Exhibit 13
THERMO FIBERTEK INC.
Consolidated Financial Statements
1997
PAGE
Thermo Fibertek Inc. 1997 Financial Statements
Consolidated Statement of Income
(In thousands except per share amounts) 1997 1996 1995
------------------------------------------------------------------------
Revenues (includes $1,876 and $14,737
from related party in 1996 and 1995;
Notes 9 and 13) $239,642 $192,209 $206,743
-------- -------- --------
Costs and Operating Expenses:
Cost of revenues (includes $639 and
$8,797 for related-party revenues
in 1996 and 1995; Note 9) 145,159 109,537 123,094
Selling, general, and administrative
expenses (Note 9) 60,675 47,093 48,659
Research and development expenses 6,814 5,460 4,061
Restructuring costs (Note 11) 1,063 - -
-------- -------- --------
213,711 162,090 175,814
-------- -------- --------
Operating Income 25,931 30,119 30,929
Interest Income 7,325 3,568 3,497
Interest Expense (3,419) (123) (188)
Interest Expense, Related Party (Note 8) (1,411) (540) (1,178)
-------- -------- --------
Income Before Provision for Income
Taxes and Minority Interest 28,426 33,024 33,060
Provision for Income Taxes (Note 7) 11,011 12,684 12,578
Minority Interest Expense 989 446 233
-------- -------- --------
Net Income $ 16,426 $ 19,894 $ 20,249
======== ======== ========
Earnings per Share (Note 14):
Basic $ .27 $ .33 $ .33
======== ======== ========
Diluted $ .26 $ .31 $ .32
======== ======== ========
Weighted Average Shares (Note 14):
Basic 61,384 61,040 60,785
======== ======== ========
Diluted 63,613 64,343 63,887
======== ======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
2PAGE
Thermo Fibertek Inc. 1997 Financial Statements
Consolidated Balance Sheet
(In thousands) 1997 1996
-----------------------------------------------------------------------
Assets
Current Assets:
Cash and cash equivalents $111,648 $109,805
Available-for-sale investments, at quoted
market value (amortized cost of $36,273 in
1997; Note 2) 36,319 -
Accounts receivable, less allowances of
$2,565 and $1,948 53,408 38,115
Unbilled contract costs and fees 4,422 1,236
Inventories 31,960 24,467
Prepaid and refundable income taxes (includes
$940 due from parent company in 1997; Note 7) 7,457 7,220
Other current assets 2,256 1,582
-------- --------
247,470 182,425
-------- --------
Property, Plant, and Equipment, at Cost, Net 28,336 26,540
-------- --------
Other Assets (Note 4) 14,437 8,720
-------- --------
Cost in Excess of Net Assets of Acquired
Companies (Note 3) 128,695 39,547
-------- --------
$418,938 $257,232
======== ========
3PAGE
Thermo Fibertek Inc. 1997 Financial Statements
Consolidated Balance Sheet (continued)
(In thousands except share amounts) 1997 1996
-----------------------------------------------------------------------
Liabilities and Shareholders' Investment
Current Liabilities:
Accounts payable $ 25,755 $ 16,805
Accrued payroll and employee benefits 10,588 10,989
Billings in excess of contract costs and fees 5,548 2,540
Accrued warranty costs 8,620 7,752
Accrued income taxes (includes $1,340 due to
parent company) - 2,414
Other accrued expenses 18,512 8,707
Due to parent company and affiliated
companies (Note 8) 1,451 17,609
-------- --------
70,474 66,816
-------- --------
Deferred Income Taxes and Other Deferred
Items (Note 7) 4,267 3,168
-------- --------
Long-term Obligations (Note 8) 153,000 34
-------- --------
Minority Interest (Note 3) 290 277
-------- --------
Commitments and Contingencies (Note 10)
Common Stock of Subsidiary Subject to Redemption
($54,762 and $60,116 redemption value; Note 1) 52,812 56,087
-------- --------
Shareholders' Investment (Notes 5 and 6):
Common stock, $.01 par value, 150,000,000
shares authorized; 63,331,887 and 61,154,930
shares issued 633 612
Capital in excess of par value 81,865 65,951
Retained earnings 82,607 66,181
Treasury stock at cost, 1,820,709 and 23,550
shares (19,494) (360)
Cumulative translation adjustment (7,545) (1,534)
Net unrealized gain on available-for-sale
investments (Note 2) 29 -
-------- --------
138,095 130,850
-------- --------
$418,938 $257,232
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
4PAGE
Thermo Fibertek Inc. 1997 Financial Statements
Consolidated Statement of Cash Flows
(In thousands) 1997 1996 1995
-----------------------------------------------------------------------
Operating Activities:
Net income $ 16,426 $ 19,894 $ 20,249
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 7,545 4,983 4,760
Provision for losses on
accounts receivable 362 (450) 440
Minority interest expense 989 446 233
Restructuring costs (Note 11) 1,063 - -
Deferred income tax expense
(benefit) 1,976 2,017 (1,876)
Other noncash items (479) (316) (111)
Changes in current accounts,
excluding the effects of
acquisitions:
Accounts receivable (1,878) 5,724 (8,052)
Inventories and unbilled
contract costs and fees (1,183) 3,139 (3,113)
Other current assets (625) 1,468 398
Accounts payable (3,344) (3,436) 3,731
Other current liabilities 68 (6,417) 1,718
--------- --------- ---------
Net cash provided by operating
activities 20,920 27,052 18,377
--------- --------- ---------
Investing Activities:
Acquisitions, net of cash acquired
(Note 3) (103,403) (12,066) (12,783)
Advances under notes receivable (3,000) (6,000) -
Repayment of notes receivable 3,000 - 150
Purchases of available-for-sale
investments (48,050) - -
Proceeds from sale and maturities
of available-for-sale investments 12,256 2,750 4,700
Purchases of property, plant, and
equipment (3,793) (3,936) (3,493)
Other 117 (150) 440
--------- --------- ---------
Net cash used in investing activities $(142,873) $ (19,402) $ (10,986)
--------- --------- ---------
5PAGE
Thermo Fibertek Inc. 1997 Financial Statements
Consolidated Statement of Cash Flows (continued)
(In thousands) 1997 1996 1995
-----------------------------------------------------------------------
Financing Activities:
Net proceeds from issuance of
subordinated convertible
debentures (Note 8) $ 149,768 $ - $ -
Issuance of obligations to parent
company (Note 8) 110,000 - 10,400
Repayment of obligations to parent
company (Note 8) (110,000) (10,400) -
Purchases of Company and subsidiary
common stock (23,951) - -
Net proceeds from issuance of
Company and subsidiary common
stock 1,069 55,923 235
Repayment of long-term obligations (32) - (385)
--------- --------- ---------
Net cash provided by financing
activities 126,854 45,523 10,250
--------- --------- ---------
Exchange Rate Effect on Cash (3,058) (396) 2,137
--------- --------- ---------
Increase in Cash and Cash Equivalents 1,843 52,777 19,778
Cash and Cash Equivalents at
Beginning of Year 109,805 57,028 37,250
--------- --------- ---------
Cash and Cash Equivalents at End
of Year $ 111,648 $ 109,805 $ 57,028
========= ========= =========
Cash Paid For:
Interest $ 1,714 $ 662 $ 1,391
Income taxes $ 10,593 $ 12,625 $ 14,760
Noncash Activities:
Fair value of assets of acquired
companies $ 127,649 $ 12,310 $ -
Cash paid for acquired companies (103,415) (12,070) -
--------- --------- ---------
Liabilities assumed of acquired
companies $ 24,234 $ 240 $ -
========= ========= =========
Conversion of subordinated
convertible note by parent
company (Note 8) $ 15,000 $ - $ -
========= ========= =========
Issuance of Company common stock
in connection with the redemption
of Fiberprep stock (Note 3) $ - $ - $ 1,428
========= ========= =========
The accompanying notes are an integral part of these consolidated
financial statements.
6PAGE
Thermo Fibertek Inc. 1997 Financial Statements
Consolidated Statement of Shareholders' Investment
(In thousands) 1997 1996 1995
------------------------------------------------------------------------
Common Stock, $.01 Par Value
Balance at beginning of year $ 612 $ 406 $ 269
Issuance of stock under employees'
and directors' stock plans 2 2 1
Conversion of 3 1/2% subordinated
convertible note (Note 8) 19 - -
Effect of three-for-two stock splits - 204 135
Issuance of Company common stock in
connection with the redemption of
Fiberprep stock (Note 3) - - 1
-------- -------- --------
Balance at end of year 633 612 406
-------- -------- --------
Capital in Excess of Par Value
Balance at beginning of year 65,951 65,222 62,954
Issuance of stock under employees'
and directors' stock plans 42 54 680
Tax benefit related to employees'
and directors' stock plans 363 781 296
Conversion of 3 1/2% subordinated
convertible note (Note 8) 14,981 - -
Effect of three-for-two stock splits - (204) (135)
Issuance of Company common stock in
connection with the redemption of
Fiberprep stock (Note 3) - - 1,427
Effect of purchases of subsidiary
common stock (Note 1) 528 98 -
-------- -------- --------
Balance at end of year 81,865 65,951 65,222
-------- -------- --------
Retained Earnings
Balance at beginning of year 66,181 46,287 26,038
Net income 16,426 19,894 20,249
-------- -------- --------
Balance at end of year 82,607 66,181 46,287
-------- -------- --------
Treasury Stock
Balance at beginning of year (360) (446) -
Purchases of Company common stock (20,159) - -
Activity under employees' and
directors' stock plans 1,025 86 (446)
-------- -------- --------
Balance at end of year (19,494) (360) (446)
-------- -------- --------
Cumulative Translation Adjustment
Balance at beginning of year (1,534) (1,840) (4,539)
Translation adjustment (6,011) 306 2,699
-------- -------- --------
Balance at end of year $ (7,545) $ (1,534) $ (1,840)
-------- -------- --------
7PAGE
Thermo Fibertek Inc. 1997 Financial Statements
Consolidated Statement of Shareholders' Investment (continued)
(In thousands) 1997 1996 1995
------------------------------------------------------------------------
Net Unrealized Gain on Available-
for-sale Investments
Balance at beginning of year $ - $ 2 $ (26)
Change in net unrealized gain on
available-for-sale investments
(Note 2) 29 (2) 28
-------- -------- --------
Balance at end of year 29 - 2
-------- -------- --------
Total Shareholders' Investment $138,095 $130,850 $109,631
======== ======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
8PAGE
Thermo Fibertek Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations
Thermo Fibertek Inc. (the Company) designs and manufactures
processing machinery, accessories, and water-management systems 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; 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.
Relationship with Thermo Electron Corporation
The Company was incorporated in November 1991 as a wholly owned
subsidiary of Thermo Electron. As of January 3, 1998, Thermo Electron
owned 55,150,063 shares of the Company's common stock, representing 90%
of such stock outstanding.
Principles of Consolidation
The accompanying financial statements include the accounts of the
Company, its wholly owned subsidiaries, its 71%-owned public subsidiary
Thermo Fibergen Inc., and its 95%-owned Fiberprep, Inc. subsidiary. All
significant intercompany accounts and transactions have been eliminated.
Fiscal Year
The Company has adopted a fiscal year ending the Saturday nearest
December 31. References to 1997, 1996, and 1995 are for the fiscal years
ended January 3, 1998, December 28, 1996, and December 30, 1995,
respectively. The Company's E. & M. Lamort, S.A. subsidiary, based in
France, has a fiscal year ending on the Saturday nearest November 30 to
allow sufficient time for the Company to receive Lamort's financial
statements. Fiscal year 1997 included 53 weeks; 1996 and 1995 each
included 52 weeks.
Revenue Recognition
The Company recognizes the majority of its revenues upon shipment of
its products. The Company provides a reserve for its estimate of warranty
costs at the time of shipment. In addition, revenues and profits on large
contracts are recognized using the percentage-of- completion method.
Revenues recorded under the percentage-of-completion method were
$37,733,000 in 1997, $31,066,000 in 1996, and $51,741,000 in 1995. The
percentage of completion is determined by relating the actual costs
incurred to date to management's estimate of total costs to be incurred
on each contract. If a loss is indicated on any contract in process, a
provision is made currently for the entire loss. The Company's contracts
generally provide for billing of customers upon the attainment of certain
milestones specified in each contract. Revenues earned on contracts in
process in excess of billings are classified as unbilled contract costs
and fees, and amounts billed in excess of revenues are classified as
billings in excess of contract costs and fees in the accompanying balance
sheet. There are no significant amounts included in the accompanying
balance sheet that are not expected to be recovered from existing
9PAGE
Thermo Fibertek Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
contracts at current contract values, or that are not expected to be
collected within one year, including amounts that are billed but not paid
under retainage provisions.
Stock-based Compensation Plans
The Company applies Accounting Principles Board Opinion (APB) No. 25,
"Accounting for Stock Issued to Employees" and related interpretations in
accounting for its stock-based compensation plans (Note 5). Accordingly,
no accounting recognition is given to stock options granted at fair
market value until they are exercised. Upon exercise, net proceeds,
including tax benefits realized, are credited to equity.
Income Taxes
The Company and Thermo Electron have a tax allocation agreement under
which the Company and its subsidiaries, exclusive of its foreign
operations, its Fiberprep subsidiary, and, beginning in 1996, its Thermo
Fibergen subsidiary, are included in the consolidated federal and certain
state income tax returns filed by Thermo Electron. The agreement provides
that in years in which these entities have taxable income, the Company
will pay to Thermo Electron amounts comparable to the taxes it would have
paid if the Company had filed separate tax returns. If Thermo Electron's
equity ownership of the Company were to drop below 80%, the Company would
be required to file its own federal income tax returns.
In accordance with Statement of Financial Accounting Standards (SFAS)
No. 109, "Accounting for Income Taxes," the Company recognizes deferred
income taxes based on the expected future tax consequences of differences
between the financial statement basis and the tax basis of assets and
liabilities calculated using enacted tax rates in effect for the year in
which the differences are expected to be reflected in the tax return.
Earnings per Share
During the fourth quarter of 1997, the Company adopted SFAS No. 128,
"Earnings per Share" (Note 14). As a result, all previously reported
earnings per share have been restated; however, basic and diluted
earnings per share equals the Company's previously reported primary and
fully diluted earnings per share, respectively, for the 1996 and 1995
periods presented. Basic earnings per share have been computed by
dividing net income by the weighted average number of shares outstanding
during the year. Diluted earnings per share have been computed assuming
the conversion of convertible obligations and the elimination of the
related interest expense, and the exercise of stock options, as well as
their related income tax effects.
Stock Split
All share and per share information has been restated to reflect a
three-for-two stock split, effected in the form of a 50% stock dividend,
distributed in June 1996.
10PAGE
Thermo Fibertek Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
Cash and Cash Equivalents
At year-end 1997 and 1996, $62,550,000 and $75,566,000, respectively,
of the Company's cash equivalents were invested in a repurchase agreement
with Thermo Electron. Under this agreement, the Company in effect lends
excess cash to Thermo Electron, which Thermo Electron collateralizes with
investments principally consisting of corporate notes, commercial paper,
U.S. government-agency securities, money market funds, and other
marketable securities, in the amount of at least 103% of such obligation.
The Company's funds subject to the repurchase agreement are readily
convertible into cash by the Company. The repurchase agreement earns a
rate based on the 90-day Commercial Paper Composite Rate plus 25 basis
points, set at the beginning of each quarter. The Company's cash
equivalents also include $15,964,000 of U.S. government-agency securities
at year-end 1997 and money market fund investments of the Company's
foreign subsidiaries at year-end 1997 and 1996, which have original
maturities of three months or less. Cash equivalents are carried at cost,
which approximates market value.
Inventories
Inventories are stated at the lower of cost (on a first-in, first-
out or weighted average basis) or market value and include materials,
labor, and manufacturing overhead. The components of inventories are as
follows:
(In thousands) 1997 1996
-----------------------------------------------------------------------
Raw materials and supplies $14,609 $13,778
Work in process 6,426 4,180
Finished goods 10,925 6,509
------- -------
$31,960 $24,467
======= =======
11PAGE
Thermo Fibertek Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
Property, Plant, and Equipment
The costs of additions and improvements are capitalized, while
maintenance and repairs are charged to expense as incurred. The Company
provides for depreciation and amortization using the straight-line method
over the estimated useful lives of the property as follows: buildings, 15
to 50 years; machinery and equipment, 2 to 15 years; and leasehold
improvements, the shorter of the term of the lease or the life of the
asset. Property, plant, and equipment consists of the following:
(In thousands) 1997 1996
-----------------------------------------------------------------------
Land $ 3,070 $ 3,127
Buildings 19,493 19,166
Machinery, equipment, and leasehold improvements 38,496 35,576
------- -------
61,059 57,869
Less: Accumulated depreciation and amortization 32,723 31,329
------- -------
$28,336 $26,540
======= =======
Other Assets
Other assets in the accompanying 1997 balance sheet includes the cost
of a noncompete agreement entered into in connection with the acquisition
of the stock-preparation business of Black Clawson Company and its
affiliates and, in the accompanying 1997 and 1996 balance sheet, includes
patents and a $6,000,000 note receivable (Note 4). The noncompete
agreement and patents are amortized using the straight-line method over
periods of 10 and 12 years, respectively. These assets aggregate
$3,700,000 and $958,000, net of accumulated amortization of $300,000 and
$42,000, at year-end 1997 and 1996, respectively.
Cost in Excess of Net Assets of Acquired Companies
The excess of cost over the fair value of net assets of acquired
companies is amortized using the straight-line method principally over 40
years. Accumulated amortization was $5,726,000 and $3,521,000 at year-end
1997 and 1996, respectively. The Company assesses the future useful life
of this asset whenever events or changes in circumstances indicate that
the current useful life has diminished. The Company considers the future
undiscounted cash flows of the acquired companies in assessing the
recoverability of this asset. If impairment has occurred, any excess of
carrying value over fair value is recorded as a loss.
Common Stock of Subsidiary Subject to Redemption
In September 1996, Thermo Fibergen sold 4,715,000 units, each unit
consisting of one share of Thermo Fibergen common stock and one
redemption right, in an initial public offering at $12.75 per unit for
net proceeds of $55,781,000. The common stock and redemption rights began
trading separately on December 13, 1996. Holders of a redemption right
12PAGE
Thermo Fibertek Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
have the option to require Thermo Fibergen to redeem one share of Thermo
Fibergen common stock at $12.75 per share in September 2000 or 2001. The
redemption rights carry terms that generally provide for their expiration
if the closing price of Thermo Fibergen's common stock exceeds $19 1/8
for 20 of any 30 consecutive trading days prior to September 2001. The
difference between the redemption value and the original carrying amount
of common stock of subsidiary subject to redemption is accreted 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. The Company has agreed to
reimburse Thermo Electron in the event Thermo Electron is required to
make a payment under the guarantee.
During 1997, the Company purchased 419,950 shares of Thermo Fibergen
common stock, resulting in a reduction of common stock of subsidiary
subject to redemption and an increase in capital in excess of par value.
Foreign Currency
All assets and liabilities of the Company's foreign subsidiaries are
translated at year-end exchange rates, and revenues and expenses are
translated at average exchange rates for the year, in accordance with
SFAS No. 52, "Foreign Currency Translation." Resulting translation
adjustments are reflected as a separate component of shareholders'
investment titled "Cumulative translation adjustment." Foreign currency
transaction gains and losses are included in the accompanying statement
of income and are not material for the three years presented.
Forward Contracts
The Company uses short-term forward foreign exchange contracts to
manage certain exposures to foreign currencies. The Company enters into
forward contracts to hedge firm purchase and sale commitments denominated
in currencies other than its subsidiaries' local currencies. These
contracts principally hedge transactions denominated in U.S. dollars,
British pounds sterling, French francs, and Japanese yen. 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. Gains and losses arising from
forward foreign exchange contracts are recognized as offsets to gains and
losses resulting from the transactions being hedged. The Company does not
enter into speculative foreign currency agreements.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
13PAGE
Thermo Fibertek Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
2. Available-for-sale Investments
In accordance with SFAS No. 115, "Accounting for Certain Investments
in Debt and Equity Securities," the Company's debt securities are
considered available-for-sale investments in the accompanying 1997
balance sheet and are carried at market value, with the difference
between cost and market value, net of related tax effects, recorded
currently as a component of shareholders' investment titled "Net
unrealized gain on available-for-sale investments."
The aggregate market value, cost basis, and gross unrealized gains of
available-for-sale investments at year-end 1997 by major security type
are as follows:
Gross
Market Cost Unrealized
(In thousands) Value Basis Gains
------------------------------------------------------------------------
Government-agency securities $35,826 $35,780 $ 46
Other 493 493 -
------- ------- -------
$36,319 $36,273 $ 46
======= ======= =======
Available-for-sale investments in the accompanying 1997 balance sheet
includes $24,657,000 with contractual maturities of one year or less and
$11,662,000 with contractual maturities of more than one year through
five years. Actual maturities may differ from contractual maturities as a
result of the Company's intent to sell these securities prior to maturity
and as a result of put and call options that enable either the Company,
the issuer, or both to redeem these securities at an earlier date.
The cost of available-for-sale investments that were sold was based
on specific identification.
3. Acquisitions
In May 1997, the Company acquired a majority of the assets, subject
to certain liabilities, of the stock-preparation business of Black
Clawson Company and affiliates. In August 1997, the Company acquired the
remaining assets of the stock-preparation business of Black Clawson
Company and affiliates. This business has been renamed Thermo Black
Clawson. The aggregate purchase price was approximately $103.4 million in
cash. The Company is in the process of negotiating final adjustments to
the purchase price in accordance with the purchase agreement. Management
believes that any adjustments related to these final purchase price
negotiations will not be material. Thermo Black Clawson is a leading
supplier of recycling equipment used in processing fiber for the
production of "brown paper," such as that used in the manufacture of
corrugated boxes.
14PAGE
Thermo Fibertek Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
3. Acquisitions (continued)
Pursuant to a promissory note, the Company borrowed $110.0 million
from Thermo Electron to finance the acquisition. The note was repaid in
July 1997 with the net proceeds from the sale of long-term subordinated
convertible debentures. (Note 8)
In July 1996, Thermo Fibergen acquired substantially all of the
assets, subject to certain liabilities, of Granulation Technology, Inc.
and Biodac, a division of Edward Lowe Industries, Inc. for $12,070,000 in
cash. This business has been renamed GranTek Inc.
In January 1995, the Company increased its ownership of Fiberprep
from 51% to 95% through a redemption by Fiberprep of a portion of its
stock owned by Aikawa Iron Works Co., Ltd. (Aikawa) for a total purchase
price equal to (a) $12,783,000 in cash, including a royalty payment of
$845,000, (b) a ten-year 1% royalty on sales of certain Aikawa products,
and (c) the issuance of 225,000 shares of the Company's common stock. The
accompanying statement of income includes royalty expense in connection
with this agreement of $49,000, $66,000, and $258,000 in 1997, 1996, and
1995 respectively.
These acquisitions have been accounted for using the purchase method
of accounting and their results of operations have been included in the
accompanying financial statements from their respective dates of
acquisition. The aggregate cost of these acquisitions exceeded the
estimated fair value of the acquired net assets by $104,013,000, which is
being amortized principally over 40 years. Allocation of the purchase
price for these acquisitions was based on estimates of the fair value of
the net assets acquired.
Based on unaudited data, the following table presents selected
financial information for the Company and Thermo Black Clawson on a pro
forma basis, assuming the companies had been combined since the beginning
of 1996. Pro forma data is not presented for the acquisition of GranTek
since the acquisition was not material to the Company's results of
operations.
(In thousands except per share amounts) 1997 1996
------------------------------------------------------------------------
Revenues $282,376 $290,636
Net income 16,093 17,373
Earnings per share:
Basic .26 .28
Diluted .25 .27
The pro forma results are not necessarily indicative of future
operations or the actual results that would have occurred had the
acquisition of Thermo Black Clawson been made at the beginning of 1996.
15PAGE
Thermo Fibertek Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
4. Note Receivable
During 1996, the Company loaned $6.0 million to Tree-Free Fiber
Company, LLC (Tree-Free) 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
recent insolvency. Tree-Free was unable to repay the note upon its
original maturity and the Company consented to several payment
extensions. In July 1997, the Company restructured the note from
Tree-Free into two promissory notes aggregating $6.5 million, which
represent the original principal amount due to the Company plus interest
accrued through the date of the restructuring. One such promissory note,
for $3.0 million, is secured by a first priority security interest, pari
passu with a security interest held by another lender, on certain real
estate and equipment, and a second priority security interest, pari passu
with a security interest held by another lender, on inventories and
accounts receivable. The second promissory note, for $3.5 million, is
secured by a first priority security interest in the membership (equity)
interests of the equity owners of Tree-Free and certain other assets and
is subordinate to other borrowings. In December 1997, the Company and the
other secured lenders petitioned the court for an assignment of a
receiver to preserve and protect the collateral of the loans. Tree-Free's
principal asset is a tissue mill. The secured creditors, through the
power of a secured creditor sale, intend to sell the tissue mill at one
or more public or private transactions as soon as practicable. The
Company will review the bids and make a determination as to whether it
will accept one or more of the bids, or instead, purchase the tissue mill
itself for the full amount of the secured debt, or a portion thereof. If
the Company purchases the tissue mill, the Company will begin operating
it with the intent of selling it as a going concern in a private sale.
The Company believes that the fair value of its security exceeds the sum
of the carrying amount of the notes from Tree-Free and Tree-Free's
indebtedness to its secured third-party lenders; however, no assurance
can be given as to the outcome of a secured party sale, the timing of any
such sale of the tissue mill, or the amount of the proceeds that may be
received therefrom. The original note, in the amount of $6.0 million, is
included in other assets in the accompanying balance sheet.
5. Employee Benefit Plans
Stock-based Compensation Plans
Stock Option Plans
------------------
The Company maintains stock-based compensation plans for its key
employees, directors, and others. Two of these plans, adopted in 1991,
permit the grant of nonqualified and incentive stock options. A third
plan, adopted in 1994, permits the grant of a variety of stock and
stock-based awards as determined by the human resources committee of the
Company's Board of Directors (the Board Committee), including restricted
stock, stock options, stock bonus shares, or performance-based shares. To
date, only nonqualified stock options have been awarded under this plan.
The option recipients and the terms of options granted under these plans
16PAGE
Thermo Fibertek Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
5. Employee Benefit Plans (continued)
are determined by the Board Committee. Generally, options granted to date
are exercisable immediately, but are subject to certain transfer
restrictions and the right of the Company to repurchase shares issued
upon exercise of the options at the exercise price, upon certain events.
The restrictions and repurchase rights generally lapse ratably over a
five- to ten-year period, depending on the term of the option, which may
range from five to twelve years. In addition, under certain options,
shares acquired upon exercise are restricted from resale until retirement
or other events. Nonqualified options may be granted at any price
determined by the Board Committee, although incentive stock options must
be granted at not less than the fair market value of the Company's stock
on the date of grant. To date, all options have been granted at fair
market value. The Company also has a directors' stock option plan,
adopted in 1991, that provides for the grant of stock options to outside
directors pursuant to a formula approved by the Company's shareholders.
Options awarded under this plan are exercisable six months after the date
of grant and generally expire three or seven years after the date of
grant. In addition to the Company's stock-based compensation plans,
certain officers and key employees may also participate in the
stock-based compensation plans of Thermo Electron.
A summary of the Company's stock option activity is as follows:
1997 1996 1995
--------------- ---------------- ----------------
Weighted Weighted Weighted
Number Average Number Average Number Average
(Shares in of Exercise of Exercise of Exercise
thousands) Shares Price Shares Price Shares Price
------------------------------------------------------------------------
Options outstanding,
beginning of year 3,570 $ 4.81 3,783 $ 4.52 3,782 $ 3.91
Granted 845 11.00 102 11.80 315 10.70
Exercised (396) 3.21 (282) 3.25 (236) 3.08
Forfeited (31) 9.85 (33) 6.15 (78) 4.53
----- ----- -----
Options outstanding,
end of year 3,988 $ 6.24 3,570 $ 4.81 3,783 $ 4.52
===== ====== ===== ====== ===== ======
Options exercisable 3,988 $ 6.24 3,570 $ 4.81 3,783 $ 4.52
===== ====== ===== ====== ===== ======
Options available
for grant 1,596 2,410 2,478
===== ===== =====
17PAGE
Thermo Fibertek Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
5. Employee Benefit Plans (continued)
A summary of the status of the Company's stock options at January 3,
1998, is as follows:
Options Outstanding and Exercisable
------------------------------------
Weighted
Average Weighted
Number Remaining Average
Range of of Contractual Exercise
Exercise Prices Shares Life Price
-------------------------------------------------------------------------
(Shares in thousands)
$ 3.00 - $ 5.83 1,784 2.2 years $ 3.00
5.84 - 8.66 971 6.8 years 6.15
8.67 - 11.49 1,204 7.5 years 10.91
11.50 - 14.32 29 10.2 years 14.32
-----
$ 3.00 - $14.32 3,988 5.0 years $ 6.24
=====
Employee Stock Purchase Program
-------------------------------
Substantially all of the Company's full-time U.S. employees are
eligible to participate in an employee stock purchase program sponsored
by the Company and Thermo Electron. Under this program, shares of the
Company's and Thermo Electron's common stock can be purchased at the end
of a 12-month period at 95% of the fair market value at the beginning of
the period, and the shares purchased are subject to a six-month resale
restriction. Prior to November 1, 1995, the applicable shares of common
stock could be purchased at 85% of the fair market value at the beginning
of the period, and the shares purchased were subject to a one-year resale
restriction. Shares are purchased through payroll deductions of up to 10%
of each participating employee's gross wages. During 1997, 1996, and
1995, the Company issued 28,778 shares, 30,830 shares, and 38,981 shares,
respectively, of its common stock under this program.
Pro Forma Stock-based Compensation Expense
In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, "Accounting for Stock-Based Compensation," which sets forth a
fair-value based method of recognizing stock-based compensation expense.
As permitted by SFAS No. 123, the Company has elected to continue to
apply APB No. 25 to account for its stock-based compensation plans. Had
compensation cost for awards granted in 1997, 1996, and 1995 under the
Company's stock-based compensation plans been determined based on the
fair value at the grant dates consistent with the method set forth under
18PAGE
Thermo Fibertek Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
5. Employee Benefit Plans (continued)
SFAS No. 123, the effect on the Company's net income and earnings per
share would have been as follows:
(In thousands except
per share amounts) 1997 1996 1995
------------------------------------------------------------------------
Net income:
As reported $16,426 $19,894 $20,249
Pro forma 15,552 19,454 20,118
Basic earnings per share:
As reported .27 .33 .33
Pro forma .25 .32 .33
Diluted earnings per share:
As reported .26 .31 .32
Pro forma .25 .31 .32
Because the method prescribed by SFAS No. 123 has not been applied to
options granted prior to January 1, 1995, the resulting pro forma
compensation expense may not be representative of the amount to be
expected in future years. Pro forma compensation expense for options
granted is reflected over the vesting period; therefore, future pro forma
compensation expense may be greater as additional options are granted.
The weighted average fair value per share of options granted was
$5.25, $3.89, and $3.60 in 1997, 1996, and 1995, respectively. The fair
value of each option grant was estimated on the grant date using the
Black-Scholes option-pricing model with the following weighted-average
assumptions:
1997 1996 1995
-------------------------------------------------------------------------
Volatility 35% 26% 26%
Risk-free interest rate 6.6% 5.9% 5.9%
Expected life of options 6.4 years 4.7 years 4.6 years
The Black-Scholes option-pricing model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option-pricing
models require the input of highly subjective assumptions including
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of
the fair value of its employee stock options.
401(k) Savings Plan
Three of the Company's domestic subsidiaries participate in Thermo
Electron's 401(k) savings plan. Contributions to the plan are made by
both the employee and the Company. Company contributions are based upon
the level of employee contributions. For this plan, the Company
19PAGE
Thermo Fibertek Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
5. Employee Benefit Plans (continued)
contributed and charged to expense $719,000, $449,000, and $449,000 in
1997, 1996, and 1995, respectively.
Profit-sharing Plans
One of the Company's domestic subsidiaries has adopted a profit-
sharing plan under which the Company annually contributes 10% of the
subsidiary's profit-sharing net income, which equals net income before
profit-sharing expense. All contributions are immediately vested. In
addition, one of the Company's foreign subsidiaries maintains a
state-mandated profit-sharing plan and a voluntary profit-sharing plan,
which the Company has agreed with its trade unions to maintain. Under the
state-mandated plan, the Company contributes 0-13% of the subsidiary's
net profit after taxes reduced by 5% of its shareholders' investment.
Contributions become fully vested after five years. The voluntary plan
provides for the subsidiary to contribute 8-10% of profit after taxes in
excess of 5% of its revenues. Contributions become fully vested in May of
the following year. For these plans, the Company contributed and charged
to expense $1,125,000, $1,263,000, and $1,215,000 in 1997, 1996, and
1995, respectively.
Other Retirement Plans
In addition, certain of the Company's subsidiaries offer other
retirement plans in addition to the Thermo Electron 401(k) savings plan
and profit-sharing plans. The majority of these subsidiaries offer
defined contribution plans. Company contributions to these plans are
based on formulas determined by the Company. For these plans, the Company
contributed and charged to expense $1,636,000, $1,989,000, and $1,874,000
in 1997, 1996, and 1995, respectively.
6. Common Stock
At January 3, 1998, the Company had reserved 18,962,542 unissued
shares of its common stock for possible issuance under stock-based
compensation plans and for issuance upon possible conversion of the
Company's subordinated convertible debentures.
7. Income Taxes
The components of income before provision for income taxes and
minority interest in the accompanying statement of income are as follows:
(In thousands) 1997 1996 1995
-----------------------------------------------------------------------
Domestic $17,017 $17,515 $20,472
Foreign 11,409 15,509 12,588
------- ------- -------
$28,426 $33,024 $33,060
======= ======= =======
20PAGE
Thermo Fibertek Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
7. Income Taxes (continued)
The components of the provision for income taxes in the accompanying
statement of income are as follows:
(In thousands) 1997 1996 1995
-----------------------------------------------------------------------
Currently payable:
Federal $ 3,624 $ 5,672 $ 7,915
Foreign 4,367 3,382 4,776
State 1,044 1,613 1,763
------- ------- -------
9,035 10,667 14,454
------- ------- -------
Deferred (prepaid), net:
Federal 1,852 142 (1,312)
Foreign (338) 1,813 (286)
State 462 62 (278)
------- ------- -------
1,976 2,017 (1,876)
------- ------- -------
$11,011 $12,684 $12,578
======= ======= =======
The Company receives a tax deduction upon exercise of nonqualified
stock options by employees for the difference between the exercise price
and the market price of the Company's common stock on the date of
exercise. The provision for income taxes that is currently payable does
not reflect $363,000, $781,000, and $296,000 of tax benefits from
exercises of stock options that have been allocated to capital in excess
of par value in 1997, 1996, and 1995, respectively.
The deferred provision for income taxes in 1995 does not reflect
$2,409,000 of tax benefits used to reduce cost in excess of net assets of
acquired companies.
The provision for income taxes in the accompanying statement of
income differs from the provision calculated by applying the statutory
federal income tax rate of 35% to income before provision for income
taxes and minority interest due to the following:
(In thousands) 1997 1996 1995
-----------------------------------------------------------------------
Provision for income taxes at
statutory rate $ 9,949 $11,558 $11,571
Increases (decreases) resulting from:
State income taxes, net of federal tax 980 1,089 965
Dividend from foreign subsidiary, net
of tax credits - - 709
Foreign tax rate and tax regulation
differential 36 (233) (434)
Nondeductible expenses 163 150 147
Other (117) 120 (380)
------- ------- -------
$11,011 $12,684 $12,578
======= ======= =======
21PAGE
Thermo Fibertek Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
7. Income Taxes (continued)
Prepaid income taxes and deferred income taxes in the accompanying
balance sheet consist of the following:
(In thousands) 1997 1996
-----------------------------------------------------------------------
Prepaid income taxes:
Reserves and accruals $5,298 $5,087
Inventory basis difference 1,253 1,263
Accrued compensation 227 602
Allowance for doubtful accounts 308 268
------ ------
$7,086 $7,220
====== ======
Deferred income taxes, net:
Amortization of intangible assets $1,837 $ 496
Depreciation 283 184
Foreign taxes 549 633
------ ------
$2,669 $1,313
====== ======
The Company has not recognized a deferred tax liability for the
difference between the book basis and the tax basis of its investment in
the stock of its domestic subsidiaries (such difference relates primarily
to unremitted earnings by subsidiaries) because it does not expect this
basis difference to become subject to tax at the parent level. The
Company believes it can implement certain tax strategies to recover its
investment in its domestic subsidiaries tax free.
A provision has not been made for U.S. or additional foreign taxes on
$56.9 million of undistributed earnings of foreign subsidiaries that
could be subject to tax if remitted to the U.S. because the Company
currently plans to keep these amounts permanently reinvested overseas.
The Company believes that any additional U.S. tax liability due upon
remittance of such earnings would be immaterial due to available U.S.
foreign tax credits.
8. Short- and Long-term Obligations
In connection with the acquisition of Thermo Black Clawson, the
Company borrowed $110.0 million from Thermo Electron in May 1997. The
promissory note bore interest at the 90-day Commercial Paper Composite
Rate plus 25 basis points, set at the beginning of each quarter. In July
1997, the Company issued and sold at par $153.0 million principal amount
of 4 1/2% subordinated convertible debentures due 2004 for net proceeds
of approximately $149.8 million. The debentures are convertible into
shares of the Company's common stock at a conversion price of $12.10 per
share and are guaranteed on a subordinated basis by Thermo Electron. In
July 1997, the Company repaid the $110.0 million promissory note due to
Thermo Electron with a portion of the net proceeds from the sale of
subordinated convertible debentures.
22PAGE
Thermo Fibertek Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
8. Short- and Long-term Obligations (continued)
In February 1994, the Company issued to Thermo Electron a $15.0
million principal amount 3 1/2% subordinated convertible note due August
1997, convertible at $7.94 per share. The note was converted by Thermo
Electron during 1997 for 1,888,122 shares of Company common stock. This
note was included in "Due to parent company and affiliated companies" in
the accompanying 1996 balance sheet.
In January 1995, in connection with a partial redemption of Fiberprep
stock (Note 3), Fiberprep issued to Thermo Electron a $10.4 million
promissory note due January 1996, bearing interest at the Commercial
Paper Composite Rate plus 25 basis points, which was repaid in 1996.
See Note 12 for fair value information pertaining to the Company's
long-term obligations.
9. Related-party Transactions
Corporate Services Agreement
The Company and Thermo Electron have a corporate services agreement
under which Thermo Electron's corporate staff provides certain
administrative services, including certain legal advice and services,
risk management, certain employee benefit administration, tax advice and
preparation of tax returns, centralized cash management, and certain
financial and other services, for which the Company has paid Thermo
Electron annually an amount equal to 1.0% of the Company's revenues in
1997 and 1996 and 1.2% of the Company's revenues in 1995. For these
services, the Company was charged $2,396,000, $1,922,000, and $2,481,000
in 1997, 1996, and 1995, respectively. Beginning in fiscal 1998, the
Company will pay an annual fee equal to 0.8% of the Company's revenues.
The annual fee is reviewed and adjusted annually by mutual agreement of
the parties. Management believes that the service fee charged by Thermo
Electron is reasonable and that such fees are representative of the
expenses the Company would have incurred on a stand-alone basis. The
corporate services agreement is renewed annually but can be terminated
upon 30 days' prior notice by the Company or upon the Company's
withdrawal from the Thermo Electron Corporate Charter (the Thermo
Electron Corporate Charter defines the relationship among Thermo Electron
and its majority-owned subsidiaries). For additional items such as
employee benefit plans, insurance coverage, and other identifiable costs,
Thermo Electron charges the Company based upon costs attributable to the
Company.
Recycling Equipment Subcontract
In December 1994, Thermo Electron subcontracted with Fiberprep to
supply equipment and services to Thermo Electron, in its role as general
contractor on a turnkey contract with a customer for an office wastepaper
de-inking facility. The subcontract was substantially completed by
Fiberprep during 1996. Under this subcontract, the Company recorded
revenues of $1,876,000 and $14,737,000, and cost of revenues of $639,000
and $8,797,000, during 1996 and 1995, respectively.
23PAGE
Thermo Fibertek Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
9. Related-party Transactions (continued)
Repurchase Agreement
The Company invests excess cash in a repurchase agreement with Thermo
Electron as discussed in Note 1.
Short- and Long-term Obligations
See Note 8 for obligations of the Company held by Thermo Electron.
10. Commitments and Contingencies
Operating Leases
The Company occupies office and operating facilities under various
operating leases. The accompanying statement of income includes expenses
from operating leases of $1,998,000, $1,252,000, and $1,167,000 in 1997,
1996, and 1995, respectively. The future minimum payments due under
noncancelable operating leases as of January 3, 1998, are $1,415,000 in
1998; $795,000 in 1999; $285,000 in 2000; $184,000 in 2001; $123,000 in
2002; and $20,000 in 2003 and thereafter. Total future minimum lease
payments are $2,822,000.
Long-term Contract
In December 1997, Thermo Fibergen entered into a ten-year contract
with a paper mill to provide fiber-recovery and water-clarification
services to the paper mill. In addition, Thermo Fibergen and the paper
mill have entered into lease and services agreements, under which Thermo
Fibergen will lease land from the paper mill for a nominal fee and the
paper mill will provide certain utilities and services to Thermo
Fibergen. Thermo Fibergen has entered into an engineering, procurement,
and construction contract with a third party to construct the
fiber-recovery and water-clarification facility on the leased property.
Once operational, Thermo Fibergen will provide the paper mill with
fiber-recovery and water-clarification services for established monthly
fees. The contract with the paper mill may be canceled by either party at
the end of the fourth year of the contract, or within one year's notice
thereafter, if certain benefits or profitability levels are not achieved.
If the contract is canceled by either party, the customer will be
required to purchase the facility from Thermo Fibergen at its net book
value.
Contingencies
In the ordinary course of business the Company is often required to
issue limited performance guarantees relating to its equipment and
systems. The Company typically limits its liability under these
guarantees to the cost of the equipment. The Company believes that it has
adequate reserves for any potential liability in connection with such
guarantees.
24PAGE
Thermo Fibertek Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
11. Restructuring Costs
During 1997, the Company recorded restructuring costs of $1,063,000
relating to the consolidation of operations at its Fiberprep, Inc.
subsidiary and Lamort Paper Services Ltd. subsidiary (a subsidiary of E&M
Lamort, S.A. located in the United Kingdom) into the operations of Thermo
Black Clawson. The restructuring charges related primarily to severance
for 34 employees whose employment was terminated during 1997 and
abandoned-facility payments. Other accrued expenses in the accompanying
1997 balance sheet includes a remaining reserve of $0.2 million
associated with the consolidation of these operations.
12. Fair Value of Financial Instruments
The Company's financial instruments consist mainly of cash and cash
equivalents, available-for-sale investments, accounts receivable,
accounts payable, due to parent company and affiliated companies,
long-term obligations, and forward foreign exchange contracts. The
carrying amount of accounts receivable, accounts payable, and due to
parent company and affiliated companies, with the exception of the
subordinated convertible note in 1996 (Note 8), approximate fair value
due to their short-term nature.
Available-for-sale investments are carried at fair value in the
accompanying 1997 balance sheet. The fair values were determined based on
quoted market prices. See note 2 for fair value information pertaining to
these financial instruments.
The carrying amount and fair value of the Company's convertible
obligations, other long-term obligations, and off-balance-sheet financial
instruments are as follows:
1997 1996
------------------- -------------------
Carrying Fair Carrying Fair
(In thousands) Amount Value Amount Value
------------------------------------------------------------------------
Convertible obligations $153,000 $160,650 $ 15,000 $ 17,400
Other long-term obligations - - 34 34
-------- -------- -------- --------
$153,000 $160,650 $ 15,034 $ 17,434
======== ======== ======== ========
Off-balance-sheet financial
instruments:
Forward foreign exchange
contracts payable $ 22 $ 32
The fair value of debt obligations was determined based on quoted
market prices and on borrowing rates available to the Company at the
respective year-ends.
25PAGE
Thermo Fibertek Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
12. Fair Value of Financial Instruments (continued)
The Company had forward foreign exchange contracts of $1,728,000 and
$2,378,000 outstanding at year-end 1997 and 1996, respectively. The fair
value of such contracts is the estimated amount that the Company would
receive or pay upon termination of the contracts, taking into account the
change in foreign exchange rates.
13. Geographical Information
The Company is engaged in one business segment: the design and
manufacture of processing machinery, accessories, and water-management
systems for the paper and paper recycling industries. Revenues from the
paper recycling business were $93,585,000, $56,171,000, and $76,981,000
in 1997, 1996, and 1995, respectively. Revenues from the accessories
business were $82,968,000, $82,173,000, and $73,934,000 in 1997, 1996,
and 1995, respectively. Revenues from the water-management business were
$44,012,000, $39,950,000, and $40,835,000 in 1997, 1996, and 1995,
respectively. Revenues from the sale of other products were $19,077,000,
$13,915,000, and $14,993,000 in 1997, 1996, and 1995, respectively.
26PAGE
Thermo Fibertek Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
13. Geographical Information (continued)
The following table shows data for the Company by geographic area.
(In thousands) 1997 1996 1995
------------------------------------------------------------------------
Revenues:
United States $150,998 $102,118 $121,932
France 52,416 59,941 59,126
United Kingdom 22,804 14,644 14,930
Canada 20,173 19,496 18,274
Other 4,466 4,574 3,609
Transfers among geographic areas (a) (11,215) (8,564) (11,128)
-------- -------- --------
$239,642 $192,209 $206,743
======== ======== ========
Income before provision for income taxes
and minority interest:
United States $ 16,893 $ 16,053 $ 21,716
France 2,747 6,598 5,671
United Kingdom 2,510 3,081 1,732
Canada 3,949 3,549 2,924
Other 1,081 1,215 810
Corporate and eliminations (b) (1,249) (377) (1,924)
-------- -------- --------
Total operating income 25,931 30,119 30,929
Interest income, net 2,495 2,905 2,131
-------- -------- --------
$ 28,426 $ 33,024 $ 33,060
======== ======== ========
Identifiable assets:
United States $247,550 $131,540 $ 81,609
France 55,680 57,643 56,538
United Kingdom 29,318 24,496 20,868
Canada 18,193 15,687 13,769
Other 3,362 3,312 2,917
Corporate and eliminations (c) 64,835 24,554 23,970
-------- -------- --------
$418,938 $257,232 $199,671
======== ======== ========
Export revenues included in United
States revenues above (d) $ 20,140 $ 11,060 $ 19,012
======== ======== ========
(a) Transfers among geographic areas are accounted for at prices that are
representative of transactions with unaffiliated parties.
(b) Primarily general and administrative expenses.
(c) Primarily cash, cash equivalents, and available-for-sale investments.
(d) In general, export sales are denominated in U.S. dollars.
27PAGE
Thermo Fibertek Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
14. Earnings per Share
Basic and diluted earnings per share were calculated as follows:
(In thousands except per share amounts) 1997 1996 1995
-----------------------------------------------------------------------
Basic
Net income $16,426 $19,894 $20,249
------- ------- -------
Weighted average shares 61,384 61,040 60,785
------- ------- -------
Basic earnings per share $ .27 $ .33 $ .33
======= ======= =======
Diluted
Net income $16,426 $19,894 $20,249
Effect of:
Convertible obligations 188 315 315
Majority-owned subsidiary's
dilutive securities (76) - -
------- ------- -------
Income available to common
shareholders, as adjusted $16,538 $20,209 $20,564
------- ------- -------
Weighted average shares 61,384 61,040 60,785
Effect of:
Convertible obligations 1,126 1,888 1,888
Stock options 1,103 1,415 1,214
------- ------- -------
Weighted average shares, as adjusted 63,613 64,343 63,887
------- ------- -------
Diluted earnings per share $ .26 $ .31 $ .32
======= ======= =======
The computation of diluted earnings per share excludes the effect of
assuming the exercise of certain outstanding stock options because the
effect would be antidilutive. As of January 3, 1998, there were 30,000 of
such options outstanding, with an exercise price of $14.32 per share.
In addition, the computation of diluted earnings per share for 1997
excludes the effect of assuming the conversion of the Company's $153.0
million principal amount of 4 1/2% subordinated convertible debentures,
convertible at $12.10 per share, because the effect would be
antidilutive.
28PAGE
Thermo Fibertek Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
15. Unaudited Quarterly Information
(In thousands except per share amounts)
1997 First Second(a) Third Fourth
-----------------------------------------------------------------------
Revenues $44,667 $54,511 $67,606 $72,858
Gross profit 19,131 21,861 25,270 28,221
Net income 3,460 3,759 3,594 5,613
Earnings per share:
Basic .06 .06 .06 .09
Diluted .05 .06 .06 .09
1996 First Second Third Fourth
-----------------------------------------------------------------------
Revenues $48,980 $48,595 $46,124 $48,510
Gross profit 20,788 20,491 19,951 21,442
Net income 5,206 4,876 4,213 5,599
Earnings per share:
Basic .09 .08 .07 .09
Diluted .08 .08 .07 .09
(a) Reflects the May 1997 acquisition of Thermo Black Clawson and
borrowings to finance such acquisition.
29PAGE
Thermo Fibertek Inc. 1997 Financial Statements
Report of Independent Public Accountants
To the Shareholders and Board of Directors of Thermo Fibertek Inc.:
We have audited the accompanying consolidated balance sheet of Thermo
Fibertek Inc. (a Delaware corporation and 90%-owned subsidiary of Thermo
Electron Corporation) and subsidiaries as of January 3, 1998, and
December 28, 1996, and the related consolidated statements of income,
shareholders' investment, and cash flows for each of the three years in
the period ended January 3, 1998. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is
to express an opinion on these consolidated financial statements based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Thermo Fibertek Inc. and subsidiaries as of January 3, 1998, and December
28, 1996, and the results of their operations and their cash flows for
each of the three years in the period ended January 3, 1998, in
conformity with generally accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
February 9, 1998
30PAGE
Thermo Fibertek Inc. 1997 Financial Statements
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 immediately after this Management's Discussion
and Analysis of Financial Condition and Results of Operations under the
heading "Forward-looking Statements."
Overview
The Company designs and manufactures processing machinery,
accessories, and water-management systems 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; 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. The Company's Thermo Black Clawson subsidiary,
acquired May 1997, is a leading supplier of recycling equipment used in
processing fiber for the manufacture of "brown paper," such as that used
in the manufacture of corrugated boxes. The Company's Thermo Fibergen
Inc. subsidiary is developing and commercializing equipment and systems
to recover valuable materials from papermaking sludge generated by plants
that produce virgin and recycled pulp and paper. Through its GranTek Inc.
subsidiary, acquired July 1996, Thermo Fibergen employs patented
technology to produce absorbing granules from papermaking sludge.
The Company's manufacturing facilities are principally located in the
U.S. and France. The manufacturing facility in France is located at the
Company's E&M Lamort, S.A. subsidiary, which primarily manufactures
recycling equipment and accessories.
The Company's products are primarily sold to the paper industry.
Generally, the financial condition of the paper industry corresponds both
to changes in the general economy and to a number of other factors,
including paper and pulp production capacity. The paper industry entered
a severe downcycle in early 1996 and has not recovered. This cyclical
downturn adversely affected the Company's business during the second half
of 1996 and all of 1997. The timing of the recovery of the financial
condition of the paper industry cannot be predicted.
In 1997, approximately 37% of the Company's sales originated outside
the U.S., principally in Europe, and approximately 13% of the Company's
revenues were exports from the U.S. During 1997, the Company had exports
from the Company's U.S. and foreign operations to Asia of approximately
6% of total revenues, a substantial portion of which represents sales
from the Company's recently acquired Thermo Black Clawson subsidiary.
Exports to Asia in 1997 were primarily to China, Japan, and South Korea.
31PAGE
Thermo Fibertek Inc. 1997 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Overview (continued)
Asia is experiencing a severe economic crisis, which has been
characterized by sharply reduced economic activity and liquidity, highly
volatile foreign-currency-exchange and interest rates, and unstable stock
markets. The Company's sales to Asia could be adversely affected by the
unstable economic conditions in Asia.
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 enters
into forward contracts to hedge certain firm purchase and sale
commitments denominated in currencies other than its subsidiaries' local
currencies, principally U.S. dollars, British pounds sterling, French
francs, and Japanese yen. 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.
Results of Operations
1997 Compared With 1996
Revenues increased 25% to $239.6 million in 1997 from $192.2 million
in 1996, primarily due to the inclusion of $52.7 million in revenues from
Thermo Black Clawson, acquired May 1997, and GranTek, acquired July 1996.
Revenues from the Company's accessories and water-management businesses
increased, primarily due to an increase in demand. In addition, revenues
from dryers and pollution control equipment, not included in the
Company's three primary product lines, increased by $6.8 million,
principally due to large orders from various customers during 1997. These
improvements were substantially offset by a $11.3 million decrease in
revenues from the Company's recycling business, principally at the
Company's Fiberprep subsidiary, due to a continuing decrease in demand
resulting from a severe drop in de-inked pulp prices in the summer of
1996. The unfavorable effects of currency translation due to a stronger
U.S. dollar decreased 1997 revenues by $6.3 million.
The gross profit margin decreased to 39% in 1997 from 43% in 1996,
primarily due to the inclusion of lower-margin revenues at Thermo Black
Clawson.
Selling, general, and administrative expenses as a percentage of
revenues was unchanged at 25% in 1997 and 1996. Selling, general, and
administrative expenses as a percentage of revenues increased at Lamort,
due to a decrease in revenues, and at Thermo Fibergen, due to an increase
in selling, general, and administrative expenses, primarily as a result
of hiring additional sales, marketing, and administrative staff to expand
its fiber-recovery business. These increases in selling, general, and
32PAGE
Thermo Fibertek Inc. 1997 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
1997 Compared With 1996 (continued)
administrative expenses as a percentage of revenues were offset by lower
selling, general, and administrative expenses as a percentage of revenues
at Thermo Black Clawson.
Research and development expenses increased to $6.8 million in 1997
from $5.5 million in 1996, primarily due to the inclusion of $1.1 million
in expenses at Thermo Black Clawson and continuing research and
development efforts relating to Thermo Fibergen's fiber-recovery and
water-clarification systems.
During 1997, the Company recorded restructuring costs of $1.1 million
relating to the consolidation of the operations of two subsidiaries into
the operations of Thermo Black Clawson (Note 11).
Interest income increased to $7.3 million in 1997 from $3.6 million
in 1996, primarily due to an increase in average invested balances
resulting from the net proceeds from Thermo Fibergen's initial public
offering in September 1996 and the sale of $153.0 million principal
amount of 4 1/2% subordinated convertible debentures in July 1997
(Note 8).
Interest expense increased to $4.8 million in 1997 from $0.7 million
in 1996, as a result of borrowings from Thermo Electron to finance the
May 1997 acquisition of Thermo Black Clawson and the July 1997 issuance
of $153.0 million principal amount of subordinated convertible
debentures. The borrowings from Thermo Electron were repaid with a
portion of the net proceeds from the sale of subordinated convertible
debentures (Note 8).
The effective tax rate was 39% in 1997 and 38% in 1996. These rates
exceeded the statutory federal income tax rate primarily due to the
impact of state income taxes. In 1996, the impact of state income taxes
was offset in part by the effect of lower foreign tax rates.
Minority interest expense primarily represents accretion of Thermo
Fibergen's common stock subject to redemption.
In connection with a proposed engineering, procurement, and
construction project, the Company made a secured loan of $6.0 million to
Tree-Free Fiber Company, LLC (Tree-Free) during 1996. This project was
delayed due to weakness in pulp prices, and will not proceed due to
Tree-Free's recent insolvency. Tree-Free's principal asset is a tissue
mill. The secured creditors, through the power of a secured creditor
sale, intend to sell the tissue mill at one or more public or private
transactions as soon as practicable. The Company will review the bids and
make a determination as to whether it will accept one or more of the
bids, or instead, purchase the tissue mill itself for the full amount of
the secured debt, or a portion thereof. If the Company purchases the
tissue mill, the Company will begin operating it with the intent of
selling it as a going concern in a private sale. The Company believes
that the fair value of its security exceeds the sum of the carrying
amount of the notes from Tree-Free and Tree-Free's indebtedness to its
secured third-party lenders; however, no assurance can be given as to the
outcome of a secured party sale, the timing of any such sale of the
tissue mill, or the amount of the proceeds that may be received
therefrom. (Note 4)
33PAGE
Thermo Fibertek Inc. 1997 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
1997 Compared With 1996 (continued)
The Company is currently assessing the potential impact of the year
2000 on the processing of date-sensitive information by the Company's
computerized information systems. The Company believes that its internal
information systems are either year 2000 compliant or will be so prior to
the year 2000 without incurring material costs. There can be no
assurance, however, that the Company will not experience unexpected costs
and delays in achieving year 2000 compliance for its internal information
systems, which could result in a material adverse effect on the Company's
future results of operations.
1996 Compared With 1995
Revenues decreased 7% to $192.2 million in 1996 from $206.7 million
in 1995. Revenues earned by the Company's Fiberprep subsidiary under a
subcontract from Thermo Electron to supply equipment and services for an
office wastepaper de-inking facility decreased $12.9 million because this
subcontract was substantially completed in the first quarter of 1996.
Revenues from the Company's recycling business decreased $7.5 million,
excluding the effect of the subcontract from Thermo Electron, due to a
decrease in demand resulting from a severe drop in de-inked pulp prices,
offset in part by the inclusion of $2.2 million of revenues from GranTek,
acquired July 1996. Revenues from the Company's accessories business
increased $8.8 million, principally due to an increase in demand. The
unfavorable effects of currency translation due to a stronger U.S. dollar
decreased revenues by $1.7 million.
The gross profit margin increased to 43% in 1996 from 40% in 1995.
Gross profit margins improved at the Company's Lamort subsidiary
primarily due to a change in product mix, and at the Company's
water-management business principally due to an increase in direct mill
sales. Additionally, margins improved at the Company's Fiberprep
subsidiary primarily due to the effect of a $0.7 million payment received
under the subcontract from Thermo Electron, which represents the
Company's share of certain cost savings on the project.
Selling, general, and administrative expenses as a percentage of
revenues increased to 25% in 1996 from 24% in 1995, primarily due to a
decrease in revenues.
Research and development expenses increased to $5.5 million in 1996
from $4.1 million in 1995, primarily due to the acceleration of Thermo
Fibergen's research and development efforts associated with its
fiber-recovery system and the extraction and purification of minerals.
Interest income increased to $3.6 million in 1996 from $3.5 million
in 1995, primarily due to higher average invested balances resulting from
the net proceeds from Thermo Fibergen's initial public offering in
September 1996, offset in part by lower prevailing interest rates.
Interest expense decreased to $0.7 million in 1996 from $1.4 million in
1995, primarily due to the January 1996 repayment of a $10.4 million
promissory note to Thermo Electron.
Minority interest expense increased to $0.4 million in 1996 from $0.2
million in 1995, primarily due to accretion of Thermo Fibergen's common
stock subject to redemption.
34PAGE
Thermo Fibertek Inc. 1997 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
1996 Compared With 1995 (continued)
The effective tax rate was 38% in 1996 and 1995. These rates exceeded
the statutory federal income tax rate primarily due to the impact of
state income taxes and, in 1995, the tax effect on a dividend from a
foreign subsidiary, offset in part by the effect of lower foreign tax
rates.
Liquidity and Capital Resources
Consolidated working capital was $177.0 million at January 3, 1998,
compared with $115.6 million at December 28, 1996. Included in working
capital are cash, cash equivalents, and available-for-sale investments of
$148.0 million at January 3, 1998, compared with $109.8 million at
December 28, 1996. Of the $148.0 million balance at January 3, 1998,
$58.1 million was held by Thermo Fibergen, $6.6 million was held by
Fiberprep, and the remainder was held by the Company and its wholly owned
subsidiaries. At January 3, 1998, $31.0 million of the Company's cash and
cash equivalents was held by its foreign subsidiaries. Repatriation of
this cash into the U.S. would be subject to foreign withholding taxes and
could also be subject to a U.S. tax.
During 1997, $20.9 million of cash was provided by operating
activities. Cash provided by the Company's operating results was reduced
by a decrease in accounts payable of $3.3 million, primarily due to the
payment of a substantial portion of acquired accounts payable at Thermo
Black Clawson, as well as an increase in accounts receivable of $1.9
million, primarily due to an increase in shipments in the fourth quarter.
During 1997, the Company's primary investing activities, excluding
available-for-sale investments activity, included an acquisition and
capital expenditures. The Company acquired the assets, subject to certain
liabilities, of Thermo Black Clawson for $103.4 million in cash (Note 3).
The Company expended $3.8 million for purchases of property, plant, and
equipment during 1997.
During 1997, the Company's financing activities provided $126.9
million in cash. The Company borrowed $110.0 million from Thermo Electron
to finance the acquisition of Thermo Black Clawson. In July 1997, the
Company issued and sold subordinated convertible debentures for net
proceeds of $149.8 million and used a portion of the proceeds to repay
the $110.0 million note due to Thermo Electron (Note 8).
During 1997, the Company purchased $20.2 million of Company common
stock and $3.8 million of Thermo Fibergen common stock. As of January 3,
1998, $1.2 million remained under authorizations by the Company's Board
of Directors to purchase Thermo Fibergen common stock in open market or
negotiated transactions through March 19, 1998. Any such purchases will
be funded from working capital.
Thermo Fibergen's common stock is subject to redemption in September
2000 or 2001, the redemption value of which is $54.8 million (Note 1).
At January 3, 1998, the Company had $56.9 million of undistributed
foreign earnings. 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.
35PAGE
Thermo Fibertek Inc. 1997 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources (continued)
In 1998, the Company plans to make expenditures for property, plant,
and equipment of approximately $10 million, which includes expenditures
at Thermo Fibergen for the construction of a fiber-recovery and
water-clarification facility (Note 10). In addition, Thermo Fibergen may
make additional capital expenditures for the construction of additional
fiber-recovery facilities. Construction of fiber-recovery facilities is
dependent upon Thermo Fibergen entering into long-term contracts with
paper mills, under which Thermo Fibergen will charge fees to accept the
mills' papermaking sludge. Thermo Fibergen currently has only one such
agreement in place and there is no assurance that Thermo Fibergen will be
able to obtain such additional contracts. The Company believes that its
existing resources are sufficient to meet the capital requirements of its
existing operations for the foreseeable future.
36PAGE
Thermo Fibertek Inc. 1997 Financial Statements
Forward-looking Statements
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 1998 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. Generally, the
financial condition of the paper industry corresponds to the condition of
the general economy, as well as a number of other factors, including
paper and pulp production capacity. The paper industry entered a severe
downcycle in early 1996 and has not recovered. This cyclical downturn
adversely affected the Company's business during the second half of 1996
and all of 1997. No assurance can be given that the financial condition
of the paper industry will improve in the near future.
Risks Associated with International Operations. During 1997,
approximately 37% of the Company's revenues 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.
During 1997, the Company had exports from the Company's U.S. and
foreign operations to Asia of approximately 6% of total revenues, a
substantial portion of which represents sales from the Company's recently
acquired Thermo Black Clawson subsidiary. Exports to Asia in 1997 were
primarily to China, Japan, and South Korea. Asia is experiencing a severe
economic crisis, which has been characterized by sharply reduced economic
activity and liquidity, highly volatile foreign-currency-exchange and
interest rates, and unstable stock markets. The Company's sales to Asia
could be adversely affected by the unstable economic conditions in Asia.
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
37PAGE
Thermo Fibertek Inc. 1997 Financial Statements
Forward-looking Statements
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 emphasis 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 numerous 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.
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 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.
In addition, there can be no assurance that third parties will not
assert claims against the Company to the effect that the Company is
infringing the intellectual property rights of such parties. The Company
could incur substantial costs and diversion of management resources with
respect to the defense of any such claims, which could have a material
adverse effect on the Company's business, financial condition, and
results of operations. Furthermore, parties making such claims could
secure a judgment awarding substantial damages, as well as injunctive or
other equitable relief, which could effectively block the Company's
ability to make, use, sell, distribute, or market its products and
services in the U.S. or abroad. In the event that a claim relating to
intellectual property is asserted against the Company, the Company may
seek licenses to such intellectual property. There can be no assurance,
however, that such licenses could be obtained on commercially reasonable
terms, if at all. The failure to obtain the necessary licenses or other
rights could preclude the sale, manufacture, or distribution of the
Company's products and, therefore, could have a material adverse effect
on the Company's business, financial condition, and results of
operations.
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
38PAGE
Thermo Fibertek Inc. 1997 Financial Statements
Forward-looking Statements
will not otherwise become known or be independently developed by
competitors.
Risks Associated with Acquisition Strategy. The Company's acquisition
strategy includes the acquisition of businesses that complement or
augment the Company's existing products and services. Promising
acquisitions are difficult to identify and complete for a number of
reasons, including competition among prospective buyers and the need for
regulatory approvals, including antitrust approvals. Any acquisition
completed by the Company may be made at a substantial premium over the
fair value of the net assets of the acquired company. There can be no
assurance that the Company will be able to complete future acquisitions
or that the Company will be able to successfully integrate any acquired
businesses into its existing businesses or make such businesses
profitable.
Potential Impact of Year 2000 on Processing of Date-sensitive
Information. The Company is currently assessing the potential impact of
the year 2000 on the processing of date-sensitive information by the
Company's computerized information systems. The Company believes that its
internal information systems are either year 2000 compliant or will be so
prior to the year 2000 without incurring material costs. There can be no
assurance, however, that the Company will not experience unexpected costs
and delays in achieving year 2000 compliance for its internal information
systems, which could result in a material adverse effect on the Company's
future results of operations.
39PAGE
Thermo Fibertek Inc. 1997 Financial Statements
Selected Financial Information
(In thousands except
per share amounts) 1997(a) 1996(b) 1995(c) 1994 1993
----------------------------------------------------------------------
Statement of
Income Data:
Revenues $239,642 $192,209 $206,743 $162,625 $137,088
Net income 16,426 19,894 20,249 10,894 7,442
Earnings per
share:
Basic .27 .33 .33 .18 .12
Diluted .26 .31 .32 .18 .12
Balance Sheet
Data:
Working capital $176,996 $115,609 $ 70,882 $ 54,879 $ 37,442
Total assets 418,938 257,232 199,671 162,389 142,608
Long-term
obligations 153,000 34 15,041 15,406 15,806
Common stock of
subsidiary
subject
to redemption 52,812 56,087 - - -
Shareholders'
investment 138,095 130,850 109,631 84,696 70,753
(a) Reflects the May 1997 acquisition of Thermo Black Clawson, the
issuance of $153.0 million principal amount of 4 1/2% subordinated
convertible debentures, and the conversion of a $15.0 million
principal amount subordinated convertible note by Thermo Electron.
(b) Reflects the July 1996 acquisition of GranTek, the net proceeds from
Thermo Fibergen's September 1996 initial public offering, and the
repayment of a $10.4 million promissory note to Thermo Electron.
(c) Reflects the January 1995 redemption of a portion of Fiberprep's stock
and the issuance of a $10.4 million promissory note to Thermo
Electron.
40PAGE
Thermo Fibertek Inc. 1997 Financial Statements
Common Stock Market Information
The Company's common stock is traded on the American Stock Exchange
under the symbol TFT. The following table sets forth the high and low
sale prices of the Company's common stock for 1997 and 1996, as reported
in the consolidated transaction reporting system.
1997 1996
------------------- ------------------
Quarter High Low High Low
------------------------------------------------------------------------
First $12 1/2 $ 8 1/2 $16 $14
Second 11 8 1/8 20 1/3 14 7/12
Third 12 3/8 9 7/16 18 7/8 12 1/8
Fourth 13 5/8 10 9/16 13 1/4 8 5/8
As of January 30, 1998, the Company had 906 holders of record of its
common stock. This does not include holdings in street or nominee names.
The closing market price on the American Stock Exchange for the Company's
common stock on January 30, 1998, was $12 7/16 per share.
Common stock and redemption rights of Thermo Fibergen Inc., the
Company's majority-owned public subsidiary, are traded on the American
Stock Exchange (symbols TFG and TFG-R).
Shareholder Services
Shareholders of Thermo Fibertek Inc. who desire information about the
Company are invited to contact John N. Hatsopoulos, Chief Financial
Officer, Thermo Fibertek Inc., 81 Wyman Street, P.O. Box 9046, Waltham,
Massachusetts 02254-9046, (781) 622-1111. A mailing list is maintained to
enable shareholders whose stock is held in street name, and other
interested individuals, to receive quarterly reports, annual reports, and
press releases as quickly as possible. Distribution of printed quarterly
reports is limited to the second quarter only. All material will be
available from Thermo Electron's Internet site (http://www.thermo.com/
subsid/tft1.html).
Stock Transfer Agent
American Stock Transfer & Trust Company is the stock transfer agent
and maintains shareholder activity records. The agent will respond to
questions on issuance of stock certificates, change of ownership, lost
stock certificates, and change of address. For these and similar matters,
please direct inquiries to:
American Stock Transfer & Trust Company
Shareholder Services Department
40 Wall Street, 46th Floor
New York, New York 10005
(718) 921-8200
41PAGE
Thermo Fibertek Inc. 1997 Financial Statements
Dividend Policy
The Company has never paid cash dividends and does not expect to pay
cash dividends in the foreseeable future because its policy has been to
use earnings to finance expansion and growth. Payment of dividends will
rest within the discretion of the Board of Directors and will depend
upon, among other factors, the Company's earnings, capital requirements,
and financial condition.
Form 10-K Report
A copy of the Annual Report on Form 10-K for the fiscal year ended
January 3, 1998, as filed with the Securities and Exchange Commission,
may be obtained at no charge by writing to John N. Hatsopoulos, Chief
Financial Officer, Thermo Fibertek Inc., 81 Wyman Street, P.O. Box 9046,
Waltham, Massachusetts 02254-9046.
Annual Meeting
The annual meeting of shareholders will be held on Monday, June 1,
1998, at 8:15 a.m. at the Hyatt Regency Hotel, Scottsdale, Arizona.
42