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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, 2002
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 9,
2002: 6,911,211 shares.
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 Loss 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
BTU INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
ASSETS
(Unaudited)
June 30, December 31,
2002 2001
- ---------------------------------------------------------------------------------------------------
Current assets
Cash and cash equivalents $ 12,298 $ 15,716
Accounts receivable, less reserves of $314 at
June 30, 2002 and $230 at December 31, 2001 9,136 5,626
Inventories (Note 2) 6,766 9,051
Refundable income taxes - 1,459
Deferred income taxes 897 -
Other current assets 478 557
- ---------------------------------------------------------------------------------------------------
Total current assets 29,575 32,409
- ---------------------------------------------------------------------------------------------------
Property, plant and equipment, at cost
Land 210 210
Buildings and improvements 7,805 7,805
Machinery and equipment 7,726 7,626
Furniture and fixtures 860 853
- ---------------------------------------------------------------------------------------------------
16,601 16,494
Less-Accumulated depreciation 12,062 11,376
- ---------------------------------------------------------------------------------------------------
Net property, plant and equipment 4,539 5,118
Other assets, net of accumulated amortization of $458 at
June 30, 2002 and $455 at December 31, 2001 332 309
- ---------------------------------------------------------------------------------------------------
$34,446 $37,836
===================================================================================================
The accompanying notes are an integral part of these condensed
consolidated financial statements.
1
BTU INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands except share data)
LIABILITIES AND STOCKHOLDERS' EQUITY
(Unaudited)
June 30, December 31,
2002 2001
- -----------------------------------------------------------------------------------------------------
Current liabilities
Current maturities of long-term debt and
capital lease obligations (Note 3) $ 330 $ 297
Accounts payable 2,532 2,846
Other current liabilities 2,252 2,695
- -----------------------------------------------------------------------------------------------------
Total current liabilities 5,114 5,838
- -----------------------------------------------------------------------------------------------------
Long-term debt and capital lease obligations, less
current maturities (Note 3) 4,190 4,347
- -----------------------------------------------------------------------------------------------------
9,304 10,185
- -----------------------------------------------------------------------------------------------------
Stockholders' Equity (Note 4)
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 - 8,040,221, outstanding 6,893,111
at June 30, 2002 and
Issued - 7,975,419, outstanding 6,833,309
at December 31, 2001 80 80
Additional paid-in capital 21,689 21,458
Accumulated earnings 7,341 10,107
Treasury stock- at cost, 1,147,110 shares at
June 30, 2002 and 1,142,110 shares at
December 31, 2001 (4,172) (4,150)
Accumulated other comprehensive income 204 156
- -----------------------------------------------------------------------------------------------------
Total stockholders' equity 25,142 27,651
- -----------------------------------------------------------------------------------------------------
$34,446 $37,836
=====================================================================================================
The accompanying notes are an integral part of these condensed
consolidated financial statements.
2
BTU INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATION
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2002 AND JULY 1, 2001
(in thousands, except share and per share data)
(Unaudited)
Three Months Ended Six Months Ended_
--------------------- -----------------------
June 30, July 1, June 30, July 1,
2002 2001 2002 2001
- -----------------------------------------------------------------------------------------------------------
Net sales $9,360 $14,037 $17,868 $30,618
Cost of goods sold 6,239 10,831 12,179 20,700
- -----------------------------------------------------------------------------------------------------------
Gross profit 3,121 3,206 5,689 9,918
Operating expenses:
Selling, general and administrative 3,835 4,254 7,419 9,345
Research, development and engineering 911 1,383 1,858 2,884
- -----------------------------------------------------------------------------------------------------------
Loss from operations (1,625) (2,431) (3,588) (2,311)
- -----------------------------------------------------------------------------------------------------------
Interest income 54 106 110 204
Interest expense (93) (153) (187) (253)
Other income (expense), net 2 (11) 2 (6)
- -----------------------------------------------------------------------------------------------------------
Loss before taxes (1,662) (2,489) (3,663) (2,366)
Income tax benefit (197) (921) (897) (875)
- -----------------------------------------------------------------------------------------------------------
Net loss $(1,465) $(1,568) $(2,766) $(1,491)
===========================================================================================================
Loss Per Share:
Basic $(0.21) $(0.23) $(0.40) $(0.21)
Diluted $(0.21) $(0.23) $(0.40) $(0.21)
===========================================================================================================
Weighted Average Number of Shares Outstanding:
Basic 6,870,244 6,966,509 6,855,551 6,952,798
Effect of Dilutive Options 0 0 0 0
- -----------------------------------------------------------------------------------------------------------
Diluted Shares 6,870,244 6,966,509 6,855,551 6,952,798
===========================================================================================================
The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
BTU INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2002
(in thousands)
(Unaudited)
Accumulated
Additional Other Total
Common Paid - In Accumulated Treasury Comprehensive Stockholders'
Stock Capital Earnings Stock Income Equity
- ----------------------------------------------------------------------------------------------------------
Balance at
Dec. 31, 2001 $80 $21,458 $10,107 $(4,150) $156 $27,651
Net loss - - (2,766) - - (2,766)
Sale of common
stock and exercise
of stock options - 200 - - - 200
Purchase of
Treasury Stock - - - (22) - (22)
Amortization of
Deferred
Compensation - 31 - - - 31
Foreign currency
Translation
Adjustment - - - - 48 48
- ----------------------------------------------------------------------------------------------------------
Balance at
June 30, 2002 $80 $21,689 $7,341 $(4,172) $204 $25,142
==========================================================================================================
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2002 AND JULY 1, 2001
(in thousands)
(Unaudited)
Three Months Ended Six Months Ended
--------------------- ------------------------
June 30, July 1, June 30, July 1,
2002 2001 2002 2001
- ----------------------------------------------------------------------------------------------------------
Net Loss $ (1,465) $ (1,568) $ (2,766) $ (1,491)
Other comprehensive income (loss)
Foreign currency translation adjustment 53 (52) 48 (8)
- ----------------------------------------------------------------------------------------------------------
Comprehensive Loss $ (1,412) $ (1,620) $ (2,718) $ (1,499)
=========================================================================================================
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
BTU INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND JULY 1, 2001
(in thousands)
(Unaudited)
June 30, July 1,
2002 2001
- -----------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net loss $ (2,766) $ (1,491)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities -
Depreciation and amortization 686 736
Deferred Compensation 31 -
Net changes in operating assets and liabilities-
Accounts receivable (3,510) 6,095
Inventories 2,285 3,416
Other current assets 641 (859)
Other assets 4 (4)
Accounts payable (314) (3,605)
Other current liabilities (443) (1,910)
- -----------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities (3,386) 2,378
- -----------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of property, plant and equipment, net (107) (262)
- -----------------------------------------------------------------------------------------------------
Net cash used in investing activities (107) (262)
- -----------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Principal payments under long-term debt and capital lease
obligations (124) (133)
Payments for debt refinancing (27) -
Proceeds from issuance of Common Stock
and Exercise of stock options 200 102
Purchase of treasury stock (22) (59)
- -----------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 27 (90)
- -----------------------------------------------------------------------------------------------------
Effect of exchange rates on cash 48 (8)
- -----------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (3,418) 2,018
Cash and cash equivalents, at beginning of the period 15,716 8,886
- -----------------------------------------------------------------------------------------------------
Cash and cash equivalents, at end of the period $ 12,298 $ 10,904
=====================================================================================================
Supplemental disclosures of cash flow information
Cash paid during the periods for -
Interest $187 $253
Income taxes 35 378
The accompanying notes are an integral part of these condensed
consolidated financial statements.
5
BTU INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Basis for presentation
The condensed consolidated balance sheet as of June 30, 2002, the condensed
consolidated statement of stockholders' equity for the six months ended June 30,
2002, the condensed consolidated statements of cash flows for the six months
ended June 30, 2002 and July 1, 2001, the consolidated statements of
comprehensive loss for the three and six months ended June 30, 2002 and July 1,
2001 and the related condensed consolidated statements of operations for the
three and six months ended June 30, 2002 and July 1, 2001 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, 2001,
together with the auditors' report, included in the Company's Annual Report for
2001 on Form 10-K, as filed with the Securities and Exchange Commission.
(2) Inventories
Inventories at June 30, 2002 and December 31, 2001 consisted of:
(in thousands)
-----------------------------------
June 30, December 31,
2002 2001
- -------------------------------------------------------------------------------
Raw materials and manufactured components $ 3,715 $ 4,903
Work-in-process 2,145 3,026
Finished goods 906 1,122
- -------------------------------------------------------------------------------
$6,766 $ 9,051
===============================================================================
(3) Debt
Debt at June 30, 2002 and December 31, 2001 consisted of:
(in thousands)
-------------------------------
June 30, December 31,
2002 2001
- -------------------------------------------------------------------------------------------------------
Mortgage note payable $ 4,444 $ 4,560
Capital Lease obligations, interest rates ranging from 10.2% to 10.3%,
net of interest of $19 and $21 in 2002 and 2001, respectively 76 84
- -------------------------------------------------------------------------------------------------------
4,520 4,644
Less-current maturities 330 297
- -------------------------------------------------------------------------------------------------------
$ 4,190 $ 4,347
=======================================================================================================
The mortgage note payable is secured by the Company's land and building and
requires 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.
The company negotiated a new unsecured revolving line of credit as of June
26, 2002, that allows for aggregate borrowings, including letters of credit, up
to $14.0 million. We may elect to borrow at interest rates pegged to either the
bank's base rate or the LIBOR rate in effect from time to time. This loan
agreement extends to May 31, 2006 and is subject to certain financial covenants
for which the Company is in compliance. No borrowings were outstanding under
this agreement.
6
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. The number of shares for which options were outstanding, and which were
not included in the determination of diluted EPS at June 30, 2002 and July 1,
2001 because they were antidilutive, were 969,300 and 898,778 respectively.
(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 processing
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 electronic manufacturing
service providers.
(6) Percentage Completion Revenue
The Company has certain sales transactions for projects, which are not
completed within the normal operating cycle of the business. These contracts are
accounted for on a percentage completion basis.
Under the percentage completion method, revenues are recognized based upon
the ratio of costs incurred to the total estimated costs. Revisions in costs and
profit estimates are reflected in the period in which the facts causing the
revision become known. Provisions for total estimated losses on uncompleted
contracts, if any, are made in the period in which such losses are determined.
For the six months ended June 30, 2002, $252,717 of revenue was recognized using
the percentage of completion method. For the six months ended July 1, 2001,
$2,681,000 of revenue recognized using the percentage of completion method.
7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net Sales. Net sales decreased 33.3% from $14.0 million in the second
quarter of 2001 to $9.4 million in the second quarter of 2002. For the first six
months net sales decreased 41.6% from $30.6 million in 2001 to $17.9 million in
2002. The decrease in both the second quarter and first six months of 2002 was
primarily a result of continued decreases in the electronics market as compared
to the first half of 2001.
When comparing the second quarter of 2002 to the second quarter of 2001,
the percentage of net sales attributable to our customers in the United States
decreased by .6%, net sales attributable to our customers in Europe increased by
7.4%, net sales attributable to our Asia Pacific customers decreased by 4.7%,
and net sales attributable to our customer in the Other Americas decreased by
2.1%. Comparing the first six months of 2002 to the first six months of 2001,
the percentage of net sales attributable to our customers in the United States
decreased by .2%, net sales attributable to our customers in Europe decreased by
1.1%, net sales attributable to our Asia Pacific customers increased by 2.0%,
and net sales attributable to our customer in the Other Americas decreased by
0.7%. The effect of price changes for specific products have had a negative
impact on the change in net sales for the periods presented.
Gross Profit. Gross profit decreased 2.7% from $3.2 million in the second
quarter of 2001 to $3.1 million in the second quarter of 2002, and as a
percentage of net sales, increased from 22.8% to 33.3%. The second quarter of
2001 gross profit percentage excluding a $2.0 million inventory write-down was
37.1%.The decrease in gross profit and gross profit percentage is a direct
result of decreased demand for products in the electronics marketplace. This
decrease demand resulted in significant price pressure and under absorption of
costs, resulting in lower gross margin percentages.
Selling, General and Administrative. Selling, general and administrative
decreased 9.8% from $ 4.3 million in the second quarter of 2001 to $ 3.8 million
in the second quarter of 2002. As a percentage of net sales, selling, general,
and administrative increased from 30.3% in second quarter 2001 to 41.0% in the
second quarter of 2002. For the first six months of 2002, selling, general and
administrative decreased 20.6% from $9.3 million in 2001 to $7.4 million, and
increased as a percentage of net sales from 30.5% in the first six months of
2001 to 41.5% for the same period in 2002. The decreases in costs in both the
second quarter and first six months of 2002 was primarily the result of lower
commissions paid on the lower sales volume, reduction in personnel and related
overhead expenses. However, these decreases failed to offset the substantial
decrease in net sales.
Research, Development and Engineering. Research, development and
engineering decreased 34.1% from $1.4 million in the second quarter of 2001 to
$911,000 in the second quarter of 2002 and as a percentage of net sales,
decreased slightly from 9.9% to 9.7% for the same periods. For the first six
months of 2002 research, development and engineering decreased 35.6% from $2.9
million in 2001 to $1.9 million in 2002, and as a percentage of net sales
increased from 9.4% in 2001 to 10.4% in 2002. In both the second quarter and
first six months of 2002, the Company continued our support in new product
development, but at reduced levels given the current economic climate.
Operating Income. The operating loss for the second quarter of 2002 was
$1.6 million, compared to a loss of $2.4 million for the same period in 2001.
The second quarter loss in 2001 included a $2.0 million write-down of inventory.
For the first six-month period, the operating loss was $3.6 million in 2002
versus a loss of $2.3 million in 2001. This decrease is the result of the sales
decline, lower gross margins and higher operating costs as a percentage of
sales.
Income Taxes. The income tax benefit for the second quarter of 2002 was
$197,000 or 11.9%, versus a tax benefit of $921,000 or 37% for the same period
in 2001. For the first six months of 2002, the income tax benefit was $897,000
or 24.5%, which the Company believes to be the average tax benefit during the
current fiscal year, compared to a tax benefit of $875,000 or 37% for the same
period in 2001. The 24.5% tax benefit is due to the limitation of the
availability of the Company's NOL carryback. The Company is in a position of
creating NOL carryforward for which the Company is not recording any benefit at
this time. The Company's statutory federal income tax rate is 34%.
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2002, we had $12.3 million in cash and cash equivalents.
The company negotiated a new unsecured revolving line of credit as of June
26, 2002, that allows for aggregate borrowings, including letters of credit, up
to a maximum of $14.0 million against a borrowing base of all assets except real
estate. We may elect to borrow at interest rates pegged to either the bank's
base rate or the LIBOR rate in effect from time to time. This loan agreement
extends to May 31, 2006 and is subject to certain financial covenants for which
the Company is in compliance. No borrowings were outstanding under this
agreement.
We have a mortgage note that is secured by our real property. The mortgage
note had an outstanding balance at June 30, 2002 of approximately $4.4 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.
During the six months ended June 30, 2002, the Company used cash resources
of $3.4 million. This use of cash was primarily the result of net losses of $2.8
million and an increase in accounts receivable of $3.5 million. These uses of
cash were offset by decreases in inventory of $2.3 million and other current
assets of $0.6 million.
We expect that our current cash position and our ability to borrow
necessary funds will be sufficient to meet our corporate, operating and capital
requirements into 2003.
Other matters
The impact of inflation and the effect of foreign exchange rate changes
during 2002 has had an immaterial impact on our business and financial results.
RECENT ACCOUNTING DEVELOPMENTS
See 2001 Annual Report on Form 10-K, on file with the SEC.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
FORWARD LOOKING STATEMENTS
This report, other than historical financial information, includes
forward-looking statements that involve known and unknown risks and
uncertainties, including quarterly fluctuations in results. Such statements are
made pursuant to the "safe harbor" provisions established by recent securities
legislation, and are based on the assumptions and expectations of the Company's
management at the time such statements are made. Important factors that could
cause actual results to differ include the timely availability and acceptance of
new products, general market conditions governing supply and demand, the impact
of competitive products and pricing and other risks detailed in the Company's
filings with the Securities and Exchange Commission. Actual results may vary
materially. Accordingly, you should not place undue reliance on any forward
looking statements. Unless otherwise required by law, the Company disclaims any
obligation to revise or update such forward looking statements in order to
reflect future events or developments.
10
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 14, 2002 BY: /s/ Mark R. Rosenzweig
----------------------
Mark R. Rosenzweig
President, Chief Executive Officer
(principal executive officer) and Director
DATE August 14, 2002 BY: /s/ Thomas P. Kealy
-------------------
Thomas P. Kealy
Vice President, Corporate Controller and
Chief Accounting Officer (principal
financial and accounting officer)
11
PART II. OTHER INFORMATION
Item 4. Submission of Matters to Vote Security Holders
(a) The annual meeting of stockholders was held on May 17, 2002.
(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 6,322,689 82,345
David A.B. Brown 6,368,389 36,645
J. Chuan Chu 6,368,089 36,945
Joseph F. Wrinn 6,367,139 37,895
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10.50 -Loan Agreement dated June 26, 2002 with
Sovereign Bank Exhibit 11.0 - Calculation of net income per
common and common equivalent share. Exhibit 99.1 - Section
906 Certification Exhibit 99.2 - Section 906 Certification
(b) Reports on Form 8-K
On June 14, 2002, the Company filed a Current Report on Form
8-K to report the dismissal of Arthur Andersen LLP as the
Company's independent auditors.
On June 28, 2002, the Company filed a Current Report on Form
8-K to report the appointment of Vitale, Caturano & Company PC
as the Company's new independent auditors.
12