<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, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________________ TO ___________________.
COMMISSION FILE NUMBER 0-17297
BTU INTERNATIONAL, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 04-2781248
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
23 ESQUIRE ROAD, NORTH BILLERICA, MASSACHUSETTS 01862-2596
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (978) 667-4111
-------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None Registered
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Title of Each Class
-------------------
Common Stock, $.01 Par Value
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K [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 $ 23,492,057 on March
24, 1998
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 24, 1998:
7,177,662 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, 1997; and
Part III - Portions of the Proxy Statement for the 1998 Annual Meeting of
Stockholders, both of which are to be filed with the Securities and Exchange
Commission.
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BTU INTERNATIONAL, INC.
1997 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I Page
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Item 1 Business 1-4
Item 2 Properties 5
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
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Item 5 Market for Registrant's Common Equity
and Related Stockholder Matters 5
Item 6 Selected Financial Data 6
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
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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 7
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 for surface mount applications in printed circuit
board assembly. 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 its core technologies to
satisfy the 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 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 Grid Array - BGA, Micro BGA, and Chip
Scale Packaging - CSP)
Ceramic Multilayer Package & Multi Chip Module Firing (MCM-C)
Nuclear Fuel Sintering
Diffusion and Annealing for Photovoltaic Applications
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.
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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, which the Company believes
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.
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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, Malaysia and China. Independent sales/service representatives are
located in all major industrialized countries worldwide.
The Company operates on a worldwide basis 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:
1997 1996 1995
---- ---- ----
United States 50% 47% 52%
Europe 23 25 19
Far East 24 23 24
Other 3 5 5
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.
Worldwide sales to Solectron represented approximately 14% of revenue in
1997. 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 insofar as it is dependent on the capital equipment procurement
patterns of its customers.
Backlog:
Backlog was $ 10.2 million at December 31, 1997 versus $8.1 million at
December 31, 1996. The primary reason is a strong increase in surface mount
technology product demand during 1997. 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.
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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 Heller, Electrovert Speedline (a division of Cookson
Group PLC) and Dover Soltec (a division of Dover Corporation).
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 1998.
Employees:
As of December 31, 1997, the Company had a total of 306 employees of which
279 were domestic and 27 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.
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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 lease expires in 2010. In the Far East the Company
has sales and service offices in Beijing China, Singapore, and Penang Malaysia
all of which are leased. The Company believes that its plants and capital
equipment operated at approximately 70 % of productive capacity during the
fourth quarter of 1997 and that such plants and capital equipment provide
sufficient manufacturing capacity through 1998.
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 1997.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
NAME AGE POSITIONS
---- --- ---------
Paul J. van der Wansem 58 Chairman of the Board of Directors,
President and Chief Executive Officer
Thomas P. Kealy 55 Vice President, Corporate Controller
and Chief Accounting Officer
Santo J. DiNaro 52 Vice President of Operations and Engineering
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.
Santo J. DiNaro has been Vice President of Operations and Engineering since
December 1997. Prior to joining BTU International, Mr. DiNaro served as head of
Engineering at Varian's Ion Implant Division and previously was the Operations
Manager. Mr. DiNaro was with Varian for 17 years.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS.
The following in the BTU International, Inc. 1997 Annual Report is
incorporated herein by reference:
"Common stock and market prices" set forth on page 24.
The Company's common stock is traded in the Nasdaq National Market System
under the symbol BTUI. As of March 24, 1998 there were approximately 490
stockholders of record.
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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.
ITEM 6. SELECTED FINANCIAL DATA
"Selected consolidated financial data" on page 4 of the BTU International,
Inc. 1997 Annual Report is incorporated herein by reference.
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 5-7 of the BTU International, Inc. 1997 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 13, 1998, appearing on pages 8-22 of the BTU
International, Inc. 1997 Annual Report are incorporated herein by reference. In
addition the financial information by quarter appearing on pages 23-24 of the
BTU International, Inc. 1997 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 1997 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 1997 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 1997 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 1997 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 1997 Proxy Statement for BTU International, Inc. and is incorporated herein
by reference.
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
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, 1997 and 1996
Consolidated Statements of Operations for the years ended December 31,
1997, 1996 and 1995
Consolidated Statements of Stockholders' Investment for the years ended
December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1996 and 1995
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, 1997, 1996 and 1995
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 1997.
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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 13, 1998. 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 based on our audit and the report of other auditors, 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 13, 1998
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
BTU INTERNATIONAL, INC.
Date: March 27, 1998 By: PAUL J. VAN DER WANSEM
Paul J. van der Wansem
President, Chief Executive
Officer (principal executive
officer) and Director
Date: March 27, 1998 By: THOMAS P. KEALY
Thomas P. Kealy
Vice President Corporate
Controller and Chief
Accounting Officer (principal
financial and accounting officer)
Date: March 27, 1998 By: DR. JEFFREY CHUAN CHU
Dr. Jeffrey Chuan Chu
Director
Date: March 27, 1998 By: DAVID A.B. BROWN
David A.B. Brown
Director
Date March 27, 1998 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"), Or the quarterly report as reported on 9-28-97 Form 10Q(9-28-97 10-Q).
<TABLE>
<CAPTION>
SEC
Exhibit Docket
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<S> <C> <C> <C>
EXHIBIT 3. ARTICLES OF INCORPORATION AND BY-LAWS
Incorporated herein by reference:
3.1 Certificate of Incorporation, as amended. 3.1 33-24882
3.2 By-Laws. 3.2 33-24882
EXHIBIT 4. INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS,
INCLUDING DEBENTURES
Incorporated herein by reference:
4.0 Specimen Common Stock Certificate. 4.0 33-24882
EXHIBIT 10. MATERIAL CONTRACTS
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>
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<TABLE>
<S> <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.
10.42 Mortgage note between BTU International, Inc. and John Hancock
Mutual Life Insurance Company, dated June 30, 1997 10.42 9-28-97 10-Q
10.43 Credit Agreement between BTU International, Inc. and US Trust,
dated September 5, 1997 10.43 9-28-97 10-Q
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. 1997 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
EXHIBIT 27. FINANCIAL DATA SCHEDULE
Filed herewith:
27.0 Financial Data Schedule
</TABLE>
* - Indicates management contract or compensatory plan or arrangement.
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Schedule II
BTU INTERNATIONAL, INC.
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in Thousands)
<TABLE>
<CAPTION>
For the Year Ended December 31, 1997
------------------------------------
Additions
-------------------
Balance Charged
at to costs Charged Balance
beginning and to other Deductions- at end
Description of period expenses accounts (A) of period
- ----------- --------- -------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Allowance for
doubtful accounts $160 $- $- $- $160
<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
<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>
(A) Amounts indicated as deductions are for amounts charged against these
reserves in the ordinary course of business.
12
<PAGE> 1
Exhibit 11
BTU INTERNATIONAL, INC.
CALCULATION OF NET INCOME PER COMMON SHARE
(Dollars in Thousands, except per share data)
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net income $ 1,250 $ 3,560 $ 5,073
Dividends accrued - Class A and Class AA redeemable
preferred stock - - (93)
---------- ---------- ----------
Net income applicable to
common stockholders $ 1,250 $ 3,560 $ 4,980
========== ========== ==========
Weighted average number of shares outstanding
Basic Shares 7,290,548 7,303,936 7,230,346
Effect of Dilutive Options 45,154 33,773 89,771
---------- ---------- ----------
Diluted Shares 7,335,702 7,337,709 7,320,117
========== ========== ==========
Earnings Per Share
Basic $ 0.17 $ 0.49 $ 0.69
---------- ---------- ----------
Diluted $ 0.17 $ 0.49 $ 0.68
---------- ---------- ----------
</TABLE>
13
<PAGE> 1
FINANCIAL REVIEW
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL DATA:
(Thousands, except per share amounts)
FOR THE YEARS ENDED DECEMBER 31, 1997 1996 1995 1994 1993
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C>
Net sales $ 52,118 $ 45,811 $ 58,274 $43,342 $ 36,980
Cost of goods sold 30,431 26,768 32,022 23,297 21,759
- -------------------------------------------------------------------------------------------------------------------------
Gross profit 21,687 19,043 26,252 20,045 15,221
Selling, general and administrative 15,349 14,123 15,583 12,697 10,948
Research, development and engineering 3,808 3,850 4,266 3,634 2,612
Restructuring charge 530 - - - -
- -------------------------------------------------------------------------------------------------------------------------
Operating income 2,000 1,070 6,403 3,714 1,661
Interest income 478 344 273 188 100
Interest expense (488) (599) (563) (609) (611)
Gain on sale of investment - 3,400 - - -
Other income (expense), net (341) 82 90 49 (33)
- --------------------------------------------------------------------------------------------------------------------------
Income before Provision for income taxes 1,649 4,297 6,203 3,342 1,117
Provision for income taxes 399 737 1,130 662 107
- -------------------------------------------------------------------------------------------------------------------------
Net income 1,250 3,560 5,073 2,680 1,010
Dividends - preferred stock - - (93) (160) (181)
- -------------------------------------------------------------------------------------------------------------------------
Net income applicable to common
stockholders $ 1,250 $ 3,560 $ 4,980 $ 2,520 $ 829
=========================================================================================================================
Earnings per share:
Basic $ 0.17 $ 0.49 $ 0.69 $ 0.36 $ 0.12
Diluted $ 0.17 $ 0.49 $ 0.68 $ 0.35 $ 0.12
- --------------------------------------------------------------------------------------------------------------------------
Weighted average number of shares outstanding
Basic Shares 7,291 7,304 7,230 7,097 7,059
Diluted Shares 7,336 7,338 7,320 7,195 7,143
=========================================================================================================================
AS OF DECEMBER 31, 1997 1996 1995 1994 1993
BALANCE SHEET AND OTHER DATA:
Cash and cash equivalents $ 11,873 $ 10,218 $ 6,145 $ 6,896 $ 4,754
Working capital 26,098 25,268 18,005 13,433 10,923
Total assets 40,379 36,763 35,834 30,965 25,845
Long-term debt 5,313 5,352 5,715 6,050 6,315
Redeemable preferred stock - - - 1,200 1,767
Stockholders' investment 23,558 22,207 18,696 11,950 9,331
Book value per share 3.22 3.05 2.56 1.73 1.36
Total employees 306 323 406 322 316
====================================================================
</TABLE>
4
<PAGE> 2
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:
YEARS ENDED DECEMBER 31, 1997 1996 1995
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 58.4% 58.4% 55.0%
-------------------------------
Gross profit 41.6% 41.6% 45.0%
Operating expenses:
Selling, general and administrative 29.5% 30.8% 26.7%
Research, development and engineering 7.3% 8.4% 7.3%
Restructuring Charges 1.0% 0.0% 0.0%
-------------------------------
Operating income 3.8% 2.4% 11.0%
Interest income 0.9% 0.7% 0.4%
Interest expense (0.9%) (1.3%) (1.0%)
Gain on sale of investment 0.0% 7.4% 0.0%
Other income (expense), net (0.6%) 0.2% 0.2%
-------------------------------
Income before income taxes 3.2% 9.4% 10.6%
Income tax provision 0.8% 1.6% 1.9%
-------------------------------
Net income 2.4% 7.8% 8.7%
===============================
1997 COMPARED TO 1996
During 1997 net sales increased by $ 6.3 million to $52.1 million, representing
an increase of 13.8% versus 1996. A strong increase in sales occurred for the
surface mount technology products which are primarily used by our large
multinational customers, as many of these customers increased their capital
expenditures significantly during 1997 as compared to 1996. Sales of the
Company's high temperature equipment declined in 1997, primarily due to a
decrease in demand for our walking beam and pusher furnaces used in nuclear fuel
and ceramic sintering.
There were no material variations in the geographic dispersion of net sales for
1997 as compared to 1996. The effect of price changes for specific products has
not materially impacted the change in net sales for the periods presented.
Gross profit increased by $ 2.6 million, or 13.9%, in 1997 as compared to 1996.
Gross profit as a percentage of sales remained at 41.6.% for 1997 as in 1996.
The increase in gross profit dollars for 1997 was due to the total increase in
revenues versus 1996. The increase in surface mount technology sales where
margins increased was offset by the decrease in high temperature sales which
generally generate a higher gross margin percentage, these factors combined
generated the same overall gross margin percent in both 1997 and 1996.
5
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
Selling, general and administrative expenses increased in 1997 by $1.2 million,
or 8.7%, but decreased as a percentage of net sales to 29.5% compared to 30.8%
in 1996. The higher costs in 1997 are primarily the result of: $ 0.5 million
increase in commissions related to the higher sales level; and a $0.6 million
increase in sales and service cost primarily in the Far East were the Company
established new direct sales and service offices.
Research, development and engineering expenses in 1997 decreased by $42,000 , or
1.1%, and decreased as a percentage of net sales to 7.3% compared to 8.4% in
1996. The Company is committed to continue investing in new technologies and is
pursuing new product developments in order to support growing customer
requirements.
Restructuring Charge - During the first quarter of 1997 the Company incurred a
restructuring charge of $530,000 related primarily to severance costs incurred
as a result of certain changes in the manner the Company conducts its business.
This charge represented one-time costs regarding actions taken in response to a
shift in the amount of out-sourced material and a change to a direct approach to
sales and service support in certain Far East territories.
Interest income increased by $134,000 or 39.0% in 1997 compared to 1996. This
increase in interest income is due to the higher investment balances in 1997
versus 1996.
Interest Expense decreased in 1997 by $ 111,000 or 18.5% compared to 1996. The
decrease is primarily due to the lower level of interest expense on the new
mortgage, which carries a lower interest rate, as of June 30, 1997.
Other Income and (Expense) reflects various non-operating expenses incurred
during 1997. The Company incurred a one-time charge of $ 271,000 for an adverse
jury determination regarding a California service representative during the
second quarter of 1997, this represents the majority of other expenses.
Income taxes decreased in 1997 by $338,000 when compared to 1996. This decrease
is directly related to the decrease in income before income taxes, primarily due
the gain on sale of investment in 1996 which generated $3.4 million in pre-tax
income in 1996. The Company has recorded an effective tax rate for 1997 of
24.2%, as compared to an effective tax rate of 17.2% for 1996. These compare to
the statutory USA Federal rate of 34%. The 1997 provision reflects the use of
certain NOL carryforwards available to the Company's U.K. subsidiary, which was
profitable in 1997. During 1996 the Company recorded the benefit of net
operating losses utilized, resulting in the lower effective tax rates.
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 did significantly
decrease 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 net sales for
1996 as compared to 1995. The effect of price changes for specific products has
not materially impacted the change in net sales 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.
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.
6
<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
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 minority interest 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 USA Federal 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.
LIQUIDITY AND CAPITAL RESOURCES
During 1997, the Company completed two financing agreements. The Company
refinanced its mortgage note payable with the same institution. In addition, to
provide greater flexibility in working capital and potential expansion in the
future, the Company expanded its line of credit by entering into a new long term
credit agreement with a Bank.
The Company has an unsecured revolving line of credit with a bank which allows
for the aggregate of borrowings and/or letters of credit of up to $14,000,000.
Borrowings are available to the Company at either the Bank's base rate or a
Eurodollar rate, as elected by the Company. This loan agreement is available to
the Company until April 30, 2002, and is subject to certain financial covenants.
The Company has a mortgage note, which is secured by its land and building. The
Mortgage note payable had an outstanding balance at December 31, 1997 of
$5,519,000. The Company refinanced the mortgage note payable with the same
institution on June 30, 1997, extending the maturity date to July 1, 2004. The
mortgage requires monthly payments of $53,922, including interest at 8.125%. A
final balloon payment of $3,825,000 is due at maturity.
During 1997, the Company has invested approximately $ 1,300,000 in capital
improvements primarily to enhance the level of quality in the Company's products
through an improved manufacturing facility. 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 1999.
OTHER MATTERS
The impact of inflation and the effect of foreign exchange rate changes during
1997 has had an immaterial impact on the Company's business and financial
results.
The Company has assessed and continues to assess the impact of the Year 2000
issue on its operations from both a product and operational basis. Additionally,
the Company has begun an assessment of its supplier compliance with Year 2000
issues. Although final costs have yet to be determined, it is anticipated that
these Year 2000 costs will not materially impact the financial results of the
Company.
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.
7
<PAGE> 5
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
(Thousands, except share amounts)
As of December 31, 1997 1996
<S> <C> <C>
ASSETS CURRENT ASSETS
Cash and cash equivalents (Notes 1 and 12) $11,873 $10,218
Trade accounts receivable, less reserves of $160
in 1997 and 1996, (Note 1) 12,334 10,630
Inventories (Note 1) 10,028 9,760
Other current assets (Note 6) 1,124 1,661
---------------------------------------------------------------------------
TOTAL CURRENT ASSETS 35,359 32,269
---------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT, AT COST (NOTES 1 AND 3)
Land 210 210
Buildings and improvements 5,949 5,591
Machinery and equipment 5,783 5,021
Furniture and fixtures 749 731
---------------------------------------------------------------------------
12,691 11,553
Less-accumulated depreciation 8,077 7,288
---------------------------------------------------------------------------
NET PROPERTY, PLANT AND EQUIPMENT 4,614 4,265
Other assets, net of accumulated amortization of
$437 in 1997 and $421 in 1996. 406 229
---------------------------------------------------------------------------
TOTAL ASSETS $40,379 $36,763
===========================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
8
<PAGE> 6
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
(Thousands, except share amounts)
As of December 31, 1997 1996
<S> <C> <C>
LIABILITIES CURRENT LIABILITIES
AND Current maturities of long-term debt and capital lease obligations (Note 3) $ 224 $ 363
STOCKHOLDERS' Trade accounts payable (Note 10) 6,013 4,124
INVESTMENT Customer deposits 428 441
Accrued expenses (Note 2) 2,596 2,073
---------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 9,261 7,001
---------------------------------------------------------------------------------------------------------
Long-term debt and capital lease obligations, less
current maturities (Notes 3 and 12) 5,313 5,352
Deferred income taxes (Notes 1 and 6) 2,247 2,203
---------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 16,821 14,556
---------------------------------------------------------------------------------------------------------
Commitments and contingencies (Note 3)
STOCKHOLDERS' INVESTMENT (NOTE 8)
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-7,674,923 and 7,635,167 shares
at December 31, 1997 and 1996, respectively 77 76
Additional paid-in capital 20,250 20,115
Retained earnings 4,061 2,811
Less treasury stock- 355,281 shares, at cost,
at December 31, 1997 and 1996 (1,183) (1,183)
---------------------------------------------------------------------------------------------------------
23,205 21,819
Cumulative translation adjustment (Note 1) 353 388
---------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' INVESTMENT 23,558 22,207
---------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' INVESTMENT $ 40,379 $ 36,763
=========================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
9
<PAGE> 7
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
(Thousands, except per share amounts)
FOR THE YEARS ENDED DECEMBER 31, 1997 1996 1995
<S> <C> <C> <C>
NET SALES (NOTES 1, 4, AND 5) $ 52,118 $ 45,811 $ 58,274
Cost of goods sold 30,431 26,768 32,022
-------------------------------------------------
GROSS PROFIT 21,687 19,043 26,252
Selling, general and administrative (Note 10) 15,349 14,123 15,583
Research, development and engineering (Note 1) 3,808 3,850 4,266
Restructuring charge 530 - -
-------------------------------------------------
OPERATING INCOME 2,000 1,070 6,403
Interest income 478 344 273
Interest expense (Note 3) (488) (599) (563)
Gain on sale of investment (Note 9) - 3,400 -
Other income (expense) (341) 82 90
-------------------------------------------------
INCOME BEFORE PROVISION FOR INCOME TAXES 1,649 4,297 6,203
Provision for income taxes (Notes 1 and 6) 399 737 1,130
-------------------------------------------------
NET INCOME 1,250 3,560 5,073
Dividends accrued-Class A and AA redeemable
preferred stock - - (93)
-------------------------------------------------
NET INCOME APPLICABLE TO COMMON
STOCKHOLDERS $ 1,250 $ 3,560 $ 4,980
=================================================
EARNINGS PER SHARE
- ------------------
BASIC $ 0.17 $ 0.49 $ 0.69
DILUTED $ 0.17 $ 0.49 $ 0.68
=================================================
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
- ----------------------------------------------
BASIC SHARES 7,291 7,304 7,230
EFFECT OF DILUTIVE OPTIONS 45 34 90
-------------------------------------------------
DILUTED SHARES 7,336 7,338 7,320
=================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
10
<PAGE> 8
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
(Thousands)
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, 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 8) 2 230 - - - 232
Tax benefit of stock options
exercised - 318 - - - 318
Conversion of preferred
AA shares 2 1,198 - - - 1,200
Dividends declared
- - (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 8) - 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
---------------------------------------------------------------------------------
NET INCOME - - 1,250 - - 1,250
TRANSLATION ADJUSTMENT - - - - (35) (35)
SALES OF COMMON STOCK
(NOTE 8) 1 108 - - - 109
TAX BENEFIT OF STOCK OPTIONS
EXERCISED - 27 - - - 27
---------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997 $ 77 $ 20,250 $ 4,061 $ (1,183) $ 353 $ 23,558
=================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
11
<PAGE> 9
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands)
FOR THE YEARS ENDED DECEMBER 31, 1997 1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES-
<S> <C> <C> <C>
Net income $ 1,250 $ 3,560 $ 5,073
Adjustments to reconcile net income to net
cash provided by (used in) operating activities-
Depreciation and amortization 961 832 740
Deferred income taxes 44 756 (267)
Net gain on sale of investment - (3,400) -
Net changes in operating assets and liabilities-
Accounts receivable (1,704) 878 (1,816)
Inventories (268) 139 (4,381)
Other current assets 537 (1,232) 949
Accounts payable 1,889 (483) 1,601
Customer deposits (13) 45 (1,411)
Accrued expenses 523 (2,564) 547
Other assets (193) (3) (13)
--------------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 3,026 (1,472) 1,022
-------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES-
Purchases of property, plant and equipment, net (1,294) (946) (1,099)
Net proceeds from sale of investment - 6,876 -
-------------------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (1,294) 5,930 (1,099)
--------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES-
Principal payments under long-term debt and
capital lease obligations (300) (336) (310)
Proceeds from mortgage refinance 122 - -
Issuance of common stock 109 119 232
Tax benefit of stock options exercised 27 24 318
Purchase of treasury stock - (248) -
Payments of preferred stock dividends - - (363)
Redemption of Class A preferred stock - - (567)
-------------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (42) (441) (690)
-------------------------------------------------
EFFECT OF EXCHANGE RATES ON CASH (35) 56 16
-------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,655 4,073 (751)
CASH AND CASH EQUIVALENTS, AT BEGINNING OF YEAR 10,218 6,145 6,896
-------------------------------------------------
CASH AND CASH EQUIVALENTS, AT END OF YEAR $ 11,873 $ 10,218 $ 6,145
=================================================
</TABLE>
Supplemental disclosures of cash flow information are included in Note 11. The
accompanying notes are an integral part of these consolidated financial
statements.
12
<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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, 1997 1996
<S> <C> <C>
Raw materials and manufactured components $ 4,883 $ 5,660
Work-in-process 3,723 2,527
Finished goods 1,422 1,573
--------------------------
$ 10,028 $ 9,760
==========================
</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.
13
<PAGE> 11
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 which are accounted for on a percentage
completion basis. Under the percentage completion method, revenues are
recognized in proportion to costs incurred compared to total estimated
costs, full provision is made for any anticipated loss. No percentage
completion revenues were recorded at December 31, 1997. Amounts related
to such contracts included in net sales were $1,361,000 and $1,102,000
for the years ended December 31, 1996 and 1995, respectively.
j. Research, Development and Engineering
Research, development and engineering costs are charged to expense as
incurred.
k. Earnings Per Share Information
Earnings per share in 1997, 1996 and 1995 have been restated to comply
with the Statement of Financial Accounting Standards (SFAS) No. 128
"Earning Per Share." Under SFAS No. 128, Earnings Per Share (EPS) is
presented under two calculations, Basic and Diluted. Basic EPS is
computed by dividing income available to common stockholders by the
weighted-average number of common shares outstanding during the period.
Diluted EPS is computed using the weighted average number of common and
dilutive potential common shares outstanding during the period, using the
treasury stock method. Options outstanding that were not included in the
determination of diluted EPS, because they were antidilutive were 42,500,
123,800 and 0 in 1997,1996 and 1995 respectively.
l. Reclassification
Certain prior year financial statement information has been reclassified
to conform with the current year presentation.
14
<PAGE> 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
NOTE 2: ACCRUED EXPENSES
<TABLE>
<CAPTION>
Accrued expenses at December 31, 1997 and 1996 consisted of the following:
(Thousands)
1997 1996
<S> <C> <C>
Accrued commissions $ 1,441 $ 1,112
Accrued warranty 459 414
Accrued income taxes - 41
Accrued bonus 89 -
Other 607 506
--------------------------
$ 2,596 $ 2,073
==========================
</TABLE>
NOTE 3: DEBT, CAPITAL LEASES, COMMITMENTS AND CONTINGENCIES
<TABLE>
<CAPTION>
Debt at December 31, 1997 and 1996 consisted of the following:
(Thousands)
1997 1996
<S> <C> <C>
Mortgage note payable $ 5,519 $ 5,664
Capital lease obligations, interest rates ranging
from 6.9% to 9.6%, net of interest of $2
and $6 in 1997 and 1996, respectively 18 51
--------------------------
5,537 5,715
Less-current maturities 224 363
--------------------------
$ 5,313 $ 5,352
==========================
</TABLE>
The mortgage note payable is secured by the Company's land and building
and requires monthly payments of $53,922, including interest at 8.125%.
This mortgage note payable was refinanced with the same institution on
June 30, 1997, extending the maturity date to July 1, 2004. The new
agreement requires a final balloon payment of $ 3,825,000 at maturity.
The previous mortgage required a monthly payment of $ 68,500 including
interest at 9.0%, these terms were in affect until June 30, 1997.
15
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Under the terms of the debt, the minimum repayments of long-term debt and
capital lease obligations by year are as follows:
(Thousands)
8.125% CAPITAL
MORTGAGE LEASES TOTAL
1998 $ 206 $ 18 $ 224
1999 224 - 224
2000 242 - 242
2001 263 - 263
2002 285 - 285
2003 310 - 310
2004 3,989 - 3,989
--------------------------------------------
$ 5,519 $ 18 $ 5,537
============================================
At December 31, 1997, the Company has an unsecured revolving line of
credit, with a US bank, which allows for aggregate borrowings and/or
letters of credit of up to $14,000,000. Borrowings are available to the
Company at either the Bank's base rate or a Eurodollar rate, as elected
by the Company. This loan agreement is available to the Company until
April 30, 2002, subject to the maintenance of certain financial
covenants. At December 31, 1997, the Company was in compliance with all
covenants of this agreement. As of December 31, 1997, no amounts were
outstanding under this unsecured revolving line of credit. Available
borrowings under the line were reduced by $ 71,000 which was committed
under a stand by letter of credit.
The Company conducts its UK operations in a facility that is under a
long-term operating lease expiring in 2010. Rent expense under this lease
was approximately $143,000 in 1997, $145,000 in 1996 and $205,000 in
1995. 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, 1997, assuming the sublease is not extended, the future
minimum lease commitment for this facility is $3,130,000, payable as
follows $145,000 for each year 1998 and 1999, $250,000 for the year 2000,
$280,000 for each year 2001 and 2002 and $2,030,000 thereafter through
2010.
The Company is a party to various claims arising in the normal course of
business. Management believes the resolution of these matters will not
have a material impact on the Company's results of operations or
financial condition.
NOTE 4: FOREIGN OPERATIONS
Export sales were $26,057,000 in 1997, $24,380,000 in 1996 and
$27,767,000 in 1995.
The following table shows the percentages of the Company's revenues by
geographic region, for the last three years:
1997 1996 1995
United States 50% 47% 52%
Europe 23 25 19
Far East 24 23 24
Other 3 5 5
16
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
NOTE 5: SIGNIFICANT CUSTOMERS
One customer individually represented approximately 14% of revenues in
1997. 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)
FOR THE YEAR 1997 1996 1995
Domestic $ 1,040 $ 3,985 $ 5,762
Foreign 609 312 441
--------------------------------------------
Total $ 1,649 $ 4,297 $ 6,203
============================================
For the years ended December 31, 1997, 1996 and 1995, the Company's
provision for income taxes are as shown below:
<TABLE>
<CAPTION>
(Thousands)
FEDERAL STATE FOREIGN TOTAL
<S> <C> <C> <C> <C>
DECEMBER 31, 1997
CURRENT $ 308 $ 47 $ 0 $ 355
DEFERRED 39 5 0 44
------------------------------------------------------------
$ 347 $ 52 $ 0 $ 399
============================================================
DECEMBER 31, 1996
Current $ (50) $ 31 $ 0 $ (19)
Deferred 578 178 0 756
------------------------------------------------------------
$ 528 $ 209 $ 0 $ 737
============================================================
DECEMBER 31, 1995
Current $ 1,163 $ 234 $ 0 $ 1,397
Deferred (441) 174 0 (267)
------------------------------------------------------------
$ 722 $ 408 $ 0 $ 1,130
============================================================
</TABLE>
17
<PAGE> 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
The differences between the statutory United States federal income tax
rate of 34% versus the Company's effective tax rate are as follows:
<TABLE>
<CAPTION>
(Thousands)
FOR THE YEAR 1997 1996 1995
<S> <C> <C> <C>
Tax provision at United States statutory rate $ 561 $ 1,461 $ 2,109
State income taxes, net of federal benefit 48 184 269
Utilization of domestic net operating loss
carryforwards and reduction of valuation reserves - (769) (1,122)
Utilization of foreign net operating
loss carryforwards (189) (97) (137)
Non-deductible and other (21) (42) 11
--------------------------------------------
Total provision $ 399 $ 737 $ 1,130
============================================
</TABLE>
Deferred income taxes and prepaid income taxes are comprised of the
following at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
(Thousands)
1997 1996
<S> <C> <C>
Revenues recognized for books, not tax $ (4,767) $ (5,720)
Accelerated tax depreciation (196) (240)
Other (116) (116)
--------------------------
Total deferred liabilities (5,079) (6,076)
--------------------------
Inventory reserves 233 253
Inventory capitalization 78 341
Commissions - 756
Other 453 283
Federal tax net operating loss carryforward 559 732
Federal tax credit carryforwards 1,805 1,804
--------------------------
Total deferred assets 3,128 4,169
--------------------------
Total net deferred liability (1,951) (1,907)
Valuation allowance (296) (296)
---------------------------
Net deferred income taxes $ (2,247) $ (2,203)
===========================
</TABLE>
The valuation allowance relates to uncertainty surrounding the
realization of the deferred tax assets, principally certain tax loss and
credit carryforwards. Realization is dependent on generating sufficient
taxable income prior to expiration of the loss carryforwards. As of
December 31, 1997, the Company had federal tax net operating loss
carryforwards of $1,645,000, which expire beginning in 2007. In addition,
the Company has research and development and AMT credit carryforwards of
$1,805,000, 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 $ 587,000 as of December 31, 1997
and $1,162,000 as of December 31, 1996. In addition the Company's UK
subsidiary utilized some of it's net operating loss carryforwards to
reduce the current consolidated tax provision. The UK subsidiary has $
2,265,000 of net operating loss carryforwards available at December 31,
1997. The benefit of these losses are being recognized as utilized.
18
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
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 earnings per share and operating income
targets. Under these plans, $ 89,000 was expensed in 1997, no amounts
were expensed in 1996, while $801,000 in expense was recorded in 1995.
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 $ 170,000, $191,000 and $172,000
for the years ended December 31, 1997, 1996 and 1995, respectively.
NOTE 8: 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, the exercise price of the options is not less than fair
market value at the date of the grants. The 1989 Plan options expire over
seven years and the 1993 Plan options expire over periods not to exceed
10 years. Shares available for future stock option grants, pursuant to
these plans, are 127,763 at December 31, 1997, 330,763 at December 31,
1996, and 449,323 at December 31, 1995.
A summary of all stock option activity for the years ended December 31,
1997, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
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 189,095 $ 3.64 120,045 $ 1.98 257,612 $ 1.71
Granted 234,500 3.98 130,100 4.49 2,000 4.25
Exercised (24,405) 2.50 (49,510) 1.69 (136,027) 1.50
Forfeited (31,500) 3.90 (11,540) 4.32 (3,540) 2.00
-------------------------------------------------------------------------------
Outstanding at
end of year 367,690 $ 3.91 189,095 $ 3.64 120,045 $ 1.98
===============================================================================
Options exercisable
at end of year 66,790 $ 2.92 36,517 $ 2.05 52,782 $ 1.87
===============================================================================
</TABLE>
At December 31, 1997 the outstanding options have exercise prices ranging
from $ 1.38 to $ 6.19 and a weighted average remaining contractual life
of 5.6 years.
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 59,228 remain available at December
31, 1997. During 1997, a total of 15,351 shares were purchased at prices
ranging from $2.55 to $3.83 per share.
19
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
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>
(Thousands except per share amounts)
FOR THE YEAR 1997 1996 1995
<S> <C> <C> <C>
Net income As reported $ 1,250 $ 3,560 $ 5,073
Pro forma 1,140 3,516 5,063
Income per diluted share As reported $ 0.17 $ 0.49 $ 0.68
Pro forma 0.16 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 1997, 1996 and 1995, respectively: a dividend yield rate of 0
for each year; expected lives of 5.0, 4.5 and 1.2 years; expected
volatility of 68.2%, 55.3% and 66.9%; and risk free interest rates of
6.4%, 6.2% and 6.3%. The weighted average fair value of options granted
during 1997, 1996 and 1995 was $2.48, $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 pro forma reduction in net
earnings and earnings per share may not be representative of what could
be expected in future years.
NOTE 9: SALE OF INVESTMENT.
In 1996, the Company sold its 19.4% minority interest in Bruce
Technologies International, Inc. (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.
NOTE 10: RELATED PARTY TRANSACTIONS
During 1997 and 1996, certain transactions were made between the Company
and certain related parties, all of which management believes were at
arms length. These transactions included payments to two of the Company's
directors in 1997 and one director in 1996 for consulting services of
$44,000 and $15,000 in 1997 and 1996, respectively. The Company also had
related party transactions with respect to the purchase of certain
software development and components from a company which is partially
owned by one of the Company's key employees. The amount of contract
software and hardware purchased from this party in the ordinary course of
doing business was $827,000 and $769,000 in 1997 and 1996, respectively;
as well, $ 57,000 and $ 81,000 is included in trade accounts payable on
the Consolidated Balance Sheets at December 31, 1997 and 1996,
respectively.
20
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
NOTE 11: SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
(Thousands)
FOR THE YEAR 1997 1996 1995
<S> <C> <C> <C>
Cash paid (received) during the year for-
Interest $ 488 $ 599 $ 563
Income taxes (391) 1,778 85
Supplemental schedule of noncash financing
activities-
Class AA preferred stock conversion - - 1,200
Accrual of preferred stock dividends - - 96
============================================
</TABLE>
NOTE 12: 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, 1997 and 1996 were
approximately $ 5,536,792 and $ 5,528,782 based on a discounted cash flow
analysis, using the prevailing cost of capital for the Company as of each
date.
21
<PAGE> 19
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,
1997 and 1996, and the related consolidated statements of operations,
stockholders' investment and cash flows for each of the three years in the
period ended December 31, 1997. 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 did not audit the
financial statements of BTU Europe Ltd. (a subsidiary of the Company), which
statements reflect total assets, total revenues and total net income of 3
percent, 5 percent and 49 percent in 1997 and 5 percent, 6 percent and 9 percent
in 1996, respectively, of the consolidated totals. Those statements were audited
by other auditors whose report has been furnished to us and our opinion, insofar
as it relates to the amounts included for that entity, is based solely on the
report of the other auditors.
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 and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audit and the report of other auditors, 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, 1997 and 1996, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1997 in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 13, 1998
22
<PAGE> 20
- --------------------------------------------------------------------------------
FINANCIAL INFORMATION BY QUARTER
(UNAUDITED)
<TABLE>
<CAPTION>
(Thousands, except per share amounts)
March 30, June 29, Sept. 28, Dec. 31,
<S> <C> <C> <C> <C>
1997 NET SALES $ 11,026 $ 12,799 $ 12,722 $ 15,571
---------------------------------------------------------
GROSS PROFIT 4,791 5,168 5,165 6,563
---------------------------------------------------------
OPERATING INCOME (405) 625 601 1,179
---------------------------------------------------------
NET INCOME (276) 303 485 738
=========================================================
EARNINGS PER SHARE
BASIC $ (0.04) $ 0.04 $ 0.07 $ 0.10
---------------------------------------------------------
DILUTED $ (0.04) $ 0.04 $ 0.07 $ 0.10
---------------------------------------------------------
WEIGHTED AVERAGE SHARES OUTSTANDING
BASIC 7,280 7,281 7,287 7,306
---------------------------------------------------------
DILUTED 7,304 7,307 7,386 7,432
---------------------------------------------------------
March 31, June 30, Sept. 29, Dec. 31,
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
=========================================================
Earnings per share
Basic $ 0.05 $ 0.42 $ 0.01 $ 0.01
---------------------------------------------------------
Diluted $ 0.05 $ 0.42 $ 0.01 $ 0.01
---------------------------------------------------------
Weighted average shares outstanding
Basic 7,289 7,297 7,331 7,299
---------------------------------------------------------
Diluted 7,365 7,345 7,359 7,323
---------------------------------------------------------
</TABLE>
23
<PAGE> 21
- --------------------------------------------------------------------------------
FINANCIAL INFORMATION BY QUARTER (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK MARKET PRICES PER SHARE FOR THE QUARTERS ENDED HIGH LOW
<S> <C> <C>
MARCH 30,1997 $ 4.000 $ 2.875
JUNE 29, 1997 4.625 2.500
SEPTEMBER 28, 1997 6.875 3.500
DECEMBER 31, 1997 7.438 5.063
====================================
March 31, 1996 $ 7.375 $ 4.188
June 30, 1996 6.250 3.875
September 29, 1996 4.250 2.875
December 31, 1996 3.563 2.625
====================================
</TABLE>
The Company's common stock is traded in The Nasdaq National Market under
the symbol BTUI. There were approximately 490 stockholders of record as
of March 24, 1998.
24
<PAGE> 22
CORPORATE INFORMATION
<TABLE>
<CAPTION>
<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. Chairman, President and Chief Executive Officer
common stock is traded on
The Nasdaq National Market Santo J. DiNaro
under the symbol "BTUI" Vice President of Operations and Engineering
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
(978) 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 22, 1998 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>
25
<PAGE> 1
Exhibit 21
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, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1.00
<CASH> 11,873
<SECURITIES> 0
<RECEIVABLES> 12,494
<ALLOWANCES> 160
<INVENTORY> 10,028
<CURRENT-ASSETS> 35,359
<PP&E> 12,691
<DEPRECIATION> 8,077
<TOTAL-ASSETS> 40,379
<CURRENT-LIABILITIES> 9,261
<BONDS> 5,313
0
0
<COMMON> 77
<OTHER-SE> 23,481
<TOTAL-LIABILITY-AND-EQUITY> 40,379
<SALES> 52,118
<TOTAL-REVENUES> 52,118
<CGS> 30,431
<TOTAL-COSTS> 30,431
<OTHER-EXPENSES> 3,808
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 488
<INCOME-PRETAX> 1,649
<INCOME-TAX> 399
<INCOME-CONTINUING> 1,250
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,250
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0.17
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1.00
<CASH> 6,145
<SECURITIES> 0
<RECEIVABLES> 11,699
<ALLOWANCES> 191
<INVENTORY> 9,899
<CURRENT-ASSETS> 27,981
<PP&E> 10,943
<DEPRECIATION> 6,804
<TOTAL-ASSETS> 35,834
<CURRENT-LIABILITIES> 9,976
<BONDS> 5,715
0
0
<COMMON> 76
<OTHER-SE> 18,620
<TOTAL-LIABILITY-AND-EQUITY> 35,834
<SALES> 58,274
<TOTAL-REVENUES> 58,274
<CGS> 32,022
<TOTAL-COSTS> 32,022
<OTHER-EXPENSES> 4,266
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 563
<INCOME-PRETAX> 6,203
<INCOME-TAX> 1,130
<INCOME-CONTINUING> 5,073
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,073
<EPS-PRIMARY> .69
<EPS-DILUTED> .68
</TABLE>
