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 1-12636
THERMO REMEDIATION INC.
(Exact name of Registrant as specified in its charter)
Delaware 59-3203761
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1964 South Orange Blossom Trail
Apopka, Florida 32703
(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, $.01 par value 12,834,973
PAGE
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
THERMO REMEDIATION INC.
Consolidated Balance Sheet
(Unaudited)
Assets
December 28, March 30,
(In thousands) 1996 1996
-------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $ 16,744 $ 26,247
Short-term available-for-sale investments,
at quoted market value (amortized cost
of $9,130 and $7,007) 9,142 7,004
Accounts receivable, less allowances
of $825 and $786 22,590 15,115
Unbilled contract costs and fees 5,990 2,094
Prepaid income taxes 1,139 2,836
Prepaid expenses 1,797 2,196
Due from parent company and Thermo Electron 671 564
-------- --------
58,073 56,056
-------- --------
Property, Plant and Equipment, at Cost 57,486 52,119
Less: Accumulated depreciation and amortization 17,427 14,516
-------- --------
40,059 37,603
-------- --------
Long-term Available-for-sale Investments,
at Quoted Market Value (amortized cost
of $2,108 in fiscal 1996) - 2,098
-------- --------
Other Assets 15,504 11,724
-------- --------
Cost in Excess of Net Assets of Acquired
Companies (Note 2) 30,657 28,321
-------- --------
$144,293 $135,802
======== ========
2PAGE
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THERMO REMEDIATION INC.
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
December 28, March 30,
(In thousands except share amounts) 1996 1996
------------------------------------------------------------------------
Current Liabilities:
Accounts payable $ 9,265 $ 3,362
Accrued payroll and employee benefits 3,920 2,539
Deferred revenue 1,342 936
Billings in excess of revenues earned 668 630
Accrued interest 321 776
Accrued income taxes 828 57
Other accrued expenses 1,938 1,413
-------- --------
18,282 9,713
-------- --------
Deferred Income Taxes 2,227 2,137
-------- --------
Long-term Obligations:
4 7/8% Subordinated convertible debentures 37,950 37,950
3 7/8% Subordinated convertible note, due
to parent company 2,650 2,650
-------- --------
40,600 40,600
-------- --------
Shareholders' Investment (Note 2):
Common stock, $.01 par value, 50,000,000
shares authorized; 13,275,995 and 12,800,189
shares issued 133 128
Capital in excess of par value 85,080 81,353
Retained earnings 3,232 1,910
Treasury stock at cost, 504,039 and 2,154 shares (5,269) (31)
Net unrealized gain (loss) on available-for-sale
investments 8 (8)
-------- --------
83,184 83,352
-------- --------
$144,293 $135,802
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
3PAGE
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THERMO REMEDIATION INC.
Consolidated Statement of Income
(Unaudited)
Three Months Ended
----------------------------
December 28, December 30,
(In thousands except per share amounts) 1996 1995
------------------------------------------------------------------------
Revenues $34,252 $16,308
------- -------
Costs and Operating Expenses:
Cost of revenues 29,538 11,768
Selling, general and administrative expenses 3,326 1,974
New business development expenses 250 260
------- -------
33,114 14,002
------- -------
Operating Income 1,138 2,306
Interest Income 456 642
Interest Expense (includes $26 and $25 to
related party) (558) (543)
Equity in Earnings of Unconsolidated Subsidiary 118 -
Gain on Sale of Investments - 100
------- -------
Income Before Provision for Income Taxes 1,154 2,505
Provision for Income Taxes 534 972
------- -------
Net Income $ 620 $ 1,533
======= =======
Earnings per Share:
Primary $ .05 $ .12
======= =======
Fully diluted $ .05 $ .12
======= =======
Weighted Average Shares:
Primary 12,923 12,441
======= =======
Fully diluted 13,219 13,090
======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
4PAGE
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THERMO REMEDIATION INC.
Consolidated Statement of Income (continued)
(Unaudited)
Nine Months Ended
---------------------------
December 28, December 30,
(In thousands except per share amounts) 1996 1995
-----------------------------------------------------------------------
Revenues $85,685 $43,955
------- -------
Costs and Operating Expenses:
Cost of revenues 72,061 31,147
Selling, general and administrative expenses 9,051 6,177
New business development expenses 807 817
------- -------
81,919 38,141
------- -------
Operating Income 3,766 5,814
Interest Income 1,443 1,970
Interest Expense (includes $77 and $123 to
related party) (1,652) (1,457)
Equity in Earnings of Unconsolidated Subsidiary 677 -
Gain on Sale of Investments 136 180
------- -------
Income Before Provision for Income Taxes 4,370 6,507
Provision for Income Taxes 1,748 2,464
------- -------
Net Income $ 2,622 $ 4,043
======= =======
Earnings per Share:
Primary $ .20 $ .33
======= =======
Fully diluted $ .20 $ .32
======= =======
Weighted Average Shares:
Primary 12,883 12,301
======= =======
Fully diluted 13,503 12,836
======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
5PAGE
<PAGE>
THERMO REMEDIATION INC.
Consolidated Statement of Cash Flows
(Unaudited)
Nine Months Ended
---------------------------
December 28, December 30,
(In thousands) 1996 1995
-----------------------------------------------------------------------
Operating Activities:
Net income $ 2,622 $ 4,043
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 5,197 4,250
Equity in earnings of unconsolidated
subsidiary (677) -
Gain on sale of investments (136) (180)
Provision for losses on accounts
receivable 117 (104)
Other noncash expenses 54 81
Decrease in deferred income taxes - (2)
Changes in current accounts, excluding
the effects of acquisitions:
Accounts receivable (6,229) 1,475
Due from parent company and
Thermo Electron (107) (4,868)
Other current assets (3,761) 142
Billings in excess of revenues
earned 39 368
Accrued interest (459) 314
Other current liabilities 7,315 (488)
-------- --------
Net cash provided by operating activities 3,975 5,031
-------- --------
Investing Activities:
Acquisitions, net of cash acquired (Note 2) (1,681) (17,713)
Purchases of available-for-sale investments (15,788) (31,000)
Proceeds from sale and maturities of
available-for-sale investments 15,908 29,295
Purchases of property, plant and equipment (5,724) (6,615)
Purchase of other assets (1,447) -
Other 65 153
-------- --------
Net cash used in investing activities (8,667) (25,880)
-------- --------
Financing Activities:
Net proceeds from issuance of subordinated
convertible debentures - 36,889
Repayment of note payable to Thermo Electron - (4,000)
Net proceeds from issuance of Company
common stock 274 6,801
Repurchase of Company common stock (5,429) -
Dividends paid (450) (393)
Other 794 -
-------- --------
Net cash provided by (used in) financing
activities $ (4,811) $ 39,297
-------- --------
6PAGE
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THERMO REMEDIATION INC.
Consolidated Statement of Cash Flows (continued)
(Unaudited)
Nine Months Ended
---------------------------
December 28, December 30,
(In thousands) 1996 1995
-----------------------------------------------------------------------
Increase (Decrease) in Cash and Cash
Equivalents $ (9,503) $ 18,448
Cash and Cash Equivalents at Beginning
of Period 26,247 792
-------- --------
Cash and Cash Equivalents at End of Period $ 16,744 $ 19,240
======== ========
Noncash Activities (Note 2):
Fair value of assets of acquired companies $ 6,476 $ 39,349
Cash paid for acquired companies (1,705) (18,462)
Issuance of common stock, stock options,
and warrants for acquired companies (2,006) (11,210)
-------- --------
Liabilities assumed of acquired companies $ 2,765 $ 9,677
======== ========
Dividends reinvested by shareholders
into Company common stock $ 850 $ 679
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
7PAGE
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THERMO REMEDIATION INC.
Notes to Consolidated Financial Statements
1. General
The interim consolidated financial statements presented have been
prepared by Thermo Remediation Inc. (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- and
nine-month periods ended December 28, 1996 and December 30, 1995, and the
cash flows for the nine-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 March 30, 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 March 30, 1996, filed with
the Securities and Exchange Commission.
Certain amounts in fiscal 1996 have been reclassified to conform to
the fiscal 1997 financial statement presentation.
2. Acquisition
In September 1996, the Company acquired IEM Sealand Corporation (IEM
Sealand) for 311,040 shares of the Company's common stock, valued at $2.0
million, and $1.7 million in cash. The shares of the Company's common
stock issued in connection with the acquisition are subject to certain
restrictions on transfer. The restrictions lapse with respect to one-
third of the shares on each of the third, fourth, and fifth anniversaries
of the closing. IEM Sealand provides construction services for the
remediation of hazardous wastes under contracts with federal and state
governments, and other public- and private-sector clients.
This acquisition has been accounted for using the purchase method of
accounting and IEM Sealand's results of operations have been included in
the accompanying financial statements from the date of acquisition. IEM
Sealand had a negative book value at the date of acquisition. The cost of
this acquisition exceeded the estimated fair value of the acquired net
assets by $5.4 million, which is being amortized over 40 years.
Allocation of the purchase price for this acquisition was based on an
estimate of the fair value of the net assets acquired and is subject to
adjustment upon finalization of the purchase price allocation. Pro forma
data is not presented since this acquisition was not material to the
Company's results of operations and financial position.
8PAGE
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THERMO REMEDIATION INC.
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 "Item 5 - Other Information"
in the Company's Quarterly Report on Form 10-Q for the quarter ended
September 28, 1996, filed with the Securities and Exchange Commission.
Overview
The Company is a leading national provider of environmental services,
including industrial remediation, nuclear remediation, hazardous waste
remedial construction cleanup, soil remediation, and waste fluids
recycling.
In December 1995, the Company acquired Remediation Technologies, Inc.
(ReTec), a provider of consulting, engineering, and on-site services to
help clients manage problems associated with environmental compliance,
waste management, and the remediation of industrial sites contaminated
with organic wastes and residues.
In September 1996, the Company acquired IEM Sealand Corporation (IEM
Sealand), a provider of construction services for the remediation of
hazardous wastes under contracts with federal and state governments, and
other public- and private-sector clients. IEM Sealand's business is
traditionally strongest during the summer and fall seasons.
The Company's Thermo Nutech division provides services to remove
radioactive contaminants from sand, gravel, and soil, as well as health
physics, radiochemistry laboratory, and radiation dosimetry services.
The Company, through its TPS Technologies Inc. division, is also a
national leader in the design and operation of facilities for the
remediation of nonhazardous soil and operates a network of such
facilities serving customers in more than a dozen states along the East
and West Coasts.
The Company's Thermo Fluids subsidiary collects, tests, processes,
and recycles used motor oil and other industrial oils.
The Company's businesses are affected by several factors, parti-
cularly extreme weather variations, government spending, economic cycles,
and regulation and enforcement of remediation activities. In addition,
certain of the Company's businesses are affected by enactment and
9PAGE
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THERMO REMEDIATION INC.
Overview (continued)
enforcement of environmental legislation regarding underground storage
tanks, the availability of federal and state funding for environmental
cleanup, and local competition.
Results of Operations
Third Quarter Fiscal 1997 Compared With Third Quarter Fiscal 1996
Revenues in the third quarter of fiscal 1997 more than doubled to
$34,252,000, compared with $16,308,000 in the third quarter of fiscal
1996. Revenues increased primarily due to the inclusion of $10,136,000 of
revenues from IEM Sealand, acquired in September 1996 (Note 2), and an
additional $8,487,000 of revenues from ReTec, acquired in December 1995.
Revenues from soil-remediation services decreased 33% resulting from
declines in the volume of soil processed due to over capacity in the
industry and competitive pricing pressures. The Company also believes
that several states have reduced their compliance requirements and/or
relaxed their enforcement activities. The Company expects this trend to
continue for the foreseeable future. Revenues from nuclear and
fluids-recycling services increased $1,812,000 in the third quarter of
fiscal 1997.
The gross profit margin decreased to 14% in the third quarter of
fiscal 1997 from 28% in the third quarter of fiscal 1996 due to lower
margins on soil processed as a result of competitive pricing pressures
and, to a lesser extent, lower volumes of soil processed at the Company's
traditionally higher-margin soil-remediation centers. The gross profit
margin also decreased due to lower-margin revenues from ReTec and IEM
Sealand.
Selling, general and administrative expenses as a percentage of
revenues decreased to 10% in the third quarter of fiscal 1997 from 12% in
the third quarter of fiscal 1996, primarily due to lower expenses as a
percentage of revenues at acquired companies.
Interest income decreased to $456,000 in the third quarter of fiscal
1997 from $642,000 in the third quarter of fiscal 1996 as a result of
lower average invested balances following the acquisition of ReTec in
December 1995.
Equity in earnings of unconsolidated subsidiary represents ReTec's
proportionate share of income from a joint venture.
The effective tax rate was 46% in the third quarter of fiscal 1997
and 39% in the third quarter of fiscal 1996. The effective tax rate
exceeded the statutory federal income tax rate, primarily due to the
impact of state income taxes and the nondeductible amortization of cost
in excess of net assets of acquired companies. The increase in the
effective tax rate in fiscal 1997 results from the larger relative effect
of nondeductible amortization.
10PAGE
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THERMO REMEDIATION INC.
First Nine Months Fiscal 1997 Compared With First Nine Months Fiscal 1996
Revenues in the first nine months of fiscal 1997 were $85,685,000,
compared with $43,955,000 in the first nine months of fiscal 1996, an
increase of 95%. Revenues increased primarily due to an additional
$30,210,000 of revenues from ReTec, acquired in December 1995, and the
inclusion of $12,607,000 in revenues from IEM Sealand, acquired in
September 1996 (Note 2). Revenues from soil-remediation services
decreased 21%, primarily due to the reasons discussed in the results of
operations for the third quarter. Revenues from nuclear and
fluids-recycling services increased $3,456,000 in the first nine-months
of fiscal 1997.
The gross profit margin decreased to 16% in the first nine months of
fiscal 1997 from 29% in the first nine months of fiscal 1996, primarily
due to the reasons discussed in the results of operations for the third
quarter.
Selling, general and administrative expenses as a percentage of
revenues decreased to 11% in the first nine months of fiscal 1997 from
14% in the first nine months of fiscal 1996, primarily due to lower
expenses as a percentage of revenues at acquired companies.
Interest income decreased to $1,443,000 in the first nine months of
fiscal 1997 from $1,970,000 in the first nine months of fiscal 1996 as a
result of lower average invested balances following the acquisition of
ReTec in December 1995. Interest expense increased to $1,652,000 in the
first nine months of fiscal 1997 from $1,457,000 in the first nine months
of fiscal 1996, primarily due to the issuance of subordinated convertible
debentures in May 1995.
The effective tax rate was 40% 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 for the reasons
discussed in the results of operations for the third quarter. The
increase in the effective tax rate in fiscal 1997 results from the larger
relative effect of nondeductible amortization.
Liquidity and Capital Resources
Working capital was $39,791,000 at December 28, 1996, compared with
$46,343,000 at March 30, 1996. Cash, cash equivalents, and short- and
long-term available-for-sale investments were $25,886,000 at December 28,
1996, compared with $35,349,000 at March 30, 1996. During the first nine
months of fiscal 1997, $4.0 million of cash was provided by operating
activities. In the first nine months of fiscal 1997, the Company funded
an increase in accounts receivable of $6.2 million, primarily due to
higher revenues at its IEM Sealand, ReTec, and Thermo Fluids businesses.
This use of cash was more than offset by an increase in other current
liabilities, primarily due to a $5.1 million increase in accounts payable
at IEM Sealand and ReTec resulting from an increase in the volume of
business.
11PAGE
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THERMO REMEDIATION INC.
Liquidity and Capital Resources (continued)
On September 5, 1996, the Company paid a semiannual cash dividend of
$0.10 per share of common stock to shareholders of record as of August
22, 1996. The Company paid approximately $450,000 in cash in connection
with such dividend. The amount of cash paid by the Company is dependent
on the number of shareholders participating in the Company's Dividend
Reinvestment Plan.
The Company's Board of Directors has authorized the repurchase,
through September 10, 1997, of up to $10.0 million of its own securities.
Any such purchases are funded from working capital. Through December 28,
1996, the Company had expended $5.4 million under this authorization.
During the nine months ended December 28, 1996, the Company expended
$5.7 million for purchases of property, plant and equipment.
In September 1996, the Company acquired IEM Sealand Corporation for
311,040 shares of the Company's common stock, valued at $2.0 million, and
$1.7 million in cash (Note 2).
Although the Company has no material commitments for capital
expenditures, such expenditures will largely be affected by the number of
complementary businesses that can be acquired or developed during the
year. The Company believes that it has adequate resources to meet its
financial needs for the foreseeable future.
PART II - OTHER INFORMATION
Item 6 - Exhibits
See Exhibit Index on the page immediately preceding exhibits.
12PAGE
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THERMO REMEDIATION INC.
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 4th day of February
1997.
THERMO REMEDIATION INC.
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 REMEDIATION INC.
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------------------------------------------------------------------------
11 Statement re: Computation of earnings per share.
27 Financial Data Schedule.
Exhibit 11
THERMO REMEDIATION INC.
Computation of Earnings per Share
Three Months Ended Nine Months Ended
---------------------- ---------------------
Dec. 28, Dec. 30, Dec. 28, Dec. 30,
1996 1995 1996 1995
----------------------------------------------------------------------------
Computation of Fully
Diluted Earnings per
Share:
Net Income $ 620,000 $ 1,533,000 $ 2,622,000 $ 4,043,000
Add: Convertible
debenture
interest, net of
tax - 15,000 46,000 46,000
----------- ----------- ----------- -----------
Income applicable to
common stock assuming
full dilution (a) $ 620,000 $ 1,548,000 $ 2,668,000 $ 4,089,000
----------- ----------- ----------- -----------
Shares:
Weighted average
shares outstanding 12,922,556 12,440,809 12,883,043 12,300,979
Add: Shares issuable
from assumed
exercise
of options and
warrants (as
determined by
the application
of the treasury
stock method) 296,757 379,459 350,836 265,803
Shares issuable
from assumed
conversion of
subordinated
convertible
obligations - 269,583 269,583 269,583
----------- ----------- ----------- ----------
Weighted average
shares outstanding,
as adjusted (b) 13,219,313 13,089,851 13,503,462 12,836,365
----------- ----------- ----------- -----------
Fully Diluted Earnings
per Share (a) / (b) $ .05 $ .12 $ .20 $ .32
=========== =========== =========== ===========
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO
REMEDIATION INC.'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> 9-MOS
<FISCAL-YEAR-END> MAR-29-1997
<PERIOD-END> DEC-28-1996
<CASH> 16,744
<SECURITIES> 9,142
<RECEIVABLES> 23,415
<ALLOWANCES> 9,130
<INVENTORY> 0
<CURRENT-ASSETS> 58,073
<PP&E> 57,486
<DEPRECIATION> 17,427
<TOTAL-ASSETS> 144,293
<CURRENT-LIABILITIES> 18,282
<BONDS> 37,950
0
0
<COMMON> 133
<OTHER-SE> 83,051
<TOTAL-LIABILITY-AND-EQUITY> 144,293
<SALES> 0
<TOTAL-REVENUES> 85,685
<CGS> 0
<TOTAL-COSTS> 72,061
<OTHER-EXPENSES> 807
<LOSS-PROVISION> 117
<INTEREST-EXPENSE> 1,652
<INCOME-PRETAX> 4,370
<INCOME-TAX> 1,748
<INCOME-CONTINUING> 2,622
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,622
<EPS-PRIMARY> .20
<EPS-DILUTED> .20
</TABLE>
