<PAGE> 1
FORM 10-K
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, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to _______________
Commission file number 0-27309
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, NEW HAMPSHIRE 03301
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (603) 224-1117
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g)of the Act: COMMON STOCK, 0.01
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 shorted period that the
registrant was required to file such report, and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained
to the best of 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 16, 1998, 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
$230,926,710.00.
The number of outstanding shares of the registrant's Common Stock as of
March 16, 1998 was 8,251,283.
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Documents incorporated by reference: Portions of the Registrant's
definition proxy statement for its 1998 annual meeting of stockholders are
incorporated by reference into Part III of this report.
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PART I
ITEM 1. BUSINESS
OVERVIEW
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 in two
business areas: thermal management solutions and computational fluid dynamics
("CFD") software. 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. The Company develops and
offers 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.
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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").
- - 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.
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THERMAL MANAGEMENT PRODUCTS AND SERVICES
The following is a brief description of the Company's services and various
types of thermal management products, which can be configured in thousands of
different designs, and are currently offered by Aavid:
- - Heat Sinks, Heat Exchangers, and Fan Heat Sinks. These products typically
consist of fabricated aluminum extrusions, stampings, castings, or
multi-technology assemblies designed to conduct heat away from
semiconductor and integrated circuit devices. These products have high
surface area to volume ratios and are machined, pressed, shaped and/or
assembled to fit a specific application. Fan heat sinks rely on a fan
mounted directly on the heat sink to increase the movement of air. A
substantial majority of the Company's net sales currently consist of heat
sinks, either alone or with related attachment devices or interface
materials.
- - Attachment Devices. Attachment devices are the spring clips, tapes,
adhesives, tabs, and similar devices which are used to attach the heat
sink to the semiconductor or integrated circuit devices and/or to the
customer's printed circuit board or system chassis. Aavid's attachment
devices are designed to promote a highly efficient thermal transfer
between the component and the thermal management products, as well as to
reduce the cost of the customer's installation and to provide for ease of
repair.
- - Interface Materials. Interface materials are found at the interface of
adjacent surfaces and play an important role in transferring heat from the
component being cooled to the heat sink. Interface materials include
greases, silicone pads, phase change materials, tapes and adhesives which
have desirable thermal properties. The Company purchases these materials
on a private label basis from a number of suppliers.
- - Liquid Cooling. These devices include cold plates and other liquid cooling
designs that dissipate heat by conducting or convecting the heat into a
liquid which then transfers the heat away from the source to the ultimate
heat sink.
- - Application Engineering Support Services. Aavid supports its customers
with an experienced applications and thermal engineering staff which
analyzes customer thermal problems, recommends design changes in the
customer's product and designs a thermal solution. Aavid currently
utilizes finite element and analytical proprietary software models to
analyze customer thermal management problems and design issues relating to
the Company's thermal management products. These analytical models provide
very fast approximations of solutions to a wide range of thermal
engineering problems encountered by Aavid's applications engineering staff
on a daily basis.
COMPUTATIONAL FLUID DYNAMICS SOFTWARE PRODUCTS AND SERVICES
Fluent provides CFD software and consulting services that are used by
engineers in corporations worldwide for virtual prototyping of products and
processes. The following is a brief description of the Company's software
products and services:
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- - Fluent and Fluent/UNS are general purpose CFD software used across a wide
range of industries and are ideally suited for incompressible and mildly
compressible flows. Fluent contains physical models for a wide range of
applications including turbulent flows, heat transfer, reacting flows,
chemical mixing, combustion, and multi-phase flows. Fluent/UNS provides
many of Fluent's physical models on unstructured meshes, enabling easier
problem setup and greater accuracy using solution-adaption of the mesh.
- - Fidap is general-purpose CFD software for the simulation of incompressible
or compressible flows, with particular strength for applications in the
materials processing, biomedical, semiconductor, food, paper, and chemical
industries. Fidap offers complete mesh flexibility and a wide range of
physical models, including prediction of liquid-free surfaces,
non-Newtonion rheology, and advanced radiation modeling.
- - GeoMesh and TGrid are used for model building and dramatically reduce the
time to create a CFD model. GeoMesh allows users to import geometries
created under other CAD/CAE packages into the Fluent suite of software
products. GeoMesh features an intuitive graphical interface, special tools
for the creation, control, and refinement of meshes (mathematical
representations dividing the flow region into smaller finite elements and
volume), and advanced diagnostic capabilities. TGrid enables users to
automatically create unstructured tetrahedral meshes for extremely complex
geometries.
- - Rampant is CFD software used in applications in the aerospace and
turbo-machining industries for high speed and compressible flows in the
design of wing aerodynamics, engines, compressors, and turbines. Rampant
contains physical models that address turbulent flows, heat transfer,
compressible mixing, rotating flows and flows with strong shocks.
Utilizing unstructured meshes, Rampant enables fast model creation and
local mesh adaption for capturing shocks and other flow details.
- - Polyflow is CFD software for the analysis of polymer processing, including
extrusion die design, blow molding, thermoforming, plastic film casting,
float glass production, thin sheet forming, fiber drawing, wire coating,
and related materials processing flows. Polyflow is used by Fortune 500
resin producers and by major plastics and rubber producers. Polyflow has
the unique capability for "inverse" die design, allowing designers to
compute the die shape required for a desired extrudate shape. The Company
completed its acquisition of Polyflow S.A. during the first quarter of
1997.
- - Engineering Consulting Services. Fluent's consulting staff conducts
computer-aided analysis, on a fee-for-service basis. Customers of the
consulting services department include companies that use CFD software
internally, but need additional expertise or computer resources that are
available through Fluent. Other customers are companies that are not
equipped with personnel or computers to support CFD software in-house. In
addition to providing CFD software expertise and high performance
computing systems, the Fluent consulting group works under contract to
develop software with specific features required by individual clients.
Fluent's staff provides consulting services in the United States, United
Kingdom, Germany, France, India, and Japan.
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- - Nekton is CFD software for simulation of thin film coating flows and
related problems in materials processing. Nekton addresses applications in
the paper, photographics, imaging and printing industries such as
roll-coating, slot coating, and air-knife coating processes.
- - Icepak is application-specific CFD software designed to analyze air flow
and thermal management in electronic devices such as computer cabinets,
monitors, and telecommunications equipment. Icepak is used by
manufacturers of electronic equipment for component-level, board-level,
and cabinet-level system design.
- - Mixsim is an application-specific model building software for computer
analysis of agitated mixing vessels used in the chemical and process
industries. Based on inputs from the designer, Mixsim automates the CFD
model generation and simulation process. This eliminates the need for
process plant engineers to learn the more complex usage of general purpose
CFD software.
Fluent provides customers with technical support to assist them in using
its CFD software successfully. The Company believes that high-quality technical
support service is critical to the success of the CFD software business. Fluent
provides support services locally in all markets where Fluent does business,
through Fluent's own staff or through independent distributors. These services
are undertaken from the United States, United Kingdom, Germany, France, India,
and Japan. Fluent has licensed its software products to more than 1,800
customers worldwide.
SIGNIFICANT CUSTOMERS
Historically, the Company has not derived a significant portion of its
revenues from a limited number of customers, with no customer accounting for
more than 10% of the Company's net sales in 1994, 1995, or 1996; however, in the
twelve months ended December 31, 1997, Intel Corporation accounted for
approximately 15% of net sales, and for the fourth quarter of 1997, Intel
Corporation accounted for 22% of net sales. No other single customer exceeded
10% of net sales in these periods. Intel Corporation is not obligated to
purchase any minimum quantity of the Company's products in any period. In
addition, as the Company pursues strategic relationships certain customers could
account for a substantial portion of total revenues in the future.
If the Company were to lose a major customer, such as Intel Corporation,
or if a major customer significantly reduced its purchases in any period, the
company's business, financial condition, and results of operations would be
materially adversely affected.
FOREIGN OPERATIONS
The Company believes that it will need additional manufacturing
facil-ities overseas to adequately service its customers, many of which have
moved manufacturing operations and have expanded their business overseas. This
trend may have an adverse impact on the Company's sales of domestically
manufactured products. As a result, a key element of the Company's business
strategy is to expand internationally, particularly in the market for digital
electronics applications.
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On July 17, 1997, the Company purchased the outstanding minority interest
in its Taiwanese joint venture -- Aavid Taiwan.
The Company also opened a 40,000 square foot manufacturing facility in
Guang Dong Province, China during the fourth quarter of 1997. Since the
Company's principal activities in Asia are manufacturing, it does not believe
the economic turmoil in Asia will have a materially adverse effect on the
Company; nonetheless, the Company may be affected to the extent customers
selling into these markets are affected.
There can be no assurance that the Company's expansion of its foreign
operations will be successful. Foreign operations are subject to a number of
risks, including work stoppages, transportation delays and interruptions,
expropriation, nationalization, misappropriation of intellectual property, and
imposition of tariffs and import and export controls, changes in governmental
policies (including U.S. policy toward these countries), and other factors which
could have an adverse effect on the Company's business. In addition, the Company
may be subject to risks associated with the availability of, and time required
for, the transportation of products to and from foreign countries. The
occurrence of any of these factors may delay or prevent the delivery of goods
ordered by customers, and such delay or inability to meet customers'
requirements would have a materially adverse effect on the Company's results of
operations and could have an adverse effect on the Company's relationships with
its customers. Furthermore, the occurrence of certain of these factors in
countries in which Aavid owns or operates manufacturing facilities could result
in the impairment or loss of the Company's investment in such countries.
SUPPLIERS
The Company purchases raw aluminum extrusion, aluminum coil, and various
components from a limited number of outside sources. During the year ended
December 31, 1997, the Company purchased substantially all of its aluminum coil
stock from a single supplier. The Company believes that purchasing aluminum
extrusion and coil stock from a limited number of suppliers is necessary in
order to obtain lower prices and to achieve, consistently, the tolerances and
design and delivery flexibility that the Company requires.
For raw aluminum extrusion and coil stock, the Company typically makes
purchasing commitments of up to 24 months to key suppliers. In return, these
suppliers commit to maintaining local inventory and to reserving run-time on
their critical machines. The cost of aluminum extrusion is generally negotiated
annually, with the price adjusted monthly, based upon the changes in the prices
of aluminum ingot, which has historically been highly cyclical. In addition, the
company produces approximately 50% to 60% of its aluminum extrusion requirements
on a single press at its extrusion facility in Franklin, New Hampshire.
RESEARCH AND PRODUCT DEVELOPMENT
The Company's thermal management research and product development
activities are focused on lowering production costs, improving thermal
characteristics, and developing new thermal management products and technologies
to address the emerging and anticipated thermal management problems of
customers. Aavid is developing new products, both internally as well as through
joint ventures and other collaborative efforts with third
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parties. These development efforts are directed toward: heat sink
characterization and optimization; air flow management; boundary layer
optimization and focused flow; recirculating passive and active cooling systems
including heat pipes; thermoelectric coolers, which use electricity to create a
temperature difference across an interface between the electronic device and a
heat sink; liquid and sub-ambient cooling systems; tab and surface mount heat
sink attachment methods; direct chip mounting to extruded heat sinks; and
highly thermally conductive adhesive and interface systems.
The Company's CFD research and development activities are focused on
enhancing the capabilities of its solvers and developing front-end user
interfaces that are easy to use for engineers in specific industries. Fluent is
also focusing on various application-specific CFD software projects which Fluent
believes will enable it to penetrate the design engineering market.
COMPETITION
The Company's thermal management products business experiences competition
from a number of providers of thermal management products: Alpha Technologies
Group, Inc.; Thermalloy, a division of Bowthorpe Pic, a United Kingdom based
conglomerate; Foxconn of Taiwan; and Johnson Matthey Electronics. In addition,
there are a large number of smaller heat sink companies, as well as hundreds of
machine shops that fabricate heat sinks, usually under subcontract with an OEM
customer. Further, some aluminum die casters offer cast heat sinks, and a number
of aluminum extruders sell heat sink products and fabrication capability,
including aluminum extruders serving the automotive industry and the power
conversion market.
Fluent currently competes with a number of privately and publicly held
companies, primarily on the basis of product performance. To the extent that
Fluent expands into additional application-specific markets, it will encounter
additional competition from software companies already serving such specific
markets. In addition, certain CFD software is available in the public domain.
BACKLOG
The Company's thermal management products typically are produced and
shipped within two months of the receipt of orders and, accordingly, the Company
operates with little backlog. As a result, net sales in any quarter generally
are dependent on orders booked and shipped in that quarter. All orders are
subject to cancellation or rescheduling by customers. Because of the Company's
quick turn of orders to shipments, the timing of orders, delivery intervals,
customer and product mix and the possibility of customer changes in delivery
schedules, the company does not believe its backlog at an particular date is a
reliable indicator of actual sales for any succeeding period.
The Company's Fluent software products are typically sold under annual
license agreements. Historically, the rate at which customers have renewed these
annual licenses has approximated 85%.
EMPLOYEES
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As of December 31, 1997, the Company had a total of 1,934 employees. None
of the Company's employees are represented by labor unions or collective
bargaining units. The Company believes that its relationship with its employees
is good.
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers at December 31, 1997 were as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------------------------------------------------
<S> <C> <C>
Ronald F. Borelli 61 Chairman of the Board of Directors
and Chief Executive Officer, Aavid;
Chief Executive Officer, Aavid
Thermal Products
Bharatan R. Patel 49 President and Chief Operating Officer,
Aavid; Chief Executive Officer, Fluent
George P. Dannecker 48 President and Chief Operating
Officer, Aavid Thermal Products
Stephen D. Eldred 38 Vice President-Finance and Chief
Financial Officer, Aavid
John W. Mitchell 49 Vice President and General Counsel, Aavid
H. Ferit Boysan 50 Chief Operating Officer, Fluent
Paul Landers 50 Chief Financial Officer, Aavid
Thermal Products
Linda Spencer-Green 46 Chief Financial Officer, Fluent
</TABLE>
RONALD F. BORELLI has been Chairman of the Board and Chief Executive
Officer of Aavid since joining the Company on October 15, 1996, when he also
became Chief Executive Officer of Aavid Thermal Products. He has been a director
of the Company since October 1993, and served as President of the Company and
Aavid Thermal Products from October 15, 1996 to October 15, 1997. Prior to
joining the Company, Mr. Borelli was the chief executive officer and a director
of Spectra, Inc., a hot melt ink jet company focusing on color printers. Mr.
Borelli joined Spectra in March 1989 as chief executive officer. From 1982 to
March 1989 he was a senior vice president of SCI Systems. Prior thereto he spent
20 years at Honeywell.
BHARATAN R. PATEL, PH.D. became President and Chief Operating Officer
of Aavid on September 12, 1997. He has been a director of the Company since
April 1996 and the President and Chief Executive Officer of Fluent since
1988, when Fluent was formed as a subsidiary of Creare Inc. ("Creare"), an
engineering consulting firm. Dr. Patel joined Creare in 1976, serving in
various capacities including principal engineer and vice president, and
established the Fluent division upon its formation in 1983. Prior to joining
Creare, Dr. Patel worked as a senior engineer from 1971 to 1976 in the Power
Systems Group of Westinghouse Electric Corporation.
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GEORGE P. DANNECKER became President and Chief Operating Officer of Aavid
Thermal Products in October 1997. He had been Vice President--Marketing and
Sales of Aavid Thermal Products since January 1994. Prior to joining Aavid
Thermal Products, Mr. Dannecker was employed by Concord Communications, Inc., a
telecommunications software company, where he was vice president-sales and
service from March 1986 to January 1994.
STEPHEN ELDRED joined the Company in October 1997 as Vice President and
Chief Financial Officer. Mr. Eldred was formerly Finance Director of Quadrant
Group Plc., a diverse engineering group listed on the London Stock Exchange.
Prior to joining Quadrant Group Plc. in August 1994, he spent five years at
Universal Packaging Corporation, Inc. as Vice President of Finance and
Administration. Mr. Eldred is a Fellow of the Chartered Association of
Accountants (United Kingdom).
JOHN W. MITCHELL joined Aavid in December 1995 as Vice President and
General Counsel. From January 1985 until he joined the Company, Mr. Mitchell was
a partner in Sulloway & Hollis, a Concord, New Hampshire law firm, where he
served as Aavid Thermal Products' principal outside legal counsel since May
1985.
H. FERIT BOYSAN, PH.D. became Chief Operating Officer of Fluent in July
1997. He had been Managing Director of Fluent's European operations since
1991. From 1986 to 1991, Dr. Boysan was the managing director of Flow
Simulations, Ltd., the European distributor of Fluent products until the
formation of Fluent Europe in 1991. Dr. Boysan was one of the original
developers of Fluent's CFD software.
PAUL LANDERS became Chief Financial Officer of Aavid Thermal Products in
August 1996, having joined Aavid Thermal Products in 1994 as Controller. Prior
to joining Aavid Thermal Products, Mr. Landers was Managing Director and
Director of Business Management at Charles River Laboratories from December 1990
to December 1993.
LINDA SPENCER-GREEN joined Fluent in 1988 as its Chief Financial Officer.
Prior to joining Fluent, Ms. Spencer-Green was a management consultant with
Smith, Batchelder & Rugg, an accounting firm, from 1984 to 1986 and an analyst
in the Operating Plans and Analysis-Financial/Modeling Analyst Research Services
group of Federated Stores, Inc., from 1980 to 1983. Ms. Spencer-Green is a
certified public accountant.
ITEM 2. PROPERTIES
The Company's executive offices are located in Concord, New Hampshire, and
consist of approximately 2,300 square feet of space.
Aavid Thermal Products has a total of approximately 600,000 square feet of
manufacturing facilities and locations in Laconia, Manchester, and Franklin, New
Hampshire; Santa Ana, California; the U.K.; Terrell, Texas; Singapore; Taiwan;
China; and Toronto, Canada. The Company employs a broad
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range of aluminum fabrication and processing capabilities. Manufacturing
operations consist of cutting, stamping machining, assembling, and finishing,
including anodizing and extrusion capabilities. The Company has a substantial
in-house tool and die capability that enables it to create its own extrusion and
progressive stamping dies and other production tooling.
In 1997, Aavid Thermal Products brought on-line more than 80,000 square
feet of manufacturing operations in Guang Dong Province, China, and Manchester,
New Hampshire. The new facilities support high-volume, quick-ramp manufacturing
of thermal management solutions for Aavid's customers in the computer industry,
who often face volatile market demands and short product cycles. Also, Aavid
Thermal Products moved its Canadian operations into expanded facilities with
more than 42,000 square feet of manufacturing space.
Aavid's Fluent software subsidiary expanded its Lebanon, New Hampshire
development and training facilities with an additional 20,000 square feet of
space. Fluent also opened an office in Santa Clara to meet Silicon Valley demand
for sales, training and technical support for their electronics cooling software
product, IcePak. Fluent's total sales, marketing, development, and support
facilities consist of approximately 50,000 square feet.
<TABLE>
<CAPTION>
The Company operates the following locations:
U.S. LOCATION PRINCIPAL ACTIVITY
------------- ------------------
<S> <C>
Chicago, IL Software Development/Sales/Marketing
Concord, NH Corporate Offices
Franklin, NH Aluminum Extrusion
Laconia, NH Manufacturing
Lebanon, NH Software Development/Sales/Marketing
Manchester, NH Manufacturing
Philadelphia, PA Sales Office
Santa Ana, CA Manufacturing
Santa Clara, CA Research and Development
Terrell, TX Manufacturing
INTERNATIONAL LOCATION
----------------------
Woodbridge, Ontario, Canada Manufacturing
LeBrettoneau, France Sales/Marketing
Darmstadt, Germany Sales/Marketing
Tokyo, Japan Sales Office
Guang Dong Prov., PRC Manufacturing
Singapore Manufacturing
Taipei, Taiwan Manufacturing
High Wycombe, U.K. Manufacturing
Sheffield, U.K. Software Development/Sales/Marketing
</TABLE>
ITEM 3. 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
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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. Since the petition was only
served on March 7, 1998, the Company has not yet filed a response; however, the
Company believes it has meritorious defenses and intends to vigorously defend
against the petition.
The Company is involved in various other legal proceedings that are
incidental to the conduct of its business, none of which the Company believes
could reasonably be expected to have a materially adverse effect on the
Company's financial condition, liquidity, or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Common Stock of the Company trades on the Nasdaq National market under
the symbol AATT. The Common Stock was initially offered to the public on January
29, 1996 at a price of $9.50 per share. The following table sets forth, for the
periods indicated, the range of high and low closing sales prices of the Common
Stock as reported on the Nasdaq National Market:
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
FISCAL 1996
Quarter ended March 30, 1996.............. $ 10.00 $ 7.00
Quarter ended June 29, 1996............... 11.25 6.50
Quarter ended September 28, 1996.... ..... 9.25 6.19
Quarter ended December 31, 1996........... 11.75 7.88
FISCAL 1997
Quarter ended March 29, 1997.............. $ 15.25 $ 10.00
Quarter ended June 28, 1997............... 22.13 10.25
Quarter ended September 26, 1997.......... 33.50 19.75
Quarter ended December 31, 1997........... 38.25 24.00
</TABLE>
On March 16, 1998, the last reported sale price of the Common Stock on the
Nasdaq National Market was $30.6250 per share. As of March 16, 1998, there were
86 holders of record of the Company's Common Stock.
During the second quarter of 1997, the Company acquired the remaining 49%
interest in its joint venture, Aavid Taiwan, Inc., for a combination of cash and
75,000 shares of Aavid unregistered common stock.
During the fourth quarter of 1997, the Company completed a private sale to
a corporate investor of unregistered securities for a total of $7.0 million
consisting of 298,872 shares of the Company's common stock and warrants for an
additional 50,000 shares of the Company's common stock at an exercise price of
$23.50.
The Company has never paid any cash dividends on its Common Stock. The
Company currently intends to retain all earnings for use in its business and
does not anticipate paying cash dividends in the foreseeable future. Certain of
the Company's financing agreements contain restrictive covenants which, among
other things, impose limitations on the payment of dividends. See Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
-14-
<PAGE> 15
ITEM 6. SELECTED CONSOLIDATED FINANCIAL 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. 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.
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THE PREDECESSOR (1) THE COMPANY (1)
NINE MONTHS THREE MONTHS YEAR ENDED
ENDED ENDED
SEPTEMBER 25, DECEMBER 31, DECEMBER 31,
1993 (2) 1993 (3) 1994
STATEMENT OF OPERATIONS DATA:
- ------------------------------------------
<S> <C> <C> <C>
Net sales................................. $33,975 $11,040 $61,620
Purchased undeveloped technology charge (6) -- 2,317 --
Buyout of compensation arrangements (7)... -- -- --
------- ------- -------
Income (loss) from operations............. 2,754 (3,571) 6,084
Income (loss) before cumulative effect of
accounting change and extraordinary item.. 449 (3,365) 2,835
Cumulative effect of accounting change (8) (1,290) -- --
------- ------- -------
Income (loss) before extraordinary item... (841) (3,365) 2,835
Less: extraordinary item (11)............. -- -- --
------- ------- -------
Net income (loss)......................... (841) (3,365) 2,835
Accretion to redemption value of warrant (9) -- -- (331)
-------- ------- -------
Net income (loss) available to stockholders $ (841) $(3,365) $ 2,504
======== ======= =======
Diluted Net income (loss) per share
available to stockholders................. $ (7.44) $ 0.57
======= =======
Weighted average number of shares used in
computation of net income (loss) per share
(10)...................................... 452 4,409
======= =====
</TABLE>
<TABLE>
<CAPTION>
THE COMPANY (1)
YEAR ENDED
DECEMBER 31,
------------
STATEMENT OF OPERATIONS DATA: 1995(4) 1996(5) 1997
- ------------------------------------------ ------- -------- ---------
<S> <C> <C> <C>
Net sales................................. $90,944 $106,995 $ 167,745
Purchased undeveloped technology charge (6) 2,770 3,446 --
Buyout of compensation arrangements (7)... 2,649 -- --
------- -------- ---------
Income (loss) from operations............. 2,904 4,311 16,696
Income (loss) before extraordinary item... (715) 141 8,493
Less: extraordinary item (11)............. -- (171) --
------- -------- ---------
Net income (loss)......................... (715) (30) 8,493
Accretion to redemption value of warrant (9) (775) -- --
------- -------- ---------
Net income (loss) available to stockholders $(1,490) $ (30) $ 8,493
======= ======== =========
Diluted Net income (loss) per share
available to stockholders................. $ (2.83) $ (.01) $ 0.98
======= ======== =========
Weighted average number of shares used in
computation of net income (loss) per share
(10)...................................... 527 6,251 8,639
======= ======== =========
</TABLE>
-15-
<PAGE> 16
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1993 1994 1995 1996 1997
--------- --------- ---------- ---------- -------
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C>
Working capital.......... $ 3,823 $ 6,506 $ 6,301 $ 9,374 $ 22,296
Total assets............. 22,901 32,561 56,499 80,221 110,796
Long-term debt,
including current
portion.......... 13,821 17,555 29,514 23,320 23,956
Redeemable warrant(8).... -- 331 1,106 -- --
Stockholders' equity..... 2,037 4,541 5,433 29,353 50,415
</TABLE>
- -----------------------------
1. Effective September 25, 1993, the Company, a newly formed corporation,
acquired Aavid Thermal Products, Inc. (formerly known as Aavid
Engineering) which became a wholly owned subsidiary of the Company.
Contemporaneously, all of Aavid Thermal Product's debt was restructured.
The acquisition of Aavid Thermal Products and the debt restructuring is
hereinafter referred to as the "Aavid Acquisition."
2. Represents the results of operations for Aavid Thermal Products 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 6 below), incurred $1.2 million in
transaction expenses and made a $263,000 purchase accounting adjustment to
inventory.
4. Includes the results of operations of Fluent from August 24, 1995 (date of
the acquisition of Fluent).
5. Includes the results of operations of Fluid Dynamics International ("FDI")
from May 16, 1996 (date of the acquisition of FDI).
6. Represents a non-recurring charge equal to the amount of the purchase
price allocated to technology acquired in the Aavid Acquisition in 1993,
the acquisition of Fluent in 1995 and the acquisition of FDI in 1996 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 former 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 Thermal Products 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.
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 expired and 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 J of Notes to
Consolidated Financial Statements of the Company.
10. The share and per share information for the three months ended December
31, 1993 and the years ended December 31, 1994, 1995 and 1996 have been
restated to reflect share and per share information in accordance with
Statement of financial Account Standards No. 128, "Earnings per Share."
Which was required to be adopted by the Company effective with its
financial statements for the year ended December 31, 1997. 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.
11. Represents charge related to early retirement of debt.
-16-
<PAGE> 17
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Statements in this Annual Report on Form 10-K 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 this annual Report on Form 10-K.
1997 COMPARED WITH 1996
Record revenues and earnings in 1997 reflect the Company's continuing
success in capitalizing on the increasing Thermal Market opportunities. Growth
was driven principally by increasing thermal content and unit growth within the
Computer and Network market of Aavid Thermal Products. 1996 comparative amounts
are exclusive of non-recurring, one-time charge of $3.4 million relating to
Purchased Undeveloped Technology.
RESULTS OF OPERATIONS
Company sales in 1997 were $167.7 million, an increase of $60.7 million or
56.8% compared with 1996. This increase was mostly due to higher sales at Aavid
Thermal Products, which increased sales 64.9% over 1996. Revenue from Fluent
increased 29.0% over last year, and revenues of Applied Thermal Technologies
were $0.5 million in its first nine months of operation. Total sales to Intel
Corporation were $24.8 million for 1997 compared to $2.1 million for 1996.
International sales increased to 40.9% of total sales in 1997 from 25.1%
in 1996. This growth largely reflected higher revenues of product manufactured
within North America and shipped to off shore manufacturing and assembly
operations of Aavid Thermal Products' customers. To a lesser extent, growth in
international sales also reflected increased sales from the Company's European
and Asian operations. Direct sales with the Asian economies were approximately
11% of total sales for 1997.
Sales for Aavid Thermal Products were $134.7 million for 1997, an increase
of $53.0 million, or 64.9%, compared with 1996. This growth was primarily the
result of increasing heat problems associated with computer and network
components resulting in higher domestic and overseas sales to computer OEM's or
semiconductor companies. Sales of thermal products to the telecommunications,
industrial electronics and instrumentation markets were
-17-
<PAGE> 18
also higher due to underlying market growth. A breakdown of the increase in
sales of Aavid Thermal Products for 1997 is as follows:
<TABLE>
<CAPTION>
$ MILLION
---------
1997 1996 Increase
---- ---- --------
<S> <C> <C> <C>
Computers and Network - Intel $ 24.7 $ 2.0 1,135.0%
Computers and Network - Other 47.4 30.5 55.4%
------ ------ --------
Total Computers and Network 72.1 32.5 121.8%
Telecommunications, Industrial
Electronics Instrumentation
and Other 62.6 49.2 27.2%
------ ------ -------
Total Aavid Thermal Products $134.7 $ 81.7 64.9%
====== ====== =======
</TABLE>
Fluent sales of $32.5 million in 1997 were $7.3 million or 28.9% higher
than 1996. Of this increase, 7.9% was the result of the acquisition of Fluid
Dynamics, Inc., in May 1996.
Gross profit was $60.3 million for 1997, an increase of $19.3 million, or
47.1% over 1996. Gross margin as a percentage of sales decreased to 36.0% in
1997 from 38.3% in 1996. Approximately 83% of this decrease in gross margin
percentage was due to the change in relative sales mix between Aavid Thermal
Products (80.3% of total sales in 1997 versus 76.4% in 1996) and Fluent (19.4%
of total sales in 1997 versus 23.6% in 1996). Fluent sales have significantly
higher gross margins than Aavid Thermal Products sales. The remaining 17% change
in gross margin was predominantly the result of higher sales volumes of lower
gross margin Computer and Network (including Intel) market sales within Aavid
Thermal Products.
Operating income of $16.7 million for 1997 increased by $8.9 million or
114.1% over 1996. Operating margin as a percentage of sales increased to 10.0%
for 1997 compared to 7.2% for 1996. This improvement largely reflected the
significant improvement at Aavid Thermal Products where the growth in sales and
gross profit exceeded the increase in selling, general and administrative and
research and development expenses.
Interest charges of $2.2 million for 1997 increased $0.6 million from $1.6
million in 1996, reflecting the higher indebtedness resulting from the increased
level of capital expenditures and the increase in working capital through 1997.
Other expenses were $1.2 million for 1997 compared with $0.6 million in
1996. The increase in 1997 expenses relates mostly to exchange losses.
The effective tax rate for 1997 was 36.2%, which compares to 35.8% in
1996. The increase is principally due to increased profits from countries with
higher effective tax rates.
-18-
<PAGE> 19
Net income of $8.5 million, or $0.98 per share in 1997, was 108.5% higher
than 1996 net income of $0.47 per share. A discussion of the operations of the
Company's three operating subsidiaries follows:
<TABLE>
<CAPTION>
NET INCOME
($ Million)
1997 1996 Increase
---- ---- --------
<S> <C> <C> <C>
Aavid Thermal Products $6.2 $1.5 $4.7
Fluent 2.6 1.9 0.7
Applied Thermal Technologies (0.3) -- (0.3)
----- ---- ----
$8.5 $3.4 $5.1
---- ---- ----
</TABLE>
Aavid Thermal Products net income for 1997 improved to $6.2 million, from
$1.5 million in 1996, an increase of $4.7 million or 313.3%. Strong sales growth
with significantly reduced sales, general and administrative expenditures as a
percentage of sales more than offset some reduction in gross margin, resulting
in substantially higher net income.
Fluent net income for 1997 increased to $2.6 million from $1.9 million,
before non-recurring items, in 1996, a 36.8% increase. Although the level of
expenses increased over the period, this was more than offset by the growth in
revenue and by the efficiency gains from the integration of Fluid Dynamics
International, Inc., (FDI), following its acquisition in the second quarter of
1996.
Applied Thermal Technologies incurred a small net loss of $0.3 million in
its first year of operation. Significantly it obtained more than 50 thermal
solution development contracts and has established itself as a leading
independent thermal design consultant.
FINANCIAL CONDITION
Strong operating cash flows, the proceeds from a $7 million private equity
placement and additional borrowing capacity leave the Company well positioned to
pursue it's strategic growth and productivity initiatives.
Total assets at December 31, 1997 were $110.8 million, an increase of
$30.6 million or 38.1% over December 31, 1996. Capital expenditures for 1997
totaled $16 million, up from $7 million in 1996, principally reflecting
investments in additional capacity at Aavid Thermal Products. Cash balances at
year end were $6.9 million, an increase of $2.8 million, primarily reflecting
increased cash balances of overseas subsidiaries. Cash flows from operating
activities of $10.6 million increased by $8.6 million or 424%
-19-
<PAGE> 20
compared with 1996. Cash flow from operations was 6.3% of sales for 1997. The
current ratio at year end 1997 was 1.6x, up from 1.3x in 1996.
In December 1997, the Company renegotiated its primary banking agreement.
As of December 31, 1997, the facility consisted of: current term loans totaling
$11 million; a line of credit based on a borrowing base formula which stood at
$16 million at December 31, 1997, of which $6.2 million was outstanding; an
additional undrawn general purpose term facility of up to $10 million; and
further undrawn facility for equipment purchases of up to $16 million. The
entire facility is capped at $40 million, and as of December 31, 1997, the total
amount drawn was $16.8 million.
Total Debt at year end 1997 of $24.0 million increased $0.6 million over
1996. Long-term debt of $20.6 million increased by $3.2 million during the year.
The Company's total debt as a percentage of equity was 47.5% at December 31,
1997 down from 79.4% at year end 1996. See note I to Financial Statements for
details of long-term debt and a discussion of the Revolving Line of Credit
Agreement.
The Company issued 414,000 shares of common stock for $8.2 million in
1997. Of this amount 297,872 shares of common stock were sold to a corporate
investor together with 50,000 warrants with an exercise price of $23.50 per
share for a total of $7 million.
During 1997, 627,000 options were exercised for a total exercise price of
$1.6 million.
During 1997 the Company had $3.7 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. The
Disqualifying Dispositions of $3.7 million along with other tax credits has
reduced the Company's Federal US income to a taxable loss.
The Company has no material commitments for capital expenditures at
December 31, 1997.
YEAR 2000
During 1997, the Company implemented a revised version of its fully
integrated MIS System that is Year 2000 compliant and cost $36,750. The Company
also began assessing the Year 2000 issue on its peripheral systems and
operations, including the development of cost estimates for, and the extent of
programming changes required to address this issue. An internal study is
currently under way to determine the full scope and related costs to insure that
the Company's peripheral systems continue to meet its internal needs. The
Company is expected to incur expenditures over the next two years to address
this issue, which cannot be estimated at this time.
1995 COMPARED WITH 1996
RESULTS OF OPERATIONS
Net sales increased by 17.6% to $107.0 million in 1996 from $90.9 million
in 1995. This increase was due to the inclusion of full year revenues
-20-
<PAGE> 21
for the Company's Fluent subsidiary and the acquisition of FDI on May 16, 1996
and the creation of the Aavid Taiwan joint venture in September 1996.
Net revenues of Fluent increased to $25.2 million, or 23.6%, in 1996 over
1995. This represented a 51% increase over pro forma 1995 revenues. Increases in
software base business accounted for $4.1 million of the increase and the
inclusion of FDI revenues from May 16, 1996, accounted for the remaining $4.4
million increase.
Net revenues of thermal products for digital electronics applications
increased by 30.6% to $24.3 million in 1996. These products represented 20.4%
and 22.6% of net revenues in 1995 and 1996, respectively. The increase in net
revenues of thermal products for digital electronics applications was
principally due to the introduction of and subsequent growth in demand for
higher frequency and more powerful microprocessors such as the Pentium and Power
PC microprocessors. In 1996, the increase is primarily the result of the
increase in digital fan heat sink assembly revenues of $9.7 million, partially
offset by the impact of a weak market for electronic products as evidenced by
the semiconductor industry's book-to-bill ratio reaching a ten year low during
the second quarter of 1996. Net revenues of thermal products for power
electronics applications declined by 12.8% to $57.7 million in 1996 from $66.2
million in 1995 principally because of the electronics market. These products
represented 72.9% and 53.8% of net revenues in 1995 and 1996, respectively.
International revenues (excluding Canada and Mexico) increased by 85.2% to
$27.6 million in 1996. International revenues represented 16.4% and 25.8% of net
revenues in 1995 and 1996, respectively. International revenue percentage
increased as a result of the acquisition of Fluent and, for thermal products,
the establishment of the Taiwan joint venture in September 1996.
Gross margin was 33.3% and 38.3% of sales in 1995 and 1996, respectively.
In both 1995 and 1996, the increasing contribution of Fluent revenues, with
their higher gross margins, helped to offset the effect of lower gross margins
on thermal product revenues.
For thermal products, gross profit increased to $26.3 million, or 31.5% of
sales, in 1995 and then declined to $23.0 million, or 28.0% of revenues in 1996.
In 1995, aluminum prices increased, which caused material cost to increase by
$1.2 million. In addition, manufacturing inefficiencies related to the problems
associated with the implementation of the Company's new MIS/CIM system and less
favorable product mix from an increase in demand for thermal management products
for the Pentium microprocessor and the resulting decrease in demand for thermal
management products for 486 microprocessors contributed to the gross margin
percentage decrease. Gross margins for thermal management products designed for
newer generations of microprocessors are typically lower than gross margins for
more mature products due to the start-up costs of new product lines and the low
margins inherent in low volume production of products which are priced based
upon an expected high volume of production. In 1996, the decline in gross margin
is attributable to increased material costs as a percentage of sales and the
impact of reduced sales volume. The increased significance of material costs is
the result of a far more material intensive product mix, principally
attributable to the large volume shipments in 1996 of fan heat sinks for digital
electronic applications. The changes in product mix more than offset reductions
in the average price per pound of aluminum extrusion purchases which reduced
material costs by approximately $0.9 million.
-21-
<PAGE> 22
Selling, general and administrative expenses were $19.3 million and $27.6
million in 1995 and 1996, respectively, representing 21.3% and 25.8% of net
revenues, respectively. Increased selling, general and administrative expenses
in each period resulted principally from the acquisition of Fluent in 1995 and
FDI in 1996, each of which have higher selling, general and administrative
expenses as a percentage of revenues, than the thermal products subsidiary.
Research and development expenses were $2.6 million in 1995 and $5.7
million in 1996, constituting 2.9%, and 5.3%, respectively, of net revenues. The
increases in research and development expenses in 1995 and 1996 were primarily
the result of the acquisition of Fluent in 1995 and FDI in 1996, each of which
have higher research and development expenses, as a percentage of revenues, than
the thermal products subsidiary. Included in 1995 were Fluent's research and
development expenses of $0.9 million, or 14.8% of Fluent's net revenues. In
1996, Fluent's, including those of FDI since May 16 1996, research and
development costs were $4.2 million, or 16.6% of Fluent's net revenues. Thermal
products research and development expenses increased in 1995 from increased
internal research activities as well as funding of a technology development
project with Materials Innovation, Inc., a company partly owned by a former
director of the Company.
In 1995 the Company incurred a non-recurring charge of $2.8 million, which
represented the amount of the purchase price for Fluent allocated to technology
acquired in the Fluent Acquisition which was not fully commercially developed
and had no alternative future use at the time of the acquisition. In 1996 the
Company incurred a non-recurring charge of $3.4 million, which represented the
amount of the purchase price for FDI allocated to technology acquired in the FDI
Acquisition which was not fully commercially developed and had no alternative
future use at the time of the acquisition.
In 1995 the Company incurred a $2.6 million compensation expense relating
to its arrangement to buy out (a) a portion of the expected future payments
required to be made under the employment agreement with Alan Beane, at the time
the Company's Chief Executive Officer, for $2.4 million and (b) the bonus-based
portion of the management fee due Sterling Ventures Limited for $275,000, each
of which was established at the time of the Aavid Acquisitions. The Company used
a portion of the proceeds of its initial public offering to make these payments
in February 1996.
Net interest expense decreased 39.1% to $1.6 million in 1996 from $2.6
million in 1995. The decrease in 1996 was the result of the repayment of debt
from the Company's initial public offering, completed in January 1996, partially
offset by additional borrowings to finance acquisitions, capital expenditures
and working capital.
Although the Company incurred a loss before income taxes in 1995 and 1996,
the $2.8 million (1995) and $3.4 million (1996) purchased undeveloped technology
charges were not deductible for income tax purposes, and, accordingly, the
effective tax rates are higher than normally anticipated. The Company's
provision for income taxes for 1995 was favorably affected by research and
development credits as well as the Company's receipt of a waiver from the
Singapore government which allowed the Company to use loss carryforwards of its
Singapore subsidiary. The Company recorded an increase in its valuation
allowance of $293,000 for tax credit carryforwards acquired in
-22-
<PAGE> 23
the FDI acquisition and an increase in its valuation allowance of $575,000 for
tax credit carryforwards generated, whose future use is uncertain. The future
benefit of tax credits acquired in the FDI acquisition will be credited against
goodwill when realized.
In the first quarter of 1996, the Company recorded an extraordinary charge
of $171,000, net of related tax effects, related to the write-off of deferred
financing costs resulting from the repayment of outstanding indebtedness with
the proceeds of the Company's initial public offering.
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
On August 29, 1996, the Board of Directors of Aavid Thermal Technologies,
Inc., at the recommendation of the company's audit committee, voted to replace
Coopers & Lybrand LLP with Arthur Andersen LLP as the Company's independent
public accountants, effective August 29, 1996.
Prior to their engagement, no events or consultations occurred with Arthur
Andersen LLP which would require disclosure of the type specified in Item
304(a)(2) of Regulation S-K.
During the Company's fiscal year ending December 31, 1995, and in the
subsequent interim period through August 29, 1996, there were no disagreements
between Coopers & Lybrand LLP and the Company regarding any matter of accounting
principles or practices, financial statement disclosure, or audit scope and
procedures, which disagreements, if not resolved to the satisfaction of coopers
& Lybrand LLP, would have caused Coopers & Lybrand LLP to make reference to the
subject matter of the disagreement in their report.
None of the reports of Coopers & Lybrand LLP on the Company's financial
statements for the previous two years contained an adverse opinion or a
disclaimer of opinion, or was qualified or modified as to uncertainty, audit
scope, or accounting principles.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors
In April 1997, Charles Dickinson, former Chairman of the Board of
Solectron, joined the Board. During the fourth quarter of 1997, William Selden
retired from the Board of Directors. Selden joined the Board in October 1993
and had served as Chairman.
The section entitled, "Proposal No. 1 - Election of Directors" in the
Company's Proxy Statement for the Annual Meeting of Stockholders is
incorpor-ated herein by reference.
See "Part I - Item 1. Business - Executive Officers of the Company."
-23-
<PAGE> 24
ITEM 11. EXECUTIVE COMPENSATION
The section entitled, "Executive Compensation" in the Company's Proxy
Statement for the Annual Meeting of Stockholders is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The section entitled, "Beneficial Ownership of common Stock" in the
Company's Proxy Statement for the Annual Meeting of Stockholders is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The sections entitled, "Executive Compensation - Compensation Committee
Interlocks and Insider Participation," and "Certain Transactions" in the
Company's Proxy Statement for the Annual Meeting of Stockholders is incorporated
herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
No. Description
- --- -----------
3.1 Certificate of Incorporation
3.2 Form of Amendment to Certificate of Incorporation
3.3 By-laws
4.0 Specimen Stock Certificate
10.2 Registration Rights Agreement, dated as of August 24, 1995, between
Bharatan R. Patel and Fluent, Inc. ("Fluent")
10.3 Management Agreement, dated as of October 14, 1993, between the
Company and Sterling Ventures Limited, as amended
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
10.13 Employment Agreement, dated as of January 1, 1995, between George P.
Dannecker and Aavid Engineering
10.16 Employment Agreement, dated as of August 24, 1995, between Bharatan R.
Patel and 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.
10.20 Warrant Purchase Agreement, dated as of October 14, 1993, between the
Company and Rice Mezzanine Lenders, LP
10.25 Loan and Security Agreement, dated as of 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.
10.44 Lease, dated as of October 10, 1995, between Aavid Engineering and
Industrial Enterprises; and Addendum to Lease
10.58 Business Loan Agreement, dated March 2, 1995, between Fluent Europe
Limited and Lloyds Bank PLC
10.61 Form of indemnification agreement for the Company's officers and
directors
21.0 ....Subsidiaries of Registrant (filed herewith)
23.1(a) ....Consent of Arthur Andersen LLP (filed herewith)
23.1(b) ....Consent of Coopers & Lybrand L.L.P. (filed herewith)
27.0 ....Financial Data Schedule (filed herewith)
27.96 ....Restated 1996 Financial Data Schedule (filed herewith)
27.95 ....Restated 1995 Financial Data Schedule (filed herewith)
....Calculation of Net Income Per Share (see F-12 attached hereto)
-24-
<PAGE> 25
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
AAVID THERMAL TECHNOLOGIES, INC.
By: /s/ Ronald F. Borelli
---------------------------------
Ronald F. Borelli
Chairman of the Board and
Chief Executive Officer
March 30, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
SIGNATURE TITLE
/s/ Ronald F. Borelli Chairman of the Board and Chief
- -------------------------------- Executive Officer (principal executive
Ronald F. Borelli officer)
/s/ Bharatan R. Patel President and Director
- --------------------------------
Bharatan R. Patel
/s/ Stephen D. Eldred Chief Financial Officer
- -------------------------------- and Treasurer (principal financial
Stephen D. Eldred and accounting officer)
/s/ David R. A. Steadman Director
- --------------------------------
David R. A. Steadman
/s/ Edward F. Glassmeyer Director
- --------------------------------
Edward F. Glassmeyer
/s/ Douglas L. Newhouse Director
- --------------------------------
Douglas L. Newhouse
/s/ M. William Macey, Jr. Director
- --------------------------------
M. William Macey, Jr.
/s/ Charles A. Dickinson Director
- --------------------------------
Charles A. Dickinson
-25-
<PAGE> 26
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.
-26-
<PAGE> 27
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
Report of Independent Public Accountants................................ F-2
Report of Independent Accountants....................................... F-3
Consolidated Balance Sheets as of December 31, 1997 and 1996 ........... F-4
Consolidated Statements of Operations for the years ended
December 31, 1997, 1996 and 1995........................................ F-5
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31,1997, 1996, and 1995..................... F-6
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995........................................ F-8
Notes to Consolidated Financial Statements.............................. F-9
F-1
<PAGE> 28
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO AAVID THERMAL TECHNOLOGIES, INC.:
We have audited the accompanying consolidated balance sheets of Aavid Thermal
Technologies, Inc. and Subsidiaries (a Delaware Corporation) as of December 31,
1997 and 1996, and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for the years then ended. 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. The financial statements of Aavid Thermal Technologies, Inc. as of
December 31, 1995, were audited by other auditors whose report dated February
23, 1996, expressed an unqualified opinion on those statements.
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. and Subsidiaries as of December 31, 1997 and 1996,
and the consolidated results of their operations and their cash flows for the
years then ended, in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
BOSTON, MASSACHUSETTS
JANUARY 30, 1998
F-2
<PAGE> 29
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 the related consolidated
statements of operations, changes in stockholders' equity and cash flows of the
Company for the year ended December 31, 1995. 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 audit.
We conducted our audit 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 audit provides 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 the consolidated results
of its operations and cash flows of the Company for the year ended December 31,
1995, in conformity with generally accepted accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
BOSTON, MASSACHUSETTS
FEBRUARY 23, 1996
F-3
<PAGE> 30
AAVID THERMAL TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
December 31, December 31,
ASSETS 1997 1996
- --------------------------------------------------------- ------------ ------------
<S> <C> <C>
Cash and cash equivalents ............................ $ 6,919 $ 4,093
Accounts receivable-trade, less allowance for doubtful
accounts .......................................... 33,766 22,807
Inventories .......................................... 13,368 9,565
Refundable taxes ..................................... 1,138 --
Deferred Income taxes ................................ 2,365 1,750
Prepaid and other current assets ..................... 2,256 1,604
--------- --------
Total current assets ................................. 59,812 39,819
Property, plant and equipment, net ................... 43,155 33,528
Other assets, net .................................... 7,829 6,874
--------- --------
Total assets ......................................... $ 110,796 $ 80,221
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of debt obligations .................. $ 3,360 $ 5,953
Accounts payable-trade ............................... 16,378 11,575
Accrued expenses and other current liabilities ....... 17,778 12,917
--------- --------
Total current liabilities ............................ 37,516 30,445
Debt obligations, net of current portion ............. 20,596 17,367
Minority interest .................................... -- 794
Deferred income taxes ................................ 2,269 2,262
--------- --------
Total liabilities .................................... 60,381 50,868
Commitments and contingencies (Note M)
Stockholders' equity:
Preferred Stock, $0.01 par value; authorized
400,000,000 shares; 0 outstanding at Decmeber 31,
1997 and 1996, respectively ....................... -- --
Common stock, $0.01 par value; authorized
25,000,000 shares; 7,558,537 and 6,517,131
shares issued and outstanding at December 31, 1997
and 1996, respectively ............................ 76 65
Additional paid-in capital ........................... 43,793 30,254
Cumulative translation adjustment .................... (753) 228
Retained earnings (deficit) .......................... 7,299 (1,194)
--------- --------
Total stockholders' equity ........................... 50,415 29,353
--------- --------
Total liabilities and stockholders' equity ........... $ 110,796 $ 80,221
========= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 31
AAVID THERMAL TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share data)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------
1997 1996 1995
----------- ----------- ---------
<S> <C> <C> <C>
Net sales ........................................ $ 167,745 $ 106,995 $ 90,944
Cost of goods sold ............................... 107,401 66,002 60,680
----------- ----------- ---------
Gross profit ..................................... 60,344 40,993 30,264
Selling, general and administrative expenses ..... 36,709 27,562 19,347
Research and development ......................... 6,939 5,674 2,594
Purchased undeveloped technology charge .......... -- 3,446 2,770
Buyout of compensation arrangements .............. -- -- 2,649
----------- ----------- ---------
Income from operations ........................... 16,696 4,311 2,904
Interest expense, net ............................ (2,178) (1,591) (2,611)
Other expense, net ............................... (1,201) (577) (177)
----------- ----------- ---------
Income before income taxes and extraordinary item 13,317 2,143 116
Provision for income tax expense ................. (4,824) (2,002) (831)
----------- ----------- ---------
Income (loss) before extraordinary item .......... 8,493 141 (715)
Extraordinary item, net of related tax effect .... -- (171) --
----------- ----------- ---------
Net income (loss) ................................ 8,493 (30) (715)
Accretion to redemption value of warrant ......... -- -- (775)
----------- ----------- ---------
Net income (loss) available to common stockholders 8,493 ($ 30) ($ 1,490)
=========== =========== =========
Net income (loss) per share, basic:
Income before extraordinary item ................. $ 1.22 $ 0.02 ($ 2.83)
Extraordinary item ............................... -- (0.03) --
----------- ----------- ---------
Net income (loss), basic ......................... $ 1.22 ($ 0.01) ($ 2.83)
=========== =========== =========
Weighted average common shares ................... 6,945,339 6,251,385 527,301
=========== =========== =========
Net income (loss) per share, diluted:
Income before extraordinary item ................. $ 0.98 $ 0.02 ($ 2.83)
Extraordinary item ............................... -- (0.03) --
----------- ----------- ---------
Net income (loss), diluted ....................... $ 0.98 ($ 0.01) ($ 2.83)
=========== =========== =========
Weighted average common shares and equivalents ... 8,638,611 6,251,385 527,301
=========== =========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-5
<PAGE> 32
AAVID THERMAL TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(in thousands, except share data)
<TABLE>
<CAPTION>
SERIES A SERIES B
CONVERTIBLE CONVERTIBLE
COMMON STOCK PREFERRED STOCK PREFERRED STOCK
-------------------- -------------------- --------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------ ----- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
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
Conversion of preferred to common .......... 2,959,692 30 (488,127) (5) (50,000) (1)
Expiration of warrant put option ........... -- -- -- -- -- --
Initial public offering, net of issuance
costs of $3,419 ....................... 2,645,000 26 -- -- -- --
Stock issued in acquisition of FDI ......... 75,000 1 -- -- -- --
Proceeds from exercise of options .......... 1,925 -- -- -- -- --
Cumulative translation adjustment .......... -- -- -- -- -- --
Net loss ................................... -- -- -- -- -- --
--------- --- -------- --- ------- ---
Balance, December 31, 1996 ................. 6,517,131 $65 -- $-- -- $--
Proceeds from exercise of options .......... 626,930 6 -- -- -- --
Proceed from the issuance of common stock .. 339,476 4 -- -- -- --
Cumulative translation adjustment .......... -- -- -- -- -- --
Issuance of shares related to acquisition of
joint venture ......................... 75,000 1 -- -- -- --
Income tax benefit from stock options ...... -- -- -- -- -- --
Net income ................................. -- -- -- -- -- --
--------- --- -------- --- ------- ---
===
Balance, December 31, 1997 ................. 7,558,537 $76 -- $-- -- $--
========= === ======== === ======= ===
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-6
<PAGE> 33
AAVID THERMAL TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(in thousands, except share data)
<TABLE>
<CAPTION>
ADDITIONAL CUMULATIVE RETAINED
PAID-IN TRANSLATION EARNINGS
CAPITAL ADJUSTMENT (DEFICIT) TOTAL
------- ---------- --------- -----
<S> <C> <C> <C> <C>
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
Conversion of preferred to common .......... (24) -- -- --
Expiration of warrant put option ........... 1,106 -- -- 1,106
Initial public offering, net of issuance
costs of $3,419 ....................... 21,681 -- -- 21,707
Stock issued in acquisition of FDI ......... 899 -- -- 900
Proceeds from exercise of options .......... 9 -- -- 9
Cumulative translation adjustment .......... -- 228 -- 228
Net loss ................................... -- -- (30) (30)
-------- ------ ------- --------
Balance, December 31, 1996 ................. $ 30,254 $ 228 ($1,194) $ 29,353
Proceeds from exercise of options .......... 1,615 -- -- 1,621
Proceeds from issuance of stock ............ 7,074 -- -- 7,078
Cumulative translation adjustment .......... -- (981) -- (981)
Issuance of shares related to acquisition of
joint venture ......................... 1,124 -- -- 1,125
Income tax benefit from stock options ...... 3,726 -- -- 3,726
Net income ................................. -- -- 8,493 8,493
-------- ------ ------- --------
Balance, December 31, 1997 ................. $ 43,793 $( 753) $7,299 $ 50,415
======== ====== ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-7
<PAGE> 34
AAVID THERMAL TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows provided by (used for) operating activities:
Net income (loss) $ 8,493 $ (30) $ (715)
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities:
Depreciation and amortization 7,640 4,102 2,501
Purchased undeveloped technology charge -- 3,446 2,770
Loss on sale of property, plant and equipment 35 67 --
Deferred income taxes (167) 26 21
Minority interest 198 213 --
Changes in assets and liabilities, net of effects from acquisitions:
Accounts receivable-trade (11,685) (5,442) (3,916)
Inventories (4,288) (2,540) (2,079)
Refundable taxes (1,138) -- --
Prepaid and other current assets (588) 163 (298)
Other assets (540) (449) (263)
Accounts payable-trade 5,559 3,523 2,624
Accrued expenses and other current liabilities 7,116 (1,051) 1,665
--------- -------- --------
Total adjustments 2,142 2,058 3,025
--------- -------- --------
Net cash provided by operating activities 10,635 2,028 2,310
Cash flows used in investing activities:
Payments for acquisitions, net of cash acquired (1,316) (10,776) 406
Proceeds from sale of property, plant and equipment 417 194 --
Purchases of property, plant and equipment (15,992) (7,029) (8,454)
--------- -------- --------
Net cash used in investing activities (16,891) (17,611) (8,048)
Cash flows provided by financing activities:
Issuance of common stock, net of expenses 8,699 21,716 --
Advances under line of credit 124,073 95,921 89,076
Repayments of line of credit (124,061) (96,470) (87,537)
Advances under debt obligations 17,876 6,659 8,265
Principal payments on debt obligations (17,258) (12,630) (527)
--------- -------- --------
Net cash provided by financing activities 9,329 15,196 9,277
Foreign exchange effect on cash and cash equivalents (247) 153 96
--------- -------- --------
Net increase (decrease) in cash and cash equivalents 2,826 (234) 3,635
Cash and cash equivalents, beginning of period 4,093 4,327 692
--------- -------- --------
Cash and cash equivalents, end of period $ 6,919 $ 4,093 $ 4,327
========= ======== ========
Supplemental disclosure of cash flow information:
Interest paid $ 2,316 $ 1,606 $ 2,559
Income taxes paid 739 807 554
Supplemental disclosure of non-cash investing activities:
Reconciliation of assets acquired and liabilities assumed
in acquisitions:
Fair value of assets acquired $ 3,163 $ 16,122 $ 5,567
Cash received (paid) for assets (1,316) (11,343) 406
Issuance of common stock (1,125) (900) --
-------- --------
Liabilities assumed $ 722 $ 3,879 $ 5,973
========= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-8
<PAGE> 35
AAVID THERMAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
A. OPERATIONS
Aavid Thermal Technologies, Inc. (the "Company") is a leading provider of
thermal management solutions for microprocessors and integrated circuits (IC's)
for digital and power applications. The Company operates in two distinct
business areas: thermal management solutions and computational fluid dynamics
software. Thermal management solutions include products and services for
problems associated with the dissipation of unwanted heat in electronic and
electrical components and systems. Computational fluid dynamics (CFD) software
involves developing software for computer modeling and flow analysis of products
and processes that would otherwise require time consuming and expensive physical
models and the facilities to test them. The Company markets its products through
a worldwide network of salespeople, manufacturer representatives, and
distributors.
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentration of credit risk consists principally of trade accounts receivable.
The risk is limited due to the relatively large number of customers comprising
the Company's customer base and their dispersion across many industries within
the United States, Europe, and Asia. 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. At December 31, 1997, accounts
receivable for one customer represented 17% of the total accounts receivable
balance. The Company's sales have been primarily denominated in U.S. dollars,
and the effects of foreign exchange fluctuations are not considered to be
material.
INCOME TAXES
The Company accounts for income taxes under Statement of Financial
Accounting Standards (SFAS) 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. SFAS No. 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 realizable.
F-9
<PAGE> 36
AAVID THERMAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands, except share and per share data)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
RESEARCH AND DEVELOPMENT
Research and development costs are charged to operations as incurred. SFAS
No. 86, "Accounting for the Costs of Computer Software To Be Sold, Leased, or
Otherwise Marketed," requires capitalization of certain software development
costs subsequent to the establishment of technological feasibility. Based on the
Company's product development process, technological feasibility is established
upon completion of a working model. Costs incurred by the Company between
completion of the working model and the point at which the product is ready for
general release have not been material. Accordingly, all research and software
development costs have been expensed.
CASH AND CASH EQUIVALENTS AND FINANCIAL INSTRUMENTS
For purposes of the consolidated statements of cash flows, cash and cash
equivalents consist of highly liquid investments with original maturities of
three months or less.
The estimated fair value of the Company's financial instruments including
accounts receivable, accounts payable and cash equivalents equals carrying
value. The fair value of the Company's long-term debt instruments is also
estimated at carrying value due to their variable interest rates and relatively
short maturities.
INVENTORIES
Inventories are valued at the lower of cost or market, with cost determined
principally on the average cost method for raw material, job order
work-in-process, and finished goods and the balance of raw material on the
last-in, first-out (LIFO) method. The cost of inventories of the foreign
subsidiaries are valued on the first-in, first-out (FIFO) 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-- 30 to 40 years; machinery, equipment, dies and tooling-- 1 to 10
years; and vehicles-- 4 to 5 years) using both the straight-line and accelerated
methods of depreciation.
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 other income.
F-10
<PAGE> 37
AAVID THERMAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands, except share and per share data)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
INTANGIBLES
Costs incurred in connection with the issuance of the Company's debt
obligations have been deferred and are being amortized over the term of the
respective debt obligations.
Other intangibles, which consist principally of goodwill and patents are
being amortized on a straight-line basis over 7 to 15 years.
IMPAIRMENT OF LONG-LIVED ASSETS
In March 1995, the Financial Accounting Standards Board issued SFAS No.
121, "Accounting For the Impairment of Long-Lived Assets and For Long-Lived
Assets To Be Disposed Of." This statement addresses the accounting for the
impairment of long-lived assets, certain identifiable intangibles, and goodwill
related to assets to be held and used, and for long-lived assets and certain
identifiable intangibles to be disposed of.
This statement requires that long-lived assets including intangibles, be
reviewed for impairment whenever events or changes in circumstances, such as a
change in market value, indicate that the asset carrying amounts may not be
recoverable. In performing the review for recoverability, if future undiscounted
cash flows (without interest charges) from the use and ultimate dispositions of
the assets are less than its carrying value, an impairment loss is recognized.
Impairment losses are to be measured based on the fair value of the asset. To
date, the Company has not experienced any such impairments.
REVENUE RECOGNITION
Thermal Products
Revenue is recognized when products are shipped. The Company records an
estimate at that time for returns and warranty costs to be incurred.
Software
The Company licenses its software products under both annual and perpetual
license arrangements. Software license revenue is recognized upon the execution
of the license agreements and shipment of the product, provided that no
significant vendor post-contract support obligations remain outstanding, and
collection of the resulting receivable is deemed probable. The Company
recognizes revenue from post-contract support, which consists of telephone
support and the right to software upgrades, ratably over the period of the
post-contract arrangement.
F-11
<PAGE> 38
AAVID THERMAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands, except share and per share data)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
REVENUE RECOGNITION (Continued)
Contracts
Contract revenue is recognized based on the percentage-of-completion
method. 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 administrative 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 contract 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
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 Year Ended December 31,
- ---------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
---- ---- ----
- ---------------------------------------------------------------------------------------------------------------------------------
Income Shares Per-Share Income Shares Per-Share Income Shares Per-Share
(Num- (Denom- Amount (Num- (Denom- Amount (Num- (Denom- Amount
----- ------- ------ ----- ------- ------ ----- ------- ------
erator) inator) erator) inator) erator) inator)
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Income $8,493 ($30) ($1,490)
====== ==== =======
BASIC EPS:
Income Available to
Common Stockholders $8,493 6,945,339 $1.22 ($30) 6,251,385 ($0.01) ($1,490) 527,301 ($2.83)
EFFECT OF DILUTIVE
SECURITIES:
Options and Warrants 1,693,272 -- --
--------- --------- -------
DILUTED EPS:
Income Available to
Common Stockholders $8,493 8,638,611 $0.98 ($30) 6,251,385 ($0.01) ($1,490) 527,301 ($2.83)
====== ========= ===== ==== ========= ====== ======= ======= ======
</TABLE>
Options and warrants to purchase 61,500 shares of common stock were
outstanding at December 31, 1997, but were not included in the computation of
the 1997 diluted earnings per share because the exercise prices exceeded the
average market price of common shares.
F-12
<PAGE> 39
AAVID THERMAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands, except share and per share data)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
USE OF ACCOUNTING ESTIMATES
The preparation of the consolidated 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 the reported amounts of revenues and expenses during the
reporting period, and to disclose contingent assets and liabilities at the date
of the financial statements. 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 during the period.
Translation gains and losses are included in the cumulative translation
adjustment in stockholders' equity. Transaction gains and losses are included in
the consolidated statements of operations and have not been material.
RECLASSIFICATIONS
Certain amounts previously reported in the consolidated financial
statements have been reclassified to conform with the current year's
presentation.
C. ACQUISITION OF BUSINESSES
On August 24, 1995, the Company purchased all of the stock of Fluent, a
provider of computerized design and simulation software used to predict fluid
flow, heat and mass transfer, chemical reaction, and related phenomena for a
purchase price of $12,816. 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.
The allocation of the identifiable tangible and intangible assets and
undeveloped technology based on estimated fair market value as of the
acquisition date was as follows:
<TABLE>
<S> <C>
Cash $ 1,338
Accounts receivable 2,577
Other current assets 262
Fixed assets 4,875
Goodwill 141
Other non-current assets 853
Undeveloped technology 2,770
-------
$12,816
=======
</TABLE>
F-13
<PAGE> 40
AAVID THERMAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands, except share and per share data)
C. ACQUISITION OF BUSINESSES (continued)
The undeveloped technology acquired had not reached technological
feasibility, had no alternative future use, and was subsequently expensed. The
fair value was determined on a risk adjusted cash flow model, under which cash
flows were discounted taking into account risks related to existing and future
markets, as well as an assessment of the life expectancy of the technology.
On May 16, 1996, the Company purchased all of the stock of FDI, a provider
of computerized design and simulation software used to predict fluid flow, heat
and mass transfer, chemical reaction, and related phenomena for a purchase price
of $8,305. Prior to the acquisition, FDI was a major competitor of the Company's
software operations. The Company acquired FDI through the issuance of 75,000
shares of its common stock (valued at $12 per share), a cash payment of $3,757,
assumed liabilities of $3,583, and closing costs paid of $65. The Company also
agreed to certain bonus payments based upon achievement of defined annual
operating results of FDI, which the Company did not meet in 1996. Any future
bonus payments will be expensed as incurred. This acquisition has been accounted
for under the purchase method of accounting.
The allocation of the identifiable tangible and intangible assets and
undeveloped technology based on estimated fair market value as of the
acquisition date was as follows:
<TABLE>
<S> <C>
Cash $ 529
Accounts receivable 1,462
Other current assets 167
Fixed assets 341
Goodwill 1,249
Workforce 184
Existing technology 839
Other non-current assets 88
Undeveloped technology 3,446
------
$8,305
======
</TABLE>
The undeveloped technology acquired had not reached technological
feasibility, had no alternative future use, and was expensed at the time of the
acquisition. The allocation of fair value assigned to each intangible asset was
determined based on an independent appraisal. The appraisal incorporated proven
valuation procedures and techniques in determining the fair value of each
intangible asset including using 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.
F-14
<PAGE> 41
AAVID THERMAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands, except share and per share data)
C. ACQUISITION OF BUSINESSES (continued)
In September of 1996, the Company established a joint venture with a
company located in Taiwan. The purpose of the joint venture was to develop,
manufacture, produce and distribute thermal management products. The Company
contributed $1,423 in cash, which included pre-incorporation fees of $163, for a
51% interest in the joint venture. This entity was controlled by the Company
under the terms of a shareholder agreement and, accordingly, the Company
accounted for this entity using the consolidation method of accounting.
Effective July 17, 1997, the Company acquired the remaining 49% interest in the
joint venture for total consideration of $2,250, which was paid with $1,125 in
cash and the issuance of 75,000 shares of Common Stock.
On September 16, 1996, the Company acquired substantially all of the assets
of Alumax Extrusion's Franklin, New Hampshire aluminum extrusion manufacturing
facility, for a purchase price of $4,547, which includes acquisition costs of
$30. The acquisition has been accounted for under the purchase method of
accounting.
The allocation of the identifiable tangible assets based on estimated fair
market value as of the acquisition date was as follows:
<TABLE>
<S> <C>
Cash $ 8
Accounts receivable 14
Inventory 461
Other assets 16
Fixed assets 4,048
------
$4,547
======
</TABLE>
On December 24, 1996, the Company purchased all of the assets of Beaver
Industries, Inc. through its wholly-owned subsidiary Aavid Thermal Technologies
of Canada, Inc. Beaver Industries manufactures heat sinks and provides related
thermal management products for electrical and electronic parts, components,
assemblies, and systems. The purchase price of $2,010 consisted of $1,650 cash
paid to the seller, $64 of closing costs, and $296 in liabilities assumed. This
acquisition has been accounted for under the purchase method of accounting. The
purchase price exceeded the fair value of net assets by $1,043.
The allocation of the identifiable tangible and intangible assets based on
estimated fair market value as of the acquisition date was as follows:
<TABLE>
<S> <C>
Cash $ 29
Accounts receivable 153
Other current assets 128
Inventory 188
Fixed assets 469
Goodwill 1,043
------
$2,010
======
</TABLE>
F-15
<PAGE> 42
AAVID THERMAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands, except share and per share data)
C. ACQUISITION OF BUSINESSES (continued)
Presented below is the unaudited supplemental pro forma financial data for
the years ended December 31, 1996 and 1995, reflecting the impact of the
acquisitions of Fluent, FDI, and Beaver Industries, Inc. as if they occurred as
of January 1, 1995, excluding the effects of the extraordinary item in 1996, the
purchased undeveloped technology charges in 1996 and 1995, and the buyout of the
compensation agreement in 1995. The Company believes that the Alumax Extrusion
facility operations would not materially impact the pro forma disclosure.
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1996 1995
---- ----
<S> <C> <C>
Net sales $112,058 $110,030
Net income 3,433 4,786
Net income per share, diluted $ 0.47 $ 0.97
</TABLE>
This pro forma information has been prepared for comparative purposes only
and does not purport to be indicative of what would have occurred if the
acquisitions had been made on January 1, 1995, or of the results that may occur
in the future.
D. ACCOUNTS RECEIVABLE
The components of accounts receivable at December 31, 1997 and 1996 are as
follows:
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
--------- --------
<S> <C> <C>
Accounts receivable $ 34,604 $ 23,161
Allowance for doubtful accounts (838) (354)
-------- --------
Net Accounts Receivable $ 33,766 $ 22,807
======== ========
</TABLE>
E. INVENTORIES
The components of inventories at December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
------------------------------------------ --------------------------------------
FIFO and FIFO and
AVERAGE AVERAGE
LIFO COST TOTAL LIFO COST TOTAL
------- ------- ------ ----- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Raw materials $ 952 $ 5,801 $ 6,753 $1,650 $3,274 $4,924
Work-in-process -- 3,232 3,232 -- 1,511 1,511
Finished goods -- 3,383 3,383 -- 3,130 3,130
------- ------- ------- ------ ------ ------
$ 952 12,416 $13,368 $1,650 $7,915 $9,565
======= ======= ======= ====== ====== ======
</TABLE>
F-16
<PAGE> 43
AAVID THERMAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands, except share and per share data)
E. INVENTORIES (continued)
The excess of current costs over the carrying value using the LIFO method
was approximately $464 and $273 at December 31, 1997 and 1996, respectively.
F. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment, by major classification as of December 31,
1997 and 1996 consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
---- ----
<S> <C> <C>
Land $ 1,649 $ 1,649
Building and improvements 15,209 12,956
Machinery and equipment 34,932 24,116
Vehicles 171 133
Machinery-in-progress 3,425 2,008
-------- --------
55,386 40,862
Less accumulated depreciation (12,231) (7,334)
-------- --------
$ 43,155 $ 33,528
======== ========
</TABLE>
Substantially all property, plant, and equipment serve as collateral under
the Company's various borrowing arrangements.
G. OTHER ASSETS
Other long-term assets as of December 31, 1997 and 1996 consist principally
of the following intangible assets:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
---- ----
<S> <C> <C>
Goodwill $ 6,378 $ 4,430
Patents 631 880
Other intangibles 1,820 1,304
Deferred financing costs 245 214
Other - equity in affiliates 303 795
------- -------
9,377 7,623
Less: accumulated amortization (1,548) (749)
------- -------
$ 7,829 $ 6,874
======= =======
</TABLE>
F-17
<PAGE> 44
AAVID THERMAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands, except share and per share data)
H. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Included in accrued expenses at December 31, 1997 and 1996 are the
following:
H. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES (continued)
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
---- ----
<S> <C> <C>
Accrued bonus $ 2,495 $ 1,597
Deferred maintenance revenue 4,887 4,235
Income taxes payable 2,390 897
Other accrued expenses 8,006 6,188
------- -------
$17,778 $12,917
======= =======
</TABLE>
I. DEBT OBLIGATIONS
Debt obligations as of December 31, 1997 and 1996 consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
---- ----
<S> <C> <C>
Term notes which contain a prepayment
penalty, at December 31, 1996, payable
in monthly installments of $186 plus
interest at the lender's reference rate
(which approximates prime) which equaled
8.25% at December 31, 1996 (see
Consolidated term loan for subsequent
refinancing) ............................ -- $7,524
Term notes which contain a prepayment
penalty, at December 31, 1996, payable
in monthly installments of $50 plus
interest at the lender's reference rate
(which approximates prime) plus 0.25%
which equaled 8.50% at December 31,
1996; (see Consolidated term loan for
subsequent refinancing) ................. -- 2,850
Notes payable in monthly installments of
$11 to $14, including interest at rates
between prime minus 0.50% to the prime
rate, which equaled 7.75% and 8.25% at
December 31, 1996 and 8% and 8.5% at
December 31, 1997, due June 2002;
collateralized by a first mortgage on
real property ........................... 2,866 3,675
</TABLE>
F-18
<PAGE> 45
AAVID THERMAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands, except share and per share data)
I. DEBT OBLIGATIONS
<TABLE>
<CAPTION>
DECEMBER 31,
(continued) 1997 1996
---- ----
<S> <C> <C>
Notes payable in monthly installments of
$21 to $91 plus interest, due November
4, 1998 and February 1999 ............... 593 --
Consolidated term loan due November
2003, payable in monthly installments of
$186, including interest at either the
prime rate or the LIBOR rate plus 2.0%,
subject to an election made by the
Company; as of December 31, 1997 the
Company elected the prime rate which
equaled 8.5% ............................ 10,607 --
Notes payable in monthly installments of
$4 to $12, including interest at rates
between 5.60% and the prime rate plus
1.50%, which equaled 9.75% at December
31, 1996 and 10.00% at Dec-ember 31,
1997, due June 30, 2008; collateralized
by mortgages on certain real property ... 2,760 1,648
Revolving credit facility, see note
below ................................... 6,230 6,316
Note payable in monthly installments of
$10, including interest at the Lloyds
Bank rate plus 2.50% which equaled 9.75%
and 8.25% at December 31, 1997 and 1996,
respectively, due June 16, 2005;
collateralized by first mortgage on real
property ................................ 762 857
Other ................................... 138 450
------ -------
23,956 23,320
Less current portion .................... 3,360 5,953
------ -------
Debt obligations, net of current portion. 20,596 $17,367
====== =======
</TABLE>
In December 1997, the Company renegotiated its revolving credit facility
and refinanced certain term notes. The Loan Agreement provides the Company with
a $40 million senior loan facility which includes a revolving credit facility as
well as various term loans. Previously outstanding term and acquisition loans
were refinanced in a consolidated term loan, with monthly payments of $186
through November 15, 2003 at which time the remaining balance is due and
payable. As of December 31, 1997 the interest rate was equal to either the prime
rate or the LIBOR rate plus 2%, based on an election by the Company. At December
31, 1997 the Company elected the prime rate which equaled 8.5%. Total
availability under the facility, which is subject to levels of qualified
inventory and accounts receivable as defined, amounted to $16,857 at December
31, 1997. 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, which the Company met in 1997
and 1996. The facility contains a commitment fee of 0.25% at December 31, 1997
and 1996 of available borrowings under the line of
F-19
<PAGE> 46
AAVID THERMAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands, except share and per share data)
I. DEBT OBLIGATIONS (continued)
credit as defined. The Agreement also provides for up to an additional $10
million term loan and up to $16 million for equipment purchases.
Substantially all of the Company's assets serve as collateral under these
debt obligations.
The Company was also contingently liable at December 31, 1997 and 1996 for
$350 and $550, respectively, related to outstanding letters of credit.
Debt maturities payable for the five years and thereafter subsequent to
December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998 $ 3,360
1999 2,662
2000 2,706
2001 2,726
2002 2,073
Thereafter 10,429
-------
Total $23,956
=======
</TABLE>
J. EQUITY
On January 29, 1996, the Company completed its initial public offering
(IPO) and sold an aggregate of 2,645,000 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 below. 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.
STOCK SPLIT
The Board of Directors 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 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.
PREFERRED STOCK
Effective upon the Registration Statement, the Company's Series A and
Series B Convertible Preferred Stock converted into common stock in accordance
with a formula, which resulted in a 5.5-for-1 exchange. In addition, the Company
authorized the issuance of 4,000,000 shares of $0.01 par value
F-20
<PAGE> 47
AAVID THERMAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands, except share and per share data)
J. EQUITY (continued)
Preferred Stock, none of which is outstanding as of December 31, 1997 and 1996.
The Preferred Stock shall have designations, preferences, powers, and rights as
may be authorized by the Board of Directors.
REDEEMABLE WARRANT
In connection with the issuance of a Senior Subordinated Note in 1993, the
Company granted the issuer a warrant to purchase 495,000 shares of its Common
Stock at an exercise price of $1.87, expiring October 2003. The exercise price
of the warrant represented the fair market value of the Common Stock on the date
of issuance. The warrant contained specific anti-dilutive provisions and
provided 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. Although the warrant remains outstanding, the right to require the
Company to purchase the warrant expired upon the consummation of the initial
public offering. 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. 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. Through the
date of the expiration of the put option, the warrant was accreted to the
estimated redemption price.
SALE OF COMMON STOCK
On November 14, 1997, the Company sold an aggregate of 297,872 shares of
Common Stock and a warrant to purchase 50,000 shares of Common Stock for
$7,000,000 to a corporate investor. The warrant has an exercise price of $23.50
per share and expires on November 14, 2000. The Company granted this investor
certain demand and "piggyback" registration rights with respect to the purchased
shares (including the shares underlying the warrant), although the investor has
agreed not to exercise these rights for a period of one year. The Company
intends to use the proceeds for general corporate purposes, including working
capital.
STOCK OPTIONS
During 1993, an officer of the Company was granted non-qualified stock
options to acquire 249,205 shares of Common Stock at an exercise price of $0.19
per share, and 1,268,795 shares of Common Stock at an exercise price of $2.20
per share. These options vested and became exercisable as to 25% of the
applicable shares immediately, with the remainder ratably in October 1994, 1995,
and 1996, respectively. During 1997, 225,000 options were exercised, all
remaining options were outstanding and exercisable as of December 31, 1997. In
addition, since 1993, the Company has issued 639,375 non-qualified stock options
to Directors of the Company and certain executives at exercise prices ranging
from $0.19 to $11.38. As of December 31, 1997, 558,125 of these options were
outstanding and 310,000 were exercisable. The exercise
F-21
<PAGE> 48
AAVID THERMAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands, except share and per share data)
J. EQUITY (continued)
STOCK OPTIONS (continued)
price of all these options equaled the fair market value on the date of grant,
as determined by the Board of Directors for issuances prior to its initial
public offering or market prices thereafter.
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 non-qualified
options. The Company has reserved 794,326 shares of its Common Stock for
issuance under this plan. As of December 31, 1997, 393,440 options were
outstanding, of which 198,937 were exercisable.
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 on 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.
During 1995, the Company's Board of Directors adopted and approved a stock
option plan for non-employee directors (Directors' Plan). The Company has
reserved 100,000 shares of its Common Stock for issuance under this plan. The
Directors' Plan provides for the automatic grant to non-employee 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 fully exercisable six (6) 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. As of December 31, 1997, 80,000
options were outstanding, of which 63,750 were exercisable.
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
Company has reserved 250,000 shares of its Common Stock for issuance under this
plan. 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
were granted, or
(ii) 85% of the fair market value on the date such right is exercised.
F-22
<PAGE> 49
AAVID THERMAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands, except share and per share data)
J. EQUITY (continued)
STOCK OPTIONS (continued)
The Purchase Plan is intended to qualify as an employee stock purchase plan
under the applicable provisions of the Internal Revenue Code. During 1997 and
1996, the Company sold 41,604 and 21,477 shares under this plan, respectively.
During 1995, no rights to purchase Common Stock had been granted under the
Purchase Plan.
A summary of all stock options activity follows:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
SHARES EXERCISE PRICE
------ --------------
<S> <C> <C>
Outstanding at December 31, 1994 1,747,404 $ 1.82
Granted during 1995 364,936 5.82
Canceled during 1995 (1,100) 4.55
---------- ------
Outstanding at December 31, 1995 2,111,240 $ 2.51
Granted during 1996 615,096 9.36
Exercised during 1996 (1,925) 4.55
Canceled during 1996 (22,822) 5.56
---------- ------
Outstanding at December 31, 1996 2,701,589 $ 4.04
Granted during 1997 289,779 15.22
Exercised during 1997 (626,930) 2.59
Canceled during 1997 (51,656) 7.51
---------- ------
Outstanding at December 31, 1997 2,312,782 $ 5.76
========== ======
</TABLE>
At December 31, 1997, 1996, and 1995, options for 1,814,021, 2,043,524, and
1,443,304 shares were exercisable, respectively with weighted average exercise
prices of $4.11, $2.67, $2.00, respectively.
During 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock-Based Compensation", which defines a fair value based
method of accounting for employee stock options, or similar equity instruments,
and encourages all entities to adopt that method of accounting for all of their
employee stock compensation plans; however, it also allows an entity to continue
to measure compensation costs for those plans using the intrinsic method of
accounting prescribed by APB Opinion 25. Entities electing to remain with the
accounting in APB Opinion 25 must make pro forma disclosures of net income and
earnings per share as if the fair value based method of accounting defined in
SFAS No. 123 has been applied.
The Company has elected to account for its stock-based compensation plan
under APB Opinion 25; however, the Company has computed, for pro forma
disclosure purposes, the value of all options granted during 1997, 1996, and
1995 using the Black-Scholes option-pricing model as prescribed by SFAS No. 123,
using the following weighted-average assumptions for grants in 1997, 1996, and
1995:
F-23
<PAGE> 50
AAVID THERMAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands, except share and per share data)
J. EQUITY (Continued)
STOCK OPTIONS (Continued)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Risk-free interest rate 6.55% 6.18% 6.38%
Expected dividend yield -- -- --
Expected life 4 years 5 years 5 years
Expected volatility 50% 67% 67%
</TABLE>
The weighted average fair value of options granted in 1997, 1996, and 1995
were $7.61, $4.59, and $3.28 respectively.
The total value of options granted during 1995, 1996, and 1997 would be
amortized on a pro forma basis over the vesting period of the options. Options
generally vest equally over two to four years. Because the SFAS No. 123 method
of accounting has not been applied to options granted prior to January 1, 1995,
the resulting pro forma compensation costs may not be representative of that to
be expected in future years. If the Company had accounted for these plans,
including the Employee Stock Purchase Plan, in accordance with SFAS No. 123, the
Company's net income or loss and net income or loss per share would have
decreased or increased, as reflected in the following pro forma amounts:
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Net income (loss) -
As reported $8,493 $ (30) $(1,490)
Pro forma 6,761 (906) (1,884)
Net income (loss) per share, diluted -
As reported $ 0.98 $(0.01) $ (2.83)
Pro forma 0.78 (0.15) (3.57)
</TABLE>
Set forth is a summary of options outstanding and exercisable as of
December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------- -------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
NUMBER OF REMAINING AVERAGE NUMBER OF AVERAGE
RANGE OF OUTSTANDING CONTRACTUAL LIFE EXERCISE EXERCISABLE EXERCISE
EXERCISE PRICES OPTIONS (YEARS) PRICE OPTIONS PRICE
--------------- ----------- ------------------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$0.19 - $2.20 1,362,356 5.81 $ 2.14 1,362,356 $ 2.14
$4.55 - $7.38 34,000 7.58 $ 5.48 23,750 $ 4.67
$9.00 - $9.88 646,709 8.63 $ 9.38 355,206 $ 9.43
$11.25 - $16.50 258,217 9.34 $14.80 69,834 $14.29
$28.38 - $28.38 11,500 9.70 $28.38 2,875 $28.38
--------------- --------- ---- ------ --------- ------
$ 0.19 - $28.38 2,312,782 7.04 $ 5.76 1,814,021 $ 4.11
=============== ========= ==== ====== ========= ======
</TABLE>
F-24
<PAGE> 51
AAVID THERMAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands, except share and per share data)
K. BUYOUT OF COMPENSATION ARRANGEMENTS
Effective September 19, 1995, the Company's Board of directors agreed to a
$2,374 non-refundable payment for the buyout of a portion of the Chief Executive
Officer's expected future payments required under his employment agreement. This
payment was made in consideration of the Officer's agreement to amend the bonus
calculation of the agreement and does not reflect future services. At the same
time, the Board agreed to a payment of $275 to a related party to buyout the
bonus-based portion of its management fee contract. The agreement provides for
additional payments in 1996, 1997, and 1998 if certain profitability levels are
achieved.
L. INCOME TAXES
Income (loss) before income taxes and extraordinary item for domestic and
foreign operations are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Domestic $7,321 $ (18) $(1,562)
Foreign 5,996 2,161 1,678
-------- ------ -------
$ 13,317 $2,143 $ 116
======== ====== =======
</TABLE>
The income tax provision included in the consolidated statements of
operations, consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1996 1995
---- ---- ----
Federal provision (benefit):
<S> <C> <C> <C>
Current $ 2,723 $1,046 $ 66
Deferred (291) 24 310
------- ------ ----
2,432 1,070 376
State provision:
Current 260 170 56
Deferred 124 2 43
------- ------ ----
384 172 99
Foreign provision:
Current 2,008 760 356
------- ------ ----
Total provision $ 4,824 $2,002 $831
======= ====== ====
</TABLE>
The Company is in a net operating loss carryback position for US tax
purposes due to the tax benefit associated with stock options which totaled
$3,726 for 1997 and was credited directly to stockholders' equity. 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:
F-25
<PAGE> 52
AAVID THERMAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands, except share and per share data)
L. INCOME TAXES (Continued)
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Expected federal tax $ 4,528 $ 728 $ 39
State income taxes, net 387 112 66
Purchased undeveloped technology charge -- 1,172 942
Benefit of tax credits (150) (830) --
Non-deductible goodwill 48 84 41
Foreign sales corporation (96) (20) --
Increase (decrease) in valuation allowance 56 575 (215)
Other 51 181 (42)
------- ------- -----
Total income tax expense $ 4,824 $ 2,002 $ 831
======= ======= =====
</TABLE>
Deferred tax assets and liabilities are measured as the difference between
the financial statement and the tax bases of assets and liabilities at the
applicable enacted tax rates. No provision has been made for U.S. income taxes
on the undistributed earnings in foreign subsidiaries as it is the Company's
intention to utilize those earnings in the foreign operations for an indefinite
period of time. As of December 31, 1997, undistributed earnings totaled
approximately $3,048, excluding amounts which, if remitted, generally would not
result in additional U.S. income taxes because of available foreign tax credits.
It is not practicable to determine the amount of income or withholding tax that
would be payable upon remittance of those earnings.
The components of the net deferred liability consist of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996
---- ----
Deferred tax assets:
<S> <C> <C>
Tax credits $ 924 $ 868
Inventory reserves and capitalization 375 475
Accounts receivable reserves 504 308
Vacation and benefit reserves 1,030 673
Other liabilities and reserves 456 294
------- -------
Total deferred tax assets 3,289 2,618
Valuation allowance (924) (868)
------- -------
2,365 1,750
Deferred tax liabilities:
Depreciation (1,959) (1,889)
Acquired intangibles (310) (373)
------- -------
(2,269) (2,262)
Net deferred tax asset (liability) $ 96 $ (512)
======= =======
</TABLE>
F-26
<PAGE> 53
AAVID THERMAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands, except share and per share data)
L. INCOME TAXES (Continued)
In 1997, the Company increased its valuation allowance by $56 for tax
credit carryforwards generated, whose use is uncertain. In 1996, the Company
recorded an increase in its valuation allowance of $293 for tax credit
carryforwards acquired in the FDI acquisition and an increase in its valuation
allowance of $575 for tax credit carryforwards generated, whose future use is
uncertain. The future benefit of tax credits acquired in the FDI acquisition
will be credited against goodwill if realized.
M. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases various equipment and facilities under the terms of
non-cancelable operating leases. Future lease commitments are as follows:
<TABLE>
<CAPTION>
Years Ending December 31,
-------------------------
<S> <C>
1998 $ 3,133
1999 1,983
2000 1,303
2001 889
2002 699
Thereafter 233
--------
$ 8,240
========
</TABLE>
Lease expense was approximately $2,556, $1,426 and $485 for the years ended
December 31, 1997, 1996 and 1995, respectively.
LITIGATION
The Company is involved in various routine litigation incident to its
business. In management's opinion, none of these proceedings will have a
materially adverse effect on the Company's results of operations or financial
position irrespective of any potential insurance recovery.
RELATED PARTY TRANSACTIONS
The Company licenses certain technologies and purchases specific products
from another company controlled by a former officer and current director. 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 this related party. For
the years ended December 31, 1997, 1996, and 1995, payments of $2, $14, and $438
were made to this entity.
The Company has an agreement with an entity controlled by certain directors
under which it is obligated to pay an annual management fee of $250 through
December 31, 2000. The Company expensed $250, $250, and $507 under this
agreement for the years ended December 31, 1997, 1996, and 1995,
F-27
<PAGE> 54
AAVID THERMAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands, except share and per share data)
RELATED PARTY TRANSACTIONS (CONTINUED)
respectively. In 1995, the agreement was amended to eliminate a portion of the
fee based on the company's earnings. The Company agreed to pay this entity a
one-time $275 fee for the elimination of this additional charge.
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, delivery flexibility, and price stability. Under the terms
of this agreement, which expires on August 31, 2000, the Company has agreed to
purchase certain minimum quantities on a quarterly basis which approximates
$480.
N. 401(k) PROFIT SHARING PLAN
The Company has profit sharing plans, which permit participants to make
contributions by salary reduction pursuant to the Section 401(k) of the Internal
Revenue Code. Employee eligibility is based on a minimum age and employment
requirement. Annual employer contributions are determined by the Board of
Directors, but cannot exceed the amount allowable for federal income tax
purposes. The Company's contribution was approximately $202, $193, and $183 for
the years ended December 31, 1997, 1996 and 1995, respectively.
O. FOREIGN OPERATIONS AND SEGMENT REPORTING
The following table summarizes the Company's operations by geographic area:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------
1997 1996 1995
--------- --------- --------
<S> <C> <C> <C>
Net sales:
North America $ 131,941 $ 88,755 $ 82,361
Europe 24,333 16,197 8,520
Asia 26,162 6,219 3,008
Less: Interarea eliminations (14,691) (4,176) (2,945)
--------- --------- --------
Total $ 167,745 $ 106,995 $ 90,944
========= ========= ========
Export sales $ 17,987 $ 9,440 $ 6,347
========= ========= ========
Operating profit:
North America $ 11,189 $ 5,920 $ 5,913
Europe 2,390 3,063 1,140
Asia 3,347 837 616
Corporate and eliminations (230) (5,509) (4,765)
--------- --------- --------
Total $ 16,696 $ 4,311 $ 2,904
========= ========= ========
Identifiable assets:
North America $ 83,490 $ 62,218 $ 47,827
Europe 13,378 9,544 7,331
Asia 13,928 8,459 1,341
--------- --------- --------
Total $ 110,796 $ 80,221 $ 56,499
========= ========= ========
</TABLE>
F-28
<PAGE> 55
AAVID THERMAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands, except share and per share data)
O. FOREIGN OPERATIONS AND SEGMENT REPORTING(Continued)
During 1996 and 1995, the Company's corporate office expenses were not
allocated to the geographic regions, therefore the corporate operating loss
noted above was significantly higher for 1996 and 1995 as compared to 1997.
The Company has two material operating segments, Thermal Products and
Software Sales and Support. The following table summarizes the Company's
operations by segment:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------
1997 1996 1995
--------- --------- --------
<S> <C> <C> <C>
Net sales:
Thermal Products $ 135,273 $ 81,851 $ 84,857
Software 32,472 25,144 6,087
--------- --------- --------
$ 167,745 $ 106,995 $ 90,944
========= ========= ========
Operating profit:
Thermal Products $ 11,392 $ 5,836 $ 6,268
Software 5,534 3,984 1,401
Corporate and eliminations (230) (5,509) (4,765)
--------- --------- --------
$ 16,696 $ 4,311 $ 2,904
========= ========= ========
Identifiable assets:
Thermal Products $ 86,018 $ 61,108 $ 43,192
Software 22,384 18,809 13,304
Corporate and eliminations 2,394 304 3
--------- --------- --------
$ 110,796 $ 80,221 $ 56,499
========= ========= ========
Depreciation and amortization:
Thermal Products $ 6,275 $ 3,115 $ 2,331
Software 1,133 976 170
Corporate and eliminations 232 11 --
--------- --------- --------
$ 7,640 $ 4,102 $ 2,501
========= ========= ========
Capital expenditures:
Thermal Products $ 12,949 $ 6,212 $ 7,748
Software 2,817 799 706
Corporate and eliminations 226 18 --
--------- --------- --------
$ 15,992 $ 7,029 $ 8,454
========= ========= ========
</TABLE>
International inter-area sales represent shipment of inventory to
international subsidiaries. These inter-area sales are generally priced to
recover cost plus an appropriate markup 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.
Corporate expenses include write-off of undeveloped technology costs of $0,
$3,446, and $2,770 for the years ended December 31 1997, 1996 and 1995,
respectively.
F-29
<PAGE> 56
AAVID THERMAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands, except share and per share data)
P. SIGNIFICANT CUSTOMER
One customer accounted for 15% of net sales for the year ended December 31,
1997. For the years ended December 31, 1996, and 1995 no customer accounted for
greater than 10% of net sales
F-30
<PAGE> 1
EXHIBIT 21
----------
AAVID THERMAL TECHNOLOGIES, INC.
SUBSIDIARIES OF THE REGISTRANT
Name Site of Incorporation
- ---------------------------------------------------------------------------
Aavid Thermal Products, Inc. New Hampshire
Aavid Laboratories, Inc. New Hampshire
Fluent, Inc. New Hampshire
Aavid Thermal Technologies of Texas, Inc. New Hampshire
Applied Thermal Technologies, Inc. New Hampshire
Aavid Engineering, Ltd. U.K.
Aavid Engineering, GmbH Germany
Fluent Europe, Ltd. U.K.
Aavid Thermal Products of Canada, Inc. Ontario, Canada
Aavid Engineering (S) Pte. Ltd. Singapore
Aavid Taiwan, Inc. Taiwan
<PAGE> 1
EXHIBIT 23.1(a)
------- -------
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report, included in this Form 10-K, into Aavid Thermal Technologies, Inc.'s
previously filed Registration Statements (File Nos. 333-17933, 333-17931,
333-17927, and 333-17925).
/s/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
March 26, 1998
<PAGE> 1
EXHIBIT 23.1(b)
---------------
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report, included in this Form 10-K, into Aavid Thermal Technologies, Inc.'s
previously filed Registration Statements (File Nos. 333-17933, 333-17931,
333-17927, and 333-17925).
/s/ COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
March 26, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K
FOR THE YEARS ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 6,919
<SECURITIES> 0
<RECEIVABLES> 33,766
<ALLOWANCES> 838
<INVENTORY> 13,368
<CURRENT-ASSETS> 59,812
<PP&E> 55,386
<DEPRECIATION> 12,231
<TOTAL-ASSETS> 110,796
<CURRENT-LIABILITIES> 37,516
<BONDS> 20,596
0
0
<COMMON> 76
<OTHER-SE> 50,339
<TOTAL-LIABILITY-AND-EQUITY> 110,796
<SALES> 167,745
<TOTAL-REVENUES> 167,745
<CGS> 107,401
<TOTAL-COSTS> 151,049
<OTHER-EXPENSES> 1,201
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,178
<INCOME-PRETAX> 13,317
<INCOME-TAX> 4,824
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,493
<EPS-PRIMARY> 1.22
<EPS-DILUTED> .98
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 4,093
<SECURITIES> 0
<RECEIVABLES> 22,807
<ALLOWANCES> 354
<INVENTORY> 9,565
<CURRENT-ASSETS> 39,819
<PP&E> 40,862
<DEPRECIATION> 7,334
<TOTAL-ASSETS> 80,221
<CURRENT-LIABILITIES> 30,445
<BONDS> 0
0
0
<COMMON> 65
<OTHER-SE> 29,288
<TOTAL-LIABILITY-AND-EQUITY> 80,221
<SALES> 106,995
<TOTAL-REVENUES> 106,995
<CGS> 66,002
<TOTAL-COSTS> 102,684
<OTHER-EXPENSES> 577
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,591
<INCOME-PRETAX> 2,143
<INCOME-TAX> 2,002
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 171
<CHANGES> 0
<NET-INCOME> (30)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<CASH> 4,327
<SECURITIES> 0
<RECEIVABLES> 15,736
<ALLOWANCES> 286
<INVENTORY> 6,376
<CURRENT-ASSETS> 29,360
<PP&E> 29,042
<DEPRECIATION> 4,094
<TOTAL-ASSETS> 56,499
<CURRENT-LIABILITIES> 23,059
<BONDS> 0
0
6
<COMMON> 8
<OTHER-SE> 5,419
<TOTAL-LIABILITY-AND-EQUITY> 56,499
<SALES> 90,944
<TOTAL-REVENUES> 90,944
<CGS> 60,680
<TOTAL-COSTS> 88,040
<OTHER-EXPENSES> 177
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,611
<INCOME-PRETAX> 116
<INCOME-TAX> 831
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 775
<CHANGES> 0
<NET-INCOME> (1,490)
<EPS-PRIMARY> (2.83)
<EPS-DILUTED> (2.83)
</TABLE>
