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 1-12636
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 July 25, 1997
---------------------------- ----------------------------
Common Stock, $.01 par value 12,327,061
PAGE
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
THERMO REMEDIATION INC.
Consolidated Balance Sheet
(Unaudited)
Assets
June 28, March 29,
(In thousands) 1997 1997
-------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $ 8,702 $ 18,600
Short-term available-for-sale investments, at
quoted market value (amortized cost of $4,054
and $4,096) 4,060 4,101
Accounts receivable, less allowances of $1,526
and $1,557 22,953 21,631
Unbilled contract costs and fees 10,141 5,685
Prepaid income taxes 3,387 3,348
Prepaid expenses 2,404 1,820
Due from parent company and Thermo Electron 501 321
-------- --------
52,148 55,506
-------- --------
Property, Plant, and Equipment, at Cost 51,656 54,958
Less: Accumulated depreciation and amortization 17,156 18,444
-------- --------
34,500 36,514
-------- --------
Other Assets 15,540 13,403
-------- --------
Cost in Excess of Net Assets of Acquired
Companies (Note 2) 30,157 29,588
-------- --------
$132,345 $135,011
======== ========
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THERMO REMEDIATION INC.
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
June 28, March 29,
(In thousands except share amounts) 1997 1997
------------------------------------------------------------------------
Current Liabilities:
Accounts payable $ 6,095 $ 7,359
Accrued payroll and employee benefits 3,659 3,566
Deferred revenue 1,167 1,391
Billings in excess of revenues earned 800 879
Accrued interest 321 784
Accrued income taxes 255 286
Other accrued expenses 2,708 2,281
-------- --------
15,005 16,546
-------- --------
Deferred Income Taxes 3,035 3,035
-------- --------
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:
Common stock, $.01 par value, 50,000,000 shares
authorized; 13,388,073 shares issued 134 134
Capital in excess of par value 85,384 85,402
Retained earnings (2,752) (3,328)
Treasury stock at cost, 1,061,012 and 823,741
shares (9,064) (7,382)
Net unrealized gain on available-for-sale
investments 3 4
-------- --------
73,705 74,830
-------- --------
$132,345 $135,011
======== ========
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
-----------------------
June 28, June 29,
(In thousands except per share amounts) 1997 1996
-----------------------------------------------------------------------
Revenues $28,204 $23,520
------- -------
Costs and Operating Expenses:
Cost of revenues 23,833 19,038
Selling, general, and administrative expenses 3,120 2,902
New business development expenses 222 296
------- -------
27,175 22,236
------- -------
Operating Income 1,029 1,284
Interest Income 294 491
Interest Expense (includes $26 to related party
in fiscal 1998 and 1997) (563) (550)
Equity in Earnings of Unconsolidated Subsidiary 118 279
Gain on Sale of Investments - 140
Other Income 204 -
------- -------
Income Before Provision for Income Taxes 1,082 1,644
Provision for Income Taxes 506 616
------- -------
Net Income $ 576 $ 1,028
======= =======
Earnings per Share $ .05 $ .08
======= =======
Weighted Average Shares 12,492 13,254
======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
4PAGE
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THERMO REMEDIATION INC.
Consolidated Statement of Cash Flows
(Unaudited)
Three Months Ended
-----------------------
June 28, June 29,
(In thousands) 1997 1996
----------------------------------------------------------------------
Operating Activities:
Net income $ 576 $ 1,028
Adjustments to reconcile net income to net
cash (used in) provided by operating
activities:
Depreciation and amortization 1,645 1,277
Equity in earnings of unconsolidated
subsidiary (118) (279)
Gain on sale of investments - (140)
Provision for losses on accounts
receivable 13 84
Gain on sale of property, plant, and
equipment (204) -
Other noncash expenses (income) (15) 405
Changes in current accounts, excluding
the effects of acquisitions:
Accounts receivable (1,291) (235)
Due from parent company and Thermo
Electron (180) (1,807)
Other current assets (4,723) (1,232)
Billings in excess of revenues
earned (79) (348)
Accrued interest (463) (455)
Other current liabilities (1,603) 1,838
-------- --------
Net cash (used in) provided by operating
activities (6,442) 136
-------- --------
Investing Activities:
Acquisition, net of cash acquired (1,160) -
Purchases of available-for-sale investments - (15,857)
Proceeds from sale and maturities of
available-for-sale investments - 8,890
Purchases of property, plant, and equipment (819) (2,301)
Proceeds from sale of property, plant, and
equipment 266 -
Purchase of other assets (86) (521)
Other 42 52
-------- --------
Net cash used in investing activities (1,757) (9,737)
-------- --------
Financing Activities:
Net proceeds from issuance of Company common
stock 1 120
Repurchase of Company common stock (1,700) -
Other - 782
-------- --------
Net cash (used in) provided by financing
activities $ (1,699) $ 902
-------- --------
5PAGE
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THERMO REMEDIATION INC.
Consolidated Statement of Cash Flows (continued)
(Unaudited)
Three Months Ended
-----------------------
June 28, June 29,
(In thousands) 1997 1996
----------------------------------------------------------------------
Decrease in Cash and Cash Equivalents $ (9,898) $ (8,699)
Cash and Cash Equivalents at Beginning of
Period 18,600 26,247
-------- --------
Cash and Cash Equivalents at End of Period $ 8,702 $ 17,548
======== ========
Noncash Activities:
Fair value of assets of acquired company $ 2,100 $ -
Cash paid for acquired company (1,600) -
-------- --------
Liabilities assumed of acquired company $ 500 $ -
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
6PAGE
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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 June
28, 1997, and the results of operations and cash flows for the
three-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 March 29, 1997, 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 29, 1997, filed with
the Securities and Exchange Commission.
2. Acquisition
In May 1997, the Company acquired substantially all of the assets of
TriTechnics Corporation (TriTechnics) for approximately $1.6 million in
cash and the assumption of certain liabilities. TriTechnics provides
comprehensive consulting and remedial services at refinery and
chemical-plant sites, and had revenues in calendar year 1996 of $4.3
million.
The acquisition has been accounted for using the purchase method of
accounting, and the results of operations have been included in the
accompanying financial statements from the date of acquisition. The cost
of the acquisition exceeded the estimated fair value of the acquired net
assets by approximately $766,000, which is being amortized over 40 years.
Allocation of the purchase price was based on an estimate of the fair
value of the net assets acquired. Pro forma data is not presented since
the acquisition was not material to the Company's results of operations.
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
7PAGE
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THERMO REMEDIATION INC.
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
materially from those indicated by such forward-looking statements,
including those detailed under the caption "Forward-looking Statements"
in Exhibit 13 of the Company's Annual Report on Form 10-K for the fiscal
year ended March 29, 1997, filed with the Securities and Exchange
Commission.
Overview
The Company is a national provider of environmental services,
including industrial, nuclear, and soil remediation, as well as waste-
fluids recycling.
The Company's Remediation Technologies, Inc. (ReTec) subsidiary is 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.
The Company's IEM Sealand Corporation (IEM Sealand) subsidiary,
acquired in September 1996, performs cleanups of hazardous waste sites
for government and industry as a prime construction contractor and also
completes predesigned remedial action contracts at sites containing
hazardous, toxic, and radioactive waste. IEM Sealand's business is
traditionally strongest during the summer and fall seasons.
The Company's Thermo Nutech subsidiary provides services to remove
radioactive contaminants from sand, gravel, and soil, and also provides
health physics, radiochemistry laboratory, and radiation dosimetry
services.
The Company's TPS Technologies Inc. subsidiary designs and operates
facilities for the remediation of nonhazardous soil and operates a
network of such facilities along the East and West Coasts.
The Company's Thermo Fluids Inc. subsidiary collects, tests,
processes, and recycles used motor oil and other industrial fluids.
The Company's TriTechnics subsidiary, acquired in May 1997, provides
comprehensive consulting and remedial services at refinery and
chemical-plant sites.
The Company's businesses are affected by several factors,
particularly government spending, enactment and enforcement of
environmental legislation, economic cycles, regulation and enforcement of
remediation activities, the availability of federal and state funding for
environmental cleanup, local competition, and extreme weather variations.
8PAGE
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THERMO REMEDIATION INC.
Results of Operations
First Quarter Fiscal 1998 Compared With First Quarter Fiscal 1997
Revenues in the first quarter of fiscal 1998 increased to
$28,204,000, compared with $23,520,000 in the first quarter of fiscal
1997. Revenues increased due to the inclusion of $6,559,000 of revenues
from IEM Sealand and TriTechnics, acquired in September 1996 and May
1997, respectively. Revenues from soil-remediation services decreased
31%, resulting both from declines in the volume of soil processed due to
overcapacity in the industry and from competitive pricing pressures. The
Company expects this trend to continue for the foreseeable future. The
increase in revenues was also offset by a decrease in revenues from
Thermo Nutech in the first quarter of fiscal 1998.
The gross profit margin decreased to 15% in the first quarter of
fiscal 1998 from 19% in the first quarter of fiscal 1997 due to lower
margins on soil processed as a result of competitive pricing pressures
and lower volumes of soil processed at the Company's traditionally
higher-margin soil-remediation centers. The gross profit margin also
decreased due to the inclusion of lower-margin revenues from IEM Sealand.
Selling, general, and administrative expenses as a percentage of
revenues decreased to 11% in the first quarter of fiscal 1998 from 12% in
the first quarter of fiscal 1997, primarily due to lower expenses as a
percentage of revenues at acquired companies.
Interest income decreased to $294,000 in the first quarter of fiscal
1998 from $491,000 in the first quarter of fiscal 1997 as a result of
lower average invested balances following the repurchase of Company
common stock as well as the acquisition of TriTechnics.
Equity in earnings of unconsolidated subsidiary represents ReTec's
proportionate share of income from a joint venture.
Other income of $204,000 in the first quarter of fiscal 1998
represents a gain on the sale of certain equipment.
The effective tax rate was 47% in the first quarter of fiscal 1998
and 37% in the first quarter of fiscal 1997. The effective tax rate
exceeded the statutory federal income tax rate, primarily due to the
nondeductible amortization of cost in excess of net assets of acquired
companies and the impact of state income taxes. The increase in the
effective tax rate in fiscal 1998 results from the larger relative effect
of nondeductible amortization and, to a lesser extent, a reduction in
tax-exempt income.
Liquidity and Capital Resources
Consolidated working capital was $37,143,000 at June 28, 1997,
compared with $38,960,000 at March 29, 1997. Cash, cash equivalents, and
short-term available-for-sale investments were $12,762,000 at June 28,
1997, compared with $22,701,000 at March 29, 1996. During the first
quarter of fiscal 1998, net cash used in operating activities was
$6,442,000. The Company funded an increase in accounts receivable and
9PAGE
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THERMO REMEDIATION INC.
Liquidity and Capital Resources (continued)
unbilled contract costs and fees of $5,747,000, primarily due to higher
revenues at its IEM Sealand and ReTec businesses. The Company used
$1,603,000 of cash in the first quarter of fiscal 1998 to reduce other
current liabilities, including $1,264,000 for accounts payable.
In May 1997, the Company acquired TriTechnics for approximately
$1,600,000 in cash (Note 2). During the first quarter of fiscal 1998, the
Company expended approximately $819,000 for purchases of property, plant,
and equipment.
The Company's Board of Directors has authorized the repurchase,
through September 10, 1997, of up to $10.0 million of its own securities.
Through June 28, 1997, the Company had expended the full authorized
amount, including $1.7 million during the first quarter of fiscal 1998.
In July 1997, the Company's Board of Directors authorized the repurchase,
through July 24, 1998, of up to $5.0 million of its own securities in the
open market or in negotiated transactions. Any repurchases under the
Company's authorization would be funded from working capital.
On July 24, 1997, the Company's Board of Directors declared a
semiannual dividend of $.10 per share of common stock, payable on
September 10, 1997, to shareholders of record as of August 15, 1997. The
amount of cash dividends ultimately paid by the Company is dependent on
the number of shareholders participating in the Company's Dividend
Reinvestment Plan.
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.
10PAGE
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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 5th day of August
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
11PAGE
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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
---------------------------
June 28, June 29,
1997 1996
-----------------------------------------------------------------------
Computation of Primary Earnings per Share:
Net Income (a) $ 576,000 $ 1,028,000
=========== ===========
Shares:
Weighted average shares outstanding 12,491,945 12,832,975
Add: Shares issuable from assumed
exercise of options and warrants
(as determined by the application
of the treasury stock method) - 420,982
----------- -----------
Weighted average shares outstanding,
as adjusted (b) 12,491,945 13,253,957
=========== ===========
Primary Earnings per Share (a) / (b) $ .05 $ .08
=========== ===========
<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 QUARTER ENDED JUNE 28,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINCIAL STATEMENTS.
</LEGEND>
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<FISCAL-YEAR-END> APR-04-1998
<PERIOD-END> JUN-28-1997
<CASH> 8,702
<SECURITIES> 4,060
<RECEIVABLES> 24,479
<ALLOWANCES> 1,526
<INVENTORY> 0
<CURRENT-ASSETS> 52,148
<PP&E> 51,656
<DEPRECIATION> 17,156
<TOTAL-ASSETS> 132,345
<CURRENT-LIABILITIES> 15,005
<BONDS> 37,950
0
0
<COMMON> 134
<OTHER-SE> 73,571
<TOTAL-LIABILITY-AND-EQUITY> 132,345
<SALES> 0
<TOTAL-REVENUES> 28,204
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<TOTAL-COSTS> 23,833
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<LOSS-PROVISION> 13
<INTEREST-EXPENSE> 563
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