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 1-10573
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 25, 1997
---------------------------- ----------------------------
Common Stock, $.10 par value 11,915,247
PAGE
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
THERMO POWER CORPORATION
Consolidated Balance Sheet
(Unaudited)
Assets
June 28, September 28,
(In thousands) 1997 1996
-------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $ 25,129 $ 29,852
Available-for-sale investments, at quoted
market value (amortized cost of $9,142 and
$6,022) 9,168 6,028
Accounts receivable, less allowance of $679
and $589 18,810 18,054
Unbilled contract costs and fees 7,397 7,110
Inventories:
Raw materials and supplies 18,862 16,233
Work in process and finished goods 2,768 2,404
Prepaid income taxes 3,319 2,921
Other current assets 216 324
-------- --------
85,669 82,926
-------- --------
Rental Assets, at Cost 13,449 12,358
Less: Accumulated depreciation and
amortization 3,114 2,378
-------- --------
10,335 9,980
-------- --------
Property, Plant, and Equipment, at Cost 19,284 17,580
Less: Accumulated depreciation and
amortization 8,756 7,813
-------- --------
10,528 9,767
-------- --------
Long-term Available-for-sale Investments, at
Quoted Market Value (amortized cost of $1,095
and $210; Note 2) 1,049 184
-------- --------
Other Assets 222 345
-------- --------
Cost in Excess of Net Assets of Acquired
Companies 7,316 7,509
-------- --------
$115,119 $110,711
======== ========
2PAGE
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THERMO POWER CORPORATION
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
June 28, September 28,
(In thousands except share amounts) 1997 1996
-------------------------------------------------------------------------
Current Liabilities:
Accounts payable $ 17,579 $ 14,005
Accrued payroll and employee benefits 3,154 2,832
Accrued income taxes 2,057 713
Accrued warranty costs 2,971 2,323
Other accrued expenses 5,576 4,823
Due to Thermo Electron Corporation and
affiliated companies 458 511
-------- --------
31,795 25,207
-------- --------
Deferred Income Taxes 114 84
-------- --------
Long-term Obligations 263 305
-------- --------
Common Stock of Subsidiary Subject to
Redemption ($18,450 redemption value) 17,982 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 12,802 11,707
Treasury stock at cost, 570,324 and
2,724 shares (3,592) (23)
Net unrealized loss on available-for-sale
investments (13) (13)
-------- --------
64,965 67,368
-------- --------
$115,119 $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
------------------------
June 28, June 29,
(In thousands except per share amounts) 1997 1996
-------------------------------------------------------------------------
Revenues $ 33,839 $ 32,429
-------- --------
Costs and Operating Expenses:
Cost of revenues 27,894 27,106
Selling, general, and administrative expenses 4,519 4,202
Research and development expenses 507 721
-------- --------
32,920 32,029
-------- --------
Operating Income 919 400
Interest Income 466 437
Interest Expense (5) (5)
Gain on Sale of Investments (includes $53
from sale of related-party investments in
fiscal 1997; Note 2) 53 -
-------- --------
Income Before Provision for Income Taxes and
Minority Interest 1,433 832
Provision for Income Taxes 639 306
Minority Interest Expense 78 78
-------- --------
Net Income $ 716 $ 448
======== ========
Earnings per Share $ .06 $ .04
======== ========
Weighted Average Shares 11,977 12,477
======== ========
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)
Nine Months Ended
---------------------
June 28, June 29,
(In thousands except per share amounts) 1997 1996
-------------------------------------------------------------------------
Revenues $ 91,450 $ 89,637
-------- --------
Costs and Operating Expenses:
Cost of revenues 75,758 74,866
Selling, general, and administrative expenses 12,732 12,170
Research and development expenses 1,778 2,250
-------- --------
90,268 89,286
-------- --------
Operating Income 1,182 351
Interest Income 1,389 1,311
Interest Expense (14) (21)
Gain on Sale of Investments, Net (includes
$53 and $469 from sale of related-party
investments; Note 2) 53 451
-------- --------
Income Before Provision for Income Taxes and
Minority Interest 2,610 2,092
Provision for Income Taxes 1,281 790
Minority Interest Expense 234 234
-------- --------
Net Income $ 1,095 $ 1,068
======== ========
Earnings per Share $ .09 $ .09
======== ========
Weighted Average Shares 12,311 12,461
======== ========
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 28, June 29,
(In thousands) 1997 1996
-------------------------------------------------------------------------
Operating Activities:
Net income $ 1,095 $ 1,068
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,223 1,965
Provision for losses on accounts receivable 157 5
Gain on sale of investments, net (53) (451)
Minority interest expense 234 234
Other noncash items (132) -
Changes in current accounts:
Accounts receivable (913) (811)
Inventories and unbilled contract
costs and fees (3,280) (988)
Other current assets (283) 404
Accounts payable 3,574 1,278
Other current liabilities 3,081 950
-------- --------
Net cash provided by operating activities 5,703 3,654
-------- --------
Investing Activities:
Purchases of available-for-sale investments (10,095) (5,000)
Proceeds from sale and maturities of available-
for-sale investments 6,000 8,982
Proceeds from sale of related-party
investments (Note 2) 263 852
Increase in rental assets (2,304) (3,499)
Proceeds from sale of rental assets 1,213 1,370
Purchases of property, plant, and equipment (1,973) (1,148)
Issuance of notes receivable - (292)
Other 10 357
-------- --------
Net cash provided by (used in) investing
activities (6,886) 1,622
-------- --------
Financing Activities:
Purchase of Company common stock (3,569) -
Net proceeds from issuance of Company
common stock 71 342
Repayment of long-term obligations (42) (42)
-------- --------
Net cash provided by (used in) financing activities (3,540) 300
-------- --------
Increase (Decrease) in Cash and Cash Equivalents (4,723) 5,576
Cash and Cash Equivalents at Beginning of Period 29,852 23,504
-------- --------
Cash and Cash Equivalents at End of Period $ 25,129 $ 29,080
======== ========
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 28,
1997, the results of operations for the three- and nine-month periods
ended June 28, 1997, and June 29, 1996, and the cash flows for the
nine-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 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.
2. Related-party Transaction
In May 1997, the Company sold 420,000 shares of common stock of The
Randers Group Incorporated to Thermo TerraTech Inc., an affiliate of the
Company, for proceeds of $262,500, resulting in a gain of $53,000.
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
7PAGE
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THERMO POWER CORPORATION
Overview (continued)
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 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 and can be adversely affected by cool summer weather.
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 Nine Months Ended
-------------------- -------------------
June 28, June 29, June 28, June 29,
(In thousands) 1997 1996 1997 1996
------------------------------------------------------------------------
Industrial Refrigeration
Systems $21,297 $19,916 $56,082 $52,949
Engines 9,294 6,626 22,617 22,183
Cooling and Cogeneration
Systems 3,716 6,402 14,280 15,925
Intersegment sales
elimination (468) (515) (1,529) (1,420)
------- ------- ------- -------
$33,839 $32,429 $91,450 $89,637
======= ======= ======= =======
8PAGE
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THERMO POWER CORPORATION
Results of Operations
Third Quarter Fiscal 1997 Compared With Third Quarter Fiscal 1996
Total revenues were $33,839,000 in the third quarter of fiscal 1997
and $32,429,000 in the third quarter of fiscal 1996. Industrial
Refrigeration Systems segment revenues increased to $21,297,000 in 1997
from $19,916,000 in 1996, primarily due to greater demand for
custom-designed industrial refrigeration packages and product services at
FES, as well as increased shipments of remanufactured commercial cooling
equipment and increased demand for rental equipment at NuTemp. Engines
segment revenues increased to $9,294,000 in 1997 from $6,626,000 in 1996,
primarily due to the inclusion in 1997 of a large shipment of
TecoDrive(R) natural gas engines to one customer and, to a lesser extent,
an increase in lift-truck engine sales, offset in part by a decrease in
sales of marine-engine related products. Revenues from marine-engine
related products declined $161,000 primarily due to a decrease in demand.
Cooling and Cogeneration Systems segment revenues decreased to $3,716,000
in 1997 from $6,402,000 in 1996, primarily due to decreased revenues from
large-capacity gas-fueled cooling systems resulting from fewer incentive
programs offered by gas companies for buyers of these systems, which is
expected to continue. In addition, the Company had a decrease in revenues
from sponsored research and development as a result of a continuing
reduction in contract funding, relative to the prior year's level.
The gross profit margin increased to 18% in the third quarter of
fiscal 1997 from 16% in the third quarter of fiscal 1996. The gross
profit margin for the Industrial Refrigeration Systems segment increased
to 20% in 1997 from 18% in 1996, primarily due to higher margins at FES,
resulting from lower warranty expenses, manufacturing efficiencies, and a
decrease in the cost of a major component, and higher margins at NuTemp
resulting from increased revenues. FES experienced a cost increase in the
major component in fiscal 1996, for which the Company has begun receiving
deliveries from an additional supplier at a lower cost. The gross profit
margin for the Engines segment was unchanged at 10% in 1997 and 1996. The
gross profit margin for the Cooling and Cogeneration Systems segment
increased to 21% in 1997 from 18% in 1996, primarily due to an increase
in higher-margin service revenues and, to a lesser extent, decreased
shipments in 1997 of large-capacity gas-fueled cooling systems, which
have lower margins.
Selling, general, and administrative expenses as a percentage of
revenues was unchanged at 13% in the third quarter of fiscal 1997 and
1996. Research and development expenses decreased to $507,000 in 1997
from $721,000 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 the current phase of development efforts for these
products.
The effective tax rate was 45% in the third quarter of fiscal 1997
and 37% in the third quarter of fiscal 1996. The effective tax rate
exceeded the statutory federal income tax rate primarily due to an
increase in the valuation allowance for net operating loss carryforwards
and other tax assets of the Company's ThermoLyte subsidiary in 1997, and
the impact of state income taxes in 1997 and 1996.
9PAGE
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THERMO POWER CORPORATION
First Nine Months Fiscal 1997 Compared With First Nine Months Fiscal 1996
Total revenues were $91,450,000 in the first nine months of fiscal
1997 and $89,637,000 in the first nine months of fiscal 1996. Industrial
Refrigeration Systems segment revenues increased to $56,082,000 in 1997
from $52,949,000 in 1996, primarily due to greater demand for
custom-designed industrial refrigeration packages and product services at
FES and, to a lesser extent, increased demand for rental equipment at
NuTemp. Engines segment revenues increased to $22,617,000 in 1997 from
$22,183,000 in 1996, primarily due to an increase in lift-truck engine
sales, offset in part by a decrease in sales of marine-engine related
products and TecoDrive natural gas engines. Cooling and Cogeneration
Systems segment revenues were $14,280,000 in 1997, compared with
$15,925,000 in 1996. Decreased revenues from sponsored research and
development, gas-fueled cooling systems, and thermoelectric devices were
offset in part by increased service revenues in 1997.
The gross profit margin increased to 17% in the first nine months of
fiscal 1997 from 16% in the first nine months of fiscal 1996. The gross
profit margin for the Industrial Refrigeration Systems segment increased
to 20% in 1997 from 19% in 1996, primarily due to higher margins at FES
resulting from lower warranty expenses and manufacturing efficiencies.
The gross profit margin for the Engines segment increased to 8% in 1997
from 6% in 1996, primarily due to a reduction in warranty expenses and
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
23% in 1996, primarily due to lower revenues.
Selling, general, and administrative expenses as a percentage of
revenues remained unchanged at 14% in the first nine months of fiscal
1997 and 1996. Research and development expenses decreased to $1,778,000
in 1997 from $2,250,000 in 1996 due to the reasons discussed in the
results of operations for the third quarter.
Net gain on sale of investments in the first nine 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 49% in the first nine months of fiscal
1997 and 38% in the first nine months of fiscal 1996. The effective tax
rate exceeded the statutory federal income tax rate due to the reasons
discussed in the results of operations for the third quarter.
Liquidity and Capital Resources
Consolidated working capital was $53,874,000 at June 28, 1997,
compared with $57,719,000 at September 28, 1996. Included in working
capital are cash, cash equivalents, and available-for-sale investments of
$34,297,000 at June 28, 1997, compared with $35,880,000 at September 28,
1996. Of the $34,297,000 balance at June 28, 1997, $15,601,000 was held
by ThermoLyte, and the remainder was held by the Company and its wholly
owned subsidiaries.
10PAGE
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THERMO POWER CORPORATION
Liquidity and Capital Resources (continued)
During the first nine months of fiscal 1997, $5,703,000 of cash was
provided by operating activities. Cash provided by operating results was
improved by an increase in accounts payable of $3,574,000 and an increase
in other current liabilities of $3,081,000. These increases were offset
in part by an increase in inventories of $2,993,000 and an increase in
accounts receivable of $913,000. Inventories increased primarily due to
expanded purchases of one component prior to its expected redesign by its
manufacturer. Such purchases also resulted in the increase in accounts
payable. Other current liabilities and accounts receivable increased
primarily due to the timing of cash collections and payments.
During the first nine months of fiscal 1997, the Company's primary
investing activities, excluding available-for-sale investment activity,
included $4,277,000 expended for purchases of rental assets and property,
plant, and equipment and $1,213,000 in proceeds received from the sale of
rental assets.
The Company's financing activities used $3,540,000 of cash in the
first nine months of fiscal 1997, primarily due to $3,569,000 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 June 28, 1997, the Company had expended
$3,569,000 under this authorization.
During the remainder of fiscal 1997, the Company expects to make
capital expenditures for the purchase of rental assets and property,
plant, and equipment of approximately $1,900,000. 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
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 31st day of July
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
12PAGE
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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 JUNE 28, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-27-1997
<PERIOD-END> JUN-28-1997
<CASH> 25,129
<SECURITIES> 9,168
<RECEIVABLES> 19,489
<ALLOWANCES> 679
<INVENTORY> 21,630
<CURRENT-ASSETS> 85,669
<PP&E> 19,284
<DEPRECIATION> 8,756
<TOTAL-ASSETS> 115,119
<CURRENT-LIABILITIES> 31,795
<BONDS> 263
0
0
<COMMON> 1,249
<OTHER-SE> 63,716
<TOTAL-LIABILITY-AND-EQUITY> 115,119
<SALES> 91,450
<TOTAL-REVENUES> 91,450
<CGS> 75,758
<TOTAL-COSTS> 75,758
<OTHER-EXPENSES> 1,778
<LOSS-PROVISION> 157
<INTEREST-EXPENSE> 14
<INCOME-PRETAX> 2,610
<INCOME-TAX> 1,281
<INCOME-CONTINUING> 1,095
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,095
<EPS-PRIMARY> .09
<EPS-DILUTED> 0
</TABLE>
