UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
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 (I.R.S. Employer
of incorporation or organization) Identification No.)
90 Coles Road , Blackwood, New Jersey 08012
(Address of principal executive offices) (Zip Code)
(856) 228-8100
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __
As of August 13, 1999 there were 5,414,030 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 -
June 30, 1999 and December 31, 1998 3
Condensed Consolidated Statements of Operations -
Three and Six Months Ended June 30, 1999 and
June 30, 1998 4
Condensed Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1999 and
June 30, 1998 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 13
Part II - Other Information
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 14
Item 3. Defaults upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
Exhibit Index 16
Financial Data Schedule 17
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
Metrologic Instruments, Inc.
Condensed Consolidated Balance Sheets
(amounts in thousands except share data)
June 30, December 31,
1999 1998
-------- --------
Assets (unaudited)
Current assets:
Cash and cash equivalents $ 5,678 $ 10,684
Accounts receivable, net of allowance 17,271 14,542
Inventory 9,712 6,900
Deferred income taxes 1,526 1,308
Other current assets 1,742 1,073
-------- --------
Total current assets 35,929 34,507
Property, plant and equipment, net 8,018 6,382
Patents and trademarks, net of amortization
of $697 and $604 in 1999 and 1998, respectively 1,964 1,745
Holographic technology, net of amortization of $308
and $250 in 1999 and 1998, respectively 774 832
Advance license fee, net of amortization of $294
and $235 in 1999 and 1998, respectively 1,706 1,765
Security deposits and other assets 1,029 1,065
-------- --------
Total assets $ 49,420 $ 46,296
======== ========
Liabilities and shareholders' equity
Current liabilities:
Current portion of notes payable $ 1,044 $ 908
Accounts payable 3,384 4,155
Accrued expenses 9,300 7,260
Accrued legal settlement 154 688
-------- --------
Total current liabilities 13,882 13,011
Notes payable, net of current portion 3,038 2,608
Deferred income taxes 621 676
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; 5,411,797 and 5,404,512 shares
issued and outstanding in 1999 and 1998,
respectively 54 54
Additional paid-in capital 17,002 16,933
Retained earnings 15,259 13,069
Accumulated other comprehensive income (436) (55)
-------- --------
Total shareholders' equity 31,879 30,001
-------- --------
Total liabilities and shareholders' equity $ 49,420 $ 46,296
======== ========
See accompanying notes.
<PAGE>
METROLOGIC INSTRUMENTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands except share and per share data)
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
(Unaudited) (Unaudited)
Sales $19,466 $16,069 $37,719 $31,296
Cost of sales 11,638 9,619 22,601 18,986
Gross profit 7,828 6,450 15,118 12,310
Selling, general and
administrative expenses 4,932 3,834 9,520 7,177
Research and development
expenses 1,023 1,045 1,983 2,159
Operating income 1,873 1,571 3,615 2,974
Other (expenses) income
Interest income 83 122 214 259
Interest expense (49) (42) (106) (80)
Foreign currency transaction
(loss) gain (128) (36) (342) 21
Other, net - 26 - 60
Total other (expenses) income (94) 70 (234) 260
Income before provision for
income taxes 1,779 1,641 3,381 3,234
Provision for income taxes 630 591 1,191 1,164
Net income $ 1,149 $1,050 $ 2,190 $ 2,070
Basic earnings per share
Weighted average shares
outstanding 5,411,577 5,391,408 5,410,068 5,381,517
Basic earnings per share $ 0.21 $0.19 $ 0.40 $ 0.38
Diluted earnings per share
Weighted average shares
outstanding 5,411,577 5,391,408 5,410,068 5,381,517
Net effect of dilutive
securities 3,126 185,298 47,898 177,321
Total shares outstanding
used in computing diluted
earnings per share 5,414,703 5,576,706 5,457,966 5,558,838
Diluted earnings per share $ 0.21 $0.19 $ 0.40 $ 0.37
See accompanying notes.
<PAGE>
Metrologic Instruments, Inc.
Condensed Consolidated Statements of Cash Flows
(amounts in thousands)
Six Months Ended
June 30,
1999 1998
(Unaudited)
Operating activities
Net cash used in operating
activities $ (3,564) $ (565)
Investing activities
Purchase of property, plant and equipment (2,220) (1,338)
Proceeds from sale of property - 65
Patents and trademarks (312) (69)
Advance license fee - (125)
Other intangibles - (559)
Purchase holographic technology - (35)
------- -------
Net cash used in investing activities (2,532) (2,061)
Financing activities
Proceeds from exercise of stock options and
employee stock purchase plan $ 65 $ 327
Proceeds from issuance of notes payable 1,169 534
Principal payments on notes payable (268) (142)
Capital lease payments (74) (41)
------- -------
Net cash provided by financing activities 892 678
Effect of exchange rates on cash 198 -
------- -------
Net decrease in cash and cash equivalents (5,006) (1,948)
Cash and cash equivalents at beginning of period 10,684 13,096
------- -------
Cash and cash equivalents at end of period $ 5,678 $11,148
======== =======
Supplemental Disclosure
Cash paid for interest $ 101 $ 73
Cash paid for income taxes $ 335 $ 233
Tax benefit from stock options $ 4 $ 125
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 Quarterly Report on Form 10-Q and the Company's Annual Report
on Form 10-K for the year ended December 31, 1998, including the Consolidated
Financial Statements and the Notes to Consolidated Financial Statements for the
year ended December 31, 1998 contained therein.
3. Inventory
Inventory consists of the following:
June 30, December 31,
1999 1998
Raw materials $ 3,502 $ 3,280
Work-in-process 3,887 2,614
Finished goods 2,323 1,006
------- -------
$ 9,712 $ 6,900
4. Comprehensive Income
The Company's total comprehensive earnings were as follows:
Six Months Ended
June 30,
1999 1998
(Unaudited)
Net earnings $ 2,190 $ 2,070
Other comprehensive losses:
Change in equity due to foreign
currency translation adjustments (381) (6)
Comprehensive earnings $ 1,809 $ 2,064
<PAGE>
5. Geographical Information
The Company generates its revenue from the sale of laser bar code scanners
primarily to distributors, value-added resellers, original equipment
manufacturers and directly to end users, in locations throughout the world. No
individual customer accounted for 10% or more of revenues in 1999 or 1998.
The Company has operations in the United States and Germany. Sales were
attributed to geographic areas in the following table based on the location of
the Company's customers.
United States Operations German
North Other Operations Total
America Europe Export Total Europe Consolidated
Three months ended
June 30, 1999:
Sales $ 8,195 $871 $ 3,107 $12,173 $ 7,293 $19,466
Income (loss)
before provision
for income taxes $ 2,256 $ (477) $ 1,779
Identifiable
assets $39,945 $ 9,475 $49,420
Three months ended
June 30, 1998:
Sales $ 6,103 $ 444 $ 2,597 $ 9,144 $ 6,925 $16,069
Income (loss)
before provision
for income taxes $ 1,509 $ 132 $ 1,641
Identifiable
assets $35,745 $ 7,845 $43,590
Six months ended
June 30, 1999:
Sales $15,199 $1,822 $ 5,733 $22,754 $14,965 $37,719
Income (loss)
before provision
for income taxes $ 4,009 $ (628) $ 3,381
Six months ended
June 30, 1998:
Sales $12,179 $ 659 $ 4,663 $17,501 $13,795 $31,296
Income (loss)
before provision
for income taxes $ 2,862 $ 372 $ 3,234
<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 Quarterly Report on Form 10-Q
and the Consolidated Financial Statements and the Notes to Consolidated
Financial Statements for the year ended December 31, 1998 appearing in the
Company's Annual Report on Form 10-K for the year ended December 31, 1998. The
Condensed Consolidated Financial Statements for the three and six months ended
June 30, 1999 and June 30, 1998 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 90 foreign countries.
Most of the Company's product sales in Western Europe, Singapore and
Brazil are billed in foreign currencies and are subject to currency exchange
rate fluctuations. Substantially all of the Company's products are manufactured
in the Company's U.S. facility, and therefore, sales and results of operations
are affected by fluctuations in the value of the U.S. dollar relative to
foreign currencies. Accordingly, in the three and six months ended June 30,
1999 and 1998, sales and gross profit were adversely affected by the continuing
rise in the value of the U.S. dollar in relation to foreign currencies.
Three Months Ended June 30, 1999 Compared with Three Months Ended June 30, 1998
(amounts in thousands except per share information)
Sales increased 21.1% to $19,466 in the three months ended June 30,
1999 from $16,069 in the three months ended June 30, 1998, 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
industrial laser scanners, and an increase in sales of the Company's
HoloTrak(R) industrial holographic laser scanners. The increase in sales volume
in 1999 was offset by lower average unit selling prices on certain POS products
compared to the corresponding period in 1998 and reflected unfavorable foreign
exchange fluctuations. Average unit selling prices reflected significant
unfavorable foreign currency exchange rate fluctuations. The reduction in the
value of the German mark (Euro) against the U.S. dollar since January, 1999
negatively affected the recorded U.S. dollar value of quarterly German
operation sales by approximately 10.2% and quarterly consolidated sales by
approximately 3.9%.
International sales accounted for $11,271 (57.9% of total sales) in
the three months ended June 30, 1999 and $9,966 (62.0% of total sales) in the
three months ended June 30, 1998. No individual customer accounted for 5% or
more of revenues in the three months ended June 30, 1999. One customer
accounted for 5.5% of the Company's revenues in the three months ended June 30,
1998.
Cost of sales increased 21.0% to $11,638 in the three months ended
June 30, 1999 from $9,619 in the three months ended June 30, 1998, while cost
of sales as a percentage of sales decreased to 59.8% from 59.9%. The decrease
in cost of sales as a percentage of sales was due primarily to increased sales
of the Company's industrial laser scanners which yield higher gross profit
margins than the Company's POS products, reduced product costs resulting from
engineering enhancements to certain POS products, and manufacturing
efficiencies and operating leverage that result from greater unit volumes,
offset by lower average unit selling prices on certain of the Company's
products as noted above. If sales in the three months ended June 30, 1999 are
adjusted to negate the effect of the reduction in the value of the Euro against
the U.S. dollar since January 1999, cost of sales as a percentage of sales
would have been 57.5% in the three months ended June 30, 1999.
Selling, general and administrative ("SG&A") expenses increased 28.6%
to $4,932 in the three months ended June 30, 1999 from $3,834 in the three
months ended June 30, 1998 and increased as a percentage of sales to 25.3% from
23.9%. The increase in SG&A expenses was due primarily to increased marketing
efforts, which include costs associated with the Company's Concert(TM) program,
a business partner program used to market and promote the Company's products.
Research and development ("R&D") expenses decreased 2.1% to $1,023 in
the three months ended June 30, 1999 from $1,045 in the three months ended June
30, 1998, and decreased as a percentage of sales to 5.3% from 6.5%. The
decrease in absolute dollars is a result of higher expenditures in 1998 related
to 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 19.2% to $1,873 in the three months ended
June 30, 1999 from $1,571 in the three months ended June 30, 1998, and
operating income as a percentage of sales decreased to 9.6% from 9.8%.
<PAGE>
Other income/expenses reflect net other expenses of $94 in the three
months ended June 30, 1999 compared to net other income of $70 in the
corresponding period in 1998. Net other expenses for the three months ended
June 30, 1999 reflect foreign currency transaction losses of $128, which were
primarily a result of the increased value of the U.S. dollar relative to the
Euro, compared to foreign currency transaction losses of $36 in the
corresponding period in 1998.
Net income increased 9.4% to $1,149 in the three months ended June 30,
1999 from $1,050 in the three months ended June 30, 1998. Net income reflects a
35% effective income tax rate for the three months ended June 30, 1999 compared
to 36% for the corresponding period in 1998. 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. The increase in the value
of the U.S. dollar relative to other foreign currencies since January 1999
negatively affected diluted earnings per share by approximately $0.09.
Six Months Ended June 30, 1999 Compared with Six Months Ended June 30, 1998
(amounts in thousands except per share information)
Sales increased 20.5% to $37,719 in the six months ended June 30, 1999
from $31,296 in the six months ended June 30, 1998, principally as a result of
an increase in sales of the Company's industrial laser scanners, 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 1999 was
offset by lower average unit selling prices on its POS products, compared to
the corresponding period in 1998, and reflected more unfavorable foreign
exchange fluctuations. Average unit selling prices reflected significant
unfavorable foreign rate fluctuations. The reduction in the value of the Euro
against the U.S. dollar since January 1999 negatively affected the recorded
U.S. dollar value of the year-to-date German operation sales by approximately
7.0% and year-to-date consolidated sales by 2.8%.
International sales accounted for $22,520 (59.7% of total sales) in
the six months ended June 30, 1999 and $19,117 (61.1% of total sales) in the
six months ended June 30, 1998. One customer accounted for 5.2% of the
Company's revenues in the six months ended June 30, 1999. Two customers each
accounted for 5.2% of the Company's revenues in the six months ended June 30,
1998.
Cost of sales increased 19.0% to $22,601 in the six months ended June
30, 1999 from $18,986 in the six months ended June 30, 1998, and cost of sales
as a percentage of sales decreased to 59.9% from 60.7%. The decrease in cost of
sales as a percentage of sales was due primarily to increased sales of the
Company's industrial laser scanners which yield higher gross profit margins
than the Company's POS products, reduced product costs resulting from
engineering enhancements to certain POS products, and manufacturing
efficiencies and operating leverage that result from greater unit volumes,
partially offset by lower average unit selling prices on certain of the
Company's products as noted above. If sales in the six months ended June 30,
1999 are adjusted to negate the effect of the reduction in the value of the
Euro against the U.S. dollar since January 1999, cost of sales as a percentage
of sales would have been 58.3% for the six months ended June 30, 1999.
SG&A expenses increased 32.6% to $9,520 in the six months ended June
30, 1999 from $7,177 in the six months ended June 30, 1998 and increased as a
percentage of sales to 25.2% from 22.9%. 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 decreased 8.2% to $1,983 in the six months ended June 30,
1999 from $2,159 in the six months ended June 30, 1998, and decreased as a
percentage of sales to 5.3% from 6.9%. The decrease in R&D expenses was due
primarily to higher expenditures in 1998 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 21.6% to $3,615 in the six months ended
June 30, 1999 from $2,974 in the six months ended June 30, 1998, and operating
income as a percentage of sales increased to 9.6% from 9.5%.
Other income/expenses reflect net other expenses of $234 in the six
months ended June 30, 1999 compared to net other income of $260 in the
corresponding period in 1998. Net other expenses for the six months ended June
30, 1999 reflects higher interest expenses, higher net foreign currency
transaction losses, and lower interest income and other miscellaneous income
compared to the corresponding period in 1998.
<PAGE>
Net income increased 5.8% to $2,190 in the six months ended June 30,
1999 from $2,070 in the six months ended June 30, 1998. Net income reflects a
35% effective income tax rate for the six months ended June 30, 1999 compared
to 36% for the corresponding period in 1998. 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. The increase in the value
of the U.S. dollar relative to other foreign currencies since January 1999
negatively affected diluted earnings per share by approximately $0.14 per
share.
Inflation and Seasonality
Inflation and seasonality have not had a material impact on the
Company's results of operations. There can be no assurance, however, that the
Company's sales in future periods 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 to $22,047 as of June 30, 1999
from $21,496 as of December 31, 1998.
The Company's operating activities used net cash of $3,564 compared
with net cash used of $565 for the six months ended June 30, 1999 and 1998,
respectively. Net cash used by operating activities for the six months ended
June 30, 1999 resulted primarily from increases in accounts receivable and
inventory, offset by an increase in net income plus non-cash charges and an
increase in accrued expenses.
The Company's total deferred income tax asset of $1,526 and deferred
tax liability of $621 are based upon cumulative temporary differences as of
June 30, 1999, which provide approximately $2,334 of future net tax deductions
against future taxable income. The deferred tax asset arises primarily from
recording reserves on current assets as expenses for accounting purposes prior
to receiving the related tax benefits. 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 June
30, 1999, 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, 2000.
The Company also has a 500 German mark unsecured revolving credit
facility with a German bank in the name of its German subsidiary, Metrologic
Instruments GmbH. As of June 30, 1999, no amounts were outstanding under this
revolving credit facility.
In December 1998, the Company entered into a line of credit with its
primary bank, denominated in U.S. dollars ("U.S. Dollar Line"), in an amount
not to exceed $1,500, for the purchase of fixed assets. As of June 30, 1999,
this line was fully utilized. The Company is currently making interest-only
payments on the U.S. Dollar Line until December 31, 1999, at which time amounts
outstanding will convert to a term note, payable over a 54-month period.
As of June 30, 1999, the Company was completing an additional $2,400
line of credit with its primary bank for the purchase of fixed assets. The
Company expects to utilize part of this line of credit in the remaining half of
1999.
Property, plant and equipment expenditures were $2,220 and $1,338 for
the six months ended June 30, 1999 and 1998, respectively. During the second
quarter of 1999, the Company substantially completed its IT system
implementation and continued expenditures related to manufacturing automation
and capacity expansion. The Company's current plan for future capital
expenditures include: (i) investment in the Company's Suzhou, China facility;
(ii) continued investment in manufacturing capacity expansion at the Blackwood,
NJ headquarters; (iii) enhancements to, and additional information systems.
<PAGE>
The Company's liquidity has been, and may continue to be, adversely
affected by changes in foreign currency exchange rates, particularly the value
of the U.S. dollar relative to the German mark and the Brazilian real. 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 may 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 (Euro) and the
U.S. dollar although it does not offer protection against fluctuations of that
currency against 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.
Forward Looking Statements; Certain Cautionary Language
Written and oral statements provided by the Company from time to time may
contain certain forward looking information, as that term is defined in the
Private Securities Litigation Reform Act of 1995 (the "Act") and in releases
made by the Securities and Exchange Commission ("SEC"). The cautionary
statements which follow are being made pursuant to the provisions of the Act
and with the intention of obtaining the benefits of the "safe harbor"
provisions of the Act. While the Company believes that the assumptions
underlying such forward looking information are reasonable based on present
conditions, forward looking statements made by the Company involve risks and
uncertainties and are not guarantees of future performance. Actual results may
differ materially from those in the Company's written or oral forward looking
statements as a result of various factors, including but not limited to, the
following:
Reliance on third party resellers, distributors and OEMs which subjects the
Company to risks of business failure, credit and collections exposure, and
other business concentration risks; foreign currency exchange rate fluctuations
between the U.S. Dollar and other major currencies including, but not limited
to, the German Mark / Euro, Singapore Dollar, Brazilian Real, and British Pound
can significantly affect the Company's results of operations; continued or
increased competitive pressure which could result in reduced selling prices of
products, like the decrease in unit sale prices, or continued increases in
sales and marketing promotion costs; a prolonged disruption of scheduled
deliveries from suppliers when alternative sources of supply are not available
to satisfy the Company's requirements for raw material and components;
continued or prolonged capacity constraints that may hinder the Company's
ability to deliver ordered product to customers; the effects of and changes in
trade, monetary and fiscal policies, laws and regulations and other activities
of governments, agencies and similar organizations, including but not limited
to trade restrictions or prohibitions, inflation, monetary fluctuations, import
and other charges or taxes, nationalizations and unstable governments;
difficulties or delays in the development, production, testing and marketing of
products, including, but not limited to, a failure to ship new products when
anticipated, failure of customers to accept these products when planned, any
defects in products or a failure of manufacturing efficiencies to develop as
planned; the costs of legal proceedings or assertions by or against the Company
relating to intellectual property rights and licenses, and adoption of new or
changes in accounting policies and practices; occurrences affecting the slope
or speed of decline of the life cycle of the Company's products, or affecting
the Company's ability to reduce product and other costs, and to increase
productivity; the impact of unusual items resulting from the Company's ongoing
evaluation of its business strategies, acquisitions, asset valuations and
organizational structures; the future health of the U.S. and international
economies and other economic factors that directly or indirectly affect the
demand for the Company's products; the Company invoices and accepts payment for
goods in the aforementioned currencies, however, the economic slowdown of other
foreign nations may also adversely affect the Company's results of operations;
issues that have not been anticipated in the transition to the new European
currency that may cause prolonged disruption of the Company's business; the
inability of parties external to the Company to provide goods and services in a
timely, accurate manner as a result of Year 2000 processing problems; and
increased competition due to industry consolidation or new entrants into the
Company's existing markets.
<PAGE>
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 following discussion broadly addresses the Company's efforts to
identify and address the Company's and relevant third parties' Year 2000
problems. The scope of the Year 2000 readiness effort includes (i) information
technology ("IT") such as software and hardware; (ii) non-IT ("Non-IT") systems
or embedded technology such as micro-controllers 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.
It would be impractical for the Company to attempt to address all Year
2000 problems of third parties that have been or may in the future be
identified. Specifically, Year 2000 problems have been or may in the future be
identified with respect to the IT and Non-IT systems of third parties having
widespread national and international interactions with persons and entities
generally (for example, certain IT and Non-IT systems of governmental agencies,
utilities and telecommunications, information and financial networks) that, if
uncorrected, could have a material adverse impact on the Company's business,
financial condition or results of operations. Notwithstanding anything set
forth below, the Company is not in a position to address any such Year 2000
problems. 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.
(i) IT. Substantially all of the Company's current IT systems are Year 2000
compliant. The Company has replaced substantially all of its IT systems with
new, Year 2000 compliant, IT systems for itself and its subsidiaries. Total
expenditures amounted to approximately $1,800, which includes external resource
costs, a substantial portion of which was capitalized.
(ii) Non-IT. The Company currently uses standard mass-market vendor supplied
software on its desktop systems and laptops. These standard software
applications limit the number of information technology vendors with which the
Company must work in order to ensure Year 2000 readiness. Many of these vendors
are still implementing their Year 2000 compliance programs. The Company
maintains maintenance contracts with all information technology vendors and
will implement the Year 2000 compliant versions of hardware and/or software as
required when those solutions become available. The Company's hardware for
workstations, servers, and network routers are expected to be Year 2000
compliant by the third quarter of 1999. As of June 30, 1999, substantially all
of the Company's hardware and software applications were Year 2000 compliant.
However, no assurance can be provided that all required replacement programs
will be implemented in a timely manner or that the failure to implement such
programs will not have a material adverse effect on the Company's business,
results of operations or financial condition. As of June 30, 1999,
substantially all of the Company's facilities and manufacturing systems were
Year 2000 compliant.
(iii) Third Parties. The Company is in contact with key suppliers in an effort
to assure no interruption in the relationship between the Company and these
important third parties resulting 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
respect to key suppliers and customers will minimize these risks. As of June
30, 1999, substantially all of the Company's key suppliers (constituting all
significant vendors) had responded affirmatively regarding their respective
Year 2000 readiness. However, such response does not assure Year 2000
compliance of the IT and Non-IT systems used by such suppliers, but instead
provides only an indication of the status of their efforts.
The Company's current estimates of the 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.
<PAGE>
The Company currently anticipates that any identified Year 2000 problem
affecting its own systems or that of its significant customers, suppliers,
creditors, financial organizations and utilities providers will be either
corrected by December 31, 1999 or will not have a material adverse affect on
the Company's business, financial condition or results of operations. Moreover,
the Company is working to minimize any disruption to the business of its
vendors and suppliers due to Year 2000 problems that may have a material
adverse affect on the Company's business, financial condition or results of its
operations. However, notwithstanding the Company's efforts to identify and
correct such Year 2000 problems, there can be no assurance that the Company
will be successful in addressing the Year 2000 problems as they pertain to its
products and its internal systems, or that the failure to do so would not have
a material adverse effect on the Company's business, financial condition or
results of operations. In addition, notwithstanding such efforts, there can be
no assurance that the systems of third parties with which the Company interacts
will not suffer from Year 2000 problems, or that such problems will not have a
material adverse effect on the Company's business, financial condition or
results of operations. In particular, Year 2000 problems that have been or may
in the future be identified with respect to the IT and Non-IT systems of third
parties having widespread national and international interactions with persons
and entities generally (for example, certain IT and Non-IT Systems of
governmental agencies, utilities and information and financial networks) could
have a material adverse impact on the Company's business, financial condition
or results of operations.
The Company currently is in the process of reviewing its Year 2000
compliance plans to determine what contingency plans, if any, are appropriate.
The Company does not currently have any contingency plans. The Company
anticipates completing such review and preparing contingency plans, if
appropriate, by October 1999. There can be no assurance that such measures will
prevent the occurrence of Year 2000 problems, which could have a material
adverse effect upon the Company's business, results of operations or financial
condition.
Item 3. Quantitative and Qualitative Disclosure About Market Risk.
Refer to Item 7A in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998 for required disclosure.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is currently involved in matters of litigation arising
from the normal course of business including matters described below.
Management is of the opinion that such litigation will not have a material
adverse effect on the Company's consolidated financial position or results of
operations.
On July 21, 1999 the Company and six other leading members of the
Automatic Identification and Data Capture Industry jointly initiated a
litigation against the Lemelson Medical, Educational, & Research Foundation,
Limited Partnership (the "Lemelson Partnership"). The suit, which is entitled
Symbol Technologies, Inc. et. al. v. Lemelson Medical, Educational & Research
Foundation, Limited Partnerships, was commenced in the U.S. District Court,
District of Nevada in Reno, Nevada. In the litigation, the Auto ID companies
seek, among other remedies, a declaration that certain patents, which have been
asserted by the Lemelson Partnership against end users of bar code equipment,
are invalid, unenforceable and not infringed. The other six Auto ID companies
who are plaintiffs in the lawsuit are Accu-Sort Systems, Inc., Intermec
Technologies Corporation, wholly-owned subsidiary of UNOVA, Inc., PSC Inc.,
Symbol Technologies, Inc., Teklogix Corporation, a wholly-owned U.S. subsidiary
of Teklogix International, Inc., and Zebra Technologies Corporation. Symbol
Technologies, Inc. has agreed to bear approximately half of the legal and
related expenses associated with the litigation, with the remaining portion
being borne by the Company and the other Auto ID companies.
Although no claim is now or had ever been asserted by the Lemelson
Partnership directly against the Company or, to our knowledge any other Auto ID
company, the Lemelson Partnership has contacted many of the Auto ID companies'
customers demanding a one-time license fee for certain so-called "bar code"
patents transferred to the Lemelson Partnership by the late Jerome H. Lemelson.
The Company and the other Auto ID companies have received many requests from
their customers asking that they undertake the defense of these claims using
their knowledge of the technology at issue. Certain of these customers have
requested indemnification against the Lemelson Partnership's claims from the
Company and the other Auto ID companies, individually and/or collectively with
other equipment suppliers. The Company, and we understand, the other Auto ID
companies believe that generally they have no obligation to indemnify their
customers against these claims and that the patents being asserted by the
Lemelson Partnership against their customers with respect to bar code equipment
are invalid, unenforceable and not infringed. However, the Company and the
other Auto ID companies believe that the Lemelson claims do concern the Auto ID
industry at large and that it is appropriate for them to act jointly to protect
their customers against what they believe to be baseless claims being asserted
by the Lemelson Partnership.
<PAGE>
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meetings of Shareholders was held on June 24, 1999. At
such meeting, the following matters were voted upon by the shareholders,
receiving the number of affirmative, negative and withheld votes, as well as
abstentions and broker non-votes, set forth below each matter.
(1) The vote of the Common Shareholders for the election of Janet H.
Knowles and Thomas E. Mills IV as directors to serve a three-year term ending
in 2002 were as follows:
No. of Votes For No. of Votes Withheld Name
---------------- --------------------- -----------------
5,111,706 5,800 Janet H. Knowles
5,111,506 6,000 Thomas E. Mills IV
(2) The vote of the Common Shareholders for the appointment of Ernst &
Young as the independent auditors for the Company for the fiscal year ending
December 31, 1999 was as follows:
5,117,131 For 275 Against 100 Abstain
--------- --- ---
The directors of the Company whose terms continue after the Annual
Meeting of Shareholders referenced above are C. Harry Knowles, Stanton L.
Meltzer, and William Rulon-Miller.
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 June 30, 1999.
<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: August 16, 1999 By:/s/ C. Harry Knowles
---------------- -----------------------
C. Harry Knowles
Chairman of the Board,
President and Chief Executive Officer
(Principal Executive Officer)
Date: August 16, 1999 By:/s/Thomas E. Mills IV
---------------- --------------------------
Thomas E. Mills IV
Executive Vice President,
Chief Operating Officer and Chief
Financial Officer (Principal
Financial Officer)
<PAGE>
EXHIBIT INDEX
Exhibit No.
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
UNAUDITED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1999
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
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<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-END> JUN-30-1999 JUN-30-1998
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<SECURITIES> 0 0
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