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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 31, 2001
[ ] 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
incorporation or organization) (I.R.S. Employer Identification No.)
245 Winter Street
Waltham, Massachusetts 02451
(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 27, 2001
---------------------------- -----------------------------
Common Stock, $.01 par value 61,386,544
PART I - Financial Information
Item 1 - Financial Statements
- -----------------------------
THERMO FIBERTEK INC.
Consolidated Balance Sheet
(Unaudited)
Assets
March 31, December 30,
(In thousands) 2001 2000
- ---------------------------------------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $133,594 $ 62,461
Advance to affiliate 3,814 5,704
Available-for-sale investments, at quoted market value
(amortized cost of $19,076 and $86,104) 19,083 86,137
Accounts receivable, less allowances of $3,473 and $2,182 42,479 43,866
Unbilled contract costs and fees 7,028 8,029
Inventories:
Raw materials and supplies 14,404 13,218
Work in process 7,137 4,825
Finished goods (includes $2,936 and $3,765 at customer locations) 14,716 15,034
Deferred tax asset 9,324 8,879
Other current assets 5,312 3,625
-------- --------
256,891 251,778
-------- --------
Property, Plant, and Equipment, at Cost 69,527 67,646
Less: Accumulated depreciation and amortization 40,599 38,064
-------- --------
28,928 29,582
-------- --------
Other Assets (Note 5) 12,467 13,755
-------- --------
Goodwill 118,271 119,100
-------- --------
$416,557 $414,215
======== ========
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THERMO FIBERTEK INC.
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
March 31, December 30,
(In thousands except share amounts) 2001 2000
- ---------------------------------------------------------------------------------------------------------
Current Liabilities:
Current maturities of long-term obligations $ 562 $ 562
Accounts payable 25,395 21,921
Accrued income taxes 6,493 4,986
Accrued payroll and employee benefits 6,393 7,727
Accrued warranty costs 4,894 5,666
Deferred revenue 3,544 3,600
Customer deposits 2,461 3,476
Other accrued expenses 11,244 12,433
Common stock of subsidiary subject to redemption (at redemption value) 17,026 17,026
Due to parent company and affiliated companies 990 1,284
-------- --------
79,002 78,681
-------- --------
Deferred Income Taxes and Other Deferred Items 8,092 8,042
-------- --------
Long-term Obligations:
Subordinated convertible debentures 153,000 153,000
Notes payable 1,469 1,650
-------- --------
154,469 154,650
-------- --------
Minority Interest (Note 5) 302 2,209
-------- --------
Shareholders' Investment:
Common stock, $.01 par value, 150,000,000 shares authorized;
63,662,276 shares issued 637 637
Capital in excess of par value 76,738 76,721
Retained earnings 136,651 133,522
Treasury stock at cost, 2,275,732 shares (20,758) (20,758)
Deferred compensation (28) (36)
Accumulated other comprehensive items (Notes 2 and 6) (18,548) (19,453)
-------- --------
174,692 170,633
-------- --------
$416,557 $414,215
======== ========
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
---------------------------
March 31, April 1,
(In thousands except per share amounts) 2001 2000
- ---------------------------------------------------------------------------------------------------------
Revenues $58,900 $57,922
------- -------
Costs and Operating Expenses:
Cost of revenues 36,196 34,607
Selling, general, and administrative expenses 15,856 15,831
Research and development expenses 1,792 1,863
------- -------
53,844 52,301
------- -------
Operating Income 5,056 5,621
Interest Income 2,141 2,503
Interest Expense (1,873) (1,890)
------- -------
Income Before Provision for Income Taxes, Minority
Interest, and Cumulative Effect of Change in Accounting Principle 5,324 6,234
Provision for Income Taxes 2,219 2,525
Minority Interest (Income) Expense (Note 5) (24) 149
------- -------
Income Before Cumulative Effect of Change in Accounting Principle 3,129 3,560
Cumulative Effect of Change in Accounting Principle (net of
income taxes of $580) - (870)
------- -------
Net Income $ 3,129 $ 2,690
======= =======
Basic and Diluted Earnings per Share Before Cumulative
Effect of Change in Accounting Principle $ .05 $ .06
======= =======
Basic and Diluted Earnings per Share (Note 3) $ .05 $ .04
======= =======
Weighted Average Shares (Note 3):
Basic 61,387 61,244
======= =======
Diluted 61,448 61,597
======= =======
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)
Three Months Ended
--------------------------
March 31, April 1,
(In thousands) 2001 2000
- --------------------------------------------------------------------------------------------------------
Operating Activities:
Net income $ 3,129 $ 2,690
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Cumulative effect of change in accounting principle - 870
Depreciation and amortization 2,381 2,400
Provision for losses on accounts receivable 1,295 126
Minority interest (income) expense (Note 5) (24) 149
Other noncash items (1) 51
Changes in current accounts, excluding the effects of
acquisitions and dispositions:
Accounts receivable 304 7,594
Inventories and unbilled contract costs and fees (2,228) (2,798)
Prepaid income taxes and other current assets (1,991) (589)
Accounts payable 2,848 1,187
Other current liabilities (3,602) (12,060)
-------- --------
Net cash provided by (used in) operating activities 2,111 (380)
-------- --------
Investing Activities:
Acquisitions, net of cash acquired - (2,998)
Acquisition of capital equipment and technology - (1,200)
Advances to affiliate, net 1,890 (5,668)
Proceeds from maturities of available-for-sale investments 67,028 10,244
Purchases of property, plant, and equipment (1,178) (1,369)
Payment received on note for sale of property 600 -
Other, net (334) (42)
-------- --------
Net cash provided by (used in) investing activities 68,006 (1,033)
-------- --------
Financing Activities:
Net proceeds from issuance of Company and subsidiary common stock 20 207
Repayments of long-term obligations (182) -
-------- --------
Net cash provided by (used in) financing activities (162) 207
-------- --------
Exchange Rate Effect on Cash 1,178 (462)
-------- --------
Increase (Decrease) in Cash and Cash Equivalents 71,133 (1,668)
Cash and Cash Equivalents at Beginning of Period 62,461 39,254
-------- --------
Cash and Cash Equivalents at End of Period $133,594 $ 37,586
======== ========
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THERMO FIBERTEK INC.
Consolidated Statement of Cash Flows (continued)
(Unaudited)
Three Months Ended
--------------------------
March 31, April 1,
(In thousands) 2001 2000
- --------------------------------------------------------------------------------------------------------
Noncash Activities:
Fair value of assets of acquired companies $ - $ 5,285
Cash paid for acquired companies - (3,411)
Note payable for acquired companies - (795)
-------- --------
Liabilities assumed of acquired companies $ - $ 1,079
======== ========
Amounts forgiven in exchange for the 49% minority interest
in NEXT Fiber Products (Note 5) $ 2,053 $ -
======== ========
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 March 31, 2001, and the results of
operations and cash flows for the three-month periods ended March 31, 2001, and
April 1, 2000. Interim results are not necessarily indicative of results for a
full year.
Historical financial results have been restated to reflect the adoption of
Securities and Exchange Commission Staff Accounting Bulletin No. 101 "Revenue
Recognition in Financial Statements" effective as of January 2, 2000. The
consolidated balance sheet presented as of December 30, 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 December 30,
2000, filed with the Securities and Exchange Commission.
2. Comprehensive Income
Comprehensive income combines net income and "other comprehensive items"
that represent certain amounts that are reported as components of shareholders'
investment in the accompanying balance sheet, including foreign currency
translation adjustments, unrealized net of tax gains and losses on
available-for-sale investments, and deferred gains and losses on foreign
currency contracts (Note 6). During the first quarter of 2001 and 2000, the
Company had comprehensive income of $4,034,000 and $1,644,000, respectively.
3. Earnings per Share
Basic and diluted earnings per share were calculated as follows:
Three Months Ended
-------------------------
March 31, April 1,
(In thousands except per share amounts) 2001 2000
- ---------------------------------------------------------------------------------------------------------
Basic
Income Before Cumulative Effect of Change in Accounting Principle $ 3,129 $ 3,560
Cumulative Effect of Change in Accounting Principle
(net of income taxes of $580) - (870)
------- -------
Net Income $ 3,129 $ 2,690
------- -------
Weighted Average Shares 61,387 61,244
------- -------
Basic Earnings per Share:
Income Before Cumulative Effect of Change in Accounting Principle $ .05 $ .06
Change in Accounting Principle - (.02)
------- -------
$ .05 $ .04
======= =======
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THERMO FIBERTEK INC.
3. Earnings per Share (continued)
Three Months Ended
-------------------------
March 31, April 1,
(In thousands except per share amounts) 2001 2000
- ---------------------------------------------------------------------------------------------------------
Diluted
Income Before Cumulative Effect of Change in Accounting Principle $ 3,129 $ 3,560
Cumulative Effect of Change in Accounting Principle (net of
income taxes of $580) - (870)
------- -------
Net Income $ 3,129 $ 2,690
Effect of Majority-owned Subsidiary's Dilutive Securities - (4)
------- -------
Income Available to Common Shareholders, as Adjusted $ 3,129 $ 2,686
------- -------
Weighted Average Shares 61,387 61,244
Effect of Stock Options 61 353
------- -------
Weighted Average Shares, as Adjusted 61,448 61,597
------- -------
Diluted Earnings per Share:
Income Before Cumulative Effect of Change in Accounting Principle $ .05 $ .06
Change in Accounting Principle - (.02)
------- -------
$ .05 $ .04
======= =======
Options to purchase 2,152,000 and 889,000 shares of common stock for the
first quarter of 2001 and 2000, respectively, were not included in the
computation of diluted earnings per share because the options' exercise prices
were greater than the average market price for the common stock and their effect
would be antidilutive.
In addition, the computation of diluted earnings per share for each period
excludes the effect of assuming the conversion of the Company's $153,000,000
principal amount of 4 1/2% subordinated convertible debentures, convertible at
$12.10 per share, because the effect would be antidilutive.
4. Business Segment Information
Three Months Ended
-------------------------
March 31, April 1,
(In thousands) 2001 2000
- ---------------------------------------------------------------------------------------------------------
Revenues:
Pulp and Papermaking Equipment and Systems $55,987 $55,197
Water- and Fiber-recovery Services and Products (a) 2,913 2,733
Intersegment sales elimination (b) - (8)
------- -------
$58,900 $57,922
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THERMO FIBERTEK INC.
4. Business Segment Information (continued)
Three Months Ended
-------------------------
March 31, April 1,
(In thousands) 2001 2000
- ---------------------------------------------------------------------------------------------------------
Income Before Provision for Income Taxes, Minority Interest, and Cumulative
Effect of Change in Accounting Principle:
Pulp and Papermaking Equipment and Systems $ 6,979 $ 6,885
Water- and Fiber-recovery Services and Products (a) (983) (303)
Corporate (c) (940) (961)
------- -------
Total Operating Income 5,056 5,621
Interest Income, Net 268 613
------- -------
$ 5,324 $ 6,234
======= =======
(a) Reflects the sale of the Company's fiber-recovery and water-clarification services plant in
September 2000.
(b) Intersegment sales are accounted for at prices that are representative of transactions with
unaffiliated parties.
(c) Primarily general and administrative expenses.
5. Acquisition of Composites Venture Minority Interest
In January 2001, the Company's Thermo Fibergen subsidiary acquired the
outstanding 49% equity interest in NEXT Fiber Products, Inc. from the minority
investors (the seller). Next Fiber Products was a joint venture formed in 1999
to develop, produce, and market fiber-based composite products primarily for the
building industry. In exchange for the 49% minority interest, Thermo Fibergen
agreed to forgive $2,053,000 due from the seller, which related to the seller's
investment in NEXT Fiber Products. The excess of assigned fair value of net
assets acquired from the buyout over the acquisition costs resulted in a
reduction in the intangible asset recorded at the time of Thermo Fibergen's
initial investment in NEXT Fiber Products.
6. Recent Accounting Pronouncement
Effective in the first quarter of 2001, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 133 "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133, as amended, requires that all
derivatives, including forward currency exchange contracts, be recognized on the
balance sheet at fair value. Derivatives that are not hedges must be recorded at
fair value through earnings. If a derivative is a hedge, depending on the nature
of the hedge, changes in the fair value of the derivative are either offset
against the change in fair value of the hedged item through earnings or
recognized in other comprehensive income until the hedged item is recognized in
earnings. The Company records in earnings immediately the extent to which a
hedge is not effective in achieving offsetting changes in fair value. Adoption
of SFAS No. 133 in the first quarter of 2001 did not have a material effect on
the Company's financial position and results of operations.
Forward currency exchange contracts are used primarily by the Company to
hedge certain operational ("cash-flow" hedges) and balance sheet ("fair value"
hedges) exposures resulting from changes in currency exchange rates. Such
exposures primarily result from portions of the Company's operations and assets
that are denominated in currencies other than the functional currencies of the
businesses conducting the operations or holding the assets. The Company enters
into these currency exchange contracts to hedge anticipated product sales and
recorded accounts receivable made in the normal course of business, and
accordingly, the hedges are not speculative in nature. The Company does not hold
or transact in financial instruments for purposes other than risk management.
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THERMO FIBERTEK INC.
6. Recent Accounting Pronouncement (continued)
The Company records its currency exchange contracts at fair value in its
consolidated balance sheet as other current assets or other accrued expenses
and, for cash flow hedges, the related gains or losses on these contracts are
deferred as a component of other comprehensive items. These deferred gains and
losses are recognized in income in the period in which the underlying
anticipated transaction occurs. Unrealized gains and losses resulting from the
impact of currency exchange rate movements on fair value hedges are recognized
in earnings in the period in which the exchange rates change and offset the
currency gains and losses on the underlying exposure being hedged.
7. Proposed Spin Off
On January 31, 2000, Thermo Electron announced that, as part of a major
reorganization plan, it plans to spin off its equity interest in the Company as
a dividend to Thermo Electron shareholders. In February 2001, Thermo Electron
received a favorable ruling from the Internal Revenue Service regarding the spin
off. The IRS required that, subject to certain conditions, the Company raise
additional equity capital in a public offering within one year of the spin off.
The Company plans to issue equity in the range of 10 to 20 percent of its
outstanding shares to support its current business plan, which includes the
repayment of debt, acquisitions, strategic partnerships, and investment in
additional capacity for its composites business. Thermo Electron has stated that
it expects to complete the spin off in the summer of 2001. The spin off will
require Thermo Electron Board of Director actions and other customary
conditions. Following the spin off, Thermo Electron will continue to guarantee,
in each case on a subordinated basis, the Company's $153,000,000 principal
amount of 4 1/2% subordinated convertible debentures due 2004 and Thermo
Fibergen's remaining obligation under its redemption rights. Also in connection
with the spin off, the Company expects to agree with Thermo Electron to certain
restrictions regarding the Company's use of cash and incurrence of debt while
such debentures and guarantee remain outstanding. In addition, subject to
shareholder approval, the Company plans to change its name to Kadant Inc. and
effect a five-for-one reverse stock split of its common stock prior to 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 December 30, 2000, filed with the Securities and Exchange
Commission.
Overview
Industry Background
The Company operates in two segments: Pulp and Papermaking Equipment and
Systems and Water- and Fiber-recovery Services and Products.
The Company's products are primarily sold to the paper industry. The paper
industry has been in a severe down cycle since 1996 with falling pulp and paper
prices and decreased capital spending. As a consequence, the industry has gone
through a major consolidation. As paper companies continue to consolidate, they
frequently reduce capacity. This trend, along with the paper companies' actions
to quickly reduce operating rates and restrict capital spending programs when
they perceive weakness in their markets, has affected the Company's business.
The Company expects
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THERMO FIBERTEK INC.
Overview (continued)
that there will continue to be a significant amount of downtime in the paper
industry in 2001. This, coupled with the strong U.S. dollar and high energy
costs, will continue to produce a weak market environment that will soften
demand for the Company's products in the near term. The Company's results for
2001 will be affected by the ongoing weak market conditions in the paper
industry. As such, the Company is adjusting its guidance for the second
half of 2001 in light of both the continued weak market conditions in the paper
industry and lower revenues in its Water- and Fiber-recovery Services and
Products segment (see discussion below). For the full year 2001, the Company
expects consolidated revenues of $230 - $240 million, with earnings per diluted
share of $0.20 - $0.23. In the longer term, the Company expects the
consolidation in the paper industry and improved capacity management will be
favorable both to the paper companies and their suppliers. Both these
developments will improve the overall financial health of the Company's
customers. The Company believes that this will eventually result in stronger
markets for the Company's products and systems.
In the Water- and Fiber-recovery Services and Products segment, the
Company expects its growth will primarily come from its recently introduced
fiber-based composite products, which consists of
soundwall systems, decking, privacy fencing, roofing, and siding. The market for
soundwall and privacy fencing products in North America is approximately $2
billion. The market for decking products in North America is approximately $2.5
billion and is estimated to be growing at 8 percent per year. The market for
roofing tiles in North America is approximately $4 billion. Composite building
products were introduced into the decking market within the last 10 years and
currently only represent approximately 5 percent of that market. The Company
estimates that composite lumber products currently represent less than 1 percent
of the total soundwall, privacy fencing, and roofing markets.
The Company believes that the market for composite building products will grow
as customer awareness of the advantages of these products increases their
acceptance as an alternative to traditional wood products.
Pulp and Papermaking Equipment and Systems Segment
The Company's Pulp and Papermaking Equipment and Systems (Papermaking
Equipment) segment designs and manufactures stock-preparation equipment, paper
machine accessories, and water-management systems for the paper and paper
recycling industries. Principal products manufactured by this segment 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 for paper sheet and web formation. In 2000, this segment acquired
the assets of Gauld Equipment Manufacturing Company, Inc., a manufacturer of
stock-preparation equipment, and Cyclotech AB-Stockholm, a Swedish manufacturer
of stock-preparation equipment.
Water- and Fiber-recovery Services and Products Segment
The Water- and Fiber-recovery Services and Products segment consists of
the Company's Thermo Fibergen subsidiary. Through its GranTek subsidiary, Thermo
Fibergen employs patented technology to produce biodegradable absorbing granules
from papermaking byproducts. These granules are used as agricultural carriers,
oil and grease absorbents, and cat box fillers. Through Thermo Fibergen's NEXT
Fiber Products Inc. subsidiary, formed in October 1999, Thermo Fibergen
develops, produces, and markets fiber-based composite products primarily for the
building industry, used for applications such as soundwalls, decking, privacy
fencing, roofing and siding. In January 2001, the Company acquired the 49%
minority interest in NEXT Fiber Products (Note 5). The Company constructed a
composites manufacturing facility in Green Bay, Wisconsin, and began limited
production there in 2000. The Company is currently working to expand the
facility and expects to have the capacity to support up to $20 million in annual
revenues by the fourth quarter of 2001. The Company expects its composites
business to earn revenues of $4 - $6 million in 2001, including $0.4 - $0.7
million in the second quarter of 2001, increasing to $1.5 - $2.0 million in the
fourth quarter of 2001. The Company does not expect to generate operating
profits from the composites business until 2002. Prior to September 2000, this
segment owned and operated a plant that provided water-
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THERMO FIBERTEK INC.
Overview (continued)
clarification and fiber-recovery services to a host mill on a long-term contract
basis. The plant, which Thermo Fibergen began operating in July 1998, cleaned
and recycled water and long fiber for reuse in the papermaking process. Thermo
Fibergen sold this plant to the host mill in September 2000. The Company intends
to continue operating in this line of business and is pursuing other
fiber-recovery projects.
Manufacturing Facilities
The Company's manufacturing facilities are principally located in North
America and France. The manufacturing facility in France is located at the
Company's E. & M. Lamort, S.A. subsidiary, which manufactures stock-preparation
equipment, accessories, and water-management systems.
International Sales
During 2000, approximately 49% of the Company's sales were to customers
outside the United States, principally in Europe. The Company generally seeks to
charge its customers in the same currency as its operating costs. However, 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 currency exchange contracts (Note 6).
The Company may enter into forward currency exchange contracts to hedge certain
firm purchase and sale commitments denominated in currencies other than its
subsidiaries' functional currencies. These contracts principally hedge
transactions denominated in U.S. dollars, French francs, and Canadian dollars.
Results of Operations
First Quarter 2001 Compared With First Quarter 2000
- ---------------------------------------------------
Revenues
Revenues increased to $58.9 million in the first quarter of 2001 from
$57.9 million in the first quarter of 2000. The unfavorable effects of currency
translation due to the strengthening in value of the U.S. dollar relative to
other currencies in countries in which the Company operates decreased revenues
at the Papermaking Equipment segment by $2.0 million in the first quarter of
2001. Excluding the results of acquisitions and the effect of currency
translation, revenues in the Company's Papermaking Equipment segment increased
$2.1 million, or 4%. Revenues from that segment's stock-preparation equipment
product line increased $3.3 million primarily as a result of an increase in
sales in Europe. The Company expects relatively little growth in 2001 in North
America due to weak demand, while Europe is expected to be somewhat stronger.
The Company expects to see stronger demand for its products and systems in
developing markets, such as China. Revenues from the Papermaking Equipment
segment's accessories product line decreased $1.5 million primarily as a result
of a decrease in demand in North America due to adverse market conditions.
Revenues from the Papermaking Equipment segment's water management product line
increased $0.4 million due to increased demand in Europe, offset in part by a
decrease in demand in North America due to adverse market conditions. The Water-
and Fiber-recovery Services and Products segment revenues increased $0.2
million, primarily due to $0.9 million of sales from its recently introduced
composite products. This increase was largely offset by decreased demand for
cellulose-based products from one of that segment's largest customers, offset in
part by a net increase in demand from other customers, as well as a $0.4 million
decrease in revenues as a result of the sale of the fiber-recovery and
water-clarification services plant in September 2000.
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THERMO FIBERTEK INC.
First Quarter 2001 Compared With First Quarter 2000 (continued)
- ---------------------------------------------------
Gross Profit Margin
The gross profit margin decreased to 39% in the first quarter of 2001 from
40% in the first quarter of 2000. The gross profit margin decreased at the
Water- and Fiber-recovery Services and Products segment, primarily due to an
increase of approximately $0.5 million in the cost of natural gas at GranTek in
the first quarter of 2001 and, to a lesser extent, low gross profit margins as a
result of startup efforts at its new fiber-based composites business. The gross
profit margin was relatively unchanged at 40% at the Papermaking Equipment
segment in 2001 compared with 2000.
Other Operating Expenses
Selling, general, and administrative expenses as a percentage of revenues
remained unchanged at 27% in the first quarters of 2001 and 2000.
Research and development expenses decreased slightly to $1.8 million in
the first quarter of 2001, compared with $1.9 million in the first quarter of
2000, or 3% of revenues in both periods. The Company expects to increase its
research and development expenses as it develops new products at its fiber-based
composites business.
Interest Income and Expense
Interest income decreased to $2.1 million in the first quarter of 2001
from $2.5 million in the first quarter of 2000, due to lower average invested
balances and lower prevailing interest rates. The Company expects interest
income to decrease in 2001 as a result of lower cash balances due to the
September 2000 redemption and the anticipated September 2001 redemption of
Thermo Fibergen's common stock, as well as lower prevailing interest rates.
Interest expense was unchanged at $1.9 million in the first quarters of 2001 and
2000.
Income Taxes
The effective tax rate was 42% in the first quarter of 2001, compared with
41% in the first quarter of 2000. The effective tax rates exceeded the statutory
federal income tax rate primarily due to the impact of state income taxes and
nondeductible expenses.
Minority Interest
Minority interest income in the first quarter of 2001 primarily represents
the minority investor's share of losses in the Company's majority-owned
subsidiaries. Minority interest expense in the first quarter of 2000 primarily
represents accretion of Thermo Fibergen's common stock subject to redemption,
offset in part by the minority investor's share of losses in Thermo Fibergen's
NEXT Fiber Products subsidiary.
Contingency
Sequa Corporation has made a claim in arbitration against the Company for
$3.5 million for alleged breach of the contract pursuant to which Sequa
purchased the stock of the Company's subsidiary, Thermo Wisconsin Inc. in
February 1999. The Company has denied the charges and is defending the matter
vigorously. In the opinion of management, the ultimate resolution of this matter
will not materially affect the Company's financial statements.
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THERMO FIBERTEK INC.
Liquidity and Capital Resources
Consolidated working capital was $177.9 million at March 31, 2001,
compared with $173.1 million at December 30, 2000. Included in working capital
are cash, cash equivalents, and available-for-sale investments of $152.7 million
at March 31, 2001, compared with $148.6 million at December 30, 2000. In
addition, the Company had $3.8 million and $5.7 million invested in an advance
to affiliate as of March 31, 2001 and December 30, 2000, respectively. Of the
total cash, cash equivalents, and available-for-sale investments at March 31,
2001, $12.3 million and $7.3 million was held by the Company's majority-owned
Thermo Fibergen and Thermo Fiberprep subsidiaries, respectively, and the
remainder was held by the Company and its wholly owned subsidiaries. At March
31, 2001, $44.8 million of the Company's cash and cash equivalents was held by
its foreign subsidiaries.
During the first three months of 2001, $2.1 million of cash was provided
by operating activities. Inventories and unbilled contract costs and fees used
cash of $2.2 million, including $3.5 million related to an increase in
inventories, primarily in the stock-preparation product line, offset in part by
$1.2 million related to a decrease in unbilled contract costs and fees,
primarily in the stock-preparation product line due to the timing of billings.
An increase in accounts payable provided $2.8 million of cash primarily in the
stock-preparation product line due to the timing of payments. In addition, a
decrease in other current liabilities used $3.6 million of cash, consisting
primarily of a $1.7 million paid for interest accrued at year-end, a $1.3
million net decrease in accrued payroll and employee benefits, and a $0.5
million decrease in billings in excess of costs and fees related to the timing
of billings on long-term contracts.
During the first three months of 2001, the Company's investing activities,
excluding available-for-sale investments and advance to affiliate activity, used
$0.9 million of cash. The Company purchased property, plant, and equipment for
$1.2 million, including $0.8 million at Thermo Fibergen. In addition, the
Company received cash of $0.6 million from a note receivable related to Thermo
Fibergen's September 2000 sale of its fiber-recovery and water-clarification
systems plant.
During the first three months of 2001, the Company's financing activities
used $0.2 million of cash primarily to fund the repayment of a long-term
obligation.
During the month of September 2000, the initial redemption period, holders
of Thermo Fibergen's common stock and common stock redemption rights surrendered
2,713,951 shares of Thermo Fibergen's common stock at a redemption price of
$12.75 per share, for a total $34.6 million. Thermo Fibergen used available
working capital to fund the payment and retired these shares immediately
following the redemption. Holders of a redemption right have the option to
require Thermo Fibergen to redeem one share of Thermo Fibergen's common stock at
a redemption price of $12.75 per share in September 2001, the next and final
redemption period. A redemption right may only be exercised if the holder owns a
share of Thermo Fibergen's common stock at the same time. As of March 31, 2001,
there were 2,001,049 redemption rights outstanding and 1,087,299 shares of
Thermo Fibergen's common stock held by persons other than the Company. In
addition, the Company and/or Thermo Fibergen may acquire additional shares of
Thermo Fibergen's common stock in the open market. To the extent the number of
rights exceeds the number of shares of Thermo Fibergen's common stock held by
persons other than the Company, the maximum redemption value that Thermo
Fibergen would be required to pay is an amount equal to the redemption price of
$12.75 per share times the total number of shares of Thermo Fibergen's common
stock outstanding held by persons other than the Company at the time of the
redemption. At March 31, 2001, the Company expects this amount will not exceed
$17.0 million. The redemption rights are guaranteed, on a subordinated basis, by
Thermo Electron, but the Company is required to reimburse Thermo Electron if
Thermo Electron makes any payment under the guarantee. In addition, the Company
has agreed to lend Thermo Fibergen up to $15 million on commercially reasonable
terms for the September 2001 redemption obligation and for working capital
needs.
At March 31, 2001, the Company had $74.4 million of undistributed
foreign earnings that could be subject to tax if remitted to the U.S. 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.
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THERMO FIBERTEK INC.
Liquidity and Capital Resources (continued)
During the remainder of 2001, the Company plans to make expenditures for
property, plant, and equipment of approximately $6.7 million. Included in this
amount is $3.3 million for Thermo Fibergen, which intends to make capital
expenditures to develop and expand its fiber-based composites business. This
business will continue to require a significant amount of capital investment as
the business grows. The Company believes that its existing resources are
sufficient to meet the capital requirements of its existing operations for the
foreseeable future.
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
- -------------------------------------------------------------------
The Company's exposure to market risk from changes in interest rates,
equity prices, and foreign currency exchange rates has not changed materially
from its exposure at year-end 2000.
PART II - OTHER INFORMATION
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
None.
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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 11th day of May 2001.
THERMO FIBERTEK INC.
/s/ Theo Melas-Kyriazi
--------------------------------------------
Theo Melas-Kyriazi
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
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THERMO FIBERTEK INC.
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
- --------------------------------------------------------------------------------
10 Amendment No. 1 to Agreement of Loan dated as of May 7, 2001,
between the Company and Thermo Fibergen Inc.
Exhibit 10
[Letterhead of Thermo Fibertek Inc.]
May 7, 2001
Thermo Fibergen Inc.
8 Alfred Circle
Bedford, Massachusetts 01730
Attn: Dr. Yiannis A. Monovoukas,
President and Chief Executive Officer
Re: Amendment No. 1 to Agreement of Loan
Ladies and Gentlemen:
Reference is hereby made to that certain Agreement of Loan dated as of
February 12, 2001 ("Agreement of Loan") by and between Thermo Fibertek Inc., a
Delaware corporation ("Thermo Fibertek"), and Thermo Fibergen Inc., a Delaware
corporation and publicly-traded subsidiary of Thermo Fibertek Inc. ("Thermo
Fibergen"), pursuant to which Thermo Fibertek agreed, under certain
circumstances, to make a loan to Thermo Fibergen of up to FIVE MILLION DOLLARS
($5,000,000) in original principal amount bearing interest at a commercially
reasonable rate. Capitalized terms used herein without definition shall have the
meaning ascribed to such terms in the Agreement of Loan.
WHEREAS, Thermo Fibergen and Thermo Fibertek desire to amend the
Agreement of Loan to increase the amount of the loan that Thermo Fibertek is
willing to agree to make to Thermo Fibergen to satisfy the Final Redemption
obligation and other working capital needs of Thermo Fibergen from FIVE MILLION
DOLLARS ($5,000,000) to FIFTEEN MILLION DOLLARS ($15,000,000).
NOW, THEREFORE, the parties hereto (the "Parties") hereby agree that the
reference to (a) "$5,000,000" in the reference line of the Agreement of Loan
shall be deleted and replaced with "$15,000,000" and (b) "FIVE MILLION DOLLARS
($5,000,000)" in the first sentence of the body of the Agreement of Loan shall
be deleted and replaced with "FIFTEEN MILLION DOLLARS ($15,000,000)".
[Remainder of Page Intentionally Left Blank]
Please indicate your acceptance of the foregoing by signing and
returning to the undersigned an original counterpart of this letter.
Very truly yours,
THERMO FIBERTEK INC.
By: __________________________________
Name: Thomas M. O'Brien
Title: Executive Vice President
Accepted, acknowledged and agreed by the undersigned as of the date first above
written:
THERMO FIBERGEN INC.
By: __________________________________
Name: Yiannis A. Monovoukas
Title: President