SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
----------------------------------------------------
FORM 10-Q
(mark one)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarter Ended October 2, 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
Milburn, New Jersey 07041
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (781) 622-1000
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 (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
Class Outstanding at October 29, 1999
Common Stock, $.0001 par value 25,434,719
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
THE RANDERS KILLAM GROUP INC.
Consolidated Balance Sheet
(Unaudited)
Assets
<S> <C> <C>
October 2, April 3,
(In thousands) 1999 1999
- ----------------------------------------------------------------------------------- ----------- ----------
Current Assets:
Cash and cash equivalents (includes $15,015 under repurchase $ 1,380 $15,921
agreement with related party in fiscal 1999)
Advance to affiliate (Note 5) 18,629 -
Accounts receivable, less allowances of $1,036 and $1,291 13,713 12,677
Unbilled contract costs and fees 8,247 9,942
Prepaid and refundable income taxes 1,710 1,735
Prepaid expenses 546 433
------- -------
44,225 40,708
------- -------
Property, Plant, and Equipment, at Cost 16,691 16,738
Less: Accumulated depreciation and amortization 5,883 5,373
------- -------
10,808 11,365
------- -------
Other Assets 1,838 1,966
------- -------
Cost in Excess of Net Assets of Acquired Companies (Note 4) 31,419 44,106
------- -------
$88,290 $98,145
======= =======
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THE RANDERS KILLAM GROUP INC.
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
October 2, April 3,
(In thousands except share amounts) 1999 1999
- ----------------------------------------------------------------------------------- ----------- ---------
Current Liabilities:
Current maturities of long-term obligations $ 1,127 $1,145
Accounts payable 4,438 4,784
Accrued payroll and employee benefits 3,445 3,228
Accrued income taxes 2,443 2,364
Accrued restructuring costs (Note 4) 2,542 -
Other accrued expenses 407 669
Due to parent company and affiliated companies 516 94
------- -------
14,918 12,284
------- -------
Deferred Income Taxes 997 997
------- -------
Other Deferred Items 1,119 1,076
------- -------
Long-term Obligations 716 774
------- -------
Shareholders' Investment:
Common stock, $.0001 par value, 30,000,000 shares authorized; 3 3
25,434,719 and 25,429,344 shares issued and outstanding
Capital in excess of par value 79,388 79,379
Retained earnings (accumulated deficit) (8,851) 3,632
------- -------
70,540 83,014
------- -------
$88,290 $98,145
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
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THE RANDERS KILLAM GROUP INC.
Consolidated Statement of Operations
(Unaudited)
Three Months Ended
October 2, October 3,
(In thousands except per share amounts) 1999 1998
- ----------------------------------------------------------------------------------- ---------- ----------
Revenues $18,019 $20,988
------- -------
Costs and Operating Expenses:
Cost of revenues 13,276 16,289
Selling, general, and administrative expenses 3,060 3,290
Restructuring costs (Note 4) 57 -
------- -------
16,393 19,579
------- -------
Operating Income 1,626 1,409
Interest Income 256 159
Interest Expense (42) (40)
------- -------
Income Before Income Taxes 1,840 1,528
Income Tax Provision 918 709
------- -------
Net Income $ 922 $ 819
======= =======
Basic and Diluted Earnings per Share (Note 2) $ .04 $ .03
======= =======
Weighted Average Shares (Note 2):
Basic 25,431 25,429
======= =======
Diluted 25,523 25,429
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
4
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THE RANDERS KILLAM GROUP INC.
Consolidated Statement of Operations
(Unaudited)
Six Months Ended
October 2, October 3,
(In thousands except per share amounts) 1999 1998
- ----------------------------------------------------------------------------------- ---------- ----------
Revenues $ 36,622 $41,071
-------- -------
Costs and Operating Expenses:
Cost of revenues 27,180 31,343
Selling, general, and administrative expenses 6,189 6,879
Restructuring costs (Note 4) 15,725 -
-------- -------
49,094 38,222
-------- -------
Operating Income (Loss) (12,472) 2,849
Interest Income 455 284
Interest Expense (75) (83)
-------- -------
Income (Loss) Before Income Taxes (12,092) 3,050
Income Tax Provision 391 1,443
-------- -------
Net Income (Loss) $(12,483) $ 1,607
======== =======
Basic and Diluted Earnings (Loss) per Share (Note 2) $ (.49) $ .06
======== =======
Weighted Average Shares (Note 2):
Basic 25,430 25,429
======== =======
Diluted 25,430 25,455
======== =======
The accompanying notes are an integral part of these consolidated financial
statements.
5
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THE RANDERS KILLAM GROUP INC.
Consolidated Statement of Cash Flows
(Unaudited)
Six Months Ended
October 2, October 3,
(In thousands) 1999 1998
- ----------------------------------------------------------------------------------- ---------- ----------
Operating Activities:
Net income (loss) $(12,483) $ 1,607
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Noncash restructuring costs (Note 4) 12,999 -
Depreciation and amortization 977 1,369
Provision for losses on accounts receivable 52 430
Other noncash items (135) (193)
Changes in current accounts:
Accounts receivable (787) 174
Unbilled contract costs and fees 1,695 (1,123)
Other current assets (88) (239)
Accounts payable (346) 994
Other current liabilities 2,987 1,034
-------- -------
Net cash provided by operating activities 4,871 4,053
-------- -------
Investing Activities:
Advances to affiliate, net (Note 5) (18,629) -
Purchases of property, plant, and equipment (694) (580)
Proceeds from sale of property, plant, and equipment 9 13
Other (50) (106)
-------- -------
Net cash used in investing activities (19,364) (673)
-------- -------
Financing Activities:
Net proceeds from issuance of Company common stock 9 -
Repayment of note payable and long-term obligations (57) (112)
-------- -------
Net cash used in financing activities (48) (112)
-------- -------
Increase (Decrease) in Cash and Cash Equivalents (14,541) 3,268
Cash and Cash Equivalents at Beginning of Period 15,921 9,763
-------- -------
Cash and Cash Equivalents at End of Period $ 1,380 $13,031
======== =======
The accompanying notes are an integral part of these consolidated financial
statements.
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Notes to Consolidated Financial Statements
1. General
The interim consolidated financial statements presented have been prepared
by The Randers Killam Group Inc. (the Company) without audit and, in the opinion
of management, reflect all adjustments of a normal recurring nature necessary
for a fair statement of the financial position at October 2, 1999, the results
of operations for the three- and six-month periods ended October 2, 1999, and
October 3, 1998, and the cash flows for the six-month periods ended October 2,
1999, and October 3, 1998. Interim results are not necessarily indicative of
results for a full year.
The consolidated balance sheet presented as of April 3, 1999, has been
derived from the consolidated financial statements that have been audited by the
Company's independent public accountants. The consolidated financial statements
and notes are presented as permitted by Form 10-Q and do not contain certain
information included in the annual financial statements and notes of the
Company. The consolidated financial statements and notes included herein should
be read in conjunction with the financial statements and notes included in the
Company's Annual Report on Form 10-K for the fiscal year ended April 3, 1999,
filed with the Securities and Exchange Commission.
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2. Earnings (Loss) per Share
Basic and diluted earnings (loss) per share were calculated as follows:
Three Months Ended Six Months Ended
October 2, October 3, October 2, October 3,
(In thousands except per share amounts) 1999 1998 1999 1998
- ------------------------------------------------------------ ---------- ---------- ---------- ----------
Basic
<S> <C> <C> <C> <C>
Net Income (Loss) $ 922 $ 819 $(12,483) $ 1,607
------- -------- -------- --------
Weighted Average Shares 25,431 25,429 25,430 25,429
------- -------- ------- --------
Basic Earnings (Loss) per Share $ .04 $ .03 $ (.49) $ .06
======= ======== ======= ========
Diluted
Net Income (Loss) $ 922 $ 819 $(12,483) $ 1,607
------- -------- -------- --------
Weighted Average Shares 25,431 25,429 25,430 25,429
Effect of Stock Options 92 - - 26
------- -------- ------- --------
Weighted Average Shares, as Adjusted 25,523 25,429 25,430 25,455
------- -------- ------- --------
Diluted Earnings (Loss) per Share $ .04 $ .03 $ (.49) $ .06
======= ======== ======= ========
The computation of diluted earnings (loss) per share for each period
excludes the effect of assuming the exercise of certain outstanding stock
options because the effect would be antidilutive. As of October 2, 1999, there
were 17,000 of such options outstanding, with exercise prices ranging from $3.13
to $4.38 per share.
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3. Business Segment Information
Three Months Ended Six Months Ended
October 2, October 3, October 2, October 3,
(In thousands) 1999 1998 1999 1998
- ------------------------------------------------------------- ---------- ----------- ---------- ----------
Revenues:
Water and Wastewater Treatment $ 9,932 $ 11,365 $20,588 $ 22,392
Process Engineering and Construction 2,623 4,433 5,411 9,222
Highway and Bridge Engineering 3,405 3,569 6,603 6,485
Infrastructure Engineering 2,119 1,557 4,120 3,073
Intersegment sales elimination (60) 64 (100) (101)
------- -------- ------- --------
$18,019 $ 20,988 $36,622 $ 41,071
======= ======== ======= ========
Income (Loss) Before Income Taxes:
Water and Wastewater Treatment (a) $ 1,535 $ 1,536 $ 2,773 $ 2,976
Process Engineering and Construction (b) (334) 115 (6,261) 479
Highway and Bridge Engineering (c) 398 (144) (8,936) (292)
Infrastructure Engineering 304 165 494 321
Corporate (d) (277) (263) (542) (635)
------- -------- ------- --------
Total operating income (loss) 1,626 1,409 (12,472) 2,849
Interest and other income, net 214 119 380 201
------- -------- ------- --------
$ 1,840 $ 1,528 $(12,092) $ 3,050
======= ======== ======== ========
(a) Includes restructuring costs of $0.4 million in the first six months of fiscal 2000.
(b) Includes restructuring costs of $0.1 million and $5.8 million in the third quarter
of fiscal 2000 and the first six months of fiscal 2000, respectively.
(c) Includes restructuring costs of $9.5 million in the first six months of
fiscal 2000.
(d) Primarily general and administrative expenses.
During the first six months of fiscal 2000, the Company recorded
restructuring costs in connection with the planned sale of three businesses
(Note 4). As a result, total assets decreased by $200,000 at the Water and
Wastewater Treatment segment, $4,778,000 at the Process Engineering and
Construction segment, and $8,021,000 at the Highway and Bridge Engineering
segment.
4. Restructuring Costs
During the first six months of fiscal 2000, the Company recorded
restructuring costs of $15,725,000 in connection with the planned sale of three
businesses. These businesses consist of the Randers division, which constitutes
the Company's Process Engineering and Construction segment; BAC Killam Inc.,
which represents the Company's Highway and Bridge Engineering segment; and
E3-Killam Inc., which represents a small component of the Water and Wastewater
Treatment segment. These costs primarily include a write-off of $12,239,000 of
cost in excess of net assets of acquired companies and a write-down of $760,000
of property and equipment to reduce the carrying value of the businesses
proposed to be sold to the estimated proceeds from their sale, $2,562,000 of
ongoing lease costs for facilities that have been or will be exited in
connection with the planned sale of these businesses, and $163,000 of severance
costs for 9 employees across all functions, all of whom were terminated by
October 2, 1999. The charges were noncash charges except for severance and
ongoing lease costs. During the first six months of fiscal 2000, the Company
expended $83,000 of the established reserve for severance and $100,000 for lease
payments. As of October 2, 1999, the remaining obligation for the restructuring
actions totaled $2,542,000, which represents ongoing lease costs and severance.
The Company expects to pay such costs through 2005, the expiration of the lease
periods.
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4. Restructuring Costs (continued)
The Company expects to incur additional restructuring costs of approximately
$925,000, primarily for employee retention bonuses during the remainder of
fiscal 2000. The bonuses are payable upon the sale of the businesses described
above. Unaudited revenues and operating income before restructuring costs of
these business units aggregated $12,626,000 and $139,000, in the first six
months of fiscal 2000, respectively. Revenues and operating losses aggregated
$31,655,000 and $478,000 in fiscal 1999, respectively. As a result of the
restructuring actions, depreciation has been discontinued on the facilities to
be sold, amortization has been discontinued on the cost in excess of net assets
of acquired companies which was written off, and rent expense is no longer
recorded on facilities that have been abandoned. During the first six months of
fiscal 2000, the absence of these costs reduced the pretax operating loss by
$494,000.
5. Cash Management Arrangement
Effective June 1, 1999, the Company and Thermo Electron Corporation
commenced use of a new domestic cash management arrangement. 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.
Amounts invested in this arrangement are included in "advance to affiliate" in
the accompanying balance sheet.
6. Proposed Merger
On October 19, 1999, the Company entered into a definitive agreement and
plan of merger with Thermo Electron pursuant to which Thermo Electron would
acquire all of the outstanding shares of Company common stock held by
shareholders other than Thermo TerraTech Inc. and Thermo Electron in exchange
for $4.50 in cash per share, without interest. The merger had been originally
announced as a stock for stock transaction pursuant to which shareholders of the
Company would have received stock of Thermo Electron in exchange for their
shares of the Company. Following the merger, the Company's common stock would
cease to be publicly traded. The Board of Directors of the Company approved the
merger agreement based on a recommendation by a special committee of the Board
of Directors, consisting of an independent director of the Company. The
completion of this merger is subject to certain conditions, including
shareholder approval of the merger agreement and the completion of review by the
Securities and Exchange Commission of certain required filings. Thermo Electron
and Thermo TerraTech intend to vote all of their shares of common stock of the
Company in favor of approval of the merger agreement and, therefore, approval of
the merger agreement is assured. This merger is expected to be completed in the
fourth quarter of fiscal 2000.
Item 2 - 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 under the heading "Forward-looking
Statements" in Exhibit 13 to the Company's Annual Report on Form 10-K for the
fiscal year ended April 3, 1999, filed with the Securities and Exchange
Commission.
9
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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, 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. The Company's CarlanKillam Consulting Group,
Inc. subsidiary provides transportation and environmental consulting,
professional engineering, and architectural services, and represents the
Company's Infrastructure Engineering segment.
In May 1999, the Company announced the planned sale of three businesses,
the Randers division, which represents the Company's Process Engineering and
Construction segment; BAC Killam, which represents the Company's Highway and
Bridge Engineering segment; and E3-Killam, which represents a small component of
the Company's Water and Wastewater Treatment segment (Note 4).
Results of Operations
Second Quarter Fiscal 2000 Compared With Second Quarter Fiscal 1999
Revenues decreased to $18.0 million in the second quarter of fiscal 2000
from $21.0 million in the second quarter of fiscal 1999, primarily due to a
decrease in contract revenue at the Process Engineering and Construction segment
and the Water and Wastewater Treatment segment, due in part to a recession in
the chemical industry. These decreases in revenues were offset in part by an
increase in revenues at the Infrastructure Engineering segment due to an
increase in demand.
The gross profit margin increased to 26% in the second quarter of fiscal
2000 from 22% in the second quarter of fiscal 1999, primarily due to lower
overhead costs as a result of cost reduction efforts at the Water and Wastewater
Treatment segment and the Highway and Bridge Engineering segment. To a lesser
extent, the gross profit margin increased due to an increase in revenues and
greater utilization of personnel at the Infrastructure Engineering segment and a
reduction in depreciation, amortization, and rent expenses at the businesses
being sold, as a result of the restructuring actions discussed in Note 4. These
increases were offset in part by a decrease in the gross profit margin at the
Process Engineering and Construction segment, primarily due to a decrease in
revenues without a proportional reduction in overhead costs.
10
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Second Quarter Fiscal 2000 Compared with Second Quarter Fiscal 1999 (continued)
Selling, general, and administrative expenses as a percentage of revenues
increased to 17% in the second quarter of fiscal 2000 from 16% in the second
quarter of fiscal 1999, primarily due to a decrease in revenues. This increase
was offset in part by a reduction in depreciation, amortization, and rent
expenses at the businesses being sold, as a result of the restructuring actions
discussed in Note 4.
Interest income increased to $0.3 million in the second quarter of fiscal
2000 from $0.2 million in the second quarter of fiscal 1999, primarily due to
higher average invested balances.
The effective tax rate was 50% and 46% in the second quarter of fiscal
2000 and 1999, respectively. The effective tax rates exceeded the statutory
federal income tax rate in both periods, primarily due to the effect of
nondeductible amortization of cost in excess of net assets of acquired companies
and the impact of state income taxes. The effective tax rate increased in fiscal
2000, primarily due to certain losses for which state tax benefits could not be
utilized.
First Six Months Fiscal 2000 Compared With First Six Months Fiscal 1999
Revenues decreased to $36.6 million in the first six months of fiscal 2000
from $41.1 million in the first six months of fiscal 1999, primarily due to the
reasons discussed in the results of operations for the second quarter.
The gross profit margin increased to 26% in the first six months of fiscal
2000 from 24% in the first six months of fiscal 1999, primarily due to the
reasons discussed in the results of operations for the second quarter.
Selling, general, and administrative expenses as a percentage of revenues
remained unchanged at 17% in the first six months of fiscal 2000 and 1999.
Selling, general, and administrative costs decreased to $6.2 million in fiscal
2000 from $6.9 million in fiscal 1999, primarily due to a reduction in
depreciation, amortization, and rent expenses at the businesses being sold, as a
result of the restructuring actions discussed in Note 4 and, to a lesser extent,
cost reduction efforts.
During the first six months of fiscal 2000, the Company recorded
restructuring costs of $15.7 million in connection with the planned sale of
three businesses (Note 4). The Company expects to incur additional restructuring
costs of approximately $0.9 million, primarily for employee retention bonuses
during the remainder of fiscal 2000.
Interest income increased to $0.5 million in the first six months of
fiscal 2000 from $0.3 million in the first six months of fiscal 1999, primarily
due to higher average invested balances.
The Company recorded a tax provision of $0.4 million in the first six
months of fiscal 2000 on pretax losses of $12.1 million. The effective tax rate
was lower than the statutory federal income tax rate, principally due to
nondeductible charges, including the write-off of cost in excess of net assets
of acquired companies of $12.2 million (Note 4). The Company recorded a tax
provision of $1.4 million in the first six months of fiscal 1999 on pretax
income of $3.1 million, resulting in an effective tax rate of 47%. The effective
tax rate was higher than the statutory federal income tax rate, primarily due to
the effect of 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 $29.3 million at October 2, 1999,
compared with $28.4 million at April 3, 1999. Included in working capital are
cash and cash equivalents of $1.4 million at October 2, 1999, compared with
$15.9 million at April 3, 1999. In addition, as of October 2, 1999, the Company
had $18.6 million invested in an advance to affiliate. Prior to the use of a new
domestic cash management arrangement between the Company and Thermo Electron
Corporation (Note 5), which became effective June 1, 1999, amounts invested with
Thermo Electron were included in cash and cash equivalents. During the first six
months of fiscal 2000, $4.9 million of cash was
11
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Liquidity and Capital Resources (continued)
provided by operating activities. During this period, $3.0 million of cash was
provided by an increase in other current liabilities, primarily due to
restructuring costs recorded during the first six months of fiscal 2000, which
were not paid as of October 2, 1999. The Company expects to pay such costs,
principally for ongoing leases, through 2005, the expiration of the lease
periods. Cash of $1.7 million was provided by a decrease in unbilled contract
costs and fees, primarily due to the timing of billings. An increase in accounts
receivable used $0.8 million in cash, primarily due to the timing of customer
payments. The days sales outstanding in unbilled contract costs and fees and in
accounts receivable at October 2, 1999, were 42 and 71 days, respectively,
compared with 67 and 59 days, respectively, at April 3, 1999. 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.
Excluding advance to affiliate activity (Note 5), the Company's primary
investing activities in the first six months of fiscal 2000 consisted of capital
additions of $0.7 million. The Company expects to expend approximately $0.6
million for capital additions during the remainder of fiscal 2000.
In the first six months of fiscal 2000, the Company's financing activities
used $0.1 million of cash for the repayment of long-term obligations.
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
Electron, although it has no agreement 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.
Year 2000
The following information 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 non-information technology systems
will be ready for the year 2000. In the first phase of the program, the Company
tested and evaluated its critical information technology systems and
non-information technology systems for year 2000 compliance, which efforts
included testing and evaluating 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 non-information
technology systems, which efforts included testing the year 2000 readiness of
its utility and telecommunications systems at its critical facilities. In phase
two of its program, any material noncompliant information technology systems or
non-information technology systems that were identified during phase one were
prioritized and remediated. Based on its evaluations, the Company concluded that
no material upgrades or modifications to its critical non-information technology
systems were required. As of October 2, 1999, the Company has upgraded or
replaced its material noncompliant information technology systems. In many
cases, such upgrades or replacements were made in the ordinary course of
business, without accelerating previously scheduled upgrades or replacements.
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Year 2000 (continued)
The Company has also identified and assessed 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 developed and
distributed questionnaires relating to year 2000 compliance to its significant
suppliers and vendors. The Company also followed up with significant suppliers
and vendors that did not respond to the Company's questionnaires. To date, no
significant supplier or vendor has indicated that its business operations will
be materially disrupted by the year 2000 issue. As of October 2, 1999, the
Company has completed the majority of its assessment of third-party risk.
Contingency Plan
The Company has developed a contingency plan that will allow its primary
business operations to continue despite disruptions due to year 2000 problems.
This plan includes identifying manual or backup systems in the event of a
failure of the Company's material information technology systems. The Company
may in the future modify or adjust its contingency plan as may be required, in
the event that there are changes in the year 2000 readiness of its business
systems and facilities and significant suppliers and vendors.
Estimated Costs to Address the Company's Year 2000 Issues
The Company had not incurred material third-party expenses (external
costs) related to year 2000 issues as of October 2, 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. 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.
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
The Company's exposure to market risk from changes in interest rates has
not changed materially from its exposure at fiscal year-end 1999.
13
<PAGE>
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
See Exhibit Index on the page immediately preceding exhibits.
(b) Reports on Form 8-K
None.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized as of the 10th day of November 1999.
THE RANDERS KILLAM GROUP INC.
/s/ Paul F. Kelleher
Paul F. Kelleher
Chief Accounting Officer
/s/ Theo Melas-Kyriazi
Theo Melas-Kyriazi
Chief Financial Officer
15
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
2.1 Agreement and Plan of Merger dated as of October 19, 1999, by and
among Thermo Electron Corporation, RK Acquisition Corporation,
and The Randers Killam Group Inc. (filed as Exhibit 2.1 to the
Registrant's Current Report on Form 8-K relating to events
occurring on October 19, 1999 [File No. 1-11039] and incorporated
herein by reference).
27 Financial Data Schedule.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE RANDERS
KILLAM GROUP INC. QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED OCTOBER 2,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-01-2000
<PERIOD-END> OCT-02-1999
<CASH> 1,380
<SECURITIES> 0
<RECEIVABLES> 14,749
<ALLOWANCES> 1,036
<INVENTORY> 0
<CURRENT-ASSETS> 44,225
<PP&E> 16,691
<DEPRECIATION> 5,883
<TOTAL-ASSETS> 88,290
<CURRENT-LIABILITIES> 14,918
<BONDS> 716
0
0
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<OTHER-SE> 70,537
<TOTAL-LIABILITY-AND-EQUITY> 88,290
<SALES> 0
<TOTAL-REVENUES> 36,622
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<TOTAL-COSTS> 27,180
<OTHER-EXPENSES> 15,725
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<INTEREST-EXPENSE> 75
<INCOME-PRETAX> (12,092)
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<INCOME-CONTINUING> (12,483)
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<NET-INCOME> (12,483)
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