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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
-----------------------------------------
FORM 10-Q
(mark one)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarter Ended October 3, 1998.
[ ] 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.)
245 Winter Street
Waltham, Massachusetts 02451
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (781) 622-1000
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of Common Stock, as of the latest practicable date.
Class Outstanding at October 30, 1998
---------------------------- -------------------------------
Common Stock, $.01 par value 61,481,456
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
- -----------------------------
THERMO FIBERTEK INC.
Consolidated Balance Sheet
(Unaudited)
Assets
October 3, January 3,
(In thousands) 1998 1998
- --------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents (includes $66,413
and $62,550 under repurchase agreement
with parent company) $108,349 $111,648
Available-for-sale investments, at quoted
market value (amortized cost of $43,326
and $36,273) 43,346 36,319
Accounts receivable, less allowances of
$2,222 and $2,565 45,072 53,408
Unbilled contract costs and fees 5,682 4,422
Inventories:
Raw materials and supplies 16,528 14,609
Work in process 5,367 6,426
Finished goods 9,791 10,925
Prepaid and refundable income taxes 6,663 7,457
Other current assets 2,371 2,256
-------- --------
243,169 247,470
-------- --------
Property, Plant, and Equipment, at Cost 67,407 61,059
Less: Accumulated depreciation and
amortization 35,742 32,723
-------- --------
31,665 28,336
-------- --------
Other Assets (Note 4) 15,202 14,437
-------- --------
Cost in Excess of Net Assets of Acquired
Companies 127,534 128,695
-------- --------
$417,570 $418,938
======== ========
2
THERMO FIBERTEK INC.
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
October 3, January 3,
(In thousands except share amounts) 1998 1998
- --------------------------------------------------------------------------
Current Liabilities:
Accounts payable $ 19,726 $ 25,755
Accrued payroll and employee benefits 9,360 10,588
Billings in excess of contract costs and fees 5,716 5,548
Accrued warranty costs 6,687 8,620
Accrued income taxes 3,649 -
Other accrued expenses 12,332 18,512
Due to parent company and affiliated companies 1,110 1,451
-------- --------
58,580 70,474
-------- --------
Deferred Income Taxes and Other Deferred Items 4,174 4,267
-------- --------
Subordinated Convertible Debentures 153,000 153,000
-------- --------
Minority Interest 318 290
-------- --------
Common Stock of Subsidiary Subject to Redemption
($54,762 redemption value) 53,554 52,812
-------- --------
Shareholders' Investment:
Common stock, $.01 par value, 150,000,000
shares authorized; 63,358,087 and
63,331,887 shares issued 634 633
Capital in excess of par value 77,729 81,865
Retained earnings 96,343 82,607
Treasury stock at cost, 1,831,631 and
1,820,709 shares (18,880) (19,494)
Accumulated other comprehensive items (Note 3) (7,882) (7,516)
-------- --------
147,944 138,095
-------- --------
$417,570 $418,938
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
3
THERMO FIBERTEK INC.
Consolidated Statement of Income
(Unaudited)
Three Months Ended
-------------------------
October 3, September 27,
(In thousands except per share amounts) 1998 1997
- --------------------------------------------------------------------------
Revenues $ 59,678 $ 67,606
-------- --------
Costs and Operating Expenses:
Cost of revenues 35,702 42,336
Selling, general, and administrative expenses 15,208 16,189
Research and development expenses 1,754 1,789
Gain on sale of property (178) -
Restructuring costs - 1,063
-------- ---------
52,486 61,377
-------- ---------
Operating Income 7,192 6,229
Interest Income 1,918 2,060
Interest Expense (includes $510 to related
party in fiscal 1997) (1,854) (2,020)
-------- ---------
Income Before Provision for Income Taxes and
Minority Interest 7,256 6,269
Provision for Income Taxes 2,797 2,495
Minority Interest Expense 302 180
-------- --------
Net Income $ 4,157 $ 3,594
======== ========
Earnings per Share (Note 2):
Basic $ .07 $ .06
======== ========
Diluted $ .07 $ .06
======== ========
Weighted Average Shares (Note 2):
Basic 61,684 61,504
======== ========
Diluted 62,339 63,294
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
4
THERMO FIBERTEK INC.
Consolidated Statement of Income
(Unaudited)
Nine Months Ended
-------------------------
October 3, September 27,
(In thousands except per share amounts) 1998 1997
- --------------------------------------------------------------------------
Revenues $185,591 $166,784
-------- --------
Costs and Operating Expenses:
Cost of revenues 110,218 100,522
Selling, general, and administrative expenses 47,006 43,670
Research and development expenses 5,378 4,652
Gain on sale of property (260) -
Restructuring costs - 1,063
-------- --------
162,342 149,907
-------- ---------
Operating Income 23,249 16,877
Interest Income 6,002 5,162
Interest Expense (includes $1,412 to related
party in fiscal 1997) (5,562) (2,961)
-------- --------
Income Before Provision for Income Taxes and
Minority Interest 23,689 19,078
Provision for Income Taxes 9,183 7,425
Minority Interest Expense 770 840
-------- --------
Net Income $ 13,736 $ 10,813
======== ========
Earnings per Share (Note 2):
Basic $ .22 $ .18
======== ========
Diluted $ .22 $ .17
======== ========
Weighted Average Shares (Note 2):
Basic 61,683 61,296
======== ========
Diluted 62,539 63,885
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
5
THERMO FIBERTEK INC.
Consolidated Statement of Cash Flows
(Unaudited)
Nine Months Ended
-------------------------
October 3, September 27,
(In thousands) 1998 1997
- --------------------------------------------------------------------------
Operating Activities:
Net income $ 13,736 $ 10,813
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 6,785 5,368
Provision for losses on accounts
receivable 112 147
Minority interest expense 770 840
Gain on sale of property (260) -
Restructuring costs - 1,063
Change in deferred income tax benefit - (93)
Other noncash items 210 (383)
Changes in current accounts, excluding
the effects of acquisitions:
Accounts receivable 8,973 2,490
Inventories and unbilled contract
costs and fees (448) (3,683)
Prepaid income taxes and other
current assets 834 415
Accounts payable (7,554) (6,827)
Other current liabilities (3,786) 2,297
--------- ---------
Net cash provided by operating activities 19,372 12,447
--------- ---------
Investing Activities:
Acquisitions, net of cash acquired (1,296) (107,738)
Purchases of available-for-sale investments (51,225) (29,050)
Proceeds from sale and maturities of
available-for-sale investments 43,961 -
Proceeds from sale of property, plant,
and equipment 351 -
Purchases of property, plant, and equipment (6,832) (2,102)
Advances under notes receivable (Note 4) (2,910) (3,000)
Repayment of notes receivable - 3,000
Other 50 (189)
--------- ---------
Net cash used in investing activities $ (17,901) $(139,079)
--------- ---------
6
THERMO FIBERTEK INC.
Consolidated Statement of Cash Flows (continued)
(Unaudited)
Nine Months Ended
-------------------------
October 3, September 27,
(In thousands) 1998 1997
- --------------------------------------------------------------------------
Financing Activities:
Net proceeds from issuance of subordinated
convertible debentures $ - $ 149,771
Issuance of obligation to parent company - 110,000
Repayment of obligation to parent company - (110,000)
Purchase of Company common stock (5,331) (16,320)
Purchases of subsidiary common stock - (3,791)
Net proceeds from issuance of Company common
stock 1,809 680
Other - (34)
--------- ---------
Net cash provided by (used in) financing
activities (3,522) 130,306
--------- ---------
Exchange Rate Effect on Cash (1,248) (3,833)
--------- ---------
Decrease in Cash and Cash Equivalents (3,299) (159)
Cash and Cash Equivalents at Beginning of
Period 111,648 109,805
--------- ---------
Cash and Cash Equivalents at End of Period $ 108,349 $ 109,646
========= =========
Noncash Activities:
Fair value of assets of acquired companies $ 1,493 $ 129,271
Cash paid for acquired companies (1,296) (107,750)
--------- ---------
Liabilities assumed of acquired companies $ 197 $ 21,521
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
7
THERMO FIBERTEK INC.
Notes to Consolidated Financial Statements
1. General
The interim consolidated financial statements presented have been prepared
by Thermo Fibertek Inc. (the Company) without audit and, in the opinion of
management, reflect all adjustments of a normal recurring nature necessary for a
fair statement of the financial position at October 3, 1998, the results of
operations for the three- and nine-month periods ended October 3, 1998, and
September 27, 1997, and the cash flows for the nine-month periods ended October
3, 1998, and September 27, 1997. Interim results are not necessarily indicative
of results for a full year.
The consolidated balance sheet presented as of January 3, 1998, has been
derived from the consolidated financial statements that have been audited by the
Company's independent public accountants. The consolidated financial statements
and notes are presented as permitted by Form 10-Q and do not contain certain
information included in the annual financial statements and notes of the
Company. The consolidated financial statements and notes included herein should
be read in conjunction with the financial statements and notes included in the
Company's Annual Report on Form 10-K for the fiscal year ended January 3, 1998,
filed with the Securities and Exchange Commission.
2. Earnings per Share
Basic and diluted earnings per share were calculated as follows:
Three Months Ended Nine Months Ended
------------------ ------------------
(In thousands except Oct. 3, Sept. 27, Oct. 3, Sept. 27,
per share amounts) 1998 1997 1998 1997
- --------------------------------------------------------------------------
Basic
Net Income $ 4,157 $ 3,594 $13,736 $10,813
------- ------- ------- -------
Weighted Average Shares 61,684 61,504 61,683 61,296
------- ------- ------- -------
Basic Earnings per Share $ .07 $ .06 $ .22 $ .18
======= ======= ======= =======
8
2. Earnings per Share (continued)
Three Months Ended Nine Months Ended
------------------ ------------------
(In thousands except Oct. 3, Sept. 27, Oct. 3, Sept. 27,
per share amounts) 1998 1997 1998 1997
- --------------------------------------------------------------------------
Diluted
Net Income $ 4,157 $ 3,594 $13,736 $10,813
Effect of:
Convertible obligations - 30 - 188
Majority-owned subsidiary's
dilutive securities (7) (8) (16) (76)
------- ------- ------- -------
Income Available to Common
Shareholders, as Adjusted $ 4,150 $ 3,616 $13,720 $10,925
------- ------- ------- -------
Weighted Average Shares 61,684 61,504 61,683 61,296
Effect of:
Convertible obligations - 726 - 1,501
Stock options 655 1,064 856 1,088
------- ------- ------- -------
Weighted Average Shares,
as Adjusted 62,339 63,294 62,539 63,885
------- ------- ------- -------
Diluted Earnings per Share $ .07 $ .06 $ .22 $ .17
======= ======= ======= =======
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 October 3, 1998, there were 885,000 of such options
outstanding, with exercise prices ranging from $10.06 to $14.32 per share.
In addition, the computation of diluted earnings per share for the 1998
periods 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.
3. Comprehensive Income
During the first quarter of 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income." This
pronouncement sets forth requirements for disclosure of the Company's
comprehensive income and accumulated other comprehensive items. In general,
comprehensive income combines net income and "other comprehensive items," which
represent certain amounts that are reported as components of shareholders'
investment in the accompanying balance sheet, including foreign currency
translation adjustments and unrealized net of tax gains and losses on
available-for-sale investments. During the third quarter of 1998 and 1997, the
Company had comprehensive income of $4,520,000 and $610,000, respectively.
During the first nine months of
9
3. Comprehensive Income (continued)
1998 and 1997, the Company had comprehensive income of $13,374,000 and
$3,400,000, respectively.
4. Notes 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. The note is secured by
pari-passu liens on a tissue mill in Maine and by stock representing partial
ownership of a tissue mill located in Mexico. In December 1997, a receiver was
appointed by the Superior Court of Maine to preserve and protect the collateral
for the loans made by the Company and other lenders to Tree-Free. In May 1998,
the Company purchased an assignment of Tree-Free's secured indebtedness to the
other pari-passu lender for $2.9 million. In June 1998, the Company conducted a
foreclosure sale of the tissue mill and was the successful bidder and executed a
purchase and sale agreement. The Company intends to assign its right to purchase
the mill to a third party as soon as practicable or, alternatively, to purchase
the mill and operate it with the intent of selling it as a going concern. In
October 1998, the stock of the mill located in Mexico was sold and the proceeds
of $1.3 million were paid to the Company. The Company believes that the
aggregate of the fair value of the tissue mill, net of amounts owed by Tree-Free
to a senior lender, and the proceeds received from the sale of the stock in the
mill located in Mexico is in excess of the carrying amount of the notes, net of
established reserves. However, no assurance can be given as to the outcome of a
sale of the tissue mill, the timing of any such sale, or the amount of the
proceeds that may be received therefrom.
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward-looking statements, within the meaning of Section 21E of the
Securities Exchange Act of 1934, are made throughout this Management's
Discussion and Analysis of Financial Condition and Results of Operations. For
this purpose, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, the words "believes," "anticipates," "plans," "expects," "seeks,"
"estimates," and similar expressions are intended to identify forward-looking
statements. There are a number of important factors that could cause the results
of the Company to differ materially from those indicated by such forward-looking
statements, including those detailed under the heading "Forward-looking
Statements" in Exhibit 13 to the Company's Annual Report on Form 10-K for the
fiscal year ended January 3, 1998, filed with the Securities and Exchange
Commission.
10
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 technologies to recover valuable
components such as water, long cellulose fiber, and minerals, generated as
byproducts of the virgin and recycled papermaking process, and convert them into
commercial products. Thermo Fibergen also clarifies and recycles process water
to be reused in papermaking. Through its GranTek Inc. subsidiary, Thermo
Fibergen employs patented technology to produce absorbing granules from
papermaking byproducts.
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.
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 Thermo Black
Clawson, acquired May 1997. Exports to Asia in 1997 were primarily to China,
Japan, and South Korea. Asia, excluding China, 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 have been adversely affected
by the unstable economic conditions in that region.
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, which began adversely affecting
the Company's business during the second half of 1996, continues to have an
adverse effect on the Company's business. In addition, the unstable economic
conditions in Asia, and weakened currencies in that region, have resulted in
increased low-cost imports of pulp and paper in North America resulting in
reduced pricing. In addition, paper and pulp exports from North America and
Europe to Asia have declined. The timing of the recovery of the financial
condition of the paper industry cannot be predicted.
11
Results of Operations
Third Quarter 1998 Compared With Third Quarter 1997
Revenues decreased to $59.7 million in the third quarter of 1998 from $67.6
million in the third quarter of 1997, primarily as a result of a decrease in
revenues at the Company's recycling and water-management businesses. The
decrease in revenues at the recycling business of $5.7 million, primarily at
Thermo Black Clawson, was principally due to a decrease in demand in Asia and
North America. A decline in revenues at the water-management business of $2.1
million was also principally due to a decrease in demand in North America. The
primary reasons for the decrease in demand in Asia and North America are
discussed in the Overview. The decrease in revenues at the recycling business
was offset in part by the inclusion of revenues from a French subsidiary of
Thermo Black Clawson, acquired in August 1997, for the full three-month period
and the inclusion of revenues from a business acquired in July 1998, which
resulted in an aggregate increase in revenues of $2.7 million. The unfavorable
effects of currency translation due to a stronger U.S. dollar decreased 1998
revenues by $0.5 million.
The gross profit margin increased to 40% in the third quarter of 1998 from
37% in the third quarter of 1997, primarily due to improved margins at Thermo
Black Clawson and the Company's water-management business. Gross profit margins
improved at Thermo Black Clawson principally due to a change in pricing
strategies and an improved cost structure. Improvement in gross profit margin at
the water-management business resulted primarily from a change in sales mix.
Selling, general, and administrative expenses were reduced 6% to $15.2
million in the third quarter of 1998 from $16.2 million in the third quarter of
1997 in response to reduced revenues.
Research and development expenses were unchanged at $1.8 million in the
third quarter of 1998 and 1997.
In the third quarter of 1998, the Company recorded gains of $0.2 million,
primarily relating to the sale of real estate at Lamort.
In the third quarter of 1997, the Company recorded restructuring costs of
$1.1 million, related primarily to severance costs.
Interest income and interest expense were relatively unchanged in the third
quarter of 1998 as compared with the third quarter of 1997.
The effective tax rate was 39% in the third quarter of 1998 and 40% in the
third quarter of 1997. These rates exceeded the statutory federal income tax
rate primarily due to the impact of state income taxes.
Minority interest expense primarily represents accretion of Thermo
Fibergen's common stock subject to redemption.
12
First Nine Months 1998 Compared With First Nine Months 1997
Revenues increased to $185.6 million in the first nine months of 1998 from
$166.8 million in the first nine months of 1997, primarily due to an increase in
revenues of $21.4 million from Thermo Black Clawson, acquired in May 1997. An
increase in revenues at Thermo Black Clawson due to the inclusion of revenues
for the full nine-month period in 1998 was offset in part by a decrease in its
revenues for the reasons discussed in the results of operations for the third
quarter of 1998. In addition, revenues from the Company's water-management
business decreased $3.9 million principally due to a decrease in demand in North
America. The unfavorable effects of currency translation due to a stronger U.S.
dollar decreased 1998 revenues by $3.0 million.
The gross profit margin increased to 41% in the first nine months of 1998
from 40% in the first nine months of 1997, principally due to the reasons
discussed in the results of operations for the third quarter.
Selling, general, and administrative expenses as a percentage of revenues
decreased to 25% in the first nine months of 1998 from 26% in the first nine
months of 1997, primarily due to lower expenses as a percentage of revenues at
Thermo Black Clawson. In addition, the Company reduced selling, general, and
administrative expenses during the third quarter of 1998 in response to reduced
revenues during that period.
Research and development expenses increased to $5.4 million in the first
nine months of 1998 from $4.7 million in the first nine months of 1997, due to
the inclusion of expenses at Thermo Black Clawson for the full nine-month period
in 1998.
In the first nine months of 1998, the Company recorded gains of $0.3 million
primarily relating to the sale of real estate at Lamort.
In the first nine months of 1997, the Company recorded restructuring costs
of $1.1 million, related primarily to severance costs.
Interest income increased to $6.0 million in the first nine months of 1998
from $5.2 million in the first nine months of 1997, primarily due to an increase
in average invested balances resulting from the remaining net proceeds from the
July 1997 sale of $153.0 million principal amount of 4 1/2% subordinated
convertible debentures, of which $103.4 million was used to finance the
acquisition of Thermo Black Clawson.
Interest expense increased to $5.6 million in the first nine months of 1998
from $3.0 million in the first nine months of 1997 as a result of the July 1997
issuance of subordinated convertible debentures.
The effective tax rate was unchanged at 39% in the first nine months of 1998
and 1997. The effective tax rate exceeded the statutory federal income tax rate
primarily due to the impact of state income taxes.
Minority interest expense primarily represents accretion of Thermo
Fibergen's common stock subject to redemption.
13
Liquidity and Capital Resources
Consolidated working capital was $184.6 million at October 3, 1998, compared
with $177.0 million at January 3, 1998. Included in working capital are cash,
cash equivalents, and available-for-sale investments of $151.7 million at
October 3, 1998, compared with $148.0 million at January 3, 1998. Of the $151.7
million balance at October 3, 1998, $54.8 million was held by Thermo Fibergen,
$7.1 million was held by Fiberprep, and the remainder was held by the Company
and its wholly owned subsidiaries. At October 3, 1998, $36.3 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 the first nine months of 1998, $19.4 million of cash was provided by
operating activities. Cash provided by a decrease in accounts receivable of $9.0
million was offset in part by a $7.6 million reduction of accounts payable. The
reduction in both accounts receivable and accounts payable is due primarily to
the reduction in third quarter 1998 sales and related inventory activity as
compared with the fourth quarter of 1997.
During the first nine months of 1998, the Company's primary investing
activities, excluding available-for-sale investments activity, were the purchase
of property, plant, and equipment for $6.8 million, an advance of $2.9 million
under a note receivable (Note 4), and an acquisition for $1.3 million. In July
1998, the Company acquired Goslin Birmingham, a division of Green Bay Packaging
Inc., a manufacturer of paper recycling equipment.
During the first nine months of 1998, the Company's financing activities
used $3.5 million in cash, including $5.3 million to purchase Company common
stock. At October 3, 1998, the Company had a remaining authorization to purchase
573,000 shares of Company common stock, or the equivalent in outstanding
convertible debentures, in open market or negotiated transactions through July
15, 1999. Any such purchases are 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.
At October 3, 1998, the Company had $61.9 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.
During the remainder of 1998, the Company plans to make expenditures for
property, plant, and equipment of approximately $1.5 million. 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 process the mills'
papermaking byproducts. Thermo Fibergen currently has only one such agreement in
place and there is no assurance that
14
Liquidity and Capital Resources (continued)
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.
Year 2000
The Company continues to assess the potential impact of the year 2000 on the
Company's internal business systems, products, and operations. The Company's
year 2000 initiatives include (i) testing and upgrading internal business
systems and facilities; (ii) contacting key suppliers and vendors to determine
their year 2000 compliance status; and (iii) developing contingency plans.
The Company's State of Readiness
The Company has tested and evaluated its critical information technology
systems for year 2000 compliance, including its significant computer systems,
software applications, and related equipment. The Company is currently in the
process of upgrading or replacing its noncompliant systems. In most cases, such
upgrades or replacements are being made in the ordinary course of business. The
Company expects that all of its material information technology systems will be
year 2000 compliant by the end of 1999. The Company is also evaluating the
potential year 2000 impact on its facilities, including its buildings and
utility systems. Any problems that are identified will be prioritized and
remediated based on their assigned priority.
The Company believes that all of the material products that it currently
manufactures and sells are not date sensitive and should not be affected by year
2000 issues. The Company is initiating efforts to identify and contact suppliers
and vendors that are believed to be significant to the Company's business
operations in order to assess their year 2000 readiness.
Contingency Plans
The Company intends to develop a contingency plan that will allow its
primary business operations to continue despite disruptions due to year 2000
problems. These plans may include identifying and securing other suppliers,
increasing inventories, and modifying production facilities and schedules. As
the Company continues to evaluate the year 2000 readiness of its business
systems, facilities, and significant suppliers and vendors, it will modify and
adjust its contingency plan as may be required.
Costs to Address the Company's Year 2000 Issues
To date, costs incurred in connection with the year 2000 issue have not been
material. The Company does not expect total year 2000 remediation costs to be
material, but there can be no assurance that the
15
Year 2000 (continued)
Company will not encounter unexpected costs or delays in achieving year 2000
compliance.
Risks of the Company's Year 2000 Issues
While the Company is attempting to minimize any negative consequences
arising from the year 2000 issue, there can be no assurance that year 2000
problems will not have a material adverse impact on the Company's business,
operations, or financial condition. While the Company expects that upgrades to
its internal business systems will be completed in a timely fashion, there can
be no assurance that the Company will not encounter unexpected costs or delays.
If any of the Company's material suppliers, vendors, or customers experience
business disruptions due to year 2000 issues, the Company might also be
materially adversely affected. The Company's research and development,
production, distribution, financial, administrative, and communications
operations might be disrupted. There is expected to be a significant amount of
litigation relating to the year 2000 issue and there can be no assurance that
the Company will not incur material costs in defending or bringing lawsuits. Any
unexpected costs or delays arising from the year 2000 issue could have a
significant adverse impact on the Company's business, operations, and financial
condition.
PART II - OTHER INFORMATION
Item 6 - Exhibits
See Exhibit Index on the page immediately preceding exhibits.
16
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 6th day of November 1998.
THERMO FIBERTEK INC.
Paul F. Kelleher
---------------------------
Paul F. Kelleher
Chief Accounting Officer
John N. Hatsopoulos
---------------------------
John N. Hatsopoulos
Chief Financial Officer and
Senior Vice President
17
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
- -------------------------------------------------------------------------
27 Financial Data Schedule.