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 March 31, 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 May 9, 1997 there were 5,310,082 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 -
March 31, 1997 and December 31, 1996 3
Condensed Consolidated Statements of Operations -
Three Months Ended March 31, 1997 and
March 31, 1996 4
Condensed Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1997 and
March 31, 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 10
Item 2. Changes in Securities 10
Item 3. Defaults upon Senior Securities 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 11
Exhibit Index
Statement Regarding Computation of Per Share
Earnings. 14
Financial Data Schedule 15
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
Metrologic Instruments, Inc.
Consolidated Balance Sheets
(amounts in thousands except share data)
March 31, December 31,
Assets 1997 1996
------------ ------------
(Unaudited)
Current assets:
Cash and cash equivalents $ 9,489 $10,358
Accounts receivable, net of allowance of $470
and $493 in 1997 and 1996, respectively 9,005 8,035
Inventory 6,114 5,588
Deferred income taxes 1,513 1,848
Other current assets 660 519
Total current assets 26,781 26,348
Property, plant and equipment, net 4,599 4,692
Patents and trademarks, net of amortization of $447
and $427 in 1997 and 1996, respectively 1,054 1,015
Holographic technology, net of amortization of $88
and $67 in 1997 and 1996, respectively 774 777
Deferred income taxes 735 655
Advance license fee 1,971 2,000
Security deposits and other assets 460 505
Total assets $36,374 $35,992
Liabilities and shareholders' equity
Current liabilities:
Line of credit - -
Current portion of notes payable 594 596
Accounts payable 3,178 2,607
Accrued expenses 6,560 7,040
Accrued legal settlement 901 905
Total current liabilities 11,233 11,148
Notes payable, net of current portion 1,661 1,764
Deferred income taxes 21 23
Accrued legal settlement 1,314 1,510
Other liabilities 375 500
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; 5,307,518 and 5,274,351 shares
issued and outstanding in 1997 and 1996,
respectively 53 53
Additional paid-in capital 15,471 15,055
Retained earnings 6,180 5,596
Deferred compensation (6) (8)
Foreign currency translation adjustment 72 351
Total shareholders' equity 21,770 21,047
Total liabilities and shareholders' equity $36,374 $35,992
See accompanying notes.
<PAGE>
Metrologic Instruments, Inc.
Consolidated Statements of Operations
(amounts in thousands except share and per share data)
Three Months Ended
March 31,
1997 1996
(unaudited)
Sales $12,762 $10,342
Cost of sales 7,967 6,271
Gross profit 4,795 4,071
Selling, general and administrative expenses 2,928 2,559
Research and development expenses 808 797
Operating income 1,059 715
Other (expenses) income
Interest income 92 130
Interest expense (42) (29)
Foreign currency transaction loss (165) (14)
Other, net (3) -
Total other (expenses) income (118) 87
Income before provision for income taxes 941 802
Provision for income taxes 357 312
Net income $ 584 $ 490
Weighted average number of shares used in
computing net income per share 5,426,945 5,261,473
Income per share:
Net income per share $ 0.11 $ 0.09
See accompanying notes.
<PAGE>
Metrologic Instruments, Inc.
Consolidated Statements of Cash Flows
(amounts in thousands)
Three Months Ended March 31,
1997 1996
(Unaudited)
Operating activities
Net cash used in operating activities $ (812) $ (349)
Investing activities
Purchase of property, plant and equipment (126) (640)
Patents and trademarks (59) (60)
Advance license fee (125) -
Purchase of Holoscan, Inc. and holographic
technology, net of cash acquired (18) (521)
Net cash used in investing activities (328) (1,221)
Financing activities
Proceeds from exercise of stock options and
employee stock purchase plan 414 14
Principal payments on notes payable (44) (134)
Net payments from line of credit - (37)
Payments of amounts due to former officer (50) (50)
Capital lease payments (61) (39)
Net cash provided by (used in) financing activities 259 (246)
Effect of exchange rates on cash 12 73
Net decrease in cash and cash equivalents (869) (1,743)
Cash and cash equivalents at beginning of year 10,358 12,065
Cash and cash equivalents at end of year $ 9,489 $10,322
Supplemental Disclosure
Cash paid for interest $ 30 $ 29
Cash paid for income taxes $ 730 $ 9
See accompanying notes.
<PAGE>
METROLOGIC INSTRUMENTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amount in thousands except share and per share data)
(Unaudited)
1. Business
Metrologic Instruments, Inc. and its wholly owned subsidiaries (the
"Company") design, manufacture and market bar code scanning equipment
incorporating laser and holographic technology. These scanners rapidly,
accurately and efficiently read and decode all widely used bar codes and
provide an efficient means for data capture and automated data entry into
computerized systems.
2. Accounting Policies
Interim Financial Information
The accompanying unaudited Condensed Consolidated Financial Statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
solely of normal recurring adjustments) necessary for a fair presentation of
the Condensed Consolidated Financial Statements have been included. The results
of the interim periods are not necessarily indicative of the results to be
obtained for a fiscal year. The Condensed Consolidated Financial Statements and
these Notes should be read in conjunction with Management's Discussion and
Analysis of Financial Condition and Results of Operations contained in this
Form 10-Q and the Company's Annual Report on Form 10-K for the year ended
December 31, 1996, including the Consolidated Financial Statements and the
Notes to Consolidated Financial Statements for the year ended December 31,
1996.
3. Inventory
Inventory consists of the following:
March 31, December 31,
1997 1996
Raw materials $ 2,739 $ 2,644
Work-in-process 1,975 1,636
Finished goods 1,400 1,308
$6,114 $5,588
<PAGE>
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 October 13, 1995, the Court
interpreted the claims of the PSC patent in a patent infringement lawsuit filed
by PSC against another competitor. Based upon that interpretation, it was the
Company's belief that the MS900 series scanners did not infringe the subject
patent. Accordingly, on October 20, 1995, the Company filed a motion for
summary judgment of non-infringement. In response, the Court stayed this
action, including the motion for summary judgment of non-infringement, pending
the outcome of the appeal filed by PSC in the other patent infringement
lawsuit. On January 17, 1997, the United States Court of Appeals for the
Federal Circuit ("the CAFC") handed down its decision in the appeal upholding
the Court's decision against PSC and its interpretation of the claims. On
April 9, 1997, the Company and PSC entered into an 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 are required to be paid by either party to the other. On April 10, 1997,
in accordance with the terms of the agreement described above, the Company and
PSC filed a Stipulation of Dismissal with the Court.
With the dismissal of this case, the Company has no other pending
patent litigation with any other party.
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, 1997, 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 March 31, 1997) minus 0.25%, or (ii) the bank's
Euro-Rate (5.7% at March 31, 1997) plus 1.75%. As of March 31, 1997, no amounts
were outstanding under the line of credit. The demand line of credit requires
the Company to comply with certain financial covenants and other restrictions.
As of May 13, 1997, the Company was in compliance with these covenants and
restrictions.
6. Impact of Recently Issued Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share, which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per share,
the dilutive effect of stock options will be excluded. The impact is not
expected to result in an increase in primary earnings per share for the three
months ended March 31, 1997 and March 31, 1996. The impact of Statement 128 on
the calculation of fully diluted earnings per share for these periods is not
expected to be material.
<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 month period ended March 31,
1997 and 1996 are unaudited.
The Company derives its revenues from sales of its scanners through
distributors, value-added resellers ("VARs") and original equipment
manufacturers ("OEMs") and directly to end-users in the United States and in
over 80 foreign countries. Since 1991, the Company has experienced growth in
revenues with a significant percentage of its revenues derived from
international sales.
Results of Operations
Three Months Ended March 31, 1997 Compared with Three Months Ended March 31,
1996 (amounts in thousands)
Sales increased 23.4% to $12,762 in the three months ended March 31,
1997 from $10,342 in the three months ended March 31, 1996, principally as a
result of the continued increase in market acceptance of the Company's
hand-held and fixed projection scanners. The increase in sales was offset by
lower average unit selling prices, primarily for certain of the Company's
point-of-sale products, in the three months ended March 31, 1997, which
included unfavorable foreign exchange fluctuations from the Company's German
subsidiary. International sales accounted for $8,228 (64.5% of total sales) in
the three months ended March 31, 1997 and $5,905 (57.1% of total sales) in the
three months ended March 31, 1996. No customer accounted for more than 5% of
the Company's revenues in the three months ended March 31, 1997. Three
customers accounted for approximately 8.6%, 5.8% and 5.3%, respectively, of the
Company's revenues in the three months ended March 31, 1996.
Cost of sales increased 27.0% to $7,967 in the three months ended
March 31, 1997 from $6,271 in the three months ended March 31, 1996. Cost of
sales as a percentage of sales increased to 62.4% from 60.6%. These increases
were due primarily to a reduction in the average selling prices of certain of
the Company's products and unfavorable foreign currency fluctuations as noted
above. These increases were partly offset by reduced product costs resulting
from engineering enhancements to certain products and manufacturing
efficiencies from greater unit volumes.
Selling, general and administrative ("SG&A") expenses increased 14.4%
to $2,928 in the three months ended March 31, 1997 from $2,559 in the three
months ended March 31, 1996 and decreased as a percentage of sales to 22.9%
from 24.7%. SG&A expenses in the three months ended March 31, 1997 included
increased salary costs of administrative and support personnel, primarily due
to the growth of the business and increased sales personnel hired since March
31, 1996.
Research and development (R&D) expenses increased 1.4% to $808 in the
three months ended March 31, 1997 from $797 in the three months ended March 31,
1996, and decreased as a percentage of sales to 6.3% from 7.7%. The increase in
R&D was primarily due to the hiring of additional research and development
personnel including employees of Holoscan, Inc. which was acquired in March
1996. R&D expenses in the three months ended March 31, 1996, however, included
certain expenditures associated with an agreement to develop holographic
scanners jointly with Holoscan which occurred prior to the acquisition in the
first quarter of 1996.
Operating income increased 48.1% to $1,059 in the three months ended
March 31, 1997 from $715 in the three months ended March 31, 1996, and
operating income as a percentage of sales increased to 8.3% from 6.9%.
Other (expenses) income reflects a net expense of $118 in the three
months ended March 31, 1997 compared to other income of $87 in the three months
ended March 31, 1996. Other expenses reflect higher foreign currency losses and
interest expense and lower interest income compared to the same period a year
ago. Foreign currency losses were due primarily to the strengthening of the
U.S. dollar against the German deutsche mark.
<PAGE>
Net income increased 19.2% to $584 in the three months ended March 31,
1997 from $490 in the three months ended March 31, 1996. Net income reflects a
38.0% effective income tax rate in the first quarter of 1997 compared with
38.9% in the first quarter of 1996. The reduced effective income tax rate
resulted primarily from an increase in foreign sales through the Company's
foreign sales corporation, which, in accordance with the United States Internal
Revenue Code, effectively permits the Company to reduce its U.S. federal income
tax liability resulting from sales to foreign customers.
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)
As of March 31, 1997 and December 31, 1996, the Company's working
capital was approximately $15,548 and $15,200, respectively.
The Company used net cash of $812 compared with $349 in operating
activities for the three months ended March 31, 1997 and 1996, respectively.
Net cash used in the three months ended March 31, 1997 resulted primarily from
increases in accounts receivable and inventory and reductions in accrued
expenses, which were partially financed by increases in accounts payable.
The Company's total deferred income tax asset (current and long-term)
of approximately $2,248 is based upon cumulative temporary differences as of
March 31, 1997, which provide approximately $5,627 of future income tax
deductions against future taxable income. The temporary differences arise
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 Company is a party to an Amended and Restated Loan and Security
Agreement, as amended, with its primary bank which provides for an unsecured
line of credit of $7,500. The line of credit requires the Company to comply
with certain financial covenants and other restrictions. As of March 31, 1997,
the Company was in compliance with the financial covenants and no amounts were
outstanding under this line of credit. The Amended and Restated Loan and
Security Agreement expires on June 30, 1997.
The Company also has a 500 deutsche mark unsecured revolving credit
facility with a German bank in the name of its German subsidiary, Metrologic
Instruments GmbH. As of March 31, 1997, no amounts were outstanding under this
revolving credit facility.
The Company's current plans for capital expenditures in 1997
potentially include the purchase of (i) the Company's office and manufacturing
facility currently being leased from the Company's principal stockholder,
Chairman, President, and CEO, and his spouse, the Company's Vice President
Administration and Treasurer; (ii) manufacturing automation equipment; (iii)
office equipment; and (iv) a new integrated management information system.
Aggregate amounts of potential capital expenditures amount to approximately
$6,000. The objective of the potential purchase of the Company's office and
manufacturing facility is to save the Company approximately $200 annually of
rent expenses, net of depreciation and interest expenses. The Company expects
to finance such expenditures from a combination of term notes, operating and
capital leases, and a mortgage.
The Company's liquidity has been, and may continue to be, adversely
affected by changes in foreign currency exchange rates. Since December 31,
1996, the Company and its subsidiary Metrologic Instruments GmbH have been
exposed to unfavorable foreign currency exchange fluctuations as a result of a
decline in the value of the deutsche mark against the U.S. dollar. With respect
to mitigating the financial implications of the volatility in the exchange rate
between the deutsche mark and the U.S. dollar, the Company has increased
product sales prices in Europe as of April 1, 1997, and is also exploring
foreign currency forward exchange contracts.
<PAGE>
The Company believes that its current cash and cash equivalents
balances, along with cash generated from operations and the available revolving
credit facilities with banks, will be adequate to fund the Company's operations
through at least the next twelve months.
The discussion in this Form 10-Q includes forward-looking statements
based on current management expectations. Factors which would cause the results
to differ from these expectations include the following: general economic
conditions; competitive factors and pricing pressures; technological changes in
the scanner industry; availability of patent protection for the Company's
holographic scanners and other products; and market acceptance of the Company's
new products.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On April 9, 1997, the Company and PSC Inc. ("PSC") entered into an
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 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 West District of New York.
With the dismissal of this case, the Company has no other pending
patent litigation with any other party.
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.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit Number
11 Statement Regarding Computation of
Per Share Earnings.
27 Financial Data Schedule
(b) Reports on Form 8-K.
Current report on Form 8-K filed by the Registrant
on April 9, 1997.
<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: May 14, 1997 By:/s/ C. Harry Knowles
C. Harry Knowles
Chairman of the Board,
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 14, 1997 By:/s/Thomas E. Mills IV
Thomas E. Mills IV
Vice President Finance &
Chief Financial Officer
(Principal Financial Officer)
EXHIBIT INDEX
Exhibit No.
11 Statement Regarding Computation of Per Share Earnings
27 Financial Data Schedule
<PAGE>
Exhibit 11
Statement Re: Computation of Per Share Earnings
Three Months Ended
March 31, March 31,
1997 1996
Primary
Average shares outstanding 5,292 5,249
Net effect of dilutive stock options-
based on the treasury stock method
using average market price 132 7
Net effect of dilutive restricted
stock grants 3 5
Total 5,427 5,261
Net income $ 584 $ 490
Per share earnings $ 0.11 $ 0.09
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 THREE MONTHS ENDED MARCH 31,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<PERIOD-START> JAN-01-1997
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1997
<CASH> 9,489,000
<SECURITIES> 0
<RECEIVABLES> 9,475,000
<ALLOWANCES> 470,000
<INVENTORY> 6,114,000
<CURRENT-ASSETS> 26,781,000
<PP&E> 4,599,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 36,374,000
<CURRENT-LIABILITIES> 11,233,000
<BONDS> 0
0
0
<COMMON> 53,000
<OTHER-SE> 21,717,000
<TOTAL-LIABILITY-AND-EQUITY> 36,374,000
<SALES> 12,762,000
<TOTAL-REVENUES> 12,762,000
<CGS> 7,967,000
<TOTAL-COSTS> 11,703,000
<OTHER-EXPENSES> 118,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 42,000
<INCOME-PRETAX> 941,000
<INCOME-TAX> 357,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 584,000
<EPS-PRIMARY> .11
<EPS-DILUTED> .11
</TABLE>
