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 January 1, 2000
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number 1-13572
THERMO ECOTEK CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 04-3072335
(State or other jurisdiction of
incorporation or organization) (I.R.S. Employer Identification No.)
245 Winter Street, Suite 300
Waltham, Massachusetts 02451
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (781) 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 28, 2000
Common Stock, $.10 par value 35,973,009
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
THERMO ECOTEK CORPORATION
Consolidated Balance Sheet
(Unaudited)
Assets
<TABLE>
<CAPTION>
<S> <C> <C>
January 1, October 2,
(In thousands) 2000 1999
- ----------------------------------------------------------------------------------- ---------- ----------
Current Assets:
Cash and cash equivalents $ 14,145 $ 20,002
Advance to affiliate 7,605 17,766
Restricted funds 29,771 28,024
Accounts receivable and unbilled revenues 39,885 57,980
Inventories 7,266 7,292
Deferred tax asset 41,123 41,288
Other current assets 1,975 2,573
Net assets of discontinued operations (Note 4) 23,520 38,231
-------- --------
165,290 213,156
-------- --------
Property, Plant, and Equipment, at Cost 263,367 251,470
Less: Accumulated depreciation and amortization 68,367 63,263
-------- --------
195,000 188,207
-------- --------
Long-term Available-for-sale Investments, at Quoted 7,174 6,111
Market Value (amortized cost of $6,379)
-------- --------
Restricted Funds 26,847 30,205
-------- --------
Other Assets 8,464 7,990
-------- --------
$402,775 $445,669
======== ========
2
<PAGE>
THERMO ECOTEK CORPORATION
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
January 1, October 2,
(In thousands except share amounts) 2000 1999
- ----------------------------------------------------------------------------------- ---------- ----------
Current Liabilities:
Short-term obligations and current portion of long-term obligations $ 31,074 $ 37,752
Accounts payable 21,131 30,252
Accrued restructuring costs (Note 5) 6,159 7,473
Lease obligations payable 4,043 1,005
Other accrued expenses 12,550 15,758
Due to parent company 104 373
-------- --------
75,061 92,613
-------- --------
Long-term Obligations:
Nonrecourse tax-exempt obligations - 14,500
Subordinated convertible debentures (includes $2,826 due 46,770 46,770
to parent company)
-------- --------
46,770 61,270
-------- --------
Deferred Income Taxes 58,024 55,951
-------- --------
Other Deferred Items 37,940 40,419
-------- --------
Minority Interest 3,666 4,435
-------- --------
Shareholders' Investment:
Common stock, $.10 par value, 50,000,000 shares authorized; 3,787 3,787
37,874,355 and 37,869,248 shares issued
Capital in excess of par value 175,934 175,895
Retained earnings 28,707 39,382
Treasury stock at cost, 1,901,346 shares (28,084) (28,084)
Deferred compensation (41) (46)
Accumulated other comprehensive items (Note 2) 1,011 47
-------- --------
181,314 190,981
-------- --------
$402,775 $445,669
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
THERMO ECOTEK CORPORATION
Consolidated Statement of Operations
(Unaudited)
Three Months Ended
January 1, January 2,
(In thousands except per share amounts) 2000 1999
- ----------------------------------------------------------------------------------- ---------- ----------
Revenues $ 38,610 $ 40,375
-------- --------
Costs and Operating Expenses:
Cost of revenues (includes $833 and $1,401 to related parties) 30,101 30,499
Selling, general, and administrative expenses 3,817 4,164
(includes $345 and $360 to related parties)
-------- --------
33,918 34,663
-------- --------
Operating Income 4,692 5,712
Interest Income 857 763
Interest Expense (includes $34 to parent company in fiscal 2000) (1,373) (1,891)
-------- --------
Income from Continuing Operations Before Income Taxes and 4,176 4,584
Minority Interest
Provision for Income Taxes 1,718 1,503
Minority Interest Expense 38 14
-------- --------
Income from Continuing Operations 2,420 3,067
Loss from Discontinued Operations (net of income tax (495) (557)
benefit of $461 and $435; Note 4)
Provision for Loss on Disposal of Discontinued Operations (12,600) -
(net of income tax benefit of $2,700; Note 4)
-------- --------
Net Income (Loss) $(10,675) $ 2,510
======== ========
Earnings per Share from Continuing Operations (Note 3):
Basic $ .07 $ .09
======== ========
Diluted $ .07 $ .08
======== ========
Basic and Diluted Earnings (Loss) per Share (Note 3) $ (.30) $ .07
======== ========
Weighted Average Shares (Note 3):
Basic 35,971 35,925
======== ========
Diluted 36,167 36,247
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
THERMO ECOTEK CORPORATION
Consolidated Statement of Cash Flows
(Unaudited)
Three Months Ended
January 1, January 2,
(In thousands) 2000 1999
- ----------------------------------------------------------------------------------- ----------- ----------
Operating Activities:
Net income (loss) $(10,675) $ 2,510
Adjustments to reconcile net income (loss) to income from continuing
operations:
Loss from discontinued operations 495 557
Provision for loss on disposal of discontinued operations 12,600 -
-------- --------
Income from continuing operations 2,420 3,067
Adjustments to reconcile income from continuing operations to net
cash provided by operating activities of continuing operations:
Depreciation and amortization 5,447 5,773
Increase in deferred income taxes 1,659 2,513
Minority interest expense 38 14
Other noncash items 5 -
Changes in current accounts, excluding the effect of discontinued
operations:
Restricted funds (1,747) 4,595
Accounts receivable and unbilled revenues 18,095 6,751
Inventories 838 (1,217)
Other current assets 763 (1,654)
Accounts payable (9,121) (1,311)
Other current liabilities (1,852) (1,805)
-------- --------
Net cash provided by continuing operations 16,545 16,726
Net cash provided by discontinued operations 2,065 784
-------- --------
Net cash provided by operating activities 18,610 17,510
-------- --------
Investing Activities:
Purchases of property, plant, and equipment (12,431) (8,147)
Advances to affiliate, net 10,161 -
Use (funding) of long-term restricted funds 3,358 (4,293)
Increase (decrease) in other deferred items (2,380) 2,954
Increase in other assets (754) (1,406)
-------- --------
Net cash used in continuing operations (2,046) (10,892)
Net cash used in discontinued operations (412) (494)
-------- --------
Net cash used in investing activities $ (2,458) $(11,386)
-------- --------
5
<PAGE>
THERMO ECOTEK CORPORATION
Consolidated Statement of Cash Flows (continued)
(Unaudited)
Three Months Ended
January 1, January 2,
(In thousands) 2000 1999
- ----------------------------------------------------------------------------------- ----------- ----------
Financing Activities:
Repayment of long-term obligations $(14,000) $(14,200)
Payments under capital lease obligations (5,454) (5,240)
Increase (decrease) in short-term borrowings (1,724) 505
Net proceeds from issuance of Company and subsidiary common stock 39 48
Distribution to minority partner (826) (753)
Contribution from minority partner - 162
-------- --------
Net cash used in financing activities (21,965) (19,478)
-------- --------
Exchange Rate Effect on Cash (26) (12)
-------- --------
Decrease in Cash and Cash Equivalents (5,839) (13,366)
Cash and Cash Equivalents at Beginning of Period 20,002 42,157
-------- --------
14,163 28,791
Cash of Discontinued Operations at End of Period (18) (761)
-------- --------
Cash and Cash Equivalents at End of Period $ 14,145 $ 28,030
======== ========
Noncash Activities:
Conversion of subordinated convertible debentures $ - $ 630
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
THERMO ECOTEK CORPORATION
Notes to Consolidated Financial Statements
1. General
The interim consolidated financial statements presented have been prepared
by Thermo Ecotek 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 January 1, 2000, the results of
operations for the three-month periods ended January 1, 2000, and January 2,
1999, and the cash flows for the three-month periods ended January 1, 2000, and
January 2, 1999. Interim results are not necessarily indicative of results for a
full year.
Historical financial results have been restated to reflect a decision to
sell the Company's majority-owned Thermo Trilogy Corporation subsidiary, which
has been presented as discontinued operations in the accompanying financial
statements (Note 4). 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 October 2, 1999, filed with
the Securities and Exchange Commission.
2. Comprehensive Income
Comprehensive income combines net income and "other comprehensive items,"
which represents certain amounts that are reported as components of
shareholders' investment in the accompanying balance sheet, including foreign
currency translation adjustments and unrealized net of tax gains and losses on
available-for-sale investments. The Company had a comprehensive loss of $9.8
million in the first quarter of fiscal 2000 and comprehensive income of $1.2
million in the first quarter of fiscal 1999.
3. Earnings (Loss) per Share
Basic and diluted earnings (loss) per share were calculated as follows:
Three Months Ended
January 1, January 2,
(In thousands except per share amounts) 2000 1999
- -------------------------------------------------------------- ---------- --------- ---------- ----------
Basic
Income from Continuing Operations $ 2,420 $ 3,067
Loss from Discontinued Operations (495) (557)
Provision for Loss on Disposal of Discontinued Operations (12,600) -
--------- --------
Net Income (Loss) $ (10,675) $ 2,510
--------- --------
Weighted Average Shares 35,971 35,925
--------- --------
Basic Earnings (Loss) per Share:
Continuing operations $ .07 $ .09
Discontinued operations (.37) (.02)
--------- --------
$ (.30) $ .07
========= ========
7
<PAGE>
3. Earnings (Loss) per Share (continued)
Three Months Ended
January 1, January 2,
(In thousands except per share amounts) 2000 1999
- -------------------------------------------------------------- ---------- --------- ---------- ----------
Diluted
Income from Continuing Operations $ 2,420 $ 3,067
Loss from Discontinued Operations (495) (557)
Provision for Loss on Disposal of Discontinued Operations (12,600) -
--------- --------
Net Income (Loss) $ (10,675) $ 2,510
--------- --------
Weighted Average Shares 35,971 35,925
Effect of:
Convertible obligations 134 142
Stock options 62 180
--------- --------
Weighted Average Shares, as Adjusted 36,167 36,247
--------- --------
Diluted Earnings (Loss) per Share:
Continuing operations $ .07 $ .08
Discontinued operations (.37) (.01)
--------- --------
$ (.30) $ .07
========= ========
Options to purchase 540,000 and 313,000 shares of common stock were not
included in the computation of diluted earnings (loss) per share for the first
quarter of fiscal 2000 and 1999, respectively, because the options' exercise
prices were greater than the average market price for the common stock and their
effect would have been antidilutive.
In addition, the computation of diluted earnings (loss) per share for the
three-month periods ended January 1, 2000, and January 2, 1999, excludes the
effect of assuming the conversion of the Company's $45.0 million principal
amount of 4.875% subordinated convertible debentures, convertible at $16.50 per
share, because the effect would be antidilutive.
4. Proposed Reorganization and Discontinued Operations
In January 2000, Thermo Electron Corporation updated its proposed
reorganization involving certain of Thermo Electron's subsidiaries, including
the Company. Under this plan, Thermo Electron will acquire the minority interest
in the Company by exchanging 0.431 shares of Thermo Electron common stock for
each share of Company common stock. As a result, the Company would become a
wholly owned subsidiary of Thermo Electron. This transaction is expected to be
completed by the end of the third quarter of fiscal 2000. The proposed
transaction will require Securities and Exchange Commission clearance of
necessary filings. Thermo Electron has determined that the Company is no longer
a core business and is therefore evaluating its strategic options for the
Company.
In addition, on January 31, 2000, Thermo Electron announced a plan under
which the Company will divest its Thermo Trilogy subsidiary, which represents
its Biopesticides segment. In accordance with the provisions of Accounting
Principles Board Opinion No. 30 concerning reporting the effect of disposal of a
segment of a business, the Company classified the results of operations of the
Biopesticides segment as discontinued in the accompanying statement of
operations. In addition, the net assets of the Biopesticides segment were
classified as net assets of discontinued operations in the accompanying balance
sheet, and primarily consisted of inventories, accounts receivable, and
machinery and equipment, net of certain current liabilities, principally
accounts payable.
8
<PAGE>
4. Proposed Reorganization and Discontinued Operations (continued)
Summary operating results of the Biopesticides segment were as follows:
Three Months Ended
January 1, January 2,
(In thousands except per share amounts) 2000 1999
- --------------------------------------------------------------------- --- -------- ---------- ----------
Revenues $ 4,510 $4,686
Costs and Expenses 5,610 5,826
------- ------
Loss from Discontinued Operations Before Income Tax (1,100) (1,140)
Benefit and Minority Interest
Income Tax Benefit 461 435
Minority Interest Income 144 148
------- ------
Loss from Discontinued Operations $ (495) $ (557)
======= ======
In the first quarter of fiscal 2000, the Company provided $12.6 million,
net of a tax benefit of $2.7 million, for the estimated loss on disposal of
discontinued operations. The Company expects to complete the sale of its
Biopesticides segment by the end of the first quarter of fiscal 2001.
5. Restructuring and Related Costs
During fiscal 1999, the Company recorded cash restructuring costs,
primarily for land reclamation costs at its subbituminous coal-beneficiation
facility, a loss on the cancellation of a fuel contract at its Delano,
California, facility, and severance for 3 employees, all of whom were terminated
during the first quarter of fiscal 2000.
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<CAPTION>
A summary of the changes in accrued restructuring costs is as follows:
<S> <C> <C> <C> <C> <C>
Land Fuel Contract Severance Other
Reclamation Cancellation
(In thousands) Costs Total
- --------------------------------- -------------- -------------- -------------- ------------- -------------
Balance at October 2, 1999 $ 4,394 $ 2,444 $ 189 $ 446 $ 7,473
Usage - (1,222) (92) - (1,314)
------- ------- ------ ------- -------
Balance at January 1, 2000 $ 4,394 $ 1,222 $ 97 $ 446 $ 6,159
======= ======= ====== ======= =======
The Company expects accrued restructuring costs to be paid primarily
during the remainder of fiscal 2000.
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 heading "Forward-looking
Statements" in Exhibit 13 to the Company's Annual Report on Form 10-K for the
fiscal year ended October 2, 1999, filed with the Securities and Exchange
Commission.
9
<PAGE>
Overview
The Company's continuing operations operate independent electric
power-generation facilities through joint ventures, limited partnerships, or
wholly owned subsidiaries (the Operating companies), as well as a natural gas
business (Star Natural Gas).
Each Operating company in the United States typically sells power under a
long-term power-sales agreement. The profitability of operating the Company's
facilities depends on the price received for power under the power-sales
agreements with power purchasers, on plant performance or availability, and on
the fuel, operating, and maintenance costs for the facilities. The Company earns
a disproportionately high share of its income in May to October due to the rate
structures under the power-sales agreements for its California plants, which
provide strong incentives to operate during this period of high demand.
Conversely, the Company has historically operated at marginal profitability
during the second fiscal quarter due to the rate structure under these
agreements. The Company's profitability is also dependent on the amount of
development expenses that it incurs.
The Company has expanded its energy operations into international markets
and has begun business- development efforts in the Czech Republic and Germany.
In January 1998, the Company, through a joint venture established by a wholly
owned subsidiary, indirectly acquired a majority interest in the assets of a
12-megawatt energy center near Tabor, Czech Republic, along with the business of
five auxiliary boilers in the town of Pribram, Czech Republic (the Czech
Republic operations). The Company completed an expansion of the facility to
50-megawatt capacity in March 1999. In September 1999, the Company purchased,
also through a joint venture, a 58-megawatt electricity-generating facility in
Premnitz, Germany. The cost of business-development efforts may increase as the
Company expands into these markets due to increased complexity inherent in
foreign development. In addition, the amount of cash required to fund the equity
component of these investments is expected to increase due to the financing
requirements of lenders in foreign markets.
The Company's Star Natural Gas subsidiary pursues opportunities in the
natural gas gathering, processing, storage, and marketing business. In May 1999,
Star Natural Gas purchased one gas gathering system and two gas processing
plants (the gas facilities).
Through May 1999, the Energy segment also operated in the field of
engineered clean fuels through a limited partnership agreement with KFx, Inc.
The Company is a 95% partner in a partnership that was established to develop,
construct, and operate a subbituminous coal-beneficiation facility near
Gillette, Wyoming (the K-Fuel Facility). In May 1999, the Company made a
decision to hold the K-Fuel Facility for sale or disposal.
Since its inception, the Company has derived a substantial majority of its
revenue from the development, construction, and operation of biomass-fueled
electric-generation facilities. While the Company's U.S. biomass energy business
is expected to continue to generate revenues for the foreseeable future, the
Company expects the aggregate revenues and profitability associated with this
business to decline significantly beginning in fiscal 2000 due to the expiration
or termination of power-sales agreements at the biomass facilities. In
anticipation of this decline, the Company has explored other options for its
biomass facilities, including disposal or repowering. Such efforts will continue
throughout fiscal 2000. In addition, within the next few years, the Company
expects a substantial portion of its revenues to be derived from other business
ventures such as repowering and natural gas gathering and storage. A major
portion of the Company's efforts will be focused on developing and acquiring new
power projects, including repowering existing power plants and natural gas
gathering and storage projects. The Company has had limited prior experience in
the repowering of power plants and in the natural gas gathering and storage
business, and there can be no assurance that it will be able to successfully
develop, market, or sell its services in these areas. The Company's future
success will depend significantly on its ability to develop, introduce, and
integrate new products and services in these areas. No assurance can be given
that the Company will be successful in this regard. Any failure or inability of
the Company to implement these strategies would have a material adverse effect
on its business, financial condition, and results of operations.
10
<PAGE>
Overview (continued)
Thermo Electron has announced a proposed reorganization involving certain
of Thermo Electron's subsidiaries, including the Company. Under this plan, the
Company would be merged into and become a wholly owned subsidiary of Thermo
Electron. In addition, Thermo Electron has announced that the Company will
divest its Thermo Trilogy Corporation subsidiary, which represents its
Biopesticides segment.
Results of Operations
First Quarter Fiscal 2000 Compared With First Quarter Fiscal 1999
Revenues were $38.6 million in the first quarter of fiscal 2000, compared
with $40.4 million in the first quarter of fiscal 1999. Revenues decreased by an
aggregate $8.2 million at the Company's Mendota and Woodland facilities. The
utility that purchases power from the Mendota and Woodland facilities commenced
paying for power at avoided cost rates during the fourth quarter of fiscal 1999,
as discussed below. Revenues decreased by $1.4 million due to the termination of
the power-sales agreement at the Company's Gorbell facility during the fourth
quarter of fiscal 1999. These decreases were offset by the inclusion of $5.2
million in revenues from the Company's electricity-generating facility in
Premnitz, Germany, which was acquired in September 1999, and a $1.5 million
increase in revenues from the Company's Star Natural Gas subsidiary, primarily
due to the acquisition of the gas facilities in May 1999. Revenues also
increased $1.1 million at the Czech Republic operations due to a plant expansion
that was completed in March 1999.
The gross profit margin decreased to 22% in the first quarter of fiscal
2000 from 24% in the first quarter of fiscal 1999, primarily due to the
transition to avoided cost rates at the Mendota and Woodland facilities.
The power-sales agreements for the Company's Mendota, Woodland, and Delano
facilities in California are so-called standard offer #4 (SO#4) contracts, which
require Pacific Gas & Electric (PG&E), in the case of Mendota and Woodland, and
Southern California Electric, in the case of the Delano facilities, to purchase
the power output of the projects at fixed rates through specified periods.
Thereafter, the utility will pay a rate based upon the costs that would have
otherwise been incurred by the purchasing utilities in generating their own
electricity or in purchasing it from other sources (avoided cost). Avoided cost
rates are currently substantially lower than the rates the Company has received
under the fixed-rate portions of its contracts and are expected to remain so for
the foreseeable future. PG&E stopped paying for power purchased from the Mendota
and Woodland facilities at fixed cost rates effective in July and August 1999,
respectively, although the Company believes that this change from fixed cost
rates occurred six months earlier than the power-sales agreements provided. The
Company is considering its alternatives concerning this dispute. Based on
current avoided cost rates, the Company expects that the Woodland facility will
operate at breakeven or nominal operating losses, primarily as a result of
nonrecourse lease obligations that have been partially funded from the Woodland
facility's past cash flows. Absent sufficient reductions in fuel prices and
other operating costs, the Company will draw down power reserve funds to cover
operating cash shortfalls and then, if such funds are depleted, either
renegotiate its nonrecourse lease for the Woodland facility or forfeit its
interest in the facility. Revenues from the Woodland facility were $28.9 million
in fiscal 1999 and its results were approximately breakeven.
As a result of the transition from fixed contract rates to avoided costs
rates, the Mendota facility operated at a loss through the first quarter of
fiscal 2000. However, based on current avoided cost rates, the Mendota facility
is expected to operate at a profit subsequent to the first quarter of fiscal
2000. The Mendota facility's revenues and operating income were $24.4 million
and $3.8 million, respectively, in fiscal 1999. In May 1999, the Company reached
an agreement to terminate its power-sales agreement, effective December 31,
1999, for the Delano facilities. As a result of reaching this agreement, the
Company expects that the results of the Delano facilities will be reduced to
breakeven or a nominal loss subsequent to December 1999. The Delano facilities'
aggregate revenues and operating income before restructuring charges were
approximately $63.6 million and $33.4 million, respectively, in fiscal 1999. If
Thermo Ecotek had been paid avoided cost rates at each of its California
facilities, revenues in the first quarter of
11
<PAGE>
First Quarter Fiscal 2000 Compared With First Quarter Fiscal 1999 (continued)
fiscal 2000 and fiscal 1999 would have been lower by $10.1 million and $18.4
million, respectively. In anticipation of these expected declines in revenues
and operating income, the Company may continue to explore other options for its
biomass facilities, including disposal or repowering.
Selling, general, and administrative expenses as a percentage of revenues
were 10% in the first quarter of fiscal 2000 and 1999.
Interest income increased to $0.9 million in the first quarter of fiscal
2000 from $0.8 million in the first quarter of fiscal 1999, primarily due to
higher interest rates.
Interest expense decreased to $1.4 million in the first quarter of fiscal
2000 from $1.9 million in the first quarter of fiscal 1999, primarily due to
lower outstanding debt related to the Company's Delano and Mendota facilities.
The effective tax rate was 41% and 33% in the first quarter of fiscal 2000
and 1999, respectively. The effective tax rate in fiscal 2000 exceeded the
statutory federal income tax rate primarily due to the effect of state income
taxes. The effective tax rate in fiscal 1999 was below the statutory federal
income tax rate primarily due to tax credits earned from the production of
K-Fuel prior to the closure of the K-Fuel Facility.
Minority interest expense represents the allocation of income from plant
operations to a minority partner in an Operating company.
In accordance with the provisions of Accounting Principles Board Opinion
No. 30 concerning reporting the effect of disposal of a segment of a business,
the results of the Company's Biopesticides segment have been classified as
discontinued operations in the accompanying statement of operations (Note 4).
The loss from discontinued operations was $0.5 million in the first quarter of
fiscal 2000, compared with $0.6 million in the first quarter of fiscal 1999. In
addition, in the first quarter of fiscal 2000, the Company provided $12.6
million, net of tax, for the estimated loss on disposal of the Biopesticides
segment.
Liquidity and Capital Resources
Working capital was $96.3 million at January 1, 2000, compared with $120.5
million at October 2, 1999. The Company had cash, cash equivalents, and current
restricted funds of $43.9 million at January 1, 2000, compared with $48.0
million at October 2, 1999. In addition, the Company had $7.6 million invested
in an advance to affiliate at January 1, 2000, compared with $17.8 million at
October 2, 1999. Current restricted funds, which consists of funds held in trust
pursuant to certain lease and debt agreements, totaled $29.8 million and $28.0
million at January 1, 2000, and October 2, 1999, respectively. In addition, cash
and cash equivalents in the accompanying balance sheet includes $8.5 million and
$12.5 million of cash at January 1, 2000, and October 2, 1999, respectively,
which is restricted by the terms of certain lease and financing agreements.
These restrictions limit the ability of the Operating companies to transfer
funds to the Company in the form of dividends, loans, advances, or other
distributions. During the first quarter of fiscal 2000, the Company's continuing
operations provided cash and restricted funds from operating activities of $18.3
million. Cash of $18.1 million provided by a seasonal decrease in accounts
receivable was offset in part by $9.1 million of cash used to fund a seasonal
decrease in accounts payable at Star Natural Gas. The Company expects to pay
accrued restructuring costs of $6.2 million primarily during the remainder of
fiscal 2000.
Excluding advance to affiliate activity, the Company's investing
activities used $12.2 million of cash during the first quarter of fiscal 2000.
The Company expended $12.4 million for capital expenditures, including $11.6
million related to the repowering of the Company's Mountainview, California,
facility. The Company expects to make capital expenditures of approximately $30
million during the remainder of fiscal 2000, primarily related to the
Mountainview facility.
12
<PAGE>
Liquidity and Capital Resources (continued)
During the first quarter of fiscal 2000, the Company's financing
activities used cash of $22.0 million, primarily for the repayment of long-term
obligations and payments under capital lease obligations related to three of its
California facilities.
In January 2000, the Company sold its interest in its Gorbell
electricity-generating facility for $2 million. The Company has begun repowering
and expansion efforts at an existing project in Southern California and
development efforts for an electricity-generating facility in Florida. The
Company estimates the total cost of the Southern California and Florida projects
to be $570 million and $105 million, respectively. The Company has committed to
spend approximately $140 million for the purchase of certain equipment for the
Southern California facility, of which it has expended $5 million as a
nonrefundable deposit. The Company expects to obtain project financing to fund
this purchase although it does not currently have any firm available credit
facilities. In addition, together with a 10% joint venture partner, the Company
is developing a gas storage facility in Colorado at an expected cost of $35
million. The Company expects it will require significant financing for these
development and expansion projects, although the Company does not currently have
any firm available credit facilities. Although the Company's projects are
designed to produce positive cash flow over the long term, the Company will have
to obtain significant additional funds from time to time to meet project
development requirements, including the funding of equity investments, and to
complete acquisitions. As the Company acquires, invests in, or develops future
plants, the Company expects to finance them with nonrecourse debt, internal
funds, or through borrowings from third parties. The Company has no agreements
with third parties that assure funds will be available on acceptable terms, or
at all.
Year 2000
As of the date of this report, the Company has completed its year 2000
initiatives which included: (i) testing and upgrading significant information
technology systems and facilities; (ii) assessing the year 2000 readiness of its
key suppliers, vendors, and customers; and (iii) developing contingency plans.
As a result of completing these initiatives, the Company believes that all
of its material information technology systems and critical non-information
technology systems are year 2000 compliant. In addition, the Company is not
aware of any significant supplier or vendor that has experienced material
disruption due to year 2000 issues. The Company has also developed a contingency
plan to allow its primary business operations to continue despite disruptions
due to year 2000 problems, if any, that might yet arise in the future. The costs
incurred to date by the Company in connection with the year 2000 issue have not
been material.
While the Company to date has been successful in minimizing negative
consequences arising from year 2000 issues, there can be no assurance that in
the future the Company's business operations or financial condition may not be
impacted by year 2000 problems, such as increased warranty claims, vendor and
supplier disruptions, or litigation relating to year 2000 issues.
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
The Company's exposure to market risk from changes in equity prices,
foreign currency exchange rates, and interest rates has not changed materially
from its exposure at fiscal year-end 1999.
13
<PAGE>
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
See Exhibit Index on the page immediately preceding exhibits.
(b) Reports on Form 8-K
On February 1, 2000, the Company filed a Current Report on Form 8-K dated
January 31, 2000, with respect to a proposed reorganization plan at Thermo
Electron Corporation, as well as a decision to hold for sale the Company's
Thermo Trilogy Corporation subsidiary.
14
<PAGE>
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 15th day of February 2000.
THERMO ECOTEK CORPORATION
/s/ Paul F. Kelleher
Paul F. Kelleher
Chief Accounting Officer
/s/ Theo Melas-Kyriazi
Theo Melas-Kyriazi
Chief Financial Officer
15
<PAGE>
</TABLE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
27.1 Financial Data Schedule for the period ended January 1, 2000.
27.2 Restated Financial Data Schedule for the period ended January 2,
1999.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO
ECOTEK CORPORATION.'S QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED JANUARY
1,2000 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> JAN-01-2000
<PERIOD-END> JAN-01-2000
<CASH> 14,145
<SECURITIES> 0
<RECEIVABLES> 39,885
<ALLOWANCES> 0
<INVENTORY> 7,266
<CURRENT-ASSETS> 165,290
<PP&E> 263,367
<DEPRECIATION> 68,367
<TOTAL-ASSETS> 402,775
<CURRENT-LIABILITIES> 75,061
<BONDS> 43,944
0
0
<COMMON> 3,787
<OTHER-SE> 177,527
<TOTAL-LIABILITY-AND-EQUITY> 402,775
<SALES> 38,610
<TOTAL-REVENUES> 38,610
<CGS> 30,101
<TOTAL-COSTS> 30,101
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,373
<INCOME-PRETAX> 4,176
<INCOME-TAX> 1,718
<INCOME-CONTINUING> 2,420
<DISCONTINUED> (13,095)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,675)
<EPS-BASIC> (.30)
<EPS-DILUTED> (.30)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO
ECOTEK CORPORATION'S QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED JANUARY
2, 1999 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> JAN-02-1999
<PERIOD-END> JAN-02-1999
<CASH> 28,030
<SECURITIES> 0
<RECEIVABLES> 28,885
<ALLOWANCES> 0
<INVENTORY> 10,960
<CURRENT-ASSETS> 140,032
<PP&E> 379,529
<DEPRECIATION> 90,852
<TOTAL-ASSETS> 475,411
<CURRENT-LIABILITIES> 64,140
<BONDS> 68,964
0
0
<COMMON> 3,787
<OTHER-SE> 247,644
<TOTAL-LIABILITY-AND-EQUITY> 475,411
<SALES> 40,375
<TOTAL-REVENUES> 40,375
<CGS> 30,499
<TOTAL-COSTS> 30,499
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,891
<INCOME-PRETAX> 4,584
<INCOME-TAX> 1,503
<INCOME-CONTINUING> 3,067
<DISCONTINUED> (557)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,510
<EPS-BASIC> .07
<EPS-DILUTED> .07
</TABLE>
