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 July 1, 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
(State or other jurisdiction of 52-1762325
incorporation or organization) (I.R.S. Employer Identification No.)
245 Winter Street
Waltham, Massachusetts 02451
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (781) 622-1000
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days. Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
Class Outstanding at July 28, 2000
---------------------------- ----------------------------
Common Stock, $.01 par value 61,287,524
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
THERMO FIBERTEK INC.
Consolidated Balance Sheet
(Unaudited)
Assets
July 1, January 1,
(In thousands) 2000 2000
- ----------------------------------------------------------------------------------- -------- ----------
Current Assets:
Cash and cash equivalents $ 45,773 $ 39,254
Advance to affiliate 107,819 93,780
Available-for-sale investments, at quoted market value (amortized
cost of $31,420 and $46,470) 31,414 46,405
Accounts receivable, less allowances of $1,887 and $1,659 42,339 49,323
Unbilled contract costs and fees 9,412 9,570
Inventories:
Raw materials and supplies 12,611 12,088
Work in process 5,306 6,122
Finished goods 10,681 10,697
Deferred tax asset 4,778 4,896
Other current assets 1,214 1,034
-------- --------
271,347 273,169
-------- --------
Property, Plant, and Equipment, at Cost 69,220 67,804
Less: Accumulated depreciation and amortization 37,866 37,310
-------- --------
31,354 30,494
-------- --------
Other Assets (Note 7) 13,714 17,044
-------- --------
Cost in Excess of Net Assets of Acquired Companies (Note 5) 120,968 121,870
-------- --------
$437,383 $442,577
======== ========
2
THERMO FIBERTEK INC.
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
July 1, January 1,
(In thousands except share amounts) 2000 2000
- ----------------------------------------------------------------------------------- -------- ----------
Current Liabilities:
Current maturities of long-term obligations (Note 5) $ 562 $ 380
Accounts payable 20,459 21,957
Accrued payroll and employee benefits 7,033 8,659
Billings in excess of contract costs and fees 1,106 4,730
Accrued warranty costs 5,128 5,005
Customer deposits 3,377 3,242
Other accrued expenses (Note 6) 17,250 20,322
Common stock of subsidiary subject to redemption ($50,100 and
$49,788 redemption value) 49,942 49,160
Due to parent company and affiliated companies 1,317 1,003
-------- --------
106,174 114,458
-------- --------
Deferred Income Taxes and Other Deferred Items 6,149 6,365
-------- --------
Long-term Obligations:
Subordinated convertible debentures 153,000 153,000
Notes payable (Note 5) 1,650 1,350
-------- --------
154,650 154,350
-------- --------
Minority Interest 3,086 3,334
-------- --------
Shareholders' Investment:
Common stock, $.01 par value, 150,000,000 shares authorized;
63,563,256 and 63,537,556 shares issued 636 635
Capital in excess of par value 77,038 77,411
Retained earnings 126,711 118,380
Treasury stock at cost, 2,275,732 and 2,327,521 shares (20,758) (21,239)
Deferred compensation (51) (66)
Accumulated other comprehensive items (Note 2) (16,252) (11,051)
-------- --------
167,324 164,070
-------- --------
$437,383 $442,577
======== ========
The accompanying notes are an integral part of these consolidated financial statements.
3
THERMO FIBERTEK INC.
Consolidated Statement of Income
(Unaudited)
Three Months Ended
------------------
July 1, July 3,
(In thousands except per share amounts) 2000 1999
- ---------------------------------------------------------------------------------- ------- -------
Revenues $61,647 $53,549
------- -------
Costs and Operating Expenses:
Cost of revenues 38,446 31,485
Selling, general, and administrative expenses 15,702 15,154
Research and development expenses 1,953 1,842
Gain on sale of property (Note 7) (971) -
------- -------
55,130 48,481
------- -------
Operating Income 6,517 5,068
Interest Income 2,691 2,041
Interest Expense (1,865) (1,845)
------- -------
Income Before Provision for Income Taxes and Minority Interest 7,343 5,264
Provision for Income Taxes 3,029 2,008
Minority Interest Expense 45 245
------- -------
Net Income $ 4,269 $ 3,011
======= =======
Basic and Diluted Earnings per Share (Note 3) $ .07 $ .05
======= =======
Weighted Average Shares (Note 3):
Basic 61,283 61,168
======= =======
Diluted 61,506 61,555
======= =======
The accompanying notes are an integral part of these consolidated financial statements.
4
THERMO FIBERTEK INC.
Consolidated Statement of Income
(Unaudited)
Six Months Ended
--------------------
July 1, July 3,
(In thousands except per share amounts) 2000 1999
- ---------------------------------------------------------------------------------- -------- --------
Revenues $122,476 $113,772
-------- --------
Costs and Operating Expenses:
Cost of revenues 74,874 68,272
Selling, general, and administrative expenses 31,761 30,651
Research and development expenses 3,816 3,660
Gain on sale of property (Note 7) and business (971) (11,099)
Restructuring and unusual costs - 3,383
-------- --------
109,480 94,867
-------- --------
Operating Income 12,996 18,905
Interest Income 5,194 4,007
Interest Expense (3,755) (3,695)
-------- --------
Income Before Provision for Income Taxes and Minority Interest 14,435 19,217
Provision for Income Taxes 5,910 7,493
Minority Interest Expense 194 485
-------- --------
Net Income $ 8,331 $ 11,239
======== ========
Basic and Diluted Earnings per Share (Note 3) $ .14 $ .18
======== ========
Weighted Average Shares (Note 3):
Basic 61,264 61,185
======== ========
Diluted 61,551 74,237
======== ========
The accompanying notes are an integral part of these consolidated financial statements.
5
THERMO FIBERTEK INC.
Consolidated Statement of Cash Flows
(Unaudited)
Six Months Ended
--------------------
July 1, July 3,
(In thousands) 2000 1999
- ---------------------------------------------------------------------------------- -------- --------
Operating Activities:
Net income $ 8,331 $ 11,239
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 4,842 4,710
Provision for losses on accounts receivable 742 5
Minority interest expense 194 485
Gain on sale of property (Note 7) and business (971) (11,099)
Noncash unusual costs - 470
Other noncash items (43) 17
Changes in current accounts, excluding the effects of acquisitions and
disposition:
Accounts receivable 4,787 3,619
Inventories and unbilled contract costs and fees (24) (944)
Prepaid income taxes and other current assets 108 663
Accounts payable (775) (2,949)
Other current liabilities (6,668) (445)
-------- --------
Net cash provided by operating activities 10,523 5,771
-------- --------
Investing Activities:
Acquisition, net of cash acquired (Note 5) (2,998) (2,447)
Acquisition of capital equipment and technology (1,200) -
Proceeds from sale of property (Note 7) 3,909 -
Proceeds from sale of business, net of cash divested - 13,537
Refund of acquisition purchase price - 377
Advances to affiliate, net (14,039) (84,870)
Purchases of available-for-sale investments (18,500) (56,325)
Proceeds from maturities of available-for-sale investments 33,549 57,827
Purchases of property, plant, and equipment (2,689) (1,878)
Other, net 2 243
-------- --------
Net cash used in investing activities (1,966) (73,536)
-------- --------
Financing Activities:
Purchases of Company and subsidiary common stock - (4,109)
Purchases of subsidiary common stock from Thermo Electron - (2,227)
Net proceeds from issuance of Company and subsidiary common stock 448 417
-------- --------
Net cash provided by (used in) financing activities $ 448 $ (5,919)
-------- --------
6
THERMO FIBERTEK INC.
Consolidated Statement of Cash Flows (continued)
(Unaudited)
Six Months Ended
--------------------
July 1, July 3,
(In thousands) 2000 1999
- ---------------------------------------------------------------------------------- ----------- ----------
Exchange Rate Effect on Cash $ (2,486) $ (569)
-------- --------
Increase (Decrease) in Cash and Cash Equivalents 6,519 (74,253)
Cash and Cash Equivalents at Beginning of Period 39,254 115,472
-------- --------
Cash and Cash Equivalents at End of Period $ 45,773 $ 41,219
======== ========
Noncash Activities (Note 5):
Fair value of assets of acquired companies $ 5,285 $ 4,700
Cash paid for acquired companies (3,411) (2,500)
Note payable for acquired companies (795) (1,730)
-------- --------
Liabilities assumed of acquired companies $ 1,079 $ 470
======== ========
The accompanying notes are an integral part of these consolidated financial statements.
7
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 July 1, 2000, the results of
operations for the three- and six-month periods ended July 1, 2000, and July 3,
1999, and the cash flows for the six-month periods ended July 1, 2000, and July
3, 1999. Interim results are not necessarily indicative of results for a full
year.
The consolidated balance sheet presented as of January 1, 2000, has been
derived from the consolidated financial statements that have been audited by the
Company's independent public accountants. The consolidated financial statements
and notes are presented as permitted by Form 10-Q and do not contain certain
information included in the annual financial statements and notes of the
Company. The consolidated financial statements and notes included herein should
be read in conjunction with the financial statements and notes included in the
Company's Annual Report on Form 10-K for the fiscal year ended January 1, 2000,
filed with the Securities and Exchange Commission.
2. Comprehensive Income
Comprehensive income combines net income and "other comprehensive items,"
which represents certain amounts that are reported as components of
shareholders' investment in the accompanying balance sheet, including foreign
currency translation adjustments and unrealized net of tax gains and losses on
available-for-sale investments. During the second quarter of 2000 and 1999, the
Company had comprehensive income of $104,000 and $1,095,000, respectively.
During the first six months of 2000 and 1999, the Company had comprehensive
income of $3,120,000 and $7,748,000, respectively.
3. Earnings per Share
Basic and diluted earnings per share were calculated as follows:
Three Months Ended Six Months Ended
------------------ -------------------
July 1, July 3, July 1, July 3,
(In thousands except per share amounts) 2000 1999 2000 1999
- ------------------------------------------------------------ ----------- ---------- ----------- ---------
Basic
Net Income $ 4,269 $ 3,011 $ 8,331 $11,239
------- ------- ------- -------
Weighted Average Shares 61,283 61,168 61,264 61,185
------- ------- ------- -------
Basic Earnings per Share $ .07 $ .05 $ .14 $ .18
======= ======= ======= =======
8
THERMO FIBERTEK INC.
3. Earnings per Share (continued)
Three Months Ended Six Months Ended
-------------------- -------------------
July 1, July 3, July 1, July 3,
(In thousands except per share amounts) 2000 1999 2000 1999
- --------------------------------------------------------- ----------- ------------ ---------- -----------
Diluted
Net Income $ 4,269 $ 3,011 $ 8,331 $11,239
Effect of:
Convertible obligations - - - 2,066
Majority-owned subsidiary's dilutive (2) (15) (6) (40)
------- ------- ------- -------
securities
Income Available to Common Shareholders, as Adjusted $ 4,267 $ 2,996 $ 8,325 $13,265
------- ------- ------- -------
Weighted Average Shares 61,283 61,168 61,264 61,185
Effect of:
Convertible obligations - - - 12,645
Stock options 223 387 287 407
------- ------- ------- -------
Weighted Average Shares, as Adjusted 61,506 61,555 61,551 74,237
------- ------- ------- -------
Diluted Earnings per Share $ .07 $ .05 $ .14 $ .18
======= ======= ======= =======
Options to purchase 971,000 and 894,000 shares of common stock for the
second quarter of 2000 and 1999, respectively, and 930,000 and 891,000 shares of
common stock for the first six months of 2000 and 1999, respectively, were not
included in the computation of diluted earnings per share because the options'
exercise prices were greater than the average market price for the common stock
and their effect would be antidilutive.
In addition, the computation of diluted earnings per share for the 2000
periods and for the second quarter of 1999 excludes the effect of assuming the
conversion of the Company's $153,000,000 principal amount of 4 1/2% subordinated
convertible debentures, convertible at $12.10 per share, because the effect
would be antidilutive.
4. Business Segment Information
Three Months Ended Six Months Ended
-------------------- -------------------
July 1, July 3, July 1, July 3,
(In thousands) 2000 1999 2000 1999
- --------------------------------------------------------- -------- -------- -------- --------
Revenues:
Pulp and Papermaking Equipment and Systems $ 59,903 $ 51,296 $118,007 $107,694
Dryers and Pollution-control Equipment (a) - - - 1,802
Water- and Fiber-recovery Services and Products 1,746 2,253 4,479 4,327
Intersegment sales elimination (b) (2) - (10) (51)
-------- -------- -------- --------
$ 61,647 $ 53,549 $122,476 $113,772
======== ======== ======== ========
9
THERMO FIBERTEK INC.
4. Business Segment Information (continued)
Three Months Ended Six Months Ended
------------------- -------------------
July 1, July 3, July 1, July 3,
(In thousands) 2000 1999 2000 1999
- ------------------------------------------------------------ -------- -------- -------- --------
Income Before Provision for Income Taxes and Minority
Interest:
Pulp and Papermaking Equipment and Systems (c) $ 7,782 $ 6,558 $ 15,525 $ 10,515
Dryers and Pollution-control Equipment (a)(d) - - - 11,554
Water- and Fiber-recovery Services and Products (738) (189) (1,041) (408)
Corporate (e) (527) (1,301) (1,488) (2,756)
-------- -------- -------- --------
Total operating income 6,517 5,068 12,996 18,905
Interest income, net 826 196 1,439 312
-------- -------- -------- --------
$ 7,343 $ 5,264 $ 14,435 $ 19,217
======== ======== ======== ========
(a) The Company sold this segment in February 1999.
(b) Intersegment sales are accounted for at prices that are representative of transactions with unaffiliated parties.
(c) Includes restructuring and unusual costs of $3.4 million in the first six months of 1999.
(d) Includes gain on sale of business of $11.1 million in the first six months of 1999.
(e) Includes gain on sale of property of $1.0 million in the 2000 periods; primarily general and administrative
expenses in the fiscal 1999 periods.
5. Acquisition
In February 2000, the Company acquired the assets of Gauld Equipment
Manufacturing Company, Inc., a manufacturer of stock-preparation accessory
equipment, for $3,411,000 in cash and a $923,000 note payable in equal annual
installments over four years. The liability has been recorded at its net present
value of $795,000 in the accompanying July 1, 2000, balance sheet.
This acquisition has been accounted for using the purchase method of
accounting and its results have been included in the Company's results from the
date of acquisition. 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. Allocation of the purchase price for this acquisition was based on an
estimate of the fair value of the net assets acquired and is subject to
adjustment upon finalization of the purchase price allocation. 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 business were not material to the Company's results of
operations.
10
THERMO FIBERTEK INC.
6. Restructuring Costs
During 1999, the Company recorded restructuring costs of $2,257,000,
including 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. 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 1, 2000 $ 15 $654 $669
Usage (15) (18) (33)
Currency translation - (68) (68)
---- ---- ----
Balance at July 1, 2000 $ - $568 $568
==== ==== ====
The Company expects to pay the accrued restructuring costs during the
remainder of 2000.
7. Sale of Tissue Mill
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. 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.
8. Recent Accounting Pronouncement
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) 101, "Revenue Recognition in Financial Statements."
SAB 101 includes requirements for when shipments may be recorded as revenue when
the terms of the sale include customer acceptance provisions or an obligation of
the seller to install the product. In such instances, SAB 101 generally requires
that revenue recognition occur at completion of installation and/or upon
customer acceptance. SAB 101 requires that companies conform their revenue
recognition practices to the requirements therein no later than the fourth
quarter of calendar 2000 through recording a cumulative net of tax effect of the
change in accounting as of January 2, 2000. The Company has not yet completed
the analysis to determine the effect that SAB 101 will have on its financial
statements.
11
THERMO FIBERTEK INC.
9. Proposed Spin Off
On January 31, 2000, Thermo Electron Corporation 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. The distribution is
subject to receipt of a favorable ruling from the Internal Revenue Service
regarding the tax treatment of the spin off, and other customary conditions. If
these conditions are met, the Company expects the transaction to occur in early
2001. Following the spin off, Thermo Electron will continue to guarantee, on a
subordinated basis, the Company's $153,000,000 principal amount of 4 1/2%
subordinated convertible debentures due 2004 and any remaining obligation of
Thermo Fibergen Inc. under its redemption rights.
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations
Forward-looking statements, within the meaning of Section 21E of the
Securities Exchange Act of 1934, are made throughout this Management's
Discussion and Analysis of Financial Condition and Results of Operations. For
this purpose, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, the words "believes," "anticipates," "plans," "expects," "seeks,"
"estimates," and similar expressions are intended to identify forward-looking
statements. There are a number of important factors that could cause the results
of the Company to differ materially from those indicated by such forward-looking
statements, including those detailed under the heading "Forward-looking
Statements" in Exhibit 13 to the Company's Annual Report on Form 10-K for the
fiscal year ended January 1, 2000, filed with the Securities and Exchange
Commission.
Overview
The Company operates in two segments: Pulp and Papermaking Equipment and
Systems and Water- and Fiber-recovery Services and Products. 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. In May 1999, this segment acquired the
outstanding stock of Arcline Products, a manufacturer of shower and doctor
oscillation systems. In February 2000, this segment acquired the assets of Gauld
Equipment Manufacturing Company, Inc., a manufacturer of stock-preparation
accessory equipment (Note 5).
The Water- and Fiber-recovery Services and Products segment, which
consists of the Company's Thermo Fibergen Inc. subsidiary, owns and operates a
plant that helps the host mill close the loop in its water and solids systems 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. In addition, 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. In October 1999, Thermo Fibergen established a
subsidiary to develop, produce, and market fiber-based composites primarily for
the building industry, such as fencing and siding. Thermo Fibergen owns 51% of
this subsidiary.
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 and 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.
12
THERMO FIBERTEK INC.
Overview (continued)
The Company's manufacturing facilities are principally located in the United States 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.
During 1999, approximately 48% 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. 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.
The Company's products are primarily sold to the paper industry.
Generally, the financial condition of the paper industry corresponds to changes
in the general economy and to a number of other factors, including paper and
pulp production capacity. In early 1996, the worldwide pulp and paper industry
entered a severe downcycle, which began adversely affecting the Company's
business in the second half of 1996. These adverse effects continued through the
first half of 1999. A number of recent signs suggest improvement, which began in
the second half of 1999 and is continuing into 2000, particularly in North
America. In general, prices for most paper grades are increasing, and operating
rates for paper companies in North America are at a relatively high percentage
of capacity. The financial condition of many pulp and paper companies appears to
be improving steadily, which could lead to increased expenditures in capital
equipment. However, the timing of the recovery of the paper industry's financial
condition cannot be predicted.
Results of Operations
Second Quarter 2000 Compared With Second Quarter 1999
Revenues increased to $61.6 million in the second quarter of 2000 from
$53.5 million in the second quarter of 1999. Arcline Products, which was
acquired in May 1999, and Gauld Equipment, which was acquired in February 2000
(Note 5), added revenues of $1.5 million during the period. The unfavorable
effects of currency translation due to the strengthening in value of the U.S.
dollar relative to foreign currencies in countries in which the Company operates
decreased revenues at the Papermaking Equipment segment by $1.8 million in 2000.
Excluding the results of acquisitions and the effect of currency translation,
revenues in the Company's Papermaking Equipment segment increased $8.9 million.
Revenues from that segment's stock-preparation equipment product line increased
$6.9 million as a result of a $7.7 million increase in sales in North America,
due principally to greater export demand, offset in part by a decrease in sales
in Europe, due to market weakness. Revenues from the accessories product line
increased $1.5 million, principally in North America. Revenues from the
water-management product line increased $0.4 million, principally in Europe. The
Water- and Fiber-recovery Services and Products segment revenues decreased $0.5
million, due to decreased demand for cellulose-based products.
The gross profit margin decreased to 38% in the second quarter of 2000
from 41% in the second quarter of 1999, primarily due to a decrease at the
Papermaking Equipment segment resulting from a higher proportion of lower-margin
export sales at its North American stock-preparation equipment business coupled
with a change in overall product mix.
13
THERMO FIBERTEK INC.
Second Quarter 2000 Compared With Second Quarter 1999 (continued)
Selling, general, and administrative expenses as a percentage of revenues
decreased to 25% in the second quarter of 2000 from 28% in the second quarter of
1999, primarily due to increased revenues from the stock-preparation equipment
product line. Selling, general, and administrative expenses increased to $15.7
million in 2000 from $15.2 million in 1999 due to a $0.6 million charge for a
customer dispute.
Research and development expenses increased slightly to $2.0 million in
the second quarter of 2000, compared with $1.8 million in the second quarter of
1999.
In connection with a proposed engineering, procurement, and construction
project, the Company loaned $6.0 million to Tree-Free Fiber Company, LLC
(Tree-Free) during 1996 (Note 7). 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 $2.9
million. In June 1998, the Company was the successful bidder at a foreclosure
sale of the tissue mill 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 $1.3 million were paid to the Company and recorded
as a reduction of the carrying amount of the notes. During 1999, the Company
recorded a $3.0 million write-down to reflect the asset at its then-estimated
recoverable value. 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 $3.9 million in cash, resulting in a gain of $1.0
million.
Interest income increased to $2.7 million in the second quarter of 2000
from $2.0 million in the second quarter of 1999, primarily due to higher
interest rates. Interest expense was relatively unchanged at $1.9 million in
2000 and $1.8 million in 1999.
The effective tax rate was 41% in the second quarter of 2000, compared
with 38% in the second quarter of 1999. The effective tax rate exceeded the
statutory federal income tax rate primarily due to the impact of state income
taxes. The effective tax rate was higher in 2000 primarily due to increased
earnings in jurisdictions with higher tax rates.
Minority interest expense 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 majority-owned subsidiary.
First Six Months 2000 Compared With First Six Months 1999
Excluding the results of Thermo Wisconsin, which was sold in February
1999, revenues increased to $122.5 million in the first six months of 2000 from
$112.0 million in the first six months of 1999. Thermo Wisconsin's revenues to
external customers were $1.8 million in 1999. Arcline Products, which was
acquired in May 1999, and Gauld Equipment, which was acquired in February 2000
(Note 5), added revenues of $2.6 million during the period. The unfavorable
effects of currency translation due to the strengthening in value of the U.S.
dollar relative to foreign currencies in countries in which the Company operates
decreased revenues at the Papermaking Equipment segment by $3.3 million in 2000.
Excluding the results of acquisitions and the effect of currency translation,
revenues in the Company's Papermaking Equipment segment increased $11.1 million.
Revenues from that segment's stock-preparation equipment product line increased
$8.5 million as a result of a $14.0 million increase in sales in North America,
due principally to greater export demand, offset in part by a decrease in sales
in Europe, due to market weakness. Revenues from the water-management product
line increased $2.2 million, principally in North America.
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THERMO FIBERTEK INC.
First Six Months 2000 Compared With First Six Months 1999 (continued)
The gross profit margin decreased to 39% in the first six months of 2000
from 40% in the first six months of 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 export sales at its
North American stock-preparation equipment business.
Selling, general, and administrative expenses as a percentage of revenues
decreased to 26% in the first six months of 2000 from 27% in the first six
months of 1999, primarily due to increased revenues from the stock-preparation
equipment product line.
Research and development expenses were relatively unchanged at $3.8
million in the first six months of 2000, compared with $3.7 million in the first
six months of 1999.
In June 2000, the Company sold its interest in the Tree-Free mill for $3.9
million in cash, resulting in a gain of $1.0 million (Note 7).
In February 1999, the Company sold its Thermo Wisconsin subsidiary for
$13.6 million in cash, resulting in a pretax gain of $11.1 million.
Restructuring and unusual costs of $3.4 million in the first six months of
1999 represents severance costs, termination of distributor agreements, the
expected settlement of a contractual dispute, facility-closure costs, and
write-downs for impairment of assets.
Interest income increased to $5.2 million in the first six months of 2000
from $4.0 million in the first six months of 1999, primarily due to higher
interest rates, as well as higher average invested balances. Interest expense
was relatively unchanged at $3.8 million in 2000 and $3.7 million in 1999.
The effective tax rate was 41% in the first six months of 2000, compared
with 39% in the first six months of 1999. The effective tax rate exceeded the
statutory federal income tax rate primarily due to the impact of state income
taxes. The effective tax rate was higher in 2000 primarily due to increased
earnings in jurisdictions with higher tax rates.
Minority interest expense 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 majority-owned subsidiary.
Liquidity and Capital Resources
Consolidated working capital was $165.2 million at July 1, 2000, compared
with $158.7 million at January 1, 2000. Included in working capital are cash,
cash equivalents, and available-for-sale investments of $77.2 million at July 1,
2000, compared with $85.7 million at January 1, 2000. In addition, the Company
had $107.8 million and $93.8 million invested in an advance to affiliate as of
July 1, 2000 and January 1, 2000, respectively. Of the total cash, cash
equivalents, and available-for-sale investments at July 1, 2000, $36.8 million
was held by Thermo Fibergen and the remainder was held by the Company and its
wholly owned subsidiaries. Of the total advance to affiliate at July 1, 2000,
$12.3 million was advanced by Thermo Fibergen, $7.2 million was advanced by the
Company's Thermo Fiberprep subsidiary, and the balance was advanced by the
Company. At July 1, 2000, $37.8 million of the Company's cash and cash
equivalents was held by its foreign subsidiaries.
During the first six months of 2000, $10.5 million of cash was provided by
operating activities. A decrease in accounts receivable provided $4.8 million of
cash, primarily due to improved collection efforts as well as a decline in sales
at the Company's Lamort subsidiary. A decrease in other current liabilities used
$6.7 million of cash, consisting primarily of a $3.5 million decrease in
billings in excess of costs and fees related to the timing of payments on
long-term contracts, and $1.5 million paid for certain payroll and employee
benefits accrued at year-end.
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THERMO FIBERTEK INC.
Liquidity and Capital Resources (continued)
During the first six months of 2000, the Company's investing activities,
excluding available-for-sale investments and advance to affiliate activity, used
$3.0 million of cash. The Company used $3.0 million, net of cash acquired, to
purchase the assets of Gauld Equipment (Note 5) and $1.2 million to purchase
certain capital equipment and technology for Thermo Fibergen's composites
facility. In addition, the Company purchased property, plant, and equipment for
$2.7 million. In June 2000, the Company sold its interest in the Tree-Free mill
for $3.9 million in cash (Note 7).
During the first six months of 2000, the Company's financing activities
provided $0.4 million of cash.
Subsequent to quarter-end, the Company acquired Cyclotech AB-Stockholm, a
Swedish manufacturer of stock-preparation equipment, for $0.6 million in cash,
subject to a post-closing adjustment.
Thermo Fibergen's common stock is subject to redemption in September 2000
or September 2001, the redemption value of which is $50.1 million. These
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.
At July 1, 2000, the Company had $69.4 million of undistributed foreign
earnings that could be subject to tax if remitted to the U.S. The Company does
not intend to repatriate undistributed foreign earnings into the U.S., and does
not expect that this will have a material adverse effect on the Company's
current liquidity.
During the remainder of 2000, the Company plans to make expenditures for
property, plant, and equipment of approximately $4.5 million. Included in this
amount is $1.5 million for Thermo Fibergen, which intends to make capital
expenditures to develop and expand its fiber-based composites business. The
Company's liquidity may be adversely affected if the redemption of Thermo
Fibergen's common stock occurs in the third quarter of 2000. The Company
believes that its existing resources are sufficient to meet the capital
requirements of its existing operations for the foreseeable future.
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
The Company's exposure to market risk from changes in interest rates,
equity prices, and foreign currency exchange rates has not changed materially
from its exposure at year-end 1999.
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Securities
On May 17, 2000, at the Annual Meeting of Shareholders, the shareholders elected four directors to
a one-year term expiring in 2001. The directors elected at the meeting were: Mr. Francis L. McKone,
Mr. Donald E. Noble, Mr. William A. Rainville, and Dr. Richard F. Syron. Mr. McKone and Dr. Syron each
received 60,598,660 shares voted in favor of his election and 40,508 shares voted against. Mr. Noble
received 60,598,011 shares voted in favor of his election and 41,157 shares voted against. Mr.
Rainville received 60,598,073 shares voted in favor of his election and 41,095 shares voted against. No
abstentions or broker nonvotes were recorded on the election of directors.
At the Annual Meeting, the shareholders also approved a proposal to amend
the Company's equity incentive plan to restate the limitation on the potential
size of awards to any recipient in a year in compliance with Section 162(m) of
the Internal Revenue Code, as amended, as follows: 60,346,419 shares were voted
in favor of the proposal, 257,660 shares were voted against, and 35,089 shares
abstained. No broker nonvotes were recorded on the proposal.
16
THERMO FIBERTEK INC.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
See Exhibit Index on the page immediately preceding exhibits.
(b) Reports on Form 8-K
None.
17
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 9th day of August 2000.
THERMO FIBERTEK INC.
/s/ Theo Melas-Kyriazi
--------------------------------------------
Theo Melas-Kyriazi
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
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THERMO FIBERTEK INC.
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
- --------------------------------------------------------------------------------
27 Financial Data Schedule.