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 June 28,
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 July 25, 1997
---------------------------- ----------------------------
Common Stock, $.10 par value 17,600,635
PAGE
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
THERMO TERRATECH INC.
Consolidated Balance Sheet
(Unaudited)
Assets
June 28, March 29,
(In thousands) 1997 1997
------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $ 11,309 $ 63,172
Short-term available-for-sale investments, at
quoted market value (amortized cost of $8,116
and $18,380) 8,131 18,391
Short-term held-to-maturity investments, at
amortized cost (quoted market value of
$26,840 and $13,238) 26,533 12,971
Accounts receivable, less allowances of $3,613
and $3,838 53,238 49,191
Unbilled contract costs and fees 40,447 29,053
Inventories:
Raw materials and supplies 2,236 2,483
Work in process and finished goods 211 538
Prepaid and refundable income taxes 7,484 7,369
Prepaid expenses 5,457 3,870
-------- --------
155,046 187,038
-------- --------
Property, Plant, and Equipment, at Cost 135,422 132,332
Less: Accumulated depreciation and amortization 48,903 48,766
-------- --------
86,519 83,566
-------- --------
Long-term Held-to-maturity Investments, at
Amortized Cost (quoted market value of $13,142
in fiscal 1997) - 13,086
-------- --------
Other Assets 20,344 17,308
-------- --------
Cost in Excess of Net Assets of Acquired Companies
(Note 2) 95,550 92,786
-------- --------
$357,459 $393,784
======== ========
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THERMO TERRATECH INC.
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
June 28, 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) $ 44,351 $ 67,495
Accounts payable 13,735 12,292
Accrued payroll and employee benefits 11,363 12,182
Billings in excess of revenues earned 5,306 4,319
Other accrued expenses 9,651 10,509
Due to parent company 2,843 2,926
-------- --------
87,249 109,723
-------- --------
Deferred Income Taxes 5,297 5,297
-------- --------
Other Deferred Items 1,009 893
-------- --------
Long-term Obligations:
Subordinated convertible debentures 149,800 149,800
Other 3,194 15,386
-------- --------
152,994 165,186
-------- --------
Minority Interest 29,635 29,159
-------- --------
Shareholders' Investment:
Common stock, $.10 par value, 75,000,000 shares
authorized; 18,304,424 shares issued in fiscal
1998 and 1997 1,830 1,830
Capital in excess of par value 62,426 62,610
Retained earnings 25,378 24,046
Treasury stock at cost, 737,596 and 417,696 shares (6,937) (3,941)
Cumulative translation adjustment (1,431) (1,026)
Net unrealized gain on available-for-sale
investments 9 7
-------- --------
81,275 83,526
-------- --------
$357,459 $393,784
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
3PAGE
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THERMO TERRATECH INC.
Consolidated Statement of Income
(Unaudited)
Three Months Ended
-----------------------
June 28, June 29,
(In thousands except per share amounts) 1997 1996
------------------------------------------------------------------------
Revenues:
Service revenues $65,110 $61,866
Product revenues 7,409 5,752
------- -------
72,519 67,618
------- -------
Costs and Operating Expenses:
Cost of service revenues 51,820 49,133
Cost of product revenues 6,131 4,718
Selling, general, and administrative expenses 9,938 9,222
Product and new business development expenses 222 299
------- -------
68,111 63,372
------- -------
Operating Income 4,408 4,246
Interest Income 1,403 1,630
Interest Expense (includes $1,164 and $829 to
parent company) (3,133) (3,108)
Equity in Earnings of Unconsolidated Subsidiary 118 279
Gain on Sale of Investments, Net - 147
Other Income 204 -
------- -------
Income Before Provision for Income Taxes
and Minority Interest 3,000 3,194
Provision for Income Taxes 1,399 1,514
Minority Interest Expense 269 222
------- -------
Net Income $ 1,332 $ 1,458
======= =======
Earnings per Share $ .08 $ .08
======= =======
Weighted Average Shares 17,646 18,831
======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
4PAGE
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THERMO TERRATECH INC.
Consolidated Statement of Cash Flows
(Unaudited)
Three Months Ended
-----------------------
June 28, June 29,
(In thousands) 1997 1996
------------------------------------------------------------------------
Operating Activities:
Net income $ 1,332 $ 1,458
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization 3,482 3,222
Equity in earnings of unconsolidated
subsidiary (118) (279)
Minority interest expense 269 222
Provision for losses on accounts
receivable (49) 132
Decrease in deferred income taxes - (10)
Gain on sale of property, plant, and
equipment (204) -
Gain on sale of investments, net - (147)
Other noncash expenses 119 97
Changes in current accounts, excluding the
effects of acquisitions:
Accounts receivable (1,748) (1,137)
Inventories and unbilled contract
costs and fees (10,892) (2,958)
Other current assets (1,524) (607)
Current liabilities 346 3,448
-------- --------
Net cash provided by (used in) operating
activities (8,987) 3,441
-------- --------
Investing Activities:
Acquisitions, net of cash acquired (Note 2) (4,418) -
Purchases of available-for-sale investments - (33,977)
Proceeds from sale and maturities of
available-for-sale investments 10,264 12,897
Purchases of property, plant, and equipment (5,032) (4,452)
Proceeds from sale of property, plant, and
equipment 391 134
Purchase of other assets (88) (489)
-------- --------
Net cash provided by (used in) investing
activities $ 1,117 $(25,887)
-------- --------
5PAGE
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THERMO TERRATECH INC.
Consolidated Statement of Cash Flows (continued)
(Unaudited)
Three Months Ended
-----------------------
June 28, June 29,
(In thousands) 1997 1996
------------------------------------------------------------------------
Financing Activities:
Net proceeds from issuance of subordinated
convertible debentures $ - $112,398
Repayment of notes payable to parent
company (38,000) (50,000)
Proceeds from issuance of Company and
subsidiary common stock 198 242
Repurchase of Company and subsidiaries
common stock (5,866) -
Metal Treating, Inc. transfer to parent
company - (113)
Other (316) (42)
-------- --------
Net cash provided by (used in) financing
activities (43,984) 62,485
-------- --------
Exchange Rate Effect on Cash (9) (8)
-------- --------
Increase (Decrease) in Cash and Cash
Equivalents (51,863) 40,031
Cash and Cash Equivalents at Beginning
of Period 63,172 31,182
-------- --------
Cash and Cash Equivalents at End of Period $ 11,309 $ 71,213
======== ========
Noncash Activities:
Fair value of assets of acquired companies $ 8,765 $ -
Cash paid for acquired companies (6,300) -
-------- --------
Liabilities assumed of acquired companies $ 2,465 $ -
======== ========
Conversions of subordinated convertible
debentures $ - $ 4,800
The accompanying notes are an integral part of these consolidated
financial statements.
6PAGE
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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 June
28, 1997, and the results of operations and cash flows for the
three-month periods ended June 28, 1997, and June 29, 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 $4.7 million. Following
these transactions, the Company owns approximately 53.3% of Randers'
outstanding common stock. In addition, Thermo Electron Corporation owns
approximately 8.9% of Randers' outstanding common stock. Randers had
revenues of $12.4 million in calendar 1996.
In addition, during the first quarter of fiscal 1998, the Company's
Thermo Remediation Inc. subsidiary made an acquisition for an aggregate
purchase price of $1.6 million.
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 $3.1 million, which is
being amortized over 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.
7PAGE
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THERMO TERRATECH INC.
2. Acquisitions (continued)
The Company has also entered into a letter of intent to transfer its
wholly owned engineering and consulting businesses to Randers in exchange
for newly issued shares of Randers common stock. The exact price for
these businesses is still under negotiation, but in no event would be
less than the book value of the transferred businesses as of the closing
of the transfer. The number of new shares of Randers common stock to be
issued to the Company would equal the agreed price divided by $0.625.
The transfer is subject to several conditions, including completion
by Randers of its due diligence investigation, receipt of an opinion from
an investment bank that the transaction is fair to Randers from a
financial point of view, approval of the transaction by Randers'
shareholders, and receipt of all required regulatory approvals, including
continued listing of Randers' common stock on the American Stock Exchange
following the transaction.
3. Presentation
Certain amounts in fiscal 1997 have been reclassified to conform to
the presentation in the fiscal 1998 financial statements.
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. In September 1996, Thermo Remediation
acquired IEM Sealand Corporation (IEM Sealand), a provider of
8PAGE
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THERMO TERRATECH INC.
Overview (continued)
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
along the East and West coasts. Thermo Remediation's TriTechnics
subsidiary, acquired in May 1997, provides comprehensive consulting and
remedial services at refinery and chemical-plant sites. 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 - The Company's wholly owned Killam Associates
subsidiary provides environmental consulting and engineering services and
specializes in wastewater treatment and water resources management. In
November 1996, the Company acquired Carlan Consulting Group, Inc.
(Carlan), a provider of transportation and environmental consulting and
professional engineering and architectural services. 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 chemical-processing industries.
The Company's wholly owned Bettigole Andrews Clark & Killam Inc. and
Normandeau Associates Inc. 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.
Laboratory Testing - The Company's wholly owned Thermo Analytical
Inc. subsidiary operates analytical laboratories that provide
environmental, 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 designs, manufactures, and
installs advanced custom-engineered, thermal-processing systems through
its equipment division located in Michigan.
Results of Operations
First Quarter Fiscal 1998 Compared With First Quarter Fiscal 1997
Total revenues in the first quarter of fiscal 1998 increased to $72.5
million from $67.6 million in the first quarter of fiscal 1997. Revenues
from remediation and recycling services increased to $30.7 million in
fiscal 1998 from $27.9 million in fiscal 1997, due to the inclusion of
9PAGE
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THERMO TERRATECH INC.
First Quarter Fiscal 1998 Compared With First Quarter Fiscal 1997
(continued)
$6.6 million of revenues from IEM Sealand and TriTechnics, acquired in
September 1996 and May 1997, respectively. Revenues from soil-remediation
services decreased 31% resulting both from declines in the volume of soil
processed due to overcapacity in the industry and from competitive
pricing pressures. The Company expects this trend to continue for the
foreseeable future. Revenues from Thermo EuroTech decreased 42%,
primarily due to the sale of its J. Amerika division in the fourth
quarter of fiscal 1997. Revenues from consulting and design services
decreased slightly to $20.6 million in fiscal 1998 from $21.5 million in
fiscal 1997. The inclusion of $2.9 million of revenues from Carlan and
Randers, acquired in November 1996 and May 1997, respectively, was more
than offset 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, remained relatively unchanged at $9.4 million in
fiscal 1998 and $9.3 million in fiscal 1997. Metal-treating revenues
increased to $12.1 million in fiscal 1998 from $9.9 million in fiscal
1997, primarily due to an increase in demand for thermal-processing
equipment at existing businesses.
The gross profit margin remained unchanged at 20% in the first
quarter of fiscal 1998 and 1997. The gross profit margin was favorably
affected by a change in sales mix to higher-margin contracts in the
Company's consulting and design services business. This increase was
offset by a decrease in gross profit margin from remediation and
recycling services primarily due to lower margins on soil processed
resulting from competitive pricing pressures and lower volumes of soil
processed at the Company's traditionally higher-margin soil-remediation
centers. The gross profit margin from remediation and recycling services
also decreased due to the inclusion of lower-margin revenues from IEM
Sealand, acquired in September 1996.
Selling, general, and administrative expenses as a percentage of
revenues remained unchanged at 14% in the first quarter of fiscal 1998
and 1997.
Interest income decreased to $1.4 million in the first quarter of
fiscal 1998 from $1.6 million in the first quarter of fiscal 1997, as a
result of lower average investment balances following the repurchase of
Company and subsidiaries common stock, as well as the acquisition of
Randers and TriTechnics (Note 2). Interest expense remained unchanged at
$3.1 million in the first quarter of fiscal 1998 and 1997.
Other income of $0.2 million in the first quarter of fiscal 1998
represents a gain on the sale of certain equipment.
The effective tax rate was 47% in the first quarter of fiscal 1998
and 1997. The effective tax rate 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.
10PAGE
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THERMO TERRATECH INC.
First Quarter Fiscal 1998 Compared With First Quarter Fiscal 1997
(continued)
Minority interest expense increased slightly to $0.3 million in the
first quarter of fiscal 1998 from $0.2 million in the first quarter of
fiscal 1997, due to net higher earnings from the Company's majority-owned
subsidiaries and the addition of minority interest expense related to
Randers (Note 2).
Liquidity and Capital Resources
Consolidated working capital decreased to $67.8 million at June 28,
1997, from $77.3 million at March 29, 1997. Cash, cash equivalents, and
short-term available-for-sale investments were $19.4 million at
June 28, 1997, compared with $81.6 million at March 29, 1997. Of the
$19.4 million balance at June 28, 1997, $12.8 million was held by Thermo
Remediation and the remainder by the Company and its wholly owned
subsidiaries. In addition, at June 28, 1997, the Company had $26.5
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 three months of fiscal 1998, $9.0 million of cash
was used in operating activities. The Company funded an $11.2 million
increase in unbilled contract costs and fees primarily due to higher
revenues at Thermo Remediation's IEM Sealand and ReTec businesses, the
timing of billings due to contract milestones at The Killam Group, and an
increase in thermal-processing equipment contracts.
Excluding available-for-sale investments activity, the Company's
investing activities in the first quarter 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, in May
1997, Thermo Remediation acquired TriTechnics for approximately $1.6
million in cash (Note 2). The Company also expended $5.0 million for
purchases of property, plant, and equipment in the first quarter of
fiscal 1998. The Company expects to expend approximately $13.6 million on
purchases of property, plant, and equipment during the remainder of
fiscal 1998.
In the first quarter of fiscal 1998, the Company's financing
activities used cash of $44.0 million, primarily resulting from the
repayment of a $38.0 million promissory note to Thermo Electron
Corporation (Thermo Electron) and the repurchase of Company and
subsidiaries common stock. The Boards of Directors of the Company and
Thermo Remediation each authorized the repurchase, through August 23,
1997, and September 10, 1997, respectively, of up to $10.0 million of
their own securities. Through June 28, 1997, the Company and Thermo
Remediation had expended $9.9 million and $10.0 million, respectively,
under these authorizations, of which $3.2 million and $1.7 million,
respectively, was expended in fiscal 1998. In July 1997, Thermo
Remediation's Board of Directors authorized the repurchase, through July
24, 1998, of up to an additional $5.0 million of its own securities. Any
such purchases would be funded from working capital.
11PAGE
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THERMO TERRATECH INC.
Liquidity and Capital Resources (continued)
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 major capital
expenditures and potential acquisitions that may occur in the foreseeable
future.
PART II - OTHER INFORMATION
Item 6 - Exhibits
See Exhibit Index on the page immediately preceding exhibits.
12PAGE
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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 5th day of August
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
13PAGE
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THERMO TERRATECH INC.
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------------------------------------------------------------------------
11 Statement re: Computation of Earnings per Share.
27 Financial Data Schedule.
Exhibit 11
THERMO TERRATECH INC.
Computation of Earnings per Share
Three Months Ended
--------------------------
June 28, June 29,
1997 1996
------------------------------------------------------------------------
Computation of Primary Earnings per Share:
Net Income (a) $ 1,332,000 $ 1,458,000
----------- -----------
Shares:
Weighted average shares outstanding 17,645,898 17,892,427
Add: Shares issuable from assumed
exercise of options and warrants
(as determined by the application
of the treasury stock method) - 938,650
----------- -----------
Weighted average shares outstanding,
as adjusted (b) 17,645,898 18,831,077
----------- -----------
Primary Earnings per Share (a) / (b) $ .08 $ .08
=========== ===========
<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 JUNE 28,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
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<FISCAL-YEAR-END> APR-04-1998
<PERIOD-END> JUN-28-1997
<CASH> 11,309
<SECURITIES> 34,664
<RECEIVABLES> 56,851
<ALLOWANCES> 3,613
<INVENTORY> 2,447
<CURRENT-ASSETS> 155,046
<PP&E> 135,422
<DEPRECIATION> 48,903
<TOTAL-ASSETS> 357,459
<CURRENT-LIABILITIES> 87,249
<BONDS> 152,994
0
0
<COMMON> 1,830
<OTHER-SE> 79,445
<TOTAL-LIABILITY-AND-EQUITY> 357,459
<SALES> 7,409
<TOTAL-REVENUES> 72,519
<CGS> 6,131
<TOTAL-COSTS> 57,951
<OTHER-EXPENSES> 222
<LOSS-PROVISION> (49)
<INTEREST-EXPENSE> 3,133
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<INCOME-TAX> 1,399
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