-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, EzGptcYGt4CnfuPV1lRHp5bj311xOphjkR8ypxRwvSTaggI5vQDFP2E3KxMHSVoZ jnMsCFY0tVJCvIB5NPmAkg== 0000796038-95-000005.txt : 19950424 0000796038-95-000005.hdr.sgml : 19950424 ACCESSION NUMBER: 0000796038-95-000005 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950421 ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19950421 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: THERMO PROCESS SYSTEMS INC CENTRAL INDEX KEY: 0000796038 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-TESTING LABORATORIES [8734] IRS NUMBER: 042925807 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-09549 FILM NUMBER: 95530440 BUSINESS ADDRESS: STREET 1: 12068 MARKET ST CITY: LIVONIA STATE: MI ZIP: 48150 BUSINESS PHONE: 6176221000 MAIL ADDRESS: STREET 1: 81 WYMAN STREET CITY: WALTHAM STATE: MA ZIP: 02254 8-K/A 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------------------------- AMENDMENT NO. 1 ON FORM 8-K/A CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): February 6, 1995 ________________________________________ THERMO PROCESS SYSTEMS INC. (Exact name of Registrant as specified in its charter) Delaware 1-9549 04-2925807 (State or other (Commission (I.R.S. Employer jurisdiction of File Number) Identification Number) incorporation or organization) 12068 Market Street 48150 Livonia, Michigan (Zip Code) (Address of principal executive offices) (617) 622-1000 (Registrant's telephone number including area code) PAGE FORM 8-K/A Item 7. Financial Statements, Pro Forma Combined Condensed Financial Information and Exhibits On February 6, 1995, Thermo Process Systems Inc. (the "Company") acquired all of the issued and outstanding capital stock of Engineering, Technology and Knowledge Corporation ("ETKC") from Nord Est S.A., a French industrial company ("Nord Est"). ETKC's sole subsidiary, Elson T. Killam Associates, Inc. ("Killam Associates"), is a leading provider of comprehensive environmental consulting and professional engineering services in New Jersey, Pennsylvania, Ohio and New York. The purchase price for ETKC's stock was $12.6 million in cash and a zero coupon promissory note with a face value of $28 million and a present value of $22.3 million, payable in February and May, 1998. The purchase price is subject to a post-closing adjustment. In addition, the Company has guaranteed the payment by ETKC and/or Killam Associates of approximately $1.7 million in indebtedness. The Company has also agreed to pay, after the third anniversary date of the closing, an amount equal to 30% of the amount by which ETKC's cumulative net income for the three-year period ending on such anniversary exceeds $13 million. In a related transaction, certain members of Killam Associates' senior management (the "Killam Management") exchanged outstanding options to purchase shares of Killam Associates' capital stock for options to purchase an aggregate of 847,678 shares of the Company's common stock, valued at $6.9 million. Additional options to purchase shares of Killam Associates' capital stock were canceled in exchange for cash payments to the Killam Management in the aggregate amount of $1.9 million. The Company borrowed the cash portion of the purchase price, including cash used to collateralize the promissory note delivered to Nord Est, from Thermo Electron Corporation pursuant to a $38 million promissory note that bears interest at the Commercial Paper Composite Rate plus 25 basis points and is due June 1, 1997. Thermo Electron Corporation owns approximately 80% of the outstanding capital stock of the Company. (a) Financial Statements of Business Acquired Attached hereto. 2PAGE Engineering, Technology and Knowledge Corporation ------------------------------------------------- Consolidated Financial Statements --------------------------------- For the Three Years Ending December 31, 1994, 1993, and 1992 ------------------------------------------------------------ Together With ------------- Report of Independent Public Accountants ---------------------------------------- 3PAGE REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ---------------------------------------- To Engineering, Technology and Knowledge: We have audited the accompanying consolidated balance sheets of Engineering, Technology and Knowledge Corporation (a Delaware corporation) and subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of income, shareholder's equity and cash flows for each of the three years in the period ended December 31, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these 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 financial statements referred to above present fairly, in all material respects, the financial position of Engineering, Technology and Knowledge Corporation and subsidiaries as of December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994 in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Roseland, New Jersey February 24, 1995 4PAGE ENGINEERING, TECHNOLOGY AND KNOWLEDGE CORPORATION Consolidated Balance Sheets - December 31, 1994 and 1993 1994 1993 ----------- ----------- ASSETS Current Assets: Cash and cash equivalents $ 1,422,000 $ 1,318,000 Accounts receivable, net of the allowance for doubtful accounts of $728,000 and $476,000, respectively 11,415,000 11,475,000 Prepaid expenses and other current assets 1,844,000 1,782,000 ----------- ----------- Total current assets 14,681,000 14,575,000 Properties and Equipment, net of accumulated depreciation of $5,212,000 and $4,597,000, respectively 9,114,000 8,849,000 Goodwill, net of accumulated amortization of $1,003,000 and $830,000, respectively 3,607,000 3,780,000 Other Assets 427,000 988,000 ----------- ----------- Total assets $27,829,000 $28,192,000 =========== =========== The accompanying notes to consolidated financial statements are an integral part of these balance sheets. 5PAGE ENGINEERING, TECHNOLOGY AND KNOWLEDGE CORPORATION Consolidated Balance Sheets - December 31, 1994 and 1993 (continued) 1994 1993 ----------- ----------- LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable $ 1,039,000 $ 826,000 Current portion of long-term debt 1,334,000 1,710,000 Accrued expenses and other current liabilities 3,349,000 4,100,000 ----------- ----------- Total current liabilities 5,722,000 6,636,000 Long-term Debt 2,430,000 3,270,000 Other Liabilities 3,695,000 3,271,000 ----------- ----------- Total liabilities 11,847,000 13,177,000 ----------- ----------- Commitments and Contingencies Shareholder's Equity: Preferred stock, par value $0.01 per share; 500,000 shares authorized, none issued 0 0 Common stock: Class A (voting), par value $0.01 per share; 1,500,000 shares authorized; 1,221,429 shares issued and outstanding 12,000 12,000 Class B (nonvoting), par value $0.01 per share; 500,000 shares authorized, 64,286 shares issued and outstanding 1,000 1,000 Paid-in capital 12,243,000 12,243,000 Retained earnings 3,726,000 2,759,000 ----------- ----------- Total shareholder's equity 15,982,000 15,015,000 ----------- ----------- Total liabilities and shareholder's equity $27,829,000 $28,192,000 =========== =========== The accompanying notes to consolidated financial statements are an integral part of these balance sheets. 6PAGE ENGINEERING, TECHNOLOGY AND KNOWLEDGE CORPORATION Consolidated Statements of Income for the Years Ended December 31, 1994, 1993, and 1992 1994 1993 1992 ----------- ----------- ----------- Gross Revenues $41,662,000 $40,195,000 $40,787,000 Direct Cost of Outside Services (5,847,000) (7,611,000) (7,889,000) ----------- ----------- ----------- Net revenues 35,815,000 32,584,000 32,898,000 Operating Expenses: Salaries and related costs 24,192,000 23,627,000 21,516,000 General and administrative expenses 6,695,000 4,714,000 7,842,000 Depreciation and amortization 940,000 799,000 711,000 ----------- ----------- ----------- Income from operations 3,988,000 3,444,000 2,829,000 Interest (Expense) Income, Net (57,000) 5,000 (245,000) Other (Expense) Income (186,000) (184,000) 98,000 ----------- ----------- ----------- Income before provision for income taxes 3,745,000 3,265,000 2,682,000 Provision for Income Taxes 978,000 1,555,000 1,566,000 ----------- ----------- ----------- Net income $ 2,767,000 $ 1,710,000 $ 1,116,000 =========== =========== =========== The accompanying notes to consolidated financial statements are an integral part of this statement. 7PAGE ENGINEERING, TECHNOLOGY AND KNOWLEDGE CORPORATION Consolidated Statements of Cash Flows for the Years Ended December 31, 1994, 1993, and 1992 1994 1993 1992 ----------- ----------- ----------- Cash Flows From Operating Activities: Net income $ 2,767,000 $ 1,710,000 $ 1,116,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 940,000 799,000 711,000 Decrease (increase) in accounts receivable, net 60,000 944,000 (691,000) Decrease (increase) in prepaid expenses and other assets 454,000 406,000 (1,298,000) Increase (decrease) in accounts payable 213,000 (1,999,000) 2,060,000 (Decrease) increase in accrued expenses and other current liabilities (751,000) 1,231,000 (581,000) Decrease in income taxes payable 0 0 (1,465,000) Increase in other long-term liabilities 424,000 187,000 1,489,000 ----------- ----------- ----------- Net cash provided by operating activities 4,107,000 3,278,000 1,341,000 ----------- ----------- ----------- Cash Flows From Investing Activities: Payments for acquisition of properties and equipment (987,000) (3,213,000) (789,000) ----------- ----------- ----------- Cash Flows From Financing Activities: Capital contribution 0 0 1,256,000 Dividends (1,800,000) (1,300,000) (229,000) Borrowings 500,000 2,880,000 2,500,000 Debt repayments (1,716,000) (2,300,000) (4,117,000) ----------- ----------- ----------- Net cash used in financing activities (3,016,000) (720,000) (590,000) ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents 104,000 (655,000) (38,000) Cash and Cash Equivalents at Beginning of Year 1,318,000 1,973,000 2,011,000 ----------- ----------- ----------- Cash and Cash Equivalents at End of Year $ 1,422,000 $ 1,318,000 $ 1,973,000 =========== =========== =========== Supplemental Disclosure of Noncash Items: During 1992, the Company declared noncash dividends of $1,124,000. The accompanying notes to consolidated financial statements are an integral part of these statements. 8PAGE ENGINEERING, TECHNOLOGY AND KNOWLEDGE CORPORATION Consolidated Statements of Shareholder's Equity For the Years Ended December 31, 1994, 1993, and 1992 Class A Class B Common Stock Common Stock (voting) (nonvoting) ------------------- --------------- Shares Amount Shares Amount --------- ------- ------ ------ Balance, December 31, 1991 1,221,429 $12,000 64,286 $1,000 Capital contribution from parent 0 0 0 0 Net income, 1992 0 0 0 0 Dividends 0 0 0 0 --------- ------- ------ ------ Balance, December 31, 1992 1,221,429 12,000 64,286 1,000 Net income, 1993 0 0 0 0 Dividends 0 0 0 0 --------- ------- ------ ------ Balance, December 31, 1993 1,221,429 12,000 64,286 1,000 Net income, 1994 0 0 0 0 Dividends 0 0 0 0 --------- ------- ------ ------ Balance, December 31, 1994 1,221,429 $12,000 64,286 $1,000 ========= ======= ====== ====== The accompanying notes to consolidated financial statements are an integral part of these statements. 9PAGE ENGINEERING, TECHNOLOGY AND KNOWLEDGE CORPORATION Consolidated Statements of Shareholder's Equity For the Years Ended December 31, 1994, 1993, and 1992 (continued) Paid-in Retained Capital Earnings ----------- ----------- Balance, December 31, 1991 $10,987,000 $ 2,586,000 Capital contribution from parent 1,256,000 0 Net income, 1992 0 1,116,000 Dividends 0 (1,353,000) ----------- ----------- Balance, December 31, 1992 12,243,000 2,349,000 Net income, 1993 0 1,710,000 Dividends 0 (1,300,000) ----------- ----------- Balance, December 31, 1993 12,243,000 2,759,000 Net income, 1994 0 2,767,000 Dividends 0 (1,800,000) ----------- ----------- Balance, December 31, 1994 $12,243,000 $ 3,726,000 =========== =========== The accompanying notes to consolidated financial statements are an integral part of these statements. 10PAGE Engineering, Technology and Knowledge Corporation Notes to Consolidated Financial Statements - December 31, 1994 1. Summary of Significant Accounting Policies Basis of Presentation The consolidated financial statements of Engineering, Technology and Knowledge Corporation (the Company) include the accounts of all of its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated. The Company provides engineering and environmental consulting services predominantly in the United States and is wholly-owned by a French company. Cash and Cash Equivalents Cash and cash equivalents consist of unrestricted deposits with banks and highly liquid investments with an original maturity of three months or less. Recognition of Revenue The Company recognizes revenue generally at the time services are performed. On fixed price contracts, revenue is recognized on the basis of the estimated percentage of completion of services rendered. On reimbursement type contracts, revenue is recognized as costs are incurred and include applicable fees earned related to such costs. Materials and subcontract costs reimbursed by clients are included in gross revenues. Anticipated losses are recognized when the losses are reasonably determinable by management. Income Taxes Income taxes are provided in accordance with Statement of Financial Accounting Standard No. 109 and reflect the tax effect of temporary differences between the financial statement income and taxable income reflected on the tax return. Goodwill The excess of the cost over the fair value of net assets of acquired businesses is amortized on a straight-line basis for periods ranging from 5 to 40 years. Properties and Equipment Properties and equipment are depreciated or amortized over the estimated useful lives on a straight-line basis ranging from 3 to 40 years or, in the case of leasehold improvements, over the lesser of the estimated useful lives or the term of the lease. 11PAGE Engineering, Technology and Knowledge Corporation Notes to Consolidated Financial Statements - December 31, 1994 (continued) 2. Accounts Receivable 1994 1993 ----------- ----------- Accounts receivable: Billed $ 8,533,000 $ 7,478,000 Unbilled 3,610,000 4,473,000 ----------- ----------- 12,143,000 11,951,000 Less: Allowance for doubtful accounts (728,000) (476,000) ----------- ----------- $11,415,000 $11,475,000 =========== =========== 3. Properties and Equipment Properties and equipment consist of the following: 1994 1993 ----------- ----------- Land $ 674,000 $ 670,000 Building and improvements 6,395,000 6,333,000 Office equipment and furniture 7,257,000 6,443,000 ----------- ----------- 14,326,000 13,446,000 Less: Accumulated depreciation and amortization (5,212,000) (4,597,000) ----------- ----------- $ 9,114,000 $ 8,849,000 =========== =========== 4. Short and Long-term Borrowings In February, 1987, the Company entered into a revolving credit agreement with Banque Nationale de Paris and Credit National which provides for borrowings up to $2,200,000. The Credit Agreement is required to be repaid on demand. The Company has agreed to pay a facility fee of .75% per annum on the unutilized portion. Interest on borrowings is payable at 1.375% plus the LIBOR rate (7.8125% at December 31, 1994). The Company had a $700,000 outstanding balance under the Credit Agreement at December 31, 1994. In September, 1992, the Company entered into a $2,500,000 loan with Nord-Est. The loan is payable in equal annual payments of $500,000 due on September 25 each year until final payment is made on September 25, 1997. Interest on the loan is payable at .5% plus the LIBOR rate. The Company had a $1,500,000 outstanding balance at December 31, 1994. 12PAGE Engineering, Technology and Knowledge Corporation Notes to Consolidated Financial Statements - December 31, 1994 (continued) 4. Short and Long-term Borrowings (continued) In November, 1993, the Company entered into a $1,650,000 mortgage loan with Midlantic National Bank to acquire an office facility next to the Corporate offices. The mortgage loan is payable in monthly payments of $9,167 due through December 12, 2008. Interest on the mortgage loan is payable at 6.75% per annum. The Company had a $1,540,000 outstanding balance under the mortgage loan at December 31, 1994. The Company has one other debt agreement, aggregating $24,000 at December 31, 1994. Substantially all of the Company's assets are pledged as collateral in connection with the agreements described above. Cash paid during the years ended December 31, 1994, 1993 and 1992 were $255,000, $203,000 and $240,000, respectively. Interest rates on borrowings at December 31, 1994 ranged from approximately 5.25% to 6.75% with the weighted average rate approximating 6.34%. Long-term debt matures as follows: 1995 $1,334,000 1996 610,000 1997 610,000 1998 110,000 1999 110,000 Thereafter 990,000 ---------- $3,764,000 ========== 5. Leases The Company leases certain office space and equipment under various operating leases. Future minimum lease payments under operating leases are as follows: 1995 $ 460,000 1996 344,000 1997 63,000 1998 6,000 ---------- Total minimum lease payments $ 873,000 ========== Rental expense was approximately $810,000, $972,000 and $1,187,000 for the years ended December 31, 1994, 1993 and 1992, respectively. 13PAGE Engineering, Technology and Knowledge Corporation Notes to Consolidated Financial Statements - December 31, 1994 (continued) 6. Income Taxes Income tax expense consists of the following: 1994 1993 1992 ---------- ---------- ---------- Current: Federal $ 452,000 $1,280,000 $1,223,000 State 497,000 501,000 614,000 ---------- ---------- ---------- 949,000 1,781,000 1,837,000 ---------- ---------- ---------- Deferred: Federal 25,000 (192,000) (191,000) State 4,000 (34,000) (80,000) ---------- ---------- ---------- 29,000 (226,000) (271,000) ---------- ---------- ---------- Total $ 978,000 $1,555,000 $1,566,000 ========== ========== ========== Cash paid during the years ended December 31, 1994, 1993 and 1992 for income taxes amounted to $1,733,000, $2,190,000 and $2,042,000, respectively. Income tax expense for the years ended December 31, 1994, 1993 and 1992 differs from amounts computed by applying the U. S. Federal income tax rate (34%) to earnings before taxes primarily as a result of state taxes, the amortization of goodwill, the nondeductibility of certain expenses paid by the Company and additionally in 1994, the reversal of certain tax liabilities deemed no longer needed by the Company's management as the Company has settled its IRS audit through 1992. Deferred taxes represent differences between the tax basis of an asset or liability and its reported amount in the financial statements that will result in taxable or deductible amounts in future years when the reported amount of the asset or liability is recovered or settled, respectively. Such temporary differences include: depreciation for tax return purposes in excess of book, allowance for doubtful accounts and certain accruals. 7. Pension and Other Postretirement Benefits The Company's pension plan, which is a noncontributory defined benefit retirement plan for salaried employees, covers substantially all salaried employees. Benefits under the plan are based on years of service and employee's compensation during the last years of employment. In the Company's plan, funds are contributed to a trustee as necessary to provide for current service and for any unfunded projected benefit obligation over a reasonable period. Contributions amounted to $819,000, $834,000 and $1,027,000 during 1994, 1993 and 1992, respectively. 14PAGE Engineering, Technology and Knowledge Corporation Notes to Consolidated Financial Statements - December 31, 1994 (continued) 7. Pension and Other Postretirement Benefits (continued) Pension expense in 1994, 1993 and 1992 was $672,000, $690,000 and $696,000, respectively. The Company uses the services of an actuary to calculate the amount of pension expense and contributions to the trustee of the plan. The net periodic pension cost for 1994, 1993 and 1992 included the following components: 1994 1993 1992 --------- --------- --------- Service cost - benefits earned during the year $ 536,000 $ 526,000 $ 515,000 Interest cost on projected benefit obligation 706,000 665,000 578,000 Actual return on plan assets 70,000 (586,000) (345,000) Net amortization and deferral (640,000) 85,000 (52,000) --------- --------- --------- Net periodic pension cost $ 672,000 $ 690,000 $ 696,000 ========= ========= ========= The assumed rate of return for the Company's plan was 9% for 1994 and 1993 and 6.3% in 1992. The assumed discount rate used in calculating the projected benefit obligation was 8% and 8.5% at December 31, 1994, 1993 and 1992, respectively. In addition, the assumed annual increase in compensation over employees' estimated remaining working lives was 5% for 1994 and 6% for 1993 and 1992. Presented below are the plan's funded status and amounts recognized in the Company's consolidated balance sheet at December 31, 1994 and 1993 for its defined benefit pension plan: 1994 1993 ----------- ----------- Actuarial present value of benefit obligation: Vested $ 7,234,000 $ 5,880,000 Nonvested 173,000 170,000 ----------- ----------- Accumulated benefit obligation $ 7,407,000 $ 6,050,000 =========== =========== Projected benefit obligation $ 9,984,000 $ 9,681,000 Less: Fair value of assets (7,784,000) (7,194,000) ----------- ----------- Projected benefit obligation in excess of plan assets 2,200,000 2,487,000 Unrecognized transition obligation (483,000) (543,000) Unrecognized net loss (1,953,000) (2,033,000) ----------- ----------- Prepaid pension cost $ 236,000 $ 89,000 =========== =========== 15PAGE Engineering, Technology and Knowledge Corporation Notes to Consolidated Financial Statements - December 31, 1994 (continued) 7. Pension and Other Postretirement Benefits (continued) In addition to providing pension benefits, the Company provides other postretirement benefits for employees. Substantially all of the Company's employees may become eligible for those benefits if they reach normal retirement age while working for the Company. The cost of retiree health care is expensed as paid. In 1994, 1993 and 1992, the Company's cost for providing other postretirement benefits aggregated $31,000, $30,000 and $27,000, respectively. In December 1990, the Financial Accounting Standards Board issued Statement No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." This standard required that the expected cost of these benefits must be charged to expense during the years that the employees render service. This was a significant change from the Company's current policy of recognizing these costs on the cash basis. The Company is not required to adopt this standard until 1995. If the Company were to adopt this accounting standard prospectively on January 1, 1995 and amortize the accumulated post retirement benefit obligation over twenty years the impact on the Company's results of operations is approximately $964,000. 8. Savings Plan The Company's Salaried Employees Savings and Investment Plan (the Savings Plan) is qualified under Sections 401(a)(17) and 401(k) of the Code. All employees of the Company, including executive officers, are eligible to participate in the Savings Plan upon completion of one year of employment. Under the salary deferral provisions, participating employees may elect to defer between 2% and 16% of their compensation but not to exceed a fixed dollar limit adjusted annually for inflation. Employees may also make nondeductible contributions between 1% and 16% of their compensation provided that total contributions may not exceed 16%. Elective contributions made by employees are fully vested at all times. The Company provides matching monthly contributions equal to 50% of the lesser of (a) the aggregate of the employee's contributions to the Plan or (b) 6% of compensation for such month. Matching contributions fully vest at the time a mandatory contribution is made. Benefits under the Savings Plan are payable in a single lump sum or in installments upon termination of employment, although in-service withdrawals are permitted under certain circumstances. 9. Stock Option Plan On December 15, 1987, an incentive stock option plan was adopted by Elson T. Killam Associates, Inc. (Killam), a wholly-owned subsidiary of the Company. Under the plan, a total of 2,662.5 shares of Killam, representing 20% equity interest in the subsidiary if fully granted and exercised, were reserved for grant at option prices not less than fair market value at the date of grant. Options become exercisable in 25% annual increments beginning one year from the date of grant. Options for 1,590 shares were outstanding at December 31, 1994, all of which were exercisable. No options were granted, terminated or exercised in 1994 and 1993. All options have an exercise price of $563.38 per share. 16PAGE Engineering, Technology and Knowledge Corporation Notes to Consolidated Financial Statements - December 31, 1994 (concluded) 9. Stock Option Plan (continued) In the absence of a public market for Killam shares, the plan provides a formula for the determination of fair market value to establish exercise price and in stipulated circumstances including retirement, the redemption price at which the Company would repurchase the stock. Accordingly, the plan is accounted for as a variable plan with compensation accrued for the difference between the formula price and exercise price. During 1994, 1993 and 1992, compensation expense recorded associated with the options aggregated $438,000, $1,331,000 and $280,000, respectively. The plan further provides that an option holder may obtain a loan from Killam for an amount up to 90% of the option exercise price in exchange for an interest-bearing promissory note. No loans are currently outstanding. To the extent that Killam achieves certain financial goals in 1996 and beyond as defined in the agreement, shareholders with such loans outstanding may be entitled to special performance bonuses which may only be applied to reduce or eliminate amounts outstanding under the promissory notes, including interest. As of December 31, 1994, the required performance measures had been achieved but compliance cannot be determined until the stipulated future dates established in the agreement. 10. Legal Proceedings The Company and its consolidated subsidiaries are involved in legal proceedings which are incidental to its business. In the opinion of management, the final outcome of any pending legal proceedings will not have a material adverse effect on the consolidated operations or financial position of the Company. 17PAGE FORM 8-K/A Item 7. Financial Statements, Pro Forma Combined Condensed Financial Information and Exhibits (b) Pro Forma Combined Condensed Financial Information The following unaudited pro forma combined condensed statement of income sets forth the results of operations for the nine months ended December 31, 1994 and the year ended April 2, 1994, as if the acquisition of Engineering, Technology and Knowledge Corporation (referred to as Killam Associates in the following pro forma combined condensed financial information) by the Company had occurred at the beginning of fiscal 1994. The unaudited pro forma combined condensed balance sheet sets forth the financial position as of December 31, 1994, as if the acquisition had occurred as of that date and assuming there is no post-closing purchase price adjustment. The pro forma combined condensed statement of income for the nine months ended December 31, 1994 includes the results of operations of the Company for the nine months ended December 31, 1994 and Killam Associates' for the nine months ended December 31, 1994, derived by subtracting Killam Associates' results of operations for the first quarter of 1994 from its results of operations for the twelve months ended December 31, 1994. The pro forma combined condensed statement of income for the twelve months ended April 2, 1994 includes the results of operations of the Company for the fiscal year ended April 2, 1994, and of Killam Associates for the year ended December 31, 1993. Killam Associates' results of operations for the first quarter of calendar 1994 are not included in either the pro forma combined condensed statement of income for the nine months ended December 31, 1994 or for the twelve months ended April 2, 1994. Killam Associates' revenues and net income for the first quarter of calendar 1994 were $9,505,000 and $508,000, respectively. The acquisition has been accounted for using the purchase method of accounting. The pro forma results of operations are not necessarily indicative of future operations or the actual results that would have occurred had the acquisition of Killam Associates been consummated at the beginning of fiscal 1994. The financial statements filed under part (a) of this item should be read in conjunction with these pro forma combined condensed financial statements. 18PAGE FORM 8-K/A THERMO PROCESS SYSTEMS INC. and ELSON T. KILLAM ASSOCIATES, INC. PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME (Unaudited) Nine Months Ended December 31, 1994 -------------------------------------------- Historical Pro Forma --------------------- --------------------- Thermo Killam Process Associates Adjustments Combined -------- ---------- ----------- -------- (In thousands except per share amounts) Revenues $ 94,550 $ 32,157 $ - $126,707 -------- -------- -------- -------- Costs and Operating Expenses: Cost of revenues 70,666 23,920 - 94,586 Selling, general and administrative expenses 16,769 5,358 196 22,323 New business development expenses 643 - - 643 -------- -------- -------- -------- 88,078 29,278 196 117,552 -------- -------- -------- -------- Operating Income 6,472 2,879 (196) 9,155 Gain on Issuance of Stock by Subsidiary 1,058 - - 1,058 Interest Income 2,203 153 1,238 3,594 Interest Expense (1,039) (176) (1,238) (2,453) Interest Expense, Related Party (480) - (1,861) (2,341) Other Income (Expense) 749 (86) - 663 -------- -------- -------- -------- Income Before Income Taxes and Minority Interest 8,963 2,770 (2,057) 9,676 Income Tax Provision (1,978) (511) 613 (1,876) Minority Interest Expense (3,934) - - (3,934) -------- -------- -------- -------- Net Income $ 3,051 $ 2,259 $ (1,444) $ 3,866 ======== ======== ======== ======== Earnings per Share $ 0.18 $ 0.23 ======== ======== Weighted Average Shares 17,099 17,099 ======== ======== See notes to pro forma combined condensed financial statements. 19PAGE FORM 8-K/A THERMO PROCESS SYSTEMS INC. and ELSON T. KILLAM ASSOCIATES, INC. PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME (Unaudited) Year Ended April 2, Dec. 31, April 2, 1994 1994 1994 -------- -------- -------- Historical Pro Forma ------------------- ----------------------- Thermo Killam Process Associates Adjustments Combined ------- ---------- ----------- -------- (In thousands except per share amounts) Revenues $110,131 $ 40,195 $ - $150,326 -------- -------- -------- -------- Costs and Operating Expenses: Cost of revenues 84,142 31,238 - 115,380 Selling, general and administrative expenses 21,195 5,513 (631) 26,077 New business development expenses 447 - - 447 Costs associated with divisional restructuring 2,661 - - 2,661 -------- -------- -------- -------- 108,445 36,751 (631) 144,565 -------- -------- -------- -------- Operating Income 1,686 3,444 631 5,761 Gain on Issuance of Stock by Subsidiary 4,488 - - 4,488 Interest Income 1,955 144 1,650 3,749 Interest Expense (1,387) (139) (1,650) (3,176) Interest Expense, Related Party - - (2,481) (2,481) Other Income (Expense) 645 (184) - 461 -------- -------- -------- -------- Income Before Income Taxes, Minority Interest and Cumulative Effect of Change in Accounting Principle 7,387 3,265 (1,850) 8,802 Income Tax (Provision) Benefit 40 (1,555) 460 (1,055) Minority Interest Expense (4,018) - - (4,018) -------- -------- -------- -------- Income Before Cumulative Effect of Change in Accounting Principle $ 3,409 $ 1,710 $ (1,390) $ 3,729 ======== ======== ======== ======== Earnings per Share Before Cumulative Effect of Change in Accounting Principle $ 0.20 $ 0.22 ======== ======== Weighted Average Shares 16,863 16,863 ======== ======== See notes to pro forma combined condensed financial statements. 20PAGE FORM 8-K/A THERMO PROCESS SYSTEMS INC. and ELSON T. KILLAM ASSOCIATES, INC. PRO FORMA COMBINED CONDENSED BALANCE SHEET December 31, 1994 (Unaudited) Historical Pro Forma -------------------- ---------------------- Thermo Killam Process Associates Adjustments Combined ------- ---------- ----------- -------- (In thousands) ASSETS Current Assets: Cash and cash equivalents $ 43,564 $ 1,422 $ 662 $ 45,648 Short-term available- for-sale investments, at quoted market value 5,992 - - 5,992 Accounts receivable, net 21,273 7,805 - 29,078 Unbilled contract costs and fees 9,811 3,610 - 13,421 Inventories 2,388 - - 2,388 Prepaid expenses 3,405 1,844 - 5,249 Prepaid and refundable income taxes 2,283 - - 2,283 -------- -------- -------- -------- 88,716 14,681 662 104,059 -------- -------- -------- -------- Property, Plant and Equipment, at Cost 74,424 14,326 (6,217) 82,533 Less: Accumulated depreciation and amortization 32,806 5,212 (5,212) 32,806 -------- -------- -------- -------- 41,618 9,114 (1,005) 49,727 -------- -------- -------- -------- Long-term Available-for-sale Investments, at Quoted Market Value 10,390 - - 10,390 -------- --------- -------- -------- Long-term Held-to-maturity Investments, at Amortized Cost - - 22,300 22,300 -------- --------- -------- -------- Other Assets 11,545 427 - 11,972 -------- --------- -------- -------- Cost in Excess of Net Assets of Acquired Companies 37,689 3,607 27,992 69,288 -------- --------- -------- -------- $189,958 $ 27,829 $ 49,949 $267,736 ======== ========= ======== ======== See notes to pro forma combined condensed financial statements. 21PAGE FORM 8-K/A THERMO PROCESS SYSTEMS INC. and ELSON T. KILLAM ASSOCIATES, INC. PRO FORMA COMBINED CONDENSED BALANCE SHEET December 31, 1994 (Unaudited) Historical Pro Forma -------------------- ---------------------- Thermo Killam Process Associates Adjustments Combined ------- ---------- ----------- -------- (In thousands) LIABILITIES AND SHAREHOLDERS' INVESTMENT Current Liabilities: Accounts payable $ 7,912 $ 1,039 $ - $ 8,951 Other accrued liabilities 20,728 4,683 1,100 26,511 Due to parent company 3,440 - - 3,440 -------- -------- -------- -------- 32,080 5,722 1,100 38,902 -------- -------- -------- -------- Deferred Income Taxes and Other Liabilities 1,882 3,695 (2,392) 3,185 -------- -------- -------- -------- Long-term Obligations: Due to parent company 15,000 - 38,000 53,000 Other 19,085 2,430 22,300 43,815 -------- -------- -------- -------- 34,085 2,430 60,300 96,815 -------- -------- -------- -------- Minority Interest 55,643 - - 55,643 -------- -------- -------- -------- Shareholders' Investment: Common stock 1,741 13 (13) 1,741 Capital in excess of par value 46,923 12,243 (5,320) 53,846 Retained earnings 20,663 - - 20,663 Treasury stock (3,030) 3,726 (3,726) (3,030) Cumulative translation adjustment 55 - - 55 Net unrealized loss on available-for-sale investments (84) - - (84) -------- -------- -------- -------- 66,268 15,982 (9,059) 73,191 -------- -------- -------- -------- $189,958 $ 27,829 $ 49,949 $267,736 ======== ======== ======== ======== See notes to pro forma combined condensed financial statements. 22PAGE FORM 8-K/A THERMO PROCESS SYSTEMS INC. and ELSON T. KILLAM ASSOCIATES, INC. NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS (Unaudited) Note A - Basis of Presentation The allocation of the purchase price is based on an estimate of the fair value of the net assets acquired and is subject to adjustment. To date, no information has been gathered that would cause the Company to believe that the final allocation of the purchase price will be materially different than the preliminary estimate. Note B - Pro Forma Adjustments to Pro Forma Combined Condensed Statement of Income Nine Months Ended Year Ended December 31, 1994 April 2, 1994 ----------------- ------------- (In thousands, except in text) Debit (Credit) Selling, General and Administrative Expenses Amortization over 40 years of "Cost in excess of net assets of acquired companies" of $27,992,000 created by the acquisition of Killam Associates $ 525 $ 700 Reversal of compensation expense associated with options to purchase shares of Killam Associates' capital stock that were cancelled at the time of acquisition (329) (1,331) ------- ------- 196 (631) ------- ------- Interest Income Increase in interest income due to purchase of investment to collateralize promissory note, calculated using an effective interest rate of 7.2% (1,238) (1,650) ------- ------- Interest Expense Increase in interest expense due to zero coupon promissory note issued at a discount, imputed at an effective interest rate of 7.2% 1,238 1,650 ------- ------- 23PAGE FORM 8-K/A THERMO PROCESS SYSTEMS INC. and ELSON T. KILLAM ASSOCIATES, INC. NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS (continued) (Unaudited) Note B - Pro Forma Adjustments to Pro Forma Combined Condensed Statement of Income (continued) Nine Months Ended Year Ended December 31, 1994 April 2, 1994 ----------------- ------------- (In thousands, except in text) Debit (Credit) Interest Expense, Related Party Increase in interest expense due to the issuance of a $38,000,000 promissory note, due to parent company, calculated using an interest rate of 6.53%, the rate in existence at the time the note was issued $ 1,861 $ 2,481 ------- ------- Income Tax Provision Reduction in income taxes associated with adjustments above, excluding the adjustment for amortization of "Cost in excess of net assets of acquired companies," calculated at the Company's statutory income tax rate of 40% (613) (460) ------- ------- 24PAGE FORM 8-K/A THERMO PROCESS SYSTEMS INC. and ELSON T. KILLAM ASSOCIATES, INC. NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS (continued) (Unaudited) Note C - Pro Forma Adjustments to Pro Forma Combined Condensed Balance Sheet December 31, 1994 ------------------- (In thousands, except in text) Debit (Credit) Cash and Cash Equivalents Cash payment to acquire Killam Associates $(12,566) Cash payment to the Killam Management to cancel options to purchase shares of Killam Associates' capital stock (1,922) Cash payment to partially repay Killam Associates' debt and related interest at the time of acquisition (200) Cash payment to pay acquisition closing costs (350) Proceeds of promissory note, due to parent company 38,000 Purchase of investment to collateralize promissory note delivered to Nord Est (22,300) -------- 662 -------- Property, Plant and Equipment, at Cost Record Killam Associates' property and equipment at fair market value (1,005) -------- Long-term Held-to-maturity Investments Purchase of investment to collateralize promissory note delivered to Nord Est. 22,300 -------- Cost in Excess of Net Assets of Acquired Companies Excess of cost over the fair value of net assets acquired 27,992 -------- Other Accrued Liabilities Partial repayment of Killam Associates' short-term debt at time of acquisition 200 Estimated acquisition and other reserves (1,300) -------- (1,100) -------- 25PAGE FORM 8-K/A THERMO PROCESS SYSTEMS INC. and ELSON T. KILLAM ASSOCIATES, INC. NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS (continued) (Unaudited) Note C - Pro Forma Adjustments to Pro Forma Combined Condensed Balance Sheet (continued) December 31, 1994 ------------------ (In thousands, except in text) Debit (Credit) Other Liabilities Reversal of liability relating to outstanding options to purchase shares of Killam Associates' capital stock that were exchanged for options to purchase 847,678 shares the Company's common stock $ 3,442 Curtailment of pension and other postretirement benefits and recognition of obligation thereunder (1,050) -------- 2,392 -------- Long-term Obligations Promissory note, due to parent company (38,000) Present value of zero coupon promissory note, due to Nord Est. (22,300) -------- (60,300) -------- Shareholders' Investment Elimination of Killam Associates' equity accounts 15,982 Issuance of options to purchase 847,678 shares of the Company's common stock. The value of the stock options was calculated based on the difference between the exercise price of the options and the market value of the underlying shares on the date the options were granted. (6,923) -------- 9,059 -------- 26 PAGE FORM 8-K/A Item 7. Financial Statements, Pro Forma Combined Condensed Financial Information and Exhibits (c) Exhibits 23 Consent of Arthur Andersen LLP. 27PAGE FORM 8-K/A 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, on this 21st day of April 1995. THERMO PROCESS SYSTEMS INC. Paul F. Kelleher --------------------------- Paul F. Kelleher Chief Accounting Officer EX-23 2 EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS ----------------------------------------- To Thermo Process Systems Inc.: As independent public accountants, we hereby consent to the use of our reports and to all references to our firm included in or made a part of this Form 8-K. ARTHUR ANDERSEN LLP Roseland, New Jersey April 19, 1995 -----END PRIVACY-ENHANCED MESSAGE-----