SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
----------------------------------------
FORM 10-Q
(mark one)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarter Ended October 3, 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 October 30, 1998
---------------------------- -------------------------------
Common Stock, $.01 par value 8,071,028
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
- -----------------------------
METRIKA SYSTEMS CORPORATION
Consolidated Balance Sheet
(Unaudited)
Assets
October 3, January 3,
(In thousands) 1998 1998
- --------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents (includes $12,221 and
$40,173 under repurchase agreement with
affiliated company) $ 14,039 $ 44,044
Available-for-sale investments, at quoted
market value (amortized cost of $6,019 and
$6,231) 6,021 6,245
Accounts receivable, less allowances of
$2,598 and $671 24,739 17,377
Unbilled contract costs and fees 7,396 2,476
Inventories:
Raw materials and supplies 8,299 4,077
Work in process 4,564 2,416
Finished goods 476 652
Prepaid income taxes 5,476 1,226
Prepaid expenses 1,128 395
-------- --------
72,138 78,908
-------- --------
Property, Plant, and Equipment, at Cost 17,230 14,769
Less: Accumulated depreciation and
amortization 5,406 4,396
-------- --------
11,824 10,373
-------- --------
Other Assets 4,728 727
-------- --------
Cost in Excess of Net Assets of Acquired
Companies (Note 4) 24,084 12,944
-------- --------
$112,774 $102,952
======== ========
2
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METRIKA SYSTEMS CORPORATION
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
October 3, January 3,
(In thousands except share amounts) 1998 1998
- --------------------------------------------------------------------------
Current Liabilities:
Notes payable and current maturities of
long-term obligation $ 5,991 $ 9,895
Accounts payable 2,867 2,308
Accrued payroll and employee benefits 2,557 2,322
Accrued income taxes 3,291 2,445
Customer deposits 4,640 3,576
Accrued installation and warranty costs 5,084 2,132
Other accrued expenses (Notes 4 and 5) 8,252 4,071
Due to parent company and affiliated companies 3,606 4,184
-------- --------
36,288 30,933
-------- --------
Accrued Pension Costs 4,909 4,356
-------- --------
Long-term Obligation 3,616 3,858
-------- --------
Shareholders' Investment:
Common stock, $.01 par value, 25,000,000 shares
authorized; 8,267,828 shares issued 83 83
Capital in excess of par value 58,555 58,555
Retained earnings 10,857 6,157
Treasury stock at cost, 133,000 shares in 1998 (1,209) -
Accumulated other comprehensive items (Note 3) (325) (990)
-------- --------
67,961 63,805
-------- --------
$112,774 $102,952
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
3
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METRIKA SYSTEMS CORPORATION
Consolidated Statement of Income
(Unaudited)
Three Months Ended
-------------------------
October 3, September 27,
(In thousands except per share amounts) 1998 1997
- --------------------------------------------------------------------------
Revenues $20,345 $14,886
------- -------
Costs and Operating Expenses:
Cost of revenues 12,406 7,618
Selling, general, and administrative expenses 3,868 3,837
Research and development expenses 1,634 953
Restructuring costs (Note 5) 624 -
------- -------
18,532 12,408
------- -------
Operating Income 1,813 2,478
Interest Income 280 770
Interest Expense (106) (165)
------- -------
Income Before Provision for Income Taxes 1,987 3,083
Provision for Income Taxes 736 1,240
------- -------
Net Income $ 1,251 $ 1,843
======= =======
Basic and Diluted Earnings per Share (Note 2) $ .15 $ .22
======= =======
Weighted Average Shares (Note 2):
Basic 8,258 8,268
======= =======
Diluted 8,271 8,268
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
4
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METRIKA SYSTEMS CORPORATION
Consolidated Statement of Income
(Unaudited)
Nine Months Ended
-------------------------
October 3, September 27,
(In thousands except per share amounts) 1998 1997
- --------------------------------------------------------------------------
Revenues $49,441 $41,611
------- -------
Costs and Operating Expenses:
Cost of revenues 28,308 22,283
Selling, general, and administrative expenses 10,928 10,632
Research and development expenses 3,255 3,013
Restructuring costs (Note 5) 624 -
------- -------
43,115 35,928
------- -------
Operating Income 6,326 5,683
Interest Income 1,671 1,243
Interest Expense (342) (605)
------- -------
Income Before Provision for Income Taxes 7,655 6,321
Provision for Income Taxes 2,955 2,536
------- -------
Net Income $ 4,700 $ 3,785
======= =======
Basic and Diluted Earnings per Share (Note 2) $ .57 $ .56
======= =======
Weighted Average Shares (Note 2):
Basic 8,264 6,768
======= =======
Diluted 8,276 6,770
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
METRIKA SYSTEMS CORPORATION
Consolidated Statement of Cash Flows
(Unaudited)
Nine Months Ended
--------------------------
October 3, September 27,
(In thousands) 1998 1997
- --------------------------------------------------------------------------
Operating Activities:
Net income $ 4,700 $ 3,785
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,401 1,237
Provision for losses on accounts
receivable 302 274
Other noncash items 440 87
Changes in current accounts, excluding
the effects of acquisitions:
Accounts receivable 2,002 (1,843)
Inventories and unbilled contract
costs and fees (2,117) (3,857)
Other current assets (901) (1,021)
Accounts payable (683) 161
Other current liabilities (Note 5) (1,374) 3,917
-------- --------
Net cash provided by operating activities 3,770 2,740
-------- --------
Investing Activities:
Acquisitions, net of cash acquired (Note 4) (27,554) (1,347)
Purchases of available-for-sale investments - (9,122)
Purchases of property, plant, and equipment (321) (358)
Other 22 57
-------- --------
Net cash used in investing activities (27,853) (10,770)
-------- --------
Financing Activities:
Net proceeds from issuance of Company common
stock - 32,528
Purchases of Company common stock (1,209) -
Decrease in due to parent company and
affiliated companies (578) (2,274)
Increase (decrease) in short-term
obligations (4,174) 1,135
Repayment of long-term obligation (534) (169)
-------- --------
Net cash provided by (used in) financing
activities $ (6,495) $ 31,220
-------- --------
6
<PAGE>
METRIKA SYSTEMS CORPORATION
Consolidated Statement of Cash Flows (continued)
(Unaudited)
Nine Months Ended
--------------------------
October 3, September 27,
(In thousands) 1998 1997
- --------------------------------------------------------------------------
Exchange Rate Effect on Cash $ 573 $ 207
-------- --------
Increase (Decrease) in Cash and Cash Equivalents (30,005) 23,397
Cash and Cash Equivalents at Beginning of Period 44,044 20,229
-------- --------
Cash and Cash Equivalents at End of Period $ 14,039 $ 43,626
======== ========
Noncash Activities:
Fair value of assets of acquired companies $ 39,936 $ 2,380
Cash paid for acquired companies (28,425) (1,347)
-------- --------
Liabilities assumed of acquired companies $ 11,511 $ 1,033
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
7
<PAGE>
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 October 3, 1998, the results
of operations for the three- and nine-month periods ended October 3, 1998, and
September 27, 1997, and the cash flows for the nine-month periods ended October
3, 1998, and September 27, 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 Nine Months Ended
------------------ --------------------
(In thousands except Oct. 3, Sept. 27, Oct. 3, Sept. 27,
per share amounts) 1998 1997 1998 1997
- ---------------------------------------------------------------------------
Basic
Net Income $1,251 $1,843 $4,700 $3,785
------ ------ ------ ------
Weighted Average Shares 8,258 8,268 8,264 6,768
------ ------ ------ ------
Basic Earnings per Share $ .15 $ .22 $ .57 $ .56
====== ====== ====== ======
Diluted
Net Income $1,251 $1,843 $4,700 $3,785
------ ------ ------ ------
Weighted Average Shares 8,258 8,268 8,264 6,768
Effect of Stock Options 13 - 12 2
------ ------ ------ ------
Weighted Average Shares,
as Adjusted 8,271 8,268 8,276 6,770
------ ------ ------ ------
Diluted Earnings per Share $ .15 $ .22 $ .57 $ .56
====== ====== ====== ======
8
<PAGE>
2. Earnings per Share (continued)
The computation of diluted earnings per share for certain periods excludes
the effect of assuming the exercise of certain outstanding stock options because
the effect would be antidilutive. As of October 3, 1998, there were 285,540 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 No. 130, "Reporting Comprehensive Income." This
pronouncement sets forth requirements for disclosure of the Company's
comprehensive income and accumulated other comprehensive items. In general,
comprehensive income combines net income and "other comprehensive items," which
represents certain amounts that are reported as components of shareholders'
investment in the accompanying balance sheet, including foreign currency
translation adjustments and unrealized net of tax gains and losses from
available-for-sale investments. During the third quarter of 1998 and 1997, the
Company's comprehensive income totaled $1,531,000 and $1,988,000, respectively.
During the first nine months of 1998 and 1997, the Company's comprehensive
income totaled $5,367,000 and $5,003,000, respectively.
4. Acquisition
In July 1998, the Company acquired the stock of Honeywell-Measurex Data
Measurement Corporation (DMC), a wholly owned subsidiary of Honeywell-Measurex,
for $28,425,000 in cash, subject to a post-closing adjustment. DMC manufactures
computerized, noncontact thickness, coating, and other measurement systems for
the worldwide web-processing industry.
This acquisition has been accounted for using the purchase method of
accounting and its results have been included in the accompanying financial
statements from its date of acquisition. The cost of this acquisition exceeded
the estimated fair value of the acquired net assets by $11,397,000, which is
being amortized over 40 years. Allocation of the purchase price was based on an
estimate of the fair value of the net assets acquired and is subject to
adjustment upon finalization of the purchase price allocation. To date, the
Company has gathered no information that indicates the final purchase price
allocation will differ from the preliminary estimate.
9
<PAGE>
4. Acquisition (continued)
Based on unaudited data, the following table presents selected financial
information of the Company and DMC on a pro forma basis, assuming the companies
had been combined since the beginning of 1997.
Three Months
Ended Nine Months Ended
------------ -------------------
(In thousands except Sept. 27, Oct. 3, Sept. 27,
per share amounts) 1997 1998 1997
- --------------------------------------------------------------------------
Revenues $21,588 $63,735 $66,743
Net Income 1,226 3,560 1,102
Basic and Diluted Earnings per Share .15 .43 .16
The pro forma results are not necessarily indicative of future operations or
the actual results that would have occurred had the acquisition of DMC been made
at the beginning of 1997.
The Company has undertaken a restructuring in connection with its
acquisition of DMC. The restructuring activities include a reduction in staffing
levels, relocation of certain DMC personnel, and abandonment of excess
facilities of the acquired business. The Company established $1,300,000 of
reserves for such actions as part of the cost of the acquisition in accordance
with Emerging Issues Task Force (EITF) Pronouncement No. 95-3. Unresolved
matters at October 3, 1998, included completing planned severances and
abandonment or consolidation of excess facilities. In accordance with the
requirements of EITF No. 95-3, the Company will finalize its restructuring plan
no later than one year from the date of acquisition. During the first nine
months of 1998, the Company expended $282,000 of the established reserves,
primarily for severance and abandoned-facility payments. The remaining reserves
are included in other accrued expenses in the accompanying balance sheet as of
October 3, 1998.
5. Restructuring Costs
During the third quarter of 1998, the Company recorded restructuring costs
of $624,000 related to severance costs for 35 employees, primarily in
manufacturing positions, 22 of whom were terminated prior to October 3, 1998.
The affected employees are primarily located in the U.S. at the Company's
raw-materials business. The Company plans to complete implementation of its
restructuring plan during the first half of 1999. As of October 3, 1998, $73,000
of the total charge had been expended and the remainder was included in other
accrued expenses in the accompanying balance sheet at October 3, 1998.
6. Proposed Reorganization
On August 12, 1998, Thermo Electron Corporation announced a proposed
reorganization involving certain of Thermo Electron's subsidiaries, including
the Company. As part of this reorganization, Thermo Electron announced that the
Company may be merged with two other Thermo Electron subsidiaries to form one
combined majority-owned public subsidiary of
10
<PAGE>
6. Proposed Reorganization (continued)
Thermo Instrument Systems Inc. The Company's shareholders would receive shares
of common stock of the combined entity in exchange for their shares of the
Company's common stock. The completion of this transaction is subject to
numerous conditions, including the establishment of prices or exchange ratios;
confirmation of anticipated tax consequences; the approval of the Board of
Directors of the Company, Thermo Instrument, Thermedics Inc., and each of the
other two Thermo Electron subsidiaries proposed to be merged with the Company,
including the independent directors of such companies; the negotiation and
execution of a definitive merger agreement; the receipt of fairness opinions
from one or more investment banking firms on certain financial aspects of the
transaction; the approval of Thermo Electron's Board of Directors; and clearance
by the Securities and Exchange Commission of any necessary documents regarding
the proposed transaction.
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 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-materials 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-materials 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.
11
<PAGE>
Overview (continued)
The Company intends to supplement its internal growth with strategic
acquisitions of complementary businesses. In July 1998, the Company acquired the
stock of Honeywell-Measurex Data Measurement Corporation (DMC), a wholly owned
subsidiary of Honeywell-Measurex (Note 4). DMC manufactures computerized,
noncontact thickness, coating, and other measurement systems for the worldwide
web-processing industry. There can be no assurance that additional businesses
will be available at prices attractive to the Company.
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% were exports from the U.S.
Sales originating outside the U.S. represent revenues of the Company's
finished-materials business, the operations of which are located in Germany, the
United Kingdom, and France. These business units 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 primarily in Europe,
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 on North America, which in turn may reduce the Company's
exposure to European market conditions. As a result of this strategy, the
Company acquired DMC based in Gaithersburg, Maryland, in July 1998.
Results of Operations
Third Quarter 1998 Compared With Third Quarter 1997
Revenues increased 37% to $20,345,000 in the third quarter of 1998 from
$14,886,000 in the third quarter of 1997. Revenues increased $6,101,000 at the
finished-materials business primarily due to the inclusion of $6,535,000 in
revenues from the acquisition of DMC in July 1998 (Note 4), offset in part by
lower revenues due to lower exports at the Company's U.K. operation as a result
of the strengthening of the British pound. Revenues decreased $642,000 in the
raw-materials business, primarily due to a reduction in spending by
raw-materials producers and increased competition.
The gross profit margin decreased to 39% in the third quarter of 1998 from
49% in the third quarter of 1997. The gross profit margin at the
finished-materials business decreased to 38% in 1998 from 43% in 1997,
principally due to the inclusion of lower-margin revenues from DMC. The gross
profit margin at the raw-materials business decreased to 41% in 1998 from 55% in
1997, primarily due to reduced revenues and increased competition resulting from
the entry into the market place of new competitors.
12
<PAGE>
Third Quarter 1998 Compared With Third Quarter 1997 (continued)
Selling, general, and administrative expenses as a percentage of revenues
decreased to 19% in the third quarter of 1998 from 26% in the third quarter of
1997, primarily due to reductions in headcount and travel expense in the
raw-materials business. Research and development expenses increased to
$1,634,000 in 1998 from $953,000 in 1997, primarily due to the inclusion of
research and development expenses at DMC.
During the third quarter of 1998, the Company recorded restructuring costs
of $624,000 related to severance costs for 35 employees (Note 5).
Interest income decreased to $280,000 in the third quarter of 1998 from
$770,000 in the third quarter of 1997, primarily due to lower average invested
balances as a result of the acquisition of DMC. Interest expense decreased to
$106,000 in 1998 from $165,000 in 1997, principally due to a decrease in
short-term borrowings at foreign divisions.
The effective tax rate was 37% and 40% in the third quarter of 1998 and
1997, respectively. The effective tax rate decreased in 1998 due to higher
income in certain foreign jurisdictions which have lower tax rates. The
effective tax rates exceeded the statutory federal income tax rate primarily due
to the impact of state income taxes and nondeductible amortization of cost in
excess of net assets of acquired companies.
First Nine Months 1998 Compared With First Nine Months 1997
Revenues increased 19% to $49,441,000 in the first nine months of 1998 from
$41,611,000 in the first nine months of 1997. Revenues increased at the
finished-materials business, principally due to the inclusion of $6,535,000 in
revenues from the acquisition of DMC in July 1998 (Note 4) and, to a lesser
extent, internal growth. This increase was 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 $501,000. Revenues increased $413,000 at
the raw-materials business, primarily due to increased sales in the U.S.
The gross profit margin decreased to 43% in the first nine months of 1998
from 46% in the first nine months of 1997. The gross profit margin at the
finished-materials business decreased to 41% in 1998 from 42% in 1997. The gross
profit margin at the raw-materials business decreased to 45% in 1998 from 50% in
1997. These changes occurred principally due to the reasons discussed in the
results of operations for the third quarter.
Selling, general, and administrative expenses as a percentage of revenues
decreased to 22% in the first nine months of 1998 from 26% in the first nine
months of 1997, primarily due to the reason discussed in the results of
operations for the third quarter. Research and development expenses increased to
$3,255,000 in 1998 from $3,013,000 in 1997, primarily due to the inclusion of
research and development expenses at DMC, offset in part by reduced spending due
to the completion of the development of new products introduced in 1997.
13
<PAGE>
First Nine Months 1998 Compared With First Nine Months 1997 (continued)
Interest income increased to $1,671,000 in the first nine months of 1998
from $1,243,000 in the first nine months of 1997, primarily due to interest
earned on the invested net proceeds from the Company's June 1997 initial public
offering, offset in part by the effect of cash used for the July 1998
acquisition of DMC. Interest expense decreased to $342,000 in 1998 from $605,000
in 1997, primarily due to a decrease in short-term borrowings at foreign
divisions.
The effective tax rate was 39% and 40% in the first nine months of 1998 and
1997, respectively. The effective tax rates exceeded the statutory federal
income tax rate primarily due to the impact of state income taxes and
nondeductible amortization of cost in excess of net assets of acquired
companies.
Liquidity and Capital Resources
Consolidated working capital was $35,850,000 at October 3, 1998, compared
with $47,975,000 at January 3, 1998. Included in working capital are cash, cash
equivalents, and available-for-sale investments of $20,060,000 at October 3,
1998, compared with $50,289,000 at January 3, 1998.
During the first nine months of 1998, $3,770,000 of cash was provided by
operating activities. Cash of $2,002,000 was provided by a decrease in accounts
receivable, offset by a $2,117,000 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 billings on
percentage-of-completion contracts.
During the first nine months of 1998, $27,853,000 of cash was used for
investing activities, primarily for the purchase of DMC for $27,554,000 in cash,
net of cash acquired (Note 4). The Company used internal funds to finance the
acquisition. In addition, the Company used $321,000 of cash for purchases of
property, plant, and equipment. In the remainder of 1998, the Company plans to
make additional capital expenditures of approximately $200,000.
During the third quarter of 1998, $6,495,000 of cash was used for financing
activities, principally to fund a decrease in short-term borrowings. The
Company's Board of Directors has authorized the repurchase by the Company,
through September 1999, of up to $10,000,000 of its own securities. Through
October 3, 1998, the Company had expended $1,209,000 under this authorization.
Any such purchases are funded from working capital.
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 and/or
short-term borrowings from Thermo Instrument Systems Inc. or
14
<PAGE>
Liquidity and Capital Resources (continued)
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.
Year 2000
The Company continues to assess the potential impact of the year 2000 on the
Company's internal business systems, products, and operations. The Company's
year 2000 initiatives include (i) testing and upgrading internal business
systems and facilities; (ii) testing and developing necessary upgrades for the
Company's current products and certain discontinued products; (iii) contacting
key suppliers, vendors, and customers to determine their year 2000 compliance
status; and (iv) developing contingency plans.
The Company's State of Readiness
The Company has tested and evaluated its critical information-technology
systems for year 2000 compliance, including its significant computer systems,
software applications, and related equipment. The Company is currently in the
process of upgrading or replacing its noncompliant systems. The Company expects
that all of its material information-technology systems will be year 2000
compliant by the end of 1999. The Company is also evaluating the potential year
2000 impact on its facilities, including its buildings and utility systems. Any
problems that are identified will be prioritized and remediated based on their
assigned priority. The Company will continue periodic testing of its critical
internal business systems and facilities in an effort to minimize operating
disruptions due to year 2000 issues.
The Company believes that all of the material products that it currently
sells are year 2000 compliant. However, as many of the Company's products are
complex, interact with third-party products, and operate on computer systems
that are not under the Company's control, there can be no assurance that the
Company has identified all of the year 2000 problems with its current products.
The Company believes that certain of its older products, which it no longer
manufactures or sells, may not be year 2000 compliant. The Company is continuing
to test and evaluate such products and may offer upgrades or alternative
products where reasonably practicable.
The Company is in the process of identifying and contacting suppliers,
vendors, and customers that are believed to be significant to the Company's
business operations in order to assess their year 2000 readiness. As part of
this effort, the Company has developed and is distributing questionnaires
relating to year 2000 compliance to its significant suppliers, vendors, and
customers. The Company intends to follow-up and monitor the year 2000 compliant
progress of significant suppliers, vendors, and customers that indicate that
they are not year 2000 compliant or that do not respond to the Company's
questionnaires.
15
<PAGE>
Year 2000 (continued)
Contingency Plans
The Company intends to develop a contingency plan that will allow its
primary business operations to continue despite disruptions due to year 2000
problems. These plans may include identifying and securing other suppliers,
increasing inventories, and modifying production facilities and schedules. As
the Company continues to evaluate the year 2000 readiness of its business
systems and facilities, products and significant suppliers, vendors, and
customers, it will modify and adjust its contingency plan as may be required.
Costs to Address the Company's Year 2000 Issues
To date, costs incurred in connection with the year 2000 issue have not been
material. The Company does not expect total year 2000 remediation costs to be
material, but there can be no assurance that the Company will not encounter
unexpected costs or delays in achieving year 2000 compliance.
Risks of the Company's Year 2000 Issues
While the Company is attempting to minimize any negative consequences
arising from the year 2000 issue, there can be no assurance that year 2000
problems will not have a material adverse impact on the Company's business,
operations, or financial condition. While the Company expects that upgrades to
its internal business systems will be completed in a timely fashion, there can
be no assurance that the Company will not encounter unexpected costs or delays.
Despite its efforts to ensure that its material current products are year 2000
compliant, the Company may see an increase in warranty and other claims,
especially those related to Company products that incorporate, or operate using,
third-party software or hardware. In addition, certain of the Company's older
products, which it no longer manufactures or sells, may not be year 2000
compliant, which may expose the Company to claims. If any of the Company's
material suppliers, vendors, or customers experience business disruptions due to
year 2000 issues, the Company might also be materially adversely affected. The
Company's research and development, production, distribution, financial,
administrative, and communications operations might be disrupted. There is
expected to be a significant amount of litigation relating to the year 2000
issue and there can be no assurance that the Company will not incur material
costs in defending or bringing lawsuits. Any unexpected costs or delays arising
from the year 2000 issue could have a significant adverse impact on the
Company's business, operations, and financial condition.
16
<PAGE>
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 October 3, 1998, the Company
had expended $581,000 of such net proceeds for the purchase of property, plant,
and equipment, $3,376,000 for research and development expenses, $9,115,000 for
working capital, and $19,456,000 to partially fund the acquisition of DMC. As of
October 3, 1998, the Company had expended all of the net proceeds.
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 July 17, 1998, the Company filed a Current Report on Form 8-K dated July
5, 1998, pertaining to its acquisition of Honeywell-Measurex Data Measurement
Corporation. On September 18, 1998, the Company filed an amendment on Form 8-K/A
to Current Report on Form 8-K, the purpose of which was to file financial
information required by Form 8-K concerning the acquisition.
On August 13, 1998, the Company filed a Current Report on Form 8-K dated
August 12, 1998, with respect to a proposed corporate reorganization by the
Company's ultimate parent corporation, Thermo Electron Corporation, involving
certain of Thermo Electron's subsidiaries, including the Company.
On September 29, 1998, the Company filed a Current Report on Form 8-K dated
September 29, 1998, with respect to restructuring costs recorded during the
third quarter of 1998.
17
<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 5th day of November 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
18
<PAGE>
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 REPORT ON FORM 10-Q FOR THE PERIOD ENDED OCTOBER 3,1998
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> JAN-02-1999
<PERIOD-END> OCT-03-1998
<CASH> 14,039
<SECURITIES> 6,021
<RECEIVABLES> 27,337
<ALLOWANCES> 2,598
<INVENTORY> 13,339
<CURRENT-ASSETS> 72,138
<PP&E> 17,230
<DEPRECIATION> 5,406
<TOTAL-ASSETS> 112,774
<CURRENT-LIABILITIES> 36,288
<BONDS> 3,616
0
0
<COMMON> 83
<OTHER-SE> 67,878
<TOTAL-LIABILITY-AND-EQUITY> 112,774
<SALES> 49,441
<TOTAL-REVENUES> 49,441
<CGS> 28,308
<TOTAL-COSTS> 28,308
<OTHER-EXPENSES> 3,879
<LOSS-PROVISION> 302
<INTEREST-EXPENSE> 342
<INCOME-PRETAX> 7,655
<INCOME-TAX> 2,955
<INCOME-CONTINUING> 4,700
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> 4,700
<EPS-PRIMARY> 0.57
<EPS-DILUTED> 0.57
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