-----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, OMZ3OuNjoODwdeLGHLS+nr8TshxP5h6B3FRe8pzVyNGnR7WnxZMdLAvOnPqnbJM+ wOUsgf5tAfXlOyAX0B4uvQ== 0000796038-97-000005.txt : 19970610 0000796038-97-000005.hdr.sgml : 19970610 ACCESSION NUMBER: 0000796038-97-000005 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19970329 FILED AS OF DATE: 19970609 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: THERMO TERRATECH 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: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-09549 FILM NUMBER: 97620600 BUSINESS ADDRESS: STREET 1: 81 WYMAN ST STREET 2: P O BOX 9046 CITY: WALTHAM STATE: MA ZIP: 02154-9046 BUSINESS PHONE: 6176221000 MAIL ADDRESS: STREET 1: 81 WYMAN STREET STREET 2: P O BOX 9046 CITY: WALTHAM STATE: MA ZIP: 02154-9046 FORMER COMPANY: FORMER CONFORMED NAME: THERMO PROCESS SYSTEMS INC DATE OF NAME CHANGE: 19920703 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ------------------------------------------- FORM 10-K (mark one) [ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended March 29, 1997 [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission file number 1-9549 THERMO TERRATECH INC. (Exact name of Registrant as specified in its charter) Delaware 04-2925807 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 81 Wyman Street, P.O. Box 9046 Waltham, Massachusetts 02254-9046 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (617) 622-1000 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered ---------------------------- ----------------------- Common Stock, $.10 par value American Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to the filing requirements for at least the past 90 days. Yes [ X ] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference into Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by nonaffiliates of the Registrant as of May 23, 1997, was approximately $29,800,000. As of May 23, 1997, the Registrant had 17,568,428 shares of Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's Fiscal 1997 Annual Report to Shareholders for the year ended March 29, 1997, are incorporated by reference into Parts I and II. Portions of the Registrant's definitive Proxy Statement for the Annual Meeting of Shareholders to be held on September 24, 1997, are incorporated by reference into Part III. PAGE PART I Item 1. Business (a) General Development of Business Thermo TerraTech Inc. (the Company or the Registrant) provides environmental services and infrastructure planning and design services encompassing a broad range of specializations, including remediation of soil and fluids, consulting and design, laboratory-testing, and metal- treating. The Company's majority-owned, publicly held Thermo Remediation Inc. (Thermo Remediation) subsidiary is a national provider of environmental services, including industrial, nuclear, and soil remediation, as well as waste-fluids recycling. A recent severe downturn in the Company's soil-recycling business and relaxed compliance requirements and enforcement activities, which resulted in overcapacity in the industry and competitive pricing pressures, have led to operating losses at certain sites beginning in fiscal 1997. As a result, during fiscal 1997, the Company wrote-down $7.8 million of certain assets associated with its soil-remediation business. The Company expects that closure of two sites with small operating losses and a write-down of certain assets at two other sites, at which current volumes of soil being processed were insufficient to recover the Company's investment, will improve operating results beginning in fiscal 1998. Revenues and operating losses, exclusive of the write-down, at the two sites being closed, aggregated $2.9 million and $0.6 million, respectively, in fiscal 1997. In September 1996, Thermo Remediation acquired IEM Sealand Corporation (IEM Sealand), a provider of construction services for the remediation of hazardous wastes. As of March 29, 1997, the Company owned 69% of Thermo Remediation's common stock and holds a $2.7 million principal amount 3 7/8% subordinated convertible note due 2000 issued by Thermo Remediation, convertible into shares of Thermo Remediation common stock at a conversion price of $9.83 per share. The Company's majority-owned Thermo EuroTech N.V. (Thermo EuroTech) subsidiary, located in the Netherlands, specializes in processing "off-spec" mixtures of oil. In fiscal 1997, Thermo EuroTech sold its J. Amerika division, which resulted in a loss of $1.5 million. J. Amerika's revenues and operating loss were $4.0 million and $0.6 million, respectively, in fiscal 1997. As of March 29, 1997, the Company owned 53% of the outstanding common stock of Thermo EuroTech. Through its Killam Associates subsidiary, the Company offers engineering, consulting, and design services in the areas of municipal and industrial water quality management; bridge and highway construction and reconstruction; and natural resource management. In November 1996, the Company acquired Carlan Consulting Group, Inc. (Carlan), a provider of transportation and environmental consulting and professional engineering and architectural services. In May 1997, the Company purchased a controlling interest in The Randers Group Incorporated (Randers), a provider of design engineering, project management, and construction services for industrial clients in the manufacturing, pharmaceutical, and chemical-processing industries. The Company purchased 2PAGE 7,100,000 shares of Randers common stock from certain members of Randers' management, and 420,000 shares from Thermo Power Corporation, an affiliate of the Company, at a price of $0.625 per share, for an aggregate cost of approximately $4.7 million. Following these transactions, the Company owned approximately 53.3% of Randers' outstanding common stock. In addition, Thermo Electron Corporation (Thermo Electron), which owns a majority of the Company's outstanding common stock, owned approximately 8.9% of Randers' outstanding common stock. The Company's Thermo Analytical Inc. subsidiary operates analytical laboratories that provide comprehensive laboratory-based environmental testing, analysis, and related services to detect and measure organic contaminants in samples of soil, water, air, industrial wastes, mixed wastes, and biological materials. The Company's Lancaster Laboratories Inc. subsidiary, based in Lancaster, Pennsylvania, is a provider of high-quality analytical and consulting services to the environmental, pharmaceutical, and food industries. The Company performs metallurgical processing services using thermal-treatment equipment at locations in California, Minnesota, and Wisconsin. The Company also designs, manufactures, and installs computer-controlled, custom-engineered, thermal-processing systems used to treat primary metal and metal parts. In October 1996, the Company acquired Metal Treating, Inc. (Metal Treating) from Thermo Electron in exchange for $1.6 million in cash. Metal Treating provides heat-treating services, including carburizing, vacuum hardening, silver and copper brazing, and aluminum heat treating, primarily in the Milwaukee and southeastern Wisconsin areas. Because the Company and Metal Treating were deemed for accounting purposes to be under control of their common majority owner, Thermo Electron, the transaction has been accounted for at historical cost in a manner similar to a pooling-of-interests. Accordingly, all historical information presented has been restated to include the results of Metal Treating. In May 1996, the Company issued and sold $115.0 million principal amount of 4 5/8% subordinated convertible debentures due 2003 for net proceeds of $112.4 million. The debentures are convertible into shares of the Company's common stock at a price of $15.90 per share and are guaranteed on a subordinated basis by Thermo Electron. The Company repaid its $15.0 million and $35.0 million promissory notes to Thermo Electron with proceeds from the debenture offering. The Company was incorporated on May 30, 1986, as an indirect, wholly owned subsidiary of Thermo Electron. Prior to its incorporation, the Company's operations were conducted by two wholly owned subsidiaries of Thermo Electron. As of March 29, 1997, Thermo Electron owned 14,705,658 shares of the common stock of the Company, representing 82% of such stock outstanding. Thermo Electron is a world leader in environmental monitoring and analysis instruments, biomedical products such as heart-assist devices and mammography systems, papermaking and recycling equipment, biomass electric power generation, and other specialized products and technologies. Thermo Electron also provides a range of services related to environmental quality. 3PAGE Thermo Electron may repurchase shares of the Company's or Thermo Remediation's common stock from time to time in the open market or in negotiated transactions. During fiscal 19971, Thermo Electron purchased 203,700 shares and 30,000 shares of the Company's and Thermo Remediation's common stock, respectively, in the open market for a total price of $2,309,000 and $314,000, respectively. Forward-looking Statements Forward-looking statements, within the meaning of Section 21E of the Securities Exchange Act of 1934, are made throughout this Annual Report on Form 10-K. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words "believes," "anticipates," "plans," "expects," "seeks," "estimates," and similar expressions are intended to identify forward-looking statements. There are a number of important factors that could cause the results of the Company to differ materially from those indicated by such forward-looking statements, including those detailed under the caption "Forward-looking Statements" in the Registrant's Fiscal 1997 Annual Report to Shareholders incorporated herein by reference. (b) Financial Information About Industry Segments The Company conducts business in one segment, environmental services. The Company's principal services are: remediation and recycling, consulting and design, and laboratory-based testing. The Company also provides specialized metal-treating services including the design, manufacture, and installation of advanced custom-engineered thermal- processing systems. (c) Description of Business (i) Principal Services and Products Remediation and Recycling Services Through Thermo Remediation's ReTec subsidiary, the Company provides environmental consulting and remediation construction management to clients in the railroad transportation, refining, chemical, wood- treating, gas, and electric utility industries across the nation. ReTec's consulting, engineering, and on-site services offer a broad array of remedial solutions, all of which are applied from a risk management perspective, to help clients manage problems associated with environmental compliance, waste management, and the remediation of industrial sites contaminated with organic wastes and residues. ReTec provides particular expertise in bioremediation, and in managing wastes from manufactured-gas plants, refineries, and railroad properties. ReTec operates from offices in 20 cities and numerous field sites across the country. Thermo Remediation's IEM Sealand subsidiary performs cleanups of hazardous-waste sites for government and industry as a prime construction 1 References to fiscal 1997, 1996, and 1995 herein are for the fiscal years ended March 29, 1997, March 30, 1996, and April 1, 1995, respectively. 4PAGE contractor and completes predesigned remedial action contracts at sites containing hazardous, toxic, and radioactive waste. Under contracts with federal and state governments, and other public- and private-sector clients, IEM Sealand also provides project management and construction services for the remediation of hazardous wastes. Most of IEM Sealand's contract work is obtained in a bid process with the job being awarded to the lowest qualified bidder. Through Thermo Remediation's Thermo Nutech subsidiary, the Company provides services to remove radioactive contaminants from soil, as well as health physics services, radiochemistry laboratory services, radiation dosimetry services, radiation-instrument calibration and repair services, and radiation-source production. As part of its radiation and nuclear/health physics services, the Company provides site surveys for radioactive materials and on-site samples, as well as analysis in support of decontamination programs and dosimetry services to measure personnel exposure. As part of its on-site services, the Company usually performs a preliminary survey using portable radiation-detection equipment. As a result of this survey, samples are taken at critical locations and are then analyzed radiometrically and radiochemically in a mobile laboratory facility at the site or at one of the Company's laboratories. This data is then used to plan cleanup operations. A substantial part of the Company's health physics services has been performed under the U.S. Department of Energy's (DOE's) remedial action programs, including the Hanford site. The Company also supplies reusable thermo luminescent dosimeter badges. These badges, worn by personnel working in areas where radioactive material may be present, are periodically returned to the Company for processing to determine the level of radiation exposure. In addition, using its proprietary segmented-gate system technology, the Company removes radioactive contaminants from soil at the Defense Nuclear Fund's site at Johnston Island in the Pacific. Through Thermo Remediation's TPS Technologies subsidiary, the Company designs and operates facilities for the remediation of nonhazardous soil and operates a network of such facilities along the East and West Coasts. The Company's soil-remediation centers are environmentally secure facilities for receiving, storing, and processing petroleum-contaminated soils. Each site consists principally of a soil-remediation unit (SRU) and a soil-storage area. The market for remediation of petroleum-contaminated soils, as with many other waste markets, was created by environmental regulations. The market for soil-remediation services is driven largely by state programs to enforce the EPA's underground storage tanks (UST) regulations and to fund cleanups. UST compliance requirements and attendant remediation costs are often beyond the financial capabilities of many individuals and smaller companies. Therefore, several states have significantly reduced compliance requirements and altered regulatory approaches and standards in order to reduce the costs of cleanup. More lenient regulatory standards has already resulted in lower levels of cleanup activity in most states where the Company conducts business, which has had a material adverse effect on the Company's business. The recent severe downturn in the Company's soil-recycling business and relaxed compliance requirements and enforcement activities, which resulted in overcapacity in the industry and competitive pricing pressures, have led to operating losses at certain sites beginning in fiscal 1997. As a result, during fiscal 1997, 5PAGE the Company wrote-down $7.8 million of certain assets associated with its soil-remediation business. The Company expects that closure of two sites with small operating losses and a write-down of certain assets at two other sites, at which current volumes of soil being processed were insufficient to recover the Company's investment, will improve operating results beginning in fiscal 1998. Revenues and operating losses, exclusive of the write-down, at the two sites being closed aggregated $2.9 million and $0.6 million, respectively, fiscal 1997. In addition, underground and aboveground tank regulations, clean water legislation, and real estate transfer and financing transactions also influence demand for soil-remediation services. Thermo Remediation, through its Thermo Fluids subsidiary, collects, tests, processes, and recycles used motor oil and other industrial oils. In addition, the Company collects and recycles oily water and oil filters. Thermo Fluids has processing facilities located in Phoenix and Tucson, Arizona, and Las Vegas, Nevada. From these sites, Thermo Fluids operates a fleet of oil and water collection trucks to pick up waste oils and oily water. Through its North Refinery division, the Company's majority-owned Thermo EuroTech subsidiary, located in the Netherlands, specializes in processing "off-spec" mixtures of oil that contain water, ash, and sediment into commercially tradable end products used in blending. Although a large percentage of North Refinery's oil feedstock has historically come from the former Soviet Union, North Refinery no longer receives any oil from that nation as a result of political and economic changes that make transportation of waste oil difficult. To overcome this loss of supply, North Refinery has taken steps to replace and diversify its feedstock suppliers. However, no assurance can be given that it will not experience future disruptions in deliveries. The grant of a chemical-waste permit for the processing of a special classification of oil-contaminated liquids has also allowed North Refinery to begin processing chemical-waste streams. The end products of this process are commercial grade oils that can be blended to make diesel fuels and marine fuels or be used as a feed material. The Company's strategy is to use Thermo EuroTech as a platform from which to eventually provide a broad range of environmental remediation services throughout Western Europe. During fiscal 1997, 1996, and 1995, the Company derived revenues, of $127.1 million, $77.0 million, and $58.2 million, respectively, from remediation and recycling services. Consulting and Design Services The Company provides a wide range of comprehensive environmental consulting and professional engineering services to private- and public-sector clients. These services include the design and inspection of water supply and wastewater treatment facilities; investigations of different methods to clean up hazardous-waste sites; assistance in obtaining government permits; transportation-related and similar types of infrastructure engineering, survey, and land-use planning; and support services including mechanical, electrical, and structural engineering. In addition, the Company provides natural resource management services including environmental-impact studies. 6PAGE Through its Killam Associates subsidiary, the Company specializes in the design, planning, and construction supervision of municipal and privately owned water-treatment plants, waste treatment plants, and hazardous-wastewater facilities. The Company provides full-service contract operations to plant owners in the public and private sectors. These services facilitate regulatory compliance; optimize day-to-day plant operations; reduce costs; provide competent, experienced personnel; and promote good community relations. In November 1996, the Company acquired Carlan, a provider of transportation and environmental consulting and professional engineering and architectural services. In May 1997, the Company purchased a controlling interest in Randers, a provider of design engineering, project management, and construction services for industrial clients in the manufacturing, pharmaceutical, and chemical-processing industries. Through its Bettigole Andrews Clark & Killam subsidiary, the Company provides a broad range of bridge and highway engineering services. The Company's Normandeau Associates subsidiary's environmental-impact assessments and mitigation/restoration studies help to determine water quality, promote the safety of wildlife, and assist clients in meeting environmental permitting and licensing requirements. Normandeau Associates also provides aquatic biology expertise and ecological risk assessment to electric utility plants throughout the country. A substantial portion of the Company's consulting and design services sales are made to existing customers on a repeat basis. Consulting and design services are often performed as multiyear studies. In addition to federal, state, and local governments, customers include public utilities, consulting and construction engineers, waste management companies, oil refineries, mining companies, chemical manufacturers, architectural and engineering firms, and a variety of service companies involved with real estate transactions. During fiscal 1997, 1996, and 1995, the Company derived revenues of $74.8 million, $74.0 million, and $40.3 million, respectively, from consulting and design services. Laboratory-testing Services The Company provides comprehensive laboratory-based services for the environmental, pharmaceutical, and food industries. These laboratories also provide analysis and related services to detect and measure hazardous wastes and radioactive materials. Analytical laboratory services consist of a comprehensive range of analytical tests to detect and measure organic contaminants, inorganic contaminants, and radioactive materials in samples of soil, water, air, industrial wastes, and biological materials. The Company has established detailed procedures and strict operating standards to ensure consistent performance and to allow it to participate in the Environmental Protection Agency's (EPA's) Contract Laboratory Program (CLP). The Company's environmental laboratory business has been negatively affected by reduced federal spending on environmental testing. 7PAGE During fiscal 1997, 1996, and 1995, the Company derived revenues of $35.4 million, $35.5 million, and $8.6 million, respectively, from its laboratory-testing services. Revenues from laboratory-testing services exclude radiochemistry laboratory service included in remediation and recycling services. Metal-treating Services and Process Systems The Company performs metallurgical processing services using thermal-treatment equipment at locations in California and Minnesota. Through its equipment division located in Michigan, the Company also designs, manufactures, and installs computer-controlled, custom- engineered, thermal-processing systems used to treat primary metals and metal parts. In October 1996, the Company acquired Metal Treating from Thermo Electron in exchange for $1.6 million in cash. Metal Treating provides heat treating services, including carburizing, vacuum hardening, silver and copper brazing, and aluminum heat treating, primarily in the Milwaukee and southeastern Wisconsin areas. During fiscal 1997, 1996, and 1995, the Company derived revenues of $44.3 million, $35.8 million, and $29.9 million, respectively, from metal-treating services and process systems. (ii) New Products The Company has made no commitments to new products that would require the investment of a material amount of the Company's assets. (iii) Raw Materials Prior to fiscal 1996, a large percentage of North Refinery's oil feedstock came from the former Soviet Union. North Refinery no longer receives any oil from that nation as a result of political and economic changes that make transportation of waste oil difficult. To overcome this loss of supply, North Refinery has taken steps to replace and diversify its feedstock suppliers. However, no assurance can be given that it will not experience future disruptions in deliveries. The principal materials used by the Company in its manufacturing operations are fabricated steel, alloy castings, and ceramic and insulating refractory materials. To date, the Company has not experienced any difficulty in obtaining any of the materials or components used in its operations and does not foresee any such difficulty in the future. The Company has multiple sources for all of its significant raw material needs. (iv) Patents, Licenses, and Trademarks The Company currently owns or has rights under licenses to a number of U.S. patents. Although the Company believes that patent protection provides it with competitive advantages with respect to certain portions of its business and will continue to seek patent protection when 8PAGE appropriate, the Company also believes that its business depends primarily upon trade secrets and the technical and marketing expertise of its personnel. (v) Seasonal Influences A majority of the Company's businesses experience seasonal fluctuations. A majority of the Company's soil-remediation sites, as well as the Company's fluids-recycling sites, experience declines in severe weather conditions. Site remediation work and certain environmental testing services, such as the services provided by ReTec, Lancaster Laboratories, Killam Associates, IEM Sealand, and Thermo Nutech, may decline in winter months as a result of severe weather conditions. In Europe, Thermo EuroTech may experience a decline in the feedstock delivered to its facilities during winter months, due to frozen waterways. (vi) Working Capital Requirements In general, there are no special inventory requirements or credit terms extended to customers that would have a material adverse effect on the Company's working capital. (vii) Dependency on a Single Customer See Government Contracts. (viii) Backlog The Company's backlog of firm orders was $108,721,000 and $95,719,000 as of March 29, 1997, and March 30, 1996, respectively. These amounts include the backlog of all of the Company's subsidiaries, with the exception of soil-recycling, fluids-recycling, and metallurgical services, which are provided on a current basis pursuant to purchase orders. Included in the Company's backlog at fiscal year-end 1997 and 1996 is the incomplete portion of contracts that are accounted for using the percentage-of-completion method. Of the fiscal 1997 backlog amount, substantially all orders are expected to be filled within the current fiscal year. (ix) Government Contracts Approximately 13%, 10%, and 6% of the Company's revenues in fiscal 1997, 1996, and 1995, respectively, were derived from contracts or subcontracts with the federal government that are subject to renegotiation of profits or termination. The Company does not have any knowledge of threatened or pending renegotiation or termination of any material contract or subcontract. (x) Competition Remediation and Recycling Services Each of ReTec's offices is engaged in highly competitive, regional markets. ReTec's competition consists of numerous small firms offering 9PAGE limited services, as well as much larger firms that offer an array of services. The principal competitive factors for ReTec are: reputation; experience; price; breadth and quality of services offered; and technical, managerial, and business proficiency. IEM Sealand competes with numerous regional or local companies as well as a number of national remediation contractors. IEM Sealand competes primarily based on price, as the vast majority of the contracts it seeks are awarded to the lowest bidder. Thermo Nutech faces competition from many large national competitors, and competes primarily on the basis of its proprietary technology and price. Competition in the soil-remediation business is intense. The Company's principal customers are landfills, including major landfill companies. The Company also currently competes with companies offering a wide range of disposal options, including other fixed-site, thermal-treatment facilities, operators of mobile thermal-treatment facilities, bioremediation and vapor-extraction technologies, and, in certain states, with asphalt plants and brick kilns that use the contaminated soil in their production processes. Competition in the soil-remediation market has always been highly localized, consisting mostly of single-site or single-unit operators. Competitive conditions limit the prices charged by the Company in each local market for soil-remediation services. Pricing is therefore a major competitive factor for the Company. Many existing landfills have relatively low operating costs and high margins that enable them to accept contaminated soil at relatively low prices. Reduced regulatory requirements in many regions of the United States have resulted in increased competition, overcapacity in the industry, and declining prices for all forms of soil treatment. The Company believes competition and price pressure will remain intense for the foreseeable future. Thermo Fluids operates the largest fleet of collection vehicles in Arizona and Nevada. Thermo Fluids competes with numerous smaller and several larger collection companies in its current market primarily based on quality of service and price. Thermo EuroTech faces competition for oil from other oil processors and blenders and from a company with a similar distillation technology in Italy. The market for blending oils is very large and oils such as Thermo EuroTech's end products represent a very small percentage of the total market. Thermo EuroTech competes primarily based on price. Consulting and Design Services The Company's consulting and design businesses are engaged in highly competitive markets in all of its service areas. These markets tend to be regional. In its geographic service area, competition consists of small, one- to three-person firms offering a limited scope of services, as well as much larger firms that may be regional, national, or international in the scope of services they offer. The principal competitive factors for the Company are: reputation; experience; price; breadth and quality of services offered; and technical, managerial, and business proficiency. 10PAGE Laboratory-testing Services Hundreds of independent analytical testing laboratories and consulting firms compete for environmental services business nationwide. Many of these firms use equipment and processes similar to those of the Company. Competition is based not only on price, but also on reputation for accuracy, quality, and the ability to respond rapidly to customer requirements. In addition, many industrial companies have their own in-house analytical testing capabilities. The Company believes that its competitive strength lies in the quality of its services. Metal-treating Services and Process Systems The market for metal-treating services is typically regional and competitive. All regions in which the Company has facilities contain numerous competitors. In addition, in-house heat-treating facilities provide a major source of competition. The Company competes in this segment on the basis of services provided, turnaround time, and price. The market for thermal-processing systems is subject to intense competition worldwide. The Company is aware of at least eight companies that market a number of products comparable to the Company's, but competition for particular projects is typically limited to fewer companies. The Company competes on the basis of several factors, including technical performance, product quality and reliability, timely delivery, and often price. Certain products sold by the Company's competitors are less expensive than comparable products sold by the Company. (xi) Environmental Protection Regulations The Company believes that compliance by the Company with federal, state, and local environmental protection regulations will not have a material adverse effect on its capital expenditures, earnings, or competitive position. (xii) Number of Employees At March 29, 1997, the Company employed 2,407 persons. (d) Financial Information About Exports by Domestic Operations and About Foreign Operations The Company's exports by domestic operations and foreign operations are currently insignificant. 11PAGE (e) Executive Officers of the Registrant Present Title (Fiscal Year First Became Name Age Executive Officer) ---------------------- --- ------------------------------------------- Dr. John P. Appleton 62 President and Chief Executive Officer (1993) John N. Hatsopoulos 62 Chief Financial Officer and Vice President (1988) Emil C. Herkert 59 Vice President (1996) Jeffrey L. Powell 38 Vice President (1994) Paul F. Kelleher 54 Chief Accounting Officer (1986) Each executive officer serves until his successor is chosen or appointed by the Board of Directors and qualified or until earlier resignation, death, or removal. All executive officers except Dr. Appleton, Mr. Powell, and Mr. Herkert have held comparable positions for at least five years, either with the Company or with its parent company, Thermo Electron. Dr. Appleton has served as a Vice President of Thermo Electron since 1975 in various managerial capacities. Mr. Powell has been President and Chief Executive Officer of Thermo Remediation since May 1997. From January 1991 until May 1997, Mr. Powell was President of Thermo Remediation. He has also served as Chief Operating Officer since December 1993. Mr. Herkert has served as President of the Company's Killam Associates subsidiary since 1977. Messrs. Hatsopoulos and Kelleher are full-time employees of Thermo Electron, but devote such time to the affairs of the Company as the Company's needs reasonably require. Item 2. Properties The location and general character of the Company's principal properties as of March 29, 1997, are as follows: The Company owns approximately 375,000 square feet of office, engineering, laboratory, production, and manufacturing space, principally in Pennsylvania, Minnesota, New Jersey, California, Wisconsin, and New Mexico, and leases approximately 750,000 square feet of office, engineering, laboratory, production, and manufacturing space, pursuant to leases expiring in fiscal 1998 through 2009, principally in California, Michigan, Pennsylvania, South Carolina, Florida, Texas, Washington, New Jersey, New Mexico, New York, and Massachusetts. The Company also owns approximately 96 acres in Maryland, South Carolina, California, Florida, and Oregon, from which it provides soil-remediation services. The Company occupies approximately 22 acres principally in New York, Washington, California, Virginia, and South Carolina pursuant to leases expiring in fiscal 1998 through 2006, from which it provides soil-remediation services. The Company leases approximately eight acres on two sites in Arizona and one site in Nevada consisting of office space, fluids-recycling and maintenance facilities, and sites for fluids storage tanks. 12PAGE The Company occupies approximately 15 acres in Delfzijl, Holland, pursuant to a lease expiring in 2059, consisting of office space, distillation facilities, and oil storage tanks. The Company believes that these facilities are in good condition and are adequate for its present operations and that other suitable space is readily available if any of such leases are not extended. Item 3. Legal Proceedings Not applicable. Item 4. Submission of Matters to a Vote of Security Holders Not applicable. PART II Item 5. Market for Registrant's Common Equity and Related Shareholder Matters Information concerning the market and market price for the Registrant's Common Stock, $.10 par value, and dividend policy are included under the sections labeled "Common Stock Market Information" and "Dividend Policy" in the Registrant's Fiscal 1997 Annual Report to Shareholders and is incorporated herein by reference. Item 6. Selected Financial Data The information concerning the Registrant's selected financial data is included under the sections labeled "Selected Financial Information" and "Dividend Policy" in the Registrant's Fiscal 1997 Annual Report to Shareholders and is incorporated herein by reference. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The information required under this item is included under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Registrant's Fiscal 1997 Annual Report to Shareholders and is incorporated herein by reference. Item 8. Financial Statements and Supplementary Data The Registrant's Consolidated Financial Statements as of March 29, 1997, are included in the Registrant's Fiscal 1997 Annual Report to Shareholders and are incorporated herein by reference. 13PAGE Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures Not applicable. PART III Item 10. Directors and Executive Officers of the Registrant The information concerning Directors required under this item is incorporated herein by reference from the material contained under the caption "Election of Directors" in the Registrant's definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, not later than 120 days after the close of the fiscal year. The information concerning delinquent filers pursuant to Item 405 of Regulation S-K is incorporated herein by reference from the material contained under the heading "Section 16(a) Beneficial Ownership Reporting Compliance" under the caption "Stock Ownership" in the Registrant's definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, not later than 120 days after the close of the fiscal year. Item 11. Executive Compensation The information required under this item is incorporated herein by reference from the material contained under the caption "Executive Compensation" in the Registrant's definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, not later than 120 days after the close of the fiscal year. Item 12. Security Ownership of Certain Beneficial Owners and Management The information required under this item is incorporated herein by reference from the material contained under the caption "Stock Ownership" in the Registrant's definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, not later than 120 days after the close of the fiscal year. Item 13. Certain Relationships and Related Transactions The information required under this item is incorporated herein by reference from the material contained under the caption "Relationship with Affiliates" in the Registrant's definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, not later than 120 days after the close of the fiscal year. 14PAGE PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a,d) Financial Statements and Schedules (1)The consolidated financial statements set forth in the list below are filed as part of this Report. (2)The consolidated financial statement schedule set forth in the list below is filed as part of this Report. (3)Exhibits filed herewith or incorporated herein by reference are set forth in Item 14(c) below. List of Financial Statements and Schedules Referenced in this Item 14 Information incorporated by reference from Exhibit 13 filed herewith: Consolidated Statement of Operations Consolidated Balance Sheet Consolidated Statement of Cash Flows Consolidated Statement of Shareholders' Investment Notes to Consolidated Financial Statements Report of Independent Public Accountants Financial Statements and Schedules filed herewith: Financial Statements of Unconsolidated Subsidiary: ReTec/Tetra L.C. Schedule II: Valuation and Qualifying Accounts All other schedules are omitted because they are not applicable or not required, or because the required information is shown either in the financial statements or the notes thereto. (b) Reports on Form 8-K None. (c) Exhibits See Exhibit Index on the page immediately preceding exhibits. 15PAGE SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed by the undersigned, thereunto duly authorized. Date: June 6, 1997 THERMO TERRATECH INC. By: John P. Appleton -------------------- John P. Appleton President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated, as of June 6, 1997. Signature Title --------- ----- By: John P. Appleton President, Chief Executive Officer, ---------------------- John P. Appleton and Director By: John N. Hatsopoulos Chief Financial Officer, ---------------------- John N. Hatsopoulos Vice President, and Director By: Paul F. Kelleher Chief Accounting Officer ---------------------- Paul F. Kelleher By: Brian D. Holt Director ---------------------- Brian D. Holt By: Donald E. Noble Director ---------------------- Donald E. Noble By: Director ---------------------- William A. Rainville By: Chairman of the Board and Director ---------------------- Polyvios C. Vintiadis 16PAGE Report of Independent Auditors The Supervisory Board RETEC/TETRA L.C. We have audited the accompanying balance sheets of RETEC/TETRA L.C. (a Limited Liability Corporation) ("the Company") as of December 31, 1996 and 1995, and the related statements of operations, members' equity, and cash flows for each of the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of RETEC/TETRA L.C. at December 31, 1996 and 1995, and the results of its operations and its cash flow for the years then ended, in conformity with generally accepted accounting principles. Ernst & Young LLP Houston, Texas February 27, 1997 17PAGE RETEC/TETRA L.C. BALANCE SHEETS December 31 -------------------------- 1996 1995 ----------- ----------- ASSETS Current assets: Cash $ 589,355 $ 114,330 Trade accounts receivable 1,669,294 1,506,109 Accounts receivable from parent corporations 19,981 4,139 Prepaid expenses and other current assets 793,790 538,598 ----------- ----------- Total current assets 3,072,420 2,163,176 Property, plant and equipment: Machinery and equipment 17,966,893 13,881,832 Automobiles and other equipment 475,673 360,679 Construction in progress 1,465,117 1,430,927 ----------- ----------- 19,907,683 15,673,438 Less accumulated depreciation (7,645,348) (4,475,376) ----------- ----------- Net property, plant and equipment 12,262,335 11,198,062 Other assets: Technology, patents and licenses, net of accumulated amortization of $314,860 in 1996 and $241,694 in 1995 381,380 454,546 ----------- ----------- Total assets $15,716,135 $13,815,784 =========== =========== LIABILITIES AND MEMBERS' EQUITY Current liabilities: Trade accounts payable $ 274,818 $ 1,035,316 Payable to parent corporations 129,853 270,114 Accrued expenses 574,009 368,874 Current portion of notes payable 1,037,000 668,000 ----------- ----------- Total current liabilities 2,015,680 2,342,304 Long-term portion of notes payable 2,635,139 2,465,000 Members' equity: Invested capital 9,751,078 8,675,539 Retained earnings 1,314,238 332,941 ----------- ----------- Total members' equity 11,065,316 9,008,480 ----------- ----------- Total liabilities and members' equity $15,716,135 $13,815,784 =========== =========== See Accompanying Notes 18PAGE RETEC/TETRA L.C. STATEMENTS OF OPERATIONS Year Ended December 31 -------------------------- 1996 1995 ----------- ----------- Revenues $12,066,497 $ 9,417,408 Cost of revenues 9,040,440 8,176,145 ----------- ----------- Gross profit 3,026,057 1,241,263 General and administrative expenses 1,664,435 1,170,802 ----------- ----------- Operating income 1,361,622 70,461 Other income 15,523 0 Interest expense (386,843) (163,165) Loss on sale of fixed assets (9,005) (23,666) ----------- ----------- Net income (loss) $ 981,297 $ (116,370) =========== =========== See Accompanying Notes 19PAGE RETEC/TETRA L.C. STATEMENTS OF MEMBERS' EQUITY TETRA Remediation Technologies, Technologies, Inc. Inc. Total ------------- ------------- ----------- Balance at August 1, 1992 Capital contribution $ 800,000 $ 2,375,539 $ 3,175,539 1992 net loss (285,303) (285,303) (570,606) ----------- ----------- ----------- Balance at December 31, 1992 514,697 2,090,236 2,604,933 Capital contribution 2,400,000 1,900,000 4,300,000 1993 net loss (124,225) (124,224) (248,449) ----------- ----------- ----------- Balance at December 31, 1993 2,790,472 3,866,012 6,656,484 Capital contribution 600,000 600,000 1,200,000 1994 net income 634,183 634,183 1,268,366 ----------- ----------- ----------- Balance at December 31, 1994 4,024,655 5,100,195 9,124,850 1995 net loss (58,185) (58,185) (116,370) ----------- ----------- ----------- Balance at December 31, 1995 3,966,470 5,042,010 9,008,480 Capital contribution 1,075,539 0 1,075,539 1996 net income 490,649 490,648 981,297 ----------- ----------- ----------- Balance at December 31, 1996 $ 5,532,658 $ 5,532,658 $11,065,316 =========== =========== =========== See Accompanying Notes 20PAGE RETEC/TETRA L.C. STATEMENTS OF CASH FLOWS Year Ended December 31 -------------------------- 1996 1995 ----------- ----------- Operating activities: Net income (loss) $ 981,297 $ (116,370) Adjustments to reconcile net income (loss) to cash provided by operating activities: Depreciation and amortization 3,251,037 2,344,990 Loss on the sale of fixed assets 9,005 23,666 Changes in operating assets and liabilities: Accounts receivable (179,027) 37,957 Prepaid expenses and other current assets (255,192) (228,489) Trade accounts payable and accrued expenses (695,624) (189,320) ----------- ----------- Net cash provided by operating activities 3,111,496 1,872,434 Investing activities: Purchase of property, plant and equipment (4,252,649) (5,135,545) Purchase of patents, royalties and technologies 0 (26,357) Proceeds from sale of assets 1,500 65,671 ----------- ----------- Net cash used in investing activities (4,251,149) (5,096,231) Financing activities: Proceeds from long-term debt 3,585,000 3,340,000 Principal payments on long-term debt (3,045,861) (207,000) Capital contribution - TETRA 1,075,539 0 ----------- ----------- Net cash provided by financing activities 1,614,678 3,133,000 Increase (decrease) in cash 475,025 (90,797) Cash at beginning of period 114,330 205,127 ----------- ----------- Cash at end of period $ 589,355 $ 114,330 =========== =========== Supplemental Cash Flow Information: Interest paid $ 426,370 $ 163,165 See Accompanying Notes 21PAGE RETEC/TETRA L.C. NOTES TO FINANCIAL STATEMENTS December 31, 1996 NOTE A -- ORGANIZATION AND OPERATIONS RETEC/TETRA L.C. ("the Company") was formed August 1, 1992 as a joint venture with RETEC/Thermal (RETEC), a wholly-owned subsidiary of Remediation Technologies, Inc., owning 50% and TETRA/Thermal, (TETRA) a wholly-owned subsidiary of TETRA Technologies, Inc., owning the other 50%. The Company installs and operates systems to process hazardous and non-hazardous wastes at petroleum refineries located primarily in the Gulf Coast region. In December 1995 Remediation Technologies, Inc. was acquired by Thermo Remediation Inc. NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Concentration of Credit Risk Financial instruments which subject the Company to concentrations of credit risk consist principally of trade receivables. The Company's policy is to evaluate, prior to contract signing, each customer's financial condition and determine the amount of open credit to be extended; generally collateral is not required. The trade receivables primarily include activity with major petroleum refinery companies. Property, Plant and Equipment Property, plant and equipment contributed by RETEC upon formation of the venture are stated at the value in the formation agreement and assets purchased subsequent are stated at cost. Expenditures that increase the useful lives of assets are capitalized. The costs of repairs and maintenance are charged to operations as incurred. Assets contributed at the Company's formation are depreciated using a declining-balance method converting to the straight-line method. All assets acquired subsequent to formation are depreciated using the straight-line method. The estimated useful lives of assets are as follows: Machinery and Equipment 2 to 10 years Automobiles and other equipment 2 to 5 years Technology, Patents and Licenses Technology, patents and licenses, which relate to proprietary waste treatment processes contributed by RETEC, were estimated at the stated value in the formation agreement. Patents and licenses are amortized over the estimated useful lives generally ranging from five to ten years. Technologies are amortized over estimated useful lives from eight to ten years. 22PAGE RETEC/TETRA L.C. NOTES TO FINANCIAL STATEMENTS December 31, 1996 NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (con't) Income Taxes The Company has elected to be treated as a partnership for federal income tax purposes. RETEC and TETRA include their respective shares of the net income (loss) of the Company in their federal and state tax returns. Allocation of Joint Venture Profit and Loss In accordance with the formation agreement, net income (loss) is to be allocated to RETEC and TETRA in accordance with their partnership interests. Operating Leases The Company periodically enters into operating leases for various pieces of equipment and warehouse space. Aggregate rental expense under these agreements was $353,305 and $603,210 in 1996 and 1995, respectively. Minimum future annual lease payments under non-cancelable operating leases are as follows for the years ending December 31, 1997: - $72,188; 1998 - $51,385; 1999 - $31,868; 2000 - $3,591. The lease for warehouse space expires March 1997 but the Company expects to renew the lease. Use of Estimates Management is required to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of In March 1995, The Financial Accounting Standards Board issued Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of (SFAS 121), which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the discounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. SFAS 121 also addresses the accounting for long-lived assets that are expected to be disposed of. The Company adopted SFAS 121 in the first quarter of 1996 and the effect of adoption was not material. Financial Instruments The carrying amount of the Company's financial instruments approximate fair market value. 23PAGE RETEC/TETRA L.C. NOTES TO FINANCIAL STATEMENTS December 31, 1996 NOTE C -- CAPITAL CONTRIBUTIONS The Company was initially capitalized with TETRA contributing $800,000 in cash and RETEC contributing thermal plant equipment valued at $1,775,539 and thermal desorption process technology valued at $600,000. Each partner contributed $600,000 in 1994 and $1.4 million in 1993 in additional capital to fund the construction of two new projects. In September 1993, the Company acquired the assets of the Environmental Services Division of TRW for $1 million, with each partner contributing $500,000. Additionally, TETRA contributed $500,000 of working capital in 1993. In September 1996, TETRA contributed $1,075,540 toward the purchase of additional equipment to be used in future projects. NOTE D -- LONG-TERM DEBT Long-term debt consists of the following: December 31 ----------------- (In thousands) 1996 1995 ------- ------- Revolving credit agreement of $500,000 with an interest rate of prime and a commitment fee of 3/8% on the unused portion of the loan. The agreement expired December 15, 1996. $ - $ - Promissory note payable to Texas Commerce Bank at fixed interest rate of 8.05%, payable $100,000 quarterly plus interest and due June 15, 2000. The note is secured by the underlying equipment and is guaranteed by both parent corporations. 1,401 1,898 Promissory note payable to Texas Commerce Bank at prime interest rate, payable $65,000 quarterly plus interest and due October 15, 2000. The note is secured by the underlying equipment and is guaranteed by both parent corporations. 575 1,235 Promissory note payable to Texas Commerce Bank at prime interest rate, payable $94,250 quarterly plus interest and due May 20, 2001. The note is secured by the underlying equipment and is guaranteed by both parent corporations. 1,696 - ------- ------- 3,672 3,133 Less: Current portion (1,037) (668) ------- ------- $ 2,635 $ 2,465 ======= ======= 24PAGE RETEC/TETRA L.C. NOTES TO FINANCIAL STATEMENTS December 31, 1996 NOTE D -- LONG-TERM DEBT (con't) Scheduled maturities for the next five years are as follows: (In thousands) 1997 $ 1,037 1998 1,037 1999 832 2000 578 2001 188 ------- $ 3,672 ======= NOTE E -- RELATED-PARTY TRANSACTIONS The Company was billed approximately $1,305,577 in 1996 and $922,164 in 1995 by the owners, primarily TETRA, for administrative services and materials rendered on behalf of the Company. NOTE F -- COMMITMENTS AND CONTINGENCIES The Company is subject to litigation and other proceedings arising in the ordinary course of business. While the outcome of the litigation and other proceedings against the Company cannot be predicted with certainty, management does not expect these matters to have a material adverse impact on the Company. 25PAGE Report of Independent Public Accountants ---------------------------------------- To the Shareholders and Board of Directors of Thermo TerraTech Inc.: We have audited, in accordance with generally accepted auditing standards, the consolidated financial statements included in Thermo TerraTech Inc.'s Annual Report to Shareholders incorporated by reference in this Form 10-K, and have issued our report thereon dated May 6, 1997 (except with respect to the matters discussed in Note 17 as to which the date is May 12, 1997). Our audits were made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed in Item 14 on page 15 is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic consolidated financial statements and, in our opinion, fairly states in all material respects the consolidated financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. Arthur Andersen LLP Boston, Massachusetts May 6, 1997 26PAGE SCHEDULE II THERMO TERRATECH INC. Valuation and Qualifying Accounts (In thousands) Balance Provision at Charged Accounts Balance Beginning to Accounts Written- at End Description of Year Expense Recovered off Other(a) of Year - ----------------- --------- --------- --------- -------- ------- ------- Allowance for Doubtful Accounts Year Ended March 29, 1997 $ 2,861 $ 625 $ 49 $ (516) $ 819 $ 3,838 Year Ended March 30, 1996 (b) $ 3,572 $ 85 $ 84 $(1,628) $ 748 $ 2,861 Year Ended April 1, 1995 (b) $ 3,273 $ 161 $ (579) $ 88 $ 629 $ 3,572 (a) Includes allowances of businesses acquired during the year as described in Note 3 to Consolidated Financial Statements in the Registrant's fiscal 1997 Annual Report to Shareholders and the effect of foreign currency translation. (b) Historical results have been restated to reflect the acquisition of Metal Treating, Inc., accounted for at historical cost in a manner similar to a pooling-of-interests. 27PAGE EXHIBIT INDEX Exhibit Number Description of Exhibit ------------------------------------------------------------------------ 3.1 Restated Certificate of Incorporation, as amended (filed as Exhibit 99 to the Registrant's Registration Statement on Form S-2 [Registration No. 333-02269] and incorporated herein by reference). 3.2 Bylaws of the Registrant (filed as Exhibit 3(b) to the Registrant's Annual Report on Form 10-K for the fiscal year ended April 2, 1988 [File No. 1-9549] and incorporated herein by reference). 4.1 Fiscal Agency Agreement dated August 4, 1989, among the Registrant, Thermo Electron Corporation, and Chemical Bank, as fiscal agent (filed as Exhibit B to the Registrant's Current Report on Form 8-K relating to the events occurring on August 4, 1989 [File No. 1-9549] and incorporated herein by reference). 4.2 Fiscal Agency Agreement dated as of May 2, 1996, among the Registrant, Thermo Electron Corporation, and Chemical Bank, as Fiscal Agent (filed as Exhibit 4.2 to the Registrant's Annual Report on Form 10-K for the fiscal year ended March 30, 1996 [File No. 1-9549] and incorporated herein by reference). The Registrant hereby agrees, pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, to furnish to the Commission, upon request, a copy of each other instrument with respect to other long-term debt of the Company or its subsidiaries. 10.1 Thermo Electron Corporate Charter as amended and restated effective January 3, 1993 (filed as Exhibit 10(a) to the Registrant's Annual Report on Form 10-K for the fiscal year ended April 3, 1993 [File No. 1-9549] and incorporated herein by reference). 10.2 Amended and Restated Corporate Services Agreement dated January 3, 1993, between Thermo Electron Corporation and the Registrant (filed as Exhibit 10(b) to the Registrant's Annual Report on Form 10-K for the fiscal year ended April 3, 1993 [File No. 1-9549] and incorporated herein by reference). 10.3 Agreement of Lease dated December 31, 1985, between Claridge Properties Ltd. and Thermo Electron Corporation (filed as Exhibit 10(c) to the Registrant's Registration Statement on Form S-1 [Reg. No. 33-6763] and incorporated herein by reference). 10.4 Assignment of Lease dated December 31, 1985, between Thermo Electron Corporation and TMO, Inc. (filed as Exhibit 10(d) to the Registrant's Registration Statement on Form S-1 [Reg. No. 33-6763] and incorporated herein by reference). 28PAGE EXHIBIT INDEX Exhibit Number Description of Exhibit ------------------------------------------------------------------------ 10.5 Sublease dated March 30, 1986, between TMO, Inc. and Holcroft/Loftus, Inc. (filed as Exhibit 10(e) to the Registrant's Registration Statement on Form S-1 [Reg. No. 33-6763] and incorporated herein by reference). 10.6 Lease Amending Agreement dated January 1, 1995, between Claridge Properties Ltd., Thermo Electron Corporation, and TMO, Inc. (filed as Exhibit 10.6 to the Registrant's Annual Report on Form 10-K [File No. 1-9549] and incorporated by reference). 10.7 Exclusive License and Marketing Agreement dated March 22, 1990, among TPS Technologies Inc., Holcroft Inc., and Thermo Soil Recyclers Inc. (filed as Exhibit 10(q) to the Registrant's Annual Report on Form 10-K for the fiscal year ended March 30, 1990 [File No. 1-9549] and incorporated herein by reference). 10.8 Form of Indemnification Agreement with Directors and Officers (filed as Exhibit 10(k) to the Registrant's Annual Report on Form 10-K for the fiscal year ended March 30, 1991 [File No. 1-9549] and incorporated herein by reference). 10.9 Development Agreement dated September 15, 1991, between Thermo Electron Corporation and the Registrant (filed as Exhibit 10(l) to the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended September 28, 1991 [File No. 1-9549] and incorporated herein by reference). 10.10 Amended and Restated Development Agreement dated January 2, 1992, between Thermo Electron Corporation and the Registrant (filed as Exhibit 10(m) to the Registrant's Annual Report on Form 10-K for the fiscal year ended March 28, 1992 [File No. 1-9549] and incorporated herein by reference). 10.11 Asset Transfer Agreement dated as of October 1, 1993, among the Registrant, TPS Technologies Inc., and Thermo Remediation Inc. (filed as Exhibit 2.3 to Thermo Remediation's Registration Statement on Form S-1 [Reg. No. 33-70544] and incorporated herein by reference). 10.12 Exclusive License Agreement dated as of October 1, 1993, among the Registrant, TPS Technologies Inc., and Thermo Remediation Inc. (filed as Exhibit 2.4 to Thermo Remediation's Registration Statement on Form S-1 [Reg. No. 33-70544] and incorporated herein by reference). 29PAGE EXHIBIT INDEX Exhibit Number Description of Exhibit ------------------------------------------------------------------------ 10.13 Non-Competition and Non-Disclosure Agreement dated as of October 1, 1993 among the Registrant, TPS Technologies Inc. and Thermo Remediation Inc. (filed as Exhibit 2.5 to Thermo Remediation's Registration Statement on Form S-1 [Reg. No. 33-70544] and incorporated herein by reference). 10.14 Tax Allocation Agreement dated as of June 1, 1992, between the Registrant and Thermo Remediation Inc. (filed as Exhibit 10.3 to Thermo Remediation's Registration Statement on Form S-1 [Reg. No. 33-70544] and incorporated herein by reference). 10.15 Agreement of Partnership dated May 16, 1994, among Terra Tech Labs Inc. (a wholly owned subsidiary of the Registrant) and Eberline Analytical Corporation, Skinner & Sherman, Inc., TMA/NORCAL Inc., Normandeau Associates Inc., Bettigole Andrews & Clark Inc., Fellows, Read & Associates Inc., and Thermo Consulting Engineers Inc. (each a wholly owned subsidiary of Thermo Instrument Systems Inc.) (filed as Exhibit 1 to the Registrant's Current Report on Form 8-K relating to the events occurring on May 16, 1994 [File No. 1-9549] and incorporated herein by reference). 10.16 Promissory Note dated May 16, 1994, issued by the Registrant to Thermo Electron Corporation (filed as Exhibit 2 to the Registrant's Current Report on Form 8-K relating to the events occurring on May 16, 1994 [File No. 1-9549] and incorporated herein by reference). 10.17 Agreement of Dissolution of Partnership dated May 9, 1995 among Thermo Terra Tech (the Partnership), Terra Tech Labs, Inc. (a wholly owned subsidiary of the Registrant) and Eberline Analytical Corporation, Skinner & Sherman, Inc., TMA/NORCAL Inc., Normandeau Associates Inc., Bettigole Andrews & Clark Inc., Fellows, Read & Associates Inc., and Thermo Consulting Engineers Inc. (each a wholly owned subsidiary of Thermo Instrument Systems Inc.) (filed as Exhibit 2.1 to the Registrant's Current Report on Form 8-K relating to the events occurring on May 9, 1995 [File No. 1-9549] and incorporated herein by reference). 10.18 Stock Purchase Agreement dated May 9, 1995, between the Registrant and Thermo Instrument Systems Inc. (filed as Exhibit 2.2 to the Registrant's Current Report on Form 8-K relating to the events occurring on May 9, 1995 [File No. 1-9549] and incorporated herein by reference). 30PAGE EXHIBIT INDEX Exhibit Number Description of Exhibit ------------------------------------------------------------------------ 10.19 Note dated May 17, 1995, from the Registrant to Thermo Electron Corporation (filed as Exhibit 2.3 to the Registrant's Current Report on Form 8-K relating to the events occurring on May 9, 1995 [File No. 1-9549] and incorporated herein by reference). 10.20 Stock Purchase and Note Issuance Agreement dated as of November 22, 1993, between the Registrant and Thermo Remediation Inc. (filed as Exhibit 10.11 to Thermo Remediation's Registration Statement on Form S-1 [Reg. No. 33-70544] and incorporated herein by reference). 10.21 $2,650,000 principal amount Subordinated Convertible Note dated as of November 22, 1993, made by Thermo Remediation Inc., issued to the Registrant (filed as Exhibit 10.12 to Thermo Remediation's Registration Statement on Form S-1 [Reg. No. 33-70544] and incorporated herein by reference). 10.22 Asset Purchase Agreement dated as of November 19, 1993, by and among All Western Oil, Inc. and certain affiliates thereof and Thermo Fluids Inc. (filed as Exhibit 10.13 to Thermo Remediation's Registration Statement on Form S-1 [Reg. No. 33-70544] and incorporated herein by reference). 10.23 First Addendum to Asset Purchase Agreement dated as of August 7, 1994, among All Western Oil, Inc. et al. and Thermo Fluids Inc. (filed as Exhibit 10.1 to Thermo Remediation's Quarterly Report on Form 10-Q for the fiscal quarter ended October 1, 1994 [File No. 1-12636] and incorporated herein by reference). 10.24 Promissory Note in the principal amount of $700,000, dated August 7, 1994 (filed as Exhibit 10.2 to Thermo Remediation's Quarterly Report on Form 10-Q for the fiscal quarter ended October 1, 1994 [File No. 1-12636] and incorporated herein by reference). 10.25 Security Agreement dated as of August 7, 1994, among All Western Oil, Inc. et al. and Thermo Fluids Inc. (filed as Exhibit 10.3 to Thermo Remediation's Quarterly Report on Form 10-Q for the fiscal quarter ended October 1, 1994 [File No. 1-12636] and incorporated herein by reference). 31PAGE EXHIBIT INDEX Exhibit Number Description of Exhibit ------------------------------------------------------------------------ 10.26 Stock Purchase and Sale Agreement made and entered into on February 6, 1995, to be effective as of January 29, 1995, by and between Nord Est S.A., the Registrant, and Emil C. Herkert, Kenneth L. Zippler, Franklin O. Williamson, Jr., Fletcher N. Platt, Jr., Eugene J. Destefano, Meint Olthof, and Stanley P. Kaltnecker, Jr. (filed as Exhibit 1 to the Registrant's Current Report on Form 8-K relating to the events occurring on February 6, 1995 [File No. 1-9549] and incorporated herein by reference). 10.27 Agreement and Plan of Merger dated as of June 28, 1995, by and among the Registrant, Eberline Acquisition Inc., Thermo Remediation Inc., and Eberline Holdings Inc. (filed as Appendix B to Thermo Remediation's Proxy Statement for the Annual Meeting held on December 13, 1995 [File No. 1-12636] and incorporated herein by reference). 10.28 $28,000,000 Secured Promissory Note dated as of January 29, 1995, issued by the Registrant to Nord Est S.A. (filed as Exhibit 2 to the Registrant's Current Report on Form 8-K relating to the events occurring on February 6, 1995 [File No. 1-9549] and incorporated herein by reference). 10.29 $38,000,000 Promissory Note dated as of February 21, 1995, issued by the Registrant to Thermo Electron Corporation (filed as Exhibit 3 to the Registrant's Current Report on Form 8-K relating to the events occurring on February 6, 1995 [File No. 1-9549] and incorporated herein by reference). 10.30 Asset Purchase Agreement by and among Thermo Analytical Inc. (as Buyer); Lancaster Laboratories, Inc. and Clewmark Holdings (as Sellers); and Earl H. Hess, Anita F. Hess, Kenneth E. Hess, J. Wilson Hershey, and Carol D. Hess (as the principal owners of Sellers) (filed as Exhibit 1 to the Registrant's Current Report on Form 8-K relating to the events occurring on May 10, 1995 [File No. 1-9549] and incorporated herein by reference). 10.31 Agreement and Plan of Merger dated as of the first day of December 1995, by and among Thermo Remediation Inc., TRI Acquisition Inc., and Remediation Technologies, Inc. (filed as Exhibit 2(a) to the Registrant's Current Report on Form 8-K relating to the events occurring on December 8, 1995 [File No. 1-9549] and incorporated herein by reference). 32PAGE EXHIBIT INDEX Exhibit Number Description of Exhibit ------------------------------------------------------------------------ 10.32 Purchase and Sale Agreement dated as of December 20, 1994, by and among TPS Technologies Inc., TPST Soil Recyclers of Maryland Inc., Rafich Corporation, Harry Ratrie, John C. Cyphers, and J. Thomas Hood (filed as Exhibit 1 to Thermo Remediation's Current Report on Form 8-K for the events occurring on December 21, 1994 [File No. 1-12636] and incorporated herein by reference). 10.33 Stock Purchase Agreement entered into on March 29, 1995, by and among Stalt Holding, B.V., Beheersmaatschappij J. Amerika N.V., A.J. Van Es, J.B. Van Es and D.A. Slager, and the Registrant (filed as Exhibit 1 to the Registrant's Current Report on Form 8-K relating to the events occurring on March 29, 1995 [File No. 1-9549] and incorporated herein by reference). 10.34 Master Repurchase Agreement dated January 1, 1994, between the Registrant and Thermo Electron Corporation (filed as Exhibit 10.21 to the Registrant's Annual Report on Form 10-K for the fiscal year ended April 2, 1994 [File No. 1-9549] and incorporated herein by reference). 10.35 Master Reimbursement Agreement dated January 1, 1994, between the Registrant, Thermo Electron Corporation, and Thermo Remediation Inc. (filed as Exhibit 10.22 to the Registrant's Annual Report on Form 10-K for the fiscal year ended April 2, 1994 [File No. 1-9549] and incorporated herein by reference). 10.36 Incentive Stock Option Plan of the Registrant (filed as Exhibit 10(h) to the Registrant's Registration Statement on Form S-1 [Reg. No. 33-6763] and incorporated herein by reference). (Maximum number of shares issuable in the aggregate under this plan and the Registrant's Nonqualified Stock Option Plan is 1,850,000 shares, after adjustment to reflect share increases approved in 1987, 1989, and 1992, 6-for-5 stock splits effected in July 1988 and March 1989, and 3-for-2 stock split effected in September 1989). 10.37 Nonqualified Stock Option Plan of the Registrant (filed as Exhibit 10(i) to the Registrant's Registration Statement on Form S-1 [Reg. No. 33-6763] and incorporated herein by reference). (Maximum number of shares issuable in the aggregate under this plan and the Registrant's Incentive Stock Option Plan is 1,850,000 shares, after adjustment to reflect share increases approved in 1987, 1989, and 1992, 6-for-5 stock splits effected in July 1988 and March 1989, and 3-for-2 stock split effected in September 1989). 33PAGE EXHIBIT INDEX Exhibit Number Description of Exhibit ------------------------------------------------------------------------ 10.38 Deferred Compensation Plan for Directors of the Registrant (filed as Exhibit 10(k) to the Registrant's Registration Statement on Form S-1 [Reg. No. 33-6763] and incorporated herein by reference). 10.39 Equity Incentive Plan (filed as Exhibit 10.63 to Thermedics Inc.'s Annual Report on Form 10-K for the fiscal year ended January 1, 1994 [File No. 1-9567] and incorporated herein by reference) (Maximum number of shares issuable is 1,750,000 shares, after adjustment to reflect share increase approved in 1994). 10.40 Directors Stock Option Plan, as amended and restated effective January 1, 1995 (filed as Exhibit 10.39 to the Registrant's Annual Report on Form 10-K for the fiscal year ended April 1, 1995 [File No. 1-9549] and incorporated herein by reference). 10.41 Thermo TerraTech Inc. (formerly Thermo Process Systems Inc.)- Thermo Remediation Inc. Nonqualified Stock Option Plan (filed as Exhibit 10(l) to the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended January 1, 1994 [File No. 1-9549] and incorporated herein by reference). In addition to the stock-based compensation plans of the Registrant, the executive officers of the Registrant may be granted awards under stock-based compensation plans of Thermo Electron for services rendered to the Registrant or to such affiliated corporations. Thermo Electron's plans were filed as Exhibits 10.21 through 10.45 to the Annual Report on Form 10-K of Thermo Electron for the year ended December 28, 1996 [File No. 1-8002] and are incorporated herein by reference. 10.42 Restated Stock Holdings Assistance Plan and Form of Executive Loan. 11 Computation re: Earnings (Loss) per share. 13 Annual Report to Shareholders for the fiscal year ended March 29, 1997 (only those portions incorporated herein by reference). 21 Subsidiaries of the Registrant. 23.1 Consent of Arthur Andersen LLP. 23.2 Consent of Ernst & Young LLP. 27 Financial Data Schedule. EX-10.42 2 Exhibit 10.42 THERMO TERRATECH INC. STOCK HOLDINGS ASSISTANCE PLAN SECTION 1. Purpose. The purpose of this Plan is to benefit Thermo TerraTech Inc. (the "Company") and its stockholders by encouraging Key Employees to acquire and maintain share ownership in the Company, by increasing such employees' proprietary interest in promoting the growth and performance of the Company and its subsidiaries and by providing for the implementation of the Guidelines. SECTION 2. Definitions. The following terms, when used in the Plan, shall have the meanings set forth below: Committee: The Human Resources Committee of the Board of Directors of the Company as appointed from time to time. Common Stock: The common stock of the Company and any successor thereto. Company: Thermo TerraTech Inc., a Delaware corporation. Guidelines: The Stock Holdings Guidelines for Key Employees of the Company, as established by the Committee from time to time. Key Employee: Any employee of the Company or any of its subsidiaries, including any officer or member of the Board of Directors who is also an employee, as designated by the Committee, and who, in the judgment of the Committee, will be in a position to contribute significantly to the attainment of the Company's strategic goals and long-term growth and prosperity. Loans: Loans extended to Key Employees by the Company pursuant to this Plan. Plan: The Thermo TerraTech Inc. Stock Holdings Assistance Plan, as amended from time to time. SECTION 3. Administration. The Plan and the Guidelines shall be administered by the Committee, which shall have authority to interpret the Plan and the Guidelines and, subject to their provisions, to prescribe, amend and rescind any rules and regulations and to make all other determinations necessary or desirable for the administration thereof. The Committee's interpretations and decisions with regard to the Plan and the Guidelines and such rules and regulations as may be established thereunder shall be final and conclusive. The Committee may correct any defect or supply any PAGE omission or reconcile any inconsistency in the Plan or the Guidelines, or in any Loan in the manner and to the extent the Committee deems desirable to carry it into effect. No member of the Committee shall be liable for any action or omission in connection with the Plan or the Guidelines that is made in good faith. SECTION 4. Loans and Loan Limits. The Committee has determined that the provision of Loans from time to time to Key Employees in such amounts as to cause such Key Employees to comply with the Guidelines is, in the judgment of the Committee, reasonably expected to benefit the Company and authorizes the Company to extend Loans from time to time to Key Employees in such amounts as may be requested by such Key Employees in order to comply with the Guidelines. Such Loans may be used solely for the purpose of acquiring Common Stock (other than upon the exercise of stock options or under employee stock purchase plans) in open market transactions or from the Company. Each Loan shall be full recourse and evidenced by a non-interest bearing promissory note substantially in the form attached hereto as Exhibit A (the "Note") and maturing in accordance with the provisions of Section 6 hereof, and containing such other terms and conditions, which are not inconsistent with the provisions of the Plan and the Guidelines, as the Committee shall determine in its sole and absolute discretion. SECTION 5. Federal Income Tax Treatment of Loans. For federal income tax purposes, interest on Loans shall be imputed on any interest free Loan extended under the Plan. A Key Employee shall be deemed to have paid the imputed interest to the Company and the Company shall be deemed to have paid said imputed interest back to the Key Employee as additional compensation. The deemed interest payment shall be taxable to the Company as income, and may be deductible to the Key Employee to the extent allowable under the rules relating to investment interest. The deemed compensation payment to the Key Employee shall be taxable to the employee and deductible to the Company, but shall also be subject to employment taxes such as FICA and FUTA. SECTION 6. Maturity of Loans. Each Loan to a Key Employee hereunder shall be due and payable on demand by the Company. If no such demand is made, then each Loan shall mature and the principal thereof shall become due and payable in five equal annual installments commencing on the first anniversary date of the making of such Loan. Each Loan shall also become immediately due and payable in full, without demand, upon the occurrence of any of the events set forth in the Note; provided that the Committee may, in its 2PAGE sole and absolute discretion, authorize an extension of the time for repayment of a Loan upon such terms and conditions as the Committee may determine. SECTION 7. Amendment and Termination of the Plan. The Committee may from time to time alter or amend the Plan or the Guidelines in any respect, or terminate the Plan or the Guidelines at any time. No such amendment or termination, however, shall alter or otherwise affect the terms and conditions of any Loan then outstanding to Key Employee without such Key Employee's written consent, except as otherwise provided herein or in the promissory note evidencing such Loan. SECTION 8. Miscellaneous Provisions. (a) No employee or other person shall have any claim or right to receive a Loan under the Plan, and no employee shall have any right to be retained in the employ of the Company due to his or her participation in the Plan. (b) No Loan shall be made hereunder unless counsel for the Company shall be satisfied that such Loan will be in compliance with applicable federal, state and local laws. (c) The expenses of the Plan shall be borne by the Company. (d) The Plan shall be unfunded, and the Company shall not be required to establish any special or separate fund or to make any other segregation of assets to assure the making of any Loan under the Plan. (e) Except as otherwise provided in Section 7 hereof, by accepting any Loan under the Plan, each Key Employee shall be conclusively deemed to have indicated his acceptance and ratification of, and consent to, any action taken under the Plan or the Guidelines by the Company, the Board of Directors of the Company or the Committee. (f) The appropriate officers of the Company shall cause to be filed any reports, returns or other information regarding Loans hereunder, as may be required by any applicable statute, rule or regulation. SECTION 9. Effective Date. The Plan and the Guidelines shall become effective upon approval and adoption by the Committee. 3PAGE EXHIBIT A THERMO TERRATECH INC. Promissory Note $_________ Dated:____________ For value received, ________________, an individual whose residence is located at _______________________ (the "Employee"), hereby promises to pay to Thermo TerraTech Inc. (the "Company"), or assigns, ON DEMAND, but in any case on or before [insert date which is the fifth anniversary of date of issuance] (the "Maturity Date"), the principal sum of [loan amount in words] ($_______), or such part thereof as then remains unpaid, without interest. Principal shall be payable in lawful money of the United States of America, in immediately available funds, at the principal office of the Company or at such other place as the Company may designate from time to time in writing to the Employee. Unless the Company has already made a demand for payment in full of this Note, the Employee agrees to repay the Company, on each of the first four anniversary dates of the date hereof, an amount equal to 20% of the initial principal amount of the Note. Payment of the final 20% of the initial principal amount, if no demand has been made by the Company, shall be due and payable on the Maturity Date. This Note may be prepaid at any time or from time to time, in whole or in part, without any premium or penalty. The Employee acknowledges and agrees that the Company has advanced to the Employee the principal amount of this Note pursuant to the Company's Stock Holdings Assistance Plan, and that all terms and conditions of such Plan are incorporated herein by reference. The unpaid principal amount of this Note shall be and become immediately due and payable without notice or demand, at the option of the Company, upon the occurrence of any of the following events: (a) the termination of the Employee's employment with the Company, with or without cause, for any reason or for no reason; (b) the death or disability of the Employee; (c) the failure of the Employee to pay his or her debts as they become due, the insolvency of the Employee, 4PAGE the filing by or against the Employee of any petition under the United States Bankruptcy Code (or the filing of any similar petition under the insolvency law of any jurisdiction), or the making by the Employee of an assignment or trust mortgage for the benefit of creditors or the appointment of a receiver, custodian or similar agent with respect to, or the taking by any such person of possession of, any property of the Employee; or (d) the issuance of any writ of attachment, by trustee process or otherwise, or any restraining order or injunction not removed, repealed or dismissed within thirty (30) days of issuance, against or affecting the person or property of the Employee or any liability or obligation of the Employee to the Company. In case any payment herein provided for shall not be paid when due, the Employee further promises to pay all costs of collection, including all reasonable attorneys' fees. No delay or omission on the part of the Company in exercising any right hereunder shall operate as a waiver of such right or of any other right of the Company, nor shall any delay, omission or waiver on any one occasion be deemed a bar to or waiver of the same or any other right on any future occasion. The Employee hereby waives presentment, demand, notice of prepayment, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note. The undersigned hereby assents to any indulgence and any extension of time for payment of any indebtedness evidenced hereby granted or permitted by the Company. This Note has been made pursuant to the Company's Stock Holdings Assistance Plan and shall be governed by and construed in accordance with, such Plan and the laws of the State of Delaware and shall have the effect of a sealed instrument. _______________________________ Employee Name: _________________ ________________________ Witness EX-11 3 Exhibit 11 THERMO TERRATECH INC. Computation of Earnings (Loss) per Share Year Ended ----------------------------------------- March 29, March 30, April 1, 1997 1996 1995 ----------- ----------- ----------- Computation of Primary Earnings (Loss) per Share: Net income (loss) (a) $ (162,000) $ 3,447,000 $ 4,476,000 ----------- ----------- ----------- Shares: Weighted average shares outstanding 18,090,115 17,419,826 17,142,815 Add: Shares issuable from assumed exercise of options and warrants (as determined by the application of the treasury stock method) - 817,544 - ----------- ----------- ----------- Weighted average shares outstanding, as adjusted (b) 18,090,115 18,237,370 17,142,815 ----------- ----------- ----------- Primary Earnings (Loss) per Share (a) / (b) $ (.01) $ .19 $ .26 =========== =========== =========== EX-13 4 Exhibit 13 THERMO TERRATECH INC. Consolidated Financial Statements Fiscal 1997 PAGE Thermo TerraTech Inc. 1997 Financial Statements Consolidated Statement of Operations Year Ended ------------------------------- March 29, March 30, April 1, (In thousands except per share amounts) 1997 1996 1995 ------------------------------------------------------------------------ Revenues (Note 12): Service revenues $251,384 $200,814 $122,604 Product revenues 27,119 19,670 14,381 -------- -------- -------- 278,503 220,484 136,985 -------- -------- -------- Costs and Operating Expenses: Cost of service revenues 207,403 152,451 91,419 Cost of product revenues 22,677 17,001 11,982 Selling, general, and administrative expenses (Note 8) 35,466 34,747 23,988 Product and new business development expenses 1,046 1,086 883 Nonrecurring costs (Note 13) 7,800 4,995 - -------- -------- -------- 274,392 210,280 128,272 -------- -------- -------- Operating Income 4,111 10,204 8,713 Interest Income 7,253 5,102 3,322 Interest Expense (includes $2,492 $5,464, and $1,071 to parent company) (12,914) (10,730) (2,855) Gain on Issuance of Stock by Subsidiaries (Note 10) 1,475 4,127 1,343 Loss on Sale of Assets (Note 13) (1,482) (569) - Equity in Earnings of Unconsolidated Subsidiary (Note 14) 865 - - Gain on Sale of Investments, Net (includes $1,089 on sale of related- party debentures in fiscal 1995) 195 180 1,092 Other Income 206 - - -------- -------- -------- Income (Loss) Before Income Taxes and Minority Interest (291) 8,314 11,615 Income Tax Provision (Note 5) (1,705) (3,644) (2,871) Minority Interest Income (Expense) 1,834 (1,223) (4,268) -------- -------- -------- Net Income (Loss) $ (162) $ 3,447 $ 4,476 ======== ======== ======== Earnings (Loss) per Share $ (.01) $ .19 $ .26 ======== ======== ======== Weighted Average Shares 18,090 18,237 17,143 ======== ======== ======== The accompanying notes are an integral part of these consolidated financial statements. 2PAGE Thermo TerraTech Inc. 1997 Financial Statements Consolidated Balance Sheet March 29, March 30, (In thousands) 1997 1996 ------------------------------------------------------------------------ Assets Current Assets: Cash and cash equivalents $ 63,172 $ 31,182 Short-term available-for-sale investments, at quoted market value (amortized cost of $18,380 and $7,007; Note 2) 18,391 7,004 Short-term held-to-maturity investments, at amortized cost (quoted market value of $13,238; Note 2) 12,971 - Accounts receivable, less allowances of $3,838 and $2,861 49,191 44,397 Unbilled contract costs and fees 29,053 21,113 Inventories 3,021 3,883 Prepaid and refundable income taxes (Note 5) 7,369 9,556 Prepaid expenses 3,870 4,442 -------- -------- 187,038 121,577 -------- -------- Property, Plant, and Equipment, at Cost, Net 83,566 82,956 -------- -------- Long-term Available-for-sale Investments, at Quoted Market Value (amortized cost of $2,108 in fiscal 1996; Note 2) - 2,098 -------- -------- Long-term Held-to-maturity Investments, at Amortized Cost (quoted market value of $13,142 and $24,963; Note 2) 13,086 24,251 -------- -------- Other Assets 17,308 12,931 -------- -------- Cost in Excess of Net Assets of Acquired Companies (Notes 3 and 13) 92,786 89,843 -------- -------- $393,784 $333,656 ======== ======== 3PAGE Thermo TerraTech Inc. 1997 Financial Statements Consolidated Balance Sheet (continued) March 29, March 30, (In thousands except share amounts) 1997 1996 ------------------------------------------------------------------------ Liabilities and Shareholders' Investment Current Liabilities: Accounts payable $ 12,292 $ 10,922 Notes payable and current maturities of long-term obligations (includes $38,000 and $15,000 due to parent company; Notes 3 and 6) 67,495 19,711 Billings in excess of revenues earned 4,319 2,076 Accrued payroll and employee benefits 12,182 9,930 Other accrued expenses (Note 3) 10,509 7,871 Due to parent company 2,926 5,059 -------- -------- 109,723 55,569 -------- -------- Deferred Income Taxes (Note 5) 5,297 3,558 -------- -------- Other Deferred Items 893 980 -------- -------- Long-term Obligations (Notes 6 and 11): Subordinated convertible debentures 149,800 56,132 Other (includes $73,000 due to parent company in fiscal 1996; Note 3) 15,386 99,252 -------- -------- 165,186 155,384 -------- -------- Minority Interest 29,159 32,295 -------- -------- Commitments and Contingencies (Note 7) Shareholders' Investment (Notes 4 and 9): Common stock, $.10 par value, 75,000,000 shares authorized; 18,304,424 and 17,598,013 shares issued 1,830 1,760 Capital in excess of par value 62,610 59,419 Retained earnings 24,046 24,474 Treasury stock at cost, 417,696 and 34,531 shares (3,941) (410) Cumulative translation adjustment (1,026) 635 Net unrealized gain (loss) on available-for-sale investments (Note 2) 7 (8) -------- -------- 83,526 85,870 -------- -------- $393,784 $333,656 ======== ======== The accompanying notes are an integral part of these consolidated financial statements. 4PAGE Thermo TerraTech Inc. 1997 Financial Statements Consolidated Statement of Cash Flows Year Ended ------------------------------- March 29, March 30, April 1, (In thousands) 1997 1996 1995 ------------------------------------------------------------------------ Operating Activities: Net income (loss) $ (162) $ 3,447 $ 4,476 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 12,900 11,005 6,795 Nonrecurring costs (Note 13) 7,800 4,995 - Loss on sale of assets (Note 13) 1,482 569 - Equity in earnings of unconsolidated subsidiary (Note 14) (865) - - Minority interest (income) expense (1,834) 1,223 4,268 Provision for losses on accounts receivable 625 85 162 Other noncash expenses 625 1,517 1,633 Decrease in deferred income taxes (43) (648) (8) Gain on issuance of stock by subsidiaries (Note 10) (1,475) (4,127) (1,343) Gain on sale of investments (195) (180) (1,092) Changes in current accounts, excluding the effects of acquisitions: Accounts receivable (6,818) 1,313 (1,615) Inventories and unbilled contract costs and fees (7,784) (5,411) (1,752) Other current assets 403 387 300 Accounts payable 895 (3,277) 970 Current liabilities 3,399 (1,826) (4,942) -------- -------- -------- Net cash provided by operating activities 8,953 9,072 7,852 -------- -------- -------- Investing Activities: Acquisitions, net of cash acquired (Note 3) (5,156) (43,824) (38,188) Purchase of minority interest in Thermo Terra Tech joint venture (Note 3) - (34,267) - Proceeds from sale and maturities of available-for-sale investments 29,822 37,795 19,252 Purchases of available-for-sale investments (38,913) (30,864) - Purchases of held-to-maturity investments - - (22,300) Purchases of property, plant, and equipment (15,426) (16,779) (7,116) Proceeds from sale of division (Note 13) 347 - - Purchases of other assets (450) (1,090) - Other 1,356 426 (336) -------- -------- -------- Net cash used in investing activities $(28,420) $(88,603) $(48,688) -------- -------- -------- 5PAGE Thermo TerraTech Inc. 1997 Financial Statements Consolidated Statement of Cash Flows (continued) Year Ended ------------------------------- March 29, March 30, April 1, (In thousands) 1997 1996 1995 ------------------------------------------------------------------------ Financing Activities: Net proceeds from issuance of subordinated convertible debentures (Note 6) $112,398 $ 36,889 $ - Issuance of notes payable to parent company (Notes 3 and 6) - 35,000 57,000 Repayment of notes payable to parent company (Notes 3 and 6) (50,000) (4,000) - Proceeds from issuance of Company and subsidiaries' common stock and warrants (Note 10) 5,346 7,662 3,903 Purchase of Company and subsidiary common stock and subordinated convertible debentures (14,984) - - Issuance of note receivable - (653) (700) Issuance of short-term obligations 803 2,178 - Repayment of note payable (736) (688) - Dividends paid by subsidiary to minority shareholders (847) (810) (685) Metal Treating, Inc. transfer of cash to parent company (Note 3) (266) (316) (425) Other - 63 (124) -------- -------- -------- Net cash provided by financing activities 51,714 75,325 58,969 -------- -------- -------- Exchange Rate Effect on Cash (257) (420) 1,699 -------- -------- -------- Increase (Decrease) in Cash and Cash Equivalents 31,990 (4,626) 19,832 Cash and Cash Equivalents at Beginning of Year 31,182 35,808 15,976 -------- -------- -------- Cash and Cash Equivalents at End of Year $ 63,172 $ 31,182 $ 35,808 ======== ======== ======== See Note 15 for supplemental cash flow information. The accompanying notes are an integral part of these consolidated financial statements. 6PAGE Thermo TerraTech Inc. 1997 Financial Statements Consolidated Statement of Shareholders' Investment Year Ended ------------------------------- March 29, March 30, April 1, (In thousands) 1997 1996 1995 ----------------------------------------------------------------------- Common Stock, $.10 Par Value Balance at beginning of year $ 1,760 $ 1,741 $ 1,725 Issuance of stock under employees' and directors' stock plans 24 15 16 Conversions of subordinated convertible debentures (Note 6) 46 4 - ------- ------- ------- Balance at end of year 1,830 1,760 1,741 ------- ------- ------- Capital in Excess of Par Value Balance at beginning of year 59,419 53,559 46,456 Issuance of stock under employees' and directors' stock plans 264 268 582 Tax benefit related to employees' and directors' stock plans 461 585 1,249 Conversions of subordinated convertible debentures (Note 6) 4,766 351 - Issuance of stock for acquired company - - (1,326) Issuance of Company stock options for acquired company (Note 3) - - 6,923 Effect of majority-owned subsidiaries' equity transactions (2,300) 4,656 (325) ------- ------- ------- Balance at end of year 62,610 59,419 53,559 ------- ------- ------- Retained Earnings Balance at beginning of year 24,474 21,343 17,292 Net income (loss) (162) 3,447 4,476 Metal Treating, Inc. transfer of cash to parent company (Note 3) (266) (316) (425) ------- ------- ------- Balance at end of year 24,046 24,474 21,343 ------- ------- ------- Treasury Stock Balance at beginning of year (410) (864) (2,911) Activity under employees' and directors' stock plans 260 454 (119) Issuance of stock for acquired company - - 2,166 Purchases of Company common stock (3,791) - ------- ------- ------- Balance at end of year $(3,941) $ (410) $ (864) ------- ------- ------- 7PAGE Thermo TerraTech Inc. 1997 Financial Statements Consolidated Statement of Shareholders' Investment (continued) Year Ended ------------------------------- March 29, March 30, April 1, (In thousands) 1997 1996 1995 ----------------------------------------------------------------------- Cumulative Translation Adjustment Balance at beginning of year $ 635 $ 1,526 $ (669) Translation adjustment (1,661) (891) 2,195 ------- ------- ------- Balance at end of year (1,026) 635 1,526 ------- ------- ------- Net Unrealized Gain (Loss) on Available- for-sale Investments Balance at beginning of year (8) (88) 346 Change in net unrealized gain (loss) on available-for-sale investments (Note 2) 15 80 (434) ------- ------- ------- Balance at end of year 7 (8) (88) ------- ------- ------- Total Shareholders' Investment $83,526 $85,870 $77,217 ======= ======= ======= The accompanying notes are an integral part of these consolidated financial statements. 8PAGE Thermo TerraTech Inc. 1997 Financial Statements Notes to Consolidated Financial Statements 1. Nature of Operations and Summary of Significant Accounting Policies Nature of Operations Thermo TerraTech Inc. (the Company) provides environmental services and infrastructure planning and design encompassing a broad range of specializations, including remediation of soil and fluids, consulting and design, laboratory-testing, and metal treating. Relationship with Thermo Electron Corporation The Company was incorporated on May 30, 1986, as an indirect, wholly owned subsidiary of Thermo Electron Corporation (Thermo Electron). As of March 29, 1997, Thermo Electron owned 14,705,658 shares of the Company's common stock, representing 82% of such stock outstanding. Principles of Consolidation The accompanying financial statements include the accounts of the Company and its majority- and wholly owned subsidiaries. All material intercompany accounts and transactions have been eliminated. Majority-owned subsidiaries include Thermo Remediation Inc. (Thermo Remediation), a publicly held subsidiary, and Thermo EuroTech N.V. (Thermo EuroTech), a privately held subsidiary. The Company accounts for its investment in a business in which it owns 50% using the equity method. Presentation Historical financial results have been restated to include Metal Treating, Inc. (Metal Treating), acquired from Thermo Electron in October 1996 in a transaction accounted for at historical cost in a manner similar to a pooling-of-interests (Note 3). Certain amounts in fiscal 1996 and 1995 have been reclassified to conform to the fiscal 1997 financial statement presentation. Certain of these reclassifications are required to present consistent classification of expenses within the Company's consulting and design services business. Fiscal Year The Company has adopted a fiscal year ending the Saturday nearest March 31. References to fiscal 1997, 1996, and 1995 are for the fiscal years ended March 29, 1997, March 30, 1996, and April 1, 1995, respectively. Revenue Recognition For the majority of its operations, the Company recognizes revenues upon completion of services it renders. Revenues from soil-remediation services are recognized as soil is processed. With respect to soil-remediation services, the Company bills customers upon receipt of the contaminated soil at its remediation centers. Amounts billed in excess of revenues recognized are classified as billings in excess of revenues earned in the accompanying balance sheet. Revenues and profits on substantially all contracts are recognized using the percentage-of-completion method. Revenues recorded under the percentage-of-completion method were $108,535,000 in fiscal 1997, $61,223,000 in fiscal 1996, and $47,446,000 in fiscal 1995. The percentage of completion is determined by relating either the actual 9PAGE Thermo TerraTech Inc. 1997 Financial Statements Notes to Consolidated Financial Statements 1. Nature of Operations and Summary of Significant Accounting Policies (continued) costs or actual labor incurred to date to management's estimate of total costs or total labor, respectively, to be incurred on each contract. If a loss is indicated on any contract in process, a provision is made currently for the entire loss. The Company's contracts generally provide for billing of customers upon the attainment of certain milestones specified in each contract. Revenues earned on contracts in process in excess of billings are classified as unbilled contract costs and fees in the accompanying balance sheet. There are no significant amounts included in the accompanying balance sheet that are not expected to be recovered from existing contracts at current contract values, or that are not expected to be collected within one year, including amounts that are billed but not paid under retainage provisions. Gain on Issuance of Stock by Subsidiaries At the time a subsidiary sells its stock to unrelated parties at a price in excess of its book value, the Company's net investment in that subsidiary increases. If at that time the subsidiary is an operating entity and not engaged principally in research and development, the Company records the increase as a gain (Note 10). If gains have been recognized on issuances of a subsidiary's stock and shares of the subsidiary are subsequently repurchased either by the subsidiary, the Company, or Thermo Electron, gain recognition does not occur on issuances subsequent to the date of a repurchase until such time as shares have been issued in an amount equivalent to the number of repurchased shares. Such transactions are reflected as equity transactions and the net effect of these transactions is reflected in the accompanying statement of shareholders' investment as effect of majority-owned subsidiaries' equity transactions. Stock-based Compensation Plans The Company applies Accounting Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for its stock-based compensation plans (Note 4). Accordingly, no accounting recognition is given to stock options granted at fair market value until they are exercised. Upon exercise, net proceeds, including tax benefits realized, are credited to equity. Income Taxes In accordance with Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes," the Company recognizes deferred income taxes based on the expected future tax consequences of differences between the financial statement basis and the tax basis of assets and liabilities calculated using enacted tax rates in effect for the year in which the differences are expected to be reflected in the tax return. Earnings per Share Earnings per share have been computed based on the weighted average number of shares outstanding during the year. Weighted average shares, where material and dilutive, includes the assumed exercise of stock 10PAGE Thermo TerraTech Inc. 1997 Financial Statements Notes to Consolidated Financial Statements 1. Nature of Operations and Summary of Significant Accounting Policies (continued) options and warrants computed using the treasury stock method. Fully diluted earnings per share have not been presented because the effect of the assumed exercise of stock options and warrants and the assumed conversion of the Company's subordinated convertible debentures would be antidilutive in fiscal 1997 and immaterial in fiscal 1996 and 1995. Cash and Cash Equivalents As of March 29, 1997, $59,781,000 of the Company's cash equivalents were invested in a repurchase agreement with Thermo Electron. Under this agreement, the Company in effect lends excess cash to Thermo Electron, which Thermo Electron collateralizes with investments principally consisting of U.S. government agency securities, corporate notes, commercial paper, money market funds, and other marketable securities, in the amount of at least 103% of such obligation. The Company's funds subject to the repurchase agreement are readily convertible into cash by the Company. The repurchase agreement earns a rate based on the 90-day Commercial Paper Composite Rate plus 25 basis points, set at the beginning of each quarter. As of March 29, 1997, the Company's cash equivalents also include investments in a money market fund, which have an original maturity of three months or less. Cash equivalents are carried at cost, which approximates fair market value. Inventories Inventories are stated at the lower of cost (on an average-cost basis) or market value and include materials, labor, and manufacturing overhead. The components of inventories are as follows: (In thousands) 1997 1996 ----------------------------------------------------------------------- Raw materials and supplies $2,483 $3,822 Work in process and finished goods 538 61 ------ ------ $3,021 $3,883 ====== ====== Property, Plant, and Equipment The costs of additions and improvements are capitalized, while maintenance and repairs are charged to expense as incurred. The Company provides for depreciation and amortization primarily using the straight-line method over the estimated useful lives of the property as follows: buildings and improvements, 5 to 40 years; machinery and equipment, 3 to 12 years; and leasehold improvements, the shorter of the term of the lease or the life of the asset. Soil-remediation units, which accounted for 16% and 23% of the Company's machinery and equipment at fiscal year-end 1997 and 1996, respectively, are depreciated based on an 11PAGE Thermo TerraTech Inc. 1997 Financial Statements Notes to Consolidated Financial Statements 1. Nature of Operations and Summary of Significant Accounting Policies (continued) hourly rate that is computed by estimating total hours of operation for each unit. Property, plant, and equipment consists of the following: (In thousands) 1997 1996 ------------------------------------------------------------------------ Land and buildings $ 40,957 $ 37,144 Machinery, equipment, and leasehold improvements 91,375 88,985 -------- -------- 132,332 126,129 Less: Accumulated depreciation and amortization 48,766 43,173 -------- -------- $ 83,566 $ 82,956 ======== ======== Other Assets Other assets in the accompanying balance sheet includes the costs of acquired technology and other specifically identifiable intangible assets that are being amortized using the straight-line method over their estimated useful lives, which range from 5 to 12 years. These assets were $6,150,000 and $9,508,000, net of accumulated amortization of $5,662,000 and $4,791,000, at fiscal year-end 1997 and 1996, respectively. Cost in Excess of Net Assets of Acquired Companies The excess of cost over the fair value of net assets of acquired companies is amortized using the straight-line method over periods not exceeding 40 years. Accumulated amortization was $10,921,000 and $8,788,000 at fiscal year-end 1997 and 1996, respectively. The Company assesses the future useful life of this asset whenever events or changes in circumstances indicate that the current useful life has diminished (Note 13). The Company considers the future undiscounted cash flows of the acquired companies in assessing the recoverability of this asset. If impairment has occurred, any excess of carrying value over fair value is recorded as a loss. Foreign Currency All assets and liabilities of the Company's foreign subsidiaries are translated at year-end exchange rates, and revenues and expenses are translated at average exchange rates for the year in accordance with SFAS No. 52, "Foreign Currency Translation." Resulting translation adjustments are reflected as a separate component of shareholders' investment titled "Cumulative translation adjustment." Foreign currency transaction gains and losses are included in the accompanying statement of operations and are not material for the three years presented. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 12PAGE Thermo TerraTech Inc. 1997 Financial Statements Notes to Consolidated Financial Statements 2. Available-for-sale and Held-to-maturity Investments Effective April 2, 1994, the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." In accordance with SFAS No. 115, the Company's debt and marketable equity securities that are classified as available-for-sale investments in the accompanying balance sheet are carried at market value, with the difference between cost and market value, net of related tax effects, recorded currently as a component of shareholders' investment titled "Net unrealized gain (loss) on available-for-sale investments." The aggregate market value, cost basis, and gross unrealized gains and losses of short- and long-term available-for-sale investments by major security type are as follows: Gross Gross Market Cost Unrealized Unrealized (In thousands) Value Basis Gains Losses -------------------------------------------------------------------------- 1997 Government-agency securities $ 9,999 $ 9,998 $ 1 $ - Corporate bonds 8,016 8,006 10 - Other 376 376 - - ------- ------- ------- ------- $18,391 $18,380 $ 11 $ - ======= ======= ======= ======= 1996 Tax-exempt securities $ 5,009 $ 4,998 $ 11 $ - Corporate bonds 1,985 2,000 - (15) Money market preferred stock 2,098 2,107 - (9) Other 10 10 - - ------- ------- ------- ------- $ 9,102 $ 9,115 $ 11 $ (24) ======= ======= ======= ======= Short-term available-for-sale investments in the accompanying fiscal 1997 balance sheet include $16,380,000 with contractual maturities of one year or less and $2,011,000 with contractual maturities of one through five years. Actual maturities may differ from contractual maturities as a result of the Company's intent to sell these securities prior to maturity and as a result of put and call options that enable the Company, the issuer, or both to redeem these securities at an earlier date. The cost of available-for-sale investments that were sold was based on specific identification in determining realized gains and losses recorded in the accompanying statement of operations. "Gain on sale of investments, net" resulted from gross realized gains of $204,000 and gross realized losses of $9,000 in fiscal 1997, and gross realized gains in fiscal 1996 and 1995, relating to the sale of available-for-sale investments. In order to meet the Company's obligation to the former owner of Elson T. Killam Associates, Inc., which the Company acquired in February 1995, the Company purchased U.S. treasury bonds that mature in February and May 13PAGE Thermo TerraTech Inc. 1997 Financial Statements Notes to Consolidated Financial Statements 2. Available-for-sale and Held-to-maturity Investments (continued) 1998, the dates the Company's zero coupon promissory note is due (Note 3). These securities are classified as short- and long-term held-to-maturity investments in the accompanying balance sheet and are carried at amortized cost. It is the Company's intent and within its ability to hold these securities to maturity. 3. Joint Venture and Acquisitions Joint Venture In May 1994, the Company entered into an agreement establishing an environmental services joint venture (the joint venture), with Thermo Instrument Systems Inc. (Thermo Instrument) that became effective April 4, 1994. The Company contributed to the joint venture Terra Tech Labs, Inc. (later renamed Thermo Analytical Inc.) and approximately $31,000,000 in cash and short-term investments, $15,000,000 of which was borrowed from Thermo Electron pursuant to a promissory note. In May 1996, the Company repaid the promissory note (Note 6). Thermo Instrument contributed its environmental services businesses (Environmental Services Businesses) that consist of a national network of analytical laboratories, and businesses that provide nuclear-radiation safety and environmental science and consulting services. Accordingly, the joint venture's operating results were consolidated with the Company's operating results. Under the terms of the joint venture agreement, 66.67% of income earned by the joint venture from April 4, 1994, to April 1, 1995, was allocated to Thermo Instrument. Because the Company and the Environmental Services Businesses were deemed for accounting purposes to be under control of their common majority owner, Thermo Electron, the transaction was accounted for at historical cost in a manner similar to a pooling-of-interests. Effective April 2, 1995, the Company and Thermo Instrument dissolved the joint venture and the Company purchased the businesses formerly operated by the joint venture from Thermo Instrument for $34,267,000 in cash. As a result of this transaction, the Company increased its ownership in the businesses operated by the joint venture from 51% to 100%. Based on unaudited data, if the acquisition of Thermo Instrument's share of such businesses by the Company had occurred at the beginning of fiscal 1995, net income and earnings per share on a pro forma basis would have been $4,935,000 and $.29, respectively, in fiscal 1995. The Company borrowed the purchase price from Thermo Electron through the issuance of a $35,000,000 promissory note. In May 1996, the Company repaid the promissory note (Note 6). In June 1995, the Company transferred three businesses formerly operated by the joint venture, collectively known as the Nuclear Services Group (renamed Thermo Nutech), to Thermo Remediation in exchange for 1,583,360 shares of Thermo Remediation common stock. Acquisitions In October 1996, the Company acquired Metal Treating from Thermo Electron in exchange for $1,600,000 in cash. Metal Treating provides heat treating services, including carburizing, vacuum hardening, silver and copper brazing, and aluminum heat treating, primarily in the Milwaukee 14PAGE Thermo TerraTech Inc. 1997 Financial Statements Notes to Consolidated Financial Statements 3. Joint Venture and Acquisitions (continued) and southeastern Wisconsin areas. Because the Company and Metal Treating were deemed for accounting purposes to be under control of their common majority owner, Thermo Electron, the transaction has been accounted for at historical cost in a manner similar to a pooling-of-interests. Accordingly, all historical information presented has been restated to include the results of Metal Treating. Revenues and net income as previously reported by the separate entities prior to the acquisition and as restated for the combined Company are as follows: (In thousands) 1996 1995 ----------------------------------------------------------------------- Revenues: Previously reported $217,397 $133,803 Metal Treating 3,100 3,186 Elimination (13) (4) -------- -------- $220,484 $136,985 ======== ======== Net Income: Previously reported $ 3,218 $ 4,115 Metal Treating 229 361 -------- -------- $ 3,447 $ 4,476 ======== ======== In addition, during fiscal 1997, the Company and Thermo Remediation each acquired companies for an aggregate of $3,900,000 in cash, 311,040 shares of Thermo Remediation's common stock valued at $2,000,000, and the issuance of $1,300,000 of short- and long-term obligations. In December 1995, Thermo Remediation acquired Remediation Technologies, Inc. (ReTec), a provider of integrated environmental services such as the remediation of industrial sites contaminated with organic wastes and residues. The purchase price of $29,672,000 consisted of $18,462,000 in cash, 227,250 shares of Thermo Remediation's common stock, and 75,750 warrants to purchase shares of Thermo Remediation's common stock at $14.85 per share, valued in the aggregate at $3,716,000, and approximately $7,494,000 attributable to the conversion of outstanding ReTec stock options into Thermo Remediation stock options of equivalent intrinsic value at the date of acquisition. In May 1995, the Company acquired substantially all of the assets of Lancaster Laboratories, Inc. and its affiliate Clewmark Holdings (collectively Lancaster Laboratories). Lancaster Laboratories, based in Lancaster, Pennsylvania, is a provider of analytical services to the environmental, food, and pharmaceutical industries. The purchase price for the assets was $25,329,000 in cash, including the repayment of $5,333,000 of debt. 15PAGE Thermo TerraTech Inc. 1997 Financial Statements Notes to Consolidated Financial Statements 3. Joint Venture and Acquisitions (continued) In March 1995, the Company's Thermo EuroTech subsidiary acquired all of the outstanding capital stock of Refining and Trading Holland B.V., which conducts business under the name North Refinery, from Stalt Holding B.V. North Refinery, located in Delfzijl, Holland, specializes in processing "off-spec" and contaminated petroleum fluids into usable products such as gas oil, diesel oil, and fuel oil. The purchase price for North Refinery's stock was 9,568,000 Dutch guilders (approximately $6,180,000) and 228,570 shares of Thermo EuroTech's capital stock, valued at 1,327,000 Dutch guilders (approximately $857,000). Thermo EuroTech has also agreed to pay, after the fifth anniversary date of the closing, an amount equal to 20% of the amount by which the cumulative pretax profits of North Refinery's business over the five-year period ending on such anniversary exceeds 5,000,000 Dutch guilders. In February 1995, the Company acquired all of the outstanding capital stock of Engineering, Technology and Knowledge Corporation (ETKC) from Nord Est S.A., a French industrial company (Nord Est). ETKC's sole subsidiary, Elson T. Killam Associates, Inc. (Killam Associates), is a leading provider of comprehensive environmental consulting and professional engineering services in selected areas of the U.S. The purchase price for ETKC's stock was $13,273,000 in cash and a zero coupon promissory note with a face value of $28,000,000 and a present value of $22,300,000 as of the acquisition closing date, payable in February and May 1998. The Company has also agreed to pay, after the third anniversary date of the closing, an amount equal to 30% of the amount by which Killam Associates' cumulative net income for the three-year period ending on such anniversary exceeds $13,000,000. In a related transaction, certain members of Killam Associates' senior management (the Killam Management) exchanged outstanding options to purchase shares of Killam Associates' capital stock for options to purchase an aggregate of 847,678 shares of the Company's common stock, which options were valued at $6,923,000. Additional options to purchase shares of Killam Associates' capital stock were canceled in exchange for cash payments to the Killam Management in the aggregate amount of $1,922,000. The Company borrowed the cash portion of the purchase price, including cash used to purchase U.S. treasury bonds to collateralize the promissory note delivered to Nord Est, from Thermo Electron through the issuance of a $38,000,000 promissory note (Note 6). In October 1994, Thermo Remediation acquired a soil-remediation facility in South Tacoma, Washington (renamed TPST Woodworth) from Woodworth & Company, Inc. The purchase price for TPST Woodworth was $4,701,000 in cash. In connection with the financing of acquisitions, Thermo Remediation issued to Thermo Electron a $4,000,000 promissory note, which was repaid in full in June 1995. During fiscal 1995, Thermo Remediation and the environmental services joint venture made other acquisitions for an aggregate $14,200,000 in cash. These acquisitions, except for Metal Treating, have been accounted for using the purchase method of accounting, and their results have been included in the accompanying financial statements from their respective dates of acquisition. The aggregate cost of the acquisitions in fiscal 1997, 1996, and 1995 exceeded the estimated fair value of the acquired net assets by $68,233,000, which is being amortized over 40 years. 16PAGE Thermo TerraTech Inc. 1997 Financial Statements Notes to Consolidated Financial Statements 3. Joint Venture and Acquisitions (continued) Allocation of the purchase price for these acquisitions was based on estimates of the fair value of the net assets acquired and, for acquisitions completed in fiscal 1997, is subject to adjustment upon finalization of the purchase price allocation. Based on unaudited data, the following table presents selected financial information for the Company, ReTec, and Lancaster Laboratories on a pro forma basis, assuming the companies had been combined since the beginning of fiscal 1995. The effect on the Company's financial statements of the acquisitions not included in the pro forma data was not material to the Company's results of operations. (In thousands except per share amounts) 1996 1995 ------------------------------------------------------------------------ Revenues $254,276 $252,658 Net income 2,340 7,661 Earnings per share .13 .45 The pro forma results are not necessarily indicative of future operations or the actual results that would have occurred had the acquisitions been made at the beginning of fiscal 1995. 4. Employee Benefit Plans Stock-based Compensation Plans Stock Option Plans ------------------ The Company has stock-based compensation plans for its key employees, directors, and others. Two of these plans, adopted in 1986, permit the grant of nonqualified and incentive stock options. A third plan, adopted in fiscal 1994, permits the grant of a variety of stock and stock-based awards as determined by the human resources committee of the Company's Board of Directors (the Board Committee), including restricted stock, stock options, stock bonus shares, or performance-based shares. To date, only nonqualified stock options have been awarded under these plans. The option recipients and the terms of options granted under these plans are determined by the Board Committee. Generally, options granted to date are exercisable immediately, but are subject to certain transfer restrictions and the right of the Company to repurchase shares issued upon exercise of the options at the exercise price, upon certain events. The restrictions and repurchase rights generally lapse ratably over a three to ten year period, depending on the term of the option, which may range from five to twelve years. Nonqualified stock options may be granted at any price determined by the Board Committee, although incentive stock options must be granted at not less than the fair market value of the Company's stock on the date of grant. Generally, all options have been granted at fair market value. The Company also has a directors' stock option plan, adopted in September 1991, that provides for the grant of stock options to outside directors pursuant to a formula approved by the Company's shareholders. Options awarded under this plan are exercisable six months after the date of grant and expire three to seven years after the date of grant. In addition to the Company's stock-based compensation plans, certain officers and key employees may also participate in the 17PAGE Thermo TerraTech Inc. 1997 Financial Statements Notes to Consolidated Financial Statements 4. Employee Benefit Plans (continued) stock-based compensation plans of Thermo Electron or its majority-owned subsidiaries. In connection with the acquisition of Killam Associates in February 1995, the Company assumed certain outstanding options granted under Killam Associates' nonqualified stock option plan. Such options were converted into options to purchase shares of the Company's common stock, in accordance with the original terms of the options. All of the options converted were fully vested and exercisable immediately pursuant to their original terms. Such options expire ten years from the date of grant. No accounting recognition is given to options granted at fair market value until they are exercised. Upon exercise, net proceeds, including tax benefits realized, are credited to equity. A summary of the Company's stock option information is as follows: 1997 1996 1995 ---------------- ---------------- ----------------- Weighted Weighted Range of Number Average Number Average Number Option (Shares in of Exercise of Exercise of Prices thousands) Shares Price Shares Price Shares per Share -------------------------------------------------------------------------- Options outstanding, $ 1.43- beginning of year 2,561 $ 6.13 2,559 $ 5.62 1,318 $16.05 Assumed upon acquisition of Killam Associates - - - - 848 .08 7.83- Granted 288 10.10 182 11.44 665 8.18 1.43- Exercised (242) 1.16 (141) 3.09 (197) 3.19 8.10- Forfeited (49) 8.79 (39) 8.60 (75) 10.00 ----- ----- ----- Options outstanding, $ .08- end of year 2,558 $ 6.99 2,561 $ 6.13 2,559 $16.05 ===== ===== ===== $ .08- Options exercisable 2,558 $ 6.99 2,558 $ 6.12 2,558 $16.05 ===== ===== ===== Options available for grant 483 730 874 ===== ===== ===== Weighted average fair value per share of options granted during year $ 4.15 $ 3.83 ====== ====== 18PAGE Thermo TerraTech Inc. 1997 Financial Statements Notes to Consolidated Financial Statements 4. Employee Benefit Plans (continued) A summary of the status of the Company's stock options at March 29, 1997, is as follows: Options Outstanding and Exercisable ----------------------------------- Weighted Number Weighted Average Average of Remaining Exercise Range of Exercise Prices Shares Contractual Life Price ----------------------------------------------------------------------- (Shares in thousands) $ 0.08-$ 4.07 578 0.8 years $ 0.08 4.08- 8.06 74 2.0 years 6.07 8.07- 12.06 1,822 6.4 years 8.97 12.07- 16.05 84 5.3 years 12.40 ----- $ 0.08-$16.05 2,558 5.0 years $ 6.99 ===== Employee Stock Purchase Program ------------------------------- Substantially all of the Company's full-time employees are eligible to participate in an employee stock purchase program sponsored by the Company and Thermo Electron. Under this program, shares of the Company's and Thermo Electron's common stock can be purchased at the end of a 12-month period at 95% of the fair market value at the beginning of the period, and the shares purchased are subject to a six-month resale restriction. Prior to November 1, 1995, the applicable shares of common stock could be purchased at 85% of the fair market value at the beginning of the period, and the shares purchased were subject to a one year resale restriction. Shares are purchased through payroll deductions of up to 10% of each participating employee's gross wages. During fiscal 1997, 1996, and 1995, the Company issued 25,053 shares, 44,259 shares, and 21,999 shares, respectively, of its common stock under this program. Employees of the Environmental Services Businesses participated in an employee stock purchase program sponsored by Thermo Instrument through November 1994. Thereafter, they became eligible to participate in the Company's employee stock purchase program. Pro Forma Stock-based Compensation Expense In October 1995, the Financial Accounting Standards Board issued SFAS No. 123, "Accounting for Stock-based Compensation," which sets forth a fair-value based method of recognizing stock-based compensation expense. As permitted by SFAS No. 123, the Company has elected to continue to apply APB No. 25 to account for its stock-based compensation plans. Had compensation cost for awards in fiscal 1997 and 1996 under the Company's stock-based compensation plans been determined based on the fair value at 19PAGE Thermo TerraTech Inc. 1997 Financial Statements Notes to Consolidated Financial Statements 4. Employee Benefit Plans (continued) the grant dates consistent with the method set forth under SFAS No. 123, the effect on the Company's net income (loss) and earnings (loss) per share would have been as follows: (In thousands except per share amounts) 1997 1996 ------------------------------------------------------------------------ Net income (loss): As reported $ (162) $ 3,447 Pro forma (866) 3,018 Earnings (loss) per share: As reported (.01) .19 Pro forma (.05) .17 Because the method prescribed by SFAS No. 123 has not been applied to options granted prior to April 2, 1995, the resulting pro forma compensation expense may not be representative of the amount to be expected in future years. Compensation expense for options granted is reflected over the vesting period; therefore, future pro forma compensation expense may be greater as additional options are granted. The fair value of each option grant was estimated on the grant date using the Black-Scholes option-pricing model with the following weighted-average assumptions: 1997 1996 ------------------------------------------------------------------------ Volatility 29% 29% Risk-free interest rate 6.2% 5.8% Expected life of options 6.1 years 4.4 years The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option-pricing models require the input of highly subjective assumptions including expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. 401(k) Savings Plan and Employee Stock Ownership Plan The majority of the Company's full-time U.S. employees are eligible to participate in Thermo Electron's 401(k) savings plan and, prior to January 1, 1995, in Thermo Electron's employee stock ownership plan (ESOP). Contributions to the 401(k) savings plan are made by both the employee and the Company. Company contributions are based upon the level of employee contributions. Certain subsidiaries of the Company also have a defined contribution retirement plan, a union-sponsored, collectively bargained multi-employer pension plan, and 401(k) savings plans. For 20PAGE Thermo TerraTech Inc. 1997 Financial Statements Notes to Consolidated Financial Statements 4. Employee Benefit Plans (continued) these plans, the Company contributed and charged to expense $2,837,000, $2,909,000, and $1,654,000 in fiscal 1997, 1996, and 1995, respectively. Effective December 31, 1994, the ESOP was split into two plans: ESOP I, covering employees of Thermo Electron's corporate office and its wholly owned subsidiaries and ESOP II, covering employees of certain of Thermo Electron's majority-owned subsidiaries, including the Company. Also, effective December 31, 1994, the ESOP II plan was terminated, and as a result, the Company's employees are no longer eligible to participate in an ESOP. 5. Income Taxes The components of income (loss) before income taxes and minority interest are as follows: (In thousands) 1997 1996 1995 ----------------------------------------------------------------------- Domestic $ 3,149 $10,977 $11,494 Foreign (3,440) (2,663) 121 ------- ------- ------- $ (291) $ 8,314 $11,615 ======= ======= ======= The Company's foreign results of operations include losses associated with its J. Amerika division, which was sold during the fourth quarter of fiscal 1997 (Note 13). The components of the income tax provision are as follows: (In thousands) 1997 1996 1995 ----------------------------------------------------------------------- Currently (payable) prepaid: Federal $(1,271) $(1,339) $(3,253) State (1,122) (678) (1,112) Foreign 234 1,120 (96) ------- ------- ------- (2,159) (897) (4,461) ------- ------- ------- (Deferred) prepaid, net: Federal (389) (2,198) 1,287 State (88) (549) 303 Foreign 931 - - ------- ------- ------- 454 (2,747) 1,590 ------- ------- ------- $(1,705) $(3,644) $(2,871) ======= ======= ======= The Company receives a tax deduction upon exercise of nonqualified stock options by employees for the difference between the exercise price and the market price of the Company's stock on the date of exercise. The provision for income taxes that is currently payable does not reflect $659,000, $1,785,000, and $1,380,000 in fiscal 1997, 1996, and 1995, 21PAGE Thermo TerraTech Inc. 1997 Financial Statements Notes to Consolidated Financial Statements 5. Income Taxes (continued) respectively, of such benefits of the Company and its majority-owned subsidiaries that have been allocated to capital in excess of par value, directly or through the effect of majority-owned subsidiaries' equity transactions. The income tax provision in the accompanying statement of operations differs from the amounts calculated by applying the statutory federal income tax rate of 35% in fiscal 1997 and 34% in fiscal 1996 and 1995 to income (loss) before income taxes and minority interest due to the following: (In thousands) 1997 1996 1995 ----------------------------------------------------------------------- (Provision) benefit for income taxes at statutory rate $ 102 $(2,827) $(3,949) Differences resulting from: Amortization and write-off of cost in excess of net assets of acquired companies (1,384) (2,485) (44) Gain on issuance of stock by subsidiaries 516 1,403 456 State income taxes, net of federal tax (787) (797) (534) Minority interest in joint venture income (Note 3) - - 1,061 Foreign tax rate and tax law differential (16) 249 (10) Tax-exempt investment income 33 181 180 Nondeductible expenses (64) (51) (253) Reversal of tax reserves no longer required - 750 - Other, net (105) (67) 222 ------- ------- ------- $(1,705) $(3,644) $(2,871) ======= ======= ======= 22PAGE Thermo TerraTech Inc. 1997 Financial Statements Notes to Consolidated Financial Statements 5. Income Taxes (continued) Prepaid income taxes and deferred income taxes in the accompanying balance sheet consist of the following: (In thousands) 1997 1996 ----------------------------------------------------------------------- Prepaid income taxes: Accrued compensation $ 1,410 $ 2,805 Reserves and accruals 4,562 3,075 Allowance for doubtful accounts 1,151 1,107 Net operating loss carryforward 1,912 1,773 Federal tax credit carryforward 118 248 Other 303 159 ------- ------- 9,456 9,167 Less: Valuation allowance 276 276 ------- ------- $ 9,180 $ 8,891 ======= ======= Deferred income taxes: Depreciation $ 5,581 $ 1,237 Other deferred items 611 3,362 ------- ------- $ 6,192 $ 4,599 ======= ======= Included in other assets in fiscal 1997 is $1,811,000 of long-term prepaid income taxes related to foreign net operating losses, net of long-term deferred income taxes of $895,000 related to timing differences in a foreign jurisdiction. In fiscal 1996, long-term prepaid income taxes related to foreign net operating losses of $1,041,000 was reflected as a reduction of long-term deferred income taxes. During fiscal 1996, the Company reversed previously established tax reserves totaling $750,000 that were no longer required as a result of the completion of certain revenue agent reviews. The valuation allowance relates to the uncertainty surrounding the realization of the tax benefits attributable to federal operating loss and credit carryforwards and purchase accounting reserves related to various acquisitions. The valuation allowance will be used to reduce cost in excess of net assets of acquired companies when any portion of the related deferred tax asset is recognized. The Company has not recognized a deferred tax liability for the difference between the book basis and tax basis of its investment in the common stock of its domestic subsidiaries (such difference relates primarily to unremitted earnings and gains on issuance of stock by subsidiaries) because the Company does not expect this basis difference to become subject to tax at the parent level. The Company believes it can implement certain tax strategies to recover its investment in its domestic subsidiaries tax-free. The net operating loss carryforward primarily consists of foreign carryforwards which may be carried forward indefinitely. 23PAGE Thermo TerraTech Inc. 1997 Financial Statements Notes to Consolidated Financial Statements 6. Short- and Long-term Obligations and Other Financing Arrangements Long-term Obligations Long-term obligations of the Company are as follows: (In thousands except per share amounts) 1997 1996 ------------------------------------------------------------------------ 4 5/8% Subordinated convertible debentures, due 2003, convertible at $15.90 per share $111,850 $ - 6 1/2% Subordinated convertible debentures, due 1997, convertible at $10.33 per share 13,370 18,182 4 7/8% Subordinated convertible debentures, due 2000, convertible into shares of Thermo Remediation at $17.92 per share 37,950 37,950 Promissory note to parent company, repaid May 1996 (Note 3) (a) - 15,000 Promissory note to parent company, repaid May 1996 (Note 3) (a) - 35,000 Promissory note to parent company, due June 1997 (Note 3) (a) 38,000 38,000 Zero coupon promissory note, face value $28,000, due in two installments in February and May 1998 (Note 3) 26,057 24,251 6.75% Mortgage loan, payable in monthly installments of $9, with final payment in 2008 1,293 1,403 Other 1,934 814 -------- -------- 230,454 170,600 Less: Current maturities of long-term obligations 65,268 15,216 -------- -------- $165,186 $155,384 ======== ======== (a) Bears interest at the 90-day Commercial Paper Composite Rate plus 25 basis points, set at the beginning of each quarter, which was 5.78% at March 29, 1997. The 4 5/8%, 6 1/2%, and 4 7/8% subordinated convertible debentures are guaranteed on a subordinated basis by Thermo Electron. The Company has agreed to reimburse Thermo Electron in the event Thermo Electron is required to make a payment under the guarantee. During fiscal 1997 and 1996, $4,812,000 and $365,000 principal amount, respectively, of the 6 1/2% debentures was converted into 465,827 shares and 35,332 shares, respectively, of the Company's common stock. The annual requirements for long-term obligations as of March 29, 1997, are $65,268,000 in fiscal 1998; $13,492,000 in fiscal 1999; $388,000 in fiscal 2000; $38,338,000 in fiscal 2001; $376,000 in fiscal 2002; and $112,592,000 in fiscal 2003 and thereafter. Total requirements of long-term obligations are $230,454,000. See Note 11 for information pertaining to the fair value of the Company's long-term obligations. 24PAGE Thermo TerraTech Inc. 1997 Financial Statements Notes to Consolidated Financial Statements 6. Short- and Long-term Obligations and Other Financing Arrangements (continued) Short-term Obligations and Other Financing Arrangements The Company's Thermo EuroTech subsidiary has a line of credit, denominated in Dutch guilders, under which approximately $5,300,000 may be borrowed at the Dutch discount rate plus 125 basis points. At March 29, 1997, and March 30, 1996, $2,227,000 and $3,995,000, respectively, was outstanding under this arrangement, bearing interest at 5.25%. In December 1994, Thermo Remediation borrowed $4,000,000 from Thermo Electron through the issuance of a promissory note bearing interest at the 90-day Commercial Paper Composite Rate plus 25 basis points, set at the beginning of each quarter. The note was repaid in full in June 1995. 7. Commitments and Contingencies Operating Leases The Company leases land, office, manufacturing facilities, and equipment under operating leases expiring at various dates through fiscal 2008. The accompanying statement of operations includes expenses from operating leases of $4,977,000, $4,632,000, and $2,491,000, in fiscal 1997, 1996, and 1995, respectively. Future minimum payments due under noncancellable operating leases at March 29, 1997, are $4,153,000 in fiscal 1998; $3,038,000 in fiscal 1999; $2,197,000 in fiscal 2000; $1,534,000 in fiscal 2001; $1,342,000 in fiscal 2002; and $2,019,000 in fiscal 2003 and thereafter. Total future minimum lease payments are $14,283,000. See Note 8 for office and manufacturing facilities leased from Thermo Electron. In March 1991, the Company's TPST Virginia subsidiary entered into a seven-year agreement, terminable at the Company's option with 90 days' notice, to operate one or more of its soil-remediation units at a site owned by a third party. Under the terms of the agreement, the Company pays a fee based on the gross remediation revenues generated from the operations at the site, less certain operating costs incurred by the Company. The accompanying statement of operations includes expenses relating to this agreement of $79,000, $147,000, and $307,000 in fiscal 1997, 1996, and 1995, respectively. Any future expenses related to this agreement will not be material as this facility will be closed (Note 13). Contingencies The Company is contingently liable with respect to lawsuits and other matters that arose in the ordinary course of business. In the opinion of management, these contingencies will not have a material effect upon the financial position of the Company or its results of operations. 25PAGE Thermo TerraTech Inc. 1997 Financial Statements Notes to Consolidated Financial Statements 8. Related-party Transactions Corporate Services Agreement The Company and Thermo Electron have a corporate services agreement under which Thermo Electron's corporate staff provides certain administrative services, including certain legal advice and services, risk management, certain employee benefit administration, tax advice and preparation of tax returns, centralized cash management, and certain financial and other services, for which the Company pays Thermo Electron annually an amount equal to 1.0% of the Company's revenues. Prior to January 1, 1996, the Company paid an annual fee equal to 1.20% of the Company's revenues. Prior to January 1, 1995, the Company paid an annual fee equal to 1.25% of the Company's revenues. The annual fee is reviewed and adjusted annually by mutual agreement of the parties. For these services, the Company was charged $2,785,000, $2,612,000, and $1,692,000 in fiscal 1997, 1996, and 1995, respectively. The corporate services agreement is renewed annually but can be terminated upon 30 days' prior notice by the Company or upon the Company's withdrawal from the Thermo Electron Corporate Charter (the Thermo Electron Corporate Charter defines the relationship among Thermo Electron and its majority-owned subsidiaries). Management believes that the service fee charged by Thermo Electron is reasonable and that such fees are representative of the expenses the Company would have incurred on a stand-alone basis. For additional items such as employee benefit plans, insurance coverage, and other identifiable costs, Thermo Electron charges the Company based upon costs attributable to the Company. Development Agreement The Company and Thermo Electron entered into a development agreement under which Thermo Electron agreed to fund up to $4,000,000 of the direct and indirect costs of the Company's development of soil-remediation centers. In exchange for this funding, the Company granted Thermo Electron a royalty equal to approximately 3% of net revenues from soil-remediation services performed at the centers developed under the agreement. The royalty payments may cease if the amounts paid by the Company yield a certain internal rate of return to Thermo Electron on the funds advanced to the Company under the agreement. Two sites have been developed under this agreement. The Company paid royalties of $186,000, $332,000, $432,000 in fiscal 1997, 1996, and 1995, respectively, relating to this agreement, which are included in selling, general and administrative expenses in the accompanying statement of operations. Operating Leases In addition to the operating leases discussed in Note 7, the Company leases or subleases three office and manufacturing facilities from Thermo Electron under lease agreements expiring in fiscal 1999 and 2004. The accompanying statement of operations includes expenses from the operating lease and sublease of $553,000, $486,000, and $537,000 in fiscal 1997, 1996, and 1995, respectively. The future minimum payments due under the lease and sublease as of March 29, 1997, are $897,000 in fiscal 1998; $925,000 in fiscal 1999; $813,000 in fiscal 2000 through 2002; and $1,921,000 in fiscal 2003 and thereafter. Total future minimum payments are $6,182,000. 26PAGE Thermo TerraTech Inc. 1997 Financial Statements Notes to Consolidated Financial Statements 8. Related-party Transactions (continued) Repurchase Agreement The Company invests excess cash in a repurchase agreement with Thermo Electron as discussed in Note 1. Short- and Long-term Obligations See Note 6 for a description of short- and long-term obligations of the Company held by Thermo Electron. 9. Common Stock At March 29, 1997, the Company has 700,500 warrants outstanding to purchase shares of its common stock, which are exercisable at prices ranging from $10.00 - $11.34 per share and expire in fiscal 2001. The warrants were issued in fiscal 1992 and 1993 in connection with private placements completed by three of the Company's soil-remediation subsidiaries. At March 29, 1997, the Company had reserved 12,176,635 unissued shares of its common stock for possible issuance under stock-based compensation plans, possible issuance upon conversion of the 4 5/8% and 6 1/2% subordinated convertible debentures, and exercise of warrants. 10. Transactions in Stock of Subsidiaries During fiscal 1997, Thermo EuroTech sold 1,105,000 shares of its common stock in a private placement at $4.25 per share, for net proceeds of $4,314,000, resulting in a gain of $1,475,000. During fiscal 1996, Thermo Remediation sold 500,000 shares of its common stock in a private placement at $13.25 per share, for net proceeds of $6,625,000, resulting in a gain of $2,742,000. During fiscal 1996, Thermo Remediation issued 227,250 shares of its common stock in connection with the acquisition of ReTec (Note 3), resulting in a gain of $1,385,000. During fiscal 1995, Thermo EuroTech sold 700,331 shares of its common stock in a private placement at $3.75 per share, for net proceeds of $2,423,000, resulting in a gain of $829,000. During fiscal 1995, Thermo Remediation sold 75,000 shares of its common stock in a private placement at $9.67 per share, for net proceeds of $715,000, resulting in a gain of $229,000. Dividends declared by Thermo Remediation were $2,557,000, $2,491,000, and $2,012,000 in fiscal 1997, 1996, and 1995, respectively. Dividends declared by Thermo Remediation include $1,694,000, $1,667,000, and $1,316,000 in fiscal 1997, 1996, and 1995, respectively, that was allocated to the Company and reinvested in 194,961 shares, 117,805 shares, and 113,491 shares, respectively, of Thermo Remediation's common stock pursuant to Thermo Remediation's Dividend Reinvestment Plan adopted in fiscal 1995. 27PAGE Thermo TerraTech Inc. 1997 Financial Statements Notes to Consolidated Financial Statements 10. Transactions in Stock of Subsidiaries (continued) The Company's percentage ownership of its majority-owned subsidiaries at year-end was as follows: 1997 1996 1995 ----------------------------------------------------------------------- Thermo EuroTech 53% 62% 62% Thermo Remediation 69% 66% 66% 11. Fair Value of Financial Instruments The Company's financial instruments consist primarily of cash and cash equivalents, available-for-sale and held-to-maturity investments, accounts receivable, notes payable and current maturities of long-term obligations, accounts payable, due to parent company, and long-term obligations. The carrying amounts of these financial instruments, with the exception of available-for-sale and held-to-maturity investments, and long-term obligations, approximate fair value due to their short-term nature. Available-for-sale investments are carried at fair value in the accompanying balance sheet. The fair values were determined based on quoted market prices. See Note 2 for fair value information pertaining to these financial instruments. Held-to-maturity investments in the accompanying balance sheet are carried at amortized cost. The fair values are disclosed on the accompanying balance sheet and were determined based on quoted market prices. The fair value of short- and long-term obligations was determined based on quoted market prices and on borrowing rates available to the Company at the respective year ends. The carrying amount and fair value of the Company's short- and long-term obligations are as follows: 1997 1996 ------------------- -------------------- Carrying Fair Carrying Fair (In thousands) Amount Value Amount Value ------------------------------------------------------------------------ Current maturity of subordinated convertible debentures $ 13,370 $ 13,771 $ - $ - ======== ======== ======== ======== Long-term subordinated convertible debentures $149,800 $132,973 $ 56,132 $ 63,681 Other 15,386 15,386 99,252 99,252 -------- -------- -------- -------- $165,186 $148,359 $155,384 $162,933 ======== ======== ======== ======== 28PAGE Thermo TerraTech Inc. 1997 Financial Statements Notes to Consolidated Financial Statements 12. Significant Customers During fiscal 1997, 1996, and 1995 revenues derived from U.S. government agencies accounted for 13%, 10%, and 6%, respectively, of the Company's total revenues. 13. Nonrecurring Costs During fiscal 1997, Thermo Remediation recorded $7,800,000 of nonrecurring costs to write-down certain capital equipment and intangible assets, including cost in excess of net assets of acquired companies, in response to a recent severe downturn in Thermo Remediation's soil-recycling business, which will result in the closure of two soil-remediation sites. In addition, the Company's analysis indicates that the future undiscounted cash flows from certain other soil-remediation sites that will remain open will be insufficient to recover Thermo Remediation's investment in these business units, thus requiring a write-down of certain assets, which is included in the $7,800,000 charge. Of the total charge, $2,206,000 is nondeductible for tax purposes. In addition, in fiscal 1997, Thermo EuroTech sold its J. Amerika division, which resulted in a loss of $1,482,000. J. Amerika's revenues and operating loss were $3,970,000 and $552,000, respectively, in fiscal 1997. Following the purchases of Killam Associates in February 1995, the businesses formerly operated by the Company's environmental services joint venture with Thermo Instrument in April 1995, and Lancaster Laboratories in May 1995, the primary growth focus of the Company has become environmental infrastructure services. During fiscal 1996, the Company determined that it no longer expected to reinvest in its thermal-processing equipment business. The Company's fiscal 1996 analysis indicated that the expected future undiscounted cash flow from this business would be insufficient to recover the Company's investment. Accordingly, in the second quarter of fiscal 1996, the Company wrote off $4,995,000 of cost in excess of net assets of acquired company associated with the thermal-processing equipment business. This noncash expense is nondeductible for tax purposes. In fiscal 1996, the Company sold to a management group the assets of a small civil engineering design office in Williston, Vermont, that was no longer included in the geographic expansion plans of the Company. An intangible asset of $569,000 associated with this office was not recovered in the sale price and, accordingly, was written off. This noncash expense is nondeductible for tax purposes. Sales and earnings of this office were not material to the Company. 29PAGE Thermo TerraTech Inc. 1997 Financial Statements Notes to Consolidated Financial Statements 14. Equity in Earnings of Unconsolidated Subsidiary The Company's equity in earnings in unconsolidated subsidiary in the accompanying statement of operations represents the Company's proportionate share of income from a 50% investment in ReTec/Tetra L.C. (ReTec/Tetra), acquired in December 1995 through Thermo Remediation's acquisition of ReTec. The carrying value of this investment was $5,650,000 at March 29, 1997. Summary financial information for ReTec/Tetra is as follows: December 31, --------------------- (In thousands) 1996 1995 -------------------------------------------------------------------- Current assets $ 3,072 $ 2,163 Noncurrent assets 12,644 11,653 ------- ------- Total assets $15,716 $13,816 ======= ======= Current liabilities $ 2,016 $ 2,342 Noncurrent liabilities 2,635 2,465 Members' equity 11,065 9,009 ------- ------- Total liabilities and members' equity $15,716 $13,816 ======= ======= Year Ended Dec. 31, (In thousands) 1996 ------------------------------------------------------ Revenues $12,066 Cost of revenues 9,040 ------- Gross profit $ 3,026 ======= Net income $ 981 ======= 30PAGE Thermo TerraTech Inc. 1997 Financial Statements Notes to Consolidated Financial Statements 15. Supplemental Cash Flow Information Supplemental cash flow information is as follows: Year Ended -------------------------------- March 29, March 30, April 1, (In thousands) 1997 1996 1995 ------------------------------------------------------------------------ Cash Paid For: Interest $ 10,255 $ 7,438 $ 2,507 Income taxes $ 1,958 $ 5,803 $ 952 Noncash Activities: Fair value of assets of acquired companies $ 12,996 $ 68,533 $ 86,721 Cash paid for acquired companies (5,465) (45,005) (39,559) Issuance of notes payable for acquired company (1,300) - (22,300) Issuance of Company and subsidiary common stock, stock options, and warrants for acquired companies (2,006) (11,210) (7,780) -------- -------- -------- Liabilities assumed of acquired companies $ 4,225 $ 12,318 $ 17,082 ======== ======== ======== Conversions of subordinated convertible debentures (Note 6) $ 4,812 $ 365 $ - Issuance of Company common stock to former owner of acquired company (Note 3) $ - $ - $ 840 See Note 3 for discussion of the environmental services joint venture. 16. Unaudited Quarterly Information (In thousands except per share amounts) 1997 (a) First Second(b) Third Fourth(c) ------------------------------------------------------------------------- Revenues $67,618 $67,269 $75,698 $67,918 Gross profit 13,092 11,372 12,830 11,129 Net income (loss) 1,458 1,450 902 (3,972) Earnings (loss) per share .08 .08 .05 (.22) 1996 (a, d) First Second(e) Third(f) Fourth ------------------------------------------------------------------------ Revenues $50,728 $54,498 $55,578 $59,680 Gross profit 12,221 13,367 12,636 12,808 Net income (loss) 4,041 (4,115) 1,598 1,923 Earnings (loss) per share .22 (.24) .09 .10 31PAGE Thermo TerraTech Inc. 1997 Financial Statements Notes to Consolidated Financial Statements 16. Unaudited Quarterly Information (continued) (a)Historical results have been restated to reflect the acquisition of Metal Treating, accounted for at historical cost in a manner similar to a pooling-of-interests. (b)Includes nontaxable gains of $1,475,000 from the issuance of stock by subsidiary. (c)Reflects $7,800,000 of nonrecurring costs and a loss of $1,482,000 related to the sale of the Company's J. Amerika division. (d)Includes nontaxable gains of $2,742,000 and $1,385,000 in the first and fourth quarters, respectively, from the issuance of stock by subsidiaries. (e)Includes the write-off of goodwill of $4,995,000 and a loss on the sale of assets of $569,000. (f)Reflects the December 1995 acquisition of ReTec by Thermo Remediation. 17. Subsequent Events In May 1997, the Company purchased a controlling interest in The Randers Group Incorporated (Randers), a provider of design engineering, project management, and construction services for industrial clients in the manufacturing, pharmaceutical, and chemical-processing industries. The Company purchased 7,100,000 shares of Randers common stock from certain members of Randers' management, and 420,000 shares from Thermo Power Corporation, an affiliate of the Company, at a price of $0.625 per share, for an aggregate cost of approximately $4,700,000. Following these transactions, the Company owns approximately 53.3% of Randers' outstanding common stock. In addition, Thermo Electron owns approximately 8.9% of Randers' outstanding common stock. Randers had revenues of $12.4 million in calendar 1996. The Company has also entered into a letter of intent to transfer its wholly owned engineering and consulting businesses, including the Killam group of companies, to Randers in exchange for newly issued shares of Randers common stock. The exact price for these businesses is still under negotiation, but in no event would be less than the book value of the transferred businesses as of the closing of the transfer. The number of new shares of Randers common stock to be issued to the Company would equal the agreed price divided by $0.625. The transfer is subject to several conditions, including completion by Randers of its due diligence investigation, receipt of an opinion from an investment bank that the transaction is fair to Randers from a financial point of view, approval of the transaction by Randers' shareholders, and receipt of all required regulatory approvals, including continued listing of the Randers common stock on the American Stock Exchange following the transaction. 32PAGE Thermo TerraTech Inc. 1997 Financial Statements Report of Independent Public Accountants To the Shareholders and Board of Directors of Thermo TerraTech Inc.: We have audited the accompanying consolidated balance sheet of Thermo TerraTech Inc. (a Delaware corporation and an 82%-owned subsidiary of Thermo Electron Corporation) and subsidiaries as of March 29, 1997, and March 30, 1996, and the related consolidated statements of operations, shareholders' investment and cash flows for each of the three years in the period ended March 29, 1997. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Thermo TerraTech Inc. and subsidiaries as of March 29, 1997, and March 30, 1996, and the results of their operations and their cash flows for each of the three years in the period ended March 29, 1997, in conformity with generally accepted accounting principles. Arthur Andersen LLP Boston, Massachusetts May 6, 1997 (except with respect to the matters discussed in Note 17 as to which the date is May 12, 1997) 33PAGE Thermo TerraTech Inc. 1997 Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations Forward-looking statements, within the meaning of Section 21E of the Securities Exchange Act of 1934, are made throughout this Management's Discussion and Analysis of Financial Condition and Results of Operations. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words "believes," "anticipates," "plans," "expects," "seeks," "estimates," and similar expressions are intended to identify forward-looking statements. There are a number of important factors that could cause the results of the Company to differ materially from those indicated by such forward-looking statements, including those detailed immediately after this Management's Discussion and Analysis of Financial Condition and Results of Operation under the caption "Forward-looking Statements." Overview The Company provides environmental services and infra-structure planning and design encompassing a broad range of specializations, including remediation of soil and fluids, consulting and design, laboratory-testing, and metal treating. Remediation and Recycling - In December 1995, the Company's majority-owned Thermo Remediation Inc. (Thermo Remediation) subsidiary acquired Remediation Technologies, Inc. (ReTec), a provider of integrated environmental services such as remediation of industrial sites contaminated with organic wastes and residues. In September 1996, Thermo Remediation acquired IEM Sealand Corporation (IEM Sealand), a provider of construction services for the remediation of hazardous wastes under contracts with federal and state governments and other public- and private-sector clients. Through its Thermo Nutech subsidiary, Thermo Remediation provides services to remove radioactive contaminants from sand, gravel, and soil, as well as health physics, radiochemistry laboratory, and radiation dosimetry services. Through its TPS Technologies Inc. subsidiary, Thermo Remediation also designs and operates facilities for the remediation of nonhazardous soil and operates a network of such facilities along the East and West coasts. In addition, Thermo Remediation's Thermo Fluids subsidiary collects, tests, processes, and recycles used motor oil and other industrial oils. The Company's majority-owned Thermo EuroTech N.V. (Thermo EuroTech) subsidiary, located in the Netherlands, specializes in converting "off-spec" and contaminated petroleum fluids into usable oil products. Consulting and Design - The Company's wholly owned Killam Associates subsidiary provides environmental consulting and engineering services and specializes in wastewater treatment and water resources management. In November 1996, the Company acquired Carlan Consulting Group, Inc. (Carlan), a provider of transportation and environmental consulting and professional engineering and architectural services. Subsequent to the fiscal year end, in May 1997, the Company purchased a controlling interest in The Randers Group Incorporated (Randers), a provider of 34PAGE Thermo TerraTech Inc. 1997 Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations Overview (continued) design engineering, project management, and construction services for industrial clients in the manufacturing, pharmaceutical, and chemical-processing industries. The Company's wholly owned Bettigole Andrews Clark & Killam Inc. and Normandeau Associates, Inc. subsidiaries provide both private- and public-sector clients with a range of consulting services that address transportation planning and design, and natural resource management issues, respectively. Laboratory Testing - The Company's wholly owned Thermo Analytical Inc. subsidiary operates analytical laboratories that provide environmental, pharmaceutical, and food testing services to primarily commercial clients throughout the U.S. Metal Treating - The Company performs metallurgical processing services using thermal-treatment equipment at locations in California, Minnesota, and Wisconsin. The Company also designs, manufactures, and installs advanced custom-engineered, thermal-processing systems through its equipment division located in Michigan. Results of Operations Fiscal 1997 Compared With Fiscal 1996 Total revenues increased 26% to $278.5 million in fiscal 1997 from $220.5 million in fiscal 1996. Revenues from remediation and recycling services increased to $127.1 million in fiscal 1997 from $77.0 million in fiscal 1996, primarily due to the inclusion of $50.0 million of revenues from ReTec and IEM Sealand, acquired in December 1995 and September 1996, respectively. Revenues from soil-remediation services decreased 21% due to a severe downturn in this business, which resulted in a decline in the volume of soil processed due to overcapacity in the industry and competitive pricing pressures. The Company also believes that several states have reduced their compliance requirements and/or relaxed their enforcement activities. The Company expects this trend to continue for the foreseeable future. Revenues from consulting and design services remained relatively unchanged at $74.8 million in fiscal 1997 and $74.0 million in fiscal 1996. The inclusion of $2.6 million of revenues from Carlan, acquired in November 1996, was offset by lower revenues from federal government contracts. Revenues from laboratory-testing services, excluding radiochemistry laboratory services included in remediation and recycling services, were $35.4 million in fiscal 1997 and $35.5 million in fiscal 1996. Metal-treating revenues increased to $44.3 million in fiscal 1997 from $35.8 million in fiscal 1996, primarily due to an increase in demand for thermal-processing equipment at existing businesses. The gross profit margin decreased to 17% in fiscal 1997 from 23% in fiscal 1996, primarily due to a decrease in gross profit margins from remediation and recycling services. The decline was due to lower margins on soil processed resulting from competitive pricing pressures, lower volumes of soil processed at the Company's traditionally higher-margin 35PAGE Thermo TerraTech Inc. 1997 Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations Fiscal 1997 Compared With Fiscal 1996 (continued) soil-remediation centers and, to a lesser extent, the inclusion of lower-margin revenues from ReTec and IEM Sealand. The decline was also a result of a decrease in gross profit margins from laboratory-testing and consulting and design services due to costs incurred related to efforts to eliminate redundant capabilities at regional offices and increased competitive pricing pressures in the consulting and design services business. These decreases were offset in part by higher gross profit margins from metal-treating products and services as a result of an increase in revenues. Selling, general, and administrative expenses as a percentage of revenues decreased to 13% in fiscal 1997 from 16% in fiscal 1996, primarily due to lower expenses as a percentage of revenues at acquired companies, lower expenses in fiscal 1997 at Thermo EuroTech due to the settlement of several contract disputes which caused higher expenses in fiscal 1996, and a decline in expenses due to the consolidation of administrative functions within the laboratory-testing services business. During fiscal 1997, the Company recorded $7.8 million of nonrecurring costs to write-down certain capital equipment and intangible assets, including cost in excess of net assets of acquired companies. The write-down was in response to the downturn in the Company's soil-recycling business discussed above, which will result in the closure of two soil-remediation sites. In addition, the Company's analysis indicates that the future undiscounted cash flows from certain other soil-remediation sites that will remain open will be insufficient to recover the Company's investment in these business units, thus requiring a write-down of certain assets, which is included in the $7.8 million charge. The recent severe downturn in the Company's soil-recycling business and relaxed compliance requirements and enforcement activities resulted in overcapacity in the industry and competitive pricing pressures. The Company expects that closure of two sites with small operating losses and a write-down of certain assets at two other sites, at which current volumes of soil being processed were insufficient to recover the Company's investment, will improve operating results beginning in fiscal 1998. Revenues and operating losses, exclusive of the write-down, at the two sites being closed aggregated $2.9 million and $0.6 million, respectively, in fiscal 1997. Interest income increased to $7.3 million in fiscal 1997 from $5.1 million in fiscal 1996, primarily as a result of interest income earned on invested proceeds from the Company's issuance of 4 5/8% subordinated convertible debentures in May 1996 (Note 6). Interest expense increased to $12.9 million in fiscal 1997 from $10.7 million in fiscal 1996, primarily due to the Company's issuance of 4 5/8% subordinated convertible debentures and Thermo Remediation's issuance of 4 7/8% subordinated convertible debentures in May 1995, offset in part by the repayment of promissory notes to Thermo Electron Corporation (Thermo Electron) with proceeds from the Company's 4 5/8% subordinated convertible debentures. Equity in earnings of unconsolidated subsidiary in fiscal 1997 represents ReTec's proportionate share of income from a joint venture (Note 14). 36PAGE Thermo TerraTech Inc. 1997 Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations Fiscal 1997 Compared With Fiscal 1996 (continued) During fiscal 1997 and 1996, Thermo EuroTech's J. Amerika division incurred operating losses as a result of intense competition in the removal and installation of underground storage tank and wastewater treatment businesses. During fiscal 1997, the Company sold this business unit and incurred a loss of $1.5 million on the sale. J. Amerika's revenues and operating loss were $4.0 million and $0.6 million, respectively, in fiscal 1997. During fiscal 1996, the Company sold the assets of an engineering office and wrote off an intangible asset of $0.6 million in connection with the sale (Note 13). The Company has adopted a strategy of spinning out certain of its businesses into separate subsidiaries and having these subsidiaries sell a minority interest to outside investors. The Company believes that this strategy provides additional motivation and incentives for the management of the subsidiary through the establishment of subsidiary-level stock option incentive programs, as well as capital to support the subsidiaries' growth. As a result of the issuance of common stock by Thermo EuroTech in fiscal 1997 and by Thermo Remediation in fiscal 1996, the Company recorded gains of $1.5 million and $4.1 million, respectively. These gains represent an increase in the Company's proportionate share of the subsidiary's equity and are classified as "Gain on issuance of stock by subsidiaries" in the accompanying statement of operations. The size and timing of these transactions are dependent on market and other conditions that are beyond the Company's control. In addition, in October 1995, the Financial Accounting Standards Board (FASB) issued an exposure draft of a Proposed Statement of Financial Accounting Standards, "Consolidated Financial Statements: Policy and Procedures" (the Proposed Statement). The Proposed Statement would establish new rules for how consolidated financial statements should be prepared. If the Proposed Statement is adopted, there could be significant changes in the way the Company records certain transactions of its controlled subsidiaries. Among those changes, any sale of the stock of a subsidiary that does not result in a loss of control would be accounted for as a transaction in equity of the consolidated entity with no gain or loss being recorded. The FASB expects to issue a final statement or a revised exposure draft in calendar 1997. Accordingly, there can be no assurance that the Company will be able to recognize gains from such transactions in the future. The effective tax rate in fiscal 1997 exceeded the statutory federal income tax rate primarily due to the nondeductible amortization and write-off of cost in excess of net assets of acquired companies and the impact of state income taxes, offset in part by the nontaxable gain on issuance of stock by subsidiaries. The effective tax rate in fiscal 1996 exceeded the federal statutory rate, primarily due to the nondeductible write-off of cost in excess of net assets of acquired company and the loss on sale of assets, offset in part by the nontaxable gains on issuance of stock by subsidiaries and the reversal of previously established tax reserves of $0.8 million that were no longer required due to the completion of certain revenue agent reviews. 37PAGE Thermo TerraTech Inc. 1997 Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations Fiscal 1997 Compared With Fiscal 1996 (continued) The Company recorded minority interest income of $1.8 million in fiscal 1997, compared with minority interest expense of $1.2 million in fiscal 1996, due to losses incurred by the Company's majority-owned subsidiaries. Fiscal 1996 Compared With Fiscal 1995 Total revenues increased 61% to $220.5 million in fiscal 1996 from $137.0 million in fiscal 1995. Revenues from remediation and recycling services increased to $77.0 million in fiscal 1996 from $58.2 million in fiscal 1995, primarily due to the inclusion of $24.4 million in revenues from businesses acquired or constructed in late fiscal 1995 and 1996, and higher revenues from a long-term environmental restoration contract for the U.S. Department of Energy's (DOE's) Hanford site (Hanford), which began in the second quarter of fiscal 1995. These increases were offset in part by lower soil-remediation services revenues resulting from a decrease in the volume and price of soil processed as a result of regulatory uncertainties at several sites, competitive pricing pressures, and severe weather conditions primarily in the fourth quarter of fiscal 1996. Revenues from radiochemistry laboratory work also decreased, reflecting a reduction in spending at the DOE and delays in federal government budget appropriations. Consulting and design services revenues increased to $74.0 million in fiscal 1996 from $40.3 million in fiscal 1995, primarily as a result of an increase of $34.2 million due to the inclusion of revenues for a full year from Killam Associates, which was acquired in February 1995. Revenues from laboratory-testing services, excluding the radiochemistry laboratory services included in remediation and recycling services, increased to $35.5 million in fiscal 1996 from $8.6 million in fiscal 1995, reflecting the inclusion of $29.1 million in revenues from Lancaster Laboratories, which was acquired in May 1995, offset in part by a decline in revenues due to reduced federal spending and a shift in business from existing sites to the newly acquired Lancaster Laboratories. Metal-treating revenues increased to $35.8 million in fiscal 1996 from $29.9 million in fiscal 1995, primarily due to an increase in demand for thermal-processing equipment. The gross profit margin decreased to 23% in fiscal 1996 from 25% in fiscal 1995, due to lower gross profit margins from remediation and recycling services revenues primarily due to competitive pricing pressures and lower revenues from higher-margin radiochemistry laboratory work. In addition, gross profit margins at Thermo EuroTech decreased as a result of severe winter weather and market conditions in fiscal 1996. These decreases were offset in part by the inclusion of higher-margin revenues from Lancaster Laboratories and Killam Associates. Selling, general, and administrative expenses as a percentage of revenues decreased to 16% in fiscal 1996 from 18% in fiscal 1995, primarily due to nonrecurring expenses related to various litigation in fiscal 1995. During the second quarter of fiscal 1996, the Company wrote off $5.0 million of cost in excess of net assets of acquired company related to its thermal-processing equipment business. In addition, in the second 38PAGE Thermo TerraTech Inc. 1997 Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations Fiscal 1996 Compared With Fiscal 1995 (continued) quarter of fiscal 1996, the Company incurred a loss of $0.6 million as a result of the sale of an engineering office. These noncash expenses are nondeductible for tax purposes (Note 13). Interest income increased to $5.1 million in fiscal 1996 from $3.3 million in fiscal 1995 as a result of higher invested balances following the issuance of 4 7/8% subordinated convertible debentures by Thermo Remediation in May 1995 and a private placement of shares of Thermo Remediation's common stock in May 1995, offset in part by funds expended to purchase the business formerly operated by the environmental services joint venture from Thermo Instrument Systems Inc. (Thermo Instrument) (Note 3). Interest expense increased to $10.7 million in fiscal 1996 from $2.9 million in fiscal 1995 as a result of borrowings from Thermo Electron for the February 1995 acquisition of Killam Associates and the May 1995 acquisition of Lancaster Laboratories, and the issuance of the 4 7/8% subordinated convertible debentures by Thermo Remediation in May 1995. As a result of the issuance of stock by Thermo Remediation in fiscal 1996 and 1995, and by Thermo EuroTech in fiscal 1995, the Company recorded gains of $4.1 million and $1.3 million in fiscal 1996 and 1995, respectively. The effective tax rate in fiscal 1996 was higher than the statutory federal income tax rate primarily due to the nondeductible write-off of cost in excess of net assets of acquired company and the loss on sale of assets, offset in part by the nontaxable gains on issuance of stock by subsidiaries and the reversal of previously established tax reserves of $0.8 million that were no longer required due to the completion of certain revenue agent reviews. In fiscal 1995, the effective tax rate was lower than the statutory federal income tax rate primarily due to the exclusion of income taxed directly to a minority partner. Minority interest expense decreased to $1.2 million in fiscal 1996 from $4.3 million in fiscal 1995 primarily due to the Company's purchase of the businesses formerly operated by the Company's joint venture with Thermo Instrument (Note 3). Liquidity and Capital Resources Consolidated working capital, including cash, cash equivalents, and short-term available-for-sale investments, increased to $77.3 million at March 29, 1997, from $66.0 million at March 30, 1996. Cash, cash equivalents, and short- and long-term available-for-sale investments were $81.6 million at March 29, 1997, compared with $40.3 million at March 30, 1996. Of the $81.6 million balance at March 29, 1997, $22.7 million was held by Thermo Remediation and the remainder by the Company and its wholly owned subsidiaries. In addition, at March 29, 1997, the Company had $26.1 million of short- and long-term held-to-maturity investments, compared with $24.3 million at March 30, 1996. During fiscal 1997, $9.0 million of cash was provided by operating activities. The Company funded increases in accounts receivable and unbilled contract costs and fees of $6.8 million and $7.8 million, respectively. The increase in accounts receivable is primarily due to higher revenues at Thermo Remediation's IEM Sealand, ReTec, and Thermo Fluids subsidiaries. The increase in 39PAGE Thermo TerraTech Inc. 1997 Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources (continued) unbilled contract costs and fees was due to an increase in thermal-processing equipment contracts and remediation contracts at ReTec. Excluding purchases, sales, and maturities of available-for-sale investments, the Company's investing activities primarily consisted of acquisitions and capital additions. During fiscal 1997, the Company and Thermo Remediation each acquired companies for an aggregate of $3.9 million in cash, 311,040 shares of Thermo Remediation's common stock valued at $2.0 million, and the issuance of $1.3 million of short- and long-term obligations. The Company also acquired Metal Treating from Thermo Electron in exchange for $1.6 million in cash. During fiscal 1997, the Company expended $15.4 million for purchases of property, plant, and equipment. In fiscal 1997, the Company's financing activities provided $51.7 million of cash. In May 1996, the Company issued and sold $115.0 million principal amount of 4 5/8% subordinated convertible debentures due 2003. In May 1996, the Company repaid its $15.0 million and $35.0 million notes payable to Thermo Electron with proceeds from the offering. The Boards of Directors of the Company and Thermo Remediation each authorized the repurchase, through August 23, 1997 and September 10, 1997, respectively, of up to $10.0 million of their own securities. Through March 29, 1997, the Company and Thermo Remediation had expended $6.7 million and $8.3 million, respectively, under these authorizations. In addition, from March 30, 1997, through May 23, 1997, the Company and Thermo Remediation repurchased an additional $2.9 million and $0.4 million, respectively, under these authorizations. All such purchases are funded from working capital. The Company's $38.0 million promissory note to Thermo Electron is due in June 1997. Thermo Electron has indicated its intention to require that the Company's indebtedness to Thermo Electron be repaid to the extent the Company's liquidity and cash flow permit. In addition, the remaining $13.4 million principal amount of the Company's 6 1/2% subordinated convertible debentures is due in August 1997. In May 1997, Thermo Remediation acquired TriTechnics Corporation, an environmental consulting and engineering firm, which provides comprehensive consulting and remedial services at refinery and chemical-plant sites, for approximately $1.6 million in cash. In addition, in May 1997, the Company purchased a controlling interest in Randers, a provider of design engineering, project management, and construction services for industrial clients in the manufacturing, pharmaceutical, and chemical-processing industries, for approximately $4.7 million (Note 17). Although the Company has no other material commitments to acquire other businesses or for capital expenditures, such expenditures will largely be affected by the number and size of the complementary businesses that can be acquired or developed during the year. The Company believes that it has adequate resources to meet the financial needs of its current operations for the foreseeable future. 40PAGE Thermo TerraTech Inc. 1997 Financial Statements Forward-looking Statements In connection with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, the Company wishes to caution readers that the following important factors, among others, in some cases have affected, and in the future could affect, the Company's actual results and could cause its actual results in fiscal 1998 and beyond to differ materially from those expressed in any forward-looking statements made by, or on behalf of, the Company. Dependence on Environmental Regulation. Federal, state, and local environmental laws govern each of the markets in which the Company conducts business, as well as many of the Company's operations. The markets for many of the Company's services, including industrial- remediation services, nuclear-remediation services, hazardous waste- remedial construction services, soil-remediation services, waste-fluids recycling services, consulting and design services, and laboratory services, and the standards governing most aspects of the construction and operation of the Company's facilities, were directly or indirectly created by, and are dependent on, the existence and enforcement of those laws. There can be no assurance that these laws and regulations will not change in the future, requiring new technologies or stricter standards with which the Company must comply. In addition, there can be no assurance that these laws and regulations will not be made more lenient in the future, thereby reducing the size of the markets addressed by the Company. Any such change in such federal, state, and local environmental laws and regulations may have a material adverse effect on the Company's business. Responsibility for establishing and enforcing certain federal policies, such as the federal underground storage tank policy, has been delegated to the states, which are not only required to establish regulatory programs, but also are permitted to mandate more stringent requirements than are otherwise required by federal law. Currently, many states are considering adopting a "risk-based" approach to prioritizing site cleanups and setting cleanup standards, which attempts to balance the costs of remediation against the potential harm to human health and the environment from leaving sites unremediated. There can be no assurance that these policies, if implemented, will not reduce the size of the potential market addressed by the Company. Potential Environmental and Regulatory Liability. The Company's operations are subject to comprehensive laws and regulations related to the protection of the environment. Among other things, these laws and regulations impose requirements to control air, soil, and water pollution, and regulate health, safety, zoning, land use, and the handling and transportation of hazardous and nonhazardous materials. Such laws and regulations also impose liability for remediation and cleanup of environmental contamination, both on-site and off-site, resulting from past and present operations. These requirements may also be imposed as conditions of operating permits or licenses that are subject to renewal, modification, or revocation. Existing laws and regulations, and new laws and regulations, may require the Company to modify, supplement, replace, or curtail its operating methods, facilities, or equipment at costs which may be substantial without any corresponding increase in revenue. The Company is also potentially subject to monetary fines, penalties, 41PAGE Thermo TerraTech Inc. 1997 Financial Statements Forward-looking Statements remediation, cleanup or stop orders, injunctions, or orders to cease or suspend certain of its practices. The outcome of any proceedings and associated costs and expenses could have a material adverse impact on the Company's business. In addition, the Company is subject to numerous laws and regulations related to the protection of human health and safety. Such laws and regulations may pose liability on the Company for exposure of its employees to radiation or other hazardous contamination or failure to isolate and remove radioactive or other hazardous contaminants from soil. The Company endeavors to operate its business to minimize its exposure to environmental and other regulatory liabilities. Although no claims giving rise to such liabilities have been asserted by the Company's customers or employees to date, there can be no assurance that such claims cannot or will not be asserted against the Company. Uncertainty of Funding. Remediation compliance requirements and attendant costs are often beyond the financial capabilities of many individuals and small companies. To address this problem, some states have established tax-supported trust funds to assist in the financing of compliance and site remediation. As a consequence, in many of the states in which the Company markets its soil-remediation services, the majority, and in some cases virtually all, of the soil-remediated by the Company is paid for by large companies and/or these state trust funds. Any substantial decrease in this funding could have a material adverse effect on the Company's business and financial performance. Many states have realized that the number of sites requiring remediation and the costs of compliance are substantially higher than were originally estimated. As a result, several states have relaxed enforcement activities and others have reduced compliance requirements in order to reduce the costs of cleanup. These factors have already resulted in lower levels of cleanup activity in some states. Continued de-emphasis on enforcement activities and/or further reductions in compliance requirements will have a more severe adverse effect on the Company's business. The Company depends on funding from the federal and state governments, and their agencies and instrumentalities, for compensation for its services. For example, Thermo Nutech provides a large portion of its services directly or indirectly to the U.S. Department of Energy (DOE) and the Company's consulting and design businesses perform significant amounts of services for state and municipal government. Thermo Nutech has experienced a decrease in its radiochemistry laboratory work as a result of ongoing reductions in spending at the DOE as well as a shift in DOE spending from investigative work to cleanup work. Continued declines in spending by DOE and other governmental agencies could have a material adverse effect on the Company's business. Competition. The markets for many of the Company's services are regional and are characterized by intense competition from numerous local competitors. Some of the Company's competitors have greater technical and financial resources than those of the Company. As a result, they may be able to adapt more quickly to new or emerging technologies and changes in customer requirements, or to devote greater resources to the promotion and sale of their services than the Company. Competition could increase if new companies enter the market or its existing competitors expand 42PAGE Thermo TerraTech Inc. 1997 Financial Statements Forward-looking Statements their service lines. There can be no assurance that the Company's current technology, technology under development, or ability to develop new technologies will be sufficient to enable it to compete effectively with its competitors. Seasonal Influences. A majority of the Company's businesses experience seasonal fluctuations. A majority of the Company's soil-remediation sites, as well as the Company's fluids-recycling sites, experience declines in severe weather conditions. Site remediation work and certain environmental testing services, such as the services provided by Lancaster Laboratories, ReTec, Killam Associates, IEM Sealand, and Thermo Nutech, may decline in winter months as a result of severe weather conditions. In Europe, Thermo EuroTech may experience a decline in the feedstock delivered to its facilities during winter months, due to frozen waterways. Possible Obsolescence Due to Technological Change. Technological developments are expected to continue at a rapid pace in the environmental services industry. The Company's technologies could be rendered obsolete or uneconomical by technological advances by one or more companies that address the Company's markets or by future entrants into the industry. There can be no assurance that the Company would have the resources to, or otherwise would be successful in, developing responses to technological advances by others. Dependence of Thermo EuroTech on Availability of Waste Oil Supplies. Thermo EuroTech's North Refinery facility has historically received a large percentage of its oil feedstock from the former Soviet Union. North Refinery no longer receives any oil from that nation, due to political and economic changes that have made the transportation of waste oil difficult. To overcome this loss of supply, North Refinery has taken steps to replace and diversify its feedstock suppliers. No assurance can be given, however, that North Refinery will not experience future disruptions in deliveries. Any such disruptions could have a material adverse effect on the Company's results of operations. Risks Associates with Acquisition Strategy. The Company's strategy includes the acquisition of businesses that complement or augment the Company's existing services. Promising acquisitions are difficult to identify and complete for a number of reasons, including competition among prospective buyers and the need for regulatory approvals. Any acquisitions completed by the Company may be made at substantial premiums over the fair value of the net assets of the acquired companies. There can be no assurance that the Company will be able to complete future acquisitions or that the Company will be able to successfully integrate any acquired businesses. In order to finance such acquisitions, it may be necessary for the Company to raise additional funds through public or private financings. Any equity or debt financing, if available at all, may be on terms that are not favorable to the Company and, in the case of equity financing, may result in dilution to the Company's shareholders. Risks Associated with Spin-out of Subsidiaries. The Company has adopted a strategy of spinning out certain of its businesses into separate subsidiaries and having these subsidiaries sell a majority 43PAGE Thermo TerraTech Inc. 1997 Financial Statements Forward-looking Statements interest to outside investors. As a result of the sale of stock by subsidiaries, the issuance of stock by subsidiaries upon conversion of convertible debentures, and similar transactions, the Company records gains that represent the increase in the Company's net investment in the subsidiaries. These gains have represented a substantial portion of the net income reported by the Company in certain periods. The size and timing of these transactions are dependent on market and other conditions that are beyond the Company's control. Accordingly, there can be no assurance that the Company will be able to generate gains from such transactions in the future. In addition, in October 1995, the Financial Accounting Standards Board (FASB) issued an exposure draft of a Proposed Statement of Financial Accounting Standards, "Consolidated Financial Statements: Policy and Procedures" (the Proposed Statement). The Proposed Statement would establish new rules for how consolidated financial statements should be prepared. If the Proposed Statement is adopted, there could be significant changes in the way the Company records certain transactions of its controlled subsidiaries. Among those changes, any sale of the stock of a subsidiary that does not result in a loss of control would be accounted for as a transaction in equity of the consolidated entity with no gain or loss being recorded. The FASB expects to issue a final statement or a revised exposure draft in calendar 1997. No Assurance of Development and Commercialization of Technology Under Development. The Company is currently engaged in the development of several technologies which may ultimately be commercialized to provide services to customers. There are a number of technological challenges that the Company must successfully address to complete any of its development efforts. Technology development involves a high degree of risk, and returns to investors are dependent upon successful development and commercialization of such technology. There can be no assurance that any of the technology currently being developed by the Company, or those to be developed in the future by the Company, will be technologically feasible or accepted by the marketplace, or that any such development will be completed in any particular timeframe. 44PAGE Thermo TerraTech Inc. 1997 Financial Statements Selected Financial Information (a) (In thousands except per share amounts) 1997(b) 1996(c) 1995(d) 1994(e) 1993 ------------------------------------------------------------------------- Statement of Operations Data: Revenues $278,503 $220,484 $136,985 $112,865 $107,634 Income (loss) before cumulative effect of change in accounting principle (162) 3,447 4,476 3,507 3,396 Net income (loss) (162) 3,447 4,476 4,007 3,396 Earnings (loss) per share before cumulative effect of change in accounting principle (.01) .19 .26 .21 .20 Earnings (loss) per share (.01) .19 .26 .24 .20 Balance Sheet Data: Working capital $ 77,315 $ 66,008 $ 63,459 $ 50,310 $ 48,267 Total assets 393,784 333,656 273,298 157,161 135,738 Long-term obligations 165,186 155,384 96,851 18,732 18,743 Shareholders' investment 83,526 85,870 77,217 62,239 57,290 (a)Historical results have been restated to reflect the acquisition of Metal Treating, Inc., accounted for at historical cost in a manner similar to a pooling-of-interests. (b)Reflects $7.8 million of nonrecurring costs and a loss $1.5 million relating to the sale of the Company's J. Amerika division. Also reflects the issuance of $115.0 million principal amount of 4 7/8% subordinated convertible debentures, and a gain on issuance of stock by subsidiaries of $1.5 million. (c)Reflects the acquisition of Lancaster Laboratories in May 1995, the purchase of the businesses formerly operated by the environmental services joint venture from Thermo Instrument, and the issuance of a $35.0 million promissory note to Thermo Electron to fund the purchase. Reflects Thermo Remediation's acquisition of ReTec in December 1995, the issuance of $38.0 million principal amount of 4 7/8% subordinated convertible debentures by Thermo Remediation, and a gain on issuance of stock by subsidiaries of $4.1 million. Also reflects the write-off of goodwill of $5.0 million and a loss on the sale of assets of $0.6 million. (d)Reflects the acquisitions of RMC Environmental Services, Inc. in August 1994 and Killam Associates in February 1995, and the issuance of $53.0 million of long-term promissory notes to Thermo Electron. Also reflects Thermo EuroTech's acquisition of North Refinery in March 1995. (e)Reflects the adoption of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." 45PAGE Thermo TerraTech Inc. 1997 Financial Statements Common Stock Market Information The following table shows the market range for the Company's common stock based on reported sale prices on the American Stock Exchange (symbol TTT) for fiscal 1997 and 1996. 1997 1996 ----------------- ----------------- Quarter High Low High Low ----------------------------------------------------------------------- First $14 3/8 $11 3/4 $12 3/8 $ 8 1/2 Second 12 1/2 10 1/4 12 7/8 11 1/8 Third 10 7/8 9 13 1/8 10 3/4 Fourth 9 7/8 8 3/4 14 5/8 10 7/8 As of May 23, 1997, the Company had 1,035 holders of record of its common stock. This does not include holdings in street or nominee names. The closing market price on the American Stock Exchange for the Company's common stock on May 23, 1997, was $10 7/8 per share. Common stock of Thermo Remediation Inc., the Company's majority-owned public subsidiary, is traded on the American Stock Exchange (symbol THN). Shareholder Services Shareholders of Thermo TerraTech Inc. who desire information about the Company are invited to contact John N. Hatsopoulos, Chief Financial Officer, Thermo TerraTech Inc., 81 Wyman Street, P.O. Box 9046, Waltham, Massachusetts 02254-9046, (617) 622-1111. A mailing list is maintained to enable shareholders whose stock is held in street name, and other interested individuals, to receive quarterly reports, annual reports, and press releases as quickly as possible. Beginning in fiscal 1997, quarterly distribution of printed reports will be limited to the second quarter report only. All quarterly reports and press releases are available through the Internet from Thermo Electron's home page on the World Wide Web (http://www.thermo.com/subsid/ttt.html). Stock Transfer Agent American Stock Transfer & Trust Company is the stock transfer agent and maintains shareholder activity records. The agent will respond to questions on issuance of stock certificates, change of ownership, lost stock certificates, and change of address. For these and similar matters, please direct inquiries to: American Stock Transfer & Trust Company Shareholder Services Department 40 Wall Street, 46th Floor New York, New York 10005 (718) 921-8200 46PAGE Thermo TerraTech Inc. 1997 Financial Statements Dividend Policy The Company has never paid cash dividends and does not expect to pay cash dividends in the foreseeable future because its policy has been to use earnings to finance expansion and growth. Payment of dividends will rest within the discretion of the Company's Board of Directors and will depend upon, among other factors, the Company's earnings, capital requirements, and financial condition. Form 10-K Report A copy of the Annual Report on Form 10-K for the fiscal year ended March 29, 1997, as filed with the Securities and Exchange Commission, may be obtained at no charge by writing to John N. Hatsopoulos, Chief Financial Officer, Thermo TerraTech Inc., 81 Wyman Street, P.O. Box 9046, Waltham, Massachusetts 02254-9046. Annual Meeting The annual meeting of shareholders will be held on Wednesday, September 24, 1997, at 10:30 a.m. at Thermo Electron Corporation, 81 Wyman Street, Waltham, Massachusetts. EX-21 5 Exhibit 21 THERMO TERRATECH INC. Subsidiaries of the Registrant As of May 23, 1997, Thermo TerraTech Inc. owned the following companies: STATE OR JURISDICTION PERCENT NAME OF OF INCORPORATION OWNERSHIP Thermo TerraTech Inc. Delaware CarlanKillam Consulting Group, Inc. Florida 100 Carlan Consulting Group of Alabama, Inc. Alabama 100 CarlanKillam Construction Services, Inc. Florida 100 Holcroft (Canada) Limited Canada 100 Holcroft Corporation Delaware 100 Holcroft GmbH Germany 100 Metallurgical, Inc. Minnesota 100 Cal-Doran Metallurgical Services, Inc. California 100 Metal Treating Inc. Wisconsin 100 Normandeau Associates, Inc. New Hampshire 100 The Randers Group Incorporated Delaware 53.3 (additionally, 8.9% of the shares are owned directly by Thermo Electron Corporation) Randers Engineering, Inc. Michigan 100 Clark-Trombley Consulting Michigan 100 Engineers, Inc. Redeco Incorporated Michigan 100 Randers Group Property Michigan 100 Corporation Viridian Technology, Inc. Michigan 100 Randers - EPC Incorporated Illinois 100 Randers Engineering of Michigan 100 Massachusetts, Inc. Thermo Analytical Inc. Delaware 100 Skinner & Sherman, Inc. Massachusetts 100 Thermo Consulting & Design Inc. Delaware 100 Engineering Technology and Knowledge Delaware 100 Corporation Elson T. Killam Associates, Inc. New Jersey 100 BAC Killam Inc. New York 100 N. H. Bettigole Co., Inc. Delaware 100 N. H. Bettigole, P.A. New Jersey 100 N. H. Bettigole, P.C. New York 100 Duncan, Lagnese and Associates, Pennsylvania 100 Incorporated E3-Killam, Inc. New York 100 Killam Associates, Inc. Ohio 100 Killam Management and Operational New Jersey 100 Services, Inc. Fellows, Read & Associates, Inc. New Jersey 100 Killam Associates, New England Inc. Delaware 100 Page 1PAGE Exhibit 21 THERMO TERRATECH INC. Subsidiaries of the Registrant STATE OR JURISDICTION PERCENT NAME OF OF INCORPORATION OWNERSHIP George A. Schock & Associates, Inc. New Jersey 100 Jennison Engineering, Inc. Vermont 100 Thermo EuroTech N.V. Netherlands 53.25 Grond- & Watersaneringstechniek Netherlands 100 Nederland B.V. Refining & Trading Holland B.V. Netherlands 100 Thermo Remediation Inc. Delaware 68.92 (additionally, 1.48% of the shares are owned directly by The Thermo Electron Companies Inc.) Eberline Holdings Inc. Delaware 100 Eberline Analytical Corporation New Mexico 100 Thermo Hanford Inc. Delaware 100 TMA/NORCAL Inc. California 100 IEM Sealand Corporation Virginia 100 Remediation Technologies, Inc. Delaware 100 RETEC Thermal, Inc. Delaware 100 ReTec/Tetra L.C. Texas 50* TriTechnics Corporation Colorado(?) 100 Thermo Fluids Inc. Delaware 100 TPS Technologies Inc. Florida 100 TPST Soil Recyclers of California Inc. California 100 California Hydrocarbon, Inc. Nevada 100 TPST Soil Recyclers of Maryland Inc. Maryland 100 Todds Lane Limited Partnership Maryland 100* (1% of which is owned directly by TPS Technologies Inc.) TPST Soil Recyclers of New York Inc. New York 100 TPST Soil Recyclers of Oregon Inc. Oregon 100 TPST Soil Recyclers of South Carolina Delaware 100 Inc. TPST Soil Recyclers of Virginia Inc. Delaware 100 TPST Soil Recyclers of Washington Inc. Washington 100 TMA/Hanford, Inc. Washington 100 Thermo Securities Corporation Delaware 100 Thermo Soil Recyclers Inc. Massachusetts 100 Thermo Technology Ventures Inc. Idaho 100 Plasma Quench Investment Limited Delaware 60* Partnership * Joint Venture/Partnership EX-23.1 6 EXHIBIT 23.1 Consent of Independent Public Accountants ----------------------------------------- As independent public accountants, we hereby consent to the incorporation by reference of our reports dated May 6, 1997 (except with respect to the matters discussed in Note 17 as to which the date is May 12, 1997), included in or incorporated by reference into Thermo TerraTech Inc.'s Annual Report on Form 10-K for the year ended March 29, 1997, and into the Company's previously filed Registration Statements as follows: Registration Statement No. 333-02269 on Form S-2, Registration Statement No. 33-16462 on Form S-8, Registration Statement No. 33-16464 on Form S-8, Registration Statement No. 33-16465 on Form S-8, Registration Statement No. 33-16466 on Form S-8, Registration Statement No. 33-31478 on Form S-3, Registration Statement No. 333-2055 on Form S-3, Registration Statement No. 33-52824 on Form S-8, Registration Statement No. 033-65307 on Form S-8, Registration Statement No. 033-65283 on Form S-8, Registration Statement No. 033-65281 on Form S-8, and Registration Statement No. 33-86194 on Form S-8. Arthur Andersen LLP Boston, Massachusetts June 6, 1997 EX-23.2 7 Exhibit 23.2 CONSENT OF INDEPENDENT AUDITORS We consent to the use of our report dated February 27, 1997 with respect to the financial statements of RETEC/TETRA L.C. as of December 31, 1996 and 1995 and for the years then ended included in this Annual Report (Form 10-K) of Thermo TerraTech Inc. for the year ended March 29, 1997. We also consent to the incorporation by reference in the following Registration Statements of Thermo TerraTech Inc. and each related Prospectus of our report dated February 27, 1997 with respect to the financial statements of RETEC/TETRA L.C. as of December 31, 1996 and 1995 and for the years then ended included in this Annual Report (Form 10-K) for the year ended March 29, 1997. Registration Statement No. 33-16462 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. 33-52824 on Form S-8 Registration Statement No. 33-65283 on Form S-8 Registration Statement No. 33-65281 on Form S-8 Registration Statement No. 333-02269 on Form S-2 Registration Statement No. 33-16466 on Form S-8 Registration Statement No. 333-2055 on Form S-3 Registration Statement No. 033-65307 on Form S-8 Registration Statement No. 33-86194 on Form S-8 Ernst & Young LLP Houston, Texas June 4, 1997 EX-27 8
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO TERRATECH INC.'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED MARCH 29, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR MAR-29-1997 MAR-29-1997 63,172 31,362 53,029 3,838 3,021 187,038 132,332 48,766 393,784 109,723 165,186 0 0 1,830 81,696 393,784 27,119 278,503 22,677 230,080 8,846 625 12,914 (291) 1,705 (162) 0 0 0 (162) (.01) 0
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