-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WGmyW29qkDT7nS1Tjx2oJWkqxsNZZwyUkO1Chl1X/dbAGLwyuD/JAVu+pgymj8t7 OEwTteX1F4NFtQrUf5Ln7g== 0000796038-96-000003.txt : 19960122 0000796038-96-000003.hdr.sgml : 19960122 ACCESSION NUMBER: 0000796038-96-000003 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19951208 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19960119 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: THERMO PROCESS SYSTEMS INC CENTRAL INDEX KEY: 0000796038 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-TESTING LABORATORIES [8734] IRS NUMBER: 042925807 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-09549 FILM NUMBER: 96505334 BUSINESS ADDRESS: STREET 1: 12068 MARKET ST CITY: LIVONIA STATE: MI ZIP: 48150 BUSINESS PHONE: 6176221000 MAIL ADDRESS: STREET 1: 81 WYMAN STREET CITY: WALTHAM STATE: MA ZIP: 02254 8-K/A 1 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 ------------------------------------------- AMENDMENT NO. 1 ON FORM 8-K/A CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): December 8, 1995 ________________________________________ THERMO TERRATECH INC. (Formerly Thermo Process Systems Inc.) (Exact name of Registrant as specified in its charter) Delaware 1-9549 04-2925807 (State or other jurisdiction (Commission (I.R.S. Employer of incorporation or File Number) Identification Number) organization) 81 Wyman Street Waltham, Massachusetts 02254-9046 (Address of principal executive offices) (Zip Code) (617) 622-1000 (Registrant's telephone number including area code) PAGE FORM 8-K/A Item 2. Acquisition or Disposition of Assets On December 8, 1995, Thermo TerraTech Inc. (formerly Thermo Process Systems Inc.), through its Thermo Remediation Inc. subsidiary ("Thermo Remediation"), acquired all of the issued and outstanding capital stock of Remediation Technologies, Inc. ("ReTec") for a combination of cash and securities having an aggregate value of approximately $29.7 million. The purchase price consisted of approximately $18.5 million in cash and units consisting of (i) 227,250 shares of Thermo Remediation's common stock and (ii) warrants to purchase 75,750 additional shares of Thermo Remediation's common stock at an exercise price of $14.85 per share, such units having an aggregate value of approximately $3.7 million. In addition, Thermo Remediation assumed outstanding ReTec stock options and converted such options into options to purchase up to 897,000 shares of Thermo Remediation's common stock. The shares of common stock issuable upon exercise of such options are subject to certain restrictions on resale, which lapse ratably over a period of five years. As converted, such options have a weighted average exercise price of $4.24 per share and were valued in the aggregate at approximately $7.5 million. ReTec, based in Concord, Massachusetts, is an integrated environmental services firm, with 15 offices nationwide, focusing primarily on the remediation of former and active industrial sites contaminated with organic wastes and residues. The acquisition was made pursuant to an Agreement and Plan of Merger dated as of December 1, 1995 (the "Merger Agreement"), among Thermo Remediation, TRI Acquisition Inc., a wholly owned subsidiary of Thermo Remediation ("Acquisition") and ReTec. Under the terms of the Merger Agreement, which became effective on December 8, 1995, (i) Acquisition merged with and into ReTec, (ii) outstanding shares of ReTec's common stock were canceled and converted into the right to receive the purchase price, (iii) each outstanding share of Acquisition's common stock was canceled and converted into one share of the common stock of ReTec, and (iv) ReTec became a wholly owned subsidiary of Thermo Remediation. The consideration paid for ReTec was based on Thermo Remediation's determination of the fair market value of ReTec's business, and the terms of the merger agreement were determined by arms' length negotiation among the parties. The consideration for the acquisition was subject to certain escrow arrangements. The accompanying pro forma combined condensed financial statements have been prepared as if such consideration had been transferred to the sellers on December 8, 1995, the effective date of the merger. Thermo Remediation has no present intention to use ReTec's assets for purposes materially different from the purposes for which such assets were used prior to the acquisition. However, Thermo Remediation will review ReTec's business and assets, corporate structure, capitalization, operations, properties, policies, management and personnel and, upon completion of this review, may develop alternative plans or proposals, including mergers, transfers of a material amount of assets or other transactions or changes relating to such business. 2PAGE FORM 8-K/A Item 7. Financial Statements, Pro Forma Combined Condensed Financial ------------------------------------------------------------ Information and Exhibits ------------------------ (a) Financial Statements of Business Acquired. Attached hereto. 3PAGE Independent Auditors' Report ---------------------------- The Board of Directors Remediation Technologies, Inc.: We have audited the accompanying consolidated balance sheet of Remediation Technologies, Inc. and subsidiary as of December 31, 1994, and the related consolidated statements of earnings, stockholders' equity and cash flows for the year then ended. 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 audit. We did not audit the financial statements of ReTec/Tetra, L.C., a Texas limited liability company in which the Company has a 50% interest accounted for in the accompanying consolidated financial statements on the equity method. The Company's investment in ReTec/Tetra, L.C. at December 31, 1994 was $5,100,195 and the Company's share of the net income of ReTec/Tetra, L.C. for 1994 was $634,183. The financial statements of ReTec/Tetra, L.C. were audited by other auditors whose report thereon has been furnished to us, and our opinion expressed herein, insofar as it relates to the amounts included for ReTec/Tetra, L.C., is based solely upon the report of the other auditors. We conducted our audit 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 audit and the report of other auditors provide a reasonable basis for our opinion. In our opinion, based on our audit and the report of other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Remediation Technologies, Inc. and subsidiary at December 31, 1994, and the results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles. The consolidated financial statements of Remediation Technologies, Inc. and subsidiary as of December 31, 1993 were audited by other auditors whose report dated April 29, 1994, expressed an unqualified opinion on those statements. KPMG Peat Marwick LLP Boston, Massachusetts March 1, 1995 PAGE REMEDIATION TECHNOLOGIES, INC. Consolidated Balance Sheets December 31, 1994 and 1993 Assets (note 6) 1994 1993 ------ ---- ---- Current assets: Cash and cash equivalents $ 625,338 1,519,177 Accounts receivable and unbilled sales net of allowance for doubtful accounts of $208,000 in 1994 and $100,000 in 1993 11,071,821 9,748,178 Costs and estimated earnings in excess of billings on uncompleted contracts (note 4) 62,234 22,336 Deferred income taxes 143,930 40,138 Prepaid federal income taxes 544,726 - Prepaid expenses and other assets 78,211 128,171 ----------- ----------- Total current assets 12,526,260 11,458,000 ----------- ----------- Property and equipment, at cost (notes 2, 7, and 8): Furniture and fixtures 289,857 224,973 Equipment 3,099,267 2,719,689 Leasehold improvements 233,358 151,619 ----------- ----------- 3,622,482 3,096,281 Less accumulated depreciation and amortization 2,469,958 2,022,368 ----------- ----------- Net property and equipment 1,152,524 1,073,913 ----------- ----------- Other assets: Investment in joint venture (note 2) 5,100,195 3,866,012 Intangible assets, net of accumulated amortization of $405,760 in 1994 and $368,569 in 1993 (note 5) 137,924 175,115 Deposits 50,783 47,938 ----------- ----------- Total other assets 5,288,902 4,089,065 ----------- ----------- $18,967,686 16,620,978 =========== =========== PAGE REMEDIATION TECHNOLOGIES, INC. Consolidated Balance Sheets December 31, 1994 and 1993 (continued) Liabilities and Stockholders' Equity 1994 1993 ------------------------------------ ---- ---- Current liabilities: Accounts payable and accrued expenses $ 4,159,662 3,822,191 Accrued payroll and related costs 953,088 761,858 Bank overdraft payable - 235,145 Deferred revenue 128,890 84,077 Accrued federal and state income taxes 126,724 186,961 Note payable - revolving bank line of credit (note 6) - 810,000 Current installments of notes payable (note 7) 17,608 319,157 Current installments of capital lease obligation (note 8) 3,358 3,345 Accrued bonus and profit-sharing contribution (note 14) 704,092 560,991 Billings in excess of costs and estimated earnings on uncompleted contracts (note 4) 331,745 26,115 ----------- ----------- Total current liabilities 6,425,167 6,809,840 ----------- ----------- Long-term debt: Notes payable, excluding current installments (note 7) 1,500,000 1,739,644 Capital lease obligation, excluding current installments (note 8) 5,735 11,470 ----------- ----------- Total long-term debt 1,505,735 1,751,114 ----------- ----------- Total liabilities 7,930,902 8,560,954 ----------- ----------- Commitments (notes 13 and 15) Stockholders' equity (notes 7, 9, 10 and 11): Common stock (Class B), $.01 par value, authorized 125,000 shares; issued 125,000 shares in 1994 and 1993 1,250 1,250 Common stock (Class A), $.01 par value Authorized 1,875,000 shares; issued 598,458 shares in 1994 and 563,707 shares in 1993 5,985 5,637 Preferred stock, $.01 par value. Authorized 1,000,000 shares; none issued - - Additional paid-in capital 3,848,024 3,746,235 Retained earnings 8,254,236 5,251,987 ----------- ----------- 12,109,495 9,005,109 Less treasury stock at cost, 87,259 shares in 1994 and 81,241 shares in 1993 1,072,711 945,085 ----------- ----------- Total stockholders' equity 11,036,784 8,060,024 ----------- ----------- $18,967,686 16,620,978 =========== =========== See accompanying notes to consolidated financial statements. PAGE REMEDIATION TECHNOLOGIES, INC. Consolidated Statements Of Earnings For the Years Ended December 31, 1994 and 1993 % of % of 1994 Revenues 1993 Revenues ---- -------- ---- -------- Project revenues $ 39,018,387 100.0% 32,580,118 100.0% Direct project costs 22,250,859 57.0% 18,838,786 57.8% ------------- ------ ------------- ------ Gross profit 16,767,528 43.0% 13,741,332 42.2% Selling, general and administrative expenses 12,280,661 31.5% 10,248,156 31.5% ------------- ------ ------------- ------ Earnings from operations before income taxes 4,486,867 11.5% 3,493,176 10.7% ------------- ------ ------------- ------ Other income (expense): Gain on sale of property and equipment, net 21,374 - 1,839 - Equity in net income (loss) of joint venture (note 2) 634,183 1.6% (124,224) (.4%) Interest, net (131,181) (.3%) (67,329) (.2%) ------------- ------ ------------- ------ Total other income (expense) 524,376 1.3% (189,714) (.6%) ------------- ------ ------------- ------ Earnings before income taxes 5,011,243 12.8% 3,303,462 10.1% Income tax expense (note 12) 2,008,994 5.1% 1,330,835 4.1% ------------- ------ ------------- ------ Net earnings $ 3,002,249 7.7% 1,972,627 6.0% ============= ====== ============= ====== Net earnings per common and common equivalent share: Primary $ 3.45 2.45 ============= ============= Fully diluted $ 3.38 2.39 ============= ============= See accompanying notes to consolidated financial statements. PAGE REMEDIATION TECHNOLOGIES, INC. Consolidated Statements Of Stockholders' Equity For the Years Ended December 31, 1994 and 1993
Common Stock Common Stock Preferred Class B Class A Stock ------- ------- ----- Shares Par Value Shares Par Value Shares Par Value ------ --------- ------ --------- ------ --------- Balance at December 31, 1993 125,000 $ 1,250 563,707 $ 5,637 - $ - Exercise of common stock option at $13.00 per share - - 3,000 30 - - Exercise of common stock option at $2.25 per share - - 5,000 50 - - Exercise of common stock option at $1.25 per share - - 18,500 185 - - Exercise of common stock option at $1.00 per share - - 7,000 70 - - Issuance of common stock for cash and other consideration at: $22.00 per share - - 291 3 - - $16.00 per share - - 960 10 - - Repurchase of 6,018 shares of common stock - - - - - - Net earnings - - - - - - ------- -------- ------- -------- ------- ------- Balance at December 31, 1994 125,000 $ 1,250 598,458 $ 5,985 - $ - ======= ======== ======= ======== ======= =======
PAGE REMEDIATION TECHNOLOGIES, INC. Consolidated Statements Of Stockholders' Equity For the Years Ended December 31, 1994 and 1993 (continued)
Additional Total Paid-In Retained Treasury Stockholder's Capital Earnings Stock Equity ----------- --------- -------- ------------ Balance at December 31, 1993 $ 3,746,235 $5,251,987 $ (945,085) $ 8,060,024 Exercise of common stock option at $13.00 per share 38,970 - - 39,000 Exercise of common stock option at $2.25 per share 11,200 - - 11,250 Exercise of common stock option at $1.25 per share 22,940 - - 23,125 Exercise of common stock option at $1.00 per share 6,930 - - 7,000 Issuance of common stock for cash and other consideration at: $22.00 per share 6,399 - - 6,402 $16.00 per share 15,350 - - 15,360 Repurchase of 6,018 shares of common stock - - (127,626) (127,626) Net earnings - 3,002,249 - 3,002,249 ----------- ---------- ----------- --------- Balance at December 31, 1994 $ 3,848,024 $8,254,236 $(1,072,711) $11,036,784 =========== ========== =========== ===========
PAGE REMEDIATION TECHNOLOGIES, INC. Consolidated Statements Of Stockholders' Equity (continued)
Common Stock Common Stock Preferred Class B Class A Stock ------- ------- ----- Shares Par Value Shares Par Value Shares Par Value ------ --------- ------ --------- ------ --------- Balance at December 31, 1992 - $ - 552,677 $ 5,527 - $ - Issuance of Class B common stock for cash at: $16.00 per share 125,000 1,250 - - - - Issuance of Class A common stock for cash at: $13.00 per share - - 1,000 10 - - 16.00 per share - - 675 7 - - Exercise of common stock option at $4.00 per share - - 2,500 25 - - Exercise of common stock option at $6.20 per share - - 1,000 10 - - Exercise of common stock option at $6.60 per share - - 4,000 40 - - PAGE REMEDIATION TECHNOLOGIES, INC. Consolidated Statements Of Stockholders' Equity For the Years Ended December 31, 1994 and 1993 (continued) Common Stock Common Stock Preferred Class B Class A Stock ------- ------- --- Shares Par Value Shares Par Value Shares Par Value ------ --------- ------ --------- ------ --------- Exercise of common stock option at $8.50 per share - $ - 1,855 $ 18 - $ - Repurchase of 35,580 shares of common stock - - - - - - Net earnings - - - - - - -------- -------- --------- -------- ------- -------- Balance at December 31, 1993 125,000 $ 1,250 563,707 $ 5,637 - $ - ======== ======== ========= ======== ======= ========
PAGE REMEDIATION TECHNOLOGIES, INC. Consolidated Statements of Stockholders' Equity (continued)
Additional Total Paid-In Retained Treasury Stockholder's Capital Earnings Stock Equity ---------- --------- -------- ------------- Balance at December 31, 1992 $1,665,427 $3,279,360 $ (375,805) $4,574,509 Issuance of Class B common stock for cash at: $16.00 per share 1,998,750 - - 2,000,000 Issuance of Class A common stock for cash at: $13.00 per share 12,990 - - 13,000 $16.00 per share 10,793 - - 10,800 Exercise of common stock option at: $ 4.00 per share 9,975 - - 10,000 Exercise of common stock option at: $6.20 per share 6,190 - - 6,200 Exercise of common stock option at $6.60 per share 26,360 - - 26,400 Exercise of common stock option at $8.50 per share 15,750 - - 15,768 Repurchase of 35,580 shares of common stock - - (569,280) (569,280) Net earnings - 1,972,627 - 1,972,627 ---------- ---------- ----------- ---------- Balance at December 31, 1993 $3,746,235 $5,251,987 $ (945,085) $8,060,024 ========== ========== =========== ========== See accompanying notes to consolidated financial statements.
PAGE REMEDIATION TECHNOLOGIES, INC. Consolidated Statements of Cash Flows For the Years Ended December 31, 1994 and 1993 1994 1993 ---- ---- Increase (decrease) in cash and cash equivalents: Cash flows from operating activities: Net earnings $ 3,002,249 1,972,627 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 607,394 588,135 Company's share of joint venture (income) loss (634,183) 124,224 Gain on sale of property and equipment, net (21,374) (1,839) Changes in operating assets and liabilities: Accounts receivable and unbilled sales, net (1,323,643) (4,476,745) Costs and estimated earnings in excess of billings on uncompleted contracts (39,898) 38,110 Deferred income taxes (103,792) (155,732) Prepaid expenses and other assets 49,960 (93,860) Deposits (2,845) (4,677) Accounts payable and accrued expenses 337,471 1,889,821 Accrued payroll and related costs 191,230 224,088 Bank overdraft payable (235,145) 235,145 Deferred revenue 44,813 62,795 Accrued bonus and profit sharing contribution 143,101 418,911 Billings in excess of costs and estimated earnings on uncompleted contracts 305,630 4,595 Accrued federal and state income taxes (60,238) 54,790 Prepaid federal income taxes (544,726) - ----------- --------- Net cash provided by operating activities 1,716,004 880,388 ----------- --------- Cash flows from investing activities: Purchase of property and equipment (692,896) (619,457) Proceeds from disposal of property and equipment 65,457 19,198 Capital contributed to joint venture (600,000) (1,900,023) ----------- ----------- Net cash used by investing activities $(1,227,439) (2,500,282) ----------- ----------- PAGE REMEDIATION TECHNOLOGIES, INC. Consolidated Statements of Cash Flows For the Years Ended December 31, 1994 and 1993 (continued) 1994 1993 ---- ---- Cash flows from financing activities: Proceeds from notes payable $ - 1,500,000 Principal repayments of notes payable (541,193) (319,156) Repayments under capital lease obligations (5,722) (2,390) Net advances (repayments) under bank line of credit (810,000) 180,000 Proceeds from issuance of common stock 102,137 2,082,168 Purchase of treasury stock (127,626) (435,280) ----------- ----------- Net cash provided (used) by financing activities (1,382,404) 3,005,342 ----------- ----------- Net increase (decrease) in cash and cash equivalents (893,839) 1,385,448 Cash and cash equivalents at beginning of year 1,519,177 133,729 ----------- ----------- Cash and cash equivalents at end of year $ 625,338 1,519,177 =========== =========== Supplemental disclosures of cash flow information: Cash paid for interest $ 180,263 67,329 =========== ========== Cash paid for income taxes $ 2,705,430 1,434,678 =========== ========== Supplemental disclosure of non-cash investing and financing activities: In September, 1993 the Company acquired equipment valued at $17,205 under a capital lease obligation for the same amount. During 1993, the Company exchanged cash plus equipment with a net book value of $4,388 for other like kind equipment. In April, 1993, the Company received 8,000 shares of its stock valued at $128,000 in repayment of certain notes receivable from stockholders. See accompanying notes to consolidated financial statements. PAGE REMEDIATION TECHNOLOGIES, INC. Notes to Consolidated Financial Statements December 31, 1994 and 1993 (1) Nature of Business and Summary of Significant Accounting Policies ----------------------------------------------------------------- (a) Nature of Business ------------------ Remediation Technologies, Inc. ("the Company") and its wholly-owned subsidiary, ReTec Thermal, Inc. (formerly known as MoTec, Inc.), are environmental engineering companies which provide engineering consulting and field services to industrial and governmental clients. The Companies specialize in the application of innovative technologies for on-site treatment and remediation at hazardous waste sites. (b) Principles of Consolidation --------------------------- The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, ReTec Thermal, Inc. All significant intercompany balances and transactions have been eliminated in consolidation. (c) Revenue Recognition ------------------- Revenue on contracts without a fixed price (time and material) is recognized as the work is performed in accordance with specific terms of each contract. Revenue on fixed fee and cost plus fixed fee contracts is recognized on a percentage of completion method as applied to the contract. The percentage of completion is determined by relating costs incurred to date to total estimated costs. Contract costs include all direct material, labor and subcontract costs and those indirect costs related to contract performance. Selling, general and administrative costs are charged to expense as incurred. Changes in estimated profit on contracts are reflected during the period in which the change in estimate is made. Revenues recognized in excess of amounts billed are classified as current assets under costs and estimated earnings in excess of billings on uncompleted contracts. It is anticipated that the incurred costs associated with contract work in progress at December 31, 1994, will be billed and collected in 1995. Amounts received from clients in excess of revenues recognized to date are classified as current liabilities under billings in excess of costs and estimated earnings on uncompleted contracts. The entire amount of anticipated losses on contracts is charged to earnings as soon as such losses can be estimated. PAGE REMEDIATION TECHNOLOGIES, INC. Notes to Consolidated Financial Statements (1) Nature of Business and Summary of Significant Accounting Policies ----------------------------------------------------------------- (continued) (d) Earnings Per Common and Common Equivalent Share ----------------------------------------------- The computations of earnings per common and common equivalent share are based on the weighted average number of shares outstanding during the period after consideration of the dilutive effect of stock options and warrants. The following average shares were used for the computation of primary and fully diluted earnings per share: 1994 1993 ---- ---- Primary 874,704 808,678 Fully diluted 889,451 827,022 (e) Depreciation and Amortization ----------------------------- Depreciation of property and equipment is provided using accelerated methods over the estimated useful lives of the assets. Organization costs and goodwill are amortized on a straight-line basis over five and forty years, respectively. The costs of other intangible assets are also amortized on a straight-line basis over their respective estimated useful lives. (f) Income Taxes ------------ The Company utilizes an asset and liability approach in accounting for income taxes as required by Statement of Financial Accounting Standards No. 109 (SFAS 109). SFAS 109 requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns. In estimating future tax consequences, SFAS 109 generally considers all expected future events other than enactments of changes in the tax law or rates. The provision for income taxes includes federal and state income taxes currently payable and those deferred because of temporary differences between financial statement and tax bases of assets and liabilities. (g) Statement of Cash Flows ----------------------- For the purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. PAGE REMEDIATION TECHNOLOGIES, INC. Notes to Consolidated Financial Statements (1) Nature of Business and Summary of Significant Accounting Policies ----------------------------------------------------------------- (continued) (h) Concentration of Credit Risk ---------------------------- Financial instruments which subject the Company to credit risk consist principally of temporary cash investments and trade receivables. The Company places its temporary cash investments ($102,697 and $1.5 million at December 31, 1994 and 1993, respectively) with high quality financial institutions. At times such investments may be in excess of the FDIC limit. The Company's policy with respect to the credit risk of trade receivables is to evaluate, prior to contract signing, each customer's financial condition and determine the amount of open credit to be extended. The Company's three largest customers accounted for approximately 28% of sales in 1994 and 35% in 1993. The same customers accounted for approximately 26% and 29% of accounts receivable at December 31, 1994 and 1993, respectively. (i) Fair Value of Financial Instruments ----------------------------------- The Company adopted Statement of Financial Accounting Standards No. 107, Disclosures about Fair Value of Financial Statements, which requires that the Company estimate and disclose the fair value of each material class of financial instrument (as defined by Statement 107) for which it is practicable to estimate that value. In accordance with Statement 107, the Company has identified its material financial instruments as cash and cash equivalents, trade receivables and payables, and notes payable. The carrying amount of cash and cash equivalents, trade receivables and trade payables approximate fair value because of the short-term nature of these financial instruments. The fair value of the Company's notes payable is estimated based on market values for similar instruments. At December 31, 1994 and 1993, the difference between the carrying value of notes payable and their estimated fair value is not material. (2) Investment in Joint Venture --------------------------- The Company's wholly-owned subsidiary, ReTec Thermal, Inc., has a 50% ownership interest in a venture known as ReTec/Tetra, L.C. ("the joint venture"), a Texas limited liability company formed in August, 1992, for the purpose of engaging in on-site hazardous waste remediation services. The investment in the joint venture is accounted for using the equity method. PAGE REMEDIATION TECHNOLOGIES, INC. Notes to Consolidated Financial Statements (2) Investment in Joint Venture (continued) --------------------------- Summarized financial information of the joint venture at December 31, 1994 and 1993 is as follows: 1994 1993 ---- ---- Assets: Current assets $ 2,063,187 1,273,451 Property and equipment 8,424,327 6,353,859 Other assets 500,960 568,988 ------------ ---------- $ 10,988,474 8,196,298 ============ ========== Liabilities and equity: Current liabilities $ 1,863,623 1,539,814 Equity 9,124,851 6,656,484 ------------ ---------- $ 10,988,474 8,196,298 ============ ========== Net sales $ 11,267,503 2,565,236 ============ ========== Net income (loss) $ 1,268,366 (248,449) ============ ========== Company's equity in net income (loss) $ 634,183 (124,224) ============ ========== During 1994 and 1993, the Company contributed an additional $600,000 and $1,900,023, respectively, to the capital of the joint venture. The Company's equity in the joint venture was $5,100,195 and $3,866,012 at December 31, 1994 and 1993, respectively. (3) Related Party Transactions -------------------------- The Company recognized revenue of approximately $80,000 and $360,000 in 1994 and 1993, respectively, from ReTec/Tetra, L.C. for services rendered on behalf of the joint venture. At December 31, 1994 and 1993, $6,998 and $68,490, respectively, was due to the Company from ReTec/Tetra, L.C. PAGE REMEDIATION TECHNOLOGIES, INC. Notes to Consolidated Financial Statements (4) Costs and Estimated Earnings on Uncompleted Contracts ----------------------------------------------------- Costs and estimated earnings on uncompleted contracts pertain to fixed-price contracts accounted for using the percentage of completion method as applied to the contract. 1994 1993 ---- ---- Costs incurred on uncompleted contracts $ 2,804,901 236,727 Estimated earnings 109,550 28,973 ----------- ---------- 2,914,451 265,700 Less: Billings to date 3,183,962 269,479 ----------- ---------- $ (269,511) (3,779) =========== ========== Included in accompanying balance sheets under the following captions: Costs and estimated earnings in excess of billings on uncompleted contracts $ 62,234 22,336 Billings in excess of costs and estimated earnings on uncompleted contracts 331,745 26,115 ----------- ---------- $ (269,511) (3,779) =========== ========== (5) Intangible Assets ----------------- The components of intangible assets, net of accumulated amortization, are as follows at December 31, 1994 and 1993: 1994 1993 ---- ---- Patent $ 104,203 138,937 Goodwill 32,521 33,482 License agreement 1,200 2,400 Organization costs - 296 ---------- ---------- $ 137,924 175,115 ========== ========== PAGE REMEDIATION TECHNOLOGIES, INC. Notes to Consolidated Financial Statements (6) Bank Line of Credit ------------------- At December 31, 1994 and 1993, the Company had a revolving bank line of credit available in an amount determined based on a percentage of eligible accounts receivable. The maximum amount available under the line of credit is $4,000,000. Advances under the line of credit are payable on demand and bear interest at the bank's prime rate plus 1/2%. The Company is also charged a fee of 1/2% on the unused portion of the facility. Borrowings are secured by substantially all assets of the Company. There were no outstanding borrowings at December 31, 1994. There was $810,000 outstanding under this line of credit at December 31, 1993. (7) Notes Payable ------------- Notes payable at December 31, 1994 and 1993 consisted of the following: 1994 1993 ---- ---- $1,500,000 subordinated note payable dated October 28, 1993 bearing interest at 8%. Interest only is payable on a quarterly basis until November, 1996 at which time the Company is required to begin making quarterly installments of principal under the note of $93,750 plus interest through August, 2000. A redemption premium of 6% in 1995, 4% in 1996 and 2% in 1997 is payable with respect to any principal installments made in excess of the required amounts. The note was issued pursuant to a related Warrant Purchase Agreement under which the Company issued to the lender warrants to purchase 46,875 shares of Class A common stock at a purchase price of $16.00 per share (note 11). $1,500,000 $1,500,000 $1,000,000 term note payable to a bank dated July 12, 1991 bearing interest at the bank's prime rate plus 1%. The debt was incurred to finance the purchase of certain equipment which was contributed to the joint venture (note 2) in 1992. The note was repaid in full during 1994. - 428,571 PAGE REMEDIATION TECHNOLOGIES, INC. Notes to Consolidated Financial Statements (7) Notes Payable (continued) ------------- 1994 1993 ---- ---- $158,355 unsecured term note payable to a former stockholder dated September 29, 1989. Proceeds from the note were used to fund the purchase of treasury shares of common stock from the former stockholder. The note was repaid in full during 1994. The weighted average interest rate over the term of the note was 9% per annum. - 95,014 $18,345 unsecured term note payable to the estate of a former stockholder dated December 17, 1990. Proceeds from the note were used to fund the purchase of treasury shares of common stock from the estate. The note is payable in five equal annual principal installments of $3,669 beginning December 17, 1991. Interest on the note accrues on the unpaid principal balance at a bank's prime interest rate and is payable annually. 3,669 7,338 $69,695 unsecured term note payable to the estate of a former stockholder dated December 17, 1990. Proceeds from the note were used to fund the purchase of treasury shares of common stock from the estate. The note will be paid in five equal annual principal installments of $13,939 beginning December 17, 1991. Interest on the note accrues on the unpaid principal balance at a bank's prime interest rate and is also payable annually. 13,939 27,878 ---------- ---------- Total notes payable 1,517,608 2,058,801 Less current installments of notes payable 17,608 319,157 ---------- ---------- Notes payable, excluding current installments $1,500,000 1,739,644 ========== ========== PAGE REMEDIATION TECHNOLOGIES, INC. Notes to Consolidated Financial Statements (7) Notes Payable (continued) ------------- The aggregate maturities of notes payable are as follows: 1995 $ 17,608 1996 93,750 1997 375,000 1998 375,000 1999 375,000 2000 281,250 ---------- $1,517,608 ========== (8) Capital Lease Obligation ------------------------ 1994 1993 ---- ---- September, 1993 agreement with a leasing company. The obligation is payable in 36 monthly principal and interest installments of $550 through August, 1996. Equipment capitalized under the lease in the amount of $17,205 is included in the balance sheet as equipment at December 31, 1994 and 1993. $ 9,093 14,815 Less current installments of capital lease obligation 3,358 3,345 ---------- ---------- Capital lease obligation, net of current installments $ 5,735 11,470 ========== ========== Minimum payments under the capital lease obligation for the remainder of the lease term are as follows: 1995 $ 6,600 1996 4,400 ---------- 11,000 Less amount representing interest at 9.9% 1,907 ---------- Present value of net minimum lease payments $ 9,093 ========== PAGE REMEDIATION TECHNOLOGIES, INC. Notes to Consolidated Financial Statements (9) Capital Stock ------------- In March, 1993 the Company restated its certificate of incorporation to provide for the establishment of a second class of common stock. The restated certificate of incorporation authorized the issuance of 125,000 shares of $.01 par value Class B common stock and provided that each share of previously authorized common stock be reclassified as Class A common stock. The total number of shares of all classes of capital stock that the Company is authorized to issue was increased from 2,000,000 at December 31, 1992 to 3,000,000 consisting of 1,875,000 shares of Class A common stock, 125,000 shares of Class B common stock and 1,000,000 shares of preferred stock. The Company's capital structure was amended as discussed above to facilitate a March, 1993 stock purchase agreement under which the Company sold all 125,000 authorized shares of its Class B common stock to Advent International (109,375 shares) and Edison Ventures (15,625 shares) for $2,000,000 ($16.00 per share). The proceeds from the sale were used for working capital and general corporate purposes, for repayment of loans and for funding of the ReTec/Tetra, L.C. joint venture. The Class B common stock ranks senior to the Company's Class A common stock as to liquidation rights and is convertible to Class A common stock upon the approval of the shareholders of a majority of the outstanding shares of Class B common stock. The number of shares of Class A common stock to which a holder of Class B common stock is entitled to receive upon conversion is initially one share of Class A common stock for each share of Class B common stock converted. The ratio increases upon the dilutive issuance of Class A common stock or convertible securities. The Class B common stock shares also possess certain registration and demand rights. In 1994, the Company entered into an agreement with a stockholder of the Company which requires the Company to repurchase, at the discretion of the stockholder, a portion of the Company's stock owned by the stockholder at any time during the next four years. The purchase price will be fair market value of the Company's stock with the total repurchased by the Company not to exceed $80,000 per year. The agreement was dependent on the execution of a four-year employment and noncompete agreement with the stockholder. In connection with the agreement, the Company repurchased 3,633 shares from the stockholder during 1994. At December 31, 1994, the stockholder owned 7,950 shares and had options to purchase an additional 30,000 shares at exercise prices ranging from $1.00 to $6.00. PAGE REMEDIATION TECHNOLOGIES, INC. Notes to Consolidated Financial Statements (10) Stock Option Plan ----------------- In 1986, the Company adopted the 1986 Stock Option Plan for which 150,000 shares of common stock were reserved for issuance to employees. In 1988, 1991, 1993 and 1994 the stock option plan was amended and, in total, an additional 250,000 shares of common stock were reserved (100,000 in 1988, 75,000 in 1991, 50,000 in 1993 and 25,000 in 1994) to increase the total shares of common stock that have been reserved to 400,000. Options granted under the plan may be qualified or non-qualified. The options are granted at prices determined by the Board of Directors or designee and are exercisable ratably over a two to four-year period from the date of grant. At December 31, 1994, there were outstanding incentive stock options for the purchase of 317,097 shares and non-qualified options for the purchase of 6,000 shares. At December 31, 1993, there were outstanding incentive stock options for the purchase of 319,495 shares and non-qualified options for the purchase of 6,000 shares. Stock option activity is summarized as follows: Outstanding Options ------- Shares Number of Price Per Available Shares Share --------- ------ ----- Balance at December 31, 1992 10,250 314,750 Additional options reserved 50,000 - Options granted (20,600) 20,600 $16.00 Options exercised 9,355 (9,355) $ 4.00 - 8.50 Options canceled 500 (500) $14.00 ------- ------- Balance at December 31, 1993 49,505 325,495 $ 1.00 - 16.00 Additional options reserved 25,000 - Options granted (32,102) 32,102 $16.00 - 27.50 Options exercised 33,500 (33,500) $ 1.00 - 13.00 Options canceled 1,000 (1,000) $13.00 ------- ------- Balance at December 31, 1994 76,903 323,097 $ 1.00 - 27.50 ======= ======= At December 31, 1994 and 1993, 275,012 and 268,360 shares were exercisable, respectively. PAGE REMEDIATION TECHNOLOGIES, INC. Notes to Consolidated Financial Statements (11) Common Stock Warrants --------------------- At December 31, 1994 and 1993, there was a warrant outstanding to purchase 46,875 shares of Class A common stock for $16.00 per share. The warrant is exercisable in full or in part until the later of August 31, 2000 or at such time as all principal and interest on the related note is paid in full. The warrant was issued in October, 1993 in conjunction with the issuance of a $1.5 million subordinated note payable (note 7). All shares issuable under the warrant possess certain demand and registration rights, separate from those rights of the Class B common stockholders. (12) Income Tax Expense ------------------ Income tax expense (benefit) at December 31, 1994 and 1993 consists of the following: Current Deferred Total ------- -------- ----- 1994 1993 1994 1993 1994 1993 ---- ---- ---- ---- ---- ---- Federal $1,655,709 1,149,597 (87,720) (120,206) 1,567,989 1,029,391 State 457,077 336,970 (16,072) (35,526) 441,005 301,444 ---------- --------- -------- -------- --------- --------- $2,112,786 1,486,567 (103,792) (155,732) 2,008,994 1,330,835 ========== ========= ======== ======== ========== ========= The following is a reconciliation between federal income tax expense at the statutory rate and the Company's actual federal tax expense for the year ended December 31, 1994. Federal income tax at statutory rate $1,703,822 State income taxes, net of federal income tax benefit 287,592 Other 17,580 ---------- $2,008,994 ========== The tax effects of temporary differences that give rise to significant portions of the deferred tax assets at December 31, 1994 are presented below. Accounts receivable, principally due to allowance for doubtful accounts $ 86,476 Other accrued liabilities 57,454 ----------- Total deferred tax assets $ 143,930 =========== PAGE REMEDIATION TECHNOLOGIES, INC. Notes to Consolidated Financial Statements (13) Leases ------ The Company leases its office facilities under operating leases expiring at various dates to 1999. Future minimum lease payments for the next five years under non-cancelable operating leases as of December 31, 1994, are as follows: 1995 $ 979,749 1996 861,865 1997 520,650 1998 441,249 1999 89,588 ---------- $2,893,101 ========== Rental expense for the years ended December 31, 1994 and 1993 amounted to $1,125,134 and $896,153, respectively. (14) Employee Benefit Plan --------------------- In 1987, the Company adopted an Employee Savings and Profit Sharing Plan ("the Plan") in accordance with Section 401(k) of the Internal Revenue Code. The Plan allows employees to defer up to 15% of their income on a pretax basis through contributions to the Plan up to prescribed Internal Revenue Code limitations. In line with the provisions of the Plan, the Company will contribute 100% (50% in 1993) of each employee's contribution up to the first six percent of salary. In addition, the Company may make, at its discretion, a contribution from profits in an amount determined by the Board of Directors. The Company contributed $519,202 and $401,770 to the Plan in 1994 and 1993, respectively. (15) Loan Guarantees --------------- The Company has guaranteed repayment of up to $500,000 of amounts advanced to ReTec/Tetra, L.C. under a revolving promissory note and $2,040,000 under an advancing promissory note with a bank. There were no advances outstanding under the guaranteed notes at December 31, 1994 and 1993. PAGE Independent Auditors' Report ---------------------------- The Board of Directors Remediation Technologies, Inc.: We have audited the accompanying consolidated balance sheets of Remediation Technologies, Inc. and subsidiary as of December 31, 1993 and 1992, and the related consolidated statements of earnings, stockholders' equity and cash flows for the years then ended. 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 did not audit the financial statements of ReTec/Tetra, L.C., a Texas Limited Liability company in which the Company has a 50% interest accounted for in the accompanying consolidated financial statements on the equity method. The Company's investment in ReTec/Tetra, L.C. at December 31, 1993 and 1992 was $3,866,012 and $2,090,213, respectively, and the Company's share of the net loss of ReTec/Tetra, L.C. for 1993 and 1992 was $124,224 and $285,302, respectively. The financial statements of ReTec/Tetra, L.C. were audited by other auditors whose reports thereon have been furnished to us, and our opinion expressed herein, insofar as it relates to the amounts included for ReTec/Tetra, L.C., is based solely upon the reports of the other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits 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 and the reports of other auditors provide a reasonable basis for our opinion. In our opinion based on our audits and the reports of other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Remediation Technologies, Inc. and subsidiary at December 31, 1993 and 1992, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. Nardella & Taylor Lexington, Massachusetts April 29, 1994 PAGE REMEDIATION TECHNOLOGIES, INC. Consolidated Balance Sheets December 31, 1993 and 1992 Assets (note 8) 1993 1992 ------ ---- ---- Current assets: Cash and cash equivalents $ 1,519,177 133,729 Accounts receivable and unbilled sales net of allowance for doubtful accounts of $100,000 at December 31, 1993 9,748,178 5,271,433 Costs and estimated earnings in excess of billings on uncompleted contracts (note 5) 22,336 60,446 Deferred income taxes 40,138 - Prepaid expenses and other assets 128,171 34,311 Notes receivable (note 6) - 128,000 ----------- ----------- Total current assets 11,458,000 5,627,919 ----------- ----------- Property and equipment, at cost (notes 2, 3, 9 and 10): Furniture and fixtures 224,973 178,140 Equipment 2,719,689 2,247,771 Leasehold improvements 151,619 124,942 ----------- ----------- 3,096,281 2,550,853 Less accumulated depreciation and amortization 2,022,368 1,568,462 ----------- ----------- Net property and equipment 1,073,913 982,391 ----------- ----------- Other assets: Investment in joint venture (note 3) 3,866,012 2,090,213 Deposits 47,938 43,261 Organization costs, net of accumulated amortization of $23,002 in 1993 and $19,582 in 1992 (note 2) 296 3,716 Goodwill, net of accumulated amortization of $4,705 in 1993 and $3,745 in 1992 (note 2) 33,482 34,441 Other intangible assets, net of accumulated amortization of $340,862 in 1993 and $284,888 in 1992 (notes 2 and 7) 141,337 197,312 ----------- ----------- Total other assets 4,089,065 2,368,943 ----------- ----------- $16,620,978 8,979,253 =========== =========== PAGE REMEDIATION TECHNOLOGIES, INC. Consolidated Balance Sheets December 31, 1993 and 1992 (continued) Liabilities and Stockholders' Equity 1993 1992 ------------------------------------ ---- ---- Current liabilities: Accounts payable and accrued expenses $ 3,822,191 1,926,370 Accrued payroll and related costs 761,858 537,770 Bank overdraft payable 235,145 - Deferred revenue 84,077 21,282 Accrued Federal and state income taxes 186,961 132,171 Deferred income taxes - 115,594 Note payable - revolving bank line of credit (note 8) 810,000 630,000 Current installments of notes payable (note 9) 319,157 319,157 Current installments of capital lease obligation (note 10) 3,345 - Accrued bonus and profit-sharing contribution (note 16) 560,991 142,080 Billings in excess of costs and estimated earnings on uncompleted contracts (note 5) 26,115 21,520 ----------- ----------- Total current liabilities 6,809,840 3,845,944 ----------- ----------- Long-term debt: Notes payable, excluding current installments (note 9) 1,739,644 558,800 Capital lease obligation, excluding current installments (note 10) 11,470 - ----------- ----------- Total long-term debt 1,751,114 558,800 ----------- ----------- Total liabilities 8,560,954 4,404,744 ----------- ----------- Commitments (notes 15, 16 and 17) Stockholders' equity (notes 9, 11, 12 and 13): Common stock (Class B), $.01 par value, authorized 125,000 shares; issued 125,000 shares in 1993 and none in 1992 1,250 - Common stock (Class A), $.01 par value. Authorized 1,875,000 shares; issued 563,707 shares in 1993 and 552,677 shares in 1992. 5,637 5,527 Preferred stock, $.01 par value. Authorized 1,000,000 shares; none issued. - - Additional paid-in capital 3,746,235 1,665,427 Retained earnings 5,251,987 3,279,360 ----------- ----------- 9,005,109 4,950,314 Less 81,241 shares of treasury stock, at cost, in 1993 and 45,661 shares in 1992 945,085 375,805 ----------- ----------- Total stockholders' equity 8,060,024 4,574,509 ----------- ----------- $16,620,978 8,979,253 =========== =========== See accompanying notes to consolidated financial statements. PAGE REMEDIATION TECHNOLOGIES, INC. Consolidated Statements of Earnings For the Years Ended December 31, 1993 and 1992 % of % of 1993 Revenues 1992 Revenues ---- -------- ---- -------- Project revenues $32,580,118 100.0% 23,167,793 100.0% Direct project costs 18,838,786 57.8% 13,098,682 56.5% ----------- ------ ----------- ------ Gross profit 13,741,332 42.2% 10,069,111 43.5% Selling, general and administrative expenses (notes 15 and 16) 10,248,156 31.5% 8,578,907 37.1% ----------- ------ ----------- ------ Earnings from operations before income taxes 3,493,176 10.7% 1,490,204 6.4% Other income (expense): Gain on sale of property and equipment, net (note 3) 1,839 674,756 Equity in net loss of joint venture (notes 2 and 3) (124,224) (285,302) Interest, net (67,329) (170,857) ----------- ----------- Total other income (expense) (189,714) .6% 218,597 .9% ----------- ------ ----------- ------ Earnings before income taxes 3,303,462 10.1% 1,708,801 7.3% Income tax expense (note 14) 1,330,835 4.1% 661,578 2.8% ----------- ------ ----------- ------ Net earnings (note 2) $ 1,972,627 6.0% 1,047,223 4.5% =========== ===== =========== ====== Net earnings per common and common equivalent share: Primary $ 2.45 1.48 =========== =========== Fully diluted $ 2.39 1.47 =========== =========== See accompanying notes to consolidated financial statements. PAGE REMEDIATION TECHNOLOGIES, INC. Consolidated Statement of Stockholders' Equity For the Year Ended December 31, 1993
Common Stock Common Stock Preferred Class B Class A Stock ------- ------- ---- Shares Par Value Shares Par Value Shares Par Value ------ --------- ------ --------- ------ --------- Balance at December 31, 1992 - $ - 552,677 $ 5,527 - $ - Issuance of Class B common stock for cash at: $16.00 per share 125,000 1,250 - - - - Issuance of Class A common stock for cash at: $13.00 per share - - 1,000 10 - - $16.00 per share - - 675 7 - - Exercise of common stock option at $4.00 per share - - 2,500 25 - - Exercise of common stock option at $6.20 per share - - 1,000 10 - - Exercise of common stock option at $6.60 per share - - 4,000 40 - - PAGE REMEDIATION TECHNOLOGIES, INC. Consolidated Statement of Stockholders' Equity For the Year Ended December 31, 1993 (continued) Common Stock Common Stock Preferred Class B Class A Stock ------- ------- ----- Shares Par Value Shares Par Value Shares Par Value ------ --------- ------ --------- ------ --------- Exercise of common stock option at $8.50 per share - $ - 1,855 $ 18 - $ - Repurchase of 35,580 shares of common stock - - - - - - Net earnings - - - - - - ------- -------- ------- -------- ------- ------- Balance at December 31, 1993 125,000 $ 1,250 563,707 $ 5,637 - $ - ======= ======== ======= ======== ======= =======
PAGE REMEDIATION TECHNOLOGIES, INC. Consolidated Statement of Stockholders' Equity For the Year Ended December 31, 1993 (continued)
Additional Total Paid-In Retained Treasury Stockholder's Capital Earnings Equity ---------- ---------- ---------- ------------ Balance at December 31, 1992 $1,665,427 $3,279,360 $ (375,805) $4,574,509 Issuance of Class B common stock for cash at: $16.00 per share 1,998,750 - - 2,000,000 Issuance of Class A common stock for cash at: $13.00 per share 12,990 - - 13,000 $16.00 per share 10,793 - - 10,800 Exercise of common stock option at $4.00 per share 9,975 - - 10,000 Exercise of common stock option at $6.20 per share 6,190 - - 6,200 Exercise of common stock option at $6.60 per share 26,360 - - 26,400 Exercise of common stock option at $8.50 per share 15,750 - - 15,768 Repurchase of 35,580 shares of common stock - - (569,280) (569,280) Net earnings - 1,972,627 - 1,972,627 ---------- ---------- ---------- ---------- Balance at December 31, 1993 $3,746,235 $5,251,987 $ (945,085) $8,060,024 ========== ========== ========== ========== See accompanying notes to consolidated financial statements.
PAGE REMEDIATION TECHNOLOGIES, INC. Consolidated Statement of Stockholders' Equity For the Year Ended December 31, 1992 (continued)
Common Stock Common Stock Peferred Class B Class A Stock ------- ------- ----- Shares Par Value Shares Par Value Shares Par Value ------ --------- ------ --------- ------ --------- Balance at December 31, 1991 - $ - 542,796 $ 5,428 - $ - Exercise of common stock option at: $9.40 per share - - 1,100 11 - - Exercise of common stock option at: $8.50 per share - - 133 2 - - Exercise of common stock option at: $6.90 per share - - 3,000 30 - - Exercise of common stock option at: $6.20 per share - - 3,000 30 - - PAGE REMEDIATION TECHNOLOGIES, INC. Consolidated Statement of Stockholders' Equity For the Year Ended December 31, 1992 (continued) Common Stock Common Stock Peferred Class B Class A Stock ------- ------- ----- Shares Par Value Shares Par Value Shares Par Value ------ --------- ------ --------- ------ --------- Issuance of common stock for cash and other consideration at: $14.00 per share - $ - 714 $ 7 - $ - $13.00 per share - - 1,934 19 - - Repurchase of 5,478 shares of common stock - - - - - - Net earnings - - - - - - -------- -------- -------- -------- ----- -------- Balance at December 31, 1992 - $ - 552,677 $ 5,527 - $ - ======== ======== ======== ======== ====== ========
PAGE REMEDIATION TECHNOLOGIES, INC. Consolidated Statement of Stockholders' Equity For the Year Ended December 31, 1992 (continued)
Additional Total Paid-In Retained Treasury Stockholders' Capital Earnings Stock Equity ------- -------- ----- ------ Balance at December 31, 1991 $1,579,618 $2,232,137 $ (320,825) $3,496,358 Exercise of common stock option at: $9.40 per share 10,329 - - 10,340 Exercise of common stock option at: $8.50 per share 1,128 - - 1,130 Exercise of common stock option at: $6.90 per share 20,670 - - 20,700 Exercise of common stock option at: $6.20 per share 18,570 - - 18,600 PAGE REMEDIATION TECHNOLOGIES, INC. Consolidated Statement of Stockholders' Equity For the Year Ended December 31, 1992 (continued) Additional Total Paid-In Retained Treasury Stockholders' Capital Earnings Stock Equity ------- -------- ----- ------ Issuance of common stock for cash and other consideration at: $14.00 per share 9,989 - - 9,996 $13.00 per share 25,123 - - 25,142 Repurchase of 5,478 shares of common stock - - (54,980) (54,980) Net earnings - 1,047,223 - 1,047,223 ---------- ---------- ---------- ---------- Balance at December 31, 1992 $1,665,427 $3,279,360 $ (375,805) $4,574,509 ========== ========== ========== ==========
See accompanying notes to consolidated financial statements. PAGE REMEDIATION TECHNOLOGIES, INC. Consolidated Statements of Cash Flows For the Years Ended December 31, 1993 and 1992 1993 1992 ---- ---- Increase (decrease) in cash: Cash flows from operating activities: Net earnings $ 1,972,627 1,047,223 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 588,135 748,217 Share of joint venture loss 124,224 285,302 Gain on sale of property and equipment, net (1,839) (600,000) Changes in operating assets and liabilities: Accounts receivable and unbilled sales, net (4,476,745) (383,044) Costs and estimated earnings in excess of billings on uncompleted contracts 38,110 401,742 Deferred income taxes (40,138) - Prepaid expenses and other assets (93,860) 1,230 Deposits (4,677) (4,624) Accounts payable and accrued expenses 1,889,821 (583,984) Accrued payroll and related costs 224,088 145,073 Bank overdraft payable 235,145 - Deferred revenue 62,795 18,097 Accrued bonus and profit sharing contribution 418,911 122,251 Billings in excess of costs and estimated earnings on uncompleted contracts 4,595 (14,108) Accrued Federal and state income taxes 54,790 132,171 Deferred income taxes (115,594) (115,595) Prepaid Federal and state income taxes - 99,973 ----------- ----------- Net cash provided by operating activities 880,388 1,299,924 ----------- ----------- Cash flows from investing activities: Purchase of property and equipment (619,457) (842,880) Proceeds from disposal of property and equipment 19,198 49,645 Capital contributed to joint venture (1,900,023) - ----------- ----------- Net cash used by investing activities $(2,500,282) (793,235) ----------- ----------- PAGE REMEDIATION TECHNOLOGIES, INC. Consolidated Statements of Cash Flows For the Years Ended December 31, 1993 and 1992 (continued) 1993 1992 ---- ---- Cash flows from financing activities: Proceeds from notes payable $ 1,500,000 - Principal repayments of notes payable (319,156) (319,159) Repayments under capital lease obligation (2,390) - Net advances (repayments) under Bank line of credit 180,000 (130,000) Proceeds from issuance of common stock 2,082,168 85,908 Purchase of treasury stock (435,280) (54,980) ----------- ----------- Net cash provided (used) by financing activities 3,005,342 (418,231) ----------- ----------- Net increase in cash 1,385,448 88,458 Cash and cash equivalents at beginning of year 133,729 45,271 ----------- ----------- Cash and cash equivalents at end of year $ 1,519,177 133,729 =========== =========== Supplemental disclosure of cash flow information: Cash paid for interest $ 67,329 181,305 =========== =========== Cash paid for income taxes $ 1,434,678 545,029 =========== =========== Supplemental disclosure of non-cash investing and financing activities: In August, 1992 the Company contributed property and equipment with a net book value of $1,775,515 in exchange for a 50% interest in ReTec/Tetra, L.C., a joint venture. In September, 1993 the Company acquired equipment valued at $17,205 under a capital lease obligation for the same amount. During 1993, the Company exchanged cash plus equipment with a net book value of $4,388 for other like kind equipment. In April, 1993, the Company received 8,000 shares of its stock valued at $128,000 in repayment of certain notes receivable from stockholders See accompanying notes to consolidated financial statements. PAGE REMEDIATION TECHNOLOGIES, INC. Notes to Consolidated Financial Statements (1) Nature of Business and Summary of Significant Accounting Policies ----------------------------------------------------------------- (a) Nature of Business ------------------ Remediation Technologies, Inc. ("the Company") and its wholly-owned subsidiary, ReTec Thermal, Inc. (formerly known as MoTec, Inc.), are environmental engineering companies which provide engineering consulting and field services to industrial and governmental clients. The Companies specialize in the application of innovative technologies for on-site treatment and remediation at hazardous waste sites. (b) Principles of Consolidation --------------------------- The consolidated financial statements include the accounts of ReTec Thermal, Inc., the Company's wholly-owned subsidiary. All significant intercompany balances and transactions have been eliminated in consolidation. (c) Revenue Recognition ------------------- Revenue on contracts without a fixed price (time and material) is recognized as the work is performed in accordance with specific terms of each contract. Revenue on fixed fee and cost plus fixed fee contracts is recognized on a percentage of completion method as applied to the contract. The percentage of completion is determined by relating costs incurred to date to total estimated costs. Changes in estimated profit on contracts are reflected during the period in which the change in estimate is made. The entire amount of anticipated losses on contracts is charged to earnings as soon as such losses can be estimated. (d) Earnings Per Common and Common Equivalent Share ----------------------------------------------- The computations of earnings per common share and common equivalent are based on the weighted average number of shares outstanding during the period after consideration of the dilutive effect of stock options and warrants. The following average shares were used for the computation of primary and fully diluted earnings per share: 1993 1992 ---- ---- Primary 808,678 716,439 Fully diluted 827,022 716,439 PAGE REMEDIATION TECHNOLOGIES, INC. Notes to Consolidated Financial Statements (1) Nature of Business and Summary of Significant Accounting Policies ----------------------------------------------------------------- (continued) (e) Depreciation and Amortization ----------------------------- Depreciation of property and equipment is provided using accelerated methods over the estimated useful lives of the assets. Organization costs and goodwill are amortized on a straight-line basis over five and forty years, respectively. The costs of other intangible assets are also amortized on a straight-line basis over their respective estimated useful lives. (f) Income Taxes ------------ The Company utilizes an asset and liability approach in accounting for income taxes as required by Statement of Accounting Standards No. 109 (SFAS 109). SFAS 109 requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns. In estimating future tax consequences, SFAS 109 generally considers all expected future events other than enactments of changes in the tax law or rates. The provision for income taxes includes Federal and state income taxes currently payable and those deferred because of temporary differences between financial statement and tax bases of assets and liabilities. As of December 31, 1993, the only temporary difference between the financial statement carrying amounts and tax bases of company assets and liabilities relates to the use of a reserve for doubtful accounts for financial reporting purposes. Temporary differences between the financial statement carrying amounts and tax bases of assets and liabilities that gave rise to a significant portion of the deferred tax liability at December 31, 1992 resulted from the Company's use of the accrual basis of accounting for financial reporting purposes and the cash basis for income tax purposes prior to 1990. (g) Statement of Cash Flows ----------------------- For the purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with maturity of three months or less to be cash equivalents. PAGE REMEDIATION TECHNOLOGIES, INC. Notes to Consolidated Financial Statements (1) Nature of Business and Summary of Significant Accounting Policies ----------------------------------------------------------------- (continued) (h) Concentration of Credit Risk ---------------------------- Financial instruments which subject the Company to credit risk consist principally of temporary cash investments and trade receivables. The Company places its temporary cash investments ($1.5 million at December 31, 1993) with high quality financial institutions. At times such investments may be in excess of the FDIC limit. The Company's policy with respect to the credit risk of trade receivables is to evaluate, prior to contract signing, each customer's financial condition and determine the amount of open credit to be extended. The Company's three largest customers accounted for approximately 35% of sales in 1993 and 37% in 1992. The same customers accounted for approximately 29% and 30% of accounts receivable at December 31, 1993 and 1992, respectively. (2) Acquisition ----------- In February, 1989, the Company's subsidiary, formerly named ReTec Acquisitions, Inc. acquired the assets of MoTec, Inc., (now known as ReTec Thermal, Inc.) an environmental contractor, for $895,966 including related expenses. The Company accounted for the acquisition using the purchase method. Accordingly, the assets of MoTec, Inc. have been recorded at their estimated fair values at the date of acquisition. The excess of purchase price over the fair value of the tangible and intangible assets acquired ("goodwill") is being amortized on a straight-line basis over 40 years. Direct costs incurred as a result of the acquisition ("organization costs") are being amortized on a straight-line basis over 5 years. The allocation of the purchase price and related costs is summarized below: Property and equipment $368,454 Patent 272,200 Noncompetition agreement 200,000 Goodwill 38,186 Organization costs 17,126 -------- $895,966 ======== In 1992, the subsidiary's name was changed to ReTec Thermal, Inc. and all assets and liabilities held by the subsidiary prior to the change were transferred to the Company. The only asset currently held by the Company's subsidiary is a 50% ownership interest in the ReTec/Tetra, L.C. (note 3). PAGE REMEDIATION TECHNOLOGIES, INC. Notes to Consolidated Financial Statements December 31, 1993 and 1992 (continued) (2) Acquisition (continued) ----------- The consolidated statements of earnings for the years ended December 31, 1993 and 1992 include a net loss of $124,224 and $285,302, respectively from the operations of the Company's subsidiary. This net loss represents the subsidiary's share of the net loss of ReTec/Tetra, L.C. (note 3). (3) Investment in Joint Venture --------------------------- The Company's wholly-owned subsidiary, ReTec Thermal, Inc., has a 50% ownership interest in a venture known as ReTec/Tetra, L.C. ("the joint venture"), a Texas Limited Liability Company formed in August, 1992, for the purpose of engaging in on-site hazardous waste remediation services. The investment in the joint venture is accounted for using the equity method. Summarized financial information of the joint venture at December 31, 1993 and 1992 is as follows: 1993 1992 ---- ---- Assets: Current assets $1,273,451 438,694 Property and equipment 6,353,859 1,792,190 Other assets 568,988 624,970 ---------- ---------- $8,196,298 2,855,854 ========== ========== Liabilities and equity: Current liabilities $1,539,814 250,920 Equity 6,656,484 2,604,934 ---------- ---------- $8,196,298 2,855,854 ========== ========== Net sales $2,565,236 353,865 ========== ========== Net loss $ (248,449) (570,605) ========== ========== Company's equity in net loss $ (124,224) (285,302) ========== ========== PAGE REMEDIATION TECHNOLOGIES, INC. Notes to Consolidated Financial Statements December 31, 1993 and 1992 (continued) (3) Investment in Joint Venture (continued) --------------------------- The Company contributed property and equipment with a book value of $1,775,515 and technology with a fair market value of $600,000 to the joint venture in exchange for its 50% interest. During 1993 the Company contributed an additional $1,902,364 to the capital of the joint venture. The Company's equity in the joint venture was $3,866,012 and $2,090,213 at December 31, 1993 and 1992, respectively. (4) Related Party Transaction ------------------------- The Company recognized revenue of approximately $360,000 and $473,000 in 1993 and 1992, respectively, from ReTec/Tetra, L.C. for services rendered on behalf of the joint venture. (5) Costs and Estimated Earnings on Uncompleted Contracts ----------------------------------------------------- Costs and estimated earnings on uncompleted contracts pertain to fixed-price contracts accounted for using the percentage of completion method as applied to the contract. 1993 1992 ---- ---- Costs incurred on uncompleted contracts $236,727 336,829 Estimated earnings 28,973 27,149 -------- -------- 265,700 363,978 Less: Billings to date 269,479 325,052 -------- -------- $(3,779) 38,926 ======== ======== Included in accompanying balance sheets under the following captions: Costs and estimated earnings in in excess of billings on uncompleted contracts $ 22,336 60,446 Billings in excess of costs and estimated earnings on uncompleted contracts 26,115 21,520 -------- -------- $(3,779) 38,926 ======== ======== PAGE REMEDIATION TECHNOLOGIES, INC. Notes to Consolidated Financial Statements (6) Notes Receivable ---------------- At December 31, 1992, the Company had notes receivable due from stockholders amounting to $128,000. In April, 1993 the Company received from stockholders 8,000 shares of its Class A common stock as repayment of the notes. The $128,000 cost of redemption is included in treasury stock at December 31, 1993. (7) Intangible Assets ----------------- The components of other intangible assets, net of accumulated amortization, and their estimated remaining useful lives were as follows at December 31, 1993: Estimated Remaining Life ------------------- License agreement 24 months $ 2,400 Patent 48 months 138,937 --------- $ 141,337 ========= (8) Bank Line of Credit ------------------- At December 31, 1993 and 1992, the Company had a revolving Bank line of credit available in an amount determined based on a percentage of eligible accounts receivable. The maximum amount available under the line of credit is $4,000,000. Advances under the line of credit are payable on demand and bear interest at the Bank's prime rate plus 1/2%. The Company is also charged a fee of 1/2% on the unused portion of the facility. Borrowings are secured by substantially all assets of the Company. There was $810,000 and $630,000 outstanding under this line of credit at December 31, 1993 and 1992, respectively. PAGE REMEDIATION TECHNOLOGIES, INC. Notes to Consolidated Financial Statements (9) Notes Payable ------------- Notes payable at December 31, 1993 and 1992 consisted of the following: 1993 1992 ---- ---- $1,500,000 subordinated note payable dated October 28, 1993 bearing interest at 8%. Interest only is payable on a quarterly basis until November, 1996 at which time the Company is required to begin making quarterly installments of principal under the note of $93,750 plus interest through August, 2000. A redemption premium of 8% in 1994, 6% in 1995, 4% in 1996 and 2% in 1997 is payable with respect to any principal installments made in excess of the required amounts. The note was issued pursuant to a related Warrant Purchase Agreement under which the Company issued to the lender warrants to purchase 46,875 shares of Class A common stock at a purchase price of $16.00 per share (note 13). $1,500,000 - $1,000,000 term note payable to a Bank dated July 12, 1991 bearing interest at the Bank's prime rate plus 1%. Principal under the note of $71,429 plus interest is payable quarterly through June 30, 1995. The debt was incurred to finance the purchase of certain equipment which was contributed to the joint venture (note 3) in 1992. The note is secured by shares of common stock in the Company's wholly owned subsidiary, ReTec Thermal, Inc. 428,571 714,285 PAGE REMEDIATION TECHNOLOGIES, INC. Notes to Consolidated Financial Statements (9) Notes Payable (continued) ------------- 1993 1994 ---- ---- $158,355 unsecured term note payable to a former stockholder dated September 29, 1989. Proceeds from the note were used to fund the purchase of treasury shares of common stock from the former stockholder. The note will be paid in ten equal annual principal installments of $15,836 and interest installments of $8,839 beginning September 29, 1990. The weighted average interest rate over the term of the note is 9% per annum. 95,014 110,848 $18,345 unsecured term note payable to the estate of a former stockholder dated December 17, 1990. Proceeds from the note were used to fund the purchase of treasury shares of common stock from the estate. The note will be paid in five equal annual principal installments of $3,669 beginning December 17, 1991. Interest on the note accrues on the unpaid principal balance at a Bank's prime interest rate and is payable annually. 7,338 11,007 $69,695 unsecured term note payable to the estate of a former stockholder dated December 17, 1990. Proceeds from the note were used to fund the purchase of treasury shares of common stock from the estate of a former stockholder. The note will be paid in five equal annual principal installments of $13,939 beginning December 17, 1991. Interest on the note accrues on the unpaid principal balance at a Bank's prime interest rate and is also payable annually. 27,878 41,817 ---------- ---------- Total notes payable 2,058,801 877,957 Less current installments of notes payable 319,157 319,157 ---------- ---------- Notes payable, excluding current installments $1,739,644 558,800 ========== ========== PAGE REMEDIATION TECHNOLOGIES, INC. Notes to Consolidated Financial Statements (9) Notes Payable (continued) ------------- The aggregate maturities of notes payable for the next five years are as follows: 1994 $319,157 1995 176,302 1996 109,586 1997 390,836 1998 390,836 (10) Capital Lease Obligation ------------------------ 1993 1992 ---- ---- September, 1993 agreement with a leasing company. The obligation is payable in 36 monthly principal and interest installments of $550 through August, 1996. Equipment capitalized under the lease in the amount of $17,205 is included in the balance sheet as equipment at December 31, 1993. $ 14,815 - Less current installments of capital lease obligation 3,345 - ---------- ---------- Capital lease obligation, net of current installments $ 11,470 - ========== ========== Minimum payments under the lease obligation for the remainder of the lease term are as follows: 1994 $ 6,600 1995 6,600 1996 4,400 ------- 17,600 Less amount representing interest at 9.9% 2,785 ------- Present value of net minimum lease payments $14,815 ======= (11) Capital Stock ------------- In March, 1993 the Company restated its certificate of incorporation to provide for the establishment of a second class of common stock. The restated certificate of incorporation authorized the issuance of 125,000 shares of $.01 par value Class B common stock and provided that each share of previously authorized common stock be reclassified as Class A common stock. PAGE REMEDIATION TECHNOLOGIES, INC. Notes to Consolidated Financial Statements (11) Capital Stock (continued) ------------- The total number of shares of all classes of capital stock that the Corporation has authority to issue was increased from 2,000,000 at December 31, 1992 to 3,000,000 consisting of 1,875,000 shares of Class A common stock, 125,000 shares of Class B common stock and 1,000,000 shares of preferred stock. The Company's capital structure was amended as discussed above to facilitate a March, 1993 stock purchase agreement under which the Company sold all 125,000 authorized shares of its Class B common stock to Advent International (109,375 shares) and Edison Ventures (15,625 shares) for $2,000,000 ($16.00 per share). The proceeds from the sale were used for working capital and general corporate purposes, for repayment of loans and for funding of the ReTec/Tetra joint venture. The Class B common stock ranks senior to the Company's Class A common stock as to liquidation rights and is convertible to Class A common stock upon the approval of the shareholders of a majority of the outstanding shares of Class B common stock. The number of shares of Class A common stock to which a holder of Class B common stock is entitled to receive upon conversion is initially one share of Class A common stock for each share of Class B common stock converted. The ratio increases upon the dilutive issuance of Class A common stock or convertible securities. The Class B common stock shares also possess certain registration and demand rights. (12) Stock Option Plan ----------------- In 1986, the Company adopted the 1986 Stock Option Plan for which 150,000 shares of common stock were reserved for issuance to employees. In 1988, 1991, and 1993 the stock option plan was amended and, in total, an additional 225,000 shares of common stock were reserved (100,000 in 1988, 75,000 in 1991, and 50,000 in 1993) to increase the total shares of common stock that have been reserved to 375,000. Options granted under the plan may be qualified or non-qualified. The options are granted at prices determined by the Board of Directors or designee and are exercisable ratably over a two to four-year period from the date of grant. At December 31, 1993, there were outstanding incentive stock options for the purchase of PAGE REMEDIATION TECHNOLOGIES, INC. Notes to Consolidated Financial Statements (12) Stock Option Plan (continued) ----------------- 319,495 shares and non-qualified options for the purchase of 6,000 shares. At December 31, 1992, there were outstanding incentive stock options for the purchase of 306,250 shares and non-qualified options for the purchase of 8,500 shares. Stock option activity is summarized as follows: Outstanding Options ------------------------- Shares Number of Price Per Available Shares Share --------- --------- --------- Balance at December 31, 1991 20,350 304,650 Options granted (19,600) 19,600 $ 13.00 - 14.00 Options exercised 7,233 (7,233) $ 6.20 - 9.40 Options canceled 2,267 (2,267) $ 8.50 - 9.40 ------- ------- Balance at December 31, 1992 10,250 314,750 Additional options reserves 50,000 - Options granted (20,600) 20,600 $ 16.00 Options exercised 9,355 (9,355) $ 4.00 - 8.50 Options canceled 500 (500) $ 14.00 ------- ------- Balance at December 31, 1993 49,505 325,495 $ 1.00 - 16.00 ======= ======= At December 31, 1993 and 1992, 268,360 and 240,949 shares were exercisable, respectively. (13) Common Stock Warrants --------------------- At December 31, 1993 there was a warrant outstanding to purchase 46,875 shares of Class A common stock for $16.00 per share. The warrant is exercisable in full or in part until the later of August 31, 2000 or at such time as all principal and interest on the related note is paid in full. The warrant was issued in October, 1993 in conjunction with the issuance of a $1.5 million subordinated note payable (note 9). All shares issuable under the warrant possess certain demand and registration rights, separate from those rights of the Class B common stockholders. PAGE REMEDIATION TECHNOLOGIES, INC. Notes to Consolidated Financial Statements (14) Income Tax Expense ------------------ Income tax expense at December 31, 1993 and 1992 consists of the following: Current Deferred Total ------- -------- ----- 1993 1992 1993 1992 1993 1992 ---- ---- ---- ---- ---- ---- Federal $ 1,149,597 629,362 (120,206) (95,858) 1,029,391 533,504 State 336,970 147,810 (35,526) (19,736) 301,444 128,074 ----------- ------- -------- -------- --------- ------- $ 1,486,567 777,172 (155,732) (115,594) 1,330,835 661,578 =========== ======= ======== ======== ========= ======= (15) Leases ------ The Company leases its office facilities under operating leases expiring at various dates to 1999. Future minimum lease payments for the next five years under non-cancelable operating leases as of December 31, 1993 are: 1994 $ 769,652 1995 756,330 1996 624,564 1997 346,696 1998 291,396 ---------- Total $2,788,638 ========== Rental expense for the years ended December 31, 1993 and 1992 amounted to $896,153 and $758,363, respectively. (16) Employee Benefit Plan --------------------- In 1987, the Company adopted an Employee Savings and Profit Sharing Plan ("the Plan") in accordance with Section 401(k) of the Internal Revenue Code. The Plan allows employees to defer up to 15% of their income on a pretax basis through contributions to the Plan up to prescribed Internal Revenue Code limitations. In line with the provisions of the Plan, the Company will contribute 50% of each employee's contribution up to the first six percent of salary. In addition, the Company may make, at its discretion, a contribution from profits in an amount determined by the Board of Directors. The Company contributed $401,770 and $334,898 to the Plan in 1993 and 1992, respectively. (17) Loan Guarantee -------------- The Company has guaranteed repayment of up to $500,000 of amounts advanced to ReTec/Tetra, L.C. under a revolving promissory note with a Bank. There were no advances outstanding under the guaranteed note at December 31, 1993. PAGE Remediation Technologies, Inc. Consolidated Balance Sheets (Unaudited) (In thousands) September 30, 1995 December 31, 1994 ------------------ ----------------- ASSETS Current Assets: Cash and cash equivalents $ 313 $ 625 Accounts receivable and unbilled sales, net of allowance for doubtful accounts of $279 and $208 12,132 11,072 Costs and estimated earnings in excess of billings on uncompleted contracts - 62 Notes receivable 102 - Deferred income taxes 74 144 Prepaid federal income taxes - 545 Prepaid expenses and other assets 85 78 ------- ------- Total current assets 12,706 12,526 ------- ------- Property and Equipment, at Cost 4,298 3,623 Less: Accumulated depreciation and amortization 2,854 2,470 ------- ------- Net property and equipment 1,444 1,153 ------- ------- Investment in Joint Venture 5,087 5,100 ------- ------- Other Assets 227 189 ------- ------- $19,464 $18,968 ======= ======= The accompanying notes are an integral part of these consolidated financial statements. PAGE Remediation Technologies, Inc. Consolidated Balance Sheets (Unaudited) (In thousands except share amounts) (continued) September 30, 1995 December 31, 1994 ------------------ ----------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current portion of note payable and capital lease obligation $ 21 $ 21 Accounts payable and accrued expenses 2,770 4,160 Billings in excess of costs and estimated earnings on uncompleted contracts - 332 Deferred revenue 19 128 Accrued payroll and employee benefits 1,844 1,657 Accrued federal and state income taxes 27 127 ------- ------- Total current liabilities 4,681 6,425 ------- ------- Long-term Debt: Note payable 1,500 1,500 Capital lease obligations - 6 ------- ------- Total long-term debt 1,500 1,506 ------- ------- Contingency (Note 2) Stockholders' Equity: Common stock (Class B), $.01 par value, 125,000 shares authorized, issued and outstanding 1 1 Common stock (Class A), $.01 par value, 1,875,000 shares authorized; 514,047 and 598,458 shares issued in 1995 and 1994 6 6 Preferred stock, $.01 par value, 1,000,000 shares authorized; none issued - - Stock options outstanding 22 - Additional paid-in capital 3,864 3,848 Retained earnings 10,501 8,254 ------- ------- 14,394 12,109 Less: treasury stock at cost, 89,111 and 87,259 shares (1,111) (1,072) ------- ------- Total stockholders' equity 13,283 11,037 ------- ------- $19,464 $18,968 ======= ======= The accompanying notes are an integral part of these consolidated financial statements. PAGE Remediation Technologies, Inc. Consolidated Statement of Earnings (Unaudited) (In thousands except per share amounts) Nine Months Ended September 30, ----------------- 1995 1994 ------ ------ Project revenues $31,785 $26,794 Direct project costs 18,058 14,145 ------- ------- Gross profit 13,727 12,649 ------- ------- Selling, general and administrative expenses 9,913 9,016 ------- ------- Earnings from operations before income taxes 3,814 3,633 ------- ------- Other income (expense): Gain on sale of property and equipment, net 5 1 Equity in net income (loss) of joint venture (14) 761 Interest, net (62) (123) ------- ------- Total other income (expense) (71) 639 ------- ------- Earnings before income taxes 3,743 4,272 Income tax expense 1,497 1,752 ------- ------- Net earnings $ 2,246 $ 2,520 ======= ======= Net earnings per common and common equivalent share: Primary $ 2.53 $ 2.91 ======= ======= Fully diluted $ 2.53 $ 2.90 ======= ======= The accompanying notes are an integral part of these consolidated financial statements. PAGE Remediation Technologies, Inc. Consolidated Statements of Cash Flows (Unaudited) (In thousands) Nine Months Ended September 30, ----------------- 1995 1994 ------ ------ Operating Activities: Net earnings $ 2,246 $ 2,520 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 412 393 Company's share of joint venture income 13 (761) Changes in current accounts: Accounts receivable (1,330) 2,412 Other current assets 584 66 Accounts payable (593) (1,413) Bank overdraft payable - (1,239) Other current liabilities (969) (709) ------- ------- Net cash provided by operating activities 363 1,269 ------- ------- Investing Activities: Purchases of property, plant and equipment (722) (508) Proceeds from sale of property, plant and equipment 47 32 Capital contributed to joint venture - (612) -------- ------- Net cash used in investing activities (675) (1,088) -------- ------- Financing Activities: Purchase of treasury stock - (30) ------- ------- Net cash used in financing activities - (30) ------- ------- Increase (Decrease) in Cash and Cash Equivalents (312) 151 Cash and Cash Equivalents at Beginning of Period 625 1,519 ------- ------- Cash and Cash Equivalents at End of Period $ 313 $ 1,670 ======= ======= The accompanying notes are an integral part of these consolidated financial statements. PAGE Remediation Technologies, Inc. Notes to Consolidated Financial Statements - September 30, 1995 (Unaudited) 1. General The interim consolidated financial statements presented have been prepared by Remediation Technologies, Inc. (the Company) without audit and, in the opinion of management, reflect all adjustments of a normal recurring nature necessary for a fair statement of (a) the results of operations for the nine-month periods ended September 30, 1995 and 1994, (b) the financial position at September 30, 1995, and (c) the cash flows for the nine-month periods ended September 30, 1995 and 1994. Interim results are not necessarily indicative of results for a full year. The consolidated balance sheet presented as of December 31, 1994, has been derived from the consolidated financial statements that have been audited by the Company's independent public accountants. The consolidated financial statements and notes do not contain certain information included in the annual financial statements and notes of the Company. The consolidated financial statements and notes included herein should be read in conjunction with the financial statements and notes included in this Amendment No. 1 on Form 8-K/A. 2. Contingency On August 22, 1995, Scaltech, Inc. (Scaltech), a competitor of ReTec/Tetra L.C. (ReTec/Tetra), a 50% owned joint venture of a wholly owned subsidiary of the Company, filed a complaint against ReTec/Tetra in the United States District Court in the Southern District of Texas. Scaltech alleged that ReTec/Tetra offered services to certain of its clients that infringed patents owned by Scaltech. The allegations involve certain Retec/Tetra processes for producing delayed coker quench streams. ReTec/Tetra subsequently filed a counterclaim, which Scaltech answered. The parties are now engaged in discovery relating to the litigation. ReTec/Tetra is unable to predict the outcome of this matter, although an unfavorable resolution could have a material adverse effect on ReTec/Tetra's financial condition, results of operations and cash flows. PAGE 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, 1994, 1993, and 1992, and the related statements of operations, members' equity, and cash flows for the years ended December 31, 1994 and 1993, and the period from August 1, 1992 (date of inception) to December 31, 1992. 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 financial statements referred to above present fairly, in all material respects, the financial position of RETEC/TETRA L.C. at December 31, 1994, 1993, and 1992, and the results of its operations and its cash flows for the years ended December 31, 1994 and 1993, and the period from August 1, 1992 (date of inception) to December 31, 1992, in conformity with generally accepted accounting principles. As discussed in Note B to the financial statements, in 1993 the Company changed its methods of depreciation. ERNST & YOUNG LLP Houston, Texas February 28, 1995 PAGE RETEC/TETRA L.C. BALANCE SHEETS December 31, 1994 1993 1992 ----------- ----------- ----------- ASSETS Current Assets: Cash and cash equivalents $ 205,127 $ 182,339 $ 83,726 Trade accounts receivable 1,547,846 972,725 208,638 Accounts receivable from related parties 359 5,088 126,665 Prepaid expenses and other current assets 310,109 113,299 19,665 ----------- ----------- ----------- Total Current Assets 2,063,441 1,273,451 438,694 Property, Plant and Equipment Treatment plant equipment 2,926,399 3,591,467 1,653,542 Machinery and equipment 6,905,683 1,425,642 - Automobiles and other equipment 348,709 415,617 16,052 Construction in progress 468,704 1,725,599 360,328 ----------- ----------- ----------- 10,649,495 7,158,325 2,029,922 Less accumulated depreciation (2,225,168) (804,466) (237,732) ------------ ------------ ----------- Net Property, Plant and Equipment 8,424,327 6,353,859 1,792,190 Other Assets: Technology, patents and licenses, net of accumulated amortization of $169,178 in 1994, $98,150 in 1993, and $27,630 in 1992 500,705 568,988 624,970 ----------- ----------- ----------- Total Assets $10,988,473 $ 8,196,298 $ 2,855,854 ============ =========== =========== LIABILITIES AND MEMBERS' EQUITY Current Liabilities: Trade accounts payable $ 1,224,287 $ 539,846 $ 8,960 Accounts payable to related parties 108,479 563,821 178,139 Accrued expenses 530,857 436,147 63,822 ----------- ----------- ----------- Total Current Liabilities 1,863,623 1,539,814 250,921 Members' Equity Invested capital 8,675,539 7,475,539 3,175,539 Retained earnings (deficit) 449,311 (819,055) (570,606) ----------- ------------ ----------- Total Members' Equity 9,124,850 6,656,484 2,604,933 ----------- ----------- ----------- Total Liabilities and Members' Equity $10,988,473 $ 8,196,298 $ 2,855,854 =========== =========== =========== See Accompanying NotesPAGE RETEC/TETRA L.C. STATEMENTS OF OPERATIONS Period From August 1, 1992 (date of incep- Year Ended Year Ended tion) to December 31, December 31, December 31, 1994 1993 1992 ------------ ------------ ------------ Revenues $11,267,503 $ 2,565,236 $ 353,865 Cost of Revenues 8,753,558 1,855,834 495,949 ----------- ----------- ---------- Gross Profit 2,513,945 709,402 (142,084) General and administrative expenses 1,371,927 1,053,865 428,522 ----------- ----------- ---------- Operating gain (loss) 1,142,018 (344,463) (570,606) Gain on sale of fixed assets 126,348 96,014 - ----------- ----------- ---------- Net income (loss) $ 1,268,366 $ (248,449) $ (570,606) =========== =========== ========== See Accompanying Notes PAGE RETEC/TETRA L.C. STATEMENTS OF MEMBERS' EQUITY TETRA Remediation Technologies, Inc. Technologies, 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 gain 634,183 634,183 1,268,366 ---------- ---------- ---------- Balance at December 31, 1994 $4,024,655 $5,100,195 $9,124,850 ========== ========== ========== See Accompanying Notes PAGE RETEC/TETRA L.C. STATEMENTS OF CASH FLOWS Period From August 1, 1992 (date of incep- Year Ended Year Ended tion) to December 31, December 31, December 31, 1994 1993 1992 ------------ ------------ ------------ Operating Activities: Net income (loss) $ 1,268,366 $ (248,449) $ (570,606) Adjustments to reconcile net income (loss) to cash provided by operating activities: Depreciation and amortization 1,511,421 644,287 265,362 Gain of the sale of fixed assets (126,348) (96,014) - Changes in operating assets and liabilities: Accounts receivable (570,392) (642,510) (335,303) Prepaid expenses and other current assets (196,810) (7,070) (19,665) Trade accounts payable and accrued expenses 323,810 1,288,893 250,921 ----------- ----------- ----------- Net cash provided by operating activities 2,210,047 939,137 (409,291) Investing Activities: Acquisition of TRW Environmental Services property 0 (1,000,000) - Purchase of property, plant and equipment (3,557,572) (4,242,323) (254,383) Purchase of patents, royalties and technologies (2,745) (14,537) (52,600) Proceeds from sale of assets . 173,058 116,336 - ----------- ----------- ----------- Net cash used in investing activities (3,387,259) (5,140,524) (306,983) Financing Activities: Capital investment - TETRA 600,000 2,400,000 800,000 Capital investment - RETEC 600,000 1,900,000 - ----------- ----------- ----------- Net cash provided by financing activities 1,200,000 4,300,000 800,000 Increase in cash and cash equivalents 22,788 98,613 83,726 Cash and Cash Equivalents at Beginning of Period 182,339 83,726 - ----------- ----------- ----------- Cash and Cash Equivalents at End of Period $ 205,127 $ 182,339 $ 83,726 =========== =========== =========== See Accompanying NotesPAGE RETEC/TETRA L.C. Notes To Financial Statements December 31, 1994, 1993 and 1992 NOTE A - ORGANIZATION AND OPERATIONS RETEC/TETRA L.C. ("The Company") was formed August 1, 1992 as a 50%/50% joint venture with RETEC/Thermal (RETEC), a wholly-owned subsidiary of Remediation Technologies, Inc. and TETRA/Thermal, (TETRA) a wholly-owned subsidiary of Tetra Technologies, Inc. The joint venture was established to market RETEC's proprietary thermal desorption process and TETRA's process operations expertise to the nation's petroleum refineries. 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. The two largest contracts accounted for 54% and 20% of revenues in 1994 and 46% and 20% of revenues in 1993. Property, Plant and Equipment Property, plant, and equipment are stated at the value per the formation agreement of the assets contributed by RETEC upon formation of the venture and at cost for assets purchased. 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: Treatment plant equipment ....... 2 to 7 years Machinery and Equipment ........ 2 to 5 years Automobiles and other equipment . 2 to 4 years Technology, Patents and Licenses Technology, patents and licenses, which relate to proprietary waste treatment processes contributed by RETEC, are stated at the value per 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. 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. PAGE RETEC/TETRA L.C. Notes To Financial Statements December 31, 1994, 1993 and 1992 NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 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. Aggregate rental expense under these agreements was $585,176 and $229,222 in 1994 and 1993, respectively. Minimum future annual lease payments under non-cancelable operating leases are as follows for the years ending December 31: 1995 -$108,538; 1996 - $105,248; 1997 - $32,159; 1998 - $13,606; 1999 - $6,803; Grand total is $266,354. NOTE C - RELATED PARTY TRANSACTIONS The Company was billed approximately $1,108,360 in 1994, and $1,291,000 in 1993 by the owners, primarily Tetra, for administrative services and materials rendered on behalf of the Company. NOTE D - 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. Additionally, TETRA contributed $500,000 of working capital in 1993. TETRA is obligated under the formation agreement to provide additional working capital required by the Company in the amount of $1,075,540. NOTE E - ACQUISITIONS In September 1993, the Company acquired the assets of the Environmental Services Division of TRW for $1 million, with each partner contributing $500,000. The TRW Division prepared refinery K-waste for disposal. NOTE F - DEBT The Company has credit agreements that consist of a $500,000 revolving credit agreement and a $2,040,000 advancing promissory note which will convert to a term note. The revolving note is committed through December 15, 1995 with a commitment fee of 3/8% on the unused portion of the loan. The advancing promissory note is due on or before February 15, 2000. Both agreements bear interest at the prime rate . There were no borrowings under these agreements at December 31, 1994. Subsequent to December 31, 1994, the Company drew $800,000 under the advancing promissory note to fund new capital expenditures. PAGE ReTec/Tetra L.C. Consolidated Balance Sheets (Unaudited) (In thousands) September 30, December 31, 1995 1994 ------------- ------------ ASSETS Current Assets: Cash and cash equivalents $ 122 $ 205 Accounts receivable 1,458 1,548 Prepaid expenses and other current assets 613 310 ------- ------- Total Current Assets 2,193 2,063 ------- ------- Property, Plant and Equipment, at Cost 15,075 10,649 Less: Accumulated depreciation and amortization (4,411) (2,225) ------- ------- Net Property, Plant and Equipment 10,664 8,424 ------- ------- Other Assets 521 501 ------- ------- Total Assets $13,378 $10,988 ======= ======= LIABILITIES AND MEMBERS' EQUITY Current Liabilities: Accounts payable $ 641 $ 1,333 Other accrued expenses 441 530 ------- ------- Total Current Liabilities 1,082 1,863 ------- ------- Notes Payable 3,198 - ------- ------- Contingency (Note 2) Members' Equity: Invested capital 8,676 8,676 Retained earnings 422 449 ------- ------- Total Members' Equity 9,098 9,125 ------- ------- Total Liabilities and Members' Equity $13,378 $10,988 ======= ======= The accompanying notes are an integral part of these financial statements. PAGE ReTec/Tetra L.C. Statements of Operations (Unaudited) (In thousands) Nine Months Ended September 30, ----------------- 1995 1994 ------- ------ Revenues $7,222 $8,733 Cost of Revenues 5,403 5,546 ------ ------ Gross Profit 1,819 3,187 General and Administrative Expenses 1,698 1,580 ------ ------ Operating Gain 121 1,607 Interest Expense and Other Income, Net (146) (87) ------ ------ Net Income (Loss) $ (25) $1,520 ====== ====== The accompanying notes are an integral part of these financial statements. PAGE ReTec/Tetra L.C. Statements of Cash Flows (Unaudited) (In thousands) Nine Months Ended September 30, ------------------- 1995 1994 ------- ------ Operating Activities: Net income (loss) $ (25) $ 1,520 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 1,680 1,009 Gain on sale of investments 23 (128) Changes in current accounts: Accounts receivable 90 (1,052) Other current assets (351) (170) Current liabilities (783) (22) ------- ------- Net cash provided by operating activities 634 1,157 ------- ------- Investing Activities: Purchases of property, plant and equipment (3,950) (2,546) Proceeds from sale of property, plant and equipment 61 174 Purchase of patent (26) (3) ------- ------- Net cash used in investing activities (3,915) (2,375) ------- ------- Financing Activities: Capital investment - TETRA - 600 Capital investment - RETEC - 600 Issuance of note payable 3,198 - ------- ------- Net cash provided by financing activities 3,198 1,200 ------- ------- Decrease in Cash and Cash Equivalents (83) (18) Cash and Cash Equivalents at Beginning of Period 205 182 ------- ------- Cash and Cash Equivalents at End of Period $ 122 $ 164 ======= ======= The accompanying notes are an integral part of these financial statements. PAGE ReTec/Tetra L.C. Notes to Financial Statements - September 30, 1995 (Unaudited) 1. General The interim financial statements presented have been prepared by ReTec/Tetra L.C. (the Company) without audit and, in the opinion of management, reflect all adjustments of a normal recurring nature necessary for a fair statement of (a) the results of operations for the nine-month periods ended September 30, 1995 and 1994, (b) the financial position at September 30, 1995, and (c) the cash flows for the nine-month periods ended September 30, 1995 and 1994. Interim results are not necessarily indicative of results for a full year. The balance sheet presented as of December 31, 1994, has been derived from the financial statements that have been audited by the Company's independent public accountants. The financial statements and notes do not contain certain information included in the annual financial statements and notes of the Company. The financial statements and notes included herein should be read in conjunction with the financial statements and notes included in this Amendment No. 1 on Form 8-K/A. 2. Contingency On August 22, 1995, Scaltech, Inc. ("Scaltech"), a competitor of the Company, filed a complaint against the Company in the United States District Court in the Southern District of Texas. Scaltech alleged that the Company offered services to certain of its clients that infringed patents owned by Scaltech. The allegations involve certain of the Company's processes for producing delayed coker quench streams. The Company subsequently filed a counterclaim, which Scaltech answered. The parties are now engaged in discovery relating to the litigation. The Company is unable to predict the outcome of this matter, although an unfavorable resolution could have a material adverse effect on the Company's financial condition, results of the operations and cash flows. PAGE FORM 8-K/A Item 7. Financial Statements, Pro Forma Combined Condensed Financial ------------------------------------------------------------ Information and Exhibits ------------------------ (b) Pro Forma Combined Condensed Financial Information The following unaudited pro forma combined condensed financial statements set forth the results of operations for the year ended April 1, 1995 and the six months ended October 1, 1994 and September 30, 1995, as if the acquisition of Remediation Technologies, Inc. (ReTec) by Thermo Remediation had occurred at the beginning of 1994 and the financial position as of September 30, 1995, as if the acquisition had occurred as of that date. ReTec has a financial year which differs from the Company's fiscal year end, therefore, the pro forma combined statement of income for the year ended April 1, 1995 includes the historical results of operations for ReTec for the calendar year ended December 31, 1994. The pro forma combined statements of income for the six months ended October 1, 1994 and September 30, 1995 include the historical results of operations for ReTec, derived by subtracting the first quarter of calendar 1994 and 1995 from its results of operations for the nine months ended October 1, 1994 and September 30, 1995, respectively. The pro forma combined balance sheet includes the historical financial position for ReTec as of September 30, 1995. The acquisition will be accounted for using the purchase method of accounting. The pro forma results of operations are not necessarily indicative of future operations or the actual results that would have occurred had the acquisition of ReTec been consummated at the beginning of fiscal 1994. The financial statements filed under part (a) of this item should be read in conjunction with these pro forma combined condensed financial statements. 4PAGE FORM 8-K/A THERMO TERRATECH INC. and REMEDIATION TECHNOLOGIES, INC. PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME (Unaudited) Year Ended April 1, 1995 Historical Pro Forma ------------------- --------------------- Thermo TerraTech ReTec Adjustments Combined --------- ------- ----------- -------- (In thousands except per share amounts) Revenues $133,803 $ 39,018 $ - $172,821 -------- -------- -------- -------- Costs and Operating Expenses: Cost of revenues 98,552 22,251 - 120,803 Selling, general and administrative expenses 26,257 12,281 1,009 39,547 Product and new business development expenses 883 - - 883 -------- -------- -------- -------- 125,692 34,532 1,009 161,233 -------- -------- -------- -------- Operating Income 8,111 4,486 (1,009) 11,588 Interest and Other Income (Expense), Net 467 (109) (936) (578) Gain on Issuance of Stock by Subsidiaries 1,343 - 1,399 2,742 Gain on Sale of Investments 1,092 - - 1,092 Equity in Net Income of Joint Venture - 634 - 634 -------- -------- -------- -------- Income Before Provision for Income Taxes and Minority Interest 11,013 5,011 (546) 15,478 Provision for Income Taxes 2,630 2,009 (570) 4,069 Minority Interest Expense 4,268 - 555 4,823 -------- -------- -------- -------- Net Income $ 4,115 $ 3,002 $ (531) $ 6,586 ======== ======== ======== ======== Earnings per Share $ .24 $ .38 ======== ======== Weighted Average Shares 17,143 17,143 ======== ======== 5PAGE FORM 8-K/A THERMO TERRATECH INC. and REMEDIATION TECHNOLOGIES, INC. PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME (Unaudited) Six Months Ended October 1, 1994 Historical Pro Forma ------------------ --------------------- Thermo TerraTech ReTec Adjustments Combined --------- ------- ----------- -------- (In thousands except per share amounts) Revenues $59,879 $18,970 $ - $78,849 ------- ------- ------- ------- Costs and Operating Expenses: Cost of revenues 44,476 10,113 - 54,589 Selling, general and administrative expenses 11,497 6,074 498 18,069 Product and new business development expenses 356 - - 356 ------- ------- ------- ------- 56,329 16,187 498 73,014 ------- ------- ------- ------- Operating Income 3,550 2,783 (498) 5,835 Interest and Other Income (Expense), Net 465 (79) (400) (14) Gain on Issuance of Stock by Subsidiaries 897 - 1,399 2,296 Gain on Sale of Investments 611 - - 611 Equity in Net Income of Joint Venture - 325 - 325 ------- ------- ------- ------- Income Before Provision for Income Taxes and Minority Interest 5,523 3,029 501 9,053 Provision for Income Taxes 1,076 1,242 (255) 2,063 Minority Interest Expense 2,538 - 397 2,935 ------- ------- ------- ------- Net Income $ 1,909 $ 1,787 $ 359 $ 4,055 ======= ======= ======= ======= Earnings per Share $ .11 $ .24 ======= ======= Weighted Average Shares 17,071 17,071 ======= ======= 6PAGE FORM 8-K/A THERMO TERRATECH INC. and REMEDIATION TECHNOLOGIES, INC. PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME (Unaudited) Six Months Ended September 30, 1995 Historical Pro Forma ------------------ --------------------- Thermo TerraTech ReTec Adjustments Combined --------- ------- ----------- -------- (In thousands except per share amounts) Revenues $103,638 $ 23,171 $ - $126,809 -------- -------- -------- -------- Costs and Operating Expenses: Cost of revenues 71,694 13,633 - 85,327 Selling, general and administrative expenses 23,233 6,796 539 30,568 Product and new business development expenses 558 - - 558 Write-off of cost in excess of net assets of acquired company 4,995 - - 4,995 -------- -------- -------- -------- 100,480 20,429 539 121,448 -------- -------- -------- -------- Operating Income 3,158 2,742 (539) 5,361 Interest and Other Expense, Net (2,466) (35) (569) (3,070) Gain on Issuance of Stock by Subsidiaries 2,742 - - 2,742 Gain on Sale of Investments 80 - - 80 Loss on Sale of Assets (569) - - (569) Equity in Net Income of Joint Venture - 19 - 19 --------- -------- -------- -------- Income Before Provision for Income Taxes and Minority Interest 2,945 2,726 (1,108) 4,563 Provision for Income Taxes 2,344 1,090 (339) 3,095 Minority Interest Expense 811 - 280 1,091 -------- -------- -------- -------- Net Income (Loss) $ (210) $ 1,636 $ (1,049) $ 377 ======== ======== ======== ======== Earnings (Loss) per Share $ (.01) $ .02 ======== ======== Weighted Average Shares 17,362 17,362 ======== ======== 7PAGE FORM 8-K/A THERMO TERRATECH INC. and REMEDIATION TECHNOLOGIES, INC. PRO FORMA COMBINED CONDENSED BALANCE SHEET (Unaudited) September 30, 1995 Historical Pro Forma ------------------- ---------------------- Thermo TerraTech ReTec Adjustments Combined --------- ------- ----------- -------- (In thousands) ASSETS Current Assets: Cash and cash equivalents $ 39,544 $ 313 $(19,992) $ 19,865 Short-term available-for-sale investments 25,469 - - 25,469 Accounts receivable, net 36,224 12,132 - 48,356 Unbilled contract costs and fees 16,396 - - 16,396 Inventories 4,254 - - 4,254 Prepaid income taxes 9,012 74 2,974 12,060 Prepaid expenses and other assets 4,637 187 - 4,824 -------- -------- -------- -------- 135,536 12,706 (17,018) 131,224 -------- -------- -------- -------- Property, Plant and Equipment, Net 76,666 1,444 - 78,110 -------- -------- -------- -------- Long-term Available-for-sale Investments 2,108 - - 2,108 -------- -------- -------- -------- Long-term Held-to-maturity Investments 23,395 - - 23,395 -------- -------- -------- -------- Investment in Joint Venture - 5,087 (5,087) - -------- -------- -------- -------- Other Assets 12,435 227 - 12,662 -------- -------- -------- -------- Cost in Excess of Net Assets of Acquired Companies 68,183 - 20,851 89,034 -------- -------- -------- -------- $318,323 $ 19,464 $ (1,254) $336,533 ======== ======== ======== ======== 8PAGE FORM 8-K/A THERMO TERRATECH INC. and REMEDIATION TECHNOLOGIES, INC. PRO FORMA COMBINED CONDENSED BALANCE SHEET (Continued)(Unaudited) September 30, 1995 Historical Pro Forma ------------------- --------------------- Thermo TerraTech ReTec Adjustments Combined --------- ------- ----------- -------- (In thousands except per share amounts) LIABILITIES AND SHAREHOLDERS' INVESTMENT Current Liabilities: Accounts payable $ 10,222 $ 2,555 $ - $ 12,777 Notes payable and current maturities of long-term obligations 2,925 - - 2,925 Billings in excess of revenues earned 3,084 - - 3,084 Accrued payroll and employee benefits 8,671 1,844 - 10,515 Accrued and current deferred income taxes 1,475 - - 1,475 Other accrued expenses 8,273 282 2,319 10,874 Due to parent company 4,605 - - 4,605 -------- -------- -------- -------- 39,255 4,681 2,319 46,255 -------- -------- -------- -------- Deferred Income Taxes 4,157 - - 4,157 -------- -------- -------- -------- Other Deferred Items 1,103 - - 1,103 -------- -------- -------- -------- Long-term Obligations, Including $88,000 Due to Parent Company 169,999 1,500 (1,500) 169,999 -------- -------- -------- -------- Minority Interest 26,700 - 4,605 31,305 -------- -------- -------- -------- Shareholders' Investment: Common stock 1,746 7 (7) 1,746 Capital in excess of par value 53,600 3,864 1,342 58,806 Stock options outstanding - 22 (22) - Treasury stock (799) (1,111) 1,111 (799) Retained earnings 21,517 10,501 (9,102) 22,916 Net unrealized loss on available- for-sale investment (23) - - (23) Cumulative translation adjustment 1,068 - - 1,068 -------- -------- -------- -------- 77,109 13,283 (6,678) 83,714 -------- -------- -------- -------- $318,323 $ 19,464 $ (1,254) $336,533 ======== ======== ======== ======== 9PAGE FORM 8-K/A THERMO TERRATECH INC. and REMEDIATION TECHNOLOGIES, INC. NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS (Unaudited) Note 1 - Pro Forma Adjustments to Pro Forma Combined Condensed Statement of Income (In thousands, except in text) Year Ended Six Months Ended ---------- ------------------------------- April 1, October 1, September 30, 1995 1994 1995 ---------- ---------------- ------------- Debit (Credit) SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Service fee of 1.25% of the revenues of ReTec through December 31, 1994 and 1.2% through September 30, 1995, for services provided under a services agreement between Thermo Remediation and Thermo Electron $ 488 $ 237 $ 278 Amortization over 40 years of cost in excess of net assets of acquired companies created by the acquisition of ReTec 521 261 261 -------- -------- -------- 1,009 498 539 -------- -------- -------- INTEREST AND OTHER INCOME (EXPENSE), NET Interest Income Decrease attributable to the lower cash position as a result of the net cash payment of $18,462,000 to acquire ReTec and $1,500,000 to repay ReTec's long-term obligation, calculated using an average interest rate of 5.29% in fiscal 1995, 4.61% for the six months ended October 1, 1994, and 6.30% for the six months ended September 30, 1995 1,056 460 629 Interest Expense Decrease due to the repayment at time of acquisition of Retec's $1,500,000 long-term obligation, bearing interest at 8% (120) (60) (60) -------- -------- ------- 936 400 569 -------- -------- ------- 10PAGE FORM 8-K/A THERMO TERRATECH INC. and REMEDIATION TECHNOLOGIES, INC. NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS (Unaudited) Note 1 - Pro Forma Adjustments to Pro Forma Combined Condensed Statement of Income (In thousands, except in text)(continued) Year Ended Six Months Ended ---------- ----------------------------- April 1, October 1, September 30, 1995 1994 1995 ----------- -------------- ------------- Debit (Credit) GAIN ON ISSUANCE OF STOCK BY SUBSIDIARIES Gain on issuance of 227,250 shares of Thermo Remediation common stock for the acquisition of ReTec $ (1,399) $ (1,399) $ - -------- -------- --------- INCOME TAX PROVISION Income tax benefit associated with the adjustments above (excluding amortization of cost in excess of net assets of acquired companies and gain on issuance of stock by subsidiaries), calculated at the Company's statutory income tax rate of 40% (570) (255) (339) -------- -------- --------- MINORITY INTEREST EXPENSE Reflects Thermo Remediation's minority shareholders' interest in ReTec's net income and the pro forma adjustments to the pro forma combined condensed statement of income 555 397 280 -------- -------- --------- 11PAGE FORM 8-K/A THERMO TERRATECH INC. and REMEDIATION TECHNOLOGIES, INC. NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS (Unaudited) Note 2 - Pro Forma Adjustments to Pro Forma Combined Condensed Balance Sheet (In thousands) September 30, 1995 Debit (Credit) ------------------ CASH AND CASH EQUIVALENTS Cash payment to acquire ReTec $(18,520) Interest earned on acquisition cash held in escrow 58 Cash payment to repay ReTec's long-term obligation and related interest payable at time of acquisition (1,530) -------- (19,992) -------- PREPAID INCOME TAXES Record tax effect of pro forma adjustments 2,974 -------- INVESTMENT IN JOINT VENTURE Write off investment in ReTec/Tetra L.C. joint venture, subject to adjustment upon final determination as to disposition of investment (5,087) -------- COST IN EXCESS OF NET ASSETS OF ACQUIRED COMPANIES Excess of cost over the fair value of the net assets acquired of ReTec 20,851 -------- OTHER ACCRUED EXPENSES Estimated acquisition reserves (1,322) Legal, accounting and other professional fees associated with acquisition (997) -------- (2,319) -------- LONG-TERM OBLIGATIONS Repayment of ReTec's long-term obligation at time of acquisition 1,500 -------- MINORITY INTEREST Effect of common stock and stock options issued by Thermo Remediation (4,605) -------- SHAREHOLDERS' INVESTMENT Elimination of ReTec's equity accounts 13,283 Effect of common stock and stock options issued by Thermo Remediation (6,605) -------- 6,678 -------- 12PAGE FORM 8-K/A SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized, on this 19th day of January, 1996. THERMO TERRATECH INC. By: Paul F. Kelleher ------------------------ Paul F. Kelleher Chief Accounting Officer 13 EX-23.1 2 Exhibit 23.1 The Board of Directors Remediation Technologies, Inc.: We consent to the inclusion herein of our report dated March 1, 1995, with respect to the consolidated balance sheet of Remediation Technologies, Inc. and subsidiary as of December 31, 1994, and the related consolidated statements of earnings, stockholders' equity, and cash flows for the year then ended. KPMG Peat Marwick LLP Boston, Massachusetts January 17, 1996 EX-23.2 3 Exhibit 23.2 The Board of Directors Thermo TerraTech Inc.: We consent to the inclusion herein of our report dated April 29, 1994, with respect to the consolidated balance sheets of Remediation Technologies, Inc. and subsidiary as of December 31, 1993 and 1992, and the related consolidated statements of earnings, stockholders' equity and cash flows for the years then ended. Nardella & Taylor Lexington, Massachusetts January 12, 1996 EX-23.3 4 Exhibit 23.3 CONSENT OF INDEPENDENT AUDITORS We consent to the use of our report dated February 28, 1995, with respect to the financial statements of RETEC/TETRA L.C. as of December 31, 1994, 1993 and 1992 and for the years ended December 31, 1994 and 1993, and the period from August 1, 1992 to December 31, 1992 included in this Current Report (Form 8-K/A) of Thermo TerraTech Inc. dated December 8, 1995. We also consent to the incorporation by reference in the following Registration Statements of Thermo TerraTech Inc. and in each related Prospectus of our report dated February 28, 1995, with respect to the financial statements of RETEC/TETRA L.C. as of December 31, 1994, 1993 and 1992 and for the years ended December 31, 1994 and 1993, and the period from August 1, 1992 to December 31, 1992 included in this Current Report (Form 8-K/A) dated December 8, 1995. Registration Statement No. 33-16462 on Form S-8 Registration Statement No. 33-16464 on Form S-8 Registration Statement No. 33-16465 on Form S-8 Registration Statement No. 33-31478 on Form S-3 Registration Statement No. 33-40185 on Form S-3 Registration Statement No. 33-52824 on Form S-8 Registration Statement No. 033-65283 on Form S-8 Registration Statement No. 033-65281 on Form S-8 Registration Statement No. 33-87648 on Form S-2 Registration Statement No. 33-86194 on Form S-8 Ernest & Young LLP Houston, Texas January 17, 1996 -----END PRIVACY-ENHANCED MESSAGE-----