BTU International, Inc. ("BTU"), founded in 1950 and headquartered in North Billerica, Massachusetts, is a market-leading, global supplier of advanced thermal processing equipment to the alternative energy and electronics manufacturing markets. BTU equipment is used in the production of solar cells and nuclear fuel, as well as in printed circuit board assembly and semiconductor packaging.

Our customers require high throughput, high yield and highly reliable thermal processing systems with tightly controlled temperature and atmospheric parameters. In the solar market, BTU offers processing equipment for both silicon and thin film photovoltaics. Also in alternative energy, our customers use our thermal systems for the processing of nuclear fuel. Our convection solder reflow systems are used to attach electronic components to the printed circuit boards, primarily in the advanced, high-density, surface mount segments of this market. In the semiconductor market, we participate in both wafer level and die level packaging, where our thermal processing systems are used to connect and seal integrated circuits into a package.

In 2004, we began manufacturing and material sourcing operations in a leased facility in Shanghai, China. In addition, we expanded our product development capability in China, creating a global engineering team. This team commercially introduced our latest PYRAMAX™ and TRITAN™ products and continues to collaborate with our U.S. headquarters on additional product initiatives.

RESULTS OF OPERATIONS

Three months ended April 1, 2012 compared to the three months ended April 3, 2011.

The following table sets forth, for the periods indicated, selected items in our condensed consolidated statements of operations expressed as a percentage of net sales.

Summary Condensed Consolidated Statement of Operations



                                                           Three Months Ended
                                              April 1, 2012                  April 3, 2011
                                                           ($ in thousands)
                                                         % of                           % of          Percent
                                                       Net Sales                      Net Sales        Change

Net sales                               $ 16,272            100.0 %     $ 25,350           100.0 %       (35.8 )%
Cost of goods sold                        11,049             67.9 %       14,624            57.7 %       (24.4 )%

Gross profit                               5,223             32.1 %       10,726            42.3 %       (51.3 )%

Selling, general and administrative
expenses                                   5,413             33.3 %        5,924            23.4 %        (8.6 )%
Research, development and engineering
expenses                                   1,482              9.1 %        1,867             7.4 %       (20.6 )%

Operating income (loss)                   (1,672 )          (10.3 )%       2,935            11.6 %      (157.0 )%

Other, net                                  (160 )           (1.0 )%          19             0.1 %      (942.1 )%


Income (loss) before provision for
income taxes                              (1,832 )          (11.3 )%       2,954            11.7 %      (162.0 )%


Provision for income taxes                   175              1.1 %        1,125             4.4 %       (84.4 )%


Net income (loss)                       $ (2,007 )          (12.3 )%    $  1,829             7.2 %      (209.7 )%

Net Sales. Net sales for the first quarter of 2012 were $16.3 million representing a decrease of $9.1 million, or 35.8%, as compared to the same period in the prior year. Net sales for the Company's electronic market systems increased by $3.1 million, or 40.3%, as compared to the same period in the prior year. Net sales for the Company's alternative energy systems decreased by $11.0 million, or 74.9% as compared to the same period in the prior year, while net sales for the Company's other market systems, parts and service sales business decreased by $1.1 million, or 36.4%. The Company's alternative energy systems first quarter 2012 sales decrease as compared to the same period in the prior year is due to the broad weakening of the worldwide solar marketplace which started in the second quarter of 2011. The electronic market systems increase represents an increase in demand for Surface Mount Technology systems, particularly in China. The decrease in sales in the other market systems and parts and service business was the result of a decrease in demand for parts to maintain existing customer systems.

As a result of the weakness in capital spending in the solar industry, we expect minimal revenue from solar products over the next two quarters. Our results of operations in future quarters could also be affected including inventory write-downs and reductions in operating expenses.

The following table sets forth, for the periods indicated, revenues from sales into select geographies expressed in thousands of dollars and as a percentage of total revenues. The values shown represent the amount sold into each of the listed geographical areas.

                                               Three Months Ended
                                   April 1, 2012                April 3, 2011
                                                ($ in thousands)
                                              % of                         % of
                                 $          Revenues          $          Revenues

          United States       $  2,208           13.6 %    $  3,141           12.4 %
          Europe, Near East      1,713           10.5 %         287            1.1 %
          Asia Pacific          11,715           72.0 %      21,135           83.4 %
          Other Americas           636            3.9 %         787            3.1 %


          Total Revenue       $ 16,272                     $ 25,350

Gross Profit. The first quarter of 2012 gross profit of $5.2 million decreased by $5.5 million compared to the first quarter of 2011 due primarily to the 35.8% decrease in net sales. In the first quarter of 2012, gross profit as a percentage of sales decreased to 32.1% as compared to 42.3% in the same period in 2011, due primarily to lower volume, product mix and underutilization at our USA factory combined with higher inventory obsolescence reserves.

Selling, General and Administrative (SG&A). SG&A first quarter 2012 expenses of $5.4 million decreased by $0.5 million compared to the same period in the prior year. The decrease is primarily due to the lower commission on reduced sales and cost reduction actions taken in the Company's service and administrative functions.

Research, Development and Engineering (RD&E). RD&E first quarter 2012 expenses of $1.5 million decreased by $0.4 million, or 20.6%, from the same period in the prior year as a result of headcount reductions and expense reductions in the Company's RD&E functions.

Operating Income (Loss). The 35.8% net sales decrease and its associated negative effect on gross profit combined with higher inventory reserves resulted in an operating loss in the first quarter of 2012 of $1.7 million as compared to an operating profit of $2.9 million for the same period in 2011.

Interest Income (Expense). In the first quarter of 2012 as compared to the same period in 2011, net interest expense remained relatively flat at $0.1 million.

Foreign Exchange Loss. The foreign exchange loss in the first quarter of 2012 was $62,000 as compared to a loss of $76,000 in the same period in the prior year. The net exchange loss is primarily the result of foreign currency exposure in the Company's foreign operations.

Income Taxes. For the three months ended April 1, 2012, we recorded an income tax provision of $175,000 as compared to an income tax provision of $1.1 million for the three months ended April 3, 2011. The Company's income tax provision primarily relates to income and withholding taxes generated from activities in our China operations.

The significant fluctuations in the Company's quarterly tax rate, as a percent of consolidated pre-tax income or loss, are the result of the different statutory tax rates in each of the Company's non-U.S. locations and the fluctuations of pre-tax income (loss) generated in these jurisdictions. A portion of the consolidated annual tax provision relates to Chinese withholding taxes which are not directly related to pre-tax income in China. China withholding taxes primarily result from corporate royalty charges based on our China manufacturing subsidiary's net sales. U.S. income taxes have had no impact to the rate fluctuation as the U.S. Company operates at a loss.

LIQUIDITY AND CAPITAL RESOURCES

As of April 1, 2012, we had $20.1 million in cash and cash equivalents, an increase of $1.2 million, compared to $18.9 million at December 31, 2011.

During the three months ended April 1, 2012, the Company generated net cash of approximately $1.2 million from operating activities. This generation of cash was primarily the result of an increase in accounts payable of $2.4 million, a decrease in net inventory of $1.3 million, non-cash expenses for depreciation and amortization of $0.4 million and stock-based compensation of $0.3 million, offset by a net loss of $2.0 million, an increase in accounts receivable of $0.4 million, an increase in other current assets of $0.5 million and a decrease in accrued expenses of $0.3 million.

On August 31, 2009, the Company entered into a pledge and assignment agreement with a bank. The bank agrees, at the Company's request, to issue letters of credit in the bank's name and the Company agrees to cash collateralize the letters of credit via restricted cash deposits at the bank. As of April 1, 2012, the value of the outstanding letters of credit issued by the bank for the Company and cash collateralized by the Company was $225,140. This restricted cash value is included in the Company's balance sheet in other current assets.

The Company has a mortgage note that is secured by its real property in Billerica, MA. The original amount of the note was $10 million. This mortgage note has a balloon payment of $6.7 million due and payable at maturity on December 23, 2015. On September 9, 2010, the Company signed a Loan Modification Agreement relating to the mortgage note. The modification resulted in lowering the annual interest rate from 6.84% to 5.50%, and lowering the monthly payment from $76,280 to $69,000. The mortgage note had an outstanding balance on April 1, 2012, of approximately $8.2 million.

As of April 1, 2012, the Company has no material commitments relating to capital expenditures. There were no significant changes in the Company's commitments from those that were outlined in the "Contractual Obligations" section of the Company's 2011 annual report on Form 10-K.

The Company's business forecasts project that our cash position and cash flow will be sufficient to meet our corporate, operating and capital requirements for the next twelve months.

CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT ESTIMATES

During the three months ended April 1, 2012, we believe that there have been no significant changes to the items that we disclosed as our critical accounting policies and estimates in the "Critical Accounting Policies and Significant Estimates" section of Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011.

RISK FACTOR

Given that the Company invoices the vast majority of its sales in U.S. dollars, that the Company has a substantial manufacturing presence in China and that sales into China are primarily in U.S. dollars, should the U.S. dollar decline in relation to the Chinese renminbi, the Company's financial results will be adversely affected.

FORWARD LOOKING STATEMENTS

This Report contains forward-looking statements about the sufficiency of our cash position and cash flows. The words or phrases "will likely result," "are expected to," "will continue," "is anticipated," "may," "intends," "believes," "estimate," "project" or similar expressions are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are neither promises nor guarantees but rather are subject to risks and uncertainties described in this report and other reports we have filed with the SEC, which could cause actual results to differ materially from those described in the forward-looking statements. Such statements are made pursuant to the "safe harbor" provisions established by the federal securities laws, and are based on the assumptions and expectations of our management at the time such statements are made. Important factors that could cause actual results to differ include, but are not limited to, the condition of the world economy, the timely availability and acceptance of new products in the electronics, semiconductor and alternative energy generation industries, manufacturing problems with our foreign operations in China, the impact of competitive products and pricing, particularly from companies in Asia, and other risks detailed under the section entitled "Risk Factors" in our most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission. Actual results may vary materially. Unless otherwise required by law, we disclaim any obligation to revise or update this information in order to reflect future events or developments, whether or not anticipated. Accordingly, you should not place undue reliance on any forward-looking statements, which speak only as of the date made.