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 1-10573
THERMO POWER CORPORATION
(Exact name of Registrant as specified in its charter)
Massachusetts 04-2891371
(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 11,819,973
PAGE
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
THERMO POWER CORPORATION
Consolidated Balance Sheet
(Unaudited)
Assets
January 3, September 27,
(In thousands) 1998 1997
------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $ 39,667 $ 19,347
Available-for-sale investments, at quoted
market value (amortized cost of $9,132
and $9,129) 9,169 9,171
Accounts receivable, less allowances of
$13,699 and $757 57,975 21,012
Unbilled contract costs and fees 9,743 4,856
Inventories:
Raw materials 31,346 17,570
Work in process 4,893 1,077
Finished goods 6,407 1,237
Prepaid income taxes 4,376 3,118
Other current assets 2,112 219
Due from parent company and affiliated
companies, net (Note 3) 18,794 -
-------- --------
184,482 77,607
-------- --------
Rental Assets, at Cost 13,620 13,645
Less: Accumulated depreciation and
amortization 3,459 3,369
-------- --------
10,161 10,276
-------- --------
Property, Plant, and Equipment, at Cost 33,935 19,637
Less: Accumulated depreciation and
amortization 9,313 9,046
-------- --------
24,622 10,591
-------- --------
Long-term Available-for-sale Investments, at
Quoted Market Value (amortized cost of
$2,301 in fiscal 1997; Note 3) - 2,200
-------- --------
Other Assets 261 236
-------- --------
Cost in Excess of Net Assets of Acquired
Companies (Note 3) 156,932 7,082
-------- --------
$376,458 $107,992
======== ========
2PAGE
THERMO POWER CORPORATION
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
January 3, September 27,
(In thousands except share amounts) 1998 1997
------------------------------------------------------------------------
Current Liabilities:
Notes payable (Note 3) $ 25,692 $ -
Accounts payable 36,697 9,622
Accrued payroll and employee benefits 9,721 3,133
Billings in excess of contract costs and fees 6,000 1,353
Accrued income taxes (Note 3) 3,568 1,620
Accrued warranty costs 5,343 3,435
Common stock of subsidiary subject to
redemption ($18,450 redemption value) 18,138 -
Accrued acquisition expenses (Note 3) 14,892 -
Other accrued expenses (Note 3) 28,131 3,240
Due to parent company and affiliated
companies - 496
-------- --------
148,182 22,899
-------- --------
Deferred Income Taxes 993 114
-------- --------
Long-term Obligations (in fiscal 1998 includes
$160,000 due to parent company; Note 3) 160,392 252
-------- --------
Common Stock of Subsidiary Subject to
Redemption ($18,450 redemption value) - 18,059
-------- --------
Shareholders' Investment:
Common stock, $.10 par value, 30,000,000
shares authorized; 12,493,371 shares issued 1,249 1,249
Capital in excess of par value 55,332 55,283
Retained earnings 14,866 13,811
Treasury stock at cost, 680,148 and
578,124 shares (4,631) (3,636)
Cumulative translation adjustment 51 -
Net unrealized gain (loss) on available-
for-sale investments 24 (39)
-------- --------
66,891 66,668
-------- --------
$376,458 $107,992
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
3PAGE
THERMO POWER CORPORATION
Consolidated Statement of Income
(Unaudited)
Three Months Ended
-------------------------
January 3, December 28,
(In thousands except per share amounts) 1998 1996
-----------------------------------------------------------------------
Revenues $63,562 $28,786
------- -------
Costs and Operating Expenses:
Cost of revenues 45,249 24,533
Selling, general, and administrative expenses 13,435 3,780
Research and development expenses 1,729 644
------- -------
60,413 28,957
------- -------
Operating Income (Loss) 3,149 (171)
Interest Income (includes $180 from related
party in fiscal 1998; Note 3) 589 451
Interest Expense (includes $1,175 to related
party in fiscal 1998; Note 3) (1,425) (5)
------- -------
Income Before Provision for Income Taxes and
Minority Interest 2,313 275
Provision for Income Taxes 1,069 193
Minority Interest Expense 189 78
------- -------
Net Income $ 1,055 $ 4
======= =======
Basic and Diluted Earnings per Share (Note 2) $ .09 $ -
======= =======
Weighted Average Shares (Note 2):
Basic 11,898 12,489
======= =======
Diluted 11,912 12,504
======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
4PAGE
THERMO POWER CORPORATION
Consolidated Statement of Cash Flows
(Unaudited)
Three Months Ended
-------------------------
January 3, December 28,
(In thousands) 1998 1996
-----------------------------------------------------------------------
Operating Activities:
Net income $ 1,055 $ 4
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization 2,534 523
Minority interest expense 189 78
Increase in deferred income taxes (671) -
Other noncash items (17) (68)
Changes in current accounts, excluding
the effects of acquisition:
Accounts receivable (3,354) (386)
Inventories 7,333 2,009
Unbilled contract costs and fees (1,587) (1,154)
Other current assets (38) (351)
Accounts payable 1,457 (2,438)
Other current liabilities 1,177 975
--------- ---------
Net cash provided by (used in) operating
activities 8,078 (808)
--------- ---------
Investing Activities:
Acquisition, net of cash acquired (Note 3) (143,743) -
Proceeds from sale and maturities of
available-for-sale investments - 1,000
Increase in rental assets (389) (529)
Proceeds from sale of rental assets 314 878
Purchases of property, plant, and equipment (1,497) (786)
Proceeds from sale of property, plant,
and equipment 1,210 -
Other (9) -
--------- ---------
Net cash provided by (used in) investing
activities (144,114) 563
--------- ---------
Financing Activities:
Issuance of long-term obligation to parent
company (Note 3) 160,000 -
Decrease in short-term notes payable (2,924) -
Purchases of Company common stock (1,129) -
Net proceeds from issuance of Company
common stock 183 71
Repayment of long-term obligations (44) (14)
--------- ---------
Net cash provided by financing activities $ 156,086 $ 57
--------- ---------
5PAGE
THERMO POWER CORPORATION
Consolidated Statement of Cash Flows (continued)
(Unaudited)
Three Months Ended
-------------------------
January 3, December 28,
(In thousands) 1998 1996
-----------------------------------------------------------------------
Exchange Rate Effect on Cash $ 270 $ -
--------- ---------
Increase (Decrease) in Cash and Cash
Equivalents 20,320 (188)
Cash and Cash Equivalents at Beginning of
Period 19,347 29,852
--------- ---------
Cash and Cash Equivalents at End of Period $ 39,667 $ 29,664
========= =========
Noncash Activities (Note 3):
Fair value of assets of acquired company $ 271,109 $ -
Cash paid for acquired company (159,324) -
Cash paid in prior year for acquired company (2,301) -
Cash to be paid for remaining outstanding
shares of tender offer (5,111) -
--------- ---------
Liabilities assumed of acquired company $ 104,373 $ -
========= =========
Sale of acquired business to related party $ 19,117 $ -
========= =========
The accompanying notes are an integral part of these consolidated
financial statements.
6PAGE
THERMO POWER CORPORATION
Notes to Consolidated Financial Statements
1. General
The interim consolidated financial statements have been prepared by
Thermo Power Corporation (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 and cash flows for the three-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.
Interim results are not necessarily indicative of results for a full
year.
The consolidated balance sheet presented as of September 27, 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 September 27, 1997, filed
with the Securities and Exchange Commission.
2. Earnings per Share
During the first quarter of fiscal 1998, the Company adopted
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per
Share." As a result, all previously reported earnings per share have been
restated; however, basic and diluted earnings per share equals the
Company's previously reported earnings per share for the fiscal 1997
period. Basic earnings per share have been computed by dividing net
income by the weighted average number of shares outstanding during the
period. Diluted earnings per share have been computed assuming the
exercise of stock options and their related income tax effect.
7PAGE
THERMO POWER CORPORATION
2. Earnings per Share (continued)
Basic and diluted earnings per share were calculated as follows:
Three Months Ended
------------------------
January 3, December 28,
(In thousands except per share amounts) 1998 1996
-----------------------------------------------------------------------
Basic
Net income $ 1,055 $ 4
------- -------
Weighted average shares 11,898 12,489
------- -------
Basic earnings per share $ .09 $ -
======= =======
Diluted
Net income $ 1,055 $ 4
------- -------
Weighted average shares 11,898 12,489
Effect of stock options 14 15
------- -------
Weighted average shares, as adjusted 11,912 12,504
------- -------
Diluted earnings per share $ .09 $ -
======= =======
The computation of diluted earnings per share excludes the effect of
assuming the exercise of certain outstanding stock options because the
effect would be antidilutive. As of January 3, 1998, there were 874,999
of such options outstanding, with exercise prices ranging from $9.05 to
$17.53 per share.
3. Acquisition
On November 6, 1997, the Company declared unconditional in all
respects its cash tender offer for the outstanding ordinary shares of
Peek plc (Peek). The aggregate cost to acquire all outstanding Peek
ordinary shares, including related expenses, is estimated at
approximately $166,736,000. The purchase price includes $2,301,000 that
was paid for shares acquired in fiscal 1997, classified as "Long-term
available-for-sale investments" in the accompanying September 27, 1997,
balance sheet, and $5,111,000 accrued for the purchase of the remaining
Peek ordinary shares outstanding, classified as "Other accrued expenses"
in the accompanying January 3, 1998, balance sheet. The Company made
payments for the remaining Peek ordinary shares outstanding in the second
quarter of fiscal 1998. Peek develops, markets, installs, and services
equipment to monitor and regulate traffic flow in cities and towns around
the world. In addition, through its Field Data business, Peek develops
and markets field measurement products.
8PAGE
THERMO POWER CORPORATION
3. Acquisition (continued)
To finance the acquisition of Peek, the Company borrowed $160,000,000
from Thermo Electron Corporation pursuant to a promissory note due
November 1999, and bearing interest at the 90-day Commercial Paper
Composite Rate plus 25 basis points, set at the beginning of each
quarter.
Subsequent to Peek's acquisition by the Company, the Company reached
an agreement with ONIX Systems Inc., a majority-owned subsidiary of
Thermo Instrument Systems Inc., to sell Peek's Field Data business,
effective November 6, 1997, for $19,117,000, which was classified as "Due
from parent company and affiliated companies" in the accompanying January
3, 1998, balance sheet. Thermo Instrument is a majority-owned subsidiary
of Thermo Electron. The Company received payment from ONIX for the sale
of the Field Data business in January 1998. The components of the sales
price for the Field Data business consist of the net tangible book value
of the Field Data business, cost in excess of net assets of acquired
company, and the estimated tax liability relating to the sale. The cost
in excess of net assets of acquired company was determined based upon a
percentage of the Company's total cost in excess of net assets of
acquired company associated with its acquisition of Peek, based on the
1997 revenues of the Field Data business relative to Peek's total 1997
consolidated revenues.
The acquisition has been accounted for using the purchase method of
accounting and its results have been included in the accompanying
financial statements from the date of acquisition. The cost of the
acquisition exceeded the estimated fair value of the acquired net assets
by $150,710,000, which is being amortized over 40 years. Allocation of
the purchase price 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.
Based on unaudited data, the following table presents selected
financial information for the Company and Peek on a pro forma basis,
assuming the companies had been combined since the beginning of fiscal
1997. The results of Peek exclude the results of businesses sold by Peek
prior to its acquisition by the Company and Peek's Field Data business,
which was sold to ONIX effective November 6, 1997.
Three Months Ended
-------------------------
January 3, December 28,
(In thousands except per share amounts) 1998 1996
------------------------------------------------------------------------
Revenues $ 81,648 $108,579
Net income 376 10,072
Basic and diluted earnings per share .03 .81
The pro forma results are not necessarily indicative of future
operations or the actual results that would have occurred had the
acquisition of Peek been made at the beginning of fiscal 1997.
9PAGE
THERMO POWER CORPORATION
3. Acquisition (continued)
In connection with the acquisition of Peek, the Company has
undertaken a restructuring of the acquired business. The restructuring
activities will primarily include reductions in staffing levels and
abandonment of excess facilities. In connection with these restructuring
activities the Company established reserves totaling $15,101,000 for
estimated severance, excess facilities, and other exit costs associated
with the acquisition, none of which was expended during the first quarter
of fiscal 1998. This amount was recorded as a cost of the acquisition of
Peek in accordance with Emerging Issues Task Force Pronouncement 95-3
(EITF 95-3). As of January 3, 1998, unresolved matters related to the
restructuring of Peek include completing the identification of specific
employees for termination and locations to be abandoned or consolidated,
as well as other decisions concerning the integration of the acquired
businesses into the Company. In accordance with EITF 95-3, finalization
of the Company's plan for restructuring Peek will not occur beyond one
year from the date of acquisition. Any changes to estimates of these
costs will be recorded as adjustments to cost in excess of net assets of
acquired companies.
Notes payable in the accompanying January 3, 1998, balance sheet
includes $25,060,000 of borrowings at Peek. As of January 3, 1998, Peek
had outstanding promissory notes aggregating $17,470,000 and borrowings
under a line of credit totaling $7,590,000. The promissory notes bear
interest at variable rates and are due on demand as a result of Peek's
violations of certain debt covenants. The weighted average interest rate
on the promissory notes outstanding as of January 3, 1998, was 6.40%. The
Company expects to repay the promissory notes during the second quarter
of fiscal 1998. Borrowings under the line of credit are payable on demand
and are denominated in British pounds sterling. As of January 3, 1998,
the remaining amount available under the line of credit was 400,000
British pounds sterling. Borrowings under the line of credit bear
interest at applicable London interbank market rates plus 45 basis points
(6.89% at January 3, 1998). Borrowings under the line of credit are
guaranteed by Thermo Electron.
Peek enters into forward contracts to hedge certain firm purchase and
sale commitments denominated in currencies other than its subsidiaries'
local currencies. The purpose of Peek's foreign currency hedging
activities is to protect Peek's local currency cash flows related to
these commitments from fluctuations in foreign exchange rates. Because
Peek's forward contracts are entered into as hedges against existing
foreign currency exposures, there generally is no effect on the income
statement since gains or losses on the customer contract offset gains or
losses on the forward contract.
10PAGE
THERMO POWER CORPORATION
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 to the Company's Annual Report on Form 10-K for the fiscal
year ended September 27, 1997, filed with the Securities and Exchange
Commission.
Overview
The Company's business is divided into four segments: Traffic
Control, Industrial Refrigeration Systems, Engines, and Cooling and
Cogeneration Systems. Through the Company's Peek subsidiary, acquired
November 1997, the Traffic Control segment develops, markets, installs,
and services equipment to monitor and regulate traffic flow in cities and
towns around the world. Peek offers a wide range of products, including
hardware, such as detectors, counter classifiers, traffic signals and
controllers, and variable message signs, as well as traffic management
systems that integrate these products to ease roadway congestion, improve
safety, and collect data. Traffic management systems include variable
message systems to advise drivers of accidents and other roadway hazards,
traffic signal-timing systems that adapt continuously to changing
conditions to minimize delays, video systems to give real-time analysis
of traffic flows at intersections and on highways, and automatic
toll-collection systems. The Company also offers high-resolution video
equipment to aid police officers in capturing the information necessary
to charge individuals with motor vehicle violations such as speeding and
red light violations. The Company's results of operations and financial
position for fiscal 1998 are expected to be affected significantly by the
acquisition of Peek.
Funding patterns of governmental entities, as well as seasonality,
are expected to result in fluctuations in quarterly revenues and income
of the Traffic Control segment. As a result of these factors, Peek has
historically experienced relatively higher sales and net income in the
second and fourth calendar quarters and relatively lower sales and net
income in the first and third calendar quarters. Additionally, a portion
of the Traffic Control segment's revenues result from the sale of large
systems, the timing of which can lead to variability in the Company's
quarterly revenues and income.
11PAGE
THERMO POWER CORPORATION
Overview (continued)
A significant portion of the Traffic Control segment's revenues
originate outside the U.S., principally in Europe. Foreign divisions and
subsidiaries principally sell in their local currencies and generally
seek to charge their customers in the same currency as their operating
costs. However, the Company's financial performance and competitive
position can be affected by currency exchange rate fluctuations affecting
the relationship between the U.S. dollar and foreign currencies. The
Company reduces its exposure to currency fluctuations through the use of
forward contracts. Since the operations of the Traffic Control segment
are conducted principally in Europe, the Company's operating results
could be adversely affected by capital spending and economic conditions
in Europe.
Through the Company's FES division, the Industrial Refrigeration
Systems segment supplies standard and custom-designed industrial
refrigeration systems used primarily by the food-processing,
petrochemical, and pharmaceutical industries. NuTemp, Inc. is a supplier
of both remanufactured and new industrial refrigeration and commercial
cooling equipment for sale or rental. NuTemp's industrial refrigeration
equipment is used primarily in the food-processing, petrochemical, and
pharmaceutical industries, and its commercial cooling equipment is used
primarily in institutions and commercial buildings, as well as by service
contractors. The demand for NuTemp's equipment is typically highest in
the summer months and can be adversely affected by cool summer weather.
Within the Engines segment, the Company's Crusader Engines division
manufactures gasoline engines for recreational boats; propane and
gasoline engines for lift trucks; and natural gas engines for vehicular,
cooling, pumping, refrigeration, and other industrial applications.
The Cooling and Cogeneration Systems segment consists of the
Company's Tecogen division and the Company's ThermoLyte Corporation
subsidiary. Tecogen designs, develops, markets, and services packaged
cooling and cogeneration systems fueled principally by natural gas for
sale to a wide range of commercial, institutional, industrial, and
multi-unit residential users. Certain large-capacity cooling systems are
manufactured for Tecogen by FES, and the cogeneration systems are
manufactured for Tecogen by Crusader. Tecogen also conducts research and
development of natural gas-engine technology and on applications of
thermal energy. ThermoLyte is developing and commercializing various
gas-powered lighting products.
12PAGE
THERMO POWER CORPORATION
Overview (continued)
The Company's revenues by industry segment are as follows:
Three Months Ended
-------------------------
January 3, December 28,
(In thousands) 1998 1996
-----------------------------------------------------------------------
Traffic Control $38,752 $ -
Industrial Refrigeration Systems 17,009 19,146
Engines 5,124 5,407
Cooling and Cogeneration Systems 2,958 4,616
Intersegment sales elimination (281) (383)
------- -------
$63,562 $28,786
======= =======
The Company will be required to modify or replace portions of its
software and hardware, including the software and hardware of Peek, so
that it will function properly in the year 2000. Costs associated with
purchasing software and hardware that is year 2000 compliant, excluding
costs associated with Peek, is included in estimated capital expenditures
for the remainder of fiscal 1998, disclosed in liquidity and capital
resources. The cost of such new software and hardware will be capitalized
and amortized over it's useful life, and is not expected to have a
material effect on the Company's results of operations. The Company is in
the process of assessing the impact of the year 2000 issue on the
operations of Peek, including the development of cost estimates for, and
the extent of any programming changes that might be required to address,
this issue. At this time, the Company is unable to determine the
materiality of the year 2000 issue at Peek.
Results of Operations
First Quarter Fiscal 1998 Compared With First Quarter Fiscal 1997
Total revenues increased to $63,562,000 in the first quarter of
fiscal 1998 from $28,786,000 in the first quarter of fiscal 1997, due to
the inclusion of $38,752,000 of revenues from Peek, acquired November
1997. Peek's revenues are not necessarily indicative of future quarterly
operating results due to funding patterns of governmental entities and
seasonality. Industrial Refrigeration Systems segment revenues decreased
to $17,009,000 in fiscal 1998 from $19,146,000 in fiscal 1997, primarily
due to lower demand for standard industrial refrigeration packages at FES
and lower demand for reconditioned cooling equipment at NuTemp. Engines
segment revenues decreased to $5,124,000 in fiscal 1998 from $5,407,000
in fiscal 1997, primarily due to decreased sales of marine-engine related
products. Cooling and Cogeneration Systems segment revenues decreased to
$2,958,000 in fiscal 1998 from $4,616,000 in fiscal 1997, principally due
to decreased revenues from gas-fueled cooling systems.
13PAGE
THERMO POWER CORPORATION
First Quarter Fiscal 1998 Compared With First Quarter Fiscal 1997
(continued)
The gross profit margin increased to 29% in the first quarter of
fiscal 1998 from 15% in the first quarter of fiscal 1997, primarily due
to a 35% gross profit margin at Peek. The gross profit margin at Peek is
not necessarily indicative of future quarterly operating results for the
reasons discussed above. The gross profit margin for the Industrial
Refrigeration Systems segment increased to 22% in fiscal 1998 from 18% in
fiscal 1997, primarily due to lower warranty expenses and manufacturing
efficiencies at FES. The gross profit margin for the Engines segment
increased to 8% in fiscal 1998 from 3% in fiscal 1997, primarily due to a
decrease in sales of lower-margin marine-engine related products. The
gross profit margin for the Cooling and Cogeneration Systems segment
increased to 19% in fiscal 1998 from 18% in fiscal 1997, primarily due to
a decrease in sales of lower-margin gas-fueled cooling systems.
Selling, general, and administrative expenses as a percentage of
revenues increased to 21% in the first quarter of fiscal 1998 from 13% in
the first quarter of fiscal 1997, principally due to relatively higher
selling, general, and administrative expenses as a percentage of revenues
at Peek. Research and development expenses increased to $1,729,000 in
fiscal 1998 from $644,000 in fiscal 1997, due to the inclusion of
$1,154,000 of research and development expenses at Peek.
Interest income increased to $589,000 in the first quarter of fiscal
1998 from $451,000 in the first quarter of fiscal 1997, principally due
to interest earned on the receivable from ONIX Systems Inc. relating to
the sale of Peek's Field Data business (Note 3). Interest expense
increased $1,420,000 due to borrowings in November 1997 from Thermo
Electron Corporation to finance the acquisition of Peek (Note 3), and the
inclusion of $245,000 of interest expense at Peek.
The effective tax rate decreased to 46% in the first quarter of
fiscal 1998 from 70% in the first quarter of fiscal 1997. These rates
exceeded the statutory federal income tax rate primarily due to
nondeductible amortization of cost in excess of net assets of acquired
companies, an increase in the valuation allowance for net operating loss
carryforwards and other tax assets of the Company's ThermoLyte
subsidiary, and the impact of state income taxes. The effective tax rate
declined from fiscal 1997 to fiscal 1998 principally due to the smaller
relative effect of the valuation allowance required at ThermoLyte.
Minority interest expense increased to $189,000 in the first quarter
of fiscal 1998 from $78,000 in the first quarter of fiscal 1997 due to
minority interest expense on Peek's earnings relating to Peek shares
tendered after November 6, 1997, through January 16, 1998. As of January
16, 1998, the Company had acquired all of the Peek outstanding ordinary
shares.
14PAGE
THERMO POWER CORPORATION
Liquidity and Capital Resources
Consolidated working capital was $36,300,000 at January 3, 1998,
compared with $54,708,000 at September 27, 1997. Included in working
capital are cash, cash equivalents, and available-for-sale investments of
$48,836,000 at January 3, 1998, compared with $28,518,000 at
September 27, 1997. Of the $48,836,000 balance at January 3, 1998,
$15,037,000 was held by ThermoLyte, and the remainder was held by the
Company and its wholly owned subsidiaries. At January 3, 1998,
$13,611,000 of the Company's cash and cash equivalents was held by its
foreign subsidiaries. While this cash can be used outside of the United
States, repatriation of this cash into the United States would be subject
to a United States tax. Additionally, working capital at January 3, 1998,
was reduced by common stock of subsidiary subject to redemption of
$18,138,000, which represents ThermoLyte's common stock, redeemable in
December 1998 or 1999, the redemption value of which is $18,450,000.
During the first quarter of fiscal 1998, $8,078,000 of cash was
provided by operating activities. Cash provided by the Company's
operating results was improved by a reduction in inventories of
$7,333,000, offset in part by an increase in accounts receivable of
$3,354,000. The decrease in inventories and increase in accounts
receivable resulted primarily at Peek, due to the timing of shipments.
The increase in accounts receivable at Peek was offset in part by a
decrease in accounts receivable principally at Crusader, NuTemp, and FES,
due to a decrease in sales.
During the first quarter of fiscal 1998, the Company's primary
investing activities included $143,743,000 expended for the Peek
acquisition (Note 3), net of cash acquired, $1,886,000 expended for
purchases of rental assets and property, plant, and equipment, and
$1,524,000 in proceeds received from the sale of rental assets and
property, plant, and equipment. At January 3, 1998, $5,111,000 was
accrued for Peek shares acquired in the second quarter of fiscal 1998 in
completion of the Company's acquisition of Peek (Note 3). The Company
received payment of $19,117,000, relating to the sale of Peek's Field
Data business, from ONIX in January 1998 (Note 3). During the remainder
of fiscal 1998, the Company expects to make capital expenditures for the
purchase of rental assets and property, plant, and equipment of
approximately $13,600,000, including approximately $550,000 for software
and hardware that is year 2000 compliant.
The Company's financing activities provided $156,086,000 of cash in
the first quarter of fiscal 1998. The Company borrowed $160,000,000 from
Thermo Electron to finance the acquisition of Peek (Note 3) and expended
$1,129,000 of cash for the purchase of Company common stock. The
Company's Board of Directors has authorized the repurchase, through March
17, 1998, of up to $5,000,000 of its own securities. Any such purchases
would be funded from working capital. As of January 3, 1998, $258,000
remained under the Company's authorization.
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THERMO POWER CORPORATION
Liquidity and Capital Resources (continued)
The Company's $160,000,000 promissory note to Thermo Electron is due
in November 1999. Thermo Electron has indicated its intention to require
that the Company's indebtedness to Thermo Electron be repaid only to the
extent the Company's liquidity and cash flow permit. The Company believes
its existing resources are sufficient to meet the capital requirements of
its existing operations for the foreseeable future, except for repayment
of the promissory note to Thermo Electron as discussed above.
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
See Exhibit Index on the page immediately preceding the exhibits.
(b) Reports on Form 8-K
On November 21, 1997, the Company filed a Current Report on Form 8-K
pertaining to its tender offer for all of the outstanding shares of Peek
plc. On January 20, 1998, the Company filed an amendment on Form 8-K/A,
the purpose of which was to file the financial information required by
Form 8-K concerning this acquisition.
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THERMO POWER CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized as of the 5th day of February
1998.
THERMO POWER CORPORATION
Paul F. Kelleher
---------------------------
Paul F. Kelleher
Chief Accounting Officer
John N. Hatsopoulos
---------------------------
John N. Hatsopoulos
Chief Financial Officer and
Senior Vice President
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THERMO POWER CORPORATION
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------------------------------------------------------------------------
2.1 Share Purchase Agreement dated as of January 29, 1998,
among the Company, ONIX Systems Inc., Radley Services Ltd.,
and Peek Corporation.
10.1 Amended and Restated Master Guarantee Reimbursement and
Loan Agreement dated as of December 10, 1997, between the
Company and Thermo Electron Corporation.
27 Financial Data Schedule.