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 March 29, 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 April 25, 1997
---------------------------- -----------------------------
Common Stock, $.01 par value 61,195,263
PAGE
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
THERMO FIBERTEK INC.
Consolidated Balance Sheet
(Unaudited)
Assets
March 29, December 28,
(In thousands) 1997 1996
------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $108,697 $109,805
Accounts receivable, less allowances of
$1,863 and $1,948 31,241 38,115
Unbilled contract costs and fees 5,135 1,236
Inventories:
Raw materials and supplies 12,367 13,778
Work in process 4,939 4,180
Finished goods 6,716 6,509
Prepaid income taxes and other current
assets (Note 2) 10,499 8,802
-------- --------
179,594 182,425
-------- --------
Property, Plant, and Equipment, at Cost 56,076 57,869
Less: Accumulated depreciation and amortization 30,538 31,329
-------- --------
25,538 26,540
-------- --------
Other Assets 8,689 8,720
-------- --------
Cost in Excess of Net Assets of Acquired
Companies 38,766 39,547
-------- --------
$252,587 $257,232
======== ========
2PAGE
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THERMO FIBERTEK INC.
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
March 29, December 28,
(In thousands except share amounts) 1997 1996
------------------------------------------------------------------------
Current Liabilities:
Accounts payable $ 16,660 $ 16,805
Accrued payroll and employee benefits 7,784 10,989
Billings in excess of contract costs and fees 2,839 2,540
Accrued warranty costs 7,150 7,752
Accrued income taxes (includes $1,516 and
$1,340 due to related party) 3,243 2,414
Other accrued expenses 8,701 8,707
Due to parent company 16,701 17,609
-------- --------
63,078 66,816
-------- --------
Deferred Income Taxes and Other Deferred Items 2,948 3,202
-------- --------
Minority Interest 300 277
-------- --------
Common Stock of Subsidiary Subject to
Redemption ($60,116 redemption value) 56,359 56,087
-------- --------
Shareholders' Investment:
Common stock, $.01 par value, 75,000,000
shares authorized; 61,154,930
shares issued 612 612
Capital in excess of par value 65,891 65,951
Retained earnings 69,641 66,181
Treasury stock at cost, 11,550 and 23,550
shares (177) (360)
Cumulative translation adjustment (6,065) (1,534)
-------- --------
129,902 130,850
-------- --------
$252,587 $257,232
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
3PAGE
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THERMO FIBERTEK INC.
Consolidated Statement of Income
(Unaudited)
Three Months Ended
------------------------
March 29, March 30,
(In thousands except per share amounts) 1997 1996
-----------------------------------------------------------------------
Revenues (includes $319 from related
party in 1996) $44,667 $48,980
------- -------
Costs and Operating Expenses:
Cost of revenues (includes $213 for
related party revenues in 1996) 25,536 28,192
Selling, general, and administrative expenses 12,975 11,467
Research and development expenses 1,276 1,273
------- -------
39,787 40,932
------- -------
Operating Income 4,880 8,048
Interest Income 1,437 735
Interest Expense (includes $131 to related
party in 1997 and 1996) (156) (172)
------- -------
Income Before Provision for Income Taxes
and Minority Interest 6,161 8,611
Provision for Income Taxes 2,317 3,399
Minority Interest Expense 384 6
------- -------
Net Income $ 3,460 $ 5,206
======= =======
Earnings per Share:
Primary $ .06 $ .09
======= =======
Fully diluted $ .06 $ .08
======= =======
Weighted Average Shares:
Primary 61,140 60,935
======= =======
Fully diluted 64,189 64,356
======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
4PAGE
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THERMO FIBERTEK INC.
Consolidated Statement of Cash Flows
(Unaudited)
Three Months Ended
-------------------------
March 29, March 30,
(In thousands) 1997 1996
------------------------------------------------------------------------
Operating Activities:
Net income $ 3,460 $ 5,206
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 1,403 1,083
Provision for losses on accounts
receivable 15 42
Minority interest expense 384 6
Deferred income tax expense - 215
Other noncash items - (314)
Changes in current accounts:
Accounts receivable 5,249 6,577
Inventories and unbilled contract
costs and fees (4,778) (391)
Prepaid income taxes and other
current assets 1,045 (684)
Accounts payable (111) (2,148)
Other current liabilities (1,578) (3,807)
-------- --------
Net cash provided by operating activities 5,089 5,785
-------- --------
Investing Activities:
Issuance of note receivable (3,000) -
Proceeds from sale and maturities of
available-for-sale investments - 1,250
Purchases of property, plant, and equipment (908) (663)
Proceeds from sale of property, plant, and
equipment - 548
Other (21) 143
-------- --------
Net cash provided by (used in) investing
activities (3,929) 1,278
-------- --------
Financing Activities:
Net proceeds from issuance of Company and
subsidiary common stock 36 555
Repayment of short-term obligation
to parent company - (10,400)
Repayment of long-term obligations (32) (2)
-------- --------
Net cash provided by (used in) financing
activities $ 4 $ (9,847)
-------- --------
5PAGE
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THERMO FIBERTEK INC.
Consolidated Statement of Cash Flows (continued)
(Unaudited)
Three Months Ended
-------------------------
March 29, March 30,
(In thousands) 1997 1996
------------------------------------------------------------------------
Exchange Rate Effect on Cash $ (2,272) $ (346)
-------- --------
Decrease in Cash and Cash Equivalents (1,108) (3,130)
Cash and Cash Equivalents at Beginning of
Period 109,805 57,028
-------- --------
Cash and Cash Equivalents at End of Period $108,697 $ 53,898
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
6PAGE
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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 March
29, 1997, and the results of operations and cash flows for the
three-month periods ended March 29, 1997, and March 30, 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. Letter of Intent
On February 26, 1997, the Company entered into a letter of intent to
acquire the assets, subject to certain liabilities, of the
stock-preparation business of the Black Clawson Company and its
affiliates (collectively, Black Clawson) for approximately $110 million
in cash. Black Clawson is a leading supplier of recycling equipment used
in processing fiber for the manufacture of "brown paper" such as that
used for corrugated boxes. The transaction is subject to several
conditions, including completion by the Company of its due diligence
investigation; negotiation of a definitive agreement; and approval by the
Boards of Directors of the Company, Thermo Electron Corporation, and
Black Clawson. If this transaction is consummated, the Company intends to
borrow the majority of the purchase price from Thermo Electron.
Pursuant to a promissory note, Carl C. Landegger, a trustee of a
trust that directly controls Black Clawson, borrowed $6.0 million from a
third party lender. In March 1997, the Company purchased a 50%, or $3.0
million, participation in the promissory note pursuant to an agreement
with the lender. The interest rate on the loan is prime plus 1% and the
loan is due on June 10, 1997. The loan is secured by all of the
outstanding capital stock of United Container Machinery, Inc., a company
under common ownership with Black Clawson. The Company believes that the
fair value of the collateral for this loan exceeds the $6.0 million loan
amount.
7PAGE
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THERMO FIBERTEK INC.
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 Fibergen Inc. (Thermo
Fibergen) 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. (GranTek) subsidiary, acquired in July 1996, Thermo Fibergen
employs patented technology to produce absorbing granules from
papermaking sludge.
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, as well as a number of other factors,
including paper and pulp production capacity. The paper industry entered
a severe down cycle 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 quarter 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.
8PAGE
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THERMO FIBERTEK INC.
Results of Operations
First Quarter 1997 Compared With First Quarter 1996
Revenues decreased 9% to $44.7 million in the first quarter of 1997
from $49.0 million in the first quarter of 1996. Revenues from the
Company's recycling business decreased $3.9 million primarily due to a
decrease in demand resulting from a severe drop in de-inked pulp prices.
This decrease was offset in part by $1.5 million in revenues from the
Company's GranTek subsidiary, acquired in July 1996. Revenues from the
Company's accessories business decreased $0.8 million, due principally to
a decrease in demand. The unfavorable effects of currency translation due
to a stronger U.S. dollar decreased revenues by $0.9 million.
The gross profit margin increased to 43% in the first quarter of 1997
from 42% in the first quarter of 1996, largely due to the inclusion in
1996 of warranty reserves recorded at the Company's Fiberprep subsidiary
for a large de-inking project (unrelated to the office wastepaper
de-inking facility subcontract for Thermo Electron Corporation completed
in 1996).
Selling, general, and administrative expenses as a percentage of
revenues increased to 29% in the first quarter of 1997 from 23% in the
first quarter of 1996, primarily due to the decrease in revenues, as well
as higher general and administrative expenses as a percentage of revenues
at Thermo Fibergen, which is developing and commercializing equipment and
systems to recover materials from papermaking sludge.
Research and development expenses were unchanged at $1.3 million in
the first quarter of 1997 and 1996. Thermo Fibergen's spending on
research and development increased $0.3 million due to continued
development of technology to recover materials from papermaking sludge
generated by plants that produce virgin and recycled pulp and paper. The
Company expects Thermo Fibergen's spending on research and development
will continue to increase over amounts incurred in 1996.
Interest income increased to $1.4 million in the first quarter of
1997 from $0.7 million in the first quarter of 1996, primarily due to an
increase in average invested balances resulting from the proceeds from
Thermo Fibergen's initial public offering in September 1996.
The effective tax rate was 38% in the first quarter of 1997 and 39%
in the first quarter of 1996. The effective tax rates exceed the
statutory federal income tax rate due primarily to state income taxes,
offset in part by the effect of lower foreign tax rates.
Liquidity and Capital Resources
Consolidated working capital was $116.5 million at March 29, 1997,
compared with $115.6 million at December 28, 1996. Included in working
capital are cash and cash equivalents of $108.7 million at March 29,
1997, compared with $109.8 million at December 28, 1996. Of the $108.7
million balance at March 29, 1997, $58.8 million was held by Thermo
Fibergen and $3.4 million was held by Fiberprep, with the remainder being
held by the Company and its wholly owned subsidiaries. At March 29, 1997,
$18.4 million of the Company's cash and cash equivalents was held by its
9PAGE
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THERMO FIBERTEK INC.
Liquidity and Capital Resources (continued)
Lamort subsidiary. Repatriation of this cash into the United States is
subject to a 5% withholding tax in France and could also be subject to a
United States tax.
During the first quarter of 1997, $5.1 million of cash was provided
by operating activities. Cash provided by the Company's operating results
was increased by a decrease in accounts receivable of $5.3 million,
offset in part by an increase in unbilled contract costs and fees of $4.1
million. The reduction in accounts receivable was primarily due to the
timing of billings on percentage-of-completion contracts, which is also
reflected in the increase in unbilled contract costs and fees.
During the first quarter of 1997, $3.9 million of cash was used in
investing activities for purchases of property, plant, and equipment and
for a loan of $3.0 million pursuant to a promissory note (Note 2).
The Company currently owns 68% of Thermo Fibergen's outstanding
common stock and intends, for the foreseeable future, to maintain at
least 50% ownership. This may require the purchase by the Company of
additional shares of common stock of Thermo Fibergen from time to time,
as the number of Thermo Fibergen shares increases as a result of the
exercise of stock options or otherwise. These or any other purchases may
be made either in the open market or directly from Thermo Fibergen. The
Company's Board of Directors has authorized the repurchase, through March
19, 1998, of up to $5.0 million of Thermo Fibergen's common stock. Any
such purchases would be funded from working capital. Through March 29,
1997, the Company had not repurchased any shares of common stock under
this authorization.
On February 26, 1997, the Company entered into a letter of intent to
acquire the assets, subject to certain liabilities, of the stock-
preparation business of the Black Clawson Company for approximately $110
million in cash (Note 2). If this transaction is consummated, the Company
intends to borrow the majority of the purchase price from Thermo
Electron.
In the remainder of 1997, the Company plans to make expenditures for
property, plant, and equipment of approximately $3 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' pulp 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 6 - Exhibits
See Exhibit Index on the page immediately preceding exhibits.
10PAGE
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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 2nd day of May 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
11PAGE
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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
----------------------------
March 29, March 30,
1997 1996
- ----------------------------------------------------------------------------
Computation of Fully Diluted Earnings
per Share:
Income:
Net income $ 3,460,000 $ 5,206,000
Add: Convertible debt interest, net
of tax 79,000 79,000
----------- -----------
Income applicable to common stock
assuming full dilution (a) $ 3,539,000 $ 5,285,000
----------- -----------
Shares:
Weighted average shares outstanding 61,140,495 60,934,520
Add: Shares issuable from assumed
conversion of subordinated
convertible obligation 1,888,113 1,888,113
Shares issuable from assumed
exercise of options (as determined
by the application of the treasury
stock method) 1,160,395 1,532,985
----------- -----------
Weighted average shares outstanding,
as adjusted (b) 64,189,003 64,355,618
----------- -----------
Fully Diluted Earnings per Share (a) / (b) $ .06 $ .08
=========== ===========
<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 MARCH 29,
1997 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> JAN-03-1998
<PERIOD-END> MAR-29-1997
<CASH> 108,697
<SECURITIES> 0
<RECEIVABLES> 33,104
<ALLOWANCES> 1,863
<INVENTORY> 24,022
<CURRENT-ASSETS> 179,594
<PP&E> 56,076
<DEPRECIATION> 30,538
<TOTAL-ASSETS> 252,587
<CURRENT-LIABILITIES> 63,078
<BONDS> 0
0
0
<COMMON> 612
<OTHER-SE> 129,290
<TOTAL-LIABILITY-AND-EQUITY> 252,587
<SALES> 44,667
<TOTAL-REVENUES> 44,667
<CGS> 25,536
<TOTAL-COSTS> 25,536
<OTHER-EXPENSES> 1,276
<LOSS-PROVISION> 15
<INTEREST-EXPENSE> 156
<INCOME-PRETAX> 6,161
<INCOME-TAX> 2,317
<INCOME-CONTINUING> 3,460
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,460
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
