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
September 27, 1997.
[ ] 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 September 27, 1997
---------------------------- ---------------------------------
Common Stock, $.10 par value 18,919,401
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
THERMO TERRATECH INC.
Consolidated Balance Sheet
(Unaudited)
Assets
September 27, March 29,
(In thousands) 1997 1997
------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $ 3,271 $ 63,172
Short-term available-for-sale investments, at
quoted market value (amortized cost of $8,148
and $18,380) 8,153 18,391
Short-term held-to-maturity investments, at
amortized cost (quoted market value of
$27,260 and $13,238) 27,075 12,971
Accounts receivable, less allowances of $3,674
and $3,838 62,750 49,191
Unbilled contract costs and fees 38,285 29,053
Inventories:
Raw materials and supplies 2,325 2,483
Work in process and finished goods 574 538
Prepaid and refundable income taxes 7,484 7,369
Prepaid expenses 4,704 3,870
-------- --------
154,621 187,038
-------- --------
Property, Plant, and Equipment, at Cost 139,512 132,332
Less: Accumulated depreciation and amortization 50,682 48,766
-------- --------
88,830 83,566
-------- --------
Long-term Held-to-maturity Investments, at
Amortized Cost (quoted market value of $13,142
in fiscal 1997) - 13,086
-------- --------
Other Assets 20,731 17,308
-------- --------
Cost in Excess of Net Assets of Acquired Companies
(Note 2) 100,101 92,786
-------- --------
$364,283 $393,784
======== ========
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THERMO TERRATECH INC.
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
September 27, March 29,
(In thousands except share amounts) 1997 1997
-----------------------------------------------------------------------
Current Liabilities:
Notes payable and current maturities of
long-term obligations (includes $38,000
due to parent company in fiscal 1997) $ 33,218 $ 67,495
Accounts payable 15,878 12,292
Accrued payroll and employee benefits 11,222 12,182
Billings in excess of revenues earned 2,348 4,319
Other accrued expenses 10,878 10,509
Due to parent company 3,283 2,926
-------- --------
76,827 109,723
-------- --------
Deferred Income Taxes 5,297 5,297
-------- --------
Other Deferred Items 912 893
-------- --------
Long-term Obligations:
Subordinated convertible debentures 149,800 149,800
Other 2,042 15,386
-------- --------
151,842 165,186
-------- --------
Minority Interest 32,903 29,159
-------- --------
Shareholders' Investment:
Common stock, $.10 par value, 75,000,000 shares
authorized; 19,583,773 and 18,304,424 shares
issued 1,958 1,830
Capital in excess of par value 75,417 62,610
Retained earnings 26,945 24,046
Treasury stock at cost, 664,372 and 417,696 shares (6,253) (3,941)
Cumulative translation adjustment (1,568) (1,026)
Net unrealized gain on available-for-sale
investments 3 7
-------- --------
96,502 83,526
-------- --------
$364,283 $393,784
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
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THERMO TERRATECH INC.
Consolidated Statement of Income
(Unaudited)
Three Months Ended
----------------------------
September 27, September 28,
(In thousands except per share amounts) 1997 1996
------------------------------------------------------------------------
Revenues:
Service revenues $71,240 $61,121
Product revenues (Note 4) 9,921 6,148
------- -------
81,161 67,269
------- -------
Costs and Operating Expenses:
Cost of service revenues 57,072 50,339
Cost of product revenues 8,604 4,902
Selling, general, and administrative expenses 10,306 10,383
Product and new business development expenses 213 275
------- -------
76,195 65,899
------- -------
Operating Income 4,966 1,370
Interest Income 793 2,017
Interest Expense (includes $553 to parent company
in fiscal 1997) (2,566) (3,462)
Equity in Earnings of Unconsolidated Subsidiary
(Note 4) 56 280
Gain on Issuance of Stock by Subsidiary - 1,475
Gain on Sale of Investments, Net - 19
Other Income - 47
------- -------
Income Before Provision for Income Taxes
and Minority Interest 3,249 1,746
Provision for Income Taxes 1,512 207
Minority Interest Expense 170 89
------- -------
Net Income $ 1,567 $ 1,450
======= =======
Earnings per Share $ .08 $ .08
======= =======
Weighted Average Shares 18,989 18,848
======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
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THERMO TERRATECH INC.
Consolidated Statement of Income
(Unaudited)
Six Months Ended
----------------------------
September 27, September 28,
(In thousands except per share amounts) 1997 1996
------------------------------------------------------------------------
Revenues:
Service revenues $136,350 $122,987
Product revenues (Note 4) 17,330 11,900
-------- --------
153,680 134,887
-------- --------
Costs and Operating Expenses:
Cost of service revenues 108,892 99,472
Cost of product revenues 14,735 9,620
Selling, general, and administrative expenses 20,244 19,605
Product and new business development expenses 435 574
-------- --------
144,306 129,271
-------- --------
Operating Income 9,374 5,616
Interest Income 2,196 3,647
Interest Expense (includes $447 and $1,382 to
parent company) (5,699) (6,570)
Equity in Earnings of Unconsolidated Subsidiary
(Note 4) 174 559
Gain on Issuance of Stock by Subsidiary - 1,475
Gain on Sale of Investments, Net - 166
Other Income 204 47
-------- --------
Income Before Provision for Income Taxes
and Minority Interest 6,249 4,940
Provision for Income Taxes 2,911 1,721
Minority Interest Expense 439 311
-------- --------
Net Income $ 2,899 $ 2,908
======== ========
Earnings per Share $ .16 $ .15
======== ========
Weighted Average Shares 18,025 18,839
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
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THERMO TERRATECH INC.
Consolidated Statement of Cash Flows
(Unaudited)
Six Months Ended
----------------------------
September 27, September 28,
(In thousands) 1997 1996
------------------------------------------------------------------------
Operating Activities:
Net income $ 2,899 $ 2,908
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization 7,107 6,523
Equity in earnings of unconsolidated
subsidiary (Note 4) (174) (559)
Minority interest expense 439 311
Provision for losses on accounts
receivable 223 388
Decrease in deferred income taxes - (22)
Gain on issuance of stock by
subsidiary - (1,475)
Gain on sale of property, plant, and
equipment (204) -
Gain on sale of investments, net - (166)
Other noncash (income) expense 38 (87)
Changes in current accounts, excluding the
effects of acquisitions:
Accounts receivable (11,404) (5,850)
Inventories and unbilled contract
costs and fees (9,142) (3,423)
Other current assets (663) (1,153)
Current liabilities 1,091 5,997
------- --------
Net cash provided by (used in) operating
activities (9,790) 3,392
------- --------
Investing Activities:
Acquisitions, net of cash acquired (Note 2) (5,546) (1,681)
Purchases of available-for-sale investments - (39,027)
Proceeds from sale and maturities of
available-for-sale investments 10,232 19,915
Purchases of property, plant, and equipment (9,654) (8,262)
Proceeds from sale of property, plant, and
equipment 458 393
Purchase of other assets (724) (413)
------- --------
Net cash used in investing activities $(5,234) $(29,075)
------- --------
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THERMO TERRATECH INC.
Consolidated Statement of Cash Flows (continued)
(Unaudited)
Six Months Ended
----------------------------
September 27, September 28,
(In thousands) 1997 1996
-----------------------------------------------------------------------
Financing Activities:
Net proceeds from issuance of subordinated
convertible debentures $ - $112,429
Repayment of notes payable to parent
company (38,000) (50,000)
Proceeds from issuance of Company and
subsidiary common stock 758 4,720
Repurchase of Company and subsidiaries'
common stock (6,622) (1,865)
Repurchase of subordinated convertible
debentures - (1,078)
Issuance of short-term obligations - 560
Repayment of debt (392) (901)
Dividends paid by subsidiary to minority
shareholders (354) (450)
Other (274) (178)
------- --------
Net cash provided by (used in) financing
activities (44,884) 63,237
------- --------
Exchange Rate Effect on Cash 7 (3)
------- --------
Increase (Decrease) in Cash and Cash
Equivalents (59,901) 37,551
Cash and Cash Equivalents at Beginning
of Period 63,172 31,182
------- --------
Cash and Cash Equivalents at End of Period $ 3,271 $ 68,733
======= ========
Noncash Activities:
Fair value of assets of acquired companies $16,977 $ 6,476
Cash paid for acquired companies (7,465) (1,705)
Issuance of subsidiary common stock for
acquired company (2,400) (2,006)
------- --------
Liabilities assumed of acquired companies $ 7,112 $ 2,765
======= ========
Conversions of subordinated convertible
debentures $13,220 $ 4,800
======= ========
The accompanying notes are an integral part of these consolidated
financial statements.
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THERMO TERRATECH INC.
Notes to Consolidated Financial Statements
1. General
The interim consolidated financial statements presented have been
prepared by Thermo TerraTech 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
September 27, 1997, and the results of operations and cash flows for the
three- and six-month periods ended September 27, 1997, and September 28,
1996. Interim results are not necessarily indicative of results for a
full year.
The consolidated balance sheet presented as of March 29, 1997, 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 March 29, 1997, filed with
the Securities and Exchange Commission.
2. Acquisitions
In May 1997, the Company purchased a controlling interest in The
Randers Group Incorporated (Randers), a provider of design, engineering,
project management, and construction services for industrial clients in
the manufacturing, pharmaceutical, and chemical-processing industries.
The Company purchased 7,100,000 shares of Randers common stock from
certain members of Randers' management, and 420,000 shares from Thermo
Power Corporation, an affiliate of the Company, at a price of $0.625 per
share, for an aggregate cost of approximately $4,700,000. Following these
transactions, the Company owns approximately 53.3% of Randers'
outstanding common stock. In addition, Thermo Electron Corporation
(Thermo Electron) owns approximately 8.9% of Randers' outstanding common
stock. Randers had revenues of $12,401,000 in calendar 1996.
The Company has also entered into a definitive agreement to transfer
to Randers, The Killam Group, Inc. (The Killam Group), its wholly owned
engineering and consulting businesses, in exchange for newly issued
shares of Randers' common stock. The exact price for these businesses
will be equal to the book value of the transferred businesses as of the
closing date of the transfer. The number of new shares of Randers common
stock to be issued to the Company will equal such book value divided by
$0.625. Based on the unaudited net book value of The Killam Group as of
September 27, 1997, which was $67,150,000, Randers would issue
107,439,213 new shares of its common stock to the Company. Upon such
issuance, the Company and Thermo Electron would own approximately 94.6%
and 1.03%, respectively, of Randers' outstanding common stock.
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THERMO TERRATECH INC.
2. Acquisitions (continued)
The transfer is subject to approval of the transaction by Randers'
shareholders and continued listing of Randers' common stock on the
American Stock Exchange following the transaction. However, because the
Company currently owns approximately 53.3% of Randers' outstanding common
stock, approval by Randers' shareholders is assured.
In addition, during the first six months of fiscal 1998, the
Company's Thermo Remediation Inc. (Thermo Remediation) subsidiary made
acquisitions for an aggregate purchase price of $2,765,000 in cash and
374,507 shares of Thermo Remediation's common stock, valued at
$2,400,000.
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 $8,350,000, which is
being amortized over lives ranging from 20 to 40 years. Allocation of the
purchase price for these acquisitions was based on estimates of the fair
value of the net assets acquired and is subject to adjustment upon
finalization of the purchase price allocation. Pro forma data is not
presented since these acquisitions were not material to the Company's
results of operations.
3. Presentation
Certain amounts in fiscal 1997 have been reclassified to conform to
the presentation in the fiscal 1998 financial statements.
4. Subsequent Events
On October 6, 1997, Thermo Remediation sold its 50% limited-liability
interest in RETEC/TETRA L.C. to TETRA Thermal, Inc. for $8,825,000 in
cash, subject to post-closing adjustments. The Company realized a gain of
approximately $1,300,000, net of tax and minority interest, on the sale.
On October 10, 1997, the Company sold substantially all of the assets
of its Holcroft Division, excluding certain accounts receivable, to
Holcroft L.L.C., an affiliate of Madison Capital Partners. The sale price
for the transferred assets consisted of $11,417,000 in cash, including
$520,000 withheld by Holcroft L.L.C. pending a post-closing adjustment,
two promissory notes for principal amounts of $2,218,000 and $663,000,
respectively, issued by Holcroft L.L.C. to the Company, and the
assumption by Holcroft L.L.C. of certain liabilities of the Holcroft
Division. The sale price is subject to a post-closing adjustment, which
would reduce the sale price by an amount not to exceed $520,000, based on
a final determination of the net book value of the transferred assets as
of September 27, 1997. Pending resolution of the post-closing adjustment,
the Company expects to realize a gain on the sale.
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THERMO TERRATECH INC.
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 caption "Forward-looking Statements"
in Exhibit 13 in the Company's Annual Report on Form 10-K for the fiscal
year ended March 29, 1997, filed with the Securities and Exchange
Commission.
Overview
The Company provides industrial services and manufacturing support
encompassing a broad range of specializations, including infrastructure
engineering, design and construction, environmental compliance,
laboratory-testing, and metal-treating.
Remediation and Recycling - The Company's majority-owned Thermo
Remediation Inc. (Thermo Remediation) subsidiary, through its Remediation
Technologies, Inc. (ReTec) subsidiary, provides integrated environmental
services such as remediation of industrial sites contaminated with
organic wastes and residues. ReTec's TriTechnics subsidiary, acquired in
May 1997, provides comprehensive consulting and remedial services at
refinery and chemical-plant sites. ReTec's RPM Systems subsidiary,
acquired in September 1997, provides consulting services in the areas of
environmental-management, planning, and information-technology. In
September 1996, Thermo Remediation acquired IEM Sealand Corporation (IEM
Sealand), a provider of construction services for the remediation of
hazardous wastes under contracts with federal and state governments and
other public- and private-sector clients. 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. Through its
TPS Technologies Inc. subsidiary, Thermo Remediation also designs and
operates a network of facilities for the remediation of nonhazardous
soil. In addition, Thermo Remediation's Thermo Fluids subsidiary
collects, tests, processes, and recycles used motor oil and other
industrial oils. The Company's majority-owned Thermo EuroTech N.V.
(Thermo EuroTech) subsidiary, located in the Netherlands, specializes in
converting "off-spec" and contaminated petroleum fluids into usable oil
products.
Consulting and Design - In May 1997, the Company purchased a
controlling interest in The Randers Group Incorporated (Randers; Note 2),
a provider of design, engineering, project management, and construction
services for industrial clients in the manufacturing, pharmaceutical, and
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THERMO TERRATECH INC.
Overview (continued)
chemical-processing industries. In September 1997, the Company
transferred to Randers, The Killam Group, Inc., its wholly owned
engineering and consulting business, in exchange for newly issued shares
of Randers' common stock (Note 2). The Company's Killam Associates
subsidiary provides environmental consulting and engineering services and
specializes in wastewater treatment and water resources management. The
Company's Bettigole Andrews Clark & Killam Inc. subsidiary provides both
private- and public-sector clients with a range of consulting services
that address transportation planning and design. In November 1996, the
Company acquired Carlan Consulting Group, Inc. (Carlan), a provider of
transportation and environmental consulting and professional engineering
and architectural services. The Company's wholly owned Normandeau
Associates Inc. subsidiary provides consulting services that address
natural resource management issues.
Laboratory Testing - The Company's wholly owned Thermo Analytical
Inc. subsidiary operates analytical laboratories that provide
environmental and pharmaceutical- and food-testing services to primarily
commercial clients throughout the U.S.
Metal Treating - The Company performs metallurgical processing
services using thermal-treatment equipment at locations in California,
Minnesota, and Wisconsin. The Company also designed, manufactured, and
installed advanced custom-engineered, thermal-processing systems through
its equipment division located in Michigan, until the sale of this
business in October 1997 (Note 4).
Results of Operations
Second Quarter Fiscal 1998 Compared With Second Quarter Fiscal 1997
Total revenues in the second quarter of fiscal 1998 increased 21% to
$81.2 million from $67.3 million in the second quarter of fiscal 1997.
Revenues from remediation and recycling services increased to $37.0
million in fiscal 1998 from $30.8 million in fiscal 1997, due to the
inclusion of $7.2 million of revenues from acquired businesses. Revenues
from soil-remediation services decreased 31% primarily due to a decline
in the volume of soil processed due to overcapacity in the industry. The
Company expects this trend to continue for the foreseeable future.
Revenues from Thermo EuroTech increased 17% to $3.4 million, primarily
due to increased revenues relating to contracts to process oil-based muds
and perform soil-remediation services overseas. These increases were
offset in part by a decrease in revenues due to the sale of Thermo
EuroTech's J. Amerika division in the fourth quarter of fiscal 1997.
Revenues from consulting and design services increased to $21.4 million
in fiscal 1998 from $18.7 million in fiscal 1997. The inclusion of an
aggregate of $4.5 million of revenues from Carlan and Randers, acquired
in November 1996 and May 1997, respectively, was offset in part by a
decrease in revenues due to the completion of two major contracts in
fiscal 1997. Revenues from laboratory-testing services, excluding
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THERMO TERRATECH INC.
Second Quarter Fiscal 1998 Compared With Second Quarter Fiscal 1997
(continued)
radiochemistry laboratory services included in remediation and recycling
services, increased slightly to $9.0 million in fiscal 1998 from $8.3
million in fiscal 1997. Metal-treating revenues increased to $14.5
million in fiscal 1998 from $10.2 million in fiscal 1997, primarily due
to an increase in demand for thermal-processing equipment and services at
existing businesses. The Company sold its thermal-processing equipment
business in October 1997 (Note 4).
The gross profit margin increased slightly to 19% in the second
quarter of fiscal 1998 from 18% in the second quarter of 1997. This
improvement is primarily due to a lower gross profit margin for
laboratory-testing services in the second quarter of fiscal 1997 as a
result of costs incurred related to efforts to eliminate redundant
capabilities at regional laboratories.
Selling, general, and administrative expenses as a percentage of
revenues decreased to 13% in the second quarter of fiscal 1998 from 15%
in the second quarter of fiscal 1997, primarily due to efficiencies
associated with an increase in revenues.
Interest income decreased to $0.8 million in the second quarter of
fiscal 1998 from $2.0 million in the second quarter of fiscal 1997, as a
result of lower average investment balances following the repayment of a
promissory note to Thermo Electron, the repurchase of Company and
subsidiary common stock, as well as the acquisition of Randers (Note 2)
and the funding of increases in accounts receivable and unbilled contract
costs and fees. Interest expense decreased to $2.6 million in the second
quarter of fiscal 1998 from $3.5 million in the second quarter of fiscal
1997, primarily due to the repayment of a promissory note to Thermo
Electron.
The effective tax rates were 47% and 12% in the second quarter of
fiscal 1998 and 1997, respectively. The effective tax rate in fiscal 1998
exceeded the statutory federal income tax rate primarily due to
nondeductible amortization of cost in excess of net assets of acquired
companies and the impact of state income taxes. The effective tax rate in
fiscal 1997 was lower than the statutory federal income tax rate
primarily due to the nontaxable gain on issuance of stock by subsidiary,
offset in part by nondeductible amortization of cost in excess of net
assets of acquired companies and the impact of state income taxes.
Minority interest expense increased slightly to $0.2 million in the
second quarter of fiscal 1998 from $0.1 million in the second quarter of
fiscal 1997, primarily due to the inclusion of minority interest expense
associated with Randers (Note 2).
First Six Months Fiscal 1998 Compared With First Six Months Fiscal 1997
Total revenues in the first six months of fiscal 1998 increased 14%
to $153.7 million from $134.9 million in the first six months of fiscal
1997. Revenues from remediation and recycling services increased to $67.8
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THERMO TERRATECH INC.
First Six Months Fiscal 1998 Compared With First Six Months Fiscal 1997
(continued)
million in fiscal 1998 from $58.7 million in fiscal 1997, due to the
inclusion of $13.8 million of revenues from acquired businesses. Revenues
from soil-remediation services decreased 32% as a result of declines in
the volume of soil processed due to overcapacity in the industry and
competitive pricing pressures. Revenues from Thermo EuroTech decreased
18% to $5.9 million, primarily due to the sale of its J. Amerika division
in the fourth quarter of fiscal 1997, offset in part by increased
revenues relating to contracts to process oil-based muds and perform
soil-remediation services overseas. Revenues from consulting and design
services increased to $42.0 million in fiscal 1998 from $40.2 million in
fiscal 1997. The inclusion of an aggregate of $7.4 million of revenues
from Carlan and Randers, acquired in November 1996 and May 1997,
respectively, was offset in part by a decrease in revenues due to the
completion of two major contracts in fiscal 1997. Revenues from
laboratory-testing services, excluding radiochemistry laboratory services
included in remediation and recycling services, increased slightly to
$18.4 million in fiscal 1998 from $17.6 million in fiscal 1997.
Metal-treating revenues increased to $26.6 million in fiscal 1998 from
$20.1 million in fiscal 1997, primarily due to an increase in demand for
thermal-processing equipment and services at existing businesses.
The gross profit margin increased slightly to 20% in the first six
months of fiscal 1998 from 19% in the first six months of fiscal 1997,
primarily due to the reason discussed in the results of operations for
the second quarter.
Selling, general, and administrative expenses as a percentage of
revenues decreased to 13% in the first six months of fiscal 1998 from 15%
in the first six months of fiscal 1997, primarily due to the reason
discussed in the results of operations for the second quarter.
Interest income decreased to $2.2 million in the first six months of
fiscal 1998 from $3.6 million in the first six months of fiscal 1997.
Interest expense decreased to $5.7 million in the first six months of
fiscal 1998 from $6.6 million in the first six months of fiscal 1997. The
decreases in interest income and expense are primarily due to the reasons
discussed in the results of operations for the second quarter.
The effective tax rates were 47% and 35% in the first six months of
fiscal 1998 and 1997, respectively. The effective tax rate in fiscal 1998
exceeded the statutory federal income tax rate primarily due to the
nondeductible amortization of cost in excess of net assets of acquired
companies and the impact of state income taxes. The effective tax rate in
the first six months of fiscal 1997 equals the statutory federal income
tax rate primarily due to the nontaxable gain on issuance of stock by
subsidiary, offset by nondeductible amortization of cost in excess of net
assets of acquired companies and the impact of state income taxes.
Minority interest expense increased slightly to $0.4 million in the
first six months of fiscal 1998 from $0.3 million in the first six months
of fiscal 1997, primarily due to the inclusion of minority interest
expense associated with Randers (Note 2).
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THERMO TERRATECH INC.
Liquidity and Capital Resources
Consolidated working capital was $77.8 million at September 27, 1997,
compared with $77.3 million at March 29, 1997. Included in working
capital were cash, cash equivalents, and short-term available-for-sale
investments of $11.4 million at September 27, 1997, compared with $81.6
million at March 29, 1997. Of the $11.4 million balance at September 27,
1997, $5.1 million was held by Thermo Remediation, $2.5 million by
Randers, and the remainder by the Company and its wholly owned
subsidiaries. In addition, at September 27, 1997, the Company had $27.1
million of short-term held-to-maturity investments, compared with $26.1
million of short- and long-term held-to-maturity investments at March 29,
1997. During the first six months of fiscal 1998, $9.8 million of cash
was used in operating activities. The Company funded increases of $11.4
million and $9.1 million in accounts receivable and unbilled contract
costs and fees, respectively. The increase in accounts receivable and
unbilled contract costs and fees was primarily due to Thermo
Remediation's IEM Sealand business moving its offices, which resulted in
a delay in billings and pursuit of collections on IEM Sealand's contracts
and accounts receivable, respectively. The move was completed in October
1997, and the Company expects to improve its cash flow from operating
activities in the third quarter of fiscal 1998. In addition, accounts
receivable increased due to an increase in amounts due under a state
government contract in the consulting and design group, which has
subsequently been paid. The increase in unbilled contract costs and fees
was also attributable to an increase in thermal-processing equipment
contracts and the timing of billings of contracts within the consulting
and design group.
Excluding available-for-sale investments activity, the Company's
investing activities in the first six months of fiscal 1998 primarily
consisted of acquisitions and capital additions. In May 1997, the Company
purchased a controlling interest in Randers, a provider of design,
engineering, project management, and construction services for industrial
clients in the manufacturing, pharmaceutical, and chemical-processing
industries, for approximately $4.7 million (Note 2). In addition, Thermo
Remediation made acquisitions for an aggregate purchase price of $2.8
million in cash and 374,507 shares of Thermo Remediation's common stock,
valued at $2.4 million (Note 2). The Company expended $9.7 million for
purchases of property, plant, and equipment in the first six months of
fiscal 1998. The Company expects to expend approximately $12.0 million on
purchases of property, plant, and equipment during the remainder of
fiscal 1998, including $4.0 million related to a new building at the
Company's Lancaster Laboratories subsidiary.
In October 1997, Thermo Remediation sold its 50% limited-liability
interest in RETEC/TETRA L.C. for $8.8 million in cash (Note 4) and the
Company sold substantially all of the assets of its Holcroft Division,
excluding certain accounts receivable, for a total purchase price of
$14.3 million in cash and notes, plus the assumption of certain
liabilities of the Holcroft Division by the purchaser (Note 4).
In the first six months of fiscal 1998, the Company's financing
activities used cash of $44.9 million, primarily resulting from the
14PAGE
<PAGE>
THERMO TERRATECH INC.
Liquidity and Capital Resources (continued)
repayment of a $38.0 million promissory note to Thermo Electron in the
first quarter of fiscal 1998, and the repurchase of Company and
subsidiary common stock. The Board of Directors of the Company authorized
the repurchase, through August 23, 1997, of up to $10.0 million of its
own securities. The Board of Directors of Thermo Remediation, through a
series of actions commencing in September 1996, authorized the
repurchase, through various dates ending in July 1998, of up to $15.0
million of its own securities. Through September 27, 1997, the Company
and Thermo Remediation had expended $10.0 million and $10.8 million,
respectively, under these authorizations, of which $3.3 million and $2.5
million, respectively, was expended in fiscal 1998. Any such purchases
are funded from working capital.
The Company has no material commitments for the acquisition of
businesses or for capital expenditures. Such expenditures will largely be
affected by the number and size of the complementary businesses that can
be acquired or developed during the year. Thermo Electron has expressed
its willingness to lend funds to the Company for potential acquisitions
and major capital expenditures that may occur in the foreseeable future.
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders
On September 24, 1997, at the Annual Meeting of Shareholders, the
shareholders elected six incumbent directors to one-year terms expiring
in 1998. The directors reelected at the meeting were: John P. Appleton,
John N. Hatsopoulos, Brian D. Holt, Donald E. Noble, William A.
Rainville, and Polyvios C. Vintiadis. Dr. Appleton received 16,209,584
shares voted in favor of election and 13,828 shares voted against; Mr.
Hatsopoulos received 16,214,935 shares voted in favor of election and
8,477 shares voted against; Messrs. Holt, Noble, and Vintiadis each
received 16,214,954 shares voted in favor of election and 8,458 shares
voted against; and Mr. Rainville received 16,214,951 shares voted in
favor of election and 8,461 shares voted against. No abstentions or
broker nonvotes were recorded on the election of directors.
The shareholders also approved a proposal to extend the term of the
Company's employees' stock purchase plan to November 2, 2005, as follows:
16,206,160 shares voted in favor of the proposal, 6,888 shares voted
against, and 10,364 abstained. No broker nonvotes were recorded on the
proposal.
15PAGE
<PAGE>
THERMO TERRATECH INC.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
See Exhibit Index on the page immediately preceding exhibits.
(b) Reports on Form 8-K
On October 21, 1997, the Company filed a Current Report on Form 8-K
dated October 6, 1997, pertaining to the sale by Thermo Remediation of
its investment in RETEC/TETRA L.C.
On October 24, 1997, the Company filed a Current Report on Form 8-K
dated October 10, 1997, pertaining to the sale of its Holcroft Division.
16PAGE
<PAGE>
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 3rd day of November
1997.
THERMO TERRATECH INC.
Paul F. Kelleher
------------------------
Paul F. Kelleher
Chief Accounting Officer
John N. Hatsopoulos
------------------------
John N. Hatsopoulos
Chief Financial Officer
and Vice President
17PAGE
<PAGE>
THERMO TERRATECH INC.
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------------------------------------------------------------------------
2.1 Purchase and Sale Agreement executed October 6, 1997, by and
among Remediation Technologies, Inc., RETEC Thermal, Inc.,
TETRA Thermal, Inc., and TETRA Technologies, Inc. (filed on
October 21, 1997, as Exhibit 2.1 to Thermo Remediation Inc.'s
Current Report on Form 8-K dated October 6, 1997 [File No.
1-12636] and incorporated herein by reference.)
2.2 Assignment and Assumption Agreement executed October 6, 1997,
by and among Remediation Technologies, Inc., RETEC Thermal,
Inc., TETRA Thermal, Inc., and TETRA Technologies, Inc. (filed
on October 21, 1997, as Exhibit 2.2 to Thermo Remediation
Inc.'s Current Report on Form 8-K dated October 6, 1997 [File
No. 1-12636] and incorporated herein by reference.)
2.3 Asset Purchase Agreement dated as of October 10, 1997, between
the Company and Holcroft L.L.C. (filed on October 24, 1997, as
Exhibit 2.1 to the Company's Current Report on Form 8-K dated
October 6, 1997 [File No. 1-9549] and incorporated herein by
reference.)
2.4 $2,218,000.00 Principal Promissory Note issued by Holcroft
L.L.C. to the Company (filed on October 24, 1997, as Exhibit
2.2 to the Company's Current Report on Form 8-K dated October
6, 1997 [File No. 1-9549] and incorporated herein by
reference.)
2.5 $663,117.82 Principal Promissory Note issued by Holcroft L.L.C.
to the Company (filed on October 24, 1997, as Exhibit 2.3 to
the Company's Current Report on Form 8-K dated October 6, 1997
[File No. 1-9549] and incorporated herein by reference.)
2.6 Subordination Agreement dated as of October 10, 1997, between
the Company and Comerica Bank (filed on October 24, 1997, as
Exhibit 2.4 to the Company's Current Report on Form 8-K dated
October 6, 1997 [File No. 1-9549] and incorporated herein by
reference.)
2.7 Second Amendment to Sublease dated as of October 10, 1997,
between the Company and TMO, Inc. (filed on October 24, 1997,
as Exhibit 2.5 to the Company's Current Report on Form 8-K
dated October 6, 1997 [File No. 1-9549] and incorporated herein
by reference.)
18PAGE
<PAGE>
THERMO TERRATECH INC.
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------------------------------------------------------------------------
2.8 Sublease dated as of October 10, 1997, between the Company and
Holcroft L.L.C. (filed on October 24, 1997, as Exhibit 2.6 to
the Company's Current Report on Form 8-K dated October 6, 1997
[File No. 1-9549] and incorporated herein by reference.)
11 Statement re: Computation of Earnings per Share.
27 Financial Data Schedule.
19
Exhibit 11
THERMO TERRATECH INC.
Computation of Earnings per Share
Three Months Ended Six Months Ended
----------------------- -----------------------
Sept. 27, Sept. 28, Sept. 27, Sept. 28,
1997 1996 1997 1996
------------------------------------------------------------------------
Computation of Primary
Earnings per Share:
Net Income (a) $ 1,567,000 $ 1,450,000 $ 2,899,000 $ 2,908,000
----------- ----------- ----------- -----------
Shares:
Weighted average
shares outstanding 18,404,006 18,213,925 18,024,954 18,053,176
Add: Shares issuable
from assumed
exercise of
options and
warrants (as
determined by
the application
of the treasury
stock method) 584,888 633,850 - 786,250
----------- ----------- ----------- -----------
Weighted average
shares outstanding,
as adjusted (b) 18,988,894 18,847,775 18,024,954 18,839,426
----------- ----------- ----------- -----------
Primary Earnings per
Share (a) / (b) $ .08 $ .08 $ .16 $ .15
=========== =========== =========== ===========
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO
TERRATECH INC.'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER
27, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
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