SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
--------------------------------------------
FORM 10-Q
(mark one)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarter Ended September 27, 1997.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
Commission File Number 1-12636
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 September 27, 1997
---------------------------- ---------------------------------
Common Stock, $.01 par value 12,729,409
PAGE
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
THERMO REMEDIATION INC.
Consolidated Balance Sheet
(Unaudited)
Assets
September 27, March 29,
(In thousands) 1997 1997
-------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $ 1,047 $ 18,600
Short-term available-for-sale investments, at
quoted market value (amortized cost of $4,085
and $4,096) 4,084 4,101
Accounts receivable, less allowances of $1,521
and $1,557 26,451 21,631
Unbilled contract costs and fees 12,084 5,685
Prepaid income taxes 3,387 3,348
Prepaid expenses 2,420 1,820
Due from parent company and Thermo Electron 915 321
-------- --------
50,388 55,506
-------- --------
Property, Plant, and Equipment, at Cost 54,694 54,958
Less: Accumulated depreciation and amortization 18,304 18,444
-------- --------
36,390 36,514
-------- --------
Other Assets (Note 3) 15,987 13,403
-------- --------
Cost in Excess of Net Assets of Acquired
Companies (Note 2) 33,116 29,588
-------- --------
$135,881 $135,011
======== ========
2PAGE
THERMO REMEDIATION INC.
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
September 27, March 29,
(In thousands except share amounts) 1997 1997
------------------------------------------------------------------------
Current Liabilities:
Accounts payable $ 7,832 $ 7,359
Accrued payroll and employee benefits 3,535 3,566
Deferred revenue 1,023 1,391
Billings in excess of revenues earned 836 879
Accrued interest 784 784
Accrued income taxes - 286
Other accrued expenses 2,559 2,281
-------- --------
16,569 16,546
-------- --------
Deferred Income Taxes 3,035 3,035
-------- --------
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
-------- --------
40,600 40,600
-------- --------
Shareholders' Investment:
Common stock, $.01 par value, 50,000,000 shares
authorized; 13,885,421 and 13,388,073
shares issued 139 134
Capital in excess of par value 88,638 85,402
Retained earnings (3,280) (3,328)
Treasury stock at cost, 1,156,012 and 823,741
shares (9,819) (7,382)
Net unrealized gain (loss) on available-for-sale
investments (1) 4
-------- --------
75,677 74,830
-------- --------
$135,881 $135,011
======== ========
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 27, September 28,
(In thousands except per share amounts) 1997 1996
-----------------------------------------------------------------------
Revenues $33,639 $27,913
------- -------
Costs and Operating Expenses:
Cost of revenues 28,365 23,485
Selling, general, and administrative expenses 3,539 2,823
New business development expenses 213 261
------- -------
32,117 26,569
------- -------
Operating Income 1,522 1,344
Interest Income 248 496
Interest Expense (includes $25 to related party
in fiscal 1998 and 1997) (544) (544)
Equity in Earnings of Unconsolidated Subsidiary
(Note 3) 56 280
Loss on Sale of Investments - (4)
------- -------
Income Before Provision for Income Taxes 1,282 1,572
Provision for Income Taxes 586 598
------- -------
Net Income $ 696 $ 974
======= =======
Earnings per Share:
Primary $ .06 $ .08
======= =======
Fully diluted $ .06 $ .07
======= =======
Weighted Average Shares:
Primary 12,446 12,894
======= =======
Fully diluted 12,614 13,498
======= =======
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 27, September 28,
(In thousands except per share amounts) 1997 1996
-----------------------------------------------------------------------
Revenues $61,843 $51,433
------- -------
Costs and Operating Expenses:
Cost of revenues 52,198 42,523
Selling, general, and administrative expenses 6,659 5,725
New business development expenses 435 557
------- -------
59,292 48,805
------- -------
Operating Income 2,551 2,628
Interest Income 542 987
Interest Expense (includes $51 to related party
in fiscal 1998 and 1997) (1,107) (1,094)
Equity in Earnings of Unconsolidated Subsidiary
(Note 3) 174 559
Gain on Sale of Investments - 136
Other Income 204 -
------- -------
Income Before Provision for Income Taxes 2,364 3,216
Provision for Income Taxes 1,092 1,214
------- -------
Net Income $ 1,272 $ 2,002
======= =======
Earnings per Share:
Primary $ .10 $ .16
======= =======
Fully diluted $ .10 $ .15
======= =======
Weighted Average Shares:
Primary 12,469 12,863
======= =======
Fully diluted 12,691 13,511
======= =======
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 27, September 28,
(In thousands) 1997 1996
----------------------------------------------------------------------
Operating Activities:
Net income $ 1,272 $ 2,002
Adjustments to reconcile net income to
net cash (used in) provided by
operating activities:
Depreciation and amortization 3,361 3,371
Equity in earnings of unconsolidated
subsidiary (Note 3) (174) (559)
Gain on sale of investments - (136)
Provision for losses on accounts
receivable 31 95
Other noncash expenses (income) (216) 35
Changes in current accounts, excluding
the effects of acquisitions:
Accounts receivable (4,675) (4,523)
Unbilled contract costs and fees (5,880) (2,158)
Due from parent company and Thermo
Electron (594) (656)
Other current assets (597) (236)
Other current liabilities (1,201) 3,943
-------- --------
Net cash (used in) provided by operating
activities (8,673) 1,178
-------- --------
Investing Activities:
Acquisitions, net of cash acquired (2,289) (1,681)
Purchases of available-for-sale investments - (15,759)
Proceeds from sale and maturities of
available-for-sale investments - 15,908
Purchases of property, plant, and equipment (3,464) (3,953)
Proceeds from sale of property, plant, and
equipment 268 59
Purchase of other assets (586) (1,178)
Other 11 -
-------- --------
Net cash used in investing activities (6,060) (6,604)
-------- --------
Financing Activities:
Net proceeds from issuance of Company
common stock 6 172
Repurchases of Company common stock (2,472) (1,763)
Dividends paid (354) (450)
Other - 794
-------- --------
Net cash used in financing activities $ (2,820) $ (1,247)
-------- --------
6PAGE
THERMO REMEDIATION INC.
Consolidated Statement of Cash Flows (continued)
(Unaudited)
Six Months Ended
---------------------------
September 27, September 28,
(In thousands) 1997 1996
----------------------------------------------------------------------
Decrease in Cash and Cash Equivalents $(17,553) $ (6,673)
Cash and Cash Equivalents at Beginning of
Period 18,600 26,247
-------- --------
Cash and Cash Equivalents at End of Period $ 1,047 $ 19,574
======== ========
Noncash Activities:
Fair value of assets of acquired companies $ 6,289 $ 6,476
Cash paid for acquired companies (2,765) (1,705)
Issuance of common stock for acquired
companies (2,400) (2,006)
-------- --------
Liabilities assumed of acquired companies $ 1,124 $ 2,765
======== ========
Dividends reinvested in Company common stock $ 870 $ 850
======== ========
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 27, 1997, the results of operations for the three- and
six-month periods ended September 27, 1997, and September 28, 1996, and
the cash flows for the six-month periods ended September 27, 1997, and
September 28, 1996. Interim results are not necessarily indicative of
results for a full year.
The consolidated balance sheet presented as of March 29, 1997, has
been derived from the consolidated financial statements that have been
audited by the Company's independent public accountants. The consolidated
financial statements and notes are presented as permitted by Form 10-Q
and do not contain certain information included in the annual financial
statements and notes of the Company. The consolidated financial
statements and notes included herein should be read in conjunction with
the financial statements and notes included in the Company's Annual
Report on Form 10-K for the fiscal year ended March 29, 1997, filed with
the Securities and Exchange Commission.
2. Acquisitions
In May 1997, the Company, through its Remediation Technologies, Inc.
(ReTec) subsidiary, acquired substantially all of the assets, subject to
certain liabilities, of TriTechnics Corporation (TriTechnics) for
approximately $1,600,000 in cash. TriTechnics provides comprehensive
consulting and remedial services at refinery and chemical-plant sites,
and had revenues in calendar-year 1996 of approximately $4,300,000.
In August 1997, the Company, also through ReTec, acquired
substantially all the assets, subject to certain liabilities, of RPM
Systems, Inc. (RPM Systems) for 374,507 shares of the Company's common
stock, valued at $2,400,000, and $600,000 in cash. RPM provides
consulting services in the areas of environmental-management, planning,
and information-technology, and had revenues in calendar-year 1996 of
approximately $1,300,000.
These acquisitions have been accounted for using the purchase method
of accounting, and their results of operations have been included in the
accompanying financial statements from their respective dates of
acquisition. The cost of these acquisitions exceeded the estimated fair
value of the acquired net assets by $766,000 for TriTechnics and
$2,957,000 for RPM Systems, which is being amortized over 40 and 20
years, respectively. Allocation of the purchase price was based on an
estimate of the fair value of the net assets acquired and is subject to
adjustment upon finalization of the purchase price allocation. Pro forma
data is not presented since the acquisitions were not material to the
Company's results of operations.
8PAGE
THERMO REMEDIATION INC.
3. Subsequent Event
On October 6, 1997, the Company sold its 50% limited-liability
interest in RETEC/TETRA, L.C. to TETRA Thermal, Inc. for $8,825,000 in
cash, subject to a post-closing adjustment. The Company realized a gain
of approximately $1,800,000, net of tax, on the sale.
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward-looking statements, within the meaning of Section 21E of the
Securities Exchange Act of 1934, are made throughout this Management's
Discussion and Analysis of Financial Condition and Results of Operations.
For this purpose, any statements contained herein that are not statements
of historical fact may be deemed to be forward-looking statements.
Without limiting the foregoing, the words "believes," "anticipates,"
"plans," "expects," "seeks," "estimates," and similar expressions are
intended to identify forward-looking statements. There are a number of
important factors that could cause the results of the Company to differ
materially from those indicated by such forward-looking statements,
including those detailed under the caption "Forward-looking Statements"
in Exhibit 13 of 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 is a national provider of environmental services,
including industrial, nuclear, and soil remediation, as well as waste-
fluids recycling.
The Company's ReTec subsidiary is 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. Through its TriTechnics subsidiary, acquired in May 1997, ReTec
provides comprehensive consulting and remedial services at refinery and
chemical-plant sites. In addition, ReTec's RPM Systems subsidiary,
acquired in August 1997, provides consulting services in the areas of
environmental-management, planning, and information-technology.
The Company's IEM Sealand Corporation (IEM Sealand) subsidiary,
acquired in September 1996, performs cleanups of hazardous waste sites
for government and industry as a prime construction contractor, and also
completes predesigned remedial-action contracts at sites containing
hazardous, toxic, and radioactive waste. IEM Sealand's business is
traditionally strongest during the summer and fall seasons.
The Company's Thermo Nutech subsidiary provides services to remove
radioactive contaminants from sand, gravel, and soil, and also provides
health physics, radiochemistry laboratory, and radiation dosimetry
services.
9PAGE
THERMO REMEDIATION INC.
Overview (continued)
The Company's TPS Technologies Inc. subsidiary designs and operates
facilities for the remediation of nonhazardous soil, and operates a
network of such facilities along the East and West Coasts.
The Company's Thermo Fluids Inc. subsidiary collects, tests,
processes, and recycles used motor oil and other industrial fluids.
The Company's businesses are affected by several factors,
particularly government spending, enactment and enforcement of
environmental legislation, economic cycles, the availability of federal
and state funding for environmental cleanup, local competition, and
extreme weather variations.
Results of Operations
Second Quarter Fiscal 1998 Compared With Second Quarter Fiscal 1997
Revenues increased 21% to $33,639,000 in the second quarter of fiscal
1998 from $27,913,000 in the second quarter of fiscal 1997. Revenues
increased $7,231,000 due to the inclusion of revenues from IEM Sealand,
acquired in September 1996, and, to a lesser extent, TriTechnics,
acquired in May 1997. Revenues from soil-remediation services decreased
31%, resulting from declines in the volume of soil processed due to
overcapacity in the industry. The Company expects this trend to continue
for the foreseeable future. Revenues from Thermo Nutech declined in the
second quarter of fiscal 1998 due to a decrease in radiochemistry
laboratory work, offset in part by increased revenues from a long-term
environmental restoration contract for the U.S. Department of Energy's
Hanford site.
The gross profit margin was unchanged at 16% in the second quarter of
fiscal 1998 and 1997.
Selling, general, and administrative expenses as a percentage of
revenues remained relatively unchanged at 10.5% and 10.1% in the second
quarter of fiscal 1998 and 1997, respectively.
Interest income decreased to $248,000 in the second quarter of fiscal
1998 from $496,000 in the second quarter of fiscal 1997 as a result of
lower average invested balances, primarily due to the Company's funding
of increases in accounts receivable and unbilled contract costs and fees.
Equity in earnings of unconsolidated subsidiary represents ReTec's
proportionate share of income from a joint venture. Subsequent to the end
of the second quarter of fiscal 1998, the Company sold its interest in
this joint venture (Note 3).
The effective tax rate was 46% in the second quarter of fiscal 1998
and 38% in the second quarter of fiscal 1997. 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 increase in the
effective tax rate in fiscal 1998 resulted from the larger relative
effect of nondeductible amortization and, to a lesser extent, a reduction
in tax-exempt income.
10PAGE
THERMO REMEDIATION INC.
First Six Months Fiscal 1998 Compared With First Six Months Fiscal 1997
Revenues increased 20% to $61,843,000 in the first six months of
fiscal 1998 from $51,433,000 in the first six months of fiscal 1997.
Revenues increased $13,079,000 due to the inclusion of revenues from IEM
Sealand, acquired in September 1996, and, to a lesser extent,
TriTechnics, acquired in May 1997. Revenues from soil-remediation
services decreased 32%, resulting both from declines in the volume of
soil processed due to overcapacity in the industry and from competitive
pricing pressures. Revenues from Thermo Nutech declined in the first six
months of fiscal 1998, due to the reasons discussed in the results of
operations for the second quarter.
The gross profit margin decreased to 16% in the first six months of
fiscal 1998 from 17% in the first six months of fiscal 1997 due to
continuing lower margins achieved on lower volumes of soil processed as a
result of competitive pricing pressures. The gross profit margin also
decreased due to the inclusion in lower-margin revenues from IEM Sealand.
Selling, general, and administrative expenses as a percentage of
revenues were unchanged at 11% in the first six months of fiscal 1998 and
1997.
Interest income decreased to $542,000 in the first six months of
fiscal 1998 from $987,000 in the first six months of fiscal 1997 due to
the reason discussed in the results of operations for the second quarter.
Equity in earnings of unconsolidated subsidiary represents ReTec's
proportionate share of income from a joint venture (Note 3).
The effective tax rate was 46% in the first six months of fiscal 1998
and 38% in the first six months of fiscal 1997. 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 increase in the
effective tax rate in fiscal 1998 resulted from the larger relative
effect of nondeductible amortization and, to a lesser extent, a reduction
in tax-exempt income.
Liquidity and Capital Resources
Consolidated working capital was $33,819,000 at September 27, 1997,
compared with $38,960,000 at March 29, 1997. Cash, cash equivalents, and
short-term available-for-sale investments were $5,131,000 at September
27, 1997, compared with $22,701,000 at March 29, 1997. During the first
six months of fiscal 1998, net cash used in operating activities was
$8,673,000. The Company funded an increase in accounts receivable and
unbilled contract costs and fees of $10,555,000, primarily due to its IEM
Sealand business relocating its corporate headquarters, which resulted in
a delay in billings and pursuit of collections on IEM Sealand's contracts
and accounts receivable, respectively. The relocation was completed in
October 1997 and the Company expects to improve its cash flow from
operating activities in the third quarter of fiscal 1998.
11PAGE
THERMO REMEDIATION INC.
Liquidity and Capital Resources (continued)
The Company expended $2,289,000, net of cash acquired, for
acquisitions (Note 2) and $3,464,000 for purchases of property, plant,
and equipment during the first six months of fiscal 1998. On October 6,
1997, the Company sold its 50% limited-liability interest in RETEC/TETRA
L.C. for $8,825,000 in cash.
Through a series of actions commencing in September 1996, the
Company's Board of Directors has authorized the repurchase, through
various dates ending in July 1998, of up to $15,000,000 of its own
securities in the open market, or in negotiated transactions. Any
repurchases under the Company's authorizations are funded from working
capital. Through September 27, 1997, the Company had expended $10,772,000
under these authorizations, of which $2,472,000 was expended in the first
six months of fiscal 1998.
On September 10, 1997, the Company paid a semiannual cash dividend of
$.10 per share of common stock to shareholders of record as of August 15,
1997. The Company paid $354,000 in connection with this dividend. The
amount of cash paid by the Company is dependent on the number of
shareholders participating in the Company's Dividend Reinvestment Plan.
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 2 - Changes in Securities and Use of Proceeds
(c) Recent Sales of Unregistered Securities
On August 29, 1997, the Company issued 374,507 shares of its Common
Stock in partial consideration for its acquisition of RPM Systems
(Note 2). Such shares were issued to six former shareholders of RPM
Systems (all of whom were directors, officers, and/or key employees of
RPM Systems) in reliance on Section 4(a) of the Securities Act of 1933,
as amended.
(d) Use of Proceeds
The Company sold 1,190,000 shares of its Common Stock pursuant to a
Registration Statement on Form S-1 (File No. 2-70544), which was declared
effective by the Securities and Exchange Commission on December 8, 1993.
The managing underwriters of the offering were NatWest Securities Limited
and First Albany Corporation. The aggregate gross proceeds of the
offering were $14,875,000. The Company's total expenses in connection
with the offering were $1,370,000, of which $963,900 was for underwriting
discounts and commissions and $406,100 was for other expenses paid to
persons other than directors or officers of the Company, persons owning
more than 10 percent of any class of equity securities of the Company, or
affiliates of the Company. The Company's net proceeds from the offering
12PAGE
THERMO REMEDIATION INC.
PART II - OTHER INFORMATION (continued)
were $13,505,000. In fiscal 1995, the Company expended $9,400,000 of such
net proceeds for the acquisition of two soil-remediation centers and two
other businesses. In fiscal 1996, the Company used the balance of such
net proceeds, together with other funds, for the acquisition of
Remediation Technologies, Inc.
Item 4 - Submission of Matters to a Vote of Security Holders
On September 24, 1997, at the Annual Meeting of Shareholders, the
shareholders elected seven incumbent directors to one-year terms expiring
in 1998. 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, Mr. Holubow,
Mr. Melas-Kyriazi, Mr. Powell, and Mr. Rainville each received 12,012,262
shares voted in favor of election and 4,438 shares voted against. Dr.
Gyftopoulos received 12,012,092 shares voted in favor of election and
4,608 shares voted against. Dr. Morris received 12,011,742 shares voted
in favor of election and 4,958 shares voted against. No abstentions or
broker nonvotes were recorded on the election of directors.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
See Exhibit Index on the page immediately preceding exhibits.
(b) Reports on Form 8-K
On October 21, 1997, the Company filed a Current Report on Form 8-K
dated October 6, 1997, pertaining to the sale by the Company of its
investment in RETEC/TETRA L.C.
13PAGE
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 31st day of October
1997.
THERMO REMEDIATION INC.
Paul F. Kelleher
------------------------
Paul F. Kelleher
Chief Accounting Officer
John N. Hatsopoulos
------------------------
John N. Hatsopoulos
Vice President and Chief
Financial Officer
14PAGE
THERMO REMEDIATION INC.
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------------------------------------------------------------------------
2.1 Purchase and Sale Agreement executed October 6, 1997, by and
among Remediation Technologies, Inc., RETEC Thermal, Inc.,
TETRA Thermal, Inc., and TETRA Technologies, Inc.
(incorporated herein by reference from Exhibit 2.1 to the
Registrant's Current Report on Form 8-K filed with the
Commission on October 21, 1997).
2.2 Assignment and Assumption Agreement executed October 6, 1997
by and among Remediation Technologies, Inc., RETEC Thermal,
Inc., TETRA Thermal, Inc., and TETRA Technologies, Inc.
(incorporated herein by reference from Exhibit 2.2 to the
Registrant's Current Report on Form 8-K filed with the
Commission on October 21, 1997).
11 Statement re: Computation of Earnings per Share.
27 Financial Data Schedule.