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 January 1, 2000
[ ] 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
incorporation or organization) (I.R.S. Employer Identification No.)
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 January 28, 2000
------------------------------ -------------------------------
Common Stock, $.0001 par value 25,437,717
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
THE RANDERS KILLAM GROUP INC.
Consolidated Balance Sheet
(Unaudited)
Assets
<TABLE>
<CAPTION>
<S> <C> <C>
January 1, April 3,
(In thousands) 2000 1999
- ----------------------------------------------------------------------------------- ----------- ----------
Current Assets:
Cash and cash equivalents (includes $15,015 under repurchase $ 2,084 $15,921
agreement with related party in fiscal 1999)
Advance to affiliate (Note 5) 19,030 -
Accounts receivable, less allowances of $1,049 and $1,291 11,309 12,677
Unbilled contract costs and fees 7,842 9,942
Prepaid and deferred tax asset 1,550 1,735
Prepaid expenses 242 433
------- -------
42,057 40,708
------- -------
Property, Plant, and Equipment, at Cost 15,526 16,738
Less: Accumulated depreciation and amortization 5,770 5,373
------- -------
9,756 11,365
------- -------
Other Assets 1,930 1,966
------- -------
Cost in Excess of Net Assets of Acquired Companies (Note 4) 31,195 44,106
------- -------
$84,938 $98,145
======= =======
2
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THE RANDERS KILLAM GROUP INC.
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
January 1, April 3,
(In thousands except share amounts) 2000 1999
- ----------------------------------------------------------------------------------- ----------- ---------
Current Liabilities:
Current maturities of long-term obligations $ 82 $ 1,145
Accounts payable 3,617 4,784
Accrued payroll and employee benefits 2,506 3,228
Accrued income taxes 1,953 2,364
Accrued restructuring costs (Note 4) 2,484 -
Other accrued expenses 1,356 669
Due to parent company and affiliated companies 119 94
------- -------
12,117 12,284
------- -------
Deferred Income Taxes 997 997
------- -------
Other Deferred Items 1,097 1,076
------- -------
Long-term Obligations 694 774
------- -------
Shareholders' Investment:
Common stock, $.0001 par value, 30,000,000 shares authorized; 3 3
25,437,719 and 25,429,344 shares issued and outstanding
Capital in excess of par value 79,395 79,379
Retained earnings (accumulated deficit) (9,365) 3,632
------- -------
70,033 83,014
------- -------
$84,938 $98,145
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
THE RANDERS KILLAM GROUP INC.
Consolidated Statement of Operations
(Unaudited)
Three Months Ended
January 1, January 2,
(In thousands except per share amounts) 2000 1999
- ----------------------------------------------------------------------------------- ----------- ----------
Revenues $15,587 $20,816
------- -------
Costs and Operating Expenses:
Cost of revenues 11,237 16,140
Selling, general, and administrative expenses 2,983 3,332
Restructuring costs (Note 7) 2,214 -
------- -------
16,434 19,472
------- -------
Operating Income (Loss) (847) 1,344
Interest Income 253 177
Interest Expense (20) (38)
------- -------
Income (Loss) Before Income Taxes (614) 1,483
Income Tax (Provision) Benefit 100 (710)
------- -------
Net Income (Loss) $ (514) $ 773
======= =======
Basic and Diluted Earnings (Loss) per Share (Note 2) $ (.02) $ .03
======= =======
Basic and Diluted Weighted Average Shares (Note 2) 25,436 25,429
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
THE RANDERS KILLAM GROUP INC.
Consolidated Statement of Operations
(Unaudited)
Nine Months Ended
January 1, January 2,
(In thousands except per share amounts) 2000 1999
- ----------------------------------------------------------------------------------- ----------- ----------
Revenues $ 52,209 $ 61,887
-------- --------
Costs and Operating Expenses:
Cost of revenues 38,417 47,483
Selling, general, and administrative expenses 9,172 10,211
Restructuring costs (Notes 4 and 7) 17,939 -
-------- --------
65,528 57,694
-------- --------
Operating Income (Loss) (13,319) 4,193
Interest Income 708 461
Interest Expense (95) (121)
-------- --------
Income (Loss) Before Income Taxes (12,706) 4,533
Income Tax Provision 291 2,153
-------- --------
Net Income (Loss) $(12,997) $ 2,380
======== ========
Basic and Diluted Earnings (Loss) per Share (Note 2) $ (.51) $ .09
======== ========
Weighted Average Shares (Note 2):
Basic 25,432 25,429
======== ========
Diluted 25,432 25,446
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
THE RANDERS KILLAM GROUP INC.
Consolidated Statement of Cash Flows
(Unaudited)
Nine Months Ended
January 1, January 2,
(In thousands) 2000 1999
- ----------------------------------------------------------------------------------- ----------- ----------
Operating Activities:
Net income (loss) $(12,997) $ 2,380
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Noncash restructuring costs (Notes 4 and 7) 15,213 -
Depreciation and amortization 1,479 2,086
Provision for losses on accounts receivable 74 584
Other noncash items (199) (307)
Changes in current accounts:
Accounts receivable 1,689 (627)
Unbilled contract costs and fees 1,883 (60)
Other current assets 206 (91)
Accounts payable (1,167) 2,365
Other current liabilities 1,270 624
-------- -------
Net cash provided by operating activities 7,451 6,954
-------- -------
Investing Activities:
Advances to affiliate, net (Note 5) (19,030) -
Purchases of property, plant, and equipment (925) (873)
Proceeds from sale of property, plant, and equipment 14 121
Other (211) (131)
-------- -------
Net cash used in investing activities (20,152) (883)
-------- -------
Financing Activities:
Net proceeds from issuance of Company common stock 16 -
Repayment of note payable and long-term obligations (1,152) (293)
-------- -------
Net cash used in financing activities (1,136) (293)
-------- -------
Increase (Decrease) in Cash and Cash Equivalents (13,837) 5,778
Cash and Cash Equivalents at Beginning of Period 15,921 9,763
-------- -------
Cash and Cash Equivalents at End of Period $ 2,084 $15,541
======== =======
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
THE RANDERS KILLAM GROUP INC.
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 January 1, 2000, the results
of operations for the three- and nine-month periods ended January 1, 2000, and
January 2, 1999, and the cash flows for the nine-month periods ended January 1,
2000, and January 2, 1999. Certain prior period amounts have been reclassified
to conform to the presentation in the current financial statements. 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.
</TABLE>
2. Earnings (Loss) per Share
<TABLE>
<CAPTION>
Basic and diluted earnings (loss) per share were calculated as follows:
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
January 1, January 2, January 1, January 2,
(In thousands except per share amounts) 2000 1999 2000 1999
- ------------------------------------------------------------- ---------- ----------- ---------- ----------
Basic
Net Income (Loss) $ (514) $ 773 $(12,997) $ 2,380
------- -------- -------- --------
Weighted Average Shares 25,436 25,429 25,432 25,429
------- -------- -------- --------
Basic Earnings (Loss) per Share $ (.02) $ .03 $ (.51) $ .09
======= ======== ======== ========
Diluted
Net Income (Loss) $ (514) $ 773 $(12,997) $ 2,380
------- -------- -------- --------
Weighted Average Shares 25,436 25,429 25,432 25,429
Effect of Stock Options - - - 17
------- -------- -------- --------
Weighted Average Shares, as Adjusted 25,436 25,429 25,432 25,446
------- -------- -------- --------
Diluted Earnings (Loss) per Share $ (.02) $ .03 $ (.51) $ .09
======= ======== ======== ========
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 January 1, 2000, there
were 1,256,000 of such options outstanding, with exercise prices ranging from
$1.90 to $4.38 per share.
7
<PAGE>
3. Business Segment Information
Three Months Ended Nine Months Ended
January 1, January 2, January 1, January 2,
(In thousands) 2000 1999 2000 1999
- ------------------------------------------------------------- ---------- ----------- ---------- ----------
Revenues:
Water and Wastewater Treatment $10,135 $ 10,785 $ 30,723 $ 33,177
Process Engineering and Construction 1,433 5,666 6,844 14,888
Highway and Bridge Engineering 1,995 2,889 8,598 9,374
Infrastructure Engineering 2,083 1,691 6,203 4,764
Intersegment sales elimination (59) (215) (159) (316)
------- -------- -------- --------
$15,587 $ 20,816 $ 52,209 $ 61,887
======= ======== ======== ========
Income (Loss) Before Income Taxes:
Water and Wastewater Treatment (a) $ 1,753 $ 1,705 $ 4,526 $ 4,681
Process Engineering and Construction (b) (2,583) 99 (8,844) 578
Highway and Bridge Engineering (c) (17) (427) (8,953) (719)
Infrastructure Engineering 254 227 748 548
Corporate (d) (254) (260) (796) (895)
------- -------- -------- --------
Total operating income (loss) (847) 1,344 (13,319) 4,193
Interest income, net 233 139 613 340
------- -------- -------- --------
$ (614) $ 1,483 $(12,706) $ 4,533
======= ======== ======== ========
(a) Includes restructuring costs of $0.4 million in the first nine months of fiscal 2000.
(b) Includes restructuring costs of $2.2 million and $8.0 million in the third quarter of fiscal 2000
and the first nine months of fiscal 2000, respectively.
(c) Includes restructuring costs of $9.5 million in the first nine months of
fiscal 2000.
(d) Primarily general and administrative expenses.
During the first nine months of fiscal 2000, the Company recorded
restructuring costs in connection with the planned sale of three businesses
(Note 4) and subsequent sale of the Randers division (Note 7). As a result,
total assets decreased by $200,000 at the Water and Wastewater Treatment
segment, $6,992,000 at the Process Engineering and Construction segment, and
$8,021,000 at the Highway and Bridge Engineering segment. In January 2000, the
Company sold substantially all of the assets, exclusive of certain real estate,
of the Process Engineering and Construction segment (Note 7).
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. At the time the decision was made, the businesses to be sold
were considered outside the future focus of the Company either because of low
growth prospects, marginal profitability, or the need to invest significant
capital to achieve desired returns. 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
8
<PAGE>
4. Restructuring Costs (continued)
these businesses, and $164,000 of severance costs for nine employees across all
functions, all of whom were terminated as of January 1, 2000. During the third
quarter of fiscal 2000, the Company recorded additional restructuring costs of
$2,214,000 related to the sale of the Randers division (Note 7). The charges
were noncash charges except for severance and ongoing lease costs. During the
first nine months of fiscal 2000, the Company expended $103,000 of the
established reserve for severance and $139,000 for lease payments. As of January
1, 2000, the remaining obligation for the restructuring actions totaled
$2,484,000, which represents ongoing lease costs and severance. The Company
expects to pay such costs through 2005, the expiration of the lease periods. The
Company expects to incur additional restructuring costs of approximately
$400,000, 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 losses before restructuring costs of
these business units aggregated $16,415,000 and $216,000, respectively, in the
first nine months of fiscal 2000. Revenues and operating losses aggregated
$31,655,000 and $478,000, respectively, in fiscal 1999. 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. The absence of these costs
reduced the Company's pretax operating loss by approximately $270,000 and
$764,000 in the third quarter of fiscal 2000 and the first nine months of fiscal
2000, respectively.
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.
9
<PAGE>
7. Subsequent Events
Sale of The Randers Division
On January 28, 2000, the Company sold substantially all of the assets and
liabilities of the Randers division, exclusive of certain real estate, to a new
corporation formed by a former vice president and director of the Company. The
aggregate sales price is $538,000, which consists of a promissory note secured
by certain real estate, payable in monthly installments with a final maturity in
2003 and bearing interest at 8.0%. The Company incurred a $2,214,000 loss on the
sale, which has been included in restructuring costs in the accompanying
statement of operations for the third quarter of fiscal 2000.
Proposed Sale of the Company
On January 31, 2000, Thermo Electron announced that it plans to sell all
of the Thermo TerraTech businesses, including the Company. This action is part
of a major reorganization plan under which Thermo Electron will spin in, spin
off, and sell various businesses to focus solely on its core measurement and
detection instruments business.
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.
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; Viridian Technology Incorporated; and Randers Group Property
Corporation, represents the Company's Process Engineering and Construction
segment. The Company's Killam Associates, Inc.; Duncan, Lagnese and Associates,
Incorporated;
10
<PAGE>
Overview (continued)
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). At the time the
decision was made, the businesses to be sold were considered outside the future
focus of the Company either because of low growth prospects, marginal
profitability, or the need to invest significant capital to achieve desired
returns. In January 2000, the Company sold the Randers division (Note 7).
Results of Operations
Third Quarter Fiscal 2000 Compared With Third Quarter Fiscal 1999
Revenues decreased to $15.6 million in the third quarter of fiscal 2000
from $20.8 million in the third quarter of fiscal 1999, primarily due to a
decrease in contract revenue in the Process Engineering and Construction
segment, due in part to a recession in the chemical industry and the announced
sale of this business (Note 4). To a lesser extent, revenues decreased in the
Highway and Bridge Engineering segment primarily due to the announced sale of
this business. These decreases in revenues were offset in part by an increase in
revenues in the Infrastructure Engineering segment due to an increase in demand.
The gross profit margin increased to 28% in the third quarter of fiscal
2000 from 22% in the third quarter of fiscal 1999, primarily due to lower
overhead costs as a result of cost reduction efforts in the Highway and Bridge
Engineering and the Water and Wastewater Treatment segments. To a lesser extent,
the gross profit margin increased due to a reduction in depreciation,
amortization, and rent expense at the businesses being sold, as a result of the
restructuring actions discussed in Note 4, an increase in revenues and greater
utilization of personnel in the Infrastructure Engineering segment, and a
decrease in lower-margin revenues in the Process Engineering and Construction
segment.
Selling, general, and administrative expenses as a percentage of revenues
increased to 19% in the third quarter of fiscal 2000 from 16% in the third
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
expense at the businesses being sold, as a result of the restructuring actions,
which decreased selling, general, and administrative expenses by $0.1 million in
the third quarter of fiscal 2000.
During the third quarter of fiscal 2000, the Company recorded
restructuring costs of $2.2 million, in connection with the sale of the Randers
division (Note 7).
Interest income increased to $0.3 million in the third quarter of fiscal
2000 from $0.2 million in the third quarter of fiscal 1999, primarily due to
higher average invested balances.
11
<PAGE>
Third Quarter Fiscal 2000 Compared With Third Quarter Fiscal 1999 (continued)
The Company recorded a tax benefit of $0.1 million in the third quarter of
fiscal 2000 on pretax losses of $0.6 million. The effective tax rate was lower
than the statutory federal income tax rate, principally due to nondeductible
amortization of cost in excess of net assets of acquired companies. The Company
recorded a tax provision of $0.7 million in the third quarter of fiscal 1999 on
pretax income of $1.5 million, resulting in an effective tax rate of 48%. The
effective tax rate exceeded 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.
First Nine Months Fiscal 2000 Compared With First Nine Months Fiscal 1999
Revenues decreased to $52.2 million in the first nine months of fiscal
2000 from $61.9 million in the first nine months of fiscal 1999, primarily due
to the reasons discussed in the results of operations for the third quarter, as
well as a decrease in revenues in the Water and Wastewater Treatment segment.
The gross profit margin increased to 26% in the first nine months of
fiscal 2000 from 23% in the first nine months of fiscal 1999, primarily due to
the reasons discussed in the results of operations for the third quarter.
Selling, general, and administrative expenses as a percentage of revenues
increased to 18% in the first nine months of fiscal 2000 from 16% in the first
nine months of fiscal 1999, primarily due to a decrease in revenues. Selling,
general, and administrative costs decreased to $9.2 million in fiscal 2000 from
$10.2 million in fiscal 1999, primarily due to cost reduction efforts and a
reduction in depreciation, amortization, and rent expenses at the businesses
being sold that totaled $0.3 million, as a result of the restructuring actions
discussed in Note 4.
During the first nine months of fiscal 2000, the Company recorded
restructuring costs of $17.9 million in connection with the planned sale of
three businesses (Notes 4 and 7). The Company expects to incur additional
restructuring costs of approximately $0.4 million, primarily for employee
retention bonuses during the remainder of fiscal 2000.
Interest income increased to $0.7 million in the first nine months of
fiscal 2000 from $0.5 million in the first nine months of fiscal 1999, primarily
due to higher average invested balances. Interest expense remained unchanged at
$0.1 million in both periods.
The Company recorded a tax provision of $0.3 million in the first nine
months of fiscal 2000 on pretax losses of $12.7 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 $2.2 million in the first nine months of fiscal 1999 on pretax
income of $4.5 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 $29.9 million at January 1, 2000,
compared with $28.4 million at April 3, 1999. Included in working capital are
cash and cash equivalents of $2.1 million at January 1, 2000, compared with
$15.9 million at April 3, 1999. In addition, as of January 1, 2000, the Company
had $19.0 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
nine months of fiscal 2000, $7.5 million of cash was provided by operating
activities. During this period, $1.3 million of cash was provided by an increase
in other current liabilities, primarily due to restructuring costs recorded
during the first nine months of fiscal 2000, which were not paid as of January
1, 2000. The Company expects to pay such costs, principally for ongoing leases,
through 2005, the
12
<PAGE>
Liquidity and Capital Resources (continued)
expiration of the lease periods. Cash of $1.9 million was provided by a decrease
in unbilled contract costs and fees, primarily due to the timing of billings. A
decrease in accounts receivable provided $1.7 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 January 1, 2000, were 46 and 63
days, respectively, compared with 67 and 59 days, respectively, at April 3,
1999.
Excluding advance to affiliate activity (Note 5), the Company's primary
investing activities in the first nine months of fiscal 2000 consisted of
capital additions of $0.9 million. The Company expects to expend approximately
$0.4 million for capital additions during the remainder of fiscal 2000.
In the first nine months of fiscal 2000, the Company's financing
activities used $1.2 million of cash for the repayment of long-term obligations.
On January 28, 2000, the Company sold substantially all of the assets and
liabilities of the Randers division (Note 7).
The Company generally expects to have positive cash flow from its existing
operations. The Company believes that its existing resources are sufficient to
meet the capital requirements of its existing businesses for the foreseeable
future.
Year 2000
As of the date of this report, the Company has completed its year 2000
initiatives which included: (i) testing and upgrading significant information
technology systems and facilities; (ii) assessing the year 2000 readiness of its
key suppliers, vendors, and customers; and (iii) developing contingency plans.
As a result of completing these initiatives, the Company believes that all
of its material information technology systems and critical non-information
technology systems are year 2000 compliant. In addition, the Company is not
aware of any significant supplier or vendor that has experienced material
disruption due to year 2000 issues. The Company has also developed a contingency
plan to allow its primary business operations to continue despite disruptions
due to year 2000 problems, if any, that might yet arise in the future. The costs
incurred to date by the Company in connection with the year 2000 issue have not
been material.
While the Company to date has been successful in minimizing negative
consequences arising from year 2000 issues, there can be no assurance that in
the future the Company's business operations or financial condition may not be
impacted by year 2000 problems, such as increased warranty claims, vendor and
supplier disruptions, or litigation relating to year 2000 issues.
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
On October 21, 1999, the Company filed a Current Report on Form 8-K, dated
October 19, 1999, with respect to the execution of an Agreement and Plan of
Merger.
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 11th day of February 2000.
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
27 Financial Data Schedule.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE RANDERS
KILLAM GROUP INC.'S QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED JANUARY
1,2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-01-2000
<PERIOD-END> JAN-01-2000
<CASH> 2,084
<SECURITIES> 0
<RECEIVABLES> 12,358
<ALLOWANCES> 1,049
<INVENTORY> 0
<CURRENT-ASSETS> 42,057
<PP&E> 15,526
<DEPRECIATION> 5,770
<TOTAL-ASSETS> 84,938
<CURRENT-LIABILITIES> 12,117
<BONDS> 694
0
0
<COMMON> 3
<OTHER-SE> 70,030
<TOTAL-LIABILITY-AND-EQUITY> 84,938
<SALES> 0
<TOTAL-REVENUES> 52,209
<CGS> 0
<TOTAL-COSTS> 38,417
<OTHER-EXPENSES> 17,939
<LOSS-PROVISION> 74
<INTEREST-EXPENSE> 95
<INCOME-PRETAX> (12,706)
<INCOME-TAX> 291
<INCOME-CONTINUING> (12,997)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,997)
<EPS-BASIC> (.51)
<EPS-DILUTED> (.51)
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