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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, 2002
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 [ ].
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes __ No 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 $19,712,974 on June 30,
2002.
Indicate number of shares outstanding of the Registrant's Common Stock, par
value $.01 per share, as of the latest practicable date: As of March 24, 2003:
7,002,578 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,
2002; and Part III -- Portions of the Proxy Statement for the 2003 Annual
Meeting of Stockholders, both of which are to be filed with the Securities and
Exchange Commission.
BTU INTERNATIONAL, INC.
2002 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
Item 1 Business
Item 2 Properties
Item 3 Legal Proceedings
Item 4 Submission of Matters to a Vote of Security Holders
Item 4A Executive Officers of the Registrant
PART II
Item 5 Market for Registrant's Common Equity and Related Stockholder
Matters
Item 6 Selected Financial Data
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 8 Financial Statements and Supplementary Data
Item 9 Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure
PART III
Item 10 Directors and Executive Officers of the Registrant
Item 11 Executive Compensation
Item 12 Security Ownership of Certain Beneficial Owners and Management
Item 13 Certain Relationships and Related Transactions
Item 14 Controls and Procedures
PART IV
Item 15 Exhibits, Financial Statement Schedules, and Reports on Form
8-K
PART I
ITEM 1. BUSINESS
BTU International designs, manufactures, sells and supports advanced thermal
processing systems used primarily for semiconductor packaging, printed circuit
boards (PCB) assembly and advanced materials processing. In addition, we produce
custom thermal systems for a variety of specialty applications for a wide range
of temperatures. We believe we are the leading supplier of thermal systems used
by electronics and materials manufacturers who serves both markets.
Our electronics customers serve the advanced segments of the industry in
which the integrated circuits of a semiconductor device are connected and sealed
into a package, and where these semiconductor packages together with other
components are assembled on printed circuit boards (PCBs). Our materials
customers serve multiple markets in which advanced ceramics and metal alloys are
used in end use applications for the automotive, fuel cell, communications and
other industries. Our customers typically require high throughput, high yield
and highly reliable advanced thermal processing systems with tightly controlled
temperature and atmosphere parameters.
Our products are sold worldwide through a direct technical sales force and
through independent sales representatives. Among our top revenue generating
customers in 2002 were such industry leaders as IBM, Dana Corporation, Intel
Corporation, Advanced Semiconductor Engineering (ASE), Motorola, Inc., Celestica
Incorporated, Delphi and Samsung Corporation.
Our principal offices are located at 23 Esquire Road, North Billerica,
Massachusetts 01862 USA. Our telephone number is (978) 667-4111. We also have
sales and service facilities throughout North America, Europe and Asia. Our
corporate website is www.btu.com.
INDUSTRY BACKGROUND
ELECTRONICS MARKETS. Despite the recent slump in electronics demand, the
outlook for the industry is one of long term growth. The need for increasingly
sophisticated electronic devices continues and new technology such as wireless
networks, next generation cellular phones and personal digital assistants (PDAs)
will drive future demand. Other types of electronic equipment are becoming more
complex, including data communications equipment such as switches, routers and
servers, broadband access products such as cable modems and Ethernet accessories
and consumer products such as automobile electronics and digital cameras.
Integral to the growth in electronics are the advances in technology, which
result in producing smaller, lighter and less expensive end products by
increasing the performance and reducing the cost, size, weight and power
requirements of electronic assemblies, PCBs and semiconductors. In response to
these developments, manufacturers are increasingly employing more sophisticated
production and assembly techniques requiring more advanced manufacturing
equipment.
MATERIALS MARKETS. Advanced materials have traditionally been important for
sealing, connecting and package brazing for electronics manufacturing. Now, new
markets including fuel cell and synthetic gas production as well as automotive
markets require high performance ceramic and metal components that must be
designed with tight dimensional tolerances, often using multi-layer
configurations are becoming significant. Low Temperature Co-fired Ceramics
(LTCC), high temperature ceramics and aluminum powdered metals all figure
prominently in leading-edge products from these markets.
MANUFACTURING PROCESSES. Electronics manufacturing processes include
integrated circuit (IC) manufacturing, IC packaging and the assembly of PCBs.
Several precision thermal process steps are required in each application. In
advanced semiconductor packaging, processing takes place at both the wafer level
and die level. At the wafer level, deposited solder must be thermally treated to
form perfectly spherical "bumps." At the die level, these bumps allow the ICs to
be bonded to semiconductor package using precise thermal process. In the PCB
assembly process, packaged circuits and other components are attached to PCBs.
The attachment process, which creates a permanent physical and electrical bond,
is called solder reflow, or reflow.
Materials processing involves many different types of thermal processes. In
electronics, thick film firing is used to construct metalized electrical
circuits onto ceramic or metal substrates for automotive electronics,
microelectronics packaging, resistive heaters, and passive circuit applications.
Electrical termination of chip capacitors is achieved by sintering copper to a
capacitor to create an electrical connection. Hybrid or microwave RF circuits
require electrical shielding in a metal container. This is done using a Glass to
Metal Sealing process, in which the glass is bonded to a metal surface to insure
a strong, hermetic and electrically insulating joint.
1
In addition, the manufacture of many ceramic products or components, from
fuel cell anodes and cathodes to substrates for wireless networking products,
requires a multi-step thermal process. A binder burnout step in which organics
are removed from ceramic laminate materials is followed by a high temperature
sintering step that solidifies the ceramic at desired dimensions. Similar
sintering processes are used for metal components across a wide variety of
applications and for gadolinium and uranium fuel pellet sintering, which take
place at temperatures up to 2000(degree)C.
Across all markets, the need for more versatile, more reliable and more
advanced capital equipment persists. In addition, the continued globalization of
manufacturing and shift to low cost regions such as China, particularly by
electronics producers, has driven the demand for greater value from equipment --
a balance of price and performance.
TECHNOLOGICAL CHALLENGES
Advanced thermal processing systems present significant engineering
challenges related to temperature control, atmosphere control, product handling,
flux containment and disposal, and high system up time.
Advanced thermal processing systems maintain accurate and uniform
temperatures within their process chambers. The temperature within the process
chamber is influenced by the rate at which components are moved through the
system and the weight and density of the product. In addition, the thermal
processing system's heat convection rate must be varied and controlled as
different components and materials are processed. The chamber must also dispense
heat uniformly across the product at precise temperatures to ensure maximum
process uniformity. Also, products must be heated and cooled at closely preset
rates in order to avoid damage caused by thermal stress.
Another technological challenge for advanced thermal processing systems is
achieving precisely controlled atmospheric conditions within the process
chamber. In order to facilitate thermal processing without contamination of or
damage to product, many advanced thermal processing systems use a substantially
oxygen-free atmosphere of nitrogen or hydrogen in their process chambers. If
such gases are used, the entry of contaminating air must be minimized, even
though the product enters and exits the system continuously from the ambient
atmosphere. Maintaining a pure, safe and controlled atmosphere in the process
chamber, while minimizing the consumption of nitrogen or hydrogen gases in order
to reduce operating costs, presents significant engineering challenges.
Handling products in advanced thermal processing systems requires highly
reliable conveyance systems that can easily be converted to process a wide
variety of products having different specifications, sometimes on side-by-side
tracks through the process chamber. The product handling system must also fully
support a wide variety of product sizes.
The mechanical components in advanced thermal processing systems must
operate almost continuously in a demanding, elevated temperature environment
with frequent thermal cycles. The use of materials that are resistant to high
temperature and thermal stress is important to achieving high reliability.
In applications using flux, volatile compounds in the flux, which is
vaporized during the thermal processing cycle, must be contained and collected
so that they do not condense in the system or damage the environment. The
efficient containment, collection and disposal of the flux are important factors
in achieving high system up time, high throughput and reliability.
OUR SOLUTION
We deliver a broad range of advanced thermal processing systems to serve the
needs of manufacturers that require high throughput, process yields and
reliability with tightly controlled process parameters. Our systems enable our
customers to increase throughput and yield for advanced semiconductor packaging,
PCB assembly and advance materials by providing precise atmosphere and
temperature control. In addition to the high performance of our products, we
believe the quality standards of our organization and our worldwide service and
support are important to our success with industry leading global manufacturers.
ATMOSPHERE UNIFORMITY AND CONTROL. Our advanced thermal processing systems
provide precision control over atmospheric conditions within their process
chambers by integrating our gas curtain and physical curtain technologies. Our
systems are capable of excluding virtually all oxygen from the critical process
steps to maintain the safety and integrity of the process chamber atmosphere. In
addition, our systems minimize the consumption of nitrogen or hydrogen, thereby
reducing the operating cost of maintaining the atmosphere.
2
ACCURATE AND UNIFORM TEMPERATURE. Our high rate convection and fully
enclosed coil (FEC) heating modules provide controlled heating capacities across
many different applications, thereby enabling our customers to maximize process
uniformity and throughput. In addition, our systems apply heat uniformly across
the product load, which is critical to ensure optimum processing. Heat up and
cool down profiles are also closely controlled for process consistency and the
protection of product.
REPEATABILITY FROM SYSTEM TO SYSTEM. We provide a high degree of
repeatability from system to system through our atmosphere and temperature
controls and the reliability of our systems. This is a critical attribute
because our customers must achieve uniform manufacturing performance in plants
located throughout the world.
PROCESSING FLEXIBILITY. Major electronics manufacturers process many sizes
of PCBs and often need rapid product changeover capabilities. Our systems can
process PCBs of different sizes with minimal or no reconfiguration. Rapid
changeover reduces down time and increases manufacturing volume. In addition,
our high temperature products can be configured for multiple process
applications allowing for versatility in materials manufacturing.
RELIABILITY. Our customers place a high premium on reliability. Reliability
is a major contributor to low cost of ownership because high up time can
increase the productivity of an entire production line. We believe our advanced
thermal processing systems are the most reliable in our customers' production
lines and among the most reliable advanced thermal processing systems in the
world.
WORLDWIDE CUSTOMER SUPPORT. We provide our customers with global technical
service support, in depth process engineering support and fast delivery of our
systems and parts. We provide our customer support through our on-site direct
service organization and our independent sales and service representatives,
supplemented with telephonic support and extensive customer training programs
twenty-four hours a day, seven days a week.
PRODUCTS
We supply a broad range of advanced thermal processing systems for
electronics and materials manufacturing industries. Our products are used for
such applications as semiconductor packaging, PCB assembly, ceramic and metals
sintering, thick film firing, fuel pellet sintering and metal brazing. In
addition, we have custom product engineering capabilities that allow us to
design specific products for unique applications, typically involving high
temperatures.
ADVANCED SEMICONDUCTOR PACKAGING. We sell several systems for the
thermal processes used in advanced semiconductor packaging.
WAFER BUMP REFLOW. Our TCAS series of continuous belt advanced thermal
processing system is rated up to 800(degree)C and is designed for wafer bump
reflow. It can operate in a variety of controlled atmospheres including
hydrogen using patented gas barrier technology to achieve a safe and high
purity hydrogen atmosphere. Our TCAS systems range in price from $100,000 to
$300,000 and are available in various belt widths and heated lengths.
We also provide advanced solutions for wafer bump reflow by integrating
automated handling systems with thermal equipment for processing both 200mm
and 300mm wafers. The 300mm systems are fully compliant with I300i protocol
and with SEMI S2 and S8 standards. These integrated systems range in price
from $600,000 to $1.5 million.
FLIP CHIP REFLOW IN PACKAGE. Flip Chip Reflow provides the physical and
electronical bond of the semiconductor device to its package. The PARAGON
family of advanced convection reflow systems, using specialized fan drives,
is rated up to 400(degree)C and operates in air or nitrogen atmospheres.
Paragon utilizes impingement technology to transfer heat to the substrate.
Using thermal power arrays of five-kilowatt heaters, Paragon can process
substrates in dual track configurations, thereby enabling our customers to
double production without increasing the machine's footprint. The Paragon
family is available in three models based on the heated lengths of thermal
processing chambers. Heated length is based on the required production rate
and loading requirements. Paragon products range in price from $70,000 to
$160,000.
3
PCB SOLDER REFLOW. We currently sell two families of advanced thermal
processing systems used in the solder reflow and cure stages of PCB assembly.
The new PYRAMAX family of advanced convection reflow systems is designed on
a single platform to be rapidly configurable, which reduces the product build
cycle, allowing us to meet customer demands for shorter delivery lead times.
Pyramax products offer our customers reduced capital cost, lower nitrogen
consumption and reduced scheduled maintenance cycles.
Pyramax provides increased process flexibility due to its ability to process
PCBs up to 24 inches wide. Rated up to 350(degrees)C, these products are capable
of operating in air or nitrogen atmospheres and have increased convection flow
for greater performance and lead free processes. Pyramax utilizes impingement
technology to transfer heat to the substrate. These systems are offered in
7-zone and 10-zone heated lengths and are capable of processing lead-free
solder. They range in price from $40,000 to $150,000.
The solder reflow process requires the thermal processing system to manage
flux residues out gassed during the processing of the PCBs. Pyramax advanced
thermal processing systems are equipped with a patented flux management system
that isolates the flux outside the main process chamber, thereby helping to
maintain the integrity of the atmosphere and facilitate easy disposal. Pyramax
also features a closed loop convection control system to provide repeatable
processes and controllable convection flows used in direct chip attach
processes.
The VIP family of fan based reflow and curing systems is rated up to
300(degrees)C and is available in either air or air/nitrogen configurations. VIP
also utilizes an impingement convection technology. The VIP uses 2.5 kilowatt
heaters and is available in 5-zone and 10-zone heated lengths. The VIP series
can be upgraded to process lead-free materials and ranges in price from $40,000
to $100,000.
ADVANCED MATERIALS PROCESSING. We sell several systems for the thermal
processes used in advanced materials processing.
THICK FILM RESISTORS AND CONDUCTORS. FAST FIRE continuous belt advanced
thermal processing systems are rated up to 1050(degree)C in air. These
systems are used for firing thick film pastes in the production of hybrid
circuits and can achieve an across belt temperature uniformity of
+/-1(degree)C. Such thermal uniformity is critical in the production of
resistor circuits. These systems are available in various belt widths and
heated lengths and range in price from $50,000 to $180,000.
Our TCA continuous belt advanced thermal processing systems, rated up to
1150(degree)C in multiple atmospheres such as nitrogen, hydrogen, forming
gas and dissociated ammonia, are used for ceramic sintering, copper
termination, glass to metal sealing, metal brazing and many other processes
requiring tight atmosphere and temperature control. The TCA utilizes an
advanced gas scrubbing system to control the binder remover phase in the
termination firing process. Unique features like venturi exhaust and
patented eductor technology make TCA essential for advanced materials
processing. The TCA is available in various belt widths and heated lengths
and ranges in price from $70,000 to $500,000.
Our Walking Beam system is designed for high volume production
applications with very heavy loads. It uses a walking beam transport system
to eliminate friction associated with advanced thermal processing systems
that use pusher technology. Walking Beam systems are used to sinter
gadolinium and uranium pellets used for nuclear fuel generation at
temperatures up to 2000(degree)C. This system ranges in price from $500,000
to $2.0 million.
CUSTOM APPLICATIONS
We design and manufacture custom high temperature systems used in such
applications as metals brazing, ceramic sintering and thin film coatings.
CERAMIC SINTERING. BTU's walking beam thermal processing system is rated up
to 2000(degree)C and operates in hydrogen reducing atmospheres primarily used
for sintering of multilayer ceramics. In addition, we offer a batch furnace with
elevator hearth loading to accomplish precise high temperature ceramic sintering
processes such as fuel cell and synthetic gas components requiring tight
temperature uniformity to maintain close dimensional tolerances and minimize
deformation of the product. The elevator batch system achieves temperature
uniformity of +/- 5(degree)C across the load at high throughput rates.
We also offer a pusher thermal processing system, which is rated up to
1800(degrees)C in a hydrogen reducing atmosphere. The Pusher is used in lower
volume applications for the sintering of ceramics and nuclear fuels. These
systems range in price from $500,000 to $1.2 million.
4
CUSTOMERS
Many of our principal customers are large-volume global manufacturers that
use our products in multiple facilities worldwide. Our customers include
industry leaders such as Intel, IBM, Advanced Semiconductor Engineering (ASE),
Nokia, Samsung, Celestica, Dana, Delphi and Foxconn.
Our largest revenue generating customers have historically accounted for a
significant percentage of our net sales. Aggregate net sales to our ten largest
customers accounted for approximately 35% of our net sales in 2002. In 2002
sales to IBM, our largest customer for the year represented approximately 15% of
net sales.
SALES AND MARKETING
We market and sell our products through our direct sales force and
independent sales representatives throughout the world. Our Sales and Marketing
force are responsible for educating the marketplace, generating leads and
creating sales programs and literature. Our on-site direct service organization
and our independent sales representatives provide ongoing services to customers
using our products. These services include implementing continuous improvement
tools related both to the cost of our products and to their technical
performance. These service functions allow us to market future sales within our
current customer base. In addition, our management and sales teams participate
in periodic trade conventions, through which we aggressively market our products
to potential customers.
We market our systems and services globally. Approximately 61% of our net
sales originate outside the United States, with Asia Pacific and Europe
representing 36% and 17% of net sales, respectively, and 8% to Other Americas.
RESEARCH, DEVELOPMENT AND ENGINEERING
Our research, development and engineering efforts are directed toward
enhancing existing products and developing our next generation of products. Our
expenses for research, development and engineering were: $6.2 million in 2000,
$5.0 million in 2001 and $3.6 million in 2002. A large percentage of our
research, development and engineering expense in 2002 was spent on the
development of integrated solutions for wafer bump reflow, the launch of
extensions to the Pyramax solder reflow platform and in support of custom design
solutions.
Close working relationships between our key customers and our product
engineering teams enable us to incorporate our customers' feedback and needs
into our product development efforts.
We have integrated our product design, manufacturing, engineering and after
sales support documentation in support of the new product introduction process
and lowered research, development and engineering costs.
MANUFACTURING AND SUPPLIERS
Our principal manufacturing operations consist of final assembly, systems
integration and testing at our facility in North Billerica, Massachusetts. We
outsource the manufacture of many of our subsystems to a number of key suppliers
and maintain close relationships with them while also maintaining qualified
alternative suppliers in the event we exceed the capacity of our key suppliers
and to maintain a cost down focus.
We continue to invest in software and capital equipment related to our
information technology infrastructure and customer support. We have outsourced
the manufacture of most of our significant component systems thereby reducing
cycle time and increasing our inventory turnover. We adhere closely to the
principles of total quality management and have been ISO 9001 certified since
1998. Our customers, suppliers and employees are encouraged to provide feedback
and suggestions for improvements in products and services.
INTELLECTUAL PROPERTY
We seek to protect our intellectual property by filing patents on
proprietary features of our advanced thermal processing systems and by
challenging third parties that we believe infringe on our patents. We also
protect our intellectual property rights with nondisclosure and confidentiality
agreements with employees, consultants and key customers and with our
trademarks, trade secrets and copyrights. As a global supplier of equipment, we
recognize that the laws of certain foreign countries may not protect our
intellectual property to the same extent as the laws of the United States.
5
We license some software programs from third party developers and
incorporate them into our products. Generally, these agreements grant us
non-exclusive licenses to use the software and terminate only upon a material
breach by us. We believe that such licenses are generally available on
commercial terms from a number of licensors.
BACKLOG
Backlog as of December 31, 2002 was $5.2 million, compared to $8.0 million
as of December 31, 2001. As of December 31, 2002, we expected to ship our
year-end backlog within 6 to 20 weeks. Most of our backlog for solder reflow
systems are expected to be shipped within 3 to 8 weeks. The backlog of our
custom systems are expected to be shipped within 12 to 40 weeks. We include in
backlog only those orders for which the customer has signed a purchase order and
a delivery schedule has been specified. Because of possible changes in delivery
schedules and order cancellations, our backlog at any particular date is not
necessarily representative of sales for any subsequent period.
COMPETITION
Several companies compete with us in selling advanced thermal processing
systems. Although price is a factor in buying decisions, we believe that
technological leadership, process capability, throughput, environmental
safeguards, uptime, mean time-to-repair, cost of ownership and after-sale
support have become increasingly important factors. We compete primarily on the
basis of these criteria, rather than on the basis of price.
Our principal competitors for advanced semiconductor packaging and PCB
assembly equipment vary by product application. Our principal competitors for
advanced semiconductor packaging are Sikama, RTC, and Heller Industries. Our
principal competitors for solder reflow systems are Electrovert-Speedline
Technologies (a Cookson Electronic Company), Heller Industries, and
Vitronics-Soltec, Inc. (a Dover Technologies Company). Our high temperature
systems for thick film, hybrid circuits, ceramics and other applications compete
primarily against systems sold by Lindberg (a Unit of SPX Corp.), SierraTherm
Production Furnaces, Inc., Centrotherm and Harper International Corp.
EMPLOYEES
As of March 21, 2003, we had 177 employees, of whom 59 are engaged in sales,
marketing and service, 23 in research, development and engineering, 20 in
finance and administration and 75 in operations. None of our employees are
represented by a collective bargaining agreement, and we believe that we have
satisfactory relations with our employees.
ENVIRONMENTAL
One of BTU's core values is protecting the environment in which we operate
and the environment in which our equipment operate. 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 2003.
ITEM 2. PROPERTIES
FACILITIES
We maintain our headquarters in North Billerica, Massachusetts, where we own
a 150,000 square foot manufacturing facility. We currently operate our
manufacturing facility on a full time first shift basis. In England, we lease a
facility for our European sale and service operations. We also rent office space
in Paris, France. In Asia, we lease sales and service offices in Shanghai and
Beijing, China; Singapore; Penang, Malaysia; and Cavite, Philippines. We are
currently in construction of a leased facility in Shanghai, China. We believe
that our plant and our current China facilities and capital equipment provide
sufficient manufacturing capacity into the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
There were no material legal proceedings pending as of the time of this
filing.
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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 2002.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
NAME AGE POSITIONS
---- --- ---------
Paul J. van der Wansem 63 Chairman of the Board of Directors
Mark R. Rosenzweig 56 President and Chief Executive Officer
Thomas P. Kealy 60 Vice President, Corporate Controller and Chief Accounting Officer
James M. Griffin 45 Vice President of Sales-Americas
Paul J. van der Wansem is Chairman of our Board of Directors. He was also
President and Chief Executive Officer from 1979 until July 2002 when he stepped
down from these functions upon the hiring of Mark R. Rosenzweig. From December
1977 to 1981, he served as Vice President of Holec, N.V., a Dutch electronics
company, and from 1978 to 1981, he was also president of Holec (USA), Inc. From
1973 to 1977, he worked as a Management Consultant for the Boston Consulting
Group, Inc. From 1970 to 1973, Mr. van der Wansem worked as an Adjunct Director
of First National City Bank in Amsterdam and New York. Mr. van der Wansem
received an undergraduate degree in automotive engineering from Bromsgrove
College, England and holds an M.B.A. from IMD, Switzerland.
Mark R. Rosenzweig joined BTU in July 2002 as President and Chief Executive
Officer. From 1992 to 2002, Mr. Rosenzweig held various positions with The BOC
Group, a UK based, FT 100 company, with his last position as the Chief Executive
of the BOC Edwards US operations which was a major supplier of industrial gases
and process equipment to the semiconductor industry. From 1991 to 1992, Mr.
Rosenzweig was President and CEO of Datamarine, International., a Nasdaq listed,
marine navigation and communications company. From 1979 to 1991, Mr. Rosenzweig
held various management positions with Adams-Russell Company, which became part
of Ma/Com in 1989 at which time he became a Corporate VP at Ma/Com running the
Signal Processing Group. Mr. Rosenzweig holds a BSEE from Stevens Institute of
Technology, Hoboken, NJ.
Thomas P. Kealy has been Vice President, Corporate Controller and Chief
Accounting Officer of our company since February 1991. He has been the Corporate
Controller since joining our company in July 1985. Prior to 1985, Mr. Kealy
served for 14 years in various financial management positions, including
Division Controller for Polaroid Corporation. Earlier he was the Corporate
Controller for Coro, Inc. and Lebanon, Inc. Mr. Kealy holds a B.S. in Finance
and Accounting from Bentley College and an M.B.A. from Clark University.
James M. Griffin has been Vice President Sales-Americas of our company since
February 2000. Previously, Mr. Griffin was our Director of Sales-North America,
and has held a number of positions within our company's sales organization. He
has been with our company for 19 years. Mr. Griffin attended Worcester
Polytechnic Institute in the mechanical engineering program.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Our common stock has been listed on the Nasdaq National Market System under
the symbol "BTUI" since February 7, 1989. The following table sets forth, for
the periods indicated, the high and low sale prices of our common stock as
reported on the Nasdaq National Market System.
HIGH LOW
---- ---
Fiscal Year Ended December 31, 2001:
First Quarter............................................... 10.00 4.75
Second Quarter.............................................. 7.42 4.50
Third Quarter............................................... 6.20 3.02
Fourth Quarter.............................................. 4.52 3.00
Fiscal Year Ended December 31, 2002:
First Quarter............................................... 6.48 4.05
Second Quarter.............................................. 6.00 3.66
Third Quarter............................................... 4.25 1.93
Fourth Quarter.............................................. 2.70 1.63
As of March 24, 2003 there were approximately 504 stockholders of record.
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DIVIDEND POLICY
Our policy is to retain earnings to provide funds for the operation and
expansion of our business. We have not paid cash dividends on our common stock
and do not anticipate that we will do so in the foreseeable future. The payment
of dividends in the future will depend on our growth, profitability, financial
condition and other factors that our board of directors may deem relevant.
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated statement of operations data for each of the
fiscal years ended December 31, 2000, December 31, 2001 and December 31, 2002
and the selected consolidated balance sheet data as of December 31, 2001 and
December 31, 2002 have been derived from our consolidated financial statements
audited by independent public accountants, and are included elsewhere in this
Form 10-K. The selected consolidated statement of operations data for the fiscal
years ended December 31, 1998 and December 31, 1999 and the selected
consolidated balance sheet data as of December 31, 1998, December 31, 1999 and
December 31, 2000 have been derived from audited financial statements not
included in this Form 10-K. This data should be read together with our
consolidated financial statements and related notes and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" appearing
elsewhere in this Form 10-K.
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FISCAL YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net sales...................................................... $ 57,208 $ 71,260 $ 99,494 $ 47,057 $ 30,631
Cost of goods sold............................................. 33,946 42,449 59,112 31,625 21,030
-------- -------- -------- -------- --------
Gross profit................................................. 23,262 28,811 40,382 15,432 9,601
Selling, general and administrative............................ 16,800 20,284 25,310 16,328 13,413
Research, development and engineering.......................... 4,575 4,786 6,231 5,001 3,587
Restructuring charge and executive retirement(1)............... -- -- -- -- 1,350
-------- -------- -------- -------- --------
Operating income (loss)...................................... 1,887 3,741 8,841 (5,897) (8,749)
Interest income (expense), net................................. (46) 8 (54) (53) (150)
Other income (expense)......................................... 73 24 (440) 2 12
-------- -------- -------- -------- --------
Income (loss) before provision for income taxes................ 1,914 3,773 8,347 (5,948) (8,887)
Net income (loss)............................................ $ 1,533 $ 2,838 $ 5,422 $ (3,747) $ (7,072)
======== ======== ======== ======== ========
Earnings per share, diluted (2)................................ $ 0.22 $ 0.41 $ 0.74 $ (.54) $ (1.03)
======== ======== ======== ======== ========
Weighted average shares outstanding, diluted................... 7,118 6,968 7,278 6,928 6,886
DECEMBER 31,
-------------------------------------------------
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................................... $ 10,594 $ 12,431 $ 8,886 $ 15,716 $ 13,847
Working capital............................................................. 24,961 26,693 30,709 26,571 21,411
Total liabilities........................................................... 15,478 17,346 19,363 10,185 10,413
Total assets................................................................ 38,615 43,149 51,160 37,836 31,514
Stockholders' equity........................................................ 23,137 25,803 31,797 27,651 21,101
- ----------
(1) The Company recorded a $360,000 restructuring charge in the third quarter
2002. This charge was solely related to severance costs associated with the
reduction of 44 employees across all lines of the Company. In the fourth
quarter of 2002, the Company recorded a $990,000 charge associated with
benefits under an executive retirement agreement for its former President
and Chief Executive Officer.
(2) Common share equivalents are anti dilutive when in a loss position.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
We design, manufacture, sell and support advanced thermal processing systems
used primarily for semiconductor packaging, printed circuit boards (PCB)
assembly and advanced materials processing. In addition, we produce custom
thermal systems for a variety of specialty applications for a wide range of
temperatures.
We derive our net sales from customers around the world. Our customers
include large multinational OEMs and EMS providers requiring advanced thermal
processing equipment solutions. In 2002, net sales to our five largest customers
accounted for 31.4% of our total net sales. Our net sales in 2002 were dispersed
worldwide, with approximately 39.0% to customers in the United States, 36.0% to
Asia Pacific customers, 17.0% to European customers and 8.0% to Other Americas.
Over the past three years, the percentage of our net sales to international
customers was 66.0% in 2000, 59.0% in 2001 and 61.0% in 2002.
9
CRITICAL ACCOUNTING POLICIES
The following is a discussion of those accounting policies that the Company
deems to be "critical" -- that is, they are important to the portrayal of the
Company's financial condition and results, and they reflect management's
reliance on estimates regarding matters that are inherently uncertain.
REVENUE RECOGNITION ON LONG-TERM AGREEMENTS -- The Company regularly enters
into sales transactions projects that take longer than the normal business
cycle. The Company accounts for these projects on a percentage completion basis.
Using this method, revenues are recognized based on the ratio of costs incurred
to the project's total estimated costs. To the extent that the Company's
estimates regarding costs or time required for completion prove to be materially
inaccurate, the Company's revenues for a period may likewise be materially
different. The Company routinely reviews estimates relating to these projects,
and regularly revises the estimates when necessary to reflect a change in
outlook. Revisions to cost estimates result in a charge to revenues for the
period in which the facts leading to the revision become known. Adjustments to
revenues based on revisions to estimates under long-term agreements were
insignificant for each of the three years ending December 31, 2002.
For more information on the Company's general revenue recognition
policies, please see Note 1 to the financial statements included in this report.
INVENTORY VALUATION -- The Company's inventories consist of material, labor
and manufacturing overhead costs. The Company determines the cost of inventory
based on the first-in, first-out method (FIFO). The Company regularly reviews
the quantity of inventories on hand and compares these quantities to the
expected usage of each applicable product or product line. The Company's
inventories are regularly adjusted in value to the lower of costs and/or net
realizable value. Since the value of the Company's inventories depends in part
on the Company's estimates of each product's net realizable value, adjustments
may be needed to reflect changes in valuation. Any adjustments the Company is
required to make to lower the value of the inventories are recorded as a charge
to cost of revenue.
RESULTS OF OPERATIONS
The following table sets forth the percentage of net sales of certain items
in our consolidated financial statements for the periods indicated.
FISCAL YEAR ENDED
DECEMBER 31,
------------------------------------
2000 2001 2002
---- ---- ----
Net sales ................................................... 100.0% 100.0% 100.0%
Cost of goods sold .......................................... 59.4% 67.2% 68.7%
------ ------ ------
Gross profit .............................................. 40.6% 32.8% 31.3%
Operating expenses:
Selling, general and administrative ....................... 25.4% 34.7% 43.8%
Research, development and engineering...................... 6.3% 10.6% 11.7%
Restructuring and executive retirement..................... 0.0% 0.0% 4.4%
------ ------ ------
Operating income(loss) .................................... 8.9% (12.5)% (28.6)%
Interest income ............................................. 0.4% 0.8% 0.7%
Interest expense ............................................ (0.4)% (0.9)% (1.2)%
Other income (expense), net ................................. (0.4)% 0.0% 0.0%
------ ------ ------
Income(loss) before provision for (benefit from) income taxes 8.4% (12.6)% (29.1)%
Provision for (benefit from) income taxes ................... 2.9% (4.7)% (5.9)%
------ ------ ------
Net income (loss) ........................................... 5.5% (7.9)% (23.2)%
====== ====== ======
FISCAL YEAR ENDED DECEMBER 31, 2002 AS COMPARED TO FISCAL YEAR ENDED DECEMBER
31, 2001
Net Sales. Net sales decreased 34.9% from $47.1 million in 2001 to $30.6
million in 2002. The decrease in 2002 net sales was primarily due to decreases
in product shipments of the Company's solder reflow systems, due to the lower
demand in orders from our key electronics board assembly customers.
The percentage of net sales attributable to our customers in the United
States decreased in 2002 by 2.0%, net sales attributable to our customers in
Europe decreased by 7.4%, net sales attributable to our Asia Pacific customers
increased by 7.9% and net sales attributable to our customers in the other
Americas increased by 1.5% as compared to 2001. The decrease in the percentage
of net sales to United States and European customers reflects the shift in the
electronics business to Asia Pacific. The effect of price discounting for
specific products has materially impacted the change in net sales for the
periods presented.
10
Gross Profit. Gross profit decreased 37.8% from $15.4 million in 2001 to
$9.6 million in 2002 and, as a percentage of net sales, decreased from 32.8% in
2001 to 31.3% in 2002. The decrease in gross profit and gross profit percentage
for 2002 was the direct result of decrease demand for products in the
electronics industry. The decrease demand resulted in significant price pressure
and under-absorption of costs.
Selling, General and Administrative. Selling, general and administrative
costs decreased 17.9% from $16.3 million in 2001 to $13.4 million in 2002, and
as a percentage of net sales, increased from 34.7% to 43.8%. The decreases in
costs were primarily the result of reductions in personnel and related overhead
expenses. The primary reason for the increase in S,G & A as a percentage of
sales is the 35% decrease in sales.
Research, Development and Engineering. Research, development and engineering
costs decreased 28.3% from $5.0 million in 2001 to $3.6 million in 2002, and as
a percentage of net sales, increased from 10.6% in 2001 to 11.7% in 2002. The
Company continued its support in new product development, but at reduced levels
given the current economic climate.
Restructuring & Executive Retirement. In the third quarter of 2002, the
Company reduced its personnel to better align its spending with the current
economic market for its products. The Company recorded a $360,000 restructuring
charge representing severance costs for terminated employees mainly related to
wages and related benefits. In the fourth quarter of 2002, the Company recorded
a $990,000 charge associated with benefits under an executive retirement
agreement for its former President and CEO.
Operating Loss. Operating loss increased 48.4% from $(5.9) million in 2001
to $(8.7) million in 2002, and as a percentage of net sales, operating loss
increased from (12.5)% in 2001 to (28.6)% 2002. The decline in operating income
is the result of the sales decline, lower gross margins and higher operating
costs as a percentage of sales.
Income Taxes. Income tax benefit decreased from a $2.2 million benefit in
2001 to a $1.8 million benefit in 2002. The 20.4% tax benefit in 2002 is due to
recording of a valuation allowance due to uncertainty about realization of
deferred tax assets in the future. The Company's statutory federal income tax
rate is 34%.
FISCAL YEAR ENDED DECEMBER 31, 2001 AS COMPARED TO FISCAL YEAR ENDED DECEMBER
31, 2000
Net Sales. Net sales decreased 52.7% from $99.5 million in 2000 to $47.1
million in 2001. The decrease in 2001 net sales reflects the lower demand for
our products, primarily by our large multinational EMS providers. This decrease
in net sales also reflects the slowdown in the electronics manufacturing market.
The growth in the percentage of net sales to United States customers
reflects the increase in the percentage of sales made to our OEM providers. The
decrease in net sales to European and Asia Pacific customers reflects the
decline in net sales to our EMS providers. The percentage of net sales
attributable to our customers in the United States increased in 2001 by 7.2%,
net sales attributable to our customers in Europe decreased by 2.6%, net sales
attributable to our Asia Pacific customers decreased by 3.7% and net sales
attributable to our customers in the other Americas decreased by 0.9% as
compared to 2000. The effect of price changes for specific products has not
materially impacted the change in net sales for the periods presented.
Gross Profit. Gross profit decreased 61.8% from $40.4 million in 2000 to
$15.4 million in 2001 and, as a percentage of net sales, decreased from 40.6% in
2000 to 32.8% in 2001. The decrease in gross profit and gross profit percentage
for 2001 was due to the decrease in net sales in 2001 and the under absorption
of overhead.
Selling, General and Administrative. Selling, general and administrative
costs decreased 35.5% from $25.3 million in 2000 to $16.3 million in 2001, and
as a percentage of net sales, increased from 25.4% to 34.7%. Lower costs were
incurred for every area of selling, general and administrative including sales,
service and commissions and administrative costs.
Research, Development and Engineering. Research, development and engineering
costs decreased 19.7% from $6.2 million in 2000 to $5.0 million in 2001, and as
a percentage of net sales, increased from 6.3% in 2000 to 10.6% in 2001. A large
percentage of our research, development and engineering expense in 2001 was
spent on the development of a new solder reflow platform and in support of
custom design solutions.
11
Operating Income. Operating income decreased 166.7% from an operating income
of $8.8 million in 2000 to an operating loss of $(5.9) million in 2001, and as a
percentage of net sales, operating income decreased from an 8.9% profit in 2000
to a (12.5)% operating loss in 2001. In 2001, the decrease in operating income
was the result of a 52.7% decrease in net sales compared to 2000.
Other income (expense), net. During 2000, the Company initiated a plan to
sell an additional 2.5 million shares of common stock in a secondary offering.
The Board of Directors voted to withdraw the stock offering as market conditions
were unfavorable to proceed. In 2000 the Company incurred approximately $450,000
in costs associated with this proposed sale of stock.
Income Taxes. Income taxes decreased from a $2.9 million provision in 2000
to a $2.2 million benefit in 2001. Our effective tax provision and benefit rates
were 35% in 2000 and 37% in 2001.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2002, we had $13.8 million in cash and cash equivalents,
a decrease of $1.9 million compared to December 31, 2001. The decrease was the
result of net losses of $7.1 million, partially offset by decreases in inventory
and accounts receivable and non cash expenses such as depreciation and deferred
compensation.
The Company has an unsecured revolving line of credit with the bank that
allows for aggregate borrowings, including letters of credit, up to a maximum of
$14.0 million against a borrowing base of all assets except real estate. We may
elect to borrow at interest rates pegged to either the bank's base rate or the
LIBOR rate in effect from time to time. This loan agreement extends to May 31,
2006 and is subject to maintaining certain financial covenants for which the
Company is in compliance. No borrowings were outstanding under this agreement.
We have a mortgage note that is secured by our real property. The mortgage
note had an outstanding balance at December 31, 2002 of approximately $4.3
million. The mortgage requires monthly payments of $53,922, which includes
interest calculated at the rate of 8.125% per annum. A final balloon payment of
approximately $3.8 million is due on July 1, 2004 upon maturity of the mortgage
note.
The Company conducts its UK operations in a facility that is under a
long-term operating lease expiring in March 2010. Rent expense under this lease
was approximately $170,000 in 2002, $260,000 in 2001 and $310,000 in 2000. The
Company has a lease assignment of approximately $195,000 in rent expense per
year through March 2010. As of December 31, 2002, the future minimum lease
commitment for this facility is $1,182,000, payable as follows: $163,000 for the
year 2003 through 2009, $41,000 for 2010.
We expect that our cash position will be sufficient to meet our corporate,
operating and capital requirements into 2004.
MARKET RISK DISCLOSURE
Our primary market risk exposure is in the area of foreign currency exchange
rate risk. We are exposed to currency exchange rate fluctuations as they pertain
to invoices for parts and labor in our foreign service locations.
As of December 31, 2002, all of our long-term debt and capital lease
obligations are fixed rate financial instruments. Therefore we are not exposed
to interest rate risk resulting from variable interest rate of our debts.
OTHER MATTERS
The impact of inflation and the effect of foreign exchange rate changes
during 2002 have not had a material impact on our business and financial
results.
RECENT ACCOUNTING DEVELOPMENTS
In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 141, "Accounting for Business Combinations," and SFAS No. 142, "Goodwill and
Other Intangible Assets." These statements modify accounting for business
combinations after September 30, 2001 and will affect the Company's treatment of
goodwill and other intangible assets at the start of the year 2002, and for
acquisitions consummated after June 30,2001. The statements require that
goodwill existing at the date of
12
adoption be reviewed for possible impairment and that impairment tests be
periodically repeated, with impaired assets written down to fair value.
Additionally, existing goodwill and intangible assets must be assessed and
classified with the statement's criteria. Intangible assets with estimated
useful lives will continue to be amortized over those periods. Amortization of
goodwill and intangible assets with indeterminable lives will cease. The
adoption of this statement did not have a material impact on its results of
operations because the Company did not, and currently does not have any
goodwill on the balance sheets.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." SFAS 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. This statement applies to legal obligations
associated with the retirement of long-lived assets that result from the
acquisition, construction, development and/or the normal operation of a
long-lived asset, except for certain obligations of lessees. This statement does
not apply to obligations that arise solely from a plan to dispose of a
long-lived asset. This statement is effective for financial statements issued
for fiscal years beginning after June 15, 2002. The adoption of this statement
did not have a material impact on its results of operations.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets." SFAS 144 addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. This statement
requires that a long-lived asset to be abandoned, exchanged for a similar
productive asset, or distributed to owners in a spin-off be considered held and
used until it is disposed of. The changes in this statement require that one
accounting model be used for long-lived assets to be disposed of by sale,
whether previously held and used or newly acquired, and by broadening the
presentation of discontinued operations to include more disposal transactions.
The provisions of this statement are effective for financial statements issued
for fiscal years beginning after December 15, 2001 and interim periods within
those fiscal years, with early application encouraged. The provisions of this
statement generally are to be applied prospectively. The adoption of this
statement did not have a material impact on its results of operations.
In June 2002, the FASB issues SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." This statement supersedes Emerging Issues
Task Force (EITF) No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity." Under this statement,
a liability for a cost associated with a disposal or exit activity is recognized
at fair value when the liability is incurred rather than at the date of an
entity's commitment to an exit plan as required under EITF 94-3. The provisions
of this statement are effective for exit or disposal activities that are
initiated after December 31, 2002, with early adoption permitted. The Company
does not expect the adoption of this statement to have a material impact on its
results of operations.
In December 2002, the FASB issued Statement of Financial Accounting
Standards No. 148, "Accounting for Stock-Based Compensation -- Transition and
Disclosure" (SFAS 148). This statement amends FASB Statement No. 123,
"Accounting for Stock-Based Compensation," to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, this Statement amends the
disclosure requirements of Statement 123 to require prominent disclosures in
both annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. SFAS 148 is effective for years beginning after December 15, 2002. The
Company does not expect the adoption of SFAS 148 to have a material impact on
its operating results or financial position.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by item 8 of Form 10-K is presented here in the
following order:
Unaudited Quarterly Financial Information
Consolidated Balance Sheet as of December 31, 2002 and 2001
Consolidated Statement of Operations for the years ended December 31, 2002, 2001
and 2000
Consolidated Statement of Stockholders' Equity for the years ended December 31,
2002, 2001 and 2000
Consolidated Statement of Comprehensive Income for the years ended December 31,
2002, 2001 and 2000
Consolidated Statement of Cash Flows for the years ended December 31, 2002, 2001
and 2000 Notes to
Consolidated Financial Statements Reports of Independent Public Accountants
13
UNAUDITED QUARTERLY RESULTS OF OPERATIONS
The following table presents unaudited statement of operations data for each
of the eight quarters in the period ended December 31, 2002 with such data
expressed as a percentage of net sales for the period indicated. We believe that
all necessary adjustments have been included to present fairly the quarterly
information when read in conjunction with our consolidated financial statements.
The operating results for any quarter are not necessarily indicative of the
results for any subsequent period.
CONSOLIDATED STATEMENT OF OPERATIONS DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
QUARTER ENDED
------------------------------------------------------------------------------------------
APRIL 1, JULY 1, SEPT.30, DEC. 31, MAR. 31, JUNE 30, SEPT.29, DEC. 31,
2001 2001 2001 2001 2002 2002 2002 2002
---- ---- ---- ---- ---- ---- ---- ----
Net sales.............................. $16,581 $14,037 $ 9,099 $ 7,340 $ 8,507 $ 9,360 $ 7,100 $ 5,663
Cost of goods sold..................... 9,869 10,831 6,041 4,885 5,940 6,239 4,601 4,250
------- ------- ------- ------- ------- ------- ------- -------
Gross profit........................... 6,712 3,206 3,058 2,455 2,567 3,121 2,499 1,413
Selling, general and administrative.... 5,091 4,254 3,329 3,653 3,583 3,835 3,409 2,585
Research, development and engineering.. 1,501 1,383 1,116 1,001 946 911 903 826
Restructuring and Executive Retirement -- -- -- -- -- -- 360 990
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) from operations.......... 120 (2,431) (1,387) (2,199) (1,962) (1,625) (2,173) (2,988)
Interest income (expense), net......... (2) (47) 5 (9) (38) (39) (38) (35)
Other income (expense), net............ 5 (11) 0 8 - 2 11 (1)
------- -------- ------- ------- ------- ------- ------- --------
Income (loss) before taxes............. 123 (2,489) (1,382) (2,200) (2,000) (1,662) (2,200) (3,024)
Income tax (benefit) provision......... 46 (921) (513) (813) (700) (197) (539) (379)
------- ------- ------- ------- ------- ------- ------- -------
Net income (loss).................... $ 77 $(1,568) $ (869) $(1,387) $(1,300) $(1,465) $(1,661) $(2,645)
======= ======= ======= ======= ======= ======= ======= =======
Earnings per share, diluted............ $ 0.01 $ (0.23) $ (0.13) $ (0.20) $ (0.19) $ (0.21) $(0..24) $ (0.38)
======= ======= ======= ======= ======= ======= ======= =======
Weighted average shares, diluted....... 7,251 6,967 6,972 6,842 6,841 6,870 6,910 6,923
QUARTER ENDED
-----------------------------------------------------------------------------------------
APRIL 1, JULY 1, SEPT.30, DEC. 31, MAR. 31, JUNE 30, SEPT.29, DEC. 31,
2001 2001 2001 2001 2002 2002 2002 2002
---- ---- ---- ---- ---- ---- ---- ----
PERCENTAGE OF NET SALES:
Net sales.............................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold..................... 59.5 77.2 66.4 66.6 69.8 66.7 64.8 75.0
----- ----- ----- ----- ----- ----- ----- -----
Gross profit .......................... 40.5 22.8 33.6 33.4 30.2 33.3 35.2 25.0
Selling, general and administrative.... 30.7 30.3 36.6 49.8 42.1 41.0 48.0 45.6
Research, development and engineering.. 9.1 9.8 12.2 13.6 11.0 9.7 12.7 14.6
Restructuring & Executive Retirement... 0.0 0.0 0.0 0.0 0.0 0.0 5.1 17.5
----- ----- ----- ----- ----- ----- ----- -----
Income (loss) from operations.......... 0.7 (17.3) (15.2) (30.0) (23.1) (17.4) (30.6) (52.7)
Interest income (expense), net......... 0.0 (0.3) 0.0 (0.1) (0.4) (0.4) (0.5) (0.6)
Other income (expense), net............ 0.0 (0.1) 0.0 0.1 0.0 0.0 0.1 (0.1)
----- ----- ----- ----- ----- ----- ----- -----
Income (loss) before taxes............. 0.7 (17.7) (15.2) (30.0) (23.5) (17.8) (31.0) (53.4)
Income tax (benefit) provision......... 0.3 (6.5) (5.6) (11.1) (8.2) (2.1) (7.6) (6.7)
----- ----- ----- ----- ----- ----- ----- -----
Net income (loss).................... 0.4% (11.2)% (9.6)% (18.9)% 0.4% (15.7)% (23.4)% (46.7)%
===== ===== ===== ===== ===== ===== ===== =====
During the eight quarters in 2001 and 2002, net sales decreased from a high
of $16.6 million to a low of $5.7 million. The overall decline in net sales for
2002 is primarily the result of a continual decline in the electronics
manufacturing marketplace.
Gross profits as a percentage of net sales during the last eight quarters
began at 40.5% and ended at 25.0%. The decline in gross profit and gross profit
as a percent of net sales during 2002 was due to the decrease in demand, price
pressure and the under absorption of overhead.
Selling, general and administrative costs during the last eight quarters of
2001 and 2002 decreased from a high of $5.1 million to a low of $2.6 million.
Lower costs were incurred in every area of selling, general and administrative
for 2002 including sales, service and commission costs as the Company levels its
workforce to reflect the economic reality. However, this decrease in S,G&A
spending was not large enough to prevent an increase in the S,G & A as a
percentage of sales.
Research, development and engineering costs decreased in real terms but
increased as a percentage of net sales from 2001 to 2002 due to the decrease in
net sales for 2002. The Company continues to support new product development,
but at reduced levels.
Income from operations decreased during the eight quarters in 2001 and 2002
from an income of $120,000 to a loss of $(3.0) million. The increase in the loss
from operations for the year 2002 was the result of the decrease in net sales
versus 2001.
14
BTU INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
AS OF DECEMBER 31,
---------------------
2002 2001
---- ----
ASSETS
Current Assets:
Cash and cash equivalents (Notes 1 and 11) ............................................... $ 13,847 $ 15,716
Trade accounts receivable, less reserves of $172 and $230 at December 31, 2002 and 2001,
respectively (Note 1).................................................................. 4,532 5,626
Inventories, net (Note 1) ................................................................ 6,668 9,051
Refundable income taxes .................................................................. 1,700 1,425
Deferred income taxes (Notes 1 and 6) .................................................... -- 34
Other current assets ..................................................................... 417 557
-------- --------
Total current assets ............................................................. 27,164 32,409
-------- --------
Property, Plant and Equipment, at cost (Notes 1 and 3)
Land ..................................................................................... 210 210
Buildings and improvements ............................................................... 7,894 7,805
Machinery and equipment .................................................................. 7,645 7,626
Furniture and fixtures ................................................................... 856 853
-------- --------
16,605 16,494
Less-accumulated depreciation ......................................................... (12,568) (11,376)
-------- --------
Net property, plant and equipment ........................................................ 4,037 5,118
-------- --------
Other assets, net of accumulated amortization of $362 in
2002 and $455 in 2001 .................................................................... 313 309
-------- --------
Total Assets ..................................................................... $ 31,514 $ 37,836
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt and capital lease obligations (Notes 3 and 11) ...... $ 329 $ 297
Current portion of long-term deferred compensation (Note 13) ............................. 200 --
Trade accounts payable (Note 9) .......................................................... 2,601 2,846
Customer deposits ........................................................................ 213 277
Accrued expenses (Note 2) ................................................................ 2,410 2,418
-------- --------
Total current liabilities ........................................................ 5,753 5,838
Long-term debt and capital lease obligations less current maturities(Notes 3 and 11) ....... 4,010 4,347
Long-term deferred compensation(Note 13) ................................................... 650 --
-------- --------
Total Liabilities ................................................................ $ 10,413 $ 10,185
-------- --------
Commitments and contingencies(Note 3)
Stockholders' Equity (Note 8):
Series preferred stock, $1.00 par value --
Authorized -- 5,000,000 shares; Issued and outstanding -- none ........................ -- --
Common Stock, $.01 par value --
Authorized -- 25,000,000 shares: Issued -- 8,151,588, outstanding -- 7,002,578 in 2002;
and Issued -- 7,975,419, outstanding -- 6,833,309 in 2001.............................. 81 80
Additional paid-in capital ............................................................... 21,976 21,534
Deferred Compensation .................................................................... (71) (76)
Retained earnings ........................................................................ 3,035 10,107
Less: treasury stock at cost, 1,149,010 shares at December 31,2002 and 1,142,110 shares at
December 31, 2001 ..................................................................... (4,177) (4,150)
Accumulated other comprehensive income ................................................... 257 156
-------- --------
Total stockholders' equity ....................................................... 21,101 27,651
-------- --------
Total Liabilities and Stockholders' Equity ....................................... $ 31,514 $ 37,836
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
15
BTU INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEARS ENDED DECEMBER 31,
------------------------------------------
2002 2001 2000
---- ---- ----
Net sales (Notes 1, 4 and 5) ..................... $ 30,631 $ 47,057 $ 99,494
Cost of goods sold ............................... 21,030 31,625 59,112
-------- -------- --------
Gross profit ..................................... 9,601 15,432 40,382
-------- -------- --------
Selling, general and administrative ............ 13,413 16,328 25,310
Research, development and engineering (Note 1).. 3,587 5,001 6,231
Restructuring and executive retirement (Note 13) 1,350 -- --
-------- -------- --------
Operating (loss) income .......................... (8,749) (5,897) 8,841
-------- -------- --------
Interest income ................................ 217 360 377
Interest expense (Note 3) ...................... (367) (413) (431)
Other income (expense) ......................... 12 2 (440)
-------- -------- --------
(Loss) income before provision for income taxes .. (8,887) (5,948) 8,347
(Benefit) Provision for income taxes (Notes 1
and 6).......................................... (1,815) (2,201) 2,925
-------- -------- --------
Net (loss) income ................................ $ (7,072) $ (3,747) $ 5,422
======== ======== ========
Earnings (loss) per share:
Basic .......................................... $ (1.03) $ (0.54) $ 0.79
======== ======== ========
Diluted ........................................ $ (1.03) $ (0.54) $ 0.74
======== ======== ========
Weighted average number of shares outstanding:
Basic shares ................................... 6,886 6,928 6,876
Effect of dilutive options ..................... -- -- 402
-------- -------- --------
Diluted shares ................................. 6,886 6,928 7,278
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
16
BTU INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE DATA)
ACCUMULATED
ADDITIONAL OTHER TOTAL
COMMON PAID-IN DEFERRED RETAINED TREASURY COMPREHENSIVE STOCKHOLDERS'
STOCK CAPITAL COMP. EARNINGS STOCK INCOME EQUITY
----- ------- ----- -------- ----- ------ ------
BALANCE AT DECEMBER 31, 1999 ..... $78 $20,543 $ -- $ 8,432 $(3,538) $ 288 $ 25,803
Net income ..................... -- -- -- 5,422 -- -- 5,422
Translation adjustment ......... -- -- -- -- -- (109) (109)
Sale of common stock and
exercise of stock options .... 1 446 -- -- -- -- 447
Tax benefits of options exercised -- 234 -- -- -- -- 234
--- ------- ----- -------- ------- ----- --------
BALANCE AT DECEMBER 31, 2000 ..... 79 21,223 -- 13,854 (3,538) 179 31,797
Net income ..................... -- -- -- (3,747) -- -- (3,747)
Translation adjustment ......... -- -- -- -- -- (23) (23)
Sales of common stock and
exercise of stock options .... 1 189 -- -- -- -- 190
Purchase of treasury stock ..... -- -- -- -- (612) -- (612)
Stock based compensation ....... -- 122 (122) -- -- -- --
Deferred compensation .......... -- -- 46 -- -- -- 46
BALANCE AT DECEMBER 31, 2001 ..... 80 21,534 (76) 10,107 (4,150) 156 27,651
--- ------- ----- -------- ------- ----- --------
Net loss ....................... -- -- -- (7,072) -- -- (7,072)
Translation adjustment ......... -- -- -- -- -- 101 101
Sales of common stock and
exercise of stock options .... 1 228 -- -- -- -- 229
Purchase of treasury stock ..... -- -- -- -- (27) -- (27)
Stock based compensation ....... -- 214 (74) -- -- -- 140
Deferred compensation .......... -- -- 79 -- -- -- 79
--- ------- ----- -------- ------- ----- --------
BALANCE AT DECEMBER 31, 2002 ..... $81 $21,976 $ (71) $ 3,035 $(4,177) $ 257 $ 21,101
=== ======= ===== ======== ======= ===== ========
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS)
YEARS ENDED DECEMBER 31,
---------------------------------
2002 2001 2000
---- ---- ----
Net (loss) income............................................ $(7,072) $(3,747) $5,422
Other comprehensive income
Foreign currency translation adjustment.................... 101 (23) (109)
------- ------- ------
Comprehensive (loss) income.................................. $(6,971) $(3,770) $5,313
======= ======= ======
The accompanying notes are an integral part of these consolidated financial
statements.
17
BTU INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEARS ENDED DECEMBER 31,
--------------------------------------
2002 2001 2000
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss)income ..................................................................... $ (7,072) $ (3,747) $ 5,422
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating
activities:
Depreciation and amortization ...................................................... 1,299 1,262 1,233
Deferred income taxes .............................................................. 34 (671) (1,126)
Stock based compensation ........................................................... 219 -- --
Deferred compensation .............................................................. 850 46 --
Net changes in operating assets and liabilities:
Trade Accounts receivable .......................................................... 1,094 16,090 (7,153)
Refundable income taxes ............................................................ (275) (1,425) --
Inventories ........................................................................ 2,383 4,568 (4,002)
Other current assets ............................................................... 140 (79) 166
Other assets ....................................................................... 30 (17) 13
Accounts payable ................................................................... (245) (4,076) 257
Customer deposits .................................................................. (64) (36) 313
Accrued expenses ................................................................... (8) (4,085) 2,839
Tax benefit of stock options exercised ............................................. -- -- 234
-------- -------- --------
Net cash provided by (used in) operating activities ............................. (1,615) 7,830 (1,804)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment, net ...................................... (193) (245) (1,813)
-------- -------- --------
Net cash used in investing activities ........................................... (193) (245) (1,813)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments under long-term debt and capital lease obligations ................ (305) (310) (266)
Payments for debt refinancing ........................................................ (59) 0 0
Proceeds from issuance of common stock and Exercise of stock options ................. 229 190 447
Purchase of treasury stock ........................................................... (27) (612) --
-------- -------- --------
Net cash (used in) provided by financing activities ............................. (162) (732) 181
-------- -------- --------
EFFECT OF EXCHANGE RATES ON CASH ..................................................... 101 (23) (109)
-------- -------- --------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ................................. (1,869) 6,830 (3,545)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ....................................... 15,716 8,886 12,431
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR ............................................. $ 13,847 $ 15,716 $ 8,886
======== ======== ========
Supplemental disclosures of cash flow information are included in Note 10.
The accompanying notes are an integral part of these consolidated financial
statements.
18
BTU INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002, 2001 AND 2000
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
BTU International, Inc. and its wholly owned subsidiaries (the Company) are
primarily engaged in the design, manufacture, sale, and service of thermal
processing systems, which are used as capital equipment in various manufacturing
processes, primarily in the electronics industry.
PRINCIPLES OF CONSOLIDATION AND THE USE OF ESTIMATES
The accompanying consolidated financial statements include the accounts of
the Company. All material intercompany balances and transactions have been
eliminated in consolidation. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses during
the reporting periods. The primary estimates used in the consolidated financial
statements include percent complete revenue and inventory reserves.
CASH AND CASH EQUIVALENTS
The Company has classified certain liquid financial instruments, with
original maturities of less than three months, as cash equivalents. These
financial instruments are carried at cost, which approximates fair value.
ACCOUNTS RECEIVABLE
Accounts receivable are stated at the amount management expects to collect
from outstanding balances. An allowance for doubtful accounts is provided for
those accounts receivable considered to be uncollectible based upon historical
experience and management's evaluation of outstanding accounts receivable at the
end of the year. Bad debts are written off against the allowance when
identified. Bad debt expense was $90,000, $24,000 and $46,000 for 2002, 2001 and
2000, respectively.
INVENTORIES
Inventories consist of material, labor and manufacturing overhead and are
valued at the lower of cost or net realizable value. Cost is determined by the
first-in, first-out (FIFO) method for all inventories.
Inventories consist of the following (in thousands):
YEARS ENDED
DECEMBER 31,
-----------------------
2002 2001
---- ----
Raw materials and manufactured components $ 4,548 $ 5,439
Work-in-progress ........................ 2,066 3,026
Finished goods .......................... 816 1,122
Less: Reserve ........................... (762) (536)
------- -------
$ 6,668 $ 9,051
======= =======
The Company periodically reviews quantities of inventory on hand and
compares these amounts to expected usage of each particular product or product
line. The Company records, as a charge to cost of revenue, any amounts required
to reduce the carrying value of the inventory to net realizable value. In 2002,
2001, and 2000, respectively, $411,000, $533,000 and $142,000 were recorded as a
charge to cost of revenue.
19
PROPERTY, PLANT AND EQUIPMENT
The Company provides for depreciation using the straight-line method over
the assets' useful lives. The estimated useful lives for depreciation purposes
are as follows:
Buildings and improvements .................................. 8-25 years
Machinery and equipment ..................................... 2-8 years
Furniture and fixtures ...................................... 5-8 years
Depreciation expense was $1,274,000, $1,255,000 and $1,226,000 for the years
ended December 31, 2002, 2001 and 2000, respectively.
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.
The Company evaluates long-lived assets under Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed of" (SFAS 121). This statement
requires that long-lived asset and certain identifiable intangibles are reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceeds the fair value of
the assets. In August 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" (SFAS 144). This statement
supersedes SFAS 121. However, it retains the fundamental provisions of Statement
121 for (a) recognition and measurement of the impairment of long-lived assets
to be held and used and (b) measurement of long-lived assets to be disposed of
by sale. Management has accessed the implementation and determined that there is
no significant impact on the consolidated financial statements of the Company.
Long-lived assets include property, plant and equipment, deferred financing
costs and the cash surrender value of life insurance. Amortization on deferred
financing costs were $25,000, $7,000 and $7,000 in 2002, 2001 and 2000,
respectively.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the expected future
tax consequences of events that have been included in the consolidated financial
statements or tax returns. The amounts of deferred tax assets or liabilities are
based on the difference between the financial statement and tax basis of assets
and liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
TRANSLATION OF FOREIGN CURRENCIES
Assets and liabilities of the Company's foreign operations are translated
from their functional currency into United States dollars at year end exchange
rates. Revenue and expense items are translated at weighted average rates of
exchange prevailing during the year. Gains and losses arising from translation
are accumulated as a separate component of stockholders' equity, as the
functional currency of the subsidiaries is their local currency, and the
reporting currency of the Company is the US dollar. Exchange gains and losses
(if any) arising from transactions denominated in foreign currencies are
included in income as incurred. Such exchange gains or losses were not material
during the periods presented.
PATENTS
The Company has patents in the United States and certain foreign countries
for some of its products and processes. No value has been assigned to these
patents in the accompanying consolidated financial statements.
REVENUE RECOGNITION
The Company recognizes revenue in accordance with the Securities and
Exchange Commission (SEC) Staff Accounting Bulletin (SAB) No. 101, "Revenue
Recognition in Financial Statements." Under SAB No. 101, when the terms of sale
include customer acceptance provisions, and compliance with those provisions can
not be demonstrated until customer use, revenues are recognized
20
upon acceptance. Furthermore, revenues for products that require installation
for which the installation is essential to functionality or is not deemed
inconsequential or perfunctory are recognized upon completion of installation.
Revenues for products sold where installation is not essential to functionality
and is deemed inconsequential or perfunctory are recognized upon shipment with
estimated installation and warranty costs accrued.
Applying the requirements of SAB No. 101 to future sales arrangements used
in the Company's thermal processing equipment sales may result in the deferral
of the revenue for some equipment sales. The Company continues to evaluate the
impact that SAB No. 101 might have on its sales transactions. However, there
will be no impact on the Company's cash flows from operations as a result of any
change.
The Company also has certain sales transactions for projects, which are not
completed within the normal operating cycle of the business. These contracts are
accounted for on a percentage completion basis. Under the percentage completion
method, revenues are recognized based upon the ratio of costs incurred to the
total estimated costs. Revisions in costs and profit estimates are reflected in
the period in which the facts causing the revision become known. Provisions for
total estimated losses on uncompleted contracts, if any, are made in the period
in which such losses are determined. For the year ended December 31, 2002,
$432,266 of revenue was recognized using the percentage of completion method.
For the year ended December 31, 2001, $3.4 million of revenue was recognized and
for year ended December 31, 2000, $961,680 of revenue was recognized using the
percentage of completion method.
The Company accounts for shipping and handling costs billed to customers in
accordance with Emerging Issues Task Force (EITF) Issue 00-10 "Accounting for
Shipping and Handling Fees and Cost." Amounts billed to customers for shipping
and handling costs are reclassified as revenues with the associated costs
reported as selling costs. The amounts charged to selling expense for 2002 and
2001 were $160,000 and $378,000, respectively.
RESEARCH, DEVELOPMENT AND ENGINEERING
Research, development and engineering costs are charged to expense as
incurred.
EARNINGS PER SHARE INFORMATION
Basic Earnings Per Share (EPS) is computed by dividing income available to
common stockholders by the weighted-average number of common shares outstanding
during the period. Diluted EPS is computed using the weighted average number of
common and dilutive potential common shares outstanding during the period, using
the treasury stock method. Options outstanding that were not included in the
determination of diluted EPS, because they were antidilutive, were 1,258,398 in
2002, 1,050,812 in 2001 and 2,271 in 2000.
RECENT ACCOUNTING DEVELOPMENTS
In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 141, "Accounting for Business Combinations," and SFAS No. 142, "Goodwill and
Other Intangible Assets." These statements modify accounting for business
combinations after September 30, 2001 and will affect the Company's treatment of
goodwill and other intangible assets at the start of the year 2002, and for
acquisitions consummated after June 30, 2001. The statements require that
goodwill existing at the date of adoption be reviewed for possible impairment
and that impairment tests be periodically repeated, with impaired assets written
down to fair value. Additionally, existing goodwill and intangible assets must
be assessed and classified with the statement's criteria. Intangible assets with
estimated useful lives will continue to be amortized over those periods.
Amortization of goodwill and intangible assets with indeterminable lives will
cease. The adoption of this statement did not have a material impact on its
results of operations because the Company did not, and currently does not, have
any goodwill.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." SFAS 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. This statement applies to legal obligations
associated with the retirement of long-lived assets that result from the
acquisition, construction, development and/or the normal operation of a
long-lived asset, except for certain obligations of lessees. This statement does
not apply to obligations that arise solely from a plan to dispose of a
long-lived asset. This statement is effective for financial statements issued
for fiscal years beginning after June 15, 2002. The adoption of this statement
is not expected to have a material impact on the Company's financial statements.
21
In June 2002, the FASB issues SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." This statement supersedes Emerging Issues
Task Force (EITF) No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity." Under this statement,
a liability for a cost associated with a disposal or exit activity is recognized
at fair value when the liability is incurred rather than at the date of an
entity's commitment to an exit plan as required under EITF 94-3. The provisions
of this statement are effective for exit or disposal activities that are
initiated after December 31, 2002, with early adoption permitted. The Company
does not expect the adoption of this statement to have a material impact on its
results of operations.
In December 2002, the FASB issued Statement of Financial Accounting
Standards No. 148, "Accounting for Stock-Based Compensation -- Transition and
Disclosure" (SFAS 148). This statement amends FASB Statement No. 123,
"Accounting for Stock-Based Compensation," to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, this Statement amends the
disclosure requirements of Statement 123 to require prominent disclosures in
both annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. SFAS 148 is effective for years beginning after December 15, 2002. The
Company does not expect the adoption of SFAS 148 to have a material impact on
its operating results or financial position.
RECLASSIFICATION
Certain prior year financial statement information has been reclassified to
conform with the current year presentation.
(2) ACCRUED EXPENSES
Accrued expenses at December 31, 2002 and 2001 consisted of the following
(in thousands):
2002 2001
---- ----
Accrued commissions .............................. $ 638 $1,065
Accrued warranty ................................. 1,038 853
Accrued income taxes ............................. 92 110
Accrued bonus .................................... 0 15
Payroll and payroll taxes ........................ 631 372
Other ............................................ 11 3
------ ------
$2,410 $2,418
====== ======
(3) DEBT, CAPITAL LEASES, COMMITMENTS AND CONTINGENCIES
Debt at December 31, 2002 and 2001 consisted of the following (in
thousands):
2002 2001
---- ----
Mortgage note payable ................................ $4,298 $4,560
Capital lease obligations, interest rates ranging
from 10.2% to 10.3%, net of interest of $4 and $9 in
2002 and 2001, respectively ........................ 41 84
------ ------
4,339 4,644
Less current maturities .............................. 329 297
------ ------
$4,010 $4,347
====== ======
The mortgage note payable is secured by the Company's land and building and
requires monthly payments of $53,922, including interest at 8.125%. This
mortgage note payable has a balloon payment of $3,825,000 due at maturity on
July 1, 2004.
The capital lease obligations relate to various equipment leases used in the
operation of the business. Under the terms of the debt, the minimum repayments
of long-term debt and capital lease obligations by year are as follows (in
thousands):
8.125% CAPITAL
MORTGAGE LEASES TOTAL
-------- ------ -----
2003 $ 309 $ 20 $ 329
2004 3,989 21 4,010
------ ------ ------
$4,298 $ 41 $4,339
====== ====== ======
22
At December 31, 2002, the Company has an unsecured revolving line of credit
with a US bank, which allows for aggregate borrowings, including letters of
credit, up to a maximum of $14 million against a borrowing base of all assets
except real estate. The Company may elect to borrow at interest rates pegged to
either the bank's base rate or the LIBOR rate in effect from time to time. This
loan agreement extends to May 31, 2006 and is subject to maintaining certain
financial covenants. As of December 31, 2002, 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 March 2010. Rent expense under this lease
was approximately $170,000 in 2002, $260,000 in 2001 and $310,000 in 2000. The
Company has a lease assignment of approximately $195,000 in rent expense each
year through March 2010. As of December 31, 2002, the future minimum lease
commitment for this facility is $1,182,000, payable as follows: $163,000 for the
years 2003 through 2009 and $41,000 for 2010.
The Company is a party to various claims arising in the normal course of
business. Management believes the resolution of these matters will not have a
material impact on the Company's results of operations or financial condition.
(4) FOREIGN OPERATIONS
The following table shows the amounts (in thousands) and percentages of the
Company's revenues by geographic region, for the last three years:
2002 2001 2000
-------------- -------------- --------------
United States................ $ 11,946 39% $ 19,294 41% $ 33,828 34%
Europe....................... 5,207 17 11,764 25 26,863 27
Asia Pacific................. 11,027 36 13,176 28 31,838 32
Other Americas............... 2,451 8 2,823 6 6,965 7
(5) CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
Statement of Financial Accounting Standards No. 105, "Disclosure of
Information about Financial Instruments with Off-Balance-Sheet Risk and
Financial Instruments with Concentrations of Credit Risk," requires disclosure
of any significant off-balance-sheet and credit risk concentrations. The Company
has no significant off-balance-sheet concentrations such as foreign exchange
contracts, option contracts or other foreign hedging arrangements. The Company
maintains the majority of its cash and cash equivalent balances with one
financial institution.
The principal financial instrument that potentially subjects the Company to
concentrations of credit risk is accounts receivable. The majority of the
Company's revenues are derived from customers in the retail consumer products
industry who are not required to provide collateral for amounts owed to the
Company. The Company's customers are dispersed over a wide-geographic area and
are subject to periodic review under the Company's credit policies. The Company
does not believe that it is subject to any unusual credit risks, other than the
normal level of risk attendant to operating its business.
Concentration of credit risk with respect to accounts receivable is limited
to certain customers to whom the Company makes substantial sales. To reduce its
credit risk, the Company routinely assesses the financial strength of its
customers. The Company maintains an allowance for potential credit losses, but
historically has not experienced any losses in excess of the loss allowance
related to individual customers or groups of customers in any particular
industry or geographic area.
One customer represented 16% of revenue in 2002, 15% of revenue in 2001 and
23% of revenue in 2000. As of December 31, 2002, there were two customers that
individually accounted for 10% and 13% of accounts receivable.
(6) INCOME TAXES
The components of (loss) income before (benefit) provision for income taxes
are as follows (in thousands):
YEARS ENDED DECEMBER 31,
----------------------------------------------
2002 2001 2000
------- ------- ------
Domestic ......... $(8,804) $(5,912) $5,636
Foreign .......... (83) (36) 2,711
------- ------- ------
Total ............ $(8,887) $(5,948) $8,347
======= ======= ======
23
For the years ended December 31, 2002, 2001 and 2000, the Company's
(benefit) provisions for income taxes were as shown below (in thousands):
FEDERAL STATE FOREIGN TOTAL
------- ----- ------- -----
December 31, 2002
Current ....... $(1,949) $ 45 $ 55 $(1,849)
Deferred ...... 34 -- -- 34
------- ----- ------- -------
$(1,915) $ 45 $ 55 $(1,815)
======= ===== ======= =======
December 31, 2001
Current ....... $ (148) $ 38 $ 39 $ (71)
Deferred ...... (2,013) (117) -- (2,130)
------- ----- ------- -------
$(2,161) $ (79) $ 39 $(2,201)
======= ===== ======= =======
December 31, 2000
Current ....... $ 2,699 $ 427 $ 925 $ 4,051
Deferred ...