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 March 30, 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 April 26, 1996 ---------------------------- ----------------------------- Common Stock, $.01 par value 40,668,398 PAGE PART I - FINANCIAL INFORMATION Item 1 - Financial Statements THERMO FIBERTEK INC. Consolidated Balance Sheet (Unaudited) Assets March 30, December 30, (In thousands) 1996 1995 -------------------------------------------------------------------------- Current Assets: Cash and cash equivalents $ 53,898 $ 57,028 Available-for-sale investments, at quoted market value (amortized cost of $1,505 and $2,781) 1,506 2,784 Accounts receivable, less allowances of $2,541 and $2,552 36,092 43,085 Unbilled contract costs and fees 1,941 1,921 Inventories: Raw materials and supplies 14,678 14,283 Work in process 6,604 7,577 Finished goods 5,943 5,242 Prepaid income taxes and other current assets 11,004 10,356 -------- -------- 131,666 142,276 -------- -------- Property, Plant and Equipment, at Cost 49,510 49,976 Less: Accumulated depreciation and amortization 28,865 28,767 -------- -------- 20,645 21,209 -------- -------- Other Assets 1,215 1,298 -------- -------- Cost in Excess of Net Assets of Acquired Companies 34,125 34,888 -------- -------- $187,651 $199,671 ======== ======== 2PAGE THERMO FIBERTEK INC. Consolidated Balance Sheet (continued) (Unaudited) Liabilities and Shareholders' Investment March 30, December 30, (In thousands except share amounts) 1996 1995 -------------------------------------------------------------------------- Current Liabilities: Accounts payable $ 18,227 $ 20,747 Accrued payroll and employee benefits 8,551 11,115 Billings in excess of contract costs and fees 2,727 3,018 Customer deposits 1,929 1,598 Accrued warranty costs 10,410 9,759 Accrued income taxes (includes $3,150 and $1,521 due to related party) 4,338 4,430 Other accrued expenses 8,609 9,868 Due to parent company 644 10,859 -------- -------- 55,435 71,394 -------- -------- Deferred Income Taxes and Other Deferred Items 3,274 3,031 -------- -------- Long-term Obligations 15,038 15,041 -------- -------- Minority Interest 240 574 -------- -------- Shareholders' Investment: Common stock, $.01 par value, 75,000,000 shares authorized; 40,709,541 and 40,623,919 shares issued 407 406 Capital in excess of par value 65,413 65,222 Retained earnings 51,492 46,287 Treasury stock at cost, 46,343 and 33,223 shares (991) (446) Cumulative translation adjustment (2,658) (1,840) Net unrealized gain on available-for-sale investments 1 2 -------- -------- 113,664 109,631 -------- -------- $187,651 $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 ----------------------- March 30, April 1, (In thousands except per share amounts) 1996 1995 -------------------------------------------------------------------------- Revenues (includes $319 and $539 from related party) $48,980 $43,736 ------- ------- Costs and Operating Expenses: Cost of revenues (includes $213 and $272 for related party revenues) 28,192 25,949 Selling, general and administrative expenses 11,741 11,602 Research and development expenses 1,273 880 ------- ------- 41,206 38,431 ------- ------- Royalty Income 274 231 ------- ------- Operating Income 8,048 5,536 Interest Income 735 737 Interest Expense (includes $131 and $295 to related party) (172) (348) ------- ------- Income Before Provision for Income Taxes and Minority Interest Expense 8,611 5,925 Provision for Income Taxes 3,399 2,291 Minority Interest Expense 6 51 ------- ------- Net Income $ 5,206 $ 3,583 ======= ======= Earnings per Share: Primary $ .13 $ .09 ======= ======= Fully diluted $ .12 $ .09 ======= ======= Weighted Average Shares: Primary 40,623 40,470 ======= ======= Fully diluted 42,904 42,459 ======= ======= The accompanying notes are an integral part of these consolidated financial statements. 4PAGE THERMO FIBERTEK INC. Consolidated Statement of Cash Flows (Unaudited) Three Months Ended ---------------------- March 30, April 1, (In thousands) 1996 1995 -------------------------------------------------------------------------- Operating Activities: Net income $ 5,206 $ 3,583 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,083 1,122 Provision for losses on accounts receivable 42 479 Minority interest expense 6 51 Deferred income tax expense 215 144 Gain on sale of property, plant and equipment (314) (19) Changes in current accounts: Accounts receivable 6,577 3,954 Inventories and unbilled contract costs and fees (391) (1,434) Other current assets (684) (241) Accounts payable (2,148) 2,316 Other current liabilities (3,807) (2,183) -------- ------- Net cash provided by operating activities 5,785 7,772 -------- -------- Investing Activities: Redemption of Fiberprep stock - (12,783) Proceeds from sale and maturities of available- for-sale investments 1,250 - Purchases of property, plant and equipment (663) (506) Proceeds from sale of property, plant and equipment 548 21 Other 143 70 -------- -------- Net cash provided by (used in) investing activities 1,278 (13,198) -------- -------- Financing Activities: Net proceeds from issuance of Company common stock 555 4 Issuance (repayment) of short-term obligation to parent company (10,400) 10,400 Repayment of long-term obligations (2) (183) -------- -------- Net cash provided by (used in) financing activities (9,847) 10,221 -------- -------- 5PAGE THERMO FIBERTEK INC. Consolidated Statement of Cash Flows (continued) (Unaudited) Three Months Ended ---------------------- March 30, April 1, (In thousands) 1996 1995 -------------------------------------------------------------------------- Exchange Rate Effect on Cash $ (346) $ 818 -------- -------- Increase (Decrease) in Cash and Cash Equivalents (3,130) 5,613 Cash and Cash Equivalents at Beginning of Period 57,028 37,250 -------- -------- Cash and Cash Equivalents at End of Period $ 53,898 $ 42,863 ======== ======== Cash Paid For: Interest $ 173 $ 365 Income taxes $ 3,166 $ 1,675 Noncash Activities: Issuance of Company common stock in connection with the redemption of Fiberprep stock $ - $ 1,428 The accompanying notes are an integral part of these consolidated financial statements. 6PAGE 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 (a) the results of operations for the three-month periods ended March 30, 1996 and April 1, 1995, (b) the financial position at March 30, 1996, and (c) the cash flows for the three-month periods ended March 30, 1996 and April 1, 1995. Interim results are not necessarily indicative of results for a full year. The consolidated balance sheet presented as of December 30, 1995, has been derived from the consolidated financial statements that have been audited by the Company's independent public accountants. The consolidated financial statements and notes are presented as permitted by Form 10-Q, and do not contain certain information included in the annual financial statements and notes of the Company. The consolidated financial statements and notes included herein should be read in conjunction with the financial statements and notes included in the Company's Annual Report on Form 10-K for the fiscal year ended December 30, 1995, filed with the Securities and Exchange Commission. 2. Subsequent Event In April 1996 the Company entered into an agreement with Tree Free Fiber (Tree Free) to supply $50.5 million in engineering, procurement, and construction services for a new paper-recycling facility, contingent upon Tree Free receiving permits and securing approximately $80.0 million in financing. Pursuant to this agreement, the Company has loaned $6.0 million to Tree Free which, contingent upon Tree Free receiving the aforementioned financing, will be treated as subordinated debt payable over a three-year period. Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations Description of Business The Company designs and manufactures processing machinery and accessories for the paper and paper-recycling industries. The Company's principal products include custom-engineered systems and equipment for the preparation of wastepaper for conversion into recycled paper, and accessory equipment and related consumables important to the efficient operation of papermaking machines. Because the Company has significant foreign operations, particularly in Europe, 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. 7PAGE THERMO FIBERTEK INC. Results of Operations First Quarter 1996 Compared With First Quarter 1995 --------------------------------------------------- Revenues increased 12% to $49.0 million in the first quarter of 1996 from $43.7 million in the first quarter of 1995. Revenues from the Company's North American and French accessories businesses increased $2.3 million and $1.8 million, respectively, due principally to an increase in demand. The favorable effects of currency translation due to a weaker U.S. dollar increased revenues by $0.6 million. The gross profit margin increased to 42% in the first quarter of 1996 from 41% in the first quarter of 1995. Significant margin improvement at the Company's North American accessories business and at the Company's European subsidiaries was offset in part by a decrease in margins at the Company's Fiberprep subsidiary as a result of warranty reserves recorded in the first quarter of 1996 for a large de-inking project. Selling, general and administrative expenses as a percentage of revenues decreased to 24% in the first quarter of 1996 from 27% in the first quarter of 1995, due primarily to an increase in revenues. Research and development expenses increased to $1.3 million in the first quarter of 1996 from $0.9 million in the first quarter of 1995, largely due to continued development in 1996 of technology to recover fiber and other valuable materials found in the residue of papermaking and paper-recycling operations. Interest expense decreased to $172,000 in 1996 from $348,000 in 1995, due primarily to the January 1996 repayment of a $10.4 million promissory note to Thermo Electron Corporation (Thermo Electron). The effective tax rate was 39% in the first quarter of 1996 and 1995. This 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 $76.2 million at March 30, 1996, compared with $70.9 million at December 30, 1995. Included in working capital are cash, cash equivalents, and available-for-sale investments of $55.4 million at March 30, 1996, compared with $59.8 million at December 30, 1995. Of the $55.4 million balance at March 30, 1996, $3.0 million was held by Fiberprep, and the remainder by the Company and its wholly owned subsidiaries. During the first quarter of 1996, $5.8 million of cash was provided by operating activities. Cash provided by a decrease in accounts receivable was substantially offset by the effect of a reduction in accounts payable and other current liabilities. During the first quarter of 1996 the Company repaid a $10.4 million promissory note to Thermo Electron. 8PAGE THERMO FIBERTEK INC. Liquidity and Capital Resources (continued) At March 30, 1996, $18.2 million of the Company's cash and cash equivalents were held by its Lamort subsidiary. Repatriation of this cash into the United States is subject to a 5% withholding tax in France and could also be subject to a United States tax. In the remainder of 1996, the Company plans to make capital expenditures of approximately $3.9 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 6 - Exhibits See Exhibit Index on the page immediately preceding exhibits. 9PAGE 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 3rd day of May 1996. THERMO FIBERTEK INC. Paul F. Kelleher -------------------- Paul F. Kelleher Chief Accounting Officer John N. Hatsopoulos -------------------- John N. Hatsopoulos Chief Financial Officer 10PAGE THERMO FIBERTEK INC. Exhibit Index Exhibit Number Description of Exhibit Page --------------------------------------------------------------------------- 11 Statement re: Computation of earnings per share. 27 Financial Data Schedule.