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 1-11406
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: (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 61,706,983
PAGE
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
-----------------------------
THERMO FIBERTEK INC.
Consolidated Balance Sheet
(Unaudited)
Assets
April 4, January 3,
(In thousands) 1998 1998
------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents (includes $66,037
and $62,550 under repurchase agreement
with affiliated company) $120,451 $111,648
Available-for-sale investments, at quoted
market value (amortized cost of $29,454
and $36,273) 29,478 36,319
Accounts receivable, less allowances of
$2,314 and $2,565 46,799 53,408
Unbilled contract costs and fees 4,166 4,422
Inventories:
Raw materials and supplies 15,420 14,609
Work in process 7,713 6,426
Finished goods 11,399 10,925
Prepaid and refundable income taxes (includes
$940 due from parent company in fiscal 1997) 7,165 7,457
Other current assets 1,633 2,256
-------- --------
244,224 247,470
-------- --------
Property, Plant, and Equipment, at Cost 61,763 61,059
Less: Accumulated depreciation and
amortization 33,328 32,723
-------- --------
28,435 28,336
-------- --------
Other Assets 14,201 14,437
-------- --------
Cost in Excess of Net Assets of Acquired
Companies 127,887 128,695
-------- --------
$414,747 $418,938
======== ========
2PAGE
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THERMO FIBERTEK 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 $ 23,120 $ 25,755
Accrued payroll and employee benefits 8,608 10,588
Billings in excess of contract costs
and fees 5,218 5,548
Accrued warranty costs 8,550 8,620
Accrued income taxes (includes $737
due from parent company in fiscal 1998) 1,193 -
Other accrued expenses 14,786 18,512
Due to parent company and affiliated
companies 1,107 1,451
-------- --------
62,582 70,474
-------- --------
Deferred Income Taxes and Other Deferred Items 4,287 4,267
-------- --------
Subordinated Convertible Debentures 153,000 153,000
-------- --------
Minority Interest 252 290
-------- --------
Common Stock of Subsidiary Subject to
Redemption ($54,762 redemption value) 53,059 52,812
-------- --------
Shareholders' Investment:
Common stock, $.01 par value, 150,000,000
shares authorized; 63,358,087 and
63,331,887 shares issued 634 633
Capital in excess of par value 80,321 81,865
Retained earnings 86,858 82,607
Treasury stock at cost, 1,682,287 and
1,820,709 shares (18,120) (19,494)
Accumulated other comprehensive items
(Note 3) (8,126) (7,516)
-------- --------
141,567 138,095
-------- --------
$414,747 $418,938
======== ========
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
----------------------
April 4, March 29,
(In thousands except per share amounts) 1998 1997
------------------------------------------------------------------------
Revenues $62,330 $44,667
------- -------
Costs and Operating Expenses:
Cost of revenues 37,052 25,536
Selling, general, and administrative expenses 16,244 12,975
Research and development expenses 1,867 1,276
------- -------
55,163 39,787
------- -------
Operating Income 7,167 4,880
Interest Income 1,982 1,437
Interest Expense (includes $131 to related
party in fiscal 1997) (1,861) (156)
------- -------
Income Before Provision for Income Taxes and
Minority Interest 7,288 6,161
Provision for Income Taxes 2,834 2,317
Minority Interest Expense 203 384
------- -------
Net Income $ 4,251 $ 3,460
======= =======
Earnings per Share (Note 2):
Basic $ .07 $ .06
======= =======
Diluted $ .07 $ .05
======= =======
Weighted Average Shares (Note 2):
Basic 61,562 61,140
======= =======
Diluted 62,641 64,189
======= =======
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
----------------------
April 4, March 29,
(In thousands) 1998 1997
-----------------------------------------------------------------------
Operating Activities:
Net income $ 4,251 $ 3,460
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 2,236 1,403
Provision for losses on accounts
receivable 55 15
Minority interest expense 203 384
Other noncash items 8 -
Changes in current accounts:
Accounts receivable 6,291 5,249
Inventories and unbilled contract
costs and fees (2,576) (4,778)
Prepaid income taxes and other
current assets 866 1,045
Accounts payable (2,962) (111)
Other current liabilities (4,752) (1,578)
-------- --------
Net cash provided by operating activities 3,620 5,089
-------- --------
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 (1,359) (908)
Issuance of note receivable - (3,000)
Other 81 (21)
-------- --------
Net cash provided by (used in) investing
activities 5,533 (3,929)
-------- --------
Financing Activities:
Other (169) 4
-------- --------
Net cash provided by (used in) financing
activities $ (169) $ 4
-------- --------
5PAGE
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THERMO FIBERTEK INC.
Consolidated Statement of Cash Flows (continued)
(Unaudited)
Three Months Ended
------------------------
April 4, March 29,
(In thousands) 1998 1997
-----------------------------------------------------------------------
Exchange Rate Effect on Cash $ (181) $ (2,272)
-------- --------
Increase (Decrease) in Cash and Cash
Equivalents 8,803 (1,108)
Cash and Cash Equivalents at Beginning of
Period 111,648 109,805
-------- --------
Cash and Cash Equivalents at End of Period $120,451 $108,697
======== ========
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 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 $ 4,251 $ 3,460
------- -------
Weighted average shares 61,562 61,140
------- -------
Basic earnings per share $ .07 $ .06
======= =======
Diluted
Net income $ 4,251 $ 3,460
Effect of:
Convertible obligations - 79
Majority-owned subsidiary's dilutive securities (9) (27)
------- -------
Income available to common shareholders,
as adjusted $ 4,242 $ 3,512
------- -------
Weighted average shares 61,562 61,140
Effect of:
Convertible obligations - 1,888
Stock options 1,079 1,161
------- -------
Weighted average shares, as adjusted 62,641 64,189
------- -------
Diluted earnings per share $ .07 $ .05
======= =======
7PAGE
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THERMO FIBERTEK 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 48,000 of
such options outstanding, with exercise prices ranging from $12.58 to
$14.32 per share.
In addition, the computation of diluted earnings per share for 1998
excludes the effect of assuming the conversion of the Company's $153.0
million principal amount of 4 1/2% subordinated convertible debentures,
convertible at $12.10 per share, because the effect would be
antidilutive.
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 items.
In general, comprehensive income combines net income and "other
comprehensive items" which represent certain amounts that are reported as
components of shareholders' investment in the accompanying balance sheet,
including foreign currency translation adjustments and unrealized net of
tax gains and losses on available-for-sale investments. During the first
quarter of 1998 and 1997, the Company had comprehensive income of
$3,645,000 and a comprehensive loss of $1,070,000, 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.
8PAGE
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THERMO FIBERTEK INC.
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
in the manufacture of corrugated boxes. The Company's Thermo Fibergen
Inc. subsidiary is developing and commercializing technology to recover
valuable materials from papermaking sludge generated by plants that
produce virgin and recycled pulp and paper. In December 1997, Thermo
Fibergen 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, Thermo Fibergen employs
patented technology to produce absorbing granules from papermaking
sludge.
The Company's manufacturing facilities are principally located 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, which began adversely affecting the Company's business during
the second half of 1996, continues to have an adverse effect on the
Company's business. The timing of the recovery of the financial condition
of the paper industry cannot be predicted.
In 1997, approximately 37% of the Company's sales originated outside
the U.S., principally in Europe, and approximately 13% of the Company's
revenues were exports from the U.S. During 1997, the Company had exports
from the Company's U.S. and foreign operations to Asia of approximately
6% of total revenues, a substantial portion of which represents sales
from Thermo Black Clawson, acquired May 1997. Exports to Asia in 1997
were primarily to China, Japan, and South Korea. Asia is experiencing a
severe economic crisis, which has been characterized by sharply reduced
economic activity and liquidity, highly volatile
foreign-currency-exchange and interest rates, and unstable stock markets.
The Company's sales to Asia, other than to China, have been adversely
affected by the unstable economic conditions in that region. To date, the
Company's business in China has not been adversely affected by the Asian
crisis.
9PAGE
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THERMO FIBERTEK INC.
Results of Operations
First Quarter 1998 Compared With First Quarter 1997
---------------------------------------------------
Revenues increased to $62.3 million in the first quarter of 1998 from
$44.7 million in the first quarter of 1997, primarily due to the
inclusion of $17.4 million in revenues from Thermo Black Clawson,
acquired May 1997. Additional revenue improvement over the prior year was
principally from an increase in demand at the Company's accessories
business. These improvements were offset in part by a $2.3 million
decrease in revenues from the Company's recycling business, principally
due to a continuing 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 1998
revenues by $1.5 million.
The gross profit margin decreased to 41% in the first quarter of 1998
from 43% in the first quarter of 1997, primarily due to the inclusion of
lower-margin revenues at Thermo Black Clawson.
Selling, general, and administrative expenses as a percentage of
revenues decreased to 26% in the first quarter of 1998 from 29% in the
first quarter of 1997, primarily due to lower expenses as a percentage of
revenues at Thermo Black Clawson.
Research and development expenses increased to $1.9 million in the
first quarter of 1998 from $1.3 million in the first quarter of 1997,
primarily due to the inclusion of $0.5 million in expenses at Thermo
Black Clawson.
Interest income increased to $2.0 million in the first quarter of
1998 from $1.4 million in the first quarter of 1997, primarily due to an
increase in average invested balances resulting from the remaining net
proceeds from the July 1997 sale of $153.0 million principal amount of
4 1/2% subordinated convertible debentures, of which $103.4 million was
used to finance the acquisition of Thermo Black Clawson.
Interest expense increased to $1.9 million in the first quarter of
1998 from $0.2 million in the first quarter of 1997 as a result of the
July 1997 issuance of subordinated convertible debentures.
The effective tax rate was 39% in the first quarter of 1998 and 38%
in the first quarter of 1997. These rates exceeded the statutory federal
income tax rate primarily due to the impact of state income taxes, offset
in part in 1997 by the effect of lower foreign tax rates.
Minority interest expense primarily represents accretion of Thermo
Fibergen's common stock subject to redemption.
10PAGE
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THERMO FIBERTEK INC.
Liquidity and Capital Resources
Consolidated working capital was $181.6 million at April 4, 1998,
compared with $177.0 million at January 3, 1998. Included in working
capital are cash, cash equivalents, and available-for-sale investments of
$149.9 million at April 4, 1998, compared with $148.0 million at January
3, 1998. Of the $149.9 million balance at April 4, 1998, $57.6 million
was held by Thermo Fibergen, $6.5 million was held by Fiberprep, and the
remainder was held by the Company and its wholly owned subsidiaries. At
April 4, 1998, $30.2 million of the Company's cash and cash equivalents
was held by its foreign subsidiaries. Repatriation of this cash into the
U.S. would be subject to foreign withholding taxes and could also be
subject to a U.S. tax.
During the first quarter of 1998, $3.6 million of cash was provided
by operating activities. A decrease in accounts receivable provided $6.3
million of cash, primarily as a result of a decline in revenues in the
first quarter of 1998, as compared to the fourth quarter of 1997. The
Company used $4.8 million of cash to reduce other current liabilities,
primarily for interest and bonus payments and a decrease in commissions
payable, which resulted from the decline in revenues from the fourth
quarter of 1997.
During the first quarter of 1998, the Company's primary investing
activity, excluding available-for-sale investments activity, was the
purchase of property, plant, and equipment for $1.4 million. During the
first quarter of 1998, the Company's financing activities used $0.2
million in cash.
Thermo Fibergen's common stock is subject to redemption in September
2000 or 2001, the redemption value of which is $54.8 million.
At April 4, 1998, the Company had $57.7 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.
During the remainder of 1998, the Company plans to make expenditures
for property, plant, and equipment of approximately $9 million, which
includes expenditures at Thermo Fibergen for the completion of the
construction of a fiber-recovery and water-clarification facility which
began in the first quarter of 1998. In addition, Thermo Fibergen may make
additional capital expenditures for the construction of additional
fiber-recovery facilities. Construction of fiber-recovery facilities 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 currently has only one such
agreement in place and there is no assurance that Thermo Fibergen will be
able to obtain such additional contracts. The Company believes that its
existing resources are sufficient to meet the capital requirements of its
existing operations for the foreseeable future.
11PAGE
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THERMO FIBERTEK INC.
PART II - OTHER INFORMATION
Item 6 - Exhibits
-----------------
See Exhibit Index on the page immediately preceding exhibits.
12PAGE
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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 8th day of May 1998.
THERMO FIBERTEK INC.
Paul F. Kelleher
---------------------------
Paul F. Kelleher
Chief Accounting Officer
John N. Hatsopoulos
---------------------------
John N. Hatsopoulos
Chief Financial Officer
and Senior Vice President
13PAGE
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THERMO FIBERTEK 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
FIBERTEK 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 FINACIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-END> APR-04-1998
<CASH> 120,451
<SECURITIES> 29,478
<RECEIVABLES> 49,113
<ALLOWANCES> 2,314
<INVENTORY> 34,532
<CURRENT-ASSETS> 244,224
<PP&E> 61,763
<DEPRECIATION> 33,328
<TOTAL-ASSETS> 414,747
<CURRENT-LIABILITIES> 62,582
<BONDS> 153,000
0
0
<COMMON> 634
<OTHER-SE> 140,933
<TOTAL-LIABILITY-AND-EQUITY> 414,747
<SALES> 62,330
<TOTAL-REVENUES> 62,330
<CGS> 37,052
<TOTAL-COSTS> 37,052
<OTHER-EXPENSES> 1,867
<LOSS-PROVISION> 55
<INTEREST-EXPENSE> 1,861
<INCOME-PRETAX> 7,288
<INCOME-TAX> 2,834
<INCOME-CONTINUING> 4,251
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,251
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
