-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NuTnp5wN4HtZIVN/xFecD/a6oJvz44rU7YWDqJzc58yKLp1EaFJfOIu1pbRLyhbD m6IWiyp6I/LtUlMZMHWLZw== 0000950135-96-004816.txt : 19961113 0000950135-96-004816.hdr.sgml : 19961113 ACCESSION NUMBER: 0000950135-96-004816 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960928 FILED AS OF DATE: 19961112 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: AAVID THERMAL TECHNOLOGIES INC CENTRAL INDEX KEY: 0001003481 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPONENTS, NEC [3679] IRS NUMBER: 020466826 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-27308 FILM NUMBER: 96659896 BUSINESS ADDRESS: STREET 1: ONE KOOL PATH CITY: LACONIA STATE: NH ZIP: 03247 BUSINESS PHONE: 6035283400 MAIL ADDRESS: STREET 1: P O BOX 400 CITY: LACONIA STATE: NH ZIP: 03247-0400 10-Q 1 AAVID THERMAL TECHNOLOGIES FORM 10-Q 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 September 28, 1996 Commission File No. 000-27308 AAVID THERMAL TECHNOLOGIES, INC. (Exact name of registrant as specified in its charter) Delaware 02-0466826 - ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) One Eagle Square, Suite 509, Concord, N.H. 03301 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (603) 224-1117 -------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports, and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- The number of shares of common stock outstanding as of November 8, 1996 was 6,515,215. 2 AAVID THERMAL TECHNOLOGIES, INC. INDEX TO FORM 10-Q Part I. Financial Information Item 1. Financial Statements Consolidated Balance Sheets - September 28, 1996 and December 31, 1995. Consolidated Statements of Income for the quarter and nine months ended September 28, 1996 and September 30, 1995. Consolidated Statements of Cash Flows for the nine months ended September 28, 1996 and September 30, 1995. Notes to Consolidated Financial Statements Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Part II. Other Information Item 1. Legal Proceedings Item 6. Exhibits and Reports on Form 8-K 3 PART 1. FINANCIAL INFORMATION ITEM 1. Financial Statements AAVID THERMAL TECHNOLOGIES, INC. AND SUBSIDIARIES Consolidated Balance Sheets (Amounts in thousands, except share data)
September 28, December 31, 1996 1995 (Unaudited) (Audited) ------------- ------------ ASSETS Current Assets: Cash and cash equivalents $ 4,526 $ 4,327 Notes receivable 250 250 Accounts receivable trade, less allowance for doubtful accounts, $293 and $286,respectively 17,885 15,736 Inventories 6,251 6,376 Deferred income taxes 926 1,493 Prepaid and other current assets 1,357 1,178 ------- ------- Total current assets 31,195 29,360 Property, plant and equipment - at cost 37,749 29,042 Less accumulated depreciation 6,843 4,094 ------- ------- Property - net 30,906 24,948 Other assets, net 5,442 2,191 ------- ------- Total Assets $67,543 $56,499 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Current portion of debt obligations $ 3,461 $ 4,267 Accounts payable, trade 6,689 7,278 Accrued expenses and other current liabilitiies 10,684 11,514 ------- ------- Total current liabilities 20,834 23,059 Debt obligations, net of current portion 17,392 25,247 Deferred income taxes 1,654 1,654 ------- ------- Total liabilities 39,880 49,960 Redeemable warrant -- 1,106 Stockholders' Equity Common stock, $0.01 par value; authorized 25,000,000 shares; 6,515,215 and 835,514 shares issued and outstanding 65 8 Convertible preferred stock: Series A, convertible preferred stock, $0.01 par value; authorized 3,678,817 shares; 0 and 488,127 shares issued and outstanding -- 5 Series B, convertible preferred stock, $0.01 par value; authorized 321,183 shares; 0 and 50,000 shares issued and outstanding -- 1 Additional paid-in capital 30,245 6,583 Retained earnings (deficit) (2,625) (1,245) Cumulative translation adjustment (22) 81 ------- ------- Total stockholders' equity 27,663 5,433 Total liabilities and stockholders'equity $67,543 $56,499
4 AAVID THERMAL TECHNOLOGIES, INC. AND SUBSIDIARIES Consolidated Statements of Operations (Amounts in thousands, except share data)
(Unaudited) Quarter ended Nine Months ended September 28, September 30, September 28, September 30, 1996 1995 1996 1995 ------------- ------------- ------------- ------------- Net sales $25,727 $23,509 $74,762 $65,175 Cost of goods sold 15,884 16,164 46,553 45,111 ------- ------- ------- ------- Gross profit 9,843 7,345 28,209 20,064 Selling, general and administrative expenses 6,425 4,347 19,285 12,817 Research and development 1,611 743 4,170 1,894 Purchased undeveloped technology charge -- 2,770 3,446 2,770 Buyout of compensation arrangements -- 2,649 -- 2,649 ------- ------- ------- ------- Income (loss) from operations 1,807 (3,164) 1,308 (66) Interest expense,net (348) (699) (1,107) (1,855) Other income (expense), net (250) (89) (158) (182) ------- ------- ------- ------- Income (loss) before income taxes and extraordinary item 1,209 (3,952) 43 (2,103) Income tax (expense) benefit (407) 378 (1,252) 28 ------- ------- ------- ------- Income (loss) before extraordinary item 802 (3,574) (1,209) (2,075) Extraordinary item, net of tax -- -- (171) -- ------- ------- ------- ------- Net income (loss) $ 802 $(3,574) $(1,380) $(2,075) Accretion to redemption value of warrant -- (775) -- (775) Net income (loss) available to common stockholders $ 802 $(4,349) $(1,380) $(2,850) ======= ======= ======= ======= Earnings (loss) per share available to shareholders: From operations $ 0.10 $ (4.93) $ (0.20) $ (2.86) Extraordinary item $ -- $ -- $ (0.02) $ -- Accretion to redemption value of warrant $ -- $ (1.07) $ -- $ (1.07) Net income per share $ 0.10 $ (6.00) $ (0.22) $ (3.93) Weighted average common shares and equivalents 7,818,000 724,445 6,161,317 724,445
5 AAVID THERMAL TECHNOLOGIES, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (Amounts in thousands)
(Unaudited) Nine Months ended September 28, September 30, 1996 1995 ------------- ------------- Cash flows provided by (used in) operating activities: Net (loss) $ (1,380) $(2,075) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and Amortization 3,141 1,843 Purchased undeveloped technology charge 3,446 2,770 Deferred income taxes 2 (26) Equity in earnings of investments (80) -- Change in assets and liabilities Accounts receivable (1,135) (5,505) Notes receivable -- (250) Inventory 125 (1,582) Other current assets (19) (317) Accounts payable, trade (1,295) 1,889 Accrued expenses (1,970) 3,107 Deferred revenue (612) -- Minority interest (8) -------- ------- Net cash provided by operating activities 215 (146) Cash flows provided by (used in) investing activities: Capital expenditures (4,599) (5,715) Payments for acquisitions, net of cash acquired (8,204) 406 Net proceeds from sale of fixed assets 12 -- Other long term assets (1,183) -- -------- ------- Total cash used in investing activities (13,974) (5,309) Cash flows provided by (used in) financing activities: Issuance of common stock 22,608 -- Advances (prepayments) under line of credit,net (3,433) 2,649 Advances under other debt obligations, net 6,640 5,300 Principal payments on long-term debt (11,763) (994) -------- ------- Total cash provided by financing activities 14,052 6,955 Foreign exchange rate change (94) 64 Net increase in cash 199 1,564 Cash, beginning of period 4,327 692 -------- ------- Cash, end of period $ 4,526 $ 2,256 Supplemental disclosure of cash flow information: Interest paid $ 1,124 $ 1,225 Income taxes paid 491 765
6 AAVID THERMAL TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 28, 1996 (1) BASIS OF PRESENTATION The consolidated financial statements of Aavid Thermal Technologies, Inc. (the "Company") presented herein, without audit except for balance sheet information at December 31, 1995, have been prepared pursuant to the rules of the Securities and Exchange Commission for quarterly reports on Form 10-Q and do not include all of the information and note disclosures required by generally accepted accounting principles. These statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 1995, included in the Company's Form 10-K and 10-K/A as filed with the Securities and Exchange Commission on April 1, 1996 and August 13, 1996, respectively. The December 31, 1995 balance sheet includes reclassifications of certain prior year information to conform with the current presentation format and the consolidated balance sheet as of September 28,1996 and the consolidated statements of income and cash flow for the quarters and nine months ended September 28, 1996 and September 30, 1995 are unaudited but, in the opinion of management, include all adjustments (consisting of normal, recurring adjustments) necessary for a fair presentation. The results of operations for the quarter and nine months ended September 28, 1996 are not necessarily indicative of the results to be expected for the entire fiscal year ending December 31,1996. (2) PUBLIC OFFERING On January 29,1996, the Company completed its initial public offering of 2,300,000 shares (exclusive of the over-allotment option) of its common stock at $9.50 per share. The net proceeds from this offering, after deducting all associated costs, aggregated $18,661,000. In February, 1996, the underwriters of the public offering exercised their over-allotment option, purchasing 345,000 shares for consideration of $3,047,000. In conjunction with the public offering, all of the current outstanding preferred stock automatically converted into 2,959,692 shares of common stock. 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. (3) STOCK DIVIDEND The Company distributed a 5.5-for-1 stock split in the form of a stock dividend effected immediately prior to the initial public offering on January 29, 1996. All share and per-share data has been adjusted to reflect the stock dividend as though it had occurred at the beginning of the initial period presented. (4) REDEEMABLE WARRANT 7 In connection with the issuance of a Senior Subordinated Note, the Company granted the issuer a warrant to purchase 90,000 shares of its Series B Convertible Preferred Stock at an exercise price of $10.27 expiring October 2003 (which upon the closing of the initial public offering which occurred on January 29,1996 represented the right to purchase 495,000 shares of Common Stock at a purchase price of $1.87 per share). The warrant contains provisions which included the right to require the Company to purchase the warrant for an amount based upon the fair market value of the Company's stock at the time of exercise. The right to require the Company to purchase the warrant expired upon consummation of the initial public offering which occurred on January, 29, 1996. The December 31, 1995 balance sheet reflects the accreted value of the warrant at that date. Accreted value of the warrant was transferred to paid-in capital upon the expiration of the right to require the Company to purchase the warrant. (5) STOCK OPTIONS During the third quarter, options for 499,721 shares of Common Stock were granted with an excerise price equal to the fair market price of the Common Stock on the grant date. (6) EARNINGS PER SHARE CALCULATION Net income (loss) per share of common stock is computed for each period based upon the weighted average number of common shares outstanding and dilutive common stock equivalents. For purposes of this calculation, outstanding options are considered common stock equivalents (using the treasury stock method). Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No. 83, common and common equivalent shares issued during the 12-month period prior to the date of the initial filing of the Company's Registration Statement have been included in the calculation, using the treasury stock method, as if they were outstanding for all periods presented. Fair market value for the purpose of this calculation was $9.50, the initial public offering price. (7) FLUENT AND FDI ACQUISITIONS On August 24, 1995, the Company purchased all of the stock of Fluent Inc. ("Fluent"), a provider of computerized design and simulation software used to predict fluid flow, heat a mass transfer, chemical reaction, and related phenomena. The Company acquired Fluent through the issuance of 308,214 shares of its common stock, a $3,590,000 non-interest bearing note payable in eight equal quarterly installments, due September, 1997, and a cash payment of $927,000. This acquisition has been accounted for under the purchase method of accounting. The following is an unaudited Pro Forma summary of the consolidated results of operations, assuming the Fluent Acquisition had taken place on December 31, 1994. In preparing the pro forma data, 8 certain adjustments have been made to historic operating results, including compensation expense recorded by Fluent in conjunction with the exercise of previously issued stock options, and interest expense incurred on funds borrowed to pay a portion of the purchase price in the Fluent Acquisition, including imputed interest on non-interest bearing promissory notes issued in the Acquisition. The results for 1995 do not include the charge for the accretion to redemption value of warrant.
Quarter Ended Nine Months Ended Sept. 28 ,1996 Sept. 30, 1995 Sept. 28, 1996 Sept. 30, 1995 (Actual) (Pro forma) Actual Pro forma -------------- -------------- -------------- -------------- Net sales $25,727,000 $26,090,000 $74,762,000 $75,788,000 Net income (loss) before extraordinary item 802,000 (1,025,000) (1,209,000) 1,822,000 Extraordinary item - - (171,000) - Net income 802,000 (1,025,000) (1,380,000) 1,822,000 Net income per share before extraordinary item $ 0.10 $ (1.41) $ (0.21) $ 0.37 Extraordinary item income (expense) per share - - $ (0.03) - Net income per share $ 0.10 $ (1.41) $ (0.24) $ 0.37 Weighted average common shares and equivalent 7,818,000 724,445 6,161,317 4,974,944
On May 16, 1996, Fluent, Inc., a wholly owned subsidiary of the Company, purchased all of the stock of Fluid Dynamics International, Inc. ("FDI"), a provider of computerized design and simulation software used to predict fluid flow, heat and mass transfer, chemical reaction and related phenomena. The Company acquired FDI through the issuance of 75,000 shares of its Common Stock and the cash payment of $3,756,000. This acquisition has been accounted for under the purchase method of accounting. This acquisition has been deemed to be immaterial under SEC rules for separate reporting. On October 15, 1996, Ronald Borelli became the Chairman of the Board and Chief Executive Officer of the Company. Mr. Borelli, a member of the Board of Directors since 1993 brings many years of experience in leading and growing electronics and technology companies. Alan F. Beane, Mr. Borelli's predecessor as Chief Executive Officer, will remain on the Board of Directors. (8) INVENTORIES Inventories are valued at the lower of cost or market with cost determined on the last-in, first-out (LIFO) method for stock inventory items and on the average cost method for job order work-in-process and finished goods. The cost of inventories of foreign subsidiaries are valued on the first-in, first-out basis.
($000) September 28, 1996 December 31, (unaudited) 1995 ------------------ ------------ Raw materials $3,090 $2,466 Work-in-process 1,201 1,168 Finished goods 1,960 2,742 ------ ------ $6,251 $6,376
The excess of current costs over the carrying value using the LIFO method was approximately $308,000 and $479,000 at September 28, 1996 and December 31, 1995, respectively. (9) DEBT OBLIGATIONS Following is an unaudited summary of outstanding debt obligations: 9
($000) September 28, December 31, 1996 1995 ------------- ------------ Equipment term notes payable-interest at lender's reference rate (which approximates prime) plus 1.75% at December 31, 1995 and at lender's reference rate at September 28, 1996 $ -- $ 3,330 Revolving credit facility-interest at lender's reference rate (which approximates prime) plus 1.75% at December 31, 1995 and at lender's reference rate at September 28, 1996 3,432 6,865 Term notes-interest at lender's reference rate (which approximates prime) plus 1.75% at December 31, 1995 and at lender's reference rate at September 28, 1996 8,082 5,724 Acquisition term-note-interest at lender's reference rate (which approximates prime) plus 0.25% 3,000 -- Notes secured by real property 6,153 3,317 Subordinated notes payable-interest at 7% -- 2,965 Senior subordinated note payable-interest at 12.5% -- 7,000 Other 186 313 ------- ------- Total $20,853 $29,514 Less current portion 3,461 4,267 ------- ------- Debt obligations, net of current portion 17,392 $25,247
(10) INCOME TAXES The Company accounts for income taxes under Financial Accounting Standards Board (FASB) Statement No. 109, Accounting for Income Taxes. Under this method, the amount of deferred tax liabilities or assets is calculated by applying the provisions of enacted tax laws to determine the amount of taxes payable or refundable currently or in future years. FASB 109 requires a valuation allowance against deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realizable. Deferred income taxes arise from differences in the timing of the recognition of certain expenses for financial statement and income tax reporting purposes. The principal sources of these differences is the excess of the financial statement basis of net assets acquired over their tax basis along with deferred software maintenance revenue, depreciation, inventory reserves, vacation reserves, and certain accruals. The Company has recorded its interim income tax provision based on estimates of the Company's effective tax rate expected to be applicable for the full fiscal year. Estimated effective taxes recorded during interim periods may be periodically revised, if necessary, to reflect current estimates. Item 2. Management Discussion and Analysis of Financial Condition and Results of Operations This Report contains certain forward-looking statements which involve risks and uncertainties. The Company's actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed below and in the Company's Annual Report on Form 10-K for the year ended December 31, 1995. Aavid Thermal Technologies, Inc. (the "Company") is a leading provider of thermal management products that dissipate unwanted heat in electronic and electrical components and systems, and a leading developer and marketer of computational fluid dynamics software which enables sophisticated simulation and analysis of air and other fluid flows, heat and mass transfer, chemical reaction and related phenomena. The 10 Company's thermal management products, which include aluminum and copper heat sinks, heat sink/fan combinations, heat pipes, liquid cooled cold plates, attachment accessories, compliant interface materials and conductive adhesives, operate by conducting, convecting and radiating away unwanted heat. The Company's software is used in a broad range of applications, including design of automobiles, electronic systems, aerospace components and combustion systems, as well as process plant engineering. During the third quarter, the Company completed an asset acquisition of a 100,000 square foot extrusion facility in Franklin, New Hampshire, at a cost of approximately $4 million. Results of Operations - --------------------- Net sales increased by 9.4% to $25.7 million and by 14.7% to $74.8 million for the quarter and nine months ended September 28,1996 as compared to the corresponding respective periods ended September 30, 1995. Sales by application and product line are broken down as follows:- [CAPTION]
($000) Quarters Ended Nine Months Ended Sept. 28, Sept. 30, Sept. 28, Sept. 30, 1996 1995 1996 1995 --------- --------- --------- --------- Thermal Management $19,359 $22,312 $56,801 $63,978 Software Products 6,368 1,197 17,961 1,197 ------- ------- ------- ------- Total $25,727 $23,509 $74,762 $65,175
Thermal management revenues decreased 13% to $19,359,000 and by 11% to $56,801,000 for the quarter and nine months ended September 28,1996, respectively, as compared to the corresponding periods ended September 30,1995. Thermal management revenues have been impacted by a weak market for electronic products. Third quarter thermal management revenues increased by $2,470,000 or 15% from the second quarter principally as the result of increased demand for digital products. Software product sales represent sales of Fluent (acquired during the third quarter of 1995) and Fluid Dynamics International, Inc. ("FDI") (acquired by Fluent in May 1996). Software product revenue for the quarter ended September 28, 1996, increased 4% from the second quarter and, on a pro forma basis (assuming Fluent was purchased on December 31, 1994 instead of August 24, 1995), by 69% from the corresponding quarter last year. For the nine months ended September 28,1996, software product revenues, increased by $6,150,000 or 52% on a pro forma basis. Included in Fluent's 1996 revenue for the quarter and year to date is $1,921,000 and $2,811,000, respectively, of FDI revenues. The Fluent business is typically seasonally strong in the fourth and first quarters due to the budgeting patterns of Fluent's customers. International revenues for the Company represented 23% and 24% of sales for the quarter and nine month periods ended September 28,1996 as compared to 10% and 9% for 11 the corresponding periods ended September 30, 1995. Both the acquisition of Fluent and increased penetration of the international market by the thermal management business contributed to the increased significance of international sales in 1996. Cost of goods sold as a percentage of sales were 61.7% and 62.3% for the quarter and nine months ended September,1996 as compared to 68.8% and 69.2% for the corresponding periods ended September 30, 1995. For the quarter and nine month periods ending September 28, 1996, thermal management cost of goods sold were 71.8% and 73.2%, respectively compared to corresponding 1995 results of 70.3% and 69.8%. The increase in cost of goods sold percentage in thermal management products is principally attributable to increased material costs and the impact of reduced sales volume. Increased material cost, as a percentage of sales, is attributable to a far more material intensive product mix, principally the result of large volume shipments during the 1996 period of fan heat sinks for digital electronic applications utilizing purchased fans, especially in the first and third quarters of 1996. The change in product mix has more than offset reductions in the average price per pound of aluminum extrusion purchases. While cost reduction measures have brought about a decline in production overhead during the six month period ended September 28, 1996, from both the first quarter and 1995 levels, the decline in sales volume for the periods ended September 28, 1996, has resulted in an increase in overhead as a percentage of sales. Software product cost of goods sold for the quarter and nine month periods ended September 28, 1996 were 22.4% and 25.7% as compared to pro forma 1995 costs of 30.7% and 38.3%. Selling, general and administrative expenses increased to $6,425,000 and $19,285,000 for the quarter and nine months ended September 28, 1996, as compared to $4,347,000 and $12,817,000 for the corresponding 1995 periods. The increase in selling, general and administrative expenses from 1995 to 1996 is a result of the acquisitions of Fluent and FDI. Thermal management selling, general and administrative expenses were $4,071,000 and $12,387,000 or 21.0% and 21.8% of sales for the 1996 periods as compared to $4,176,000 and $12,646,000 respectively, or 18.7% and 19.8% of sales for the corresponding 1995 periods. Research and development expenses increased to $1,611,000 and $4,170,000 (6.3% and 5.6% of sales) for the quarter and nine months ended September 28, 1996 compared to $743,000 and $1,894,000 (3.2% and 2.9% of sales) for the corresponding respective 1995 periods. For both 1996 periods, thermal research and development represented 2% of thermal management sales. Research and development expenses related to software product sales were 19.4% and 17.3% of sales for the quarter and nine months ended September 28, 1996. The increase in total research and development from year to year is attributable to the acquisition of Fluent and the reduction in thermal management research and development reflects reduced development funding. The Company incurred a non-cash charge during the quarter ended June 29, 1996, of $3,446,000, which represented the amount of the purchase price of FDI allocated to technology acquired in this transaction which was not fully commercially developed and had no alternative future use at the time of acquisition. Net interest expense declined to $348,000 for the quarter ended September 28, 1996 from $699,000 for the quarter ended September 30, 1995. For the nine months ended September 28, 1996, interest expense was $1,107,000 compared to $1,855,000 for the corresponding previous year period. The reduction in interest expense for the quarter and year-to-date was the result of the utilization of a substantial portion of the proceeds from the initial public stock offering for the reduction of outstanding indebtedness. The effective tax rates for the nine months ended September 28, 1996 and September 30, 1995 were adversely impacted by the non-deductible purchased undeveloped technology charges. Excluding these charges, the effective tax rate was 33.7% for the quarter ended September 28, 1996 compared to 32.0% for the quarter ended September 30, 1995 and 35.9% for the nine month period ended September 28, 1996 compared to 4.2% for the nine months ended September 30, 1995. The 1995 nine month effective tax rate benefited from the recognition of a foreign net operating loss carryforward. 12 Extraordinary expense for the nine months ended September 28, 1996 represents the write-off of deferred financing costs resulting from the early extinguishment of debt as a result of the initial public offering. Liquidity and Capital Resources - ------------------------------- Cash and cash equivalents increased $199,000 in the nine month period ended September 28, 1996, to $4,526,000. The Company's net trade accounts receivable increased $2,149,000 (14%) to $17,885,000 from $15,736,000 at December 31, 1995. This increase is due primarily to the acquisition of FDI which increased accounts receivable by $1,719,000. Inventories decreased 2% to $6,251,000 at September 28, 1996 from $6,376,000 at December 31, 1995, principally due to reductions in finished goods. Accrued expenses and other current liabilities fell by $1,088,000 primarily from the disbursement of $2,649,000 in conjunction with the buyout of previously accrued compensation agreements which offset Fluent increases in deferred revenues ($580,000) and accrued liabilities attributable to FDI ($479,000). Other long-term assets increased primarily as a result of the deposit of $1.5 million to set up a joint venture in Taiwan, to be operational in the fourth quarter. Capital expenditures for the nine months ended September 28, 1996, of $4,599,000 principally represented the purchase of machinery and equipment for existing facilities and the expansion of the Texas facility. The Company does not have any pending material commitments for capital expenditures. During the nine months, as discussed above, the Company disbursed $7,894,000 in conjunction with the purchase of FDI, a 50% interest in Polyflow and the acquisition of an extrusion facility. During the third quarter, the Company completed an amendment to its Loan and Security Agreement with LaSalle Business Credit, Inc. (the "Lender"). As part of this amendment, the total loan facility was increased from $24 million to $35 million, all outstanding term and equipment loans with the Lender were consolidated into one term loan, new loan facilites were created and the interest rate on all loans was decreased from 1.75 over prime to prime. Included in the new loan facilities was up to $6 million for equipment purchases (the "Equipment Loans"), $9.5 million for acquisitions (the "Acquisition Loans") and $1 million Fluent revolving loan facility (the "Fluent Loan"). At September 28, 1996, the Company had no outstanding balance on the Equipment Loans, $3 million outstanding on the Acquisition Loans and no outstanding balance under the Fluent Loan During the first quarter of 1996, the Company repaid the subordinated notes issued in conjunction with the Fluent Acquisition and increased borrowings under its construction loan facility to finance the construction of a manufacturing facility in Texas. During the second quarter, the Company repaid the construction loan facility from the proceeds of a $1,150,000 mortgage loan. At quarter end, the outstanding balance under the Company's $20,000,000 revolving credit facility stood at $3,461,000 as compared to allowable borrowings of $10,396,000. Management believes that its current level of cash and cash equivalents, anticipated cash flow from operations and existing credit facilities will be adequate to fund its operations in the near-term. Part II. Other Information Item 1. Legal Proceedings On March 15, 1996, the United States District Court for the District of New Hampshire granted the Company's motion for summary judgment against Thermalloy, Inc., and declared invalid Thermalloy's Letters Patent No. 4,884,331 Method of Manufacturing Heat Sink Apparatus. The patent at issue involved heat sinks for the digital electronics industry. Thermalloy has since filed its notice of appeal. Item 6. Exhibits and Report on Form 8-K 13 a) Exhibit 11 - "Computation of Earnings Per Share" is included herein. b) Exhibit 27 - "Financial Data Schedule" is included in the electronically-filed document as required. c) Aavid Thermal Technologies filed a Form 8-K under Item 5 on May 31,1996 to report the acquisition of Fluid Dynamics International, Inc. ("FDI"), by its wholly owned subsidiary Fluent, Inc. d) Aavid Thermal Technologies filed a Form 8-K under Item 4 on August 29, 1996 to report the change in its independent accountants. SIGNATURES AAVID THERMAL TECHNOLOGIES, INC. Date November 12, 1996 By /s/ Mark D. Brown Vice President, Treasurer and Principal Financial Officer EX-11 2 COMPUTATION OF NET INCOME PER SHARE 1 Exhibit 11 AAVID THERMAL TECHNOLOGIES, INC. AND SUBSIDIARIES Computation of Net Income Per Share (Amounts in thousands, except share data)
(Unaudited) Quarter ended Nine Months ended September 28, September 30, September 28, September 30, 1996 1995 1996 1995 ------------- ------------ ------------- ------------- Weighted average shares outstanding 6,478,127 724,445 6,161,317 724,445 Net effect of the assumed exercise of stock options and warrants -based on the treasury stock method 1,339,873 0 0 0 Total 7,818,000 724,445 6,161,317 724,445 Net income before extraordinary item $ 802,000 $ 3,574,000 $(1,209,000) $ 2,075,000 Extraordinary item -- -- (171,000) -- Net income $ 802,000 $ 3,574,000 $(1,380,000) $ 2,075,000 Accretion to redemption value of warrant $ -- $ (775,000) $ -- $ (775,000) Net income $ 802,000 $(4,349,000) $(1,380,000) $(2,850,000) Net income per share before extraordinary item $ 0.10 $ (4.93) $ (0.20) $ (2.86) Extraordinary item income (expense) per share $ -- $ (1.07) $ (0.02) $ -- Accretion to redemption value of warrant $ (1.07) Net income per share $ 0.10 $ (6.00) $ (0.22) $ (3.93)
EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q FOR THE QUARTER ENDED JUNE 29, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1 U.S. DOLLARS 3-MOS DEC-31-1996 JUN-30-1996 SEP-28-1996 1 4,526 0 18,428 293 6,251 31,195 37,749 6,843 67,543 20,834 17,392 65 0 0 27,663 67,543 74,762 74,762 46,553 73,454 158 58 1,107 43 1,252 (1,209) 0 (171) 0 (1,380) $(0.22) $(0.22)
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