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, 2001
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 $28,028,347 on March 28,
2002.
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, 2002:
6,848,487 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, 2001; and
Part III - Portions of the Proxy Statement for the 2002 Annual Meeting of
Stockholders, both of which are to be filed with the Securities and Exchange
Commission.
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BTU INTERNATIONAL, INC.
2001 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
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 2001 were such industry leaders as IBM, Intel Corporation,
Raytheon, Celestica Incorporated Lucent Technologies Inc., Motorola, Inc. and
Samsung 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 applications for our products is currently in the PCB
assembly industry for solder reflow, and in advanced thermal processing systems
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 families 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 new PYRAMAX family of advanced convection reflow systems is designed on
a single platform to be rapidly configurable, which reduces the product build
cycle, allowing us to meet customer demands for shorter delivery lead times.
Pyramax products offer our customers reduced capital cost, lower nitrogen
consumption and reduced scheduled maintenance cycles.
Pyramax provides increased process flexibility due to its ability to process
PCBs up to 24 inches wide. Rated up to 350(degrees)C, these products are capable
of operating in air or nitrogen atmospheres and have increased convection flow
for greater performance. Pyramax utilizes impingement technology to transfer
heat to the substrate. These systems are offered in various heated lengths and
are capable of processing lead-free solder. They range in price from $70,000 to
$150,000.
The solder reflow process requires the thermal processing system to manage
flux residues outgassed during the processing of the PCBs. Pyramax 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. Pyramax
also features a closed loop convection control system to provide repeatable
processes and controllable convection flows used in direct chip attach
processes.
The VIP family of fan based reflow and curing systems is rated up to
300(degrees)C and is available in either air or air/nitrogen configurations. VIP
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.
ADVANCED SEMICONDUCTOR PACKAGING. We sell several systems for the
thermal processes used in advanced semiconductor packaging.
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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 advanced solutions for wafer bump reflow by integrating
automated handling systems with thermal equipment for processing both 200mm
and 300mm wafers. 300mm systems are fully compliant with I300i protocol and
with SEMI S2 and S8 standards. These integrated systems range in price from
$600,000 to $1.5 million.
FLIP CHIP REFLOW IN PACKAGE. Flip Chip Reflow physically and
electronically attaches the die to its package. The PARAGON family of
advanced convection reflow systems, using specialized fan drives, is rated
up to 400(degrees)C and operates in air or nitrogen atmospheres. Paragon
utilizes impingement technology to transfer heat to the substrate. Using
thermal power arrays of five-kilowatt heaters, Paragon can process
substrates in dual track configurations, thereby enabling our customers to
double production without increasing the machine's footprint. The Paragon
family is available in three models based on the heated lengths of thermal
processing chambers. Heated length is based on the required production rate
and loading requirements. Paragon products range in price from $70,000 to
$160,000.
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.
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. The VMCA utilizes an advanced gas scrubbing system
to control the binder remover phase in the termination firing process. The
VMCA is available in various belt widths and heated lengths and ranges in
price from $100,000 to $150,000.
Thick Film Resistors and Conductors. The TFF and the VM series of
continuous belt advanced thermal processing systems is rated up to
1050(degrees)C in air. These systems are used for firing thick film pastes
in the production of hybrid circuits and can achieve an across belt
temperature uniformity of +/- 1(degrees)C. Such thermal uniformity is
critical in the production of resistor circuits. These systems are available
in various belt widths and heated lengths and range in price from $50,000 to
$180,000.
CUSTOM APPLICATIONS
We design and manufacture custom high temperature systems used in such
applications as metals brazing, ceramic sintering and thin film coatings.
METALS BRAZING. The TCA series of continuous advanced thermal processing
systems is rated up to 1150(degrees)C and operates in a variety of atmospheres.
This series is used for a range of thermal processing applications including
brazing of metals such as aluminum oil coolers for the automotive industry. The
TCA series utilizes a patented system to enhance temperature uniformity and
increase product throughput. The TCA series is available in a variety of belt
widths and heated lengths and ranges in price from $70,000 to $500,000.
CERAMIC SINTERING. The WBE WALKING BEAM thermal processing system is rated
up to 1800(degrees)C and operates in a hydrogen reducing atmosphere. This series
is primarily used for sintering of multilayer ceramics and nuclear fuel pellets
that are used in the production of nuclear power. The WBE Walking Beam is
designed for high volume production applications with very heavy loads. It uses
a walking beam transport system to eliminate friction associated with advanced
thermal processing systems that use pusher technology. This system ranges in
price from $500,000 to $2.0 million.
4
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 $1.2 million.
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 EMS customers include industry leaders such as
Celestica, Solectron, SCI-Sanmina and Foxconn. Our OEM customers include leaders
in their respective industries such as Intel, IBM, Nokia and Samsung.
Our largest revenue generating customers have historically accounted for a
significant percentage of our net sales. Aggregate net sales to our ten largest
customers accounted for approximately 35% of our net sales in 2001 and 51% of
our net sales in 2000. In 2001 sales to IBM, our largest customer for that year
represented approximately 15% of net sales. In 2000, sales to Solectron, our
largest customer for that year, represented nearly 23% of our total net sales.
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 59% of our net
sales originate outside the United States, with Asia Pacific and Europe
representing 28% and 25% of net sales, respectively, and 6% to Other Americas.
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 decreased from $6.2 million
in 2000 to $5.0 million in 2001. A large percentage of our research, development
and engineering expense in 2001 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 invest 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 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.
5
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.
BACKLOG
Backlog as of December 31, 2001 was $8.0 million, compared to $13.7 million
as of December 31, 2000. As of December 31, 2001, 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, uptime, mean time-to-repair,
cost of ownership and after-sale support have become increasingly important
factors. We compete primarily on the basis of these criteria, rather than on the
basis of price.
Our principal competitors for advanced semiconductor packaging and PCB
assembly equipment vary by product application. Our principal competitors for
solder reflow systems are Electrovert-Speedline Technologies (a Cookson
Electronic Company), Heller Industries, and Vitronics-Soltec, Inc. (a Dover
Technologies Company). Our 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, 2002, we had 221 employees, of whom 77 are engaged in sales,
marketing and service, 23 in research, development and engineering, 22 in
finance and administration and 99 in operations. None of our employees are
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 2002.
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 2003.
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ITEM 3. LEGAL PROCEEDINGS
There were no material legal proceedings pending as of the time of this
filing.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the Company's security holders
during the fourth quarter of 2001.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
NAME AGE POSITIONS
---- --- ---------
Paul J. van der Wansem 62 Chairman of the Board of Directors, President
and Chief Executive Officer
Thomas P. Kealy 59 Vice President, Corporate Controller and
Chief Accounting Officer
James M. Griffin 44 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.
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, 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
Fiscal Year Ended December 31, 2001:
First Quarter............................................... 9.70 5.13
Second Quarter.............................................. 7.25 4.56
Third Quarter............................................... 6.20 3.02
Fourth Quarter.............................................. 4.45 3.01
As of March 28, 2002 there were approximately 508 stockholders of
DIVIDEND POLICY
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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, 1999, December 31, 2000 and December 31, 2001
and the selected consolidated balance sheet data as of December 31, 2000 and
December 31, 2001 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, 1997 and December 31, 1998 and the
selected consolidated balance sheet data as of December 31, 1997, December 31,
1998 and December 31, 1999 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.
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FISCAL YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1997 1998 1999 2000 2001
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net sales................................................... $ 52,118 $ 57,208 $ 71,260 $ 99,494 $ 47,057
Cost of goods sold.......................................... 30,431 33,946 42,449 59,112 31,625
-------- -------- -------- -------- --------
Gross profit.............................................. 21,687 23,262 28,811 40,382 15,432
Selling, general and administrative......................... 15,349 16,800 20,284 25,310 16,328
Research, development and engineering....................... 3,808 4,575 4,786 6,231 5,001
Restructuring charge(1)..................................... 530 -- -- -- --
-------- -------- -------- -------- --------
Operating income (loss)................................... 2,000 1,887 3,741 8,841 (5,897)
Interest income (expense), net.............................. (10) (46) 8 (54) (53)
Other income (expense)...................................... (341) 73 24 (440) 2
----------- ---------- ---------- ----------- ----------
Income (loss) before provision for income taxes............. 1,649 1,914 3,773 8,347 (5,948)
Net income (loss)......................................... $ 1,250 $ 1,533 $ 2,838 $ 5,422 $ (3,747)
======== ======== ======== ======== =========
Earnings per share, diluted................................. $ 0.17 $ 0.22 $ 0.41 $ 0.74 $ (.54)
======== ======== ======== ======== =========
Weighted average shares outstanding, diluted................ 7,336 7,118 6,968 7,278 6,928
DECEMBER 31,
----------------------------------------------------
1997 1998 1999 2000 2001
------- -------- -------- -------- --------
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $11,873 $ 10,594 $ 12,431 $ 8,886 $ 15,716
Working capital............................................. 26,098 24,961 26,693 30,709 26,571
Total liabilities........................................... 16,821 15,478 17,346 19,363 10,185
Total assets................................................ 40,379 38,615 43,149 51,160 37,836
Stockholders' equity........................................ 23,558 23,137 25,803 31,797 27,651
- -------------------
(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.
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 2001, net sales to our five largest customers
accounted for 26.1% of our total net sales. Our net sales in 2001 were dispersed
worldwide, with approximately 41.0% to customers in the United States, 28.0% to
Asia Pacific customers, 25.0% to European customers and 6.0% to Other Americas.
Over the past three years, the percentage of our net sales to international
customers was 68.0% in 1999, 66.0% in 2000 and 59.0% in 2001. These 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.
9
CRITICAL ACCOUNTING POLICIES
The following is a discussion of those accounting policies that the Company
deems to be "critical" - that is, they are important to the portrayal of the
Company's financial condition and results, and they reflect management's
reliance on estimates regarding matters that are inherently uncertain.
REVENUE RECOGNITION ON LONG-TERM AGREEMENTS - The Company regularly enters
into sales transactions projects that take longer than the normal business cycle
to complete. The Company accounts for these projects on a percentage completion
basis. Using this method, revenues are recognized based on the ratio of costs
incurred to the project's total estimated costs. To the extent that the
Company's estimates regarding costs or time required for completion prove to be
materially inaccurate, the Company's revenues for a period may likewise be
materially different. The Company routinely reviews estimates relating to these
projects, and regularly revises the estimates when necessary to reflect a change
in outlook. Revisions to cost estimates result in a charge to revenues for the
period in which the facts leading to the revision become known. Adjustments to
revenues based on revisions to estimates under long-term agreements were
insignificant for each of the three years ending December 31, 2001.
For more information on the Company's general revenue recognition
policies, please see Note 1 to the financial statements included in this report.
INVENTORY VALUATION - The Company's inventories consist of material, labor
and manufacturing overhead costs. The Company determines the cost of inventory
based on the first-in, first-out method (FIFO). The Company regularly reviews
the quantity of inventories on hand and compares these quantities to the
expected usage of each applicable product or product line. The Company's
inventories are regularly adjusted in value to the lower of costs and/or net
realizable value. Since the value of the Company's inventories depends in part
on the Company's estimates of each product's net realizable value, adjustments
may be needed to reflect changes in valuation. Any adjustments the Company is
required to make to lower the value of the inventories are recorded as a charge
to cost of revenue.
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,
-----------------------------
1999 2000 2001
------ ----- ------
Net sales........................................................ 100.0% 100.0% 100.0%
Cost of goods sold............................................... 59.6% 59.4% 67.2%
----- ----- -----
Gross profit................................................... 40.4% 40.6% 32.8%
Operating expenses:
Selling, general and administrative............................ 28.5% 25.4% 34.7%
Research, development and engineering.......................... 6.7% 6.3% 10.6%
----- ----- ------
Operating (loss) income........................................ 5.2% 8.9% (12.5)%
Interest income.................................................. 0.6% 0.4% 0.8%
Interest expense................................................. (0.6)% (0.4)% (0.9)%
Other income (expense), net...................................... 0.0% (0.4)% 0.0%
----- ------ ---
Income before (loss) provision for income taxes.................. 5.3% 8.4% (12.6)%
Income taxes..................................................... 1.3% 2.9% (4.7)%
----- ----- ------
Net (loss) Income................................................ 4.0% 5.5% (7.9)%
===== ===== ======
FISCAL YEAR ENDED DECEMBER 31, 2001 AS COMPARED TO FISCAL YEAR ENDED
DECEMBER 31, 2000
Net Sales. Net sales decreased 52.7% from $99.5 million in 2000 to $47.1
million in 2001. The decrease in 2001 net sales reflects the lower demand for
our products, primarily by our large multinational EMS providers. This decrease
in net sales also reflects the slow down in the electronics manufacturing
market.
The growth in the percentage of net sales to United States customers
reflects the increase in the percentage of sales made to our OEM providers. The
decrease in net sales to European and Asia Pacific customers reflects the
decline in net sales to our EMS providers. The percentage of net sales
attributable to our customers in the United States increased in 2001 by 7.2%,
net sales attributable to our customers in Europe decreased by 2.6%, net sales
attributable to our Asia Pacific customers decreased by 3.7% and net sales
attributable to our customers in the other Americas decreased by 0.9% as
compared to 2000. The effect of price changes for specific products has not
materially impacted the change in net sales for the periods presented.
10
Gross Profit. Gross profit decreased 61.8% from $40.4 million in 2000 to
$15.4 million in 2001 and, as a percentage of net sales, decreased from 40.6% in
2000 to 32.8% in 2001. The decrease in gross profit and gross profit percentage
for 2001 was due to the decrease in net sales in 2001 and the under absorption
of overhead.
Selling, General and Administrative. Selling, general and administrative
costs decreased 35.5% from $25.3 million in 2000 to $16.3 million in 2001, and
as a percentage of net sales, increased from 25.4% to 34.7%. Lower costs were
incurred for every area of selling, general and administrative including sales,
service and commissions and administrative costs.
Research, Development and Engineering. Research, development and engineering
costs decreased 19.7% from $6.2 million in 2000 to $5.0 million in 2001, and as
a percentage of net sales, increased from 6.3% in 2000 to 10.6% in 2001. A large
percentage of our research, development and engineering expense in 2001 was
spent on the development of a new solder reflow platform and in support of
custom design solutions.
Operating Income. Operating income decreased 166.7% from an operating income
of $8.8 million in 2000 to an operating loss of $(5.9) million in 2001, and as a
percentage of net sales, operating income decreased from an 8.9% profit in 2000
to a (12.5)% operating loss in 2001. In 2001, the decrease in operating income
was the result of a 52.7% decrease in net sales compared to 2000.
Other income (expense), net. During 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 market conditions
were unfavorable to proceed. In 2000 the Company incurred approximately $450,000
in costs associated with this proposed sale of stock.
Income Taxes. Income taxes decreased from a $2.9 million provision in 2000
to a $2.2 million benefit in 2001. Our effective tax provision and benefit rates
were 35.0% in 2000 and 37.0% in 2001.
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.
11
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 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 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%.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2001, we had $15.7 million in cash and cash equivalents,
an increase of $6.8 million compared to December 31, 2000. The increase was
primarily a result of collections on accounts receivable.
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. As of December 31, 2001, no amounts were outstanding under this
unsecured revolving line of credit. At December 31, 2001, the Company was not in
compliance with certain financial covenants of this agreement. The bank and the
Company have agreed on revised financial covenants requiring an amendment to the
loan facility, which is in process.
We have a mortgage note that is secured by our real property. The mortgage
note had an outstanding balance at December 31, 2001 of approximately $4.6
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.
We expect that our current cash position and ability to borrow necessary
funds will be sufficient to meet our corporate, operating and capital
requirements into 2003.
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, 2001, 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 our debts.
OTHER MATTERS
The impact of inflation and the effect of foreign exchange rate changes
during 2001 have not had a material impact on our business and financial
results.
12
RECENT ACCOUNTING DEVELOPMENTS
In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 141, "Accounting for Business Combinations," and SFAS No. 142, "Goodwill and
Other Intangible Assets." These statements modify accounting for business
combinations after September 30, 2001 and will affect the Company's treatment of
goodwill and other intangible assets at the start of the year 2002, and for
acquisitions consummated after June 30,2001.The statements require that goodwill
existing at the date of adoption be reviewed for possible impairment and that
impairment tests be periodically repeated, with impaired assets written down to
fair value. Additionally, existing goodwill and intangible assets must be
assessed and classified with the statement's criteria. Intangible assets with
estimated useful lives will continue to be amortized over those periods.
Amortization of goodwill and intangible assets with indeterminable lives will
cease. The Company does not expect the adoption of this statement to have a
material impact on its results of operations because the Company currently does
not have any goodwill.
In June 2001, the FASB issued SFAS No.143, "Accounting for Asset Retirement
Obligations." SFAS 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. This statement applies to legal obligations
associated with the retirement of long-lived assets that result from the
acquisition, construction, development and/or the normal operation of a
long-lived asset, except for certain obligations of lessees. This statement does
not apply to obligations that arise solely from a plan to dispose of a
long-lived asset. This statement is effective for financial statements issued
for fiscal years beginning after June 15, 2002. The Company does not expect the
adoption of this statement to have a material impact on its results of
operations.
In August 2001, the FASB issued SFAS No. 144,"Accounting for the Impairment
or Disposal of Long-Lived Assets." SFAS 144 addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. This statement
requires that a long-lived asset to be abandoned, exchanged for a similar
productive asset, or distributed to owners in a spin-off be considered held and
used until it is disposed of. The changes in this statement require that one
accounting model be used for long-lived assets to be disposed of by sale,
whether previously held and used or newly acquired, and by broadening the
presentation of discontinued operations to include more disposal transactions.
The provisions of this statement are effective for financial statements issued
for fiscal years beginning after December 15, 2001 and interim periods within
those fiscal years, with early application encouraged. The provisions of this
statement generally are to be applied prospectively. The Company does not expect
the adoption of this statement to have a material impact on its results of
operations.
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, 2001 and 2000.................
Consolidated Statement of Operations for the years ended
December 31, 2001, 2000 and 1999..........................................
Consolidated Statement of Stockholders' Equity for the years ended
December 31, 2001, 2000 and 1999..........................................
Consolidated Statement of Comprehensive Income for the years ended
December 31, 2001, 2000 and 1999..........................................
Consolidated Statement of Cash Flows for the years ended December 31,
2001, 2000 and 1999.......................................................
Notes to Consolidated Financial Statements..................................
Report of Independent Public Accounts.......................................
13
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, 2001 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.
CONSOLIDATED STATEMENT OF OPERATIONS DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
QUARTER ENDED
-----------------------------------------------------------------------------------------
APRIL 2, JULY 2, OCT 1, DEC. 31, APRIL 1, JULY 1, SEPT.30, DEC. 31,
2000 2000 2000 2000 2001 2001 2001 2001
--------- --------- --------- --------- ---------- --------- --------- --------
Net sales............................... $ 21,853 $ 23,956 $ 26,908 $ 26,777 $ 16,581 $ 14,037 $ 9,099 $ 7,340
Cost of goods sold...................... 12,676 13,964 16,166 16,306 9,869 10,831 6,041 4,885
-------- --------- --------- --------- --------- --------- --------- -------
Gross profit............................ 9,177 9,992 10,742 10,471 6,712 3,206 3,058 2,455
Selling, general and administrative..... 6,070 6,404 6,733 6,103 5,091 4,254 3,329 3,653
Research, development and engineering... 1,330 1,359 1,629 1,913 1,501 1,383 1,116 1,001
-------- --------- --------- --------- --------- --------- --------- -------
Income (loss) from operations........... 1,777 2,229 2,380 2,455 120 (2,431) (1,387) (2,199)
Interest income (expense), net.......... 13 (19) (10) (38) (2) (47) 5 (9)
Other income (expense), net............. 4 7 4 (455) 5 (11) 0 8
-------- --------- --------- ---------- --------- ---------- --------- -------
Income (loss) before taxes.............. 1,794 2,217 2,374 1,962 123 (2,489) (1,382) (2,200)
Income tax (benefit) provision.......... 638 766 823 698 46 (921) (513) (813)
-------- --------- --------- --------- --------- ---------- ---------- -------
Net income (loss)..................... $ 1,156 $ 1,451 $ 1,551 $ 1,264 $ 77 $ (1,568) $ (869) $(1,387)
======== ========= ========= ========= ========= =========== ========== =======
Earnings per share, diluted............. $ 0.16 $ 0.20 $ 0.21 $ 0.17 $ 0.01 $ (0.23) $ (0.13) $ 0.20
======== ========= ========= ========= ========= ========= ========= =======
Weighted average shares, diluted........ 7,284 7,323 7,371 7,319 7,251 6,967 6,972 6,842
QUARTER ENDED
----------------------------------------------------------------------------------------
APRIL 2, JULY 2, OCT. 1, DEC. 31, APRIL 1, JULY 1, SEPT.30, DEC. 31,
2000 2000 2000 2000 2001 2001 2001 2001
--------- -------- -------- -------- --------- -------- --------- --------
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...................... 58.0 58.3 60.1 60.9 59.5 77.2 66.4 66.6
----- ----- ----- ----- ----- ----- ----- -----
Gross profit ........................... 42.0 41.7 39.9 39.1 40.5 22.8 33.6 33.4
Selling, general and administrative..... 27.8 26.7 25.0 22.8 30.7 30.3 36.6 49.8
Research, development and engineering... 6.1 5.7 6.1 7.1 9.1 9.8 12.2 13.6
----- ----- ----- ----- ----- ----- ----- -----
Income (loss) from operations........... 8.1 9.3 8.8 9.2 0.7 (17.3) (15.2) (30.0)
Interest income (expense), net.......... 0.1 (0.1) 0.0 (0.1) 0.0 (0.3) 0.0 (0.1)
Other income (expense), net............. 0.0 0.0 0.0 1.7 0.0 (0.1) 0.0 0.1
----- ----- ----- ----- ----- ----- ----- -----
Income (loss) before taxes.............. 8.2 9.3 8.8 7.3 0.7 (17.7) (15.2) (30.0)
Income tax (benefit) provision.......... 2.9 3.2 3.1 2.6 0.3 (6.5) (5.6) (11.1)
----- ----- ----- ----- ----- ----- ----- -----
Net income (loss)..................... 5.3% 6.1% 5.8% 4.7% 0.4% (11.2)% (9.6)% (18.9)%
===== ===== ===== ===== ===== ===== ===== =====
During the eight quarters in 2000 and 2001, net sales decreased from a high
of $26.9 million to a low of $7.3 million. The overall decline in net sales for
2001 is the result of a continual decline in the electronics manufacturing
marketplace.
Gross profits as a percentage of net sales during the last eight quarters
began at 42.0% and ended at 33.4%. The decline in gross profit and gross profit
as a percent of net sales during 2001 was due to the decrease in net sales and
the under absorption of overhead.
Selling, general and administrative costs during the last eight quarters of
2000 and 2001 decreased from a high of $6.7 million to a low of $3.3 million.
Lower costs were incurred in every area of selling, general and administrative
for 2001 including sales, service and commission costs.
Research, development and engineering costs decreased in real terms but
increased as a percentage of net sales from 2000 to 2001 due to the decrease in
net sales for 2001.
Income from operations decreased during the eight quarters in 2000 and 2001
from a high income of $2.5 million to a loss of $(2.4) million. The loss from
operations for the year 2001 was the result of the decrease in net sales over
2000.
Other income (expense), net includes approximately $450,000 in the fourth
quarter of 2000 in costs associated with the proposed sale of stock which was
withdrawn due to unfavorable market conditions.
14
BTU INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
AS OF DECEMBER 31,
----------------------
2001 2000
-------- --------
ASSETS
Current Assets:
Cash and cash equivalents(Notes 1 and 11)............................. $ 15,716 $ 8,886
Trade accounts receivable, less reserves of $230 and $206 at
December 31, 2001 and 2000, respectively(Note 1)..................... 5,626 21,716
Inventories(Note 1)................................................... 9,051 13,619
Deferred income taxes(Notes 1 and 6).................................. 1,459 0
Other current assets.................................................. 557 512
-------- --------
Total current assets.......................................... 32,409 44,733
-------- --------
Property, Plant and Equipment, at cost (Notes 1 and 3)
Land.................................................................. 210 210
Buildings and improvements............................................ 7,805 7,730
Machinery and equipment............................................... 7,626 7,857
Furniture and fixtures................................................ 853 860
-------- --------
16,494 16,657
Less-accumulated depreciation...................................... (11,376) (10,529)
--------- ---------
Net property, plant and equipment.................................. 5,118 6,128
-------- --------
Other assets, net of accumulated amortization of $455 in
2001 and $448 in 2000................................................. 309 299
-------- --------
Total Assets.................................................. $ 37,836 $ 51,160
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt and capital lease
obligations(Note 3)................................................. $ 297 $ 286
Trade accounts payable(Note 9)........................................ 2,846 6,922
Customer deposits..................................................... 277 313
Accrued expenses(Note 2).............................................. 2,418 6,503
-------- --------
Total current liabilities..................................... 5,838 14,024
Long-term debt and capital lease obligations less current
maturities(Notes 3 and 11)............................................ 4,347 4,668
Deferred income taxes(Notes 1 and 6).................................... -- 671
-------- --------
Total Liabilities............................................. $ 10,185 $ 19,363
-------- --------
Commitments and contingencies(Note 3)
Stockholders' Equity (Note 8):
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 -- 7,975,419, outstanding
-- 6,833,309 in 2001; and Issued -- 7,906,844, outstanding --
6,930,934 in 2000.................................................. 80 79
Additional paid-in capital............................................ 21,458 21,223
Retained earnings..................................................... 10,107 13,854
Less treasury stock at cost 1,142,110 shares at December 31,2001
and 975,910 shares at December 31,2000.............................. (4,150) (3,538)
Accumulated other comprehensive income................................ 156 179
-------- --------
Total stockholders' equity.................................... 27,651 31,797
-------- --------
Total Liabilities and Stockholders' Equity.................... $ 37,836 $ 51,160
======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
15
BTU INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEARS ENDED DECEMBER 31,
-----------------------------------
2001 2000 1999
------- ------- -------
Net sales(Notes 1, 4 and 5)................................. $47,057 $99,494 $71,260
Cost of goods sold.......................................... 31,625 59,112 42,449
------- ------- -------
Gross profit................................................ 15,432 40,382 28,811
------- ------- -------
Selling, general and administrative(Note 9)............... 16,328 25,310 20,284
Research, development and engineering(Note 1)............. 5,001 6,231 4,786
------- ------- -------
Operating (loss) income..................................... (5,897) 8,841 3,741
Interest income........................................... 360 377 440
Interest expense(Note 3).................................. (413) (431) (432)
Other income (expense).................................... 2 (440) 24
------- ------- -------
(Loss) income before provision for income taxes............. (5,948) 8,347 3,773
(Benefit) Provision for income taxes(Notes 1and 6).......... (2,201) 2,925 935
------- ------- -------
Net (loss) income........................................... $(3,747) $ 5,422 $ 2,838
======= ======= =======
Earnings (loss) per share:
Basic..................................................... $ (0.54) $ 0.79 $ 0.42
======= ======= =======
Diluted................................................... $ (0.54) $ 0.74 $ 0.41
======= ======= =======
Weighted average number of shares outstanding:
Basic shares.............................................. 6,928 6,876 6,799
Effect of Dilutive Options................................ -- 402 169
------- ------- -------
Diluted Shares............................................ 6,928 7,278 6,968
======= ======= =======
The accompanying notes are an integral part of these
consolidated financial statements.
16
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, 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....... 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....... 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
Net loss.......................... -- -- (3,747) -- -- (3,747)
Translation adjustment............ -- -- -- -- (23) (23)
Sales of common stock and
exercise of stock options....... 1 189 -- -- -- 190
Purchase of treasury stock........ -- -- -- (612) (612)
Deferred compensation............. -- 46 -- -- -- 46
---- -------- ------- ------- ----- -------
BALANCE AT DECEMBER 31, 2001........ $ 80 $ 21,458 $10,107 $(4,150) $ 156 $27,651
==== ======== ======= ======= ===== =======
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS)
YEARS ENDED DECEMBER 31,
---------------------------------
2001 2000 1999
-------- ------ ------
Net (loss) income....................................................................... $(3,747) $5,422 $2,838
Other comprehensive income
Foreign currency translation adjustment............................................... (23) (109) (22)
------- ------ ------
Comprehensive (loss) income............................................................. $(3,770) $5,313 $2,816
======== ====== ======
The accompanying notes are an integral part of these
consolidated financial statements.
17
BTU INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEARS ENDED DECEMBER 31,
------------------------------------
2001 2000 1999
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss)income................................................... $(3,747) $ 5,422 $ 2,838
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization.................................... 1,262 1,233 1,120
Deferred income taxes............................................ (671) (1,126) 41
Deferred compensation............................................ 46 -- --
Net changes in operating assets and liabilities:
Accounts receivable.............................................. 16,090 (7,153) (2,136)
Inventories...................................................... 4,568 (4,002) 467
Other current assets............................................. (1,504) 166 (267)
Accounts payable................................................. (4,076) 257 1,283
Customer deposits................................................ (36) 313 (124)
Accrued expenses................................................. (4,085) 2,839 841
Other assets..................................................... (17) 13 33
Tax benefit of stock options exercised........................... -- 234 34
------- ------ ------
Net cash provided by (used in) operating activities........... 7,830 (1,804) 4,130
------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment, net.................... (245) (1,813) (1,842)
------- ------- -------
Net cash used in investing activities......................... (245) (1,813) (1,842)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments under long-term debt and capital lease
obligations...................................................... (310) (266) (245)
Issuance of common stock........................................... 190 447 188
Purchase of treasury stock......................................... (612) -- (372)
-------- ------- -------
Net cash (used in) provided by financing activities........... (732) 181 (429)
------- ------- -------
EFFECT OF EXCHANGE RATES ON CASH................................... (23) (109) (22)
------- ------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............... 6,830 (3,545) 1,837
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR..................... 8,886 12,431 10,594
------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR........................... $15,716 $ 8,886 $12,431
======= ======= =======
Supplemental disclosures of cash flow information are included in Note 10.
The accompanying notes are an integral part of these
consolidated financial statements.
18
BTU INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001, 2000 AND 1999
(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. 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, 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. The primary estimates used in the consolidated financial
statements include percent complete revenue and inventory reserves.
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 fair 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,
-------------------
2001 2000
------- -------
Raw materials and manufactured components........... $ 4,903 $ 6,004
Work-in-progress.................................... 3,026 5,552
Finished goods...................................... 1,122 2,063
------- -------
$ 9,051 $13,619
======= =======
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
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
Assets and liabilities of the Company's foreign operations are translated
from their functional currency into United States dollars at year end 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, as the
functional currency of the subsidiaries is their local currency, and the
reporting currency of the Company is the US dollar. 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 some 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.
Furthermore, 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 year ended December 31, 2001, $3.4 million
of revenue was recognized using the percentage of completion method for systems
not yet shipped. 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. Revenue recognized on the percentage of completion method included in
net sales, as a percent of net sales, during each year was 14.1% for 2001, 1.0%
for 2000 and 2.3% for 1999.
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.
20
EARNINGS PER SHARE INFORMATION
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 1,050,812 in
2001, 2,271 in 2000 and 289,778 in 1999.
RECENT ACCOUNTING DEVELOPMENTS
In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 141, "Accounting for Business Combinations," and SFAS No. 142, "Goodwill and
Other Intangible Assets." These statements modify accounting for business
combinations after September 30, 2001 and will affect the Company's treatment of
goodwill and other intangible assets at the start of the year 2002, and for
acquisitions consummated after June 30,2001.The statements require that goodwill
existing at the date of adoption be reviewed for possible impairment and that
impairment tests be periodically repeated, with impaired assets written down to
fair value. Additionally, existing goodwill and intangible assets must be
assessed and classified with the statement's criteria. Intangible assets with
estimated useful lives will continue to be amortized over those periods.
Amortization of goodwill and intangible assets with indeterminable lives will
cease. The Company does not expect the adoption of this statement to have a
material impact on its results of operations because the Company currently does
not have any goodwill.
In June 2001, the FASB issued SFAS No.143, "Accounting for Asset Retirement
Obligations." SFAS 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. This statement applies to legal obligations
associated with the retirement of long-lived assets that result from the
acquisition, construction, development and/or the normal operation of a
long-lived asset, except for certain obligations of lessees. This statement does
not apply to obligations that arise solely from a plan to dispose of a
long-lived asset. This statement is effective for financial statements issued
for fiscal years beginning after June 15, 2002. The Company does not expect the
adoption of this statement to have a material impact on its results of
operations.
In August 2001, the FASB issued SFAS No. 144,"Accounting for the Impairment
or Disposal of Long-Lived Assets." SFAS 144 addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. This statement
requires that a long-lived asset to be abandoned, exchanged for a similar
productive asset, or distributed to owners in a spin-off be considered held and
used until it is disposed of. The changes in this statement require that one
accounting model be used for long-lived assets to be disposed of by sale,
whether previously held and used or newly acquired, and by broadening the
presentation of discontinued operations to include more disposal transactions.
The provisions of this statement are effective for financial statements issued
for fiscal years beginning after December 15, 2001 and interim periods within
those fiscal years, with early application encouraged. The provisions of this
statement generally are to be applied prospectively. The Company does not expect
the adoption of this statement to have a material impact on its results of
operations.
RECLASSIFICATION
Certain prior year financial statement information has been reclassified to
conform with the current year presentation.
(2) ACCRUED EXPENSES
Accrued expenses at December 31, 2001and 2000 consisted of the following (in
thousands):
2001 2000
Accrued commissions....................................... $ 1,065 $2,449
Accrued warranty.......................................... 853 972
Accrued income taxes...................................... 110 1,186
Accrued bonus............................................. 15 562
Other..................................................... 375 1,334
------- ------
$ 2,418 $6,503
======= ======
21
(3) DEBT, CAPITAL LEASES, COMMITMENTS AND CONTINGENCIES
Debt at December 31, 2001 and 2000 consisted of the following (in
thousands):
2001 2000
------- -------
Mortgage note payable......................................... $ 4,560 $4,847
Capital lease obligations, interest rates ranging
from 10.2% to 10.3%, net of interest of $21 and $28 in 2001
and 2000, respectively...................................... 84 107
------- ------
4,644 4,954
Less current maturities....................................... 297 286
------- ------
$ 4,347 $4,668
======= ======
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. 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
-------- ------- ------
2002.......................................... $ 262 $ 35 $ 297
2003.......................................... 309 20 329
2004.......................................... 3,989 19 4,008
2005.......................................... 0 10 10
------- ----- ------
$ 4,560 $ 84 $4,644
======= ===== ======
At December 31, 2001, 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. As of December 31, 2001, no amounts were
outstanding under this unsecured revolving line of credit. At December 31, 2001,
the Company was not in compliance with certain financial covenants of this
agreement. The bank and the Company have agreed on revised financial covenants
requiring an amendment to the loan facility, which is in process.
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 $260,000 in 2001, $310,000 in 2000 and $143,000 in 1999. 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 $185,000 in rent expense per year starting
July 2001 through March 2010. As of December 31, 2001, the future minimum lease
commitment for this facility is $1,308,000, payable as follows: $157,000 for the
year 2002 through 2009, $52,000 for 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.
(4) FOREIGN OPERATIONS
The following table shows the amounts and percentages of the Company's
revenues by geographic region, for the last three years:
2001 2000 1999
-------------- -------------- -------------
United States................ $ 19,294 41% $ 33,828 34% $ 22,803 32%
Europe....................... 11,764 25 26,863 27 18,528 26
Asia Pacific................. 13,176 28 31,838 32 21,378 30
Other Americas............... 2,823 6 6,965 7 8,551 12
22
(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 15% of revenue in 2001, 23% of revenue in 2000 and
18% of revenue in 1999.
(6) INCOME TAXES
The components of (loss) income before (benefit) provision for income taxes
are as follows (in thousands):
YEARS ENDED DECEMBER 31,
--------------------------------
2001 2000 1999
-------- ------ ------
Domestic.................................... $(5,912) $5,636 $2,163
Foreign..................................... (36) 2,711 1,610
------- ------ ------
Total....................................... $(5,948) $8,347 $3,773
======== ====== ======
For the years ended December 31, 2001, 2000 and 1999, the Company's
(benefit) provisions for income taxes were as shown below (in thousands):
FEDERAL STATE FOREIGN TOTAL
------- ----- ------- -------
December 31, 2001
Current............................... $ (148) $ 38 $ 39 $ (71)
Deferred.............................. (2,013) (117) 0 (2,130)
------- ----- ---- -------
$(2,161) $ (79) $ 39 $(2,201)
======= ===== ==== =======
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
======= ===== ==== =======
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,
---------------------------------
2001 2000 1999
------- ------- ------
Tax (benefit) provision at United States statutory rate.... $(2,009) $ 2,838 $1,283
State and foreign income taxes, net of federal benefit..... (234) 351 142
FSC benefit................................................ 0 (244) (143)
Utilization of foreign net operating loss carryforwards ... 0 0 (439)
Non-deductible and other................................... 42 (20) 92
------- ------- ------
Total provision............................................ $(2,201) $ 2,925 $ 935
======= ======= ======
23
Deferred income taxes and prepaid income taxes are comprised of the
following at December 31, 2001 and 2000 (in thousands):
2001 2000
-------- --------
Revenues recognized for books not tax................. $ (953) $ (1,907)
Accelerated tax depreciation.......................... 39 0
Other................................................. 0 (116)
-------- --------
Total deferred liabilities.................. $ (914) $ (2,023)
======== ========
Inventory reserves.................................... 268 379
Inventory capitalization.............................. 0 98
Accruals and other.................................... 599 734
Foreign net operating loss carryforward............... 0 0
Accelerated tax depreciation.......................... 0 71
Federal tax credit carryforwards...................... 81 70
Federal net operating loss carryforward............... 1,425 0
-------- --------
Total deferred assets....................... 2,373 1,352
-------- --------
Net deferred income tax asset (liability)............. $ 1,459 $ (671)
======== ========
(7) EMPLOYEE BENEFITS
The Company has management incentive and profit sharing plans for its
executives and all of its employees. These plans provide for bonuses upon the
attainment of certain financial targets. Under these plans, $15,000, $1,052,000,
and $688,000 was expensed in 2001, 2000 and 1999, 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 $243,000, $233,000, and $206,000 for the years ended December 31, 2001,
2000 and 1999, 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. Shares available for future stock option grants, pursuant
to these plans, were 547,679 at December 31, 2001, 676,703 at December 31, 2000,
and 174,041 at December 31, 1999.
During 2001, the Company granted 20,000 shares of restricted stock to an
employee. This stock vests over a two year term. The Company has recorded a
compensation charge of $46,000 in 2001 related to this grant. At December 31,
2001, the unvested portion of this award was $76,000.
A summary of all stock option activity for the years ended December 31,
2001, 2000 and 1999 is as follows:
2001 2000 1999
----------------------- ----------------------- ----------------------
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........... 944,460 $ 5.58 819,007 $ 3.64 632,040 $ 2.92
Granted.................................... 330,809 3.23 320,271 9.23 280,112 4.92
Exercised.................................. (22,172) 3.41 (121,885) 3.17 (49,885) 2.36
Forfeited.................................. (202,285) 5.87 (72,933) 3.80 (43,260) 2.93
--------- ------ --------- ------ --------- ------
Outstanding at end of year................. 1,050,812 $ 4.83 944,460 $ 5.58 819,007 $ 3.64
========= ====== ======= ====== ======== ======
Options exercisable at end of year......... 377,103 $ 4.48 244,940 $ 3.47 166,043 $ 3.05
======= ====== ======= ====== ======== ======
24
At December 31, 2001 the outstanding options have exercise prices ranging
from $2.69 to $13.63 and a weighted average remaining contractual life of 3.4
years.
The following table summarizes information for options outstanding and
exercisable at December 31, 2001:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------- --------------------------
WEIGHTED WEIGHTED WEIGHTED
RANGE OF AVERAGE AVERAGE AVERAGE
PRICES NUMBER REMAINING LIFE EXERCISE PRICE NUMBER EXERCISE PRICE
- ------------- ---------- -------------- -------------- ------- --------------
$ 2.69 - 3.00 289,904 2.0 yrs $ 2.87 217,529 $ 2.88
3.01 - 4.00 322,559 4.6 yrs 3.12 3,750 3.88
4.01 - 5.50 191,978 2.9 yrs 5.02 95,028 4.99
5.51 - 13.63 246,371 4.0 yrs 9.23 60,796 9.45
--------- ------- ------ ------- ------
1,050,812 3.4 yrs $ 4.83 377,103 $ 4.48
--------- ------- ------ ------- ------
The Company has an Employee Stock Purchase Plan. Under the terms of the
plan, employees are entitled to purchase shares of common stock at the lower of
85% of fair market value at the beginning or the end of each six-month option
period. A total of 500,000 shares have been reserved for issuance under this
plan, of which 185,414 remain available at December 31, 2001. During 2001, a
total of 18,163 shares were purchased at prices ranging from $3.69 to $5.19 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,
-----------------------------------
2001 2000 1999
--------- ------ -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net Income:
As reported.......................... $(3,747) $5,422 $2,838
Pro forma............................ (4,429) 4,782 2,455
Income per basic share:
As reported.......................... $ (0.54) $ 0.79 $ 0.42
Pro forma............................ (0.64) 0.70 0.36
Income per diluted share:
As reported.......................... $ (0.54) $ 0.74 $ 0.41
Pro forma............................ (0.64) 0.66 0.35
Pro forma compensation costs were estimated using the Black-Scholes option
pricing model using the following weighted average assumptions for grants in
2001, 2000 and 1999, respectively; a dividend yield rate of 0 for each year;
expected lives of 5.0, 5.0 and 4.8 years; expected volatility of 68.2%, 72.1%
and 64.6%; and risk free interest rates of 3.9%, 6.3% and 6.2%. The weighted
average fair value of options granted during 2001, 2000 and 1999 was $1.93,
$5.91 and $2.91, 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 2001 and 2000, transactions were made between the Company and certain
related parties, all of which management believes were made at arms' length.
These transactions included payments to one of the Company's directors for
consulting services of $15,000 in 2001 and 2000, 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 $276,000
and $1,685,000 in 2001 and 2000, respectively; as well, $26,000 and $184,000 is
included in trade accounts payable on the Consolidated Balance Sheets as of
December 31, 2001 and 2000, respectively.
25
(10) SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
2001 2000 1999
------- ------- -----
(IN THOUSANDS)
Cash paid during the year for:
Interest..................................... $ 413 $ 431 $ 432
Income Taxes................................. 279 2,795 1,172
Non-cash transactions:
Capital asset and lease obligation additions.. -- -- 72
(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, 2001 and 2000 was approximately
$5,054,000 and $4,820,000, 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.
26
- --------------------------------------------------------------------------------
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, 2001 and 2000, 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, 2001. 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, 2001 and 2000, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2001 in conformity with accounting principles
generally accepted in the United States.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 1, 2002
27
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 2002 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 2002 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 2002 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 2002 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 2001.
28
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 1, 2002. 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 1, 2002
29
Schedule II
BTU INTERNATIONAL, INC.
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in Thousands)
FOR THE YEAR ENDED DECEMBER 31, 2001
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 $ 206 $24 $-- $-- $ 230
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
(A) Amounts indicated as deductions are for amounts charged against these
reserves in the ordinary course of business.
30
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: April 1, 2002 By: /s/ PAUL J. VAN DER WANSEM
Paul J. van der Wansem President, Chief
Executive Officer (principal executive
officer) and Director
Date: April 1, 2002 By: /s/ THOMAS P. KEALY
Thomas P. Kealy Vice President Corporate
Controller and Chief Accounting Officer
(principal financial and accounting officer)
Date: April 1, 2002 By: /s/ DR. JEFFREY CHUAN CHU
Dr. Jeffrey Chuan Chu Director
Date: April 1, 2002 By: /s/ DAVID A.B. BROWN
David A.B. Brown Director
Date: April 1, 2002 By: /s/ JOSEPH F. WRINN
Joseph F. Wrinn Director
31
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 Amended and Restated Certificate of Incorporation. 3.1 7-1-01 10-Q
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:
32
21.0 Subsidiaries of the Registrant.
EXHIBIT 23. CONSENTS OF EXPERTS AND COUNSEL
Filed herewith:
23.1 Consent of Arthur Andersen LLP
99.1 Letter of Quality Assurance
33