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 April 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 52-1762325
(State or other jurisdiction of
incorporation or organization) (I.R.S. Employer Identification No.)
245 Winter Street
Waltham, Massachusetts 02451
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (781) 622-1000
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
Class Outstanding at April 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
April 1, January 1,
(In thousands) 2000 2000
- ----------------------------------------------------------------------------------- ----------- ----------
Current Assets:
Cash and cash equivalents $ 37,586 $ 39,254
Advance to affiliate 99,448 93,780
Available-for-sale investments, at quoted market value 36,180 46,405
(amortized cost of $36,226 and $46,470)
Accounts receivable, less allowances of $1,595 and $1,659 48,104 49,323
Unbilled contract costs and fees 9,428 9,570
Inventories:
Raw materials and supplies 12,398 12,088
Work in process 7,348 6,122
Finished goods 10,755 10,697
Deferred tax asset 5,303 4,896
Other current assets 977 1,034
-------- --------
267,527 273,169
-------- --------
Property, Plant, and Equipment, at Cost 69,972 67,804
Less: Accumulated depreciation and amortization 38,156 37,310
-------- --------
31,816 30,494
-------- --------
Other Assets (Note 7) 16,804 17,044
-------- --------
Cost in Excess of Net Assets of Acquired Companies (Note 5) 122,838 121,870
-------- --------
$438,985 $442,577
======== ========
2
THERMO FIBERTEK INC.
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
April 1, January 1,
(In thousands except share amounts) 2000 2000
- ----------------------------------------------------------------------------------- ----------- ---------
Current Liabilities:
Current maturities of long-term obligations (Note 5) $ 562 $ 380
Accounts payable 23,220 21,957
Accrued payroll and employee benefits 6,283 8,659
Billings in excess of contract costs and fees 1,540 4,730
Accrued warranty costs 4,506 5,005
Customer deposits 5,483 3,242
Other accrued expenses (Note 6) 14,411 20,322
Common stock of subsidiary subject to redemption ($50,423 and 50,026 49,160
$49,788 redemption value)
Due to parent company and affiliated companies 1,745 1,003
-------- --------
107,776 114,458
-------- --------
Deferred Income Taxes and Other Deferred Items 6,319 6,365
-------- --------
Long-term Obligations:
Subordinated convertible debentures 153,000 153,000
Notes payable (Note 5) 1,963 1,350
-------- --------
154,963 154,350
-------- --------
Minority Interest 3,246 3,334
-------- --------
Shareholders' Investment:
Common stock, $.01 par value, 150,000,000 shares authorized; 635 635
63,542,556 and 63,537,556 shares issued
Capital in excess of par value 76,513 77,411
Retained earnings 122,442 118,380
Treasury stock at cost, 2,275,638 and 2,327,521 shares (20,757) (21,239)
Deferred compensation (58) (66)
Accumulated other comprehensive items (Note 2) (12,094) (11,051)
-------- --------
166,681 164,070
-------- --------
$438,985 $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
April 1, April 3,
(In thousands except per share amounts) 2000 1999
- ----------------------------------------------------------------------------------- ----------- ----------
Revenues $ 60,829 $60,223
-------- -------
Costs and Operating Expenses:
Cost of revenues 36,428 36,787
Selling, general, and administrative expenses 16,059 15,497
Research and development expenses 1,863 1,818
Gain on sale of business - (11,099)
Restructuring and unusual costs - 3,383
-------- -------
54,350 46,386
-------- -------
Operating Income 6,479 13,837
Interest Income 2,503 1,966
Interest Expense (1,890) (1,850)
-------- -------
Income Before Provision for Income Taxes and Minority Interest 7,092 13,953
Provision for Income Taxes 2,881 5,485
Minority Interest Expense 149 240
-------- -------
Net Income $ 4,062 $ 8,228
======== =======
Earnings per Share (Note 3):
Basic $ .07 $ .13
======== =======
Diluted $ .07 $ .12
======== =======
Weighted Average Shares (Note 3):
Basic 61,244 61,202
======== =======
Diluted 61,597 74,275
======== =======
The accompanying notes are an integral part of these consolidated financial
statements.
4
THERMO FIBERTEK INC.
Consolidated Statement of Cash Flows
(Unaudited)
Three Months Ended
April 1, April 3,
(In thousands) 2000 1999
- ----------------------------------------------------------------------------------- ----------- ----------
Operating Activities:
Net income $ 4,062 $ 8,228
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation and amortization 2,400 2,181
Provision for losses on accounts receivable 126 1
Minority interest expense 149 240
Gain on sale of business - (11,099)
Noncash unusual costs - 470
Other noncash items 51 171
Changes in current accounts, excluding the effects of acquisition and
disposition:
Accounts receivable 1,120 2,157
Inventories and unbilled contract costs and fees (987) (6,053)
Prepaid income taxes and other current assets (384) (39)
Accounts payable 1,187 2,685
Other current liabilities (8,104) (3,069)
-------- -------
Net cash used in operating activities (380) (4,127)
-------- -------
Investing Activities:
Acquisition, net of cash acquired (Note 5) (2,998) -
Acquisition of capital equipment and technology (1,200) -
Proceeds from sale of business, net of cash divested - 13,537
Refund of acquisition purchase price - 377
Advances to affiliate, net (5,668) -
Purchases of available-for-sale investments - (25,325)
Proceeds from maturities of available-for-sale investments 10,244 33,002
Purchases of property, plant, and equipment (1,369) (433)
Other, net (42) 260
-------- -------
Net cash provided by (used in) investing activities (1,033) 21,418
-------- -------
Financing Activities:
Purchases of Company common stock - (2,377)
Purchases of subsidiary common stock from Thermo Electron - (2,227)
Net proceeds from issuance of Company common stock 207 390
-------- -------
Net cash provided by (used in) financing activities $ 207 $(4,214)
-------- -------
5
THERMO FIBERTEK INC.
Consolidated Statement of Cash Flows (continued)
(Unaudited)
Three Months Ended
April 1, April 3,
(In thousands) 2000 1999
- ----------------------------------------------------------------------------------- ----------- ----------
Exchange Rate Effect on Cash $ (462) $ 243
-------- --------
Increase (Decrease) in Cash and Cash Equivalents (1,668) 13,320
Cash and Cash Equivalents at Beginning of Period 39,254 115,472
-------- --------
Cash and Cash Equivalents at End of Period $ 37,586 $128,792
======== ========
Noncash Activities (Note 5):
Fair value of assets of acquired company $ 5,285 $ -
Cash paid for acquired company (3,411) -
Note payable for acquired company (795) -
-------- --------
Liabilities assumed of acquired company $ 1,079 $ -
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
6
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 April 1, 2000, and the results of
operations and cash flows for the three-month periods ended April 1, 2000, and
April 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 first quarter of 2000 and 1999, the
Company had comprehensive income of $3,016,000 and $6,653,000, respectively.
3. Earnings per Share
Basic and diluted earnings per share were calculated as follows:
Three Months Ended
April 1, April 3,
(In thousands except per share amounts) 2000 1999
- ------------------------------------------------------------- ---------- ----------- ---------- ----------
Basic
Net Income $4,062 $ 8,228
------ -------
Weighted Average Shares 61,244 61,202
------ -------
Basic Earnings per Share $ .07 $ .13
====== =======
7
3. Earnings per Share (continued)
Three Months Ended
April 1, April 3,
(In thousands except per share amounts) 2000 1999
- ----------------------------------------------------------- ------------ --------- ------------ ----------
Diluted
Net Income $ 4,062 $ 8,228
Effect of:
Convertible obligations - 1,033
Majority-owned subsidiary's dilutive securities (4) (23)
-------- -------
Income Available to Common Shareholders, as Adjusted $ 4,058 $ 9,238
-------- -------
Weighted Average Shares 61,244 61,202
Effect of:
Convertible obligations - 12,644
Stock options 353 429
-------- -------
Weighted Average Shares, as Adjusted 61,597 74,275
-------- -------
Diluted Earnings per Share $ .07 $ .12
======== =======
Options to purchase 889,000 and 888,000 shares of common stock were not
included in the computation of diluted earnings per share for the first three
months of 2000 and 1999, respectively, 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 2000
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
April 1, April 3,
(In thousands) 2000 1999
- ---------------------------------------------------------- ----------- ----------- ----------- -----------
Revenues:
Pulp and Papermaking Equipment and Systems $58,104 $ 56,398
Dryers and Pollution-control Equipment (a) - 1,802
Water- and Fiber-recovery Services and Products 2,733 2,074
Intersegment sales elimination (b) (8) (51)
------- --------
$60,829 $ 60,223
======= ========
8
4. Business Segment Information (continued)
Three Months Ended
April 1, April 3,
(In thousands) 2000 1999
- ------------------------------------------------------------- ---------- ----------- ---------- ----------
Income Before Provision for Income Taxes and Minority
Interest:
Pulp and Papermaking Equipment and Systems (c) $7,743 $ 3,957
Dryers and Pollution-control Equipment (a)(d) - 11,554
Water- and Fiber-recovery Services and Products (303) (219)
Corporate (e) (961) (1,455)
------ -------
Total operating income 6,479 13,837
Interest income, net 613 116
------ -------
$7,092 $13,953
====== =======
(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 1999.
(d) Includes gain on sale of business of $11.1 million in 1999.
(e) Primarily general and administrative expenses.
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 April 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.
9
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) Severence Other Total
- ----------------------------------------------------------------- ------------- ------------- ------------
Balance at January 1, 2000 $ 15 $654 $669
Currency translation - (14) (14)
---- ---- ----
Balance at April 1, 2000 $ 15 $640 $655
==== ==== ====
The Company expects to pay the accrued restructuring costs during the
remainder of 2000.
7. Note Receivable
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 will not
proceed as a result of Tree-Free's insolvency. Tree-Free was unable to repay the
note upon its original maturity. The note is secured by pari-passu 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 the other
pari-passu 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 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, provided the
purchaser were to receive certain assurances by January 31, 2000, from the Maine
Department of Environmental Protection that Tree-Free's permits to operate the
mill would be transferred to the Buyer. Those assurances were not received by
January 31, 2000, and the purchase and sale agreement subsequently lapsed. The
Buyer has since received the assurances that the necessary permits would be
received and, as a result, the Company and the Buyer renewed the purchase and
sale agreement. In April 2000, the Company received a deposit of $1,000,000 from
the Buyer. In addition, the Buyer agreed to pay the Company, at closing,
interest on the agreed upon purchase price of the mill. The Company expects the
sale to occur during the second quarter of 2000.
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 second
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.
10
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 the
Company's $153,000,000 principal amount of 4 1/2% subordinated convertible
debentures due 2004, on a subordinated basis, and Thermo Fibergen Inc.'s
obligation 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, cat box fillers, and animal bedding. In October 1999, Thermo
Fibergen established a subsidiary to develop, produce, and market fiber-based
composites. 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.
11
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
First Quarter 2000 Compared With First Quarter 1999
Excluding the results of Thermo Wisconsin, which was sold in February
1999, revenues increased to $60.8 million in the first quarter of 2000 from
$58.4 million in the first quarter 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 $1.1 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 $1.6 million in 2000.
Excluding the results of acquisitions and the effect of currency translation,
revenues in the Company's Papermaking Equipment segment increased $2.2 million.
Revenues from that segment's water-management product line increased $1.8
million, principally in North America. Revenues from the stock-preparation
equipment product line increased $1.6 million as a result of a $6.3 million
increase in sales in North America, due principally to greater demand, offset in
part by a decrease in sales in Europe, due to market weakness. The increases
from these product lines were offset in part by a $1.3 million decrease in the
accessories product line, principally in North America. The Water- and
Fiber-recovery Services and Products segment revenues increased $0.7 million,
principally due to a $0.6 million increase in demand for cellulose-based
products, primarily from one of its largest customers.
12
First Quarter 2000 Compared With First Quarter 1999 (continued)
The gross profit margin increased to 40% in the first quarter of 2000,
from 39% in the first quarter of 1999. The gross profit margin increased at the
Papermaking Equipment segment, primarily due to a change in the mix of products
sold in Europe.
Selling, general, and administrative expenses as a percentage of revenues
was unchanged at 26% in the first quarter of 2000 and 1999.
Research and development expenses was relatively unchanged at $1.9 million
in the first quarter of 2000, compared with $1.8 million in the first quarter of
1999.
During the first quarter of 1999, the Company sold its Thermo Wisconsin
subsidiary for $13.6 million in cash, resulting in a pretax gain of $11.1
million.
Restructuring and unusual costs of $3.4 million in the first quarter 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 $2.5 million in the first quarter of 2000
from $2.0 million in the first quarter of 1999, primarily due to higher average
invested balances as a result of cash received from the sale of Thermo
Wisconsin. Interest expense was unchanged at $1.9 million in 2000 and 1999.
The effective tax rate was 40.6% in the first quarter of 2000, compared
with 39.3% in the first quarter of 1999. The effective tax rate exceeded the
statutory federal income tax rate primarily due to the impact of state income
taxes.
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.
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 will not proceed as a result of Tree-Free's insolvency.
Tree-Free was unable to repay the note upon its original maturity. The note is
secured by pari-passu 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 the other pari-passu 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 estimated recoverable value. In
December 1999, the Company entered into a purchase and sale agreement, as
amended, to sell the mill, provided the purchaser were to receive certain
assurances by January 31, 2000, from the Maine Department of Environmental
Protection that Tree-Free's permits to operate the mill would be transferred to
the Buyer. Those assurances were not received by January 31, 2000, and the
purchase and sale agreement subsequently lapsed. The Buyer has since received
the assurances that the necessary permits would be received and, as a result,
the Company and the Buyer renewed the purchase and sale agreement. In April
2000, the Company received a deposit of $1.0 million from the Buyer. In
addition, the Buyer agreed to pay the Company, at closing, interest on the
agreed upon purchase price of the mill. The Company expects the sale to occur
during the second quarter of 2000.
13
Liquidity and Capital Resources
Consolidated working capital was $159.8 million at April 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 $73.8 million at April
1, 2000, compared with $85.7 million at January 1, 2000. In addition, the
Company had $99.4 million and $93.8 million invested in an advance to affiliate
as of April 1, 2000 and January 1, 2000, respectively. Of the total cash, cash
equivalents, and available-for-sale investments at April 1, 2000, $36.4 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 April 1, 2000,
$12.3 million was advanced by Thermo Fibergen, $7.1 million was advanced by the
Company's Thermo Fiberprep subsidiary, and the balance was advanced by the
Company. At April 1, 2000, $35.8 million of the Company's cash and cash
equivalents was held by its foreign subsidiaries.
During the first quarter of 2000, $0.4 million of cash was used by
operating activities. A decrease in other current liabilities used $8.1 million
of cash, consisting primarily of $2.9 million paid for certain payroll and
employee benefits accrued at year-end, a $2.0 million net decrease in taxes
payable, and a $1.7 million payment for accrued interest.
During the first quarter of 2000, the Company's investing activities,
excluding available-for-sale investments and advance to affiliate activity, used
$5.6 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
$1.4 million.
During the first quarter of 2000, the Company's financing activities
provided $0.2 million of cash.
Thermo Fibergen's common stock is subject to redemption in September 2000
or September 2001, the redemption value of which is $50.4 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 April 1, 2000, the Company had $67.7 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 $5.8 million. Included in this
amount is $0.9 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.
14
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
See Exhibit Index on the page immediately preceding exhibits.
(b) Reports on Form 8-K
On February 1, 2000, the Company filed a Current Report on Form 8-K dated
January 31, 2000, with respect to the proposed spinoff of the Company from
Thermo Electron.
15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized as of the 11th day of May 2000.
THERMO FIBERTEK INC.
/s/ Theo Melas-Kyriazi
Theo Melas-Kyriazi
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
16
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
- -------------------------------------------------------------------------------
27 Financial Data Schedule.