SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------------------------------------------
FORM 10-K
(mark one)
[ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 30, 2000
[ ] 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
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, $.01 par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
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 the filing requirements for
at least the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference into Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant as of January 26, 2001, was approximately $17,929,000.
As of January 26, 2001, the Registrant had 61,386,544 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Shareholders for the year ended
December 30, 2000, are incorporated by reference into Parts I and II, and
portions of the Registrant's definitive Proxy Statement for the Annual Meeting
of Shareholders to be held on May 15, 2001, are incorporated by reference into
Part III. Copies of these documents can be obtained at no cost by calling the
Company's Investor Relations Department at (781) 622-1111.
PART I
Item 1. Business
(a) General Development of Business
Thermo Fibertek Inc. (the Company or the Registrant), operates in two
segments: (1) Pulp and Papermaking Equipment and Systems and (2) Water- and
Fiber-recovery Services and Products.
Through its Pulp and Papermaking Equipment and Systems segment, the
Company designs and manufactures stock-preparation systems and equipment, paper
machine 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 the continuous cleaning of papermaking machine fabrics, and the
draining, purifying, and recycling of process water for paper sheet and web
formation. The Company is a leading equipment manufacturer for the worldwide
papermaking and paper recycling industries with its products and systems found
in over 90 percent of the world's pulp and paper mills. In 2000, the Company
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.
The Company's Thermo Fibergen Inc. subsidiary comprises the Water- and
Fiber-recovery Services and Products segment. Through its NEXT Fiber Products
Inc. subsidiary, Thermo Fibergen develops, produces, and markets fiber-based
composites primarily for the building industry, used for applications such as
soundwalls, decking, privacy fencing, and siding. In addition, Thermo Fibergen
is also developing a composite roof tile product that is lighter and has higher
impact strength than traditional materials such as clay and slate tiles. Because
Thermo Fibergen's composite building products are resistant to moisture,
they do not possess many of the functional and practical disadvantages common to
pressure-treated wood products such as splitting, splintering, warping, rotting,
and insect infestation. In addition, Thermo Fibergen's products do not have the
costs associated with the required annual maintenance of traditional
pressure-treated wood products. In January 2001, Thermo Fibergen purchased the
remaining 49% equity interest in NEXT Fiber Products from the minority
investors. Thermo Fibergen constructed a composites manufacturing facility in
Green Bay, Wisconsin, and began limited production at such facility in 2000.
Thermo Fibergen is currently working to expand the capacity of the facility, and
expects to have the capacity to support up to $20 million in annual revenues by
mid-2001. In addition, Thermo Fibergen, through its GranTek subsidiary, 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. Prior to September 2000, this segment also
owned and operated a plant that provided fiber-recovery and water-clarification
services to a host mill on a long-term contract basis. The plant, which the
Company began operating in July 1998, cleans and recycles water and long fiber
for reuse in the papermaking process. Thermo Fibergen sold this plant to the
host mill in September 2000, although it intends to continue operating in this
line of business and is pursuing other fiber-recovery projects.
In February 1999, the Company sold its Thermo Wisconsin Inc. subsidiary,
which represented its Dryers and Pollution-control Equipment segment, for $13.6
million in cash.
The Company's predecessors have been in operation for more than 100 years,
and the Company has a large, stable customer base that includes most paper
manufacturers worldwide. The Company seeks to expand its business through the
introduction of new products and technologies to these customers. The Company
currently manufactures its products in several countries in Europe and North
America, and licenses certain products for manufacture in South America and the
Pacific Rim.
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In September 1996, the Company's Thermo Fibergen subsidiary sold 4,715,000
units, each unit consisting of one share of Thermo Fibergen common stock and one
redemption right, in an initial public offering at $12.75 per unit for net
proceeds of $55.8 million. The common stock and redemption rights subsequently
began trading separately. 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 of $34,603,000. 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 $12.75 per share in September 2001, the second and final
redemption period. A redemption right may only be exercised if the holder owns a
share of Thermo Fibergen's common stock at that time. As of December 30, 2000,
there were 2,001,049 redemption rights outstanding and 1,075,749 shares of
Thermo Fibergen's common stock held by persons other than Thermo Electron or
Thermo Fibertek. In addition, Thermo Electron, Thermo Fibergen, and/or the
Company may acquire additional shares of Thermo Fibergen's common stock in
the open market, and there can be no assurance that Thermo Fibergen will issue
additional shares of its common stock through the exercise of employee stock
options or other transactions. To the extent that the number of redemption
rights exceeds the number of shares of common stock held by persons other than
Thermo Electron or 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 Thermo Electron or the
Company at the time of redemption. The redemption rights are guaranteed, on a
subordinated basis, by Thermo Electron. The Company has agreed to
reimburse Thermo Electron in the event Thermo Electron is required to make a
payment under the guarantee. In addition, the Company has agreed to lend Thermo
Fibergen up to $5 million on commercially reasonable terms for the September
2001 redemption and for working capital needs.
As of December 30, 2000, the Company owned 10,413,350 shares of Thermo
Fibergen's common stock, representing 91% of such outstanding common stock, and
Thermo Electron owned 9,550 shares of Thermo Fibergen's common stock,
representing 0.1% of such outstanding common stock.
The Company is a majority-owned subsidiary of Thermo Electron. As of
December 30, 2000, Thermo Electron owned 55,627,480 shares of the Company's
common stock, representing 91% of such outstanding common stock. 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 the spin off be completed within one year of the ruling, and,
subject to certain conditions, that 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 announced that it expects to distribute the Thermo
Fibertek dividend in the second half of 2001. The spin off of the Company will
require final 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.
Thermo Electron is a global leader in providing technology-based
instruments, components, and systems that offer total solutions for markets
ranging from life sciences to telecommunications to food, drug, and beverage
production. Thermo Electron's powerful technologies help researchers sift
through data to make discoveries that will fight disease or prolong life. They
allow manufacturers to fabricate ever-smaller components required to increase
the speed and quality of communications. And they automatically monitor and
control online production to ensure that critical quality standards are met
safely and efficiently.
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Forward-looking Statements
Forward-looking statements, within the meaning of Section 21E of the
Securities Exchange Act of 1934, are made throughout this Annual Report on Form
10-K. 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 the Registrant's 2000* Annual Report to
Shareholders, which statements are incorporated herein by reference.
(b) Financial Information About Segments
Financial information concerning the Company's segments is summarized in
Note 13 to Consolidated Financial Statements in the Registrant's 2000 Annual
Report to Shareholders, which information is incorporated herein by reference.
(c) Description of Business
The Company organizes and manages its business by individual functional
operating entity. The Company operates in two segments: (1) Pulp and Papermaking
Equipment and Systems and (2) Water- and Fiber-recovery Services and Products.
In classifying operational entities into a particular segment, the Company
aggregated businesses with similar economic characteristics, products and
services, production processes, customers, and methods of distribution.
Pulp and Papermaking Equipment and Systems
The paper industry is comprised of over 8,000 papermaking machines
worldwide that generate approximately 300 million tons of paper and paperboard
products per year. The United States pulp and paper industry generates over $136
billion in annual revenue. Historically, the volume of paper production has
tended to grow at approximately the same rate as the general economy.
The paper industry is characterized by high asset intensity and a highly
fragmented market with no one company having more than 10 percent of the world
market, although a supplier may have higher market share in a particular paper
grade such as tissue or printing and writing paper. With the notable exception
of branded products such as tissue, most paper products are commodities that
compete globally. As a result, the paper industry is highly cyclical with
periods of high capacity additions followed by over supply and resulting lower
product prices and vice versa.
The paper industry has been in a relatively 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 accompanied by
the closure of many outdated mills and delayed capital spending in many
instances. In addition, the paper industry has become more sophisticated in
managing its capital expenditures, including implementing highly disciplined
return on investment criteria. Some paper manufacturers have unilaterally
decided to reduce production in an effort to balance supply with demand and
thereby maintain prices.
Areas in which the need for papermaking capacity is expected to grow the
most include developing nations with temperate climates, such as South America
and Southeast Asia. These areas have advantages in fiber cost, as trees such as
Eucalyptus can grow up to seven times faster than hardwood trees in colder
climates. In addition, demand for
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* References to 2000, 1999, and 1998 herein are for the fiscal years ended
December 30, 2000, January 1, 2000, and January 2, 1999, respectively.
4
paper products in these regions is expected to grow as their economies develop.
For example, the per capita paper usage in China is 62 pounds per year or only
half the average global per capita amount. In the United States the per capita
consumption is 764 pounds per year. An additional source of demand for paper
products in these regions is their growing export business. Goods produced in
China and other Southeast Asian countries require boxes for shipments. Since
China has a limited timber supply, much of this capacity will be recycled fiber.
Water- and Fiber-recovery Services and Products
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 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.
The residential segment of the composites market includes construction of
decks and fences for new and existing homes. The growth in demand for
residential fencing and decking reflects the increasing cost of new homes and
the increasing density of homes in urban and suburban areas. Most of the deck
and fence construction is for existing homes. Homeowners find that adding a deck
or fence to their existing homes is an affordable way to increase the living and
recreational space of their homes while increasing their value. When interest
rates are high or there is economic uncertainty, many homeowners choose to
improve their existing homes by installing privacy fences or decks rather than
purchasing a new home. Because sales of privacy fences and decks are not reliant
on new home construction, the fencing and decking industry is less cyclical than
the home construction and other building materials industries.
The Company's absorbing cellulose-based granules are used in agricultural
carriers, oil and grease absorbents, and cat box fillers. The Company's most
significant application for these granules is the non-clay base agricultural
carriers, which are used in applications such as row crops and home, lawn and
garden. Agricultural carriers are the "inactive" ingredient that is used to
distribute pesticides and other material in an even and uniform manner. Most
agricultural carriers are clay based. Clay based products have the disadvantages
of being dusty and having a lack of uniform absorption and particle
distribution. Other non-clay based carriers include corncob granules, which are
traditionally used in home, lawn and professional turf applications.
(i) Principal Products and Services
Pulp and Papermaking Equipment and Systems
The Company's papermaking equipment business is comprised of the following
product lines: stock preparation systems for the manufacture of recycled paper,
accessory systems for continuous cleaning of rolls used in papermaking machines,
and water-management systems for continuous cleaning of papermaking machine
fabrics as well as formation and drainage systems critical to sheet formation.
Stock-preparation Systems and Equipment
The Company develops, designs, and manufactures custom-engineered systems
and equipment that remove debris, impurities, and ink from wastepaper, and
processes it into a fiber mix used to produce either white or brown grades of
recycled paper. The Company offers products relating to key aspects of the
recycling process. Some of the systems and equipment include:
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Pulping and Trash Removal Systems, including specialized high- and
low-consistency pulpers that blend wastepaper with water and certain chemicals
to form pulp with minimal contaminant breakdown, thus increasing the efficiency
of debris removal; and trash removal systems that remove larger debris and
impurities by screening them from the pulp mixture.
Screening Systems, including course screens to remove metals and sand from
the pulp mixture, as well as fine screens to remove microscopic particles such
as glue and plastic.
Cleaning Systems, including forward cleaners to remove from the pulp
mixture heavyweight contaminants such as metal and sand, and reverse cleaners
for the removal of lightweight contaminants such as glue and plastic.
De-inking Systems, that inject small air bubbles into the bottom of the
pulp mixture. The ink bonds to the air bubbles and rises to the surface, where
the inky film is removed.
Washing Systems, including washing systems that remove ink and ash from
the pulp mixture by injecting water counter current to the flow and drawing
contaminates out with the water.
Thickeners, which remove water from the pulp mixture, thereby increasing
the consistency of the mixture up to 40%. Thicker pulp mixtures are necessary to
break up ink particles in dispersers.
Dispersers, including mechanical dispersers that break down ink particles
that were not removed in the de-inking system into microscopic particles or
combine them to form larger particles that can be removed in subsequent
processing.
In addition, the Company designs, develops, and manufactures products for
the virgin pulping process, including:
Chemi-Washer(R), a horizontal counter-current belt washer, which consumes
less energy than other commercial washing systems and significantly decreases
the amount of water used and effluent produced.
Evaporators, Recausticizing, and Condensate-treatment systems, which are
used during pulping to concentrate and recycle process chemicals and to remove
condensate gases.
Bleaching Systems, including oxygen-bleaching systems that increase the
brightness of the pulp without using chlorine bleach or moving parts.
Revenues from the Company's stock-preparation equipment and systems
product line were $113.0 million, $98.9 million, and $107.5 million in 2000,
1999, and 1998, respectively.
Accessories
The Company designs, develops, and manufactures a wide range of
accessories that continuously clean the rolls of a papermaking machine, remove
the paper sheet or web from the roll, automatically cut the web during sheet
breaks, and remove curl from the sheet. These functions are critical for paper
manufacturers because they serve to reduce machine breakdowns and downtime,
extend the life of consumable fabrics, and improve paper quality. Accessories
include:
Doctors and Related Equipment, which shed the sheet from the roll during
sheet breaks and startups and keep rolls clean by removing stock accumulations,
water rings, fuzz, pitch, and filler buildup.
Profiling Systems, which help ensure a uniform gloss on the web and
control moisture and curl within the sheet.
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Revenues from the Company's accessories product line were $70.3 million,
$74.8 million, and $77.8 million in 2000, 1999, and 1998, respectively.
Water-management Systems
The Company designs, develops, and manufactures water-management systems
used to drain water from the pulp mixture, form the sheet or web, and filter the
process water for reuse. These water-management systems include:
Formation Tables, which consist of free-draining elements and
vacuum-augmented elements to control the amount of water removed from the pulp
mixture to form the sheet or web.
Showers and Felt-conditioning Systems, that are used to clean and
condition the fabrics and felts, which in turn are used to transport the sheet
or web through various stages of the papermaking machine.
Water-filtration Systems, which consist of pressure, gravity, and
vacuum-assisted filters and strainers used to remove contaminants from the
process water before reuse and to recover reusable fiber for recycling back into
the pulp mixture.
Revenues from the Company's water-management product line were $42.4
million, $42.6 million, and $36.9 million in 2000, 1999, and 1998, respectively.
Water- and Fiber-recovery Services and Products
Thermo Fibergen, through its NEXT Fiber Products Inc. subsidiary,
develops, produces, and markets fiber-based composites primarily for the
building industry. These engineered composite building products are made from
papermaking byproducts, reclaimed plastic, and other material. As an alternative
to traditional wood products such as pressure treated lumber, cedar, and
hardwoods, composite building products have numerous applications such as
soundwalls, decking, privacy fencing, and siding. Thermo Fibergen is also
developing a composite roof tile product that is lighter and has higher impact
strength than traditional materials such as clay tiles and slate. Thermo
Fibergen constructed a composites manufacturing facility in Green Bay,
Wisconsin, and began limited production at such facility in 2000. Thermo
Fibergen is currently working to expand the capacity of the facility, and
expects to have the capacity to support up to $20 million in annual revenues by
mid-2001.
The Company's composite building products business is comprised of the
following product lines:
Soundwall Fences, including upright posts, top and bottom rails, and
tongue and groove boards that slide into the rails and posts for easy
installation and feature an attractive brushed appearance. The Company has
completed internal testing and determined that the soundwall products meet the
necessary sound dampening standards.
Privacy Fences, including the same elements as the soundwall system and
featuring an attractive brushed appearance that is maintenance-free.
Decking, including deck boards as well as railings, which offers a more
attractive alternative to the homeowner than comparable products that do not
offer railings.
In addition, the Company is in the process of developing:
Roof Tiles, which are made to resemble traditional clay, cedar, and slate
tiles. Traditional clay and slate tiles are heavy, brittle, and susceptible to
breakage. The Company's composite tile products are lighter, have higher impact
strength, are less susceptible to breakage than traditional clay and slate
tiles, and provide significant savings in labor and other costs. In internal
testing, the Company's composite roof tile products achieved the highest fire
rating.
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The Company has manufactured prototypes of double Roman roof tiles similar in
appearance to those found on homes in Europe and the southern United States and
has successfully tested them in Europe.
Thermo Fibergen, through its GranTek subsidiary, also 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. The agricultural carriers are used to deliver
agricultural chemicals for professional turf, home lawn and garden, agricultural
row-crop, and mosquito-control applications. In addition, GranTek's granules are
used in certain of the Company's composite building materials products.
In addition, prior to September 2000, the Company, through its Thermo
Fibergen subsidiary, owned and operated a plant that provided fiber-recovery and
water-clarification services to a host mill on a long-term contract basis. The
plant, which the Company 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, although it intends to continue
operating in this line of business and is pursuing other fiber-recovery
projects.
(ii) and (xi) New Products; Research and Development
The Company believes that it has a reputation as a technological innovator
in the market niches it serves, and that rapid technological obsolescence is not
characteristic of its business. The Company maintains active programs for
product development using both new and existing technologies, and has technology
and centers in Europe and the U.S. that are dedicated to specific research
projects and markets.
For recycling equipment, the Company maintains a stock-preparation pilot
laboratory adjacent to the manufacturing facility at its E. & M. Lamort, S.A.
(Lamort) subsidiary and one at Thermo Black Clawson's Middletown, Ohio,
facility, both of which contain all equipment necessary to replicate a
commercial stock-preparation system. At such pilot laboratories, a customer's
wastepaper can be tested to determine the recommended system configuration for
its future facility. The pilot laboratories are also used to evaluate prototype
equipment, enabling research teams to quickly and thoroughly evaluate new
designs. In addition, the Company works closely with its customers in the
development of products, typically field testing new products on the customers'
papermaking machines.
For accessories and water-management products, the Company conducts
dedicated research and development efforts at two separate facilities in the
U.S.
Thermo Fibergen continues research and development efforts to develop
high-value products using materials recovered from papermaking byproducts,
including controlled-release granules for crop-protection chemicals, as well as
new, cellulose-fiber-based composite products for the building industry, used
for applications such as soundwalls, decking, privacy fencing, and siding. In
addition, Thermo Fibergen is also developing a composite roof tile product that
is lighter and has higher impact strength than traditional materials such as
clay and slate tiles. Thermo Fibergen has a research and development facility in
Bedford, Massachusetts, which is focused on developing new composite
formulations.
Thermo Fibergen's GranTek subsidiary operates a manufacturing plant in
Green Bay, Wisconsin, at which it processes papermaking byproducts provided by a
nearby paper mill into cellulose-based granules. A pilot plant is located within
GranTek's main manufacturing plant. This pilot plant processes up to 24 tons of
material per day, and is used to develop many of the innovations implemented at
GranTek's main plant. Thermo Fibergen believes that this pilot plant will
provide the ability to process materials from other paper mills under operating
conditions and in quantities sufficient to determine final product and operating
characteristics and costs, as well as to develop new products.
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The Company seeks to develop a broad range of equipment for all facets of
the markets it serves. Over the next several years, the Company expects to focus
its research and development efforts on the development of fiber-based
composites products and the advancement of paper recycling equipment.
Research and development expenses for the Company were $7.7 million, $7.3
million, and $7.0 million in 2000, 1999, and 1998, respectively.
(iii) Raw Materials
Raw materials, components, and supplies for all of the Company's
significant products are available either from a number of different suppliers
or from alternative sources that could be developed without a material adverse
effect on the Company's business. To date, the Company has experienced no
difficulties in obtaining these materials.
(iv) Patents, Licenses, and Trademarks
The Company protects its intellectual property rights by applying for and
obtaining patents when appropriate. The Company also relies on technical
know-how, trade secrets, and trademarks to maintain its competitive position.
The Company has numerous U.S. and foreign patents expiring on various dates
ranging from 2001 to 2018.
Third parties have certain rights in two of the Company's patents that
were jointly developed with such parties. The Company currently holds an
exclusive long-term, worldwide license for a patent on technology that Centre
Technique du Papier (CTP) developed. The Company and CTP have joint ownership of
a second patent on technology that was jointly developed.
The Company maintains a worldwide network of licensees and cross-licensees
of products with other companies servicing the pulp, papermaking, converting,
and paper recycling industries. The Company holds an exclusive worldwide license
for certain de-inking cells under an agreement that extends until 2007. The
Company also has license arrangements with several companies with regard to
accessory equipment.
Thermo Fibergen has granted another company nonexclusive licenses under
two of its patents to sell cellulose-based granules produced at an existing site
for sale in the oil and grease absorption and cat box filler markets. In
addition, Thermo Fibergen currently holds several U.S. patents, expiring at
various dates ranging from 2004 to 2016, relating to various aspects of the
processing of cellulose-based granular materials and the use of such materials
in the agricultural, professional turf, home lawn and garden, general
absorption, oil and grease absorption, and cat box filler markets. Thermo
Fibergen also has foreign counterparts to such U.S. patents in Canada and in
various European countries, and has additional patents pending in Canada and
certain European countries.
Thermo Fibergen has filed several U.S. patent applications for various
products and processes relating to papermaking byproducts and composite
materials and expects to file additional patent applications in the future. In
addition, Thermo Fibertek holds two U.S. patents relating to its "scalping"
technology, which is an important component of Thermo Fibergen's fiber-recovery
system, that expire in 2011 and 2014.
(v) Seasonal Influences
Pulp and Papermaking Equipment and Systems
There are no material seasonal influences on the segment's sales of
products and services.
Water- and Fiber-recovery Services and Products
There are no material seasonal influences on the segment's sales of
products and services.
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(vi) Working Capital Requirements
There are no special inventory requirements or credit terms extended to
customers that would have a material adverse effect on the Company's working
capital.
(vii) Dependency on a Single Customer
No single customer accounted for more than 10% of the Company's revenues
in any of the past three years.
(viii) Backlog
The Company's backlog of firm orders for the Pulp and Papermaking
Equipment and Systems segment was $56.9 and $55.9 million at year-end 2000 and
1999, respectively. The backlog of firm orders for the Water- and Fiber-recovery
Products and Services segment was $0.4 and $0.8 million at year-end 2000 and
1999, respectively. The Company anticipates that substantially all of the
backlog at December 30, 2000, will be shipped or completed during the next
twelve months. Certain of these orders may be canceled by the customer upon
payment of a cancellation fee.
(ix) Government Contracts
Not applicable.
(x) Competition
The Company faces significant competition in each of its principal
markets. The Company competes principally on the basis of quality, price,
service, technical expertise, and product innovation. The Company believes that
the reputation it and its predecessors have established over more than 100 years
for quality products and in-depth process knowledge provides it with a
competitive advantage. In addition, a significant portion of the Company's
business is generated from its existing customer base. To maintain this base,
the Company has emphasized service and a problem-solving relationship with its
customers.
Pulp and Papermaking Equipment and Systems
The Company is a leading supplier of stock-preparation equipment for the
preparation of wastepaper to be used in the production of recycled paper. There
are several major competitors that supply various pieces of equipment for this
process. The Company's principal competitors in this market on a worldwide basis
are Voith Sulzer Papiertechnik, Groupe Laperriere & Verrault Inc., Ahlstrom
Machine Company, Kvaerner Pulping Technologies, Metso Corporation, and
Maschinenfabrik Andritz AG. The Company competes in this market primarily on the
basis of technical expertise, product innovation, and price. Other competitors
specialize in segments within the white- and brown-paper markets.
The Company is a leading supplier of specialty accessory equipment for
papermaking machines. The Company's principal competitors in this market on a
worldwide basis are ESCO Technologies Inc. and Metso Corporation. Because of the
high capital costs of papermaking machines and the role of the Company's
accessories in maintaining the efficiency of these machines, the Company
generally competes in this market on the basis of service, technical expertise,
performance, and price.
The Company is a leading supplier of water-management systems. Various
competitors exist in the formation, conditioning and cleaning systems, and
filtration systems markets. Asten/Johnson Foils is a major supplier of formation
tables, while a variety of smaller companies compete within the cleaning and
conditioning, and filtration markets. In each of these markets, the Company
generally competes on the basis of process knowledge, application experience,
product quality, service, and price.
10
Water- and Fiber-recovery Services and Products
The Company expects to encounter intense competition in the sale of its
fiber-based composite products. The Company expects that its principal
competitors for its composite materials will be producers of traditional
products such as pressure treated lumber, and clay and slate tiles. Many of the
suppliers of traditional products have established ties in the building and
construction industry. In addition, the Company expects to compete with other
manufacturers of composite products. The dominant provider of composite decking
products is Trex Company, Inc. In addition to Trex, there are several other
manufacturers of composite products and many suppliers of traditional products
that have announced plans to develop composite products. The Company expects to
compete on the basis of product quality and price. No assurance can be given
that the Company's competitors' technologies will not be superior to those of
the Company. Many of these competitors may have substantially greater financial,
marketing, and other resources than those of the Company. As a result, they may
be able to adapt more quickly to new or emerging technologies and changes in
customer requirements, or to devote greater resources to the promotion and sale
of their services and products than the Company. There can be no assurance that
the Company will be able to compete effectively with its competitors.
The Company believes that it is currently the only producer of paper-based
agricultural carriers. In this market, the Company's principal competitors in
the U.S. are producers of clay-based agricultural carriers for row crops and
professional turf protection, including Oil-Dri Corporation of America,
Floridin/Engelhard, Aimcor, and American Colloid, and producers of corncob-based
granules traditionally used in the home lawn and garden and professional turf
markets, including The Andersons, Mt. Pulaski, Green Products, Independence Cob,
and Junior Weisner. The Company's principal competitive advantages are that its
agricultural carrier product is virtually dust-free and is more uniform in
absorption and particle-size distribution than are clay- and corncob-based
granular carriers. In addition, it is also chemically neutral, requiring little
or no chemical deactivation.
As the Company attempts to develop new markets for the components of the
papermaking byproducts it processes, the Company will encounter competition from
established companies within those markets. Some of these competitors may have
substantially greater financial, marketing, and other resources than those of
the Company, and the Company expects that such competition may be intense. The
Company believes that in the absorbing-products industry price is a significant
competitive factor and therefore, expects that the demand for the Company's
products in such markets will be significantly influenced by the Company's
prices for such products.
(xii) Environmental Protection Regulations
The Company believes that compliance by the Company with federal, state,
and local environmental protection regulations will not have a material adverse
effect on its capital expenditures, earnings, or competitive position.
(xiii) Number of Employees
As of December 30, 2000, the Company employed approximately 1,262 people.
Approximately 25 employees at the Company's Pointe Claire, Quebec, Canada,
operation are represented by a labor union under a collective bargaining
agreement expiring August 31, 2002. Approximately 34 employees at the Company's
Guadalajara, Mexico, operation are represented by a labor union under an annual
collective bargaining agreement. In addition, employees of the Company's
subsidiaries in France and England are represented by trade unions. The Company
considers its relations with employees and unions to be good.
(d) Financial Information About Geographic Areas
Financial information about exports by domestic operations and about
foreign operations is summarized in Note 13 to Consolidated Financial Statements
in the Registrant's 2000 Annual Report to Shareholders, which information is
incorporated herein by reference.
11
(e) Executive Officers of the Registrant
Name Age Present Title (Fiscal Year First Became Executive Officer)
-------------------------------------------------------------------------------------
William A. Rainville 59 President and Chief Executive Officer (1991)
Thomas M. O'Brien 49 Executive Vice President, Finance (1994)
Jonathan W. Painter 42 Executive Vice President, Operations (1997)
Jan-Eric Bergstedt 65 Vice President; President, AES Engineered Systems (1996)
Edward J. Sindoni 56 Vice President; President, Thermo Web Systems, Inc. (1994)
Theo Melas-Kyriazi 41 Chief Financial Officer (1998)
Each executive officer serves until his successor is chosen or appointed
by the Board of Directors and qualified or until earlier resignation, death, or
removal. Mr. Rainville has held comparable positions for at least five years
with the Company or with its parent company, Thermo Electron. Mr. Painter has
been Executive Vice President, Operations of the Company since 1997, was
Treasurer of Thermo Electron from 1994 to 1997, was Vice President, Strategic
Planning of the Company from 1993 to 1994, and became an Executive Officer of
the Company in 1997. Mr. Bergstedt has been a Vice President of the Company and
President of the Company's AES Engineered Systems subsidiary since November
1993, and was designated an Executive Officer in 1996. Mr. O'Brien has been
Executive Vice President, Finance of the Company since September 1998, was Vice
President, Finance of the Company from November 1991 until September 1998, and
was designated an Executive Officer in 1994. Mr. Sindoni has been Vice President
of the Company since November 1991, President of the Company's Thermo Web
Systems, Inc. subsidiary since January 1993, was Senior Vice President of Thermo
Web Systems Inc. from 1987 to January 1993, and was designated an Executive
Officer in 1994. Mr. Melas-Kyriazi was appointed Chief Financial Officer of the
Company and Thermo Electron on January 1, 1999. He joined Thermo Electron in
1986 as Assistant Treasurer, and became Treasurer in 1988. He was named
President and Chief Executive Officer of ThermoSpectra Corporation, then a
public subsidiary of Thermo Instrument Systems Inc., also a former public
subsidiary of Thermo Electron, in 1994, a position he held until becoming Vice
President of Corporate Strategy for Thermo Electron in 1998. Mr. Melas-Kyriazi
remains a Vice President of Thermo Electron. Mr. Melas-Kyriazi is a full-time
employee of Thermo Electron, but devotes such time to the affairs of the Company
as the Company's needs reasonably require.
Item 2. Properties
The Company believes that its facilities are in good condition and are
suitable and adequate for its present operations and that, with respect to
leases expiring in the near future, suitable space is readily available if any
leases are not extended. The location and general character of the Company's
principal properties by segment as of December 30, 2000, are as follows:
Pulp and Papermaking Equipment and Systems
The Company owns approximately 1,000,000 square feet and leases
approximately 100,000 square feet, under leases expiring at various dates
ranging from 2001 to 2008, of manufacturing, engineering, and office space. The
Company's principal engineering and manufacturing space is located in
Vitry-le-Francois, France; Auburn, Massachusetts; Rayville, Louisiana;
Queensbury, New York; Middletown, Ohio; Guadalajara, Mexico; Pointe Claire,
Quebec, Canada; Bury, England; and Hindas, Sweden.
Water- and Fiber-recovery Services and Products
The Company owns approximately 26,000 square feet and leases approximately
94,000 square feet, under leases expiring at various dates ranging through 2004,
of manufacturing, engineering, and office space located principally in Green
Bay, Wisconsin; Columbus, Indiana; and Bedford, Massachusetts.
12
Item 3. Legal Proceedings
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Information concerning the market and market price for the Registrant's
Common Stock, $.01 par value, and dividend policy is included under the sections
labeled "Common Stock Market Information" and "Dividend Policy" in the
Registrant's 2000 Annual Report to Shareholders and is incorporated herein by
reference.
Item 6. Selected Financial Data
The information required under this item is included under the sections
labeled "Selected Financial Information" and "Dividend Policy" in the
Registrant's 2000 Annual Report to Shareholders and is incorporated herein by
reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The information required under this item is included under the heading
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Registrant's 2000 Annual Report to Shareholders and is
incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The information required under this item is included under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Registrant's 2000 Annual Report to Shareholders and is
incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The Registrant's Consolidated Financial Statements as of December 30,
2000, and Supplementary Data are included in the Registrant's 2000 Annual Report
to Shareholders and are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
13
PART III
Item 10. Directors and Executive Officers of the Registrant
The information concerning directors required under this item is
incorporated herein by reference from the material contained under the caption
"Election of Directors" in the Registrant's definitive proxy statement to be
filed with the Securities and Exchange Commission pursuant to Regulation 14A,
not later than 120 days after the close of the fiscal year. The information
concerning delinquent filers pursuant to Item 405 of Regulation S-K is
incorporated herein by reference from the material contained under the heading
"Section 16(a) Beneficial Ownership Reporting Compliance" under the caption
"Stock Ownership" in the Registrant's definitive proxy statement to be filed
with the Securities and Exchange Commission pursuant to Regulation 14A, not
later than 120 days after the close of the fiscal year.
Item 11. Executive Compensation
The information required under this item is incorporated herein by
reference from the material contained under the caption "Executive Compensation"
in the Registrant's definitive proxy statement to be filed with the Securities
and Exchange Commission pursuant to Regulation 14A, not later than 120 days
after the close of the fiscal year.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required under this item is incorporated herein by
reference from the material contained under the caption "Stock Ownership" in the
Registrant's definitive proxy statement to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A, not later than 120 days after
the close of the fiscal year.
Item 13. Certain Relationships and Related Transactions
The information required under this item is incorporated herein by
reference from the material contained under the caption "Relationship with
Affiliates" in the Registrant's definitive proxy statement to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A, not later than
120 days after the close of the fiscal year.
14
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a,d) Financial Statements and Schedules
(1) The consolidated financial statements set forth in the list below are
filed as part of this Report.
(2) The consolidated financial statement schedule set forth in the list
below is filed as part of this Report.
(3) Exhibits filed herewith or incorporated herein by reference are set
forth in Item 14(c) below.
List of Financial Statements and Schedules Referenced in this Item 14
Information incorporated by reference from Exhibit 13 filed herewith:
Consolidated Statement of Income
Consolidated Balance Sheet
Consolidated Statement of Cash Flows
Consolidated Statement of Comprehensive Income and Shareholders'
Investment
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
Financial Statement Schedules filed herewith:
Schedule II: Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable or not
required, or because the required information is shown either in the
financial statements or in the notes thereto.
(b) Reports on Form 8-K
None.
(c) Exhibits
See Exhibit Index on the page immediately preceding exhibits.
15
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: March 26, 2001 THERMO FIBERTEK INC.
By: /s/ William A. Rainville
William A. Rainville
President, Chief Executive Officer, and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated, as of March 26, 2001.
Signature Title
By: /s/ William A. Rainville President, Chief Executive Officer, and
William A. Rainville Director
By: /s/ Theo Melas-Kyriazi Chief Financial Officer (designated Chief
Theo Melas-Kyriazi Accounting Officer)
By: /s/ Francis L. McKone Director
Francis L. McKone
By: /s/ Donald E. Noble Director
Donald E. Noble
By: /s/ Richard F. Syron Chairman of the Board and Director
Richard F. Syron
16
Report of Independent Public Accountants
To the Shareholders and Board of Directors of Thermo Fibertek Inc.:
We have audited, in accordance with auditing standards generally accepted
in the United States, the consolidated financial statements included in Thermo
Fibertek Inc.'s Annual Report to Shareholders incorporated by reference in this
Form 10-K, and have issued our report thereon dated February 12, 2001. Our
audits were made for the purpose of forming an opinion on those statements taken
as a whole. The schedule listed in Item 14 on page 15 is the responsibility of
the Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
consolidated financial statements. This schedule has been subjected to the
auditing procedures applied in the audits of the basic consolidated financial
statements and, in our opinion, fairly states in all material respects the
consolidated financial data required to be set forth therein in relation to the
basic consolidated financial statements taken as a whole.
Arthur Andersen LLP
Boston, Massachusetts
February 12, 2001
17
SCHEDULE II
THERMO FIBERTEK INC.
Valuation and Qualifying Accounts
(In thousands)
Provision
Balance at Charged Accounts Balance
Beginning to Accounts Written at End
Description of Year Expense Recovered Off Other (a) of Year
- -----------------------------------------------------------------------------------------------------------
Allowance for Doubtful Accounts
Year Ended December 30, 2000 $1,659 $1,197 $ 7 $ (616) $ (65) $2,182
Year Ended January 1, 2000 $2,231 $ 234 $ - $ (586) $ (220) $1,659
Year Ended January 2, 1999 $2,565 $ 248 $ 15 $ (657) $ 60 $2,231
Provision
Charged to
Balance at Expense Activity Balance
Beginning (Reversed to Charged to Currency at End
Description of Year Income) Reserve Translation of Year
- -----------------------------------------------------------------------------------------------------------
Accrued Restructuring Costs (b)
Year Ended December 30, 2000 $ 669 $ (506) $ (33) $ (98) $ 32
Year Ended January 1, 2000 $ 34 $ 2,257 $(1,356) $ (266) $ 669
Year Ended January 2, 1999 $ 197 $ - $ (163) $ - $ 34
(a) Includes allowances of businesses acquired and sold during the year, as described in Note 3 to Consolidated
Financial Statements in the Registrant's 2000 Annual Report to Shareholders, and the effect of foreign
currency translation.
(b) The nature of activity in this account is described in Note 11 to Consolidated Financial Statements in the
Registrant's 2000 Annual Report to Shareholders.
18
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
2.1 Share Redemption Agreement, dated as of December 22, 1994, by and
among the Registrant, Fiberprep Inc., and Aikawa Iron Works Co.,
Ltd. (filed as Exhibit 2.1 to the Registrant's Current Report on
Form 8-K relating to events occurring on January 2, 1995 [File No
1-11406] and incorporated herein by reference).
2.2 Asset Purchase Agreement dated as of May 22, 1997 among BC
Acquisition Corp., Thermo Fibertek Inc., The Black Clawson
Company, Black Clawson Shartle Mfg. Co. Inc., Black Clawson
International, Ltd., Black Clawson Canada Fibre Processing Ltd.,
Black Clawson Europe S.A. and Carl C. Landegger (filed as Exhibit
2.1 to the Registrant's Current Report on Form 8-K relating to
events occurring on May 22, 1997 [File No 1-11406] and
incorporated herein by reference).
3.1 Certificate of Incorporation, as amended, of the Registrant
(filed as Exhibit 3 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended June 28, 1997 [File No.
1-11406] and incorporated herein by reference).
3.2 By-Laws of the Registrant (filed as Exhibit 3(b) to the
Registrant's Registration Statement on Form S-1 [Reg. No.
33-51172] and incorporated herein by reference).
4.1 - 4.4 Reserved.
4.5 Fiscal Agency Agreement dated as of July 16, 1997, among the
Registrant, Thermo Electron Corporation, and Bankers Trust
Company as fiscal agent, relating to $153 million principal
amount of 4 1/2% Convertible Subordinated Debentures due 2004
(filed as Exhibit 4 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended June 28, 1997 [File No. 1-11406] and
incorporated herein by reference).
10.1 Exchange Agreement dated as of December 28, 1991, between Thermo
Electron and the Registrant (filed as Exhibit 10(a) to the
Registrant's Registration Statement on Form S-1 [Reg. No.
33-51172] and incorporated herein by reference).
10.2 Amended and Restated Corporate Services Agreement dated January
3, 1993, between Thermo Electron and the Registrant (filed as
Exhibit 10(b) to the Registrant's Annual Report on Form 10-K for
the fiscal year ended January 2, 1993 [File No. 1-11406] and
incorporated herein by reference).
10.3 Thermo Electron Corporate Charter, as amended and restated
effective January 3, 1993 (filed as Exhibit 10(e) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
January 2, 1993 [File No. 1-11406] and incorporated herein by
reference).
10.4 Thermo Web Systems, Inc. (formerly Thermo Electron Web Systems,
Inc.) Retirement Plan, as amended (filed as Exhibit 10(g) to the
Registrant's Registration Statement on Form S-1 [Reg. No.
33-51172] and incorporated herein by reference).
10.5 Noncompetition Agreement dated May 30, 1990, between Thermo
Electron and Bruno Lamort de Gail (filed as Exhibit 10(h) to the
Registrant's Registration Statement on Form S-1 [Reg.
No. 33-51172] and incorporated herein by reference).
10.6 Lamort Retirement Plan (filed as Exhibit 10(i) to the
Registrant's Registration Statement on Form S-1 [Reg. No.
33-51172] and incorporated herein by reference).
19
Exhibit
Number Description of Exhibit
10.7 Lamort Retirement Plan for Key Employees (filed as Exhibit 10(j)
to the Registrant's Registration Statement on Form S-1 [Reg. No.
33-51172] and incorporated herein by reference).
10.8 Severance Agreement dated January 8, 1988, between Thermo
Electron and William A. Rainville (filed as Exhibit 10(p) to the
Registrant's Registration Statement on Form S-1 [Reg. No.
33-51172] and incorporated herein by reference).
10.9 Employment Agreement dated as of May 30, 1990, between the
Registrant and Bruno Lamort de Gail (filed as Exhibit 10(q) to
the Registrant's Registration Statement on Form S-1 [Reg. No.
33-51172] and incorporated herein by reference).
10.10 Form of Indemnification Agreement for officers and directors
(filed as Exhibit 10(s) to the Registrant's Registration
Statement on Form S-1 [Reg. No. 33-51172] and incorporated herein
by reference).
10.11 Tax Allocation Agreement dated as of December 28, 1991, between
the Registrant and Thermo Electron (filed as Exhibit 10.13 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
January 1, 1994 [File No. 1-11406] and incorporated herein by
reference).
10.12 Assignment Agreement dated as of December 22, 1994, between
Thermo Electron and TE Great Lakes, Inc. (filed as Exhibit 10.1
to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1995 [File No. 1-11406] and incorporated
herein by reference).
10.13 Management Services Agreement dated as of December 22, 1994,
between TE Great Lakes, Inc. and Fiberprep (filed as Exhibit 10.2
to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1995 [File No. 1-11406] and incorporated
herein by reference).
10.14 Equipment Supply Agreement dated as of December 22, 1994, between
TE Great Lakes, Inc. and Fiberprep (filed as Exhibit 10.3 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995 [File No. 1-11406] and incorporated herein by
reference).
10.15 Amended and Restated Master Cash Management, Guarantee
Reimbursement, and Loan Agreement dated as of June 1, 1999,
between the Registrant and Thermo Electron (filed as Exhibit 10.1
to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended July 3, 1999 [File No. 1-11406] and incorporated herein by
reference).
10.16 Amended and Restated Master Cash Management, Guarantee
Reimbursement, and Loan Agreement dated as of June 1, 1999,
between Thermo Fibergen Inc. and Thermo Electron (filed as
Exhibit 10.1 to Thermo Fibergen Inc.'s Quarterly Report on Form
10-Q for the period ended July 3, 1999 [File No. 1-12137] and
incorporated herein by reference).
10.17 Form of Guarantee of Thermo Electron relating to Thermo
Fibergen's Redemption Rights (filed as Exhibit 4.1 to Thermo
Fibergen's Registration Statement on Form S-1 [Reg. No.
333-07585] and incorporated herein by reference).
10.18 Guarantee Agreement among Thermo Fibergen, Thermo Electron, and
the Representatives of the Underwriters (filed as Exhibit 4.2 to
Thermo Fibergen's Registration Statement on Form S-1 [Reg. No.
333-07585] and incorporated herein by reference).
20
Exhibit
Number Description of Exhibit
10.19 Form of Thermo Fibergen's Redemption Right Certificate (filed as
Exhibit 4.4 to Thermo Fibergen's Registration Statement on Form
S-1 [Reg. No. 333-07585] and incorporated herein by reference).
10.20 Agreement of Loan Guarantee dated as of February 12, 2001,
between the Registrant and Thermo Fibergen Inc.
10.21 Incentive Stock Option Plan of the Registrant (filed as Exhibit
10(k) to the Registrant's Registration Statement on Form S-1
[Reg. No. 33-51172] and incorporated herein by reference).
10.22 Amended and Restated Nonqualified Stock Option Plan of the
Registrant (filed as Exhibit 10.4 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended July 3, 1999 [File No.
1-11406] and incorporated herein by reference).
10.23 Amended and Restated Equity Incentive Plan of the Registrant
(filed as Exhibit 10.3 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended July 3, 1999 [File No. 1-11406]
and incorporated herein by reference).
In addition to the stock-based compensation plans of the
Registrant, the executive officers of the Registrant may be
granted awards under stock-based compensation plans of Thermo
Electron for services rendered to the Registrant. The terms of
such plans are substantially the same as those of the
Registrant's Equity Incentive Plan.
10.24 Amended and Restated Deferred Compensation Plan for Directors of
the Registrant (filed as Exhibit 10.5 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended July
3, 1999 [File No. 1-11406] and incorporated herein by reference).
10.25 Amended and Restated Directors' Stock Option Plan of the
Registrant (filed as Exhibit 10.6 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended July 3, 1999 [File No.
1-11406] and incorporated herein by reference).
10.26 Amended and Restated Thermo Fibergen Inc. Equity Incentive Plan
(filed as Exhibit 10.4 to Thermo Fibergen's Quarterly Report on
Form 10-Q for the quarter ended July 3, 1999 [File No. 1-12137]
and incorporated herein by reference).
10.27 Amended and Restated Thermo Fibertek Inc. - Thermo Fibergen Inc.
Nonqualified Stock Option Plan (filed as Exhibit 10.8 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
July 3, 1999 [File No. 1-11406] and incorporated herein by
reference).
10.28 Restated Stock Holding Assistance Plan and Form of Promissory
Note (filed as Exhibit 10.27 to the Registrant's Annual Report on
Form 10-K for the year ended January 3, 1998 [File No. 1-11406]
and incorporated herein by reference).
13 Annual Report to Shareholders for the year ended January 1, 2000
(only those portions incorporated herein by reference).
21 Subsidiaries of the Registrant.
23 Consent of Arthur Andersen LLP.
Exhibit 10.20
[Thermo Fibertek Inc. Letterhead]
February 12, 2001
Fibergen Inc.
8 Alfred Circle
Bedford, Massachusetts 01730
Attn: Dr. Yiannis A. Monovoukas,
President and Chief Executive Officer
Re: Agreement to make a loan of up to $5,000,000
Ladies and Gentlemen:
Reference is hereby made to those certain Redemption Rights issued by
Thermo Fibergen Inc., a Delaware corporation ("Thermo Fibergen"), in its public
offering of Units consisting of one share of Thermo Fibergen's Common Stock and
one Redemption Right pursuant to and as more fully described in that certain
Registration Statement filed with the Securities and Exchange. Thermo Fibergen
is a publicly-traded subsidiary of Thermo Fibertek Inc., a Delaware corporation
("Thermo Fibertek"), which is a publicly-traded subsidiary of Thermo Electron
Corporation, a Delaware corporation. Capitalized terms used herein without
definition shall have the meaning ascribed to such terms in the Registration
Statement.
WHEREAS, Each Redemption Right entitles the holder to sell one share of
Thermo Fibergen's Common Stock to Thermo Fibergen during September 2000 (the
"Initial Redemption") and September 2001 (the "Final Redemption"), for an amount
of cash equal to the initial public offering price per unit;
WHEREAS, Thermo Fibergen used available working capital to fund the
Initial Redemption and intends to use available working capital to fund the
Final Redemption in September 2001; and
WHEREAS, In the event that Thermo Fibergen's working capital is
insufficient to fund the Final Redemption and to meet its other working capital
needs, Thermo Fibergen desires to have Thermo Fibertek agree to make, and Thermo
Fibertek is willing to agree to make, a loan to Thermo Fibergen to satisfy the
Final Redemption obligation and other working capital needs.
NOW, THEREFORE, the parties hereto (the "Parties") hereby agree that in
the event that Thermo Fibergen's working capital is insufficient to fund the
Final Redemption and to meet its other working capital needs, upon reasonable
request by Thermo Fibergen on or before December 31, 2001 and subject to and
upon commercially reasonable terms and conditions mutually satisfactory to the
Parties, Thermo Fibertek shall make a loan to Thermo Fibergen of up to FIVE
MILLION DOLLARS ($5,000,000) in original principal amount (the "Loan") bearing
interest at a commercially reasonable rate for the Final Redemption obligations
and other working capital needs of Thermo Fibergen. Thermo Fibergen's obligation
to repay the principal of and interest on such Loan shall be evidenced by a
promissory note in form and substance mutually satisfactory to the Parties;
provided, however, that Thermo Fibergen's obligation to make any specific
payment of principal of and/or interest on the Loan shall be conditioned on the
ability of Thermo Fibergen to meet reasonable cash flow requirements at the time
of such specified payment, which cash flow requirements shall be mutually
satisfactory to the Parties.
[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: Jonathan W. Painter
Title: Executive Vice President, Operations
Accepted, acknowledged and agreed by the undersigned as of the date first above
written:
THERMO FIBERGEN INC.
By: __________________________________
Name: Yiannis A. Monovoukas
Title: President
Exhibit 13
Thermo Fibertek Inc.
Consolidated Financial Statements
2000
Thermo Fibertek Inc. 2000 Financial Statements
Consolidated Statement of Income
(In thousands except per share amounts) 2000 1999 1998
---------------------------------------------------------------------------------------------------------
Revenues (Notes 13 and 16) $234,913 $228,036 $247,426
-------- -------- --------
Costs and Operating Expenses:
Cost of revenues 145,111 134,893 147,262
Selling, general, and administrative expenses (Note 9) 60,901 61,345 63,381
Research and development expenses 7,687 7,278 6,971
Gain on sale of business (Note 4) and property (1,700) (11,154) (536)
Restructuring and unusual items (Note 11) (506) 6,152 -
-------- -------- --------
211,493 198,514 217,078
-------- -------- --------
Operating Income 23,420 29,522 30,348
Interest Income 10,466 8,478 7,956
Interest Expense (Note 8) (7,503) (7,449) (7,408)
-------- -------- --------
Income Before Provision for Income Taxes, Minority Interest,
and Cumulative Effect of Change in Accounting Principle 26,383 30,551 30,896
Provision for Income Taxes (Note 7) (10,947) (11,852) (11,902)
Minority Interest Income (Expense) 576 (921) (999)
-------- -------- --------
Income Before Cumulative Effect of Change in Accounting
Principle 16,012 17,778 17,995
Cumulative Effect of Change in Accounting Principle (net of
income taxes of $580; Note 16) (870) - -
-------- -------- --------
Net Income $ 15,142 $ 17,778 $ 17,995
======== ======== ========
Basic and Diluted Earnings per Share Before Cumulative Effect
of Change in Accounting Principle $ .26 $ .29 $ .29
======== ======== ========
Basic and Diluted Earnings per Share (Note 14) $ .25 $ .29 $ .29
======== ======== ========
Weighted Average Shares (Note 14)
Basic 61,298 61,186 61,612
======== ======== ========
Diluted 61,490 61,559 62,353
======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements.
2
Thermo Fibertek Inc. 2000 Financial Statements
Consolidated Balance Sheet
(In thousands) 2000 1999
- ----------------------------------------------------------------------------------------------------------
Assets
Current Assets:
Cash and cash equivalents $ 62,461 $ 39,254
Advance to affiliate 5,704 93,780
Available-for-sale investments, at quoted market value (amortized cost
of $86,104 and $46,470; Note 2) 86,137 46,405
Accounts receivable, less allowances of $2,182 and $1,659 43,866 49,323
Unbilled contract costs and fees 8,029 9,570
Inventories 33,077 28,907
Deferred tax asset (Note 7) 8,879 4,896
Other current assets (Notes 3 and 4) 3,625 1,034
-------- --------
251,778 273,169
-------- --------
Property, Plant, and Equipment, at Cost, Net (Notes 3 and 4) 29,582 30,494
-------- --------
Other Assets (Notes 4 and 5) 13,755 17,044
-------- --------
Goodwill (Note 4) 119,100 121,870
-------- --------
$414,215 $442,577
======== ========
3
Thermo Fibertek Inc. 2000 Financial Statements
Consolidated Balance Sheet (continued)
(In thousands except share amounts) 2000 1999
- ----------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Investment
Current Liabilities:
Current maturities of long-term obligations (Notes 4 and 8) $ 562 $ 380
Accounts payable 21,921 21,957
Accrued payroll and employee benefits 7,727 8,659
Customer deposits 7,076 3,242
Accrued warranty costs 5,666 5,005
Billings in excess of contract costs and fees 1,241 4,730
Other accrued expenses (Notes 3 and 11) 16,178 20,322
Common stock of subsidiary subject to redemption ($17,026 and
$49,788 redemption value; Notes 1 and 12) 17,026 49,160
Due to parent company and affiliated companies 1,284 1,003
-------- --------
78,681 114,458
-------- --------
Deferred Income Taxes and Other Deferred Items (Note 7) 8,042 6,365
-------- --------
Long-term Obligations:
Subordinated convertible debentures (Notes 8 and 12) 153,000 153,000
Notes payable (Notes 4 and 8) 1,650 1,350
-------- --------
154,650 154,350
-------- --------
Minority Interest (Note 3) 2,209 3,334
-------- --------
Commitments and Contingencies (Note 10)
Shareholders' Investment (Notes 5 and 6):
Common stock, $.01 par value, 150,000,000 shares authorized;
63,662,276 and 63,537,556 shares issued 637 635
Capital in excess of par value 76,721 77,411
Retained earnings 133,522 118,380
Treasury stock at cost, 2,275,732 and 2,327,521 shares (20,758) (21,239)
Deferred compensation (36) (66)
Accumulated other comprehensive items (Note 15) (19,453) (11,051)
-------- --------
170,633 164,070
-------- --------
$414,215 $442,577
======== ========
The accompanying notes are an integral part of these consolidated financial statements.
4
Thermo Fibertek Inc. 2000 Financial Statements
Consolidated Statement of Cash Flows
(In thousands) 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------
Operating Activities
Net income $ 15,142 $ 17,778 $ 17,995
Adjustments to reconcile net income to net cash provided by
operating activities:
Cumulative effect of change in accounting principle, net of
income taxes (Note 16) 870 - -
Depreciation and amortization 9,540 8,928 8,492
Provision for losses on accounts receivable 1,197 234 248
Minority interest (income) expense (576) 921 999
Gain on sale of business (Note 4) and property (1,700) (11,154) (536)
Noncash restructuring and unusual items (Note 11) (506) 3,239 -
Deferred income tax expense 108 1,572 2,090
Other noncash items (246) (105) 314
Changes in current accounts, excluding the effects of acquisitions
and dispositions:
Accounts receivable 1,021 (4,448) 3,702
Inventories and unbilled contract costs and fees (1,436) (7,445) 3,277
Other current assets (3,791) 448 836
Accounts payable 1,049 3,039 (5,787)
Other current liabilities (2,234) 4,198 307
--------- --------- ---------
Net cash provided by operating activities 18,438 17,205 31,937
--------- --------- ---------
Investing Activities
Acquisitions, net of cash acquired (Note 4) (3,302) (2,607) (964)
Acquisition of capital equipment and technology (Note 3) (1,200) (500) -
Proceeds from sale of business and property, net of cash divested
(Note 4) 4,109 13,592 -
Advances to affiliate, net 88,076 (93,780) -
Purchases of available-for-sale investments (132,058) (61,825) (70,882)
Proceeds from maturities of available-for-sale investments 92,424 63,565 51,470
Proceeds from sale of available-for-sale investments - - 7,730
Purchases of property, plant, and equipment (6,355) (3,903) (7,773)
Proceeds from sale of property, plant, and equipment 252 414 1,586
Advances under notes receivable (Note 4) - - (2,910)
Proceeds from repayment of notes receivable (Note 4) 800 - 1,250
Refund of acquisition purchase price (Note 4) - 377 -
Other (295) (160) (458)
--------- --------- ---------
Net cash provided by (used in) investing activities $ 42,451 $ (84,827) $ (20,951)
--------- --------- ---------
5
Thermo Fibertek Inc. 2000 Financial Statements
Consolidated Statement of Cash Flows (continued)
(In thousands) 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------
Financing Activities
Redemption of subsidiary common stock (Note 1) $ (34,603) $ - $ -
Purchases of Company and subsidiary common stock - (5,804) (6,598)
Purchases of subsidiary common stock from Thermo Electron - (2,227) -
Net proceeds from issuance of Company and subsidiary common
stock (Note 1) 1,204 551 405
Repayment of long-term obligations (313) - -
--------- --------- ---------
Net cash used in financing activities (33,712) (7,480) (6,193)
--------- --------- ---------
Exchange Rate Effect on Cash (3,970) (1,116) (969)
--------- --------- ---------
Increase (Decrease) in Cash and Cash Equivalents 23,207 (76,218) 3,824
Cash and Cash Equivalents at Beginning of Year 39,254 115,472 111,648
--------- --------- ---------
Cash and Cash Equivalents at End of Year $ 62,461 $ 39,254 $ 115,472
========= ========= =========
Cash Paid For
Interest $ 7,041 $ 6,913 $ 6,917
Income taxes $ 11,779 $ 6,559 $ 5,431
Noncash Activities (Notes 3 and 4)
Fair value of assets of acquired companies, capital equipment,
and technology $ 6,345 $ 10,135 $ 1,161
Cash paid for acquired companies, capital equipment, and
technology (3,889) (3,160) (964)
Payable for acquired companies, capital equipment, and technology (795) (3,430) -
Equity interest in subsidiary transferred for capital equipment
and technology - (3,075) -
--------- --------- ---------
Liabilities assumed of acquired companies $ 1,661 $ 470 $ 197
========= ========= =========
The accompanying notes are an integral part of these consolidated financial statements.
6
Thermo Fibertek Inc. 2000 Financial Statements
Consolidated Statement of Comprehensive Income and Shareholders' Investment
(In thousands) 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------
Comprehensive Income
Net Income $ 15,142 $ 17,778 $ 17,995
-------- -------- --------
Other Comprehensive Items (Note 15):
Foreign currency translation adjustment (8,465) (3,279) (185)
Unrealized gain (loss) on available-for-sale investments, net of
taxes and reclassification adjustment 63 (39) (32)
-------- -------- --------
(8,402) (3,318) (217)
-------- -------- --------
$ 6,740 $ 14,460 $ 17,778
======== ======== ========
Shareholders' Investment
Common Stock, $.01 Par Value:
Balance at beginning of year $ 635 $ 634 $ 633
Activity under employees' and directors' stock plans 2 1 1
-------- -------- --------
Balance at end of year 637 635 634
-------- -------- --------
Capital in Excess of Par Value:
Balance at beginning of year 77,411 78,731 81,865
Activity under employees' and directors' stock plans 165 (1,916) (4,401)
Tax benefit related to employees' and directors' stock plans 512 513 1,267
Effect of majority-owned subsidiary's equity transactions (1,367) 83 -
-------- -------- --------
Balance at end of year 76,721 77,411 78,731
-------- -------- --------
Retained Earnings:
Balance at beginning of year 118,380 100,602 82,607
Net income 15,142 17,778 17,995
-------- -------- --------
Balance at end of year 133,522 118,380 100,602
-------- -------- --------
Treasury Stock:
Balance at beginning of year (21,239) (21,286) (19,494)
Purchases of Company common stock - (2,511) (6,598)
Activity under employees' and directors' stock plans 481 2,558 4,806
-------- -------- --------
Balance at end of year (20,758) (21,239) (21,286)
-------- -------- --------
Deferred Compensation:
Balance at beginning of year (66) - -
Issuance of restricted stock under employees' stock plans (Note 5) - (91) -
Amortization of deferred compensation 30 25 -
-------- -------- --------
Balance at end of year (36) (66) -
-------- -------- --------
Accumulated Other Comprehensive Items (Note 15):
Balance at beginning of year (11,051) (7,733) (7,516)
Other comprehensive items (8,402) (3,318) (217)
-------- -------- --------
Balance at end of year (19,453) (11,051) (7,733)
-------- -------- --------
$170,633 $164,070 $150,948
======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements.
7
Thermo Fibertek Inc. 2000 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations
Thermo Fibertek Inc. (the Company) operates in two segments: (1) Pulp and
Papermaking Equipment and Systems and (2) Water- and Fiber-recovery Services and
Products. Through its Pulp and Papermaking Equipment and Systems segment, the
Company develops, manufactures, and markets a range of equipment and products
for the domestic and international papermaking 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.
subsidiary comprises the Water- and Fiber-recovery Services and Products segment
and develops, manufactures, and markets fiber-based composite products for the
building industry. In addition, Thermo Fibergen also develops and commercializes
products derived from cellulose fiber.
Relationship with Thermo Electron Corporation
The Company was incorporated in November 1991 as a wholly owned subsidiary
of Thermo Electron. As of December 30, 2000, Thermo Electron owned 55,627,480
shares of the Company's common stock, representing 91% of such stock
outstanding.
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 the spin off be completed within one year of the
ruling, and, subject to certain conditions, that 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 announced that it expects to
distribute the Thermo Fibertek dividend in the second half 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.
Principles of Consolidation
The accompanying financial statements include the accounts of the Company,
its wholly owned subsidiaries, its 91%-owned public subsidiary Thermo Fibergen,
and its 95%-owned Fiberprep, Inc. subsidiary. All material intercompany accounts
and transactions have been eliminated.
Fiscal Year
The Company has adopted a fiscal year ending the Saturday nearest December
31. References to 2000, 1999, and 1998 are for the fiscal years ended December
30, 2000, January 1, 2000, and January 2, 1999, respectively. The Company's E. &
M. Lamort, S.A. subsidiary, based in France, has a fiscal year ending on
November 30 to allow sufficient time for the Company to receive their financial
statements.
Revenue Recognition
Prior to 2000, the Company generally recognized revenues upon shipment of
its products. During the fourth quarter of 2000, effective as of January 2,
2000, the Company adopted Securities and Exchange Commission (SEC) Staff
Accounting Bulletin (SAB) No. 101 "Revenue Recognition in Financial Statements."
Under SAB No. 101, revenues for products that are sold subject to customer
acceptance provisions for which compliance with those provisions cannot be
demonstrated until a point in time subsequent to delivery are recognized upon
customer acceptance. Revenues for products that are sold subject to installation
for which the installation is essential to
8
Thermo Fibertek Inc. 2000 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
functionality or not deemed inconsequential or perfunctory are recognized upon
completion of installation. Revenues for products where installation is not
essential to functionality, and is deemed inconsequential, or perfunctory, are
recognized upon shipment with estimated installation costs accrued (Note 16).
The Company provides a reserve for its estimate of warranty and installation
costs at the time revenue is recognized.
In addition, revenues and profits on certain long-term contracts are
recognized using the percentage-of-completion method. Revenues recorded under
the percentage-of-completion method were $43,440,000 in 2000, $40,689,000 in
1999, and $45,114,000 in 1998. The percentage of completion is determined by
relating the actual costs incurred to date to management's estimate of total
costs to be incurred on each contract. If a loss is indicated on any contract in
process, a provision is made currently for the entire loss. The Company's
contracts generally provide for billing of customers upon the attainment of
certain milestones specified in each contract. Revenues earned on contracts in
process in excess of billings are classified as unbilled contract costs and
fees, and amounts billed in excess of revenues are classified as billings in
excess of contract costs and fees in the accompanying balance sheet. There are
no significant amounts included in the accompanying balance sheet that are not
expected to be recovered from existing contracts at current contract values, or
that are not expected to be collected within one year, including amounts that
are billed but not paid under retainage provisions.
Stock-based Compensation Plans
The Company applies Accounting Principles Board Opinion (APB) No. 25,
"Accounting for Stock Issued to Employees" and related interpretations in
accounting for its stock-based compensation plans (Note 5). Accordingly, no
accounting recognition is given to stock options granted at fair market value
until they are exercised. Upon exercise, net proceeds, including tax benefits
realized, are credited to shareholders' investment.
Income Taxes
The Company and Thermo Electron have a tax allocation agreement under
which the Company and its subsidiaries, exclusive of its foreign operations, its
Fiberprep subsidiary, and Thermo Fibergen's NEXT Fiber Products subsidiary, are
included in the consolidated federal and certain state income tax returns filed
by Thermo Electron. The agreement provides that in years in which these entities
have taxable income, the Company will pay to Thermo Electron amounts comparable
to the taxes it would have paid if the Company had filed separate tax returns.
If Thermo Electron's equity ownership of the Company were to drop below 80%, the
Company would be required to file its own federal income tax returns. Prior to
Thermo Fibergen's September 2000 redemption of common stock (Note 1), the
Company's ownership of outstanding shares of Thermo Fibergen's common stock was
less than 80% and Thermo Fibergen filed its own income tax return.
In accordance with Statement of Financial Accounting Standards (SFAS) No.
109, "Accounting for Income Taxes," the Company recognizes deferred income taxes
based on the expected future tax consequences of differences between the
financial statement basis and the tax basis of assets and liabilities,
calculated using enacted tax rates in effect for the year in which the
differences are expected to be reflected in the tax return.
Earnings per Share
Basic earnings per share have been computed by dividing net income by the
weighted average number of shares outstanding during the year. Except where the
effect would be antidilutive, diluted earnings per share have been computed
assuming the conversion of the Company's convertible obligations and the
elimination of the related interest expense, and the exercise of stock options,
as well as their related income tax effects.
9
Thermo Fibertek Inc. 2000 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
Cash and Cash Equivalents
The Company, along with certain European-based subsidiaries of Thermo
Electron, participates in a notional pool arrangement in the United Kingdom with
Barclays Bank. Under this arrangement, Barclays notionally combines the positive
and negative cash balances held by the participants to calculate the net
interest yield/expense for the group. The benefit derived from this arrangement
is then allocated based on balances attributable to the respective participants.
Thermo Electron guarantees all of the obligations of each participant in this
arrangement. The Company has access to a $1,637,000 line of credit under this
arrangement. At year-end 2000 and 1999, the Company had invested $10,356,000 and
$6,732,000, respectively, under this arrangement. In connection with the spin
off from Thermo Electron, this arrangement will cease.
At year-end 2000 and 1999, the Company's cash equivalents included
investments in commercial paper, U.S. government-agency and U.S. Treasury
securities, corporate notes, money market funds, and other marketable securities
of the Company's foreign subsidiaries, which had original maturities of three
months or less. Cash equivalents are carried at cost, which approximates market
value.
Advance to Affiliate
From June 1999 to August 2000, the Company participated in a new domestic
cash management arrangement with Thermo Electron. Under the arrangement, amounts
advanced to Thermo Electron by the Company for domestic cash management purposes
earned interest at the 30-day Dealer Commercial Paper Rate plus 50 basis points,
set at the beginning of each month. Thermo Electron was contractually required
to maintain cash, cash equivalents, and/or immediately available bank lines of
credit equal to at least 50% of all funds invested under this cash management
arrangement by all Thermo Electron subsidiaries other than wholly owned
subsidiaries. The Company had the contractual right to withdraw its funds
invested in the cash management arrangement upon 30 days' prior notice.
Effective August 2000, the Company no longer participates in the domestic cash
management arrangement.
In addition, one of the Company's European-based subsidiaries continues to
participate in a cash management arrangement with a wholly owned subsidiary of
Thermo Electron on terms similar to the domestic cash management arrangement. In
connection with the spin off from Thermo Electron, this arrangement will cease.
Inventories
Inventories are stated at the lower of cost (on a first-in, first-out or
weighted average basis) or market value and include materials, labor, and
manufacturing overhead. The components of inventories are as follows:
(In thousands) 2000 1999
- ----------------------------------------------------------------------------------------------------------
Raw Materials and Supplies $13,218 $12,088
Work in Process 4,825 6,122
Finished Goods (includes $3,765 at customer locations in 2000) 15,034 10,697
------- -------
$33,077 $28,907
======= =======
The Company periodically reviews its quantities of inventories on hand and
compares these amounts to expected usage of each particular product or product
line. The Company records as a charge to cost of revenues any amounts required
to reduce the carrying value of inventories to net realizable value.
10
Thermo Fibertek Inc. 2000 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
Property, Plant, and Equipment
The costs of additions and improvements are capitalized, while maintenance
and repairs are charged to expense as incurred. The Company provides for
depreciation and amortization using the straight-line method over the estimated
useful lives of the property as follows: fiber-recovery and water-clarification
facility, the shorter of the term of the service contract or the life of the
asset; buildings, 15 to 40 years; machinery and equipment, 2 to 10 years; and
leasehold improvements, the shorter of the term of the lease or the life of the
asset. Property, plant, and equipment consists of the following:
(In thousands) 2000 1999
- ----------------------------------------------------------------------------------------------------------
Land $ 2,756 $ 2,886
Fiber-recovery and Water-clarification Facility - 3,573
Buildings 19,472 19,676
Machinery, Equipment, and Leasehold Improvements 45,418 41,669
------- -------
67,646 67,804
Less: Accumulated Depreciation and Amortization 38,064 37,310
------- -------
$29,582 $30,494
======= =======
Other Assets
Other assets in the accompanying balance sheet includes intangible assets,
notes receivable (Note 4), and deferred debt expense. Intangible assets includes
the costs of patents, acquired intellectual property, and noncompete agreements
entered into in connection with acquisitions, which are amortized using the
straight-line method over periods of up to 15, 7, and 10 years, respectively.
The aggregate carrying value of these assets is $9,594,000 and $10,676,000, net
of accumulated amortization of $2,542,000 and $1,328,000 at year-end 2000 and
1999, respectively.
Goodwill
Goodwill is amortized using the straight-line method principally over 40
years. Accumulated amortization was $16,105,000 and $12,642,000 at year-end 2000
and 1999, respectively. The Company assesses the future useful life of this
asset and other noncurrent assets whenever events or changes in circumstances
indicate that the current useful life has diminished. Such events or
circumstances generally would include the occurrence of operating losses or a
significant decline in earnings associated with the acquired business or asset.
The Company considers the future undiscounted cash flows of the acquired
companies in assessing the recoverability of this asset. The Company assesses
cash flows before interest charges and when impairment is indicated, writes the
asset down to fair value. If quoted market values are not available, the Company
estimates fair value by calculating the present value of future cash flows. If
impairment has occurred, any excess of carrying value over fair value is
recorded as a loss.
Common Stock of Subsidiary Subject to Redemption
In September 1996, Thermo Fibergen sold 4,715,000 units, each unit
consisting of one share of Thermo Fibergen common stock and one redemption
right, in an initial public offering at $12.75 per unit for net proceeds of
$55,781,000. The common stock and redemption rights subsequently began trading
separately. 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 of $34,603,000. 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
11
Thermo Fibertek Inc. 2000 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
Fibergen to redeem one share of Thermo Fibergen's common stock at $12.75 per
share in September 2001, the second and final redemption period. A redemption
right may only be exercised if the holder owns a share of Thermo Fibergen's
common stock at that time. As of December 30, 2000, there were 2,001,049
redemption rights outstanding and 1,075,749 shares of Thermo Fibergen's common
stock held by persons other than the Company or Thermo Electron. In addition,
Thermo Electron, the Company and/or Thermo Fibergen may acquire shares of Thermo
Fibergen's common stock in the open market. To the extent the number of
redemption rights exceeds the number of shares of common stock held by persons
other than Thermo Electron or 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 Thermo Electron or the
Company at the time of the redemption. The redemption rights carry terms that
generally provide for their expiration if the closing price of Thermo Fibergen's
common stock exceeds $19 1/8 for 20 of any 30 consecutive trading days prior to
September 2001. The difference between the redemption value and the original
carrying amount of common stock of subsidiary subject to redemption was accreted
over the period ending September 2000, which corresponded with the first
redemption period. The accretion was charged to minority interest expense in the
accompanying statement of income. The redemption rights are guaranteed, on a
subordinated basis, by Thermo Electron. The Company has agreed to reimburse
Thermo Electron in the event Thermo Electron is required to make a payment under
the guarantee. In addition, the Company has agreed to lend Thermo Fibergen up to
$5 million on commercially reasonable terms for the September 2001 redemption
obligation and for working capital needs.
Foreign Currency
All assets and liabilities of the Company's foreign subsidiaries are
translated at year-end exchange rates and revenues and expenses are translated
at average exchange rates for the year in accordance with SFAS No. 52, "Foreign
Currency Translation." Resulting translation adjustments are reflected in the
"Accumulated other comprehensive items" component of shareholders' investment
(Note 15). Foreign currency transaction gains and losses are included in the
accompanying statement of income and are not material for the three years
presented.
Forward Contracts
The Company uses short-term forward foreign exchange contracts to manage
certain exposures to foreign currencies. The Company enters into forward
contracts to hedge firm purchase and sale commitments denominated in currencies
other than its subsidiaries' local currencies. These contracts principally hedge
transactions denominated in U.S. dollars, French francs, and Canadian dollars.
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. Gains and losses arising from forward
foreign exchange contracts are recognized as offsets to gains and losses
resulting from the transactions being hedged. The Company does not enter into
speculative foreign currency agreements.
Recent Accounting Pronouncement
During 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS
No. 133, as amended, requires that all derivatives, including foreign currency
exchange contracts, be recognized on the balance sheet at fair value. Changes in
fair value of derivatives that are not hedges must be recorded through earnings.
If a derivative is a hedge, depending on the nature of the hedge, changes in
fair value of the derivative are either completely or partially offset by the
change in fair value of the hedged items through earnings or for anticipated
transactions recognized in other comprehensive income until the hedged item is
recognized in earnings. The Company is required to adopt SFAS No. 133 in 2001.
The Company does not expect the adoption of SFAS No. 133 will materially affect
its financial statements.
12
Thermo Fibertek Inc. 2000 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. Available-for-sale Investments
Debt securities owned by the Company are considered available-for-sale
investments in the accompanying balance sheet and are carried at market value,
with the difference between cost and market value, net of related tax effects,
recorded in the "Accumulated other comprehensive items" component of
shareholders' investment. The aggregate market value, cost basis, and gross
unrealized gains and losses of available-for-sale investments by major security
type are as follows:
(In thousands) Gross Gross
Market Cost Unrealized Unrealized
Value Basis Gains Losses
- ---------------------------------------------------------------------------------------------------------
2000
Government-agency Securities $28,541 $28,531 $ 10 $ -
Corporate Bonds 57,596 57,573 23 -
------- ------- ------- -------
$86,137 $86,104 $ 33 $ -
======= ======= ======= =======
1999
Government-agency Securities $46,074 $46,139 $ - $ (65)
Other 331 331 - -
------- ------- ------- -------
$46,405 $46,470 $ - $ (65)
======= ======= ======= =======
Available-for-sale investments in the accompanying 2000 balance sheet have
contractual maturities of one year or less. Actual maturities may differ from
contractual maturities as a result of the Company's intent to sell these
securities prior to maturity and as a result of put and call features of the
securities that enable either the Company, the issuer, or both to redeem these
securities at an earlier date.
The cost of available-for-sale investments that were sold was based on
specific identification in determining the gross realized gains and losses in
the accompanying statement of income.
3. Composites Venture
In October 1999, Thermo Fibergen created a subsidiary, NEXT Fiber Products
Inc., to develop, produce, and market fiber-based composites primarily for the
building industry, used for applications such as soundwalls, decking, privacy
fencing, and siding. Thermo Fibergen capitalized NEXT Fiber Products with
$3,200,000 in cash. NEXT Fiber Products then purchased capital equipment and
technology related to the development of fiber-based composites, valued at
$5,275,000, in exchange for shares of its common stock equal to 49% of its
equity and $2,200,000 in cash, payable in installments, if certain conditions
are met. Thermo Fibergen paid $1,200,000 and $500,000 of the purchase price in
2000 and 1999, respectively. The $500,000 remaining obligation is expected to be
paid in 2001 and is included in other accrued liabilities in the accompanying
2000 balance sheet. In January 2001, Thermo Fibergen
13
Thermo Fibertek Inc. 2000 Financial Statements
Notes to Consolidated Financial Statements
3. Composites Venture (continued)
acquired the remaining 49% equity interest in NEXT Fiber Products. In exchange
for the 49% equity interest, Thermo Fibergen agreed to forgive certain amounts
due from the seller related to the seller's investment in NEXT Fiber Products
prior to the purchase of the remaining 49% equity interest.
Thermo Fibergen constructed a composites manufacturing facility in Green
Bay, Wisconsin, and began limited production at such facility in 2000.
4. Acquisitions and Dispositions
Acquisitions
In June 2000, the Company acquired Cyclotech AB-Stockholm, a Swedish
manufacturer of stock-preparation equipment, for $637,000 in cash, subject to a
post-closing adjustment. Of the total purchase price, $478,000 was paid at
closing and the remaining $159,000, which is included in other accrued expenses
in the accompanying 2000 balance sheet, will be paid one year from the date of
acquisition. The cost of this acquisition exceeded the estimated fair value of
the acquired net assets by $578,000, which is being amortized over 40 years.
In February 2000, the Company acquired the assets of Gauld Equipment
Manufacturing Company, Inc., a manufacturer of stock-preparation equipment, for
$3,411,000 in cash and a $923,000 noninterest bearing contract with a
controlling shareholder, payable in equal annual installments over four years.
The liability was initially recorded at its net present value of $795,000. The
cost of this acquisition exceeded the estimated fair value of the acquired net
assets by $2,128,000, which is being amortized over 40 years.
In May 1999, the Company acquired the outstanding stock of Arcline
Products, Inc., a manufacturer of shower and doctor oscillation systems, for
$2,660,000 in cash and $2,000,000 payable over five years (Note 8). The cost of
this acquisition approximated the fair value of the net assets acquired.
In July 1998, the Company acquired Goslin Birmingham Inc., a division of
Green Bay Packaging Inc., for $1,296,000 in cash. During 1999, the Company
received a post-closing purchase price adjustment of $377,000 related to this
acquisition. The Company recorded this amount as a reduction of goodwill. The
cost of this acquisition exceeded the estimated fair value of the acquired net
assets by $860,000 and is being amortized over 40 years. Goslin manufactures
evaporators and recausticizing systems that concentrate and recycle process
chemicals used during pulping, and products that remove condensate gases.
These acquisitions have been accounted for using the purchase method of
accounting and their results of operations have been included in the
accompanying financial statements from their respective dates of acquisition.
Allocation of the purchase price for these acquisitions was based on estimates
of the fair value of the net assets acquired and, for the 2000 acquisitions, is
subject to adjustment upon finalization of the purchase price allocations. To
date, no information has been gathered that would cause the Company to believe
that the final allocation of the purchase price will be materially different
from the preliminary estimates. Pro forma results have not been presented, as
the results of the acquired businesses were not material to the Company's
results of operations.
In connection with these acquisitions, the Company has undertaken
restructuring activities at the acquired businesses. The Company's restructuring
activities, which were accounted for in accordance with Emerging Issues Task
Force Pronouncement (EITF) 95-3, primarily have included reductions in staffing
levels. In connection with these restructuring activities, as part of the cost
of acquisitions, the Company established reserves, primarily for severance and
acquired overmarket leases. In accordance with EITF 95-3, the Company finalized
its restructuring plans no later than one year from the respective dates of the
acquisitions.
14
Thermo Fibertek Inc. 2000 Financial Statements
Notes to Consolidated Financial Statements
4. Acquisitions and Dispositions (continued)
A summary of the changes in accrued acquisition expenses follows:
Abandoned
Facilities Severance
---------- --------------------
Thermo Thermo
Black Black
(In thousands) Clawson Goselin Clawson Total
- ---------------------------------------------------------------------------------------------------------
Balance at January 3, 1998 $ 47 $ - $ 515 $ 562
Reserves established - 80 - 80
Usage (47) - (227) (274)
Decrease due to finalization of restructuring
plan, recorded as a decrease to goodwill - - (219) (219)
----- ----- ----- -----
Balance at January 2, 1999 - 80 69 149
Usage - - (69) (69)
Decrease due to finalization of restructuring
plan, recorded as a decrease to goodwill - (80) - (80)
----- ----- ----- -----
Balance at January 1, 2000 $ - $ - $ - $ -
===== ===== ===== =====
Dispositions
In September 2000, Thermo Fibergen sold substantially all of the assets of
its fiber-recovery and water-clarification services plant to the host mill for
$3,600,000. The purchase price consisted of an initial payment of $200,000 at
the date of closing and a note receivable to be paid in seventeen monthly
payments of $200,000, plus interest at 9.5%, beginning September 28, 2000. The
note receivable is secured by an irrevocable letter of credit. Thermo Fibergen
recognized a pre-tax gain of $729,000 on the sale.
During 1996, the Company loaned $6,000,000 to Tree-Free Fiber Company, LLC
in connection with a proposed engineering, procurement, and construction
project. This project was delayed due to weakness in pulp prices, and did not
proceed as a result of Tree-Free's insolvency. Tree-Free was unable to repay the
note upon its original maturity. The note and loans by another lender were
secured by liens on a tissue mill in Maine and related assets. In December 1997,
the Superior Court of Maine appointed a receiver to preserve and protect the
collateral for the loans made by the Company and other lenders to Tree-Free. In
May 1998, the Company purchased an assignment of Tree-Free's secured
indebtedness to another lender for $2,910,000. In June 1998, the Company
conducted a foreclosure sale of the tissue mill, at which it was the successful
bidder, and executed a purchase and sale agreement. In October 1998, the stock
of a mill located in Mexico, which had also secured the note, was sold and the
proceeds of $1,250,000 were paid to the Company and recorded as a reduction of
the carrying value of the note. During the second quarter of 1999, the Company
entered into a nonbinding letter of intent with a third party to dispose of this
asset for an amount in excess of the carrying value. During the third quarter of
1999, the third party elected to not proceed with the transaction. Accordingly,
the Company recorded a $2,834,000 write-down to reflect the asset at its
then-estimated recoverable value. The Company had previously recorded impairment
on this note of $200,000 in the first quarter of 1999 (Note 11). In December
1999, the Company entered into a purchase and sale agreement, as amended, to
sell the mill. The Company sold its interest in the mill in June 2000 for
$3,909,000 in cash, resulting in a gain of $971,000.
In February 1999, the Company sold its Thermo Wisconsin, Inc. subsidiary
for $13,631,000 in cash, resulting in a pretax gain of $11,154,000. The Company
decided to sell Thermo Wisconsin to divest of a non-strategic, cyclical
operating unit. Thermo Wisconsin, a manufacturer and marketer of dryers and
pollution-control equipment, had unaudited revenues to external customers and
net income in 1998 of $18,877,000 and $1,547,000, respectively.
15
Thermo Fibertek Inc. 2000 Financial Statements
Notes to Consolidated Financial Statements
5. Employee Benefit Plans
Stock-based Compensation Plans
Stock Option Plans
The Company maintains stock-based compensation plans for its key
employees, directors, and others. Two of these plans permit the grant of
nonqualified and incentive stock options. A third plan permits the grant of a
variety of stock and stock-based awards as determined by the human resources
committee of the Company's Board of Directors (the Board Committee), including
restricted stock, stock options, stock bonus shares, or performance-based
shares. The option recipients and the terms of options granted under these plans
are determined by the Board Committee. Generally, options granted to date are
exercisable immediately, but are subject to certain transfer restrictions and
the right of the Company to repurchase shares issued upon exercise of the
options at the exercise price, upon certain events. The restrictions and
repurchase rights generally lapse ratably over a one- to ten-year period,
depending on the term of the option, which may range from five to twelve years.
In addition, under certain options, shares acquired upon exercise are restricted
from resale until retirement or other events. Nonqualified options may be
granted at any price determined by the Board Committee, although incentive stock
options must be granted at not less than the fair market value of the Company's
stock on the date of grant. To date, all options have been granted at fair
market value. The Company also has a directors' stock option plan that provides
for the grant of stock options to outside directors pursuant to a formula
approved by the Company's shareholders. Options awarded under this plan are
exercisable six months after the date of grant and generally expire three or
seven years after the date of grant. In addition to the Company's stock-based
compensation plans, certain officers and key employees may also participate in
the stock-based compensation plans of Thermo Electron.
In November 1998, the Company's employees, excluding its officers and
directors, were offered the opportunity to exchange previously granted options
to purchase shares of Company common stock for an amount of options equal to
half of the number of options previously held, exercisable at a price equal to
the fair market value at the time of the exchange offer. Holders of options to
acquire 690,000 shares at a weighted average exercise price of $10.68 per share
elected to participate in this exchange and, as a result, received options to
purchase 345,000 shares of Company common stock at $5.63 per share, which are
included in the 1998 grants in the table below. The other terms of the new
options are the same as the exchanged options except that the holders were not
able to sell shares purchased pursuant to such new options for six months from
the exchange date. The options exchanged were canceled by the Company.
In January 1999, the Company awarded 11,900 shares of restricted Company
common stock to certain key employees. The shares had an aggregate value of
$91,000 and vest three years from the date of award, assuming continued
employment, with certain exceptions. The Company has recorded the fair value of
the restricted stock as deferred compensation in the accompanying balance sheet
and is amortizing such amount over the vesting period.
16
Thermo Fibertek Inc. 2000 Financial Statements
Notes to Consolidated Financial Statements
5. Employee Benefit Plans (continued)
A summary of the Company's stock option activity is as follows:
2000 1999 1998
----------------- ----------------- ----------------
Weighted Weighted Weighted
Number Average Number Average Number Average
of Exercise of Exercise of Exercise
(Shares in thousands) Shares Price Shares Price Shares Price
- ---------------------------------------------------------------------------------------------------------
Options Outstanding, Beginning of Year 3,055 $ 6.57 3,489 $ 6.00 3,988 $ 6.24
Granted 2 6.66 161 7.30 957 6.82
Exercised (149) 3.78 (539) 3.08 (646) 3.11
Forfeited (233) 6.13 (56) 6.55 (120) 9.23
Canceled due to exchange - - - - (690) 10.68
----- ----- -----
Options Outstanding, End of Year 2,675 $ 6.77 3,055 $ 6.57 3,489 $ 6.00
===== ====== ===== ====== ===== ======
Options Exercisable 2,675 $ 6.77 3,055 $ 6.57 3,486 $ 6.00
===== ====== ===== ====== ===== =====
Options Available for Grant 1,563 1,332 1,449
===== ===== =====
A summary of the status of the Company's stock options at December 30, 2000, is as follows:
Options Outstanding and Exercisable
-----------------------------------------------------
Number Weighted Weighted
of Average Average
Shares Remaining Exercise
Range of Exercise Prices (In thousands) Contractual Life Price
- --------------------------------------------------------------------------------------------------------
$ 3.00 - $ 5.83 1,050 2.6 years $ 4.38
5.84 - 8.67 1,078 4.2 years 6.75
8.68 - 11.51 517 5.7 years 11.22
11.52 - 14.35 30 7.1 years 14.32
-----
$ 3.00 - $14.35 2,675 3.9 years $ 6.77
=====
Employee Stock Purchase Program
Substantially all of the Company's full-time U.S. employees are eligible
to participate in an employee stock purchase program sponsored by the Company.
Under this program, shares of the Company's and, prior to November 2000, shares
of Thermo Electron's common stock may be purchased at 85% of the lower of the
fair market value at the beginning or end of the period, and the shares
purchased are subject to a one-year resale restriction. Effective November 2000,
employees may no longer purchase shares of Thermo Electron under this program.
During 2000 and 1999, the Company issued 31,520 and 18,000 shares, respectively,
of its common stock under this program. No shares of the Company's common stock
were issued under this program during 1998.
17
Thermo Fibertek Inc. 2000 Financial Statements
Notes to Consolidated Financial Statements
5. Employee Benefit Plans (continued)
Pro Forma Stock-based Compensation Expense
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-based
Compensation," which sets forth a fair-value based method of recognizing
stock-based compensation expense. As permitted by SFAS No. 123, the Company has
elected to continue to apply APB No. 25 to account for its stock-based
compensation plans. Had compensation cost for awards granted after 1994 under
the Company's stock-based compensation plans been determined based on the fair
value at the grant dates consistent with the method set forth under SFAS No.
123, the effect on the Company's net income and earnings per share would have
been as follows:
(In thousands except per share amounts) 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------
Net Income:
As reported $15,142 $17,778 $17,995
Pro forma 14,198 16,265 16,668
Basic Earnings per Share:
As reported .25 .29 .29
Pro forma .23 .27 .27
Diluted Earnings per Share:
As reported .25 .29 .29
Pro forma .23 .26 .27
Because the method prescribed by SFAS No. 123 has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
expense may not be representative of the amount to be expected in future years.
Pro forma compensation expense for options granted is reflected over the vesting
period; therefore, future pro forma compensation expense may be greater as
additional options are granted.
The weighted average fair value per share of options granted was $1.10,
$2.69, and $2.32 in 2000, 1999, and 1998, respectively. The fair value of each
option grant was estimated on the grant date using the Black-Scholes
option-pricing model with the following weighted-average assumptions:
2000 1999 1998
- ----------------------------------------------------------------------------------------------------------
Volatility 42% 39% 35%
Risk-free Interest Rate 4.9% 5.6% 4.6%
Expected Life of Options 1.0 years 3.8 years 4.2 years
The Black-Scholes option-pricing model was developed for use in estimating
the fair value of traded options, which have no vesting restrictions and are
fully transferable. In addition, option-pricing models require the input of
highly subjective assumptions including expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
401(k) Savings Plan
Effective November 2000, the majority of the Company's domestic
subsidiaries participate in the Company's 401(k) retirement savings plan and,
prior to November 2000, in Thermo Electron's 401(k) savings plan. Contributions
to the plan are made by both the employee and the Company. Company contributions
are based upon the level of employee contributions. For this plan, the Company
contributed and charged to expense $803,000, $761,000, and $974,000 in 2000,
1999, and 1998, respectively.
18
Thermo Fibertek Inc. 2000 Financial Statements
Notes to Consolidated Financial Statements
5. Employee Benefit Plans (continued)
Profit-sharing Plans
One of the Company's domestic subsidiaries has adopted a profit-sharing
plan under which the Company annually contributes 10% of the subsidiary's net
income before profit-sharing expense. All contributions are immediately vested.
In addition, one of the Company's foreign subsidiaries maintains a
state-mandated profit-sharing plan. Under the state-mandated plan, the Company
contributes 0-11% of the subsidiary's net profit after taxes reduced by 5% of
its shareholders' investment. For these plans, the Company contributed and
charged to expense $812,000, $959,000, and $1,119,000 in 2000, 1999, and 1998,
respectively.
Defined Benefit Pension Plan
One of the Company's divisions has a noncontributory defined benefit
retirement plan. Benefits under the plan are based on years of service and
employees' compensation. Funds are contributed to a trustee as necessary to
provide for current service and for any unfunded projected benefit obligation
over a reasonable period.
Net periodic benefit income includes:
(In thousands) 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------
Interest Cost $ 902 $ 823 $ 802
Service Cost 496 439 421
Expected Return on Plan Assets (1,884) (1,588) (1,375)
Amortization of Unrecognized Gain (380) (431) (328)
------- ------- -------
$ (866) $ (757) $ (480)
======= ======= =======
The Company's defined benefit pension plan activity is:
(In thousands) 2000 1999
- ---------------------------------------------------------------------------------------------------------
Change in Benefit Obligation:
Benefit obligation, beginning of year $11,797 $10,771
Interest cost 902 823
Service costs 496 439
Benefits paid (525) (458)
Actuarial gain - 222
------- -------
Benefit obligation, end of year 12,670 11,797
------- -------
Change in Plan Assets:
Fair value of plan assets, beginning of year 20,638 19,485
Actual return on plan assets (709) 1,611
Benefits paid (525) (458)
------- -------
Fair value of plan assets, end of year 19,404 20,638
------- -------
Funded Status 6,734 8,841
Unrecognized Net Gain (4,877) (7,850)
------- -------
Prepaid Benefit Costs $ 1,857 $ 991
======= =======
19
Thermo Fibertek Inc. 2000 Financial Statements
Notes to Consolidated Financial Statements
5. Employee Benefit Plans (continued)
Plan assets are primarily invested in cash, cash equivalents, fixed income
securities, and equity securities. Prepaid benefit costs are included in other
assets in the accompanying balance sheet. The weighted average actuarial
assumptions used to determine the net periodic benefit costs were: discount rate
of 7.5% and rate of increase in salary levels of 5.5% in 2000, 1999, and 1998;
expected long-term rate of return on assets of 9.25% in 2000 and 8.25% in 1999
and 1998.
Other Retirement Plans
Certain of the Company's subsidiaries offer other retirement plans. The
majority of these subsidiaries offer defined contribution plans. Company
contributions to these plans are based on formulas determined by the Company.
For these plans, the Company contributed and charged to expense $1,195,000,
$779,000, and $1,285,000 in 2000, 1999, and 1998, respectively.
6. Common Stock
At December 30, 2000, the Company had reserved 18,317,758 unissued shares
of its common stock for possible issuance under stock-based compensation plans
and for issuance upon possible conversion of the Company's subordinated
convertible debentures.
7. Income Taxes
The components of income before provision for income taxes and minority
interest are as follows:
(In thousands) 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------
Domestic $13,914 $21,802 $19,751
Foreign 12,469 8,749 11,145
------- ------- -------
$26,383 $30,551 $30,896
======= ======= =======
The components of the provision for income taxes are as follows:
(In thousands) 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------
Currently Payable:
Federal $ 5,594 $ 5,870 $ 4,491
Foreign 4,299 3,409 4,282
State 946 1,001 1,039
------- ------- -------
10,839 10,280 9,812
------- ------- -------
Net Deferred (Prepaid):
Federal 569 1,600 1,939
Foreign (177) (353) (71)
State (284) 325 222
------- ------- -------
108 1,572 2,090
------- ------- -------
$10,947 $11,852 $11,902
======= ======= =======
20
Thermo Fibertek Inc. 2000 Financial Statements
Notes to Consolidated Financial Statements
7. Income Taxes (continued)
The Company receives a tax deduction upon exercise of nonqualified stock
options by employees for the difference between the exercise price and the
market price of the Company's common stock on the date of exercise. The
provision for income taxes that is currently payable does not reflect $512,000,
$513,000, and $1,267,000 of such benefits from exercises of stock options that
have been allocated to capital in excess of par value in 2000, 1999, and 1998,
respectively.
The provision for income taxes in the accompanying statement of income
differs from the provision calculated by applying the statutory federal income
tax rate of 35% to income before provision for income taxes, minority interest,
and cumulative effect of change in accounting principle due to the following:
(In thousands) 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------
Provision for Income Taxes at Statutory Rate $ 9,234 $10,693 $10,814
Increases (Decreases) Resulting From:
State income taxes, net of federal tax 577 805 820
Foreign tax rate and tax regulation differential (242) (227) 310
Nondeductible expenses 497 253 178
Change in valuation allowance 174 50 203
Other 707 278 (423)
------- ------- -------
$10,947 $11,852 $11,902
======= ======= =======
Net deferred income tax asset (liability) in the accompanying balance
sheet consist of the following:
(In thousands) 2000 1999
- -----------------------------------------------------------------------------------------------------------
Deferred Tax Asset (Liability):
Operating loss carryforwards $ 1,045 $ 253
Reserves and accruals 4,972 3,082
Inventory basis difference 2,168 1,243
Accrued compensation 175 429
Allowance for doubtful accounts 361 128
Amortization of intangible assets (4,839) (3,203)
Depreciation (1,360) (980)
Other (60) (728)
------- -------
2,462 224
Less: Valuation allowance 427 253
------- -------
$ 2,035 $ (29)
======= =======
The valuation allowance relates primarily to uncertainty surrounding the
realization of state operating loss carryforwards of $3,900,000 and $2,700,000
at year-end 2000 and 1999, respectively, which begin to expire in 2003. In
addition, the Company has federal operating loss carryforwards of $2,000,000 at
year-end 2000, which begin to expire in 2019.
The Company has not recognized a deferred tax liability for the difference
between the book basis and the tax basis of its investment in the stock of its
domestic subsidiaries (such difference relates primarily to unremitted earnings
by subsidiaries) because it does not expect this basis difference to become
subject to tax at the parent level. The Company believes it can implement
certain tax strategies to recover its investment in its domestic subsidiaries
tax free.
21
Thermo Fibertek Inc. 2000 Financial Statements
Notes to Consolidated Financial Statements
7. Income Taxes (continued)
A provision has not been made for U.S. or additional foreign taxes on
$72.3 million of undistributed earnings of foreign subsidiaries that could be
subject to tax if remitted to the U.S. because the Company plans to keep these
amounts permanently reinvested overseas. The Company believes that any
additional U.S. tax liability due upon remittance of such earnings would be
immaterial due to available U.S. foreign tax credits.
8. Long-term Obligations
In connection with the February 2000 acquisition of Gauld Equipment, the
Company agreed to pay $923,000 in equal annual installments over four years. The
liability was initially recorded as its net present value of $795,000.
In connection with the May 1999 acquisition of Arcline Products, the
Company agreed to pay $2,000,000 in equal annual installments over five years.
The liability was initially recorded at its net present value of $1,730,000.
In July 1997, the Company issued and sold at par $153,000,000 principal
amount of 4 1/2% subordinated convertible debentures due 2004 for net proceeds
of approximately $149,800,000. 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.
See Note 12 for fair value information pertaining to the Company's
long-term obligations.
9. Related-party Transactions
Corporate Services Agreement
The Company and Thermo Electron have a corporate services agreement under
which Thermo Electron's corporate staff provides certain administrative
services, including certain legal advice and services, risk management, certain
employee benefit administration, tax advice and preparation of tax returns,
centralized cash management, and certain financial and other services, for which
the Company pays Thermo Electron annually an amount equal to 0.8% of the
Company's revenues. For these services, the Company was charged $1,879,000,
$1,824,000, and $1,979,000 in 2000, 1999, and 1998, respectively. The fee is
reviewed and adjusted annually by mutual agreement of the parties. Management
believes that the service fee charged by Thermo Electron is reasonable and that
such fees are representative of the expenses the Company would have incurred on
a stand-alone basis. The corporate services agreement is renewed annually but
can be terminated upon 30 days' prior notice by the Company or upon the
Company's withdrawal from the Thermo Electron Corporate Charter (the Thermo
Electron Corporate Charter defines the relationship among Thermo Electron and
its majority-owned subsidiaries). For additional items such as employee benefit
plans, insurance coverage, and other identifiable costs, Thermo Electron charges
the Company based upon costs attributable to the Company.
Cash Management
The Company has, from time to time, invested excess cash in arrangements
with Thermo Electron as discussed in Note 1.
10. Commitments and Contingencies
Operating Leases
The Company occupies office and operating facilities under various
operating leases. The accompanying statement of income includes expenses from
operating leases of $2,257,000, $1,767,000, and $1,862,000 in 2000, 1999, and
1998, respectively. The future minimum payments due under noncancelable
operating leases as of December 30, 2000, are $935,000 in 2001; $590,000 in
2002; $270,000 in 2003; $194,000 in 2004; and $6,000 in 2005. Total future
minimum lease payments are $1,995,000.
22
Thermo Fibertek Inc. 2000 Financial Statements
Notes to Consolidated Financial Statements
10. Commitments and Contingencies (continued)
Contingencies
In the ordinary course of business, the Company is at times required to
issue limited performance guarantees relating to its equipment and systems. The
Company typically limits its liability under these guarantees to amounts that
would not exceed the cost of the equipment. The Company believes that it has
adequate reserves for any potential liability in connection with such
guarantees.
11. Restructuring and Unusual Items
During 1999, the Company recorded restructuring costs and unusual items of
$6,152,000. Restructuring costs of $2,257,000, which were accounted for in
accordance with EITF 94-3, include severance costs of $1,283,000 for 24
employees across all functions at the Company's E. & M. Lamort, S.A. subsidiary,
all of whom were terminated as of January 1, 2000, and $974,000 to terminate
distributor agreements. These actions were taken in efforts to improve
profitability and were in response to a cyclical downturn in demand at this
business unit. Unusual items of $3,895,000 include $3,239,000 for asset
write-downs, consisting of $3,034,000 for the write-down of a note receivable
secured by a tissue mill (Note 4) and $205,000 for impairment of a building in
Ohio held for disposal, which was sold in July 1999; $526,000 for the expected
settlement of a contractual dispute; and $130,000 for facility-closure costs.
During 2000, due to breach of an agreement by a third party distributor, the
Company is no longer obligated to pay amounts accrued in 1999 for this matter
and, therefore, reversed $506,000 of costs.
A summary of the changes in accrued restructuring costs, which are
included in other accrued expenses in the accompanying balance sheet, follows:
(In thousands) Severance Other Total
- ----------------------------------------------------------------------------------------------------------
Balance at January 3, 1998 $ - $ 197 $ 197
Usage - (163) (163)
------- ------- -------
Balance at January 2, 1999 - 34 34
Provision charged to expense 1,283 974 2,257
Usage (1,117) (239) (1,356)
Currency translation (151) (115) (266)
------- ------- -------
Balance at January 1, 2000 15 654 669
Usage (15) (18) (33)
Reversal - (506) (506)
Currency translation - (98) (98)
------- ------- -------
Balance at December 30, 2000 $ - $ 32 $ 32
======= ======= =======
The Company expects to pay the remaining accrued restructuring costs in 2001.
23
Thermo Fibertek Inc. 2000 Financial Statements
Notes to Consolidated Financial Statements
12. Fair Value of Financial Instruments
The Company's financial instruments consist mainly of cash and cash
equivalents, advance to affiliate, available-for-sale investments, accounts
receivable, current maturities of notes payable, accounts payable, common stock
of subsidiary subject to redemption, due to parent company and affiliated
companies, subordinated convertible debentures, notes payable, and forward
foreign exchange contracts. The carrying amounts of accounts receivable, current
maturities of notes payable, accounts payable, and due to parent company and
affiliated companies approximate fair value due to their short-term nature.
Available-for-sale investments are carried at fair value in the
accompanying balance sheet. The fair values were determined based on quoted
market prices. See Note 2 for fair value information pertaining to these
financial instruments.
The carrying amount and fair value of the Company's subordinated
convertible debentures, common stock of subsidiary subject to redemption, and
off-balance-sheet financial instruments are as follows:
2000 1999
------------------- -------------------
Carrying Fair Carrying Fair
(In thousands) Amount Value Amount Value
- ---------------------------------------------------------------------------------------------------------
Subordinated Convertible Debentures $153,000 $138,312 $153,000 $124,710
Common Stock of Subsidiary Subject to Redemption $ 17,026 $ 15,858 $ 49,160 $ 51,011
Off-balance-sheet Financial Instruments:
Forward foreign exchange contracts payable $ 348 $ 35
The fair value of the Company's subordinated convertible debentures and
common stock of subsidiary subject to redemption was determined based on quoted
market prices.
The notional amounts of forward foreign exchange contracts outstanding
totaled $12,474,000 and $4,080,000 at year-end 2000 and 1999, respectively. The
fair value of such contracts is the estimated amount that the Company would pay
upon termination of the contracts, taking into account the change in foreign
exchange rates.
13. Business Segment and Geographical Information
The Company organizes and manages its business by individual functional
operating entity. The Company has combined its operating entities into three
segments, one of which was sold in February 1999: Pulp and Papermaking Equipment
and Systems, Dryers and Pollution-control Equipment, and Water-and
Fiber-recovery Services and Products. In classifying operational entities into a
particular segment, the Company aggregated businesses with similar economic
characteristics, products and services, production processes, customers, and
methods of distribution.
The Company's Pulp and Papermaking Equipment and Systems 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. Revenues from the stock-preparation
equipment product line were $112,976,000, $98,929,000, and $107,518,000 in 2000,
1999, and 1998, respectively. Revenues from the accessories product line were
$70,306,000, $74,839,000, and $77,817,000 in 2000, 1999, and 1998, respectively.
Revenues from the water-management product line were $42,447,000, $42,611,000,
and $36,908,000 in 2000, 1999, and 1998, respectively.
The Dryers and Pollution-control Equipment segment, which consisted of the
Company's Thermo Wisconsin subsidiary, manufactured and marketed dryers and
pollution-control equipment for the printing, papermaking, and converting
industries. In February 1999, the Company sold its Thermo Wisconsin subsidiary
(Note 4).
24
Thermo Fibertek Inc. 2000 Financial Statements
Notes to Consolidated Financial Statements
13. Business Segment and Geographical Information (continued)
The Water- and Fiber-recovery Services and Products segment consists of
the Company's Thermo Fibergen subsidiary. Through its GranTek Inc. 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. In addition, through
its NEXT Fiber Products subsidiary (Note 3), Thermo Fibergen develops, produces,
and markets fiber-based composites primarily for the building industry, used for
applications such as soundwalls, decking, privacy fencing, and siding. Prior to
September 2000, this segment owned and operated a plant that provided
fiber-recovery and water-clarification services to a host mill on a long-term
contract basis. The plant, which the Company 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 (Note 4),
although it intends to continue operating in this line of business and is
pursuing other fiber-recovery projects.
(In thousands) 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------
Business Segment Information
Revenues:
Pulp and Papermaking Equipment and Systems (a) $227,133 $217,724 $223,799
Dryers and Pollution-control Equipment (b) - 1,802 19,513
Water- and Fiber-recovery Services and Products (c) 7,794 8,579 5,276
Intersegment sales elimination (d) (14) (69) (1,162)
-------- -------- --------
$234,913 $228,036 $247,426
======== ======== ========
Income Before Provision for Income Taxes, Minority Interest, and
Cumulative Effect of Change in Accounting Principle:
Pulp and Papermaking Equipment and Systems (e) $ 29,209 $ 27,061 $ 33,937
Dryers and Pollution-control Equipment (b)(f) - 11,609 2,736
Water- and Fiber-recovery Services and Products (c)(g) (3,116) (1,010) (2,468)
Corporate (h) (2,673) (8,138) (3,857)
-------- -------- --------
Total operating income 23,420 29,522 30,348
Interest income, net 2,963 1,029 548
-------- -------- --------
$ 26,383 $ 30,551 $ 30,896
======== ======== ========
Total Assets:
Pulp and Papermaking Equipment and Systems $280,655 $282,837 $277,688
Dryers and Pollution-control Equipment (b) - - 5,390
Water- and Fiber-recovery Services and Products (c) 38,465 72,438 71,116
Corporate (i) 95,095 87,302 72,906
-------- -------- --------
$414,215 $442,577 $427,100
======== ======== ========
Depreciation and Amortization:
Pulp and Papermaking Equipment and Systems $ 7,314 $ 7,502 $ 7,188
Dryers and Pollution-control Equipment (b) - 16 153
Water- and Fiber-recovery Services and Products (c) 2,226 1,410 1,151
-------- -------- --------
$ 9,540 $ 8,928 $ 8,492
======== ======== ========
25
Thermo Fibertek Inc. 2000 Financial Statements
Notes to Consolidated Financial Statements
13. Business Segment and Geographical Information (continued)
(In thousands) 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------
Capital Expenditures:
Pulp and Papermaking Equipment and Systems $ 2,550 $ 2,964 $ 3,442
Dryers and Pollution-control Equipment (b) - - 197
Water- and Fiber-recovery Services and Products 3,805 939 4,134
-------- -------- --------
$ 6,355 $ 3,903 $ 7,773
======== ======== ========
Geographical Information
Revenues (j):
United States $157,904 $142,800 $153,658
France 52,895 60,682 65,308
Other 33,427 33,477 39,636
Transfers among geographic areas (d) (9,313) (8,923) (11,176)
-------- -------- --------
$234,913 $228,036 $247,426
======== ======== ========
Long-lived Assets (k):
United States $ 22,213 $ 23,948 $ 27,232
France 3,291 4,483 5,381
Other 4,422 4,711 4,844
-------- -------- --------
$ 29,926 $ 33,142 $ 37,457
======== ======== ========
Export Revenues Included in United States Revenues Above (l) $ 37,926 $ 23,366 $ 24,244
======== ======== ========
(a) Includes intersegment sales of $0.5 million in 1998.
(b) Includes intersegment sales of $0.6 million in 1998. The Company sold this segment in February 1999.
(c) Reflects Thermo Fibergen's September 2000 redemption of common stock for $34.6 million and the sale
of the Company's fiber-recovery and water-clarification services plant in September 2000.
(d) Intersegment sales and transfers among geographic areas are accounted for at prices that are
representative of transactions with unaffiliated parties.
(e) Includes $0.5 million of income related to restructuring and unusual items in 2000 and $3.1 million
of restructuring and unusual costs in 1999.
(f) Includes $11.2 million of gain on sale of business in 1999.
(g) Includes gain on sale of plant of $0.7 million in 2000.
(h) Includes gain on sale of property of $1.0 million in 2000. Includes $3.0 million of unusual items in
1999 for the write-down of a note receivable. Also includes related carrying costs of the note
receivable and underlying security of $1.4 million and $0.9 million in 1999 and 1998, respectively.
(i) Primarily available-for-sale investments.
(j) Revenues are attributed to countries based on selling location. (k) Includes property, plant, and
equipment, net, and other long-term tangible assets. (l) In general, export revenues are denominated
in U.S. dollars.
26
Thermo Fibertek Inc. 2000 Financial Statements
Notes to Consolidated Financial Statements
14. Earnings per Share
Basic and diluted earnings per share were calculated as follows:
(In thousands except per share amounts) 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------
Basic
Income Before Cumulative Effect of Change in Accounting Principle $16,012 $17,778 $17,995
Cumulative Effect of Change in Accounting Principle (net of income
taxes of $580) (870) - -
------- ------- -------
Net Income $15,142 $17,778 $17,995
------- ------- -------
Weighted Average Shares 61,298 61,186 61,612
------- ------- -------
Basic Earnings per Share:
Income Before Cumulative Effect of Change in Accounting Principle $ .26 $ .29 $ .29
Change in Accounting Principle (.01) - -
------- ------- -------
$ .25 $ .29 $ .29
======= ======= =======
Diluted
Income Before Cumulative Effect of Change in Accounting Principle $16,012 $17,778 $17,995
Cumulative Effect of Change in Accounting Principle (net of income
taxes of $580) (870) - -
------- ------- -------
Net Income 15,142 17,778 17,995
Effect of Majority-owned Subsidiary's Dilutive Securities (7) (48) (33)
------- ------- -------
Income Available to Common Shareholders, as Adjusted $15,135 $17,730 $17,962
------- ------- -------
Weighted Average Shares 61,298 61,186 61,612
Effect of Stock Options 192 373 741
------- ------- -------
Weighted Average Shares, as Adjusted 61,490 61,559 62,353
------- ------- -------
Diluted Earnings per Share:
Income Before Cumulative Effect of Change in Accounting Principle $ .26 $ .29 $ .29
Change in Accounting Principle (.01) - -
------- ------- -------
$ .25 $ .29 $ .29
======= ======= =======
Options to purchase 2,179,000, 908,000, and 601,000 shares of common stock
were not included in the computation of diluted earnings per share for 2000,
1999, and 1998, respectively, because the options' exercise prices were greater
than the average market price for the common stock and their effect would have
been antidilutive.
In addition, the computation of diluted earnings per share 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.
27
Thermo Fibertek Inc. 2000 Financial Statements
Notes to Consolidated Financial Statements
15. Comprehensive Income
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.
Accumulated other comprehensive items in the accompanying consolidated
balance sheet consist of the following:
(In thousands) 2000 1999
- ----------------------------------------------------------------------------------------------------------
Cumulative Translation Adjustment $(19,474) $(11,009)
Net Unrealized Gain (Loss) on Available-for-sale Investments 21 (42)
-------- --------
$(19,453) $(11,051)
======== ========
16. Adoption of SAB No. 101
In December 1999, the SEC issued SAB No. 101. SAB No. 101 establishes
criteria for recording revenue when the terms of the sale include customer
acceptance provisions or an obligation of the seller to install the product. In
instances where these terms exist and the Company is unable to demonstrate that
the customer's acceptance criteria has been met prior to customer use or when
the installation is essential to functionality or is not deemed inconsequential
or perfunctory, SAB No. 101 requires that revenue recognition occur at
completion of installation and/or upon customer acceptance. In accordance with
the requirements of SAB No. 101, the Company has adopted the pronouncement as of
January 2, 2000, and has recorded the cumulative effect of the change in
accounting principle in the restated results for the first quarter of 2000. The
cumulative effect on net income totaled $870,000, net of income taxes of
$580,000. Revenues of $3,004,000 in 2000 (as restated for the adoption of SAB
No. 101) relate to shipments that occurred in 1999 but for which installation
and/or acceptance did not occur until 2000. These revenues were recorded in 1999
prior to the adoption of SAB No. 101 and thus were a component in the
determination of the cumulative effect of the change in accounting principle for
periods prior to 2000. The Company has not provided pro forma data for 1999 and
1998 as the amounts are not readily determinable based on the nature of the
revenue adjustments required by SAB No. 101.
28
Thermo Fibertek Inc. 2000 Financial Statements
Notes to Consolidated Financial Statements
16. Adoption of SAB No. 101 (continued)
The Company's unaudited quarterly results for 2000 have been restated as
follows:
(In thousands except per share amounts) (Unaudited) First Second Third
- ----------------------------------------------------------------------------------------------------------
Revenues:
As previously reported $60,829 $61,647 $56,997
As adjusted 57,922 60,565 58,315
Gross Profit:
As previously reported 24,401 23,201 21,513
As adjusted 23,315 22,635 22,022
Income Before Cumulative Effect of Change in Accounting
Principle:
As previously reported 4,062 4,269 4,077
As adjusted 3,560 3,910 4,332
Net Income:
As previously reported 4,062 4,269 4,077
As adjusted 2,690 3,910 4,332
Basic and Diluted Earnings per Share Before Cumulative Effect
of Change in Accounting Principle:
As previously reported .07 .07 .07
As adjusted .06 .06 .07
Basic and Diluted Earnings per Share:
As previously reported .07 .07 .07
As adjusted .04 .06 .07
29
Thermo Fibertek Inc. 2000 Financial Statements
Notes to Consolidated Financial Statements
17. Unaudited Quarterly Information
(In thousands except per share amounts)
2000 First (a) Second (a,b) Third Fourth (d)
- ---------------------------------------------------------------------------------------------------------
Revenues $57,922 $60,565 $58,315 $58,111
Gross Profit 23,315 22,635 22,022 21,830
Net Income 2,690 3,910 4,332 4,210
Basic and Diluted Earnings per Share Before
Cumulative Effect of Change in Accounting Principle .06 .06 .07 .07
Basic and Diluted Earnings per Share .04 .06 .07 .07
1999 First (e) Second Third (f) Fourth
- ---------------------------------------------------------------------------------------------------------
Revenues $60,223 $53,549 $53,075 $61,189
Gross Profit 23,436 22,064 21,898 25,745
Net Income 8,228 3,011 1,568 4,971
Earnings per Share:
Basic .13 .05 .03 .08
Diluted .12 .05 .03 .08
(a) Restated to reflect the adoption of SAB No. 101. The first quarter of 2000 reflects the cumulative
effect of change in accounting principle of $0.9 million, net of income taxes of $0.6 million.
(b) Reflects a pretax gain of $1.0 million on the June 2000 sale of property.
(c) Reflects a pretax gain of $0.7 million on the September 2000 sale of the Company's fiber-recovery
and water-clarification services plant.
(d) Reflects $0.5 million of pretax income related to restructuring and unusual items.
(e) Reflects a pretax gain of $11.2 million on the February 1999 disposition of Thermo Wisconsin, Inc.
and restructuring costs and unusual items of $3.4 million.
(f) Reflects pretax restructuring costs of $2.8 million.
30
Thermo Fibertek Inc. 2000 Financial Statements
Report of Independent Public Accountants
To the Shareholders and Board of Directors of Thermo Fibertek Inc.:
We have audited the accompanying consolidated balance sheet of Thermo
Fibertek Inc. (a Delaware corporation and 91%-owned subsidiary of Thermo
Electron Corporation) and subsidiaries as of December 30, 2000, and January 1,
2000, and the related consolidated statements of income, comprehensive income
and shareholders' investment, and cash flows for each of the three years in the
period ended December 30, 2000. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Thermo
Fibertek Inc. and subsidiaries as of December 30, 2000 and January 1, 2000, and
the results of their operations and their cash flows for each of the three years
in the period ended December 30, 2000, in conformity with accounting principles
generally accepted in the United States.
As explained in Notes 1 and 16 to the consolidated financial statements,
effective January 2, 2000, the Company changed its method of accounting for
revenue recognition.
Arthur Andersen LLP
Boston, Massachusetts
February 12, 2001
31
Thermo Fibertek Inc. 2000 Financial Statements
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 immediately after this Management's
Discussion and Analysis of Financial Condition and Results of Operations under
the heading "Forward-looking Statements."
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 almost
immediately suspend operations and restrict capital spending programs when they
perceive weakness in their markets, has affected the Company's business and will
continue to do so in the short term. The Company expects that there will
continue to be a significant amount of downtime in the paper industry in the
first half of 2001. This, coupled with the strong U.S. dollar, 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 the first half of 2001 will
be affected by the ongoing weak market conditions in the paper industry. In the
longer term, however, the Company expects the impact of these developments to be
favorable both to the paper companies and their suppliers. Better capacity
management will allow paper companies to better match products with market
demand, which in turn will help 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.
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 1999, this segment acquired
the outstanding stock of Arcline Products, a manufacturer of shower and doctor
oscillation systems (Note 4). 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 (Note 4).
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, and siding. Thermo Fibergen is also developing composite roof tile
products. In January 2001, the Company acquired the remaining 49% equity
interest in
32
Thermo Fibertek Inc. 2000 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Overview (continued)
NEXT Fiber Products (Note 3). The Company constructed a composites manufacturing
facility in Green Bay, Wisconsin, and began limited production at such facility
in 2000. The Company is currently working to expand the capacity of the facility
and expects to have the capacity to support $20 million in annual revenues by
mid-2001. In addition, prior to September 2000, this segment owned and operated
a plant that provided water-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 (Note 4), although it intends to continue operating in this line
of business and is pursuing other fiber-recovery projects.
Dryers and Pollution-control Equipment Segment
Prior to February 1999, the Company also operated in the Dryers and
Pollution-control Equipment segment, which consisted of the Company's Thermo
Wisconsin Inc. subsidiary. This segment manufactured and marketed dryers and
pollution-control equipment for the printing, papermaking, and converting
industries. In February 1999, the Company sold its Thermo Wisconsin subsidiary
for $13.6 million in cash (Note 4).
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 contracts. The Company may enter into
forward contracts to hedge certain firm purchase and sale commitments
denominated in currencies other than its subsidiaries' local currencies. These
contracts principally hedge transactions denominated in U.S. dollars, French
francs, and Canadian dollars. 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
2000 Compared With 1999
Revenues
Excluding the results of Thermo Wisconsin, which was sold in February
1999, revenues increased to $234.9 million in 2000 from $226.3 million in 1999.
Thermo Wisconsin's revenues to external customers were $1.8 million in 1999.
Gauld Equipment and Cyclotech, which were acquired in 2000 (Note 4), added
revenues of $4.6 million during 2000. The inclusion for the full 2000 period of
results from Arcline Products, which was acquired in May 1999, added incremental
revenues of $0.8 million. 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 $9.2 million in 2000. Excluding the results of
33
Thermo Fibertek Inc. 2000 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
2000 Compared With 1999 (continued)
acquisitions and the effect of currency translation, revenues in the Company's
Papermaking Equipment segment increased $13.2 million, or 6%. Revenues from that
segment's stock-preparation equipment product line increased $15.2 million as a
result of a $15.7 million increase in sales by the Company's North American
operations, due principally to greater demand, offset slightly by a decrease in
sales in Europe, due to the general market weakness. The Company expects this
trend to reverse in 2001, with relatively little growth from North America due
to the stronger U.S. dollar and high energy costs, while Europe is expected to
be somewhat stronger. In addition, the Company expects developing markets such
as China to increase capacity for the next several years. Revenues from the
Papermaking Equipment segment's accessories product line decreased $1.9 million
as a result of decrease in demand in North America and Europe. Revenues from
that segment's water management product line increased $0.3 million related to
increased demand in Europe, largely offset by a decrease in demand in North
America. The Water- and Fiber-recovery Services and Products segment revenues
decreased $0.8 million, primarily due to decreased demand for cellulose-based
products from that segment's largest customer, as well as a $0.4 million
decrease as a result of the sale of the fiber-recovery and water-clarification
services plant in September 2000 (Note 4). The Company expects to have increased
sales of its recently introduced composite products in 2001.
Gross Profit Margin
The gross profit margin decreased to 38% in 2000 from 41% in 1999. The
gross profit margin decreased at the Papermaking Equipment segment, primarily
due to a change in product mix that resulted largely from a higher proportion of
lower-margin large system sales at its North American stock-preparation
equipment business. To a lesser extent, the gross profit margin decreased at the
Water- and Fiber-recovery Services and Products segment, primarily due to
decreased sales without a corresponding decrease in costs, an increase of
approximately $0.6 million in the cost of natural gas in 2000, and the inclusion
of $0.6 million of overhead costs at its new fiber-based composites business.
Other Operating Expenses
Selling, general, and administrative expenses as a percentage of revenues
decreased to 26% in 2000 from 27% in 1999, primarily due to increased revenues
from the stock-preparation equipment product line.
Research and development expenses increased slightly to $7.7 million in
2000, compared with $7.3 million in 1999, or 3% of revenues in both periods. The
increase in research and development expenses in 2000 primarily represents
increased expenditures in the Papermaking Equipment segment. The Company expects
to increase its research and development expenses as it develops new products at
its fiber-based composites business in 2001.
Gain on Sale of Business and Property
In September 2000, Thermo Fibergen sold its fiber-recovery and
water-clarification services plant for $3.6 million, resulting in a gain of $0.7
million (Note 4). In June 2000, the Company sold its interest in a mill for $3.9
million in cash, resulting in a gain of $1.0 million (Note 4). In February 1999,
the Company sold its Thermo Wisconsin subsidiary for $13.6 million in cash,
resulting in a pretax gain of $11.2 million (Note 4).
Restructuring and Unusual Items
Restructuring and unusual income of $0.5 million in 2000, represents the
reversal of a charge taken in 1999 related to the termination of a distributor
agreement, which the Company is no longer obligated to pay due to the breach of
the agreement by the third party distributor (Note 11). Restructuring and
unusual costs of $6.2 million in 1999 represents write-downs for impairment of
assets, severance costs, termination of distributor agreements, the expected
settlement of a contractual dispute, and facility-closure costs (Note 11).
34
Thermo Fibertek Inc. 2000 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
2000 Compared With 1999 (continued)
Interest Income and Expense
Interest income increased to $10.5 million in 2000 from $8.5 million in
1999, due to higher average invested balances and, to a lesser extent, higher
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 common stock (Note 1),
as well as lower prevailing interest rates. Interest expense was relatively
unchanged at $7.5 million in 2000 and $7.4 million in 1999.
Income Taxes
The effective tax rate was 41% in 2000, compared with 39% in 1999. The
effective tax rate exceeded the statutory federal income tax rate primarily due
to the impact of state income taxes and nondeductible expenses. The effective
tax rate increased in 2000 as a result of an increase in nondeductible and other
expenses.
Minority Interest
Minority interest income in 2000 primarily represents the minority
investor's share of losses in Thermo Fibergen's 51%-owned subsidiary for the
full year, offset in part by accretion of Thermo Fibergen's common stock subject
to redemption. As of September 30, 2000, Thermo Fibergen's common stock subject
to redemption was fully accreted. In January 2001, Thermo Fibergen purchased the
remaining 49% equity interest in NEXT Fiber Products from the minority
investors. Through Thermo Fibergen's redemption of common stock in September
2000 (Note 1), the Company's ownership in Thermo Fibergen increased to 91%.
Minority interest expense in 1999 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 51%-owned subsidiary.
1999 Compared With 1998
Revenues
Excluding the results of Thermo Wisconsin, which was sold in February
1999, revenues decreased to $226.3 million in 1999 from $228.5 million in 1998.
Thermo Wisconsin's revenues to external customers were $1.8 million and $18.9
million in 1999 and 1998, respectively. Arcline Products, which was acquired in
May 1999, added revenues of $1.0 million during the period. The inclusion for
the full 1999 period of results from Goslin Birmingham, which was acquired in
July 1998, added incremental revenues of $3.5 million. 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 $2.1 million in 1999.
Excluding the results of acquisitions and the effect of currency translation,
revenues in the Company's Papermaking Equipment segment decreased $7.9 million,
primarily due to a $10.8 million decrease in revenues from the stock-preparation
equipment product line, resulting principally from market weakness in Europe,
and a $2.1 million decrease in the accessories product line, principally in
North America. These decreases were offset in part by a $5.1 million increase in
revenues from that segment's water-management product line, principally in North
America, related to demand for two recently introduced products. The Water- and
Fiber-recovery Services and Products segment revenues increased $3.3 million due
to a $1.7 million increase in demand for cellulose-based products, primarily
from its two largest customers; a $0.8 million increase in sales of its cat box
filler product, which was introduced in the third quarter of 1998; and the
inclusion of revenues for the full 1999 period from its fiber-recovery and
water-clarification facility, which began operations in July 1998 and added $0.8
million of additional revenues in 1999.
35
Thermo Fibertek Inc. 2000 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
1999 Compared With 1998 (continued)
Gross Profit Margin
The gross profit margin was relatively unchanged at 40.8% in 1999,
compared with 40.5% in 1998.
Other Operating Expenses
Selling, general, and administrative expenses as a percentage of revenues
increased to 27% in 1999 from 26% in 1998, primarily due to the effect of the
sale of Thermo Wisconsin, for which such costs represented 15% of its revenues
in 1998.
Research and development expenses increased slightly to $7.3 million in
1999 from $7.0 million in 1998, primarily due to increased expenditures in the
Papermaking Equipment segment.
Gain on Sale of Business and Property
During the first quarter of 1999, the Company sold its Thermo Wisconsin
subsidiary for $13.6 million in cash, resulting in a pretax gain of $11.2
million (Note 4). In 1998, the Company recorded gains of $0.5 million relating
to the sale of real estate.
Restructuring and Unusual Items
Restructuring costs and unusual items of $6.2 million in 1999 represents
write-downs for impairment of assets, severance costs, termination of
distributor agreements, the expected settlement of a contractual dispute, and
facility-closure costs (Note 11).
Interest Income and Expense
Interest income increased to $8.5 million in 1999 from $8.0 million in
1998 due to higher average invested balances as a result of cash received from
the sale of Thermo Wisconsin. Interest expense was relatively unchanged in 1999
and 1998.
Income Taxes
The effective tax rate was unchanged at 39% in 1999 and 1998. The
effective tax rate exceeded the statutory federal income tax rate primarily due
to the impact of state income taxes.
Minority Interest
Minority interest expense primarily represents accretion of Thermo
Fibergen's common stock subject to redemption.
Liquidity and Capital Resources
Consolidated working capital was $173.1 million at December 30, 2000,
compared with $158.7 million at January 1, 2000. Included in working capital are
cash, cash equivalents, and available-for-sale investments of $148.6 million at
December 30, 2000, compared with $85.7 million at January 1, 2000. In addition,
the Company had $5.7 million and $93.8 million invested in an advance to
affiliate as of December 30, 2000 and January 1, 2000, respectively. As of
August 2000, the Company no longer participates in the domestic cash management
arrangement with Thermo Electron. The net decrease in cash, cash equivalents,
and advance to affiliate in 2000, is primarily due to the September 2000
redemption of Thermo Fibergen's common stock for $34.6 million (Note 1). Of the
total cash, cash equivalents, and available-for-sale investments at December 30,
2000, $13.2 million and $7.2 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 December
30, 2000, $37.3 million of the Company's cash, cash equivalents, and
available-for-sale investments was held by its foreign subsidiaries.
36
Thermo Fibertek Inc. 2000 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources (continued)
During 2000, $18.4 million of cash was provided by operating activities. A
decrease in accounts receivable provided $1.0 million of cash, primarily due to
improved collection efforts. Inventories and unbilled contract costs and fees
used cash of $1.4 million, including $2.5 million related to an increase in
inventories, primarily in the stock preparation product line due to several
large orders and at Thermo Fibergen, offset in part by a $1.1 million decrease
in unbilled contract costs and fees, primarily in the stock-preparation product
line due to the timing of billings and an increase in revenues. A decrease in
other current liabilities used $2.2 million of cash, consisting primarily of a
$3.3 million decrease in billings in excess of costs and fees related to the
timing of payments on long-term contracts.
During 2000, the Company's investing activities, excluding
available-for-sale investments and advance to affiliate activity, used $6.0
million of cash. The Company used $3.3 million, net of cash acquired, to
purchase the assets of Cyclotech and Gauld Equipment (Note 4) and $1.2 million
to purchase certain capital equipment and technology for Thermo Fibergen's
composites business. In addition, the Company purchased property, plant, and
equipment for $6.4 million, including $3.8 million at Thermo Fibergen. In June
2000, the Company sold its interest in the Tree-Free mill for $3.9 million in
cash (Note 4). In September 2000, Thermo Fibergen sold its fiber-recovery and
water-clarification systems plant for $3.6 million. Thermo Fibergen received
$0.2 million at the closing date and began receiving seventeen equal monthly
installments of $0.2 million beginning on September 28, 2000 (Note 4), amounting
to an additional $0.8 million as of year end 2000.
During 2000, the Company's financing activities used $33.7 million of
cash. 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 of $34.6 million (Note 1). 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 December 30, 2000, there were 2,001,049 redemption rights outstanding and
1,075,749 shares of Thermo Fibergen's common stock held by persons other than
the Company or Thermo Electron. In addition, Thermo Electron, the Company,
and/or Thermo Fibergen may acquire additional shares of the 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
Thermo Electron or 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 Thermo Electron or the Company at
the time of the redemption. The redemption rights are guaranteed, on a
subordinated basis, by Thermo Electron Corporation, 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 $5
million on commercially reasonable terms for the September 2001 redemption
obligation and for working capital needs.
At December 30, 2000, the Company had $72.3 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.
During 2001, the Company plans to make expenditures for property, plant,
and equipment of approximately $7.9 million. Included in this amount is $4.1
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.
37
Thermo Fibertek Inc. 2000 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Market Risk
The Company is exposed to market risk from changes in interest rates,
equity prices, and foreign currency exchange rates, which could affect its
future results of operations and financial condition. The Company manages its
exposure to these risks through its regular operating and financing activities.
Additionally, the Company uses short-term forward contracts to manage certain
exposures to foreign currencies. The Company enters into forward foreign
exchange contracts to hedge firm purchase and sale commitments denominated in
currencies other than its subsidiaries' local currencies. The Company does not
engage in extensive foreign currency hedging activities; however, 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. The Company's forward foreign exchange contracts
principally hedge transactions denominated in U.S. dollars, British pounds
sterling, and Canadian dollars. Gains and losses arising from forward contracts
are recognized as offsets to gains and losses resulting from the transactions
being hedged. The Company does not enter into speculative foreign currency
agreements.
Interest Rates
The Company's available-for-sale investments and subordinated convertible
debentures are sensitive to changes in interest rates. Interest rate changes
would result in a change in the fair value of these financial instruments due to
the difference between the market interest rate and the rate at the date of
purchase or issuance of the financial instrument. A 10% decrease in year-end
2000 and 1999 market interest rates would result in a negative impact of $2
million and $4 million, respectively, on the net fair value of the Company's
interest-sensitive financial instruments.
The Company's cash, cash equivalents, advance to affiliate, and
available-for-sale investments maturing within one year are sensitive to changes
in interest rates. Interest rate changes would result in a change in interest
income due to the difference between the current interest rates on cash and cash
equivalents and the variable rate that these financial instruments may adjust to
in the future. A 10% decrease in year-end 2000 and 1999 interest rates would
result in a negative impact of $0.4 million and $0.6 million, respectively, on
the Company's net income.
Equity Prices
The Company's subordinated convertible debentures are sensitive to
fluctuations in the price of Company common stock into which the debentures are
convertible. Changes in equity prices would result in changes in the fair value
of the Company's subordinated convertible debentures due to the difference
between the current market price and the market price at the date of issuance of
the debentures. A 10% increase in the year-end 2000 and 1999 market equity
prices would result in a negative impact of $0.1 million and $3.0 million,
respectively, on the net fair value of the Company's subordinated convertible
debentures.
The Company's common stock of subsidiary subject to redemption is
sensitive to fluctuations in the price of Thermo Fibergen's common stock. The
holder of a Thermo Fibergen redemption right that holds a share of Thermo
Fibergen's common stock at such time may require Thermo Fibergen to redeem one
share of Thermo Fibergen's common stock at $12.75 per share in September 2001,
the second and final redemption period. These redemption rights are all
guaranteed on a subordinated basis by Thermo Electron, but the Company is
required to reimburse Thermo Electron in the event that Thermo Electron makes a
payment under the guarantee. If Thermo Fibergen's common stock is trading on the
open market at a price that is less than $12.75 per share in September 2001, the
holders of redemption rights that also hold shares of Thermo Fibergen's common
stock at such time would more likely than not exercise their redemption rights.
In the event all redemption rights for which there is a corresponding share of
Thermo Fibergen common stock outstanding, other than those shares held by Thermo
Electron or the Company, are exercised, Thermo Fibergen and/or the Company may
use up to $17.0 million in cash to settle the redemption obligation.
In addition, changes in equity prices would result in changes in the fair
value of common stock of subsidiary subject to redemption due to the difference
between the current market price and the price at the date of issuance of the
underlying financial instruments, Thermo Fibergen's common stock and Thermo
Fibergen's redemption rights. Since
38
Thermo Fibertek Inc. 2000 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Market Risk (continued)
the market price of Thermo Fibergen's redemption rights generally fluctuates in
the opposite direction of fluctuations in the market price of Thermo Fibergen's
common stock, the effect of a 10% increase in the market price of Thermo
Fibergen's common stock on the fair value of common stock of subsidiary subject
to redemption would be mitigated in part by a decrease in the market price of
the Thermo Fibergen's redemption rights.
Foreign Currency Exchange Rates
The Company generally views its investment in foreign subsidiaries with a
functional currency other than the Company's reporting currency as long-term.
The Company's investment in foreign subsidiaries is sensitive to fluctuations in
foreign currency exchange rates. The functional currencies of the Company's
foreign subsidiaries are principally denominated in French francs, British
pounds sterling, and Canadian dollars. The effect of a change in foreign
exchange rates on the Company's net investment in foreign subsidiaries is
reflected in the "Accumulated other comprehensive items" component of
shareholders' investment. A 10% depreciation in year-end 2000 and 1999
functional currencies, relative to the U.S. dollar, would result in a reduction
of shareholders' investment of $7.6 million and $7.9 million, respectively.
The fair value of forward foreign exchange contracts is sensitive to
changes in foreign currency exchange rates. The fair value of forward foreign
exchange contracts is the estimated amount that the Company would pay or receive
upon termination of the contract, taking into account the change in foreign
currency exchange rates. A 10% depreciation in year-end 2000 and 1999 foreign
currency exchange rates related to the Company's contracts would result in an
increase in the unrealized loss on forward foreign exchange contracts of $1.2
million and $0.2 million, respectively. Since the Company uses forward foreign
exchange contracts as hedges of firm purchase and sale commitments, the
unrealized gain or loss on forward foreign currency exchange contracts resulting
from changes in foreign currency exchange rates would be offset by corresponding
changes in the fair value of the hedged items.
39
Thermo Fibertek Inc. 2000 Financial Statements
Forward-looking Statements
In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, the Company wishes to caution readers that the
following important factors, among others, in some cases have affected, and in
the future could affect, the Company's actual results and could cause its actual
results in 2001 and beyond to differ materially from those expressed in any
forward-looking statements made by, or on behalf of, the Company.
Dependency on the condition of the pulp and paper industry. The pulp and
paper industry has been in a down cycle for several years. The Company's
products are primarily sold to the paper industry. Generally, the financial
condition of the global paper industry corresponds to the condition of the
general economy, as well as a number of other factors, including paper and pulp
production capacity. The global paper industry entered a severe downcycle in
early 1996 from which it has not fully recovered. Recently, the North American
paper industry has been adversely affected by a slowing economy, higher energy
prices and a strong U.S. dollar. This cyclical downturn has adversely affected
the Company's business. No assurance can be given that the financial condition
of the paper industry will improve in the near future.
Economic, currency and political risks and other risks associated with
international sales and operations. During 2000, approximately 49% of the
Company's sales were to customers outside the United States, principally in
Europe. In addition, China is becoming an increasingly important market for the
Company. International revenues are subject to a number of risks, including the
following: agreements may be difficult to enforce and receivables difficult to
collect through a foreign country's legal system; foreign customers may have
longer payment cycles; foreign countries may impose additional withholding taxes
or otherwise tax foreign income, impose tariffs, or adopt other restrictions on
foreign trade; U.S. export licenses may be difficult to obtain; and the
protection of intellectual property in foreign countries may be more difficult
to enforce. Although the Company seeks to charge its customers in the same
currency as its operating costs, fluctuations in currency exchange rates may
affect product demand and adversely affect the profitability in U.S. dollars of
products the Company provides in foreign markets where payment for the products
and services is made in the local currency. There can be no assurance that any
of these factors will not have a material adverse impact on its business and
results of operations.
Competition. The Company encounters and continues to encounter significant
competition in each of its principal markets. The Company believes that the
principal competitive factors affecting the markets for its products include
quality, price, service, technical expertise, and product innovation. The
Company's competitors include a number of large multinational corporations such
as J.M. Voith AG and Metso Corporation. Competition could increase if new
companies enter the market or if existing competitors expand their product lines
or intensify efforts within existing product lines. There can be no assurance
that the Company's current products, products under development, or ability to
develop new technologies will be sufficient to enable it to compete effectively.
The composites business - a new entrant into a new market. The Company
recently established a subsidiary to develop, produce, market and sell
fiber-based composites primarily for the building industry. The Company has
recently introduced a soundwall fence, privacy fence and decking product to the
market. The Company is currently developing several composite roof tile
products. Development and commercialization of the Company's composite products
will require significant development and testing of the products and
manufacturing process and there can be no assurance its development efforts will
be successful. Further, there can be no assurance that the Company's composite
products will gain market acceptance. The Company's ability to successfully
market these products will depend on converting the demand for wood-based
building products into demand for the Company's fiber-based composites and on
the Company's ability to educate customers of the benefits of its products. The
Company's strategy will be to emphasize the advantages of its products over
conventional wood-based products or other competitive non-wood alternatives. To
penetrate the market and gain market share, the Company must educate consumers,
including wood suppliers, contractors and homebuilders, regarding the benefits
of the Company's fiber-based products over products made of wood and other
traditional materials.
40
Thermo Fibertek Inc. 2000 Financial Statements
Forward-looking Statements
Limited Composites Manufacturing Experience. The Company has limited
experience manufacturing composite products at volume, cost and quality levels
sufficient to satisfy expected demand and no assurance can be given that it will
not encounter difficulties in connection with any large scale manufacturing or
commercialization of these new products.
Dependence on Patents and Proprietary Rights. The Company's inability to
protect its intellectual property could have a material adverse effect on its
business. In addition. third parties may claim that the Company infringes their
intellectual property and the Company could suffer significant litigation or
licensing expense. The Company places considerable emphasis on obtaining patent
and trade secret protection for significant new technologies, products, and
processes because of the length of time and expense associated with bringing new
products through the development process and to the marketplace. The Company's
success depends in part on its ability to develop patentable products and obtain
and enforce patent protection for its products both in the United States and in
other countries. The Company owns numerous U.S. and foreign patents, and intends
to file additional applications as appropriate for patents covering its
products. The Company has also filed for several patents relating to its
composite materials business. No assurance can be given that patents will issue
from any pending or future patent applications owned by or licensed to the
Company, or that the claims allowed under any issued patents will be
sufficiently broad to protect its technology. No assurance can be given that any
issued patents owned by or licensed to the Company will not be challenged,
invalidated, or circumvented, or that the rights under these patents will
provide competitive advantages to the Company. In addition, competitors may
design around the Company's technology or develop competing technologies.
Intellectual property rights may also be unavailable or limited in some foreign
countries, which could make it easier for competitors to capture increased
market position. The Company could incur substantial costs in defending itself
in suits brought against it or in suits in which it may assert our patent rights
against others. If the outcome of any such litigation is unfavorable to the
Company, the business and results of operations could be materially adversely
affected.
There can be no assurance that third parties will not assert claims
against the Company to the effect that we are infringing their intellectual
property rights. The Company could incur substantial costs and diversion of
management resources with respect to the defense of these claims, which could
have a material adverse effect on the Company's business, financial condition,
and results of operations. In addition, parties making such claims could secure
a judgment awarding substantial damages, as well as injunctive or other
equitable relief, which could effectively block the Company's ability to make,
use, sell, distribute, or market its products and services in the U.S. or
abroad.
In the event that a claim relating to intellectual property is asserted
against the Company or there are pending or issued patents held by third parties
not affiliated with the Company that relate to its products or technology, the
Company may seek licenses to such intellectual property. There can be no
assurance, however, that such licenses could be obtained on commercially
reasonable terms, if at all, or that such challenge would be successful. The
failure to obtain the necessary licenses or other rights could prevent the sale,
manufacture, or distribution of its products and, therefore, could have a
material adverse effect on the Company's business, financial condition, and
results of operations.
The Company relies on trade secrets and proprietary know-how, which it
seeks to protect, in part, by confidentiality agreements with its collaborators,
employees, and consultants. There can be no assurance that these agreements will
not be breached, that the Company would have adequate remedies for any breach,
or that the Company's trade secrets will not otherwise become known to or be
independently developed by competitors.
Risks Associated with Acquisition Strategy. The Company may not be
successful in identifying and completing acquisitions or successfully
integrating any acquisitions. The Company's acquisition strategy includes the
acquisition of businesses that complement or augment its existing products and
services. Promising acquisitions are difficult to identify and complete for a
number of reasons, including competition among prospective buyers and the need
for regulatory, including antitrust, approvals. Any acquisition completed by the
Company may be made at a substantial premium over the fair value of the net
assets of the acquired company. There can be no assurance that the Company will
be able to complete future acquisitions or be able to successfully
integrate any acquired businesses into the existing businesses or make such
businesses profitable.
41
Thermo Fibertek Inc. 2000 Financial Statements
Forward-looking Statements
Risks Associated with Fluctuations in Quarterly Operating Results. Given
the nature of the markets in which the Company participates and the effect of
the newly issued Staff Accounting Bulletin No. 101 regarding the recognition of
revenues, the Company cannot reliably predict future revenue and profitability,
and unexpected changes may cause the Company to adjust operations. A significant
proportion of the Company's costs are fixed, due in part to significant sales,
research and development, and manufacturing costs. Thus, small declines in
revenue could disproportionately affect the Company's operating results. Other
factors that could affect the Company's quarterly operating results include:
- Demand for and market acceptance of its products
- Competitive pressures resulting in lower selling prices
- Adverse changes in the pulp and paper industry on which the Company is
particularly dependent - Unanticipated delays or problems in the
introduction of new products - Competitors' announcements of new products,
services or technological innovations - Contractual liability related to
guarantees of its equipment performance - Increased costs of raw materials
or supplies, including the cost of natural gas - Changes in the timing of
product orders - The Company's inability to forecast revenue in a given
quarter from large system sales, which
in many cases, are required to pass an acceptance test demonstrating
the system's effect on the customer's process.
Risks Related to the Distribution of the Company's Common Stock by Thermo
Electron. Thermo Electron has announced its intention to distribute the shares
of Thermo Fibertek it owns as a dividend to its shareholders. A number of
actions following the distribution of the Company's common stock could cause the
distribution to be taxable to the Company, Thermo Electron, and stockholders of
Thermo Electron who receive shares of the Company's common stock in the
distribution.
Although the IRS has issued a ruling that no gain or loss will be
recognized by the Company, Thermo Electron, or its stockholders upon the
distribution of common stock as of the date of the distribution, the
distribution could become taxable if the Company, Thermo Electron, or the
stockholders of Thermo Electron who receive shares of the Company's common stock
in the distribution take any of a number of actions following the distribution.
The Company expects it will enter into a Tax Matters Agreement with Thermo
Electron, which will restrict the Company's ability to engage in these types of
actions. These restrictions could prevent the Company from engaging in
transactions following the distribution that might otherwise benefit its
business. Thermo Electron may impose other restrictions on the Company's
activities, including the use of cash or the Company's borrowing capacity, in
connection with the distribution of the Company's shares.
Sales of substantial amounts of the Company's common stock may occur in
connection with the distribution, which could cause the stock price to decline.
Substantially all of the shares of the Company's common stock to be distributed
by Thermo Electron will be eligible for immediate resale in the public market.
The Company is unable to predict whether significant amounts of common stock
will be sold in the public market in anticipation of or immediately following
the distribution or whether a sufficient number of buyers will be in the public
market at that time. Stockholders of Thermo Electron that received shares of the
Company's common stock in the distribution may decide to sell such shares in the
public market for any number of reasons, including the fact that the Company's
business profile or market capitalization may not fit their investment
requirements or objectives. For example, a portion of Thermo Electron's common
stock is held by index funds tied to the Standard & Poor's 500 Index or other
stock indices. If the Company is not in these indices at the time of Thermo
Electron's distribution of the Company's common stock, these index funds will be
required to sell the Company's stock.
In addition, the IRS ruling required that the Company raise additional
equity within one year of the spin off subject to certain conditions. The
Company has announced that it plans to issue equity in the range of 10-20% of
its outstanding shares of its common stock to support its current business plan.
Any sales of substantial amounts of the Company's common stock in the public
market, or the perception that such sales might occur, whether as a result of
this distribution or otherwise, could cause the market price of the Company's
common stock to decline.
42
Thermo Fibertek Inc. 2000 Financial Statements
Forward-looking Statements
The Company may have potential business conflicts of interest with Thermo
Electron with respect to its past and ongoing relationships that could harm the
Company's business operations. Conflicts of interest may arise between Thermo
Electron and the Company in a number of areas relating to its past and ongoing
relationships, including:
- Labor, tax, employee benefit, indemnification and other matters arising
from the Company's separation from Thermo Electron;
- Intellectual property matters;
- Employee retention and recruiting;
- The nature, quality and pricing of the transition services Thermo
Electron has agreed to provide the Company; and
- Restrictions related to the Company's use of cash and debt and Thermo
Electron's continuing obligations under the guaranty of the Company's
subordinated convertible debentures.
The Company may not be able to resolve any potential conflicts, and even
if it does, the resolution may be less favorable than if it were dealing with an
unaffiliated party.
Thermo Electron has agreed to provide certain transitional administrative
services to the Company for a period following the distribution, including legal
advice and services, risk management, employee benefit administration, tax
advice and preparation of tax returns, centralized cash management and financial
and other services in exchange for a fee. Thermo Electron has agreed to provide
the Company with these services at a level and in a manner consistent with the
services provided to the Company by Thermo Electron prior to the distribution.
Such services may not be sufficient to meet the Company's needs and the Company
may not be able to supplement and eventually replace them in a timely manner or
on terms and conditions as favorable as those the Company receives from Thermo
Electron. In addition, after the distribution of the Company's stock, it will no
longer be entitled to benefit from group or volume discounts negotiated by
Thermo Electron for items such as employee benefits, insurance and travel.
43
Thermo Fibertek Inc. 2000 Financial Statements
Selected Financial Information
(In thousands except per share amounts) 2000 (a) 1999 (b) 1998 1997 (c) 1996
- ----------------------------------------------------------------------------------------------------------
Statement of Income Data
Revenues $234,913 $228,036 $247,426 $239,642 $192,209
Income Before Cumulative Effect of Change
in Accounting Principle 16,012 17,778 17,995 16,426 19,894
Net Income 15,142 17,778 17,995 16,426 19,894
Earnings per Share Before Cumulative
Effect of Change in Accounting Principle:
Basic .26 .29 .29 .27 .33
Diluted .26 .29 .29 .26 .31
Earnings per Share:
Basic .25 .29 .29 .27 .33
Diluted .25 .29 .29 .26 .31
Balance Sheet Data
Working Capital $173,097 $158,711 $193,446 $176,996 $115,609
Total Assets 414,215 442,577 427,100 418,938 257,232
Long-term Obligations 154,650 154,350 153,000 153,000 34
Common Stock of Subsidiary Subject to
Redemption - - 53,801 52,812 56,087
Shareholders' Investment 170,633 164,070 150,948 138,095 130,850
(a) Reflects a $1.7 million pretax gain on the sale of property, $0.5 million of pretax income related to
restructuring and unusual items, the redemption of $34.6 million of Thermo Fibergen's common stock,
and the cumulative effect of change in accounting principle of $0.9 million, net of income taxes of
$0.6 million.
(b) Reflects an $11.2 million pretax gain on the February 1999 disposition of Thermo Wisconsin, Inc.,
pretax restructuring costs and unusual items of $6.2 million, and the reclassification of common stock
of subsidiary subject to redemption to current liabilities.
(c) Reflects the May 1997 acquisition of Thermo Black Clawson, the issuance of $153.0 million principal
amount of 4 1/2% subordinated convertible debentures, and the conversion of a $15.0 million principal
amount subordinated convertible note by Thermo Electron.
44
Thermo Fibertek Inc. 2000 Financial Statements
Common Stock Market Information
The Company's common stock is traded on the American Stock Exchange under
the symbol TFT. The following table sets forth the high and low sale prices of
the Company's common stock for 2000 and 1999, as reported in the consolidated
transaction reporting system.
2000 1999
-------------------- -------------------
Quarter High Low High Low
- ----------------------------------------------------------------------------------------------------------
First $8 3/16 $6 7/16 $7 15/16 $7
Second 6 15/16 3 15/16 7 13/16 6 1/2
Third 5 1/8 4 7 7/16 6 1/8
Fourth 4 1/4 3 7/16 7 1/4 6 7/16
As of January 26, 2001, the Company had 649 holders of record of its
common stock. This does not include holdings in street or nominee names. The
closing market price on the American Stock Exchange for the Company's common
stock on January 26, 2001, was $3 5/16 per share.
Common stock and redemption rights of Thermo Fibergen Inc., the Company's
majority-owned public subsidiary, are traded on the American Stock Exchange
(symbols TFG and TFG_r, respectively).
Shareholder Services
Shareholders of Thermo Fibertek Inc. who desire information about the
Company are invited to contact the Investor Relations Department, Thermo
Fibertek Inc., 81 Wyman Street, P.O. Box 9046, Waltham, Massachusetts
02454-9046, (781) 622-1111. Company information is also available at
http://www.thermofibertek.com.
Stock Transfer Agent
American Stock Transfer & Trust Company is the stock transfer agent and
maintains shareholder activity records. The agent will respond to questions on
issuance of stock certificates, change of ownership, lost stock certificates,
and change of address. For these and similar matters, please direct inquiries
to:
American Stock Transfer & Trust Company
Shareholder Services Department
59 Maiden Lane
New York, New York 10038
(718) 921-8200
Dividend Policy
The Company has never paid cash dividends and does not expect to pay cash
dividends in the foreseeable future because its policy has been to use earnings
to finance expansion and growth. Payment of dividends will rest within the
discretion of the Board of Directors and will depend upon, among other factors,
the Company's earnings, capital requirements, and financial condition.
Form 10-K Report
A copy of the Annual Report on Form 10-K for the fiscal year ended
December 30, 2000, as filed with the Securities and Exchange Commission, may be
obtained at no charge by writing to the Investor Relations Department, Thermo
Fibertek Inc., 81 Wyman Street, P.O. Box 9046, Waltham, Massachusetts
02454-9046.
Exhibit 21
THERMO FIBERTEK INC.
Subsidiaries of the Registrant
At February 14, 2001, the Registrant owned the following companies:
NAME STATE OR
JURISDICTION OF PERCENT OF
INCORPORATION OWNERSHIP
- ----------------------------------------------------------------------------------------------------------
AES Equipos y Sistemas S.A. de C.V. Mexico 100
ArcLine Products, Inc. New York 100
Fibertek Construction Company, Inc. Maine 100
Thermo AES Canada Inc. Canada 100
Thermo Black Clawson Inc. Delaware 100
Thermo Black Clawson (China) China 100
Thermo Fibertek Holdings Limited England 100
Thermo Fibertek U.K. Limited England 100
D.S.T. Pattern Engineering Company Limited England 100
Vickerys Limited England 100
Winterburn Limited England 100
Thermo Web Systems, Inc. Massachusetts 100
Fiberprep Inc. Delaware 95
(31.05% of which shares are owned
directly by E. & M. Lamort, S.A.)
Fiberprep Securities Corporation Delaware 100
TMO Lamort Holdings Inc. Delaware 100
E. & M. Lamort, S.A. France 100
Lamort Equipementos Industrials Ltda. Brazil 70*
Lamort GmbH Germany 100
Lamort Iberia S.A. Spain 100
Lamort Italia S.R.L. Italy 100
Nordiska Lamort Lodding A.B. Sweden 100
Thermo Black Clawson Limited England 100
Acreloten AB Sweden 100
Thermo Fibergen Inc. Delaware 90.56
(additionally, 0.08% of the shares are owned
directly by Thermo Electron Corporation)
Fibergen Securities Corporation Massachusetts 100
GranTek Inc. Wisconsin 100
Next Fiber Products Inc. Delaware 100
* Joint Venture/Partnership
Exhibit 23
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation
by reference of our reports dated February 12, 2001, included in or incorporated
by reference into Thermo Fibertek Inc.'s Annual Report on Form 10-K for the year
ended December 30, 2000, into the Company's previously filed Registration
Statements as follows: Registration Statement No. 33-67190 on Form S-8,
Registration Statement No. 33-67192 on Form S-8, Registration Statement No.
33-67194 on Form S-8, Registration Statement No. 33-67196 on Form S-8,
Registration Statement No. 33-83718 on Form S-8, Registration Statement No.
33-80751 on Form S-8, Registration Statement No. 333-80509 on Form S-8, and
Registration Statement No. 333-48498 on Form S-8.
Arthur Andersen LLP
Boston, Massachusetts
March 22, 2001