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 28, 1996.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
Commission File Number 1-12636
THERMO REMEDIATION INC.
(Exact name of Registrant as specified in its charter)
Delaware 59-3203761
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1964 South Orange Blossom Trail
Apopka, Florida 32703
(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 October 25, 1996
---------------------------- -------------------------------
Common Stock, $.01 par value 13,107,409
PAGE
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
THERMO REMEDIATION INC.
Consolidated Balance Sheet
(Unaudited)
Assets
September 28, March 30,
(In thousands) 1996 1996
-------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $ 19,574 $ 26,247
Short-term available-for-sale investments,
at quoted market value (amortized cost
of $9,102 and $7,007) 9,111 7,004
Accounts receivable, less allowances
of $814 and $786 20,667 15,115
Unbilled contract costs and fees 4,423 2,094
Prepaid income taxes 1,152 2,836
Prepaid expenses 1,997 2,196
Due from parent company and Thermo Electron 1,220 564
-------- --------
58,144 56,056
-------- --------
Property, Plant and Equipment, at Cost 55,790 52,119
Less: Accumulated depreciation and amortization 16,378 14,516
-------- --------
39,412 37,603
-------- --------
Long-term Available-for-sale Investments,
at Quoted Market Value (amortized cost
of $2,108 in fiscal 1996) - 2,098
-------- --------
Other Assets 15,867 11,724
-------- --------
Cost in Excess of Net Assets of Acquired
Companies (Note 2) 30,861 28,321
-------- --------
$144,284 $135,802
======== ========
2PAGE
THERMO REMEDIATION INC.
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
September 28, March 30,
(In thousands except share amounts) 1996 1996
-------------------------------------------------------------------------
Current Liabilities:
Notes payable $ 501 $ -
Accounts payable 5,464 3,362
Accrued payroll and employee benefits 2,781 2,539
Deferred revenue 1,715 936
Billings in excess of revenues earned 343 630
Accrued interest 790 776
Accrued income taxes 852 57
Other accrued expenses 2,831 1,413
-------- --------
15,277 9,713
-------- --------
Deferred Income Taxes 2,227 2,137
-------- --------
Long-term Obligations:
4 7/8% Subordinated convertible debentures 37,950 37,950
3 7/8% Subordinated convertible note, due
to parent company 2,650 2,650
Other 53 -
-------- --------
40,653 40,600
-------- --------
Shareholders' Investment (Note 2):
Common stock, $.01 par value, 50,000,000
shares authorized; 13,270,203 and 12,800,189
shares issued 133 128
Capital in excess of par value 85,170 81,353
Retained earnings 2,612 1,910
Treasury stock at cost, 164,344 and 2,154 shares (1,794) (31)
Net unrealized gain (loss) on available-for-sale
investments 6 (8)
-------- --------
86,127 83,352
-------- --------
$144,284 $135,802
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
3PAGE
THERMO REMEDIATION INC.
Consolidated Statement of Income
(Unaudited)
Three Months Ended
----------------------------
September 28, September 30,
(In thousands except per share amounts) 1996 1995
--------------------------------------------------------------------------
Revenues $27,913 $14,466
------- -------
Costs and Operating Expenses:
Cost of revenues 23,485 10,222
Selling, general and administrative expenses 2,823 2,037
New business development expenses 261 281
------- -------
26,569 12,540
------- -------
Operating Income 1,344 1,926
Interest Income 496 733
Interest Expense (includes $25 and $27 to
related party) (544) (543)
Equity in Earnings of Unconsolidated Subsidiary 280 -
Loss on Sale of Investments (4) -
------- -------
Income Before Provision for Income Taxes 1,572 2,116
Provision for Income Taxes 598 786
------- -------
Net Income $ 974 $ 1,330
======= =======
Earnings per Share:
Primary $ .08 $ .11
======= =======
Fully diluted $ .07 $ .11
======= =======
Weighted Average Shares:
Primary 12,894 12,314
======= =======
Fully diluted 13,498 12,787
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
4PAGE
THERMO REMEDIATION INC.
Consolidated Statement of Income
(Unaudited)
Six Months Ended
----------------------------
September 28, September 30,
(In thousands except per share amounts) 1996 1995
--------------------------------------------------------------------------
Revenues $51,433 $27,647
------- -------
Costs and Operating Expenses:
Cost of revenues 42,523 19,379
Selling, general and administrative expenses 5,725 4,203
New business development expenses 557 557
------- -------
48,805 24,139
------- -------
Operating Income 2,628 3,508
Interest Income 987 1,328
Interest Expense (includes $51 and $98 to
related party) (1,094) (914)
Equity in Earnings of Unconsolidated Subsidiary 559 -
Gain on Sale of Investments 136 80
------- -------
Income Before Provision for Income Taxes 3,216 4,002
Provision for Income Taxes 1,214 1,492
------- -------
Net Income $ 2,002 $ 2,510
======= =======
Earnings per Share:
Primary $ .16 $ .21
======= =======
Fully diluted $ .15 $ .20
======= =======
Weighted Average Shares:
Primary 12,863 12,230
======= =======
Fully diluted 13,511 12,707
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
5PAGE
THERMO REMEDIATION INC.
Consolidated Statement of Cash Flows
(Unaudited)
Six Months Ended
----------------------------
September 28, September 30,
(In thousands) 1996 1995
----------------------------------------------------------------------------
Operating Activities:
Net income $ 2,002 $ 2,510
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 3,371 2,705
Equity in earnings of unconsolidated
subsidiary (559) -
Gain on sale of investments (136) (80)
Provision for losses on accounts
receivable 95 (3)
Other noncash expenses 35 26
Decrease in deferred income taxes - (2)
Changes in current accounts, excluding the
effects of acquisition:
Accounts receivable (4,523) (1,673)
Due from parent company and Thermo
Electron (656) (5,005)
Other current assets (2,394) (37)
Billings in excess of revenues earned (287) 483
Accrued interest 10 762
Other current liabilities 4,220 418
-------- --------
Net cash provided by operating
activities 1,178 104
-------- --------
Investing Activities:
Acquisition, net of cash acquired (Note 2) (1,681) -
Purchases of available-for-sale investments (15,759) (23,248)
Proceeds from sale and maturities of
available-for-sale investments 15,908 11,580
Purchases of property, plant and equipment (3,953) (4,629)
Proceeds from sale of property, plant and
equipment 59 573
Purchase of other assets (1,178) -
Other - (4)
-------- --------
Net cash used in investing
activities (6,604) (15,728)
-------- --------
Financing Activities:
Net proceeds from issuance of subordinated
convertible debentures - 36,889
Repayment of note payable to Thermo Electron - (4,000)
Net proceeds from issuance of Company
common stock 172 6,675
Repurchase of Company common stock (1,763) -
Dividends paid (450) (551)
Other 794 -
-------- --------
Net cash provided by (used in)
financing activities $ (1,247) $ 39,013
-------- --------
6PAGE
THERMO REMEDIATION INC.
Consolidated Statement of Cash Flows (continued)
(Unaudited)
Six Months Ended
----------------------------
September 28, September 30,
(In thousands) 1996 1995
----------------------------------------------------------------------------
Increase (Decrease) in Cash and Cash Equivalents $ (6,673) $ 23,389
Cash and Cash Equivalents at Beginning of Period 26,247 792
-------- --------
Cash and Cash Equivalents at End of Period $ 19,574 $ 24,181
======== ========
Noncash Activities (Note 2):
Fair value of assets of acquired company $ 6,476 $ -
Cash paid for acquired company (1,705) -
Issuance of common stock for acquired company (2,006) -
-------- --------
Liabilities assumed of acquired company $ 2,765 $ -
======== ========
Dividends reinvested by shareholders into
Company common stock $ 850 $ 679
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
7PAGE
THERMO REMEDIATION INC.
Notes to Consolidated Financial Statements
1. General
The interim consolidated financial statements presented have been
prepared by Thermo Remediation 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 28, 1996, the results of operations for the three- and
six-month periods ended September 28, 1996 and September 30, 1995, and
the cash flows for the six-month periods ended September 28, 1996 and
September 30, 1995. Interim results are not necessarily indicative of
results for a full year.
The consolidated balance sheet presented as of March 30, 1996, has
been derived from the consolidated financial statements that have been
audited by the Company's independent public accountants. The consolidated
financial statements and notes are presented as permitted by Form 10-Q
and do not contain certain information included in the annual financial
statements and notes of the Company. The consolidated financial
statements and notes included herein should be read in conjunction with
the financial statements and notes included in the Company's Annual
Report on Form 10-K for the fiscal year ended March 30, 1996, filed with
the Securities and Exchange Commission.
Certain amounts in fiscal 1996 have been reclassified to conform to
the fiscal 1997 financial statement presentation.
2. Acquisition
In September 1996, the Company acquired IEM Sealand Corporation (IEM
Sealand) for 311,040 shares of the Company's common stock, valued at $2.0
million, and $1.7 million in cash. The shares of the Company's common
stock issued in connection with the acquisition are subject to certain
restrictions on transfer. The restrictions lapse with respect to one
third of the shares on each of the third, fourth, and fifth anniversaries
of the closing. IEM Sealand provides construction services for the
remediation of hazardous wastes under contracts with federal and state
governments, and other public and private sector clients.
This acquisition has been accounted for using the purchase method of
accounting and IEM Sealand's results of operations have been included in
the accompanying financial statements from the date of acquisition. IEM
Sealand had a negative book value at the date of acquisition. The cost of
this acquisition exceeded the estimated fair value of the acquired net
assets by $5.4 million, which is being amortized over 40 years.
Allocation of the purchase price for this acquisition was based on an
estimate of the fair value of the net assets acquired and is subject to
adjustment. Pro forma data is not presented since this acquisition was
not material to the Company's results of operations or financial
position.
8PAGE
THERMO REMEDIATION 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.
These statements involve a number of risks and uncertainties, including
those detailed in Item 5 of this Quarterly Report on Form 10-Q.
Overview
The Company is a leading national provider of environmental services
including industrial remediation, nuclear remediation, hazardous waste
remedial construction cleanup, soil remediation, and waste fluids
recycling.
In December 1995, the Company acquired Remediation Technologies,
Inc. (ReTec), a provider of consulting, engineering, and on-site services
to help clients manage problems associated with environmental compliance,
waste management, and the remediation of industrial sites contaminated
with organic wastes and residues.
In September 1996, the Company 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. IEM Sealand's business is
traditionally strongest during the summer and fall seasons.
The Company's Thermo Nutech division provides services to remove
radioactive contaminants from sand, gravel, and soil, as well as health
physics, radiochemistry laboratory, and radiation dosimetry services.
The Company, through its TPS Technologies Inc. division, is also a
national leader in the design and operation of nonhazardous soil-
remediation facilities and operates a network of such facilities serving
customers in more than a dozen states along the East and West Coasts.
The Company's Thermo Fluids subsidiary collects, tests, processes,
and recycles used motor oil and other industrial oils.
The Company's businesses are affected by several factors,
particularly extreme weather variations, government spending, economic
cycles, and regulation and enforcement of remediation activities. In
addition, certain of the Company's businesses are affected by enactment
and enforcement of environmental legislation regarding underground
storage tanks, the availability of federal and state funding for
environmental cleanup, and local competition.
9PAGE
THERMO REMEDIATION INC.
Results of Operations
Second Quarter Fiscal 1997 Compared With Second Quarter Fiscal 1996
Revenues in the second quarter of fiscal 1997 were $27,913,000,
compared with $14,466,000 in the second quarter of fiscal 1996, an
increase of 93%. Revenues increased primarily due to the inclusion of
$13,700,000 in revenues from ReTec and IEM Sealand, which were acquired
in December 1995 and September 1996, respectively (Note 2). Revenues from
nuclear services increased 15% due to higher revenues in fiscal 1997 from
health physics services. Revenues from soil-remediation services
decreased 21% resulting from declines in the volume of soil processed due
to reduced compliance requirements and/or relaxed enforcement activities
in several states and competitive pricing pressures. Revenues from
fluids-recycling services increased 39% due to the addition of a new
facility in Nevada.
The gross profit margin decreased to 16% in the second quarter of
fiscal 1997 from 29% in the second quarter of fiscal 1996, due to lower
volumes of soil processed at the Company's traditionally higher-margin
soil-remediation centers and, to a lesser extent, lower margins on the
soil processed due to competitive pricing pressures. The gross profit
margin also decreased due to the inclusion of lower-margin revenues from
ReTec. The gross profit margin on nuclear services decreased due to
higher revenues from lower-margin health physics services.
Selling, general and administrative expenses as a percentage of
revenues decreased to 10% in the second quarter of fiscal 1997 from 14%
in the second quarter of fiscal 1996, primarily due to lower expenses as
a percentage of revenues at acquired companies.
Interest income decreased to $496,000 in the second quarter of
fiscal 1997 from $733,000 in the second quarter of fiscal 1996 as a
result of lower average invested balances following the acquisition of
ReTec in December 1995. Interest expense remained constant at $544,000 in
the second quarter of fiscal 1997 and $543,000 in the second quarter of
fiscal 1996.
Equity in earnings of unconsolidated subsidiary in the second
quarter of fiscal 1997 represents ReTec's proportionate share of income
from a joint venture.
The effective tax rates were 38% and 37% in the second quarter of
fiscal 1997 and 1996, respectively, which are higher than the Company's
federal statutory income tax rate primarily due to the impact of state
income taxes.
First Six Months Fiscal 1997 Compared With First Six Months Fiscal 1996
Revenues in the first six months of fiscal 1997 were $51,433,000,
compared with $27,647,000 in the first six months of fiscal 1996, an
increase of 86%. Revenues increased primarily due to the inclusion of
$24,194,000 in revenues from ReTec and IEM Sealand, which were acquired
in December 1995 and September 1996, respectively (Note 2). Revenues from
10PAGE
THERMO REMEDIATION INC.
First Six Months Fiscal 1997 Compared With First Six Months Fiscal 1996
(continued)
nuclear services increased 10% due to higher revenues in fiscal 1997 from
health physics services and, to a lesser extent, from a long-term
environmental restoration contract for the U.S. Department of Energy's
(DOE's) Hanford site (Hanford). These increases were largely offset by a
decrease in radiochemistry laboratory work, reflecting ongoing reductions
in spending at the DOE, as well as a shift in DOE spending from
investigative work performed at the Company's laboratories to cleanup
work. Revenues from soil-remediation services decreased 15% primarily due
to the reasons discussed in the results of operations for the second
quarter. Revenues from fluids-recycling services increased 25% due to the
addition of a new facility in Nevada.
The gross profit margin decreased to 17% in the first six months of
fiscal 1997 from 30% in the first six months of fiscal 1996, primarily
due to lower volumes of soil processed at the Company's traditionally
higher-margin soil-remediation centers and, to a lesser extent, lower
margins on the soil processed due to competitive pricing pressures. The
gross profit margin also decreased due to the inclusion of lower-margin
revenues from ReTec. The gross profit margin on nuclear services
decreased due to higher operating costs, declining revenues and margins
from the traditionally higher-margin radiochemistry laboratory work, and
increased revenues from the lower-margin Hanford contract.
Selling, general and administrative expenses as a percentage of
revenues decreased to 11% in the first six months of fiscal 1997 from 15%
in the first six months of fiscal 1996, primarily due to lower expenses
as a percentage of revenues at acquired companies.
Interest income decreased to $987,000 in the first six months of
fiscal 1997 from $1,328,000 in the first six months of fiscal 1996 as a
result of lower average invested balances following the acquisition of
ReTec in December 1995. Interest expense increased slightly to $1,094,000
in the first six months of fiscal 1997 from $914,000 in the first six
months of fiscal 1996, primarily due to the issuance of subordinated
convertible debentures in May 1995.
Equity in earnings of unconsolidated subsidiary in the first six
months of fiscal 1997 represents ReTec's proportionate share of income
from a joint venture.
The effective tax rates were 38% and 37% in the first six months of
fiscal 1997 and 1996, respectively, which are higher than the Company's
federal statutory income tax rate primarily due to the impact of state
income taxes.
Liquidity and Capital Resources
Working capital, including cash, cash equivalents, and short-term
available-for-sale investments, was $42,867,000 at September 28, 1996,
compared with $46,343,000 at March 30, 1996. Cash, cash equivalents, and
short- and long-term available-for-sale investments were $28,685,000 at
September 28, 1996, compared with $35,349,000 at March 30, 1996. During
11PAGE
THERMO REMEDIATION INC.
Liquidity and Capital Resources (continued)
the first six months of fiscal 1997, $1.2 million of cash was provided by
operating activities. In the first six months of fiscal 1997, the Company
funded an increase in accounts receivable, primarily due to higher
revenues at its IEM Sealand, Thermo Nutech, and Thermo Fluids divisions.
The use of cash was largely offset by an increase in other current
liabilities, primarily due to a $0.7 million and $0.8 million increase in
accrued income taxes and deferred revenues, respectively.
On September 5, 1996, the Company paid a semiannual cash dividend of
$0.10 per share of common stock, to shareholders of record as of August
22, 1996. The Company paid approximately $450,000 in connection with such
dividend. The amount of cash paid by the Company is dependent on the
number of shareholders participating in the Company's Dividend
Reinvestment Plan.
The Company's Board of Directors has authorized the repurchase,
through September 10, 1997, of up to $10.0 million of its own securities.
Any such purchases would be funded from working capital. Through
September 28, 1996, the Company expended $1.8 million under this
authorization.
During the six months ended September 28, 1996, the Company expended
$3,953,000 for purchases of property, plant and equipment. During the
remainder of fiscal 1997, the Company expects to make capital
expenditures of approximately $2,000,000, primarily to expand the
fluids-recycling services business.
In September 1996, the Company acquired IEM Sealand Corporation for
311,040 shares of the Company's common stock, valued at $2.0 million, and
$1.7 million in cash (Note 2).
Although the Company has no material commitments for capital
expenditures, such expenditures will largely be affected by the number of
complementary businesses that can be acquired or developed during the
year. The Company believes that it has adequate resources to meet its
financial needs for the foreseeable future.
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders
On September 25, 1996, at the Annual Meeting of Shareholders, the
shareholders elected seven incumbent directors to one-year terms expiring
in 1997. The directors reelected at the meeting were: John P. Appleton,
Elias P. Gyftopoulos, Fred Holubow, Theo Melas-Kyriazi, Frank E. Morris,
Jeffrey L. Powell, and William A. Rainville. Dr. Appleton,
Dr. Gyftopoulos, Mr. Melas-Kyriazi, Dr. Morris, and Mr. Rainville each
received 11,544,985 shares voted in favor of election and 140,097 shares
voted against. Mr. Holubow and Mr. Powell each received 11,544,685 shares
voted in favor of election and 140,397 shares voted against. No
abstentions or broker nonvotes were recorded on the election of
directors.
12PAGE
THERMO REMEDIATION INC.
Item 4 - Submission of Matters to a Vote of Security Holders (continued)
The shareholders also approved a proposal to amend the Company's
Restated Certificate of Incorporation to increase the Company's
authorized common stock, $.01 par value per share, from 20 million shares
to 50 million shares as follows: 11,350,632 shares voted in favor,
234,645 shares voted against, 13,705 shares abstained, and 86,100 broker
nonvotes were recorded on the proposal.
Item 5 - Other Information
In connection with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, the Company wishes to caution
readers that the following important factors, among others, in some cases
have affected, and in the future could affect, the Company's actual
results and could cause its actual results in fiscal 1997 and beyond to
differ materially from those expressed in any forward-looking statements
made by, or on behalf of, the Company.
Dependence on Environmental Regulation. Federal, state, and local
environmental laws govern each of the markets in which the Company
conducts business, as well as many of the Company's operations. The
markets for each of the Company's services, including industrial
remediation services, nuclear remediation services, hazardous waste
remedial construction services, soil-remediation services, and
waste-fluids recycling services, and the standards governing most aspects
of the construction and operation of the Company's facilities were
directly or indirectly created by, and are dependent on, the existence
and enforcement of those laws. There can be no assurance that these laws
and regulations will not change in the future, requiring new technologies
or stricter standards with which the Company must comply. In addition,
there can be no assurance that these laws and regulations will not be
made more lenient in the future, thereby reducing the size of the markets
addressed by the Company. Any such change in such federal, state, and
local environmental laws and regulations may have a material adverse
effect on the Company's business.
Responsibility for establishing and enforcing certain federal
policies, such as the federal underground storage tank policy, has been
delegated to the states, which are not only required to establish
regulatory programs, but also are permitted to mandate more stringent
requirements than are otherwise required by federal law. Currently, many
states are considering adopting a "risk-based" approach to prioritizing
site cleanups and setting cleanup standards, which attempt to balance the
costs of remediation against the potential harm to human health and the
environment from leaving sites unremediated. Although the Company
believes that it will be able to take advantage of this shift toward a
risk-based approach, there can be no assurance that these policies, if
implemented, will not reduce the size of the potential market addressed
by the Company.
Potential Environmental Regulatory Liability. The Company's
operations are subject to comprehensive laws and regulations related to
the protection of the environment. Among other things, these laws and
13PAGE
THERMO REMEDIATION INC.
Item 5 - Other Information (continued)
regulations impose requirements to control air, soil, and water
pollution, and regulate health, safety, zoning, land use, and the
handling and transportation of hazardous and nonhazardous materials. Such
laws and regulations also impose liability for remediation and cleanup of
environmental contamination, both on-site and off-site, resulting from
past and present operations. These requirements may also be imposed as
conditions of operating permits or licenses that are subject to renewal,
modification, or revocation. Existing laws and regulations, and new laws
and regulations, may require the Company to modify, supplement, replace
or curtail its operating methods, facilities, or equipment at costs which
may be substantial, without any corresponding increase in revenue. The
Company is also potentially subject to monetary fines, penalties,
remediation, cleanup or stop orders, injunctions, or orders to cease, or
suspend certain of its practices. The outcome of any proceedings and
associated costs and expenses could have a material adverse impact on the
Company's business. In addition, the Company's Thermo Nutech and IEM
Sealand divisions are subject to numerous laws and regulations related to
the protection of human health and safety. Such laws and regulations may
impose liability on the Company for exposure of its employees to
radiation or other hazardous contamination or failure to isolate and
remove radioactive or other hazardous contaminants from soil.
The Company endeavors to operate its business to minimize its
exposure to environmental and other regulatory liabilities. In entering
into contracts with its customers, the Company seeks to maximize its
insulation from regulatory liabilities associated with the contaminated
soil, oil, and other wastes it handles. Although no claims giving rise to
such liabilities have been asserted by the Company's customers or
employees to date, there can be no assurance that such claims cannot or
will not be asserted against the Company.
Uncertainty of Funding. Remediation compliance requirements and
attendant costs are often beyond the financial capabilities of many
individuals and small companies. To address this problem, some states
have established tax-supported trust funds to assist in the financing of
compliance and site remediation. As a consequence, in many of the states
in which the Company markets its soil-remediation services, the majority,
and in some cases virtually all, of the soil remediated by the Company is
paid for by large companies and/or state trust funds. Any substantial
decrease in this funding could have a material adverse effect on the
Company's business and financial performance. Many states have realized
that the number of sites requiring remediation and the costs of
compliance are substantially higher than were originally estimated. As a
result, several states have relaxed enforcement activities and others
have reduced compliance requirements in order to reduce the costs of
cleanup. These factors have already resulted in lower levels of cleanup
activity in some states. Continued de-emphasis on enforcement activities
and/or further reductions in compliance requirements is having a material
adverse effect on the Company's business.
The Company depends on funding from the federal and state
governments, and their agencies and instrumentalities, for compensation
14PAGE
THERMO REMEDIATION INC.
Item 5 - Other Information (continued)
for its services. For example, Thermo Nutech provides a large portion of
its services directly or indirectly to the U.S. Department of Energy
(DOE). Thermo Nutech has experienced a decrease in its radiochemistry
laboratory work as a result of ongoing reductions in spending at the DOE
as well as a shift in DOE spending from investigative work to cleanup
work. Continued declines in spending by DOE and other governmental
agencies could have a material adverse effect on the Company's business.
Competition. The markets for many of the Company's services are
regional and are characterized by intense competition from numerous local
competitors. Some of the Company's competitors have greater technical and
financial resources than those of the Company. As a result, they may be
able to adapt more quickly to new or emerging technologies and changes in
customer requirements, or to devote greater resources to the promotion
and sale of their services than the Company. Competition could increase
if new companies enter the market or if existing competitors expand their
service lines. There can be no assurance that the Company's current
technology, technology under development, or ability to develop new
technologies will be sufficient to enable it to compete effectively with
its competitors.
Seasonal Influences. A majority of the Company's businesses
experience seasonal fluctuations. A majority of the Company's
soil-remediation sites, as well as the Company's fluids-recycling sites,
experience declines in severe weather conditions. Site remediation work
and certain environmental testing services, such as the services provided
by ReTec, IEM Sealand, and Thermo Nutech, may decline in winter months as
a result of severe weather conditions. The Company's operations were
adversely affected by severe weather in the last quarter of fiscal 1996.
Possible Obsolescence Due to Technological Change. Technological
developments are expected to continue at a rapid pace in the
environmental services industry. The Company's technologies could be
rendered obsolete or uneconomical by technological advances by one or
more companies that address the Company's markets or by future entrants
into the industry. There can be no assurance that the Company would have
the resources to, or otherwise would be successful in, developing
responses to technological advances by others.
Risks Associated with Acquisition Strategy. The Company's strategy
includes the acquisition of businesses that complement or augment the
Company's existing services. Promising acquisitions are difficult to
identify and complete for a number of reasons, including competition
among prospective buyers and the need for regulatory approvals, including
antitrust approvals. Any acquisitions completed by the Company may be
made at substantial premiums over the fair value of the net assets of the
acquired companies. There can be no assurance that the Company will be
able to complete future acquisitions or that the Company will be able to
successfully integrate any acquired businesses. In order to finance such
acquisitions, it may be necessary for the Company to raise additional
funds through public or private financings. Any equity or debt financing,
if available at all, may be on terms which are not favorable to the
15PAGE
THERMO REMEDIATION INC.
Item 5 - Other Information (continued)
Company and, in the case of equity financing, may result in dilution to
the Company's stockholders.
No Assurance of Development and Commercialization of Technology
Under Development. The Company is currently engaged in the development of
several technologies which may ultimately be commercialized to provide
services to customers. For example, the Company's Thermo Fluids division
is currently engaged in developing technology to enhance the quality of
the fuel oils produced in its fluids recycling business. There are a
number of technological challenges that the Company must successfully
address to complete any of its development efforts. Technology
development involves a high degree of risk, and returns to investors are
dependent upon successful development and commercialization of such
technology. There can be no assurance that any of the technologies
currently being developed by the Company, or those to be developed in the
future, will be technologically feasible or accepted by the marketplace,
or that any such development will be completed in any particular
timeframe.
Item 6 - Exhibits
See Exhibit Index on the page immediately preceding exhibits.
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THERMO REMEDIATION 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 1st day of November
1996.
THERMO REMEDIATION INC.
Paul F. Kelleher
--------------------
Paul F. Kelleher
Chief Accounting Officer
John N. Hatsopoulos
--------------------
John N. Hatsopoulos
Vice President and
Chief Financial Officer
17PAGE
THERMO REMEDIATION INC.
EXHIBIT INDEX
Exhibit
Number Description of Exhibit Page
-----------------------------------------------------------------------
3 Certificate of Incorporation, as filed on
September 23, 1993, as amended by Agreement of
Merger, as filed with the Secretary of State of
Delaware on November 1, 1993, and as further amended
by Certificate of Amendment to Certificate of
Incorporation of the Company, as filed with the
Secretary of State of Delaware on October 31, 1996.
10 Stock Holdings Assistance Plan and Form of
Promissory Note.
11 Statement re: Computation of earnings per share.
27 Financial Data Schedule.