Btu International (BTUI) 10-Q 2012 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 1, 2012

OR

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

For the transition period from            to             

Commission File Number 000-17297

BTU INTERNATIONAL, INC.

(Exact name of Registrant as specified in its charter)

DELAWARE	04-2781248
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification Number)
23 Esquire Road, North Billerica, Massachusetts	01862-2596
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (978) 667-4111

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every interactive data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period than the registrant was required to submit and post such files.)    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act).

Large Accelerated Filer	¨	Accelerated Filer	¨
Non-Accelerated Filer	¨	Smaller Reporting Company	x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

Indicate the number of shares outstanding of the Registrant’s Common Stock, par value $0.01 per share, as of the latest practicable date: As of May 1, 2012: 9,503,061 shares.

BTU INTERNATIONAL, INC.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
Item 1.Financial Statements (Unaudited)
Unaudited Condensed Consolidated Balance Sheets	1
Unaudited Condensed Consolidated Statements of Operations	2
Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)	3
Unaudited Condensed Consolidated Statement of Stockholders’ Equity	3
Unaudited Condensed Consolidated Statements of Cash Flows	4
Notes to Unaudited Condensed Consolidated Financial Statements	5-9
Item  2.Management’s Discussion and Analysis of Financial Condition and Results of Operations	9-12
Item 3.Quantitative and Qualitative Disclosures About Market Risk	12
Item 4.Controls and Procedures	12
PART II. OTHER INFORMATION
Item 6.Exhibits	12
Signatures	13

PART I. FINANCIAL STATEMENTS

Item 1. Financial Statements

BTU INTERNATIONAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

(unaudited)

	April 1, 2012			December 31, 2011
Assets
Current assets
Cash and cash equivalents	$	20,116		$	18,948
Accounts receivable, net		12,874			12,422
Inventories		16,266			17,510
Other current assets		2,626			2,064
Total current assets		51,882			50,944
Property, plant and equipment, net		5,286			5,650
Other assets, net		109			124
Total assets	$	57,277		$	56,718
Liabilities and stockholders’ equity
Current liabilities
Current portion of long-term debt	$	384		$	379
Accounts payable		5,994			3,527
Deferred revenue, current		594			494
Accrued expenses		4,606			4,910
Total current liabilities		11,578			9,310
Long-term debt, less current portion		7,861			7,956
Total liabilities		19,439			17,266
Commitments and contingencies
Stockholders’ equity
Preferred stock, $1.00 par value - 5,000,000 shares authorized; no shares issued or outstanding		—			—
Common stock, $0.01 par value - 25,000,000 shares authorized; 10,871,028 shares issued and 9,503,061 shares outstanding at April 1, 2012 and 10,867,778 shares issued and 9,499,811 shares outstanding at December 31, 2011		109			109
Additional paid in capital		50,971			50,646
Accumulated deficit		(10,395	)		(8,388	)
Treasury stock, at cost, 1,367,967 shares at April 1, 2012 and December 31, 2011		(4,990	)		(4,990	)
Accumulated other comprehensive income		2,143			2,075
Total stockholders’ equity		37,838			39,452
Total liabilities and stockholders’ equity	$	57,277		$	56,718

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

1

BTU INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)

(unaudited)

	Three Months Ended
	April 1, 2012			April 3, 2011
Net sales	$	16,272		$	25,350
Costs of goods sold		11,049			14,624
Gross profit		5,223			10,726
Operating expenses:
Selling, general and administrative		5,413			5,924
Research, development and engineering		1,482			1,867
Operating income (loss)		(1,672	)		2,935
Interest income		20			15
Interest expense		(118	)		(135	)
Foreign exchange loss		(62	)		(76	)
Other income		—			215
Income (loss) before provision for income taxes		(1,832	)		2,954
Provision for income taxes		175			1,125
Net income (loss)	$	(2,007	)	$	1,829
Income (loss) per share:
Basic	$	(0.21	)	$	0.20
Diluted	$	(0.21	)	$	0.19
Weighted average number of shares outstanding:
Basic shares		9,501,667			9,369,773
Effect of dilutive options		—			388,363
Diluted shares		9,501,667			9,758,136

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

2

BTU INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

FOR THE THREE MONTHS ENDED APRIL 1, 2012

(in thousands)

(unaudited)

	Three Months Ended			Three Months Ended
	April 1, 2012			April 3, 2011
Comprehensive income (loss) is calculated as follows:
Net income (loss)	$	(2,007	)	$	1,829
Other comprehensive income:
Foreign currency translation adjustment		68			114
Comprehensive income (loss)	$	(1,939	)	$	1,943

BTU INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED APRIL 1, 2012

(in thousands)

(unaudited)

					Additional										Accumulated Other
	Common Stock				Paid-In		Accumulated			Treasury Stock					Comprehensive
	shares		$		Capital		Deficit			shares		$			Income		Total
Balance at December 31, 2011		10,868	$	109	$	50,646	$	(8,388	)		1,368	$	(4,990	)	$	2,075	$	39,452
Net loss		—		—		—		(2,007	)		—		—			—		(2,007	)
Exercise of stock options		3		—		9		—			—		—			—		9
Stock-based compensation		—		—		316		—			—		—			—		316
Translation adjustment		—		—		—		—			—		—			68		68
Balance at April 1, 2012		10,871	$	109	$	50,971	$	(10,395	)		1,368	$	(4,990	)	$	2,143	$	37,838

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

3

BTU INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED APRIL 1, 2012 AND APRIL 3, 2011

($ in thousands)

(unaudited)

	April 1, 2012			April 3, 2011
Cash flows from operating activities:
Net income (loss)	$	(2,007	)	$	1,829
Adjustments to reconcile net cash provided by operating activities:
Depreciation and amortization		418			544
Provision for bad debts		9			7
Provision for inventory obsolescence		763			296
Stock-based compensation		316			334
Deferred taxes		(36	)		—
Net change in operating assets and liabilities:
Accounts receivable		(431	)		(3,625	)
Inventories		493			(1,510	)
Other current assets		(521	)		(259	)
Deferred revenue		99			3,280
Other assets		—			151
Accounts payable		2,443			(643	)
Accrued expenses		(321	)		(154	)
Net cash provided by operating activities		1,225			250
Cash flows used in investing activities:
Purchases of property, plant and equipment		(32	)		(279	)
Net cash used in investing activities		(32	)		(279	)
Cash flows from financing activities:
Principal payments under loan and capital lease agreements		(90	)		(86	)
Proceeds from the exercise of stock options		9			296
Net cash provided by (used in) financing activities		(81	)		210
Effects of exchange rates on cash		56			72
Net increase in cash and cash equivalents		1,168			253
Cash and cash equivalents, beginning of period		18,948			22,753
Cash and cash equivalents, end of period	$	20,116		$	23,006
Supplemental disclosures of cash flow information:
Cash paid during the periods for:
Interest	$	97		$	107
Income taxes		66			293

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

4

BTU INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(1) Basis of Presentation

The condensed consolidated balance sheet, financial information and related disclosures as of and for the year ended December 31, 2011 have been derived from our consolidated financial statements, which have been audited as of that date. The condensed consolidated balance sheet as of April 1, 2012 and the related condensed statement of stockholders’ equity for the three months ended April 1, 2012 are unaudited. The condensed consolidated statements of operations, comprehensive income (loss), and cash flows for the three months ended April 1, 2012 and April 3, 2011 are unaudited. In the opinion of management, all adjustments necessary for the fair presentation of such financial statements have been included. Such adjustments consisted only of normal recurring items. Interim results are not necessarily indicative of results for any other period or for the full year. These financial statements do not include all disclosures associated with annual financial statements and, accordingly, should be read in conjunction with the footnotes contained in the Company’s consolidated financial statements as of and for the year ended December 31, 2011, together with the auditors’ report, included in the Company’s Annual Report on Form 10-K, as filed with the Securities and Exchange Commission (SEC).

(2) Summary of Significant Accounting Policies

The accounting policies underlying the accompanying unaudited condensed consolidated financial statements are those set forth in Note 1 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 as filed with the SEC.

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

Subsequent Events — The Company evaluated subsequent events through the time of issuance of these condensed consolidated financial statements. We are not aware of any significant events that occurred subsequent to the balance sheet date, but prior to the filing of this report that would have a material impact on our condensed consolidated financial statements

(3) Inventories

	April 1, 2012		December 31, 2011
	($ in thousands)
Raw materials and manufactured components	$	8,708	$	7,614
Work-in-process		3,444		5,363
Finished goods		4,114		4,533
	$	16,266	$	17,510

5

BTU INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(4) Accrued Expenses

	April 1, 2012		December 31, 2011
	( $ in thousands)
Accrued commissions	$	1,030	$	1,194
Accrued warranty		565		497
Accrued taxes		1,345		1,175
Accrued audit		304		373
Accrued legal		230		246
Accrued bonus		17		167
Payroll and payroll taxes		550		764
Accrued cost of sales		342		216
Accrued restructuring costs		123		192
Other		100		86
	$	4,606	$	4,910

Warranty

The Company provides standard warranty coverage for labor for 12 months and special extended material-only coverage on certain products. The Company estimates and records an accrual for anticipated warranty claims based on sales. The accrual for warranty covers the estimated costs of material, labor and travel. Actual warranty claims incurred are charged to the accrual. Factors that affect the Company’s product warranty liability include the number of installed units, the anticipated cost of warranty repairs and historical and anticipated rates of warranty claims.

The following table reflects changes in the Company’s accrued warranty account during the three months ended April 1, 2012 (in thousands):

	Three Months Ended April 1, 2012
Beginning balance, December 31, 2011	$	497
Plus: accruals related to new sales		205
Less: warranty claims incurred and reserve adjustment		(137	)
Ending balance, April 1, 2012	$	565

Restructuring

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

The restructuring charge consisted of primarily severance and benefits.

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

	Three Months Ended April 1, 2012
Beginning balance, December 31, 2011	$	192
Less: cash payments		(69	)
Ending balance, April 1, 2012	$	123

6

BTU INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(5) Debt

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

	April 1, 2012		December 31, 2011
	($ in thousands)
Mortgage note payable, interest rate of 5.50%	$	8,245	$	8,335
Less - current maturities		384		379
	$	7,861	$	7,956

On March 30, 2006, the Company entered into a mortgage note that is secured by our real property in Billerica, Massachusetts, in the amount of $10 million. This mortgage note payable has a balloon payment of $6.7 million due and payable at maturity on December 23, 2015. On September 9, 2010, the Company signed a Loan Modification Agreement relating to the mortgage note. The modification resulted in a reduction of the annual interest rate from 6.84% to 5.50% and a reduction in the monthly payment from $76,280 to $69,000.

On August 31, 2009, the Company entered into a pledge and assignment agreement with a bank. The bank agrees, at the Company’s request, to issue letters of credit in the bank’s name and the Company agrees to cash collateralize letters of credit via restricted cash deposits at the bank. As of April 1, 2012, the value of the outstanding letters of credit issued by the bank for the Company and cash collateralized by the Company was $225,140. This restricted cash value is included in the Company’s balance sheet in other current assets.

(6) Net Income (Loss) Per Share (EPS)

Basic EPS is computed by dividing net income (loss) available to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted EPS is computed using the weighted average number of common and dilutive potential common shares outstanding during the period, using the treasury stock method. Diluted EPS equals basic EPS when the Company reports a net loss because the assumed exercise or conversion of potentially dilutive securities would be anti-dilutive. Due to their anti-dilutive effect, approximately 1,261,335 and 42,019 options to purchase common stock were excluded from the calculation of diluted income (loss) per share for the three months ended April 1, 2012 and April 3, 2011, respectively. These options could become dilutive in future periods.

(7) Accounting for Stock-Based Compensation

The Company’s stock option compensation expense was $315,638 and $334,114 for the three months ended April 1, 2012 and April 3, 2011, respectively.

The fair value of each option is estimated on the date of grant using the Black-Scholes option-pricing model. This model incorporates certain assumptions for inputs including a risk-free market interest rate, expected dividend yield of the underlying common stock, expected option life and expected volatility in the market value of the underlying common stock. The Company is also required to estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. Historical data was used to estimate pre-vesting forfeitures and stock-based compensation expense was recorded only for those awards that are expected to vest. Accordingly, awards ultimately expected to vest have been reduced by an annualized estimated forfeiture rate of 4%.

Calculation of Fair Value - Assumptions Used:

	Three months ended
	April 1, 2012			April 3, 2011
Expected Volatility		66.60	%		65.05	%
Expected Life (in years)		3.58			3.00
Risk-Free Interest Rate		0.60	%		1.31	%
Expected Dividend Yield		0			0

Expected volatilities are based on the historical volatility of the Company’s common stock. The Company had used significant historical data to help evaluate the expected lives of options in developing its assumption. The risk-free interest rate is based upon quoted market yields for United States Treasury debt securities. The expected dividend yield is based upon the Company’s history of having never paid a dividend and management’s current expectation to retain any excess cash for use in the business.

7

BTU INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The following table summarizes the stock option activity during the three months ended April 1, 2012:

	Shares			Weighted- Average Exercise Price		Average Remaining Contractual Term		Aggregate Intrinsic Value
Options
Outstanding at December 31, 2011		1,299,358		$	6.72
Granted		18,135		$	3.04
Exercised		(3,250	)	$	3.00
Forfeited/Cancelled		(75,549	)	$	4.74
Outstanding at April 1, 2012		1,238,694		$	6.80		4.18	$	840
Exercisable at April 1, 2012		619,629		$	7.88		3.25	$	—

The weighted-average grant date fair values of options granted during the three-month periods ended April 1, 2012 and April 3, 2011 were $1.44 and $4.81, respectively. The aggregate fair value of options exercised during the three-month periods ended April 1, 2012 and April 3, 2011 was $6,179 and $229,826, respectively.

As of April 1, 2012, there was $1,331,021 of total unrecognized compensation cost related to non-vested options granted under the Company’s option plans. That cost is expected to be recognized over a weighted-average period of 2.18 years. The total fair value of options vested during the three-month period ended April 1, 2012 was $16,416.

(8) Revenue Recognition

For the three months ended April 1, 2012 and April 3, 2011, there was $301,686 and $399,870, respectively, of revenue recognized using the percentage of completion method.

(9) Fair Value of Financial Instruments

In accordance with the requirements of the Fair Value Measurements and Disclosures Topic of the FASB Accounting Standards Codification (ASC), the Company groups its financial assets and liabilities measured at fair value on a recurring basis in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:

• Level 1 – Valuation is based upon quoted market price for identical instruments traded in active markets.

• Level 2 – Valuation is based on quoted market prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.

• Level 3 – Valuation is generated from model-based techniques that use significant assumptions not observable in the market. Valuation techniques include use of discounted cash flow models and similar techniques.

In accordance with the requirements of the Fair Value Measurements and Disclosures Topic of the FASB ASC, it is the Company’s policy to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements. When available, the Company uses quoted market prices to measure fair value. If market prices are not available, the fair value measurement is based on models that use primarily market based parameters including interest rate yield curves, option volatilities and currency rates. In certain cases, where market rate assumptions are not available, the Company is required to make judgments about assumptions market participants would use to estimate the fair value of a financial instrument. Changes in the underlying assumptions used, including discount rates and estimates of future cash flows, could significantly affect the results of current or future values.

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

(10) Segment Reporting

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

The Thermal Processing Capital Equipment segment consists of the designing, manufacturing, selling and servicing of thermal processing equipment and related process controls for use in the electronics, alternative energy, automotive and other industries. This business segment

8

BTU INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

includes the supply of solder reflow systems used for surface mount applications in printed circuit board assembly. Thermal processing equipment is used in low temperature curing/encapsulation, hybrid integrated circuit manufacturing, integrated circuit packaging and sealing, and processing multi-chip modules. In addition, the thermal process equipment is used for solar cell processing, sintering nuclear fuel for commercial power generation, as well as brazing and the sintering of ceramics and powdered metals, and the deposition of precise thin film coatings. The business segment’s customers are multinational original equipment manufacturers and contract manufacturing companies.

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

	April 1, 2012		December 31, 2011
	($ in thousands)
United States	$	4,447	$	4,741
Asia Pacific		839		909
	$	5,286	$	5,650

(11) Legal Proceedings

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

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

BTU International, Inc. (“BTU”), founded in 1950 and headquartered in North Billerica, Massachusetts, is a market-leading, global supplier of advanced thermal processing equipment to the alternative energy and electronics manufacturing markets. BTU equipment is used in the production of solar cells and nuclear fuel, as well as in printed circuit board assembly and semiconductor packaging.

Our customers require high throughput, high yield and highly reliable thermal processing systems with tightly controlled temperature and atmospheric parameters. In the solar market, BTU offers processing equipment for both silicon and thin film photovoltaics. Also in alternative energy, our customers use our thermal systems for the processing of nuclear fuel. Our convection solder reflow systems are used to attach electronic components to the printed circuit boards, primarily in the advanced, high-density, surface mount segments of this market. In the semiconductor market, we participate in both wafer level and die level packaging, where our thermal processing systems are used to connect and seal integrated circuits into a package.

In 2004, we began manufacturing and material sourcing operations in a leased facility in Shanghai, China. In addition, we expanded our product development capability in China, creating a global engineering team. This team commercially introduced our latest PYRAMAX™ and TRITAN™ products and continues to collaborate with our U.S. headquarters on additional product initiatives.

9

RESULTS OF OPERATIONS

Three months ended April 1, 2012 compared to the three months ended April 3, 2011.

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

Summary Condensed Consolidated Statement of Operations

	Three Months Ended
	April 1, 2012						April 3, 2011
				($ in thousands)
				% of Net Sales					% of Net Sales			Percent Change
Net sales	$	16,272			100.0	%	$	25,350		100.0	%		(35.8	)%
Cost of goods sold		11,049			67.9	%		14,624		57.7	%		(24.4	)%
Gross profit		5,223			32.1	%		10,726		42.3	%		(51.3	)%
Selling, general and administrative expenses		5,413			33.3	%		5,924		23.4	%		(8.6	)%
Research, development and engineering expenses		1,482			9.1	%		1,867		7.4	%		(20.6	)%
Operating income (loss)		(1,672	)		(10.3	)%		2,935		11.6	%		(157.0	)%
Other, net		(160	)		(1.0	)%		19		0.1	%		(942.1	)%
Income (loss) before provision for income taxes		(1,832	)		(11.3	)%		2,954		11.7	%		(162.0	)%
Provision for income taxes		175			1.1	%		1,125		4.4	%		(84.4	)%
Net income (loss)	$	(2,007	)		(12.3	)%	$	1,829		7.2	%		(209.7	)%

Net Sales. Net sales for the first quarter of 2012 were $16.3 million representing a decrease of $9.1 million, or 35.8%, as compared to the same period in the prior year. Net sales for the Company’s electronic market systems increased by $3.1 million, or 40.3%, as compared to the same period in the prior year. Net sales for the Company’s alternative energy systems decreased by $11.0 million, or 74.9% as compared to the same period in the prior year, while net sales for the Company’s other market systems, parts and service sales business decreased by $1.1 million, or 36.4%. The Company’s alternative energy systems first quarter 2012 sales decrease as compared to the same period in the prior year is due to the broad weakening of the worldwide solar marketplace which started in the second quarter of 2011. The electronic market systems increase represents an increase in demand for Surface Mount Technology systems, particularly in China. The decrease in sales in the other market systems and parts and service business was the result of a decrease in demand for parts to maintain existing customer systems.

As a result of the weakness in capital spending in the solar industry, we expect minimal revenue from solar products over the next two quarters. Our results of operations in future quarters could also be affected including inventory write-downs and reductions in operating expenses.

The following table sets forth, for the periods indicated, revenues from sales into select geographies expressed in thousands of dollars and as a percentage of total revenues. The values shown represent the amount sold into each of the listed geographical areas.

	Three Months Ended
	April 1, 2012					April 3, 2011
	($ in thousands)
	$		% of Revenues			$		% of Revenues
United States	$	2,208		13.6	%	$	3,141		12.4	%
Europe, Near East		1,713		10.5	%		287		1.1	%
Asia Pacific		11,715		72.0	%		21,135		83.4	%
Other Americas		636		3.9	%		787		3.1	%
Total Revenue	$	16,272				$	25,350

Gross Profit. The first quarter of 2012 gross profit of $5.2 million decreased by $5.5 million compared to the first quarter of 2011 due primarily to the 35.8% decrease in net sales. In the first quarter of 2012, gross profit as a percentage of sales decreased to 32.1% as compared to 42.3% in the same period in 2011, due primarily to lower volume, product mix and underutilization at our USA factory combined with higher inventory obsolescence reserves.

Selling, General and Administrative (SG&A). SG&A first quarter 2012 expenses of $5.4 million decreased by $0.5 million compared to the same period in the prior year. The decrease is primarily due to the lower commission on reduced sales and cost reduction actions taken in the Company’s service and administrative functions.

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Research, Development and Engineering (RD&E). RD&E first quarter 2012 expenses of $1.5 million decreased by $0.4 million, or 20.6%, from the same period in the prior year as a result of headcount reductions and expense reductions in the Company’s RD&E functions.

Operating Income (Loss). The 35.8% net sales decrease and its associated negative effect on gross profit combined with higher inventory reserves resulted in an operating loss in the first quarter of 2012 of $1.7 million as compared to an operating profit of $2.9 million for the same period in 2011.

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

Foreign Exchange Loss. The foreign exchange loss in the first quarter of 2012 was $62,000 as compared to a loss of $76,000 in the same period in the prior year. The net exchange loss is primarily the result of foreign currency exposure in the Company’s foreign operations.

Income Taxes. For the three months ended April 1, 2012, we recorded an income tax provision of $175,000 as compared to an income tax provision of $1.1 million for the three months ended April 3, 2011. The Company’s income tax provision primarily relates to income and withholding taxes generated from activities in our China operations.

The significant fluctuations in the Company’s quarterly tax rate, as a percent of consolidated pre-tax income or loss, are the result of the different statutory tax rates in each of the Company’s non-U.S. locations and the fluctuations of pre-tax income (loss) generated in these jurisdictions. A portion of the consolidated annual tax provision relates to Chinese withholding taxes which are not directly related to pre-tax income in China. China withholding taxes primarily result from corporate royalty charges based on our China manufacturing subsidiary’s net sales. U.S. income taxes have had no impact to the rate fluctuation as the U.S. Company operates at a loss.

LIQUIDITY AND CAPITAL RESOURCES

As of April 1, 2012, we had $20.1 million in cash and cash equivalents, an increase of $1.2 million, compared to $18.9 million at December 31, 2011.

During the three months ended April 1, 2012, the Company generated net cash of approximately $1.2 million from operating activities. This generation of cash was primarily the result of an increase in accounts payable of $2.4 million, a decrease in net inventory of $1.3 million, non-cash expenses for depreciation and amortization of $0.4 million and stock-based compensation of $0.3 million, offset by a net loss of $2.0 million, an increase in accounts receivable of $0.4 million, an increase in other current assets of $0.5 million and a decrease in accrued expenses of $0.3 million.

On August 31, 2009, the Company entered into a pledge and assignment agreement with a bank. The bank agrees, at the Company’s request, to issue letters of credit in the bank’s name and the Company agrees to cash collateralize the letters of credit via restricted cash deposits at the bank. As of April 1, 2012, the value of the outstanding letters of credit issued by the bank for the Company and cash collateralized by the Company was $225,140. This restricted cash value is included in the Company’s balance sheet in other current assets.

The Company has a mortgage note that is secured by its real property in Billerica, MA. The original amount of the note was $10 million. This mortgage note has a balloon payment of $6.7 million due and payable at maturity on December 23, 2015. On September 9, 2010, the Company signed a Loan Modification Agreement relating to the mortgage note. The modification resulted in lowering the annual interest rate from 6.84% to 5.50%, and lowering the monthly payment from $76,280 to $69,000. The mortgage note had an outstanding balance on April 1, 2012, of approximately $8.2 million.

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

The Company’s business forecasts project that our cash position and cash flow will be sufficient to meet our corporate, operating and capital requirements for the next twelve months.

CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT ESTIMATES

During the three months ended April 1, 2012, we believe that there have been no significant changes to the items that we disclosed as our critical accounting policies and estimates in the “Critical Accounting Policies and Significant Estimates” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011.

RISK FACTOR

Given that the Company invoices the vast majority of its sales in U.S. dollars, that the Company has a substantial manufacturing presence in China and that sales into China are primarily in U.S. dollars, should the U.S. dollar decline in relation to the Chinese renminbi, the Company’s financial results will be adversely affected.

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FORWARD LOOKING STATEMENTS

This Report contains forward-looking statements about the sufficiency of our cash position and cash flows. The words or phrases “will likely result,” “are expected to,” “will continue,” “is anticipated,” “may,” “intends,” “believes,” “estimate,” “project” or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are neither promises nor guarantees but rather are subject to risks and uncertainties described in this report and other reports we have filed with the SEC, which could cause actual results to differ materially from those described in the forward-looking statements. Such statements are made pursuant to the “safe harbor” provisions established by the federal securities laws, and are based on the assumptions and expectations of our management at the time such statements are made. Important factors that could cause actual results to differ include, but are not limited to, the condition of the world economy, the timely availability and acceptance of new products in the electronics, semiconductor and alternative energy generation industries, manufacturing problems with our foreign operations in China, the impact of competitive products and pricing, particularly from companies in Asia, and other risks detailed under the section entitled “Risk Factors” in our most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission. Actual results may vary materially. Unless otherwise required by law, we disclaim any obligation to revise or update this information in order to reflect future events or developments, whether or not anticipated. Accordingly, you should not place undue reliance on any forward-looking statements, which speak only as of the date made.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We have international subsidiaries in China, the United Kingdom, Singapore, and Malaysia. These subsidiaries transact business in their functional or local currency. Therefore, we are exposed to foreign currency exchange risks and fluctuations in foreign currencies, along with economic and political instability in the foreign countries in which we operate, all of which could adversely impact our results of operations and financial condition.

As of April 1, 2012 and December 31, 2011, all of our long-term debt obligations are fixed rate financial instruments. Therefore, we are not exposed to interest rate risk resulting from the variable interest rates.

Item 4. Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report were effective in ensuring that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Internal Control over Financial Reporting. There have been no changes in our internal control over financial reporting (as defined by Rule 13a-15(f)), that occurred during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 6. Exhibits

(a) Exhibits

Exhibit 31.1 - Section 302 Certification

Exhibit 31.2 - Section 302 Certification

Exhibit 32.1 - Section 906 Certification

Exhibit 32.2 - Section 906 Certification

Exhibit 101.INS - XBRL Instance Document.

Exhibit 101.SCH - XBRL Taxonomy Extension Schema Document.

Exhibit 101.CAL - XBRL Taxonomy Calculation Linkbase Document.

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

Exhibit 101.LAB - XBRL Taxonomy Label Linkbase Document.

Exhibit 101.PRE - XBRL Taxonomy Presentation Linkbase Document.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	BTU INTERNATIONAL, INC.
DATE: May 4, 2012	BY:	/ S /    PAUL J. VAN DER WANSEM
		Paul J. van der Wansem
		President, Chief Executive Officer (principal executive officer) and Chairman of the Board of Directors
DATE: May 4, 2012	BY:	/ S /    PETER J. TALLIAN
		Peter J. Tallian
		Chief Financial Officer and Principal Accounting Officer (principal financial and accounting officer)

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