<PAGE> 1
FORM 10-K/A
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
-----------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-27308
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AAVID THERMAL TECHNOLOGIES, INC.
--------------------------------
(Exact name of registrant as specified in its charter)
Delaware 02-0466826
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Kool Path, Laconia, New Hampshire 03247-0400
- ------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (603) 528-3400
--------------
Securities registered pursuant to Section 12(b) of the Act: None
----
Securities registered pursuant to Section 12(g) of the Act:
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 No X*
--- ---
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 registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of the Form 10-K or any amendment to this
Form 10-K. [X]
As of March 15, 1996, the aggregate market value of the registrant's voting
stock held by non-affiliates of the registrant (based on the last sale price for
such shares as quoted by the Nasdaq National Market) was $29,838,326.00.
The number of outstanding shares of the registrant's Common Stock as of
March 15, 1996 was 6,440,206.
Documents incorporated by reference: None
- --------------
* The registrant became subject to filing requirements on January 29, 1996.
<PAGE> 2
ITEM 3. LEGAL PROCEEDINGS
In August 1992, Thermalloy Inc. ("Thermalloy"), one of the Company's
competitors, commenced an action against the Company alleging infringement of a
Thermalloy patent covering a method of manufacturing heat sinks by gang sawing a
set of horizontal grooves, then a set of vertical grooves, to form the pins of
the heat sink. Products that use methods of manufacturing alleged by Thermalloy
to infringe its patent are primarily sold for digital electronic applications,
including heat sinking of microprocessors and related chipsets, and constitute
substantially all of the Company's digital product line. In January 1993, the
Company filed an answer claiming that (i) its methods of manufacturing pin grid
array heat sinks did not infringe the patent and (ii) the patent is invalid and
unenforceable, among other things, because of the existence of prior art. The
Company has filed a counterclaim alleging that Thermalloy violated the United
States antitrust laws by attempting to enforce a patent which it knows to be
invalid. In April 1993, while the case was pending, Thermalloy petitioned the
United States Patent and Trademark Office (the "Patent Office") to reexamine the
claims of the patent in light of certain prior art disclosed to Thermalloy by
Aavid in the litigation. In the reexamination, Thermalloy sought and obtained
new and amended patent claims that attempted to distinguish the published prior
art identified by the Company and presented to the Patent Office by Thermalloy.
The Company believes that the reexamined claims are invalid because the patent
law prohibits the broadening of patent claims on reexamination, and in May 1995
the Company filed a motion for summary judgment on this issue. On March 15,
1996, the United States District Court for the District of New Hampshire granted
the Company's motion for summary judgment and found the patent invalid.
Thermalloy has until April 15, 1996 to appeal. While the Company believes, based
on the advice of its patent counsel, that it will prevail if an appeal is taken
by Thermalloy, there can be no assurance that the Company will ultimately
prevail in this matter. In the event that Thermalloy were to prevail in such
action, Aavid would be required to cease using the affected technology and/or
pay damages and license fees to Thermalloy, which would have a material adverse
effect on the Company. In the event that Thermalloy were to prevail and Aavid
was unable to obtain a license from Thermalloy or employ a non-infringing method
of manufacturing these products, the Company's ability to compete in the digital
electronics market would be materially adversely affected. Sales of heat sink
products where gang sawing was used to create fins or pins in 1994 and 1995 were
approximately $8.7 million and $18.2 million, respectively.
A stockholder of Aavid Engineering prior to the Aavid Acquisition has
asserted his statutory right to dissent from the merger consummated as part of
the Aavid Acquisition. This former stockholder claims that his 105 shares of
common stock of the pre-acquisition Aavid Engineering, which represented 1.36%
of Aavid Engineering's stock, should have been valued in the merger at $6,000
per share, rather than $1.00 per share. The court has appointed an appraiser to
determine the value of this former stockholder's shares immediately prior to the
Aavid Acquisition. The Company intends to defend itself vigorously in this
matter.
The Company is also involved in various legal proceedings that are
incidental to the conduct of its business, none of which the Company believes
could reasonably be expected to have a material adverse effect on the Company's
financial condition, liquidity or results of operations.
1
<PAGE> 3
<TABLE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
(In thousands, except per share data)
The following tables set forth selected statement of operations and balance
sheet data derived from the consolidated financial statements of the Company and
its predecessor for the periods indicated. Such financial statements have been
audited by Coopers & Lybrand, L.L.P., independent public accountants. The report
of Coopers & Lybrand, L.L.P. with respect to the consolidated financial
statements of the Company as of December 31, 1994 and 1995 and for the
predecessor for the year ended December 31, 1992 and the nine months ended
September 25, 1993, and for the Company for the three months ended December 31,
1993 and the years ended December 31, 1994 and 1995 is included in the
Consolidated Financial Statements of the Company appearing elsewhere herein. The
following tables should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," the Consolidated
Financial Statements and related Notes thereto of the Company included elsewhere
herein.
<CAPTION>
THE PREDECESSOR(1) THE COMPANY(1)
------------------------------------ ---------------------------------------------------
NINE THREE
YEAR ENDED DECEMBER 31, MONTHS MONTHS YEAR ENDED DECEMBER 31,
----------------------- ENDED ENDED -----------------------
SEPTEMBER DECEMBER PRO FORMA
1991 1992 25, 1993(2) 31, 1993(3) 1994 1995(4) 1995(5)
STATEMENT OF OPERATIONS DATA: ---- ---- ----------- ------------ ---- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales ......................... $30,565 $37,613 $33,975 $11,040 $61,620 $90,944 $101,557
Cost of goods sold ................ 21,622 27,834 24,341 8,008 41,132 60,680 63,969
------- ------- ------- ------- ------- ------- --------
Gross profit ...................... 8,943 9,779 9,634 3,032 20,488 30,264 37,588
Selling, general and administrative
expenses ........................ 6,998 7,150 6,581 4,147 13,186 19,266 22,957
Amortization of goodwill .......... -- -- -- 15 60 81 95
Research and development .......... -- -- 299 124 1,158 2,594 4,017
Purchased undeveloped technology
charge (6) ...................... -- -- -- 2,317 -- 2,770 --
Buyout of compensation
arrangements (7) ................ -- -- -- -- -- 2,649 --
------- ------- ------- ------- ------- ------- --------
Income (loss) from operations ..... 1,945 2,629 2,754 (3,571) 6,084 2,904 10,519
Interest expense, net ............. (2,547) (2,612) (2,039) (361) (1,567) (2,611) (3,044)
Other income (expense), net ....... (570) 144 -- -- (5) (177) (74)
------- ------- ------- ------- ------- ------- --------
Income (loss) before income taxes,
cumulative effect of accounting
change and minority interest .... (1,172) 161 715 (3,932) 4,512 116 7,401
Provision for income tax (expense)
benefit ......................... (91) (615) (266) 567 (1,677) (831) (2,630)
------- ------- ------- ------- ------- ------- --------
Income (loss) before cumulative
effect of accounting change and
minority interest ............... (1,263) (454) 449 (3,365) 2,835 (715) 4,771
Cumulative effect of accounting
change (8) ...................... -- -- (1,290) -- -- -- --
------- ------- ------- ------- ------- ------- --------
Income (loss) before minority
interest ........................ (1,263) (454) (841) (3,365) 2,835 (715) 4,771
Less: minority interest .......... 48 -- -- -- -- -- --
------- ------- ------- ------- ------- ------- --------
Net income (loss) ................. (1,215) (454) (841) (3,365) 2,835 (715) 4,771
Accretion to redemption value of
warrant (9) ..................... -- -- -- -- (331) (775) --
------- ------- ------- ------- ------- ------- --------
Net income (loss) available to
stockholders .................... $(1,215) $ (454) $ (841) $(3,365) $ 2,504 $(1,490) $ 4,771
======= ======= ======= ======= ======= ======= ========
Net income (loss) per share
available to stockholders (9) ... $ (5.18) $ 0.55 $ (2.06) $ 0.96
======= ======= ======= ========
Weighted average number of shares
used in computation of net
income (loss) per share (10) .... 649 4,536 724 4,975
</TABLE>
2
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<TABLE>
<CAPTION>
THE PREDECESSOR THE COMPANY
----------------------- ------------------------------------
DECEMBER 31 DECEMBER 31,
----------------------- ------------------------------------
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C>
Cash .............................. $ 81 $ 249 $ 382 $ 692 $ 4,327
Working capital ................... (16,741) 295 3,823 6,506 6,301
Total assets ...................... 22,639 22,760 22,901 32,561 56,499
Long-term debt, including current
portion ......................... 16,472 18,732 13,821 17,555 29,514
Redeemable warrant(8) ............. -- -- -- 331 1,106
Stockholders' equity (deficiency).. (3,562) (4,016) 2,037 4,541 5,433
<FN>
- -----------------------------
(1) Effective September 25, 1993, the Company, a newly formed corporation,
acquired Aavid Engineering, Inc. ("Aavid Engineering"), which became a
wholly owned subsidiary of the Company. Contemporaneously, all of Aavid
Engineering's debt was restructured. The acquisition of Aavid Engineering
and the debt restructuring is hereinafter referred to as the "Aavid
Acquisition." Aavid Engineering does business under the name "Aavid Thermal
Technologies." See Note A of Notes to Consolidated Financial Statements of
the Company.
(2) Represents the results of operations for Aavid Engineering for the period
from January 1, 1993 to September 25, 1993.
(3) Represents the results of operations for the Company for the period from
September 26, 1993 to December 31, 1993. In connection with the Aavid
Acquisition, the Company expensed $2.3 million related to the purchase of
undeveloped technology (see footnote 5 below), incurred $1.2 million in
transaction expenses and made a $263,000 purchase accounting adjustment to
inventory. See Note A of Notes to Consolidated Financial Statements of the
Company.
(4) Includes the results of operations of Fluent from August 24, 1995 (date of
the acquisition of Fluent).
(5) Gives effect to the Fluent Acquisition, as if such acquisition had occurred
on January 1, 1994, and eliminates the expense for the buyout of
compensation arrangements (see footnote 7 below), the charge related to the
purchase of undeveloped technology (see footnote 6 below), the $1.7 million
of stock option expense recognized by Fluent and the accretion to
redemption value of warrant (see footnote 9 below).
(6) Represents a non-cash charge equal to the amount of the purchase price
allocated to technology acquired in the Aavid Acquisition and the Fluent
Acquisition which was not fully commercially developed and had no
alternative future use at the time of acquisition.
(7) Represents the expense for the buyout of (i) a portion of the expected
future payments required under the employment agreement with Mr. Beane, the
Company's President and Chief Executive Officer, and (ii) the bonus-based
portion of the management fee due Sterling Ventures Limited, each of which
was established at the time of the Aavid Acquisition. See "Item 13. Certain
Relationships and Related Transactions."
(8) Aavid Engineering adopted Statement of Financial Accounting Standards No.
109 ("Accounting for Income Taxes") during 1993. Accordingly, as of January
1, 1993, Aavid Engineering recorded a charge related to the cumulative
effect of the change in the method of accounting for income taxes of $1.3
million. See Note B of Notes to Consolidated Financial Statements of the
Company.
(9) Represents the carrying value (the "Put Price") of a warrant to purchase
495,000 shares of Common Stock at an exercise price of $1.87 per share.
Upon the closing of the Company's initial public offering on February 2,
1996 (the "Initial Public Offering"), the Put Price was added to
stockholders' equity. Prior to the closing of the Initial Public Offering
the warrant was accreted to the estimated redemption price based on time
remaining to October 1998. See Note H of Notes to Consolidated Financial
Statements of the Company.
(10) See Note B of Notes to Consolidated Financial Statements of the Company for
information regarding the calculation of weighted average number of shares
used in computing net income (loss) per share.
</TABLE>
3
<PAGE> 5
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Statements and supplementary data required pursuant to this
Item begin on page F-1 of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
4
<PAGE> 6
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
- --------------------------------------------------------------------------------
(a) DOCUMENT LIST
1. and 2. The Financial Statements and Financial Statement Schedules
are listed in the accompanying Index to Consolidated Financial
Statements beginning on page F-1 of this Report.
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable and
therefore have been omitted.
3. Exhibits Required by Securities and Exchange Commission Regulation S-K
<TABLE>
(a) The following exhibits are filed as part of this report or are
incorporated herein by reference (Exhibit Nos. 10.10, 10.11, 10.12, 10.13,
10.14, 10.15, 10.16, 10.17, 10.21, 10.25, 10.31, 10.32 and 10.61 are management
contracts, compensatory plans or arrangements):
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
3.1 Certificate of Incorporation, as amended.
3.2 By-laws.*
4 Form of Common Stock Certificate.*
10.1 Registration Rights Agreement, dated as of October 14, 1993 among the Company and certain of the
Company's stockholders.*
10.2 Patel Registration Rights Agreement, dated as of August 24, 1995, between Bharatan R. Patel and
the Company.*
10.3 Amended and Restated Management Agreement, dated as of September 30, 1995, among the
Company, Aavid Engineering, Inc. and Sterling Ventures Limited.*
10.4 Stockholders' Agreement, dated October 14, 1993, among the Company and certain of the Company's
stockholders.*
10.5 Agreement and Plan of Merger, dated October 14, 1993, among the Company, Aavid Acquisition, Inc.
and Aavid Engineering, Inc. ("Aavid Engineering").*
10.6 1994 Stock Option Plan.*
10.7 Form of Stock Option Agreement under the 1994 Stock Option Plan.*
10.8 1995 Employee Stock Purchase Plan.*
10.9 1995 Non-Employee Director Stock Option Plan.*
10.10 Stock Option Agreements, dated October 14, 1993, between the Company and Alan F. Beane, relating
to options to purchase shares of the Company's Series A Preferred Stock and Common Stock.*
10.11 Employment Agreement, dated as of October 14, 1993, between Alan F. Beane and the Company, as
amended.*
</TABLE>
5
<PAGE> 7
<TABLE>
<S> <C>
10.12 Employment Agreement, dated as of March 13, 1995, between D. Max Henderson and Aavid
Engineering; and Letter Agreement, dated as of March 23, 1995.*
10.13 Employment Agreement, dated as of January 1, 1995, between George P. Dannecker and Aavid
Engineering.*
10.14 Employment Agreement, dated as of January 1, 1995, between Albert B. Cerand and Aavid
Engineering.*
10.15 Employment Agreement, dated as of February 17, 1995, between David R.A. Steadman and the
Company.*
10.16 Employment Agreement, dated as of August 24, 1995, between Bharatan R. Patel and Fluent Inc.
("Fluent").*
10.17 Employment Agreement, dated as of August 24, 1995, between Dr. Ferit Hassan Boysan and Fluent
Europe Limited.*
10.18 Agreement dated as of October 1993, between Aavid Engineering and Materials Innovation, Inc.*
10.19 Consulting Agreement, dated January 30, 1995, between James Lemire and Aavid Engineering.*
10.20 Warrant Purchase Agreement, dated as of October 14, 1993, between the Company and Rice
Mezzanine Lenders, L.P.*
10.21 Note Purchase Agreement, dated as of October 14, 1993, between Aavid Engineering and Rice
Mezzanine Lenders, L.P. ("Rice") relating to the $7,000,000 principal amount of the Company's 12.5%
Senior Subordinated Notes; First Amendment to Note Purchase Agreement, dated November 30,
1994; and Second Amendment to Note Purchase Agreement, dated as of December 13, 1994.*
10.22 Parent Guaranty Agreement, dated October 14, 1993, executed by the Company for the benefit of
Rice.*
10.23 Company Guaranty Agreement, dated October 14, 1993, executed by Aavid Engineering for the
benefit of Rice.*
10.24 Guaranty Agreement, dated December 13, 1994, executed by Aavid Thermal Technologies of
Texas,Inc. in favor of Rice.*
10.25 Loan and Security Agreement, dated October 14, 1993, between Aavid Engineering and LaSalle
Business Credit, Inc.; First Amendment, dated May 25, 1994; Second Amendment, dated September
1, 1994; Third Amendment, dated December 13, 1994; and Fourth Amendment, dated July 1995.*
10.26 Guaranty, dated October 14, 1993, of the Company for the benefit of LaSalle Business Credit, Inc.*
10.27 Patent Collateral Security Agreement, dated October 14, 1993, by and between Aavid Engineering
and LaSalle Business Credit, Inc.*
10.28 Patent Assignment of Security, dated October 14, 1993, by and between Aavid Engineering and
LaSalle Business Credit, Inc.*
10.29 Stock Purchase Agreement, dated as of June 19, 1995, between Bharatan R. Patel and the
Company.*
</TABLE>
6
<PAGE> 8
<TABLE>
<S> <C>
10.30 Agreement, dated as of June 9, 1995, between the Company and Dr. Ferit Hassan Boysan.*
10.31 Agreement, dated August 9, 1995, between the Company and Linda Spencer-Green. Other former
stockholders of Fluent are parties to twenty-five additional Agreements which are substantially
identical in all material respects except as indicated in the Exhibit.*
10.32 Promissory Note of the Company, dated August 24, 1995, issued to Linda Spencer-Green. Other
former stockholders of Fluent were issued twelve additional Promissory Notes which are
substantially identical in all material respects except as indicated in the Exhibit.*
10.33 Stock Pledge Agreement, dated August 24, 1995, between the Company and Linda Spencer-Green.
Other former owners of Fluent common stock are parties to twelve additional Stock Pledge
Agreements which are substantially identical in all material respects except as indicated in the
Exhibit.*
10.34 Consideration Agreement, dated as of August 1, 1993, by and among Aavid Engineering, Energy
Innovations, Inc. and Vortadyne, Inc.*
10.35 Shareholders Agreement of 1993, dated August 1, 1993, between Aavid Engineering and
Vortadyne,Inc.*
10.36 Form of Research and Development Agreement between Aavid Engineering and Aavid Air
Systems,Inc. ("Aavid Air").*
10.37 Form of Development Agreement between Aavid Air and Energy Innovations, Inc.*
10.38 Sublicense Agreement, dated as of August 31, 1993, by and among Vortadyne, Inc., Aavid Air and
Energy Innovations, Inc.*
10.39 Form of Exclusive License Agreement between Aavid Air and Aavid Engineering.*
10.40 Form of Non-Exclusive license Agreement between Aavid Air and Aavid Engineering.*
10.41 First Refusal Agreement, dated August 1, 1993, between Aavid Air and Aavid Engineering.*
10.42 Research and Development Agreement, dated August 5, 1993, between Aavid Engineering and Aavid
Air.*
10.43 Development Agreement, dated August 5, 1993, between Aavid Engineering and Aavid Air.*
10.44 Lease, dated as of October 10, 1995, between Aavid Engineering and Industrial Enterprises; and
Addendum to Lease.*
10.45 Tenancy Agreement, dated as of July 30, 1992, by and among Aavid Engineering (S) Pte Ltd. and
Lim Hock Eng, Lim Hock Chee and Lim Hock Leng; and Tenancy Agreement dated June 17, 1994.*
10.46 Lease Agreement, dated as of October 3, 1990, between George A. and Eleanor A. Konrad ("Landlords")
and Passport Industries, Inc.; Second Amendment, dated as of October 26, 1993; Third Amendment,
dated as of September 1, 1994; and Fourth Amendment, dated as of October 19, 1995, between Aavid
Thermal Technologies of Texas, Inc. ("Aavid Texas") and Landlords.*
10.47 Lease, dated as of August 25, 1994, between Baron Machine Company Inc. and Aavid Engineering.*
10.48 Lease, effective as of November 1, 1994, between Sarbir Developments Limited and Aavid
Engineering Limited.*
</TABLE>
7
<PAGE> 9
<TABLE>
<S> <C>
10.49 Construction Loan Agreement, dated as of September 18, 1995, between Aavid Texas and The
American National Bank of Texas; and Promissory Note, dated September 18, 1995, of Aavid Texas
payable to The American National Bank of Texas.*
10.50 Guaranty Agreement, dated September 18, 1995, of the Company for the benefit of The American
National Bank of Texas.*
10.51 Deed of Trust, dated September 18, 1995, from Aavid Texas to John Davidson, Trustee.*
10.52 Purchase and Sale Agreement, dated December 7, 1994, by and among Passport Industries, Inc., Paul
McCully, Corinne McCully, Ron Krause, Linda Krause, Clark Scarborough, Ben Crenshaw, Aavid
Engineering and Aavid Texas.*
10.53 Construction Loan and Security Agreement, dated May 17, 1991, between Fluent and First NH
Bank; Amendment, dated December 17, 1991; Second Amendment, dated June 15, 1993; Promissory
Note, dated June 15, 1993, of Fluent payable to First NH Bank.*
10.54 Note, dated December 17, 1991, between Concord Regional Development Corporation and Fluent.*
10.55 Note, dated June 17, 1993, between Concord Regional Development Corporation and Fluent.*
10.56 Business Loan Agreement, dated March 2, 1995, between Fluent Europe Limited and Lloyds Bank
Plc.*
10.57 Software Distribution License Agreement, effective as of October 15, 1993, between ICEM
Technologies and Fluent.** *
10.59 Intercompany Agreement, dated as of October 16, 1992, between Creare Inc. and Fluent Inc.*
10.60 Form of indemnity agreement for the Company's officers and directors.*
10.61 Employment Agreement, dated as of December 1, 1995, among John Mitchell, Aavid Engineering and
the Company.*
10.62 Agreement, dated as of August 18, 1995, among the Company, Ralph I. Larson and Richard J.
Phillips.*
10.63 Royalty Agreement, dated as of August 30, 1993, between Aavid Laboratories, Inc. and Ralph I.
Larson.*
10.64 Royalty Agreement, dated as of August 30, 1993, between Aavid Laboratories, Inc. and Richard J.
Phillips.*
10.65 Software License, Marketing and Distribution Agreement, dated as of October 12, 1994, between
Fluent Inc. and RG Models Inc.***
10.66 Underwriting Agreement, dated as of January 29, 1996, by and between Aavid Thermal Technologies,
Inc., Montgomery Securities and Robertson Stephens & Company LLC.
10.67 Computer Software License, Marketing and Distribution Agreement, dated February 16, 1996,
between Nektonics, Inc. and Fluent Inc.*** +
10.68 Amendment to Software Distribution License Agreement, effective as of October 15, 1993, between
ICEM Technologies and Fluent, dated February 9, 1996.
</TABLE>
8
<PAGE> 10
21 Subsidiaries of the Company.*
- ----------------------
* Incorporated by reference to Exhibits to the Registration Statement on Form
S-1 (Registration No. 33-99232).
** Confidential treatment granted for portions omitted.
*** Confidential treatment requested for portions omitted.
+ Portions redacted and denoted with an "*" have been filed separately with
the Securities and Exchange Commission pursuant to an application for
confidential treatment.
9
<PAGE> 11
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this amendment to the
Report to be signed on its behalf by the undersigned, thereunto duly authorized.
AAVID THERMAL TECHNOLOGIES, INC.
By: /s/ Alan F. Beane
---------------------------------
Alan F. Beane
President and Chief Executive Officer
August 13, 1996
10
<PAGE> 12
<TABLE>
AAVID THERMAL TECHNOLOGIES, INC.
Index to Consolidated Financial Statements
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants .................................................................................F-1
Consolidated Balance Sheet as of December 31, 1994 and 1995 .......................................................F-2
Consolidated Statement of Operations for the Predecessor for the nine months ended September 25, 1993 and for
the Company for the period from September 26, 1993 to December 31, 1993 and for the
years ended December 31, 1994 and 1995.............................................................................F-3
Consolidated Statement of Changes in Stockholders' Equity for the Predecessor
for the nine months ended September 25, 1993 and for the Company for the period
from September 26, 1993 to December 31, 1993 and for
the years ended December 31, 1994 and 1995 ........................................................................F-4
Consolidated Statement of Cash Flows for the Predecessor for the nine months ended September 25, 1993 and for
the Company for the period from September 26, 1993 to December 31, 1993 and for the years ended December 31,
1994 and 1995......................................................................................................F-5
Notes to Consolidated Financial Statements.........................................................................F-6
</TABLE>
11
<PAGE> 13
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Aavid Thermal Technologies, Inc.:
We have audited the accompanying consolidated balance sheets of Aavid Thermal
Technologies, Inc. as of December 31, 1995 and 1994, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows of the Company for the years ended December 31, 1995 and December 31,
1994, and the period from September 26, 1993 to December 31, 1993; we have also
audited the related consolidated statements of operations, changes in
stockholders' equity and cash flows of the Predecessor for the nine months ended
September 25, 1993. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Aavid
Thermal Technologies, Inc. as of December 31, 1995 and 1994, and the
consolidated results of its operations and cash flows of the Company for the
years ended December 31, 1995 and December 31, 1994 and the period from
September 26, 1993 to December 31, 1993; and the consolidated results of its
operations and cash flows for the Predecessor for the nine months ended
September 25, 1993 in conformity with generally accepted accounting principles.
Boston, Massachusetts
February 23, 1996
F-1
<PAGE> 14
AAVID THERMAL TECHNOLOGIES, INC.
<TABLE>
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and 1994
(in thousands, except share data)
<CAPTION>
ASSETS 1995 1994
---- ----
<S> <C> <C>
Cash $ 4,327 $ 692
Note receivable 250 --
Accounts receivable trade, less allowance for doubtful accounts
$286 and $201, respectively 15,736 9,245
Inventories 6,376 4,297
Deferred income taxes 1,493 836
Prepaid and other current assets 1,178 860
------- -------
Total current assets 29,360 15,930
Property, plant and equipment, net 24,948 14,546
Other assets, net 2,191 2,085
------- -------
Total assets $56,499 $32,561
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of debt obligations 4,267 1,013
Accounts payable, trade 7,278 4,403
Accrued expenses and other current liabilities 11,514 4,008
------- -------
Total current liabilities 23,059 9,424
Debt obligations, net of current portion 25,247 16,542
Deferred income taxes 1,654 1,723
------- -------
Total liabilities 49,960 27,689
Redeemable warrant 1,106 331
Commitments and contingencies (Note L)
Stockholders' equity:
Common stock, $0.01 par value; authorized 15,000,000 shares;
835,514 and 527,300 shares issued and outstanding at
December 31, 1995 and 1994, respectively 8 5
Convertible preferred stock:
Series A, convertible preferred stock, $0.01 par value
authorized 778,817 shares; 488,127 shares issued and
outstanding at December 31, 1995 and 1994 5 5
Series B, convertible preferred stock, $0.01 par value;
authorized 321,183 shares; 50,000 shares issued and
outstanding at December 31, 1995 and 1994 1 1
Additional paid-in capital 6,583 5,060
Accumulated deficit (1,164) (530)
------- -------
Total stockholders' equity 5,433 4,541
------- -------
Total liabilities and stockholders' equity $56,499 $32,561
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
F-2
<PAGE> 15
AAVID THERMAL TECHNOLOGIES, INC.
<TABLE>
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except share and per share data)
<CAPTION>
THE COMPANY THE PREDECESSOR
--------------------------------------------- ---------------
FOR THE YEAR FOR THE YEAR PERIOD FROM NINE MONTHS
ENDED ENDED SEPTEMBER 26, ENDED
DECEMBER 31, DECEMBER 31, 1993 SEPTEMBER 25,
1995 1994 TO DECEMBER 31, 1993
1993
------------ ------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net sales $ 90,944 $ 61,620 $ 11,040 $33,975
Cost of goods sold 60,680 41,132 8,008 24,341
-------- ---------- -------- -------
Gross profit 30,264 20,488 3,032 9,634
Selling, general and administrative expenses 19,347 13,246 4,162 6,581
Research and development 2,594 1,158 124 299
Purchased undeveloped technology charge 2,770 -- 2,317 --
Buyout of compensation arrangements 2,649 -- -- --
-------- ---------- -------- -------
Income (loss) from operations 2,904 6,084 (3,571) 2,754
Interest expense, net (2,611) (1,567) (361) (2,039)
Other expense (177) (5) -- --
-------- ---------- -------- -------
Income (loss) before income taxes and cumulative
effect of accounting change 116 4,512 (3,932) 715
Provision for income tax (expense) benefit (831) (1,677) 567 (266)
-------- ---------- -------- -------
Income (loss) before cumulative
effect of accounting change (715) 2,835 (3,365) 449
Cumulative effect of accounting change -- -- -- (1,290)
-------- ---------- -------- -------
Net income (loss) (715) 2,835 (3,365) (841)
Accretion to redemption value of warrant (775) (331) -- --
-------- ---------- -------- -------
Net income (loss) available to stockholders $ (1,490) $ 2,504 $ (3,365) $ (841)
======== ========== ======== =======
Net income (loss) per share available to stockholders $ (2.06) $ 0.55 $ (5.18) --
======== ========== ======== =======
Weighted average common shares and equivalents 724,445 4,536,170 649,116 --
======== ========== ======== =======
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
F-3
<PAGE> 16
AAVID THERMAL TECHNOLOGIES, INC.
<TABLE>
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(in thousands, except share data)
<CAPTION>
SERIES A SERIES B
CONVERTIBLE CONVERTIBLE COMMON STOCK
COMMON STOCK PREFERRED STOCK PREFERRED STOCK CLASS A
----------------- ----------------- ---------------- ---------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
The Predecessor
Balance, December 31, 1992 7,335 $ 7
Put Warrant Obligation
Net Loss
------- -- ------- -- ------ -- ------ ---
Balance, September 25, 1993 7,335 7
------- -- ------- -- ------ -- ------ ---
Redemptions and Recapitalization (7,355) (7)
The Company
Initial Capitalization issued on
acquisition 527,300 $5 488,127 $5 50,000 $1
Cost of equity - acquisition costs
Contribution to capital - warrants
Net loss
------- -- ------- -- ------ -- ------ ---
Balance, December 31, 1993 527,300 5 488,127 5 50,000 1
Accretion of warrant
Net income
------- -- ------- -- ------ -- ------ ---
Balance, December 31, 1994 527,300 5 488,127 5 50,000 1
Stock issued on acquisition 308,214 3
Cumulative translation adjustment
Accretion of warrant
Net loss
------- -- ------- -- ------ -- ------ ---
Balance, December 31, 1995 835,514 $8 488,127 $5 50,000 $1 -- $--
======= == ======= == ====== == ====== ===
<CAPTION>
COMMON STOCK
CLASS B ADDITIONAL
------------- WARRANT PAID-IN ACCUMULATED
SHARES AMOUNT OBLIGATIONS CAPITAL DEFICIT TOTAL
------ ------ ----------- ------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
The Predecessor
Balance, December 31, 1992 387 $1,315 $ 997 $(6,335) $(4,016)
Put Warrant Obligation (640) 640
Net Loss (841) (841)
---- --- ------ ------- ------- -------
Balance, September 25, 1993 387 -- 675 997 (6,536) (4,857)
---- --- ------ ------- ------- -------
Redemptions and Recapitalization (387) -- (675) (997) 6,536 4,857
The Company
Initial Capitalization issued on
acquisition 6,502 6,513
Cost of equity - acquisition costs (1,193) (1,193)
Contribution to capital - warrants 82 82
Net loss (3,365) (3,365)
---- --- ------ ------- ------- -------
Balance, December 31, 1993 5,391 (3,365) 2,037
Accretion of warrant (331) (331)
Net income 2,835 2,835
---- --- ------ ------- ------- -------
Balance, December 31, 1994 5,060 (530) 4,541
Stock issued on acquisition 2,298 2,301
Cumulative translation adjustment 81 81
Accretion of warrant (775) (775)
Net loss (715) (715)
---- --- ------ ------- ------- -------
Balance, December 31, 1995 -- $-- $ -- $ 6,583 $(1,164) $ 5,433
==== === ====== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements
F-4
<PAGE> 17
AAVID THERMAL TECHNOLOGIES, INC.
<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
<CAPTION>
THE COMPANY THE PREDECESSOR
----------------------------------------------- ---------------
PERIOD FROM
FOR THE FOR THE SEPTEMBER 26, NINE MONTHS
YEAR ENDED YEAR ENDED 1993 TO ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 25,
1995 1994 1993 1993
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Cash flows provided by (used in) operating activities:
Net income (loss) $ (715) $ 2,835 $ (3,365) $ (841)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 2,501 1,477 285 1,656
Purchased undeveloped technology charge 2,770 -- 2,317 --
Loss on sale of property, plant and equipment -- 1 -- (2)
Deferred income taxes 21 167 723
Changes in assets and liabilities, net of effects
from acquisitions:
Accounts receivable trade (3,916) (3,801) 1,560 (1,229)
Note receivable (250) -- -- --
Inventories (2,079) (1,355) 88 1,080
Prepaid and other current assets (48) (601) (48) (1)
Other assets (263) (85) -- (220)
Accounts payable, trade 2,624 1,539 402 575
Accrued expenses and other current liabilities 1,665 1,449 (1,218) 1,214
------- ------- -------- -------
Total adjustments 3,025 (1,376) 3,553 3,796
------- ------- -------- -------
Net cash provided by operating activities 2,310 1,459 188 2,955
------- ------- -------- -------
Cash flows provided by (used in) investing activities:
Payments for acquisitions, net of cash acquired 406 (1,074) (17,775) --
Proceeds from sale of property, plant and equipment -- -- -- 2
Purchase of property, plant and equipment (8,454) (3,808) (841) (1,103)
------- ------- -------- -------
Net cash used in investing activities (8,454) (4,882) (18,616) (1,101)
------- ------- -------- -------
Cash flows provided by (used in) financing activities:
Issuance of common stock, net of expenses -- -- 4,807 --
Advances under line of credit, net 1,539 3,234 -- (1,591)
Advances under debt obligations 8,265 1,200 13,936 1,505
Principal payments on debt obligations (527) (701) (115) (1,835)
------- ------- -------- -------
Net cash provided by (used in) financing activities 9,277 3,733 18,628 (1,921)
Foreign exchange rate change 96 -- -- --
------- ------- -------- -------
Net increase (decrease) in cash 3,635 310 200 (67)
Cash, beginning of period 692 382 182 249
------- ------- -------- -------
Cash, end of period $ 4,327 $ 692 $ 382 $ 182
======= ======= ======== =======
Supplemental disclosure of cash flow information:
Interest paid $ 2,559 $ 1,602 $ 197 $ 165
Income taxes paid 554 1,207 100 497
Supplemental disclosure of noncash investing and
financing activities:
Capital lease obligation of computer system $ 192
Reconciliation of assets acquired and liabilities assumed:
Fair value of assets acquired $ 5,567 $ 1,217 $ 24,377
Cash received (paid) for assets (406) 1,074 17,775
------- ------- --------
Liabilities assumed $ 5,973 $ 143 $ 6,602
======= ======= ========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
F-5
<PAGE> 18
AAVID THERMAL TECHNOLOGIES,INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
A. OPERATION AND ACQUISITION OF BUSINESS:
-------------------------------------
Aavid Thermal Technologies, Inc. (the "Company") was incorporated for
the purpose of acquiring Aavid Engineering, Inc. ("AEI" or the
"Predecessor"). Effective September 25, 1993, the Company issued 488,127
shares of Series A Preferred Stock for $5,900 and 527,300 shares of Common
Stock for $100 and AEI received $7,000 upon issuance of a 12.5% Senior
Subordinated Note and $5,800 under the terms of a credit facility with a
commercial lender. Simultaneously, the Company acquired all of the
outstanding stock of AEI and retired substantially all of AEI's obligations
for borrowed money with cash and the issuance of 50,000 shares of the
Company's Series B Convertible Preferred Stock having a value of $514,500
(or $10.27 per share), which was equal to the weighted average of the
purchase price per share for the Company's Series A Preferred Stock and
Common Stock purchased by new investors in the acquisition. This
acquisition was accounted for under the purchase method of accounting.
<TABLE>
The purchase price was allocated as follows:
<S> <C>
Cash $ 181
Accounts receivable 6,851
Inventory 2,798
Other current assets 211
Fixed assets 10,718
Other noncurrent assets principally intangibles 2,000
Undeveloped technology 2,317
-------
$25,076
=======
</TABLE>
<TABLE>
The condensed balance sheet of AEI as of September 25, 1993
reflecting this transaction follows:
<S> <C>
Assets $22,759
Liabilities 19,569
</TABLE>
The purchased undeveloped technology in 1993 relates to a thermal
management solution with which the Company intends to meet future high
density cooling requirements of advanced electronic and electrical systems.
On December 13, 1994, the Company purchased all of the assets of
Passport Industries, Inc. for approximately $1,074 in cash through its
wholly-owned subsidiary Aavid Thermal Technologies of Texas, Inc. Passport
Industries manufactured heat sinks and provided related thermal management
products for electrical and electronics parts, components, ensembles, and
systems. This acquisition has been accounted for under the purchase method
of accounting. The purchase price exceeded the
Continued
F-6
<PAGE> 19
AAVID THERMAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(in thousands, except share and per share data)
fair value of net assets acquired by $450, with the resulting goodwill
amortized on a straight-line basis over 15 years.
On August 24, 1995, the Company purchased all of the stock of Fluent Inc.
("Fluent"), a provider of computerized design and simulation software used to
predict fluid flow, heat and mass transfer, chemical reaction, and related
phenomena. Fluent will continue its operations as a subsidiary of the
Company. The Company acquired Fluent through the issuance of 308,214 shares
of its common stock, a $3,590 non-interest bearing note payable in eight
equal quarterly installments, due September, 1997, and a cash payment of
$927. This acquisition has been accounted for under the purchase method of
accounting.
<TABLE>
The allocation of the identifiable tangible and intangible assets and
undeveloped technology based on estimated fair market value was as follows:
<S> <C>
Cash $ 1,338
Accounts receivable 2,577
Other current assets 262
Fixed assets 4,875
Goodwill 141
Other noncurrent assets 853
Undeveloped technology 2,770
-------
$12,816
=======
</TABLE>
The undeveloped technology had not reached technological feasibility and had
no alternative future use. The fair value was determined based on a risk
adjusted cash flow model, under which cash flows were discounted taking into
account risks related to existing and future markets and an assessment of the
life expectancy of the technology.
<TABLE>
The condensed balance sheet of Fluent as of August 24, 1995 reflecting this
transaction follows:
<S> <C>
Assets $10,255
Liabilities $ 6,613
</TABLE>
<TABLE>
Presented below is the unaudited Supplemental Pro Forma Financial Data for
the year ended December 31, 1995 and 1994, reflecting the impact of the
acquisitions of Passport Industries and Fluent as if they occurred at the
beginning of the period:
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
----------------- -----------------
<S> <C> <C>
Net sales $101,557 $74,263
Net income 4,771 3,671
Net income per share .93 .67
</TABLE>
Continued
F-7
<PAGE> 20
AAVID THERMAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(in thousands, except share and per share data)
<TABLE>
Presented below is the unaudited Historical Financial Data for Fluent as of
August 24, 1995 and for the period April 1 to August 24, 1995:
<CAPTION>
CONSOLIDATED BALANCE SHEET OF FLUENT
AUGUST 24,
1995
-----------
ASSETS (UNAUDITED)
<S> <C>
Current assets:
Cash equivalents $ 1,338
Accounts receivable 2,577
Other current assets 262
-------
Total current assets 4,177
Property, plant and equipment, at cost:
Land 650
Building 3,260
Computer equipment 2,581
Furniture and fixtures 608
Vehicles 127
-------
7,226
Less accumulated depreciation 2,351
-------
Net property, plant and equipment 4,875
Deferred taxes and other assets 1,203
-------
$10,255
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses 1,490
Deferred revenues 1,211
Current installments of long-term debt 155
Other liabilities 380
-------
Total current liabilities 3,236
Long-term debt, less current installments 2,378
Other long-term liabilities 999
-------
Total liabilities 6,613
Stockholders' equity:
Common stock --
Additional paid-in capital 1,406
Retained earnings 2,236
-------
Total stockholders' equity 3,642
-------
$10,255
=======
</TABLE>
Continued
F-8
<PAGE> 21
AAVID THERMAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
APRIL 1, 1995
TO
AUGUST 24, 1995
---------------
CONSOLIDATED STATEMENT OF INCOME OF FLUENT (UNAUDITED)
<S> <C>
Revenues:
Software $5,474
Contracts 844
------
6,318
------
Direct expenses:
Costs of software revenues 1,327
Costs of contract revenues 468
Selling, general and administrative expense 2,252
Research and development expense 1,381
------
5,428
------
Income from operations 890
------
Other income (expense):
Interest income 31
Interest expense (91)
Other income 44
------
(16)
------
Income before income taxes and minority interest 874
Income taxes 289
------
Income before minority interest 585
Minority interest 114
------
Net income $ 471
======
</TABLE>
Continued
F-9
<PAGE> 22
AAVID THERMAL TECHNOLOGIES,INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
APRIL 1, 1995
TO
AUGUST 24, 1995
---------------
CONSOLIDATED STATEMENT OF CASH FLOWS OF FLUENT (UNAUDITED)
<S> <C>
Cash flows from operating activities:
Net income $ 471
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 243
Amortization of loan fees 1
Foreign currency translation (88)
Loss on sale of fixed assets 5
Minority interest 114
Changes in operating assets and liabilities:
Accounts receivable 124
Due from related parties 186
Other current assets 108
Accounts payable (131)
Accrued expenses (1,607)
Deferred compensation liability 647
Billings in excess of costs and estimated earnings on
uncompleted contracts (13)
Income taxes payable (9)
Deferred revenues (116)
-------
Net cash (used in) operating activities (65)
-------
Cash flows from investing activities:
Capital expenditures (1,163)
-------
Net cash (used in) investing activities (1,163)
-------
Cash flows from financing activities:
Proceeds from borrowings 665
Principal payments on long-term debt and capital lease
obligations (103)
-------
Net cash provided by financing activities 562
-------
Net (decrease) in cash and cash equivalents (666)
Cash and cash equivalents, beginning of year 2,004
-------
Cash and cash equivalents, end of year $ 1,338
=======
</TABLE>
Continued
F-10
<PAGE> 23
AAVID THERMAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(in thousands, except share and per share data)
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
------------------------------------------
BUSINESS ACTIVITY
The Company designs, manufactures, engineers and sells thermal management
solutions that are used in commercial, consumer and industrial electronic
equipment that are available as both standard and custom designed products.
In addition the Company, with the acquisition of Fluent, designs, develops,
and markets advanced technology, computerized design and simulation software
used to predict air and other fluid flow, heat and mass transfer, chemical
reaction and related phenomena. The Company markets its products through a
worldwide network of salespeople, manufacturer representatives and
distributors.
INITIAL PUBLIC OFFERING
On January 29, 1996, the Company completed its initial public offering (IPO)
and sold an aggregate of 2,300,000 shares of common stock at $9.50 per share.
All of the current outstanding preferred stock automatically converted into
2,959,692 shares of common stock as discussed in Note H. In addition, the
authorized number of preferred shares increased from 1,100,000 to 4,000,000
upon the conversion of the outstanding preferred stock to common stock and
the number of authorized shares of common stock increased from 15,000,000 to
25,000,000.
FINANCIAL STATEMENT PRESENTATION
The Board of Directors has approved a 5.5-for-1 stock split (in the form of a
stock dividend) of its common stock to be effected immediately prior to the
effective date of the Registration Statement file on Form S-1 filed by the
Company under the Securities Act of 1933 ("Registration Statement") which
occurred on January 29, 1996. Accordingly, all common share and per share
amounts in these financial statements have been adjusted to reflect the stock
dividend as though it had occurred at the beginning of the initial period
presented.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated balance sheets include the accounts of the
Company and its wholly-owned subsidiaries. All material intercompany
transactions have been eliminated.
The Company owns 50% in a joint venture, Aavid Air Systems, Inc. This entity
is controlled by the Company under the terms of a shareholder agreement. The
Company accounts for this entity using the equity method of accounting. The
effect of this accounting method does not materially differ from that which
would have resulted if it was consolidated.
Continued
F-11
<PAGE> 24
AAVID THERMAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(in thousands, except share and per share data)
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of trade accounts
receivable. The Company performs ongoing credit evaluations of its customers'
financial condition and generally requires no collateral from its customers.
The Company maintains an allowance for uncollectible accounts receivable
based upon expected collectibility of all accounts receivable. The Company's
write-offs of accounts receivable have not been significant during the
periods presented. The Company's sales have been denominated in U.S. dollars
and risks of foreign exchange fluctuations is considered minimal.
INCOME TAXES
The Company accounts for income taxes under Financial Accounting Standards
Board (FASB) Statement No. 109, Accounting for Income Taxes. Under this
method, the amount of deferred tax liabilities or assets is calculated by
applying the provisions of enacted tax laws to determine the amount of taxes
payable or refundable currently or in future years. FASB 109 requires a
valuation allowance against deferred tax assets if, based upon the available
evidence, it is more likely than not that some or all of the deferred tax
assets will not be taxable.
Deferred income taxes arise from differences in the timing of the recognition
of certain expenses for financial statement and income tax reporting
purposes. The principal sources of these differences is the excess of the
financial statement basis of net assets acquired in the transactions
described in Note A over their tax basis along with deferred software
maintenance revenue, depreciation, inventory reserves, vacation reserves, and
certain accruals.
RESEARCH AND DEVELOPMENT
Research and development costs are charged to expense as incurred.
INVENTORIES
Inventories are valued at the lower of cost or market with cost determined on
the last-in, first-out (LIFO) method for stock inventory items and on the
average cost method for job order work-in-process and finished goods. The
cost of inventories of the foreign subsidiaries are valued on the first-in,
first-out basis.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. The Company depreciates
property, plant and equipment over their estimated remaining useful lives
(buildings - 31.5 to 40 years;
Continued
F-12
<PAGE> 25
AAVID THERMAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(in thousands, except share and per share data)
machinery, equipment, dies, tooling-3 to 10 years; and vehicles-4 years;)
using both the straight-line and accelerated methods.
Repairs and maintenance are charged against income when incurred; renewals
and betterments are capitalized. When property, plant, and equipment are
retired or sold, their cost and related accumulated depreciation are removed
from the accounts and any resulting gain or loss is included in income.
INTANGIBLES
Costs incurred in connection with the issuance of the Company's debt
obligations have been deferred and are being amortized on a straight-line
method over the term of the respective debt obligations.
Other intangibles, which consist of goodwill and patents are being amortized
on a straight-line basis over 15 and 7 years, respectively. Goodwill
associated with the acquisition of Fluent is being amortized on a
straight-line basis over 7 years.
The Company periodically reviews the propriety of carrying amounts of its
intangible assets as well as the amortization periods to determine whether
current events and circumstances warrant adjustment to the carrying value or
estimated useful lives. At each balance sheet date, management evaluates
whether there has been a permanent impairment in the value of goodwill by
assessing the carrying value of goodwill against anticipated future cash
flows from related operating activities. Factors which management considers
in performing this assessment include current operating results, trends and
prospects and, in addition, demand, competition and other economic factors.
ADVERTISING
Costs for catalogs and other media are expensed as incurred. For the years
ended December 31, 1995 and December 31, 1994, for the nine months ended
September 25, 1993, and for the period from September 26 to December 31,
1993, costs were $872, $421, $281, and $186, respectively.
ACCOUNTS RECEIVABLE
The Company sells its principal products to a large number of customers in
many different industries and geographies. At December 31, 1995,
approximately 7% of recorded trade receivables were concentrated with three
Fortune 500 customers. The Company performs ongoing credit evaluations of its
customers' financial condition but does not generally require collateral.
Continued
F-13
<PAGE> 26
AAVID THERMAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(in thousands, except share and per share data)
REVENUE RECOGNITION
THERMAL PRODUCTS
Revenue is recognized when products are shipped.
SOFTWARE
The Company licenses single and multiple copies of its software products
to customers. Revenues for these licenses are recognized when the license
agreement has been executed and a copy of the software delivered to the
customer. When license contracts contain acceptance criteria, the Company
recognizes revenue when such criteria have been met. Revenues associated
with maintenance obligations included in software licenses are recognized
ratably over the period of the licenses.
CONTRACTS
Revenue from both short and long-term consulting contracts is recognized
according to the percentage-of-completion method for both financial and
tax reporting purposes.
Revenues from maintenance contracts are recognized ratably over the period
the services are performed.
Contract revenue is based on the percentage of costs incurred to total
costs estimated to completion. Contract costs include all direct material
and labor costs and those indirect costs related to contract performance
such as indirect labor, supplies, and depreciation costs. Selling and
general administration costs are charged to expense as incurred.
Provisions for estimated losses on uncompleted contracts are made in the
period in which such losses are determined. Changes in contract
performance, conditions and estimated profitability, including those
arising from contract penalty provisions and final contact settlements,
may result in revision to costs and income and are recognized in the
period in which the revisions are determined.
NET INCOME (LOSS) PER SHARE
Net income (loss) per share of common stock is computed for each period based
upon the weighted average number of common shares outstanding and dilutive
common stock equivalents. For purposes of this calculation, outstanding
options are considered common stock equivalents (using the treasury stock
method). Pursuant to Securities and Exchange Commission Staff Accounting
Bulletin No. 83, common and common equivalent shares issued during the
12-month period prior to the date of the initial filing of the Company's
Registration Statement have been included in the calculation, using the
treasury stock method, as if they were outstanding for all periods presented.
Fair market value for the
Continued
F-14
<PAGE> 27
AAVID THERMAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(in thousands, except share and per share data)
purpose of this calculation was $9.50, the initial public offering price. The
number of shares used in this calculation has been adjusted to reflect a
5.5-for-one stock split.
Fully diluted net income (loss) per common share is not presented as it is
the same as primary net loss per common share.
Net income per share for the nine months ended September 25, 1993 of the
Predecessor have not been presented as such information is not considered
meaningful.
NEW ACCOUNTING STANDARDS
In October 1995, the FASB issued Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). This
statement establishes financial accounting and reporting standards for
stock-based employee compensation plans. While the Company is reviewing the
adoption and impact of SFAS 123, it expects to adopt the disclosure only
alternative and, accordingly, this standard will have no impact on the
Company's results of operation or its financial position.
USE OF ACCOUNTING ESTIMATES
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 and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
TRANSLATION OF FOREIGN CURRENCY
The balance sheet accounts of the Company's foreign subsidiaries are
translated into U.S. dollars at month-end exchange rates and revenue and
expense accounts are translated at average exchange rates. Translation gains
and losses are included in stockholder's equity. Transaction gains and losses
are included in the consolidated statements of operations.
Continued
F-15
<PAGE> 28
AAVID THERMAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(in thousands, except share and per share data)
C. INVENTORIES:
-----------
<TABLE>
The components of inventories at December 31, 1995 are as follows:
<CAPTION>
Average
LIFO Cost 1995 1994
---- ------- ---- ----
<S> <C> <C> <C> <C>
Raw materials $2,291 $ 175 $2,466 $2,358
Work-in-process -- 1,168 1,168 1,146
Finished goods -- 2,742 2,742 793
------ ------ ------ ------
$2,291 $4,085 $6,376 $4,297
====== ====== ====== ======
</TABLE>
The excess of current costs over the carrying value using the LIFO method was
approximately $479 and $546 at December 31, 1995 and 1994, respectively.
D. PROPERTY, PLANT AND EQUIPMENT:
-----------------------------
<TABLE>
Property, plant and equipment, by major classification as of December 31,
1995 and 1994 consists of the following:
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Land $ 1,149 $ 499
Building and improvements 7,267 4,239
Machinery and equipment 18,456 9,444
Vehicles 165 --
Construction-in-progress 2,005 1,667
------- -------
29,042 15,849
Less accumulated depreciation (4,094) (1,303)
------- -------
$24,948 $14,546
======= =======
</TABLE>
Substantially all property, plant and equipment serve as collateral under the
Company's various borrowing arrangements.
Continued
F-16
<PAGE> 29
AAVID THERMAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(in thousands, except share and per share data)
E. OTHER ASSETS:
------------
<TABLE>
Other long-term assets as of December 31, 1995 and 1994 consist principally
of the following intangible assets:
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Goodwill $1,440 $1,215
Patents 489 489
Deferred financing costs 809 731
Other - equity in affiliate 143 --
------ ------
2,881 2,435
Less accumulated amortization (690) (350)
------ ------
Net other assets $2,191 $2,085
====== ======
</TABLE>
F. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES:
----------------------------------------------
<TABLE>
Included in accrued expenses at December 31, 1995 and 1994 are the following:
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Accrued vacation $ 742 $ 590
Accrued bonus 1,727 760
Accrued legal expense 260 624
Accrued reorganization costs -- 63
Other accrued expenses 3,878 1,971
Deferred maintenance revenue 2,258 --
Accrued buyout of compensation arrangements 2,649 --
------- ------
$11,514 $4,008
======= ======
</TABLE>
Continued
F-17
<PAGE> 30
AAVID THERMAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(in thousands, except share and per share data)
<TABLE>
G. DEBT OBLIGATIONS:
----------------
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
The following term notes payable are under an equipment loan facility which
contains a prepayment penalty, with a borrowing limit of $4,000, at December
31, 1995 and 1994:
Equipment term note payable in monthly installments of $7 plus interest at
the lender's reference rate (which approximates prime) plus 1.75%
which equaled 10.25% at December 31, 1995, due October 1996 $ 327 $ 400
Equipment term note payable in monthly installments of $17 plus interest
at the lender's reference rate (which approximates prime) plus 1.75%
which equaled 10.25% at December 31, 1995, due October 1996 917 --
Equipment term note payable in monthly installments of $30 plus interest
at the lender's reference rate (which approximates prime) plus 1.75%
which equaled 10.25% at December 31, 1995, due October 1996 1,530 --
Equipment note which contains a prepayment penalty, payable in monthly
installments of $22 plus interest at the lender's reference rate (which
approximates prime) plus 1.75% which equaled 10.25% at December 31, 1995
due October 1996 556 800
Construction note payable, up to a limit of $1,360, including interest at the
Wall Street Journal Prime Rate plus 1.25% due March 18, 1996;
collateralized by first lien deed of trust on land and improvements 860 --
Revolving credit facility, up to a limit of $12,000 at December 31, 1995 and
$8,000 at December 31, 1994, respectively; interest at the lender's
reference rate (which approximates prime) plus 1.75% which equaled 10.25%
at December 31, 1995 and 1994. Availability under the facility is subject
to levels of qualified inventory and accounts receivable, as defined,
which amounted to $9,460 and $8,000 at December 31, 1995 and December 31,
1994, respectively. The credit facility is subject to various affirmative
and negative covenants, the most restrictive of which prohibits payment of
dividends, additional indebtedness and the sale of assets. The facility
expires in October 1996 and contains a commitment fee of .5% of available
borrowings under the line of credit as defined 6,865 5,309
</TABLE>
Continued
F-18
<PAGE> 31
AAVID THERMAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Term note which contains a prepayment penalty, payable in monthly
installments of $58 plus interest at the lender's reference rate (which
approximates prime) plus 1.75% which equaled 10.25% at December 31, 1995,
due October 1996 $3,349 $4,042
Term note which contains a prepayment penalty, payable in monthly
installments of $42, plus interest at the lender's reference rate (which
approximates prime) plus 1.75% which equaled 10.25% at December 31, 1995,
due October 1996 2,375 --
Note payable in monthly installments of $12, including interest at the prime
rate plus 1.50%, which equaled 10% at December 31, 1995 due June 30, 2008;
collateralized by a first mortgage on real property 1,057 --
Note payable in monthly installments of $9, including interest at 6.8% due
January 1, 2002; collateralized by a second mortgage on real property 487 --
Note payable in monthly installments of $4, including interest at 5.6% due
July 1, 2003; collateralized by a third mortgage on real property 283 --
Note payable in monthly installments of $4, including interest at the Lloyds
Bank Rate plus 2.5% which is 9% at December 31, 1995, due June 16, 2005;
collateralized by first mortgage on real property 630 --
Subordinated notes payable in quarterly installments of $449 including
interest at 7%, due July 30, 1997 2,965 --
Senior subordinated note payable bearing interest at 12.5% payable quarterly;
quarterly principal payments of $583 begin December 1998 due September
2001; the note is subject to certain restrictive covenants, the most
restrictive being a tangible net worth requirement, debt service coverage
and limitations on capital expenditures. A warrant to purchase 90,000
shares of Series B Convertible Preferred Stock at an exercise price of
$10.27 expiring October 2003 and valued at $82 was issued in connection
with this debt agreement with the value of the warrant at the time of
issuance accounted for as debt discount. This debt is subordinate to
specified obligations, principally commercial borrowings. The note may be
prepaid in amounts not less than $250 subject to a prepayment penalty.
Mandatory prepayment of all or portions of the debt is required in the
event of a public offering or the occurrence of other events as defined 7,000 7,000
</TABLE>
Continued
F-19
<PAGE> 32
AAVID THERMAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Other $ 313 $ 4
------- -------
29,514 17,555
Less current portion 4,267 1,013
------- -------
Debt obligations, net of current portion $25,247 $16,542
======= =======
</TABLE>
Substantially all of the Company's assets serve as collateral under these debt
obligations.
The Company was also contingently liable at December 31, 1995 for $200
related to a letter of credit.
<TABLE>
Debt maturities payable for the five years and thereafter subsequent to
December 31, 1995 are as follows:
<S> <C>
1996 $ 4,267
1997 4,349
1998 2,711
1999 4,446
2000 3,749
2001 2,082
Thereafter 7,910
-------
Total $29,514
=======
</TABLE>
H. EQUITY:
------
STOCK DIVIDEND
On November 7, 1995, the Company's Board of Directors approved a
5.5-for-one stock split (in the form of a stock dividend) of its Common
Stock to be effected immediately prior to the effective date of an initial
public offering which occurred on January 29, 1996. Accordingly all common
share and per share amounts have been restated to reflect the stock
dividend as through it had occurred at the beginning of the initial period
presented.
PREFERRED STOCK
The Preferred Stock has liquidation rights amounting to $12.09 and $10.27
per share as to the Series A and the Series B, respectively and is
convertible into common stock in accordance with a formula which would
currently result in a 5.5-for-one exchange. The right to convert is
Continued
F-20
<PAGE> 33
AAVID THERMAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(in thousands, except share and per share data)
at the option of the stockholder with mandatory conversion called for on
the closing of a public offering which occurred on January 29, 1996.
REDEEMABLE WARRANT
In connection with the issuance of a Senior Subordinated Note, the
Company granted the issuer a warrant to purchase 90,000 shares of its
Series B Convertible Preferred Stock at an exercise price of $10.27
expiring October 2003 (which upon the closing of the initial public
offering which occurred on January 29, 1996 represented the right to
purchase 495,000 shares of Common Stock at a purchase price of $1.87 per
share). The exercise price of the warrant represented the fair market
value of the underlying Preferred Stock on the date of issuance. The
warrant contains specific anti-dilutive provisions and provides the
holder with the right to participate in capital distributions to
shareholders and the ability, beginning in October 1998 or upon
occurrence of certain events as defined, to require the Company to
purchase the warrant for an amount based upon the fair market value of
the Company's stock at the time of exercise. The right to require the
Company to purchase the warrant expired upon the consummation of the
initial public offering which occurred on January 29, 1996. The Company
has the right to purchase the warrant beginning in October 1999 based
upon the fair market value of the company's stock at the time of
exercise. In addition, the warrantholder has been granted the right to
exchange the warrant into any class of capital stock of the Company or
any of its subsidiaries which is publicly traded at a rate of exchange
defined in the agreement. The warrant contains affirmative and negative
covenants similar to those contained in the debt agreement for the Senior
Subordinated Note and includes a restriction against dividend payments by
the Company. The warrant is accreted to the estimated redemption price
based on time remaining to October 1998.
I. STOCK OPTIONS:
-------------
During 1993, an officer of the Company was granted an option to acquire
249,205 shares of Common Stock at an exercise price of $.19 per share and
230,690 shares of Series A Convertible Preferred Stock at an exercise price
of $12.09 per share (which upon the closing of the initial public offering
which occurred on January 29, 1996 represented the right to purchase
1,268,795 shares of Common Stock at a purchase price of $2.20 per share).
These options vest and become exercisable as to 25% of the applicable shares
immediately with the remainder ratably in October of 1994, 1995 and 1996,
respectively. Acceleration of these vesting dates may occur on death or the
occurrence of specific events as defined. In addition at December 31, 1993,
directors of the Company had outstanding options to purchase 68,750 shares of
Common Stock at an exercise price of $.19 per share. The option are fully
exercisable as of December 31, 1995.
Continued
F-21
<PAGE> 34
AAVID THERMAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(in thousands, except share and per share data)
During 1994, the Company's Board of Directors adopted and approved a stock
option plan for officers and key employees ("1994 Stock Option Plan"). The
1994 Stock Option Plan provides for the grant to officers and key employees
of the Company of stock options intended to qualify as incentive stock
options under the applicable provisions of the Internal Revenue Code, as well
as nonqualifying options. The Company has reserved 90,361 shares of its
Series A Preferred Stock for issuance under this plan.
The 1994 Stock Option Plan provides that the exercise price of all options
shall be at least equal to the fair market value of the Company's shares, as
of the date on which the grant is made. The term of options issued under the
plan cannot exceed ten years. Options are generally exercisable in
installments beginning one year after the date of grant. With respect to
incentive stock options granted to a participant owning more than 10% of the
Company's shares, the exercise price thereof is at least 110% of the fair
market value of the Company's stock. No individual can exercise options, in
any calendar year, for the purchase of shares having a fair market value in
excess of $100.
During 1994, the Company's Board of Directors granted to a member of the
Board a nonqualified stock option for a total of 13,750 shares of Common
Stock. During 1995, the Company's Board of Directors granted to a member of
the Board a nonqualified stock option for a total of 28,655 shares of Common
Stock.
During 1995, the Company's Board of Directors adopted and approved a stock
option plan for nonemployee directors ("Directors' Plan"). The Directors'
Plan provides for the automatic grant to nonemployee directors of options to
purchase shares of Common Stock reserved for issuance under the Directors'
Plan. Options granted under the Directors' Plan do not qualify as incentive
stock options under the applicable provisions of the Internal Revenue Code.
The options have an exercise price of 100% of the fair market value of the
Common Stock on the date of grant and have a ten-year term. Initial options
become exercisable in their entirety from and after the date six months after
the date of grant. All other options granted under the Directors' Plan become
fully exercisable from and after the first anniversary of the grant date.
During 1995, no options have been granted under the Directors' Plan.
During 1995, the Company's Board of Directors adopted and approved an
employee stock purchase plan ("Purchase Plan"). Under the Purchase Plan, the
Company will grant rights to purchase shares of Common Stock to eligible
employees on a date or series of dates designated by the Board of Directors.
The price per share with respect to each grant of rights under the Purchase
Plan is the lesser of:
(i) 85% of the fair market value on the offering date on which such rights
was granted, or
(ii) 85% of the fair market value on the date such right is exercised.
Continued
F-22
<PAGE> 35
AAVID THERMAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(in thousands, except share and per share data)
The Purchase Plan is intended to qualify as an employee stock purchase plan
under the applicable provisions of the Internal Revenue Code. During 1995, no
rights to purchase common stock have been granted under the Purchase Plan.
<TABLE>
A summary of all stock option activity follows:
<CAPTION>
NUMBER OF
SHARES OPTION PRICE*
--------- -------------
<S> <C> <C>
Outstanding at December 31, 1993 1,586,750 $ .19 - $2.20
Granted during 1994 160,654 $ .19 - $2.20
---------
Outstanding at December 31, 1994 1,747,404 $ .19 - $2.20
--------- -------------
Granted during 1995 362,186 $2.20 - $9.00
--------- -------------
Canceled during 1995 1,100 $ 4.55
--------- -------------
Outstanding at December 31, 1995 2,108,490 $ .19 - $9.00
========= =============
<FN>
*Reflects conversion price after giving effect to stock dividend.
At December 31, 1995, 1994 and 1993, options for 1,443,304, 895,836 and
434,500 shares were exercisable, respectively.
</TABLE>
J. BUYOUT OF COMPENSATION ARRANGEMENTS:
-----------------------------------
Effective September 29, 1995, the Company's Board of Directors agreed to a
$2,374 payment for the buyout of a portion of the Chief Executive Officer's
expected future payments required under his employment agreement. At the same
time, the Board agreed to a payment of $275 to a related party to buy out the
bonus-based portion of its management fee contract.
Continued
F-23
<PAGE> 36
AAVID THERMAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(in thousands, except share and per share data)
K. INCOME TAXES:
------------
<TABLE>
Income (loss) before income taxes and cumulative effect of accounting change
for domestic and foreign operations are as follows:
<CAPTION>
THE COMPANY THE PREDECESSOR
-------------------------------------------- ---------------
SEPTEMBER 26,
1993 NINE
YEAR ENDED YEAR ENDED THROUGH MONTHS ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 25,
1995 1994 1993 1993
------------ ------------ ------------- --------------
<S> <C> <C> <C> <C>
Domestic $(1,562) $3,505 $(4,004) $694
Foreign 1,678 1,007 72 21
------- ------ ------- ----
$ 116 $4,512 $(3,932) $715
======= ====== ======== ====
</TABLE>
<TABLE>
The income tax provision included in the consolidated statements of
operations, consists of the following:
<CAPTION>
THE COMPANY THE PREDECESSOR
-------------------------------------------- ---------------
SEPTEMBER 26,
1993 NINE MONTHS
YEAR ENDED YEAR ENDED THROUGH ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 25,
1995 1994 1993 1993
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Federal (provision) benefit:
Current $ (66) $(1,065) $ 612 $(596)
Deferred (310) 1 (129) 440
----- ------- ----- -----
(376) (1,064) 483 (156)
State (provision) benefit:
Current (56) (268) 135 (191)
Deferred (43) 0 (38) 127
----- ------- ----- -----
(99) (268) 97 (64)
Foreign (provision) benefit:
Current (356) (345) (13) (46)
----- ------- ----- -----
Total (provision) benefit $(831) $(1,677) $ 567 $(266)
===== ======= ===== =====
</TABLE>
Continued
F-24
<PAGE> 37
AAVID THERMAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(in thousands, except share and per share data)
<TABLE>
A reconciliation of the income tax expense at the statutory federal income
tax rate to the Company's actual income tax expense is as follows:
<CAPTION>
THE COMPANY THE PREDECESSOR
-------------------------------------------- --------------
SEPTEMBER 26,
1993 NINE MONTHS
YEAR ENDED YEAR ENDED THROUGH ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 25,
1995 1994 1993 1993
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Expected federal tax $ (39) $(1,534) $1,337 $(243)
State income taxes, net (66) (271) 240 (44)
Purchased undeveloped technology charge (942) -- (814) --
Benefit of research credits -- 82 -- 25
Benefit of AMT credit -- 99 -- --
Differences in amortization of the excess of the
financial statement basis of net assets acquired
over their tax basis (41) (61) (209) --
Nondeductible losses of foreign subsidiary -- -- -- --
Other 42 8 13 (4)
Benefit of foreign net operating loss carryforward 215 --
----- ------- ------ -----
Total income tax (expense) benefit $(831) $(1,677) $ 567 $(266)
===== ======= ====== =====
</TABLE>
<TABLE>
Deferred tax assets and liabilities are measured on the difference between
the financial statement and the tax bases of assets and liabilities at the
applicable enacted tax rates. The components of the net deferred liability
consists of the following:
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1995 1994
------------ ------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward $ 78 $ --
Tax credits 191 --
Compensation related to stock options 251 --
Inventory reserves and capitalization 316 186
Accounts receivable reserves 105 81
Vacation and benefits reserves 397 312
Other liabilities and reserves 155 257
------- -------
Total deferred tax assets 1,493 836
Valuation allowance -- --
Deferred tax liability:
Depreciation (1,654) (1,723)
------- -------
Net deferred tax asset (liability) $ (161) $ (887)
======= =======
</TABLE>
Continued
F-25
<PAGE> 38
AAVID THERMAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(in thousands, except share and per share data)
L. COMMITMENTS AND CONTINGENCIES:
-----------------------------
LEASES
<TABLE>
The Company leases various equipment and facilities under the terms of
noncancelable operating leases. Future lease commitments are as follows:
<CAPTION>
FISCAL YEARS
<S> <C>
1996 $ 535
1997 360
1998 119
1999 93
2000 87
------
$1,194
======
</TABLE>
Lease expense was approximately $485, $156, $10, and $58 for the years
ended December 31, 1995 and 1994, the period from September 26, 1993 to
December 31, 1993, and for the nine months ended September 25, 1993,
respectively.
EMPLOYMENT AGREEMENT
The Company has entered into an employment agreement with an officer which
expires in October, 1996 calling for the payment of a fixed amount,
depending upon the Company's earnings, as defined. In addition, this
officer has been granted specific employment and severance benefits.
LITIGATION
A claim has been asserted against the Company by one of its competitors
for infringement of its rights under one of the competitor's patents. The
Company does not believe the claim has any merit and is aggressively
defending its position. In addition the Company does not believe that the
resolution of this claim will have a material impact on its results of
operations. In March 1996, the court granted a motion for summary judgment
in favor of the Company and declared the claim invalid.
The Company is involved in various routine litigation incident to its
business. In management's opinion, none of these proceedings will have a
material adverse effect on the Company's results of operations or
financial position irrespective of any potential insurance recovery.
Continued
F-26
<PAGE> 39
AAVID THERMAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(in thousands, except share and per share data)
RELATED PARTY TRANSACTIONS
The Company licenses certain technologies and purchases specific products
from another company controlled by an officer. The licensing agreement
calls for minimum royalties and variable amounts dependent on the sales of
licensed products as defined. In addition, the company also contracts
certain research and development projects with a related party. For the
years ended December 31, 1995 and 1994, the period from September 26, 1993
to December 31, 1993, and the nine months ended September 25, 1993,
payments of $438, $162, $107, and $163 were made to this entity.
The Company entered into a management agreement in the last quarter of
1993 with an entity controlled by certain directors under which it is
obligated to pay $200 per year plus an amount dependent on the Company's
earnings, as defined, in exchange for specific consulting services to be
provided by this entity. The Company expensed $507, $225, and $50 under
this agreement for the years ended December 31, 1995 and 1994, and the
period from September 26, 1993 to December 31, 1993, respectively. In
consideration of the elimination of the portion of the fee based on the
Company's earnings effective January 1, 1996, the Company has agreed to
increase the annual management fee to $250 effective January 1, 1996 and
to pay this entity $275 (see Note J).
PURCHASE COMMITMENT
The company has an obligation to purchase from one of its key suppliers a
minimum quantity of aluminum coil stock. The Company believes that
purchasing aluminum coil stock from this supplier is necessary to achieve
consistently low tolerances, design and delivery flexibility, and price
stability. Under the terms of this two-year agreement, which expires on
August 31, 1996, the Company has agreed to purchase certain minimum
quantities on a quarterly basis which approximates $284.
M. JOINT VENTURE:
-------------
The Company is funding the development of certain technologies by Aavid Air
Systems, Inc. Under this joint venture agreement, the company has the right
to license certain technologies of the entity, has the ability to control the
entity under the terms of shareholder agreements and may be required to
either buy its joint venture partner's share of or sell its share in the
entity on the occurrence of certain events as defined in the agreements.
Continued
F-27
<PAGE> 40
AAVID THERMAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(in thousands, except share and per share data)
N. 401 (K) PROFIT SHARING PLAN:
---------------------------
The Company has a profit sharing plan, which covers employees twenty-one
years of age and over who have attained at least one year of continuous
service. Annual employer contributions are determined by the Board of
Directors, but cannot exceed the amount allowable for federal income tax
purposes. The employees contribution was approximately $183, $116, $22, and
$60 for the years ended December 31, 1995 and 1994, the period from September
26, 1993 to December 31, 1993 and the nine months ended September 25, 1993,
respectively.
O. FOREIGN OPERATIONS AND GEOGRAPHIC AREAS:
---------------------------------------
In 1993 and 1994, foreign operations of the Company included the
international activities of Aavid Engineering, Ltd. and Aavid Thermal
Technologies Pte. Ltd., both wholly-owned subsidiaries.
During 1995, foreign operations of the Company include the international
activities of Aavid Thermal Technologies, Ltd., and Aavid Thermal
Technologies Pte., Ltd. for the year ended December 31, 1995 and Fluent
Europe beginning August 25, 1995, all wholly-owned subsidiaries.
<TABLE>
The following table summarizes the Company's operations by geographic area:
<CAPTION>
THE COMPANY THE PREDECESSOR
-------------------------------------------- ---------------
SEPTEMBER 26,
FOR THE YEAR FOR THE YEAR 1993 NINE MONTHS
ENDED ENDED THROUGH ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 25,
1995 1994 1993 1993
------------ ------------ ------------- --------------
<S> <C> <C> <C> <C>
Net sales to unaffiliated parties:
United States $79,416 $56,916 $10,347 $32,109
International 11,528 4,704 693 1,866
------- ------- ------- -------
$90,944 $61,620 $11,040 $33,975
======= ======= ======= =======
Total net sales:
United States $82,361 $58,928 $10,706 $32,979
International 11,528 4,704 693 1,866
Less: interarea eliminations (2,945) (2,012) (359) (870)
------- ------- ------- -------
$90,944 $61,620 $11,040 $33,975
======= ======= ======= =======
Identifiable assets:
United States $52,620 $32,684 $23,070 $23,253
International 8,674 1,950 940 977
Less: interarea eliminations (4,795) (2,073) (1,109) (1,720)
------- ------- ------- -------
$56,499 $32,561 $22,901 $22,510
======= ======= ======= =======
</TABLE>
Continued
F-28
<PAGE> 41
AAVID THERMAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
SEPTEMBER 26,
FOR THE YEAR FOR THE YEAR 1993 NINE MONTHS
ENDED ENDED THROUGH ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 25,
1995 1994 1993 1993
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Export sales $6,347 $4,176 $542 $1,387
====== ====== ==== ======
Net income of foreign operations $2,735 $ 703 $ 26 $ 8
====== ====== ==== ======
</TABLE>
International interarea sales represent shipment of inventory to
international subsidiaries. These interarea sales are generally priced to
recover cost plus an appropriate mark-up for profit and are eliminated from
the consolidated net sales. Operating profit is comprised of revenue less
related cost of sales, selling expenses and general and administrative
expenses.
F-29
