-----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, Nz/EShqU0SVHkTqsU+sg/MnarxxxAeX9XRA6MilJVvf/1/igp61af7bIXF2EtEqK NGzhYINzYrAyblC2h7iBwQ== 0000796038-96-000005.txt : 19960208 0000796038-96-000005.hdr.sgml : 19960208 ACCESSION NUMBER: 0000796038-96-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19951230 FILED AS OF DATE: 19960207 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: 96511968 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 30, 1995. [ ] 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 26, 1996 ---------------------------- ------------------------------- Common Stock, $.10 par value 17,515,194 PAGE Form 10-Q December 30, 1995 THERMO TERRATECH INC. PART I - Financial Information Item 1 - Financial Statements (a) Consolidated Balance Sheet - Assets as of December 30, 1995 and April 1, 1995 (In thousands) (Unaudited) December 30, April 1, 1995 1995 ------------ -------- Current Assets: Cash and cash equivalents $ 28,309 $ 35,808 Short-term available-for-sale investments, at quoted market value (amortized cost of $15,629 and $5,179) 15,640 5,155 Accounts receivable, less allowances of $3,162 and $3,560 47,822 27,949 Unbilled contract costs and fees 17,723 16,481 Inventories: Raw materials and supplies 3,041 2,705 Work in process and finished goods 809 27 Prepaid expenses 4,262 3,788 Prepaid income taxes 12,523 8,228 -------- -------- 130,129 100,141 -------- -------- Property, Plant and Equipment, at Cost 117,483 92,794 Less: Accumulated depreciation and amortization 38,087 33,057 -------- -------- 79,396 59,737 -------- -------- Long-term Available-for-sale Investments, at Quoted Market Value (amortized cost of $2,122 and $10,687) 2,121 10,564 -------- -------- Long-term Held-to-maturity Investments, at Amortized Cost (quoted market value of $24,942 and $22,810) 23,819 22,569 -------- -------- Other Assets 12,321 12,146 -------- -------- Cost in Excess of Net Assets of Acquired Companies (Notes 3 and 5) 88,705 66,516 -------- -------- $336,491 $271,673 ======== ======== The accompanying notes are an integral part of these consolidated financial statements. 2PAGE Form 10-Q December 30, 1995 THERMO TERRATECH INC. (a)Consolidated Balance Sheet - Liabilities and Shareholders' Investment as of December 30, 1995 and April 1, 1995 (In thousands except share amounts) (Unaudited) December 30, April 1, 1995 1995 ------------ -------- Current Liabilities: Accounts payable $ 13,723 $ 9,612 Notes payable and current maturities of long-term obligations (includes $15,000 and $4,000 due to parent company) 17,741 4,652 Billings in excess of revenues earned 3,102 1,555 Accrued payroll and employee benefits 9,835 6,845 Accrued and current deferred income taxes 2,373 1,773 Other accrued expenses 9,802 7,892 Due to parent company and Thermo Electron 3,328 3,116 -------- -------- 59,904 35,445 -------- -------- Deferred Income Taxes 4,150 4,116 -------- -------- Other Deferred Items 1,014 1,057 -------- -------- Long-term Obligations: 6 1/2% Subordinated convertible debentures 18,547 18,547 4 7/8% Subordinated convertible debentures (Note 4) 37,950 - Other (includes $73,000 and $53,000 due to parent company) (Note 2) 98,882 78,304 -------- -------- 155,379 96,851 -------- -------- Minority Interest 31,766 56,603 -------- -------- Shareholders' Investment: Common stock, $.10 par value, 30,000,000 shares authorized; 17,502,621 and 17,414,322 shares issued 1,750 1,741 Capital in excess of par value 59,041 53,559 Retained earnings 23,104 21,727 Treasury stock at cost, 49,082 and 71,072 shares (585) (864) Cumulative translation adjustment 962 1,526 Net unrealized gain (loss) on available-for-sale investments 6 (88) -------- -------- 84,278 77,601 -------- -------- $336,491 $271,673 ======== ======== The accompanying notes are an integral part of these consolidated financial statements. 3PAGE Form 10-Q December 30, 1995 THERMO TERRATECH INC. (b)Consolidated Statement of Income for the three months ended December 30, 1995 and December 31, 1994 (In thousands except per share amounts) (Unaudited) Three Months Ended ---------------------------- December 30, December 31, 1995 1994 ------------- ----------- Revenues: Service revenues $ 50,122 $ 30,642 Product revenues 4,756 4,029 -------- ------- 54,878 34,671 -------- ------- Costs and Operating Expenses: Cost of service revenues 34,906 22,901 Cost of product revenues 4,012 3,289 Selling, general and administrative expenses 10,962 5,272 Product and new business development expenses 259 287 -------- -------- 50,139 31,749 -------- -------- Operating Income 4,739 2,922 Interest Income 1,236 778 Interest Expense (includes $1,331 and $206 to parent company) (2,801) (559) Gain on Issuance of Stock by Subsidiaries - 161 Gain on Sale of Related Party Investments 100 138 -------- -------- Income Before Provision for Income Taxes and Minority Interest 3,274 3,440 Provision for Income Taxes 1,392 902 Minority Interest Expense 295 1,396 -------- -------- Net Income $ 1,587 $ 1,142 ======== ======== Earnings per Share $ .09 $ .07 ======== ======== Weighted Average Shares 18,313 17,155 ======== ======== The accompanying notes are an integral part of these consolidated financial statements. 4PAGE Form 10-Q December 30, 1995 THERMO TERRATECH INC. (b)Consolidated Statement of Income for the nine months ended December 30, 1995 and December 31, 1994 (In thousands except per share amounts) (Unaudited) Nine Months Ended --------------------------- December 30, December 31, 1995 1994 ------------ ------------ Revenues: Service revenues $145,152 $ 83,994 Product revenues 13,364 10,556 -------- -------- 158,516 94,550 -------- -------- Costs and Operating Expenses: Cost of service revenues 98,842 61,860 Cost of product revenues 11,770 8,806 Selling, general and administrative expenses 34,195 16,769 Product and new business development expenses 817 643 Write-off of cost in excess of net assets of acquired company (Note 5) 4,995 - -------- -------- 150,619 88,078 -------- -------- Operating Income 7,897 6,472 Interest Income 4,002 2,203 Interest Expense (includes $4,229 and $480 to parent company) (8,033) (1,519) Gain on Issuance of Stock by Subsidiaries (Note 4) 2,742 1,058 Gain on Sale of Investments (includes $746 on sale of related party debentures in fiscal 1995) 180 749 Loss on Sale of Assets (Note 6) (569) - -------- -------- Income Before Provision for Income Taxes and Minority Interest 6,219 8,963 Provision for Income Taxes 3,736 1,978 Minority Interest Expense 1,106 3,934 -------- -------- Net Income $ 1,377 $ 3,051 ======== ======== Earnings per Share $ .08 $ .18 ======== ======== Weighted Average Shares 18,163 17,099 ======== ======== The accompanying notes are an integral part of these consolidated financial statements. 5PAGE Form 10-Q December 30, 1995 THERMO TERRATECH INC. (c)Consolidated Statement of Cash Flows for the nine months ended December 30, 1995 and December 31, 1994 (In thousands) (Unaudited) Nine Months Ended ----------------------------- December 30, December 31, 1995 1994 ------------ ------------ Operating Activities: Net income $ 1,377 $ 3,051 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 9,148 5,507 Write-off of cost in excess of net assets of acquired company (Note 5) 4,995 - Loss on sale of assets (Note 6) 569 - Minority interest expense 1,106 3,934 Provision for losses on accounts receivable (59) 148 Other noncash expenses 51 371 Increase in deferred income taxes 93 - Gain on issuance of stock by subsidiaries (Note 4) (2,742) (1,058) Gain on sale of investments (180) (749) Changes in current accounts, excluding the effects of acquisitions: Accounts receivable (2,207) (1,629) Inventories and unbilled contract costs and fees (1,716) (66) Other current assets (155) (1,177) Current liabilities (2,530) 1,695 -------- -------- Net cash provided by operating activities 7,750 10,027 -------- -------- Investing Activities: Acquisitions, net of cash acquired (Note 3) (43,117) (17,786) Purchase of minority interest in Thermo Terra Tech joint venture (Note 2) (34,267) - Purchases of available-for-sale investments (31,000) - Proceeds from sale and maturities of available-for-sale investments 29,295 18,250 Purchases of property, plant and equipment (12,076) (4,524) Proceeds from sale of property, plant and equipment 683 61 Purchase of other assets (383) (445) -------- -------- Net cash used in investing activities $(90,865) $ (4,444) -------- --------- 6PAGE Form 10-Q December 30, 1995 THERMO TERRATECH INC. (c)Consolidated Statement of Cash Flows for the nine months ended December 30, 1995 and December 31, 1994 (In thousands) (Unaudited) (continued) Nine Months Ended ----------------------------- December 30, December 31, 1995 1994 ------------ ------------ Financing Activities: Net proceeds from issuance of subordinated convertible debentures (Note 4) $ 36,889 $ - Issuance of notes to parent company (Note 2) 35,000 19,000 Repayment of note payable to parent company (Note 4) (4,000) - Proceeds from issuance of Company and subsidiary common stock (Note 4) 7,405 3,865 Issuance of short-term obligations 2,178 - Repayment of note payable (660) - Dividends paid by subsidiary to minority shareholders (393) (343) Issuance of notes receivable (401) (700) Other - (144) -------- -------- Net cash provided by financing activities 76,018 21,678 -------- -------- Exchange Rate Effect on Cash (402) 327 -------- -------- Increase (Decrease) in Cash and Cash Equivalents (7,499) 27,588 Cash and Cash Equivalents at Beginning of Period 35,808 15,976 -------- -------- Cash and Cash Equivalents at End of Period $ 28,309 $ 43,564 ======== ======== Cash Paid For: Interest $ 6,044 $ 1,168 Income taxes $ 3,998 $ 1,461 The accompanying notes are an integral part of these consolidated financial statements. 7PAGE Form 10-Q December 30, 1995 THERMO TERRATECH INC. (d) Notes to Consolidated Financial Statements - December 30, 1995 1. General The interim consolidated financial statements presented have been prepared by Thermo TerraTech Inc. (the Company) (formerly Thermo Process Systems Inc.) without audit and, in the opinion of management, reflect all adjustments of a normal recurring nature necessary for a fair statement of (a) the results of operations for the three- and nine-month periods ended December 30, 1995 and December 31, 1994, (b) the financial position at December 30, 1995, and (c) the cash flows for the nine-month periods ended December 30, 1995 and December 31, 1994. Interim results are not necessarily indicative of results for a full year. The consolidated balance sheet presented as of April 1, 1995, 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 April 1, 1995, filed with the Securities and Exchange Commission. 2. Dissolution of Thermo Terra Tech Joint Venture Effective April 2, 1995, the Company and Thermo Instrument Systems Inc. (Thermo Instrument) dissolved their Thermo Terra Tech joint venture and the Company purchased the businesses formerly operated by the joint venture from Thermo Instrument for $34,267,000 in cash. As a result of this transaction, the Company increased its ownership in the businesses operated by the joint venture from 51% to 100%. Based on unaudited data, if the acquisition of Thermo Instrument's share of such businesses by the Company had occurred at the beginning of fiscal 1995, net income and earnings per share on a pro forma basis would have been $1,429,000 and $.08, respectively, for the three months ended December 31, 1994, and $3,838,000 and $.22, respectively, for the nine months ended December 31, 1994. The Company borrowed the purchase price from Thermo Electron Corporation (Thermo Electron) through the issuance of a $35,000,000 promissory note due May 13, 1997 and bearing interest at the Commercial Paper Composite Rate plus 25 basis points, set at the beginning of each quarter. In June 1995, the Company transferred three businesses formerly operated by the joint venture, collectively known as the Nuclear Services Group (renamed Thermo Nutech), to the Company's Thermo Remediation Inc. (Thermo Remediation) subsidiary in exchange for 1,583,360 shares of Thermo Remediation common stock. 8PAGE Form 10-Q December 30, 1995 THERMO TERRATECH INC. (d) Notes to Consolidated Financial Statements - December 30, 1995 (continued) 3. Acquisitions On May 10, 1995, the Company acquired substantially all of the assets of Lancaster Laboratories, Inc. and its affiliate Clewmark Holdings (collectively Lancaster Laboratories). Lancaster Laboratories, based in Lancaster, Pennsylvania, is a provider of high-quality analytical services to the environmental, food, and pharmaceutical industries. The purchase price for the assets was $19,807,000 in cash, plus the assumption of approximately $5,333,000 in bank indebtedness existing as of the closing of the acquisition. On December 8, 1995, the Company, through Thermo Remediation, acquired Remediation Technologies, Inc. (ReTec), a provider of integrated environmental services such as the remediation of industrial sites contaminated with organic wastes and residues. The purchase price of $29.7 million consisted of $18.5 million in cash, $3.7 million in Thermo Remediation's common stock and warrants, and approximately $7.5 million attributable to the conversion of outstanding ReTec stock options into Thermo Remediation's stock options. 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 their respective dates of acquisition. The aggregate cost of these acquisitions exceeded the estimated fair value of the acquired net assets by $28,766,000, which is being amortized over 40 years. Allocation of the purchase price for these acquisitions was based on an estimate of the fair value of the net assets acquired and is subject to adjustment. Based on unaudited data, the following table presents selected financial information for the Company, Lancaster Laboratories, and ReTec on a pro forma basis, assuming the companies had been combined since the beginning of fiscal 1995. Three Months Ended Nine Months Ended ------------------------- ------------------------- (In thousands except December 30, December 31, December 30, December 31, per share amounts) 1995 1994 1995 1994 -------------------------------------------------------------------------- Revenues $62,933 $55,719 $192,308 $149,576 Net income 1,050 3,245 1,502 6,095 Earnings per share .06 .19 .08 .36 The pro forma results are not necessarily indicative of future operations or the actual results that would have occurred had the acquisitions been made at the beginning of fiscal 1995. 9PAGE Form 10-Q December 30, 1995 THERMO TERRATECH INC. (d) Notes to Consolidated Financial Statements - December 30, 1995 (continued) 4. Subsidiary Debenture Offering and Private Placement of Subsidiary Common Stock On May 4, 1995, Thermo Remediation issued and sold $37,950,000 principal amount of 4 7/8% subordinated convertible debentures due 2000. The debentures are convertible into shares of Thermo Remediation's common stock at a conversion price of $17.92 per share and are guaranteed on a subordinated basis by Thermo Electron. The Company has agreed to reimburse Thermo Electron in the event Thermo Electron is required to make a payment under the guarantee. In addition, in May 1995, Thermo Remediation sold 500,000 shares of its common stock in a private placement at $13.25 per share for net proceeds of $6,625,000, resulting in a gain of $2,742,000. In June 1995, Thermo Remediation repaid its $4,000,000 note payable to Thermo Electron with proceeds from the offerings. As of December 30, 1995, the Company owned 67.6% of Thermo Remediation's outstanding common stock. 5. Write-off of Cost in Excess of Net Assets of Acquired Company Following the purchases of Killam Associates in February 1995, the businesses formerly operated by the Thermo Terra Tech joint venture from Thermo Instrument in April 1995, and Lancaster Laboratories in May 1995, the primary growth focus of the Company has become environmental infrastructure services. The Company no longer expects to reinvest in the thermal-processing equipment business to the extent necessary to recover the cost in excess of net assets of acquired company acquired with that business. Accordingly, in the second quarter of fiscal 1996, the Company wrote off $4,995,000 of cost in excess of net assets of acquired company associated with the thermal-processing equipment business. This noncash expense is nondeductible for tax purposes. 6. Loss on Sale of Assets During September 1995, the Company sold to a management group the assets of a small civil engineering design office in Williston, Vermont, that was no longer included in the geographic expansion plans of the Company. An intangible asset of $569,000 associated with this office was not recovered in the sale price and, accordingly, was written off during the second quarter of fiscal 1996. This noncash expense is nondeductible for tax purposes. Sales and earnings of this office were not material to the Company. 10PAGE Form 10-Q December 30, 1995 THERMO TERRATECH INC. Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations Overview The Company is a provider of environmental services and infrastructure planning and design, encompassing a range of specializations within the consulting and design, remediation and recycling, laboratory testing, and metal-treating industries. The Company's environmental services businesses are affected by several factors, most particularly, extreme weather variations, government spending, and deregulation of remediation activities. Consulting and Design - The Company's wholly owned Bettigole Andrews & Clark 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. In February 1995, the Company acquired Elson T. Killam Associates Inc. (Killam Associates), which provides environmental consulting and engineering services and specializes in wastewater treatment and water resources management. Remediation and Recycling - The Company's majority-owned Thermo Remediation Inc. (Thermo Remediation) subsidiary operates a network of soil-remediation centers, serving customers in more than a dozen states by providing thermal treatment of soil to remove and destroy petroleum contamination caused by leaking underground and aboveground storage tanks, spills, and other sources. In addition, Thermo Remediation's Thermo Fluids subsidiary, located in Arizona, offers fluids-recycling services including waste motor oil and wastewater treatment throughout Arizona and in neighboring states. 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. In December 1995, Thermo Remediation acquired Remediation Technologies, Inc. (ReTec), which provides integrated environmental services such as remediation of industrial sites contaminated with organic wastes and residues. 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. In March 1995, EuroTech acquired Refining and Trading Holland B.V. (North Refinery), which specializes in converting "off-spec" and contaminated petroleum fluids into usable oil products. 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) expands 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 and Minnesota. The Company also designs, manufactures, and installs advanced custom-engineered, thermal-processing systems through its equipment division located in Michigan. 11PAGE Form 10-Q December 30, 1995 THERMO TERRATECH INC. Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Results of Operations Third Quarter Fiscal 1996 Compared With Third Quarter Fiscal 1995 ----------------------------------------------------------------- Total revenues in the third quarter of fiscal 1996 increased 58% to $54.9 million from $34.7 million in the third quarter of fiscal 1995. Consulting and design services revenues were $17.9 million in fiscal 1996, compared with $9.1 million in fiscal 1995. This increase results from the inclusion of $10.2 million in revenues from Killam Associates, which was acquired in February 1995, offset in part by a decline in revenues due to the completion of a major contract in early fiscal 1995, and delays in contract approval by state governments due to budget constraints. Revenues from remediation and recycling services were $19.7 million in fiscal 1996, compared with $15.9 million in fiscal 1995. The increase in revenues was primarily due to the inclusion of $6.9 million in revenues from businesses acquired in fiscal 1995 and 1996, and an increase of $0.8 million in revenues from a long-term environmental restoration contract for the U.S. Department of Energy's (DOE's) Hanford site (Hanford). These increases were offset in part by lower soil-remediation services revenues resulting from competitive pricing pressures and a decrease in the volume of soil processed as a result of the ongoing regulatory uncertainties at two sites. Revenues from radiochemistry laboratory work decreased, reflecting a reduction in spending at the DOE. Revenues from laboratory testing services, excluding the radiochemistry laboratory services included in remediation and recycling services, increased to $9.8 million in fiscal 1996 from $2.5 million in fiscal 1995, reflecting the inclusion of $8.2 million in revenues from Lancaster Laboratories, which was acquired in May 1995, offset in part by a decline in revenues due to reduced federal spending and a shift in business from existing sites to the newly acquired Lancaster Laboratories. Metal treating revenues increased to $7.7 million in fiscal 1996 from $7.2 million in fiscal 1995, due primarily to an increase in equipment sales. The gross profit margin increased to 29% in the third quarter of fiscal 1996 from 24% in the third quarter of fiscal 1995, due to the inclusion of higher-margin revenues from Killam Associates, offset in part by lower margins from remediation and recycling services revenues due primarily to a lower gross profit margin associated with the newly acquired ReTec, competitive pricing pressures, and a reduction in radiochemistry laboratory work. Selling, general and administrative expenses as a percentage of revenues increased to 20% in the third quarter of fiscal 1996 from 15% in the third quarter of fiscal 1995 due primarily to the inclusion of higher selling, general and administrative expenses as a percentage of revenues at Killam Associates. 12PAGE Form 10-Q December 30, 1995 THERMO TERRATECH INC. Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Third Quarter Fiscal 1996 Compared With Third Quarter Fiscal 1995 ----------------------------------------------------------------- (continued) Net interest expense was $1.6 million in the third quarter of fiscal 1996, compared with net interest income of $219,000 in the third quarter of fiscal 1995. This change resulted primarily from funds expended to purchase the businesses formerly operated by the Thermo Terra Tech joint venture from Thermo Instrument Systems Inc. (Thermo Instrument), as well as Killam Associates and Lancaster Laboratories. These expenditures were made from existing funds and borrowings from Thermo Electron Corporation (Thermo Electron). In addition, interest expense increased in fiscal 1996 due to the issuance of $38 million principal amount of 4 7/8% subordinated convertible debentures by Thermo Remediation in May 1995. As a result of the sale of stock by Thermo EuroTech, the Company recorded a gain of $161,000 in the third quarter of fiscal 1995. The gain represents an increase in the Company's proportionate share of the subsidiary's equity and is classified as gain on issuance of stock by subsidiaries in the accompanying statement of income. The effective tax rate in the third quarter of fiscal 1996 was higher than the statutory federal income tax rate due primarily to state income taxes and the nondeductible amortization of cost in excess of net assets of acquired companies. In fiscal 1995, the effective tax rate was less than the statutory federal income tax rate due to the exclusion of income taxed directly to a minority partner. Minority interest expense decreased to $295,000 in the third quarter of fiscal 1996 from $1.4 million in the third quarter of fiscal 1995 due primarily to the Company's purchase of the businesses formerly operated by the Thermo Terra Tech joint venture from Thermo Instrument, effective April 2, 1995 (Note 2). First Nine Months Fiscal 1996 Compared With First Nine Months Fiscal 1995 ------------------------------------------------------------------------- Total revenues in the first nine months of fiscal 1996 increased 68% to $158.5 million from $94.6 million in the first nine months of fiscal 1995. Consulting and design services revenues were $56.1 million in fiscal 1996, compared with $25.3 million in fiscal 1995. This increase results from the inclusion of $30.5 million in revenues from Killam Associates, which was acquired in February 1995. Revenues from remediation and recycling services were $52.2 million in fiscal 1996, compared with $43.2 million in fiscal 1995. The increase in revenues was primarily due to the inclusion of $11.3 million in revenues from businesses acquired in fiscal 1995 and 1996, and an increase of $3.1 million in revenues from the Hanford contract. These increases were offset in part by lower soil-remediation services revenues resulting from a decrease in the volume of soil processed as a result of regulatory uncertainties at several sites, severe weather conditions at another site, and competitive pricing pressures. Revenues 13PAGE Form 10-Q December 30, 1995 THERMO TERRATECH INC. Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) First Nine Months Fiscal 1996 Compared With First Nine Months Fiscal 1995 ------------------------------------------------------------------------- (continued) from radiochemistry laboratory work decreased, reflecting a reduction in spending at the DOE. Revenues from laboratory testing services, excluding the radiochemistry laboratory services included in remediation and recycling services, increased to $27.4 million in fiscal 1996 from $6.5 million in fiscal 1995, reflecting the inclusion of $22.1 million in revenues from Lancaster Laboratories, which was acquired in May 1995, offset in part by the reasons discussed in the results of operations for the third quarter. Metal treating revenues increased to $23.0 million in fiscal 1996 from $19.6 million in fiscal 1995, due primarily to an increase in equipment sales. The gross profit margin increased to 30% in the first nine months of fiscal 1996 from 25% in the first nine months of fiscal 1995, due to the inclusion of higher-margin revenues from Killam Associates, offset in part by lower margins from remediation and recycling services revenues primarily due to competitive pricing pressures, and a reduction in radiochemistry laboratory work. During the second quarter of fiscal 1996, the Company wrote off $4,995,000 of cost in excess of net assets of acquired company related to its thermal-processing equipment business (Note 5). In addition, in the second quarter of fiscal 1996, the Company incurred a loss of $569,000 as a result of the sale of an engineering office (Note 6). These noncash expenses are nondeductible for tax purposes. Selling, general and administrative expenses as a percentage of revenues increased to 22% in the first nine months of fiscal 1996 from 18% in the first nine months of fiscal 1995 due primarily to the inclusion of higher selling, general and administrative expenses as a percentage of revenues at Killam Associates. Net interest expense was $4.0 million in the first nine months of fiscal 1996, compared with net interest income of $684,000 in the first nine months of fiscal 1995, due to the reasons discussed in the results of operations for the third quarter. As a result of the sale of stock by Thermo Remediation in fiscal 1996 and 1995 and by Thermo EuroTech in fiscal 1995, the Company recorded gains of $2,742,000 in the first nine months of fiscal 1996 and $1,058,000 in the first nine months of fiscal 1995. These gains represent increases in the Company's proportionate share of the subsidiaries' equity and are classified as gain on issuance of stock by subsidiaries in the accompanying statement of income (Note 4). 14PAGE Form 10-Q December 30, 1995 THERMO TERRATECH INC. Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) First Nine Months Fiscal 1996 Compared With First Nine Months Fiscal 1995 ------------------------------------------------------------------------- (continued) The effective tax rate in the first nine months of fiscal 1996 was higher than the statutory federal income tax rate due primarily 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. In fiscal 1995, the effective tax rate was less than the statutory federal income tax rate primarily due to the exclusion of income taxed directly to a minority partner. Minority interest expense decreased to $1.1 million in the first nine months of fiscal 1996 from $3.9 million in the first nine months of fiscal 1995 due primarily to the Company's purchase of the businesses formerly operated by the Thermo Terra Tech joint venture (Note 2). Financial Condition Liquidity and Capital Resources ------------------------------- Consolidated working capital, including cash, cash equivalents, and short-term available-for-sale investments, was $70.2 million at December 30, 1995, compared with $64.7 million at April 1, 1995. Cash, cash equivalents, and short- and long-term available-for-sale investments were $46.1 million at December 30, 1995, compared with $51.5 million at April 1, 1995. Of the $46.1 million balance at December 30, 1995, $37.0 million was held by Thermo Remediation, $0.4 million by Thermo EuroTech, and the remainder by the Company and its wholly owned subsidiaries. During the first nine months of fiscal 1996, the Company expended an aggregate of $77.4 million, net of cash acquired, to purchase Lancaster Laboratories, ReTec, and the businesses formerly operated by the Thermo Terra Tech joint venture from Thermo Instrument (Notes 2 and 3). Changes in balance sheet accounts between April 1, 1995 and December 30, 1995 primarily reflect the acquisitions of Lancaster Laboratories and ReTec, and Thermo Remediation's issuance of subordinated convertible debentures and private placement of common stock discussed below. In addition, the Company expended $12.1 million on purchases of property, plant and equipment, primarily relating to two new soil-remediation sites under construction. The Company plans to expend an additional $2.0 million on one of these sites still under construction in the fourth quarter of fiscal 1996. In May 1995, Thermo Remediation issued and sold $38 million principal amount of 4 7/8% subordinated convertible debentures due 2000. In addition, in May 1995, Thermo Remediation sold 500,000 shares of its common stock in a private placement for net proceeds of $6.6 million. In June 1995, Thermo Remediation repaid its $4.0 million note payable to Thermo Electron with proceeds from the offerings. 15PAGE Form 10-Q December 30, 1995 THERMO TERRATECH INC. Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Liquidity and Capital Resources (continued) ------------------------------- As of December 30, 1995, the Company had outstanding obligations to Thermo Electron Corporation, through the issuance of promissory notes due April 1996 through June 1997, of $88 million. Thermo Electron has indicated its intention to require the Company's indebtedness to Thermo Electron be repaid to the extent that the Company's liquidity and cash flow permit. Although the Company has no material capital expenditure commitments, except as noted above, 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 4 - Submission of Matters to a Vote of Security Holders On December 13, 1995, at the Annual Meeting of Shareholders, the shareholders elected six incumbent directors to a one-year term expiring in 1996. The directors reelected at the meeting were: John P. Appleton, John N. Hatsopoulos, Donald E. Noble, William A. Rainville, Paul E. Tsongas, and Polyvios C. Vintiadis. Dr. John P. Appleton received 16,518,712 shares voted in favor of his election and 193,515 shares voted against; Mr. John N. Hatsopoulos received 16,696,767 shares voted in favor of his election and 15,460 shares voted against; Mr. Donald E. Noble received 16,696,679 shares voted in favor of his election and 15,548 shares voted against; Mr. William A. Rainville received 16,696,784 shares voted in favor of his election and 15,443 shares voted against; Mr. Paul E. Tsongas received 16,688,031 shares voted in favor of his election and 24,196 shares voted against; and Mr. Polyvios C. Vintiadis received 16,696,783 shares voted in favor of his election and 15,444 shares voted against. No abstentions or broker nonvotes were recorded on the election of directors. The shareholders also approved a proposal to amend the Company's Certificate of Incorporation to change the Company's name to Thermo TerraTech Inc. as follows: 16,514,948 shares voted in favor of the proposal, 13,008 shares voted against, and 8,668 shares abstained. There were 175,603 broker nonvotes recorded on the proposal. The shareholders also approved a proposal to amend the Company's Directors' Stock Option Plan to change the formula for the award of stock options to outside directors to purchase common stock of the Company and its majority-owned subsidiaries as follows: 16,440,870 shares voted in favor of the proposal, 49,622 shares voted against, and 201,308 shares abstained. There were 20,427 broker nonvotes recorded on the proposal. 16PAGE Form 10-Q December 30, 1995 THERMO TERRATECH INC. PART II - Other Information (continued) 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 The Company filed a Current Report on Form 8-K, dated December 8, 1995, pertaining to the acquisition of Remediation Technologies, Inc. On January 19, 1996, the Company filed an amendment on Form 8-K/A, the purpose of which was to file the financial information required by Form 8-K concerning this acquisition. The Company filed a Current Report on Form 8-K, dated December 13, 1995, pertaining to the change of the Company's name to Thermo TerraTech Inc. 17PAGE Form 10-Q December 30, 1995 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 6th day of February 1996. THERMO TERRATECH INC. Paul F. Kelleher ------------------------ Paul F. Kelleher Chief Accounting Officer John N. Hatsopoulos ------------------------ John N. Hatsopoulos Vice President and Chief Financial Officer 18PAGE Form 10-Q December 30, 1995 THERMO TERRATECH INC. EXHIBIT INDEX ------------- Exhibit Number Document Page -------------- ------------------------------------------------ ---- 27 Financial Data Schedule. EX-27 2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO TERRA TECH INC.'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED DECEMBER 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS MAR-30-1996 DEC-30-1995 28,309 15,640 50,984 3,162 3,850 130,129 117,483 38,087 336,491 59,904 82,379 1,750 0 0 82,528 336,491 13,364 158,516 11,770 110,612 5,812 (59) 8,033 6,219 3,736 0 0 0 0 1,377 .08 0
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