-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Vmev0pz4Jhe9vvpl7xeNMkUWZNotIf1dQP/XrxxIavSOSTc+eD6Kxv9lEGtD9IQo shv3GYSayqPGjgW/rA19ow== 0000796038-97-000002.txt : 19970225 0000796038-97-000002.hdr.sgml : 19970225 ACCESSION NUMBER: 0000796038-97-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19961228 FILED AS OF DATE: 19970205 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: THERMO TERRATECH INC CENTRAL INDEX KEY: 0000796038 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-TESTING LABORATORIES [8734] IRS NUMBER: 042925807 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09549 FILM NUMBER: 97518564 BUSINESS ADDRESS: STREET 1: 81 WYMAN ST STREET 2: P O BOX 9046 CITY: WALTHAM STATE: MA ZIP: 02154-9046 BUSINESS PHONE: 6176221000 MAIL ADDRESS: STREET 1: 81 WYMAN STREET STREET 2: P O BOX 9046 CITY: WALTHAM STATE: MA ZIP: 02154-9046 FORMER COMPANY: FORMER CONFORMED NAME: THERMO PROCESS SYSTEMS INC DATE OF NAME CHANGE: 19920703 10-Q 1 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 1-9549 THERMO TERRATECH INC. (Exact name of Registrant as specified in its charter) Delaware 04-2925807 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 81 Wyman Street, P.O. Box 9046 Waltham, Massachusetts 02254-9046 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (617) 622-1000 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of Common Stock, as of the latest practicable date. Class Outstanding at January 24, 1997 ---------------------------- ------------------------------- Common Stock, $.10 par value 18,100,828 PAGE PART I - FINANCIAL INFORMATION Item 1 - Financial Statements THERMO TERRATECH INC. Consolidated Balance Sheet (Unaudited) Assets December 28, March 30, (In thousands) 1996 1996 ------------------------------------------------------------------------ Current Assets: Cash and cash equivalents $ 60,350 $ 31,182 Short-term available-for-sale investments, at quoted market value (amortized cost of $23,266 and $7,007) 23,308 7,004 Accounts receivable, less allowances of $3,079 and $2,861 53,543 44,397 Unbilled contract costs and fees 27,892 21,113 Inventories: Raw materials and supplies 2,404 3,822 Work in process and finished goods 533 61 Prepaid and refundable income taxes 7,909 9,556 Prepaid expenses 4,217 4,442 -------- -------- 180,156 121,577 -------- -------- Property, Plant and Equipment, at Cost 136,679 126,129 Less: Accumulated depreciation and amortization 48,830 43,173 -------- -------- 87,849 82,956 -------- -------- Long-term Available-for-sale Investments, at Quoted Market Value (amortized cost of $2,108 in fiscal 1996) - 2,098 -------- -------- Long-term Held-to-maturity Investments, at Amortized Cost (quoted market value of $26,083 and $24,963) 25,594 24,251 -------- -------- Other Assets 18,569 12,931 -------- -------- Cost in Excess of Net Assets of Acquired Companies 92,992 89,843 -------- -------- $405,160 $333,656 ======== ======== 2PAGE THERMO TERRATECH 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 $ 16,320 $ 10,922 Notes payable and current maturities of long-term obligations (includes $38,000 and $15,000 due to parent company) 39,690 19,711 Billings in excess of revenues earned 2,889 2,076 Accrued payroll and employee benefits 10,898 9,930 Accrued income taxes 1,742 - Other accrued expenses 9,605 7,871 Due to parent company 1,677 5,059 -------- -------- 82,821 55,569 -------- -------- Deferred Income Taxes 3,830 3,558 -------- -------- Other Deferred Items 919 980 -------- -------- Long-term Obligations: 4 5/8% Subordinated convertible debentures (Note 2) 111,850 - 6 1/2% Subordinated convertible debentures 13,370 18,182 4 7/8% Subordinated convertible debentures 37,950 37,950 Other (includes $73,000 due to parent company in fiscal 1996; Note 2) 29,508 99,252 -------- -------- 192,678 155,384 -------- -------- Minority Interest 33,933 32,295 -------- -------- Shareholders' Investment: Common stock, $.10 par value, 75,000,000 shares authorized; 18,304,424 and 17,598,013 shares issued 1,830 1,760 Capital in excess of par value 62,462 59,419 Retained earnings 28,018 24,474 Treasury stock at cost, 139,796 and 34,531 shares (1,360) (410) Cumulative translation adjustment 3 635 Net unrealized gain (loss) on available-for-sale investments 26 (8) -------- -------- 90,979 85,870 -------- -------- $405,160 $333,656 ======== ======== The accompanying notes are an integral part of these consolidated financial statements. 3PAGE THERMO TERRATECH INC. Consolidated Statement of Income (Unaudited) Three Months Ended --------------------------- December 28, December 30, (In thousands except per share amounts) 1996 1995 ------------------------------------------------------------------------ Revenues: Service revenues $68,417 $50,822 Product revenues 7,281 4,756 ------- ------- 75,698 55,578 ------- ------- Costs and Operating Expenses: Cost of service revenues 56,651 38,930 Cost of product revenues 6,217 4,012 Selling, general and administrative expenses 9,273 7,620 Product and new business development expenses 239 259 ------- ------- 72,380 50,821 ------- ------- Operating Income 3,318 4,757 Interest Income 1,795 1,236 Interest Expense (includes $554 and $1,331 to parent company) (3,090) (2,801) Equity in Earnings of Unconsolidated Subsidiary 118 - Gain on Sale of Investments 31 100 Other Income 159 - ------- ------- Income Before Provision for Income Taxes and Minority Interest 2,331 3,292 Provision for Income Taxes 1,321 1,399 Minority Interest Expense 108 295 ------- ------- Net Income $ 902 $ 1,598 ======= ======= Earnings per Share $ .05 $ .09 ======= ======= Weighted Average Shares 18,231 18,313 ======= ======= The accompanying notes are an integral part of these consolidated financial statements. 4PAGE THERMO TERRATECH INC. Consolidated Statement of Income (Unaudited) Nine Months Ended --------------------------- December 28, December 30, (In thousands except per share amounts) 1996 1995 ------------------------------------------------------------------------ Revenues: Service revenues $191,404 $147,440 Product revenues 19,181 13,364 -------- -------- 210,585 160,804 -------- -------- Costs and Operating Expenses: Cost of service revenues 157,454 110,810 Cost of product revenues 15,837 11,770 Selling, general and administrative expenses 27,547 24,269 Product and new business development expenses 813 817 Write-off of cost in excess of net assets of acquired company - 4,995 -------- -------- 201,651 152,661 -------- -------- Operating Income 8,934 8,143 Interest Income 5,442 4,002 Interest Expense (includes $1,936 and $4,229 to parent company) (9,660) (8,033) Equity in Earnings of Unconsolidated Subsidiary 677 - Gain on Issuance of Stock by Subsidiaries (Note 3) 1,475 2,742 Gain on Sale of Investments 197 180 Loss on Sale of Assets - (569) Other Income 206 - -------- -------- Income Before Provision for Income Taxes and Minority Interest 7,271 6,465 Provision for Income Taxes 3,042 3,835 Minority Interest Expense 419 1,106 -------- -------- Net Income $ 3,810 $ 1,524 ======== ======== Earnings per Share $ .20 $ .08 ======== ======== Weighted Average Shares 18,798 18,163 ======== ======== The accompanying notes are an integral part of these consolidated financial statements. 5PAGE THERMO TERRATECH INC. Consolidated Statement of Cash Flows (Unaudited) Nine Months Ended --------------------------- December 28, December 30, (In thousands) 1996 1995 ------------------------------------------------------------------------ Operating Activities: Net income $ 3,810 $ 1,524 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 9,749 9,283 Write-off of cost in excess of net asset of acquired company - 4,995 Loss on sale of assets - 569 Equity in earnings of unconsolidated subsidiary (677) - Minority interest expense 419 1,106 Provision for losses on accounts receivable 490 (47) Increase (decrease) in deferred income taxes (32) 91 Gain on issuance of stock by subsidiaries (1,475) (2,742) Gain on sale of investments (197) (180) Other noncash expenses 330 54 Changes in current accounts, excluding the effects of acquisitions: Accounts receivable (8,361) (2,013) Inventories and unbilled contract costs and fees (5,475) (1,716) Other current assets (91) (187) Current liabilities 4,080 (2,411) -------- -------- Net cash provided by operating activities 2,570 8,326 -------- -------- Investing Activities: Acquisitions, net of cash acquired (4,191) (43,117) Purchase of minority interest in Thermo Terra Tech joint venture - (34,267) Purchases of available-for-sale investments (38,799) (31,000) Proceeds from sale and maturities of available-for-sale investments 24,821 29,295 Purchases of property, plant and equipment (12,323) (12,279) Proceeds from sale of property, plant and equipment 426 683 Purchase of other assets (456) (383) -------- -------- Net cash used in investing activities $(30,522) $(91,068) -------- -------- 6PAGE THERMO TERRATECH INC. Consolidated Statement of Cash Flows (continued) (Unaudited) Nine Months Ended --------------------------- December 28, December 30, (In thousands) 1996 1995 ------------------------------------------------------------------------ Financing Activities: Net proceeds from issuance of subordinated convertible debentures (Note 2) $112,398 $ 36,889 Issuance of note payable to parent company - 35,000 Repayment of notes payable to parent company (Note 2) (50,000) (4,000) Proceeds from issuance of Company and subsidiary common stock (Note 3) 5,095 7,405 Repurchase of Company and subsidiary common stock (6,606) - Repurchase of subordinated convertible debentures (2,878) - Issuance of short-term obligations 803 2,178 Repayment of note payable (909) (660) Dividends paid by subsidiary to minority shareholders (450) (393) Issuance of note receivable - (401) Metal Treating, Inc. transfer to parent company (266) (373) -------- -------- Net cash provided by financing activities 57,187 75,645 -------- -------- Exchange Rate Effect on Cash (67) (402) -------- -------- Increase (Decrease) in Cash and Cash Equivalents 29,168 (7,499) Cash and Cash Equivalents at Beginning of Period 31,182 35,808 -------- -------- Cash and Cash Equivalents at End of Period $ 60,350 $ 28,309 ======== ======== Noncash Activities: Fair value of assets of acquired companies $ 13,000 $ 68,533 Cash paid for acquired companies (4,500) (45,005) Issuance of subsidiary common stock, stock options, and warrants for acquired companies (2,006) (11,210) Issuance of short- and long-term obligations for acquired company (2,265) - -------- -------- Liabilities assumed of acquired companies $ 4,229 $ 12,318 ======== ======== Conversions of subordinated convertible debentures $ 4,812 $ - The accompanying notes are an integral part of these consolidated financial statements. 7PAGE THERMO TERRATECH INC. Notes to Consolidated Financial Statements 1. General The interim consolidated financial statements presented have been prepared by Thermo TerraTech 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, as amended, on Form 10-K/A 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. Certain of these reclassifications are required to present consistent classification of expenses within the Company's consulting and design services business. Historical financial results have been restated to include Metal Treating, Inc. (Metal Treating), acquired in October 1996 in a transaction accounted for in a manner similar to the pooling-of-interests method (Note 4). 2. Subordinated Convertible Debentures In May 1996, the Company issued and sold $115.0 million principal amount of 4 5/8% subordinated convertible debentures due 2003 for net proceeds of $112.4 million. The debentures are convertible into shares of the Company's common stock at a price of $15.90 per share and are guaranteed on a subordinated basis by Thermo Electron Corporation (Thermo Electron). In May 1996, the Company repaid its $15.0 million and $35.0 million promissory notes to Thermo Electron with proceeds from the debenture offering. 3. Transaction in Stock of Subsidiary In September 1996, the Company's majority-owned Thermo EuroTech N.V. (Thermo EuroTech) subsidiary sold 1,105,000 shares of its common stock in a private placement at $4.25 per share, for net proceeds of $4.3 million, resulting in a gain of $1.5 million. Following the private placement, the Company owned 53% of Thermo EuroTech's outstanding common stock. 8PAGE THERMO TERRATECH INC. 4. Acquisitions During the first nine months of fiscal 1997, the Company and a majority-owned subsidiary acquired two companies for $2.9 million in cash, 311,040 shares of Thermo Remediation's common stock, valued at $2.0 million, and the issuance of $2.3 million of short- and long-term obligations. These acquisitions have been accounted for using the purchase method of accounting and their results of operations have been included in the accompanying financial statements from the dates of acquisition. The cost of these acquisitions exceeded the estimated fair value of the net assets acquired by $8.4 million, which is being amortized over 40 years. Allocation of the purchase price for these acquisitions was based on an estimate of the fair values of the net assets acquired and is subject to adjustment upon finalization of the purchase price allocation. Pro forma data is not presented since these acquisitions were not material to the Company's results of operations and financial position. In October 1996, the Company acquired Metal Treating from Thermo Electron in exchange for $1.6 million in cash. Metal Treating provides heat treating services, including carburizing, vacuum hardening, silver and copper brazing, and aluminum heat treating, primarily in the Milwaukee and southeastern Wisconsin areas. Because the Company and Metal Treating were deemed for accounting purposes to be under control of their common majority owner, Thermo Electron, the transaction has been accounted for at historical cost in a manner similar to the pooling-of-interests method. Accordingly, all historical information presented has been restated to include the results of Metal Treating. 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 provider of environmental services and infra- structure planning and design, encompassing a range of specializations within the remediation and recycling, consulting and design, and laboratory-testing industries. The Company also provides metal-treating services and thermal-processing systems used to treat primary metals and 9PAGE THERMO TERRATECH INC. Overview (continued) metal parts. The Company's environmental services businesses are affected by several factors, particularly extreme weather variations, government spending, and regulation of remediation activities. Remediation and Recycling - In December 1995, the Company's majority-owned Thermo Remediation Inc. (Thermo Remediation) subsidiary acquired Remediation Technologies, Inc. (ReTec), a provider of integrated environmental services such as remediation of industrial sites contaminated with organic wastes and residues. In September 1996, Thermo Remediation 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. Through its Thermo Nutech subsidiary, Thermo Remediation provides services to remove radioactive contaminants from sand, gravel, and soil, as well as health physics, radiochemistry laboratory, and radiation dosimetry services. Through its TPS Technologies Inc. division, Thermo Remediation 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. In addition, Thermo Remediation's Thermo Fluids subsidiary collects, tests, processes, and recycles used motor oil and other industrial oils. The Company's majority-owned Thermo EuroTech N.V. (Thermo EuroTech) subsidiary, located in the Netherlands, provides wastewater treatment services as well as services to test, remove, and install underground storage tanks. Through its North Refinery subsidiary, Thermo EuroTech specializes in converting "off-spec" and contaminated petroleum fluids into usable oil products. Consulting and Design - The Company's wholly owned Killam Associates subsidiary provides environmental consulting and engineering services and specializes in wastewater treatment and water resources management. In November 1996, the Company acquired Carlan Consulting Group, Inc. (Carlan), a provider of transportation and environmental consulting and professional engineering and architectural services. The Company's wholly owned Bettigole Andrews Clark & Killam and Normandeau Associates subsidiaries provide both private- and public-sector clients with a range of consulting services that address transportation planning and design, and natural resource management issues, respectively. Laboratory Testing - The Company's wholly owned Thermo Analytical subsidiary operates a network of analytical laboratories that provide environmental testing services to commercial and government clients throughout the U.S. The May 1995 acquisition of Lancaster Laboratories, Inc. (Lancaster Laboratories) expanded the Company's range of contract services beyond environmental testing to the pharmaceutical- and food-testing industries. Metal Treating - The Company performs metallurgical processing services using thermal-treatment equipment at locations in California, Minnesota, and Wisconsin. The Company also designs, manufactures, and installs advanced custom-engineered, thermal-processing systems through its equipment division located in Michigan. 10PAGE THERMO TERRATECH INC. Results of Operations Third Quarter Fiscal 1997 Compared With Third Quarter Fiscal 1996 Total revenues in the third quarter of fiscal 1997 increased 36% to $75.7 million from $55.6 million in the third quarter of fiscal 1996. Revenues from remediation and recycling services increased to $38.0 million in fiscal 1997 from $19.7 million in fiscal 1996, primarily due to the inclusion of $10.1 million of revenues from IEM Sealand, acquired in September 1996, and an additional $8.5 million 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 consulting and design services remained relatively unchanged at $18.1 million in fiscal 1997 and $17.9 million in fiscal 1996. Revenues from laboratory-testing services, excluding radiochemistry laboratory services included in remediation and recycling services, decreased slightly to $9.4 million in fiscal 1997 from $9.9 million in fiscal 1996. Metal-treating revenues increased to $11.6 million in fiscal 1997 from $8.4 million in fiscal 1996, primarily due to an increase in demand for thermal-processing equipment at existing businesses. The gross profit margin decreased to 17% in the third quarter of fiscal 1997 from 23% in the third quarter of fiscal 1996, primarily due to a decrease in gross profit margins from remediation and recycling services due to lower margins on soil processed resulting from competitive pricing pressures and, to a lesser extent, lower volumes of soil processed at the Company's traditionally higher-margin soil- remediation centers. The decrease also resulted from the inclusion of lower-margin revenues from ReTec and IEM Sealand. Selling, general and administrative expenses as a percentage of revenues decreased to 12% in the third quarter of fiscal 1997 from 14% in the third quarter of fiscal 1996, primarily due to lower expenses as a percentage of revenues at acquired companies. Interest income increased to $1.8 million in the third quarter of fiscal 1997 from $1.2 million in the third quarter of fiscal 1996, primarily as a result of interest income earned on invested proceeds from the Company's issuance of 4 5/8% subordinated convertible debentures in May 1996 (Note 2). Interest expense increased to $3.1 million in fiscal 1997 from $2.8 million in fiscal 1996, primarily due to an increase in average long-term borrowings as a result of the Company's issuance of 4 5/8% subordinated convertible debentures, offset in part by the repayment of promissory notes to Thermo Electron Corporation (Thermo Electron) with proceeds from the Company's 4 5/8% subordinated convertible debentures. The effective tax rate was 57% in the third quarter of fiscal 1997 and 42% in the third quarter of fiscal 1996. 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 11PAGE THERMO TERRATECH INC. Third Quarter Fiscal 1997 Compared With Third Quarter Fiscal 1996 (continued) companies and the impact of state income taxes. The increase in the effective tax rate in fiscal 1997 results from the larger relative effect of nondeductible amortization. Minority interest expense decreased to $0.1 million in the third quarter of fiscal 1997 from $0.3 million in the third quarter of fiscal 1996, due to lower earnings from the Company's majority-owned subsidiaries. First Nine Months of Fiscal 1997 Compared With First Nine Months of Fiscal 1996 Total revenues in the first nine months of fiscal 1997 increased 31% to $210.6 million from $160.8 million in the first nine months of fiscal 1996. Revenues from remediation and recycling services increased to $96.6 million in fiscal 1997 from $52.2 million in fiscal 1996, primarily due to an additional $30.2 million of revenues from ReTec, acquired in December 1995, and the inclusion of $12.6 million of revenues from IEM Sealand, acquired in September 1996. Revenues from soil-remediation services decreased 21%, primarily due to the reasons discussed in the results of operations for the third quarter. Revenues from consulting and design services increased to $58.2 million in fiscal 1997 from $56.1 million in fiscal 1996, primarily due to increased revenues from a major contract, offset in part by lower revenues from federal government contracts. Revenues from laboratory-testing services, excluding radiochemistry laboratory services included in remediation and recycling services, decreased slightly to $26.9 million in fiscal 1997 from $27.6 million in fiscal 1996. Metal-treating revenues increased to $31.7 million in fiscal 1997 from $25.3 million in fiscal 1996, primarily due to an increase in demand for thermal-processing equipment at existing businesses. The gross profit margin decreased to 18% in the first nine months of fiscal 1997 from 24% in the first nine months of fiscal 1996, primarily due to the reasons discussed in the results of operations for the third quarter. This decline is also due to a decrease in gross profit margins for laboratory-testing services due to costs incurred related to efforts to eliminate redundant capabilities at regional laboratories. These decreases were offset in part by higher gross profit margins from metal- treating services as a result of an increase in revenues. Selling, general and administrative expenses as a percentage of revenues decreased to 13% in the first nine months of fiscal 1997 from 15% in the first nine months of fiscal 1996, primarily due to lower expenses as a percentage of revenues at acquired companies and a decline in expenses related to the consolidation of administrative functions within the consulting and design services business. Interest income increased to $5.4 million in the first nine months of fiscal 1997 from $4.0 million in the first nine months of fiscal 1996, primarily as a result of interest income earned on invested proceeds from the Company's issuance of 4 5/8% subordinated convertible debentures in 12PAGE THERMO TERRATECH INC. First Nine Months of Fiscal 1997 Compared With First Nine Months of Fiscal 1996 (continued) May 1996 (Note 2). Interest expense increased to $9.7 million in fiscal 1997 from $8.0 million in fiscal 1996, primarily due to the reasons discussed in the results of operations for the third quarter and Thermo Remediation's issuance of 4 7/8% subordinated convertible debentures in May 1995. Equity in earnings of unconsolidated subsidiary in the first nine months of fiscal 1997 represents ReTec's proportionate share of income from a joint venture. During the first nine months of fiscal 1997 and 1996, the Company recorded gains of $1.5 million and $2.7 million, respectively, from the issuance of stock by subsidiaries (Note 3). The effective tax rate in the first nine months of fiscal 1997 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, offset in part by the nontaxable gain on issuance of stock by subsidiaries. The effective tax rate in fiscal 1996 exceeded the federal statutory rate, primarily due to the nondeductible write-off of cost in excess of net assets of acquired company and the loss on sale of assets, offset in part by the nontaxable gains on issuance of stock by subsidiaries. Minority interest expense decreased to $0.4 million in the first nine months of fiscal 1997 from $1.1 million in the first nine months of fiscal 1996, due to lower earnings from the Company's majority-owned subsidiaries. Liquidity and Capital Resources Consolidated working capital increased to $97.3 million at December 28, 1996 from $66.0 million at March 30, 1996. Cash, cash equivalents, and short- and long-term available-for-sale investments were $83.7 million at December 28, 1996, compared with $40.3 million at March 30, 1996. Of the $83.7 million balance at December 28, 1996, $25.9 million was held by Thermo Remediation and the remainder by the Company and its wholly owned subsidiaries. In addition, at December 28, 1996, the Company had $25.6 million of long-term held-to-maturity investments, compared with $24.3 million at March 30, 1996. During the first nine months of fiscal 1997, $2.6 million of cash was provided by operating activities. In the first nine months of fiscal 1997, the Company funded increases in accounts receivable and unbilled contract costs and fees of $8.4 million and $5.5 million, respectively. The increase in accounts receivable is primarily due to higher revenues at Thermo Remediation's IEM Sealand, ReTec, and Thermo Fluids divisions. The increase in unbilled contract costs and fees was due to an increase in thermal-processing equipment contracts, remediation contracts at ReTec, and consulting and design services contracts. This use of cash was offset in part by an increase in current liabilities, primarily due to a $5.1 million increase in accounts 13PAGE THERMO TERRATECH INC. Liquidity and Capital Resources (continued) payable resulting from an increase in the volume of business at Thermo Remediation's IEM Sealand and ReTec divisions. In May 1996, the Company issued and sold $115.0 million principal amount of 4 5/8% subordinated convertible debentures due 2003 for net proceeds of $112.4 million (Note 2). The debentures are guaranteed on a subordinated basis by Thermo Electron. In May 1996, the Company repaid its $15.0 million and $35.0 million promissory notes to Thermo Electron with proceeds from the debenture offering. The Boards of Directors of the Company and Thermo Remediation each authorized the repurchase, through August 23, 1997 and September 10, 1997, respectively, of up to $10.0 million of their own securities. Any such purchases would be funded from working capital. Through December 28, 1996, the Company and Thermo Remediation had expended $4.1 million and $5.4 million, respectively, under these authorizations. In the first nine months of fiscal 1997, $4.5 million was expended for acquisitions by the Company and a majority-owned subsidiary (Note 4). The Company also expended $12.3 million for purchases of property, plant and equipment. The Company has no material commitments for the acquisition of businesses or for capital expenditures. Such expenditures will largely be affected by the number and size of the complementary businesses that can be acquired or developed during the year. The Company believes that it has adequate resources to meet the financial needs of its current operations for the foreseeable future. PART II - OTHER INFORMATION Item 6 - Exhibits See Exhibit Index on the page immediately preceding exhibits. 14PAGE THERMO TERRATECH 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 February 1997. THERMO TERRATECH INC. Paul F. Kelleher -------------------- Paul F. Kelleher Chief Accounting Officer John N. Hatsopoulos -------------------- John N. Hatsopoulos Vice President and Chief Financial Officer 15PAGE THERMO TERRATECH INC. EXHIBIT INDEX Exhibit Number Description of Exhibit ------------------------------------------------------------------------ 11 Statement re: Computation of earnings per share. 27 Financial Data Schedule. EX-11 2 Exhibit 11 THERMO TERRATECH 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 Primary Earnings per Share: Net Income (a) $ 902,000 $ 1,598,000 $ 3,810,000 $ 1,524,000 ----------- ----------- ----------- ----------- Shares: Weighted average shares outstanding 18,231,029 18,312,716 18,112,460 18,162,804 Add: Shares issuable from assumed exercise of options and warrants (as determined by the application of the treasury stock method) - - 685,903 - ----------- ----------- ----------- ---------- Weighted average shares outstanding, as adjusted (b) 18,231,029 18,312,716 18,798,363 18,162,804 ----------- ----------- ----------- ----------- Primary Earnings per Share (a) / (b) $ .05 $ .09 $ .20 $ .08 =========== =========== =========== =========== EX-27 3
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO TERRATECH 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. 1,000 9-MOS MAR-29-1997 DEC-28-1996 60,350 23,308 56,622 3,079 2,937 180,156 136,679 48,830 405,160 82,821 192,678 0 0 1,830 89,149 405,160 19,181 210,585 15,837 173,291 813 490 9,660 6,852 3,042 3,810 0 0 0 3,810 .20 0
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