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 April 4, 1998.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
Commission File Number 1-13085
METRIKA SYSTEMS CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 33-0733537
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5788 Pacific Center Boulevard
San Diego, California 92121
(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 May 1, 1998
---------------------------- --------------------------
Common Stock, $.01 par value 8,267,828
PAGE
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
-----------------------------
METRIKA SYSTEMS CORPORATION
Consolidated Balance Sheet
(Unaudited)
Assets
April 4, January 3,
(In thousands) 1998 1998
------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents (includes $42,497
and $40,173 under repurchase agreement
with affiliated company) $ 45,347 $ 44,044
Available-for-sale investments, at quoted
market value (amortized cost of $6,079
and $6,231) 6,097 6,245
Accounts receivable, less allowances of
$913 and $671 12,567 17,377
Unbilled contract costs and fees 3,595 2,476
Inventories:
Raw materials and supplies 3,891 4,077
Work in process 2,718 2,416
Finished goods 861 652
Prepaid income taxes and other current
assets 2,692 1,621
-------- --------
77,768 78,908
-------- --------
Property, Plant, and Equipment, at Cost 14,518 14,769
Less: Accumulated depreciation and
amortization 4,562 4,396
-------- --------
9,956 10,373
-------- --------
Other Assets 677 727
-------- --------
Cost in Excess of Net Assets of Acquired
Companies 12,826 12,944
-------- --------
$101,227 $102,952
======== ========
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METRIKA SYSTEMS CORPORATION
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
April 4, January 3,
(In thousands except share amounts) 1998 1998
------------------------------------------------------------------------
Current Liabilities:
Notes payable and current maturities of
long-term obligation $ 7,418 $ 9,895
Accounts payable 1,946 2,308
Accrued payroll and employee benefits 2,099 2,322
Accrued income taxes 3,512 2,445
Customer deposits 2,913 3,576
Accrued installation and warranty costs 2,206 2,132
Other accrued expenses 3,994 4,071
Due to parent company and affiliated companies 4,124 4,184
-------- --------
28,212 30,933
-------- --------
Accrued Pension Costs 4,302 4,356
-------- --------
Long-term Obligation 2,979 3,858
-------- --------
Shareholders' Investment:
Common stock, $.01 par value, 25,000,000
shares authorized; 8,267,828 shares
issued and outstanding 83 83
Capital in excess of par value 58,555 58,555
Retained earnings 7,571 6,157
Accumulated other comprehensive items (Note 3) (475) (990)
-------- --------
65,734 63,805
-------- --------
$101,227 $102,952
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
3PAGE
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METRIKA SYSTEMS CORPORATION
Consolidated Statement of Income
(Unaudited)
Three Months Ended
------------------------
April 4, March 29,
(In thousands except per share amounts) 1998 1997
------------------------------------------------------------------------
Revenues $14,712 $12,592
------- -------
Costs and Operating Expenses:
Cost of revenues 8,174 7,036
Selling, general, and administrative expenses 3,747 3,376
Research and development expenses 992 1,007
------- -------
12,913 11,419
------- -------
Operating Income 1,799 1,173
Interest Income 691 220
Interest Expense (132) (201)
------- -------
Income Before Provision for Income Taxes 2,358 1,192
Provision for Income Taxes 944 477
------- -------
Net Income $ 1,414 $ 715
======= =======
Basic and Diluted Earnings per Share (Note 2) $ .17 $ .12
======= =======
Basic and Diluted Weighted Average Shares
(Note 2) 8,268 5,968
======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
4PAGE
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METRIKA SYSTEMS CORPORATION
Consolidated Statement of Cash Flows
(Unaudited)
Three Months Ended
--------------------
April 4, March 29,
(In thousands) 1998 1997
-----------------------------------------------------------------------
Operating Activities:
Net income $ 1,414 $ 715
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 402 421
Provision for losses on accounts
receivable 253 79
Other noncash items 218 96
Changes in current accounts, excluding
the effects of acquisition:
Accounts receivable 4,442 652
Inventories and unbilled contract
costs and fees (1,524) (2,392)
Other current assets (1,075) (496)
Accounts payable (347) 1,319
Other current liabilities 251 407
------- -------
Net cash provided by operating activities 4,034 801
------- -------
Investing Activities:
Acquisition - (1,347)
Purchases of property, plant, and equipment (101) (132)
Other - 37
------- -------
Net cash used in investing activities (101) (1,442)
------- -------
Financing Activities:
Decrease in due to parent company and
affiliated companies (60) (6,887)
Increase (decrease) in short-term obligations (2,945) 4,550
Repayment of long-term obligation (145) (169)
------- -------
Net cash used in financing activities (3,150) $(2,506)
------- -------
Exchange Rate Effect on Cash 520 $ 316
------- -------
Increase (Decrease) in Cash and Cash
Equivalents 1,303 (2,831)
Cash and Cash Equivalents at Beginning of
Period 44,044 20,229
------- -------
Cash and Cash Equivalents at End of Period $45,347 $17,398
======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
5PAGE
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METRIKA SYSTEMS CORPORATION
Notes to Consolidated Financial Statements
1. General
The interim consolidated financial statements presented have been
prepared by Metrika Systems Corporation (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 April 4, 1998, the results of operations for the three-month periods
ended April 4, 1998, and March 29, 1997, and the cash flows for the
three-month periods ended April 4, 1998, and March 29, 1997. Interim
results are not necessarily indicative of results for a full year.
The consolidated balance sheet presented as of January 3, 1998, 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 January 3, 1998, filed with
the Securities and Exchange Commission.
2. Earnings per Share
Basic and diluted earnings per share were calculated as follows:
Three Months Ended
--------------------
April 4, March 29,
(In thousands except per share amounts) 1998 1997
------------------------------------------------------------------------
Net income $1,414 $ 715
------ ------
Weighted average shares 8,268 5,968
------ ------
Basic and diluted earnings per share $ .17 $ .12
====== ======
The computation of diluted earnings per share for the three-month
period ended April 4, 1998, excludes the effect of assuming the exercise
of outstanding stock options because the effect would be antidilutive. As
of April 4, 1998, there were 300,700 of such options outstanding, with
exercise prices ranging from $15.00 to $15.34 per share.
3. Comprehensive Income
During the first quarter of 1998, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive
Income." This pronouncement sets forth requirements for disclosure of the
Company's comprehensive income and accumulated other comprehensive items.
In general, comprehensive income combines net income and "other
comprehensive items," which represent certain amounts that are reported
as components of shareholders' investment in the accompanying balance
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METRIKA SYSTEMS CORPORATION
3. Comprehensive Income (continued)
sheet, including foreign currency translation adjustments and unrealized
net of tax gains and losses from available-for-sale investments. During
the first quarter of 1998 and 1997, the Company's comprehensive income
totaled $1,929,000 and $1,728,000, respectively.
4. Subsequent Event
On May 6, 1998, the Company agreed to acquire the stock of Honeywell-
Measurex Data Measurement Corporation (DMC), a wholly owned subsidiary of
Honeywell-Measurex, for approximately $29,000,000 in cash, subject to a
post-closing adjustment. DMC is a manufacturer of computerized,
noncontact thickness, coating, and other measurement systems for the
worldwide web-processing industry. The transaction is subject to the
satisfaction of certain closing conditions and receipt of regulatory
approvals, including clearance from U.S. and German regulatory
authorities. If this transaction is consummated, the Company intends to
use internal funds to finance the purchase of the stock of DMC.
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 "Risk Factors" included in the
Company's Annual Report on Form 10-K for the fiscal year ended January 3,
1998, filed with the Securities and Exchange Commission.
Overview
The Company develops, manufactures, and markets on-line process
optimization systems that employ proprietary ultrahigh-speed advanced
scientific measurement technologies for applications in raw-materials
analysis and finished-materials quality control. The Company's on-line
raw-material analysis business ("raw-materials business") is a pioneer in
the development of process optimization systems that provide real-time,
nondestructive analysis of the composition of raw materials in
basic-materials production processes, including coal, cement, and
minerals. The Company's on-line finished-materials quality control
business ("finished-material business") manufactures advanced systems
that are used to measure and control parameters such as material
thickness, coating thickness, and coating weight in web-type materials,
such as metal strip, rubber, and plastic foils. Customers use these
systems to improve product quality and consistency, lower material costs,
reduce energy consumption, and minimize waste.
7PAGE
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METRIKA SYSTEMS CORPORATION
Overview (continued)
The Company intends to supplement its internal growth with strategic
acquisitions of complementary businesses. There can be no assurance that
such businesses will be available at prices attractive to the Company. On
December 31, 1996, the Company acquired the assets, subject to certain
liabilities, of the Autometrics division of Svedala Industries Inc.
(Autometrics), a manufacturer and marketer of on-line analysis
instruments for the minerals-processing industry. On May 6, 1998, the
Company agreed to acquire the stock of Honeywell-Measurex Data
Measurement Corporation (DMC), a wholly owned subsidiary of Honeywell-
Measurex, a manufacturer of computerized, noncontact thickness, coating,
and other measurement systems for the worldwide web-processing industry.
A significant portion of the Company's sales are of large systems,
the timing of which can lead to variability in the Company's quarterly
revenues and income. In addition, in 1997, approximately 51% of the
Company's revenues originated outside the U.S. and approximately 33% of
the Company's revenues were exports from the U.S. Sales originating
outside the U.S. represent revenues of the Company's finished-materials
business. The operations of the finished-materials business are located
in Germany, the United Kingdom, and France, and principally sell in their
local currencies.
Exports from the Company's U.S. operations are denominated in U.S.
dollars. The Company generally seeks to charge its customers in the same
currency as its operating costs. However, the Company's financial
performance and competitive position can be affected by currency exchange
rate fluctuations. Since the operations of the finished-materials
business are conducted in Europe, principally Germany, the Company's
operating results could be adversely affected by capital spending and
economic conditions in Europe. The Company's strategy is to expand its
finished-materials business in geographic areas outside of Europe with
particular emphasis in North America, which in turn may reduce the
Company's exposure to European market conditions.
Results of Operations
First Quarter 1998 Compared With First Quarter 1997
---------------------------------------------------
Revenues increased 17% to $14,712,000 in the first quarter of 1998
from $12,592,000 in the first quarter of 1997. Revenues from the
Company's existing operations grew by 20% excluding the effect of
unfavorable foreign currency translation. Revenues increased by
$1,837,000 at the finished-materials business, principally due to an
increase in demand, offset in part by the unfavorable effects of currency
translation as a result of the strengthening of the U.S. dollar relative
to foreign currencies in countries in which the Company operates, which
decreased revenues by $427,000. Revenues increased $710,000 at the
raw-materials business, primarily due to increased sales in the U.S.
8PAGE
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METRIKA SYSTEMS CORPORATION
First Quarter 1998 Compared With First Quarter 1997 (continued)
---------------------------------------------------
The gross profit margin was 44% in the first quarter of 1998 and
1997. The gross profit margin at the finished-materials business improved
to 41% in 1998 from 39% in 1997 principally due to higher costs incurred
in the 1997 period relating to the introduction of new products, and an
increase in higher-margin sales in 1998 resulting from the introduction
of such new products. The gross profit margin at the raw-materials
business decreased to 47% in 1998 from 48% in 1997, primarily as a result
of costs incurred relating to the relocation and integration of
Autometrics.
Selling, general, and administrative expenses as a percentage of
revenues decreased to 25.5% in the first quarter of 1998 from 26.8% in
the first quarter of 1997, primarily due to increased revenues. Research
and development expenses remained relatively unchanged at $992,000 in the
first quarter of 1998 compared with $1,007,000 in the first quarter of
1997.
Interest income increased to $691,000 in the first quarter of 1998
from $220,000 in the first quarter of 1997, primarily due to interest
earned on the invested net proceeds from the Company's June 1997 initial
public offering. Interest expense decreased to $132,000 in the first
quarter of 1998 from $201,000 in the first quarter of 1997, principally
due to a decrease in short-term borrowings at foreign divisions, as well
as a decrease in applicable interest rates.
The effective tax rate was 40% in the first quarter of 1998 and 1997.
The effective tax rate exceeded the statutory federal income tax rate
primarily due to the impact of state income taxes, nondeductible
amortization of cost in excess of net assets of acquired companies, and
foreign tax rate and tax law differences.
Liquidity and Capital Resources
Consolidated working capital was $49,556,000 at April 4, 1998,
compared with $47,975,000 at January 3, 1998. Included in working capital
are cash, cash equivalents, and available-for-sale investments of
$51,444,000 at April 4, 1998, compared with $50,289,000 at January 3,
1998.
During the first three months of 1998, $4,034,000 of cash was
provided by operating activities. Cash provided by the Company's
operating results was improved primarily by a $4,442,000 reduction in
accounts receivable, offset in part by a $1,524,000 increase in
inventories and unbilled contract costs and fees. The decrease in
accounts receivable was principally due to the timing of cash
collections. The increase in inventories and unbilled contract costs and
fees resulted primarily from the timing of billing on percentage-of-
completion contracts.
During the first quarter of 1998, $101,000 of cash was used for
investing activities consisting of expenditures for the purchase of
property, plant, and equipment. In the remainder of 1998, the Company
plans to make capital expenditures for property, plant, and equipment of
approximately $580,000.
9PAGE
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METRIKA SYSTEMS CORPORATION
Liquidity and Capital Resources (continued)
On May 6, 1998, the Company agreed to acquire the stock of DMC for
approximately $29,000,000 in cash (Note 4). If this transaction is
consummated, the Company intends to use internal funds to finance the
acquisition.
During the first quarter of 1998, $3,150,000 of cash was used for
financing activities, principally to fund a decrease in short-term
borrowings.
Although the Company expects to have positive cash flow from its
existing operations, the Company may require significant amounts of cash
for the acquisition of complementary businesses. The Company expects that
it will finance any such acquisitions through a combination of internal
funds, additional debt or equity financing from the capital markets, or
short-term borrowings from Thermo Instrument Systems Inc. or Thermo
Electron Corporation, although it has no agreement with these companies
to ensure that funds will be available on acceptable terms, or at all.
The Company believes that its existing resources are sufficient to meet
the capital requirements of its existing businesses for the foreseeable
future.
PART II - OTHER INFORMATION
Item 2 - Changes in Securities and Use of Proceeds
--------------------------------------------------
(d) Use of Proceeds
The Company sold 2,300,000 shares of common stock, par value $.01 per
share, pursuant to a Registration Statement on Form S-1 (File No.
333-25243), which was declared effective by the Securities and Exchange
Commission on June 18, 1997. The managing underwriters of the offering
were Salomon Brothers, Inc., Lehman Brothers, Smith Barney Inc., and
Cazenove & Co. The aggregate gross proceeds of the offering were
$35,650,000. The Company's total expenses in connection with the offering
were $3,122,000, of which $2,323,000 was for underwriting discounts and
commissions, $753,000 was for other expenses paid to persons other than
directors or officers of the Company, persons owning more than 10 percent
of any class of equity securities of the Company or affiliates of the
Company (collectively, Affiliates), and $46,000 was paid to Thermo
Electron for certain corporate services rendered in connection with the
offering. The Company's net proceeds from the offering were $32,528,000.
As of April 4, 1998, the Company had expended $480,000 of such net
proceeds for the purchase of property, plant, and equipment, $2,747,000
for research and development expenses, and $9,115,000 for working
capital. As of April 4, 1998, the Company had expended an aggregate of
$12,342,000 of such net proceeds. The Company invested, from time to
time, the balance of such net proceeds primarily in investment grade
interest- or dividend-bearing instruments. As of April 4, 1998, the
remaining net proceeds of $20,186,000 were invested pursuant to a
repurchase agreement with Thermo Electron Corporation. As of April 4,
1998, the Company had $51,444,000 of cash, cash equivalents, and
available-for-sale investments.
10PAGE
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METRIKA SYSTEMS CORPORATION
Item 6 - Exhibits
-----------------
See Exhibit Index on the page immediately preceding exhibits.
11PAGE
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METRIKA SYSTEMS CORPORATION
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 8th day of May 1998.
METRIKA SYSTEMS CORPORATION
Paul F. Kelleher
---------------------------
Paul F. Kelleher
Chief Accounting Officer
John N. Hatsopoulos
---------------------------
John N. Hatsopoulos
Chief Financial Officer and
Senior Vice President
12PAGE
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METRIKA SYSTEMS CORPORATION
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
-----------------------------------------------------------------------
27 Financial Data Schedule.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM METRIKA
SYSTEMS CORPORATION'S QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED APRIL
4, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-END> APR-04-1998
<CASH> 45,347
<SECURITIES> 6,097
<RECEIVABLES> 13,480
<ALLOWANCES> 913
<INVENTORY> 7,470
<CURRENT-ASSETS> 77,768
<PP&E> 14,518
<DEPRECIATION> 4,562
<TOTAL-ASSETS> 101,227
<CURRENT-LIABILITIES> 28,212
<BONDS> 2,979
0
0
<COMMON> 83
<OTHER-SE> 65,651
<TOTAL-LIABILITY-AND-EQUITY> 101,227
<SALES> 14,712
<TOTAL-REVENUES> 14,712
<CGS> 8,174
<TOTAL-COSTS> 8,174
<OTHER-EXPENSES> 992
<LOSS-PROVISION> 253
<INTEREST-EXPENSE> 132
<INCOME-PRETAX> 2,358
<INCOME-TAX> 944
<INCOME-CONTINUING> 1,414
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,414
<EPS-PRIMARY> .17
<EPS-DILUTED> .17
</TABLE>
