,383,000, an increase of 37.4% over the third quarter of 1994. Net sales for
the first nine months of 1995 increased by $12,975,000, or 41.8%, as compared
to the first nine months of 1994. Sales for most of the Company's products
remained strong for the quarter and nine months. Surface mount technology
product sales increased principally due to wide customer acceptance of our
recently introduced mid range solder reflow systems (the "VIP").
Geographically, sales in all regions have increased in 1995. While domestic
sales have increased, they represent a smaller proportionate share of total
sales, as sales to the expanding economies in the Far East have increased
substantially. 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 $1,760,000, or 32.8% in the
third quarter of 1995, as compared to the third quarter of 1994. As well,
gross profit increased by $6,000,000, or 42.6% for the first nine months of
1995, as compared to the same period in 1994. Gross profit as a percent of
sales decreased from 45.8% to 44.3%, for the third quarter of 1995, but
increased from 45.3% to 45.6% for the first nine months of 1995, when compared
to the same periods in 1994. The variations in margins are directly related to
the change in product mix in 1995 versus 1994, including the introduction of
new 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 previous
quarters of 1995. The Company believes that as the VIP product matures, gross
margins are expected to be in line with our other mature product lines.
Selling, General and Administrative - Selling, general and
administrative expense increased by $982,000, or 30.8%, to $4,169,000, for the
third quarter of 1995, as compared to the same period in 1994. For the first
nine months of 1995, selling, general and administrative expense increased by
$2,699,000, or 29.7% to $11,799,000, when compared to the first nine months of
1994. However, for the third quarter and first nine months of 1995, selling ,
general and administrative expense decreased as a percent of sales by 1.3% and
2.5%, respectively, when compared to the same periods in 1994. The overall
increase in expenses is due to several key elements, and are as follows for the
third quarter and first nine 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 $559,000 and $1,044,000; 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 $120,000 and
$348,000 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
$73,000 and $216,000.
Research, Development and Engineering - Expenses in this area for the
third quarter of 1995 increased by $123,000, or 12.3%, as compared to the third
quarter of 1994, but decreased as a percent of sales to 7.0%. Research,
development and engineering expense increased by $511,000, or 19.2% for the
first nine months of 1995, as compared to the same period in 1994, yet
decreased as a percent of sales to 7.2%. The increase in expense is the result
of costs which the Company has incurred in the development of new products, for
the surface mount technology and high temperature businesses.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Interest Income - In the third quarter of 1995 interest income
increased by $10,000, or 21.3%, and in the first nine months of 1995 interest
income increased by $62,000, or 37.3%, as compared to the same periods in 1994.
The increases are primarily the result of higher earned interest rates in 1995,
as compared to 1994.
Interest Expense - Interest expense decreased by $13,000, or 8.7%, and
$70,000, or 14.0%, for the third quarter and first nine 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 16.4%
and 19.2% for the three and nine months ended October 1, 1995, and 24.6% and
19.8% for the three and nine 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 may 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 nine months ended October 2, 1994 and October 1,
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 October 1, 1995, no amounts were
outstanding under either of these loan agreements.
The current mortgage had an outstanding balance of $6,031,000 at
October 1, 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.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
During 1995 the Company has invested over $3.5 million to fund an
increase in inventories necessary to meet the increase in sales volume. The
accounts receivable balance has increased by over $4.5 million in the first
nine 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 purchased within the
period.
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 nine months the Company has invested
approximately $0.9 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: November 8, 1995 BY: /s/ Paul J. van der Wansem
--------------------------
Paul J. van der Wansem
President, Chief Executive Officer
(principal executive officer) and Director
DATE: November 8, 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 6. Exhibits and Reports on Form 8-K
- ----------------------------------------
(a) Exhibits
Exhibit 11 - 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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