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 29, 1996.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
Commission File Number 1-10573
THERMO POWER CORPORATION
(Exact name of Registrant as specified in its charter)
Massachusetts 04-2891371
(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 26, 1996
---------------------------- ----------------------------
Common Stock, $.10 par value 12,480,351
PAGE
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
THERMO POWER CORPORATION
Consolidated Balance Sheet
(Unaudited)
Assets
June 29, September 30,
(In thousands) 1996 1995
--------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $ 29,080 $ 23,504
Available-for-sale investments, at quoted
market value (amortized cost of $6,063 and
$10,624) (includes $429 of related party
investments in fiscal 1995) (Note 2) 6,065 10,666
Accounts receivable, less allowances of
$516 and $530 19,267 18,203
Unbilled contract costs and fees 8,724 6,228
Inventories:
Raw materials and supplies 16,567 17,453
Work in process and finished goods 2,447 4,796
Prepaid income taxes 3,512 3,213
Other current assets 217 752
-------- --------
85,879 84,815
-------- --------
Rental Assets, at Cost 11,906 7,391
Less: Accumulated depreciation and amortization 1,716 985
-------- --------
10,190 6,406
-------- --------
Property, Plant and Equipment, at Cost 16,683 15,232
Less: Accumulated depreciation and amortization 8,102 6,765
-------- --------
8,581 8,467
-------- --------
Long-term Available-for-sale Investments, at
Quoted Market Value (amortized cost of $453 and
$471) (includes $339 invested in parent company
common stock in fiscal 1995) (Note 2) 289 733
-------- --------
Other Assets 352 223
-------- --------
Cost in Excess of Net Assets of Acquired
Companies 7,614 7,773
-------- --------
$112,905 $108,417
======== ========
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THERMO POWER CORPORATION
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
June 29, September 30,
(In thousands except share amounts) 1996 1995
--------------------------------------------------------------------------
Current Liabilities:
Accounts payable $ 14,543 $ 13,262
Accrued payroll and employee benefits 2,561 2,732
Customer advances 1,957 971
Accrued warranty costs 2,068 2,100
Accrued income taxes 1,228 1,368
Other accrued expenses 4,182 4,242
Due to Thermo Electron Corporation
and affiliated companies 1,321 -
-------- --------
27,860 24,675
-------- --------
Deferred Income Taxes 122 118
-------- --------
Long-term Obligations 322 364
-------- --------
Common Stock of Subsidiary Subject to
Redemption ($18,450 redemption value) 17,669 17,435
-------- --------
Shareholders' Investment:
Common stock, $.10 par value, 30,000,000
shares authorized; 12,482,999 and 12,478,544
shares issued 1,248 1,248
Capital in excess of par value 53,921 53,898
Retained earnings 11,890 10,822
Treasury stock at cost, 2,648 and
49,758 shares (22) (341)
Net unrealized gain (loss) on
available-for-sale investments (105) 198
-------- --------
66,932 65,825
-------- --------
$112,905 $108,417
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
3PAGE
<PAGE>
THERMO POWER CORPORATION
Consolidated Statement of Income
(Unaudited)
Three Months Ended
------------------------
June 29, July 1,
(In thousands except per share amounts) 1996 1995
--------------------------------------------------------------------------
Revenues $ 32,429 $ 27,514
-------- --------
Costs and Operating Expenses:
Cost of revenues 27,106 21,646
Selling, general and administrative expenses 4,202 4,275
Research and development expenses 721 1,007
-------- --------
32,029 26,928
-------- --------
Operating Income 400 586
Interest Income 437 579
Interest Expense (5) (6)
Gain on Sale of Related Party Investments - 768
-------- --------
Income Before Provision for Income Taxes
and Minority Interest 832 1,927
Provision for Income Taxes 306 752
Minority Interest Expense 78 69
-------- --------
Net Income $ 448 $ 1,106
======== ========
Earnings per Share $ .04 $ .09
======== ========
Weighted Average Shares 12,477 12,378
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
4PAGE
<PAGE>
THERMO POWER CORPORATION
Consolidated Statement of Income
(Unaudited)
Nine Months Ended
------------------------
June 29, July 1,
(In thousands except per share amounts) 1996 1995
--------------------------------------------------------------------------
Revenues $ 89,637 $ 74,740
-------- --------
Costs and Operating Expenses:
Cost of revenues 74,866 58,113
Selling, general and administrative expenses 12,170 11,803
Research and development expenses 2,250 2,253
-------- --------
89,286 72,169
-------- --------
Operating Income 351 2,571
Interest Income 1,311 1,310
Interest Expense (21) (17)
Gain on Sale of Investments, Net (includes $469
and $768 from sale of related party investments
in fiscal 1996 and 1995) (Note 2) 451 730
-------- --------
Income Before Provision for Income Taxes
and Minority Interest 2,092 4,594
Provision for Income Taxes 790 1,792
Minority Interest Expense 234 104
-------- --------
Net Income $ 1,068 $ 2,698
======== ========
Earnings per Share $ .09 $ .22
======== ========
Weighted Average Shares 12,461 12,354
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
5PAGE
<PAGE>
THERMO POWER CORPORATION
Consolidated Statement of Cash Flows
(Unaudited)
Nine Months Ended
------------------------
June 29, July 1,
(In thousands) 1996 1995
--------------------------------------------------------------------------
Operating Activities:
Net income $ 1,068 $ 2,698
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,965 1,318
Provision for losses on accounts receivable 5 27
Gain on sale of investments, net (Note 2) (451) (730)
Minority interest expense 234 104
Changes in current accounts, excluding the
effects of acquisition:
Accounts receivable (811) (4,364)
Inventories and unbilled contract
costs and fees (988) (3,283)
Other current assets 404 (390)
Accounts payable 1,278 3,355
Other current liabilities 950 (721)
-------- --------
Net cash provided by (used in)
operating activities 3,654 (1,986)
-------- --------
Investing Activities:
Purchases of available-for-sale investments (5,000) (365)
Proceeds from sale and maturities of
available-for-sale investments 8,982 7,774
Proceeds from sale of related party
investments (Note 2) 852 1,599
Increase in rental assets (2,129) (1,824)
Purchases of property, plant and equipment (1,148) (1,034)
Issuance of notes receivable (292) -
Other 357 277
-------- --------
Net cash provided by
investing activities 1,622 6,427
-------- --------
Financing Activities:
Net proceeds from issuance of Company
and subsidiary common stock 342 18,000
Repayment of long-term obligations (42) (31)
-------- --------
Net cash provided by
financing activities 300 17,969
-------- --------
Increase in Cash and Cash Equivalents 5,576 22,410
Cash and Cash Equivalents at Beginning of Period 23,504 7,474
-------- --------
Cash and Cash Equivalents at End of Period $ 29,080 $ 29,884
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
6PAGE
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THERMO POWER CORPORATION
Notes to Consolidated Financial Statements
1. General
The interim consolidated financial statements have been prepared by
Thermo Power Corporation (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 29, 1996, the
results of operations for the three- and nine-month periods ended June 29,
1996 and July 1, 1995, and the cash flows for the nine-month periods ended
June 29, 1996 and July 1, 1995. Interim results are not necessarily
indicative of results for a full year.
The consolidated balance sheet presented as of September 30, 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 September 30, 1995, filed with the Securities and
Exchange Commission.
2. Sale of Related Party Investments
In February 1996, the Company sold its remaining investment in 6.5%
subordinated convertible debentures, which were issued by Thermo TerraTech
Inc., a majority-owned subsidiary of Thermo Electron Corporation (Thermo
Electron). The Company sold $365,000 principal amount of these debentures
for net proceeds of $490,000, which resulted in a gain of $125,000.
In December 1995, the Company sold 10,969 shares of Thermo Electron
common stock for net proceeds of $362,000, which resulted in a gain of
$344,000. Share information for Thermo Electron has been restated to
reflect a three-for-two stock split effected in June 1996.
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Description of Business
Industrial Refrigeration Systems
The Company's FES division supplies standard and custom-designed
industrial refrigeration systems used primarily by the food processing,
petrochemical, and pharmaceutical industries. NuTemp, Inc. (NuTemp) is a
supplier of both remanufactured and new industrial refrigeration and
commercial cooling equipment for sale or rental. NuTemp's industrial
refrigeration equipment is used primarily in the food processing,
petrochemical, and pharmaceutical industries, and its commercial cooling
7PAGE
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THERMO POWER CORPORATION
Description of Business (continued)
equipment is used primarily in institutions and commercial buildings, as
well as by service contractors. The demand for NuTemp's equipment is
typically highest in the summer period.
Engines
The Company's Crusader Engines (Crusader) division manufactures
gasoline engines for recreational boats; natural gas engines for vehicular,
cooling, pumping, refrigeration, and other industrial applications; and LPG
(liquefied petroleum gas) and gasoline engines for lift trucks.
Cooling and Cogeneration Systems
The Company's Tecogen division designs, develops, markets, and
services packaged cooling and cogeneration systems fueled principally by
natural gas for sale to a wide range of commercial, institutional,
industrial, and multi-unit residential users. Certain large-capacity
cooling systems are manufactured by FES, and the cogeneration systems are
manufactured by Crusader. Tecogen conducts research and development of
natural gas-engine technology, and is currently demonstrating a
diesel-to-natural gas conversion system for buses and other fleet vehicles.
Tecogen also conducts research and development on applications of thermal
energy.
The Company's ThermoLyte Corporation (ThermoLyte) subsidiary is
developing a family of propane-powered area lights, flashlights, emergency
lights, and other lighting products.
The Company's revenues by industry segment are shown in the following
table.
Three Months Ended Nine Months Ended
------------------- --------------------
June 29, July 1, June 29, July 1,
(In thousands) 1996 1995 1996 1995
--------------------------------------------------------------------------
Industrial Refrigeration Systems $ 19,916 $ 17,328 $ 52,949 $ 46,769
Engines 6,626 6,372 22,183 18,053
Cooling and Cogeneration Systems 6,402 4,514 15,925 11,737
Intersegment sales elimination (515) (700) (1,420) (1,819)
-------- -------- -------- --------
$ 32,429 $ 27,514 $ 89,637 $ 74,740
======== ======== ======== ========
Results of Operations
Third Quarter Fiscal 1996 Compared With Third Quarter Fiscal 1995
Total revenues increased 18% to $32,429,000 in the third quarter of
fiscal 1996 from $27,514,000 in the third quarter of fiscal 1995.
Industrial Refrigeration Systems segment revenues increased to $19,916,000
in 1996 from $17,328,000 in 1995. Revenues at FES increased in 1996
primarily due to greater demand for custom-designed industrial
8PAGE
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THERMO POWER CORPORATION
Third Quarter Fiscal 1996 Compared With Third Quarter Fiscal 1995
(continued)
refrigeration packages. Revenues at NuTemp decreased slightly primarily due
to lower temperatures in 1996 compared with 1995, which resulted in lower
demand for rental equipment. Engines segment revenues increased to
$6,626,000 in 1996 from $6,372,000 in 1995 primarily due to the inclusion
of revenues from lift-truck engines, offset in part by a decrease of
$784,000 in revenues from marine-engine related products. Cooling and
Cogeneration Systems segment revenues increased 42% to $6,402,000 in 1996
from $4,514,000 in 1995 primarily due to an increase in revenues from
gas-fueled cooling systems.
The gross profit margin decreased to 16% in the third quarter of
fiscal 1996 from 21% in the third quarter of fiscal 1995. The gross profit
margin for the Industrial Refrigeration Systems segment decreased to 18% in
1996 from 24% in 1995 primarily due to lower margins at FES resulting from
a change in the sales mix. FES' sales to the petrochemical industry, which
have inherently lower margins, increased in 1996 from 1995. To a lesser
extent, the gross profit margin declined due to a decrease in revenues at
NuTemp and higher depreciation expense as a result of an increase in
NuTemp's rental assets. The Company expects a cost increase in one of the
major components of its industrial refrigeration packages to adversely
affect the gross profit margin beginning in the fourth quarter of fiscal
1996. The gross profit margin for the Engines segment increased to 10% in
1996 from 8% in 1995 primarily due to a reduction in warranty expenses. The
gross profit margin for the Cooling and Cogeneration Systems segment
decreased to 18% in 1996 from 27% in 1995 primarily due to increased
revenues from large gas-cooling systems, which have inherently lower
margins.
Selling, general and administrative expenses as a percentage of
revenues decreased to 13% in the third quarter of fiscal 1996 from 16% in
the third quarter of fiscal 1995 primarily due to an increase in total
revenues. Research and development expenses as a percentage of revenues
decreased to 2% in 1996 from 4% in 1995. An increase in research and
development expenses for gas-fueled lighting products was more than offset
by a decrease in spending on research and development of natural gas-engine
products.
Interest income decreased to $437,000 in the third quarter of fiscal
1996 from $579,000 in the third quarter of fiscal 1995 due to lower average
invested amounts in 1996 compared with 1995. Gain on sale of related party
investments in 1995 represents a gain on the sale of the Company's
investment in subordinated convertible debentures, which were issued by
Thermedics Inc., a majority-owned subsidiary of Thermo Electron Corporation
(Thermo Electron).
The effective tax rate was 37% in the third quarter of fiscal 1996,
compared with 39% in the third quarter of fiscal 1995. These rates exceeded
the statutory federal income tax rate primarily due to the impact of state
income taxes. The effective tax rate decreased in 1996 from 1995 due to
losses benefited at one of the Company's subsidiaries.
9PAGE
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THERMO POWER CORPORATION
First Nine Months Fiscal 1996 Compared With First Nine Months Fiscal 1995
Total revenues increased 20% to $89,637,000 in the first nine months
of fiscal 1996 from $74,740,000 in the first nine months of fiscal 1995.
Industrial Refrigeration Systems segment revenues increased to $52,949,000
in 1996 from $46,769,000 in 1995. Revenues at FES increased in 1996
primarily due to greater demand for custom-designed industrial
refrigeration packages. Revenues at NuTemp increased by $179,000 primarily
due to increased demand for remanufactured commercial cooling equipment,
offset in part by lower demand for rental equipment resulting from
generally lower temperatures in 1996 compared with 1995. Engines segment
revenues increased 23% to $22,183,000 in 1996 from $18,053,000 in 1995
primarily due to increased demand for gasoline and natural gas TecoDrive(R)
engines and the inclusion of revenues from lift-truck engines, offset in
part by a decrease of $2,717,000 in revenues from marine-engine related
products. Cooling and Cogeneration Systems segment revenues increased 36%
to $15,925,000 in 1996 from $11,737,000 in 1995 primarily due to an
increase in revenues from gas-fueled cooling systems. Results for the
Cooling and Cogeneration Systems segment in 1995 include a $1,187,000 fee
received from one of the Company's distributors of packaged cogeneration
systems to satisfy the financial obligations under a minimum purchase
contract.
The gross profit margin decreased to 16% in the first nine months of
fiscal 1996 from 22% in the first nine months of fiscal 1995. The gross
profit margin for the Industrial Refrigeration Systems segment decreased to
19% in 1996 from 24% in 1995. The decrease is primarily due to a change in
the sales mix at FES as discussed in the results of operations for the
third quarter. To a lesser extent, the gross profit margin decreased due to
lower manufacturing efficiencies at FES and higher warranty expenses at
NuTemp in 1996 compared with 1995. The gross profit margin for the Engines
segment decreased to 6% in 1996 from 11% in 1995 primarily due to unusually
high warranty expenses incurred in the first six months of fiscal 1996 and,
to a lesser extent, startup costs associated with the introduction of
lift-truck engines. The gross profit margin for the Cooling and
Cogeneration Systems segment decreased to 23% in 1996 from 30% in 1995
primarily due to the inclusion in 1995 of a fee received from one of the
Company's distributors of packaged cogeneration systems discussed above.
Selling, general and administrative expenses as a percentage of
revenues decreased to 14% in the first nine months of fiscal 1996 from 16%
in the first nine months of fiscal 1995 primarily due to an increase in
total revenues. Research and development expenses as a percentage of
revenues remained unchanged at 3% in 1996 and 1995. An increase in research
and development expenses for gas-fueled lighting products was offset by a
decrease in spending on research and development of natural gas-engine
products.
Interest income remained relatively unchanged at $1,311,000 in the
first nine months of fiscal 1996, compared with $1,310,000 in the first
nine months of fiscal 1995. Interest income earned on the proceeds from
ThermoLyte's March 1995 private placement was offset by a decrease in
interest income earned on the Company's other investments due to lower
10PAGE
<PAGE>
THERMO POWER CORPORATION
First Nine Months Fiscal 1996 Compared With First Nine Months Fiscal 1995
(continued)
average invested amounts. Gain on sale of investments, net, in 1996
primarily represents a gain of $344,000 relating to the sale of the
Company's remaining investment in Thermo Electron common stock and a gain
of $125,000 relating to the sale of the Company's remaining investment in
6.5% subordinated convertible debentures, which were issued by Thermo
TerraTech Inc., a majority-owned subsidiary of Thermo Electron (Note 2).
The effective tax rate was 38% in the first nine months of fiscal
1996, compared with 39% in the first nine months of fiscal 1995. These
rates exceeded the statutory federal income tax rate primarily due to the
impact of state income taxes. The effective tax rate decreased in 1996 from
1995 due to losses benefited at one of the Company's subsidiaries.
Liquidity and Capital Resources
Consolidated working capital was $58,019,000 at June 29, 1996,
compared with $60,140,000 at September 30, 1995. Included in working
capital are cash, cash equivalents, and available-for-sale investments of
$35,145,000 at June 29, 1996, compared with $34,170,000 at September 30,
1995. Of the $35,145,000 balance at June 29, 1996, $17,439,000 was held by
ThermoLyte and the remainder was held by the Company and its wholly owned
subsidiaries. During the first nine months of fiscal 1996, $3,654,000 of
cash was provided by operating activities. During the first quarter of
fiscal 1996, the Company acquired the thermoelectric cooling module
business of ThermoTrex Corporation (ThermoTrex) for $860,000, which was the
net book value of the business acquired. ThermoTrex is a majority-owned
subsidiary of Thermo Electron. During the first nine months of 1996, the
Company expended $3,277,000 for purchases of rental assets and property,
plant and equipment. During the remainder of fiscal 1996, the Company
expects to make capital expenditures of approximately $2,000,000, of which
approximately $1,700,000 is expected to be used to expand and upgrade the
manufacturing facilities at FES. The Company believes its current resources
are sufficient to meet the capital requirements of its existing operations
for the foreseeable future.
11PAGE
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THERMO POWER CORPORATION
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 1996.
THERMO POWER CORPORATION
Paul F. Kelleher
----------------------
Paul F. Kelleher
Chief Accounting Officer
John N. Hatsopoulos
----------------------
John N. Hatsopoulos
Chief Financial Office
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO POWER
CORP.'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 29, 1996 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> SEP-28-1996
<PERIOD-END> JUN-29-1996
<CASH> 29,080
<SECURITIES> 6,065
<RECEIVABLES> 19,783
<ALLOWANCES> 516
<INVENTORY> 19,014
<CURRENT-ASSETS> 85,879
<PP&E> 16,683
<DEPRECIATION> 8,102
<TOTAL-ASSETS> 112,905
<CURRENT-LIABILITIES> 27,860
<BONDS> 322
0
0
<COMMON> 1,248
<OTHER-SE> 65,684
<TOTAL-LIABILITY-AND-EQUITY> 112,905
<SALES> 89,637
<TOTAL-REVENUES> 89,637
<CGS> 74,866
<TOTAL-COSTS> 74,866
<OTHER-EXPENSES> 2,250
<LOSS-PROVISION> 5
<INTEREST-EXPENSE> 21
<INCOME-PRETAX> 2,092
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</TABLE>
