<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, 1998
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 $15,395,730 on March
26, 1999.
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 26, 1999:
6,786,763 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, 1998; and
Part III - Portions of the Proxy Statement for the 1999 Annual Meeting of
Stockholders , both of which are to be filed with the Securities and Exchange
Commission.
- --------------------------------------------------------------------------------
<PAGE> 2
BTU INTERNATIONAL, INC.
1998 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PART I PAGE
----- - ----
<S> <C> <C>
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
-------
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
--------
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
-------
Item 14 Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 7-13
</TABLE>
<PAGE> 3
PART I
ITEM 1. BUSINESS
General:
The Company designs, manufactures, sells and services thermal processing
equipment and related process controls primarily for use in the electronics
industry as well as 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
N2 and H2 Wafer Bumping
C4 Processing
BGA and CSP Solder Sphereattach
Low Temperature Epoxy Curing/Encapsulation
PC Board Multi Chip Modules (MCM-L)
Conductive Polymer Thick Film Curing
Hybrid Microelectronics
Integrated Circuit Packaging
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
1
<PAGE> 4
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.
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.
2
<PAGE> 5
Marketing, Sales and Customers:
The Company's worldwide customer base consists primarily of independent
manufacturers and contract manufacturers of electronic devices, computers,
telecommunications, printed circuit board assembly companies, 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, Singapore,
Malaysia, Philippines 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 Asia Pacific, for the last three
years:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
United States 35% 50% 47%
Europe 24 23 25
Asia Pacific 29 24 23
Other 12 3 5
</TABLE>
For further information on export sales and foreign operations, see Notes 4
and 13 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 and Intel represented approximately 14% and
13% of revenues in 1998. Worldwide sales to Solectron represented approximately
14% of revenue in 1997. No individual customer accounted for greater than 10% of
revenue in 1996.
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 $ 10.9 million at December 31, 1998 versus $10.2 million at
December 31, 1997. The primary reason for this increase is surface mount
technology product demand during 1998. Most of the Company's backlog is expected
to be shipped within 6 to 20 weeks. 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.
Occasionally, 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
<PAGE> 6
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 and delivery, 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), SierraTherm and
CentroTherm 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 1999.
Employees:
As of December 31, 1998, the Company had a total of 327 employees of which
297 were domestic and 30 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.
4
<PAGE> 7
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 Asia Pacific the Company
has sales and service offices in Beijing China, Singapore, Penang Malaysia and
Cavite Philippines all of which are leased. The Company believes that its plants
and capital equipment operated at approximately 60% of production capacity
during the fourth quarter of 1998 and that such plants and capital equipment
provide sufficient manufacturing capacity through 1999.
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 1998.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
NAME AGE POSITIONS
- ---------------------- --- ---------------------------------------------
<S> <C> <C>
Paul J. van der Wansem 59 Chairman of the Board of Directors,
President and Chief Executive Officer
Thomas P. Kealy 56 Vice President, Corporate Controller
and Chief Accounting Officer
Santo J. DiNaro 53 Vice President of Operations and Engineering
</TABLE>
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. 1998 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 26, 1999 there were approximately 521
stockholders of record.
5
<PAGE> 8
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. 1998 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 5-9 of the BTU International, Inc. 1998 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 16, 1999, appearing on pages 10-25 of the BTU
International, Inc. 1998 Annual Report are incorporated herein by reference. In
addition the financial information by quarter appearing on pages 26-27 of the
BTU International, Inc. 1998 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 1998 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 1998 Proxy Statement for BTU
International, Inc. and is incorporated herein by reference.
Information related to compliance with Section 16(a) of the Exchange Act is
included under the caption "Section 16(a) Beneficial Ownership Reporting
Compliance" in the 1998 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 1998 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 1998 Proxy Statement for BTU International, Inc. and is incorporated herein
by reference.
6
<PAGE> 9
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, 1998 and 1997
Consolidated Statements of Operations for the years ended December 31,
1998, 1997 and 1996
Consolidated Statements of Stockholders' Investment for the years
ended December 31, 1998, 1997 and 1996
Consolidated Statements of Comprehensive Income for the years ended
December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the years ended December 31,
1998, 1997 and 1996
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, 1998, 1997 and 1996
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 1998.
7
<PAGE> 10
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 (the
Company) annual report to stockholders incorporated by reference in this Form
10-K, and have issued our report thereon dated February 16, 1999. 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 16, 1999
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.
<TABLE>
<CAPTION>
<S> <C>
BTU INTERNATIONAL, INC.
Date: March 29, 1999 By: PAUL J. VAN DER WANSEM
Paul J. van der Wansem
President, Chief Executive
Officer (principal executive
officer) and Director
Date: March 29, 1999 By: THOMAS P. KEALY
Thomas P. Kealy
Vice President Corporate
Controller and Chief
Accounting Officer (principal
financial and accounting officer)
Date: March 29, 1999 By: DR. JEFFREY CHUAN CHU
Dr. Jeffrey Chuan Chu
Director
Date: March 29, 1999 By: DAVID A.B. BROWN
David A.B. Brown
Director
</TABLE>
9
<PAGE> 12
EXHIBIT INDEX
The following designated exhibits are, as indicated below, either filed
herewith or have heretofore been filed with the Securities and Exchange
Commission under the Securities Act of 1933 and the Securities Exchange Act of
1934 and are referred to and incorporated herein by reference to the following
SEC Filings: Registration Statement Filing on Form S-1 ("33-24882"), the annual
report as reported on the 1989 Form 10-K ("1989 10-K"), the annual report as
reported on the 1991 Form 10-K ("1991 10-K"), the annual report as reported on
the 1992 Form 10-K ("1992 10-K"), the annual report as reported on the 1993 Form
10K ("1993 10-K"), the annual report as reported on the 1994 Form 10K ("1994
10-K"), Or the quarterly report as reported on 9-28-97 Form 10Q(9-28-97 10-Q) Or
the quarterly report as reported on 6-28-98 Form 10Q(6-28-98 10-Q).
<TABLE>
<CAPTION>
SEC
Exhibit Docket
------- --------
<S> <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:
10.13 1988 Employee Stock Purchase Plan. * 10.13 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>
10
<PAGE> 13
<TABLE>
<CAPTION>
<S> <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
10.39 BTU(UK) Limited and RD International (UK) Limited underlease, 10.39 1994 10-K
relating to Unit B15 Southwood Summit Centre
10.42 Mortgage note between BTU International, Inc. and John Hancock
Mutual Life Insurance Company, dated June 30, 1997 10.42 9-28-97 10-Q
10.43 Credit Agreement between BTU International, Inc. and US Trust,
dated September 5, 1997 10.43 9-28-97 10-Q
10.44 Amendment to the 1993 Equity Incentive Plan* 10.44 6-28-98 10Q
10.45 1998 Stock Option Plan for Non-Employee Directors* 10.45 6-28-98 10Q
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. 1998 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.
11
<PAGE> 14
Schedule II
BTU INTERNATIONAL, INC.
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in Thousands)
For the Year Ended December 31, 1998
------------------------------------
<TABLE>
<CAPTION>
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
</TABLE>
For the Year Ended December 31, 1997
------------------------------------
<TABLE>
<CAPTION>
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
</TABLE>
For the Year Ended December 31, 1996
------------------------------------
<TABLE>
<CAPTION>
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>
(A) Amounts indicated as deductions are for amounts charged against these
reserves in the ordinary course of business.
12
<PAGE> 1
Exhibit 11.0
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,
----------------------------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Net income $1,533 $1,250 $3,560
Net income applicable to
common stockholders $1,533 $1,250 $3,560
========= ========= =========
Weighted average number of shares outstanding
Basic Shares 7,068,432 7,290,548 7,303,936
Effect of Dilutive Options 49,136 45,154 33,773
--------- --------- ---------
Diluted Shares 7,117,568 7,335,702 7,337,709
========= ========= =========
Earnings Per Share
Basic $0.22 $0.17 $0.49
--------- --------- ---------
Diluted $0.22 $0.17 $0.49
--------- --------- ---------
</TABLE>
14
<PAGE> 1
EXHIBIT 13
To Our Shareholders:
As we look back at 1998, we can summarize our actions as driven by change in
pursuit of our vision to building a stronger company ready for future growth.
During this pivotal time in our history, we developed and started to implement
strategies building off our financial strength and strong position as market
leader in thermal processing systems. This letter will outline our
accomplishments of this past year, as well as discuss our plans for the future.
REVIEW OF 1998
BTU achieved a record booking level in 1998 at $57 million, despite a down turn
in our key market; the capital equipment sector of the electronics industry.
Total sales for 1998 reached $56.5 million, an 8% increase over 1997. The
increase in bookings and sales was concentrated primarily in our reflow and
curing furnaces, which showed a strong customer acceptance. Although the
electronics assembly and packaging reflow equipment market decreased 11% from
its 1997 levels, we were able to grow and gain approximately 3% in market share.
Normally, this would have yielded much better financial results. However, with
the shrinking market size, pricing pressure was strong, and in comparison, our
direct competitors in this sector had declining revenues and mostly negative or
breakeven earnings.
Revenues in our custom engineered products for high temperature applications
were ahead of 1997 levels. Increased sales for our high temperature furnaces
used in the nuclear fuel industry were the primary driver for this increase.
Overall, gross margin and income before taxes increased, but as a percentage of
sales margins decreased as a result of product mix and pricing pressures in our
more competitive, higher volume markets. In total, we were able to increase our
net income by 29%, to $1.5 million, or $0.22 per diluted share.
CUSTOMER SERVICE AND SATISFACTION PROGRAM
In 1997 we hired a new customer service management team and established a new
training facility. In 1998 we continued to strive towards total customer
satisfaction by instituting a "voice of the customer" program. We retained the
services of an independent auditing firm and developed a comprehensive quality
and customer satisfaction program to help us achieve "World Class Customer
Service." We are now continuously monitoring our customer satisfaction levels
and improving our actions based upon customer feedback. In 1998 we also
implemented the "Partners in Productivity Program." This program offers pre and
post purchase services to customers in process consulting and development, and
in training. These contracted services provide our customers maximum product
yields at the lowest possible cost.
We are committed to supporting our customers by providing Year 2000
Certification. All our products are Year 2000 Certified, and Y2K compliant
upgrades are available for the installed equipment base.
Sales by Region Graph
Americas 47%
Europe 24%
Asia-Pacific 29%
Cash and Stock Repurchased ($Millions)
1994 1995 1996 1997 1998
Cash $6.896 $6.145 $10.218 $11.873 $10.594
Stock
Repurchased $0.935 $0.935 $ 1.183 $ 1.183 $3.166
1
<PAGE> 2
RESEARCH AND DEVELOPMENT
Our overall spending in RD&E increased by about 20% compared to the previous
year. We are focusing our efforts to make existing products more competitive and
develop new products. We have actively recruited new engineering talent from
companies where speed to market with highly reliable products is part of the
industry culture. We expect these investments to translate into improved
responsiveness to customer needs and innovative product design. We will continue
to invest where market opportunities warrant research and development, as we
propel ourselves into the new millennium through further improvements in our
technology market leadership.
Most recently, our efforts in this area were recognized as we were presented
with the Excellence Award at NEPCON WEST, a major industry trade show. We
received this award for our Flux Management and Low Nitrogen technologies in our
reflow furnaces. These innovations are focused on lowering the cost of ownership
to the customer, as well as protecting the environment from harmful byproducts
of their processes.
OPERATIONAL EXCELLENCE
During 1998 a concentrated focus was placed on improving our product quality,
cost efficiency, and upgrading our production facility. Our factory renovations
are complete, and the improvements have been very well received by our employees
and our customers. Operational focus has been on cycle time reductions,
increased outsourcing, improved yield, and increased employee training. We
focused on key suppliers that have engineering and low cost manufacturing
capabilities. This will allow us to leverage our suppliers core competencies
into our new product development to achieve design to cost goals.
In March of 1998 we received ISO 9001 certification. We are currently focusing
on improving those processes that have the largest impact on customer
satisfaction and improved earnings. All of our employees in operations have been
empowered as quality control inspectors, building quality into every step of the
manufacturing process. We were able to increase inventory turns by 8% and expect
to report further improvements in 1999. We fell short by 10% in our goal for
revenue per employee which declined slightly but expect to make significant
improvement in efficiencies in 1999 and consequently our goal is to increase
revenue per employee by 15%.
FINANCIAL STRENGTH
We continue to be in a strong financial position with a current ratio of 3.9:1
and $10.6 million cash at year end. During 1998 we repurchased 534,000 shares,
as in our opinion, our stock was undervalued and well below comparative
companies in the electronic equipment industry. Book value per share at year end
rose to $3.40, of which $1.56 is in cash.
OUTLOOK
With a strong product positioning we have an optimistic outlook for the future.
We expect most of the markets we serve to grow in the 12% to 15% range in 1999
and beyond. In the Electronics Assembly market, the strong trend towards
outsourcing by OEMs to contract manufacturers is expected to continue. The
contract manufacturing market grew approximately 29% in 1998, and is expected to
grow at 30% in 1999. The five largest contract manufacturers account for 40% of
this explosive market segment. We are the major supplier to several of the top
contract manufacturers, supplying them with our high performance flexible top of
the line reflow ovens.
Another market of expected growth is in the Semiconductor Packaging industry.
Advanced packaging technologies such as C4 or flip chip are emerging as the
demand for increased performance, decreased product size, and reduction in costs
continues. BTU is addressing this market with one of the broadest product lines
available. This wide offering of products, with broad temperature and atmosphere
capabilities, allows us to provide thermal processes for wafer bumping, flip
chip in package, and solder sphere attachment to complete the semiconductor
package.
R, D & E Expenses ($Millions)
1994 1995 1996 1997 1998
$3.634 $4.266 $3.850 $3.808 $4.575
Sales per Employee ($ Thousand)
1994 1995 1996 1997 1998
$136 $160 $138 $178 $175
2
<PAGE> 3
In our custom engineered products, serving many markets, we are developing
several new products for new applications which we expect to contribute to our
growth beyond the current year. Many of our customers are adding capacity
offshore in lower labor rate countries. BTU has recognized this trend, and we
have been a leader in establishing local sales and service support in the Asian
countries. We are currently opening our 5th sales and service support center in
Asia. These actions are critical toward gaining global market share.
SUMMARY
In fiscal year 1997 we realized the need for significant change. In 1998 we
strengthened and invigorated our Senior Management team through the addition of
new management and a shared vision. We initiated the development and
implementation of strategies which will allow us to increase our position as the
market leader of thermal processing systems well into the new century. Although
the changes that are being implemented have not yet resulted into substantially
improved earnings, we expect that our actions of 1998 together with our 1999
program will position BTU for a more successful future. These changes involve
every aspect of the organization, from the addition of key management personnel
in Manufacturing, Engineering, Information Systems, and Marketing, to cost
reductions and strong outsourcing partnerships with qualified suppliers. Our
mission is to strengthen and use our core competencies, in the design,
manufacturing and marketing of thermal processing systems, together with our
corporate partners, in support of our customer's needs.
All BTU employees are aware of the importance of earnings and growth. The
development of a culture promoting the engagement in those activities which will
improve bottom line performance is one of our key goals for 1999. We are also
increasing our Public Relations with frequent news updates and we will
participate in events giving BTU a broader exposure to the Investment community.
We want to thank all our customers for choosing BTU as their business partner
and our employees and suppliers for their effort during our transition towards
building a successful future. We look forward to share the benefits with you and
all our shareholders.
Paul J. van der Wansem
Chairman and Chief Executive Officer
March 31, 1999
Current Ratio
1994 1995 1996 1997 1998
2.3 2.8 4.6 3.8 3.9
Stockholders Investment ($ Millions)
1994 1995 1996 1997 1998
$11.95 $18.696 $22.207 $23.558 $23.137
3
<PAGE> 4
- --------------------------------------------------------------------------------
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
(Thousands, except per share amounts)
FOR THE YEARS ENDED DECEMBER 31, 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales $56,468 $52,118 $45,811 $58,274 $43,342
Gross profit 22,483 21,687 19,043 26,252 20,045
Selling, general and administrative 16,021 15,349 14,123 15,583 12,697
Research, development and engineering 4,575 3,808 3,850 4,266 3,634
Operating income 1,887 2,000 1,070 6,403 3,714
Interest expense, net 46 10 255 290 421
Gain on sale of investment -- -- 3,400 -- --
Income before Provision for income taxes 1,914 1,649 4,297 6,203 3,342
Net income 1,533 1,250 3,560 5,073 2,680
Earnings per share:
Diluted $ 0.22 $ 0.17 $ 0.49 $ 0.68 $ 0.35
- ------------------------------------------------- ------- ------ ------- ------ -------
Weighted average number of shares outstanding
Diluted Shares 7,118 7,336 7,338 7,320 7,195
================================================= ======= ====== ======= ====== =======
AS OF DECEMBER 31, 1998 1997 1996 1995 1994
BALANCE SHEET AND OTHER DATA:
Cash and cash equivalents $10,594 $11,873 $10,218 $ 6,145 $ 6,896
Working capital 24,665 26,098 25,268 18,005 13,433
Current ratio 3.9 3.8 4.6 2.8 2.3
Total assets 38,615 40,379 36,763 35,834 30,965
Long-term debt 5,167 5,313 5,352 5,715 6,050
Stockholders' investment 23,137 23,558 22,207 18,696 11,950
Book value per share $ 3.40 $ 3.22 $ 3.05 $ 2.56 $ 1.73
Capital expenditures 1,248 1,294 946 1,099 649
------- ------- ------- ------ -------
Total employees 327 306 323 406 322
================================================= ======= ======= ======= ====== =======
</TABLE>
4
<PAGE> 5
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, 1998 1997 1996
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 60.2% 58.4% 58.4%
----- ----- -----
Gross profit 39.8% 41.6% 41.6%
Operating expenses:
Selling, general and administrative 28.4% 29.5% 30.8%
Research, development and engineering 8.1% 7.3% 8.4%
Restructuring charge 0.0% 1.0% 0.0%
----- ----- -----
Operating income 3.3% 3.8% 2.4%
Interest income 0.7% 0.9% 0.7%
Interest expense (0.7%) (0.9%) (1.3%)
Gain on sale of investment 0.0% 0.0% 7.4%
Other income (expense), net 0.1% (0.6%) 0.2%
----- ----- -----
Income before income taxes 3.4% 3.2% 9.4%
Income tax provision 0.7% 0.8% 1.6%
----- ----- -----
Net income 2.7% 2.4% 7.8%
===== ===== =====
</TABLE>
1998 COMPARED TO 1997
For 1998 net sales increased by $4.4 million to $56.5 million, representing an
increase of 8.3% versus 1997. The increase in sales in 1998 reflects higher
demand for our products, primarily by our large multinational customers, in
electronics assembly and our large furnaces used by the nuclear fuel industry.
In 1998 the geographic dispersion of net sales, saw a decrease in the percentage
of sales to customers in the Americas by 6%. This was offset by a 5% increase in
sales to our Asia Pacific customers. The significant increase in Asia Pacific
was due to expansion in production by multinational companies to offshore
facilities. 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 $0.8 million, or 3.7%, in 1998 as compared to 1997.
Gross profit as a percentage of sales decreased in 1998 from 41.6% to 39.8% as
compared to 1997. The increase in gross profit dollars for 1998 was due to the
increase in revenues versus 1997. The decrease in the gross margin percentage in
1998 was due to product mix and price pressure in our more competitive, high
volume markets.
Selling, general and administrative expenses increased in 1998 by $0.7 million,
or 4.4%, but decreased as a percentage of net sales to 28.4% compared to 29.5%
in 1997. The higher costs in 1998 are primarily the result of $4.4 million
increase in net sales, which resulted in increased costs for sales and service
to support our increasing world wide customer base. These increases in costs
were offset by a lower overall commission expense as the Company has increased
its direct sales in certain Asian territories.
5
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------------
Research, development and engineering expenses in 1998 increased by $767,000, or
20.1%, and increased as a percentage of net sales to 8.1% compared to 7.3% in
1997. In 1998 the increase in research, development and engineering was the
result of the Company's addition to, and skills upgrades in, the engineering
management. The Company is committed to continue investing in new technologies
and new product developments in order to support growing customer requirements.
Interest Income decreased by $73,000 or 15.3% in 1998 compared to 1997. This
decrease in interest income is due to the lower average income earning cash and
cash equivalent balances and lower interest rates in 1998 versus 1997.
Interest Expense decreased in 1998 by $37,000 or 7.6% compared to 1997. The
decrease is due to the lower interest rate on the mortgage note payable that was
refinanced in June 1997.
Income taxes decreased in 1998 by $18,000 to $381,000 when compared to the 1997
provision of $399,000. For both 1998 and 1997 the effective tax rate reflects
the use of net operating loss carryforwards available to the Company's U.K.
subsidiary, which was profitable in 1998 and 1997. During 1998 and 1997 the
Company recorded the benefit of these net operating losses utilized, resulting
in the lower effective tax rates. The Company has recorded an effective tax rate
for 1998 of 19.9%, as compared to an effective tax rate of 24.2% for 1997. These
compare to the Company's statutory Federal rate of 34%.
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.
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 where the Company
established new direct sales and service offices.
6
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------------
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
to 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 net operating loss 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
LIQUIDITY AND CAPITAL RESOURCES
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.
No amounts were outstanding under this agreement as of December 31, 1998 or at
any time in 1998.
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, 1998 of
$5,312,000. 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 on
July 1, 2004.
During 1998, the Company completed the modernization of its manufacturing
facility and invested approximately $1,200,000 in capital improvements primarily
to enhance the level of quality in the Company's products and to increase
throughput efficiencies through improved manufacturing methods. 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.
During 1998, the Board of Directors authorized the purchase of up to 600,000
shares of the Companies Common stock. In 1998, the Company did repurchase
533,880 shares of the Company's common stock for $ 1,983,000. This stock buy
back program reduced by 7% the number of outstanding shares of stock during
1998. The Company plans to continue the repurchase plan in 1999 in accordance
with the Directors' approval.
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 2000.
7
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------------
OTHER MATTERS
The impact of inflation and the effect of foreign exchange rate changes during
1998 has had an immaterial impact on the Company's business and financial
results.
RECENT ACCOUNTING DEVELOPMENTS
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" ("SOP 98-1). SOP 98-1
requires computer software costs associated with internal use software to be
expensed as incurred until certain capitalization criteria are met. The Company
does not believe that adoption of SOP 98-1 will have a material impact on the
Company's financial statements.
In April 1998, the AICPA issued Statement of Position 98-5, "Reporting on
the Costs of Start-Up Activities" (SOP 98-5). SOP 98-5 requires all costs
associated with pre-opening, pre-operating and organization activities to be
expensed as incurred. The Company will adopt SOP 98-5 beginning January 1, 1999.
The Company believes that adoption of SOP 98-5 will have no material impact on
the Company's financial statements.
YEAR 2000
The Year 2000 (Y2K) issues are a result of some existing software and embedded
computer technology which use only two-digits vs four-digits to identify the
year. Therefore, beginning in the year 2000, errors and failures may occur on
date sensitive systems because the computer devices will assume the year 1900.
The Company is actively pursuing Y2K compliance through a focused cross
functional Y2K implementation team, with a Y2K coordinator, working worldwide
with regular management reviews in three major fronts see (Customers, Internal,
Suppliers):
1. CUSTOMERS
All products (software and controls) presently being sold by the Company are Y2K
compliant. The Company warranties products sold since 1998 to be Y2K compliant.
Costs associated with this warranty are expected to be minimal. For products
sold prior to 1998 on which there is no Y2K warranty, the Company has tested and
identified which of its software and controls products are not Y2K compliant.
These tests were performed using the industry standard SEMATECH YEAR 2000 Common
Testing Scenarios V2.0. Our testing indicates that our older equipment will
perform its basic functions beyond the 01/01/00 date, certain minor workarounds
may be required to reboot the furnace systems computer and certain functions
could be impaired due to date related software. The summary results of the tests
have been compiled in matrix form and published on the Company's worldwide web
site. This matrix and customer checklists provide our customers with the Y2K
tested status of all of BTU's software configurations; known Y2K issues and
workarounds; minimum hardware & software configurations to be Y2K compliant; and
upgrade kits availability. The Company feels it is well positioned to satisfy
its customers Y2K needs on BTU products.
Although the Company is addressing all known Y2K problems on its products before
the year 2000 and expects its efforts to be successful, given the uniqueness of
the risks and uncertainties related to the Y2K issue, there is no certainty that
the Company will be successful. Addressing these uncertainties, the Company has
identified and provided our customers with contingency plans and instructions on
"what to do" should a Y2K problem arise after the turn of the century. In many
instances a Y2K problem simply requires a shutdown and restart of the BTU
equipment or a rollback of the year on the date code. Beyond these approaches,
BTU is prepared to aid our customers in solving Y2K problems as they arise. We
will do this through our experienced knowledge base, 24 hour worldwide telephone
hot line team and our extensive group of responsive service engineers located in
all geographical areas of the world.
8
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------------
2. INTERNAL
The efficient operation of the Company's business is dependent in part on its
computer software, computer hardware and internal control systems. These systems
are used, to varying degrees, in all areas of the Company's business. The
Company's management and Y2K team have investigated and identified potential Y2K
compliance problems in all its internal systems, including computer software and
hardware; security, telephone and energy management systems; and manufacturing
and distribution equipment. To address certain Y2K issues, the Company has hired
expert consultants and relied on knowledgeable suppliers to solve certain
problems that are beyond the scope or capabilities of our internal resources.
The present status for Internal Y2K compliance is that the assessment is
complete; the extent of the effort and incremental out of pocket costs have been
estimated to be approximately $350,000; and an implementation plan is on-going
with a completion date of September 30, 1999. Of the Y2K problem areas
identified, 100% have a definable solution; of these 42% are now in compliance
and the remaining 58% are at varying stages of working towards the defined Y2K
solution. The Company believes that all internal Y2K identified problems are
solvable and that the impact of Y2K compliance on the efficient operation of the
business will be minimal.
Even with the extensive effort and commitment to identify and solve our internal
Y2K problems prior to the beginning of the new century, there is no certainty
that the Company will be totally free of Y2K problems next year. If an
unforeseen internal Y2K problem arises in the year 2000, the Company has
contingency plans, as part of its disaster recovery management system, to insure
the continued operation of the business with minimal disruption.
3. SUPPLIERS
An important factor of BTU's success in addressing Y2K compliance problems is
the ability of our key suppliers to solve their Y2K issues. The Company's Y2K
team and the materials management group have communicated via a questionnaire
with all our suppliers regarding their Y2K program status. To date 100% of our
key suppliers have responded with their Y2K implementation plans. 62% of the key
suppliers are presently Y2K compliant with the remainder scheduled to be Y2K
compliant by Q3 `99. The Company's purchasing management is working with the
other non key suppliers to ensure Y2K compliance as early as possible.
In reviewing the significant supplier Y2K problems, the Company's Y2K
coordinator believes that all Y2K problems have known solutions that are
solvable within the required time frame to be Y2K compliant. However given the
uncertainties of an event never before experienced, the Company's Material
management group is developing contingency plans to address the occurrence of
Y2K disruptions to material receipts from key suppliers. An important element of
the solution to the failure of a key supplier to deliver product is our strategy
to quickly shift to an alternative supplier and thereby minimize the impact to
the Company and our customers.
In each of the three significant fronts outlined above, the Company is leading
and managing its readiness for Y2K compliance. We expect to address our Y2K
problems within the fixed time frame and at costs that will not materially
impact the financial results of the Company. However given the risks and
uncertainties associated with the uniqueness of the Y2K issues that are outside
the Company's control, the Company is unable to guarantee that there will not be
Y2K problems and costs beyond the scope detailed above that could materially
impact our ability to service our customers and financially perform to
investors' expectations.
9
<PAGE> 10
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
(Thousands)
As of December 31, 1998 1997
<S> <C> <C>
ASSETS CURRENT ASSETS
Cash and cash equivalents (Notes 1 and 12) $ 10,594 $ 11,873
Trade accounts receivable, less reserves of $160
in 1998 and 1997, (Note 1) 12,427 12,334
Inventories (Note 1) 10,084 10,028
Other current assets (NOTE 6) 411 1,124
------------------------------------------------------ --------- ---------
TOTAL CURRENT ASSETS 33,516 35,359
------------------------------------------------------ --------- ---------
PROPERTY, PLANT AND EQUIPMENT, AT COST (NOTES 1 AND 3)
Land 210 210
Buildings and improvements 7,186 6,515
Machinery and equipment 5,675 5,217
Furniture and fixtures 828 749
------------------------------------------------------ --------- ---------
13,899 12,691
LESS-ACCUMULATED DEPRECIATION 9,159 8,077
------------------------------------------------------ --------- ---------
NET PROPERTY, PLANT AND EQUIPMENT 4,740 4,614
Other assets, net of accumulated amortization of
$434 IN 1998 AND $437 IN 1997. 359 406
------------------------------------------------------ --------- ---------
TOTAL ASSETS $ 38,615 $ 40,379
====================================================== ========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
10
<PAGE> 11
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
(Thousands)
As of December 31, 1998 1997
<S> <C> <C>
LIABILITIES CURRENT LIABILITIES
AND Current maturities of long-term debt and capital lease obligations (Note 3) $ 226 $ 224
STOCKHOLDERS' Trade accounts payable (Note 10) 5,382 6,013
INVESTMENT Customer deposits 124 428
Accrued expenses (NOTE 2) 2,823 2,596
----------------------------------------------------------------------------- ------- -------
TOTAL CURRENT LIABILITIES 8,555 9,261
----------------------------------------------------------------------------- ------- -------
Long-term debt and capital lease obligations, less
current maturities (Notes 3 and 12) 5,167 5,313
Deferred income taxes (NOTES 1 AND 6) 1,756 2,247
----------------------------------------------------------------------------- ------- -------
TOTAL LIABILITIES 15,478 16,821
----------------------------------------------------------------------------- ------- -------
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-7,695,924 and 7,674,923 shares
at December 31, 1998 and 1997, respectively 77 77
Additional paid-in capital 20,322 20,250
Retained earnings 5,594 4,061
Less treasury stock at cost - 889,161 and 355,281 shares,
At December 31, 1998 and 1997, respectively (3,166) (1,183)
Accumulated other comprehensive income (NOTE 1) 310 353
----------------------------------------------------------------------------- ------- -------
TOTAL STOCKHOLDERS' INVESTMENT 23,137 23,558
----------------------------------------------------------------------------- ------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' INVESTMENT $38,615 $40,379
============================================================================= ======= =======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
11
<PAGE> 12
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
(Thousands, except per share amounts)
FOR THE YEARS ENDED DECEMBER 31, 1998 1997 1996
<S> <C> <C> <C>
NET SALES (NOTES 1, 4, AND 5) $ 56,468 $ 52,118 $ 45,811
Cost of goods sold 33,985 30,431 26,768
-------- -------- --------
GROSS PROFIT 22,483 21,687 19,043
Selling, general and administrative (Note 10) 16,021 15,349 14,123
Research, development and engineering (Note 1) 4,575 3,808 3,850
Restructuring charge -- 530 --
-------- -------- --------
OPERATING INCOME 1,887 2,000 1,070
Interest income 405 478 344
Interest expense (Note 3) (451) (488) (599)
Gain on sale of investment (Note 9) -- -- 3,400
Other income (expense) 73 (341) 82
-------- -------- --------
INCOME BEFORE PROVISION FOR INCOME TAXES 1,914 1,649 4,297
Provision for income taxes (Notes 1 and 6) 381 399 737
-------- -------- --------
NET INCOME $ 1,533 $ 1,250 $ 3,560
======== ======== ========
EARNINGS PER SHARE
BASIC $ 0.22 $ 0.17 $ 0.49
DILUTED $ 0.22 $ 0.17 $ 0.49
======== ======== ========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
BASIC SHARES 7,068 7,291 7,304
EFFECT OF DILUTIVE OPTIONS 50 45 34
-------- -------- --------
DILUTED SHARES 7,118 7,336 7,338
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
12
<PAGE> 13
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
(Thousands)
ACCUMULATED OTHER
ADDITIONAL RETAINED OTHER TOTAL
COMMON PAID-IN EARNINGS TREASURY COMPREHENSIVE STOCKHOLDERS'
STOCK CAPITAL (DEFICIT) STOCK INCOME INVESTMENT
<S> <C> <C> <C> <C> <C> <C>
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
and exercise of stock
options (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
and exercise of stock
options (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
==== ======== ======== ======== ===== ========
Net income -- -- 1,533 -- -- 1,533
Translation adjustment -- -- -- -- (43) (43)
Sales of common stock
and exercise of stock
options (Note 8) -- 72 -- -- -- 72
Purchase of treasury stock -- -- -- (1,983) -- (1,983)
---- -------- -------- -------- ----- --------
BALANCE AT DECEMBER 31, 1998 $ 77 $ 20,322 $ 5,594 $ (3,166) $ 310 $ 23,137
==== ======== ======== ======== ===== ========
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Thousands)
FOR THE YEARS ENDED DECEMBER 31, 1998 1997 1996
<S> <C> <C> <C>
NET INCOME $ 1,533 $ 1,250 $ 3,560
OTHER COMPREHENSIVE INCOME
Foreign currency translation adjustment (43) (35) 56
------- -------- -------
COMPREHENSIVE INCOME $ 1,490 $ 1,215 $ 3,616
======= ======== =======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
13
<PAGE> 14
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands)
FOR THE YEARS ENDED DECEMBER 31, 1998 1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES-
<S> <C> <C> <C>
Net income $ 1,533 $ 1,250 $ 3,560
Adjustments to reconcile net income to net
cash provided by (used in) operating activities-
Depreciation and amortization 1,119 961 832
Deferred income taxes (491) 44 756
Net gain on sale of investment -- -- (3,400)
Net changes in operating assets and liabilities-
Accounts receivable (93) (1,704) 878
Inventories (56) (268) 139
Other current assets 713 537 (1232)
Accounts payable (631) 1,889 (483)
Customer deposits (304) (13) 45
Accrued expenses 227 523 (2,564)
Other assets 50 (193) (3)
------- -------- --------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 2,067 3,026 (1,472)
------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES-
Purchases of property, plant and equipment, net (1,248) (1,294) (946)
Net proceeds from sale of investment -- -- 6,876
------- -------- --------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (1,248) (1,294) 5,930
------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES-
Principal payments under long-term debt and
capital lease obligations (144) (300) (336)
Proceeds from mortgage refinance -- 122 --
Issuance of common stock 72 109 119
Tax benefit of stock options exercised -- 27 24
Purchase of treasury stock (1,983) -- (248)
------- -------- --------
NET CASH USED IN FINANCING ACTIVITIES (2,055) (42) (441)
------- -------- --------
EFFECT OF EXCHANGE RATES ON CASH (43) (35) 56
------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,279) 1,655 4,073
CASH AND CASH EQUIVALENTS, AT BEGINNING OF YEAR 11,873 10,218 6,145
------- -------- --------
CASH AND CASH EQUIVALENTS, AT END OF YEAR $ 10,594 $ 11,873 $ 10,218
======== ======== ========
</TABLE>
Supplemental disclosures of cash flow information are
included in Note 11. The accompanying notes are an integral
part of these consolidated financial statements.
14
<PAGE> 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 1: Summary of Significant Accounting Policies
a. Nature of Operations
BTU International, Inc. and its wholly owned subsidiaries (the Company) 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 Company'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, 1998 1997
<S> <C> <C>
Raw materials and manufactured components $ 4,970 $ 4,883
Work-in-process 3,395 3,723
Finished goods 1,719 1,422
--------- --------
$ 10,084 $ 10,028
========= ========
</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:
<TABLE>
<CAPTION>
<S> <C>
Buildings and improvements 8-25 years
Machinery and equipment 2-8 years
Furniture and fixtures 5-8 years
</TABLE>
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.
15
<PAGE> 16
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 weighted
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. Such exchange gains or losses were not material during 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 and a provision is made for any anticipated loss. As of December 31,
1998 and 1997, $53,000 and $0 respectively of revenue was recognized on the
percentage of completion method for systems not yet shipped. During the
years, amounts related to the percentage completion method included in net
sales were 6.1% and 2.3%, for the years ended December 31, 1998 and 1997,
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 (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 27,800, 42,500 and 123,800 in 1998, 1997 and 1996
respectively.
l. Reclassification
Certain prior year financial statement information has been reclassified to
conform with the current year presentation.
m. Comprehensive Income
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This Statement establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and
losses) in a full set of general purpose financial statements. This
statement requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statements that is displayed with the same prominence as other
financial statements. This statement does not require a specific format for
that financial statement but requires that an enterprise display an amount
representing total comprehensive income for the period in that financial
statement. This statement requires that an enterprise (a) classify items of
other comprehensive income by their nature in a financial statement and (b)
display the accumulated balance of other comprehensive income separately
from retained earnings and additional paid in capital in the equity section
of a statement of financial position. Reclassification of financial
statements for earlier periods provided for comparative purposes are
required. The only item of comprehensive income other than net income is
translation gains and losses from foreign exchange, recorded in the equity
section of the balance sheet.
n. Segment Information
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information." This statement establishes
standards for reporting information about segments in annual and interim
financial statements, SFAS 131 introduces a new model for segment
reporting, called "management approach." The management approach is based
on the way the chief operating decision maker organizes segments within a
company for making operating decisions and assessing performance.
Reportable segments are based on products and services, geography, legal
structure, management structure (any manner in which management
disaggregates a company). This statement is effective and has been adopted
for the Company's financial statements for the fiscal year ending December
31, 1998 and requires the restatement of previously reported segment
information for all periods presented. (see Note 13).
16
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2: ACCRUED EXPENSES
Accrued expenses at December 31, 1998 and 1997 consisted of the following:
<TABLE>
<CAPTION>
(Thousands)
1998 1997
<S> <C> <C>
Accrued commissions $ 976 $ 1,441
Accrued warranty 535 459
Accrued income taxes 281 --
Accrued bonus 60 89
Other 971 607
------- -------
$ 2,823 $ 2,596
======= =======
</TABLE>
NOTE 3: DEBT, CAPITAL LEASES, COMMITMENTS AND CONTINGENCIES
Debt at December 31, 1998 and 1997 consisted of the following:
<TABLE>
<CAPTION>
(Thousands)
1998 1997
<S> <C> <C>
Mortgage note payable $ 5,312 $ 5,519
Capital lease obligations, interest rates ranging
from 10.2% to 12.0%, net of interest of $26
and $2 in 1998 and 1997, respectively 81 18
------- -------
5,393 5,537
Less-current maturities 226 224
------- -------
$ 5,167 $ 5,313
======= =======
</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 has a balloon payment of $3,825,000 due and payable
at maturity on July 1, 2004.
The capital lease obligations relate to various equipment leases used in
the operation of the business.
17
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Under the terms of the debt, the minimum repayments of long-term debt and
capital lease obligations by year are as follows:
<TABLE>
<CAPTION>
(Thousands)
8.125% CAPITAL
MORTGAGE LEASES TOTAL
<S> <C> <C> <C>
1999 $ 206 $ 20 $ 226
2000 242 13 255
2001 263 16 279
2002 285 16 301
2003 310 16 326
2004 4,006 -- 4,006
------- ---- -------
$ 5,312 $ 81 $ 5,393
======= ==== =======
</TABLE>
At December 31, 1998, 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, 1998, the Company was in compliance with all covenants of this
agreement. As of December 31, 1998, no amounts were outstanding under this
unsecured revolving line of credit.
The Company conducts its UK operations in a facility that is under a
long-term operating lease expiring in 2010. Rent expense under this lease
was approximately $145,000 in 1998, $143,000 in 1997, and $145,000 in 1996.
In 1995, 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, 1998, the future minimum lease commitment for this facility excluding
subleases is $2,985,000, payable as follows $145,000 for the year 1999,
$250,000 for the year 2000, $280,000 for each year 2001, 2002 and 2003 and
$1,750,000 thereafter through 2010.
The Company is a party to a patent lawsuit it originated and 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.
18
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 4: FOREIGN OPERATIONS
The following table shows the percentages of the Company's revenues by
geographic region, for the last three years:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Americas 47% 53% 52%
Europe 24 23 25
Asia Pacific 29 24 23
</TABLE>
NOTE 5: SIGNIFICANT CUSTOMERS
Two customers represented 14% and 13% respectively of revenue in 1998. One
customer represented approximately 14% of revenues in 1997. No individual
customer accounted for greater than 10% of revenue in 1996.
NOTE 6: INCOME TAXES The components of income before provision for income taxes
are as follows:
<TABLE>
<CAPTION>
(Thousands)
FOR THE YEAR 1998 1997 1996
<S> <C> <C> <C>
Domestic $ 881 $ 1,040 $ 3,985
Foreign 1,033 609 312
------- ------- -------
Total $ 1,914 $ 1,649 $ 4,297
======= ======= =======
</TABLE>
For the years ended December 31, 1998, 1997 and 1996, 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, 1998
CURRENT $ 491 $ 345 $ 36 $ 872
DEFERRED (216) (275) 0 (491)
----- ----- ---- -------
$ 275 $ 70 $ 36 $ 381
===== ===== ==== =======
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
===== ===== ==== =======
</TABLE>
19
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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 1998 1997 1996
<S> <C> <C> <C>
Tax provision at United States statutory rate $ 650 $ 561 $ 1,461
State income taxes, net of federal benefit 58 48 184
Utilization of domestic net operating loss
carryforwards and reduction of valuation reserves -- -- (769)
Utilization of foreign net operating
loss carryforwards (293) (189) (97)
Non-deductible and other (34) (21) (42)
----- ----- -------
Total provision $ 381 $ 399 $ 737
===== ===== =======
</TABLE>
Deferred income taxes and prepaid income taxes are comprised of the
following at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
(Thousands)
1998 1997
<S> <C> <C>
Revenues recognized for books, not tax $(3,814) $(4,767)
Accelerated tax depreciation (68) (323)
Other (116) (116)
------- -------
Total deferred liabilities (3,998) (5,206)
------- -------
Inventory reserves 371 233
Inventory capitalization 71 78
Accruals and other 460 284
Foreign net operating loss carryforward 498 791
Federal tax net operating loss carryforward 0 559
Federal tax credit carryforwards 1,340 1,805
------- -------
Total deferred assets 2,740 3,750
------- -------
Total net deferred liability (1,258) (1,456)
Valuation allowance (498) (791)
------- -------
Net deferred income taxes $(1,756) $(2,247)
======= =======
</TABLE>
The valuation allowance relates to uncertainty surrounding the realization
of the foreign net operating loss carryforwards. Realization is dependent
on generating sufficient taxable income. As of December 31, 1998, the
Companys' has AMT credit carryforwards of $1,340,000, which are subject to
review and possible adjustment by the Internal Revenue Service. Included in
other current assets is a refundable income tax receivable of $36,000 as of
December 31, 1998 and $587,000 as of December 31, 1997. In addition the
Company's UK subsidiary utilized some of its net operating loss
carryforwards to offset the current taxes payable on 1998 earnings. The UK
subsidiary has $1,292,000 of net operating loss carryforwards available at
December 31, 1998. Due to the uncertainty of future operating profits at
this subsidiary, the Company will record the benefit of these losses as
they are earned.
20
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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 $100,000 and $89,000 was expensed in 1998 and
1997 respectively, no amount was expensed in 1996. No executive bonuses
were paid in 1998, as results in Earning Per Share were below target.
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 $ 187,000, $170,000, and $191,000 for the years
ended December 31, 1998, 1997 and 1996, respectively.
NOTE 8: STOCK OPTION AND PURCHASE PLANS
The Company has three stock option plans. The 1989 Stock Plan for Directors
(1989 Plan) provides for stock options to certain directors of the Company.
The 1993 Equity Incentive Plan (1993 Plan) provides for stock options for
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. The 1998 Stock Option Plan
for Non-Employee Directors (1998 Plan) provides for stock options to
non-employee directors of the Company.
Under each plan, the exercise price of the options is not less than fair
market value at the date of the grants. The 1989 Plan options expire over
seven years and the 1993 Plan options expire over periods not to exceed 10
years. The 1998 Plan options expire over a period not to exceed seven
years. In May 1998 the Shareholders approved the addition of 500,000 shares
available to be awarded under the 1993 Plan and also approved the 1998 Plan
with 50,000 shares available for future grants. Shares available for future
stock option grants, pursuant to these plans, are 410,893 at December 31,
1998, 127,763 at December 31, 1997, and 330,763 at December 31, 1996.
In September 1998, the Board of Directors approved the repricing of
employee stock options for 1996, 1997 and 1998. A total of 545,480 options
were repriced to $2.875 per share with a new vesting and expiration
schedule.
A summary of all stock option activity for the years ended December 31,
1998, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
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 367,690 $3.91 189,095 $3.64 120,045 $1.98
Granted 301,560 4.26 234,500 3.98 130,100 4.49
Exercised (2,520) 1.88 (24,405) 2.50 (49,510) 1.69
Forfeited (34,690) 3.65 (31,500) 3.90 (11,540) 4.32
Terminated due to
repricing (545,480) 4.24 -- -- -- --
Issued due to repricing 545,480 2.88 -- -- -- --
-------- ----- ------- ----- ------- -----
Outstanding at
end of year 632,040 $2.92 367,690 $3.91 189,095 $3.64
======== ===== ======= ===== ======= =====
Options exercisable
at end of year 43,380 $2.64 66,790 $2.92 36,517 $2.05
======== ===== ======= ===== ======= =====
</TABLE>
At December 31, 1998 the outstanding options have exercise prices ranging
from $ 2.00 to $ 5.50 and a weighted average remaining contractual life of
4.7 years.
21
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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 41,247 remain available at December 31,
1998. During 1998, a total of 17,981 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>
(Thousands except per share amounts)
FOR THE YEAR 1998 1997 1996
<S> <C> <C> <C>
Net income As reported $1,533 $1,250 $3,560
Pro forma 1,514 1,140 3,516
Income per diluted share As reported $ 0.22 $ 0.17 $ 0.49
Pro forma 0.21 0.16 0.48
</TABLE>
Pro forma compensation costs were estimated using the Black-Scholes option
pricing model using the following weighted average assumptions for grants
in 1998, 1997 and 1996, respectively: a dividend yield rate of 0 for each
year; expected lives of 4.9, 5.0 and 4.5 years; expected volatility of
63.1%, 68.2% and 55.3%; and risk free interest rates of 4.8%, 6.4% and
6.2%. The weighted average fair value of options granted during 1998, 1997
and 1996 was $1.97, $2.48 and $2.29, 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 1998 and 1997, 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 one of the Company's
directors in 1998 and two of the directors in 1997 for consulting
services of $16,000 and $44,000 in 1998 and 1997, 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 $775,000 and $827,000 in 1998 and 1997, respectively; as
well, $66,000 and $57,000 is included in trade accounts payable on the
Consolidated Balance Sheets at December 31, 1998 and 1997, respectively.
22
<PAGE> 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
NOTE 11: SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
(Thousands)
FOR THE YEAR 1998 1997 1996
<S> <C> <C> <C>
Cash paid (received) during the year for -
$ 451 $ 488 $ 599
Interest
32 (391) 1,778
Income Taxes
Capital Asset and Lease Obligation additions (64) -- --
===== ===== ======
</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 Sheets approximates their fair value
because of the short maturity of these instruments.
b. Long-term Debt and Capital Lease Obligations - The fair value for
these long-term indebtedness as of December 31, 1998 and 1997 were
approximately $5,526,630 and $5,536,792 based on a discounted cash
flow analysis, using the prevailing cost of capital for the Company as
of each date.
23
<PAGE> 24
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
NOTE 13: SEGMENT REPORTING
In June 1997, the Financial Accounting Standards Board (FASB) issued
SFAS No. 131 "Disclosures about Segments of Enterprise and Related
Information" which the Company has adopted for the year ended December 31, 1998.
Segments are defined as components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision-maker in deciding how to allocate resources and in assessing
performance. The Company operates as a single business segment called thermal
processing capital equipment.
The thermal processing capital equipment segment consists of the designing,
manufacturing, selling and servicing thermal processing equipment and related
process controls for use in the electronics, power generation, automotive and
other industries. This business segment includes the supply of solder reflow
systems used for surface mount applications in printed circuit board assembly.
Thermal processing equipment is used in: low temperature curing/encapsulation;
hybrid integrated circuit manufacturing; integrated circuit packaging and
sealing; and processing multi-chip modules. In addition the thermal process
equipment is used for sintering nuclear fuel for commercial power generation, as
well as brazing and the sintering of ceramics and powdered metals, and the
deposition of precise thin film coatings. The business segment's customers are
multinational original equipment manufacturers and contract manufacturing
companies.
The accounting policies of segment reporting are the same as those
described in Note 1 "Summary of Significant Accounting Policies". The Company
evaluates the performance of operating results taken as a whole. Summarized
financial information and geographic data concerning the thermal processing
business segment is shown in the following tables.
SEGMENT SPECIFIC INFORMATION
<TABLE>
<CAPTION>
(Thousands)
FOR THE YEARS ENDED DECEMBER 31, 1998 1997 1996
<S> <C> <C> <C>
NET SALES $56,468 $52,118 $45,811
GROSS PROFIT 22,483 21,687 19,043
OPERATING INCOME 1,887 2,000 1,070
TOTAL ASSETS 38,615 40,379 36,763
CAPITAL EXPENDITURES 1,248 1,294 946
DEPRECIATION & AMORTIZATION 1,119 961 832
SALES BY GEOGRAPHICAL REGION
- ----------------------------
1998 1997 1996
UNITED STATES $19,946 $26,061 $21,431
EUROPE 13,446 11,862 11,672
ASIA PACIFIC 16,295 12,512 10,312
OTHER 6,781 1,683 2,396
</TABLE>
24
<PAGE> 25
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANT
- --------------------------------------------------------------------------------
To The Shareholders and Board of Directors of
BTU International, Inc.:
We have audited the accompanying consolidated balance sheets of BTU
International, Inc. (a Delaware corporation) and subsidiaries (the Company) as
of December 31, 1998 and 1997, and the related consolidated statements of
operations, stockholders' investment, comprehensive income and cash flows for
each of the three years in the period ended December 31, 1998. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits. We 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 5 percent, 5 percent and 65
percent in 1998 and 3 percent, 5 percent and 49 percent in 1997, 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 audits and the reports 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, 1998 and 1997, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1998 in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 16, 1999
25
<PAGE> 26
- --------------------------------------------------------------------------------
FINANCIAL INFORMATION BY QUARTER
(UNAUDITED)
<TABLE>
<CAPTION>
(Thousands, except per share amounts)
MARCH 29, JUNE 28, SEPT. 27, DEC. 31,
<S> <C> <C> <C> <C>
1998 NET SALES $12,101 $14,314 $14,039 $16,014
------- ------- ------- -------
GROSS PROFIT 4,939 5,781 5,567 6,196
------- ------- ------- -------
OPERATING INCOME 94 572 586 635
------- ------- ------- -------
NET INCOME $ 126 $ 480 $ 401 $ 526
======= ======= ======= =======
EARNINGS PER SHARE
BASIC $ 0.02 $ 0.07 $ 0.06 $ 0.08
------- ------- ------- -------
DILUTED $ 0.02 $ 0.07 $ 0.06 $ 0.08
------- ------- ------- -------
WEIGHTED AVERAGE SHARES OUTSTANDING
BASIC 7,277 7,154 7,045 6,821
------- ------- ------- -------
DILUTED 7,360 7,212 7,060 6,856
------- ------- ------- -------
March 30, June 29, Sept. 28, Dec. 31,
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
-------- -------- -------- --------
</TABLE>
26
<PAGE> 27
- --------------------------------------------------------------------------------
FINANCIAL INFORMATION BY QUARTER (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK MARKET PRICES PER SHARE FOR THE QUARTERS ENDED HIGH LOW
<S> <C> <C>
MARCH 29,1998 $ 5.531 $ 4.250
JUNE 28, 1998 5.000 4.125
SEPTEMBER 27, 1998 4.250 2.500
DECEMBER 31, 1998 3.625 2.188
======= =======
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
======= =======
</TABLE>
The Company's common stock is traded in The Nasdaq National Market under
the symbol BTUI. There were approximately 521 stockholders of record as of
March 18, 1999.
27
<PAGE> 28
CORPORATE INFORMATION
<TABLE>
<CAPTION>
<S> <C>
TRANSFER AGENT HEADQUARTERS
BankBoston N.A. BTU International, Inc.
C/O EquiServe, L.P. 23 Esquire Road
Mail Stop 45-02-64 North Billerica, Massachusetts 01862
PO Box 644
Boston, Massachusetts 02105-0644
(781) 575-3120
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
SEC FORM 10-K Thomas P. Kealy
A copy of the company's Form 10-K, Vice President, Corporate Controller and
filed with the Securities and Exchange Chief Accounting Officer
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
North Billerica, Massachusetts 01862 David A.B. Brown
(978) 667-4111, extension 106. President
The Windsor Group, Inc
GENERAL COUNSEL
Ropes & Gray Dr. Jeffrey Chuan Chu
One International Place Chairman
Boston, Massachusetts 02110 Columbia International Corporation
INDEPENDENT PUBLIC
ACCOUNTANTS
Arthur Andersen LLP AUDIT COMMITTEE
225 Franklin Street David A.B. Brown
Boston, Massachusetts 02110 Dr. Jeffrey Chuan Chu
ANNUAL MEETING
The annual meeting of stockholders COMPENSATION COMMITTEE
will be held on May 21, 1999 David A.B. Brown
at 10:00 AM EST at BTU International, Dr. Jeffrey Chuan Chu
23 Esquire Road, North Billerica,
Massachusetts 01862
</TABLE>
RISK FACTORS RELATED TO FORWARD LOOKING STATEMENTS
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 filings with the
Securities and Exchange Commission.
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. 33-41757, File No. 33-59045 and
File No. 33-59081.
Arthur Andersen LLP
Boston, Massachusetts
March 29, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1.00
<CASH> 10,594
<SECURITIES> 0
<RECEIVABLES> 12,587
<ALLOWANCES> 160
<INVENTORY> 10,084
<CURRENT-ASSETS> 33,516
<PP&E> 13,899
<DEPRECIATION> 9,159
<TOTAL-ASSETS> 38,615
<CURRENT-LIABILITIES> 8,555
<BONDS> 5,167
0
0
<COMMON> 77
<OTHER-SE> 23,060
<TOTAL-LIABILITY-AND-EQUITY> 38,615
<SALES> 56,468
<TOTAL-REVENUES> 56,468
<CGS> 33,985
<TOTAL-COSTS> 33,985
<OTHER-EXPENSES> 4,575
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 451
<INCOME-PRETAX> 1,914
<INCOME-TAX> 381
<INCOME-CONTINUING> 1,533
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,533
<EPS-PRIMARY> 0.22
<EPS-DILUTED> 0.22
</TABLE>
