XNAS:BTUI BTU International Inc Quarterly Report 10-Q Filing - 7/1/2012

Effective Date 7/1/2012

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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 July 1, 2012

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)

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 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  x    No  ¨

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 Registrant’s Common Stock, par value $0.01 per share, as of the latest practicable date: As of August 1, 2012: 9,515,967 shares.

 

 

 


Table of Contents

BTU INTERNATIONAL, INC.

TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION   
Item 1. Financial Statements (Unaudited)   
Unaudited Condensed Consolidated Balance Sheets      1   
Unaudited Condensed Consolidated Statements of Operations      2   
Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)      3   
Unaudited Condensed Consolidated Statement of Stockholders’ Equity      3   
Unaudited Condensed Consolidated Statements of Cash Flows      4   
Notes to Unaudited Condensed Consolidated Financial Statements      5-9   
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations      9-14   
Item 3. Quantitative and Qualitative Disclosures About Market Risk      14   
Item 4. Controls and Procedures      14   
PART II. OTHER INFORMATION   
Item 6. Exhibits      14   
Signatures      15   


Table of Contents

PART I. FINANCIAL STATEMENTS

 

Item 1. Financial Statements

BTU INTERNATIONAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

(unaudited)

 

     July 1,     December 31,  
     2012     2011  

Assets

    

Current assets

    

Cash and cash equivalents

   $ 19,578      $ 18,948   

Accounts receivable, net

     13,815        12,422   

Inventories

     16,454        17,510   

Other current assets

     3,516        2,064   
  

 

 

   

 

 

 

Total current assets

     53,363        50,944   

Property, plant and equipment, net

     5,107        5,650   

Other assets, net

     95        124   
  

 

 

   

 

 

 

Total assets

   $ 58,565      $ 56,718   
  

 

 

   

 

 

 

Liabilities and stockholders’ equity

    

Current liabilities

    

Current portion of long-term debt

   $ 389      $ 379   

Accounts payable

     7,727        3,527   

Deferred revenue, current

     1,975        494   

Accrued expenses

     4,867        4,910   
  

 

 

   

 

 

 

Total current liabilities

     14,958        9,310   

Long-term debt, less current portion

     7,761        7,956   
  

 

 

   

 

 

 

Total liabilities

     22,719        17,266   
  

 

 

   

 

 

 

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; 10,883,934 shares issued and 9,515,967 shares outstanding at July 1, 2012 and 10,867,778 shares issued and 9,499,811 shares outstanding at December 31, 2011

     109        109   

Additional paid in capital

     51,194        50,646   

Accumulated deficit

     (12,544     (8,388

Treasury stock, at cost, 1,367,967 shares at July 1, 2012 and December 31, 2011

     (4,990     (4,990

Accumulated other comprehensive income

     2,077        2,075   
  

 

 

   

 

 

 

Total stockholders’ equity

     35,846        39,452   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 58,565      $ 56,718   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

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Table of Contents

BTU INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)

(unaudited)

 

     Three Months Ended     Six Months Ended  
     July 1, 2012     July 3, 2011     July 1, 2012     July 3, 2011  

Net sales

   $ 14,598      $ 19,035      $ 30,870      $ 44,385   

Costs of goods sold

     9,916        11,379        20,965        26,003   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     4,682        7,656        9,905        18,382   

Operating expenses:

        

Selling, general and administrative

     5,336        5,984        10,749        11,908   

Research, development and engineering

     1,306        1,764        2,788        3,631   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (1,960     (92     (3,632     2,843   

Interest income

     16        18        36        33   

Interest expense

     (114     (118     (232     (252

Foreign exchange income (loss)

     10        (73     (52     (149

Other income

     1        10        1        225   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before provision for income taxes

     (2,047     (255     (3,879     2,700   

Provision (benefit) for income taxes

     102        (241     277        885   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ (2,149   $ (14   $ (4,156   $ 1,815   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) per share:

        

Basic

   $ (0.23   $ (0.00   $ (0.44   $ 0.19   

Diluted

   $ (0.23   $ (0.00   $ (0.44   $ 0.19   

Weighted average number of shares outstanding:

        

Basic shares

     9,503,203        9,423,923        9,502,462        9,396,942   

Effect of dilutive options

     —          —          —          343,061   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted shares

     9,503,203        9,423,923        9,502,462        9,740,003   
  

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

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Table of Contents

BTU INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

(unaudited)

 

     Three Months Ended     Six Months Ended  
     July 1,
2012
    July 3,
2011
    July 1,
2012
    July 3,
2011
 

Comprehensive income (loss) is calculated as follows:

        

Net income (loss)

   $ (2,149   $ (14   $ (4,156   $ 1,815   

Other comprehensive income (loss):

        

Foreign currency translation adjustment

     (66     179        2        293   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

   $ (2,215   $ 165      $ (4,154   $ 2,108   
  

 

 

   

 

 

   

 

 

   

 

 

 

BTU INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

FOR THE SIX MONTHS ENDED JULY 1, 2012

(in thousands)

(unaudited)

 

                                             Accumulated         
                   Additional                         Other         
     Common Stock      Paid-In      Accumulated     Treasury Stock     Comprehensive         
     shares      $      Capital      Deficit     shares      $     Income      Total  

Balance at December 31, 2011

     10,868       $ 109       $ 50,646       $ (8,388     1,368       $ (4,990   $ 2,075       $ 39,452   

Net loss

     —           —           —           (4,156     —           —          —           (4,156

Exercise of stock options

     3         —           9         —          —           —          —           9   

Issuance of common stock

     13         —           29         —          —           —          —           29   

Stock-based compensation

     —           —           510         —          —           —          —           510   

Translation adjustment

     —           —           —           —          —           —          2         2   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Balance at July 1, 2012

     10,884       $ 109       $ 51,194       $ (12,544     1,368       $ (4,990   $ 2,077       $ 35,846   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

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

FOR THE SIX MONTHS ENDED JULY 1, 2012 AND JULY 3, 2011

($ in thousands)

(unaudited)

 

     July 1,     July 3,  
     2012     2011  

Cash flows from operating activities:

    

Net income (loss)

   $ (4,156   $ 1,815   

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

    

Depreciation and amortization

     830        962   

Provision (recovery) for bad debts

     36        (27

Provision for inventory obsolescence

     1,319        494   

Stock-based compensation

     510        660   

Deferred taxes

     (162     —     

Net change in operating assets and liabilities:

    

Accounts receivable

     (1,440     2,948   

Inventories

     (410     (2,688

Other current assets

     (1,299     (542

Deferred revenue

     1,481        (1,125

Other assets

     —          151   

Accounts payable

     4,199        (3,585

Accrued expenses

     (40     (473
  

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     868        (1,410
  

 

 

   

 

 

 

Cash flows used in investing activities:

    

Purchases of property, plant and equipment

     (115     (400
  

 

 

   

 

 

 

Net cash used in investing activities

     (115     (400
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Principal payments under loan and capital lease agreements

     (185     (177

Issuance of common stock

     29        50   

Proceeds from the exercise of stock options

     9        400   
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (147     273   
  

 

 

   

 

 

 

Effects of exchange rates on cash

     24        144   
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     630        (1,393

Cash and cash equivalents, beginning of period

     18,948        22,753   
  

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 19,578      $ 21,360   
  

 

 

   

 

 

 

Supplemental disclosures of cash flow information:

    

Cash paid during the periods for:

    

Interest

   $ 196      $ 209   

Income taxes

     130        932   

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

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BTU INTERNATIONAL, INC.

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, 2011 have been derived from our consolidated financial statements, which have been audited as of that date. The condensed consolidated balance sheet as of July 1, 2012 and the related condensed statements of operations and comprehensive income (loss) for the three and six months ended July 1, 2012 and July 3, 2011 are unaudited. The condensed consolidated statement of stockholders’ equity and consolidated cash flows for the six months ended July 1, 2012 and July 3, 2011 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 Company’s consolidated financial statements as of and for the year ended December 31, 2011, together with the auditors’ report, included in the Company’s Annual Report on Form 10-K, as filed with the Securities and Exchange Commission (SEC).

(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 Company’s Annual Report on Form 10-K for the year ended December 31, 2011 as filed with the SEC.

In June 2011, the Financial Accounting Standards Board (FASB) issued guidance amending the presentation requirements for comprehensive income. For public entities, this guidance was effective for fiscal years, and interim periods within those years, beginning after December 15, 2011 with early adoption permitted. Subsequently, in December 2011, the FASB deferred the effective date of the portion of the June 2011 accounting standards update requiring separate presentation of reclassifications out of accumulated other comprehensive income. Upon adoption on January 1, 2012, we had the option to report total comprehensive income, including components of net income and components of other comprehensive income, as a single continuous statement or in two separate but consecutive statements. We elected to present comprehensive income in two separate but consecutive statements as part of the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q. Other than a change in presentation, the implementation of this accounting pronouncement did not have a material impact on our financial statements.

Subsequent Events – The Company evaluated subsequent events through the time of issuance of these condensed consolidated financial statements. 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

 

     July 1,      December 31,  
     2012      2011  
     ($ in thousands)  

Raw materials and manufactured components

   $ 9,308       $ 7,614   

Work-in-process

     2,629         5,363   

Finished goods

     4,517         4,533   
  

 

 

    

 

 

 

Total inventory

   $ 16,454       $ 17,510   
  

 

 

    

 

 

 

 

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Table of Contents

BTU INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

(4) Accrued Expenses

 

     July 1,      December 31,  
     2012      2011  
     ( $ in thousands)  

Accrued commissions

   $ 1,102       $ 1,194   

Accrued warranty

     498         497   

Accrued taxes

     1,404         1,175   

Accrued audit

     275         373   

Accrued legal

     259         246   

Accrued bonus

     17         167   

Payroll and payroll taxes

     810         764   

Accrued cost of sales

     348         216   

Accrued restructuring costs

     71         192   

Other

     83         86   
  

 

 

    

 

 

 
   $ 4,867       $ 4,910   
  

 

 

    

 

 

 

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 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 six months ended July 1, 2012 (in thousands):

 

     Six Months Ended  
     July 1, 2012  

Beginning balance, December 31, 2011

   $ 497   

Plus: accruals related to new sales

     332   

Less: warranty claims incurred and reserve adjustment

     (331
  

 

 

 

Ending balance, July 1, 2012

   $ 498   
  

 

 

 

Restructuring

In September 2011, the Company eliminated 17 positions and recorded a restructuring charge of $401,000 in the year ended December 31, 2011. The decision to eliminate 17 positions was made due to the slowdown in orders from customers in the solar industry.

The restructuring charge consisted of primarily severance and benefits.

 

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The following table reflects changes in the reserves for restructuring charges for the six months ended July 1, 2012 (in thousands):

 

     Six Months Ended  
     July 1, 2012  

Beginning balance, December 31, 2011

   $ 192   

Less: cash payments

     (121
  

 

 

 

Ending balance, July 1, 2012

   $ 71   
  

 

 

 

(5) Debt

Long-term debt at July 1, 2012 and December 31, 2011 consisted of:

 

     July 1,      December 31,  
     2012      2011  
     ($ in thousands)  

Mortgage note payable, interest rate of 5.50%

   $ 8,150       $ 8,335   

Less - current portion of long-term debt

     389         379   
  

 

 

    

 

 

 

Long-term debt, less current portion

   $ 7,761       $ 7,956   
  

 

 

    

 

 

 

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 modification 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.

On August 31, 2009, the Company entered into a pledge and assignment agreement with a bank. The bank agrees, at the Company’s request, to issue letters of credit in the bank’s name and the Company agrees to cash collateralize letters of credit via restricted cash deposits at the bank. As of July 1, 2012, 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 Company’s 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. Diluted EPS equals basic EPS when the Company reports a net loss because the assumed exercise or conversion of potentially dilutive securities would be anti-dilutive. Due to their anti-dilutive effect, approximately 1,261,797 and 1,261,192 options to purchase common stock were excluded from the calculation of diluted income (loss) per share for the three and six months ended July 1, 2012, respectively, and 135,080 and 83,223 options were excluded for the three and six months ended July 3, 2011, respectively. These options could become dilutive in future periods.

(7) Accounting for Stock-Based Compensation

The Company’s stock option compensation expense was $191,617 and $498,256 for the three and six months ended July 1, 2012, respectively and $316,713 and $642,226 for the three and six months ended July 3, 2011, respectively. These amounts do not include expense related to restricted stock awards or the employee stock purchase plan.

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 stock-based compensation expense was recorded 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:

 

      Six months ended  
     July 1, 2012     July 3, 2011  

Expected Volatility

     66.85     62.52

Expected Life (in years)

     4.21        4.68   

Risk-Free Interest Rate

     0.59     1.69

Expected Dividend Yield

     0        0   

Expected volatilities are based on the historical volatility of the Company’s common stock. The Company had used 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 Company’s history of having never paid a dividend and management’s 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 six months ended July 1, 2012:

 

           Weighted-      Average         
           Average      Remaining      Aggregate  
           Exercise      Contractual      Intrinsic  
     Shares     Price      Term      Value  

Options

          

Outstanding at December 31, 2011

     1,299,358      $ 6.72         

Granted

     112,335      $ 3.01         

Exercised

     (3,250   $ 3.00         

Forfeited/Cancelled

     (101,827   $ 5.17         
  

 

 

   

 

 

       

Outstanding at July 1, 2012

     1,306,616      $ 6.53         4.19       $ —     

Exercisable at July 1, 2012

     752,211      $ 7.51         3.31       $ —     

The weighted-average grant date fair values of options granted during the six-month periods ended July 1, 2012 and July 3, 2011 were $1.54 and $4.74, respectively. The aggregate fair value of options exercised during the six-month periods ended July 1, 2012 and July 3, 2011 was $6,179 and $305,704, respectively.

As of July 1, 2012, there was $1,237,669 of total unrecognized compensation cost related to non-vested options granted under the Company’s option plans. That cost is expected to be recognized over a weighted-average period of 2.14 years. The total fair value of options vested during the six-month period ended July 1, 2012 was $780,738.

In June 2012, the Company granted 10,200 restricted stock units to various employees. The fair value of the restricted stock units at the date of the grant was $3.03. This stock vests over a two-year term. The Company has recorded compensation expense of $1,085 in the second quarter of 2012 related to this grant. As of July 1, 2012, there was $27,349 of unrecognized compensation costs related to the restricted stock grants. These grants have a remaining life of 1.92 years.

(8) Revenue Recognition

For the three and six months ended July 1, 2012, there was $76,751 and $378,437, respectively, of revenue recognized using the percentage of completion method. For the three and six months ended July 3, 2011, there was $1,054,045 and $1,453,915 respectively, of revenue recognized using the percentage of completion method.

(9) Fair Value of Financial Instruments

In accordance with the requirements of the Fair Value Measurements and Disclosures Topic of the 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 Company’s 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.

The carrying amounts of the Company’s cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate their fair value due to the instruments’ short-term nature. Long-term debt is also reported at carrying value and approximates fair value as the interest rate on the mortgage note payable of 5.5% approximates the current market interest rate.

 

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(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 segment’s customers are multinational original equipment manufacturers and contract manufacturing companies.

Tangible long-lived assets by geographic location are as follows:

 

     July 1,      December 31,  
     2012      2011  
     ($ in thousands)  

United States

   $ 4,315       $ 4,741   

Asia Pacific

     792         909   
  

 

 

    

 

 

 
   $ 5,107       $ 5,650   
  

 

 

    

 

 

 

(11) Legal Proceedings

On October 25, 2011, one of the Company’s overseas customers filed an appeal with the Grenoble Court of Appeals, Grenoble, France, seeking to overturn a decision of the lower court denying its request to nominate an expert to examine allegations that furnaces it had purchased from the Company in 2006 had not functioned properly. The Company is preparing a response to deny this customer’s allegations and is vigorously contesting this matter. On July 6, 2011, in a separate proceeding involving this customer, the Company filed a request for arbitration with the International Court of Arbitration of the International Chamber of Commerce in Paris, France asking the arbitrators to certify that the customer is barred from receiving any remedy. In addition the Company has filed claims for reimbursements of work performed, as well as reimbursements of legal costs related to the arbitration proceedings. The customer has filed a counterclaim for damages. Each party has nominated an arbitrator and these two arbitrators have selected a neutral arbitrator who will act as the chairman of the tribunal. The Company strongly believes that the equipment the customer purchased met all applicable specifications, that there is no basis for a valid warranty claim and that the risk that a loss has occurred with respect to this matter although reasonably possible, is not material to the Company’s consolidated financial statements. An estimate or a range of any possible loss cannot be made at this juncture due to the early stage of the proceedings. However, because litigation is inherently uncertain and unpredictable and excessive outcomes do occur, we could incur a judgment or enter into a settlement or revise our estimate of the outcome of this matter in a way that could result in a material adverse effect on the Company’s results of operations and financial condition.

 

Item 2. Management’s 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 global supplier and technology leader of advanced thermal processing equipment and processes to the alternative energy and electronics manufacturing markets. BTU equipment is used in solar cell, nuclear fuel and fuel cell manufacturing as well as in the production of printed circuit board assemblies 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 in China, creating a global engineering team. This team 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 July 1, 2012 compared to the three months ended July 3, 2011.

The following table sets forth, for the periods indicated selected items in our condensed consolidated statements of operations expressed as a percentage of net sales.

Summary Condensed Consolidated Statements of Operations

 

     Three Months Ended        
     July 1, 2012     July 3, 2011        
           ( $ in thousands)              
           % of           % of     Percent  
           Net Sales           Net Sales     Change  

Net sales

   $ 14,598        100.0   $ 19,035        100.0     (23.3 )% 

Cost of goods sold

     9,916        67.9     11,379        59.8     (12.9 )% 
  

 

 

     

 

 

     

Gross profit

     4,682        32.1     7,656        40.2     (38.8 )% 

Selling, general and administrative expenses

     5,336        36.6     5,984        31.4     (10.8 )% 

Research, development and engineering expenses

     1,306        8.9     1,764        9.3     (26.0 )% 
  

 

 

     

 

 

     

Operating loss

     (1,960     (13.4 )%      (92     (0.5 )%      2030.4

Loss before provision for income taxes

     (2,047     (14.0 )%      (255     (1.3 )%      702.7
  

 

 

     

 

 

     

Provision (benefit) for income taxes

     102        0.7     (241     (1.3 )%      (142.3 )% 
  

 

 

     

 

 

     

Net loss

   $ (2,149     (14.7 )%    $ (14     (0.1 )%      15250.0
  

 

 

     

 

 

     

Net Sales. Net sales for the second quarter of 2012 were $14.6 million representing a decrease of $4.4 million, or 23.3%, as compared to the same period in the prior year. Net sales for the Company’s electronic market systems increased by $1.3 million, or 12.2%, as compared to the same period in the prior year. Net sales for the Company’s alternative energy systems decreased by $5.3 million, or 96.3% as compared to the same period in the prior year, while net sales for the Company’s other market systems, parts and service sales business decreased by $0.5 million, or 14.9%. The Company’s alternative energy systems second quarter 2012 sales decrease as compared to the same period in the prior year is due to the broad weakening of the worldwide solar marketplace which started in the second quarter of 2011. The electronic market systems increase represents an increase in demand for Surface Mount Technology and semiconductor packaging systems. The decrease in sales in the other market systems and parts and service business was the result of one large other market system order in the three months ended July 3, 2011 and no such other market system orders in the comparable 2012 period offset in part by improved parts sales in Asia.

As a result of the weakness in capital spending in the solar industry, we expect minimal revenue from solar products over the immediate future.

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.

 

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Table of Contents
     Three Months Ended  
     July 1, 2012     July 3, 2011  
            ($ in thousands)         
            % of            % of  
     $      Revenues     $      Revenues  

United States

   $ 2,423         16.6   $ 3,066         16.1

Europe, Near East

     1,606         11.0     1,726         9.1

Asia Pacific

     10,311         70.6     13,000         68.3

Other Americas

     258         1.8     1,243         6.5
  

 

 

      

 

 

    

Total Revenue

   $ 14,598         $ 19,035      
  

 

 

      

 

 

    

Gross Profit. The second quarter of 2012 gross profit of $4.7 million decreased by $3.0 million compared to the second quarter of 2011 due primarily to the 23.3% decrease in net sales. In the second quarter of 2012, gross profit as a percentage of sales decreased to 32.1% as compared to 40.2% in the same period in 2011, due primarily to lower volume, product mix and underutilization at our U.S. factory combined with higher inventory obsolescence reserves. Our results of operations in future quarters could also be affected by further inventory write-downs. The Company assesses inventory at each period end and records inventory write-downs as appropriate based on market conditions.

Selling, General and Administrative (SG&A). SG&A second quarter 2012 expenses of $5.3 million decreased by $0.6 million compared to the same period in the prior year. The decrease is primarily due to the lower commission on reduced sales and cost reduction actions taken in the Company’s service and administrative functions. Our results of operations in future quarters could also be affected by further reductions in operating expenses.

Research, Development and Engineering (RD&E). RD&E second quarter 2012 expenses of $1.3 million decreased by $0.5 million, or 26.0%, from the same period in the prior year as a result of headcount reductions and expense reductions in the Company’s RD&E functions.

Operating Income (Loss). The 23.3% net sales decrease and its associated negative effect on gross profit combined with higher inventory reserves resulted in an operating loss in the second quarter of 2012 of $2.0 million as compared to an operating loss of $0.1 million for the same period in 2011.

Interest Income (Expense). In the second quarter of 2012 as compared to the same period in 2011, net interest expense remained relatively flat at $0.1 million.

Foreign Exchange Gain (Loss). The foreign exchange gain in the second quarter of 2012 was $10,000 as compared to a loss of $73,000 in the same period in the prior year. The net exchange loss is primarily the result of foreign currency exposure in the Company’s foreign operations.

Income Taxes. For the three months ended July 1, 2012, we recorded an income tax provision of $0.1 million as compared to an income tax benefit of $0.2 million for the three months ended July 3, 2011. The Company’s income tax provision primarily relates to withholding taxes generated from activities in our China operations.

The significant fluctuations in the Company’s 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 Company’s non-U.S. 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. U.S. taxes have had no impact to the rate fluctuation as the U.S. Company operates at a loss.

RESULTS OF OPERATIONS

Six months ended July 1, 2012 compared to the six months ended July 3, 2011.

The following table sets forth, for the periods indicated selected items in our consolidated statements of operations expressed as a percentage of net sales.

 

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Summary Consolidated Statements of Operations

 

     Six Months Ended        
     July 1, 2012     July 3, 2011        
           ( $ in thousands)               
           % of            % of     Percent  
           net sales            net sales     change  

Net sales

   $ 30,870        100.0   $ 44,385         100.0     (30.4 )% 

Cost of goods sold

     20,965        67.9     26,003         58.6     (19.4 )% 
  

 

 

     

 

 

      

Gross profit

     9,905        32.1     18,382         41.4     (46.1 )% 

Selling, general and administrative expenses

     10,749        34.8     11,908         26.8     (9.7 )% 

Research, development and engineering expenses

     2,788        9.0     3,631         8.2     (23.2 )% 
  

 

 

     

 

 

      

Operating income (loss)

     (3,632     (11.8 )%      2,843         6.4     (227.8 )% 

Income (loss) before provision for income taxes

     (3,879     (12.6 )%      2,700         6.1     (243.7 )% 
  

 

 

     

 

 

      

Provision for income taxes

     277        0.9     885         2.0     (68.7 )% 
  

 

 

     

 

 

      

Net income (loss)

   $ (4,156     (13.5 )%    $ 1,815         4.1     (329.0 )% 
  

 

 

     

 

 

      

Net Sales. Net sales decreased $13.5 million, or 30.4%, in the first six months as compared to the same period in the prior year. The Company’s alternative energy market systems net sales decreased $16.3 million, or 80.7% as compared to the same period in the prior year. Net sales for the Company’s electronics systems increased $4.3 million, or 23.9% as compared to the same period in the prior year, while net sales for the Company’s other market systems, parts and service sales business decreased by $1.5 million, or 25.5%. The Company’s alternative energy systems second quarter 2012 sales decrease as compared to the same period in the prior year is due to the broad weakening of the worldwide solar marketplace which started in the second quarter of 2011. The electronic market systems increase represents an increase in demand for Surface Mount Technology and semiconductor packaging systems. The decrease in sales in the other market systems and parts and service business was the result of two large systems orders in the six months ended July 3, 2011 and no such other market system orders in the comparable 2012 period. We expect the solar market place slowdown to continue through 2012.

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 revenue. The values shown represent the amount sold into each of the listed geographical areas.

 

     Six Months Ended  
     July 1, 2012     July 3, 2011  
            ($ in thousands)         
            % of            % of  
     $      revenues     $      revenues  

United States

   $ 4,631         15.0   $ 6,206         14.0

Europe, Near East

     3,318         10.7     2,013         4.5

Asia Pacific

     22,026         71.4     34,136         76.9

Other Americas

     895         2.9     2,030         4.6
  

 

 

      

 

 

    

Total Revenue

   $ 30,870         $ 44,385      
  

 

 

      

 

 

    

Gross Profit . The gross profit of $9.9 million for the first six months of 2012 decreased $8.5 million, or 46.1%, as compared to the same period in the prior year. The gross profit as a percentage of sales for the first six months of 2012 decreased to 32.1% from 41.4% for the first six months of 2011. The first six months 2012 gross margin percentage was negatively impacted by lower volume, product mix and underutilization at our U.S. factory combined with higher inventory obsolescence reserves.

Selling, General and Administrative (SG&A). SG&A expenses of $10.7 million for the first six months of 2012 decreased by $1.2 million, or 9.7%, as compared to the same period in the prior year. The decrease is primarily due to the lower commission on reduced sales and cost reduction actions taken in the Company’s service and administrative functions.

 

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Research, Development and Engineering (RD&E). RD&E expenses of $2.8 million for the first six months of 2012 decreased by $0.8 million, or 23.2%, as compared to the same period in the prior year. The decreases are the result of headcount reductions and expense reductions in the Company’s RD&E functions.

Operating Income. The impact of the revenue decreases and its associated negative impact on gross margins in the first six months of 2012 resulted in operating loss of $3.6 million as compared to an operating income of $2.8 million in the same period in 2011.

Interest Income (Expense). For the first six months of 2012 as compared to the same period in 2011, net interest expense remained relatively stable at $0.2 million.

Foreign Exchange Loss. The foreign exchange loss for the first six months of 2012 was $52,000 as compared to a loss of $149,000 for the same period in 2011. The net exchange loss is primarily the result of foreign currency exposure in the Company’s foreign operations.

Income Taxes. During the six months ended July 1, 2012, we recorded an income tax provision of $0.3 million as compared to $0.9 million for the six months ended July 3, 2011. The Company’s income tax provision primarily relates to withholding taxes related to our China operations.

The significant fluctuations in the Company’s 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 Company’s non-U.S. 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. U.S. taxes have had no impact to the rate fluctuation as the U.S. Company operates at a loss.

Our statutory federal income tax rate is 34.0%. The Company’s statutory income tax rate for its China manufacturing subsidiary is 25.0% in 2012 and 24% in 2011.

LIQUIDITY AND CAPITAL RESOURCES

As of July 1, 2012, we had $19.6 million in cash and cash equivalents, an increase of $0.7 million, compared to $18.9 million at December 31, 2011.

During the six months ended July 1, 2012, the Company generated net cash of approximately $0.9 million from operating activities. This generation of cash was the result of an increase in accounts payable of $4.2 million, a decrease in net inventory of $0.9 million, an increase in deferred revenue of $1.5 million, non-cash expenses for depreciation and amortization of $0.8 million, stock-based compensation of $0.5 million, offset by a net loss of $4.2 million, an increase in accounts receivable of $1.4 million and an increase in other current assets of $1.3 million.

On August 31, 2009, the Company entered into a pledge and assignment agreement with a bank. The bank agrees, at the Company’s request, to issue letters of credit in the bank’s name and the Company agrees to cash collateralize the letters of credit via restricted cash deposits at the bank. As of July 1, 2012, 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 Company’s 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 July 1, 2012, of approximately $8.2 million.

As of July 1, 2012, the Company has no material commitments relating to capital expenditures. There were no significant changes in the Company’s commitments from those that were outlined in the “Contractual Obligations” section of the Company’s 2011 annual report on Form 10-K.

At the end of the second quarter, approximately 10% of our outstanding receivables were from Chinese solar cell manufacturers. This industry has been significantly affected by the global downturn in the solar sector and by issues such as manufacturing overcapacity and the potential imposition of U. S. tariffs. Substantially all of our receivables from these customers are backed by letters of credit from Chinese banks and we believe we are due payment. If we are unable to realize on the letters of credit, it could have a material adverse effect on the collectability of these receivables.

The Company’s 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 six months ended July 1, 2012, 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 Management’s 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, 2011.

 

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Table of Contents

RISK FACTOR

During the six months ended July 1, 2012, there have been no significant changes to the items that we disclosed as risk factors in our Annual Report on Form 10-K for the firscal year ended December 31, 2011.

FORWARD LOOKING STATEMENTS

This Report contains forward-looking statements about the sufficiency of our cash position and cash flows. 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 and other reports we have filed with the SEC, 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 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.

 

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 July 1, 2012 and December 31, 2011, 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 rates.

 

Item 4. 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 Commission’s 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.

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

Exhibit 101.INS - XBRL Instance Document.

Exhibit 101.SCH - XBRL Taxonomy Extension Schema Document.

Exhibit 101.CAL - XBRL Taxonomy Calculation Linkbase Document.

Exhibit 101.DEF - XBRL Taxonomy Extension Definition Linkbase Document.

Exhibit 101.LAB - XBRL Taxonomy Label Linkbase Document.

Exhibit 101.PRE - XBRL Taxonomy Presentation Linkbase Document.

 

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Table of Contents

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 7, 2012   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: August 7, 2012   BY:  

/ S /    PETER J. TALLIAN          

    Peter J. Tallian
    Chief Financial Officer and Principal Accounting Officer (principal financial and accounting officer)

 

15

XNAS:BTUI BTU International Inc Quarterly Report 10-Q Filling

BTU International Inc XNAS:BTUI Stock - Get Quarterly Report SEC Filing of BTU International Inc XNAS:BTUI stocks, including company profile, shares outstanding, strategy, business segments, operations, officers, consolidated financial statements, financial notes and ownership information.

XNAS:BTUI BTU International Inc Quarterly Report 10-Q Filing - 7/1/2012
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