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
December 30, 1995.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
Commission File Number 1-9549
THERMO TERRATECH INC.
(Exact name of Registrant as specified in its charter)
Delaware 04-2925807
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
81 Wyman Street, P.O. Box 9046
Waltham, Massachusetts 02254-9046
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 622-1000
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the
issuer's classes of Common Stock, as of the latest practicable
date.
Class Outstanding at January 26, 1996
---------------------------- -------------------------------
Common Stock, $.10 par value 17,515,194
PAGE
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Form 10-Q
December 30, 1995
THERMO TERRATECH INC.
PART I - Financial Information
Item 1 - Financial Statements
(a) Consolidated Balance Sheet - Assets as of December 30, 1995 and
April 1, 1995 (In thousands) (Unaudited)
December 30, April 1,
1995 1995
------------ --------
Current Assets:
Cash and cash equivalents $ 28,309 $ 35,808
Short-term available-for-sale investments,
at quoted market value (amortized cost
of $15,629 and $5,179) 15,640 5,155
Accounts receivable, less allowances of
$3,162 and $3,560 47,822 27,949
Unbilled contract costs and fees 17,723 16,481
Inventories:
Raw materials and supplies 3,041 2,705
Work in process and finished goods 809 27
Prepaid expenses 4,262 3,788
Prepaid income taxes 12,523 8,228
-------- --------
130,129 100,141
-------- --------
Property, Plant and Equipment, at Cost 117,483 92,794
Less: Accumulated depreciation and amortization 38,087 33,057
-------- --------
79,396 59,737
-------- --------
Long-term Available-for-sale Investments,
at Quoted Market Value (amortized cost
of $2,122 and $10,687) 2,121 10,564
-------- --------
Long-term Held-to-maturity Investments,
at Amortized Cost (quoted market value
of $24,942 and $22,810) 23,819 22,569
-------- --------
Other Assets 12,321 12,146
-------- --------
Cost in Excess of Net Assets of Acquired Companies
(Notes 3 and 5) 88,705 66,516
-------- --------
$336,491 $271,673
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
2PAGE
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Form 10-Q
December 30, 1995
THERMO TERRATECH INC.
(a)Consolidated Balance Sheet - Liabilities and Shareholders' Investment
as of December 30, 1995 and April 1, 1995 (In thousands except share
amounts) (Unaudited)
December 30, April 1,
1995 1995
------------ --------
Current Liabilities:
Accounts payable $ 13,723 $ 9,612
Notes payable and current maturities of
long-term obligations (includes $15,000 and
$4,000 due to parent company) 17,741 4,652
Billings in excess of revenues earned 3,102 1,555
Accrued payroll and employee benefits 9,835 6,845
Accrued and current deferred income taxes 2,373 1,773
Other accrued expenses 9,802 7,892
Due to parent company and Thermo Electron 3,328 3,116
-------- --------
59,904 35,445
-------- --------
Deferred Income Taxes 4,150 4,116
-------- --------
Other Deferred Items 1,014 1,057
-------- --------
Long-term Obligations:
6 1/2% Subordinated convertible debentures 18,547 18,547
4 7/8% Subordinated convertible debentures (Note 4) 37,950 -
Other (includes $73,000 and $53,000 due
to parent company) (Note 2) 98,882 78,304
-------- --------
155,379 96,851
-------- --------
Minority Interest 31,766 56,603
-------- --------
Shareholders' Investment:
Common stock, $.10 par value, 30,000,000
shares authorized; 17,502,621 and 17,414,322
shares issued 1,750 1,741
Capital in excess of par value 59,041 53,559
Retained earnings 23,104 21,727
Treasury stock at cost, 49,082 and
71,072 shares (585) (864)
Cumulative translation adjustment 962 1,526
Net unrealized gain (loss) on available-for-sale
investments 6 (88)
-------- --------
84,278 77,601
-------- --------
$336,491 $271,673
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
3PAGE
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Form 10-Q
December 30, 1995
THERMO TERRATECH INC.
(b)Consolidated Statement of Income for the three months ended
December 30, 1995 and December 31, 1994 (In thousands except per share
amounts) (Unaudited)
Three Months Ended
----------------------------
December 30, December 31,
1995 1994
------------- -----------
Revenues:
Service revenues $ 50,122 $ 30,642
Product revenues 4,756 4,029
-------- -------
54,878 34,671
-------- -------
Costs and Operating Expenses:
Cost of service revenues 34,906 22,901
Cost of product revenues 4,012 3,289
Selling, general and administrative expenses 10,962 5,272
Product and new business development expenses 259 287
-------- --------
50,139 31,749
-------- --------
Operating Income 4,739 2,922
Interest Income 1,236 778
Interest Expense (includes $1,331 and $206
to parent company) (2,801) (559)
Gain on Issuance of Stock by Subsidiaries - 161
Gain on Sale of Related Party Investments 100 138
-------- --------
Income Before Provision for Income Taxes
and Minority Interest 3,274 3,440
Provision for Income Taxes 1,392 902
Minority Interest Expense 295 1,396
-------- --------
Net Income $ 1,587 $ 1,142
======== ========
Earnings per Share $ .09 $ .07
======== ========
Weighted Average Shares 18,313 17,155
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
4PAGE
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Form 10-Q
December 30, 1995
THERMO TERRATECH INC.
(b)Consolidated Statement of Income for the nine months ended
December 30, 1995 and December 31, 1994 (In thousands except per share
amounts) (Unaudited)
Nine Months Ended
---------------------------
December 30, December 31,
1995 1994
------------ ------------
Revenues:
Service revenues $145,152 $ 83,994
Product revenues 13,364 10,556
-------- --------
158,516 94,550
-------- --------
Costs and Operating Expenses:
Cost of service revenues 98,842 61,860
Cost of product revenues 11,770 8,806
Selling, general and administrative expenses 34,195 16,769
Product and new business development expenses 817 643
Write-off of cost in excess of net assets
of acquired company (Note 5) 4,995 -
-------- --------
150,619 88,078
-------- --------
Operating Income 7,897 6,472
Interest Income 4,002 2,203
Interest Expense (includes $4,229 and $480
to parent company) (8,033) (1,519)
Gain on Issuance of Stock by Subsidiaries
(Note 4) 2,742 1,058
Gain on Sale of Investments (includes $746
on sale of related party debentures in
fiscal 1995) 180 749
Loss on Sale of Assets (Note 6) (569) -
-------- --------
Income Before Provision for Income Taxes
and Minority Interest 6,219 8,963
Provision for Income Taxes 3,736 1,978
Minority Interest Expense 1,106 3,934
-------- --------
Net Income $ 1,377 $ 3,051
======== ========
Earnings per Share $ .08 $ .18
======== ========
Weighted Average Shares 18,163 17,099
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
5PAGE
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Form 10-Q
December 30, 1995
THERMO TERRATECH INC.
(c)Consolidated Statement of Cash Flows for the nine months ended
December 30, 1995 and December 31, 1994 (In thousands) (Unaudited)
Nine Months Ended
-----------------------------
December 30, December 31,
1995 1994
------------ ------------
Operating Activities:
Net income $ 1,377 $ 3,051
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 9,148 5,507
Write-off of cost in excess of net assets of
acquired company (Note 5) 4,995 -
Loss on sale of assets (Note 6) 569 -
Minority interest expense 1,106 3,934
Provision for losses on accounts receivable (59) 148
Other noncash expenses 51 371
Increase in deferred income taxes 93 -
Gain on issuance of stock by subsidiaries
(Note 4) (2,742) (1,058)
Gain on sale of investments (180) (749)
Changes in current accounts, excluding the
effects of acquisitions:
Accounts receivable (2,207) (1,629)
Inventories and unbilled contract costs
and fees (1,716) (66)
Other current assets (155) (1,177)
Current liabilities (2,530) 1,695
-------- --------
Net cash provided by operating activities 7,750 10,027
-------- --------
Investing Activities:
Acquisitions, net of cash acquired (Note 3) (43,117) (17,786)
Purchase of minority interest in Thermo Terra
Tech joint venture (Note 2) (34,267) -
Purchases of available-for-sale investments (31,000) -
Proceeds from sale and maturities of
available-for-sale investments 29,295 18,250
Purchases of property, plant and equipment (12,076) (4,524)
Proceeds from sale of property, plant and
equipment 683 61
Purchase of other assets (383) (445)
-------- --------
Net cash used in investing activities $(90,865) $ (4,444)
-------- ---------
6PAGE
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Form 10-Q
December 30, 1995
THERMO TERRATECH INC.
(c)Consolidated Statement of Cash Flows for the nine months ended
December 30, 1995 and December 31, 1994 (In thousands) (Unaudited)
(continued)
Nine Months Ended
-----------------------------
December 30, December 31,
1995 1994
------------ ------------
Financing Activities:
Net proceeds from issuance of subordinated
convertible debentures (Note 4) $ 36,889 $ -
Issuance of notes to parent company (Note 2) 35,000 19,000
Repayment of note payable to parent company
(Note 4) (4,000) -
Proceeds from issuance of Company and
subsidiary common stock (Note 4) 7,405 3,865
Issuance of short-term obligations 2,178 -
Repayment of note payable (660) -
Dividends paid by subsidiary to minority
shareholders (393) (343)
Issuance of notes receivable (401) (700)
Other - (144)
-------- --------
Net cash provided by financing
activities 76,018 21,678
-------- --------
Exchange Rate Effect on Cash (402) 327
-------- --------
Increase (Decrease) in Cash and Cash Equivalents (7,499) 27,588
Cash and Cash Equivalents at Beginning of
Period 35,808 15,976
-------- --------
Cash and Cash Equivalents at End of Period $ 28,309 $ 43,564
======== ========
Cash Paid For:
Interest $ 6,044 $ 1,168
Income taxes $ 3,998 $ 1,461
The accompanying notes are an integral part of these consolidated financial
statements.
7PAGE
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Form 10-Q
December 30, 1995
THERMO TERRATECH INC.
(d) Notes to Consolidated Financial Statements - December 30, 1995
1. General
The interim consolidated financial statements presented have been
prepared by Thermo TerraTech Inc. (the Company) (formerly Thermo Process
Systems Inc.) without audit and, in the opinion of management, reflect all
adjustments of a normal recurring nature necessary for a fair statement of
(a) the results of operations for the three- and nine-month periods ended
December 30, 1995 and December 31, 1994, (b) the financial position at
December 30, 1995, and (c) the cash flows for the nine-month periods ended
December 30, 1995 and December 31, 1994. Interim results are not
necessarily indicative of results for a full year.
The consolidated balance sheet presented as of April 1, 1995, has been
derived from the consolidated financial statements that have been audited
by the Company's independent public accountants. The consolidated financial
statements and notes are presented as permitted by Form 10-Q and do not
contain certain information included in the annual financial statements and
notes of the Company. The consolidated financial statements and notes
included herein should be read in conjunction with the financial statements
and notes included in the Company's Annual Report on Form 10-K for the
fiscal year ended April 1, 1995, filed with the Securities and Exchange
Commission.
2. Dissolution of Thermo Terra Tech Joint Venture
Effective April 2, 1995, the Company and Thermo Instrument Systems
Inc. (Thermo Instrument) dissolved their Thermo Terra Tech joint venture
and the Company purchased the businesses formerly operated by the joint
venture from Thermo Instrument for $34,267,000 in cash. As a result of this
transaction, the Company increased its ownership in the businesses operated
by the joint venture from 51% to 100%. Based on unaudited data, if the
acquisition of Thermo Instrument's share of such businesses by the Company
had occurred at the beginning of fiscal 1995, net income and earnings per
share on a pro forma basis would have been $1,429,000 and $.08,
respectively, for the three months ended December 31, 1994, and $3,838,000
and $.22, respectively, for the nine months ended December 31, 1994. The
Company borrowed the purchase price from Thermo Electron Corporation
(Thermo Electron) through the issuance of a $35,000,000 promissory note due
May 13, 1997 and bearing interest at the Commercial Paper Composite Rate
plus 25 basis points, set at the beginning of each quarter.
In June 1995, the Company transferred three businesses formerly
operated by the joint venture, collectively known as the Nuclear Services
Group (renamed Thermo Nutech), to the Company's Thermo Remediation Inc.
(Thermo Remediation) subsidiary in exchange for 1,583,360 shares of Thermo
Remediation common stock.
8PAGE
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Form 10-Q
December 30, 1995
THERMO TERRATECH INC.
(d) Notes to Consolidated Financial Statements - December 30, 1995
(continued)
3. Acquisitions
On May 10, 1995, the Company acquired substantially all of the assets
of Lancaster Laboratories, Inc. and its affiliate Clewmark Holdings
(collectively Lancaster Laboratories). Lancaster Laboratories, based in
Lancaster, Pennsylvania, is a provider of high-quality analytical services
to the environmental, food, and pharmaceutical industries. The purchase
price for the assets was $19,807,000 in cash, plus the assumption of
approximately $5,333,000 in bank indebtedness existing as of the closing of
the acquisition.
On December 8, 1995, the Company, through Thermo Remediation, acquired
Remediation Technologies, Inc. (ReTec), a provider of integrated
environmental services such as the remediation of industrial sites
contaminated with organic wastes and residues. The purchase price of $29.7
million consisted of $18.5 million in cash, $3.7 million in Thermo
Remediation's common stock and warrants, and approximately $7.5 million
attributable to the conversion of outstanding ReTec stock options into
Thermo Remediation's stock options.
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 $28,766,000, which is
being amortized over 40 years. Allocation of the purchase price for these
acquisitions was based on an estimate of the fair value of the net assets
acquired and is subject to adjustment.
Based on unaudited data, the following table presents selected
financial information for the Company, Lancaster Laboratories, and ReTec on
a pro forma basis, assuming the companies had been combined since the
beginning of fiscal 1995.
Three Months Ended Nine Months Ended
------------------------- -------------------------
(In thousands except December 30, December 31, December 30, December 31,
per share amounts) 1995 1994 1995 1994
--------------------------------------------------------------------------
Revenues $62,933 $55,719 $192,308 $149,576
Net income 1,050 3,245 1,502 6,095
Earnings per share .06 .19 .08 .36
The pro forma results are not necessarily indicative of future
operations or the actual results that would have occurred had the
acquisitions been made at the beginning of fiscal 1995.
9PAGE
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Form 10-Q
December 30, 1995
THERMO TERRATECH INC.
(d) Notes to Consolidated Financial Statements - December 30, 1995
(continued)
4. Subsidiary Debenture Offering and Private Placement of Subsidiary
Common Stock
On May 4, 1995, Thermo Remediation issued and sold $37,950,000
principal amount of 4 7/8% subordinated convertible debentures due 2000.
The debentures are convertible into shares of Thermo Remediation's common
stock at a conversion price of $17.92 per share and 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. In addition, in May 1995, Thermo Remediation sold
500,000 shares of its common stock in a private placement at $13.25 per
share for net proceeds of $6,625,000, resulting in a gain of $2,742,000. In
June 1995, Thermo Remediation repaid its $4,000,000 note payable to Thermo
Electron with proceeds from the offerings. As of December 30, 1995, the
Company owned 67.6% of Thermo Remediation's outstanding common stock.
5. Write-off of Cost in Excess of Net Assets of Acquired Company
Following the purchases of Killam Associates in February 1995, the
businesses formerly operated by the Thermo Terra Tech joint venture from
Thermo Instrument in April 1995, and Lancaster Laboratories in May 1995,
the primary growth focus of the Company has become environmental
infrastructure services. The Company no longer expects to reinvest in the
thermal-processing equipment business to the extent necessary to recover
the cost in excess of net assets of acquired company acquired with that
business. Accordingly, in the second quarter of fiscal 1996, the Company
wrote off $4,995,000 of cost in excess of net assets of acquired company
associated with the thermal-processing equipment business. This noncash
expense is nondeductible for tax purposes.
6. Loss on Sale of Assets
During September 1995, the Company sold to a management group the
assets of a small civil engineering design office in Williston, Vermont,
that was no longer included in the geographic expansion plans of the
Company. An intangible asset of $569,000 associated with this office was
not recovered in the sale price and, accordingly, was written off during
the second quarter of fiscal 1996. This noncash expense is nondeductible
for tax purposes. Sales and earnings of this office were not material to
the Company.
10PAGE
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Form 10-Q
December 30, 1995
THERMO TERRATECH INC.
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
The Company is a provider of environmental services and infrastructure
planning and design, encompassing a range of specializations within the
consulting and design, remediation and recycling, laboratory testing, and
metal-treating industries. The Company's environmental services businesses
are affected by several factors, most particularly, extreme weather
variations, government spending, and deregulation of remediation
activities.
Consulting and Design - The Company's wholly owned Bettigole Andrews &
Clark and Normandeau Associates subsidiaries provide both private and
public sector clients with a range of consulting services that address
transportation planning and design, and natural resource management issues,
respectively. In February 1995, the Company acquired Elson T. Killam
Associates Inc. (Killam Associates), which provides environmental
consulting and engineering services and specializes in wastewater treatment
and water resources management.
Remediation and Recycling - The Company's majority-owned Thermo
Remediation Inc. (Thermo Remediation) subsidiary operates a network of
soil-remediation centers, serving customers in more than a dozen states by
providing thermal treatment of soil to remove and destroy petroleum
contamination caused by leaking underground and aboveground storage tanks,
spills, and other sources. In addition, Thermo Remediation's Thermo Fluids
subsidiary, located in Arizona, offers fluids-recycling services including
waste motor oil and wastewater treatment throughout Arizona and in
neighboring states. Through its Thermo Nutech subsidiary, Thermo
Remediation provides services to remove radioactive contaminants from sand,
gravel, and soil, as well as health physics, radiochemistry laboratory, and
radiation dosimetry services. In December 1995, Thermo Remediation acquired
Remediation Technologies, Inc. (ReTec), which provides integrated
environmental services such as remediation of industrial sites contaminated
with organic wastes and residues. The Company's majority-owned Thermo
EuroTech N.V. (Thermo EuroTech) subsidiary, located in the Netherlands,
provides wastewater treatment services as well as services to test, remove,
and install underground storage tanks. In March 1995, EuroTech acquired
Refining and Trading Holland B.V. (North Refinery), which specializes in
converting "off-spec" and contaminated petroleum fluids into usable oil
products.
Laboratory Testing - The Company's wholly owned Thermo Analytical
subsidiary operates a network of analytical laboratories that provide
environmental testing services to commercial and government clients
throughout the U.S. The May 1995 acquisition of Lancaster Laboratories,
Inc. (Lancaster Laboratories) expands the Company's range of contract
services beyond environmental testing to the pharmaceutical- and
food-testing industries.
Metal Treating - The Company performs metallurgical processing
services, using thermal-treatment equipment at locations in California and
Minnesota. The Company also designs, manufactures, and installs advanced
custom-engineered, thermal-processing systems through its equipment
division located in Michigan.
11PAGE
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Form 10-Q
December 30, 1995
THERMO TERRATECH INC.
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Results of Operations
Third Quarter Fiscal 1996 Compared With Third Quarter Fiscal 1995
-----------------------------------------------------------------
Total revenues in the third quarter of fiscal 1996 increased 58% to
$54.9 million from $34.7 million in the third quarter of fiscal 1995.
Consulting and design services revenues were $17.9 million in fiscal 1996,
compared with $9.1 million in fiscal 1995. This increase results from the
inclusion of $10.2 million in revenues from Killam Associates, which was
acquired in February 1995, offset in part by a decline in revenues due to
the completion of a major contract in early fiscal 1995, and delays in
contract approval by state governments due to budget constraints. Revenues
from remediation and recycling services were $19.7 million in fiscal 1996,
compared with $15.9 million in fiscal 1995. The increase in revenues was
primarily due to the inclusion of $6.9 million in revenues from businesses
acquired in fiscal 1995 and 1996, and an increase of $0.8 million in
revenues from a long-term environmental restoration contract for the U.S.
Department of Energy's (DOE's) Hanford site (Hanford). These increases were
offset in part by lower soil-remediation services revenues resulting from
competitive pricing pressures and a decrease in the volume of soil
processed as a result of the ongoing regulatory uncertainties at two sites.
Revenues from radiochemistry laboratory work decreased, reflecting a
reduction in spending at the DOE. Revenues from laboratory testing
services, excluding the radiochemistry laboratory services included in
remediation and recycling services, increased to $9.8 million in fiscal
1996 from $2.5 million in fiscal 1995, reflecting the inclusion of $8.2
million in revenues from Lancaster Laboratories, which was acquired in May
1995, offset in part by a decline in revenues due to reduced federal
spending and a shift in business from existing sites to the newly acquired
Lancaster Laboratories. Metal treating revenues increased to $7.7 million
in fiscal 1996 from $7.2 million in fiscal 1995, due primarily to an
increase in equipment sales.
The gross profit margin increased to 29% in the third quarter of
fiscal 1996 from 24% in the third quarter of fiscal 1995, due to the
inclusion of higher-margin revenues from Killam Associates, offset in part
by lower margins from remediation and recycling services revenues due
primarily to a lower gross profit margin associated with the newly acquired
ReTec, competitive pricing pressures, and a reduction in radiochemistry
laboratory work.
Selling, general and administrative expenses as a percentage of
revenues increased to 20% in the third quarter of fiscal 1996 from 15% in
the third quarter of fiscal 1995 due primarily to the inclusion of higher
selling, general and administrative expenses as a percentage of revenues at
Killam Associates.
12PAGE
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Form 10-Q
December 30, 1995
THERMO TERRATECH INC.
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Third Quarter Fiscal 1996 Compared With Third Quarter Fiscal 1995
-----------------------------------------------------------------
(continued)
Net interest expense was $1.6 million in the third quarter of fiscal
1996, compared with net interest income of $219,000 in the third quarter of
fiscal 1995. This change resulted primarily from funds expended to purchase
the businesses formerly operated by the Thermo Terra Tech joint venture
from Thermo Instrument Systems Inc. (Thermo Instrument), as well as Killam
Associates and Lancaster Laboratories. These expenditures were made from
existing funds and borrowings from Thermo Electron Corporation (Thermo
Electron). In addition, interest expense increased in fiscal 1996 due to
the issuance of $38 million principal amount of 4 7/8% subordinated
convertible debentures by Thermo Remediation in May 1995.
As a result of the sale of stock by Thermo EuroTech, the Company
recorded a gain of $161,000 in the third quarter of fiscal 1995. The gain
represents an increase in the Company's proportionate share of the
subsidiary's equity and is classified as gain on issuance of stock by
subsidiaries in the accompanying statement of income.
The effective tax rate in the third quarter of fiscal 1996 was higher
than the statutory federal income tax rate due primarily to state income
taxes and the nondeductible amortization of cost in excess of net assets of
acquired companies. In fiscal 1995, the effective tax rate was less than
the statutory federal income tax rate due to the exclusion of income taxed
directly to a minority partner.
Minority interest expense decreased to $295,000 in the third quarter
of fiscal 1996 from $1.4 million in the third quarter of fiscal 1995 due
primarily to the Company's purchase of the businesses formerly operated by
the Thermo Terra Tech joint venture from Thermo Instrument, effective April
2, 1995 (Note 2).
First Nine Months Fiscal 1996 Compared With First Nine Months Fiscal 1995
-------------------------------------------------------------------------
Total revenues in the first nine months of fiscal 1996 increased 68%
to $158.5 million from $94.6 million in the first nine months of fiscal
1995. Consulting and design services revenues were $56.1 million in fiscal
1996, compared with $25.3 million in fiscal 1995. This increase results
from the inclusion of $30.5 million in revenues from Killam Associates,
which was acquired in February 1995. Revenues from remediation and
recycling services were $52.2 million in fiscal 1996, compared with $43.2
million in fiscal 1995. The increase in revenues was primarily due to the
inclusion of $11.3 million in revenues from businesses acquired in fiscal
1995 and 1996, and an increase of $3.1 million in revenues from the Hanford
contract. These increases were offset in part by lower soil-remediation
services revenues resulting from a decrease in the volume of soil processed
as a result of regulatory uncertainties at several sites, severe weather
conditions at another site, and competitive pricing pressures. Revenues
13PAGE
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Form 10-Q
December 30, 1995
THERMO TERRATECH INC.
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
First Nine Months Fiscal 1996 Compared With First Nine Months Fiscal 1995
-------------------------------------------------------------------------
(continued)
from radiochemistry laboratory work decreased, reflecting a reduction in
spending at the DOE. Revenues from laboratory testing services, excluding
the radiochemistry laboratory services included in remediation and
recycling services, increased to $27.4 million in fiscal 1996 from $6.5
million in fiscal 1995, reflecting the inclusion of $22.1 million in
revenues from Lancaster Laboratories, which was acquired in May 1995,
offset in part by the reasons discussed in the results of operations for
the third quarter. Metal treating revenues increased to $23.0 million in
fiscal 1996 from $19.6 million in fiscal 1995, due primarily to an increase
in equipment sales.
The gross profit margin increased to 30% in the first nine months of
fiscal 1996 from 25% in the first nine months of fiscal 1995, due to the
inclusion of higher-margin revenues from Killam Associates, offset in part
by lower margins from remediation and recycling services revenues primarily
due to competitive pricing pressures, and a reduction in radiochemistry
laboratory work.
During the second quarter of fiscal 1996, the Company wrote off
$4,995,000 of cost in excess of net assets of acquired company related to
its thermal-processing equipment business (Note 5). In addition, in the
second quarter of fiscal 1996, the Company incurred a loss of $569,000 as a
result of the sale of an engineering office (Note 6). These noncash
expenses are nondeductible for tax purposes.
Selling, general and administrative expenses as a percentage of
revenues increased to 22% in the first nine months of fiscal 1996 from 18%
in the first nine months of fiscal 1995 due primarily to the inclusion of
higher selling, general and administrative expenses as a percentage of
revenues at Killam Associates.
Net interest expense was $4.0 million in the first nine months of
fiscal 1996, compared with net interest income of $684,000 in the first
nine months of fiscal 1995, due to the reasons discussed in the results of
operations for the third quarter.
As a result of the sale of stock by Thermo Remediation in fiscal 1996
and 1995 and by Thermo EuroTech in fiscal 1995, the Company recorded gains
of $2,742,000 in the first nine months of fiscal 1996 and $1,058,000 in the
first nine months of fiscal 1995. These gains represent increases in the
Company's proportionate share of the subsidiaries' equity and are
classified as gain on issuance of stock by subsidiaries in the accompanying
statement of income (Note 4).
14PAGE
<PAGE>
Form 10-Q
December 30, 1995
THERMO TERRATECH INC.
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
First Nine Months Fiscal 1996 Compared With First Nine Months Fiscal 1995
-------------------------------------------------------------------------
(continued)
The effective tax rate in the first nine months of fiscal 1996 was
higher than the statutory federal income tax rate due primarily to the
nondeductible write-off of cost in excess of net assets of acquired company
and the loss on sale of assets, offset in part by the nontaxable gains on
issuance of stock by subsidiaries. In fiscal 1995, the effective tax rate
was less than the statutory federal income tax rate primarily due to the
exclusion of income taxed directly to a minority partner.
Minority interest expense decreased to $1.1 million in the first nine
months of fiscal 1996 from $3.9 million in the first nine months of fiscal
1995 due primarily to the Company's purchase of the businesses formerly
operated by the Thermo Terra Tech joint venture (Note 2).
Financial Condition
Liquidity and Capital Resources
-------------------------------
Consolidated working capital, including cash, cash equivalents, and
short-term available-for-sale investments, was $70.2 million at December
30, 1995, compared with $64.7 million at April 1, 1995. Cash, cash
equivalents, and short- and long-term available-for-sale investments were
$46.1 million at December 30, 1995, compared with $51.5 million at April 1,
1995. Of the $46.1 million balance at December 30, 1995, $37.0 million was
held by Thermo Remediation, $0.4 million by Thermo EuroTech, and the
remainder by the Company and its wholly owned subsidiaries. During the
first nine months of fiscal 1996, the Company expended an aggregate of
$77.4 million, net of cash acquired, to purchase Lancaster Laboratories,
ReTec, and the businesses formerly operated by the Thermo Terra Tech joint
venture from Thermo Instrument (Notes 2 and 3). Changes in balance sheet
accounts between April 1, 1995 and December 30, 1995 primarily reflect the
acquisitions of Lancaster Laboratories and ReTec, and Thermo Remediation's
issuance of subordinated convertible debentures and private placement of
common stock discussed below. In addition, the Company expended $12.1
million on purchases of property, plant and equipment, primarily relating
to two new soil-remediation sites under construction. The Company plans to
expend an additional $2.0 million on one of these sites still under
construction in the fourth quarter of fiscal 1996.
In May 1995, Thermo Remediation issued and sold $38 million principal
amount of 4 7/8% subordinated convertible debentures due 2000. In addition,
in May 1995, Thermo Remediation sold 500,000 shares of its common stock in
a private placement for net proceeds of $6.6 million. In June 1995, Thermo
Remediation repaid its $4.0 million note payable to Thermo Electron with
proceeds from the offerings.
15PAGE
<PAGE>
Form 10-Q
December 30, 1995
THERMO TERRATECH INC.
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Liquidity and Capital Resources (continued)
-------------------------------
As of December 30, 1995, the Company had outstanding obligations to
Thermo Electron Corporation, through the issuance of promissory notes due
April 1996 through June 1997, of $88 million. Thermo Electron has
indicated its intention to require the Company's indebtedness to Thermo
Electron be repaid to the extent that the Company's liquidity and cash
flow permit. Although the Company has no material capital expenditure
commitments, except as noted above, such expenditures will largely be
affected by the number and size of the complementary businesses that can
be acquired or developed during the year. The Company believes that it
has adequate resources to meet the financial needs of its current
operations for the foreseeable future.
PART II - Other Information
Item 4 - Submission of Matters to a Vote of Security Holders
On December 13, 1995, at the Annual Meeting of Shareholders, the
shareholders elected six incumbent directors to a one-year term expiring in
1996. The directors reelected at the meeting were: John P. Appleton, John
N. Hatsopoulos, Donald E. Noble, William A. Rainville, Paul E. Tsongas, and
Polyvios C. Vintiadis. Dr. John P. Appleton received 16,518,712 shares
voted in favor of his election and 193,515 shares voted against; Mr. John
N. Hatsopoulos received 16,696,767 shares voted in favor of his election
and 15,460 shares voted against; Mr. Donald E. Noble received 16,696,679
shares voted in favor of his election and 15,548 shares voted against; Mr.
William A. Rainville received 16,696,784 shares voted in favor of his
election and 15,443 shares voted against; Mr. Paul E. Tsongas received
16,688,031 shares voted in favor of his election and 24,196 shares voted
against; and Mr. Polyvios C. Vintiadis received 16,696,783 shares voted in
favor of his election and 15,444 shares voted against. No abstentions or
broker nonvotes were recorded on the election of directors.
The shareholders also approved a proposal to amend the Company's
Certificate of Incorporation to change the Company's name to Thermo
TerraTech Inc. as follows: 16,514,948 shares voted in favor of the
proposal, 13,008 shares voted against, and 8,668 shares abstained. There
were 175,603 broker nonvotes recorded on the proposal.
The shareholders also approved a proposal to amend the Company's
Directors' Stock Option Plan to change the formula for the award of stock
options to outside directors to purchase common stock of the Company and
its majority-owned subsidiaries as follows: 16,440,870 shares voted in
favor of the proposal, 49,622 shares voted against, and 201,308 shares
abstained. There were 20,427 broker nonvotes recorded on the proposal.
16PAGE
<PAGE>
Form 10-Q
December 30, 1995
THERMO TERRATECH INC.
PART II - Other Information (continued)
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
See Exhibit Index on the page immediately preceding exhibits.
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K, dated December 8,
1995, pertaining to the acquisition of Remediation Technologies, Inc. On
January 19, 1996, the Company filed an amendment on Form 8-K/A, the purpose
of which was to file the financial information required by Form 8-K
concerning this acquisition.
The Company filed a Current Report on Form 8-K, dated December 13,
1995, pertaining to the change of the Company's name to Thermo TerraTech
Inc.
17PAGE
<PAGE>
Form 10-Q
December 30, 1995
THERMO TERRATECH INC.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized as of the 6th day of February
1996.
THERMO TERRATECH INC.
Paul F. Kelleher
------------------------
Paul F. Kelleher
Chief Accounting Officer
John N. Hatsopoulos
------------------------
John N. Hatsopoulos
Vice President and
Chief Financial Officer
18PAGE
<PAGE>
Form 10-Q
December 30, 1995
THERMO TERRATECH INC.
EXHIBIT INDEX
-------------
Exhibit Number Document Page
-------------- ------------------------------------------------ ----
27 Financial Data Schedule.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO TERRA
TECH INC.'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED DECEMBER 30,
1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<FISCAL-YEAR-END> MAR-30-1996
<PERIOD-END> DEC-30-1995
<CASH> 28,309
<SECURITIES> 15,640
<RECEIVABLES> 50,984
<ALLOWANCES> 3,162
<INVENTORY> 3,850
<CURRENT-ASSETS> 130,129
<PP&E> 117,483
<DEPRECIATION> 38,087
<TOTAL-ASSETS> 336,491
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<COMMON> 1,750
0
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<OTHER-SE> 82,528
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<SALES> 13,364
<TOTAL-REVENUES> 158,516
<CGS> 11,770
<TOTAL-COSTS> 110,612
<OTHER-EXPENSES> 5,812
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<INTEREST-EXPENSE> 8,033
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