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 1-11406
THERMO FIBERTEK INC.
(Exact name of Registrant as specified in its charter)
Delaware 52-1762325
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
81 Wyman Street, P.O. Box 9046
Waltham, Massachusetts 02254-9046
(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 61,766,094
PAGE
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
THERMO FIBERTEK INC.
Consolidated Balance Sheet
(Unaudited)
Assets
September 27, December 28,
(In thousands) 1997 1996
------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $109,646 $109,805
Available-for-sale investments, at quoted
market value (amortized cost of $29,433) 29,492 -
Accounts receivable, less allowances of
$2,345 and $1,948 49,194 38,115
Unbilled contract costs and fees 7,932 1,236
Inventories:
Raw materials and supplies 12,667 13,778
Work in process 7,075 4,180
Finished goods 11,256 6,509
Prepaid income taxes and other current
assets 8,162 8,802
-------- --------
235,424 182,425
-------- --------
Property, Plant, and Equipment, at Cost 58,848 57,869
Less: Accumulated depreciation and
amortization 31,196 31,329
-------- --------
27,652 26,540
-------- --------
Other Assets (Note 3) 14,824 8,720
-------- --------
Cost in Excess of Net Assets of Acquired
Companies (Note 2) 132,480 39,547
-------- --------
$410,380 $257,232
======== ========
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THERMO FIBERTEK 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 $ 21,806 $ 16,805
Accrued payroll and employee benefits 9,765 10,989
Accrued income taxes (includes $2,000 and
$1,340 due to related party) 3,379 2,414
Billings in excess of contract costs
and fees 7,514 2,540
Accrued warranty costs 7,655 7,752
Other accrued expenses 15,715 8,707
Due to parent company 1,766 17,609
-------- --------
67,600 66,816
-------- --------
Deferred Income Taxes and Other Deferred
Items 2,715 3,202
-------- --------
Subordinated Convertible Debentures (Note 4) 153,000 -
-------- --------
Minority Interest 366 277
-------- --------
Common Stock of Subsidiary Subject to
Redemption ($54,762 and $60,116 redemption
value) 52,564 56,087
-------- --------
Shareholders' Investment:
Common stock, $.01 par value, 150,000,000
shares authorized; 63,331,887 and
61,154,930 shares issued 633 612
Capital in excess of par value 81,920 65,951
Retained earnings 76,994 66,181
Treasury stock at cost, 1,565,793 and
23,550 shares (16,465) (360)
Cumulative translation adjustment (8,985) (1,534)
Net unrealized gain on available-for-sale
investments 38 -
-------- --------
134,135 130,850
-------- --------
$410,380 $257,232
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
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THERMO FIBERTEK INC.
Consolidated Statement of Income
(Unaudited)
Three Months Ended
----------------------------
September 27, September 28,
(In thousands except per share amounts) 1997 1996
------------------------------------------------------------------------
Revenues $67,606 $46,124
------- -------
Costs and Operating Expenses:
Cost of revenues 42,336 26,173
Selling, general, and administrative
expenses 16,189 12,239
Research and development expenses 1,789 1,328
Restructuring costs (Note 5) 1,063 -
------- --------
61,377 39,740
------- -------
Operating Income 6,229 6,384
Interest Income 2,060 733
Interest Expense (includes $510 and $131
to related party in 1997 and 1996) (2,020) (153)
------- -------
Income Before Provision for Income Taxes
and Minority Interest 6,269 6,964
Provision for Income Taxes 2,495 2,724
Minority Interest Expense 180 27
------- -------
Net Income $ 3,594 $ 4,213
======= =======
Earnings per Share:
Primary $ .06 $ .07
======= =======
Fully diluted $ .06 $ .07
======= =======
Weighted Average Shares:
Primary 61,504 61,089
======= =======
Fully diluted 63,367 64,381
======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
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THERMO FIBERTEK INC.
Consolidated Statement of Income
(Unaudited)
Nine Months Ended
-----------------------------
September 27, September 28,
(In thousands except per share amounts) 1997 1996
-----------------------------------------------------------------------
Revenues $166,784 $143,699
-------- --------
Costs and Operating Expenses:
Cost of revenues 100,522 82,469
Selling, general, and administrative
expenses 43,670 35,105
Research and development expenses 4,652 4,153
Restructuring costs (Note 5) 1,063 -
-------- --------
149,907 121,727
-------- --------
Operating Income 16,877 21,972
Interest Income 5,162 2,105
Interest Expense (includes $1,412 and $393
to related party in 1997 and 1996) (2,961) (483)
-------- -------
Income Before Provision for Income Taxes
and Minority Interest 19,078 23,594
Provision for Income Taxes 7,425 9,243
Minority Interest Expense 840 56
-------- -------
Net Income $ 10,813 $14,295
======== =======
Earnings per Share:
Primary $ .18 $ .23
======== =======
Fully diluted $ .17 $ .23
======== =======
Weighted Average Shares:
Primary 61,296 61,015
======== =======
Fully diluted 63,934 64,398
======== =======
The accompanying notes are an integral part of these consolidated
financial statements.
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THERMO FIBERTEK INC.
Consolidated Statement of Cash Flows
(Unaudited)
Nine Months Ended
-----------------------------
September 27, September 28,
(In thousands) 1997 1996
-----------------------------------------------------------------------
Operating Activities:
Net income $ 10,813 $ 14,295
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 5,368 3,652
Provision for losses on accounts
receivable 147 (221)
Minority interest expense 840 56
Restructuring costs (Note 5) 1,063 -
Deferred income tax expense (benefit) (93) 211
Other noncash items (383) (307)
Changes in current accounts, excluding
the effects of acquisition:
Accounts receivable 2,490 9,977
Inventories and unbilled contract
costs and fees (3,683) (216)
Prepaid income taxes and other
current assets 415 772
Accounts payable (6,827) (3,748)
Other current liabilities 2,297 (7,257)
--------- ---------
Net cash provided by operating activities 12,447 17,214
--------- ---------
Investing Activities:
Acquisition, net of cash acquired (Note 2) (107,738) (12,028)
Issuance of note receivable (3,000) -
Repayment of note receivable 3,000 -
Purchases of available-for-sale investments (29,050) -
Proceeds from sale and maturities of
available-for-sale investments - 2,750
Purchases of property, plant, and equipment (2,102) (3,232)
Other (189) (5,326)
--------- ---------
Net cash used in investing activities (139,079) (17,836)
--------- ---------
Financing Activities:
Net proceeds from issuance of subordinated
convertible debentures (Note 4) 149,771 -
Issuance of obligation to parent company
(Note 2) 110,000 -
Repayment of obligation to parent company
(Note 2) (110,000) (10,400)
Purchases of Company common stock (16,320) -
Purchases of subsidiary common stock (3,791) -
Net proceeds from issuance of Company and
subsidiary common stock 680 56,642
Other (34) -
--------- ---------
Net cash provided by financing activities $ 130,306 $ 46,242
--------- ---------
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THERMO FIBERTEK INC.
Consolidated Statement of Cash Flows (continued)
(Unaudited)
Nine Months Ended
-----------------------------
September 27, September 28,
(In thousands) 1997 1996
------------------------------------------------------------------------
Exchange Rate Effect on Cash $ (3,833) $ (484)
--------- ---------
Increase (Decrease) in Cash and Cash
Equivalents (159) 45,136
Cash and Cash Equivalents at Beginning of
Period 109,805 57,028
--------- ---------
Cash and Cash Equivalents at End of Period $ 109,646 $ 102,164
========= =========
Noncash Activities:
Fair value of assets of acquired company $ 129,271 $ 12,606
Cash paid for acquired company 107,750 (12,099)
--------- ---------
Liabilities assumed of acquired company $ 21,521 $ 507
========= =========
The accompanying notes are an integral part of these consolidated
financial statements.
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THERMO FIBERTEK INC.
Notes to Consolidated Financial Statements
1. General
The interim consolidated financial statements presented have been
prepared by Thermo Fibertek 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.
2. Acquisition
In May 1997, the Company acquired a majority of the assets, subject
to certain liabilities, of the stock-preparation business of Black
Clawson Company and its affiliates (Black Clawson). In August 1997, the
Company acquired the remaining assets of the stock-preparation business
of Black Clawson. The aggregate purchase price was approximately $107.7
million in cash, net of cash acquired, and is subject to a post-closing
adjustment.
Pursuant to a promissory note, the Company borrowed $110 million from
Thermo Electron Corporation to finance the acquisition. The promissory
note bore interest at the 90-day Commercial Paper Composite Rate plus 25
basis points, set at the beginning of each quarter. The note was repaid
in July 1997 with the net proceeds from the sale of long-term
subordinated convertible debentures (Note 4).
Black Clawson is a leading supplier of recycling equipment used in
processing fiber for the manufacture of "brown paper," such as that used
in the manufacture of corrugated boxes.
The acquisition has been accounted for using the purchase method of
accounting and its results have been included in the accompanying
financial statements from the date of acquisition. The cost of the
acquisition exceeded the estimated fair value of the acquired net assets
by $95.1 million, which is being amortized over 40 years. Allocation of
the purchase price was based on estimates of the fair value of the net
assets acquired and is subject to adjustment upon finalization of the
purchase price allocation.
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THERMO FIBERTEK INC.
2. Acquisition (continued)
Based on unaudited data, the following table presents selected
financial information for the Company and Black Clawson on a pro forma
basis, assuming the companies had been combined since the beginning of
1996.
Three Months Ended Nine Months Ended
--------------------- --------------------
(In thousands except Sept. 27, Sept. 28, Sept. 27, Sept. 28,
per share amounts) 1997 1996 1997 1996
--------------------------------------------------------------------
Revenues $71,269 $70,829 $209,518 $214,382
Net income 4,351 3,181 10,599 10,923
Earnings per share:
Primary .07 .05 .17 .18
Fully diluted .07 .05 .17 .17
The pro forma results are not necessarily indicative of future
operations or the actual results that would have occurred had the
acquisition of Black Clawson been made at the beginning of 1996.
3. Note Receivable
During 1996, the Company loaned $6.0 million to Tree-Free Fiber
Company, LLC (Tree-Free) in connection with a proposed engineering,
procurement, and construction project. This project has been indefinitely
delayed due to the current weakness in pulp prices and, therefore, the
Company expects the project will not proceed in the near future.
Tree-Free was unable to repay the note upon its original maturity and the
Company consented to several payment extensions. On July 28, 1997, the
Company restructured the note from Tree-Free into two promissory notes
aggregating $6.5 million, which represent the original principal amount
due to the Company plus interest accrued through the date of the
restructuring. One such promissory note, for $3.0 million, is secured by
a first priority security interest, pari passu with a security interest
held by another lender, on certain real estate and equipment, and a
second priority security interest, pari passu with a security interest
held by another lender, on inventories and accounts receivable. The
second promissory note, for $3.5 million, is secured by a first priority
security interest in the membership (equity) interests of the equity
owners of Tree-Free and certain other assets and is subordinate to other
borrowings. In the event of default, the Company intends to exercise its
rights under its security agreement to cause all of such membership
interests to be transferred to the Company. In such event, the Company
expects that it will operate the existing tissue mill owned by Tree-Free,
with the intent of selling either the mill or membership interests at one
or more public or private sales as soon as practicable thereafter.
Although no assurance can be given as to either the timing of any such
sale or the amount of the proceeds that may be received therefrom, the
Company believes that the fair value of its security exceeds the sum of
the carrying amount of the notes from Tree-Free and Tree-Free's
indebtedness to its third-party lenders.
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THERMO FIBERTEK INC.
4. Subordinated Convertible Debentures
In July 1997, the Company issued and sold $153 million principal
amount of 4 1/2% subordinated convertible debentures due 2004 for net
proceeds of approximately $149.8 million. The debentures are convertible
into shares of the Company's common stock at a conversion price of $12.10
per share and are guaranteed on a subordinated basis by Thermo Electron.
In July 1997, the Company repaid a $110 million promissory note due to
Thermo Electron with a portion of the net proceeds from this offering
(Note 2).
5. Restructuring Costs
During the third quarter of 1997, the Company recorded restructuring
costs of approximately $1.1 million relating to the consolidation of
operations at its Fiberprep, Inc. subsidiary and Lamort Paper Services
Ltd. subsidiary (a subsidiary of E&M Lamort, S.A.), located in the United
Kingdom, into the operations of Black Clawson. The restructuring charges
related primarily to severance for 34 employees whose employment was
terminated during the third quarter, and abandoned-facility payments.
Other accrued expenses in the accompanying September 27, 1997, balance
sheet includes a remaining reserve of $0.4 million associated with the
consolidation of these operations.
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 designs and manufactures processing machinery,
accessories, and water-management systems for the paper and paper-
recycling industries. The Company's principal products include
custom-engineered systems and equipment for the preparation of wastepaper
for conversion into recycled paper; accessory equipment and related
consumables important to the efficient operation of papermaking machines;
and water-management systems essential for draining, purifying, and
recycling process water. The Company's Thermo Black Clawson subsidiary,
acquired May 1997, is a leading supplier of recycling equipment used in
processing fiber for the manufacture of "brown paper," such as that used
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THERMO FIBERTEK INC.
Overview (continued)
in the manufacture of corrugated boxes. The Company's Thermo Fibergen
Inc. subsidiary is developing and commercializing equipment and systems
to recover valuable materials from papermaking sludge generated by plants
that produce virgin and recycled pulp and paper. Through its GranTek Inc.
subsidiary, acquired July 1996, Thermo Fibergen employs patented
technology to produce absorbing granules from papermaking sludge.
The Company's manufacturing facilities are principally in the U.S.
and France. The manufacturing facility in France is located at the
Company's E&M Lamort, S.A. subsidiary, which primarily manufactures
recycling equipment and accessories.
The Company's products are primarily sold to the paper industry.
Generally, the financial condition of the paper industry corresponds both
to changes in the general economy and to a number of other factors,
including paper and pulp production capacity. The paper industry entered
a severe downcycle in early 1996 and has not recovered. This cyclical
downturn adversely affected the Company's business during the second half
of 1996 and the first nine months of 1997. The timing of the recovery of
the financial condition of the paper industry cannot be predicted.
The Company has significant foreign operations, particularly in
Europe. Although the Company seeks to charge its customers in the same
currency as its operating costs, the Company's financial performance and
competitive position can be affected by currency exchange rate
fluctuations affecting the relationship between the U.S. dollar and
foreign currencies. The Company reduces its exposure to currency
fluctuations through the use of forward contracts. The Company enters
into forward contracts to hedge certain firm purchase and sale
commitments denominated in currencies other than its subsidiaries' local
currencies, principally U.S. dollars, British pounds sterling, French
francs, and Japanese yen. The purpose of the Company's foreign currency
hedging activities is to protect the Company's local currency cash flows
related to these commitments from fluctuations in foreign exchange rates.
Because the Company's forward contracts are entered into as hedges
against existing foreign currency exposures, there generally is no effect
on the income statement since gains or losses on the customer contract
offset gains or losses on the forward contract.
Results of Operations
Third Quarter 1997 Compared With Third Quarter 1996
Revenues increased to $67.6 million in the third quarter of 1997 from
$46.1 million in the third quarter of 1996. Revenues increased $20.2
million due to the acquisition of Black Clawson in May 1997. Revenues
from the Company's water-management business increased $2.2 million,
primarily due to an increase in demand. These improvements were offset in
part by a decrease in revenues from the Company's recycling business,
primarily due to a decrease in demand resulting from the severe drop in
de-inked pulp prices in the summer of 1996. Revenue improvement at the
Company's accessories business in the U.S. was largely offset by a
decrease in revenues at Lamort's accessories business. The unfavorable
effects of currency translation due to a stronger U.S. dollar decreased
revenues by $2.0 million.
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THERMO FIBERTEK INC.
Third Quarter 1997 Compared With Third Quarter 1996 (continued)
The gross profit margin decreased to 37% in the third quarter of 1997
from 43% in the third quarter of 1996, primarily due to lower-margin
revenues at Black Clawson, as well as a decrease in gross profit margin
at the Company's Lamort subsidiary due to a decrease in revenues and
lower margins from Lamort's recycling business due to competitive pricing
pressures.
Selling, general, and administrative expenses as a percentage of
revenues decreased to 24% in the third quarter of 1997 from 27% in the
third quarter of 1996, primarily due to lower expenses as a percentage of
revenues at Black Clawson, offset in part by an increase at Thermo
Fibergen, primarily due to the hiring of additional sales, marketing, and
administrative staff.
Research and development expenses increased to $1.8 million in the
third quarter of 1997 from $1.3 million in the third quarter of 1996,
primarily due to the inclusion of $0.4 million in expenses at Black
Clawson.
During the third quarter of 1997, the Company recorded restructuring
costs of $1.1 million relating to the consolidation of operations at its
Fiberprep, Inc. subsidiary and Lamort Paper Services Ltd. subsidiary (a
subsidiary of Lamort), located in the United Kingdom, into the operations
of Black Clawson. The restructuring charges related primarily to
severance for 34 employees whose employment was terminated during the
third quarter, and abandoned-facility payments.
Interest income increased to $2.1 million in the third quarter of
1997 from $0.7 million in the third quarter of 1996, primarily due to an
increase in average invested balances resulting from the net proceeds
from Thermo Fibergen's initial public offering in September 1996 and the
sale of $153 million principal amount of subordinated convertible
debentures in July 1997 (Note 4).
Interest expense increased to $2.0 million in the third quarter of
1997 from $0.2 million in the third quarter of 1996 as a result of
borrowings from Thermo Electron Corporation to finance the May 1997
acquisition of Black Clawson and the July 1997 issuance of $153 million
principal amount of subordinated convertible debentures. The borrowings
from Thermo Electron were repaid with a portion of the net proceeds from
the sale of the subordinated convertible debentures (Note 4).
The effective tax rate was 40% in the third quarter of 1997 and 39%
in the third quarter of 1996. The effective tax rates exceed the
statutory federal income tax rate primarily due to the impact of state
income taxes, offset in part by the effect of lower foreign tax rates.
Minority interest expense primarily represents accretion of common
stock of subsidiary subject to redemption.
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THERMO FIBERTEK INC.
First Nine Months 1997 Compared With First Nine Months 1996
Revenues increased to $166.8 million in the first nine months of 1997
from $143.7 million in the first nine months of 1996. Revenues increased
$30.0 million due to the acquisitions of Black Clawson in May 1997 and
GranTek in July 1996. In addition, revenues from the Company's
accessories and water-management businesses increased primarily due to an
increase in demand. These improvements were offset in part by a $9.7
million decrease in revenues from the Company's recycling business,
principally at the Company's Fiberprep subsidiary, due to a decrease in
demand resulting from a severe drop in de-inked pulp prices in the summer
of 1996. The unfavorable effects of currency translation due to a
stronger U.S. dollar decreased revenues by $4.1 million.
The gross profit margin decreased to 40% in the first nine months of
1997 from 43% in the first nine months of 1996, primarily for the reasons
discussed in the results of operations for the third quarter.
Selling, general, and administrative expenses as a percentage of
revenues increased to 26% in the first nine months of 1997 from 24% in
the first nine months of 1996, primarily due to a decrease in revenues at
the Company's Fiberprep subsidiary and an increase in selling, general,
and administrative expenses at Thermo Fibergen for the reasons discussed
in the results of operations for the third quarter. The increase in
selling, general, and administrative expenses as a percentage of revenues
was offset in part by lower selling, general, and administrative expenses
as a percentage of revenues at Black Clawson.
Research and development expenses increased to $4.7 million in the
first nine months of 1997 from $4.2 million in the first nine months of
1996, primarily due to the inclusion of $0.6 million in expenses at Black
Clawson.
The Company recorded restructuring costs of $1.1 million in the first
nine months of 1997 for the reasons discussed in the results of
operations for the third quarter.
Interest income increased to $5.2 million in the first nine months of
1997 from $2.1 million in the first nine months of 1996, primarily due to
the reasons discussed in the results of operations for the third quarter.
Interest expense increased to $3.0 million in the first nine months
of 1997 from $0.5 million in the first nine months of 1996, primarily due
to the reasons discussed in the results of operations for the third
quarter.
The effective tax rate was 39% in the first nine months of 1997 and
1996. The effective tax rate exceeds the statutory federal income tax
rate primarily due to the impact of state income taxes, offset in part by
the effect of lower foreign tax rates.
Minority interest expense primarily represents accretion of common
stock of subsidiary subject to redemption.
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THERMO FIBERTEK INC.
Liquidity and Capital Resources
Consolidated working capital was $167.8 million at September 27,
1997, compared with $115.6 million at December 28, 1996. Included in
working capital are cash, cash equivalents, and available-for-sale
investments of $139.1 million at September 27, 1997, compared with $109.8
million at December 28, 1996. Of the $139.1 million balance at September
27, 1997, $58.1 million was held by Thermo Fibergen and $3.5 million was
held by Fiberprep, with the remainder being held by the Company and its
wholly owned subsidiaries. At September 27, 1997, $13.4 million of the
Company's cash and cash equivalents was held by its Lamort subsidiary.
Repatriation of this cash into the U.S. is subject to a 5% withholding
tax in France and could also be subject to a United States tax.
During the first nine months of 1997, $12.4 million of cash was
provided by operating activities. Cash provided by the Company's
operating results was reduced by a decrease in accounts payable of $6.8
million and an increase in unbilled contract costs and fees of $4.3
million, offset in part by an increase in other current liabilities of
$2.3 million and a decrease in accounts receivable of $2.5 million. The
reduction in accounts payable was primarily due to the payment of a
substantial portion of acquired accounts payable at Black Clawson. The
increase in other current liabilities reflects an increase in billings in
excess of contract costs and fees, accrued income taxes, and accrued
interest payable. The reduction in accounts receivable was primarily due
to the timing of billings on percentage-of-completion contracts,
reflected in the increase in unbilled contract costs and fees.
During the first nine months of 1997, the Company's primary investing
activities, excluding purchases of available-for-sale investments,
included an acquisition and capital expenditures. The Company acquired
the assets, subject to certain liabilities, of the stock-preparation
business of Black Clawson for $107.7 million in cash, net of cash
acquired (Note 2). The purchase price is subject to a post-closing
adjustment. The Company expended $2.1 million for purchases of property,
plant, and equipment during the first nine months of 1997.
During the first nine months of 1997, the Company's financing
activities provided $130.3 million in cash. The Company borrowed $110
million from Thermo Electron to finance the acquisition of Black Clawson
(Note 2). In July 1997, the Company issued and sold $153 million
principal amount of 4 1/2% subordinated convertible debentures due 2004
for net proceeds of approximately $149.8 million. A portion of the
proceeds was used to repay the $110 million note due to Thermo Electron
(Note 4). The Company repurchased $3.8 million of Thermo Fibergen common
stock and $16.3 million of Company common stock during the first nine
months of 1997.
The Company's Board of Directors has authorized the repurchase,
through March 19, 1998, of up to $5 million of Thermo Fibergen's common
stock in open market or negotiated transactions. Any such purchases would
be funded from working capital. Through September 27, 1997, the Company
had expended $3.8 million under this authorization.
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THERMO FIBERTEK INC.
Liquidity and Capital Resources (continued)
The Company's Board of Directors has authorized the repurchase,
through July 18, 1998, of up to $20 million of Company common stock in
open market or negotiated transactions. Any such purchases would be
funded from working capital. Through September 27, 1997, the Company had
expended $16.3 million under this authorization.
At September 27, 1997, the Company had $54.8 million of undistributed
foreign earnings. The Company does not intend to repatriate undistributed
foreign earnings into the U.S., and does not expect that this will have a
material adverse effect on the Company's current liquidity.
In the remainder of 1997, the Company plans to make expenditures for
property, plant, and equipment of approximately $1.5 million. In
addition, Thermo Fibergen may make additional capital expenditures for
the construction of one or more fiber-recovery plants. Construction of
fiber-recovery plants is dependent upon Thermo Fibergen entering into
long-term contracts with paper mills, under which Thermo Fibergen will
charge fees to accept the mills' papermaking sludge. Thermo Fibergen does
not currently have such agreements in place nor is there any assurance
that Thermo Fibergen will be able to obtain such contracts. The Company
believes that its existing resources are sufficient to meet the capital
requirements of its existing operations for the foreseeable future.
PART II - OTHER INFORMATION
Item 2 - Changes in Securities and Use of Proceeds
(c) Recent Sales of Unregistered Securities
On July 10, 1997, the Company entered into an agreement to sell at
par $150 million principal amount of 4 1/2% convertible subordinated
debentures due 2004 (the Debentures).
Debentures having an aggregate principal amount of $153 million
(including $3 million principal amount to cover over-allotments) were
sold on July 16, 1997 to the underwriters of the offering in reliance on
Section 4(2) of the Securities Act of 1933, as amended (the Securities
Act). Debentures having an aggregate principal amount of $116.9 million
were then resold by the underwriters to qualified institutional buyers in
reliance on the exemption from registration provided by Rule 144A under
the Securities Act. (The balance of the Debentures were resold and
delivered by the underwriters to non-United States persons outside of the
United States, its territories and possessions in reliance on the
exemption from registration provided by Regulation S under the Securities
Act.)
The managers of the offering were Lehman Brothers International
(Europe), Salomon Brothers Inc., and Smith Barney Inc. The total
underwriting discounts and commissions applicable to the 144A Debentures
were approximately $2.3 million, or 2.0% of the principal amount thereof.
The Debentures are convertible into shares of the Company's common
stock at a price of $12.10 per share.
15PAGE
<PAGE>
THERMO FIBERTEK INC.
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 July 16, 1997, the Company filed a Current Report on Form 8-K,
with respect to the sale of $153 million principal amount of 4 1/2%
convertible subordinated debentures due 2004.
On August 5, 1997, the Company filed an amendment on Form 8-K/A,
pertaining to the acquisition by the Company of the Stock-preparation
Business of the Black Clawson Company and its affiliates, the purpose of
which was to file the financial information required by Form 8-K
concerning this acquisition.
16PAGE
<PAGE>
THERMO FIBERTEK 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 FIBERTEK INC.
Paul F. Kelleher
--------------------
Paul F. Kelleher
Chief Accounting Officer
John N. Hatsopoulos
--------------------
John N. Hatsopoulos
Vice President and Chief
Financial Officer
17PAGE
<PAGE>
THERMO FIBERTEK INC.
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
-----------------------------------------------------------------------
11 Statement re: Computation of Earnings per Share.
27 Financial Data Schedule.
Exhibit 11
THERMO FIBERTEK INC.
Computation of Earnings per Share
Three Months Ended Nine Months Ended
------------------------ -------------------------
Sept. 27, Sept. 28, Sept. 27, Sept. 28,
1997 1996 1997 1996
- ------------------------------------------------------------------------------
Computation of Fully
Diluted Earnings
per Share:
Income:
Net income $ 3,594,000 $ 4,213,000 $10,813,000 $14,295,000
Add: Convertible debt
interest, net
of tax 30,000 79,000 188,000 237,000
----------- ----------- ----------- -----------
Income applicable to
common stock assuming
full dilution (a) $ 3,624,000 $ 4,292,000 $11,001,000 $14,532,000
----------- ----------- ----------- -----------
Shares:
Weighted average shares
outstanding 61,503,678 61,088,657 61,296,040 61,015,230
Add: Shares issuable
from assumed
conversion of
subordinated
convertible
obligation 726,192 1,888,113 1,500,806 1,888,113
Shares issuable
from assumed
exercise of
options (as
determined by
the application
of the treasury
stock method) 1,136,837 1,404,451 1,136,837 1,494,662
----------- ----------- ----------- -----------
Weighted average
shares outstanding,
as adjusted (b) 63,366,707 64,381,221 63,933,683 64,398,005
----------- ----------- ----------- -----------
Fully Diluted Earnings
per Share (a) / (b) $ .06 $ .07 $ .17 $ .23
=========== =========== =========== ===========
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO
FIBERTEK 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> 109,646
<SECURITIES> 29,492
<RECEIVABLES> 51,539
<ALLOWANCES> 2,345
<INVENTORY> 30,998
<CURRENT-ASSETS> 235,424
<PP&E> 58,848
<DEPRECIATION> 31,196
<TOTAL-ASSETS> 410,380
<CURRENT-LIABILITIES> 67,600
<BONDS> 153,000
0
0
<COMMON> 633
<OTHER-SE> 133,502
<TOTAL-LIABILITY-AND-EQUITY> 410,380
<SALES> 166,784
<TOTAL-REVENUES> 166,784
<CGS> 100,522
<TOTAL-COSTS> 100,522
<OTHER-EXPENSES> 4,652
<LOSS-PROVISION> 147
<INTEREST-EXPENSE> 2,961
<INCOME-PRETAX> 19,078
<INCOME-TAX> 7,425
<INCOME-CONTINUING> 10,813
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,813
<EPS-PRIMARY> .18
<EPS-DILUTED> .17
</TABLE>
