<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 March 28, 1998, 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, NH 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 May 5, 1998, was
8,351,634.
<PAGE> 2
AAVID THERMAL TECHNOLOGIES, INC.
INDEX TO FORM 10-Q
<TABLE>
<S> <C> <C>
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets - March 28, 1998 and
December 31, 1997. 3
Consolidated Statements of Operations for the quarters
ended March 28, 1998 and March 29, 1997. 4
Consolidated Statements of Cash Flows for the three months
ended March 28, 1998 and March 29, 1997. 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. 8
Part II. Other Information
Item 1. Legal Proceedings 11
Item 6. Exhibits and Reports on Form 8-K 11
</TABLE>
-2-
<PAGE> 3
AAVID THERMAL TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 28,
1998 DECEMBER 31,
(UNAUDITED) 1997
---------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 5,879 $ 6,919
Accounts receivable 38,507 33,766
Inventories 13,696 13,368
Refundable income taxes 1,138 1,138
Deferred income taxes 2,415 2,365
Prepaid and other current assets 4,074 2,256
-------- --------
Total current assets 65,709 59,812
Property, plant and equipment, net 44,421 43,155
Other assets, net 7,865 7,829
-------- --------
Total Assets $117,995 $110,796
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of debt obligations $ 3,444 $ 3,360
Accounts payable 17,483 16,378
Accrued expenses and other current liabilities 20,412 17,778
-------- --------
Total current liabilities 41,339 37,516
Debt obligations, net of current portion 18,348 20,596
Deferred income taxes 2,278 2,269
-------- --------
Total liabilities 61,965 60,381
-------- --------
Preferred Stock, $0.01 par value; authorized
4,000,000 shares; 0 outstanding at
March 28, 1998 and December 31, 1997. -- --
Common Stock, $0.01 par value; authorized
25,000,000 shares; 8,351,346 and
7,558,537 shares issued and outstanding at
March 28, 1998 and December 31, 1997,
respectively 84 76
Additional paid-in capital 47,166 43,793
Cumulative translation adjustment (435) (753)
Retained earnings 9,215 7,299
-------- --------
Total stockholders' equity 56,030 50,415
-------- --------
Total liabilities and stockholders' equity $117,995 $110,796
======== ========
</TABLE>
-3-
<PAGE> 4
AAVID THERMAL TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 28, MARCH 29,
1998 1997
---------- ----------
<S> <C> <C>
Net sales $ 55,558 $ 34,398
Cost of goods sold 37,170 20,632
---------- ----------
Gross profit 18,388 13,766
Selling general and administrative expenses 11,007 8,304
Research and development 1,690 1,808
Buyout of compensation arrangements 1,858 --
---------- ----------
Income from operations 3,833 3,654
Interest expense, net (459) (473)
Other expense, net (322) (468)
---------- ----------
Income before income taxes 3,052 2,713
Income tax expense (1,136) (1,024)
---------- ----------
Net income $ 1,916 $ 1,689
========== ==========
Net income per share, basic $ 0.25 $ 0.26
========== ==========
Weighted average common shares 7,800,402 6,572,239
========== ==========
Net income per share, diluted $ 0.21 $ 0.21
========== ==========
Weighted average common shares and equivalents 9,346,565 8,118,138
========== ==========
</TABLE>
-4-
<PAGE> 5
AAVID THERMAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 28, MARCH 29,
1998 1997
-------- --------
<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net income $ 1,916 $ 1,689
Adjustments to reconcile net income to net cash
Provided by (used for) operating activities:
Depreciation and amortization 2,278 1,559
Loss on sale of property, plant and equipment 15 --
Deferred income taxes (17) (52)
Minority interest -- 168
Changes in assets and liabilities, net of effects
from acquisitions:
Accounts receivable (4,634) (2,674)
Inventories (316) (598)
Prepaid and other current assets (1,810) (590)
Other long term assets (201) 99
Accounts payable - trade 1,065 (1,986)
Accrued expenses and other current liabilities 5,068 498
-------- --------
Total adjustments 1,448 (3,576)
-------- --------
Net cash provided by (used for) operating
activities 3,364 (1,887)
Cash flows provided by (used in) investing activities:
Purchases of property, plant & equipment (3,413) (1,372)
Payments for acquisitions, net of cash acquired -- (191)
Net proceeds from sale of fixed assets 2 3
-------- --------
Net cash used in investing activities (3,411) (1,560)
Cash flows provided by (used in) financing activities:
Issuance of common stock, net of expenses 1,143 416
Advances under line of credit 37,789 26,179
Repayments of line of credit (39,464) (22,500)
Advances under other debt obligations 206 --
Principal payments under debt obligations (688) (1,359)
-------- --------
Net cash provided by (used in) financing
activities (1,014) 2,736
Foreign exchange rate effect on cash and cash equivalents 21 (142)
Net decrease in cash and cash equivalents (1,040) (853)
Cash and cash equivalents, beginning of period 6,919 4,093
-------- --------
Cash and cash equivalents, end of period $ 5,879 $ 3,240
======== ========
Supplemental disclosure of cash flow information:
Interest paid 506 352
Income taxes paid 167 268
Supplemental disclosure of non-cash investing activities:
Reconciliation of assets acquired and liabilities assumed in
acquisitions
Fair value of assets acquired -- 913
Cash paid for assets -- (191)
-------- --------
Liabilities assumed $ -- $ 722
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
-5-
<PAGE> 6
AAVID THERMAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited consolidated
financial statements reflect all adjustments, consisting only of normal
adjustments, necessary to present fairly the financial position of Aavid Thermal
Technologies, Inc. and its consolidated subsidiaries at March 28, 1998, and the
results of operations and cash flows for the quarters ended March 28, 1998 and
March 29, 1997. The results of operations for the three-month period ended March
28, 1998 should not necessarily be taken as indicative of the results of
operations that may be expected for the entire year 1998.
The financial information as of March 28, 1998 should be read in
conjunction with the financial statements contained in the Company's Form 10-K
Annual Report for 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
cost of inventories of foreign subsidiaries are valued on the first-in,
first-out basis.
<TABLE>
<CAPTION>
($000)
MARCH 28, DECEMBER 31
1998 1997
----------- -----------
(UNAUDITED)
<S> <C> <C>
Raw materials $ 6,624 $ 6,753
Work-in-process 3,065 3,232
Finished goods 4,007 3,383
------- -------
$13,696 $13,368
======= =======
</TABLE>
The excess of current costs over the carrying value using the LIFO
method was approximately $396,000 and $464,000 at March 28, 1998 and December
31, 1997, respectively.
(3) The components of accounts receivable at March 28, 1998 and
December 31, 1997 are as follows:
<TABLE>
<CAPTION>
MARCH 28, DECEMBER 31
1998 1997
----------- -----------
(UNAUDITED)
<S> <C> <C>
Accounts receivable $39,333 $34,604
Allowance for doubtful accounts (826) (838)
------- -------
Net accounts receivable $38,507 $33,766
======= =======
</TABLE>
(4) COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," which specifies the presentation, and
disclosure requirements for comprehensive income. SFAS No. 130 became effective
for fiscal year beginning after December 15, 1997. The Company adopted FAS 130
effective January 1, 1998. The following details comprehensive income for the
periods reported herein:
<TABLE>
<CAPTION>
MARCH 28, MARCH 29,
1998 1997
----------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Net Income $1,916 $1,689
Foreign currency translation adjustment,
net of related tax effects 197 (45)
------ ------
Comprehensive Income $2,113 $1,644
====== ======
</TABLE>
-6-
<PAGE> 7
(5) EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share," which specifies the computation, presentation, and
disclosure requirements for earnings per share ("EPS") and became effective for
both interim and annual periods ending after December 15, 1997. All prior period
EPS data has been restated to conform with the provisions of SFAS No. 128. Basic
earnings per share excludes dilution and is computed by dividing net earnings by
the weighted average number of common shares outstanding for the period. Diluted
earnings per share is computed 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). The following is a reconciliation of the numerators
and denominators used to calculate earnings per share in the Consolidated
Statements of Operations:
<TABLE>
<CAPTION>
FOR THE QUARTERS ENDED
- -----------------------------------------------------------------------------------------------
MARCH 28, 1998 MARCH 29, 1997
------------------------------- ---------------------------------
(UNAUDITED) (UNAUDITED)
- -----------------------------------------------------------------------------------------------
INCOME SHARES INCOME SHARES
(NUM- (DENOM- PER-SHARE (NUM- (DENOM- PER-SHARE
ERATOR) INATOR) AMOUNT ERATOR) INATOR) AMOUNT
-------- ------ --------- ------ ------- ---------
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS:
Income Available to
Common Stockholders $1,916 7,800,402 $ 0.25 $1,689 6,572,239 $ 0.26
EFFECT OF DILUTIVE
SECURITIES:
Options and Warrants 1,546,163 1,545,899
--------- ---------
DILUTED EPS:
Income Available to
Common Stockholders $1,916 9,346,565 $ 0.21 $1,689 8,118,138 $ 0.21
====== ========= ====== ====== ========= ======
</TABLE>
(6) Buyout of Compensation Arrangements
During the first quarter of 1998 the Company recorded a one-time,
non-recurring charge of $1,858. This charge related to financial obligations
arising from the Company's restructuring in 1993 and comprised of two elements:
First, the Company terminated an arrangement with certain venture investors,
under which it was obligated to pay fixed fees until at least the year 2000.
Second, the Company has provided for an obligation to pay a former director a
bonus based on profits in excess of certain thresholds.
-7-
<PAGE> 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Statements in this Quarterly Report on Form 10-Q concerning the Company's
business outlook or future economic performance; anticipated profitability,
revenues, expenses or other financial items; introductions and advancements in
development of products, and plans and objectives related thereto; and
statements concerning assumptions made or expectations as to any future events,
conditions, performance or other matters, are "forward-looking statements" as
that term is defined under the Federal securities Laws. Forward-looking
statements are subject to risks, uncertainties and other factors that could
cause actual results to differ materially from those stated in such statements.
Such risks, uncertainties and factors include, but are not limited to, changes
in the Company's markets, particularly the potentially volatile semiconductor
market, changes in and delays in product development plans and schedules,
customer acceptance of new products, changes in pricing or other actions by
competitors, patents owned by the Company and its competitors, risk of foreign
operations and markets, and general economic conditions, as well as other risks
detailed in the Company's filings with the Securities and Exchange Commission,
including the Company's Annual Report on Form 10-K for the year ended December
31, 1997.
Aavid Thermal Technologies, Inc. (the "Company" or "Aavid") is a
leading provider of thermal management solutions for microprocessors and
integrated circuits ("ICs") for digital and power applications. The Company
operates principally in areas of thermal management solutions. Aavid's thermal
management solutions include products and services that solve problems
associated with the dissipation of unwanted heat in electronic and electrical
components and systems. In addition, the Company develops and offers
computational fluid dynamics (CFD) software for "virtual prototyping" computer
modeling and flow analysis of products and processes that reduce time and
expense associated with physical models and the facilities to test them.
Ongoing increases in silicon and system integration, higher processing
speeds and frequencies, smaller form factors, more sophisticated power
requirements and other advances in chip technology create excessive heat in
microprocessors and ICs in electronic and electrical components and systems.
Heat is an absolute constraint in electronic system design, since
microprocessors and ICs operate efficiently only in a narrow temperature band.
The excessive heat generated within the component not only degrades
semiconductor and system performance and reliability, but can also cause
semiconductor and system failure. These negative effects are exacerbated by the
increasingly wide range of environmental conditions, including temperature
extremes, in which electronic systems are expected to operate.
Increasingly, neither externally supplied off-the-shelf thermal
management products, nor internally designed and produced parts, have been able
to effectively address the expanding complexity of thermal management problems
resulting from increasing silicon integration and system integration. The
complexity of thermal management problems has been intensified by the increasing
amounts of power to be dissipated, reductions in system size, shorter
time-to-market, shorter product life cycles, and more demanding temperature
operating requirements. Many electronics manufacturers do not have the internal
resources to solve these challenges and are turning to third parties to design
thermal solutions. Additionally, the increasing number of electronics systems
manufactured outside the United States, and the need for fast ramp-up of high
volume production capabilities, has forced these manufacturers to seek a highly
integrated, worldwide provider of thermal management solutions.
The Company's strategy is to capitalize on the two principal trends in
the electronics industry: first, the trend to develop products which incorporate
microprocessors and semiconductors with increasingly complex thermal dissipation
problems, and second, the trend to outsource development of thermal management
solutions. Key elements of the Company's strategy are to (i) provide "total
solutions" capability for thermal management globally; (ii) expand its
technological leadership by leveraging its approximately 80 Ph.D.'s and 250
engineers; (iii) expand its quick ramp, high-volume manufacturing, design, sales
and distribution activities both domestically and overseas; (iv) form strategic
alliances with customers; and (v) grow its general purpose CFD software
business.
The Company operates its business through three wholly-owned
subsidiaries: Aavid Thermal Products, Inc. ("Aavid Thermal Products"), Fluent,
Inc. ("Fluent"), and Applied Thermal Technologies, Inc. ("Applied Thermal
Technologies").
-8-
<PAGE> 9
- - Aavid Thermal Products provides its customers in the digital and power
electronics markets with quick-ramp, high-volume production of thermal
management products and customer support worldwide. Its thermal management
products, which operate by conducting, convecting and radiating away
unwanted heat, help maintain device and system performance and reliability,
and help avoid premature component and system failure. They require
substantial engineering in their design to maximize heat dissipation and
minimize customers' assembly costs. The Company believes it has the
broadest range of products in the thermal management industry. Aavid
Thermal Products' customers include Allen-Bradley, Chrysler, COMPAQ,
General Electric, Hewlett Packard, IBM, Intel, Lucent, Motorola, and
Packard Bell.
- - Fluent develops CFD software and provides problem-solving support services.
Its software enables computer generated modeling and analysis of air and
other fluid flows, heat and mass transfer, chemical reaction, and related
phenomena, which can significantly reduce its customers' time-to-market and
engineering costs, while improving the final product or process design.
Fluent's customers include Boeing, British Aerospace, Ford, Fujitsu, IBM,
Intel, and Motorola.
- - Applied Thermal Technologies' design center integrates the Company's
technical strengths in the thermal solutions business to solicit customer
funded research and development, and to provide consulting and cutting edge
design. Applied Thermal Technologies was formed in the first quarter of
1997 to act as a catalyst for technology and business development for Aavid
Thermal Products and Fluent, and to take advantage of the increasing trend
of its customers to outsource their thermal management solutions
development. Applied Thermal Technologies works as an extension of its
clients' product design team, leveraging on technical capabilities gained
from both Aavid Thermal Products and Fluent to develop, test, and validate
thermal solutions. The Company believes that design centers will enhance
the visibility of the Company as a technology leader, resulting in earlier
and closer ties to existing and new customers. Applied Thermal
Technologies' customers include Applied Materials, Hewlett Packard, Bay
Networks, Cisco Systems, Sun Microsystems, and Sony.
The Company services a highly diversified base of more than 4,000 national
and international customers including OEMs, distributors, and contract
manufacturers through a highly integrated network of software, development,
manufacturing, sales and distribution locations throughout North America,
Europe, and the Far East.
RESULTS OF OPERATIONS
FIRST QUARTER 1998 COMPARED WITH FIRST QUARTER 1997
Sales in the first quarter of 1998 were $55.6 million, an increase of $21.2
million, or 62%, compared with the first quarter of last year. This increase was
mostly due to higher sales of thermal products, which increased to 81% of
Company sales for the first quarter 1998 from 75% of Company sales in the first
quarter of 1997. International sales (which include North American exports) also
increased to 46% of sales in the first quarter of 1998, from 33% of sales in the
first quarter of 1997. Sales to Intel Corp. including its foreign subsidiaries
accounted for 23% of total sales for the quarter ended March 28, 1998.
Thermal product sales were $45.1 million in the first quarter of 1998, an
increase of $19.4 million, or 75%, compared with the first quarter of 1997. This
growth was primarily the result of increasing heat dissipation problems within
the computer and network market, resulting in higher domestic and overseas
sales. Sales in the telecommunications, industrial controls, and instrumentation
markets were also higher due to underlying market growth.
Fluent software sales of $10.2 million in the first quarter of 1998 were
$1.6 million, or 19%, higher compared to the first quarter of 1997. In general,
the increase was seen in all product offerings and was due to the overall growth
in the market for computational fluid dynamics design software market as well as
the success of "Icepak" and "Mixim" new product offerings over the year.
Gross profit was $18.4 million, an increase of $4.6 million, or 33% over
the first quarter of 1997. Gross margin as a percentage of sales decreased from
40.0% in the first quarter of 1997 to 33.1% for the first quarter of
-9-
<PAGE> 10
1998. Approximately one-half of this change in gross margin percentage was due
to the faster rate of sales growth at Aavid Thermal Products (75% of total sales
in 1997 versus 81% in 1998) and Fluent (25% of total sales in 1997 versus 19% in
1998). Fluent sales have significantly higher gross margins than Aavid Thermal
Products sales. The remaining one-half change in gross margin was predominantly
the result of higher sales volumes of lower margin computer and network segment
business within Aavid Thermal Products.
Prior to a one-time, non-recurring charge, Operating Income of $5.7
million in the first quarter of 1998 increased by $2.0 million or 56% compared
with last year's first quarter. Operating margins improved at both Aavid Thermal
Products and Fluent in the first quarter of 1998 over the first quarter of 1997;
however, the Company's overall operating margin percentage decreased slightly
due to the lower rate of growth of Aavid Thermal Products, which has lower
operating margins than the Company's Fluent software division. Operating margins
for the Company as a percentage of sales for the first quarter of 1998 were
10.2% as compared with 10.6% for the same quarter last year.
Interest charges were $0.5 million in the first quarter of 1998 which
compared with $0.5 million for the first quarter of 1997. The effective tax rate
in the first quarter of 1998 was 37.2%, compared with 37.7% in 1997. The change
in tax rate was principally due to increases in profits from countries with
lower effective tax rates.
Prior to a one-time, non-recurring charge, net income was $3.1 million,
or $0.33 per share, in the first quarter of 1998, 82% higher than last year's
net income, and $0.21 per share. During the quarter, the Company recorded a
one-time, non-recurring after tax charge of $1.2 million which related to
financial obligations arising from the Company's restructuring in 1993,
comprised two elements: First, the Company terminated an arrangement with
certain venture investors, under which it was obligated to pay fixed fees until
at least the year 2000. Second, the Company has provided for an obligation to
pay a former director a bonus based on profits in excess of certain thresholds.
After the one-time, non-recurring charge, Earnings Per Share in the first
quarter were $0.21.
A discussion of the operations of the Company's three operating
subsidiaries follows (excludes one-time charge).
<TABLE>
<CAPTION>
NET INCOME
THIRD QUARTER
1998 1997 INCREASE
---- ---- --------
<S> <C> <C> <C>
Aavid Thermal Products $ 2.0 $ 1.0 $ 1.0
Fluent 1.1 0.7 0.4
Applied Thermal Technologies 0.0 -- 0.0
----- ---- -----
$ 3.1 $ 1.7 $ 1.4
===== ===== =====
</TABLE>
Aavid Thermal Products net income for 1998 improved to $2.0 million
from the 1997 net income of $1.0 million, an increase of $1.0 million, or 100%.
Strong sales growth with significantly reduced sales, general and administrative
costs as well as research and development expenditures as a percentage of sales,
more than offset some reduction in gross margins and resulted in substantially
higher net income.
Fluent's net income for the first quarter of 1998 increased to $1.1
million from $0.7 million, a 57% increase, while operating margins improved
slightly from 18.2% in the first quarter of 1997 to 18.7% in the first quarter
of 1998.
Applied Thermal Technologies ("Applied") generated a small net income
for the first quarter of 1998. This was Applied's fourth full quarter of
operation, and it has now successfully established itself as the premier thermal
design, validation and consulting service.
FINANCIAL CONDITION
MARCH 28, 1998 COMPARED WITH DECEMBER 31, 1997
Strong operating cash flows and additional borrowing capacity leave the
Company well positioned to pursue it's strategic growth and productivity
initiatives.
During the first quarter of 1998, the Company spent $3.4 million for
capital expenditures compared with $1.4 million in the corresponding period in
1997. The higher level of expenditure was necessitated by the significant growth
in the Company's computer products business and principally related to
expenditures at the Manchester, New Hampshire, and China facilities.
-10-
<PAGE> 11
At March 28, 1998, the amount of working capital (excluding cash, debt,
and taxation provisions) required to support each $1.00 of sales was $0.089,
which compares favorably with $0.114 a year earlier. This improvement in working
capital reflects improvements in receivable days sales outstanding (69 days to
61 days) and inventory turns (7.3 to 10.1) since the first quarter of 1997.
On March 28, 1998 the Company had $5.8 million in cash or cash
equivalents compared with $6.9 million at the end of 1997.
Total debt at March 28, 1998 was $21.8 million which compares with
$24.0 million at the end of 1997. Total debt as a percent of stockholders'
equity at March 28, 1998 was 38.9%, an improvement of 8.6% from the 47.5% at
year end. Long-term debt at March 28, 1998 was $18.3 million, a decrease of $2.3
million from year end. Borrowings under the revolving line of credit were
approximately $4.6 million on March 28, 1998 compared with $6.2 million at year
end. Unused borrowing capacity under the Company's financing agreements were
$25.2 million at March 28, 1998, which compares with $23.2 million at year end.
The Company had no material commitments for capital expenditures at
March 28, 1998.
During the first quarter of 1998 the Company had $2.2 million tax
benefit relating to Disqualifying Dispositions. Disqualifying Dispositions arise
because option holders are taxed when they exercise certain options, thereby
creating a tax deduction for the Company. While Disqualifying Dispositions
provide a cash tax benefit for the Company, this benefit does not pass through
the income statement, but instead is credited to additional paid-in capital.
Part II. Other Information
Item 1. Legal Proceedings
On March 4, 1998, Materials Innovation, Inc. of Lebanon, New Hampshire
("Mii") and two of its principals, Alan Beane and Glenn Beane (all three the
"Petitioners"), filed a petition for declaratory judgment against Aavid Thermal
Products, Inc. in Grafton County (New Hampshire) Superior Court. The Petitioners
have asked the court to declare as terminated a contract between Petitioners and
Aavid dated October 14, 1993 (the "Agreement"). Petitioner Alan Beane is a
former Director and Chief Executive Officer of the Company, and beneficially
owns more than 10% of the Company's common stock.
The Agreement grants to Aavid licenses for two patents, one involving a
clamp for attaching heatsinks to semiconductors, and the other involving a
process to make heatsinks by vacuum die casting. The Agreement also provides
Aavid with rights to potential technology of Mii relating to Aavid's thermal
products business, and prohibits Petitioners from competing against Aavid for
the ten-year term of the Agreement. Petitioners claim that Aavid has failed to
pay royalties associated with the vacuum die cast patent. The petition does not
seek monetary damages from Aavid.
Although the Company believes that the termination of the Mii Agreement
would not have a materially adverse effect on its business, results of
operations or financial condition, there can be no assurance it will not have
such a materially adverse effect in the future. The Company has filed a motion
to dismiss and seeks contractually required mediation and arbitration. The
Company believes it has meritorious defenses and intends to vigorously defend
against the petition.
Item 6. Exhibits and Report on Form 8-K
a) Exhibit 27.98 -- "Financial Data Schedule" is included in the
electronically filed document as required.
-11-
<PAGE> 12
b) Exhibit 27.97 -- "Restated 1997 Financial Data Schedule" is
included in the electronically filed
documents as required.
c) Reports on Form 8-K -- There were no reports on Form 8-K filed by
the Company during the quarter ended
March 28, 1998.
SIGNATURES
AAVID THERMAL TECHNOLOGIES, INC.
DATE: May 12, 1998
-----------------
By /s/ Stephen D. Eldred
--------------------------------
Vice President, Treasurer, and
Chief Financial Officer
-12-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE QUARTER ENDED MARCH 28, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-28-1998
<EXCHANGE-RATE> 1
<CASH> 5,879
<SECURITIES> 0
<RECEIVABLES> 39,333
<ALLOWANCES> 826
<INVENTORY> 13,696
<CURRENT-ASSETS> 65,709
<PP&E> 58,880
<DEPRECIATION> 14,459
<TOTAL-ASSETS> 117,995
<CURRENT-LIABILITIES> 41,339
<BONDS> 0
0
0
<COMMON> 84
<OTHER-SE> 55,946
<TOTAL-LIABILITY-AND-EQUITY> 117,995
<SALES> 55,558
<TOTAL-REVENUES> 55,558
<CGS> 37,170
<TOTAL-COSTS> 51,725
<OTHER-EXPENSES> 322
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 459
<INCOME-PRETAX> 3,052
<INCOME-TAX> 1,136
<INCOME-CONTINUING> 1,916
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,916
<EPS-PRIMARY> 0.25
<EPS-DILUTED> 0.21
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE QUARTER ENDED MARCH 29, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-29-1997
<EXCHANGE-RATE> 1
<CASH> 3,240
<SECURITIES> 0
<RECEIVABLES> 26,270
<ALLOWANCES> 374
<INVENTORY> 10,163
<CURRENT-ASSETS> 42,885
<PP&E> 42,560
<DEPRECIATION> 8,580
<TOTAL-ASSETS> 84,349
<CURRENT-LIABILITIES> 29,966
<BONDS> 0
0
0
<COMMON> 66
<OTHER-SE> 31,331
<TOTAL-LIABILITY-AND-EQUITY> 84,349
<SALES> 34,398
<TOTAL-REVENUES> 34,398
<CGS> 20,632
<TOTAL-COSTS> 30,744
<OTHER-EXPENSES> 468
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 473
<INCOME-PRETAX> 2,713
<INCOME-TAX> 1,024
<INCOME-CONTINUING> 1,689
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,689
<EPS-PRIMARY> 0.26
<EPS-DILUTED> 0.21
</TABLE>
