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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
-------------------------------------------
FORM 10-Q
(mark one)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarter Ended June 29, 1996.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
Commission File Number 1-11406
THERMO FIBERTEK INC.
(Exact name of Registrant as specified in its charter)
Delaware 52-1762325
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
81 Wyman Street, P.O. Box 9046
Waltham, Massachusetts 02254-9046
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 622-1000
Indicate by check mark whether the Registrant (1)
has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for
such shorter period that the Registrant was
required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes [ X ] No [ ]
Indicate the number of shares outstanding of each
of the issuer's classes of Common Stock, as of the
latest practicable date.
Class Outstanding at July 26, 1996
---------------------------- ----------------------------
Common Stock, $.01 par value 61,082,271
PAGE
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
THERMO FIBERTEK INC.
Consolidated Balance Sheet
(Unaudited)
Assets
June 29, December 30,
(In thousands) 1996 1995
--------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $ 51,702 $ 57,028
Available-for-sale investments, at quoted
market value (amortized cost of $2,781 in 1995) - 2,784
Accounts receivable, less allowances of
$1,953 and $2,552 34,443 43,085
Unbilled contract costs and fees 1,979 1,921
Inventories:
Raw materials and supplies 14,608 14,283
Work in process 5,455 7,577
Finished goods 6,325 5,242
Prepaid income taxes 8,442 9,069
Other current assets 1,557 1,287
-------- --------
124,511 142,276
-------- --------
Property, Plant and Equipment, at Cost 49,068 49,976
Less: Accumulated depreciation and amortization 28,890 28,767
-------- --------
20,178 21,209
-------- --------
Other Assets (Note 2) 7,203 1,298
-------- --------
Cost in Excess of Net Assets of Acquired Companies 34,106 34,888
-------- --------
$185,998 $199,671
======== ========
2PAGE
THERMO FIBERTEK INC.
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
June 29, December 30,
(In thousands except share amounts) 1996 1995
--------------------------------------------------------------------------
Current Liabilities:
Accounts payable $ 17,946 $ 20,747
Accrued payroll and employee benefits 9,098 11,115
Billings in excess of contract costs and fees 2,629 3,018
Customer deposits 1,454 1,598
Accrued warranty costs 6,767 9,759
Accrued income taxes (includes $1,291 and
$1,521 due to related party) 3,186 4,430
Other accrued expenses 8,223 9,868
Due to parent company 772 10,859
-------- --------
50,075 71,394
-------- --------
Deferred Income Taxes and Other Deferred Items 3,173 3,031
-------- --------
Long-term Obligations (includes $15,000 due
to related party) 15,036 15,041
-------- --------
Minority Interest 263 574
-------- --------
Shareholders' Investment (Note 3):
Common stock, $.01 par value, 75,000,000 shares
authorized; 61,124,101 and 40,623,919 shares
issued 611 406
Capital in excess of par value 65,082 65,222
Retained earnings 56,369 46,287
Treasury stock at cost, 47,473 and 33,223 shares (720) (446)
Cumulative translation adjustment (3,891) (1,840)
Net unrealized gain on available-for-sale
investments - 2
-------- --------
117,451 109,631
-------- --------
$185,998 $199,671
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
3PAGE
THERMO FIBERTEK INC.
Consolidated Statement of Income
(Unaudited)
Three Months Ended
--------------------
June 29, July 1,
(In thousands except per share amounts) 1996 1995
--------------------------------------------------------------------------
Revenues (includes $355 and $7,030
from related party) $48,595 $49,588
------- -------
Costs and Operating Expenses:
Cost of revenues (includes $240 and
$4,362 for related party revenues) 28,104 29,620
Selling, general and administrative expenses 11,623 12,054
Research and development expenses 1,552 945
------- -------
41,279 42,619
------- -------
Royalty Income 224 157
------- -------
Operating Income 7,540 7,126
Interest Income 637 896
Interest Expense (includes $131 and $300
to related party) (158) (359)
------- -------
Income Before Provision for Income Taxes
and Minority Interest Expense 8,019 7,663
Provision for Income Taxes 3,120 2,958
Minority Interest Expense 23 77
------- -------
Net Income $ 4,876 $ 4,628
======= =======
Earnings per Share:
Primary $ .08 $ .08
======= =======
Fully diluted $ .08 $ .07
======= =======
Weighted Average Shares:
Primary 61,026 60,746
======= =======
Fully diluted 64,460 63,815
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
4PAGE
THERMO FIBERTEK INC.
Consolidated Statement of Income
(Unaudited)
Six Months Ended
--------------------
June 29, July 1,
(In thousands except per share amounts) 1996 1995
--------------------------------------------------------------------------
Revenues (includes $674 and $7,569
from related party) $97,575 $93,324
------- -------
Costs and Operating Expenses:
Cost of revenues (includes $453 and
$4,634 for related party revenues) 56,296 55,569
Selling, general and administrative expenses 23,364 23,656
Research and development expenses 2,825 1,825
------- -------
82,485 81,050
------- -------
Royalty Income 498 388
------- -------
Operating Income 15,588 12,662
Interest Income 1,372 1,633
Interest Expense (includes $262 and $595
to related party) (330) (707)
------- -------
Income Before Provision for Income Taxes
and Minority Interest Expense 16,630 13,588
Provision for Income Taxes 6,519 5,249
Minority Interest Expense 29 128
------- -------
Net Income $10,082 $ 8,211
======= =======
Earnings per Share:
Primary $ .17 $ .14
======= =======
Fully diluted $ .16 $ .13
======= =======
Weighted Average Shares:
Primary 60,980 60,726
======= =======
Fully diluted 64,415 63,794
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
5PAGE
THERMO FIBERTEK INC.
Consolidated Statement of Cash Flows
(Unaudited)
Six Months Ended
-------------------
June 29, July 1,
(In thousands) 1996 1995
--------------------------------------------------------------------------
Operating Activities:
Net income $ 10,082 $ 8,211
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 2,169 2,323
Provision for losses on accounts receivable (539) 595
Minority interest expense 29 128
Increase (decrease) in deferred income taxes 216 (27)
Changes in current accounts:
Accounts receivable 8,135 3,188
Inventories and unbilled contract costs
and fees (151) (5,647)
Prepaid income taxes and other current
assets 209 (200)
Accounts payable (1,898) 6,574
Other current liabilities (8,604) (4,686)
Other (318) (33)
-------- -------
Net cash provided by operating
activities 9,330 10,426
-------- --------
Investing Activities:
Redemption of Fiberprep stock - (12,783)
Proceeds from sale and maturities of available-
for-sale investments 2,750 2,700
Purchases of property, plant and equipment (1,351) (1,293)
Other (Note 2) (5,317) (45)
-------- --------
Net cash used in investing activities (3,918) (11,421)
-------- --------
Financing Activities:
Net proceeds from issuance of Company common stock 825 632
Issuance (repayment) of short-term obligation
to parent company (10,400) 10,400
Repayment of long-term obligations (2) (383)
-------- --------
Net cash provided by (used in)
financing activities $ (9,577) $ 10,649
-------- --------
6PAGE
THERMO FIBERTEK INC.
Consolidated Statement of Cash Flows (continued)
(Unaudited)
Six Months Ended
--------------------
June 29, July 1,
(In thousands) 1996 1995
--------------------------------------------------------------------------
Exchange Rate Effect on Cash $ (1,161) $ 1,711
-------- --------
Increase (Decrease) in Cash and Cash Equivalents (5,326) 11,365
Cash and Cash Equivalents at Beginning of Period 57,028 37,250
-------- --------
Cash and Cash Equivalents at End of Period $ 51,702 $ 48,615
======== ========
Noncash Activities:
Issuance of Company common stock in connection
with the redemption of Fiberprep stock $ - $ 1,428
The accompanying notes are an integral part of these consolidated financial
statements.
7PAGE
THERMO FIBERTEK INC.
Notes to Consolidated Financial Statements
1. General
The interim consolidated financial statements presented have been
prepared by Thermo Fibertek Inc. (the Company) without audit and, in the
opinion of management, reflect all adjustments of a normal recurring nature
necessary for a fair statement of the financial position at June 29, 1996,
the results of operations for the three- and six-month periods ended
June 29, 1996 and July 1, 1995, and the cash flows for the six-month
periods ended June 29, 1996 and July 1, 1995. Interim results are not
necessarily indicative of results for a full year.
The consolidated balance sheet presented as of December 30, 1995, has
been derived from the consolidated financial statements that have been
audited by the Company's independent public accountants. The consolidated
financial statements and notes are presented as permitted by Form 10-Q, and
do not contain certain information included in the annual financial
statements and notes of the Company. The consolidated financial statements
and notes included herein should be read in conjunction with the financial
statements and notes included in the Company's Annual Report on Form 10-K
for the fiscal year ended December 30, 1995, filed with the Securities and
Exchange Commission.
2. Long-term Contract
In April 1996 the Company entered into an agreement with Tree Free
Fiber (Tree Free) to supply $50.5 million in engineering, procurement, and
construction services for a new paper-recycling facility, contingent upon
Tree Free receiving permits and securing approximately $80.0 million in
financing. Pursuant to this agreement, the Company has loaned $6.0 million
to Tree Free which, contingent upon Tree Free receiving the aforementioned
financing, will be treated as subordinated debt payable over a three-year
period. The $6.0 million note to the Company is secured by property and
equipment owned by Tree Free.
3. Stock Split
In May 1996, the Company declared a three-for-two stock split in the
form of a 50% stock dividend, payable on June 26, 1996, to shareholders of
record as of June 12, 1996. All share and per share information, except for
share information in the accompanying 1995 balance sheet, has been restated
to reflect the stock split.
4. Subsequent Event
In July 1996, the Company's wholly owned subsidiary, Thermo Fibergen
Inc., acquired substantially all of the assets, subject to certain
liabilities, of Granulation Technology, Inc. and Biodac, a division of
Edward Lowe Industries, Inc. for approximately $12.0 million in cash,
subject to a post-closing adjustment.
8PAGE
THERMO FIBERTEK INC.
4. Subsequent Event (continued)
The Company will account for the acquisition using the purchase method
of accounting. The cost of the acquisition exceeded the estimated fair
value of the acquired net assets by approximately $3.3 million, which will
be amortized over 20 years. The allocation of the purchase price will be
based on the fair value of net assets acquired. Pro forma data is not
presented since the acquisition was not material to the Company's results
of operations and financial position.
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Description of Business
The Company designs and manufactures processing machinery and
accessories 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, and accessory
equipment and related consumables important to the efficient operation of
papermaking machines. Prior to its acquisition of Granulation Technology
Inc. (GranTech) and Biodac, a division of Edward Lowe Industries, Inc., the
Company's Thermo Fibergen Inc. (Thermo Fibergen) subsidiary was in the
development stage and its principal business consisted of conducting
research and development to develop and commercialize equipment and systems
to recover valuable materials from pulp residue generated by plants that
produce recycled pulp and paper. The Company has significant foreign
operations, particularly in Europe, and therefore, 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.
Results of Operations
Second Quarter 1996 Compared With Second Quarter 1995
Revenues decreased 2% to $48.6 million in the second quarter of 1996
from $49.6 million in the second quarter of 1995, primarily due to a
decrease of $6.7 million in revenues earned by the Company's Fiberprep
subsidiary under a subcontract for Thermo Electron Corporation (Thermo
Electron) to supply equipment and services for an office wastepaper
de-inking facility. This subcontract was substantially completed prior to
the second quarter of 1996. Revenues from the Company's North American and
Lamort subsidiary's accessories businesses increased $3.7 million and $1.1
million, respectively, due principally to an increase in demand. Revenues
from the Company's recycling business increased $1.5 million, excluding the
effect of the previously described subcontract in 1995. The unfavorable
effects of currency translation due to a stronger U.S. dollar decreased
revenues by $1.0 million.
9PAGE
THERMO FIBERTEK INC.
Second Quarter 1996 Compared With Second Quarter 1995 (continued)
The gross profit margin increased to 42% in the second quarter of 1996
from 40% in the second quarter of 1995. Margin improvement at the Company's
European subsidiaries and at the Company's North American accessories
business was offset in part by a decrease in margins at the Company's
Fiberprep subsidiary, which primarily resulted from a warranty provision
recorded in 1996 for a de-inking project.
Selling, general and administrative expenses as a percentage of
revenues was unchanged at 24% in the second quarter of 1996 as compared to
the second quarter of 1995. Research and development expenses increased to
$1.6 million in the second quarter of 1996 from $945,000 in the second
quarter of 1995, largely due to continued development of technology to
recover valuable materials from pulp residue generated by plants that
produce recycled pulp and paper, and also due to increased new product
development in the Company's water-management business.
Interest income decreased to $637,000 in the second quarter of 1996
from $896,000 in the second quarter of 1995, due to lower prevailing
interest rates. Interest expense decreased to $158,000 in the second
quarter of 1996 from $359,000 in the second quarter of 1995, due primarily
to the January 1996 repayment of a $10.4 million promissory note to Thermo
Electron.
The effective tax rate was 39% in the second quarter of 1996 and 1995.
The effective tax rate exceeds the statutory federal income tax rate due
primarily to state income taxes, offset in part by the effect of lower
foreign tax rates.
First Six Months 1996 Compared With First Six Months 1995
Revenues increased 5% to $97.6 million in the first six months of 1996
from $93.3 million in the first six months of 1995. Revenues from the
Company's North American and Lamort subsidiary's accessories businesses
increased $6.0 million and $2.9 million, respectively, due principally to
an increase in demand. Revenues from the Company's recycling business
increased $1.4 million, excluding the effect of a decrease in recycling
revenues of $6.9 million relating to the subcontract for Thermo Electron
discussed in the results of operations for the second quarter. The
unfavorable effects of currency translation due to a stronger U.S. dollar
decreased revenues by $333,000.
The gross profit margin increased to 42% in the first six months of
1996 from 40% in the first six months of 1995. Margin improvement at the
Company's European subsidiaries and at the Company's North American
accessories business was offset in part by a decrease in margins at the
Company's Fiberprep subsidiary, which primarily resulted from warranty
provisions recorded in 1996 for two de-inking projects.
Selling, general and administrative expenses as a percentage of
revenues decreased to 24% in the first six months of 1996 from 25% in the
first six months of 1995, due primarily to an increase in revenues.
10PAGE
THERMO FIBERTEK INC.
First Six Months 1996 Compared With First Six Months 1995 (continued)
Research and development expenses increased to $2.8 million in the first
six months of 1996 from $1.8 million in the first six months of 1995 for
the reasons discussed in the results of operations for the second quarter.
Interest income decreased to $1.4 million in the first six months of
1996 from $1.6 million in the first six months of 1995, due to lower
prevailing interest rates. Interest expense decreased to $330,000 in the
first six months of 1996 from $707,000 in the first six months of 1995, due
primarily to the January 1996 repayment of a $10.4 million promissory note
to Thermo Electron.
The effective tax rate was 39% in the first six months of 1996 and
1995. The effective tax rate exceeds the statutory federal income tax rate
due primarily to state income taxes, offset in part by the effect of lower
foreign tax rates.
Liquidity and Capital Resources
Consolidated working capital was $74.4 million at June 29, 1996,
compared with $70.9 million at December 30, 1995. Included in working
capital are cash, cash equivalents, and available-for-sale investments of
$51.7 million at June 29, 1996, compared with $59.8 million at December 30,
1995. Of the $51.7 million balance at June 29, 1996, $1.7 million was held
by Fiberprep, with the remainder being held by the Company and its wholly
owned subsidiaries. During the first six months of 1996, $9.3 million of
cash was provided by operating activities. Cash provided by a decrease in
accounts receivable was offset by the effect of a reduction in accounts
payable and other current liabilities. The decrease in accounts receivable
resulted primarily from cash collections at the Company's Lamort
subsidiary. The decrease in other current liabilities was partially due to
a payment which was made for a warranty claim. During the first six months
of 1996 the Company loaned $6.0 million to Tree Free Fiber (Note 2) and
repaid a $10.4 million promissory note to Thermo Electron.
At June 29, 1996, $19.9 million of the Company's cash and cash
equivalents were held by its Lamort subsidiary. Repatriation of this cash
into the United States is subject to a 5% withholding tax in France and
could also be subject to a United States tax.
In July 1996, the Company's wholly owned subsidiary, Thermo Fibergen,
acquired substantially all of the assets, subject to certain liabilities,
of GranTech and Biodac for approximately $12.0 million in cash, subject to
a post-closing adjustment.
In July 1996, Thermo Fibergen filed a registration statement under the
Securities Act of 1933 with the Securities and Exchange Commission relating
to a proposed initial public offering of 3,100,000 units at an estimated
initial public offering price of $12.75 per unit. Each unit consists of one
share of Thermo Fibergen common stock and one redemption right which
entitles the holder to sell one share of Thermo Fibergen common stock back
11PAGE
THERMO FIBERTEK INC.
Liquidity and Capital Resources (continued)
to Thermo Fibergen during specified periods in the future. The rights will
be guaranteed, on a subordinated basis, by Thermo Electron. The Company has
agreed to indemnify Thermo Electron for any payments Thermo Electron may be
required to make.
During the first six months of 1996, the Company expended $1.4 million
for purchases of property, plant and equipment. In the remainder of 1996,
the Company plans to make capital expenditures of approximately $4.3
million. The Company believes that its existing resources are sufficient to
meet the capital requirements of its existing operations for the
foreseeable future.
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders
On May 21, 1996, at the Annual Meeting of Shareholders, the
shareholders reelected six incumbent directors to a one-year term expiring
in 1997. The directors reelected at the meeting were: Dr. Walter J.
Bornhorst, Dr. George N. Hatsopoulos, John N. Hatsopoulos, Donald E. Noble,
William A. Rainville, and Paul E. Tsongas. Dr. Bornhorst, Mr. Rainville,
and Mr. Tsongas each received 37,773,493 shares voted in favor of his
election and 30,272 shares voted against; Dr. G. Hatsopoulos received
37,722,393 shares voted in favor of his election and 81,372 shares voted
against; Mr. J. Hatsopoulos received 37,772,693 shares voted in favor of
his election and 31,072 shares voted against; and Mr. Noble received
37,773,043 shares voted in favor of his election and 30,722 shares voted
against. No abstentions or broker non-votes were recorded on the election
of directors.
Item 6 - Exhibits
See Exhibit Index on the page immediately preceding exhibits.
12PAGE
THERMO FIBERTEK INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized as of the 2nd day of August 1996.
THERMO FIBERTEK INC.
Paul F. Kelleher
--------------------
Paul F. Kelleher
Chief Accounting Officer
John N. Hatsopoulos
--------------------
John N. Hatsopoulos
Chief Financial Officer
13PAGE
THERMO FIBERTEK INC.
EXHIBIT INDEX
Exhibit
Number Description of Exhibit Page
---------------------------------------------------------------------------
10.1 Thermo Fibergen Inc. Equity Incentive Plan (filed as
Exhibit 10.11 to Thermo Fibergen Inc.'s Registration
Statement on Form S-1 (Registration No. 333-07585) and
incorporated herein by reference).
11 Statement re: Computation of earnings per share.
27 Financial Data Schedule.
Exhibit 11
THERMO FIBERTEK INC.
Computation of Earnings per Share
Three Months Ended
--------------------------
June 29, July 1,
1996 1995
--------------------------------------------------------------------------
Computation of Fully Diluted Earnings
per Share:
Income:
Net income $ 4,876,000 $ 4,628,000
Add: Convertible debt interest, net of tax 79,000 79,000
----------- -----------
Income applicable to common stock
assuming full dilution (a) $ 4,955,000 $ 4,707,000
----------- -----------
Shares:
Weighted average shares outstanding 61,025,586 60,746,348
Add: Shares issuable from assumed conversion
of subordinated convertible obligation 1,888,113 1,888,113
Shares issuable from assumed
exercise of options (as determined
by the application of the treasury
stock method) 1,546,548 1,180,280
----------- -----------
Weighted average shares outstanding,
as adjusted (b) 64,460,247 63,814,741
----------- -----------
Fully Diluted Earnings per Share (a) / (b) $ .08 $ .07
=========== ===========
PAGE
Exhibit 11
THERMO FIBERTEK INC.
Computation of Earnings per Share
(continued)
Six Months Ended
--------------------------
June 29, July 1,
1996 1995
--------------------------------------------------------------------------
Computation of Fully Diluted Earnings
per Share:
Income:
Net income $10,082,000 $ 8,211,000
Add: Convertible debt interest, net of tax 158,000 158,000
----------- -----------
Income applicable to common stock
assuming full dilution (a) $10,240,000 $ 8,369,000
----------- -----------
Shares:
Weighted average shares outstanding 60,980,052 60,725,570
Add: Shares issuable from assumed conversion
of subordinated convertible obligation 1,888,113 1,888,113
Shares issuable from assumed
exercise of options (as determined
by the application of the treasury
stock method) 1,546,548 1,180,280
----------- -----------
Weighted average shares outstanding,
as adjusted (b) 64,414,713 63,793,963
----------- -----------
Fully Diluted Earnings per Share (a) / (b) $ .16 $ .13
=========== ===========