SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------------------------------------------
FORM 10-K
(mark one)
[ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended January 1, 2000
[ ] 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
incorporation or organization) (I.R.S. Employer Identification No.)
5788 Pacific Center Boulevard
San Diego, CA 92121
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (781) 622-1000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, $.01 par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
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 the filing
requirements for at least the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference into Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant as of January 28, 2000, was approximately $14,897,000.
As of January 28, 2000, the Registrant had 7,408,128 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Shareholders for the year ended
January 1, 2000, are incorporated by reference into Parts I and II.
The information required by Part III of Form 10-K will be filed as part of an
amendment to this Form 10-K no later than 120 days after January 1, 2000, and
such information is incorporated by reference from such filing.
<PAGE>
PART I
Item 1. Business
(a) General Development of Business.
The businesses of Metrika Systems Corporation (the Company or the
Registrant) operate 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 includes Gamma-Metrics, which designs,
develops, manufactures, and sells on-line process-optimization systems that
provide real-time, nondestructive analysis of the composition of raw materials
in basic-materials production processes, including coals, cement, and minerals.
Also included in this segment is MF Physics Corporation, which manufactures
neutron generators, pneumatic sample-transfer systems, and a number of
neutron-activation analysis products for raw materials. In July 1999, the
Company acquired the assets of the Instrumentation division of Amdel Limited for
$7.8 million in cash. This business has been renamed Gamma-Metrics Minerals Pty
Ltd (Gamma-Metrics Minerals). Gamma-Metrics Minerals is an Australia-based
provider of on-line process instruments for the minerals industry.
The Company's Finished Materials segment consists of Radiometrie, which
manufactures advanced systems used to measure and control parameters such as
materials 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. This segment also includes Radiometrie
Corporation (Radiometrie U.S.), formerly known as Honeywell-Measurex Data
Measurement Corporation. Radiometrie U.S. manufactures and sells computerized
noncontact thickness, coating, and other measurement systems for the flat metal
processing industry.
The Company's systems make real-time, on-line, precise measurements of
materials using advanced scientific measurement techniques, including gamma
spectroscopy, beta particle detection, laser spectroscopy, X-ray fluorescence,
and ultrasound that allow noninvasive and nondestructive analysis. The systems
incorporate proprietary intelligent sensors that have been developed for
specific production processes along with ultrahigh-speed signal-processing
electronics. These systems can be combined with the Company's proprietary
real-time software to form integrated process optimization systems designed to
fit the customer's specific application.
The Company was incorporated as a Delaware corporation in November 1996.
In connection with this incorporation, Thermo Instrument Systems Inc.
transferred to the Company the assets, liabilities, and business of its
Gamma-Metrics and Radiometrie businesses in exchange for 5,000,000 shares of the
Company's common stock. As of January 1, 2000, Thermo Instrument owned 5,219,600
shares of the Company's common stock, representing 70% of such stock
outstanding. Thermo Instrument is an 88%-owned subsidiary of Thermo Electron
Corporation. As of January 1, 2000, Thermo Electron owned 627,100 shares of
common stock of the Company, representing 8% of such stock outstanding. Thermo
Instrument and Thermo Electron develop, manufacture, and sell measurement and
detection instruments used in virtually every industry to monitor, collect, and
analyze data that provide knowledge for the user. For example, Thermo
Instrument's and Thermo Electron's powerful analysis technologies help
researchers sift through data to unlock the mysteries of DNA or develop new
drugs; allow manufacturers to fabricate ever-smaller components required to
carry greater amounts of information, faster; or monitor and control industrial
processes on-line to ensure that critical quality standards are met efficiently.
On January 31, 2000, the Company announced that Thermo Instrument proposes
to make a cash tender offer for any and all of the outstanding shares of the
Company's common stock at $9.00 per share. This action is part of a major
reorganization plan under which Thermo Electron will spin in, spin off, and sell
various businesses to focus solely on its core measurement and detection
instruments business. The completion of this transaction is subject to certain
conditions, as outlined in Note 14 to Consolidated Financial Statements in the
Registrant's 1999* Annual Report to Shareholders, which statements are
incorporated herein by reference.
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Forward-looking Statements
Forward-looking statements, within the meaning of Section 21E of the
Securities Exchange Act of 1934, are made throughout this Annual Report on Form
10-K. 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 caption
"Forward-looking Statements" in the Registrant's 1999 Annual Report to
Shareholders, which statements are incorporated herein by reference.
(b) Financial Information About Segments
Financial information concerning the Company's segments is summarized in
Note 10 to Consolidated Financial Statements in the Registrant's 1999 Annual
Report to Shareholders, which information is incorporated herein by reference.
(c) Description of Business
(i) Principal Products and Services
On-line Raw Materials Analysis
The Company manufactures on-line process-optimization systems that
noninvasively measure and analyze the physical and chemical properties of a
stream of bulk solid materials in real time. The systems are primarily used to
analyze the composition of raw materials for certain basic industries, such as
coal, cement, and minerals. The analysis technique used in the Company's
process-optimization systems involves neutron interrogation. Under neutron
interrogation, each element, when activated by neutrons, emits gamma rays of
unique characteristics that allow identification and quantification of the
elements present. Neutron interrogation allows the entire stream of the material
to be analyzed and eliminates the need for sampling. In addition, it provides
accurate analysis of the materials, especially those that are nonhomogeneous,
and can be used to analyze a broad range of substances. The systems contain
proprietary sensors that detect gamma rays emitted from the material being
analyzed, which are activated by the neutron source within the analyzer. This
yields a composite gamma ray spectrum of the material. Through on-line
high-speed spectroscopy, this spectrum is then decomposed into its constituent
parts using microprocessors and sophisticated real-time analytical software. The
analyzer can then translate this data into the elemental composition of the raw
materials and can also use the information to infer certain quality-control
parameters specific to the process.
The Company currently markets the following family of products based on
its neutron-interrogation technology:
On-line Coal Analyzer. The Company's on-line coal analyzer can examine
entire streams of coal at a rate of up to 400 tons per hour, determine the
sulfur and ash concentration of the coal on a continuous basis, and can also
simultaneously compute the calorific value of the coal, among other quality
parameters. Customers can use the date to blend or sort the coal depending on
its quality. The Company has developed proprietary high-speed software that can
be incorporated into the system to enable the customer to automatically adjust
and control the coal blending and sorting process on-line.
- --------------------
* References to 1999, 1998, and 1997 herein are for the fiscal years ended
January 1, 2000, January 2, 1999, and January 3, 1998, respectively.
3
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Coal analyzers are currently used by mines and coal-burning utilities.
Coal mines can use the coal analyzer to improve profitability by blending coals
of different quality to meet specific contract requirements or environmental
regulatory standards by sorting out low-sulfur coal that can be sold for a
premium or by controlling the specific gravity of separation in a coal-cleaning
plant to ensure that quality specifications are met without over-cleaning. In
addition to ensuring more consistent quality, on-line coal analysis improves
recovery or yield from the mine, thus extending the life of a mine by reducing
the risk of premature exhaustion of low-sulfur reserves that are required to
balance high-sulfur reserves. Coal-burning utilities use the coal analyzers to
reduce costs while satisfying environmental emissions regulations.
CrossBelt Analyzer. The Company's CrossBelt Analyzer (CBA) is used
primarily by the cement industry to analyze the composition of raw materials in
cement production. The CBA is essentially a horizontal tunnel that is assembled
around a customer's conveyor belt. The CBA analyzes materials traveling on a
conveyor belt at speeds of up to 600 feet per minute and with material flow
rates in excess of 1,000 tons per hour. The system generates data on the
elemental composition of the entire stream of materials, and can use the
information to infer certain quality-control parameters such as lime-saturation
factor and silica ratio. The CBA can incorporate high-speed proprietary
software, which allows the customer to automatically control production
processes. The CBA is incorporated into the production line, enabling producers
to control the mix of raw materials at the beginning of the production line or
to automatically control the blending of additives with crushed limestone and
clay further down the line. Both approaches enable the producer to achieve
uniform cement quality. The CBA controls the production process by using the
analytical data it compiles to automatically adjust the composition of the
additive mix to achieve target quality levels. This approach helps reduce
variations in the materials fed into the cement kiln, yielding several benefits:
lower energy consumption, greater throughput, and extended refractory life.
Mineral Slurry Analyzers. The Company's on-line analyzers use neutron
interrogation to analyze mineral slurry, a mixture of fine insoluble materials
and water, for the mineral extraction industry. The recovery of almost all
minerals and metals involves multi-step beneficiation processes. In most cases
the beneficiation begins by milling the ore and adding water to form a slurry.
Additional steps to concentrate the element of interest often include size and
mass classification, and froth flotation involving reagents. The Company's
neutron-based mineral slurry analyzer, which analyzes the entire elemental
composition of the slurry, can greatly improve the efficiency of the
beneficiation process by using the collected data to automatically adjust
various process parameters, including the amount of reagents used. The Company
believes its neutron-based mineral slurry analyzer is suitable for controlling
the beneficiation process for a wide variety of minerals.
The Company also manufactures on-line X-ray slurry analyzers and on-line
particle-size analyzers. The X-ray slurry analyzers are used in the mineral
processing industry, primarily for copper, zinc, lead, molybdenum, and uranium,
to measure the concentration of certain elements. The equipment can also be
designed to automatically control and adjust the amount of reagents used in the
mineral beneficiation process. The X-ray slurry analyzer provides customers who
do not require a comprehensive analysis system with a cost-effective alternative
to the Company's neutron-based mineral slurry analyzer. The on-line
particle-size analyzers are real-time measuring instruments. The on-line
particle-size analyzers use ultrasound technology, together with proprietary
models, to determine the particle-size distribution and percent solids in
mineral slurries.
Software Products. The Company complements its application-specific sensor
technology with process-optimization software. These systems use adaptive and
predictive controls to maximize use of materials, as well as to blend raw
materials to meet certain requirements in a cost-effective manner. The process
of extracting, beneficiating, and utilizing raw materials is difficult to
control due to variances in chemistry, size and shape, and time delays in the
transport of materials from different points within the handling system. The
Company's proprietary process control software can accomplish these optimization
tasks by performing a model-based estimation and by adaptively controlling
source materials.
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FastLab. The Company offers its FastLab analyzer for rapid analysis of
samples off-line, with minimal sample preparation. The FastLab can be used for
numerous applications such as spot-check analysis of raw materials, core hole
analysis, fuel analysis, and chemical additives analysis. This product is
suitable for the same markets that use on-line elemental analysis.
Process Safety Instrumentation. The Company is a supplier of process
safety instrumentation in the nuclear power industry. The Company's
instrumentation is designed to improve the safety and efficiency of nuclear
power plants. In addition, the Company offers automated test equipment and
safety-related computer software for nuclear power plants and other facilities
where radioactive materials are used.
Neutron Generators. The Company is a supplier of neutron generators for
the mining industry, national laboratories, and high-tech manufacturers. These
products are used as part of a system to detect or measure elements of interest
in a variety of applications including mineral exploration, oil well logging,
explosives detection, and nuclear waste management.
On-line Finished Materials Quality Control
The Company develops, manufactures, and markets gauges and process
optimization systems for industrial manufacturing lines for continuous
production of certain web-type materials. Web-type materials are flat sheet
materials like paper, metal strip, plastic foil, rubber, and glass. Typical
high-volume products made from web-type materials include all types of vehicle
bodies and other parts, metals used for refrigerators and similar products,
beverage and food cans, cladding for buildings, and rubber tires. The Company's
instruments measure the total thickness, basis weight, and coating thickness of
web-type materials such as plastic foils, hot and cold metal strip, rubber,
glass, and non-woven fabrics, and are also capable of detecting pinholes in
these webs. The measuring technology incorporated in the Company's products is
based on partial absorption, reflection, or change in ionizing or infrared
radiation, as well as white light, ultraviolet light, and laser beams, by the
materials being measured. The Company's systems can measure a single point on
the material being measured, several points, or can generate a "profile" of the
web. Measured values are acquired without contacting the material and without
interfering with the production process, have high measurement accuracy, and are
extremely reliable despite hostile environments. The Company offers its
measuring gauges with or without its process-optimization systems, which can be
used to automatically regulate the customer's production process.
The Company's products incorporate a variety of measurement gauges such as
X-ray thickness gauges, isotope thickness gauges, X-ray fluorescence coating
gauges, or beta-backscatter gauges, depending on the application. The thickness
gauges manufactured by the Company basically function by measuring partial
absorption of energy by the material to be measured. The change in the intensity
of the energy emitted is detected by application-specific sensors, then
processed by high-speed microprocessors, before emerging as the measured value.
These instruments can incorporate the Company's high-speed proprietary software
to form a fully integrated process-optimization system for continuous
manufacturing processes and improved product quality.
The Company's products reduce the use of raw materials and energy to
maximize productivity and product quality. The total thickness of a web-type
material, or the coating on it, is measured accurately at the point of
manufacture by the Company's products and then compared with a target value.
Adjustments can be made early in the process because the Company's products can
accurately measure materials closer to the origin of the strip, thus reducing
material waste.
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(ii) and (xi) New Products; Research and Development
The Company maintains active programs for the development and introduction
of new products and it has various ongoing programs for improvements to existing
products. The Company also seeks to develop new applications for its existing
products and technology. In particular, the Company is actively seeking new
applications for its non-invasive, nondestructive analysis technologies.
Research and development expenses for the Company were $5.5 million, $4.8
million, and $3.8 million in 1999, 1998, and 1997, respectively.
(iii)
Raw Materials
Various components of the Company's products are supplied by sole-source
vendors. The Company has not experienced significant difficulty in obtaining
adequate supplies from these vendors, and has identified alternate suppliers.
However, there can be no assurance that the unanticipated loss of a single
vendor would not result in delays in shipments or the introduction of new
products.
(iv) Patents, Licenses, and Trademarks
The Company's policy is to protect its intellectual property rights,
including applying for and obtaining patents, when appropriate. The Company is
the owner of a number of patents expiring at various dates. Patent protection is
believed to provide the Company with competitive advantages with respect to
certain instruments. The Company also considers technical know-how, trade
secrets, and trademarks to be important to its business.
(v) Seasonal Influences
The Company's Finished Materials segment experiences a slowdown in
revenues during the first quarter of each calendar year primarily because its
customers tend to place their orders earlier in the year so that they can have
the systems installed either during the slow period of the summer or between
Christmas and the New Year.
(vi) Working Capital Requirements
There are no special inventory requirements or credit terms extended to
customers that would have a material adverse effect on the Company's working
capital.
(vii) Dependency on a Single Customer
No single customer accounted for more than 10% of the Company's total
revenues in any of the past three years.
(viii) Backlog
The Company's backlog of firm orders was as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
(In thousands) 1999 1998
- ---------------------------------------------------------------------------------------- ------- -------
Raw Materials $16,067 $ 7,145
Finished Materials 15,151 23,645
------- -------
$31,218 $30,790
======= =======
</TABLE>
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The 1998 backlog in the Raw Materials segment was unusually low, primarily
due to a reduction in spending by raw-material producers and increased
competition in that year. The decrease in backlog in 1999 in the Finished
Materials segment was primarily due to a reduction in capital spending in the
metals industry. The Company includes in backlog only those orders for which it
has received firm purchase orders and for which delivery has been specified
within twelve months. Certain of these orders are subject to cancellation by the
customer upon payment of a cancellation charge. Because of the possibility of
customer changes in delivery schedules, cancellation of orders, and potential
delays in product shipments, the Company's backlog as of any particular date may
not be representative of actual sales for any succeeding period.
We believe that substantially all of the backlog as of January 1, 2000,
will be shipped or completed during 2000.
(ix) Government Contracts
Not applicable.
(x) Competition
In the Raw Materials segment, the Company competes primarily on
performance and to a lesser extent on price. Competition regarding on-line coal
and cement material analyzers is limited at present. Scantech Limited
(Australia) is the Company's principal competitor in the on-line coal and cement
material analysis markets. More recently, Polysius and Lucchin entered the
cement market. The Company competes primarily with Outokumpu (Finland) in the
on-line mineral slurry analysis market. The market for solids and multiphase
analyzers for process control generally is fragmented, with numerous
competitors. The Company believes it is a market leader in the segment of the
solids and multiphase analyzer market for on-line bulk-materials analyzers using
neutron interrogation.
Competition in the Finished Materials segment is highly fragmented with
numerous competitors competing in various end-use market segments. As a result,
competition varies according to the end-use segment. The Company competes based
upon quality, performance, and price. The Company's largest competitors are
Honeywell (U.S.), Toshiba (Japan), and Yokogawa (Japan). Honeywell, through its
Ohmart division is a supplier to the plastics industry. Toshiba and Yokogawa are
at present competing with the Company in Asia in the metals industry. IMS
(Germany) and IRM (Belgium/U.S.), compete with the Company worldwide in the
metals industry. There are a number of competitors such as NDC (US), Eurotherm
(U.K.), and Infrared Engineering (U.K.), which compete with the Company in the
plastics and rubber industry.
Certain of the Company's competitors have greater resources, manufacturing
and marketing capabilities, technical staff, and production facilities than
those of the Company. As a result, they may be able to adapt more quickly to new
or emerging technologies and changes in customer requirements, or to devote
greater resources to the promotion and sale of their products than the Company.
Further, competition with respect to all of the Company's products could
increase if new companies enter the market or if existing competitors expand
their product lines. There can be no assurance that competitors of the Company
will not develop technological innovations that will render products of the
Company obsolete.
(xii) Environmental Protection Regulations
The Company believes that compliance by the Company with federal, state,
and local environmental protection regulations will not have a material adverse
effect on its capital expenditures, earnings, or competitive position.
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(xiii) Number of Employees
As of January 1, 2000, the Company employed approximately 500 people. The
Company has had no work stoppages and considers its relations with employees to
be good.
(d) Financial Information About Geographic Areas
Financial information about geographic areas is summarized in Note 10 to
Consolidated Financial Statements in the Registrant's 1999 Annual Report to
Shareholders, and is incorporated herein by reference.
(e) Executive Officers of the Registrant
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Name Age Present Title (Fiscal Year First Became Executive
Officer)
------------------ ------ -----------------------------------------------------
Ernesto A. Corte 61 President and Chief Executive Officer (1997)
Werner G. Kramer 53 Executive Vice President (1997)
Theo Melas-Kyriazi 40 Chief Financial Officer (1998)
Paul F. Kelleher 57 Chief Accounting Officer (1997)
Each executive officer serves until his successor is chosen or appointed by the Board of Directors
and qualified or until earlier resignation, death, or removal. Mr. Corte has been President of the
Company since its inception in November 1996, and Chief Executive Officer since February 1998. Mr.
Corte has been President of the Company's Gamma-Metrics subsidiary since 1993. Mr. Kramer has been
Executive Vice President of the Company since its inception in November 1996 and President of the
Company's Radiometrie RM GmbH subsidiary since 1993. Mr. Melas-Kyriazi was appointed Chief Financial
Officer of the Company and Thermo Electron on January 1, 1999. Mr. Melas-Kyriazi joined Thermo Electron
in 1986 as Assistant Treasurer, and became Treasurer in 1988. He was named President and Chief
Executive Officer of ThermoSpectra Corporation, a subsidiary of Thermo Instrument, in 1994. In 1998, he
became Vice President of Corporate Strategy for Thermo Electron. Mr. Kelleher has held comparable
positions for at least five years with Thermo Instrument or Thermo Electron. Messrs. Corte and Kramer
are full-time employees of the Company. Messrs. Melas-Kyriazi and Kelleher are full-time employees of
Thermo Electron, but devote such time to the affairs of the Company as the Company's needs reasonably
require.
</TABLE>
Item 2. Properties
The location and general character of the Company's principal properties
by segment as of January 1, 2000, are as follows:
Raw Materials
The Company leases approximately 45,000 square feet in San Diego,
California, pursuant to a lease that expires in 2004, 23,000 square feet in
Adelaide, Australia, pursuant to a lease that expires in October 2000; and
11,000 square feet in Colorado Springs, Colorado, pursuant to a lease that
expires in 2003. The Company uses these facilities for manufacturing, sales, and
administration for its Raw Materials segment.
Finished Materials
The Company leases approximately 53,000 square feet in Gaithersburg,
Maryland, pursuant to leases expiring in 2002 and 2009; and approximately 19,000
square feet in Gloucester, England, pursuant to a lease expiring in 2001; and
owns a facility with approximately 110,000 square feet in Erlangen, Germany, of
which approximately 55,000 square feet are utilized by the Company, with the
balance being utilized by another Thermo Instrument subsidiary. These facilities
are used by the Company for manufacturing, sales, and administration for its
Finished Materials segment.
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The Company believes that its facilities are in good condition and are
suitable and adequate for its present operations. With respect to leases
expiring in the near future, in the event the Company does not renew such
leases, the Company believes suitable alternate space is available for lease on
acceptable terms.
In addition, the Company leases office space throughout the world for its
sales and service operations. The Company believes that these facilities are
adequate for its present operations.
Item 3. Legal Proceedings
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Information concerning the market and market price for the Registrant's
common stock, $.01 par value, and related matters, is included under the
sections labeled "Common Stock Market Information" and "Dividend Policy" in the
Registrant's 1999 Annual Report to Shareholders and is incorporated herein by
reference.
Item 6. Selected Financial Data
The information required under this item is included under the sections
labeled "Selected Financial Information" and "Dividend Policy" in the
Registrant's 1999 Annual Report to Shareholders and is incorporated herein by
reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information required under this item is included under the heading
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Registrant's 1999 Annual Report to Shareholders and is
incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The information required under this item is included under the heading
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Registrant's 1999 Annual Report to Shareholders and is
incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The Registrant's Consolidated Financial Statements as of January 1, 2000,
and Supplementary Data are included in the Registrant's 1999 Annual Report to
Shareholders and are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
PART III
The information required under Items 10, 11, 12, and 13 of Form 10-K will
be filed as part of an amendment to this Form 10-K no later than 120 days after
January 1, 2000, the end of the Registrant's fiscal year covered by this Form
10-K.
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PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a,d) Financial Statements and Schedules
(1)The consolidated financial statements set forth in the list below are
filed as part of this Report.
(2)The consolidated financial statement schedule set forth in the list
below is filed as part of this Report.
(3)Exhibits filed herewith or incorporated herein by reference are set
forth in Item 14(c) below.
List of Financial Statements and Schedules Referenced in this Item 14
Information incorporated by reference from Exhibit 13 filed herewith:
Consolidated Statement of Income
Consolidated Balance Sheet
Consolidated Statement of Cash Flows
Consolidated Statement of Comprehensive Income and Shareholders'
Investment
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
Financial Statement Schedules filed herewith:
Schedule II: Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable or not
required, or because the required information is shown either in the
financial statements or in the notes thereto.
(b) Reports on Form 8-K
None.
(c) Exhibits
See Exhibit Index on the page immediately preceding exhibits.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: March 8, 2000 METRIKA SYSTEMS CORPORATION
By: /s/ Ernesto A. Corte
Ernesto A. Corte
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated, as of March 8, 2000.
Signature Title
By: /s/ Ernesto A. Corte President, Chief Executive Officer, and
Director
Ernesto A. Corte
By: /s/ Theo Melas-Kyriazi Chief Financial Officer
Theo Melas-Kyriazi
By: /s/ Paul F. Kelleher Chief Accounting Officer
Paul F. Kelleher
By: /s/ Joseph A. Baute Director
Joseph A. Baute
By: /s/ Willard R. Becraft Director
Willard R. Becraft
By: /s/ Denis A. Helm Chairman of the Board and Director
Denis A. Helm
By: /s/ John T. Keiser Director
John T. Keiser
By: /s/ Earl R. Lewis Director
Earl R. Lewis
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Report of Independent Public Accountants
To the Shareholders and Board of Directors of Metrika Systems Corporation:
We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements included in Metrika Systems Corporation's
Annual Report to Shareholders incorporated by reference in this Form 10-K, and
have issued our report thereon dated February 15, 2000. Our audits were made for
the purpose of forming an opinion on those statements taken as a whole. The
schedule listed in Item 14 on page 10 is the responsibility of the Company's
management and is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic consolidated financial
statements. This schedule has been subjected to the auditing procedures applied
in the audits of the basic consolidated financial statements and, in our
opinion, fairly states in all material respects the consolidated financial data
required to be set forth therein in relation to the basic consolidated financial
statements taken as a whole.
Arthur Andersen LLP
Boston, Massachusetts
February 15, 2000
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SCHEDULE II
METRIKA SYSTEMS CORPORATION
Valuation and Qualifying Accounts
(In thousands)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Description Balance at Provision Accounts Accounts Other (a) Balance
Beginning Charged to Recovered Written at End
of Year Expense Off of Year
- ---------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Allowance for Doubtful Accounts
Year Ended January 1, 2000 $2,286 $ 466 $ 102 $ (720) $ (81) $2,053
Year Ended January 2, 1999 $ 671 $ 470 $ 40 $ (606) $1,711 $2,286
Year Ended January 3, 1998 $ 440 $ 633 $ 209 $ (713) $ 102 $ 671
Description Balance at Established Activity Balance
Beginning as Cost of Charged to at End
of Year Acquisitions Reserve Other (c) of Year
- ------------------------------------- ------------- ------------- ------------ -------------- ------------
Accrued Acquisition Expenses (b)
Year Ended January 1, 2000 $ 663 $ 679 $(1,215) $ (2) $ 125
Year Ended January 2, 1999 $ 68 $ 1,380 $ (785) $ - $ 663
Year Ended January 3, 1998 $ - $ 350 $ (282) $ - $ 68
Description Balance at Provision for Balance
Beginning Restructuring Cash Payments at End
of Year Costs Other (c) of Year
- ------------------------------------- ------------- ------------- ------------ ------------- -------------
Accrued Restructuring Costs (d)
Year Ended January 1, 2000 $ 552 $(402) $ (92) $ (58) $ -
Year Ended January 2, 1999 $ - $ 624 $(100) $ 28 $ 552
(a) Includes allowance of businesses acquired during the year as described in
Note 2 to Consolidated Financial Statements in the Registrant's 1999 Annual
Report to Shareholders and the effect of foreign currency translation.
(b) The nature of activity in this account is described in Note 2 to
Consolidated Financial Statements in the Registrant's 1999 Annual Report to
Shareholders.
(c) Primarily the effect of foreign currency translation.
(d) The nature of activity in this account is described in Note 11 to
Consolidated Financial Statements in the Registrant's 1999 Annual Report to
Shareholders.
13
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
2 Stock Purchase Agreement dated as of May 6, 1998, by and between the Company and
Honeywell-Measurex Corporation (filed as Exhibit 2 to the Registrant's Current Report on
Form 8-K for events occurring on July 5, 1998, and incorporated herein by reference).
3.1* Certificate of Incorporation of the Company, as amended.
3.2* By-Laws of the Company.
4* Specimen Common Stock Certificate.
10.1* Corporate Services Agreement dated as of November 26, 1996, between Thermo Electron
Corporation and the Company.
10.2 Thermo Electron Corporate Charter, as amended and restated
effective January 3, 1993 (filed as Exhibit 10.1 to Thermo
Electron's Annual Report on Form 10-K for the fiscal year ended
January 3, 1993 [File No. 1-8002] and incorporated herein by
reference).
10.3* Tax Allocation Agreement dated as of November 26, 1996, between
Thermo Electron and the Company.
10.4 Master Cash Management, Guarantee Reimbursement and Loan
Agreement dated as of June 1, 1999, between the Registrant and
Thermo Electron Corporation (filed as Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
July 3, 1999, and incorporated herein by reference).
10.5 Amended and Restated Master Guarantee Reimbursement and Loan Agreement dated as of
December 3, 1997, between Thermo Instrument and the Company (filed as Exhibit 10.6 to the
Registrant's Annual Report on Form 10-K for the year ended January 3, 1998, and
incorporated herein by reference).
10.6 Amended and Restated Deferred Compensation Plan for Directors of
the Registrant (filed as Exhibit 10.2 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended July 3, 1999,
and incorporated herein by reference).
10.7 Amended and Restated Equity Incentive Plan of the Registrant
(filed as Exhibit 10.3 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended July 3, 1999, and incorporated
herein by reference).
In addition to the stock-based compensation plans of the
Registrant, the executive officers of the Registrant may be
granted awards under stock-based compensation plans of Thermo
Electron and Thermo Instrument for services rendered to the
Registrant or such affiliated corporations. The terms of such
plans are substantially the same as those of the Registrant's
Amended and Restated Equity Incentive Plan.
10.8* Indemnification Agreement dated as of November 26, 1996, between
Thermo Instrument and the Company.
10.9* Letter Agreement dated as of December 4, 1996, between Thermo
Instrument and the Company.
14
<PAGE>
Exhibit
Number Description of Exhibit
10.10* Indemnification Agreement dated as of December 4, 1996, between
Thermo Instrument and the Company.
10.11* Triple Net Lease Agreement dated January 1, 1995, between
Gamma-Metrics, as lessee and Radnor/Collins/Sorrento Partnership,
as lessor, for property located at 5788 Pacific Center Boulevard,
San Diego, California.
10.12* Form of Indemnification Agreement for Officers and Directors.
10.13 Restated Stock Holding Assistance Plan and Form of Promissory Note (filed as Exhibit
10.16 to the Registrant's Annual Report on Form 10-K for the year ended January 3, 1998,
and incorporated herein by reference).
10.14* Lease Agreement dated as of October 1, 1993, between Radiometrie
RM GmbH (the Company's subsidiary), as lessor, and ESM Eberline
Instruments Strahlen and Umweltmesstechnik GmbH, as lessee.
13 Annual Report to Shareholders for the year ended January 1, 2000 (only those portions
incorporated herein by reference).
21 Subsidiaries of the Registrant.
23 Consent of Arthur Andersen LLP.
27 Financial Data Schedule.
</TABLE>
Each exhibit above which is marked with an asterisk (*) is incorporated
herein by reference to the correspondingly numbered exhibit to the Company's
Registration Statement on Form S-1 [File No. 333-25243].
Exhibit 13
Metrika Systems Corporation
Consolidated Financial Statements
1999
<PAGE>
<TABLE>
<CAPTION>
Metrika Systems Corporation 1999 Financial Statements
Consolidated Statement of Income
<S> <C> <C> <C>
(In thousands except per share amounts) 1999 1998 1997
- ------------------------------------------------------------------------------- -------- --------- -------
Revenues (Note 10) $72,007 $ 70,029 $56,714
------- -------- -------
Costs and Operating Expenses:
Cost of revenues 43,256 40,537 29,928
Selling, general, and administrative expenses (Note 6) 18,550 15,250 14,367
Research and development expenses 5,537 4,773 3,815
Restructuring costs (Note 11) (402) 624 -
------- -------- -------
66,941 61,184 48,110
------- -------- -------
Operating Income 5,066 8,845 8,604
Interest Income 933 1,897 2,013
Interest Expense (Note 7) (621) (449) (838)
------- -------- -------
Income Before Provision for Income Taxes 5,378 10,293 9,779
Provision for Income Taxes (Note 5) 2,258 3,950 3,920
------- -------- -------
Net Income $ 3,120 $ 6,343 $ 5,859
======= ======== =======
Basic and Diluted Earnings per Share (Note 12) $ .42 $ .77 $ .82
======= ======== =======
Weighted Average Shares (Note 12)
Basic 7,456 8,195 7,143
======= ======== =======
Diluted 7,456 8,204 7,147
======= ======== =======
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE>
Metrika Systems Corporation 1999 Financial Statements
Consolidated Balance Sheet
(In thousands) 1999 1998
- ------------------------------------------------------------------------------------- ---------- ---------
Assets
Current Assets:
Cash and cash equivalents (includes $12,752 under repurchase $ 2,898 $ 15,093
agreement with affiliated company in 1998)
Advance to affiliate 19,775 -
Accounts receivable, less allowances of $2,053 and $2,286 18,153 25,066
Unbilled contract costs and fees 9,367 7,224
Inventories 14,338 12,257
Deferred tax asset (Note 5) 4,341 4,439
Other current assets 565 806
-------- --------
69,437 64,885
-------- --------
Property, Plant, and Equipment, at Cost, Net 9,994 11,824
-------- --------
Other Assets 2,084 4,087
-------- --------
Cost in Excess of Net Assets of Acquired Companies (Note 2) 29,753 24,648
-------- --------
$111,268 $105,444
======== ========
3
<PAGE>
Metrika Systems Corporation 1999 Financial Statements
Consolidated Balance Sheet (continued)
(In thousands except share amounts) 1999 1998
- ------------------------------------------------------------------------------------- ---------- ---------
Liabilities and Shareholders' Investment
Current Liabilities:
Short-term obligations and current maturities of long-term $ 15,347 $ 6,303
obligation (includes $4,792 of advance from affiliate in 1999)
Accounts payable 2,714 3,291
Accrued payroll and employee benefits 2,812 2,589
Accrued income taxes 5,278 1,024
Customer deposits 1,644 1,302
Billings in excess of contract costs and fees 2,123 2,163
Accrued installation and warranty costs 3,978 3,508
Other accrued expenses (Note 2) 3,757 4,986
Due to parent company and affiliated companies (Note 6) 3,216 3,901
-------- --------
40,869 29,067
-------- --------
Deferred Income Taxes (Note 5) 133 1,572
-------- --------
Accrued Pension Costs (Note 3) 4,563 4,983
-------- --------
Long-term Obligation (Note 7) - 3,437
-------- --------
Commitments (Note 8)
Shareholders' Investment (Notes 3 and 4):
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 15,620 12,500
Treasury stock at cost, 862,600 and 533,700 shares (7,288) (4,620)
Deferred compensation (16) -
Accumulated other comprehensive items (1,361) (219)
-------- --------
65,703 66,385
-------- --------
$111,268 $105,444
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
Metrika Systems Corporation 1999 Financial Statements
</TABLE>
<TABLE>
<CAPTION>
Consolidated Statement of Cash Flows
<S> <C> <C> <C>
(In thousands) 1999 1998 1997
- ---------------------------------------------------------------------------- ---------- --------- --------
Operating Activities
Net income $ 3,120 $ 6,343 $ 5,859
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 2,571 2,069 1,630
Provision for losses on accounts receivable 466 470 633
Deferred income tax expense 1,832 2,488 482
Other noncash items 293 376 104
Changes in current accounts, excluding the effects of acquisitions:
Accounts receivable 1,602 3,231 (6,987)
Inventories and unbilled contract costs and fees (3,064) 35 (1,323)
Other current assets 480 (541) (162)
Accounts payable (807) (287) (190)
Other current liabilities (2,745) (9,812) 3,053
-------- -------- --------
Net cash provided by operating activities 3,748 4,372 3,099
-------- -------- --------
Investing Activities
Acquisitions, net of cash acquired (Note 2) (7,729) (30,129) (1,344)
Refund of acquisition purchase price (Note 2) 8,374 - -
Advances to affiliate, net (19,775) - -
Purchases of available-for-sale investments - - (6,091)
Proceeds from maturities of available-for-sale investments - 6,245 -
Purchases of property, plant, and equipment (743) (731) (674)
Other 110 118 63
-------- -------- --------
Net cash used in investing activities (19,763) (24,497) (8,046)
-------- -------- --------
Financing Activities
Net proceeds from issuance of Company common stock (Note 4) - - 32,528
Purchases of Company common stock (2,668) (4,620) -
Decrease in due to parent company and affiliated companies - - (1,770)
Net increase (decrease) in short-term obligations 9,562 (3,940) (489)
Repayment of long-term obligation (2,952) (712) (662)
-------- -------- --------
Net cash provided by (used in) financing activities 3,942 (9,272) 29,607
-------- -------- --------
Exchange Rate Effect on Cash (122) 446 (845)
-------- -------- --------
Increase (Decrease) in Cash and Cash Equivalents (12,195) (28,951) 23,815
Cash and Cash Equivalents at Beginning of Year 15,093 44,044 20,229
-------- -------- --------
Cash and Cash Equivalents at End of Year $ 2,898 $ 15,093 $ 44,044
======== ======== ========
5
<PAGE>
Metrika Systems Corporation 1999 Financial Statements
Consolidated Statement of Cash Flows (continued)
(In thousands) 1999 1998 1997
- ---------------------------------------------------------------------------- ---------- --------- --------
Cash Paid For
Interest $ 341 $ 533 $ 749
Income taxes $ 842 $ 2,912 $ 2,314
Noncash Activities
Fair value of assets of acquired companies $ 8,704 $ 42,746 $ 2,387
Cash paid for acquired companies (7,767) (31,000) (1,347)
--------- -------- --------
Liabilities assumed of acquired companies $ 937 $ 11,746 $ 1,040
========= ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
Metrika Systems Corporation 1999 Financial Statements
Consolidated Statement of Comprehensive Income and Shareholders' Investment
(In thousands) 1999 1998 1997
- -------------------------------------------------------------------------- ---------- ---------- ---------
Comprehensive Income
Net Income $ 3,120 $ 6,343 $ 5,859
------- ------- -------
Other Comprehensive Items, Net:
Foreign currency translation adjustment (1,142) 780 548
Unrealized gain (loss) on available-for-sale investments - (9) 9
------- ------- -------
(1,142) 771 557
------- ------- -------
$ 1,978 $ 7,114 $ 6,416
======= ======= =======
Shareholders' Investment
Common Stock, $.01 Par Value:
Balance at beginning of year $ 83 $ 83 $ 60
Net proceeds from issuance of Company common stock (Note 4) - - 23
------- ------- -------
Balance at end of year 83 83 83
------- ------- -------
Capital in Excess of Par Value:
Balance at beginning of year 58,641 58,555 26,050
Net proceeds from issuance of Company common stock (Note 4) - - 32,505
Issuance of stock under directors' and employees' stock plans 24 - -
(Note 3)
Tax benefit related to employees' and directors' stock plans - 86 -
------- ------- -------
Balance at end of year 58,665 58,641 58,555
------- ------- -------
Retained Earnings:
Balance at beginning of year 12,500 6,157 298
Net income 3,120 6,343 5,859
------- ------- -------
Balance at end of year 15,620 12,500 6,157
------- ------- -------
Treasury Stock:
Balance at beginning of year (4,620) - -
Purchases of Company common stock (2,668) (4,620) -
------- ------- -------
Balance at end of year (7,288) (4,620) -
------- ------- -------
Deferred Compensation (Note 3):
Balance at beginning of year - - -
Issuance of restricted stock under employees' stock plans (24) - -
Amortization of deferred compensation 8 - -
------- ------- -------
Balance at end of year (16) - -
------- ------- -------
Accumulated Other Comprehensive Items:
Balance at beginning of year (219) (990) (1,547)
Other comprehensive items, net (1,142) 771 557
------- ------- -------
Balance at end of year (1,361) (219) (990)
------- ------- -------
$65,703 $66,385 $63,805
======= ======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
7
<PAGE>
Metrika Systems Corporation 1999 Financial Statements
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations
Metrika Systems Corporation (the Company) develops, manufactures, and
markets on-line process optimization systems that employ proprietary
ultrahigh-speed scientific measurement technologies. The Company operates in two
segments. The Company's On-line Finished Materials Quality Control (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 Company's On-line Raw
Materials Analysis (Raw Materials) segment manufactures process-optimization
systems that provide real-time, nondestructive analysis of the composition of
raw materials; including coal, cement, and minerals; during production.
Relationship with Thermo Instrument Systems Inc. and Thermo Electron Corporation
The Company was incorporated in November 1996, as a wholly owned
subsidiary of Thermo Instrument Systems Inc. As of January 1, 2000, Thermo
Instrument owned 5,219,600 shares of the Company's common stock, representing
70% of such stock outstanding. Thermo Instrument is an 88%-owned subsidiary of
Thermo Electron Corporation. As of January 1, 2000, Thermo Electron owned
627,100 shares of the Company's common stock, representing 8% of such stock
outstanding.
In January 2000, Thermo Electron announced a proposed reorganization
involving certain of Thermo Electron's subsidiaries including the Company. As
part of the reorganization, Thermo Instrument will acquire the publicly held
shares of the Company (Note 14).
Principles of Consolidation
The accompanying financial statements include the accounts of the Company
and its wholly owned subsidiaries. All material intercompany accounts and
transactions have been eliminated.
Fiscal Year
The Company has adopted a fiscal year ending the Saturday nearest December
31. References to 1999, 1998, and 1997 are for the fiscal years ended January 1,
2000, January 2, 1999, and January 3, 1998, respectively. Fiscal years 1999 and
1998 each included 52 weeks; fiscal 1997 included 53 weeks.
Revenue Recognition
Generally, the Company recognizes product revenues upon shipment of its
products. The Company provides a reserve for its estimate of warranty and
installation costs at the time of shipment. Revenues and profits on contracts,
which due to their complexity extend over multiple quarterly reporting periods,
are recognized using the percentage-of-completion method. Such contracts include
all manufacturing contracts of the Company's Finished Materials segment, which
commonly are of 5 to 10 months in duration, as well as certain contracts of
similar duration or longer in the Company's Raw Materials segment. Revenues
recorded under the percentage-of-completion method were $34,474,000 in 1999,
$27,316,000 in 1998, and $20,421,000 in 1997. The percentage of completion is
determined by relating the actual costs incurred to date to management's
estimate of total costs to be incurred on each contract. If a loss is indicated
on any contract in process, a provision is made currently for the entire loss.
Contracts generally provide for the billing of customers upon the attainment of
certain milestones in each contract. Revenues earned on contracts in process in
excess of billings are classified as unbilled contract costs and fees, and
amounts billed in excess of revenues are classified as billings in excess of
contract costs and fees in the accompanying balance sheet. There are no
significant amounts included in the accompanying balance sheet that are not
expected to be recovered from existing contracts at current contract values, or
that are not expected to be collected within one year, including amounts that
are billed but not paid under retainage provisions.
8
<PAGE>
1. Nature of Operations and Summary of Significant Accounting Policies (continued)
Stock-based Compensation Plans
The Company applies Accounting Principles Board Opinion (APB) No. 25,
"Accounting for Stock Issued to Employees" and related interpretations in
accounting for its stock-based compensation plans (Note 3). Accordingly, no
accounting recognition is given to stock options granted at fair market value
until they are exercised. Upon exercise, net proceeds, including tax benefits
realized, are credited to shareholders' investment.
Income Taxes
The Company, Thermo Instrument, and Thermo Electron entered into a tax
allocation agreement under which the Company and Thermo Instrument were included
in Thermo Electron's consolidated federal and certain state income tax returns.
The agreement provided that in years in which the Company had taxable income, it
would pay to Thermo Electron amounts comparable to the taxes the Company would
have paid if it had filed separate tax returns. Subsequent to the Company's
initial public offering in June 1997, Thermo Instrument's ownership of the
Company was reduced below 80% and, as a result, the Company is required to file
its own federal income tax returns.
In accordance with Statement of Financial Accounting Standards (SFAS) No.
109, "Accounting for Income Taxes," the Company recognizes deferred income taxes
based on the expected future tax consequences of differences between the
financial statement basis and the tax basis of assets and liabilities,
calculated using enacted tax rates in effect for the year in which the
differences are expected to be reflected in the tax return.
Earnings per Share
Basic earnings per share have been computed by dividing net income by the
weighted average number of shares outstanding during the year. Except where the
effect would be antidilutive, diluted earnings per share have been computed
assuming the exercise of stock options, as well as their related income tax
effects.
Stock Split
In May 1997, the Company declared and effected a one-for-two reverse stock
split. All share and per share information was restated in 1997 to reflect the
stock split.
Cash and Cash Equivalents
At year-end 1998, $12,752,000 of the Company's cash equivalents were
invested in a repurchase agreement with Thermo Electron. Under this agreement,
the Company in effect lent excess cash to Thermo Electron, which Thermo Electron
collateralized with investments principally consisting of corporate notes, U.S.
government-agency securities, commercial paper, money market funds, and other
marketable securities, in the amount of at least 103% of such obligation. The
Company's funds subject to the repurchase agreement were readily convertible
into cash by the Company. The repurchase agreement earned a rate based on the
90-day Commercial Paper Composite Rate plus 25 basis points, set at the
beginning of each quarter. Effective June 1999, the Company adopted a new cash
management arrangement with Thermo Electron, described below, that replaces the
repurchase agreement.
At year-end 1999 and 1998, the Company's cash equivalents also included
investments in interest-bearing accounts at the Company's foreign operations,
which have an original maturity of three months or less. Cash equivalents are
carried at cost, which approximates market value.
Advance to/from Affiliate
Effective June 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.
9
<PAGE>
1. Nature of Operations and Summary of Significant Accounting Policies (continued)
In addition, certain of the Company's European-based subsidiaries
participate in a new cash management arrangement with a wholly owned subsidiary
of Thermo Electron. The Company has access to a $11,327,000 line of credit under
this arrangement, of which the Company had borrowed $4,792,000 at year-end 1999.
Interest under this arrangement is calculated based on Euro market rates and was
3.95% at year-end 1999. The other terms of this arrangement are similar to the
domestic cash management arrangement.
Inventories
Inventories are stated at the lower of cost (on a weighted average basis)
or market value and include materials, labor, and manufacturing overhead. The
components of inventories are as follows:
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
(In thousands) 1999 1998
- ---------------------------------------------------------------------------------------- -------- --------
Raw Material and Supplies $ 8,855 $ 8,036
Work in Process 4,835 3,746
Finished Goods 648 475
------- -------
$14,338 $12,257
======= =======
The Company periodically reviews its quantities of inventories on hand and
compares these amounts to expected usage of each particular product or product
line. The Company records as a charge to cost of revenues any amounts required
to reduce the carrying value of inventories to net realizable value.
Property, Plant, and Equipment
The costs of additions and improvements are capitalized, while maintenance
and repairs are charged to expense as incurred. The Company provides for
depreciation and amortization using the straight-line method over the estimated
useful lives of the property as follows: buildings, 40 years; machinery and
equipment, 2 to 20 years; and leasehold improvements, the shorter of the term of
the lease or the life of the asset. Property, plant, and equipment consists of
the following:
(In thousands) 1999 1998
- ---------------------------------------------------------------------------------------- -------- --------
Land $ 1,490 $ 1,734
Buildings 6,959 8,102
Machinery, Equipment, and Leasehold Improvements 7,279 7,760
------- --------
15,728 17,596
Less: Accumulated Depreciation and Amortization 5,734 5,772
------- --------
$ 9,994 $ 11,824
======= ========
Other Assets
Other assets in the accompanying balance sheet consists primarily of
acquired technology and other intangibles, including the cost of acquired
patents, that are being amortized using the straight-line method over their
estimated useful lives, ranging from 5 to 20 years. These assets were $2,084,000
and $2,430,000, net of accumulated amortization of $1,977,000 and $1,634,000, at
year-end 1999 and 1998, respectively.
10
<PAGE>
1. Nature of Operations and Summary of Significant Accounting Policies (continued)
Cost in Excess of Net Assets of Acquired Companies
The excess of cost over the fair value of net assets of acquired companies
is amortized using the straight-line method over 40 years. Accumulated
amortization was $3,293,000 and $2,544,000 at year-end 1999 and 1998,
respectively. The Company assesses the future useful life of this asset whenever
events or changes in circumstances indicate that the current useful life has
diminished. Such events or circumstances generally include the occurrence of
operating losses or a significant decline in earnings associated with the
acquired business or asset. The Company considers the future undiscounted cash
flows of the acquired companies in assessing the recoverability of this asset.
The Company assesses cash flows before interest charges and when impairment is
indicated, writes the asset down to fair value. If quoted market values are not
available, the Company estimates fair value by calculating the present value of
future cash flows. If impairment has occurred, any excess of carrying value over
fair value is recorded as a loss.
Foreign Currency
All assets and liabilities of the Company's foreign subsidiaries are
translated at year-end exchange rates, and revenues and expenses are translated
at average exchange rates for the year, in accordance with SFAS No. 52, "Foreign
Currency Translation." Resulting translation adjustments are reflected in the
"Accumulated other comprehensive items" component of shareholders' investment.
Foreign currency transaction gains and losses are included in the accompanying
statement of income and are not material for the three years presented.
Comprehensive Income
Comprehensive income combines net income and "Other comprehensive items,
net," which represents foreign currency translation adjustments and unrealized
net of tax gains and losses on available-for-sale investments, reported as a
component of shareholders' investment in the accompanying balance sheet. At
year-end 1999 and 1998, the balance of accumulated other comprehensive items
represents the Company's cumulative translation adjustment.
Forward Contracts
The Company uses short-term forward foreign exchange contracts to manage
certain exposures to foreign currencies. The Company enters into forward foreign
exchange contracts to hedge firm purchase and sale commitments denominated in
currencies other than its subsidiaries' local currencies. These contracts
principally hedge transactions denominated in United States dollars and German
deutsche marks. The purpose of the Company's foreign currency hedging activities
is to protect the Company's local currency cash flows related to these
commitments from fluctuations in foreign exchange rates. Gains and losses
arising from forward foreign exchange contracts are recognized as offsets to
gains and losses resulting from the transactions being hedged. The Company does
not enter into speculative foreign currency agreements.
Recent Accounting Pronouncement
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) 101, "Revenue Recognition in Financial Statements."
SAB 101 includes requirements for when shipments may be recorded as revenue when
the terms of the sale include customer acceptance provisions or an obligation of
the seller to install the product. In such instances, SAB 101 generally requires
that revenue recognition occur at completion of installation and/or upon
customer acceptance. SAB 101 requires that companies conform their revenue
recognition practices to the requirements therein during the first quarter of
calendar 2000 through recording a cumulative net of tax effect of the change in
accounting. The Company has not completed the analysis to determine the effect
that SAB 101 will have on its financial statements.
11
<PAGE>
1. Nature of Operations and Summary of Significant Accounting Policies (continued)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Presentation
Certain amounts in 1998 and 1997 have been reclassified to conform to the
presentation in the 1999 financial statements.
2. Acquisitions
In July 1999, the Company acquired the assets of the Instrumentation
division of Amdel Limited, for $7,767,000 in cash and the assumption of certain
liabilities. This business has been renamed Gamma-Metrics Minerals Pty Ltd
(Gamma-Metrics Minerals). Gamma-Metrics Minerals is an Australia-based provider
of on-line process instruments for the minerals industry. The Company funded the
purchase of Gamma-Metrics Minerals principally through borrowings under a newly
established line of credit of approximately $7,000,000. The facility is due on
demand and bears interest at a variable rate, which was 6.0% at January 1, 2000.
The facility expires in July 2002 and is guaranteed by Thermo Electron. In
addition, Gamma-Metrics Minerals 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 January 1,
2000, the Company had borrowings of $1,140,000 under this working capital line
of credit. 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.
In October 1998, the Company acquired the assets, subject to certain
liabilities, of MF Physics Corporation for $2,000,000 in cash. MF Physics
manufactures neutron generators and neutron-activation analysis systems. The
cost of this acquisition exceeded the estimated fair value of the acquired net
assets by $1,351,000, which is being amortized over 40 years.
In July 1998, the Company acquired the stock of Honeywell-Measurex Data
Measurement Corporation, a wholly owned subsidiary of Honeywell-Measurex
Corporation, for $29,000,000 in cash. This business has been renamed Radiometrie
Corporation (Radiometrie U.S.). Radiometrie U.S. manufactures computerized,
noncontact thickness, coating, and other measurement systems for the flat metal
processing industry. The cost of this acquisition exceeded the estimated fair
value of the acquired net assets by $11,853,000, which is being amortized over
40 years. During 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 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, all of which was received in three installments during
1999. 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.
These acquisitions have been accounted for using the purchase method of
accounting and their results have been included in the accompanying financial
statements from their respective dates of acquisition. Allocation of the
purchase price was based on an estimate of the fair value of the net assets
acquired.
The Company has undertaken restructuring actions in connection with
certain of its 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 across all functions,
relocation of personnel, and abandonment of excess facilities at the acquired
businesses. In connection with these restructuring activities, as
12
<PAGE>
2. Acquisitions (continued)
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 January 1, 2000,
primarily included completion of planned severance and employee relocation costs
for Gamma-Metrics Minerals, which the Company expects to complete in the second
quarter of 2000.
A summary of the changes in accrued acquisition expenses for severance is
as follows:
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
(In thousands) Radiometrie Other Total
U.S.
- -------------------------------------------------------------- -------------- -------------- -------------
Balance at December 28, 1996 $ - $ - $ -
Reserves established - 130 130
Usage - (100) (100)
----- ----- -----
Balance at January 3, 1998 - 30 30
Reserves established 800 - 800
Usage (382) (30) (412)
----- ----- -----
Balance at January 2, 1999 418 - 418
Reserves established 337 66 403
Usage (755) (12) (767)
Currency translation - (1) (1)
----- ----- -----
Balance at January 1, 2000 $ - $ 53 $ 53
===== ===== =====
The reserves established for severance at Radiometrie U.S. was for 110
employees. The reserves established for severance in 1997 was for 23 employees
for an acquisition completed at the beginning of 1997.
A summary of the change in accrued acquisition expenses for excess
facilities is as follows:
(In thousands) Radiometrie Other Total
U.S.
- -------------------------------------------------------------- -------------- -------------- -------------
Balance at December 28, 1996 $ - $ - $ -
Reserves established - 44 44
Usage - (44) (44)
----- ----- -----
Balance at January 3, 1998 - - -
Reserves established 300 50 350
Usage (201) (5) (206)
----- ----- -----
Balance at January 2, 1999 99 45 144
Reserves established 78 - 78
Usage (177) (22) (199)
----- ----- -----
Balance at January 1, 2000 $ - $ 23 $ 23
===== ===== =====
The reserves for excess facilities at Radiometrie U.S. were for lease
payments for facilities in Gaithersburg, Maryland, that were abandoned.
13
<PAGE>
2. Acquisitions (continued)
A summary of the change in accrued acquisition expenses for other expenses
is as follows:
(In thousands) Radiometrie Other Total
U.S.
- -------------------------------------------------------------- -------------- -------------- -------------
Balance at December 28, 1996 $ - $ - $ -
Reserves established - 176 176
Usage - (138) (138)
----- ----- -----
Balance at January 3, 1998 - 38 38
Reserves established 200 30 230
Usage (99) (68) (167)
----- ----- -----
Balance at January 2, 1999 101 - 101
Reserves established 148 50 198
Usage (249) - (249)
Currency translation - (1) (1)
----- ----- -----
Balance at January 1, 2000 $ - $ 49 $ 49
===== ===== =====
The reserves established for other acquisition expenses were primarily for
employee relocation expenses.
Based on unaudited data, the following table presents selected financial
information on a pro forma basis, assuming the Company and Gamma-Metrics
Minerals had been combined since the beginning of 1998, and the Company and
Radiometrie U.S. had been combined since the beginning of 1997. The effect of
the acquisition of MF Physics was not included in the pro forma data, because it
was not material to the Company's results of operations.
(In thousands except per share amounts) 1999 1998 1997
- ------------------------------------------------------------- --------------- -------------- -------------
Revenues $74,991 $90,134 $90,791
Net Income 3,347 4,890 1,450
Basic and Diluted Earnings per Share .45 .60 .20
The pro forma results are not necessarily indicative of future operations
or the actual results that would have occurred had the acquisition of
Gamma-Metrics Minerals been made at the beginning of 1998 or the acquisition of
Radiometrie U.S. been made at the beginning of 1997.
3. Employee Benefit Plans
Stock-based Compensation Plans
Stock Option Plans
The Company has stock-based compensation plans for its key employees,
directors, and others. These plans permit the grant of stock and stock-based
awards as determined by the human resources committee of the Company's Board of
Directors (the Board Committee), including restricted stock, stock options,
stock bonus shares, or performance-based shares. The option recipients and the
terms of options granted under this plan are determined by the Board Committee.
Generally, options granted to date are exercisable immediately, but are subject
to certain
14
<PAGE>
3. Employee Benefit Plans (continued)
transfer restrictions and the right of the Company to repurchase shares issued
upon exercise of the options at the exercise price, upon certain events. The
restrictions and repurchase rights generally lapse ratably over a one- to ten-
year period, depending on the term of the option, which generally ranges from
five to twelve years. Nonqualified stock options may be granted at any price
determined by the Board Committee, although incentive stock options must be
granted at not less than the fair market value of the Company's stock on the
date of grant. To date, all options have been granted at fair market value. In
addition to the Company's stock-based compensation plans, certain officers and
key employees may also participate in the stock-based compensation plans of
Thermo Electron and Thermo Instrument. Participation in these plans is accounted
for in accordance with APB No. 25.
In November 1998, the Company's employees, excluding its officers and
directors, were offered the opportunity to exchange previously granted options
to purchase shares of Company common stock for an amount of options equal to
half of the number of options previously held, exercisable at a price equal to
the fair market value at the time of the exchange offer. Holders of options to
acquire 75,000 shares at a weighted average exercise price of $15.02 elected to
participate in this exchange and, as a result, received options to purchase
38,000 shares of Company common stock at $8.58 per share, which are included in
the 1998 grants in the table below. The other terms of the new options are the
same as the exchanged options except that the holders could not sell shares
purchased pursuant to such new options for six months from the exchange date.
The options exchanged were canceled by the Company.
In 1999, the Company awarded 2,900 shares of restricted Company common
stock to certain key employees. The shares had an aggregate value of $24,000 and
vest three years from the date of award, assuming continued employment, with
certain exceptions. The Company has recorded the fair value of the restricted
stock as deferred compensation in the accompanying balance sheet and is
amortizing such amount over the vesting period.
A summary of the Company's stock option activity is as follows:
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
1999 1998 1997
----------------- -------------------- ----------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Price Price Price
Number Number Number
of of of
(Shares in thousands) Shares Shares Shares
- ---------------------------------------------- -------- --------- --------- ---------- -------- ---------
Options Outstanding, Beginning of Year 346 $12.52 301 $15.00 - $ -
Granted 75 8.27 143 8.99 303 15.00
Forfeited (16) 9.17 (23) 14.79 (2) 15.00
Canceled due to exchange - - (75) 15.02 - -
---- ---- ---
Options Outstanding, End of Year 405 $11.86 346 $12.52 301 $15.00
==== ====== ==== ====== === ======
Options Exercisable 405 $11.86 346 $12.52 301 $15.00
==== ====== ==== ====== === ======
Options Available for Grant 542 104 49
==== ==== ===
15
<PAGE>
3. Employee Benefit Plans (continued)
A summary of the status of the Company's stock options at January 1, 2000,
is as follows:
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Options Outstanding and Exercisable
-----------------------------------------------------
Range of Exercise Prices Number Weighted Weighted
of Average Average
Shares Remaining Exercise
(In thousands) Contractual Life Price
- ------------------------------------------- ---------------------- -------------------- ------------------
$ 7.00 - $ 9.03 114 6.2 years $ 8.41
9.04 - 11.07 89 3.7 years 9.14
11.08 - 15.15 202 8.9 years 15.00
---
$ 7.00 - $15.15 405 7.0 years $11.86
===
Employee Stock Purchase Program
Substantially all of the Company's full-time U.S. employees are eligible
to participate in an employee stock purchase program sponsored by the Company
and Thermo Electron. Prior to November 1, 1999, the program was sponsored by
Thermo Instrument and Thermo Electron. Under this program, shares of the
Company's and Thermo Electron's common stock may be purchased at 85% of the
lower of the fair market value at the beginning or end of the period, and the
shares purchased are subject to a one-year resale restriction. Prior to the 1998
program year, the applicable shares of common stock could be purchased at the
end of a 12-month period at 95% of the fair market value at the beginning of the
period, and the shares purchased were subject to a six-month resale restriction.
Shares are purchased through payroll deductions of up to 10% of each
participating employee's gross wages.
Pro Forma Stock-based Compensation Expense
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-based Compensation," which sets forth a fair-value
based method of recognizing stock-based compensation expense. As permitted by
SFAS No. 123, the Company has elected to continue to apply APB No. 25 to account
for its stock-based compensation plans. Had compensation cost for awards granted
under the Company's stock-based compensation plans been determined based on the
fair value at the grant dates consistent with the method set forth under SFAS
No. 123, the effect on the Company's net income and earnings per share would
have been as follows:
(In thousands except per share amounts) 1999 1998 1997
- ----------------------------------------------------------------------- ----------- ----------- ----------
Net Income:
As reported $3,120 $6,343 $5,859
Pro forma 2,813 6,130 5,712
Basic and Diluted Earnings per Share:
As reported .42 .77 .82
Pro forma .38 .75 .80
Pro forma compensation expense for options granted is reflected over the
vesting period; therefore, future pro forma compensation expense may be greater
as additional options are granted.
16
<PAGE>
3. Employee Benefit Plans (continued)
The weighted average fair value per share of options granted was $2.69,
$2.81, and $7.51 in 1999, 1998, and 1997, respectively. The fair value of each
option grant was estimated on the grant date using the Black-Scholes
option-pricing model with the following weighted-average assumptions:
1999 1998 1997
- ------------------------------------------------------------------------- ---------- ----------- ---------
Volatility 30% 29% 29%
Risk-free Interest Rate 5.5% 4.4% 6.2%
Expected Life of Options 4.0 years 4.5 years 8.3 years
The Black-Scholes option-pricing model was developed for use in estimating
the fair value of traded options, which have no vesting restrictions and are
fully transferable. In addition, option-pricing models require the input of
highly subjective assumptions including expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
401(k) Savings Plan
The majority of the Company's full-time U.S. employees are eligible to
participate in Thermo Electron's 401(k) savings plan. Contributions to the plan
are made by both the employee and the Company. Company contributions are based
upon the level of employee contributions. The Company contributed and charged to
expense for this plan $508,000, $316,000, and $215,000 in 1999, 1998, and 1997,
respectively.
Defined Benefit Pension Plan
The Company's German subsidiary has an unfunded defined benefit pension
plan covering substantially all of its full-time employees. Benefits are based
on a percentage of eligible earnings for each year of service in excess of ten
years of service.
Net periodic benefit costs included the following components:
(In thousands) 1999 1998 1997
- ----------------------------------------------------------------------- ----------- ----------- ----------
Service Cost $124 $128 $120
Interest Cost 224 220 203
Recognized Net Actuarial Gain (34) (39) (45)
---- ---- ----
$314 $309 $278
==== ==== ====
17
<PAGE>
3. Employee Benefit Plans (continued)
The Company's defined benefit plan activity was as follows:
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
(In thousands) 1999 1998
- ----------------------------------------------------------------------- ----------- ----------- ----------
Change in Benefit Obligation:
Benefit obligation at beginning of year $3,909 $3,325
Service cost 124 128
Interest cost 224 220
Translation adjustment (564) 274
Actuarial (gain) loss 70 (13)
Benefits paid (32) (25)
------ ------
Benefit obligation at end of year 3,731 3,909
------ ------
Unrecognized Net Actuarial Gain 832 1,074
------ ------
Accrued Pension Costs $4,563 $4,983
====== ======
Actuarial assumptions used to determine the net periodic pension costs
were as follows:
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1999 1998 1997
- ----------------------------------------------------------------------- ----------- ----------- ----------
Discount Rate 6.5% 6.5% 6.5%
Rate of Increase in Salary Levels 2.5% 2.5% 2.5%
Defined Contribution Pension Plan
In addition, the Company's United Kingdom subsidiary participates in a
multi-employer, defined contribution pension plan covering substantially all of
its full-time employees. For this plan, the Company contributed and charged to
expense $171,000, $172,000, and $161,000 in 1999, 1998, and 1997, respectively.
4. Common Stock
Sale of Common Stock
In June 1997, the Company sold 2,300,000 shares of its common stock in an
initial public offering at $15.50 per share for net proceeds of $32,528,000.
Reserved Shares
At January 1, 2000, the Company had reserved 1,022,000 unissued shares of
its common stock for possible issuance under stock-based compensation plans.
18
<PAGE>
5. Income Taxes
The components of income before provision for income taxes are as follows:
(In thousands) 1999 1998 1997
- ----------------------------------------------------------------------- ----------- ----------- ----------
Domestic $ 662 $ 6,762 $6,460
Foreign 4,716 3,531 3,319
------- ------- ------
$ 5,378 $10,293 $9,779
======= ======= ======
The components of the provision for income taxes are as follows:
(In thousands) 1999 1998 1997
- ----------------------------------------------------------------------- ----------- ----------- ----------
Currently Payable:
Federal $(1,361) $ 694 $ 2,616
State (114) 33 134
Foreign 1,901 735 688
------- ------- -------
426 1,462 3,438
------- ------- -------
Net Deferred (Prepaid):
Federal 1,553 1,772 (80)
State 279 106 (17)
Foreign - 610 579
------- ------- -------
1,832 2,488 482
------- ------- -------
$ 2,258 $ 3,950 $ 3,920
======= ======= =======
The Company receives a tax deduction upon exercise of nonqualified stock
options by employees for the difference between the exercise price and the
market price of the underlying common stock on the date of exercise. The
provision for income taxes that is currently payable does not reflect $86,000 of
such benefits that have been allocated to capital in excess of par value in
1998.
The provision for income taxes in the accompanying statement of income
differs from the provision calculated by applying the statutory federal income
tax rate of 34% to income before provision for income taxes due to the
following:
(In thousands) 1999 1998 1997
- ----------------------------------------------------------------------- ----------- ----------- ----------
Provision for Income Taxes at Statutory Rate $1,829 $3,500 $3,325
Increases (Decreases) Resulting From:
State income taxes, net of federal tax 109 92 77
Foreign tax rate and tax law differential 298 144 139
Tax benefit of foreign sales corporation - (142) (173)
Amortization of cost in excess of net assets of acquired 215 195 117
companies
Other, net (193) 161 435
------ ------ ------
$2,258 $3,950 $3,920
====== ====== ======
19
<PAGE>
5. Income Taxes (continued)
Deferred tax asset and liability in the accompanying balance sheet consist
of the following:
(In thousands) 1999 1998
- ----------------------------------------------------------------------------------- ----------- ----------
Deferred Tax Asset:
Reserves and accruals $2,252 $2,097
Inventory basis difference 1,508 1,646
Accrued compensation 268 360
Foreign tax loss carryforwards 178 972
Foreign prepaid 313 336
------ ------
4,519 5,411
Less: Valuation allowance 178 972
------ ------
$4,341 $4,439
====== ======
Deferred Income Taxes:
Depreciation and amortization $ 133 $1,572
====== ======
The valuation allowance relates to uncertainties surrounding the
realization of foreign net operating losses, which is dependent on the future
income of certain subsidiaries of the Company. The Company believes that it is
more likely than not that these deferred tax assets will not be realized. The
decrease in the valuation allowance was due to utilization of certain of these
acquired net operating losses. Any tax benefit resulting from use of acquired
loss carryforwards is recorded as a reduction of cost in excess of net assets of
acquired companies. As of January 1, 2000, the Company had $409,000 of foreign
tax loss carryforwards which do not expire.
A provision has not been made for U.S. or additional foreign taxes on
$9,000,000 of undistributed earnings of foreign subsidiaries that could be
subject to taxation if remitted to the U.S. because the Company plans to keep
these amounts permanently reinvested overseas.
6. Related-party Transactions
Corporate Services Agreement
The Company and Thermo Electron have a corporate services agreement under
which Thermo Electron's corporate staff provides certain administrative
services, including certain legal advice and services, risk management, certain
employee benefit administration, tax advice and preparation of tax returns,
centralized cash management, and certain financial and other services, for which
the Company pays Thermo Electron annually an amount equal to 0.8% of the
Company's revenues. The Company paid an amount equal to 0.8% and 1.0% of the
Company's revenues in 1998 and 1997, respectively. For these services, the
Company was charged $576,000, $560,000, and $567,000 in 1999, 1998, and 1997,
respectively. The fee is reviewed and adjusted annually by mutual agreement of
the parties. The corporate services agreement is renewed annually but can be
terminated upon 30 days' prior notice by the Company or upon the Company's
withdrawal from the Thermo Electron Corporate Charter (the Thermo Electron
Corporate Charter defines the relationships among Thermo Electron and its
majority-owned subsidiaries). Management believes that the service fee charged
by Thermo Electron is reasonable and that such fees are representative of the
expenses the Company would have incurred on a stand-alone basis. For additional
items such as employee benefit plans, insurance coverage, and other identifiable
costs, Thermo Electron charges the Company based upon costs attributable to the
Company.
20
<PAGE>
6. Related-party Transactions (continued)
Cash Management
The Company invests excess cash and borrows short-term funds under
arrangements with Thermo Electron as discussed in Note 1.
Due to Parent Company and Affiliated Companies
The Company had $3,216,000 and $3,901,000 of noninterest-bearing advances
from Thermo Instrument and affiliated companies at year-end 1999 and 1998,
respectively, which are due on demand.
Related-party Lease
The Company leases office and manufacturing space in Germany to a wholly
owned subsidiary of Thermo Instrument pursuant to an arrangement whereby the
subsidiary is charged its share of the occupancy expenses of the facility, based
on space utilized. Pursuant to this arrangement, the Company recorded $574,000,
$386,000, and $472,000 in 1999, 1998, and 1997, respectively, as a reduction in
selling, general, and administrative expenses in the accompanying statement of
income.
Other Related-party Transactions
During 1997, the Company paid commissions totaling $83,000 to Thermo
Sentron Inc., an affiliated company.
During 1999, 1998, and 1997, the Company purchased products for $178,000,
$180,000, and $267,000, respectively, from ThermoSpectra Corporation, an
affiliated company.
7. Short- and Long-term Obligations
Short-term Obligations
Short-term obligations and current maturities of long-term obligation in
the accompanying balance sheet includes $10,555,000 and $5,592,000 at year-end
1999 and 1998, respectively, of amounts borrowed under lines of credit. The
weighted average interest rate for these borrowings at year-end 1999 and 1998
was 5.4% and 4.5%, respectively. The lines of credit include amounts borrowed in
connection with the acquisition of Gamma-Metrics Minerals (Note 2). Unused lines
of credit with unrelated parties aggregated $2,300,000 at January 1, 2000, which
are guaranteed by Thermo Instrument or Thermo Electron.
In addition, the Company has borrowings under an agreement with a wholly
owned subsidiary of Thermo Electron (Note 1).
Long-term Obligation
In October 1994, a German subsidiary of the Company borrowed 11,500,000
German deutsche marks pursuant to a promissory note, payable in monthly
installments of 99,200 German deutsche marks with a final payment in October
2004. The balance outstanding was $4,148,000 at year-end 1998, of which $711,000
was included in short-term obligations and current maturities of long-term
obligations. The loan was repaid during 1999. The note bore interest at a
variable rate, which was 4.0% at year-end 1998.
8. Commitments
The Company leases portions of its office and operating facilities under
various operating lease arrangements. The accompanying statement of income
includes expenses from operating leases of $1,985,000, $881,000, and $882,000 in
1999, 1998, and 1997, respectively. Future minimum payments due under
noncancelable operating leases at January 1, 2000, are $1,608,000 in 2000,
$1,560,000 in 2001, $1,322,000 in 2002, $890,000 in 2003, $902,000 in 2004, and
$2,665,000 in 2005 and thereafter. Total future minimum lease payments are
$8,947,000.
Outstanding letters of credit, principally related to performance bond
obligations, totaled $6,961,000 at January 1, 2000.
21
<PAGE>
9. Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash and cash
equivalents, advance to affiliate, accounts receivable, short-term obligations
and current maturities of long-term obligation, accounts payable, due to parent
company and affiliated companies, long-term obligation, and forward foreign
exchange contracts. The carrying amounts of the Company's remaining financial
instruments, with the exception of long-term obligation and forward foreign
exchange contracts, approximate fair value due to their short-term nature. The
Company's long-term obligation bore interest at a variable market rate,
therefore the carrying amount approximated fair value (Note 7).
The Company had forward foreign exchange contracts of $1,050,000 at
year-end 1998. The Company had no open forward foreign exchange contracts at
year-end 1999. The fair value of such contracts is the estimated amount that the
Company would receive upon termination of the contract, taking into account the
change in foreign exchange rates. The fair value of the Company's forward
foreign exchange contracts receivable was approximately nil at year-end 1998.
10. Business Segments, Geographical Information, and Concentration of Risk
The Company organizes and manages its business by individual functional
operating entity. The Company operates in two segments: Finished Materials and
Raw Materials. In classifying operational entities into a particular segment the
Company aggregates businesses with similar economic characteristics, products
and services, production processes, customers, and methods of distribution.
The 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. The Raw Materials segment manufactures process-optimization systems that
provide real-time, nondestructive analysis of the composition of raw materials;
including coal, cement, and minerals; during production.
22
<PAGE>
10. Business Segments, Geographical Information, and Concentration of Risk (continued)
(In thousands) 1999 1998 1997
- --------------------------------------------------------------------------- ---------- ---------- --------
Business Segment Information
Revenues:
Finished Materials $ 53,634 $ 42,153 $ 28,663
Raw Materials 18,373 27,876 28,051
--------- --------- --------
$ 72,007 $ 70,029 $ 56,714
========= ========= ========
Income Before Provision for Income Taxes:
Finished Materials $ 7,636 $ 4,488 $ 4,001
Raw Materials (a) (1,293) 5,431 5,714
Corporate (b) (1,277) (1,074) (1,111)
--------- --------- --------
Total operating income 5,066 8,845 8,604
Interest income, net 312 1,448 1,175
--------- --------- --------
$ 5,378 $ 10,293 $ 9,779
========= ========= ========
Total Assets:
Finished Materials $ 59,634 $ 67,455 $ 31,859
Raw Materials 30,731 23,420 23,389
Corporate (c) 20,903 14,569 47,704
--------- --------- --------
$ 111,268 $ 105,444 $102,952
========= ========= ========
Depreciation and Amortization:
Finished Materials $ 1,611 $ 1,275 $ 825
Raw Materials 960 794 805
--------- --------- --------
$ 2,571 $ 2,069 $ 1,630
========= ========= ========
Capital Expenditures:
Finished Materials $ 400 $ 591 $ 417
Raw Materials 340 136 257
Corporate 3 4 -
--------- --------- --------
$ 743 $ 731 $ 674
========= ========= ========
23
<PAGE>
10. Business Segments, Geographical Information, and Concentration of Risk (continued)
(In thousands) 1999 1998 1997
- ------------------------------------------------------------------------- ----------- ---------- ---------
Geographical Information
Revenues (d):
United States $40,669 $40,729 $28,051
Germany 21,348 19,968 16,934
England 9,126 9,938 10,817
Other 4,868 1,880 1,885
Transfers among geographical areas (e) (4,004) (2,486) (973)
------- ------- -------
$72,007 $70,029 $56,714
======= ======= =======
Long-lived Assets (f):
United States $ 1,255 $ 1,783 $ 664
Germany 8,039 9,763 9,416
Other 700 278 293
------- ------- -------
$ 9,994 $11,824 $10,373
======= ======= =======
Export Revenues Included in United States Revenues Above (g) $17,558 $22,987 $18,915
======= ======= =======
(a) Includes reversal of previously recorded restructuring costs of $0.4 million
in 1999 and restructuring costs of $0.6 million in 1998.
(b) Primarily general and administrative expenses.
(c) Primarily cash, cash equivalents and, in 1997, available-for-sale
investments.
(d) Revenues are attributed to countries based on selling location.
(e) Transfers among geographical areas are accounted for at prices that are
representative of transactions with unaffiliated parties.
(f) Includes property, plant, and equipment, net.
(g) In general, export revenues are denominated in U.S. dollars.
Concentration of Risk
Various components of the Company's products are supplied by sole-source
vendors. The Company has not experienced significant difficulty in obtaining
adequate supplies from these vendors, and has identified alternate suppliers.
However, there can be no assurance that the unanticipated loss of a single
vendor would not result in delays in shipments or in the introduction of new
products.
11. Restructuring Costs
During 1998, the Company recorded pretax restructuring costs of $624,000
related to severance costs for 35 employees, primarily in manufacturing
positions, 30 of whom were terminated prior to January 1, 2000. The affected
employees are primarily located in the United States at the Company's Raw
Materials segment. The Company expended $92,000 and $100,000 of the established
reserve in 1999 and 1998, respectively. During 1999, the Company determined that
the remaining 5 employees would not be terminated. Accordingly, the Company
reversed the remaining $402,000 of previously established restructuring
reserves.
24
<PAGE>
12. Earnings per Share
Basic and diluted earnings per share were calculated as follows:
(In thousands except per share amounts) 1999 1998 1997
- ------------------------------------------------------------------------- ----------- ---------- ---------
Basic
Net Income $ 3,120 $6,343 $5,859
------- ------ ------
Weighted Average Shares 7,456 8,195 7,143
------- ------ ------
Basic Earnings per Share $ .42 $ .77 $ .82
======= ====== ======
Diluted
Net Income $ 3,120 $6,343 $5,859
------- ------ ------
Weighted Average Shares 7,456 8,195 7,143
Effect of Stock Options - 9 4
------- ------ ------
Weighted Average Shares, as Adjusted 7,456 8,204 7,147
------- ------ ------
Diluted Earnings per Share $ .42 $ .77 $ .82
======= ====== ======
Options to purchase 390,000, 174,000, and 74,000 shares of common stock
were not included in the computation of diluted earnings per share for 1999,
1998, and 1997, respectively, because their effect would have been antidilutive
due to the options' exercise prices exceeding the average market price for the
common stock.
13. Unaudited Quarterly Information
(In thousands except per share amounts)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1999 First Second (a) Third (b) Fourth
- -------------------------------------------------------------- ---------- ----------- ---------- ---------
Revenues $18,947 $ 15,148 $18,071 $19,841
Gross Profit 8,149 6,006 6,866 7,730
Net Income 1,294 567 587 672
Basic and Diluted Earnings per Share .17 .08 .08 .09
1998 First Second Third (c) Fourth (d)
- -------------------------------------------------------------- ---------- ----------- ---------- ---------
Revenues $14,712 $ 14,384 $20,345 $20,588
Gross Profit 6,538 6,656 7,939 8,359
Net Income 1,414 2,035 1,251 1,643
Basic and Diluted Earnings per Share .17 .25 .15 .21
(a) Reflects the reversal of $0.4 million of restructuring costs.
(b) Reflects the July 1999 acquisition of Gamma-Metrics Minerals.
(c) Reflects the July 1998 acquisition of Radiometrie U.S. and restructuring costs of $0.6 million.
(d) Reflects the October 1998 acquisition of MF Physics.
25
<PAGE>
14. Subsequent Event
On January 31, 2000, the Company announced that Thermo Instrument intends
to make a cash tender offer for any and all of the outstanding shares of the
Company's common stock at $9.00 per share. This action is part of a major
reorganization plan under which Thermo Electron will spin in, spin off, and sell
various businesses to focus solely on its core measurement and detection
instruments business. As of January 31, 2000, Thermo Instrument owns
approximately 70% of the outstanding shares of the Company's common stock and
Thermo Electron owns approximately 8% of the outstanding shares of the Company's
common stock. Thermo Instrument will condition the tender offer on receiving
acceptances from holders of enough shares so that, when combined with Thermo
Electron's ownership, its share ownership reaches at least 90%. If Thermo
Instrument and Thermo Electron achieve this 90-percent-ownership threshold, the
remaining outstanding shares of the Company's common stock would be acquired
through a "short-form" merger in Delaware. Shareholders who do not tender shares
to Thermo Instrument during the tender offer would also receive $9.00 per share
in cash for their stock in the short-term merger. The tender offer and proposed
subsequent short-form merger require a review by the Securities and Exchange
Commission of necessary filings; a short-form merger would not require the
Company's board or shareholder approval. Thermo Instrument plans to conduct the
tender offer during the second quarter of 2000. If the tender offer is
successful, the spin-in of the Company would be completed in the second quarter
of 2000.
26
<PAGE>
Metrika Systems Corporation 1999 Financial Statements
Report of Independent Public Accountants
To the Shareholders and Board of Directors of Metrika Systems Corporation:
We have audited the accompanying consolidated balance sheet of Metrika
Systems Corporation (a Delaware corporation and 70%-owned subsidiary of Thermo
Instrument Systems Inc.) and subsidiaries as of January 1, 2000, and January 2,
1999, and the related consolidated statements of income, cash flows, and
comprehensive income and shareholders' investment for each of the three years in
the period ended January 1, 2000. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Metrika
Systems Corporation and subsidiaries as of January 1, 2000, and January 2, 1999,
and the results of their operations and their cash flows for each of the three
years in the period ended January 1, 2000, in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
February 15, 2000
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<PAGE>
Metrika Systems Corporation 1999 Financial Statements
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 immediately after this Management's
Discussion and Analysis of Financial Condition and Results of Operations under
the heading "Forward-looking Statements."
Overview
The Company develops, manufactures, and markets on-line
process-optimization systems that employ proprietary ultrahigh-speed scientific
measurement technologies. The Company operates in two segments: On-line Finished
Materials Quality Control (Finished Materials) and On-line Raw Materials
Analysis (Raw Materials). The Company's Finished Materials segment includes the
manufacture of 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. The Company's Raw Materials
segment includes a business that pioneered the development of
process-optimization systems which provide real-time, nondestructive analysis of
the composition of raw materials; including coal, cement, and minerals; during
production. Customers use all of 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.
The Company supplements 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. This business has been
renamed Gamma-Metrics Minerals Pty Ltd. (Gamma-Metrics Minerals). Gamma-Metrics
Minerals is a provider of on-line process instruments for the minerals industry
(Note 2). MF Physics and Gamma-Metrics Minerals 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 1999, approximately 46% of the Company's revenues
originated outside the U.S. and approximately 24% 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, Australia, 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 on 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
Gamma-Metrics Minerals reflect this strategy.
28
<PAGE>
Results of Operations
1999 Compared With 1998
Revenues increased to $72.0 million in 1999 from $70.0 million in 1998.
Revenues in the Finished Materials segment increased $11.5 million to $53.6
million due to the inclusion of $11.7 million of revenues from Radiometrie U.S.,
acquired July 1998 (Note 2) and, to a lesser extent, higher demand. These
increases were 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 $1.3 million. Revenues in the Raw Materials segment decreased $9.5 million,
primarily due to a reduction in spending by raw material producers, particularly
in the cement sector, offset in part by the inclusion of $3.5 million in
revenues from acquisitions. While total backlog at year-end 1999 increased
slightly to $31.2 million from $30.8 million at year-end 1998, backlog at the
Finished Materials segment decreased 36% or $8.5 million during this period, due
in part to a reduction in capital spending in the metals industry.
The gross profit margin decreased to 40% in 1999 from 42% in 1998,
principally due to 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.
Selling, general, and administrative expenses as a percentage of revenues
increased to 26% in 1999 from 22% in 1998, due to a decline in revenues in the
Raw Materials segment. Selling, general, and administrative expenses increased
to $18.6 million in 1999 from $15.3 million in 1998, principally as a result of
the inclusion of expenses at Radiometrie U.S. for the full period in 1999 and at
Gamma-Metrics Minerals since the date of its acquisition in July 1999 (Note 2).
Research and development expenses increased to $5.5 million in 1999 from
$4.8 million in 1998, due primarily to the inclusion of $0.7 million of research
and development expenses at Radiometrie U.S. for the full period in 1999 and at
Gamma-Metrics Minerals since the date of its acquisition in July 1999, offset in
part by cost reduction efforts and the reallocation of resources to the
servicing of ongoing contracts.
During 1999, the Company reversed $0.4 million of previously established
restructuring reserves that were not required. During 1998, the Company recorded
restructuring costs of $0.6 million related to severance (Note 11).
Interest income decreased to $0.9 million in 1999 from $1.9 million in
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 $0.6 million and $0.4 million in 1999
and 1998, respectively.
The effective tax rate was 42% and 38% in 1999 and 1998, respectively. The
effective tax rates 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. The effective tax rate increased during 1999, primarily due to
foreign tax rate and law differences and 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.
1998 Compared With 1997
Revenues increased 23% to $70.0 million in 1998 from $56.7 million in
1997. Revenues in the Finished Materials segment increased principally due to
the inclusion of $13.7 million in revenues from the acquisition of Radiometrie
U.S. in July 1998. 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 $0.2 million. Revenues in the Raw Materials segment
decreased $0.2 million, primarily due to a reduction in spending by raw-material
producers and increased competition resulting from the entry of new competitors
into the market place, offset in part by the inclusion of $0.4 million in
revenues from the acquisition of MF Physics in October 1998.
29
<PAGE>
1998 Compared With 1997 (continued)
The gross profit margin decreased to 42% in 1998 from 47% in 1997. The
gross profit margin in the Raw Materials segment decreased primarily due to
reduced revenues and increased competition. The overall decrease in gross profit
margin was due, to a lesser extent, to a decrease in the gross profit margin in
the Finished Materials segment, principally due to the inclusion of lower-margin
revenues from Radiometrie U.S.
Selling, general, and administrative expenses as a percentage of revenues
decreased to 22% in 1998 from 25% in 1997. This decrease was primarily due to
reductions in personnel and travel expense in the Raw Materials segment and, to
a lesser extent, lower expenses as a percentage of revenues due to the
integration of Radiometrie U.S. in the Finished Materials segment.
Research and development expenses increased to $4.8 million in 1998 from
$3.8 million in 1997, primarily due to the inclusion of $1.1 million of research
and development expenses at Radiometrie U.S., offset in part by reduced spending
due to the completion of the development of new products introduced in 1997.
During 1998, the Company recorded restructuring costs of $0.6 million
related to severance costs (Note 11).
Interest income decreased to $1.9 million in 1998 from $2.0 million in
1997, primarily due to the use of cash for the July 1998 acquisition of
Radiometrie U.S., which was raised through the Company's initial public offering
in June 1997 (Note 4). Interest expense decreased to $0.4 million in 1998 from
$0.8 million in 1997, primarily due to a decrease in short-term borrowings at
foreign divisions.
The effective tax rate was 38% and 40% in 1998 and 1997, respectively. The
effective tax rate decreased in 1998 due to a decrease in other nondeductible
expenses. The effective tax rates 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 $28.6 million at January 1, 2000,
compared with $35.8 million at January 2, 1999. Included in working capital are
cash and cash equivalents of $2.9 million at January 1, 2000, compared with
$15.1 million at January 2, 1999. In addition, as of January 1, 2000, the
Company had $19.8 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, which became effective June 1999, amounts invested with
Thermo Electron were included in cash and cash equivalents.
During 1999, $3.7 million of cash was provided by operating activities.
Inventories and unbilled contract costs and fees used $3.1 million of cash as a
result of an increase in the volume of percentage-of-completion contracts in
process. Cash provided by the Company's operations was also offset in part by
$3.6 million of cash used to fund a decrease in current liabilities, primarily
due to the timing of payments. A decrease in accounts receivable provided $1.6
million of cash, which resulted from lower revenues in the Raw Materials
segment.
Excluding advance to affiliate activity, the Company's primary investing
activities included the acquisition of the assets of Gamma-Metrics Minerals, for
$7.7 million in cash (Note 2). The Company's investing activities also included
the receipt of a $8.4 million adjustment of the purchase price for Radiometrie
U.S. (Note 2). The Company used $0.7 million of cash for purchases of property,
plant, and equipment. The Company plans to make capital expenditures of
approximately $1.2 million during 2000.
The Company's financing activities provided $3.9 million of cash during
1999. A net increase in short-term obligations provided $9.6 million of cash,
primarily as a result of borrowings under lines of credit that were established
in conjunction with the acquisition of Gamma-Metrics Minerals. During 1999, the
Company used $2.7 million of cash to purchase 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. The Company does not expect to expend any
additional amounts on purchases of its common stock as a result of Thermo
Instrument's plan to purchase the public shares of the Company (Note 14). In
addition, the Company used $3.0 million of cash for the repayment of a long-term
obligation.
30
<PAGE>
Liquidity and Capital Resources (continued)
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 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.
Market Risk
The Company is exposed to market risk from changes in foreign currency
exchange rates, which could affect its future results of operations and
financial condition. The Company manages its exposure to this risk through its
regular operating and financing activities. Additionally, the Company uses
short-term forward contracts to manage certain exposures to foreign currencies.
The Company enters into forward foreign exchange contracts to hedge firm
purchase and sale commitments denominated in currencies other than its
subsidiaries' local currencies. The Company does not engage in extensive foreign
currency hedging activities. The purpose of the Company's foreign currency
hedging activities is to protect the Company's local currency cash flows related
to these commitments from fluctuations in foreign exchange rates. The Company's
forward foreign exchange contracts principally hedge transactions denominated in
U.S. dollars and German deutsche marks. Gains and losses arising from forward
contracts are recognized as offsets to gains and losses resulting from the
transactions being hedged. The Company does not enter into speculative foreign
currency agreements. The Company had no open forward foreign exchange contracts
at year-end 1999.
Foreign Currency Exchange Rates
Forward foreign exchange contracts are sensitive to changes in foreign
currency exchange rates. The fair value of forward foreign exchange contracts is
the estimated amount that the Company would pay or receive upon termination of
the contract, taking into account the change in foreign exchange rates. A 10%
depreciation in year-end 1998 foreign currency exchange rates related to the
Company's contracts would have resulted in a decrease in the unrealized gain on
forward foreign exchange contracts of $0.1 million. Since the Company uses
forward foreign exchange contracts as hedges of firm purchase and sale
commitments, the unrealized gain or loss on forward foreign currency exchange
contracts resulting from changes in foreign currency exchange rates would be
offset by a corresponding change in the fair value of the hedged item.
The Company generally views its investment in foreign subsidiaries with a
functional currency other than the Company's reporting currency as long-term.
The Company's investment in foreign subsidiaries is sensitive to fluctuations in
foreign currency exchange rates. The functional currencies of the Company's
foreign subsidiaries are principally denominated in British pound sterling,
German deutsche marks, Dutch guilders, Australian dollars, and French francs.
The effect of a change in foreign exchange rates on the Company's net investment
in foreign subsidiaries is recorded as a separate component of shareholders'
investment. A 10% depreciation in year-end 1999 and 1998 functional currencies,
relative to the U.S. dollar, would result in a $1.5 million and $1.3 million,
respectively, reduction of shareholders' investment.
31
<PAGE>
Year 2000
As of the date of this report, the Company has completed its year 2000
initiatives, which included: (i) testing and upgrading significant information
technology systems and facilities; (ii) testing and developing upgrades, where
necessary, for the Company's current products and certain discontinued products;
(iii) assessing the year 2000 readiness of its key suppliers, vendors, and
customers; and (iv) developing contingency plans.
As a result of completing these initiatives, the Company believes that all
of its material information technology systems and critical non-information
technology systems are year 2000 compliant. The Company believes that all of the
material products that it currently manufactures and sells are year 2000
compliant or are not date sensitive. In addition, the Company is not aware of
any significant supplier or vendor that has experienced material disruption due
to year 2000 issues. The Company has also developed a contingency plan to allow
its primary business operations to continue despite disruptions due to year 2000
problems, if any, that might yet arise in the future. The costs incurred to date
by the Company in connection with the year 2000 issue have not been material.
While the Company to date has been successful in minimizing negative
consequences arising from year 2000 issues, there can be no assurance that in
the future the Company's business operations or financial condition may not be
impacted by year 2000 problems, such as increased warranty claims, vendor and
supplier disruptions, or litigation relating to year 2000 issues.
32
<PAGE>
Metrika Systems Corporation 1999 Financial Statements
Forward-looking Statements
In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, the Company wishes to caution readers that the
following important factors, among others, in some cases have affected, and in
the future could affect, the Company's actual results and could cause its actual
results in 2000 and beyond to differ materially from those expressed in any
forward-looking statements made by, or on behalf of, the Company.
Dependence on Capital Spending Policies. The Company's customers include
coal-burning utilities, coal mines, cement manufacturers, and manufacturers of
web-type materials such as metal strip, rubber, and plastic foils. The capital
spending policies of these companies can have a significant effect on the demand
for the Company's products. Such policies are based on a wide variety of
factors, including the resources available to make such purchases, the spending
priorities among various types of process control equipment or techniques, and
policies regarding capital expenditures during recessions. For example, the
Company's 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. Such decreases in capital spending could
continue to have a material adverse effect on the Company's business and results
of operations. Further, the Company's growth is dependent in part on
construction and upgrade of manufacturing plants in the basic-materials
industries. A recession in one or more markets could cause a slowdown or
reduction in capital spending and in new-plant construction.
Uncertainty of Market Acceptance of New Products. Certain of the Company's
products represent alternatives to traditional instruments and methods. As a
result, such products may be slow to achieve, or may not achieve, market
acceptance, as customers may seek further validation of the efficiency and
efficacy of the Company's technology. This is particularly true where the
purchase of the product requires a significant capital commitment. Further,
because on-line process control systems are incorporated into a customer's
production line, a decision to invest in these systems involves significant
operating risks if the system fails or shuts down. The Company intends to expand
its product base by adapting its proprietary technologies for new applications
in broader industry segments including the pharmaceutical, agrochemical, and
industrial chemical industries. The Company believes that, to a significant
extent, its growth prospects depend on the continuing acceptance by a broader
group of customers and by broader industry segments of its new products and
technologies. There can be no assurance that the Company will be successful in
adapting its proprietary technologies for new applications, in obtaining these
acceptances or, if obtained, that such acceptances will be sustained. The
failure of the Company to obtain and sustain such acceptances could have a
material adverse effect on the Company's business and results of operations.
Technological Change and New Products. The market for on-line process
optimization systems is characterized by changing technology, evolving industry
standards, and new-product introductions. The Company's future success will
depend in part upon its ability to enhance its existing products and to develop
and introduce new products and technologies to meet changing customer
requirements and to successfully serve broader industry segments. The Company is
currently devoting significant resources toward the enhancement of its existing
products and the development of new products and technologies. There can be no
assurance that the Company will successfully complete the enhancement and
development of these products in a timely fashion or that the Company's current
or future products will satisfy the needs of the on-line process optimization
systems markets. Any failure to complete the enhancement and development of
these products or the failure of the Company's current or future products to
satisfy market needs could have a material adverse effect on the Company's
business and results of operations.
Risks Associated with Acquisition Strategy. The Company's strategy
includes the acquisition of businesses and technologies that complement or
augment the Company's existing product lines. Promising acquisitions are
difficult to identify and complete for a number of reasons, including
competition among prospective buyers, the need for regulatory approvals,
including antitrust approvals, and the high valuations of businesses resulting
from historically high stock prices in many countries. There can be no assurance
that the Company will be able to complete future acquisitions or that the
Company will be able to successfully integrate any acquired business. In order
to finance such
33
<PAGE>
acquisitions, it may be necessary for the Company to raise additional funds
through public or private financings. Any equity or debt financing, if available
at all, may be on terms that are not favorable to the Company and, in the case
of equity financing, may result in dilution to the Company's shareholders.
International Operations and International Sales. In 1999, 1998, and 1997,
sales originating outside the U.S. accounted for 46%, 43%, and 51%,
respectively, of the Company's total revenues. In addition, in 1999, 1998, and
1997, U.S. export sales accounted for 24%, 33%, and 33%, respectively, of the
Company's total revenues. The Company anticipates that sales outside the U.S.
and U.S. export sales will continue to account for a significant percentage of
the Company's total revenues. The Company intends to continue to expand its
presence in international markets. International revenues are subject to a
number of risks, including the following: agreements may be difficult to enforce
and receivables difficult to collect through a foreign country's legal system;
foreign customers may have longer payment cycles; foreign countries may impose
additional withholding taxes or otherwise tax the Company's foreign income,
impose tariffs, or adopt other restrictions on foreign trade; U.S. export
licenses may be difficult to obtain; the protection of intellectual property in
foreign countries may be more difficult to enforce; and fluctuations in exchange
rates may affect product demand and may adversely affect the profitability in
U.S. dollars of products and services provided by the Company in foreign markets
where payment for the Company's products and services is made in the local
currency. In 1999, effects of currency translation, primarily due to a stronger
U.S. dollar, decreased revenues by $1.3 million. Further, a significant portion
of the Company's business is conducted in foreign countries, particularly
Germany. Foreign operations are also subject to certain risks such as general
economic conditions in the countries in which the Company operates, unexpected
changes in regulatory requirements, compliance with a variety of foreign laws
and regulations, and overlap of different tax structures. Tax rates in certain
foreign countries exceed that of the U.S. and foreign earnings may be subject to
withholding requirements or the imposition of tariffs, exchange controls, or
other restrictions. There can be no assurance that any of these factors will not
have a material adverse effect on the Company's business and results of
operations.
Competition. The Company encounters intense competition in the sale of
products from the Finished Materials segment. The Company believes that the
principal competitive factors affecting the market for on-line process
optimization systems include quality and reliability, accuracy, price, customer
service and support, ease of use, distribution channels, technical features, and
compatibility with customers' manufacturing processes. Certain of the Company's
competitors have greater resources, manufacturing and marketing capabilities,
technical staff, and production facilities than those of the Company. As a
result, they may be able to adapt more quickly to new or emerging technologies
and changes in customer requirements, or to devote greater resources to the
promotion and sale of their products than can the Company. Further, competition
with respect to all of the Company's products could increase if new companies
enter the market or if existing competitors expand their product lines. There
can be no assurance that competitors of the Company will not develop
technological innovations that will render products of the Company obsolete.
Proprietary Rights. Proprietary rights relating to the Company's products
will be protected from unauthorized use by third parties only to the extent that
they are covered by valid and enforceable patents or are maintained in
confidence as trade secrets. There can be no assurance that any patents now or
hereafter owned by the Company will afford protection against competitors.
Proceedings initiated by the Company to protect its proprietary rights could
result in substantial costs to the Company. There can be no assurance that
competitors of the Company, some of whom have substantially greater resources
than those of the Company, will not initiate litigation to challenge the
validity of the Company's patents, or that they will not use their resources to
design comparable products that do not infringe upon the Company's patents. The
Company could incur substantial costs and diversion of management resources with
respect to the defense of any such claims, which could have a material adverse
effect on the Company's business, financial condition, and results of
operations. Furthermore, parties making such claims could secure a judgment
awarding substantial damages, as well as injunctive or other equitable relief,
which could effectively block
34
<PAGE>
the Company's ability to make, use, sell, distribute, or market its products and
services in the U.S. and abroad. There may also be pending or issued patents
held by parties not affiliated with the Company that relate to the Company's
products or technologies. In the event that a claim relating to proprietary
technology or information is asserted against the Company, the Company may need
to acquire licenses to, or contest the validity of, any such competitor's
proprietary technology. It is likely that significant funds would be required to
contest the validity of any such competitor's proprietary technology. There can
be no assurance that the Company would prevail in any such contest or that any
license required under any such competitor's proprietary technology would be
made available on acceptable terms. There can be no assurance that the steps
taken by the Company to protect its proprietary rights will be adequate to
prevent misappropriation of its technology or independent development by others
of similar technology. In addition, the laws of some jurisdictions do not
protect the Company's proprietary rights to the same extent as the laws of the
U.S. There can be no assurance that these protections will be adequate.
Dependence on Sole-source Suppliers. Various components of the Company's
products are supplied by sole-source vendors. The Company has not experienced
significant difficulty in obtaining adequate supplies from these vendors, and
has identified alternate suppliers. However, there can be no assurance that the
unanticipated loss of a single vendor would not result in delays in shipment or
in the introduction of new products. Any such delays could have a material
adverse effect on the Company's business or results of operations.
Government Regulations and Approvals. The market for certain of the
Company's products, both in the U.S. and abroad, is subject to, or influenced
by, various domestic and foreign clean air and consumer protection laws. The
Company designs, develops, and markets its products, in part, to meet customer
needs created by existing and anticipated regulations, and any changes in these
regulations may adversely affect consumer demand for the Company's products.
Potential Fluctuations in Quarterly Performance. Many of the Company's
products are large systems that may require significant capital expenditures.
Consequently, the timing of sales of these systems could affect the Company's
quarterly earnings. Further, the Company's quarterly operating results may also
vary significantly depending on a number of other factors, including the size,
timing, and shipment of individual orders, changes in pricing by the Company or
its competitors, discount levels, seasonality of revenue, foreign currency
exchange rates, the mix of products sold, introduction and delivery of new
product enhancements by the Company and its competitors, and general economic
conditions. Generally, the Company recognizes product revenues upon shipment of
its products. Revenues on substantially all contracts are recognized using the
percentage-of-completion method. Typically, the Company experiences higher
revenues in the second half of each year due to seasonality experienced by its
Finished Materials segment, primarily because customers tend to place their
orders earlier in the year so that they can have the systems installed either
during the holiday season in the third quarter or between Christmas and the New
Year. Because certain operating expenses of the Company are based on anticipated
capacity levels and a high percentage of the Company's expenses are fixed for
the short term, a small variation in the timing of recognition of revenue can
cause significant variations in operating results from quarter to quarter. There
can be no assurance that any of these factors will not have a material adverse
effect on the Company's business or results of operations.
Risks Associated with Cash Management Arrangement with Thermo Electron.
The Company participates in a cash management arrangement with Thermo Electron.
Under this cash management arrangement, the Company lends its excess cash to
Thermo Electron on an unsecured basis. The Company has the contractual right to
withdraw its funds invested in the cash management arrangement upon 30 days'
prior notice. 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 the cash management arrangement by all Thermo
Electron subsidiaries other than wholly owned subsidiaries. The funds are held
on an unsecured basis and therefore are subject to the credit risk of Thermo
Electron. The Company's ability to receive its cash upon notice of withdrawal
could be adversely affected if
35
<PAGE>
participants in the cash management arrangement demand withdrawal of their funds
in an aggregate amount in excess of the 50% reserve required to be maintained by
Thermo Electron. In the event of a bankruptcy of Thermo Electron, the Company
would be treated as an unsecured creditor and its right to receive funds from
the bankruptcy estate would be subordinated to secured creditors and would be
treated on a pari passu basis with all other unsecured creditors. Further, all
cash withdrawn by the Company from the cash management arrangement within one
year before the bankruptcy would be subject to rescission. The inability of
Thermo Electron to return the Company's cash on a timely basis or at all could
have a material adverse effect on the Company's results of operations and
financial position.
36
<PAGE>
Metrika Systems Corporation 1999 Financial Statements
Selected Financial Information
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
(In thousands except per share amounts) 1999 (a) 1998 (b) 1997 (c) 1996 (d) 1995
- --------------------------------------------------- ---------- ---------- ----------- ---------- ---------
Statement of Income Data
Revenues $ 72,007 $ 70,029 $ 56,714 $ 52,047 $ 46,032
Income Before Provision for Income Taxes 5,378 10,293 9,779 6,406 4,920
Net Income 3,120 6,343 5,859 3,845 2,852
Basic and Diluted Earnings per Share .42 .77 .82 .76 .57
Balance Sheet Data
Working Capital $ 28,568 $ 35,818 $ 47,975 $ 8,705 $ (8,070)
Total Assets 111,268 105,444 102,952 66,766 53,974
Long-term Obligation - 3,437 3,858 5,223 6,470
Shareholders' Investment 65,703 66,385 63,805 24,861 9,382
(a) Reflects the July 1999 acquisition of Gamma-Metrics Minerals and the
reversal of $0.4 million of previously recorded restructuring costs.
(b) Reflects the July 1998 acquisition of Radiometrie U.S., the October 1998
acquisition of MF Physics, and restructuring costs of $0.6 million.
(c) Reflects the December 31, 1996, acquisition of Autometrics, and the June
1997 initial public offering of Company common stock.
(d) Reflects the December 1996 private placement of Company common stock.
37
<PAGE>
Metrika Systems Corporation 1999 Financial Statements
Common Stock Market Information
The Company's common stock is traded on the American Stock Exchange under
the symbol MKA. The following table sets forth the high and low sale prices of
the Company's common stock for 1998 and 1999, as reported in the consolidated
transaction reporting system.
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1999 1998
----------------- ------------------
Quarter High Low High Low
- -------------------------------------------------------------- ---------- ---------- ----------- ---------
First $ 8 7/8 $ 7 3/4 $16 1/4 $12 7/8
Second 9 3/4 7 18 15 3/16
Third 9 5 3/4 17 8 1/2
Fourth 6 3/8 5 1/16 9 3/8 8
As of January 28, 2000, the Company had 33 holders of record of its common
stock. This does not include holdings in street or nominee names. The closing
market price on the American Stock Exchange for the Company's common stock on
January 28, 2000, was $9 5/8 per share.
Dividend Policy
The Company has never paid cash dividends and does not expect to pay cash
dividends in the foreseeable future because its policy has been to use earnings
to finance expansion and growth. Payment of dividends will rest within the
discretion of the Board of Directors and will depend upon, among other factors,
the Company's earnings, capital requirements, and financial condition.
</TABLE>
Exhibit 21
METRIKA SYSTEMS CORPORATION
Subsidiaries of the Registrant
As of February 23, 2000, Metrika Systems Corporation owned the following
companies:
<TABLE>
<CAPTION>
<S> <C> <C>
NAME STATE OR JURISDICTION PERCENT OF
OF INCORPORATION OWNERSHIP
- ----------------------------------------------------------------------------------------------------------
Gamma-Metrics Minerals Pty Ltd. South Australia 100
Radiometrie RM GmbH Germany 100
Radiometrie S.A. France 100
Gamma-Metrics California 100
MF Physics Corporation Delaware 100
Radiometrie Corporation Delaware 100
DMC Mess & Regeltechnik GmbH Germany 100
Radiometrie U.S.A., Inc. California 100
Radiometrie Limited England 100
</TABLE>
Exhibit 23
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation
by reference of our reports dated February 15, 2000, included in or incorporated
by reference into Metrika Systems Corporation's Annual Report on Form 10-K for
the year ended January 1, 2000, into the Company's previously filed Registration
Statement No. 333-58255 on Form S-8 and Registration Statement No.
333-93693 on Form S-8.
Arthur Andersen LLP
Boston, Massachusetts
March 8, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
METRIKA SYSTEMS CORPORATION'S
ANNUAL REPORT ON FORM 10-K FOR THE PERIOD ENDED JANUARY 1,2000 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-END> JAN-01-2000
<CASH> 2,898
<SECURITIES> 0
<RECEIVABLES> 20,206
<ALLOWANCES> 2,053
<INVENTORY> 14,338
<CURRENT-ASSETS> 69,437
<PP&E> 15,728
<DEPRECIATION> 5,734
<TOTAL-ASSETS> 111,268
<CURRENT-LIABILITIES> 40,869
<BONDS> 0
0
0
<COMMON> 83
<OTHER-SE> 65,620
<TOTAL-LIABILITY-AND-EQUITY> 111,268
<SALES> 72,007
<TOTAL-REVENUES> 72,007
<CGS> 43,256
<TOTAL-COSTS> 43,256
<OTHER-EXPENSES> 5,135
<LOSS-PROVISION> 466
<INTEREST-EXPENSE> 621
<INCOME-PRETAX> 5,378
<INCOME-TAX> 2,258
<INCOME-CONTINUING> 3,120
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,120
<EPS-BASIC> 0.42
<EPS-DILUTED> 0.42
</TABLE>
