SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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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 July 4, 1998.
[ ] 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.)
Damonmill Square
9 Pond Lane, Suite 5A
Concord, Massachusetts 01742-2851
(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 July 31, 1998
---------------------------- ----------------------------
Common Stock, $.01 par value 12,939,744
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
THERMO REMEDIATION INC.
Consolidated Balance Sheet
(Unaudited)
Assets
July 4, April 4,
(In thousands) 1998 1998
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Current Assets:
Cash and cash equivalents (includes $5,814 and
$8,000 under repurchase agreement with
affiliated company) $ 6,092 $ 8,912
Available-for-sale investments, at quoted market
value (amortized cost of $2,008) 1,998 2,003
Accounts receivable, less allowances of $1,649
and $1,690 31,183 30,529
Unbilled contract costs and fees 9,973 8,154
Prepaid and refundable income taxes 2,257 2,256
Prepaid expenses 2,064 2,257
Due from parent company and Thermo Electron 631 667
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54,198 54,778
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Property, Plant, and Equipment, at Cost 58,004 57,040
Less: Accumulated depreciation and amortization 21,385 20,029
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36,619 37,011
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Other Assets 10,858 10,954
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Cost in Excess of Net Assets of Acquired Companies 37,296 37,568
-------- --------
$138,971 $140,311
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2
THERMO REMEDIATION INC.
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
July 4, April 4,
(In thousands except share amounts) 1998 1998
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Current Liabilities:
Accounts payable $ 10,243 $ 10,936
Accrued payroll and employee benefits 4,800 4,875
Deferred revenue 2,572 3,374
Billings in excess of revenues earned 1,129 1,277
Other accrued expenses 4,241 4,375
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22,985 24,837
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Deferred Income Taxes 407 407
-------- --------
Long-term Obligations:
4 7/8% Subordinated convertible debentures
(includes $3,000 of related-party debt) 37,950 37,950
3 7/8% Subordinated convertible note, due to
parent company 2,650 2,650
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40,600 40,600
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Shareholders' Investment:
Common stock, $.01 par value, 50,000,000 shares
authorized; 14,019,918 shares issued 140 140
Capital in excess of par value 89,055 89,103
Accumulated deficit (5,104) (5,592)
Treasury stock at cost, 1,080,174 and 1,089,085
shares (9,106) (9,181)
Net unrealized loss on available-for-sale
investments (Note 3) (6) (3)
-------- --------
74,979 74,467
-------- --------
$138,971 $140,311
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
3
THERMO REMEDIATION INC.
Consolidated Statement of Income
(Unaudited)
Three Months Ended
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July 4, June 28,
(In thousands except per share amounts) 1998 1997
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Revenues $34,416 $28,204
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Costs and Operating Expenses:
Cost of revenues 28,872 23,833
Selling, general, and administrative expenses 4,047 3,120
New business development expenses 145 222
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33,064 27,175
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Operating Income 1,352 1,029
Interest Income 166 294
Interest Expense (includes $62 to related parties
in fiscal 1999 and 1998) (541) (563)
Equity in Earnings of Unconsolidated Subsidiary - 118
Other Income - 204
------- -------
Income Before Provision for Income Taxes 977 1,082
Provision for Income Taxes 489 506
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Net Income $ 488 $ 576
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Basic and Diluted Earnings per Share (Note 2) $ .04 $ .05
======= =======
Weighted Average Shares (Note 2):
Basic 12,935 12,492
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Diluted 12,996 12,767
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The accompanying notes are an integral part of these consolidated financial
statements.
4
THERMO REMEDIATION INC.
Consolidated Statement of Cash Flows
(Unaudited)
Three Months Ended
------------------
July 4, June 28,
(In thousands) 1998 1997
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Operating Activities:
Net income $ 488 $ 576
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 2,043 1,645
Equity in earnings of unconsolidated subsidiary - (118)
Gain on sale of property, plant, and equipment - (204)
Provision for losses on accounts receivable 70 13
Other noncash items (1) (15)
Changes in current accounts, excluding the
effects of acquisition:
Accounts receivable (1,405) (1,291)
Unbilled contract costs and fees (1,819) (4,112)
Other current assets 194 (611)
Accounts payable (293) (1,304)
Other current liabilities (1,159) (841)
Due from parent company and Thermo Electron 35 (180)
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Net cash used in operating activities (1,847) (6,442)
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Investing Activities:
Acquisition, net of cash acquired - (1,160)
Purchases of property, plant, and equipment (1,232) (819)
Proceeds from sale of property, plant, and
equipment 188 266
Other - (44)
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Net cash used in investing activities (1,044) (1,757)
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Financing Activities:
Repayment of long-term notes receivable 43 -
Net proceeds from issuance of Company common stock 28 1
Repurchases of Company common stock - (1,700)
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Net cash provided by (used in) financing activities 71 (1,699)
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Decrease in Cash and Cash Equivalents (2,820) (9,898)
Cash and Cash Equivalents at Beginning of Period 8,912 18,600
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Cash and Cash Equivalents at End of Period $ 6,092 $ 8,702
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5
THERMO REMEDIATION INC.
Consolidated Statement of Cash Flows (continued)
(Unaudited)
Three Months Ended
------------------
July 4, June 28,
(In thousands) 1998 1997
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Noncash Activities:
Fair value of assets of acquired company $ - $ 2,100
Cash paid for acquired company - (1,600)
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Liabilities assumed of acquired company $ - $ 500
======= =======
The accompanying notes are an integral part of these consolidated
financial statements
6
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 July 4, 1998, and the results of
operations and cash flows for the three-month periods ended July 4, 1998, and
June 28, 1997. Interim results are not necessarily indicative of results for a
full year.
The consolidated balance sheet presented as of April 4, 1998, 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 April 4, 1998,
filed with the Securities and Exchange Commission.
2. Earnings per Share
Basic and diluted earnings per share were calculated as follows:
Three Months Ended
------------------
July 4, June 28,
(In thousands except per share amounts) 1998 1997
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Basic
Net Income $ 488 $ 576
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Weighted Average Shares 12,935 12,492
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Basic Earnings per Share $ .04 $ .05
======= =======
Diluted
Net Income $ 488 $ 576
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Weighted Average Shares 12,935 12,492
Effect of Stock Options 61 275
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Weighted Average Shares, as Adjusted 12,996 12,767
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Diluted Earnings per Share $ .04 $ .05
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7
2. Earnings per Share (continued)
The computation of diluted earnings per share excludes the effect of
assuming the exercise of certain outstanding stock options and warrants because
the effect would be antidilutive. As of July 4, 1998, there were 1,773,496 of
such options and warrants outstanding, with exercise prices ranging from $5.84
to $15.40 per share. In addition, the computation of diluted earnings per share
for all periods excludes the effect of assuming the conversion of $37,950,000
principal amount of 4 7/8% subordinated convertible debentures, convertible at
$17.92 per share, and $2,650,000 principal amount of a 3 7/8% subordinated
convertible note, convertible at $9.83 per share, because the effect would be
antidilutive.
3. Comprehensive Income
During the first quarter of fiscal 1999, the Company adopted Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income." This
pronouncement sets forth requirements for disclosure of the Company's
comprehensive income and accumulated other comprehensive items. In general,
comprehensive income combines net income and "other comprehensive items," which
represents unrealized, net of tax, losses from available-for-sale investments,
reported as a component of shareholders' investment in the accompanying balance
sheet. During the first quarter of fiscal 1999 and 1998, the Company's
comprehensive income totaled $485,000 and $575,000, respectively.
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 April 4, 1998, filed with the Securities and Exchange
Commission.
Overview
The Company is a national provider of environmental-liability management
services. Through a nationwide network of offices, the Company offers these and
related consulting services in five areas: industrial remediation, nuclear
remediation, waste-fluids collection and recycling, soil remediation, and
environmental-management and information-technology systems.
8
Overview (continued)
The Company's industrial remediation businesses provide consultation,
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 and inorganic wastes and residues. In
May 1997, the Company's Remediation Technologies, Inc. (RETEC) subsidiary
acquired TriTechnics Corporation, an environmental engineering and consulting
firm. The Company's IEM Sealand subsidiary performs the cleanup of hazardous
waste sites for government and industry as a prime construction contractor and
completes predesigned remedial action contracts at sites containing hazardous,
toxic, and radioactive wastes.
In the nuclear-remediation area, the Company provides services to remove
radioactive contaminants from sand, gravel, and soil, as well as health physics
services, radiochemistry laboratory services, radiation dosimetry services,
radiation-instrument calibration and repair services, and radiation-source
production. In November 1997, the Company acquired Benchmark Environmental
Corporation, a provider of nuclear-remediation and waste-management services to
government and private sector clients.
The Company also collects, tests, processes, and recycles used motor oil and
other industrial fluids.
Through its TPS Technologies division, the Company designs and operates
facilities for the remediation of nonhazardous soil and mobile equipment for the
on-site remediation of such wastes. The Company's soil-remediation centers are
environmentally secure facilities for receiving, storing, and processing
petroleum-contaminated soils.
Through its RPM Systems, Inc. subsidiary, acquired in August 1997, the
Company develops and implements management and computer-based systems that aid
in the collection and application of environmental data, helping to establish or
improve a customer's environmental-compliance program while controlling the
related costs.
The Company's businesses are affected by several factors, particularly
extreme weather variations, economic cycles, regulation and enforcement of
remediation activities, the availability of federal and state funding for
environmental cleanup, and local competition.
The Company has acquired a number of businesses in the last three years. The
Company does not presently intend to actively seek to make additional
acquisitions in the near future, and expects instead to concentrate its
resources on strengthening its core businesses. The Company may, however,
acquire one or more complementary businesses if they are presented to the
Company on terms the Company believes to be attractive.
The Company has proposed changing its name to ThermoRetec Corporation,
subject to shareholder approval.
9
THERMO REMEDIATION INC.
Results of Operations
First Quarter Fiscal 1999 Compared With First Quarter Fiscal 1998
Revenues in the first quarter of fiscal 1999 increased 22% to $34,416,000
from $28,204,000 in the first quarter of fiscal 1998. Industrial remediation
revenues increased due to higher revenues from consulting and engineering
services at RETEC and, to a lesser extent, the inclusion of $732,000 in revenues
from an acquired company, offset in part by a $4,180,000 decrease in revenues
resulting from a decline in the number of contracts in process at IEM Sealand.
Revenues from nuclear services and fluids-recycling services increased primarily
due to the inclusion of $1,932,000 in revenues from an acquired business and, to
a lesser extent, increased revenues at certain of the Company's nuclear-
remediation sites. Revenues from soil-remediation services increased $1,809,000
in fiscal 1999, resulting from increases in the volume of soil processed.
The gross profit margin was 16.1% in the first quarter of fiscal 1999,
compared with 15.5% in the first quarter of fiscal 1998. The gross profit margin
increased due to higher volumes of soil processed and, to a lesser extent,
higher margins at acquired companies, offset in part by lower margins on certain
remedial-construction contracts at IEM Sealand.
Selling, general, and administrative expenses as a percentage of revenues
increased to 12% in the first quarter of fiscal 1999 from 11% in the first
quarter of fiscal 1998, primarily due to higher expenses as a percentage of
revenues at IEM Sealand.
Interest income decreased to $166,000 in the first quarter of fiscal 1999
from $294,000 in the first quarter of fiscal 1998 as a result of lower average
invested balances in fiscal 1999.
Equity in earnings of unconsolidated subsidiary in fiscal 1998 represents
the Company's proportionate share of income from a joint venture that was sold
in fiscal 1998.
The effective tax rates in the first quarter of fiscal 1999 and 1998 were
50% and 47%, respectively. The effective tax rates exceeded the statutory
federal income tax rate primarily due to the impact of state income taxes and
nondeductible amortization of cost in excess of net assets of acquired
companies. The effective tax rate increased in fiscal 1999 due to the higher
relative effect of nondeductible expenses.
In July 1998, the Company filed suit against a customer, seeking payment of
$2.8 million that has been billed under a contract to provide remediation
services. The customer has disputed its obligation to pay the Company. While the
Company generally maintains reserves for these types of matters, failure to
collect this receivable would have a material adverse impact on the Company's
future results of operations.
The Company is currently assessing the potential impact of the year 2000 on
the processing of date-sensitive information by the Company's computerized
information systems, as well as products purchased by the
10
First Quarter Fiscal 1999 Compared With First Quarter Fiscal 1998
(continued)
Company. The Company believes that its internal information systems are either
year 2000 compliant or will be so prior to the year 2000 without incurring
material costs. There can be no assurance, however, that the Company will not
experience unexpected costs and delays in achieving year 2000 compliance for its
internal information systems, which could result in a material adverse effect on
the Company's future results of operations.
The Company is presently assessing whether its key suppliers are adequately
addressing the year 2000 issue and the effect this might have on the Company.
The Company has not completed its analysis and is unable to conclude at this
time that the year 2000 issue, as it relates to products purchased from key
suppliers, is not reasonably likely to have a material adverse effect on the
Company's future results of operations.
Liquidity and Capital Resources
Consolidated working capital, including cash, cash equivalents, and
available-for-sale investments, was $31,213,000 at July 4, 1998, compared with
$29,941,000 at April 4, 1998. Cash, cash equivalents, and available-for-sale
investments were $8,090,000 at July 4, 1998, compared with $10,915,000 at April
4, 1998. During the first quarter of fiscal 1999, the Company used $1,847,000 of
cash for operating activities. The Company used cash to fund an increase in
unbilled contract costs and fees of $1,819,000 and an increase in accounts
receivable of $1,405,000, primarily as a result of a large remedial-construction
contract and, to a lesser extent, increased sales.
The Company's investing activities used $1,044,000 of cash during the first
quarter of fiscal 1999. The Company expended $1,232,000 for purchases of
property, plant, and equipment. The Company plans to make capital expenditures
of approximately $4,000,000 during the remainder of fiscal 1999.
During the first quarter of fiscal 1999, the Company's financing activities
provided $71,000 of cash. The Company's Board of Directors has authorized the
repurchase, through July 1998, of up to $15,000,000 of its own securities.
Through July 4, 1998, the Company had expended $11,372,000 under this
authorization, none of which was expended during fiscal 1999.
All such purchases are funded from working capital.
On August 4, 1998, the Company's Board of Directors declared a semiannual
dividend of $0.10 per share of common stock, payable on September 1, 1998, to
shareholders of record as of August 18, 1998. The amount of cash dividends
ultimately paid by the Company is dependent on the number of shareholders
participating in the Company's Dividend Reinvestment Plan.
Although the Company does not presently intend to actively seek to acquire
additional businesses in the near future, it may acquire one or more
complementary businesses if they are presented to the Company on terms the
Company believes to be attractive. Such acquisitions may
11
Liquidity and Capital Resources (continued)
require significant amounts of cash. The Company expects that it will finance
any such acquisitions through a combination of internal funds and/or short-term
borrowings from Thermo TerraTech Inc. or Thermo Electron Corporation, although
it has no agreement with these companies to ensure that funds will be available
on acceptable terms, or at all.
PART II - OTHER INFORMATION
Item 6 - Exhibits
See Exhibit Index on the page immediately preceding exhibits.
12
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 10th day of August 1998.
THERMO REMEDIATION INC.
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 REMEDIATION INC.
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
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27 Financial Data Schedule.
14