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
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.
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:
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.
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.
ITEM 2.
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.
ITEM 3. LEGAL PROCEEDINGS
There were no material legal proceedings pending as of the time of this filing.
ITEM 4.
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
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.
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.
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.
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.
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.
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.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10.
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.
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.
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.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14.
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.
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
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.
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).
* - Indicates management contract or compensatory plan or arrangement.
Schedule II
BTU INTERNATIONAL, INC. VALUATION AND QUALIFYING ACCOUNTS (Dollars in Thousands)
For the Year Ended December 31, 1998 ------------------------------------
For the Year Ended December 31, 1997 ------------------------------------
For the Year Ended December 31, 1996 ------------------------------------
(A) Amounts indicated as deductions are for amounts charged against these reserves in the ordinary course of business.