SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------------------------------------------
FORM 10-K
(mark one)
[ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended April 3, 1999
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number 0-18095
THE RANDERS KILLAM GROUP INC.
(Exact name of Registrant as specified in its charter)
Delaware 38-2788025
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
27 Bleeker Street
Millburn, New Jersey 07041
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (781) 622-1000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, $.0001 par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to the filing requirements for
at least the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference into Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant as of April 30, 1999, was approximately $2,411,412.
As of April 30, 1999, the Registrant had 25,429,344 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Fiscal 1999 Annual Report to Shareholders for the
year ended April 3, 1999, are incorporated by reference into Parts I and II.
Portions of the Registrant's definitive Proxy Statement for the Annual Meeting
of Shareholders to be held on September 16, 1999, are incorporated by reference
into Part III.
<PAGE>
PART I
Item 1. Business
(a) General Development of Business
The Randers Killam Group Inc. (the Company or the Registrant, formerly the
Randers Group Incorporated) provides comprehensive engineering and outsourcing
services and operates in four segments: Water and Wastewater Treatment, Process
Engineering and Construction, Highway and Bridge Engineering, and Infrastructure
Engineering.
In January 1999, the Company's name was changed from The Randers Group
Incorporated to The Randers Killam Group Inc.
The Company's strategy is to market its technical expertise and low-cost
solutions to a broad base of clients including municipalities, government
agencies, and companies in the manufacturing, pharmaceutical, and
chemical-processing industries. The Company's Killam subsidiaries comprise the
Water and Wastewater Treatment segment and provide environmental consulting and
engineering services and specialize in wastewater treatment and water resources
management. The Company's Randers subsidiaries, which constitute the Process
Engineering and Construction segment, provide design engineering, project
management, and construction services for industrial clients. The Company's BAC
Killam Inc. subsidiary represents the Company's Highway and Bridge Engineering
segment and provides transportation planning and design services. The
Infrastructure Engineering segment, comprised of CarlanKillam Consulting Group,
Inc., provides transportation and environmental consulting, professional
engineering, and architectural services.
The Company was originally organized as a partnership in January 1974, and
was incorporated in January 1976. In May 1997, Thermo TerraTech Inc. purchased a
controlling interest in The Randers Group Incorporated (Randers). Subsequently,
Thermo TerraTech entered into a definitive agreement to transfer its wholly
owned subsidiary, The Killam Group, to Randers in exchange for newly issued
shares of Randers' common stock. As a result of these transactions, The Killam
Group was deemed to be the "accounting acquiror," and historical results for
Randers have been restated to solely reflect the financial information of The
Killam Group for periods prior to May 12, 1997, and to reflect the combined
results of The Killam Group and Randers (collectively, the Company or the
Registrant) from May 12, 1997, the date on which Thermo TerraTech became the
majority-owner of Randers. See Note 2 to Consolidated Financial Statements in
the Registrant's Fiscal 1999* Annual Report to Shareholders, which information
is incorporated herein by reference.
In May 1999, the Company announced plans to sell three businesses
including the Randers division, which constitutes the Company's Process
Engineering and Construction segment, and BAC Killam Inc., which represents the
Company's Highway and Bridge Engineering segment. The third business that will
be sold, E3-Killam, Inc., represents a small component of the Water and
Wastewater Treatment segment. In connection with the planned sale of these
businesses, the Company expects to record pretax charges of approximately $15
million, primarily in the first quarter of fiscal 2000. These charges primarily
represent the excess of book value of the businesses over the estimated proceeds
from sale. Revenues and operating losses of these business units in fiscal 1999
aggregated $31.7 million and $0.5 million, respectively.
As of April 3, 1999, Thermo TerraTech owned 24,110,210 shares of the
Company's common stock, representing 95% of the Company's stock outstanding. An
87%-owned public subsidiary of Thermo Electron Corporation, Thermo TerraTech
provides industrial outsourcing services and manufacturing support encompassing
a broad range of specializations, including infrastructure engineering, design
and construction, environmental compliance, laboratory-testing and metal
treating.
- --------------------
* References to fiscal 1999, 1998, and 1997 herein are for the fiscal years
ended April 3, 1999, April 4, 1998, and March 29, 1997, respectively.
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As of April 3, 1999, Thermo Electron owned 251,000 shares of the Company's
common stock, representing 1% of the Company's stock outstanding. Thermo
Electron is a world leader in monitoring, analytical, and biomedical
instrumentation; biomedical products including heart-assist devices,
respiratory-care equipment, and mammography systems; and paper recycling and
papermaking equipment. Thermo Electron also develops alternative-energy systems
and clean fuels, provides a range of services including industrial outsourcing
and environmental-liability management, and conducts research and development in
advanced imaging, laser, and electronic information-management technologies.
Thermo Electron has announced a proposed reorganization involving certain
of Thermo Electron's subsidiaries, including the Company. Under this plan, the
Company and its sister subsidiary, ThermoRetec Corporation, as well as their
parent company, Thermo TerraTech, would be merged into Thermo Electron. The
public shareholders of the Company, ThermoRetec, and Thermo TerraTech would
receive common stock in Thermo Electron in exchange for their shares. The
completion of these transactions is subject to numerous conditions, as outlined
in Note 11 to Consolidated Financial Statements in the Registrant's Fiscal 1999
Annual Report to Shareholders, which information is incorporated herein by
reference.
Forward-looking Statements
Forward-looking statements, within the meaning of Section 21E of the
Securities Exchange Act of 1934, are made throughout this Annual Report on Form
10-K. For this purpose, any statements contained herein that are not statements
of historical fact may be deemed to be forward-looking statements. Without
limiting the foregoing, the words "believes," "anticipates," "plans," "expects,"
"seeks," "estimates," and similar expressions are intended to identify
forward-looking statements. There are a number of important factors that could
cause the results of the Company to differ materially from those indicated by
such forward-looking statements, including those detailed under the heading
"Forward-looking Statements" in the Registrant's Fiscal 1999 Annual Report to
Shareholders, which statements are incorporated herein by reference.
(b) Financial Information About Segments
Financial information concerning the Company's segments is summarized in
Note 9 to Consolidated Financial Statements in the Registrant's Fiscal 1999
Annual Report to Shareholders, which information is incorporated herein by
reference.
(c) Description of Business
(i) Principal Services and Products
A substantial portion of the Company's sales are made to existing
customers on a repeat basis. The Company's services are often performed as
multi-year studies. In addition to federal, state, and local governments,
customers include public utilities, waste management companies, oil refineries,
mining companies, chemical manufacturers, architectural and engineering firms,
and a variety of service companies involved with real estate transactions.
Water and Wastewater Treatment
Through the Company's Killam Associates, Inc., Duncan, Lagnese and
Associates, Incorporated, Killam Management and Operational Services, Inc., and
E3-Killam, Inc. subsidiaries, the Company specializes in the design, planning,
and construction observation of municipal and privately owned water treatment
plants, wastewater treatment plants, and hazardous wastewater facilities. The
Company provides full-service contract operations to plant owners in the private
and public sectors. These services facilitate regulatory compliance, optimize
day-to-day plant operations, reduce costs, provide competent and experienced
personnel, and promote good community relations.
3
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Process Engineering and Construction
The Company's Randers division, comprised of Randers Engineering, Inc.,
Redeco Incorporated, and Viridian Technology Incorporated, provides design
engineering, project management, and construction services for industrial
clients in the manufacturing, pharmaceutical, and chemical-processing
industries. The principal geographic region served is the Michigan, Ohio, and
Illinois area of the Mid-West, as well as Massachusetts and West Virginia.
The Company offers complete outsourcing services, from the design stage
through construction, for manufacturing equipment, systems, and plants, as well
as office buildings, warehouses, laboratories, and other structures for its
manufacturing clients.
Highway and Bridge Engineering
The Company's BAC Killam Inc. subsidiary provides both private and public
sector clients with a broad range of consulting services that address
transportation planning and design. Projects include bridge inspection, rating,
and rehabilitation; new bridge design; highway corridor planning studies for new
route alignment of major state highways; design of the reconstruction and
widening of existing major roads; construction inspection on highway and bridge
projects; infrastructure engineering, survey, and land-use planning; natural
resource management; and environmental-impact studies.
Infrastructure Engineering
The Company's CarlanKillam Consulting Group, Inc. subsidiary provides
transportation and environmental consulting, professional engineering, and
architectural services. CarlanKillam is also a leader in the design of
innovative solutions to traffic problems and transportation needs.
(ii) New Products
The Company has made no commitments to new products that would require the
investment of a material amount of the Company's assets.
(iii)Raw Materials
Since the Company's business is service oriented, it does not involve the
processing of raw materials and is not dependent on fluctuations in the supply
or price of raw materials. To date, the Company has not experienced any
difficulty in obtaining any of the materials or components used in its
operations and does not foresee any such difficulty in the future. The Company
has multiple sources for all of its significant raw material needs.
(iv) Patents, Licenses and Trademarks
The Company does not own or license any patents, trademarks, licenses,
franchises, or concessions which are material to the Company's business. The
Company believes that its business depends primarily upon the technical and
marketing expertise of its personnel.
(v) Seasonal Influences
A majority of the Company's businesses experience seasonal fluctuations.
Site investigation work and certain environmental testing services may decline
in winter months as a result of severe weather conditions.
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(vi) Working Capital Requirements
In general, there are no special inventory requirements or credit terms
extended to customers that would have a material adverse effect on the Company's
working capital.
(vii) Dependency on a Single Customer
No single customer accounted for more than 10% of the Company's total
revenues in any of the past three years.
(viii) Backlog
<TABLE>
<CAPTION>
The Company's backlog of firm orders at fiscal year-end 1999 and 1998 was:
(In thousands) 1999 1998
- ----------------------------------------------------------------------------------- ----------- ----------
<S> <C> <C>
Water and Wastewater Treatment $26,911 $30,825
Process Engineering and Construction 5,753 9,775
Highway and Bridge Engineering 16,103 9,448
Infrastructure Engineering 6,765 3,621
------- -------
$55,532 $53,669
======= =======
Included in the Company's backlog at fiscal year-end 1999 and 1998 is the
incomplete portion of contracts that are accounted for using the
percentage-of-completion method. Certain of these contracts are subject to
cancellation by the customer upon payment of a cancellation charge. Of the
fiscal 1999 backlog amount, substantially all orders are expected to be filled
within fiscal 2000.
(ix) Government Contracts
Not applicable.
(x) Competition
The Company's businesses are engaged in highly competitive markets in all
of its service areas and in all four of its segments. These markets tend to be
regional. In its geographic service area, competition consists of small, one-to
three-person firms offering a limited scope of services, as well as much larger
firms that may be regional, national, or international in the scope of services
they offer. The principal competitive factors for the Company are: reputation;
experience; breadth and quality of services offered; and technical, managerial,
and business proficiency.
The Company's Water and Wastewater Treatment segment competes primarily
with Camp Dresser and McKee Inc., CH2M Hill Companies, Ltd., Montgomery Watson
Inc., and URS Greiner Woodward Clyde.
Competitors in the Process Engineering and Construction segment include
Jacobs Engineering Group, Inc., Flour-Daniels, Kraevernor, and Earth Tech.
The Company's Highway and Bridge Engineering segment competes primarily
with STV Group Inc., Parsons Brinckerhoff Inc., Edwards Kelcey Inc., and URS
Greiner Woodward Clyde.
Competitors in the Infrastructure Engineering segment include STV Group
Inc., Parsons Brinckerhoff Inc., Edwards Kelcey Inc., URS Greiner Woodward
Clyde, and Post Buckley Schuh & Jernigan Inc.
</TABLE>
5
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(xi) Environmental Protection Regulations
The Company believes that compliance by the Company with federal, state,
and local environmental protection regulations will not have a material adverse
effect on its capital expenditures, earnings, or competitive position.
(xii) Number of Employees
As of April 3, 1999, the Company employed approximately 650 people. None
of the Company's employees are represented by a union. The Company believes that
relations with its employees are good.
(d) Financial Information About Geographic Areas
Not applicable.
(e) Executive Officers of the Registrant
<TABLE>
<CAPTION>
<S> <C> <C>
Name Age Present Title (Fiscal Year First Became Executive
Officer)
---------------------------- ------ -----------------------------------------------------
Emil C. Herkert 61 President and Chief Executive Officer (1998)
Nicholas M. DeNichilo 47 Vice President (1997)
Thomas R. Eurich 53 Vice President (1976)
Theo Melas-Kyriazi 39 Chief Financial Officer (1999)
Paul F. Kelleher 56 Chief Accounting Officer (1997)
Each executive officer serves until his successor is chosen or
appointed by the Board of Directors and qualified or until earlier
resignation, death, or removal. Mr. Herkert was appointed Chief Executive
Officer of the Company in May 1997 and President in November 1997. Prior
thereto, Mr. Herkert had served as President of Killam Associates since
1977. Mr. Herkert has also served as a Vice President of Thermo TerraTech
since 1996. Mr. DeNichilo was appointed Vice President in 1997. Prior to
that time he served as a Vice President of Killam Associates since 1985.
Mr. Eurich served as President of Randers from 1976 until the date of its
agreement to acquire The Killam Group in 1997, at which time Mr. Eurich was
appointed Vice President of the Company. Mr. Melas-Kyriazi was appointed
Chief Financial Officer of the Company and Thermo Electron on January 1,
1999. He joined Thermo Electron in 1986 as Assistant Treasurer, and became
Treasurer in 1988. He was named President and Chief Executive Officer of
ThermoSpectra Corporation, a public subsidiary of Thermo Instrument Systems
Inc. in 1994, a position he held until becoming Vice President of Corporate
Strategy for Thermo Electron in 1998. Mr. Melas-Kyriazi remains a Vice
President of Thermo Electron. Mr. Kelleher has held comparable positions
for at least five years with Thermo TerraTech and Thermo Electron. Messrs.
Melas-Kyriazi and Kelleher are full-time employees of Thermo Electron, but
devote such time to the affairs of the Company as the Company's needs
reasonably require.
Item 2. Properties
The location and general character of the Company's properties by business
segment as of April 3, 1999, are:
Water and Wastewater Treatment
The Company owns approximately 50,000 square feet of office, laboratory,
and engineering space in New Jersey. The Company leases approximately 53,000
square feet of office and engineering space in Pennsylvania, New Jersey, New
York, Massachusetts, and West Virginia, under leases expiring through 2003.
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Process Engineering and Construction
The Company owns approximately 11,000 square feet of office and
engineering space in Michigan. The Company leases approximately 17,000 square
feet of office and engineering space in Michigan, West Virginia, Ohio, and
Massachusetts, under leases expiring through 2003.
Highway and Bridge Engineering
The Company leases approximately 34,000 square feet of office and
engineering space in New York and New Jersey, under leases expiring through
2005.
Infrastructure Engineering
The Company leases approximately 24,000 square feet of office and
engineering space in Florida and Alabama, under leases expiring through 2000.
The Company believes that these facilities are adequate for its present
operations and that other suitable space is readily available if any of such
leases are not extended.
Item 3. Legal Proceedings
Not applicable.
Item 4. Submission of Matters to a Vote of the Security Holders
On January 28, 1999, at a Special Meeting in Lieu of the 1998 Annual
Meeting of the Stockholders (the "Special Meeting"), the stockholders
elected five incumbent directors to a one-year term expiring in 1999. The
Directors elected at the meeting were: Dr. John P. Appleton, Mr. Thomas R.
Eurich, Mr. Emil C. Herkert, Dr. Susan F. Tierney, and Mr. Polyvios C.
Vintiadis. Dr. Appleton and Mr. Herkert each received 12,887,447 shares
voted in favor of his election and 48,595 shares voted against. Mr. Eurich
received 12,892,847 shares voted in favor of his election and 43,195 shares
voted against. Dr. Tierney received 12,903,847 shares voted in favor of her
election and 32,195 shares voted against. Mr. Vintiadis received 12,872,847
shares voted in favor of his election and 63,195 shares voted against. No
abstentions or broker "non-votes" were recorded on the election of
directors.
At the Special Meeting, five other proposals were approved by the
stockholders. The stockholders approved a proposal to effect a reverse stock
split of one share for every five shares outstanding of the Company's Common
Stock as follows: 12,838,062 shares were voted in favor of the proposal, 67,800
shares were voted against, 30,180 shares abstained, and no broker "non-votes"
were recorded on the proposal. The stockholders approved a proposal to approve
the listing on the American Stock Exchange's Emerging Company Marketplace of
22,606,210 shares of Common Stock to be issued in connection with the
acquisition by the Company of all of the outstanding shares of The Killam Group
Inc. as follows: 11,480,557 shares were voted in favor of the proposal, 54,800
shares were voted against, 37,380 shares abstained, and no broker "non-votes"
were recorded on the proposal. The stockholders approved a proposal to amend the
Company's Certificate of Incorporation to change the name of the Company to "The
Randers Killam Group Inc." as follows: 12,878,787 shares were voted in favor of
the proposal, 29,000 shares were voted against, 28,255 shares abstained, and no
broker "non-votes" were recorded on the proposal. The stockholders approved a
proposal to adopt an equity incentive plan and to reserve 2,000,000 shares of
Common Stock for issuance thereunder as follows: 9,673,435 shares were voted in
favor of the proposal, 117,400 shares were voted against, 1,781,902 shares
abstained, and no broker "non-votes" were recorded on the proposal. The
stockholders approved a proposal to adopt a deferred compensation plan for
directors and to reserve 25,000 shares of Common Stock for issuance thereunder
as follows: 11,352,907 shares were voted in favor of the proposal, 179,300
shares were voted against, 40,530 shares abstained, and no broker "non-votes"
were recorded on the proposal.
7
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Information concerning the market and market price for the Registrant's
common stock, $.0001 par value, and dividend policy is included under the
sections labeled "Common Stock Market Information" and "Dividend Policy" in the
Registrant's Fiscal 1999 Annual Report to Shareholders and is incorporated
herein by reference.
Item 6. Selected Financial Data
The information required under this item is included under the sections
labeled "Selected Financial Information" and "Dividend Policy" in the
Registrant's Fiscal 1999 Annual Report to Shareholders and is incorporated
herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The information required under this item is included under the heading
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Registrant's Fiscal 1999 Annual Report to Shareholders and is
incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The information required under this item is included under the heading
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Registrant's Fiscal 1999 Annual Report to Shareholders and is
incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The Registrant's Consolidated Financial Statements as of April 3, 1999,
and Supplementary Data are included in the Registrant's Fiscal 1999 Annual
Report to Shareholders and are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
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PART III
Item 10. Directors and Executive Officers of the Registrant
The information concerning directors required under this item is
incorporated herein by reference from the material contained under the caption
"Election of Directors" in the Registrant's definitive proxy statement to be
filed with the Securities and Exchange Commission pursuant to Regulation 14A,
not later than 120 days after the close of the fiscal year. The information
concerning delinquent filers pursuant to Item 405 of Regulation S-K is
incorporated herein by reference from the material contained under the heading
"Section 16(a) Beneficial Ownership Reporting Compliance" under the caption
"Stock Ownership" in the Registrant's definitive proxy statement to be filed
with the Securities and Exchange Commission pursuant to Regulation 14A, not
later than 120 days after the close of the fiscal year.
Item 11. Executive Compensation
The information required under this item is incorporated herein by
reference from the material contained under the caption "Executive Compensation"
in the Registrant's definitive proxy statement to be filed with the Securities
and Exchange Commission pursuant to Regulation 14A, not later than 120 days
after the close of the fiscal year.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required under this item is incorporated herein by
reference from the material contained under the caption "Stock Ownership" in the
Registrant's definitive proxy statement to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A, not later than 120 days after
the close of the fiscal year.
Item 13. Certain Relationships and Related Transactions
The information required under this item is incorporated herein by
reference from the material contained under the caption "Relationship with
Affiliates" in the Registrant's definitive proxy statement to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A, not later than
120 days after the close of the fiscal year.
9
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PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a,d) Financial Statements and Schedules
(1)The consolidated financial statements set forth in the list below are
filed as part of this Report.
(2)The consolidated financial statement schedule set forth in the list
below is filed as part of this Report.
(3)Exhibits filed herewith or incorporated herein by reference are set
forth in Item 14(c) below.
List of Financial Statements and Schedules Referenced in this Item 14
Information incorporated by reference from Exhibit 13 filed herewith:
Consolidated Statement of Income
Consolidated Balance Sheet
Consolidated Statement of Cash Flows
Consolidated Statement of Shareholders' Investment
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
Financial Statement Schedules filed herewith:
Schedule II: Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable or not
required, or because the required information is shown either in the
financial statements or in the notes thereto.
(b) Reports on Form 8-K
On February 8, 1999, the Company filed a Current Report on Form 8-K, with
respect to the approval by the Company's shareholders, of: (i) an
amendment to the Company's Certificate of Incorporation changing the
Company's name, and (ii) a one-for-five reverse stock split of the
Company's common stock.
(c) Exhibits
See Exhibit Index on the page immediately preceding exhibits.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed by
the undersigned, thereunto duly authorized.
Date: June 9, 1999 THE RANDERS KILLAM GROUP INC.
By: /s/ Emil C. Herkert
Emil C. Herkert
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated, as of June 9, 1999.
Signature Title
By: /s/ Emil C. Herkert President, Chief Executive Officer, and Director
Emil C. Herkert
By: /s/ Theo Melas-Kyriazi Chief Financial Officer
Theo Melas-Kyriazi
By: /s/ Paul F. Kelleher Chief Accounting Officer
Paul F. Kelleher
By: /s/ John P. Appleton Chairman of the Board and Director
John P. Appleton
By: /s/ Thomas R. Eurich Director
Thomas R. Eurich
By: /s/ Brian D. Holt Director
Brian D. Holt
By: /s/ Susan F. Tierney Director
Susan F. Tierney
By: /s/ Polyvios C. Vintiadis Director
Polyvios C. Vintiadis
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Report of Independent Public Accountants
To the Shareholders and Board of Directors of The Randers Killam Group Inc.:
We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements included in The Randers Killam Group
Inc.'s Annual Report to Shareholders incorporated by reference in this Form
10-K, and have issued our report thereon dated May 11, 1999 (except with respect
to the matters discussed in Note 13 as to which the date is June 1, 1999). Our
audits were made for the purpose of forming an opinion on those statements taken
as a whole. The schedule listed in Item 14 on page 10 is the responsibility of
the Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
consolidated financial statements. This schedule has been subjected to the
auditing procedures applied in the audits of the basic consolidated financial
statements and, in our opinion, fairly states in all material respects the
consolidated financial data required to be set forth therein in relation to the
basic consolidated financial statements taken as a whole.
Arthur Andersen LLP
Boston, Massachusetts
May 11, 1999
</TABLE>
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<TABLE>
<CAPTION>
SCHEDULE II
THE RANDERS KILLAM GROUP INC.
Valuation and Qualifying Accounts
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at
Beginning Provision Accounts Balance
of Charged to Accounts Written at End
Description Year Expense Recovered Off Other (a) of Year
- ----------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Allowance for Doubtful Accounts
Year Ended April 3, 1999 $ 760 $1,059 $ 4 $ (532) $ - $1,291
Year Ended April 4, 1998 $ 706 $ 293 $ 4 $ (352) $ 109 $ 760
Year Ended March 29, 1997 $ 576 $ 149 $ 30 $ (84) $ 35 $ 706
(a) Includes allowances of businesses transferred from parent company as
described in Note 2 to Consolidated Financial Statements in the Registrant's
Fiscal 1999 Annual Report to Shareholders.
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EXHIBIT INDEX
Exhibit
Number Description of Exhibit
2.1 Stock Purchase Agreement between the Thermo Electron Corporation and
the Registrant dated March 13, 1991 (filed as an Exhibit to Schedule
13D filed by Thermo Electron Corporation on March 22, 1991, and
incorporated herein by reference).
2.2 Option granted by Richard A. McEnhill to the Registrant dated March
8, 1991 (filed as an Exhibit to Amendment No. 1 to Schedule 13D filed
by Thermo Electron Corporation on January 27, 1994, and incorporated
herein by reference).
2.3 Option Assignment Agreement between the Registrant and Thermo Power
Corporation dated as of January 19, 1994 (filed as an Exhibit to
Amendment No. 1 to Schedule 13D filed by Thermo Electron Corporation
on January 27, 1994, and incorporated herein by reference).
2.4 Stock Purchase and Sale Agreement dated May 12, 1997, by and between
Thermo TerraTech Inc. and Thomas R. Eurich, Michael J. Krivitzky,
Thomas J. McEnhill, and Bruce M. Bourdon (filed as Exhibit (iv) to
Amendment No. 3 to Schedule 13D filed by Thermo Electron Corporation,
Thermo Power Corporation, and Thermo TerraTech Inc. on May 13, 1997,
and incorporated herein by reference).
2.5 Amendment No. 1 dated September 19, 1997, to Stock Purchase and Sale
Agreement dated May 12, 1997, by and between Thermo TerraTech
Inc. and Thomas R. Eurich, Michael J. Krivitzky, Thomas J.
McEnhill, and Bruce M. Bourdon (filed as Exhibit 2.5 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
April 4, 1998, and incorporated herein by reference).
2.6 Letter of Intent dated May 12, 1997, by and between Thermo TerraTech
Inc. and the Registrant (filed as Exhibit (v) to Amendment No. 3 to
Schedule 13D filed by Thermo Electron Corporation, Thermo Power
Corporation, and Thermo TerraTech Inc. on May 13, 1997, and
incorporated herein by reference).
2.7 Stock Purchase Agreement entered on September 19, 1997, by and
between Thermo TerraTech Inc. and the Registrant (filed as Exhibit
(vii) to Amendment No. 4 to Schedule 13D filed by Thermo Electron
Corporation and Thermo TerraTech Inc. on October 3, 1997, and
incorporated herein by reference).
2.8 Amendment No. 1 dated as of April 4, 1998, to Stock Purchase
Agreement entered on September 19, 1997, by and between Thermo
TerraTech Inc. and the Registrant (filed as Exhibit 2.8 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
April 4, 1998, and incorporated herein by reference).
2.9 Agreement by and among Thermo TerraTech Inc., the Registrant, Thomas
R. Eurich, Michael J. Krivitzky, Thomas J. McEnhill, Bruce M.
Bourdon, and David A. Wiegerink (filed as Exhibit 10 to the
Registrant's Current Report on Form 8-K dated September 19, 1997, and
filed with the Commission on October 3, 1997, and incorporated herein
by reference).
3.1 Certificate of Amendment to Certificate of Incorporation, dated
November 2, 1987 (filed as Exhibit 3(b) to the Registrant's
Registration Statement on Form 10 and incorporated herein by
reference).
3.2 Certificate of Amendment to the Company's Certificate of
Incorporation (filed as Exhibit 3 to Amendment No. 1 to the Company's
Registration Statement on Form 8-A and incorporated herein by
reference).
14
<PAGE>
Exhibit
Number Description of Exhibit
3.3 Amended and Restated By-Laws (filed as Exhibit 3(a) to the
Registrant's Registration Statement on Form 10 and incorporated
herein by reference).
3.4 Amendment to Amended and Restated By-Laws, effective October 28, 1997
(filed as Exhibit 3.4 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended April 4, 1998, and incorporated herein by
reference).
4.1 Specimen Common Stock Certificate (filed as Exhibit 6 to Amendment
No. 1 to the Company's Registration Statement on Form 8-A, and
incorporated herein by reference).
10.1 Development Agreement dated December 1, 1988, between First Venture
Associates Limited Partnership and Redeco Incorporated (filed as
Exhibit 10(a) to the Registrant's Registration Statement on Form 10
and incorporated herein by reference).
10.2 Addendum to Development Agreement between First Venture Associates
Limited Partnership and Redeco Incorporated (filed as Exhibit 10(b)
to the Registrant's Annual Report on Form 10-KSB for the year ended
December 31, 1993, and incorporated herein by reference).
10.3 The Randers Group Incorporated 1988 Stock Option Plan (filed as
Exhibit 10(m) to the Registrant's Registration Statement on Form 10
and incorporated herein by reference).
10.4 Indemnification Agreement, dated November 2, 1987, between The
Registrant and Thomas R. Eurich (filed as Exhibit 10(n) to the
Registrant's Registration Statement on Form 10 and incorporated
herein by reference).
10.5 The Randers Group Incorporated Flexible Compensation Plan (filed as
Exhibit 10(a) to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1991, and incorporated herein by reference).
10.6 Thermo Electron Corporate Charter as amended and restated effective
January 3, 1993 (filed as Exhibit 10.1 to Thermo Electron
Corporation's Annual Report on Form 10-K for the fiscal year ended
January 2, 1993 [File No. 1-8002] and incorporated herein by
reference).
10.7 Corporate Services Agreement dated November 19, 1997, between Thermo
Electron Corporation and the Registrant (filed as Exhibit 10.2 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
January 3, 1998, and incorporated herein by reference).
10.8 Tax Allocation Agreement dated as of November 19, 1997, between the
Registrant and Thermo TerraTech Inc. (filed as Exhibit 10.3 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
January 3, 1998, and incorporated herein by reference).
10.9 Master Repurchase Agreement dated as of November 19, 1997, between
the Registrant and Thermo Electron Corporation (filed as Exhibit 10.6
to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended January 3, 1998, and incorporated herein by reference).
10.10 Master Guarantee Reimbursement and Loan Agreement dated as of
February 26, 1998, between the Registrant and Thermo TerraTech Inc.
(filed as Exhibit 10.10 to the Registrant's Annual Report on Form
10-K for the fiscal year ended April 4, 1998, and incorporated herein
by reference).
15
<PAGE>
Exhibit
Number Description of Exhibit
10.11 Equity Incentive Plan (filed as Exhibit 10.7 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended January 3, 1998,
and incorporated herein by reference).
10.12 Deferred Compensation Plan for Directors (filed as Exhibit 10.8
to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended January 3, 1998, and incorporated herein by
reference).
10.13 Form of Indemnification Agreement for Directors and Officers Form of
Indemnification Agreement with Directors and Officers (filed as
Exhibit 10.9 to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended January 3, 1998, and incorporated herein by
reference).
10.14 Stock Holding Assistance Plan and Form of Loan thereunder (filed as
Exhibit 10.15 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended April 4, 1998, and incorporated herein by
reference).
10.15 Deferred Compensation Agreement dated September 16, 1986, between
Elson T. Killam Associates Inc. and Emil C. Herkert (filed as Exhibit
10.1 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended July 4, 1998, and incorporated herein by reference).
10.16 Addendum dated 1990, to Deferred Compensation Agreement dated
September 16, 1986, between Elson T. Killam Associates Inc. and
Emil C. Herkert (filed as Exhibit 10.2 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended July 4, 1998, and
incorporated herein by reference).
10.17 Amendment No. 1, dated April 27, 1990, a Deferred Compensation
Agreement dated September 16, 1986, between Elson T. Killam
Associates Inc. and Emil C. Herkert (filed as Exhibit 10.3 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended July
4, 1998, and incorporated herein by reference).
10.18 Master Cash Management, Guarantee Reimbursement, and Loan Agreement
dated as of June 1, 1999, between the Registrant and Thermo Electron
Corporation.
13 Annual Report to Shareholders for the year ended April 3, 1999 (only
those portions incorporated herein by reference).
21 Subsidiaries of the Registrant.
27 Financial Data Schedule.
</TABLE>
MASTER CASH MANAGEMENT, GUARANTEE
REIMBURSEMENT AND LOAN AGREEMENT
This AGREEMENT is entered into as of the 1st day of June, 1999 by and
between Thermo Electron Corporation, a Delaware corporation ("Thermo Electron")
and The Randers Killam Group Inc., a Delaware corporation (the "Subsidiary").
WITNESSETH:
WHEREAS, Thermo Electron and the Subsidiary are party to a Master
Repurchase Agreement, as amended and restated, which contains terms governing a
cash management arrangement between them and a Master Guarantee Reimbursement
and Loan Agreement, as amended and restated, which contains terms relating to
intercompany credit support and a short term borrowing facility;
WHEREAS, Thermo Electron and the Subsidiary desire to establish a new cash
management arrangement and short term borrowing facility between them in lieu of
the arrangements set forth in the Master Repurchase Agreement and the Master
Guarantee Reimbursement and Loan Agreement and also to consolidate the terms
relating to intercompany credit support in one agreement;
WHEREAS, the Subsidiary and other majority owned subsidiaries of Thermo
Electron that join in this Agreement (collectively, the "Majority-Owned
Subsidiaries") and their wholly-owned subsidiaries wish to enter into various
financial transactions, such as convertible or nonconvertible debt, loans,
equity offerings, and other contractual arrangements with third parties (the
"Underlying Obligations") and may provide credit support to, on behalf of or for
the benefit of, other subsidiaries of Thermo Electron ("Credit Support
Obligations");
WHEREAS, the Majority Owned Subsidiaries and Thermo Electron acknowledge
that the Majority Owned Subsidiaries and their wholly-owned subsidiaries may be
unable to enter into many kinds of Underlying Obligations without a guarantee of
their performance thereunder from Thermo Electron (a "Parent Guarantee") or
without obtaining Credit Support Obligations from other Majority Owned
Subsidiaries;
WHEREAS, certain Majority Owned Subsidiaries ("Second Tier Majority Owned
Subsidiaries") may themselves be majority owned subsidiaries of other Majority
Owned Subsidiaries ("First Tier Majority Owned Subsidiaries");
WHEREAS, for various reasons, Parent Guarantees of a Second Tier Majority
Owned Subsidiary's Underlying Obligations may be demanded and given without the
respective First Tier Majority Owned Subsidiary also issuing a guarantee of such
Underlying Obligation;
WHEREAS, Thermo Electron may itself make a loan or provide other credit to
a Second Tier Majority Owned Subsidiary or its wholly-owned subsidiaries under
circumstances where the applicable First Tier Majority Owned Subsidiary does not
provide such credit; and
<PAGE>
WHEREAS, Thermo Electron is willing to consider continuing to issue Parent
Guarantees and providing credit, and the Majority Owned Subsidiaries are willing
to consider continuing to provide Credit Support Obligations, on the terms and
conditions set forth below;
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by each party hereto, the parties agree as follows:
1. Cash Management Arrangement. The Subsidiary directly, or through its
wholly-owned U.S. subsidiaries, may, from time to time, lend its excess cash to
Thermo Electron (a "Transaction"), on an unsecured basis, bearing interest at a
rate equal to the 30-day Dealer Commercial Paper Rate as reported in the Wall
Street Journal (the "DCP Rate") plus 50 basis points, which rate shall be
adjusted on the second business day of each fiscal month of the Subsidiary and
shall be in effect for the entirety of such fiscal month. The Subsidiary shall
institute a Transaction by depositing its excess cash in the Subsidiary's
concentration account at BankBoston Corporation ("BankBoston") or other bank
designated by Thermo Electron. At the end of each business day, the cash balance
deposited in the Subsidiary's concentration account shall be transferred to
Thermo Electron's intercompany account at BankBoston or other bank designated by
Thermo Electron. Thermo Electron shall indicate on its books the balance of the
Subsidiary's cash held by Thermo Electron under this arrangement. After each
fiscal month end, Thermo Electron shall provide the Subsidiary a report
indicating the Subsidiary's aggregate cash balance ("Excess Cash") held by
Thermo Electron hereunder. The Subsidiary shall have the right to withdraw all
or part of its Excess Cash upon 30 days' prior notice to Thermo Electron. Within
30 days of receipt of such withdrawal notice, Thermo Electron shall transfer the
portion of the Excess Cash requested for withdrawal to an account designated by
the Subsidiary. Thermo Electron shall maintain, at all times, cash, cash
equivalents and/or immediately available bank lines of credit equal to at least
50% of the cash balances of the Subsidiary and of all other participating
subsidiaries of Thermo Electron, other than wholly-owned subsidiaries of Thermo
Electron, held by Thermo Electron under this arrangement. Interest shall be
payable on the Excess Cash by Thermo Electron to the Subsidiary each fiscal
month in arrears. In addition, the Subsidiary's non-U.S. subsidiaries may, from
time to time, lend or advance their excess cash to Thermo Electron, on an
unsecured basis, bearing interest at rates set by Thermo Electron at the
beginning of each month, based to the extent practicable on comparable interest
rates generally available in the local jurisdiction of such participating
non-U.S. subsidiary. Further, Thermo Electron and such non-U.S. subsidiaries
participating in the cash management arrangement with Thermo Electron shall
establish mutually agreeable procedures governing such cash management
arrangement.
2. Loans and Advances. Upon request from the Subsidiary, Thermo Electron
may make loans and advances to the Subsidiary on a short-term, revolving credit
basis, from time to time, in such amounts as mutually determined by Thermo
Electron and the Subsidiary. The aggregate principal amount of such loans and
advances shall be reflected on the books and records of the Subsidiary and
Thermo Electron. All such loans and advances shall be on an unsecured basis
unless specifically provided otherwise in separate loan documents executed at
that time. The Subsidiary shall pay interest on the aggregate unpaid principal
amount of such loans from time to time outstanding at a rate equal to the DCP
2
<PAGE>
Rate plus one hundred fifty (150) basis points, which rate shall be adjusted on
the second business day of each fiscal month of the Subsidiary and shall be in
effect for the entirety of such fiscal month. If, however, one or more of the
Subsidiary's majority-owned U.S. subsidiaries (i.e., not wholly-owned) is also
participating in the cash management arrangement with Thermo Electron, then the
rate payable on the Subsidiary's outstanding principal balance shall be
calculated as follows: If the aggregate amount of the Subsidiary's
majority-owned U.S. subsidiaries' cash balances under the cash management
arrangement ("Majority-Owned Excess Cash") equals or exceeds the Subsidiary's
outstanding principal balance, then the Subsidiary shall pay interest on the
aggregate unpaid principal amount of such loans at a rate per annum equal to the
DCP Rate plus fifty (50) basis points. If the aggregate amount of the
Majority-Owned Excess Cash is less than the Subsidiary's outstanding principal
balance, then (A) the Subsidiary shall pay interest at a rate per annum equal to
the DCP Rate plus fifty (50) basis points on that portion of the unpaid
principal amount equal to the Majority-Owned Excess Cash, and (B) the Subsidiary
shall pay interest at a rate per annum equal to the DCP Rate plus one hundred
fifty (150) basis points on that portion of the unpaid principal amount equal to
(i) the Subsidiary's outstanding principal balance, minus (ii) the
Majority-Owned Excess Cash. The interest rates set forth in the prior two
sentences shall be adjusted on the second business day of each fiscal month of
the Subsidiary and shall be in effect for the entirety of such fiscal month.
Interest shall be computed on a 360-day basis. Interest is payable each fiscal
month in arrears. The aggregate principal amount outstanding shall be payable
within 30 days of demand by Thermo Electron. Overdue principal and interest
shall bear interest at a rate per annum equal to the rate of interest published
from time to time in the Wall Street Journal as the "prime rate" plus one
percent (1%). The principal and accrued interest may be paid by the Subsidiary
at any time or from time to time, in whole or in part, without premium or
penalty. All payments shall be applied first to accrued interest and then to
principal. At the end of each business day, Thermo Electron shall apply the
balance of the Subsidiary's Excess Cash held by Thermo Electron under the cash
management arrangement toward the payment of any loans or advances to the
Subsidiary. Principal and interest shall be payable in lawful money of the
United States of America, in immediately available funds, at the principal
office of Thermo Electron or at such other place as Thermo Electron may
designate from time to time in writing to the Subsidiary. The unpaid principal
amount of any such borrowings, and accrued interest thereon, shall become
immediately due and payable, without demand, upon occurrence of any of the
following events:
(a) the failure of the Subsidiary to pay any amount due hereunder within
fifteen (15) days of the date when due;
(b) the failure of the Subsidiary to pay its debts as they become due, the
filing by or against the Subsidiary of any petition under the U.S.
Bankruptcy Code (or the filing of any similar petition under the
insolvency law of any jurisdiction), or the making by the Subsidiary of an
assignment or trust mortgage for the benefit of creditors or the
appointment of a receiver, custodian or similar agent with respect to, or
the taking by any such person of possession of, any material property of
the Subsidiary;
(c) the sale by the Subsidiary of all or substantially all of its assets;
(d) the merger or consolidation of the Subsidiary with or into any other
3
<PAGE>
corporation in a transaction in which the Subsidiary is not the surviving
entity;
(e) the issuance of any writ of attachment, by trustee process or
otherwise, or any restraining order or injunction against or affecting the
person or property of the Subsidiary that is not removed, repealed or
dismissed within thirty (30) days of issuance and as a result has a
material adverse effect on the business, operations, assets or condition,
financial or otherwise, of the Subsidiary or its ability to discharge any
of its liabilities or obligations to Thermo Electron; and
(f) the suspension of the transaction of the usual business of the
Subsidiary.
3. Guarantee Arrangements.
(a) If Thermo Electron provides a Parent Guarantee of an Underlying
Obligation, and the beneficiary(ies) of the Parent Guarantee enforce the
Parent Guarantee, or Thermo Electron performs under the Parent Guarantee
for any other reason, then the Majority Owned Subsidiary that is
obligated, either directly or indirectly through a wholly-owned
subsidiary, under such Underlying Obligation shall indemnify and save
harmless Thermo Electron from any liability, cost, expense or damage
(including reasonable attorneys' fees) suffered by Thermo Electron as a
result of the Parent Guarantee. If the Underlying Obligation is issued by
a Second Tier Majority Owned Subsidiary or a wholly-owned subsidiary
thereof, and such Second Tier Majority Owned Subsidiary is unable to fully
indemnify Thermo Electron (because of the poor financial condition of such
Second Tier Majority Owned Subsidiary, or for any other reason), then the
First Tier Majority Owned Subsidiary that owns the majority of the stock
of such Second Tier Majority Owned Subsidiary shall indemnify and save
harmless Thermo Electron from any remaining liability, cost, expense or
damage (including reasonable attorneys' fees) suffered by Thermo Electron
as a result of the Parent Guarantee. If a Majority Owned Subsidiary or a
wholly-owned subsidiary thereof provides a Credit Support Obligation for
any subsidiary of Thermo Electron, other than a subsidiary of such
Majority Owned Subsidiary, and the beneficiary(ies) of the Credit Support
Obligation enforce the Credit Support Obligation, or the Majority Owned
Subsidiary or its wholly-owned subsidiary performs under the Credit
Support Obligation for any other reason, then Thermo Electron shall
indemnify and save harmless the Majority Owned Subsidiary or its
wholly-owned subsidiary, as applicable, from any liability, cost, expense
or damage (including reasonable attorneys' fees) suffered by the Majority
Owned Subsidiary or its wholly-owned subsidiary, as applicable, as a
result of the Credit Support Obligation. Without limiting the foregoing,
Credit Support Obligations include the deposit of funds by a Majority
Owned Subsidiary or a wholly-owned subsidiary thereof in a credit
arrangement with a banking facility whereby such funds are available to
the banking facility as collateral for overdraft obligations of other
Majority Owned Subsidiaries or their subsidiaries also participating in
the credit arrangement with such banking facility. Nothwithstanding the
foregoing, in order to obtain the benefits of the indemnification
obligations of the First Tier Majority Owned Subsidiary set forth above in
this Section 3(a), Thermo Electron must have notified the First Tier
Majority Owned Subsidiary prior to guaranteeing the obligations of the
4
<PAGE>
Second Tier Majority Owned Subsidiary. If after five (5) business days,
Thermo Electron has not received from the First Tier Majority Owned
Subsidiary a notice of objection stating that the First Tier Majority
Owned Subsidiary objects to Thermo Electron guaranteeing the obligations
of the Second Tier Majority Owned Subsidiary, then Thermo Electron may
proceed to issue its guarantee of the Underlying Obligation and such
guarantee shall be subject to the benefits of the indemnification
obligations of the First Tier Majority Owned Subsidiary set forth above in
this Section 3(a). If Thermo Electron does receive such notice of
objection, then Thermo Electron's guarantee shall not be subject to the
indemnification obligations of the First Tier Majority Owned Subsidiary
set forth above in this Section 3(a).
(b) For purposes of this Agreement, the term "guarantee" shall include not
only a formal guarantee of an obligation, but also any other arrangement
where Thermo Electron is liable for the obligations of a Majority Owned
Subsidiary or its wholly-owned subsidiaries. Such other arrangements
include (a) representations, warranties and/or covenants or other
obligations joined in by Thermo Electron, whether on a joint or joint and
several basis, for the benefit of the Majority Owned Subsidiary or its
wholly-owned subsidiaries and (b) responsibility of Thermo Electron by
operation of law for the acts and omissions of the Majority Owned
Subsidiary or its wholly-owned subsidiaries, including controlling person
liability under securities and other laws.
(c) Promptly after Thermo Electron receives notice that a beneficiary of a
Parent Guarantee is seeking to enforce such Parent Guarantee, Thermo
Electron shall notify the Majority Owned Subsidiary(s) obligated, either
directly or indirectly through a wholly-owned subsidiary, under the
relevant Underlying Obligation. Such Majority Owned Subsidiary(s) or
wholly-owned subsidiary thereof, as applicable, shall have the right, at
its own expense, to contest the claim of such beneficiary. If a Majority
Owned Subsidiary or wholly-owned subsidiary thereof, as applicable, is
contesting the claim of such beneficiary, Thermo Electron will not perform
under the relevant Parent Guarantee unless and until, in Thermo Electron's
reasonable judgment, Thermo Electron is obligated under the terms of such
Parent Guarantee to perform. Subject to the foregoing, any dispute between
a Majority Owned Subsidiary or wholly-owned subsidiary thereof, as
applicable, and a beneficiary of a Parent Guarantee shall not affect such
Majority Owned Subsidiary's obligation to promptly indemnify Thermo
Electron hereunder. Promptly after a Majority Owned Subsidiary or
wholly-owned subsidiary thereof, as applicable, receives notice that a
beneficiary of a Credit Support Obligation is seeking to enforce such
5
<PAGE>
Credit Support Obligation, the Majority Owned Subsidiary shall notify
Thermo Electron. Thermo Electron shall have the right, at its own expense,
to contest the claim of such beneficiary. If Thermo Electron or the
subsidiary of Thermo Electron on whose behalf the Credit Support
Obligation is given is contesting the claim of such beneficiary, the
Majority Owned Subsidiary or wholly-owned subsidiary thereof, as
applicable, will not perform under the relevant Credit Support Obligation
unless and until, in the Majority Owned Subsidiary's reasonable judgment,
the Majority Owned Subsidiary or wholly-owned subsidiary thereof, as
applicable, is obligated under the terms of such Credit Support Obligation
to perform. Subject to the foregoing, any dispute between Thermo Electron
or the subsidiary of Thermo Electron on whose behalf the Credit Support
Obligation was given, on the one hand, and a beneficiary of a Credit
Support Obligation, on the other, shall not affect Thermo Electron's
obligation to promptly indemnify the Majority Owned Subsidiary or its
wholly-owned subsidiary, as applicable, hereunder.
(d) If Thermo Electron makes a loan or provides other credit ("Credit
Extension") to a Second Tier Majority Owned Subsidiary, the First Tier
Majority Owned Subsidiary that owns the majority of the stock of such
Second Tier Majority Owned Subsidiary hereby guarantees the Second Tier
Majority Owned Subsidiary's obligations to Thermo Electron thereunder.
Such guaranty shall be enforced only after Thermo Electron, in its
reasonable judgment, determines that the Second Tier Majority Owned
Subsidiary is unable to fully perform its obligations under the Credit
Extension. If Thermo Electron provides Credit Extension to a wholly-owned
subsidiary of a Second Tier Majority Owned Subsidiary, the Second Tier
Majority Owned Subsidiary hereby guarantees it wholly-owned subsidiary's
obligations to Thermo Electron thereunder and the First Tier Majority
Owned Subsidiary that owns the majority of the stock of such Second Tier
Majority Owned Subsidiary hereby guarantees the Second Tier Majority Owned
Subsidiary's obligations to Thermo Electron hereunder. Such guaranty by
the First Tier Majority Owned Subsidiary shall be enforced only after
Thermo Electron, in its reasonable judgment, determines that the Second
Tier Majority Owned Subsidiary is unable to fully perform its guaranty
obligation hereunder. Notwithstanding the foregoing, in order for a Credit
Extension to be deemed guaranteed by the First Tier Majority Owned
Subsidiary as set forth above in this Section 3(d), Thermo Electron must
have notified the First Tier Majority Owned Subsidiary prior to providing
the Credit Extension to the Second Tier Majority Owned Subsidiary. If
after five (5) business days, Thermo Electron has not received from the
First Tier Majority Owned Subsidiary a notice of objection stating that
the First Tier Majority Owned Subsidiary objects to Thermo Electron
providing a Credit Extension to the Second Tier Majority Owned Subsidiary,
then Thermo Electron may proceed to issue the Credit Extension to the
Second Tier Majority Owned Subsidiary and the First Tier Majority Owned
Subsidiary shall be deemed to have guaranteed such Credit Extension as set
forth above in this Section 3(d). If Thermo Electron does receive such
notice of objection, then Thermo Electron's Credit Extension shall not be
deemed guaranteed by the First Tier Majority Owned Subsidiary as set forth
in this Section 3(d).
(e) All payments required to be made under this Section 3 by a Majority
Owned Subsidiary or its wholly-owned subsidiaries, as applicable, shall be
made within two days after receipt of notice from Thermo Electron. All
payments required to be made under this Section 3 by Thermo Electron shall
be made within two days after receipt of notice from the Majority Owned
Subsidiary.
4. Waivers. No delay or omission on the part of either party in exercising
any right hereunder shall operate as a waiver of such right or of any other
right of the party, nor shall any delay, omission or waiver on any one occasion
be deemed a bar to or waiver of the same or any other right on any future
occasion. The Subsidiary hereby waives demand, notice of prepayment, protest and
all other demands and notices in connection with the delivery, acceptance,
performance, default or enforcement of the Subsidiary's obligations hereunder.
The Subsidiary hereby assents to any indulgence and any extension of time for
6
<PAGE>
payment of any indebtedness hereunder granted or permitted by the party.
5. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts applicable to
contracts made and performed therein without giving effect to any choice of law
provision or rule that would cause the application of laws of any jurisdiction
other than the Commonwealth of Massachusetts.
6. Severability. Each provision and agreement herein shall be treated as
separate and independent from any other provision or agreement herein and shall
be enforceable notwithstanding the unenforceability of any such other provision
or agreement.
7. Non-assignability. The rights and obligations of the parties under this
Agreement shall not be assigned by either party without the prior written
consent of the other party. Subject to the foregoing, this Agreement shall be
binding upon and shall inure to the benefit of the parties and their respective
successors and assigns.
8. Other Agreements. The parties agree that, effective as of the date
hereof, each of the Master Repurchase Agreement, as amended and restated,
between the Subsidiary and Thermo Electron and the Master Guarantee
Reimbursement and Loan Agreement, as amended and restated, between the
Subsidiary and Thermo Electron, is hereby terminated and is of no further force
and effect.
7
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized officers as of the date first above written.
THERMO ELECTRON CORPORATION
By: /s/ Theo Melas-Kyriazi
------------------------------
Title: Chief Financial Officer
THE RANDERS KILLAM GROUP INC.
By: /s/ Kenneth J. Apicerno
-------------------------------
Title: Treasurer
8
<PAGE>
Exhibit 13
The Randers Killam Group Inc.
Consolidated Financial Statements
Fiscal 1999
<PAGE>
<TABLE>
<CAPTION>
The Randers Killam Group Inc. 1999 Financial Statements
Consolidated Statement of Income
Year Ended
April 3, April 4, March 29,
(In thousands except per share amounts) 1999 1998 1997
- ------------------------------------------------------------------------- ---------- ----------- ---------
<S> <C> <C> <C>
Revenues (Note 9) $80,773 $71,583 $64,374
------- ------- -------
Costs and Operating Expenses:
Cost of revenues 61,754 52,838 48,048
Selling, general, and administrative expenses (Note 7) 13,816 12,788 9,555
------- ------- -------
75,570 65,626 57,603
------- ------- -------
Operating Income 5,203 5,957 6,771
Interest Income 652 195 110
Interest Expense (155) (196) (184)
------- ------- -------
Income Before Provision for Income Taxes 5,700 5,956 6,697
Provision for Income Taxes (Note 4) 2,732 2,803 3,117
------- ------- -------
Net Income $ 2,968 $ 3,153 $ 3,580
======= ======= =======
Basic and Diluted Earnings per Share (Note 10) $ .12 $ .13 $ .16
======= ======= =======
Weighted Average Shares (Note 10)
Basic 25,429 25,111 22,606
======= ======= =======
Diluted 25,452 25,202 22,606
======= ======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE>
The Randers Killam Group Inc. 1999 Financial Statements
Consolidated Balance Sheet
April 3, April 4,
(In thousands except share amounts) 1999 1998
- ----------------------------------------------------------------------------------- ----------- ---------
Assets
Current Assets:
Cash and cash equivalents (includes $15,015 and $8,713 under $15,921 $ 9,763
repurchase agreement with affiliated company; Note 13)
Accounts receivable, less allowances of $1,291 and $760 12,677 14,304
Unbilled contract costs and fees 9,942 9,333
Prepaid and refundable income taxes (Note 4) 1,735 1,359
Prepaid expenses 433 373
------- -------
40,708 35,132
------- -------
Property, Plant, and Equipment, at Cost, Net 11,365 11,664
------- -------
Other Assets (Note 3) 1,966 1,177
------- -------
Cost in Excess of Net Assets of Acquired Companies (Note 2) 44,106 45,220
------- -------
$98,145 $93,193
======= =======
Liabilities and Shareholders' Investment
Current Liabilities:
Current maturities of long-term obligations (Note 5) $ 1,145 $ 187
Accounts payable 4,784 3,809
Accrued payroll and employee benefits 3,228 3,254
Accrued income taxes 2,364 1,016
Other accrued expenses 669 725
Due to parent company and affiliated companies 94 319
------- -------
12,284 9,310
------- -------
Deferred Income Taxes (Note 4) 997 888
------- -------
Other Deferred Items 1,076 1,049
------- -------
Long-term Obligations (Note 5) 774 1,948
------- -------
Commitments and Contingencies (Note 6)
Shareholders' Investment (Notes 2, 3, and 8):
Common stock, $.0001 par value, 30,000,000 shares authorized; 25,429,344 3 13
shares and 127,146,733 pro forma shares issued and outstanding
Capital in excess of par value 79,379 79,321
Retained earnings 3,632 664
------- -------
83,014 79,998
------- -------
$98,145 $93,193
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
The Randers Killam Group Inc. 1999 Financial Statements
Consolidated Statement of Cash Flows
Year Ended
April 3, April 4, March 29,
(In thousands) 1999 1998 1997
- --------------------------------------------------------------------- ------------ ----------- -----------
Operating Activities
Net income $ 2,968 $3,153 $ 3,580
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 2,787 2,675 2,137
Provision for losses on accounts receivable 1,059 293 149
Other noncash items (423) (200) (193)
Change in deferred income taxes 109 (208) (109)
Changes in current accounts, excluding the effect of transfer of
businesses from parent company:
Accounts receivable 49 (874) 590
Unbilled contract costs and fees (614) (1,338) (764)
Other current assets (469) 369 523
Accounts payable 975 1,246 (896)
Other current liabilities 1,312 (636) (1,487)
------- ------ -------
Net cash provided by operating activities 7,753 4,480 3,530
------- ------ -------
Investing Activities
Purchases of property, plant, and equipment (1,355) (1,531) (1,003)
Proceeds from sale of property, plant, and equipment 157 18 106
Other (181) (27) -
------- ------ -------
Net cash used in investing activities (1,379) (1,540) (897)
------- ------ -------
Financing Activities
Repayment of notes payable (216) (170) (671)
Net transfers from (to) parent company - 3,424 (1,304)
Cash acquired from transfer of businesses from parent - 1,442 285
company
Repayment of note receivable - 390 -
------- ------ -------
Net cash provided by (used in) financing activities (216) 5,086 (1,690)
------- ------ -------
Increase in Cash and Cash Equivalents 6,158 8,026 943
Cash and Cash Equivalents at Beginning of Year 9,763 1,737 794
------- ------ -------
Cash and Cash Equivalents at End of Year $15,921 $9,763 $ 1,737
======= ====== =======
Cash Paid For
Interest $ 155 $ 224 $ 205
Income taxes $ 1,632 $ 642 $ -
Noncash Activities
Transfer of acquired businesses from parent company (Note 2) $ - $4,700 $ 3,460
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
The Randers Killam Group Inc. 1999 Financial Statements
Consolidated Statement of Shareholders' Investment
Year Ended
April 3, April 4, March 29,
(In thousands) 1999 1998 1997
- ------------------------------------------------------------------------- ----------- ---------- ---------
Common Stock, $.0001 Par Value
Balance at beginning of year $ 13 $ - $ -
Effect of one-for-five reverse stock split (10) - -
Shares issuable to parent company (Note 2) - 12 -
Transfer of Randers from parent company (Note 2) - 1 -
------- ------- -------
Balance at end of year 3 13 -
------- ------- -------
Capital in Excess of Par Value
Balance at beginning of year 79,321 - -
Effect of one-for-five reverse stock split 10 - -
Shares issuable to parent company (Note 2) - 70,632 -
Transfer of Randers from parent company (Note 2) - 8,597 -
Tax benefit related to employees' and directors' stock plans 48 92 -
------- ------- -------
Balance at end of year 79,379 79,321 -
------- ------- -------
Retained Earnings
Balance at beginning of year 664 - -
Net income after May 12, 1997 2,968 2,752 -
Shares issuable to parent company (Note 2) - (2,088) -
------- ------- -------
Balance at end of year 3,632 664 -
------- ------- -------
Parent Company Investment
Balance at beginning of year - 64,731 58,725
Net income prior to May 12, 1997 - 401 3,580
Transfer of CarlanKillam from parent company (Note 2) - - 3,730
Net transfers from (to) parent company - 3,424 (1,304)
Shares issuable to parent company (Note 2) - (68,556) -
------- ------- -------
Balance at end of year - - 64,731
------- ------- -------
$83,014 $79,998 $64,731
======= ======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
The Randers Killam Group Inc. 1999 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations
The Randers Killam Group Inc. (the Company) provides comprehensive
engineering and outsourcing services and operates in four business segments:
Water and Wastewater Treatment, Process Engineering and Construction, Highway
and Bridge Engineering, and Infrastructure Engineering.
In January 1999, the Company's name was changed from The Randers Group
Incorporated to The Randers Killam Group Inc.
Relationship with Thermo TerraTech Inc. and Thermo Electron Corporation
As of April 3, 1999, Thermo TerraTech Inc. owned 24,110,210 shares of the
Company's common stock, representing 95% of such shares outstanding. Thermo
TerraTech is an 87%-owned subsidiary of Thermo Electron Corporation. As of April
3, 1999, Thermo Electron owned 251,000 shares of the Company's common stock,
representing 1% of such shares outstanding.
Thermo Electron has announced a proposed reorganization involving certain
of Thermo Electron's subsidiaries, including the Company. Under this plan, the
Company would be merged into Thermo Electron (Note 11).
Principles of Consolidation
The accompanying financial statements include the accounts of the Company
and its subsidiaries. All material intercompany accounts and transactions have
been eliminated.
Fiscal Year
The Company has adopted a fiscal year ending the Saturday nearest March
31. References to fiscal 1999, 1998, and 1997 are for the fiscal years ended
April 3, 1999, April 4, 1998, and March 29, 1997, respectively. Fiscal years
1999 and 1997 each included 52 weeks; fiscal 1998 included 53 weeks.
Revenue Recognition
Substantially all revenues are earned under contracts. Revenues and
profits on contracts are recognized using the percentage-of-completion method.
The percentage of completion is determined by relating the actual costs incurred
to date to management's estimate of total costs 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. 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.
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 3). 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 shareholders' investment.
Income Taxes
The Company and Thermo TerraTech have a tax allocation agreement under
which both the Company and Thermo TerraTech are included in Thermo Electron's
consolidated federal and certain state income tax returns. The agreement
provides that in years in which the Company has taxable income, it will pay to
Thermo Electron amounts comparable to the taxes the Company would have paid had
it filed separate tax returns. If Thermo TerraTech's and Thermo Electron's
combined equity ownership of the Company were to drop below 80%, the Company
would be required to file its own income tax returns. Prior to the February 1999
issuance of its shares of common stock to
6
<PAGE>
1. Nature of Operations and Summary of Significant Accounting Policies (continued)
Thermo TerraTech in connection with the acquisition of The Killam Group to the
Company (Note 2), Thermo TerraTech's ownership of actual outstanding shares of
common stock of the Company was less than 80% and the Company filed its own
income tax returns.
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
Basic earnings per share have been computed by dividing net income by the
weighted average number of shares or pro forma shares outstanding during the
year (Note 2). Diluted earnings per share have been computed assuming the
exercise of stock options, as well as their related income tax effects. Shares
issued in connection with the transactions described in Note 2 have been shown
as outstanding for all periods presented for purposes of computing earnings per
share.
Reverse Stock Split
All share and per share information has been restated to reflect a
one-for-five reverse stock split, which was effective in February 1999. Share
information in the accompanying 1998 balance sheet has not been restated for the
reverse stock split.
Cash and Cash Equivalents
At fiscal year-end 1999 and 1998, $15,015,000 and $8,713,000,
respectively, of the Company's cash equivalents were invested in a repurchase
agreement with Thermo Electron. Under this agreement, the Company in effect
lends excess cash to Thermo Electron, which Thermo Electron collateralizes with
investments principally consisting of corporate notes, U.S. government-agency
securities, 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 and have an original maturity of three months or less. The Company's
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 (Note 13). At
fiscal year-end 1999 and 1998, the Company's cash equivalents also included
investments in commercial paper which have an original maturity of three months
or less. Cash equivalents are carried at cost, which approximates market value.
Property, Plant, and Equipment
The costs of additions and improvements are capitalized, while maintenance
and repairs are charged to expense as incurred. The Company provides for
depreciation and amortization using the straight-line method over the estimated
useful lives of the property as follows: buildings, 25 to 40 years; machinery
and equipment, 2 to 12 years; and leasehold improvements, the shorter of the
term of the lease or the life of the asset.
Property, plant, and equipment consists of:
(In thousands) 1999 1998
- ----------------------------------------------------------------------------------- ----------- ----------
Land $ 1,044 $ 1,044
Buildings 7,334 7,157
Machinery, Equipment, and Leasehold Improvements 8,360 7,515
------- -------
16,738 15,716
Less: Accumulated Depreciation and Amortization 5,373 4,052
------- -------
$11,365 $11,664
======= =======
7
<PAGE>
1. Nature of Operations and Summary of Significant Accounting Policies (continued)
Cost in Excess of Net Assets of Acquired Companies
The excess of cost over the fair value of net assets of acquired
businesses is amortized using the straight-line method over 40 years.
Accumulated amortization was $7,848,000 and $6,574,000 at fiscal year-end 1999
and 1998, 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. The Company considers the future undiscounted cash
flows of the acquired businesses in assessing the recoverability of this asset.
If impairment has occurred, any excess of carrying value over fair value is
recorded as a loss.
Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash and cash
equivalents, accounts receivable, current maturities of long-term obligations,
accounts payable, due to parent company and affiliated companies, and long-term
obligations. Their respective carrying amounts in the accompanying balance
sheet, excluding long-term obligations, approximated fair value due to their
short-term nature. The fair value of the Company's long-term obligations at
fiscal year-end 1999 and 1998 approximated carrying value based on borrowing
rates available to the Company at the respective year ends.
Comprehensive Income
During the first quarter of fiscal 1999, the Company adopted SFAS No. 130,
"Reporting Comprehensive Income." This pronouncement sets forth requirements for
disclosure of the Company's comprehensive income and accumulated other
comprehensive items. In general, comprehensive income combines net income and
"other comprehensive items," which represents certain items reported as
components of shareholders' investment. The Company has no such items and,
accordingly, its comprehensive income is equal to its net income for all periods
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.
Presentation
Certain amounts in fiscal 1998 and 1997 have been reclassified to conform
to the presentation in the fiscal 1999 financial statements.
2. Acquisitions and Basis of Accounting
On May 12, 1997, Thermo TerraTech purchased a controlling interest in The
Randers Group Incorporated (Randers). Thermo TerraTech purchased 1,420,000
shares of Randers common stock from certain members of Randers' management, and
84,000 shares from Thermo Power Corporation, an affiliate of Thermo TerraTech,
at a price of $3.125 per share, for an aggregate cost of $4,700,000. Following
these transactions, Thermo TerraTech owned 53.3% of Randers' outstanding common
stock. In addition, Thermo Electron owned approximately 8.9% of Randers'
outstanding common stock.
Subsequently, in September 1997, Thermo TerraTech and Randers entered into
a definitive agreement to transfer Thermo TerraTech's wholly owned engineering
and consulting businesses (known as The Killam Group) to Randers, in exchange
for newly issued shares of Randers' common stock. Effective April 4, 1998, the
agreement was amended to provide that the price for these businesses would be
equal to $70,644,407, the book value of the transferred businesses as of April
4, 1998. The number of new shares of Randers' common stock issued to Thermo
TerraTech
8
<PAGE>
2. Acquisitions and Basis of Accounting (continued)
equaled such book value on April 4, 1998, divided by $3.125, or 22,606,210
shares. The shares issued to Thermo TerraTech included 668,360 shares related to
the increase in value resulting from the earnings of The Killam Group from May
12, 1997, through April 4, 1998, which totaled approximately $2,088,000. In
January 1999, the Randers' shareholders approved the listing of the shares on
the American Stock Exchange and an amendment to Randers' Certificate of
Incorporation changing the Company's name to The Randers Killam Group Inc. Upon
issuance of the shares in February 1999, Thermo TerraTech and Thermo Electron
owned approximately 94.8% and 1.0%, respectively, of Randers' outstanding common
stock. For purposes of computing weighted average shares, the 22,606,210 shares
of Randers' common stock issued in connection with the acquisition of The Killam
Group have been considered to be outstanding for all periods presented, and the
2,823,136 shares of Randers' common stock that were outstanding as of May 12,
1997, the date on which Thermo TerraTech acquired a majority interest in
Randers, are considered outstanding as of that date.
This transaction has been accounted for in accordance with Securities and
Exchange Commission Staff Accounting Bulletin Topic 2-A2, pursuant to which The
Killam Group has been treated as the "accounting acquiror" because Thermo
TerraTech owns the larger portion of the voting rights of Randers as a result of
the above mentioned transactions. Accordingly, the historical financial
information of Randers has been restated to solely reflect the financial
information of The Killam Group for periods prior to May 12, 1997, the date on
which Thermo TerraTech acquired a majority interest in Randers. Results from May
12, 1997, reflect the combined results of The Killam Group and Randers.
Consequently, references to the Company prior to May 12, 1997, refer solely to
The Killam Group.
Based on unaudited data, the following table presents selected financial
information for The Killam Group and Randers on a pro forma basis, assuming the
companies had been combined since the beginning of fiscal 1997.
(In thousands except per share amounts) 1998 1997
- ----------------------------------------------------------------------------------- ----------- ---------
Revenues $72,720 $76,775
Net Income 3,150 4,213
Earnings per Share:
Basic .13 .19
Diluted .12 .19
The pro forma results are not necessarily indicative of future operations
or the actual results that would have occurred had the businesses been combined
from the beginning of fiscal 1997.
In November 1996, Thermo TerraTech acquired CarlanKillam Consulting Group,
Inc., a provider of transportation and environmental consulting and professional
engineering and architectural services for $3,460,000. Immediately subsequent to
Thermo TerraTech's acquisition of CarlanKillam, Thermo TerraTech contributed
this business to the Company. Pro forma results have not been presented as the
results of CarlanKillam were not material to the Company's results of
operations.
These transactions have been accounted for using the purchase method of
accounting, and their results of operations have been included in the
accompanying financial statements from the respective dates of acquisition by
Thermo TerraTech. The aggregate cost of Randers and CarlanKillam exceeded the
estimated fair value of the acquired net assets by $7,920,000, which is being
amortized over 40 years.
</TABLE>
9
<PAGE>
3. Employee Benefit Plans
Stock-based Compensation Plans
Stock Option Plans
The Company has a stock-based compensation plan for its key employees,
directors, and others, which permits the grant 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. The option recipients and the
terms of options granted under this plan 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
one- to ten-year period, depending on the term of the option, which generally
ranges 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. To date, all options have been granted at fair market value.
In connection with the transfer of Randers in fiscal 1998, the Company
assumed certain outstanding options granted under Randers' incentive stock
option plan. The Randers' options become exercisable over the vesting period.
Options vest 50% in the first year after the date of grant and 25% in each of
the second and third years after the date of grant. These options expire 10
years from the date of grant.
In addition to the Company's stock-based compensation plans, certain
officers and key employees may also participate in the stock-based compensation
plans of Thermo Electron and Thermo TerraTech.
In November 1998, the Company's employees, excluding its officers and
directors, were offered the opportunity to exchange previously granted options
to purchase shares of Company common stock for an amount of options equal to
half of the number of options previously held, exercisable at a price equal to
the fair market value at the time of the exchange offer. Holders of options to
acquire 482,000 shares at a weighted average exercise price of $3.30 per share
elected to participate in this exchange and, as a result, received options to
purchase 241,000 shares of Company common stock at $1.90 per share, which are
included in the fiscal 1999 grants in the table below. The other terms of the
new options are the same as the exchanged options except that the holders may
not sell shares purchased pursuant to such new options for six months from the
exchange date. The options exchanged were canceled by the Company.
A summary of the Company's stock option activity is:
<TABLE>
<CAPTION>
1999 1998
------------------ ------------------
Weighted Weighted
Average Average
Exercise Exercise
Price Price
Number Number
of of
(Shares in thousands) Shares Shares
- ---------------------------------------------- -------- ---------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Options Outstanding, Beginning of Year 1,487 $ 3.28 - $ -
Granted 351 2.09 1,372 3.25
Forfeited (8) 4.92 (24) 3.25
Canceled due to exchange (482) 3.30 - -
Randers' options outstanding at time of transfer - - 139 3.60
----- ------ ----- ----
Options Outstanding, End of Year 1,348 $ 2.95 1,487 $3.30
===== ====== ===== =====
Options Exercisable 1,335 $ 2.94 1,457 $3.25
===== ====== ===== =====
Options Available for Grant 790 652
===== =====
</TABLE>
10
<PAGE>
3. Employee Benefit Plans (continued)
A summary of the status of the Company's stock options at April 3, 1999,
is:
<TABLE>
<CAPTION>
Options Outstanding
------------------------------------------------------
Range of Exercise Prices Number Weighted Weighted
of Average Average
Shares Remaining Exercise
(In thousands) Contractual Life Price
- ---------------------------------------------- ------------------- -------------------- -------------------
<S> <C> <C> <C>
$1.90 - $2.52 351 6.3 years $2.09
2.53 - 3.14 65 3.5 years 3.13
3.15 - 3.76 921 5.7 years 3.25
3.77 - 4.38 11 5.2 years 4.38
----
$1.90 - $4.38 1,348 5.8 years $2.95
=====
</TABLE>
The information disclosed above for options outstanding at April 3, 1999,
does not differ materially for options exercisable.
Employee Stock Purchase Program
Substantially all of the Company's full-time employees are eligible to
participate in an employee stock purchase program sponsored by Thermo TerraTech
and Thermo Electron. Prior to November 1, 1998, the applicable shares of common
stock could 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 were
subject to a six-month resale restriction. Effective November 1, 1998, the
applicable shares of common stock may be purchased at 85% of the lower of the
fair market value at the beginning or end of the plan year, and the shares
purchased are subject to a one-year resale restriction. Shares are purchased
through payroll deductions of up to 10% of each participating employee's gross
wages.
Pro Forma Stock-based Compensation Plans 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 25 in accounting
for its stock-based compensation plans. Had compensation cost for awards granted
after fiscal 1997 under the Company's stock-based compensation plans been
determined based on the fair value at the grant dates consistent with the method
set forth under SFAS No. 123, the effect on the Company's net income and
earnings per share would have been:
<TABLE>
<CAPTION>
(In thousands except per share amounts) 1999 1998
- ---------------------------------------------------------------------------------- ----------- ----------
<S> <C> <C> <C>
Net Income: $2,968 $3,153
As reported 2,460 2,786
Pro forma
Basic and Diluted Earnings per Share:
As reported .12 .13
Pro forma .10 .11
Pro forma compensation expense for options granted is reflected over the
vesting period, therefore future pro forma compensation expense may be greater
as additional options are granted.
11
<PAGE>
3. Employee Benefit Plans (continued)
The weighted average fair value per share of options granted was $3.15 and
$3.25 in fiscal 1999 and 1998, respectively. The fair value of each option grant
is estimated on the grant date using the Black-Scholes option-pricing model with
the following weighted-average assumptions:
1999 1998
- ----------------------------------------------------------------------- ----------- ----------- ---------
Volatility 28% 27%
Risk-free Interest Rate 4.9% 5.7%
Expected Life of Options 4.0 years 5.0 years
The Black-Scholes option-pricing model was developed for use in estimating
the fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option-pricing models require the input of highly
subjective assumptions, including expected stock price volatility. Because the
Company's employee stock options have characteristics significantly different
from those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
401(k) Savings Plans
The majority of the Company's full-time employees are eligible to
participate in 401(k) savings plans sponsored by certain subsidiaries and Thermo
Electron. Contributions to the 401(k) savings plans are made by both the
employee and the Company. Company contributions are based upon the level of
employee contributions and for certain plans, are based on subsidiary profits.
For these plans, the Company contributed and charged to expense $1,155,000,
$1,272,000, and $1,130,000 in fiscal 1999, 1998, and 1997, respectively.
Defined Benefit Pension Plan
One of the Company's divisions has a noncontributory defined benefit
retirement plan for salaried employees. This plan has been frozen and all
participants who had not been credited with the maximum years of service
continue to receive such credit up to the allowable maximum based on continued
service. Benefits under the plan are based on years of service and employees'
compensation during the last years of employment. Funds are contributed to a
trustee as necessary to provide for current service and for any unfunded
projected benefit obligation over a reasonable period.
Net periodic benefit income includes:
(In thousands) 1999 1998 1997
- ----------------------------------------------------------------------- ----------- ----------- ----------
Interest Cost on Benefit Obligation $ 728 $ 711 $ 677
Expected Return on Plan Assets (1,134) (928) (868)
Amortization of Unrecognized Gain (51) - -
-------- -------- --------
$ (457) $ (217) $ (191)
======== ======== ========
12
<PAGE>
3. Employee Benefit Plans (continued)
The Company's defined benefit pension plan activity is:
(In thousands) 1999 1998
- ---------------------------------------------------------------------------------- ----------- ----------
Change in Benefit Obligation:
Benefit obligation, beginning of year $ 10,028 $ 9,563
Interest cost 728 711
Benefits paid (342) (309)
Actuarial (gain) loss (173) 63
------- --------
Benefit obligation, end of year 10,241 10,028
-------- --------
Change in Plan Assets:
Fair value of plan assets, beginning of year 12,756 10,457
Actual return on plan assets (224) 2,608
Benefits paid (342) (309)
------- --------
Fair value of plan assets, end of year 12,190 12,756
------- --------
Funded Status 1,949 2,728
Unrecognized Net Gain (403) (1,639)
-------- --------
Prepaid Benefit Costs $ 1,546 $ 1,089
======== ========
Prepaid benefit costs are included in other assets in the accompanying
balance sheet. The weighted average actuarial assumptions used to determine the
net periodic benefit costs in fiscal 1999, 1998, and 1997 were: discount rate -
7.5%, expected long-term rate of return on assets - 9.0%, and rate of increase
in salary levels - 0%.
Other Postretirement Benefits
In addition to providing pension benefits, one of the Company's divisions
provided other postretirement benefits for employees who met certain age and
length-of-service requirements. Under SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," the expected cost of these
postretirement benefits must be charged to expense during the years that the
employees render service. This postretirement benefit plan has been frozen and
the Company recorded the accumulated postretirement obligation calculated as of
that date.
Net postretirement healthcare cost includes:
(In thousands) 1999 1998 1997
- ----------------------------------------------------------------------- ----------- ----------- ----------
Interest Cost on Benefit Obligation $ 50 $ 49 $ 91
Amortization of Unrecognized Gain (17) (16) (11)
-------- -------- -------
$ 33 $ 33 $ 80
======== ======== ========
13
<PAGE>
3. Employee Benefit Plans (continued)
The Company's post retirement healthcare plan activity is:
(In thousands) 1999 1998
- ---------------------------------------------------------------------------------- ----------- ----------
Change in Benefit Obligation:
Benefit obligation, beginning of year $ 686 $ 677
Interest cost 50 49
Benefits paid (18) (18)
Other - (22)
-------- --------
Benefit obligation, end of year 718 686
-------- --------
Plan Assets - -
Funded Status (718) (686)
Unrecognized Net Gain (307) (324)
-------- --------
Accrued Post Retirement Healthcare Cost $ (1,025) $ (1,010)
======== ========
For measurement purposes, the following table illustrates the annual rate
of increase in the per capita cost of covered healthcare claims:
Annual Rate
Pre-65 Post-65
- ----------------------------------------------------------------------------------------------------------
1999 7% 6%
1998 8% 6%
1997 8% 6%
The pre-65 rate decreases gradually to 6% for fiscal 2000 and remains at
that level thereafter. The healthcare cost trend rate assumption has a
significant effect on the amounts reported. To illustrate, increasing the
assumed healthcare cost trend rates by one percentage point in each year would
increase the accumulated postretirement benefit obligation as of April 3, 1999,
by $71,000 and the aggregate of the service and interest cost components of the
net postretirement healthcare cost for the year then ended by $5,000. A decrease
in the assumed healthcare cost trend rates by one percentage point in each year
would decrease the accumulated postretirement benefit obligation as of April 3,
1999, by $61,000 and the aggregate of the service and interest cost components
of the net postretirement healthcare cost for the year then ended by $5,000. The
discount rates used in determining the accumulated postretirement benefit
obligation was 7.5% in fiscal 1999 and 1998, and 8% in fiscal 1997.
14
<PAGE>
4. Income Taxes
The components of the provision for income taxes are:
(In thousands) 1999 1998 1997
- ----------------------------------------------------------------------- ----------- ----------- ----------
Currently Payable:
Federal $2,410 $2,398 $2,306
State 564 617 654
------ ------ ------
2,974 3,015 2,960
------ ------ ------
Net Deferred (Prepaid):
Federal (212) (180) 121
State (30) (32) 36
------ ------ ------
(242) (212) 157
------ ------ ------
$2,732 $2,803 $3,117
====== ====== ======
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 $48,000 and $92,000 of
such benefits of the Company that have been allocated to capital in excess of
par value in fiscal 1999 and 1998, respectively.
Provision for income taxes in the accompanying statement of income differs
from the provision calculated by applying the statutory federal income tax rate
of 34% to income before provision for income taxes due to:
(In thousands) 1999 1998 1997
- ----------------------------------------------------------------------- ----------- ----------- ----------
Provision for Income Taxes at Statutory Rate $1,938 $2,025 $2,277
Differences Resulting From:
State income taxes, net of federal tax 352 386 455
Amortization of cost in excess of net assets of acquired 433 412 363
companies
Other, net 9 (20) 22
------ ------ ------
$2,732 $2,803 $3,117
====== ====== ======
15
<PAGE>
4. Income Taxes (continued)
Prepaid and deferred income taxes in the accompanying balance sheet
consist of:
(In thousands) 1999 1998
- ----------------------------------------------------------------------- ----------- ----------- ----------
Prepaid (Deferred) Income Taxes:
Reserves and other accruals $ 858 $ 706
Accrued compensation 615 759
State net operating loss carryforward 235 108
Intangible assets 76 82
Depreciation (1,073) (1,078)
Other 27 (106)
------ ------
$ 738 $ 471
====== ======
As of April 3, 1999, the Company had state net operating loss
carryforwards of approximately $2,960,000, which expire from 2004 through 2018.
5. Long-term Obligations
(In thousands) 1999 1998
- ----------------------------------------------------------------------- ----------- ----------- ----------
6.25% Mortgage Loan (payable in monthly installments of $9, $1,063 $1,173
with balloon payment in May 1999)
Mortgage Loan (payable in monthly installments of $12, with 856 949
final payment in 2003 (a))
Other - 13
------ ------
1,919 2,135
Less: Current Maturities 1,145 187
------ ------
$ 774 $1,948
====== ======
(a) Bears interest at Prime Rate, which was 7.75% at April 3, 1999.
The annual requirements for long-term obligations as of April 3, 1999, are
$1,145,000 in fiscal 2000; $88,000 in fiscal 2001; $96,000 in fiscal 2002; and
$590,000 in fiscal 2003. Total requirements of long-term obligations are
$1,919,000.
6. Commitments and Contingencies
Operating Leases
The Company leases portions of its office and operating facilities under
various operating lease arrangements. The accompanying statement of income
includes expenses from operating leases of $2,508,000, $2,498,000, and
$2,068,000 in fiscal 1999, 1998, and 1997, respectively. Future minimum payments
due under noncancelable operating leases at April 3, 1999, are $2,085,000 in
fiscal 2000; $1,611,000 in fiscal 2001; $1,183,000 in fiscal 2002; $561,000 in
fiscal 2003; $74,000 in fiscal 2004; and $24,000 in fiscal 2005 and thereafter.
Total future minimum lease payments are $5,538,000.
16
<PAGE>
6. Commitments and Contingencies (continued)
Contingencies
The Company is contingently liable with respect to lawsuits and other
matters that arose in the ordinary course of business. In the opinion of
management, these contingencies will not have a material adverse effect upon the
financial position of the Company or its results of operations.
7. 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 currently pays Thermo Electron annually an amount equal to 0.8% of
the Company's revenues. In calendar 1997 and 1996 the Company paid an amount
equal to 1.0% of the Company's revenues. For these services, the Company was
charged $646,000, $679,000, and $644,000 in fiscal 1999, 1998, and 1997,
respectively. The fee is reviewed and adjusted annually by mutual agreement of
the parties. 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. In fiscal 1999, Thermo Electron billed the Company an additional
$61,000 for certain administrative services required by the Company that were
not covered by the corporate services agreement.
Other Related-party Transactions
The Company purchases products and services in the ordinary course of
business with other companies affiliated with Thermo TerraTech. Purchases of
products and services from such affiliated companies total $425,000, $382,000,
and $2,238,000 in fiscal 1999, 1998, and 1997, respectively.
Repurchase Agreement
The Company invests excess cash in a repurchase agreement with Thermo
Electron as discussed in Notes 1 and 13.
8. Common Stock
At April 3, 1999, the Company had reserved 2,129,550 unissued shares of
its common stock for possible issuance under stock-based compensation plans.
9. Business Segment Information
The Company organizes and manages its businesses by individual functional
operating entity. The Company's businesses operate in four segments: Water and
Wastewater Treatment, Process Engineering and Construction, Highway and Bridge
Engineering, and Infrastructure Engineering. In classifying operational entities
into a particular segment, the Company aggregates businesses with similar
economic characteristics, services, and customers.
The Company's Water and Wastewater Treatment segment provides engineering,
consulting, and outsourcing services to industrial and government clients for
the design, construction oversight, and operation of water and wastewater
treatment facilities.
The Process Engineering and Construction segment plans, designs, and
builds equipment, systems, and plants used for manufacturing.
</TABLE>
17
<PAGE>
9. Business Segment Information (continued)
The Company's Highway and Bridge Engineering segment provides consulting
and outsourcing services for transportation projects.
The Infrastructure Engineering segment provides a wide array of consulting
and outsourcing services for infrastructure development.
<TABLE>
<CAPTION>
(In thousands) 1999 1998 1997
- --------------------------------------------------------------------------- ---------- ---------- --------
Revenues:
<S> <C> <C> <C> <C> <C>
Water and Wastewater Treatment (a) $ 43,957 $ 40,790 $ 44,452
Process Engineering and Construction (b) 18,342 11,154 -
Highway and Bridge Engineering (c) 12,158 13,345 17,595
Infrastructure Engineering 6,977 6,346 2,608
Intersegment sales elimination (d) (661) (52) (281)
--------- --------- --------
$ 80,773 $ 71,583 $ 64,374
========= ======== ========
Income Before Provision for Income Taxes:
Water and Wastewater Treatment $ 6,037 $ 6,305 $ 7,112
Process Engineering and Construction 729 1,109 -
Highway and Bridge Engineering (1,148) (1,193) (70)
Infrastructure Engineering 760 495 373
Corporate (e) (1,175) (759) (644)
--------- -------- --------
Total operating income 5,203 5,957 6,771
Interest income (expense), net 497 (1) (74)
--------- -------- --------
$ 5,700 $ 5,956 $ 6,697
========= ======== ========
Total Assets:
Water and Wastewater Treatment $ 50,156 $ 55,474 $ 55,499
Process Engineering and Construction 11,649 10,695 -
Highway and Bridge Engineering 14,119 14,728 16,247
Infrastructure Engineering 5,587 4,857 4,749
Corporate (f) 16,634 7,439 (1,061)
--------- -------- --------
$ 98,145 $ 93,193 $ 75,434
========= ======== ========
Depreciation and Amortization:
Water and Wastewater Treatment $ 1,735 $ 1,718 $ 1,606
Process Engineering and Construction 407 312 -
Highway and Bridge Engineering 415 430 444
Infrastructure Engineering 230 215 87
--------- -------- --------
$ 2,787 $ 2,675 $ 2,137
========= ======== ========
18
<PAGE>
9. Business Segment Information (continued)
(In thousands) 1999 1998 1997
- --------------------------------------------------------------------------- ---------- ---------- --------
Capital Expenditures:
Water and Wastewater Treatment $ 775 $ 935 $ 780
Process Engineering and Construction 300 387 -
Highway and Bridge Engineering 157 166 216
Infrastructure Engineering 123 43 7
--------- -------- --------
$ 1,355 $ 1,531 $ 1,003
========= ======== ========
(a) Includes intersegment sales of $180,000, $11,000, and $165,000 in fiscal
1999, 1998, and 1997, respectively.
(b) Includes intersegment sales of $69,000 and $6,000 in fiscal 1999 and 1998,
respectively.
(c) Includes intersegment sales of $412,000, $35,000, and $116,000
in fiscal 1999, 1998, and 1997, respectively.
(d) Intersegment sales are accounted for at prices that are representative of
transactions with unaffiliated parties.
(e) Primarily general and administrative expenses.
(f) Primarily cash and cash equivalents.
10. Earnings per Share
Basic and diluted earnings per share were calculated as follows:
(In thousands except per share amounts) 1999 1998 1997
- ------------------------------------------------------------------------- ---------- ----------- ---------
Basic
Net Income $ 2,968 $ 3,153 $3,580
------- ------- ------
Shares Issued in Connection With the Acquisition of The Killam Group 22,606 22,606 22,606
(Note 2)
Randers' Weighted Average Shares Outstanding From May 12, 1997, Date 2,823 2,505 -
of Acquisition by Thermo TerraTech (Note 2)
------- ------- ------
Weighted Average Shares 25,429 25,111 22,606
------- ------- ------
Basic Earnings per Share $ .12 $ .13 $ .16
======= ======= ======
Diluted
Net Income $ 2,968 $ 3,153 $3,580
------- ------- ------
Basic Weighted Average Shares 25,429 25,111 22,606
Effect of Stock Options 23 91 -
------- ------- ------
Weighted Average Shares, as Adjusted 25,452 25,202 22,606
------- ------- ------
Diluted Earnings per Share $ .12 $ .13 $ .16
======= ======= ======
The computation of diluted earnings per share excludes the effect of
assuming the exercise of certain outstanding stock options because the effect
would be antidilutive. As of April 3, 1999, there were 1,309,000 shares of such
options outstanding, with exercise prices ranging from $3.13 to $4.38 per share.
19
<PAGE>
11. Proposed Reorganization
Thermo Electron has announced a proposed reorganization involving certain
of Thermo Electron's subsidiaries, including the Company. Under this plan, the
Company and its sister subsidiary, ThermoRetec Corporation, as well as their
parent company, Thermo TerraTech, would be merged into Thermo Electron. As a
result, all three companies would become wholly owned subsidiaries of Thermo
Electron. The public shareholders of the Company, ThermoRetec, and Thermo
TerraTech would receive common stock in Thermo Electron in exchange for their
shares. The completion of these transactions is subject to numerous conditions,
including the establishment of prices and exchange ratios; confirmation of
anticipated tax consequences; the approval of the Board of Directors of
ThermoRetec and Thermo TerraTech; the negotiation and execution of a definitive
merger agreement; the receipt of a fairness opinion from an investment banking
firm that the transaction is fair to the Company's shareholders (other than
Thermo TerraTech and Thermo Electron) from a financial point of view; the
approval of the Company's Board of Directors, including its independent
directors; and completion of review by the Securities and Exchange Commission of
any necessary documents regarding the proposed transactions.
12. Unaudited Quarterly Information
(In thousands except per share amounts)
1999 First Second Third Fourth
- ---------------------------------------------------------------- --------- ---------- ---------- ---------
Revenues $20,083 $20,988 $20,816 $18,886
Gross Profit 5,029 4,699 4,676 4,615
Net Income 788 819 773 588
Basic and Diluted Earnings per Share .03 .03 .03 .02
1998 First (a) Second Third Fourth
- ---------------------------------------------------------------- -------------------- ---------- ---------
Revenues $16,844 $18,231 $18,269 $18,239
Gross Profit 4,492 4,745 5,024 4,484
Net Income 841 984 906 422
Basic and Diluted Earnings per Share .03 .04 .04 .02
(a) Reflects the May 1997 acquisition of Randers by Thermo TerraTech (Note 2),
subsequently transferred to the Company.
20
<PAGE>
13. Subsequent Events
Restructuring Actions
In May 1999, the Company announced plans to sell three businesses, two of
which comprise the Company's Process Engineering and Construction segment and
Highway and Bridge Engineering segment. The third business that will be sold
represents a small component of the Water and Wastewater Treatment segment. In
connection with the planned sale of these businesses, the Company expects to
record pretax charges of approximately $15 million, primarily in the first
quarter of fiscal 2000. These charges primarily represent the excess of book
value of the businesses over the estimated proceeds from sale. Revenues and
operating losses of these business units in fiscal 1999 aggregated $31.7 million
and $0.5 million, respectively.
Cash Management Arrangement
Effective June 1, 1999, the Company and Thermo Electron commenced use of a
new domestic cash management arrangement (Note 1). Under the new arrangement,
amounts advanced to Thermo Electron by the Company for domestic cash management
purposes bear interest at the 30-day Dealer Commercial Paper Rate plus 50 basis
points, set at the beginning of each month. Thermo Electron is contractually
required to maintain cash, cash equivalents, and/or immediately available bank
lines of credit equal to at least 50% of all funds invested under this cash
management arrangement by all Thermo Electron subsidiaries other than wholly
owned subsidiaries. The Company has the contractual right to withdraw its funds
invested in the cash management arrangement upon 30 days' prior notice. The
Company will report amounts invested in this arrangement as "advance to
affiliate" in its balance sheet, beginning in the first quarter of fiscal 2000.
21
<PAGE>
Report of Independent Public Accountants
To the Shareholders and Board of Directors of The Randers Killam Group Inc.:
We have audited the accompanying consolidated balance sheet of The Randers
Killam Group Inc. (formerly The Randers Group Incorporated; a Delaware
Corporation and a 95%-owned subsidiary of Thermo TerraTech Inc.) as of April 3,
1999, and April 4, 1998, and the related consolidated statements of income, cash
flows, and shareholders' investment for each of the three years in the period
ended April 3, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of The Randers
Killam Group Inc. as of April 3, 1999, and April 4, 1998, and the results of
their operations and their cash flows for each of the three years in the period
ended April 3, 1999, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Boston, Massachusetts May 11, 1999 (except with respect to the matters discussed
in Note 13, as to which the date is June 1, 1999)
22
<PAGE>
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 on Analysis of Financial Condition and Results of Operation under the
heading "Forward-looking Statements."
Overview
The Company's businesses provide comprehensive engineering and
outsourcing services and operate in four segments: Water and Wastewater
Treatment, Process Engineering and Construction, Highway and Bridge Engineering,
and Infrastructure Engineering. The Company's clients include municipalities,
government agencies, and companies in the manufacturing, pharmaceutical, and
chemical-processing industries. The Company's strategy is to market its
technical expertise and low-cost solutions to a broad base of clients.
In May 1997, Thermo TerraTech Inc. 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. Subsequently,
Thermo TerraTech entered into a definitive agreement to transfer its wholly
owned engineering and consulting businesses (known as The Killam Group) to
Randers in exchange for additional shares of Randers' common stock. As a result
of these transactions, as approved at the January 1999 Special Meeting of the
Company's Shareholders (Note 2), the Killam Group was deemed to be the
"accounting acquiror," and historical results for Randers have been restated to
solely reflect the financial information of The Killam Group for periods prior
to May 12, 1997, and to reflect the combined results of The Killam Group and
Randers (collectively, the Company) from May 12, 1997, the date on which Thermo
TerraTech became the majority-owner of Randers.
The Randers division, comprised of Randers Engineering, Inc., Redco
Incorporated, and Viridian Technology Incorporated, represents the Company's
Process Engineering and Construction segment. The Company's Killam Associates,
Inc., Duncan, Lagnese and Associates, Incorporated, Killam Management and
Operational Services, Inc., and E3-Killam, Inc. subsidiaries, represent the
Water and Wastewater Treatment segment and provide environmental consulting and
engineering services and specialize in wastewater treatment and water resources
management. The Company's BAC Killam Inc. subsidiary represents the Company's
Highway and Bridge Engineering segment and provides both private and public
sector clients with a broad range of consulting services that address
transportation planning and design. In addition, in November 1996, Thermo
TerraTech acquired CarlanKillam Consulting Group, Inc., a provider of
transportation and environmental consulting, professional engineering, and
architectural services, and subsequently transferred it to the Company.
CarlanKillam represents the Company's Infrastructure Engineering segment.
In May 1999, the Company announced the planned sale of three businesses,
BAC Killam, the Randers division, and E3-Killam. The Company expects to record
pretax charges totaling approximately $15 million, primarily in the first
quarter of fiscal 2000, ending July 3, 1999, as a result of the planned sale
(Note 13).
Results of Operations
Fiscal 1999 Compared With Fiscal 1998
Revenues increased 13% to $80.8 million in fiscal 1999 from $71.6 million
in fiscal 1998, primarily due to construction and labor management contracts at
the Process Engineering and Construction segment and the Water and Wastewater
Treatment segment, which commenced during the first quarter of fiscal 1999 and
are expected to be completed by the end of the first quarter of fiscal 2000. To
a lesser extent, revenues increased $3.5 million due to the inclusion of a full
period of revenues in fiscal 1999 from Randers, which was acquired in May 1997
and represents the Process Engineering and Construction segment.
23
<PAGE>
Fiscal 1999 Compared With Fiscal 1998 (continued)
The gross profit margin decreased to 24% in fiscal 1999 from 26% in fiscal
1998, primarily due to a change in sales mix to lower-margin
construction-management contracts from higher-margin design contracts at the
Process Engineering and Construction segment and Water and Wastewater Treatment
segment.
Selling, general, and administrative expenses as a percentage of revenues
decreased to 17% in fiscal 1999 from 18% in fiscal 1998, due to an increase in
revenues. Selling, general, and administrative expenses increased in fiscal
1999, primarily due to higher provisions for uncollectible accounts and the
inclusion of expenses from Randers for the full period of fiscal 1999.
Interest income increased to $0.7 million in fiscal 1999 from $0.2 million
in fiscal 1998, primarily due to higher average invested cash balances. Interest
expense remained relatively unchanged at $0.2 million in fiscal 1999 and 1998.
The effective tax rates were 48% and 47% in fiscal 1999 and 1998,
respectively. The effective tax rates exceeded the statutory federal income tax
rate primarily due to nondeductible amortization of cost in excess of net assets
of acquired companies and the impact of state income taxes. The tax rate
increased in fiscal 1999 primarily due to an increase in the relative effect of
nondeductible amortization expense.
Fiscal 1998 Compared With Fiscal 1997
Revenues increased 11% to $71.6 million in fiscal 1998 from $64.4 million
in fiscal 1997, primarily due to the inclusion of $11.2 million of revenues from
Randers, which was acquired in May 1997 and represents the Process Engineering
and Construction segment and $3.8 million resulting from the inclusion of a full
period of revenues in fiscal 1998 from CarlanKillam, which was acquired in
November 1996 and represents the Infrastructure Engineering segment. These
increases were offset in part by a decrease in revenues due to the completion of
two major contracts in fiscal 1997 at the Water and Wastewater Treatment and the
Highway and Bridge Engineering segments.
The gross profit margin increased to 26% in fiscal 1998 from 25% in fiscal
1997, primarily due to a change in sales mix to higher-margin contracts at the
Water and Wastewater Treatment segment, and the inclusion of higher-margin
revenues at the Process Engineering and Construction segment.
Selling, general, and administrative expenses as a percentage of revenues
increased to 18% in fiscal 1998 from 15% in fiscal 1997, primarily due to the
May 1997 acquisition of Randers, which has higher expenses as a percentage of
revenues and, to a lesser extent, increased marketing costs at the Water and
Wastewater Treatment segment.
Interest income increased to $0.2 million in fiscal 1998 from $0.1 million
in fiscal 1997, primarily due to higher average invested cash balances. Interest
expense remained relatively unchanged at $0.2 million in fiscal 1998 and 1997.
The effective tax rates were 47% in fiscal 1998 and 1997. The effective
tax rates exceeded the statutory federal income tax rate primarily due to
nondeductible amortization of cost in excess of net assets of acquired companies
and the impact of state income taxes.
Liquidity and Capital Resources
Consolidated working capital was $28.4 million at April 3, 1999, compared
with $25.8 million at April 4, 1998. Included in working capital are cash and
cash equivalents of $15.9 million at April 3, 1999, compared with $9.8 million
at April 4, 1998. During fiscal 1999, $7.8 million of cash was provided by
operating activities. During this period, $2.3 million of cash was provided by
an increase in accounts payable and other current liabilities, primarily due to
increased subcontract work, as well as the timing of payments. These sources of
cash were offset in part by an increase of $0.6 million in unbilled contract
costs and fees due to the timing of billings on certain contracts. The days
sales outstanding in unbilled contract costs and fees and accounts receivable at
April 3, 1999, were 48 and 59 days, respectively, compared with 47 and 68 days,
respectively at April 4, 1998. Management does not believe that the change in
the number of days sales outstanding is indicative of any trend that would
materially affect the Company's future results of operations or liquidity.
24
<PAGE>
Liquidity and Capital Resources (continued)
The Company's investing activities in fiscal 1999 primarily consisted of
capital additions of $1.4 million. The Company expects to expend approximately
$1.0 million for capital additions during fiscal 2000.
In fiscal 1999, the Company's financing activities used $0.2 million of
cash for the repayment of notes payable.
The Company generally expects to have positive cash flow from its existing
operations. Although the Company does not presently intend to actively seek to
acquire additional businesses in the near future, it may acquire one or more
complimentary businesses if they are presented to the Company on terms the
Company believes to be attractive. Such acquisitions may require significant
amounts of cash. The Company expects that it will finance any such acquisitions
through a combination of internal funds and/or short-term borrowings from Thermo
TerraTech or Thermo Electron Corporation, although it has no agreement with
these companies to ensure that funds will be available on acceptable terms, or
at all. The Company believes that its existing resources are sufficient to meet
the capital requirements of its existing businesses for the foreseeable future.
Market Risk
The Company is exposed to market risk from changes in interest rates,
which could affect its future results of operations and financial condition. The
Company's cash and cash equivalents and long-term obligations are sensitive to
changes in interest rates. Interest rate changes would result in a change in the
fair value of fixed rate financial instruments and a change in earnings from
variable rate instruments. A 10% change in interest rates would not have a
material effect on the fair value of, or earnings from, these financial
instruments.
Year 2000
The following constitutes a "Year 2000 Readiness Disclosure" under the
Year 2000 Information and Readiness Disclosure Act. The Company continues to
assess the potential impact of the year 2000 date recognition issue on the
Company's internal business systems, products, and operations. The Company's
year 2000 initiatives include (i) testing and upgrading significant information
technology systems and facilities; (ii) assessing the year 2000 readiness of its
key suppliers and vendors; and (iii) developing a contingency plan.
The Company's State of Readiness
The Company has implemented a compliance program to ensure that its
critical information technology systems and facilities will be ready for the
year 2000. The first phase of the program, testing and evaluating the Company's
critical information technology systems and facilities for year 2000 compliance,
has largely been completed. During phase one, the Company tested and evaluated
its significant computer systems, software applications, and related equipment
for year 2000 compliance. The Company also evaluated the potential year 2000
impact on its critical facilities. The Company's efforts included testing the
year 2000 readiness of its utility and telecommunications systems at its
critical facilities. The Company is currently in phase two of its program,
during which any noncompliant systems or facilities that were identified during
phase one are prioritized and remediated. Based on its evaluations of its
critical facilities, the Company does not believe that any material upgrades or
modifications are required. The Company is currently upgrading or replacing its
material noncompliant information technology systems, and this process was
approximately 90% complete as of April 3, 1999. In many cases, such upgrades or
replacements are being made in the ordinary course of business, without
accelerating previously scheduled upgrades or replacements. The Company expects
that all of its material information technology systems and critical facilities
will be year 2000 compliant by June 1999.
25
<PAGE>
Year 2000 (continued)
The Company is in the process of identifying and assessing the year 2000
readiness of key suppliers and vendors that are believed to be significant to
the Company's business operations. As part of this effort, the Company has
developed and is distributing questionnaires relating to year 2000 compliance to
its significant suppliers and vendors. To date, no significant supplier or
vendor has indicated that its business operations will be materially disrupted
by the year 2000 issue. The Company has started to follow-up with its
significant suppliers and vendors that have not responded to the Company's
questionnaires. The Company has not completed the majority of its assessment of
third-party risk, but expects to be substantially completed by June 1999.
Contingency Plan
The Company is developing a contingency plan that will allow its primary
business operations to continue despite disruptions due to year 2000 problems.
This plan may include identifying manual or backup systems in the event of a
failure of the Company's material information technology systems. As the Company
continues to evaluate the year 2000 readiness of its business systems and
facilities and significant suppliers and vendors, it will modify and adjust its
contingency plan as may be required.
Estimated Costs to Address the Company's Year 2000 Issues
The Company had not incurred material expenses to third parties (external
costs) related to year 2000 issues as of April 3, 1999, and the total external
costs of year 2000 remediation are not expected to be material.
The Company does not track the internal costs incurred for its year 2000
compliance project. Such costs are principally the related payroll costs for its
information systems group.
Reasonably Likely Worst Case Scenario
At this point in time, the Company is not able to determine the most
reasonably likely worst case scenario to result from the year 2000 issue. One
possible worst case scenario would be that the Company experiences year 2000
problems in its material information technology systems that cause the Company
to be unable to access data, to process transactions, and to maintain accurate
books and records. In such an event, the Company's operations could be delayed
or temporarily shut down, and it could be unable to meet its obligations to
customers in a timely fashion. The Company's business, operations, and financial
condition could be adversely affected in amounts that cannot be reasonably
estimated at this time.
Risks of the Company's Year 2000 Issues
While the Company is attempting to minimize any negative consequences
arising from the year 2000 issue, there can be no assurance that year 2000
problems will not have a material adverse impact on the Company's business,
operations, or financial condition. While the Company expects that upgrades to
its internal business systems will be completed in a timely fashion, there can
be no assurance that the Company will not encounter unexpected costs or delays.
Some services provided by the Company may involve the delivery to clients of
third-party software and hardware. Accordingly, the Company may see an increase
in warranty and other claims related to Company services that incorporate such
software or hardware. In addition, certain older third-party products, which the
Company no longer uses in providing its services to clients, may not be year
2000 compliant, which may expose the Company to claims. As discussed above, if
any of the Company's key suppliers or vendors experience business disruptions
due to year 2000 issues, the Company might also be materially adversely
affected. There is expected to be a significant amount of litigation relating to
the year 2000 issue and there can be no assurance that the Company will not
incur material costs in defending or bringing lawsuits. In addition, if any year
2000 issues are identified, there can be no assurance that the Company will be
able to retain qualified personnel to remedy such issues. Any unexpected costs
or delays arising from the year 2000 issue could have a material adverse impact
on the Company's business, operations, and financial condition in amounts that
cannot be reasonably estimated at this time.
26
<PAGE>
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 2000 and beyond to differ materially from those expressed in
any forward-looking statements made by, or on behalf of, the Company.
Dependence on Sales to Government Entities. A significant portion of the
Company's revenues is derived from municipalities, state governments, and
government utility authorities. Any decreases in purchases by these entities,
including, without limitation, decreases resulting from shifts in priorities or
overall budgeting limitations, could have a material adverse effect on the
Company's business, financial condition, and results of operations. In addition,
most of the Company's contracts require the Company to perform specific services
for a fixed fee. Contracts with governmental entities often permit the purchaser
to cancel the agreement at any time. A significant overrun in the Company's
expenses or cancellation of a significant contract could also result in a
material adverse effect on the Company's business, financial condition, and
results of operations. The Company's contracts with governmental entities are
also subject to other risks, including contract suspensions; protests by
disappointed bidders of contract awards, which can result in the re-opening of
the bidding process; and changes in government policies or regulations.
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 changes in customer requirements and new or emerging technologies, or to
devote greater resources to the promotion and sale of their services than the
Company. Competition could increase if new companies enter the market or its
existing competitors expand their service lines. There can be no assurance that
the Company's current technology, technology under development, or ability to
develop new technologies will be sufficient to enable it to compete effectively
with its competitors.
Dependence on Environmental Regulation. Federal, state, and local
environmental laws govern most 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 water supply design and inspection services,
wastewater treatment facility design and inspection services, solid and
hazardous waste management services, environmental testing services, natural
resource management, and air pollution testing and management services, 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.
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's water,
wastewater, and hazardous waste-treatment management services operations may
expose the Company to liabilities to clients and third parties. In addition, the
Company is also potentially subject to monetary fines, penalties, remediation,
cleanup or stop orders, injunctions, or orders to cease or suspend certain of
its practices. The outcome of any proceedings and associated costs and expenses
could have a material adverse impact on the Company's business. In addition, the
Company is subject to numerous laws and regulations related to the protection of
human health and safety. Such laws and regulations may pose liability on the
Company for exposure of its employees to radiation or other hazardous
contamination.
27
<PAGE>
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.
Potential Professional Liability. The Company's business exposes it to
potential liability for the negligent performance of its services and, as such,
the Company may face substantial liability to clients and third parties for
damages resulting from faulty designs or other professional services. The
Company currently maintains professional errors and omissions insurance, but
there can be no assurance that this insurance will provide sufficient coverage
in the event of a claim, that the Company will be able to maintain such coverage
on acceptable terms, if at all, or that a professional liability claim would not
result in a material adverse effect on the Company's business, financial
condition, and results of operations.
Seasonal Influences. A majority of the Company's businesses experience
seasonal fluctuations. Site investigation work and certain environmental testing
services may decline in winter months as a result of severe weather conditions.
Risks Associates with Acquisition Strategy. The Company's strategy has
included the acquisition of businesses that complement or augment the Company's
existing services. The Company does not presently intend to actively seek to
make additional acquisitions in the near future, and expects instead to
concentrate its resources on strengthening its core businesses. The Company may,
however, acquire one or more additional businesses if they are presented to the
Company on terms the Company believes to be attractive. Promising acquisitions
are difficult to identify and complete for a number of reasons, including
competition among prospective buyers and the need for regulatory approvals. Any
acquisitions completed by the Company may be made at substantial premiums over
the fair value of the net assets of the acquired companies. There can be no
assurance that the Company will be able to complete future acquisitions or that
the Company will be able to successfully integrate any acquired businesses. In
order to finance such acquisitions, it may be necessary for the Company to raise
additional funds through public or private financings. Any equity or debt
financing, if available at all, may be on terms that are not favorable to the
Company and, in the case of equity financing, may result in dilution to the
Company's shareholders.
Risks Associated with Cash Management Arrangement with the Parent Company.
The Company participates in a cash management arrangement with its parent
company, Thermo Electron. Under this cash management arrangement, the Company
lends its excess cash to Thermo Electron on an unsecured basis. The Company has
the contractual right to withdraw its funds invested in the cash management
arrangement upon 30 days' prior notice. Thermo Electron is contractually
required to maintain cash, cash equivalents, and/or immediately available bank
lines of credit equal to at least 50% of all funds invested under the cash
management arrangement by all Thermo Electron subsidiaries other than wholly
owned subsidiaries. The funds are held on an unsecured basis and therefore are
subject to the credit risk of Thermo Electron. The Company's ability to receive
its cash upon notice of withdrawal could be adversely affected if participants
in the cash management arrangement demand withdrawal of their funds in an
aggregate amount in excess of the 50% reserve required to be maintained by
Thermo Electron. In the event of a bankruptcy of Thermo Electron, the Company
would be treated as an unsecured creditor and its right to receive funds from
the bankruptcy estate would be subordinated to secure creditors and would be
treated on a pari passu basis with all other unsecured creditors. Further, all
cash withdrawn by the Company from the cash management arrangement within one
year before the bankruptcy would be subject to rescission. The inability of
Thermo Electron to return the Company's cash on a timely basis or at all could
have a material adverse effect on the Company's results of operations and
financial position.
28
<PAGE>
Potential Impact of Year 2000 on Processing of Date-sensitive Information.
While the Company is attempting to minimize any negative consequences arising
from the year 2000 issue, there can be no assurance that year 2000 problems will
not have a material adverse impact on the Company's business, operations, or
financial condition. While the Company expects that upgrades to its internal
business systems will be completed in a timely fashion, there can be no
assurance that the Company will not encounter unexpected costs or delays. Some
services provided by the Company may involve the delivery to clients of
third-party software and hardware. Accordingly, the Company may see an increase
in warranty and other claims related to Company services that incorporate such
software or hardware. In addition, certain older third-party products, which the
Company no longer uses in providing its services to clients, may not be year
2000 compliant, which may expose the Company to claims. If any of the Company's
significant suppliers, vendors, or customers experience business disruptions due
to year 2000 issues, the Company might also be materially adversely affected.
There is expected to be a significant amount of litigation relating to the year
2000 issue and there can be no assurance that the Company will not incur
material costs in defending or bringing lawsuits. In addition, if any year 2000
issues are identified, there can be no assurance that the Company will be able
to retain qualified personnel to remedy such issues. Any unexpected costs or
delays arising from the year 2000 issue could have a significant adverse impact
on the Company's business, operations, and financial condition in amounts that
cannot be reasonably estimated at this time.
29
<PAGE>
The Randers Killam Group Inc. 1999 Financial Statements
Selected Financial Information
(In thousands except per share amounts) 1999 1998 (a) 1997 (b) 1996 1995
- -------------------------------------------------------- --------- --------- ---------- --------- --------
Statement of Income Data
Revenues $80,773 $71,583 $64,374 $58,515 $27,735
Gross Profit 19,019 18,745 16,326 13,503 5,640
Net Income 2,968 3,153 3,580 2,379 693
Basic and Diluted Earnings per Share .12 .13 .16 .11 .03
Balance Sheet Data
Working Capital $28,424 $25,822 $16,038 $13,084 $14,348
Total Assets 98,145 93,193 75,434 71,893 71,886
Long-term Obligations 774 1,948 1,260 1,883 2,551
Shareholders' Investment 83,014 79,998 64,731 58,725 60,278
(a) Reflects the May 1997 acquisition of Randers by Thermo TerraTech (Note 2),
subsequently transferred to the Company.
(b) Reflects the November 1996 acquisition of CarlanKillam Consulting Group by
Thermo TerraTech (Note 2), subsequently transferred to the Company.
Common Stock Market Information
The Company's common stock is traded on the American Stock Exchange under
the symbol RGI. The following table sets forth the high and low sales prices of
the Company's common stock for fiscal 1999 and 1998, as reported in the
consolidated transaction reporting system. Prices have been restated to reflect
a one-for-five reverse stock split, effective in February 1999.
Fiscal 1999 Fiscal 1998
Quarter High Low High Low
- --------------------------------------------------------------- ---------- ---------- ---------- ----------
First $3 3/4 $3 1/8 $5 5/8 $2 1/2
Second 3 1/8 1 7/8 5 4 1/16
Third 2 3/16 1 9/16 5 2 1/2
Fourth 3 5/8 1 7/8 4 3/8 3 1/8
As of April 30, 1999, the Company had 65 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
April 30, 1999, was $2 5/8 per share.
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.
30
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Exhibit 21
THE RANDERS KILLAM GROUP INC.
Subsidiaries of the Registrant
As of May 29, 1999, The Randers Killam Group Inc. owned the following companies:
STATE OR
JURISDICTION OF PERCENT OF
NAME INCORPORATION OWNERSHIP
- -----------------------------------------------------------------------------------------------------------
Randers Engineering, Inc. Michigan 100
Randers Engineering of Massachusetts, Inc. Michigan 100
Randers Group Property Corporation Michigan 100
Redeco Incorporated Michigan 100
Viridian Technology Incorporated Michigan 100
The Killam Group, Inc. Delaware 100
CarlanKillam Consulting Group, Inc. Florida 100
CarlanKillam Consulting Group of Alabama, Inc. Alabama 100
Thermo Consulting & Design Inc. Delaware 100
Engineering Technology and Knowledge Corporation Delaware 100
Elson T. Killam Associates, Inc. New Jersey 100
BAC Killam Inc. New York 100
N.H. Bettigole Co., Inc. Delaware 100
N.H. Bettigole P.A. New Jersey 100
N.H. Bettigole P.C. New York 100
CarlanKillam Construction Services, Inc. Florida 100
Duncan, Lagnese and Associates, Incorporated Pennsylvania 100
E3-Killam, Inc. New York 100
Killam Associates, Inc. Ohio 100
Killam Management and Operational Services, Inc. New Jersey 100
Fellows, Read & Associates, Inc. New Jersey 100
Killam Associates, New England Inc. Delaware 100
George A. Schock & Associates, Inc. New Jersey 100
Jennison Engineering, Inc. Vermont 100
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE RANDERS
KILLAM GROUP INC.'S ANNUAL REPORT ON FORM 10-K FOR THE PERIOD ENDED APRIL 3,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-03-1999
<PERIOD-END> APR-03-1999
<CASH> 15,921
<SECURITIES> 0
<RECEIVABLES> 13,968
<ALLOWANCES> 1,291
<INVENTORY> 0
<CURRENT-ASSETS> 40,708
<PP&E> 16,738
<DEPRECIATION> 5,373
<TOTAL-ASSETS> 98,145
<CURRENT-LIABILITIES> 12,284
<BONDS> 774
0
0
<COMMON> 3
<OTHER-SE> 83,014
<TOTAL-LIABILITY-AND-EQUITY> 98,145
<SALES> 0
<TOTAL-REVENUES> 80,773
<CGS> 0
<TOTAL-COSTS> 61,754
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,059
<INTEREST-EXPENSE> 155
<INCOME-PRETAX> 5,700
<INCOME-TAX> 2,732
<INCOME-CONTINUING> 2,968
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,968
<EPS-BASIC> 0.12
<EPS-DILUTED> 0.12
<FN>
<F1> THE FINANCIAL STATEMENTS OF THE COMPANY HAVE BEEN RESTATED FOR A ONE FOR
FIVE REVERSE STOCK SPLIT EFFECTIVE IN FEBRUARY 1999.
</FN>
</TABLE>
