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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 June 30, 1996
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 August 12,
1996: 7,334,615 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)
June 30, December 31,
1996 1995
- ------------------------------------------------------------------------------------
Current assets
Cash and cash equivalents $12,340 $ 6,145
Accounts receivable, less reserves of
$110 in 1996 and $191 in 1995 9,593 11,508
Inventories (Note 2) 10,252 9,899
Other current assets 491 429
- ------------------------------------------------------------------------------------
Total current assets 32,676 27,981
- ------------------------------------------------------------------------------------
Property, plant and equipment, at cost
Land 210 210
Buildings and improvements 5,532 5,526
Machinery and equipment 4,815 4,473
Furniture and fixtures 734 734
- ------------------------------------------------------------------------------------
11,291 10,943
Less-Accumulated depreciation 7,075 6,804
- ------------------------------------------------------------------------------------
Net property, plant and equipment 4,216 4,139
Investment in joint venture (Note 5) - 3,476
Other assets, net of accumulated amortization of $414
in 1996 and $409 in 1995 236 238
- ------------------------------------------------------------------------------------
$37,128 $35,834
====================================================================================
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)
June 30, December 31,
1996 1995
- ------------------------------------------------------------------------------------
Current liabilities
Current maturities of long-term debt and
capital lease obligations (Note 3) $ 5,854 $ 336
Accounts payable 4,852 6,157
Other current liabilities 2,778 3,483
- ------------------------------------------------------------------------------------
Total current liabilities 13,484 9,976
- ------------------------------------------------------------------------------------
Long-term debt and capital lease obligations, less
current maturities (Note 3) 32 5,715
Deferred income taxes 1,447 1,447
- ------------------------------------------------------------------------------------
14,963 17,138
- ------------------------------------------------------------------------------------
Stockholders' investment (Note 4)
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 - 7,614,046 shares at 1996 and
7,569,687 shares at 1995 76 76
Additional paid-in capital 20,019 19,972
Retained earnings/(accumulated deficit) 2,701 (749)
Treasury stock - 290,281 shares in 1996
and 279,281 shares in 1995, at cost (990) (935)
- ------------------------------------------------------------------------------------
21,806 18,364
Cumulative foreign currency translation adjustment 359 332
- ------------------------------------------------------------------------------------
Total stockholders' investment 22,165 18,696
- ------------------------------------------------------------------------------------
$37,128 $35,834
====================================================================================
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 JUNE 30, 1996 AND JULY 2, 1995
(Dollars in thousands, except share and per share data)
(Unaudited)
Three Months Ended. Six Months Ended.
----------------------- ------------------------
June 30, July 2, June 30, July 2,
1996 1995 1996 1995
- --------------------------------------------------------------------------------------------------
Net sales $ 11,746 $ 14,951 $ 23,494 $ 27,924
Cost of goods sold 6,985 8,204 13,485 14,976
- --------------------------------------------------------------------------------------------------
Gross profit 4,761 6,747 10,009 12,948
Operating expenses:
Selling, general and administrative 3,453 3,933 7,157 7,630
Research, development and engineering 904 1,101 1,941 2,060
- --------------------------------------------------------------------------------------------------
Income from operations 404 1,713 911 3,258
- --------------------------------------------------------------------------------------------------
Interest income 42 75 97 171
Interest expense (134) (143) (273) (293)
Net gain on sale of investment (note 5) 3,400 - 3,400 -
Other income, net 20 25 49 40
- --------------------------------------------------------------------------------------------------
Income before taxes 3,732 1,670 4,184 3,176
Income tax provision 639 311 734 661
- --------------------------------------------------------------------------------------------------
Net income 3,093 1,359 3,450 2,515
Dividends accrued - Class A and
Class AA redeemable preferred stock - 44 - 88
- --------------------------------------------------------------------------------------------------
Net income applicable to common
stockholders $ 3,093 $ 1,315 $ 3,450 2,427
==================================================================================================
Net income per share $ 0.42 $ 0.18 $ 0.47 $ 0.33
==================================================================================================
Weighted average number of shares
and share equivalents outstanding 7,338,702 7,328,120 7,336,686 7,294,924
==================================================================================================
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 JUNE 30, 1996
(Dollars in thousands)
(Unaudited)
RETAINED
ADDITIONAL EARNINGS/ CUMULATIVE TOTAL
COMMON PAID-IN (ACCUMULATED TREASURY TRANSLATION STOCKHOLDERS'
STOCK CAPITAL DEFICIT) STOCK ADJUSTMENT INVESTMENT
- --------------------------------------------------------------------------------------------------------
Balance,
beginning of
the period $76 $19,972 $ (749) $(935) $332 $18,696
Net income - - 3,450 - - 3,450
Sales of
common
stock - 47 - - - 47
Translation
adjustment - - - - 27 27
Purchases of
treasury
stock - - - (55) - (55)
- --------------------------------------------------------------------------------------------------------
Balance,
end of
the period $76 $20,019 $2,701 $(990) $359 $22,165
========================================================================================================
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 JUNE 30, 1996 AND JULY 2, 1995
(Dollars in thousands)
(Unaudited)
JUNE 30, JULY 2,
1996 1995
- -----------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 3,450 $ 2,515
Adjustments to reconcile net income to net cash from
operating activities -
Depreciation and amortization 414 343
Accounts receivable 1,915 (994)
Inventories (353) (3,061)
Other current assets (62) 584
Accounts payable (1,305) 2,151
Other current liabilities (705) (424)
Other assets (3) (6)
Net gain on sale of investment (note 5) (3,400) -
- -----------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities (49) 1,108
- -----------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of property, plant and equipment, net (237) (801)
Net proceeds from sale of investment (note 5) 6,876 -
- -----------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 6,390 (801)
- -----------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Principal payments under long-term debt and capital lease
obligations (165) (149)
Proceeds from issuance of common stock 47 172
Purchase of treasury stock (55) -
Redemption of Class A Preferred Stock (567)
Payments of preferred stock dividends - (358)
- -----------------------------------------------------------------------------------------------------
Net cash used in financing activities (173) (902)
- -----------------------------------------------------------------------------------------------------
Effect of exchange rates on cash 27 7
- -----------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 6,195 (588)
Cash and cash equivalents, at beginning of the period 6,145 6,896
- -----------------------------------------------------------------------------------------------------
Cash and cash equivalents, at end of the period $12,340 $ 6,308
=====================================================================================================
Supplemental disclosures of cash flow information
Cash paid (received/refunded) during the periods for -
Interest $ 273 $ 293
Income taxes 381 (200)
Supplemental schedule of noncash investing and financing activities
Accrual of preferred stock dividend $ - $ 88
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 June 30, 1996, the condensed
consolidated statement of stockholders' investment for the six months ended June
30, 1996, the condensed consolidated statement of cash flows for the six months
ended June 30, 1996 and July 2, 1995, and the related condensed consolidated
statements of operations for the three and six months ended June 30, 1996, and
July 2, 1995, 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, 1995, together with the auditors' report, included in
the Company's "1995 Annual Report," and filed in conjunction with Form 10K.
(2) Inventories
Inventories at June 30, 1996 and December 31, 1995 consisted of:
($000)
----------------------------
June 30, December 31,
1996 1995
- -------------------------------------------------------------------------------------------------------
Raw materials and manufactured components $ 5,140 $5,445
Work-in-process 3,575 3,712
Finished goods 1,537 742
=======================================================================================================
$10,252 $9,899
=======================================================================================================
(3) Debt
Debt at June 30, 1996 and December 31,1995 consisted of:
($000)
----------------------------
June 30, December 31,
1996 1995
- -------------------------------------------------------------------------------------------------------
9.0% Mortgage note payable $5,816 $5,962
Capital lease obligations, interest rates ranging from 6.9% to 15.6%,
net of interest of $7,000 and $10,000 in 1996 and 1995, respectively 70 89
- -------------------------------------------------------------------------------------------------------
5,886 6,051
Less-current maturities 5,854 336
- -------------------------------------------------------------------------------------------------------
$ 32 $5,715
=======================================================================================================
The mortgage has a balloon payment of $5,664,000 due at maturity on April
1, 1997. As of April 1, 1996 this entire obligation became short term. As a
result, the outstanding balance on the mortgage obligation has been
re-classified as a short term liability. The Company intends to refinance this
note before it becomes due in 1997.
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BTU INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
(4) Stock Option and Purchase Plans
The Company's 1993 Equity Incentive Plan provides for stock options for
selected key employees. Under the plan, options have been granted at prices not
less than fair market value at the date of the grant. A total of 314,723 shares
are eligible for future stock option grants, pursuant to the plan. Options
granted under the plan will expire over periods not to exceed ten years. Also
under the terms of the plan, other stock awards can be granted at the discretion
of the Company's Board of Directors. On April 16, 1996, 115,100 options were
granted at a price of $4.44 per share, and 12,000 options were granted at $4.88
per share. These options are exercisable in equal installments over the next
four years and expire on April 16, 2001. A total of 230,000 options have been
granted under this plan, since its inception in 1993.
Prior to 1993, the Company had a stock option plan for selected key
employees. As of June 30, 1996, no options were outstanding under this plan, and
no additional options can be granted under this plan.
The Company also has a stock option plan for certain directors of the
Company. The options are exercisable at a price not less than fair market value
at the date of grant. The options expire over seven years. As of June 30, 1996,
11,975 options were outstanding and 4,500 were available for future grants.
During the three months ended June 30, 1996, 37,400 options were exercised
at prices ranging from $1.50 to $2.00 per share. As of June 30, 1996, there were
48,330 options exercisable, at prices ranging from $1.38 to $5.88.
Net income per share has been calculated based on the weighted average
number of common and common equivalent shares outstanding during the periods
using the treasury stock method. Common equivalent shares include the assumed
exercise of stock options when the effect of such options is dilutive. The
proceeds from the exercise of options are deemed to be used to repurchase
outstanding common stock at fair market value.
The Company has an Employee Stock Purchase Plan. Under the terms of the
plan, employees are entitled to purchase shares of common stock at the lower of
85% of fair market value at the beginning or the end of each six month option
period. A total of 300,000 shares have been reserved for issuance under this
plan, of which 83,590 remain available at June 30, 1996. Including a purchase of
6,959 shares at June 30, 1996, a total of 216,410 shares have been purchased at
prices ranging from $0.85 to $4.83 per share.
(5) Investments in Joint Venture
The Company had a 19.4% ownership interest in Bruce Technologies
International, Inc. (BTI), which was accounted for using the cost method. On
June 8, 1996 the Company sold this investment for $7,000,000. As a result, the
Company recognized a gain on this investment of $3,400,000, net of direct costs.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net Sales - For the second quarter of 1996, net sales decreased by
$3,205,000, a decrease of 21% when compared to the second quarter of 1995. For
the first six months of 1996 sales decreased by $4,430,000, or 16%, when
compared to the same period in 1995. The decrease in sales for the first half of
1996 occurred in our high-end surface mount technology products, which are
primarily used by our top customers; most of which have significantly decreased
their capital expenditures. Sales for the Company's mid-range surface mount
technology products increased substantially, in part through sales to a
significant number of new customers. There have been no material variations in
the geographic dispersion of sales for the first half of 1996, as compared to
the same period in 1995.
Gross Profit - For the second quarter gross profit decreased by $1,986,000,
or 29%, versus the second quarter of 1995. As a percentage of sales, gross
profit decreased 4.6%, from 45.1% to 40.5%, for the second quarter of 1996,
versus the same quarter in 1995. For the first six months of 1996, gross profit
decreased by $2,939,000, or 23%, and gross profit as a percentage of sales
decreased by 3.8%, from 46.4% to 42.6%, as compared to the first half of 1995.
The decrease in margin dollars for the comparative periods was primarily due to
the overall decrease in revenues versus 1995; and to a lesser degree, due to
competitive pricing pressure. The decrease in margin percentage earned was
primarily due to the change in the mix of products sold in 1996, versus 1995;
from high-end to mid-range surface mount technology products.
Selling, General and Administrative - For the second quarter of 1996,
selling, general and administrative expense decreased by $480,000, or 12%, to
$3,453,000, as compared to the same period in 1995. For the first six months of
1996, selling, general and administrative expense decreased by $473,000, or 6%,
when compared to the first six months of 1995. The net decrease in these
expenses was the result of increases or decreases in certain components of
expense, as follows: profit sharing bonuses decreased by $62,000 for the second
quarter and $234,000 for the first six months of 1996, as the Company did not
reach the profitability target for these bonuses and no amounts have been earned
in the current year; lower sales commissions were incurred related to the lower
sales volumes for the second quarter and first half of 1996, and as a result,
commissions expense decreased by $363,000 for the second quarter and $496,000
for the first half year, as compared to 1995; a $104,000 decrease in warranty
costs for the second quarter of 1996, compared to the second quarter of 1995; a
$126,000 increase in advertising and trade show costs for the first six months
of 1996, and; an increase in travel for service and installation to support our
increasing international presence of $75,000 for the second quarter and $120,000
for the first six months, when comparing like periods in 1996 versus 1995.
Research, Development and Engineering - Expenses for the second quarter and
first six months of 1996 decreased by $197,000, or 18%, and $119,000, or 6%, as
compared to the same periods in 1995. The decrease in expense in the second
quarter of 1996 (and its impact on the first six months of 1996) is due to the
costs associated with the timing of new product development and introduction.
The Company continues to focus its development on new products to meet our
customer's needs.
Interest Income - In the second quarter and first six months of 1996
interest income decreased by $33,000, or 44%, and $74,000, or 43%, respectively,
as compared to the same periods in 1995. The decreases are the result of lower
average invested cash balances during the periods, as compared to last year.
Interest Expense - Interest expense decreased by $9,000, or 6%, for the
second quarter of 1996, and by $20,000, or 7%, for the first six months, as
compared to the same periods in 1995. The slight decrease in expense is due to
the lower level of interest due on the mortgage as its principal balance
decreases.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Net Gain on Sale of Investment - During the second quarter of 1996 the
Company sold its 19.4% interest in Bruce Technologies International (BTI) for
$7,000,000. The resulting $3,400,000 net gain on this transaction represents a
significant change in net income for the Company in 1996, versus 1995. The after
tax effect of this transaction accounted for $0.38 per share in net income
during the second quarter.
Income Taxes - Income tax expense increased by $328,000, or 105%, for the
second quarter of 1996, and by $73,000, or 11%, for the first half of 1996, as
compared to the same periods in 1995. The increase relates directly to the
profit earned on the Company's sale of its investment in BTI. The effective tax
rate for the second quarter of 1996 was 17%, as compared to an effective tax
rate for the second quarter of 1995 of 19%. The effective tax rate for the first
half year in 1996 and 1995 was 18% and 21%, respectively. During the first half
of 1996 and 1995, the Company has recorded the benefit of net operating losses
(NOL) utilized, resulting in rates that are lower than the combined statutory
tax rates.
Since the Company has generated income over the past few years, the ability
to utilize a portion of the NOL carryforward in the future continues to be
demonstrated. During the six months ended June 30, 1996 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
During the second quarter of 1996, the Company's cash position increased by
$7.0 million, to $12.3 million. This $7.0 million increase resulted from the
sale of the Company's $3.5 million investment in Bruce Technologies
International, Inc. (see note 5).
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 the Eurodollar Revolving Credit
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
prime rate or the Eurodollar rate, and must be repaid over a period not to
exceed 84 months. At June 30, 1996, no amounts were outstanding under either of
these loan agreements.
The current mortgage had an outstanding balance of $5,816,000 at June 30,
1996. This mortgage has an annual interest rate of 9% with a balloon payment of
$5,664,000 due at maturity on April 1, 1997. As of April 1, 1996 this obligation
became short term. As a result, the obligation has been re-classified as a short
term liability. The Company intends to refinance this note before it becomes due
in 1997.
During the first quarter of 1996, the Company expanded its product line by
introducing a new high end SMT system. Additionally, the Company's operating
plan, at that time, prepared for a greater level of revenue than actually
occurred. The combination of these two factors resulted in an increase in
inventories of over $1.3 million at the end of the first quarter. During the
second quarter the Company restricted its funding of inventory purchases and
successfully reduced its overall inventory level by $1.0 million. However, the
level of finished goods inventory increased by $800,000 in the first six months
of 1996; reflecting an expansion in the number of product lines offered, and
compounded by lower than anticipated sales for the first two quarters. The
accounts receivable balance has decreased by $1.9 million for the first half of
1996, as a result of the decrease in sales volume for the period. In addition,
as of June 30, 1996, our accounts payable balance decreased by $1.3 million
dollars from December 31, 1995, which reflects the second quarter reduction in
inventory purchases, as well as the results of efforts to minimize other
operating costs. Accrued expenses decreased by $0.7 million dollars in the first
half year as a result
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
of payments made during the period on certain obligations related to bonuses
payments for the year 1995, and income taxes for the year 1995 and first quarter
of 1996. 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.
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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 12, 1996 BY: /s/ Paul J. van der Wansem
---------------------------------------
Paul J. van der Wansem
President, Chief Executive Officer
(principal executive officer) and Director
DATE: August 12, 1996 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 17, 1996.
(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 J. van der Wansem 7,224,338 31,491
Alexander V. D'Arbeloff 7,221,721 34,108
David A.B. Brown 7,224,638 31,191
J. Chuan Chu 7,187,727 68,102
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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