SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
------------------------------------------
FORM 10-Q
(mark one)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarter Ended December 28, 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 January 24, 1997
---------------------------- -------------------------------
Common Stock, $.10 par value 12,490,647
PAGE
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
THERMO POWER CORPORATION
Consolidated Balance Sheet
(Unaudited)
Assets
December 28, September 28,
(In thousands) 1996 1996
--------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $ 29,664 $ 29,852
Available-for-sale investments, at
quoted market value (amortized cost of
$5,067 and $6,022) 5,070 6,028
Accounts receivable, less allowance of
$589 in fiscal 1997 and 1996 18,440 18,054
Unbilled contract costs and fees 8,264 7,110
Inventories:
Raw materials and supplies 15,281 16,233
Work in process and finished goods 1,347 2,404
Prepaid income taxes 3,312 2,921
Other current assets 284 324
-------- --------
81,662 82,926
-------- --------
Rental Assets, at Cost 12,009 12,358
Less: Accumulated depreciation and
amortization 2,419 2,378
-------- --------
9,590 9,980
-------- --------
Property, Plant and Equipment, at Cost 18,336 17,580
Less: Accumulated depreciation and
amortization 8,174 7,813
-------- --------
10,162 9,767
-------- --------
Long-term Available-for-sale Investments, at
Quoted Market Value (amortized cost of $210) 184 184
-------- --------
Other Assets 327 345
-------- --------
Cost in Excess of Net Assets of Acquired
Companies 7,415 7,509
-------- --------
$109,340 $110,711
======== ========
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THERMO POWER CORPORATION
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
December 28, September 28,
(In thousands except share amounts) 1996 1996
--------------------------------------------------------------------------
Current Liabilities:
Accounts payable $ 11,567 $ 14,005
Accrued payroll and employee benefits 2,689 2,832
Billings in excess of contract costs and
fees 1,823 1,017
Customer advances 1,285 1,096
Accrued warranty costs 2,357 2,323
Accrued income taxes 883 713
Other accrued expenses 2,981 2,710
Due to Thermo Electron Corporation
and affiliated companies 84 511
-------- --------
23,669 25,207
-------- --------
Deferred Income Taxes 114 84
-------- --------
Long-term Obligations 291 305
-------- --------
Common Stock of Subsidiary Subject to
Redemption ($18,450 redemption value) 17,825 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 11,711 11,707
Treasury stock at cost, 2,724 shares (23) (23)
Net unrealized loss on available-
for-sale investments (15) (13)
-------- --------
67,441 67,368
-------- --------
$109,340 $110,711
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
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THERMO POWER CORPORATION
Consolidated Statement of Income
(Unaudited)
Three Months Ended
----------------------------
December 28, December 30,
(In thousands except per share amounts) 1996 1995
--------------------------------------------------------------------------
Revenues $ 28,786 $ 27,452
-------- --------
Costs and Operating Expenses:
Cost of revenues 24,533 22,665
Selling, general and administrative expenses 3,780 3,737
Research and development expenses 644 738
-------- --------
28,957 27,140
-------- --------
Operating Income (Loss) (171) 312
Interest Income 451 437
Interest Expense (5) (11)
Gain on Sale of Investments, Net (includes $344
from sale of related party investments in
fiscal 1996) - 326
-------- --------
Income Before Provision for Income Taxes
and Minority Interest 275 1,064
Provision for Income Taxes 193 409
Minority Interest Expense 78 78
-------- --------
Net Income $ 4 $ 577
======== ========
Earnings per Share $ - $ .05
======== ========
Weighted Average Shares 12,489 12,444
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
4PAGE
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THERMO POWER CORPORATION
Consolidated Statement of Cash Flows
(Unaudited)
Three Months Ended
--------------------------
December 28, December 30,
(In thousands) 1996 1995
--------------------------------------------------------------------------
Operating Activities:
Net income $ 4 $ 577
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation and amortization 523 636
Provision for losses on accounts receivable - (55)
Gain on sale of investments, net - (326)
Minority interest expense 78 78
Other noncash items (68) -
Changes in current accounts:
Accounts receivable (386) 447
Inventories and unbilled contract
costs and fees 855 607
Other current assets (351) 455
Accounts payable (2,438) (2,796)
Other current liabilities 975 334
-------- --------
Net cash used in operating activities (808) (43)
-------- --------
Investing Activities:
Proceeds from sale and maturities of available-
for-sale investments 1,000 -
Proceeds from sale of related party
investments - 362
Increase in rental assets (529) (521)
Proceeds from sale of rental assets 878 206
Purchases of property, plant and equipment (786) (385)
Issuance of notes receivable - (165)
Other - 152
-------- --------
Net cash provided by (used in)
investing activities 563 (351)
-------- --------
Financing Activities:
Net proceeds from issuance of Company
common stock 71 181
Repayment of long-term obligations (14) (14)
-------- --------
Net cash provided by
financing activities 57 167
-------- --------
Decrease in Cash and Cash Equivalents (188) (227)
Cash and Cash Equivalents at Beginning of Period 29,852 23,504
-------- --------
Cash and Cash Equivalents at End of Period $ 29,664 $ 23,277
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
5PAGE
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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 December 28,
1996, the results of operations for the three-month periods ended
December 28, 1996 and December 30, 1995, and the cash flows for the
three-month periods ended December 28, 1996 and December 30, 1995.
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
6PAGE
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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, including 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
---------------------------
December 28, December 30,
(In thousands) 1996 1995
------------------------------------------------------------------------
Industrial Refrigeration Systems $ 19,146 $ 17,071
Engines 5,407 7,253
Cooling and Cogeneration Systems 4,616 3,610
Intersegment sales elimination (383) (482)
-------- --------
$ 28,786 $ 27,452
======== ========
Results of Operations
First Quarter Fiscal 1997 Compared With First Quarter Fiscal 1996
Total revenues increased 5% to $28,786,000 in the first quarter of
fiscal 1997 from $27,452,000 in the first quarter of fiscal 1996.
Industrial Refrigeration Systems segment revenues increased 12% to
$19,146,000 in 1997 from $17,071,000 in 1996, primarily due to greater
demand for custom-designed industrial refrigeration packages at FES and,
to a lesser extent, increased shipments of remanufactured commercial
7PAGE
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THERMO POWER CORPORATION
First Quarter Fiscal 1997 Compared With First Quarter Fiscal 1996
(continued)
cooling equipment at NuTemp. Engines segment revenues decreased 25% to
$5,407,000 in 1997 from $7,253,000 in 1996, primarily due to the
inclusion in 1996 of a large shipment of TecoDrive(R) natural gas engines
to one customer and, to a lesser extent, a decrease of $425,000 in
revenues from marine-engine related products. 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 28% to $4,616,000 in 1997
from $3,610,000 in 1996 primarily due to an increase in demand for
gas-fueled cooling systems and product services.
The gross profit margin decreased to 15% in the first quarter of
fiscal 1997 from 17% in the first quarter of fiscal 1996. The gross
profit margin for the Industrial Refrigeration Systems segment decreased
to 18% in 1997 from 21% in 1996 primarily due to lower margins at FES
resulting from a change in sales mix and a cost increase in one of the
major components of its industrial refrigeration packages. Although the
Company expects to phase in a new manufacturer for this component by
mid-year 1997, this cost increase is expected to continue to adversely
affect the gross profit margin during 1997. In addition, the gross profit
margin for the Industrial Refrigeration Systems segment was affected by
lower margins at NuTemp resulting from a change in sales mix and lower
manufacturing efficiencies. NuTemp's sales of new and remanufactured
commercial cooling equipment, which have lower margins than revenues from
rental equipment, increased in 1997 from 1996. NuTemp experienced lower
manufacturing efficiencies during the first quarter of 1997 due to the
initial fabrication of new commercial cooling products. The gross profit
margin for the Engines segment decreased to 3% in 1997 from 5% in 1996,
primarily due to continued high levels of warranty expense and a
reduction in revenues in 1997 compared with 1996. The gross profit margin
for the Cooling and Cogeneration Systems segment decreased to 18% in 1997
from 24% in 1996, primarily due to increased revenues from gas-fueled
cooling systems that have lower margins.
Selling, general and administrative expenses as a percentage of
revenues remained relatively unchanged at 13% in the first quarter of
fiscal 1997, compared with 14% in the first quarter of fiscal 1996.
Research and development expenses decreased to $644,000 in 1997 from
$738,000 in 1996. 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.
Gain on sale of investments, net, in the first quarter of fiscal
1996 primarily represents a gain relating to the sale of the Company's
remaining investment in Thermo Electron Corporation common stock.
The effective tax rate was 70% in the first quarter of fiscal 1997
and 38% in the first quarter of fiscal 1996. The effective tax rate
exceeded the statutory federal income tax rate, primarily due to an
increase in the valuation allowance in 1997 for net operating loss
carryforwards of the Company's ThermoLyte subsidiary and the impact of
state income taxes.
8PAGE
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THERMO POWER CORPORATION
Liquidity and Capital Resources
Consolidated working capital was $57,993,000 at December 28, 1996,
compared with $57,719,000 at September 28, 1996. Included in working
capital are cash, cash equivalents, and available-for-sale investments of
$34,734,000 at December 28, 1996, compared with $35,880,000 at September
28, 1996. Of the $34,734,000 balance at December 28, 1996, $16,169,000
was held by ThermoLyte and the remainder was held by the Company and its
wholly owned subsidiaries. During the first three months of fiscal 1997,
$808,000 of cash was used by operating activities, which included
$2,438,000 of cash used to reduce accounts payable. During the first
three months of fiscal 1997, the Company expended $1,315,000 for
purchases of rental assets and property, plant and equipment and recorded
$878,000 in proceeds from the sale of rental assets.
During the remainder of fiscal 1997, the Company expects to make
capital expenditures of approximately $3,500,000. The Company believes
its existing resources are sufficient to meet the capital requirements of
its existing operations for the foreseeable future.
9PAGE
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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 3rd day of February
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
10PAGE
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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 PERIOD ENDED DECEMBER 28,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-27-1997
<PERIOD-END> DEC-28-1996
<CASH> 29,664
<SECURITIES> 5,070
<RECEIVABLES> 19,029
<ALLOWANCES> 589
<INVENTORY> 16,628
<CURRENT-ASSETS> 81,662
<PP&E> 18,336
<DEPRECIATION> 8,174
<TOTAL-ASSETS> 109,340
<CURRENT-LIABILITIES> 23,669
<BONDS> 291
0
0
<COMMON> 1,249
<OTHER-SE> 66,192
<TOTAL-LIABILITY-AND-EQUITY> 109,340
<SALES> 28,786
<TOTAL-REVENUES> 28,786
<CGS> 24,533
<TOTAL-COSTS> 24,533
<OTHER-EXPENSES> 644
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5
<INCOME-PRETAX> 197
<INCOME-TAX> 193
<INCOME-CONTINUING> 4
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
