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, 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 November 11, 1997 there were 5,359,021 shares of Common Stock, $.01 par
value per share, outstanding.
<PAGE>
METROLOGIC INSTRUMENTS, INC.
INDEX
Page
No.
Part I - Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
September 30, 1997 and December 31, 1996 3
Condensed Consolidated Statements of Operations -
Three and Nine Months Ended September 30, 1997 and
September 29, 1996 4
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1997 and
September 29, 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 12
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
Exhibit Index
Term Note between Metrologic Instruments, Inc. and
PNC Bank, National Association dated August 4, 1997 16
Statement Regarding Computation of Per Share Earnings 22
Financial Data Schedule 23
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
Metrologic Instruments, Inc.
Condensed Consolidated Balance Sheets
(amounts in thousands except share data)
September 30, December 31,
Assets 1997 1996
------------ ------------
(Unaudited)
Current assets:
Cash and cash equivalents $11,320 $10,358
Accounts receivable, net of allowance
of $472 and $493 in 1997 and 1996,
respectively 9,483 8,035
Inventory 5,829 5,588
Deferred income taxes 1,410 1,848
Other current assets 238 519
Total current assets 28,280 26,348
Property, plant and equipment, net 4,564 4,692
Patents and trademarks, net of amortization
of $492 and $427 in 1997 and 1996,
respectively 1,233 1,015
Holographic technology, net of amortization
of $132 and $67 in 1997 and 1996,
respectively 746 777
Deferred income taxes 578 655
Advance license fee 1,912 2,000
Security deposits and other assets 218 505
Total assets $37,531 $35,992
Liabilities and shareholders' equity Current liabilities:
Current portion of notes payable $ 531 $ 596
Accounts payable 3,188 2,607
Accrued expenses 6,231 7,040
Accrued legal settlement 901 905
Total current liabilities 10,851 11,148
Notes payable, net of current portion 1,600 1,764
Deferred income taxes 490 23
Accrued legal settlement 925 1,510
Other liabilities 125 500
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; 5,356,621 and 5,274,351 shares
issued and outstanding in 1997 and 1996,
respectively 54 53
Additional paid-in capital 16,025 15,055
Retained earnings 7,504 5,596
Deferred compensation (3) (8)
Foreign currency translation adjustment (40) 351
Total shareholders' equity 23,540 21,047
Total liabilities and shareholders' equity $37,531 $35,992
See accompanying notes.
<PAGE>
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 29, September 30, September 29,
1997 1996 1997 1996
(Unaudited) (Unaudited)
Sales $13,047 $11,525 $38,966 $33,624
Cost of sales 8,134 7,032 24,539 20,457
Gross profit 4,913 4,493 14,427 13,167
Selling, general and
administrative expenses 2,980 2,502 8,661 7,791
Research and development
expenses 828 808 2,450 2,379
Operating income 1,105 1,183 3,316 2,997
Other (expenses) income
Interest income 115 94 318 321
Interest expense (42) (29) (144) (85)
foreign currency transaction
loss (167) (55) (408) (133)
Other, net (5) - (5) -
Total other (expenses) income (99) 10 (239) 103
Income before provision for
income taxes 1,006 1,193 3,077 3,100
Provision for income taxes 382 453 1,169 1,185
Net income $ 624 $ 740 $ 1,908 $ 1,915
Weighted average number of
shares used in computing
net income per share 5,452,699 5,285,097 5,451,223 5,271,470
Income per share:
Net income per share $ 0.11 $0.14 $ 0.35 $ 0.36
See accompanying notes.
<PAGE>
Metrologic Instruments, Inc.
Condensed Consolidated Statements of Cash Flows
(amounts in thousands)
Nine Months Ended
September 30, September 29,
1997 1996
(Unaudited)
Operating activities
Net cash provided by (used in)
operating activities $ 1,656 $ (236)
Investing activities
Purchase of property, plant and equipment (315) (1,235)
Patents and trademarks (283) (172)
Advance license fee (375) -
Purchase of Holoscan, Inc. and holographic
technology, net of cash acquired (34) (521)
Net cash used in investing activities (1,007) (1,928)
Financing activities
Proceeds from exercise of stock options and
employee stock purchase plan 958 42
Payments on line of credit - (170)
Principal payments on notes payable (238) (134)
Payments of amounts due to former officer (84) (150)
Capital lease payments (188) (120)
Net cash provided by (used in) financing activities 448 (532)
Effect of exchange rates on cash (135) 28
Net decrease in cash and cash equivalents 962 (2,668)
Cash and cash equivalents at beginning of period 10,358 12,065
Cash and cash equivalents at end of period $11,320 $ 9,397
Supplemental Disclosure
Cash paid for interest $ 149 $ 56
Cash paid for income taxes $ 69 $ 1,947
Capital lease obligations incurred $ 210 $ -
See accompanying notes.
<PAGE>
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 full 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:
September 30, December 31,
1997 1996
Raw materials $ 3,002 $ 2,644
Work-in-process 1,745 1,636
Finished goods 1,082 1,308
$ 5,829 $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 material
pending patent litigation.
<PAGE>
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 September 30, 1997) minus 0.25%, or (ii) the
bank's Euro-Rate (5.66% at September 30, 1997) plus 1.75%. As of September 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 September 30, 1997, the Company was in compliance with
these covenants and restrictions.
6. Financial Instruments
The Company has selectively entered into derivative financial
instruments to offset its exposure to foreign currency risks. These 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 to the Company's German subsidiary, and (ii) the conversion of
an existing term loan from a dollar denominated loan to a German mark based
loan in order to create an external German mark denominated liability to act as
a partial hedge against outstanding intercompany receivables, which are
denominated in German marks. The Company's forward exchange contracts do not
subject the Company to risk from exchange rate movements because gains and
losses on such contracts offset losses and gains, respectively, on the assets,
liabilities, and intercompany transactions being hedged. At September 30, 1997,
the Company had $865 of foreign currency forward exchange contracts
outstanding. The forward exchange contracts generally require the Company to
exchange German marks for U.S. dollars at maturity, at rates agreed to at the
inception of the contracts.
7. 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 a significant increase in primary earnings per share for
the three and nine months ended September 30, 1997 and September 29, 1996. The
impact of Statement 128 on the calculation of fully diluted earnings per share
for these periods is not expected to be material.
(The remainder of this page intentionally left blank.)
<PAGE>
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 nine months ended September
30, 1997 and September 29, 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 one U.S. dollar compared to
approximately 1.76 German marks to one U.S. dollar at September 30, 1997, a
reduction in value of approximately 14% 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. During the third quarter, the exchange rate was as
high as 1.875 German marks to one U.S. dollar. In accordance with generally
accepted accounting principles, the Company translates its Statement of
Operations utilizing average exchange rates for reported periods.
The Company's German subsidiary accounted for approximately 45% and
47%, respectively, of the Company's consolidated sales for the three and nine
months ended September 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 73% and
79%, respectively, of the subsidiary's total costs for the three and nine
months ended September 30, 1997, are 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.)
Notwithstanding the effect of the exchange rate of the German mark to
the U.S. dollar, the Company's sales derived from its German subsidiary
denominated in German marks increased 31.6% and 41.4%, respectively, for the
three and nine months ended September 30, 1997 over the corresponding periods
in 1996.
Three Months Ended September 30, 1997 Compared with Three Months Ended
September 29, 1996 (amounts in thousands except per share information)
Sales increased 13.2% to $13,047 in the three months ended September
30, 1997 from $11,525 in the three months ended September 29, 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 corresponding period a year ago, primarily on certain of the
Company's point-of-sale ("POS") products, which average unit selling prices
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 7.4% or $960 in the three
months ended September 30, 1997.
<PAGE>
International sales accounted for $8,058 (61.8% of total sales) in the
three months ended September 30, 1997 and $7,062 (61.3% of total sales) in the
three months ended September 29, 1996. No customer accounted for 5% or more of
the Company's revenues in the three months ended September 30, 1997. One
customer accounted for approximately 6.6% of the Company's revenues in the
three months ended September 29, 1996.
Cost of sales increased 15.7% to $8,134 in the three months ended
September 30, 1997 from $7,032 in the three months ended September 29, 1996,
and cost of sales as a percentage of sales increased to 62.3% from 61.0%. These
increases were due primarily to a reduction in the average selling prices on
certain of the Company's products, which average unit selling prices 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 sales are adjusted to negate the effect of
unfavorable foreign currency fluctuations since the beginning of 1997, cost of
sales as a percentage of sales would have been 58.2% for the three months ended
September 30, 1997 compared with 61.0% for the three months ended September 29,
1996.
Selling, general and administrative ("SG&A") expenses increased 19.1%
to $2,980 in the three months ended September 30, 1997 from $2,502 in the three
months ended September 29, 1996 and increased as a percentage of sales to 22.8%
from 21.7%. 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 affected 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 5.6% or $166 in the three months ended September 30, 1997.
Research and development ("R&D") expenses increased 2.5% to $828 in
the three months ended September 30, 1997 from $808 in the three months ended
September 29, 1996, and decreased as a percentage of sales to 6.3% from 7.0%.
The increase in R&D expenses was primarily due to the hiring of additional
research and development personnel.
Operating income decreased 6.6% to $1,105 in the three months ended
September 30, 1997 from $1,183 in the three months ended September 29, 1996,
and operating income as a percentage of sales decreased to 8.5% from 10.3%.
Other expenses/income reflect a net expense of $99 in the three months
ended September 30, 1997 compared to net other income of $10 in the three
months ended September 29, 1996. Other expenses reflect higher foreign currency
transaction losses and interest expense compared to the corresponding period a
year ago.
Net income decreased 15.7% to $624 in the three months ended September
30, 1997 from $740 in the three months ended September 29, 1996. Net income
reflects a 38.0% effective income tax rate in the third quarter of 1997,
consistent with the corresponding 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 $0.11 per share.
Nine Months Ended September 30, 1997 Compared with Nine Months Ended September
29, 1996 (amounts in thousands except per share information)
Sales increased 15.9% to $38,966 in the first nine months of 1997 from
$33,624 in the first nine 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
corresponding period a year ago, primarily on certain of the Company's POS
products, which average unit selling prices 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 5.5% or $2,156 in the nine months ended September 30, 1997.
International sales accounted for $24,597 (63.1% of total sales) for
the first nine months of 1997 and $20,447 (60.8% of total sales) for the first
nine months of 1996. One customer accounted for approximately 5.4% of total
sales in the first nine months of 1997. Three customers accounted for
approximately 6.1%, 5.6% and 5.4%, respectively, of total sales in the first
nine months of 1996.
<PAGE>
Cost of sales increased 20.0% to $24,539 in the first nine months of
1997 from $20,457 in the first nine months of 1996. Cost of sales as a
percentage of sales increased to 63.0% from 60.8%. These increases in the cost
of sales were due to a reduction in the average selling prices on certain of
the Company's products, which average unit selling prices 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 sales are adjusted to negate the effect of
unfavorable foreign currency fluctuations since the beginning of 1997, cost of
sales as a percentage of sales would have been 59.8% for the nine months ended
September 30, 1997, compared with 60.8% for the nine months ended September 29,
1996.
SG&A expenses increased 11.2% to $8,661 in the first nine months of
1997 from $7,791 in the first nine months of 1996, and decreased as a
percentage of sales to 22.2% 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 4.0% or $343 in the nine
months ended September 30, 1997.
R&D expenses increased 3.0% to $2,450 in the first nine months of 1997
from $2,379 in the first nine months of 1996 and decreased as a percentage of
sales to 6.3% from 7.1% for the nine months ended September 30, 1997 and
September 29, 1996, respectively. The increase in R&D expenses was due
primarily to the hiring of additional research and development personnel.
Operating income increased 10.6% to $3,316 in the first nine months of
1997 from $2,997 in the first nine months of 1996. Operating income as a
percentage of sales decreased to 8.5% in the first nine months of 1997 from
8.9% in the first nine months of 1996.
Other expenses/income reflect a net expense of $239 in the first nine
months of 1997 compared to net other income of $103 in the first nine months of
1996. Other expenses reflect higher foreign currency transaction losses and
interest expense compared to the same period a year ago.
Net income decreased 0.4% to $1,908 in the first nine months of 1997
from $1,915 in the first nine months of 1996. Net income reflects a 38.0%
effective income tax rate in the first nine months of 1997, consistent with the
corresponding 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 $0.25 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.
<PAGE>
Liquidity and Capital Resources (amounts in thousands)
The Company's working capital increased approximately 14.7% to $17,429
as of September 30, 1997 from $15,200 as of December 31, 1996.
The Company's operating activities provided net cash of $1,656
compared with net cash used of $236 for the nine months ended September 30,
1997 and September 29, 1996, respectively. Net cash provided from operating
activities for the nine months ended September 30, 1997 resulted primarily from
an increase in deferred tax liabilities and a decrease in other assets.
The Company's total deferred income tax asset (current and long-term)
of $1,988 and deferred tax liability of $490 are based upon cumulative
temporary differences as of September 30, 1997, which provide approximately
$4,982 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, 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 September 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, or other additional manufacturing
facilities; (ii) manufacturing automation equipment; (iii) office equipment;
and (iv) a new integrated management information system. Potential capital
expenditures amount to approximately $8,000. The purchase of the Company's
office and manufacturing facility could potentially save the Company
approximately $200 annually of rent expenses, net of depreciation and interest
expenses. The Company expects to finance such potential expenditures with 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. 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 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 sales to its German subsidiary, and (ii) the conversion of the
Company's existing term loan from a dollar denominated loan to a German mark
based loan in order to reduce the existing variable interest rate on such loan,
and to 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.
<PAGE>
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 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 material
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
Not applicable.
Item 5. Other Information
Not applicable.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit Number
10 Term Note between Metrologic Instruments, Inc. and
PNC Bank, National Association dated August 4, 1997
11 Statement Re: Computation of Per Share Earnings.
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, 1997.
<PAGE>
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 14, 1997 By:/s/ C. Harry Knowles
C. Harry Knowles
Chairman of the Board,
President and Chief Executive Officer
(Principal Executive Officer)
Date: November 14, 1997 By:/s/Thomas E. Mills IV
Thomas E. Mills IV
Vice President Finance &
Chief Financial Officer
(Principal Financial Officer)
<PAGE>
EXHIBIT INDEX
Exhibit No. Page No.
10 Term Note between Metrologic Instruments, Inc. and
PNC Bank, National Association dated August 4, 1997 16
11 Statement Re: Computation of Per Share Earnings 22
27 Financial Data Schedule 23
<PAGE>
Exhibit 10
Term Note
2,111,772.08 DEM August 4, 1997
FOR VALUE RECEIVED, METROLOGIC INSTRUMENTS, INC. (the "Borrower"), with an
address at Coles Road at Route 42, Blackwood, New Jersey 08012, promises to pay
to the order of PNC BANK, NATIONAL ASSOCIATION (the "Bank"), with an address at
1950 E. Route 70, Cherry Hill, NJ, in immediately available funds at such
location or locations as the Bank may designate from time to time, the
principal sum of Two Million One Hundred Eleven Thousand Seven Hundred
Seventy-Two-08 DEM, (2,111,772.08 DEM), together with interest accruing on the
outstanding principal balance from the date hereof, as provided below: 1. Rate
of Interest. Amounts outstanding under this Note will bear interest at the rate
of interest as set forth in Exhibit "A" hereto. Interest will be calculated on
the basis of a year of 360 days for the actual number of days in each interest
period. 2. Payment Terms. Interest will be payable in deutsche marks monthly on
the Reset Day (as defined in Exhibit "A" hereto) of each month commencing on
the Reset Day in September, 1997. Principal will be payable in fifty-two (52)
consecutive monthly installments each in the amount of 39,845.00 DEM,
commencing on the Reset Day in September, 1997, and continuing on the Reset Day
of each month thereafter, with the entire unpaid principal balance hereof due
on the Reset Day in January, 2002 (the "Maturity Date"). All payments made
hereunder, whether principal, interest or other amounts due, shall be due and
payable in Deutsche marks, except as otherwise set forth in Section 11 hereof.
If any payment under this Note shall become due on a Saturday, Sunday or public
holiday under the laws of the State where the Bank's office indicated above is
located, such payment shall be made on the next succeeding business day and
such extension of time shall be included in computing interest in connection
with such payment. Payments received will be applied to charges, fees and
expenses (including attorneys' fees), accrued interest and principal in any
order the Bank may choose, in its sole discretion.
3. Late Payments; Default Rate. If the Borrower fails to make any payment of
principal, interest or other amount coming due pursuant to the provisions of
this Note within ten (10) calendar days of the date due and payable, the
Borrower also shall pay to the Bank a late charge equal to five percent (5%) of
the amount of such payment. Such ten (10) day period shall not be construed in
any way to extend the due date of any such payment. The late charge is imposed
for the purpose of defraying the Bank's expenses incident to the handling of
delinquent payments and is in addition to, and not in lieu of, the exercise by
the Bank of any rights and remedies hereunder, under the other Loan Documents
or under applicable laws, and any fees and expenses of any agents or attorneys
which the Bank may employ. Upon maturity, whether by acceleration, demand or
otherwise, and at the option of the Bank upon the occurrence of any Event of
Default (as hereinafter defined) and during the continuance thereof, this Note
shall bear interest at a rate per annum (based on a year of 360 days and actual
days elapsed) which shall be two (2) percentage points in excess of the
interest rate per annum at which one (1) day deposits (or if such amount
remains unpaid for more than three (3) business days, then for such other
period of time as the Bank may elect) in deutsche marks in the amount of such
overdue payment are offered by major banks in the appropriate market. If at any
time such deposits are not offered then the Borrower shall pay interest on such
amount at a rate per annum reasonably determined by the Bank in its discretion
(the "Default Rate"). The Default Rate shall continue to apply whether or not
judgment shall be entered on this Note.
<PAGE>
4. Prepayment. If the Borrower prepays all or any part of the principal hereof
on other than the last day of the applicable interest period, the Borrower
shall also pay to the Bank, on demand therefor, the Cost of Prepayment. "Cost
of Prepayment" means an amount equal to the present value, if positive, of the
product of (a) the difference between (i) the yield, on the beginning date of
the applicable interest period, of a U.S. Treasury obligation with a maturity
similar to the applicable interest period minus (ii) the yield on the
prepayment date, of a U.S. Treasury obligation with a maturity similar to the
remaining maturity of the applicable interest period, and (b) the principal
amount to be prepaid, and (c) the number of years, including fractional years,
from the prepayment date to the end of the applicable interest period. The
yield on any U.S. Treasury obligation shall be determined by reference to
Federal Reserve Statistical Release H.15(519) "Selected Interest Rates". For
purposes of making present value calculations, the yield to maturity of a
similar maturity U.S. Treasury obligation on the prepayment date shall be
deemed the discount rate. The Cost of Prepayment shall also apply to any
payments made after acceleration of the maturity of this Note. In addition, the
Borrower hereby agrees to indemnify the Bank, upon demand therefor, against any
liabilities, losses or expenses which the Bank sustains or incurs as a
consequence of the Borrower's prepayment of the principal hereof on a day other
than the due date therefor including but not limited to any liabilities, losses
or expenses sustained or incurred in (i) liquidating or re-deploying any funds
denominated in a currency other than U.S. Dollars acquired from third parties
to effect, fund or maintain the loan evidenced hereby in German deutsche marks
or any part thereof or (ii) assigning, liquidating, terminating, amending or
otherwise modifying any currency hedge, swap, forward contract or similar
agreement entered into by the Bank in connection with effecting, funding or
maintaining the loan evidenced hereby in German deutsche marks, in each case
including any loss of margin.
5. Other Loan Documents. This Note is issued in connection with a certain
Amended and Restated Loan and Security Agreement dated November 10, 1995, as
amended to date, the terms of which are incorporated herein by reference (the
"Loan Documents"), and is secured by the property described in the Loan
Documents (if any) and by such other collateral as previously may have been or
may in the future be granted to the Bank to secure this Note. This Note amends
and restates, but does not extinguish the indebtedness evidenced by, that
certain Term Note dated December 31, 1996 in the original face amount of
$1,300,000 executed and delivered by Borrower to Bank, which prior note is
being replaced hereby for, inter alia, the purpose of denominating the
outstanding principal thereof and Borrower's payment obligations in connection
therewith in German deutsche marks and for the further purpose of revising the
rate of interest to be that as set forth in Section 1 hereof.
6. Events of Default. The occurrence of any "Event of Default" under the Loan
Documents shall constitute an Event of Default under this Note. Upon the
occurrence of an Event of Default, the Bank may exercise from time to time any
of the rights and remedies available to the Bank under the Loan Documents or
under applicable law.
<PAGE>
7. Right of Setoff. Upon and at any time after the occurrence of an Event of
Default and the giving by Bank to Borrower of written notice of the occurrence
thereof, and in addition to all liens upon and rights of setoff against the
money, securities or other property of the Borrower given to the Bank by law,
the Bank shall have, with respect to the Borrower's obligations to the Bank
under this Note and to the extent permitted by law, a contractual possessory
security interest in and a contractual right of setoff against, and the
Borrower hereby assigns, conveys, delivers, pledges and transfer to the Bank
all of the Borrower's right, title and interest in and to all deposits, moneys,
securities and other property of the Borrower now or hereafter in the
possession of or on deposit with, or in transit to, the Bank whether held in a
general or special account or deposit, whether held jointly with someone else,
or whether held for safekeeping or otherwise, excluding, however, all IRA,
Keogh, and trust accounts. Every such security interest and right of setoff may
be exercised without demand upon or notice to the Borrower. Every such right of
setoff shall be deemed to have been exercised immediately upon the occurrence
of an Event of Default hereunder without any action of the Bank, although the
Bank may enter such setoff on its books and records at a later time.
8. Taxes and Withholding. Any and all payments due hereunder shall be made free
and clear of and without deduction for any and all present or future taxes,
levies, imports, deductions, charges or withholdings, and all liabilities with
respect thereto, excluding (i) taxes imposed on the Bank's net income, (ii)
franchise taxes imposed on the Bank by the jurisdiction under the laws of which
the Bank is organized or any political subdivision thereof, and (iii) if
applicable, taxes imposed on the Bank's net income, and franchise taxes imposed
on the Bank, by the jurisdiction of the Bank's lending office or any political
subdivision thereof (all such non-excluded taxes, levies, imports, deductions,
charges withholdings and liabilities being hereinafter referred to as "Taxes").
If the Borrower shall be require by law to deduct any Taxes from or in respect
of any sum payable hereunder (i) the sum payable shall be increased as may be
necessary so that after making all required deductions (including deductions
applicable to additional sums necessary so that after making all required
deductions (including deductions applicable to additional sums payable under
this paragraph) the Bank will receive an amount equal to the sum the Bank would
have received had no such deductions been made, (ii) the Borrower agrees to
make such deductions and (iii) the Borrower agrees to pay the full amount
deducted to the relevant taxation authority or other authority in accordance
with applicable law. In addition, Borrower agrees to pay any present or future
stamp or document taxes or any other excise or property taxes, charges or
similar levies which arise from any payment made hereunder or from the
execution, delivery or registration of, or otherwise with respect to, this Note
(hereinafter referred to as "Other Taxes"). Within thirty (30) days of any
payment of Taxes, the Borrower hereby agrees to furnish to the Bank the full
amount of Taxes or Other Taxes (including, without limitation, any Taxes or
Other Taxes imposed by any jurisdiction on amounts payable under this
paragraph) paid by the Bank or any liability (including penalties, interest and
expenses) arising therefrom or with respect thereto, whether or not such Taxes
or Other Taxes were correctly or legally asserted, within thirty (30) days of
the Bank's request therefor. Without prejudice to the survival of any other
agreement contained herein, the agreements and obligations contained in this
paragraph shall survive the payment in full of the amounts outstanding
hereunder.
9. Special Provisions Regarding Exchange Rates.
(a) The specification herein that payment be made in deutsche marks at the
location or locations designated by the Bank from time to time, is of the
essence hereof. If payment is not made in deutsche marks (the "Contractual
Currency") or if any court or tribunal shall render a judgment or order for the
payment of amounts due hereunder or under any other Loan Document and such
judgment is expressed in a currency other than the Contractual Currency, the
Borrower shall indemnify and hold the Bank harmless against any deficiency in
terms of the amount received by the Bank arising or resulting from any
variation as between (i) the rate of exchange at which the Contractual Currency
is converted into the currency actually received or the currency in which the
judgment is expressed (the "Received Currency") and (ii) the rate of exchange
at which the Bank would, in accordance with normal banking procedures, be able
to purchase the Contractual Currency with the Received Currency by the Bank on
the Business Day following receipt of the Received Currency. If the court or
tribunal has fixed the date on which the rate of exchange is determined for the
conversion of the judgment currency into the Contractual Currency (the
"Conversion Date") and if there is a change in the rate of exchange prevailing
between the Conversion Date and the date of receipt by the Bank, then the
Borrower will, notwithstanding such judgment or order, pay such additional
amount as may be necessary to ensure that the amount paid in the Received
Currency when converted at the rate of exchange prevailing on the date of
receipt will produce the amount then due to the Bank from the Borrower
hereunder in the Contractual Currency.
<PAGE>
(b) If the Borrower shall wind up, liquidate, dissolve or become bankrupt
while there remains outstanding (i) any amounts owing to the Bank hereunder or
under any other Loan Document, (ii) any damages owing to the Bank in respect of
a breach of any of the terms hereof or (iii) any judgment or order rendered in
respect of such amounts or damages, the Borrower shall indemnify and hold the
Bank harmless against any deficiency in terms of the Contractual Currency in
the amounts received by the Bank arising or resulting from any variation as
between (i) the rate of exchange at which the Contractual Currency is converted
into another currency (the "Liquidation Currency") for purposes of such
winding-up, liquidation, dissolution or bankruptcy with regard to the amount in
the Contractual Currency due or contingently due hereunder or under any other
Loan Document or under any judgment or order into which the relevant
obligations hereunder or under any other Loan Document shall have been merged
and (ii) the rate of exchange at which the Bank could, in accordance with
normal banking procedures, be able to purchase the Contractual Currency with
the Liquidation Currency at the earlier of (A) the date of payment of such
amounts or damages and (B) the final date or dates for the filing of proofs of
a claim in a winding-up, liquidation, dissolution or bankruptcy. As used in the
preceding sentence, the "final date" or dates for the filing of proofs of a
claim in a winding-up, liquidation, dissolution or bankruptcy shall be the date
fixed by the liquidator or other appropriate person or otherwise applicable
under the applicable law as being the last practicable date as of which the
liabilities of the Borrower may be ascertained for such winding-up,
liquidation, dissolution or bankruptcy before payment by the liquidator or
other appropriate person in respect thereof.
(c) The Borrower agrees to indemnify the Bank against any loss or expense
which the Bank may sustain or incur in liquidating or employing deposits
acquired to effect, fund or maintain the Contractual Currency (including any
swap or hedging arrangements or similar instruments) as a consequence of (i)
the Borrower's failure to make a payment on the due date thereof, or (ii) the
Borrower's failure to borrow under, convert to or renew an advance in the
Contractual Currency on the proposed effective date of such borrowing,
conversion or renewal. The Bank's determination of an amount payable under this
paragraph (c) shall, in the absence of manifest error, be conclusive and shall
be payable on demand.
(d) If any withholding or other tax required to be paid by the Borrower
hereunder is not paid and is imposed on and paid by the Bank, the Borrower
shall indemnify the Bank and reimburse the Bank for the amount of such payment,
together with any interest, penalties and expenses in connection therewith,
whether or not such tax shall have been correctly or legally imposed.
(e) The indemnities provided by this Section 9 shall constitute
obligations of the Borrower separate and independent from its other obligations
hereunder and under the other Loan Documents, shall give rise to separate and
independent causes of action against the Borrower, shall apply irrespective of
any indulgence granted by the Bank from time to time and shall continue in full
force and effect notwithstanding any judgment or order or the filing of any
proofs of claim in the winding-up, liquidation, dissolution or bankruptcy of
the Borrower for a liquidated sum in respect of other amounts due hereunder or
under any other Loan Document or any damages owing to the Bank in respect of
any breach of the terms hereof or of any other Loan Document or any judgment
rendered in respect of such amounts or damages.
10. Special Provisions Regarding Alternate Currencies. If the Bank determines
that (a) by reason of circumstances affecting the market generally, adequate
means do not exist for ascertaining an applicable currency rate in the
Contractual Currency or (b) the Bank shall determine, in good faith (which
determination shall be final and conclusive) that compliance by the Bank with
any applicable law, treaty, order or regulation or the interpretation or
application thereof by any governmental authority, has made it unlawful or it
has otherwise become commercially unreasonable for the Bank to make or maintain
an advance in the Contractual Currency, then Bank shall give notice thereof to
the Borrower. Thereafter, (x) the Borrower shall, at its option, repay the
amount of such advance at the expiration of the then current interest period or
convert such advance to U.S. Dollars on such expiration date (or immediately if
the Bank may not lawfully continue to so maintain such loans) and (y) the right
of the Borrower to have amounts outstanding hereunder denominated in the
Contractual Currency shall be suspended.
<PAGE>
11. European Monetary Union. If, as a result of the implementation of European
monetary union, (i) Deutsche marks ceases to be lawful currency of the Republic
of Germany and is replaced by a European common currency (the "Euro") or (ii)
Deutsche marks and the Euro are at the same time recognized by the central bank
of the Republic of Germany as lawful currency of such nation and the Bank shall
so request in a notice delivered to the Borrower, then any amount payable
hereunder by any party hereto shall instead be payable in the Euro and the
amount so payable shall be determined by translating the amount payable in
Deutsche marks to the Euro at the exchange rate recognized by the European
Central Bank for the purpose of implementing European monetary union. Prior to
the occurrence of the event or events described in clause (i) or (ii) of the
preceding sentence, each amount payable hereunder in Deutsche marks, except as
otherwise provided herein, shall continue to be payable only in Deutsche marks.
(b) The Borrower agrees, at the request of the Bank, to compensate the
Bank for any loss, cost, expense or reduction in return that the Bank shall
reasonably determine shall be incurred or sustained by Bank as a result of the
implementation of European monetary union and that would not have been incurred
or sustained but for the transactions provided for herein. A certificate of the
Bank setting forth the Bank's determination of the amount or amounts necessary
to compensate the Bank shall be delivered to the Borrower and shall be
conclusive absent manifest error so long as such determination is made on a
reasonable basis. The Borrower shall pay the Bank the amount shown as due on
any such certificate within 10 days after receipt thereof.
(c) The parties hereto agree, at the time of or at any time following the
implementation of European monetary union, to use reasonable efforts to enter
into an agreement amending this Note in order to reflect the implementation of
such monetary union, to place the parties hereto in the position with respect
to the settlement of payments of the Euro as they would have been with respect
to the settlement of the currency it replaced.
12. Miscellaneous. No delay or omission of the Bank to exercise any right or
power arising hereunder shall impair any such right or power or be considered
to be a waiver of any such right or power, nor shall the Bank's action or
inaction impair any such right or power. The Borrower agrees to pay on demand,
to the extent permitted by law, all costs and expenses incurred by the Bank in
the enforcement of its rights in this Note and in any security therefor,
including without limitation reasonable fees and expenses of the Bank's
counsel. If any provision of this Note is found to be invalid by a court, all
the other provisions of this Note will remain in full force and effect. The
Borrower and all other makers and indorsers of this Note hereby forever waive
presentment, protest, notice of dishonor and notice of non-payment. The
Borrower also waives all defenses based on suretyship or impairment of
collateral. If this Note is executed by more than one Borrower, the obligations
of such persons or entities hereunder will be joint and several. This Note
shall bind the Borrower and its heirs, executors, administrators, successors
and assigns, and the benefits hereof shall inure to the benefit of the Bank and
its successors and assigns. This Note has been delivered to and accepted by the
Bank and will be deemed to be made in the State where the Bank's office
indicated above is located. THIS NOTE WILL BE INTERPRETED AND THE RIGHTS AND
LIABILITIES OF THE BANK AND THE BORROWER DETERMINED IN ACCORDANCE WITH THE LAWS
OF THE STATE WHERE THE BANK'S OFFICE INDICATED ABOVE IS LOCATED, EXCLUDING ITS
CONFLICT OF LAWS rules. The Borrower hereby irrevocably consents to the
exclusive jurisdiction of any state or federal court for the county or judicial
district where the Bank's office indicated above is located, and consents that
all service of process be sent by nationally recognized overnight courier
service directed to the Borrower at the Borrower's address set forth herein and
service so made will be deemed to be completed on the business day after
deposit with such courier; provided that nothing contained in this Note will
prevent the Bank from bringing any action, enforcing any award or judgment or
exercising any rights against the Borrower individually, against any security
or against any property of the Borrower within any other county, state or other
foreign or domestic jurisdiction. The Borrower acknowledges and agrees that the
venue provided above is the most convenient forum for both the Bank and the
Borrower. The Borrower waives any objection to venue and any objection based on
a more convenient forum in any action instituted under this Note.
13. WAIVER OF JURY TRIAL. THE BORROWER IRREVOCABLY WAIVES ANY AND ALL RIGHTS
THE BORROWER MAY HAVE TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR CLAIM OF
ANY NATURE RELATING TO THIS NOTE, ANY DOCUMENTS EXECUTED IN CONNECTION WITH
THIS NOTE OR ANY TRANSACTION CONTEMPLATED IN ANY OF SUCH DOCUMENTS. THE
BORROWER ACKNOWLEDGES THAT THE FOREGOING WAIVER IS KNOWING AND VOLUNTARY.
The Borrower acknowledges that it has read and understood all the provisions of
this Note, including the waiver of jury trial, and has been advised by counsel
as necessary or appropriate.
<PAGE>
WITNESS the due execution hereof as a document under seal, as of the date first
written above, with the intent to be legally bound hereby.
METROLOGIC INSTRUMENTS, INC.
Attest: /s/George J. Daulerio, Jr. By: /s/C. H. Knowles
Print Name: George J. Daulerio, Jr. Print Name: C. Harry Knowles
Title: Controller Title: President
EXHIBIT "A"
(A) Interest Rate. Principal shall bear interest at a rate per annum
(the "Euro-Rate Based Rate") (computed on the basis of a year of 360 days and
the actual number of days elapsed) equal to the sum of (a) the Euro-Rate plus
(b) one hundred seventy-five (175) basis points, for each Euro-Rate Interest
Period. For the purpose hereof, the following terms shall have the following
meanings:
"Business Day" shall mean (i) any day other than a Saturday or
Sunday or any other day on which commercial banks in
Philadelphia are authorized or required to be closed for
business and (ii) with respect to matters relating to the
Contractual Currency, (a) a day on which banks are open for
dealings in deposits in the Contractual Currency in the
applicable interbank market and (b) a day on which commercial
banks are open for business in the principal financial center
of the country in which such advances or payments are to be
made or received.
"Euro-Rate" shall mean the interest rate per annum determined
by Bank by dividing (the resulting quotient rounded upward to
the nearest 1/16th of 1% per annum) (i) the rate of interest
determined by Bank in accordance with its usual procedures
(which determination shall be conclusive absent manifest error)
to be the rate for deposits in deutsche marks two (2) Business
Days prior to the first day of each Euro-Rate Interest Period
for an amount comparable to the principal amount of the Note
and having a borrowing date and a maturity comparable to such
Euro-Rate Interest Period by (ii) a number equal to 1.00 minus
the Euro-Rate Reserve Percentage.
"Euro-Rate Interest Period" shall mean one month; provided,
that if a Euro-Rate Interest Period would end on a day which is
not a Business Day, it shall end on the next succeeding
Business Day, unless such day falls in the succeeding calendar
month in which case the Euro-Rate Interest Period shall end on
the next preceding Business Day. In no event shall any
Euro-Rate Interest Period end after January 1, 2002.
"Euro-Rate Reserve Percentage" shall mean the maximum effective
percentage in effect on such day as prescribed by the Board of
Governors of the Federal Reserve System (or any successor) for
determining the reserve requirements (including, without
limitation, supplemental, marginal and emergency reserve
requirements) with respect to eurocurrency funding (currently
referred to as "Eurocurrency liabilities").
If Bank determines (which determination shall be final and
conclusive) that, by reason of circumstances affecting the
interbank eurodollar market generally, deposits in dollars (in
the applicable amounts) are not being offered to banks in the
interbank eurodollar market for the selected term, or adequate
means do not exist for ascertaining the Euro-Rate, then Bank
shall give notice thereof to Borrower. Thereafter, until Bank
notifies Borrower that the circumstances giving rise to such
suspension no longer exist, (a) the availability of the
Euro-Rate Based Rate shall be suspended, and (b) the interest
rate for all principal then bearing interest at the Euro-Rate
Based Rate shall be converted at the expiration of the then
current Euro-Rate Interest Period to a fixed rate offered by
Bank in its discretion ("As-Offered Fixed Rate").
<PAGE>
In addition, if, after the date hereof, Bank shall determine
(which determination shall be final and conclusive) that any
enactment, promulgation or adoption of or any change in any
applicable law, rule or regulation, or any change in the
interpretation or administration thereof by a governmental
authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by Bank
with any guideline, request or directive (whether or not having
the force of law) of any such authority, central bank or
comparable agency shall make it unlawful or impossible for Bank
to make or maintain or fund loans at the Euro-Rate Based Rate,
Bank shall notify Borrower. Upon receipt of such notice, until
Bank notifies Borrower that the circumstances giving rise to
such determination no longer apply, (a) the availability of the
Euro-Rate Based Rate shall be suspended, and (b) the interest
rate on all principal then bearing interest at the Euro-Rate
Based Rate shall be converted to an As-Offered Fixed Rate
either (i) on the last day of the then current Euro-Rate
Interest Period if Bank may lawfully continue to maintain
principal at the Euro-Rate Based Rate to such day, or (ii)
immediately if Bank may not lawfully continue to maintain
principal at the Euro-Rate Based Rate.
(B) Interest Rate Election. At the end of each Euro-Rate Interest
Period, Borrower shall be deemed to have selected another one month interest
period, such that the entire principal balance of the Note shall bear interest
at the Euro-Rate Based Rate for consecutive one-month Euro-Rate Interest
Periods. Each Euro-Rate Interest Period will be applicable to the entire
principal balance, and not more than one tranche of principal accruing interest
at the Euro-Rate Based Rate shall be outstanding at any one time.
(C) Reset Day. As used in the Term Note, "Reset Day" shall mean the
last day of each Euro-Rate Interest Period, provided that if by reason of
either of the final two paragraphs of subpart (A) of this Exhibit "A" interest
hereunder accrues at the As-Offered Fixed Rate, then the Reset Day shall mean
the first day of the applicable month.
<PAGE>
Exhibit 11
Statement Re: Computation of Per Share Earnings
(Amounts in thousdands except per share earnings)
Primary
Three Months Ended Nine Months Ended
Sept. 30 Sept. 29 Sept. 30 Sept. 29
1997 1996 1997 1996
Average shares outstanding 5,352 5,253 5,320 5,251
Net effect of dilutive stock
options-based on the treasury
stock method using average
market price 98 27 128 15
Net effect of dilutive
restrictive stock grants 3 5 3 5
Total 5,453 5,285 5,451 5,271
Net income $ 624 $ 740 $1,908 $1,915
Per share earnings $ 0.11 $ 0.14 $ 0.35 $ 0.36
The computation of per share earnings on a fully diluted basis does not
materially differ from the amounts calculated on a primary basis.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
UNAUDITED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<PERIOD-START> JAN-01-1997
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1997
<CASH> 11,320,000
<SECURITIES> 0
<RECEIVABLES> 9,483,000
<ALLOWANCES> 472,000
<INVENTORY> 5,829,000
<CURRENT-ASSETS> 28,280,000
<PP&E> 4,564,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 37,531,000
<CURRENT-LIABILITIES> 10,851,000
<BONDS> 0
0
0
<COMMON> 54,000
<OTHER-SE> 23,486,000
<TOTAL-LIABILITY-AND-EQUITY> 37,531,000
<SALES> 38,966,000
<TOTAL-REVENUES> 38,966,000
<CGS> 24,539,000
<TOTAL-COSTS> 35,650,000
<OTHER-EXPENSES> 413,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (174,000)
<INCOME-PRETAX> 3,077,000
<INCOME-TAX> 1,169,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,908,000
<EPS-PRIMARY> .35
<EPS-DILUTED> .35
</TABLE>
