<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended October 2, 1999, Commission File No 000-27308.
AAVID THERMAL TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 02-466826
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Eagle Square, Suite 509, Concord, NH 03301
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (603) 224-1117
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
The number of shares of common stock outstanding as of November 1, 1999 was
9,608,223.
<PAGE> 2
AAVID THERMAL TECHNOLOGIES, INC.
INDEX TO FORM 10-Q
PAGE
----
Part I. Financial Information
Item 1. Financial Statements
a.) Consolidated Balance Sheets
as of October 2, 1999 and December 31, 1998......................... 3
b.) Consolidated Statements of Income
for the quarter and nine months ended
October 2, 1999 and September 26, 1998.............................. 4
c.) Consolidated Statements of Cash Flows
for the nine months ended October 2, 1999
and September 26, 1998.............................................. 5
d.) Notes to Consolidated Financial Statements.......................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................... 11
Part II. Other Information
Item 1. Legal Proceedings............................................... 16
Item 5. Other Information............................................... 16
Item 6. Exhibits and Reports on Form 8-K................................ 18
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
AAVID THERMAL TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
OCTOBER 2, DECEMBER 31,
1999 1998
(UNAUDITED)
----------- ------------
ASSETS
Cash and cash equivalents $ 23,811 $ 20,027
Notes receivable -- 1,459
Accounts receivable 35,476 31,158
Inventories 14,593 15,283
Refundable income taxes 370 370
Deferred income taxes 9,357 9,072
Prepaid and other current assets 3,475 2,897
-------- --------
Total current assets 87,082 80,266
Property, plant and equipment, net 41,758 42,497
Other assets, net 7,535 6,321
-------- --------
Total Assets $136,375 $129,084
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of debt obligations $ 3,939 $ 3,442
Accounts payable - trade 13,212 17,377
Accrued expenses and other current liabilities 25,171 23,488
-------- --------
Total current liabilities 42,322 44,307
Debt obligations, net of current portion 9,276 11,208
Deferred income taxes 2,189 2,218
-------- --------
Total liabilities 53,787 57,733
-------- --------
Commitments and Contingencies
Stockholders' equity:
Preferred Stock, $0.01 par value; authorized
4,000,000 shares; 0 outstanding at October 2,
1999 and December 31, 1998 -- --
Common Stock, $0.01 par value; authorized
25,000,000 shares; 9,601,973 and 9,251,391
shares issued and outstanding at October 2,
1999 and December 31, 1998, respectively 96 93
Additional paid-in capital 58,543 56,740
Cumulative translation adjustment (958) (902)
Retained earnings 24,907 15,420
-------- --------
Total stockholders' equity 82,588 71,351
-------- --------
Total liabilities and stockholders' equity $136,375 $129,084
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
3
<PAGE> 4
AAVID THERMAL TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(Unaudited)
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
OCTOBER 2, SEPTEMBER 26, OCTOBER 2, SEPTEMBER 26,
1999 1998 1999 1998
---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Net sales $ 47,611 $ 48,837 $ 145,239 $ 158,682
Cost of goods sold 30,262 33,183 90,769 106,222
---------- ---------- ---------- ----------
Gross profit 17,349 15,654 54,470 52,460
Selling general and administrative expenses 10,974 9,978 34,054 32,224
Research and development 1,689 1,501 5,154 4,846
Restructuring and buyout of compensation
arrangement charges -- 3,882 -- 5,740
---------- ---------- ---------- ----------
Income from operations 4,686 293 15,262 9,650
Interest income (expense), net (71) (340) (257) (1,155)
Other income (expense), net 212 (73) (277) (486)
---------- ---------- ---------- ----------
Income before income taxes 4,827 (120) 14,728 8,009
Income tax (expense) benefit (1,641) 188 (5,241) (2,832)
---------- ---------- ---------- ----------
Net income $ 3,186 $ 68 $ 9,487 $ 5,177
========== ========== ========== ==========
Net income per share, basic $ 0.33 $ 0.01 $ 1.01 $ 0.61
========== ========== ========== ==========
Weighted average common shares 9,568,341 9,115,257 9,374,672 8,468,862
Net income per share, diluted $ 0.32 $ 0.01 $ 0.97 $ 0.55
========== ========== ========== ==========
Weighted average common shares and equivalents 9,956,796 9,526,593 9,781,146 9,457,437
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
4
<PAGE> 5
AAVID THERMAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
OCTOBER 2, SEPTEMBER 26,
1999 1998
---------- -------------
<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net income $ 9,487 $ 5,177
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 5,836 7,381
(Gain) loss on sale of property, plant and equipment (268) 37
Deferred income taxes (311) (6,624)
Changes in assets and liabilities:
Accounts receivable (4,448) (3,060)
Note receivable 1,459 (2,307)
Inventories 1,061 528
Prepaid and other current assets (972) (797)
Other long term assets (665) 82
Accounts payable - trade (4,517) (2,168)
Accrued expenses and other current assets 2,725 15,548
------- ---------
Total adjustments (100) 8,620
------- ---------
Net cash provided by operating activities 9,387 13,797
Cash flows used in investing activities:
Purchase of property, plant & equipment (6,062) (7,291)
Net proceeds from sale of fixed assets 190 24
------- ---------
Net cash used in investing activities (5,872) (7,267)
Cash flows provided by (used in) financing activities:
Issuance of common stock, net of expenses 1,806 3,853
Advances under line of credit -- 128,366
Repayments of line of credit -- (133,898)
Advances under other debt obligations 481 1,081
Principal payments under debt obligations (2,150) (3,901)
------- ---------
Net cash provided by (used in) financing activities 137 (4,499)
Foreign exchange rate effect on cash and cash equivalents 132 51
Net increase in cash and cash equivalents 3,784 2,082
Cash and cash equivalents, beginning of period 20,027 6,919
------- ---------
Cash and cash equivalents, end of period $23,811 $ 9,001
======= ---------
Supplemental disclosure of cash flow information:
Interest paid $ 368 $ 1,385
======= =========
Income taxes paid $ 1,776 $ 1,964
======= =========
Supplemental disclosure of non-cash investing activities:
Sale of equipment in exchange for note receivable $ -- $ 1,152
======= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
5
<PAGE> 6
AAVID THERMAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
(1) BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited consolidated
financial statements reflect all adjustments, consisting only of normal
adjustments, necessary to present fairly the financial position of Aavid Thermal
Technologies, Inc. and its consolidated subsidiaries at October 2, 1999, and the
results of operations for the quarters and nine months ended October 2, 1999 and
September 26, 1998, and the cash flows for the nine months ended October 2, 1999
and September 26, 1998. The results of operations for the nine months ended
October 2, 1999 should not necessarily be taken as indicative of the results of
operations that may be expected for the entire 1999 year.
The financial information as of and for the periods ended October 2, 1999
should be read in conjunction with the financial statements contained in the
Company's Form 10-K Annual Report for 1998.
(2) ACCOUNTS RECEIVABLE
The components of accounts receivable at October 2, 1999 and December 31,
1998 are as follows:
OCTOBER 2, DECEMBER 31,
1999 1998
---------- ------------
(UNAUDITED)
Accounts receivable $ 36,530 $ 31,895
Allowance for doubtful accounts (1,054) (737)
--------- ---------
Net accounts receivable $ 35,476 $ 31,158
========= =========
(3) INVENTORIES
Inventories are valued at the lower of cost or market with cost determined
principally on the average cost method. The cost of inventories of foreign
subsidiaries are valued on the first-in, first-out basis.
OCTOBER 2, DECEMBER 31,
1999 1998
---------- -----------
(UNAUDITED)
Raw materials $ 8,558 $ 9,987
Work-in-process 3,813 2,364
Finished goods 2,222 2,932
------- -------
$14,593 $15,283
======= =======
(4) COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," which specifies the presentation and
disclosure requirements for comprehensive income. The following details
comprehensive income for the periods reported herein:
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
OCTOBER 2, SEPTEMBER 26, OCTOBER 2, SEPTEMBER 26,
1999 1998 1999 1998
---------- ------------- ---------- -------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net Income $3,186 $ 68 $9,487 $5,177
Foreign currency translation
adjustment 416 (80) (56) (188)
------ ---- ------ ------
Comprehensive Income $3,602 $(12) $9,431 $4,989
====== ===== ====== ======
</TABLE>
(5) EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share," which specifies the
6
<PAGE> 7
computation, presentation, and disclosure requirements for earnings per share
("EPS"). 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 QUARTER ENDED
-------------------------------------------------------------------------------------------
OCTOBER 2, 1999 SEPTEMBER 26, 1998
------------------------------------------- -----------------------------------------
PER- PER-
INCOME SHARES SHARE INCOME SHARES SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ------ ----------- ------------- ------
<S> <C> <C> <C> <C> <C> <C>
Net Income $3,186 $68
====== ===
BASIC EPS:
Income Available to
Common Stockholders
$3,186 9,568,341 $0.33 68 9,115,257 $0.01
EFFECT OF DILUTIVE
SECURITIES:
Options and Warrants
388,455 411,336
--------- ----------
DILUTED EPS:
Income Available to
Common Stockholders
$3,186 9,956,796 $0.32 $68 $9,526,593 $0.01
====== ========= ===== === ========== =====
</TABLE>
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
-------------------------------------------------------------------------------------------
OCTOBER 2, 1999 SEPTEMBER 26, 1998
------------------------------------------- -----------------------------------------
PER- PER-
INCOME SHARES SHARE INCOME SHARES SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ------ ----------- ------------- ------
<S> <C> <C> <C> <C> <C> <C>
Net Income $9,487 $5,177
====== ======
BASIC EPS:
Income Available to
Common Stockholders
$9,487 9,374,672 $1.01 5,177 8,468,862 $0.61
EFFECT OF DILUTIVE
SECURITIES:
Options and Warrants
406,474 988,575
--------- ----------
DILUTED EPS:
Income Available to
Common Stockholders
$9,487 9,781,146 $0.97 $5,177 $9,457,437 $0.55
====== ========= ===== ====== ========== =====
</TABLE>
(6) NON-RECURRING CHARGES AND RESTRUCTURING RESERVES
During the first quarter of 1998, the Company recorded a non-recurring
pre-tax charge of $1.9 million, which related to financial obligations arising
from the Company's restructuring in 1993 and comprised two elements: First, the
Company terminated a management agreement with certain investors, under which
it was obligated to pay fixed fees until at least the year 2000. Second, the
Company provided for an obligation to pay a former director a bonus based on
profits in excess of certain thresholds.
During the third quarter of 1998, the Company recorded a non-recurring
pre-tax charge of $4.9 million reflecting the costs associated with the closure
of the Company's Manchester, New Hampshire facility. This facility was
dedicated to manufacturing a specific large volume product for a single
customer. Following a change in product design by the customer, demand
significantly decreased during the fourth quarter of 1998 to $8.6 million, from
a level of $15 million in the third quarter of 1998. The restructuring is
expected to be concluded in the last quarter of 1999.
7
<PAGE> 8
The costs associated with the closure of the Manchester facility include
the write-down and disposal of surplus equipment, totaling $2.8 million,
settlement of certain purchase commitments of $1.1 million, provisions for
leased property expenses of $0.4 million, and employee separation costs of $0.6
million. While the number of employees has been significantly reduced through
natural attrition, the plan included the termination of 120 employees comprised
of 90 direct and 30 indirect employees. The charge is offset by a $1 million
reduction in the previous estimate of obligations to pay a former director a
bonus paid on profits in excess of certain thresholds.
The following amounts have been charged against the Manchester
restructuring reserves during the nine months ended October 2, 1999:
<TABLE>
<CAPTION>
RESTRUCTURING CHARGES AGAINST RESTRUCTURING
RESERVES BALANCE AT RESERVES FOR THE RESERVES BALANCE
DECEMBER 31, NINE MONTHS ENDED AT OCTOBER 2,
1998 OCTOBER 2, 1999 1999
------------------- ----------------- ----------------
<S> <C> <C> <C>
Surplus equipment $2,823 $(2,316) $ 507
Purchase commitments 691 (672) 20
Lease terminations and
leasehold improvements
reserve 328 (158) 170
Employee separation 327 (21) 305
------ ------- ------
Total $4,169 $ (3.167) $1,002
====== ========= ======
</TABLE>
(7) SEGMENT REPORTING
Aavid provides thermal management solutions for microprocessors and
integrated circuits ("ICs") for computer and network and industrial
applications. The Company consists of three distinct reportable segments:
thermal management products, computational fluid dynamics ("CFD") software, and
thermal design services. Aavid's thermal management products consist of 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 computer modeling and fluid flow analysis of
products and processes that reduce time and expense associated with physical
models and the facilities to test them. The Company also provides thermal design
services to customers who choose to outsource their thermal design needs.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies as disclosed in the Company's
Form 10-K for the year ending December 31, 1998.
The Company accounts for inter-segment sales and transfers as if the sales
or transfers were to third parties, that is, at current market prices.
8
<PAGE> 9
`
The following summarizes the operations of each reportable segment for the
quarters ending October 2, 1999 and September 26, 1998:
FOR THE QUARTER ENDING
-------------------------------------------
SEGMENT
REVENUES INCOME BEFORE
FROM TAXES AND ASSETS(NET OF
EXTERNAL EXTRAORDINARY INTERCOMPANY
CUSTOMERS ITEMS BALANCES)
--------- ------------- -------------
October 2, 1999
Thermal Products $36,376 $ 3,386 $ 97,849
CFD Software 10,956 1,533 28,515
Thermal Design
Services 279 (92) 902
Corporate Office -- -- 9,109
------- ------- --------
Total............. $47,611 $ 4,827 $136,375
======= ======= ========
September 26, 1998
Thermal Products 40,061 (1,065) 91,188
CFD Software 8,588 996 23,831
Thermal Design
Services 188 (51) 564
Corporate Office -- -- 8,364
------- ------- --------
Total............. $48,837 $ (120) $123,947
======= ======== ========
FOR THE NINE MONTHS ENDING
----------------------------------
SEGMENT
REVENUES INCOME BEFORE
FROM TAXES AND
EXTERNAL EXTRAORDINARY
CUSTOMERS ITEMS
--------- -------------
October 2, 1999
Thermal Products $108,477 $ 8,770
CFD Software 35,899 6,032
Thermal Design
Services 863 (74)
Corporate Office -- --
-------- -------
Total............. $145,239 $14,728
======== =======
September 26, 1998
Thermal Products 129,990 3,833
CFD Software 28,000 4,161
Thermal Design
Services 692 15
Corporate Office -- --
-------- -------
Total............. $158,682 $ 8,009
======== =======
The following table provides geographic information about the Company's
operations. Revenues are attributable to a location based on shipment source.
Long-lived assets are attributable to a location based on physical location.
<TABLE>
<CAPTION>
OCTOBER 2, 1999 SEPTEMBER 26, 1998
-------------------------------------------- --------------------------------------
LONG-LIVED LONG-LIVED
REVENUES ASSETS REVENUES ASSETS
FOR THE FOR THE NINE FOR THE FOR THE NINE
QUARTER ENDED MONTHS ENDED AS OF PERIOD QUARTER MONTHS ENDED AS OF
END ENDED PERIOD END
<S> <C> <C> <C> <C> <C> <C>
United States $31,559 $ 99,738 $38,914 $38,452 $131,010 $41,499
Taiwan 4,531 13,818 1,339 4,199 13,007 1,249
China 8,405 21,015 1,947 4,863 8,441 988
United Kingdom 3,933 12,857 2,190 4,012 12,826 2,731
Other International 8,320 27,825 4,903 4,561 14,044 2,791
Intercompany eliminations (9,137) (30,014) -- (7,250) (20,646) --
-------- --------- ------- -------- --------- -------
Consolidated Revenue $47,611 $145,239 $49,293 $48,837 $158,682 $49,258
======= ======== ======= ======= ======== =======
</TABLE>
9
<PAGE> 10
Revenues from one customer of Aavid's thermal products division represent
approximately $10.8 million of the Company's consolidated revenues for the
quarter ending September 26, 1998 and $38.5 million for the nine months then
ended. No customer represented greater than 10% of the Company's consolidated
revenues for the quarter or nine months ended October 2, 1999.
(8) SUBSEQUENT EVENTS
Acquisition of Aavid by Willis Stein & Partners
-----------------------------------------------
On August 23, 1999 the Company entered into an Agreement and Plan of Merger
(the "Merger Agreement") by and among the Company, Heat Holdings Corp., a
corporation newly formed by Willis Stein & Partners, II, L.P. ("Purchaser"), and
Heat Merger Corp., a wholly owned subsidiary of Purchaser ("Merger Sub"). The
Merger Agreement contemplates, among other things, that following approval of
the Company's stockholders, Merger Sub will merge with and into the Company (the
"Merger"), the Company will become a wholly-owned subsidiary of Purchaser and
the Company's stockholders will receive $25.50 per share in cash. The Merger is
conditioned upon, among other things, the expiration of the applicable waiting
periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, which has occurred, and approval of the Company's stockholders. The
Merger Agreement may be terminated under certain circumstances, including
without limitation in connection with the Company's entering into a definitive
agreement with respect to another acquisition transaction which the Company's
Board of Directors has concluded in good faith, after consulting with its
financial advisor, is more favorable to the Company's stockholders than the
Merger and is reasonably capable of being financed. In such event and certain
other circumstances, the Company would be obligated under the Merger Agreement
to pay Purchaser a termination fee of $8.3 million. Certain of the Company's
directors and executive officers, beneficially owning an aggregate of 1,275,970
shares of the Company's common stock (including 899,176 shares issuable upon
exercise of outstanding options), entered into voting agreements with Purchaser
pursuant to which they agreed to vote their shares in favor of the Merger. The
Company anticipates that it will hold a stockholders' meeting in January 2000 to
approve the Merger.
Acquisition of Thermalloy Division
----------------------------------
On October 21, 1999, Aavid Thermal Technologies, Inc. (the "Company")
acquired the Thermalloy Division of Bowthorpe plc. The Thermalloy Division's
business is substantially similar to the Company's thermal management products
business. As part of the acquisition from Bowthorpe, the Company also acquired
65.2%, representing Bowthorpe's entire shareholding, of Curamik Electronics
GmbH, a German corporation which manufactures direct bonded copper substrates
used in the packaging and cooling of high power electronic devices. The total
purchase price was $80.5 million (including estimated transaction costs of $2
million), and is subject to further adjustment based on changes in the value of
the Thermalloy Division's inventory between December 31, 1998 and July 31, 1999.
The purchase price paid at closing includes an estimate of the inventory related
purchase price adjustment. The Company used $13.8 million of its cash on hand
and $79.3 million of borrowings under its new credit facility described below to
pay the purchase price for the Thermalloy Division, repay $12.6 million of
outstanding debt and pay estimated transaction costs. The Company paid $3.5
million of the $80.5 million purchase price into escrow pending receipt of the
necessary Malaysian governmental approvals of the transfer of the Thermalloy
Division's Malaysian operations to Aavid. In addition, on October 28, 1999 the
Company purchased an additional 20.2% of Curamik from the two minority
shareholders of Curamik for approximately $2.7 million, thereby increasing its
ownership of Curamik to 85.4%.
New Credit Facility
-------------------
On October 21, 1999, in connection with the closing of the acquisition of
the Thermalloy Division, the Company entered into a $100 million revolving
credit and term loan facility with Canadian Imperial Bank of Commerce, as
Administrative Agent, and certain other lenders (the "Credit Facility"). The
Credit Facility consists of an $80 million term loan facility (the "Term
Facility") and a $20 million revolving credit facility, including a $2 million
letter of credit sub-facility (the "Revolving Facility"). The Term Facility, all
of which was borrowed on October 21, 1999 to pay the purchase price for the
Thermalloy Division, pay transaction costs and provide working capital to the
Thermalloy Division, matures on September 30, 2004, and will be amortized in 19
consecutive quarterly installments, commencing March 31, 2000, as follows: four
quarterly payments of $2 million each; four quarterly payments of $3 million
each; four quarterly payments of $4 million each; four quarterly payments of $5
million each; and three quarterly payments of $8 million each. The Revolving
Facility matures on September 30, 2004. The Credit Facility bears interest at a
rate equal to, at the Company's option, either (1) in the case of Eurodollar
loans, the sum of (x) the interest rate in the London interbank market for loans
in an amount substantially equal to the amount of borrowing and for the period
of borrowing selected by Aavid and (y) a margin of between one and one-half
percent and two percent (depending on the Company's consolidated leverage ratio
(as defined in the credit agreement)) or (2) the sum of (A) the higher of (x)
Canadian Imperial Bank of Commerce's prime or base rate or (y) one-half percent
plus the latest overnight federal funds rate plus (y) a margin of between one
quarter percent and three quarters percent (depending on the Company's
consolidated leverage ratio). The Credit Facility may be prepaid at any time in
whole or in part without penalty, and must be prepaid to the extent of certain
equity or asset sales.
The Credit Facility limits the Company's ability to incur debt, to sell or
dispose of assets, to create or incur liens, to make additional acquisitions, to
pay dividends, to purchase or redeem its stock and to merge or consolidate with
any other person other than the previously announced merger with an entity
formed by Willis Stein & Partners. In addition, the Credit Facility requires
that the company meet certain financial ratios, and provides the banks with the
right to require the payment of all amounts outstanding under the facility, and
to terminate all commitments thereunder, if there is a change in control of
Aavid other than as contemplated by the merger agreement with entities formed by
Willis Stein & Partners. The Credit Facility is guaranteed by all of the
company's domestic subsidiaries and secured by the Company's assets (including
the assets and stock of its domestic subsidiaries and a portion of the stock of
its foreign subsidiaries).
10
<PAGE> 11
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Statements in this Quarterly Report on Form 10-Q concerning the Company's
business outlook or future economic performance; anticipated profitability,
revenues, expenses or other financial items; introductions and advancements in
development of products, and plans and objectives related thereto; and
statements concerning assumptions made or expectations as to any future events,
conditions, performance or other matters, are "forward-looking statements" as
that term is defined under the Federal Securities Laws. Forward-looking
statements are subject to risks, uncertainties and other factors that could
cause actual results to differ materially from those stated in such statements.
Such risks, uncertainties and factors include, but are not limited to, changes
in the Company's markets, particularly the potentially volatile semiconductor
market, changes in and delays in product development plans and schedules,
customer acceptance of new products, changes in pricing or other actions by
competitors, patents owned by the Company and its competitors, risk of foreign
operations and markets, and general economic conditions, as well as other risks
detailed in the Company's filings with the Securities and Exchange Commission,
including the Company's Annual Report on Form 10-K for the year ended December
31, 1998.
Aavid Thermal Technologies, Inc. (the "Company" or "Aavid") is the leading
global provider of thermal management solutions for electronics products and the
leading developer and marketer of computational fluid dynamics (CFD) software.
Each of these businesses has the leading reputation for high product quality,
service excellence and engineering innovation in its market. Aavid designs,
manufactures and distributes on a worldwide basis thermal management products
that dissipate heat from microprocessors and industrial electronics products.
Aavid's products include heat sinks, interface and attachment accessories, fans,
heat spreaders and liquid cooling and phase change devices that can be
configured to meet customer-specific needs. CFD software is used in complex
computer-generated modeling of fluid flows, heat and mass transfer and chemical
reactions. Aavid's CFD software is used in a variety of industries, including
the automotive, aerospace, chemical processing, power generation, electronics
and bio-medical industries.
RESULTS OF OPERATIONS
QUARTER AND NINE MONTHS ENDED OCTOBER 2, 1999 COMPARED WITH QUARTER AND NINE
MONTHS ENDED SEPTEMBER 26, 1998
THE COMPANY
Sales in the third quarter of 1999 were $47.6 million, a decrease of $1.2
million, or 2.5%, compared with the third quarter of 1998. Sales for the nine
months ended October 2, 1999 were $145.2 million, a decrease of $13.5 million or
8.5%. The reduction in sales for both the quarter and nine month period was the
result of the impact of the reduction in sales volume of a special product being
manufactured for Intel Corporation (the "Intel Special Product"). Company sales
for the nine month period ending October 2, 1999,
11
<PAGE> 12
excluding sales of the Intel Special Product, however, increased 18.7% over the
same period in the prior year.
International sales (which include North American exports) decreased to
37.2% of sales for the third quarter of 1999 compared with 52.7% in the third
quarter of 1998. This decrease in the level of international sales is primarily
the result of the reduction in sales of the Intel Special Product, which
declined from a per quarter level of $10.8 million in the third quarter of 1998
to none in the third quarter of 1999. The majority of the Intel Special Product
was shipped to locations outside the United States.
Intel Corporation was the only customer that generated more than 10% of the
Company's sales in the third quarter of 1998 and the nine months ended September
26, 1998. Sales to Intel Corporation, including its foreign subsidiaries,
accounted for 22.1% and 24.2%, of total Company sales for the quarter and nine
months ended September 26, 1998. No customer generated more than 10% of the
Company's sales in the third quarter or nine months ended October 2, 1999.
The Company's gross profit for the third quarter of 1999 was $17.3 million,
an increase of $1.7 million, or 10.8% higher than the third quarter of 1998.
Gross margin as a percentage of sales increased from 32.1% in the third quarter
of 1998 to 36.4% for the third quarter of 1999. This increase resulted from a
decrease in the percentage of overall gross margin derived from the Intel
Special Product (which had a lower gross margin than the Company's other
products) and an increase in the percentage of overall gross margin derived from
Fluent, which has higher overall gross margin percentages than Aavid Thermal
Products.
The Company's third quarter 1999 operating income of $4.7 million was $0.5
million or 12.4% higher than the third quarter of 1998, excluding the one-time
charge in the third quarter of 1998 discussed below. The Company's operating
margins, as a percentage of sales, for the third quarter of 1999 were 9.8% as
compared with 8.5% for the third quarter of 1998. This improvement in margin
percentage is the result of both a recovery in operating margins at Aavid
Thermal Products following cost reductions associated with the phase-out of the
Intel Special Product and an increase in the percentage of overall operating
profit derived from Fluent.
Interest charges for the Company were $0.1 million in the third quarter of
1999, which compares with $0.3 million for the third quarter of 1998, reflecting
lower levels of indebtedness. The effective tax rate in the third quarter of
1999 was 34.0%, compared with 34.8% in the third quarter of 1998, excluding the
one-time charge in the third quarter of 1998, discussed below. The decrease in
tax rate resulted from a shift of product mix to foreign lower tax
jurisdictions.
The Company's net income for the third quarter of 1999 was $3.2 million, or
$0.32 per share (diluted), compared with the third quarter of 1998 of $2.5
million, or $0.26 per share (diluted) prior to one time charges.
During the first quarter of 1998, the Company recorded a non-recurring
pre-tax charge of $1.9 million (or $0.13 per share), which related to
obligations arising from the Company's financial restructuring in 1993 and
comprised two elements: First, the Company terminated a management agreement
with certain investors, under which it was previously obligated to pay fixed
fees until at least the year 2000. Second, the Company provided for an
obligation to pay a former director a bonus based on 1998 profits in excess of
certain thresholds.
During the third quarter of 1998, the Company recorded a non-recurring
pre-tax charge of $4.9 million reflecting the costs associated with the closure
in the fourth quarter of the Company's Manchester, New Hampshire facility. This
facility was dedicated to manufacturing the Intel Special Product. The charge
was offset by a $1.0 million reduction in the previous estimate of obligations
to pay a former director a bonus paid on profits in excess of certain
thresholds. The combination of these two events resulted in a net third quarter
non-recurring pre-tax charge of $3.9 million or $0.25 per share.
The costs associated with the closure of the Manchester facility included
the write-down of surplus equipment of $2.8 million, settlement of certain
purchase commitments of $1.1 million, provisions for leased property expenses of
$0.4 million, and employee separation costs of $0.5 million. There were $3
million of payments and write-downs made relative to this plant closure during
the nine months ending October 2, 1999.
12
<PAGE> 13
THE SUBSIDIARIES
A discussion of the operations of the Company's three operating
subsidiaries excluding one-time charges, follows:
<TABLE>
<CAPTION>
NET INCOME NET INCOME
($ MILLION) ($ MILLION)
THIRD QUARTER NINE MONTHS ENDED
------------------------- --------------------------
1999 1998 INCREASE/ 1999 1998 INCREASE/
----- ---- --------- ----- ---- ---------
(DECREASE) (DECREASE)
<S> <C> <C> <C> <C> <C> <C>
Fluent $ 0.9 $0.6 $ 0.3 $ 3.6 $2.6 $ 1.0
Applied Thermal Technologies (0.1) 0.0 (0.1) (0.1) 0.0 (0.1)
Aavid Thermal Products 2.4 1.9 0.5 6.0 6.1 (0.1)
----- ---- ----- ----- ---- -----
$ 3.2 $2.5 $ 0.7 $ 9.5 $8.7 $ 0.8
===== ==== ===== ===== ==== =====
</TABLE>
Fluent software sales of $11.0 million in the third quarter of 1999 were
$2.4 million, or 28.0% higher than the third quarter of 1998. Of this 28%
increase, approximately 8% was the result of sales increases from the Company's
new subsidiary in Japan, which became operational in the first quarter of 1999.
The remaining 20% increase was spread among all product offerings due to overall
growth in the market for computational fluid dynamics design software, as well
as the success of application specific products, such as "Icepak".
Fluent's operating margins were broadly in line with the third quarter of
1998, 12.7% for the third quarter of 1999, compared with 13.0% in the third
quarter of 1998. Net margins increased from 7.2% of revenues in the third
quarter of 1998 to 8.1% in the third quarter of 1999, benefiting from exchange
gains of $0.1 million in the third quarter of 1998 versus an exchange loss of
$0.1 million a year earlier. Fluent's net income for the third quarter of 1999
increased to $0.9 million from $0.6 million for the third quarter of 1998, a
41.8% increase.
Applied Thermal Technologies ("Applied") incurred a loss of $57K in the
third quarter of 1999 compared with break even in the third quarter of 1998. The
loss for the quarter was the result of low revenues for the quarter at Applied's
recently opened U.S East coast operation.
13
<PAGE> 14
Aavid Thermal Products' sales were $36.4 million in the third quarter of
1999, a decrease of $3.7 million, or 9.2%, compared with the third quarter of
1998. This decrease was the result of the impact of the reduction in sales
volume of the Intel Special Product. Excluding sales of the Intel Special
Product, sales in the third quarter of 1999 were up $7.1 million or 24.2% over
the third quarter of 1998, reflecting a particularly strong recovery in sales to
industrial electronics customers in which third quarter 1999 sales increased
32.3% over the third quarter of 1998. The Asian economic slowdown and the
resultant sharp correction of customer inventories significantly impacted sales
to industrial electronics customers in the third quarter of 1998. Revenue in
Computer and Network related products (excluding the Intel Special Product)
showed solid growth in the third quarter of 1999, increasing 17.8% over the same
period in the prior year. A breakdown of the sales of Aavid Thermal Products for
the third quarter of 1999 as compared to the third quarter of 1998 is shown
below.
QUARTER ENDING
SALES
$ MILLION
-------------------------------------
OCTOBER 2, SEPTEMBER 26,
1999 1998 INCREASE
---------- -------------- --------
Computers and Network -
"Core" $19.2 $16.3 17.8%
Industrial Electronics 17.2 13.0 32.3%
----- ----- ------
36.4 29.3 24.2%
Computers and Network - Intel
Special Product -- 10.8 (100.0)%
----- ----- ------
Total Aavid Thermal Products $36.4 $40.1 (9.2)%
===== ===== ======
Operating margins at Aavid Thermal Products for the third quarter of 1999
were 9.3%, which compares with 7.8% for the third quarter of 1998 and 8.1% for
the first half of 1999. The improvement in margins is the result of the
continued recovery of the industrial electronics market following the slowdown
during the second half of 1998 and the benefit of cost reduction programs
following the reduction in sales volume of the Intel Special Product.
Aavid Thermal Products' net income for the third quarter of 1999 increased
$0.5 million from the third quarter of 1998 to $2.4 million, an increase of
25.4%.
FINANCIAL CONDITION
OCTOBER 2, 1999 COMPARED WITH DECEMBER 31, 1998
During the first nine months of 1999, the Company generated $9.4 million of
cash from operations. During the period, the Company used $1.7 million of cash
to reduce net indebtedness and $6.1 million for capital expenditures.
Total indebtedness at October 2, 1999 was $13.2 million, which compares
with $14.7 million at December 31, 1998. Total indebtedness as a percent of
stockholders' equity at October 2, 1999 was 16.0%, an improvement of 4.5% from
the 20.5% at December 31, 1998. Long-term debt at October 2, 1999 was $9.3
million, a decrease of $1.9 million from December 31, 1998. No borrowings were
outstanding under the Company's revolving line of credit on October 2, 1999 or
December 31, 1998.
During the third quarter of 1999, the Company's capital expenditures were
$2.5 million compared with $1.4 million in the third quarter of 1998. There were
no material purchase commitments as of October 2, 1999, other than for the
purchase of the Thermalloy Management Division of Bowthorpe plc, which was
acquired on October 21, 1999, see discussion below.
At October 2, 1999, inventory turns were 7.4, which compare with 7.7 at
December 31, 1998. This reduction in turns is primarily the result of the
elimination of high turn Intel Special Products business .
At October 2, 1999, accounts receivable days sales outstanding ("DSO") were
68, which compare with 56 days at December 31, 1998, and 65 days at July 4,
1999. While the number of days sales outstanding are up from the end of 1998,
the 65 days at July 4, 1999 is consistent with the average DSO of 1998 as a
whole. The increase during the third quarter 1999 from 65 to 68 days is due to
an increase in Fluent's DSO due to longer receivable days experienced in its new
subsidiary in Japan.
14
<PAGE> 15
YEAR 2000
The Company has substantially completed a comprehensive project to upgrade
its information, technology, manufacturing, and facilities computer hardware and
software programs to address the Year 2000 issue at its domestic and
international businesses. Many of the Company's systems include new hardware and
packaged software recently purchased from vendors who have represented that
these systems are already Year 2000 compliant.
As part of this project, the Company has formally communicated with its
significant suppliers, vendors, and large customers to determine the extent to
which the Company is vulnerable to those parties' failures to correct their own
Year 2000 issues. Responses received as of October 2, 1999, generally indicate
that these parties will be Year 2000 compliant.
The Company has completed an inventory and assessment of its information
technology systems. Both internal and external resources have been utilized to
test the Company's software for Year 2000 compliance and, where necessary, the
systems have been remediated through upgrading, replacement, or reprogramming.
Also, the Company has taken an inventory of its non-information technology
(embedded) systems, prioritizing the impact of each of these systems on the
Company's ability to conduct its operations and, as necessary, has obtained
vendor verification and/or remediation of those systems. The cost of this
project was approximately $125,000, which was funded through operating cash
flows. The Company believes that substantially all of its systems are Year 2000
compliant as of October 2, 1999.
Based upon currently available information and considering the Company's
diversified business base, decentralized systems and Year 2000 efforts,
management believes that the most reasonably likely worst case scenario could
result in minor short-term business interruptions. The Company has prepared
contingency plans which include alternative sourcing to minimize any disruptions
to its business resulting from a vendor or supplier not being Year 2000
compliant; however, failure by the company and/or vendors and customers to
complete Year 2000 compliance work in a timely manner could have a material
adverse effect on certain of the Company's operations. The Company's exposure
could increase or its timetable for Year 2000 compliance could be delayed as a
result of any new acquisitions.
The Company's software products have a very low dependency on dates, with
possible dependencies being license management, date display, and files
handling. The Company has tested its software products for Year 2000 compliance
and believes that all software products released after June 1998 are Year 2000
compliant, provided they are used with products that are also Year 2000
compliant. The Company has no control over the compliance of third party
products including, but not limited to, hardware, operating system software, and
firmware.
15
<PAGE> 16
Part II. Other Information
Item 1. Legal Proceedings
On March 4, 1998, Materials Innovation, Inc. of Lebanon, New Hampshire
("Mii") and two of its principals, Alan Beane and Glenn Beane (all three the
"Petitioners"), filed a petition for declaratory judgment against Aavid Thermal
Products, Inc. in Grafton County (New Hampshire) Superior Court. The Petitioners
have asked the court to declare as terminated a contract between Petitioners and
Aavid dated October 14, 1993 (the "Agreement"). Petitioner Alan Beane is a
former Director and Chief Executive Officer of the Company, who, the Company
believes, 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.
On January 29, 1999, the Grafton County Superior Court granted the
Company's motion to dismiss the Petitioner's Declaratory Judgement petition. The
Petitioners appealed that dismissal then subsequently withdrew that appeal. Mii
has since commenced arbitration of the same issue. The arbitration and a related
declaratory judgement action brought by Aavid to have the Mii vacuum die cast
patent declared invalid have been stayed by agreement pending completion or
termination of the Willis Stein acquisition of the Company. 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.
Following the public announcement of the proposed acquisition of the
Company by Willis, Stein & Partners, lawsuits were filed against the Company,
Willis Stein & Partners, the Company's directors and one former director in the
Court of Chancery of the State of Delaware by stockholders of the Company. The
complaints allege, among other things, that the Company's directors have
breached their fiduciary duties and seek to enjoin, preliminarily and
permanently, the Merger and also seek compensatory damages. The stockholder
plaintiffs, on behalf of the Company's public stockholders, also seek class
action certification for their lawsuits. The Company believes the actions to be
without merit and intends to contest the actions vigorously.
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 5. Other Information
ACQUISITIONS
Acquisition of Thermalloy Division
----------------------------------
On October 21, 1999, Aavid Thermal Technologies, Inc. (the "Company")
acquired the Thermalloy Division of Bowthorpe plc. The Thermalloy Division's
business is substantially similar to the Company's thermal management products
business. As part of the acquisition from Bowthorpe, the Company also acquired
65.2%, representing Bowthorpe's entire shareholding, of Curamik Electronics
GmbH, a German corporation which manufactures direct bonded copper substrates
used in the packaging and cooling of high power electronic devices. The total
purchase price was $80.5 million (including estimated transaction costs of $2
million), and is subject to further adjustment based on changes in the value of
the Thermalloy Division's inventory between December 31, 1998 and July 31, 1999.
The purchase price paid at closing includes an estimate of the inventory related
purchase price adjustment. The Company used $13.8 million of its cash on hand
and $79.3 million of borrowings under its new credit facility described below to
pay the purchase price for the Thermalloy Division, repay $12.6 million of
outstanding debt and pay estimated transaction costs. The Company paid $3.5
million of the $80.5 million purchase price into escrow pending receipt of the
necessary Malaysian governmental approvals of the transfer of the Thermalloy
Division's Malaysian operations to Aavid. In addition, on October 28, 1999 the
Company purchased an additional 20.2% of Curamik from the two minority
shareholders of Curamik for approximately $3.3 million, thereby increasing its
ownership of Curamik to 85.4%.
16
<PAGE> 17
The Thermalloy Division designs, manufactures and sells a wide range of
standard and proprietary heatsinks and associated products for the cooling of
semiconductors, power hybrid circuits, high power electronics and other
electronic devices, primarily within the aerospace, automotive, computer,
construction and telecommunications industries. The Thermalloy Division, like
the Company, possesses both the engineering and the production capability to
design and manufacture solutions to meet customers' thermal management
requirements. The Thermalloy Division has manufacturing facilities in Dallas,
Texas; Monterrey, Mexico; Swindon, England; Corby, England; Bologna, Italy; Hong
Kong and Malaysia, engineering staff in the United States and Europe and
additional sales staff in France, Germany, Japan and Singapore. The Thermalloy
Division,, including Curamik, had revenues of approximately $102 million for the
year ended December 31, 1998 and $50 million for the first half of 1999.
The Company's future success will depend, in part, on its ability to fully
integrate the operations and management of the Thermalloy division. A successful
integration requires, among other things, the integration of Thermalloy's
product offerings and technology in to Aavid's and the coordination of their
sales and marketing and financial reporting efforts with Aavid's. There can be
no assurance that the Company will accomplish the integration smoothly or
successfully or that Aavid will realize the anticipated benefits of the
Thermalloy Division acquisition. The success of the integration will require the
dedication of management and other personnel resources, which may temporarily
distract their attention from the Company's day-to-day business.
The Company has experienced substantial growth in its thermal management
products business and has significantly expanded its operations through
manufacturing capacity additions, the acquisition of the Thermalloy Division and
geographic expansion. The company intends to continue to increase its thermal
products and software businesses overseas, expand the products and services it
offers and make selective acquisitions. The growth and expansion has placed, and
will continue to place a significant strain on Aavid's production, technical,
financial and other management resources. To manage growth effectively, Aavid
must maintain a high level of manufacturing quality, efficiency, delivery and
performance and must continue to enhance its operational, financial and
management systems and attract, train, motivate and manage its employees. The
Company may not be able to effectively manage this expansion, and any failure to
do so could have a material adverse effect on its business and financial
condition.
Acquisition of Aavid by Willis Stein & Partners
-----------------------------------------------
On August 23, 1999 the Company entered into an Agreement and Plan of Merger
(the "Merger Agreement") by and among the Company, Heat Holdings Corp., a
corporation newly formed by Willis Stein & Partners, II, L.P. ("Purchaser"), and
Heat Merger Corp., a wholly owned subsidiary of Purchaser ("Merger Sub"). The
Merger Agreement contemplates, among other things, that following approval of
the Company's stockholders, Merger Sub will merge with and into the Company (the
"Merger"), the Company will become a wholly-owned subsidiary of Purchaser and
the Company's stockholders will receive $25.50 per share in cash. The Merger is
conditioned upon, among other things, the expiration of the applicable waiting
periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, which has occurred, and approval of the Company's stockholders. The
Merger Agreement may be terminated under certain circumstances, including
without limitation in connection with the Company's entering into a definitive
agreement with respect to another acquisition transaction which the Company's
Board of Directors has concluded in good faith, after consulting with its
financial advisor, is more favorable to the Company's stockholders than the
Merger and is reasonably capable of being financed. In such event and certain
other circumstances, the Company would be obligated under the Merger Agreement
to pay Purchaser a termination fee of $8.3 million. Certain of the Company's
directors and executive officers, beneficially owning an aggregate of 1,275,970
shares of the Company's common stock (including 899,176 shares issuable upon
exercise of outstanding options), entered into voting agreements with Purchaser
pursuant to which they agreed to vote their shares in favor of the Merger. The
Company anticipates that it will hold a stockholders' meeting in January 2000 to
approve the Merger.
NEW CREDIT FACILITY
On October 21, 1999, in connection with the closing of the acquisition of
the Thermalloy Division, the Company entered into a $100 million revolving
credit and term loan facility with Canadian Imperial Bank of Commerce, as
Administrative Agent, and certain other lenders (the "Credit Facility"). The
Credit Facility consists of an $80 million term loan facility (the "Term
Facility") and a $20 million revolving credit facility, including a $2 million
letter of credit sub-facility (the "Revolving Facility"). The Term Facility, all
of which was borrowed on October 21, 1999 to pay the purchase price for the
Thermalloy Division, pay transaction costs and provide working capital to the
Thermalloy Division, matures on September 30, 2004, and will be amortized in 19
consecutive quarterly installments, commencing March 31, 2000, as follows: four
quarterly payments of $2 million each; four quarterly payments of $3 million
each; four quarterly payments of $4 million each; four quarterly payments of $5
million each; and three quarterly payments of $8 million each. The Revolving
Facility matures on September 30, 2004. The Credit Facility bears interest at a
rate equal to, at the Company's option, either (1) in the case of Eurodollar
loans, the sum of (x) the interest rate in the London interbank market for loans
in an amount substantially equal to the amount of borrowing and for the period
of borrowing selected by Aavid and (y) a margin of between one and one-half
percent and two percent (depending on the Company's consolidated leverage ratio
(as defined in the credit agreement)) or (2) the sum of (A) the higher of (x)
Canadian Imperial Bank of Commerce's prime or base rate or (y) one-half percent
plus the latest overnight federal funds rate plus (y) a margin of between one
quarter percent and three quarters percent (depending on the Company's
consolidated leverage ratio). The Credit Facility may be prepaid at any time in
whole or in part without penalty, and must be prepaid to the extent of certain
equity or asset sales.
The Credit Facility limits the Company's ability to incur debt, to sell or
dispose of assets, to create or incur liens, to make additional acquisitions, to
pay dividends, to purchase or redeem its stock and to merge or consolidate with
any other person other than the previously announced merger with an entity
formed by Willis Stein & Partners. In addition, the Credit Facility requires
that the Company meet certain financial ratios, and provides the banks with the
right to require the payment of all amounts outstanding under the facility, and
to terminate all commitments thereunder, if there is a change in control of
Aavid other than as contemplated by the merger agreement with entities formed by
Willis Stein & Partners. The Credit Facility is guaranteed by all of the
company's domestic subsidiaries and secured by the Company's assets (including
the assets and stock of its domestic subsidiaries and a portion of the stock of
its foreign subsidiaries).
In connection with the Credit Facility, the Company used $12.6 million of
its cash on hand to repay all but $0.5 million of the amounts outstanding to
LaSalle and its other long-term debt, and borrowed, in addition to the $80
million of term loans, $5.5 million of revolving credit loans under the Credit
Facility to provide working capital to the Thermalloy Division.
17
<PAGE> 18
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 2.1 Stock Purchase Agreement by and among
Bowthrope plc, Bowthorpe B.v., Bowthorpe
International Inc., Bowthorpe GmbH
(collectively, "Bowthorpe") and Aavid
Thermal Technologies, Inc., dated as of
August 23, 1999 (incorporated herein by
reference to Exhibit 2.1 to the Company's
Current Report on Form 8-K dated August 23,
1999).
Exhibit 2.2 Agreement of Plan and Merger, dated as of
August 23, 1999, by and among Heat Holdings
Corp., Heat Merger Corp, and Aavid Thermal
Technologies, Inc. (incorporated herein by
reference to Exhibit 2.2 to the Company's
Current Report on Form 8-K dated August 23,
1999).
Exhibit 2.3 Form of Voting Agreement (incorporated
herein by reference to Exhibit 2.3 to the
Company's Current Report on Form 8-K dated
August 23, 1999).
Exhibit 10.1 Credit Agreement, dated as of October 21,
1999, among Aavid Thermal Technologies,
Inc., as Borrower, the several lenders from
time to time party hereto, CIBC World
Markets Corp., as Lead Arranger and
Bookrunner and Canadian Imperial Bank of
Commerce, as Issuer and Administrative Agent
(incorporated herein by reference to Exhibit
10.1 to the Company's Current Report on Form
8-K dated November 3, 1999).
(b) Reports on Form 8-K
Current Report on Form 8-K dated August 23, 1999 and
filed on September 1, 1999 relating to the Merger
Agreement and our proposed acquisition of the
Thermalloy Division.
Current Report on Form 8-K and 8-KA dated November 3,
1999 and filed on November 5, 1999 and November 8,
1999 relating to the new credit facility with Canadian
Imperial Bank of Commerce.
SIGNATURES
DATE: November 16, 1999 AAVID THERMAL TECHNOLOGIES, INC.
By /s/ Stephen D. Eldred
--------------------------------
Vice President, Treasurer, and
Chief Financial Officer
18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE QUARTER ENDED OCTOBER 2, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> OCT-02-1999
<EXCHANGE-RATE> 1
<CASH> 23,811
<SECURITIES> 0
<RECEIVABLES> 36,530
<ALLOWANCES> 1,054
<INVENTORY> 14,593
<CURRENT-ASSETS> 87,082
<PP&E> 65,656
<DEPRECIATION> 23,898
<TOTAL-ASSETS> 136,375
<CURRENT-LIABILITIES> 42,322
<BONDS> 0
0
0
<COMMON> 96
<OTHER-SE> 82,492
<TOTAL-LIABILITY-AND-EQUITY> 136,375
<SALES> 145,239
<TOTAL-REVENUES> 145,239
<CGS> 90,769
<TOTAL-COSTS> 129,977
<OTHER-EXPENSES> 277
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 257
<INCOME-PRETAX> 14,728
<INCOME-TAX> 5,241
<INCOME-CONTINUING> 9,487
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,487
<EPS-BASIC> 1.01
<EPS-DILUTED> 0.97
</TABLE>
