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 27, 2003 COMMISSION FILE NO. 000-27308.
AAVID THERMAL TECHNOLOGIES, INC.
------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 02-0466826
------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE EAGLE SQUARE, SUITE 509, CONCORD, NH 03301
--------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (603) 224-1117
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ ] No [X](1)
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 126-2 of the Exchange Act).
Yes [ ] No [X]
The number of outstanding shares of the registrant's Common Stock as of
November 7, 2003 was 1,018.87 shares of class A, 1,078.87 shares of Class B and
40 shares of Class H, all of which are owned by Heat Holdings Corp. On February
2, 2000, a wholly-owned subsidiary of Heat Holdings Corp. was merged with and
into the Registrant with the Registrant becoming a wholly-owned subsidiary of
Heat Holdings Corp. and each share of Registrant's then outstanding common stock
was converted into $25.50 in cash. The Registrant's Common Stock is no longer
publicly traded.
- ------------
(1) Although the Company has not been subject to such filing requirements for
the past 90 days, it has filed all reports required to be filed by Section 15(d)
of the Securities Exchange Act of 1934 (the "Act") during the preceding twelve
months. Pursuant to Section 15(d) of the Act, the Company's duty to file reports
is automatically suspended as a result of having fewer than 300 holders of
record of its debt securities outstanding, as of January 1, 2003, but the
Company agreed under the terms of certain long-term debt covenants to continue
these filings.
AAVID THERMAL TECHNOLOGIES, INC.
INDEX TO FORM 10-Q
PAGE
----
Part I. Financial Information
Item 1. Financial Statements
a.) Consolidated Balance Sheets as of September 27, 2003 and December 31, 2002................................ 3
b.) Consolidated Statements of Operations for the quarter and nine months ended September 27, 2003 and
the quarter and nine months ended September 28, 2002...................................................... 4
c.) Consolidated Statements of Cash Flows for the nine months ended September 27, 2003 and
September 28, 2002........................................................................................ 5
d.) Notes to Consolidated Financial Statements................................................................ 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 18
Item 4. Controls and Procedures.................................................................................... 24
Part II. Other Information
Item 1. Legal Proceedings.......................................................................................... 25
Item 6. Exhibits and Reports on Form 8-K........................................................................... 25
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AAVID THERMAL TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
SEPTEMBER 27,
2003 DECEMBER 31,
(UNAUDITED) 2002
------------- -------------
ASSETS
Cash and cash equivalents ................................................................ $ 13,981 $ 12,297
Accounts receivable-trade, less allowance for doubtful accounts .......................... 29,017 33,114
Notes receivable ......................................................................... -- 82
Inventories .............................................................................. 8,537 6,854
Refundable taxes ......................................................................... 172 193
Deferred income taxes .................................................................... 1,397 1,139
Prepaid and other current assets ......................................................... 6,033 5,077
------------- -------------
Total current assets .................................................................. 59,137 58,756
Property, plant and equipment, net ....................................................... 27,462 29,618
Goodwill ................................................................................. 39,433 39,433
Developed technology, net ................................................................ 2,335 4,786
Deferred financing fees .................................................................. 3,715 4,410
Deferred income taxes .................................................................... 375 364
Other assets, net ........................................................................ 1,587 1,685
------------- -------------
Total assets .......................................................................... $ 134,044 $ 139,052
============= =============
LIABILITIES, MINORITY INTERESTS AND STOCKHOLDERS' DEFICIT
Accounts payable-trade ................................................................... $ 13,338 $ 11,409
Current portion of long term debt obligations ............................................ 7,702 8,934
Income taxes payable ..................................................................... 3,461 3,935
Restructuring charges .................................................................... 774 1,006
Deferred revenue ......................................................................... 33,965 29,860
Accrued expenses and other current liabilities ........................................... 22,036 22,971
------------- -------------
Total current liabilities ............................................................. 81,276 78,115
Long term debt obligations, net of current portion ....................................... 129,793 130,516
Deferred income taxes .................................................................... 232 250
------------- -------------
Total liabilities ..................................................................... 211,301 208,881
------------- -------------
Minority interests in consolidated subsidiaries .......................................... 587 587
Stockholders' deficit:
Series A Preferred Stock, $.0001 par value; authorized 100 shares; 67.71 shares
issued and outstanding (Liquidation value of $6,203 at September 27, 2003) ............. -- --
Series B Preferred Stock, $.0001 par value; authorized 100 shares; 67.71 shares
issued and outstanding (Liquidation value of $6,203 at September 27, 2003) ............. -- --
Class A Common Stock, $.0001 par value; authorized 1,400 shares; 1,018.87 shares
issued and outstanding ................................................................. -- --
Class B Common Stock, $.0001 par value; authorized 1,400 shares; 1,078.87 shares
issued and outstanding ................................................................. -- --
Class H Common Stock, $.0001 par value; authorized 200 shares; 40 shares issued
and outstanding ........................................................................ -- --
Warrants to purchase 49.52 shares of Class A common stock and 49.52 shares of
Class H common stock ................................................................... 3,764 3,764
Additional paid-in capital ............................................................... 188,007 188,007
Cumulative translation adjustment ........................................................ (754) 156
Accumulated deficit ...................................................................... (268,861) (262,343)
------------- -------------
Total stockholders' deficit ........................................................... (77,844) (70,416)
------------- -------------
Total liabilities, minority interests and stockholders' deficit ....................... $ 134,044 $ 139,052
============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
3
AAVID THERMAL TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
QUARTER QUARTER NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 27, SEPTEMBER 28, SEPTEMBER 27, SEPTEMBER 28,
2003 2002* 2003 2002*
------------- ------------- ------------- -------------
Net sales ........................................ $ 44,164 $ 39,090 $ 135,584 $ 117,945
Cost of goods sold ............................... 22,326 21,018 70,240 65,689
------------- ------------- ------------- -------------
Gross profit ................................... 21,838 18,072 65,344 52,256
Selling, general and administrative expenses ..... 14,166 13,471 43,685 40,927
Amortization of intangible assets ................ 948 857 2,644 2,570
Research and development ......................... 3,798 2,902 11,896 9,601
------------- ------------- ------------- -------------
Income (loss) from operations .................. 2,926 842 7,119 (842)
Interest expense, net ............................ (4,530) (5,529) (13,658) (15,890)
Other income(expense), net ....................... 86 (247) 1,446 (78)
------------- ------------- ------------- -------------
Loss from continuing operations before
income taxes ................................. (1,518) (4,934) (5,093) (16,810)
Income tax benefit (expense) ..................... (62) 492 (1,425) (1,587)
------------- ------------- ------------- -------------
Loss from continuing operations ................ (1,580) (4,442) (6,518) (18,397)
Income from discontinued operations .............. -- 6,371 -- 6,014
------------- ------------- ------------- -------------
Net (loss) income ................................ $ (1,580) $ 1,929 $ (6,518) $ (12,383)
============= ============= ============= =============
* Restated. See Note 2.
The accompanying notes are an integral part of these consolidated financial
statements.
4
AAVID THERMAL TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
FOR THE FOR THE
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 27, SEPTEMBER 28,
2003 2002*
------------- -------------
Cash flows provided by (used in) operating activities:
Loss from continuing operations .................................... $ (6,518) $ (18,397)
Income from discontinued operations ................................ -- 6,014
------------- -------------
Net loss ........................................................... (6,518) (12,383)
Adjustments to reconcile net loss to net cash provided by (used
in) operating activities:
Depreciation ....................................................... 5,954 6,343
Intangible asset and bond discount amortization .................... 3,866 4,610
Loss on sale of property, plant and equipment ...................... 192 323
Deferred income taxes .............................................. (184) --
Gain on sale of discontinued operation ............................. -- (6,371)
Changes in assets and liabilities:
Accounts receivable - trade ........................................ 5,339 3,282
Inventories ........................................................ (1,470) 2,188
Prepaid and other current assets ................................... (694) (1,589)
Notes receivable ................................................... 82 316
Net assets of discontinued operations .............................. -- 678
Other long term assets ............................................. (19) (723)
Accounts payable - trade ........................................... 1,672 (2,396)
Income taxes payable ............................................... (445) 10
Deferred revenue ................................................... 2,866 3,112
Accrued expenses and other current liabilities ..................... (1,317) (4,072)
------------- -------------
Total adjustments ............................................... 15,842 5,711
------------- -------------
Net cash provided by (used in) operating activities ............. 9,324 (6,672)
Cash flows (used in) provided by investing activities:
Purchases of property, plant & equipment ........................... (2,999) (4,253)
Proceeds from sale of property, plant and equipment ................ 161 1,419
Proceeds from sale of discontinued operation ....................... -- 31,303
------------- -------------
Net cash (used in) provided by investing activities ............. (2,838) 28,469
Cash flows used in financing activities:
Issuance of preferred stock and warrant ............................ -- 12,000
Advances (repayments) on line of credit, net ....................... (1,301) (9,982)
Principal payments under debt obligations .......................... (1,615) (38,670)
Advances under debt obligations .................................... -- 11,716
------------- -------------
Net cash used in financing activities ........................... (2,916) (24,936)
Foreign exchange rate effect on cash and cash equivalents ............ (1,886) (951)
------------- -------------
Net increase (decrease) in cash and cash equivalents ................. 1,684 (4,090)
Cash and cash equivalents, beginning of period ....................... 12,297 14,538
------------- -------------
Cash and cash equivalents, end of period ............................. $ 13,981 $ 10,448
============= =============
Supplemental disclosure of cash flow information:
Interest paid ...................................................... $ 16,458 $ 17,616
============= =============
Income taxes paid .................................................. $ 1,926 $ 2,436
============= =============
* Restated. See Note 2.
The accompanying notes are an integral part of these consolidated financial
statements.
5
AAVID THERMAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE DATA)
(1) ORGANIZATION AND MERGER
Aavid Thermal Technologies, Inc. (the "Company" or "Aavid") is a
leading global provider of thermal management solutions for electronic products
and the leading developer and marketer of Computational Fluid Dynamics (CFD)
software.
On February 2, 2000, the Company was acquired by Heat Holdings Corp., a
corporation newly formed by Willis Stein & Partners II, L.P. (the "Merger").
Pursuant to the Merger, Aavid stockholders received $25.50 in cash for each
outstanding share of common stock. In addition, all outstanding stock options
and warrants were cashed out. The Merger was accounted for using the purchase
method.
The Merger and related transaction costs were funded by a cash
contribution from Heat Holdings and an affiliate of $152,000, proceeds of
$148,312, net of original issue discount, from the sale by the Company of 12
3/4% senior subordinated notes and warrants due 2007, $54,700 pursuant to a new
credit facility entered into by the Company, and approximately $4,653 of cash on
hand. Additionally, the Company used $7,085 of cash on hand to pay financing
fees associated with the senior credit facility and 12 3/4% senior subordinated
notes. Net assets on the date of acquisition were $156,560. Based upon fair
value of assets acquired and liabilities assumed, goodwill of $183,676 was
established. Approximately $113,705 of this goodwill is attributable to Aavid
Thermalloy, the hardware business, and was being amortized over 20 years through
December 31, 2001. The remainder, $69,971, is attributable to Fluent, the CFD
software business, and was being amortized over 4 years through December 31,
2001. During the fourth quarter of 2001, the Company wrote off the goodwill
attributable to Aavid Thermalloy after performing a review for impairment under
Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of."
The impairment charge recorded in the fourth quarter of 2001 related to the
goodwill attributable to Aavid Thermalloy was $95,651. The Company adopted SFAS
142, "Goodwill and Other Intangible Assets," on January 1, 2002. Under the
provisions of SFAS 142, the remaining goodwill attributable to Fluent is no
longer amortized, but instead will be tested for impairment at least annually.
Of the $152,000 cash contribution, $4,811 was invested by Heat Holdings
II Corp., an affiliate of Heat Holdings, to acquire 95% of the common equity of
Aavid Thermalloy, LLC, the thermal management hardware business. The Company
controls Aavid Thermalloy, LLC through a preferred equity interest and holds a
5% common equity interest and thus consolidates Aavid Thermalloy LLC in its
results within the accompanying financial statements. The investment by Heat
Holdings II Corp. has been recorded as minority interests within the
accompanying financial statements.
On February 2, 2000, as part of the transactions relating to the
Merger, the Company issued 150,000 units (the "Units"), consisting of $150,000
aggregate principal amount of its 12 3/4% Senior Subordinated Notes due 2007
(the "Notes") and warrants (the "Warrants") to purchase an aggregate of 60
shares of the Company's Class A Common Stock, par value $0.0001 per share, and
60 shares of the Company's Class H Common Stock, par value $0.0001 per share.
The Notes are fully and unconditionally guaranteed on a joint and several basis
by each of the Company's domestic subsidiaries (the "Subsidiary Guarantors")
(see note 10 for selected consolidating financial statements of parent,
guarantors and non-guarantors). The Notes were issued pursuant to an Indenture
(the "Indenture") among the Company, the Subsidiary Guarantors and Bankers Trust
Company, as trustee. $4,560 of the proceeds from the sale of the Units was
allocated to the fair value of the Warrants and $143,752 was allocated to the
Notes, net of original issue discount of $1,688. The total discount of $6,248 is
being accreted over the term of the notes, using the effective interest rate
method. This accretion is recorded as interest expense within the accompanying
statement of operations for the quarter and nine months ended September 27, 2003
and the quarter and nine months ended September 28, 2002.
In connection with the Merger, the Company entered into an amended and
restated credit facility (the "Amended and Restated Credit Facility"). The
Amended and Restated Credit Facility provided for a $22,000 revolving credit
facility (the "Revolving Facility") (of which $1,700 was drawn at the closing of
the Merger) and a $53,000 term loan facility (the "Term Facility") (which was
fully drawn at the closing of the Merger).
6
On May 4, 2001, in response to the Company not being in compliance with
a leverage ratio covenant at December 31, 2000, certain of the Company's
stockholders and their affiliates made an equity contribution of $8,000 in cash
and $26,191 in principal amount of 12-3/4% senior subordinated notes.
On August 1, 2002, the Company refinanced its Amended and Restated
Credit Facility with two of the four banks that were party to the Amended and
Restated Credit Facility. The new credit facility (the "Loan and Security
Agreement") is a $27,500 asset based facility. The facility consists of a term
loan component which requires quarterly principal payments of $359 commencing
November 1, 2002. The Loan and Security Agreement also consists of a revolving
line of credit component. All borrowings under the new credit facility are
secured by substantially all assets of the Company. Availability under the line
of credit component is determined by a borrowing base of 85% of eligible
accounts receivable and 50% of eligible inventory, as defined in the Loan and
Security Agreement. At August 1, 2002, the total available credit under the Loan
and Security Agreement was $23,880, of which $22,620 was drawn at closing. Debt
outstanding under the Loan and Security Agreement bears interest at a rate equal
to, at the Company's option, either (1) in the case of LIBOR rate loans, the sum
of the offered rate for deposits in United States dollars for a period equal to
such interest period as it appears on Telerate page 3750 as of 11:00 am London
time and a margin of between 2.5% and 2.85%, or (2) the sum of LaSalle Business
Credit's prime rate plus a margin of between .25% and .50%. At September 27,
2003, the interest rates on the Loan and Security Agreement ranged from 3.62% to
4.50%. Availability under the revolving line of credit was $11,948 at September
27, 2003, of which $5,729 had been drawn.
The Company incurred costs related to underwriting, legal and other
professional fees in connection with the issuance of the Notes and the
establishment of its senior credit facilities. These costs have been capitalized
as deferred financing fees and are being amortized over the respective terms of
the related debt. This amortization is recorded in interest expense in the
accompanying statement of operations for the quarter and nine months ended
September 27, 2003 and the quarter and nine months ended September 28, 2002.
Debt classified as long term in the accompanying balance sheet as of
September 27, 2003 consists of the long term portion of the term loan component
of the new Loan and Security Agreement, long term portion of capital leases,
long term portion of foreign debt obligations and all of the 12 3/4% senior
subordinated notes.
On January 29, 2002, as part of an equity contribution required under a
forbearance agreement with the Company's previous senior credit holders, Heat
Holdings contributed to Aavid Thermal Technologies, Inc. an aggregate of $12,000
in cash in exchange for: (a) a warrant to purchase 174,389 Series B Preferred
Units of Aavid Thermalloy, LLC held beneficially and of record by Aavid Thermal
Technologies, Inc. and (b) 67.71 shares of Aavid Thermal Technologies, Inc.
Series A Preferred Stock, par value $.0001 per share and 67.71 shares of Aavid
Thermal Technologies, Inc. Series B Preferred Stock, par value $.0001 per share.
The portion of the equity contribution related to the warrant has been recorded
in additional paid-in capital in the accompanying balance sheets as of September
27, 2003 and December 31, 2002.
Dividends on the Company's Series A and Series B Preferred Stock
(Preferred Stock) shall be paid at the rate of 12% per annum, compounded
annually, of the Liquidation Value of such shares (plus any accrued and unpaid
dividends as of the end of the previous anniversary of the date of issuance of
such shares) from and including the date of issuance of such shares of Preferred
Stock to and including the first to occur of: (i) the date on which the
liquidation value (plus all accrued and unpaid dividends thereon) of such shares
of Preferred Stock is paid to the holder thereof in connection with the
liquidation of the Corporation or the redemption of such shares of Preferred
Stock by the Company or; (ii) the date on which such shares are otherwise
acquired by the Company. Such dividends shall accrue whether or not they have
been declared and whether or not there are profits, surplus or other funds of
the Company legally available for the payment of dividends, and such dividends
shall be cumulative such that all accrued and unpaid dividends shall be fully
paid or declared with funds irrevocably set apart for payment thereof and shall
be paid before any dividends, distributions, redemptions or other payments may
be made with respect to any Junior Securities, other than Participating
Dividends.
The Liquidation Value of any share of Preferred Stock as of any
particular date shall be $75,738.83 per share; as such amount is adjusted for
stock splits, stock dividends and similar transactions. The total liquidation
value of the Preferred Stock is $12,406 at September 27, 2003. Total cumulative
unpaid dividends at September 27, 2003 were $2,150.
7
(2) RESTATEMENT OF FINANCIAL RESULTS
Due to the Company restating the intangible asset impairment charge
that was recorded in 2001 (see Note C to the consolidated financial statements
included in the Company's Form 10-K for the year ended December 31, 2002), the
Company restated amortization recorded in 2002 related to the impacted
intangible assets.
At the time of the Company's sale of Curamik, the Company anticipated a
potential tax liability associated with the profit earned on the sale and so
recorded an estimated amount of tax expense. However, during the year end final
calculation of the Company's tax provision, it was determined that there was no
tax expense associated with the sale of Curamik. Due to this, the tax expense
recorded originally at the time of the sale was reversed.
The statement of operations for the quarter and nine months ended
September 28, 2002 and the statement of cash flows for the nine months ended
September 28, 2002 included in this Form 10-Q have been restated to reflect the
intangible asset amortization as discussed above. Accumulated deficit at
September 28, 2002 (unaudited) has been restated in connection with changes made
to the consolidated statements of operations for the quarter and nine months
ended September 28, 2002 as follows:
NINE
QUARTER MONTHS
ENDED ENDED
SEPTEMBER 28, SEPTEMBER 28,
2002 2002
------------- -------------
Net income (loss), as originally reported $ 1,852 $ (12,073)
Correction of amortization on developed technology $ (193) $ (580)
Correction of income taxes on discontinued operation 270 270
------------- -------------
Net income (loss), as restated $ 1,929 $ (12,383)
============= =============
(3) DISCONTINUED OPERATION
On July 17, 2002, the Company sold all of the outstanding shares of
Aavid Thermalloy Holdings, GmbH, which in turn owns approximately 89.4% of the
outstanding shares of curamik electronics GmbH, pursuant to a Share Sale and
Purchase Agreement between the Company and Electrovac Fabrikation
Electrotechnischer Spezialartikel GesmbH dated July 10, 2002 (the "Sale
Agreement"). Under the Sale Agreement, the Company received consideration of
$31,524, subject to possible adjustment based upon consolidated net assets of
Curamik and certain indemnification obligations of the Company. The sale of
Curamik and its related operating results have been excluded from losses from
continuing operations and is classified as a discontinued operation for the
quarter and nine months ended September 28, 2002, in accordance with the
requirements of Statement of Financial Accounting Standards (SFAS) No. 144
"Accounting for Impairment or Disposal of Long-Lived Assets". See Note 2 above.
The following is a summary of the results of discontinued operations
for the quarter and nine months ended September 28, 2002:
QUARTER NINE MONTHS
ENDED ENDED
SEPTEMBER 28, SEPTEMBER 28,
2002 2002
------------- -------------
Net sales $ -- $ 9,314
------------- -------------
Loss before taxes and minority interests -- (64)
Income tax expense -- (320)
------------- -------------
Loss before minority interest -- (384)
Minority interest in loss of consolidated subsidiaries -- 27
------------- -------------
Loss from discontinued operations -- (357)
Gain on sale of discontinued operations 6,371 6,371
------------- -------------
Income from discontinued operations $ 6,371 $ 6,014
============= =============
8
(4) 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 September 27, 2003 and
December 31, 2002, and the results of operations and cash flows for the quarter
and nine months ended September 27, 2003 and September 28, 2002. Interim results
are not necessarily indicative of results for a full year.
(5) ACCOUNTS RECEIVABLE
The components of accounts receivable at September 27, 2003 and
December 31, 2002 are as follows:
SEPTEMBER 27, DECEMBER 31,
2003 2002
------------- -------------
(UNAUDITED)
Accounts receivable $ 31,531 $ 36,308
Allowance for doubtful accounts (2,514) (3,194)
------------- -------------
Net accounts receivable $ 29,017 $ 33,114
============= =============
(6) INVENTORIES
Inventories are valued at the lower of cost or market (first-in,
first-out), and consist of materials, labor and overhead. The components of
inventories at September 27, 2003 and December 31, 2002 are as follows:
SEPTEMBER 27, DECEMBER 31,
2003 2002
------------- -------------
(UNAUDITED)
Raw materials $ 1,851 $ 2,443
Work-in-process 2,940 2,355
Finished goods 3,746 2,056
------------- -------------
$ 8,537 $ 6,854
============= =============
(7) COMPREHENSIVE INCOME (LOSS)
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 loss for the periods reported herein:
QUARTER ENDED QUARTER ENDED NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 27, SEPTEMBER 28, SEPTEMBER 27, SEPTEMBER 28,
2003 2002 2003 2002
------------- ------------- ----------------- -----------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
Net (loss) income $ (1,580) $ 1,929 $ (6,518) $ (12,383)
Foreign currency translation adjustment (105) 239 (910) 1,626
------------- ------------- ----------------- -----------------
Comprehensive income (loss) $ (1,685) $ 2,168 $ (7,428) $ (10,757)
============= ============= ================= =================
9
(8) RESTRUCTURING CHARGES AND RESERVES
Approximately $2,130 of restructuring charges were recorded in
connection with the Company's October 1999 acquisition of Thermalloy, the
thermal management business of Bowthorpe plc. The restructuring plan included
initiatives to integrate the operations of the Company and Thermalloy and reduce
overhead. The primary components of these plans related to (a) the closure of
duplicative Thermalloy operations in Hong Kong and the United Kingdom, (b) the
elimination of duplicative selling, general and administration functions of
Thermalloy on a global basis and (c) the termination of certain contractual
obligations. During the year ended December 31, 2000, 136 individuals were
terminated under the restructuring plan. The following amounts have been charged
against the Thermalloy restructuring reserves during the quarter ended September
27, 2003:
FOREIGN EXCHANGE
IMPACT ON
CHARGES AGAINST RESERVES
RESTRUCTURING RESERVES FOR THE FOR THE RESTRUCTURING
RESERVES BALANCE QUARTER ENDED QUARTER ENDED RESERVES BALANCE
AT JUNE 28, SEPTEMBER 27, SEPTEMBER 27, AT SEPTEMBER 27,
2003 2003 2003 2003
---------------- ---------------- ---------------- ----------------
Lease terminations and leasehold
improvements reserve $ 368 $ -- $ 2 $ 370
Employee separation 240 -- -- 240
------ ---- ----- ------
Total $ 608 $ -- $ 2 $ 610
====== ==== ===== ======
During 2001, the Company ceased manufacturing operations in Dallas and Terrell,
Texas, Loudwater, United Kingdom and its fan factory in China. Additionally, the
Company reduced its workforce in New Hampshire, Europe and Asia, including both
selling general and administrative and manufacturing personnel. In connection
with these actions, the Company recorded a restructuring charge within the
statement of operations during 2001. This restructuring charge totaled $16,885
and included amounts related to employee severance, lease terminations,
write-off of fixed assets and write-off of a prepaid lease intangible asset that
was originally recorded as part of the Thermalloy acquisition. Approximately 524
individuals were terminated under the restructuring plan. The following amounts
have been charged against these reserves during the quarter ended September 27,
2003:
RESTRUCTURING CHARGES AGAINST
RESTRUCTURING PROVISIONS FOR THE RESERVES FOR THE RESTRUCTURING
RESERVES BALANCE QUARTER ENDED QUARTER ENDED RESERVES BALANCE
AT JUNE 28, SEPTEMBER 27, SEPTEMBER 27, AT SEPTEMBER 27,
2003 2003 2003 2003
---------------- ------------------ ---------------- ----------------
Employee separation $ 35 $ -- $ (18) $ 17
Fixed asset reserves 1,247 -- -- 1,247
Lease terminations and leasehold
improvements reserve 79 -- (39) 40
-------- ---- ------ --------
Total $ 1,361 $ -- $ (57) $ 1,304
======== ==== ====== ========
10
During 2002, the Company ceased manufacturing operations in Malaysia and reduced
its workforce in Singapore. In connection with these actions, the Company
recorded a restructuring charge within the statement of operations during 2002.
This restructuring charge totaled $858 and included amounts related to employee
severance, facility costs/lease terminations and write-off of fixed assets.
Approximately 57 individuals were terminated under the restructuring plan. The
following amounts have been charged against these reserves during the quarter
ended September 27, 2003:
RESTRUCTURING CHARGES AGAINST
RESTRUCTURING PROVISIONS FOR THE RESERVES FOR THE RESTRUCTURING
RESERVES BALANCE QUARTER ENDED QUARTER ENDED RESERVES BALANCE
AT JUNE 28, SEPTEMBER 27, SEPTEMBER 27, AT SEPTEMBER 27,
2003 2003 2003 2003
---------------- ------------------ ---------------- ----------------
Employee separation $ 8 $ -- $ -- $ 8
Fixed asset reserves 5 -- -- 5
Facility costs and lease terminations 108 -- (14) 94
------ ---- ------ ------
Total $ 121 $ -- $ (14) $ 107
====== ==== ====== ======
(9) SEGMENT REPORTING
The Company consists of two distinct reportable segments: (1) thermal
management products and (2) computational fluid dynamics ("CFD") software.
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 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 ended December 31, 2002.
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.
Aavid's reportable segments are strategic business units that offer
different products and services. They are managed separately because each
segment requires different marketing and sales strategies.
11
The following summarizes the operations of each reportable segment for
the quarters and nine months ending September 27, 2003 and September 28, 2002:
REVENUES SEGMENT
FROM INCOME (LOSS) ASSETS (NET OF
EXTERNAL BEFORE INTERCOMPANY
CUSTOMERS TAXES BALANCES)
-------------- -------------- --------------
Quarter Ended September 27, 2003
Thermal Products $ 22,541 $ (3,672) $ 23,073
CFD Software 21,623 2,165 91,229
Corporate Office -- (11) 19,742
-------------- -------------- --------------
Total $ 44,164 $ (1,518) $ 134,044
============== ============== ==============
Quarter Ended September 28, 2002*
Thermal Products $ 21,424 $ (5,878) $ 29,585
CFD Software 17,666 786 84,457
Corporate Office -- 158 22,025
-------------- -------------- --------------
Total $ 39,090 $ (4,934) $ 136,067
============== ============== ==============
Nine Months Ended September 27, 2003
Thermal Products $ 73,525 $ (8,618)
CFD Software 62,059 3,999
Corporate Office -- (474)
-------------- --------------
Total $ 135,584 $ (5,093)
============== ==============
Nine Months Ended September 28, 2002*
Thermal Products $ 65,820 $ (15,351)
CFD Software 52,125 1,041
Corporate Office -- (2,500)
-------------- --------------
Total $ 117,945 $ (16,810)
============== ==============
The following table provides geographic information about the Company's
operations. Revenues are attributable to an operation based on the location the
product was shipped from. Long-lived assets are attributable to a location based
on physical location.
FOR THE NINE MONTHS ENDED FOR THE NINE MONTHS ENDED FOR THE QUARTER ENDED
SEPTEMBER 27, SEPTEMBER 28,
SEPTEMBER 27, 2003 SEPTEMBER 28, 2002 2003 2002
--------------------------- --------------------------- ---------------------------
LONG-LIVED LONG-LIVED
ASSETS ASSETS
AS OF PERIOD AS OF PERIOD
REVENUES END REVENUES END REVENUES REVENUES
------------ ------------ ------------ ------------ ------------ ------------
United States $ 76,499 $ 63,166 $ 64,803 $ 69,917 $ 25,554 $ 22,185
Taiwan 8,627 626 6,180 1,627 2,809 1,718
China 17,688 1,199 10,315 1,393 6,578 4,216
United Kingdom 16,287 2,298 14,205 1,919 5,095 4,661
Italy 11,446 2,727 7,891 2,875 3,399 2,408
Mexico 6,403 702 8,762 930 1,746 2,725
Other International 39,030 4,547 32,149 4,620 13,753 10,487
Intercompany eliminations (40,396) (358) (26,360) (347) (14,770) (9,310)
------------ ------------ ------------ ------------ ------------ ------------
Total $ 135,584 $ 74,907 $ 117,945 $ 82,934 $ 44,164 $ 39,090
============ ============ ============ ============ ============ ============
* Restated. See Note 2.
12
(10) SELECTED CONSOLIDATING FINANCIAL STATEMENTS OF PARENT, GUARANTORS
AND NON-GUARANTORS (UNAUDITED)
The Company's wholly-owned domestic subsidiaries have jointly and
severally guaranteed, on a senior subordinated basis, the principal amount of
the Company's 12 3/4% Senior Subordinated Notes, due 2007. The guarantors
include the combined domestic operations of Aavid Thermalloy, LLC and Fluent,
Inc. and the Company's subsidiary Applied Thermal Technologies, Inc. The
non-guarantors include the combined foreign operations of Aavid Thermalloy, LLC
and Fluent, Inc. The consolidating condensed financial statements of the Company
depict Aavid Thermal Technologies, Inc., (the "Parent"), carrying its investment
in subsidiaries under the equity method and the guarantor and non-guarantor
subsidiaries are presented on a combined basis. Management believes that there
are no significant restrictions on the Parent's and guarantors' ability to
obtain funds from their subsidiaries by dividend or loan. The principal
elimination entries eliminate investment in subsidiaries and intercompany
balances and transactions.
CONDENSED CONSOLIDATING BALANCE SHEET AS OF SEPTEMBER 27, 2003 (UNAUDITED)
----------------------------------------------------------------------------------
U.S. GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------------- -------------- -------------- -------------- --------------
ASSETS
Cash and cash equivalents ......... $ 136 $ 2,994 $ 10,851 $ -- $ 13,981
Accounts receivable-trade, net .... -- 10,711 18,297 9 29,017
Inventories ....................... -- 4,387 4,276 (126) 8,537
Due (to) from affiliate, net ...... 48,785 (34,470) 19,061 (33,376) --
Refundable taxes .................. (239) 228 3 180 172
Deferred income taxes ............. 8,073 882 1,397 (8,955) 1,397
Prepaid and other current
assets .......................... 259 1,846 3,928 -- 6,033
-------------- -------------- -------------- -------------- --------------
Total current assets .............. 57,014 (13,422) 57,813 (42,268) 59,137
Property, plant and equipment,
net ............................. 5 17,000 10,533 (76) 27,462
Investment in subsidiaries ........ (54,624) -- -- 54,624 --
Deferred taxes .................... 1,384 -- 375 (1,384) 375
Other assets, net ................. 23,811 45,326 1,191 (23,258) 47,070
-------------- -------------- -------------- -------------- --------------
Total assets ...................... $ 27,590 $ 48,904 $ 69,912 $ (12,362) $ 134,044
============== ============== ============== ============== ==============
LIABILITIES, MINORITY
INTERESTS AND
STOCKHOLDERS' DEFICIT
Accounts payable-trade ............ $ 96 $ 2,385 $ 10,857 $ -- $ 13,338
Current portion of debt
obligations ..................... -- 6,225 1,477 -- 7,702
Income taxes payable .............. (1,816) 5,093 1,302 (1,118) 3,461
Deferred revenue .................. -- 16,096 17,869 -- 33,965
Accrued expenses and
other current
liabilities ..................... 3,650 10,446 8,684 30 22,810
-------------- -------------- -------------- -------------- --------------
Total current liabilities ......... 1,930 40,245 40,189 (1,088) 81,276
-------------- -------------- -------------- -------------- --------------
Debt obligations, net of
current portion ................. 120,799 8,780 214 -- 129,793
Deferred income taxes ............. (17,884) 22,520 232 (4,636) 232
-------------- -------------- -------------- -------------- --------------
Total liabilities ................. 104,845 71,545 40,635 (5,724) 211,301
-------------- -------------- -------------- -------------- --------------
Minority interests ................ 589 -- -- (2) 587
Stockholders' (deficit)
equity:
Preferred stock, par value ........ -- 68,023 5,000 (73,023) --
Common stock, par value ........... -- 3 4,507 (4,510) --
Warrants .......................... 3,764 -- -- -- 3,764
Additional paid-in capital ........ 188,007 159,733 7,148 (166,881) 188,007
Cumulative translation
adjustment ...................... (754) 1,797 2,013 (3,810) (754)
Retained earnings
(deficit) ....................... (268,861) (252,197) 10,609 241,588 (268,861)
-------------- -------------- -------------- -------------- --------------
Total stockholders'
(deficit) equity ................ (77,844) (22,641) 29,277 (6,636) (77,844)
-------------- -------------- -------------- -------------- --------------
Total liabilities,
minority interests and
stockholders' (deficit)
equity .......................... $ 27,590 $ 48,904 $ 69,912 $ (12,362) $ 134,044
============== ============== ============== ============== ==============
13
CONDENSED CONSOLIDATING BALANCE SHEET AS OF DECEMBER 31, 2002
----------------------------------------------------------------------------------
U.S. GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------------- -------------- -------------- -------------- --------------
ASSETS
Cash and cash equivalents ................... $ 1,422 $ 2,440 $ 8,435 $ -- $ 12,297
Accounts receivable-trade, net .............. -- 13,314 19,791 9 33,114
Notes receivable ............................ -- 82 -- -- 82
Inventories ................................. -- 2,757 4,121 (24) 6,854
Due (to) from affiliate, net ................ 55,813 (37,450) 14,309 (32,672) --
Refundable taxes ............................ (239) 90 162 180 193
Deferred income taxes ....................... 8,073 882 1,139 (8,955) 1,139
Prepaid and other current assets ............ 104 1,434 3,539 -- 5,077
-------------- -------------- -------------- -------------- --------------
Total current assets ........................ 65,173 (16,451) 51,496 (41,462) 58,756
Property, plant and equipment, net .......... 12 19,324 10,358 (76) 29,618
Investment in subsidiaries .................. (49,125) -- -- 49,125 --
Deferred taxes .............................. 1,384 -- 364 (1,384) 364
Other assets, net ........................... 23,812 48,684 1,220 (23,402) 50,314
-------------- -------------- -------------- -------------- --------------
Total assets ................................ $ 41,256 $ 51,557 $ 63,438 $ (17,199) $ 139,052
============== ============== ============== ============== ==============
LIABILITIES, MINORITY INTERESTS AND
STOCKHOLDERS' DEFICIT
Accounts payable-trade ...................... $ 406 $ 2,505 $ 8,498 $ -- $ 11,409
Current portion of debt obligations ......... -- 7,397 1,537 -- 8,934
Income taxes payable ........................ 397 4,050 606 (1,118) 3,935
Deferred revenue ............................ -- 16,402 13,458 -- 29,860
Accrued expenses and other current
liabilities ............................... 7,891 8,730 7,326 30 23,977
-------------- -------------- -------------- -------------- --------------
Total current liabilities ................... 8,694 39,084 31,425 (1,088) 78,115
-------------- -------------- -------------- -------------- --------------
Debt obligations, net of current portion .... 120,273 9,865 378 -- 130,516
Deferred income taxes ....................... (17,884) 22,520 250 (4,636) 250
-------------- -------------- -------------- -------------- --------------
Total liabilities ........................... 111,083 71,469 32,053 (5,724) 208,881
-------------- -------------- -------------- -------------- --------------
Minority interests .......................... 589 -- -- (2) 587
Stockholders' (deficit) equity:
Preferred stock, par value .................. -- -- 5,000 (5,000) --
Common stock, par value ..................... -- -- 4,507 (4,507) --
Warrants .................................... 3,764 -- -- -- 3,764
Additional paid-in capital .................. 188,007 207,605 6,343 (213,948) 188,007
Cumulative translation adjustment ........... 156 1,874 959 (2,833) 156
Accumulated deficit ......................... (262,343) (229,391) 14,576 214,815 (262,343)
-------------- -------------- -------------- -------------- --------------
Total stockholders' equity (deficit) ........ (70,416) (19,912) 31,385 (11,473) (70,416)
-------------- -------------- -------------- -------------- --------------
Total liabilities, minority interests
and stockholders' (deficit) equity ........ $ 41,256 $ 51,557 $ 63,438 $ (17,199) $ 139,052
============== ============== ============== ============== ==============
14
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE QUARTER ENDED SEPTEMBER 27, 2003 (UNAUDITED)
---------------------------------------------------------------------
U.S. GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- -------------- ------------ ------------ ------------
Net sales................. $ -- $ 25,876 $ 33,380 $ (15,092) $ 44,164
Cost of goods sold........ -- 10,661 19,660 (7,995) 22,326
-------- ------------- ------------ ----------- -----------
Gross profit.............. -- 15,215 13,720 (7,097) 21,838
Selling, general and
administrative expenses. (263) 10,331 7,613 (2,567) 15,114
Research and development.. -- 3,441 4,937 (4,580) 3,798
-------- ------------- ------------ ----------- -----------
Income from operations.... 263 1,443 1,170 50 2,926
Interest income
(expense), net.......... (278) (4,360) 98 10 (4,530)
Other income (expense),
net..................... -- 263 (124) (53) 86
Equity in income (loss)
of subsidiaries......... (506) -- -- 506 --
-------- ------------- ------------ ----------- -----------
Income (loss) before
income taxes............ (521) (2,654) 1,144 513 (1,518)
Income tax benefit
(expense)............... (1,059) 1,275 (278) -- (62)
-------- ------------- ------------ ----------- -----------
Net income (loss)......... $ (1,580) $ (1,379) $ 866 $ 513 $ (1,580)
======== ============= ============ =========== ===========
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE QUARTER ENDED SEPTEMBER 28, 2002 (UNAUDITED)*
----------------------------------------------------------------------------
U.S. GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- -------------- ------------- ------------ ------------
Net sales................... $ -- $ 22,145 $ 26,216 $ (9,271) $ 39,090
Cost of goods sold.......... -- 9,524 16,300 (4,806) 21,018
-------- ------------- ------------ ------------ ------------
Gross profit................ -- 12,621 9,916 (4,465) 18,072
Selling, general and
administrative expenses... (90) 9,429 6,660 (1,671) 14,328
Research and development.... -- 3,048 2,667 (2,813) 2,902
-------- ------------- ------------ ------------ ------------
Income from operations...... 90 144 589 19 842
Interest income (expense),
net....................... 65 (5,671) 47 30 (5,529)
Other income (expense), net. -- (385) (148) 286 (247)
Equity in income (loss) of
subsidiaries.............. (10,537) -- -- 10,537 --
-------- ------------- ------------ ------------ ------------
Income (loss) before
income taxes.............. (10,382) (5,912) 488 10,872 (4,934)
Income tax benefit
(expense)................. (300) 353 439 -- 492
-------- ------------- ------------ ------------ ------------
Income (loss) from
continuing operations..... (10,682) (5,559) 927 10,872 (4,442)
Income (loss) from
discontinued operations... 12,611 (6,240) -- -- 6,371
-------- ------------- ------------ ------------ ------------
Net income (loss)........... $ 1,929 $ (11,799) $ 927 $ 10,872 $ 1,929
======== ============= ============ ============ ============
* Restated. See Note 2.
15
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 27, 2003 (UNAUDITED)
------------------------------------------------------------------------------
U.S. GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------- ------------- ------------ ------------
Net sales................. $ -- $ 77,526 $ 99,481 $ (41,423) $ 135,584
Cost of goods sold........ -- 33,904 58,182 (21,846) 70,240
-------- ------------- ------------- ------------ ------------
Gross profit.............. -- 43,622 41,299 (19,577) 65,344
Selling, general and
administrative expenses. (362) 30,785 23,253 (7,347) 46,329
Research and development.. -- 11,135 13,139 (12,378) 11,896
-------- ------------- ------------- ------------ ------------
Income from operations.... 362 1,702 4,907 148 7,119
Interest income
(expense), net.......... (881) (12,801) 3 21 (13,658)
Other income (expense),
net..................... 45 1,979 2,408 (2,986) 1,446
Equity in income (loss)
of subsidiaries......... (7,272) -- -- 7,272 --
-------- ------------- ------------- ------------ ------------
Income (loss) before
income taxes............ (7,746) (9,120) 7,318 4,455 (5,093)
Income tax benefit
(expense)............... 1,228 (1,399) (1,254) -- (1,425)
-------- ------------- ------------- ------------ ------------
Net income (loss)......... $ (6,518) $ (10,519) $ 6,064 $ 4,455 $ (6,518)
======== ============= ============= ============ ============
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 28, 2002 (UNAUDITED)*
---------------------------------------------------------------------------------
U.S. GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- -------------- ------------- ------------ ------------
Net sales................. $ -- $ 65,789 $ 79,502 $ (27,346) $ 117,945
Cost of goods sold........ -- 30,468 49,943 (14,722) 65,689
--------- -------------- ------------- ------------ ------------
Gross profit.............. -- 35,321 29,559 (12,624) 52,256
Selling, general and
administrative expenses. 781 27,650 19,591 (4,525) 43,497
Research and development.. -- 9,662 7,960 (8,021) 9,601
--------- -------------- ------------- ------------ ------------
Income (loss) from
operations.............. (781) (1,991) 2,008 (78) (842)
Interest income
(expense), net.......... (1,679) (14,313) 84 18 (15,890)
Other income (expense),
net..................... 8 (406) (2) 322 (78)
Equity in income (loss)
of subsidiaries......... (24,165) -- -- 24,165 --
--------- -------------- ------------- ------------ ------------
Income (loss) before
income taxes............ (26,617) (16,710) 2,090 24,427 (16,810)
Income tax benefit
(expense)............... 1,623 (2,625) (585) -- (1,587)
--------- -------------- ------------- ------------ ------------
Income (loss) from
continuing operations... (24,994) (19,335) 1,505 24,427 (18,397)
Income (loss) from
discontinued operations. 12,611 (6,304) (293) -- 6,014
--------- -------------- ------------- ------------ ------------
Net income (loss)......... $ (12,383) $ (25,639) $ 1,212 $ 24,427 $ (12,383)
========= ============== ============= ============ ============
* Restated. See Note 2.
16
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 27, 2003 (UNAUDITED)
----------------------------------------------------------------------------
U.S. GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- -------------- ------------- ------------ ------------
Net cash provided by (used in)
operating activities.............. $ (375) $ 3,976 $ 4,746 $ 977 $ 9,324
Cash flows used in investing
activities:
Purchases of property, plant and
equipment......................... (2) (723) (2,274) -- (2,999)
Proceeds from sale of property,
plant and equipment............... -- -- 161 -- 161
--------- -------------- ------------- ------------ ------------
Net cash used in investing
activities........................ (2) (723) (2,113) -- (2,838)
Cash flows used in financing
activities:
Repayments on line of credit, net... -- (1,198) (103) -- (1,301)
Principal payments under debt
obligations....................... -- (1,424) (191) -- (1,615)
--------- -------------- ------------- ------------ ------------
Net cash used in financing
activities........................ -- (2,622) (294) -- (2,916)
Foreign exchange effect on cash and
cash equivalents.................. (909) (77) 77 (977) (1,886)
--------- -------------- ------------- ------------ ------------
Net (decrease) increase in cash and
cash equivalents.................. (1,286) 554 2,416 -- 1,684
Cash and cash equivalents,
beginning of period............... 1,422 2,440 8,435 -- 12,297
--------- -------------- ------------- ------------ ------------
Cash and cash equivalents, end of
period............................ $ 136 $ 2,994 $ 10,851 $ -- $ 13,981
========= ============== ============= ============ ============
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 28, 2002 (UNAUDITED)*
---------------------------------------------------------------------------
U.S. GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- -------------- ------------- ------------ ------------
Net cash provided by (used in)
operating activities................ $ 9,606 $ (19,297) $ 179 $ 2,840 $ (6,672)
Cash flows provided by (used in)
investing activities:
Purchases of property, plant and
equipment........................... -- (1,739) (2,514) -- (4,253)
Proceeds from sale of property, plant
and equipment....................... -- 1,414 5 -- 1,419
Proceeds from sale of discontinued
operation........................... 31,303 -- -- -- 31,303
-------- -------------- ------------- ------------ ------------
Net cash provided by (used in)
investing activities................ 31,303 (325) (2,509) -- 28,469
Cash flows provided by (used in)
financing activities:
Issuance of preferred stock and
warrant............................. 12,000 -- -- -- 12,000
Advances (repayments) on line of
credit, net......................... (17,000) 4,729 2,289 -- (9,982)
Principal payments under debt
obligations......................... (38,192) (407) (71) -- (38,670)
Advances under debt obligations....... -- 11,480 236 -- 11,716
-------- -------------- ------------- ------------ ------------
Net cash provided by (used in)
financing activities................ (43,192) 15,802 2,454 -- (24,936)
Foreign exchange effect on cash and
cash equivalents.................... 1,626 (37) 300 (2,840) (951)
-------- -------------- ------------- ------------ ------------
Net (decrease) increase in cash and
cash equivalents.................... (657) (3,857) 424 -- (4,090)
Cash and cash equivalents, beginning
of period........................... 849 5,594 8,095 -- 14,538
-------- -------------- ------------- ------------ ------------
Cash and cash equivalents, end of
period.............................. $ 192 $ 1,737 $ 8,519 $ -- $ 10,448
======== ============== ============= ============ ============
* Restated. See Note 2
17
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, the Company's substantial indebtedness 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, 2002.
The Company undertakes no obligation to update publicly any
forward-looking statements for any reason, even if new information becomes
available or other events occur in the future.
OVERVIEW
Aavid Thermal Technologies, Inc. (the "Company" or "Aavid") is a
leading global provider of thermal management solutions for electronics products
and a leading developer and marketer of computational fluid dynamics ("CFD")
software. Each of these businesses has a 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
For The Quarter and Nine Months Ended September 27, 2003 Compared With
The Quarter and Nine Months Ended September 28, 2002:
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
------------------------------------------ -------------------------------------
SEPTEMBER 27, SEPTEMBER 28, SEPTEMBER 27, SEPTEMBER 28,
SALES (DOLLARS IN MILLIONS) 2003 2002 CHANGE 2003 2002 CHANGE
- --------------------------- ------------- ------------- ------ ------------- ------------- ------
Computer, networking and industrial
electronics $ 22.2 $ 21.1 5.2% $ 72.6 $ 64.8 12.0%
Consulting and design services (Applied) 0.4 0.3 33.3% 0.9 1.0 (10.0)%
------------- ------------- ----- ------------- ------------- ------
Total Aavid Thermalloy 22.6 21.4 5.6% 73.5 65.8 11.7%
Total Fluent 21.6 17.7 22.0% 62.1 52.1 19.2%
------------- ------------- ----- ------------- ------------- ------
Total Company $ 44.2 $ 39.1 13.0% $ 135.6 $ 117.9 15.0%
============= ============= ===== ============= ============= ======
Aavid's sales in the third quarter of 2003 were $44.2 million, an
increase of $5.1 million, or 13.0%, from the comparable period of 2002. Aavid's
sales for the first nine months of 2003 were $135.6 million, an increase of
$17.7 million, or 15.0%, from the first nine months of 2002. The overall
increase in sales is a combination of an improvement in Aavid Thermalloy, driven
by an increase in market share and a slight improvement experienced by the
semi-conductor and electronics industries as excess inventories throughout the
industry have been reduced, combined with an increase in revenues experienced by
Fluent.
Fluent software sales of $21.6 million in the third quarter of 2003
were $3.9 million, or 22.0%, higher than the third quarter of 2002. Fluent sales
for the first nine months of 2003 were $62.1 million, an increase of $10.0
million, or 19.2%, from the comparable period of 2002. The increase was spread
among all product offerings due to overall growth in the market for
computational fluid dynamics design software, as well as the continued success
of application specific products, such as "Icepak" and "Airpak".
18
Aavid Thermalloy's sales were $22.6 million in the third quarter of
2003, an increase of $1.2 million, or 5.6%, over the third quarter of 2002.
Aavid Thermalloy sales for the first nine months of 2003 were $73.5 million, an
increase of $7.7 million, or 11.7%, from the comparable period of 2002. As
discussed above, this was the result of both an increase in market share and a
slight improvement in the overall industry in which Aavid Thermalloy's customers
operate in, primarily due to the industry's ability to significantly reduce
levels of excess inventories existing in 2002. Based on the current booking
activity, management expects to see moderate growth of revenues in the fourth
quarter of 2003 when compared with the third quarter of 2003.
The Company's international sales (which include U.S. exports)
increased to 53.1% of sales for the third quarter of 2003 compared with 47.8% in
the third quarter of 2002.
No customer generated greater than 10% of the Company's revenues in the
third quarter of 2003 or 2002.
The Company's gross profit for the third quarter of 2003 was $21.8
million compared with $18.1 million in the comparable period from 2002. Gross
profit for the first nine months of 2003 was $65.3 million, an increase of $13.1
million, or 25.0%, from the first nine months of 2002. Gross margin as a
percentage of sales was 49.4% and 48.2%, respectively, for the third quarter and
first nine months of 2003, compared with 46.2% and 44.3% for the comparable
periods of 2002. Gross margin at Aavid Thermalloy has improved through
significant improvements in manufacturing efficiency and utilization as a result
of the consolidation of manufacturing facilities (including the shut-down of the
Loudwater, U.K. facility, the Malacca, Malaysia facility and the Dallas and
Terrell, Texas facilities) that occurred during 2001 and 2002. Aavid
Thermalloy's gross margin increased approximately 1.4% percentage points from
the third quarter of 2002 to the third quarter of 2003. Gross margin at Fluent
remained steady at 80.6% in the third quarter of 2002 compared to 80.7% in the
third quarter of 2003.
In the third quarter of 2003, the Company's operating income of $2.9
million compares with operating income of $0.8 million in the third quarter of
2002. Operating income for the first nine months of 2003 was $7.1 million,
compared with an operating loss of $0.8 million from the comparable period in
the prior year. Aavid Thermalloy saw improvements of $0.9 million and $5.3
million, respectively, in operating income from the third quarter and first nine
months of 2002 to the third quarter and first nine months of 2003. This is
primarily due to the improvement in manufacturing utilization and cost savings
achievements discussed above. Fluent's operating income improved $1.0 million
and $1.6 million, respectively, in the third quarter and first nine months of
2003 as compared to the comparable periods in the prior year, with higher gross
profit partially offset by higher operating expenses. Corporate headquarters
experienced an improvement in operating loss of $0.2 million and $1.1 million,
respectively, from the third quarter and first nine months of 2002 to the
comparable periods of 2003 due to decreased legal and administrative costs.
Net interest charges, including cash interest expense and income,
deferred financing fee amortization and bond discount amortization, for the
Company were $4.5 million and $13.7 million, respectively, in the third quarter
and first nine months of 2003 which compares with $5.5 million and $15.9 million
for the comparable periods of 2002. The decrease in interest expense for the
third quarter and first nine months of 2003 is due to lower debt levels in the
first nine months of 2003 compared to the first nine months of 2002, combined
with lower interest rates on bank debt in 2003 compared to 2002.
The Company incurred a tax provision for the third quarter and first
nine months of 2003 despite having operating losses in the United States because
of state tax provisions on applicable state components of U.S. income and
foreign tax provisions on foreign earnings. The Company incurred significant
losses in the United States and the Company only benefits the U.S. losses to the
extent of foreign earnings, which are expected to be repatriated in the United
States. Because the Company is in a net operating loss position for U.S. tax
purposes, the Company will not receive any tax benefit from foreign tax credits.
Accordingly, there is no net benefit recorded for the United States losses,
resulting in an overall tax provision for foreign taxes.
19
The Company's net loss was $1.6 million and $6.5 million, respectively,
for the quarter and nine months ended September 27, 2003 compared with net
income of $1.9 million in the third quarter of 2002 and net loss of $12.4
million for the first nine months of 2002. Net income (loss) for the quarter and
nine months ended September 28, 2002 includes a gain on the sale of curamik
electronics GmbH of $6.4 million (see note 3 to the financial statements).
Excluding the gain on the sale of curamik electronics GmbH in 2002 results, the
primary reasons for the improvement in net loss from 2002 to 2003 have been
discussed above, but include Aavid Thermalloy's revenue growth and significant
improvements in manufacturing efficiency through plant shut-downs and other cost
savings initiatives.
The Company's EBITDA, as defined in the Loan and Security Agreement
with the Company's senior lenders, was $2.8 million and $21.6 million,
respectively, for the third quarter and first nine months of 2003, compared with
$0.8 million and $13.8 million for the comparable periods in 2002. A
reconciliation of net income to EBITDA is as follows:
FOR THE THREE FOR THE NINE
MONTHS ENDED MONTHS ENDED
------------------------------ ------------------------------
SEPTEMBER 27, SEPTEMBER 28, SEPTEMBER 27, SEPTEMBER 28,
(DOLLARS IN MILLIONS) 2003 2002 2003 2002
- -------------------------------------- ------------- ------------- ------------- -------------
Net (loss) income $ (1.6) $ 1.9 $ (6.5) $ (12.4)
Cash interest expense 4.1 4.4 12.5 14.1
Bond discount amortization 0.2 0.2 0.5 0.4
Deferred financing fee amortization 0.2 1.0 0.7 1.6
Provision (benefit) for income taxes 0.1 (0.5) 1.4 1.9
Depreciation 2.0 2.1 6.0 7.0
Intangible asset amortization 1.0 0.9 2.7 3.0
Deferred revenue change during period(1) (3.2) (2.8) 4.1 4.3
Loss on disposal of fixed assets -- -- 0.2 0.3
Gain on sale of discontinued operation -- (6.4) -- (6.4)
------------- ------------- ------------- -------------
EBITDA $ 2.8 $ 0.8 $ 21.6 $ 13.8
============= ============= ============= =============
Aavid Thermalloy operates a manufacturing plant in Guangdong Province,
China and sales offices in Taipei, Taiwan and Singapore. Each of these locations
had been identified by the World Health Organization as an affected area for
Severe Acute Respiratory Syndrome (SARS) in early 2003. While the SARS epidemic
appears to have been contained and travel and other restrictions have been
lifted as of the date of this filing, the performance of our Asian operations
could be materially adversely affected should the disease manifest itself again
in future periods.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company had used internally generated funds and
proceeds from financing activities to meet its working capital and capital
expenditure requirements. As a result of the Thermalloy acquisition and the
Merger, the Company had significantly increased its cash requirements for debt
service relating to the Notes and its Bank debt described in footnote (1) in the
accompanying financial statements. The Company currently uses amounts available
under its new Loan and Security Agreement, debt and equity financings and
internally generated funds to finance its working capital requirements, capital
expenditures and potential acquisitions.
- --------
(1) Change in deferred revenue as defined in the Loan and Security Agreement
represents the net change in deferred revenue found on the Company's balance
sheet from the beginning of the applicable reporting period to the end of the
applicable reporting period. An increase in deferred revenue during the period
will create an addition to EBITDA. A decrease in deferred revenue during the
period creates a subtraction from EBITDA, as defined.
20
During the first nine months of 2003, the Company generated $9.3
million of cash from operations, versus using $6.7 million of cash for
operations in the first nine months of 2002. During the first nine months of
2003, the Company used $2.8 million of cash in connection with investing
activities versus being provided with $28.5 million in the comparable period of
2002. Cash provided from investing activities during the first nine months of
2002 includes $31.3 million of proceeds from the sale of Curamik. The Company
used $3.0 million for capital expenditures in the first nine months of 2003
versus $4.3 million in the comparable period of 2002. The Company used $2.9
million of cash in connection with financing activities for the first nine
months of 2003, compared to $24.9 million of cash used in financing activities
for the comparable period in 2002. The primary use of cash in connection with
financing activities for the first nine months of 2002 resulted from the paydown
of debt with the net proceeds from the sale of Curamik.
On August 1, 2002, the Company refinanced its Amended and Restated
Credit Facility with two of the four banks that were party to the Amended and
Restated Credit Facility. The new credit facility (the "Loan and Security
Agreement") is a $27.5 million asset based facility. The facility consists of a
term loan component secured by certain United States real estate and machinery
and equipment and requires quarterly principal payments of $0.4 million
commencing November 1, 2002. The Loan and Security Agreement also consists of a
revolving line of credit component secured by inventory in the United States and
accounts receivable in the United States and the United Kingdom. Availability
under the line of credit component is determined by a borrowing base of 85% of
eligible accounts receivable and 50% of eligible inventory, as defined in the
Loan and Security Agreement. At August 1, 2002, the available borrowing base was
$23.9 million, of which $22.6 million was drawn at closing. Debt outstanding
under the Loan and Security Agreement bears interest at a rate equal to, at the
Company's option, either (1) in the case of LIBOR rate loans, the sum of the
offered rate for deposits in United states dollars for a period equal to such
interest period as it appears on Telerate page 3750 as of 11:00 am London time
and a margin of between 2.5% and 2.85% or (2) the sum of LaSalle Business
Credit's prime rate plus a margin of between .25% and .50%. At September 27,
2003, the interest rates on the Loan and Security Agreement ranged from 3.62% to
4.50%. Availability under the revolving line of credit was $11.9 million at
September 27, 2003, of which $5.7 million had been drawn.
Debt classified as long term in the accompanying balance sheet as of
September 27, 2003 consists of the long term portion of the term loan component
of the new Loan and Security Agreement, long term portion of capital leases,
long term portion of foreign debt obligations and all of the 12 3/4% senior
subordinated notes.
The Company has obligations to purchase minimum quantities of raw
materials from three of its key suppliers. The Company believes that purchasing
these raw materials from a few key suppliers is necessary to achieve
consistently low tolerances, design, delivery flexibility, and price stability.
Under the terms of these agreements the Company has agreed to purchase certain
minimum quantities which approximates $1.2 million at September 27, 2003.
The Company has entered into various long-term debt, capital lease and
operating lease arrangements. The future payments required by these arrangements
at September 27, 2003 are as follows:
PAYMENTS DUE BY PERIOD ($ IN THOUSANDS)
---------------------------------------------------
1 YR
TOTAL OR LESS 1-3 YRS 4-5 YRS 5+ YRS
--------- -------- -------- --------- -------
Long-term debt and capital leases...... $ 137,495 $ 7,702 $ 8,948 $ 120,845 $ -
Operating leases....................... 21,482 5,317 6,583 4,343 5,239
--------- -------- -------- --------- -------
Total contractual obligations........ $ 158,977 $ 13,019 $ 15,531 $ 125,188 $ 5,239
========= ======== ======== ========= =======
At September 27, 2003 and December 31, 2002, inventory turns were 9.7.
At September 27, 2003, accounts receivable days sales outstanding
("DSO") were 64 days, which compare with 66 days at December 31, 2002.
21
CRITICAL ACCOUNTING POLICIES
We prepare the consolidated financial statements of Aavid Thermal
Technologies, Inc. in conformity with accounting principles generally accepted
in the United States of America. As such, we are required to make certain
estimates, judgments and assumptions that we believe are reasonable based on the
information available. These estimates and assumptions affect the reported
amounts of assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the periods presented. The
significant accounting policies which we believe are the most critical to aid in
fully understanding and evaluating our financial reporting results include the
following:
REVENUE RECOGNITION AND SALES RETURNS AND ALLOWANCES
THERMAL PRODUCTS
Revenue is recognized when products are shipped. We offer certain
distributors limited rights of return and stock rotation rights. Due to these
return rights, we continuously monitor and track product returns and we record a
provision for the estimated future amount of such future returns, based on
historical experience and any notification we receive of pending returns. While
such returns have historically been within our expectations and provisions
established, we cannot guarantee that we will continue to experience the same
return rates that we have in the past. Any significant decrease in product
demand experienced by our distributor customers and the resulting credit returns
could have a material adverse impact on our operating results for the period or
periods in which such returns materialize.
SOFTWARE
The Company's software subsidiary, Fluent, recognizes software revenue
in accordance with Statement of Position (SOP) 97-2, "Software Revenue
Recognition" and SOP 98-9, "Modification of SOP 97-2 Software Revenue
Recognition, With Respect to Certain Transactions." These statements provide
specific industry guidance and stipulate that revenue recognized from software
arrangements is to be allocated to each element of the arrangement based on the
relative fair values of the elements, such as software products, upgrades,
enhancements, post-contract customer support ("PCS"), installation or training.
Under the terms of Fluent's arrangements, the software is delivered upon signing
and the bundled PCS is available to the customer over the term of the contract.
SOP 97-2 requires a seller of software with bundled PCS to establish vendor
specific objective evidence ("VSOE") of the value of the undelivered element of
the contract (in Fluent's case the PCS) in order to account separately for the
PCS revenue.
In order to establish VSOE, there needs to be specific instances in
which a customer purchases the PCS separately from the software such that a true
market value can be determined. Fluent's product offerings consist of both
perpetual licenses and annual licenses that include bundled PCS. Purchasers of
perpetual licenses renew their PCS each year for a specific price. Due to this
practice, there is VSOE for the value of the PCS, which allows Fluent to
separate the software element from the PCS element and recognize the software
element immediately upon signing of the contract and delivery of the product.
PCS revenue is then recognized ratably over the term of the agreement.
For annual license arrangements, the Company believes it does not have
sufficient VSOE to support the separation of the contract into separate elements
(which would allow the Company to recognize revenue associated with the software
element immediately upon signing of the contract). Therefore, the Company
recognizes revenue associated with the entire annual license arrangement
ratably, over the term of the agreement.
22
ACCOUNTS RECEIVABLE
We perform ongoing credit evaluations of our customers and adjust credit limits
based on payment history and the customer's current credit worthiness, as
determined by our review of their current credit information. We continuously
monitor collections and payments from our customers and maintain a provision for
estimated credit losses based on our historical experience and any specific
customer collection issues we have identified. While such credit losses have
historically been within our expectations and the provisions established, we
cannot guarantee that we will continue to experience the same credit loss rates
we have in the past. In the event that economic or other conditions cause a
change in liquidity or financial condition in multiple customers, there could be
a material adverse effect on our collection of receivables and future results of
operations.
INVENTORIES
We value our inventory, which consists of materials, labor and
overhead, at the lower of the actual cost to purchase and/or manufacture the
inventory or the current estimated market value of the inventory. We regularly
review inventory quantities on hand and record a provision for excess and
obsolete inventory based primarily on our estimated forecast of product demand
and production demand for the next twelve months. As demonstrated in 2002 and
2001, demand for our products can fluctuate significantly. A significant
increase in demand for our products could result in a short-term increase in the
cost of inventory purchases and production costs while a significant decrease in
demand could result in an increase in the amount of excess inventory quantities
on hand. In addition, our industry is characterized by rapid technological
change, frequent new product development and rapid product obsolescence that
could result in an increase in the amount of obsolete inventory quantities on
hand. Additionally, our estimates of future product demand may prove to be
inaccurate, in which case we may have understated or overstated the provision
required for excess or obsolete inventory. In the future, if our inventory is
determined to be overvalued, we would be required to recognize such costs in our
cost of goods sold at the time of determination. Likewise, if our inventory is
determined to be undervalued, we may have over-reported our cost of sales in
previous periods and would be required to recognize such additional operating
income at the time of sale. Therefore, although we make every effort to ensure
the accuracy of our forecasts of future product demand, any significant
unanticipated changes in demand or technological developments could have a
significant impact on the value of our inventory and reported operating results.
VALUATION OF LONG-LIVED ASSETS AND INTANGIBLE ASSETS AND GOODWILL
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". SFAS No. 144 addresses financial
accounting and reporting for the impairment or disposal of long-lived assets and
supercedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to be Disposed Of" and the accounting and reporting provisions
of APB Opinion No. 30, "Reporting the Results of Operations - Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions" for the disposal of a segment of
a business (as previously defined in that Opinion). The Company adopted SFAS No.
144 on January 1, 2002. The application of SFAS No. 144 did not have a material
effect on the Company's financial position or results of operations.
During 2001 and prior periods, we assessed the impairment of
identifiable intangibles, long-lived assets and related goodwill whenever events
or changes in circumstances indicate that the carrying value may not be
recoverable as required under SFAS 121. Factors we considered important which
could trigger an impairment review included the following:
- significant underperformance relative to expected
historical or projected future operating results;
- significant changes in the manner of our use of the
acquired assets or the strategy for our overall
business;
- significant negative industry or economic trends.
23
Under SFAS 121, when we determine that the carrying value of
intangibles, long-lived assets and related goodwill may not be recoverable based
on the existence of one or more of the above indicators of impairment, we
measure any impairment based on a projected discounted cashflow method using a
discount rate determined by our management to be commensurate with the risk
inherent in our business model. During 2001, global macroeconomic conditions
weakened and the demand for industrial and consumer electronics contracted
significantly and as a result we determined that our ability to achieve our long
term financial forecast had been negatively impacted. We determined that a
triggering event, as defined by SFAS 121, had occurred related to the intangible
assets initially acquired in connection with the Merger. Based on cash flow
projections related to the acquired assets, we concluded that all of the
acquired intangible assets related to Aavid Thermalloy and certain intangible
assets related to Fluent had been impaired. During the fourth quarter of 2001,
upon completion of our analysis of the impairment, we wrote down the assets,
along with any allocated goodwill, to fair value based on the related discounted
cash flow. In order to measure the impairment loss related to goodwill, the
difference between the carrying value and the fair value of goodwill was
calculated using a business enterprise methodology. This method of goodwill
measurement entails calculating the total enterprise value of each of Aavid's
business units. Goodwill and intangible assets were then estimated by
subtracting the allocated tangible assets (normal levels of working capital and
fixed assets) from the total enterprise value.
REGULATORY REPORTING
Although the Company has not been subject to the filing requirements of
a reporting company to the Securities and Exchange Commission for the past 90
days, it has filed all reports required to be filed by Section 15(d) of the
Securities Exchange Act (the "Act") of 1934 during the preceding twelve months.
Pursuant to Section 15(d) of the Act, the Company's duty to file reports is
automatically suspended as a result of having fewer than 300 holders of record
of each class of its debt securities outstanding, as of January 1, 2003, but the
Company agreed under the terms of certain long-term debt covenants to continue
these filings.
BOARD OF DIRECTORS
On October 21, 2003 the Board of Directors amended the bylaws of the
corporation to provide for one additional Class B director, and then elected
Christopher Boehm, Principal, Willis Stein & Partners to fill the vacancy
created. He will continue to serve in accordance with the terms of the
Certificate of Incorporation and the bylaws.
ITEM 4. CONTROLS AND PROCEDURES
As of September 27, 2003, an evaluation was performed under the
supervision and with the participation of the Company's management, including
the CEO and CFO, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures. Based on that evaluation, the
Company's management, including the CEO and CFO, concluded that the Company's
disclosure controls and procedures were effective as of September 27, 2003 in
ensuring that material information relating to the Company is made known to the
CEO and CFO by others within the Company during the period in which the report
was being prepared. There have been no significant changes in the Company's
internal controls or in other factors that could significantly affect internal
controls subsequent to September 27, 2003.
24
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in various other legal proceedings that are
incidental to the conduct of the Company's business, none of which the Company
believes could reasonably be expected to have a materially adverse effect on the
Company's financial condition.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
31.1 Certification of CEO
31.2 Certification of CFO
(b) Reports on Form 8-K
None.
SIGNATURES
DATE: November 7, 2003 AAVID THERMAL TECHNOLOGIES, INC.
By: /s/ Brian A. Byrne
------------------------------------------
Vice President and Chief Financial Officer
(Principal Financial Officer)
25