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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K/A
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CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) October 21, 1999
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AAVID THERMAL TECHNOLOGIES, INC.
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(Exact Name of Registrant as Specified in its Charter)
DELAWARE 0-27308 02-0466826
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(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
One Eagle Square, Suite 509
Concord, New Hampshire 03301
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (603) 224-1117
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Not Applicable
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(Former Name or Former Address, if Changed Since Last Report)
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This Form 8-K/A is filed herewith solely to include Exhibit 23--Consent of
Independent Auditors (Ernst & Young), that was inadvertently omitted by the
Printer in the original Form 8-K filed on November 5, 1999.
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On October 21, 1999, Aavid Thermal Technologies, Inc. (the "Company")
acquired the Thermalloy Division of Bowthorpe plc. The Thermalloy Division's
business is substantially similar to the Company's thermal management products
business. As part of the acquisition from Bowthorpe, the Company also acquired
65.2%, representing Bowthorpe's entire shareholding, of Curamik Electronics
GmbH, a German corporation which manufactures direct bonded copper substrates
used in the packaging and cooling of high power electronic devices. The total
purchase price was $80.5 million (including estimated transaction costs of $2
million), and is subject to further adjustment based on changes in the value of
the Thermalloy Division's inventory between December 31, 1998 and July 31, 1999.
The purchase price paid at closing includes an estimate of the inventory related
purchase price adjustment. The Company used $13.8 million of its cash on hand
and $79.3 million of borrowings under its new credit facility described below
under Item 5 to pay the purchase price for the Thermalloy Division, repay $12.6
million of outstanding debt and pay estimated transaction costs. The Company
paid $3.5 million of the $80.5 million purchase price into escrow pending
receipt of the necessary Malaysian governmental approvals of the transfer of the
Thermalloy Division's Malaysian operations to Aavid. In addition, on October 28,
1999 the Company purchased an additional 20.2% of Curamik from the two minority
shareholders of Curamik for approximately $3.3 million, thereby increasing its
ownership of Curamik to 85.4%.
The Thermalloy Division designs, manufactures and sells a wide range of
standard and proprietary heatsinks and associated products for the cooling of
semiconductors, power hybrid circuits, high power electronics and other
electronic devices, primarily within the aerospace, automotive, computer,
construction and telecommunications industries. The Thermalloy Division, like
the Company, possesses both the engineering and production capability to design
and manufacture solutions to meet customers' thermal management requirements.
The Thermalloy Division has manufacturing facilities in Dallas, Texas; Monterey,
Mexico; Swindon, England; Corby, England; Milan, Italy; Hong Kong and Malaysia,
engineering staff in the United States and Europe and additional sales staff in
France, Germany, Japan and Singapore. The Thermalloy Division, including
Curamik, had revenues of approximately $102 million for the year ended December
31, 1998 and $50 million for the first half of 1999.
The Company's future success will depend, in part, on its ability to
fully integrate the operations and management of the Thermalloy Division. A
successful integration requires, among other things, the integration of
Thermalloy's product offerings and technology into Aavid's and the coordination
of their sales and marketing and financial reporting efforts with Aavid's. There
can be no assurance that the Company will accomplish the integration smoothly or
successfully or that Aavid will realize the anticipated benefits of the
Thermalloy Division acquisition. The success of the integration will require the
dedication of management and other personnel resources which may temporarily
distract their attention from the Company's day-to-day business.
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The Company has experienced substantial growth in its thermal
management products business and has significantly expanded its operations
through manufacturing capacity additions, the acquisition of the Thermalloy
Division and geographic expansion. The Company intends to continue to increase
its thermal products and software businesses overseas, expand the products and
services it offers, and make selective acquisitions. This growth and expansion
has placed, and will continue to place, a significant strain on Aavid's
production, technical, financial and other management resources. To manage
growth effectively, Aavid must maintain a high level of manufacturing quality,
efficiency, delivery and performance and must continue to enhance its
operational, financial and management systems, and attract, train, motivate and
manage its employees. The Company may not be able to effectively manage this
expansion, and any failure to do so could have a material adverse effect on its
business and financial condition.
ITEM 5. OTHER EVENTS.
On October 21, 1999, in connection with the closing of the acquisition
of the Thermalloy Division, the Company entered into a $100 million revolving
credit and term loan facility with Canadian Imperial Bank of Commerce, as
Administrative Agent, and certain other lenders (the "Credit Facility"). The
Credit Facility consists of an $80 million term loan facility (the "Term
Facility") and a $20 million revolving credit facility, including a $2 million
letter of credit subfacility (the "Revolving Facility"). The Term Facility, all
of which was borrowed on October 21, 1999 to pay the purchase price for the
Thermalloy Division, pay transaction costs and provide working capital to the
Thermalloy Division, matures on September 30, 2004, and will be amortized in 19
consecutive quarterly installments, commencing March 31, 2000, as follows: four
quarterly payments of $2 million each; four quarterly payments of $3 million
each; four quarterly payments of $4 million each; four quarterly payments of $5
million each; and three quarterly payments of $8 million each. The Revolving
Facility matures on September 30, 2004. The Credit Facility bears interest at a
rate equal to, at the Company's option, either (1) in the case of Eurodollar
loans, the sum of (x) the interest rate in the London interbank market for loans
in an amount substantially equal to the amount of borrowing and for the period
of borrowing selected by Aavid and (y) a margin of between one and one-half
percent and two percent (depending on the Company's consolidated leverage ratio
(as defined in the credit agreement)) or (2) the sum of (A) the higher of (x)
Canadian Imperial Bank of Commerce's prime or base rate or (y) one-half percent
plus the latest overnight federal funds rate plus (y) a margin of between one
quarter percent and three quarters percent (depending on the Company's
consolidated leverage ratio). The Credit Facility may be prepaid at any time in
whole or in part without penalty, and must be prepaid to the extent of certain
equity or asset sales.
The Credit Facility limits the Company's ability to incur debt, to sell
or dispose of assets, to create or incur liens, to make additional acquisitions,
to pay dividends, to purchase or redeem its stock and to merge or consolidate
with any other person other than the previously announced merger with an entity
formed by Willis Stein & Partners. In addition, the Credit Facility requires
that the Company meet certain financial ratios, and provides the banks with the
right to require the payment
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of all amounts outstanding under the facility, and to terminate all commitments
thereunder, if there is a change in control of Aavid other than as contemplated
by the merger agreement with entities formed by Willis Stein & Partners. The
Credit Facility is guaranteed by all of the Company's domestic subsidiaries and
secured by the Company's assets (including the assets and stock of its domestic
subsidiaries and a portion of the stock of its foreign subsidiaries).
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
The combined balance sheets of the Thermalloy Group as of
December 31, 1998 and 1997, and the related combined profit
and loss accounts, statements of total recognized gains and
losses, movements in invested capital and cash flows for the
years ended December 31, 1998, 1997 and 1996, and the notes
thereto, and the report of Ernst & Young, are included herein.
The condensed combined balance sheets of the Thermalloy Group
as of June 30, 1999 and 1998, and the related condensed
combined profit and loss accounts, statements of total
recognized gains and losses, movements in invested capital and
cash flows for the six months ended June 30, 1999 and 1998,
and the notes thereto, are included herein.
(b) PRO FORMA FINANCIAL INFORMATION.
It is impracticable for the Company to provide the required
pro forma financial information on the date this report is
being filed. The Company intends to file the required
financial information under cover of Form 8-K/A as soon as
practicable, but not later than 60 days after the date this
report must have been filed.
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(c) EXHIBITS.
2.1 Stock Purchase Agreement by and among Bowthorpe plc,
Bowthorpe B.V., Bowthorpe International Inc.,
Bowthorpe GmbH (collectively, "Bowthorpe") and Aavid
Thermal Technologies, Inc., dated as of August 23,
1999 (incorporated herein by reference to Exhibit 2.1
to the Company's Current Report on Form 8-K dated
August 23, 1999).
10.1 Credit Agreement, dated as of October 21, 1999, among
Aavid Thermal Technologies, Inc., as Borrower, the
several lenders from time to time party hereto, CIBC
World Markets Corp., as Lead Arranger and Bookrunner,
and Canadian Imperial Bank of Commerce, as Issuer and
Administrative Agent.
23. Consent of Ernst & Young.
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COMBINED
FINANCIAL STATEMENTS
THERMALLOY GROUP
December 31, 1998
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THERMALLOY GROUP
Combined Financial Statements
December 31, 1998
CONTENTS
Report of Independent Auditors.................................................8
Combined Profit and Loss Accounts for the years ended December 31, 1998,
1997 and 1996..............................................................9
Combined Statements of Total Recognized Gains and Losses for the years
ended December 31, 1998, 1997 and 1996....................................10
Combined Balance Sheets at December 31, 1998 and 1997.........................11
Combined Statements of Movements in Invested Capital for the years
ended December 31, 1998, 1997 and 1996 ...................................12
Combined Cash Flow Statements for the years ended December 31, 1998,
1997 and 1996.............................................................13
Notes to Combined Financial Statements .......................................14
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THERMALLOY GROUP
REPORT OF INDEPENDENT AUDITORS
To The Board of Directors
Bowthorpe plc
We have audited the combined balance sheets of Thermalloy Group as at December
31, 1998 and 1997, and the related combined profit and loss accounts and
combined statements of total recognized gains and losses, movements in invested
capital and cash flows for each of the three years in the period ended December
31, 1998. These financial statements are the responsibility of Thermalloy
Group's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with United Kingdom generally accepted
auditing standards which do not differ in any significant respect from United
States generally accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of Thermalloy Group at
December 31, 1998 and 1997, and the combined results of its operations, and its
combined cash flows for each of the three years in the period ended December 31,
1998 in conformity with accounting principles generally accepted in the United
Kingdom which differ in certain respects from those generally accepted in the
United States (see Note 21 of Notes to Combined Financial Statements).
Ernst & Young
London, England
October 18, 1999
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THERMALLOY GROUP
COMBINED PROFIT AND LOSS ACCOUNTS
YEAR ENDED DECEMBER 31
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NOTES 1998 1997 1996
---- ---- ----
(US $000'S)
SALES 3 102,332 94,668 80,885
Operating costs less other income 4 92,763 85,074 71,359
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OPERATING PROFIT 3,4 9,569 9,594 9,526
Finance costs (1) 7 1,147 658 569
------- ------ ------
Profit before taxation 8,422 8,936 8,957
Taxation 8 2,947 3,424 3,545
------- ------ ------
Profit for the year (2) 5,475 5,512 5,412
======= ====== ======
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(1) The finance costs are not necessarily representative of the charges that
would have been incurred by Thermalloy Group on a stand-alone basis.
(2) A summary of the significant adjustments to profit for the year that would
be required if United States generally accepted accounting principles were
applied, instead of those generally accepted in the United Kingdom, is set
forth in Note 21 of Notes to Combined Financial Statements.
The Notes to Combined Financial Statements form part of these Financial
Statements
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THERMALLOY GROUP
COMBINED STATEMENTS OF TOTAL RECOGNIZED GAINS AND
LOSSES
YEAR ENDED DECEMBER 31
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1998 1997 1996
---- ---- ----
(US $000'S)
PROFIT FOR THE YEAR 5,475 5,512 5,412
Currency translation 365 (235) 392
----- ----- -----
Total recognized gains and losses
relating to the year (1) 5,840 5,277 5,804
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(1) The combined statement of comprehensive income required under United States
generally accepted accounting principles is set forth in Note 21 of Notes
to Combined Financial Statements.
The Notes to Combined Financial Statements form part of these Financial
Statements
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THERMALLOY GROUP
COMBINED BALANCE SHEETS
DECEMBER 31
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NOTES 1998 1997
---- ----
(US $000'S)
FIXED ASSETS
Intangible assets 9 405 --
Tangible assets 10 28,656 17,770
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29,061 17,770
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CURRENT ASSETS
Inventories 11 12,279 12,264
Debtors: amounts falling due within one year 12 19,485 18,197
Debtors: amounts falling due after one year 12 22 412
Cash at bank and in hand 2,322 2,335
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34,108 33,208
CREDITORS: AMOUNTS FALLING DUE WITHIN
ONE YEAR 13 18,007 19,695
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NET CURRENT ASSETS 16,101 13,513
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TOTAL ASSETS LESS CURRENT LIABILITIES 45,162 31,283
CREDITORS: AMOUNTS FALLING DUE AFTER MORE
THAN ONE YEAR 14 20,603 9,594
PROVISIONS FOR LIABILITIES AND CHARGES 17 229 753
MINORITY INTERESTS (250) 11
------ ------
NET ASSETS 24,580 20,925
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INVESTED CAPITAL (1) 24,580 20,925
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(1) A summary of the significant adjustments to invested capital that would be
required if United States generally accepted accounting principles were
applied, instead of those generally accepted in the United Kingdom, is set
forth in Note 21 of Notes to Combined Financial Statements.
The Notes to Combined Financial Statements form part of these Financial
Statements
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THERMALLOY GROUP
COMBINED STATEMENTS OF MOVEMENTS IN INVESTED CAPITAL
YEAR ENDED DECEMBER 31
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1998 1997 1996
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(US $000'S)
At January 1 20,925 19,476 18,315
Profit for the year 5,475 5,512 5,412
Net distributions (2,185) (3,828) (4,643)
Currency translation 365 (235) 392
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At December 31 (1) 24,580 20,925 19,476
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(1) At December 31, 1998 the cumulative amount of goodwill charged to reserves
is $21,575,000 (1997 $21,445,000; 1996 $22,225,000).
The Notes to Combined Financial Statements form part of these Financial
Statements
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THERMALLOY GROUP
COMBINED CASH FLOW STATEMENTS
YEAR ENDED DECEMBER 31
--------------------------------
1998 1997 1996
---- ---- ----
(US $000'S)
NET CASH INFLOW FROM
OPERATING ACTIVITIES 14,505 11,453 10,893
RETURNS ON INVESTMENTS AND
SERVICING OF FINANCE
Interest paid (1) (1,247) (750) (670)
Interest received (1) 100 93 102
Minority dividend paid (257) (388) (493)
------ ------ ------
(1,404) (1,045) (1,061)
TAX PAID (3,604) (4,170) (3,059)
CAPITAL EXPENDITURE AND
FINANCIAL INVESTMENT
Purchase of tangible fixed assets (15,373) (8,433) (4,814)
Sale of tangible fixed assets 203 2,050 134
Purchase of intangible
fixed assets (482) -- --
------ ------ ------
(15,652) (6,383) (4,680)
FINANCING (1)
Distribution to Bowthorpe Group, net (3,810) (3,496) (3,685)
Movement on external loans and
finance lease obligations 4,620 2,567 814
Movement in amounts due to and
from Bowthorpe Group 6,256 855 811
------ ------ ------
7,066 (74) (2,060)
------ ------ ------
INCREASE (DECREASE) IN CASH 911 (219) 33
====== ====== ======
The Notes to Combined Financial Statements form part of these Financial
Statements
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THERMALLOY GROUP
COMBINED CASH FLOW STATEMENTS (continued)
The reconciliation of operating profit to net cash flow from operating
activities is as follows:
YEAR ENDED DECEMBER 31
--------------------------------
1998 1997 1996
---- ---- ----
(US $000'S)
OPERATING PROFIT 9,569 9,594 9,526
Depreciation charge 4,942 3,407 3,383
Amortization of other intangibles 88 -- --
Decrease (increase) in inventories 130 (1,476) 31
Increase in debtors (268) (3,611) (2,781)
Increase in creditors and provisions 44 3,539 734
------ ------ ------
NET CASH INFLOW FROM OPERATING
ACTIVITIES 14,505 11,453 10,893
====== ====== ======
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(1) Transactions with Bowthorpe Group, interest received (paid) and financing
cash flows are not necessarily representative of the amounts that would
have been borne by Thermalloy Group on a stand-alone basis.
(2) The significant differences between the cash flow statements presented
above and those required under United States generally accepted accounting
principles are set forth in Note 21 of Notes to Combined Financial
Statements.
The reconciliation of operating profit to net cash flow from operating
activities is as follows:
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THERMALLOY GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BASIS OF PREPARATION
These financial statements are a combination of the financial statements of the
thermal management companies of Bowthorpe Group comprising Thermalloy Inc.,
Redpoint Thermalloy Limited, Redpoint Limited, Thermalloy Investment Company
Inc., Thermalloy SA de CV, Thermalloy Limited, Thermalloy International Limited,
Elbomec Thermalloy SRL, Thermalloy (Malaysia) Sdn Bhd, Curamik Electronics GmbH,
Curamik Electronics Inc. (together, "Thermalloy Group") of Bowthorpe plc, a UK
company, including purchased goodwill arising on Bowthorpe's acquisition of
these companies. These financial statements have been prepared in conjunction
with the planned divestiture of Thermalloy Group.
These combined financial statements have been prepared in accordance with
accounting principles generally accepted in the United Kingdom ("UK GAAP"). All
intra-Thermalloy Group transactions and balances have been eliminated on
combination.
The combined financial statements include interest income and expense actually
earned or paid by Thermalloy Group. During the three years ended December 31,
1998, Thermalloy Group's operations were principally funded by share capital,
loans from Bowthorpe Group companies and loans from third parties. These
financing arrangements were designed and implemented on a Bowthorpe Group basis,
rather than from the perspective of the financing needs of Thermalloy Group. The
decisions as to whether to finance companies with share capital or loans and as
to whether to charge interest on any particular loan were taken based on the
financial position of the companies and local taxation considerations. Where
interest was charged, the rate charged varied, but was generally in line with
commercial borrowing rates. The Bowthorpe Group loans generally did not have set
repayment terms.
The combined financial statements reflect the actual tax charges suffered by the
entities within Thermalloy Group.
The combined financial statements reflect management costs charged to the
Thermalloy Group by the Bowthorpe Group based either on direct costs incurred or
on assets employed. Management believes this is a reasonable basis.
The basis of funding, interest charges and financing cash flows and related cash
flows and management charges are not necessarily representative of those that
would have been incurred by Thermalloy Group on a stand alone basis, or of those
that may be incurred by Thermalloy Group in the future.
The combined financial statements are presented in US dollars, although
Bowthorpe Group's functional currency is the pound sterling. The following
exchange rates have been used to translate to US dollars:
1998 1997 1996
Profit and loss account and cash flow - average rate for the year $1.66:(pound)1 $1.64:(pound)1 $1.56:(pound)1
Balance sheet - year end rate $1.66:(pound)1 $1.65:(pound)1 $1.71:(pound)1
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THERMALLOY GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
2. ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The combined financial statements are prepared under the historical cost
convention and in accordance with applicable UK accounting standards and
specifically in accordance with the following accounting policies.
INTANGIBLE ASSETS
As permitted by FRS 10, goodwill arising on the acquisition of a subsidiary
undertakings prior to January 1, 1998 representing the excess of cost over the
fair value of the attributable assets and liabilities acquired has been written
off against profit and loss account reserve. In accordance with UITF 3, goodwill
which has been written off the profit and loss account reserve would be charged
to the profit and loss account on the subsequent disposal of the business to
which it related.
Other separately identifiable intangible assets such as patent fees, licence
fees and trade marks are capitalised in the balance sheet only when the value
can be measured reliably or the intangible asset is purchased in the acquisition
of a business. Such intangible assets are amortised over their useful economic
lives up to a maximum of 20 years. The carrying value of intangible assets is
reviewed for impairment at the end of the first full year following acquisition
and in other periods if events or changes in circumstances indicate the carrying
value may not be recoverable.
FOREIGN CURRENCIES
Transactions in non sterling currencies are recorded at the rate ruling at the
date of transaction. The results of non UK entities are translated into sterling
using average rates.
Monetary assets and liabilities denominated in currencies other than sterling
are translated at the rates ruling at December 31. Profits and losses arising
from the re-translation of opening net assets of overseas entities, treating
long term intra-group loans as part of the equity investment, and exchange
adjustments arising from the translation of the results of overseas subsidiary
entities, are dealt with through reserves. All other exchange profits and losses
are taken to the profit and loss account.
SALES
Sales represent the amounts invoiced to customers for goods and services during
the year, excluding tax and intra-group transactions.
PRODUCT DEVELOPMENT
Product development expenditure is charged to profit and loss account in the
year in which it is incurred.
PENSION COSTS
In the United Kingdom the Bowthorpe Group operates two pension schemes for the
benefit of employees. These schemes require contributions to be made to
separately administered funds, based on triennial actuarial valuations.
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THERMALLOY GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
2. ACCOUNTING POLICIES (continued)
PENSION COSTS
Contributions to the Bowthorpe Group United Kingdom and United States defined
benefit pension schemes are charged to the profit and loss account so as to
spread the cost of pensions over the employees' working lives within the
Bowthorpe Group. Differences between the amounts funded and the amounts charged
to profit and loss account are treated as either creditors or prepayments in the
balance sheet. Variations in the pension costs, which are identified as a result
of actuarial valuations, are amortised over the average expected working lives
of employees.
Contributions payable to Bowthorpe Group's other plans are charged to profit and
loss account in the year for which they are due.
DEFERRED TAXATION
Deferred taxation is provided using the liability method on all timing
differences to the extent that they are expected to reverse in the future,
calculated at the rate at which it is estimated that tax will be payable.
INVENTORIES
Inventories are valued at the lower of cost and estimated net realisable value.
Cost includes all costs in bringing each product to its present location and
condition, being the full manufacturing cost on a first in, first out basis,
including all attributable overheads based on a normal level of activity. Net
realisable value represents selling prices less further costs to be incurred to
completion and on sale.
TANGIBLE ASSETS
Depreciation is not provided on freehold land where the value is separately
identifiable. Depreciation is provided to write off all other assets over their
estimated useful lives at rates which take into account commercial conditions at
their location. Usual asset lives are as follows:
Freehold buildings 50 years
Leasehold properties 50 years or lease period if less
Plant and machinery 3-8 years
Fixtures, fittings and equipment: Building installations 20 years or lease period if less
Fittings and equipment 3-8 years
Motor vehicles 3-5 years
Business systems software 4 years
The carrying values of tangible fixed assets are reviewed for impairment in
periods where events or changes in circumstances indicate the carrying value may
not be recoverable.
Assets obtained under finance leases and hire purchase contracts are capitalised
in the balance sheet and are depreciated over their estimated useful lives. The
interest elements of the rental obligations are charged to the profit and loss
account over the periods of the leases and hire purchase contracts in proportion
to the balance of capital repayments outstanding.
Operating lease rentals are charged to profit and loss account over the period
of the lease.
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THERMALLOY GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
3. SEGMENT ANALYSIS
YEAR ENDED DECEMBER 31
--------------------------------
1998 1997 1996
---- ---- ----
(US $000'S)
SALES
BY GEOGRAPHICAL AREA OF MARKET:
Europe 42,144 39,089 35,873
United States 52,198 47,648 36,651
Rest of World 7,990 7,931 8,361
------- ------ ------
102,332 94,668 80,885
======= ====== ======
BY GEOGRAPHICAL AREA OF ORIGIN:
Europe 42,755 39,604 36,608
United States 52,558 48,912 40,054
Rest of World 7,019 6,152 4,223
------- ------ ------
102,332 94,668 80,885
======= ====== ======
OPERATING PROFIT
BY GEOGRAPHICAL AREA OF ORIGIN:
Europe 6,361 5,825 5,864
United States 2,856 3,026 3,116
Rest of World 352 743 546
------- ------ ------
9,569 9,594 9,526
======= ====== ======
NET OPERATING ASSETS
DECEMBER 31
------------------
1998 1997
---- ----
(US $000'S)
Europe 19,043 11,972
United States 23,174 20,261
Rest of World 3,809 2,731
------ ------
46,026 34,964
====== ======
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THERMALLOY GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
4. OPERATING PROFIT
YEAR ENDED DECEMBER 31
-----------------------------
1998 1997 1996
---- ---- ----
(US $000'S)
ANALYSIS OF OPERATING COSTS LESS OTHER INCOME:
Cost of sales 69,755 62,743 53,898
Selling and distribution 14,025 13,813 10,514
Administration 9,825 8,008 7,010
Other (income)/costs (842) 510 (63)
------ ------ ------
92,763 85,074 71,359
====== ====== ======
OPERATING PROFIT IS STATED AFTER CHARGING:
Depreciation of owned tangible fixed assets 4,518 3,187 3,134
Depreciation of finance leased assets 423 220 249
Amortization of other intangibles 88 -- --
Research and development 3,582 3,086 2,529
Auditors' remuneration 81 129 119
Other fees paid to Ernst & Young -- 26 --
Operating lease rentals
Property 751 629 160
Hire of plant and machinery 776 275 182
5. EMPLOYEES
YEAR ENDED DECEMBER 31
-----------------------------
1998 1997 1996
---- ---- ----
(NUMBERS)
The average number of people employed by the
Thermalloy Group during the year was:
Manufacturing 743 697 568
Selling and distribution 114 111 95
Administration 46 39 34
------ ------ ------
903 847 697
====== ====== ======
YEAR ENDED DECEMBER 31
-----------------------------
1998 1997 1996
---- ---- ----
(US $000'S)
Their payroll costs were:
Remuneration 25,160 23,707 20,094
Social security costs 3,239 3,194 3,118
Other pension costs 666 733 564
------ ------ ------
29,065 27,634 23,776
====== ====== ======
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THERMALLOY GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
6. PENSION AND OTHER POST-RETIREMENT BENEFITS
The principal Bowthorpe pension plans are a funded defined benefit plan and a
defined contribution plan with a defined benefit underpin in the United Kingdom,
and a defined contribution plan in the United States. Contributions to the
Bowthorpe UK plans are made in accordance with the recommendations of the
independent actuary of the relevant plan.
The latest actuarial valuations of the Bowthorpe UK defined benefit plans were
undertaken as at April 1, 1997 using the projected unit credit method and the
principal results and assumptions were as follows:
ASSUMPTION STAFF PENSION PLAN RETIREMENT CASH PLAN
- ---------- ------------------ --------------------
Return on investments 9.0% pa 9.0% pa
Salary inflation average 6.5% pa 6.0% pa
Price inflation 4.5% pa 4.5% pa
Pension increases 4.5% pa 4.5% pa
Dividend growth 4.75% pa 4.75% pa
Market value of assets (pound)72.4 million (pound)3.8 million
Level of funding 114% 99%
Employer contribution rate 7.5% 6%
The level of funding represents the actuarial value of assets expressed as a
percentage of the value of liabilities that have accrued to members after
allowing for the assumed future increases in salary. For accounting purposes in
accordance with SSAP24, the actuarial surplus is being spread over the average
expected remaining service of plan members being 13 years.
With the exception of the United States defined benefit schemes, contributions
payable to other Bowthorpe Group overseas plans are charged to profit and loss
account in the year for which they are due.
7. FINANCE COSTS
YEAR ENDED DECEMBER 31
----------------------------
1998 1997 1996
---- ---- ----
(US $000'S)
Interest payable on:
Bank overdrafts and loans 283 366 393
Finance lease obligations 562 260 277
Amounts due to Bowthorpe Group 402 125 --
----- --- ---
1,247 751 670
Interest receivable on:
Bank and other deposits 68 57 71
Amounts due from Bowthorpe Group 32 36 30
----- --- ---
100 93 101
----- --- ---
Net finance costs 1,147 658 569
===== === ===
As explained in Note 1, finance costs are not necessarily representative of
those that would have been incurred by Thermalloy Group on a stand-alone basis
or that will be incurred by Thermalloy Group in the future.
20
21
THERMALLOY GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
8. TAXATION
The companies within Thermalloy Group have calculated tax on their own results
with no account taken of other Bowthorpe Group companies for the three years
ended December 31, 1998. Where tax has been borne by individual companies within
Thermalloy Group, these amounts are included in the combined financial
statements.
Taxation is analyzed as follows:
YEAR ENDED DECEMBER 31
---------------------------------
1998 1997 1996
---- ---- ----
(US $000'S)
UK current taxation 1,414 1,402 1,022
UK deferred taxation 33 (153) --
Overseas current taxation 1,500 2,182 2,550
Over-provision in prior years -- (7) (27)
----- ----- -----
2,947 3,424 3,545
===== ===== =====
9. INTANGIBLE ASSETS
(US $000'S)
COST:
At January 1, 1997 --
Exchange adjustment --
Additions --
---
At December 31, 1997 --
Exchange adjustment --
Additions 494
---
At December 31, 1998 494
---
AMORTIZATION:
At January 1, 1997 --
Exchange adjustment --
Charge for the year --
---
At December 31, 1997 --
Exchange adjustment 1
Charge for the year 88
---
At December 31, 1998 89
---
NET BOOK VALUE:
At December 31, 1997 --
===
At December 31, 1998 405
===
21
22
THERMALLOY GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
10. TANGIBLE ASSETS
LAND FIXTURES AND
AND PLANT FITTINGS,
BUILDINGS AND EQUIPMENT
FREEHOLD LEASEHOLD MACHINERY AND VEHICLES TOTAL
-------- --------- --------- ------------ ------
(US $000'S)
Cost:
At January 1, 1997 1,778 4,514 24,171 8,325 38,788
Exchange adjustment (173) (11) (1,147) (211) (1,542)
Additions -- 870 5,813 1,587 8,270
Disposals (1,459) -- (1,293) (1,058) (3,810)
----- ----- ------ ------ ------
At December 31, 1997 146 5,373 27,544 8,643 41,706
Exchange adjustment 11 2 582 89 684
Additions 46 4,395 8,252 3,060 15,753
Disposals -- -- (1,882) (653) (2,535)
----- ----- ------ ------ ------
At December 31, 1998 203 9,770 34,496 11,139 55,608
----- ----- ------ ------ ------
DEPRECIATION:
At January 1, 1997 336 2,760 14,490 5,566 23,152
Exchange adjustment (47) (5) (697) (86) (835)
Charge for year 8 215 2,249 935 3,407
Disposals (297) -- (706) (785) (1,788)
----- ----- ------ ------ ------
At December 31, 1997 -- 2,970 15,336 5,630 23,936
Exchange adjustment -- 11 341 49 401
Charge for year 1 409 3,307 1,224 4,941
Disposals -- -- (1,722) (604) (2,326)
----- ----- ------ ------ ------
At December 31, 1998 1 3,390 17,262 6,299 26,952
----- ----- ------ ------ ------
NET BOOK VALUE:
At December 31, 1997 146 2,403 12,208 3,013 17,770
===== ===== ====== ====== ======
At December 31, 1998 202 6,380 17,234 4,840 28,656
===== ===== ====== ====== ======
11. INVENTORIES
DECEMBER 31
----------------
1998 1997
---- ----
(US $000'S)
Raw materials 3,413 2,819
Finished goods 1,949 2,744
Work in progress 6,917 6,701
------ ======
12,279 12,264
====== ======
The replacement cost of inventories as at December 31, 1998 and 1997
approximates to the value at which they are stated in the financial statements.
22
23
THERMALLOY GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
12. DEBTORS
DECEMBER 31
---------------------
1998 1997
---- ----
(US $000'S)
Due within one year:
Trade debtors 17,198 16,053
Other debtors 624 1,096
Amounts due from Bowthorpe Group 25 51
Tax recoverable 687 349
Prepayments and accrued income 951 648
------ ------
19,485 18,197
====== ======
Due after more than one year:
Other debtors 22 412
====== ======
The balances due from Bowthorpe Group are not necessarily representative of the
amounts that would be due to Thermalloy Group on a stand-alone basis.
13. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
DECEMBER 31
---------------------
1998 1997
---- ----
(US $000'S)
Bank overdrafts 128 1,083
Trade creditors 7,404 8,001
Amounts due to Bowthorpe Group 1,539 488
Dividends payable-minority interest 174 230
Distributions payable to Bowthorpe Group 1,084 2,853
Bank loans 287 1,023
Other loans and finance leases 614 366
Other creditors 1,769 771
Accruals and deferred income 2,711 2,638
Corporate taxation 1,418 1,747
Other taxes including VAT and social
security 879 495
------ ------
18,007 19,695
====== ======
Under their banking arrangements, certain entities accumulate overdraft and cash
balances which are offset. Such offsets are reflected in the combined balance
sheets as appropriate. Loans of $431,000 at December 31, 1998 are secured by
floating charges on the assets of the borrowing business.
23
24
THERMALLOY GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
14. CREDITORS: AMOUNTS FALLING DUE AFTER ONE YEAR
DECEMBER 31
---------------------
1998 1997
---- ----
(US $000'S)
Bank loans 5,351 3,909
Other loans and finance leases 7,317 3,074
Amounts due to Bowthorpe Group 6,588 1,239
Other creditors 1,347 1,372
------ -----
20,603 9,594
====== =====
The balances due to Bowthorpe Group are not necessarily representative of the
amounts that would be due by Thermalloy Group on a stand-alone basis. Loans of
$5,888,000 at December 31, 1998 are secured by floating charges on the assets of
the borrowing business. The long term bank and other loans bear interest at an
average rate of approximately 5.5%.
15. BORROWINGS
This analysis is not necessarily representative of the total level of the net
borrowings that would have been incurred by Thermalloy Group on a stand-alone
basis.
Maturity analysis of external borrowings:
DECEMBER 31
---------------------
1998 1997
---- ----
(US $000'S)
Amounts falling due are repayable as follows:
Bank loans:
Amounts falling due
Between two and five years 5,136 3,499
Between one and two years 215 410
Within one year 415 2,106
------ -----
5,766 6,015
------ -----
Other loans and finance leases:
Amounts falling due
After five years 4,623 1,417
Between two and five years 2,117 993
Between one and two years 577 665
Within one year 614 366
------ -----
7,931 3,441
------ -----
Total loans and finance leases 13,697 9,456
====== =====
24
25
THERMALLOY GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
16. NET DEBT
The following definitions have been used:
Cash: Cash in hand and deposits repayable on demand if available within 24 hours
without penalty, less overdrafts.
External borrowings: borrowings, less overdrafts which have been treated as
cash, and finance lease obligations.
ANALYSIS OF NET DEBT
DECEMBER 31
---------------------------------
1998 1997 1996
---- ---- ----
(US $000'S)
Cash in hand 2,322 2,335 1,704
Overdrafts (128) (1,083) (186)
------- ------- ------
Net cash 2,194 1,252 1,518
External borrowings (13,569) (8,372) (6,267)
Amounts due to Bowthorpe Group (8,102) (1,676) (1,127)
------- ------- ------
Total borrowings (21,671) (10,048) (7,394)
------- ------- ------
Total net debt (19,477) (8,796) (5,876)
======= ======= ======
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
YEAR ENDED DECEMBER 31
------------------------------
1998 1997 1996
---- ---- ----
(US $000'S)
Increase (decrease) in cash 911 (219) 33
Cash inflow from increase in debt (4,620) (2,567) (814)
Cash inflow from increase in group loan (6,256) (855) (811)
------- ------ ------
Change in net debt from cashflows (9,965) (3,641) (1,592)
Exchange movements (716) 721 (11)
------- ------ ------
Movement in net debt in the year (10,681) (2,920) (1,603)
Net debt at January 1 (8,796) (5,876) (4,273)
------- ------ ------
Net debt at December 31 (19,477) (8,796) (5,876)
======= ====== ======
25
26
THERMALLOY GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
17. PROVISIONS FOR LIABILITIES AND CHARGES
DEFERRED
PENSIONS TAXATION OTHER TOTAL
-------- -------- ----- -----
(US $000'S)
At January 1, 1997 307 382 61 750
Currency translation -- 9 (2) 7
Provisions utilized -- -- (11) (11)
Charged/(released) in the year 123 (153) 37 7
--- --- --- ---
At December 31, 1997 430 238 85 753
Currency translation -- 2 1 3
Provisions utilized (400) (306) (86) (792)
Charged/(released) in the year 265 -- -- 265
--- --- --- ---
At December 31, 1998 295 (66) -- 229
=== === === ===
Other provisions relate to warranties and litigation.
18. FINANCIAL COMMITMENTS
DECEMBER 31
---------------
1998 1997
---- ----
(US $000'S)
Contracted capital expenditure 1,848 6,803
===== =====
Annual commitments under operating leases at December 31,
were as follows:
Land and buildings:
Expiring in the first year -- 299
Expiring in the second to fifth years inclusive -- 25
Expiring after the fifth year 257 83
----- -----
257 407
===== =====
Fixtures and fittings, equipment and vehicles:
Expiring in the first year 70 --
Expiring in the second to fifth years inclusive -- --
Expiring after the fifth year -- --
----- -----
70 --
===== =====
19. CONTINGENT LIABILITIES
The management of Thermalloy Group is not aware of any legal or arbitration
proceedings pending or threatened against any member of Thermalloy Group which
may result in any liabilities significantly in excess of provisions in the
financial statements.
26
27
THERMALLOY GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
20. RELATED PARTY DISCLOSURE
Thermalloy Group does not operate as a separate group and consequently there
were a number of related party transactions between its companies and other
companies and businesses within Bowthorpe Group. These include transactions
relating to insurance, treasury and taxation, together with other central
services supplied by Bowthorpe Group to Thermalloy Group. These transactions
have not been identified individually as it is not practical to do so.
21. DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
The combined financial statements are prepared in accordance with accounting
principles generally accepted in the United Kingdom ("UK GAAP"), which differ in
certain respects from those generally accepted in the United States ("US GAAP").
The significant differences applicable to Thermalloy Group are described below.
Goodwill
Under UK GAAP, goodwill arising on acquisitions prior to January 1, 1998 was
written off to reserves. Under US GAAP, such goodwill would be capitalized and
amortized to the income statement over the estimated useful lives of the assets
over its estimated useful lives not exceeding 40 years. For the purpose of the
US GAAP reconciliations, goodwill is amortized over 20 years.
Under US GAAP, if any impairment indicators were present, the Group would
evaluate the recoverability of goodwill and other intangible fixed assets, based
on undiscounted cash flows.
Taxation
Under UK GAAP, deferred taxation is provided using the liability method in
respect of timing differences. Provision is made, or recovery anticipated, where
timing differences are expected to reverse without replacement in the
foreseeable future. US GAAP requires taxes to be computed on a stand-alone basis
by a member of a group if it issues separate financial statements.
Under US GAAP, deferred taxation is provided on the full liability basis on all
temporary differences between the tax and book bases of assets and liabilities
including the differences between the assigned fair values and tax bases of
assets and liabilities acquired. Future taxation benefits are recognized as
deferred taxation assets, subject to a valuation allowance to the extent that it
is more likely than not that any part will not be realized.
There are no material differences in deferred taxation resulting from the
application of US GAAP.
Pensions
The Group provides for the cost of retirement benefits based upon consistent
percentages of employees' pensionable pay as recommended by independent
qualified actuaries. Under US GAAP, the projected benefit obligation (pension
liability) in respect of the Group's defined benefit plans would be matched
against the fair value of the plans' assets and would be adjusted to reflect any
unrecognized obligations or assets in determining the pension cost or credit for
the year.
There are no material differences in pension costs resulting from the
application of US GAAP.
27
28
THERMALLOY GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
21. DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (continued)
PROFIT FOR THE YEAR AND COMPREHENSIVE INCOME
YEAR ENDED DECEMBER 31
----------------------
1998 1997 1996
---- ---- ----
(US $000'S)
Profit for the year as reported in the combined
profit and loss account in accordance with UK GAAP 5,475 5,512 5,412
Adjustments:
Goodwill amortization (1,039) (1,066) (1,014)
----- ----- -----
Net income as adjusted to accord with
US GAAP 4,436 4,446 4,398
Items of comprehensive income:
Currency translation 365 (235) 392
----- ----- -----
US GAAP comprehensive income 4,801 4,211 4,790
===== ===== =====
INVESTED CAPITAL
DECEMBER 31
-------------
1998 1997
---- ----
(US $000'S)
Invested capital as reported in the combined balance
sheet in accordance with UK GAAP 24,580 20,925
Adjustments:
Goodwill:
Cost 21,575 21,445
Accumulated amortization (12,023) (10,918)
------ ------
Net book value 9,552 10,527
------ ------
Invested capital as adjusted to accord
with US GAAP 34,132 31,452
====== ======
28
29
THERMALLOY GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (continued)
21. DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (continued)
CONSOLIDATED STATEMENT OF CASH FLOWS
The consolidated statements of cash flows prepared under UK GAAP present
substantially the same information as those required under US GAAP but they
differ, however, with regard to classification of items within them and as
regards the definition of cash and cash equivalents.
Under UK GAAP, cash is defined as cash in hand and deposits repayable on demand
less overdrafts repayable on demand. Under US GAAP, cash and cash equivalents
would not include bank overdrafts but would include cash deposits repayable
within three months. Under UK GAAP, cash flows are presented separately for
operating activities, returns on investments and servicing of finance, taxation,
capital expenditure and financial investment, acquisitions, equity dividends,
management of liquid resources and financing. US GAAP, however, requires only
three categories of cash flow activity to be reported: operating, investing and
financing. Cash flows from taxation and returns on investments and servicing of
finance shown under UK GAAP would be included as operating activities under US
GAAP. The payment of dividends would be included as a financing activity under
US GAAP. Under US GAAP, capital expenditure and financial investment and
acquisitions would be reported within investing activities.
The categories of cash flow activity under US GAAP can be summarized as follows:
YEAR ENDED DECEMBER 31
--------------------------
1998 1997 1996
---- ---- ----
(US $ 000'S)
Cash inflow from operating activities 8,799 7,523 6,621
Cash outflow on investing activities (15,652) (6,383) (4,680)
Cash inflow/(outflow) from financing activities 6,809 (462) (2,553)
------ ----- -----
(Decrease)/increase in cash and cash equivalents (44) 678 (612)
Effect of foreign exchange rates changes 31 (47) (138)
Cash and cash equivalents at January 1 2,335 1,704 2,454
------ ----- -----
Cash and cash equivalents at December 31 2,322 2,335 1,704
====== ===== =====
29
30
CONDENSED COMBINED
UNAUDITED FINANCIAL
STATEMENTS
THERMALLOY GROUP
June 30, 1999
30
31
THERMALLOY GROUP
Condensed Combined Unaudited Financial Statements
June 30, 1999
CONTENTS
Condensed Combined Unaudited Profit and Loss Accounts for the six months
ended June 30, 1999 and 1998............................................ 32
Condensed Combined Unaudited Statements of Total Recognized Gains and
Losses for the six months ended June 30, 1999 and 1998.................. 33
Condensed Combined Unaudited Balance Sheets at June 30, 1999 and 1998....... 34
Condensed Combined Unaudited Statements of Movements in Invested
Capital for the six months ended June 30, 1999 and 1998................. 35
Condensed Combined Unaudited Cash Flow Statements for the six months
ended June 30, 1999 and 1998............................................ 36
Notes to Condensed Combined Unaudited Financial Statements ................. 37
31
32
THERMALLOY GROUP
CONDENSED COMBINED UNAUDITED PROFIT AND LOSS ACCOUNTS
SIX MONTHS
ENDED JUNE 30
------------------
NOTES 1999 1998
---- ----
(US $000'S)
SALES 2 50,298 52,372
Operating costs less other income 3 47,613 46,403
------ ------
OPERATING PROFIT 2 2,685 5,969
Finance costs (1) 651 517
------ ------
Profit before taxation 2,034 5,452
Taxation 1,052 2,078
------ ------
Profit for the period (2) 982 3,374
====== ======
- ----------------------
(1) The finance costs are not necessarily representative of the charges that
would have been incurred by Thermalloy Group on a stand-alone basis.
(2) A summary of the significant adjustments to profit for the year that would
be required is United States generally accepted accounting principles were
applied, instead of those generally accepted in the United Kingdom, is set
forth in Note 8 of Notes to Condensed Combined Unaudited Financial
Statements.
The Notes to Condensed Combined Unaudited Financial Statements form part of
these Condensed Combined Unaudited Financial Statements
32
33
THERMALLOY GROUP
CONDENSED COMBINED UNAUDITED STATEMENTS OF TOTAL
RECOGNIZED GAINS AND LOSSES
SIX MONTHS
ENDED JUNE 30
------------------
1999 1998
---- ----
(US $000'S)
PROFIT FOR THE YEAR 982 3,374
Currency translation (324) 157
--- -----
Total recognized gains and losses
relating to the period (1) 658 3,531
=== =====
- ----------------
(1) The combined statement of comprehensive income required under United States
generally accepted accounting principles is set forth in Note 8 of Notes to
Condensed Combined Unaudited Financial Statements.
The Notes to Condensed Combined Unaudited Financial Statements form part of
these Condensed Combined Unaudited Financial Statements
33
34
THERMALLOY GROUP
CONDENSED COMBINED UNAUDITED BALANCE SHEETS
JUNE 30
-----------------
NOTES 1999 1998
---- ----
(US $000'S)
FIXED ASSETS
Intangible assets 397 55
Tangible assets 27,986 25,029
------ -----
28,383 25,084
------ -----
CURRENT ASSETS
Inventories 4 13,695 12,566
Debtors: amounts falling due within one year 5 19,035 18,560
Debtors: amounts falling due after one year 5 433 1,045
Cash at bank and in hand 1,468 2,958
------ -----
34,631 35,129
CREDITORS: AMOUNTS FALLING DUE WITHIN
ONE YEAR 6 20,091 19,199
------ -----
NET CURRENT ASSETS 14,540 15,930
------ -----
TOTAL ASSETS LESS CURRENT LIABILITIES 42,923 41,014
CREDITORS: AMOUNTS FALLING DUE AFTER MORE
THAN ONE YEAR 7 18,669 17,522
PROVISIONS FOR LIABILITIES AND CHARGES 338 611
MINORITY INTERESTS (416) (111)
------ -----
NET ASSETS 24,332 22,992
====== ======
INVESTED CAPITAL (1) 24,332 22,992
====== ======
- ---------------------
(1) A summary of the significant adjustments to invested capital that would be
required if the United States generally accepted accounting principles were
applied, instead of those generally accepted in the United Kingdom, is set
forth in Note 8 of Notes to Condensed Combined Unaudited Financial
Statements.
The Notes to Condensed Combined Unaudited Financial Statements form part of
these Condensed Combined Unaudited Financial Statements
34
35
THERMALLOY GROUP
CONDENSED COMBINED UNAUDITED STATEMENTS OF MOVEMENTS
IN INVESTED CAPITAL
SIX MONTHS
ENDED JUNE 30
------------------------
1999 1998
---- ----
(US $000'S)
At January 1 24,580 20,925
Profit for the period 982 3,374
Net distributions (906) (1,464)
Currency translation (324) 157
------ ------
At June 30 (1) 24,332 22,992
====== ======
(1) At June 30, 1999 the cumulative amount of goodwill charged to reserves is
$20,535,000 (1998 $21,575,000).
The Notes to Condensed Combined Unaudited Financial Statements form part of
these Condensed Combined Unaudited Financial Statements
35
36
THERMALLOY GROUP
CONDENSED COMBINED UNAUDITED CASH FLOW STATEMENTS
SIX MONTHS
ENDED JUNE 30
-----------------
1999 1998
---- ----
(US $000'S)
NET CASH INFLOW FROM OPERATING ACTIVITIES 2,160 6,533
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest paid (1) (686) (567)
Interest received (1) 36 50
----- -----
(650) (517)
TAX PAID (475) (1,617)
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT
Purchase of tangible fixed assets (3,770) (9,563)
Sale of tangible fixed assets 7 23
Purchase of intangible fixed assets (84) (108)
----- -----
3,847) (9,648)
FINANCING (1)
Net Distributions (728) (2,164)
Movement on external loans and finance lease obligations (1,089) 3,551
Movement in amounts due to and from Bowthorpe Group 1,842 4,939
----- -----
25 6,326
----- -----
(DECREASE) INCREASE IN CASH (2,787) 1,077
===== =====
The reconciliation of operating profit to net cash flow
from operating activities is as follows:
OPERATING PROFIT 2,685 5,969
Depreciation charge 2,913 2,181
Amortization of other intangibles 63 53
Increase in inventories (1,767) (322)
Increase in debtors (809) (928)
Decrease in creditors and provisions (925) (420)
----- -----
NET CASH INFLOW FROM OPERATING ACTIVITIES 2,160 6,533
===== =====
- --------------------------
(1) Transactions with Bowthorpe Group, interest received (paid) and financing
cash flows are not necessarily representative of the amounts that would
have been borne by Thermalloy Group on a stand-alone basis.
(2) The significant differences between the cash flow statements presented
above and those required under United States generally accepted accounting
principles are set forth in Note 8 of Notes to Condensed Combined Unaudited
Financial Statements.
The Notes to Condensed Combined Unaudited Financial Statements form part of
these Condensed Combined Unaudited Financial Statements
36
37
THERMALLOY GROUP
NOTES TO CONDENSED COMBINED UNAUDITED FINANCIAL
STATEMENTS
1. BASIS OF PREPARATION
These condensed combined financial statements are unaudited; however, in the
opinion of the management of Thermalloy Group, all adjustments (consisting of
normal recurring adjustments) necessary for a fair presentation have been made.
Operating results for the six-month period ended June 30 are not necessarily
indicative of the results that may be expected for the full year.
The condensed combined unaudited financial statements have been prepared in
accordance with the basis of preparation of the Group's Combined Financial
Statements for the year ended December 31, 1998.
The condensed combined unaudited financial statements are presented in US
dollars, although Bowthorpe Group's functional currency is British pounds. The
following exchange rates have been used to translate to US dollars:
1999 1998
Profit and loss account and cash flow - average rate for the period $1.62:(pound)1 $1.65:(pound)1
Balance sheet - period end rate $1.58:(pound)1 $1.66:(pound)1
37
38
THERMALLOY GROUP
NOTES TO UNAUDITED COMBINED FINANCIAL
STATEMENTS (continued)
2. SEGMENT ANALYSIS
SALES
SIX MONTHS
ENDED JUNE 30
---------------------
1999 1998
---- ----
(US $000'S)
BY GEOGRAPHICAL AREA OF MARKET:
Europe 20,053 20,761
United States 25,750 27,297
Rest of World 4,495 4,314
------ ------
50,298 52,372
====== ======
BY GEOGRAPHICAL AREA OF ORIGIN:
Europe 20,288 20,898
United States 27,079 27,851
Rest of World 2,931 3,623
------ ------
50,298 52,372
====== ======
OPERATING PROFIT
BY GEOGRAPHICAL AREA OF ORIGIN:
Europe 1,581 3,008
United States 1,028 2,763
Rest of World 76 198
------ ------
2,685 5,969
====== ======
JUNE 30
---------------------
1999 1998
---- ----
(US $000'S)
NET OPERATING ASSETS
Europe 17,690 17,821
United States 27,111 21,764
Rest of World 3,567 4,228
------ ------
48,368 43,813
====== ======
38
39
THERMALLOY GROUP
NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS
(continued)
3. OPERATING PROFIT
SIX MONTHS
ENDED JUNE 30
------------------------
1999 1998
---- ----
(US $000'S)
ANALYSIS OF OPERATING COSTS LESS OTHER INCOME:
Cost of sales 35,280 34,953
Selling and distribution 6,991 7,182
Administration 5,712 4,296
Other income (370) (28)
------ ------
47,613 46,403
====== ======
4. INVENTORIES
JUNE 30
------------------------
1999 1998
---- ----
(US $000'S)
Raw materials 3,654 3,055
Finished goods 2,092 2,973
Work in progress 7,949 6,538
------ ------
13,695 12,566
====== ======
5. DEBTORS
JUNE 30
------------------------
1999 1998
---- ----
(US $000'S)
Due within one year:
Trade debtors 17,450 16,702
Other debtors 559 819
Amounts due from Bowthorpe Group 29 189
Tax recoverable 550 323
Prepayments and accrued income 447 527
------ ------
19,035 18,560
====== ======
Due after more than one year:
Other debtors 433 1,045
------ ------
The balances due from Bowthorpe Group are not necessarily representative of the
amounts that would be due to Thermalloy Group on a stand-alone basis.
39
40
THERMALLOY GROUP
NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS
(continued)
6. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
JUNE 30
-------------------
1999 1998
---- ----
(US $000'S)
Bank overdrafts 2,074 629
Trade creditors 6,819 7,090
Amounts due to Bowthorpe Group 2,490 1,321
Dividends payable-minority interest 310 308
Distributions payable to Bowthorpe Group 1,012 2,065
Bank loans 333 279
Other loans and finance leases 692 435
Other creditors 1,362 1,307
Accruals and deferred income 2,640 3,088
Corporate taxation 1,747 2,200
Other taxes including VAT and social
security 612 477
------ ------
20,091 19,199
====== ======
The balances due to Bowthorpe Group are not necessarily representative of the
amounts that would be due by Thermalloy Group on a stand-alone basis. Loans are
secured by floating charges on the assets of the borrowing business.
7. CREDITORS: AMOUNTS FALLING DUE AFTER ONE YEAR
JUNE 30
-------------------
1999 1998
---- ----
(US $000'S)
Bank loans 5,382 4,242
Other loans and finance leases 4,856 6,903
Amounts due to Bowthorpe Group 7,266 5,408
Other creditors 1,165 969
------ ------
18,669 17,522
====== ======
The balances due to Bowthorpe Group are not necessarily representative of the
amounts that would be due by Thermalloy Group on a stand-alone basis. Loans are
secured by floating charges on the assets of the borrowing business.
40
41
THERMALLOY GROUP
NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS
(continued)
8. DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
The combined financial statements are prepared in accordance with accounting
principles generally accepted in the United Kingdom ("UK GAAP"), which differ in
certain respects from those generally accepted in the United States ("US GAAP").
The significant differences applicable to Thermalloy Group are described in Note
21 of Notes to Combined Financial Statements for the year ended December 31,
1998.
PROFIT FOR THE YEAR AND COMPREHENSIVE INCOME
SIX MONTHS
ENDED JUNE 30
-----------------
1999 1998
---- ----
(US $ 000'S)
Profit for the year as reported in the combined
profit and loss account in accordance with UK GAAP 982 3,374
Adjustments:
Goodwill amortization (507) (516)
--- -----
Net income as adjusted to accord with
US GAAP 475 2,858
Items of comprehensive income:
Currency translation (324) 157
--- -----
US GAAP comprehensive income 151 3,015
=== =====
INVESTED CAPITAL
AT JUNE 30
-----------------
1999 1998
---- ----
(US $ 000'S)
Invested capital as reported in the combined balance
sheet in accordance with UK GAAP 24,332 22,992
Adjustments:
Goodwill:
Cost 20,535 21,575
Accumulated amortization (11,938) (11,504)
------ ------
Net book value 8,597 10,071
------ ------
Invested capital as adjusted to accord with US GAAP 32,929 33,063
====== ======
41
42
THERMALLOY GROUP
NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS
(continued)
8. DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (continued)
CASH FLOWS
The categories of cash flow activity under US GAAP can be summarized as follows:
SIX MONTHS
ENDED JUNE 30
------------------
1999 1998
---- ----
(US $000'S)
Cash inflow from operating activities 2,962 3,934
Cash outflow on investing activities (3,847) (10,293)
Cash inflow from financing activities 43 6,983
----- ------
(Decrease)/increase in cash and cash equivalents (842) 624
Effect of foreign exchange rates changes (12) (1)
Cash and cash equivalents at January 1 2,322 2,335
----- ------
Cash and cash equivalents at June 30 1,468 2,958
===== ======
42
43
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
AAVID THERMAL TECHNOLOGIES, INC.
By: /s/ John W. Mitchell
------------------------------------
Name: John W. Mitchell
Title: General Counsel
Date: November 5, 1999
43
44
Exhibit Index
2.1 Stock Purchase Agreement by and among Bowthorpe plc, Bowthorpe
B.V., Bowthorpe International Inc., Bowthorpe GmbH
(collectively, "Bowthorpe") and Aavid Thermal Technologies,
Inc., dated as of August 23, 1999 (incorporated herein by
reference to Exhibit 2.1 to the Company's Current Report on
Form 8-k dated August 23, 1999).
10.1 Credit Agreement, dated as of October 21, 1999, among Aavid
Thermal Technologies, Inc., as Borrower, the several lenders
from time to time party hereto, CIBC World Markets Corp., as
Lead Arranger and Bookrunner, and Canadian Imperial Bank of
Commerce, as Issuer and Administrative Agent.
23. Consent of Ernst & Young.
44