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 1, 2000
[ ] 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
incorporation or organization) (I.R.S. Employer 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, 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 April 28, 2000
Common Stock, $.01 par value 14,170,100
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
THERMO FIBERGEN INC.
Consolidated Balance Sheet
(Unaudited)
Assets
<TABLE>
<CAPTION>
April 1, January 1,
<S> <C> <C>
(In thousands) 2000 2000
- ----------------------------------------------------------------------------------- ----------- ---------
Current Assets:
Cash and cash equivalents $ 210 $ 51
Advance to affiliate 12,262 5,087
Available-for-sale investments, at quoted market 36,180 46,405
value (amortized cost of $36,226 and $46,470)
Accounts receivable, less allowance of $30 2,405 1,164
Inventories:
Raw materials and supplies 324 364
Finished goods 388 453
Deferred tax asset and other current assets 209 197
Due from parent company and affiliated companies 330 377
------- -------
52,308 54,098
------- -------
Property, Plant, and Equipment, at Cost 14,114 13,308
Less: Accumulated depreciation and amortization 3,465 3,246
------- -------
10,649 10,062
------- -------
Other Assets 4,260 4,416
------- -------
Cost in Excess of Net Assets of Acquired Company 3,803 3,862
------- -------
$71,020 $72,438
======= =======
2
<PAGE>
THERMO FIBERGEN INC.
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
April 1, January 1,
(In thousands except share amounts) 2000 2000
- ----------------------------------------------------------------------------------- ----------- ----------
Current Liabilities:
Accounts payable $ 624 $ 920
Accrued payroll and employee benefits 294 385
Accrued income taxes 356 290
Other accrued liabilities 1,046 2,326
Common stock subject to redemption ($60,116 redemption value), 59,615 59,344
4,715,000 shares issued and outstanding ------- -------
61,935 63,265
------- -------
Deferred Income Taxes 512 512
------- -------
Minority Interest 2,909 3,021
------- -------
Shareholders' Investment:
Common stock, $.01 par value, 25,000,000 shares authorized; 100 100
10,000,000 shares issued
Capital in excess of par value 11,101 11,102
Retained earnings 7 -
Treasury stock at cost, 553,900 and 554,400 shares (5,515) (5,520)
Accumulated other comprehensive items (Note 2) (29) (42)
------- -------
5,664 5,640
------- -------
$71,020 $72,438
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
THERMO FIBERGEN INC.
Consolidated Statement of Income
(Unaudited)
Three Months Ended
April 1, April 3,
(In thousands except per share amounts) 2000 1999
- ----------------------------------------------------------------------------------- ----------- ----------
Revenues $ 2,733 $2,074
------- ------
Costs and Operating Expenses:
Cost of revenues 1,666 1,110
Selling, general, and administrative expenses 1,044 878
Research and development expenses 326 305
------- ------
3,036 2,293
------- ------
Operating Loss (303) (219)
Interest Income 655 683
------- ------
Income Before Provision for Income Taxes and Minority Interest 352 464
Provision for Income Taxes 186 185
Minority Interest Income (112) -
------- ------
Net Income $ 278 $ 279
======= ======
Basic and Diluted Earnings per Share (Note 3) $ .02 $ .02
======= ======
Weighted Average Shares (Note 3):
Basic 14,161 14,668
======= ======
Diluted 14,537 16,741
======= ======
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
THERMO FIBERGEN INC.
Consolidated Statement of Cash Flows
(Unaudited)
Three Months Ended
April 1, April 3,
(In thousands) 2000 1999
- ----------------------------------------------------------------------------------- ----------- ----------
Operating Activities:
Net income $ 278 $ 279
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 457 329
Minority interest income (112) -
Changes in current accounts:
Accounts receivable (1,241) (467)
Inventories 105 (37)
Other current assets (18) (56)
Accounts payable (125) 198
Other current liabilities (105) 221
Other (4) -
-------- -------
Net cash provided by (used in) operating activities (765) 467
-------- -------
Investing Activities:
Acquisition of capital equipment and technology (1,200) -
Purchases of available-for-sale investments - (25,325)
Proceeds from maturities of available-for-sale investments 10,244 33,170
Advances to affiliate, net (7,175) -
Purchases of property, plant, and equipment (1,000) (113)
Proceeds from sale of property, plant, and equipment 4 -
-------- -------
Net cash provided by investing activities 873 7,732
-------- -------
Financing Activities:
Net proceeds from issuance of Company common stock 4 -
Purchases of Company common stock from Thermo Electron - (2,227)
Change in due from parent company and affiliated companies 47 74
-------- -------
Net cash provided by (used in) financing activities 51 (2,153)
-------- -------
Increase in Cash and Cash Equivalents 159 6,046
Cash and Cash Equivalents at Beginning of Period 51 6,748
-------- -------
Cash and Cash Equivalents at End of Period $ 210 $12,794
======== =======
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
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 1, 2000, and the results of
operations and cash flows for the three-month periods ended April 1, 2000, and
April 3, 1999. Interim results are not necessarily indicative of results for a
full year.
The consolidated balance sheet presented as of January 1, 2000, 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 1, 2000,
filed with the Securities and Exchange Commission.
2. Comprehensive Income
Comprehensive income combines net income and "other comprehensive items,"
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 2000 and 1999, the
Company had comprehensive income of $291,000 and $290,000, respectively.
3. Earnings per Share
Basic and diluted earnings per share were calculated as follows:
Three Months Ended
April 1, April 3,
(In thousands except per share amounts) 2000 1999
- ------------------------------------------------------------- ---------- ----------- ---------- ----------
Basic
Net Income $ 278 $ 279
------ -------
Weighted Average Shares 14,161 14,668
------ -------
Basic Earnings per Share $ .02 $ .02
====== =======
Diluted
Net Income $ 278 $ 279
------ -------
Weighted Average Shares 14,161 14,668
Effect of:
Redemption rights 324 2,071
Stock options 52 2
------ -------
Weighted Average Shares, as Adjusted 14,537 16,741
------ -------
Diluted Earnings per Share $ .02 $ .02
====== =======
6
<PAGE>
3. Earnings per Share (continued)
Options to purchase 20,000 and 432,500 shares of common stock were not
included in the computation of diluted earnings per share for the first three
months of 2000 and 1999, respectively, because the options' exercise prices were
greater than the average market price for the common stock and their effect
would be antidilutive.
4. Business Segment Information
Three Months Ended
April 1, April 3,
(In thousands) 2000 1999
- ------------------------------------------------------------- ---------- ----------- ---------- ----------
Revenues:
Cellulose-based Products $2,364 $1,729
Fiber-recovery and Water-clarification Services 369 345
------ ------
$2,733 $2,074
------ ------
Income Before Provision for Income Taxes and Minority Interest:
Cellulose-based Products $ 167 $ 215
Fiber-recovery and Water-clarification Services (470) (434)
------ ------
Total operating loss (303) (219)
Interest income 655 683
------ ------
$ 352 $ 464
====== ======
5. Proposed Spin Off of Thermo Fibertek Inc.
On January 31, 2000, Thermo Electron Corporation announced that, as part
of a major reorganization plan, it plans to spin off its equity interest in
Thermo Fibertek Inc. as a dividend to Thermo Electron shareholders. The
distribution is subject to receipt of a favorable ruling from the Internal
Revenue Service regarding the tax treatment of the spin off, and other customary
conditions. Under the plan, the Company will remain a majority-owned subsidiary
of Thermo Fibertek. Thermo Electron will continue to guarantee the Company's
obligation under its redemption rights following the spin off.
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 1, 2000, filed with the Securities and Exchange
Commission.
7
<PAGE>
Overview
The Company organizes and manages its business by individual functional
operating entity. The Company's two operating entities constitute the Company's
business segments: Fiber-recovery and Water-clarification Services and
Cellulose-based Products. Through its Fiber-recovery and Water-clarification
Services segment, the Company designs, builds, owns, and operates plants to help
pulp and paper mills improve product quality, reduce costs, and close the loop
in their water and solids systems on a long-term contract basis. The plants
recover and return to the mill long cellulose fiber and clarified water to be
reused in papermaking. The Company currently owns and operates one such plant in
South Carolina, which it began operating in July 1998 under a ten-year contract.
The Cellulose-based Products segment includes the Company's GranTek
subsidiary, which employs patented technology to produce biodegradable absorbing
granules from papermaking byproducts that are marketed and sold as Biodac(R)
agricultural carriers, Gran-sorb(TM) oil and grease absorbents, PaPurr(R)
(pronounced "paper") cat box filler, and FiberRest(TM) animal bedding. Biodac(R)
is used to deliver agricultural chemicals for professional turf, home lawn and
garden, agricultural row-crop, and mosquito-control applications. Through its
majority-owned NEXT Fiber Products Inc. subsidiary, formed in October 1999, the
Company intends to develop, produce, and market fiber-based composites primarily
for the building industry. The Company is currently finalizing development of
composites products and expects to complete construction of and begin operating
the composites manufacturing facility, located in Green Bay, Wisconsin, during
2000.
The Company currently intends to limit the pace and amount of its research
and development so that its research and development expenditures will not
exceed the interest income earned on its cash, cash equivalents,
available-for-sale investments, and advance to affiliate, plus the Company's
operating earnings, if any, before research and development expenses.
Results of Operations
First Quarter 2000 Compared With First Quarter 1999
Revenues increased to $2,733,000 in the first quarter of 2000 from
$2,074,000 in the first quarter of 1999. This increase was primarily in the
Cellulose-based Products segment as a result of a $560,000 increase in sales of
Biodac, principally due to increased demand from one of the Company's largest
customers.
The gross profit margin decreased to 39% in the first quarter of 2000 from
46% in the first quarter of 1999, primarily due to the inclusion of $150,000 of
overhead costs at the fiber-based composites business.
Selling, general, and administrative expenses as a percentage of revenues
decreased to 38% in the first quarter of 2000 from 42% in the first quarter of
1999, principally due to increased Cellulose-based Products revenues. Selling,
general, and administrative expenses increased to $1,044,000 in 2000 from
$878,000 in 1999, primarily due to the inclusion of approximately $250,000 of
costs related to the fiber-based composites business. The Company expects that
selling, general, and administrative expenses will increase as it expands its
fiber-based composites business.
Research and development expenses increased slightly to $326,000 in the
first quarter of 2000 from $305,000 in the first quarter of 1999, primarily due
to the inclusion of costs for the fiber-based composites business. The Company
expects to increase its research and development expenses as it develops new
products at its fiber-based composites business.
Interest income decreased to $655,000 in the first quarter of 2000 from
$683,000 in the first quarter of 1999, principally due to a decrease in average
invested balances resulting primarily from the use of cash to fund purchases of
Company common stock in 1999 and purchases of capital equipment by the Company's
NEXT Fiber Products subsidiary in late 1999 and early 2000.
8
<PAGE>
First Quarter 2000 Compared With First Quarter 1999 (continued)
The effective tax rate exceeded the statutory federal income tax rate
primarily due to the impact of state income taxes, including increases in the
associated valuation allowance, and certain nondeductible expenses.
Minority interest income in 2000 represents the minority investor's share
of losses in the Company's NEXT Fiber Products subsidiary.
Liquidity and Capital Resources
The Company had negative working capital of $9,627,000 and $9,167,000 at
April 1, 2000, and January 1, 2000, respectively. Included in working capital at
April 1, 2000, are cash, cash equivalents, and available-for-sale investments of
$36,390,000, compared with $46,456,000 at January 1, 2000. In addition, the
Company had $12,262,000 and $5,087,000 invested in an advance to affiliate at
April 1, 2000, and January 1, 2000, respectively.
During the first quarter of 2000, $765,000 of cash was used by operating
activities. An increase in accounts receivable used $1,241,000 of cash,
primarily as a result of increased sales occurring late in the quarter at
GranTek.
During the first quarter of 2000, the Company's primary investment
activities involved the maturity of available-for-sale investments and advances
to affiliate. In addition, the Company used $1,000,000 for purchases of
property, plant, and equipment, including $638,000 for the composites
manufacturing facility. The Company's NEXT Fiber Products subsidiary used
$1,200,000 of cash to pay for the 1999 purchase of capital equipment and
technology related to the development of fiber-based composites. The Company has
a remaining obligation for this purchase of $500,000, which is included in other
accrued liabilities in the accompanying April 1, 2000, balance sheet. The
Company has options to acquire the 49% equity interest in NEXT Fiber Products
not owned by the Company, exercisable during the months of October 2001, 2002,
or 2003, for pre-established multiples of NEXT Fiber Products' pre-tax earnings.
The Company's common stock subject to redemption is redeemable by holders
of redemption rights in September 2000 or September 2001 for a total redemption
value of $60,116,000. The redemption rights are guaranteed, on a subordinated
basis, by Thermo Electron. As of April 1, 2000, there were 4,715,000 redemption
rights outstanding and only 3,726,500 shares of Company common stock held by
persons other than Thermo Electron or Thermo Fibertek Inc.
During the remainder of 2000, the Company plans to make expenditures for
property, plant, and equipment of approximately $900,000, including $600,000 at
NEXT Fiber Products. The Company may make additional capital expenditures to
expand its fiber-based composites business. The Company believes that its
existing resources will be sufficient to meet the Company's capital requirements
until September 2000, when the Company's redemption rights become exercisable.
The Company's liquidity will be materially adversely affected if the redemption
of its common stock occurs in the third quarter of 2000. Thermo Fibertek has
committed to provide funding, through at least December 31, 2000, to enable the
Company to maintain its operations.
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
The Company's exposure to market risk from changes in equity prices and
interest rates has not changed materially from year-end 1999.
9
<PAGE>
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 or 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. As of April 1, 2000, the Company had
expended $8,624,000 of such net proceeds for the purchase of property, plant,
and equipment, including $3,573,000 for the construction of a
water-clarification and fiber-recovery facility and $1,700,000 for the
acquisition of capital equipment and technology related to the fiber-based
composites business. The Company has invested, from time to time, the balance of
such net proceeds primarily in investment grade interest- or dividend-bearing
instruments. As of April 1, 2000, remaining net proceeds of $34,895,000 were
invested directly with persons other than Affiliates and $12,262,000 were
invested pursuant to a cash management arrangement with Thermo Electron.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
See Exhibit Index on the page immediately preceding exhibits.
(b) Reports on Form 8-K
On February 1, 2000, the Company filed a Current Report on Form 8-K dated
January 31, 2000, with respect to the proposed spinoff of Thermo Fibertek from
Thermo Electron.
</TABLE>
10
<PAGE>
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 11th day of May 2000.
THERMO FIBERGEN INC.
/s/ Theo Melas-Kyriazi
Theo Melas-Kyriazi
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
11
<PAGE>
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 1,2000
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-30-2000
<PERIOD-END> APR-01-2000
<CASH> 210
<SECURITIES> 36,180
<RECEIVABLES> 2,435
<ALLOWANCES> 30
<INVENTORY> 712
<CURRENT-ASSETS> 52,308
<PP&E> 14,114
<DEPRECIATION> 3,465
<TOTAL-ASSETS> 71,020
<CURRENT-LIABILITIES> 61,935
<BONDS> 0
0
0
<COMMON> 100
<OTHER-SE> 5,564
<TOTAL-LIABILITY-AND-EQUITY> 71,020
<SALES> 2,733
<TOTAL-REVENUES> 2,733
<CGS> 1,666
<TOTAL-COSTS> 1,666
<OTHER-EXPENSES> 326
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 352
<INCOME-TAX> 186
<INCOME-CONTINUING> 278
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 278
<EPS-BASIC> 0.02
<EPS-DILUTED> 0.02
</TABLE>
