SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
----------------------------------------------------
FORM 10-Q
(mark one)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarter Ended October 2, 1999
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number 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 Identification No.)
incorporation or organization)
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 29, 1999
Common Stock, $.01 par value 7,418,128
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
METRIKA SYSTEMS CORPORATION
Consolidated Balance Sheet
(Unaudited)
Assets
October 2, January 2,
(In thousands) 1999 1999
- ----------------------------------------------------------------------------------- ---------- ----------
Current Assets:
<S> <C> <C>
Cash and cash equivalents (includes $12,752 under repurchase agreement $ 2,401 $15,093
with affiliated company in 1998)
Advance to affiliate (Note 7) 14,425 -
Accounts receivable, less allowances of $5,054 and $2,286 (Note 5) 18,703 25,066
Unbilled contract costs and fees 8,193 7,224
Inventories:
Raw materials and supplies 9,468 8,036
Work in process 4,826 3,746
Finished goods 593 475
Prepaid income taxes 6,329 4,439
Other current assets (Note 5) 4,418 806
-------- --------
69,356 64,885
-------- --------
Property, Plant, and Equipment, at Cost 16,222 17,596
Less: Accumulated depreciation and amortization 5,731 5,772
-------- --------
10,491 11,824
-------- --------
Other Assets 2,168 4,087
-------- --------
Cost in Excess of Net Assets of Acquired Companies (Note 5) 30,008 24,648
-------- --------
$112,023 $105,444
======== ========
2
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METRIKA SYSTEMS CORPORATION
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
October 2, January 2,
(In thousands except share amounts) 1999 1999
- ----------------------------------------------------------------------------------- ---------- ----------
Current Liabilities:
Short-term obligations and current maturity of long-term obligation $ 16,795 $ 6,303
(includes advance from affiliate of $4,334 in 1999; Note 7)
Accounts payable 2,999 3,291
Accrued payroll and employee benefits 2,432 2,589
Accrued income taxes 2,225 1,024
Customer deposits 1,840 1,302
Billings in excess of contract costs and fees 2,931 2,163
Accrued installation and warranty costs (Note 5) 4,072 3,508
Other accrued expenses (Note 5) 3,821 4,986
Due to parent company and affiliated companies 3,265 3,901
-------- --------
40,380 29,067
-------- --------
Deferred Income Taxes 1,572 1,572
-------- --------
Accrued Pension Costs 4,736 4,983
-------- --------
Long-term Obligation - 3,437
-------- --------
Shareholders' Investment:
Common stock, $.01 par value, 25,000,000 shares authorized; 83 83
8,270,728 and 8,267,828 shares issued
Capital in excess of par value 58,665 58,641
Retained earnings 14,948 12,500
Treasury stock at cost, 852,600 and 533,700 shares (7,225) (4,620)
Deferred compensation (24) -
Accumulated other comprehensive items (Note 2) (1,112) (219)
-------- --------
65,335 66,385
-------- --------
$112,023 $105,444
======== ========
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 2, October 3,
(In thousands except per share amounts) 1999 1998
- ----------------------------------------------------------------------------------- ---------- ----------
Revenues $18,071 $20,345
------- -------
Costs and Operating Expenses:
Cost of revenues 11,205 12,406
Selling, general, and administrative expenses 4,573 3,868
Research and development expenses 1,229 1,634
Restructuring costs (Note 6) - 624
------- -------
17,007 18,532
------- -------
Operating Income 1,064 1,813
Interest Income 208 280
Interest Expense (173) (106)
------- -------
Income Before Provision for Income Taxes 1,099 1,987
Provision for Income Taxes 512 736
------- -------
Net Income $ 587 $ 1,251
======= =======
Basic and Diluted Earnings per Share (Note 3) $ .08 $ .15
======= =======
Weighted Average Shares (Note 3):
Basic 7,418 8,258
======= =======
Diluted 7,419 8,271
======= =======
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 2, October 3,
(In thousands except per share amounts) 1999 1998
- ----------------------------------------------------------------------------------- ----------- ----------
Revenues $52,166 $49,441
------- -------
Costs and Operating Expenses:
Cost of revenues 31,145 28,308
Selling, general, and administrative expenses 13,408 10,928
Research and development expenses 4,127 3,255
Restructuring costs (Note 6) (402) 624
------- -------
48,278 43,115
------- -------
Operating Income 3,888 6,326
Interest Income 637 1,671
Interest Expense (375) (342)
------- -------
Income Before Provision for Income Taxes 4,150 7,655
Provision for Income Taxes 1,702 2,955
------- -------
Net Income $ 2,448 $ 4,700
======= =======
Basic and Diluted Earnings per Share (Note 3) $ .33 $ .57
======= =======
Weighted Average Shares (Note 3):
Basic 7,470 8,264
======= =======
Diluted 7,471 8,276
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
5
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METRIKA SYSTEMS CORPORATION
Consolidated Statement of Cash Flows
(Unaudited)
Nine Months Ended
October 2, October 3,
(In thousands) 1999 1998
- ----------------------------------------------------------------------------------- ----------- ----------
Operating Activities:
Net income $ 2,448 $ 4,700
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 1,896 1,401
Provision for losses on accounts receivable 404 302
Other noncash items 218 440
Changes in current accounts, excluding the effects of acquisitions:
Accounts receivable 1,068 2,002
Inventories and unbilled contract costs and fees (2,090) (2,117)
Other current assets (1,005) (901)
Accounts payable (554) (683)
Due to parent company and affiliated companies (783) (578)
Other current liabilities (1,324) (1,374)
-------- --------
Net cash provided by operating activities 278 3,192
-------- --------
Investing Activities:
Acquisitions, net of cash acquired (Note 5) (7,729) (27,554)
Refund of acquisition purchase price (Note 5) 4,574 -
Advances to affiliate, net (Note 7) (14,425) -
Purchases of property, plant, and equipment (381) (321)
Other 88 22
-------- --------
Net cash used in investing activities (17,873) (27,853)
-------- --------
Financing Activities:
Purchases of Company common stock (2,605) (1,209)
Change in short-term obligations 10,698 (4,174)
Repayment of long-term obligation (3,117) (534)
-------- --------
Net cash provided by (used in) financing activities 4,976 (5,917)
-------- --------
Exchange Rate Effect on Cash (73) 573
-------- --------
Decrease in Cash and Cash Equivalents (12,692) (30,005)
Cash and Cash Equivalents at Beginning of Period 15,093 44,044
-------- --------
Cash and Cash Equivalents at End of Period $ 2,401 $ 14,039
======== ========
Noncash Activities:
Fair value of assets of acquired companies $ 8,999 $ 39,936
Cash paid for acquired companies (7,767) (28,425)
-------- --------
Liabilities assumed of acquired companies $ 1,232 $ 11,511
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
6
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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 2, 1999, the results
of operations for the three- and nine-month periods ended October 2, 1999, and
October 3, 1998, and the cash flows for the nine-month periods ended October 2,
1999, and October 3, 1998. Interim results are not necessarily indicative of
results for a full year.
The consolidated balance sheet presented as of January 2, 1999, has been
derived from the consolidated financial statements that have been audited by the
Company's independent public accountants. The consolidated financial statements
and notes are presented as permitted by Form 10-Q and do not contain certain
information included in the annual financial statements and notes of the
Company. The consolidated financial statements and notes included herein should
be read in conjunction with the financial statements and notes included in the
Company's Annual Report on Form 10-K for the fiscal year ended January 2, 1999,
filed with the Securities and Exchange Commission.
2. Comprehensive Income
Comprehensive income combines net income and "other comprehensive items,"
which represents certain amounts that are reported as a component of
shareholders' investment in the accompanying balance sheet, including foreign
currency translation adjustments and, in 1998, unrealized net of tax gains and
losses from available-for-sale investments. During the third quarter of 1999 and
1998, the Company's comprehensive income totaled $1,097,000 and $1,531,000,
respectively. During the first nine months of 1999 and 1998, the Company's
comprehensive income totaled $1,555,000 and $5,367,000, respectively.
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3. Earnings per Share
Basic and diluted earnings per share were calculated as follows:
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
October 2, October 3, October 2, October 3,
(In thousands except per share amounts) 1999 1998 1999 1998
- ------------------------------------------------------------- ---------- ----------- ---------- ----------
Basic
Net Income $ 587 $1,251 $2,448 $4,700
----- ------ ------ ------
Weighted Average Shares 7,418 8,258 7,470 8,264
----- ------ ----- ------
Basic Earnings per Share $ .08 $ .15 $ .33 $ .57
===== ====== ===== ======
Diluted
Net Income $ 587 $1,251 $2,448 $4,700
----- ------ ------ ------
Weighted Average Shares 7,418 8,258 7,470 8,264
Effect of Stock Options 1 13 1 12
----- ------ ----- ------
Weighted Average Shares, as Adjusted 7,419 8,271 7,471 8,276
----- ------ ----- ------
Diluted Earnings per Share $ .08 $ .15 $ .33 $ .57
===== ====== ===== ======
7
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3. Earnings per Share (continued)
The computation of diluted earnings per share for each period excludes the
effect of assuming the exercise of certain outstanding stock options because the
effect would be antidilutive. As of October 2, 1999, there were 402,000 of such
options outstanding, with exercise prices ranging from $8.08 to $15.11 per
share.
4. Business Segment Information
Three Months Ended Nine Months Ended
October 2, October 3, October 2, October 3,
(In thousands) 1999 1998 1999 1998
- ------------------------------------------------------------- ---------- ----------- ---------- ----------
Revenues:
On-line Finished Materials Quality Control $13,150 $13,850 $39,829 $27,932
On-line Raw Materials Analysis 4,921 6,495 12,337 21,509
------ ------- ------ -------
$18,071 $20,345 $52,166 $49,441
======= ======= ======= =======
Income Before Provision for Income Taxes:
On-line Finished Materials Quality Control (a) $2,050 $ 930 $6,186 $ 2,990
On-line Raw Materials Analysis (630) 1,070 (1,381) 4,111
Corporate (b) (356) (187) (917) (775)
------ ------- ------ -------
Total operating income 1,064 1,813 3,888 6,326
Interest income, net 35 174 262 1,329
------ ------- ------ -------
$1,099 $ 1,987 $4,150 $ 7,655
====== ======= ====== =======
(a) Includes reversal of previously recorded restructuring costs of $0.4 million
in the nine-month period ended October 2, 1999, and restructuring costs of
$0.6 million in the three- and nine-month periods ended October 3, 1998.
(b) Primarily general and administrative expenses.
5. Acquisition
In July 1999, the Company acquired the assets of the Instrumentation
division of Amdel Limited (Amdel Instrumentation), for $7,767,000 in cash and
the assumption of certain liabilities. Amdel Instrumentation is an
Australia-based provider of on-line process instruments for the minerals
industry. The Company funded the purchase of Amdel Instrumentation principally
through the establishment of a line of credit of approximately $7,000,000. The
facility is due on demand and bears interest at a variable rate, which was 5.7%
at October 2, 1999. The facility expires in July 2002 and is guaranteed by
Thermo Electron Corporation. In addition, Amdel Instrumentation has obtained a
line of credit for working capital purposes, which permits borrowings of up to
approximately $3,000,000. This line expires in July 2000 and is guaranteed by
Thermo Electron. As of October 2, 1999, the Company had borrowings of $1,829,000
under this working capital line of credit.
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 $5,988,000, 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 materially from the preliminary estimate.
Based on unaudited data, the following table presents selected financial
information of the Company and Amdel Instrumentation on a pro forma basis,
assuming the companies had been combined since the beginning of 1998.
8
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5. Acquisition (continued)
Three Months Ended Nine Months Ended
October 3, October 2, October 3,
(In thousands except per share amounts) 1998 1999 1998
- ------------------------------------------------------------- ---------- ----------- ---------- ----------
Revenues $21,647 $55,150 $ 53,904
Net Income 1,297 2,675 5,196
Basic and Diluted Earnings per Share .16 .36 .63
The pro forma results are not necessary indicative of future operations or
the actual results that would have occurred had the acquisition of Amdel
Instrumentation been made at the beginning of 1998.
In July 1998, the Company acquired the stock of Honeywell-Measurex Data
Measurement Corporation, a wholly owned subsidiary of Honeywell-Measurex
Corporation. This business was renamed Radiometrie Corporation (Radiometrie
U.S.). During the first quarter of 1999, the Company received a refund of
$574,000 related to a previously agreed upon purchase price adjustment in
connection with the acquisition of Radiometrie U.S. Also during the first
quarter of 1999, the Company and Honeywell negotiated a post-closing adjustment
under the terms of the purchase agreement pertaining to the determination of the
amount of certain assets and liabilities of Radiometrie U.S. at the date of
acquisition for which Honeywell had maintained responsibility. This negotiation
resulted in an amount due to the Company of $7,800,000, which is payable to the
Company in three installments from April through December 1999, of which
$4,000,000 has been received through the third quarter of 1999. The remaining
$3,800,000 has been recorded as a receivable and is included in other current
assets in the accompanying 1999 balance sheet. A corresponding increase in the
allowance for bad debts and certain liability accounts has been recorded to
reflect the transfer of responsibility for these matters to the Company.
The Company has undertaken a restructuring in connection with its 1999 and
1998 acquisitions. The Company's restructuring activities, which were accounted
for in accordance with Emerging Issues Task Force Pronouncement (EITF) 95-3,
have included a reduction in staffing levels, relocation of certain personnel,
and abandonment of excess facilities at the acquired businesses. In connection
with these restructuring activities, as part of the cost of acquisitions, the
Company established reserves, primarily for severance and excess facilities. In
accordance with the requirements of EITF 95-3, the Company finalizes its
restructuring plans no later than one year from the respective dates of the
acquisitions. Unresolved matters at October 2, 1999, primarily included
completion of planned severances, relocation of certain personnel, and
abandonment of excess facilities for the acquisition of Amdel Instrumentation. A
summary of the changes in accrued acquisition expenses, which are included in
other accrued expenses in the accompanying balance sheet, follows:
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<S> <C> <C> <C> <C>
Abandonment Other Total
of Excess
(In thousands) Severance Facilities
- ----------------------------------------------- -------------- -------------- -------------- -------------
Balance at January 2, 1999 $ 418 $ 144 $ 101 $ 663
Reserves established 306 82 150 538
Usage (541) (181) (185) (907)
Decrease due to finalization of (130) (15) - (145)
restructuring plan, recorded as a decrease
to cost in excess of net assets of
acquired companies
Currency translation (1) - (1) (2)
----- ----- ----- -----
Balance at October 2, 1999 $ 52 $ 30 $ 65 $ 147
===== ===== ===== =====
9
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6. Restructuring Costs
During 1998, the Company accrued severance costs for 35 employees. Through
July 3, 1999, the Company had severed 30 employees and, during the second
quarter of 1999, determined that the remaining 5 employees would not be
terminated. Accordingly, the Company reversed the remaining $402,000 of
previously established restructuring reserves.
7. Cash Management Arrangements
Effective June 1, 1999, the Company and Thermo Electron commenced use of a
new domestic cash management arrangement. Under the new arrangement, amounts
advanced to Thermo Electron by the Company for domestic cash management purposes
bear interest at the 30-day Dealer Commercial Paper Rate plus 50 basis points,
set at the beginning of each month. Thermo Electron is contractually required to
maintain cash, cash equivalents, and/or immediately available bank lines of
credit equal to at least 50% of all funds invested under this cash management
arrangement by all Thermo Electron subsidiaries other than wholly owned
subsidiaries. The Company has the contractual right to withdraw its funds
invested in the cash management arrangement upon 30 days' prior notice. Amounts
invested in this arrangement are included in "advance to affiliate" in the
accompanying balance sheet.
Effective August 1999, the Company's Germany-based subsidiary commenced
use of a new cash management arrangement with a wholly owned subsidiary of
Thermo Electron. Under the new arrangement, amounts borrowed from the subsidiary
of Thermo Electron bear interest at prevailing German market rates, set at the
beginning of each month. Thermo Electron's subsidiary maintains cash, cash
equivalents, and/or immediately available bank lines of credit equal to at least
100% of all funds invested under this cash management arrangement by all Thermo
Electron subsidiaries. The Company can withdraw its funds invested in this
arrangement with no prior notice. Amounts borrowed under this arrangement are
included in "advance from affiliate" in the accompanying balance sheet.
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 2, 1999, 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. The Company operates in two segments:
On-line Raw Materials Analysis (Raw Materials) and On-line Finished Materials
Quality Control (Finished Materials). The Company's Raw Materials segment is a
pioneer in the development of process optimization systems that provide
real-time, nondestructive analysis of the composition of raw materials,
including coal, cement, and minerals, during production. The Company's Finished
Materials segment manufactures advanced systems that 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.
The Raw Materials segment has been adversely affected by a downturn in the
minerals industry due to a reduction in prices for commodities, which has
resulted in lower capital spending. There can be no assurance as to the timing
of a recovery in this industry.
10
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Overview (continued)
The Company may supplement its internal growth with strategic acquisitions
of complementary businesses. In July 1998, the Company acquired the stock of
Honeywell-Measurex Data Measurement Corporation, a wholly owned subsidiary of
Honeywell-Measurex Corporation. This business, renamed Radiometrie Corporation
(Radiometrie U.S.), is included in the Finished Materials segment and
manufactures computerized, noncontact thickness, coating, and other measurement
systems for the flat metal processing industry. In October 1998, the Company
acquired MF Physics Corporation. MF Physics manufactures neutron generators and
neutron activation analysis systems. In July 1999, the Company acquired the
assets of the Instrumentation division of Amdel Limited (Amdel Instrumentation).
Amdel Instrumentation is a provider of on-line process instruments for the
minerals industry (Note 5). MF Physics and Amdel Instrumentation are included in
the Raw Materials segment.
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 1998, approximately 43% 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 segment, 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 segment 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 segment 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. Similarly, in the Raw
Materials segment, the Company's strategy is to expand operations globally to
reduce exposure to market conditions in any specific region. The Company's
acquisitions of Maryland-based Radiometrie U.S. and Australia-based Amdel
Instrumentation were part of these strategies.
Results of Operations
Third Quarter 1999 Compared With Third Quarter 1998
Revenues were $18.1 million in the third quarter of 1999, compared with
$20.3 million in the third quarter of 1998. Revenues in the Finished Materials
segment decreased $0.7 million to $13.2 million. 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
decreased revenues in the Finished Materials segment by $0.4 million. Revenues
in the Raw Materials segment decreased $1.6 million to $4.9 million, primarily
due to a reduction in spending by raw-material producers, particularly in the
cement sector, offset in part by the inclusion of $1.7 million in revenues from
acquisitions. The reduction in spending is expected to continue to adversely
affect sales and profitability in the Raw Materials segment through the end of
1999. While total backlog as of October 2, 1999, was down 4% from year-end 1998,
backlog at the Finished Materials segment has decreased 25% or $6.0 million
during this period, due in part to a reduction in capital spending in the metals
industry.
The gross profit margin decreased to 38% in the third quarter of 1999 from
39% in the third quarter of 1998, principally due to lower margins as a result
of lower revenues relative to the level of fixed costs in the Raw Materials
segment. This decrease was offset in part by improved gross margins in the
Finished Materials segment due to increased operational efficiencies at
Radiometrie U.S. as a result of staff reductions and the consolidation of
facilities.
11
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Third Quarter 1999 Compared With Third Quarter 1998 (continued)
Selling, general, and administrative expenses as a percentage of revenues
increased to 25% in the third quarter of 1999 from 19% in the third quarter of
1998, primarily due to an increase in selling, general, and administrative
expenses as a percentage of revenues in the Raw Materials segment, due to a
decline in revenues. Selling, general, and administrative expenses increased to
$4.6 million in 1999 from $3.9 million in 1998, principally as a result of the
inclusion of expenses at Amdel Instrumentation.
Research and development expenses decreased to $1.2 million in the third
quarter of 1999 from $1.6 million in the third quarter of 1998, primarily due to
cost reduction efforts and the re-allocation of resources to the servicing of
ongoing contracts, offset in part by the inclusion of $0.1 million of expenses
from acquisitions.
During the third quarter of 1998, the Company recorded restructuring costs
of $0.6 million related to severance costs.
Interest income decreased to $0.2 million in the third quarter of 1999
from $0.3 million in the third quarter of 1998, primarily due to a decrease in
average invested balances. Interest expense increased to $0.2 million in the
third quarter of 1999 from $0.1 million in the third quarter of 1998, primarily
due to an increase in short-term obligations as a result of the financing of the
acquisition of Amdel Instrumentation (Note 5).
The effective tax rate was 47% and 37% in the third quarter of 1999 and
1998, respectively. The effective tax rate exceeded the statutory federal income
tax rate in both periods 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. The effective income
tax rate increased in the third quarter of fiscal 1999 due to the higher
relative impact of nondeductible amortization of cost in excess of net assets of
acquired companies due to a decrease in income before provision for income
taxes.
First Nine Months 1999 Compared With First Nine Months 1998
Revenues increased to $52.2 million in the first nine months of 1999 from
$49.4 million in the first nine months of 1998. Revenues in the Finished
Materials segment increased $11.9 million to $39.8 million due to the inclusion
of $11.7 million in revenues from Radiometrie U.S., acquired July 1998, 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 $0.5 million. Revenues in
the Raw Materials segment decreased $9.2 million, primarily due to the reason
described in the results of operations for the third quarter, offset in part by
the inclusion of $2.3 million in revenues from acquisitions.
The gross profit margin decreased to 40% in the first nine months of 1999
from 43% in the first nine months of 1998, principally due to lower margins as a
result of lower revenues relative to the level of fixed costs in the Raw
Materials segment.
Selling, general, and administrative expenses as a percentage of revenues
increased to 26% in the first nine months of 1999 from 22% in the first nine
months of 1998, due to an increase in selling, general, and administrative
expenses as a percentage of revenues in the Raw Materials segment, due to a
decline in revenues. Selling, general, and administrative expenses increased to
$13.4 million in 1999 from $10.9 million in 1998, principally as a result of the
inclusion of expenses at Radiometrie U.S. and Amdel Instrumentation.
Research and development expenses increased to $4.1 million in the first
nine months of 1999 from $3.3 million in the first nine months of 1998, due
primarily to the inclusion of research and development expenses from Radiometrie
U.S. offset in part by cost reduction efforts and the re-allocation of resources
to the servicing of ongoing contracts.
During the first nine months of 1999, the Company reversed $0.4 million of
previously established restructuring reserves that were not required (Note 6).
During the first nine months of 1998, the Company recorded restructuring costs of
$0.6 million related to severance costs.
12
<PAGE>
First Nine Months 1999 Compared With First Nine Months 1998 (continued)
Interest income decreased to $0.6 million in the first nine months of 1999
from $1.7 million in the first nine months of 1998, primarily due to a decrease
in average invested balances resulting from the use of cash for the July 1998
acquisition of Radiometrie U.S. Interest expense remained relatively unchanged
at $0.4 million and $0.3 million in the first nine months of 1999 and 1998,
respectively.
The effective tax rate was 41% and 39% in the first nine months of 1999
and 1998, respectively. The effective tax rate exceeded the statutory federal
income tax rate in both periods 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. The effective tax rate
increased during the first nine months of 1999, primarily due to the reason
discussed in the results of operations for the third quarter.
Liquidity and Capital Resources
Consolidated working capital was $29.0 million at October 2, 1999,
compared with $35.8 million at January 2, 1999. Included in working capital are
cash and cash equivalents of $2.4 million at October 2, 1999, compared with
$15.1 million at January 2, 1999. In addition, as of October 2, 1999, the
Company had $14.4 million invested in an advance to affiliate. Prior to the use
of a new domestic cash management arrangement between the Company and Thermo
Electron Corporation (Note 7), which became effective June 1, 1999, amounts
invested with Thermo Electron were included in cash and cash equivalents. During
the first nine months of 1999, $0.3 million of cash was provided by operating
activities. Cash provided by the Company's operations was offset in part by $2.7
million of cash used to fund a decrease in current liabilities, primarily due to
the timing of payments. Inventories and unbilled contract costs and fees used
$2.1 million of cash as a result of an increase in the volume of
percentage-of-completion contracts in process.
Excluding advance to affiliate activity, the Company's primary investing
activities included the acquisition of the assets of Amdel Instrumentation, for
$7.7 million in cash and the assumption of certain liabilities (Note 5). The
Company's investing activities also included the receipt of a $4.6 million
adjustment of the purchase price for Radiometrie U.S. (Note 5). The Company
received an additional $2.5 million of the purchase price adjustment on October
4, 1999. In addition, the Company expects to receive the final installment of
the post-closing adjustment of $1.3 million, during the fourth quarter of 1999.
The Company used $0.4 million of cash for purchases of property, plant, and
equipment. The Company plans to make additional capital expenditures of
approximately $0.6 million during the remainder of 1999.
The Company's financing activities provided $5.0 million of cash during
the first nine months of 1999. An increase in short-term obligations provided
$10.7 million of cash, primarily as a result of borrowings under a line of
credit that was established in conjunction with the acquisition of Amdel
Instrumentation (Note 5). During the first nine months of 1999, the Company used
$2.6 million of cash to repurchase Company common stock pursuant to an
authorization by the Company's Board of Directors. In November 1999, the
Company's Board of Directors authorized the repurchase of up to an additional
$5.0 million of its own securities through November 1, 2000, in the open market
or through negotiated transactions. Any such purchases are funded from working
capital. In addition, the Company used $3.1 million of cash for the repayment of
a long-term obligation.
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 Thermo Electron,
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.
13
<PAGE>
Year 2000
The following information constitutes a "Year 2000 Readiness Disclosure"
under the Year 2000 Information and Readiness Disclosure Act. The Company
continues to assess the potential impact of the year 2000 date recognition issue
on the Company's internal business systems, products, and operations. The
Company's year 2000 initiatives include (i) testing and upgrading significant
information technology systems and facilities; (ii) testing and developing
upgrades, if necessary, for the Company's current products and certain
discontinued products; (iii) assessing the year 2000 readiness of its key
suppliers and vendors to determine their year 2000 compliance status; and (iv)
developing a contingency plan.
The Company's State of Readiness
The Company has implemented a compliance program to ensure that its
critical information technology systems and non-information technology systems
will be ready for the year 2000. In the first phase of the program, the Company
tested and evaluated its critical information technology systems and
non-information technology systems for year 2000 compliance, which efforts
included testing and evaluating its significant computer systems, software
applications, and related equipment for year 2000 compliance, and testing the
year 2000 readiness of its manufacturing, utility, and telecommunications
systems at its critical facilities. In phase two of its program, any material
noncompliant information technology systems or non-information technology
systems that were identified during phase one were prioritized and remediated.
Based on its evaluations of its critical non-information technology systems, the
Company believes that no material upgrades or modifications are required. The
Company is currently upgrading or replacing its material noncompliant
information technology systems, and this process was approximately 93% complete
as of October 2, 1999. In many cases, such upgrades or replacements are being
made in the ordinary course of business, without accelerating previously
scheduled upgrades or replacements. The Company expects that its remaining
material information technology systems will be year 2000 compliant by the end
of November 1999.
The Company has also implemented a compliance program to test and evaluate
the year 2000 readiness of the material products that it currently manufactures
and sells. The Company believes that all of such material products are year 2000
compliant. However, as many of the Company's products are complex, interact
with, or incorporate 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. The Company is focusing its efforts on
products that are still under warranty and/or are early in their expected life.
The Company is offering upgrades and/or identifying potential solutions where
reasonably practicable.
The Company has also identified and assessed the year 2000 readiness of
key suppliers and vendors that are believed to be significant to the Company's
business operations. As part of this effort, the Company developed and
distributed questionnaires relating to year 2000 compliance to its significant
suppliers and vendors. To date, no significant supplier or vendor has indicated
that it believes its business operations will be materially disrupted by the
year 2000 issue. The Company followed up with its significant suppliers and
vendors that did not respond to the Company's questionnaires. The Company has
substantially completed the majority of its assessment of third-party risk.
Contingency Plan
The Company has developed a contingency plan that will allow its primary
business operations to continue despite disruptions due to year 2000 problems.
This plan includes identifying 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 and vendors, it will modify and
adjust its contingency plan as may be required.
14
<PAGE>
Year 2000 (continued)
Estimated 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. Year 2000 costs
are, and will continue to be, funded from working capital. All internal costs
and related external costs, other than capital additions, related to year 2000
remediation have been and will continue to be expensed as incurred. The Company
does not track internal costs incurred for its year 2000 compliance project.
Such costs are principally payroll costs for its information systems group.
Reasonably Likely Worst Case Scenario
At this point in time, the Company is not able to determine the most
reasonably likely worst case scenario to result from the year 2000 issue. One
possible worst case scenario would be that certain of the Company's material
suppliers or vendors experience business disruptions due to the year 2000 issue
and are unable to provide materials and services to the Company on time. The
Company's operations could be delayed or temporarily shut down, and it could be
unable to meet its obligations to customers in a timely fashion. The Company's
business, operations, and financial condition could be adversely affected in
amounts that cannot be reasonably estimated at this time. If the Company
believes that any of its key suppliers or vendors may not be year 2000
compliant, it will seek to identify and secure other suppliers or vendors as
part of its contingency plan.
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. As discussed above, if any of
the Company's material suppliers or vendors experience business disruptions due
to year 2000 issues, the Company might also be materially adversely affected. If
any countries in which the Company operates experience significant year 2000
disruption, the Company could also be materially adversely affected. There is
expected to be a significant amount of litigation relating to the year 2000
issue and there can be no assurance that the Company will not incur material
costs in defending or bringing lawsuits. In addition, if any year 2000 issues
are identified, there can be no assurance that the Company will be able to
retain qualified personnel to remedy such issues. Any unexpected costs or delays
arising from the year 2000 issue could have a material adverse impact on the
Company's business, operations, and financial condition in amounts that cannot
be reasonably estimated at this time.
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
The Company's exposure to market risk from changes in foreign currency
exchange rates has not changed materially from its exposure at year-end 1998.
15
<PAGE>
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
See Exhibit Index on the page immediately preceding exhibits.
(b) Reports on Form 8-K
None.
16
<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 4th day of November 1999.
METRIKA SYSTEMS CORPORATION
/s/ Paul F. Kelleher
Paul F. Kelleher
Chief Accounting Officer
/s/ Theo Melas-Kyriazi
Theo Melas-Kyriazi
Chief Financial Officer
17
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
27 Financial Data Schedule.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM METRIKA
SYSTEM CORPORATION'S QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED OCTOBER
2, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-END> OCT-02-1999
<CASH> 2,401
<SECURITIES> 0
<RECEIVABLES> 23,757
<ALLOWANCES> 5,054
<INVENTORY> 14,887
<CURRENT-ASSETS> 69,356
<PP&E> 16,222
<DEPRECIATION> 5,731
<TOTAL-ASSETS> 112,023
<CURRENT-LIABILITIES> 40,380
<BONDS> 0
0
0
<COMMON> 83
<OTHER-SE> 65,252
<TOTAL-LIABILITY-AND-EQUITY> 112,023
<SALES> 52,166
<TOTAL-REVENUES> 52,166
<CGS> 31,145
<TOTAL-COSTS> 31,145
<OTHER-EXPENSES> 3,725
<LOSS-PROVISION> 404
<INTEREST-EXPENSE> 375
<INCOME-PRETAX> 4,150
<INCOME-TAX> 1,702
<INCOME-CONTINUING> 2,448
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,448
<EPS-BASIC> 0.33
<EPS-DILUTED> 0.33
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