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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 September 28, 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 October 25, 1996
---------------------------- -------------------------------
Common Stock, $.01 par value 61,097,602
PAGE
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
THERMO FIBERTEK INC.
Consolidated Balance Sheet
(Unaudited)
Assets
September 28, December 30,
(In thousands) 1996 1995
-------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $102,164 $ 57,028
Available-for-sale investments, at
quoted market value (amortized cost
of $2,781 in 1995) - 2,784
Accounts receivable, less allowances of
$2,249 and $2,552 33,672 43,085
Unbilled contract costs and fees 2,779 1,921
Inventories:
Raw materials and supplies 13,847 14,283
Work in process 5,349 7,577
Finished goods 7,131 5,242
Prepaid income taxes 8,010 9,069
Other current assets 1,507 1,287
-------- --------
174,459 142,276
-------- --------
Property, Plant and Equipment, at Cost 57,372 49,976
Less: Accumulated depreciation and amortization 30,598 28,767
-------- --------
26,774 21,209
-------- --------
Other Assets (Note 2) 7,929 1,298
-------- --------
Cost in Excess of Net Assets of Acquired
Companies 38,779 34,888
-------- --------
$247,941 $199,671
======== ========
2PAGE
THERMO FIBERTEK INC.
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
September 28, December 30,
(In thousands except share amounts) 1996 1995
------------------------------------------------------------------------
Current Liabilities:
Accounts payable $ 16,567 $ 20,747
Accrued payroll and employee benefits 9,846 11,115
Billings in excess of contract costs and fees 2,862 3,018
Customer deposits 1,152 1,598
Accrued warranty costs 6,582 9,759
Accrued income taxes (includes $1,665 and
$1,521 due to related party) 3,337 4,430
Other accrued expenses 9,688 9,868
Due to parent company 15,712 10,859
-------- --------
65,746 71,394
-------- --------
Deferred Income Taxes and Other Deferred Items 3,224 3,031
-------- --------
Long-term Obligations (includes $15,000 due
to related party in 1995) 36 15,041
-------- --------
Minority Interest (Note 5) 4,079 574
-------- --------
Common Stock of Subsidiary Subject to
Redemption ($60,116 redemption value) (Note 5) 55,786 -
-------- --------
Shareholders' Investment (Note 3):
Common stock, $.01 par value, 75,000,000
shares authorized; 61,124,100 and
40,623,919 shares issued 611 406
Capital in excess of par value 61,007 65,222
Retained earnings 60,582 46,287
Treasury stock at cost, 29,004 and 33,223
shares (446) (446)
Cumulative translation adjustment (2,684) (1,840)
Net unrealized gain on available-for-sale
investments - 2
-------- --------
119,070 109,631
-------- --------
$247,941 $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
----------------------------
September 28, September 30,
(In thousands except per share amounts) 1996 1995
-----------------------------------------------------------------------
Revenues (includes $1,107 and $5,788
from related party) $46,124 $56,227
------- -------
Costs and Operating Expenses:
Cost of revenues (includes $209 and
$3,651 for related party revenues) 26,173 33,959
Selling, general and administrative expenses 12,421 12,252
Research and development expenses 1,328 948
------- -------
39,922 47,159
------- -------
Royalty Income 182 190
------- -------
Operating Income 6,384 9,258
Interest Income 733 952
Interest Expense (includes $131 and $294
to related party) (153) (331)
------- -------
Income Before Provision for Income Taxes
and Minority Interest Expense 6,964 9,879
Provision for Income Taxes 2,724 3,831
Minority Interest Expense 27 56
------- -------
Net Income $ 4,213 $ 5,992
======= =======
Earnings per Share:
Primary $ .07 $ .10
======= =======
Fully diluted $ .07 $ .09
======= =======
Weighted Average Shares:
Primary 61,089 60,827
======= =======
Fully diluted 64,381 64,068
======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
4PAGE
THERMO FIBERTEK INC.
Consolidated Statement of Income
(Unaudited)
Nine Months Ended
-----------------------------
September 28, September 30,
(In thousands except per share amounts) 1996 1995
-----------------------------------------------------------------------
Revenues (includes $1,781 and $13,357
from related party) $143,699 $149,551
-------- --------
Costs and Operating Expenses:
Cost of revenues (includes $662 and
$8,285 for related party revenues) 82,469 89,528
Selling, general and administrative expenses 35,785 35,908
Research and development expenses 4,153 2,773
-------- --------
122,407 128,209
-------- --------
Royalty Income 680 578
-------- --------
Operating Income 21,972 21,920
Interest Income 2,105 2,585
Interest Expense (includes $393 and $889
to related party) (483) (1,038)
-------- --------
Income Before Provision for Income Taxes
and Minority Interest Expense 23,594 23,467
Provision for Income Taxes 9,243 9,080
Minority Interest Expense 56 184
-------- --------
Net Income $ 14,295 $ 14,203
======== ========
Earnings per Share:
Primary $ .23 $ .23
======== ========
Fully diluted $ .23 $ .23
======== ========
Weighted Average Shares:
Primary 61,015 60,759
======== ========
Fully diluted 64,398 64,000
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
5PAGE
THERMO FIBERTEK INC.
Consolidated Statement of Cash Flows
(Unaudited)
Nine Months Ended
-----------------------------
September 28, September 30,
(In thousands) 1996 1995
------------------------------------------------------------------------
Operating Activities:
Net income $ 14,295 $ 14,203
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 3,652 3,819
Provision for losses on accounts
receivable (221) 543
Minority interest expense 56 184
Increase (decrease) in deferred
income taxes 211 (241)
Other noncash items (307) (55)
Changes in current accounts, excluding
the effects of acquisition:
Accounts receivable 9,977 (3,108)
Inventories and unbilled contract
costs and fees (216) (6,429)
Prepaid income taxes and other
current assets 772 (545)
Accounts payable (3,748) 5,325
Other current liabilities (7,257) (1,658)
-------- --------
Net cash provided by operating
activities 17,214 12,038
-------- --------
Investing Activities:
Acquisition, net of cash acquired (Note 4) (12,028) -
Redemption of Fiberprep stock - (12,783)
Proceeds from sale and maturities of
available-for-sale investments 2,750 4,700
Purchases of property, plant and equipment (3,232) (1,865)
Other (Note 2) (5,326) 169
-------- --------
Net cash used in investing
activities (17,836) (9,779)
-------- --------
Financing Activities:
Net proceeds from issuance of Company and
subsidiary common stock (Note 5) 56,642 632
Issuance (repayment) of short-term
obligation to parent company (10,400) 10,400
Repayment of long-term obligations - (385)
-------- --------
Net cash provided by financing
activities $ 46,242 $ 10,647
-------- --------
6PAGE
THERMO FIBERTEK INC.
`Consolidated Statement of Cash Flows (continued)
(Unaudited)
Nine Months Ended
-----------------------------
September 28, September 30,
(In thousands) 1996 1995
------------------------------------------------------------------------
Exchange Rate Effect on Cash $ (484) $ 1,516
-------- --------
Increase in Cash and Cash Equivalents 45,136 14,422
Cash and Cash Equivalents at Beginning of
Period 57,028 37,250
-------- --------
Cash and Cash Equivalents at End of Period $102,164 $ 51,672
======== ========
Noncash Activities:
Issuance of Company common stock in
connection with the redemption of
Fiberprep stock $ - $ 1,428
Fair value of assets of acquired company $ 12,606 $ -
Cash paid for acquired company (12,099) -
-------- --------
Liabilities assumed of acquired company $ 507 $ -
======== ========
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
September 28, 1996, the results of operations for the three- and
nine-month periods ended September 28, 1996 and September 30, 1995, and
the cash flows for the nine-month periods ended September 28, 1996 and
September 30, 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 connection with a proposed engineering, procurement, and
construction project, the Company loaned $6.0 million to Tree-Free Fiber
Company, LLC (Tree-Free). The $6.0 million note to the Company is secured
by property and equipment owned by Tree-Free. This project has been
delayed due to the current weakness in pulp prices and, therefore, the
Company does not expect that the project will proceed in the near future
and expects that the note will be repaid as a result.
3. Stock Split
All share and per share information, except for share information
in the accompanying 1995 balance sheet, has been restated to reflect a
three-for-two stock split, effected in the form of a 50% stock dividend,
which was distributed in June 1996.
4. Acquisition
In July 1996, the Company's Thermo Fibergen Inc. (Thermo Fibergen)
subsidiary acquired substantially all of the assets, subject to certain
liabilities, of Granulation Technology, Inc. (Granulation Technology) and
Biodac, a division of Edward Lowe Industries, Inc. for approximately
$12.1 million in cash.
8PAGE
THERMO FIBERTEK INC.
4. Acquisition (continued)
The acquisition has been accounted for using the purchase method of
accounting and the combined results of operations of Granulation
Technology and Biodac have been included in the accompanying financial
statements from the date of acquisition. The cost of the acquisition
exceeded the estimated fair value of the acquired net assets by
approximately $4.9 million, which is being amortized over 20 years.
Allocation of the purchase price for the acquisition was based on the
estimated fair value of net assets acquired and is subject to adjustment.
Pro forma data is not presented since the acquisition was not material to
the Company's results of operations and financial position.
5. Issuance of Stock by Subsidiary
In September 1996, the Company's Thermo Fibergen subsidiary sold
4,715,000 units in an initial public offering at $12.75 per unit for net
proceeds of approximately $55.8 million. 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 to
Thermo Fibergen during specified periods in the future. The difference
between the redemption value and the original carrying amount of common
stock of subsidiary subject to redemption is accreted using the
straight-line method over the period ending September 2000, which
corresponds with the first redemption period. The accretion is charged to
minority interest expense in the accompanying statement of income. The
redemption rights are guaranteed, on a subordinated basis, by Thermo
Electron Corporation (Thermo Electron). The Company has agreed to
reimburse Thermo Electron in the event Thermo Electron is required to
make a payment under the guarantee. Following the initial public
offering, the Company owned 68% of Thermo Fibergen's outstanding common
stock.
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward-looking statements, within the meaning of Section 21E of
the Securities Exchange Act of 1934, are made throughout this
Management's Discussion and Analysis of Financial Condition and Results
of Operations. These statements involve a number of risks and
uncertainties, including those detailed in Item 5 of this Quarterly
Report on Form 10-Q.
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. (Granulation Technology) and Biodac, a
9PAGE
THERMO FIBERTEK INC.
Description of Business (continued)
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
commercialize equipment and systems to recover valuable materials from
pulp residue generated by plants that produce virgin and 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
Third Quarter 1996 Compared With Third Quarter 1995
Revenues decreased 18% to $46.1 million in the third quarter of
1996 from $56.2 million in the third quarter of 1995. Revenues earned by
the Company's Fiberprep subsidiary under a subcontract from Thermo
Electron Corporation (Thermo Electron) to supply equipment and services
for an office wastepaper de-inking facility decreased $4.7 million
because this subcontract was substantially completed in the first quarter
of 1996. Revenues from the Company's recycling business decreased $4.5
million, excluding the effect of the subcontract from Thermo Electron,
due to a decrease in demand resulting from depressed de-inked pulp
prices. Revenues from the Company's accessories business decreased $0.4
million. This decrease includes a $1.5 million decrease from the
Company's North American business, which primarily reflects a large order
shipped in the third quarter of 1995, offset in part by a $1.1 million
increase from the Company's Lamort subsidiary, which was principally due
to an increase in demand. Revenues at the Company's Thermo Fibergen
subsidiary were $1.0 million and represent revenues from Granulation
Technology and Biodac, which were acquired in July 1996. The unfavorable
effects of currency translation due to a stronger U.S. dollar decreased
revenues by $1.0 million.
The gross profit margin increased to 43% in the third quarter of
1996 from 40% in the third quarter of 1995, largely due to margin
improvement at the Company's North American accessories business
resulting primarily from an increase in direct mill sales and an increase
in gross profit margin at the Company's Fiberprep subsidiary. The
increase in gross profit margin at Fiberprep was primarily due to the
effect of a $0.7 million payment received under the subcontract from
Thermo Electron in the third quarter of 1996, which represents the
Company's share of certain cost savings on the project, and a decrease in
warranty provisions in the third quarter of 1996 as compared to the third
quarter of 1995.
10PAGE
THERMO FIBERTEK INC.
Third Quarter 1996 Compared With Third Quarter 1995 (continued)
Selling, general and administrative expenses as a percentage of
revenues increased to 27% in the third quarter of 1996 from 22% in the
third quarter of 1995, primarily due to the decrease in revenues.
The Company's Fiberprep subsidiary is a supplier of de-inking
equipment to the general contractor for a pulp mill (unrelated to the
office wastepaper de-inking facility described above). The general
contractor has received notices from the mill owner alleging failure to
perform and claiming liquidated damages. Although the general contractor
is challenging the mill owner's claims, if the general contractor is
found liable, the Company has been informed that the general contractor
will seek 50% of its damages from the Company. The Company's limit of
liability for any contractual disputes arising from its contract totals
$6.0 million. While it is reasonably possible that resolution of this
matter could have a material effect on the Company's results of
operations for a particular quarter, in the opinion of management the
Company's reserves for such matters are adequate and such result is not
likely to occur.
Research and development expenses increased to $1.3 million in the
third quarter of 1996 from $0.9 million in the third quarter of 1995,
primarily due to continued development of technology by the Company's
Thermo Fibergen subsidiary to recover valuable materials from pulp
residue generated by plants that produce virgin and recycled pulp and
paper. The Company expects Thermo Fibergen to continue to increase
research and development expenses during the next fiscal year.
Interest income decreased to $0.7 million in the third quarter of
1996 from $1.0 million in the third quarter of 1995, due to a decrease in
average invested balances and lower prevailing interest rates. In
September 1996, the Company's Thermo Fibergen subsidiary raised
approximately $55.8 million in cash from its initial public offering. The
Company anticipates an increase in interest income from the invested net
proceeds from the initial public offering.
Interest expense decreased to $0.2 million in the third quarter of
1996 from $0.3 million in the third quarter of 1995, primarily due to the
January 1996 repayment of a $10.4 million promissory note to Thermo
Electron.
The effective tax rate was 39% in the third 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 Nine Months 1996 Compared With First Nine Months 1995
Revenues decreased 4% to $143.7 million in the first nine months of
1996 from $149.6 million in the first nine months of 1995. Revenues
earned by the Company's Fiberprep subsidiary under the subcontract from
Thermo Electron decreased $11.6 million as discussed in the results of
operations for the third quarter. Revenues from the Company's recycling
11PAGE
THERMO FIBERTEK INC.
First Nine Months 1996 Compared With First Nine Months 1995 (continued)
business decreased $3.6 million, excluding the effect of the subcontract
from Thermo Electron, due to a decrease in demand resulting from
depressed de-inked pulp prices. Revenues from the Company's North
American and Lamort subsidiaries' accessories businesses increased $4.4
million and $4.2 million, respectively, due principally to an increase in
demand. The unfavorable effects of currency translation due to a stronger
U.S. dollar decreased revenues by $1.3 million.
The gross profit margin increased to 43% in the first nine months
of 1996 from 40% in the first nine months of 1995. Margins improved at
the Company's Lamort subsidiary's accessories business primarily due to a
change in product mix, and at the Company's North American accessories
business primarily due to an increase in direct mill sales. These
improvements were offset in part by a decrease in margins at the
Company's Fiberprep subsidiary primarily due to a decrease in revenues,
offset in part by the effect of a $0.7 million payment received under the
subcontract from Thermo Electron.
Selling, general and administrative expenses as a percentage of
revenues increased to 25% in the first nine months of 1996 from 24% in
the first nine months of 1995, primarily due to a decrease in revenues.
Research and development expenses increased to $4.2 million in the
first nine months of 1996 from $2.8 million in the first nine months of
1995 for the reason discussed in the results of operations for the third
quarter, as well as increased new product development in the Company's
water-management business.
Interest income decreased to $2.1 million in the first nine months
of 1996 from $2.6 million in the first nine months of 1995, primarily due
to lower prevailing interest rates. Interest expense decreased to $0.5
million in the first nine months of 1996 from $1.0 million in the first
nine months of 1995, primarily due to the January 1996 repayment of a
$10.4 million promissory note to Thermo Electron.
The effective tax rate was 39% in the first nine 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 $108.7 million at September 28,
1996, compared with $70.9 million at December 30, 1995. Included in
working capital are cash, cash equivalents, and available-for-sale
investments of $102.2 million at September 28, 1996, compared with $59.8
million at December 30, 1995. Of the $102.2 million balance at September
28, 1996, $57.6 million was held by Thermo Fibergen and $1.6 million was
held by Fiberprep, with the remainder being held by the Company and its
wholly owned subsidiaries. At September 28, 1996, $21.6 million of the
Company's cash and cash equivalents were held by its Lamort subsidiary.
12PAGE
THERMO FIBERTEK INC.
Liquidity and Capital Resources (continued)
Repatriation of this cash into the United States is subject to a 5%
withholding tax in France and could also be subject to a United States
tax.
During the first nine months of 1996, $17.2 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 warranty claim payment. During the first nine months of 1996, the
Company loaned $6.0 million to Tree-Free Fiber Company, LLC (Note 2) and
repaid a $10.4 million promissory note to Thermo Electron.
In July 1996, the Company's Thermo Fibergen subsidiary acquired
substantially all of the assets, subject to certain liabilities, of
Granulation Technology and Biodac for approximately $12.1 million in
cash (Note 4).
In September 1996, Thermo Fibergen sold units in an initial public
offering for net proceeds of approximately $55.8 million. 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 to Thermo Fibergen during specified periods in the
future. The 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.
During the first nine months of 1996, the Company expended $3.2
million for purchases of property, plant and equipment. In the remainder
of 1996, the Company plans to make capital expenditures of approximately
$2.5 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 5 - Other Information
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 1996 and beyond to differ
materially from those expressed in any forward-looking statements made
by, or on behalf of, the Company.
Dependence on Paper Industry and Pulp and Paper Prices. The
Company's products are primarily sold to the paper industry. Typically,
the financial condition of the paper industry is tied to the general
economy, as well as to paper and pulp production capacity. The paper
13PAGE
THERMO FIBERTEK INC.
Item 5 - Other Information (continued)
industry entered a relatively severe down cycle in early 1996 and has not
recovered. This cyclical downturn has recently adversely affected the
Company's business. No assurance can be given that the financial
condition of the paper industry will recover in the near future.
Risks Associated With International Operations. During 1995,
approximately 41% of the Company's sales originated outside of the United
States, particularly in Europe. 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 the
Company's 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. In addition, 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 provided by the Company in
foreign markets where payment for the Company's 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 the Company's business
and results of operations.
Competition. The Company encounters and expects to continue 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, service, technical expertise
and product innovation. The Company's competitors include a number of
large multinational corporations. 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.
Dependence on Patents and Proprietary Rights. The Company places
considerable importance 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 several U.S. and foreign
patents, and intends to file additional applications as appropriate for
patents, covering its products. 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 the Company's technology.
14PAGE
THERMO FIBERTEK INC.
Item 5 - Other Information (continued)
In addition, 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 granted thereunder will provide
competitive advantages to the Company. The Company could incur
substantial costs in defending itself in suits brought against it or in
suits in which the Company may assert its patent rights against others.
If the outcome of any such litigation is unfavorable to the Company, the
Company's business and results of operations could be materially
adversely affected.
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 or be independently developed by
competitors.
Limitation on Operating Flexibility. Thermo Electron Corporation,
which owns 82% of the outstanding capital stock of the Company as of
September 28, 1996, has expressed its intention, for the foreseeable
future, to maintain at least 80% ownership of the Company, so that it may
continue to file consolidated U.S. federal income tax returns with the
Company. This may limit the Company's ability to raise funds in the
future by selling additional equity capital. If adequate funds are not
available, the Company may be required to limit its capital expenditures,
research and development expenditures, and/or other operations.
Item 6 - Exhibits
See Exhibit Index on the page immediately preceding exhibits.
15PAGE
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 1st day of November
1996.
THERMO FIBERTEK INC.
Paul F. Kelleher
--------------------
Paul F. Kelleher
Chief Accounting Officer
John N. Hatsopoulos
--------------------
John N. Hatsopoulos
Chief Financial Officer
16PAGE
THERMO FIBERTEK INC.
EXHIBIT INDEX
Exhibit
Number Description of Exhibit Page
-----------------------------------------------------------------------
10.1 Stock Holdings Assistance Plan and Form of
Promissory Note.
11 Statement re: Computation of earnings per share.
27 Financial Data Schedule.
EXHIBIT 10.1
THERMO FIBERTEK INC.
STOCK HOLDINGS ASSISTANCE PLAN
SECTION 1. Purpose.
The purpose of this Plan is to benefit Thermo Fibertek Inc.
(the "Company") and its stockholders by encouraging Key Employees
to acquire and maintain share ownership in the Company, by
increasing such employees' proprietary interest in promoting the
growth and performance of the Company and its subsidiaries and by
providing for the implementation of the Guidelines.
SECTION 2. Definitions.
The following terms, when used in the Plan, shall have the
meanings set forth below:
Committee: The Human Resources Committee of the Board of
Directors of the Company as appointed from time to time.
Common Stock: The common stock of the Company and any
successor thereto.
Company: Thermo Fibertek Inc., a Delaware corporation.
Guidelines: The Stock Holdings Guidelines for Key Employees
of the Company, as established by the Committee from time to
time.
Key Employee: Any employee of the Company or any of its
subsidiaries, including any officer or member of the Board of
Directors who is also an employee, as designated by the
Committee, and who, in the judgment of the Committee, will be in
a position to contribute significantly to the attainment of the
Company's strategic goals and long-term growth and prosperity.
Loans: Loans extended to Key Employees by the Company
pursuant to this Plan.
Plan: The Thermo Fibertek Inc. Stock Holdings Assistance
Plan, as amended from time to time.
SECTION 3. Administration.
The Plan and the Guidelines shall be administered by the
Committee, which shall have authority to interpret the Plan and
the Guidelines and, subject to their provisions, to prescribe,
amend and rescind any rules and regulations and to make all other
determinations necessary or desirable for the administration
thereof. The Committee's interpretations and decisions with
regard to the Plan and the Guidelines and such rules and
regulations as may be established thereunder shall be final and
conclusive. The Committee may correct any defect or supply any
PAGE
omission or reconcile any inconsistency in the Plan or the
Guidelines, or in any Loan in the manner and to the extent the
Committee deems desirable to carry it into effect. No member of
the Committee shall be liable for any action or omission in
connection with the Plan or the Guidelines that is made in good
faith.
SECTION 4. Loans and Loan Limits.
The Committee has determined that the provision of Loans
from time to time to Key Employees in such amounts as to cause
such Key Employees to comply with the Guidelines is, in the
judgment of the Committee, reasonably expected to benefit the
Company and authorizes the Company to extend Loans from time to
time to Key Employees in such amounts as may be requested by such
Key Employees in order to comply with the Guidelines. Such Loans
may be used solely for the purpose of acquiring Common Stock
(other than upon the exercise of stock options or under employee
stock purchase plans) in open market transactions or from the
Company.
Each Loan shall be full recourse and evidenced by a
non-interest bearing promissory note substantially in the form
attached hereto as Exhibit A (the "Note") and maturing in
accordance with the provisions of Section 6 hereof, and
containing such other terms and conditions, which are not
inconsistent with the provisions of the Plan and the Guidelines,
as the Committee shall determine in its sole and absolute
discretion.
SECTION 5. Federal Income Tax Treatment of Loans.
For federal income tax purposes, interest on Loans shall be
imputed on any interest free Loan extended under the Plan. A Key
Employee shall be deemed to have paid the imputed interest to the
Company and the Company shall be deemed to have paid said imputed
interest back to the Key Employee as additional compensation.
The deemed interest payment shall be taxable to the Company as
income, and may be deductible to the Key Employee to the extent
allowable under the rules relating to investment interest. The
deemed compensation payment to the Key Employee shall be taxable
to the employee and deductible to the Company, but shall also be
subject to employment taxes such as FICA and FUTA.
SECTION 6. Maturity of Loans.
Each Loan to a Key Employee hereunder shall be due and
payable on demand by the Company. If no such demand is made,
then each Loan shall mature and the principal thereof shall
become due and payable in five equal annual installments
commencing on the first anniversary date of the making of such
Loan. Each Loan shall also become immediately due and payable in
full, without demand, upon the occurrence of any of the events
set forth in the Note; provided that the Committee may, in its
2PAGE
sole and absolute discretion, authorize an extension of the time
for repayment of a Loan upon such terms and conditions as the
Committee may determine.
3PAGE
SECTION 7. Amendment and Termination of the Plan.
The Committee may from time to time alter or amend the Plan
or the Guidelines in any respect, or terminate the Plan or the
Guidelines at any time. No such amendment or termination,
however, shall alter or otherwise affect the terms and conditions
of any Loan then outstanding to Key Employee without such Key
Employee's written consent, except as otherwise provided herein
or in the promissory note evidencing such Loan.
SECTION 8. Miscellaneous Provisions.
(a) No employee or other person shall have any claim or
right to receive a Loan under the Plan, and no employee shall
have any right to be retained in the employ of the Company due to
his or her participation in the Plan.
(b) No Loan shall be made hereunder unless counsel for the
Company shall be satisfied that such Loan will be in compliance
with applicable federal, state and local laws.
(c) The expenses of the Plan shall be borne by the Company.
(d) The Plan shall be unfunded, and the Company shall not
be required to establish any special or separate fund or to make
any other segregation of assets to assure the making of any Loan
under the Plan.
(e) Except as otherwise provided in Section 7 hereof, by
accepting any Loan under the Plan, each Key Employee shall be
conclusively deemed to have indicated his acceptance and
ratification of, and consent to, any action taken under the Plan
or the Guidelines by the Company, the Board of Directors of the
Company or the Committee.
(f) The appropriate officers of the Company shall cause to
be filed any reports, returns or other information regarding
Loans hereunder, as may be required by any applicable statute,
rule or regulation.
SECTION 9. Effective Date.
The Plan and the Guidelines shall become effective upon
approval and adoption by the Committee.
4PAGE
EXHIBIT A
THERMO FIBERTEK INC.
Promissory Note
$_________
Dated:____________
For value received, ________________, an individual whose
residence is located at _______________________ (the "Employee"),
hereby promises to pay to Thermo Fibertek Inc. (the "Company"),
or assigns, ON DEMAND, but in any case on or before [insert date
which is the fifth anniversary of date of issuance] (the
"Maturity Date"), the principal sum of [loan amount in words]
($_______), or such part thereof as then remains unpaid, without
interest. Principal shall be payable in lawful money of the
United States of America, in immediately available funds, at the
principal office of the Company or at such other place as the
Company may designate from time to time in writing to the
Employee.
Unless the Company has already made a demand for payment in
full of this Note, the Employee agrees to repay the Company, on
each of the first four anniversary dates of the date hereof, an
amount equal to 20% of the initial principal amount of the Note.
Payment of the final 20% of the initial principal amount, if no
demand has been made by the Company, shall be due and payable on
the Maturity Date.
This Note may be prepaid at any time or from time to time,
in whole or in part, without any premium or penalty. The
Employee acknowledges and agrees that the Company has advanced to
the Employee the principal amount of this Note pursuant to the
Company's Stock Holdings Assistance Plan, and that all terms and
conditions of such Plan are incorporated herein by reference.
The unpaid principal amount of this Note shall be and become
immediately due and payable without notice or demand, at the
option of the Company, upon the occurrence of any of the
following events:
(a) the termination of the Employee's employment with
the Company, with or without cause, for any reason or for no
reason;
(b) the death or disability of the Employee;
(c) the failure of the Employee to pay his or her
debts as they become due, the insolvency of the Employee,
5PAGE
the filing by or against the Employee of any petition under
the United States Bankruptcy Code (or the filing of any
similar petition under the insolvency law of any
jurisdiction), or the making by the Employee of an
assignment or trust mortgage for the benefit of creditors or
the appointment of a receiver, custodian or similar agent
with respect to, or the taking by any such person of
possession of, any property of the Employee; or
(d) the issuance of any writ of attachment, by trustee
process or otherwise, or any restraining order or injunction
not removed, repealed or dismissed within thirty (30) days
of issuance, against or affecting the person or property of
the Employee or any liability or obligation of the Employee
to the Company.
In case any payment herein provided for shall not be paid
when due, the Employee further promises to pay all costs of
collection, including all reasonable attorneys' fees.
No delay or omission on the part of the Company in
exercising any right hereunder shall operate as a waiver of such
right or of any other right of the Company, nor shall any delay,
omission or waiver on any one occasion be deemed a bar to or
waiver of the same or any other right on any future occasion.
The Employee hereby waives presentment, demand, notice of
prepayment, protest and all other demands and notices in
connection with the delivery, acceptance, performance, default or
enforcement of this Note. The undersigned hereby assents to any
indulgence and any extension of time for payment of any
indebtedness evidenced hereby granted or permitted by the
Company.
This Note has been made pursuant to the Company's Stock
Holdings Assistance Plan and shall be governed by and construed
in accordance with, such Plan and the laws of the State of
Delaware and shall have the effect of a sealed instrument.
_______________________________
Employee Name: _________________
________________________
Witness
THERMO FIBERTEK INC.
Computation of Earnings per Share
Three Months Ended
------------------------------
September 28, September 30,
1996 1995
------------------------------------------------------------------------
Computation of Fully Diluted Earnings
per Share:
Income:
Net income $ 4,213,000 $ 5,992,000
Add: Convertible debt interest, net
of tax 79,000 79,000
----------- -----------
Income applicable to common stock
assuming full dilution (a) $ 4,292,000 $ 6,071,000
----------- -----------
Shares:
Weighted average shares outstanding 61,088,657 60,827,252
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) 1,404,451 1,352,676
----------- -----------
Weighted average shares outstanding,
as adjusted (b) 64,381,221 64,068,041
----------- -----------
Fully Diluted Earnings per Share (a) / (b) $ .07 $ .09
=========== ===========
PAGE
THERMO FIBERTEK INC.
Computation of Earnings per Share (continued)
Nine Months Ended
-----------------------------
September 28, September 30,
1996 1995
------------------------------------------------------------------------
Computation of Fully Diluted Earnings
per Share:
Income:
Net income $14,295,000 $14,203,000
Add: Convertible debt interest, net
of tax 237,000 237,000
----------- -----------
Income applicable to common stock
assuming full dilution (a) $14,532,000 $14,440,000
----------- -----------
Shares:
Weighted average shares outstanding 61,015,230 60,759,465
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) 1,494,662 1,352,676
----------- -----------
Weighted average shares outstanding,
as adjusted (b) 64,398,005 64,000,254
----------- -----------
Fully Diluted Earnings per Share (a) / (b) $ .23 $ .23
=========== ===========