SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
-------------------------------------------
FORM 10-Q
(mark one)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarter Ended September 27, 1997.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
Commission File Number 1-12137
THERMO FIBERGEN INC.
(Exact name of Registrant as specified in its charter)
Delaware 04-3311544
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8 Alfred Circle
Bedford, Massachusetts 01730
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 622-1000
Indicate by check mark whether the Registrant (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90
days. Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the
issuer's classes of Common Stock, as of the latest
practicable date.
Class Outstanding at September 27, 1997
---------------------------- ---------------------------------
Common Stock, $.01 par value 14,715,000
PAGE
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
THERMO FIBERGEN INC.
Consolidated Balance Sheet
(Unaudited)
Assets
September 27, December 28,
(In thousands) 1997 1996
------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $28,595 $58,388
Available-for-sale investments, at quoted
market value (amortized cost of $29,433) 29,492 -
Accounts receivable, less allowance of
$30 in 1997 and 1996 604 738
Inventories 413 312
Other current assets 24 64
Due from parent company and affiliated
companies 396 -
------- -------
59,524 59,502
------- -------
Property, Plant, and Equipment, at Cost 6,581 6,359
Less: Accumulated depreciation and
amortization 1,178 538
------- -------
5,403 5,821
------- -------
Other Assets 907 969
------- -------
Cost in Excess of Net Assets of Acquired
Company 4,388 4,741
------- -------
$70,222 $71,033
======= =======
2PAGE
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THERMO FIBERGEN INC.
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
September 27, December 28,
(In thousands except share amounts) 1997 1996
-----------------------------------------------------------------------
Current Liabilities:
Accounts payable $ 95 $ 429
Accrued payroll and employee benefits 314 181
Other accrued liabilities 674 649
Due to parent company and affiliated
companies - 1,766
------- -------
1,083 3,025
------- -------
Common Stock Subject to Redemption ($60,116
redemption value), 4,715,000 shares issued
and outstanding 56,905 56,087
------- -------
Shareholders' Investment:
Common stock, $.01 par value, 25,000,000
shares authorized; 10,000,000 shares
issued and outstanding 100 100
Capital in excess of par value 11,276 12,094
Retained earnings (accumulated deficit) 820 (273)
Net unrealized gain on available-for-sale
investments 38 -
------- -------
12,234 11,921
------- -------
$70,222 $71,033
======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
3PAGE
<PAGE>
THERMO FIBERGEN INC.
Consolidated Statement of Operations
(Unaudited)
Three Months Ended
----------------------------
September 27, September 28,
(In thousands except per share amounts) 1997 1996
------------------------------------------------------------------------
Revenues $ 906 $ 984
------- -------
Costs and Operating Expenses:
Cost of revenues 534 686
Selling, general, and administrative
expenses 666 365
Research and development expenses 413 427
------- -------
1,613 1,478
------- -------
Operating Loss (707) (494)
Interest Income 865 114
------- -------
Income (Loss) Before Income Taxes 158 (380)
Income Taxes - -
------- -------
Net Income (Loss) $ 158 $ (380)
======= =======
Earnings (Loss) per Share $ .01 $ (.04)
======= =======
Weighted Average Shares 16,167 10,570
======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
4PAGE
<PAGE>
THERMO FIBERGEN INC.
Consolidated Statement of Operations
(Unaudited)
Nine Months Ended
----------------------------
September 27, September 28,
(In thousands except per share amounts) 1997 1996
-----------------------------------------------------------------------
Revenues $ 4,030 $ 984
------- -------
Costs and Operating Expenses:
Cost of revenues 2,080 686
Selling, general, and administrative
expenses 2,124 365
Research and development expenses 1,336 975
------- -------
5,540 2,026
------- -------
Operating Loss (1,510) (1,042)
Interest Income 2,603 381
------- -------
Income (Loss) Before Income Taxes 1,093 (661)
Income Taxes - -
------- -------
Net Income (Loss) $ 1,093 $ (661)
======= =======
Earnings (Loss) per Share $ .07 $ (.06)
======= =======
Weighted Average Shares 16,551 10,239
======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
5PAGE
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THERMO FIBERGEN INC.
Consolidated Statement of Cash Flows
(Unaudited)
Nine Months Ended
----------------------------
September 27, September 28,
(In thousands) 1997 1996
----------------------------------------------------------------------------
Operating Activities:
Net income (loss) $ 1,093 $ (661)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 887 390
Changes in current accounts, excluding the
effects of acquisition:
Accounts receivable 134 269
Inventories (101) (77)
Other current assets 40 (13)
Accounts payable (334) 143
Other current liabilities 307 387
Other (383) -
-------- --------
Net cash provided by operating activities 1,643 438
-------- --------
Investing Activities:
Acquisition, net of cash acquired - (12,028)
Purchases of available-for-sale investments (29,050) -
Purchases of property, plant, and equipment (224) (408)
Other - (11)
-------- --------
Net cash used in investing activities (29,274) (12,447)
-------- --------
Financing Activities:
Net proceeds from issuance of Company common
stock - 55,753
Cash transfer from parent company in
connection with capitalization of the
Company - 12,500
Transfer from parent company prior to
capitalization of the Company - 94
Increase (decrease) in due from parent company
and affiliated companies (2,162) 1,260
-------- --------
Net cash provided by (used in) financing
activities (2,162) 69,607
-------- --------
Increase (Decrease) in Cash and Cash Equivalents (29,793) 57,598
Cash and Cash Equivalents at Beginning of
Period 58,388 -
-------- --------
Cash and Cash Equivalents at End of Period $ 28,595 $ 57,598
======== ========
Noncash Activities:
Fair value of assets of acquired company $ - $ 12,606
Cash paid for acquired company - (12,099)
-------- --------
Liabilities assumed of acquired company $ - $ 507
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
6PAGE
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THERMO FIBERGEN INC.
Notes to Consolidated Financial Statements
1. General
The interim consolidated financial statements presented have been
prepared by Thermo Fibergen Inc. (the Company) without audit and, in the
opinion of management, reflect all adjustments of a normal recurring
nature necessary for a fair statement of the financial position at
September 27, 1997, the results of operations for the three- and
nine-month periods ended September 27, 1997, and September 28, 1996, and
the cash flows for the nine-month periods ended September 27, 1997, and
September 28, 1996. Interim results are not necessarily indicative of
results for a full year.
The consolidated balance sheet presented as of December 28, 1996, has
been derived from the consolidated financial statements that have been
audited by the Company's independent public accountants. The consolidated
financial statements and notes are presented as permitted by Form 10-Q,
and do not contain certain information included in the annual financial
statements and notes of the Company. The consolidated financial
statements and notes included herein should be read in conjunction with
the financial statements and notes included in the Company's Annual
Report on Form 10-K for the fiscal year ended December 28, 1996, filed
with the Securities and Exchange Commission.
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward-looking statements, within the meaning of Section 21E of the
Securities Exchange Act of 1934, are made throughout this Management's
Discussion and Analysis of Financial Condition and Results of Operations.
For this purpose, any statements contained herein that are not statements
of historical fact may be deemed to be forward-looking statements.
Without limiting the foregoing, the words "believes," "anticipates,"
"plans," "expects," "seeks," "estimates," and similar expressions are
intended to identify forward-looking statements. There are a number of
important factors that could cause the results of the Company to differ
materially from those indicated by such forward-looking statements,
including those detailed under the caption "Forward-looking Statements"
in Exhibit 13 to the Company's Annual Report on Form 10-K for the fiscal
year ended December 28, 1996, filed with the Securities and Exchange
Commission.
Overview
The Company is developing and commercializing equipment and systems
to recover materials from papermaking sludge generated by plants that
produce virgin and recycled pulp and paper. Through its GranTek Inc.
(GranTek) subsidiary, acquired in July 1996, the Company employs patented
technology to produce absorbing granules from papermaking sludge. These
granules, marketed under the trade name Biodac(R), are currently used as
a carrier to deliver agricultural chemicals for professional turf, home
lawn and garden, agricultural row crop, and mosquito-control
applications.
7PAGE
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THERMO FIBERGEN INC.
Overview (continued)
The Company currently intends to limit the pace and amount of its
research and development on both its fiber-recovery system and on new
products, if any, that may be developed from recovered fibers and other
components of papermaking sludge, so that its internally funded research
and development expenditures will be approximately equivalent to the
interest or dividend income earned on its cash balances, plus the
Company's operating earnings before research and development expenses, if
any.
Results of Operations
Third Quarter 1997 Compared With Third Quarter 1996
Revenues were $906,000 in the third quarter of 1997, compared with
$984,000 in the third quarter of 1996. Revenues decreased primarily due
to a decrease in demand.
The gross profit margin increased to 41% in the third quarter of 1997
from 30% in the third quarter of 1996, primarily due to lower-margin
revenues in 1996 resulting from an adjustment to expense relating to the
revaluation of finished goods inventory acquired from GranTek in July
1996. Additionally, the gross profit margin improved due to a change in
product mix and a decrease in manufacturing costs.
Selling, general, and administrative expenses as a percentage of
revenues increased to 74% in the third quarter of 1997 from 37% in the
third quarter of 1996, principally due to the hiring of additional sales,
marketing, and administrative staff.
Research and development expenses were relatively unchanged at
$413,000 in the third quarter of 1997 and $427,000 in the third quarter
of 1996.
Interest income increased to $865,000 in the third quarter of 1997
from $114,000 in the third quarter of 1996, primarily due to an increase
in average invested balances resulting from the proceeds from the
Company's September 1996 initial public offering.
The Company has not recorded a provision for income taxes in the
third quarter of 1997 due to the expected benefit of net operating loss
carryforwards. Based upon the Company's current level of profitability,
the Company expects to begin providing for income taxes in the first
quarter of 1998.
8PAGE
<PAGE>
THERMO FIBERGEN INC.
First Nine Months 1997 Compared With First Nine Months 1996
Revenues increased to $4,030,000 in the first nine months of 1997
from $984,000 in the first nine months of 1996, primarily due to the
inclusion of revenues for the full nine-month period from GranTek,
acquired July 1996, offset in part by a decrease in revenues in the third
quarter of 1997 primarily due to a decrease in demand.
The gross profit margin increased to 48% in the first nine months of
1997 from 30% in the first nine months of 1996, primarily due to a change
in product mix and a decrease in manufacturing costs, as well as
lower-margin revenues in 1996 resulting from an adjustment to expense
relating to the revaluation of finished goods inventory acquired from
GranTek in 1996.
Selling, general, and administrative expenses as a percentage of
revenues increased to 53% in the first nine months of 1997 from 37% in
the first nine months of 1996, primarily for the reasons discussed in the
results of operations for the third quarter.
Research and development expenses increased to $1,336,000 in the
first nine months of 1997 from $975,000 in the first nine months of 1996.
This increase was primarily due to the inclusion of expenses from GranTek
for the full nine-month period, as well as the acceleration of the
Company's research and development efforts associated with the Company's
fiber-recovery system, and expenditures on research and development
relating to the extraction and purification of minerals.
Interest income increased to $2,603,000 in the first nine months of
1997 from $381,000 in the first nine months of 1996, primarily due to an
increase in average invested balances resulting from the proceeds from
the Company's September 1996 initial public offering, as well as cash
received in connection with the initial capitalization of the Company in
February 1996.
The Company has not recorded a provision for income taxes in the
first nine months of 1997 due to the expected benefit of net operating
loss carryforwards.
Liquidity and Capital Resources
Consolidated working capital was $58,441,000 at September 27, 1997,
compared with $56,477,000 at December 28, 1996. Included in working
capital at September 27, 1997, are cash, cash equivalents, and
available-for-sale investments of $58,087,000, compared with $58,388,000
at December 28, 1996.
During the first nine months of 1997, $1,643,000 of cash was provided
by operating activities. Cash provided by the Company's operating results
was reduced primarily by a decrease in accounts payable of $334,000,
which was largely offset by an increase in other current liabilities of
$307,000.
9PAGE
<PAGE>
THERMO FIBERGEN INC.
Liquidity and Capital Resources (continued)
During the first nine months of 1997, the Company invested
$29,050,000 in available-for-sale investments and expended $224,000 for
purchases of property, plant, and equipment. Cash used in financing
activities during the first nine months of 1997 represented cash used to
reduce "Due from parent company and affiliated companies."
The Company's common stock subject to redemption is redeemable by
holders of redemption rights in September 2000 and 2001 for a total
redemption value of $60,116,000. The redemption rights are guaranteed, on
a subordinated basis, by Thermo Electron Corporation.
In the remainder of 1997, the Company plans to make expenditures for
property, plant, and equipment of approximately $150,000. In addition,
the Company may make additional capital expenditures for the construction
of one or more fiber-recovery plants. Construction of fiber-recovery
plants is dependent upon the Company entering into long-term contracts
with paper mills, under which the Company will charge fees to accept the
mills' papermaking sludge. The Company does not currently have such
agreements in place nor is there any assurance that the Company will be
able to obtain such contracts. The Company anticipates it will require
significant amounts of cash to complete the commercialization of its
fiber-recovery system. The Company expects to finance commercialization
of its fiber-recovery system through a combination of internal funds,
additional debt or equity financing, and/or short-term borrowings from
Thermo Fibertek and Thermo Electron, although there is no agreement with
Thermo Fibertek or Thermo Electron under which such parties would be
obligated to lend funds to the Company. The Company believes that its
existing resources will be sufficient to meet the Company's capital
requirements for the foreseeable future.
PART II - OTHER INFORMATION
Item 2 - Changes in Securities and Use of Proceeds
(d) Use of Proceeds
The Company sold 4,715,000 Units (each Unit consisting of one share
of the Company's common stock and one redemption right which enables the
holder to sell one share of the Company's common stock to the Company
during the month of September 2000 and the month of September 2001 for
$12.75 in cash), pursuant to a Registration Statement on Form S-1 (File
No. 333-07585), which was declared effective by the Securities and
Exchange Commission on September 13, 1996. The managing underwriters of
the offering were NatWest Securities Limited, Lehman Brothers, and
Oppenheimer & Co., Inc. The aggregate gross proceeds of the offering were
$60,116,250. The Company's total expenses in connection with the offering
were $4,335,250, of which $3,913,450 was for underwriting discounts and
commissions and $421,800 was for other expenses paid to persons other
than directors or officers of the Company, persons owning more than 10
percent of any class of equity securities of the Company, or affiliates
10PAGE
<PAGE>
THERMO FIBERGEN INC.
PART II - OTHER INFORMATION (continued)
of the Company (collectively, Affiliates). The Company's net proceeds
from the offering were $55,781,000. The Company invested such net
proceeds primarily in investment grade interest or dividend bearing
instruments. As of September 27, 1997, $50,330,000 had been invested
directly with persons other than Affiliates and $5,451,000 had been
invested pursuant to a repurchase agreement with Thermo Electron
Corporation.
Item 6 - Exhibits
See Exhibit Index on the page immediately preceding exhibits.
11PAGE
<PAGE>
THERMO FIBERGEN INC.
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 thereunto duly authorized as of the 30th day of October
1997.
THERMO FIBERGEN INC.
Paul F. Kelleher
--------------------
Paul F. Kelleher
Chief Accounting Officer
John N. Hatsopoulos
--------------------
John N. Hatsopoulos
Vice President and Chief
Financial Officer
12PAGE
<PAGE>
THERMO FIBERGEN INC.
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
-----------------------------------------------------------------------
11 Statement re: Computation of Earnings (Loss) per Share.
27 Financial Data Schedule.
Exhibit 11
THERMO FIBERGEN INC.
Computation of Earnings (Loss) per Share
Three Months Ended Nine Months Ended
------------------------ ------------------------
Sept. 27, Sept. 28, Sept. 27, Sept. 28,
1997 1996 1997 1996
--------------------------------------------------------------------------
Computation of Primary
Earnings (Loss) per Share:
Net Income (Loss) (a) $ 158,000 $ (380,000) $ 1,093,000 $ (661,000)
----------- ----------- ----------- ----------
Shares:
Weighted average
shares outstanding 14,715,000 10,569,945 14,715,000 10,189,982
Add: Shares issuable
from assumed
exercise of
redemption
rights (as
determined by
the application
of the reverse
treasury stock
method) 1,450,769 - 1,835,805 -
Shares issuable
from assumed
exercise of
options (as
determined by
the application
of the treasury
stock method) 1,483 - 494 48,601
----------- ----------- ----------- -----------
Weighted average
shares outstanding,
as adjusted (b) 16,167,252 10,569,945 16,551,299 10,238,583
----------- ----------- ----------- -----------
Primary Earnings (Loss)
per Share (a) / (b) $ .01 $ (.04) $ .07 $ (.06)
=========== =========== =========== ===========
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO
FIBERGEN INC.'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER
27, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-END> SEP-27-1997
<CASH> 28,595
<SECURITIES> 29,492
<RECEIVABLES> 634
<ALLOWANCES> 30
<INVENTORY> 413
<CURRENT-ASSETS> 59,524
<PP&E> 6,581
<DEPRECIATION> 1,178
<TOTAL-ASSETS> 70,222
<CURRENT-LIABILITIES> 1,083
<BONDS> 0
0
0
<COMMON> 100
<OTHER-SE> 12,134
<TOTAL-LIABILITY-AND-EQUITY> 70,222
<SALES> 4,030
<TOTAL-REVENUES> 4,030
<CGS> 2,080
<TOTAL-COSTS> 2,080
<OTHER-EXPENSES> 1,336
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
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<NET-INCOME> 1,093
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</TABLE>
