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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 3, 2004
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 by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [ ] No [X]
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 12, 2004: 7,196,163 shares.
BTU INTERNATIONAL, INC.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
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 6-8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 9-11
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 4. CONTROLS AND PROCEDURES
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 12
SIGNATURES 13
BTU INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(Unaudited)
October 3, December 31,
2004 2003
----------- ------------
ASSETS
Current assets
Cash and cash equivalents $ 754 $ 6,659
Accounts receivable, less reserves of $172 14,448 6,073
Inventories (Note 2) 14,498 7,795
Other current assets 686 469
--------- ---------
Total current assets 30,386 20,996
--------- ---------
Property, plant and equipment, at cost
Land 210 210
Buildings and improvements 8,000 7,983
Machinery and equipment 7,766 7,597
Furniture and fixtures 878 866
--------- ---------
16,854 16,656
Less-Accumulated depreciation 14,058 13,366
--------- ---------
Net property, plant and equipment 2,796 3,290
Other assets, net of accumulated amortization of $353 at
October 3, 2004 and $250 at December 31, 2003 847 1,368
--------- ---------
$ 34,029 $ 25,654
========= =========
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)
(Unaudited)
October 3, December 31,
2004 2003
----------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt and
capital lease obligations (Note 3) $ 171 $ 160
Borrowings under line of credit 6,489 -
Current portion of long-term deferred
compensation 667 200
Accounts payable 6,967 2,560
Accrued expenses 3,507 2,016
--------- ---------
Total current liabilities 17,801 4,936
--------- ---------
Long-term debt and capital lease obligations, less
current maturities (Note 3) 5,333 5,440
Long-term deferred compensation, less current maturities 313 458
--------- ---------
23,447 10,834
--------- ---------
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 - 8,345,173, outstanding 7,196,163
at October 3, 2004 and
Issued - 8,293,958, outstanding 7,144,948
at December 31, 2003 83 83
Additional paid-in capital 22,500 22,349
Deferred compensation - (18)
Accumulated losses (8,045) (3,794)
Treasury stock- at cost, 1,149,010 shares at
October 3, 2004 and December 31, 2003 (4,177) (4,177)
Accumulated other comprehensive income 221 377
--------- ---------
Total stockholders' equity 10,582 14,820
--------- ---------
$ 34,029 $ 25,654
========= =========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
2
BTU INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED OCTOBER 3, 2004 AND SEPTEMBER 28, 2003
(in thousands, except share and per share data)
(Unaudited)
Three Months Ended Nine Months Ended
--------------------------- ---------------------------
Oct. 3, Sept. 28, Oct. 3, Sept. 28,
2004 2003 2004 2003
----------- ----------- ----------- -----------
Net sales $ 15,419 $ 6,738 $ 41,014 $ 20,698
Cost of goods sold 11,892 5,370 31,570 15,932
----------- ----------- ----------- -----------
Gross profit 3,527 1,368 9,444 4,766
Operating expenses:
Selling, general and administrative 3,228 2,165 8,965 7,468
Research, development and engineering 890 745 2,788 2,393
Restructuring charges 1,648 - 1,648 190
----------- ----------- ----------- -----------
Loss from operations (2,239) (1,542) (3,957) (5,285)
----------- ----------- ----------- -----------
Interest income 2 7 5 60
Interest expense (142) (84) (302) (257)
Other income, net - 2 3 7
----------- ----------- ----------- -----------
Loss before income tax benefit (2,379) (1,617) (4,251) (5,475)
Income tax benefit - - - (222)
----------- ----------- ----------- -----------
Net loss $ (2,379) $ (1,617) $ (4,251) $ (5,253)
=========== =========== =========== ===========
Loss Per Share:
Basic and Diluted $ (0.33) $ (0.23) $ (0.59) $ (0.75)
=========== =========== =========== ===========
Weighted Average Number of
Shares Outstanding:
Basic and Diluted Shares 7,196,023 7,030,140 7,181,381 7,011,834
=========== =========== =========== ===========
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 NINE MONTHS ENDED OCTOBER 3, 2004
(in thousands)
(Unaudited)
ACCUMULATED
ADDITIONAL OTHER TOTAL
COMMON PAID-IN DEFERRED ACCUMULATED TREASURY COMPREHENSIVE STOCKHOLDERS'
STOCK CAPITAL COMP. LOSSES STOCK INCOME EQUITY
-------- ---------- -------- ----------- -------- ------------- -------------
Balance at
Dec. 31, 2003 $ 83 $ 22,349 $ (18) $ (3,794) $ (4,177) $ 377 $ 14,820
Net loss - - - (4,251) - - (4,251)
Exercise of Stock
options - 151 - - - - 151
Translation
Adjustment - - - - - (156) (156)
Deferred
Compensation - - 18 - - - 18
-------- -------- -------- -------- -------- -------- --------
Balance at
Oct. 3,2004 $ 83 $ 22,500 $ - $ (8,045) $ (4,177) $ 221 $ 10,582
======== ======== ======== ======== ======== ======== ========
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
FOR THE THREE AND NINE MONTHS ENDED OCTOBER 3, 2004 AND
SEPTEMBER 28, 2003
(in thousands)
(Unaudited)
Three Months Ended Nine Months Ended
--------------------- --------------------
Oct. 3, Sept. 28, Oct. 3, Sept. 28,
2004 2003 2004 2003
-------- --------- -------- ---------
Net Loss $ (2,379) $ (1,617) $ (4,251) $ (5,253)
Other comprehensive income (loss):
Foreign currency translation adjustment (18) 18 (156) (25)
-------- --------- -------- ---------
Comprehensive Loss $ (2,397) $ (1,599) $ (4,407) $ (5,278)
======== ========= ======== =========
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 NINE MONTHS ENDED OCTOBER 3, 2004 AND SEPTEMBER 28, 2003
(in thousands)
(Unaudited)
October 3, September 28,
2004 2003
---------- -------------
Cash flows from operating activities:
Net loss $ (4,251) $ (5,253)
Adjustments to reconcile net income to net cash
used in operating activities -
Depreciation and amortization 694 863
Stock based compensation 18 43
Net changes in operating assets and liabilities-
Accounts receivable (8,375) (1,341)
Inventories (6,703) (632)
Other current assets (217) (270)
Refundable income taxes - 1,700
Other assets 520 (6)
Accounts payable 4,407 (473)
Accrued expenses 1,491 (93)
Deferred compensation 321 (149)
--------- ---------
Net cash used in operating activities (12,095) (5,611)
--------- ---------
Cash flows from investing activities:
Purchases of property, plant and equipment (198) (255)
Cash paid for acquisition - (380)
--------- ---------
Net cash used in investing activities (198) (635)
--------- ---------
Cash flows from financing activities:
Principal payments under long-term debt and capital lease
obligations (96) (254)
Borrowings against line of credit 6,489 -
Payments for debt refinancing - -
Proceeds from issuance of Common Stock
and Exercise of stock options 151 338
--------- ---------
Net cash provided by financing activities 6,544 84
--------- ---------
Effect of exchange rates on cash (156) (25)
--------- ---------
Net decrease in cash and cash equivalents (5,905) (6,187)
Cash and cash equivalents, at beginning of the period 6,659 13,847
--------- ---------
Cash and cash equivalents, at end of the period $ 754 $ 7,660
========= =========
Supplemental disclosures of cash flow information
Cash paid (received) during the periods for -
Interest $ 302 $ 257
Income taxes - (1,700)
Non-cash disclosure:
Fair value of assets acquired - 540
Less fair value of liabilities assumed - (160)
--------- ---------
Cash paid - 380
--------- ---------
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 sheets as of October 3, 2004 and
December 31, 2003, the related condensed consolidated statements of operations
for the three and nine months ended October 3, 2004 and September 28, 2003, the
condensed consolidated statement of stockholders' equity for the nine months
ended October 3, 2004, the condensed consolidated statements of cash flows for
the nine months ended October 3, 2004 and September 28, 2003, and the
consolidated statements of comprehensive loss for the three and nine months
ended October 3, 2004 and September 28, 2003 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 as of, and for the period ended December 31,
2003, together with the auditors' report, included in the Company's Annual
Report on Form 10-K, as filed with the Securities and Exchange Commission.
(2) Inventories
Inventories at October 3, 2004 and December 31, 2003 consisted of:
(in thousands)
---------------------------
October 3, December 31,
2004 2003
---------- ------------
Raw materials and manufactured components $ 7,769 $ 3,881
Work-in-process 4,390 2,358
Finished goods 2,339 1,556
---------- ------------
$ 14,498 $ 7,795
========== ============
(3) Debt
Long-Term Debt at October 3, 2004 and December 31, 2003 consisted of:
(in thousands)
-------------------------
October 3, December 31,
2004 2003
---------- ------------
Mortgage note payable $ 5,481 $ 5,600
Capital lease obligations, interest rate of 6.75% 23 -
------- -------
5,504 5,600
Less-current maturities 171 160
------- -------
$ 5,333 $ 5,440
======= =======
The mortgage note payable is secured by the Company's land and building in
Billerica, MA and requires monthly payments of $38,269, including interest at
5.42%. This mortgage note payable has a balloon payment of $5,100,000 due and
payable at maturity on December 26, 2006.
The Company has a secured revolving line of credit with a US bank that
allows for aggregate borrowings, including letters of credit, up to a maximum of
$14 million against a borrowing base of secured accounts receivable and
inventory. Borrowings outstanding under this agreement at October 3, 2004, were
$6.5 million; at which time the available funds on the borrowing base formula
were $10.8 million.
This loan agreement extends to May 31, 2007 and is subject to maintaining
certain financial covenants. As a result of our decrease in tangible net worth
following the write-off of the $1.6 million restructuring charge and the
increase in borrowings during the third quarter, the Company was out of
compliance at the end of Q3 2004 with its total liabilities to tangible net
worth covenant. The Bank has offered to waive the non-compliance as of the end
of the third quarter, and the Bank and the Company are currently discussing the
terms of that waiver.
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. Options outstanding, which were not included in the determination of
diluted EPS for the three months and nine months ended October 3, 2004 and
September 28, 2003 because they were antidilutive, were 1,148,939 and 1,110,986
respectively.
The Company applies Accounting Principles Board Opinion No. 25 and related
Interpretations in accounting for its stock option and purchase plans.
Accordingly, no compensation cost has been recognized related to the plans. Had
compensation cost for the plans been determined based on the fair value at the
grant dates for the awards under these plans consistent with SFAS No. 123,
"Accounting for Stock-Based Compensation," the Company's net loss and net loss
per share would be the pro forma amounts indicated below:
Three Months Ended Nine Months Ended
----------------------------- -----------------------------
October 3, September 28, October 3, September 28,
2004 2003 2004 2003
----------- ------------- ----------- -------------
Net Income (loss):
As reported.............. $ (2,379) $ (1,617) $ (4,251) $ (5,253)
Pro forma................ (2,472) (1,689) (4,530) (5,469)
Income per basic share:
As reported.............. $ (0.33) $ (0.23) $ (0.59) $ (0.75)
Pro forma................ (0.34) (0.24) (0.63) (0.78)
Income per diluted share:
As reported.............. $ (0.33) $ (0.23) $ (0.59) $ (0.75)
Pro forma................ (0.34) (0.24) (0.63) (0.78)
(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.
7
BTU INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
(6) Revenue Recognition
The Company recognizes revenue in accordance with the Securities and
Exchange Commission (SEC) Staff Accounting Bulletin (SAB) No. 101, "Revenue
Recognition in Financial Statements," as amended by SAB No. 104. Under SAB No.
101, when the terms of sale include customer acceptance provisions, and
compliance with those provisions cannot be demonstrated until customer use,
revenues are recognized upon acceptance. Furthermore, revenues for products that
require installation for which the installation is essential to functionality or
is not deemed inconsequential or perfunctory are recognized upon completion of
installation. Revenues for products sold where installation is not essential to
functionality and is deemed inconsequential or perfunctory are recognized upon
shipment with estimated installation and warranty costs accrued.
The Company also has certain sales transactions for projects that are not
completed within the normal operating cycle of the business. These contracts are
accounted for on a percentage of 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 nine months ended October 3, 2004, $1,570,165 of revenue was
recognized using the percentage of completion method. For the nine months ended
September 28, 2003 there was no revenue recognized using the percentage of
completion method.
The Company accounts for shipping and handling costs billed to customers
in accordance with Emerging Issues Task Force (EITF) Issue 00-10 "Accounting for
Shipping and Handling Fees and Cost". Amounts billed to customers for shipping
and handling costs are reclassified as revenues with the associated costs
reported as cost of goods sold.
(7) Restructuring Charges
The Company recorded a $1,648,000 restructuring charge in the third
quarter of 2004. These charges are the result of a redirection of development
programs, resulting in the write-off of assets including the impairment of
goodwill from an acquisition, and severance costs, primarily related to the
departure of the previous CEO. The restructuring charge consisted of:
(in thousands)
Write-off of the Sagarus Acquisition - Goodwill, Intellectual Property and $1,281
Inventory 367
Severance costs ------
Total Restructuring Charge $1,648
======
The Company recorded a $190,000 restructuring charge in the second quarter
2003. This charge was solely related to severance costs associated with the
reduction of employees.
(8) Acquisition
In the second quarter of 2003, the Company acquired the assets of Sagarus
Robotics Corporation. See note (7) above.
8
BTU INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
(9) Product Warranty Costs
The Company provides standard warranty coverage for parts and labor for 12
months and special extended material only coverage on certain other products.
The Company sets aside a reserve, charged to cost of sales, based on anticipated
warranty claims at the time product revenue is recognized. The reserve for
warranty covers the estimated costs of material, labor and travel. Actual
warranty claims incurred are charged against the accrual. Factors that affect
the Company's product warranty liability include the number of installed units,
the anticipated cost of warranty repairs and historical and anticipated rates of
warranty claims.
The following table reflects changes in the Company's accrued warranty account
during the first nine months ended October 3, 2004:
2004
(in thousands) ------
Beginning Balance, December 31, 2003 $ 635
Plus accruals related to new sales 726
Less: warranty claims incurred (480)
Less: amortization of prior period accruals (246)
------
Ending Balance, October 3, 2004 $ 635
======
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net Sales. Net sales increased 128.8% from $6.7 million in the third
quarter of 2003 to $15.4 million in the third quarter of 2004. For the first
nine months net sales increased 98.2% from $20.7 million in 2003 to $41.0
million in 2004. The increase in both the third quarter and first nine months of
2004 was primarily a result of increases in the Company's Surface Mount
Technology and Semi Packaging products as the markets for these products
rebounded.
When comparing the third quarter of 2004 to the third quarter of 2003 the
percentage of total net sales attributable to our customers in the United States
increased by 8.9%, the percentage of total net sales attributable to our
customers in Europe increased by 0.2%, the percentage of total net sales
attributable to our Asia Pacific customers decreased by 9.6%, and the percentage
of total net sales attributable to our customer in the Other Americas increased
by 0.5%. Comparing the first nine months of 2004 to the first nine months of
2003 the percentage of total net sales attributable to our customers in the
United States decreased by 6.1%, the percentage of total net sales attributable
to our customers in Europe increased by 1.5%, the percentage of total net sales
attributable to our Asia Pacific customers increased by 5.0%, and the percentage
of total net sales attributable to our customer in the Other Americas decreased
by 0.4%.
Gross Profit. Gross profit increased 157.8% from $1.4 million in the third
quarter of 2003 to $3.5 million in the third quarter of 2004 and, as a
percentage of net sales, increased from 20.3% to 22.9%. For the first nine
months of 2004 gross profit increased 98.2% from $4.8 million in 2003 to $9.4
million in 2004 and, as a percentage of net sales, remained the same at 23.0%.
The increase in gross profit is a direct result of increased sales.
Selling, General and Administrative. Selling, general and administrative
expense increased 49.1% from $2.2 million in the third quarter of 2003 to $3.2
million in the third quarter of 2004. As a percentage of net sales, selling,
general and administrative decreased from 32.1% in the third quarter of 2003 to
20.9% in the third quarter of 2004. For the first nine months of 2004, selling,
general and administrative increased 31.0% from $7.5 million in 2003 to $9.0
million in 2004, and decreased as a percentage of net sales, from 36.1% in the
first nine months of 2003 to 21.9% for the same period in 2004. The increases in
costs in 2004 were primarily the result of higher commission expenditures to
support the Company's increased sales.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Research, Development and Engineering. Research, development and
engineering expense increased 19.5% from $0.7 million in the third quarter of
2003 to $0.9 million in the third quarter of 2004. As a percentage of net sales,
it decreased from 11.1% to 5.8% for the same periods. For the first nine months
of 2004 research, development and engineering expense increased 16.5% from $2.4
million in 2003 to $2.8 million in 2004, and as a percentage of net sales
decreased from 11.6% in 2003 to 6.8% in 2004.
Restructuring Charges. The Company recorded a $1,648,000 restructuring
charge in the third quarter of 2004. These charges are the result of a
redirection of development programs, resulting in the write-off of assets
including the impairment of goodwill from an acquisition, and severance costs,
primarily related to the departure of the previous CEO.
In the second quarter of 2003, the Company reduced its overhead personnel
to better align its spending with the current economic market for its products.
The $190,000 restructuring charge represents severance costs for the laid- off
employees.
Operating Loss. Operating loss increased 45.2% from $1.5 million in the
third quarter of 2003 to $2.2 million in the third quarter of 2004 and, as a
percentage of net sales, decreased from 22.9% to 14.5%. For the first nine
months of 2004, operating loss decreased 25.1% from $5.3 million in 2003 versus
$4.0 million in 2004 and, as a percentage of net sales, decreased from 25.5% to
9.6%. The increase in operating losses in the third quarter of 2004 of $0.7
million was the result of the $1.6 million restructuring charge.
Income Taxes. The Company has recorded a full valuation allowance to
offset the deferred tax asset arising as a result of the Company's net operating
loss carryforward due to the uncertainty surrounding realization. Accordingly,
no income tax benefit is reflected in the statement of operations at October 3,
2004. Our statutory federal income tax rate is 34.0%.
LIQUIDITY AND CAPITAL RESOURCES
As of October 3, 2004, we had $0.8 million in cash and cash equivalents.
The Company has a secured revolving line of credit with a US bank that
allows for aggregate borrowings, including letters of credit, up to a maximum of
$14 million against a borrowing base of secured accounts receivable and
inventory. Borrowings outstanding under this agreement at October 3, 2004 were
$6.5 million; at which time the available funds on the borrowing base formula
were $10.8 million
This loan agreement extends to May 31, 2007 and is subject to maintaining
certain financial covenants. As a result of our decrease in tangible net worth
following the write-off of the $1.6 million restructuring charge and the
increase in borrowings during the third quarter, the Company was out of
compliance at the end of Q3 2004 with its total liabilities to tangible net
worth covenant. The Bank has offered to waive the non-compliance as of the end
of the third quarter, and the Bank and the Company are currently discussing the
terms of that waiver.
We have a mortgage note that is secured by our real property in Billerica,
MA. The mortgage note had an outstanding balance at October 3, 2004 of
approximately $5.5 million. The mortgage requires monthly payments of $38,269,
which includes interest calculated at the rate of 5.42% per annum. A final
balloon payment of approximately $5.1 million is due on December 26, 2006 upon
maturity of the mortgage note.
During the nine months ended October 3, 2004, the Company used cash
resources of $5.9 million. This use of cash was primarily the result of net
losses of $4.3 million, an increase in accounts receivable of $8.4 million, an
increase in inventory of $6.7 million; offset by an increases in accounts
payable of $4.4 million, borrowings against line of credit of $6.5 million,
increases in accrued expenses of $1.5 million.
We anticipate that our cash from operations and our Bank line of credit,
including the expected waiver, will provide us with the necessary funds to meet
our operating and capital requirements into 2005.
10
OTHER MATTERS
The impact of inflation and the effect of foreign exchange rate changes
during 2004 have had no material impact on our business and financial results.
RECENT ACCOUNTING DEVELOPMENTS
See 2003 Annual Report on Form 10-K, on file with the SEC.
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 under the securities laws, 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.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do not believe that we have any material market risk exposure with
respect to derivative or other financial instruments.
Item 4. CONTROLS AND PROCEDURES
Our management, including our Chief Executive Officer and Chief Financial
Officer, conducted an evaluation as of the end of the period covered by this
Report, of the effectiveness of our disclosure controls and procedures. Based on
that evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures were effective as of the
end of the period covered by this Report.
There were no changes to our internal control over financial reporting during
the quarter covered by this Report that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 31.1 - Section 302 Certification
Exhibit 31.2 - Section 302 Certification
Exhibit 32.1 - Section 906 Certification
Exhibit 32.2 - Section 906 Certification
(b) Reports on Form 8-K
On July 29, 2004, the Company furnished a Current Report on Form 8-K
to notify shareholders of the Company's release of its financial results
for quarter ended July 4, 2004.
12
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 17, 2004 BY: /s/ Paul van der Wansem
-----------------------
Paul van der Wansem
President, Chief Executive Officer
(principal executive officer) and
Chairman of the Board
DATE: November 17, 2004 BY: /s/ Thomas P. Kealy
-------------------
Thomas P. Kealy
Vice President, Corporate Controller and
Chief Accounting Officer (principal
financial and accounting officer)
13