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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended April 3, 2011
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 000-17297
BTU INTERNATIONAL, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE | 04-2781248 | |
(State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification Number) | |
23 Esquire Road, North Billerica, Massachusetts |
01862-2596 | |
(Address of principal executive offices) | (Zip Code) |
Registrants 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 has submitted electronically and posted on its corporate website, if any, every interactive data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period than the registrant was required to submit and post such files.) Yes ¨ No ¨ (Registrant is not subject to the requirements of Rule 405 of Regulation S-T at this time)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act).
Large Accelerated Filer | ¨ | Accelerated Filer | ¨ | |||
Non-Accelerated Filer | ¨ | Smaller Reporting Company | x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
Indicate the number of shares outstanding of the Registrants Common Stock, par value $0.01 per share, as of the latest practicable date: As of May 2, 2011: 9,418,670 shares.
Table of Contents
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited) |
||||
1 | ||||
2 | ||||
Unaudited Condensed Consolidated Statements of Stockholders Equity and Comprehensive Income (Loss) |
3 | |||
4-5 | ||||
Notes to Unaudited Condensed Consolidated Financial Statements |
6-10 | |||
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations |
10-13 | |||
Item 3. Quantitative and Qualitative Disclosures About Market Risk |
14 | |||
14 | ||||
PART II. OTHER INFORMATION |
||||
15 | ||||
16 | ||||
EX-31.1 Section 302 Certification of C.E.O. |
||||
EX-31.2 Section 302 Certification of C.F.O. |
||||
EX-32.1 Section 906 Certification of C.E.O. |
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EX-32.2 Section 906 Certification of C.F.O. |
Table of Contents
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
(unaudited)
April 3, 2011 |
December 31, 2010 |
|||||||
Assets |
||||||||
Current assets |
||||||||
Cash and cash equivalents |
$ | 23,006 | $ | 22,753 | ||||
Accounts receivable, net |
21,579 | 17,895 | ||||||
Inventories, net |
20,566 | 19,274 | ||||||
Other current assets |
1,354 | 1,091 | ||||||
Total current assets |
66,505 | 61,013 | ||||||
Property, plant and equipment, net |
6,054 | 6,148 | ||||||
Other assets, net |
214 | 484 | ||||||
Total assets |
$ | 72,773 | $ | 67,645 | ||||
Liabilities and stockholders equity |
||||||||
Current liabilities |
||||||||
Current portion of long-term debt |
$ | 364 | $ | 359 | ||||
Accounts payable |
9,581 | 10,116 | ||||||
Progress liabilities |
6,675 | 3,398 | ||||||
Accrued expenses |
5,502 | 5,603 | ||||||
Total current liabilities |
22,122 | 19,476 | ||||||
Long-term debt, less current portion |
8,238 | 8,329 | ||||||
Total liabilities |
30,360 | 27,805 | ||||||
Commitments and contingencies |
||||||||
Stockholders equity |
||||||||
Preferred stock, $1.00 par value - 5,000,000 shares authorized; no shares issued or outstanding |
| | ||||||
Common stock, $0.01 par value - 25,000,000 shares authorized; 10,778,715 shares issued and 9,410,748 shares outstanding at April 3, 2011 and 10,718,398 shares issued and 9,350,431 shares outstanding at December 31, 2010 |
108 | 107 | ||||||
Additional paid in capital |
49,393 | 48,764 | ||||||
Accumulated deficit |
(3,837 | ) | (5,666 | ) | ||||
Treasury stock, at cost, 1,367,967 shares at April 3, 2011 and December 31, 2010 |
(4,990 | ) | (4,990 | ) | ||||
Accumulated other comprehensive income |
1,739 | 1,625 | ||||||
Total stockholders equity |
42,413 | 39,840 | ||||||
Total liabilities and stockholders equity |
$ | 72,773 | $ | 67,645 | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
(unaudited)
Three Months Ended | ||||||||
April 3, 2011 |
April 4, 2010 |
|||||||
Net sales |
$ | 25,350 | $ | 17,192 | ||||
Costs of goods sold |
14,624 | 10,096 | ||||||
Gross profit |
10,726 | 7,096 | ||||||
Operating expenses: |
||||||||
Selling, general and administrative |
5,924 | 5,539 | ||||||
Research, development and engineering |
1,867 | 1,638 | ||||||
Operating income (loss) |
2,935 | (81 | ) | |||||
Interest income |
15 | 2 | ||||||
Interest expense |
(135 | ) | (159 | ) | ||||
Foreign exchange gain (loss) |
(76 | ) | 65 | |||||
Other income |
215 | 17 | ||||||
Income (loss) before provision for income taxes |
2,954 | (156 | ) | |||||
Provision for income taxes |
1,125 | 137 | ||||||
Net income (loss) |
$ | 1,829 | $ | (293 | ) | |||
Income (loss) per share: |
||||||||
Basic |
$ | 0.20 | $ | (0.03 | ) | |||
Diluted |
$ | 0.19 | $ | (0.03 | ) | |||
Weighted average number of shares outstanding: |
||||||||
Basic shares |
9,369,773 | 9,253,081 | ||||||
Effect of dilutive options |
388,363 | | ||||||
Diluted shares |
9,758,136 | 9,253,081 | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AND COMPREHENSIVE INCOME (LOSS)
FOR THE THREE MONTHS ENDED APRIL 3, 2011
(in thousands)
(unaudited)
Common Stock | Additional Paid-In Capital |
Retained Earnings/ (Accumulated Deficit) |
Treasury Stock | Accumulated Other Comprehensive Income |
Total | |||||||||||||||||||||||||||
# of shares | $ | # of shares | $ | |||||||||||||||||||||||||||||
Balance at December 31, 2010 |
10,718 | $ | 107 | $ | 48,764 | $ | (5,666 | ) | 1,368 | $ | (4,990 | ) | $ | 1,625 | $ | 39,840 | ||||||||||||||||
Net income |
| | | 1,829 | | | | 1,829 | ||||||||||||||||||||||||
Exercise of stock options |
61 | 1 | 295 | | | | | 296 | ||||||||||||||||||||||||
Stock-based compensation |
| | 334 | | | | | 334 | ||||||||||||||||||||||||
Translation adjustment |
| | | | | | 114 | 114 | ||||||||||||||||||||||||
Balance at April 3, 2011 |
10,779 | $ | 108 | $ | 49,393 | $ | (3,837 | ) | 1,368 | $ | (4,990 | ) | $ | 1,739 | $ | 42,413 | ||||||||||||||||
Three Months Ended |
Three Months Ended |
|||||||
April 3, 2011 |
April 4, 2010 |
|||||||
Comprehensive income (loss) is calculated as follows: |
||||||||
Net income (loss) |
$ | 1,829 | $ | (293 | ) | |||
Other comprehensive income (loss): |
||||||||
Foreign currency translation adjustment |
114 | (69 | ) | |||||
Comprehensive income (loss) |
$ | 1,943 | $ | (362 | ) | |||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED APRIL 3, 2011 AND APRIL 4, 2010
(in thousands)
(unaudited)
April 3, 2011 |
April 4, 2010 |
|||||||
Cash flows from operating activities: |
||||||||
Net income (loss) |
$ | 1,829 | $ | (293 | ) | |||
Adjustments to reconcile net cash provided by (used in) operating activities: |
||||||||
Depreciation and amortization |
544 | 522 | ||||||
Provision for bad debts |
7 | 58 | ||||||
Provision for inventory obsolescence |
296 | 305 | ||||||
Stock-based compensation |
334 | 317 | ||||||
Net change in operating assets and liabilities: |
||||||||
Accounts receivable |
(3,625 | ) | (462 | ) | ||||
Inventories |
(1,510 | ) | (22 | ) | ||||
Other current assets |
(259 | ) | (1,158 | ) | ||||
Progress liabilities |
3,280 | (1,944 | ) | |||||
Other assets |
151 | (18 | ) | |||||
Accounts payable |
(643 | ) | (259 | ) | ||||
Accrued expenses |
(154 | ) | (391 | ) | ||||
Net cash provided by (used in) operating activities |
250 | (3,345 | ) | |||||
Cash flows used in investing activities: |
||||||||
Purchases of property, plant and equipment |
(279 | ) | (68 | ) | ||||
Net cash used in investing activities |
(279 | ) | (68 | ) | ||||
Cash flows from financing activities: |
||||||||
Principal payments under loan and capital lease agreements |
(86 | ) | (72 | ) | ||||
Proceeds from the exercise of stock options |
296 | 40 | ||||||
Net cash provided by (used in) financing activities |
210 | (32 | ) | |||||
Effects of exchange rates on cash |
72 | (102 | ) | |||||
Net increase (decrease) in cash and cash equivalents |
253 | (3,547 | ) | |||||
Cash and cash equivalents, beginning of period |
22,753 | 25,397 | ||||||
Cash and cash equivalents, end of period |
$ | 23,006 | $ | 21,850 | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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BTU INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
FOR THE THREE MONTHS ENDED APRIL 3, 2011 AND APRIL 4, 2010
(in thousands)
(unaudited)
April 3, 2011 |
April 4, 2010 |
|||||||
Supplemental disclosures of cash flow information: |
||||||||
Cash paid during the periods for: |
||||||||
Interest |
$ | 107 | $ | 164 | ||||
Income taxes |
293 | 94 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(1) Basis of Presentation
The condensed consolidated balance sheet, financial information and related disclosures as of and for the year ended December 31, 2010 have been derived from our consolidated financial statements, which have been audited as of that date. The condensed consolidated balance sheet as of April 3, 2011 and the related condensed consolidated statements of stockholders equity and comprehensive income for the three months ended April 3, 2011 are unaudited. The condensed consolidated statements of operations and cash flows for the three months ended April 3, 2011 and April 4, 2010 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 any other period or 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 Companys consolidated financial statements as of and for the year ended December 31, 2010, together with the auditors report, included in the Companys Annual Report on Form 10-K, as filed with the Securities and Exchange Commission.
(2) Summary of Significant Accounting Policies
The accounting policies underlying the accompanying unaudited condensed consolidated financial statements are those set forth in Note 1 to the consolidated financial statements included in the Companys Annual Report on Form 10-K for the year ended December 31, 2010 as filed with the Securities and Exchange Commission.
Subsequent Events The Company evaluated subsequent events through the time of filing this Quarterly Report on Form 10-Q. We are not aware of any significant events that occurred subsequent to the balance sheet date, but prior to the filing of this report that would have a material impact on our condensed consolidated financial statements.
(3) Inventories, net
April 3, 2011 |
December 31, 2010 |
|||||||
(in thousands) | ||||||||
Raw materials and manufactured components |
$ | 9,172 | $ | 9,459 | ||||
Work-in-process |
7,229 | 8,053 | ||||||
Finished goods |
4,165 | 1,762 | ||||||
$ | 20,566 | $ | 19,274 | |||||
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(4) Other Current Liabilities
April 3, 2011 |
December 31, 2010 |
|||||||
( $ in thousands) | ||||||||
Accrued commissions |
$ | 1,049 | $ | 875 | ||||
Accrued warranty |
626 | 512 | ||||||
Accrued taxes |
1,401 | 961 | ||||||
Accrued audit |
407 | 299 | ||||||
Accrued legal |
291 | 327 | ||||||
Accrued bonus |
239 | 1,036 | ||||||
Payroll and payroll taxes |
1,071 | 1,060 | ||||||
Accrued cost of sales |
322 | 467 | ||||||
Other |
96 | 66 | ||||||
$ | 5,502 | $ | 5,603 | |||||
Warranty
The Company provides standard warranty coverage for labor for 12 months and special extended material-only coverage on certain products. The Company estimates and records an accrual for anticipated warranty claims based on sales. The accrual for warranty covers the estimated costs of material, labor and travel. Actual warranty claims incurred are charged to the accrual. Factors that affect the Companys 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 Companys accrued warranty account during the three months ended April 3, 2011:
Three Months Ended April 3, 2011 |
||||
Beginning balance, December 31, 2010 |
$ | 512 | ||
Plus: accruals related to new sales |
175 | |||
Less: warranty claims incurred and reserve adjustment |
(61 | ) | ||
Ending balance, April 3, 2011 |
$ | 626 | ||
(5) Debt
Long-term debt at April 3, 2011 and December 31, 2010 consisted of:
April 3, 2011 |
December 31, 2010 |
|||||||
(in thousands) | ||||||||
Mortgage note payable, interest rate of 5.50% |
$ | 8,602 | $ | 8,688 | ||||
Less - current maturities |
364 | 359 | ||||||
$ | 8,238 | $ | 8,329 | |||||
On March 30, 2006, the Company entered into a mortgage note that is secured by our real property in Billerica, Massachusetts, in the amount of $10 million. This mortgage note payable has a balloon payment of $6.7 million due and payable at maturity on December 23, 2015. On September 9, 2010, the Company signed a Loan Modification Agreement relating to the mortgage note. The modifications resulted in a reduction of the annual interest rate from 6.84% to 5.50% and a reduction in the monthly payment from $76,280 to $69,000.
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On August 31, 2009, the Company entered into a pledge and assignment agreement with a bank. The bank agrees, at the Companys request, to issue letters of credit in the banks name and the Company agrees to cash collateralize letters of credit via restricted cash deposits at the bank. As of April 3, 2011, the value of the outstanding letters of credit issued by the bank for the Company and cash collateralized by the Company was $225,140. This restricted cash value is included in the Companys balance sheet in other current assets.
(6) Net Income (Loss) Per Share (EPS)
Basic EPS is computed by dividing net income (loss) 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. Due to their anti-dilutive effect, approximately 42,019 and 1,153,365 options to purchase common stock were excluded from the calculation of diluted income (loss) per share for the three months ended April 3, 2011 and April 4, 2010, respectively. These options could become dilutive in future periods.
(7) Accounting for Stock-Based Compensation
The Companys stock option compensation expense was $334,114 and $316,790 for the three months ended April 3, 2011 and April 4, 2010.
The fair value of each option is estimated on the date of grant using the Black-Scholes option-pricing model. This model incorporates certain assumptions for inputs including a risk-free market interest rate, expected dividend yield of the underlying common stock, expected option life and expected volatility in the market value of the underlying common stock. The Company is also required to estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. Historical data was used to estimate pre-vesting forfeitures and record stock-based compensation expense only for those awards that are expected to vest. Accordingly, awards ultimately expected to vest have been reduced by an annualized estimated forfeiture rate of 4%.
Calculation of Fair Value - Assumptions Used:
Three months ended | ||||||||
April 3, 2011 | April 4, 2010 | |||||||
Expected Volatility |
65.05 | % | 65.38 | % | ||||
Expected Life |
3.00 | 3.00 | ||||||
Risk-Free Interest Rate |
1.31 | % | 1.63 | % | ||||
Expected Dividend Yield |
0 | 0 |
Expected volatilities are based on the historical volatility of the Companys common stock. The Company had significant historical data to help evaluate the expected lives of options in developing its assumption. The risk-free interest rate is based upon quoted market yields for United States Treasury debt securities. The expected dividend yield is based upon the Companys history of having never paid a dividend and managements current expectation to retain any excess cash for use in the business.
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The following table summarizes the stock option activity during the three months ended April 3, 2011:
Shares | Weighted- Average Exercise Price |
Average Remaining Contractual Term |
Aggregate Intrinsic Value |
|||||||||||||
Options |
||||||||||||||||
Outstanding at December 31, 2010 |
1,277,264 | $ | 6.56 | |||||||||||||
Granted |
3,410 | $ | 10.99 | |||||||||||||
Exercised |
(60,317 | ) | $ | 4.93 | ||||||||||||
Forfeited/Cancelled |
(1,895 | ) | $ | 14.32 | ||||||||||||
Outstanding at April 3, 2011 |
1,218,462 | $ | 6.64 | 4.67 | $ | 5,606,493 | ||||||||||
Exercisable at April 3, 2011 |
457,047 | $ | 7.97 | 3.31 | $ | 1,666,109 |
The weighted-average grant date fair values of options granted during the three-month periods ended April 3, 2011 and, April 4, 2010 were $4.81 and $2.64, respectively. The aggregate fair value of options exercised during the three-month periods ended April 3, 2011 and April 4, 2010 was $229,826 and $23,660, respectively.
As of April 3, 2011, there was $1,995,604 of total unrecognized compensation cost related to non-vested options granted under the Companys option plans. That cost is expected to be recognized over a weighted average period of 2.20 years. The total fair value of options vested during the three-month periods ended April 3, 2011 was $13,263.
(8) Revenue Recognition
For the three months ended April 3, 2011 and April 4, 2010, there was $399,870 and $789,112 respectively, of revenue recognized using the percentage of completion method. For additional information on the Companys revenue recognition policies, please see Note 1 in the notes to the Companys audited consolidated financial statements included in the Companys Annual Report on Form 10-K filed March 8, 2011 with the Securities and Exchange Commission.
(9) Fair Value of Financial Instruments
In accordance with the requirements of the Fair Value Measurements and Disclosures Topic of the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC), the Company groups its financial assets and liabilities measured at fair value on a recurring basis in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:
| Level 1 Valuation is based upon quoted market price for identical instruments traded in active markets. |
| Level 2 Valuation is based on quoted market prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market. |
| Level 3 Valuation is generated from model-based techniques that use significant assumptions not observable in the market. Valuation techniques include use of discounted cash flow models and similar techniques. |
In accordance with the requirements of the Fair Value Measurements and Disclosures Topic of the FASB ASC, it is the Companys policy to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements. When available, the Company uses quoted market prices to measure fair value. If market prices are not available, the fair value measurement is based on models that use primarily market based parameters including interest rate yield curves, option volatilities and currency rates. In certain cases, where market rate assumptions are not available, the Company is required to make judgments about assumptions market participants would use to estimate the fair value of a financial instrument. Changes in the underlying assumptions used, including discount rates and estimates of future cash flows, could significantly affect the results of current or future values.
a. Cash and Cash Equivalents (Fair Value Level 1)-The carrying amount of these assets on the Companys consolidated balance sheets approximates their fair value because of the short maturities of these instruments.
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b. Receivables, Payables and Accruals (Fair Value Level 1)The recorded amounts of financial instruments, including accounts receivable, accounts payable, and accrued liabilities, approximate their fair value because of the short-term maturity of these instruments.
c. Long-term Debt (Fair Value Level 2)The fair value of long-term indebtedness as of April 3, 2011 was approximately $8.6 million. The current market interest rate approximates the rate of the mortgage note payable of 5.5%.
(10) 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, alternative energy, 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 process equipment is used for solar cell processing, 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 segments customers are multinational original equipment manufacturers and contract manufacturing companies.
Tangible long-lived assets by geographic location are as follows:
April 3, | December 31, | |||||||
2011 | 2010 | |||||||
United States |
$ | 5,385 | $ | 5,504 | ||||
Asia Pacific |
669 | 644 | ||||||
$ | 6,054 | $ | 6,148 | |||||
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
BTU International, Inc. (BTU), founded in 1950 and headquartered in North Billerica, Massachusetts, is a market-leading, global supplier of advanced thermal processing equipment to the alternative energy and electronics manufacturing markets. BTU equipment is used in the production of solar cells and nuclear fuel, as well as in printed circuit board assembly and semiconductor packaging.
Our customers require high throughput, high yield and highly reliable thermal processing systems with tightly controlled temperature and atmospheric parameters. In the solar market, BTU offers processing equipment for both silicon and thin film photovoltaics. Also in alternative energy, our customers use our thermal systems for the processing of nuclear fuel. Our convection solder reflow systems are used to attach electronic components to the printed circuit boards, primarily in the advanced, high-density, surface mount segments of this market. In the semiconductor market, we participate in both wafer level and die level packaging, where our thermal processing systems are used to connect and seal integrated circuits into a package.
In 2004, we began manufacturing and material sourcing operations in a leased facility in Shanghai, China. In addition, we expanded our product development capability to China, creating a global engineering team. This team has developed and commercially introduced our latest PYRAMAX and TRITAN products and continues to collaborate with our U.S. headquarters on additional product initiatives.
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RESULTS OF OPERATIONS
Three months ended April 3, 2011 compared to the three months ended April 4, 2010.
The following table sets forth, for the periods indicated, selected items in our consolidated statements of operations expressed as a percentage of net sales.
Summary Consolidated Statement of Operations
Three Months Ended | ||||||||||||||||||||
April 3, 2011 | April 4, 2010 | |||||||||||||||||||
( $ in thousands) | ||||||||||||||||||||
%
of Net Sales |
%
of Net Sales |
Percent Change |
||||||||||||||||||
Net sales |
$ | 25,350 | 100.0 | % | $ | 17,192 | 100.0 | % | 47.5 | % | ||||||||||
Cost of goods sold |
14,624 | 57.7 | % | 10,096 | 58.7 | % | 44.8 | % | ||||||||||||
Gross profit |
10,726 | 42.3 | % | 7,096 | 41.3 | % | 51.2 | % | ||||||||||||
Selling, general and administrative expenses |
5,924 | 23.4 | % | 5,539 | 32.2 | % | 7.0 | % | ||||||||||||
Research, development and engineering expenses |
1,867 | 7.4 | % | 1,638 | 9.5 | % | 14.0 | % | ||||||||||||
Operating income (loss) |
2,935 | 11.6 | % | (81 | ) | (0.5 | )% | (3723.5 | )% | |||||||||||
Income (loss) before provision for income taxes |
2,954 | 11.7 | % | (156 | ) | (0.9 | )% | (1993.6 | )% | |||||||||||
Provision for income taxes |
1,125 | 4.4 | % | 137 | 0.8 | % | 721.2 | % | ||||||||||||
Net income (loss) |
$ | 1,829 | 7.2 | % | $ | (293 | ) | (1.7 | )% | (724.2 | )% | |||||||||
Net Sales. Net sales for the first quarter of 2011 were $25.4 million representing an increase of $8.2 million, or 47.5%, as compared to the same period in the prior year. Net sales for the Companys alternative energy systems increased by $6.8 million, or 85.9%, as compared to the same period in the prior year; while our electronic market systems first quarter sales remained the same as compared to the same period in the prior year; Q1 2011 sales included a $0.6 million system for other markets with no sales for this category in Q1 2010; sales for parts and service in Q1 2011 increased by $0.8 million, or 49.4%, as compared to Q1 2010, which is in line with our overall sales increase. The substantial first quarter 2011 alternative energy systems sales growth when compared to the same period in 2010 is the result of increased revenue for solar products.
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The following table sets forth, for the periods indicated, revenues from sales into select geographies expressed in thousands of dollars and as a percentage of total revenues. The values shown represent the amount sold into each of the listed geographical areas.
Three Months Ended | ||||||||||||||||
April 3, 2011 | April 4, 2010 | |||||||||||||||
($ in thousands) | ||||||||||||||||
$ | %
of Revenues |
$ | %
of Revenues |
|||||||||||||
United States |
$ | 3,141 | 12.4 | % | $ | 1,148 | 6.7 | % | ||||||||
Europe, Near East |
287 | 1.1 | % | 4,082 | 23.7 | % | ||||||||||
Asia Pacific |
21,135 | 83.4 | % | 11,396 | 66.3 | % | ||||||||||
Other Americas |
787 | 3.1 | % | 566 | 3.3 | % | ||||||||||
Total Revenue |
$ | 25,350 | $ | 17,192 | ||||||||||||
The above geographical revenue breakdown reflects the magnitude of the recovery in Asia from the economic downturn with a nearly doubling of revenue in Asia for the comparative periods.
Gross Profit. The first quarter of 2011 gross profit of $10.7 million increased by $3.6 million, or 51.2%, as compared to the first quarter of 2010 primarily as a result of the 47.5% revenue increase. In the first quarter of 2011 as compared to the same period in 2010, gross profit as a percentage of sales increased to 42.3% from 41.3%, reflecting increased factory utilization in both our China and USA facilities.
Selling, General and Administrative (SG&A). SG&A expenses increased by $0.4 million, or 7.0%, for the first 3 months of 2011 as compared to the same period in 2010 from $5.5 million to $5.9 million. This increase occurred primarily in commission expense resulting from increased revenue of 47.5% in the first quarter of 2011 as compared to the same period in 2010 and increased service costs to support our growing solar market.
Research, Development and Engineering (RD&E). RD&E expenses increased by more than $0.2 million, or 14.0%, to $1.8 million for the first 3 months of 2011 from $1.6 million for the same period in 2010. The increases are the result of the Companys actions in preparations for anticipated increased solar product requirements.
Operating Income (Loss). The impact of the $8.2 million revenue increase and its associated $3.6 million increase in gross profit for the first 3 months of 2011, resulted in operating income as compared to a slight operating loss for the same period in 2010.
Interest Income (Expense). In the first quarter of 2011 as compared to the same period in 2010, net interest expense remained relatively stable.
Foreign Exchange loss. The foreign exchange loss for the first 3 months of 2011 was $76,000 as compared to a gain of $65,000 for the same period in 2010. The Companys primary exposure to foreign exchange losses result from U.S. dollar denominated balance sheet accounts recorded at the Companys non-U.S. branch operations.
Income Taxes. For the three months ended April 3, 2011, we recorded an income tax provision of $1,125,000 as compared to $137,000 for the three months ended April 4, 2010. The Companys quarterly income tax provision primarily relates to income and withholding taxes related to our China operations.
The significant fluctuations in the Companys quarterly tax rate, as a percent of consolidated pre-tax income or loss, are the result of the different statutory tax rates in each of the Companys locations and the fluctuations of pre-tax income (loss) generated in these jurisdictions. A portion of the consolidated annual tax provision relates to Chinese withholding taxes which are not directly related to pre-tax income in China. China withholding taxes primarily result from corporate royalty charges based on our China manufacturing subsidiary net sales.
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LIQUIDITY AND CAPITAL RESOURCES
As of April 3, 2011, we had $23.0 million in cash and cash equivalents, an increase of $0.2 million, compared to $22.8 million at December 31, 2010.
During the three months ended April 3, 2011, the Company generated net cash of approximately $0.3 million from operating activities. This generation of cash was primarily the result of net income of $1.8 million, an increase in progress liabilities of $3.3 million, the adding back of non-cash expenses of depreciation and amortization of $0.5 million, stock-based compensation of $0.3 million and inventory provisions of $0.3 million, offset by an increase in accounts receivable of $3.7 million, an increase in inventory of $1.5 million, an increase in other assets of $0.3 million and a decrease in accounts payable of $0.5 million.
On August 31, 2009, the Company entered into a pledge and assignment agreement with a bank. The bank agrees, at the Companys request, to issue letters of credit in the banks name and the Company agrees to cash collateralize the letters of credit via restricted cash deposits at the bank. As of April 3, 2011, the value of the outstanding letters of credit issued by the bank for the Company and cash collateralized by the Company was $225,140. This restricted cash value is included in the Companys balance sheet in other current assets.
The Company has a mortgage note that is secured by its real property in Billerica, MA. The original amount of the note was $10 million. This mortgage note has a balloon payment of $6.7 million due and payable at maturity on December 23, 2015. On September 9, 2010, the Company signed a Loan Modification Agreement relating to the mortgage note. The modification resulted in lowering the annual interest rate from 6.84% to 5.50%, and lowering the monthly payment from $76,280 to $69,000. The mortgage note had an outstanding balance on April 3, 2011, of approximately $8.6 million.
As of April 3, 2011, the Company has no material commitments relating to capital expenditures. There were no significant changes in the Companys commitments from those that were outlined in the Companys 2010 Form 10-K.
The Companys business forecasts project that our cash position and cash flow will be sufficient to meet our corporate, operating and capital requirements for the next twelve months.
CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT ESTIMATES
During the three months ended April 3, 2011, we believe that there have been no significant changes to the items that we disclosed as our critical accounting policies and estimates in the Critical Accounting Policies and Significant Estimates section of Managements Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010.
OTHER MATTERS
Given that the Company invoices the vast majority of its sales in U.S. dollars, that the Company has a substantial manufacturing presence in China and that sales into China are primarily in U.S. dollars, should the U.S. dollar decline in relation to the Chinese RMB, the Companys financial results will be adversely affected.
Although the first quarter of 2011 showed strong growth in revenues, our outlook for the second quarter of 2011 is being strongly influenced by the timing of shipments to one of our major solar customers. This customer has advised its suppliers that equipment deliveries have been put on hold. We expect that the terms of the order will be met in the very near future with shipments starting in the third or fourth quarter of this year. The delay in the execution of this order relates to a major part of the in-line diffusion equipment orders we announced this past January.
FORWARD LOOKING STATEMENTS
This Report contains forward-looking statements about the sufficiency of our cash position and cash flows, our expectation about the timing of deliveries on an order for our in-line diffusion equipment and other matters. The words or phrases will likely result, are expected to, will continue, is anticipated, may, intends, believes, estimate, project or similar expressions are intended to identify forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are neither promises nor guarantees but rather are subject to risks and uncertainties described in this report, which could cause actual results to differ materially from those described in the forward-looking statements. Such statements are made pursuant to the safe harbor provisions established by the federal securities laws, and are based on the assumptions and expectations of our management at the time such statements are made. Important factors that could cause actual results to differ include, but are not limited to, the timing of any scheduled deliveries under our previously announced in-line diffusion equipment orders, the condition of the world economy, the timely availability and acceptance of new products in the electronics, semiconductor and alternative energy generation industries, manufacturing problems with our foreign operations in China, the impact of competitive products and pricing, particularly from companies in Asia, and other risks detailed under the section entitled Risk Factors in our most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission. Actual results may vary materially. Unless otherwise required by law, we disclaim any obligation to revise or update this information in order to reflect future events or developments, whether or not anticipated. Accordingly, you should not place undue reliance on any forward-looking statements, which speak only as of the date made.
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Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
We have international subsidiaries in China, the United Kingdom, Singapore, and Malaysia. These subsidiaries transact business in their functional or local currency. Therefore, we are exposed to foreign currency exchange risks and fluctuations in foreign currencies, along with economic and political instability in the foreign countries in which we operate, all of which could adversely impact our results of operations and financial condition.
As of April 3, 2011 and December 31, 2010, all of our long-term debt obligations are fixed rate financial instruments. Therefore we are not exposed to interest rate risk resulting from the variable interest rate of our debt.
Item 4. | Controls and Procedures |
Controls and Procedures.
Disclosure Controls and Procedures. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report were effective in ensuring that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Internal Control over Financial Reporting. There have been no changes in our internal control over financial reporting (as defined by Rule 13a-15(f)), that occurred during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 6. | Exhibits |
(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
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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: May 10, 2011 |
BY: | /S/ PAUL J. VAN DER WANSEM | ||
Paul J. van der Wansem | ||||
President, Chief Executive Officer | ||||
(principal executive officer) and Chairman of the Board of Directors | ||||
DATE: May 10, 2011 |
BY: | /S/ PETER J. TALLIAN | ||
Peter J. Tallian | ||||
Chief Financial Officer and Principal Accounting Officer (principal financial and accounting officer) |
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