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 April 4, 1998.
[ ] 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: (781) 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 May 1, 1998
---------------------------- --------------------------
Common Stock, $.01 par value 14,715,000
PAGE
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
-----------------------------
THERMO FIBERGEN INC.
Consolidated Balance Sheet
(Unaudited)
Assets
April 4, January 3,
(In thousands) 1998 1998
------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $28,157 $21,752
Available-for-sale investments, at quoted
market value (amortized cost of $29,454
and $36,273) 29,478 36,319
Accounts receivable, less allowance of $30 in
1998 and 1997 672 645
Inventories 446 507
Prepaid income taxes and other current assets 317 300
Due from parent company and affiliated
companies 114 115
------- -------
59,184 59,638
------- -------
Property, Plant, and Equipment, at Cost 7,852 6,727
Less: Accumulated depreciation and amortization 1,582 1,416
------- -------
6,270 5,311
------- -------
Other Assets 865 885
------- -------
Cost in Excess of Net Assets of Acquired Company 4,271 4,330
------- -------
$70,590 $70,164
======= =======
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THERMO FIBERGEN INC.
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
April 4, January 3,
(In thousands except share amounts) 1998 1998
------------------------------------------------------------------------
Current Liabilities:
Accounts payable $ 631 $ 338
Accrued payroll and employee benefits 302 344
Other accrued liabilities 418 347
------- -------
1,351 1,029
------- -------
Common Stock Subject to Redemption ($60,116
redemption value), 4,715,000 shares issued
and outstanding 57,447 57,176
------- -------
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 11,676 11,830
Accumulated other comprehensive income (Note 3) 16 29
------- --------
11,792 11,959
------- -------
$70,590 $70,164
======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
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THERMO FIBERGEN INC.
Consolidated Statement of Income
(Unaudited)
Three Months Ended
----------------------
April 4, March 29,
(In thousands except per share amounts) 1998 1997
------------------------------------------------------------------------
Revenues $ 1,343 $ 1,526
------- -------
Costs and Operating Expenses:
Cost of revenues 791 802
Selling, general, and administrative expenses 797 759
Research and development expenses 412 453
------- -------
2,000 2,014
------- -------
Operating Loss (657) (488)
Interest Income 852 855
------- -------
Income Before Provision for Income Taxes 195 367
Provision for Income Taxes 78 -
------- -------
Net Income $ 117 $ 367
======= =======
Basic and Diluted Earnings per Share (Note 2) $ .01 $ .02
======= =======
Weighted Average Shares (Note 2):
Basic 14,715 14,715
======= =======
Diluted 16,549 16,549
======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
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THERMO FIBERGEN INC.
Consolidated Statement of Cash Flows
(Unaudited)
Three Months Ended
----------------------
April 4, March 29,
(In thousands) 1998 1997
-----------------------------------------------------------------------
Operating Activities:
Net income $ 117 $ 367
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 245 293
Changes in current accounts:
Accounts receivable (27) (195)
Inventories 61 4
Other current assets (9) (5)
Accounts payable 293 (136)
Other current liabilities 29 62
Other 9 -
------- -------
Net cash provided by operating activities 718 390
------- -------
Investing Activities:
Purchases of available-for-sale investments (2,500) -
Proceeds from sale and maturities of
available-for-sale investments 9,311 -
Purchases of property, plant, and equipment (1,125) (131)
------- -------
Net cash provided by (used in) investing
activities 5,686 (131)
------- -------
Financing Activities:
Decrease in due from parent company and
affiliated companies 1 145
------- -------
Net cash provided by financing activities 1 145
------- -------
Increase in Cash and Cash Equivalents 6,405 404
Cash and Cash Equivalents at Beginning of Period 21,752 58,388
------- -------
Cash and Cash Equivalents at End of Period $28,157 $58,792
======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
5PAGE
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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
April 4, 1998, and the results of operations and cash flows for the
three-month periods ended April 4, 1998, and March 29, 1997. Interim
results are not necessarily indicative of results for a full year.
The consolidated balance sheet presented as of January 3, 1998, 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 January 3, 1998, filed with
the Securities and Exchange Commission.
2. Earnings per Share
Basic and diluted earnings per share were calculated as follows:
Three Months Ended
--------------------
April 4, March 29,
(In thousands except per share amounts) 1998 1997
-----------------------------------------------------------------------
Basic
Net income $ 117 $ 367
------- -------
Weighted average shares 14,715 14,715
------- -------
Basic earnings per share $ .01 $ .02
======= =======
Diluted
Net income $ 117 $ 367
------- -------
Weighted average shares 14,715 14,715
Effect of:
Redemption rights 1,833 1,834
Stock options 1 -
------- -------
Weighted average shares, as adjusted 16,549 16,549
------- -------
Diluted earnings per share $ .01 $ .02
======= =======
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THERMO FIBERGEN INC.
2. Earnings per Share (continued)
The computation of diluted earnings per share excludes the effect of
assuming the exercise of certain outstanding stock options because the
effect would be antidilutive. As of April 4, 1998, there were 390,000 of
such options outstanding, with exercise prices ranging from $9.18 to
$13.65 per share.
3. Comprehensive Income
During the first quarter of 1998, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive
Income." This pronouncement sets forth requirements for disclosure of the
Company's comprehensive income and accumulated other comprehensive
income. In general, comprehensive income combines net income and "other
comprehensive income" which represents unrealized net of tax gains and
losses on available-for-sale investments, reported as a component of
shareholders' investment in the accompanying balance sheet. During the
first quarter of 1998 and 1997, the Company's comprehensive income
totaled $104,000 and $367,000, respectively.
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 heading "Forward-looking Statements"
in Exhibit 13 to the Company's Annual Report on Form 10-K for the fiscal
year ended January 3, 1998, filed with the Securities and Exchange
Commission.
Overview
The Company is developing and commercializing technology to recover
materials from papermaking sludge generated by plants that produce virgin
and recycled pulp and paper. In December 1997, the Company entered into a
ten-year contract with a paper mill to provide fiber- recovery and
water-clarification services to the paper mill, and an engineering,
procurement, and construction contract for the construction of the
facility to provide such services. Construction of the fiber-recovery and
water-clarification facility began during the first quarter of 1998.
Through its GranTek Inc. subsidiary, the Company employs patented
technology to produce absorbing granules from papermaking sludge. These
7PAGE
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THERMO FIBERGEN INC.
Overview (continued)
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. The Company also began selling oil-and-grease absorbents on
a limited basis and completed development and market testing of a cat box
filler product called PaPurr (pronounced paper), which it plans to
introduce to the U.S. market during 1998.
The Company's sales are principally in the agricultural-carrier
market. The Company's primary customers in this market, chemical
formulators, typically purchase carriers during the winter and spring for
the cultivation and planting season. As a result, the Company earns a
disproportionately high share of its revenues for its agricultural-
carrier products during the first two quarters of the year. The Company
believes that its planned entrance into the oil- and grease-absorption,
cat box filler, and international agricultural row-crop markets, if
successful, may mitigate the seasonality of the Company's sales.
The Company currently intends to limit the pace and amount of its
research and development so that its internally funded research and
development expenditures will not exceed the interest income earned on
its cash, cash equivalents, and available-for-sale investments, plus the
Company's operating earnings before research and development expenses, if
any.
Results of Operations
First Quarter 1998 Compared With First Quarter 1997
---------------------------------------------------
Revenues were $1,343,000 in the first quarter of 1998, compared with
$1,526,000 in the first quarter of 1997. Revenues decreased primarily due
to a decrease in demand from the Company's largest customer, offset in
part by an increase in demand from other customers. The decrease in
demand from the Company's largest customer is expected to continue.
The gross profit margin decreased to 41% in the first quarter of 1998
from 47% in the first quarter of 1997, primarily due to a decrease in
revenues.
Selling, general, and administrative expenses as a percentage of
revenues increased to 59% in the first quarter of 1998 from 50% in the
first quarter of 1997, principally due to a decrease in revenues and
increased marketing expenses relating to new granular products.
The effective tax rate was 40% in the first quarter of 1998. The
effective tax rate exceeds the statutory federal income tax rate
primarily due to the impact of state income taxes. The Company did not
record a provision for income taxes in the first quarter of 1997 due to
the benefit of net operating loss carryforwards.
8PAGE
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THERMO FIBERGEN INC.
Liquidity and Capital Resources
Consolidated working capital was $57,833,000 at April 4, 1998,
compared with $58,609,000 at January 3, 1998. Included in working capital
at April 4, 1998, are cash, cash equivalents, and available-for-sale
investments of $57,635,000, compared with $58,071,000 at January 3, 1998.
During the first quarter of 1998, $718,000 of cash was provided by
operating activities. Cash provided by the Company's operating results
was improved primarily by an increase in accounts payable.
During the first quarter of 1998, the Company's primary investment
activity, excluding available-for-sale investments activity, was the
purchase of property, plant, and equipment for $1,125,000, which included
$556,000 expended for the construction of a fiber-recovery and
water-clarification facility.
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 1998, the Company plans to make expenditures for
property, plant, and equipment of approximately $4 million, which
includes expenditures for the completion of the construction of a
fiber-recovery and water-clarification facility, which began in the first
quarter of 1998. In addition, the Company may make additional capital
expenditures for the construction of additional fiber-recovery
facilities. Construction of fiber-recovery facilities 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 currently has only one such agreement in place and
there is no assurance that the Company will be able to obtain such
additional contracts. The Company anticipates it will require significant
amounts of cash for the construction of its fiber-recovery facilities.
The Company expects to finance the construction of its fiber-recovery
facilities through a combination of internal funds, additional debt or
equity financing, and/or 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.
9PAGE
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THERMO FIBERGEN INC.
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, $401,800 was for other expenses paid to persons other than
directors or officers of the Company, persons owning more than 10% of any
class of equity securities of the Company, or affiliates of the Company
(collectively, Affiliates), and $20,000 was paid to Thermo Electron for
certain corporate services rendered in connection with the offering. 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 April 4, 1998, $50,051,000 had been
invested directly with persons other than Affiliates and $5,730,000 had
been invested pursuant to a repurchase agreement with Thermo Electron
Corporation.
Item 6 - Exhibits
-----------------
See Exhibit Index on the page immediately preceding exhibits.
10PAGE
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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 7th day of May 1998.
THERMO FIBERGEN INC.
Paul F. Kelleher
---------------------------
Paul F. Kelleher
Chief Accounting Officer
John N. Hatsopoulos
---------------------------
John N. Hatsopoulos
Chief Financial Officer
and Senior Vice President
11PAGE
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THERMO FIBERGEN INC.
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
-----------------------------------------------------------------------
27 Financial Data Schedule.
<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 PERIOD ENDED APRIL 4, 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
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<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-END> APR-04-1998
<CASH> 28,157
<SECURITIES> 29,478
<RECEIVABLES> 702
<ALLOWANCES> 30
<INVENTORY> 446
<CURRENT-ASSETS> 59,184
<PP&E> 7,852
<DEPRECIATION> 1,582
<TOTAL-ASSETS> 70,590
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0
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<COMMON> 100
<OTHER-SE> 11,692
<TOTAL-LIABILITY-AND-EQUITY> 70,590
<SALES> 1,343
<TOTAL-REVENUES> 1,343
<CGS> 791
<TOTAL-COSTS> 791
<OTHER-EXPENSES> 412
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