-----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, UlrbjGkDnrYzrWiIAgtweZc0eXTWzbRvpD4R2Pv5ZZwCRztgCbhOsDNAK0QuoftS Jde4v4SghycratvPbCd2Bg== 0000815910-98-000007.txt : 19981116 0000815910-98-000007.hdr.sgml : 19981116 ACCESSION NUMBER: 0000815910-98-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981113 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: SEC FILE NUMBER: 000-24712 FILM NUMBER: 98748271 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 September 30, 1998 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.) 90 Coles Road , 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 November 9, 1998 there were 5,405,177 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 - September 30, 1998 and December 31, 1997 3 Condensed Consolidated Statements of Operations - Three and Nine Months ended September 30, 1998 and September 30, 1997 4 Condensed Consolidated Statements of Cash Flows - Nine Months ended September 30, 1998 and September 30, 1997 5 Notes to Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Item 3. Quantitative and Qualitative Disclosures about Market Risk 12 Part II - Other Information Item 1. Legal Proceedings 13 Item 2. Changes in Securities and Use of Proceeds 13 Item 3. Defaults upon Senior Securities 13 Item 4. Submission of Matters to a Vote of Security Holders 13 Item 5. Other Information 13 Item 6. Exhibits and Reports on Form 8-K 13 Exhibit Index Financial Data Schedule 16 Part I - FINANCIAL INFORMATION Item 1. Financial Statements Metrologic Instruments, Inc. Condensed Consolidated Balance Sheets (amounts in thousands except share data) September 30, December 31, Assets 1998 1997 (unaudited) Current assets: Cash and cash equivalents $ 9,692 $13,096 Accounts receivable, net of allowance of $460 and $408 in 1998 and 1997, respectively 14,685 9,249 Inventory 7,023 4,684 Deferred income taxes 1,593 1,698 Other current assets 710 604 Total current assets 33,703 29,331 Property, plant and equipment, net 5,756 4,625 Patents and trademarks, net of amortization of $573 and $511 in 1998 and 1997, respectively 1,551 1,254 Holographic technology, net of amortization of $224 and $154 in 1998 and 1997, respectively 709 734 Deferred income taxes 227 414 Advance license fee 1,794 1,882 Security deposits and other assets 1,167 218 Total assets $44,907 $38,458 Liabilities and shareholders' equity Current liabilities: Current portion of notes payable $ 784 $ 543 Accounts payable 3,183 2,859 Accrued expenses 8,636 6,505 Accrued legal settlement 850 825 Total current liabilities 13,453 10,732 Notes payable, net of current portion 2,205 1,496 Deferred income taxes, net of current portion 539 524 Accrued legal settlement 93 805 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; 5,402,105 and 5,369,090 shares issued and outstanding in 1998 and 1997, respectively 54 54 Additional paid-in capital 16,872 16,389 Retained earnings 11,839 8,576 Deferred compensation - (2) Accumulated other comprehensive (loss) income (148) (116) Total shareholders' equity 28,617 24,901 Total liabilities and shareholders' equity $44,907 $38,458 See accompanying notes. Metrologic Instruments, Inc. Condensed Consolidated Statements of Operations (amounts in thousands except share and per share data) Three Months Ended Nine Months Ended September 30, September 30, 1998 1997 1998 1997 (unaudited) (unaudited) Sales $ 17,001 $ 13,047 $ 48,297 $ 38,966 Cost of Sales 10,180 8,134 29,166 24,539 Gross Profit 6,821 4,913 19,131 14,427 Selling, general and administrative expenses 4,143 2,980 11,320 8,661 Research and development expenses 956 828 3,115 2,450 Operating income 1,722 1,105 4,696 3,316 Other (expense) income Interest income 126 115 386 318 Interest expense (45) (42) (123) (144) Foreign currency transaction gain (loss) 63 (167) 83 (408) Other income (loss), net (1) (5) 57 (5) Total other income (expenses) 143 (99) 403 (239) Income before provision for income taxes 1,865 1,006 5,099 3,077 Provision for income taxes 671 382 1,835 1,169 Net income $ 1,194 $ 624 $ 3,264 $ 1,908 Basic earnings per share Weighted average shares outstanding 5,399,642 5,351,623 5,387,559 5,320,362 Basic earnings per share $ 0.22 $ 0.12 $ 0.61 $ 0.36 Diluted earnings per share Weighted average shares outstanding 5,399,642 5,351,623 5,387,559 5,320,362 Net effect of dilutive securities 99,732 101,076 151,457 130,861 Total shares outstanding used in computing diluted earnings per share 5,499,374 5,452,699 5,539,016 5,451,223 Diluted earnings per share $ 0.22 $ 0.11 $ 0.59 $ 0.35 See accompanying notes. Metrologic Instruments, Inc. Condensed Consolidated Statements of Cash Flows (amounts in thousands) Nine Months Ended September 30, 1998 1997 (unaudited) Operating activities Net cash (used in) provided by operating activities $ (1,072) $ 1,656 Investing activities Purchase of property, plant and equipment (2,184) (315) Proceeds from sale of property 65 - Patents and trademarks (359) (283) Advance license fee - (375) Other intangibles (559) - Purchase of Holoscan, Inc. and holographic technology, net of cash acquired (45) (34) Net cash used in investing activities (3,082) (1,007) Financing activities Proceeds from issuance of notes payable 1,371 - Principal payments on notes payable (375) (238) Proceeds from exercise of stock options and employee stock purchase plan 353 958 Payments of amounts due to former officer - (84) Capital lease payments (123) (188) Net cash provided by financing activities 1,226 448 Effect of exchange rates on cash (476) (135) Net (decrease) increase in cash and cash equivalents (3,404) 962 Cash and cash equivalents at beginning of period 13,096 10,358 Cash and cash equivalents at end of period $ 9,692 $ 11,320 Supplemental Disclosure Cash paid for interest $ 139 $ 149 Cash paid for income taxes $ 607 $ 69 Capital lease obligations incurred $ - $ 210 Tax benefit from stock options $ 130 $ - 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 Quarterly Report on Form 10-Q and the Company's Annual Report on Form 10-K for the year ended December 31, 1997, including the Consolidated Financial Statements and the Notes to Consolidated Financial Statements for the year ended December 31, 1997. 3. Inventory Inventory consists of the following: September 30, December 31, 1998 1997 Raw materials $3,416 $2,542 Work-in-process 2,381 1,590 Finished goods 1,226 552 ------ ------ $7,023 $4,684 ====== ====== 4. Comprehensive Income The Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS 130), at December 31, 1997. SFAS 130 establishes standards for reporting comprehensive income and requires foreign currency translation adjustments, which prior to adoption were reported separately in shareholders' equity, to be included in other comprehensive income. Adoption of SFAS 130 had no impact on net income or shareholders' equity. Total comprehensive income amounted to $1,168 and $617, in the three months ended September 30, 1998 and 1997, respectively, and $3,232 and $1,517 in the nine months ended September 30, 1998 and 1997, respectively. 5. Impact of Recently Issued Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133), which is required to be adopted in years beginning after June 15, 1999. The Company has not yet determined what the effect of SFAS 133 will be on the earnings and financial position of the Company. 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 Quarterly Report on Form 10-Q and the Consolidated Financial Statements and the Notes to Consolidated Financial Statements for the year ended December 31, 1997 appearing in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. The Condensed Consolidated Financial Statements for the three and nine months ended September 30, 1998 and September 30, 1997 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 85 foreign countries. The Company's operating results have been impacted by significant foreign currency fluctuations particularly with respect to the value of the German mark against the U.S. dollar. Changes in the value of the German mark relative to the U.S. dollar positively affected operating results for the three months ended September 30, 1998 and negatively affected operating results for the nine months ended September 30, 1998. The Company's German subsidiary accounted for approximately 36.2% and 41.3%, respectively, of the Company's consolidated sales for the three and nine months ended September 30, 1998. 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 represented approximately 81.7% and 81.3% respectively, of the subsidiary's total operating costs for the three and nine months ended September 30, 1998, were incurred by the Company in U.S. dollars. As a result, the subsidiary's sales are significantly affected by fluctuations between the German mark and the U.S. dollar, however, there is minimal offsetting effect in 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" for a discussion of the Company's derivative financial instruments utilized to mitigate such exposure.) Three Months Ended September 30, 1998 Compared with Three Months Ended September 30, 1997 (amounts in thousands except per share information) Sales increased 30.3% to $17,001 in the three months ended September 30, 1998 from $13,047 in the three months ended September 30, 1997, principally as a result of the continued increase in market acceptance of the Company's point-of-sale ("POS") products, an increase in sales of the Company's HoloTrak (tm) industrial holographic laser scanners, and increased sales and marketing efforts. The increase in sales volume in 1998 was offset by lower average unit selling prices on POS products, compared to the corresponding period in 1997. The appreciation in the value of the German mark against the U.S. dollar during the three months ended September 30, 1998, as compared to the corresponding period in 1997, positively affected the recorded U.S. dollar value of the Company's German subsidiary's sales by approximately 3.7% or $227. International sales accounted for $9,603 (56.5% of total sales) in the three months ended September 30, 1998 and $8,058 (61.8% of total sales) in the three months ended September 30, 1997. Two customers accounted for 6.5% and 5.9%, respectively, of the Company's revenues in the three months ended September 30, 1998. No customer accounted for 5% or more of the Company's revenues in the three months ended September 30, 1997. Cost of sales increased 25.2% to $10,180 in the three months ended September 30, 1998 from $8,134 in the three months ended September 30, 1997, and cost of sales as a percentage of sales decreased to 59.9% from 62.3%. The decrease in cost of sales as a percentage of sales was due primarily to reduced product costs resulting from engineering enhancements to certain POS products, manufacturing efficiencies and operating leverage that resulted from greater unit volumes, and increased sales of the Company's industrial laser scanners which traditionally yield higher gross profit margins than the Company's POS products, partially offset by lower average unit selling prices on certain of the Company's products as noted above. If sales are adjusted to negate the effect of foreign currency fluctuations as compared to the corresponding period in 1997, cost of sales as a percentage of sales would have been 60.7% for the three months ended September 30, 1998. Selling, general and administrative ("SG&A") expenses increased 39.0% to $4,143 in the three months ended September 30, 1998 from $2,980 in the three months ended September 30, 1997 and increased as a percentage of sales to 24.4% from 22.8%. The increase in SG&A expenses was due primarily to increased marketing efforts, which include costs associated with the Company's Concert Program(tm), a business partner program that markets and promotes the Company's products. Research and development ("R&D") expenses increased 15.5% to $956 in the three months ended September 30, 1998 from $828 in the three months ended September 30, 1997, and decreased as a percentage of sales to 5.6% from 6.3%. The increase in R&D expenses was due primarily to higher expenditures for the development of new POS and industrial products, including development of the Company's HoloTunnel(tm), a six-sided holographic scanner tunnel system. Operating income increased 55.8% to $1,722 in the three months ended September 30, 1998 from $1,105 in the three months ended September 30, 1997, and operating income as a percentage of sales increased to 10.1% from 8.5%. Other income/expenses reflect net other income of $143 in the three months ended September 30, 1998 compared to net other expenses of $99 in the corresponding period in 1997. Net other income for the three months ended September 30, 1998 reflects higher interest income and foreign currency transaction gains, compared to the corresponding period in 1997. Net income increased 91.3% to $1,194 in the three months ended September 30, 1998 from $624 in the three months ended September 30, 1997. Net income reflects a 36.0% effective income tax rate for the three months ended September 30, 1998 compared to 38.0% for the corresponding period in 1997. The reduced effective income tax rate resulted from the utilization of the Company's foreign sales corporation which permits the Company to reduce its United States federal income tax liability on profits from sales to foreign customers. Further, the Company utilized net operating loss carryforwards on certain of its foreign subsidiaries in the three months ended September 30, 1998. The appreciation in the value of the German mark against the U.S. dollar as compared to the corresponding period in 1997 positively affected diluted earnings per share by approximately $.03 per share. Nine Months ended September 30, 1998 Compared with Nine Months ended September 30, 1997 (amounts in thousands except per share information) Sales increased 23.9% to $48,297 in the nine months ended September 30, 1998 from $38,966 in the nine months ended September 30, 1997, principally as a result of the continued increase in market acceptance of the Company's POS products, an increase in sales of the Company's HoloTrak(tm) industrial holographic laser scanners, and increased sales and marketing efforts. The increase in sales volume in 1998 was offset by lower average unit selling prices on its POS products, compared to the corresponding period in 1997, and reflected unfavorable foreign currency exchange fluctuations. The reduction in the value of the German mark against the U.S. dollar during the nine months ended September 30, 1998, as compared to the corresponding period in 1997, negatively affected the recorded U.S. dollar value of the Company's German subsidiary's sales by approximately 3.3% or $668. International sales accounted for $28,721 (59.5% of total sales) in the nine months ended September 30, 1998 and $24,597 (63.1% of total sales) in the nine months ended September 30, 1997. Two customers accounted for 5.7% and 5.4%, respectively, of the Company's revenues in the nine months ended September 30, 1998. One customer accounted for 5.4% of the Company's revenues in the nine months ended September 30, 1997. Cost of sales increased 18.9% to $29,166 in the nine months ended September 30, 1998 from $24,539 in the nine months ended September 30, 1997, and cost of sales as a percentage of sales decreased to 60.4% from 63.0%. The decrease in cost of sales as a percentage of sales was due primarily to reduced product costs resulting from engineering enhancements to certain POS products, manufacturing efficiencies and operating leverage that resulted from greater unit volumes, and increased sales of the Company's industrial laser scanners which traditionally yield higher gross profit margins than the Company's POS products, and partially offset by lower average unit selling prices on certain of the Company's products as noted above. If sales are adjusted to negate the effect of unfavorable foreign currency fluctuations as compared to the corresponding period in 1997, cost of sales as a percentage of sales would have been 59.6% for the nine months ended September 30, 1998. SG&A expenses increased 30.7% to $11,320 in the nine months ended September 30, 1998 from $8,661 in the nine months ended September 30, 1997 and increased as a percentage of sales to 23.4% from 22.2%. The increase in SG&A expenses was due primarily to increased marketing efforts, which include costs associated with the Company's Concert Program(tm). R&D expenses increased 27.1% to $3,115 in the nine months ended September 30, 1998 from $2,450 in the nine months ended September 30, 1997, and increased as a percentage of sales to 6.4% from 6.3%. The increase in R&D expenses was due primarily to higher expenditures for the development of new POS and industrial products, including development of the Company's HoloTunnel(tm). Operating income increased 41.6% to $4,696 in the nine months ended September 30, 1998 from $3,316 in the nine months ended September 30, 1997, and operating income as a percentage of sales increased to 9.7% from 8.5%. Other income/expenses reflect net other income of $403 in the nine months ended September 30, 1998 compared to net other expenses of $239 in the corresponding period in 1997. Net other income for the nine months ended September 30, 1998 reflects higher interest income and foreign currency transaction gains compared to the corresponding period in 1997. Net income increased 71.1% to $3,264 in the nine months ended September 30, 1998 from $1,908 in the nine months ended September 30, 1997. Net income reflects a 36.0% effective income tax rate for the nine months ended September 30, 1998 compared to 38.0% for the corresponding period in 1997. The reduced effective income tax rate resulted from the utilization of the Company's foreign sales corporation which permits the Company to reduce its United States federal income tax liability on profits from sales to foreign customers. Further, the Company utilized net operating loss carryforwards on certain of its foreign subsidiaries in the nine months ended September 30, 1998. The reduction in the value of the German mark against the U.S. dollar as compared to the corresponding period in 1997 negatively affected diluted earnings per share by approximately $0.04 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 8.9% to $20,250 as of September 30, 1998 from $18,599 as of December 31, 1997. The Company's operating activities used net cash of $1,072 compared with cash provided of $1,656 for the nine months ended September 30, 1998 and 1997, respectively. Net cash used in operating activities for the nine months ended September 30, 1998 resulted primarily from increases in accounts receivable and inventory, partially offset by increases in accrued expenses and accounts payable. The Company's total deferred income tax asset (current and long-term) of $1,820 and deferred tax liability of $539 are based upon cumulative temporary differences as of September 30, 1998, which provide approximately $3,089 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 pursuant to the December 1996 licensing agreement with Symbol Technologies, Inc. as an expense for tax purposes and an amortizable 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 in the amount of $7,500. The line of credit requires the Company to comply with certain financial covenants and other restrictions. As of September 30, 1998, 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, 1999. 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 September 30, 1998, no amounts were outstanding under this revolving credit facility. In April 1998, the Company entered into a convertible line of credit with its primary bank, denominated in German marks, in an amount not to exceed $1,500, for the purchase of fixed assets. As of September 30, 1998, approximately $339 was available under this line of credit. The Company is currently making interest-only payments on this line of credit until December 31, 1998, at which time amounts outstanding under this line will convert to a term note, payable over a 54 month period. The Company's current plans for capital expenditures for the next twelve months potentially include the purchase of (i) additional manufacturing facilities; (ii) manufacturing automation equipment; (iii) office equipment; and (iv) a new integrated management information system. Potential capital expenditures amount to approximately $7,000. The Company expects to finance such potential expenditures with a combination of term notes, operating and capital leases, and mortgages. The Company's liquidity has been, and may continue to be, adversely affected by changes in foreign currency exchange rates, particularly in the value of the German mark against the U.S. dollar. In an effort to mitigate the financial implications of the volatility in the exchange rate between the German mark and the U.S. dollar, the Company 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 sales to the Company's German subsidiary and (ii) German mark based loans, which act as a partial hedge against outstanding intercompany receivables and the net assets of its German subsidiary, which are denominated in German marks. Additionally, the German subsidiary invoices and receives payment in certain other major European currencies, which result 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. Impact of Year 2000 The Year 2000 issue is the result of computer programs using only the last two digits to indicate the year. If uncorrected, such computer programs will be unable to interpret dates beyond the year 1999, which could cause computer system failure or other computer errors disrupting operations. The Company has been evaluating its year 2000 readiness and taking corrective action where necessary. The scope of the Year 2000 readiness effort includes (i) information technology ("IT") such as software and hardware; (ii) non-IT systems or embedded technology such as microcontrollers contained in various manufacturing and lab equipment, facilities and utilities, and the Company's products with date-sensitivity; and (iii) readiness of key third parties, including suppliers and customers. If needed modifications and conversions are not made on a timely basis, the Year 2000 issue could have a material adverse effect on the Company's operations. Because of the scope of the Company's operations, the Company believes it is impractical to seek to eliminate all potential non-mission-critial Year 2000 problems before they arise. As a result, the Company expects that its Year 2000 program corrections will include ongoing remedial efforts into the Year 2000. The Company's current management information systems ("MIS") are not year 2000 compliant. The Company is in the process of replacing its current MIS system with a new, Year 2000 compliant, fully integrated MIS system for itself and its subsidiaries. The total cost of the new MIS system is estimated to be approximately $1,400, which includes external resource costs, a substantial portion of which will be capitalized. The new MIS system is estimated to be implemented in the Company's U.S. operations in February 1999 and in its international operations by June 1999, which is prior to any anticipated impact on its operating systems. The Company is in contact with key suppliers to assure no interruption in the relationship between the Company and these important third parties from the Year 2000 issue. If third parties do not convert their systems in a timely manner and in a way that is compatible with the Company's systems, the Year 2000 issue could have a material adverse effect on the Company's operations. The Company believes that its actions with key suppliers and customers will mitigate these risks. The Company's current estimates of the amount of time and costs necessary to resolve Year 2000 issues are based on the facts and circumstances existing at this time. The estimates were made using assumptions of future events including the continued availability of certain resources, Year 2000 modification plans, implementation success by key third-parties, and other factors. There can be no assurance that these estimates will be achieved and actual results could differ materially from those anticipated. The discussion in this Quarterly Report on 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. Item 3. Quantitative and Qualitative Disclosure about Market Risk. Not applicable. PART II - OTHER INFORMATION Item 1. Legal Proceedings Not applicable. Item 2. Changes in Securities and Use of Proceeds Not applicable. Item 3. Defaults upon Senior Securities Not applicable. Item 4. Submission of Matters to a Vote of Security Holders Not applicable. Item 5. Other Information Not applicable. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: Exhibit Number 27 Financial Data Schedule. (b) Reports on Form 8-K. No reports on Form 8-K were filed by the Company during the quarter ended September 30, 1998. 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: November 13, 1998 By:/s/ C. Harry Knowles ----------------------- C. Harry Knowles Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer) Date: November 13, 1998 By:/s/Thomas E. Mills IV ------------------------- Thomas E. Mills IV Executive Vice President, Chief Operating Officer and Chief Financial Officer (Principal Financial Officer) EXHIBIT INDEX Exhibit No. 27 Financial Data Schedule EX-27 2 FDS --
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNAUDITED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS 9-MOS JAN-01-1998 JAN-01-1997 DEC-31-1997 DEC-31-1996 SEP-30-1998 SEP-30-1997 9,692,000 11,320,000 0 0 14,685,000 9,483,000 460,000 472,000 7,023,000 5,829,000 33,703,000 28,280,000 5,756,000 4,564,000 0 0 44,907,000 37,531,000 13,453,000 10,851,000 0 0 0 0 0 0 54,000 54,000 28,563,000 23,486,000 44,907,000 37,531,000 48,297,000 38,966,000 48,297,000 38,966,000 29,166,000 24,539,000 43,601,000 35,650,000 (140,000) 413,000 0 0 (263,000) (174,000) 5,099,000 3,077,000 1,835,000 1,169,000 0 0 0 0 0 0 0 0 3,264,000 1,908,000 .61 .36 .59 .35
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