-----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, SYWslpqbUWnVoZU2CE+A/boPXbKyVPMTQuMy9T5XBhI5Rmmk3+remgLlDjSa8Pi/ JLHa7KdD435xWIuV+3WizQ== 0000796038-97-000026.txt : 19971104 0000796038-97-000026.hdr.sgml : 19971104 ACCESSION NUMBER: 0000796038-97-000026 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970927 FILED AS OF DATE: 19971103 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: 0329 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-09549 FILM NUMBER: 97706949 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 September 27, 1997. [ ] 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 September 27, 1997 ---------------------------- --------------------------------- Common Stock, $.10 par value 18,919,401 PAGE PART I - FINANCIAL INFORMATION Item 1 - Financial Statements THERMO TERRATECH INC. Consolidated Balance Sheet (Unaudited) Assets September 27, March 29, (In thousands) 1997 1997 ------------------------------------------------------------------------ Current Assets: Cash and cash equivalents $ 3,271 $ 63,172 Short-term available-for-sale investments, at quoted market value (amortized cost of $8,148 and $18,380) 8,153 18,391 Short-term held-to-maturity investments, at amortized cost (quoted market value of $27,260 and $13,238) 27,075 12,971 Accounts receivable, less allowances of $3,674 and $3,838 62,750 49,191 Unbilled contract costs and fees 38,285 29,053 Inventories: Raw materials and supplies 2,325 2,483 Work in process and finished goods 574 538 Prepaid and refundable income taxes 7,484 7,369 Prepaid expenses 4,704 3,870 -------- -------- 154,621 187,038 -------- -------- Property, Plant, and Equipment, at Cost 139,512 132,332 Less: Accumulated depreciation and amortization 50,682 48,766 -------- -------- 88,830 83,566 -------- -------- Long-term Held-to-maturity Investments, at Amortized Cost (quoted market value of $13,142 in fiscal 1997) - 13,086 -------- -------- Other Assets 20,731 17,308 -------- -------- Cost in Excess of Net Assets of Acquired Companies (Note 2) 100,101 92,786 -------- -------- $364,283 $393,784 ======== ======== 2PAGE THERMO TERRATECH INC. Consolidated Balance Sheet (continued) (Unaudited) Liabilities and Shareholders' Investment September 27, March 29, (In thousands except share amounts) 1997 1997 ----------------------------------------------------------------------- Current Liabilities: Notes payable and current maturities of long-term obligations (includes $38,000 due to parent company in fiscal 1997) $ 33,218 $ 67,495 Accounts payable 15,878 12,292 Accrued payroll and employee benefits 11,222 12,182 Billings in excess of revenues earned 2,348 4,319 Other accrued expenses 10,878 10,509 Due to parent company 3,283 2,926 -------- -------- 76,827 109,723 -------- -------- Deferred Income Taxes 5,297 5,297 -------- -------- Other Deferred Items 912 893 -------- -------- Long-term Obligations: Subordinated convertible debentures 149,800 149,800 Other 2,042 15,386 -------- -------- 151,842 165,186 -------- -------- Minority Interest 32,903 29,159 -------- -------- Shareholders' Investment: Common stock, $.10 par value, 75,000,000 shares authorized; 19,583,773 and 18,304,424 shares issued 1,958 1,830 Capital in excess of par value 75,417 62,610 Retained earnings 26,945 24,046 Treasury stock at cost, 664,372 and 417,696 shares (6,253) (3,941) Cumulative translation adjustment (1,568) (1,026) Net unrealized gain on available-for-sale investments 3 7 -------- -------- 96,502 83,526 -------- -------- $364,283 $393,784 ======== ======== The accompanying notes are an integral part of these consolidated financial statements. 3PAGE THERMO TERRATECH INC. Consolidated Statement of Income (Unaudited) Three Months Ended ---------------------------- September 27, September 28, (In thousands except per share amounts) 1997 1996 ------------------------------------------------------------------------ Revenues: Service revenues $71,240 $61,121 Product revenues (Note 4) 9,921 6,148 ------- ------- 81,161 67,269 ------- ------- Costs and Operating Expenses: Cost of service revenues 57,072 50,339 Cost of product revenues 8,604 4,902 Selling, general, and administrative expenses 10,306 10,383 Product and new business development expenses 213 275 ------- ------- 76,195 65,899 ------- ------- Operating Income 4,966 1,370 Interest Income 793 2,017 Interest Expense (includes $553 to parent company in fiscal 1997) (2,566) (3,462) Equity in Earnings of Unconsolidated Subsidiary (Note 4) 56 280 Gain on Issuance of Stock by Subsidiary - 1,475 Gain on Sale of Investments, Net - 19 Other Income - 47 ------- ------- Income Before Provision for Income Taxes and Minority Interest 3,249 1,746 Provision for Income Taxes 1,512 207 Minority Interest Expense 170 89 ------- ------- Net Income $ 1,567 $ 1,450 ======= ======= Earnings per Share $ .08 $ .08 ======= ======= Weighted Average Shares 18,989 18,848 ======= ======= The accompanying notes are an integral part of these consolidated financial statements. 4PAGE THERMO TERRATECH INC. Consolidated Statement of Income (Unaudited) Six Months Ended ---------------------------- September 27, September 28, (In thousands except per share amounts) 1997 1996 ------------------------------------------------------------------------ Revenues: Service revenues $136,350 $122,987 Product revenues (Note 4) 17,330 11,900 -------- -------- 153,680 134,887 -------- -------- Costs and Operating Expenses: Cost of service revenues 108,892 99,472 Cost of product revenues 14,735 9,620 Selling, general, and administrative expenses 20,244 19,605 Product and new business development expenses 435 574 -------- -------- 144,306 129,271 -------- -------- Operating Income 9,374 5,616 Interest Income 2,196 3,647 Interest Expense (includes $447 and $1,382 to parent company) (5,699) (6,570) Equity in Earnings of Unconsolidated Subsidiary (Note 4) 174 559 Gain on Issuance of Stock by Subsidiary - 1,475 Gain on Sale of Investments, Net - 166 Other Income 204 47 -------- -------- Income Before Provision for Income Taxes and Minority Interest 6,249 4,940 Provision for Income Taxes 2,911 1,721 Minority Interest Expense 439 311 -------- -------- Net Income $ 2,899 $ 2,908 ======== ======== Earnings per Share $ .16 $ .15 ======== ======== Weighted Average Shares 18,025 18,839 ======== ======== The accompanying notes are an integral part of these consolidated financial statements. 5PAGE THERMO TERRATECH INC. Consolidated Statement of Cash Flows (Unaudited) Six Months Ended ---------------------------- September 27, September 28, (In thousands) 1997 1996 ------------------------------------------------------------------------ Operating Activities: Net income $ 2,899 $ 2,908 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 7,107 6,523 Equity in earnings of unconsolidated subsidiary (Note 4) (174) (559) Minority interest expense 439 311 Provision for losses on accounts receivable 223 388 Decrease in deferred income taxes - (22) Gain on issuance of stock by subsidiary - (1,475) Gain on sale of property, plant, and equipment (204) - Gain on sale of investments, net - (166) Other noncash (income) expense 38 (87) Changes in current accounts, excluding the effects of acquisitions: Accounts receivable (11,404) (5,850) Inventories and unbilled contract costs and fees (9,142) (3,423) Other current assets (663) (1,153) Current liabilities 1,091 5,997 ------- -------- Net cash provided by (used in) operating activities (9,790) 3,392 ------- -------- Investing Activities: Acquisitions, net of cash acquired (Note 2) (5,546) (1,681) Purchases of available-for-sale investments - (39,027) Proceeds from sale and maturities of available-for-sale investments 10,232 19,915 Purchases of property, plant, and equipment (9,654) (8,262) Proceeds from sale of property, plant, and equipment 458 393 Purchase of other assets (724) (413) ------- -------- Net cash used in investing activities $(5,234) $(29,075) ------- -------- 6PAGE THERMO TERRATECH INC. Consolidated Statement of Cash Flows (continued) (Unaudited) Six Months Ended ---------------------------- September 27, September 28, (In thousands) 1997 1996 ----------------------------------------------------------------------- Financing Activities: Net proceeds from issuance of subordinated convertible debentures $ - $112,429 Repayment of notes payable to parent company (38,000) (50,000) Proceeds from issuance of Company and subsidiary common stock 758 4,720 Repurchase of Company and subsidiaries' common stock (6,622) (1,865) Repurchase of subordinated convertible debentures - (1,078) Issuance of short-term obligations - 560 Repayment of debt (392) (901) Dividends paid by subsidiary to minority shareholders (354) (450) Other (274) (178) ------- -------- Net cash provided by (used in) financing activities (44,884) 63,237 ------- -------- Exchange Rate Effect on Cash 7 (3) ------- -------- Increase (Decrease) in Cash and Cash Equivalents (59,901) 37,551 Cash and Cash Equivalents at Beginning of Period 63,172 31,182 ------- -------- Cash and Cash Equivalents at End of Period $ 3,271 $ 68,733 ======= ======== Noncash Activities: Fair value of assets of acquired companies $16,977 $ 6,476 Cash paid for acquired companies (7,465) (1,705) Issuance of subsidiary common stock for acquired company (2,400) (2,006) ------- -------- Liabilities assumed of acquired companies $ 7,112 $ 2,765 ======= ======== Conversions of subordinated convertible debentures $13,220 $ 4,800 ======= ======== 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 September 27, 1997, and the results of operations and cash flows for the three- and six-month periods ended September 27, 1997, and September 28, 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. Acquisitions In May 1997, the Company purchased a controlling interest in The Randers Group Incorporated (Randers), a provider of design, engineering, project management, and construction services for industrial clients in the manufacturing, pharmaceutical, and chemical-processing industries. The Company purchased 7,100,000 shares of Randers common stock from certain members of Randers' management, and 420,000 shares from Thermo Power Corporation, an affiliate of the Company, at a price of $0.625 per share, for an aggregate cost of approximately $4,700,000. Following these transactions, the Company owns approximately 53.3% of Randers' outstanding common stock. In addition, Thermo Electron Corporation (Thermo Electron) owns approximately 8.9% of Randers' outstanding common stock. Randers had revenues of $12,401,000 in calendar 1996. The Company has also entered into a definitive agreement to transfer to Randers, The Killam Group, Inc. (The Killam Group), its wholly owned engineering and consulting businesses, in exchange for newly issued shares of Randers' common stock. The exact price for these businesses will be equal to the book value of the transferred businesses as of the closing date of the transfer. The number of new shares of Randers common stock to be issued to the Company will equal such book value divided by $0.625. Based on the unaudited net book value of The Killam Group as of September 27, 1997, which was $67,150,000, Randers would issue 107,439,213 new shares of its common stock to the Company. Upon such issuance, the Company and Thermo Electron would own approximately 94.6% and 1.03%, respectively, of Randers' outstanding common stock. 8PAGE THERMO TERRATECH INC. 2. Acquisitions (continued) The transfer is subject to approval of the transaction by Randers' shareholders and continued listing of Randers' common stock on the American Stock Exchange following the transaction. However, because the Company currently owns approximately 53.3% of Randers' outstanding common stock, approval by Randers' shareholders is assured. In addition, during the first six months of fiscal 1998, the Company's Thermo Remediation Inc. (Thermo Remediation) subsidiary made acquisitions for an aggregate purchase price of $2,765,000 in cash and 374,507 shares of Thermo Remediation's common stock, valued at $2,400,000. 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 $8,350,000, which is being amortized over lives ranging from 20 to 40 years. Allocation of the purchase price for these acquisitions was based on estimates of the fair value of the net assets acquired and is subject to adjustment upon finalization of the purchase price allocation. Pro forma data is not presented since these acquisitions were not material to the Company's results of operations. 3. Presentation Certain amounts in fiscal 1997 have been reclassified to conform to the presentation in the fiscal 1998 financial statements. 4. Subsequent Events On October 6, 1997, Thermo Remediation sold its 50% limited-liability interest in RETEC/TETRA L.C. to TETRA Thermal, Inc. for $8,825,000 in cash, subject to post-closing adjustments. The Company realized a gain of approximately $1,300,000, net of tax and minority interest, on the sale. On October 10, 1997, the Company sold substantially all of the assets of its Holcroft Division, excluding certain accounts receivable, to Holcroft L.L.C., an affiliate of Madison Capital Partners. The sale price for the transferred assets consisted of $11,417,000 in cash, including $520,000 withheld by Holcroft L.L.C. pending a post-closing adjustment, two promissory notes for principal amounts of $2,218,000 and $663,000, respectively, issued by Holcroft L.L.C. to the Company, and the assumption by Holcroft L.L.C. of certain liabilities of the Holcroft Division. The sale price is subject to a post-closing adjustment, which would reduce the sale price by an amount not to exceed $520,000, based on a final determination of the net book value of the transferred assets as of September 27, 1997. Pending resolution of the post-closing adjustment, the Company expects to realize a gain on the sale. 9PAGE THERMO TERRATECH INC. Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations Forward-looking statements, within the meaning of Section 21E of the Securities Exchange Act of 1934, are made throughout this Management's Discussion and Analysis of Financial Condition and Results of Operations. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words "believes," "anticipates," "plans," "expects," "seeks," "estimates," and similar expressions are intended to identify forward-looking statements. There are a number of important factors that could cause the results of the Company to differ materially from those indicated by such forward-looking statements, including those detailed under the caption "Forward-looking Statements" in Exhibit 13 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. Overview The Company provides industrial services and manufacturing support encompassing a broad range of specializations, including infrastructure engineering, design and construction, environmental compliance, laboratory-testing, and metal-treating. Remediation and Recycling - The Company's majority-owned Thermo Remediation Inc. (Thermo Remediation) subsidiary, through its Remediation Technologies, Inc. (ReTec) subsidiary, provides integrated environmental services such as remediation of industrial sites contaminated with organic wastes and residues. ReTec's TriTechnics subsidiary, acquired in May 1997, provides comprehensive consulting and remedial services at refinery and chemical-plant sites. ReTec's RPM Systems subsidiary, acquired in September 1997, provides consulting services in the areas of environmental-management, planning, and information-technology. 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. subsidiary, Thermo Remediation also designs and operates a network of facilities for the remediation of nonhazardous soil. 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, specializes in converting "off-spec" and contaminated petroleum fluids into usable oil products. Consulting and Design - In May 1997, the Company purchased a controlling interest in The Randers Group Incorporated (Randers; Note 2), a provider of design, engineering, project management, and construction services for industrial clients in the manufacturing, pharmaceutical, and 10PAGE THERMO TERRATECH INC. Overview (continued) chemical-processing industries. In September 1997, the Company transferred to Randers, The Killam Group, Inc., its wholly owned engineering and consulting business, in exchange for newly issued shares of Randers' common stock (Note 2). The Company's Killam Associates subsidiary provides environmental consulting and engineering services and specializes in wastewater treatment and water resources management. The Company's Bettigole Andrews Clark & Killam Inc. subsidiary provides both private- and public-sector clients with a range of consulting services that address transportation planning and design. 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 Normandeau Associates Inc. subsidiary provides consulting services that address natural resource management issues. Laboratory Testing - The Company's wholly owned Thermo Analytical Inc. subsidiary operates analytical laboratories that provide environmental and pharmaceutical- and food-testing services to primarily commercial clients throughout the U.S. Metal Treating - The Company performs metallurgical processing services using thermal-treatment equipment at locations in California, Minnesota, and Wisconsin. The Company also designed, manufactured, and installed advanced custom-engineered, thermal-processing systems through its equipment division located in Michigan, until the sale of this business in October 1997 (Note 4). Results of Operations Second Quarter Fiscal 1998 Compared With Second Quarter Fiscal 1997 Total revenues in the second quarter of fiscal 1998 increased 21% to $81.2 million from $67.3 million in the second quarter of fiscal 1997. Revenues from remediation and recycling services increased to $37.0 million in fiscal 1998 from $30.8 million in fiscal 1997, due to the inclusion of $7.2 million of revenues from acquired businesses. Revenues from soil-remediation services decreased 31% primarily due to a decline in the volume of soil processed due to overcapacity in the industry. The Company expects this trend to continue for the foreseeable future. Revenues from Thermo EuroTech increased 17% to $3.4 million, primarily due to increased revenues relating to contracts to process oil-based muds and perform soil-remediation services overseas. These increases were offset in part by a decrease in revenues due to the sale of Thermo EuroTech's J. Amerika division in the fourth quarter of fiscal 1997. Revenues from consulting and design services increased to $21.4 million in fiscal 1998 from $18.7 million in fiscal 1997. The inclusion of an aggregate of $4.5 million of revenues from Carlan and Randers, acquired in November 1996 and May 1997, respectively, was offset in part by a decrease in revenues due to the completion of two major contracts in fiscal 1997. Revenues from laboratory-testing services, excluding 11PAGE THERMO TERRATECH INC. Second Quarter Fiscal 1998 Compared With Second Quarter Fiscal 1997 (continued) radiochemistry laboratory services included in remediation and recycling services, increased slightly to $9.0 million in fiscal 1998 from $8.3 million in fiscal 1997. Metal-treating revenues increased to $14.5 million in fiscal 1998 from $10.2 million in fiscal 1997, primarily due to an increase in demand for thermal-processing equipment and services at existing businesses. The Company sold its thermal-processing equipment business in October 1997 (Note 4). The gross profit margin increased slightly to 19% in the second quarter of fiscal 1998 from 18% in the second quarter of 1997. This improvement is primarily due to a lower gross profit margin for laboratory-testing services in the second quarter of fiscal 1997 as a result of costs incurred related to efforts to eliminate redundant capabilities at regional laboratories. Selling, general, and administrative expenses as a percentage of revenues decreased to 13% in the second quarter of fiscal 1998 from 15% in the second quarter of fiscal 1997, primarily due to efficiencies associated with an increase in revenues. Interest income decreased to $0.8 million in the second quarter of fiscal 1998 from $2.0 million in the second quarter of fiscal 1997, as a result of lower average investment balances following the repayment of a promissory note to Thermo Electron, the repurchase of Company and subsidiary common stock, as well as the acquisition of Randers (Note 2) and the funding of increases in accounts receivable and unbilled contract costs and fees. Interest expense decreased to $2.6 million in the second quarter of fiscal 1998 from $3.5 million in the second quarter of fiscal 1997, primarily due to the repayment of a promissory note to Thermo Electron. The effective tax rates were 47% and 12% in the second quarter of fiscal 1998 and 1997, respectively. The effective tax rate in fiscal 1998 exceeded the statutory federal income tax rate primarily due to nondeductible amortization of cost in excess of net assets of acquired companies and the impact of state income taxes. The effective tax rate in fiscal 1997 was lower than the statutory federal income tax rate primarily due to the nontaxable gain on issuance of stock by subsidiary, offset in part by nondeductible amortization of cost in excess of net assets of acquired companies and the impact of state income taxes. Minority interest expense increased slightly to $0.2 million in the second quarter of fiscal 1998 from $0.1 million in the second quarter of fiscal 1997, primarily due to the inclusion of minority interest expense associated with Randers (Note 2). First Six Months Fiscal 1998 Compared With First Six Months Fiscal 1997 Total revenues in the first six months of fiscal 1998 increased 14% to $153.7 million from $134.9 million in the first six months of fiscal 1997. Revenues from remediation and recycling services increased to $67.8 12PAGE THERMO TERRATECH INC. First Six Months Fiscal 1998 Compared With First Six Months Fiscal 1997 (continued) million in fiscal 1998 from $58.7 million in fiscal 1997, due to the inclusion of $13.8 million of revenues from acquired businesses. Revenues from soil-remediation services decreased 32% as a result of declines in the volume of soil processed due to overcapacity in the industry and competitive pricing pressures. Revenues from Thermo EuroTech decreased 18% to $5.9 million, primarily due to the sale of its J. Amerika division in the fourth quarter of fiscal 1997, offset in part by increased revenues relating to contracts to process oil-based muds and perform soil-remediation services overseas. Revenues from consulting and design services increased to $42.0 million in fiscal 1998 from $40.2 million in fiscal 1997. The inclusion of an aggregate of $7.4 million of revenues from Carlan and Randers, acquired in November 1996 and May 1997, respectively, was offset in part by a decrease in revenues due to the completion of two major contracts in fiscal 1997. Revenues from laboratory-testing services, excluding radiochemistry laboratory services included in remediation and recycling services, increased slightly to $18.4 million in fiscal 1998 from $17.6 million in fiscal 1997. Metal-treating revenues increased to $26.6 million in fiscal 1998 from $20.1 million in fiscal 1997, primarily due to an increase in demand for thermal-processing equipment and services at existing businesses. The gross profit margin increased slightly to 20% in the first six months of fiscal 1998 from 19% in the first six months of fiscal 1997, primarily due to the reason discussed in the results of operations for the second quarter. Selling, general, and administrative expenses as a percentage of revenues decreased to 13% in the first six months of fiscal 1998 from 15% in the first six months of fiscal 1997, primarily due to the reason discussed in the results of operations for the second quarter. Interest income decreased to $2.2 million in the first six months of fiscal 1998 from $3.6 million in the first six months of fiscal 1997. Interest expense decreased to $5.7 million in the first six months of fiscal 1998 from $6.6 million in the first six months of fiscal 1997. The decreases in interest income and expense are primarily due to the reasons discussed in the results of operations for the second quarter. The effective tax rates were 47% and 35% in the first six months of fiscal 1998 and 1997, respectively. The effective tax rate in fiscal 1998 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 effective tax rate in the first six months of fiscal 1997 equals the statutory federal income tax rate primarily due to the nontaxable gain on issuance of stock by subsidiary, offset by nondeductible amortization of cost in excess of net assets of acquired companies and the impact of state income taxes. Minority interest expense increased slightly to $0.4 million in the first six months of fiscal 1998 from $0.3 million in the first six months of fiscal 1997, primarily due to the inclusion of minority interest expense associated with Randers (Note 2). 13PAGE THERMO TERRATECH INC. Liquidity and Capital Resources Consolidated working capital was $77.8 million at September 27, 1997, compared with $77.3 million at March 29, 1997. Included in working capital were cash, cash equivalents, and short-term available-for-sale investments of $11.4 million at September 27, 1997, compared with $81.6 million at March 29, 1997. Of the $11.4 million balance at September 27, 1997, $5.1 million was held by Thermo Remediation, $2.5 million by Randers, and the remainder by the Company and its wholly owned subsidiaries. In addition, at September 27, 1997, the Company had $27.1 million of short-term held-to-maturity investments, compared with $26.1 million of short- and long-term held-to-maturity investments at March 29, 1997. During the first six months of fiscal 1998, $9.8 million of cash was used in operating activities. The Company funded increases of $11.4 million and $9.1 million in accounts receivable and unbilled contract costs and fees, respectively. The increase in accounts receivable and unbilled contract costs and fees was primarily due to Thermo Remediation's IEM Sealand business moving its offices, which resulted in a delay in billings and pursuit of collections on IEM Sealand's contracts and accounts receivable, respectively. The move was completed in October 1997, and the Company expects to improve its cash flow from operating activities in the third quarter of fiscal 1998. In addition, accounts receivable increased due to an increase in amounts due under a state government contract in the consulting and design group, which has subsequently been paid. The increase in unbilled contract costs and fees was also attributable to an increase in thermal-processing equipment contracts and the timing of billings of contracts within the consulting and design group. Excluding available-for-sale investments activity, the Company's investing activities in the first six months of fiscal 1998 primarily consisted of acquisitions and capital additions. In May 1997, the Company purchased a controlling interest in Randers, a provider of design, engineering, project management, and construction services for industrial clients in the manufacturing, pharmaceutical, and chemical-processing industries, for approximately $4.7 million (Note 2). In addition, Thermo Remediation made acquisitions for an aggregate purchase price of $2.8 million in cash and 374,507 shares of Thermo Remediation's common stock, valued at $2.4 million (Note 2). The Company expended $9.7 million for purchases of property, plant, and equipment in the first six months of fiscal 1998. The Company expects to expend approximately $12.0 million on purchases of property, plant, and equipment during the remainder of fiscal 1998, including $4.0 million related to a new building at the Company's Lancaster Laboratories subsidiary. In October 1997, Thermo Remediation sold its 50% limited-liability interest in RETEC/TETRA L.C. for $8.8 million in cash (Note 4) and the Company sold substantially all of the assets of its Holcroft Division, excluding certain accounts receivable, for a total purchase price of $14.3 million in cash and notes, plus the assumption of certain liabilities of the Holcroft Division by the purchaser (Note 4). In the first six months of fiscal 1998, the Company's financing activities used cash of $44.9 million, primarily resulting from the 14PAGE THERMO TERRATECH INC. Liquidity and Capital Resources (continued) repayment of a $38.0 million promissory note to Thermo Electron in the first quarter of fiscal 1998, and the repurchase of Company and subsidiary common stock. The Board of Directors of the Company authorized the repurchase, through August 23, 1997, of up to $10.0 million of its own securities. The Board of Directors of Thermo Remediation, through a series of actions commencing in September 1996, authorized the repurchase, through various dates ending in July 1998, of up to $15.0 million of its own securities. Through September 27, 1997, the Company and Thermo Remediation had expended $10.0 million and $10.8 million, respectively, under these authorizations, of which $3.3 million and $2.5 million, respectively, was expended in fiscal 1998. Any such purchases are funded from working capital. 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. Thermo Electron has expressed its willingness to lend funds to the Company for potential acquisitions and major capital expenditures that may occur in the foreseeable future. PART II - OTHER INFORMATION Item 4 - Submission of Matters to a Vote of Security Holders On September 24, 1997, at the Annual Meeting of Shareholders, the shareholders elected six incumbent directors to one-year terms expiring in 1998. The directors reelected at the meeting were: John P. Appleton, John N. Hatsopoulos, Brian D. Holt, Donald E. Noble, William A. Rainville, and Polyvios C. Vintiadis. Dr. Appleton received 16,209,584 shares voted in favor of election and 13,828 shares voted against; Mr. Hatsopoulos received 16,214,935 shares voted in favor of election and 8,477 shares voted against; Messrs. Holt, Noble, and Vintiadis each received 16,214,954 shares voted in favor of election and 8,458 shares voted against; and Mr. Rainville received 16,214,951 shares voted in favor of election and 8,461 shares voted against. No abstentions or broker nonvotes were recorded on the election of directors. The shareholders also approved a proposal to extend the term of the Company's employees' stock purchase plan to November 2, 2005, as follows: 16,206,160 shares voted in favor of the proposal, 6,888 shares voted against, and 10,364 abstained. No broker nonvotes were recorded on the proposal. 15PAGE THERMO TERRATECH INC. Item 6 - Exhibits and Reports on Form 8-K (a) Exhibits See Exhibit Index on the page immediately preceding exhibits. (b) Reports on Form 8-K On October 21, 1997, the Company filed a Current Report on Form 8-K dated October 6, 1997, pertaining to the sale by Thermo Remediation of its investment in RETEC/TETRA L.C. On October 24, 1997, the Company filed a Current Report on Form 8-K dated October 10, 1997, pertaining to the sale of its Holcroft Division. 16PAGE 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 3rd day of November 1997. THERMO TERRATECH INC. Paul F. Kelleher ------------------------ Paul F. Kelleher Chief Accounting Officer John N. Hatsopoulos ------------------------ John N. Hatsopoulos Chief Financial Officer and Vice President 17PAGE THERMO TERRATECH INC. EXHIBIT INDEX Exhibit Number Description of Exhibit ------------------------------------------------------------------------ 2.1 Purchase and Sale Agreement executed October 6, 1997, by and among Remediation Technologies, Inc., RETEC Thermal, Inc., TETRA Thermal, Inc., and TETRA Technologies, Inc. (filed on October 21, 1997, as Exhibit 2.1 to Thermo Remediation Inc.'s Current Report on Form 8-K dated October 6, 1997 [File No. 1-12636] and incorporated herein by reference.) 2.2 Assignment and Assumption Agreement executed October 6, 1997, by and among Remediation Technologies, Inc., RETEC Thermal, Inc., TETRA Thermal, Inc., and TETRA Technologies, Inc. (filed on October 21, 1997, as Exhibit 2.2 to Thermo Remediation Inc.'s Current Report on Form 8-K dated October 6, 1997 [File No. 1-12636] and incorporated herein by reference.) 2.3 Asset Purchase Agreement dated as of October 10, 1997, between the Company and Holcroft L.L.C. (filed on October 24, 1997, as Exhibit 2.1 to the Company's Current Report on Form 8-K dated October 6, 1997 [File No. 1-9549] and incorporated herein by reference.) 2.4 $2,218,000.00 Principal Promissory Note issued by Holcroft L.L.C. to the Company (filed on October 24, 1997, as Exhibit 2.2 to the Company's Current Report on Form 8-K dated October 6, 1997 [File No. 1-9549] and incorporated herein by reference.) 2.5 $663,117.82 Principal Promissory Note issued by Holcroft L.L.C. to the Company (filed on October 24, 1997, as Exhibit 2.3 to the Company's Current Report on Form 8-K dated October 6, 1997 [File No. 1-9549] and incorporated herein by reference.) 2.6 Subordination Agreement dated as of October 10, 1997, between the Company and Comerica Bank (filed on October 24, 1997, as Exhibit 2.4 to the Company's Current Report on Form 8-K dated October 6, 1997 [File No. 1-9549] and incorporated herein by reference.) 2.7 Second Amendment to Sublease dated as of October 10, 1997, between the Company and TMO, Inc. (filed on October 24, 1997, as Exhibit 2.5 to the Company's Current Report on Form 8-K dated October 6, 1997 [File No. 1-9549] and incorporated herein by reference.) 18PAGE THERMO TERRATECH INC. EXHIBIT INDEX Exhibit Number Description of Exhibit ------------------------------------------------------------------------ 2.8 Sublease dated as of October 10, 1997, between the Company and Holcroft L.L.C. (filed on October 24, 1997, as Exhibit 2.6 to the Company's Current Report on Form 8-K dated October 6, 1997 [File No. 1-9549] and incorporated herein by reference.) 11 Statement re: Computation of Earnings per Share. 27 Financial Data Schedule. 19 EX-11 2 Exhibit 11 THERMO TERRATECH INC. Computation of Earnings per Share Three Months Ended Six Months Ended ----------------------- ----------------------- Sept. 27, Sept. 28, Sept. 27, Sept. 28, 1997 1996 1997 1996 ------------------------------------------------------------------------ Computation of Primary Earnings per Share: Net Income (a) $ 1,567,000 $ 1,450,000 $ 2,899,000 $ 2,908,000 ----------- ----------- ----------- ----------- Shares: Weighted average shares outstanding 18,404,006 18,213,925 18,024,954 18,053,176 Add: Shares issuable from assumed exercise of options and warrants (as determined by the application of the treasury stock method) 584,888 633,850 - 786,250 ----------- ----------- ----------- ----------- Weighted average shares outstanding, as adjusted (b) 18,988,894 18,847,775 18,024,954 18,839,426 ----------- ----------- ----------- ----------- Primary Earnings per Share (a) / (b) $ .08 $ .08 $ .16 $ .15 =========== =========== =========== =========== EX-27 3
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO TERRATECH INC.'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 27, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS APR-04-1998 SEP-27-1997 3,271 35,228 66,424 3,674 2,899 154,621 139,512 50,682 364,283 76,827 151,842 0 0 1,958 94,544 364,283 17,330 153,680 14,735 123,627 435 223 5,699 6,249 2,911 2,899 0 0 0 2,899 .16 0
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