SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-------------------------------------------
FORM 10-K
(mark one)
[ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended April 4, 1998
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number 1-9549
THERMO TERRATECH INC.
(Exact name of Registrant as specified in its charter)
Delaware 04-2925807
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
81 Wyman Street, P.O. Box 9046
Waltham, Massachusetts 02254-9046
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (781) 622-1000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, $.10 par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
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 and (2) has been subject to the filing requirements for
at least the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference into Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant as of May 29, 1998, was approximately $14,762,000.
As of May 29, 1998, the Registrant had 19,513,824 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Fiscal 1998 Annual Report to Shareholders for the
year ended April 4, 1998, are incorporated by reference into Parts I and II.
Portions of the Registrant's definitive Proxy Statement for the Annual Meeting
of Shareholders to be held on September 15, 1998, are incorporated by reference
into Part III.
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PART I
Item 1. Business
(a) General Development of Business
Thermo TerraTech Inc. (the Company or the Registrant) provides industrial
outsourcing services and manufacturing support encompassing a broad range of
specializations, including infrastructure engineering, design and construction,
environmental compliance, laboratory testing, and metal treating.
The Company's majority-owned, publicly held Thermo Remediation Inc.
subsidiary is a national provider of environmental-liability management
services. Through a nationwide network of offices, Thermo Remediation 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- consulting. In fiscal 1998, Thermo
Remediation made several small acquisitions: TriTechnics Corporation, an
environmental engineering and consulting firm, for $1.6 million in cash; RPM
Systems, Inc., an environmental-management, planning, and information technology
company, for $0.6 million in cash and 374,507 shares of Thermo Remediation
common stock, valued at $2.4 million; and Benchmark Environmental Corporation, a
provider of nuclear-remediation and waste-management services to government and
private industry, for $2.9 million in cash and 85,106 shares of Thermo
Remediation common stock, valued at $0.5 million. As of April 4, 1998, the
Company owns 69% of Thermo Remediation's outstanding common stock and holds a
$2.7 million principal amount 3 7/8% subordinated convertible note due 2000
issued by Thermo Remediation, convertible into shares of Thermo Remediation
common stock at a conversion price of $9.83 per share.
The Company's majority-owned Thermo EuroTech N.V. subsidiary, located in
the Netherlands, specializes in converting "off-spec" and contaminated petroleum
fluids into useable oil products. In February 1998, Thermo EuroTech acquired a
70% controlling interest in Green Sunrise Holdings Ltd., an environmental
services and industrial outsourcing firm based in the Republic of Ireland, for
approximately $4.4 million in cash and a commitment to issue 69,200 shares of
its common stock valued at $0.3 million. As of April 4, 1998, the Company owns
56% of Thermo EuroTech's outstanding common stock.
In May 1997, the Company purchased a controlling interest in The Randers
Group Incorporated, a publicly traded provider of design, engineering, project
management, and construction services for industrial clients in the
manufacturing, pharmaceutical, and chemical-processing industries. The Company
purchased 7,100,000 shares of Randers common stock from certain members of
Randers' management, and 420,000 shares from Thermo Power Corporation, an
affiliate of the Company, at a price of $0.625 per share, for an aggregate cost
of $4.7 million. Following these transactions and currently, the Company owns
approximately 53.3% of Randers' actual outstanding common stock. In addition,
Thermo Electron Corporation, which owns a majority of the Company's outstanding
common stock, owns approximately 8.9% of actual Randers' outstanding common
stock.
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Subsequently, in September 1997, the Company entered into a
definitive agreement to transfer its wholly owned The Killam Group Inc.
subsidiary to Randers in exchange for newly issued shares of Randers' common
stock. The Killam Group provides comprehensive engineering and outsourcing
services in such areas as water and wastewater treatment, highway and bridge
projects, process engineering, construction management, and inspection and
operational services. Effective April 4, 1998, the agreement was amended to
provide that the price for The Killam Group would be equal to $70.6 million, the
book value of the transferred businesses as of April 4, 1998. The number of new
shares of Randers common stock to be issued to the Company will equal such book
value divided by $0.625, or 113,031,051 shares. Upon such issuance, the Company
and Thermo Electron would own approximately 94.8% and 1.0%, respectively, of
Randers'outstanding common stock. The transfer is subject to approval of the
transaction by Randers' shareholders and continued listing of Randers' common
stock on the American Stock Exchange following the transaction. However,
because the Company currently owns 53.3% of Randers' outstanding common stock,
approval by Randers'shareholders is assured.
The Company's Lancaster Laboratories Inc. subsidiary, based in
Lancaster, Pennsylvania, operates analytical laboratories that provide
comprehensive laboratory-based environmental testing, analysis, and related
services to detect and measure organic contaminants in samples of soil, water,
air, industrial wastes, mixed wastes, and biological materials. Lancaster
Laboratories is also a provider of high-quality analytical and consulting
services to the pharmaceutical and food industries.
The Company performs metallurgical processing services using
thermal-treatment equipment at locations in California, Minnesota, and
Wisconsin. In October 1997, the Company sold substantially all of the assets of
its Holcroft Division, its thermal-processing equipment business, excluding
certain accounts receivable, to Holcroft L.L.C., an affiliate of Madison Capital
Partners, for $10.9 million in cash, two promissory notes for principal amounts
aggregating $2.9 million, and the assumption by Holcroft L.L.C. of certain
liabilities of the Holcroft Division. After recording a post-closing purchase
price adjustment, the Company incurred a nominal loss on the sale. This business
comprised the Company's product revenues and contributed $893,000 and $1,765,000
of operating income in fiscal 1998 and 1997, respectively.
The Company was incorporated on May 30, 1986, as an indirect, wholly
owned subsidiary of Thermo Electron. As of April 4, 1998, Thermo Electron owned
15,935,435 shares of the common stock of the Company, representing 82% of such
stock outstanding. Thermo Electron develops, manufactures, and markets
analytical and monitoring instruments; biomedical products including
heart-assist devices, respiratory-care equipment, and mammography systems; paper
recycling and papermaking equipment; alternative-energy systems; industrial
process equipment; and other specialized products. Thermo Electron also provides
industrial outsourcing, laboratory, and metallurgical services, and conducts
advanced-technology research and development.
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Thermo Electron may repurchase shares of the Company's, Thermo
Remediation's, Randers; or Thermo EuroTech's common stock from time to time in
the open market or in negotiated transactions. During fiscal 1998(1), Thermo
Electron purchased 1,230,777 shares, 8,500 shares, and 349,664 shares of the
Company's, Thermo Remediation's, and Thermo EuroTech's common stock,
respectively, in the open market and negotiated transactions for a total price
of $13,900,000, $62,000, and $1,400,000, respectively.
Forward-looking Statements
Forward-looking statements, within the meaning of Section 21E of the
Securities Exchange Act of 1934, are made throughout this Annual Report on Form
10-K. 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 the Registrant's Fiscal 1998 Annual Report to
Shareholders, which statements are incorporated herein by reference.
(b) Financial Information About Industry Segments
The Company conducts business in one segment: outsourcing services. The
Company's principal services are environmental-liability management, engineering
and design, and laboratory-based testing. The Company also provides specialized
metal-treating services which, until October 1997, included the design,
manufacture, and installation of advanced custom-engineered thermal-processing
systems.
(c) Description of Business
(i) Principal Services and Products
Remediation and Recycling Services
The Company provides environmental consulting and remediation construction
management to clients in the transportation, refining, chemical, wood-treating,
gas, and electric utility industries across the nation. Through its consulting,
engineering, and on-site services, the Company offers a broad array of remedial
solutions to help clients manage problems associated with environmental
compliance, waste management, and the remediation of industrial sites
contaminated with various wastes and residues. The Company provides particular
expertise in bioremediation, and in managing wastes from manufactured-gas
plants, refineries, and railroad properties.
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1 References to fiscal 1998, 1997, and 1996 herein are for the fiscal years
ended April 4, 1998, March 29, 1997, and March 30, 1996, respectively.
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The Company 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. Under contracts with federal and state governments, and other public-
and private-sector clients, the Company also provides project management and
construction services for the remediation of hazardous and nonhazardous wastes.
Most of this contract work is obtained through a bid process, with the job being
awarded to the lowest qualified bidder.
The Company provides services to remove radioactive contaminants from soil,
as well as health physics services, radiochemistry laboratory services,
radiation dosimetry services, radiation-instrument calibration and repair
services, and radiation-source production. As part of its radiation and
nuclear/health physics services business, the Company provides site surveys for
radioactive materials and on-site samples, as well as analysis in support of
decontamination programs and dosimetry services to measure personnel exposure.
In addition, using its proprietary segmented-gate system technology, the Company
removes radioactive contaminants from soil. A substantial part of the Company's
health physics services has been performed under the U.S. Department of Energy's
remedial action programs.
The Company collects, tests, processes, and recycles used motor oil and
other industrial fluids. In addition, the Company collects and recycles oily
water and oil filters. The company has processing facilities in Phoenix and
Tucson, Arizona; Las Vegas, Nevada; Nampa, Idaho; Commerce City, Colorado; and
Portland, Oregon from which it operates a fleet of oil and water collection
trucks to pick up waste oils and oily water. Each facility consists of a series
of tanks set in protective enclosures used to store the fluids before
processing. Processing of oil consists of straining, filtering, and blending.
Once processed, the oil is sold as burner fuel for a variety of industrial uses,
including use in cement and asphalt kilns, industrial furnaces, and as "cutter
stock" to make marine diesel fuel for large, oceangoing vessels. Water is
processed to reclaim all usable oil and remove solid contaminants until the
water meets sewer-discharge standards.
Thermo EuroTech specializes in processing "off-spec" mixtures of oil that
contain water, ash, and sediment into commercially tradable end products used in
blending. The end products of this process are commercial grade oils that can be
blended to make diesel fuels and marine fuels or be used as a feed material.
Although a large percentage of Thermo EuroTech's oil feedstock has historically
come from the former Soviet Union, Thermo EuroTech no longer receives any oil
from that nation as a result of political and economic changes that make
transportation of waste oil difficult. To overcome this loss of supply, Thermo
EuroTech has taken steps to replace and diversify its feedstock suppliers.
However, no assurance can be given that it will not experience future
disruptions in deliveries. The Company's strategy is to use Thermo EuroTech as a
platform from which to eventually provide a broad range of environmental-
remediation services throughout Western Europe. Thermo EuroTech also provides
in-plant waste management and recycling services through its Ireland-based Green
Sunrise subsidiary, acquired in February 1998.
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The Company designs and operates facilities for the remediation of
nonhazardous soil. The Company's soil-remediation centers are environmentally
secure facilities for receiving, storing, and processing petroleum-contaminated
soils. Each site consists principally of a soil-remediation unit and a
soil-storage area. The Company currently provides soil-remediation services at
facilities in California, Oregon, Washington, South Carolina, Maryland, and New
York.
The market for remediation of petroleum-contaminated soils, as with many
other waste markets, was created by environmental regulations. The market for
soil-remediation services has been driven largely by state programs to enforce
the Environmental Protection Agency's (EPA's) underground storage tank (UST)
regulations and to fund cleanups. UST compliance requirements and attendant
remediation costs are often beyond the financial capabilities of individuals and
smaller companies. To address this problem, some states established
tax-supported trust funds to assist in the financing of UST compliance and
remediation. 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 significantly reduced
compliance requirements and altered regulatory approaches and standards in order
to reduce the costs of cleanup. More lenient regulatory standards, reduced
enforcement, and uncertainty with respect to such changes have already resulted
in lower levels of cleanup activity in most states where the Company conducts
business, which has had a material adverse effect on the Company's business.
During fiscal 1998, 1997, and 1996, the Company derived revenues of $142.4
million, $126.8 million, and $77.0 million, respectively, from
environmental-liability management services.
Consulting and Design Services
The Company provides comprehensive engineering and outsourcing services in
such areas as water and wastewater treatment, highway and bridge projects,
process engineering, construction management, and operational services. Also,
the Company provides a wide range of comprehensive environmental consulting and
professional engineering services to private- and public-sector clients. These
services include the design and inspection of water supply and wastewater
treatment facilities; investigations of different methods to clean up
hazardous-waste sites; assistance in obtaining government permits;
transportation-related and similar types of infrastructure engineering, survey,
and land-use planning; and support services including mechanical, electrical,
and structural engineering. In addition, the Company provides natural resource
management services, including environmental-impact studies.
The Company offers engineering, consulting, and design services in
the areas of municipal and industrial water quality management, bridge and
highway construction and reconstruction, and natural resource management.
The Company specializes in the design, planning, and construction
supervision of municipal and privately owned water-treatment plants, waste
treatment plants, and hazardous-wastewater facilities. The
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Company provides full-service contract operations to plant owners in the public
and private sectors. These services facilitate regulatory compliance; optimize
day-to-day plant operations; reduce costs; provide competent, experienced
personnel; and promote good community relations.
The Company also provides a broad range of bridge and highway engineering
services.
The Company's environmental-impact assessments and mitigation and
restoration studies help to determine water quality, promote the safety of
wildlife, and assist clients in meeting environmental permitting and licensing
requirements. The Company also provides aquatic biology expertise and ecological
risk assessment to electric utility plants throughout the country.
A substantial portion of the Company's engineering and design services
sales are made to existing customers on a repeat basis. Engineering and design
services are often performed as multiyear studies. In addition to federal,
state, and local governments, customers include public utilities, consulting and
construction engineers, waste management companies, oil refineries, mining
companies, chemical manufacturers, architectural and engineering firms, and a
variety of service companies involved with real estate transactions.
During fiscal 1998, 1997, and 1996, the Company derived revenues of $84.6
million, $74.8 million, and $74.0 million, respectively, from engineering and
design services.
Laboratory-testing Services
The Company provides comprehensive laboratory-based services for the
environmental, pharmaceutical, and food industries. These laboratories also
provide analysis and related services to detect and measure hazardous wastes and
radioactive materials.
Analytical laboratory services consist of a comprehensive range of
analytical tests to detect and measure organic contaminants, inorganic
contaminants, and radioactive materials in samples of soil, water, air,
industrial wastes, and biological materials. The Company has established
detailed procedures and strict operating standards to ensure consistent
performance and to allow it to participate in the EPA's Contract Laboratory
Program. The Company's environmental laboratory business has been negatively
affected by reduced federal spending on environmental testing.
During fiscal 1998, 1997, and 1996, the Company derived revenues of $37.5
million, $35.4 million, and $35.5 million, respectively, from laboratory-testing
services. Revenues from laboratory-testing services exclude radiochemistry
laboratory service revenues included in environmental-liability management
services.
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Metal-treating Services and Process Systems
The Company performs metallurgical processing services using
thermal-treatment equipment at locations in California, Minnesota, and
Wisconsin. Through its Holcroft Division, which was sold in October 1997, the
Company designed, manufactured, and installed computer-controlled,
custom-engineered, thermal-processing systems used to treat primary metals and
metal parts. During fiscal 1998, 1997, and 1996, the Company derived revenues of
$36.6 million, $44.3 million, and $35.8 million, respectively, from
metal-treating services and process systems.
(ii) New Products
The Company has made no commitments to new products that would require the
investment of a material amount of the Company's assets.
(iii) Raw Materials
Prior to fiscal 1996, a large percentage of Thermo EuroTech's oil feedstock
came from the former Soviet Union. Thermo EuroTech no longer receives any oil
from that nation as a result of political and economic changes that make
transportation of waste oil difficult. To overcome this loss of supply, Thermo
EuroTech has taken steps to replace and diversify its feedstock suppliers.
However, no assurance can be given that it will not experience future
disruptions in deliveries.
(iv) Patents, Licenses, and Trademarks
The Company currently owns or has rights under licenses to a number of U.S.
patents. Although the Company believes that patent protection provides it with
competitive advantages with respect to certain portions of its business and will
continue to seek patent protection when appropriate, the Company also believes
that its business depends primarily upon trade secrets and the technical and
marketing expertise of its personnel.
(v) 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 may decline in
winter months as a result of severe weather conditions. In Europe, Thermo
EuroTech may experience a decline in the feedstock delivered to its facilities
during winter months, due to frozen waterways.
(vi) Working Capital Requirements
In general, there are no special inventory requirements or credit terms
extended to customers that would have a material adverse effect on the Company's
working capital.
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(vii) Dependency on a Single Customer
See Government Contracts.
(viii) Backlog
The Company's backlog of firm orders was $111.8 million and $108.7 million
as of April 4, 1998, and March 29, 1997, respectively. These amounts include the
backlog of all of the Company's subsidiaries, with the exception of
soil-recycling and fluids-recycling, which are provided on a current basis
pursuant to purchase orders. Included in the Company's backlog at fiscal
year-end 1998 and 1997 is the incomplete portion of contracts that are accounted
for using the percentage-of-completion method. The Company believes that
substantially all of the backlog at April 4, 1998, will be completed during the
next 12 months. Certain of these orders are subject to cancellation by the
customer upon payment of a cancellation charge and all government contracts are
subject to termination at any time by the government without penalty.
(ix) Government Contracts
Approximately 4%, 13%, and 10% of the Company's revenues in fiscal 1998,
1997, and 1996, respectively, were derived from contracts or subcontracts with
the federal government that are subject to renegotiation of profits or
termination. The Company does not have any knowledge of threatened or pending
renegotiation or termination of any material contract or subcontract.
(x) Competition
Many of the Company's businesses are engaged in highly competitive,
regional markets, with competition coming from numerous small firms offering
limited services, as well as much larger firms that offer an array of services.
Environmental-liability Management Services
In the market for industrial-remediation services, the Company competes
with numerous regional or local companies as well as a number of national
remediation contractors. The Company competes primarily based on price, as the
vast majority of the contracts it seeks are awarded on the basis of scope,
effectiveness, and cost. Other competitive factors for the Company's
industrial-remediation businesses include: reputation; experience; breadth and
quality of services offered; and technical, managerial, and business
proficiency.
The type of nuclear-remediation services offered by the Company are also
offered by many large national companies. The Company competes primarily on the
basis of its proprietary technology and price.
The Company operates the largest fleet of waste-fluids collection vehicles
in Arizona and Nevada. The Company competes with numerous smaller and several
larger collection companies in its current market primarily on the basis of
quality of service and price.
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Competition in the soil-remediation business is intense. The Company's
principal competitors are landfills, including major landfill companies. The
Company also currently competes with companies offering a wide range of disposal
options, including other fixed-site, thermal-treatment facilities, operators of
mobile thermal-treatment facilities, bioremediation and vapor-extraction
facilities, and, in certain states, with asphalt plants and brick kilns that use
the contaminated soil in their production processes. Competition in the
soil-remediation market has always been highly localized, consisting mostly of
single-site or single-unit operators. Competitive conditions limit the prices
charged by the Company in each local market for soil-remediation services.
Pricing is therefore a major competitive factor for the Company. The Company
believes competition and pricing pressure will remain intense for the
foreseeable future.
Fewer than 20 companies offer environmental management and information
systems of the type provided by the Company. While some of these companies
possess similar resources as the Company, many are large, national consulting
firms that devote a relatively small percentage of their resources to this area.
The Company competes for business, both regionally and nationally, primarily
based on reputation and the quality of its services and, to a lesser extent, on
price. Less than 10% of the Company's work in this area is obtained through a
bidding process.
Thermo EuroTech faces competition for oil from other oil processors and
blenders and from a company with a similar distillation technology in Italy. The
market for blending oils is very large and oils such as Thermo EuroTech's end
products represent a very small percentage of the total market. Thermo EuroTech
competes primarily based on price.
Engineering and Design Services
The Company's engineering and design businesses are engaged in highly
competitive markets in all of its service areas. These markets tend to be
regional. In its geographic service area, competition consists of small, one- to
three-person firms offering a limited scope of services, as well as much larger
firms that may be regional, national, or international in the scope of services
they offer. The principal competitive factors for the Company are: reputation;
experience; price; breadth and quality of services offered; and technical,
managerial, and business proficiency.
Laboratory-testing Services
Hundreds of independent analytical testing laboratories and consulting
firms compete for business nationwide. Many of these firms use equipment and
processes similar to those of the Company. Competition is based not only on
price, but also on reputation for accuracy, quality, and the ability to respond
rapidly to customer requirements. In addition, many industrial companies have
their own in-house analytical testing capabilities. The Company believes that
its competitive strength lies in the quality of its services.
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Metal-treating Services
The market for metal-treating services is typically regional and
competitive. All regions in which the Company has facilities contain numerous
competitors. In addition, in-house heat-treating facilities provide a major
source of competition. The Company competes in this segment on the basis of
services provided, turnaround time, and price.
(xi) Environmental Protection Regulations
The Company believes that compliance by the Company with federal, state,
and local environmental protection regulations will not have a material adverse
effect on its capital expenditures, earnings, or competitive position.
(xii) Number of Employees
At April 4, 1998, the Company employed 2,736 persons.
(d) Financial Information About Exports by Domestic Operations and About
Foreign Operations
The Company's exports by domestic operations and foreign operations are
currently insignificant.
(e) Executive Officers of the Registrant
Present Title (Fiscal Year First Became
Name Age Executive Officer)
Dr. John P. Appleton 63 President and Chief Executive Officer
(1993)
John N. Hatsopoulos 63 Chief Financial Officer and Senior Vice
President (1988)
Emil C. Herkert 60 Vice President (1996)
Jeffrey L. Powell 39 Vice President (1994)
Paul F. Kelleher 55 Chief Accounting Officer (1986)
Each executive officer serves until his successor is chosen or appointed by
the Board of Directors and qualified or until earlier resignation, death, or
removal. All executive officers, except Mr. Herkert and Mr. Powell, have held
comparable positions for at least five years, either with the Company or with
its parent company, Thermo Electron. Mr. Herkert has served as President of
Killam Associates, a subsidiary of Randers, since 1977. Mr. Powell served as
President of Thermo Remediation since its inception in 1993, and as its Chief
Executive Officer from May 1997 until April 1998, when he was named Senior Vice
President. Messrs. Hatsopoulos and Kelleher are full-time employees of Thermo
Electron, but devote such time to the affairs of the Company as the Company's
needs reasonably require.
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Item 2. Properties
The location and general character of the Company's principal properties as
of April 4, 1998, are as follows:
The Company owns approximately 490,000 square feet of office, engineering,
laboratory, and production space, principally in Pennsylvania, Minnesota, New
Jersey, Ireland, Idaho, Wisconsin, and California, and leases approximately
730,000 square feet of office, engineering, laboratory, and production space
pursuant to leases expiring in fiscal 1999 through 2023, principally in
California, Pennsylvania, New Mexico, New York, Massachusetts, New Jersey, New
Hampshire, and Florida.
The Company also owns approximately 70 acres in Maryland, California, and
Oregon, from which it provides soil-remediation services. The Company occupies
approximately 19 acres principally in New York, Washington, California, and
South Carolina pursuant to leases expiring in fiscal 1999 through 2006, from
which it provides soil-remediation services.
The Company leases approximately six acres on one site in Arizona and one
site in Nevada pursuant to leases expiring in fiscal 1999, consisting of office
space, fluids recycling and maintenance facilities, and sites for fluids storage
tanks.
The Company occupies approximately 15 acres in Delfzijl, Holland, pursuant
to a lease expiring in 2059, consisting of office space, distillation
facilities, and oil storage tanks.
The Company believes that these facilities are in good condition and are
adequate for its present operations and that other suitable space is readily
available if any of such leases are not extended. With respect to leases
expiring in the near future, in the event the Company does not renew such
leases, the Company believes suitable alternate space is available for lease on
acceptable terms.
Item 3. Legal Proceedings
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
Information concerning the market and market price for the Registrant's
Common Stock, $.10 par value, and dividend policy are included under the
sections labeled "Common Stock Market Information" and "Dividend Policy" in the
Registrant's Fiscal 1998 Annual Report to Shareholders and is incorporated
herein by reference.
Item 6. Selected Financial Data
The information required under this item is included under the sections
labeled "Selected Financial Information" and "Dividend Policy" in the
Registrant's Fiscal 1998 Annual Report to Shareholders and is incorporated
herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information required under this item is included under the heading
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Registrant's Fiscal 1998 Annual Report to Shareholders and is
incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The Registrant's Consolidated Financial Statements as of April 4, 1998, are
included in the Registrant's Fiscal 1998 Annual Report to Shareholders and are
incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
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PART III
Item 10. Directors and Executive Officers of the Registrant
The information concerning Directors required under this item is
incorporated herein by reference from the material contained under the
caption "Election of Directors" in the Registrant's definitive proxy
statement to be filed with the Securities and Exchange Commission pursuant
to Regulation 14A, not later than 120 days after the close of the fiscal
year. The information concerning delinquent filers pursuant to Item 405 of
Regulation S-K is incorporated herein by reference from the material
contained under the heading "Section 16(a) Beneficial Ownership Reporting
Compliance" under the caption "Stock Ownership" in the Registrant's
definitive proxy statement to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A, not later than 120 days after the
close of the fiscal year.
Item 11. Executive Compensation
The information required under this item is incorporated herein by
reference from the material contained under the caption "Executive
Compensation" in the Registrant's definitive proxy statement to be filed with
the Securities and Exchange Commission pursuant to Regulation 14A,
not later than 120 days after the close of the fiscal year.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required under this item is incorporated herein by
reference from the material contained under the caption "Stock Ownership"
in the Registrant's definitive proxy statement to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A, not later
than 120 days after the close of the fiscal year.
Item 13. Certain Relationships and Related Transactions
The information required under this item is incorporated herein by
reference from the material contained under the caption "Relationship with
Affiliates" in the Registrant's definitive proxy statement to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A, not later than
120 days after the close of the fiscal year.
14
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a,d) Financial Statements and Schedules
(1) The consolidated financial statements set forth in the list below
are filed as part of this Report.
(2) The consolidated financial statement schedule set forth in the
list below is filed as part of this Report.
(3) Exhibits filed herewith or incorporated herein by reference are
set forth in Item 14(c) below.
List of Financial Statements and Schedules Referenced in this
Item 14
Information incorporated by reference from Exhibit 13 filed herewith:
Consolidated Statement of Operations
Consolidated Balance Sheet
Consolidated Statement of Cash Flows
Consolidated Statement of Shareholders' Investment
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
Financial Schedule filed herewith:
Schedule II: Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable or not
required, or because the required information is shown either in the
financial statements or the notes thereto.
(b) Reports on Form 8-K
None.
(c) Exhibits
See Exhibit Index on the page immediately preceding exhibits.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed by
the undersigned, thereunto duly authorized.
Date: June 29, 1998 THERMO TERRATECH INC.
By: John P. Appleton
John P. Appleton
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated, as of June 29, 1998.
Signature Title
By: John P. Appleton President, Chief Executive Officer,
John P. Appleton and Director
By: John N. Hatsopoulos Chief Financial Officer, Senior
John N. Hatsopoulos Vice President, and Director
By: Paul F. Kelleher Chief Accounting Officer
Paul F. Kelleher
By: Brian D. Holt Director
Brian D. Holt
By: Donald E. Noble Director
Donald E. Noble
By: William A. Rainville Director
William A. Rainville
By: Polyvios C. Vintiadis Chairman of the Board and Director
Polyvios C. Vintiadis
16
<PAGE>
Report of Independent Public Accountants
To the Shareholders and Board of Directors of Thermo TerraTech Inc.:
We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements included in Thermo TerraTech Inc.'s Annual
Report to Shareholders incorporated by reference in this Form 10-K, and have
issued our report thereon dated May 12, 1998. Our audits were made for the
purpose of forming an opinion on those statements taken as a whole. The schedule
listed in Item 14 on page 15 is the responsibility of the Company's management
and is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic consolidated financial
statements. This schedule has been subjected to the auditing procedures applied
in the audits of the basic consolidated financial statements and, in our
opinion, fairly states in all material respects the consolidated financial data
required to be set forth therein in relation to the basic consolidated financial
statements taken as a whole.
Arthur Andersen LLP
Boston, Massachusetts
May 12, 1998
17
<PAGE>
SCHEDULE II
THERMO TERRATECH INC.
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Balance Provision
at Charged Accounts Balance
Beginning to Accounts Written- at End
Description of Year Expense Recovered off Other(a) of Year
- ------------------------------------------------------------------------------
Allowance for
Doubtful Accounts
Year Ended
April 4, 1998 $ 3,838 $ 1,141 $ - $ (773) $ 244 $4,450
Year Ended
March 29, 1997 $ 2,861 $ 625 $ 49 $ (516) $ 819 $3,838
Year Ended
March 30, 1996 $ 3,572 $ 85 $ 84 $(1,628) $ 748 $2,861
(a) Includes allowances of businesses acquired during the year as described in
Note 3 to Consolidated Financial Statements in the Registrant's Fiscal 1998
Annual Report to Shareholders and the effect of foreign currency
translation.
18
<PAGE>
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. (filed as Exhibit 2.1 to Thermo
Remediation Inc.'s Current Report on Form 8-K dated October 6, 1997
[File No. 1-12636] and incorporated herein by reference).
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. (filed as Exhibit 2.2 to
Thermo Remediation Inc.'s Current Report on Form 8-K dated October 6,
1997 [File No. 1-12636] and incorporated herein by reference).
2.3 Asset Purchase Agreement dated as of October 10, 1997, between the
Registrant and Holcroft L.L.C. (filed as Exhibit 2.1 to the
Registrant's Current Report on Form 8-K dated October 6, 1997, and
incorporated herein by reference).
2.4 $2,218,000.00 Principal Promissory Note issued by Holcroft L.L.C. to
the Registrant (filed as Exhibit 2.2 to the Registrant's Current
Report on Form 8-K dated October 6, 1997, and incorporated herein by
reference).
2.5 $663,117.82 Principal Promissory Note issued by Holcroft L.L.C. to
the Registrant (filed as Exhibit 2.3 to the Registrant's Current
Report on Form 8-K dated October 6, 1997, and incorporated herein by
reference).
2.6 Subordination Agreement dated as of October 10, 1997, between the
Registrant and Comerica Bank (filed as Exhibit 2.4 to the
Registrant's Current Report on Form 8-K dated October 6, 1997, and
incorporated herein by reference).
2.7 Stock Purchase and Sale Agreement dated May 12, 1997, by and between
the Registrant and Thomas R. Eurich, Michael J. Krivitzky, Thomas J.
McEnhill, and Bruce M. Bourdon (filed as Exhibit (iv) to Amendment
No. 3 to Schedule 13D filed by Thermo Electron Corporation and the
Registrant on May 13, 1997, and incorporated herein by reference).
2.8 Amendment No. 1 dated September 19, 1997, to Stock Purchase and Sale
Agreement dated May 12, 1997, by and between the Registrant and
Thomas R. Eurich, Michael J. Krivitzky, Thomas J. McEnhill, and Bruce
M. Bourdon (filed as Exhibit 2.5 to The Randers Group Incorporated's
Annual Report on Form 10-K for the fiscal year ended April 4, 1998
[File No. 0-18095] and incorporated herein by reference).
19
<PAGE>
Exhibit
Number Description of Exhibit
2.9 Letter of Intent dated May 12, 1997, by and between the Registrant
and The Randers Group Incorporated (filed as Exhibit (v) to Amendment
No. 3 to Schedule 13D filed by Thermo Electron Corporation and the
Registrant on May 13, 1997, and incorporated herein by reference).
2.10 Stock Purchase Agreement entered on September 19, 1997, by and
between the Registrant and The Randers Group Incorporated (filed as
Exhibit (vii) to Amendment No. 4 to Schedule 13D filed by Thermo
Electron Corporation and the Registrant on October 1, 1997, and
incorporated herein by reference).
2.11 Amendment No. 1 dated as of April 4, 1998, to Stock Purchase
Agreement entered on September 19, 1997, by and between the
Registrant and The Randers Group Incorporated (filed as Exhibit 2.8
to The Randers Group Incorporated's Annual Report on Form 10-K for
the fiscal year ended April 4, 1998 [File No. 0-18095] and
incorporated herein by reference).
2.12 Agreement by and among the Registrant, The Randers Group
Incorporated, Thomas R. Eurich, Michael J. Krivitzky, Thomas J.
McEnhill, Bruce M. Bourdon, and David A. Wiegerink (filed as Exhibit
10 to The Randers Group Incorporated's Current Report on Form 8-K
dated October 3, 1997 [File No. 0-18095] and incorporated herein by
reference).
3.1 Restated Certificate of Incorporation, as amended (filed
as Exhibit 99 to the Registrant's Registration Statement
on Form S-2 [Reg. No. 333-02269] and incorporated herein
by reference).
3.2 Bylaws of the Registrant (filed as Exhibit 3(b) to the Registrant's
Annual Report on Form 10-K for the fiscal year ended April 2, 1988
[File No. 1-9549] and incorporated herein by reference).
4.1 Fiscal Agency Agreement dated as of May 2, 1996, among the
Registrant, Thermo Electron Corporation, and Chemical Bank, as Fiscal
Agent (filed as Exhibit 4.2 to the Registrant's Annual Report on Form
10-K for the fiscal year ended March 30, 1996 [File No. 1-9549] and
incorporated herein by reference).
20
<PAGE>
Exhibit
Number Description of Exhibit
4.2 Fiscal Agency Agreement dated as of May 5, 1995, among Thermo
Remediation Inc., Thermo Electron Corporation, and Chemical Bank, as
fiscal agent (filed as Exhibit 4.1 to Thermo Remediation Inc.'s
Annual Report on Form 10-K for the fiscal year ended April 4, 1998
[File No. 1-12636] and incorporated herein by reference).
The Registrant hereby agrees, pursuant to Item 601(b)(4)(iii) (A) of
Regulation S-K, to furnish to the Commission, upon request, a copy of
each other instrument with respect to other long-term debt of the
Company or its subsidiaries.
10.1 Thermo Electron Corporate Charter as amended and restated effective
January 3, 1993 (filed as Exhibit 10(a) to the Registrant's Annual
Report on Form 10-K for the fiscal year ended April 3, 1993 [File No.
1-9549] and incorporated herein by reference).
10.2 Amended and Restated Corporate Services Agreement dated January 3,
1993, between Thermo Electron Corporation and the Registrant (filed
as Exhibit 10(b) to the Registrant's Annual Report on Form 10-K for
the fiscal year ended April 3, 1993 [File No. 1-9549] and
incorporated herein by reference).
10.3 Agreement of Lease dated December 31, 1985, between
Claridge Properties Ltd. and Thermo Electron Corporation
(filed as Exhibit 10(c) to the Registrant's Registration
Statement on Form S-1 [Reg. No. 33-6763] and incorporated
herein by reference).
10.4 Assignment of Lease dated December 31, 1985, between Thermo
Electron Corporation and TMO, Inc. (filed as Exhibit 10(d) to
the Registrant's Registration Statement on Form S-1 [Reg. No.
33-6763] and incorporated herein by reference).
10.5 Sublease dated March 30, 1986, between TMO, Inc. and
Holcroft/Loftus, Inc. (filed as Exhibit 10(e) to the
Registrant's Registration Statement on Form S-1 [Reg. No.
33-6763] and incorporated herein by reference).
10.6 Lease Amending Agreement dated January 1, 1995, between
Claridge Properties Ltd., Thermo Electron Corporation,
and TMO, Inc. (filed as Exhibit 10.6 to the Registrant's
Annual Report on Form 10-K [File No. 1-9549] and
incorporated by reference).
21
<PAGE>
Exhibit
Number Description of Exhibit
10.7 Second Amendment to Sublease dated as of October 10, 1997, between
the Registrant and TMO, Inc. (filed as Exhibit 2.5 to the
Registrant's Current Report on Form 8-K dated October 6, 1997, and
incorporated herein by reference).
10.8 Sublease dated as of October 10, 1997, between the Registrant and
Holcroft L.L.C. (filed as Exhibit 2.6 to the Registrant's Current
Report on Form 8-K dated October 6, 1997 and incorporated herein by
reference).
10.9 Exclusive License and Marketing Agreement dated March 22, 1990, among
TPS Technologies Inc., Holcroft Inc., and Thermo Soil Recyclers Inc.
(filed as Exhibit 10(q) to the Registrant's Annual Report on Form
10-K for the fiscal year ended March 31, 1990 [File No. 1-9549] and
incorporated herein by reference).
10.10 Form of Indemnification Agreement with Directors and Officers (filed
as Exhibit 10(k) to the Registrant's Annual Report on Form 10-K for
the fiscal year ended March 30, 1991 [File No. 1-9549] and
incorporated herein by reference).
10.11 Development Agreement dated September 15, 1991, between Thermo
Electron Corporation and the Registrant (filed as Exhibit 10(l) to
the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter
ended September 28, 1991 [File No. 1-9549] and incorporated herein by
reference).
10.12 Amended and Restated Development Agreement dated January 2, 1992,
between Thermo Electron Corporation and the Registrant (filed as
Exhibit 10(m) to the Registrant's Annual Report on Form 10-K for the
fiscal year ended March 28, 1992 [File No. 1-9549] and incorporated
herein by reference).
10.13 Asset Transfer Agreement dated as of October 1, 1993, among the
Registrant, TPS Technologies Inc., and Thermo Remediation Inc.
(filed as Exhibit 2.3 to Thermo Remediation's Registration
Statement on Form S-1 [Reg. No. 33-70544] and incorporated
herein by reference).
10.14 Exclusive License Agreement dated as of October 1, 1993, among
the Registrant, TPS Technologies Inc., and Thermo Remediation
Inc. (filed as Exhibit 2.4 to Thermo Remediation's Registration
Statement on Form S-1 [Reg. No. 33-70544] and incorporated
herein by reference).
22
<PAGE>
Exhibit
Number Description of Exhibit
10.15 Non-Competition and Non-Disclosure Agreement dated as of
October 1, 1993, among the Registrant, TPS Technologies
Inc. and Thermo Remediation Inc. (filed as Exhibit 2.5 to
Thermo Remediation's Registration Statement on Form S-1
[Reg. No. 33-70544] and incorporated herein by reference).
10.16 Tax Allocation Agreement dated as of June 1, 1992,
between the Registrant and Thermo Remediation Inc. (filed
as Exhibit 10.3 to Thermo Remediation's Registration
Statement on Form S-1 [Reg. No. 33-70544] and
incorporated herein by reference).
10.17 Agreement of Partnership dated May 16, 1994, among Terra
Tech Labs Inc. (a wholly owned subsidiary of the
Registrant) and Eberline Analytical Corporation, Skinner
& Sherman, Inc., TMA/NORCAL Inc., Normandeau Associates
Inc., Bettigole Andrews & Clark Inc., Fellows, Read &
Associates Inc., and Thermo Consulting Engineers Inc.
(each a wholly owned subsidiary of Thermo Instrument
Systems Inc.; filed as Exhibit 1 to the Registrant's
Current Report on Form 8-K relating to the events
occurring on May 16, 1994 [File No. 1-9549] and
incorporated herein by reference).
10.18 Promissory Note dated May 16, 1994, issued by the Registrant to
Thermo Electron Corporation (filed as Exhibit 2 to the Registrant's
Current Report on Form 8-K relating to the events occurring on May
16, 1994 [File No. 1-9549] and incorporated herein by reference).
10.19 Agreement of Dissolution of Partnership dated May 9,
1995, among Thermo Terra Tech (the Partnership), Terra
Tech Labs, Inc. (a wholly owned subsidiary of the
Registrant) and Eberline Analytical Corporation, Skinner
& Sherman, Inc., TMA/NORCAL Inc., Normandeau Associates
Inc., Bettigole Andrews & Clark Inc., Fellows, Read &
Associates Inc., and Thermo Consulting Engineers Inc.
(each a wholly owned subsidiary of Thermo Instrument
Systems Inc.; filed as Exhibit 2.1 to the Registrant's
Current Report on Form 8-K relating to the events
occurring on May 9, 1995 [File No. 1-9549] and
incorporated herein by reference).
10.20 Stock Purchase Agreement dated May 9, 1995, between the Registrant
and Thermo Instrument Systems Inc. (filed as Exhibit 2.2 to the
Registrant's Current Report on Form 8-K relating to the events
occurring on May 9, 1995 [File No. 1-9549] and incorporated herein by
reference).
23
<PAGE>
Exhibit
Number Description of Exhibit
10.21 Note dated May 17, 1995, from the Registrant to Thermo Electron
Corporation (filed as Exhibit 2.3 to the Registrant's Current Report
on Form 8-K relating to the events occurring on May 9, 1995 [File No.
1-9549] and incorporated herein by reference).
10.22 Stock Purchase and Note Issuance Agreement dated as of
November 22, 1993, between the Registrant and Thermo
Remediation Inc. (filed as Exhibit 10.11 to Thermo
Remediation's Registration Statement on Form S-1 [Reg.
No. 33-70544] and incorporated herein by reference).
10.23 $2,650,000 principal amount Subordinated Convertible Note
dated as of November 22, 1993, made by Thermo
Remediation Inc., issued to the Registrant (filed as
Exhibit 10.12 to Thermo Remediation's Registration
Statement on Form S-1 [Reg. No. 33-70544] and
incorporated herein by reference).
10.24 Stock Purchase and Sale Agreement made and entered into
on February 6, 1995, to be effective as of January 29,
1995, by and between Nord Est S.A., the Registrant, and
Emil C. Herkert, Kenneth L. Zippler, Franklin O.
Williamson, Jr., Fletcher N. Platt, Jr., Eugene J.
Destefano, Meint Olthof, and Stanley P. Kaltnecker, Jr.
(filed as Exhibit 1 to the Registrant's Current Report on
Form 8-K relating to the events occurring on February 6,
1995 [File No. 1-9549] and incorporated herein by
reference).
10.25 Agreement and Plan of Merger dated as of June 28, 1995,
by and among the Registrant, Eberline Acquisition Inc.,
Thermo Remediation Inc., and Eberline Holdings Inc.
(filed as Appendix B to Thermo Remediation's Proxy
Statement for the Annual Meeting held on December 13,
1995 [File No. 1-12636] and incorporated herein by
reference).
10.26 $28,000,000 Secured Promissory Note dated as of January 29, 1995,
issued by the Registrant to Nord Est S.A. (filed as Exhibit 2 to the
Registrant's Current Report on Form 8-K relating to the events
occurring on February 6, 1995 [File No. 1-9549] and incorporated
herein by reference).
10.27 $38,000,000 Promissory Note dated as of February 21, 1995, issued by
the Registrant to Thermo Electron Corporation (filed as Exhibit 3 to
the Registrant's Current Report on Form 8-K relating to the events
occurring on February 6, 1995 [File No. 1-9549] and incorporated
herein by reference).
24
<PAGE>
Exhibit
Number Description of Exhibit
10.28 Asset Purchase Agreement by and among Thermo Analytical
Inc. (as Buyer); Lancaster Laboratories, Inc. and
Clewmark Holdings (as Sellers); and Earl H. Hess, Anita
F. Hess, Kenneth E. Hess, J. Wilson Hershey, and Carol D.
Hess (as the principal owners of Sellers) (filed as
Exhibit 1 to the Registrant's Current Report on Form 8-K
relating to the events occurring on May 10, 1995 [File
No. 1-9549] and incorporated herein by reference).
10.29 Agreement and Plan of Merger dated as of the first day of
December 1995, by and among Thermo Remediation Inc., TRI
Acquisition Inc., and Remediation Technologies, Inc.
(filed as Exhibit 2(a) to the Registrant's Current Report
on Form 8-K relating to the events occurring on December
8, 1995 [File No. 1-9549] and incorporated herein by
reference).
10.30 Purchase and Sale Agreement dated as of December 20,
1994, by and among TPS Technologies Inc., TPST Soil
Recyclers of Maryland Inc., Rafich Corporation, Harry
Ratrie, John C. Cyphers, and J. Thomas Hood (filed as
Exhibit 1 to Thermo Remediation's Current Report on Form
8-K for the events occurring on December 21, 1994 [File
No. 1-12636] and incorporated herein by reference).
10.31 Stock Purchase Agreement entered into on March 29, 1995,
by and among Stalt Holding, B.V., Beheersmaatschappij J.
Amerika N.V., A.J. Van Es, J.B. Van Es and D.A. Slager,
and the Registrant (filed as Exhibit 1 to the
Registrant's Current Report on Form 8-K relating to the
events occurring on March 29, 1995 [File No. 1-9549] and
incorporated herein by reference).
10.32 Master Repurchase Agreement dated January 1, 1994, between the
Registrant and Thermo Electron Corporation (filed as Exhibit 10.21 to
the Registrant's Annual Report on Form 10-K for the fiscal year ended
April 2, 1994 [File No. 1-9549] and incorporated herein by
reference).
10.33 Amended and Restated Master Guarantee Reimbursement and
Loan Agreement dated as of February 12, 1998, between
Thermo Remediation Inc. and Thermo Electron Corporation
(filed as Exhibit 10.13 to Thermo Remediation Inc.'s
Annual Report on Form 10-K for the fiscal year ended
April 4, 1998 [File No. 1-12636] and incorporated herein
by reference).
25
<PAGE>
Exhibit
Number Description of Exhibit
10.34 Master Guarantee Reimbursement and Loan Agreement dated as of
February 26, 1998, between The Randers Group Incorporated and Thermo
Electron Corporation (filed as Exhibit 10.11 to The Randers Group
Incorporated's Annual Report on Form 10-K for the fiscal year ended
April 4, 1998 [File No. 0-18095] and incorporated herein by
reference).
10.35 Amended and Restated Master Guarantee Reimbursement and Loan
Agreement dated as of February 26, 1998, between the Registrant and
Thermo Electron Corporation.
10.36 Thermo TerraTech Inc. - The Randers Group Incorporated Nonqualified
Stock Option Plan (filed as Exhibit 10.1 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended January 3, 1998
[File No. 1-9549] and incorporated herein by reference).
10.37 Incentive Stock Option Plan of the Registrant (filed as
Exhibit 10(h) to the Registrant's Registration Statement
on Form S-1 [Reg. No. 33-6763] and incorporated herein by
reference). (Maximum number of shares issuable in the
aggregate under this plan and the Registrant's
Nonqualified Stock Option Plan is 1,850,000 shares, after
adjustment to reflect share increases approved in 1987,
1989, and 1992, 6-for-5 stock splits effected in July
1988 and March 1989, and 3-for-2 stock split effected in
September 1989.)
10.38 Nonqualified Stock Option Plan of the Registrant (filed
as Exhibit 10(i) to the Registrant's Registration
Statement on Form S-1 [Reg. No. 33-6763] and incorporated
herein by reference). (Maximum number of shares issuable
in the aggregate under this plan and the Registrant's
Incentive Stock Option Plan is 1,850,000 shares, after
adjustment to reflect share increases approved in 1987,
1989, and 1992, 6-for-5 stock splits effected in July
1988 and March 1989, and 3-for-2 stock split effected in
September 1989.)
10.39 Deferred Compensation Plan for Directors of the
Registrant (filed as Exhibit 10(k) to the Registrant's
Registration Statement on Form S-1 [Reg. No. 33-6763] and
incorporated herein by reference).
10.40 Equity Incentive Plan (filed as Exhibit 10.63 to Thermedics Inc.'s
Annual Report on Form 10-K for the fiscal year ended January 1, 1994
[File No. 1-9567] and incorporated herein by reference; maximum
number of shares issuable is 1,750,000 shares, after adjustment to
reflect share increase approved in 1994).
26
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
10.41 Directors Stock Option Plan, as amended and restated effective
January 1, 1995 (filed as Exhibit 10.39 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended April 1, 1995 [File No.
1-9549] and incorporated herein by reference).
10.42 Thermo TerraTech Inc. (formerly Thermo Process Systems Inc.)- Thermo
Remediation Inc. Nonqualified Stock Option Plan (filed as Exhibit
10(l) to the Registrant's Quarterly Report on Form 10-Q for the
fiscal quarter ended January 1, 1994 [File No. 1-9549] and
incorporated herein by reference).
In addition to the stock-based compensation plans of the Registrant,
the executive officers of the Registrant may be granted awards under
stock-based compensation plans of Thermo Electron for services
rendered to the Registrant or to such affiliated corporations. The
terms of such plans are substantially the same as those of the
Registrant's Equity Incentive Plan.
10.43 Restated Stock Holdings Assistance Plan and Form of Executive Loan
(filed as Exhibit 10.42 to the Registrant's Annual Report on Form
10-K for the fiscal year ended March 29, 1997, and incorporated
herein by reference).
13 Annual Report to Shareholders for the fiscal year ended April 4, 1998
(only those portions incorporated herein by reference).
21 Subsidiaries of the Registrant.
23 Consent of Arthur Andersen LLP.
27.1 Financial Data Schedule for the year ended April 4, 1998.
27.2 Financial Data Schedule for the year ended March 30, 1996
(restated for the adoption of SFAS No. 128).
27.3 Financial Data Schedule for the quarter ended June 29,
1996 (restated for the adoption of SFAS No. 128).
27.4 Financial Data Schedule for the quarter ended September
28, 1996 (restated for the adoption of SFAS No. 128).
27.5 Financial Data Schedule for the quarter ended December
28, 1996 (restated for the adoption of SFAS No. 128).
27.6 Financial Data Schedule for the quarter ended June 28,
1997 (restated for the adoption of SFAS No. 128).
27
Exhibit 10.35
AMENDED AND RESTATED MASTER GUARANTEE REIMBURSEMENT
AND LOAN AGREEMENT
This AGREEMENT is entered into as of the 26th day of February, 1998 by and
among Thermo Electron Corporation (the "Parent") and those of its subsidiaries
that join in this Agreement by executing the signature page hereto (the
"Majority Owned Subsidiaries").
WITNESSETH:
WHEREAS, the majority owned subsidiaries and their wholly-owned
subsidiaries wish to enter into various financial transactions, such as
convertible or nonconvertible debt, loans, and equity offerings, and other
contractual arrangements with third parties (the "Underlying Obligations") and
may provide credit support to, on behalf of or for the benefit of, other
subsidiaries of the Parent ("Credit Support Obligations");
WHEREAS, the Majority Owned Subsidiaries and the Parent acknowledge that
the Majority Owned Subsidiaries and their wholly-owned subsidiaries may be
unable to enter into many kinds of Underlying Obligations without a guarantee of
their performance thereunder from the Parent (a "Parent Guarantee") or without
obtaining Credit Support Obligations from other Majority Owned Subsidiaries;
WHEREAS, the Majority Owned Subsidiaries and their wholly-owned
subsidiaries may borrow funds from the Parent, and the Parent may loan funds or
provide credit to the Majority Owned Subsidiaries and their wholly-owned
subsidiaries, on a short-term and unsecured basis;
WHEREAS, certain Majority Owned Subsidiaries ("Second Tier
Majority Owned Subsidiaries ") may themselves be majority owned
subsidiaries of other Majority Owned Subsidiaries ("First Tier
Majority Owned Subsidiaries");
WHEREAS, for various reasons, Parent Guarantees of a Second Tier Majority
Owned Subsidiary's Underlying Obligations may be demanded and given without the
respective First Tier Majority Owned Subsidiary also issuing a guarantee of such
Underlying
Obligation;
WHEREAS, the Parent may itself make a loan or provide other credit to a
Second Tier Majority Owned Subsidiary or its wholly-owned subsidiaries under
circumstances where the applicable First Tier Majority Owned Subsidiary does not
provide such credit; and
WHEREAS, the Parent is willing to consider continuing to issue Parent
Guarantees and providing credit, and the Majority Owned Subsidiaries are willing
to consider continuing to provide Credit Support Obligations and to borrow
funds, on the terms and conditions set forth below;
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by each party hereto, the parties agree as follows:
1. If the Parent provides a Parent Guarantee of an Underlying
Obligation, and the beneficiary(ies) of the Parent Guarantee
enforce the Parent Guarantee, or the Parent performs under
the Parent Guarantee for any other reason, then the Majority
Owned Subsidiary that is obligated, either directly or
indirectly through a wholly-owned subsidiary, under such
Underlying Obligation shall indemnify and save harmless the
Parent from any liability, cost, expense or damage
(including reasonable attorneys' fees) suffered by the
Parent as a result of the Parent Guarantee. If the
Underlying Obligation is issued by a Second Tier Majority
Owned Subsidiary or a wholly-owned subsidiary thereof, and
such Second Tier Majority Owned Subsidiary is unable to
fully indemnify the Parent (because of the poor financial
condition of such Second Tier Majority Owned Subsidiary, or
for any other reason), then the First Tier Majority Owned
Subsidiary that owns the majority of the stock of such
Second Tier Majority Owned Subsidiary shall indemnify and
save harmless the Parent from any remaining liability, cost,
expense or damage (including reasonable attorneys' fees)
suffered by the Parent as a result of the Parent Guarantee.
If a Majority Owned Subsidiary or a wholly-owned subsidiary
thereof provides a Credit Support Obligation for any
subsidiary of the Parent, other than a subsidiary of such
Majority Owned Subsidiary, and the beneficiary(ies) of the
Credit Support Obligation enforce the Credit Support
Obligation, or the Majority Owned Subsidiary or its
wholly-owned subsidiary performs under the Credit Support
Obligation for any other reason, then the Parent shall
indemnify and save harmless the Majority Owned Subsidiary or
its wholly-owned subsidiary, as applicable, from any
liability, cost, expense or damage (including reasonable
attorneys' fees) suffered by the Majority Owned Subsidiary
or its wholly-owned subsidiary, as applicable, as a result
of the Credit Support Obligation. Without limiting the
foregoing, Credit Support Obligations include the deposit of
funds by a Majority Owned Subsidiary or a wholly-owned
subsidiary thereof in a credit arrangement with a banking
facility whereby such funds are available to the banking
facility as collateral for overdraft obligations of other
Majority Owned Subsidiaries or their subsidiaries also
participating in the credit arrangement with such banking
facility.
2. For purposes of this Agreement, the term "guarantee" shall
include not only a formal guarantee of an obligation, but
also any other arrangement where the Parent is liable for
the obligations of a Majority Owned Subsidiary or its
wholly-owned subsidiaries. Such other arrangements include
(a) representations, warranties and/or covenants or other
obligations joined in by the Parent, whether on a joint or
joint and several basis, for the benefit of the Majority
Owned Subsidiary or its wholly-owned subsidiaries and (b)
responsibility of the Parent by operation of law for the
acts and omissions of the Majority Owned Subsidiary or its
wholly-owned subsidiaries, including controlling person
liability under securities and other laws.
3. Promptly after the Parent receives notice that a beneficiary
of a Parent Guarantee is seeking to enforce such Parent
Guarantee, the Parent shall notify the Majority Owned
Subsidiary(s) obligated, either directly or indirectly
through a wholly-owned subsidiary, under the relevant
Underlying Obligation. Such Majority Owned Subsidiary(s) or
wholly-owned subsidiary thereof, as applicable, shall have
the right, at its own expense, to contest the claim of such
beneficiary. If a Majority Owned Subsidiary or wholly-owned
subsidiary thereof, as applicable, is contesting the claim
of such beneficiary, the Parent will not perform under the
relevant Parent Guarantee unless and until, in the Parent's
reasonable judgment, the Parent is obligated under the terms
of such Parent Guarantee to perform. Subject to the
foregoing, any dispute between a Majority Owned Subsidiary
or wholly-owned subsidiary thereof, as applicable, and a
beneficiary of a Parent Guarantee shall not affect such
Majority Owned Subsidiary's obligation to promptly indemnify
the Parent hereunder. Promptly after a Majority Owned
Subsidiary or wholly-owned subsidiary thereof, as
applicable, receives notice that a beneficiary of a Credit
Support Obligation is seeking to enforce such Credit Support
Obligation, the Majority Owned Subsidiary shall notify the
Parent. The Parent shall have the right, at its own
expense, to contest the claim of such beneficiary. If the
Parent or the subsidiary of the Parent on whose behalf the
Credit Support Obligation is given is contesting the claim
of such beneficiary, the Majority Owned Subsidiary or
wholly-owned subsidiary thereof, as applicable, will not
perform under the relevant Credit Support Obligation unless
and until, in the Majority Owned Subsidiary's reasonable
judgment, the Majority Owned Subsidiary or wholly-owned
subsidiary thereof, as applicable, is obligated under the
terms of such Credit Support Obligation to perform. Subject
to the foregoing, any dispute between the Parent or the
subsidiary of the Parent on whose behalf the Credit Support
Obligation was given, on the one hand, and a beneficiary of
a Credit Support Obligation, on the other, shall not affect
the Parent's obligation to promptly indemnify the Majority
Owned Subsidiary or its wholly-owned subsidiary, as
applicable, hereunder.
4. Upon the request of a Majority Owned Subsidiary, the Parent
may make loans and advances to the Majority Owned Subsidiary
or its wholly-owned subsidiaries on a short-term, revolving
credit basis, from time to time in such amounts as mutually
determined by the Parent and the Majority Owned Subsidiary.
The aggregate principal amount of such loans and advances
shall be reflected on the books and records of the Majority
Owned Subsidiary (or wholly-owned subsidiary, as applicable)
and the Parent. All such loans and advances shall be on an
unsecured basis unless specifically provided otherwise in
loan documents executed at that time. The Majority Owned
Subsidiary or its wholly-owned subsidiaries, as applicable,
shall pay interest on the aggregate unpaid principal amount
of such loans from time to time outstanding at a rate
("Interest Rate") equal to the rate of the Commercial Paper
Composite Rate for 90-day maturities as reported by Merrill
Lynch Capital Markets, as an average of the last five
business days of such Majority Owned Subsidiary's latest
fiscal quarter then ended, plus twenty-five (25) basis
points. The Interest Rate shall be adjusted on the first
business day of each fiscal quarter of such Majority Owned
Subsidiary pursuant to the Interest Rate formula contained
in the preceding sentence and shall be in effect for the
entirety of such fiscal quarter. Interest shall be computed
on a 360-day basis. The aggregate principal amount
outstanding and accrued interest thereon shall be payable on
demand. The principal and accrued interest may be paid by
the Majority Owned Subsidiaries or their wholly-owned
subsidiaries, as applicable, at any time or from time to
time, in whole or in part, without premium or penalty. All
payments shall be applied first to accrued interest and then
to principal. Principal and interest shall be payable in
lawful money of the United States of America, in immediately
available funds, at the principal office of the Parent or at
such other place as the Parent may designate from time to
time in writing to the Majority Owned Subsidiary. The
unpaid principal amount of any such borrowings, and accrued
interest thereon, shall become immediately due and payable,
without demand, upon the failure of the Majority Owned
Subsidiary or its wholly-owned subsidiary, as applicable, to
pay its debts as they become due, the insolvency of the
Majority Owned Subsidiary or its wholly-owned subsidiary, as
applicable, the filing by or against the Majority Owned
Subsidiary or its wholly-owned subsidiary, as applicable, of
any petition under the U.S. Bankruptcy Code (or the filing
of any similar petition under the insolvency law of any
jurisdiction), or the making by the Majority Owned
Subsidiary or its wholly-owned subsidiary, as applicable, of
an assignment or trust mortgage for the benefit of creditors
or the appointment of a receiver, custodian or similar agent
with respect to, or the taking by any such person of
possession of, any property of the Majority Owned Subsidiary
or its wholly-owned subsidiary, as applicable. In case any
payments of principal and interest shall not be paid when
due, the Majority Owned Subsidiary or its wholly-owned
subsidiary, as applicable, further promises to pay all cost
of collection, including reasonable attorneys' fees.
5. If the Parent makes a loan or provides other credit ("Credit
Extension") to a Second Tier Majority Owned Subsidiary, the
First Tier Majority Owned Subsidiary that owns the majority
of the stock of such Second Tier Majority Owned Subsidiary
hereby guarantees the Second Tier Majority Owned
Subsidiary's obligations to the Parent thereunder. Such
guaranty shall be enforced only after the Parent, in its
reasonable judgment, determines that the Second Tier
Majority Owned Subsidiary is unable to fully perform its
obligations under the Credit Extension. If the Parent
provides Credit Extension to a wholly-owned subsidiary of a
Second Tier Majority Owned Subsidiary, the Second Tier
Majority Owned Subsidiary hereby guarantees it wholly-owned
subsidiary's obligations to the Parent thereunder and the
First Tier Majority Owned Subsidiary that owns the majority
of the stock of such Second Tier Majority Owned Subsidiary
hereby guarantees the Second Tier Majority Owned
Subsidiary's obligations to the Parent hereunder. Such
guaranty by the First Tier Majority Owned Subsidiary shall
be enforced only after the Parent, in its reasonable
judgment, determines that the Second Tier Majority Owned
Subsidiary is unable to fully perform its guaranty
obligation hereunder.
6. All payments required to be made by a Majority Owned Subsidiary or its
wholly-owned subsidiaries, as applicable, shall be made within two days
after receipt of notice from the Parent. All payments required to be made
by the Parent shall be made within two days after receipt of notice from
the Majority Owned Subsidiary.
7. This Agreement shall be governed by and construed in accordance with the
laws of the Commonwealth of Massachusetts applicable to contracts made and
performed therein.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized officers as of the date first above written.
THERMO ELECTRON CORPORATION
By: /s/ Melissa F. Riordan
Melissa F. Riordan
Title: Treasurer
THERMO TERRATECH INC.
By: /s/ John P. Appleton
John P. Appleton
Title: President
Exhibit 10.43
THERMO TERRATECH INC.
RESTATED STOCK HOLDING ASSISTANCE PLAN
SECTION 1. Purpose.
The purpose of this Plan is to benefit Thermo TerraTech Inc. (the
"Company") and its stockholders by encouraging Key Employees to acquire and
maintain share ownership in the Company, by increasing such employees'
proprietary interest in promoting the growth and performance of the Company and
its subsidiaries and by providing for the implementation of the Stock Holding
Policy.
SECTION 2. Definitions.
The following terms, when used in the Plan, shall have the meanings set
forth below:
Committee: The Human Resources Committee of the Board of
Directors of the Company as appointed from time to time.
Common Stock: The common stock of the Company and any
successor thereto.
Company: Thermo TerraTech Inc., a Delaware corporation.
Stock Holding Policy: The Stock Holding Policy of the
Company, as adopted by the Committee and as in effect from time
to time.
Key Employee: Any employee of the Company or any of its subsidiaries,
including any officer or member of the Board of Directors who is also an
employee, as designated by the Committee, and who, in the judgment of the
Committee, will be in a position to contribute significantly to the attainment
of the Company's strategic goals and long-term growth and prosperity.
Loans: Loans extended to Key Employees by the Company
pursuant to this Plan.
Plan: Thermo TerraTech Inc. Stock Holding Assistance Plan,
as amended from time to time.
SECTION 3. Administration.
The Plan and the Stock Holding Policy shall be administered by the
Committee, which shall have authority to interpret the Plan and the Stock
Holding Policy and, subject to their provisions, to prescribe, amend and rescind
any rules and regulations and to make all other determinations necessary or
desirable for the administration thereof. The Committee's interpretations and
decisions with regard to the Plan and the Stock Holding Policy and such rules
and regulations as may be established thereunder shall be final and conclusive.
The Committee may correct any defect or supply any omission or reconcile any
inconsistency in the Plan or the Stock Holding Policy, or in any Loan in the
manner and to the extent the Committee deems desirable to carry it into effect.
No member of the Committee shall be liable for any action or omission in
connection with the Plan or the Stock Holding Policy that is made in good faith.
SECTION 4. Loans and Loan Limits.
The Committee has determined that the provision of Loans from time to time
to Key Employees in such amounts as to cause such Key Employees to comply with
the Stock Holding Policy is, in the judgment of the Committee, reasonably
expected to benefit the Company and authorizes the Company to extend Loans from
time to time to Key Employees in such amounts as may be requested by such Key
Employees in order to comply with the Stock Holding Policy. Such Loans may be
used solely for the purpose of acquiring Common Stock (other than upon the
exercise of stock options or under employee stock purchase plans) in open market
transactions or from the Company.
Each Loan shall be full recourse and evidenced by a non-interest bearing
promissory note substantially in the form attached hereto as Exhibit A (the
"Note") and maturing in accordance with the provisions of Section 6 hereof, and
containing such other terms and conditions, which are not inconsistent with the
provisions of the Plan and the Stock Holding Policy, as the Committee shall
determine in its sole and absolute discretion.
SECTION 5. Federal Income Tax Treatment of Loans.
For federal income tax purposes, interest on Loans shall be imputed on any
interest free Loan extended under the Plan. A Key Employee shall be deemed to
have paid the imputed interest to the Company and the Company shall be deemed to
have paid said imputed interest back to the Key Employee as additional
compensation. The deemed interest payment shall be taxable to the Company as
income, and may be deductible to the Key Employee to the extent allowable under
the rules relating to investment interest. The deemed compensation payment to
the Key Employee shall be taxable to the employee and deductible to the Company,
but shall also be subject to employment taxes such as FICA and FUTA.
SECTION 6. Maturity of Loans.
Each Loan to a Key Employee hereunder shall be due and payable on demand
by the Company. If no such demand is made, then each Loan shall mature and the
principal thereof shall become due and payable on the fifth anniversary of the
date of the Loan, provided that the Committee may, in its sole and absolute
discretion, authorize such other maturity and repayment schedule as the
Committee may determine. Each Loan shall also become immediately due and payable
in full, without demand, upon the occurrence of any of the events set forth in
the Note; provided that the Committee may, in its sole and absolute discretion,
authorize an extension of the time for repayment of a Loan upon such terms and
conditions as the Committee may determine.
SECTION 7. Amendment and Termination of the Plan.
The Committee may from time to time alter or amend the Plan or the Stock
Holding Policy in any respect, or terminate the Plan or the Stock Holding Policy
at any time. No such amendment or termination, however, shall alter or otherwise
affect the terms and conditions of any Loan then outstanding to Key Employee
without such Key Employee's written consent, except as otherwise provided herein
or in the promissory note evidencing such Loan.
SECTION 8. Miscellaneous Provisions.
(a) No employee or other person shall have any claim or right to receive a
Loan under the Plan, and no employee shall have any right to be retained in the
employ of the Company due to his or her participation in the Plan.
(b) No Loan shall be made hereunder unless counsel for the Company shall
be satisfied that such Loan will be in compliance with applicable federal, state
and local laws.
(c) The expenses of the Plan shall be borne by the Company.
(d) The Plan shall be unfunded, and the Company shall not be required to
establish any special or separate fund or to make any other segregation of
assets to assure the making of any Loan under the Plan.
(e) Except as otherwise provided in Section 7 hereof, by accepting any
Loan under the Plan, each Key Employee shall be conclusively deemed to have
indicated his acceptance and ratification of, and consent to, any action taken
under the Plan or the Stock Holding Policy by the Company, the Board of
Directors of the Company or the Committee.
(f) The appropriate officers of the Company shall cause to be filed any
reports, returns or other information regarding Loans hereunder, as may be
required by any applicable statute, rule or regulation.
SECTION 9. Effective Date.
The Plan and the Stock Holding Policy shall become effective upon approval
and adoption by the Committee.
DOC # 1113
TTT STOCK HOLDING ASSISTANCE PLAN
<PAGE>
EXHIBIT A TO STOCK HOLDING ASSISTANCE PLAN
THERMO TERRATECH INC.
Promissory Note
$---------
Dated:____________
For value received, ________________, an individual whose residence is
located at _______________________ (the "Employee"), hereby promises to pay to
Thermo TerraTech Inc. (the "Company"), or assigns, ON DEMAND, but in any case on
or before [insert date which is the fifth anniversary of date of issuance] (the
"Maturity Date"), the principal sum of [loan amount in words] ($_______), or
such part thereof as then remains unpaid, without interest. Principal shall be
payable in lawful money of the United States of America, in immediately
available funds, at the principal office of the Company or at such other place
as the Company may designate from time to time in writing to the Employee.
Unless the Company has already made a demand for payment in full of this
Note, the Employee agrees to repay to the Company from the Employee's annual
cash incentive compensation (referred to as bonus), beginning with the first
such bonus payment to occur after the date of this Note and on each of the next
four bonus payment dates occurring prior to the Maturity Date, such amount as
may be designated by the Company. Any amount remaining unpaid under this Note,
if no demand has been made by the Company, shall be due and payable on the
Maturity Date.
This Note may be prepaid at any time or from time to time, in whole or in
part, without any premium or penalty. The Employee acknowledges and agrees that
the Company has advanced to the Employee the principal amount of this Note
pursuant to the Company's Stock Holding Assistance Plan, and that all terms and
conditions of such Plan are incorporated herein by reference.
The unpaid principal amount of this Note shall be and become immediately
due and payable without notice or demand, at the option of the Company, upon the
occurrence of any of the following events:
(a) the termination of the Employee's employment with the Company,
with or without cause, for any reason or for no reason;
(b) the death or disability of the Employee;
(c) the failure of the Employee to pay his or her debts as they
become due, the insolvency of the Employee, the filing by or against the
Employee of any petition under the United States Bankruptcy Code (or the
filing of any similar petition under the insolvency law of any
jurisdiction), or the making by the Employee of an assignment or trust
mortgage for the benefit of creditors or the appointment of a receiver,
custodian or similar agent with respect to, or the taking by any such
person of possession of, any property of the Employee; or
(d) the issuance of any writ of attachment, by trustee process or
otherwise, or any restraining order or injunction not removed, repealed or
dismissed within thirty (30) days of issuance, against or affecting the
person or property of the Employee or any liability or obligation of the
Employee to the Company.
In case any payment herein provided for shall not be paid when due, the
Employee further promises to pay all costs of collection, including all
reasonable attorneys' fees.
No delay or omission on the part of the Company in exercising any right
hereunder shall operate as a waiver of such right or of any other right of the
Company, nor shall any delay, omission or waiver on any one occasion be deemed a
bar to or waiver of the same or any other right on any future occasion. The
Employee hereby waives presentment, demand, notice of prepayment, protest and
all other demands and notices in connection with the delivery, acceptance,
performance, default or enforcement of this Note. The undersigned hereby assents
to any indulgence and any extension of time for payment of any indebtedness
evidenced hereby granted or permitted by the Company.
This Note has been made pursuant to the Company's Stock Holding Assistance
Plan and shall be governed by and construed in accordance with, such Plan and
the laws of the State of Delaware and shall have the effect of a sealed
instrument.
-------------------------------
Employee Name: _________________
- ------------------------
Witness
DOC # 1113
TTT STOCK HOLDING ASSISTANCE PLAN
Exhibit 13
THERMO TERRATECH INC.
Consolidated Financial Statements
Fiscal 1998
<PAGE>
Thermo TerraTech Inc. 1998 Financial Statements
Consolidated Statement of Operations
Year Ended
April 4, March 29, March 30,
(In thousands except per share amounts) 1998 1997 1996
- --------------------------------------------------------------------------
Revenues (Note 12):
Service revenues $281,456 $251,384 $200,814
Product revenues 17,330 27,119 19,670
-------- -------- --------
298,786 278,503 220,484
-------- -------- --------
Costs and Operating Expenses:
Cost of service revenues 230,376 204,724 152,451
Cost of product revenues 14,735 22,677 17,001
Selling, general, and administrative
expenses (Note 8) 40,733 38,145 34,747
Product and new business development
expenses 1,148 1,046 1,086
Nonrecurring costs (Note 13) - 7,800 4,995
-------- -------- --------
286,992 274,392 210,280
-------- -------- --------
Operating Income 11,794 4,111 10,204
Interest Income 4,163 7,253 5,102
Interest Expense (includes $593,
$2,638, and $5,610 to parent company) (10,778) (12,914) (10,730)
Gain on Issuance of Stock by
Subsidiaries (Note 10) - 1,475 4,127
Gain (Loss) on Sale of Businesses and
Assets, Net (Note 3) 2,952 (1,482) (569)
Equity in Earnings of Unconsolidated
Subsidiary (Note 14) 174 865 -
Gain on Sale of Investments, Net (Note 2) - 195 180
Other Income, Net 209 206 -
-------- -------- --------
Income (Loss) Before Provision for Income
Taxes and Minority Interest 8,514 (291) 8,314
Provision for Income Taxes (Note 5) (5,146) (1,705) (3,644)
Minority Interest Income (Expense) (95) 1,834 (1,223)
-------- -------- --------
Net Income (Loss) $ 3,273 $ (162) $ 3,447
======== ======== ========
Earnings (Loss) per Share (Note 16):
Basic $ .18 $ (.01) $ .20
======== ======== ========
Diluted $ .17 $ (.01) $ .18
======== ======== ========
Weighted Average Shares (Note 16):
Basic 18,700 18,090 17,420
======== ======== ========
Diluted 18,978 18,090 18,264
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE>
Thermo TerraTech Inc. 1998 Financial Statements
Consolidated Balance Sheet
April 4, March 29,
(In thousands) 1998 1997
- --------------------------------------------------------------------------
Assets
Current Assets:
Cash and cash equivalents (includes $29,583
and $59,781 under repurchase agreement
with parent company) $ 34,711 $ 63,172
Available-for-sale investments, at quoted market
value (amortized cost of $2,008 and $18,380;
Note 2) 2,003 18,391
Short-term held-to-maturity investments, at
amortized cost (quoted market value of
$13,979 and $13,238; Note 2) 13,939 12,971
Accounts receivable, less allowances of
$4,450 and $3,838 60,050 49,191
Unbilled contract costs and fees 20,547 29,053
Inventories 1,498 3,021
Prepaid and refundable income taxes (Note 5) 6,224 7,369
Prepaid expenses 3,810 3,870
-------- --------
142,782 187,038
-------- --------
Property, Plant, and Equipment, at Cost, Net 91,709 83,566
-------- --------
Long-term Held-to-maturity Investments, at
Amortized Cost (quoted market value of
$13,142; Note 2) - 13,086
-------- --------
Other Assets 18,227 17,308
-------- --------
Cost in Excess of Net Assets of Acquired
Companies (Notes 3 and 13) 107,808 92,786
-------- --------
$360,526 $393,784
======== ========
3
<PAGE>
Thermo TerraTech Inc. 1998 Financial Statements
Consolidated Balance Sheet (continued)
April 4, March 29,
(In thousands except share amounts) 1998 1997
- --------------------------------------------------------------------------
Liabilities and Shareholders' Investment
Current Liabilities:
Notes payable and current maturities of
long-term obligations (includes $38,000 due
to parent company in 1997; Note 6) $ 27,165 $ 67,495
Accounts payable 17,728 12,292
Accrued payroll and employee benefits 11,359 12,182
Billings in excess of revenues earned 1,314 4,319
Other accrued expenses 13,556 10,509
Due to parent company 2,341 2,926
-------- --------
73,463 109,723
-------- --------
Deferred Income Taxes (Note 5) 2,901 5,297
-------- --------
Other Deferred Items 1,049 893
-------- --------
Long-term Obligations (Notes 6 and 11):
Subordinated convertible debentures (includes
$3,000 of related-party debt) 149,800 149,800
Other 3,344 15,386
-------- --------
153,144 165,186
-------- --------
Minority Interest 32,839 29,159
-------- --------
Commitments and Contingencies (Note 7)
Shareholders' Investment (Notes 4 and 9):
Common stock, $.10 par value, 75,000,000
shares authorized; 19,583,773 and 18,304,424
shares issued 1,958 1,830
Capital in excess of par value 70,437 62,610
Retained earnings 27,319 24,046
Treasury stock at cost, 51,188 and 417,696
shares (484) (3,941)
Cumulative translation adjustment (2,097) (1,026)
Net unrealized gain (loss) on available-for-sale
investments (Note 2) (3) 7
-------- --------
97,130 83,526
-------- --------
$360,526 $393,784
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
Thermo TerraTech Inc. 1998 Financial Statements
Consolidated Statement of Cash Flows
Year Ended
April 4, March 29, March 30,
(In thousands) 1998 1997 1996
- --------------------------------------------------------------------------
Operating Activities:
Net income (loss) $ 3,273 $ (162) $ 3,447
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 14,784 12,900 11,005
Nonrecurring costs (Note 13) - 7,800 4,995
(Gain) loss on sale of businesses
and assets, net (Note 3) (2,952) 1,482 569
Equity in earnings of unconsolidated
subsidiary (Note 14) (174) (865) -
Minority interest (income) expense 95 (1,834) 1,223
Provision for losses on accounts
receivable 1,141 625 85
Other noncash items 267 430 1,337
Decrease in deferred income taxes (1,583) (43) (648)
Gain on issuance of stock by
subsidiaries (Note 10) - (1,475) (4,127)
Changes in current accounts,
excluding the effects of
acquisitions and dispositions:
Accounts receivable (11,154) (6,818) 1,313
Inventories and unbilled
contract costs and fees (3,353) (7,784) (5,411)
Other current assets 1,715 403 387
Accounts payable 5,507 895 (3,277)
Current liabilities (1,038) 3,399 (1,826)
-------- -------- --------
Net cash provided by operating activities 6,528 8,953 9,072
-------- -------- --------
Investing Activities:
Acquisitions, net of cash acquired
(Note 3) (12,746) (5,156) (43,824)
Purchase of minority interest in joint
venture (Note 3) - - (34,267)
Purchases of available-for-sale
investments - (38,913) (30,864)
Proceeds from sale and maturities of
available-for-sale investments 16,372 29,822 37,795
Proceeds from maturity of held-to-
maturity investments (Note 2) 13,935 - -
Purchases of property, plant, and
equipment (18,460) (15,426) (16,779)
Proceeds from sale of businesses
(Note 3) 19,722 347 -
Issuances of notes receivable (569) - (653)
Increase in other assets (1,993) (450) (1,090)
Other 2,464 1,356 426
-------- -------- --------
Net cash provided by (used in) investing
activities $ 18,725 $(28,420) $(89,256)
-------- -------- --------
5
<PAGE>
Thermo TerraTech Inc. 1998 Financial Statements
Consolidated Statement of Cash Flows (continued)
Year Ended
April 4, March 29, March 30,
(In thousands) 1998 1997 1996
- --------------------------------------------------------------------------
Financing Activities:
Net proceeds from issuance of
subordinated convertible
debentures $ - $112,398 $ 36,889
Issuance of note payable to parent
company (Note 6) - - 35,000
Repayment of notes payable to parent
company (Note 6) (38,000) (50,000) (4,000)
Proceeds from issuance of Company and
subsidiaries' common stock (Note 10) 1,148 5,346 7,662
Repurchase of Company and subsidiary
common stock and subordinated
convertible debentures (7,355) (14,984) -
Issuance of short-term obligations 6,171 803 2,178
Repayment of notes payable (Note 2) (14,878) (736) (688)
Dividends paid by subsidiary to
minority shareholders (751) (847) (810)
Other - (266) (253)
-------- -------- --------
Net cash provided by (used in)
financing activities (53,665) 51,714 75,978
-------- -------- --------
Exchange Rate Effect on Cash (49) (257) (420)
-------- -------- --------
Increase (Decrease) in Cash and Cash
Equivalents (28,461) 31,990 (4,626)
Cash and Cash Equivalents at Beginning
of Year 63,172 31,182 35,808
-------- -------- --------
Cash and Cash Equivalents at End of Year $ 34,711 $ 63,172 $ 31,182
======== ======== ========
See Note 15 for supplemental cash flow information.
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
Thermo TerraTech Inc. 1998 Financial Statements
Consolidated Statement of Shareholders' Investment
Year Ended
April 4, March 29, March 30,
(In thousands) 1998 1997 1996
- -------------------------------------------------------------------------
Common Stock, $.10 Par Value
Balance at beginning of year $ 1,830 $ 1,760 $ 1,741
Issuance of stock under employees'
and directors' stock plans - 24 15
Conversions of subordinated
convertible debentures (Note 6) 128 46 4
------- ------- -------
Balance at end of year 1,958 1,830 1,760
------- ------- -------
Capital in Excess of Par Value
Balance at beginning of year 62,610 59,419 53,559
Activity under employees' and
directors' stock plans (5,490) 264 268
Tax benefit related to employees'
and directors' stock plans 655 461 585
Conversions of subordinated
convertible debentures (Note 6) 13,092 4,766 351
Effect of majority-owned subsidiaries'
equity transactions (430) (2,300) 4,656
------- ------- -------
Balance at end of year 70,437 62,610 59,419
------- ------- -------
Retained Earnings
Balance at beginning of year 24,046 24,474 21,343
Net income (loss) 3,273 (162) 3,447
Metal Treating, Inc. transfer of cash
to parent company (Note 3) - (266) (316)
------- ------- -------
Balance at end of year 27,319 24,046 24,474
------- ------- -------
Treasury Stock
Balance at beginning of year (3,941) (410) (864)
Activity under employees' and
directors' stock plans 6,637 260 454
Purchases of Company common stock (3,180) (3,791) -
------- ------- -------
Balance at end of year $ (484) $(3,941) $ (410)
------- ------- -------
7
<PAGE>
Thermo TerraTech Inc. 1998 Financial Statements
Consolidated Statement of Shareholders' Investment (continued)
Year Ended
April 4, March 29, March 30,
(In thousands) 1998 1997 1996
- -------------------------------------------------------------------------
Cumulative Translation Adjustment
Balance at beginning of year $(1,026) $ 635 $ 1,526
Translation adjustment (1,071) (1,661) (891)
------- ------- ----------
Balance at end of year (2,097) (1,026) 635
------- ------- ----------
Net Unrealized Gain (Loss) on Available-
for-sale Investments
Balance at beginning of year 7 (8) (88)
Change in net unrealized gain (loss)
on available-for-sale investments
(Note 2) (10) 15 80
------- ------- -------
Balance at end of year (3) 7 (8)
------- ------- -------
Total Shareholders' Investment $97,130 $83,526 $85,870
======= ======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
8
<PAGE>
Thermo TerraTech Inc. 1998 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations
Thermo TerraTech Inc. (the Company) provides industrial outsourcing
services and manufacturing support encompassing a broad range of
specializations, including infrastructure engineering, design and construction,
environmental compliance, laboratory testing, and metal treating.
Relationship with Thermo Electron Corporation
The Company was incorporated on May 30, 1986, as an indirect, wholly owned
subsidiary of Thermo Electron Corporation. As of April 4, 1998, Thermo Electron
owned 15,935,435 shares of the Company's common stock, representing 82% of such
stock outstanding.
Principles of Consolidation
The accompanying financial statements include the accounts of the Company;
its wholly owned subsidiaries; its majority-owned public subsidiaries, Thermo
Remediation Inc. and The Randers Group Incorporated; and its majority-owned,
privately held Thermo EuroTech N.V. subsidiary. All material intercompany
accounts and transactions have been eliminated. The Company accounted for its
investment in a business in which it owned 50% using the equity method. In
October 1997, the Company sold this investment (Note 3).
Presentation
Certain amounts in fiscal 1997 and 1996 have been reclassified to conform
to the fiscal 1998 financial statement presentation.
Fiscal Year
The Company has adopted a fiscal year ending the Saturday nearest March 31.
References to fiscal 1998, 1997, and 1996 are for the fiscal years ended April
4, 1998, March 29, 1997, and March 30, 1996, respectively. Fiscal year 1998
included 53 weeks; fiscal 1997 and 1996 each included 52 weeks.
Revenue Recognition
For the majority of its operations, the Company recognizes revenues upon
completion of the services it renders.
Revenues and profits on substantially all contracts are recognized using
the percentage-of-completion method. Revenues recorded under the
percentage-of-completion method were $117,464,000 in fiscal 1998, $113,481,000
in fiscal 1997, and $45,607,000 in fiscal 1996. The percentage of completion is
determined by relating either the actual costs or actual labor incurred to date
to management's estimate of total costs or total labor, respectively, to be
incurred on each contract. If a loss is indicated on any contract in process, a
provision is made currently for the entire loss. The Company's contracts
generally provide for billing of customers upon the attainment of certain
milestones specified in each contract. Revenues earned on contracts in process
in excess of billings are classified as unbilled contract costs and fees in the
accompanying balance sheet. There are no significant amounts included
9
<PAGE>
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
in the accompanying balance sheet that are not expected to be recovered from
existing contracts at current contract values, or that are not expected to be
collected within one year, including amounts that are billed but not paid under
retainage provisions.
Revenues from soil-remediation services are recognized as soil is
processed. The Company bills customers upon receipt of contaminated soil at its
remediation centers. Amounts billed in excess of revenues recognized are
classified as billings in excess of revenues earned in the accompanying balance
sheet.
Gain on Issuance of Stock by Subsidiaries
At the time a subsidiary sells its stock to unrelated parties at a price in
excess of its book value, the Company's net investment in that subsidiary
increases. If at that time the subsidiary is an operating entity and not engaged
principally in research and development, the Company records the increase as a
gain (Note 10).
If gains have been recognized on issuances of a subsidiary's stock and
shares of the subsidiary are subsequently repurchased either by the subsidiary,
the Company, or Thermo Electron, gain recognition does not occur on issuances
subsequent to the date of a repurchase until such time as shares have been
issued in an amount equivalent to the number of repurchased shares. Such
transactions are reflected as equity transactions and the net effect of these
transactions is reflected in the accompanying statement of shareholders'
investment as effect of majority-owned subsidiaries' equity transactions.
Stock-based Compensation Plans
The Company applies Accounting Principles Board Opinion (APB) No. 25,
"Accounting for Stock Issued to Employees," and related interpretations in
accounting for its stock-based compensation plans (Note 4). Accordingly, no
accounting recognition is given to stock options granted at fair market value
until they are exercised. Upon exercise, net proceeds, including tax benefits
realized, are credited to equity.
Income Taxes
The Company and Thermo Electron have a tax allocation agreement under which
the Company and certain of its subsidiaries, exclusive of foreign operations,
are included in Thermo Electron's consolidated federal and certain state income
tax returns. The agreement provides that in years in which the Company has
taxable income, it will pay to Thermo Electron amounts comparable to the taxes
the Company would have paid if it had filed separate tax returns. If Thermo
Electron's equity ownership of the Company were to drop below 80%, the Company
would be required to file its own federal income tax return.
In accordance with Statement of Financial Accounting Standards (SFAS) No.
109, "Accounting for Income Taxes," the Company recognizes deferred income taxes
based on the expected future tax consequences of differences between the
financial statement basis and the tax basis of assets and liabilities calculated
using enacted tax rates in effect for the year in which the differences are
expected to be reflected in the tax return.
10
<PAGE>
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
Earnings per Share
During the quarter ended January 3, 1998, the Company adopted SFAS No. 128,
"Earnings per Share" (Note 16). As a result, all previously reported earnings
per share have been restated. Basic earnings per share have been computed by
dividing net income by the weighted average number of shares outstanding during
the year. Except where the result would be antidilutive, diluted earnings per
share have been computed assuming the conversion of convertible obligations and
the elimination of the related interest expense, and the exercise of stock
options and warrants, as well as their related income tax effects.
Cash and Cash Equivalents
At fiscal year-end 1998 and 1997, $29,583,000 and $59,781,000,
respectively, of the Company's cash equivalents were invested in a repurchase
agreement with Thermo Electron. Under this agreement, the Company in effect
lends excess cash to Thermo Electron, which Thermo Electron collateralizes with
investments principally consisting of corporate notes, commercial paper, U.S.
government-agency securities, money market funds, and other marketable
securities, in the amount of at least 103% of such obligation. The Company's
funds subject to the repurchase agreement are readily convertible into cash by
the Company. The repurchase agreement earns a rate based on the 90-day
Commercial Paper Composite Rate plus 25 basis points, set at the beginning of
each quarter. At fiscal year-end 1998 and 1997, the Company's cash equivalents
also included investments in a money market fund, which have an original
maturity of three months or less. Cash equivalents are carried at cost, which
approximates fair market value.
Inventories
Inventories are stated at the lower of cost (on an average-cost basis) or
market value and include materials, labor, and manufacturing overhead. The
components of inventories are as follows:
(In thousands) 1998 1997
- --------------------------------------------------------------------------
Raw Materials and Supplies $ 618 $2,483
Work in Process and Finished Goods 880 538
------ ------
$1,498 $3,021
====== ======
Property, Plant, and Equipment
The costs of additions and improvements are capitalized, while maintenance
and repairs are charged to expense as incurred. The Company provides for
depreciation and amortization primarily using the straight-line method over the
estimated useful lives of the property as follows: buildings and improvements, 5
to 40 years; machinery and equipment, 2 to 12 years; and leasehold improvements,
the shorter of the term of the lease or the life of the asset. Soil-remediation
units, which
11
<PAGE>
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
accounted for 12% and 16% of the Company's machinery and equipment, net, at
fiscal year-end 1998 and 1997, respectively, are depreciated based on an hourly
rate that is computed by estimating total hours of operation for each unit.
Property, plant, and equipment consists of the following:
(In thousands) 1998 1997
- --------------------------------------------------------------------------
Land $ 7,743 $ 7,412
Buildings 38,785 33,545
Machinery, Equipment, and Leasehold Improvements 95,840 91,375
-------- --------
142,368 132,332
Less: Accumulated Depreciation and Amortization 50,659 48,766
-------- --------
$ 91,709 $ 83,566
======== ========
Other Assets
Other assets in the accompanying balance sheet includes the costs of
acquired technology and other specifically identifiable intangible assets that
are being amortized using the straight-line method over their estimated useful
lives, ranging from 5 to 20 years. These assets were $5,212,000 and $6,150,000,
net of accumulated amortization of $5,716,000 and $4,655,000, at fiscal year-end
1998 and 1997, respectively.
Cost in Excess of Net Assets of Acquired Companies
The excess of cost over thefair value of net assets of acquired
companies is amortized using the straight-line method over periods not exceeding
40 years. Accumulated amortization was $13,651,000 and $10,921,000 at fiscal
year-end 1998 and 1997, respectively. The Company assesses the future useful
life of this asset whenever events or changes in circumstances indicate that the
current useful life has diminished (Note 13). The Company considers the future
undiscounted cash flows of the acquired companies in assessing the
recoverability of this asset. If impairment has occurred, any excess of carrying
value over fair value is recorded as a loss.
Foreign Currency
All assets and liabilities of the Company's foreign subsidiaries are
translated at year-end exchange rates, and revenues and expenses are translated
at average exchange rates for the year in accordance with SFAS No. 52, "Foreign
Currency Translation." Resulting translation adjustments are reflected as a
separate component of shareholders' investment titled "Cumulative translation
adjustment." Foreign currency transaction gains and losses are included in the
accompanying statement of operations and are not material for the three years
presented.
12
<PAGE>
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. Available-for-sale and Held-to-maturity Investments
In accordance with SFAS No. 115, "Accounting for Certain Investments in Debt
and Equity Securities," the Company's debt securities are considered
available-for-sale investments in the accompanying balance sheet and are carried
at market value, with the difference between cost and market value, net of
related tax effects, recorded currently as a component of shareholders'
investment titled "Net unrealized gain (loss) on available-for-sale
investments."
The aggregate market value, cost basis, and gross unrealized gains and
losses of available-for-sale investments by major security type are as follows:
Gross Gross
Market Cost Unrealized Unrealized
(In thousands) Value Basis Gains Losses
- --------------------------------------------------------------------------
1998
Corporate Bonds $ 2,003 $ 2,008 $ - $ (5)
======= ======= ======= =======
1997
Government-agency
Securities $ 9,999 $ 9,998 $ 1 $ -
Corporate Bonds 8,016 8,006 10 -
Other 376 376 - -
------- ------- ------- -------
$18,391 $18,380 $ 11 $ -
======= ======= ======= =======
Available-for-sale investments in the accompanying fiscal 1998 balance
sheet have contractual maturities of one year or less. The cost of available-
for-sale investments that were sold was based on specific identification in
determining realized gains and losses recorded in the accompanying statement of
operations. "Gain on sale of investments, net" in the accompanying statement of
operations resulted from gross realized gains of $204,000 and gross realized
losses of $9,000 in fiscal 1997, and gross realized gains in fiscal 1996
relating to the sale of available-for-sale investments.
13
<PAGE>
2. Available-for-sale and Held-to-maturity Investments (continued)
In order to secure the Company's obligation to the former owner of a
business acquired in fiscal 1995, the Company purchased U.S. treasury bonds. In
February 1998, $13,935,000 principal amount of the U.S. treasury bonds matured
and the proceeds were used to repay, in part, the Company's zero coupon
promissory note to the seller. The remaining bonds mature in May 1998, the date
the remaining balance of the zero coupon promissory note is due. These
securities are classified as short-term held-to-maturity investments in the
accompanying fiscal 1998 balance sheet and are carried at amortized cost.
3. Joint Venture, Acquisitions, and Dispositions
Joint Venture
Effective April 2, 1995, the Company and Thermo Instrument Systems Inc.
dissolved an environmental services joint venture and the Company purchased the
businesses formerly operated by the joint venture from Thermo Instrument for
$34,267,000 in cash. As a result of this transaction, the Company increased its
ownership in the businesses operated by the joint venture from 51% to 100%.
In June 1995, the Company transferred three businesses formerly operated by
the joint venture, collectively known as the Nuclear Services Group (renamed
Thermo NUtech), to Thermo Remediation in exchange for 1,583,360 shares of Thermo
Remediation common stock.
Acquisitions
In May 1997, the Company purchased a controlling interest in The Randers
Group Incorporated, a publicly traded provider of design, engineering, project
management, and construction services for industrial clients in the
manufacturing, pharmaceutical, and chemical-processing industries. The Company
purchased 7,100,000 shares of Randers common stock from certain members of
Randers' management, and 420,000 shares from Thermo Power Corporation, an
affiliate of the Company, at a price of $0.625 per share, for an aggregate cost
of $4,700,000. Following these transactions and currently, the Company owns
approximately 53.3% of Randers' actual outstanding common stock. In addition,
Thermo Electron owns approximately 8.9% of Randers' actual outstanding common
stock.
Subsequently, in September 1997, the Company entered into a definitive
agreement to transfer The Killam Group Inc., its wholly owned engineering and
consulting businesses, to Randers in exchange for newly issued shares of
Randers' common stock. Effective April 4, 1998, the agreement was amended to
provide that the price for these businesses would equal $70,644,407, the book
value of the transferred businesses as of April 4, 1998. The number of new
shares of Randers common stock to be issued to the Company will equal such book
value divided by $0.625, or 113,031,051 shares. Upon such issuance, the Company
and Thermo Electron would own approximately 94.8% and 1.0%, respectively, of
Randers' outstanding common stock.
14
<PAGE>
3. Joint Venture, Acquisitions, and Dispositions (continued)
The transfer is subject to approval of the transaction by Randers'
shareholders and continued listing of Randers' common stock on the American
Stock Exchange following the transaction. However, because the Company currently
owns approximately 53.3% of Randers' outstanding common stock, approval by
Randers' shareholders is assured.
In addition, during fiscal 1998, Thermo Remediation made three acquisitions
for an aggregate purchase price of $5,665,000 in cash and 459,613 shares of
Thermo Remediation's common stock, valued at $2,850,000. In fiscal 1998, Thermo
EuroTech made an acquisition of 70% of the outstanding shares of a business for
$4,400,000 in cash and a commitment to issue 69,200 shares of Thermo EuroTech's
common stock valued at $275,000.
In October 1996, the Company acquired Metal Treating, Inc. from Thermo
Electron in exchange for $1,600,000 in cash. Metal Treating provides heat
treating services, including carburizing, vacuum hardening, silver and copper
brazing, and aluminum heat treating, primarily in the Milwaukee and southeastern
Wisconsin areas. Because the Company and Metal Treating were deemed for
accounting purposes to be under control of their common majority owner, Thermo
Electron, the transaction has been accounted for at historical cost in a manner
similar to a pooling-of-interests. Accordingly, historical information presented
for fiscal 1996 has been restated to include the results of Metal Treating.
Revenues and net income as previously reported by the separate entities
prior to the acquisition and as restated for the combined Company are as
follows:
(In thousands) 1996
- --------------------------------------------------------------------------
Revenues:
Previously reported $217,397
Metal Treating 3,100
Elimination (13)
--------
$220,484
========
Net Income:
Previously reported $ 3,218
Metal Treating 229
--------
$ 3,447
========
In addition, during fiscal 1997, the Company, directly or through Thermo
Remediation, acquired companies for an aggregate of $3,865,000 in cash, 311,040
shares of Thermo Remediation's common stock valued at $2,006,000, and the
issuance of $1,300,000 of short- and long-term obligations.
15
<PAGE>
3. Joint Venture, Acquisitions, and Dispositions (continued)
In December 1995, Thermo Remediation acquired Remediation Technologies,
Inc. (RETEC), a provider of integrated environmental services such as the
remediation of industrial sites contaminated with organic wastes and residues.
The purchase price of $29,672,000 consisted of $18,462,000 in cash, 227,250
shares of Thermo Remediation's common stock, and 75,750 warrants to purchase
shares of Thermo Remediation's common stock at $14.85 per share, valued in the
aggregate at $3,716,000, and approximately $7,494,000 attributable to the
conversion of outstanding RETEC stock options into Thermo Remediation stock
options of equivalent intrinsic value at the date of acquisition.
In May 1995, the Company acquired substantially all of the assets of
Lancaster Laboratories, Inc. and its affiliate Clewmark Holdings (collectively
Lancaster Laboratories). Lancaster Laboratories, based in Lancaster,
Pennsylvania, is a provider of analytical services to the environmental, food,
and pharmaceutical industries. The purchase price for the assets was $25,329,000
in cash, including the repayment of $5,333,000 of debt.
These acquisitions, except for Metal Treating, have been accounted for
using the purchase method of accounting, and their results have been included in
the accompanying financial statements from their respective dates of
acquisition. The aggregate cost of these acquisitions exceeded the estimated
fair value of the acquired net assets by $53,054,000, which is being amortized
over periods ranging from 20 to 40 years. Allocation of the purchase price for
these acquisitions was based on estimates of the fair value of the net assets
acquired and, for acquisitions completed in fiscal 1998, is subject to
adjustment upon finalization of the purchase price allocation. The Company has
no information that indicates the final purchase price allocation will differ
materially from the preliminary estimates.
Based on unaudited data, the following table presents selected financial
information for the Company, RETEC, and Lancaster Laboratories on a pro forma
basis, assuming the companies had been combined since the beginning of fiscal
1996. The effect on the Company's financial statements of the acquisitions not
included in the pro forma data was not material to the Company's results of
operations.
(In thousands except per share amounts) 1996
- --------------------------------------------------------------------------
Revenues $254,276
Net Income 2,340
Earnings per Share:
Basic .13
Diluted .12
The pro forma results are not necessarily indicative of future operations
or the actual results that would have occurred had the acquisitions been made at
the beginning of fiscal 1996.
16
<PAGE>
3. Joint Venture, Acquisitions, and Dispositions (continued)
Dispositions
In October 1997, Thermo Remediation sold its 50% limited-liability
interest in RETEC/TETRA L.C. to TETRA Thermal, Inc. for $8,825,000 in
cash. The Company realized a pre-tax gain of $3,012,000 on the sale.
In addition, in October 1997, the Company sold substantially all of the
assets of its Holcroft Division, its thermal-processing equipment business,
excluding certain accounts receivable, to Holcroft L.L.C., an affiliate of
Madison Capital Partners. The sale price for the transferred assets consisted of
$10,897,000 in cash, two promissory notes for principal amounts aggregating
$2,881,000, and the assumption by Holcroft L.L.C. of certain liabilities of the
Holcroft Division. After recording a post-closing purchase price adjustment, the
Company incurred a nominal loss on the sale. This business represented the
Company's product revenues in the accompanying statement of operations and
contributed $893,000 and $1,765,000 of operating income in fiscal 1998 and 1997,
respectively.
In fiscal 1997, Thermo EuroTech sold its J. Amerika division, which
resulted in a loss of $1,482,000. J. Amerika's revenues and operating loss
were $3,970,000 and $552,000, respectively, in fiscal 1997.
In fiscal 1996, the Company sold to a management group the assets of a
small civil engineering design office in Williston, Vermont, that was no longer
included in the geographic expansion plans of the Company. An intangible asset
of $569,000 associated with this office was not recovered in the sale price and,
accordingly, was written off. This noncash expense is nondeductible for tax
purposes. Sales and earnings of this office were not material to the Company.
4. Employee Benefit Plans
Stock-based Compensation Plans
Stock Option Plans
The Company has stock-based compensation plans for its key employees,
directors, and others. Two of these plans, adopted in 1986, permit the grant of
nonqualified and incentive stock options. A third plan, adopted in fiscal 1994,
permits the grant of a variety of stock and stock-based awards as determined by
the human resources committee of the Company's Board of Directors (the Board
Committee), including restricted stock, stock options, stock bonus shares, or
performance-based shares. To date, only nonqualified stock options have been
awarded under these plans. The option recipients and the terms of options
granted under these plans are determined by the Board Committee. Generally,
options granted to date are exercisable immediately, but are subject to certain
transfer restrictions and the right of the Company to repurchase shares issued
upon exercise of the options at the exercise price, upon certain events. The
restrictions and repurchase rights generally lapse ratably over a three- to
ten-year period, depending on the term of the option, which may range from five
to 12 years. Nonqualified stock options may be granted at any price
17
<PAGE>
4. Employee Benefit Plans (continued)
determined by the Board Committee, although incentive stock options must be
granted at not less than the fair market value of the Company's stock on the
date of grant. Generally, all options have been granted at fair market value.
The Company also has a directors' stock option plan, adopted in September 1991,
that provides for the grant of stock options to outside directors pursuant to a
formula approved by the Company's shareholders. Options awarded under this plan
are exercisable six months after the date of grant and expire three to seven
years after the date of grant. In addition to the Company's stock-based
compensation plans, certain officers and key employees may also participate in
the stock-based compensation plans of Thermo Electron.
18
<PAGE>
4. Employee Benefit Plans (continued)
A summary of the Company's stock option information is as follows:
1998 1997 1996
---------------- ----------------- -----------------
Weighted Weighted Weighted
Number Average Number Average Number Average
(Shares in of Exercise of Exercise of Exercise
thousands) Shares Price Shares Price Shares Price
- ---------------------------------------------------------------------------
Options Outstanding,
Beginning of Year 2,558 $ 6.99 2,561 $ 6.13 2,559 $ 5.62
Granted 296 7.67 288 10.10 182 11.44
Exercised (696) 1.36 (242) 1.16 (141) 3.09
Forfeited (172) 9.35 (49) 8.79 (39) 8.60
----- ----- -----
Options Outstanding,
End of Year 1,986 $ 8.87 2,558 $ 6.99 2,561 $ 6.13
===== ====== ===== ====== ===== ======
Options Exercisable 1,986 $ 8.87 2,558 $ 6.99 2,558 $ 6.12
===== ====== ===== ====== ===== ======
Options Available
for Grant 327 483 730
===== ===== =====
A summary of the status of the Company's stock options at April 4, 1998, is
as follows:
Options Outstanding and Exercisable
Number Weighted Weighted
of Average Average
Shares Remaining Exercise
Range of Exercise Prices (In thousands) Contractual Life Price
- ---------------------------------------------------------------------------
$ 6.00 - $ 8.14 743 4.3 years $ 7.66
8.15 - 10.19 883 6.1 years 9.07
10.30 - 12.43 358 5.6 years 10.84
12.44 - 14.58 2 0.8 years 14.58
-----
$ 6.00 - $14.58 1,986 5.3 years $ 8.87
=====
19
<PAGE>
4. Employee Benefit Plans (continued)
Employee Stock Purchase Program
Substantially all of the Company's full-time employees are eligible to
participate in an employee stock purchase program sponsored by the Company and
Thermo Electron. Under this program, shares of the Company's and Thermo
Electron's common stock can be purchased at the end of a 12-month period at 95%
of the fair market value at the beginning of the period and the shares purchased
are subject to a six-month resale restriction. Shares are purchased through
payroll deductions of up to 10% of each participating employee's gross wages.
During fiscal 1998, 1997, and 1996, the Company issued 13,976 shares, 25,053
shares, and 44,259 shares, respectively, of its common stock under this program.
Pro Forma Stock-based Compensation Expense
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-based Compensation," which sets forth a fair-value
based method of recognizing stock-based compensation expense. As permitted by
SFAS No. 123, the Company has elected to continue to apply APB No. 25 to account
for its stock-based compensation plans. Had compensation cost for awards in
fiscal 1998, 1997, and 1996 under the Company's stock-based compensation plans
been determined based on the fair value at the grant dates consistent with the
method set forth under SFAS No. 123, the effect on the Company's net income
(loss) and earnings (loss) per share would have been as follows:
(In thousands except per share amounts) 1998 1997 1996
- --------------------------------------------------------------------------
Net Income (Loss):
As reported $3,273 $ (162) $3,447
Pro forma 2,218 (866) 3,018
Basic Earnings (Loss) per Share:
As reported .18 (.01) .20
Pro forma .12 (.05) .17
Diluted Earnings (Loss) per Share:
As reported .17 (.01) .18
Pro forma .12 (.05) .16
Because the method prescribed by SFAS No. 123 has not been applied to
options granted prior to April 2, 1995, the resulting pro forma compensation
expense may not be representative of the amount to be expected in future years.
Pro forma compensation expense for options granted is reflected over the vesting
period; therefore, future pro forma compensation expense may be greater as
additional options are granted.
20
<PAGE>
4. Employee Benefit Plans (continued)
The weighted average fair value per share of options granted was $2.27,
$4.15, and $3.83 in fiscal 1998, 1997, and 1996, respectively. The fair value of
each option grant was estimated on the grant date using the Black-Scholes
option-pricing model with the following weighted-average assumptions:
1998 1997 1996
- --------------------------------------------------------------------------
Volatility 27% 29% 29%
Risk-free Interest Rate 5.6% 6.2% 5.8%
Expected Life of Options 3.6 years 6.1 years 4.4 years
The Black-Scholes option-pricing model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option-pricing models require the input of
highly subjective assumptions, including expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate , in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
401(k) Savings Plans
The majority of the Company's full-time U.S. employees are eligible to
participate in 401(k) savings plans sponsored by certain subsidiaries and Thermo
Electron. Contributions to the 401(k) savings plans are made by both the
employee and the Company. Company contributions are based upon the level of
employee contributions and for certain plans are based on subsidiary profits.
For these plans, the Company contributed and charged to expense $4,541,000,
$3,847,000, and $3,278,000 in fiscal 1998, 1997, and 1996, respectively.
5. Income Taxes
The components of income (loss) before provision for income taxes and
minority interest are as follows:
(In thousands) 1998 1997 1996
- --------------------------------------------------------------------------
Domestic $ 8,812 $ 3,149 $10,977
Foreign (298) (3,440) (2,663)
------- ------- -------
$ 8,514 $ (291) $ 8,314
======= ======= =======
The Company's foreign results of operations prior to fiscal 1998 include
losses associated with its J. Amerika division, which was sold during the fourth
quarter of fiscal 1997 (Note 3).
21
<PAGE>
5. Income Taxes (continued)
The components of the provision for income taxes are as follows:
(In thousands) 1998 1997 1996
- --------------------------------------------------------------------------
Currently (Payable) Prepaid:
Federal $(2,688) $(1,271) $(1,339)
State (1,330) (1,122) (678)
Foreign 110 234 1,120
------- ------- -------
(3,908) (2,159) (897)
------- ------- -------
(Deferred) Prepaid, Net:
Federal (1,035) (389) (2,198)
State (203) (88) (549)
Foreign - 931 -
------- ------- -------
(1,238) 454 (2,747)
------- ------- -------
$(5,146) $(1,705) $(3,644)
======= ======= =======
The Company and its majority-owned subsidiaries receive a tax deduction
upon exercise of nonqualified stock options by employees for the difference
between the exercise price and the market price of the underlying common stock
on the date of exercise. The provision for income taxes that is currently
payable does not reflect $928,000, $659,000, and $1,785,000 in fiscal 1998,
1997, and 1996, respectively, of such benefits of the Company and its
majority-owned subsidiaries that have been allocated to capital in excess of par
value, directly or through the effect of majority-owned subsidiaries' equity
transactions.
22
<PAGE>
5. Income Taxes (continued)
The provision for income taxes in the accompanying statement of operations
differs from the amounts calculated by applying the statutory federal income tax
rate of 34% to income (loss) before provision for income taxes and minority
interest due to the following:
(In thousands) 1998 1997 1996
- -------------------------------------------------------------------------
(Provision) Benefit for Income Taxes at
Statutory Rate $(2,895) $ 99 $(2,827)
Differences Resulting from:
State income taxes, net of federal tax (1,012) (764) (797)
Amortization and write-off of cost in
excess of net assets of acquired
companies (739) (1,344) (2,485)
Gain on issuance of stock by
subsidiaries - 501 1,403
Foreign tax rate and tax law
differential 8 (16) 249
Tax-exempt investment income - 32 181
Nondeductible expenses (64) (62) (51)
Reversal of tax reserves no longer
required - - 750
Other, net (444) (151) (67)
------- ------- -------
$(5,146) $(1,705) $(3,644)
======= ======= =======
Prepaid income taxes and deferred income taxes in the accompanying balance
sheet consist of the following:
(In thousands) 1998 1997
- --------------------------------------------------------------
Prepaid Income Taxes:
Accrued compensation $ 2,220 $ 1,410
Reserves and accruals 3,640 4,562
Allowance for doubtful accounts (137) 1,151
Net operating loss and tax credit
carryforward 1,934 2,030
Other - 303
------- -------
7,657 9,456
Less: Valuation allowance 739 276
------- -------
$ 6,918 $ 9,180
======= =======
Deferred Income Taxes:
Depreciation $ 2,785 $ 5,581
Other deferred items 1,446 611
------- -------
$ 4,231 $ 6,192
======= =======
23
<PAGE>
5. Income Taxes (continued)
Included in other assets in the accompanying fiscal 1998 balance sheet is
$2,135,000 of long-term prepaid income taxes related to foreign net operating
losses, net of long-term deferred income taxes of $1,330,000 related to timing
differences in a foreign jurisdiction. Comparable amounts in fiscal 1997 were
long-term prepaid income taxes of $1,811,000, net of long-term deferred income
taxes of $895,000.
The valuation allowance relates to the uncertainty surrounding the
realization of the tax benefits attributable primarily to state operating loss
carryforwards. The valuation allowance increased in fiscal 1998 as a result of
certain losses that arose during the year. Of the total 1998 valuation
allowance, $126,000 will be used to reduce cost in excess of net assets of
acquired companies when any portion of the related deferred tax asset is
recognized.
The Company has not recognized a deferred tax liability for the difference
between the book basis and tax basis of its investment in the common stock of
its domestic subsidiaries (such difference relates primarily to unremitted
earnings and gains on issuance of stock by subsidiaries) because the Company
does not expect this basis difference to become subject to tax at the parent
level. The Company believes it can implement certain tax strategies to recover
its investment in its domestic subsidiaries tax-free.
The net operating loss carryforward primarily consists of $9,500,000 of
foreign carryforwards which may be carried forward indefinitely and $8,900,000
of state carryforwards, which substantially expire in 2002. During fiscal 1996,
the Company reversed previously established tax reserves totaling $750,000 that
were no longer required as a result of the completion of certain revenue agent
reviews.
6. Short- and Long-term Obligations
Short-term Obligations
The Company's Thermo EuroTech subsidiary has a line of credit, denominated
in Dutch guilders, under which approximately $6,700,000 may be borrowed at the
Dutch discount rate plus 125 basis points. At April 4, 1998, and March 29, 1997,
$6,346,000 and $2,227,000, respectively, was outstanding under this arrangement,
bearing interest at 4.02% and 5.25%, respectively.
In addition, in fiscal 1998, Thermo EuroTech entered into a line of credit,
denominated in Irish punts, under which approximately $6,052,000 was borrowed at
April 4, 1998, bearing interest at a fixed rate of 5.75%. There are no
additional amounts available under this line of credit.
24
<PAGE>
6. Short- and Long-term Obligations (continued)
Long-term Obligations
Long-term obligations of the Company are as follows:
(In thousands except per share amounts) 1998 1997
- --------------------------------------------------------------------------
4 5/8% Subordinated convertible debentures,
due 2003, convertible at $15.90 per share $111,850 $111,850
6 1/2% Subordinated convertible debentures,
due 1997, convertible at $10.33 per share - 13,370
4 7/8% Subordinated convertible debentures,
due 2000, convertible into shares of Thermo
Remediation at $17.92 per share (includes
$3,000 held by Thermo Electron) 37,950 37,950
Promissory note to parent company, repaid
June 1997 (a) - 38,000
Zero coupon promissory note, face value $28,000,
due in two installments in February and May 1998
(Note 2) 13,939 26,057
6.75% Mortgage loan, payable in monthly
installments of $9, with final payment in 2008 1,173 1,293
8.5% Mortgage loan, payable in monthly
installments of $5, with final payment in 2003 949 -
Other 2,050 1,934
-------- --------
167,911 230,454
Less: Current maturities of long-term obligations 14,767 65,268
-------- --------
$153,144 $165,186
======== ========
(a) Bore interest at the 90-day Commercial Paper Composite Rate plus 25 basis
points, set at the beginning of each quarter.
The 4 5/8% and 4 7/8% subordinated convertible debentures are guaranteed on
a subordinated basis by Thermo Electron. The Company has agreed to reimburse
Thermo Electron in the event Thermo Electron is required to make a payment under
the guarantees. During fiscal 1998 and 1997, $13,220,000 and $4,812,000
principal amount, respectively, of the 6 1/2% subordinated convertible
debentures were converted into 1,279,349 shares and 465,827 shares,
respectively, of the Company's common stock.
The annual requirements for long-term obligations as of April 4, 1998, are
$14,767,000 in fiscal 1999; $39,008,000 in fiscal 2000; $448,000 in fiscal 2001;
$455,000 in fiscal 2002; $112,610,000 in fiscal 2003; and $623,000 in fiscal
2004 and thereafter. Total requirements of long-term obligations are
$167,911,000. See Note 11 for information pertaining to the fair value of the
Company's long-term obligations.
25
<PAGE>
7. Commitments and Contingencies
Operating Leases
The Company leases land, office, operating facilities, and equipment under
operating leases expiring at various dates through fiscal 2008. The accompanying
statement of operations includes expenses from operating leases of $5,822,000,
$5,424,000, and $4,964,000 in fiscal 1998, 1997, and 1996, respectively. Future
minimum payments due under noncancellable operating leases at April 4, 1998, are
$5,176,000 in fiscal 1999; $3,907,000 in fiscal 2000; $2,669,000 in fiscal 2001;
$1,972,000 in fiscal 2002; $1,062,000 in fiscal 2003; and $1,122,000 in fiscal
2004 and thereafter. Total future minimum lease payments are $15,908,000. See
Note 8 for an office and manufacturing facility leased from Thermo Electron.
Contingencies
The Company is contingently liable with respect to lawsuits and other
matters that arose in the ordinary course of business. In the opinion of
management, these contingencies will not have a material adverse effect upon the
financial position of the Company or its results of operations.
8. Related-party Transactions
Corporate Services Agreement
The Company and Thermo Electron have a corporate services agreement under
which Thermo Electron's corporate staff provides certain administrative
services, including certain legal advice and services, risk management, certain
employee benefit administration, tax advice and preparation of tax returns,
centralized cash management, and certain financial and other services, for which
the Company pays Thermo Electron annually an amount equal to 0.8% of the
Company's revenues in calendar 1998. In 1997 and 1996, the Company paid an
amount equal to 1.0% of the Company's revenues. Prior to January 1, 1996, the
Company paid an annual fee equal to 1.20% of the Company's revenues. The annual
fee is reviewed and adjusted annually by mutual agreement of the parties. For
these services, the Company was charged $2,845,000, $2,785,000, and $2,612,000
in fiscal 1998, 1997, and 1996, respectively. The corporate services agreement
is renewed annually but can be terminated upon 30 days' prior notice by the
Company or upon the Company's withdrawal from the Thermo Electron Corporate
Charter (the Thermo Electron Corporate Charter defines the relationship among
Thermo Electron and its majority-owned subsidiaries). Management believes that
the service fee charged by Thermo Electron is reasonable and that such fees are
representative of the expenses the Company would have incurred on a stand-alone
basis. For additional items such as employee benefit plans, insurance coverage,
and other identifiable costs, Thermo Electron charges the Company based upon
costs attributable to the Company.
26
<PAGE>
8. Related-party Transactions (continued)
Development Agreement
The Company and Thermo Electron entered into a development agreement under
which Thermo Electron agreed to fund up to $4,000,000 of the direct and indirect
costs of the Company's development of soil-remediation centers. In exchange for
this funding, the Company granted Thermo Electron a royalty equal to
approximately 3% of net revenues from soil-remediation services performed at the
centers developed under the agreement. The royalty payments may cease if the
amounts paid by the Company yield a certain internal rate of return to Thermo
Electron on the funds advanced to the Company under the agreement. Two sites
were developed under this agreement. The Company paid royalties of $115,000,
$186,000, and $332,000 in fiscal 1998, 1997, and 1996, respectively, relating to
this agreement, which are included in selling, general, and administrative
expenses in the accompanying statement of operations.
Operating Lease
In addition to the operating leases discussed in Note 7, the Company leases
an office and operating facility from Thermo Electron. The accompanying
statement of operations includes expenses from this operating lease of $166,000,
$106,000, and $154,000 in fiscal 1998, 1997, and 1996, respectively. The future
minimum payments due under the lease as of April 4, 1998, are $166,000 in fiscal
1999 through 2004. Total future minimum lease payments are $996,000.
Repurchase Agreement
The Company invests excess cash in a repurchase agreement with Thermo
Electron as discussed in Note 1.
Short- and Long-term Obligations
See Note 6 for a description of short- and long-term obligations of the
Company held by Thermo Electron.
9. Common Stock
At April 4, 1998, the Company had 700,500 warrants outstanding to purchase
shares of its common stock, which are exercisable at prices ranging from $10.00
to $11.34 per share and expire in fiscal 2001. The warrants were issued in
fiscal 1992 and 1993 in connection with private placements completed by three of
Thermo Remediation's soil-remediation subsidiaries.
At April 4, 1998, the Company had reserved 10,131,347 unissued shares of
its common stock for possible issuance under stock-based compensation plans,
possible issuance upon conversion of the 4 5/8% subordinated convertible
debentures, and exercise of warrants.
10. Transactions in Stock of Subsidiaries
During fiscal 1997, Thermo EuroTech sold 1,105,000 shares of its common
stock in a private placement at $4.25 per share for net proceeds of $4,314,000,
resulting in a gain of $1,475,000.
27
<PAGE>
10. Transactions in Stock of Subsidiaries (continued)
During fiscal 1996, Thermo Remediation sold 500,000 shares of its common
stock in a private placement at $13.25 per share for net proceeds of $6,625,000,
resulting in a gain of $2,742,000. During fiscal 1996, Thermo Remediation issued
227,250 shares of its common stock in connection with the acquisition of RETEC
(Note 3), resulting in a gain of $1,385,000.
Dividends declared by Thermo Remediation were $2,504,000, $2,557,000, and
$2,491,000 in fiscal 1998, 1997, and 1996, respectively. Dividends declared by
Thermo Remediation include $1,736,000, $1,694,000, and $1,667,000 in fiscal
1998, 1997, and 1996, respectively, that were allocated to the Company and
reinvested in 254,833 shares, 194,961 shares, and 117,805 shares, respectively,
of Thermo Remediation's common stock pursuant to Thermo Remediation's Dividend
Reinvestment Plan.
The Company's percentage ownership of its majority-owned subsidiaries at
year end was as follows:
1998 1997 1996
- ------------------------------------------------------------------------
Thermo Remediation 69% 69% 66%
Randers (a) 53% 100% 100%
Thermo EuroTech 56% 53% 62%
(a) Upon issuance of 113,031,051 shares of Randers common stock to the Company,
as described in Note 3, the Company will own approximately 95% of Randers'
outstanding common stock. Fiscal 1997 and 1996 represent the Company's
ownership of The Killam Group prior to its transfer to Randers in fiscal
1998.
11. Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash and cash
equivalents, available-for-sale and held-to-maturity investments, accounts
receivable, notes payable and current maturities of long-term obligations,
accounts payable, due to parent company, and long-term obligations. The carrying
amounts of these financial instruments, with the exception of available-for-sale
and held-to-maturity investments, and long-term obligations, approximate fair
value due to their short-term nature.
Available-for-sale investments are carried at fair value in the
accompanying balance sheet. The fair values were determined based on quoted
market prices. See Note 2 for fair value information pertaining to these
financial instruments. Held-to-maturity investments in the accompanying balance
sheet are carried at amortized cost. The fair values are disclosed on the
accompanying balance sheet and were determined based on quoted market prices.
28
<PAGE>
11. Fair Value of Financial Instruments (continued)
The fair value of long-term obligations was determined based on quoted
market prices and on borrowing rates available to the Company at the respective
year ends. The carrying amount and fair value of the Company's long-term
obligations are as follows:
1998 1997
--------------------- ---------------------
Carrying Fair Carrying Fair
(In thousands) Amount Value Amount Value
- ---------------------------------------------------------------------------
Current Maturity of
Subordinated Convertible
Debentures $ - $ - $ 13,370 $ 13,771
======== ======== ======== ========
Long-term Subordinated
Convertible Debentures $149,800 $143,416 $149,800 $132,973
Other 3,344 3,344 15,386 15,386
-------- -------- -------- --------
$153,144 $146,760 $165,186 $148,359
======== ======== ======== ========
12. Significant Customers
During fiscal 1998, 1997, and 1996, revenues derived from U.S. government
agencies accounted for 4%, 13%, and 10%, respectively, of the Company's total
revenues.
13. Nonrecurring Costs
During fiscal 1997, Thermo Remediation recorded $7,800,000 of nonrecurring
costs to write-down certain capital equipment and intangible assets, including
cost in excess of net assets of acquired companies, in response to a severe
downturn in Thermo Remediation's soil-recycling business, which resulted in the
closure of two soil-remediation sites. In addition, the Company's analysis
indicated that the future undiscounted cash flows from certain other
soil-remediation sites that will remain open would be insufficient to recover
Thermo Remediation's investment in these business units, thus requiring a
write-down of certain assets, which is included in the $7,800,000 charge. Of the
total charge, $2,206,000 is nondeductible for tax purposes.
During fiscal 1996, the Company determined that it no longer expected to
reinvest in its thermal-processing equipment business. The Company's fiscal 1996
analysis indicated that the expected future undiscounted cash flow from this
business would be insufficient to recover the Company's investment. Accordingly,
the Company wrote off $4,995,000 of cost in
29
<PAGE>
13. Nonrecurring Costs (continued)
excess of net assets of acquired company associated with the thermal-processing
equipment business. This noncash expense is nondeductible for tax purposes. This
business was sold in fiscal 1998 (Note 3).
14. Equity in Earnings of Unconsolidated Subsidiary
Equity in earnings of unconsolidated subsidiary in the accompanying
statement of operations represents the Company's proportionate share of income
from a 50% investment in RETEC/TETRA L.C., acquired in December 1995 through
Thermo Remediation's acquisition of RETEC. In October 1997, Thermo Remediation
sold its 50% limited-liability interest in RETEC/TETRA to TETRA Thermal, Inc.
(Note 3). The carrying value of the unconsolidated subsidiary was $5,650,000 at
fiscal year-end 1997 and was included in other assets in the accompanying fiscal
1997 balance sheet.
Summary financial information for RETEC/TETRA as of December 31, 1996, is
as follows:
(In thousands) 1996
- --------------------------------------------------------------
Current Assets $ 3,072
Noncurrent Assets 12,644
-------
Total assets $15,716
=======
Current Liabilities $ 2,016
Noncurrent Liabilities 2,635
Members' Equity 11,065
-------
Total liabilities and members' equity $15,716
=======
(In thousands) 1996
- --------------------------------------------------------------
Revenues $12,066
Cost of Revenues 9,040
-------
Gross Profit $ 3,026
=======
Net Income $ 981
=======
30
<PAGE>
15. Supplemental Cash Flow Information
Supplemental cash flow information is as follows:
(In thousands) 1998 1997 1996
- -------------------------------------------------------------------------
Cash Paid For:
Interest $ 10,363 $ 10,255 $ 7,438
Income taxes $ 4,041 $ 1,958 $ 5,803
Noncash Activities:
Fair value of assets of acquired
companies $ 29,477 $ 12,996 $ 68,533
Cash paid for acquired companies (14,765) (5,465) (45,005)
Issuance of notes payable for
acquired company - (1,300) -
Issuance of Company and subsidiary
common stock, stock options, and
warrants for acquired companies (3,125) (2,006) (11,210)
-------- -------- --------
Liabilities assumed of acquired
companies $ 11,587 $ 4,225 $ 12,318
======== ======== ========
Conversions of subordinated
convertible debentures (Note 6) $ 13,220 $ 4,812 $ 365
Notes receivable received upon sale
of business (Note 3) $ 2,881 $ - $ -
31
<PAGE>
16. Earnings (Loss) per Share
Basic and diluted earnings (loss) per share were calculated as follows:
(In thousands except per share amounts) 1998 1997 1996
- --------------------------------------------------------------------------
Basic
Net Income (Loss) $ 3,273 $ (162) $ 3,447
-------- -------- --------
Weighted Average Shares 18,700 18,090 17,420
-------- -------- --------
Basic Earnings (Loss) per Share $ .18 $ (.01) $ .20
======== ======== ========
Diluted
Net Income (Loss) $ 3,273 $ (162) $ 3,447
Effect of Majority-owned Subsidiaries'
Dilutive Securities (13) - (93)
-------- -------- --------
Income (Loss) Available to Common
Shareholders, as Adjusted $ 3,260 $ (162) $ 3,354
-------- -------- --------
Weighted Average Shares 18,700 18,090 17,420
Effect of Stock Options 278 - 844
-------- -------- --------
Weighted Average Shares, as Adjusted 18,978 18,090 18,264
-------- -------- --------
Diluted Earnings (Loss) per Share $ .17 $ (.01) $ .18
======== ======== ========
The computation of diluted earnings (loss) per share for each period
excludes the effect of assuming the exercise of certain outstanding stock
options and warrants because the effect would be antidilutive. As of April 4,
1998, there were 2,425,950 of such options and warrants outstanding, with
exercise prices ranging from $7.65 to $14.58 per share.
In addition, the computation of diluted earnings (loss) per share for each
period excludes the effect of assuming the conversion of convertible obligations
because the effect would be antidilutive. As of April 4, 1998, the Company had
$111,850,000 principal amount of 4 5/8% subordinated convertible debentures,
convertible at $15.90 per share, that was excluded from the calculation of
diluted earnings (loss) per share.
32
<PAGE>
17. Unaudited Quarterly Information
(In thousands except per share amounts)
1998 First Second Third(a) Fourth
- ------------------------------------------------------------------------
Revenues $72,519 $81,161 $73,875 $71,231
Gross Profit 14,568 15,485 14,001 9,621
Net Income (Loss) 1,332 1,567 1,656 (1,282)
Earnings (Loss) per Share:
Basic .08 .09 .09 (.07)
Diluted .07 .08 .09 (.07)
1997 First Second(b) Third Fourth(c)
- -------------------------------------------------------------------------
Revenues $67,618 $67,269 $75,698 $67,918
Gross Profit 13,767 12,028 13,513 11,794
Net Income (Loss) 1,458 1,450 902 (3,972)
Earnings (Loss) per Share:
Basic .08 .08 .05 (.22)
Diluted .08 .08 .05 (.22)
(a) Reflects a pre-tax gain of $3,012,000 from Thermo Remediation's sale of its
investment in a joint venture.
(b) Reflects a nontaxable gain of $1,475,000 from the issuance of stock by
subsidiary.
(c) Reflects $7,800,000 of nonrecurring costs and a loss of $1,482,000 related
to the sale of the Company's J. Amerika division.
33
<PAGE>
Thermo TerraTech Inc. 1998 Financial Statements
Report of Independent Public Accountants
To the Shareholders and Board of Directors of Thermo TerraTech Inc.:
We have audited the accompanying consolidated balance sheet of Thermo
TerraTech Inc. (a Delaware corporation and an 82%-owned subsidiary of Thermo
Electron Corporation) and subsidiaries as of April 4, 1998, and March 29, 1997,
and the related consolidated statements of operations, shareholders' investment
and cash flows for each of the three years in the period ended April 4, 1998.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Thermo
TerraTech Inc. and subsidiaries as of April 4, 1998, and March 29, 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended April 4, 1998, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Boston, Massachusetts
May 12, 1998
34
<PAGE>
Thermo TerraTech Inc. 1998 Financial Statements
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 immediately after this Management's
Discussion and Analysis of Financial Condition and Results of Operations under
the heading "Forward-looking Statements."
Overview
The Company provides industrial outsourcing services and manufacturing
support encompassing a broad range of specializations, including infrastructure
engineering, design and construction, environmental compliance, laboratory
testing, and metal treating.
Environmental-liability Management - The Company's majority-owned Thermo
Remediation Inc. subsidiary is a national provider of environmental-liability
management services. Thermo Remediation offers these services and related
consulting services in five areas: industrial remediation, nuclear remediation,
waste-fluids collection and recycling, soil remediation, and
environmental-management and information technology consulting. Thermo
Remediation, through its industrial remediation businesses, provides integrated
environmental services such as remediation of industrial sites contaminated with
organic wastes and residues. In May 1997, Thermo Remediation's RETEC division
acquired TriTechnics Corporation, an environmental engineering and consulting
firm. In September 1997, Thermo Remediation's RETEC division acquired RPM
Systems, Inc., an environmental-management and information technology consulting
business. In September 1996, Thermo Remediation acquired IEM Sealand
Corporation. IEM Sealand performs cleanups 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. Through its nuclear-remediation business, Thermo Remediation
provides services to remove radioactive contaminants from sand, gravel, and
soil, as well as health physics, radiochemistry laboratory, and radiation
dosimetry services. In November 1997, Thermo Remediation acquired Benchmark
Environmental Corporation, a provider of nuclear-remediation and
waste-management services to government agencies and private industry. Thermo
Remediation's waste-fluids collection and recycling division collects, tests,
processes, and recycles used motor oil and other industrial fluids. In addition,
through its soil-remediation business, Thermo Remediation designs and operates a
network of facilities for the remediation of nonhazardous soil. The Company's
majority-owned Thermo EuroTech N.V.
35
<PAGE>
Thermo TerraTech Inc. 1998 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Overview (continued)
subsidiary, located in the Netherlands, specializes in converting "off-spec" and
contaminated petroleum fluids into usable oil products. Thermo EuroTech also
provides in-plant waste management and recycling services through its
Ireland-based Green Sunrise Holdings Ltd. subsidiary, acquired in February 1998.
Engineering and Design - In May 1997, the Company purchased a controlling
interest in The Randers Group Incorporated, a provider of engineering, project
management, and construction services for industrial clients in the
manufacturing, pharmaceutical, and chemical-processing industries. Subsequently,
in September 1997, the Company transferred The Killam Group Inc., its wholly
owned engineering and consulting businesses, to Randers in exchange for the
right to receive newly issued shares of Randers' common stock. Randers' Killam
Associates, Inc. subsidiary provides environmental consulting and engineering
services and specializes in wastewater treatment and water resources management.
Randers' BACKillam subsidiary provides both private- and public-sector clients
with a range of consulting services that address transportation planning and
design. In November 1996, the Company acquired Carlan Consulting Group, Inc., a
provider of transportation and environmental consulting and professional
engineering and architectural services, and subsequently transferred it to
Randers. The Company's Normandeau Associates Inc. subsidiary provides consulting
services that address natural resource management issues.
Laboratory Testing - The Company's wholly owned Thermo Analytical Inc.
subsidiary operates analytical laboratories that provide environmental-,
pharmaceutical-, and food-testing services, primarily to commercial clients
throughout the U.S.
Metal Treating - The Company performs metallurgical processing services
using thermal-treatment equipment at locations in California, Minnesota, and
Wisconsin. The Company also designed, manufactured, and installed advanced
custom-engineered, thermal-processing systems through its equipment division
located in Michigan, until the sale of this business in October 1997 (Note 3).
36
<PAGE>
Overview (continued)
The Company's revenues were as follows:
(In thousands) 1998 1997 1996
- --------------------------------------------------------------------------
Environmental-liability Management $142,432 $126,810 $ 77,032
Engineering and Design 84,567 74,831 74,045
Laboratory Testing 37,485 35,431 35,476
Metal Treating 36,617 44,339 35,762
Intercompany Sales Eliminations (2,315) (2,908) (1,831)
-------- -------- --------
$298,786 $278,503 $220,484
======== ======== ========
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 business. The Company may, however, acquire
one or more additional businesses if they are presented to the Company on terms
the Company believes to be attractive.
Results of Operations
Fiscal 1998 Compared With Fiscal 1997
Total revenues increased 7% to $298.8 million in fiscal 1998 from $278.5
million in fiscal 1997. Revenues from environmental-liability management
services increased 12% to $142.4 million in fiscal 1998 from $126.8 million in
fiscal 1997. Revenues at Thermo Remediation increased to $128.4 million in
fiscal 1998 from $114.8 million in fiscal 1997, primarily due to the inclusion
of $20.1 million of revenues from acquired businesses and, to a lesser extent,
increased revenues from construction, consulting, and engineering services at
RETEC. These increases were offset in part by an $11.1 million decrease in
revenues resulting from a decline in the number of contracts in process at IEM
Sealand. Revenues from soil-remediation services decreased $3.5 million,
resulting from the closure of two sites, as well as heavy rains, which
unfavorably affected operations at certain west coast sites and, to a lesser
extent, competitive pricing pressures. Revenues from Thermo EuroTech increased
17% to $14.0 million, primarily due to increased revenues relating to contracts
to process oil-based muds and perform soil-remediation services overseas and the
inclusion of $1.2 million of revenues from Green Sunrise, acquired in February
1998, offset in part by a decrease in revenues as a result of the sale of its J.
Amerika division in the fourth quarter of fiscal 1997. Revenues from engineering
and design services increased to $84.6 million in fiscal 1998 from $74.8 million
in fiscal 1997. The inclusion of an aggregate of $15.0 million of revenues from
Carlan and Randers, acquired in November 1996 and May 1997, respectively,
37
<PAGE>
Fiscal 1998 Compared With Fiscal 1997 (continued)
was offset in part by a decrease in revenues due to the completion of two major
contracts in fiscal 1997. Revenues from laboratory-testing services, excluding
radiochemistry laboratory services included in environmental-liability
management services, increased to $37.5 million in fiscal 1998 from $35.4
million in fiscal 1997 due to higher demand. Metal-treating revenues decreased
to $36.6 million in fiscal 1998 from $44.3 million in fiscal 1997, primarily due
to the sale of the Company's thermal-processing equipment business in October
1997 (Note 3), offset in part by an increase in demand for the Company's
metallurgical-processing services in fiscal 1998.
The gross profit margin remained constant at 18% in fiscal 1998 and 1997.
The gross profit margin for laboratory-testing services increased in fiscal 1998
due to lower margins in fiscal 1997 as a result of costs incurred related to
efforts to eliminate redundant capabilities at regional laboratories. Gross
profit margins from environmental-liability management services decreased in
fiscal 1998 primarily due to losses on certain remedial-construction contracts
at IEM Sealand as a result of poorly bid and executed contracts, and an increase
in lower-margin revenues at RETEC, offset in part by increased margins at Thermo
EuroTech due to a shift to higher-margin contracts in fiscal 1998.
Selling, general, and administrative expenses as a percentage of revenues
remained constant at 14% in fiscal 1998 and 1997.
During fiscal 1997, the Company recorded $7.8 million of nonrecurring costs
to write down certain capital equipment and intangible assets, including cost in
excess of net assets of acquired companies. The write-down was in response to a
severe downturn in the Company's soil-recycling business, which resulted in the
closure of two soil-remediation sites. In addition, the Company's analysis
indicated that the future undiscounted cash flows from certain other soil-
remediation sites that remained open would be insufficient to recover the
Company's investment in these business units, thus requiring a write-down of
certain assets, which is included in the $7.8 million charge.
Interest income decreased to $4.2 million in fiscal 1998 from $7.3 million
in fiscal 1997 as a result of lower average investment balances following the
repayment of a $38.0 million promissory note to Thermo Electron, the repurchase
of Company and subsidiary common stock, as well as cash expended for
acquisitions. These decreases were offset in part by cash received from the sale
of the Company's thermal-processing equipment business and Thermo Remediation's
interest in a joint venture (Note 3). Interest expense decreased to $10.8
million in fiscal 1998 from $12.9 million in fiscal 1997, primarily due to the
repayment of a promissory note to Thermo Electron and the conversion of the
Company's 6 1/2% subordinated convertible debentures during fiscal 1998.
The Company has adopted a strategy of spinning out certain of its
businesses into separate subsidiaries and having these subsidiaries sell a
minority interest to outside investors. The Company believes that this strategy
provides additional motivation and incentives for the management
38
<PAGE>
Fiscal 1998 Compared With Fiscal 1997 (continued)
of the subsidiary through the establishment of subsidiary-level stock
option incentive programs, as well as capital to support the subsidiaries'
growth. As a result of the issuance of common stock by Thermo EuroTech
in fiscal 1997, the Company recorded a gain of $1.5 million. This gain
represents an increase in the Company's proportionate share of the
subsidiary's equity and is classified as gain on issuance of stock by
subsidiaries in the accompanying statement of operations. The size and timing
of these transactions are dependent on market and other conditions that are
beyond the Company's control. In addition, in October 1995, the Financial
Accounting Standards Board (FASB) issued an exposure draft of a Proposed
Statement of Financial Accounting Standards, "Consolidated Financial Statements:
Policy and Procedures" (the Proposed Statement). The Proposed Statement would
establish new rules for how consolidated financial statements should be
prepared. If the Proposed Statement is adopted, there would be significant
changes in the way the Company records certain transactions of its controlled
subsidiaries. Among those changes, any sale of the stock of a subsidiary that
does not result in a loss of control would be accounted for as a transaction in
equity of the consolidated entity with no gain or loss being recorded. The
exposure draft addresses the consolidation issues in two parts: consolidation
procedures, which includes proposed rule changes affecting the Company's ability
to recognize gains on issuances of subsidiary stock, and consolidation policy,
which does not address accounting for such gains. During 1997, the FASB decided
to focus its efforts on the consolidation policy part of the exposure draft and
to consider resuming discussion on consolidation procedures after completion of
the efforts on consolidation policy. The timing and content of any final
statement are uncertain.
Equity in earnings of unconsolidated subsidiary represents Thermo
Remediation's proportionate share of income from a joint venture. "Gain on sale
of businesses and assets, net" in fiscal 1998 primarily resulted from Thermo
Remediation's sale of its interest in this joint venture (Note 3). "Loss on sale
of businesses and assets, net" in fiscal 1997 represents a loss on the sale of
Thermo EuroTech's J. Amerika division (Note 3).
The effective tax rates in fiscal 1998 and 1997 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 effective tax rate in fiscal 1997 was reduced by the effect of a
nontaxable gain on issuance of stock by subsidiary.
The Company recorded minority interest expense of $0.1 million in fiscal
1998, compared with minority interest income of $1.8 million in fiscal 1997,
primarily due to higher earnings from the Company's majority-owned subsidiaries
and the inclusion of minority interest expense associated with Randers (Note 3).
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
39
<PAGE>
Fiscal 1998 Compared With Fiscal 1997 (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 problem 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.
Fiscal 1997 Compared With Fiscal 1996
Total revenues increased 26% to $278.5 million in fiscal 1997 from $220.5
million in fiscal 1996. Revenues from environmental-liability management
services increased to $126.8 million in fiscal 1997 from $77.0 million in fiscal
1996. Revenues at Thermo Remediation increased to $114.8 million in fiscal 1997
from $67.0 million in fiscal 1996, primarily due to the inclusion of $50.0
million of revenues from RETEC and IEM Sealand, acquired in December 1995 and
September 1996, respectively. Revenues from soil-remediation services decreased
21% due to a severe downturn in this business, which resulted in a decline in
the volume of soil processed due to overcapacity in the industry and competitive
pricing pressures. Revenues from engineering and design services remained
relatively unchanged at $74.8 million in fiscal 1997 and $74.0 million in fiscal
1996. The inclusion of $2.6 million of revenues from Carlan, acquired in
November 1996, was offset by lower revenues from federal government contracts.
Revenues from laboratory-testing services, excluding radiochemistry laboratory
services included in environmental-liability management services, were $35.4
million in fiscal 1997 and $35.5 million in fiscal 1996. Metal-treating revenues
increased to $44.3 million in fiscal 1997 from $35.8 million in fiscal 1996,
primarily due to an increase in demand for thermal- processing equipment at
existing businesses.
The gross profit margin decreased to 18% in fiscal 1997 from 23% in fiscal
1996, primarily due to a decrease in gross profit margins from
environmental-liability management services. The decline was due to lower
margins on soil processed resulting from competitive pricing pressures, lower
volumes of soil processed at the Company's traditionally higher-margin
soil-remediation centers and, to a lesser extent, the inclusion of lower-margin
revenues from RETEC and IEM Sealand. The decline in the Company's gross profit
margin was also a result of a decrease in gross profit margins from
laboratory-testing and engineering and design services due to costs incurred
related to efforts to eliminate redundant capabilities at regional offices and
increased competitive pricing pressures in the engineering and design services
business. These decreases were offset in part by higher gross profit margins
from
40
<PAGE>
Fiscal 1997 Compared With Fiscal 1996 (continued)
metal-treating products and services as a result of an increase in revenues.
Selling, general, and administrative expenses as a percentage of revenues
decreased to 14% in fiscal 1997 from 16% in fiscal 1996, primarily due to lower
expenses as a percentage of revenues at acquired companies, lower expenses in
fiscal 1997 at Thermo EuroTech due to the settlement of several contract
disputes which caused higher expenses in fiscal 1996, and a decline in expenses
due to the consolidation of administrative functions within the
laboratory-testing services business.
During fiscal 1997, the Company recorded $7.8 million of nonrecurring costs
to write-down certain capital equipment and intangible assets, including cost in
excess of net assets of acquired companies, due to the reasons described in the
results of operations for fiscal 1998. Nonrecurring costs in fiscal 1996
represents the write-off of $5.0 million of cost in excess of net assets of
acquired company related to the Company's thermal-processing equipment business.
Interest income increased to $7.3 million in fiscal 1997 from $5.1 million
in fiscal 1996, primarily as a result of interest income earned on invested
proceeds from the Company's issuance of 4 5/8% subordinated convertible
debentures in May 1996. Interest expense increased to $12.9 million in fiscal
1997 from $10.7 million in fiscal 1996, primarily due to the Company's issuance
of 4 5/8% subordinated convertible debentures and Thermo Remediation's issuance
of 4 7/8% subordinated convertible debentures in May 1995, offset in part by the
repayment of promissory notes to Thermo Electron with proceeds from the
Company's issuance of the 4 5/8% subordinated convertible debentures.
As a result of the issuance of common stock by subsidiaries, the Company
recorded gains of $1.5 million and $4.1 million in fiscal 1997 and 1996,
respectively.
During fiscal 1997 and 1996, Thermo EuroTech's J. Amerika division incurred
operating losses as a result of intense competition in the removal and
installation of underground storage tank and wastewater treatment businesses.
During fiscal 1997, the Company sold this business unit and incurred a loss of
$1.5 million on the sale. J. Amerika's revenues and operating loss were $4.0
million and $0.6 million, respectively, in fiscal 1997. During fiscal 1996, the
Company sold the assets of an engineering office and wrote off an intangible
asset of $0.6 million in connection with the sale (Note 3).
Equity in earnings of unconsolidated subsidiary in fiscal 1997 represents
RETEC's proportionate share of income from a joint venture (Notes 3 and 14).
The effective tax rate in fiscal 1997 exceeded the statutory federal income
tax rate primarily due to the nondeductible amortization and write-off of cost
in excess of net assets of acquired companies and the impact of state income
taxes, offset in part by the nontaxable gain on issuance of stock by subsidiary.
The effective tax rate in fiscal 1996 exceeded the statutory federal income tax
rate, primarily due to the nondeductible write-off of cost in excess of net
assets of acquired company and the loss on sale of assets, offset in part by the
nontaxable
41
<PAGE>
Fiscal 1997 Compared With Fiscal 1996 (continued)
gains on issuance of stock by subsidiaries and the reversal of previously
established tax reserves of $0.8 million that were no longer required due to the
completion of certain revenue agent reviews.
The Company recorded minority interest income of $1.8 million in fiscal
1997, compared with minority interest expense of $1.2 million in fiscal 1996,
due to losses incurred by the Company's majority-owned subsidiaries.
Liquidity and Capital Resources
Consolidated working capital was $69.3 million at April 4, 1998, compared
with $77.3 million at March 29, 1997. Cash, cash equivalents, and
available-for-sale investments were $36.7 million at April 4, 1998, compared
with $81.6 million at March 29, 1997. Of the $36.7 million balance at April 4,
1998, $21.8 million was held by the Company's majority-owned subsidiaries, and
the remainder was held by the Company and its wholly owned subsidiaries. In
addition, at April 4, 1998, the Company had $13.9 million of short-term
held-to-maturity investments, compared with $26.1 million of short- and
long-term held-to-maturity investments at March 29, 1997. During fiscal 1998,
$6.5 million of cash was provided by operating activities. The Company funded an
increase of $11.2 million in accounts receivable during fiscal 1998, primarily
due to delays in the pursuit of collections at certain business units of Thermo
Remediation and, to a lesser extent, higher revenues at certain business units.
Thermo Remediation expects to address this matter by increasing collection
efforts over the next several quarters. In addition, accounts receivable
increased in the engineering and design group primarily as a result of the
timing of cash collections at Killam Associates. This use of cash was offset in
part by a $5.5 million increase in accounts payable due to the timing of
payments.
Excluding available-for-sale and held-to-maturity investments activity, the
Company's investing activities in fiscal 1998 primarily consisted of
acquisitions and capital additions, as well as the sale of two businesses.
During fiscal 1998, the Company and its subsidiaries made several acquisitions
for an aggregate of $12.7 million in cash, net of cash acquired, and the
issuance of shares of subsidiaries' common stock valued at $3.1 million. The
Company expended $18.5 million for purchases of property, plant, and equipment
in fiscal 1998. The Company expects to spend approximately $16.0 million for
property, plant, and equipment in fiscal 1999.
In October 1997, Thermo Remediation sold its 50% limited-liability interest
in RETEC/TETRA L.C. for $8.8 million in cash and the Company sold substantially
all of the assets of its Holcroft Division, excluding certain accounts
receivable, for a total purchase price of $10.9 million in cash and $2.9 million
of notes, plus the assumption by the purchaser of the Holcroft Division of
certain liabilities (Note 3).
In fiscal 1998, the Company's financing activities used cash of $53.7
million. This use of cash primarily resulted from the repayment of a $38.0
million promissory note to Thermo Electron, the repayment of a
42
<PAGE>
Liquidity and Capital Resources (continued)
$13.9 million note payable (Note 2), and the repurchase of Company and
subsidiary common stock and subordinated convertible debentures. The Board of
Directors of the Company authorized the repurchase of up to $10.0 million of its
own securities. The Board of Directors of Thermo Remediation, through a series
of actions commencing in September 1996, authorized the repurchase, through
various dates ending in July 1998, of up to $15.0 million of its own securities.
Through April 4, 1998, the Company and Thermo Remediation had expended $10.0
million and $11.4 million, respectively, under these authorizations, of which
$3.3 million and $3.1 million, respectively, were expended in fiscal 1998. Any
such purchases are funded from working capital.
The Company expects to have positive cash flow from its existing
operations. Although the Company does not presently intend to actively seek to
acquire additional businesses in the near future, it may acquire one or more
complimentary businesses if they are presented to the Company on terms the
Company believes to be attractive. Such acquisitions may require significant
amounts of cash. The Company expects that it will finance any such acquisitions
through a combination of internal funds, additional debt or equity financing
from the capital markets, or short-term borrowings from Thermo Electron,
although it has no agreement with Thermo Electron to ensure that funds will be
available on acceptable terms or at all. The Company believes that its existing
resources are sufficient to meet the capital requirements of its existing
businesses for the foreseeable future.
43
<PAGE>
Thermo TerraTech Inc. 1998 Financial Statements
Forward-looking Statements
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 1999 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 many of the Company's services, including industrial-
remediation services, nuclear-remediation services, hazardous waste-
remedial construction services, soil-remediation services, waste-fluids
recycling services, engineering and design services, and laboratory
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. Recently, certain
states have adopted a "risk-based" approach to prioritizing site cleanups
and setting cleanup standards, which attempts to balance the costs of
remediation against the potential harm to human health and the environment from
leaving sites unremediated. There can be no assurance that additional
states will not adopt these policies or that these policies will not reduce
the size of the potential market addressed by the Company.
Potential Environmental and 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
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 to 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
44
<PAGE>
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 is subject to numerous laws and
regulations related to the protection of human health and safety. Such laws and
regulations may pose 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. 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 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 these 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 and have had a material adverse effect on the Company's business.
Continued de-emphasis on enforcement activities and/or further reductions in
compliance requirements will have an even more severe 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 for
its services. For example, Thermo Remediation's nuclear-remediation business
provides a large portion of its services directly or indirectly to the U.S.
Department of Energy (DOE) and the Company's engineering and design businesses
perform significant amounts of services for state and
municipal governments. 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
45
<PAGE>
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 its 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 Lancaster Laboratories, RETEC, Randers, IEM Sealand, and Thermo NUtech,
may decline in winter months as a result of severe weather conditions. In
Europe, Thermo EuroTech may experience a decline in the feedstock delivered
to its facilities during winter months, due to frozen waterways.
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.
Dependence of Thermo EuroTech on Availability of Waste Oil Supplies.
Thermo EuroTech's North Refinery facility has historically received a
large percentage of its oil feedstock from the former Soviet Union. North
Refinery no longer receives any oil from that nation, due to political and
economic changes that have made the transportation of waste oil difficult. To
overcome this loss of supply, North Refinery has taken steps to replace and
diversify its feedstock suppliers. No assurance can be given, however, that
North Refinery will not experience future disruptions in deliveries. Any such
disruptions could have a material adverse effect on the Company's
results of operations.
Potential Professional Liability. The Company's business exposes it to
potential liability for the negligent performance of its services, and the
Company could face substantial liability to clients and third parties for
damages resulting from faulty designs or other professional services.
The Company currently maintains professional errors and omissions
insurance, but there can be no assurance that this insurance will provide
sufficient coverage in the event of a claim, that the Company will be able
to maintain such coverage on acceptable terms, if at all, or that a
professional liability claim would not result in a material adverse effect on
the Company's business, financial condition, and results of operations.
46
<PAGE>
Dependence on Sales to Government Entities. A significant portion of
the Company's revenues is derived from municipalities, state governments,
and government utility authorities. Any decreases in purchases by these
entities, including, without limitation, decreases resulting from shifts
in priorities or overall budgeting limitations, could have a material adverse
effect on the Company's business, financial condition, and results
of operations. In addition, most of the Company's contracts require the
Company to perform specific services for a fixed fee. Contracts with
governmental entities often permit the purchaser to cancel the agreement
at any time. A significant overrun in the Company's expenses or
cancellation of a significant contract could also result in a material
adverse effect on the Company's business, financial condition, and results of
operations. The Company's contracts with governmental entities are also
subject to other risks, including contract suspensions; protests by
disappointed bidders of contract awards, which can result in the
re-opening of the bidding process; and changes in government policies or
regulations.
Risks Associated with Acquisition Strategy. The Company's strategy
includes the acquisition of businesses that complement or augment the
Company's existing services. 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 additional
businesses if they are presented to the Company on terms the Company
believes to be attractive.
Promising acquisitions are difficult to identify and complete for a
number of reasons, including competition among prospective buyers and the
need for regulatory 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 that are not favorable to the Company
and, in the case of equity financing, may result in dilution to the
Company's shareholders.
Risks Associated with Spin-out of Subsidiaries. The Company has adopted a
strategy of spinning out certain of its businesses into separate subsidiaries
and having these subsidiaries sell a minority interest to outside investors. As
a result of the sale of stock by subsidiaries, the issuance of stock by
subsidiaries upon conversion of convertible debentures and similar transactions,
the Company records gains that represent the increase in the Company's net
investment in the subsidiaries. These gains have represented a substantial
portion of the net income reported by the Company in certain periods. The size
and timing of these transactions are dependent on market and other conditions
that are beyond the Company's control. Accordingly, there can be no assurance
that the Company will be able to generate gains from such transactions in the
future.
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<PAGE>
In addition, in October 1995, the Financial Accounting Standards Board
(FASB) issued an exposure draft of a Proposed Statement of Financial Accounting
Standards, "Consolidated Financial Statements: Policy and Procedures" (the
Proposed Statement). The Proposed Statement would establish new rules for how
consolidated financial statements should be prepared. If the Proposed Statement
is adopted, there would be significant changes in the way the Company records
certain transactions of its controlled subsidiaries. Among those changes, any
sale of the stock of a subsidiary that does not result in a loss of control
would be accounted for as a transaction in equity of the consolidated entity
with no gain or loss being recorded. The exposure draft addresses the
consolidation issues in two parts: consolidation procedures, which includes
proposed rule changes affecting the Company's ability to recognize gains on
issuances of subsidiary stock, and consolidation policy, which does not address
accounting for such gains. During 1997, the FASB decided to focus its efforts on
the consolidation policy part of the exposure draft and to consider resuming
discussion on consolidation procedures after completion of the efforts on
consolidation policy. The timing and content of any final statement are
uncertain.
No Assurance of Development and Commercialization of Technology Under
Development. The Company is currently engaged in the development of several
technologies that may ultimately be commercialized to provide services to
customers. 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 by the Company, will be
technologically feasible or accepted by the marketplace, or that any such
development will be completed in any particular timeframe.
Potential Impact of Year 2000 on Processing Date-sensitive Information.
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 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 problem 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.
48
<PAGE>
Thermo TerraTech Inc. 1998 Financial Statements
Selected Financial Information
(In thousands except
per share amounts) 1998(a) 1997(b) 1996(c) 1995(d) 1994(e)
- -----------------------------------------------------------------------------
Statement of Operations
Data:
Revenues $298,786 $278,503 $220,484 $136,985 $112,865
Income (Loss) Before
Cumulative Effect
of Change in
Accounting
Principle 3,273 (162) 3,447 4,476 3,507
Net Income (Loss) 3,273 (162) 3,447 4,476 4,007
Basic and Diluted
Earnings (Loss) per
Share Before
Cumulative Effect
of Change in
Accounting
Principle .18 (.01) .20 .26 .21
Earnings (Loss) per
Share:
Basic .18 (.01) .20 .26 .24
Diluted .17 (.01) .18 .26 .24
Balance Sheet Data:
Working Capital $ 69,319 $ 77,315 $ 66,008 $ 63,459 $50,310
Total Assets 360,526 393,784 333,656 273,298 157,161
Long-term Obligations 153,144 165,186 155,384 96,851 18,732
Shareholders'
Investment 97,130 83,526 85,870 77,217 62,239
- --------------------
(a) Reflects a pre-tax gain of $3.0 million from Thermo Remediation's sale of
its investment in a joint venture.
(b) Reflects $7.8 million of nonrecurring costs and a loss $1.5 million relating
to the sale of the Company's J. Amerika division. Also reflects the issuance
of $115.0 million principal amount of 4 7/8% subordinated convertible
debentures, and a gain on issuance of stock by subsidiary of $1.5 million.
(c) Reflects the acquisition of Lancaster Laboratories in May 1995, the purchase
of the businesses formerly operated by the environmental services joint
venture from Thermo Instrument, and the issuance of a $35.0 million
promissory note to Thermo Electron to fund the purchase. Reflects Thermo
Remediation's acquisition of RETEC in December 1995,
the issuance of $38.0 million principal amount of 4 7/8% subordinated
convertible debentures by Thermo Remediation, and a gain on issuance of
stock by subsidiaries of $4.1 million. Also reflects the write-off of
goodwill of $5.0 million and a loss on the sale of assets of $0.6 million.
(d) Reflects the acquisitions of RMC Environmental Services, Inc. in August 1994
and Killam Associates in February 1995, and the issuance of $53.0 million of
long-term promissory notes to Thermo Electron. Also reflects Thermo
EuroTech's acquisition of North Refinery in March 1995.
(e) Reflects the adoption of Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes."
49
<PAGE>
Thermo TerraTech Inc. 1998 Financial Statements
Common Stock Market Information
The Company's common stock is traded on the American Stock Exchange under
the symbol TTT. The following table sets forth the high and low sales prices of
the Company's common stock for fiscal 1998 and 1997, as reported in the
consolidated transaction reporting system.
1998 1997
-------------------- ----------------------
Quarter High Low High Low
- ---------------------------------------------------------------------------
First $11 1/8 $8 1/8 $14 3/8 $11 3/4
Second 12 1/16 9 7/8 12 3/8 10 1/4
Third 9 15/16 8 10 7/8 9 3/16
Fourth 8 3/16 6 5/8 9 7/8 8 3/4
As of May 29, 1998, the Company had 955 holders of record of its common
stock. This does not include holdings in street or nominee names. The closing
market price on the American Stock Exchange for the Company's common stock on
May 29, 1998, was $4 3/4 per share.
Common stock of Thermo Remediation Inc. and The Randers Group Incorporated,
the Company's majority-owned public subsidiaries, are traded on the American
Stock Exchange (symbol THN) and the American Stock Exchange's Emerging Company
Marketplace (symbol RGI), respectively.
Shareholder Services
Shareholders of Thermo TerraTech Inc. who desire information about the
Company are invited to contact John N. Hatsopoulos, Chief Financial Officer,
Thermo TerraTech Inc., 81 Wyman Street, P.O. Box 9046, Waltham, Massachusetts
02254-9046, (781) 622-1111. A mailing list is maintained to enable shareholders
whose stock is held in street name, and other interested individuals, to receive
quarterly reports, annual reports, and press releases as quickly as possible.
Distribution of printed quarterly reports is limited to the second quarter only.
All material will be available from Thermo Electron's Internet site
(http://www.thermo.com/subsid/ttt1.html).
Stock Transfer Agent
American Stock Transfer & Trust Company is the stock transfer agent and
maintains shareholder activity records. The agent will respond to questions on
issuance of stock certificates, change of ownership, lost stock certificates,
and change of address. For these and similar matters, please direct inquiries
to:
American Stock Transfer & Trust Company
Shareholder Services Department
40 Wall Street, 46th Floor
New York, New York 10005
(718) 921-8200
50
<PAGE>
Dividend Policy
The Company has never paid cash dividends and does not expect to pay cash
dividends in the foreseeable future because its policy has been to use earnings
to finance expansion and growth. Payment of dividends will rest within the
discretion of the Company's Board of Directors and will depend upon, among other
factors, the Company's earnings, capital requirements, and financial condition.
Form 10-K Report
A copy of the Annual Report on Form 10-K for the fiscal year ended April 4,
1998, as filed with the Securities and Exchange Commission, may be obtained at
no charge by writing to John N. Hatsopoulos, Chief Financial Officer, Thermo
TerraTech Inc., 81 Wyman Street, P.O. Box 9046, Waltham, Massachusetts
02254-9046.
Annual Meeting
The annual meeting of shareholders will be held on Tuesday, September
15, 1998, at 3:00 p.m. at Thermo Electron Corporation, 81 Wyman Street,
Waltham, Massachusetts.
51
Exhibit 21
THERMO TERRATECH INC.
Subsidiaries of the Registrant
As of May 29, 1998, Thermo TerraTech Inc. owned the following companies:
STATE OR
JURISDICTION PERCENT
NAME OF OF
INCORPORATION OWNERSHIP
Thermo TerraTech Inc. Delaware 81.58
Holcroft (Canada) Limited Canada 100
Holcroft Corporation Delaware 100
Holcroft GmbH Germany 100
Metallurgical, Inc. Minnesota 100
Cal-Doran Metallurgical Services, Inc. California 100
Metal Treating Inc. Wisconsin 100
Normandeau Associates, Inc. New 100
Hampshire
TMA/Hanford, Inc. Washington 100
The Randers Group Incorporated Delaware 53.3
(additionally, 1.03% of the shares are owned
directly by Thermo Electron Corporation)
Clark-Trombley Consulting Engineers, Inc. Michigan 100
Randers Engineering, Inc. Michigan 100
Randers Engineering of Massachusetts, Michigan 100
Inc.
Randers Group Property Corporation Michigan 100
Redeco Incorporated Michigan 100
Viridian Technology Incorporated Michigan 100
The Killam Group, Inc. Delaware 100
CarlanKillam Consulting Group, Inc. Florida 100
CarlanKillam Consulting Group of Alabama 100
Alabama, Inc.
Thermo Consulting & Design Inc. Delaware 100
Engineering Technology and Delaware 100
Knowledge Corporation
Elson T. Killam Associates, Inc. New Jersey 100
BAC Killam Inc. New York 100
N.H. Bettigole Co., Inc. Delaware 100
N.H. Bettigole P.A. New Jersey 100
N.H. Bettigole P.C. New York 100
CarlanKillam Construction Florida 100
Services, Inc.
Duncan, Lagnese and Pennsylvania 100
Associates, Incorporated
E3-Killam, Inc. New York 100
Killam Associates, Inc. Ohio 100
Killam Management and New Jersey 100
Operational Services, Inc.
Fellows, Read & Associates, Inc. New Jersey 100
Killam Associates, New England Inc. Delaware 100
George A. Schock & Associates, New Jersey 100
Inc.
Jennison Engineering, Inc. Vermont 100
Thermo Analytical Inc. Delaware 100
Skinner & Sherman, Inc. Massachusetts 100
Thermo EuroTech N.V. Netherlands 56.25
(additionally, 4.58% of the share are owned
directly by The Thermo Electron Companies Inc.)
Thermo EuroTech Ireland Ltd. Ireland 100
Green Sunrise Holdings Ltd. Ireland 70
AutoRod Ltd. Ireland 100
Green Sunrise Industries Ltd. Ireland 100
GreenStar Recycling Ltd. Ireland 100
Pipe & Drain Services Ltd. Ireland 100
GreenStar Products Ltd. Ireland 70
Grond- & Watersaneringstechniek Netherlands 100
Nederland B.V.
Refining & Trading Holland B.V. Netherlands 100
Thermo Remediation Inc. Delaware 68.53
(additionally, 1.50% of the shares are owned
directly by The Thermo Electron Companies
Inc.)
Benchmark Environmental Corporation New Mexico 100
Eberline Holdings Inc. Delaware 100
Eberline Analytical Corporation New Mexico 100
Thermo Hanford Inc. Delaware 100
TMA/NORCAL Inc. California 100
IEM Sealand Corporation Virginia 100
RPM Systems, Inc. Connecticut 100
Remediation Technologies, Inc. Delaware 100
GeoWest Golden Inc. Colorado 100
GeoWest TriTechnics of Ohio, LLC Colorado 100
RETEC Thermal, Inc. Delaware 100
Thermo Fluids Inc. Delaware 100
TPS Technologies Inc. Florida 100
TPST Soil Recyclers of California Inc. California 100
California Hydrocarbon, Inc. Nevada 100
TPST Soil Recyclers of Maryland Inc. Maryland 100
Todds Lane Limited Partnership Maryland 100*
(1% of which is owned directly
by TPS Technologies Inc.)
TPST Soil Recyclers of New York Inc. New York 100
TPST Soil Recyclers of Oregon Inc. Oregon 100
TPST Soil Recyclers of South Carolina Delaware 100
Inc.
TPST Soil Recyclers of Virginia Inc. Delaware 100
TPST Soil Recyclers of Washington Inc. Washington 100
TRUtech L.L.C. Delaware 47.5*
EXHIBIT 23
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the
incorporation by reference of our reports dated May 12, 1998, included in or
incorporated by reference into Thermo TerraTech Inc.'s Annual Report on Form
10-K for the year ended April 4, 1998, and into the Company's previously
filed Registration Statements as follows: Registration Statement No.
333-02269 on Form S-2, Registration Statement No. 33-16462 on Form S-8,
Registration Statement No. 33-16464 on Form S-8, Registration Statement No.
33-16465 on Form S-8, Registration Statement No. 33-16466 on Form S-8,
Registration Statement No. 333-2055 on Form S-3, Registration Statement No.
33-52824 on Form S-8, Registration Statement No. 033-65307 on Form S-8,
Registration Statement No. 033-65283 on Form S-8, Registration Statement No.
033-65281 on Form S-8, Registration Statement No. 33-86194 on Form S-8, and
Registration Statement No. 333-05263 on Form S-3.
Arthur Andersen LLP
Boston, Massachusetts
June 26, 1998
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO
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<PERIOD-TYPE> YEAR
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<PERIOD-END> MAR-30-1996
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<CURRENT-ASSETS> 121,577
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<TOTAL-ASSETS> 333,656
<CURRENT-LIABILITIES> 55,569
<BONDS> 82,384
0
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<COMMON> 1,760
<OTHER-SE> 84,110
<TOTAL-LIABILITY-AND-EQUITY> 333,656
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<LOSS-PROVISION> 85
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</TABLE>
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO
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AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-29-1997
<PERIOD-END> JUN-29-1996
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<DEPRECIATION> 44,845
<TOTAL-ASSETS> 402,569
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<COMMON> 1,807
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<TOTAL-LIABILITY-AND-EQUITY> 402,569
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<OTHER-EXPENSES> 299
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<EPS-PRIMARY> 0.08
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO
TERRATECH INC.'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER
28, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
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</LEGEND>
<MULTIPLIER> 1,000
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<ALLOWANCES> 3,022
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<CURRENT-ASSETS> 189,590
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<EPS-PRIMARY> .16
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO
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<MULTIPLIER> 1,000
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