BTU INTERNATIONAL INC - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K
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(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM __________________ TO ___________________.

COMMISSION FILE NUMBER 0-17297

BTU INTERNATIONAL, INC.
(Exact name of Registrant as specified in its charter)

DELAWARE 04-2781248
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)

23 ESQUIRE ROAD, NORTH BILLERICA, MASSACHUSETTS 01862-2596
(Address of principal executive offices) (Zip Code)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (978) 667-4111

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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

None Registered

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

Title of Each Class
----------------------------
Common Stock, $.01 Par Value

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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K [ ].

The aggregate market value of the shares of Common Stock, $.01 par value,
of the Company held by non-affiliates of the Company was $56,670,790 on March
29, 2000.

Indicate number of shares outstanding of the Registrant's Common Stock, par
value $.01 per share, as of the latest practicable date: As of March 29, 2000:
6,864,688 shares.

DOCUMENTS INCORPORATED HEREIN BY REFERENCE

The following documents are incorporated herein by reference: Part II - Portions
of the Annual Report to Stockholders, for the year ended December 31, 1999; and
Part III - Portions of the Proxy Statement for the 2000 Annual Meeting of
Stockholders , both of which are to be filed with the Securities and Exchange
Commission.
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BTU INTERNATIONAL, INC.
1999 FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS
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PART I
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Item 1 Business

Item 2 Properties

Item 3 Legal Proceedings

Item 4 Submission of Matters to a Vote of Security Holders

Item 4A Executive Officers of the Registrant

PART II
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Item 5 Market for Registrant's Common Equity
and Related Stockholder Matters

Item 6 Selected Financial Data

Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations

Item 8 Financial Statements and Supplementary Data

Item 9 Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure

PART III
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Item 10 Directors and Executive Officers of the Registrant

Item 11 Executive Compensation

Item 12 Security Ownership of Certain Beneficial Owners
and Management

Item 13 Certain Relationships and Related Transactions

PART IV
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Item 14 Exhibits, Financial Statement Schedules, and Reports
on Form 8-K

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PART I

ITEM 1. BUSINESS

We design, manufacture, sell and support advanced thermal processing
systems used primarily in advanced semiconductor packaging and the assembly of
printed circuit boards (PCBs). We believe we are the leading supplier of solder
reflow systems used by electronics original equipment manufacturers (OEMs) and
contract electronics manufacturers (CEMs). In addition, we produce high
temperature advanced thermal processing systems for manufacturing ceramics
components for electronics and a variety of specialty applications.

Our customers serve the advanced segments of the electronics industry in
which complex, high density PCBs and components are used. Our customers
typically require high throughput, high yield and highly reliable advanced
thermal processing systems with tightly controlled temperature and atmosphere
parameters of the type realizable with our products.

Our products are sold worldwide through our direct technical sales force
and through independent sales representatives. Among our top revenue generating
customers in 1999 are such industry leaders as Celestica Incorporated, Intel
Corporation, Lucent Technologies Inc., Motorola, Inc., Nokia Corporation,
Samsung Corporation and Solectron Corporation.

Our principal offices are located at 23 Esquire Road, North Billerica,
Massachusetts 01862. Our telephone number is (978) 667-4111. We also have sales
and service facilities throughout North America, Europe and Asia. Our corporate
website is www.btu.com.

INDUSTRY BACKGROUND

Growth in Electronics. Demand is growing rapidly for increasingly
sophisticated electronic devices such as notebook computers, cellular phones,
and personal digital assistants (PDAs). Other types of electronics equipment are
becoming more complex, including data communications equipment such as switches,
routers and servers, broadband access products such as cable modems and ethernet
accessories and consumer products such as automobile electronics and digital
cameras.

Integral to the growth in electronics are the advances in technology which
result in producing smaller, lighter and cheaper end products. These advances
are achieved, in part, by increasing the performance and reducing the cost,
size, weight and power requirements of the components that comprise electronic
devices, such as electronic assemblies, PCBs and semiconductors. In response to
these developments, OEMs and CEMs are increasingly employing more sophisticated
manufacturing and assembly techniques and more advanced manufacturing equipment.

ELECTRONICS MANUFACTURING PROCESS. Electronics manufacturing processes
include integrated circuit manufacturing, integrated circuit packaging and the
assembly of PCBs. In the advanced semiconductor packaging and PCB assembly
processes, several precision thermal processes are required to connect and bond
integrated circuits (ICs) to semiconductor packages and packaged circuits and
other components to PCBs. The attachment process, which creates a permanent
physical and electrical bond, is called solder reflow, or reflow. For example,
the PCB assembly process involves heating a PCB upon which solder pads have been
printed and electronic components have been placed. A convection thermal
processing system heats the PCB until just above the melting point of the solder
pads and then provides a controlled cooling cycle, resulting in a permanent
physical and electrical bond between the PCB and the electronic components.
Flux, which is produced by vaporized solder during the solder reflow thermal
processing cycle, must be contained and collected. Following the bonding
process, voids must be filled with an epoxy material which is then thermally
cured.
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The growth in the electronics industry is driving manufacturers to demand
more versatile, more reliable and more advanced capital equipment. Other factors
that drive the demand for advanced thermal processing systems include:

- Rapid growth in contract electronics manufacturing;

- Sharp growth in manufacturing capacity at leading cellular phone
producers;

- Technological advances in semiconductor packaging and PCB assembly;

- Globalization of major electronics manufacturers;

- Move toward lead-free solder;

- Replacement of palladium with nickel in capacitors; and

- Increased velocity of new product introductions.

TECHNOLOGICAL CHALLENGES

Advanced thermal processing systems present significant engineering
challenges related to temperature control, atmosphere control, product handling,
flux containment and disposal, and high system up time.

Advanced thermal processing systems maintain accurate and uniform
temperatures within their process chambers. The temperature within the process
chamber is influenced by the rate at which components are moved through the
system and the weight and density of the PCBs. In addition, the thermal
processing system's heat convection rate must be varied and controlled as
different components and PCBs are processed. The chamber must also dispense heat
uniformly across the PCBs and components at precise temperatures so that all of
the solder will reflow properly without damaging the components. Also,
components must be heated and cooled at closely preset rates in order to avoid
damage caused by thermal stress.

Another technological challenge for advanced thermal processing systems is
achieving precisely controlled atmospheric conditions within the process
chamber. In order to facilitate thermal processing without damage to components,
many advanced thermal processing systems use a substantially oxygen-free
atmosphere of nitrogen or hydrogen in their process chambers. If such gases are
used, the entry of contaminating air must be substantially eliminated, even
though the product enters and exits the system continuously from the ambient
atmosphere. Maintaining a pure and controlled atmosphere in the process chamber,
while minimizing the consumption of nitrogen or hydrogen gases in order to
reduce operating costs, presents significant engineering challenges.

Handling PCBs in advanced thermal processing systems requires highly
reliable conveyance systems that can easily be converted to process a wide
variety of products having different specifications, often on side-by-side
tracks through the process chamber. The product handling system must also fully
support different sizes of PCBs to eliminate yield loss which could be caused by
the sagging of PCBs at elevated temperatures during the heating process.

Volatile compounds in the flux, which is vaporized during the solder reflow
thermal processing cycle, must be contained and collected so that they do not
condense in the system and damage the environment. The efficient containment,
collection and disposal of the flux are important factors in achieving high
system up time, high throughput and reliability.

The mechanical components in advanced thermal processing systems must
operate almost continuously in a demanding, elevated temperature environment
with frequent thermal cycles. The use of materials that are resistant to high
temperature and thermal stress is important to achieving high reliability.

OUR SOLUTION

We deliver a broad range of advanced thermal processing systems to serve
the needs of electronics manufacturers that require high throughput, process
yields and reliability with tightly controlled process parameters. Our systems
enable our customers to increase advanced semiconductor packaging and PCB
assembly throughput and yield by providing precise atmosphere and temperature
control. In addition to the high performance of our products, we believe the
quality standards of our organization and our worldwide service and support are
important to our success with industry leading global electronics manufacturers.

ATMOSPHERE UNIFORMITY AND CONTROL. Our advanced thermal processing systems
provide precision control over atmospheric conditions within their process
chambers by integrating our gas curtain and physical curtain technologies. Our
systems are capable of excluding virtually all oxygen from the reflow and curing
process steps to maintain the integrity of the process chamber atmosphere. In
addition, our systems minimize the consumption of nitrogen or hydrogen, thereby
reducing the operating cost of maintaining the atmosphere.

ACCURATE AND UNIFORM TEMPERATURE. Our high rate convection heating modules
provide controlled heating capacities across many different sizes of PCBs,
thereby enabling our customers to maximize throughput regardless of their
product mix. In addition, our systems apply heat uniformly across each PCB and
its semiconductor and other components, which is critical to ensure that
complete reflow occurs. Heat up and cool down profiles are also closely
controlled for process consistency and the protection of component parts.

REPEATABILITY FROM SYSTEM TO SYSTEM. We provide a high degree of
repeatability from system to system through our closely characterized atmosphere
and temperature controls and the reliability of our systems. This is a critical
attribute because our customers must achieve uniform manufacturing performance
in plants located throughout the world.

PROCESSING FLEXIBILITY. Major electronics manufacturers process many sizes
of PCBs and often need rapid product changeover capabilities. Our systems can
process PCBs of different sizes with minimal or no reconfiguration. Rapid
changeover reduces down time and increases manufacturing volume. In addition,
due to their very high volume requirements, our customers may require the
ability to process multiple

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PCBs simultaneously side by side through the same process chamber. Our systems
afford our customers the flexibility to achieve side-by-side processing.

RELIABILITY. Our customers place a high premium on reliability. Reliability
is a major contributor to low cost of ownership because high up time can
increase the productivity of an entire production line. We believe our advanced
thermal processing systems are the most reliable in our customers' production
lines and among the most reliable advanced thermal processing systems in the
electronics industry.

WORLDWIDE CUSTOMER SUPPORT. We provide our customers with global technical
service support, in depth process engineering support and fast delivery of our
systems and parts. We provide our customer support through our on-site direct
service organization and our independent sales and service representatives,
supplemented with telephonic support and extensive customer training programs
twenty- four hours a day, seven days a week.

PRODUCTS

We supply a broad range of advanced thermal processing systems, the
majority of which are used by OEMs and CEMs in the electronics manufacturing
industry. The major application for our products is currently in the PCB
assembly industry for solder reflow. Our advanced thermal processing systems are
used in the bonding process necessary for the manufacture of advanced
semiconducter packages and PCB assemblies. In addition, our products are used
for such custom applications as the sintering of ceramics, the brazing of metals
and the deposition of thin film coatings.

ELECTRONICS MANUFACTURING

PCB Reflow and Cure. We currently sell two series of advanced thermal
processing systems used in the solder reflow and cure stages of PCB assembly as
well as a new generation of systems under development.

The PARAGON series of advanced convection reflow systems, using specialized
fan drives, is rated up to 400(degrees)C and operates in air or nitrogen
atmospheres. The Paragon series utilizes an impingement technology to transfer
heat to the PCB. The Paragon series is designed to handle a wide range of board
sizes and can process loads of up to three pounds per square foot in a
controlled atmosphere. Using the thermal power arrays of five kilowatt heaters,
the Paragon can process PCBs in dual track configurations by engaging multiple
board supports, thereby enabling our customers to double production without
increasing the machine's footprint. This feature is primarily used in the
production of PCBs for cellular phones.

The solder reflow process requires the thermal processing system to manage
flux residues outgassed during the processing of the PCBs. The Paragon advanced
thermal processing systems are equipped with a patented flux management system
that isolates the flux outside the main process chamber, thereby helping to
maintain the integrity of the atmosphere and facilitate easy disposal. The
Paragon also features a closed loop convection control system to provide
repeatable processes and controllable convection flows used in direct chip
attach processes.

The Paragon series is available in three models based on the heated lengths
of the thermal processing chambers. The heated length is based on the required
production rate and loading requirements. The Paragon advanced thermal
processing systems, with a 400(degrees)C temperature rating, are capable of
processing lead-free solder. The Paragon series ranges in price from $70,000 to
$160,000.

The VIP series of fan based reflow and curing systems is rated up to
300(degrees)C and is available in either air or air/nitrogen configurations. The
VIP series also utilizes an impingement convection technology. The VIP uses 2.5
kilowatt heaters and is available in various heated lengths. The VIP series can
be upgraded to process lead-free materials and ranges in price from $40,000 to
$100,000.

We are developing, and expect to be selling by the second half of 2000, the
PYRAMAX series of thermal processing systems. This series is designed on a
single platform to be rapidly configurable, which will reduce our product build
cycle and allow us to meet customer demands for shorter delivery lead times. The
Pyramax offers our customers reduced capital cost, lower nitrogen consumption
and reduced scheduled maintenance cycles.

Our new Pyramax series provides increased process flexibility due to its
ability to process PCBs up to 24 inches wide. The Pyramax series, rated up to
400(degrees)C, is capable of operating in air or nitrogen atmospheres and has
increased convection flow for greater performance. The Pyramax systems will be
offered in various heated lengths and range in price from $70,000 to $150,000.
Our Pyramax series will be capable of processing lead-free solder.

The VIP and Pyramax advanced thermal processing systems can also be used
for advanced semiconductor packaging.

Advanced Semiconductor Packaging. We sell several systems for the thermal
processes used in advanced semiconductor packaging.

Wafer Bump Reflow. Our TCAS series of continuous belt advanced thermal
processing systems is rated up to 800(degrees)C and is designed for wafer
bump reflow. It can operate in a variety of controlled atmospheres
including hydrogen using patented gas barrier technology to achieve a high
purity hydrogen atmosphere. Our TCAS systems range in price from $100,000
to $300,000 and are available in various belt widths and heated lengths.

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Flip Chip Reflow in Package. Flip Chip Reflow physically and
electronically attaches the die to its package. Our TRS thermal processing
system is rated up to 350(degrees)C, operates in air or nitrogen and uses
an impingement convection system, which is unique for this application.
This system uses a gas amplifier instead of a fan to drive convection
flow. The TRS is currently used for flip chip reflow in the semiconductor
packaging industry. Our TRS has the capability to control nitrogen
atmospheres with oxygen levels below five parts per million which is
critical in the flip chip reflow process for high input/output
applications. Our TRS advanced thermal processing systems range in price
from $100,000 to $150,000.

Ball Grid Array Solder Sphere Attach Reflow. The VIP series, with
nitrogen atmosphere capability, is used for the attachment of solder balls
to the semiconductor package. Our VIP series, as configured with 70 inches
of heated length and nitrogen atmosphere, is used for the solder reflow
process. See "VIP" above.

Epoxy Underfill Cure. The VIP series, operating in a clean dry air
atmosphere, is used to cure the epoxy underfill materials in various
advanced semiconductor packaging technologies. To reduce footprint, the
VIP utilizes dual or triple track conveyance system for materials
requiring longer cure times. As part of the process, the VIP is used for
heating the epoxy underfill materials thereby keeping the material flowing
under the chip prior to the curing process.

Hybrid Circuits and Discrete Components. We offer a range of products that
are used in the manufacturing of multilayer ceramic capacitors and thick film
hybrid circuits.

Multilayer Ceramic Capacitors and Hybrid Circuits. We have developed
a new BME PUSHER thermal processing system for manufacturing advanced
nickel-based MLCCs. The process requires the sintering of the nickel
electrode in a very controlled multi atmosphere containing nitrogen,
hydrogen and oxygen at 1300(degrees) to 1400(degrees)C. The BME Pusher
controls partial pressures of oxygen, critical in the sintering process,
and ranges in price from $800,000 to $1.0 million.

We also supply a second type of system for MLCC manufacturing. Our
VMCA series of continuous belt advanced thermal processing systems, rated
up to 1100(degrees)C in air or nitrogen atmospheres, is used for firing
copper thick film for terminations of MLCC. The VMCA utilizes an advanced
gas scrubbing system to control the binder removal phase in the
termination firing process. The VMCA is available in various belt widths
and heated lengths and ranges in price from $100,000 to $150,000.

Thick Film Resistors and Conductors. The TFF and the VM series of
continuous belt advanced thermal processing systems is rated up to
1050(degrees)C in air. These systems are used for firing thick film pastes
in the production of hybrid circuits and can achieve an across belt
temperature uniformity of +/- 1(degrees)C. Such thermal uniformity is
critical in the production of resistor circuits. These systems are
available in various belt widths and heated lengths and range in price
from $50,000 to $180,000.

CUSTOM APPLICATIONS

We design and manufacture custom high temperature systems used in such
applications as metals brazing, ceramic sintering and thin film coatings.

Metals Brazing. The TCA series of continuous advanced thermal processing
systems is rated up to 1150(degrees)C and operates in a variety of atmospheres.
This series is used for a range of thermal processing applications including
brazing of metals such as aluminum oil coolers for the automotive industry. The
TCA series utilizes a patented system to enhance temperature uniformity and
increase product throughput. The TCA series is available in a variety of belt
widths and heated lengths and ranges in price from $70,000 to $500,000.

Ceramic Sintering. The WBE WALKING BEAM thermal processing system is rated
up to 1800(degrees)C and operates in a hydrogen reducing atmosphere. This series
is primarily used for sintering of multilayer ceramics and nuclear fuel pellets
that are used in the production of nuclear power. The WBE Walking Beam is
designed for high volume production applications with very heavy loads. It uses
a walking beam transport system to eliminate friction associated with advanced
thermal processing systems that use pusher technology. This system ranges in
price from $500,000 to $1.5 million.

We also offer a PUSHER thermal processing system which is rated up to
1800(degrees)C in a hydrogen reducing atmosphere. The Pusher is used in lower
volume applications for the sintering of ceramics and nuclear fuels. These
systems range in price from $500,000 to $1.0 million.

Thin Film Coatings. The TCD series of continuous advanced thermal
processing systems is used for the deposition of thin film coatings at
atmospheric pressure. Typical processes include the deposition of
anti-reflective coatings on silicon or glass. The TCD series is available in a
variety of belt widths and heated lengths and ranges in price from $300,000 to
$600,000.

CUSTOMERS

Many of our principal customers are large-volume global OEMs and CEMs that
produce ICs and assemble PCBs for use in the manufacture of electronic devices.
Many of our customers use our products in multiple facilities worldwide. Our CEM
customers include industry leaders such as Celestica and Solectron. Our OEM
customers include leaders in the their respective industries such as Intel and
Lucent as well as those in the telecommunications industry such as Motorola,
Nokia, and Samsung.

Our largest revenue generating customers have historically accounted for a
significant percentage of our net sales. In 1999, aggregate sales to our ten
largest customers accounted for approximately 50% of our net sales. In 1999,
sales to Solectron, our largest customer for that year, represented nearly 18%
of our total net sales. In 1998, Solectron and Intel represented approximately
14% and 13% of our net sales, respectively. In 1997, Solectron represented
approximately 14% of our net sales.

SALES AND MARKETING

We market and sell our products through our direct sales force and
independent sales representatives throughout the world and we promote our
products through industry-wide venues such as trade shows. Our direct sales
force is responsible for educating the marketplace, generating leads and
creating sales programs and literature. Our on-site direct service organization
and our manufacturers representatives provide ongoing services to customers
using our products. These services include implementing continuous improvement
tools related both to the cost of our products and to their technical
performance. These service functions allow us to market future sales within our
current customer base. In addition, our management and sales teams participate
in periodic trade conventions, through which we aggressively market our products
to potential customers.

We market our systems and services globally. Approximately 68% of our net
sales originate outside the United States, with Asia Pacific and Europe
representing 30% and 26% of net sales, respectively.

RESEARCH, DEVELOPMENT AND ENGINEERING

Our research, development and engineering efforts are directed toward
enhancing existing products and developing our next generation of products. Our
expenses for research, development and engineering increased from $4.6 million
in 1998 to $4.8 million in 1999. A large percent of our research, development
and engineering budget in 1999 was spent on the development of a new solder
reflow platform and in the design of our MLCC sintering systems.

We have developed close working relationships between our key customers and
our product engineering teams. These relationships enable us to incorporate our
customers' feedback and needs into our product development efforts.

We have reduced the time it takes to introduce new products and lowered
research, development and engineering costs by integrating product design,
manufacturing, engineering and after sales support documentation. We also have
begun an information technology initiative to develop language-independent
electronic service and repair support.

MANUFACTURING AND SUPPLIERS

Our principal manufacturing operations consist of final assembly, systems
integration and testing at our facility in North Billerica, Massachusetts. We
outsource the manufacture of most of our components to a number of different
suppliers and maintain close relationships with these key suppliers. We have a
list of qualified alternative suppliers in the event we exceed the capacity of
our key suppliers.

We made a significant investment to modernize our manufacturing operations
in 1998. In the future, we expect to make additional investments in software and
capital equipment related to our information technology infrastructure and
customer support. We have outsourced the manufacture of most of our significant
component systems in the last two years, thereby reducing cycle time and
increasing our inventory turnover. We adhere closely to the principles of total
quality management and have been ISO 9001 certified since March 1998. Our
customers, suppliers and employees are encouraged to provide feedback and make
suggestions for product improvements. These increased efficiencies in our
manufacturing operations have dramatically increased our net sales per employee.

INTELLECTUAL PROPERTY

We seek to protect our intellectual property by filing patents on
proprietary features of our advanced thermal processing systems and by
challenging third parties that we believe infringe on our patents. We also
protect our intellectual property rights with nondisclosure and confidentiality
agreements with employees, consultants and key customers and with our
trademarks, trade secrets and copyrights. As a global supplier of equipment, we
recognize that the laws of certain foreign countries may not protect our
intellectual property to the same extent as the laws of the United States.

We license some software programs from third party developers and
incorporate them into our products. Generally, these agreements grant us
non-exclusive licenses to use the software and terminate only upon a material
breach by us. We believe that such licenses are generally available on
commercial terms from a number of licensors.

We initiated a legal action on June 12, 1998 against Electrovert, Inc., a
Division of Cookson Group PLC (Electrovert) and one of Electrovert's
subsidiaries, claiming that the flux condenser on their advanced thermal
processing system infringes on our patent. Electrovert and its subsidiary have
filed two counter suits, claiming that parts of our thermal processing
technology infringe on their patents. We intend to vigorously protect our
proprietary rights in these actions.

BACKLOG

Backlog at December 31, 1999 was $11.3 million, compared to $10.9 million
at December 31, 1998. As of December 31, 1999, we expected to ship our year end
backlog within 6 to 20 weeks. Most of our backlog for solder reflow systems is
expected to be shipped within 3 to 8 weeks. The backlog of our custom systems is
expected to be shipped within 12 to 20 weeks. We include in backlog only those
orders for which the customer has signed a purchase order and a delivery
schedule has been specified. Because of possible changes in delivery schedules
and order cancellations, our backlog at any particular date is not necessarily
representative of sales for any subsequent period.

COMPETITION

Several companies compete with us in selling advanced thermal processing
systems to OEMs and CEMs. Although price is a factor in buying decisions
on price, we believe that technological leadership, process capability,
throughput, environmental safeguards, uptime, mean time-to-repair, cost of
ownership and after-sale support have become increasingly important factors. We
compete primarily on the basis of these criteria, rather than on the basis of
price.

Our principal competitors for advanced semiconductor packaging and PCB
assembly equipment vary by product application. Our principal competitors for
solder reflow systems are Electrovert-Speedline Technologies (a Cookson
Electronic Company), Heller Industries, and Vitronics-Soltec, Inc. (a Dover
Technologies Company). Our MLCC systems will primarily compete with systems
produced by Tokai, a Japanese manufacturer. Our high temperature systems for
thick film, hybrid circuits, ceramics and other applications compete primarily
against systems sold by Lindberg (a Unit of SPX Corp.), SierraTherm Production
Furnaces, Inc., Centrotherm and Harper International Corp.

EMPLOYEES

As of March 1, 2000, we had 294 employees, of whom 87 are engaged in sales,
marketing and service, 33 in research, development and engineering, 34 in
finance and administration and 140 in operations. None of our employees is
represented by a collective bargaining agreement, and we believe that we have
satisfactory relations with our employees.

ENVIRONMENTAL

Compliance with laws and regulations regarding the discharge of materials
into the environment, or otherwise relating to the protection of the
environment, has not had any material effects on the capital expenditures,
earnings or competitive position of the Company. The Company does not anticipate
any material capital expenditures for environmental control facilities in 2000.

ITEM 2. PROPERTIES

FACILITIES

We maintain our headquarters in North Billerica, Massachusetts, where we
own a 150,000 square foot manufacturing facility. We currently operate our
manufacturing facility on a full time first shift and a partial second shift
basis. In England, we lease a facility for our European sale and service
operations. We also rent office space in Paris, France. In Asia, we lease sales
and service offices in Shanghai and Beijing, China; Singapore; Penang, Malaysia;
and Cavite, Philippines. We believe that our plant and capital equipment provide
sufficient manufacturing capacity through 2000.

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ITEM 3. LEGAL PROCEEDINGS

There were no material legal proceedings pending as of the time of this
filing.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to a vote of the Company's security holders
during the fourth quarter of 1999.

ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT

NAME AGE POSITIONS
---- --- ---------

Paul J. van der Wansem 60 Chairman of the Board of Directors,
President and Chief Executive Officer

Santo J. DiNaro 54 Executive Vice President

Thomas P. Kealy 57 Vice President, Corporate Controller
and Chief Accounting Officer

James M. Griffin 42 Vice President of Sales-Americas

Paul J. van der Wansem has been President, Chief Executive Officer and a
member of our board of directors since 1979. From December 1977 to 1981, he
served as Vice President of Holec, N.V., a Dutch electronics company, and from
1978 to 1981, he was also president of Holec (USA), Inc. From 1973 to 1977, he
worked as a Management Consultant for the Boston Consulting Group, Inc. From
1970 to 1973, Mr. van der Wansem worked as an Adjunct Director of First National
City Bank in Amsterdam and New York. Mr. van der Wansem received an
undergraduate degree in automotive engineering from Bromsgrove College, England
and holds an M.B.A. from IMD, Switzerland.

Santo J. DiNaro has been Executive Vice President of our company since May
1999. He joined our company as Vice President of Operations and Engineering in
December 1997. Prior to joining our company, Mr. DiNaro served as head of
Engineering at Varian's Ion Implant Division and previously was the Operations
Manager. Mr. DiNaro was with Varian for 17 years. Mr. DiNaro has a B.S. in
Mechanical Engineering from Northeastern University.

Thomas P. Kealy has been Vice President, Corporate Controller and Chief
Accounting Officer of our company since February 1991. He has been the Corporate
Controller since joining our company in July 1985. Prior to 1985, Mr. Kealy
served for 14 years in various financial management positions, including
Division Controller for Polaroid Corporation. Earlier he was the Corporate
Controller for Coro, Inc. and Lebanon, Inc. Mr. Kealy holds a B.S. in Finance
and Accounting from Bentley College and an M.B.A. from Clark University.

James M. Griffin has been Vice President Sales-Americas of our company
since February 2000. Previously, Mr. Griffin was our Director of Sales-North
America. Mr. Griffin has held a number of positions within our company's sales
organization. Mr. Griffin has been with our company for 17 years. Mr. Griffin
attended Worcester Polytechnic Institute in the mechanical engineering program.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS.

Our common stock has been listed on the Nasdaq National Market System under
the symbol "BTUI" since February 7, 1989. The following table sets forth, for
the periods indicated, the high and low closing prices of our common stock as
reported on the Nasdaq National Market System.

HIGH LOW
-------- --------

Fiscal Year Ended December 31, 1998:
First Quarter............................................. $ 5.53 $ 4.25
Second Quarter............................................ 5.00 4.13
Third Quarter............................................. 4.25 2.50
Fourth Quarter............................................ 3.63 2.19
Fiscal Year Ended December 31, 1999:
First Quarter............................................. 4.00 3.00
Second Quarter............................................ 5.00 2.69
Third Quarter............................................. 5.75 4.00
Fourth Quarter............................................ 5.75 4.31

As of March 29, 2000 there were approximately 519 stockholders of record.

5
8
DIVIDEND POLICY

Our policy is to retain earnings to provide funds for the operation and
expansion of our business. We have not paid cash dividends on our common stock
and do not anticipate that we will do so in the foreseeable future. The payment
of dividends in the future will depend on our growth, profitability, financial
condition and other factors that our board of directors may deem relevant.

ITEM 6. SELECTED FINANCIAL DATA

The selected consolidated statement of operations data for each of the
fiscal years ended December 31, 1997, December 31, 1998 and December 31, 1999
and the selected consolidated balance sheet data as of December 31, 1998 and
December 31, 1999 have been derived from our consolidated financial statements
audited by Arthur Andersen LLP, independent public accountants, and are included
elsewhere in this Form 10-K. The selected consolidated statement of operations
data for the fiscal years ended December 31, 1995 and December 31, 1996 and the
selected consolidated balance sheet data as of December 31, 1995, December 31,
1996 and December 31, 1997 have been derived from audited financial statements
not included in this Form 10-K. This data should be read together with our
consolidated financial statements and related notes and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" appearing
elsewhere in this Form 10-K.

FISCAL YEAR ENDED DECEMBER 31,
---------------------------------------------------
1995 1996 1997 1998 1999
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net sales.......................................... $58,274 $45,811 $52,118 $56,468 $70,476
Cost of goods sold................................. 32,022 26,768 30,431 33,985 42,478
------- ------- ------- ------- -------
Gross profit..................................... 26,252 19,043 21,687 22,483 27,998
Selling, general and administrative................ 15,583 14,123 15,349 16,021 19,471
Research, development and engineering.............. 4,266 3,850 3,808 4,575 4,786
Restructuring charge(1)............................ -- -- 530 -- --
------- ------- ------- ------- -------
Operating income................................. 6,403 1,070 2,000 1,887 3,741
Interest income (expense), net..................... (290) (255) (10) (46) 8
Other income (expense)............................. 90 82 (341) 73 24
Gain on sale of minority investment(2)............. -- 3,400 -- -- --
------- ------- ------- ------- -------
Income before provision for income taxes........... 6,203 4,297 1,649 1,914 3,773

Net income from continuing operations.............. 5,073 744 1,250 1,533 2,838

Net income....................................... $ 5,073 $ 3,560 $ 1,250 $ 1,533 $ 2,838
======= ======= ======= ======= =======

Earnings per share, diluted, from continuing
operations(3) ................................... $ 0.68 $ 0.11 $ 0.17 $ 0.22 $ 0.41
======= ======= ======= ======= =======

Earnings per share, diluted........................ $ 0.68 $ 0.49 $ 0.17 $ 0.22 $ 0.41
======= ======= ======= ======= =======

Weighted average shares outstanding, diluted....... 7,320 7,338 7,336 7,118 6,968

DECEMBER 31,
---------------------------------------------------
1995 1996 1997 1998 1999
------- ------- ------- ------- -------
(IN THOUSANDS)

CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.......................... $ 6,145 $10,218 $11,873 $10,594 $12,431
Working capital.................................... 18,005 25,268 26,098 24,961 26,693
Total liabilities.................................. 17,138 14,556 16,821 15,478 17,346
Total assets....................................... 35,834 36,763 40,379 38,615 43,149
Stockholders' equity............................... 18,696 22,207 23,558 23,137 25,803

- ------------
(1) In 1997, we incurred a one-time restructuring charge resulting from the
implementation of our strategy to outsource subassemblies and change our
approach in our sales and service support in certain Asia Pacific
countries.

(2) In 1996, we sold our 19.4% minority interest in Bruce Technologies
International, Inc. for $7.0 million. As a result, we recognized a pretax
gain on this investment of $3.4 million, net of direct expenses.

(3) Earnings per share from continuing operations exclude the sale of the
minority interest in Bruce Technologies, Inc.

6
9
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

OVERVIEW

We design, manufacture, sell and support advanced thermal processing
systems used primarily in the assembly of PCBs and in advanced semiconductor
packaging. We believe we are the leading supplier of solder reflow systems used
by OEMs and CEMs. In addition, we produce advanced high temperature processing
systems for manufacturing ceramic components for electronic devices and a
variety of specialty applications.

We derive our net sales from customers around the world. Our customers
include large multinational OEMs and CEMs requiring advanced thermal processing
equipment solutions. In 1999, net sales to our five largest customers accounted
for 42.0% of our total net sales. Our net sales in 1999 were dispersed
worldwide, with approximately 32.0% to customers in the United States, 30.0% to
Asia Pacific customers, 26.0% to European customers and 12.0% to customers in
the rest of the world. Over the past three years, the percentage of our net
sales to international customers has increased from 50.0% in 1997 to 68.0% in
1999. This shift reflects the continued trend toward offshore manufacturing by
our U.S.-based multinational customers and the successful penetration of new
non-U.S. based customers.

RESULTS OF OPERATIONS

The following table sets forth the percentage of net sales of certain items
in our consolidated financial statements for the periods indicated.

FISCAL YEAR ENDED
DECEMBER 31,
------------------------
1997 1998 1999
----- ----- ------

Net sales................................................... 100.0% 100.0% 100.0%
Cost of goods sold.......................................... 58.4% 60.2% 60.3%
----- ----- ------
Gross profit.............................................. 41.6% 39.8% 39.7%
Operating expenses:
Selling, general and administrative....................... 29.5% 28.4% 27.6%
Research, development and engineering..................... 7.3% 8.1% 6.8%
Restructuring charge...................................... 1.0% 0.0% 0.0%
----- ----- ------
Operating income.......................................... 3.8% 3.3% 5.3%
Interest income............................................. 0.9% 0.7% 0.6%
Interest expense............................................ (0.9)% (0.8)% (0.6)%
Other income (expense), net................................. (0.7)% 0.1% 0.0%
----- ----- ------
Income before provision for income taxes.................... 3.2% 3.4% 5.4%
Income taxes................................................ 0.8% 0.7% 1.3%
----- ----- ------
Net Income.................................................. 2.4% 2.7% 4.0%
===== ===== ======

7
10
FISCAL YEAR ENDED DECEMBER 31, 1999 AS COMPARED TO FISCAL YEAR ENDED DECEMBER
31, 1998

Net Sales. Net sales increased 24.8% from $56.5 million in 1998 to $70.5
million in 1999. The increase in 1999 net sales reflects the higher demand for
our products, primarily by our large multinational OEMs and CEMs. This increase
in net sales also reflects growth of approximately 14.0% in the electronics
manufacturing market and the gain in market share we have achieved with our
medium and high end solder reflow systems.

The percentage of net sales attributable to our customers in the United
States declined by 3.3%, net sales attributable to our customers in Europe
increased by 2.2%, net sales attributable to our Asia Pacific customers
increased by 1.1% and there was a minimal percentage change in net sales in the
rest of the world. The larger growth rate in net sales to European and Asia
Pacific customers reflects the trend toward offshore manufacturing by our
U.S.-based and multinational customers and our increased sales to overseas
domestic manufacturers. The effect of price changes for specific products has
not materially impacted the change in net sales for the periods presented.

Gross Profit. Gross profit increased 24.5% from $22.5 million in 1998 to
$28.0 million in 1999 and, as a percentage of net sales, decreased from 39.8% in
1998 to 39.7% in 1999. The increase in gross profit for 1999 was due to the
increase in net sales in 1999.

Selling, General and Administrative. Selling, general and administrative
increased 21.5% from $16.0 million in 1998 to $19.5 million in 1999, and as a
percentage of net sales, decreased from 28.4% to 27.6%. The higher costs in 1999
were primarily the result of a $14.0 million increase in our net sales. The
higher selling, general and administrative in 1999 can be attributed to an
increase in customer service support for our worldwide customer base and higher
selling expenses. In 1999, sales commission expense was higher as the number of
products sold through agents increased. Warranty costs were also higher in 1999
due to our rapid growth and the increase in the use of outside service
contractors in the latter part of the year. In addition, higher bonuses were
recorded in 1999 compared to 1998, due to the increase in net income.

Research, Development and Engineering. Research, development and
engineering increased 4.6% from $4.6 million in 1998 to $4.8 million in 1999,
and as a percentage of net sales, decreased from 8.1% in 1998 to 6.8% in 1999.
In 1999, we increased our investment in new product development.

Operating Income. Operating income increased 98.3% from $1.9 million in
1998 to $3.7 million in 1999, and as a percentage of net sales, increased from
3.3% in 1998 to 5.3% in 1999. In 1999, the increase in operating income was the
result of a 24.8% increase in net sales over 1998. In addition, our cost
structure for sales, general and administrative and research, development and
engineering increased at a lower rate than did the net sales percentage.

Income Taxes. Income taxes increased from $381,000 in 1998 to $935,000 in
1999. Our effective tax rates were 19.9% in 1998 and 24.8% in 1999. The 1999 and
1998 effective tax rates reflect the use of net operating loss carryforwards
available to our UK subsidiary, which was profitable in 1999 and 1998. During
1999 and 1998, we recorded the benefit of these net operating losses, resulting
in the lower effective tax rates. Our statutory federal income tax rate is
34.0%.

8
11

FISCAL YEAR ENDED DECEMBER 31, 1998 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1997

Net Sales. Net sales increased 8.3% from $52.1 million in 1997 to $56.5
million in 1998. The increase in net sales in 1998 reflects the higher demand
for our products, primarily by our large multinational customers, despite a
decline in the overall market for capital equipment in electronics manufacturing
during the period. In addition, we saw an increase in net sales of our large
thermal processing systems for the sintering of nuclear fuels.

During 1998, the percentage of net sales attributable to our customers in
the United States declined by 14.7%. This was offset by a 4.9% increase in net
sales to our Asia Pacific customers, a 1.0% increase in net sales to our
European customers and an 8.8% increase in net sales to customers in the rest of
the world. The increase in non-United States net sales was due to expansion in
production by multinational companies to offshore facilities and our market
penetration of non-domestic customers. The effect of price changes for specific
products has not materially impacted the change in net sales for the periods
presented.

Gross Profit. Gross profit increased 3.7% from $21.7 million in 1997 to
$22.5 million in 1998, and as a percentage of net sales, decreased from 41.6% in
1997 to 39.8% in 1998. The increase in gross profit for 1998 was due to the
increase in net sales compared to 1997. The decrease in the gross margin
percentage in 1998 was due to our product mix and price pressure for our more
competitive, high volume products.

Selling, General and Administrative. Selling, general and administrative
increased 4.4% from $15.3 million in 1997 to $16.0 in 1998 and, as a percentage
of net sales, decreased from 29.5% in 1997 to 28.4% in 1998. The higher costs in
1998 were primarily the result of an increase of $4.4 million in net sales and
resulting increased costs for sales and service to support our increasing
worldwide customer base. These increases in costs were offset by a lower overall
commission expense as we increased our direct sales and service locations in
certain Asia Pacific countries.

Research, Development and Engineering. Research, development, and
engineering increased 20.1% from $3.8 million in 1997 to $4.6 million in 1998,
and as a percentage of net sales, increased from 7.3% in 1997 to 8.1% in 1998.
In 1998, the increase in research, development and engineering was the result of
adding and implementing new engineering management resources and technologies.

Operating Income. Operating income decreased 5.7% from $2.0 million in
1997 to $1.9 million in 1998, and as a percentage of net sales, decreased from
3.8% in 1997 to 3.3% in 1998. In 1998, the decrease in operating income resulted
from a $530,000 one time restructuring charge incurred as the result of the
implementation of our strategy to outsource subassemblies and a change in
strategy for our sales and service support in certain Asia Pacific countries.

Income Taxes. Income taxes decreased from $399,000 in 1997 to $381,000 in
1998. Our effective tax rates were 24.2% in 1997 and 19.9% in 1998. The 1998 and
1997 effective tax rates reflect the use of net operating loss carryforwards
available to our UK subsidiary, which was profitable in 1998 and 1997. During
1998 and 1997, we recorded the benefit of these net operating losses, resulting
in the lower effective tax rates. Our statutory federal income tax rate is
34.0%.

9
12
LIQUIDITY AND CAPITAL RESOURCES

As of December 31, 1999, we had $12.4 million in cash and cash equivalents,
an increase of $1.8 million compared to December 31, 1998. The increase was
primarily a result of cash flow from operations.

We have an unsecured revolving line of credit that allows for aggregate
borrowings, including letters of credit, up to $14.0 million. We may elect to
borrow at either the bank's base rate or the Eurodollar rate in effect from time
to time. This loan agreement was extended in 1999 until April 30, 2004 and is
subject to certain financial covenants. No amounts were outstanding under this
agreement as of December 31, 1999 or at any time in 1999.

We have a mortgage note that is secured by our real property. The mortgage
note had an outstanding balance at December 31, 1999 of approximately $5.1
million. The mortgage requires monthly payments of $53,922, which includes
interest calculated at the rate of 8.125% per annum. A final balloon payment of
approximately $3.8 million is due on July 1, 2004 upon maturity of the mortgage
note.

During 1999, we invested approximately $1.8 million in capital improvements
to enhance our information technology infrastructure and to develop several
equipment prototypes. We do not presently have any outstanding commitments for
capital expenditures that would have a material impact on our liquidity and
future capital resources.

During 1999, we repurchased an additional 87,000 shares of our common stock
for $372,000. This stock buy back program reduced the number of outstanding
shares of stock during 1999 by 1.3%. These repurchases were approved by our
board of directors in 1998.

We expect that our current cash position, ability to borrow necessary funds
and cash flows from operations will be sufficient to meet our corporate,
operating and capital requirements into 2001.

MARKET RISK DISCLOSURE

Our primary market risk exposure is in the area of foreign currency
exchange rate risk. We are exposed to currency exchange rate fluctuations as
they pertain to invoices for parts and labor in our foreign service locations.

As of December 31, 1999, all of our long-term debt and capital lease
obligations are fixed rate financial instruments, thus we are not exposed to
interest rate risk resulting from variable interest rate of its debts.

OTHER MATTERS

The impact of inflation and the effect of foreign exchange rate changes
during 1999 have not had a material impact on our business and financial
results.

10
13
RECENT ACCOUNTING DEVELOPMENTS

In December 1999, the SEC issued Staff Accounting Bulletin (SAB) No. 101,
"Revenue Recognition in Financial Statements," which provides additional
guidance in applying generally accepted accounting principles for revenue
recognition to a company's consolidated financial statements. SAB No. 101
addresses several issues, including the timing for recognizing revenue derived
from arrangements that provide for customer acceptance or product installation
after shipment and transfer of title.

Our existing revenue recognition policy is to recognize revenue at the time
the customer takes title of the product, generally at the time of shipment,
because we have routinely met our installation obligations and obtained customer
acceptance. Applying the requirements of SAB No. 101 to the present arrangements
used in our thermal processing systems sales may result in a change in our
accounting policy for revenue recognition and the deferral of the revenue for
some equipment sales until installation is complete and accepted by the
customer. We are currently evaluating the impact that SAB No. 101 might have on
our revenue recognition policies. However, there will be no impact on our cash
flows from operations as a result of this change.

We are required to report the impact of SAB No. 101, as amended by SAB No.
101A, no later than the second fiscal quarter of the fiscal year 2000. The
effect of the change will be recognized as a cumulative effect of a change in
accounting principle as of January 1, 2000. Accordingly, the first quarter of
year 2000 financial results may be restated to the extent that SAB No. 101 is
relevant and material. Prior year financial statements will not be restated. We
are also considering potential changes to our standard contracts that could
mitigate the impact of SAB No. 101 in the future.

In June 1998, the Financial Standards Accounting Board issued Statement of
Financial Accounting Standard (SFAS) No. 133 "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. The
statement requires that changes in the derivative's fair value be recognized
currently in income unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the statement of income and
requires that a company must formally document, designate and assess the
effectiveness of transactions that receive hedge accounting. SFAS No. 133, as
amended by SFAS No. 137 "Accounting for Derivative Instruments and Hedging
Activities Deferral of the Effective Date of FASB Statement No. 133," shall be
effective for all fiscal quarters of all fiscal years beginning after June 15,
2000. SFAS No. 133 cannot be applied retroactively. SFAS No. 133, as amended,
must be applied to (a) derivative instruments and (b) certain derivative
instruments embedded in hybrid contracts that were issued, acquired, or
substantively modified after December 31, 1997 (and, at our election, before
January 1, 1998). We have not yet quantified the impact of adopting SFAS No. 133
on our consolidated financial statements and have not determined the timing nor
method of its adoption of the statement. However, we do not expect that the
adoption of this statement will have a material impact on our financial position
or results of operations.

11
14
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by item 8 of Form 10-K is presented here in the
following order:

Unaudited Quarterly Financial Information...................
Consolidated Balance Sheet as of December 31, 1999 and
1998......................................................
Consolidated Statement of Operations for the years ended
December 31, 1999, 1998, and 1997.........................
Consolidated Statement of Stockholders' Equity for the years
ended December 31, 1999, 1998 and 1997....................
Consolidated Statement of Cash Flows for the years ended
December 31, 1999, 1998 and 1997..........................
Notes to Consolidated Financial Statements..................
Report of Independent Public Accounts.......................

UNAUDITED QUARTERLY RESULTS OF OPERATIONS

The following table presents unaudited statements of operations data for
each of the eight quarters in the period ended December 31, 1999 with such data
expressed as a percentage of net sales for the period indicated. We believe that
all necessary adjustments have been included to present fairly the quarterly
information when read in conjunction with our consolidated financial statements.
The operating results for any quarter are not necessarily indicative of the
results for any subsequent period.

12
15
CONSOLIDATED STATEMENT OF OPERATIONS DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

QUARTER ENDED
----------------------------------------------------------------------------------------
MAR. 29, JUNE 28, SEPT. 27, DEC. 31, MAR. 28, JUNE 27, SEPT. 26, DEC. 31,
1998 1998 1998 1998 1999 1999 1999 1999
-------- -------- --------- -------- -------- -------- --------- ---------

Net sales......................... $12,101 $14,314 $14,039 $16,014 $15,876 $16,199 $17,795 $20,606
Cost of goods sold................ 7,162 8,533 8,472 9,818 9,773 9,683 10,780 12,242
------- ------- ------- ------- ------- ------- ------- -------
Gross profit...................... 4,939 5,781 5,567 6,196 6,103 6,516 7,015 8,364
Selling, general and
administrative.................. 3,673 3,974 4,017 4,357 4,330 4,371 4,845 5,925
Research, development and
engineering..................... 1,172 1,235 964 1,204 1,053 1,247 1,148 1,338
------- ------- ------- ------- ------- ------- ------- -------
Income from operations............ 94 572 586 635 720 898 1,022 1,101
Interest income (expense), net.... 6 (22) (15) (15) 22 (39) 26 (1)
Other income (expense), net....... 4 40 11 18 39 6 (44) 23
------- ------- ------- ------- ------- ------- ------- -------
Income before taxes............... 104 590 582 638 781 865 1,004 1,123
Income tax (benefit) provision.... (22) 110 181 112 237 257 303 138
------- ------- ------- ------- ------- ------- ------- -------
Net income...................... $ 126 $ 480 $ 401 $ 526 $ 544 $ 608 $ 701 $ 985
======= ======= ======= ======= ======= ======= ======= =======
Earnings per share, diluted....... $ 0.02 $ 0.07 $ 0.06 $ 0.08 $ 0.08 $ 0.09 $ 0.10 $ 0.14
======= ======= ======= ======= ======= ======= ======= =======

Weighted average shares,
diluted......................... 7,360 7,212 7,060 6,856 6,910 6,925 7,010 7,019

QUARTER ENDED
----------------------------------------------------------------------------------------
MAR. 29, JUNE 28, SEPT. 27, DEC. 31, MAR. 28, JUNE 27, SEPT. 26, DEC. 31,
1998 1998 1998 1998 1999 1999 1999 1999
-------- -------- --------- -------- -------- -------- --------- ---------

PERCENTAGE OF NET SALES:
Net sales......................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold................ 59.2 59.6 60.3 61.3 61.6 59.8 60.6 59.4
------- ------- ------- ------- ------- ------- ------- -------
Gross profit...................... 40.8 40.4 39.7 38.7 38.4 40.2 39.4 40.6
Selling, general and
administrative.................. 30.4 27.8 28.6 27.2 27.3 27.0 27.2 28.8
Research, development and
engineering..................... 9.7 8.6 6.9 7.5 6.6 7.7 6.5 6.5
------- ------- ------- ------- ------- ------- ------- -------
Income from operations............ 0.8 4.0 4.2 4.0 4.5 5.5 5.7 5.3
Interest income (expense), net.... 0.0 (0.2) (0.1) (0.1) 0.1 (0.2) 0.1 (0.0)
Other income (expense), net....... 0.0 0.3 0.1 0.1 0.2 0.0 (0.2) 0.1
------- ------- ------- ------- ------- ------- ------- -------
Income before taxes............... 0.9 4.1 4.1 4.0 4.9 5.3 5.6 5.4
Income tax (benefit) provision.... (0.2) 0.8 1.3 0.7 1.5 1.6 1.7 0.7
------- ------- ------- ------- ------- ------- ------- -------
Net income...................... 1.0% 3.4% 2.9% 3.3% 3.4% 3.8% 3.9% 4.8%
======= ======= ======= ======= ======= ======= ======= =======

Net sales increased from $12.1 to $20.6 million over the eight quarters in
1998 and 1999. During this period, net sales increased in each quarter, except
in the third quarter of 1998 and the first quarter of 1999. Historically, net
sales in the first quarter of every year have been the lowest in the year due to
the buying patterns of our customers. Overall growth in net sales resulted from
the continued growth in electronics manufacturing and our increase in market
share.

Gross profits as a percentage of net sales during the last eight quarters
have ranged between 38.4% and 40.8%. We outsourced our subassemblies in order to
maximize our core competencies and utilize more flexible manufacturing
processes.

Our selling, general and administrative has generally increased over the
quarters to support our expanding worldwide customer base. Research, development
and engineering is related to the development of new products, including our
MLCC system. However, these operating costs have generally decreased as a
percentage of net sales over the quarterly periods displayed.

Income from operations in this period has increased in absolute amounts in
every quarter. Net income has risen every quarter, except in the third quarter
of 1998, from $126,000 in the first quarter of 1998 to $985,000 in the fourth
quarter of 1999.

Earnings per share, diluted increased from $0.02 in the first quarter 1998
to $0.14 in the last quarter 1999.

13

16

BTU INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

AS OF DECEMBER 31,
------------------
1999 1998
------- -------

ASSETS
Current Assets:
Cash and cash equivalents (Notes 1 and 11)................ $12,431 $10,594
Trade accounts receivable, less reserves of $160 in 1999
and 1998 (Note 1)...................................... 14,563 12,427
Inventories (Note 1)...................................... 9,617 10,084
Other current assets (Note 6)............................. 678 411
------- -------
Total current assets.............................. 37,289 33,516
------- -------
Property, Plant and Equipment, at cost (Notes 1 and 3)
Land...................................................... 210 210
Buildings and improvements................................ 7,329 7,186
Machinery and equipment................................... 6,513 5,675
Furniture and fixtures.................................... 830 828
------- -------
14,882 13,899
Less-accumulated depreciation.......................... 9,341 9,159
------- -------
Net property, plant and equipment...................... 5,541 4,740
------- -------
Other assets, net of accumulated amortization of $441 in
1999 and $434 in 1998..................................... 319 359
------- -------
Total Assets...................................... $43,149 $38,615
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt and capital lease
obligations (Note 3)................................... $ 267 $ 226
Trade accounts payable (Note 9)........................... 6,665 5,382
Customer deposits......................................... -- 124
Accrued expense (Note 2).................................. 3,664 2,823
------- -------
Total current liabilities......................... 10,596 8,555
Long-term debt and capital lease obligations less current
maturities (Notes 3 and 11)............................... 4,953 5,167
Deferred income taxes (Notes 1 and 6)....................... 1,797 1,756
------- -------
Total Liabilities................................. $17,346 $15,478
------- -------
Commitments and contingencies (Note 3)
Stockholders' Equity (Note 8):
Class A preferred stock, $1.00 par value --
Authorized -- 2,000,000 shares Issued and
outstanding -- none.................................... -- --
Series preferred stock, $1.00 par value --
Authorized -- 5,000,000 shares
Issued and outstanding -- none......................... -- --
Common Stock, $.01 par value --
Authorized -- 25,000,000 shares
Issued -- 7,770,446, outstanding 6,794,536 in 1999 and
Issued -- 7,695,924, outstanding 6,806,763 in 1998..... 78 77
Additional paid-in capital................................ 20,543 20,322
Retained earnings......................................... 8,432 5,594
Less treasury stock at cost 975,910 and 889,161 shares, at
December 31, 1999 and 1998, respectively............... (3,538) (3,166)
Accumulated other comprehensive income (Note 1)........... 288 310
------- -------
Total stockholders' equity........................ 25,803 23,137
------- -------
Total Liabilities and Stockholders' Equity........ $43,149 $38,615
======= =======

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

14
17

BTU INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

YEARS ENDED DECEMBER 31,
-----------------------------
1999 1998 1997
------- ------- -------

Net sales (Notes 1, 4, and 5)............................... $70,476 $56,468 $52,118
Cost of goods sold.......................................... 42,478 33,985 30,431
------- ------- -------
Gross profit................................................ 27,998 22,483 21,687
------- ------- -------
Selling, general and administrative (Note 9).............. 19,471 16,021 15,349
Research, development and engineering (Note 1)............ 4,786 4,575 3,808
Restructuring charge...................................... -- -- 530
------- ------- -------
Operating income............................................ 3,741 1,887 2,000
Interest income........................................... 440 405 478
Interest expense (Note 3)................................. (432) (451) (488)
Other income (expense).................................... 24 73 (341)
------- ------- -------
Income before provision for income taxes.................... 3,773 1,914 1,649
Provision for income taxes (Notes 1 and 6)................ 935 381 399
------- ------- -------
Net income.................................................. $ 2,838 $ 1,533 $ 1,250
======= ======= =======
Earnings per share:
Basic..................................................... $ 0.42 $ 0.22 $ 0.17
======= ======= =======
Diluted................................................... $ 0.41 $ 0.22 $ 0.17
======= ======= =======
Weighted average number of shares outstanding:
Basic shares.............................................. 6,799 7,068 7,291
Effect of Dilutive Options................................ 169 50 45
------- ------- -------
Diluted Shares............................................ 6,968 7,118 7,336
======= ======= =======

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

15
18
BTU INTERNATIONAL, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE DATA)

ACCUMULATED
ADDITIONAL OTHER TOTAL
COMMON PAID-IN RETAINED TREASURY COMPREHENSIVE STOCKHOLDERS'
STOCK CAPITAL EARNINGS STOCK INCOME EQUITY
------ ---------- -------- -------- ------------- -------------

BALANCE AT DECEMBER 31, 1996............. $76 $20,115 $2,811 $(1,183) $388 $22,207
Net income............................. -- -- 1,250 -- -- 1,250
Translation adjustment................. -- -- -- -- (35) (35)
Sales of common stock and exercise of
stock options (Note 8)............... 1 108 -- -- -- 109
Tax benefit of stock options
exercised............................ -- 27 -- -- -- 27
--- ------- ------ ------- ---- -------
BALANCE AT DECEMBER 31, 1997............. 77 20,250 4,061 (1,183) 353 23,558
Net income............................. -- -- 1,533 -- -- 1,533
Translation adjustment................. -- -- -- (43) (43)
Sale of common stock and exercise of
stock options (Note 8)............... -- 72 -- -- -- 72
Purchase of treasury stock............... -- -- -- (1,983) -- (1,983)
------- ------ ------- ---- -------
BALANCE AT DECEMBER 31, 1998............. 77 20,322 5,594 (3,166) 310 23,137
Net income............................. -- -- 2,838 -- -- 2,838
Translation adjustment................. -- -- -- -- (22) (22)
Sales of common stock and exercise of
stock options (Note 8)............... 1 187 -- -- -- 188
Tax benefits of options exercised...... -- 34 -- -- -- 34
Purchase of treasury stock............. -- -- -- (372) -- (372)
--- ------- ------ ------- ---- -------
BALANCE AT DECEMBER 31, 1999............. $78 $20,543 $8,432 $(3,538) $288 $25,803
=== ======= ====== ======= ==== =======

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS)

YEARS ENDED DECEMBER 31,
--------------------------
1999 1998 1997
------ ------ ------

Net income.................................................. $2,838 $1,533 $1,250
Other comprehensive income
Foreign currency translation adjustment................... (22) (43) (35)
------ ------ ------
Comprehensive income........................................ $2,816 $1,490 $1,215
====== ====== ======

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

16
19
BTU INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

YEARS ENDED DECEMBER 31,
-----------------------------
1999 1998 1997
------- ------- -------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 2,838 $ 1,533 $ 1,250
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization............................. 1,120 1,119 961
Deferred income taxes..................................... 41 (491) 44
Net changes in operating assets and liabilities:
Accounts receivable....................................... (2,136) (93) (1,704)
Inventories............................................... 467 (56) (268)
Other current assets...................................... (267) 713 537
Accounts payable.......................................... 1,283 (631) 1,889
Customer deposits......................................... (124) (304) (13)
Accrued expenses.......................................... 841 227 523
Other assets.............................................. 33 50 (193)
------- ------- -------
Net cash provided by operating activities.............. 4,096 2,067 3,026
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment, net............. (1,842) (1,248) (1,294)
------- ------- -------
Net cash used in investing activities.................. (1,842) (1,248) (1,294)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments under long-term debt and capital lease
obligations............................................... (245) (144) (300)
Issuance of common stock.................................... 188 72 109
Proceeds from mortgage reference............................ -- -- 122
Tax benefit of stock options exercised...................... 34 -- 27
Purchase of treasury stock.................................. (372) (1,983) --
------- ------- -------
Net cash used in financing activities.................. (395) (2,055) (42)
------- ------- -------
EFFECT OF EXCHANGE RATES ON CASH............................ (22) (43) (35)
------- ------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 1,837 (1,279) 1,655
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.............. 10,594 11,873 10,218
------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR.................... $12,431 $10,594 $11,873
======= ======= =======

Supplemental disclosures of cash flow information are included in Note 10.

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

17
20

BTU INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS

BTU International, Inc. and its wholly owned subsidiaries (the Company) are
primarily engaged in the design, manufacture, sale, and service of thermal
processing systems, which are used as capital equipment in various manufacturing
processes, primarily in the electronics industry.

PRINCIPLES OF CONSOLIDATION AND THE USE OF ESTIMATES

The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All material intercompany
balances and transactions have been eliminated in consolidation. The preparation
of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting periods. Actual results could vary
from these estimates.

CASH AND CASH EQUIVALENTS

The Company has classified certain liquid financial instruments, with
original maturities of less than three months, as cash equivalents.

INVENTORIES

Inventories consist of material, labor and overhead and are valued at the
lower of cost or market value. Cost is determined by the first-in, first-out
(FIFO) method for all inventories.

Inventories consist of the following (in thousands):

YEARS ENDED
DECEMBER 31,
-----------------
1999 1998
------ -------

Raw Materials and manufactured components................. $4,431 $ 4,970
Work-in-progress.......................................... 3,532 3,395
Finished goods............................................ 1,654 1,719
------ -------
$9,617 $10,084
====== =======

PROPERTY, PLANT AND EQUIPMENT

The Company provides for depreciation using the straight-line method over a
period sufficient to amortize the cost of the asset over its useful life. The
estimated useful lives for depreciation purposes are as follows:

Buildings and improvements.................................. 8-25 years
Machinery and equipment..................................... 2-8 years
Furniture and fixtures...................................... 5-8 years

Maintenance and repairs are charged to operations as incurred. When
equipment and improvements are sold or otherwise disposed of, the asset cost and
accumulated depreciation are removed from the accounts, and the resulting gain
or loss, if any, is included in the results of operations.

18
21
BTU INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

INCOME TAXES

Deferred tax assets and liabilities are recognized for the expected future
tax consequences of events that have been included in the consolidated financial
statements or tax returns. The amounts of deferred tax assets or liabilities are
based on the difference between the financial statement and tax basis of assets
and liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.

TRANSLATION OF FOREIGN CURRENCIES

Foreign currencies are translated in accordance with SFAS No. 52, "Foreign
Currency Translation." Under this standard, assets and liabilities of the
Company's foreign operations are translated into United States dollars at
current exchange rates. Income and expense items are translated at weighted
average rates of exchange prevailing during the year. Gains and losses arising
from translation are accumulated as a separate component of stockholders'
investment. Exchange gains and losses (if any) arising from transactions
denominated in foreign currencies are included in income as incurred. Such
exchange gains or losses were not material during the periods presented.

PATENTS

The Company has patents in the United States and certain foreign countries
for certain of its products and processes. No value has been assigned to these
patents in the accompanying consolidated financial statements.

REVENUE RECOGNITION

Revenue is recognized based upon completion of the earnings process, which
typically occurs upon the shipment of product to the customer, except for large
contracts that are not completed within the normal operating cycle of the
business, which are accounted for on a percentage completion basis. Under the
percentage completion method, revenues are recognized in proportion to costs
incurred compared to total estimated costs and a provision is made for any
anticipated loss. As of December 31, 1999 and 1998, $0 and $53,000,
respectively, of revenue was recognized on the percentage of completion method
for systems not yet shipped. During these years, revenue recognized using the
percentage completion method included in net sales was 2.3% for 1999 and 6.1%
for 1998.

RESEARCH, DEVELOPMENT AND ENGINEERING

Research, development and engineering costs are charged to expense as
incurred.

EARNINGS PER SHARE INFORMATION

Earnings Per Share (EPS) is presented under two calculations, Basic and
Diluted. Basic EPS is computed by dividing income available to common
stockholders by the weighted-average number of common shares outstanding during
the period. Diluted EPS is computed using the weighted average number of common
and dilutive potential common shares outstanding during the period, using the
treasury stock method. Options outstanding that were not included in the
determination of diluted EPS, because they were antidilutive, were 289,778 in
1999, 27,800 in 1998 and 42,500 in 1997.

RECLASSIFICATION

Certain prior year financial statement information has been reclassified to
conform with the current year presentation.

19
22
BTU INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

COMPREHENSIVE INCOME

The Company classifies items of other comprehensive income by their nature
in a financial statement and displays the accumulated balance of other
comprehensive income separately from retained earnings and additional paid in
capital in the equity section of the Balance Sheet. The only item of
comprehensive income other than net income is translation gains and losses from
foreign exchange, recorded in the equity section of the Balance Sheets.
Comprehensive Income is presented in the accompanying consolidated statements of
comprehensive income.

SEGMENT INFORMATION

The Company reports segment information as required by SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." The chief
operating decisions maker organizes segments within the company for making
operating decisions and assessing performance. Reportable segments are based on
products and services, geography, legal structure and management structure. (see
Note 12)

SAB NO. 101 REVENUE RECOGNITION IN FINANCIAL STATEMENTS

In December 1999, the SEC issued Staff Accounting Bulletin (SAB) No. 101,
"Revenue Recognition in Financial Statements," which provides additional
guidance in applying generally accepted accounting principles for revenue
recognition in company's consolidated financial statements. SAB No. 101
addresses several issues including the timing for recognizing revenue derived
from arrangements that involve either contractual customer acceptance provisions
or installation of the product occurs after shipment and transfer of title.

The Company's existing revenue recognition policy is to recognize revenue
at the time the customer takes title of the product, generally at the time of
shipment, because the Company has routinely met its installation obligations and
obtained customer acceptance. Applying the requirements of SAB No. 101 to the
present arrangements used in the Company's thermal processing equipment sales
may result in a change in the Company's accounting policy for revenue
recognition and the deferral of the revenue for some equipment sales until
installation is complete and accepted by the customer. The Company is currently
evaluating the impact that SAB No. 101 might have on its revenue recognition
policies. However, there will be no impact on the Company's cash flows from
operations as a result of this change.

The Company is required to report the impact of SAB No. 101, as amended by
SAB No. 101A, no later than the second fiscal quarter of the fiscal year 2000.
The effect of the change will be recognized as a cumulative effect of a change
in accounting principle as of January 1, 2000, thus the first quarter of year
2000 financial results may be restated to the extent that SAB No. 101 is
relevant and material. Prior year financial statements will not be restated. The
Company is also considering potential changes to its standard contracts that
could mitigate the impact of SAB No. 101 on a go forward basis.

20
23

BTU INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 2: ACCRUED EXPENSES

Accrued expenses at December 31, 1999 and 1998 consisted of the following
(in thousands):

1999 1998
------ ------

Accrued commissions........................................ $1,390 $ 976
Accrued warranty........................................... 660 535
Accrued income taxes....................................... 255 281
Accrued bonus.............................................. 519 60
Other...................................................... 840 971
------ ------
$3,664 $2,823
====== ======

(3) DEBT, CAPITAL LEASES, COMMITMENTS AND CONTINGENCIES

Debt at December 31, 1999 and 1998 consisted of the following (in
thousands):

1999 1998
------ ------

Mortgage note payable...................................... $5,089 $5,312
Capital lease obligations, interest rates ranging from
10.2% to 11.1%, net of interest of $38 and $26 in 1999
and 1998, respectively................................... 131 81
------ ------
5,220 5,393
Less current maturities.................................... 267 226
------ ------
$4,953 $5,167
====== ======

The mortgage note payable is secured by the Company's land and building and
requires monthly payments of $53,922, including interest at 8.125%. This
mortgage note payable has a balloon payment of $3,825,000 due and payable at
maturity on July 1, 2004.

The capital lease obligations relate to various equipment leases used in
the operation of the business.

Under the terms of the debt, the minimum repayments of long-term debt and
capital lease obligations by year are as follows (in thousands):

8.125% CAPITAL
MORTGAGE LEASES TOTAL
-------- ------- ------

2000..................................................... $ 242 $ 25 $ 267
2001..................................................... 263 29 292
2002..................................................... 285 29 314
2003..................................................... 309 22 331
2004..................................................... 3,990 26 4,016
------ ---- ------
$5,089 $131 $5,220
====== ==== ======

At December 31, 1999, the Company has an unsecured revolving line of credit
with a US bank which allows for aggregate borrowings and/or letters of credit of
up to $14,000,000. Borrowings are available to the Company at either the Bank's
base rate or a Eurodollar rate, as elected by the Company. This loan facility is
available to the Company until April 30, 2004, subject to compliance with
certain financial covenants. At December 31, 1999, the Company was in compliance
with all covenants of this agreement. As of December 31, 1999, no amounts were
outstanding under this unsecured revolving line of credit.

21
24
BTU INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company conducts its UK operations in a facility that is under a
long-term operating lease expiring in 2010. Rent expense under this lease was
approximately $143,000 in 1999, $145,000 in 1998, and $143,000 in 1997. In 1995,
the Company sublet a portion of this leased space. The initial term of the
sublease is five years. Under the terms of the sublease, the Company will
receive approximately $132,000 per year. At the end of the initial five year
sublet period, the sublease can be extended at market rates for two subsequent
and concurrent five year periods. As of December 31, 1999, the future minimum
lease commitment for this facility is $2,765,000, payable as follows: $240,000
for the year 2000, $273,000 for each of 2001, 2002, 2003 and 2004 and $1,433,000
thereafter through 2010.

The Company is a party to a patent lawsuit it originated and to various
claims arising in the normal course of business. Management believes the
resolution of these matters will not have a material impact on the Company's
results of operations or financial condition.

(4) FOREIGN OPERATIONS

The following table shows the amounts and percentages of the Company's
revenues by geographic region, for the last three years:

1999 1998 1997
------------- ------------- -------------

United States.......................... $22,552 32% $19,946 35% $26,061 50%
Europe................................. 18,324 26 13,446 24 11,862 23
Asia Pacific........................... 21,143 30 16,295 29 12,512 24
Rest of World.......................... 8,457 12 6,781 12 1,683 3

(5) CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS

Statement of Financial Accounting Standards No. 105, "Disclosure of
Information about Financial Instruments with Off-Balance-Sheet Risk and
Financial Instruments with Concentrations of Credit Risk," requires disclosure
of any significant off-balance-sheet and credit risk concentrations. The Company
has no significant off-balance-sheet concentrations such as foreign exchange
contracts, option contracts or other foreign hedging arrangements. The Company
maintains the majority of its cash and cash equivalent balances with one
financial institution.

One customer represented 18% of revenue in 1999. Two customers represented
14% and 13% respectively of revenue in 1998. One customer represented
approximately 14% of revenues in 1997.

(6) INCOME TAXES

The components of income before provision for income taxes are as follows
(in thousands):

YEARS ENDED DECEMBER 31,
--------------------------
1999 1998 1997
------ ------ ------

Domestic................................................. $2,163 $ 881 $1,040
Foreign.................................................. 1,610 1,033 609
------ ------ ------
Total.................................................... $3,773 $1,914 $1,649
====== ====== ======

22
25

BTU INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

For the years ended December 31, 1999, 1998 and 1997, the Company's
provisions for income taxes were as shown below (in thousands):

FEDERAL STATE FOREIGN TOTAL
------- ----- ------- -----

December 31, 1999
Current........................................ $ 662 $ 177 $55 $ 894
Deferred....................................... 85 (44) 0 41
----- ----- --- -----
$ 747 $ 133 $55 $ 935
===== ===== === =====
December 31, 1998
Current........................................ $ 491 $ 345 $36 $ 872
Deferred....................................... (216) (275) 0 (491)
----- ----- --- -----
$ 275 $ 70 $36 $ 381
===== ===== === =====
December 31, 1997
Current........................................ $ 308 $ 47 $ 0 $ 355
Deferred....................................... 39 5 0 44
----- ----- --- -----
$ 347 $ 52 $ 0 $ 399
===== ===== === =====

The differences between the statutory United States federal income tax rate
of 34% and the Company's effective tax rate are as follows (in thousands):

YEARS ENDED DECEMBER 31,
------------------------
1999 1998 1997
------ ----- -----

Tax provision at United States statutory rate............. $1,283 $ 650 $ 561
State and foreign income taxes, net of federal benefit.... 142 94 48
Utilization of foreign net operating loss carryforwards... (498) (293) (189)
Non-deductible and other.................................. 8 (70) (21)
------ ----- -----
Total provision........................................... $ 935 $ 381 $ 399
====== ===== =====

23
26
BTU INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Deferred income taxes and prepaid income taxes are comprised of the
following at December 31, 1999 and 1998 (in thousands):

1999 1998
------- -------

Revenues recognized for books, not tax................... $(2,860) $(3,814)
Accelerated tax depreciation............................. 0 (68)
Other.................................................... (116) (116)
------- -------
Total deferred liabilities..................... $(2,976) $(3,998)
======= =======
Inventory reserves....................................... 331 371
Inventory capitalization................................. 74 71
Accruals and other....................................... 577 460
Foreign net operating loss carryforward.................. 0 498
Accelerated tax depreciation............................. 65 0
Federal tax credit carryforwards......................... 132 1,340
------- -------
Total deferred assets.......................... 1,179 2,740
------- -------
Total net deferred liability................... (1,797) (1,258)
Valuation allowance...................................... 0 (498)
------- -------
Net deferred income tax liability........................ $(1,797) $(1,756)
======= =======

The valuation allowance at December 31, 1998 related to uncertainty
surrounding the realization of the foreign net operating loss carryforwards. For
the year ended December 31, 1999 the Company realized the use of the foreign net
operating loss carryforwards. As of December 31, 1999, the Company has AMT
credit carryforwards of $132,000, which are subject to review and possible
adjustment by the Internal Revenue Service. Included in other current assets is
a refundable income tax receivable of $344,000 as of December 31, 1999 and
$36,000 as of December 31, 1998. During 1999, the Company's UK subsidiary used
the $1,292,000 of net operating loss carryforwards available at December 31,
1998.

(7) EMPLOYEE BENEFITS

The Company has management incentive and profit sharing plans for its
executives and all of its employees. These plans provide for bonuses upon the
attainment of certain financial targets. Under these plans, $688,000, $100,000
and $89,000 was expensed in 1999, 1998 and 1997, respectively.

The Company has a deferred 401(k) contribution plan that is available to
cover all domestic employees of the Company who have met certain length of
service requirements. Subject to non-discriminatory restrictions on highly
compensated employees, participants can voluntarily contribute up to 17% of
their compensation to the plan, and the Company, at its discretion, may match
this contribution up to a stipulated percentage. The Company's expense under the
plan was $206,000, $187,000, and $170,000 for the years ended December 31, 1999,
1998 and 1997, respectively.

(8) STOCK OPTION AND PURCHASE PLANS

The Company has three stock option plans. The 1989 Stock Plan for Directors
(1989 Plan) provides for stock options to certain directors of the Company. The
1993 Equity Incentive Plan (1993 Plan) provides for stock options for employees
and the Company's non-employee directors. Under the terms of the 1993 Plan,
other stock awards can also be granted at the discretion of the Company's Board
of Directors. The 1998 Stock Option Plan for Non-Employee Directors (1998 Plan)
provides for stock options to non-employee directors of the Company.

24
27
BTU INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Under each plan, the exercise price of the options is not less than fair
market value at the date of the grants. The 1989 Plan options expire over seven
years and the 1993 Plan options expire over periods not to exceed 10 years. The
1998 Plan options expire over a period not to exceed seven years. In May 1998
the shareholders approved the addition of 500,000 shares available to be awarded
under the 1993 Plan and also approved the 1998 Plan with 50,000 shares available
for future grants. Shares available for future stock option grants, pursuant to
these plans, were 174,041 at December 31, 1999, 410,893 at December 31, 1998,
and 127,763 at December 31, 1997.

In September 1998, the Board of Directors approved the repricing of
employee stock options issued during 1996, 1997 and 1998. A total of 545,480
options were repriced to $2.875 per share, which was the fair market value of
the repricing, with a new vesting and expiration schedule.

A summary of all stock option activity for the years ended December 31,
1999, 1998 and 1997 is as follows:

1999 1998 1997
------------------- -------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED
NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE
OF PRICE PER OF PRICE PER OF PRICE PER
SHARES SHARE SHARES SHARE SHARES SHARE
------- --------- -------- --------- ------- ---------

Outstanding at beginning of year... 632,040 $2.92 367,690 $3.91 189,095 $3.64
Granted............................ 280,112 4.92 301,560 4.26 234,500 3.98
Exercised.......................... (49,885) 2.36 (2,520) 1.88 (24,405) 2.50
Forfeited.......................... (43,260) 2.93 (34,690) 3.65 (31,500) 3.90
Terminated due to repricing........ -- -- (545,480) 4.24 -- --
Issued due to repricing............ -- -- 545,480 2.88 -- --
------- ----- -------- ----- ------- -----
Outstanding at end of year......... 819,007 $3.64 632,040 $2.92 367,690 $3.91
======= ===== ======== ===== ======= =====
Options exercisable at end of
year............................. 166,043 $3.05 43,380 $2.64 66,790 $2.92
======= ===== ======== ===== ======= =====

At December 31, 1999 the outstanding options have exercise prices ranging
from $2.69 to $5.50 and a weighted average remaining contractual life of 4.3
years.

The following table summarizes information for options outstanding and
exercisable at December 31, 1999:

OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------- -------------------------
WEIGHTED WEIGHTED WEIGHTED
RANGE OF AVERAGE AVERAGE AVERAGE
PRICES NUMBER REMAINING LIFE EXERCISE PRICE NUMBER EXERCISE PRICE
------------ ------- -------------- -------------- ------- --------------

$2.69 - 3.00 512,729 4.0 yrs $2.88 146,168 $2.88
3.01 - 4.00 14,500 5.3 yrs 3.82 6,250 3.79
4.01 - 5.50 291,778 4.7 yrs 4.96 13,625 4.60
------- ------- ----- ------- -----
819,007 4.3 yrs 3.64 166,043 3.05
------- ------- ----- ------- -----

The Company has an Employee Stock Purchase Plan. Under the terms of the
plan, employees are entitled to purchase shares of common stock at the lower of
85% of fair market value at the beginning or the end of each six-month option
period. A total of 300,000 shares has been reserved for issuance under this
plan, of which 18,090 remain available at December 31, 1999. During 1999, a
total of 23,157 shares were purchased at prices ranging from $2.55 to $4.14 per
share.

The Company applies Accounting Principles Board Opinion No. 25 and related
Interpretations in accounting for its stock option and purchase plans.
Accordingly, no compensation cost has been recognized

25
28

BTU INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

related to the plans. Had compensation cost for the plans been determined based
on the fair value at the grant dates for the awards under these plans consistent
with SFAS No. 123, "Accounting for Stock-Based Compensation", the Company's net
income and net income per share would have been reduced to the pro forma amounts
indicated below:

YEARS ENDED DECEMBER 31,
-------------------------------------
1999 1998 1997
--------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

Net Income:
As reported.......................................... $2,838 $1,533 $1,250
Pro forma............................................ 2,455 1,514 1,140
Income per basic share:
As reported.......................................... $ 0.42 $ 0.22 $ 0.17
Pro forma............................................ 0.36 0.21 0.16
Income per diluted share:
As reported.......................................... $ 0.41 $ 0.22 $ 0.17
Pro forma............................................ 0.35 0.21 0.16

Pro forma compensation costs were estimated using the Black-Scholes option
pricing model using the following weighted average assumptions for grants in
1999, 1998 and 1997, respectively; a dividend yield rate of 0 for each year;
expected lives of 4.8, 4.9 and 5.0 years; expected volatility of 64.6%, 63.1%
and 68.2%; and risk free interest rates of 6.2%, 4.8% and 6.4%. The weighted
average fair value of options granted during 1999, 1998 and 1997 was $2.91,
$1.97 and $2.48, respectively.

As the SFAS No. 123 presentation has not been applied to options granted
prior to January 1, 1995, the resulting pro forma reduction in net earnings and
earnings per share may not be representative of what could be expected in future
years.

(9) RELATED PARTY TRANSACTIONS

During 1999 and 1998, certain transactions were made between the Company
and certain related parties, all of which management believes were at arms'
length. These transactions included payments to one of the Company's directors
for consulting services of $15,000 and $16,000 in 1999 and 1998, respectively.
The Company also had related party transactions with respect to the purchase of
certain software development and components from a company which is partially
owned by one of the Company's key employees. The amount of contract software and
hardware purchased from this party in the ordinary course of doing business was
$904,000 and $775,000 in 1999 and 1998, respectively; as well, $1,000 and
$66,000 is included in trade accounts payable on the Consolidated Balance Sheets
as of December 31, 1999 and 1998, respectively.

(10) SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
--------- ------- --------
(IN THOUSANDS)

Cash paid (received) during the year for:
Interest.................................................. $ 432 $451 $ 488
Income Taxes.............................................. 1,172 32 (391)
Non-cash transactions:
Capital asset and lease obligation additions............... 72 64 --

(11) DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used to estimate the fair value
of each class of financial instrument for which it is practicable to estimate
that value.

a. Cash and Cash Equivalents - The carrying amount of these assets on the
Company's Consolidated Balance Sheets approximates their fair value because of
the short maturities of these instruments.

b. Long-term Debt and Capital Lease Obligations - The fair value of
long-term indebtedness as of December 31, 1999 and 1998 was approximately
$5,220,000 and $5,527,000, respectively, based on a discounted cash flow
analysis, using the prevailing cost of capital for the Company as of each date.

(12) SEGMENT REPORTING

Segments are defined as components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision-maker in deciding how to allocate resources and in assessing
performance. The Company operates as a single business segment called thermal
processing capital equipment.

The thermal processing capital equipment segment consists of the designing,
manufacturing, selling and servicing of thermal processing equipment and related
process controls for use in the electronics, power generation, automotive and
other industries. This business segment includes the supply of solder reflow
systems used for surface mount applications in printed circuit board assembly.
Thermal processing equipment is used in: low temperature curing/encapsulation;
hybrid integrated circuit manufacturing; integrated circuit packaging and
sealing; and processing multi-chip modules. In addition, the thermal process
equipment is used for sintering nuclear fuel for commercial power generation, as
well as brazing and the sintering of ceramics and powdered metals, and the
deposition of precise thin film coatings. The business segment's customers are
multinational original equipment manufacturers and contract manufacturing
companies.

The accounting policies of segment reporting are the same as those
described in Note 1 "Summary of Significant Accounting Policies." The Company
evaluates the performance of operating results taken as a whole. Geographic data
concerning the thermal processing business segment is shown at Note 4.

26
29
- -------------------------------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANT
- -------------------------------------------------------------------------------

To the Shareholders and Board of Directors of BTU International, Inc.:

We have audited the accompanying consolidated balance sheets of BTU
International, Inc. (a Delaware corporation) and subsidiaries (the Company) as
of December 31, 1999 and 1998, and the related consolidated statements of
operations, stockholders' equity, comprehensive income and cash flows for each
of the three years in the period ended December 31, 1999. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of BTU
International, Inc. and subsidiaries as of December 31, 1999 and 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999 in conformity with accounting
principles generally accepted in the United States.

/s/ ARTHUR ANDERSEN LLP
------------------------
ARTHUR ANDERSEN LLP

Boston, Massachusetts
February 4, 2000

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30

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information relating to the executive officers of the Company is included
in Item 4A of Part I.

Information relating to the directors of the Company is included under the
caption "Election of Directors" in the 2000 Proxy Statement for BTU
International, Inc. and is incorporated herein by reference.

Information related to compliance with Section 16(a) of the Exchange Act is
included under the caption "Section 16(a) Beneficial Ownership Reporting
Compliance" in the 2000 Proxy Statement for BTU International, Inc. and is
incorporated here by reference.

ITEM 11. EXECUTIVE COMPENSATION

Information relating to executive compensation is included under the
caption "Executive Compensation" in the 2000 Proxy Statement for BTU
International, Inc. and is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information relating to the security ownership of certain beneficial owners
and management is included under the caption "Beneficial Ownership of Shares" in
the 2000 Proxy Statement for BTU International, Inc. and is incorporated herein
by reference.

28
31

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

None.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)1. Financial Statements. The financial statements listed in Item 8:
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA, above are filed as
part of this Annual Report on Form 10-K.

2. Financial Statement Schedule. The financial statement schedule II -
VALUATION AND QUALIFYING ACCOUNTS is filed as part of this Annual
Report on Form 10-K.

3. Exhibits. The exhibits listed in the accompanying Exhibit Index
are filed as part of this Annual Report on Form 10-K.

(b) Reports on Form 8-K

No reports on Form 8-K were filed in the fourth quarter of 1999.

29

32

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To BTU International, Inc.:

We have audited in accordance with auditing standards generally accepted in
the United States, the consolidated financial statements included in BTU
International, Inc.'s (the Company's) annual report to stockholders incorporated
by reference in this Form 10-K, and have issued our report thereon dated
February 4, 2000. Our audit was made for the purpose of forming an opinion on
those consolidated financial statements taken as a whole. The schedule listed in
the preceding index is the responsibility of the Company's management and is
presented for purposes of complying with the Securities and Exchange
Commission's rules and are not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, based on our audit, fairly
states, in all material respects, the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.

/s/ Arthur Andersen LLP
- -----------------------
Arthur Andersen LLP

Boston, Massachusetts
February 4, 2000

30

33

Schedule II

BTU INTERNATIONAL, INC.
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in Thousands)

For the Year Ended December 31, 1999
------------------------------------

Additions
-----------------------------
Balance Charged
at to costs Charged Balance
beginning and to other Deductions- at end
Description of period expenses accounts (A) of period
- ----------- --------- --------- -------- ----------- ---------

Allowance for doubtful
accounts $160 $-- $-- $-- $160

For the Year Ended December 31, 1998
------------------------------------

Additions
-----------------------------
Balance Charged
at to costs Charged Balance
beginning and to other Deductions- at end
Description of period expenses accounts (A) of period
- ----------- --------- --------- -------- ----------- ---------

Allowance for doubtful
accounts $160 $-- $-- $-- $160

For the Year Ended December 31, 1997
------------------------------------

Additions
-----------------------------
Balance Charged
at to costs Charged Balance
beginning and to other Deductions- at end
Description of period expenses accounts (A) of period
- ----------- --------- --------- -------- ----------- ---------

Allowance for doubtful
accounts $160 $-- $-- $-- $160

(A) Amounts indicated as deductions are for amounts charged against these
reserves in the ordinary course of business.

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34

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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: March 30, 2000 By: /s/ PAUL J. VAN DER WANSEM
Paul J. van der Wansem
President, Chief Executive
Officer (principal executive
officer) and Director

Date: March 30, 2000 By: /s/ THOMAS P. KEALY
Thomas P. Kealy
Vice President Corporate
Controller and Chief
Accounting Officer (principal
financial and accounting officer)

Date: March 30, 2000 By:
Dr. Jeffrey Chuan Chu
Director

Date: March 30, 2000 By: /s/ DAVID A.B. BROWN
David A.B. Brown
Director

Date: March 30, 2000 By: /s/ JOSEPH F. WRINN
Joseph F. Wrinn
Director

32
35

EXHIBIT INDEX

The following designated exhibits are, as indicated below, either filed
herewith or have heretofore been filed with the Securities and Exchange
Commission under the Securities Act of 1933 and the Securities Exchange Act of
1934 and are referred to and incorporated herein by reference to the following
SEC Filings: Registration Statement Filing on Form S-1 ("33-24882"), the annual
report as reported on the 1989 Form 10-K ("1989 10-K"), the annual report as
reported on the 1991 Form 10-K ("1991 10-K"), the annual report as reported on
the 1992 Form 10-K ("1992 10-K"), the annual report as reported on the 1993 Form
10K ("1993 10-K"), the annual report as reported on the 1994 Form 10K ("1994
10-K"), Or the quarterly report as reported on 9-28-97 Form 10Q(9-28-97 10-Q) Or
the quarterly report as reported on 6-28-98 Form 10Q(6-28-98 10-Q).

SEC
Exhibit Docket
------- ------

EXHIBIT 3. ARTICLES OF INCORPORATION AND BY-LAWS

Incorporated herein by reference:

3.1 Certificate of Incorporation, as amended. 3.1 33-24882

3.2 By-Laws. 3.2 33-24882

EXHIBIT 4. INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS,
INCLUDING DEBENTURES

Incorporated herein by reference:

4.0 Specimen Common Stock Certificate. 4.0 33-24882

EXHIBIT 10. MATERIAL CONTRACTS

10.13 1988 Employee Stock Purchase Plan. * 10.13

10.15 1989 Stock Option Plan for Directors. * 10.15

33
36

10.37 BTU International, Inc. 1993 Equity Incentive Plan * 10.37

10.39 BTU(UK) Limited and RD International (UK) Limited underlease, 10.39 1994 10-K
relating to Unit B15 Southwood Summit Centre

10.42 Mortgage note between BTU International, Inc. and John Hancock
Mutual Life Insurance Company, dated June 30, 1997 10.42 9-28-97 10-Q

10.43 Credit Agreement between BTU International, Inc. and US Trust,
dated September 5, 1997 10.43 9-28-97 10-Q

10.44 Amendment to the 1993 Equity Incentive Plan* 10.44

10.45 1998 Stock Option Plan for Non-Employee Directors* 10.45

10.46 First Amendment to Credit Agreement between
BTU International, Inc. and US Trust, dated December 16, 1999 10.46

10.47 Amendment No. 1 to 1988 Employee Stock Purchase Plan
dated June 15, 1989* 10.47

10.48 Amendment No. 2 to 1988 Employee Stock Purchase Plan
dated February 20, 1991.* 10.48

10.49 Amendment No. 2 to 1993 Equity Incentive Plan* 10.49

EXHIBIT 11. STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS

Filed herewith:
11.0 Calculation of net income per common share

EXHIBIT 21. SUBSIDIARIES OF THE REGISTRANT

Filed herewith:
21.0 Subsidiaries of the Registrant.

EXHIBIT 23. CONSENTS OF EXPERTS AND COUNSEL

Filed herewith:
23.1 Consent of Arthur Andersen LLP

EXHIBIT 27. FINANCIAL DATA SCHEDULE

Filed herewith:
27.0 Financial Data Schedule

* Indicates management contract or compensatory plan or arrangement.

34