<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 28, 1997, Commission File No. 000-27308
AAVID THERMAL TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 02-0466826
- -------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Eagle Square, Suite 509, Concord, N.H. 03301
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (603) 224-1117
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
The number of shares of common stock outstanding as of June 28, 1997, was
6,918,037.
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AAVID THERMAL TECHNOLOGIES, INC.
INDEX TO FORM 10-Q
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets - June 28, 1997 and December 31, 1996.
Consolidated Statements of Income for the quarter and six months ended
June 28, 1997, and June 29, 1996.
Consolidated Statements of Cash Flows for the six months ended
June 28, 1997 and June 29, 1996.
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Part II. Other Information
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
AAVID THERMAL TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 28, DECEMBER 31,
1997 1996
ASSETS (UNAUDITED) (UNAUDITED)
- --------------------------- ----------- -----------
<S> <C> <C>
Cash and cash equivalents $ 4,589 $ 4,093
Accounts receivable trade, less allowance for
doubtful accounts of $399 and $354, respectively 27,965 22,807
Inventories 10,849 9,565
Deferred income taxes 1,688 1,750
Prepaid and other current assets 2,410 1,604
-------- --------
Total current assets 47,501 39,819
Property, plant and equipment, net 35,053 33,528
Other assets, net 7,014 6,874
-------- --------
Total assets $ 89,568 $ 80,221
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of debt obligations $ 4,674 $ 5,953
Accounts payable, trade 10,656 11,575
Accrued expenses and other current liabilities 13,656 12,917
-------- --------
Total current liabilities 28,986 30,445
Debt obligations, net of current portion 22,632 17,367
Minority interest 867 794
Deferred income taxes 1,598 2,262
-------- --------
Total liabilities 54,083 50,868
Common stock, $0.01 par value; authorized 25,000,000
shares
6,918,037 and 6,517,131 shares issued and outstanding
at June 28, 1997 and December 31, 1996, respectively 69 65
Additional paid-in capital 33,056 30,254
Cumulative translation adjustment (74) 228
Retained earnings (deficit) 2,434 (1,194)
-------- --------
Total stockholders' equity 35,485 29,353
-------- --------
Total liabilities and stockholders' equity $ 89,568 $ 80,221
======== ========
</TABLE>
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<PAGE> 3
AAVID THERMAL TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
(UNAUDITED)
QUARTER ENDED SIX MONTHS ENDED
JUNE 28, JUNE 29, JUNE 28, JUNE 29,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 37,082 $ 23,023 $ 71,480 $ 49,035
Cost of goods sold 23,040 14,011 43,672 30,669
----------- ----------- ----------- -----------
Gross profit 14,042 9,012 27,808 18,366
Selling, general and administrative expenses 8,641 7,119 16,945 12,860
Research and development 1,709 1,279 3,517 2,559
Purchased undeveloped technology charge -- 3,446 -- 3,446
----------- ----------- ----------- -----------
Income from operations 3,692 (2,832) 7,346 (499)
Interest expense,net (524) (313) (997) (759)
Other income (expense), net (202) 10 (670) 92
----------- ----------- ----------- -----------
Income (loss) before income taxes
and extraordinary item 2,966 (3,135) 5,679 (1,166)
Income tax expense (1,027) (136) (2,051) (845)
----------- ----------- ----------- -----------
Income (loss) before extraordinary item 1,939 (3,271) 3,628 (2,011)
Extraordinary item, net of tax -- -- -- (171)
----------- ----------- ----------- -----------
Net income (loss) $ 1,939 $ (3,271) $ 3,628 $ (2,182)
Earnings per share available to shareholders:
From operations $ 0.23 $ (0.50) $ 0.43 $ (0.34)
Extraordinary item $ -- $ -- $ -- $ (0.03)
Net income (loss) per share $ 0.23 $ (0.50) $ 0.43 $ (0.37)
Weighted average common shares and equivalents 8,541,028 6,478,127 8,465,814 5,983,391
</TABLE>
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AAVID THERMAL TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
---------------------
JUNE 28, JUNE 29,
1997 1996
---- ----
<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net income (loss) $ 3,628 $ (2,182)
Cash provided by operating activities:
Depreciation and amortization 2,984 2,078
Deferred income taxes (566) --
Minority interest 73 --
Change in assets and liabilities
Accounts receivable (4,743) 1,322
Inventory (1,284) 1,014
Other current assets (770) 609
Other long term assets 312 3,197
Accounts payable (991) (2,815)
Accrued expenses and withheld items 192 (3,139)
Deferred revenue (388) (233)
Income taxes 1,497 860
Total adjustments (3,684) 2,893
-------- --------
Net cash provided by (used in) operating activities (56) 711
Cash flows provided by (used in) investing activities:
Payments for acquisitions, net of cash acquired (191) (4,193)
Purchase of property, plant & equipment (3,646) (3,564)
Net proceeds from sale of fixed assets 3 14
-------- --------
Total cash used investing activities (3,834) (7,743)
Cash flows provided by (used in) financing activities:
Issuance of common stock 1,313 22,608
Advances under line of credit 53,346 54,417
Repayments of line of credit (49,117) (59,729)
Advances under other debt obligations,net (821) (10,461)
-------- --------
Total cash provided by (used in) financing activities 4,721 6,835
Foreign exchange rate change (335) (103)
Net increase (decrease) in cash 496 (300)
Cash, beginning of period 4,093 4,327
-------- --------
Cash, end of period $ 4,589 $ 4,027
======== ========
Supplemental disclosure of cash flow information:
Interest paid $ 980 $ 632
Income taxes paid 667 238
Supplemental disclosure of non-cash investing activities:
Reconciliation of assets acquired and liabilities assumed
in acquisitions:
Fair value assets acquired $ 913 $ 8,305
Cash paid for assets (191) (3,822)
Issuance of common stock - (900)
-------- --------
Liabilities assumed $ 722 $ 3,583
======== ========
</TABLE>
Item 2:
AAVID THERMAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 28, 1997
(1) BASIS OF PRESENTATION
The consolidated financial statements of Aavid Thermal Technologies,
Inc. (the "Company") presented herein, without audit except for balance sheet
information at December 31, 1996, have been prepared pursuant to
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<PAGE> 5
the rules of the Securities and Exchange Commission for quarterly reports on
Form 10-Q and do not include all of the information and note disclosures
required by generally accepted accounting principles. These statements should be
read in conjunction with the consolidated financial statements and notes thereto
for the year ended December 31, 1996, included in the Company's Form 10-K as
filed with the Securities and Exchange Commission on March 31, 1997.
The consolidated balance sheet as of June 28, 1997 and the consolidated
statements of income and cash flow for the quarter and six months ended June 28,
1997 and June 29, 1996 are unaudited but, in the opinion of management, include
all adjustments (consisting of normal, recurring adjustments) necessary for a
fair presentation.
The results of operations for the quarter and six months ended June 28,
1997, are not necessarily indicative of the results to be expected for the
entire fiscal year ending December 31,1997.
(2) 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
costs of inventories of foreign subsidiaries are valued on the first-in,
first-out basis.
<TABLE>
<CAPTION>
($000)
June 28, 1997 December 31,
(Unaudited) 1996
----------- ----
<S> <C> <C>
Raw materials $ 5,252 $ 4,924
Work-in-process 2,107 1,511
Finished goods 3,490 3,130
------- -------
$10,849 $ 9,565
</TABLE>
The excess of current costs over the carrying value using the LIFO
method was approximately $387,000 and $273,000 at June 28, 1997, and December
31, 1996, respectively.
(3) EARNINGS PER SHARE
During 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128 (SFAS 128), "Earnings per
Share," which specifies a new computation for earnings per share. SFAS 128 is
effective for periods ending after December 15, 1997. Had SFAS 128 been
adopted as of January 1996, there would have been no material effect on the
Company's reported earnings per share for the quarter and six month periods
ended June 28, 1997 and June 29, 1996.
Item 2. Management Discussion and Analysis of Financial Condition and Results
of Operations
This Report contains certain forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed below and in
the Company's Annual Report on Form 10-K for the year ended December 31, 1996.
Aavid Thermal Technologies, Inc. (the "Company") is a leading provider of
thermal management products that dissipate unwanted heat in electronic and
electrical components and systems; and a leading developer and marketer of
sophisticated computational fluid dynamics software which enables computer
simulation and analysis of air and other fluid flows, heat and mass transfer,
chemical reaction and related phenomena; and leading provider of technological
solutions for electronic cooling problems through its wholly owned design center
in Santa Clara, California. The Company's thermal management products operate by
conducting, convecting and radiating away unwanted heat, and include aluminum
and copper heat sinks, heat sink/fan combinations, heat pipes, liquid cooled
cold plates, attachment accessories, compliant interface materials and
conductive adhesives. The Company's software is used in a broad range of
applications, including design of automobiles, electronic systems, aerospace
components and combustion systems, as well as process plant engineering.
RESULTS OF OPERATIONS
Net sales increased by 61% to $37.1 million for the quarter ended June
28,1997 as compared to the corresponding respective period ended June 29, 1996.
Sales by application and product line are broken down as follows:-
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<TABLE>
<CAPTION>
($000)
Quarters Ended Six Months Ended
-------------- ----------------
June 28, June 29, June 28, June 29,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Thermal Management $29,198 $16,889 $55,015 $37,442
Software Products 7,781 6,134 16,355 11,593
Thermal Consulting 103 -- 110 --
------- ------- ------- -------
Total $37,082 $23,023 $71,480 $49,035
</TABLE>
Thermal management revenues for the quarter increased 73% over
corresponding prior year period and 13% higher than the previous quarter. The
power product revenues grew to $18.4 million or 8% over the corresponding
quarter. Because of the continuing increasing thermal problems and the more
expensive thermal solutions for microprocessors, digital products revenues grew
to $10.8 million or 24% over the corresponding quarter. Revenues from Intel
Corp. represented 10% of consolidated revenues including revenues from the
software business, for the quarter. There can be no assurance that this customer
will continue to make purchases at this level. Loss of this customer could have
a material adverse impact on the Company.
Software product revenue for the quarter ended June 28, 1997, increased
25% over the corresponding quarter last year. The acquisition of Fluid Dynamics
International in May 1996 accounted for the major portion of the increase. Other
factors include the continued steady revenue growth from the software product
line.
International (i.e. non-North America) revenues for the Company
represented 30% and 31% of sales for the quarter and six months ended June 28,
1997, as compared to 23% and 24% for the corresponding periods respectively
ended June 29,1996. The establishment of the joint venture in Taiwan on the
thermal products side of the business is the primary reason for the increased
significance of international sales in 1997.
Costs of goods sold as a percentage of sales were 62.1% for the quarter
ended June 28, 1997, as compared to 60.9% for the corresponding period ended
June 29, 1996. The increase in cost of sales percentage has resulted from a
higher growth rate in the thermal products business compared with Software
products. Cost of goods sold as a percentage for the six months ended June 28,
1997 and June 29, 1996 were 61.1% and 62.5% respectively. The improvement
reflects volume driven cost and efficiency improvements in thermal products
manufacturing.
For the quarter ending June 28, 1997, thermal management cost of goods
sold were 72.3%, respectively compared to corresponding 1996 results of 74.8%.
The decrease in cost of goods sold percentage in thermal management products is
principally attributable to the improved coverage of fixed overhead as a result
of the increased sales volume. Software product cost of goods sold for the
quarter ended June 28, 1997, were 24% as compared to 1996 costs of 22.1%. The
increase in the cost percentage is due primarily to higher royalty payments
associated with the Polyflow software revenues.
Selling, general and administrative expenses increased to $8,641,000,
or 23.3% of revenues, for the quarter ended June 28, 1997, as compared to
$7,119,000, or 30.9% of revenues, for the corresponding 1996 period, and to
$16,945,000 or 23.7% of revenues for the six months ended June 28, 1997, as
compared to $7,119,000 or 30.9% of revenues for the quarter and $12,860,000 or
26.2% for the six months ended June 29, 1996. The primary reasons for the
increase in selling, general and administrative expenses was the inclusion of
FDI for the full period, the inclusion of Aavid Taiwan and other increases
related to the increase in revenues for both thermal and software products. The
decrease in the percentage of revenues was the result of the increased
proportion of thermal products revenues, with its lower proportion of selling,
general and administrative expenses.
Research and development expenses increased to $1,709,000, or 4.6% of
revenues, for the quarter ended June 28, 1997, compared to $1,279,000, or 5.6%
of revenues, for the corresponding 1996 period, and to $3,517,000, or 4.9% of
revenues for the six months ended June 28, 1997, as compared to $1,279,000, or
5.6% of revenues for the quarter and $2,559,000, or 5.2% of revenues for the
six months ended June 29, 1996.
The effective tax rate was 34.6% for the quarter ended June 28, 1997,
compared to 4.3% for the quarter ended June 29, 1996.
A non-recurring, non-cash charge related to the write-off of purchased
undeveloped technology of $3,446,000 was recorded in the quarter ended June 29,
1996.
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LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased $496,000 in the six month period
ended June 28, 1997, to $4,589,093.
The Company's trade accounts receivable increased $5,158,000 (22.6%) to
$27,965,000 from $22,807,000 at December 31,1996. Approximately half of this
increase is the result of increased revenues over the fourth quarter. The
remaining portion represents increased days outstanding, primarily as a result
of increased proportion of accounts receivable from international revenues,
which have had historically higher days outstanding than receivables from
domestic revenues. . Accrued expenses and other current liabilities increased by
$739,000 to $13,356,000 primarily due to a higher volume of activity.
Capital expenditures for the six months ended June 28, 1997, of
$3,646,000 principally represented the purchase of machinery and equipment for
existing facilities and the expansion of the Fluent facility in Lebanon, New
Hampshire. The Company has a commitment to complete this expansion in 1997 for a
total expected cost of approximately $2 million. To date, $840,000 has been
expended on this project. In order to support the potential growth in the next
12 months, the Company expects to spend approximately $12 million in capital
expenditures in the last half of 1997, primarily related to the thermal
products business.
During the first quarter of 1997, the Company increased its
borrowings under its revolving line of credit by $5,747,000. The primary use of
these funds was for working capital to support the Company's growth. At quarter
end, the outstanding balance under the Company's $20,000,000 revolving credit
facility stood at $10,545,000 as compared to allowable borrowings of
$12,903,000.
If the Company's revenues continue to grow at the rate of the
past several months, of which there can be no assurances, additional debt or
equity may be required in the near future to finance capital expenditures, and
working capital requirements.
Part II. Other Information
Item 1. Legal Proceedings
On March 15, 1996, the United States District Court for the District of
New Hampshire granted the Company's motion for summary judgment against
Thermalloy, Inc., and declared invalid Thermalloy's Letters Patent No. 4,884,331
Method of Manufacturing Heat Sink Apparatus. The patent at issue involved heat
sinks for the digital electronics industry. Thermalloy has appealed, and oral
arguments were heard by the Federal Circuit Court of Appeals in Washington, D.C.
on May 5, 1997.
Item 6. Exhibits and Report on Form 8-K
a) Exhibit 11 - "Computation of Earnings Per Share" is included
herein.
b) Exhibit 27 - "Financial Data Schedule" is included in the
electronically filed document as required.
SIGNATURES
AAVID THERMAL TECHNOLOGIES, INC.
Date August 11, 1997
By /s/ Mark D. Brown
-------------------------------------
Vice President, Treasurer
and Principal Financial Officer
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<PAGE> 1
Exhibit 11
AAVID THERMAL TECHNOLOGIES, INC.
Computation of Net Income Per Share
(Amounts in thousands, except share and per share data)
<TABLE>
<CAPTION>
(UNAUDITED)
QUARTER ENDED SIX MONTHS ENDED
------------- ----------------
JUNE 28, JUNE 29, JUNE 28, JUNE 29,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average shares outstanding 6,812,223 6,478,127 6,812,223 5,983,391
Net effect of the assumed exercise of stock options
and warrants - based on the treasury method 1,728,805 -- 1,653,591 --
----------- ----------- ----------- -----------
Total 8,541,028 6,478,127 8,465,814 5,983,391
=========== =========== =========== ===========
Net income before extraordinary item $ 1,939 $ (3,271) $ 3,628 $ (2,011)
Extraordinary item -- -- -- -171
----------- ----------- ----------- -----------
Net income $ 1,939 $ (3,271) $ 3,628 $ (2,182)
=========== =========== =========== ===========
Net income per share before extraordinary item $ 0.23 $ (0.50) $ 0.43 $ (0.34)
Extraordinary item per share -- -- -- -0.03
----------- ----------- ----------- -----------
Net income per share $ 0.23 $ (0.50) $ 0.43 $ (0.37)
=========== =========== =========== ===========
</TABLE>
Page 8
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE QUARTER ENDED JUNE 28, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-28-1997
<EXCHANGE-RATE> 1
<CASH> 4,589
<SECURITIES> 0
<RECEIVABLES> 28,364
<ALLOWANCES> 399
<INVENTORY> 10,849
<CURRENT-ASSETS> 47,501
<PP&E> 45,410
<DEPRECIATION> 10,357
<TOTAL-ASSETS> 89,568
<CURRENT-LIABILITIES> 28,986
<BONDS> 0
0
0
<COMMON> 69
<OTHER-SE> 35,416
<TOTAL-LIABILITY-AND-EQUITY> 89,568
<SALES> 37,082
<TOTAL-REVENUES> 37,082
<CGS> 23,040
<TOTAL-COSTS> 33,390
<OTHER-EXPENSES> 202
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 524
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
