-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Qd8mw0Ti1WMy03fHUjAK1AP34qavytrIN5jCz3RqZQ8z7lY0Kshv3eeMkGM+4ODr fa3b6ix9Ta0etTZpbQVQWg== 0000815910-97-000017.txt : 19970815 0000815910-97-000017.hdr.sgml : 19970815 ACCESSION NUMBER: 0000815910-97-000017 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: METROLOGIC INSTRUMENTS INC CENTRAL INDEX KEY: 0000815910 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER PERIPHERAL EQUIPMENT, NEC [3577] IRS NUMBER: 221866172 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-24712 FILM NUMBER: 97662280 BUSINESS ADDRESS: STREET 1: COLES ROAD AT RTE 42 CITY: BLACKWOOD STATE: NJ ZIP: 08012 BUSINESS PHONE: 609-228-8100 MAIL ADDRESS: STREET 1: COLES ROAD ROUTE 42 CITY: BLACKWOOD STATE: NJ ZIP: 08012 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------- FORM 10-Q (Mark One) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1997 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-24172 Metrologic Instruments, Inc. (Exact name of registrant as specified in its charter) New Jersey 22-1866172 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Coles Road at Route 42, Blackwood, New Jersey 08012 (Address of principal executive offices) (Zip Code) (609) 228-8100 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No . As of August 11, 1997 there were 5,353,091 shares of Common Stock, $.01 par value per share, outstanding. METROLOGIC INSTRUMENTS, INC. INDEX Page No. Part I - Financial Information Item 1. Financial Statements Condensed Consolidated Balance Sheets - June 30, 1997 and December 31, 1996 3 Condensed Consolidated Statements of Operations - Three and Six Months Ended June 30, 1997 and June 30, 1996 4 Condensed Consolidated Statements of Cash Flows - Six Months Ended June 30, 1997 and June 30, 1996 5 Notes to Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Part II - Other Information Item 1. Legal Proceedings 12 Item 2. Changes in Securities 12 Item 3. Defaults upon Senior Securities 12 Item 4. Submission of Matters to a Vote of Security Holders 12 Item 5. Other Information 13 Item 6. Exhibits and Reports on Form 8-K 13 Exhibit Index First Amendment to the 1994 Incentive Plan 16 Statement Regarding Computation of Per Share Earnings. 17 Financial Data Schedule 18 PART 1 - FINANCIAL INFORMATION Item 1. Financial Statements Metrologic Instruments, Inc. Condensed Consolidated Balance Sheets (amounts in thousands except share data) June 30, December 31, Assets 1997 1996 ------------ ------------ (Unaudited) Current assets: Cash and cash equivalents $10,014 $10,358 Accounts receivable, net of allowance of $452 and $493 in 1997 and 1996, respectively 9,384 8,035 Inventory 6,544 5,588 Deferred income taxes 1,381 1,848 Other current assets 592 519 Total current assets 27,915 26,348 Property, plant and equipment, net 4,684 4,692 Patents and trademarks, net of amortization of $471 and $427 in 1997 and 1996, respectively 1,179 1,015 Holographic technology, net of amortization of $110 and $67 in 1997 and 1996, respectively 758 777 Deferred income taxes 578 655 Advance license fee 1,941 2,000 Security deposits and other assets 202 505 Total assets $37,257 $35,992 Liabilities and shareholders' equity Current liabilities: Current portion of notes payable $ 556 $ 596 Accounts payable 3,622 2,607 Accrued expenses 5,782 7,040 Accrued legal settlement 859 905 Total current liabilities 10,819 11,148 Notes payable, net of current portion 1,643 1,764 Deferred income taxes, net of current portion 551 23 Accrued legal settlement 1,164 1,510 Other liabilities 250 500 Shareholders' equity: Preferred stock, $0.01 par value: 500,000 shares authorized; none issued - - Common stock, $0.01 par value: 10,000,000 shares authorized; 5,341,284 and 5,274,351 shares issued and outstanding in 1997 and 1996, respectively 53 53 Additional paid-in capital 15,934 15,055 Retained earnings 6,880 5,596 Deferred compensation (4) (8) Foreign currency translation adjustment (33) 351 Total shareholders' equity 22,830 21,047 Total liabilities and shareholders' equity $37,257 $35,992 See accompanying notes. METROLOGIC INSTRUMENTS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (amounts in thousands except share and per share data) Three Months Ended Six Months Ended June 30, June 30, June 30, June 30, 1997 1996 1997 1996 (Unaudited) (Unaudited) Sales $13,157 $11,757 $25,919 $22,099 Cost of sales 8,438 7,154 16,405 13,425 Gross profit 4,719 4,603 9,514 8,674 Selling, general and administrative expenses 2,753 2,730 5,681 5,289 Research and development expenses 814 774 1,622 1,571 Operating income 1,152 1,099 2,211 1,814 Other (expenses) income Interest income 111 98 203 227 Interest expense (59) (27) (101) (56) foreign currency transaction loss (76) (65) (241) (78) Other, net 2 - (1) - Total other (expenses) income (22) 6 (140) 93 Income before provision for income taxes 1,130 1,105 2,071 1,907 Provision for income taxes 430 420 787 732 Net income $ 700 $ 685 $ 1,284 $ 1,175 Weighted average number of shares used in computing net income per share 5,474,025 5,267,840 5,450,485 5,264,657 Income per share: Net income per share $ 0.13 $0.13 $ 0.24 $ 0.22 See accompanying notes. Metrologic Instruments, Inc. Condensed Consolidated Statements of Cash Flows (amounts in thousands) Six Months Ended June 30, 1997 1996 (Unaudited) Operating activities Net cash used in operating activities $ (107) $ (481) Investing activities Purchase of property, plant and equipment (331) (832) Patents and trademarks (209) (132) Advance license fee (250) - Purchase of Holoscan, Inc. and holographic technology, net of cash acquired (24) (521) Net cash used in investing activities (814) (1,485) Financing activities Proceeds from exercise of stock options and employee stock purchase plan 868 29 Principal payments on notes payable (112) (134) Payments of amounts due to former officer (84) (100) Capital lease payments (117) (79) Net cash provided by (used in) financing activities 555 (284) Effect of exchange rates on cash 22 69 Net decrease in cash and cash equivalents (344) (2,181) Cash and cash equivalents at beginning of period 10,358 12,065 Cash and cash equivalents at end of period $10,014 $ 9,884 Supplemental Disclosure Cash paid for interest $ 67 $ 43 Cash paid for income taxes $ 53 $ 1,442 Capital lease obligations incurred $ 67 $ - See accompanying notes. METROLOGIC INSTRUMENTS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Amounts in thousands) (Unaudited) 1. Business Metrologic Instruments, Inc. and its wholly owned subsidiaries (the "Company") design, manufacture and market bar code scanning equipment incorporating laser and holographic technology. These scanners rapidly, accurately and efficiently read and decode all widely used bar codes and provide an efficient means for data capture and automated data entry into computerized systems. 2. Accounting Policies Interim Financial Information The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting solely of normal recurring adjustments) necessary for a fair presentation of the Condensed Consolidated Financial Statements have been included. The results of the interim periods are not necessarily indicative of the results to be obtained for a fiscal year. The Condensed Consolidated Financial Statements and these Notes should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations contained in this Form 10-Q and the Company's Annual Report on Form 10-K for the year ended December 31, 1996, including the Consolidated Financial Statements and the Notes to Consolidated Financial Statements for the year ended December 31, 1996. 3. Inventory Inventory consists of the following: June 30, December 31, 1997 1996 Raw materials $ 3,262 $ 2,644 Work-in-process 1,818 1,636 Finished goods 1,464 1,308 ------- ------- $ 6,544 $5,588 ======= ====== 4. Commitments and Contingencies The Company files domestic and foreign patent applications to protect its technological position and new product development. From time to time, the Company receives legal challenges to the validity of its patents or allegations that its products infringe the patents of others. On July 7, 1992, PSC Inc. ("PSC"), a competitor of the Company, filed a lawsuit in the United States District Court for the Western District of New York (the "Court") against the Company alleging that the Company's prior version of its MS900 series of hand-held scanners infringed a PSC patent. The complaint sought an injunction and damages in an unstated amount. The Company filed a counterclaim for a declaratory judgment asserting that the PSC patent is invalid and that the Company's prior version of its MS900 series of hand-held scanners did not infringe such patent. On April 9, 1997, the Company and PSC entered into a settlement agreement providing for PSC to dismiss with prejudice its lawsuit against the Company and for the Company to dismiss its related counterclaims. In accordance with the agreement, no monies were required to be paid by either party to the other. On April 10, 1997, in accordance with the terms of the settlement agreement described above, the Company and PSC filed a Stipulation of Dismissal with the Court which was signed by the judge the same day. With the dismissal of this case, the Company has no other pending patent litigation. 5. Line of Credit The Company has an unsecured line of credit with its primary bank which allows for maximum borrowings of $7,500. The line of credit, which expires on June 30, 1998, bears interest at a rate selected by the Company from interest rate options offered by the bank. Interest rate options consist of (i) the bank's prime rate (8.5% at June 30, 1997) minus 0.25%, or (ii) the bank's Euro-Rate (5.75% at June 30, 1997) plus 1.75%. As of June 30, 1997, no amounts were outstanding under the line of credit. The line of credit requires the Company to comply with certain financial covenants and other restrictions. As of June 30, 1997, the Company was in compliance with these covenants and restrictions. 6. Impact of Recently Issued Accounting Pronouncements In February 1997, the Financial Accounting Standards Board issued Statement No. 128, Earnings per Share, which is required to be adopted on December 31, 1997. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods. Under the new requirements for calculating primary earnings per share, the dilutive effect of stock options will be excluded. The impact is not expected to result in an increase in primary earnings per share for the three and six months ended June 30, 1997 and June 30, 1996. The impact of Statement 128 on the calculation of fully diluted earnings per share for these periods is not expected to be material. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion of the Company's results of operations and liquidity and capital resources should be read in conjunction with the unaudited Condensed Consolidated Financial Statements of the Company and the related Notes thereto appearing elsewhere in this Form 10-Q and the Consolidated Financial Statements and the Notes to the Consolidated Financial Statements for the year ended December 31, 1996 appearing in the Company's Annual Report on Form 10-K for the year ended December 31, 1996. The Condensed Consolidated Financial Statements for the three and six month period ended June 30, 1997 and 1996 are unaudited. The Company derives its revenues from sales of its scanners through distributors, value-added resellers ("VARs") and original equipment manufacturers ("OEMs") and directly to end-users in the United States and in over 80 foreign countries. Since 1991, the Company has experienced growth in revenues with a significant percentage of its revenues derived from international sales. Results of Operations Since the beginning of 1997 the Company has been exposed to overall unfavorable foreign currency fluctuations due to the reduction in the value of the German mark against the U.S. dollar. The exchange rate at January 1, 1997 was approximately 1.54 German marks to U.S. dollars compared to approximately 1.74 German marks to U.S. dollars at June 30, 1997, a reduction in value of approximately 13% since the beginning of the year, the effect of which was partially offset by an increase in product sales prices in Europe as of April 1, 1997. In accordance with Generally Accepted Accounting Principles, the Company translates its Income Statement utilizing average exchange rates for reported periods. The Company's German subsidiary accounted for approximately 46.5% and 47.7%, respectively, of the Company's consolidated sales for the three and six months ended June 30, 1997. Substantially all of the German subsidiary's products are manufactured at the Company's U.S. facility. Therefore, the subsidiary's product manufacturing costs, which represent approximately 83% and 82%, respectively, of the subsidiary's total costs for the three and six months ended June 30, 1997, are incurred by the Company in U.S. dollars. As a result, the subsidiary's sales are significantly effected by fluctuations between the German mark and the U.S. dollar; however, there is minimal offsetting effect relating to the product costs of the subsidiary. Accordingly, the Company's consolidated operating profit is significantly affected by changes in the exchange rate between the German mark and U.S. dollar (See "Liquidity and Capital Resources" regarding the Company's derivative financial instruments.) Notwithstanding the effect of the exchange rate of the German mark to the U.S. dollar, the Company's sales denominated in German marks increased 32% and 47%, respectively, for the three and six months ended June 30, 1997 over the same periods a year ago. Three Months Ended June 30, 1997 Compared with Three Months Ended June 30, 1996 (amounts in thousands except per share information) Sales increased 11.9% to $13,157 in the three months ended June 30, 1997 from $11,757 in the three months ended June 30, 1996, principally as a result of the continued increase in market acceptance of the Company's hand-held and fixed projection scanners and increased sales and marketing efforts. The increase in sales was offset by lower average unit selling prices compared to the same period a year ago, primarily on certain of the Company's point-of-sale ("POS") products, which included significant unfavorable foreign exchange fluctuations from the Company's German subsidiary. The reduction in the value of the German mark against the U.S. dollar since the beginning of 1997 negatively affected the recorded U.S. dollar value of sales by approximately 5.3% or $700 in the three months ended June 30, 1997. International sales accounted for $8,314 (63.2% of total sales) in the three months ended June 30, 1997 and $7,480 (63.6% of total sales) in the three months ended June 30, 1996. One customer accounted for approximately 7.3% of the Company's revenues in the three months ended June 30, 1997. Two other customers accounted for approximately 7.8% and 5.9%, respectively, of the Company's revenues in the three months ended June 30, 1996. Cost of sales increased 17.9% to $8,438 in the three months ended June 30, 1997 from $7,154 in the three months ended June 30, 1996. Cost of sales as a percentage of sales increased to 64.1% from 60.8%. These increases were due primarily to a reduction in the average selling prices on certain of the Company's products which included the unfavorable foreign currency fluctuations as noted above. An additional factor negatively affecting cost of sales includes initial production and setup costs associated with HoloTrak industrial scanners for which sales levels have not yet achieved sufficient levels to fully absorb these costs. The increases in cost of sales were partly offset by reduced product costs resulting from engineering enhancements to certain products and manufacturing efficiencies from greater unit volumes. If the costs of sales are adjusted to negate the effect of unfavorable foreign currency fluctuations since the beginning of 1997, costs of sales as a percentage of sales would have been 61.0% for the three months ended June 30, 1997 compared with 60.8% for the three months ended June 30, 1996. Selling, general and administrative ("SG&A") expenses increased 0.8% to $2,753 in the three months ended June 30, 1997 from $2,730 in the three months ended June 30, 1996 and decreased as a percentage of sales to 20.9% from 23.2%. The increase was primarily due to increased salaries resulting from the hiring of additional sales and marketing personnel throughout North America, Europe and the rest of the world and increased marketing efforts. SG&A expenses were positively effected by reductions in the value of the German mark against the U.S. dollar. The positive impact of the reduced value of the German mark since the beginning of 1997 on consolidated SG&A expenses was approximately 3.6% or $100 in the three months ended June 30, 1997. Research and development ("R&D") expenses increased 5.2% to $814 in the three months ended June 30, 1997 from $774 in the three months ended June 30, 1996, and decreased as a percentage of sales to 6.2% from 6.6%. The increase in R&D was primarily due to the hiring of additional research and development personnel. Operating income increased 4.8% to $1,152 in the three months ended June 30, 1997 from $1,099 in the three months ended June 30, 1996, and operating income as a percentage of sales decreased to 8.8% from 9.3%. Other expenses/income reflect a net expense of $22 in the three months ended June 30, 1997 compared to net other income of $6 in the three months ended June 30, 1996. Other expenses reflect higher foreign currency transaction losses and interest expense compared to the same period a year ago. Net income increased 2.2% to $700 in the three months ended June 30, 1997 from $685 in the three months ended June 30, 1996. Net income reflects a 38.0% effective income tax rate in the second quarter of 1997, consistent with the same period a year ago. The reduction in the value of the German mark against the U.S. dollar since the beginning of 1997 negatively affected net income by approximately $0.07 per share. Six Months Ended June 30, 1997 Compared with the Six Months Ended June 30, 1996 (amounts in thousands except per share information) Sales increased 17.3% to $25,919 in the first six months of 1997 from $22,099 in the first six months of 1996 principally as a result of the continued increase in market acceptance of the Company's hand-held and fixed projection scanners, and increased sales and marketing efforts. The increase in sales was offset by lower average unit selling prices compared to the same period a year ago, primarily on certain of the Company's POS products, which included significant unfavorable foreign exchange fluctuations from the Company's German subsidiary. The reduction in the value of the German mark against the U.S. dollar since the beginning of 1997 negatively affected the recorded U.S. dollar value of sales by approximately 9.5% or $1,170 in the six months ended June 30, 1997. International sales accounted for $16,541 (63.8% of total sales) for the first six months of 1997 and $13,385 (60.6% of total sales) for the first six months of 1996. One customer accounted for approximately 6.5% of total sales in the first six months of 1997. Two other customers accounted for approximately 7.1% and 6.6%, respectively, of total sales in the first six months of 1996. Cost of sales increased 22.2% to $16,405 in the first six months of 1997 from $13,425 in the first six months of 1996. Cost of sales as a percentage of sales increased to 63.3% from 60.7%. These increases to cost of sales were due to decreased average selling prices on certain of the Company's products which included the unfavorable foreign currency fluctuations as noted above. An additional factor negatively affecting cost of sales includes initial production and setup costs associated with HoloTrak industrial scanners for which sales levels have not yet achieved sufficient levels to fully absorb these costs. The increases to cost of sales were partly offset by reduced product costs resulting from engineering enhancements to certain products and manufacturing efficiencies from greater unit volumes. If the costs of sales are adjusted to negate the effect of unfavorable foreign currency fluctuations since the beginning of 1997, costs of sales as a percentage of sales would have been 60.7% for the six months ended June 30, 1997, consistent with the same period a year ago. Selling, general, and administrative expenses increased 7.4% to $5,681 in the first six months of 1997 from $5,289 in the first six months of 1996, and decreased as a percentage of sales to 21.9% from 23.9%. The increase was primarily due to increased salaries resulting from the hiring of additional sales and marketing personnel throughout North America, Europe, and the rest of the world and increased marketing efforts. SG&A expenses were positively effected by reductions in the value of the German mark against the U.S. dollar. The positive impact of the reduced value of the German mark since the beginning of 1997 on consolidated SG&A expenses was approximately 3.2% or $180 in the six months ended June 30, 1997. Research and development expenses increased 3.2% to $1,622 in the first six months of 1997 from $1,571 in the first six months of 1996 and decreased as a percentage of sales to 6.3% from 7.1% for the six months ended June 30, 1997 and 1996, respectively. The increase in R&D expenses was due primarily to the hiring of additional research and development personnel. Operating income increased 21.9% to $2,211 in the first six months of 1997 from $1,814 in the first six months of 1996. Operating income as a percentage of sales increased to 8.5% in the first six months of 1997 from 8.2% in the first six months of 1996. Other expenses/income reflect a net expense of $140 in the first six months of 1997 compared to net other income of $93 in the first six months of 1996. Other expenses reflect higher foreign currency transaction losses and interest expense compared to the same period a year ago. Net income increased 9.3% to $1,284 in the first six months of 1997 from $1,175 in the first six months of 1996. Net income reflects a 38.0% effective income tax rate in the first six months of 1997, consistent with the same period a year ago. The reduction in the value of the German mark against the U.S. dollar since the beginning of 1997 negatively affected net income by approximately $0.14 per share. Inflation and Seasonality Inflation and seasonality have not had a material impact on the Company's results of operations. There can be no assurance, however, that the Company's sales in future years will not be impacted by fluctuations in seasonal demand from European customers in its third quarter or from reduced production days in its fourth quarter. Liquidity and Capital Resources (amounts in thousands) The Company's working capital increased approximately 12.5% to $17,096 as of June 30, 1997 from $15,200 as of December 31, 1996. The Company used net cash of $107 compared with $481 in operating activities for the six months ended June 30, 1997 and 1996, respectively. Net cash used in operating activities for the six months ended June 30, 1997 resulted primarily from increases in accounts receivable and inventory and reductions in accrued expenses, which were partially financed by increases in accounts payable. The Company's total deferred income tax asset (current and long-term) of approximately $1,959 and deferred tax liability of $551 is based upon cumulative temporary differences as of June 30, 1997, which provide approximately $4,906 of future income tax deductions against future taxable income. The deferred tax asset arises primarily from recording the December 1993 settlement of a patent lawsuit as an expense for accounting purposes prior to receiving the related tax benefit. The deferred tax liability arises primarily from recording the advance license fee as an expense for tax purposes and a depreciable asset for book purposes. The Company is a party to an Amended and Restated Loan and Security Agreement, as amended, with its primary bank which provides for an unsecured line of credit of $7,500. The line of credit requires the Company to comply with certain financial covenants and other restrictions. As of June 30, 1997, the Company was in compliance with these financial covenants and no amounts were outstanding under this line of credit. The Amended and Restated Loan and Security Agreement expires on June 30, 1998. The Company also has a 500 German mark unsecured revolving credit facility with a German bank in the name of its German subsidiary, Metrologic Instruments GmbH. As of June 30, 1997, no amounts were outstanding under this revolving credit facility. The Company's current plans for capital expenditures for the next twelve months potentially include the purchase of (i) the Company's office and manufacturing facility currently being leased from the Company's principal stockholder, Chairman, President, and CEO, and his spouse, the Company's Vice President Administration and Treasurer; (ii) manufacturing automation equipment; (iii) office equipment; and (iv) a new integrated management information system. Potential capital expenditures amount to approximately $6,000. The objective of the potential purchase of the Company's office and manufacturing facility is to save the Company approximately $200 annually of rent expenses, net of depreciation and interest expenses. The Company expects to finance such expenditures from a combination of term notes, operating and capital leases, and a mortgage. The Company's liquidity has been, and may continue to be, adversely affected by changes in foreign currency exchange rates. Since December 31, 1996, the Company and its German subsidiary have been exposed to unfavorable foreign currency exchange fluctuations as a result of a decline in the value of the German mark against the U.S. dollar. With respect to mitigating the financial implications of the volatility in the exchange rate between the German mark and the U.S. dollar, the Company increased product sales prices in Europe as of April 1, 1997, and has selectively entered into derivative financial instruments to offset its exposure to foreign currency risks. Derivative financial instruments currently include (i) foreign currency forward exchange contracts with its primary bank for periods not exceeding six months, which partially hedge the sales of its German subsidiary, and (ii) the Company has converted its existing term loan from a dollar denominated loan to a German mark based loan in order to reduce the existing variable interest rate incurred by the Company, and create an external German mark denominated liability to act as a partial hedge against outstanding intercompany receivables which are denominated in German marks. Additionally, the German subsidiary invoices and receives payment in certain other major European currencies, which results in an additional mitigating measure that reduces the Company's exposure to the fluctuation between the German mark and the U.S. dollar. The Company believes that its current cash and cash equivalent balances, along with cash generated from operations and availability under its revolving credit facilities, will be adequate to fund the Company's operations through at least the next twelve months. The discussion in this Form 10-Q includes forward-looking statements based on current management expectations. Factors which would cause the results to differ from these expectations include the following: general economic conditions; competitive factors and pricing pressures; technological changes in the scanner industry; fluctuations in the exchange rate between the German mark and the U.S. dollar; the Company's ability to enter into and settle forward exchange contracts; availability of patent protection for the Company's holographic scanners and other products; and market acceptance of the Company's new products. PART II - OTHER INFORMATION Item 1. Legal Proceedings On April 9, 1997, the Company and PSC Inc. ("PSC") entered into a settlement agreement providing for PSC to dismiss with prejudice its lawsuit against the Company and for the Company to dismiss its related counterclaims. In accordance with the settlement agreement, no monies are required to be paid by either party to the other. PSC had sued the Company in 1992 for infringement of PSC's U.S. Patent No. 4,652,750 ("'750 patent") in the United States District Court for the Western District of New York. The Company filed a counterclaim seeking declaratory judgment that its product did not infringe the `750 patent and that `750 patent was invalid and unenforceable. On April 10, 1997, in accordance with the terms of the agreement described above, the Company and PSC filed a Stipulation of Dismissal in the United States District Court for the Western District of New York, which was signed by the judge the same day. With the dismissal of this case, the Company has no other pending patent litigation. Item 2. Changes in Securities Not applicable. Item 3. Defaults upon Senior Securities Not applicable. Item 4. Submission of Matters to a Vote of Security Holders The Company's Annual Meeting of Shareholders was held on June 26, 1997. At such meeting, the following matters were voted upon by the shareholders, receiving the number of affirmative, negative and withheld votes, as well as abstentions and broker non-votes, set forth below each matter. (1) The vote of the Common Shareholders for the election of C. Harry Knowles and Stanton L. Meltzer to serve a three-year term ending in 2000 was as follows: No. of Votes For Name 4,846,305 C. Harry Knowles 4,846,605 Stanton L. Meltzer (2) The vote of the Common Shareholders for an increase in the number of shares available under the Company's 1994 Incentive Plan to 1,600,000 was as follows: 4,267,404 For 480,176 Against 2,767 Abstain --------- ------- ----- (3) The vote of the Common Shareholders for the appointment of Ernst & Young as the independent auditors for the Company for the fiscal year ending December 31, 1997 was as follows: 5,080,318 For 820 Against 1,667 Abstain --------- --- ----- The directors of the Company whose terms continue after the Annual Meeting of Shareholders referenced above are Lester Hill and Janet H. Knowles. Item 5. Other Information Not applicable. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: Exhibit Number 10 First Amendment to the 1994 Incentive Plan. 11 Statement Regarding Computation of Per Share Earnings. 27 Financial Data Schedule. (b) Reports on Form 8-K. Current report on Form 8-K filed by the Registrant on April 9, 1997. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed by the undersigned thereunto duly authorized. METROLOGIC INSTRUMENTS, INC. Date: August 14, 1997 By:/s/ C. Harry Knowles Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer) Date: August 14, 1997 By:/s/Thomas E. Mills IV Vice President Finance & Chief Financial Officer (Principal Financial Officer) EXHIBIT INDEX Exhibit No. 10 First Amendment to the 1994 Incentive Plan 11 Statement Regarding Computation of Per Share Earnings 27 Financial Data Schedule Exhibit 10 First Amendment to the 1994 Incentive Plan FIRST AMENDMENT TO THE 1994 INCENTIVE PLAN THIS FIRST AMENDMENT TO METROLOGIC INSTRUMENTS, INC.'S (the "Company") 1994 INCENTIVE PLAN (the "Plan") is dated as of July 1, 1997 (the "Amendment"). B A C K G R O U N D In April 1994, the Company's Board of Directors adopted the Plan. Under the Plan, the Company is authorized to award 600,000 shares of its Common Stock ("Shares") to its employees, directors, consultants and other individuals who perform services for the Company, other than C. Harry Knowles and Janet H. Knowles. The Company's shareholders approved the Plan in September 1994. The Plan is administered and interpreted by the Incentive Committee of the Board of Directors. Neither the Incentive Committee nor the Board of Directors has made any amendments to the Plan since its approval by the Company's shareholders in September 1994. As of April 28, 1997, options to purchase approximately 552,000 Shares had been granted under the Plan, of which, options to purchase 173,500 Shares are currently exercisable. In addition, as of April 28, 1997, 10,000 restricted stock awards had been granted under the Plan, of which, 4,800 restricted stock awards have vested. To date, no performance shares or performance units have been issued under the Plan. As of April 28, 1997, there were approximately 48,000 Shares available for issuance under the Plan. WHEREAS, as required by Article X, Section 10.1 of the Plan, the Company has requested, and the shareholders of the Company at the Company's 1997 Annual Meeting of Shareholders have approved, the increase in the number of Shares available under the plan by 1,000,000. THEREFORE, the first sentence of Article IV, Section 4.1 of the Plan is hereby amended and restated as follows: "The maximum aggregate number of Shares of Common Stock which may be issued under this Plan shall be 1,600,000 Shares of Common Stock (subject to any increase or decrease pursuant to Section 4.2), which may be either authorized and unissued Common Stock or issued Common Stock reacquired by the Company." Exhibit 11 Statement Re: Computation of Per Share Earnings (Amounts in thousdands except per share earnings) Primary Three Months Ended Six Months Ended June 30, June 30, June 30, June 30, 1997 1996 1997 1996 Average shares outstanding 5,318 5,251 5,305 5,250 Net effect of dilutive stock options-based on the treasury stock method using average market price 153 12 142 10 Net effect of dilutive restrictive stock grants 3 5 3 5 Total 5,474 5,268 5,450 5,265 Net income $ 700 $ 685 $1,284 $1,175 Per share earnings $ 0.13 $ 0.13 $ 0.24 $ 0.22 The computation of per share earnings on a fully diluted basis does not materially differ from the amounts calculated on a primary basis. EX-27 2 FDS --
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNAUDITED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS JAN-01-1997 DEC-31-1996 JUN-30-1997 10,014,000 0 9,384,000 452,000 6,544,000 27,915,000 4,684,000 0 37,257,000 10,819,000 0 0 0 53,000 22,777,000 37,257,000 25,919,000 25,919,000 16,405,000 23,708,000 140,000 0 101,000 2,071,000 787,000 0 0 0 0 1,284,000 .24 .24
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