-----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, F0pr+8y5Ij7m4s/QOZfsrHCq4gdCLThIvgh1UoAzh/X9eIePsQJptQvzCaQndSSS 2Od+lC37Z/idqUhENayZOw== 0000796038-98-000004.txt : 19980630 0000796038-98-000004.hdr.sgml : 19980630 ACCESSION NUMBER: 0000796038-98-000004 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19980404 FILED AS OF DATE: 19980629 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: 0329 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-09549 FILM NUMBER: 98656882 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 April 4, 1998 [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission file number 1-9549 THERMO TERRATECH INC. (Exact name of Registrant as specified in its charter) Delaware 04-2925807 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 81 Wyman Street, P.O. Box 9046 Waltham, Massachusetts 02254-9046 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (781) 622-1000 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered Common Stock, $.10 par value American Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to the filing requirements for at least the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference into Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by nonaffiliates of the Registrant as of May 29, 1998, was approximately $14,762,000. As of May 29, 1998, the Registrant had 19,513,824 shares of Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's Fiscal 1998 Annual Report to Shareholders for the year ended April 4, 1998, are incorporated by reference into Parts I and II. Portions of the Registrant's definitive Proxy Statement for the Annual Meeting of Shareholders to be held on September 15, 1998, are incorporated by reference into Part III. PART I Item 1. Business (a) General Development of Business Thermo TerraTech Inc. (the Company or the Registrant) provides industrial outsourcing services and manufacturing support encompassing a broad range of specializations, including infrastructure engineering, design and construction, environmental compliance, laboratory testing, and metal treating. The Company's majority-owned, publicly held Thermo Remediation Inc. subsidiary is a national provider of environmental-liability management services. Through a nationwide network of offices, Thermo Remediation offers these and related consulting services in five areas: industrial remediation, nuclear remediation, waste-fluids collection and recycling, soil remediation, and environmental-management and information- consulting. In fiscal 1998, Thermo Remediation made several small acquisitions: TriTechnics Corporation, an environmental engineering and consulting firm, for $1.6 million in cash; RPM Systems, Inc., an environmental-management, planning, and information technology company, for $0.6 million in cash and 374,507 shares of Thermo Remediation common stock, valued at $2.4 million; and Benchmark Environmental Corporation, a provider of nuclear-remediation and waste-management services to government and private industry, for $2.9 million in cash and 85,106 shares of Thermo Remediation common stock, valued at $0.5 million. As of April 4, 1998, the Company owns 69% of Thermo Remediation's outstanding common stock and holds a $2.7 million principal amount 3 7/8% subordinated convertible note due 2000 issued by Thermo Remediation, convertible into shares of Thermo Remediation common stock at a conversion price of $9.83 per share. The Company's majority-owned Thermo EuroTech N.V. subsidiary, located in the Netherlands, specializes in converting "off-spec" and contaminated petroleum fluids into useable oil products. In February 1998, Thermo EuroTech acquired a 70% controlling interest in Green Sunrise Holdings Ltd., an environmental services and industrial outsourcing firm based in the Republic of Ireland, for approximately $4.4 million in cash and a commitment to issue 69,200 shares of its common stock valued at $0.3 million. As of April 4, 1998, the Company owns 56% of Thermo EuroTech's outstanding common stock. In May 1997, the Company purchased a controlling interest in The Randers Group Incorporated, a publicly traded provider of design, engineering, project management, and construction services for industrial clients in the manufacturing, pharmaceutical, and chemical-processing industries. The Company purchased 7,100,000 shares of Randers common stock from certain members of Randers' management, and 420,000 shares from Thermo Power Corporation, an affiliate of the Company, at a price of $0.625 per share, for an aggregate cost of $4.7 million. Following these transactions and currently, the Company owns approximately 53.3% of Randers' actual outstanding common stock. In addition, Thermo Electron Corporation, which owns a majority of the Company's outstanding common stock, owns approximately 8.9% of actual Randers' outstanding common stock. 2 Subsequently, in September 1997, the Company entered into a definitive agreement to transfer its wholly owned The Killam Group Inc. subsidiary to Randers in exchange for newly issued shares of Randers' common stock. The Killam Group provides comprehensive engineering and outsourcing services in such areas as water and wastewater treatment, highway and bridge projects, process engineering, construction management, and inspection and operational services. Effective April 4, 1998, the agreement was amended to provide that the price for The Killam Group would be equal to $70.6 million, the book value of the transferred businesses as of April 4, 1998. The number of new shares of Randers common stock to be issued to the Company will equal such book value divided by $0.625, or 113,031,051 shares. Upon such issuance, the Company and Thermo Electron would own approximately 94.8% and 1.0%, respectively, of Randers'outstanding common stock. The transfer is subject to approval of the transaction by Randers' shareholders and continued listing of Randers' common stock on the American Stock Exchange following the transaction. However, because the Company currently owns 53.3% of Randers' outstanding common stock, approval by Randers'shareholders is assured. The Company's Lancaster Laboratories Inc. subsidiary, based in Lancaster, Pennsylvania, operates analytical laboratories that provide comprehensive laboratory-based environmental testing, analysis, and related services to detect and measure organic contaminants in samples of soil, water, air, industrial wastes, mixed wastes, and biological materials. Lancaster Laboratories is also a provider of high-quality analytical and consulting services to the pharmaceutical and food industries. The Company performs metallurgical processing services using thermal-treatment equipment at locations in California, Minnesota, and Wisconsin. In October 1997, the Company sold substantially all of the assets of its Holcroft Division, its thermal-processing equipment business, excluding certain accounts receivable, to Holcroft L.L.C., an affiliate of Madison Capital Partners, for $10.9 million in cash, two promissory notes for principal amounts aggregating $2.9 million, and the assumption by Holcroft L.L.C. of certain liabilities of the Holcroft Division. After recording a post-closing purchase price adjustment, the Company incurred a nominal loss on the sale. This business comprised the Company's product revenues and contributed $893,000 and $1,765,000 of operating income in fiscal 1998 and 1997, respectively. The Company was incorporated on May 30, 1986, as an indirect, wholly owned subsidiary of Thermo Electron. As of April 4, 1998, Thermo Electron owned 15,935,435 shares of the common stock of the Company, representing 82% of such stock outstanding. Thermo Electron develops, manufactures, and markets analytical and monitoring instruments; biomedical products including heart-assist devices, respiratory-care equipment, and mammography systems; paper recycling and papermaking equipment; alternative-energy systems; industrial process equipment; and other specialized products. Thermo Electron also provides industrial outsourcing, laboratory, and metallurgical services, and conducts advanced-technology research and development. 3 Thermo Electron may repurchase shares of the Company's, Thermo Remediation's, Randers; or Thermo EuroTech's common stock from time to time in the open market or in negotiated transactions. During fiscal 1998(1), Thermo Electron purchased 1,230,777 shares, 8,500 shares, and 349,664 shares of the Company's, Thermo Remediation's, and Thermo EuroTech's common stock, respectively, in the open market and negotiated transactions for a total price of $13,900,000, $62,000, and $1,400,000, respectively. Forward-looking Statements Forward-looking statements, within the meaning of Section 21E of the Securities Exchange Act of 1934, are made throughout this Annual Report on Form 10-K. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words "believes," "anticipates," "plans," "expects," "seeks," "estimates," and similar expressions are intended to identify forward-looking statements. There are a number of important factors that could cause the results of the Company to differ materially from those indicated by such forward-looking statements, including those detailed under the heading "Forward-looking Statements" in the Registrant's Fiscal 1998 Annual Report to Shareholders, which statements are incorporated herein by reference. (b) Financial Information About Industry Segments The Company conducts business in one segment: outsourcing services. The Company's principal services are environmental-liability management, engineering and design, and laboratory-based testing. The Company also provides specialized metal-treating services which, until October 1997, included the design, manufacture, and installation of advanced custom-engineered thermal-processing systems. (c) Description of Business (i) Principal Services and Products Remediation and Recycling Services The Company provides environmental consulting and remediation construction management to clients in the transportation, refining, chemical, wood-treating, gas, and electric utility industries across the nation. Through its consulting, engineering, and on-site services, the Company offers a broad array of remedial solutions to help clients manage problems associated with environmental compliance, waste management, and the remediation of industrial sites contaminated with various wastes and residues. The Company provides particular expertise in bioremediation, and in managing wastes from manufactured-gas plants, refineries, and railroad properties. - ---------------------- 1 References to fiscal 1998, 1997, and 1996 herein are for the fiscal years ended April 4, 1998, March 29, 1997, and March 30, 1996, respectively. 4 The Company performs the cleanup of hazardous waste sites for government and industry as a prime construction contractor and completes predesigned remedial action contracts at sites containing hazardous, toxic, and radioactive wastes. Under contracts with federal and state governments, and other public- and private-sector clients, the Company also provides project management and construction services for the remediation of hazardous and nonhazardous wastes. Most of this contract work is obtained through a bid process, with the job being awarded to the lowest qualified bidder. The Company provides services to remove radioactive contaminants from soil, as well as health physics services, radiochemistry laboratory services, radiation dosimetry services, radiation-instrument calibration and repair services, and radiation-source production. As part of its radiation and nuclear/health physics services business, the Company provides site surveys for radioactive materials and on-site samples, as well as analysis in support of decontamination programs and dosimetry services to measure personnel exposure. In addition, using its proprietary segmented-gate system technology, the Company removes radioactive contaminants from soil. A substantial part of the Company's health physics services has been performed under the U.S. Department of Energy's remedial action programs. The Company collects, tests, processes, and recycles used motor oil and other industrial fluids. In addition, the Company collects and recycles oily water and oil filters. The company has processing facilities in Phoenix and Tucson, Arizona; Las Vegas, Nevada; Nampa, Idaho; Commerce City, Colorado; and Portland, Oregon from which it operates a fleet of oil and water collection trucks to pick up waste oils and oily water. Each facility consists of a series of tanks set in protective enclosures used to store the fluids before processing. Processing of oil consists of straining, filtering, and blending. Once processed, the oil is sold as burner fuel for a variety of industrial uses, including use in cement and asphalt kilns, industrial furnaces, and as "cutter stock" to make marine diesel fuel for large, oceangoing vessels. Water is processed to reclaim all usable oil and remove solid contaminants until the water meets sewer-discharge standards. Thermo EuroTech specializes in processing "off-spec" mixtures of oil that contain water, ash, and sediment into commercially tradable end products used in blending. The end products of this process are commercial grade oils that can be blended to make diesel fuels and marine fuels or be used as a feed material. Although a large percentage of Thermo EuroTech's oil feedstock has historically come from the former Soviet Union, Thermo EuroTech no longer receives any oil from that nation as a result of political and economic changes that make transportation of waste oil difficult. To overcome this loss of supply, Thermo EuroTech has taken steps to replace and diversify its feedstock suppliers. However, no assurance can be given that it will not experience future disruptions in deliveries. The Company's strategy is to use Thermo EuroTech as a platform from which to eventually provide a broad range of environmental- remediation services throughout Western Europe. Thermo EuroTech also provides in-plant waste management and recycling services through its Ireland-based Green Sunrise subsidiary, acquired in February 1998. 5 The Company designs and operates facilities for the remediation of nonhazardous soil. The Company's soil-remediation centers are environmentally secure facilities for receiving, storing, and processing petroleum-contaminated soils. Each site consists principally of a soil-remediation unit and a soil-storage area. The Company currently provides soil-remediation services at facilities in California, Oregon, Washington, South Carolina, Maryland, and New York. The market for remediation of petroleum-contaminated soils, as with many other waste markets, was created by environmental regulations. The market for soil-remediation services has been driven largely by state programs to enforce the Environmental Protection Agency's (EPA's) underground storage tank (UST) regulations and to fund cleanups. UST compliance requirements and attendant remediation costs are often beyond the financial capabilities of individuals and smaller companies. To address this problem, some states established tax-supported trust funds to assist in the financing of UST compliance and remediation. Many states have realized that the number of sites requiring remediation and the costs of compliance are substantially higher than were originally estimated. As a result, several states have significantly reduced compliance requirements and altered regulatory approaches and standards in order to reduce the costs of cleanup. More lenient regulatory standards, reduced enforcement, and uncertainty with respect to such changes have already resulted in lower levels of cleanup activity in most states where the Company conducts business, which has had a material adverse effect on the Company's business. During fiscal 1998, 1997, and 1996, the Company derived revenues of $142.4 million, $126.8 million, and $77.0 million, respectively, from environmental-liability management services. Consulting and Design Services The Company provides comprehensive engineering and outsourcing services in such areas as water and wastewater treatment, highway and bridge projects, process engineering, construction management, and operational services. Also, the Company provides a wide range of comprehensive environmental consulting and professional engineering services to private- and public-sector clients. These services include the design and inspection of water supply and wastewater treatment facilities; investigations of different methods to clean up hazardous-waste sites; assistance in obtaining government permits; transportation-related and similar types of infrastructure engineering, survey, and land-use planning; and support services including mechanical, electrical, and structural engineering. In addition, the Company provides natural resource management services, including environmental-impact studies. The Company offers engineering, consulting, and design services in the areas of municipal and industrial water quality management, bridge and highway construction and reconstruction, and natural resource management. The Company specializes in the design, planning, and construction supervision of municipal and privately owned water-treatment plants, waste treatment plants, and hazardous-wastewater facilities. The 6 Company provides full-service contract operations to plant owners in the public and private sectors. These services facilitate regulatory compliance; optimize day-to-day plant operations; reduce costs; provide competent, experienced personnel; and promote good community relations. The Company also provides a broad range of bridge and highway engineering services. The Company's environmental-impact assessments and mitigation and restoration studies help to determine water quality, promote the safety of wildlife, and assist clients in meeting environmental permitting and licensing requirements. The Company also provides aquatic biology expertise and ecological risk assessment to electric utility plants throughout the country. A substantial portion of the Company's engineering and design services sales are made to existing customers on a repeat basis. Engineering and design services are often performed as multiyear studies. In addition to federal, state, and local governments, customers include public utilities, consulting and construction engineers, waste management companies, oil refineries, mining companies, chemical manufacturers, architectural and engineering firms, and a variety of service companies involved with real estate transactions. During fiscal 1998, 1997, and 1996, the Company derived revenues of $84.6 million, $74.8 million, and $74.0 million, respectively, from engineering and design services. Laboratory-testing Services The Company provides comprehensive laboratory-based services for the environmental, pharmaceutical, and food industries. These laboratories also provide analysis and related services to detect and measure hazardous wastes and radioactive materials. Analytical laboratory services consist of a comprehensive range of analytical tests to detect and measure organic contaminants, inorganic contaminants, and radioactive materials in samples of soil, water, air, industrial wastes, and biological materials. The Company has established detailed procedures and strict operating standards to ensure consistent performance and to allow it to participate in the EPA's Contract Laboratory Program. The Company's environmental laboratory business has been negatively affected by reduced federal spending on environmental testing. During fiscal 1998, 1997, and 1996, the Company derived revenues of $37.5 million, $35.4 million, and $35.5 million, respectively, from laboratory-testing services. Revenues from laboratory-testing services exclude radiochemistry laboratory service revenues included in environmental-liability management services. 7 Metal-treating Services and Process Systems The Company performs metallurgical processing services using thermal-treatment equipment at locations in California, Minnesota, and Wisconsin. Through its Holcroft Division, which was sold in October 1997, the Company designed, manufactured, and installed computer-controlled, custom-engineered, thermal-processing systems used to treat primary metals and metal parts. During fiscal 1998, 1997, and 1996, the Company derived revenues of $36.6 million, $44.3 million, and $35.8 million, respectively, from metal-treating services and process systems. (ii) New Products The Company has made no commitments to new products that would require the investment of a material amount of the Company's assets. (iii) Raw Materials Prior to fiscal 1996, a large percentage of Thermo EuroTech's oil feedstock came from the former Soviet Union. Thermo EuroTech no longer receives any oil from that nation as a result of political and economic changes that make transportation of waste oil difficult. To overcome this loss of supply, Thermo EuroTech has taken steps to replace and diversify its feedstock suppliers. However, no assurance can be given that it will not experience future disruptions in deliveries. (iv) Patents, Licenses, and Trademarks The Company currently owns or has rights under licenses to a number of U.S. patents. Although the Company believes that patent protection provides it with competitive advantages with respect to certain portions of its business and will continue to seek patent protection when appropriate, the Company also believes that its business depends primarily upon trade secrets and the technical and marketing expertise of its personnel. (v) Seasonal Influences A majority of the Company's businesses experience seasonal fluctuations. A majority of the Company's soil-remediation sites, as well as the Company's fluids-recycling sites, experience declines in severe weather conditions. Site remediation work and certain environmental testing services may decline in winter months as a result of severe weather conditions. In Europe, Thermo EuroTech may experience a decline in the feedstock delivered to its facilities during winter months, due to frozen waterways. (vi) Working Capital Requirements In general, there are no special inventory requirements or credit terms extended to customers that would have a material adverse effect on the Company's working capital. 8 (vii) Dependency on a Single Customer See Government Contracts. (viii) Backlog The Company's backlog of firm orders was $111.8 million and $108.7 million as of April 4, 1998, and March 29, 1997, respectively. These amounts include the backlog of all of the Company's subsidiaries, with the exception of soil-recycling and fluids-recycling, which are provided on a current basis pursuant to purchase orders. Included in the Company's backlog at fiscal year-end 1998 and 1997 is the incomplete portion of contracts that are accounted for using the percentage-of-completion method. The Company believes that substantially all of the backlog at April 4, 1998, will be completed during the next 12 months. Certain of these orders are subject to cancellation by the customer upon payment of a cancellation charge and all government contracts are subject to termination at any time by the government without penalty. (ix) Government Contracts Approximately 4%, 13%, and 10% of the Company's revenues in fiscal 1998, 1997, and 1996, respectively, were derived from contracts or subcontracts with the federal government that are subject to renegotiation of profits or termination. The Company does not have any knowledge of threatened or pending renegotiation or termination of any material contract or subcontract. (x) Competition Many of the Company's businesses are engaged in highly competitive, regional markets, with competition coming from numerous small firms offering limited services, as well as much larger firms that offer an array of services. Environmental-liability Management Services In the market for industrial-remediation services, the Company competes with numerous regional or local companies as well as a number of national remediation contractors. The Company competes primarily based on price, as the vast majority of the contracts it seeks are awarded on the basis of scope, effectiveness, and cost. Other competitive factors for the Company's industrial-remediation businesses include: reputation; experience; breadth and quality of services offered; and technical, managerial, and business proficiency. The type of nuclear-remediation services offered by the Company are also offered by many large national companies. The Company competes primarily on the basis of its proprietary technology and price. The Company operates the largest fleet of waste-fluids collection vehicles in Arizona and Nevada. The Company competes with numerous smaller and several larger collection companies in its current market primarily on the basis of quality of service and price. 9 Competition in the soil-remediation business is intense. The Company's principal competitors are landfills, including major landfill companies. The Company also currently competes with companies offering a wide range of disposal options, including other fixed-site, thermal-treatment facilities, operators of mobile thermal-treatment facilities, bioremediation and vapor-extraction facilities, and, in certain states, with asphalt plants and brick kilns that use the contaminated soil in their production processes. Competition in the soil-remediation market has always been highly localized, consisting mostly of single-site or single-unit operators. Competitive conditions limit the prices charged by the Company in each local market for soil-remediation services. Pricing is therefore a major competitive factor for the Company. The Company believes competition and pricing pressure will remain intense for the foreseeable future. Fewer than 20 companies offer environmental management and information systems of the type provided by the Company. While some of these companies possess similar resources as the Company, many are large, national consulting firms that devote a relatively small percentage of their resources to this area. The Company competes for business, both regionally and nationally, primarily based on reputation and the quality of its services and, to a lesser extent, on price. Less than 10% of the Company's work in this area is obtained through a bidding process. Thermo EuroTech faces competition for oil from other oil processors and blenders and from a company with a similar distillation technology in Italy. The market for blending oils is very large and oils such as Thermo EuroTech's end products represent a very small percentage of the total market. Thermo EuroTech competes primarily based on price. Engineering and Design Services The Company's engineering and design businesses are engaged in highly competitive markets in all of its service areas. These markets tend to be regional. In its geographic service area, competition consists of small, one- to three-person firms offering a limited scope of services, as well as much larger firms that may be regional, national, or international in the scope of services they offer. The principal competitive factors for the Company are: reputation; experience; price; breadth and quality of services offered; and technical, managerial, and business proficiency. Laboratory-testing Services Hundreds of independent analytical testing laboratories and consulting firms compete for business nationwide. Many of these firms use equipment and processes similar to those of the Company. Competition is based not only on price, but also on reputation for accuracy, quality, and the ability to respond rapidly to customer requirements. In addition, many industrial companies have their own in-house analytical testing capabilities. The Company believes that its competitive strength lies in the quality of its services. 10 Metal-treating Services The market for metal-treating services is typically regional and competitive. All regions in which the Company has facilities contain numerous competitors. In addition, in-house heat-treating facilities provide a major source of competition. The Company competes in this segment on the basis of services provided, turnaround time, and price. (xi) Environmental Protection Regulations The Company believes that compliance by the Company with federal, state, and local environmental protection regulations will not have a material adverse effect on its capital expenditures, earnings, or competitive position. (xii) Number of Employees At April 4, 1998, the Company employed 2,736 persons. (d) Financial Information About Exports by Domestic Operations and About Foreign Operations The Company's exports by domestic operations and foreign operations are currently insignificant. (e) Executive Officers of the Registrant Present Title (Fiscal Year First Became Name Age Executive Officer) Dr. John P. Appleton 63 President and Chief Executive Officer (1993) John N. Hatsopoulos 63 Chief Financial Officer and Senior Vice President (1988) Emil C. Herkert 60 Vice President (1996) Jeffrey L. Powell 39 Vice President (1994) Paul F. Kelleher 55 Chief Accounting Officer (1986) Each executive officer serves until his successor is chosen or appointed by the Board of Directors and qualified or until earlier resignation, death, or removal. All executive officers, except Mr. Herkert and Mr. Powell, have held comparable positions for at least five years, either with the Company or with its parent company, Thermo Electron. Mr. Herkert has served as President of Killam Associates, a subsidiary of Randers, since 1977. Mr. Powell served as President of Thermo Remediation since its inception in 1993, and as its Chief Executive Officer from May 1997 until April 1998, when he was named Senior Vice President. Messrs. Hatsopoulos and Kelleher are full-time employees of Thermo Electron, but devote such time to the affairs of the Company as the Company's needs reasonably require. 11 Item 2. Properties The location and general character of the Company's principal properties as of April 4, 1998, are as follows: The Company owns approximately 490,000 square feet of office, engineering, laboratory, and production space, principally in Pennsylvania, Minnesota, New Jersey, Ireland, Idaho, Wisconsin, and California, and leases approximately 730,000 square feet of office, engineering, laboratory, and production space pursuant to leases expiring in fiscal 1999 through 2023, principally in California, Pennsylvania, New Mexico, New York, Massachusetts, New Jersey, New Hampshire, and Florida. The Company also owns approximately 70 acres in Maryland, California, and Oregon, from which it provides soil-remediation services. The Company occupies approximately 19 acres principally in New York, Washington, California, and South Carolina pursuant to leases expiring in fiscal 1999 through 2006, from which it provides soil-remediation services. The Company leases approximately six acres on one site in Arizona and one site in Nevada pursuant to leases expiring in fiscal 1999, consisting of office space, fluids recycling and maintenance facilities, and sites for fluids storage tanks. The Company occupies approximately 15 acres in Delfzijl, Holland, pursuant to a lease expiring in 2059, consisting of office space, distillation facilities, and oil storage tanks. The Company believes that these facilities are in good condition and are adequate for its present operations and that other suitable space is readily available if any of such leases are not extended. With respect to leases expiring in the near future, in the event the Company does not renew such leases, the Company believes suitable alternate space is available for lease on acceptable terms. Item 3. Legal Proceedings Not applicable. Item 4. Submission of Matters to a Vote of Security Holders Not applicable. 12 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters Information concerning the market and market price for the Registrant's Common Stock, $.10 par value, and dividend policy are included under the sections labeled "Common Stock Market Information" and "Dividend Policy" in the Registrant's Fiscal 1998 Annual Report to Shareholders and is incorporated herein by reference. Item 6. Selected Financial Data The information required under this item is included under the sections labeled "Selected Financial Information" and "Dividend Policy" in the Registrant's Fiscal 1998 Annual Report to Shareholders and is incorporated herein by reference. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The information required under this item is included under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Registrant's Fiscal 1998 Annual Report to Shareholders and is incorporated herein by reference. Item 8. Financial Statements and Supplementary Data The Registrant's Consolidated Financial Statements as of April 4, 1998, are included in the Registrant's Fiscal 1998 Annual Report to Shareholders and are incorporated herein by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable. 13 PART III Item 10. Directors and Executive Officers of the Registrant The information concerning Directors required under this item is incorporated herein by reference from the material contained under the caption "Election of Directors" in the Registrant's definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, not later than 120 days after the close of the fiscal year. The information concerning delinquent filers pursuant to Item 405 of Regulation S-K is incorporated herein by reference from the material contained under the heading "Section 16(a) Beneficial Ownership Reporting Compliance" under the caption "Stock Ownership" in the Registrant's definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, not later than 120 days after the close of the fiscal year. Item 11. Executive Compensation The information required under this item is incorporated herein by reference from the material contained under the caption "Executive Compensation" in the Registrant's definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, not later than 120 days after the close of the fiscal year. Item 12. Security Ownership of Certain Beneficial Owners and Management The information required under this item is incorporated herein by reference from the material contained under the caption "Stock Ownership" in the Registrant's definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, not later than 120 days after the close of the fiscal year. Item 13. Certain Relationships and Related Transactions The information required under this item is incorporated herein by reference from the material contained under the caption "Relationship with Affiliates" in the Registrant's definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, not later than 120 days after the close of the fiscal year. 14 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a,d) Financial Statements and Schedules (1) The consolidated financial statements set forth in the list below are filed as part of this Report. (2) The consolidated financial statement schedule set forth in the list below is filed as part of this Report. (3) Exhibits filed herewith or incorporated herein by reference are set forth in Item 14(c) below. List of Financial Statements and Schedules Referenced in this Item 14 Information incorporated by reference from Exhibit 13 filed herewith: Consolidated Statement of Operations Consolidated Balance Sheet Consolidated Statement of Cash Flows Consolidated Statement of Shareholders' Investment Notes to Consolidated Financial Statements Report of Independent Public Accountants Financial Schedule filed herewith: Schedule II: Valuation and Qualifying Accounts All other schedules are omitted because they are not applicable or not required, or because the required information is shown either in the financial statements or the notes thereto. (b) Reports on Form 8-K None. (c) Exhibits See Exhibit Index on the page immediately preceding exhibits. 15 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed by the undersigned, thereunto duly authorized. Date: June 29, 1998 THERMO TERRATECH INC. By: John P. Appleton John P. Appleton President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated, as of June 29, 1998. Signature Title By: John P. Appleton President, Chief Executive Officer, John P. Appleton and Director By: John N. Hatsopoulos Chief Financial Officer, Senior John N. Hatsopoulos Vice President, and Director By: Paul F. Kelleher Chief Accounting Officer Paul F. Kelleher By: Brian D. Holt Director Brian D. Holt By: Donald E. Noble Director Donald E. Noble By: William A. Rainville Director William A. Rainville By: Polyvios C. Vintiadis Chairman of the Board and Director Polyvios C. Vintiadis 16 Report of Independent Public Accountants To the Shareholders and Board of Directors of Thermo TerraTech Inc.: We have audited, in accordance with generally accepted auditing standards, the consolidated financial statements included in Thermo TerraTech Inc.'s Annual Report to Shareholders incorporated by reference in this Form 10-K, and have issued our report thereon dated May 12, 1998. Our audits were made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed in Item 14 on page 15 is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic consolidated financial statements and, in our opinion, fairly states in all material respects the consolidated financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. Arthur Andersen LLP Boston, Massachusetts May 12, 1998 17 SCHEDULE II THERMO TERRATECH INC. VALUATION AND QUALIFYING ACCOUNTS (In thousands) Balance Provision at Charged Accounts Balance Beginning to Accounts Written- at End Description of Year Expense Recovered off Other(a) of Year - ------------------------------------------------------------------------------ Allowance for Doubtful Accounts Year Ended April 4, 1998 $ 3,838 $ 1,141 $ - $ (773) $ 244 $4,450 Year Ended March 29, 1997 $ 2,861 $ 625 $ 49 $ (516) $ 819 $3,838 Year Ended March 30, 1996 $ 3,572 $ 85 $ 84 $(1,628) $ 748 $2,861 (a) Includes allowances of businesses acquired during the year as described in Note 3 to Consolidated Financial Statements in the Registrant's Fiscal 1998 Annual Report to Shareholders and the effect of foreign currency translation. 18 EXHIBIT INDEX Exhibit Number Description of Exhibit 2.1 Purchase and Sale Agreement executed October 6, 1997, by and among Remediation Technologies, Inc., RETEC Thermal, Inc., TETRA Thermal, Inc., and TETRA Technologies, Inc. (filed as Exhibit 2.1 to Thermo Remediation Inc.'s Current Report on Form 8-K dated October 6, 1997 [File No. 1-12636] and incorporated herein by reference). 2.2 Assignment and Assumption Agreement executed October 6, 1997, by and among Remediation Technologies, Inc., RETEC Thermal, Inc., TETRA Thermal, Inc., and TETRA Technologies, Inc. (filed as Exhibit 2.2 to Thermo Remediation Inc.'s Current Report on Form 8-K dated October 6, 1997 [File No. 1-12636] and incorporated herein by reference). 2.3 Asset Purchase Agreement dated as of October 10, 1997, between the Registrant and Holcroft L.L.C. (filed as Exhibit 2.1 to the Registrant's Current Report on Form 8-K dated October 6, 1997, and incorporated herein by reference). 2.4 $2,218,000.00 Principal Promissory Note issued by Holcroft L.L.C. to the Registrant (filed as Exhibit 2.2 to the Registrant's Current Report on Form 8-K dated October 6, 1997, and incorporated herein by reference). 2.5 $663,117.82 Principal Promissory Note issued by Holcroft L.L.C. to the Registrant (filed as Exhibit 2.3 to the Registrant's Current Report on Form 8-K dated October 6, 1997, and incorporated herein by reference). 2.6 Subordination Agreement dated as of October 10, 1997, between the Registrant and Comerica Bank (filed as Exhibit 2.4 to the Registrant's Current Report on Form 8-K dated October 6, 1997, and incorporated herein by reference). 2.7 Stock Purchase and Sale Agreement dated May 12, 1997, by and between the Registrant and Thomas R. Eurich, Michael J. Krivitzky, Thomas J. McEnhill, and Bruce M. Bourdon (filed as Exhibit (iv) to Amendment No. 3 to Schedule 13D filed by Thermo Electron Corporation and the Registrant on May 13, 1997, and incorporated herein by reference). 2.8 Amendment No. 1 dated September 19, 1997, to Stock Purchase and Sale Agreement dated May 12, 1997, by and between the Registrant and Thomas R. Eurich, Michael J. Krivitzky, Thomas J. McEnhill, and Bruce M. Bourdon (filed as Exhibit 2.5 to The Randers Group Incorporated's Annual Report on Form 10-K for the fiscal year ended April 4, 1998 [File No. 0-18095] and incorporated herein by reference). 19 Exhibit Number Description of Exhibit 2.9 Letter of Intent dated May 12, 1997, by and between the Registrant and The Randers Group Incorporated (filed as Exhibit (v) to Amendment No. 3 to Schedule 13D filed by Thermo Electron Corporation and the Registrant on May 13, 1997, and incorporated herein by reference). 2.10 Stock Purchase Agreement entered on September 19, 1997, by and between the Registrant and The Randers Group Incorporated (filed as Exhibit (vii) to Amendment No. 4 to Schedule 13D filed by Thermo Electron Corporation and the Registrant on October 1, 1997, and incorporated herein by reference). 2.11 Amendment No. 1 dated as of April 4, 1998, to Stock Purchase Agreement entered on September 19, 1997, by and between the Registrant and The Randers Group Incorporated (filed as Exhibit 2.8 to The Randers Group Incorporated's Annual Report on Form 10-K for the fiscal year ended April 4, 1998 [File No. 0-18095] and incorporated herein by reference). 2.12 Agreement by and among the Registrant, The Randers Group Incorporated, Thomas R. Eurich, Michael J. Krivitzky, Thomas J. McEnhill, Bruce M. Bourdon, and David A. Wiegerink (filed as Exhibit 10 to The Randers Group Incorporated's Current Report on Form 8-K dated October 3, 1997 [File No. 0-18095] and incorporated herein by reference). 3.1 Restated Certificate of Incorporation, as amended (filed as Exhibit 99 to the Registrant's Registration Statement on Form S-2 [Reg. No. 333-02269] and incorporated herein by reference). 3.2 Bylaws of the Registrant (filed as Exhibit 3(b) to the Registrant's Annual Report on Form 10-K for the fiscal year ended April 2, 1988 [File No. 1-9549] and incorporated herein by reference). 4.1 Fiscal Agency Agreement dated as of May 2, 1996, among the Registrant, Thermo Electron Corporation, and Chemical Bank, as Fiscal Agent (filed as Exhibit 4.2 to the Registrant's Annual Report on Form 10-K for the fiscal year ended March 30, 1996 [File No. 1-9549] and incorporated herein by reference). 20 Exhibit Number Description of Exhibit 4.2 Fiscal Agency Agreement dated as of May 5, 1995, among Thermo Remediation Inc., Thermo Electron Corporation, and Chemical Bank, as fiscal agent (filed as Exhibit 4.1 to Thermo Remediation Inc.'s Annual Report on Form 10-K for the fiscal year ended April 4, 1998 [File No. 1-12636] and incorporated herein by reference). The Registrant hereby agrees, pursuant to Item 601(b)(4)(iii) (A) of Regulation S-K, to furnish to the Commission, upon request, a copy of each other instrument with respect to other long-term debt of the Company or its subsidiaries. 10.1 Thermo Electron Corporate Charter as amended and restated effective January 3, 1993 (filed as Exhibit 10(a) to the Registrant's Annual Report on Form 10-K for the fiscal year ended April 3, 1993 [File No. 1-9549] and incorporated herein by reference). 10.2 Amended and Restated Corporate Services Agreement dated January 3, 1993, between Thermo Electron Corporation and the Registrant (filed as Exhibit 10(b) to the Registrant's Annual Report on Form 10-K for the fiscal year ended April 3, 1993 [File No. 1-9549] and incorporated herein by reference). 10.3 Agreement of Lease dated December 31, 1985, between Claridge Properties Ltd. and Thermo Electron Corporation (filed as Exhibit 10(c) to the Registrant's Registration Statement on Form S-1 [Reg. No. 33-6763] and incorporated herein by reference). 10.4 Assignment of Lease dated December 31, 1985, between Thermo Electron Corporation and TMO, Inc. (filed as Exhibit 10(d) to the Registrant's Registration Statement on Form S-1 [Reg. No. 33-6763] and incorporated herein by reference). 10.5 Sublease dated March 30, 1986, between TMO, Inc. and Holcroft/Loftus, Inc. (filed as Exhibit 10(e) to the Registrant's Registration Statement on Form S-1 [Reg. No. 33-6763] and incorporated herein by reference). 10.6 Lease Amending Agreement dated January 1, 1995, between Claridge Properties Ltd., Thermo Electron Corporation, and TMO, Inc. (filed as Exhibit 10.6 to the Registrant's Annual Report on Form 10-K [File No. 1-9549] and incorporated by reference). 21 Exhibit Number Description of Exhibit 10.7 Second Amendment to Sublease dated as of October 10, 1997, between the Registrant and TMO, Inc. (filed as Exhibit 2.5 to the Registrant's Current Report on Form 8-K dated October 6, 1997, and incorporated herein by reference). 10.8 Sublease dated as of October 10, 1997, between the Registrant and Holcroft L.L.C. (filed as Exhibit 2.6 to the Registrant's Current Report on Form 8-K dated October 6, 1997 and incorporated herein by reference). 10.9 Exclusive License and Marketing Agreement dated March 22, 1990, among TPS Technologies Inc., Holcroft Inc., and Thermo Soil Recyclers Inc. (filed as Exhibit 10(q) to the Registrant's Annual Report on Form 10-K for the fiscal year ended March 31, 1990 [File No. 1-9549] and incorporated herein by reference). 10.10 Form of Indemnification Agreement with Directors and Officers (filed as Exhibit 10(k) to the Registrant's Annual Report on Form 10-K for the fiscal year ended March 30, 1991 [File No. 1-9549] and incorporated herein by reference). 10.11 Development Agreement dated September 15, 1991, between Thermo Electron Corporation and the Registrant (filed as Exhibit 10(l) to the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended September 28, 1991 [File No. 1-9549] and incorporated herein by reference). 10.12 Amended and Restated Development Agreement dated January 2, 1992, between Thermo Electron Corporation and the Registrant (filed as Exhibit 10(m) to the Registrant's Annual Report on Form 10-K for the fiscal year ended March 28, 1992 [File No. 1-9549] and incorporated herein by reference). 10.13 Asset Transfer Agreement dated as of October 1, 1993, among the Registrant, TPS Technologies Inc., and Thermo Remediation Inc. (filed as Exhibit 2.3 to Thermo Remediation's Registration Statement on Form S-1 [Reg. No. 33-70544] and incorporated herein by reference). 10.14 Exclusive License Agreement dated as of October 1, 1993, among the Registrant, TPS Technologies Inc., and Thermo Remediation Inc. (filed as Exhibit 2.4 to Thermo Remediation's Registration Statement on Form S-1 [Reg. No. 33-70544] and incorporated herein by reference). 22 Exhibit Number Description of Exhibit 10.15 Non-Competition and Non-Disclosure Agreement dated as of October 1, 1993, among the Registrant, TPS Technologies Inc. and Thermo Remediation Inc. (filed as Exhibit 2.5 to Thermo Remediation's Registration Statement on Form S-1 [Reg. No. 33-70544] and incorporated herein by reference). 10.16 Tax Allocation Agreement dated as of June 1, 1992, between the Registrant and Thermo Remediation Inc. (filed as Exhibit 10.3 to Thermo Remediation's Registration Statement on Form S-1 [Reg. No. 33-70544] and incorporated herein by reference). 10.17 Agreement of Partnership dated May 16, 1994, among Terra Tech Labs Inc. (a wholly owned subsidiary of the Registrant) and Eberline Analytical Corporation, Skinner & Sherman, Inc., TMA/NORCAL Inc., Normandeau Associates Inc., Bettigole Andrews & Clark Inc., Fellows, Read & Associates Inc., and Thermo Consulting Engineers Inc. (each a wholly owned subsidiary of Thermo Instrument Systems Inc.; filed as Exhibit 1 to the Registrant's Current Report on Form 8-K relating to the events occurring on May 16, 1994 [File No. 1-9549] and incorporated herein by reference). 10.18 Promissory Note dated May 16, 1994, issued by the Registrant to Thermo Electron Corporation (filed as Exhibit 2 to the Registrant's Current Report on Form 8-K relating to the events occurring on May 16, 1994 [File No. 1-9549] and incorporated herein by reference). 10.19 Agreement of Dissolution of Partnership dated May 9, 1995, among Thermo Terra Tech (the Partnership), Terra Tech Labs, Inc. (a wholly owned subsidiary of the Registrant) and Eberline Analytical Corporation, Skinner & Sherman, Inc., TMA/NORCAL Inc., Normandeau Associates Inc., Bettigole Andrews & Clark Inc., Fellows, Read & Associates Inc., and Thermo Consulting Engineers Inc. (each a wholly owned subsidiary of Thermo Instrument Systems Inc.; filed as Exhibit 2.1 to the Registrant's Current Report on Form 8-K relating to the events occurring on May 9, 1995 [File No. 1-9549] and incorporated herein by reference). 10.20 Stock Purchase Agreement dated May 9, 1995, between the Registrant and Thermo Instrument Systems Inc. (filed as Exhibit 2.2 to the Registrant's Current Report on Form 8-K relating to the events occurring on May 9, 1995 [File No. 1-9549] and incorporated herein by reference). 23 Exhibit Number Description of Exhibit 10.21 Note dated May 17, 1995, from the Registrant to Thermo Electron Corporation (filed as Exhibit 2.3 to the Registrant's Current Report on Form 8-K relating to the events occurring on May 9, 1995 [File No. 1-9549] and incorporated herein by reference). 10.22 Stock Purchase and Note Issuance Agreement dated as of November 22, 1993, between the Registrant and Thermo Remediation Inc. (filed as Exhibit 10.11 to Thermo Remediation's Registration Statement on Form S-1 [Reg. No. 33-70544] and incorporated herein by reference). 10.23 $2,650,000 principal amount Subordinated Convertible Note dated as of November 22, 1993, made by Thermo Remediation Inc., issued to the Registrant (filed as Exhibit 10.12 to Thermo Remediation's Registration Statement on Form S-1 [Reg. No. 33-70544] and incorporated herein by reference). 10.24 Stock Purchase and Sale Agreement made and entered into on February 6, 1995, to be effective as of January 29, 1995, by and between Nord Est S.A., the Registrant, and Emil C. Herkert, Kenneth L. Zippler, Franklin O. Williamson, Jr., Fletcher N. Platt, Jr., Eugene J. Destefano, Meint Olthof, and Stanley P. Kaltnecker, Jr. (filed as Exhibit 1 to the Registrant's Current Report on Form 8-K relating to the events occurring on February 6, 1995 [File No. 1-9549] and incorporated herein by reference). 10.25 Agreement and Plan of Merger dated as of June 28, 1995, by and among the Registrant, Eberline Acquisition Inc., Thermo Remediation Inc., and Eberline Holdings Inc. (filed as Appendix B to Thermo Remediation's Proxy Statement for the Annual Meeting held on December 13, 1995 [File No. 1-12636] and incorporated herein by reference). 10.26 $28,000,000 Secured Promissory Note dated as of January 29, 1995, issued by the Registrant to Nord Est S.A. (filed as Exhibit 2 to the Registrant's Current Report on Form 8-K relating to the events occurring on February 6, 1995 [File No. 1-9549] and incorporated herein by reference). 10.27 $38,000,000 Promissory Note dated as of February 21, 1995, issued by the Registrant to Thermo Electron Corporation (filed as Exhibit 3 to the Registrant's Current Report on Form 8-K relating to the events occurring on February 6, 1995 [File No. 1-9549] and incorporated herein by reference). 24 Exhibit Number Description of Exhibit 10.28 Asset Purchase Agreement by and among Thermo Analytical Inc. (as Buyer); Lancaster Laboratories, Inc. and Clewmark Holdings (as Sellers); and Earl H. Hess, Anita F. Hess, Kenneth E. Hess, J. Wilson Hershey, and Carol D. Hess (as the principal owners of Sellers) (filed as Exhibit 1 to the Registrant's Current Report on Form 8-K relating to the events occurring on May 10, 1995 [File No. 1-9549] and incorporated herein by reference). 10.29 Agreement and Plan of Merger dated as of the first day of December 1995, by and among Thermo Remediation Inc., TRI Acquisition Inc., and Remediation Technologies, Inc. (filed as Exhibit 2(a) to the Registrant's Current Report on Form 8-K relating to the events occurring on December 8, 1995 [File No. 1-9549] and incorporated herein by reference). 10.30 Purchase and Sale Agreement dated as of December 20, 1994, by and among TPS Technologies Inc., TPST Soil Recyclers of Maryland Inc., Rafich Corporation, Harry Ratrie, John C. Cyphers, and J. Thomas Hood (filed as Exhibit 1 to Thermo Remediation's Current Report on Form 8-K for the events occurring on December 21, 1994 [File No. 1-12636] and incorporated herein by reference). 10.31 Stock Purchase Agreement entered into on March 29, 1995, by and among Stalt Holding, B.V., Beheersmaatschappij J. Amerika N.V., A.J. Van Es, J.B. Van Es and D.A. Slager, and the Registrant (filed as Exhibit 1 to the Registrant's Current Report on Form 8-K relating to the events occurring on March 29, 1995 [File No. 1-9549] and incorporated herein by reference). 10.32 Master Repurchase Agreement dated January 1, 1994, between the Registrant and Thermo Electron Corporation (filed as Exhibit 10.21 to the Registrant's Annual Report on Form 10-K for the fiscal year ended April 2, 1994 [File No. 1-9549] and incorporated herein by reference). 10.33 Amended and Restated Master Guarantee Reimbursement and Loan Agreement dated as of February 12, 1998, between Thermo Remediation Inc. and Thermo Electron Corporation (filed as Exhibit 10.13 to Thermo Remediation Inc.'s Annual Report on Form 10-K for the fiscal year ended April 4, 1998 [File No. 1-12636] and incorporated herein by reference). 25 Exhibit Number Description of Exhibit 10.34 Master Guarantee Reimbursement and Loan Agreement dated as of February 26, 1998, between The Randers Group Incorporated and Thermo Electron Corporation (filed as Exhibit 10.11 to The Randers Group Incorporated's Annual Report on Form 10-K for the fiscal year ended April 4, 1998 [File No. 0-18095] and incorporated herein by reference). 10.35 Amended and Restated Master Guarantee Reimbursement and Loan Agreement dated as of February 26, 1998, between the Registrant and Thermo Electron Corporation. 10.36 Thermo TerraTech Inc. - The Randers Group Incorporated Nonqualified Stock Option Plan (filed as Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended January 3, 1998 [File No. 1-9549] and incorporated herein by reference). 10.37 Incentive Stock Option Plan of the Registrant (filed as Exhibit 10(h) to the Registrant's Registration Statement on Form S-1 [Reg. No. 33-6763] and incorporated herein by reference). (Maximum number of shares issuable in the aggregate under this plan and the Registrant's Nonqualified Stock Option Plan is 1,850,000 shares, after adjustment to reflect share increases approved in 1987, 1989, and 1992, 6-for-5 stock splits effected in July 1988 and March 1989, and 3-for-2 stock split effected in September 1989.) 10.38 Nonqualified Stock Option Plan of the Registrant (filed as Exhibit 10(i) to the Registrant's Registration Statement on Form S-1 [Reg. No. 33-6763] and incorporated herein by reference). (Maximum number of shares issuable in the aggregate under this plan and the Registrant's Incentive Stock Option Plan is 1,850,000 shares, after adjustment to reflect share increases approved in 1987, 1989, and 1992, 6-for-5 stock splits effected in July 1988 and March 1989, and 3-for-2 stock split effected in September 1989.) 10.39 Deferred Compensation Plan for Directors of the Registrant (filed as Exhibit 10(k) to the Registrant's Registration Statement on Form S-1 [Reg. No. 33-6763] and incorporated herein by reference). 10.40 Equity Incentive Plan (filed as Exhibit 10.63 to Thermedics Inc.'s Annual Report on Form 10-K for the fiscal year ended January 1, 1994 [File No. 1-9567] and incorporated herein by reference; maximum number of shares issuable is 1,750,000 shares, after adjustment to reflect share increase approved in 1994). 26 EXHIBIT INDEX Exhibit Number Description of Exhibit 10.41 Directors Stock Option Plan, as amended and restated effective January 1, 1995 (filed as Exhibit 10.39 to the Registrant's Annual Report on Form 10-K for the fiscal year ended April 1, 1995 [File No. 1-9549] and incorporated herein by reference). 10.42 Thermo TerraTech Inc. (formerly Thermo Process Systems Inc.)- Thermo Remediation Inc. Nonqualified Stock Option Plan (filed as Exhibit 10(l) to the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended January 1, 1994 [File No. 1-9549] and incorporated herein by reference). In addition to the stock-based compensation plans of the Registrant, the executive officers of the Registrant may be granted awards under stock-based compensation plans of Thermo Electron for services rendered to the Registrant or to such affiliated corporations. The terms of such plans are substantially the same as those of the Registrant's Equity Incentive Plan. 10.43 Restated Stock Holdings Assistance Plan and Form of Executive Loan (filed as Exhibit 10.42 to the Registrant's Annual Report on Form 10-K for the fiscal year ended March 29, 1997, and incorporated herein by reference). 13 Annual Report to Shareholders for the fiscal year ended April 4, 1998 (only those portions incorporated herein by reference). 21 Subsidiaries of the Registrant. 23 Consent of Arthur Andersen LLP. 27.1 Financial Data Schedule for the year ended April 4, 1998. 27.2 Financial Data Schedule for the year ended March 30, 1996 (restated for the adoption of SFAS No. 128). 27.3 Financial Data Schedule for the quarter ended June 29, 1996 (restated for the adoption of SFAS No. 128). 27.4 Financial Data Schedule for the quarter ended September 28, 1996 (restated for the adoption of SFAS No. 128). 27.5 Financial Data Schedule for the quarter ended December 28, 1996 (restated for the adoption of SFAS No. 128). 27.6 Financial Data Schedule for the quarter ended June 28, 1997 (restated for the adoption of SFAS No. 128). 27 EX-10.35 2 Exhibit 10.35 AMENDED AND RESTATED MASTER GUARANTEE REIMBURSEMENT AND LOAN AGREEMENT This AGREEMENT is entered into as of the 26th day of February, 1998 by and among Thermo Electron Corporation (the "Parent") and those of its subsidiaries that join in this Agreement by executing the signature page hereto (the "Majority Owned Subsidiaries"). WITNESSETH: WHEREAS, the majority owned subsidiaries and their wholly-owned subsidiaries wish to enter into various financial transactions, such as convertible or nonconvertible debt, loans, and equity offerings, and other contractual arrangements with third parties (the "Underlying Obligations") and may provide credit support to, on behalf of or for the benefit of, other subsidiaries of the Parent ("Credit Support Obligations"); WHEREAS, the Majority Owned Subsidiaries and the Parent acknowledge that the Majority Owned Subsidiaries and their wholly-owned subsidiaries may be unable to enter into many kinds of Underlying Obligations without a guarantee of their performance thereunder from the Parent (a "Parent Guarantee") or without obtaining Credit Support Obligations from other Majority Owned Subsidiaries; WHEREAS, the Majority Owned Subsidiaries and their wholly-owned subsidiaries may borrow funds from the Parent, and the Parent may loan funds or provide credit to the Majority Owned Subsidiaries and their wholly-owned subsidiaries, on a short-term and unsecured basis; WHEREAS, certain Majority Owned Subsidiaries ("Second Tier Majority Owned Subsidiaries ") may themselves be majority owned subsidiaries of other Majority Owned Subsidiaries ("First Tier Majority Owned Subsidiaries"); WHEREAS, for various reasons, Parent Guarantees of a Second Tier Majority Owned Subsidiary's Underlying Obligations may be demanded and given without the respective First Tier Majority Owned Subsidiary also issuing a guarantee of such Underlying Obligation; WHEREAS, the Parent may itself make a loan or provide other credit to a Second Tier Majority Owned Subsidiary or its wholly-owned subsidiaries under circumstances where the applicable First Tier Majority Owned Subsidiary does not provide such credit; and WHEREAS, the Parent is willing to consider continuing to issue Parent Guarantees and providing credit, and the Majority Owned Subsidiaries are willing to consider continuing to provide Credit Support Obligations and to borrow funds, on the terms and conditions set forth below; NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by each party hereto, the parties agree as follows: 1. If the Parent provides a Parent Guarantee of an Underlying Obligation, and the beneficiary(ies) of the Parent Guarantee enforce the Parent Guarantee, or the Parent performs under the Parent Guarantee for any other reason, then the Majority Owned Subsidiary that is obligated, either directly or indirectly through a wholly-owned subsidiary, under such Underlying Obligation shall indemnify and save harmless the Parent from any liability, cost, expense or damage (including reasonable attorneys' fees) suffered by the Parent as a result of the Parent Guarantee. If the Underlying Obligation is issued by a Second Tier Majority Owned Subsidiary or a wholly-owned subsidiary thereof, and such Second Tier Majority Owned Subsidiary is unable to fully indemnify the Parent (because of the poor financial condition of such Second Tier Majority Owned Subsidiary, or for any other reason), then the First Tier Majority Owned Subsidiary that owns the majority of the stock of such Second Tier Majority Owned Subsidiary shall indemnify and save harmless the Parent from any remaining liability, cost, expense or damage (including reasonable attorneys' fees) suffered by the Parent as a result of the Parent Guarantee. If a Majority Owned Subsidiary or a wholly-owned subsidiary thereof provides a Credit Support Obligation for any subsidiary of the Parent, other than a subsidiary of such Majority Owned Subsidiary, and the beneficiary(ies) of the Credit Support Obligation enforce the Credit Support Obligation, or the Majority Owned Subsidiary or its wholly-owned subsidiary performs under the Credit Support Obligation for any other reason, then the Parent shall indemnify and save harmless the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable, from any liability, cost, expense or damage (including reasonable attorneys' fees) suffered by the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable, as a result of the Credit Support Obligation. Without limiting the foregoing, Credit Support Obligations include the deposit of funds by a Majority Owned Subsidiary or a wholly-owned subsidiary thereof in a credit arrangement with a banking facility whereby such funds are available to the banking facility as collateral for overdraft obligations of other Majority Owned Subsidiaries or their subsidiaries also participating in the credit arrangement with such banking facility. 2. For purposes of this Agreement, the term "guarantee" shall include not only a formal guarantee of an obligation, but also any other arrangement where the Parent is liable for the obligations of a Majority Owned Subsidiary or its wholly-owned subsidiaries. Such other arrangements include (a) representations, warranties and/or covenants or other obligations joined in by the Parent, whether on a joint or joint and several basis, for the benefit of the Majority Owned Subsidiary or its wholly-owned subsidiaries and (b) responsibility of the Parent by operation of law for the acts and omissions of the Majority Owned Subsidiary or its wholly-owned subsidiaries, including controlling person liability under securities and other laws. 3. Promptly after the Parent receives notice that a beneficiary of a Parent Guarantee is seeking to enforce such Parent Guarantee, the Parent shall notify the Majority Owned Subsidiary(s) obligated, either directly or indirectly through a wholly-owned subsidiary, under the relevant Underlying Obligation. Such Majority Owned Subsidiary(s) or wholly-owned subsidiary thereof, as applicable, shall have the right, at its own expense, to contest the claim of such beneficiary. If a Majority Owned Subsidiary or wholly-owned subsidiary thereof, as applicable, is contesting the claim of such beneficiary, the Parent will not perform under the relevant Parent Guarantee unless and until, in the Parent's reasonable judgment, the Parent is obligated under the terms of such Parent Guarantee to perform. Subject to the foregoing, any dispute between a Majority Owned Subsidiary or wholly-owned subsidiary thereof, as applicable, and a beneficiary of a Parent Guarantee shall not affect such Majority Owned Subsidiary's obligation to promptly indemnify the Parent hereunder. Promptly after a Majority Owned Subsidiary or wholly-owned subsidiary thereof, as applicable, receives notice that a beneficiary of a Credit Support Obligation is seeking to enforce such Credit Support Obligation, the Majority Owned Subsidiary shall notify the Parent. The Parent shall have the right, at its own expense, to contest the claim of such beneficiary. If the Parent or the subsidiary of the Parent on whose behalf the Credit Support Obligation is given is contesting the claim of such beneficiary, the Majority Owned Subsidiary or wholly-owned subsidiary thereof, as applicable, will not perform under the relevant Credit Support Obligation unless and until, in the Majority Owned Subsidiary's reasonable judgment, the Majority Owned Subsidiary or wholly-owned subsidiary thereof, as applicable, is obligated under the terms of such Credit Support Obligation to perform. Subject to the foregoing, any dispute between the Parent or the subsidiary of the Parent on whose behalf the Credit Support Obligation was given, on the one hand, and a beneficiary of a Credit Support Obligation, on the other, shall not affect the Parent's obligation to promptly indemnify the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable, hereunder. 4. Upon the request of a Majority Owned Subsidiary, the Parent may make loans and advances to the Majority Owned Subsidiary or its wholly-owned subsidiaries on a short-term, revolving credit basis, from time to time in such amounts as mutually determined by the Parent and the Majority Owned Subsidiary. The aggregate principal amount of such loans and advances shall be reflected on the books and records of the Majority Owned Subsidiary (or wholly-owned subsidiary, as applicable) and the Parent. All such loans and advances shall be on an unsecured basis unless specifically provided otherwise in loan documents executed at that time. The Majority Owned Subsidiary or its wholly-owned subsidiaries, as applicable, shall pay interest on the aggregate unpaid principal amount of such loans from time to time outstanding at a rate ("Interest Rate") equal to the rate of the Commercial Paper Composite Rate for 90-day maturities as reported by Merrill Lynch Capital Markets, as an average of the last five business days of such Majority Owned Subsidiary's latest fiscal quarter then ended, plus twenty-five (25) basis points. The Interest Rate shall be adjusted on the first business day of each fiscal quarter of such Majority Owned Subsidiary pursuant to the Interest Rate formula contained in the preceding sentence and shall be in effect for the entirety of such fiscal quarter. Interest shall be computed on a 360-day basis. The aggregate principal amount outstanding and accrued interest thereon shall be payable on demand. The principal and accrued interest may be paid by the Majority Owned Subsidiaries or their wholly-owned subsidiaries, as applicable, at any time or from time to time, in whole or in part, without premium or penalty. All payments shall be applied first to accrued interest and then to principal. Principal and interest shall be payable in lawful money of the United States of America, in immediately available funds, at the principal office of the Parent or at such other place as the Parent may designate from time to time in writing to the Majority Owned Subsidiary. The unpaid principal amount of any such borrowings, and accrued interest thereon, shall become immediately due and payable, without demand, upon the failure of the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable, to pay its debts as they become due, the insolvency of the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable, the filing by or against the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable, of any petition under the U.S. Bankruptcy Code (or the filing of any similar petition under the insolvency law of any jurisdiction), or the making by the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable, of an assignment or trust mortgage for the benefit of creditors or the appointment of a receiver, custodian or similar agent with respect to, or the taking by any such person of possession of, any property of the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable. In case any payments of principal and interest shall not be paid when due, the Majority Owned Subsidiary or its wholly-owned subsidiary, as applicable, further promises to pay all cost of collection, including reasonable attorneys' fees. 5. If the Parent makes a loan or provides other credit ("Credit Extension") to a Second Tier Majority Owned Subsidiary, the First Tier Majority Owned Subsidiary that owns the majority of the stock of such Second Tier Majority Owned Subsidiary hereby guarantees the Second Tier Majority Owned Subsidiary's obligations to the Parent thereunder. Such guaranty shall be enforced only after the Parent, in its reasonable judgment, determines that the Second Tier Majority Owned Subsidiary is unable to fully perform its obligations under the Credit Extension. If the Parent provides Credit Extension to a wholly-owned subsidiary of a Second Tier Majority Owned Subsidiary, the Second Tier Majority Owned Subsidiary hereby guarantees it wholly-owned subsidiary's obligations to the Parent thereunder and the First Tier Majority Owned Subsidiary that owns the majority of the stock of such Second Tier Majority Owned Subsidiary hereby guarantees the Second Tier Majority Owned Subsidiary's obligations to the Parent hereunder. Such guaranty by the First Tier Majority Owned Subsidiary shall be enforced only after the Parent, in its reasonable judgment, determines that the Second Tier Majority Owned Subsidiary is unable to fully perform its guaranty obligation hereunder. 6. All payments required to be made by a Majority Owned Subsidiary or its wholly-owned subsidiaries, as applicable, shall be made within two days after receipt of notice from the Parent. All payments required to be made by the Parent shall be made within two days after receipt of notice from the Majority Owned Subsidiary. 7. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts applicable to contracts made and performed therein. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized officers as of the date first above written. THERMO ELECTRON CORPORATION By: /s/ Melissa F. Riordan Melissa F. Riordan Title: Treasurer THERMO TERRATECH INC. By: /s/ John P. Appleton John P. Appleton Title: President EX-10.43 3 Exhibit 10.43 THERMO TERRATECH INC. RESTATED STOCK HOLDING ASSISTANCE PLAN SECTION 1. Purpose. The purpose of this Plan is to benefit Thermo TerraTech Inc. (the "Company") and its stockholders by encouraging Key Employees to acquire and maintain share ownership in the Company, by increasing such employees' proprietary interest in promoting the growth and performance of the Company and its subsidiaries and by providing for the implementation of the Stock Holding Policy. SECTION 2. Definitions. The following terms, when used in the Plan, shall have the meanings set forth below: Committee: The Human Resources Committee of the Board of Directors of the Company as appointed from time to time. Common Stock: The common stock of the Company and any successor thereto. Company: Thermo TerraTech Inc., a Delaware corporation. Stock Holding Policy: The Stock Holding Policy of the Company, as adopted by the Committee and as in effect from time to time. Key Employee: Any employee of the Company or any of its subsidiaries, including any officer or member of the Board of Directors who is also an employee, as designated by the Committee, and who, in the judgment of the Committee, will be in a position to contribute significantly to the attainment of the Company's strategic goals and long-term growth and prosperity. Loans: Loans extended to Key Employees by the Company pursuant to this Plan. Plan: Thermo TerraTech Inc. Stock Holding Assistance Plan, as amended from time to time. SECTION 3. Administration. The Plan and the Stock Holding Policy shall be administered by the Committee, which shall have authority to interpret the Plan and the Stock Holding Policy and, subject to their provisions, to prescribe, amend and rescind any rules and regulations and to make all other determinations necessary or desirable for the administration thereof. The Committee's interpretations and decisions with regard to the Plan and the Stock Holding Policy and such rules and regulations as may be established thereunder shall be final and conclusive. The Committee may correct any defect or supply any omission or reconcile any inconsistency in the Plan or the Stock Holding Policy, or in any Loan in the manner and to the extent the Committee deems desirable to carry it into effect. No member of the Committee shall be liable for any action or omission in connection with the Plan or the Stock Holding Policy that is made in good faith. SECTION 4. Loans and Loan Limits. The Committee has determined that the provision of Loans from time to time to Key Employees in such amounts as to cause such Key Employees to comply with the Stock Holding Policy is, in the judgment of the Committee, reasonably expected to benefit the Company and authorizes the Company to extend Loans from time to time to Key Employees in such amounts as may be requested by such Key Employees in order to comply with the Stock Holding Policy. Such Loans may be used solely for the purpose of acquiring Common Stock (other than upon the exercise of stock options or under employee stock purchase plans) in open market transactions or from the Company. Each Loan shall be full recourse and evidenced by a non-interest bearing promissory note substantially in the form attached hereto as Exhibit A (the "Note") and maturing in accordance with the provisions of Section 6 hereof, and containing such other terms and conditions, which are not inconsistent with the provisions of the Plan and the Stock Holding Policy, as the Committee shall determine in its sole and absolute discretion. SECTION 5. Federal Income Tax Treatment of Loans. For federal income tax purposes, interest on Loans shall be imputed on any interest free Loan extended under the Plan. A Key Employee shall be deemed to have paid the imputed interest to the Company and the Company shall be deemed to have paid said imputed interest back to the Key Employee as additional compensation. The deemed interest payment shall be taxable to the Company as income, and may be deductible to the Key Employee to the extent allowable under the rules relating to investment interest. The deemed compensation payment to the Key Employee shall be taxable to the employee and deductible to the Company, but shall also be subject to employment taxes such as FICA and FUTA. SECTION 6. Maturity of Loans. Each Loan to a Key Employee hereunder shall be due and payable on demand by the Company. If no such demand is made, then each Loan shall mature and the principal thereof shall become due and payable on the fifth anniversary of the date of the Loan, provided that the Committee may, in its sole and absolute discretion, authorize such other maturity and repayment schedule as the Committee may determine. Each Loan shall also become immediately due and payable in full, without demand, upon the occurrence of any of the events set forth in the Note; provided that the Committee may, in its sole and absolute discretion, authorize an extension of the time for repayment of a Loan upon such terms and conditions as the Committee may determine. SECTION 7. Amendment and Termination of the Plan. The Committee may from time to time alter or amend the Plan or the Stock Holding Policy in any respect, or terminate the Plan or the Stock Holding Policy at any time. No such amendment or termination, however, shall alter or otherwise affect the terms and conditions of any Loan then outstanding to Key Employee without such Key Employee's written consent, except as otherwise provided herein or in the promissory note evidencing such Loan. SECTION 8. Miscellaneous Provisions. (a) No employee or other person shall have any claim or right to receive a Loan under the Plan, and no employee shall have any right to be retained in the employ of the Company due to his or her participation in the Plan. (b) No Loan shall be made hereunder unless counsel for the Company shall be satisfied that such Loan will be in compliance with applicable federal, state and local laws. (c) The expenses of the Plan shall be borne by the Company. (d) The Plan shall be unfunded, and the Company shall not be required to establish any special or separate fund or to make any other segregation of assets to assure the making of any Loan under the Plan. (e) Except as otherwise provided in Section 7 hereof, by accepting any Loan under the Plan, each Key Employee shall be conclusively deemed to have indicated his acceptance and ratification of, and consent to, any action taken under the Plan or the Stock Holding Policy by the Company, the Board of Directors of the Company or the Committee. (f) The appropriate officers of the Company shall cause to be filed any reports, returns or other information regarding Loans hereunder, as may be required by any applicable statute, rule or regulation. SECTION 9. Effective Date. The Plan and the Stock Holding Policy shall become effective upon approval and adoption by the Committee. DOC # 1113 TTT STOCK HOLDING ASSISTANCE PLAN EXHIBIT A TO STOCK HOLDING ASSISTANCE PLAN THERMO TERRATECH INC. Promissory Note $--------- Dated:____________ For value received, ________________, an individual whose residence is located at _______________________ (the "Employee"), hereby promises to pay to Thermo TerraTech Inc. (the "Company"), or assigns, ON DEMAND, but in any case on or before [insert date which is the fifth anniversary of date of issuance] (the "Maturity Date"), the principal sum of [loan amount in words] ($_______), or such part thereof as then remains unpaid, without interest. Principal shall be payable in lawful money of the United States of America, in immediately available funds, at the principal office of the Company or at such other place as the Company may designate from time to time in writing to the Employee. Unless the Company has already made a demand for payment in full of this Note, the Employee agrees to repay to the Company from the Employee's annual cash incentive compensation (referred to as bonus), beginning with the first such bonus payment to occur after the date of this Note and on each of the next four bonus payment dates occurring prior to the Maturity Date, such amount as may be designated by the Company. Any amount remaining unpaid under this Note, if no demand has been made by the Company, shall be due and payable on the Maturity Date. This Note may be prepaid at any time or from time to time, in whole or in part, without any premium or penalty. The Employee acknowledges and agrees that the Company has advanced to the Employee the principal amount of this Note pursuant to the Company's Stock Holding Assistance Plan, and that all terms and conditions of such Plan are incorporated herein by reference. The unpaid principal amount of this Note shall be and become immediately due and payable without notice or demand, at the option of the Company, upon the occurrence of any of the following events: (a) the termination of the Employee's employment with the Company, with or without cause, for any reason or for no reason; (b) the death or disability of the Employee; (c) the failure of the Employee to pay his or her debts as they become due, the insolvency of the Employee, the filing by or against the Employee of any petition under the United States Bankruptcy Code (or the filing of any similar petition under the insolvency law of any jurisdiction), or the making by the Employee of an assignment or trust mortgage for the benefit of creditors or the appointment of a receiver, custodian or similar agent with respect to, or the taking by any such person of possession of, any property of the Employee; or (d) the issuance of any writ of attachment, by trustee process or otherwise, or any restraining order or injunction not removed, repealed or dismissed within thirty (30) days of issuance, against or affecting the person or property of the Employee or any liability or obligation of the Employee to the Company. In case any payment herein provided for shall not be paid when due, the Employee further promises to pay all costs of collection, including all reasonable attorneys' fees. No delay or omission on the part of the Company in exercising any right hereunder shall operate as a waiver of such right or of any other right of the Company, nor shall any delay, omission or waiver on any one occasion be deemed a bar to or waiver of the same or any other right on any future occasion. The Employee hereby waives presentment, demand, notice of prepayment, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note. The undersigned hereby assents to any indulgence and any extension of time for payment of any indebtedness evidenced hereby granted or permitted by the Company. This Note has been made pursuant to the Company's Stock Holding Assistance Plan and shall be governed by and construed in accordance with, such Plan and the laws of the State of Delaware and shall have the effect of a sealed instrument. ------------------------------- Employee Name: _________________ - ------------------------ Witness DOC # 1113 TTT STOCK HOLDING ASSISTANCE PLAN EX-13 4 Exhibit 13 THERMO TERRATECH INC. Consolidated Financial Statements Fiscal 1998 Thermo TerraTech Inc. 1998 Financial Statements Consolidated Statement of Operations Year Ended April 4, March 29, March 30, (In thousands except per share amounts) 1998 1997 1996 - -------------------------------------------------------------------------- Revenues (Note 12): Service revenues $281,456 $251,384 $200,814 Product revenues 17,330 27,119 19,670 -------- -------- -------- 298,786 278,503 220,484 -------- -------- -------- Costs and Operating Expenses: Cost of service revenues 230,376 204,724 152,451 Cost of product revenues 14,735 22,677 17,001 Selling, general, and administrative expenses (Note 8) 40,733 38,145 34,747 Product and new business development expenses 1,148 1,046 1,086 Nonrecurring costs (Note 13) - 7,800 4,995 -------- -------- -------- 286,992 274,392 210,280 -------- -------- -------- Operating Income 11,794 4,111 10,204 Interest Income 4,163 7,253 5,102 Interest Expense (includes $593, $2,638, and $5,610 to parent company) (10,778) (12,914) (10,730) Gain on Issuance of Stock by Subsidiaries (Note 10) - 1,475 4,127 Gain (Loss) on Sale of Businesses and Assets, Net (Note 3) 2,952 (1,482) (569) Equity in Earnings of Unconsolidated Subsidiary (Note 14) 174 865 - Gain on Sale of Investments, Net (Note 2) - 195 180 Other Income, Net 209 206 - -------- -------- -------- Income (Loss) Before Provision for Income Taxes and Minority Interest 8,514 (291) 8,314 Provision for Income Taxes (Note 5) (5,146) (1,705) (3,644) Minority Interest Income (Expense) (95) 1,834 (1,223) -------- -------- -------- Net Income (Loss) $ 3,273 $ (162) $ 3,447 ======== ======== ======== Earnings (Loss) per Share (Note 16): Basic $ .18 $ (.01) $ .20 ======== ======== ======== Diluted $ .17 $ (.01) $ .18 ======== ======== ======== Weighted Average Shares (Note 16): Basic 18,700 18,090 17,420 ======== ======== ======== Diluted 18,978 18,090 18,264 ======== ======== ======== The accompanying notes are an integral part of these consolidated financial statements. 2 Thermo TerraTech Inc. 1998 Financial Statements Consolidated Balance Sheet April 4, March 29, (In thousands) 1998 1997 - -------------------------------------------------------------------------- Assets Current Assets: Cash and cash equivalents (includes $29,583 and $59,781 under repurchase agreement with parent company) $ 34,711 $ 63,172 Available-for-sale investments, at quoted market value (amortized cost of $2,008 and $18,380; Note 2) 2,003 18,391 Short-term held-to-maturity investments, at amortized cost (quoted market value of $13,979 and $13,238; Note 2) 13,939 12,971 Accounts receivable, less allowances of $4,450 and $3,838 60,050 49,191 Unbilled contract costs and fees 20,547 29,053 Inventories 1,498 3,021 Prepaid and refundable income taxes (Note 5) 6,224 7,369 Prepaid expenses 3,810 3,870 -------- -------- 142,782 187,038 -------- -------- Property, Plant, and Equipment, at Cost, Net 91,709 83,566 -------- -------- Long-term Held-to-maturity Investments, at Amortized Cost (quoted market value of $13,142; Note 2) - 13,086 -------- -------- Other Assets 18,227 17,308 -------- -------- Cost in Excess of Net Assets of Acquired Companies (Notes 3 and 13) 107,808 92,786 -------- -------- $360,526 $393,784 ======== ======== 3 Thermo TerraTech Inc. 1998 Financial Statements Consolidated Balance Sheet (continued) April 4, March 29, (In thousands except share amounts) 1998 1997 - -------------------------------------------------------------------------- Liabilities and Shareholders' Investment Current Liabilities: Notes payable and current maturities of long-term obligations (includes $38,000 due to parent company in 1997; Note 6) $ 27,165 $ 67,495 Accounts payable 17,728 12,292 Accrued payroll and employee benefits 11,359 12,182 Billings in excess of revenues earned 1,314 4,319 Other accrued expenses 13,556 10,509 Due to parent company 2,341 2,926 -------- -------- 73,463 109,723 -------- -------- Deferred Income Taxes (Note 5) 2,901 5,297 -------- -------- Other Deferred Items 1,049 893 -------- -------- Long-term Obligations (Notes 6 and 11): Subordinated convertible debentures (includes $3,000 of related-party debt) 149,800 149,800 Other 3,344 15,386 -------- -------- 153,144 165,186 -------- -------- Minority Interest 32,839 29,159 -------- -------- Commitments and Contingencies (Note 7) Shareholders' Investment (Notes 4 and 9): Common stock, $.10 par value, 75,000,000 shares authorized; 19,583,773 and 18,304,424 shares issued 1,958 1,830 Capital in excess of par value 70,437 62,610 Retained earnings 27,319 24,046 Treasury stock at cost, 51,188 and 417,696 shares (484) (3,941) Cumulative translation adjustment (2,097) (1,026) Net unrealized gain (loss) on available-for-sale investments (Note 2) (3) 7 -------- -------- 97,130 83,526 -------- -------- $360,526 $393,784 ======== ======== The accompanying notes are an integral part of these consolidated financial statements. 4 Thermo TerraTech Inc. 1998 Financial Statements Consolidated Statement of Cash Flows Year Ended April 4, March 29, March 30, (In thousands) 1998 1997 1996 - -------------------------------------------------------------------------- Operating Activities: Net income (loss) $ 3,273 $ (162) $ 3,447 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 14,784 12,900 11,005 Nonrecurring costs (Note 13) - 7,800 4,995 (Gain) loss on sale of businesses and assets, net (Note 3) (2,952) 1,482 569 Equity in earnings of unconsolidated subsidiary (Note 14) (174) (865) - Minority interest (income) expense 95 (1,834) 1,223 Provision for losses on accounts receivable 1,141 625 85 Other noncash items 267 430 1,337 Decrease in deferred income taxes (1,583) (43) (648) Gain on issuance of stock by subsidiaries (Note 10) - (1,475) (4,127) Changes in current accounts, excluding the effects of acquisitions and dispositions: Accounts receivable (11,154) (6,818) 1,313 Inventories and unbilled contract costs and fees (3,353) (7,784) (5,411) Other current assets 1,715 403 387 Accounts payable 5,507 895 (3,277) Current liabilities (1,038) 3,399 (1,826) -------- -------- -------- Net cash provided by operating activities 6,528 8,953 9,072 -------- -------- -------- Investing Activities: Acquisitions, net of cash acquired (Note 3) (12,746) (5,156) (43,824) Purchase of minority interest in joint venture (Note 3) - - (34,267) Purchases of available-for-sale investments - (38,913) (30,864) Proceeds from sale and maturities of available-for-sale investments 16,372 29,822 37,795 Proceeds from maturity of held-to- maturity investments (Note 2) 13,935 - - Purchases of property, plant, and equipment (18,460) (15,426) (16,779) Proceeds from sale of businesses (Note 3) 19,722 347 - Issuances of notes receivable (569) - (653) Increase in other assets (1,993) (450) (1,090) Other 2,464 1,356 426 -------- -------- -------- Net cash provided by (used in) investing activities $ 18,725 $(28,420) $(89,256) -------- -------- -------- 5 Thermo TerraTech Inc. 1998 Financial Statements Consolidated Statement of Cash Flows (continued) Year Ended April 4, March 29, March 30, (In thousands) 1998 1997 1996 - -------------------------------------------------------------------------- Financing Activities: Net proceeds from issuance of subordinated convertible debentures $ - $112,398 $ 36,889 Issuance of note payable to parent company (Note 6) - - 35,000 Repayment of notes payable to parent company (Note 6) (38,000) (50,000) (4,000) Proceeds from issuance of Company and subsidiaries' common stock (Note 10) 1,148 5,346 7,662 Repurchase of Company and subsidiary common stock and subordinated convertible debentures (7,355) (14,984) - Issuance of short-term obligations 6,171 803 2,178 Repayment of notes payable (Note 2) (14,878) (736) (688) Dividends paid by subsidiary to minority shareholders (751) (847) (810) Other - (266) (253) -------- -------- -------- Net cash provided by (used in) financing activities (53,665) 51,714 75,978 -------- -------- -------- Exchange Rate Effect on Cash (49) (257) (420) -------- -------- -------- Increase (Decrease) in Cash and Cash Equivalents (28,461) 31,990 (4,626) Cash and Cash Equivalents at Beginning of Year 63,172 31,182 35,808 -------- -------- -------- Cash and Cash Equivalents at End of Year $ 34,711 $ 63,172 $ 31,182 ======== ======== ======== See Note 15 for supplemental cash flow information. The accompanying notes are an integral part of these consolidated financial statements. 6 Thermo TerraTech Inc. 1998 Financial Statements Consolidated Statement of Shareholders' Investment Year Ended April 4, March 29, March 30, (In thousands) 1998 1997 1996 - ------------------------------------------------------------------------- Common Stock, $.10 Par Value Balance at beginning of year $ 1,830 $ 1,760 $ 1,741 Issuance of stock under employees' and directors' stock plans - 24 15 Conversions of subordinated convertible debentures (Note 6) 128 46 4 ------- ------- ------- Balance at end of year 1,958 1,830 1,760 ------- ------- ------- Capital in Excess of Par Value Balance at beginning of year 62,610 59,419 53,559 Activity under employees' and directors' stock plans (5,490) 264 268 Tax benefit related to employees' and directors' stock plans 655 461 585 Conversions of subordinated convertible debentures (Note 6) 13,092 4,766 351 Effect of majority-owned subsidiaries' equity transactions (430) (2,300) 4,656 ------- ------- ------- Balance at end of year 70,437 62,610 59,419 ------- ------- ------- Retained Earnings Balance at beginning of year 24,046 24,474 21,343 Net income (loss) 3,273 (162) 3,447 Metal Treating, Inc. transfer of cash to parent company (Note 3) - (266) (316) ------- ------- ------- Balance at end of year 27,319 24,046 24,474 ------- ------- ------- Treasury Stock Balance at beginning of year (3,941) (410) (864) Activity under employees' and directors' stock plans 6,637 260 454 Purchases of Company common stock (3,180) (3,791) - ------- ------- ------- Balance at end of year $ (484) $(3,941) $ (410) ------- ------- ------- 7 Thermo TerraTech Inc. 1998 Financial Statements Consolidated Statement of Shareholders' Investment (continued) Year Ended April 4, March 29, March 30, (In thousands) 1998 1997 1996 - ------------------------------------------------------------------------- Cumulative Translation Adjustment Balance at beginning of year $(1,026) $ 635 $ 1,526 Translation adjustment (1,071) (1,661) (891) ------- ------- ---------- Balance at end of year (2,097) (1,026) 635 ------- ------- ---------- Net Unrealized Gain (Loss) on Available- for-sale Investments Balance at beginning of year 7 (8) (88) Change in net unrealized gain (loss) on available-for-sale investments (Note 2) (10) 15 80 ------- ------- ------- Balance at end of year (3) 7 (8) ------- ------- ------- Total Shareholders' Investment $97,130 $83,526 $85,870 ======= ======= ======= The accompanying notes are an integral part of these consolidated financial statements. 8 Thermo TerraTech Inc. 1998 Financial Statements Notes to Consolidated Financial Statements 1. Nature of Operations and Summary of Significant Accounting Policies Nature of Operations Thermo TerraTech Inc. (the Company) provides industrial outsourcing services and manufacturing support encompassing a broad range of specializations, including infrastructure engineering, design and construction, environmental compliance, laboratory testing, and metal treating. Relationship with Thermo Electron Corporation The Company was incorporated on May 30, 1986, as an indirect, wholly owned subsidiary of Thermo Electron Corporation. As of April 4, 1998, Thermo Electron owned 15,935,435 shares of the Company's common stock, representing 82% of such stock outstanding. Principles of Consolidation The accompanying financial statements include the accounts of the Company; its wholly owned subsidiaries; its majority-owned public subsidiaries, Thermo Remediation Inc. and The Randers Group Incorporated; and its majority-owned, privately held Thermo EuroTech N.V. subsidiary. All material intercompany accounts and transactions have been eliminated. The Company accounted for its investment in a business in which it owned 50% using the equity method. In October 1997, the Company sold this investment (Note 3). Presentation Certain amounts in fiscal 1997 and 1996 have been reclassified to conform to the fiscal 1998 financial statement presentation. Fiscal Year The Company has adopted a fiscal year ending the Saturday nearest March 31. References to fiscal 1998, 1997, and 1996 are for the fiscal years ended April 4, 1998, March 29, 1997, and March 30, 1996, respectively. Fiscal year 1998 included 53 weeks; fiscal 1997 and 1996 each included 52 weeks. Revenue Recognition For the majority of its operations, the Company recognizes revenues upon completion of the services it renders. Revenues and profits on substantially all contracts are recognized using the percentage-of-completion method. Revenues recorded under the percentage-of-completion method were $117,464,000 in fiscal 1998, $113,481,000 in fiscal 1997, and $45,607,000 in fiscal 1996. The percentage of completion is determined by relating either the actual costs or actual labor incurred to date to management's estimate of total costs or total labor, respectively, to be incurred on each contract. If a loss is indicated on any contract in process, a provision is made currently for the entire loss. The Company's contracts generally provide for billing of customers upon the attainment of certain milestones specified in each contract. Revenues earned on contracts in process in excess of billings are classified as unbilled contract costs and fees in the accompanying balance sheet. There are no significant amounts included 9 1. Nature of Operations and Summary of Significant Accounting Policies (continued) in the accompanying balance sheet that are not expected to be recovered from existing contracts at current contract values, or that are not expected to be collected within one year, including amounts that are billed but not paid under retainage provisions. Revenues from soil-remediation services are recognized as soil is processed. The Company bills customers upon receipt of contaminated soil at its remediation centers. Amounts billed in excess of revenues recognized are classified as billings in excess of revenues earned in the accompanying balance sheet. Gain on Issuance of Stock by Subsidiaries At the time a subsidiary sells its stock to unrelated parties at a price in excess of its book value, the Company's net investment in that subsidiary increases. If at that time the subsidiary is an operating entity and not engaged principally in research and development, the Company records the increase as a gain (Note 10). If gains have been recognized on issuances of a subsidiary's stock and shares of the subsidiary are subsequently repurchased either by the subsidiary, the Company, or Thermo Electron, gain recognition does not occur on issuances subsequent to the date of a repurchase until such time as shares have been issued in an amount equivalent to the number of repurchased shares. Such transactions are reflected as equity transactions and the net effect of these transactions is reflected in the accompanying statement of shareholders' investment as effect of majority-owned subsidiaries' equity transactions. Stock-based Compensation Plans The Company applies Accounting Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for its stock-based compensation plans (Note 4). Accordingly, no accounting recognition is given to stock options granted at fair market value until they are exercised. Upon exercise, net proceeds, including tax benefits realized, are credited to equity. Income Taxes The Company and Thermo Electron have a tax allocation agreement under which the Company and certain of its subsidiaries, exclusive of foreign operations, are included in Thermo Electron's consolidated federal and certain state income tax returns. The agreement provides that in years in which the Company has taxable income, it will pay to Thermo Electron amounts comparable to the taxes the Company would have paid if it had filed separate tax returns. If Thermo Electron's equity ownership of the Company were to drop below 80%, the Company would be required to file its own federal income tax return. In accordance with Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes," the Company recognizes deferred income taxes based on the expected future tax consequences of differences between the financial statement basis and the tax basis of assets and liabilities calculated using enacted tax rates in effect for the year in which the differences are expected to be reflected in the tax return. 10 1. Nature of Operations and Summary of Significant Accounting Policies (continued) Earnings per Share During the quarter ended January 3, 1998, the Company adopted SFAS No. 128, "Earnings per Share" (Note 16). As a result, all previously reported earnings per share have been restated. Basic earnings per share have been computed by dividing net income by the weighted average number of shares outstanding during the year. Except where the result would be antidilutive, diluted earnings per share have been computed assuming the conversion of convertible obligations and the elimination of the related interest expense, and the exercise of stock options and warrants, as well as their related income tax effects. Cash and Cash Equivalents At fiscal year-end 1998 and 1997, $29,583,000 and $59,781,000, respectively, of the Company's cash equivalents were invested in a repurchase agreement with Thermo Electron. Under this agreement, the Company in effect lends excess cash to Thermo Electron, which Thermo Electron collateralizes with investments principally consisting of corporate notes, commercial paper, U.S. government-agency securities, money market funds, and other marketable securities, in the amount of at least 103% of such obligation. The Company's funds subject to the repurchase agreement are readily convertible into cash by the Company. The repurchase agreement earns a rate based on the 90-day Commercial Paper Composite Rate plus 25 basis points, set at the beginning of each quarter. At fiscal year-end 1998 and 1997, the Company's cash equivalents also included investments in a money market fund, which have an original maturity of three months or less. Cash equivalents are carried at cost, which approximates fair market value. Inventories Inventories are stated at the lower of cost (on an average-cost basis) or market value and include materials, labor, and manufacturing overhead. The components of inventories are as follows: (In thousands) 1998 1997 - -------------------------------------------------------------------------- Raw Materials and Supplies $ 618 $2,483 Work in Process and Finished Goods 880 538 ------ ------ $1,498 $3,021 ====== ====== Property, Plant, and Equipment The costs of additions and improvements are capitalized, while maintenance and repairs are charged to expense as incurred. The Company provides for depreciation and amortization primarily using the straight-line method over the estimated useful lives of the property as follows: buildings and improvements, 5 to 40 years; machinery and equipment, 2 to 12 years; and leasehold improvements, the shorter of the term of the lease or the life of the asset. Soil-remediation units, which 11 1. Nature of Operations and Summary of Significant Accounting Policies (continued) accounted for 12% and 16% of the Company's machinery and equipment, net, at fiscal year-end 1998 and 1997, respectively, are depreciated based on an hourly rate that is computed by estimating total hours of operation for each unit. Property, plant, and equipment consists of the following: (In thousands) 1998 1997 - -------------------------------------------------------------------------- Land $ 7,743 $ 7,412 Buildings 38,785 33,545 Machinery, Equipment, and Leasehold Improvements 95,840 91,375 -------- -------- 142,368 132,332 Less: Accumulated Depreciation and Amortization 50,659 48,766 -------- -------- $ 91,709 $ 83,566 ======== ======== Other Assets Other assets in the accompanying balance sheet includes the costs of acquired technology and other specifically identifiable intangible assets that are being amortized using the straight-line method over their estimated useful lives, ranging from 5 to 20 years. These assets were $5,212,000 and $6,150,000, net of accumulated amortization of $5,716,000 and $4,655,000, at fiscal year-end 1998 and 1997, respectively. Cost in Excess of Net Assets of Acquired Companies The excess of cost over thefair value of net assets of acquired companies is amortized using the straight-line method over periods not exceeding 40 years. Accumulated amortization was $13,651,000 and $10,921,000 at fiscal year-end 1998 and 1997, respectively. The Company assesses the future useful life of this asset whenever events or changes in circumstances indicate that the current useful life has diminished (Note 13). The Company considers the future undiscounted cash flows of the acquired companies in assessing the recoverability of this asset. If impairment has occurred, any excess of carrying value over fair value is recorded as a loss. Foreign Currency All assets and liabilities of the Company's foreign subsidiaries are translated at year-end exchange rates, and revenues and expenses are translated at average exchange rates for the year in accordance with SFAS No. 52, "Foreign Currency Translation." Resulting translation adjustments are reflected as a separate component of shareholders' investment titled "Cumulative translation adjustment." Foreign currency transaction gains and losses are included in the accompanying statement of operations and are not material for the three years presented. 12 1. Nature of Operations and Summary of Significant Accounting Policies (continued) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 2. Available-for-sale and Held-to-maturity Investments In accordance with SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," the Company's debt securities are considered available-for-sale investments in the accompanying balance sheet and are carried at market value, with the difference between cost and market value, net of related tax effects, recorded currently as a component of shareholders' investment titled "Net unrealized gain (loss) on available-for-sale investments." The aggregate market value, cost basis, and gross unrealized gains and losses of available-for-sale investments by major security type are as follows: Gross Gross Market Cost Unrealized Unrealized (In thousands) Value Basis Gains Losses - -------------------------------------------------------------------------- 1998 Corporate Bonds $ 2,003 $ 2,008 $ - $ (5) ======= ======= ======= ======= 1997 Government-agency Securities $ 9,999 $ 9,998 $ 1 $ - Corporate Bonds 8,016 8,006 10 - Other 376 376 - - ------- ------- ------- ------- $18,391 $18,380 $ 11 $ - ======= ======= ======= ======= Available-for-sale investments in the accompanying fiscal 1998 balance sheet have contractual maturities of one year or less. The cost of available- for-sale investments that were sold was based on specific identification in determining realized gains and losses recorded in the accompanying statement of operations. "Gain on sale of investments, net" in the accompanying statement of operations resulted from gross realized gains of $204,000 and gross realized losses of $9,000 in fiscal 1997, and gross realized gains in fiscal 1996 relating to the sale of available-for-sale investments. 13 2. Available-for-sale and Held-to-maturity Investments (continued) In order to secure the Company's obligation to the former owner of a business acquired in fiscal 1995, the Company purchased U.S. treasury bonds. In February 1998, $13,935,000 principal amount of the U.S. treasury bonds matured and the proceeds were used to repay, in part, the Company's zero coupon promissory note to the seller. The remaining bonds mature in May 1998, the date the remaining balance of the zero coupon promissory note is due. These securities are classified as short-term held-to-maturity investments in the accompanying fiscal 1998 balance sheet and are carried at amortized cost. 3. Joint Venture, Acquisitions, and Dispositions Joint Venture Effective April 2, 1995, the Company and Thermo Instrument Systems Inc. dissolved an environmental services joint venture and the Company purchased the businesses formerly operated by the joint venture from Thermo Instrument for $34,267,000 in cash. As a result of this transaction, the Company increased its ownership in the businesses operated by the joint venture from 51% to 100%. In June 1995, the Company transferred three businesses formerly operated by the joint venture, collectively known as the Nuclear Services Group (renamed Thermo NUtech), to Thermo Remediation in exchange for 1,583,360 shares of Thermo Remediation common stock. Acquisitions In May 1997, the Company purchased a controlling interest in The Randers Group Incorporated, a publicly traded provider of design, engineering, project management, and construction services for industrial clients in the manufacturing, pharmaceutical, and chemical-processing industries. The Company purchased 7,100,000 shares of Randers common stock from certain members of Randers' management, and 420,000 shares from Thermo Power Corporation, an affiliate of the Company, at a price of $0.625 per share, for an aggregate cost of $4,700,000. Following these transactions and currently, the Company owns approximately 53.3% of Randers' actual outstanding common stock. In addition, Thermo Electron owns approximately 8.9% of Randers' actual outstanding common stock. Subsequently, in September 1997, the Company entered into a definitive agreement to transfer The Killam Group Inc., its wholly owned engineering and consulting businesses, to Randers in exchange for newly issued shares of Randers' common stock. Effective April 4, 1998, the agreement was amended to provide that the price for these businesses would equal $70,644,407, the book value of the transferred businesses as of April 4, 1998. The number of new shares of Randers common stock to be issued to the Company will equal such book value divided by $0.625, or 113,031,051 shares. Upon such issuance, the Company and Thermo Electron would own approximately 94.8% and 1.0%, respectively, of Randers' outstanding common stock. 14 3. Joint Venture, Acquisitions, and Dispositions (continued) The transfer is subject to approval of the transaction by Randers' shareholders and continued listing of Randers' common stock on the American Stock Exchange following the transaction. However, because the Company currently owns approximately 53.3% of Randers' outstanding common stock, approval by Randers' shareholders is assured. In addition, during fiscal 1998, Thermo Remediation made three acquisitions for an aggregate purchase price of $5,665,000 in cash and 459,613 shares of Thermo Remediation's common stock, valued at $2,850,000. In fiscal 1998, Thermo EuroTech made an acquisition of 70% of the outstanding shares of a business for $4,400,000 in cash and a commitment to issue 69,200 shares of Thermo EuroTech's common stock valued at $275,000. In October 1996, the Company acquired Metal Treating, Inc. from Thermo Electron in exchange for $1,600,000 in cash. Metal Treating provides heat treating services, including carburizing, vacuum hardening, silver and copper brazing, and aluminum heat treating, primarily in the Milwaukee and southeastern Wisconsin areas. Because the Company and Metal Treating were deemed for accounting purposes to be under control of their common majority owner, Thermo Electron, the transaction has been accounted for at historical cost in a manner similar to a pooling-of-interests. Accordingly, historical information presented for fiscal 1996 has been restated to include the results of Metal Treating. Revenues and net income as previously reported by the separate entities prior to the acquisition and as restated for the combined Company are as follows: (In thousands) 1996 - -------------------------------------------------------------------------- Revenues: Previously reported $217,397 Metal Treating 3,100 Elimination (13) -------- $220,484 ======== Net Income: Previously reported $ 3,218 Metal Treating 229 -------- $ 3,447 ======== In addition, during fiscal 1997, the Company, directly or through Thermo Remediation, acquired companies for an aggregate of $3,865,000 in cash, 311,040 shares of Thermo Remediation's common stock valued at $2,006,000, and the issuance of $1,300,000 of short- and long-term obligations. 15 3. Joint Venture, Acquisitions, and Dispositions (continued) In December 1995, Thermo Remediation acquired Remediation Technologies, Inc. (RETEC), a provider of integrated environmental services such as the remediation of industrial sites contaminated with organic wastes and residues. The purchase price of $29,672,000 consisted of $18,462,000 in cash, 227,250 shares of Thermo Remediation's common stock, and 75,750 warrants to purchase shares of Thermo Remediation's common stock at $14.85 per share, valued in the aggregate at $3,716,000, and approximately $7,494,000 attributable to the conversion of outstanding RETEC stock options into Thermo Remediation stock options of equivalent intrinsic value at the date of acquisition. In May 1995, the Company acquired substantially all of the assets of Lancaster Laboratories, Inc. and its affiliate Clewmark Holdings (collectively Lancaster Laboratories). Lancaster Laboratories, based in Lancaster, Pennsylvania, is a provider of analytical services to the environmental, food, and pharmaceutical industries. The purchase price for the assets was $25,329,000 in cash, including the repayment of $5,333,000 of debt. These acquisitions, except for Metal Treating, have been accounted for using the purchase method of accounting, and their results have been included in the accompanying financial statements from their respective dates of acquisition. The aggregate cost of these acquisitions exceeded the estimated fair value of the acquired net assets by $53,054,000, which is being amortized over periods ranging from 20 to 40 years. Allocation of the purchase price for these acquisitions was based on estimates of the fair value of the net assets acquired and, for acquisitions completed in fiscal 1998, is subject to adjustment upon finalization of the purchase price allocation. The Company has no information that indicates the final purchase price allocation will differ materially from the preliminary estimates. Based on unaudited data, the following table presents selected financial information for the Company, RETEC, and Lancaster Laboratories on a pro forma basis, assuming the companies had been combined since the beginning of fiscal 1996. The effect on the Company's financial statements of the acquisitions not included in the pro forma data was not material to the Company's results of operations. (In thousands except per share amounts) 1996 - -------------------------------------------------------------------------- Revenues $254,276 Net Income 2,340 Earnings per Share: Basic .13 Diluted .12 The pro forma results are not necessarily indicative of future operations or the actual results that would have occurred had the acquisitions been made at the beginning of fiscal 1996. 16 3. Joint Venture, Acquisitions, and Dispositions (continued) Dispositions In October 1997, Thermo Remediation sold its 50% limited-liability interest in RETEC/TETRA L.C. to TETRA Thermal, Inc. for $8,825,000 in cash. The Company realized a pre-tax gain of $3,012,000 on the sale. In addition, in October 1997, the Company sold substantially all of the assets of its Holcroft Division, its thermal-processing equipment business, excluding certain accounts receivable, to Holcroft L.L.C., an affiliate of Madison Capital Partners. The sale price for the transferred assets consisted of $10,897,000 in cash, two promissory notes for principal amounts aggregating $2,881,000, and the assumption by Holcroft L.L.C. of certain liabilities of the Holcroft Division. After recording a post-closing purchase price adjustment, the Company incurred a nominal loss on the sale. This business represented the Company's product revenues in the accompanying statement of operations and contributed $893,000 and $1,765,000 of operating income in fiscal 1998 and 1997, respectively. In fiscal 1997, Thermo EuroTech sold its J. Amerika division, which resulted in a loss of $1,482,000. J. Amerika's revenues and operating loss were $3,970,000 and $552,000, respectively, in fiscal 1997. In fiscal 1996, the Company sold to a management group the assets of a small civil engineering design office in Williston, Vermont, that was no longer included in the geographic expansion plans of the Company. An intangible asset of $569,000 associated with this office was not recovered in the sale price and, accordingly, was written off. This noncash expense is nondeductible for tax purposes. Sales and earnings of this office were not material to the Company. 4. Employee Benefit Plans Stock-based Compensation Plans Stock Option Plans The Company has stock-based compensation plans for its key employees, directors, and others. Two of these plans, adopted in 1986, permit the grant of nonqualified and incentive stock options. A third plan, adopted in fiscal 1994, permits the grant of a variety of stock and stock-based awards as determined by the human resources committee of the Company's Board of Directors (the Board Committee), including restricted stock, stock options, stock bonus shares, or performance-based shares. To date, only nonqualified stock options have been awarded under these plans. The option recipients and the terms of options granted under these plans are determined by the Board Committee. Generally, options granted to date are exercisable immediately, but are subject to certain transfer restrictions and the right of the Company to repurchase shares issued upon exercise of the options at the exercise price, upon certain events. The restrictions and repurchase rights generally lapse ratably over a three- to ten-year period, depending on the term of the option, which may range from five to 12 years. Nonqualified stock options may be granted at any price 17 4. Employee Benefit Plans (continued) determined by the Board Committee, although incentive stock options must be granted at not less than the fair market value of the Company's stock on the date of grant. Generally, all options have been granted at fair market value. The Company also has a directors' stock option plan, adopted in September 1991, that provides for the grant of stock options to outside directors pursuant to a formula approved by the Company's shareholders. Options awarded under this plan are exercisable six months after the date of grant and expire three to seven years after the date of grant. In addition to the Company's stock-based compensation plans, certain officers and key employees may also participate in the stock-based compensation plans of Thermo Electron. 18 4. Employee Benefit Plans (continued) A summary of the Company's stock option information is as follows: 1998 1997 1996 ---------------- ----------------- ----------------- Weighted Weighted Weighted Number Average Number Average Number Average (Shares in of Exercise of Exercise of Exercise thousands) Shares Price Shares Price Shares Price - --------------------------------------------------------------------------- Options Outstanding, Beginning of Year 2,558 $ 6.99 2,561 $ 6.13 2,559 $ 5.62 Granted 296 7.67 288 10.10 182 11.44 Exercised (696) 1.36 (242) 1.16 (141) 3.09 Forfeited (172) 9.35 (49) 8.79 (39) 8.60 ----- ----- ----- Options Outstanding, End of Year 1,986 $ 8.87 2,558 $ 6.99 2,561 $ 6.13 ===== ====== ===== ====== ===== ====== Options Exercisable 1,986 $ 8.87 2,558 $ 6.99 2,558 $ 6.12 ===== ====== ===== ====== ===== ====== Options Available for Grant 327 483 730 ===== ===== ===== A summary of the status of the Company's stock options at April 4, 1998, is as follows: Options Outstanding and Exercisable Number Weighted Weighted of Average Average Shares Remaining Exercise Range of Exercise Prices (In thousands) Contractual Life Price - --------------------------------------------------------------------------- $ 6.00 - $ 8.14 743 4.3 years $ 7.66 8.15 - 10.19 883 6.1 years 9.07 10.30 - 12.43 358 5.6 years 10.84 12.44 - 14.58 2 0.8 years 14.58 ----- $ 6.00 - $14.58 1,986 5.3 years $ 8.87 ===== 19 4. Employee Benefit Plans (continued) Employee Stock Purchase Program Substantially all of the Company's full-time employees are eligible to participate in an employee stock purchase program sponsored by the Company and Thermo Electron. Under this program, shares of the Company's and Thermo Electron's common stock can be purchased at the end of a 12-month period at 95% of the fair market value at the beginning of the period and the shares purchased are subject to a six-month resale restriction. Shares are purchased through payroll deductions of up to 10% of each participating employee's gross wages. During fiscal 1998, 1997, and 1996, the Company issued 13,976 shares, 25,053 shares, and 44,259 shares, respectively, of its common stock under this program. Pro Forma Stock-based Compensation Expense In October 1995, the Financial Accounting Standards Board issued SFAS No. 123, "Accounting for Stock-based Compensation," which sets forth a fair-value based method of recognizing stock-based compensation expense. As permitted by SFAS No. 123, the Company has elected to continue to apply APB No. 25 to account for its stock-based compensation plans. Had compensation cost for awards in fiscal 1998, 1997, and 1996 under the Company's stock-based compensation plans been determined based on the fair value at the grant dates consistent with the method set forth under SFAS No. 123, the effect on the Company's net income (loss) and earnings (loss) per share would have been as follows: (In thousands except per share amounts) 1998 1997 1996 - -------------------------------------------------------------------------- Net Income (Loss): As reported $3,273 $ (162) $3,447 Pro forma 2,218 (866) 3,018 Basic Earnings (Loss) per Share: As reported .18 (.01) .20 Pro forma .12 (.05) .17 Diluted Earnings (Loss) per Share: As reported .17 (.01) .18 Pro forma .12 (.05) .16 Because the method prescribed by SFAS No. 123 has not been applied to options granted prior to April 2, 1995, the resulting pro forma compensation expense may not be representative of the amount to be expected in future years. Pro forma compensation expense for options granted is reflected over the vesting period; therefore, future pro forma compensation expense may be greater as additional options are granted. 20 4. Employee Benefit Plans (continued) The weighted average fair value per share of options granted was $2.27, $4.15, and $3.83 in fiscal 1998, 1997, and 1996, respectively. The fair value of each option grant was estimated on the grant date using the Black-Scholes option-pricing model with the following weighted-average assumptions: 1998 1997 1996 - -------------------------------------------------------------------------- Volatility 27% 29% 29% Risk-free Interest Rate 5.6% 6.2% 5.8% Expected Life of Options 3.6 years 6.1 years 4.4 years The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option-pricing models require the input of highly subjective assumptions, including expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate , in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. 401(k) Savings Plans The majority of the Company's full-time U.S. employees are eligible to participate in 401(k) savings plans sponsored by certain subsidiaries and Thermo Electron. Contributions to the 401(k) savings plans are made by both the employee and the Company. Company contributions are based upon the level of employee contributions and for certain plans are based on subsidiary profits. For these plans, the Company contributed and charged to expense $4,541,000, $3,847,000, and $3,278,000 in fiscal 1998, 1997, and 1996, respectively. 5. Income Taxes The components of income (loss) before provision for income taxes and minority interest are as follows: (In thousands) 1998 1997 1996 - -------------------------------------------------------------------------- Domestic $ 8,812 $ 3,149 $10,977 Foreign (298) (3,440) (2,663) ------- ------- ------- $ 8,514 $ (291) $ 8,314 ======= ======= ======= The Company's foreign results of operations prior to fiscal 1998 include losses associated with its J. Amerika division, which was sold during the fourth quarter of fiscal 1997 (Note 3). 21 5. Income Taxes (continued) The components of the provision for income taxes are as follows: (In thousands) 1998 1997 1996 - -------------------------------------------------------------------------- Currently (Payable) Prepaid: Federal $(2,688) $(1,271) $(1,339) State (1,330) (1,122) (678) Foreign 110 234 1,120 ------- ------- ------- (3,908) (2,159) (897) ------- ------- ------- (Deferred) Prepaid, Net: Federal (1,035) (389) (2,198) State (203) (88) (549) Foreign - 931 - ------- ------- ------- (1,238) 454 (2,747) ------- ------- ------- $(5,146) $(1,705) $(3,644) ======= ======= ======= The Company and its majority-owned subsidiaries receive a tax deduction upon exercise of nonqualified stock options by employees for the difference between the exercise price and the market price of the underlying common stock on the date of exercise. The provision for income taxes that is currently payable does not reflect $928,000, $659,000, and $1,785,000 in fiscal 1998, 1997, and 1996, respectively, of such benefits of the Company and its majority-owned subsidiaries that have been allocated to capital in excess of par value, directly or through the effect of majority-owned subsidiaries' equity transactions. 22 5. Income Taxes (continued) The provision for income taxes in the accompanying statement of operations differs from the amounts calculated by applying the statutory federal income tax rate of 34% to income (loss) before provision for income taxes and minority interest due to the following: (In thousands) 1998 1997 1996 - ------------------------------------------------------------------------- (Provision) Benefit for Income Taxes at Statutory Rate $(2,895) $ 99 $(2,827) Differences Resulting from: State income taxes, net of federal tax (1,012) (764) (797) Amortization and write-off of cost in excess of net assets of acquired companies (739) (1,344) (2,485) Gain on issuance of stock by subsidiaries - 501 1,403 Foreign tax rate and tax law differential 8 (16) 249 Tax-exempt investment income - 32 181 Nondeductible expenses (64) (62) (51) Reversal of tax reserves no longer required - - 750 Other, net (444) (151) (67) ------- ------- ------- $(5,146) $(1,705) $(3,644) ======= ======= ======= Prepaid income taxes and deferred income taxes in the accompanying balance sheet consist of the following: (In thousands) 1998 1997 - -------------------------------------------------------------- Prepaid Income Taxes: Accrued compensation $ 2,220 $ 1,410 Reserves and accruals 3,640 4,562 Allowance for doubtful accounts (137) 1,151 Net operating loss and tax credit carryforward 1,934 2,030 Other - 303 ------- ------- 7,657 9,456 Less: Valuation allowance 739 276 ------- ------- $ 6,918 $ 9,180 ======= ======= Deferred Income Taxes: Depreciation $ 2,785 $ 5,581 Other deferred items 1,446 611 ------- ------- $ 4,231 $ 6,192 ======= ======= 23 5. Income Taxes (continued) Included in other assets in the accompanying fiscal 1998 balance sheet is $2,135,000 of long-term prepaid income taxes related to foreign net operating losses, net of long-term deferred income taxes of $1,330,000 related to timing differences in a foreign jurisdiction. Comparable amounts in fiscal 1997 were long-term prepaid income taxes of $1,811,000, net of long-term deferred income taxes of $895,000. The valuation allowance relates to the uncertainty surrounding the realization of the tax benefits attributable primarily to state operating loss carryforwards. The valuation allowance increased in fiscal 1998 as a result of certain losses that arose during the year. Of the total 1998 valuation allowance, $126,000 will be used to reduce cost in excess of net assets of acquired companies when any portion of the related deferred tax asset is recognized. The Company has not recognized a deferred tax liability for the difference between the book basis and tax basis of its investment in the common stock of its domestic subsidiaries (such difference relates primarily to unremitted earnings and gains on issuance of stock by subsidiaries) because the Company does not expect this basis difference to become subject to tax at the parent level. The Company believes it can implement certain tax strategies to recover its investment in its domestic subsidiaries tax-free. The net operating loss carryforward primarily consists of $9,500,000 of foreign carryforwards which may be carried forward indefinitely and $8,900,000 of state carryforwards, which substantially expire in 2002. During fiscal 1996, the Company reversed previously established tax reserves totaling $750,000 that were no longer required as a result of the completion of certain revenue agent reviews. 6. Short- and Long-term Obligations Short-term Obligations The Company's Thermo EuroTech subsidiary has a line of credit, denominated in Dutch guilders, under which approximately $6,700,000 may be borrowed at the Dutch discount rate plus 125 basis points. At April 4, 1998, and March 29, 1997, $6,346,000 and $2,227,000, respectively, was outstanding under this arrangement, bearing interest at 4.02% and 5.25%, respectively. In addition, in fiscal 1998, Thermo EuroTech entered into a line of credit, denominated in Irish punts, under which approximately $6,052,000 was borrowed at April 4, 1998, bearing interest at a fixed rate of 5.75%. There are no additional amounts available under this line of credit. 24 6. Short- and Long-term Obligations (continued) Long-term Obligations Long-term obligations of the Company are as follows: (In thousands except per share amounts) 1998 1997 - -------------------------------------------------------------------------- 4 5/8% Subordinated convertible debentures, due 2003, convertible at $15.90 per share $111,850 $111,850 6 1/2% Subordinated convertible debentures, due 1997, convertible at $10.33 per share - 13,370 4 7/8% Subordinated convertible debentures, due 2000, convertible into shares of Thermo Remediation at $17.92 per share (includes $3,000 held by Thermo Electron) 37,950 37,950 Promissory note to parent company, repaid June 1997 (a) - 38,000 Zero coupon promissory note, face value $28,000, due in two installments in February and May 1998 (Note 2) 13,939 26,057 6.75% Mortgage loan, payable in monthly installments of $9, with final payment in 2008 1,173 1,293 8.5% Mortgage loan, payable in monthly installments of $5, with final payment in 2003 949 - Other 2,050 1,934 -------- -------- 167,911 230,454 Less: Current maturities of long-term obligations 14,767 65,268 -------- -------- $153,144 $165,186 ======== ======== (a) Bore interest at the 90-day Commercial Paper Composite Rate plus 25 basis points, set at the beginning of each quarter. The 4 5/8% and 4 7/8% subordinated convertible debentures are guaranteed on a subordinated basis by Thermo Electron. The Company has agreed to reimburse Thermo Electron in the event Thermo Electron is required to make a payment under the guarantees. During fiscal 1998 and 1997, $13,220,000 and $4,812,000 principal amount, respectively, of the 6 1/2% subordinated convertible debentures were converted into 1,279,349 shares and 465,827 shares, respectively, of the Company's common stock. The annual requirements for long-term obligations as of April 4, 1998, are $14,767,000 in fiscal 1999; $39,008,000 in fiscal 2000; $448,000 in fiscal 2001; $455,000 in fiscal 2002; $112,610,000 in fiscal 2003; and $623,000 in fiscal 2004 and thereafter. Total requirements of long-term obligations are $167,911,000. See Note 11 for information pertaining to the fair value of the Company's long-term obligations. 25 7. Commitments and Contingencies Operating Leases The Company leases land, office, operating facilities, and equipment under operating leases expiring at various dates through fiscal 2008. The accompanying statement of operations includes expenses from operating leases of $5,822,000, $5,424,000, and $4,964,000 in fiscal 1998, 1997, and 1996, respectively. Future minimum payments due under noncancellable operating leases at April 4, 1998, are $5,176,000 in fiscal 1999; $3,907,000 in fiscal 2000; $2,669,000 in fiscal 2001; $1,972,000 in fiscal 2002; $1,062,000 in fiscal 2003; and $1,122,000 in fiscal 2004 and thereafter. Total future minimum lease payments are $15,908,000. See Note 8 for an office and manufacturing facility leased from Thermo Electron. Contingencies The Company is contingently liable with respect to lawsuits and other matters that arose in the ordinary course of business. In the opinion of management, these contingencies will not have a material adverse effect upon the financial position of the Company or its results of operations. 8. Related-party Transactions Corporate Services Agreement The Company and Thermo Electron have a corporate services agreement under which Thermo Electron's corporate staff provides certain administrative services, including certain legal advice and services, risk management, certain employee benefit administration, tax advice and preparation of tax returns, centralized cash management, and certain financial and other services, for which the Company pays Thermo Electron annually an amount equal to 0.8% of the Company's revenues in calendar 1998. In 1997 and 1996, the Company paid an amount equal to 1.0% of the Company's revenues. Prior to January 1, 1996, the Company paid an annual fee equal to 1.20% of the Company's revenues. The annual fee is reviewed and adjusted annually by mutual agreement of the parties. For these services, the Company was charged $2,845,000, $2,785,000, and $2,612,000 in fiscal 1998, 1997, and 1996, respectively. The corporate services agreement is renewed annually but can be terminated upon 30 days' prior notice by the Company or upon the Company's withdrawal from the Thermo Electron Corporate Charter (the Thermo Electron Corporate Charter defines the relationship among Thermo Electron and its majority-owned subsidiaries). Management believes that the service fee charged by Thermo Electron is reasonable and that such fees are representative of the expenses the Company would have incurred on a stand-alone basis. For additional items such as employee benefit plans, insurance coverage, and other identifiable costs, Thermo Electron charges the Company based upon costs attributable to the Company. 26 8. Related-party Transactions (continued) Development Agreement The Company and Thermo Electron entered into a development agreement under which Thermo Electron agreed to fund up to $4,000,000 of the direct and indirect costs of the Company's development of soil-remediation centers. In exchange for this funding, the Company granted Thermo Electron a royalty equal to approximately 3% of net revenues from soil-remediation services performed at the centers developed under the agreement. The royalty payments may cease if the amounts paid by the Company yield a certain internal rate of return to Thermo Electron on the funds advanced to the Company under the agreement. Two sites were developed under this agreement. The Company paid royalties of $115,000, $186,000, and $332,000 in fiscal 1998, 1997, and 1996, respectively, relating to this agreement, which are included in selling, general, and administrative expenses in the accompanying statement of operations. Operating Lease In addition to the operating leases discussed in Note 7, the Company leases an office and operating facility from Thermo Electron. The accompanying statement of operations includes expenses from this operating lease of $166,000, $106,000, and $154,000 in fiscal 1998, 1997, and 1996, respectively. The future minimum payments due under the lease as of April 4, 1998, are $166,000 in fiscal 1999 through 2004. Total future minimum lease payments are $996,000. Repurchase Agreement The Company invests excess cash in a repurchase agreement with Thermo Electron as discussed in Note 1. Short- and Long-term Obligations See Note 6 for a description of short- and long-term obligations of the Company held by Thermo Electron. 9. Common Stock At April 4, 1998, the Company had 700,500 warrants outstanding to purchase shares of its common stock, which are exercisable at prices ranging from $10.00 to $11.34 per share and expire in fiscal 2001. The warrants were issued in fiscal 1992 and 1993 in connection with private placements completed by three of Thermo Remediation's soil-remediation subsidiaries. At April 4, 1998, the Company had reserved 10,131,347 unissued shares of its common stock for possible issuance under stock-based compensation plans, possible issuance upon conversion of the 4 5/8% subordinated convertible debentures, and exercise of warrants. 10. Transactions in Stock of Subsidiaries During fiscal 1997, Thermo EuroTech sold 1,105,000 shares of its common stock in a private placement at $4.25 per share for net proceeds of $4,314,000, resulting in a gain of $1,475,000. 27 10. Transactions in Stock of Subsidiaries (continued) During fiscal 1996, Thermo Remediation sold 500,000 shares of its common stock in a private placement at $13.25 per share for net proceeds of $6,625,000, resulting in a gain of $2,742,000. During fiscal 1996, Thermo Remediation issued 227,250 shares of its common stock in connection with the acquisition of RETEC (Note 3), resulting in a gain of $1,385,000. Dividends declared by Thermo Remediation were $2,504,000, $2,557,000, and $2,491,000 in fiscal 1998, 1997, and 1996, respectively. Dividends declared by Thermo Remediation include $1,736,000, $1,694,000, and $1,667,000 in fiscal 1998, 1997, and 1996, respectively, that were allocated to the Company and reinvested in 254,833 shares, 194,961 shares, and 117,805 shares, respectively, of Thermo Remediation's common stock pursuant to Thermo Remediation's Dividend Reinvestment Plan. The Company's percentage ownership of its majority-owned subsidiaries at year end was as follows: 1998 1997 1996 - ------------------------------------------------------------------------ Thermo Remediation 69% 69% 66% Randers (a) 53% 100% 100% Thermo EuroTech 56% 53% 62% (a) Upon issuance of 113,031,051 shares of Randers common stock to the Company, as described in Note 3, the Company will own approximately 95% of Randers' outstanding common stock. Fiscal 1997 and 1996 represent the Company's ownership of The Killam Group prior to its transfer to Randers in fiscal 1998. 11. Fair Value of Financial Instruments The Company's financial instruments consist primarily of cash and cash equivalents, available-for-sale and held-to-maturity investments, accounts receivable, notes payable and current maturities of long-term obligations, accounts payable, due to parent company, and long-term obligations. The carrying amounts of these financial instruments, with the exception of available-for-sale and held-to-maturity investments, and long-term obligations, approximate fair value due to their short-term nature. Available-for-sale investments are carried at fair value in the accompanying balance sheet. The fair values were determined based on quoted market prices. See Note 2 for fair value information pertaining to these financial instruments. Held-to-maturity investments in the accompanying balance sheet are carried at amortized cost. The fair values are disclosed on the accompanying balance sheet and were determined based on quoted market prices. 28 11. Fair Value of Financial Instruments (continued) The fair value of long-term obligations was determined based on quoted market prices and on borrowing rates available to the Company at the respective year ends. The carrying amount and fair value of the Company's long-term obligations are as follows: 1998 1997 --------------------- --------------------- Carrying Fair Carrying Fair (In thousands) Amount Value Amount Value - --------------------------------------------------------------------------- Current Maturity of Subordinated Convertible Debentures $ - $ - $ 13,370 $ 13,771 ======== ======== ======== ======== Long-term Subordinated Convertible Debentures $149,800 $143,416 $149,800 $132,973 Other 3,344 3,344 15,386 15,386 -------- -------- -------- -------- $153,144 $146,760 $165,186 $148,359 ======== ======== ======== ======== 12. Significant Customers During fiscal 1998, 1997, and 1996, revenues derived from U.S. government agencies accounted for 4%, 13%, and 10%, respectively, of the Company's total revenues. 13. Nonrecurring Costs During fiscal 1997, Thermo Remediation recorded $7,800,000 of nonrecurring costs to write-down certain capital equipment and intangible assets, including cost in excess of net assets of acquired companies, in response to a severe downturn in Thermo Remediation's soil-recycling business, which resulted in the closure of two soil-remediation sites. In addition, the Company's analysis indicated that the future undiscounted cash flows from certain other soil-remediation sites that will remain open would be insufficient to recover Thermo Remediation's investment in these business units, thus requiring a write-down of certain assets, which is included in the $7,800,000 charge. Of the total charge, $2,206,000 is nondeductible for tax purposes. During fiscal 1996, the Company determined that it no longer expected to reinvest in its thermal-processing equipment business. The Company's fiscal 1996 analysis indicated that the expected future undiscounted cash flow from this business would be insufficient to recover the Company's investment. Accordingly, the Company wrote off $4,995,000 of cost in 29 13. Nonrecurring Costs (continued) excess of net assets of acquired company associated with the thermal-processing equipment business. This noncash expense is nondeductible for tax purposes. This business was sold in fiscal 1998 (Note 3). 14. Equity in Earnings of Unconsolidated Subsidiary Equity in earnings of unconsolidated subsidiary in the accompanying statement of operations represents the Company's proportionate share of income from a 50% investment in RETEC/TETRA L.C., acquired in December 1995 through Thermo Remediation's acquisition of RETEC. In October 1997, Thermo Remediation sold its 50% limited-liability interest in RETEC/TETRA to TETRA Thermal, Inc. (Note 3). The carrying value of the unconsolidated subsidiary was $5,650,000 at fiscal year-end 1997 and was included in other assets in the accompanying fiscal 1997 balance sheet. Summary financial information for RETEC/TETRA as of December 31, 1996, is as follows: (In thousands) 1996 - -------------------------------------------------------------- Current Assets $ 3,072 Noncurrent Assets 12,644 ------- Total assets $15,716 ======= Current Liabilities $ 2,016 Noncurrent Liabilities 2,635 Members' Equity 11,065 ------- Total liabilities and members' equity $15,716 ======= (In thousands) 1996 - -------------------------------------------------------------- Revenues $12,066 Cost of Revenues 9,040 ------- Gross Profit $ 3,026 ======= Net Income $ 981 ======= 30 15. Supplemental Cash Flow Information Supplemental cash flow information is as follows: (In thousands) 1998 1997 1996 - ------------------------------------------------------------------------- Cash Paid For: Interest $ 10,363 $ 10,255 $ 7,438 Income taxes $ 4,041 $ 1,958 $ 5,803 Noncash Activities: Fair value of assets of acquired companies $ 29,477 $ 12,996 $ 68,533 Cash paid for acquired companies (14,765) (5,465) (45,005) Issuance of notes payable for acquired company - (1,300) - Issuance of Company and subsidiary common stock, stock options, and warrants for acquired companies (3,125) (2,006) (11,210) -------- -------- -------- Liabilities assumed of acquired companies $ 11,587 $ 4,225 $ 12,318 ======== ======== ======== Conversions of subordinated convertible debentures (Note 6) $ 13,220 $ 4,812 $ 365 Notes receivable received upon sale of business (Note 3) $ 2,881 $ - $ - 31 16. Earnings (Loss) per Share Basic and diluted earnings (loss) per share were calculated as follows: (In thousands except per share amounts) 1998 1997 1996 - -------------------------------------------------------------------------- Basic Net Income (Loss) $ 3,273 $ (162) $ 3,447 -------- -------- -------- Weighted Average Shares 18,700 18,090 17,420 -------- -------- -------- Basic Earnings (Loss) per Share $ .18 $ (.01) $ .20 ======== ======== ======== Diluted Net Income (Loss) $ 3,273 $ (162) $ 3,447 Effect of Majority-owned Subsidiaries' Dilutive Securities (13) - (93) -------- -------- -------- Income (Loss) Available to Common Shareholders, as Adjusted $ 3,260 $ (162) $ 3,354 -------- -------- -------- Weighted Average Shares 18,700 18,090 17,420 Effect of Stock Options 278 - 844 -------- -------- -------- Weighted Average Shares, as Adjusted 18,978 18,090 18,264 -------- -------- -------- Diluted Earnings (Loss) per Share $ .17 $ (.01) $ .18 ======== ======== ======== The computation of diluted earnings (loss) per share for each period excludes the effect of assuming the exercise of certain outstanding stock options and warrants because the effect would be antidilutive. As of April 4, 1998, there were 2,425,950 of such options and warrants outstanding, with exercise prices ranging from $7.65 to $14.58 per share. In addition, the computation of diluted earnings (loss) per share for each period excludes the effect of assuming the conversion of convertible obligations because the effect would be antidilutive. As of April 4, 1998, the Company had $111,850,000 principal amount of 4 5/8% subordinated convertible debentures, convertible at $15.90 per share, that was excluded from the calculation of diluted earnings (loss) per share. 32 17. Unaudited Quarterly Information (In thousands except per share amounts) 1998 First Second Third(a) Fourth - ------------------------------------------------------------------------ Revenues $72,519 $81,161 $73,875 $71,231 Gross Profit 14,568 15,485 14,001 9,621 Net Income (Loss) 1,332 1,567 1,656 (1,282) Earnings (Loss) per Share: Basic .08 .09 .09 (.07) Diluted .07 .08 .09 (.07) 1997 First Second(b) Third Fourth(c) - ------------------------------------------------------------------------- Revenues $67,618 $67,269 $75,698 $67,918 Gross Profit 13,767 12,028 13,513 11,794 Net Income (Loss) 1,458 1,450 902 (3,972) Earnings (Loss) per Share: Basic .08 .08 .05 (.22) Diluted .08 .08 .05 (.22) (a) Reflects a pre-tax gain of $3,012,000 from Thermo Remediation's sale of its investment in a joint venture. (b) Reflects a nontaxable gain of $1,475,000 from the issuance of stock by subsidiary. (c) Reflects $7,800,000 of nonrecurring costs and a loss of $1,482,000 related to the sale of the Company's J. Amerika division. 33 Thermo TerraTech Inc. 1998 Financial Statements Report of Independent Public Accountants To the Shareholders and Board of Directors of Thermo TerraTech Inc.: We have audited the accompanying consolidated balance sheet of Thermo TerraTech Inc. (a Delaware corporation and an 82%-owned subsidiary of Thermo Electron Corporation) and subsidiaries as of April 4, 1998, and March 29, 1997, and the related consolidated statements of operations, shareholders' investment and cash flows for each of the three years in the period ended April 4, 1998. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Thermo TerraTech Inc. and subsidiaries as of April 4, 1998, and March 29, 1997, and the results of their operations and their cash flows for each of the three years in the period ended April 4, 1998, in conformity with generally accepted accounting principles. Arthur Andersen LLP Boston, Massachusetts May 12, 1998 34 Thermo TerraTech Inc. 1998 Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations Forward-looking statements, within the meaning of Section 21E of the Securities Exchange Act of 1934, are made throughout this Management's Discussion and Analysis of Financial Condition and Results of Operations. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words "believes," "anticipates," "plans," "expects," "seeks," "estimates," and similar expressions are intended to identify forward-looking statements. There are a number of important factors that could cause the results of the Company to differ materially from those indicated by such forward-looking statements, including those detailed immediately after this Management's Discussion and Analysis of Financial Condition and Results of Operations under the heading "Forward-looking Statements." Overview The Company provides industrial outsourcing services and manufacturing support encompassing a broad range of specializations, including infrastructure engineering, design and construction, environmental compliance, laboratory testing, and metal treating. Environmental-liability Management - The Company's majority-owned Thermo Remediation Inc. subsidiary is a national provider of environmental-liability management services. Thermo Remediation offers these services and related consulting services in five areas: industrial remediation, nuclear remediation, waste-fluids collection and recycling, soil remediation, and environmental-management and information technology consulting. Thermo Remediation, through its industrial remediation businesses, provides integrated environmental services such as remediation of industrial sites contaminated with organic wastes and residues. In May 1997, Thermo Remediation's RETEC division acquired TriTechnics Corporation, an environmental engineering and consulting firm. In September 1997, Thermo Remediation's RETEC division acquired RPM Systems, Inc., an environmental-management and information technology consulting business. In September 1996, Thermo Remediation acquired IEM Sealand Corporation. IEM Sealand performs cleanups of hazardous waste sites for government and industry as a prime construction contractor and completes predesigned remedial action contracts at sites containing hazardous, toxic, and radioactive wastes. Through its nuclear-remediation business, Thermo Remediation provides services to remove radioactive contaminants from sand, gravel, and soil, as well as health physics, radiochemistry laboratory, and radiation dosimetry services. In November 1997, Thermo Remediation acquired Benchmark Environmental Corporation, a provider of nuclear-remediation and waste-management services to government agencies and private industry. Thermo Remediation's waste-fluids collection and recycling division collects, tests, processes, and recycles used motor oil and other industrial fluids. In addition, through its soil-remediation business, Thermo Remediation designs and operates a network of facilities for the remediation of nonhazardous soil. The Company's majority-owned Thermo EuroTech N.V. 35 Thermo TerraTech Inc. 1998 Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations Overview (continued) subsidiary, located in the Netherlands, specializes in converting "off-spec" and contaminated petroleum fluids into usable oil products. Thermo EuroTech also provides in-plant waste management and recycling services through its Ireland-based Green Sunrise Holdings Ltd. subsidiary, acquired in February 1998. Engineering and Design - In May 1997, the Company purchased a controlling interest in The Randers Group Incorporated, a provider of engineering, project management, and construction services for industrial clients in the manufacturing, pharmaceutical, and chemical-processing industries. Subsequently, in September 1997, the Company transferred The Killam Group Inc., its wholly owned engineering and consulting businesses, to Randers in exchange for the right to receive newly issued shares of Randers' common stock. Randers' Killam Associates, Inc. subsidiary provides environmental consulting and engineering services and specializes in wastewater treatment and water resources management. Randers' BACKillam subsidiary provides both private- and public-sector clients with a range of consulting services that address transportation planning and design. In November 1996, the Company acquired Carlan Consulting Group, Inc., a provider of transportation and environmental consulting and professional engineering and architectural services, and subsequently transferred it to Randers. The Company's Normandeau Associates Inc. subsidiary provides consulting services that address natural resource management issues. Laboratory Testing - The Company's wholly owned Thermo Analytical Inc. subsidiary operates analytical laboratories that provide environmental-, pharmaceutical-, and food-testing services, primarily to commercial clients throughout the U.S. Metal Treating - The Company performs metallurgical processing services using thermal-treatment equipment at locations in California, Minnesota, and Wisconsin. The Company also designed, manufactured, and installed advanced custom-engineered, thermal-processing systems through its equipment division located in Michigan, until the sale of this business in October 1997 (Note 3). 36 Overview (continued) The Company's revenues were as follows: (In thousands) 1998 1997 1996 - -------------------------------------------------------------------------- Environmental-liability Management $142,432 $126,810 $ 77,032 Engineering and Design 84,567 74,831 74,045 Laboratory Testing 37,485 35,431 35,476 Metal Treating 36,617 44,339 35,762 Intercompany Sales Eliminations (2,315) (2,908) (1,831) -------- -------- -------- $298,786 $278,503 $220,484 ======== ======== ======== The Company has acquired a number of businesses in the last three years. The Company does not presently intend to actively seek to make additional acquisitions in the near future, and expects instead to concentrate its resources on strengthening its core business. The Company may, however, acquire one or more additional businesses if they are presented to the Company on terms the Company believes to be attractive. Results of Operations Fiscal 1998 Compared With Fiscal 1997 Total revenues increased 7% to $298.8 million in fiscal 1998 from $278.5 million in fiscal 1997. Revenues from environmental-liability management services increased 12% to $142.4 million in fiscal 1998 from $126.8 million in fiscal 1997. Revenues at Thermo Remediation increased to $128.4 million in fiscal 1998 from $114.8 million in fiscal 1997, primarily due to the inclusion of $20.1 million of revenues from acquired businesses and, to a lesser extent, increased revenues from construction, consulting, and engineering services at RETEC. These increases were offset in part by an $11.1 million decrease in revenues resulting from a decline in the number of contracts in process at IEM Sealand. Revenues from soil-remediation services decreased $3.5 million, resulting from the closure of two sites, as well as heavy rains, which unfavorably affected operations at certain west coast sites and, to a lesser extent, competitive pricing pressures. Revenues from Thermo EuroTech increased 17% to $14.0 million, primarily due to increased revenues relating to contracts to process oil-based muds and perform soil-remediation services overseas and the inclusion of $1.2 million of revenues from Green Sunrise, acquired in February 1998, offset in part by a decrease in revenues as a result of the sale of its J. Amerika division in the fourth quarter of fiscal 1997. Revenues from engineering and design services increased to $84.6 million in fiscal 1998 from $74.8 million in fiscal 1997. The inclusion of an aggregate of $15.0 million of revenues from Carlan and Randers, acquired in November 1996 and May 1997, respectively, 37 Fiscal 1998 Compared With Fiscal 1997 (continued) was offset in part by a decrease in revenues due to the completion of two major contracts in fiscal 1997. Revenues from laboratory-testing services, excluding radiochemistry laboratory services included in environmental-liability management services, increased to $37.5 million in fiscal 1998 from $35.4 million in fiscal 1997 due to higher demand. Metal-treating revenues decreased to $36.6 million in fiscal 1998 from $44.3 million in fiscal 1997, primarily due to the sale of the Company's thermal-processing equipment business in October 1997 (Note 3), offset in part by an increase in demand for the Company's metallurgical-processing services in fiscal 1998. The gross profit margin remained constant at 18% in fiscal 1998 and 1997. The gross profit margin for laboratory-testing services increased in fiscal 1998 due to lower margins in fiscal 1997 as a result of costs incurred related to efforts to eliminate redundant capabilities at regional laboratories. Gross profit margins from environmental-liability management services decreased in fiscal 1998 primarily due to losses on certain remedial-construction contracts at IEM Sealand as a result of poorly bid and executed contracts, and an increase in lower-margin revenues at RETEC, offset in part by increased margins at Thermo EuroTech due to a shift to higher-margin contracts in fiscal 1998. Selling, general, and administrative expenses as a percentage of revenues remained constant at 14% in fiscal 1998 and 1997. During fiscal 1997, the Company recorded $7.8 million of nonrecurring costs to write down certain capital equipment and intangible assets, including cost in excess of net assets of acquired companies. The write-down was in response to a severe downturn in the Company's soil-recycling business, which resulted in the closure of two soil-remediation sites. In addition, the Company's analysis indicated that the future undiscounted cash flows from certain other soil- remediation sites that remained open would be insufficient to recover the Company's investment in these business units, thus requiring a write-down of certain assets, which is included in the $7.8 million charge. Interest income decreased to $4.2 million in fiscal 1998 from $7.3 million in fiscal 1997 as a result of lower average investment balances following the repayment of a $38.0 million promissory note to Thermo Electron, the repurchase of Company and subsidiary common stock, as well as cash expended for acquisitions. These decreases were offset in part by cash received from the sale of the Company's thermal-processing equipment business and Thermo Remediation's interest in a joint venture (Note 3). Interest expense decreased to $10.8 million in fiscal 1998 from $12.9 million in fiscal 1997, primarily due to the repayment of a promissory note to Thermo Electron and the conversion of the Company's 6 1/2% subordinated convertible debentures during fiscal 1998. The Company has adopted a strategy of spinning out certain of its businesses into separate subsidiaries and having these subsidiaries sell a minority interest to outside investors. The Company believes that this strategy provides additional motivation and incentives for the management 38 Fiscal 1998 Compared With Fiscal 1997 (continued) of the subsidiary through the establishment of subsidiary-level stock option incentive programs, as well as capital to support the subsidiaries' growth. As a result of the issuance of common stock by Thermo EuroTech in fiscal 1997, the Company recorded a gain of $1.5 million. This gain represents an increase in the Company's proportionate share of the subsidiary's equity and is classified as gain on issuance of stock by subsidiaries in the accompanying statement of operations. The size and timing of these transactions are dependent on market and other conditions that are beyond the Company's control. In addition, in October 1995, the Financial Accounting Standards Board (FASB) issued an exposure draft of a Proposed Statement of Financial Accounting Standards, "Consolidated Financial Statements: Policy and Procedures" (the Proposed Statement). The Proposed Statement would establish new rules for how consolidated financial statements should be prepared. If the Proposed Statement is adopted, there would be significant changes in the way the Company records certain transactions of its controlled subsidiaries. Among those changes, any sale of the stock of a subsidiary that does not result in a loss of control would be accounted for as a transaction in equity of the consolidated entity with no gain or loss being recorded. The exposure draft addresses the consolidation issues in two parts: consolidation procedures, which includes proposed rule changes affecting the Company's ability to recognize gains on issuances of subsidiary stock, and consolidation policy, which does not address accounting for such gains. During 1997, the FASB decided to focus its efforts on the consolidation policy part of the exposure draft and to consider resuming discussion on consolidation procedures after completion of the efforts on consolidation policy. The timing and content of any final statement are uncertain. Equity in earnings of unconsolidated subsidiary represents Thermo Remediation's proportionate share of income from a joint venture. "Gain on sale of businesses and assets, net" in fiscal 1998 primarily resulted from Thermo Remediation's sale of its interest in this joint venture (Note 3). "Loss on sale of businesses and assets, net" in fiscal 1997 represents a loss on the sale of Thermo EuroTech's J. Amerika division (Note 3). The effective tax rates in fiscal 1998 and 1997 exceeded the statutory federal income tax rate primarily due to the nondeductible amortization of cost in excess of net assets of acquired companies and the impact of state income taxes. The effective tax rate in fiscal 1997 was reduced by the effect of a nontaxable gain on issuance of stock by subsidiary. The Company recorded minority interest expense of $0.1 million in fiscal 1998, compared with minority interest income of $1.8 million in fiscal 1997, primarily due to higher earnings from the Company's majority-owned subsidiaries and the inclusion of minority interest expense associated with Randers (Note 3). The Company is currently assessing the potential impact of the year 2000 on the processing of date-sensitive information by the Company's computerized information systems as well as products purchased by the 39 Fiscal 1998 Compared With Fiscal 1997 (continued) Company. The Company believes that its internal information systems are either year 2000 compliant or will be so prior to the year 2000 without incurring material costs. There can be no assurance, however, that the Company will not experience unexpected costs and delays in achieving year 2000 compliance for its internal information systems, which could result in a material adverse effect on the Company's future results of operations. The Company is presently assessing whether its key suppliers are adequately addressing the year 2000 issue and the effect this might have on the Company. The Company has not completed its analysis and is unable to conclude at this time that the year 2000 problem as it relates to products purchased from key suppliers is not reasonably likely to have a material adverse effect on the Company's future results of operations. Fiscal 1997 Compared With Fiscal 1996 Total revenues increased 26% to $278.5 million in fiscal 1997 from $220.5 million in fiscal 1996. Revenues from environmental-liability management services increased to $126.8 million in fiscal 1997 from $77.0 million in fiscal 1996. Revenues at Thermo Remediation increased to $114.8 million in fiscal 1997 from $67.0 million in fiscal 1996, primarily due to the inclusion of $50.0 million of revenues from RETEC and IEM Sealand, acquired in December 1995 and September 1996, respectively. Revenues from soil-remediation services decreased 21% due to a severe downturn in this business, which resulted in a decline in the volume of soil processed due to overcapacity in the industry and competitive pricing pressures. Revenues from engineering and design services remained relatively unchanged at $74.8 million in fiscal 1997 and $74.0 million in fiscal 1996. The inclusion of $2.6 million of revenues from Carlan, acquired in November 1996, was offset by lower revenues from federal government contracts. Revenues from laboratory-testing services, excluding radiochemistry laboratory services included in environmental-liability management services, were $35.4 million in fiscal 1997 and $35.5 million in fiscal 1996. Metal-treating revenues increased to $44.3 million in fiscal 1997 from $35.8 million in fiscal 1996, primarily due to an increase in demand for thermal- processing equipment at existing businesses. The gross profit margin decreased to 18% in fiscal 1997 from 23% in fiscal 1996, primarily due to a decrease in gross profit margins from environmental-liability management services. The decline was due to lower margins on soil processed resulting from competitive pricing pressures, lower volumes of soil processed at the Company's traditionally higher-margin soil-remediation centers and, to a lesser extent, the inclusion of lower-margin revenues from RETEC and IEM Sealand. The decline in the Company's gross profit margin was also a result of a decrease in gross profit margins from laboratory-testing and engineering and design services due to costs incurred related to efforts to eliminate redundant capabilities at regional offices and increased competitive pricing pressures in the engineering and design services business. These decreases were offset in part by higher gross profit margins from 40 Fiscal 1997 Compared With Fiscal 1996 (continued) metal-treating products and services as a result of an increase in revenues. Selling, general, and administrative expenses as a percentage of revenues decreased to 14% in fiscal 1997 from 16% in fiscal 1996, primarily due to lower expenses as a percentage of revenues at acquired companies, lower expenses in fiscal 1997 at Thermo EuroTech due to the settlement of several contract disputes which caused higher expenses in fiscal 1996, and a decline in expenses due to the consolidation of administrative functions within the laboratory-testing services business. During fiscal 1997, the Company recorded $7.8 million of nonrecurring costs to write-down certain capital equipment and intangible assets, including cost in excess of net assets of acquired companies, due to the reasons described in the results of operations for fiscal 1998. Nonrecurring costs in fiscal 1996 represents the write-off of $5.0 million of cost in excess of net assets of acquired company related to the Company's thermal-processing equipment business. Interest income increased to $7.3 million in fiscal 1997 from $5.1 million in fiscal 1996, primarily as a result of interest income earned on invested proceeds from the Company's issuance of 4 5/8% subordinated convertible debentures in May 1996. Interest expense increased to $12.9 million in fiscal 1997 from $10.7 million in fiscal 1996, primarily due to the Company's issuance of 4 5/8% subordinated convertible debentures and Thermo Remediation's issuance of 4 7/8% subordinated convertible debentures in May 1995, offset in part by the repayment of promissory notes to Thermo Electron with proceeds from the Company's issuance of the 4 5/8% subordinated convertible debentures. As a result of the issuance of common stock by subsidiaries, the Company recorded gains of $1.5 million and $4.1 million in fiscal 1997 and 1996, respectively. During fiscal 1997 and 1996, Thermo EuroTech's J. Amerika division incurred operating losses as a result of intense competition in the removal and installation of underground storage tank and wastewater treatment businesses. During fiscal 1997, the Company sold this business unit and incurred a loss of $1.5 million on the sale. J. Amerika's revenues and operating loss were $4.0 million and $0.6 million, respectively, in fiscal 1997. During fiscal 1996, the Company sold the assets of an engineering office and wrote off an intangible asset of $0.6 million in connection with the sale (Note 3). Equity in earnings of unconsolidated subsidiary in fiscal 1997 represents RETEC's proportionate share of income from a joint venture (Notes 3 and 14). The effective tax rate in fiscal 1997 exceeded the statutory federal income tax rate primarily due to the nondeductible amortization and write-off of cost in excess of net assets of acquired companies and the impact of state income taxes, offset in part by the nontaxable gain on issuance of stock by subsidiary. The effective tax rate in fiscal 1996 exceeded the statutory federal income tax rate, primarily due to the nondeductible write-off of cost in excess of net assets of acquired company and the loss on sale of assets, offset in part by the nontaxable 41 Fiscal 1997 Compared With Fiscal 1996 (continued) gains on issuance of stock by subsidiaries and the reversal of previously established tax reserves of $0.8 million that were no longer required due to the completion of certain revenue agent reviews. The Company recorded minority interest income of $1.8 million in fiscal 1997, compared with minority interest expense of $1.2 million in fiscal 1996, due to losses incurred by the Company's majority-owned subsidiaries. Liquidity and Capital Resources Consolidated working capital was $69.3 million at April 4, 1998, compared with $77.3 million at March 29, 1997. Cash, cash equivalents, and available-for-sale investments were $36.7 million at April 4, 1998, compared with $81.6 million at March 29, 1997. Of the $36.7 million balance at April 4, 1998, $21.8 million was held by the Company's majority-owned subsidiaries, and the remainder was held by the Company and its wholly owned subsidiaries. In addition, at April 4, 1998, the Company had $13.9 million of short-term held-to-maturity investments, compared with $26.1 million of short- and long-term held-to-maturity investments at March 29, 1997. During fiscal 1998, $6.5 million of cash was provided by operating activities. The Company funded an increase of $11.2 million in accounts receivable during fiscal 1998, primarily due to delays in the pursuit of collections at certain business units of Thermo Remediation and, to a lesser extent, higher revenues at certain business units. Thermo Remediation expects to address this matter by increasing collection efforts over the next several quarters. In addition, accounts receivable increased in the engineering and design group primarily as a result of the timing of cash collections at Killam Associates. This use of cash was offset in part by a $5.5 million increase in accounts payable due to the timing of payments. Excluding available-for-sale and held-to-maturity investments activity, the Company's investing activities in fiscal 1998 primarily consisted of acquisitions and capital additions, as well as the sale of two businesses. During fiscal 1998, the Company and its subsidiaries made several acquisitions for an aggregate of $12.7 million in cash, net of cash acquired, and the issuance of shares of subsidiaries' common stock valued at $3.1 million. The Company expended $18.5 million for purchases of property, plant, and equipment in fiscal 1998. The Company expects to spend approximately $16.0 million for property, plant, and equipment in fiscal 1999. In October 1997, Thermo Remediation sold its 50% limited-liability interest in RETEC/TETRA L.C. for $8.8 million in cash and the Company sold substantially all of the assets of its Holcroft Division, excluding certain accounts receivable, for a total purchase price of $10.9 million in cash and $2.9 million of notes, plus the assumption by the purchaser of the Holcroft Division of certain liabilities (Note 3). In fiscal 1998, the Company's financing activities used cash of $53.7 million. This use of cash primarily resulted from the repayment of a $38.0 million promissory note to Thermo Electron, the repayment of a 42 Liquidity and Capital Resources (continued) $13.9 million note payable (Note 2), and the repurchase of Company and subsidiary common stock and subordinated convertible debentures. The Board of Directors of the Company authorized the repurchase of up to $10.0 million of its own securities. The Board of Directors of Thermo Remediation, through a series of actions commencing in September 1996, authorized the repurchase, through various dates ending in July 1998, of up to $15.0 million of its own securities. Through April 4, 1998, the Company and Thermo Remediation had expended $10.0 million and $11.4 million, respectively, under these authorizations, of which $3.3 million and $3.1 million, respectively, were expended in fiscal 1998. Any such purchases are funded from working capital. The Company expects to have positive cash flow from its existing operations. Although the Company does not presently intend to actively seek to acquire additional businesses in the near future, it may acquire one or more complimentary businesses if they are presented to the Company on terms the Company believes to be attractive. Such acquisitions may require significant amounts of cash. The Company expects that it will finance any such acquisitions through a combination of internal funds, additional debt or equity financing from the capital markets, or short-term borrowings from Thermo Electron, although it has no agreement with Thermo Electron to ensure that funds will be available on acceptable terms or at all. The Company believes that its existing resources are sufficient to meet the capital requirements of its existing businesses for the foreseeable future. 43 Thermo TerraTech Inc. 1998 Financial Statements Forward-looking Statements In connection with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, the Company wishes to caution readers that the following important factors, among others, in some cases have affected, and in the future could affect, the Company's actual results and could cause its actual results in fiscal 1999 and beyond to differ materially from those expressed in any forward-looking statements made by, or on behalf of, the Company. Dependence on Environmental Regulation. Federal, state, and local environmental laws govern each of the markets in which the Company conducts business, as well as many of the Company's operations. The markets for many of the Company's services, including industrial- remediation services, nuclear-remediation services, hazardous waste- remedial construction services, soil-remediation services, waste-fluids recycling services, engineering and design services, and laboratory services, and the standards governing most aspects of the construction and operation of the Company's facilities, were directly or indirectly created by, and are dependent on, the existence and enforcement of those laws. There can be no assurance that these laws and regulations will not change in the future, requiring new technologies or stricter standards with which the Company must comply. In addition, there can be no assurance that these laws and regulations will not be made more lenient in the future, thereby reducing the size of the markets addressed by the Company. Any such change in such federal, state, and local environmental laws and regulations may have a material adverse effect on the Company's business. Responsibility for establishing and enforcing certain federal policies, such as the federal underground storage tank policy, has been delegated to the states, which are not only required to establish regulatory programs, but also are permitted to mandate more stringent requirements than are otherwise required by federal law. Recently, certain states have adopted a "risk-based" approach to prioritizing site cleanups and setting cleanup standards, which attempts to balance the costs of remediation against the potential harm to human health and the environment from leaving sites unremediated. There can be no assurance that additional states will not adopt these policies or that these policies will not reduce the size of the potential market addressed by the Company. Potential Environmental and Regulatory Liability. The Company's operations are subject to comprehensive laws and regulations related to the protection of the environment. Among other things, these laws and regulations impose requirements to control air, soil, and water pollution, and regulate health, safety, zoning, land use, and the handling and transportation of hazardous and nonhazardous materials. Such laws and regulations also impose liability for remediation and cleanup of environmental contamination, both on-site and off-site, resulting from past and present operations. These requirements may also be imposed as conditions to operating permits or licenses that are subject to renewal, modification, or revocation. Existing laws and regulations, and new laws and regulations, may require the Company to modify, supplement, replace, or curtail its operating methods, facilities, or equipment at costs which 44 may be substantial without any corresponding increase in revenue. The Company is also potentially subject to monetary fines, penalties, remediation, cleanup or stop orders, injunctions, or orders to cease or suspend certain of its practices. The outcome of any proceedings and associated costs and expenses could have a material adverse impact on the Company's business. In addition, the Company is subject to numerous laws and regulations related to the protection of human health and safety. Such laws and regulations may pose liability on the Company for exposure of its employees to radiation or other hazardous contamination or failure to isolate and remove radioactive or other hazardous contaminants from soil. The Company endeavors to operate its business to minimize its exposure to environmental and other regulatory liabilities. Although no claims giving rise to such liabilities have been asserted by the Company's customers or employees to date, there can be no assurance that such claims cannot or will not be asserted against the Company. Uncertainty of Funding. Remediation compliance requirements and attendant costs are often beyond the financial capabilities of individuals and small companies. To address this problem, some states have established tax-supported trust funds to assist in the financing of compliance and site remediation. As a consequence, in many of the states in which the Company markets its soil remediation services, the majority, and in some cases virtually all, of the soil remediated by the Company is paid for by large companies and/or these state trust funds. Any substantial decrease in this funding could have a material adverse effect on the Company's business and financial performance. Many states have realized that the number of sites requiring remediation and the costs of compliance are substantially higher than were originally estimated. As a result, several states have relaxed enforcement activities and others have reduced compliance requirements in order to reduce the costs of cleanup. These factors have already resulted in lower levels of cleanup activity in some states and have had a material adverse effect on the Company's business. Continued de-emphasis on enforcement activities and/or further reductions in compliance requirements will have an even more severe adverse effect on the Company's business. The Company depends on funding from the federal and state governments, and their agencies and instrumentalities, for compensation for its services. For example, Thermo Remediation's nuclear-remediation business provides a large portion of its services directly or indirectly to the U.S. Department of Energy (DOE) and the Company's engineering and design businesses perform significant amounts of services for state and municipal governments. Thermo NUtech has experienced a decrease in its radiochemistry laboratory work as a result of ongoing reductions in spending at the DOE as well as a shift in DOE spending from investigative work to cleanup work. Continued declines in spending by DOE and other governmental agencies could have a material adverse effect on the Company's business. Competition. The markets for many of the Company's services are regional and are characterized by intense competition from numerous local competitors. Some of the Company's competitors have greater technical and 45 financial resources than those of the Company. As a result, they may be able to adapt more quickly to new or emerging technologies and changes in customer requirements, or to devote greater resources to the promotion and sale of their services than the Company. Competition could increase if new companies enter the market or its existing competitors expand their service lines. There can be no assurance that the Company's current technology, technology under development, or ability to develop new technologies will be sufficient to enable it to compete effectively with its competitors. Seasonal Influences. A majority of the Company's businesses experience seasonal fluctuations. A majority of the Company's soil-remediation sites, as well as the Company's fluids-recycling sites, experience declines in severe weather conditions. Site remediation work and certain environmental-testing services, such as the services provided by Lancaster Laboratories, RETEC, Randers, IEM Sealand, and Thermo NUtech, may decline in winter months as a result of severe weather conditions. In Europe, Thermo EuroTech may experience a decline in the feedstock delivered to its facilities during winter months, due to frozen waterways. Possible Obsolescence Due to Technological Change. Technological developments are expected to continue at a rapid pace in the environmental services industry. The Company's technologies could be rendered obsolete or uneconomical by technological advances by one or more companies that address the Company's markets or by future entrants into the industry. There can be no assurance that the Company would have the resources to, or otherwise would be successful in, developing responses to technological advances by others. Dependence of Thermo EuroTech on Availability of Waste Oil Supplies. Thermo EuroTech's North Refinery facility has historically received a large percentage of its oil feedstock from the former Soviet Union. North Refinery no longer receives any oil from that nation, due to political and economic changes that have made the transportation of waste oil difficult. To overcome this loss of supply, North Refinery has taken steps to replace and diversify its feedstock suppliers. No assurance can be given, however, that North Refinery will not experience future disruptions in deliveries. Any such disruptions could have a material adverse effect on the Company's results of operations. Potential Professional Liability. The Company's business exposes it to potential liability for the negligent performance of its services, and the Company could face substantial liability to clients and third parties for damages resulting from faulty designs or other professional services. The Company currently maintains professional errors and omissions insurance, but there can be no assurance that this insurance will provide sufficient coverage in the event of a claim, that the Company will be able to maintain such coverage on acceptable terms, if at all, or that a professional liability claim would not result in a material adverse effect on the Company's business, financial condition, and results of operations. 46 Dependence on Sales to Government Entities. A significant portion of the Company's revenues is derived from municipalities, state governments, and government utility authorities. Any decreases in purchases by these entities, including, without limitation, decreases resulting from shifts in priorities or overall budgeting limitations, could have a material adverse effect on the Company's business, financial condition, and results of operations. In addition, most of the Company's contracts require the Company to perform specific services for a fixed fee. Contracts with governmental entities often permit the purchaser to cancel the agreement at any time. A significant overrun in the Company's expenses or cancellation of a significant contract could also result in a material adverse effect on the Company's business, financial condition, and results of operations. The Company's contracts with governmental entities are also subject to other risks, including contract suspensions; protests by disappointed bidders of contract awards, which can result in the re-opening of the bidding process; and changes in government policies or regulations. Risks Associated with Acquisition Strategy. The Company's strategy includes the acquisition of businesses that complement or augment the Company's existing services. The Company does not presently intend to actively seek to make additional acquisitions in the near future, and expects instead to concentrate its resources on strengthening its core businesses. The Company may, however, acquire one or more additional businesses if they are presented to the Company on terms the Company believes to be attractive. Promising acquisitions are difficult to identify and complete for a number of reasons, including competition among prospective buyers and the need for regulatory approvals. Any acquisitions completed by the Company may be made at substantial premiums over the fair value of the net assets of the acquired companies. There can be no assurance that the Company will be able to complete future acquisitions or that the Company will be able to successfully integrate any acquired businesses. In order to finance such acquisitions, it may be necessary for the Company to raise additional funds through public or private financings. Any equity or debt financing, if available at all, may be on terms that are not favorable to the Company and, in the case of equity financing, may result in dilution to the Company's shareholders. Risks Associated with Spin-out of Subsidiaries. The Company has adopted a strategy of spinning out certain of its businesses into separate subsidiaries and having these subsidiaries sell a minority interest to outside investors. As a result of the sale of stock by subsidiaries, the issuance of stock by subsidiaries upon conversion of convertible debentures and similar transactions, the Company records gains that represent the increase in the Company's net investment in the subsidiaries. These gains have represented a substantial portion of the net income reported by the Company in certain periods. The size and timing of these transactions are dependent on market and other conditions that are beyond the Company's control. Accordingly, there can be no assurance that the Company will be able to generate gains from such transactions in the future. 47 In addition, in October 1995, the Financial Accounting Standards Board (FASB) issued an exposure draft of a Proposed Statement of Financial Accounting Standards, "Consolidated Financial Statements: Policy and Procedures" (the Proposed Statement). The Proposed Statement would establish new rules for how consolidated financial statements should be prepared. If the Proposed Statement is adopted, there would be significant changes in the way the Company records certain transactions of its controlled subsidiaries. Among those changes, any sale of the stock of a subsidiary that does not result in a loss of control would be accounted for as a transaction in equity of the consolidated entity with no gain or loss being recorded. The exposure draft addresses the consolidation issues in two parts: consolidation procedures, which includes proposed rule changes affecting the Company's ability to recognize gains on issuances of subsidiary stock, and consolidation policy, which does not address accounting for such gains. During 1997, the FASB decided to focus its efforts on the consolidation policy part of the exposure draft and to consider resuming discussion on consolidation procedures after completion of the efforts on consolidation policy. The timing and content of any final statement are uncertain. No Assurance of Development and Commercialization of Technology Under Development. The Company is currently engaged in the development of several technologies that may ultimately be commercialized to provide services to customers. There are a number of technological challenges that the Company must successfully address to complete any of its development efforts. Technology development involves a high degree of risk, and returns to investors are dependent upon successful development and commercialization of such technology. There can be no assurance that any of the technologies currently being developed by the Company, or those to be developed in the future by the Company, will be technologically feasible or accepted by the marketplace, or that any such development will be completed in any particular timeframe. Potential Impact of Year 2000 on Processing Date-sensitive Information. The Company is currently assessing the potential impact of the year 2000 on the processing of date-sensitive information by the Company's computerized information systems as well as products purchased by the Company. The Company believes that its internal information systems are either year 2000 compliant or will be so prior to the year 2000 without incurring material costs. There can be no assurance, however, that the Company will not experience unexpected costs and delays in achieving year 2000 compliance for its internal information systems, which could result in a material adverse effect on the Company's future results of operations. The Company is presently assessing whether its key suppliers are adequately addressing the year 2000 issue and the effect this might have on the Company. The Company has not completed its analysis and is unable to conclude at this time that the year 2000 problem as it relates to products purchased from key suppliers is not reasonably likely to have a material adverse effect on the Company's future results of operations. 48 Thermo TerraTech Inc. 1998 Financial Statements Selected Financial Information (In thousands except per share amounts) 1998(a) 1997(b) 1996(c) 1995(d) 1994(e) - ----------------------------------------------------------------------------- Statement of Operations Data: Revenues $298,786 $278,503 $220,484 $136,985 $112,865 Income (Loss) Before Cumulative Effect of Change in Accounting Principle 3,273 (162) 3,447 4,476 3,507 Net Income (Loss) 3,273 (162) 3,447 4,476 4,007 Basic and Diluted Earnings (Loss) per Share Before Cumulative Effect of Change in Accounting Principle .18 (.01) .20 .26 .21 Earnings (Loss) per Share: Basic .18 (.01) .20 .26 .24 Diluted .17 (.01) .18 .26 .24 Balance Sheet Data: Working Capital $ 69,319 $ 77,315 $ 66,008 $ 63,459 $50,310 Total Assets 360,526 393,784 333,656 273,298 157,161 Long-term Obligations 153,144 165,186 155,384 96,851 18,732 Shareholders' Investment 97,130 83,526 85,870 77,217 62,239 - -------------------- (a) Reflects a pre-tax gain of $3.0 million from Thermo Remediation's sale of its investment in a joint venture. (b) Reflects $7.8 million of nonrecurring costs and a loss $1.5 million relating to the sale of the Company's J. Amerika division. Also reflects the issuance of $115.0 million principal amount of 4 7/8% subordinated convertible debentures, and a gain on issuance of stock by subsidiary of $1.5 million. (c) Reflects the acquisition of Lancaster Laboratories in May 1995, the purchase of the businesses formerly operated by the environmental services joint venture from Thermo Instrument, and the issuance of a $35.0 million promissory note to Thermo Electron to fund the purchase. Reflects Thermo Remediation's acquisition of RETEC in December 1995, the issuance of $38.0 million principal amount of 4 7/8% subordinated convertible debentures by Thermo Remediation, and a gain on issuance of stock by subsidiaries of $4.1 million. Also reflects the write-off of goodwill of $5.0 million and a loss on the sale of assets of $0.6 million. (d) Reflects the acquisitions of RMC Environmental Services, Inc. in August 1994 and Killam Associates in February 1995, and the issuance of $53.0 million of long-term promissory notes to Thermo Electron. Also reflects Thermo EuroTech's acquisition of North Refinery in March 1995. (e) Reflects the adoption of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." 49 Thermo TerraTech Inc. 1998 Financial Statements Common Stock Market Information The Company's common stock is traded on the American Stock Exchange under the symbol TTT. The following table sets forth the high and low sales prices of the Company's common stock for fiscal 1998 and 1997, as reported in the consolidated transaction reporting system. 1998 1997 -------------------- ---------------------- Quarter High Low High Low - --------------------------------------------------------------------------- First $11 1/8 $8 1/8 $14 3/8 $11 3/4 Second 12 1/16 9 7/8 12 3/8 10 1/4 Third 9 15/16 8 10 7/8 9 3/16 Fourth 8 3/16 6 5/8 9 7/8 8 3/4 As of May 29, 1998, the Company had 955 holders of record of its common stock. This does not include holdings in street or nominee names. The closing market price on the American Stock Exchange for the Company's common stock on May 29, 1998, was $4 3/4 per share. Common stock of Thermo Remediation Inc. and The Randers Group Incorporated, the Company's majority-owned public subsidiaries, are traded on the American Stock Exchange (symbol THN) and the American Stock Exchange's Emerging Company Marketplace (symbol RGI), respectively. Shareholder Services Shareholders of Thermo TerraTech Inc. who desire information about the Company are invited to contact John N. Hatsopoulos, Chief Financial Officer, Thermo TerraTech Inc., 81 Wyman Street, P.O. Box 9046, Waltham, Massachusetts 02254-9046, (781) 622-1111. A mailing list is maintained to enable shareholders whose stock is held in street name, and other interested individuals, to receive quarterly reports, annual reports, and press releases as quickly as possible. Distribution of printed quarterly reports is limited to the second quarter only. All material will be available from Thermo Electron's Internet site (http://www.thermo.com/subsid/ttt1.html). Stock Transfer Agent American Stock Transfer & Trust Company is the stock transfer agent and maintains shareholder activity records. The agent will respond to questions on issuance of stock certificates, change of ownership, lost stock certificates, and change of address. For these and similar matters, please direct inquiries to: American Stock Transfer & Trust Company Shareholder Services Department 40 Wall Street, 46th Floor New York, New York 10005 (718) 921-8200 50 Dividend Policy The Company has never paid cash dividends and does not expect to pay cash dividends in the foreseeable future because its policy has been to use earnings to finance expansion and growth. Payment of dividends will rest within the discretion of the Company's Board of Directors and will depend upon, among other factors, the Company's earnings, capital requirements, and financial condition. Form 10-K Report A copy of the Annual Report on Form 10-K for the fiscal year ended April 4, 1998, as filed with the Securities and Exchange Commission, may be obtained at no charge by writing to John N. Hatsopoulos, Chief Financial Officer, Thermo TerraTech Inc., 81 Wyman Street, P.O. Box 9046, Waltham, Massachusetts 02254-9046. Annual Meeting The annual meeting of shareholders will be held on Tuesday, September 15, 1998, at 3:00 p.m. at Thermo Electron Corporation, 81 Wyman Street, Waltham, Massachusetts. 51 EX-21 5 Exhibit 21 THERMO TERRATECH INC. Subsidiaries of the Registrant As of May 29, 1998, Thermo TerraTech Inc. owned the following companies: STATE OR JURISDICTION PERCENT NAME OF OF INCORPORATION OWNERSHIP Thermo TerraTech Inc. Delaware 81.58 Holcroft (Canada) Limited Canada 100 Holcroft Corporation Delaware 100 Holcroft GmbH Germany 100 Metallurgical, Inc. Minnesota 100 Cal-Doran Metallurgical Services, Inc. California 100 Metal Treating Inc. Wisconsin 100 Normandeau Associates, Inc. New 100 Hampshire TMA/Hanford, Inc. Washington 100 The Randers Group Incorporated Delaware 53.3 (additionally, 1.03% of the shares are owned directly by Thermo Electron Corporation) Clark-Trombley Consulting Engineers, Inc. Michigan 100 Randers Engineering, Inc. Michigan 100 Randers Engineering of Massachusetts, Michigan 100 Inc. Randers Group Property Corporation Michigan 100 Redeco Incorporated Michigan 100 Viridian Technology Incorporated Michigan 100 The Killam Group, Inc. Delaware 100 CarlanKillam Consulting Group, Inc. Florida 100 CarlanKillam Consulting Group of Alabama 100 Alabama, Inc. Thermo Consulting & Design Inc. Delaware 100 Engineering Technology and Delaware 100 Knowledge Corporation Elson T. Killam Associates, Inc. New Jersey 100 BAC Killam Inc. New York 100 N.H. Bettigole Co., Inc. Delaware 100 N.H. Bettigole P.A. New Jersey 100 N.H. Bettigole P.C. New York 100 CarlanKillam Construction Florida 100 Services, Inc. Duncan, Lagnese and Pennsylvania 100 Associates, Incorporated E3-Killam, Inc. New York 100 Killam Associates, Inc. Ohio 100 Killam Management and New Jersey 100 Operational Services, Inc. Fellows, Read & Associates, Inc. New Jersey 100 Killam Associates, New England Inc. Delaware 100 George A. Schock & Associates, New Jersey 100 Inc. Jennison Engineering, Inc. Vermont 100 Thermo Analytical Inc. Delaware 100 Skinner & Sherman, Inc. Massachusetts 100 Thermo EuroTech N.V. Netherlands 56.25 (additionally, 4.58% of the share are owned directly by The Thermo Electron Companies Inc.) Thermo EuroTech Ireland Ltd. Ireland 100 Green Sunrise Holdings Ltd. Ireland 70 AutoRod Ltd. Ireland 100 Green Sunrise Industries Ltd. Ireland 100 GreenStar Recycling Ltd. Ireland 100 Pipe & Drain Services Ltd. Ireland 100 GreenStar Products Ltd. Ireland 70 Grond- & Watersaneringstechniek Netherlands 100 Nederland B.V. Refining & Trading Holland B.V. Netherlands 100 Thermo Remediation Inc. Delaware 68.53 (additionally, 1.50% of the shares are owned directly by The Thermo Electron Companies Inc.) Benchmark Environmental Corporation New Mexico 100 Eberline Holdings Inc. Delaware 100 Eberline Analytical Corporation New Mexico 100 Thermo Hanford Inc. Delaware 100 TMA/NORCAL Inc. California 100 IEM Sealand Corporation Virginia 100 RPM Systems, Inc. Connecticut 100 Remediation Technologies, Inc. Delaware 100 GeoWest Golden Inc. Colorado 100 GeoWest TriTechnics of Ohio, LLC Colorado 100 RETEC Thermal, Inc. Delaware 100 Thermo Fluids Inc. Delaware 100 TPS Technologies Inc. Florida 100 TPST Soil Recyclers of California Inc. California 100 California Hydrocarbon, Inc. Nevada 100 TPST Soil Recyclers of Maryland Inc. Maryland 100 Todds Lane Limited Partnership Maryland 100* (1% of which is owned directly by TPS Technologies Inc.) TPST Soil Recyclers of New York Inc. New York 100 TPST Soil Recyclers of Oregon Inc. Oregon 100 TPST Soil Recyclers of South Carolina Delaware 100 Inc. TPST Soil Recyclers of Virginia Inc. Delaware 100 TPST Soil Recyclers of Washington Inc. Washington 100 TRUtech L.L.C. Delaware 47.5* EX-23 6 EXHIBIT 23 Consent of Independent Public Accountants As independent public accountants, we hereby consent to the incorporation by reference of our reports dated May 12, 1998, included in or incorporated by reference into Thermo TerraTech Inc.'s Annual Report on Form 10-K for the year ended April 4, 1998, and into the Company's previously filed Registration Statements as follows: Registration Statement No. 333-02269 on Form S-2, Registration Statement No. 33-16462 on Form S-8, Registration Statement No. 33-16464 on Form S-8, Registration Statement No. 33-16465 on Form S-8, Registration Statement No. 33-16466 on Form S-8, Registration Statement No. 333-2055 on Form S-3, Registration Statement No. 33-52824 on Form S-8, Registration Statement No. 033-65307 on Form S-8, Registration Statement No. 033-65283 on Form S-8, Registration Statement No. 033-65281 on Form S-8, Registration Statement No. 33-86194 on Form S-8, and Registration Statement No. 333-05263 on Form S-3. Arthur Andersen LLP Boston, Massachusetts June 26, 1998 EX-27.1 7
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO TERRATECH INC.'S ANNUAL REPORT ON FORM 10-K FOR THE PERIOD ENDED APRIL 4,1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR APR-04-1998 APR-04-1998 34,711 15,942 64,500 4,450 1,498 142,782 142,368 50,659 360,526 73,463 153,144 0 0 1,958 95,172 360,526 17,330 298,786 14,735 245,111 1,148 4,450 10,778 8,514 5,146 3,273 0 0 0 3,273 0.18 0.17
EX-27.2 8
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO TERRATECH INC.'S ANNUAL REPORT ON FORM 10-K FOR THE PERIOD ENDED MARCH 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR MAR-30-1996 MAR-30-1996 31,182 7,004 47,258 2,861 3,883 121,577 126,129 43,173 333,656 55,569 82,384 0 0 1,760 84,110 333,656 19,670 220,484 17,001 169,452 6,081 85 10,730 8,314 3,644 3,447 0 0 0 3,447 0.20 0.18
EX-27.3 9
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO TERRATECH INC.'S ANNUAL REPORT ON FORM 10-K FOR THE PERIOD ENDED JUNE 29, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR MAR-29-1997 JUN-29-1996 71,184 28,254 47,919 2,917 27,835 185,527 129,454 44,845 402,569 79,100 192,983 0 0 1,807 91,116 402,569 5,752 67,618 4,718 54,526 299 0 1,052 3,194 1,514 1,458 0 0 0 1,458 0.08 0.08
EX-27.4 10
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO TERRATECH INC.'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 28, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS MAR-29-1997 SEP-28-1996 68,733 28,426 53,855 3,022 3,425 189,590 132,766 46,767 410,635 85,797 191,671 0 0 1,828 90,325 410,635 11,900 134,887 9,620 109,092 574 388 6,570 4,940 1,721 2,908 0 0 0 2,908 .16 .15
EX-27.5 11
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO TERRATECH INC.'S QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED DECEMBER 28, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS MAR-29-1997 DEC-28-1996 60,350 23,308 56,622 3,079 2,937 180,156 136,679 48,830 405,160 82,821 192,678 0 0 1,830 89,149 405,160 19,181 210,585 15,837 171,277 813 490 9,660 7,271 3,042 3,810 0 0 0 3,810 .21 .20
EX-27.6 12
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMO TERRATECH INC.'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 28, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS APR-04-1998 JUN-28-1997 11,309 34,664 56,851 3,613 2,447 155,046 135,422 48,903 357,459 87,249 152,994 0 0 1,830 79,445 357,459 7,409 72,519 6,131 57,951 222 (49) 3,133 3,000 1,399 1,332 0 0 0 1,332 .08 .07
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