<PAGE> 1
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, 1996
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: (508) 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 [X].
The aggregate market value of the shares of Common Stock, $.01 par value,
of the Company held by non-affiliates of the Company was $ 16,304,645 on March
21, 1997.
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 21, 1997:
7,280,096 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, 1996; and
Part III - Portions of the Proxy Statement for the 1997 Annual Meeting of
Stockholders , both of which are to be filed with the Securities and Exchange
Commission.
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<PAGE> 2
BTU INTERNATIONAL, INC.
1996 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I Page
------ ----
Item 1 Business 1-4
Item 2 Properties 4
Item 3 Legal Proceedings 5
Item 4 Submission of Matters to a Vote of Security Holders 5
Item 4A Executive Officers of the Registrant 5
PART II
-------
Item 5 Market for Registrant's Common Equity
and Related Stockholder Matters 5
Item 6 Selected Financial Data 5
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
Item 8 Financial Statements and Supplementary Data 6
Item 9 Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure 6
PART III
--------
Item 10 Directors and Executive Officers of the Registrant 6
Item 11 Executive Compensation 6
Item 12 Security Ownership of Certain Beneficial Owners
and Management 6
Item 13 Certain Relationships and Related Transactions 6
PART IV
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Item 14 Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 7-13
<PAGE> 3
Part I
Item 1. BUSINESS
General:
The Company designs, manufactures, sells and services thermal processing
equipment and related process controls for use in the electronics, power
generation, automotive and other industries. The Company is the major supplier
of solder reflow systems used in printed circuit board surface mount
applications. The Company is a principal worldwide supplier of systems used in:
low temperature curing/encapsulation; hybrid integrated circuit manufacturing;
integrated circuit packaging and sealing; and processing multi-chip modules. The
Company is a leading supplier of systems for sintering nuclear fuel for
commercial power generation. In addition, its products are used in other
specialty applications such as brazing and the sintering of ceramics and
powdered metals, and the deposition of precise thin film coatings.
The Company has focused on three key strategic areas:
TECHNOLOGICAL LEADERSHIP - As process parameters change, with higher speed
and higher density components and printed circuit boards, the Company has
responded by developing and introducing systems which advance the state of
the art in processing for many applications and industries.
PRODUCT DIVERSIFICATION - The Company utilizes it's core technologies to
satisfy our customers' changing needs by offering a variety of systems
capable of processing material from 100(Degree)C to 2000(Degree)C. These
systems are marketed at a wide range of price levels for our various
applications which include; surface mount device solder reflow, epoxy
curing, integrated circuit packaging and thick film, metals, ceramic and
nuclear fuel sintering, and other applications.
CUSTOMER SUPPORT - As thermal processing systems become more complex and
require greater support, many customers, especially those in high-volume
production, prefer dealing with a limited number of large capital equipment
suppliers. The Company's reputation for system performance and
technological innovation, together with its established worldwide service
organization, is an important strength in selling to manufacturers for
high-volume production applications.
Products:
The thermal processing applications performed by the Company's products are
used in the manufacture of:
Surface Mount Technology (SMT) Solder Reflow
Low Temperature Epoxy Curing/Encapsulation
PC Board Multi Chip Modules (MCM-L)
Conductive Polymer Thick Film Curing
Hybrid Microelectronics
Integrated Circuit Packaging (Ball Frid Array - BGA, Micro BGA, and
Chips Seale Packaging - CSP)
Ceramic Multilayer Package & Multi Chip Module Firing (MCM-C)
Nuclear Fuel Sintering
Photovoltaics Chemical Vapor Deposition (CVD) & Optoelectronics Thin
Film Deposition
Refractory & Powdered Metal Sintering
Technical Ceramic Sintering
Brazing of Electronic, Electrical, Automotive and Medical Components
CRT Coating
These products perform thermal processes either in a continuous or in a
batch mode:
Solder Reflow Systems
Conveyor Curing Systems
Continuous Belt Conveyor Processing Systems
High Temperature (up to 2000(Degree)C) Systems (continuous and batch)
Atmospheric Pressure Chemical Vapor Deposition (APCVD) Systems
Each system has precise microprocessor controlled functions, such as
process gas measurement, temperature control and profiling, time sequencing, and
Computer Intergrated Manufacturing (CIM) - SECS/GEM Machine Interface Software.
1
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The technological change in processing is driven by the trends toward
miniaturization (hand held products), higher circuit densities, and the need for
advanced controls with cleaner process environments. The trend toward automation
to support highly reproducible processes is a requirement for most applications.
Customer needs for a high level of service and spare parts support leads to a
preference for the large capital equipment supplier with a broad technological
base and an established reputation for quality. Remote diagnosis of field
equipment from BTU's factory (via modem) increases equipment availability
(uptime).
Solder Reflow Systems
Convection solder reflow systems, with or without controlled atmosphere,
have become the preferred method of attaching surface mount devices to high
density printed circuit boards. Solder, in the form of a paste, is applied to
the printed circuit board and surface mount devices are placed on the solder
paste. The assembly is then heated in a continuous multi-zoned recirculated
convection process to above the melting temperature of the solder, after which
the product is rapidly cooled by convection to solidify the solder. Uniform
heating and cooling of the product is required to prevent stresses and component
overheating.
Surface mount technology is contributing to the miniaturization of
high-density printed circuit boards and allows board designs with components on
both top and bottom. Surface mount technology is now the standard for high
density printed circuit board assembly. Prices for the Company's solder reflow
systems range from $35,000 to $200,000.
Conveyor Epoxy/Polymer Thick Film (PTF) Curing Systems
BTU's conveyor curing systems have process applications in several stages
of Printed Circuit Board (PCB) manufacturing to cure/encapsulate conductive or
dielectric epoxy at temperatures up to 225(Degree)C. The system allows fast,
stable curing/encapsulation at a controlled temperature. Epoxy material
developments have dramatically reduced cure times that should expand the market
for these curing systems for PC board and electronic packaging. Prices for the
Company's curing/encapsulation systems range from $ 25,000 to $150,000.
Continuous Belt Processing Systems
BTU's continuous belt processing systems are used in a variety of
applications (such as integrated circuit packaging, hybrid circuit
manufacturing, brazing of automotive components, etc.). These systems operate
between 300(Degree)C and 1200(Degree)C and may measure up to 60 feet long. They
can be equipped with one or more gas barriers and atmospheric zones and may vary
in length of heating zones from four to forty-eight feet. Depending upon load
capacity requirements, conveyor belt widths vary from four to forty-eight
inches. Prices for these systems range from $30,000 to $800,000.
High Temperature Systems
BTU offers walking beam, special batch systems and pusher systems for high
temperature processing with heavy loads. The Company's walking beam system
employs a proprietary conveyance mechanism that can process loads of up to 800
pounds per square foot at temperatures up to 2000(Degree)C.
A major application for this high-temperature product is sintering
multilayer integrated circuit packages. In addition, these systems are used in
sintering technical ceramics, nuclear fuels and refractory and powdered metals.
These systems are usually customized and vary in price from $250,000 to
$2,500,000.
Atmospheric Pressure Chemical Vapor Deposition Systems
Atmospheric pressure chemical vapor deposition ("APCVD") is a thin film
deposition process in which the vapors of two or more chemicals are mixed in a
controlled environment at elevated temperatures at atmospheric pressure. A
chemical reaction occurs at these elevated temperatures causing a thin film to
be deposited on the desired substrate. The process is typically carried out in a
continuous belt processing system at throughput rates of one to four square feet
per minute.
The Company's APCVD systems, which sell for between $250,000 and
$1,000,000, are used in the manufacture of silicon devices, photovoltaics and
optoelectronic devices.
2
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Marketing, Sales and Customers:
The Company's worldwide customer base consists primarily of independent
manufacturers of electronic devices, computers, telecommunications, printed
circuit board assembly houses, and other companies in the electronics industry.
Other customers include nuclear fuel manufacturers and technical ceramics
manufacturers and producers using specialty brazing applications. Repeat sales
to existing customers represent a significant portion of the Company's revenue.
The Company markets its products through the combined efforts of a direct
sales force and independent sales/service representatives. Direct sales/service
offices are maintained in the United States, England, Scotland, Germany,
Singapore and China. Independent sales/service representatives are located in
all major industrialized countries worldwide.
The Company operates on a world wide bases in support of its multinational
customer base. The following table shows the percentages of the Company's
revenues in the United States, Europe and the Far East, for the last three
years:
1996 1995 1994
---- ---- ----
United States 47% 52% 48%
Europe 25 19 28
Far East 23 24 18
Other 5 5 6
For further information on export sales and foreign operations, see Note 4
of the Company's Consolidated Financial Statements.
Reliability, performance, uptime and meantime-to-repair (MTR) and cost of
ownership, together with technological leadership, are important factors by
which customers evaluate potential suppliers of sophisticated processing
systems. The Company supports its customers with field service, training
programs, parts sales and operating manuals. Technical support is also available
through either direct telephone links or on-site Company personnel to provide
assistance in process support and the service and maintenance of equipment.
One customer individually represented approximately 21% of revenue in 1994.
No individual customer accounted for greater than 10% of revenues in 1996 or
1995.
The Company does not consider its business to be seasonal in nature, but it
is cyclical dependent on the capital equipment procurement pattern of its
customers.
Backlog:
Backlog was $ 8.1 million at December 31, 1996 versus $8.7 million at
December 31, 1995. The primary reason for the decrease is a slow down in the
electronics industry during 1996. Most of the Company's backlog is expected to
be shipped within 3 to 6 months. The Company includes in backlog only those
orders for which a purchase order has been assigned by the customer and a
delivery schedule has been specified. Because of possible changes in delivery
schedules and order cancellations, the Company's backlog at any particular date
is not necessarily representative of sales for any succeeding period.
Manufacturing and Raw Materials:
The Company manufactures a portion of its equipment to custom
specifications. On the custom equipment orders raw material inventory is
typically purchased only after an order is received. In the case of standard
equipment, certain raw materials may be purchased based upon forecast.
Manufacturing costs are financed in part through progress payments, especially
in the case of deliveries with long lead times.
The Company has an integrated manufacturing operation in the United States,
and purchases certain standard components and designs and manufactures others.
Although the Company relies upon single sources for certain parts, it believes
that alternative sources of supply are available in each case. The Company has
not experienced any disruption in its business due to an inadequate supply of
materials.
3
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Research, Development and Engineering:
The Company's research, development and engineering programs are devoted to
the enhancement of existing systems and the development of new systems for new
applications. As the complexity of producing miniaturized circuitry increases,
the electronics and other industries are working more closely with larger,
capital equipment suppliers to determine and develop future product and process
needs. The Company's current internally financed efforts include development of
enhanced convection heat transfer systems for solder reflow, new deposition
processes in APCVD, advanced controls and related software systems.
Competition:
There are numerous suppliers of thermal processing systems for the
electronic and other industrial thermal processing applications. Although buying
decisions have traditionally focused on price, the Company believes that
technological leadership, process capability, throughput, environmental
safeguards, uptime, meantime-to-repair, cost of ownership, and after sale
support have become increasingly important factors. It is on the basis of these
criteria, rather than primarily on price, that the Company competes in its
markets.
The Company's principal competitors for integrated circuit packaging and
hybrid circuit manufacturing systems vary by product application. In conveyor
belt systems, Lindberg (a division of General Signal) and SierraTherm are the
Company's principal competitors. In high temperature systems, the principal
competitors are Lindberg, Cremar and De Gussa. In solder reflow systems, the
principal competitors are Vitronics, Electrovert (a division of Cookson Group
PLC) and Heller.
The electronics industry is characterized by rapid technological change.
The Company must continue its development efforts to compete effectively.
Introduction of improved systems or techniques by others without a similar
advance by the Company could adversely affect the Company's prospects.
Patents and Trademarks:
The Company holds many US and foreign patents, and it will continue to seek
patents on inventions that result from its research and development activities.
Although it believes its patents are of value, the Company depends primarily on
its technological creativity and know-how, rather than on its patents, to
maintain its competitive position. The Company also owns certain trademarks and
proprietary information that it considers important to its business and that it
seeks to protect through appropriate means.
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 1997.
Employees:
As of December 31, 1996, the Company had a total of 323 employees of which
302 were domestic and 21 were foreign based. None of the Company's employees are
represented by a union or other collective bargaining agent, and the Company
considers its relations with its employees to be good.
Item 2. PROPERTIES
The Company maintains its headquarters in North Billerica, Massachusetts,
where it owns a 150,000 square foot manufacturing facility and leases an
additional 17,000 square feet of manufacturing space. The Company operates its
manufacturing facility on a full first shift and partial second shift basis. In
England, for its European sales and service operations, the Company operates out
of a leased facility which expires in 2010. The Company believes that its plants
and capital equipment operated at approximately 65% of productive capacity
during the fourth quarter of 1996 and that such plants and capital equipment
provide sufficient manufacturing capacity through 1997.
4
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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 1996.
Item 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
Name Age Positions
---- --- ---------
Paul J. van der Wansem 57 Chairman of the Board of Directors,
President and Chief Executive Officer
Thomas P. Kealy 54 Vice President, Corporate Controller
and Chief Accounting Officer
David H. Barry 61 Vice President and General Manager
Paul J. van der Wansem has been President, Chief Executive Officer and a
Director of the Company since 1979. From December 1977 to 1981, he served as
Vice President of Holec, N.V., a Dutch electronics company, and from 1978
through 1981 was President of Holec (USA), Inc. From 1970 through 1973, Mr. van
der Wansem worked as an adjunct director of First National City Bank in
Amsterdam and from 1973 to 1977 as a management consultant for the Boston
Consulting Group, Inc.
Thomas P. Kealy has been Vice President, Corporate Controller and Chief
Accounting Officer of the Company since February 1991. He has been the Corporate
Controller since joining the company in July 1985. Prior to that, 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.
David H. Barry has been Vice President and General Manager of the Company
since February, 1992. He has been a vice president since 1965 and has held a
variety of sales, marketing and engineering positions since joining the Company
in 1961.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS.
The following in the BTU International, Inc. 1996 Annual Report is
incorporated herein by reference:
"Common stock and market prices" set forth on page 27.
The Company's common stock is traded in the Nasdaq National Market System
under the symbol BTUI. As of March 21, 1997 there were approximately 514
stockholders of record.
To date, the Company has paid no cash dividends to its common shareholders.
The Company has no plans to pay cash dividends in the near future on its common
stock.
During 1996 the Company purchased 76,000 shares of Treasury Stock, at
various prices for a total addition to the Treasury Stock account of $248,125.
Item 6. SELECTED FINANCIAL DATA
"Selected consolidated financial data" on page 6 of the BTU International,
Inc. 1996 Annual Report is incorporated herein by reference.
5
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Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
"Management's discussion and analysis of financial condition and results of
operations" on pages 7-9 of the BTU International, Inc. 1996 Annual Report is
incorporated herein by reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements, and the notes relating thereto,
together with the report thereon of Arthur Andersen LLP, independent public
accountants, dated February 12, 1997, appearing on pages 10-25 of the BTU
International, Inc. 1996 Annual Report are incorporated herein by reference. In
addition the financial information by quarter appearing on pages 26-27 of the
BTU International, Inc. 1996 Annual Report is incorporated herein by reference.
With the exception of the aforementioned information and the information
incorporated by reference in items 5, 6 and 7, the 1996 Annual Report, is not
deemed to be filed as part of this report.
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 1996 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 "Compliance Under Section 16(a) of the Securities
Exchange Act of 1934" in the 1996 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 1996 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 1996 Proxy Statement for BTU International, Inc. and is incorporated herein
by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
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PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
The following documents are filed as part of this report:
Financial Statements (see Item 8)
Consolidated Balance Sheets as of December 31, 1996 and 1995
Consolidated Statements of Operations for the years ended
December 31, 1996, 1995 and 1994
Consolidated Statements of Stockholders' Investment for the years
ended December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
Financial Statement Schedules
Report of Independent Public Accountants
Schedule II - Valuation and Qualifying Accounts, for the years
ended December 31, 1996, 1995 and 1994
All other schedules are omitted as the required information is not
applicable or is included in the financial statements or related notes.
Exhibits
The exhibits which are filed with this Form 10-K or which are
incorporated herein by reference are set forth in the Exhibit Index
which appears in Part IV of this report beginning at page 11.
Reports on Form 8-K
No reports on Form 8-K were filed in the fourth quarter of 1996.
7
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To BTU International, Inc.:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements included in BTU International, Inc.'s
annual report to stockholders incorporated by reference in this Form 10-K, and
have issued our report thereon dated February 12, 1997. Our audit was made for
the purpose of forming an opinion on those consolidated 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, 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 12, 1997
8
<PAGE> 11
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
BTU INTERNATIONAL, INC.
Date: March 26, 1997 By: PAUL J. VAN DER WANSEM
--------------------------------
Paul J. van der Wansem
President, Chief Executive
Officer (principal executive
officer) and Director
Date: March 26, 1997 By: THOMAS P. KEALY
--------------------------------
Thomas P. Kealy
Vice President Corporate
Controller and Chief
Accounting Officer (principal
financial and accounting officer)
Date: March 26, 1997 By: DR. JEFFREY CHUAN CHU
--------------------------------
Dr. Jeffrey Chuan Chu
Director
Date: March 26, 1997 By: DAVID A.B. BROWN
--------------------------------
David A.B. Brown
Director
Date March 26, 1997 By: ALEXANDER V. d'ARBELOFF
--------------------------------
Alexander V. d'Arbeloff
Director
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EXHIBIT INDEX
The following designated exhibits are, as indicated below, either filed
herewith or have heretofore been filed with the Securities and Exchange
Commission under the Securities Act of 1933 and the Securities Exchange Act of
1934 and are referred to and incorporated herein by reference to the BTU
International, Inc. Registration Statement Filing on Form S-1 ("33-24882"), the
annual report as reported on the 1989 Form 10-K ("1989 10-K"), the annual report
as reported on the 1991 Form 10-K ("1991 10-K"), the annual report as reported
on the 1992 Form 10-K ("1992 10-K"), the annual report as reported on the 1993
Form 10K ("1993 10-K"), the annual report as reported on the 1994 Form 10K
("1994 10-K"), or the annual report as reported on the 1995 Form 10K ("1995
10-K").
<TABLE>
<CAPTION>
SEC
Exhibit Docket
------- ------
Exhibit 3. Articles of Incorporation and By-Laws
Incorporated herein by reference:
<S> <C> <C> <C>
3.1 Certificate of Incorporation, as amended. 3.1 33-24882
3.2 By-Laws. 3.2 33-24882
Exhibit 4. Instruments defining the rights of security holders,
including debentures
Incorporated herein by reference:
4.0 Specimen Common Stock Certificate. 4.0 33-24882
Exhibit 10. Material contracts
Incorporated herein by reference:
10.5 Agreement to Purchase Preferred Stock dated December 18, 10.5 33-24882
1984 among the Registrant and certain stockholders.
10.6 Agreement in Connection with Purchase of Class AA Preferred 10.6 33-24882
Stock of B&B International Holdings, Inc. dated August 5, 1988
among the Registrant and certain stockholders.
10.13 1988 Employee Stock Purchase Plan. * 10.13 33-24882
10.14 1982 Key Employees Stock Option Plan. * 10.14 33-24882
10.15 1989 Stock Option Plan for Directors. * 10.15 1989 10-K
10.22 Assets Purchase Agreement, dated as of March 4, 1992, between 10.22 1991 10-K
Bruce Technologies International, Inc. and BTU International, Inc.
10.23 Joint Venture Agreement, dated as of March 4, 1992, among 10.23 1991 10-K
Kokusai Electric Co., Ltd., BTU International, Inc. and Bruce
Technologies International, Inc.
10.33 Promissory Note, dated March 3, 1992, between BTU 10.33 1991 10-K
Engineering Corporation and John Hancock Mutual Life
Insurance Company.
</TABLE>
<PAGE> 13
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
10.34 Amendment to Mortgage Deed, dated March 3, 1992, between 10.34 1991 10-K
BTU Engineering Corporation and John Hancock Mutual Life
Insurance Company.
10.37 BTU International, Inc. 1993 Equity Incentive Plan * 10.37 1992 10-K
10.38 Credit agreement between BTU International, Inc. and Shawmut 10.38 1994 10-K
Bank, N.A., dated November 16, 1994.
10.39 BTU(UK) Limited and RD International (UK) Limited underlease, 10.39 1994 10-K
relating to Unit B15 Southwood Summit Centre
10.40 First Modification to Credit Agreement between International, Inc. 10.40 1995 10-K
and Shawmut Bank, N.A., dated October 20, 1995.
10.41 Second Modification to Credit Agreement between International, Inc. 10.41 1995 10-K
and Shawmut Bank, N.A., dated November 27, 1995.
</TABLE>
Exhibit 11. Statement re: computation of per share earnings
Filed herewith:
11.0 Calculation of net income per common share
Exhibit 13. Annual report to stockholders
Filed herewith:
13.0 BTU International, Inc. 1996 Annual Report, except for the
specific portions incorporated by reference herein, the Annual
Report is being furnished for information purposes only and is
not deemed to be filed.
Exhibit 21. Subsidiaries of the registrant
Filed herewith:
21.0 Subsidiaries of the Registrant.
Exhibit 23. Consents of experts and counsel
Filed herewith:
23.1 Consent of Arthur Andersen LLP
* - Indicates management contract or compensatory plan or arrangement.
<PAGE> 14
Schedule II
BTU INTERNATIONAL, INC.
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in Thousands)
<TABLE>
<CAPTION>
For the Year Ended December 31, 1996
------------------------------------
Additions
----------------------------
Balance Charged
at to costs Charged Balance
beginning and to other Deductions- at end
Description of period expenses accounts (A) of period
- ----------- --------- -------- -------- --- ---------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts $191 $- $- $31 $160
</TABLE>
<TABLE>
<CAPTION>
For the Year Ended December 31, 1995
------------------------------------
Additions
----------------------------
Balance Charged
at to costs Charged Balance
beginning and to other Deductions- at end
Description of period expenses accounts (A) of period
- ----------- --------- -------- -------- --- ---------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts $114 $77 $- $- $191
</TABLE>
<TABLE>
<CAPTION>
For the Year Ended December 31, 1994
------------------------------------
Additions
-----------------------------
Balance Charged
at to costs Charged Balance
beginning and to other Deductions- at end
Description of period expenses accounts (A) of period
- ----------- --------- -------- -------- --- ---------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts $49 $65 $- $- $114
</TABLE>
(A) Amounts indicated as deductions are for amounts charged against these
reserves in the ordinary course of business.
<PAGE> 1
Exhibit 11.0
BTU INTERNATIONAL, INC.
CALCULATION OF NET INCOME (LOSS) PER COMMON SHARE
(Dollars in Thousands, except per share data)
For the Year Ended December 31,
-------------------------------
1996 1995 1994
---- ---- ----
Net income $ 3,560 $ 5,073 $ 2,680
Dividends accrued - Class A
and Class AA redeemable
preferred stock -- (93) (160)
----------- ----------- -----------
Net income applicable to
common stockholders $ 3,560 $ 4,980 $ 2,520
=========== =========== ===========
Weighted average shares
outstanding
Common stock 7,303,936 7,230,346 6,857,184
Class AA convertible
preferred stock -- -- 240,000
Stock options 31,153 70,298 141,893
----------- ----------- -----------
Weighted average
shares outstanding 7,335,089 7,300,644 7,239,077
=========== =========== ===========
Net income per
common share $ 0.49 $ 0.68 $ 0.35
=========== =========== ===========
13
<PAGE> 1
FINANCIAL HIGHLIGHTS
(Thousands, except per share amounts)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Net sales $45,811 $58,274 $43,342 $36,980 $30,311
---------------------------------------------------
Net income $ 3,560 $ 5,073 $ 2,680 $ 1,010 $ 499
---------------------------------------------------
Net income per share $ 0.49 $ 0.68 $ 0.35 $ 0.12 $ 0.04
---------------------------------------------------
Weighted average number of common
and common equivalent shares outstanding 7,335 7,301 7,239 7,124 7,029
---------------------------------------------------
Cash $10,218 $ 6,145 $ 6,896 $ 4,754 $ 3,781
---------------------------------------------------
Working capital $25,268 $18,005 $13,433 $10,923 $ 9,974
---------------------------------------------------
Total assets $36,763 $35,834 $30,965 $25,845 $27,246
---------------------------------------------------
Stockholders' investment $22,207 $18,696 $11,950 $ 9,331 $ 8,484
===================================================
</TABLE>
CORPORATE PROFILE
BTU International is a major supplier of thermal processing systems. The Company
is the market leader for solder reflow furnaces used in surface mount
applications for printed circuit boards. BTU manufactures furnaces used to
package and seal integrated circuits and to process multi-chip modules. Its
products are also used in other specialty applications, such as brazing and the
sintering of ceramics, nuclear fuels and powdered metals and the deposition of
precise thin film coatings.
For additional product information, please contact our Public Relations
Department at (508) 667-4111, extension 265, and for additional investor
information, please contact our Investor Relations Department at (508) 667-4111,
extension 107.
Information can also be obtained at our WEB site @WWW.BTU.COM
<PAGE> 2
Dear Fellow Shareholders:
After improving our performance each year for the past five years and achieving
record sales and earnings in 1995, 1996 was a reminder that the nature of
business is no different than the nature of life. Our best intentions and
pre-set plans need to be modified to better respond to the challenges of the
marketplace. The historic economic reality of successful capital equipment
suppliers to the electronics industry has been one of adapting quickly and
effectively to the fluctuations in business cycles, while remaining steadfast in
pursuing long-term objectives. Such was the case for BTU during 1996.
In 1996, the electronic industry purchases of process equipment were well below
the record 1995 levels. This held true for both BTU's low temperature solder
reflow equipment used in the manufacture of printed circuit boards as well as
our high temperature process equipment used in a variety of other applications.
The decline was most significant in orders for multiple unit high end solder
reflow equipment used by the major multinational electronic companies. Partially
offsetting this decline was an increase in our worldwide customer base for low
to mid range solder reflow systems for which 1996 sales grew over 1995 levels.
This slowdown meant that during the year, we had to adjust and reset our goals
in line with the changing market place. Apart from the decline in sales, we also
saw a shift in the product mix in our solder reflow lines, which comprise about
60% of our total volume, towards medium and low end systems where margins were
under strong competitive pressures.
BTU's employees want to achieve results we can all be proud of, foremost as
measured by our world wide customer base. Our goal is to be a company which is
recognized as the leader by our customers, employees and the investment
community. To this end, we need to continue making changes to improve on many
fronts. I have listed some of the accomplishments as well as the disappointments
during 1996 and the actions we are taking to build a successful future.
1996 Accomplishments
- - Notwithstanding the tough market environment, BTU increasingly focused on
improving customer satisfaction levels for all its products and services.
To achieve this, we started a restructuring within our organization aimed
at aligning our organizational responses to the customer needs. We were
also modifying our philosophy in manufacturing towards improved
outsourcing capabilities. This restructuring will continue into 1997.
- - In order to increase efficiencies and better align our capacity with the
level of business, we started to streamline our organization during the
year and reduced headcount by approximately 20%.
- - The company undertook a major effort to reduce the cost of our medium and
low end solder reflow lines. The results are expected to improve margins
for these lines over time.
- - R&D spending increased as a percentage of sales from 7% to 8%. This
allowed us to introduce several new products to existing markets and start
additional products for new markets, which the company expects to
penetrate in the next one to two years.
The highlights of our R&D effort were:
<TABLE>
<CAPTION>
{SALES GRAPH}
SALES
IN MILLIONS 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C>
$30.30 $37.00 $43.30 $58.30 $45.80
<CAPTION>
{NET INCOME GRAPH}
NET INCOME
IN MILLIONS 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C>
$ 0.50 $ 1.01 $ 2.68 $ 5.07 $ 3.56
<CAPTION>
{ STOCKHOLDERS' INVESTMENT}
STOCKHOLDERS' INVESTMENT
IN MILLIONS 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C>
$ 8.48 $ 9.33 $11.95 $18.69 $22.21
</TABLE>
<PAGE> 3
- In our challenge to bring the best process equipment to our SMT
customers we introduced a new high end line of reflow systems, The
Paragon series, during 1996. This line will compliment and,
partially take the place of our highly successful TRS systems, which
are used by many multinational customers as the equipment of choice
for high volume surface mount printed circuit board production.
- In the high temperature equipment sector, we introduced several new
products for integrated circuits packaging applications: a new wafer
bumping system which under hydrogen atmosphere reflows the solder
directly on silicon wafers; and a new system for chip interconnects.
We also introduced a new nuclear fuel sintering furnace for medium
sized production, which compliments our large volume walking beam
system for similar processes.
- With an eye on major emerging markets, we are in prototype
development of several systems: One system is for processing large
size flat panel displays for which BTU has signed a development
agreement with a major multinational company. Another is for CRT
displays, thin film deposition, for which we expect to have our
first order in 1997. Although it is too early to predict successful
market entries, we believe that BTU has the required core
competencies to bring significant contributions to the above process
applications.
- - In June of 1996 we gainfully sold our remaining 19.4% interest in the
Bruce Technologies, Inc. joint venture, which concluded BTU's exit as a
participant in the front-end semiconductor equipment business. This helped
to further strengthen our financial position with a $10.2 million cash
balance at the end of 1996.
- - Shareholder equity increased from $18.7 million in 1995 to $22.2 million
in 1996 and increased almost two fold during the past 2 years.
- - Net cash, i.e., cash minus debt (mortgage) increased by $4.5 million
during 1996.
- - We were able to strengthen our organization in Europe and the Far East in
support of our customer base in these parts of the world in recognition
that more than 50% of our sales are outside the United States of America.
1996 Disappointments and Actions
- - During 1996, we did not meet most of our financial targets, which was a
major disappointment as expectations had led many to believe that the last
half of 1996 would show an improvement in business climate. Consequently,
we undertook several cost cutting measures, salaries for key executives
were frozen and no bonuses were earned for 1996.
- - We had higher than anticipated warranty costs due to inadequacies in
release procedures and in testing of new products. This area is a major
focus for improvement in 1997.
- - Our revenues per employee dropped by 12% as we did not adjust, partly by
default and partly by design, to the realities of the market place.
- - Realizing that part of our improvement has to come from our leadership, we
started a search to compliment our management team with a key individual
to increase the speed of improvements and advancements necessary to
capture the opportunities ahead of us.
- - We have many excellent employees and strong contributors. In order to
fully develop their potential, we need to improve our ability to
analyze and recognize the talent we have and do a better job at training,
both in basic job skills as well as in advanced managerial and team
building programs.
<TABLE>
<CAPTION>
{CASH GRAPH}
CASH
IN MILLIONS 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C>
$ 3.78 $ 4.75 $ 6.90 $ 6.15 $10.22
<CAPTION>
{EARNINGS PER SHARE GRAPH}
EARNINGS PER SHARE
IN DOLLARS 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C>
$ 0.04 $ 0.12 $ 0.35 $ 0.68 $ 0.49
<CAPTION>
{R D & E AS A PERCENTAGE OF SALES GRAPH}
R D & E AS A PERCENTAGE OF SALES
IN PERCENT 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C>
9.27% 7.06% 8.38% 7.32% 8.40%
</TABLE>
<PAGE> 4
Although all of us at BTU had a tough year, many of us learned and vowed to
change, starting with the realization that we need to work on more effective
communications, measure our process results and identify ways to improve
performance levels throughout the organization.
1997 Onwards
During 1997, we will continue to implement our reorganization and focus on
streamlining the support of our world wide customer needs. We will be
exploring several opportunities in electronic and non electronic process
applications for which BTU has unique core technologies and where market
opportunities warrant the investment needed to succeed. In our quest to
continuously improve the quality of our processes and products, we have, among
other targets, the goal to be fully in compliance with the ISO 9001 standards by
October of 1997.
This year, we have included in our report an overview of our
key end user markets and the customer applications with process parameters for
our readers information. (See pages 4 and 5.) Early indications at the time of
this report are that major customers are starting to increase their capital
spending for 1997. If this trend continues, BTU expects to increase its level of
business after a slow start in early 1997.
Part of the future challenge is that all of the next millennium's customer's
needs require technologies that are cleaner, faster, smaller, more durable and
more precise. The other part of the future challenge is that all of these
improvements must come at a lower cost of ownership. The solutions to many of
these challenges are found in BTU's core competencies coupled with the
commitment to meet and exceed the thermal processing needs of our customers
around the world.
The actions outlined and many others which our employees are working on
including partnership programs with customers and suppliers are the steps to
build a strong company. This will be the foundation to meet our commitments
to our customers, to increase shareholder values, and to create exciting and
challenging opportunities for our employees.
Paul J. van der Wansem
Chairman and Chief Executive Officer
<TABLE>
<CAPTION>
{RETURN ON EQUITY GRAPH}
RETURN ON EQUITY
IN PERCENT 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C>
5.88% 10.82% 22.43% 27.13% 16.03%
<CAPTION>
{NET CASH GRAPH}
NET CASH
IN MILLIONS 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C>
($3.1) ($1.8) $0.5 $0.1 $4.5
<CAPTION>
{SALES PER EMPLOYEE GRAPH}
SALES BY EMPLOYEE
IN THOUSANDS 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C>
$105 $111 $136 $160 $138
<CAPTION>
{SALES BY REGION 1996 PIE CHART}
SALES BY REGION 1996
IN PERCENT NORTH AMERICA EUROPE FAR EAST OTHER
<S> <C> <C> <C> <C>
51% 25% 23% 1%
</TABLE>
<PAGE> 5
EDGAR NARRATIVE FOR PAGE 4 OF ANNUAL REPORT EXHIBIT TO FORM 10K FILING
This page contains a graphical presentation of the Company's end user markets.
At the top of the page is the heading THERMAL PROCESS SOLUTIONS. Also starting
near the top of the page is a graphic design with a series of small squares
leading down into a diamond shape of the same small squares with the BTU circle
symbol in the middle of the diamond. At the lowest point on the diamond graphic
( now in the middle of the page) are five lines with arrows on the end of each
line, each arrow points towards an oval shape with a market name in each oval.
The five markets are clockwise Metals, CVD Coatings, Electronics, Energy and
Ceramics & Glass. In the center of the space surrounded by the five ovals are
the words End User Markets.
Page 4
<PAGE> 6
EDGAR NARRATIVE FOR PAGE 5 OF THE ANNUAL REPORT EXHIBIT TO FORM 10K FILING
This page contains a graphic display of the Company's (BTU) customer
applications in a range of degrees centigrade and in specific atmospheres. At
the top of the page is the heading CUSTOMER APPLICATIONS. On the right side of
the page are degree centigrade markings from 0 at the bottom of the page, up to
2000 near the top of the page in 100 degree increments. To the right of these
numbers, starting at the number 2000 reads DEGREE CENTIGRADE, which is a label
for the numbers on the right side of the page. In the lower right portion of the
page is a legend box, indicating ATMOSPHERES of AIR , NITROGEN and HYDROGEN each
atmosphere name is within a rectangular shape with a different pattern
distinguishing each atmosphere. On the rest of the page are 9 rectangles
associated with the degrees in centigrade on the right margin. Each of these 9
rectangles are named at the bottom of the rectangle with an application. Each of
the rectangles vary in width and height, in that they are split in columns of
different patterns. There are three patterns used to indicate atmosphere(s)
which the application(s) can operate in. The information is presented as
follows:
<TABLE>
<CAPTION>
Application Degree Centigrade Range Atmospheres
<S> <C> <C>
Curing and Drying 100 - 400 Air and Nitrogen
SMT Assembly 150 - 400 Air and Nitrogen
Semi Conductor Packaging 250 - 525 Air, Nitrogen and Hydrogen
CVD Coating 250 - 560 Nitrogen
Thin Film 450 - 1050 Air and Nitrogen
Metals 600 - 1250 Nitrogen and Hydrogen
Ceramic Sintering 1100 - 1700 Air, Nitrogen and Hydrogen
Nuclear Fuel Sintering 1650 - 1800 Nitrogen and Hydrogen
Special Applications 1800 - 2000 Nitrogen and Hydrogen
</TABLE>
<PAGE> 7
FINANCIAL REVIEW
SELECTED CONSOLIDATED FINANCIAL DATA:
(Thousands, except per share amounts)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales $ 45,811 $ 58,274 $ 43,342 $ 36,980 $ 30,311
Cost of goods sold 26,768 32,022 23,297 21,759 19,091
- ------------------------------------------------------------------------------------------------------------------
Gross profit 19,043 26,252 20,045 15,221 11,220
Selling, general and administrative 14,123 15,583 12,697 10,948 7,913
Research, development and engineering 3,850 4,266 3,634 2,612 2,811
Restructuring charge -- -- -- -- 1,555
- ------------------------------------------------------------------------------------------------------------------
Operating income (loss) 1,070 6,403 3,714 1,661 (1,059)
Interest income 344 273 188 100 303
Interest expense (599) (563) (609) (611) (863)
Gain on sales of investment 3,400 -- -- -- --
Other income (expense), net 82 90 49 (33) 111
- ------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes, from
continuing operations 4,297 6,203 3,342 1,117 (1,508)
Provision for income taxes 737 1,130 662 107 --
- ------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations 3,560 5,073 2,680 1,010 (1,508)
Income on disposition of
discontinued operations -- -- -- -- 2,007
- ------------------------------------------------------------------------------------------------------------------
Net income 3,560 5,073 2,680 1,010 499
Dividends - preferred stock -- (93) (160) (181) (202)
- ------------------------------------------------------------------------------------------------------------------
Net income applicable to common
stockholders $ 3,560 $ 4,980 $ 2,520 $ 829 $ 297
- ------------------------------------------------------------------------------------------------------------------
Net income (loss) per share:
From continuing operations $ 0.49 $ 0.68 $ 0.35 $ 0.12 $ (0.24)
From disposition of discontinued operations -- -- -- -- 0.28
- ------------------------------------------------------------------------------------------------------------------
Net income per share $ 0.49 $ 0.68 $ 0.35 $ 0.12 $ 0.04
- ------------------------------------------------------------------------------------------------------------------
Weighted average number of shares and
share equivalents outstanding 7,335 7,301 7,239 7,124 7,029
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
AS OF DECEMBER 31, 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents $ 10,218 $ 6,145 $ 6,896 $ 4,754 $ 3,781
Working capital 25,268 18,005 13,433 10,923 9,974
Total assets 36,763 35,834 30,965 25,845 27,246
Total short-term debt 363 336 311 283 290
Total long-term debt 5,352 5,715 6,050 6,315 6,612
Redeemable preferred stock -- -- 1,200 1,767 2,240
Stockholders' investment 22,207 18,696 11,950 9,331 8,484
------------------------------------------------------------
</TABLE>
Page 6
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table shows the percentage of net sales that certain elements of
the Consolidated Statements of Operations represent:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1996 1995 1994
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 58.4% 55.0% 53.7%
----- ----- -----
Gross profit 41.6% 45.0% 46.3%
Operating expenses:
Selling, general and administrative 30.8% 26.7% 29.3%
Research, development and engineering 8.4% 7.3% 8.4%
----- ----- -----
Operating income 2.4% 11.0% 8.6%
Interest income 0.7% 0.4% 0.4%
Interest expense (1.3%) (1.0%) (1.4%)
Gain on sale of investment 7.4% 0.0% 0.0%
Other income (expense), net 0.2% 0.2% (0.1%)
----- ----- -----
Income before income taxes 9.4% 10.6% 7.7%
Income tax provision 1.6% 1.9% 1.5%
----- ----- -----
Net income 7.8% 8.7% 6.2%
----- ----- -----
</TABLE>
1996 COMPARED TO 1995
During 1996 net sales decreased by $12.5 million to $45.8 million, representing
a decrease of 21.4% versus 1995. The major decrease in sales occurred in the
high-end surface mount technology products. These products are primarily used by
our large multinational customers. Most of these customers have significantly
decreased their capital expenditures in line with the slowdown in the
electronics industry during 1996. Sales of the company's mid-range surface mount
technology products continued to grow in part due to the increase in new
customers.
There were no material variations in the geographic dispersion of sales for 1996
as compared to 1995. The effect of price changes for specific products has not
materially impacted the change in revenue for the periods presented.
Gross profit decreased by $7.2 million, or 27.5%, in 1996 as compared to 1995.
Gross profit as a percentage of sales also decreased during 1996 to 41.6.%
versus 45.0% in 1995. The primary reason for this decrease in margin dollars for
1996 was due to the overall decrease in revenues versus 1995. The decrease in
the margin percentage was primarily due to the change in the product mix sold in
1996 versus 1995; from high-end to mid-range surface mount technology products
which carry a lower gross profit margin, as well as lower absorption of overhead
costs in 1996.
Selling, general and administrative expenses decreased in 1996 by $1.5 million,
or 9.4%, but increased as a percentage of net sales to 30.8% compared to 26.7%
in 1995 as a result of the 1996 sales decline. The lower costs in 1996 are
primarily the result of: $1.3 million in decreased commissions related to the
lower sales level; and a $0.5 million decrease in employee profit sharing costs
and executive bonuses, commensurate with the Company's lower overall profit
levels.
Page 7
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Research, development and engineering expenses in 1996 decreased by $0.4
million, or 9.8%, but increased as a percentage of net sales to 8.4% compared to
7.3% in 1995. The decrease in overall spending was related to the costs
associated with the timing of new product development and introduction. The
Company continues to pursue new developments in order to support a growing
customer base.
Interest income increased by $71,000 in 1996 compared to 1995. This increase in
interest income is due to the investment of additional cash resulting from the
sale of the Company's investment in Bruce Technologies International Inc. (BTI)
in June 1996.
On June 8, 1996 the Company sold its 19.4% investment in BTI for $ 7,000,000,
resulting in a pretax gain of $ 3,400,000, net of direct costs.
Income taxes decreased in 1996 by $393,000 compared to 1995. This decrease is
directly related to the decrease in income before income taxes generated by the
lower sales level in 1996. The Company has recorded an effective tax rate during
1996 of 17.5%, as compared to an effective tax rate of 18.2% during 1995. These
compare to the statutory rate of 34%. During 1996 and 1995, the Company has
recorded the benefit of net operating losses utilized, resulting in the lower
effective tax rates.
1995 COMPARED TO 1994
During 1995, sales increased to $58.3 million, representing an increase of $15.0
million, or 34.5%, over 1994. Although the Company saw increases in sales for
most products, the more significant gains were realized in its solder reflow
systems used to mount components on PC boards using Surface Mount Technology
(SMT), which accounted for most of the overall increase. Geographically, sales
in all regions increased in 1995.
Gross profit as a percentage of sales decreased slightly during 1995 to 45.0%
versus 46.3% in 1994. The primary reason for this decrease was a shift in our
product mix during 1995, with the introduction of low- and mid-range solder
reflow systems.
Selling, general and administrative expenses increased in 1995 by $2.9 million,
or 22.7%, but decreased significantly as a percentage of net sales to 26.7%
compared to 29.3% in 1994. The higher costs in 1995 are primarily the result of:
increased commissions related to the higher sales level; and a increase in
employee profit sharing costs and executive bonuses, commensurate with the
Company's higher overall profit levels.
Research, development and engineering expenses in 1995 increased by $0.6
million, or 17.4%, but decreased slightly as a percentage of net sales by 1.1%,
to 7.3%, compared to 1994. The increase in overall spending was related to
development efforts at the Company for the SMT products, conveyor and high
temperature systems, software and control systems and for the development of new
processes for existing furnaces.
Interest income increased by $85,000 in 1995 compared to 1994. This increase in
interest income is a direct result of the higher interest rates available during
1995 compared to 1994.
Page 8
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
During 1996, the Company sold it's 19.4% investment in BTI for $7,000,000 before
taxes. This transaction contributed significantly to the increase in the cash
balance during 1996 to $10.2 million from $6.1 million at the end of 1995.
The Company has an unsecured revolving line of credit with a bank, which allows
for aggregate borrowings and/or letters of credit of up to $5,000,000.
Borrowings are available to the Company at either the Bank's base rate or a
Eurodollar rate, as elected by the Company. This loan agreement is available to
the Company until July 1, 1998, subject to certain financial covenants. In
addition, the Company established a secured equipment loan facility with the
same bank, with the ability to borrow up to $1,000,000 for purchases of
equipment. The proceeds of these equipment loans can fund up to 75% of the cost
of qualifying equipment purchases, collateralized by a first security interest
on the purchased equipment. These equipment loans are subject to interest at
either the Bank's base rate or a Eurodollar rate, and must be repaid in monthly
principal and interest payments over a period not to exceed seven years. No
amounts were outstanding under either of these loan agreements as of December
31, 1996.
The Company has a mortgage note, which is secured by its land and building. This
mortgage had an outstanding balance at December 31, 1996 of $5,664,000, an
annual interest rate of 9%, and a balloon payment of $5,585,000 due at maturity
on April 1, 1997. Subsequent to December 31, 1996, this mortgage was refinanced
with the same institution. The terms of the new agreement are a seven year
mortgage note with a 15 year amortization payable at an annual interest rate of
8.125%, maturing on April 1, 2004 with a balloon payment of $ 3,797,000 due at
maturity.
During 1996, the Company has invested approximately $ 950,000 in capital
equipment, primarily in the areas of computer hardware, computer software and
machinery and equipment. The Company does not presently have any outstanding
commitments for capital expenditures that would have a material impact on the
Company's liquidity and future capital resources.
The Company expects that its current cash position, ability to borrow necessary
funds, as well as cash flows from operations will be sufficient to meet its
corporate, operating and capital requirements into 1998.
OTHER MATTERS
The impact of inflation and the effect of foreign exchange rate changes during
1996 has had an immaterial impact on the Company's business and financial
results.
This annual report contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. These statements are
based on the Company's current plans and expectations and involve risks and
uncertainties that could cause actual future activities and results of
operations to be materially different from those set forth in the
forward-looking statements. Important factors that could cause actual results
to differ include, among others, general market conditions governing supply and
demand, the timely availability and acceptance of new products, and the impact
of competitive products and pricing and other risks detailed in the Company's
SEC reports.
Page 9
<PAGE> 11
CONSOLIDATED BALANCE SHEETS
(Thousands, except share amounts)
<TABLE>
<CAPTION>
As of December 31, 1996 1995
<S> <C> <C> <C>
ASSETS CURRENT ASSETS
Cash and cash equivalents (Note 1) $10,218 $ 6,145
Trade accounts receivable, less reserves of $160 and $191
in 1996 and 1995, respectively (Note 1) 10,630 11,508
Inventories (Note 1) 9,760 9,899
Other current assets (Note 6) 1,661 429
------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 32,269 27,981
------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT, AT COST (NOTES 1 AND 3)
Land 210 210
Buildings and improvements 5,591 5,526
Machinery and equipment 5,021 4,473
Furniture and fixtures 731 734
------------------------------------------------------------------------------------
11,553 10,943
Less-accumulated depreciation 7,288 6,804
------------------------------------------------------------------------------------
NET PROPERTY, PLANT AND EQUIPMENT 4,265 4,139
Investment in Bruce Technologies International, Inc. (Note 10) -- 3,476
Other assets, net of accumulated amortization of
$421 in 1996 and $409 in 1995 229 238
------------------------------------------------------------------------------------
$36,763 $35,834
------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 10
<PAGE> 12
CONSOLIDATED BALANCE SHEETS
(Thousands, except share amounts)
<TABLE>
<CAPTION>
As of December 31, 1996 1995
<S> <C> <C> <C>
LIABILITIES CURRENT LIABILITIES
AND Current maturities of long-term debt and capital lease obligations (Note 3) $ 363 $ 336
STOCKHOLDERS' Trade accounts payable (Note 11) 4,124 4,607
INVESTMENT Progress payments 441 396
Accrued expenses (Notes 2 and 8) 2,073 4,637
-------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 7,001 9,976
-------------------------------------------------------------------------------------------------------
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, LESS
CURRENT MATURITIES (NOTE 3) 5,352 5,715
DEFERRED INCOME TAXES (NOTES 1 AND 6) 2,203 1,447
-------------------------------------------------------------------------------------------------------
14,556 17,138
-------------------------------------------------------------------------------------------------------
STOCKHOLDERS' INVESTMENT (NOTES 8 AND 9)
Series preferred stock, $1 par value-
Authorized-5,000,000 shares; Issued and outstanding-none - -
Common stock, $.01 par value-
Authorized-25,000,000 shares; Issued-7,635,167 and 7,569,687 shares
shares at December 31, 1996 and 1995, respectively 76 76
Additional paid-in capital 20,115 19,972
Accumulated earnings deficit 2,811 (749)
Less treasury stock- 355,281 and 279,281 shares, at cost,
at December 31, 1996 and 1995, respectively (1,183) (935)
-------------------------------------------------------------------------------------------------------
21,819 18,364
Cumulative translation adjustment (Note 1) 388 332
-------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' INVESTMENT 22,207 18,696
-------------------------------------------------------------------------------------------------------
$ 36,763 $ 35,834
=======================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 11
<PAGE> 13
CONSOLIDATED STATEMENTS OF OPERATIONS
(Thousands, except per share amounts)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1996 1995 1994
<S> <C> <C> <C>
NET SALES (NOTES 1, 4, AND 5) $ 45,811 $ 58,274 $ 43,342
Cost of goods sold 26,768 32,022 23,297
----------------------------------
GROSS PROFIT 19,043 26,252 20,045
Selling, general and administrative (Note 11) 14,123 15,583 12,697
Research, development and engineering (Note 1) 3,850 4,266 3,634
----------------------------------
OPERATING INCOME 1,070 6,403 3,714
Interest income 344 273 188
Interest expense (Note 3) (599) (563) (609)
Gain on sale of investment (Note 10) 3,400 -- --
Other income (expense) 82 90 49
----------------------------------
INCOME BEFORE PROVISION FOR INCOME TAXES, 4,297 6,203 3,342
Provision for income taxes (Notes 1 and 6) 737 1,130 662
----------------------------------
NET INCOME 3,560 5,073 2,680
Dividends accrued-Class A and AA redeemable
preferred stock (Note 8) -- (93) (160)
----------------------------------
NET INCOME APPLICABLE TO COMMON
STOCKHOLDERS $ 3,560 $ 4,980 $ 2,520
==================================
NET INCOME PER SHARE (NOTE 1) $ 0.49 $ 0.68 $ 0.35
==================================
WEIGHTED AVERAGE NUMBER OF SHARES AND
SHARE EQUIVALENTS OUTSTANDING 7,335 7,301 7,239
==================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 12
<PAGE> 14
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
(Thousands)
<TABLE>
<CAPTION>
ADDITIONAL RETAINED CUMULATIVE TOTAL
COMMON PAID-IN EARNINGS TREASURY TRANSLATION STOCKHOLDERS'
STOCK CAPITAL (DEFICIT) STOCK ADJUSTMENT INVESTMENT
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1993 71 18,132 (8,249) (935) 312 9,331
----------------------------------------------------------------------
Net income -- -- 2,680 -- -- 2,680
Translation adjustment -- -- -- -- 4 4
Sales of common stock
(Note 9) 1 94 -- -- -- 95
Dividends declared
(Note 8) -- -- (160) -- -- (160)
----------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1994 72 18,226 (5,729) (935) 316 11,950
----------------------------------------------------------------------
NET INCOME -- -- 5,073 -- -- 5,073
TRANSLATION ADJUSTMENT -- -- -- -- 16 16
SALES OF COMMON STOCK
(NOTE 9) 2 230 -- -- -- 232
TAX BENEFIT OF STOCK OPTIONS
EXERCISED -- 318 -- -- -- 318
CONVERSION OF PREFERRED
AA SHARES (NOTE 8) 2 1,198 -- -- -- 1,200
DIVIDENDS DECLARED
(NOTE 8) -- -- (93) -- -- (93)
----------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1995 $ 76 $ 19,972 $ (749) $ (935) $ 332 $ 18,696
----------------------------------------------------------------------
Net income -- -- 3,560 -- -- 3,560
Translation adjustment -- -- -- -- 56 56
Sales of common stock
(Note 9) -- 119 -- -- -- 119
Tax benefit of stock options
exercised -- 24 -- -- -- 24
Purchase of treasury stock -- -- -- (248) -- (248)
----------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996 $ 76 $ 20,115 $ 2,811 $ (1,183) $ 388 $ 22,207
======================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 13
<PAGE> 15
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1996 1995 1994
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES-
Net income $ 3,560 $ 5,073 $ 2,680
Adjustments to reconcile net income to net
cash provided by (used in) operating activities-
Depreciation and amortization 832 740 689
Deferred income taxes 756 (267) 751
Net gain on sale of investment (3,400) -- --
Net changes in operating assets and liabilities-
Accounts receivable 878 (1,816) (1,877)
Inventories 139 (4,381) (12)
Other current assets (1,232) 949 (1,061)
Accounts payable (483) 1,601 841
Progress payments 45 (1,411) 1,528
Accrued expenses (2,564) 547 264
Other assets (3) (13) (15)
----------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (1,472) 1,022 3,788
----------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES-
Purchases of property, plant and equipment, net (946) (1,099) (649)
Net proceeds from sale of investment 6,876 -- --
----------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 5,930 (1,099) (649)
----------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES-
Principal payments under long-term debt and
capital lease obligations (336) (310) (290)
Issuance of common stock 119 232 95
Tax benefit of stock options exercised 24 318 --
Purchase of treasury stock (248) -- --
Payments of preferred stock dividends -- (363) (333)
Redemption of Class A preferred stock -- (567) (473)
----------------------------------
NET CASH USED IN FINANCING ACTIVITIES (441) (690) (1,001)
----------------------------------
EFFECT OF EXCHANGE RATES ON CASH 56 16 4
----------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,073 (751) 2,142
CASH AND CASH EQUIVALENTS, AT BEGINNING OF YEAR 6,145 6,896 4,754
----------------------------------
CASH AND CASH EQUIVALENTS, AT END OF YEAR $ 10,218 $ 6,145 $ 6,896
==================================
</TABLE>
Supplemental disclosures of cash flow information are included in Note 12.
The accompanying notes are an integral part of these consolidated financial
statements.
Page 14
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Note 1: Summary of Significant Accounting Policies
a. Nature of Operations
BTU International, Inc. (the Company) and its wholly owned subsidiaries
are primarily engaged in the manufacture, sale, installation and service
of thermal processing systems, which are used as capital equipment in
various manufacturing processes, primarily in the electronics industry.
b. Principles of Consolidation and the Use of Estimates
The accompanying consolidated financial statements include the accounts
of the Company and its wholly owned subsidiaries. All material
intercompany balances and transactions have been eliminated in
consolidation. The preparation of these financial statements required the
use of certain estimates by management in determining the entity's
assets, liabilities, revenue and expenses. Actual results may vary from
these estimates.
c. Cash and Cash Equivalents
The Company has classified certain liquid financial instruments, with
original maturities of less than three months, as cash equivalents.
d. Inventories
Inventories consist of material, labor and overhead and are valued at the
lower of cost or market. Cost is determined by the first-in, first-out
(FIFO) method for all inventories.
<TABLE>
<CAPTION>
Inventories consist of:
(Thousands)
DECEMBER 31, 1996 1995
<S> <C> <C>
Raw materials and manufactured components $5,660 $5,445
Work-in-process 2,527 3,712
Finished goods 1,573 742
------ ------
$9,760 $9,899
====== ======
</TABLE>
e. Property, Plant and Equipment
The Company provides for depreciation using the straight-line method over
a period sufficient to amortize the cost of the asset over its useful
life. The estimated useful lives for depreciation purposes are as
follows:
Buildings and improvements 8-25 years
Machinery and equipment 2-8 years
Furniture and fixtures 5-8 years
Maintenance and repairs are charged to operations as incurred. When
equipment and improvements are sold or otherwise disposed of, the asset
cost and accumulated depreciation are removed from the accounts, and the
resulting gain or loss, if any, is included in the results of operations.
Page 15
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
f. Income Taxes
The Company complies with the requirements of Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." Under
SFAS No. 109, 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.
g. Translation of Foreign Currencies
Foreign currencies are translated in accordance with SFAS No. 52,
"Foreign Currency Translation." Under this standard, assets and
liabilities of the Company's foreign operations are translated into
United States dollars at current exchange rates. Income and expense items
are translated at average rates of exchange prevailing during the year.
Gains and losses arising from translation are accumulated as a separate
component of stockholders' investment. Exchange gains and losses (if any)
arising from transactions denominated in foreign currencies are included
in income as incurred. No such exchange gains or losses were incurred in
the periods presented.
h. Patents
The Company has patents for certain of its products and processes. No
value has been assigned to these patents in the accompanying consolidated
financial statements.
i. Revenue Recognition
Revenue is recognized based upon shipment of product to the customer,
except for large contracts that are not completed within the normal
operating cycle of the business. The Company recognizes revenues on these
contracts as costs are incurred in the proportion that costs incurred
bear to total estimated costs. Amounts related to such contracts included
in net sales are $1,361,000, $1,102,000 and $1,117,000 for the years
ended December 31, 1996, 1995 and 1994, respectively.
j. Research, Development and Engineering
Research, development and engineering costs are charged to expense as
incurred.
k. Per Share Information
Net income per share in 1996, 1995 and 1994 was calculated based on the
weighted average number of common and common equivalent shares
outstanding during the year, using the treasury stock method. Fully
diluted earnings per share are not materially different from primary
earnings per share.
l. Reclassification
Certain prior year financial statement information has been reclassified
to conform with the current year presentation.
Page 16
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
NOTE 2: ACCRUED EXPENSES
Accrued expenses at December 31, 1996 and 1995 consisted of the following:
(Thousands)
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Accrued commissions $1,112 $1,563
Accrued warranty 414 457
Accrued income taxes 41 672
Restructuring and discontinued operations reserves
(Notes 3 and 10) -- 508
Accrued bonus -- 365
Other 506 1,072
------ ------
$2,073 $4,637
====== ======
</TABLE>
NOTE 3: DEBT, CAPITAL LEASES, COMMITMENTS AND CONTINGENCIES
Debt at December 31, 1996 and 1995 consisted of the following:
(Thousands)
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C> <C>
9% mortgage note payable $5,664 $5,962
Capital lease obligations, interest rates ranging
from 5.9% to 15.6%, net of interest of $6
and $10 in 1996 and 1995, respectively 51 89
------ ------
5,715 6,051
Less-current maturities 363 336
------ ------
$5,352 $5,715
====== ======
</TABLE>
The mortgage note payable is secured by the Company's land and building
and required monthly payments of $68,500, including interest at 9.0%,
with a balloon payment due and payable on April 1, 1997.
Subsequent to December 31, 1996 the Company refinanced the mortgage note
payable with the same institution, extending the maturity date to April
1, 2004. The new agreement requires monthly payments of $ 53,922,
including interest at 8.125%. A final balloon payment of $ 3,797,000 is
due at maturity.
Page 17
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Under the terms of the new note, the minimum repayments of long-term debt
and capital lease obligations by year are as follows:
(Thousands)
<TABLE>
<CAPTION>
9% CAPITAL
MORTGAGE LEASES TOTAL
<S> <C> <C> <C>
1997 $ 325 $ 38 $ 363
1998 212 9 221
1999 230 4 234
2000 249 -- 249
2001 270 -- 270
2002 and thereafter 4,378 -- 4,378
------ ------ ------
$5,664 $ 51 $5,715
====== ====== ======
</TABLE>
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
$5,000,000 at either the Bank's base rate or a Eurodollar rate. This loan
agreement is available to the Company until July 1, 1998, subject to the
maintenance of certain financial covenants that, among other things,
require the Company to meet certain net worth, debt service and current
ratio requirements. At December 31, 1996, the Company was in compliance
with all covenants of this agreement. In addition, the Company has a
secured equipment loan facility with the same bank for purchases of up to
$1,000,000 of equipment with interest at either the Bank's base rate or
at a Eurodollar rate. The equipment loans can fund up to 75% of the cost
of qualifying equipment purchases, collateralized by a first security
interest on the purchased equipment, and must be repaid in monthly
principal and interest payments over a period not to exceed seven years.
As of December 31, 1996 and 1995, no amounts were outstanding under
either the unsecured revolving line of credit or the equipment loan
facility.
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 $ 145,000 in 1996, $205,000 in 1995 and $249,000 in
1994. In 1994, the Company sublet a portion of this leased space. The
initial term of the sublease is five years. Under the terms of the
sublease the Company will receive approximately $132,000 per year. At the
end of the initial five year sublet period, the sublease can be extended
at market rates for two subsequent and concurrent five year periods. As
of December 31, 1996, assuming the sublease is not extended, the future
minimum lease commitment for this facility is $3,275,000, payable as
follows $145,000 for each year 1997 through 1999, $250,000 for the year
2000, $280,000 for the year 2001 and $2,310,000 thereafter.
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.
Page 18
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
NOTE 4: FOREIGN OPERATIONS
Export sales were $ 24,380,000 in 1996, $27,767,000 in 1995 and
$22,395,000 in 1994.
The following table shows the percentages of the Company's revenues by
geographic region, for the last three years:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
United States 47% 52% 48%
Europe 25 19 28
Far East 23 24 18
Other 5 5 6
</TABLE>
NOTE 5: SIGNIFICANT CUSTOMERS
One customer individually represented approximately 21% of revenues in
1994. No individual customer accounted for greater than 10% of revenues
in 1996 or 1995.
NOTE 6: INCOME TAXES
The components of income before provision for income taxes are as
follows:
(Thousands)
<TABLE>
<CAPTION>
FOR THE YEAR 1996 1995 1994
<S> <C> <C> <C>
Domestic $3,985 $5,762 $3,306
Foreign 312 441 36
------ ------ ------
Total $4,297 $6,203 $3,342
====== ====== ======
</TABLE>
Page 19
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
For the years ended December 31, 1996, 1995 and 1994, the Company's
provision for income taxes are as shown below.
(Thousands)
<TABLE>
<CAPTION>
FEDERAL STATE TOTAL
<S> <C> <C> <C>
DECEMBER 31, 1996
CURRENT $ (50) $ 31 $ (19)
DEFERRED 578 178 756
------- ------- -------
$ 528 $ 209 $ 737
======= ======= =======
DECEMBER 31, 1995
Current $ 1,163 $ 234 $ 1,397
Deferred (441) 174 (267)
------- ------- -------
$ 722 $ 408 $ 1,130
======= ======= =======
DECEMBER 31, 1994
Current $ -- $ 21 $ 21
Deferred 495 146 641
------- ------- -------
$ 495 $ 167 $ 662
======= ======= =======
</TABLE>
The differences between the statutory United States federal income tax
rate of 34% versus the Company's effective tax rate are as follows:
(Thousands)
<TABLE>
<CAPTION>
FOR THE YEAR 1996 1995 1994
<S> <C> <C> <C>
Tax provision at United States statutory rate $ 1,355 $ 1,959 $ 1,124
State income taxes, net of federal benefit 184 269 155
Utilization of net operating loss carryforwards
and reduction of valuation reserves (769) (1,122) (622)
Non-deductible and other (33) 24 5
----------- ------------- ----------
Total provision $ 737 $ 1,130 $ 662
=========== ============= ==========
</TABLE>
Page 20
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Deferred income taxes and prepaid income taxes are comprised of the
following at December 31, 1996 and 1995:
(Thousands)
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Revenues recognized for books, not tax $(5,720) $(4,409)
Accelerated tax depreciation (240) (313)
Joint venture (116) (116)
------- -------
Total deferred liabilities (6,076) (4,838)
------- -------
Reserve for discontinued operations -- 125
Inventory reserves 253 201
Inventory capitalization 341 160
Commissions 756 572
Other 283 319
Federal tax net operating loss carryforward 732 1,262
Federal tax credit carryforwards 1,804 1,649
------- -------
Total deferred assets 4,169 4,288
------- -------
Total net deferred liability (1,907) (550)
Valuation allowance (296) (897)
------- -------
Net deferred income taxes $(2,203) $(1,447)
======= =======
</TABLE>
The valuation allowance relates to uncertainty surrounding the
realization of the deferred tax assets, principally certain tax loss and
credit carryforwards. The net change in the valuation allowance between
1996 and 1995 is due primarily to the recognition of net operating loss
carryforwards as they were earned in 1996. Realization is dependent on
generating sufficient taxable income prior to expiration of the loss
carryforwards. As of December 31, 1996, the Company had federal tax net
operating loss carryforwards of $2,069,000, which expire beginning in
2007. In addition, the Company has research and development and AMT
credit carryforwards of $1,804,000, which expire beginning in 1999. The
tax carryforwards are subject to review and possible adjustment by the
Internal Revenue Service. Additionally, changes in ownership may limit
the utilization of US net operating losses for tax purposes in any one
year, deferring the use of these losses to future years. Included in
other current assets is a refundable income tax receivable of $1,162,000.
NOTE 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 stipulated operating income targets. Under these plans,
no amounts were expensed in 1996, while $801,000 in expense was recorded
for 1995 and $372,000 was recorded for 1994.
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 $191,000, $172,000 and $136,000
for the years ended December 31, 1996, 1995 and 1994, respectively.
Page 21
<PAGE> 23
NOTE 8: PREFERRED STOCK
The Company has three classes of preferred stock. Its Class A Cumulative
Redeemable Preferred Stock has a par value of $1 per share and has
2,000,000 shares authorized. During 1995, the Company redeemed the final
567,150 shares of Class A Cumulative Redeemable Preferred Stock for
$567,150, plus the dividends due of $283,575 related to these shares. As
of December 31, 1996 and 1995, no shares are outstanding. Its Class AA
Redeemable Convertible Preferred Stock has a par value of $0.01 per
share. During 1995, all the holders of Class AA stock converted their
shares to common shares on a one-share-for-one-share basis. As of
December 31, 1996 and 1995, no shares are issued or outstanding. The
Company also has authorized 5,000,000 shares of Series Preferred Stock
with a par value of $1 per share. As of December 31, 1996 and 1995 no
shares are issued or outstanding.
NOTE 9: STOCK OPTION AND PURCHASE PLANS
The Company has two 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 selected key 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.
Under each plan, options are exercisable at a price 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. Shares available for future stock option grants, pursuant to
these plans, are 330,763 at December 31, 1996, 449,323 at December 31,
1995, and 447,783 at December 31, 1994.
A summary of all stock option activity for the years ended December 31,
1996, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
WEIGHTED Weighted Weighted
NUMBER AVERAGE Number Average Number Average
OF PRICE of Price of Price
SHARES PER SHARE Shares Per Share Shares Per Share
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 120,045 $1.98 257,612 $1.71 199,169 $1.47
Granted 130,100 4.49 2,000 4.25 107,400 2.00
Exercised (49,510) 1.69 (136,027) 1.50 (47,565) 1.41
Forfeited (11,540) 4.32 (3,540) 2.00 (1,392) 1.48
-------- ----- -------- ----- -------- -----
Outstanding at
end of year 189,095 $3.64 120,045 $1.98 257,612 $1.71
======== ===== ======== ===== ======== =====
Options exercisable
at end of year 36,517 $2.05 52,782 $1.87 151,787 $1.50
======== ===== ======== ===== ======== =====
</TABLE>
At December 31, 1996 the outstanding options have exercise prices ranging
from $ 1.38 to $ 5.00 and a weighted average remaining contractual life
of 4.4 years.
Page 22
<PAGE> 24
The Company has an Employee Stock Purchase Plan. Under the terms of the
plan, employees are entitled to purchase shares of common stock at the
lower of 85% of fair market value at the beginning or the end of each
six-month option period. A total of 300,000 shares has been reserved for
issuance under this plan, of which 74,579 remain available at December
31, 1996. During 1996, a total of 15,970 shares were purchased at prices
ranging from $2.55 to $3.61 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:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Net income As reported $ 3,560 $ 5,073
Pro forma 3,516 5,063
Income per share As reported $ 0.49 $ 0.68
Pro forma 0.48 0.68
</TABLE>
Pro forma compensation costs were estimated using the Black-Scholes
option pricing model using the following weighted average assumptions for
grants in 1996 and 1995, respectively: a dividend yield rate of 0 for
each year: expected lives of 4.5 and 1.2 years; expected volatility of
55.3% and 66.9%; and risk free interest rates of 6.2% and 6.3%. The
weighted average fair value of options granted during 1996 and 1995 was
$2.29 and $1.99, respectively.
As the SFAS No. 123 presentation has not been applied to options granted
prior to January 1, 1995, the resulting reduction in net earnings and
earnings per share may not be representative of that to be expected in
future years.
NOTE 10: DISCONTINUED OPERATIONS
On March 6, 1992, the Company concluded the sale of its Bruce Systems
business into a joint venture with Kokusai Electric Co., Ltd., whereby
the Company has retained a 19.4% ownership interest in Bruce Technologies
International, Inc.. The Company's investment in BTI at December 31, 1995
was $3,476,000, and the Company accounted for this investment under the
cost method.
On June 8, 1996, the Company sold its investment in BTI for $ 7,000,000.
As a result the Company recognized a pretax gain on this investment of
$ 3,400,000, net of direct costs.
Page 23
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
NOTE 11: RELATED PARTY TRANSACTIONS
During 1996 and 1995, certain transactions were made between the Company
and certain related parties, all of which were at arms length. These
transactions included payments to one of the Company's directors for
consulting services of $15,000 and $14,000 in 1996 and 1995,
respectively. These consulting services were provided to aid the Company
in developing its Far East customer market expansion. 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 $769,000 and $818,000 in 1996 and 1995, respectively;
as well, $81,000 and $73,000 is included in trade accounts payable on the
Consolidated Balance Sheets at December 31, 1996 and 1995, respectively.
NOTE 12: SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
(Thousands)
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Cash paid during the year for-
Interest $ 599 $ 563 $ 609
Income taxes 1,778 85 474
Supplemental schedule of noncash financing
activities-
Class AA Preferred Stock Conversion -- 1,200 --
Accrual of preferred stock dividends -- 96 160
====== ====== ======
</TABLE>
NOTE 13: 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 Sheet approximates their fair value
because of the short maturity of these instruments
b. Long-term Debt and Capital Lease Obligations - The fair value
of this long-term indebtedness as of December 31, 1996 was approximately
$3,526,000, based on a discounted cash flow analysis, using the
prevailing cost of capital for the Company as of that date.
Page 24
<PAGE> 26
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To BTU International, Inc.:
We have audited the accompanying consolidated balance sheets of BTU
International, Inc. (a Delaware corporation) and subsidiaries as of December 31,
1996 and 1995, and the related consolidated statements of operations,
stockholders' investment and cash flows for each of the three years in the
period ended December 31, 1996. These 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 generally accepted auditing
standards. 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 financial position of BTU International, Inc. and
subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 12, 1997
Page 25
<PAGE> 27
FINANCIAL INFORMATION BY QUARTER
(UNAUDITED)
(Thousands, except per share amounts)
<TABLE>
<CAPTION>
MARCH 31, JUNE 30, SEPT. 29, DEC. 31,
<S> <C> <C> <C> <C> <C>
1996 NET SALES $11,748 $11,746 $10,373 $11,944
----------------------------------------
GROSS PROFIT 5,248 4,761 4,280 4,754
----------------------------------------
OPERATING INCOME 507 404 117 42
----------------------------------------
NET INCOME 357 3,093 74 36
----------------------------------------
NET INCOME APPLICABLE TO
COMMON STOCKHOLDERS $ 357 $ 3,093 $ 74 $ 36
========================================
NET INCOME PER SHARE $ 0.05 $ 0.42 $ 0.01 $ 0.01
========================================
WEIGHTED AVERAGE SHARES OUTSTANDING 7,357 7,339 7,361 7,322
========================================
<CAPTION>
April 2, July 2, Oct. 1, Dec. 31,
<S> <C> <C> <C> <C> <C>
1995 Net sales $12,973 $14,951 $16,100 $14,250
----------------------------------------
Gross profit 6,201 6,747 7,131 6,173
----------------------------------------
Operating income 1,545 1,713 1,843 1,302
----------------------------------------
Net income 1,156 1,359 1,482 1,076
----------------------------------------
Dividends accrued-preferred stock 44 44 5 --
----------------------------------------
Net income applicable to
common stockholders $ 1,112 $ 1,315 $ 1,477 $ 1,076
========================================
Net income per share $ 0.15 $ 0.18 $ 0.20 $ 0.15
========================================
Weighted average shares outstanding 7,314 7,238 7,382 7,378
========================================
<CAPTION>
APRIL 3, JULY 3, OCT. 2, DEC. 31,
<S> <C> <C> <C> <C> <C>
1994 Net sales $ 9,827 $ 9,505 $11,717 $12,293
----------------------------------------
Gross profit 4,497 4,211 5,371 5,966
----------------------------------------
Operating income 593 530 1,188 1,403
----------------------------------------
Net income 406 384 826 1,064
----------------------------------------
Dividends accrued-preferred stock 56 44 30 30
----------------------------------------
Net income applicable to
common stockholders $ 350 $ 340 $ 796 $ 1,034
========================================
Net income per share $ 0.05 $ 0.05 $ 0.11 $ 0.14
========================================
Weighted average shares outstanding 7,144 7,135 7,216 7,294
========================================
</TABLE>
Page 26
<PAGE> 28
FINANCIAL INFORMATION BY QUARTER (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK MARKET PRICES PER SHARE FOR THE QUARTERS ENDED HIGH LOW
<S> <C> <C>
MARCH 31, 1996 $ 7 3/8 $4 3/16
JUNE 30, 1996 6 1/4 3 7/8
SEPTEMBER 29, 1996 4 1/4 2 7/8
DECEMBER 31, 1996 3 9/16 2 5/8
======= =======
April 2, 1995 $ 5 3/4 $3 7/8
July 2, 1995 9 1/4 4 1/4
October 1, 1995 13 7/8 8 1/4
December 31, 1995 12 1/2 4 1/2
======= =======
April 3, 1994 $ 2 1/2 $1 3/4
July 3, 1994 2 5/16 1 3/4
October 2, 1994 4 1/8 1 3/4
December 31, 1994 5 1/4 3 1/2
======= =======
</TABLE>
The Company's common stock is traded in The Nasdaq National Market under the
symbol BTUI. There were approximately 514 stockholders of record as of March 21,
1997.
Page 27
<PAGE> 29
CORPORATE INFORMATION
<TABLE>
<S> <C>
TRANSFER AGENT HEADQUARTERS
Bank of Boston BTU International, Inc.
C/O Boston EquiServe, L.P. 23 Esquire Road
Mail Stop 45-02-64 North Billerica, Massachusetts 01862
PO Box 644
Boston, Massachusetts 02105-0644
OFFICERS
STOCK LISTING Paul J. van der Wansem
BTU International, Inc. common stock Chairman, President and Chief Executive Officer
is traded on The Nasdaq
National Market under the David H. Barry
symbol "BTUI." Vice President and General Manager
Thomas P. Kealy
SEC FORM 10-K Vice President, Corporate Controller and
A copy of the company's Form 10-K, Chief Accounting Officer
filed with the Securities and Exchange
Commission (SEC), is available
without charge upon written request to: DIRECTORS
Paul J. van der Wansem
Vice President, Corporate Controller Chairman, President and Chief Executive Officer
BTU International, Inc.
23 Esquire Road Alexander V. d'Arbeloff
North Billerica, Massachusetts 01862 Chairman, and Chief Executive Officer
(508) 667-4111, extension 106 Teradyne, Inc.
David A.B. Brown
GENERAL COUNSEL President
Ropes & Gray The Windsor Group, Inc.
One International Place
Boston, Massachusetts 02110 Dr. Jeffrey Chuan Chu
Chairman
Columbia International Corporation
INDEPENDENT PUBLIC
ACCOUNTANTS
Arthur Andersen LLP AUDIT COMMITTEE
225 Franklin Street Alexander V. d'Arbeloff
Boston, Massachusetts 02110 David A.B. Brown
Dr. Jeffrey Chuan Chu
ANNUAL MEETING
The annual meeting of stockholders COMPENSATION COMMITTEE
will be held on May 30, 1997 Alexander V. d'Arbeloff
at 10:00 AM EST at BTU International, David A.B. Brown
23 Esquire Road, North Billerica, Dr. Jeffrey Chuan Chu
Massachusetts 01862
</TABLE>
Page 28
<PAGE> 1
Exhibit 21.0
SUBSIDIARIES OF THE REGISTRANT
BTU Overseas, Limited (Fed. I.D. # 04-2757966)
BTU Engineering FSC, Inc. (Fed. I.D. # 04-2736403)
BTU Europe LTD
BTU GmbH
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our reports included in and incorporated by reference in this Form 10-K, into
the Company's previously filed Registration Statements on Form S-8 File No.
33-28344, File No. 33-29113, File No. 33-59045 and File No. 33-59081.
Arthur Andersen LLP
Boston, Massachusetts,
March 26, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1.00
<CASH> 10,218
<SECURITIES> 0
<RECEIVABLES> 10,790
<ALLOWANCES> 160
<INVENTORY> 9,760
<CURRENT-ASSETS> 32,269
<PP&E> 11,553
<DEPRECIATION> 7,288
<TOTAL-ASSETS> 36,763
<CURRENT-LIABILITIES> 7,001
<BONDS> 5,352
0
0
<COMMON> 76
<OTHER-SE> 22,131
<TOTAL-LIABILITY-AND-EQUITY> 36,763
<SALES> 45,811
<TOTAL-REVENUES> 45,811
<CGS> 26,768
<TOTAL-COSTS> 26,768
<OTHER-EXPENSES> 3,850
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 599
<INCOME-PRETAX> 4,297
<INCOME-TAX> 737
<INCOME-CONTINUING> 3,560
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,560
<EPS-PRIMARY> 0.49
<EPS-DILUTED> 0.49
</TABLE>
