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 March 29, 1997.
[ ] 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 April 25, 1997
---------------------------- -----------------------------
Common Stock, $.10 par value 11,982,447
PAGE
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
THERMO POWER CORPORATION
Consolidated Balance Sheet
(Unaudited)
Assets
March 29, September 28,
(In thousands) 1997 1996
-------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $ 36,768 $ 29,852
Available-for-sale investments, at
quoted market value (amortized cost of
$6,022 in fiscal 1996) - 6,028
Accounts receivable, less allowance of
$571 and $589 19,194 18,054
Unbilled contract costs and fees 7,035 7,110
Inventories:
Raw materials and supplies 14,816 16,233
Work in process and finished goods 1,678 2,404
Prepaid income taxes 3,303 2,921
Other current assets 276 324
-------- --------
83,070 82,926
-------- --------
Rental Assets, at Cost 11,984 12,358
Less: Accumulated depreciation and
amortization 2,660 2,378
-------- --------
9,324 9,980
-------- --------
Property, Plant, and Equipment, at Cost 19,045 17,580
Less: Accumulated depreciation and
amortization 8,571 7,813
-------- --------
10,474 9,767
-------- --------
Long-term Available-for-sale Investments, at
Quoted Market Value (amortized cost of $210) 315 184
-------- --------
Other Assets 272 345
-------- --------
Cost in Excess of Net Assets of Acquired
Companies 7,365 7,509
-------- --------
$110,820 $110,711
======== ========
2PAGE
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THERMO POWER CORPORATION
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
March 29, September 28,
(In thousands except share amounts) 1997 1996
-------------------------------------------------------------------------
Current Liabilities:
Accounts payable $ 14,520 $ 14,005
Accrued payroll and employee benefits 2,770 2,832
Accrued warranty costs 2,551 2,323
Other accrued expenses 6,281 5,536
Due to Thermo Electron Corporation
and affiliated companies 537 511
-------- --------
26,659 25,207
-------- --------
Deferred Income Taxes 114 84
-------- --------
Long-term Obligations 278 305
-------- --------
Common Stock of Subsidiary Subject to
Redemption ($18,450 redemption value) 17,904 17,747
-------- --------
Shareholders' Investment:
Common stock, $.10 par value, 30,000,000
shares authorized; 12,493,371 and
12,487,149 shares issued 1,249 1,249
Capital in excess of par value 54,519 54,448
Retained earnings 12,086 11,707
Treasury stock at cost, 314,024 and
2,724 shares (2,057) (23)
Net unrealized gain (loss) on available-
for-sale investments 68 (13)
-------- --------
65,865 67,368
-------- --------
$110,820 $110,711
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
3PAGE
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THERMO POWER CORPORATION
Consolidated Statement of Income
(Unaudited)
Three Months Ended
-------------------------
March 29, March 30,
(In thousands except per share amounts) 1997 1996
-------------------------------------------------------------------------
Revenues $ 28,825 $ 29,756
-------- --------
Costs and Operating Expenses:
Cost of revenues 23,331 25,095
Selling, general, and administrative expenses 4,433 4,231
Research and development expenses 627 791
-------- --------
28,391 30,117
-------- --------
Operating Income (Loss) 434 (361)
Interest Income 472 437
Interest Expense (4) (5)
Gain on Sale of Investments (includes $125
from sale of related-party investments in
fiscal 1996) - 125
-------- --------
Income Before Provision for Income Taxes
and Minority Interest 902 196
Provision for Income Taxes 449 75
Minority Interest Expense 78 78
-------- --------
Net Income $ 375 $ 43
======== ========
Earnings per Share $ .03 $ -
======== ========
Weighted Average Shares 12,467 12,463
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
4PAGE
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THERMO POWER CORPORATION
Consolidated Statement of Income
(Unaudited)
Six Months Ended
------------------------
March 29, March 30,
(In thousands except per share amounts) 1997 1996
-------------------------------------------------------------------------
Revenues $ 57,611 $ 57,208
-------- --------
Costs and Operating Expenses:
Cost of revenues 47,864 47,760
Selling, general, and administrative expenses 8,213 7,968
Research and development expenses 1,271 1,529
-------- --------
57,348 57,257
-------- --------
Operating Income (Loss) 263 (49)
Interest Income 923 874
Interest Expense (9) (16)
Gain on Sale of Investments, Net (includes $469
from sale of related-party investments in
fiscal 1996) - 451
-------- --------
Income Before Provision for Income Taxes
and Minority Interest 1,177 1,260
Provision for Income Taxes 642 484
Minority Interest Expense 156 156
-------- --------
Net Income $ 379 $ 620
======== ========
Earnings per Share $ .03 $ .05
======== ========
Weighted Average Shares 12,478 12,453
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
5PAGE
<PAGE>
THERMO POWER CORPORATION
Consolidated Statement of Cash Flows
(Unaudited)
Six Months Ended
------------------------
March 29, March 30,
(In thousands) 1997 1996
-------------------------------------------------------------------------
Operating Activities:
Net income $ 379 $ 620
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,257 1,231
Provision for losses on accounts receivable 9 5
Gain on sale of investments, net - (451)
Minority interest expense 156 156
Other noncash items 30 -
Changes in current accounts:
Accounts receivable (1,149) (1,470)
Inventories and unbilled contract
costs and fees 2,218 1,235
Other current assets (351) 439
Accounts payable 515 (1,681)
Other current liabilities 976 1,093
-------- --------
Net cash provided by operating activities 4,040 1,177
-------- --------
Investing Activities:
Proceeds from sale and maturities of available-
for-sale investments 6,000 4,981
Proceeds from sale of related-party
investments - 852
Increase in rental assets (570) (1,308)
Proceeds from sale of rental assets 944 962
Purchases of property, plant, and equipment (1,508) (890)
Other - (17)
-------- --------
Net cash provided by investing activities 4,866 4,580
-------- --------
Financing Activities:
Purchase of Company common stock (2,034) -
Net proceeds from issuance of Company
common stock 71 282
Repayment of long-term obligations (27) (25)
-------- --------
Net cash provided by (used in) financing activities (1,990) 257
-------- --------
Increase in Cash and Cash Equivalents 6,916 6,014
Cash and Cash Equivalents at Beginning of Period 29,852 23,504
-------- --------
Cash and Cash Equivalents at End of Period $ 36,768 $ 29,518
======== ========
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 March 29,
1997, the results of operations for the three- and six-month periods
ended March 29, 1997, and March 30, 1996, and the cash flows for the
six-month periods ended March 29, 1997, and March 30, 1996. Interim
results are not necessarily indicative of results for a full year.
The consolidated balance sheet presented as of September 28, 1996,
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 28, 1996, filed
with the Securities and Exchange Commission.
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 to the Company's Annual Report on Form 10-K for the fiscal
year ended September 28, 1996, filed with the Securities and Exchange
Commission.
Overview
The Company's business is divided into three segments: Industrial
Refrigeration Systems, Engines, and Cooling and Cogeneration Systems.
Through the Company's FES division, the Industrial Refrigeration Systems
segment 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
7PAGE
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THERMO POWER CORPORATION
Overview (continued)
is used primarily in the food-processing, petrochemical, and
pharmaceutical industries, and its commercial cooling 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 months. Cool summer weather can adversely affect the Company's
NuTemp business because the Company's cooling systems are used primarily
to reduce temperatures below ambient air temperatures.
Within the Engines segment, the Company's Crusader Engines division
(Crusader) manufactures gasoline engines for recreational boats; propane
and gasoline engines for lift trucks; and natural gas engines for
vehicular, cooling, pumping, refrigeration, and other industrial
applications.
The Cooling and Cogeneration Systems segment consists of the
Company's Tecogen division and the Company's ThermoLyte Corporation
(ThermoLyte) subsidiary, formed in March 1995. Tecogen 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 also conducts
research and development of natural gas-engine technology and on
applications of thermal energy. ThermoLyte is developing and
commercializing a family of gas-powered lighting products.
The Company's revenues by industry segment are shown in the following
table:
Three Months Ended Six Months Ended
-------------------- --------------------
March 29, March 30, March 29, March 30,
(In thousands) 1997 1996 1997 1996
-----------------------------------------------------------------------
Industrial Refrigeration
Systems $15,639 $15,962 $34,785 $33,033
Engines 7,916 8,304 13,323 15,557
Cooling and Cogeneration
Systems 5,948 5,913 10,564 9,523
Intersegment sales
elimination (678) (423) (1,061) (905)
------- ------- ------- -------
$28,825 $29,756 $57,611 $57,208
======= ======= ======= =======
8PAGE
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THERMO POWER CORPORATION
Results of Operations
Second Quarter Fiscal 1997 Compared With Second Quarter Fiscal 1996
Total revenues were $28,825,000 in the second quarter of fiscal 1997
and $29,756,000 in the second quarter of fiscal 1996. Industrial
Refrigeration Systems segment revenues decreased to $15,639,000 in 1997
from $15,962,000 in 1996, primarily due to lower demand for rental
equipment and decreased shipments of remanufactured commercial cooling
equipment at NuTemp. Engines segment revenues decreased 5% to $7,916,000
in 1997 from $8,304,000 in 1996, primarily due to the inclusion in 1996
of a large shipment of TecoDrive(R) natural gas engines to one customer,
offset in part by an increase in lift truck engine sales. Cooling and
Cogeneration Systems segment revenues were relatively unchanged at
$5,948,000 in 1997, compared with $5,913,000 in 1996. Increased revenues
from gas-fueled cooling systems and product services were offset in part
by decreased revenues from sponsored research and development and the
inclusion of a large shipment of thermoelectric devices in 1996. The
decrease in sponsored research and development resulted from a reduction
in funding. The Company expects that revenues from sponsored research and
development will continue to decrease as compared with revenues recorded
in fiscal 1996.
The gross profit margin increased to 19% in the second quarter of
fiscal 1997 from 16% in the second quarter of fiscal 1996. The gross
profit margin for the Industrial Refrigeration Systems segment increased
to 21% in 1997 from 17% in 1996, primarily due to higher margins at FES
resulting from lower warranty expenses and manufacturing efficiencies,
and higher margins at NuTemp due to the inclusion in 1996 of lower-margin
revenues from two large contracts. The Company experienced a cost
increase in one of the major components of its industrial refrigeration
packages in fiscal 1996, for which the Company has identified an
additional supplier at a lower cost. Margins within this segment were
favorably affected by the resulting lower costs for this component in the
second quarter of fiscal 1997. The gross profit margin for the Engines
segment increased to 10% in 1997 from 3% in 1996, primarily due to a
reduction in warranty expenses and to lower overhead expenses resulting
from the consolidation of two manufacturing facilities at Crusader. The
gross profit margin for the Cooling and Cogeneration Systems segment
decreased to 20% in 1997 from 28% in 1996, primarily due to a decrease in
revenues from thermoelectric devices that have relatively higher margins
and from the shipment in 1996 of two packaged cogeneration systems with
substantially higher margins.
Selling, general, and administrative expenses as a percentage of
revenues increased to 15% in the second quarter of fiscal 1997 from 14%
in the second quarter of fiscal 1996 principally due to higher sales
commissions at FES. Research and development expenses decreased to
$627,000 in 1997 from $791,000 in 1996, primarily due to a decrease in
spending on natural gas-engine products and gas-powered lighting
products, primarily due to the completion of development efforts for
these products.
9PAGE
<PAGE>
THERMO POWER CORPORATION
Second Quarter Fiscal 1997 Compared With Second Quarter Fiscal 1996
(continued)
Gain on sale of investments in the second quarter of fiscal 1996
represents a gain relating to the sale of the Company's remaining
investment in 6.5% subordinated convertible debentures issued by Thermo
TerraTech Inc., a majority-owned subsidiary of Thermo Electron
Corporation.
The effective tax rate was 50% in the second quarter of fiscal 1997
and 38% in the second quarter of fiscal 1996. The effective tax rate
exceeded the statutory federal income tax rate, primarily due to an
increase in 1997 in the valuation allowance for net operating loss
carryforwards and other tax assets of the Company's ThermoLyte
subsidiary, and the impact of state income taxes in fiscal 1997 and 1996.
First Six Months Fiscal 1997 Compared With First Six Months Fiscal 1996
Total revenues were $57,611,000 in the first six months of fiscal
1997 and $57,208,000 in the first six months of fiscal 1996. Industrial
Refrigeration Systems segment revenues increased 5% to $34,785,000 in
1997 from $33,033,000 in 1996, primarily due to greater demand for
custom-designed industrial refrigeration packages and product services at
FES. Engines segment revenues decreased 14% to $13,323,000 in 1997 from
$15,557,000 in 1996, primarily due to the inclusion in 1996 of a large
shipment of TecoDrive(R) natural gas engines to one customer and a
decrease in marine-engine related products, offset in part by an increase
in lift-truck engine sales. Revenues from marine-engine related products
declined primarily due to increased competition and a decrease in demand.
These trends are expected to continue. Cooling and Cogeneration Systems
segment revenues increased 11% to $10,564,000 in 1997 from $9,523,000 in
1996. Increased revenues from gas-fueled cooling systems and product
services were offset in part by decreased revenues from sponsored
research and development, packaged cogeneration systems, and
thermoelectric devices.
The gross profit margin was unchanged at 17% in the first six months
of fiscal 1997 and 1996. The gross profit margin for the Industrial
Refrigeration Systems segment was unchanged at 19% in 1997 and 1996.
Improved margins at FES resulting from lower warranty expenses and
improved manufacturing efficiencies were offset by lower margins at
NuTemp resulting primarily from a decrease in rental revenues. The gross
profit margin for the Engines segment increased to 7% in 1997 from 4% in
1996, primarily due to a reduction in warranty expenses and to lower
overhead expenses resulting from the consolidation of two manufacturing
facilities at Crusader. The gross profit margin for the Cooling and
Cogeneration Systems segment decreased to 20% in 1997 from 27% in 1996,
primarily due to the reasons discussed in the results of operations for
the second quarter.
Selling, general, and administrative expenses as a percentage of
revenues remained unchanged at 14% in the first six months of fiscal 1997
and 1996. Research and development expenses decreased to $1,271,000 in
1997 from $1,529,000 in 1996. An increase in spending on gas-powered
lighting products was more than offset by a decrease in spending on
natural gas-engine products.
10PAGE
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THERMO POWER CORPORATION
First Six Months Fiscal 1997 Compared With First Six Months Fiscal 1996
(continued)
Net gain on sale of investments in the first six months of fiscal
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 issued by Thermo TerraTech Inc.,
a majority-owned subsidiary of Thermo Electron.
The effective tax rate was 55% in the first six months of fiscal 1997
and 38% in the first six months of fiscal 1996. The effective tax rate
exceeded the statutory federal income tax rate for the reasons discussed
in the results of operations for the second quarter.
Liquidity and Capital Resources
Consolidated working capital was $56,411,000 at March 29, 1997,
compared with $57,719,000 at September 28, 1996. Included in working
capital are cash, cash equivalents, and available-for-sale investments of
$36,768,000 at March 29, 1997, compared with $35,880,000 at September 28,
1996. Of the $36,768,000 balance at March 29, 1997, $15,912,000 was held
by ThermoLyte and the remainder was held by the Company and its wholly
owned subsidiaries.
During the first six months of fiscal 1997, $4,040,000 of cash was
provided by operating activities. Cash provided by operating results was
increased by a reduction in inventories of $2,143,000, primarily due to
reduced stock levels resulting from a reduction in lead time by a
supplier, offset in part by an increase in accounts receivable of
$1,149,000, resulting principally from the timing of cash collections.
During the first six months of fiscal 1997, the Company's primary
investing activities, excluding sale and maturities of available-for-sale
investments, included capital expenditures and the sale of rental assets.
During the first six months of fiscal 1997, the Company expended
$2,078,000 for purchases of rental assets and property, plant, and
equipment and recorded $944,000 in proceeds from the sale of rental
assets.
The Company's financing activities used $1,990,000 of cash in the
first six months of fiscal 1997, primarily due to $2,034,000 of cash
expended for the purchase of Company common stock. The Company's Board of
Directors has authorized the repurchase, through March 17, 1998, of up to
$5,000,000 of its own securities. Any such purchases would be funded from
working capital. Through March 29, 1997, the Company has expended
$2,034,000 under this authorization.
During the remainder of fiscal 1997, the Company expects to make
capital expenditures of approximately $2,000,000. The Company believes
its existing resources are sufficient to meet the capital requirements of
its existing operations for the foreseeable future.
11PAGE
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THERMO POWER CORPORATION
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders
On March 21, 1997, at the Annual Meeting of Shareholders, the
shareholders elected seven incumbent directors to a one-year term
expiring in 1998. The directors reelected at the meeting were: Marshall
J. Armstrong, J. Timothy Corcoran, Peter O. Crisp, John N. Hatsopoulos,
Robert C. Howard, Donald E. Noble, and Arvin H. Smith. Mr. Armstrong and
Mr. Crisp each received 11,572,357 shares voted in favor of his election
and 52,259 shares voted against; Mr. Corcoran received 11,573,557 shares
voted in favor of his election and 51,059 shares voted against; and Mr.
Hatsopoulos, Mr. Howard, Mr. Noble, and Mr. Smith each received
11,572,657 shares voted in favor of his election and 51,959 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 program to November 2, 2006, as
follows: 11,568,996 shares voted in favor, 37,785 shares voted against,
and 17,835 shares abstained. No broker nonvotes were recorded on the
proposal.
12PAGE
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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 May 1997.
THERMO POWER CORPORATION
Paul F. Kelleher
----------------------
Paul F. Kelleher
Chief Accounting Officer
John N. Hatsopoulos
----------------------
John N. Hatsopoulos
Vice President and Chief
Financial Officer
13PAGE
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THERMO POWER CORPORATION
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------------------------------------------------------------------------
27 Financial Data Schedule.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO
POWER CORPORATION'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH
29, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-END> MAR-29-1997
<CASH> 36,768
<SECURITIES> 0
<RECEIVABLES> 19,765
<ALLOWANCES> 571
<INVENTORY> 16,494
<CURRENT-ASSETS> 83,070
<PP&E> 19,045
<DEPRECIATION> 8,571
<TOTAL-ASSETS> 110,820
<CURRENT-LIABILITIES> 26,659
<BONDS> 278
0
0
<COMMON> 1,249
<OTHER-SE> 64,616
<TOTAL-LIABILITY-AND-EQUITY> 110,820
<SALES> 57,611
<TOTAL-REVENUES> 57,611
<CGS> 47,864
<TOTAL-COSTS> 47,864
<OTHER-EXPENSES> 1,271
<LOSS-PROVISION> 9
<INTEREST-EXPENSE> 9
<INCOME-PRETAX> 1,177
<INCOME-TAX> 642
<INCOME-CONTINUING> 379
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 379
<EPS-PRIMARY> .03
<EPS-DILUTED> 0
</TABLE>
