-----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, T5eykKWKgl5bbfn6enWhRqQ8XEqrMQksSzjiCyPyydhuxjISUoayveqC45FDjudg Gc8tZ4V32330t/So2cHwjw== 0000796038-98-000002.txt : 19980209 0000796038-98-000002.hdr.sgml : 19980209 ACCESSION NUMBER: 0000796038-98-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980103 FILED AS OF DATE: 19980206 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: 98524371 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 January 3, 1998. [ ] 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: (781) 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 30, 1998 ---------------------------- ------------------------------- Common Stock, $.10 par value 19,532,585 PAGE PART I - FINANCIAL INFORMATION Item 1 - Financial Statements THERMO TERRATECH INC. Consolidated Balance Sheet (Unaudited) Assets January 3, March 29, (In thousands) 1998 1997 ------------------------------------------------------------------------ Current Assets: Cash and cash equivalents $ 25,887 $ 63,172 Short-term available-for-sale investments, at quoted market value (amortized cost of $6,076 and $18,380) 6,065 18,391 Short-term held-to-maturity investments, at amortized cost (quoted market value of $27,623 and $13,238) 27,501 12,971 Accounts receivable, less allowances of $3,721 and $3,838 64,615 49,191 Unbilled contract costs and fees 18,766 29,053 Inventories 1,259 3,021 Prepaid and refundable income taxes 7,748 7,369 Prepaid expenses 4,804 3,870 -------- -------- 156,645 187,038 -------- -------- Property, Plant, and Equipment, at Cost 136,068 132,332 Less: Accumulated depreciation and amortization 48,142 48,766 -------- -------- 87,926 83,566 -------- -------- Long-term Held-to-maturity Investments, at Amortized Cost (quoted market value of $13,142 in fiscal 1997) - 13,086 -------- -------- Other Assets (Note 3) 19,621 17,308 -------- -------- Cost in Excess of Net Assets of Acquired Companies (Note 2) 105,183 92,786 -------- -------- $369,375 $393,784 ======== ======== 2PAGE THERMO TERRATECH INC. Consolidated Balance Sheet (continued) (Unaudited) Liabilities and Shareholders' Investment January 3, March 29, (In thousands except share amounts) 1998 1997 ---------------------------------------------------------------------- Current Liabilities: Notes payable and current maturities of long-term obligations (includes $38,000 due to parent company in fiscal 1997) $ 33,473 $ 67,495 Accounts payable 19,846 12,292 Accrued payroll and employee benefits 10,906 12,182 Billings in excess of revenues earned 1,518 4,319 Other accrued expenses 11,707 10,509 Due to parent company 1,554 2,926 -------- -------- 79,004 109,723 -------- -------- Deferred Income Taxes 5,297 5,297 -------- -------- Other Deferred Items 895 893 -------- -------- Long-term Obligations: Subordinated convertible debentures 149,800 149,800 Other 2,753 15,386 -------- -------- 152,553 165,186 -------- -------- Minority Interest 33,564 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 69,849 62,610 Retained earnings 28,601 24,046 Treasury stock at cost, 54,688 and 417,696 shares (515) (3,941) Cumulative translation adjustment (1,824) (1,026) Net unrealized gain (loss) on available-for-sale investments (7) 7 -------- -------- 98,062 83,526 -------- -------- $369,375 $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 --------------------------- January 3, December 28, (In thousands except per share amounts) 1998 1996 ---------------------------------------------------------------------- Revenues: Service revenues $73,875 $68,417 Product revenues (Note 3) - 7,281 ------- ------- 73,875 75,698 ------- ------- Costs and Operating Expenses: Cost of service revenues 59,874 55,968 Cost of product revenues - 6,217 Selling, general, and administrative expenses 10,865 9,956 Product and new business development expenses 209 239 ------- ------- 70,948 72,380 ------- ------- Operating Income 2,927 3,318 Interest Income 999 1,795 Interest Expense (includes $554 to parent company in fiscal 1997) (2,672) (3,090) Gain on Sale of Businesses, Net (Note 3) 2,975 - Equity in Earnings of Unconsolidated Subsidiary - 118 Gain on Sale of Investments, Net - 31 Other Income - 159 ------- ------- Income Before Provision for Income Taxes and Minority Interest 4,229 2,331 Provision for Income Taxes 2,004 1,321 Minority Interest Expense 569 108 ------- ------- Net Income $ 1,656 $ 902 ======= ======= Earnings per Share (Note 4): Basic $ .09 $ .05 ======= ======= Diluted $ .08 $ .05 ======= ======= Weighted Average Shares (Note 4): Basic 19,218 18,231 ======= ======= Diluted 19,268 18,716 ======= ======= The accompanying notes are an integral part of these consolidated financial statements. 4PAGE THERMO TERRATECH INC. Consolidated Statement of Income (Unaudited) Nine Months Ended ---------------------------- January 3, December 28, (In thousands except per share amounts) 1998 1996 ------------------------------------------------------------------------ Revenues: Service revenues $210,225 $191,404 Product revenues (Note 3) 17,330 19,181 -------- -------- 227,555 210,585 -------- -------- Costs and Operating Expenses: Cost of service revenues 168,766 155,440 Cost of product revenues 14,735 15,837 Selling, general, and administrative expenses 31,109 29,561 Product and new business development expenses 644 813 -------- -------- 215,254 201,651 -------- -------- Operating Income 12,301 8,934 Interest Income 3,195 5,442 Interest Expense (includes $447 and $1,936 to parent company) (8,371) (9,660) Gain on Sale of Businesses, Net (Note 3) 2,975 - Equity in Earnings of Unconsolidated Subsidiary (Note 3) 174 677 Gain on Issuance of Stock by Subsidiary - 1,475 Gain on Sale of Investments, Net - 197 Other Income 204 206 -------- -------- Income Before Provision for Income Taxes and Minority Interest 10,478 7,271 Provision for Income Taxes 4,915 3,042 Minority Interest Expense 1,008 419 -------- -------- Net Income $ 4,555 $ 3,810 ======== ======== Earnings per Share (Note 4): Basic $ .25 $ .21 ======== ======== Diluted $ .24 $ .20 ======== ======== Weighted Average Shares (Note 4): Basic 18,423 18,112 ======== ======== Diluted 18,791 18,798 ======== ======== 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 ---------------------------- January 3, December 28, (In thousands) 1998 1996 ------------------------------------------------------------------------ Operating Activities: Net income $ 4,555 $ 3,810 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 11,094 9,749 Equity in earnings of unconsolidated subsidiary (Note 3) (174) (677) Minority interest expense 1,008 419 Provision for losses on accounts receivable 381 490 Decrease in deferred income taxes - (32) Gain on issuance of stock by subsidiary - (1,475) Gain on sale of businesses, net (Note 3) (2,975) - Gain on sale of property, plant, and equipment (204) - Gain on sale of investments, net - (197) Other noncash (income) expense (38) 330 Changes in current accounts, excluding the effects of acquisitions: Accounts receivable (16,129) (8,361) Inventories and unbilled contract costs and fees (1,418) (5,475) Other current assets (852) (91) Current liabilities 4,910 4,080 -------- -------- Net cash provided by operating activities 158 2,570 -------- -------- Investing Activities: Acquisitions, net of cash acquired (Note 2) (8,419) (4,191) Purchases of available-for-sale investments - (38,799) Proceeds from sale and maturities of available-for-sale investments 12,304 24,821 Purchases of property, plant, and equipment (13,578) (12,323) Proceeds from sale of property, plant, and equipment 1,844 426 Purchase of other assets (1,136) (456) Proceeds from sale of businesses (Note 3) 19,722 - -------- -------- Net cash provided by (used in) investing activities $ 10,737 $(30,522) -------- -------- 6PAGE THERMO TERRATECH INC. Consolidated Statement of Cash Flows (continued) (Unaudited) Nine Months Ended ----------------------- January 3, December 28, (In thousands) 1998 1996 ---------------------------------------------------------------------- Financing Activities: Net proceeds from issuance of subordinated convertible debentures $ - $112,398 Repayment of notes payable to parent company (38,000) (50,000) Proceeds from issuance of Company and subsidiary common stock 1,140 5,095 Repurchase of Company and subsidiaries' common stock (7,197) (6,606) Repurchase of subordinated convertible debentures (150) (2,878) Advances to subcontractor (2,600) - Issuance of long-term notes receivable (453) - Issuance of short-term obligations - 803 Repayment of debt (546) (909) Dividends paid by subsidiary to minority shareholders (354) (450) Other - (266) -------- -------- Net cash provided by (used in) financing activities (48,160) 57,187 -------- -------- Exchange Rate Effect on Cash (20) (67) -------- -------- Increase (Decrease) in Cash and Cash Equivalents (37,285) 29,168 Cash and Cash Equivalents at Beginning of Period 63,172 31,182 -------- -------- Cash and Cash Equivalents at End of Period $ 25,887 $ 60,350 ======== ======== 7PAGE THERMO TERRATECH INC. Consolidated Statement of Cash Flows (continued) (Unaudited) Nine Months Ended ----------------------- January 3, December 28, (In thousands) 1998 1996 ---------------------------------------------------------------------- Noncash Activities: Fair value of assets of acquired companies $ 21,412 $ 13,000 Cash paid for acquired companies (10,365) (4,500) Issuance of subsidiary common stock for acquired companies (2,850) (2,006) Issuance of short- and long-term obligations for acquired company - (2,265) -------- -------- Liabilities assumed of acquired companies $ 8,197 $ 4,229 ======== ======== Conversions of subordinated convertible debentures $ 13,894 $ 4,812 ======== ======== Sale of real estate in exchange for note receivable $ 1,894 $ - ======== ======== The accompanying notes are an integral part of these consolidated financial statements. 8PAGE 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 January 3, 1998, and the results of operations for the three- and nine-month periods ended January 3, 1998, and December 28, 1996, and the cash flows for the nine-month periods ended January 3, 1998, and December 28, 1996. The Company's results of operations for the three-month periods ended January 3, 1998, and December 28, 1996, include 14 weeks and 13 weeks, respectively, and its results of operations for the nine-month periods ended January 3, 1998, and December 28, 1996, include 40 weeks and 39 weeks, respectively. 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 $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. In addition, in September 1997, the Company entered into a definitive agreement to transfer The Killam Group, Inc. (The Killam Group), its wholly owned engineering and consulting businesses, to Randers in exchange for newly issued shares of Randers' common stock. The exact price for these businesses will be equal to the net 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 9PAGE THERMO TERRATECH INC. 2. Acquisitions (continued) 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. 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 nine months of fiscal 1998, the Company's Thermo Remediation Inc. (Thermo Remediation) subsidiary made acquisitions for an aggregate purchase price of $5,665,000 in cash and 459,613 shares of Thermo Remediation's common stock, valued at $2,850,000. These acquisitions have been accounted for using the purchase method of accounting and their results 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 $11,245,000, 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. The Company has gathered no information that indicates that the final allocation of the purchase price will differ materially from the preliminary estimate. Pro forma data is not presented since these acquisitions were not material to the Company's results of operations. 3. Sale of Businesses 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 pre-tax gain of $3,012,000 on the sale. On October 10, 1997, the Company sold substantially all of the assets of its Holcroft Division, its thermal-processing equipment business, excluding certain accounts receivable, to Holcroft L.L.C., an affiliate of Madison Capital Partners. The sale price for the transferred assets consisted of $10,897,000 in cash, two promissory notes for principal amounts aggregating $2,881,000, and the assumption by Holcroft L.L.C. of certain liabilities of the Holcroft Division. After recording a post-closing purchase price adjustment, the Company incurred a nominal loss on the sale. 10PAGE THERMO TERRATECH INC. 4. Earnings per Share During the quarter ended January 3, 1998, the Company adopted Statement of Financial Accounting Standard No. 128, "Earnings per Share." As a result, all previously reported earnings per share have been restated and the Company is required to report diluted earnings per share. Basic earnings per share have been computed by dividing net income by the weighted average number of shares outstanding during the periods. Diluted earnings per share have been computed assuming the conversion of convertible obligations and the elimination of the related interest expense, and the exercise of stock options, as well as their related income tax effects. Basic and diluted earnings per share were calculated as follows: Three Months Ended Nine Months Ended -------------------- ------------------- (In thousands except Jan. 3, Dec. 28, Jan. 3, Dec. 28, per share amounts) 1998 1996 1998 1996 ------------------------------------------------------------------------- Basic Net income $ 1,656 $ 902 $ 4,555 $ 3,810 -------- -------- -------- -------- Weighted average shares 19,218 18,231 18,423 18,112 -------- -------- -------- -------- Basic earnings per share $ .09 $ .05 $ .25 $ .21 ======== ======== ======== ======== Diluted Net income $ 1,656 $ 902 $ 4,555 $ 3,810 Effect of majority-owned subsidiaries' dilutive securities (23) (9) (22) (46) -------- -------- -------- -------- Income available to common shareholders, as adjusted $ 1,633 $ 893 $ 4,533 $ 3,764 -------- -------- -------- -------- Weighted average shares 19,218 18,231 18,423 18,112 Effect of stock options 50 485 368 686 -------- -------- -------- -------- Weighted average shares, as adjusted 19,268 18,716 18,791 18,798 -------- -------- -------- -------- Diluted earnings per share $ .08 $ .05 $ .24 $ .20 ======== ======== ======== ======== The computation of diluted earnings per share excludes the effect of assuming the exercise of certain of the Company's outstanding stock options and warrants because the effect would be antidilutive. As of January 3, 1998, there were 1,533,700 of such options and warrants outstanding, with exercise prices ranging from $9.03 to $14.58 per share. 11PAGE THERMO TERRATECH INC. 4. Earnings per Share (continued) In addition, the computation of diluted earnings per share excludes the effect of assuming the conversion of certain of the Company's convertible obligations, because the effect would be antidilutive. As of January 3, 1998, the Company had outstanding $111,850,000 principal amount of 4 5/8% convertible debentures, convertible at $15.90 per share, that were excluded from the calculation of diluted earnings per share. 5. Presentation Certain amounts in fiscal 1997 have been reclassified to conform to the presentation in the fiscal 1998 financial statements. 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 heading "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 12PAGE THERMO TERRATECH INC. Overview (continued) contaminants from sand, gravel, and soil, as well as health physics, radiochemistry laboratory, and radiation dosimetry services. Thermo NuTech's Benchmark Environmental Corporation subsidiary, acquired in November 1997, is a provider of nuclear-remediation and waste-management services to government agencies and private industry. 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 fluids. 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 chemical-processing industries. In September 1997, the Company transferred The Killam Group, Inc., its wholly owned engineering and consulting businesses, to Randers, 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-, pharmaceutical-, and food-testing services, primarily to 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 3). Results of Operations Third Quarter Fiscal 1998 Compared With Third Quarter Fiscal 1997 Total revenues in the third quarter of fiscal 1998 were $73.9 million, compared with $75.7 million in the third quarter of fiscal 1997. 13PAGE THERMO TERRATECH INC. Third Quarter Fiscal 1998 Compared With Third Quarter Fiscal 1997 (continued) Revenues from remediation and recycling services increased to $38.3 million in fiscal 1998 from $37.7 million in fiscal 1997, primarily due to increased revenues from construction and consulting engineering services at ReTec and the inclusion of $2.6 million of revenues from acquired businesses. These increases were offset by a decrease in revenues at IEM Sealand resulting from a decline in the number of contracts in process during the third quarter of fiscal 1998. Revenues from Thermo EuroTech increased to $3.7 million in fiscal 1998 from $3.4 million in fiscal 1997, primarily due to increased revenues relating to contracts to process oil-based muds and perform soil-remediation services overseas, 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 $21.3 million in fiscal 1998 from $18.1 million in fiscal 1997. The inclusion of an aggregate of $3.8 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 a major contract in fiscal 1997. Revenues from laboratory-testing services, excluding radiochemistry laboratory services included in remediation and recycling services, increased to $10.1 million in fiscal 1998 from $9.4 million in fiscal 1997. Metal-treating revenues decreased to $4.9 million in fiscal 1998 from $11.6 million in fiscal 1997, due to the sale of the Company's thermal-processing equipment business in October 1997 (Note 3). The gross profit margin increased slightly to 19% in the third quarter of fiscal 1998 from 18% in the third quarter of fiscal 1997. This improvement was primarily due to a greater percentage of soil-remediation revenues earned at certain of Thermo Remediation's higher-margin soil-remediation facilities and, to a lesser extent, improved gross profit margins at Thermo EuroTech due to a shift to higher-margin contracts in fiscal 1998. These increases were offset in part by lower margins from losses on certain contracts at IEM Sealand and increased lower-margin revenues at ReTec. Selling, general, and administrative expenses as a percentage of revenues increased to 15% in the third quarter of fiscal 1998 from 13% in the third quarter of fiscal 1997, primarily due to higher expenses as a percentage of revenues at Randers, acquired in May 1997. Interest income decreased to $1.0 million in the third quarter of fiscal 1998 from $1.8 million in the third quarter of fiscal 1997, as a result of lower average investment balances following the repayment of a promissory note to Thermo Electron Corporation (Thermo Electron), the repurchase of Company and subsidiary common stock, as well as the acquisition of Randers (Note 2). These decreases were offset in part by cash received from the sale of the Company's Holcroft Division and Thermo Remediation's interest in a joint venture (Note 3). Interest expense decreased to $2.7 million in the third quarter of fiscal 1998 from $3.1 million in the third quarter of fiscal 1997, primarily due to the repayment of a promissory note to Thermo Electron and the conversion of the Company's 6 1/2% subordinated convertible debentures during fiscal 1998. 14PAGE THERMO TERRATECH INC. Third Quarter Fiscal 1998 Compared With Third Quarter Fiscal 1997 (continued) Equity in earnings of unconsolidated subsidiary represents Thermo Remediation's proportionate share of income from a joint venture. Gain on sale of businesses primarily results from Thermo Remediation's sale of its interest in this joint venture (Note 3). The effective tax rates were 47% and 57% in the third quarter of fiscal 1998 and 1997, respectively. The effective tax rates 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 higher effective tax rate in fiscal 1997 was due to the larger relative effect of nondeductible amortization of cost in excess of net assets of acquired companies. Minority interest expense increased to $0.6 million in the third quarter of fiscal 1998 from $0.1 million in the third quarter of fiscal 1997, primarily due to higher earnings from the Company's majority-owned subsidiaries and the inclusion of minority interest expense associated with Randers (Note 2). First Nine Months Fiscal 1998 Compared With First Nine Months Fiscal 1997 Total revenues in the first nine months of fiscal 1998 increased 8% to $227.6 million from $210.6 million in the first nine months of fiscal 1997. Revenues from remediation and recycling services increased to $106.1 million in fiscal 1998 from $96.4 million in fiscal 1997, primarily due to the inclusion of $15.7 million of revenues from acquired businesses and, to a lesser extent, due to increased revenues from construction and consulting engineering services at ReTec. These increases were offset in part by a decrease in revenues at IEM Sealand resulting from a decline in the number of contracts processed during the third quarter of fiscal 1998. Revenues from soil-remediation services decreased 17% as a result of a decline in the volume of soil processed due to overcapacity in the industry and, to a lesser extent, competitive pricing pressures early in the period. Revenues from Thermo EuroTech decreased 10% to $9.6 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 $63.3 million in fiscal 1998 from $58.3 million in fiscal 1997. The inclusion of an aggregate of $11.1 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 to $28.4 million in fiscal 1998 from $26.9 million in fiscal 1997. Metal-treating revenues remained relatively constant at $31.4 million in fiscal 1998, compared with $31.7 million in fiscal 1997, primarily due to an increase in demand for thermal-processing equipment and services at existing businesses in the first six months of fiscal 1998, offset by the sale of the Company's thermal-processing equipment business in October 1997 (Note 3). 15PAGE THERMO TERRATECH INC. First Nine Months Fiscal 1998 Compared With First Nine Months Fiscal 1997 (continued) The gross profit margin remained constant at 19% in the first nine months of fiscal 1998 and 1997. The gross profit margin for laboratory- testing services improved in fiscal 1998 due to lower margins in the second quarter of fiscal 1997 as a result of costs incurred related to efforts to eliminate redundant capabilities at regional laboratories. This improvement was offset by lower margins from losses on certain contracts at IEM Sealand and increased lower-margin revenues at Retec. Selling, general, and administrative expenses as a percentage of revenues remained constant at 14% in the first nine months of fiscal 1998 and 1997. Equity in earnings of unconsolidated subsidiary represents Thermo Remediation's proportionate share of income from a joint venture. Gain on sale of businesses primarily results from Thermo Remediation's sale of its interest in this joint venture (Note 3). Interest income decreased to $3.2 million in the first nine months of fiscal 1998 from $5.4 million in the first nine months of fiscal 1997. Interest expense decreased to $8.4 million in the first nine months of fiscal 1998 from $9.7 million in the first nine 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 third quarter. The effective tax rates were 47% and 42% in the first nine months of fiscal 1998 and 1997, respectively. The effective tax rates 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 lower effective tax rate in the first nine months of fiscal 1997 was due to the nontaxable gain on issuance of stock by subsidiary. Minority interest expense increased to $1.0 million in the first nine months of fiscal 1998 from $0.4 million in the first nine months of fiscal 1997, primarily due to higher earnings from the Company's majority-owned subsidiaries and the inclusion of minority interest expense associated with Randers (Note 2). Liquidity and Capital Resources Consolidated working capital was $77.6 million at January 3, 1998, 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 $32.0 million at January 3, 1998, compared with $81.6 million at March 29, 1997. Of the $32.0 million balance at January 3, 1998, $12.4 million was held by Thermo Remediation, $4.7 million by Randers, and the remainder by the Company and its wholly owned subsidiaries. In addition, at January 3, 1998, the Company had $27.5 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 nine months of fiscal 1998, $0.2 million 16PAGE THERMO TERRATECH INC. Liquidity and Capital Resources (continued) of cash was provided by operating activities. The Company funded an increase of $16.1 million in accounts receivable. The increase in accounts receivable primarily related to increased revenues at ReTec and delays in pursuit of collections on IEM Sealand's accounts receivable. Thermo Remediation expects to address this matter by increasing collection efforts over the next several quarters. In addition, accounts receivable increased in the consulting and design group primarily as a result of the timing of cash collections at Killam Associates and an increase in accounts receivable at BACKillam, which have subsequently been collected. Excluding available-for-sale investments activity, the Company's investing activities in the first nine months of fiscal 1998 primarily consisted of acquisitions and capital additions, as well as the sale of two businesses. In May 1997, the Company purchased a controlling interest in Randers for approximately $4.7 million (Note 2). In addition, Thermo Remediation made acquisitions for an aggregate purchase price of $5.7 million in cash and 459,613 shares of Thermo Remediation's common stock, valued at $2.9 million (Note 2). The Company expended $13.6 million for purchases of property, plant, and equipment in the first nine months of fiscal 1998. The Company expects to expend approximately $8.1 million on purchases of property, plant, and equipment during the remainder of fiscal 1998, including $3.0 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, subject to post-closing adjustments (Note 3), and the Company sold substantially all of the assets of its Holcroft Division, excluding certain accounts receivable, for a total purchase price of $10.9 million in cash and $2.9 million of notes, plus the assumption by the purchaser of certain liabilities of the Holcroft Division (Note 3). In the first nine months of fiscal 1998, the Company's financing activities used cash of $48.2 million. This use of cash primarily resulted from the repayment of a $38.0 million promissory note to Thermo Electron in the first quarter of fiscal 1998, the advance of $2.6 million by Thermo Remediation to a subcontractor associated with several of its projects, 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 January 3, 1998, the Company and Thermo Remediation had expended $10.0 million and $11.4 million, respectively, under these authorizations, of which $3.3 million and $3.1 million, respectively, was expended in fiscal 1998. Any such purchases are funded from working capital. 17PAGE THERMO TERRATECH INC. Liquidity and Capital Resources (continued) In December 1997, the Company signed a letter of intent to acquire Green Sunrise Holdings LTD., an environmental services and industrial outsourcing firm, for approximately $4.5 million. The completion of this transaction is subject to several conditions, including completion of the Company's due diligence investigation, negotiation of a definitive agreement, and approval by both companies' boards of directors. The Company has no other 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 6 - Exhibits See Exhibit Index on the page immediately preceding exhibits. 18PAGE 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 1998. THERMO TERRATECH INC. Paul F. Kelleher ------------------------ Paul F. Kelleher Chief Accounting Officer John N. Hatsopoulos ------------------------ John N. Hatsopoulos Chief Financial Officer and Vice President 19PAGE THERMO TERRATECH INC. EXHIBIT INDEX Exhibit Number Description of Exhibit ------------------------------------------------------------------------ 10.1 Thermo TerraTech Inc. - The Randers Group Incorporated Nonqualified Stock Option Plan. 27 Financial Data Schedule. EX-10.1 2 EXHIBIT 10.1 THERMO TERRATECH INC. THE RANDERS GROUP INCORPORATED NONQUALIFIED STOCK OPTION PLAN 1. Purpose This Nonqualified Stock Option Plan (the "Plan") is intended to encourage ownership of Common Stock, $0.01 par value (the "Common Stock"), of The Randers Group Incorporated ("Subsidiary"), a subsidiary of Thermo TerraT ech Inc. (the "Company"), by persons selected by the Board of Directors (or a committee thereof) in its sole discretion, including directors, executive officers, key employees and consultants of the Company and its subsidiaries, and to provide additional incentive for them to promote the success of the business of the Company and Subsidiary. The Plan is intended to be a nonstatutory stock option plan. 2. Effective Date of the Plan The Plan shall become effective when adopted by the Board of Directors of the Company. 3. Stock Subject to Plan At no time shall the number of shares of the Common Stock then outstanding which are attributable to the exercise of options granted under the Plan plus the number of shares then issuable upon the exercise of outstanding options granted under the Plan exceed 1,600,000 shares, subject however, to the provisions of paragraph 11 of the Plan. Shares to be issued upon the exercise of options granted under the Plan shall be shares of Subsidiary beneficially owned by the Company. If any option expires or terminates for any reason without having been exercised in full, the unpurchased shares subject thereto shall again be available for options thereafter to be granted. 4. Administration The Plan shall be administered by a committee (the "Committee") composed of the members of the Board of Directors of the Company, no member of which shall act upon any matter exclusively affecting any option granted or to be granted to himself or herself under the Plan. Subject to the provisions of the Plan, the Committee shall have complete authority, in its discretion, to make the following determinations with respect to each option to be granted by the Company: (a) the person to receive the option (the "Optionee"); (b) the time of granting the option; (c) the number of shares subject thereto; (d) the option price; (e) the option period; and (f) the terms of the option and form of option agreement (which need not be identical, but which shall conform to the applicable terms and conditions of the Plan and contain such other provisions as the Board of Directors deems PAGE advisable and not inconsistent with the Plan). In making such determinations, the Committee may take into account the nature of the services rendered by the Optionees, their present and potential contributions to the success of the Company and/or one or more of its subsidiaries, and such other factors as the Committee in its discretion shall deem relevant. Subject to the provisions of the Plan, the Committee shall also have complete authority to interpret the Plan, to prescribe, amend, and rescind rules and regulations relating to it, to determine the terms and provisions of the respective option agreements (which need not be identical), and to make all other determinations necessary or advisable for the administration of the Plan. The Committee's determinations on the matters referred to in this paragraph 4 shall be conclusive. 5. Eligibility An option may be granted to any person selected by the Committee in its sole discretion. 6. Time of Granting Options The granting of an option shall take place at the time specified by the Committee. Only if expressly so provided by the Committee shall the granting of an option be regarded as taking place at the time when a written option agreement shall have been duly executed and delivered by or on behalf of the Company and the Optionee to whom such option shall be granted. The agreement shall provide, among other things, that it does not confer upon an Optionee any right to continue in the employ of the Company and/or one or more of its subsidiaries or to continue as a director or consultant of the Company, and that it does not interfere in any way with the right of the Company or any such subsidiary to terminate the employment of the Optionee at any time if the Optionee is an employee, to remove the Optionee as a director of the Company if the Optionee is a director, or to terminate the services of the Optionee if the Optionee is a consultant. 7. Option Period An option may become exercisable immediately or in such installments, cumulative or noncumulative, as the Committee may determine. 8. Exercise of Option An option may be exercised in accordance with its terms by written notice of intent to exercise the option, specifying the number of shares of stock with respect to which the option is then being exercised. The notice shall be accompanied by payment in the form of cash or shares of Subsidiary Common Stock (the "Tendered Shares") with a then current market value equal to the option price of the shares to be purchased; provided, however, PAGE that such Tendered Shares shall have been acquired by the Optionee more than six months prior to the date of exercise, unless such requirement is waived in writing by the Company. Against such payment the Company shall deliver or cause to be delivered to the Optionee a certificate for the number of shares then being purchased, registered in the name of the Optionee or other person exercising the option. If any law or applicable regulation of the Securities and Exchange Commission or other body having jurisdiction in the premises shall require the Company, Subsidiary or the Optionee to take any action in connection with shares being purchased upon exercise of the option, exercise of the option and delivery of the certificate or certificates for such shares shall be postponed until completion of the necessary action, which shall be taken at the Company's expense. 9. Transferability Except as may be authorized by the Committee , in its sole discretion, no Option may be transferred other than by will or the laws of descent and distribution, and during a Optionee's lifetime an option requiring exercise may be exercised only by him or her (or in the event of incapacity, the person or persons properly appointed to act on his or her behalf). The Committee may, in its discretion, determine the extent to which options granted to an Optionee shall be transferable, and such provisions permitting or acknowledging transfer shall be set forth in the written agreement evidencing the option executed and delivered by or on behalf of the Company and the Optionee. 10. Vesting, Restrictions and Termination of Options The Committee, in its sole discretion, may determine the manner in which options shall vest, the rights of the Company to repurchase the shares issued upon the exercise of any option and the manner in which such rights shall lapse, and the terms upon which any option granted shall terminate. The Board of Directors shall have the right to accelerate the date of exercise of any installment or to accelerate the lapse of the Company's repurchase rights. All of such terms shall be specified in a written option agreement executed and delivered by or on behalf of the Company and the Optionee to whom such option shall be granted. 11. Adjustment of Number of Shares Each stock option agreement shall provide that in the event of any stock dividend payable in the Common Stock or any split-up or contraction in the number of shares of the Common Stock occurring after the date of the agreement and prior to the exercise in full of the option, the number of shares for which the option may thereafter be exercised shall be proportionately adjusted and the price to be paid for each share subject to the option shall be proportionately adjusted. Each such agreement PAGE shall also provide that in case of any reclassification or change of outstanding shares of the Common Stock or in case of any consolidation or merger of Subsidiary with or into another company or in case of any sale or conveyance to another company or entity of the property of Subsidiary as a whole or substantially as a whole, the Optionee shall, upon exercise of the option, be entitled to receive shares of stock or other securities in its place equivalent in kind and value to those shares which he would have received if he had exercised the option in full immediately prior to such reclassification, change, consolidation, merger, sale or conveyance and had continued to hold the shares subject to the option (together with all other shares, stock and securities thereafter issued in respect thereof) to the time of the exercise of the option; provided , that if any recapitalization is to be effected through an increase in the par value of the Common Stock without an increase in the number of authorized shares and such new par value will exceed the option price under such agreement, the Company shall notify the Optionee of such proposed recapitalization, and the Optionee shall then have the right, exercisable at any time prior to such recapitalization becoming effective, to purchase all of the shares subject to the option which he has not theretofore purchased (anything in such agreement to the contrary notwithstanding), but if the Optionee fails to exercise such right before such recapitalization becomes effective, the option price under such agreement shall be appropriately adjusted. Each such agreement shall further provide that upon dissolution or liquidation of Subsidiary, the option shall terminate, but the Optionee (if at the time an employee or director of the Company and/or any one or more of its subsidiaries) shall have the right, immediately prior to such dissolution or liquidation, to exercise the option to the full extent not theretofore exercised; that no adjustment provided for above shall apply to any share with respect to which the option has been exercised prior to the effective date of such adjustment; and that no fraction of a share or fractional shares shall be purchasable or deliverable under such agreement, but in the event any adjustment thereunder of the number of shares covered by the option shall cause such number to include a fraction of a share, such fraction shall be adjusted to the nearest smaller whole number of shares. In the event of changes in the outstanding Common Stock by reason of any stock dividend, split-up, contraction, reclassification, or change of outstanding shares of the Common Stock of the nature contemplated by this paragraph 11, the number of shares of Common Stock available for the purpose of the Plan as stated in paragraph 3 hereof shall be correspondingly adjusted by the Committee. 12. Limitation of Rights in Option Stock The Optionees shall have no rights as stockholders in respect of shares as to which their options shall not have been exercised, certificates issued and delivered and payment as PAGE herein provided made in full, and shall have no rights with respect to such shares not expressly conferred by this Plan. 13. Stock Reserved The Company shall at all times during the term of the options reserve and keep available such number of shares of the Common Stock as will be sufficient to satisfy the requirements of this Plan and shall pay all other fees and expenses necessarily incurred by the Company in connection therewith. 14. Securities Laws Restrictions Each Optionee exercising an option, at the request of the Company, will be required to give a representation in form satisfactory to counsel for the Company that he will not transfer, sell or otherwise dispose of the shares received upon exercise of the option at any time purchased by him, upon exercise of any portion of the option, in a manner which would violate the Securities Act of 1933, as amended, and the regulations of the Securities and Exchange Commission thereunder and the Company may, if required or at its discretion, make a notation on any certificates issued upon exercise of options to the effect that such certificate may not be transferred except after receipt by the Company of an opinion of counsel satisfactory to it to the effect that such transfer will not violate such Act and such regulations. 15. Tax Withholding The Company shall have the right to deduct from payments of any kind otherwise due to an Optionee any federal, state or local taxes of any kind required by law to be withheld with respect to any shares issued upon exercise of options under the Plan (the "withholding requirements"). The Committee will have the right to require that the Optionee or other appropriate person remit to the Company an amount sufficient to satisfy the withholding requirements, or make other arrangements satisfactory to the Committee with regard to such requirements, prior to the delivery of any Common Stock pursuant to exercise of an option. If and to the extent that such withholding is required, the Committee may permit the Optionee or such other person to elect at such time and in such manner as the Committee provides to have the Company hold back from the shares to be delivered, or to deliver to the Company, Common Stock having a value calculated to satisfy the withholding requirements. 16. Termination and Amendment of Plan The Board of Directors may at any time, and from time to time, modify or amend the Plan in any respect, except that if at any time the approval of the Stockholders of the Company is required as to such modification or amendment under Rule 16b-3, PAGE the Board of Directors may not effect such modification or amendment without such approval. The termination or any modification or amendment of the Plan shall not, without the consent of an Optionee, affect his or her rights under an option previously granted to him or her. With the consent of the Optionees affected, the Board of Directors may amend outstanding option agreements in a manner not inconsistent with the Plan. The Board of Directors shall have the right to amend or modify the terms and provisions of the Plan and of any outstanding option to the extent necessary to ensure the qualification of the Plan under Rule 16b-3. Notwithstanding any other provisions hereof, the Plan shall terminate on December 31, 2008 and no options shall be granted hereunder thereafter. 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 JANUARY 3, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS APR-04-1998 JAN-03-1998 25,887 33,566 68,336 3,721 1,259 156,645 136,068 48,142 369,375 79,004 152,553 0 0 1,958 96,104 369,375 17,330 227,555 14,735 183,501 644 381 8,371 10,478 4,915 4,555 0 0 0 4,555 .25 .24
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