Exhibit 13
THERMO TERRATECH INC.
Consolidated Financial Statements
Fiscal 1997
PAGE
Thermo TerraTech Inc. 1997 Financial Statements
Consolidated Statement of Operations
Year Ended
-------------------------------
March 29, March 30, April 1,
(In thousands except per share amounts) 1997 1996 1995
------------------------------------------------------------------------
Revenues (Note 12):
Service revenues $251,384 $200,814 $122,604
Product revenues 27,119 19,670 14,381
-------- -------- --------
278,503 220,484 136,985
-------- -------- --------
Costs and Operating Expenses:
Cost of service revenues 207,403 152,451 91,419
Cost of product revenues 22,677 17,001 11,982
Selling, general, and administrative
expenses (Note 8) 35,466 34,747 23,988
Product and new business development
expenses 1,046 1,086 883
Nonrecurring costs (Note 13) 7,800 4,995 -
-------- -------- --------
274,392 210,280 128,272
-------- -------- --------
Operating Income 4,111 10,204 8,713
Interest Income 7,253 5,102 3,322
Interest Expense (includes $2,492
$5,464, and $1,071 to parent company) (12,914) (10,730) (2,855)
Gain on Issuance of Stock by
Subsidiaries (Note 10) 1,475 4,127 1,343
Loss on Sale of Assets (Note 13) (1,482) (569) -
Equity in Earnings of Unconsolidated
Subsidiary (Note 14) 865 - -
Gain on Sale of Investments, Net
(includes $1,089 on sale of related-
party debentures in fiscal 1995) 195 180 1,092
Other Income 206 - -
-------- -------- --------
Income (Loss) Before Income Taxes and
Minority Interest (291) 8,314 11,615
Income Tax Provision (Note 5) (1,705) (3,644) (2,871)
Minority Interest Income (Expense) 1,834 (1,223) (4,268)
-------- -------- --------
Net Income (Loss) $ (162) $ 3,447 $ 4,476
======== ======== ========
Earnings (Loss) per Share $ (.01) $ .19 $ .26
======== ======== ========
Weighted Average Shares 18,090 18,237 17,143
======== ======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
2PAGE
Thermo TerraTech Inc. 1997 Financial Statements
Consolidated Balance Sheet
March 29, March 30,
(In thousands) 1997 1996
------------------------------------------------------------------------
Assets
Current Assets:
Cash and cash equivalents $ 63,172 $ 31,182
Short-term available-for-sale investments,
at quoted market value (amortized cost of
$18,380 and $7,007; Note 2) 18,391 7,004
Short-term held-to-maturity investments, at
amortized cost (quoted market value of
$13,238; Note 2) 12,971 -
Accounts receivable, less allowances of
$3,838 and $2,861 49,191 44,397
Unbilled contract costs and fees 29,053 21,113
Inventories 3,021 3,883
Prepaid and refundable income taxes (Note 5) 7,369 9,556
Prepaid expenses 3,870 4,442
-------- --------
187,038 121,577
-------- --------
Property, Plant, and Equipment, at Cost, Net 83,566 82,956
-------- --------
Long-term Available-for-sale Investments, at
Quoted Market Value (amortized cost of
$2,108 in fiscal 1996; Note 2) - 2,098
-------- --------
Long-term Held-to-maturity Investments, at
Amortized Cost (quoted market value of
$13,142 and $24,963; Note 2) 13,086 24,251
-------- --------
Other Assets 17,308 12,931
-------- --------
Cost in Excess of Net Assets of Acquired
Companies (Notes 3 and 13) 92,786 89,843
-------- --------
$393,784 $333,656
======== ========
3PAGE
Thermo TerraTech Inc. 1997 Financial Statements
Consolidated Balance Sheet (continued)
March 29, March 30,
(In thousands except share amounts) 1997 1996
------------------------------------------------------------------------
Liabilities and Shareholders' Investment
Current Liabilities:
Accounts payable $ 12,292 $ 10,922
Notes payable and current maturities of
long-term obligations (includes $38,000 and
$15,000 due to parent company; Notes 3 and 6) 67,495 19,711
Billings in excess of revenues earned 4,319 2,076
Accrued payroll and employee benefits 12,182 9,930
Other accrued expenses (Note 3) 10,509 7,871
Due to parent company 2,926 5,059
-------- --------
109,723 55,569
-------- --------
Deferred Income Taxes (Note 5) 5,297 3,558
-------- --------
Other Deferred Items 893 980
-------- --------
Long-term Obligations (Notes 6 and 11):
Subordinated convertible debentures 149,800 56,132
Other (includes $73,000 due to parent company
in fiscal 1996; Note 3) 15,386 99,252
-------- --------
165,186 155,384
-------- --------
Minority Interest 29,159 32,295
-------- --------
Commitments and Contingencies (Note 7)
Shareholders' Investment (Notes 4 and 9):
Common stock, $.10 par value, 75,000,000 shares
authorized; 18,304,424 and 17,598,013 shares
issued 1,830 1,760
Capital in excess of par value 62,610 59,419
Retained earnings 24,046 24,474
Treasury stock at cost, 417,696 and 34,531
shares (3,941) (410)
Cumulative translation adjustment (1,026) 635
Net unrealized gain (loss) on available-for-sale
investments (Note 2) 7 (8)
-------- --------
83,526 85,870
-------- --------
$393,784 $333,656
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
4PAGE
Thermo TerraTech Inc. 1997 Financial Statements
Consolidated Statement of Cash Flows
Year Ended
-------------------------------
March 29, March 30, April 1,
(In thousands) 1997 1996 1995
------------------------------------------------------------------------
Operating Activities:
Net income (loss) $ (162) $ 3,447 $ 4,476
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 12,900 11,005 6,795
Nonrecurring costs (Note 13) 7,800 4,995 -
Loss on sale of assets (Note 13) 1,482 569 -
Equity in earnings of
unconsolidated subsidiary
(Note 14) (865) - -
Minority interest (income) expense (1,834) 1,223 4,268
Provision for losses on accounts
receivable 625 85 162
Other noncash expenses 625 1,517 1,633
Decrease in deferred income taxes (43) (648) (8)
Gain on issuance of stock by
subsidiaries (Note 10) (1,475) (4,127) (1,343)
Gain on sale of investments (195) (180) (1,092)
Changes in current accounts,
excluding the effects of
acquisitions:
Accounts receivable (6,818) 1,313 (1,615)
Inventories and unbilled
contract costs and fees (7,784) (5,411) (1,752)
Other current assets 403 387 300
Accounts payable 895 (3,277) 970
Current liabilities 3,399 (1,826) (4,942)
-------- -------- --------
Net cash provided by operating activities 8,953 9,072 7,852
-------- -------- --------
Investing Activities:
Acquisitions, net of cash acquired
(Note 3) (5,156) (43,824) (38,188)
Purchase of minority interest in Thermo
Terra Tech joint venture (Note 3) - (34,267) -
Proceeds from sale and maturities of
available-for-sale investments 29,822 37,795 19,252
Purchases of available-for-sale
investments (38,913) (30,864) -
Purchases of held-to-maturity
investments - - (22,300)
Purchases of property, plant, and
equipment (15,426) (16,779) (7,116)
Proceeds from sale of division
(Note 13) 347 - -
Purchases of other assets (450) (1,090) -
Other 1,356 426 (336)
-------- -------- --------
Net cash used in investing activities $(28,420) $(88,603) $(48,688)
-------- -------- --------
5PAGE
Thermo TerraTech Inc. 1997 Financial Statements
Consolidated Statement of Cash Flows (continued)
Year Ended
-------------------------------
March 29, March 30, April 1,
(In thousands) 1997 1996 1995
------------------------------------------------------------------------
Financing Activities:
Net proceeds from issuance of
subordinated convertible
debentures (Note 6) $112,398 $ 36,889 $ -
Issuance of notes payable to parent
company (Notes 3 and 6) - 35,000 57,000
Repayment of notes payable to parent
company (Notes 3 and 6) (50,000) (4,000) -
Proceeds from issuance of Company and
subsidiaries' common stock and
warrants (Note 10) 5,346 7,662 3,903
Purchase of Company and subsidiary
common stock and subordinated
convertible debentures (14,984) - -
Issuance of note receivable - (653) (700)
Issuance of short-term obligations 803 2,178 -
Repayment of note payable (736) (688) -
Dividends paid by subsidiary to
minority shareholders (847) (810) (685)
Metal Treating, Inc. transfer of cash
to parent company (Note 3) (266) (316) (425)
Other - 63 (124)
-------- -------- --------
Net cash provided by financing activities 51,714 75,325 58,969
-------- -------- --------
Exchange Rate Effect on Cash (257) (420) 1,699
-------- -------- --------
Increase (Decrease) in Cash and Cash
Equivalents 31,990 (4,626) 19,832
Cash and Cash Equivalents at Beginning
of Year 31,182 35,808 15,976
-------- -------- --------
Cash and Cash Equivalents at End of Year $ 63,172 $ 31,182 $ 35,808
======== ======== ========
See Note 15 for supplemental cash flow information.
The accompanying notes are an integral part of these consolidated
financial statements.
6PAGE
Thermo TerraTech Inc. 1997 Financial Statements
Consolidated Statement of Shareholders' Investment
Year Ended
-------------------------------
March 29, March 30, April 1,
(In thousands) 1997 1996 1995
-----------------------------------------------------------------------
Common Stock, $.10 Par Value
Balance at beginning of year $ 1,760 $ 1,741 $ 1,725
Issuance of stock under employees'
and directors' stock plans 24 15 16
Conversions of subordinated
convertible debentures (Note 6) 46 4 -
------- ------- -------
Balance at end of year 1,830 1,760 1,741
------- ------- -------
Capital in Excess of Par Value
Balance at beginning of year 59,419 53,559 46,456
Issuance of stock under employees'
and directors' stock plans 264 268 582
Tax benefit related to employees'
and directors' stock plans 461 585 1,249
Conversions of subordinated
convertible debentures (Note 6) 4,766 351 -
Issuance of stock for acquired company - - (1,326)
Issuance of Company stock options for
acquired company (Note 3) - - 6,923
Effect of majority-owned subsidiaries'
equity transactions (2,300) 4,656 (325)
------- ------- -------
Balance at end of year 62,610 59,419 53,559
------- ------- -------
Retained Earnings
Balance at beginning of year 24,474 21,343 17,292
Net income (loss) (162) 3,447 4,476
Metal Treating, Inc. transfer of cash
to parent company (Note 3) (266) (316) (425)
------- ------- -------
Balance at end of year 24,046 24,474 21,343
------- ------- -------
Treasury Stock
Balance at beginning of year (410) (864) (2,911)
Activity under employees' and
directors' stock plans 260 454 (119)
Issuance of stock for acquired company - - 2,166
Purchases of Company common stock (3,791) -
------- ------- -------
Balance at end of year $(3,941) $ (410) $ (864)
------- ------- -------
7PAGE
Thermo TerraTech Inc. 1997 Financial Statements
Consolidated Statement of Shareholders' Investment (continued)
Year Ended
-------------------------------
March 29, March 30, April 1,
(In thousands) 1997 1996 1995
-----------------------------------------------------------------------
Cumulative Translation Adjustment
Balance at beginning of year $ 635 $ 1,526 $ (669)
Translation adjustment (1,661) (891) 2,195
------- ------- -------
Balance at end of year (1,026) 635 1,526
------- ------- -------
Net Unrealized Gain (Loss) on Available-
for-sale Investments
Balance at beginning of year (8) (88) 346
Change in net unrealized gain (loss)
on available-for-sale investments
(Note 2) 15 80 (434)
------- ------- -------
Balance at end of year 7 (8) (88)
------- ------- -------
Total Shareholders' Investment $83,526 $85,870 $77,217
======= ======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
8PAGE
Thermo TerraTech Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations
Thermo TerraTech Inc. (the Company) provides environmental services
and infrastructure planning and design encompassing a broad range of
specializations, including remediation of soil and fluids, consulting and
design, laboratory-testing, and metal treating.
Relationship with Thermo Electron Corporation
The Company was incorporated on May 30, 1986, as an indirect, wholly
owned subsidiary of Thermo Electron Corporation (Thermo Electron). As of
March 29, 1997, Thermo Electron owned 14,705,658 shares of the Company's
common stock, representing 82% of such stock outstanding.
Principles of Consolidation
The accompanying financial statements include the accounts of the
Company and its majority- and wholly owned subsidiaries. All material
intercompany accounts and transactions have been eliminated.
Majority-owned subsidiaries include Thermo Remediation Inc. (Thermo
Remediation), a publicly held subsidiary, and Thermo EuroTech N.V.
(Thermo EuroTech), a privately held subsidiary. The Company accounts for
its investment in a business in which it owns 50% using the equity
method.
Presentation
Historical financial results have been restated to include Metal
Treating, Inc. (Metal Treating), acquired from Thermo Electron in October
1996 in a transaction accounted for at historical cost in a manner
similar to a pooling-of-interests (Note 3). Certain amounts in fiscal
1996 and 1995 have been reclassified to conform to the fiscal 1997
financial statement presentation. Certain of these reclassifications are
required to present consistent classification of expenses within the
Company's consulting and design services business.
Fiscal Year
The Company has adopted a fiscal year ending the Saturday nearest
March 31. References to fiscal 1997, 1996, and 1995 are for the fiscal
years ended March 29, 1997, March 30, 1996, and April 1, 1995,
respectively.
Revenue Recognition
For the majority of its operations, the Company recognizes revenues
upon completion of services it renders. Revenues from soil-remediation
services are recognized as soil is processed. With respect to
soil-remediation services, the Company bills customers upon receipt of
the contaminated soil at its remediation centers. Amounts billed in
excess of revenues recognized are classified as billings in excess of
revenues earned in the accompanying balance sheet.
Revenues and profits on substantially all contracts are recognized
using the percentage-of-completion method. Revenues recorded under the
percentage-of-completion method were $108,535,000 in fiscal 1997,
$61,223,000 in fiscal 1996, and $47,446,000 in fiscal 1995. The
percentage of completion is determined by relating either the actual
9PAGE
Thermo TerraTech Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
costs or actual labor incurred to date to management's estimate of total
costs or total labor, respectively, to be incurred on each contract. If a
loss is indicated on any contract in process, a provision is made
currently for the entire loss. The Company's contracts generally provide
for billing of customers upon the attainment of certain milestones
specified in each contract. Revenues earned on contracts in process in
excess of billings are classified as unbilled contract costs and fees in
the accompanying balance sheet. There are no significant amounts included
in the accompanying balance sheet that are not expected to be recovered
from existing contracts at current contract values, or that are not
expected to be collected within one year, including amounts that are
billed but not paid under retainage provisions.
Gain on Issuance of Stock by Subsidiaries
At the time a subsidiary sells its stock to unrelated parties at a
price in excess of its book value, the Company's net investment in that
subsidiary increases. If at that time the subsidiary is an operating
entity and not engaged principally in research and development, the
Company records the increase as a gain (Note 10).
If gains have been recognized on issuances of a subsidiary's stock
and shares of the subsidiary are subsequently repurchased either by the
subsidiary, the Company, or Thermo Electron, gain recognition does not
occur on issuances subsequent to the date of a repurchase until such time
as shares have been issued in an amount equivalent to the number of
repurchased shares. Such transactions are reflected as equity
transactions and the net effect of these transactions is reflected in the
accompanying statement of shareholders' investment as effect of
majority-owned subsidiaries' equity transactions.
Stock-based Compensation Plans
The Company applies Accounting Principles Board Opinion (APB) No. 25,
"Accounting for Stock Issued to Employees," and related interpretations
in accounting for its stock-based compensation plans (Note 4).
Accordingly, no accounting recognition is given to stock options granted
at fair market value until they are exercised. Upon exercise, net
proceeds, including tax benefits realized, are credited to equity.
Income Taxes
In accordance with Statement of Financial Accounting Standards (SFAS)
No. 109, "Accounting for Income Taxes," the Company recognizes deferred
income taxes based on the expected future tax consequences of differences
between the financial statement basis and the tax basis of assets and
liabilities calculated using enacted tax rates in effect for the year in
which the differences are expected to be reflected in the tax return.
Earnings per Share
Earnings per share have been computed based on the weighted average
number of shares outstanding during the year. Weighted average shares,
where material and dilutive, includes the assumed exercise of stock
10PAGE
Thermo TerraTech Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
options and warrants computed using the treasury stock method. Fully
diluted earnings per share have not been presented because the effect of
the assumed exercise of stock options and warrants and the assumed
conversion of the Company's subordinated convertible debentures would be
antidilutive in fiscal 1997 and immaterial in fiscal 1996 and 1995.
Cash and Cash Equivalents
As of March 29, 1997, $59,781,000 of the Company's cash equivalents
were invested in a repurchase agreement with Thermo Electron. Under this
agreement, the Company in effect lends excess cash to Thermo Electron,
which Thermo Electron collateralizes with investments principally
consisting of U.S. government agency securities, corporate notes,
commercial paper, money market funds, and other marketable securities, in
the amount of at least 103% of such obligation. The Company's funds
subject to the repurchase agreement are readily convertible into cash by
the Company. The repurchase agreement earns a rate based on the 90-day
Commercial Paper Composite Rate plus 25 basis points, set at the
beginning of each quarter. As of March 29, 1997, the Company's cash
equivalents also include investments in a money market fund, which have
an original maturity of three months or less. Cash equivalents are
carried at cost, which approximates fair market value.
Inventories
Inventories are stated at the lower of cost (on an average-cost
basis) or market value and include materials, labor, and manufacturing
overhead. The components of inventories are as follows:
(In thousands) 1997 1996
-----------------------------------------------------------------------
Raw materials and supplies $2,483 $3,822
Work in process and finished goods 538 61
------ ------
$3,021 $3,883
====== ======
Property, Plant, and Equipment
The costs of additions and improvements are capitalized, while
maintenance and repairs are charged to expense as incurred. The Company
provides for depreciation and amortization primarily using the
straight-line method over the estimated useful lives of the property as
follows: buildings and improvements, 5 to 40 years; machinery and
equipment, 3 to 12 years; and leasehold improvements, the shorter of the
term of the lease or the life of the asset. Soil-remediation units, which
accounted for 16% and 23% of the Company's machinery and equipment at
fiscal year-end 1997 and 1996, respectively, are depreciated based on an
11PAGE
Thermo TerraTech Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
(continued)
hourly rate that is computed by estimating total hours of operation for
each unit. Property, plant, and equipment consists of the following:
(In thousands) 1997 1996
------------------------------------------------------------------------
Land and buildings $ 40,957 $ 37,144
Machinery, equipment, and leasehold improvements 91,375 88,985
-------- --------
132,332 126,129
Less: Accumulated depreciation and amortization 48,766 43,173
-------- --------
$ 83,566 $ 82,956
======== ========
Other Assets
Other assets in the accompanying balance sheet includes the costs of
acquired technology and other specifically identifiable intangible assets
that are being amortized using the straight-line method over their
estimated useful lives, which range from 5 to 12 years. These assets were
$6,150,000 and $9,508,000, net of accumulated amortization of $5,662,000
and $4,791,000, at fiscal year-end 1997 and 1996, respectively.
Cost in Excess of Net Assets of Acquired Companies
The excess of cost over the fair value of net assets of acquired
companies is amortized using the straight-line method over periods not
exceeding 40 years. Accumulated amortization was $10,921,000 and
$8,788,000 at fiscal year-end 1997 and 1996, respectively. The Company
assesses the future useful life of this asset whenever events or changes
in circumstances indicate that the current useful life has diminished
(Note 13). The Company considers the future undiscounted cash flows of
the acquired companies in assessing the recoverability of this asset. If
impairment has occurred, any excess of carrying value over fair value is
recorded as a loss.
Foreign Currency
All assets and liabilities of the Company's foreign subsidiaries are
translated at year-end exchange rates, and revenues and expenses are
translated at average exchange rates for the year in accordance with SFAS
No. 52, "Foreign Currency Translation." Resulting translation adjustments
are reflected as a separate component of shareholders' investment titled
"Cumulative translation adjustment." Foreign currency transaction gains
and losses are included in the accompanying statement of operations and
are not material for the three years presented.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
12PAGE
Thermo TerraTech Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
2. Available-for-sale and Held-to-maturity Investments
Effective April 2, 1994, the Company adopted SFAS No. 115, "Accounting
for Certain Investments in Debt and Equity Securities." In accordance with
SFAS No. 115, the Company's debt and marketable equity securities that are
classified as available-for-sale investments in the accompanying balance
sheet are carried at market value, with the difference between cost and
market value, net of related tax effects, recorded currently as a component
of shareholders' investment titled "Net unrealized gain (loss) on
available-for-sale investments."
The aggregate market value, cost basis, and gross unrealized gains and
losses of short- and long-term available-for-sale investments by major
security type are as follows:
Gross Gross
Market Cost Unrealized Unrealized
(In thousands) Value Basis Gains Losses
--------------------------------------------------------------------------
1997
Government-agency securities $ 9,999 $ 9,998 $ 1 $ -
Corporate bonds 8,016 8,006 10 -
Other 376 376 - -
------- ------- ------- -------
$18,391 $18,380 $ 11 $ -
======= ======= ======= =======
1996
Tax-exempt securities $ 5,009 $ 4,998 $ 11 $ -
Corporate bonds 1,985 2,000 - (15)
Money market preferred stock 2,098 2,107 - (9)
Other 10 10 - -
------- ------- ------- -------
$ 9,102 $ 9,115 $ 11 $ (24)
======= ======= ======= =======
Short-term available-for-sale investments in the accompanying fiscal
1997 balance sheet include $16,380,000 with contractual maturities of one
year or less and $2,011,000 with contractual maturities of one through five
years. Actual maturities may differ from contractual maturities as a result
of the Company's intent to sell these securities prior to maturity and as a
result of put and call options that enable the Company, the issuer, or both
to redeem these securities at an earlier date.
The cost of available-for-sale investments that were sold was based on
specific identification in determining realized gains and losses recorded
in the accompanying statement of operations. "Gain on sale of investments,
net" resulted from gross realized gains of $204,000 and gross realized
losses of $9,000 in fiscal 1997, and gross realized gains in fiscal 1996
and 1995, relating to the sale of available-for-sale investments.
In order to meet the Company's obligation to the former owner of Elson
T. Killam Associates, Inc., which the Company acquired in February 1995,
the Company purchased U.S. treasury bonds that mature in February and May
13PAGE
Thermo TerraTech Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
2. Available-for-sale and Held-to-maturity Investments (continued)
1998, the dates the Company's zero coupon promissory note is due (Note
3). These securities are classified as short- and long-term
held-to-maturity investments in the accompanying balance sheet and are
carried at amortized cost. It is the Company's intent and within its
ability to hold these securities to maturity.
3. Joint Venture and Acquisitions
Joint Venture
In May 1994, the Company entered into an agreement establishing an
environmental services joint venture (the joint venture), with Thermo
Instrument Systems Inc. (Thermo Instrument) that became effective April
4, 1994. The Company contributed to the joint venture Terra Tech Labs,
Inc. (later renamed Thermo Analytical Inc.) and approximately $31,000,000
in cash and short-term investments, $15,000,000 of which was borrowed
from Thermo Electron pursuant to a promissory note. In May 1996, the
Company repaid the promissory note (Note 6). Thermo Instrument
contributed its environmental services businesses (Environmental Services
Businesses) that consist of a national network of analytical
laboratories, and businesses that provide nuclear-radiation safety and
environmental science and consulting services. Accordingly, the joint
venture's operating results were consolidated with the Company's
operating results. Under the terms of the joint venture agreement, 66.67%
of income earned by the joint venture from April 4, 1994, to April 1,
1995, was allocated to Thermo Instrument.
Because the Company and the Environmental Services Businesses were
deemed for accounting purposes to be under control of their common
majority owner, Thermo Electron, the transaction was accounted for at
historical cost in a manner similar to a pooling-of-interests.
Effective April 2, 1995, the Company and Thermo Instrument dissolved
the joint venture and the Company purchased the businesses formerly
operated by the joint venture from Thermo Instrument for $34,267,000 in
cash. As a result of this transaction, the Company increased its
ownership in the businesses operated by the joint venture from 51% to
100%. Based on unaudited data, if the acquisition of Thermo Instrument's
share of such businesses by the Company had occurred at the beginning of
fiscal 1995, net income and earnings per share on a pro forma basis would
have been $4,935,000 and $.29, respectively, in fiscal 1995. The Company
borrowed the purchase price from Thermo Electron through the issuance of
a $35,000,000 promissory note. In May 1996, the Company repaid the
promissory note (Note 6).
In June 1995, the Company transferred three businesses formerly
operated by the joint venture, collectively known as the Nuclear Services
Group (renamed Thermo Nutech), to Thermo Remediation in exchange for
1,583,360 shares of Thermo Remediation common stock.
Acquisitions
In October 1996, the Company acquired Metal Treating from Thermo
Electron in exchange for $1,600,000 in cash. Metal Treating provides heat
treating services, including carburizing, vacuum hardening, silver and
copper brazing, and aluminum heat treating, primarily in the Milwaukee
14PAGE
Thermo TerraTech Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
3. Joint Venture and Acquisitions (continued)
and southeastern Wisconsin areas. Because the Company and Metal Treating
were deemed for accounting purposes to be under control of their common
majority owner, Thermo Electron, the transaction has been accounted for
at historical cost in a manner similar to a pooling-of-interests.
Accordingly, all historical information presented has been restated to
include the results of Metal Treating.
Revenues and net income as previously reported by the separate
entities prior to the acquisition and as restated for the combined
Company are as follows:
(In thousands) 1996 1995
-----------------------------------------------------------------------
Revenues:
Previously reported $217,397 $133,803
Metal Treating 3,100 3,186
Elimination (13) (4)
-------- --------
$220,484 $136,985
======== ========
Net Income:
Previously reported $ 3,218 $ 4,115
Metal Treating 229 361
-------- --------
$ 3,447 $ 4,476
======== ========
In addition, during fiscal 1997, the Company and Thermo Remediation
each acquired companies for an aggregate of $3,900,000 in cash, 311,040
shares of Thermo Remediation's common stock valued at $2,000,000, and the
issuance of $1,300,000 of short- and long-term obligations.
In December 1995, Thermo Remediation acquired Remediation
Technologies, Inc. (ReTec), a provider of integrated environmental
services such as the remediation of industrial sites contaminated with
organic wastes and residues. The purchase price of $29,672,000 consisted
of $18,462,000 in cash, 227,250 shares of Thermo Remediation's common
stock, and 75,750 warrants to purchase shares of Thermo Remediation's
common stock at $14.85 per share, valued in the aggregate at $3,716,000,
and approximately $7,494,000 attributable to the conversion of
outstanding ReTec stock options into Thermo Remediation stock options of
equivalent intrinsic value at the date of acquisition.
In May 1995, the Company acquired substantially all of the assets of
Lancaster Laboratories, Inc. and its affiliate Clewmark Holdings
(collectively Lancaster Laboratories). Lancaster Laboratories, based in
Lancaster, Pennsylvania, is a provider of analytical services to the
environmental, food, and pharmaceutical industries. The purchase price
for the assets was $25,329,000 in cash, including the repayment of
$5,333,000 of debt.
15PAGE
Thermo TerraTech Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
3. Joint Venture and Acquisitions (continued)
In March 1995, the Company's Thermo EuroTech subsidiary acquired all
of the outstanding capital stock of Refining and Trading Holland B.V.,
which conducts business under the name North Refinery, from Stalt Holding
B.V. North Refinery, located in Delfzijl, Holland, specializes in
processing "off-spec" and contaminated petroleum fluids into usable
products such as gas oil, diesel oil, and fuel oil. The purchase price
for North Refinery's stock was 9,568,000 Dutch guilders (approximately
$6,180,000) and 228,570 shares of Thermo EuroTech's capital stock, valued
at 1,327,000 Dutch guilders (approximately $857,000). Thermo EuroTech has
also agreed to pay, after the fifth anniversary date of the closing, an
amount equal to 20% of the amount by which the cumulative pretax profits
of North Refinery's business over the five-year period ending on such
anniversary exceeds 5,000,000 Dutch guilders.
In February 1995, the Company acquired all of the outstanding capital
stock of Engineering, Technology and Knowledge Corporation (ETKC) from
Nord Est S.A., a French industrial company (Nord Est). ETKC's sole
subsidiary, Elson T. Killam Associates, Inc. (Killam Associates), is a
leading provider of comprehensive environmental consulting and
professional engineering services in selected areas of the U.S. The
purchase price for ETKC's stock was $13,273,000 in cash and a zero coupon
promissory note with a face value of $28,000,000 and a present value of
$22,300,000 as of the acquisition closing date, payable in February and
May 1998. The Company has also agreed to pay, after the third anniversary
date of the closing, an amount equal to 30% of the amount by which Killam
Associates' cumulative net income for the three-year period ending on
such anniversary exceeds $13,000,000. In a related transaction, certain
members of Killam Associates' senior management (the Killam Management)
exchanged outstanding options to purchase shares of Killam Associates'
capital stock for options to purchase an aggregate of 847,678 shares of
the Company's common stock, which options were valued at $6,923,000.
Additional options to purchase shares of Killam Associates' capital stock
were canceled in exchange for cash payments to the Killam Management in
the aggregate amount of $1,922,000. The Company borrowed the cash portion
of the purchase price, including cash used to purchase U.S. treasury
bonds to collateralize the promissory note delivered to Nord Est, from
Thermo Electron through the issuance of a $38,000,000 promissory note
(Note 6).
In October 1994, Thermo Remediation acquired a soil-remediation
facility in South Tacoma, Washington (renamed TPST Woodworth) from
Woodworth & Company, Inc. The purchase price for TPST Woodworth was
$4,701,000 in cash. In connection with the financing of acquisitions,
Thermo Remediation issued to Thermo Electron a $4,000,000 promissory
note, which was repaid in full in June 1995. During fiscal 1995, Thermo
Remediation and the environmental services joint venture made other
acquisitions for an aggregate $14,200,000 in cash.
These acquisitions, except for Metal Treating, have been accounted
for using the purchase method of accounting, and their results have been
included in the accompanying financial statements from their respective
dates of acquisition. The aggregate cost of the acquisitions in fiscal
1997, 1996, and 1995 exceeded the estimated fair value of the acquired
net assets by $68,233,000, which is being amortized over 40 years.
16PAGE
Thermo TerraTech Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
3. Joint Venture and Acquisitions (continued)
Allocation of the purchase price for these acquisitions was based on
estimates of the fair value of the net assets acquired and, for
acquisitions completed in fiscal 1997, is subject to adjustment upon
finalization of the purchase price allocation.
Based on unaudited data, the following table presents selected
financial information for the Company, ReTec, and Lancaster Laboratories
on a pro forma basis, assuming the companies had been combined since the
beginning of fiscal 1995. The effect on the Company's financial
statements of the acquisitions not included in the pro forma data was not
material to the Company's results of operations.
(In thousands except per share amounts) 1996 1995
------------------------------------------------------------------------
Revenues $254,276 $252,658
Net income 2,340 7,661
Earnings per share .13 .45
The pro forma results are not necessarily indicative of future
operations or the actual results that would have occurred had the
acquisitions been made at the beginning of fiscal 1995.
4. Employee Benefit Plans
Stock-based Compensation Plans
Stock Option Plans
------------------
The Company has stock-based compensation plans for its key employees,
directors, and others. Two of these plans, adopted in 1986, permit the
grant of nonqualified and incentive stock options. A third plan, adopted
in fiscal 1994, permits the grant of a variety of stock and stock-based
awards as determined by the human resources committee of the Company's
Board of Directors (the Board Committee), including restricted stock,
stock options, stock bonus shares, or performance-based shares. To date,
only nonqualified stock options have been awarded under these plans. The
option recipients and the terms of options granted under these plans are
determined by the Board Committee. Generally, options granted to date are
exercisable immediately, but are subject to certain transfer restrictions
and the right of the Company to repurchase shares issued upon exercise of
the options at the exercise price, upon certain events. The restrictions
and repurchase rights generally lapse ratably over a three to ten year
period, depending on the term of the option, which may range from five to
twelve years. Nonqualified stock options may be granted at any price
determined by the Board Committee, although incentive stock options must
be granted at not less than the fair market value of the Company's stock
on the date of grant. Generally, all options have been granted at fair
market value. The Company also has a directors' stock option plan,
adopted in September 1991, that provides for the grant of stock options
to outside directors pursuant to a formula approved by the Company's
shareholders. Options awarded under this plan are exercisable six months
after the date of grant and expire three to seven years after the date of
grant. In addition to the Company's stock-based compensation plans,
certain officers and key employees may also participate in the
17PAGE
Thermo TerraTech Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
4. Employee Benefit Plans (continued)
stock-based compensation plans of Thermo Electron or its majority-owned
subsidiaries.
In connection with the acquisition of Killam Associates in February
1995, the Company assumed certain outstanding options granted under Killam
Associates' nonqualified stock option plan. Such options were converted
into options to purchase shares of the Company's common stock, in
accordance with the original terms of the options. All of the options
converted were fully vested and exercisable immediately pursuant to their
original terms. Such options expire ten years from the date of grant.
No accounting recognition is given to options granted at fair market
value until they are exercised. Upon exercise, net proceeds, including tax
benefits realized, are credited to equity. A summary of the Company's stock
option information is as follows:
1997 1996 1995
---------------- ---------------- -----------------
Weighted Weighted Range of
Number Average Number Average Number Option
(Shares in of Exercise of Exercise of Prices
thousands) Shares Price Shares Price Shares per Share
--------------------------------------------------------------------------
Options outstanding, $ 1.43-
beginning of year 2,561 $ 6.13 2,559 $ 5.62 1,318 $16.05
Assumed upon
acquisition of
Killam Associates - - - - 848 .08
7.83-
Granted 288 10.10 182 11.44 665 8.18
1.43-
Exercised (242) 1.16 (141) 3.09 (197) 3.19
8.10-
Forfeited (49) 8.79 (39) 8.60 (75) 10.00
----- ----- -----
Options outstanding, $ .08-
end of year 2,558 $ 6.99 2,561 $ 6.13 2,559 $16.05
===== ===== =====
$ .08-
Options exercisable 2,558 $ 6.99 2,558 $ 6.12 2,558 $16.05
===== ===== =====
Options available for
grant 483 730 874
===== ===== =====
Weighted average fair
value per share of
options granted
during year $ 4.15 $ 3.83
====== ======
18PAGE
Thermo TerraTech Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
4. Employee Benefit Plans (continued)
A summary of the status of the Company's stock options at March 29,
1997, is as follows:
Options Outstanding and Exercisable
-----------------------------------
Weighted
Number Weighted Average Average
of Remaining Exercise
Range of Exercise Prices Shares Contractual Life Price
-----------------------------------------------------------------------
(Shares in thousands)
$ 0.08-$ 4.07 578 0.8 years $ 0.08
4.08- 8.06 74 2.0 years 6.07
8.07- 12.06 1,822 6.4 years 8.97
12.07- 16.05 84 5.3 years 12.40
-----
$ 0.08-$16.05 2,558 5.0 years $ 6.99
=====
Employee Stock Purchase Program
-------------------------------
Substantially all of the Company's full-time employees are eligible
to participate in an employee stock purchase program sponsored by the
Company and Thermo Electron. Under this program, shares of the Company's
and Thermo Electron's common stock can be purchased at the end of a
12-month period at 95% of the fair market value at the beginning of the
period, and the shares purchased are subject to a six-month resale
restriction. Prior to November 1, 1995, the applicable shares of common
stock could be purchased at 85% of the fair market value at the beginning
of the period, and the shares purchased were subject to a one year resale
restriction. Shares are purchased through payroll deductions of up to 10%
of each participating employee's gross wages. During fiscal 1997, 1996,
and 1995, the Company issued 25,053 shares, 44,259 shares, and 21,999
shares, respectively, of its common stock under this program. Employees
of the Environmental Services Businesses participated in an employee
stock purchase program sponsored by Thermo Instrument through November
1994. Thereafter, they became eligible to participate in the Company's
employee stock purchase program.
Pro Forma Stock-based Compensation Expense
In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, "Accounting for Stock-based Compensation," which sets forth a
fair-value based method of recognizing stock-based compensation expense.
As permitted by SFAS No. 123, the Company has elected to continue to
apply APB No. 25 to account for its stock-based compensation plans. Had
compensation cost for awards in fiscal 1997 and 1996 under the Company's
stock-based compensation plans been determined based on the fair value at
19PAGE
Thermo TerraTech Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
4. Employee Benefit Plans (continued)
the grant dates consistent with the method set forth under SFAS No. 123,
the effect on the Company's net income (loss) and earnings (loss) per
share would have been as follows:
(In thousands except per share amounts) 1997 1996
------------------------------------------------------------------------
Net income (loss):
As reported $ (162) $ 3,447
Pro forma (866) 3,018
Earnings (loss) per share:
As reported (.01) .19
Pro forma (.05) .17
Because the method prescribed by SFAS No. 123 has not been applied to
options granted prior to April 2, 1995, the resulting pro forma
compensation expense may not be representative of the amount to be
expected in future years. Compensation expense for options granted is
reflected over the vesting period; therefore, future pro forma
compensation expense may be greater as additional options are granted.
The fair value of each option grant was estimated on the grant date
using the Black-Scholes option-pricing model with the following
weighted-average assumptions:
1997 1996
------------------------------------------------------------------------
Volatility 29% 29%
Risk-free interest rate 6.2% 5.8%
Expected life of options 6.1 years 4.4 years
The Black-Scholes option-pricing model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option-pricing
models require the input of highly subjective assumptions including
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of
the fair value of its employee stock options.
401(k) Savings Plan and Employee Stock Ownership Plan
The majority of the Company's full-time U.S. employees are eligible
to participate in Thermo Electron's 401(k) savings plan and, prior to
January 1, 1995, in Thermo Electron's employee stock ownership plan
(ESOP). Contributions to the 401(k) savings plan are made by both the
employee and the Company. Company contributions are based upon the level
of employee contributions. Certain subsidiaries of the Company also have
a defined contribution retirement plan, a union-sponsored, collectively
bargained multi-employer pension plan, and 401(k) savings plans. For
20PAGE
Thermo TerraTech Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
4. Employee Benefit Plans (continued)
these plans, the Company contributed and charged to expense $2,837,000,
$2,909,000, and $1,654,000 in fiscal 1997, 1996, and 1995, respectively.
Effective December 31, 1994, the ESOP was split into two plans: ESOP I,
covering employees of Thermo Electron's corporate office and its wholly
owned subsidiaries and ESOP II, covering employees of certain of Thermo
Electron's majority-owned subsidiaries, including the Company. Also,
effective December 31, 1994, the ESOP II plan was terminated, and as a
result, the Company's employees are no longer eligible to participate in
an ESOP.
5. Income Taxes
The components of income (loss) before income taxes and minority
interest are as follows:
(In thousands) 1997 1996 1995
-----------------------------------------------------------------------
Domestic $ 3,149 $10,977 $11,494
Foreign (3,440) (2,663) 121
------- ------- -------
$ (291) $ 8,314 $11,615
======= ======= =======
The Company's foreign results of operations include losses associated
with its J. Amerika division, which was sold during the fourth quarter of
fiscal 1997 (Note 13).
The components of the income tax provision are as follows:
(In thousands) 1997 1996 1995
-----------------------------------------------------------------------
Currently (payable) prepaid:
Federal $(1,271) $(1,339) $(3,253)
State (1,122) (678) (1,112)
Foreign 234 1,120 (96)
------- ------- -------
(2,159) (897) (4,461)
------- ------- -------
(Deferred) prepaid, net:
Federal (389) (2,198) 1,287
State (88) (549) 303
Foreign 931 - -
------- ------- -------
454 (2,747) 1,590
------- ------- -------
$(1,705) $(3,644) $(2,871)
======= ======= =======
The Company receives a tax deduction upon exercise of nonqualified
stock options by employees for the difference between the exercise price
and the market price of the Company's stock on the date of exercise. The
provision for income taxes that is currently payable does not reflect
$659,000, $1,785,000, and $1,380,000 in fiscal 1997, 1996, and 1995,
21PAGE
Thermo TerraTech Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
5. Income Taxes (continued)
respectively, of such benefits of the Company and its majority-owned
subsidiaries that have been allocated to capital in excess of par value,
directly or through the effect of majority-owned subsidiaries' equity
transactions.
The income tax provision in the accompanying statement of operations
differs from the amounts calculated by applying the statutory federal
income tax rate of 35% in fiscal 1997 and 34% in fiscal 1996 and 1995 to
income (loss) before income taxes and minority interest due to the
following:
(In thousands) 1997 1996 1995
-----------------------------------------------------------------------
(Provision) benefit for income taxes at
statutory rate $ 102 $(2,827) $(3,949)
Differences resulting from:
Amortization and write-off of cost in
excess of net assets of acquired
companies (1,384) (2,485) (44)
Gain on issuance of stock by subsidiaries 516 1,403 456
State income taxes, net of federal tax (787) (797) (534)
Minority interest in joint venture
income (Note 3) - - 1,061
Foreign tax rate and tax law differential (16) 249 (10)
Tax-exempt investment income 33 181 180
Nondeductible expenses (64) (51) (253)
Reversal of tax reserves no longer
required - 750 -
Other, net (105) (67) 222
------- ------- -------
$(1,705) $(3,644) $(2,871)
======= ======= =======
22PAGE
Thermo TerraTech Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
5. Income Taxes (continued)
Prepaid income taxes and deferred income taxes in the accompanying
balance sheet consist of the following:
(In thousands) 1997 1996
-----------------------------------------------------------------------
Prepaid income taxes:
Accrued compensation $ 1,410 $ 2,805
Reserves and accruals 4,562 3,075
Allowance for doubtful accounts 1,151 1,107
Net operating loss carryforward 1,912 1,773
Federal tax credit carryforward 118 248
Other 303 159
------- -------
9,456 9,167
Less: Valuation allowance 276 276
------- -------
$ 9,180 $ 8,891
======= =======
Deferred income taxes:
Depreciation $ 5,581 $ 1,237
Other deferred items 611 3,362
------- -------
$ 6,192 $ 4,599
======= =======
Included in other assets in fiscal 1997 is $1,811,000 of long-term
prepaid income taxes related to foreign net operating losses, net of
long-term deferred income taxes of $895,000 related to timing differences
in a foreign jurisdiction. In fiscal 1996, long-term prepaid income taxes
related to foreign net operating losses of $1,041,000 was reflected as a
reduction of long-term deferred income taxes.
During fiscal 1996, the Company reversed previously established tax
reserves totaling $750,000 that were no longer required as a result of
the completion of certain revenue agent reviews.
The valuation allowance relates to the uncertainty surrounding the
realization of the tax benefits attributable to federal operating loss
and credit carryforwards and purchase accounting reserves related to
various acquisitions. The valuation allowance will be used to reduce cost
in excess of net assets of acquired companies when any portion of the
related deferred tax asset is recognized.
The Company has not recognized a deferred tax liability for the
difference between the book basis and tax basis of its investment in the
common stock of its domestic subsidiaries (such difference relates
primarily to unremitted earnings and gains on issuance of stock by
subsidiaries) because the Company does not expect this basis difference
to become subject to tax at the parent level. The Company believes it can
implement certain tax strategies to recover its investment in its
domestic subsidiaries tax-free.
The net operating loss carryforward primarily consists of foreign
carryforwards which may be carried forward indefinitely.
23PAGE
Thermo TerraTech Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
6. Short- and Long-term Obligations and Other Financing Arrangements
Long-term Obligations
Long-term obligations of the Company are as follows:
(In thousands except per share amounts) 1997 1996
------------------------------------------------------------------------
4 5/8% Subordinated convertible debentures,
due 2003, convertible at $15.90 per share $111,850 $ -
6 1/2% Subordinated convertible debentures,
due 1997, convertible at $10.33 per share 13,370 18,182
4 7/8% Subordinated convertible debentures,
due 2000, convertible into shares of Thermo
Remediation at $17.92 per share 37,950 37,950
Promissory note to parent company, repaid May 1996
(Note 3) (a) - 15,000
Promissory note to parent company, repaid May 1996
(Note 3) (a) - 35,000
Promissory note to parent company, due June 1997
(Note 3) (a) 38,000 38,000
Zero coupon promissory note, face value $28,000,
due in two installments in February and May 1998
(Note 3) 26,057 24,251
6.75% Mortgage loan, payable in monthly
installments of $9, with final payment in 2008 1,293 1,403
Other 1,934 814
-------- --------
230,454 170,600
Less: Current maturities of long-term obligations 65,268 15,216
-------- --------
$165,186 $155,384
======== ========
(a) Bears interest at the 90-day Commercial Paper Composite Rate plus 25
basis points, set at the beginning of each quarter, which was 5.78%
at March 29, 1997.
The 4 5/8%, 6 1/2%, and 4 7/8% subordinated convertible debentures
are guaranteed on a subordinated basis by Thermo Electron. The Company
has agreed to reimburse Thermo Electron in the event Thermo Electron is
required to make a payment under the guarantee. During fiscal 1997 and
1996, $4,812,000 and $365,000 principal amount, respectively, of the
6 1/2% debentures was converted into 465,827 shares and 35,332 shares,
respectively, of the Company's common stock.
The annual requirements for long-term obligations as of March 29,
1997, are $65,268,000 in fiscal 1998; $13,492,000 in fiscal 1999;
$388,000 in fiscal 2000; $38,338,000 in fiscal 2001; $376,000 in fiscal
2002; and $112,592,000 in fiscal 2003 and thereafter. Total requirements
of long-term obligations are $230,454,000. See Note 11 for information
pertaining to the fair value of the Company's long-term obligations.
24PAGE
Thermo TerraTech Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
6. Short- and Long-term Obligations and Other Financing Arrangements
(continued)
Short-term Obligations and Other Financing Arrangements
The Company's Thermo EuroTech subsidiary has a line of credit,
denominated in Dutch guilders, under which approximately $5,300,000 may
be borrowed at the Dutch discount rate plus 125 basis points. At March
29, 1997, and March 30, 1996, $2,227,000 and $3,995,000, respectively,
was outstanding under this arrangement, bearing interest at 5.25%.
In December 1994, Thermo Remediation borrowed $4,000,000 from Thermo
Electron through the issuance of a promissory note bearing interest at
the 90-day Commercial Paper Composite Rate plus 25 basis points, set at
the beginning of each quarter. The note was repaid in full in June 1995.
7. Commitments and Contingencies
Operating Leases
The Company leases land, office, manufacturing facilities, and
equipment under operating leases expiring at various dates through fiscal
2008. The accompanying statement of operations includes expenses from
operating leases of $4,977,000, $4,632,000, and $2,491,000, in fiscal
1997, 1996, and 1995, respectively. Future minimum payments due under
noncancellable operating leases at March 29, 1997, are $4,153,000 in
fiscal 1998; $3,038,000 in fiscal 1999; $2,197,000 in fiscal 2000;
$1,534,000 in fiscal 2001; $1,342,000 in fiscal 2002; and $2,019,000 in
fiscal 2003 and thereafter. Total future minimum lease payments are
$14,283,000. See Note 8 for office and manufacturing facilities leased
from Thermo Electron.
In March 1991, the Company's TPST Virginia subsidiary entered into a
seven-year agreement, terminable at the Company's option with 90 days'
notice, to operate one or more of its soil-remediation units at a site
owned by a third party. Under the terms of the agreement, the Company
pays a fee based on the gross remediation revenues generated from the
operations at the site, less certain operating costs incurred by the
Company. The accompanying statement of operations includes expenses
relating to this agreement of $79,000, $147,000, and $307,000 in fiscal
1997, 1996, and 1995, respectively. Any future expenses related to this
agreement will not be material as this facility will be closed (Note 13).
Contingencies
The Company is contingently liable with respect to lawsuits and other
matters that arose in the ordinary course of business. In the opinion of
management, these contingencies will not have a material effect upon the
financial position of the Company or its results of operations.
25PAGE
Thermo TerraTech Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
8. Related-party Transactions
Corporate Services Agreement
The Company and Thermo Electron have a corporate services agreement
under which Thermo Electron's corporate staff provides certain
administrative services, including certain legal advice and services,
risk management, certain employee benefit administration, tax advice and
preparation of tax returns, centralized cash management, and certain
financial and other services, for which the Company pays Thermo Electron
annually an amount equal to 1.0% of the Company's revenues. Prior to
January 1, 1996, the Company paid an annual fee equal to 1.20% of the
Company's revenues. Prior to January 1, 1995, the Company paid an annual
fee equal to 1.25% of the Company's revenues. The annual fee is reviewed
and adjusted annually by mutual agreement of the parties. For these
services, the Company was charged $2,785,000, $2,612,000, and $1,692,000
in fiscal 1997, 1996, and 1995, respectively. The corporate services
agreement is renewed annually but can be terminated upon 30 days' prior
notice by the Company or upon the Company's withdrawal from the Thermo
Electron Corporate Charter (the Thermo Electron Corporate Charter defines
the relationship among Thermo Electron and its majority-owned
subsidiaries). Management believes that the service fee charged by Thermo
Electron is reasonable and that such fees are representative of the
expenses the Company would have incurred on a stand-alone basis. For
additional items such as employee benefit plans, insurance coverage, and
other identifiable costs, Thermo Electron charges the Company based upon
costs attributable to the Company.
Development Agreement
The Company and Thermo Electron entered into a development agreement
under which Thermo Electron agreed to fund up to $4,000,000 of the direct
and indirect costs of the Company's development of soil-remediation
centers. In exchange for this funding, the Company granted Thermo
Electron a royalty equal to approximately 3% of net revenues from
soil-remediation services performed at the centers developed under the
agreement. The royalty payments may cease if the amounts paid by the
Company yield a certain internal rate of return to Thermo Electron on the
funds advanced to the Company under the agreement. Two sites have been
developed under this agreement. The Company paid royalties of $186,000,
$332,000, $432,000 in fiscal 1997, 1996, and 1995, respectively, relating
to this agreement, which are included in selling, general and
administrative expenses in the accompanying statement of operations.
Operating Leases
In addition to the operating leases discussed in Note 7, the Company
leases or subleases three office and manufacturing facilities from Thermo
Electron under lease agreements expiring in fiscal 1999 and 2004. The
accompanying statement of operations includes expenses from the operating
lease and sublease of $553,000, $486,000, and $537,000 in fiscal 1997,
1996, and 1995, respectively. The future minimum payments due under the
lease and sublease as of March 29, 1997, are $897,000 in fiscal 1998;
$925,000 in fiscal 1999; $813,000 in fiscal 2000 through 2002; and
$1,921,000 in fiscal 2003 and thereafter. Total future minimum payments
are $6,182,000.
26PAGE
Thermo TerraTech Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
8. Related-party Transactions (continued)
Repurchase Agreement
The Company invests excess cash in a repurchase agreement with Thermo
Electron as discussed in Note 1.
Short- and Long-term Obligations
See Note 6 for a description of short- and long-term obligations of
the Company held by Thermo Electron.
9. Common Stock
At March 29, 1997, the Company has 700,500 warrants outstanding to
purchase shares of its common stock, which are exercisable at prices
ranging from $10.00 - $11.34 per share and expire in fiscal 2001. The
warrants were issued in fiscal 1992 and 1993 in connection with private
placements completed by three of the Company's soil-remediation
subsidiaries.
At March 29, 1997, the Company had reserved 12,176,635 unissued
shares of its common stock for possible issuance under stock-based
compensation plans, possible issuance upon conversion of the 4 5/8% and 6
1/2% subordinated convertible debentures, and exercise of warrants.
10. Transactions in Stock of Subsidiaries
During fiscal 1997, Thermo EuroTech sold 1,105,000 shares of its
common stock in a private placement at $4.25 per share, for net proceeds
of $4,314,000, resulting in a gain of $1,475,000.
During fiscal 1996, Thermo Remediation sold 500,000 shares of its
common stock in a private placement at $13.25 per share, for net proceeds
of $6,625,000, resulting in a gain of $2,742,000. During fiscal 1996,
Thermo Remediation issued 227,250 shares of its common stock in
connection with the acquisition of ReTec (Note 3), resulting in a gain of
$1,385,000.
During fiscal 1995, Thermo EuroTech sold 700,331 shares of its
common stock in a private placement at $3.75 per share, for net proceeds
of $2,423,000, resulting in a gain of $829,000. During fiscal 1995,
Thermo Remediation sold 75,000 shares of its common stock in a private
placement at $9.67 per share, for net proceeds of $715,000, resulting in
a gain of $229,000.
Dividends declared by Thermo Remediation were $2,557,000,
$2,491,000, and $2,012,000 in fiscal 1997, 1996, and 1995, respectively.
Dividends declared by Thermo Remediation include $1,694,000, $1,667,000,
and $1,316,000 in fiscal 1997, 1996, and 1995, respectively, that was
allocated to the Company and reinvested in 194,961 shares, 117,805
shares, and 113,491 shares, respectively, of Thermo Remediation's common
stock pursuant to Thermo Remediation's Dividend Reinvestment Plan adopted
in fiscal 1995.
27PAGE
Thermo TerraTech Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
10. Transactions in Stock of Subsidiaries (continued)
The Company's percentage ownership of its majority-owned
subsidiaries at year-end was as follows:
1997 1996 1995
-----------------------------------------------------------------------
Thermo EuroTech 53% 62% 62%
Thermo Remediation 69% 66% 66%
11. Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash and
cash equivalents, available-for-sale and held-to-maturity investments,
accounts receivable, notes payable and current maturities of long-term
obligations, accounts payable, due to parent company, and long-term
obligations. The carrying amounts of these financial instruments, with
the exception of available-for-sale and held-to-maturity investments, and
long-term obligations, approximate fair value due to their short-term
nature.
Available-for-sale investments are carried at fair value in the
accompanying balance sheet. The fair values were determined based on
quoted market prices. See Note 2 for fair value information pertaining to
these financial instruments. Held-to-maturity investments in the
accompanying balance sheet are carried at amortized cost. The fair values
are disclosed on the accompanying balance sheet and were determined based
on quoted market prices.
The fair value of short- and long-term obligations was determined
based on quoted market prices and on borrowing rates available to the
Company at the respective year ends. The carrying amount and fair value
of the Company's short- and long-term obligations are as follows:
1997 1996
------------------- --------------------
Carrying Fair Carrying Fair
(In thousands) Amount Value Amount Value
------------------------------------------------------------------------
Current maturity of
subordinated convertible
debentures $ 13,370 $ 13,771 $ - $ -
======== ======== ======== ========
Long-term subordinated
convertible debentures $149,800 $132,973 $ 56,132 $ 63,681
Other 15,386 15,386 99,252 99,252
-------- -------- -------- --------
$165,186 $148,359 $155,384 $162,933
======== ======== ======== ========
28PAGE
Thermo TerraTech Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
12. Significant Customers
During fiscal 1997, 1996, and 1995 revenues derived from U.S.
government agencies accounted for 13%, 10%, and 6%, respectively, of the
Company's total revenues.
13. Nonrecurring Costs
During fiscal 1997, Thermo Remediation recorded $7,800,000 of
nonrecurring costs to write-down certain capital equipment and intangible
assets, including cost in excess of net assets of acquired companies, in
response to a recent severe downturn in Thermo Remediation's
soil-recycling business, which will result in the closure of two
soil-remediation sites. In addition, the Company's analysis indicates
that the future undiscounted cash flows from certain other
soil-remediation sites that will remain open will be insufficient to
recover Thermo Remediation's investment in these business units, thus
requiring a write-down of certain assets, which is included in the
$7,800,000 charge. Of the total charge, $2,206,000 is nondeductible for
tax purposes.
In addition, in fiscal 1997, Thermo EuroTech sold its J. Amerika
division, which resulted in a loss of $1,482,000. J. Amerika's revenues
and operating loss were $3,970,000 and $552,000, respectively, in fiscal
1997.
Following the purchases of Killam Associates in February 1995, the
businesses formerly operated by the Company's environmental services
joint venture with Thermo Instrument in April 1995, and Lancaster
Laboratories in May 1995, the primary growth focus of the Company has
become environmental infrastructure services. During fiscal 1996, the
Company determined that it no longer expected to reinvest in its
thermal-processing equipment business. The Company's fiscal 1996 analysis
indicated that the expected future undiscounted cash flow from this
business would be insufficient to recover the Company's investment.
Accordingly, in the second quarter of fiscal 1996, the Company wrote off
$4,995,000 of cost in excess of net assets of acquired company associated
with the thermal-processing equipment business. This noncash expense is
nondeductible for tax purposes.
In fiscal 1996, the Company sold to a management group the assets of
a small civil engineering design office in Williston, Vermont, that was
no longer included in the geographic expansion plans of the Company. An
intangible asset of $569,000 associated with this office was not
recovered in the sale price and, accordingly, was written off. This
noncash expense is nondeductible for tax purposes. Sales and earnings of
this office were not material to the Company.
29PAGE
Thermo TerraTech Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
14. Equity in Earnings of Unconsolidated Subsidiary
The Company's equity in earnings in unconsolidated subsidiary in the
accompanying statement of operations represents the Company's
proportionate share of income from a 50% investment in ReTec/Tetra L.C.
(ReTec/Tetra), acquired in December 1995 through Thermo Remediation's
acquisition of ReTec. The carrying value of this investment was
$5,650,000 at March 29, 1997.
Summary financial information for ReTec/Tetra is as follows:
December 31,
---------------------
(In thousands) 1996 1995
--------------------------------------------------------------------
Current assets $ 3,072 $ 2,163
Noncurrent assets 12,644 11,653
------- -------
Total assets $15,716 $13,816
======= =======
Current liabilities $ 2,016 $ 2,342
Noncurrent liabilities 2,635 2,465
Members' equity 11,065 9,009
------- -------
Total liabilities and members' equity $15,716 $13,816
======= =======
Year Ended
Dec. 31,
(In thousands) 1996
------------------------------------------------------
Revenues $12,066
Cost of revenues 9,040
-------
Gross profit $ 3,026
=======
Net income $ 981
=======
30PAGE
Thermo TerraTech Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
15. Supplemental Cash Flow Information
Supplemental cash flow information is as follows:
Year Ended
--------------------------------
March 29, March 30, April 1,
(In thousands) 1997 1996 1995
------------------------------------------------------------------------
Cash Paid For:
Interest $ 10,255 $ 7,438 $ 2,507
Income taxes $ 1,958 $ 5,803 $ 952
Noncash Activities:
Fair value of assets of acquired
companies $ 12,996 $ 68,533 $ 86,721
Cash paid for acquired companies (5,465) (45,005) (39,559)
Issuance of notes payable for
acquired company (1,300) - (22,300)
Issuance of Company and subsidiary
common stock, stock options, and
warrants for acquired companies (2,006) (11,210) (7,780)
-------- -------- --------
Liabilities assumed of acquired
companies $ 4,225 $ 12,318 $ 17,082
======== ======== ========
Conversions of subordinated
convertible debentures (Note 6) $ 4,812 $ 365 $ -
Issuance of Company common stock to
former owner of acquired company
(Note 3) $ - $ - $ 840
See Note 3 for discussion of the environmental services joint venture.
16. Unaudited Quarterly Information
(In thousands except per share amounts)
1997 (a)
First Second(b) Third Fourth(c)
-------------------------------------------------------------------------
Revenues $67,618 $67,269 $75,698 $67,918
Gross profit 13,092 11,372 12,830 11,129
Net income (loss) 1,458 1,450 902 (3,972)
Earnings (loss) per share .08 .08 .05 (.22)
1996 (a, d)
First Second(e) Third(f) Fourth
------------------------------------------------------------------------
Revenues $50,728 $54,498 $55,578 $59,680
Gross profit 12,221 13,367 12,636 12,808
Net income (loss) 4,041 (4,115) 1,598 1,923
Earnings (loss) per share .22 (.24) .09 .10
31PAGE
Thermo TerraTech Inc. 1997 Financial Statements
Notes to Consolidated Financial Statements
16. Unaudited Quarterly Information (continued)
(a)Historical results have been restated to reflect the acquisition of
Metal Treating, accounted for at historical cost in a manner similar
to a pooling-of-interests.
(b)Includes nontaxable gains of $1,475,000 from the issuance of stock by
subsidiary.
(c)Reflects $7,800,000 of nonrecurring costs and a loss of $1,482,000
related to the sale of the Company's J. Amerika division.
(d)Includes nontaxable gains of $2,742,000 and $1,385,000 in the first
and fourth quarters, respectively, from the issuance of stock by
subsidiaries.
(e)Includes the write-off of goodwill of $4,995,000 and a loss on the
sale of assets of $569,000.
(f)Reflects the December 1995 acquisition of ReTec by Thermo
Remediation.
17. Subsequent Events
In May 1997, the Company purchased a controlling interest in The
Randers Group Incorporated (Randers), a provider of design engineering,
project management, and construction services for industrial clients in
the manufacturing, pharmaceutical, and chemical-processing industries.
The Company purchased 7,100,000 shares of Randers common stock from
certain members of Randers' management, and 420,000 shares from Thermo
Power Corporation, an affiliate of the Company, at a price of $0.625 per
share, for an aggregate cost of approximately $4,700,000. Following these
transactions, the Company owns approximately 53.3% of Randers'
outstanding common stock. In addition, Thermo Electron owns approximately
8.9% of Randers' outstanding common stock. Randers had revenues of $12.4
million in calendar 1996.
The Company has also entered into a letter of intent to transfer its
wholly owned engineering and consulting businesses, including the Killam
group of companies, to Randers in exchange for newly issued shares of
Randers common stock. The exact price for these businesses is still under
negotiation, but in no event would be less than the book value of the
transferred businesses as of the closing of the transfer. The number of
new shares of Randers common stock to be issued to the Company would
equal the agreed price divided by $0.625.
The transfer is subject to several conditions, including completion
by Randers of its due diligence investigation, receipt of an opinion from
an investment bank that the transaction is fair to Randers from a
financial point of view, approval of the transaction by Randers'
shareholders, and receipt of all required regulatory approvals, including
continued listing of the Randers common stock on the American Stock
Exchange following the transaction.
32PAGE
Thermo TerraTech Inc. 1997 Financial Statements
Report of Independent Public Accountants
To the Shareholders and Board of Directors of Thermo TerraTech Inc.:
We have audited the accompanying consolidated balance sheet of Thermo
TerraTech Inc. (a Delaware corporation and an 82%-owned subsidiary of
Thermo Electron Corporation) and subsidiaries as of March 29, 1997, and
March 30, 1996, and the related consolidated statements of operations,
shareholders' investment and cash flows for each of the three years in
the period ended March 29, 1997. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is
to express an opinion on these consolidated financial statements based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Thermo TerraTech Inc. and subsidiaries as of March 29, 1997, and March
30, 1996, and the results of their operations and their cash flows for
each of the three years in the period ended March 29, 1997, in conformity
with generally accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
May 6, 1997 (except with respect to
the matters discussed in Note 17 as
to which the date is May 12, 1997)
33PAGE
Thermo TerraTech Inc. 1997 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Forward-looking statements, within the meaning of Section 21E of the
Securities Exchange Act of 1934, are made throughout this Management's
Discussion and Analysis of Financial Condition and Results of Operations.
For this purpose, any statements contained herein that are not statements
of historical fact may be deemed to be forward-looking statements.
Without limiting the foregoing, the words "believes," "anticipates,"
"plans," "expects," "seeks," "estimates," and similar expressions are
intended to identify forward-looking statements. There are a number of
important factors that could cause the results of the Company to differ
materially from those indicated by such forward-looking statements,
including those detailed immediately after this Management's Discussion
and Analysis of Financial Condition and Results of Operation under the
caption "Forward-looking Statements."
Overview
The Company provides environmental services and infra-structure
planning and design encompassing a broad range of specializations,
including remediation of soil and fluids, consulting and design,
laboratory-testing, and metal treating.
Remediation and Recycling - In December 1995, the Company's
majority-owned Thermo Remediation Inc. (Thermo Remediation) subsidiary
acquired Remediation Technologies, Inc. (ReTec), a provider of integrated
environmental services such as remediation of industrial sites
contaminated with organic wastes and residues. In September 1996, Thermo
Remediation acquired IEM Sealand Corporation (IEM Sealand), a provider of
construction services for the remediation of hazardous wastes under
contracts with federal and state governments and other public- and
private-sector clients. Through its Thermo Nutech subsidiary, Thermo
Remediation provides services to remove radioactive contaminants from
sand, gravel, and soil, as well as health physics, radiochemistry
laboratory, and radiation dosimetry services. Through its TPS
Technologies Inc. subsidiary, Thermo Remediation also designs and
operates facilities for the remediation of nonhazardous soil and operates
a network of such facilities along the East and West coasts. In addition,
Thermo Remediation's Thermo Fluids subsidiary collects, tests, processes,
and recycles used motor oil and other industrial oils. The Company's
majority-owned Thermo EuroTech N.V. (Thermo EuroTech) subsidiary, located
in the Netherlands, specializes in converting "off-spec" and contaminated
petroleum fluids into usable oil products.
Consulting and Design - The Company's wholly owned Killam Associates
subsidiary provides environmental consulting and engineering services and
specializes in wastewater treatment and water resources management. In
November 1996, the Company acquired Carlan Consulting Group, Inc.
(Carlan), a provider of transportation and environmental consulting and
professional engineering and architectural services. Subsequent to the
fiscal year end, in May 1997, the Company purchased a controlling
interest in The Randers Group Incorporated (Randers), a provider of
34PAGE
Thermo TerraTech Inc. 1997 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Overview (continued)
design engineering, project management, and construction services for
industrial clients in the manufacturing, pharmaceutical, and
chemical-processing industries. The Company's wholly owned Bettigole
Andrews Clark & Killam Inc. and Normandeau Associates, Inc. subsidiaries
provide both private- and public-sector clients with a range of
consulting services that address transportation planning and design, and
natural resource management issues, respectively.
Laboratory Testing - The Company's wholly owned Thermo Analytical
Inc. subsidiary operates analytical laboratories that provide
environmental, pharmaceutical, and food testing services to primarily
commercial clients throughout the U.S.
Metal Treating - The Company performs metallurgical processing
services using thermal-treatment equipment at locations in California,
Minnesota, and Wisconsin. The Company also designs, manufactures, and
installs advanced custom-engineered, thermal-processing systems through
its equipment division located in Michigan.
Results of Operations
Fiscal 1997 Compared With Fiscal 1996
Total revenues increased 26% to $278.5 million in fiscal 1997 from
$220.5 million in fiscal 1996. Revenues from remediation and recycling
services increased to $127.1 million in fiscal 1997 from $77.0 million in
fiscal 1996, primarily due to the inclusion of $50.0 million of revenues
from ReTec and IEM Sealand, acquired in December 1995 and September 1996,
respectively. Revenues from soil-remediation services decreased 21% due
to a severe downturn in this business, which resulted in a decline in the
volume of soil processed due to overcapacity in the industry and
competitive pricing pressures. The Company also believes that several
states have reduced their compliance requirements and/or relaxed their
enforcement activities. The Company expects this trend to continue for
the foreseeable future. Revenues from consulting and design services
remained relatively unchanged at $74.8 million in fiscal 1997 and $74.0
million in fiscal 1996. The inclusion of $2.6 million of revenues from
Carlan, acquired in November 1996, was offset by lower revenues from
federal government contracts. Revenues from laboratory-testing services,
excluding radiochemistry laboratory services included in remediation and
recycling services, were $35.4 million in fiscal 1997 and $35.5 million
in fiscal 1996. Metal-treating revenues increased to $44.3 million in
fiscal 1997 from $35.8 million in fiscal 1996, primarily due to an
increase in demand for thermal-processing equipment at existing
businesses.
The gross profit margin decreased to 17% in fiscal 1997 from 23% in
fiscal 1996, primarily due to a decrease in gross profit margins from
remediation and recycling services. The decline was due to lower margins
on soil processed resulting from competitive pricing pressures, lower
volumes of soil processed at the Company's traditionally higher-margin
35PAGE
Thermo TerraTech Inc. 1997 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Fiscal 1997 Compared With Fiscal 1996 (continued)
soil-remediation centers and, to a lesser extent, the inclusion of
lower-margin revenues from ReTec and IEM Sealand. The decline was also a
result of a decrease in gross profit margins from laboratory-testing and
consulting and design services due to costs incurred related to efforts
to eliminate redundant capabilities at regional offices and increased
competitive pricing pressures in the consulting and design services
business. These decreases were offset in part by higher gross profit
margins from metal-treating products and services as a result of an
increase in revenues.
Selling, general, and administrative expenses as a percentage of
revenues decreased to 13% in fiscal 1997 from 16% in fiscal 1996,
primarily due to lower expenses as a percentage of revenues at acquired
companies, lower expenses in fiscal 1997 at Thermo EuroTech due to the
settlement of several contract disputes which caused higher expenses in
fiscal 1996, and a decline in expenses due to the consolidation of
administrative functions within the laboratory-testing services business.
During fiscal 1997, the Company recorded $7.8 million of nonrecurring
costs to write-down certain capital equipment and intangible assets,
including cost in excess of net assets of acquired companies. The
write-down was in response to the downturn in the Company's
soil-recycling business discussed above, which will result in the closure
of two soil-remediation sites. In addition, the Company's analysis
indicates that the future undiscounted cash flows from certain other
soil-remediation sites that will remain open will be insufficient to
recover the Company's investment in these business units, thus requiring
a write-down of certain assets, which is included in the $7.8 million
charge. The recent severe downturn in the Company's soil-recycling
business and relaxed compliance requirements and enforcement activities
resulted in overcapacity in the industry and competitive pricing
pressures. The Company expects that closure of two sites with small
operating losses and a write-down of certain assets at two other sites,
at which current volumes of soil being processed were insufficient to
recover the Company's investment, will improve operating results
beginning in fiscal 1998. Revenues and operating losses, exclusive of the
write-down, at the two sites being closed aggregated $2.9 million and
$0.6 million, respectively, in fiscal 1997.
Interest income increased to $7.3 million in fiscal 1997 from $5.1
million in fiscal 1996, primarily as a result of interest income earned
on invested proceeds from the Company's issuance of 4 5/8% subordinated
convertible debentures in May 1996 (Note 6). Interest expense increased
to $12.9 million in fiscal 1997 from $10.7 million in fiscal 1996,
primarily due to the Company's issuance of 4 5/8% subordinated
convertible debentures and Thermo Remediation's issuance of 4 7/8%
subordinated convertible debentures in May 1995, offset in part by the
repayment of promissory notes to Thermo Electron Corporation (Thermo
Electron) with proceeds from the Company's 4 5/8% subordinated
convertible debentures.
Equity in earnings of unconsolidated subsidiary in fiscal 1997
represents ReTec's proportionate share of income from a joint venture
(Note 14).
36PAGE
Thermo TerraTech Inc. 1997 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Fiscal 1997 Compared With Fiscal 1996 (continued)
During fiscal 1997 and 1996, Thermo EuroTech's J. Amerika division
incurred operating losses as a result of intense competition in the
removal and installation of underground storage tank and wastewater
treatment businesses. During fiscal 1997, the Company sold this business
unit and incurred a loss of $1.5 million on the sale. J. Amerika's
revenues and operating loss were $4.0 million and $0.6 million,
respectively, in fiscal 1997. During fiscal 1996, the Company sold the
assets of an engineering office and wrote off an intangible asset of $0.6
million in connection with the sale (Note 13).
The Company has adopted a strategy of spinning out certain of its
businesses into separate subsidiaries and having these subsidiaries sell
a minority interest to outside investors. The Company believes that this
strategy provides additional motivation and incentives for the management
of the subsidiary through the establishment of subsidiary-level stock
option incentive programs, as well as capital to support the
subsidiaries' growth. As a result of the issuance of common stock by
Thermo EuroTech in fiscal 1997 and by Thermo Remediation in fiscal 1996,
the Company recorded gains of $1.5 million and $4.1 million,
respectively. These gains represent an increase in the Company's
proportionate share of the subsidiary's equity and are classified as
"Gain on issuance of stock by subsidiaries" in the accompanying statement
of operations. The size and timing of these transactions are dependent on
market and other conditions that are beyond the Company's control. In
addition, in October 1995, the Financial Accounting Standards Board
(FASB) issued an exposure draft of a Proposed Statement of Financial
Accounting Standards, "Consolidated Financial Statements: Policy and
Procedures" (the Proposed Statement). The Proposed Statement would
establish new rules for how consolidated financial statements should be
prepared. If the Proposed Statement is adopted, there could be
significant changes in the way the Company records certain transactions
of its controlled subsidiaries. Among those changes, any sale of the
stock of a subsidiary that does not result in a loss of control would be
accounted for as a transaction in equity of the consolidated entity with
no gain or loss being recorded. The FASB expects to issue a final
statement or a revised exposure draft in calendar 1997. Accordingly,
there can be no assurance that the Company will be able to recognize
gains from such transactions in the future.
The effective tax rate in fiscal 1997 exceeded the statutory federal
income tax rate primarily due to the nondeductible amortization and
write-off of cost in excess of net assets of acquired companies and the
impact of state income taxes, offset in part by the nontaxable gain on
issuance of stock by subsidiaries. The effective tax rate in fiscal 1996
exceeded the federal statutory rate, primarily due to the nondeductible
write-off of cost in excess of net assets of acquired company and the
loss on sale of assets, offset in part by the nontaxable gains on
issuance of stock by subsidiaries and the reversal of previously
established tax reserves of $0.8 million that were no longer required due
to the completion of certain revenue agent reviews.
37PAGE
Thermo TerraTech Inc. 1997 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Fiscal 1997 Compared With Fiscal 1996 (continued)
The Company recorded minority interest income of $1.8 million in
fiscal 1997, compared with minority interest expense of $1.2 million in
fiscal 1996, due to losses incurred by the Company's majority-owned
subsidiaries.
Fiscal 1996 Compared With Fiscal 1995
Total revenues increased 61% to $220.5 million in fiscal 1996 from
$137.0 million in fiscal 1995. Revenues from remediation and recycling
services increased to $77.0 million in fiscal 1996 from $58.2 million in
fiscal 1995, primarily due to the inclusion of $24.4 million in revenues
from businesses acquired or constructed in late fiscal 1995 and 1996, and
higher revenues from a long-term environmental restoration contract for
the U.S. Department of Energy's (DOE's) Hanford site (Hanford), which
began in the second quarter of fiscal 1995. These increases were offset
in part by lower soil-remediation services revenues resulting from a
decrease in the volume and price of soil processed as a result of
regulatory uncertainties at several sites, competitive pricing pressures,
and severe weather conditions primarily in the fourth quarter of fiscal
1996. Revenues from radiochemistry laboratory work also decreased,
reflecting a reduction in spending at the DOE and delays in federal
government budget appropriations. Consulting and design services revenues
increased to $74.0 million in fiscal 1996 from $40.3 million in fiscal
1995, primarily as a result of an increase of $34.2 million due to the
inclusion of revenues for a full year from Killam Associates, which was
acquired in February 1995. Revenues from laboratory-testing services,
excluding the radiochemistry laboratory services included in remediation
and recycling services, increased to $35.5 million in fiscal 1996 from
$8.6 million in fiscal 1995, reflecting the inclusion of $29.1 million in
revenues from Lancaster Laboratories, which was acquired in May 1995,
offset in part by a decline in revenues due to reduced federal spending
and a shift in business from existing sites to the newly acquired
Lancaster Laboratories. Metal-treating revenues increased to $35.8
million in fiscal 1996 from $29.9 million in fiscal 1995, primarily due
to an increase in demand for thermal-processing equipment.
The gross profit margin decreased to 23% in fiscal 1996 from 25% in
fiscal 1995, due to lower gross profit margins from remediation and
recycling services revenues primarily due to competitive pricing
pressures and lower revenues from higher-margin radiochemistry laboratory
work. In addition, gross profit margins at Thermo EuroTech decreased as a
result of severe winter weather and market conditions in fiscal 1996.
These decreases were offset in part by the inclusion of higher-margin
revenues from Lancaster Laboratories and Killam Associates.
Selling, general, and administrative expenses as a percentage of
revenues decreased to 16% in fiscal 1996 from 18% in fiscal 1995,
primarily due to nonrecurring expenses related to various litigation in
fiscal 1995.
During the second quarter of fiscal 1996, the Company wrote off $5.0
million of cost in excess of net assets of acquired company related to
its thermal-processing equipment business. In addition, in the second
38PAGE
Thermo TerraTech Inc. 1997 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Fiscal 1996 Compared With Fiscal 1995 (continued)
quarter of fiscal 1996, the Company incurred a loss of $0.6 million as a
result of the sale of an engineering office. These noncash expenses are
nondeductible for tax purposes (Note 13).
Interest income increased to $5.1 million in fiscal 1996 from $3.3
million in fiscal 1995 as a result of higher invested balances following
the issuance of 4 7/8% subordinated convertible debentures by Thermo
Remediation in May 1995 and a private placement of shares of Thermo
Remediation's common stock in May 1995, offset in part by funds expended
to purchase the business formerly operated by the environmental services
joint venture from Thermo Instrument Systems Inc. (Thermo Instrument)
(Note 3). Interest expense increased to $10.7 million in fiscal 1996 from
$2.9 million in fiscal 1995 as a result of borrowings from Thermo
Electron for the February 1995 acquisition of Killam Associates and the
May 1995 acquisition of Lancaster Laboratories, and the issuance of the
4 7/8% subordinated convertible debentures by Thermo Remediation in May
1995.
As a result of the issuance of stock by Thermo Remediation in fiscal
1996 and 1995, and by Thermo EuroTech in fiscal 1995, the Company
recorded gains of $4.1 million and $1.3 million in fiscal 1996 and 1995,
respectively.
The effective tax rate in fiscal 1996 was higher than the statutory
federal income tax rate primarily due to the nondeductible write-off of
cost in excess of net assets of acquired company and the loss on sale of
assets, offset in part by the nontaxable gains on issuance of stock by
subsidiaries and the reversal of previously established tax reserves of
$0.8 million that were no longer required due to the completion of
certain revenue agent reviews. In fiscal 1995, the effective tax rate was
lower than the statutory federal income tax rate primarily due to the
exclusion of income taxed directly to a minority partner.
Minority interest expense decreased to $1.2 million in fiscal 1996
from $4.3 million in fiscal 1995 primarily due to the Company's purchase
of the businesses formerly operated by the Company's joint venture with
Thermo Instrument (Note 3).
Liquidity and Capital Resources
Consolidated working capital, including cash, cash equivalents, and
short-term available-for-sale investments, increased to $77.3 million at
March 29, 1997, from $66.0 million at March 30, 1996. Cash, cash
equivalents, and short- and long-term available-for-sale investments were
$81.6 million at March 29, 1997, compared with $40.3 million at March 30,
1996. Of the $81.6 million balance at March 29, 1997, $22.7 million was
held by Thermo Remediation and the remainder by the Company and its
wholly owned subsidiaries. In addition, at March 29, 1997, the Company
had $26.1 million of short- and long-term held-to-maturity investments,
compared with $24.3 million at March 30, 1996. During fiscal 1997, $9.0
million of cash was provided by operating activities. The Company funded
increases in accounts receivable and unbilled contract costs and fees of
$6.8 million and $7.8 million, respectively. The increase in accounts
receivable is primarily due to higher revenues at Thermo Remediation's
IEM Sealand, ReTec, and Thermo Fluids subsidiaries. The increase in
39PAGE
Thermo TerraTech Inc. 1997 Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources (continued)
unbilled contract costs and fees was due to an increase in
thermal-processing equipment contracts and remediation contracts at
ReTec.
Excluding purchases, sales, and maturities of available-for-sale
investments, the Company's investing activities primarily consisted of
acquisitions and capital additions. During fiscal 1997, the Company and
Thermo Remediation each acquired companies for an aggregate of $3.9
million in cash, 311,040 shares of Thermo Remediation's common stock
valued at $2.0 million, and the issuance of $1.3 million of short- and
long-term obligations. The Company also acquired Metal Treating from
Thermo Electron in exchange for $1.6 million in cash. During fiscal 1997,
the Company expended $15.4 million for purchases of property, plant, and
equipment.
In fiscal 1997, the Company's financing activities provided $51.7
million of cash. In May 1996, the Company issued and sold $115.0 million
principal amount of 4 5/8% subordinated convertible debentures due 2003.
In May 1996, the Company repaid its $15.0 million and $35.0 million notes
payable to Thermo Electron with proceeds from the offering. The Boards of
Directors of the Company and Thermo Remediation each authorized the
repurchase, through August 23, 1997 and September 10, 1997, respectively,
of up to $10.0 million of their own securities. Through March 29, 1997,
the Company and Thermo Remediation had expended $6.7 million and $8.3
million, respectively, under these authorizations. In addition, from
March 30, 1997, through May 23, 1997, the Company and Thermo Remediation
repurchased an additional $2.9 million and $0.4 million, respectively,
under these authorizations. All such purchases are funded from working
capital.
The Company's $38.0 million promissory note to Thermo Electron is due
in June 1997. Thermo Electron has indicated its intention to require that
the Company's indebtedness to Thermo Electron be repaid to the extent the
Company's liquidity and cash flow permit. In addition, the remaining
$13.4 million principal amount of the Company's 6 1/2% subordinated
convertible debentures is due in August 1997.
In May 1997, Thermo Remediation acquired TriTechnics Corporation, an
environmental consulting and engineering firm, which provides
comprehensive consulting and remedial services at refinery and
chemical-plant sites, for approximately $1.6 million in cash. In
addition, in May 1997, the Company purchased a controlling interest in
Randers, a provider of design engineering, project management, and
construction services for industrial clients in the manufacturing,
pharmaceutical, and chemical-processing industries, for approximately
$4.7 million (Note 17).
Although the Company has no other material commitments to acquire
other businesses or for capital expenditures, such expenditures will
largely be affected by the number and size of the complementary
businesses that can be acquired or developed during the year. The Company
believes that it has adequate resources to meet the financial needs of
its current operations for the foreseeable future.
40PAGE
Thermo TerraTech Inc. 1997 Financial Statements
Forward-looking Statements
In connection with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, the Company wishes to caution
readers that the following important factors, among others, in some cases
have affected, and in the future could affect, the Company's actual
results and could cause its actual results in fiscal 1998 and beyond to
differ materially from those expressed in any forward-looking statements
made by, or on behalf of, the Company.
Dependence on Environmental Regulation. Federal, state, and local
environmental laws govern each of the markets in which the Company
conducts business, as well as many of the Company's operations. The
markets for many of the Company's services, including industrial-
remediation services, nuclear-remediation services, hazardous waste-
remedial construction services, soil-remediation services, waste-fluids
recycling services, consulting and design services, and laboratory
services, and the standards governing most aspects of the construction
and operation of the Company's facilities, were directly or indirectly
created by, and are dependent on, the existence and enforcement of those
laws. There can be no assurance that these laws and regulations will not
change in the future, requiring new technologies or stricter standards
with which the Company must comply. In addition, there can be no
assurance that these laws and regulations will not be made more lenient
in the future, thereby reducing the size of the markets addressed by the
Company. Any such change in such federal, state, and local environmental
laws and regulations may have a material adverse effect on the Company's
business.
Responsibility for establishing and enforcing certain federal
policies, such as the federal underground storage tank policy, has been
delegated to the states, which are not only required to establish
regulatory programs, but also are permitted to mandate more stringent
requirements than are otherwise required by federal law. Currently, many
states are considering adopting a "risk-based" approach to prioritizing
site cleanups and setting cleanup standards, which attempts to balance
the costs of remediation against the potential harm to human health and
the environment from leaving sites unremediated. There can be no
assurance that these policies, if implemented, will not reduce the size
of the potential market addressed by the Company.
Potential Environmental and Regulatory Liability. The Company's
operations are subject to comprehensive laws and regulations related to
the protection of the environment. Among other things, these laws and
regulations impose requirements to control air, soil, and water
pollution, and regulate health, safety, zoning, land use, and the
handling and transportation of hazardous and nonhazardous materials. Such
laws and regulations also impose liability for remediation and cleanup of
environmental contamination, both on-site and off-site, resulting from
past and present operations. These requirements may also be imposed as
conditions of operating permits or licenses that are subject to renewal,
modification, or revocation. Existing laws and regulations, and new laws
and regulations, may require the Company to modify, supplement, replace,
or curtail its operating methods, facilities, or equipment at costs which
may be substantial without any corresponding increase in revenue. The
Company is also potentially subject to monetary fines, penalties,
41PAGE
Thermo TerraTech Inc. 1997 Financial Statements
Forward-looking Statements
remediation, cleanup or stop orders, injunctions, or orders to cease or
suspend certain of its practices. The outcome of any proceedings and
associated costs and expenses could have a material adverse impact on the
Company's business. In addition, the Company is subject to numerous laws
and regulations related to the protection of human health and safety.
Such laws and regulations may pose liability on the Company for exposure
of its employees to radiation or other hazardous contamination or failure
to isolate and remove radioactive or other hazardous contaminants from
soil.
The Company endeavors to operate its business to minimize its
exposure to environmental and other regulatory liabilities. Although no
claims giving rise to such liabilities have been asserted by the
Company's customers or employees to date, there can be no assurance that
such claims cannot or will not be asserted against the Company.
Uncertainty of Funding. Remediation compliance requirements and
attendant costs are often beyond the financial capabilities of many
individuals and small companies. To address this problem, some states
have established tax-supported trust funds to assist in the financing of
compliance and site remediation. As a consequence, in many of the states
in which the Company markets its soil-remediation services, the majority,
and in some cases virtually all, of the soil-remediated by the Company is
paid for by large companies and/or these state trust funds. Any
substantial decrease in this funding could have a material adverse effect
on the Company's business and financial performance. Many states have
realized that the number of sites requiring remediation and the costs of
compliance are substantially higher than were originally estimated. As a
result, several states have relaxed enforcement activities and others
have reduced compliance requirements in order to reduce the costs of
cleanup. These factors have already resulted in lower levels of cleanup
activity in some states. Continued de-emphasis on enforcement activities
and/or further reductions in compliance requirements will have a more
severe adverse effect on the Company's business.
The Company depends on funding from the federal and state
governments, and their agencies and instrumentalities, for compensation
for its services. For example, Thermo Nutech provides a large portion of
its services directly or indirectly to the U.S. Department of Energy
(DOE) and the Company's consulting and design businesses perform
significant amounts of services for state and municipal government.
Thermo Nutech has experienced a decrease in its radiochemistry laboratory
work as a result of ongoing reductions in spending at the DOE as well as
a shift in DOE spending from investigative work to cleanup work.
Continued declines in spending by DOE and other governmental agencies
could have a material adverse effect on the Company's business.
Competition. The markets for many of the Company's services are
regional and are characterized by intense competition from numerous local
competitors. Some of the Company's competitors have greater technical and
financial resources than those of the Company. As a result, they may be
able to adapt more quickly to new or emerging technologies and changes in
customer requirements, or to devote greater resources to the promotion
and sale of their services than the Company. Competition could increase
if new companies enter the market or its existing competitors expand
42PAGE
Thermo TerraTech Inc. 1997 Financial Statements
Forward-looking Statements
their service lines. There can be no assurance that the Company's current
technology, technology under development, or ability to develop new
technologies will be sufficient to enable it to compete effectively with
its competitors.
Seasonal Influences. A majority of the Company's businesses
experience seasonal fluctuations. A majority of the Company's
soil-remediation sites, as well as the Company's fluids-recycling sites,
experience declines in severe weather conditions. Site remediation work
and certain environmental testing services, such as the services provided
by Lancaster Laboratories, ReTec, Killam Associates, IEM Sealand, and
Thermo Nutech, may decline in winter months as a result of severe weather
conditions. In Europe, Thermo EuroTech may experience a decline in the
feedstock delivered to its facilities during winter months, due to frozen
waterways.
Possible Obsolescence Due to Technological Change. Technological
developments are expected to continue at a rapid pace in the
environmental services industry. The Company's technologies could be
rendered obsolete or uneconomical by technological advances by one or
more companies that address the Company's markets or by future entrants
into the industry. There can be no assurance that the Company would have
the resources to, or otherwise would be successful in, developing
responses to technological advances by others.
Dependence of Thermo EuroTech on Availability of Waste Oil Supplies.
Thermo EuroTech's North Refinery facility has historically received a
large percentage of its oil feedstock from the former Soviet Union. North
Refinery no longer receives any oil from that nation, due to political
and economic changes that have made the transportation of waste oil
difficult. To overcome this loss of supply, North Refinery has taken
steps to replace and diversify its feedstock suppliers. No assurance can
be given, however, that North Refinery will not experience future
disruptions in deliveries. Any such disruptions could have a material
adverse effect on the Company's results of operations.
Risks Associates with Acquisition Strategy. The Company's strategy
includes the acquisition of businesses that complement or augment the
Company's existing services. Promising acquisitions are difficult to
identify and complete for a number of reasons, including competition
among prospective buyers and the need for regulatory approvals. Any
acquisitions completed by the Company may be made at substantial premiums
over the fair value of the net assets of the acquired companies. There
can be no assurance that the Company will be able to complete future
acquisitions or that the Company will be able to successfully integrate
any acquired businesses. In order to finance such acquisitions, it may be
necessary for the Company to raise additional funds through public or
private financings. Any equity or debt financing, if available at all,
may be on terms that are not favorable to the Company and, in the case of
equity financing, may result in dilution to the Company's shareholders.
Risks Associated with Spin-out of Subsidiaries. The Company has
adopted a strategy of spinning out certain of its businesses into
separate subsidiaries and having these subsidiaries sell a majority
43PAGE
Thermo TerraTech Inc. 1997 Financial Statements
Forward-looking Statements
interest to outside investors. As a result of the sale of stock by
subsidiaries, the issuance of stock by subsidiaries upon conversion of
convertible debentures, and similar transactions, the Company records
gains that represent the increase in the Company's net investment in the
subsidiaries. These gains have represented a substantial portion of the
net income reported by the Company in certain periods. The size and
timing of these transactions are dependent on market and other conditions
that are beyond the Company's control. Accordingly, there can be no
assurance that the Company will be able to generate gains from such
transactions in the future.
In addition, in October 1995, the Financial Accounting Standards
Board (FASB) issued an exposure draft of a Proposed Statement of
Financial Accounting Standards, "Consolidated Financial Statements:
Policy and Procedures" (the Proposed Statement). The Proposed Statement
would establish new rules for how consolidated financial statements
should be prepared. If the Proposed Statement is adopted, there could be
significant changes in the way the Company records certain transactions
of its controlled subsidiaries. Among those changes, any sale of the
stock of a subsidiary that does not result in a loss of control would be
accounted for as a transaction in equity of the consolidated entity with
no gain or loss being recorded. The FASB expects to issue a final
statement or a revised exposure draft in calendar 1997.
No Assurance of Development and Commercialization of Technology Under
Development. The Company is currently engaged in the development of
several technologies which may ultimately be commercialized to provide
services to customers. There are a number of technological challenges
that the Company must successfully address to complete any of its
development efforts. Technology development involves a high degree of
risk, and returns to investors are dependent upon successful development
and commercialization of such technology. There can be no assurance that
any of the technology currently being developed by the Company, or those
to be developed in the future by the Company, will be technologically
feasible or accepted by the marketplace, or that any such development
will be completed in any particular timeframe.
44PAGE
Thermo TerraTech Inc. 1997 Financial Statements
Selected Financial Information (a)
(In thousands except
per share amounts) 1997(b) 1996(c) 1995(d) 1994(e) 1993
-------------------------------------------------------------------------
Statement of Operations Data:
Revenues $278,503 $220,484 $136,985 $112,865 $107,634
Income (loss) before
cumulative effect
of change in
accounting principle (162) 3,447 4,476 3,507 3,396
Net income (loss) (162) 3,447 4,476 4,007 3,396
Earnings (loss) per
share before
cumulative effect
of change in
accounting principle (.01) .19 .26 .21 .20
Earnings (loss) per
share (.01) .19 .26 .24 .20
Balance Sheet Data:
Working capital $ 77,315 $ 66,008 $ 63,459 $ 50,310 $ 48,267
Total assets 393,784 333,656 273,298 157,161 135,738
Long-term obligations 165,186 155,384 96,851 18,732 18,743
Shareholders'
investment 83,526 85,870 77,217 62,239 57,290
(a)Historical results have been restated to reflect the acquisition of
Metal Treating, Inc., accounted for at historical cost in a manner
similar to a pooling-of-interests.
(b)Reflects $7.8 million of nonrecurring costs and a loss $1.5 million
relating to the sale of the Company's J. Amerika division. Also
reflects the issuance of $115.0 million principal amount of 4 7/8%
subordinated convertible debentures, and a gain on issuance of stock
by subsidiaries of $1.5 million.
(c)Reflects the acquisition of Lancaster Laboratories in May 1995, the
purchase of the businesses formerly operated by the environmental
services joint venture from Thermo Instrument, and the issuance of a
$35.0 million promissory note to Thermo Electron to fund the
purchase. Reflects Thermo Remediation's acquisition of ReTec in
December 1995, the issuance of $38.0 million principal amount of
4 7/8% subordinated convertible debentures by Thermo Remediation, and
a gain on issuance of stock by subsidiaries of $4.1 million. Also
reflects the write-off of goodwill of $5.0 million and a loss on the
sale of assets of $0.6 million.
(d)Reflects the acquisitions of RMC Environmental Services, Inc. in
August 1994 and Killam Associates in February 1995, and the issuance
of $53.0 million of long-term promissory notes to Thermo Electron.
Also reflects Thermo EuroTech's acquisition of North Refinery in
March 1995.
(e)Reflects the adoption of Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes."
45PAGE
Thermo TerraTech Inc. 1997 Financial Statements
Common Stock Market Information
The following table shows the market range for the Company's common
stock based on reported sale prices on the American Stock Exchange
(symbol TTT) for fiscal 1997 and 1996.
1997 1996
----------------- -----------------
Quarter High Low High Low
-----------------------------------------------------------------------
First $14 3/8 $11 3/4 $12 3/8 $ 8 1/2
Second 12 1/2 10 1/4 12 7/8 11 1/8
Third 10 7/8 9 13 1/8 10 3/4
Fourth 9 7/8 8 3/4 14 5/8 10 7/8
As of May 23, 1997, the Company had 1,035 holders of record of its
common stock. This does not include holdings in street or nominee names.
The closing market price on the American Stock Exchange for the Company's
common stock on May 23, 1997, was $10 7/8 per share.
Common stock of Thermo Remediation Inc., the Company's majority-owned
public subsidiary, is traded on the American Stock Exchange (symbol THN).
Shareholder Services
Shareholders of Thermo TerraTech Inc. who desire information about
the Company are invited to contact John N. Hatsopoulos, Chief Financial
Officer, Thermo TerraTech Inc., 81 Wyman Street, P.O. Box 9046, Waltham,
Massachusetts 02254-9046, (617) 622-1111. A mailing list is maintained to
enable shareholders whose stock is held in street name, and other
interested individuals, to receive quarterly reports, annual reports, and
press releases as quickly as possible. Beginning in fiscal 1997,
quarterly distribution of printed reports will be limited to the second
quarter report only. All quarterly reports and press releases are
available through the Internet from Thermo Electron's home page on the
World Wide Web (http://www.thermo.com/subsid/ttt.html).
Stock Transfer Agent
American Stock Transfer & Trust Company is the stock transfer agent
and maintains shareholder activity records. The agent will respond to
questions on issuance of stock certificates, change of ownership, lost
stock certificates, and change of address. For these and similar matters,
please direct inquiries to:
American Stock Transfer & Trust Company
Shareholder Services Department
40 Wall Street, 46th Floor
New York, New York 10005
(718) 921-8200
46PAGE
Thermo TerraTech Inc. 1997 Financial Statements
Dividend Policy
The Company has never paid cash dividends and does not expect to pay
cash dividends in the foreseeable future because its policy has been to
use earnings to finance expansion and growth. Payment of dividends will
rest within the discretion of the Company's Board of Directors and will
depend upon, among other factors, the Company's earnings, capital
requirements, and financial condition.
Form 10-K Report
A copy of the Annual Report on Form 10-K for the fiscal year ended
March 29, 1997, as filed with the Securities and Exchange Commission, may
be obtained at no charge by writing to John N. Hatsopoulos, Chief
Financial Officer, Thermo TerraTech Inc., 81 Wyman Street, P.O. Box 9046,
Waltham, Massachusetts 02254-9046.
Annual Meeting
The annual meeting of shareholders will be held on Wednesday,
September 24, 1997, at 10:30 a.m. at Thermo Electron Corporation, 81
Wyman Street, Waltham, Massachusetts.