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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(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, 2000
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
---------------
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 $29,787,718 on
March 28, 2001.
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 28, 2001:
6,944,944 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,
2000; and Part III - Portions of the Proxy Statement for the 2001 Annual Meeting
of Stockholders, both of which are to be filed with the Securities and Exchange
Commission.
================================================================================
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BTU INTERNATIONAL, INC.
2000 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
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
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
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
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
electronic manufacturing service (EMS) providers. 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 2000 were such industry leaders as Celestica Incorporated, Intel
Corporation, Lucent Technologies Inc., Motorola, Inc., 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 has grown rapidly over the past few years 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 less expensive 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 EMS providers 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.
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 EMS providers;
* Shift to higher value added and more complex boards at EMS providers;
* High growth in manufacturing capacity for consumer and Internet
infrastructure products;
* Technological advances in semiconductor packaging and PCB assembly;
* Globalization of major electronics manufacturers;
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* Emphasis on environmental protection through the use of lead-free
solders;
* 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.
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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 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 EMS providers 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 semiconductor 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.
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We are developing, a new platform of solder reflow systems the Pyramax. The
first units of this series were delivered and installed in late 2000 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 are also 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 system 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. We
also provide integrated solutions for wafer bump reflow including automated
handling combined with thermal processing, these integrated systems range
in price from $600,000 to $1.0 million.
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 are presently
demonstrating this process to several BME manufacturers.
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.
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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 EMS
providers 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 2000, aggregate sales to our ten
largest customers accounted for approximately 51% of our net sales. In 2000,
sales to Solectron, our largest customer for that year represented approximately
23%. In 1999, sales to Solectron, 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.
SALES AND MARKETING
We market and sell our products through our direct sales force and
independent sales representatives throughout the world. All sales are made
through one distribution channel made up of our direct sales force and
independent sales representatives. 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 66% of our net
sales originate outside the United States, with Asia Pacific and Europe
representing 32% and 27% 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 $4.8 million
in 1999 to $6.2 million
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in 2000. A large percentage of our research, development and engineering expense
in 2000 was spent on the development of a new solder reflow platform and in
support of custom design solutions.
Close working relationships between our key customers and our product
engineering teams, enable us to incorporate our customers' feedback and needs
into our product development efforts.
We have integrated our product design, manufacturing, engineering and after
sales support documentation in support of the new product introduction process
and lowered research, development and engineering costs. 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 continue to investment 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 have settled our patent disputes with Electrovert, Inc. a Division of
Cookson Group PLC through a cross-licensing agreement.
BACKLOG
Backlog at December 31, 2000 was $13.7 million, compared to $11.3 million
at December 31, 1999. As of December 31, 2000, we expected to ship our year-end
backlog within 6 to 40 weeks. Most of our backlog for solder reflow systems are
expected to be shipped within 3 to 8 weeks. The backlog of our custom systems
are expected to be shipped within 12 to 40 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 EMS providers. Although price is a factor in buying
decisions on price, we believe that technological leadership, process
capability, throughput, environmental safeguards, up time, 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
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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, 2001, we had 318 employees, of whom 97 are engaged in sales,
marketing and service, 39 in research, development and engineering, 30 in
finance and administration and 152 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 2001.
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 into 2002.
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 2000.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
NAME AGE POSITIONS
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Paul J. van der Wansem 61 Chairman of the Board of Directors,
President and Chief Executive Officer
Santo J. DiNaro 55 Executive Vice President
Thomas P. Kealy 58 Vice President, Corporate Controller and
Chief Accounting Officer
James M. Griffin 43 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.
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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 18 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, 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
Fiscal Year Ended December 31, 2000:
First Quarter........................................... 17.75 5.25
Second Quarter.......................................... 12.13 8.13
Third Quarter........................................... 15.50 9.88
Fourth Quarter.......................................... 13.63 6.88
As of March 29, 2001 there were approximately 519 stockholders of record.
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, 1998, December 31, 1999 and December 31, 2000
and the selected consolidated balance sheet data as of December 31, 1999 and
December 31, 2000 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, 1996 and December 31, 1997 and the
selected consolidated balance sheet data as of December 31, 1996, December 31,
1997 and December 31, 1998 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.
8
11
FISCAL YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1996 1997 1998 1999 2000
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net sales...................................................... $45,811 $52,118 $57,208 $71,260 $99,494
Cost of goods sold............................................. 26,768 30,431 33,946 42,449 59,112
------- ------- ------- ------- -------
Gross profit................................................. 19,043 21,687 23,262 28,811 40,382
Selling, general and administrative............................ 14,123 15,349 16,800 20,284 25,310
Research, development and engineering.......................... 3,850 3,808 4,575 4,786 6,231
Restructuring charge(1)........................................ -- 530 -- -- --
------- ------- ------- ------- -------
Operating income............................................. 1,070 2,000 1,887 3,741 8,841
Interest income (expense), net................................. (255) (10) (46) 8 (54)
Other income (expense)......................................... 82 (341) 73 24 (440)
Gain on sale of minority investment(2)......................... 3,400 -- -- -- --
------- ------- ------- ------- -------
Income before provision for income taxes....................... 4,297 1,649 1,914 3,773 8,347
Net income from continuing operations.......................... 744 1,250 1,533 2,838 5,422
Net income................................................... $ 3,560 $ 1,250 $ 1,533 $ 2,838 $ 5,422
======= ======= ======= ======= =======
Earnings per share, diluted, from continuing operations(3)..... $ 0.11 $ 0.17 $ 0.22 $ 0.41 $ 0.74
======= ======= ======= ======= =======
Earnings per share, diluted.................................... $ 0.49 $ 0.17 $ 0.22 $ 0.41 $ 0.74
======= ======= ======= ======= =======
Weighted average shares outstanding, diluted................... 7,338 7,336 7,118 6,968 7,278
DECEMBER 31,
---------------------------------------------------
1996 1997 1998 1999 2000
------- ------- ------- ------- -------
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents............................................ $10,218 $11,873 $10,594 $12,431 $ 8,886
Working capital...................................................... 25,268 26,098 24,961 26,693 30,709
Total liabilities.................................................... 14,556 16,821 15,478 17,346 19,363
Total assets......................................................... 36,763 40,379 38,615 43,149 51,160
Stockholders' equity................................................. 22,207 23,558 23,137 25,803 31,797
- -------------------
(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.
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 EMS providers. 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 EMS providers requiring advanced thermal
processing equipment solutions. In 2000, net sales to our five largest customers
accounted for 43.2% of our total net sales. Our net sales in 2000 were dispersed
worldwide, with approximately 34.0% to customers in the United States, 32.0% to
Asia Pacific customers, 27.0% to European customers and 7.0% to customers in the
rest of the world. Over the past three years, the percentage of our net sales to
international customers were 65.0% in 1998, 68.0% in 1999 and 66.0% in 2000.
These
9
12
percentages reflect an emphasis on 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,
----------------------------
1998 1999 2000
------ ------ ------
Net sales........................................ 100.0% 100.0% 100.0%
Cost of goods sold............................... 59.3% 59.6% 59.4%
----- ----- -----
Gross profit................................... 40.7% 40.4% 40.6%
Operating expenses:
Selling, general and administrative............ 29.4% 28.5% 25.4%
Research, development and engineering.......... 8.0% 6.7% 6.3%
---- ---- ----
Operating income............................... 3.3% 5.2% 8.9%
Interest income.................................. 0.7% 0.6% 0.4%
Interest expense................................. (0.8)% (0.6)% (0.4)%
Other income (expense), net...................... 0.1% 0.0% (0.4)%
----- ----- ------
Income before provision for income taxes......... 3.3% 5.3% 8.4%
Income taxes..................................... 0.7% 1.3% 2.9%
----- ----- -----
Net Income....................................... 2.7% 4.0% 5.5%
===== ===== =====
FISCAL YEAR ENDED DECEMBER 31, 2000 AS COMPARED TO FISCAL YEAR ENDED
DECEMBER 31, 1999
Net Sales. Net sales increased 39.6% from $71.3 million in 1999 to $99.5
million in 2000. The increase in 2000 net sales reflects the higher demand for
our products, primarily by our large multinational OEMs and EMS providers. This
increase in net sales also reflects growth of approximately 20.0% 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 increased by 2.5%, net sales attributable to our customers in Europe
increased by 0.8%, net sales attributable to our Asia Pacific customers
increased by 1.8% and net sales attributable to our customers in the other
Americas decreased by 5.1%. The growth in net sales to United States customers
reflects the continued increase in EMS providers market share. The growth 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 40.2% from $28.8 million in 1999 to
$40.4 million in 2000 and, as a percentage of net sales, increased from 40.4% in
1999 to 40.6% in 2000. The increase in gross profit and gross profit percentage
for 2000 was due to the increase in net sales in 2000.
Selling, General and Administrative. Selling, general and administrative
increased 24.8% from $20.3 million in 1999 to $25.3 million in 2000, and as a
percentage of net sales, decreased from 28.5% to 25.4%. The higher costs in 2000
were primarily the result of a $28.2 million increase in our net sales. The
higher selling, general and administrative in 2000 can be attributed to an
increase in customer service support for our worldwide customer base and higher
selling expenses. In 2000, sales commission expense was higher as sales
increased. In addition, higher bonuses were recorded in 2000 compared to 1999,
due to the increase in net income. In 2000 the Company's net warranty costs were
favorably impacted by $246,000 through a cost sharing program.
Research, Development and Engineering. Research, development and
engineering increased 30.2% from $4.8 million in 1999 to $6.2 million in 2000,
and as a percentage of net sales, decreased from 6.7% in 1999 to 6.3% in 2000 A
large percentage of our research, development and engineering expense in 2000
was spent on the development of a new solder reflow platform and in support of
custom design solutions.
Operating Income. Operating income increased 136.3% from $3.7 million in
1999 to $8.8 million in 2000, and as a percentage of net sales, increased from
5.2% in 1999 to 8.9% in 2000. In 2000, the increase in operating income was the
result of a 39.6% increase
10
13
in net sales over 1999. In addition, we increased efficiencies throughout the
organization and our cost structure for sales, general and administrative and
research, development and engineering increased at a lower rate than did the net
sales percentage.
Other income (expense), net. During the first half of 2000, the Company
initiated a plan to sell an additional 2.5 million shares of common stock in a
secondary offering. The Board of Directors voted to withdraw the stock offering
as current market conditions were unfavorable to proceed. The Company incurred
approximately $450,000 in costs associated with this proposed sale of stock,
which were subsequently been expensed during the quarter ending December 31,
2000. Income Taxes.
Income taxes increased from $935,000 in 1999 to $2,925,000 in 2000. Our
effective tax rates were 24.8% in 1999 and 35.0% in 2000. During 1999 we
recorded the benefit of net operating loss carryforwards available to our UK
subsidiary, which was profitable in 1999, resulting in the lower effective tax
rates. Our statutory federal income tax rate is 34.0%.
FISCAL YEAR ENDED DECEMBER 31, 1999 AS COMPARED TO FISCAL YEAR ENDED
DECEMBER 31, 1998
Net Sales. Net sales increased 24.6% from $57.2 million in 1998 to $71.3
million in 1999. The increase in 1999 net sales reflects the higher demand for
our products, primarily by our large multinational OEMs and EMS providers. This
increase in net sales also reflects growth of approximately 14.0% in the
electronics manufacturing market and the gain in market share we 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 reflected 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 23.9% from $23.3 million in 1998 to
$28.8 million in 1999 and, as a percentage of net sales, decreased from 40.7% in
1998 to 40.4% 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 20.7% from $16.8 million in 1998 to $20.3 million in 1999, and as a
percentage of net sales, decreased from 29.4% to 28.5%. 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 8.0% in 1998 to 6.7% 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%.
LIQUIDITY AND CAPITAL RESOURCES
11
14
As of December 31, 2000, we had $8.9 million in cash and cash equivalents,
a decrease of $3.5 million compared to December 31, 1999. The decrease was
primarily a result of funding the Company's growth in 2000 and investments in
capital.
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, 2000 or at any time in 2000.
We have a mortgage note that is secured by our real property. The mortgage
note had an outstanding balance at December 31, 2000 of approximately $4.8
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 2000, we invested approximately $1.8 million in capital improvements
to enhance our information technology infrastructure and to develop 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.
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 2002.
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, 2000, all of our long-term debt and capital lease
obligations are fixed rate financial instruments. Therefore 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 2000 have not had a material impact on our business and financial
results.
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.
Prior to 2000, the Company generally recognized revenues upon shipment of
its products. During the fourth quarter of 2000, effective as of January 2,
2000, the Company adopted Securities and Exchange Commission (SEC) Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements." Under SAB No. 101, when the terms of sale include customer
acceptance provisions, and compliance with those provisions cannot be
demonstrated until customer use, revenues are recognized upon acceptance.
Revenues for products that require installation for which the installation is
essential to functionality or is not deemed inconsequential or perfunctory are
recognized upon completion of installation. Revenues for products sold where
installation is not essential to functionality and is deemed inconsequential or
perfunctory are recognized upon shipment with estimated installation and
warranty costs accrued The adoption of SAB No. 101 had no impact on the
Company's previously recorded revenue.
Applying the requirements of SAB No. 101 to future sales arrangements used
in the Company's thermal processing equipment sales may result in the deferral
of the revenue for some equipment sales. The Company continues to evaluate the
impact that SAB No. 101 might have on its sales transactions. However, there
will be no impact on the Company's cash flows from operations as a result of
this change.
12
15
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.
In September 2000, the Emerging Issues Task Force (EITF) issued EITF 00-10:
Accounting for Shipping and Handling Fees and Costs which provides guidance on
income statement classification of Shipping and handling costs incurred by
companies which is subsequently billed to customers. Companies have recorded
these types of costs inconsistently in the income statement. Under EITF 00-10,
further guidance was issued requiring all shipping and handling costs billed to
customers to be classified in revenue. Additionally, the guidance gives
companies the option to reflect the associated shipping and handling costs in
either cost of sales or selling, general and administrative expenses. These
costs represent amounts incurred to physically move the product from the Company
to the customer's desired location. We have reclassified the billable shipping
and handling costs into revenue and have reflected the associated costs in
selling, general and administrative.
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, 2000 and 1999.....................
Consolidated Statement of Operations for the years ended December 31, 2000,
1999 and 1998.................................................................
Consolidated Statement of Stockholders' Equity for the years ended December 31,
2000, 1999 and 1998...........................................................
Consolidated Statement of Comprehensive Income for the years ended December 31,
2000, 1999 and 1998...........................................................
Consolidated Statement of Cash Flows for the years ended December 31, 2000,
1999 and 1998.................................................................
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, 2000 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.
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16
CONSOLIDATED STATEMENT OF OPERATIONS DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
QUARTER ENDED
MAR. 28, JUNE 27, SEPT. 26, DEC. 31, APRIL 2, JULY 2, OCT 1, DEC. 31,
1999 1999 1999 1999 2000 2000 2000 2000
--------- --------- --------- ---------- ---------- -------- -------- -------
Net sales................................. $ 15,921 $ 16,419 $ 18,065 $ 20,855 $ 21,853 $ 23,956 $ 26,908 $26,777
Cost of goods sold........................ 9,762 9,670 10,786 12,231 12,676 13,964 16,166 16,306
--------- --------- --------- --------- --------- -------- -------- -------
Gross profit.............................. 6,159 6,749 7,279 8,624 9,177 9,992 10,742 10,471
Selling, general and administrative....... 4,386 4,604 5,109 6,185 6,070 6,404 6,733 6,103
Research, development and engineering..... 1,053 1,247 1,148 1,338 1,330 1,359 1,629 1,913
--------- --------- --------- --------- --------- -------- -------- -------
Income from operations.................... 720 898 1,022 1,101 1,777 2,229 2,380 2,455
Interest income (expense), net............ 22 (39) 26 (1) 13 (19) (10) (38)
Other income (expense), net............... 39 6 (44) 23 4 7 4 (455)
--------- --------- ---------- --------- --------- -------- -------- --------
Income before taxes....................... 781 865 1,004 1,123 1,794 2,217 2,374 1,962
Income tax (benefit) provision............ 237 257 303 138 638 766 823 698
--------- --------- --------- --------- --------- -------- -------- -------
Net income.............................. $ 544 $ 608 $ 701 $ 985 $ 1,156 $ 1,451 $ 1,551 $ 1,264
========= ========= ========= ========= ========= ======== ======== =======
Earnings per share, diluted............... $ 0.08 $ 0.09 $ 0.10 $ 0.14 $ 0.16 $ 0.20 $ 0.21 $ 0.17
========= ========= ========= ========= ========= ======== ======== =======
Weighted average shares, diluted.......... 6,910 6,925 7,010 7,019 7,284 7,323 7,371 7,319
QUARTER ENDED
------------------------------------------------------------------------------------
MAR. 28, JUNE 27, SEPT. 26, DEC. 31, APRIL 2, JULY 2, OCT. 1, DEC. 31,
1999 1999 1999 1999 2000 2000 2000 2000
------- -------- --------- -------- -------- ------- ------- --------
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......................... 61.3 58.9 59.7 58.6 58.0 58.3 60.1 60.9
----- ----- ----- ----- ----- ----- ----- -----
Gross profit............................... 38.7 41.1 40.3 41.4 42.0 41.7 39.9 39.1
Selling, general and administrative........ 27.5 28.0 28.3 29.7 27.8 26.7 25.0 22.8
Research, development and engineering...... 6.6 7.6 6.4 6.4 6.1 5.7 6.1 7.1
----- ----- ----- ----- ----- ----- ----- -----
Income from operations..................... 4.5 5.5 5.7 5.3 8.1 9.3 8.8 9.2
Interest income (expense), net............. 0.1 (0.2) 0.1 0.0 0.1 (0.1) 0.0 (0.1)
Other income (expense), net................ 0.2 0.0 (0.2) 0.1 0.0 0.0 0.0 1.7
----- ----- ------ ----- ----- ----- ----- -----
Income before taxes........................ 4.9 5.3 5.6 5.4 8.2 9.3 8.8 7.3
Income tax (benefit) provision............. 1.5 1.6 1.7 0.7 2.9 3.2 3.1 2.6
----- ----- ----- ----- ----- ----- ----- -----
Net income............................... 3.4% 3.7% 3.9% 4.7% 5.3% 6.1% 5.8% 4.7%
===== ===== ===== ===== ===== ===== ===== =====
Net sales increased from $15.9 to $26.8 million over the eight quarters in
1999 and 2000. During this period, net sales increased in each quarter, except
in the fourth quarter of 2000. 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 38.7% and 42.0%. 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. In 2000 the Company's
net warranty costs were favorably impacted by $246,000 through a cost sharing
program.
Research, development and engineering are 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. Income from operations has risen every quarter, from $720,000 in
the first quarter of 1999 to $2,455,000 in the fourth quarter of 2000.
Other income (expense), net includes in the fourth quarter of 2000
approximately $450,000 in costs associated with the proposed sale of stock which
was withdrawn due to unfavorable market conditions.
14
17
BTU INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
AS OF DECEMBER 31,
----------------------
2000 1999
-------- --------
ASSETS
Current Assets:
Cash and cash equivalents (Notes 1 and 11)......................................................... $ 8,886 $ 12,431
Trade accounts receivable, less reserves of $206 and $160 at December 31, 2000 and 1999, 21,716 14,563
respectively (Note 1)................................................................................
Inventories (Note 1)............................................................................... 13,619 9,617
Other current assets (Note 6)...................................................................... 512 678
-------- --------
Total current assets....................................................................... 44,733 37,289
-------- --------
Property, Plant and Equipment, at cost (Notes 1 and 3)
Land............................................................................................... 210 210
Buildings and improvements......................................................................... 7,730 7,329
Machinery and equipment............................................................................ 7,857 6,513
Furniture and fixtures............................................................................. 860 830
-------- --------
16,657 14,882
Less-accumulated depreciation................................................................... 10,529 9,341
-------- --------
Net property, plant and equipment............................................................... 6,128 5,541
-------- --------
Other assets, net of accumulated amortization of $448 in
2000 and $441 in 1999.............................................................................. 299 319
-------- --------
Total Assets............................................................................... $ 51,160 $ 43,149
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt and capital lease obligations (Note 3)........................ $ 286 $ 267
Trade accounts payable (Note 9).................................................................... 6,922 6,665
Customer deposits.................................................................................. 313 --
Accrued expenses (Note 2).......................................................................... 6,503 3,664
-------- --------
Total current liabilities.................................................................. 14,024 10,596
Long-term debt and capital lease obligations less current maturities (Notes 3 and 11)................ 4,668 4,953
Deferred income taxes (Notes 1 and 6)................................................................ 671 1,797
-------- --------
Total Liabilities.......................................................................... $ 19,363 $ 17,346
-------- --------
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 -- 7,906,844, outstanding 6,930,934
in 2000 and Issued -- 7,770,446, outstanding 6,794,536 in 1999.................................. 79 78
Additional paid-in capital......................................................................... 21,223 20,543
Retained earnings.................................................................................. 13,854 8,432
Less treasury stock at cost 975,910 shares, at December 31, 2000 and 1999, respectively............ (3,538) (3,538)
Accumulated other comprehensive income............................................................. 179 288
-------- --------
Total stockholders' equity................................................................. 31,797 25,803
-------- --------
Total Liabilities and Stockholders' Equity................................................. $ 51,160 $ 43,149
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
15
18
BTU INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEARS ENDED DECEMBER 31,
-----------------------------------
2000 1999 1998
------- ------- -------
Net sales (Notes 1, 4 and 5).............................................................. $99,494 $71,260 $57,208
Cost of goods sold........................................................................ 59,112 42,449 33,946
------- ------- -------
Gross profit.............................................................................. 40,382 28,811 23,262
------- ------- -------
Selling, general and administrative (Note 9)............................................ 25,310 20,284 16,800
Research, development and engineering (Note 1).......................................... 6,231 4,786 4,575
------- ------- -------
Operating income.......................................................................... 8,841 3,741 1,887
Interest income......................................................................... 377 440 405
Interest expense (Note 3)............................................................... (431) (432) (451)
Other income (expense).................................................................. (440) 24 73
-------- ------- -------
Income before provision for income taxes.................................................. 8,347 3,773 1,914
Provision for income taxes (Notes 1and 6)............................................... 2,925 935 381
------- ------- -------
Net income................................................................................ $ 5,422 $ 2,838 $ 1,533
======= ======= =======
Earnings per share:
Basic................................................................................... $ 0.79 $ 0.42 $ 0.22
======== ======== ========
Diluted................................................................................. $ 0.74 $ 0.41 $ 0.22
======== ======== ========
Weighted average number of shares outstanding:
Basic shares............................................................................ 6,876 6,799 7,068
Effect of Dilutive Options.............................................................. 402 169 50
------- ------- -------
Diluted Shares.......................................................................... 7,278 6,968 7,118
======= ======= =======
The accompanying notes are an integral part of these
consolidated financial statements.
16
19
BTU INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS 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, 1997........... $ 77 $ 20,250 $4,061 $(1,183) $ 353 $23,558
Net income........................... -- -- 1,533 -- -- 1,533
Translation adjustment............... -- -- -- -- (43) (43)
Sales 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)
Sale 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
Net income........................... -- -- 5,422 -- -- 5,422
Translation adjustment............... -- -- -- -- (109) (109)
Sales of common stock and exercise
of stock options (Note 8).......... 1 446 -- -- -- 447
Tax benefits of options exercised.... -- 234 -- -- -- 234
----- -------- ------ -------- ----- -------
BALANCE AT DECEMBER 31, 2000........... $ 79 $ 21,223 $13,854 $(3,538) $ 179 $31,797
===== ======== ======= ======== ===== =======
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS)
YEARS ENDED DECEMBER 31,
---------------------------------
2000 1999 1998
------ ------ ------
Net income............................................................. $5,422 $2,838 $1,533
Other comprehensive income
Foreign currency translation adjustment.............................. (109) (22) (43)
------ ------ ------
Comprehensive income................................................... $5,313 $2,816 $1,490
====== ====== ======
The accompanying notes are an integral part of these
consolidated financial statements.
17
20
BTU INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEARS ENDED DECEMBER 31,
-----------------------------------
2000 1999 1998
------- ------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................................................. $ 5,422 $ 2,838 $ 1,533
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization............................................................. 1,233 1,120 1,119
Deferred income taxes..................................................................... (1,126) 41 (491)
Net changes in operating assets and liabilities:
Accounts receivable....................................................................... (7,153) (2,136) (93)
Inventories............................................................................... (4,002) 467 (56)
Other current assets...................................................................... 166 (267) 713
Accounts payable.......................................................................... 257 1,283 (631)
Customer deposits......................................................................... 313 (124) (304)
Accrued expenses.......................................................................... 2,839 841 227
Other assets.............................................................................. 13 33 50
Tax benefit of stock options exercised.................................................... 234 34 --
------- ------- -------
Net cash (used in) provided by operating activities.................................... (1,804) 4,130 2,067
-------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment, net............................................. (1,813) (1,842) (1,248)
------- ------- -------
Net cash (used in) investing activities................................................ (1,813) (1,842) (1,248)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments under long-term debt and capital lease obligations....................... (266) (245) (144)
Issuance of common stock.................................................................... 447 188 72
Purchase of treasury stock.................................................................. -- (372) (1,983)
------- ------- --------
Net cash provided by (used in) financing activities.................................... 181 (429) (2,055)
------- ------- -------
EFFECT OF EXCHANGE RATES ON CASH............................................................ (109) (22) (43)
------- ------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........................................ (3,545) 1,837 (1,279)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.............................................. 12,431 10,594 11,873
------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR.................................................... $ 8,886 $12,431 $10,594
======= ======= =======
Supplemental disclosures of cash flow information are included in Note 10.
The accompanying notes are an integral part of these
consolidated financial statements.
18
21
BTU INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998
(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. These
financial instruments are carried at cost, which approximates market value.
INVENTORIES
Inventories consist of material, labor and manufacturing overhead and are
valued at the lower of cost or net realizable 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,
-------------------
2000 1999
------- -------
Raw materials and manufactured components................. $ 6,004 $ 4,431
Work-in-progress.......................................... 5,552 3,532
Finished goods............................................ 2,063 1,654
------- -------
$13,619 $ 9,617
======= =======
The Company periodically reviews quantities of inventory on hand and
compares these amounts to expected usage of each particular product or product
line. The Company records as a charge to cost of revenue any amounts required to
reduce the carrying value of the inventory to net realizable value.
PROPERTY, PLANT AND EQUIPMENT
The Company provides for depreciation using the straight-line method over
the assets' useful lives. 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.
19
22
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 under standards,where assets and
liabilities of the Company's foreign operations are translated from there
functional currency into United States dollars at yearend exchange rates.
Revenue 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' equity. 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
Prior to 2000, the Company generally recognized revenues upon shipment of
its products. During the fourth quarter of 2000, effective as of January 2,
2000, the Company adopted Securities and Exchange Commission (SEC) Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements." Under SAB No. 101, when the terms of sale include customer
acceptance provisions, and compliance with those provisions can not be
demonstrated until customer use, revenues are recognized upon acceptance.
Revenues for products that require installation for which the installation is
essential to functionality or is not deemed inconsequential or perfunctory are
recognized upon completion of installation. Revenues for products sold where
installation is not essential to functionality and is deemed inconsequential or
perfunctory are recognized upon shipment with estimated installation and
warranty costs accrued. The adoption of SAB No. 101 had no impact on the
Company's previously recorded revenue.
Applying the requirements of SAB No. 101 to future sales arrangements used
in the Company's thermal processing equipment sales may result in the deferral
of the revenue for some equipment sales. The Company continues to evaluate the
impact that SAB No. 101 might have on its sales transactions. However, there
will be no impact on the Company's cash flows from operations as a result of
any change.
The Company also has certain sales transactions for projects, which are not
completed within the normal operating cycle of the business. These contracts are
accounted for on a percentage completion basis. Under the percentage completion
method, revenues are recognized based upon the ratio of costs incurred to the
total estimated costs. Revisions in costs and profit estimates are reflected in
the period in which the facts causing the revision become known. Provisions for
total estimated losses on uncompleted contracts are made in the period in which
such losses are determined. For the years ended December 31, 2000 and 1999 there
was no revenue recognized using the percentage of completion method for systems
not yet shipped. For the year ended December 31, 1998, $53,000 of revenue was
recognized using the percentage of completion method for systems not yet
shipped. Revenue recognized on the percentage of completion method included in
net sales during each year was 1.0% for 2000, 2.3% for 1999 and 6.1% for 1998.
Amounts billed to customers for shipping and handling costs have been
reclassified as revenues with the associated costs reported as selling costs.
Previously, amounts billed to customers for shipping and handling had generally
been reported as an offset to the related cost. This is in compliance with
Emerging Issues Task Force (EITF) issued 00-10 "Accounting for Shipping and
Handling Fees and Cost"
RESEARCH, DEVELOPMENT AND ENGINEERING
Research, development and engineering costs are charged to expense as
incurred.
EARNINGS PER SHARE INFORMATION
20
23
Basic Earnings Per Share (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 2,271 in
2000, 289,778 in 1999 and 27,800 in 1998.
RECLASSIFICATION
Certain prior year financial statement information has been reclassified to
conform with the current year presentation.
SFAS 133
During 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133. SFAS No. 133, as amended, requires that all derivatives, including
foreign currency exchange contracts, be recognized on the balance sheet at fair
value. Changes in the fair value of derivatives that are not hedges must be
recorded through earnings. If a derivative is a hedge, depending on the nature
of the hedge, changes in the fair value of the derivative are either offset
against the change in fair value of the hedged item through earnings or
recognized in other comprehensive income until the hedged item is recognized in
earnings. The Company is required to adopt SFAS No. 133 in 2001. The adoption of
SFAS No. 133 will not materially affect the Company's financial statements.
(2) ACCRUED EXPENSES
Accrued expenses at December 31, 2000 and 1999 consisted of the following
(in thousands):
2000 1999
------- ------
Accrued commissions........................................ $ 2,449 $1,390
Accrued warranty........................................... 722 660
Accrued income taxes....................................... 1,186 255
Accrued bonus.............................................. 562 519
Other...................................................... 1,584 840
------- ------
$ 6,503 $3,664
======= ======
(3) DEBT, CAPITAL LEASES, COMMITMENTS AND CONTINGENCIES
Debt at December 31, 2000 and 1999 consisted of the following (in
thousands):
2000 1999
------- -------
Mortgage note payable...................................... $ 4,847 $ 5,089
Capital lease obligations, interest rates ranging
from 10.2% to 11.1%, net of interest of $28 and
$38 in 2000 and 1999, respectively....................... 107 131
------- -------
4,954 5,220
Less current maturities.................................... 286 267
------- -------
$ 4,668 $ 4,953
======= =======
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 at maturity on
July 1, 2004.
The capital lease obligations relate to various equipment leases used in
the operation of the business.
21
24
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
-------- ------ -----
2001........................................ $ 263 $ 23 $ 286
2002........................................ 285 24 309
2003........................................ 309 24 333
2004........................................ 3990 19 4,009
2005........................................ 0 17 17
------- ----- ------
$ 4,847 $ 107 $4,954
======= ===== ======
At December 31, 2000, 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, 2000, the Company was in
compliance with all covenants of this agreement. As of December 31, 2000, no
amounts were outstanding under this unsecured revolving line of credit.
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 $310,000 in 2000, $143,000 in 1999, and $145,000 in 1998. In 1995,
the Company sublet a portion of this leased space for a period of five years,
this sublet ended during 2000, therefore increasing the rent expense to the
Company in 2000. The Company has entered into a new lease assignment that the
Company will assign approximately $194,000 in rent expense per year starting
July 2001 through March 2010. As of December 31, 2000, the future minimum lease
commitment for this facility is $1,623,000, payable as follows: $262,000 for the
year 2001, $165,000 for each of 2002, 2003, 2004 and 2005 and $701,000
thereafter through 2010.
The Company is a party 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.
Subsequent to December 31, 2000, the Company settled our patent disputes with
Electrovert, Inc. a Division of Cookson Group PLC through a cross-licensing
agreement.
(4) FOREIGN OPERATIONS
The following table shows the amounts and percentages of the Company's
revenues by geographic region, for the last three years:
2000 1999 1998
-------------- -------------- -------------
United States.................... $ 33,828 34% $ 22,803 32% $ 20,023 35%
Europe........................... 26,863 27 18,528 26 13,730 24
Asia Pacific..................... 31,838 32 21,378 30 16,590 29
Rest of World.................... 6,965 7 8,551 12 6,865 12
(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 23% of revenue in 2000. One customer represented
18% of revenue in 1999. Two customers represented 14% and 13% respectively of
revenue in 1998.
22
25
(6) INCOME TAXES
The components of income before provision for income taxes are as follows
(in thousands):
YEARS ENDED DECEMBER 31,
--------------------------------
2000 1999 1998
------ ------ ------
Domestic.............................. $5,636 $2,163 $ 881
Foreign............................... 2,711 1,610 1,033
------ ------ ------
Total................................. $8,347 $3,773 $1,914
====== ====== ======
For the years ended December 31, 2000, 1999 and 1998, the Company's
provisions for income taxes were as shown below (in thousands):
FEDERAL STATE FOREIGN TOTAL
------- ----- ------- -----
December 31, 2000
Current............................... $2,699 $ 427 $925 $4,051
Deferred.............................. (829) (297) 0 (1,126)
------ ----- ---- ------
$1,870 $ 130 $925 $2,925
====== ===== ==== ======
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
===== ===== ==== ======
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,
---------------------------------
2000 1999 1998
-------- ------ ------
Tax provision at United States statutory rate..................... $ 2,838 $1,283 $ 650
State and foreign income taxes, net of federal benefit............ 351 142 94
FSC benefit....................................................... (244) (143) 0
Utilization of foreign net operating loss carryforwards........... 0 (439) (293)
Non-deductible and other.......................................... (20) 92 (70)
-------- ------ ------
Total provision................................................... $ 2,925 $ 935 $ 381
======= ====== ======
Deferred income taxes and prepaid income taxes are comprised of the
following at December 31, 2000 and 1999 (in thousands):
2000 1999
-------- --------
Revenues recognized for books, not tax..................... $ (1,907) $ (2,860)
Accelerated tax depreciation............................... 0 0
Other...................................................... (116) (116)
-------- --------
Total deferred liabilities....................... $ (2,023) $ (2,976)
======== ========
Inventory reserves......................................... 379 331
Inventory capitalization................................... 98 74
Accruals and other......................................... 734 577
Foreign net operating loss carryforward.................... 0 0
Accelerated tax depreciation............................... 71 65
Federal tax credit carryforwards........................... 70 132
-------- --------
Total deferred assets............................ 1,352 1,179
-------- --------
Net deferred income tax liability.......................... $ (671) $ (1,797)
======== ========
(7) EMPLOYEE BENEFITS
23
26
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, $1,052,000,
$688,000, and $100,000 was expensed in 2000, 1999 and 1998, 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 $233,000, $206,000, and $187,000 for the years ended December 31, 2000,
1999 and 1998, 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.
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 June 2000
the shareholders approved the addition of 750,000 shares available to be awarded
under the 1993 Plan. 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 676,703 at December
31, 2000, 174,041 at December 31, 1999, and 410,893 at December 31, 1998.
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 at
the time of the repricing, with a new vesting and expiration schedule.
A summary of all stock option activity for the years ended December 31,
2000, 1999 and 1998 is as follows:
2000 1999 1998
----------------------- --------------------- ----------------------
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..................... 819,007 $ 3.64 632,040 $ 2.92 367,690 $ 3.91
Granted.............................................. 320,271 9.23 280,112 4.92 301,560 4.26
Exercised............................................ (121,885) 3.17 (49,885) 2.36 (2,520) 1.88
Forfeited............................................ (72,933) 3.80 (43,260) 2.93 (34,690) 3.65
Terminated due to repricing.......................... -- -- -- -- (545,480) 4.24
Issued due to repricing.............................. -- -- -- -- 545,480 2.88
-------- ------ ------- ------ ------- ------
Outstanding at end of year........................... 944,460 $ 5.58 819,007 $ 3.64 632,040 $ 2.92
========= ====== ======= ====== ======= ======
Options exercisable at end of year................... 244,940 $ 3.47 166,043 $ 3.05 43,380 $ 2.64
======== ====== ======= ====== ======= ======
At December 31, 2000 the outstanding options have exercise prices ranging
from $2.69 to $13.63 and a weighted average remaining contractual life of 3.9
years.
The following table summarizes information for options outstanding and
exercisable at December 31, 2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------ ----------------------------
WEIGHTED WEIGHTED WEIGHTED
RANGE OF AVERAGE AVERAGE AVERAGE
PRICES NUMBER REMAINING LIFE EXERCISE PRICE NUMBER EXERCISE PRICE
- ------------- -------- -------------- -------------- -------- --------------
$ 2.69 - 3.00 374,386 3.0 yrs $ 2.88 174,937 $ 2.88
3.01 - 4.00 6,875 4.6 yrs 3.86 2,250 3.86
4.01 - 5.50 252,928 3.9 yrs 5.01 67,753 4.98
5.51 - 13.63 310,271 4.9 yrs 9.35 0 0.00
------- ------- ------ ------- ------
944,460 3.9 yrs 5.58 244,940 3.47
------- ------- ------ ------- ------
24
27
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. In June 2000 the shareholders approved the addition of 200,000 shares
available under this plan. A total of 500,000 shares have been reserved for
issuance under this plan, of which 203,577 remain available at December 31,
2000. During 2000, a total of 14,513 shares were purchased at prices ranging
from $4.89 to $6.48 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 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,
---------------------------------
2000 1999 1998
------ ------ ------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net Income:
As reported........................ $5,422 $2,838 $1,533
Pro forma.......................... 4,782 2,455 1,514
Income per basic share:
As reported........................ $ 0.79 $ 0.42 $ 0.22
Pro forma.......................... 0.70 0.36 0.21
Income per diluted share:
As reported........................ $ 0.74 $ 0.41 $ 0.22
Pro forma.......................... 0.66 0.35 0.21
Pro forma compensation costs were estimated using the Black-Scholes option
pricing model using the following weighted average assumptions for grants in
2000, 1999 and 1998, respectively; a dividend yield rate of 0 for each year;
expected lives of 5.0 4.8, and 4.9 years; expected volatility of 72.1%, 64.6%
and 63.1%; and risk free interest rates of 6.3%, 6.2% and 4.8%. The weighted
average fair value of options granted during 2000, 1999 and 1998 was $5.91,
$2.91 and $1.97, 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 2000 and 1999, 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 in 2000 and 1999, 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
$1,685,000 and $904,000 in 2000 and 1999, respectively; as well, $184,000 and
$1,000 is included in trade accounts payable on the Consolidated Balance Sheets
as of December 31, 2000 and 1999, respectively.
(10) SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------
2000 1999 1998
------ ------ ------
(IN THOUSANDS)
Cash paid (received) during the year for:
Interest.................................................... $ 431 $ 432 $451
Income Taxes................................................ 2,795 1,172 32
Non-cash transactions:
Capital asset and lease obligation additions................. -- 72 64
25
28
(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, 2000 and 1999 was approximately
$4,820,000 and $5,220,000, 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.
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- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
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, 2000 and 1999, and the related consolidated statements of
operations, comprehensive income, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 2000. 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 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, 2000 and 1999, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2000 in conformity with accounting principles
generally accepted in the United States.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 9, 2001
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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 2001 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 2001 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 2001 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 2001 Proxy Statement for BTU International, Inc. and is incorporated herein
by reference.
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 2000.
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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 9, 2001. 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.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 9, 2001
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Schedule II
BTU INTERNATIONAL, INC.
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in Thousands)
For the Year Ended December 31, 2000
------------------------------------
ADDITIONS
-----------------------------
BALANCE CHARGED
AT TO COSTS CHARGED BALANCE
BEGINNING AND TO OTHER DEDUCTIONS- AT END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTANTS (A) OF PERIOD
- ----------- --------- -------- ----------- ----------- ---------
Allowance for doubtful Accounts $160 $46 $-- $-- $206
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 ACCOUNTANTS (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 ACCOUNTANTS (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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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, 2001 By: /s/ PAUL J. VAN DER WANSEM
Paul J. van der Wansem
President, Chief Executive
Officer (principal
executive officer) and
Director
Date: March 30, 2001 By: /s/ THOMAS P. KEALY
Thomas P. Kealy Vice
President Corporate
Controller and Chief
Accounting Officer
(principal financial and
accounting officer)
Date: March 30, 2001 By: /s/ DR. JEFFREY CHUAN CHU
Dr. Jeffrey Chuan Chu Director
Date: March 30, 2001 By: /s/ DAVID A.B. BROWN
David A.B. Brown Director
Date: March 30, 2001 By: /s/ JOSEPH F. WRINN
Joseph F. Wrinn Director
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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"), the annual report as reported on the 1999 Form 10K ("1999 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 1999 10-K
10.15 1989 Stock Option Plan for Directors. 10.15 1999 10-K
10.37 BTU International, Inc. 1993 Equity Incentive Plan 10.37 1999 10-K
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 1999 10-K
10.46 First Amendment to Credit Agreement between
BTU International, Inc. and US Trust, dated December 16, 1999 10.46 1999 10-K
10.47 Amendment No. 1 to 1988 Employee Stock Purchase Plan
dated June 15, 1989 10.47 1999 10-K
10.48 Amendment No. 2 to 1988 Employee Stock Purchase Plan
dated February 20, 1991. 10.48 1999 10-K
10.49 Amendment No. 2 to 1993 Equity Incentive Plan 10.49 1999 10-K
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:
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21.0 Subsidiaries of the Registrant.
EXHIBIT 23. CONSENTS OF EXPERTS AND COUNSEL
Filed herewith:
23.1 Consent of Arthur Andersen LLP
33