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 March 29, 1997
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number 1-12636
THERMO REMEDIATION INC.
(Exact name of Registrant as specified in its charter)
Delaware 59-3203761
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1964 South Orange Blossom Trail
Apopka, Florida 32703
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 622-1000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
---------------------------- -----------------------------------------
Common Stock, $.01 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 23, 1997, was approximately $25,286,000.
As of May 23, 1997, the Registrant had 12,510,332 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Fiscal 1997 Annual Report to Shareholders
for the year ended March 29, 1997, 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 24, 1997, are
incorporated by reference into Part III.
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PART I
Item 1. Business
(a) General Development of Business
Thermo Remediation Inc. (the Company or the Registrant) is a national
provider of environmental services, including industrial, nuclear, and
soil remediation, as well as waste-fluids recycling.
The Company's Remediation Technologies, Inc. (ReTec) subsidiary,
acquired in December 1995, is a provider of consulting, engineering, and
on-site services to help clients manage problems associated with
environmental compliance, waste management, and the remediation of
industrial sites contaminated with organic wastes and residues.
In September 1996, the Company acquired IEM Sealand Corporation (IEM
Sealand) for 311,040 shares of the Company's common stock, valued at $2.0
million, and $1.7 million in cash. The shares of the Company's common
stock issued in connection with the acquisition are subject to certain
restrictions on transfer. 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 waste.
The Company's Thermo Nutech Inc. (Thermo Nutech) subsidiary provides
services to remove radioactive contaminants from sand, gravel, and soil,
as well as health physics services, radiochemistry laboratory services,
radiation dosimetry services, radiation-instrument calibration and repair
services, and radiation-source production.
The Company, through its TPS Technologies Inc. (TPS Technologies)
subsidiary, designs and operates facilities for the remediation of
nonhazardous soil and operates such facilities on the East and West
Coasts. A recent severe downturn in the Company's soil-recycling business
and relaxed compliance requirements and enforcement activities, which
resulted in overcapacity in the industry and competitive pricing
pressures, have led to operating losses at certain sites beginning in
fiscal 1997. As a result, during fiscal 1997, the Company wrote-down $7.8
million of certain assets associated with its soil-remediation business.
The Company expects that closure of two sites with small operating losses
and a write-down of certain assets at two other sites, at which current
volumes of soil being processed were insufficient to recover the
Company's investment, will improve operating results beginning in fiscal
1998. Revenues and operating losses, exclusive of the write-down, at the
sites being closed aggregated $2.9 million and $0.6 million,
respectively, in fiscal 1997.
The Company's Thermo Fluids Inc. (Thermo Fluids) subsidiary collects,
tests, processes, and recycles used motor oil and other industrial
fluids.
The Company was incorporated in November 1991 as an indirect, wholly
owned subsidiary of Thermo TerraTech Inc. (Thermo TerraTech), to operate
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a soil-remediation center in Adelanto, California. On October 1, 1993,
pursuant to a reorganization, Thermo TerraTech contributed to the Company
certain additional assets and liabilities pertaining to its
soil-remediation business. As of March 29, 1997, Thermo TerraTech owned
8,621,968 shares of the common stock of the Company, representing 69% of
such stock outstanding. Thermo TerraTech intends, for the foreseeable
future, to maintain at least 50% ownership of the Company. A publicly
traded subsidiary of Thermo Electron Corporation (Thermo Electron),
Thermo TerraTech provides a range of environmental services and
infrastructure planning and design, encompassing a broad range of
specializations including consulting and design, laboratory testing, and
metal treating.
As of March 29, 1997, Thermo Electron owned 185,400 shares of the
Company's common stock, representing 1% of such stock outstanding. Thermo
Electron is a world leader in environmental monitoring and analysis
instruments, biomedical products such as heart-assist devices and
mammography systems, papermaking and recycling equipment, biomass
electric power generation, and other specialized products and
technologies. Thermo Electron also provides a range of services related
to environmental quality. Thermo Electron may purchase shares of the
Company's common stock from time to time in the open market or in
negotiated transactions. During fiscal 19971, Thermo Electron purchased
30,000 shares of the Company's common stock in the open market for
$314,000.
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 caption "Forward-looking
Statements" in the Registrant's Fiscal 1997 Annual Report to Shareholders
incorporated herein by reference.
(b) Financial Information About Industry Segments
The Company conducts business in one industry segment, environmental
services. Within this segment, the principal products and services are:
industrial-remediation services, nuclear-remediation services,
soil-remediation services, and waste-fluids recycling services.
1 References to fiscal 1997, 1996, and 1995 herein are for the fiscal
years ended March 29, 1997, March 30, 1996, and April 1, 1995,
respectively.
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(c) Description of Business
(i) Principal Products and Services
Industrial-remediation Services
Through its ReTec subsidiary, the Company provides environmental
consulting and remediation construction management to clients in the
railroad transportation, refining, chemical, wood treating, gas, and
electric utility industries across the nation. ReTec's consulting,
engineering, and on-site services offer a broad array of remedial
solutions, all of which are applied from a risk management perspective,
to help clients manage problems associated with environmental compliance,
waste management, and the remediation of industrial sites contaminated
with organic wastes and residues. ReTec provides particular expertise in
bioremediation, and in managing wastes from manufactured-gas plants,
refineries, and railroad properties. ReTec operates from offices in 20
cities and numerous field sites across the country.
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 waste. Under contracts with federal and state governments,
and other public- and private-sector clients, IEM Sealand also provides
project management and construction services for the remediation of
hazardous wastes. Most of IEM Sealand's contract work is obtained in a
bid process with the job being awarded to the lowest qualified bidder.
Nuclear-remediation Services
----------------------------
Through its Thermo Nutech subsidiary, 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, 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. As part of its on-site services, the Company usually performs a
preliminary survey using portable radiation-detection equipment. As a
result of this survey, samples are taken at critical locations and are
then analyzed radiometrically and radiochemically in a mobile laboratory
facility at the site or at one of the Company's laboratories. This data
is then used to plan cleanup operations. A substantial part of the
Company's health physics services has been performed under the U.S.
Department of Energy's (DOE) remedial action programs, including the
Hanford site. The Company also supplies reusable thermo luminescent
dosimeter badges. These badges, worn by personnel working in areas where
radioactive material may be present, are periodically returned to the
Company for processing to determine the level of radiation exposure. In
addition, using its proprietary segmented-gate system technology, the
Company removes radioactive contaminants from soil at the Defense Nuclear
Fund's site at Johnston Island in the Pacific.
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Soil-remediation Services
-------------------------
The Company's TPS Technologies Inc. subsidiary designs and operates a
network of facilities for the remediation of nonhazardous soil along the
East and West coasts. The Company currently provides its soil-remediation
services from soil-remediation centers in California, Oregon, Washington,
South Carolina, Maryland, and New York. 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 market for remediation of petroleum-contaminated soils, as with
many other waste markets, was created by environmental regulations. The
market for soil-remediation services is driven largely by state programs
to enforce the 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 many 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 has 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. The recent
severe downturn in the Company's soil-recycling business and relaxed
compliance requirements and enforcement activities, which resulted in
overcapacity in the industry and competitive pricing pressures, have led
to operating losses at certain sites beginning in fiscal 1997. As a
result, during fiscal 1997, the Company wrote-down $7.8 million of
certain assets associated with its soil-remediation business. The Company
expects that closure of two sites with small operating losses and a
write-down of certain assets at two other sites, at which current volumes
of soil being processed were insufficient to recover the Company's
investment, will improve operating results beginning in fiscal 1998.
Revenues and operating losses, exclusive of the write-down, at the sites
being closed were $2.9 million and $0.6 million, respectively, in fiscal
1997. In addition, underground and aboveground tank regulations, clean
water legislation, and real estate transfer and financing transactions
also influence demand for soil-remediation services.
Waste-fluids Recycling Services
-------------------------------
The Company, through its Thermo Fluids subsidiary, collects, tests,
processes, and recycles used motor oil and other industrial oils. In
addition, the Company collects and recycles oily water and oil filters.
Thermo Fluids has processing facilities in Phoenix and Tucson, Arizona;
and Las Vegas, Nevada, from which Thermo Fluids 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
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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.
(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
Supplies purchased by the Company are either available from a number
of different suppliers or from alternative sources that could be
developed without a material adverse effect on the Company's business. To
date, the Company has experienced no difficulties in obtaining these
materials.
(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.
The Company has a perpetual, exclusive, and royalty-free license from
Thermo TerraTech to develop, own, and operate soil-remediation centers
and to employ mobile remediation equipment incorporating Thermo
TerraTech's technology throughout North America (other than in
Massachusetts and New Hampshire).
(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, such as the services provided by ReTec, IEM Sealand,
and Thermo Nutech, may decline in winter months as a result of severe
weather conditions.
(vi) Working Capital Requirements
In general, there are no special credit terms extended to customers
that would have a material adverse effect on the Company's working
capital.
(vii) Dependency on a Single Customer
A substantial portion of the Company's nuclear services have been
provided to the U.S. government. One subcontract for the U.S. government
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accounted for approximately 5%, 10%, and 4% of the Company's total
revenues in fiscal 1997, 1996, and 1995, respectively. All other U.S.
government agencies accounted for 25%, 16%, and 26% of the Company's
total revenues in fiscal 1997, 1996, and 1995, respectively.
(viii) Backlog
The Company's backlog of firm orders was approximately $36,927,000
and $20,963,000 as of March 29, 1997, and March 30, 1996, respectively.
The Company believes that substantially all of the backlog at March 29,
1997, will be shipped or completed during the next 12 months.
Soil-remediation and waste-fluids recycling services are provided on a
current basis pursuant to purchase orders. Accordingly, there is no
backlog for these services.
(ix) Government Contracts
See Dependency on a Single Customer.
(x) Competition
Each of ReTec's offices is engaged in highly competitive, regional
markets. ReTec's competition consists of numerous small firms offering
limited services, as well as much larger firms that offer an array of
services. The principal competitive factors for ReTec are: reputation;
experience; price; breadth and quality of services offered; and
technical, managerial, and business proficiency.
IEM Sealand competes with numerous regional or local companies as
well as a number of national remediation contractors. IEM Sealand
competes primarily based on price, as the vast majority of the contracts
it seeks are awarded to the lowest bidder.
Thermo Nutech faces competition from many large national competitors,
and competes primarily on the basis of its proprietary technology and
price.
Competition in the soil-remediation business is intense. The
Company's principal customers 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 technologies, 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 price
pressure will remain intense for the foreseeable future.
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Thermo Fluids operates the largest fleet of collection vehicles in
Arizona and Nevada. Thermo Fluids competes with numerous smaller and
several larger collection companies in its current market primarily based
on quality of service 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
As of March 29, 1997, the Company employed a total of 720 persons.
(d) Financial Information About Exports by Domestic Operations and About
Foreign Operations
Not applicable.
(e) Executive Officers of the Registrant
Present Title (Fiscal Year First
Name Age Became Executive Officer)
-------------------- --- ------------------------------------
Jeffrey L. Powell 38 President and Chief Executive
Officer (1993)
John N. Hatsopoulos 62 Chief Financial Officer and
Vice President (1993)
Robert W. Dunlap 60 Vice President (1996)
Nels R. Johnson 46 Vice President (1995)
James Lousararian 38 Vice President (1991)
Norman A. Pedersen 39 Vice President (1997)
Paul F. Kelleher 54 Chief Accounting Officer (1993)
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 Messrs.
Johnson, Dunlap, and Pedersen have held comparable positions for at least
five years, either with the Company, Thermo TerraTech, or Thermo
Electron. Mr. Johnson has been Vice President of the Company since 1995.
He has served as President of the Company's Thermo Nutech business since
1988. Mr. Dunlap has been Vice President of the Company since 1996 and
has served as President of ReTec, which he helped found, since 1985. Mr.
Pedersen has been Vice President of ReTec since 1995. He has also served
as Director of Business Development for the Company and other Thermo
Electron entities since 1991. Messrs. Powell, Lousararian, Johnson,
Dunlap, and Pedersen are full-time employees of the Company. 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 Company owns approximately 96 acres in Maryland, South Carolina,
California, Florida, and Oregon, from which it provides soil-remediation
services. The Company occupies approximately 22 acres in New York,
Washington, California, Virginia, and South Carolina, pursuant to leases
expiring in fiscal 1998 through 2006, from which it provides
soil-remediation services. The Company also occupies approximately 12,000
square feet of office and engineering space in Florida, pursuant to a
lease expiring in fiscal 1998.
The Company occupies approximately 96,000 square feet, pursuant to
leases expiring in fiscal 1998 through 2002, in Pennsylvania,
Massachusetts, Washington, Colorado, Texas, Louisiana, Minnesota, New
York, Indiana, California, and Virginia, from which it provides
industrial remediation services.
The Company leases approximately 22,500 square feet, pursuant to
leases expiring in fiscal 1998 through 1999, in New Mexico and Tennessee,
and owns approximately 34,000 square feet in New Mexico and California,
for which it provides nuclear remediation services.
The Company occupies an aggregate of approximately eight acres on two
sites in Arizona and one site in Nevada consisting of office space,
fluids-recycling and maintenance facilities, and sites for fluids storage
tanks.
The Company believes that these facilities are adequate for its
present operations and that other suitable space is readily available if
any of such leases are not extended.
Item 3. Legal Proceedings
None.
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 Shareholder
Matters
Information concerning the market and market price for the
Registrant's Common Stock, $.01 par value, and dividend policy are
included under the sections labeled "Common Stock Market Information" and
"Dividend Policy" in the Registrant's Fiscal 1997 Annual Report to
Shareholders and is incorporated herein by reference.
Item 6. Selected Financial Data
The information concerning the Registrant's selected financial data
is included under the sections labeled "Selected Financial Information"
and "Dividend Policy" in the Registrant's Fiscal 1997 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 1997 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 March 29,
1997, are included in the Registrant's Fiscal 1997 Annual Report to
Shareholders and are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
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.
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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 Statements and Schedules filed herewith:
Financial Statements of Unconsolidated Subsidiary:
ReTec/Tetra L.C.
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.
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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 6, 1997 THERMO REMEDIATION INC.
By: Jeffrey L. Powell
-------------------------
Jeffrey L. Powell
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 6, 1997.
Signature Title
--------- -----
By:Jeffrey L. Powell President, Chief Executive Officer,
------------------------ and Director
Jeffrey L. Powell
By:John N. Hatsopoulos Chief Financial Officer and
------------------------ Vice President
John N. Hatsopoulos
By:Paul F. Kelleher Chief Accounting Officer
------------------------
Paul F. Kelleher
By:John P. Appleton Chairman of the Board and Director
------------------------
John P. Appleton
By:Elias P. Gyftopoulos Director
------------------------
Elias P. Gyftopoulos
By:Fred Holubow Director
------------------------
Fred Holubow
By:Theo Melas-Kyriazi Director
------------------------
Theo Melas-Kyriazi
By:Frank E. Morris Director
------------------------
Frank E. Morris
By: Director
------------------------
William A. Rainville
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Report of Independent Auditors
The Supervisory Board
RETEC/TETRA L.C.
We have audited the accompanying balance sheets of RETEC/TETRA L.C. (a
Limited Liability Corporation) ("the Company") as of December 31, 1996
and 1995, and the related statements of operations, members' equity, and
cash flows for each of the years then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is
to express an opinion on these 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 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
RETEC/TETRA L.C. at December 31, 1996 and 1995, and the results of its
operations and its cash flow for the years then ended, in conformity with
generally accepted accounting principles.
Ernst & Young LLP
Houston, Texas
February 27, 1997
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RETEC/TETRA L.C.
BALANCE SHEETS
December 31
---------------------------
1996 1995
----------- ------------
ASSETS
Current assets:
Cash $ 589,355 $ 114,330
Trade accounts receivable 1,669,294 1,506,109
Accounts receivable from parent
corporations 19,981 4,139
Prepaid expenses and other current assets 793,790 538,598
----------- -----------
Total current assets 3,072,420 2,163,176
Property, plant and equipment:
Machinery and equipment 17,966,893 13,881,832
Automobiles and other equipment 475,673 360,679
Construction in progress 1,465,117 1,430,927
----------- -----------
19,907,683 15,673,438
Less accumulated depreciation (7,645,348) (4,475,376)
----------- -----------
Net property, plant and equipment 12,262,335 11,198,062
Other assets:
Technology, patents and licenses, net of
accumulated amortization of $314,860
in 1996 and $241,694 in 1995 381,380 454,546
----------- -----------
Total assets $15,716,135 $13,815,784
=========== ===========
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Trade accounts payable $ 274,818 $ 1,035,316
Payable to parent corporations 129,853 270,114
Accrued expenses 574,009 368,874
Current portion of notes payable 1,037,000 668,000
----------- -----------
Total current liabilities 2,015,680 2,342,304
Long-term portion of notes payable 2,635,139 2,465,000
Members' equity:
Invested capital 9,751,078 8,675,539
Retained earnings 1,314,238 332,941
----------- -----------
Total members' equity 11,065,316 9,008,480
----------- -----------
Total liabilities and members' equity $15,716,135 $13,815,784
=========== ===========
See Accompanying Notes
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RETEC/TETRA L.C.
STATEMENTS OF OPERATIONS
Year Ended December 31
---------------------------
1996 1995
----------- -----------
Revenues $12,066,497 $ 9,417,408
Cost of revenues 9,040,440 8,176,145
----------- -----------
Gross profit 3,026,057 1,241,263
General and administrative expenses 1,664,435 1,170,802
----------- -----------
Operating income 1,361,622 70,461
Other income 15,523 0
Interest expense (386,843) (163,165)
Loss on sale of fixed assets (9,005) (23,666)
----------- -----------
Net income (loss) $ 981,297 $ (116,370)
=========== ===========
See Accompanying Notes
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RETEC/TETRA L.C.
STATEMENTS OF MEMBERS' EQUITY
TETRA Remediation
Technologies, Technologies,
Inc. Inc. Total
------------- ------------- -----------
Balance at August 1, 1992
Capital contribution $ 800,000 $ 2,375,539 $ 3,175,539
1992 net loss (285,303) (285,303) (570,606)
----------- ----------- -----------
Balance at December 31, 1992 514,697 2,090,236 2,604,933
Capital contribution 2,400,000 1,900,000 4,300,000
1993 net loss (124,225) (124,224) (248,449)
----------- ----------- -----------
Balance at December 31, 1993 2,790,472 3,866,012 6,656,484
Capital contribution 600,000 600,000 1,200,000
1994 net income 634,183 634,183 1,268,366
----------- ----------- -----------
Balance at December 31, 1994 4,024,655 5,100,195 9,124,850
1995 net loss (58,185) (58,185) (116,370)
----------- ----------- -----------
Balance at December 31, 1995 3,966,470 5,042,010 9,008,480
Capital contribution 1,075,539 0 1,075,539
1996 net income 490,649 490,648 981,297
----------- ----------- -----------
Balance at December 31, 1996 $ 5,532,658 $ 5,532,658 $11,065,316
=========== =========== ===========
See Accompanying Notes
17PAGE
<PAGE>
RETEC/TETRA L.C.
STATEMENTS OF CASH FLOWS
Year Ended December 31
---------------------------
1996 1995
----------- -----------
Operating activities:
Net income (loss) $ 981,297 $ (116,370)
Adjustments to reconcile net income (loss)
to cash provided by operating activities:
Depreciation and amortization 3,251,037 2,344,990
Loss on the sale of fixed assets 9,005 23,666
Changes in operating assets and
liabilities:
Accounts receivable (179,027) 37,957
Prepaid expenses and other
current assets (255,192) (228,489)
Trade accounts payable and accrued
expenses (695,624) (189,320)
----------- -----------
Net cash provided by operating activities 3,111,496 1,872,434
Investing activities:
Purchase of property, plant and equipment (4,252,649) (5,135,545)
Purchase of patents, royalties and
technologies 0 (26,357)
Proceeds from sale of assets 1,500 65,671
----------- -----------
Net cash used in investing activities (4,251,149) (5,096,231)
Financing activities:
Proceeds from long-term debt 3,585,000 3,340,000
Principal payments on long-term debt (3,045,861) (207,000)
Capital contribution - TETRA 1,075,539 0
----------- -----------
Net cash provided by financing activities 1,614,678 3,133,000
Increase (decrease) in cash 475,025 (90,797)
Cash at beginning of period 114,330 205,127
----------- -----------
Cash at end of period $ 589,355 $ 114,330
=========== ===========
Supplemental Cash Flow Information:
Interest paid $ 426,370 $ 163,165
See Accompanying Notes
18PAGE
<PAGE>
RETEC/TETRA L.C.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
NOTE A -- ORGANIZATION AND OPERATIONS
RETEC/TETRA L.C. ("the Company") was formed August 1, 1992 as a joint
venture with RETEC/Thermal (RETEC), a wholly-owned subsidiary of
Remediation Technologies, Inc., owning 50% and TETRA/Thermal, (TETRA) a
wholly-owned subsidiary of TETRA Technologies, Inc., owning the other
50%. The Company installs and operates systems to process hazardous and
non-hazardous wastes at petroleum refineries located primarily in the
Gulf Coast region. In December 1995 Remediation Technologies, Inc. was
acquired by Thermo Remediation Inc.
NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Concentration of Credit Risk
Financial instruments which subject the Company to concentrations of
credit risk consist principally of trade receivables. The Company's
policy is to evaluate, prior to contract signing, each customer's
financial condition and determine the amount of open credit to be
extended; generally collateral is not required. The trade receivables
primarily include activity with major petroleum refinery companies.
Property, Plant and Equipment
Property, plant and equipment contributed by RETEC upon formation of
the venture are stated at the value in the formation agreement and assets
purchased subsequent are stated at cost. Expenditures that increase the
useful lives of assets are capitalized. The costs of repairs and
maintenance are charged to operations as incurred. Assets contributed at
the Company's formation are depreciated using a declining-balance method
converting to the straight-line method. All assets acquired subsequent to
formation are depreciated using the straight-line method. The estimated
useful lives of assets are as follows:
Machinery and Equipment 2 to 10 years
Automobiles and other equipment 2 to 5 years
Technology, Patents and Licenses
Technology, patents and licenses, which relate to proprietary waste
treatment processes contributed by RETEC, were estimated at the stated
value in the formation agreement. Patents and licenses are amortized over
the estimated useful lives generally ranging from five to ten years.
Technologies are amortized over estimated useful lives from eight to ten
years.
19PAGE
<PAGE>
RETEC/TETRA L.C.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (con't)
Income Taxes
The Company has elected to be treated as a partnership for federal
income tax purposes. RETEC and TETRA include their respective shares of
the net income (loss) of the Company in their federal and state tax
returns.
Allocation of Joint Venture Profit and Loss
In accordance with the formation agreement, net income (loss) is to
be allocated to RETEC and TETRA in accordance with their partnership
interests.
Operating Leases
The Company periodically enters into operating leases for various
pieces of equipment and warehouse space. Aggregate rental expense under
these agreements was $353,305 and $603,210 in 1996 and 1995,
respectively. Minimum future annual lease payments under non-cancelable
operating leases are as follows for the years ending December 31, 1997: -
$72,188; 1998 - $51,385; 1999 - $31,868; 2000 - $3,591. The lease for
warehouse space expires March 1997 but the Company expects to renew the
lease.
Use of Estimates
Management is required to make estimates and assumptions that affect
the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of
In March 1995, The Financial Accounting Standards Board issued
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of (SFAS 121), which requires impairment losses to
be recorded on long-lived assets used in operations when indicators of
impairment are present and the discounted cash flows estimated to be
generated by those assets are less than the assets' carrying amount. SFAS
121 also addresses the accounting for long-lived assets that are expected
to be disposed of. The Company adopted SFAS 121 in the first quarter of
1996 and the effect of adoption was not material.
Financial Instruments
The carrying amount of the Company's financial instruments
approximate fair market value.
20PAGE
<PAGE>
RETEC/TETRA L.C.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
NOTE C -- CAPITAL CONTRIBUTIONS
The Company was initially capitalized with TETRA contributing
$800,000 in cash and RETEC contributing thermal plant equipment valued at
$1,775,539 and thermal desorption process technology valued at $600,000.
Each partner contributed $600,000 in 1994 and $1.4 million in 1993 in
additional capital to fund the construction of two new projects. In
September 1993, the Company acquired the assets of the Environmental
Services Division of TRW for $1 million, with each partner contributing
$500,000. Additionally, TETRA contributed $500,000 of working capital in
1993. In September 1996, TETRA contributed $1,075,540 toward the purchase
of additional equipment to be used in future projects.
NOTE D -- LONG-TERM DEBT
Long-term debt consists of the following:
December 31
-----------------
(In thousands)
1996 1995
------- -------
Revolving credit agreement of $500,000 with
an interest rate of prime and a commitment
fee of 3/8% on the unused portion of the loan.
The agreement expired December 15, 1996. $ - $ -
Promissory note payable to Texas Commerce Bank
at fixed interest rate of 8.05%, payable $100,000
quarterly plus interest and due June 15, 2000.
The note is secured by the underlying equipment
and is guaranteed by both parent corporations. 1,401 1,898
Promissory note payable to Texas Commerce Bank at
prime interest rate, payable $65,000 quarterly
plus interest and due October 15, 2000. The note
is secured by the underlying equipment and is
guaranteed by both parent corporations. 575 1,235
Promissory note payable to Texas Commerce Bank
at prime interest rate, payable $94,250 quarterly
plus interest and due May 20, 2001. The note is
secured by the underlying equipment and is
guaranteed by both parent corporations. 1,696 -
------- -------
3,672 3,133
Less: Current portion (1,037) (668)
------- -------
$ 2,635 $ 2,465
======= =======
21PAGE
<PAGE>
RETEC/TETRA L.C.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
NOTE D -- LONG-TERM DEBT (con't)
Scheduled maturities for the next five years are as follows: (In
thousands)
1997 $ 1,037
1998 1,037
1999 832
2000 578
2001 188
-------
$ 3,672
=======
NOTE E -- RELATED-PARTY TRANSACTIONS
The Company was billed approximately $1,305,577 in 1996 and $922,164
in 1995 by the owners, primarily TETRA, for administrative services and
materials rendered on behalf of the Company.
NOTE F -- COMMITMENTS AND CONTINGENCIES
The Company is subject to litigation and other proceedings arising in
the ordinary course of business. While the outcome of the litigation and
other proceedings against the Company cannot be predicted with certainty,
management does not expect these matters to have a material adverse
impact on the Company.
22PAGE
<PAGE>
Report of Independent Public Accountants
----------------------------------------
To the Shareholders and Board of Directors of Thermo Remediation Inc.:
We have audited, in accordance with generally accepted auditing
standards, the consolidated financial statements included in Thermo
Remediation Inc.'s Annual Report to Shareholders incorporated by
reference in this Form 10-K, and have issued our report thereon dated May
6, 1997. 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
12 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 6, 1997
23PAGE
<PAGE>
SCHEDULE II
THERMO REMEDIATION INC.
Valuation and Qualifying Accounts
(In thousands)
Balance
at Provision Accounts Balance
Beginning Charged to Accounts Written- at End
Description of Year Expense Recovered off Other(b) of Year
------------------------------------------------------------------------------
Allowance for
Doubtful Accounts
Year Ended
March 29, 1997 $ 786 $ 162 $ 5 $(191) $ 795 $1,557
Year Ended
March 30, 1996 $ 394 $(184) $ 12 $ (96) $ 660 $ 786
Year Ended
April 1, 1995 $ 415 $ 15 $ - $ (55) $ 19 $ 394
(a) Includes allowances of businesses acquired during the year as described in
Note 3 to Consolidated Financial Statements in the Registrant's Fiscal
1997 Annual Report to Shareholders.
24PAGE
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------------------------------------------------------------------------
2.1 Form of Agreement of Merger between Thermo Remediation
Inc. (California) and Thermo Remediation Inc.
(Delaware) (filed as Exhibit 2.1 to the Registrant's
Registration Statement on Form S-1 [Reg. No. 33-70544]
and incorporated herein by reference).
2.2 Securities Purchase Agreement dated as of September
27, 1993, between TPS Technologies Inc. and the
Registrant (filed as Exhibit 2.2 to the Registrant's
Registration Statement on Form S-1 [Reg. No. 33-70544]
and incorporated herein by reference).
2.3 Asset Transfer Agreement dated as of October 1, 1993,
among Thermo TerraTech Inc. (formerly Thermo Process
Systems Inc.), TPS Technologies Inc., and the
Registrant (filed as Exhibit 2.3 to the Registrant's
Registration Statement on Form S-1 [Reg. No. 33-70544]
and incorporated herein by reference).
2.4 Exclusive License Agreement dated as of October 1,
1993, among Thermo TerraTech Inc. (formerly Thermo
Process Systems Inc.), TPS Technologies Inc., and the
Registrant (filed as Exhibit 2.4 to the Registrant's
Registration Statement on Form S-1 [Reg. No. 33-70544]
and incorporated herein by reference).
2.5 Non-Competition and Non-Disclosure Agreement dated as
of October 1, 1993, among Thermo TerraTech Inc.
(formerly Thermo Process Systems Inc.)., TPS
Technologies Inc., and the Registrant (filed as
Exhibit 2.5 to the Registrant's Registration Statement
on Form S-1 [Reg. No. 33-70544] and incorporated
herein by reference).
3.1 Certificate of Incorporation of the Registrant (filed
as Exhibit 3.1 to the Registrant's Registration
Statement on Form S-1 [Reg. No. 33-70544] and
incorporated herein by reference).
3.2 Bylaws of the Registrant (filed as Exhibit 3.2 to the
Registrant's Registration Statement on Form S-1 [Reg.
No. 33-70544] 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 instrument
with respect to long-term debt of the Company or its
subsidiaries.
25PAGE
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------------------------------------------------------------------------
10.1 Corporate Services Agreement dated June 1, 1992,
between Thermo Electron Corporation and the Registrant
(filed as Exhibit 10.1 to the Registrant's
Registration Statement on Form S-1 [Reg. No. 33-70544]
and incorporated herein by reference).
10.2 Thermo Electron Corporate Charter, as amended and
restated effective January 3, 1993 (filed as Exhibit
10.1 to Thermo Electron's Annual Report on Form 10-K
for the fiscal year ended January 2, 1993 [File No.
1-8002] and incorporated herein by reference).
10.3 Tax Allocation Agreement dated as of June 1, 1992,
between Thermo TerraTech Inc. (formerly Thermo Process
Systems Inc.) and the Registrant (filed as Exhibit
10.3 to the Registrant's Registration Statement on
Form S-1 [Reg. No. 33-70544] and incorporated herein
by reference).
10.4 Securities Purchase Agreement dated as of September
27, 1993, between Fred Holubow and the Registrant
(filed as Exhibit 10.5 to the Registrant's
Registration Statement on Form S-1 [Reg. No. 33-70544]
and incorporated herein by reference).
10.5 Master Repurchase Agreement dated January 1, 1994,
between the Registrant and Thermo Electron Corporation
(filed as Exhibit 10.6 to the Registrant's
Registration Statement on Form S-1 [Reg. No. 33-77818]
and incorporated herein by reference).
10.6 Equity Incentive Plan of the Registrant (filed as
Exhibit 10.7 to the Registrant's Registration
Statement on Form S-1 [Reg. No. 33-70544] and
incorporated herein by reference).
10.7 Deferred Compensation Plan for Directors of the
Registrant (filed as Exhibit 10.8 to the Registrant's
Registration Statement on Form S-1 [Reg. No. 33-70544]
and incorporated herein by reference).
10.8 Amended and Restated Directors Stock Option Plan
(filed as Exhibit 10.8 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended April 1,
1995 [File No. 1-12636] and incorporated herein by
reference).
26PAGE
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------------------------------------------------------------------------
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 and Thermo
TerraTech for services rendered to the Registrant or
to such affiliated corporations. Thermo Electron's
plans were filed as Exhibits 10.21 through 10.45 to
the Annual Report on Form 10-K of Thermo Electron for
the year ended December 28, 1996 [File No. 1-8002] and
Thermo TerraTech's plans were filed as Exhibits 10.36
to 10.41 to the Annual Report on Form 10-K for the
fiscal year ended March 29, 1997 [File No. 1-9549] and
are incorporated herein by reference.
10.9 Form of Indemnification Agreement for Officers and
Directors (filed as Exhibit 10.10 to the Registrant's
Registration Statement on Form S-1 [Reg. No. 33-70544]
and incorporated herein by reference).
10.10 Stock Purchase and Note Issuance Agreement dated as of
November 22, 1993, between Thermo TerraTech Inc.
(formerly Thermo Process Systems Inc.) and the
Registrant (filed as Exhibit 10.11 to the Registrant's
Registration Statement on Form S-1 [Reg. No. 33-70544]
and incorporated herein by reference).
10.11 $2,650,000 principal amount Subordinated Convertible
Note dated as of November 22, 1993, made by the
Registrant, issued to Thermo TerraTech Inc. (formerly
Thermo Process Systems Inc.) (filed as Exhibit 10.12
to the Registrant's Registration Statement on Form S-1
[Reg. No. 33-70544] and incorporated herein by
reference).
10.12 Note dated December 24, 1994, from Thermo Remediation
Inc. to Thermo Electron Corporation (filed as Exhibit
10.12 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended April 1, 1995 [File No.
1-12636] and incorporated herein by reference).
10.13 Asset Purchase Agreement dated as of November 19,
1993, by and among All Western Oil, Inc. and certain
affiliates thereof and Thermo Fluids Inc. (filed as
Exhibit 10.13 to the Registrant's Registration
Statement on Form S-1 [Reg. No. 33-70544] and
incorporated herein by reference).
27PAGE
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------------------------------------------------------------------------
10.14 First Addendum to Asset Purchase Agreement dated as of
August 7, 1994, among All Western Oil, Inc. and
certain affiliates thereof and Thermo Fluids Inc.
(filed as Exhibit 10.1 to the Registrant's Quarterly
Report on Form 10-Q for the fiscal quarter ended
October 1, 1994 [File No. 1-12636] and incorporated
herein by reference).
10.15 Promissory Note in the principal amount of $700,000,
dated August 7, 1994 (filed as Exhibit 10.2 to the
Registrant's Quarterly Report on Form 10-Q for the
fiscal quarter ended October 1, 1994 [File No.
1-12636] and incorporated herein by reference).
10.16 Security Agreement dated as of August 7, 1994, among
All Western Oil, Inc. et al. and Thermo Fluids Inc.
(filed as Exhibit 10.3 to the Registrant's Quarterly
Report on Form 10-Q for the fiscal quarter ended
October 1, 1994 [File No. 1-12636] and incorporated
herein by reference).
10.17 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 the Registrant's Current Report on Form
8-K for the events occurring on December 21, 1994
[File No. 1-12636] and incorporated herein by
reference).
10.18 Master Reimbursement Agreement dated January 1, 1994,
between the Registrant, Thermo Electron Corporation,
and Thermo TerraTech Inc. (formerly Thermo Process
Systems Inc.) (filed as Exhibit 10.22 to Thermo
TerraTech's Annual Report on Form 10-K for the fiscal
year ended April 2, 1994 [File No. 1-9549] and
incorporated herein by reference).
10.19 Agreement and Plan of Merger dated as of the 1st day
of December, 1995, by and among the Registrant, TRI
Acquisition Inc. and Remediation Technologies, Inc.
(filed as Exhibit 2(a) to Thermo TerraTech'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).
28PAGE
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------------------------------------------------------------------------
10.20 Agreement and Plan of Merger dated as of June 28,
1995, by and among the Thermo TerraTech Inc. Eberline
Acquisition Inc., the Registrant and Eberline Holdings
Inc. (filed as Appendix B to the Registrant's Proxy
Statement for the Annual Meeting held on December 13,
1995 [File No. 1-12636] and incorporated herein by
reference).
10.21 Restated Stock Holdings Assistance Plan and Form of
Executive Loan.
11 Statement re: Computation of Earnings (Loss) per
Share.
13 Annual Report to Shareholders for the fiscal year
ended March 29, 1997 (only those portions incorporated
herein by reference).
21 Subsidiaries of the Registrant.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Ernst & Young LLP.
27 Financial Data Schedule.
Exhibit 10.21
THERMO REMEDIATION INC.
STOCK HOLDINGS ASSISTANCE PLAN
SECTION 1. Purpose.
The purpose of this Plan is to benefit Thermo Remediation
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 Guidelines.
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 Remediation Inc., a Delaware corporation.
Guidelines: The Stock Holdings Guidelines for Key Employees
of the Company, as established by the Committee 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: The Thermo Remediation Inc. Stock Holdings
Assistance Plan, as amended from time to time.
SECTION 3. Administration.
The Plan and the Guidelines shall be administered by the
Committee, which shall have authority to interpret the Plan and
the Guidelines 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 Guidelines and such rules and
regulations as may be established thereunder shall be final and
conclusive. The Committee may correct any defect or supply any
PAGE
<PAGE>
omission or reconcile any inconsistency in the Plan or the
Guidelines, 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 Guidelines 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 Guidelines 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 Guidelines. 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 Guidelines,
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 in five equal annual installments
commencing on the first anniversary date of the making of such
Loan. 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
2PAGE
<PAGE>
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 Guidelines in any respect, or terminate the Plan or the
Guidelines 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 Guidelines 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 Guidelines shall become effective upon
approval and adoption by the Committee.
3PAGE
<PAGE>
EXHIBIT A
THERMO REMEDIATION INC.
Promissory Note
$_________
Dated:____________
For value received, ________________, an individual whose
residence is located at _______________________ (the "Employee"),
hereby promises to pay to Thermo Remediation Inc. (the
"Company"), or assigns, ON DEMAND, but in any case on or before
[insert date which is the fifth anniversary of date of issuance]
(the "Maturity Date"), the principal sum of [loan amount in
words] ($_______), 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 the Company, on
each of the first four anniversary dates of the date hereof, an
amount equal to 20% of the initial principal amount of the Note.
Payment of the final 20% of the initial principal amount, 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 Holdings 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,
4PAGE
<PAGE>
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
Holdings 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
Exhibit 11
THERMO REMEDIATION INC.
Computation of Earnings (Loss) per Share
Year Ended
----------------------------------------------
March 29, 1997 March 30, 1996 April 1, 1995
-------------- -------------- -------------
Computation of Primary
Earnings (Loss) per Share:
Net Income (Loss) (a) $(2,681,000) $ 5,444,000 $ 3,643,000
----------- ----------- -----------
Shares:
Weighted average
shares outstanding 12,820,549 12,393,712 10,007,294
Add: Shares issuable
in connection
with acquisition
of Thermo Fluids - - 107,774
Shares issuable
from assumed
exercise of
options and
warrants (as
determined by
the application
of the treasury
stock method) - - 118,719
----------- ----------- -----------
Weighted average
shares outstanding,
as adjusted (b) 12,820,549 12,393,712 10,233,787
----------- ----------- -----------
Primary Earnings (Loss) per
Share (a) / (b) $ (.21) $ .44 $ .36
=========== =========== ===========
PAGE
<PAGE>
Exhibit 11
THERMO REMEDIATION INC.
Computation of Earnings (Loss) per Share (continued)
Year Ended
----------------------------------------------
March 29, 1997 March 30, 1996 April 1, 1995
-------------- -------------- -------------
Computation of Fully
Diluted Earnings (Loss)
per Share:
Income:
Net income (loss) $(2,681,000) $ 5,444,000 $ 3,643,000
Add: Convertible
debt interest,
net of tax - 62,000 62,000
----------- ----------- -----------
Income (loss) applicable
to common stock
assuming full
dilution (c) $(2,681,000) $ 5,506,000 $ 3,705,000
----------- ----------- -----------
Shares:
Weighted average
shares outstanding 12,820,549 12,393,712 10,007,294
Add: Shares issuable
from assumed
conversion of
subordinated
convertible
obligations - 269,583 269,583
Shares issuable
in connection
with acquisition
of Thermo Fluids - - 107,774
Shares issuable
from assumed
exercise of
options and
warrants (as
determined by
the application
of the treasury
stock method) - 492,437 174,219
----------- ----------- -----------
Weighted average
shares outstanding,
as adjusted (d) 12,820,549 13,155,732 10,558,870
----------- ----------- -----------
Fully Diluted Earnings (Loss)
per Share (c) / (d) $ (.21) $ .42 $ .35
=========== =========== ===========
Exhibit 13
THERMO REMEDIATION INC.
Consolidated Financial Statements
Fiscal 1997
PAGE
<PAGE>
Thermo Remediation Inc. 1997 Financial Statements
Consolidated Statement of Operations
Year Ended
-----------------------------
March 29, March 30, April 1,
(In thousands except per share amounts) 1997 1996 1995
------------------------------------------------------------------------
Revenues (Note 11) $114,849 $ 66,957 $ 51,504
-------- -------- --------
Costs and Operating Expenses:
Cost of revenues 96,901 49,114 33,764
Selling, general, and administrative
expenses (Note 8) 12,058 8,903 8,299
New business development expenses 1,040 1,084 883
Nonrecurring costs (Note 12) 7,800 - -
-------- -------- --------
117,799 59,101 42,946
-------- -------- --------
Operating Income (Loss) (2,950) 7,856 8,558
Interest Income 1,896 2,539 1,002
Interest Expense (includes $103, $149,
and $171 to related party; Notes 3 and 6) (2,251) (1,999) (239)
Gain on Sale of Investments, Net (Note 2) 136 180 -
Equity in Earnings of Unconsolidated
Subsidiary (Note 13) 865 - -
-------- -------- -------
Income (Loss) Before Provision for Income
Taxes and Minority Interest (2,304) 8,576 9,321
Provision for Income Taxes (Note 5) 377 3,132 3,576
Minority Interest Expense - - 2,102
-------- -------- --------
Net Income (Loss) $ (2,681) $ 5,444 $ 3,643
======== ======== ========
Earnings (Loss) per Share:
Primary $ (.21) $ .44 $ .36
======== ======== ========
Fully diluted $ (.21) $ .42 $ .35
======== ======== ========
Weighted Average Shares:
Primary 12,821 12,394 10,234
======== ======== ========
Fully diluted 12,821 13,156 10,559
======== ======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
2PAGE
<PAGE>
Thermo Remediation Inc. 1997 Financial Statements
Consolidated Balance Sheet
March 29, March 30,
(In thousands) 1997 1996
------------------------------------------------------------------------
Assets
Current Assets:
Cash and cash equivalents $ 18,600 $ 26,247
Short-term available-for-sale investments,
at quoted market value (amortized cost
of $4,096 and $7,007; Note 2) 4,101 7,004
Accounts receivable, less allowances of
$1,557 and $786 21,631 15,115
Unbilled contract costs and fees 5,685 2,094
Prepaid income taxes (Note 5) 3,348 2,836
Prepaid expenses 1,820 2,196
Due from parent company and Thermo Electron 321 564
-------- --------
55,506 56,056
-------- --------
Property, Plant, and Equipment, at Cost, Net 36,514 37,603
-------- --------
Long-term Available-for-sale Investments,
at Quoted Market Value (amortized cost of
$2,108 in fiscal 1996; Note 2) - 2,098
-------- --------
Other Assets (Note 13) 13,403 11,724
-------- --------
Cost in Excess of Net Assets of Acquired
Companies (Notes 3 and 12) 29,588 28,321
-------- --------
$135,011 $135,802
======== ========
3PAGE
<PAGE>
Thermo Remediation Inc. 1997 Financial Statements
Consolidated Balance Sheet (continued)
March 29, March 30,
(In thousands except share amounts) 1997 1996
------------------------------------------------------------------------
Liabilities and Shareholders' Investment
Current Liabilities:
Accounts payable $ 7,359 $ 3,362
Accrued payroll and employee benefits 3,566 2,539
Deferred revenue 1,391 936
Billings in excess of revenues earned 879 630
Accrued interest 784 776
Accrued income taxes 286 57
Other accrued expenses 2,281 1,413
-------- --------
16,546 9,713
-------- --------
Deferred Income Taxes (Note 5) 3,035 2,137
-------- --------
Long-term Obligations (Note 6):
4 7/8% Subordinated convertible debentures 37,950 37,950
3 7/8% Subordinated convertible note, due to
parent company 2,650 2,650
-------- --------
40,600 40,600
-------- --------
Commitments and Contingencies (Note 7)
Shareholders' Investment (Notes 4 and 9):
Common stock, $.01 par value, 50,000,000
shares authorized; 13,388,073 and 12,800,189
shares issued 134 128
Capital in excess of par value 85,402 81,353
Retained earnings (accumulated deficit) (3,328) 1,910
Treasury stock at cost, 823,741 and 2,154
shares (7,382) (31)
Net unrealized gain (loss) on available-for-
sale investments (Note 2) 4 (8)
-------- --------
74,830 83,352
-------- --------
$135,011 $135,802
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
4PAGE
<PAGE>
Thermo Remediation Inc. 1997 Financial Statements
Consolidated Statement of Cash Flows
Year Ended
------------------------------
March 29, March 30, April 1,
(In thousands) 1997 1996 1995
------------------------------------------------------------------------
Operating Activities:
Net income (loss) $ (2,681) $ 5,444 $ 3,643
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Nonrecurring costs (Note 12) 7,800 - -
Depreciation and amortization 5,417 4,392 3,411
Equity in earnings of unconsolidated
subsidiary (Note 13) (865) - -
Gain on sale of investments (Note 2) (136) (180) -
Minority interest expense - - 2,102
Provision for losses on accounts
receivable 162 (184) 15
Other noncash expenses 1,398 1,669 1,264
Increase (decrease) in deferred
income taxes - 328 (70)
Changes in current accounts, excluding
the effects of acquisitions:
Accounts receivable (6,008) 4,755 1,458
Other current assets (3,055) 860 (705)
Billings in excess of revenues
earned 249 59 (1,312)
Due to (from) parent company and
Thermo Electron 243 (3,570) (117)
Accounts payable 2,456 505 306
Other current liabilities (1,333) (6,699) (336)
-------- -------- --------
Net cash provided by operating activities 3,647 7,379 9,659
-------- -------- --------
Investing Activities:
Acquisitions, net of cash acquired
(Note 3) (1,681) (17,713) (13,391)
Purchases of available-for-sale
investments (15,753) (30,863) -
Proceeds from sale and maturities of
available-for-sale investments 20,908 37,795 1,012
Purchases of property, plant, and
equipment (6,036) (9,489) (4,806)
Proceeds from sale of property, plant,
and equipment 113 579 -
Issuance of note receivable - - (700)
Purchase of other assets (788) (1,090) -
Other - (130) (739)
-------- -------- --------
Net cash used in investing activities $ (3,237) $(20,911) $(18,624)
-------- -------- --------
5PAGE
<PAGE>
Thermo Remediation Inc. 1997 Financial Statements
Consolidated Statement of Cash Flows (continued)
Year Ended
------------------------------
March 29, March 30, April 1,
(In thousands) 1997 1996 1995
------------------------------------------------------------------------
Financing Activities:
Net proceeds from issuance of
subordinated convertible debentures
(Note 6) $ - $ 36,889 $ -
Purchase of Company common stock (8,317) - -
Net proceeds from issuance of Company
common stock (Note 9) 313 6,908 752
Proceeds from issuance (repayment) of
obligations to Thermo Electron (Note 3) - (4,000) 4,000
Repayment of debt - - (975)
Dividends paid (Note 9) (847) (810) (685)
Other 794 - 82
-------- -------- --------
Net cash provided by (used in) financing
activities (8,057) 38,987 3,174
-------- -------- --------
Increase (Decrease) in Cash and Cash
Equivalents (7,647) 25,455 (5,791)
Cash and Cash Equivalents at Beginning
of Year 26,247 792 6,583
-------- -------- --------
Cash and Cash Equivalents at End of Year $ 18,600 $ 26,247 $ 792
======== ======== ========
Cash Paid For:
Interest $ 2,031 $ 1,060 $ 239
Income taxes $ 1,490 $ 2,809 $ 3,110
Noncash Activities:
Fair value of assets of acquired
companies $ 6,961 $ 39,349 $ 15,187
Cash paid for acquired companies (1,705) (18,462) (13,391)
Issuance of common stock, stock options,
and warrants for acquired companies (2,006) (11,210) -
-------- -------- --------
Liabilities assumed of acquired
companies $ 3,250 $ 9,677 $ 1,796
======== ======== ========
Dividends reinvested in Company common
stock (Note 9) $ 1,710 $ 1,681 $ 1,327
Issuance of common stock to parent
company for acquired companies (Note 3)$ - $ 7,713 $ 840
The accompanying notes are an integral part of these consolidated
financial statements.
6PAGE
<PAGE>
Thermo Remediation Inc. 1997 Financial Statements
Consolidated Statement of Shareholders' Investment
Year Ended
------------------------------
March 29, March 30, April 1,
(In thousands) 1997 1996 1995
------------------------------------------------------------------------
Common Stock, $.10 Par Value
Balance at beginning of year $ 128 $ 118 $ 66
Dividends declared and partially
reinvested in Company common
stock (Note 9) 2 1 1
Issuance of stock under employees' and
directors' stock plans 1 2 -
Net proceeds from private placement
of common stock (Note 9) - 5 -
Issuance of common stock to parent
company - - 1
Issuance of common stock for acquired
companies (Note 3) 3 2 16
Effect of three-for-two stock split - - 34
------- ------- -------
Balance at end of year 134 128 118
------- ------- -------
Capital in Excess of Par Value
Balance at beginning of year 81,353 61,333 50,368
Dividends declared and partially
reinvested in Company common
stock (Note 9) 1,708 1,680 1,326
Activity under employees' and
directors' stock plans (654) 312 37
Tax benefit related to employees'
and directors' stock plans 198 200 385
Net proceeds from private placement
of common stock (Note 9) - 6,620 715
Issuance of common stock to parent
company - - 839
Issuance of common stock for acquired
companies (Note 3) 2,003 11,208 7,697
Capital contribution from parent company 794 - -
Effect of three-for-two stock split - - (34)
------- ------- -------
Balance at end of year 85,402 81,353 61,333
------- ------- -------
Retained Earnings (Accumulated Deficit)
Balance at beginning of year 1,910 (1,043) (2,674)
Net income (loss) (2,681) 5,444 3,643
Dividends declared and partially
reinvested in Company common
stock (Note 9) (2,557) (2,491) (2,012)
------- ------- -------
Balance at end of year $(3,328) $ 1,910 $(1,043)
------- ------- -------
7PAGE
<PAGE>
Thermo Remediation Inc. 1997 Financial Statements
Consolidated Statement of Shareholders' Investment (continued)
Year Ended
------------------------------
March 29, March 30, April 1,
(In thousands) 1997 1996 1995
------------------------------------------------------------------------
Treasury Stock
Balance at beginning of year $ (31) $ - $ -
Activity under employees' and
directors' stock plans 966 (31) -
Purchases of Company common stock (8,317) - -
------- ------- -------
Balance at end of year (7,382) (31) -
------- ------- -------
Net Unrealized Gain (Loss) on Available-
for-sale Investments
Balance at beginning of year (8) (88) (122)
Change in net unrealized gain (loss) on
available-for-sale investments (Note 2) 12 80 34
------- ------- -------
Balance at end of year 4 (8) (88)
------- ------- -------
Total Shareholders' Investment $74,830 $83,352 $60,320
======= ======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
8PAGE
<PAGE>
Thermo Remediation Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations
Thermo Remediation Inc. (the Company) is a national provider of
environmental services, including industrial, nuclear, and soil
remediation, as well as waste-fluids recycling.
Principles of Consolidation and Relationship with Thermo TerraTech Inc.
The Company was incorporated in November 1991 and commenced operation
in June 1992. As of March 29, 1997, Thermo TerraTech Inc. (Thermo
TerraTech) owned 8,621,968 shares of the Company's common stock,
representing 69% of such stock outstanding. Thermo TerraTech is an
82%-owned subsidiary of Thermo Electron Corporation (Thermo Electron). As
of March 29, 1997, Thermo Electron owned 185,400 shares of the Company's
common stock, representing 1.5% of such stock outstanding.
The accompanying financial statements include the accounts of the
Company and its subsidiaries. All material intercompany accounts and
transactions have been eliminated. The Company accounts for its
investment in a business in which it owns 50% using the equity method
(Note 13).
Presentation
The historical financial information presented for fiscal 1995,
except for weighted average shares, was restated in fiscal 1996 to
reflect the acquisition of Thermo Nutech (formerly the Nuclear Services
Group) from Thermo TerraTech (Note 3). The acquisition has been accounted
for in a manner similar to a pooling-of-interests. Prior to April 2,
1995, Thermo Nutech was held in a joint venture resulting in the
allocation of its operating results to a minority partner. The
consolidated results in the accompanying statement of operations reflect
such allocation as minority interest through the date the joint venture
was dissolved and Thermo Nutech became wholly owned by Thermo TerraTech.
Certain amounts in fiscal 1996 and 1995 have been reclassified to
conform to the fiscal 1997 financial statement presentation.
Fiscal Year
The Company has adopted a fiscal year ending the Saturday nearest
March 31. References to fiscal 1997, 1996, and 1995 are for the fiscal
years ended March 29, 1997, March 30, 1996, and April 1, 1995,
respectively.
Revenue Recognition
Revenues from soil-remediation services are recognized as soil is
processed, and revenues from environmental and nuclear-remediation
services are recognized upon completion of services rendered. With
respect to soil-remediation services, the Company bills customers upon
receipt of the 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. The
Company's industrial and nuclear services businesses perform services
pursuant to long-term contracts. Revenues and profits on substantially
all contracts are recognized using the percentage-of-completion method.
9PAGE
<PAGE>
Thermo Remediation Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
Revenues recorded under the percentage-of-completion method were
$65,217,000 in fiscal 1997 and $2,278,000 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 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.
New Business Development Expenses
Costs classified as new business development expenses in the
accompanying statement of operations represent costs associated with the
development of the Company's soil-remediation business.
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
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 its tax returns.
Earnings per Share
Earnings per share have been computed based on the weighted average
number of shares outstanding during the year. Weighted average shares in
fiscal 1996 and 1995 include the assumed exercise of stock options and
warrants that were computed using the treasury stock method. Because the
effect of the assumed exercise of stock options and warrants would be
antidilutive in fiscal 1997, they have been excluded from the earnings
per share calculation. Fully diluted earnings per share has been
computed, where material and dilutive, assuming the exercise of stock
options and warrants and assuming the effect of the conversion of the
Company's subordinated convertible obligations.
10PAGE
<PAGE>
Thermo Remediation Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
Stock Split
All share and per share information was restated in fiscal 1995 to
reflect a three-for-two stock split, effected in the form of a 50% stock
dividend, that was distributed in March 1995.
Cash and Cash Equivalents
As of March 29, 1997, 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 U.S.
government agency securities, corporate notes, commercial paper, 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. Cash equivalents are carried at cost, which approximates fair
market value.
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, 20 to 30 years; machinery and
equipment, 3 to 12 years; and leasehold improvements, the shorter of the
term of the lease or the life of the asset. Soil-remediation units, which
account for 41% and 46% of the Company's machinery and equipment at
fiscal year-end 1997 and 1996, 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) 1997 1996
------------------------------------------------------------------------
Land $ 4,592 $ 4,216
Buildings and leasehold improvements 17,833 14,245
Machinery and equipment 32,533 33,658
------- -------
54,958 52,119
Less: Accumulated depreciation and amortization 18,444 14,516
------- -------
$36,514 $37,603
======= =======
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, which range from 5 to 12 years. These assets were
11PAGE
<PAGE>
Thermo Remediation Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
$6,137,000 and $9,492,000, net of accumulated amortization of $5,654,000
and $4,785,000, at fiscal year-end 1997 and 1996, respectively.
Cost in Excess of Net Assets of Acquired Companies
The excess of cost over the fair value of net assets of acquire
companies is amortized using the straight-line method over periods not
exceeding 40 years. Accumulated amortization was $1,899,000 and
$1,314,000 at fiscal year-end 1997 and 1996, 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 12). 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.
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 Investments
In accordance with SFAS No. 115, "Accounting for Certain Investments
in Debt and Equity Securities," the Company's debt and marketable equity
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 as a component of shareholders' investment titled "Net
unrealized gain (loss) on available-for-sale investments."
12PAGE
<PAGE>
Thermo Remediation Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
2. Available-for-sale Investments (continued)
The aggregate market value, cost basis, and gross unrealized gains
and losses of short- and long-term available-for-sale investments by
major security type are as follows:
Gross Gross
Market Cost Unrealized Unrealized
(In thousands) Value Basis Gains Losses
------------------------------------------------------------------------
1997
Corporate bonds $4,021 $4,016 $ 5 $ -
Other 80 80 - -
------ ------ ------ ------
$4,101 $4,096 $ 5 $ -
====== ====== ====== ======
1996
Tax-exempt securities $5,009 $4,998 $ 11 $ -
Corporate bonds 1,985 2,000 - (15)
Money market preferred stock 2,098 2,107 - (9)
Other 10 10 - -
------ ------ ------ ------
$9,102 $9,115 $ 11 $ (24)
====== ====== ====== ======
Short-term available-for-sale investments in the accompanying fiscal
1997 balance sheet include $2,090,000 with contractual maturities of one
or less and $2,011,000 with contractual maturities of one year through
five years. Actual maturities may differ from contractual maturities as a
result of the Company's intent to sell these securities prior to maturity
and as a result of put and call options that enable the Company, the
issuer, or both to redeem these securities at an earlier date.
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" resulted from gross realized gains of $145,000 and
$180,000 in fiscal 1997 and 1996, respectively, and gross realized losses
of $9,000 in fiscal 1997, relating to the sale of available-for-sale
investments.
3. Acquisitions
In September 1996, the Company acquired IEM Sealand Corporation (IEM
Sealand) for 311,040 shares of the Company's common stock, valued at
$2,006,000, and $1,705,000 in cash. The shares of the Company's common
stock issued in connection with the acquisition are subject to certain
restrictions on transfer. The restrictions lapse with respect to
one-third of the shares on each of the third, fourth, and fifth
anniversaries of the closing. IEM Sealand performs 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 waste.
13PAGE
<PAGE>
Thermo Remediation Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
3. Acquisitions (continued)
In December 1995, the Company 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 the Company's common stock and 75,750 warrants to
purchase shares of the Company'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 Company stock
options of equivalent intrinsic value at the date of the acquisition.
In December 1994, the Company acquired a soil-remediation facility in
Baltimore County, Maryland (renamed TPST Maryland) from the principals of
Bryn Awel Corporation (Bryn Awel). The purchase price for TPST Maryland
was $6,820,000 in cash and the assumption of $686,000 of a net liability.
In October 1994, the Company acquired a soil-remediation facility in
South Tacoma, Washington (renamed TPST Woodworth) from Woodworth &
Company, Inc. for $4,701,000 in cash. The Company entered into a land
lease with the former owners of TPST Woodworth for the land on which TPST
Woodworth operates the business. During fiscal 1995, the Company made two
other acquisitions for a total of $1,870,000 in cash. In connection with
the financing of acquisitions, during fiscal 1995 the Company issued to
Thermo Electron a $4,000,000 promissory note bearing interest at the
90-day Commercial Paper Composite Rate plus 25 basis points, set at the
beginning of each quarter. The promissory note had an average interest
rate of 6.4% and 6.5% in fiscal 1996 and 1995, respectively. The Company
repaid the note payable to Thermo Electron in June 1995.
These acquisitions have been accounted for using the purchase method
of accounting and their results of operations have been included in the
accompanying financial statements from their respective dates of
acquisition. The aggregate cost of the acquisitions in fiscal 1997, 1996,
and 1995 exceeded the estimated fair value of the acquired net assets by
$24,633,000, which is being amortized over 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 1997, is subject to adjustment upon finalization of the purchase
price allocation.
Based on unaudited data, the following table presents selected
financial information for the Company and ReTec on a pro forma basis,
assuming the companies had been combined since the beginning of fiscal
1995. 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 1995
-----------------------------------------------------------------------
Revenues $98,183 $93,176
Net income 5,855 4,987
Earnings per share:
Primary .47 .45
Fully diluted .45 .45
14PAGE
<PAGE>
Thermo Remediation Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
3. Acquisitions (continued)
The pro forma results are not necessarily indicative of future
operations or the actual results that would have occurred had the
acquisition been made at the beginning of fiscal 1995.
On June 30, 1995, the Company acquired Thermo Nutech from Thermo
TerraTech in exchange for 1,583,360 shares of the Company's common stock,
with a fair market value of $24,740,000 as of such date. Thermo Nutech
provides services to remove radioactive contaminants from sand, gravel,
and soil, as well as health physics services, radiochemistry laboratory
services, radiation dosimetry services, radiation instrument calibration
and repair services, and radiation source production. During the fiscal
year ended April 1, 1995, Thermo Nutech's assets were held in a joint
venture (the Joint Venture) between Thermo TerraTech and Thermo
Instrument Systems Inc. (Thermo Instrument). Thermo TerraTech's financial
statements consolidated the assets and liabilities of the Joint Venture
and its results of operations, net of minority interest related to Thermo
Instrument's allocable share of operations. Effective April 2, 1995,
Thermo TerraTech and Thermo Instrument agreed to dissolve the Joint
Venture and Thermo TerraTech purchased the businesses formerly operated
by the Joint Venture from Thermo Instrument.
Because the Company and Thermo Nutech were deemed for accounting
purposes to be under control of their common majority owner, Thermo
TerraTech, the transaction has been accounted for at historical cost in a
manner similar to a pooling-of-interests, with the accounting followed by
the Company conforming to that of Thermo TerraTech. Accordingly, all
historical financial information presented, except for weighted average
shares, has been restated to reflect the acquisition of Thermo Nutech.
The 1,583,360 shares of the Company's common stock issued in exchange
for Thermo Nutech are considered to be outstanding as of April 2, 1995,
for purposes of computing weighted average shares. Revenues and net
income for the separate entities are as follows:
(In thousands) 1995
------------------------------------------------------------------------
Revenues:
Historical $29,871
Thermo Nutech 21,633
-------
$51,504
=======
Net income:
Historical $ 3,643
Thermo Nutech 2,102
Minority interest expense not previously reported (2,102)
-------
$ 3,643
=======
15PAGE
<PAGE>
Thermo Remediation Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
3. Acquisitions (continued)
Had the Company acquired 100% of the Joint Venture as of April 3,
1994, the Company would have reported the following net income and
earnings per share:
(In thousands except per share amount) 1995
-----------------------------------------------------------------------
Pro forma net income $ 5,745
Pro forma earnings per share .49
4. Employee Benefit Plans
Stock-based Compensation Plans
Stock Option Plans
------------------
The Company has an equity incentive plan for key employees,
directors, and others, adopted in October 1993. In February 1997, the
Company also adopted an employee equity incentive plan, similar to its
equity incentive plan adopted in 1993, except that neither executive
officers nor directors are eligible to participate in the plan. Both
plans permit 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 five to ten year
period, depending on the term of the option, which may range from seven
to twelve years. Nonqualified stock options may be granted at any price
determined by the Board Committee, although incentive stock options must
be granted at not less than the fair market value of the stock on the
date of grant. The Company also has a directors' stock option plan,
adopted in October 1993, which 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 be granted options under the
stock-based compensation plans of Thermo Electron or its majority-owned
subsidiaries.
In connection with the acquisition of ReTec in December 1995, the
Company assumed certain outstanding options granted under ReTec's
nonqualified and incentive stock option plans. Such options were
converted into options to purchase shares of the Company's common stock,
in accordance with the original terms of the options. Options issued in
connection with the acquisition of ReTec vest ratably over three years
from their original date of grant, and expire ten years from the date of
grant.
16PAGE
<PAGE>
Thermo Remediation Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
4. Employee Benefit Plans (continued)
No accounting recognition is given to options granted at fair market
value until they are exercised. Upon exercise, net proceeds, including
tax benefits realized, are credited to equity. A summary of the Company's
stock option information is as follows:
1997 1996 1995
---------------- ---------------- ----------------
Range of
Weighted Weighted Option
Number Average Number Average Number Prices
(Shares in of Exercise of Exercise of per
thousands) Shares Price Shares Price Shares Share
-------------------------------------------------------------------------
Options
outstanding,
beginning $ 6.93-
of year 1,559 $ 6.95 695 $ 7.62 605 $ 9.43
Assumed upon
acquisition
of ReTec - - 897 4.25 - -
9.09-
Granted 556 8.65 144 5.74 114 11.43
Exercised (168) 1.47 (149) 1.59 (5) 6.93
Forfeited (50) 7.43 (28) 6.96 (19) 6.93
----- ----- -----
Options
outstanding, $ 6.93-
end of year 1,897 $ 7.92 1,559 $ 6.95 695 $11.43
===== ===== =====
Options $ 6.93-
exercisable 1,826 $ 7.79 1,416 $ 6.58 670 $11.43
===== ===== =====
Options
available
for grant 1,364 449 575
===== ===== =====
Weighted average
fair value per
share of options
granted during
year $ 3.58 $ 5.58
====== ======
17PAGE
<PAGE>
Thermo Remediation Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
4. Employee Benefit Plans (continued)
A summary of the status of the Company's stock options at March 29,
1997, is as follows:
Options Outstanding
----------------------------------
Weighted
Number Weighted Average Average
of Remaining Exercise
Range of Exercise Prices Shares Contractual Life Price
-----------------------------------------------------------------------
(Shares in thousands)
$ 0.68-$ 4.15 309 3.0 years $ 3.22
4.16- 7.90 907 4.8 years 6.87
7.91- 11.65 477 8.6 years 10.27
11.66- 15.40 204 6.7 years 14.20
-----
$ 0.68-$15.40 1,897 5.7 years $ 7.92
=====
The information disclosed above for options outstanding at March 29,
1997, does not differ materially for options exercisable.
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. Prior to November 1, 1995, the applicable shares of common
stock could be purchased at 85% of the fair market value at the beginning
of the period, and the shares purchased were subject to a one year resale
restriction. Shares are purchased through payroll deductions of up to 10%
of each participating employee's gross wages. During fiscal 1997 and
1996, the Company issued 5,792 and 9,040 shares, respectively, of its
common stock under this program. Prior to November 1994, the Company's
eligible employees participated in an employee stock purchase program
sponsored by Thermo TerraTech. Employees of Thermo Nutech participated in
an employee stock purchase program sponsored by Thermo Instrument through
November 1994 and participated in an employee stock purchase program
sponsored by Thermo TerraTech through November 1996.
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 1997 and 1996 under the Company's
stock-based compensation plans been determined based on the fair value at
18PAGE
<PAGE>
Thermo Remediation Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
4. Employee Benefit Plans (continued)
the grant dates consistent with the method set forth under SFAS No. 123,
the effect on the Company's net income and earnings per share would have
been as follows:
(In thousands except per share amounts) 1997 1996
------------------------------------------------------------------------
Net income (loss):
As reported $(2,681) $ 5,444
Pro forma (2,946) 5,352
Earnings (loss) per share:
Primary:
As reported (.21) .44
Pro forma (.23) .43
Fully diluted:
As reported (.21) .42
Pro forma (.23) .41
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. 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.
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:
1997 1996
------------------------------------------------------------------------
Volatility 29% 29%
Risk-free interest rate 6.3% 5.9%
Expected life of options 5.9 years 5.1 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 Plan and Employee Stock Ownership Plan
The majority of the Company's full-time employees are eligible to
participate in Thermo Electron's 401(k) savings plan and, prior to
January 1, 1995, in Thermo Electron's employee stock ownership plan
(ESOP). Contributions to the 401(k) savings plan are made by both the
employee and the Company. Company contributions are based upon the level
19PAGE
<PAGE>
Thermo Remediation Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
4. Employee Benefit Plans (continued)
of employee contributions. ReTec also offers a 401(k) savings plan, and a
subsidiary of Thermo Nutech offers a 401(k) savings plan, separate from
the Company's plan. The Company contributed and charged to expense for
these plans $704,000, $639,000, and $472,000 in fiscal 1997, 1996, and
1995, respectively. Effective December 31, 1994, the ESOP was split into
two plans: ESOP I, covering employees of Thermo Electron's corporate
office and its wholly owned subsidiaries and ESOP II, covering employees
of certain of Thermo Electron's majority-owned subsidiaries, including
the Company. Also, effective December 31, 1994, the ESOP II plan was
terminated and as a result, the Company's employees are no longer
eligible to participate in an ESOP.
5. Income Taxes
The components of the provision for income taxes are as follows:
(In thousands) 1997 1996 1995
------------------------------------------------------------------------
Currently (refundable) payable:
Federal $ (510) $3,400 $3,245
State 285 590 658
------ ------ ------
(225) 3,990 3,903
------ ------ ------
Deferred (prepaid), net:
Federal 491 (708) (263)
State 111 (150) (64)
------ ------ ------
602 (858) (327)
------ ------ ------
$ 377 $3,132 $3,576
====== ====== ======
The Company receives a tax deduction upon exercise of nonqualified
stock options by employees for the difference between the exercise price
and the market price of the Company's stock on the date of exercise. The
provision for income taxes that is currently payable does not reflect
$198,000, $200,000, and $385,000 of such benefits of the Company
allocated to capital in excess of par value in fiscal 1997, 1996, and
1995, respectively.
20PAGE
<PAGE>
Thermo Remediation Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
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 income taxes and
minority interest due to the following:
(In thousands) 1997 1996 1995
------------------------------------------------------------------------
Income tax provision (benefit) at statutory
rate $ (783) $2,916 $3,169
Differences resulting from:
Amortization and write-off of cost in
excess of net assets of acquired
companies 979 140 47
State income taxes, net of federal tax 261 290 392
Tax-exempt investment income (33) (185) (180)
Nondeductible expenses 27 21 49
Other (74) (50) 99
------ ------ ------
$ 377 $3,132 $3,576
====== ====== ======
Prepaid and deferred income taxes in the accompanying balance sheet
consist of the following:
(In thousands) 1997 1996
--------------------------------------------------------------
Prepaid income taxes:
Reserves and accruals $2,750 $ 682
Allowance for doubtful accounts 315 756
Accrued compensation 357 1,446
Available-for-sale investments (2) 7
Net operating loss carryforward 103 106
Federal tax credit carryforward 25 39
------ ------
3,548 3,036
Less: Valuation allowance 200 200
------ ------
$3,348 $2,836
====== ======
Deferred income taxes:
Depreciation $3,035 $2,137
====== ======
The valuation allowance relates to the uncertainty surrounding the
realization of the tax benefits attributable to federal operating losses,
credit carryforwards, and purchase accounting reserves related to various
acquisitions. The valuation allowance 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.
21PAGE
<PAGE>
Thermo Remediation Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
6. Long-term Obligations
In May 1995, the Company issued and sold in Europe $37,950,000
principal amount of 4 7/8% subordinated convertible debentures due 2000.
The debentures are convertible into shares of the Company's common stock
at a conversion price of $17.92 per share and are guaranteed on a
subordinated basis by Thermo Electron. Thermo TerraTech has agreed to
reimburse Thermo Electron in the event Thermo Electron is required to
make a payment under the guarantee.
In fiscal 1994, in connection with the acquisition of Thermo Fluids,
the Company issued to Thermo TerraTech a $2,650,000 principal amount of
3 7/8% subordinated convertible note due 2000. The note is convertible
into shares of the Company's common stock at a conversion price of $9.83
per share.
See Note 10 for fair value information pertaining to the Company's
long-term obligations.
7. Commitments and Contingencies
Operating Leases
The Company leases land, office facilities, and equipment under
operating leases expiring at various dates through fiscal 2006. The
accompanying statement of operations includes expenses from operating
leases of $1,943,000, $1,319,000, and $543,000 in fiscal 1997, 1996, and
1995, respectively. Future minimum payments due under noncancellable
operating leases at March 29, 1997, are $1,647,000 in fiscal 1998;
$1,315,000 in fiscal 1999; $804,000 in fiscal 2000; $387,000 in fiscal
2001; $285,000 in fiscal 2002; and $460,000 in fiscal 2003 and
thereafter. Total future minimum lease payments are $4,898,000.
In March 1991, the Company's TPST Virginia affiliate entered into a
seven-year agreement, terminable at the Company's option with 90 days'
notice, to operate one or more of its soil-remediation units at a site
owned by a third party. Under the terms of the agreement, the Company
pays a fee based on the gross remediation revenues generated from the
operations at the site, less certain operating costs incurred by the
Company. The accompanying statement of operations includes expenses
relating to this agreement of $79,000, $147,000, and $307,000 in fiscal
1997, 1996, and 1995, respectively. Any future expenses related to this
agreement will not be material as this facility will be closed (Note 12).
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 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,
22PAGE
<PAGE>
Thermo Remediation Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
8. Related-party Transactions (continued)
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 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. Prior to January 1, 1995, the Company paid an annual
fee equal to 1.25% 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 $1,148,000, $767,000, and $637,000 in
fiscal 1997, 1996, and 1995, 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.
Short- and Long-term Obligations
See Notes 3 and 6 for obligations of the Company held by Thermo
Electron and Thermo TerraTech, respectively.
Repurchase Agreement
The Company invests excess cash in a repurchase agreement with Thermo
Electron as discussed in Note 1.
9. Common Stock
During fiscal 1996, the Company issued 500,000 shares of its common
stock at $13.25 per share in a private placement for net proceeds of
$6,625,000.
During fiscal 1995, the Company issued 75,000 shares of its common
stock at $9.67 per share in a private placement for net proceeds of
$715,000.
Dividends to common shareholders of the Company of $2,557,000 were
declared in fiscal 1997, of which $1,710,000, including $1,694,000 paid
to Thermo TerraTech, was reinvested in 196,806 shares of the Company's
common stock pursuant to the Company's Dividend Reinvestment Plan,
adopted in fiscal 1995. Dividends to common shareholders of the Company
of $2,491,000 were declared in fiscal 1996, of which $1,681,000,
including $1,667,000 paid to Thermo TerraTech, was reinvested in 118,778
shares of the Company's common stock. Dividends to common shareholders of
the Company of $2,012,000 were declared in fiscal 1995, of which
$1,327,000, including $1,316,000 paid to Thermo TerraTech, was reinvested
in 113,491 shares of the Company's common stock.
23PAGE
<PAGE>
Thermo Remediation Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
9. Common Stock (continued)
At March 29, 1997, the Company had reserved 4,892,565 unissued shares
of its common stock for possible issuance under stock-based compensation
plans, outstanding warrants, and possible issuance upon conversion of the
Company's convertible obligations.
10. Fair Value of Financial Instruments
The Company's financial instruments consist mainly of cash and cash
equivalents, available-for-sale investments, accounts receivable, due
from parent company and Thermo Electron, accounts payable, and long-term
obligations. The carrying amounts of these financial instruments, with
the exception of available-for-sale investments and long-term
obligations, approximates 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.
Based on quoted market prices and on borrowing rates available to
the Company, the fair value of the Company's long-term obligations was
$37,674,000 and $42,877,000 at fiscal year-end 1997 and 1996,
respectively.
11. Significant Customers and Concentration of Credit Risk
A substantial portion of the Company's nuclear services has been
provided to the U.S. government. One subcontract for the U.S. government
accounted for approximately 5%, 10%, and 4% of the Company's total
revenues in fiscal 1997, 1996, and 1995, respectively. All other U.S.
government agencies accounted for 25%, 16%, and 26% of the Company's
total revenues in fiscal 1997, 1996, and 1995, respectively. Management
does not believe that this concentration of credit risk has or will have
a significant negative impact on the Company.
12. Nonrecurring Costs
During the fourth quarter of fiscal 1997, the Company 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 recent severe downturn in the Company's
soil-recycling business which will result in the closure of two
soil-remediation sites. In addition, the Company's analysis indicates
that the future undiscounted cash flows from certain other
soil-remediation sites that will remain open will be insufficient to
recover the Company's investment in these business units, thus requiring
a write-down of certain assets included in the $7,800,000 charge. Of the
total charge, $2,206,000 is nondeductible for tax purposes.
24PAGE
<PAGE>
Thermo Remediation Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
13. Equity in Earnings of Unconsolidated Subsidiary
The Company's 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.
(ReTec Tetra), acquired in December 1995 through the acquisition of
ReTec. The carrying value of this investment was $5,650,000, which is
included in other assets in the accompanying fiscal 1997 balance sheet.
Summary financial information for ReTec Tetra is as follows:
December 31,
-------------------
(In thousands) 1996 1995
------------------------------------------------------------------
Current assets $ 3,072 $ 2,163
Noncurrent assets 12,644 11,653
------- -------
Total assets $15,716 $13,816
======= =======
Current liabilities $ 2,016 $ 2,342
Noncurrent liabilities 2,635 2,465
Members' equity 11,065 9,009
------- -------
Total liabilities and members' equity $15,716 $13,816
======= =======
Year Ended
Dec. 31,
(In thousands) 1996
------------------------------------------------------
Revenues $12,066
Cost of revenues 9,040
-------
Gross profit $ 3,026
=======
Net income $ 981
=======
25PAGE
<PAGE>
Thermo Remediation Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
14. Unaudited Quarterly Information
(In thousands except per share amounts)
1997 First Second Third(a) Fourth(b)
-------------------------------------------------------------------------
Revenues $23,520 $27,913 $34,252 $29,164
Gross profit 4,482 4,428 4,714 4,324
Net income (loss) 1,028 974 620 (5,303)
Earnings (loss) per share:
Primary .08 .08 .05 (.42)
Fully diluted .08 .07 .05 (.42)
1996 First Second Third(c) Fourth
-------------------------------------------------------------------------
Revenues $13,181 $14,466 $16,308 $23,002
Gross profit 4,024 4,244 4,540 5,035
Net income 1,180 1,330 1,533 1,401
Earnings per share:
Primary .10 .11 .12 .11
Fully diluted .09 .11 .12 .11
(a) Reflects the September 1996 acquisition of IEM Sealand.
(b) Reflects $7,800,000 of nonrecurring costs.
(c) Reflects the December 1995 acquisition of ReTec.
26PAGE
<PAGE>
Thermo Remediation Inc. 1997 Financial Statements
Report of Independent Public Accountants
To the Shareholders and Board of Directors of Thermo Remediation Inc.:
We have audited the accompanying consolidated balance sheet of Thermo
Remediation Inc. (a Delaware corporation and 69%-owned subsidiary of
Thermo TerraTech Inc.) and subsidiaries as of March 29, 1997, and March
30, 1996, and the related consolidated statements of operations,
shareholders' investment and cash flows for each of the three years in
the period ended March 29, 1997. 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 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 Remediation Inc. and subsidiaries as of March 29, 1997, and March
30, 1996, and the results of their operations and their cash flows for
each of the three years in the period ended March 29, 1997, in conformity
with generally accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
May 6, 1997
27PAGE
<PAGE>
Thermo Remediation Inc. 1997 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 Operation under the
caption "Forward-looking Statements."
Overview
The Company is a national provider of environmental services,
including industrial, nuclear, and soil remediation, as well as waste-
fluids recycling.
The Company's Remediation Technologies, Inc. (ReTec) subsidiary,
acquired in December 1995, is a provider of consulting, engineering, and
on-site services to help clients manage problems associated with
environmental compliance, waste management, and the remediation of
industrial sites contaminated with organic wastes and residues.
In September 1996, the Company acquired IEM Sealand Corporation (IEM
Sealand; Note 3). IEM Sealand performs cleanup of hazardous waste sites
for government and industry as a prime construction contractor and also
completes predesigned remedial action contracts at sites containing
hazardous, toxic, and radioactive waste. IEM Sealand's business is
traditionally strongest during the summer and fall seasons.
The Company's Thermo Nutech subsidiary provides services to remove
radioactive contaminants from sand, gravel, and soil, and also provides
health physics, radiochemistry laboratory, and radiation dosimetry
services.
The Company, through its TPS Technologies Inc. subsidiary, designs
and operates facilities for the remediation of nonhazardous soil and
operates a network of such facilities along the East and West Coasts.
The Company's Thermo Fluids Inc. subsidiary collects, tests,
processes, and recycles used motor oil and other industrial fluids.
The Company's businesses are affected by several factors, parti-
cularly extreme weather variations, government spending, enactment and
enforcement of environmental legislation, economic cycles, regulation and
enforcement of remediation activities, the availability of federal and
state funding for environmental cleanup, and local competition.
28PAGE
<PAGE>
Thermo Remediation Inc. 1997 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
Fiscal 1997 Compared With Fiscal 1996
Revenues in fiscal 1997 increased 72% to $114,849,000 from
$66,957,000 in fiscal 1996. Revenues increased due to the inclusion of
$50,033,000 of revenues from ReTec and IEM Sealand, acquired in December
1995 and September 1996, respectively (Note 3). Revenues from
soil-remediation services decreased 21% in response 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. The Company also believes that several states have reduced
their compliance requirements and/or relaxed their enforcement
activities. The Company expects this trend to continue for the
foreseeable future. Revenues from nuclear and fluids-recycling services
increased $3,652,000 in fiscal 1997.
The gross profit margin decreased to 16% in fiscal 1997 from 27% in
fiscal 1996, primarily due to lower margins on soil processed as a result
of competitive pricing pressures and, to a lesser extent, lower volumes
of soil processed at the Company's traditionally higher-margin
soil-remediation centers. The gross profit margin also decreased due to
the inclusion of lower-margin revenues from ReTec and IEM Sealand.
Selling, general, and administrative expenses as a percentage of
revenues decreased to 10% in fiscal 1997 from 13% in fiscal 1996,
primarily due to lower expenses as a percentage of revenues at acquired
companies.
During fiscal 1997, the Company 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 (Note 12).
The write-down was in response to the downturn in the Company's
soil-recycling business discussed above, which will result in the closure
of two soil-remediation sites. In addition, the Company's analysis
indicates that the future undiscounted cash flows from certain other
soil-remediation sites that will remain open will 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 $7,800,000
charge. The recent severe downturn in the Company's soil-recycling
business and relaxed compliance requirements and enforcement activities
resulted in overcapacity in the industry and competitive pricing
pressures. The Company expects that closure of two sites with small
operating losses and a write-down of certain assets at two other sites,
at which current volumes of soil being processed were insufficient to
recover the Company's investment, will improve the operating results of
the soil-recycling business beginning in fiscal 1998. Revenues and
operating losses, exclusive of the write-down, at the two sites being
closed aggregated $2,871,000 and $553,000, respectively, in fiscal 1997.
Interest income decreased to $1,896,000 in fiscal 1997 from
$2,539,000 in fiscal 1996 as a result of lower average invested balances
following the acquisition of ReTec in December 1995 (Note 3) and the use
of $8,317,000 to repurchase Company common stock in fiscal 1997. Interest
expense increased to $2,251,000 in fiscal 1997 from $1,999,000 in fiscal
1996, primarily due to the issuance of the 4 7/8% subordinated
convertible debentures in May 1995 (Note 6).
29PAGE
<PAGE>
Thermo Remediation Inc. 1997 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Fiscal 1997 Compared With Fiscal 1996 (continued)
Equity in earnings of unconsolidated subsidiary represents ReTec's
proportionate share of income from a joint venture (Note 13).
The Company recorded an income tax provision on a pretax loss in
fiscal 1997 primarily due to the amortization and write-off of
nondeductible cost in excess of net assets of acquired companies and, to
a lesser extent, the impact of state income taxes. The effective tax rate
in fiscal 1996 was higher than the statutory federal income tax rate
primarily due to the impact of state income taxes and the amortization of
nondeductible cost in excess of net assets of acquired companies, offset
in part by tax-exempt investment income.
Fiscal 1996 Compared With Fiscal 1995
Revenues in fiscal 1996 were $66,957,000, compared with $51,504,000
in fiscal 1995, an increase of 30%. Revenues increased due to the
inclusion of $21,304,000 in revenues from ReTec, acquired in December
1995, and the inclusion of revenues from soil-remediation businesses
acquired or constructed in late fiscal 1995 and in fiscal 1996. These
increases were offset in part by lower revenues from the Company's
soil-remediation services resulting from a decrease in the volume and
price of soil processed as a result of regulatory uncertainties at
several sites, competitive pricing pressures, and severe weather
conditions primarily in the fourth quarter of fiscal 1996. Revenues from
nuclear services declined due to a decrease in radiochemistry laboratory
work, reflecting a reduction in spending at the U.S. Department of Energy
(DOE) and delays in federal government budget appropriations, largely
offset by increased revenues from a long-term environmental restoration
contract for the DOE's Hanford site (Hanford), which began in the second
quarter of fiscal 1995.
The gross profit margin decreased to 27% in fiscal 1996 from 34% in
fiscal 1995. The gross profit margin on soil-remediation services
revenues decreased primarily due to competitive pricing pressures, offset
in part by operational savings. The gross profit margin on nuclear
services decreased primarily due to lower revenues from higher-margin
radiochemistry laboratory work and increased revenues from the
lower-margin Hanford contract. The gross profit margin on
fluids-recycling services improved to 40% during fiscal 1996 from 29% in
fiscal 1995, primarily due to operational efficiencies.
Selling, general, and administrative expenses as a percentage of
revenues decreased to 13% in fiscal 1996 from 16% in fiscal 1995, due to
an increase in total revenues and, to a lesser extent, operational
efficiencies.
Interest income increased to $2,539,000 in fiscal 1996 from
$1,002,000 in fiscal 1995 as a result of interest income earned on
invested proceeds from the issuance of the 4 7/8% subordinated
convertible debentures and the issuance of shares of the Company's common
stock in May 1995 (Notes 6 and 9). Interest expense increased to
$1,999,000 in fiscal 1996 from $239,000 in fiscal 1995 primarily due to
the issuance of the subordinated convertible debentures in May 1995.
The effective tax rate was 37% in fiscal 1996, compared with 38% in
fiscal 1995. The effective tax rates were higher than the statutory
federal income tax rate primarily due to the impact of state income
taxes, offset in part by tax-exempt investment income.
30PAGE
<PAGE>
Thermo Remediation Inc. 1997 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Fiscal 1996 Compared With Fiscal 1995 (continued)
Minority interest expense in fiscal 1995 represents Thermo Nutech's
net income which was allocated to the joint venture partner (Note 3).
Liquidity and Capital Resources
Consolidated working capital, including cash, cash equivalents, and
short-term available-for-sale investments, was $38,960,000 at March 29,
1997, compared with $46,343,000 at March 30, 1996. Cash, cash
equivalents, and short- and long-term available-for-sale investments were
$22,701,000 at March 29, 1997, compared with $35,349,000 at March 30,
1996. During the year ended March 29, 1997, cash provided by operating
activities was $3,647,000. The Company used cash to fund an increase in
accounts receivable and unbilled contract costs and fees of $6,008,000
and $3,055,000, respectively, as a result of higher revenues at its IEM
Sealand, ReTec, and Thermo Fluids businesses.
Excluding purchases, sales, and maturities of available-for-sale
investments, the Company's investing activities in fiscal 1997 primarily
consisted of an acquisition and capital additions. During fiscal 1997,
the Company acquired IEM Sealand for 311,040 shares of the Company's
common stock, valued at $2,006,000, and $1,681,000 in net cash. The
Company also expended $6,036,000 for purchases of property, plant, and
equipment in fiscal 1997.
In fiscal 1997, the Company's financing activities used $7,859,000 of
cash. The Company's Board of Directors has authorized the repurchase,
through September 10, 1997, of up to $10.0 million of its own securities.
Through March 29, 1997, the Company had expended $8,317,000 under this
authorization. All such purchases are funded from working capital. In
fiscal 1997, the Company paid $847,000 in cash dividends. The amount of
cash dividends ultimately paid by the Company was dependent on the number
of shareholders participating in the Company's Dividend Reinvestment
Plan.
In May 1997, the Company acquired TriTechnics Corporation, an
environmental consulting and engineering firm, which provides
comprehensive consulting and remedial services at refinery and chemical-
plant sites, for approximately $1,600,000 in cash. Although the Company
has no other material commitments for capital expenditures, such
expenditures will largely be affected by the number of fluid-collection
or other environmental service businesses that can be developed or
acquired during the year. The Company believes that it has adequate
resources to meet its financial needs for the foreseeable future.
31PAGE
<PAGE>
Thermo Remediation Inc. 1997 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 1998 and beyond to
differ materially from those expressed in any forward-looking statements
made by, or on behalf of, the Company.
Dependence on Environmental Regulation. Federal, state, and local
environmental laws govern each of the markets in which the Company
conducts business, as well as many of the Company's operations. The
markets for each of the Company's services, including industrial
remediation services, nuclear remediation services, hazardous waste
remedial construction services, soil-remediation services, and
waste-fluids recycling services, and the standards governing most aspects
of the construction and operation of the Company's facilities were
directly or indirectly created by, and are dependent on, the existence
and enforcement of those laws. There can be no assurance that these laws
and regulations will not change in the future, requiring new technologies
or stricter standards with which the Company must comply. In addition,
there can be no assurance that these laws and regulations will not be
made more lenient in the future, thereby reducing the size of the markets
addressed by the Company. Any such change in such federal, state, and
local environmental laws and regulations may have a material adverse
effect on the Company's business.
Responsibility for establishing and enforcing certain federal
policies, such as the federal underground storage tank policy, has been
delegated to the states, which are not only required to establish
regulatory programs, but also are permitted to mandate more stringent
requirements than are otherwise required by federal law. Currently, many
states are considering adopting a "risk-based" approach to prioritizing
site cleanups and setting cleanup standards, which attempt to balance the
costs of remediation against the potential harm to human health and the
environment from leaving sites unremediated. There can be no assurance
that these policies, if implemented, will not reduce the size of the
potential market addressed by the Company.
Uncertainty of Funding. Remediation compliance requirements and
attendant costs are often beyond the financial capabilities of many
individuals and small companies. To address this problem, some states
have established tax-supported trust funds to assist in the financing of
compliance and site remediation. As a consequence, in many of the states
in which the Company markets its soil-remediation services, the majority,
and in some cases virtually all, of the soil remediated by the Company is
paid for by large companies and/or state trust funds. Any substantial
decrease in this funding could have a material adverse effect on the
Company's business and financial performance. Many states have realized
that the number of sites requiring remediation and the costs of
compliance are substantially higher than were originally estimated. As a
result, several states have relaxed enforcement activities and others
have reduced compliance requirements in order to reduce the costs of
cleanup. These factors have already resulted in lower levels of cleanup
activity in some states and have a material adverse effect on the
32PAGE
<PAGE>
Thermo Remediation Inc. 1997 Financial Statements
Forward-looking Statements
Company's business. Continued de-emphasis on enforcement activities
and/or further reductions in compliance requirements will have a more
severe material adverse effect on the Company's business.
The Company depends on funding from the federal and state
governments, and their agencies and instrumentalities, for compensation
for its services. For example, Thermo Nutech provides a large portion of
its services directly or indirectly to the U.S. Department of Energy
(DOE). Declines in spending by the DOE and other governmental agencies
could have a material adverse effect on the Company's business.
Potential Environmental Regulatory Liability. The Company's
operations are subject to comprehensive laws and regulations related to
the protection of the environment. Among other things, these laws and
regulations impose requirements to control air, soil, and water
pollution, and regulate health, safety, zoning, land use, and the
handling and transportation of hazardous and nonhazardous materials. Such
laws and regulations also impose liability for remediation and cleanup of
environmental contamination, both on-site and off-site, resulting from
past and present operations. These requirements may also be imposed as
conditions of operating permits or licenses that are subject to renewal,
modification, or revocation. Existing laws and regulations, and new laws
and regulations, may require the Company to modify, supplement, replace
or curtail its operating methods, facilities, or equipment at costs which
may be substantial, without any corresponding increase in revenue. The
Company is also potentially subject to monetary fines, penalties,
remediation, cleanup or stop orders, injunctions, or orders to cease, or
suspend certain of its practices. The outcome of any proceedings and
associated costs and expenses could have a materials adverse impact on
the Company's business. In addition, the Company's divisions are subject
to numerous laws and regulations related to the protection of human
health and safety. Such laws and regulations may impose liability on the
Company for exposure of its employees to radiation or other hazardous
contamination or failure to isolate and remove radioactive or other
hazardous contaminants from soil.
The Company endeavors to operate its business to minimize its
exposure to environmental and other regulatory liabilities. 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.
Competition. The markets for many of the Company's services are
regional and are characterized by intense competition from numerous local
competitors. Some of the Company's competitors have greater technical and
financial resources than those of the Company. As a result, they may be
able to adapt more quickly to new or emerging technologies and changes in
customer requirements, or to devote greater resources to the promotion
and sale of their services than the Company. Competition could increase
if new companies enter the market or if existing competitors expand their
service lines. There can be no assurance that the Company's current
technology, technology under development, or ability to develop new
technologies will be sufficient to enable it to compete effectively with
its competitors.
33PAGE
<PAGE>
Thermo Remediation Inc. 1997 Financial Statements
Forward-looking Statements
Seasonal Influences. A majority of the Company's businesses
experience seasonal fluctuations. A majority of the Company's
soil-remediation sites, as well as the company's fluids-recycling sites,
experience declines in severe weather conditions. Site remediation work
and certain environmental testing services, such as the services provided
by ReTec, IEM Sealand, and Thermo Nutech, may decline in winter months as
a result of severe weather conditions.
Possible Obsolescence Due to Technological Change. Technological
developments are expected to continue at a rapid pace in the
environmental services industry. The Company's technologies could be
rendered obsolete or uneconomical by technological advances by one or
more companies that address the Company's markets or by future entrants
into the industry. There can be no assurance that the Company would have
the resources to, or otherwise would be successful in, developing
responses to technological advances by others.
Risks Associated with Acquisition Strategy. The Company's strategy
includes the acquisition of businesses that complement or augment the
Company's existing services. Promising acquisitions are difficult to
identify and complete for a number of reasons, including competition
among prospective buyers and the need for regulatory approvals. Any
acquisitions completed by the Company may be made at substantial premiums
over the fair value of the net assets of the acquired companies. There
can be no assurance that the Company will be able to complete future
acquisitions or that the Company will be able to successfully integrate
any acquired businesses. In order to finance such acquisitions, it may be
necessary for the Company to raise additional funds through public or
private financings. Any equity or debt financing, if available at all,
may be on terms which are not favorable to the Company and, in the case
of equity financing, may result in dilution to the Company's
stockholders.
No Assurance of Development and Commercialization of Technology Under
Development. The Company is currently engaged in the development of
several technologies which may ultimately be commercialized to provide
services to customers. There are a number of technological challenges
that the Company must successfully address to complete any of its
development efforts. Technology development involves a high degree of
risk, and returns to investors are dependent upon successful development
and commercialization of such technology. There can be no assurance that
any of the technologies currently being developed by the Company, or
those to be developed in the future, will be technologically feasible or
accepted by the marketplace, or that any such development will be
completed in any particular timeframe.
34PAGE
<PAGE>
Thermo Remediation Inc. 1997 Financial Statements
Selected Financial Information
(In thousands except
per share amounts) 1997(a) 1996(b) 1995(c) 1994(d,e) 1993(e)
-------------------------------------------------------------------------
Statement of Operations Data:
Revenues $114,849 $ 66,957 $ 51,504 $ 43,488 $ 34,615
Income (loss)
before cumulative
effect of change
in accounting
principle (2,681) 5,444 3,643 2,510 1,868
Net income (loss) (2,681) 5,444 3,643 2,567 1,868
Earnings (loss) per
share:
Primary (.21) .44 .36
Fully diluted (.21) .42 .35
Balance Sheet Data:
Working capital $ 38,960 $ 46,343 $ 3,384 $ 12,676 $ 7,052
Total assets 135,011 135,802 79,156 68,939 43,637
Long-term
obligations 40,600 40,600 2,650 2,650 -
Shareholders'
investment 74,830 83,352 60,320 47,638 26,600
Other Data:
Cash dividends
declared $ 2,557 $ 2,491 $ 2,012 $ 2,127 $ 1,586
(a) Reflects the September 1996 acquisition of IEM Sealand and $7.8
million of nonrecurring costs.
(b) Reflects the May 1995 issuance of $38 million principal amount of
4 7/8% subordinated convertible debentures and a private placement
of 500,000 shares of the Company's common stock for net proceeds of
$6.6 million. Also reflects the December 1995 acquisition of ReTec.
(c) Reflects the October 1994 acquisition of TPST Woodworth and the
December 1994 acquisition of TPST Maryland.
(d) Reflects the December 1993 initial public offering of the Company's
common stock for net proceeds of $13.5 million, the November 1993
acquisition of Thermo Fluids, and issuance of a $2.7 million
principal amount 3 7/8% subordinated convertible note. Also reflects
the adoption of Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."
(e) Financial data has been restated to reflect the June 1995
acquisition of Thermo Nutech, accounted for in a manner similar to a
pooling-of-interests.
35PAGE
<PAGE>
Thermo Remediation Inc. 1997 Financial Statements
Common Stock Market Information
The following table shows the market range for the Company's common
stock based on reported sales prices on the American Stock Exchange
(symbol THN).
Fiscal 1997 Fiscal 1996
-------------------- ---------------------
Quarter High Low High Low
------------------------------------------------------------------------
First $15 $11 7/8 $17 3/8 $12 7/8
Second 13 1/4 9 7/8 16 5/8 14
Third 11 1/2 7 7/8 15 1/2 13 1/8
Fourth 8 7/8 6 3/4 16 1/4 13 1/4
As of May 23, 1997, the Company had 172 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 23, 1997, was $7 per share.
Shareholder Services
Shareholders of Thermo Remediation Inc. who desire information about
the Company are invited to contact John N. Hatsopoulos, Chief Financial
Officer, Thermo Remediation Inc., 81 Wyman Street, P.O. Box 9046,
Waltham, Massachusetts 02254-9046, (617) 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. Beginning in 1997,
quarterly distribution of printed reports will be limited to the second
quarter report only. All quarterly reports and press releases are
available through the Internet at Thermo Electron's home page on the
World Wide Web (http://www.thermo.com/subsid/thn.html).
Stock Transfer Agent
Bank of Boston 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 inquires
to:
Bank of Boston
c/o Boston EquiServe Limited Partnership
P.O. Box 8040
Boston, Massachusetts 02102-8040
(617) 575-3120
Dividend Policy
The Company intends to pay cash dividends from time to time to the
holders of the Company's common stock out of funds legally available
therefor. The Company currently expects that such dividends will be paid
semiannually. No assurance can be given, however, as to whether the
Company will continue to pay dividends in the future. On August 7, 1996,
and February 12, 1997, the Board of Directors declared semiannual
dividends of $.10 per share, which were paid on September 5, 1996, and
March 24, 1997, to shareholders of record on August 22, 1996, and March
3, 1997, respectively.
36PAGE
<PAGE>
Thermo Remediation Inc. 1997 Financial Statements
Dividend Reinvestment Plan
The Thermo Remediation Inc. Dividend Reinvestment Plan permits
shareholders to have their dividends reinvested automatically in
additional shares of the Company's common stock without paying service
charges or brokerage fees. For more details about this service, please
write to:
Bank of Boston
c/o Boston EquiServe Limited Partnership
Investor Relations Department
P.O. Box 8040
Boston, Massachusetts 02102-8040
Form 10-K Report
A copy of the Annual Report on Form 10-K for the fiscal year ended
March 29, 1997, as filed with the Securities and Exchange Commission, may
be obtained without charge by writing to John N. Hatsopoulos, Chief
Financial Officer, Thermo Remediation Inc., 81 Wyman Street, P.O. Box
9046, Waltham, Massachusetts 02254-9046.
Annual Meeting
The annual meeting of shareholders will be held on Wednesday,
September 24, 1997, at 10:00 a.m. at Thermo Electron Corporation, 81
Wyman Street, Waltham, Massachusetts.
Exhibit 21
THERMO REMEDIATION INC.
Subsidiaries of the Registrant
As of May 23, 1997, Thermo Remediation Inc. owned the following companies:
STATE OR
JURISDICTION PERCENT
NAME OF OF
INCORPORATION OWNERSHIP
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
Remediation Technologies, Inc. Delaware 100
RETEC Thermal, Inc. Delaware 100
ReTec/Tetra L.C. Texas 50*
TriTechnics Corporation Colorado 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
TMA/Hanford, Inc. Washington 100
Thermo Securities Corporation Delaware 100
Thermo Soil Recyclers Inc. Massachusetts 100
Thermo Technology Ventures Inc. Idaho 100
Plasma Quench Investment Limited Partnership Delaware 60*
* Joint Venture/Partnership
Exhibit 23.1
Consent of Independent Public Accountants
-----------------------------------------
As independent public accountants, we hereby consent to the
incorporation by reference of our reports dated May 6, 1997, included in or
incorporated by reference into Thermo Remediation Inc.'s Annual Report on
Form 10-K for the year ended March 29, 1997, and into the Company's
previously filed Registration Statements as follows: Registration Statement
No. 33-92030 on Form S-3, Registration Statement No. 33-92058 on Form S-8,
Registration Statement No. 33-85368 on Form S-8, Registration Statement No.
33-85370 on Form S-8, Registration Statement No. 33-85374 on Form S-8,
Registration Statement No. 33-85372 on Form S-8, Registration Statement No.
333-00062 on Form S-3, Registration Statement No. 33-80747 on Form S-8,
Registration Statement No. 33-80515 on Form S-8, Registration Statement No.
33-81226 on Form S-3, Registration Statement No. 33-80458 on Form S-3, and
Registration Statement No. 33-77818 on Form S-3.
Arthur Andersen LLP
Boston, Massachusetts
June 6, 1997
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our report dated February 27, 1997 with
respect to the financial statements of RETEC/TETRA L.C. as of December
31, 1996 and 1995 and for the years then ended included in this Annual
Report (Form 10-K) of Thermo Remediation Inc. for the year ended March
29, 1997.
We also consent to the incorporation by reference in the following
Registration Statements of Thermo Remediation Inc. and each related
Prospectus of our report dated February 27, 1997 with respect to the
financial statements of RETEC/TETRA L.C. as of December 31, 1996 and 1995
and for the years then ended included in this Annual Report (Form 10-K)
for the year ended March 29, 1997.
Registration Statement No. 33-92058 on Form S-8
Registration Statement No. 33-85368 on Form S-8
Registration Statement No. 33-85370 on Form S-8
Registration Statement No. 33-85374 on Form S-8
Registration Statement No. 33-85372 on Form S-8
Registration Statement No. 33-80747 on Form S-8
Registration Statement No. 33-80515 on Form S-8
Registration Statement No. 33-92030 on Form S-3
Registration Statement No. 33-77818 on Form S-3
Registration Statement No. 33-80458 on Form S-3
Registration Statement No. 33-81226 on Form S-3
Registration Statement No. 333-00062 on Form S-3
Ernst & Young LLP
Houston, Texas
June 4, 1997
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REMEDIATION INC.'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED MARCH
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