UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------
FORM 10-K
---------------
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 31, 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 0-24712
METROLOGIC INSTRUMENTS, INC.
(Exact name of registrant as specified in its charter)
New Jersey 22-1866172
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
90 Coles Road, Blackwood, New Jersey 08012
(Address of principal executive offices) (Zip Code)
(856) 228-8100
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
Par Value $.01 Per Share
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates
of the Registrant as of March 29, 1999 was $20,043,356 calculated by excluding
all shares held by executive officers, directors and 5% stockholders of the
Registrant without conceding that all such persons are "affiliates" of the
Registrant for purposes of the federal securities laws.
As of March 29, 2000 there were 5,429,434 shares of Common Stock outstanding.
Documents Incorporated by Reference
Portions of the following documents are incorporated herein by reference:
Part III - The Registrant's definitive Proxy Statement for its 2000
Annual Meeting of Stockholders, to be filed not later than 120 days after the
close of the fiscal year.
<PAGE>
PART I
Item 1. Business
Introduction
Metrologic Instruments, Inc. ("Metrologic" or the "Company") designs,
manufactures and markets 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. The Company's
principal laser scanner products are hand-held scanners, fixed projection
scanners, in-counter scanners and industrial scanners. The Company's marketing
efforts are also currently focused on additional products, including wireless
scanner interfaces, holographic scanners and related integrated systems,
hand-mounted scanners, which provide hands-free scanning capability, and laser
engines, which perform scanning functions in products manufactured by others.
The Company is vertically integrated, designing and manufacturing its own
optics, optical coatings, magnetic and inductive electronic components and
fabricated parts.
The Company was incorporated in New Jersey in May 1969 as a successor to a sole
proprietorship, which commenced operations in 1968. The Company's executive and
administrative offices are located at 90 Coles Road, Blackwood, New Jersey
08012. The Company's telephone number is 856-228-8100.
The Company's principal subsidiaries include: Metrologic Instruments GmbH;
Metrologic Asia (PTE) Ltd.; Metrologic do Brasil Ltda (a 51% joint venture);
Holoscan, Inc. ("Holoscan"); Metro (Suzhou) Technologies Co., Ltd.; MTLG
Investments Inc.; Metrologic Instruments (Barbados) Inc.; Metrologic Eria
Iberica SL; and Metrologic Italia S.r.l.
The Company's Products
The Company's scanners use solid state visible-laser-diodes and incorporate
custom integrated circuits and surface mount components for virtually all of
their electronics. In addition, the Company's scanners use proprietary
software, including ScanSet(R) and MetroSet(TM) configuration utilities and
ScanSelect(TM) and MetroSelect(TM) bar code booklet programs, which allow the
end-user to reconfigure and program the scanners' performance characteristics.
These programs also permit the scanner to read commonly used bar codes and to
perform a variety of other functions. In addition, the Company's interpretive
and decode software provide the capability of high speed and aggressive
decoding. The Company's scanners interface into most computers,
point-of-transaction devices (e.g. cash registers), mobile computing terminals
and internet-ready appliances.
Laser bar code scanners are the Company's predominant products and accounted
for 92.7%, 94.4% and 92.8% of the Company's sales in 1999, 1998 and 1997,
respectively. The following laser bar code scanners have historically accounted
for a substantial portion of the Company's product revenues.
Hand-Held Scanners. Since late 1990, the Company has offered for sale its MS900
Series of automatically triggered hand-held scanners. These scanners generally
are used in retailing, libraries, industrial warehousing, production lines and
commercial applications because of their low cost, size and versatility. Using
infrared sensor detectors, the MS900 Series turns on automatically and can be
manually presented to a bar code or fixed mounted and used as a stationary
scanner. These scanners can automatically read and discriminate among all
commonly used bar code symbols. Priced to compete directly with other low cost
bar code reading devices such as the charge coupled device ("CCD") and the
light pen, the MS900 Series also competes in a class of more expensive high
performance scanners due to its performance and reliability.
Fixed Projection Scanners. Since 1990, the Company has offered for sale its
MS700 Series of high performance fixed projection scanners. By projecting a
pattern of multiple laser lines at very high speeds, the MS700 Series is
capable of reading bar codes presented in multiple directions or
"omnidirectionally." These scanners are generally mounted on the top of a
counter and are used in high volume retail stores and outlets, magazine
distribution and processing centers, libraries and other applications where
greater scanning throughput is required.
<PAGE>
In 1998, the Company introduced the Orbit(R) MS7100. The MS7100 is a compact,
omnidirectional presentation laser bar code scanner. This scanner is small and
lightweight and designed for applications where counter and workspace is
limited. Orbit can be used for many applications, including point-of-sale
applications in retail and specialty stores. The MS7100 is positioned on a unit
sales price basis between the MS6720 hand-held and MS700 Series.
In-counter Mini-Slot(R) Scanners. Since 1985 the Company has offered for sale
its in-counter Slot scanners. The Company's MS800 Series of in-counter
Mini-Slot(R) scanners has been offered for sale since 1991 and was developed
for supermarket, discount and specialty stores which require high-throughput
scanning but have limited space in which to work.
Omnidirectional Hand-Held Scanners. In 1996, the Company introduced a
multi-purpose omnidirectional scanner. The MS6720 incorporates omnidirectional
scanning technology into a hand-supportable housing, offering ergonomic
hand-held scanning and fixed presentation throughput. The MS6720 is positioned
on a unit sales price basis between the Company's cost-effective MS900 Series
and high-performance fixed presentation MS700 scanners.
Industrial Scanners. Since 1991, the Company has offered its TECH series of
scanners. These scanners generally are used in conveyor belt or other
industrial applications requiring automated scanning capability. The TECH
series is designed to withstand the rigors associated with equipment used in
industrial environments and may be mounted in any orientation, giving the
end-user installation flexibility. Other industrial products include
ScanQuest(R) engines, ScanGlove(R) scanners and ScanKey(TM) scanners.
Holographic Industrial Scanners. Since 1996, the Company has offered its
HoloTrak(R) line of holographic scanners. These scanners utilize proprietary
Metrologic technology to offer increased scanning performance at a more
affordable price than similar fixed industrial-use omnidirectional scanners.
The HoloTrak(R) line is designed to increase user efficiency and productivity
in high volume package-handling situations. Holographic scanner products
include the Company's versatile 8000 Series scanners, C Series(TM) scanners
designed for industrial conveyor belt scanning, and tunnel systems which
integrate cost-effective holographic scanner technology with other technologies
including Q-Trak(TM) tracking software for a broad range of high-speed,
automated applications.
Research and Product Development
The Company conducts its own engineering programs for the purposes of
developing new products, improving its existing products' reliability,
ergonomics and performance and reducing manufacturing and support costs. The
Company is engaged in continuous development programs in the areas of optics,
holography, electronics, software, radio-frequency interfacing, automated
manufacturing methods and mechanics.
During 1999, the Company's research and development efforts were focused on new
product introductions for 1999 and 2000, which include hand held scanners,
fixed projection scanners, and holographic scanners. During 1999, 1998 and
1997, the Company incurred expenses of approximately $4.3 million, $4.2
million, and $3.4 million, respectively, on research and development
activities.
Sales and Marketing
The Company sells its products through distributors, value-added resellers
("VARs"), original equipment manufacturers ("OEMs") and directly to end-users
located throughout the world. The Company also utilizes its subsidiaries and
affiliates to sell, distribute and service its products throughout major
markets of the world. Metrologic Instruments GmbH, a wholly-owned subsidiary
located near Munich, Germany, provides sales, distribution and service to
European customers. In 1998, the Company established Metrologic Asia (PTE)
Ltd., a wholly-owned subsidiary located in Singapore which provides sales,
distribution and service, to develop and support the Company's growing Asian
customer base. In 1998, the Company completed a joint venture agreement
providing for a 51% equity interest in Metrologic do Brasil Ltda., located in
Sao Paulo, Brazil. Metrologic do Brasil Ltda. provides sales, distribution and
service for the Company's Brazilian customer base. Metrologic Instruments,
South America was relocated to Sao Paulo, Brazil in 1999 and remains the
exclusive sales office for the Company's South American customers outside of
Brazil. In January 2000, the Company completed a Joint Venture agreement
providing for a 51% equity interest In Metrologic Eria Iberica SL, located in
Madrid Spain. Metrologic Eria Iberica SL provides sales, distribution and
service for the Company's Spanish customer base.
<PAGE>
The Company has continued to strengthen its focus to better support sales to
distributors and resellers, sales to OEM's, and sales of holographic industrial
scanners including pre-sales application testing and support.
The Company has contractual relationships with numerous distributors and
dealers and a limited number of OEMs, VARs and end-users. OEMs purchase the
Company's products, incorporate them into their systems and sell them under
their own names. VARs purchase the Company's products and other peripheral
components needed for specific applications and sell them directly to
end-users. By utilizing multiple distribution channels, the Company has been
able to expand its market presence, broaden its distribution network and sell
to industries other than those serviced by the Company's direct sales force.
Backlog
As of December 31, 1999, the Company had approximately $2.7 million in backlog
orders. All such backlog orders are anticipated to be filled prior to December
31, 2000. As of December 31, 1998, the Company had approximately $4.6 million
in backlog orders, of which substantially all were filled during the 1999
fiscal year.
The Company performs ongoing credit evaluations of its customers' financial
condition, and except where risk warrants, requires no collateral. The Company
may, however, require letters of credit or prepayment terms for those customers
in lesser-developed countries.
The following table sets forth certain information as to the Company's sales by
geographical location: (amounts in thousands)
Year Ended December 31,
1997 1998 1999
North America $19,684 $26,058 $33,698
Europe 26,475 28,849 33,906
Rest of World 7,336 10,734 12,499
------- ------- -------
Total $53,495 $65,641 $80,103
======= ======= =======
Foreign sales of the Company's products are subject to the normal risks of
foreign operations, such as protective tariffs, export/import controls and
transportation delays and interruptions. The Company's international sales are
invoiced in U.S. dollars, Euros, Singapore dollars, Brazilian reals, and the
British pound and are thus subject to currency exchange fluctuations. Since the
Company's products are manufactured in the United States, the Company's sales
and results of operations are routinely affected by fluctuations in the value
of the U.S. dollar. The Company undertakes certain hedging activities to the
extent of known cash flow in an attempt to mitigate the effects of foreign
exchange fluctuations.
Competition
The bar code scanning industry is highly competitive. The Company's scanners
compete primarily with those produced by Accu-Sort Systems, Inc., Microscan
Systems, Inc., NCR Corporation, PSC Inc., Symbol Technologies, Inc., Unova,
Inc., Welch Allyn, Inc. and others in the United States as well as Scantech
located in the Netherlands, Datalogic, Inc. located in Italy, Sick located in
Germany, and Nippondenso ID Systems, Opticon, Inc. and many other manufacturers
located in Asia. Many of the Company's competitors are much larger and have
greater financial, technical, marketing and other resources than the Company.
Patent, Copyright and Trademark Matters
The Company files domestic and foreign patent applications to protect its
technological position and new product development. The Company currently has
76 issued U.S. patents, which expire between 2003 and 2017, and 16 foreign
patents, which expire between 2005 and 2015. In addition, the Company currently
has 18 U.S. allowed patent applications which are expected to issue as patents
shortly. The Company has filed additional patent applications with the U.S.
Patent and Trademark Office and foreign patent offices with respect to products
and improvements developed by the Company. The Company owns U.S. trademark
registrations covering Metrologic(R), HandSet(R), HoloTrak(R), HoloSet(R),
Mini-Slot(R), Liberty(R), Orbit(R), OmniQuest(R), ScanGlove(R), ScanPal(R),
ScanQuest(R), ScanSet(R), Tech 7(R), Tech 8(R), Tech 10(R), and VarSide(R). The
Company also has several registered trademarks in foreign countries. The
Company has filed additional trademark and service mark applications including
CodeGate(TM), C Series(TM), Cubit(TM), HoloProfiler(TM), HoloTunnel(TM),
MetroSet(TM), Ortho(TM), Penta(TM), Pulsar(TM), Qtrak(TM), ScanKey(TM),
SimulTrak(TM), and Voyager(TM) for other marks it is using both in the United
States and abroad. The Company intends to continue to file applications for
U.S. and foreign patents and trademarks. Although management believes that its
patents provide some competitive advantage and market protection, the Company
relies primarily upon its proprietary know-how, innovative skills, technical
competence and marketing abilities for its success.
<PAGE>
The Company regards its software as proprietary and attempts to safeguard it
with protection under copyright and trade secret law and nondisclosure
agreements. Despite this protection, it may be possible for competitors or
users to copy aspects of the Company's products or to obtain information which
the Company regards as trade secrets. Computer software generally has not been
patented and existing copyright laws afford only limited practical protection.
The laws of foreign countries generally do not protect the Company's
proprietary rights in its products to the same extent as the laws of the United
States. In addition, the Company may experience more difficulty in enforcing
its proprietary rights in certain foreign jurisdictions.
In December 1996, the Company and Symbol Technologies, Inc. ("Symbol") executed
an extensive cross-license of patents (the "Symbol Agreement") for which the
Company and Symbol pay royalties to each other under certain circumstances
effective January 1, 1996. In connection with the Symbol Agreement, the Company
paid Symbol an advance license fee of $1 million in December 1996 and another
$1 million in quarterly installments of $125,000 over the subsequent two years
ended November, 1998.
In connection with the settlement of a December 1993 patent lawsuit with
Symbol, the Company agreed to make payments to Symbol through December 2004. As
a result of the patent lawsuit, the Company redesigned its hand-held scanners
to convert them from a triggered version to a triggerless version. In
connection with the Symbol Agreement, Symbol and the Company amended the
December 1993 settlement to reduce the maximum aggregate amount payable
thereunder by the Company from $7.5 million to approximately $5.1 million. The
final payment in connection with the settlement was made in August 1999. For
additional information concerning the settlement, see Note 10 of the Notes to
Consolidated Financial Statements.
In December 1998, the Company and Symbol amended the Symbol Agreement to
provide for the purchase of the Company's HoloTrak industrial holographic
scanners for resale by Symbol under Symbol's brand label. This replaces a prior
commitment of Symbol under the Symbol Agreement to purchase the Company's
products.
In April 1999, the Company and Symbol executed a second amendment to the Symbol
Agreement to provide for additional patent licenses for some of the Company's
existing products.
On November 1, 1999, the Company and Symbol signed a third amendment to the
Symbol Agreement. Under the terms of the amended agreement, the Company
obtained a royalty-bearing license for certain of its new products under
Symbol's laser scanning patents, and Symbol obtained a royalty-bearing license
for its products under certain of the Company's patents. Under the terms of the
amendment, both parties will make recurring periodic royalty payments to each
other, effective on the date of signing the third amendment.
Manufacturing and Suppliers
The Company currently manufactures all of its products at its Blackwood, New
Jersey facility, enabling the Company to quickly adapt and enhance its products
and services to meet specific customer requirements. This capability also
reduces the length of the new product development cycle and speeds the
integration of new products into manufacturing. Product quality assurance is
achieved by an experienced workforce.
The Company is currently preparing its Suzhou, China facility for production
of locally designed products. Production is expected to begin in November 2000.
The Company has invested and will continue to invest in capital production
equipment and tooling that will automate production, increase capacity and
reduce direct labor costs.
The Company currently relies on a limited number of suppliers for several
components used in the manufacture of its products. The Company does not
believe that the loss of any one supplier would have a long term adverse effect
on its business, although set-up costs and delays would likely result if the
Company were required to change any single supplier without adequate prior
notice. In 1999, the Company acquired a 20% equity interest in Metro Asia
Resources, Inc., an international purchasing office located in Taiwan for the
purpose of expanding its suppliers, reducing material costs, and performing
on-site inspections of Asian suppliers.
<PAGE>
Government Regulations
The Company and its products are subject to regulation by various agencies both
in the United States and in the countries in which its products are sold. The
Food & Drug Administration's Center for Devices and Radiological Health
regulates laser safety in the United States, and in Canada, laser safety is
regulated by Industry Canada. In addition, the Occupational Safety and Health
Administration and various state and municipal government agencies have
promulgated regulations concerning working condition safety standards in
connection with the use of lasers in the workplace. Radio emissions are the
subject of governmental regulation in all countries in which the Company
currently sells its products. The Company also submits its products for safety
certification throughout the world by recognized testing laboratories such as
the Underwriters Laboratories, Inc. and the Canadian Standards Association.
The European countries in which the Company's products are sold also have
standards concerning electrical and laser safety and electromagnetic
compatibility and emissions. The Company's products comply with the European
standards regarding electromagnetic compatibility, allowing these products to
bear the CE mark.
The Company believes that it is currently in compliance with all of the
regulations to which it and its products are subject. There can be no
assurance, however, that governmental agencies will not require the Company to
modify its products or working conditions and, if so required, that the Company
would be able to make such modifications. Failure by the Company to comply with
any regulation or standard could have a material adverse effect on the Company.
Employees
As of December 31, 1999, the Company had approximately 600 full-time employees.
None of the Company's employees are represented by a labor union. Management
believes that its relationships with its employees are good.
<PAGE>
Item 2. Properties
The Company's principal executive, administrative, R&D and manufacturing
facility is approximately 113,000 square feet and is located in Blackwood, New
Jersey. This facility is leased by the Company from C. Harry Knowles, Chairman
of the Board and Chief Executive Officer, and Janet H. Knowles, Vice President,
Administration, Secretary and Treasurer of the Company and spouse of C.
Harry Knowles. This lease expires in March 2004.
Domestically, the Company leases an R&D facility in San Jose, California.
Internationally, the Company leases facilities in the following locations:
Munich, Germany; Bologna, Italy; Madrid, Spain; Sao Paolo, Brazil; Singapore;
and Suzhou, China.
Item 3. 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 (the "Auto ID companies") 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, a 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 to the Company's knowledge, 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 Auto ID companies 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>
In response to the action commenced by the Company and the other plaintiffs,
the Lemelson Partnership filed a motion to dismiss the lawsuit, or
alternatively, to stay the proceedings pending the outcome of other litigation
or transfer the case in its entirety to the U.S. District Court for Arizona
where several infringement suits filed by the Lemelson Partnership are pending
against other companies. The Lemelson Partnership has stated that the primary
grounds for its motion to dismiss are the lack of a legally justifiable case or
controversy between the parties because (1) the method claims asserted by the
Lemelson Partnership apply only to the "use" of bar code equipment by the
end-users and not the bar code equipment itself; and (2) the Lemelson
Partnership has never asserted claims of infringement against the Auto ID
companies. Plaintiffs have filed papers arguing against the Lemelson
Partnerships' motion, and the motion is currently pending.
On October 13, 1999 the Company filed suit for patent infringement against PSC
Inc. (PSC) in United States District Court for the District of New Jersey. The
complaint asserts that at least seven of the Company's patents are infringed by
a variety of point-of-sale bar code scanner products manufactured and sold by
PSC. The patents cited in the complaint cover a broad range of bar code
scanning technologies important to scanning in a retail environment including
the configuration and structure of various optical components, scanner
functionality's and shared decoding architecture. The complaint seeks monetary
damages as well as a permanent injunction to prevent future sales of the
infringing products.
On December 22, 1999, PSC filed an answer to the complaint citing a variety of
affirmative defenses to the allegations of infringement asserted by the Company
in its complaint. PSC additionally asserted a counterclaim under the Lanham Act
claiming that the Company made false and misleading statements in its October
13, 1999 press release regarding the patent infringement suit against PSC. The
Company does not believe that this counterclaim has any merit and has made a
claim with its insurance carrier to pay for the defense of this claim.
The court has ordered the case to mediation, and discovery is stayed pending
the outcome of the mediation.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Executive Officers of the Registrant
The executive officers of the Company as of March 30, 2000 are as follows:
Name Age Position
C. Harry Knowles* 71 Chairman of the Board and Chief Executive
Officer
Janet H. Knowles* 58 Director, Vice President, Administration,
Secretary and Treasurer
Thomas E. Mills IV 40 Director, President**, Chief Operating
Officer, and Chief Financial Officer
Dr. LeRoy D. Dickson 65 Vice President, Optical Engineering,
Metrologic Instruments, Inc. and President
and Chief Operating Officer, Holoscan, Inc.
Dale M. Fischer 59 Vice President, International Sales
Joseph Milacci 56 Vice President, Industrial Automation
Benny A. Noens 52 Vice President, European Sales, and
Managing Director, Metrologic Instruments
GmbH
John L. Patton 54 Director, Human Resources
Joseph Sawitsky 37 Vice President, Manufacturing
Mark C. Schmidt 29 Vice President, Marketing
Kevin P. Woznicki 46 Vice President, North American Sales
- -----------------------------------
* Mr. and Mrs. Knowles are husband and wife.
**Mr. Mills became President on February 9, 2000
<PAGE>
The Company's executive officers are elected annually by the Board of Directors
following the annual meeting of shareholders and serve at the discretion of the
Board of Directors.
C. Harry Knowles is the founder of the Company and has been Chairman of the
Board of Directors since the Company's inception in 1969. Mr. Knowles served as
President of the Company from its inception through 1982 and from 1985 until
1999. He has served as Chief Executive Officer since 1985. In addition, Mr.
Knowles served as chief technical officer with responsibility for all of the
Company's research and development activities from 1982 to 1985. Since 1988,
Mr. Knowles has also served as a Managing Director of Metrologic Instruments
GmbH. Prior to founding the Company, Mr. Knowles was the general manager of
Westinghouse Electric Corporation's integrated circuits division in Elkridge,
Maryland.
Janet H. Knowles was a director of the Company from 1972 to 1984 and has served
as a director since 1986. Mrs. Knowles served as Vice President, Administration
from 1976 to 1983 and has served in that capacity and as Secretary since 1984,
and as Treasurer since 1994. Mrs. Knowles is responsible for the Company's
administrative matters.
Thomas E. Mills IV, became President of the Company on February 9, 2000, a
director of the Company effective March 25, 1999, and has served as the
Company's Executive Vice President and Chief Operating Officer since April
1999, as the Company's Vice President, Finance since June 1995 and as Chief
Financial Officer since May 1994. Mr. Mills was employed by Ferranti
International, Inc. from 1986 to April 1994 in various positions, most recently
as Senior Vice President, U.S. Operations.
Dr. LeRoy D. Dickson has served as the Company's Vice President, Optical
Engineering since January 1997. He is also the President and Chief Operating
Officer and co-founder of Holoscan, Inc., a company established in 1993 to
develop holographic bar code scanners. Dr. Dickson served as Chief Executive
Officer and President of Holoscan until March 1996, the date of the Company's
acquisition of Holoscan. Prior to 1993, Dr. Dickson spent 24 years with IBM
Corporation developing optical technology and laser scanning systems, including
IBM's holographic supermarket scanners.
Dale M. Fischer served as the Company's Director of International Marketing and
Sales from 1990 to 1993 and has served as Vice President, International Sales
since 1994. From 1989 to 1990, Mr. Fischer was Chairman of Great Valley
Corporation, a worldwide marketing and product development company. From 1967
until 1988, Mr. Fischer held several positions with TRW Electronics Component
Group ("TRW"), most recently as International Marketing, Sales and Licensing
Director. Mr. Fischer was responsible for marketing and sales of TRW products
in more than 50 countries and was responsible for the implementation of a joint
venture in Japan and the establishment of seven technology and manufacturing
licenses throughout the world. Mr. Fischer has also served as President of
Dalex International Corporation, a company devoted to export/import and
worldwide market development.
Joseph Milacci has served as the Company's Vice President, Industrial
Automation since October 1997. From 1993 to 1997, Mr. Milacci was employed as
General Manager and Member of the Board of Directors for OPCO, Inc., a
manufacturer of optical components. From 1987 to 1997, on a part time basis
from 1993 to 1997, Mr. Milacci owned and operated JEM Group, Inc., a process
and service company. From 1985 to 1987, Mr. Milacci served as Vice President of
Operations for Z-Tel, Inc., a telecommunications company. From 1977 to 1985,
Mr. Milacci served as the Vice President and General Manager of Fischer
Scientific Corporation. Mr. Milacci was previously employed by Metrologic from
1973 to 1977 as Operations Manager.
<PAGE>
Benny A. Noens served as the Company's European Sales Manager from 1991 to 1993
and has served as Vice President, European Sales since 1994. In addition, Mr.
Noens has been Managing Director of Metrologic Instruments GmbH since 1994.
From 1980 until 1991, Mr. Noens held several positions with Data General
Corporation, including serving in Latin America as Marketing and Distribution
Manager. Prior to his employment at Data General, Mr. Noens managed a division
of C.T. Janer Co., an import/export company located in Rio de Janiero, Brazil.
John L. Patton served as the Company's Human Resources Manager from 1993 to
1996 and has served as Director, Human Resources since December 1996. From 1988
to 1993, he was employed as a human resources consultant with the Gordon Wahls
Company and from 1984 to 1988, he was employed as human resources manager at
TRW, IRC Division. From 1979 to 1984 he held the position of Personnel Manager
at Oral B Laboratories.
Joseph Sawitsky has served as the Company's Vice President, Manufacturing since
November 1999. He joined Metrologic in 1998 as the Production Manager. From
1994 to 1998, he held several positions for Zenith Electronics Corp., a
high-volume, automated electronics manufacturer. From 1990 to 1994, he worked
for ICI Composites and manufactured specialty polymer materials for the
aerospace and industrial markets. After graduating from the U. S. Naval Academy
in 1984, he served six years in the Nuclear Submarine Force.
Mark C. Schmidt has served as the Company's Vice President, Marketing since
November 1999. He has been employed by Metrologic since 1992, most recently in
the position of Marketing Manager. During his tenure, Mr. Schmidt has
progressed from Optical Engineer to the position of POS Product Manager in
1995, and Marketing Manager in 1997.
Kevin P. Woznicki served as the Company's Director of Marketing from August
1995 to July 1996, Vice President of Marketing from August 1996 to November
1996, and has served as Vice President, North American Sales since December
1996. From 1994 to July 1995, he was employed by Franklin Electronic Publishing
as North American Sales Manager. From 1988 to 1994 he was employed by SL Waber,
Inc., a manufacturer of portable power protection devices, where he held
several positions including Vice President, General Manager of the business
products division and Vice President, Sales and Marketing.
PART II
Item 5. Market for the Registrant's Common Equity and Related Shareholder
Matters
The common stock of the Company, par value $.01 per share ("Common Stock") is
traded on The Nasdaq Stock Market's National Market System under the symbol
"MTLG." The following table sets forth, for the indicated periods, the high and
low closing prices of the Company's Common Stock as reported by Nasdaq:
High Low
January to March 1997 $17 1/2 $13 1/4
April to June 1997 $19 3/4 $13 3/4
July to September 1997 $19 5/8 $14
October to December 1997 $15 3/4 $12 1/4
January to March 1998 $17 3/8 $12 5/8
April to June 1998 $18 $14 3/4
July to September 1998 $15 7/8 $12
October to December 1998 $14 1/4 $11
January to March 1999 $15 3/4 $11 1/2
April to June 1999 $14 $ 9 3/4
July to September 1999 $12 1/4 $ 9 3/4
October to December 1999 $14 1/4 $10 1/8
On March 29, 2000 there were 148 shareholders of record of Common Stock.
The Company currently anticipates that it will retain all of its earnings to
finance the operation and expansion of its business, and therefore does not
intend to pay dividends on its Common Stock in the foreseeable future. Any
determination to pay dividends is at the discretion of the Company's Board of
Directors and will depend upon the Company's financial condition, results of
operations, capital requirements, limitations contained in loan agreements and
such other factors as the Board of Directors deems relevant.
<PAGE>
Item 6. Selected Consolidated Financial Data
(in thousands except share and per share data)
Year ended December 31,
1995 1996 1997 1998 1999
-------------------------------------------------
Statement of Operations Data:
Sales $ 41,563 $ 46,971 $ 53,495 $ 65,641 $ 80,103
Cost of sales 24,092 28,799 33,240 39,698 46,710
-------------------------------------------------
Gross profit 17,471 18,172 20,255 25,943 33,393
Selling, general and
administrative expenses 10,589 10,505 12,087 15,537 21,331
Research and development
expenses 3,024 3,110 3,359 4,157 4,327
-------------------------------------------------
Operating income 3,858 4,557 4,809 6,249 7,735
Other income (expense), net 353 221 (156) 456 (202)
-------------------------------------------------
Income before provision
for income taxes 4,211 4,778 4,653 6,705 7,533
Provision for income taxes 1,669 1,803 1,673 2,212 2,636
-------------------------------------------------
Net income $ 2,542 $ 2,975 $ 2,980 $ 4,493 $ 4,897
=================================================
Basic earnings per share
Weighted average shares
outstanding used in
computing basic EPS 5,238,112 5,255,275 5,330,596 5,391,797 5,412,564
=================================================
Basic earnings per share $ 0.49 $ 0.57 $ 0.56 $ 0.83 $ 0.90
=================================================
Diluted earnings per share
Weighted average shares
outstanding used in
computing diluted EPS 5,278,683 5,301,066 5,447,277 5,512,758 5,460,194
=================================================
Diluted earnings per share $ 0.48 $ 0.56 $ 0.55 $ 0.82 $ 0.90
=================================================
December 31,
1995 1996 1997 1998 1999
Balance Sheet Data: ------------------------------------------------------
Cash and cash
equivalents $ 12,065 $ 10,358 $ 13,096 $ 10,684 $ 6,970
Working capital $ 14,733 $ 15,200 $ 18,599 $ 21,496 $ 23,659
Total assets $ 31,401 $ 35,992 $ 38,458 $ 46,296 $ 56,673
Long-term debt $ 817 $ 1,764 $ 1,496 $ 2,608 $ 3,414
Other long-term
obligations $ 3,126 $ 2,033 $ 1,329 $ 676 $ 588
Total liabilities $ 13,475 $ 14,945 $ 13,557 $ 16,295 $ 22,129
Common stock $ 52 $ 53 $ 54 $ 54 $ 54
Total shareholders'
equity $ 17,926 $ 21,047 $ 24,901 $ 30,001 $ 34,544
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
General
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 countries
worldwide.
Results of Operations
Most of the Company's product sales in Western Europe 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 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.
Year Ended December 31, 1999 Compared with Year Ended December 31, 1998
(amounts in thousands except per share information)
Sales increased 22.0% to $80,103 in 1999 from $65,641 in 1998, principally as a
result of an increase in sales of the Company's industrial laser scanners,
including HoloTrak(tm) industrial holographic laser scanners, the continued
increase in market acceptance of the Company's point-of-sale ("POS) products
and increased sales and marketing efforts. The increase in sales volume in 1999
was offset by lower average unit selling prices on the Company's POS products
compared to the corresponding period in 1998, and reflected unfavorable foreign
currency exchange fluctuations. Average unit selling prices reflected
significant unfavorable foreign exchange 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 European operation
sales by approximately 9.3% and consolidated sales by 3.7%.
International sales accounted for $46,405 (57.9% of total sales) in 1999 and
$39,583 (60.3% of total sales) in 1998. Two customers accounted for 5.9% and
5.1%, respectively, of the Company's revenues in 1999. Two customers accounted
for 5.9% and 5.4%, respectively, of the Company's revenues in 1998.
Cost of sales increased 17.7% to $46,710 in 1999 from $39,698 in 1998, while
cost of sales as a percentage of sales decreased to 58.3% from 60.5%. 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 of
certain POS products and manufacturing efficiencies and operating leverage that
resulted from greater unit volumes, partially offset by lower average unit
selling prices on certain of the Company's POS products. If sales in 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 a more favorable 56.3% in 1999.
Selling, general and administrative ("SG&A") expenses increased 37.3% to
$21,331 in 1999 from $15,537 in 1998 and increased as a percentage of sales to
26.6% from 23.7%. The increase in SG&A expenses was due primarily to increased
marketing efforts, which include costs associated with the Company's Concert
Program(TM), a business partner program used to market and promote the
Company's products.
Research and development ("R&D") expenses increased 4.1% to $4,327 in 1999 from
$4,157 in 1998, and decreased as a percentage of sales from 6.3% to 5.4%. The
increase in R&D expenses was due primarily to higher expenditures for the
development of new POS and industrial products, including development of the
Company's HoloTunnel(TM).
Operating income increased 23.8% to $7,735 in 1999 from $6,249 in 1998, and
operating income as a percentage of sales increased to 9.7% from 9.5%.
Other income/expenses reflect net other expenses of $202 in 1999 compared to
net other income of $456 in 1998. Net other expenses in 1999 reflects higher
interest expense, lower interest income and foreign currency transaction losses
as compared to 1998.
<PAGE>
Net income increased 9.0% to $4,897 in 1999 from $4,493 in 1998. Net income
reflects a 35% effective income tax rate for 1999 compared to 33% in 1998. The
increased effective income tax rate resulted from a reduction in the recorded
foreign tax benefit. 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 $0.34 per share.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997 (amounts
in thousands except per share information)
Sales increased 22.7% to $65,641 in 1998 from $53,495 in 1997, principally as a
result of the continued increase in market acceptance of the Company's
point-of-sale ("POS") products, an increase in sales of the Company's HoloTrak
industrial holographic laser scanners, and increased sales and marketing
efforts. The increase in sales volume in 1998 was offset by lower average unit
selling prices on the Company's POS products and reflected unfavorable foreign
currency exchange fluctuations.
International sales accounted for $39,583 (60.3% of total sales) in 1998 and
$33,811 (63.2% of total sales) in 1997. Two customers accounted for 5.9% and
5.4%, respectively, of the Company's revenues in 1998. One customer accounted
for 5.9% of the Company's revenues in 1997.
Cost of sales increased 19.4% to $39,698 in 1998 from $33,240 in 1997, while
cost of sales as a percentage of sales decreased to 60.5% from 62.1%. The
decrease in cost of sales as a percentage of sales was due primarily to reduced
product costs of certain POS products and operating leverage that resulted from
greater unit volumes, partially offset by lower average unit selling prices on
POS products.
Selling, general and administrative ("SG&A") expenses increased 28.5% to
$15,537 in 1998 from $12,087 in 1997 and increased as a percentage of sales to
23.7% from 22.6%. The increase in SG&A expenses was due primarily to increased
marketing efforts, which include costs associated with the Company's Concert
Program(TM), a business partner program used to market and promote the
Company's products.
Research and development expenses increased 23.8% to $4,157 in 1998 from $3,359
in 1997, and remained constant as a percentage of sales at 6.3%. The increase
in R&D expenses was due primarily to higher expenditures for the development of
new POS and industrial products, including development of the Company's
HoloTunnel(TM).
Operating income increased 29.9% to $6,249 in 1998 from $4,809 in 1997, and
operating income as a percentage of sales increased to 9.5% from 9.0%.
Other income/expenses reflect net other income of $456 in 1998 compared to net
other expenses of $156 in 1997. Net other income in 1998 reflects higher
interest income and foreign currency transaction gains as compared to 1997.
Net income increased 50.8% to $4,493 in 1998 from $2,980 in 1997. Net income
reflects a 33% effective income tax rate for 1998 compared to 36% in 1997. The
reduced effective income tax rate resulted from the utilization of the
Company's foreign sales corporation which permits the Company to reduce its
United States federal income tax liability on profits from sales to foreign
customers. Foreign currency exchange fluctuations negatively affected diluted
earnings per share by approximately $.04 per share.
Inflation and Seasonality
Inflation and seasonality have not had a material impact on the Company's
results of operations. There can be no assurance, however, that the Company's
sales in future years will not be impacted by fluctuations in seasonal demand.
Liquidity and Capital Resources (amounts in thousands)
The Company's working capital increased approximately 10.1% to $23,659 as of
December 31, 1999 from $21,496 as of December 31, 1998.
The Company's operating activities used cash of $3,679 in 1999 compared with
net cash provided of $534 in 1998. Net cash used in operating activities in
1999 resulted primarily from increases in accounts receivable and inventory,
partially offset by an increase in net income, plus noncash changes and an
increase in accrued expenses.
<PAGE>
The Company's total deferred income tax asset of $872 and deferred tax
liability of $632 are based upon cumulative temporary differences as of
December 31, 1999, which provide approximately $685 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 revolving
line of credit. In November 1999, the Company expanded its revolving line of
credit from $7,500 to $10,000. This line of credit requires the Company to
comply with certain financial covenants and other restrictions. As of December
31, 1999, the Company was in compliance with these financial covenants and
$3,050 was outstanding under this line of credit. The Amended and Restated Loan
and Security Agreement expires annually on June 30.
The Company also has approximately 1,100 Euros unsecured revolving credit
facilities with European banks in the name of its European subsidiary,
Metrologic Instruments GmbH. As of December 31, 1999, no amounts were
outstanding under these revolving credit facilities.
From time to time, the Company enters into convertible lines of credit in U.S.
dollars and Euros for the purchase of fixed assets. These lines of credit allow
for periodic drawdowns up to specified maximum amounts. Upon full utilization
of such lines of credits, amounts are converted to term notes ranging from 54
months to 60 months.
In April 1998, the Company entered into a line of credit with its primary bank
denominated in Euros, in an amount not to exceed $1,500, for the purchase of
fixed assets. In December 1998, the Company converted the outstanding
balance of $1,500 to a term note, payable over a 54 month period.
In December 1998, the Company and its primary bank entered into an agreement
for a line of credit of $1,500 for the purchase of fixed assets. In December
1999, this line was fully utilized and converted to a term note, payable over a
54-month period.
In August 1999, the Company and its primary bank entered into an agreement for
an additional line of credit of $2,400 for the purchase of fixed assets. As of
December 31, 1999, $1,089 was outstanding under this line. The Company is
currently making interest-only payments until December 31, 2000, at which time
amounts outstanding will convert, to a term note, payable over a 60-month
period.
Property, plant & equipment expenditures were $3,886 and $3,104 in 1999 and
1998, respectively. During the second quarter of 1999, the Company completed
its first phase of IT system implementations 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) additional Company
facilities; and (iv) enhancements to existing information systems, and
additional information systems.
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 Euro and the Brazilian real. In an effort to mitigate
the financial implications of the volatility in the exchange rate between the
Euro 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) Euro
based loans, which act as a partial hedge against outstanding intercompany
receivables and the net assets of its European subsidiary, which are
denominated in Euros. Additionally, The Company's European subsidiary invoices
and receives payment in certain other major currencies, including the British
pound, which results in an additional mitigating measure that reduces the
Company's exposure to the fluctuation between the 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.
<PAGE>
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 subject the
Company to risks of business failure, credit and collections exposure, and
other business concentration risks; continued or increased competitive pressure
which could result in reduced selling prices of products or increased 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; 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
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; 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; foreign currency exchange rate
fluctuations between the U.S. Dollar and other major currencies including, but
not limited to, the Euro, Singapore Dollar, Brazilian Real, and British Pound
affecting the Company's results of operations; the economic slowdown of foreign
nations other than those using 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; and increased competition due to industry consolidation or new
entrants into the Company's existing markets.
All forward-looking statements included herein are based upon information
presently available, and the Company assumes no obligation to update any
forward-looking statements.
Impact of Year 2000 (amounts in thousands)
As of March 2000, the Company has not experienced significant issues resulting
from Year 2000 computer system errors. The Company's worldwide operations are
functioning normally. There can be no assurance, however, that the Company
will not encounter significant issues resulting from Year 2000 computer system
errors in the future.
Total expenditures for replacing substantially all IT systems with new, Year
2000 compliant IT systems for the Company and subsidiaries amounted to
approximately $1,800, which includes external resource costs, a substantial
portion of which was capitalized.
<PAGE>
Euro Conversion.
On January 1, 1999, several member countries of the European Union established
fixed conversion rates between their existing sovereign currencies and adopted
the Euro as their new common legal currency. As of that date, the Euro traded
on currency exchanges and the legacy currencies remain legal tender in the
participating countries for a transition period between January 1, 1999 and
January 1, 2002. The countries that adopted the Euro on January 1, 1999 are
Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, The
Netherlands, Portugal, and Spain. During the transition period, non-cash
payments can be made in the Euro, and parties can elect to pay for goods and
services and transact business using either the Euro or legacy currency.
Between January 1, 1999 and January 1, 2002 the participating countries will
introduce Euro notes and coins and withdraw all legacy currencies so that they
will no longer be available. The Euro conversion may affect cross-border
competition by creating cross-border transparency. The Company is assessing its
pricing/marketing strategy in order to insure that it remains competitive in a
broader European market. The Company is also assessing its information
technology systems to allow for transactions to take place in both legacy
currencies and the Euro and the eventual elimination of the legacy currencies,
and is reviewing whether certain existing contracts will need to be
modified. The Company's currency risk and risk management for operations in
participating countries may be reduced as the legacy currencies are converted
to the Euro.
Item 7a - Quantitative and Qualitative Disclosures about Market Risk
(amounts in thousands)
Market Risk Sensitive Instruments. The market risk inherent in the Company's
market risk sensitive instruments and positions is the potential loss arising
from adverse changes in foreign currency exchange rates and interest rates.
Interest Rate Risk. The Company's bank loans expose earnings to changes in
short-term interest rates since interest rates on the underlying obligations
are either variable or fixed for such a short period of time as to effectively
become variable. The fair values of the Company's bank loans are not
significantly affected by changes in market interest rates. The change in fair
value of the Company's long-term debt resulting from a hypothetical 10%
decrease in interest rates is not material.
Foreign Exchange Risk. The Company enters into forward foreign exchange
contracts principally to hedge the currency fluctuations in transactions
denominated in foreign currencies, namely the Euro, thereby mitigating the
Company's risk that would otherwise result from changes in exchange rates.
Principal transactions hedged are intercompany sales and payments. Gains and
losses on forward foreign exchange contracts and the offsetting losses and
gains on hedged transactions are reflected in the Company's statement of
operations. A large percentage of the Company's foreign sales are transacted in
local currencies. As a result, the Company's international operating results
are subject to foreign exchange rate fluctuations. A hypothetical five percent
strengthening or weakening of the U.S. dollar against the Euro could have had
an impact of $864 on the net earnings of the Company. Actual results may
differ.
The Company is subject to risk from fluctuations in the value of the Euro
relative to the U.S. dollar for its European subsidiary, which uses the Euro as
their functional currency and translated into U.S. dollars in consolidation.
Such changes result in cumulative translation adjustments which are included in
other comprehensive income (loss). At December 31, 1999, the Company had
translation exposure. The potential effect on other comprehensive income (loss)
resulting from a hypothetical 10% change in the quoted Euro rate amounts to
$427. Actual results may differ.
In addition, the Company holds debt denominated in Euros and recognizes foreign
currency translation adjustments in net income. The potential loss resulting
from a hypothetical 10% adverse change in the quoted Euro rate is approximately
$157. Actual results may differ.
<PAGE>
Item 8. Financial Statements and Supplementary Data
Index Pages
Report of Ernst & Young LLP, Independent Auditors 19
Consolidated Balance Sheets at December 31, 1999 and 1998 20
Consolidated Statements of Operations for each of the three years
in the period ended December 31, 1999 21
Consolidated Statements of Shareholders' Equity for
each of the three years in the period ended December 31, 1999 22
Consolidated Statements of Cash Flows for each of the three years
in the period ended December 31, 1999 23
Notes to Consolidated Financial Statements 24-33
Supplementary Data (Unaudited) 34-35
Financial statement schedules:
Schedule II - Valuation and Qualifying Accounts is filed herewith.
All other schedules are omitted because they are not applicable,
not required, or because the required information is included in
the consolidated financial statements or notes thereto. 41
<PAGE>
Report of Independent Auditors
The Board of Directors and Shareholders
Metrologic Instruments, Inc.
We have audited the accompanying consolidated balance sheets of Metrologic
Instruments, Inc. as of December 31, 1999 and 1998, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1999. Our audits also
included the financial statement schedule listed in the Index at Item 14(a).
These financial statements and the schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and the schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Metrologic
Instruments, Inc. at December 31, 1999 and 1998, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/Ernst & Young, LLP
Philadelphia, Pennsylvania
February 24, 2000
<PAGE>
Metrologic Instruments, Inc.
Consolidated Balance Sheets
(amounts in thousands except share data)
December 31,
Assets 1999 1998
-------- --------
Current assets:
Cash and cash equivalents $ 6,970 $ 10,684
Accounts receivable, net of allowance of $350 and
$389 in 1999 and 1998, respectively 21,474 14,542
Inventory 11,231 6,900
Deferred income taxes 872 1,308
Other current assets 1,239 1,073
-------- --------
Total current assets 41,786 34,507
Property, plant and equipment, net 8,873 6,382
Patents and trademarks, net of amortization
of $764 and $604 in 1999 and 1998, respectively 2,469 1,745
Holographic technology, net of amortization of $366
and $250 in 1999 and 1998, respectively 716 832
Advance license fee, net of amortization of $353
and $235 in 1999 and 1998, respectively 1,647 1,765
Security deposits and other assets 1,182 1,065
-------- --------
Total assets $ 56,673 $ 46,296
======== ========
Liabilities and shareholders' equity
Current liabilities:
Line of credit $ 3,050 $ -
Current portion of notes payable 1,282 908
Accounts payable 3,741 4,155
Accrued expenses 10,054 7,260
Accrued legal settlement - 688
-------- --------
Total current liabilities 18,127 13,011
Notes payable, net of current portion 3,414 2,608
Deferred income taxes 588 676
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; 5,414,030 and 5,404,512 shares
issued and outstanding in 1999 and 1998,
respectively 54 54
Additional paid-in capital 17,083 16,933
Retained earnings 17,966 13,069
Accumulated other comprehensive (loss) (559) (55)
-------- --------
Total shareholders' equity 34,544 30,001
-------- --------
Total liabilities and shareholders' equity $ 56,673 $ 46,296
======== ========
See accompanying notes.
<PAGE>
Metrologic Instruments, Inc.
Consolidated Statements of Operations
(amounts in thousands except share and per share data)
Year ended December 31,
-------------------------------------
1999 1998 1997
--------- --------- ---------
Sales $ 80,103 $ 65,641 $ 53,495
Cost of sales 46,710 39,698 33,240
--------- --------- ---------
Gross profit 33,393 25,943 20,255
Selling, general and administrative
expenses 21,331 15,537 12,087
Research and development expenses 4,327 4,157 3,359
--------- --------- ---------
Operating income 7,735 6,249 4,809
Other income (expenses)
Interest income 402 521 460
Interest expense (262) (177) (175)
Foreign currency transaction
(loss) gain (342) 81 (445)
Other, net - 31 4
--------- --------- ---------
Total other income (expenses) (202) 456 (156)
--------- --------- ---------
Income before provision for income taxes 7,533 6,705 4,653
Provision for income taxes 2,636 2,212 1,673
--------- --------- ---------
Net income $ 4,897 $ 4,493 $ 2,980
========= ========= =========
Basic earnings per share
Weighted average shares
outstanding 5,412,564 5,391,797 5,330,596
========= ========= =========
Basic earnings per share $ 0.90 $ 0.83 $ 0.56
========= ========= =========
Diluted earnings per share
Weighted average shares outstanding 5,412,564 5,391,797 5,330,596
Net effect of dilutive securities 47,630 120,961 116,681
--------- --------- ---------
Total shares outstanding used in
computing diluted earnings per
share 5,460,194 5,512,758 5,447,277
========= ========= =========
Diluted earnings per share $ 0.90 $ 0.82 $ 0.55
========= ========= =========
See accompanying notes.
<PAGE>
Metrologic Instruments, Inc.
Consolidated Statements of Shareholders' Equity
(amounts in thousands)
Accumulated
Other
Additional Comprehensive
Common Paid-in Deferred Retained Income
Stock Capital Compensation Earnings (Loss) Total
----------------------------------------------------------
Balances,
December 31, 1996 53 15,055 (8) 5,596 351 21,047
Comprehensive
income:
Net income 2,980 2,980
Other
comprehensive
loss -
foreign currency
translation
adjustment (467) (467)
Total comprehensive
income 2,513
Exercise of stock
options 1 1,055 1,056
Stock issued through
employee stock
purchase plan 94 94
Compensation expense
related to stock
awards 6 6
Tax benefit of stock
options 185 185
----------------------------------------------------------
Balances,
December 31, 1997 54 16,389 (2) 8,576 (116) 24,901
Comprehensive
income:
Net income 4,493 4,493
Other
comprehensive
income -
foreign currency
translation
adjustment 61 61
Total comprehensive
income 4,554
Exercise of stock
options 390 390
Stock issued through
employee stock
purchase plan 110 110
Compensation expense
related to stock
awards 2 2
Tax benefit of stock
options 44 44
----------------------------------------------------------
Balances,
December 31, 1998 $ 54 $ 16,933 $ - $13,069 $ (55)$30,001
Comprehensive
income:
Net income 4,897 4,897
Other
comprehensive
loss -
foreign currency
translation
adjustment (504) (504)
Total comprehensive
income 4,393
Exercise of stock
options 39 39
Stock issued through
employee stock
purchase plan 111 111
----------------------------------------------------------
Balances,
December 31, 1999 $ 54 $ 17,083 $ - $17,966 $(559)$34,544
See accompanying notes
<PAGE>
Metrologic Instruments, Inc.
Consolidated Statements of Cash Flows
(amounts in thousands)
Year ended December 31,
--------------------------------
Operating activities 1999 1998 1997
-------- -------- --------
Net income $ 4,897 $ 4,493 $ 2,980
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation 1,309 1,044 843
Amortization 431 334 289
Compensation expense related to stock
awards and employee stock
purchase plan - 2 6
Deferred income taxes 343 958 939
Gain on disposal of property - (122) -
Changes in operating assets and liabilities:
Accounts receivable (7,815) (4,876) (1,995)
Inventory (4,494) (2,167) 779
Other current assets (120) (443) (121)
Other assets (157) 70 412
Accounts payable (414) 1,296 252
Accrued expenses 3,029 887 (266)
Accrued legal settlement (688) (942) (785)
-------- -------- --------
Net cash (used in) provided by
operating activities (3,679) 534 3,333
Investing activities
Purchase of property, plant and equipment (3,886) (3,104) (544)
Patents and trademarks (884) (584) (323)
Advance license fee - - (500)
Purchase of Holoscan, Inc. and holographic
technology, net of cash acquired - (194) (44)
Other Intangibles - (559) -
Proceeds from sale of property - 65 -
-------- -------- --------
Net cash used in investing activities (4,770) (4,376) (1,411)
Financing activities
Proceeds from exercise of stock options and
employee stock purchase plan 150 411 1,150
Principal payments on notes payable (860) (418) (332)
Proceeds from issuance of notes payable 2,458 1,960 -
Net proceeds from line of credit 3,050 - -
Payments of amounts due to former officer - - (84)
Capital lease payments (115) (142) (250)
-------- -------- --------
Net cash provided by financing
activities 4,683 1,811 484
Effect of exchange rates on cash 52 (381) 332
-------- -------- --------
Net (decrease) increase in cash and
cash equivalents (3,714) (2,412) 2,738
Cash and cash equivalents at beginning
of year 10,684 13,096 10,358
-------- -------- --------
Cash and cash equivalents at end of year $ 6,970 $ 10,684 $ 13,096
======== ======== ========
Supplemental Disclosure
Cash paid for interest $ 273 $ 174 $ 169
======== ======== ========
Cash paid for income taxes $ 1,875 $ 1,260 $ 96
======== ======== ========
Capital lease obligations incurred $ - $ - $ 261
======== ======== ========
Tax benefit from stock options $ - $ 44 $ 185
======== ======== ========
See accompanying notes
<PAGE>
Metrologic Instruments, Inc.
Notes to Consolidated Financial Statements
December 31, 1999
(Dollars in Thousands)
1. Business
Metrologic Instruments, Inc. designs, manufactures and markets bar
code scanning equipment incorporating laser and holographic technology. The
Company's principal products are hand-held scanners, fixed projection scanners,
in-counter scanners and industrial scanners. 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. The Company's customers are located throughout the world.
2. Accounting Policies
Basis of Consolidation
The accompanying consolidated financial statements include the
accounts of Metrologic Instruments, Inc., and its domestic and foreign
subsidiaries. Significant intercompany transactions and balances have been
eliminated in consolidation.
Use of Estimates
The preparation of the financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported
in the financial statements and accompanying notes. Actual results could differ
from those estimates.
Revenue Recognition
Product sales revenue is recognized upon the transfer of title to
goods, which is generally upon shipment of products.
Cash and Cash Equivalents
The Company considers all highly-liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Fair Values of Financial Instruments
The carrying amounts of cash equivalents, accounts receivable and
accounts payable approximate fair value because of their short-term nature. The
carrying amount of long-term debt approximates its fair value because the
interest rate is reflective of rates that the Company could currently obtain on
debt with similar terms and conditions.
Inventory
Inventory is stated at the lower of cost, determined on a first-in,
first-out basis, or market.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is
determined on the straight-line method for building and improvements over
estimated useful lives of 31 to 39 years and on an accelerated method for
machinery and equipment over estimated useful lives of five to seven years.
Patents and Trademarks
Patents and trademarks reflect application and testing costs for
products with respect to which the Company has applied for or received patent
and trademark protection. Costs expended for successful patent and trademark
applications are being amortized on a straight-line basis over their useful
lives, which generally are 17 years.
Holographic Technology
Holographic Technology resulted from the acquisition of Holoscan, Inc.
on March 1, 1996 and is being amortized over ten years. The Company was
required to pay the former shareholders of Holoscan, Inc. $194 in 1998 and $44
in 1997, which was based on sales of certain holographic laser scanners. Such
amounts were considered additions to holographic technology and are being
amortized over the remainder of the ten-year period.
<PAGE>
Advance License Fee
The Company capitalized an advance license fee of $2,000 in December
1996 (Note 10). The advance license fee is being amortized on a straight-line
basis over the seventeen-year life of the cross-licensing agreement.
Foreign Currency Translation
The financial statements of the Company's foreign subsidiaries have
been translated into U.S. dollars in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 52, "Foreign Currency Translation." All
balance sheet accounts have been translated using the exchange rates in effect
at the balance sheet date. Income statement amounts have been translated using
the average exchange rate for the year. The gains and losses resulting from the
changes in exchange rates from year to year have been reported separately in
other comprehensive loss in the consolidated financial statements.
Earnings Per Share
Basic and diluted earnings per share are calculated in accordance with
SFAS 128, "Earnings Per Share." Basic earnings per share is calculated by
dividing net income by the weighted average shares outstanding for the year and
diluted earnings per share is calculated by dividing net income by the weighted
average shares outstanding for the year plus the dilutive effect of stock
options.
Concentrations of Credit Risk
The Company has operations, subsidiaries and affiliates in the United
States, Europe, Asia and South America. The Company performs ongoing credit
evaluations of its customers' financial condition, and except where risk
warrants, requires no collateral. The Company may require, however, letters of
credit or prepayment terms for those customers in lesser developed countries.
Short-term cash investments are placed with high credit quality
financial institutions or in short-term high quality debt securities. The
Company limits the amount of credit exposure in any one institution or single
investment.
Accounting for Stock Options
The Company follows Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for stock options. Under APB 25, if the exercise
price of the Company's stock options equals or exceeds the market price of the
underlying common stock on the date of grant, no compensation expense is
recognized. Note 13 to these consolidated financial statements includes the
required disclosures and pro forma information provided for under SFAS 123,
"Accounting for Stock-Based Compensation."
Impact of Recently Issued Accounting Standards
In June 1998, the FASB issued Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133
establishes accounting and reporting standards for derivative instruments and
hedging activities. It requires entities to record all derivative instruments
on the balance sheet at fair value. Changes in the fair value of derivatives
are recorded each period in current earnings or other comprehensive income,
depending on whether a derivative is designed as part of a hedge transaction
and the type of hedge transaction. The ineffective portion of all hedges will
be recognized in earnings. In June 1999, the FASB voted to defer the
implementation date of SFAS No. 133 to be effective for all fiscal quarters of
all fiscal years beginning after June 15, 2000. Management is currently
evaluating the impact of SFAS No. 133 on the earnings and financial position of
the Company.
Reclassification
Certain prior year balances have been reclassified to conform with
current year presentation.
<PAGE>
3. Inventory
Inventory consists of the following:
December 31,
1999 1998
Raw materials $ 4,273 $2,435
Work-in-process 4,020 2,614
Finished goods 2,938 1,851
$11,231 $6,900
4. Property, Plant and Equipment
Property, plant and equipment consists of the following:
December 31,
1999 1998
Buildings and improvements $ 3,011 $2,416
Machinery and equipment 12,911 9,664
15,922 12,080
Less accumulated depreciation 7,049 5,698
8,873 6,382
Machinery and equipment included $487 under capital leases as of December 31,
1999 and 1998. Accumulated depreciation on these assets was $207 and $142 as of
December 31, 1999 and 1998, respectively.
5. Accrued Expenses
Accrued expenses consist of the following:
December 31,
1999 1998
Accrued royalties $ 1,253 $ 835
Accrued compensation 3,035 1,506
Income taxes 1,454 757
Product warranty 924 853
Profit sharing 300 300
Accrued marketing and
sales promotions 1,452 1,175
Other 1,636 1,834
$ 10,054 $ 7,260
6. Notes Payable
Notes payable consist of the following:
December 31,
1999 1998
Term note (a) $ 513 $ 880
Fixed asset term notes payable (b) 2,554 1,866
Fixed asset line of credit (c) 1,089 0
Note payable-shareholders (d) 223 335
Capital lease obligations (e) 311 432
Other 6 3
4,696 3,516
Less: current maturities 1,282 908
$3,414 $2,608
<PAGE>
The Company's primary debt facility consists of an Amended and Restated Loan &
Security Agreement dated November 1995 with its primary bank, as amended
(collectively, the "Bank Agreement").
(a) In December 1996, under the Bank Agreement, the Company executed a
term note for $1,300. In 1997, this term note was converted from a
U.S. dollar denominated loan to a Euro based loan (Note 7). The term
note, due January 2002, is payable in monthly installments of
approximately $22 and bears interest at the variable Euro-Rate (3.55%
at December 31, 1999), as defined in the Bank Agreement, plus 1.75%.
(b) During 1998, in connection with the Bank Agreement, the Company
entered into a U.S. dollar denominated line of credit and a Euro
denominated line of credit (Note 7) for the purpose of purchasing
fixed assets. Each line of credit has a maximum borrowing limit of
$1,500. Interest only is payable monthly at the variable
Euro-Rate, as defined, plus 1.5%. As of December 31, 1998, the Company
converted the Euro denominated line of credit to a term note
payable in 54 equal monthly installments. On December 31, 1999, the
U.S. dollar denominated line of credit was converted into a term
note payable in 54 equal monthly installments.
(c) In August 1999, in connection with the Bank Agreement, the Company
entered into a U.S. dollar denominated line of credit for the purpose
of purchasing fixed assets. This line of credit has a maximum
borrowing limit of $2,400. Interest only is payable monthly at the
Libor rate (6.5% at December 31, 1999), as defined, plus 1.5%. On
January 1, 2001, the line of credit will be converted into a term
note, payable in 60 monthly installments.
(d) Note payable - shareholders, due September 2001, is payable in annual
installments of $112 and bears interest at the prime rate (8.50% as of
December 31, 1999), as defined, plus 0.5%.
(e) The Company has entered into capitalized lease agreements for
equipment which are payable through 2002 at interest rates ranging
from 6% to 9.3%.
The minimum annual principal payments of notes payable and capital lease
obligations at December 31, 1998 are approximately as follows:
2000 $1,282
2001 1,303
2002 971
2003 723
2004 417
------
$4,696
7. Financial Instruments
The Company selectively enters into derivative financial instruments to offset
its exposure to foreign currency risks. These financial instruments 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 European
subsidiary, and (ii) Euro based loans to act as a partial hedge against
outstanding intercompany receivables and the net assets of its European
subsidiary, which are denominated in Euros. Gains and losses on the Company's
forward exchange contracts offset losses and gains, respectively, on the
assets, liabilities, and intercompany transactions being hedged. Forward
exchange contracts are adjusted to market value and the resulting gains and
losses are reflected in income. At December 31, 1999 and 1998, the Company had
no foreign currency forward exchange contracts outstanding.
<PAGE>
8. Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes and are disclosed in the
consolidated balance sheets. Significant components of the Company's deferred
tax assets and liabilities are as follows:
December 31,
1999 1998
----- -----
Deferred tax assets:
Reserves on current assets $ 215 $ 384
Inventory capitalization 155 143
Warranty reserve 172 167
Accrued legal settlement - 275
Other accrued expenses 330 339
------ ------
$ 872 $1,308
====== ======
Deferred tax liability:
Advance license fee $ 612 $ 705
Deferred gain on involuntary
conversion 20 20
------ ------
$ 632 $ 725
====== ======
Significant components of the provision for income taxes are as follows:
Year ended December 31,
1999 1998 1997
---- ---- ----
Current:
Federal $2,160 $ 1,209 $ 683
Foreign (17) (103) -
State 150 148 51
------ ------ ------
Total current 2,293 1,254 734
Deferred:
Federal 244 742 727
State 99 216 212
------ ------ ------
Total deferred 343 958 939
------ ------ ------
Provision for income taxes $2,636 $2,212 $1,673
====== ====== ======
The effective income tax rate of 35.0%, 33.0% and 36.0% for the years ended
December 31, 1999, 1998, and 1997, respectively, differs from the federal
statutory rate of 34% because of the difference in treatment of certain expense
items for financial and income tax reporting purposes. A reconciliation between
the statutory provision and the provision for financial reporting purposes is
as follows:
December 31,
1999 1998 1997
---- ---- ----
Statutory federal tax provision $2,561 $2,280 $1,582
State income taxes, net of
federal income tax benefit 165 240 174
Foreign income taxes (349) (98) -
Other 259 (210) (83)
------ ------ ------
Provision for income taxes $2,636 $2,212 $1,673
====== ====== ======
<PAGE>
9. Related Party Transactions
The Company's principal shareholder, Chairman, and CEO and his spouse, the
Company's Vice President, Administration, Secretary, Treasurer and a director,
own and lease to the Company certain real estate utilized in the operation of
the Company's business. Lease payments made to these related parties were
approximately $796, $762, and $729 for the years ended December 31, 1999, 1998
and 1997, respectively. The lease for the real estate was renewed in March 2000
and expires in March 2004. Future minimum lease payments required under the
lease are approximately $832 in 2000, $869 in 2001, $908 in 2002, $949 in 2003,
and $240 thereafter, excluding taxes and insurance.
The notes payable - shareholders referred to in Note 6 include a loan payable
to the principal shareholder, Chairman and CEO. In 1999, the fifth installment
of the seven-year notes was paid to the principal shareholder in the amount of
$131, which included $26 of interest.
The Company incurred expenses of $42, $56, and $75 for tax services rendered by
an accounting firm during the years ended December 31, 1999, 1998 and 1997,
respectively. A partner in this accounting firm is a shareholder and director
of the Company.
10. Commitments & Contingencies
Operating Leases
The Company has entered into operating lease agreements with unrelated
companies to lease manufacturing and office equipment and office space and
vehicles for its foreign subsidiaries.
Future minimum lease payments required under the lease agreements as of
December 31, 1999 are $335 in 2000, $244 in 2001, $107 in 2002, and $33 in
2003. Rental expense for 1999, 1998 and 1997 was approximately $403, $297, and
$196, respectively.
Cross-Licensing Agreement and Settlement of Patent Litigation
In December 1996, the Company and Symbol Technologies, Inc. ("Symbol") executed
an extensive cross-license of patents (the "Symbol Agreement") for which the
Company and Symbol pay royalties to each other under certain circumstances
effective January 1, 1996. In connection with the Symbol Agreement, the Company
paid Symbol an advance license fee of $1 million in December 1996 and another
$1 million in quarterly installments of $125 over the subsequent two years
ended December 1998. Royalty expense under the Symbol Agreement amounted to
$3,343, $2,826, and $1,513 in 1999, 1998, and 1997, respectively.
In connection with the settlement of a December 1993 patent lawsuit with
Symbol, the Company agreed to make payments to Symbol through December 31,
2004. As a result of the patent lawsuit, the Company redesigned its hand-held
scanners to convert them from a triggered version to a triggerless version. In
connection with the Symbol Agreement above, Symbol and the Company amended the
December 1993 settlement to adjust the maximum aggregate amount payable
thereunder by the Company to approximately $5.1 million, all of which was
accrued as of December 31, 1996. The final payment in connection with the
settlement was made in August, 1999.
In December 1998, the Company and Symbol amended the Symbol Agreement to
provide for the purchase of the Company's HoloTrak industrial holographic
scanners for resale by Symbol under Symbol's brand label. This replaces a prior
commitment of Symbol under the Symbol Agreement to purchase the Company's
products.
In April 1999, the Company and Symbol executed a second amendment to the Symbol
Agreement to provide for additional patent licenses for some of the Company's
existing products.
On November 1, 1999, the Company and Symbol signed a third amendment to the
Symbol Agreement. Under the terms of the amended agreement, the Company
obtained a royalty-bearing license for certain of its new products under
Symbol's laser scanning patents, and Symbol obtained a royalty-bearing license
for its products under certain of the Company's patents. Under the terms of the
amendment, both parties will make recurring periodic royalty payments to each
other, effective on the date of signing the third amendment.
<PAGE>
Legal Matters
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 21, 1999 the Company and six other leading members of the Automatic
Identification and Data Capture Industry (the "Auto ID companies") 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, a 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 to the Company's knowledge, 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 Auto ID companies 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.
In response to the action commenced by the Company and the other plaintiffs,
the Lemelson Partnership filed a motion to dismiss the lawsuit, or
alternatively, to stay the proceedings pending the outcome of other litigation
or transfer the case in its entirety to the U.S. District Court for Arizona
where several infringement suits filed by the Lemelson Partnership are pending
against other companies. The Lemelson Partnership has primarily stated the
grounds for its motion to dismiss are the lack of a legally justifiable case or
controversy between the parties because (1) the method claims asserted by the
Lemelson Partnership apply only to the "use" of bar code equipment by the
end-users and not the bar code equipment itself; and (2) the Lemelson
Partnership has never asserted claims of infringement against the Auto ID
companies. Plaintiffs have filed papers arguing against the Lemelson
Partnerships' motion, and the motion is currently pending.
On October 13, 1999 the Company filed suit for patent infringement against PSC
Inc. (PSC) in United States District Court for the District of New Jersey. The
complaint asserts that at least seven of the Company's patents are infringed by
a variety of point-of-sale bar code scanner products manufactured and sold by
PSC. The patents cited in the complaint cover a broad range of bar code
scanning technologies important to scanning in a retail environment including
the configuration and structure of various optical components, scanner
functionality's and shared decoding architecture. The complaint seeks monetary
damages as well as a permanent injunction to prevent future sales of the
infringing products.
On December 22, 1999, PSC filed an answer to the complaint citing a variety of
affirmative defenses to the allegations of infringement asserted by the Company
in its Complaint. PSC additionally asserted a counterclaim under the Lanham Act
claiming that the Company made false and misleading statements in its October
13, 1999 press release regarding the patent infringement suit against PSC. The
Company does not believe that this counterclaim has any merit and has made a
claim with its insurance carrier to pay for the defense of this claim.
The court has ordered the case to mediation, and discovery is stayed pending
the outcome of the mediation.
<PAGE>
Management is of the opinion that there are no legal claims against the Company
which would have a material adverse effect on the Company's consolidated
financial position or results of operations.
Credit Facility
The Bank Agreement (Note 6) expires annually on June 30, and includes financial
covenants with which the Company is in compliance. The Bank Agreement includes
an available unsecured line of credit of $10,000, which bears interest at the
bank's prime rate (8.5% at December 31, 1999) minus 0.75%. The weighted average
interest rate for 1999 was 8.25%. As of December 31, 1999, $6,950 was available
under the line of credit.
The Company also has approximately 1,100 Euros unsecured revolving lines of
credit with European banks in the name of its European subsidiary, Metrologic
Instruments GmbH. As of December 31, 1999, no amounts were outstanding under
these revolving credit facilities.
11. Retirement Plans
The Company maintains a noncontributory defined contribution cash or deferred
profit sharing plan covering substantially all employees. Contributions are
determined by the Chief Executive Officer and are equal to a percentage of each
participant's compensation. The Company's contributions were $300 in 1999, 1998
and 1997, respectively.
Additionally, the Company maintains an employee funded Deferred Compensation
Retirement 401(k) Plan, contributions to which are partially matched by the
Company. Contribution expenses were $75, $62, and $55 in 1999, 1998 and 1997,
respectively.
12. 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, 1998 or
1997.
The Company manages its business on a geographical basis and has principal
operations in the United States and Europe. Sales were attributed to geographic
areas in the following table based on the location of the Company's customers.
United States Operations European
North Other Operations Total
America Europe Export Total Europe Consolidated
Sales 1997 $19,684 $ 855 $ 7,336 $27,875 $25,620 $53,495
1998 26,058 1,351 10,734 38,143 27,498 65,641
1999 33,698 2,578 12,499 48,775 31,328 80,103
Interest income
1997 $ 460 - - $ 460 - $ 460
1998 521 - - 521 - 521
1999 402 - - 402 - 402
Interest expense
1997 $ 175 - - $ 175 - $ 175
1998 177 - - 177 - 177
1999 262 - - 262 - 262
Depreciation and
amortization
1997 $ 973 - - $ 973 159 $ 1,132
1998 1,196 - - 1,196 182 1,378
1999 1,572 - - 1,572 168 1,740
Income (loss)
before provision
for income taxes
1997 $ 4,686 - - $ 4,686 $ (33) $ 4,653
1998 6,872 - - 6,872 (167) 6,705
1999 7,519 - - 7,519 14 7,533
Identifiable
assets 1997 $31,091 - - $31,091 $ 7,367 $38,458
1998 37,455 - - 37,455 8,841 46,296
1999 45,982 - - 45,982 10,691 56,673
<PAGE>
13. Incentive Plan
The Company's Board of Directors has granted incentive and non-qualified stock
options and restricted stock pursuant to the Company's Incentive Plan to
certain eligible employees and a board member. The shares issued will either be
authorized and previously unissued common stock or issued common stock
reacquired by the Company. The total number of shares authorized for issuance
under the Incentive Plan is 1,600,000. Shares canceled for any reason without
having been exercised shall again be available for issuance under the Incentive
Plan. An aggregate of 513,000 shares were available for grant under the
Incentive Plan at December 31, 1999. Options granted under the Incentive Plan
become exercisable over periods ranging from one to seven years. Each option
shall expire four to ten years after becoming exercisable.
The Company has elected to follow APB 25 and related interpretations in
accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under SFAS 123 requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of the Company's
employee stock options equals the market price of the underlying common stock
on the date of grant, no compensation expense is recognized.
SFAS 123 requires pro forma information regarding net income and earnings per
share as if the Company had accounted for its employee stock options granted
subsequent to December 31, 1994 under the fair value method of SFAS 123. The
fair value of the options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for 1999, 1998 and 1997, respectively, risk-free interest rates of
6.2%; dividend yields of 0.0%; volatility factors of the expected market price
of the Company's common stock of 50%, 40% and 50%, respectively, and a
weighted-average expected life of the option of 5 years.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows (in thousands except for earnings per share
information):
1999 1998 1997
Net income:
As reported $4,897 $4,493 $2,980
Pro forma 3,652 2,811 2,391
Net income per share:
Basic:
As reported $ 0.90 $ 0.83 $ 0.56
Pro forma 0.67 0.52 0.45
Diluted:
As reported $ 0.90 $ 0.82 $ 0.55
Pro forma 0.67 0.51 0.44
<PAGE>
A summary of the Company's stock option activity, and related information for
the years ended December 31, 1997, 1998, and 1999 follows:
Options Weighted-Average
(in thousands) Exercise Price
-------------- ----------------
Outstanding - December 31, 1996 522 $11.67
Granted 25 16.13
Exercised (87) 11.88
Canceled (12) 12.08
-------------- ----------------
Outstanding-December 31, 1997 448 11.84
Granted 350 12.95
Exercised (30) 11.79
Canceled (16) 11.99
-------------- ----------------
Outstanding-December 31, 1998 752 $12.36
Granted 287 10.31
Exercised (3) 11.66
Canceled (100) 11.81
Outstanding-December 31, 1999 936 $11.79
============== ================
Exercisable at December 31, 1999 465 $11.98
============== ================
Weighted-average fair value of
options granted during 1999 $7.31
==============
Exercise prices for options outstanding as of December 31, 1999 ranged from
$10.31 to $16.13. The weighted-average remaining contractual life of those
options is seven years.
14. Employee Stock Purchase Plan
The Company has an Employee Stock Purchase Plan whereby eligible employees have
the opportunity to acquire the Company's common stock quarterly through payroll
deductions, at 90% of the lower of (a) the fair market value of the stock on
the first day of the applicable quarterly offering period or (b) the fair
market value of the stock on the last day of the applicable quarterly offering
period.
<PAGE>
Supplementary Data
Quarterly Consolidated Operating Results (Unaudited)
The following tables present unaudited quarterly operating results for the
Company for each quarter of 1999 and 1998. This information has been derived
from unaudited financial statements and includes all adjustments, consisting
only of normal recurring accruals, which the Company considers necessary for a
fair presentation of the results of operations for these periods. Such
quarterly operating results are not necessarily indicative of the Company's
future results of operations.
Quarterly Consolidated Operating
Results (Unaudited) (In Thousands except share and per share data)
Three months ended
March 31, June 30, September 30, December 31,
1999 1999 1999 1999
---------- ---------- ---------- ----------
Sales $ 18,253 $ 19,466 $ 20,153 $ 22,231
Cost of sales 10,963 11,638 11,538 12,571
-------- -------- -------- ---------
Gross profit 7,290 7,828 8,615 9,660
Selling, general and
administrative expenses 4,588 4,932 5,407 6,404
Research and development
expenses 960 1,023 1,066 1,278
-------- --------- --------- ----------
Operating income 1,742 1,873 2,142 1,978
Other (expenses) income
Interest income 131 83 99 89
Interest expense (57) (49) (64) (92)
Foreign currency transaction
(loss) gain (214) (128) (280) 280
--------- --------- --------- ----------
Total other (expenses)
income (140) (94) (245) 277
--------- --------- --------- ----------
Income before provision for
income taxes 1,602 1,779 1,897 2,255
Provision for income taxes 561 630 664 781
--------- --------- --------- ---------
Net income $ 1,041 $ 1,149 $ 1,233 $ 1,474
========= ========= ========= =========
Basic earnings per share
Weighted average shares
outstanding 5,408,560 5,411,577 5,413,894 5,416,225
========== ========== ========== ==========
Basic earnings per
share $ 0.19 $ 0.21 $ 0.23 $ 0.27
========== ========== ========== ==========
Diluted earnings per share
Weighted average shares
outstanding 5,408,560 5,411,577 5,413,894 5,416,225
Net effect of dilutive
securities 92,668 3,126 710 94,015
---------- ---------- ---------- ----------
Total shares outstanding
used in computing
diluted earnings
per share 5,501,228 5,414,703 5,414,604 5,510,240
========== ========== ========== ==========
Diluted earnings per
share $ 0.19 $ 0.21 $ 0.23 $ 0.27
========== ========== ========== ==========
<PAGE>
Supplementary Data (Con't)
Quarterly Consolidated Operating Results (Unaudited)
(In Thousands except share and per share data)
Three months ended
----------------------------------------------
March 31, June 30, September 30, December 31,
1998 1998 1998 1998
---------- ---------- ---------- ----------
Sales $ 15,227 $ 16,069 $ 17,001 $ 17,344
Cost of sales 9,367 9,619 10,180 10,532
-------- -------- -------- ---------
Gross profit 5,860 6,450 6,821 6,812
Selling, general and
administrative expenses 3,343 3,834 4,143 4,217
Research and development
expenses 1,114 1,045 956 1,042
-------- --------- --------- ----------
Operating income 1,403 1,571 1,722 1,553
Other (expenses) income
Interest income 137 122 126 136
Interest expense (38) (42) (45) (52)
Foreign currency transaction
gain (loss) 57 (36) 63 (3)
Other, net 34 26 (1) (28)
--------- --------- --------- ----------
Total other income 190 70 143 53
--------- --------- --------- ----------
Income before provision for
income taxes 1,593 1,641 1,865 1,606
Provision for income taxes 573 591 671 377
--------- --------- --------- ---------
Net income $ 1,020 $ 1,050 $ 1,194 $ 1,229
========= ========= ========= =========
Basic earnings per share
Weighted average shares
outstanding 5,371,626 5,391,408 5,399,642 5,404,512
========== ========== ========== ==========
Basic earnings per
share $ 0.19 $ 0.19 $ 0.22 $ 0.23
========== ========== ========== ==========
Diluted earnings per share
Weighted average shares
outstanding 5,371,626 5,391,408 5,399,642 5,404,512
Net effect of dilutive
securities 169,343 185,298 99,732 29,471
---------- ---------- ---------- ----------
Total shares outstanding
used in computing
diluted earnings
per share 5,540,969 5,576,706 5,499,374 5,433,983
========== ========== ========== ==========
Diluted earnings per
share $ 0.18 $ 0.19 $ 0.22 $ 0.23
========== ========== ========== ==========
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.
No change of accountants and/or disagreement on any matter of accounting
principles or financial statement disclosures has occurred within the last two
years.
PART III
The information called for by Item 10, Directors and Executive Officers of the
Registrant (except for the information regarding executive officers called for
by Item 401 of Regulation S-K, which is included in Part I hereof in accordance
with General Instruction G(3)), Item 11, Executive Compensation, Item 12,
Security Ownership of Certain Beneficial Owners and Management, and Item 13,
Certain Relationships and Related Transactions, is incorporated herein by
reference to the Registrant's definitive proxy statement for its Annual Meeting
of Shareholders, presently scheduled to be held on June 22, 2000, which shall
be filed with the Securities and Exchange Commission within 120 days from the
end of the Registrant's fiscal year ended December 31, 1999.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1. Financial Statements
The Financial Statements listed below are filed as
part of this Annual Report on Form 10-K:
Report of Ernst & Young LLP, Independent Auditors
Consolidated Balance Sheets at December 31, 1999
and 1998
Consolidated Statements of Operations for each of
the three years in the period ended
December 31, 1999
Consolidated Statements of Stockholders' Equity
for each of the three years in the period ended
December 31, 1999
Consolidated Statements of Cash Flows for each of
the three years in the period ended December 31,
1999
Notes to Consolidated Financial Statements
Supplementary Data (Unaudited)
2. Financial statement schedules
Schedule II - Valuation and Qualifying Accounts is
filed herewith. All other schedules are omitted
because they are not applicable, not required, or
because the required information is included in
the consolidated financial statements or notes
thereto.
3. Exhibits required to be filed by Item 601 of
Regulation S-K.
2.1 Stock Purchase Agreement dated as of March 1, 1995
among Metrologic Instruments, Inc., Holoscan,
Inc., and the parties listed on Schedule A thereto
(incorporated by reference to Exhibit 2.1 to the
Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1995).
2.2 Development Agreement entered into as of March 1,
1995 and effective as of December 24, 1994 between
Metrologic Instruments, Inc. and Holoscan, Inc.
(incorporated by reference to Exhibit 2.2 to the
Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1995).
2.3 Option Agreement dated as of March 1, 1995 among
Metrologic Instruments, Inc. and the parties
listed on schedule A thereto (incorporated by
reference to Exhibit 2.3 to the Registrant's
Quarterly Report on Form 10-Q for the quarter
ended March 31, 1995).
<PAGE>
2.4 Background Technology License Agreement between
Metrologic Instruments, Inc. and Holoscan, Inc.
(incorporated by reference to Exhibit 2.4 to the
Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1995).
3.1 Amended and Restated Certificate of Incorporation
of Metrologic Instruments, Inc. (incorporated by
reference to Exhibit 3.1 to the Registrant's
Annual Report on Form 10-K for the year ended
December 31, 1994).
3.2 Amended and Restated Bylaws of Metrologic
Instruments, Inc. (incorporated by reference to
Exhibit 3.02 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1994).
4.1 Specimen Stock Certificate (incorporated by
reference to Exhibit 4.1 to the Registrant's
Registration Statement on Form S-1 (Reg. No.
33-78358)).
10.1 Metrologic Instruments, Inc. 1994 Incentive Plan
(incorporated by reference to Exhibit 99 to the
Registrant's Registration Statement on Form S-8
(Reg. No. 33-89376)).
10.2 Metrologic Instruments, Inc. Employee Stock
Purchase Plan (incorporated by reference to Exhibit
99 to the Registrant's Post-Effective Amendment
No. 1 to the Registration Statement on Form S-8
(Reg. No. 33-86670) and Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1995).
10.3 Lease Agreement dated April 1, 1994 among C. Harry
Knowles, Janet H. Knowles and Metrologic
Instruments, Inc. (incorporated by reference to
Exhibit 10.4 to the Registrant's Registration
Statement on Form S-1 (Reg. No. 33-78358)).
10.4 Agreement of Settlement between Symbol
Technologies, Inc. and Metrologic Instruments, Inc.
(incorporated by reference to Exhibit 10.5 to the
Registrant's Registration Statement on Form S-1
(Reg. No. 33-78358)).
10.5 Agreement and Release dated February 7, 1986 among
Michael L. Sanyour, C. Harry Knowles, Janet H.
Knowles and Metrologic Instruments, Inc.
(incorporated by reference to Exhibit 10.6 to the
Registrant's Registration Statement on Form S-1
(Reg. No. 33-78358)).
10.6 Agreement dated January 6, 1995 between Michael L.
Sanyour, C. Harry Knowles, Janet H. Knowles and
Metrologic Instruments, Inc. (incorporated by
reference to Exhibit 10.6(a) to the Registrant's
Annual Report on Form 10-K for the year ended
December 31, 1994).
10.7 Promissory Note from Metrologic Instruments, Inc.
to C. Harry Knowles (incorporated by reference to
Exhibit 10.8 to the Registrant's Registration
Statement on Form S-1 (Reg. No. 33-78358)).
10.8 Indemnification Agreement between Metrologic
Instruments, Inc. and C. Harry Knowles and Janet H.
Knowles (incorporated by reference to Exhibit
10.9 to the Registrant's Registration Statement on
Form S-1 (Reg. No. 33-78358)).
<PAGE>
10.9 Offer Letter from Midlantic Bank, N.A. dated July
18, 1995 with respect to increasing and amending
the Revolving Loan Facility (incorporated by
reference to Exhibit 10.1 to the Registrant's
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1995).
10.10 Amended and Restated Loan and Security Agreement
between Metrologic Instruments, Inc. and Midlantic
Bank, N.A. dated as of November 13, 1995
(incorporated by reference to Exhibit 10 to the
Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1995).
10.11 Loan Agreement between ECR Sales Management, Inc.
and Metrologic Instruments, Inc., dated as of
January 1, 1996 (incorporated by reference to
Exhibit 10.11 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1995).
10.12 Security Agreement between ECR Sales Management,
Inc. and Metrologic Instruments, Inc., dated as of
January 1, 1996 (incorporated by reference to
Exhibit 10.12 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1995).
10.13 Term Note of ECR Sales Management, Inc. dated
January 1, 1996, payable to Metrologic
Instruments, Inc. (incorporated by reference to
Exhibit 10.13 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1995).
10.14 Consignment Agreement between Metrologic
Instruments, Inc. and ECR Sales Management, Inc.
dated as of January 1, 1996 (incorporated by
reference to Exhibit 10.14 to the Registrant's
Annual Report on Form 10-K for the year ended
December 31, 1995).
10.15 Agreement between Symbol Technologies, Inc. and
Metrologic Instruments, Inc. dated December 18,
1996 (incorporated by reference to Exhibit 10 to
the Registrant's Current Report on Form 8-K filed
on February 14, 1997).
10.16 Amendment to Amended and Restated Loan and
Security Agreement between Metrologic Instruments,
Inc. and PNC Bank, National Association (formerly
Midlantic Bank, N.A.) dated December 31, 1996
(incorporated by reference to Exhibit 10.16 to the
Registrant's Annual Report on Form 10-K for the
year ended December 31, 1996).
10.17 Second Amendment to Amended and Restated Loan and
Security Agreement between Metrologic Instruments,
Inc. and PNC Bank, National Association (formerly
Midlantic Bank, N.A.) dated January 31, 1997
(incorporated by reference to Exhibit 10.17 to the
Registrant's Annual Report on Form 10-K for the
year ended December 31, 1996).
10.18 Amended and Restated Revolving Loan Note between
Metrologic Instruments, Inc. and PNC Bank,
National Association (formerly Midlantic
Bank,N.A.) dated January 31, 1997 (incorporated by
reference to Exhibit 10.18 to the Registrant's
Annual Report on Form 10-K for the year ended
December 31, 1996).
<PAGE>
10.19 Term Note between Metrologic Instruments, Inc. and
PNC Bank, National Association (formerly Midlantic
Bank, N.A.) dated December 31, 1996 (incorporated
by reference to Exhibit 10.19 to the Registrant's
Annual Report on Form 10-K for the year ended
December 31, 1996).
10.20 First Amendment to Metrologic Instruments, Inc.
1994 Incentive Plan dated July 1, 1997
(incorporated by reference to Exhibit 10 to the
Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997).
10.21 Agreement for Settlement, Dismissal of Claims and
Mutual Releases dated April 9, 1997 between
Metrologic Instruments, Inc. and PSC Inc.
(incorporated by reference to Exhibit 10.1 to the
Registrant's Current Report on Form 8-K filed
April 16, 1997).
10.22 Stipulation of Dismissal filed April 10, 1997 in
the United States District Court for the Western
District of New York (incorporated by reference to
Exhibit 10.2 to the Registrant's Current Report on
Form 8-K filed April 16, 1997).
10.23 Term Note between Metrologic Instruments, Inc. and
PNC Bank, National Association dated August 4,
1997 (incorporated by reference to Exhibit 10 to
the Registrant's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1997).
10.24 Joint Venture Agreement between MTLG Investments,
Inc. and CCH Automation Systems, Inc. dated
December 1997 (incorporated by reference to
Exhibit 10.24 to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1997).
10.25 Quotaholders' Agreement between MTLG Investments,
Inc and CCH Automation Systems, Inc. dated
December 1997 (incorporated by reference to
Exhibit 10.25 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1997).
10.26 Guarantee of Mr. Chaim Bulka and Mrs. Gilda Meire
Rosenberg Bulka in favor of MTLG Investments, Inc.
dated December 12, 1997 (incorporated by reference
to Exhibit 10.26 to the Registrant's Annual Report
on Form 10-K for the year ended December 31,
1997).
10.27 Convertible Line of Credit Note between Metrologic
Instruments, Inc. and PNC Bank, National
Association (incorporated by reference to Exhibit
10 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 1998).
10.28 Convertible Line of Credit Note dated December 11,
1998 between Metrologic Instruments, Inc. and PNC
Bank, National Association (incorporated by
reference to Exhibit 10.28 to the Registrant's
Annual Report on Form 10-K for the year ended
December 31, 1998).
10.29 Amendment to Loan and Security Agreement dated
December 11, 1998 between Metrologic Instruments,
Inc. and PNC Bank, National Association
(incorporated by reference to Exhibit 10.29 to the
Registrant's Annual Report on Form 10-K for the
year ended December 31, 1998).
<PAGE>
10.30 Convertible Line of Credit Note dated August 26,
1999 between Metrologic Instruments, Inc. and PNC
Bank, National Association (incorporated by
reference to Exhibit 10 to the Registrant's
Quarterly Report on Form 10-Q for the quarter
ended September 30, 1999.
10.31 Amendment to Loan and Security Agreement dated
November 10, 1995 between Metrologic Instruments,
Inc. and PNC Bank, National Association
(incorporated by reference to Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1999.
10.32 Security Agreement dated August 26, 1999 between
Metrologic Instruments, Inc. and PNC Bank,
National Association (incorporated by reference to
Exhibit 10.2 to the Registrant's Quarterly Report
on Form 10-Q for the quarter ended September 30,
1999.
10.33 Form of Working Cash, Line of Credit, Investment
Sweep Rider dated November 23, 1999 between
Metrologic Instruments, Inc. and PNC Bank,
National Association.
21 Subsidiaries of the Registrant
22 Consent of Ernst & Young LLP
27 Financial Data Schedule
(b) Reports on Form 8-K
None
<PAGE>
Schedule II - Valuation and Qualifying Accounts
Years ended December 31, 1999, 1998 and 1997
(All dollar amounts in thousands)
1999 1998 1997
---- ---- ----
Allowance for possible losses on
accounts and notes receivable:
Balance at beginning of year $389 $408 $493
Additions charged to expense 203 38 116
Write-offs (242) (57) (201)
------- ------ ------
Balance at end of year $350 $389 $408
======= ====== ======
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By:/s/ C. Harry Knowles
C. Harry Knowles
Chief Executive Officer
(Principal Executive Officer)
Dated: March 30, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934,
the report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ C. Harry Knowles Chairman of the Board March 30, 2000
C. Harry Knowles and Chief Executive Officer
(Principal Executive Officer)
/s/ Janet H. Knowles Director, Vice President, March 30, 2000
Janet H. Knowles Administration, Secretary, and Treasurer
/s/ Thomas E. Mills IV Director, President, Chief Operating March 30, 2000
Thomas E. Mills IV Officer, Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
/s/ Richard C. Close Director March 30, 2000
Richard C. Close
/s/ John H. Mathias Director March 30, 2000
John H. Mathias
/s/ Stanton L. Meltzer Director March 30, 2000
Stanton L. Meltzer
/s/ Hsu Jau Nan Director March 30, 2000
Hsu Jau Nan
/s/ William Rulon-Miller Director March 30, 2000
William Rulon-Miller
<PAGE>
INDEX TO EXHIBITS
Sequential
Exhibit Page
Number Description Number
- ------ ----------- ------
2.1 Stock Purchase Agreement dated as of March 1, 1995 among Metrologic
Instruments, Inc., Holoscan, Inc., and the parties listed on Schedule A
thereto (incorporated by reference to Exhibit 2.1 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1995).
2.2 Development Agreement entered into as of March 1, 1995 and effective as
of December 24, 1994 between Metrologic Instruments, Inc. and Holoscan,
Inc. (incorporated by reference to Exhibit 2.2 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1995).
2.3 Option Agreement dated as of March 1, 1995 among Metrologic
Instruments, Inc. and the parties listed on schedule A thereto
(incorporated by reference to Exhibit 2.3 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1995).
2.4 Background Technology License Agreement between Metrologic
Instruments, Inc. and Holoscan, Inc. (incorporated by reference
to Exhibit 2.4 to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1995).
3.1 Amended and Restated Certificate of Incorporation of Metrologic
Instruments, Inc. (incorporated by reference to Exhibit 3.1 to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1994).
3.2 Amended and Restated Bylaws of Metrologic Instruments, Inc.
(incorporated by reference to Exhibit 3.02 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1994).
4.1 Specimen Stock Certificate (incorporated by reference to Exhibit
4.1 to the Registrant's Registration Statement on Form S-1
(Reg. No. 33-78358)).
10.1 Metrologic Instruments, Inc. 1994 Incentive Plan (incorporated by
reference to Exhibit 99 to the Registrant's Registration
Statement on Form S-8 (Reg. No. 33-89376)).
10.2 Metrologic Instruments, Inc. Employee Stock Purchase Plan
(incorporated by reference to Exhibit 99 to the Registrant's
Post-Effective Amendment No. 1 to the Registration Statement on
Form S-8 (Reg. No. 33-86670) and Exhibit 10.1 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1995).
10.3 Lease Agreement dated April 1, 1994 among C. Harry Knowles,
Janet H. Knowles and Metrologic Instruments, Inc. (incorporated
by reference to Exhibit 10.4 to the Registrant's Registration
Statement on Form S-1 (Reg. No. 33-78358)).
10.4 Agreement of Settlement between Symbol Technologies, Inc. and
Metrologic Instruments, Inc. (incorporated by reference to
Exhibit 10.5 to the Registrant's Registration Statement on
Form S-1 (Reg. No. 33-78358)).
10.5 Agreement and Release dated February 7, 1986 among Michael L.
Sanyour, C. Harry Knowles, Janet H. Knowles and Metrologic
Instruments, Inc. (incorporated by reference to Exhibit 10.6
to the Registrant's Registration Statement on Form S-1
(Reg. No. 33-78358)).
10.6 Agreement dated January 6, 1995 between Michael L. Sanyour, C. Harry
Knowles, Janet H. Knowles and Metrologic Instruments, Inc.
(incorporated by reference to Exhibit 10.6(a) to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1994).
10.7 Promissory Note from Metrologic Instruments, Inc. to C. Harry Knowles
(incorporated by reference to Exhibit 10.8 to the Registrant's
Registration Statement on Form S-1 (Reg.
No. 33-78358)).
<PAGE>
10.8 Indemnification Agreement between Metrologic Instruments, Inc.
and C. Harry Knowles and Janet H. Knowles (incorporated by
reference to Exhibit 10.9 to the Registrant's Registration
Statement on Form S-1 (Reg. No. 33-78358)).
10.9 Offer Letter from Midlantic Bank, N.A. dated July 18, 1995 with respect
to increasing and amending the Revolving Loan Facility (incorporated by
reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1995).
10.10 Amended and Restated Loan and Security Agreement between Metrologic
Instruments, Inc. and Midlantic Bank, N.A. dated as of November 13,
1995 (incorporated by reference to Exhibit 10 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1995).
10.11 Loan Agreement between ECR Sales Management, Inc. and Metrologic
Instruments, Inc., dated as of January 1, 1996 (incorporated by
reference to Exhibit 10.11 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1995).
10.12 Security Agreement between ECR Sales Management, Inc. and Metrologic
Instruments, Inc., dated as of January 1, 1996 (incorporated by
reference to Exhibit 10.12 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1995).
10.13 Term Note of ECR Sales Management, Inc. dated January 1, 1996, payable
to Metrologic Instruments, Inc. (incorporated by reference to Exhibit
10.13 to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995).
10.14 Consignment Agreement between Metrologic Instruments, Inc. and ECR
Sales Management, Inc. dated as of January 1, 1996 (incorporated by
reference to Exhibit 10.14 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1995).
10.15 Agreement between Symbol Technologies, Inc. and Metrologic
Instruments, Inc. dated December 18, 1996 (incorporated by reference
to Exhibit 10 to the Registrant's Current Report on Form 8-K filed on
February 14, 1997).
10.16 Amendment to Amended and Restated Loan and Security Agreement between
Metrologic Instruments, Inc. and PNC Bank, National Association
(formerly Midlantic Bank, N.A.) dated December 31, 1996 (incorporated
by reference to Exhibit 10.16 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1996).
10.17 Second Amendment to Amended and Restated Loan and Security Agreement
between Metrologic Instruments, Inc. and PNC Bank, National Association
(formerly Midlantic Bank, N.A.) dated January 31, 1997 (incorporated by
reference to Exhibit 10.17 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1996).
10.18 Amended and Restated Revolving Loan Note between Metrologic
Instruments, Inc. and PNC Bank, National Association (formerly
Midlantic Bank, N.A.) dated January 31, 1997 (incorporated by reference
to Exhibit 10.18 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1996).
10.19 Term Note between Metrologic Instruments, Inc. and PNC Bank, National
Association (formerly Midlantic Bank, N.A.) dated December 31, 1996
(incorporated by reference to Exhibit 10.19 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1996).
10.20 First Amendment to Metrologic Instruments, Inc. 1994 Incentive Plan
dated July 1, 1997 (incorporated by reference to Exhibit 10 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended June
30, 1997).
10.21 Agreement for Settlement, Dismissal of Claims and Mutual Releases dated
April 9, 1997 between Metrologic Instruments, Inc. and PSC Inc.
(incorporated by reference to Exhibit 10.1 to the Registrant's Current
Report on Form 8-K filed April 16, 1997).
<PAGE>
10.22 Stipulation of Dismissal filed April 10, 1997 in the United States
District Court for the Western District of New York (incorporated by
reference to Exhibit 10.2 to the Registrant's Current Report on Form
8-K filed April 16, 1997).
10.23 Term Note between Metrologic Instruments, Inc. and PNC Bank, National
Association dated August 4, 1997 (incorporated by reference to Exhibit
10 to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1997).
10.24 Joint Venture Agreement between MTLG Investments, Inc. and
CCH Automation Systems, Inc. dated December 1997 (incorporated
by reference to Exhibit 10.24 to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1997).
10.25 Quotaholders' Agreement between MTLG Investments, Inc and CCH
Automation Systems, Inc. dated December 1997 (incorporated by reference
to Exhibit 10.25 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1997).
10.26 Guarantee of Mr. Chaim Bulka and Mrs. Gilda Meire Rosenberg Bulka in
favor of MTLG Investments, Inc. dated December 12, 1997 (incorporated
by reference to Exhibit 10.26 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1997).
10.27 Convertible Line of Credit Note between Metrologic Instruments, Inc.
and PNC Bank, National Association (incorporated by reference to
Exhibit 10 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998).
10.28 Convertible Line of Credit Note dated December 11, 1998 between
Metrologic Instruments, Inc. and PNC Bank, National Association
(incorporated by reference to Exhibit 10.28 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1998).
10.29 Amendment to Loan and Security Agreement dated December 11, 1998
between Metrologic Instruments, Inc. and PNC Bank, National Association
(incorporated by reference to Exhibit 10.29 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1998).
10.30 Convertible Line of Credit Note dated August 26, 1999 between
Metrologic Instruments, Inc. and PNC Bank, National Association
(incorporated by reference to Exhibit 10 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1999.
10.31 Amendment to Loan and Security Agreement dated November 10, 1995
between Metrologic Instruments, Inc. and PNC Bank, National Association
(incorporated by reference to Exhibit 10.1 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1999.
10.32 Security Agreement dated August 26, 1999 between Metrologic
Instruments, Inc. and PNC Bank, National Association (incorporated by
reference to Exhibit 10.2 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1999.
10.33 Form of Working Cash, Line of Credit, Investment Sweep Rider dated
November 23, 1999 between Metrologic Instruments, Inc. and PNC
Bank, National Association. 46
21 Subsidiaries of the Registrant 50
23 Consent of Ernst & Young LLP 51
27 Financial Data Schedule 52
<PAGE>
Exhibit 10.33
Form of Working Cash(R), Line of Credit, Investment Sweep Rider
[GRAPHIC OMITTED]
- -------------------------------------------------------------------------------
THIS WORKING CASH(R), LINE OF CREDIT, INVESTMENT SWEEP RIDER ("Working Cash
Sweep Rider") is made as of November 23, 1999, between METROLOGIC INSTRUMENTS,
INC. ("Borrower") and PNC Bank, National Association ("Bank").
This Working Cash Sweep Rider is incorporated into and made part of that
certain promissory note dated on or about the date hereof, as amended, modified
or renewed from time to time (the "Note"), and also into certain other
financing documents and security agreements executed by and between Borrower
and Bank (the Note together with all such documents (excluding this Working
Cash Sweep Rider) are collectively referred to as the "Loan Documents").
Pursuant to the Loan Documents, Bank has extended a line of credit (the "Line
of Credit") to Borrower, under which Borrower may borrow, repay and reborrow
funds at any time prior to the Expiration Date (as defined in the Loan
Documents). As long as this Working Cash Sweep Rider has not been terminated,
the following (i) outlines the terms under which Bank will make advances under
the Line of Credit and (ii) supersedes any provisions of the Loan Documents to
the extent inconsistent herewith.
Borrower has executed and delivered to PNC Bank, National Association, as
Trustee (the "Trustee"), a Working Cash(R) Trust Agreement establishing a
revocable trust (the "Borrower's Trust"), which is attached hereto and
incorporated by reference herein (together with this Working Cash Sweep Rider,
the "Working Cash Agreements").
NOW, THEREFORE, with the foregoing background deemed incorporated by
reference and made a part hereof, the parties hereto, intending to be legally
bound, covenant and agree as follows:
1. TRANSFER INSTRUCTIONS.
During the term of this Working Cash Sweep Rider, the following instructions
from Borrower to Bank shall apply to transfers of assets between the Borrower's
Trust and the Parent Account (the "Account") identified on the Schedule set
forth at the end of this Working Cash Sweep Rider (the "Schedule") and between
the Account and the checking account listed on the Schedule (the "DDA").
At the close of each Business Day, Bank will review the activity in the DDA. If
the Final Available Balance in the DDA exceeds the DDA's Target Balance set
forth on the Schedule by at least the amount of the Transfer Difference set
forth on the Schedule, Bank will debit the DDA in an amount by which the Final
Available Balance exceeds the Target Balance and credit those funds to the
Account ("Credit"). If the Final Available Balance in the DDA is less than the
DDA's Target Balance by no less than the amount of the Transfer Difference,
Bank shall debit the Account in an amount equal to the difference between the
Target Balance and the Final Available Balance ("Debit") and transfer that
amount to the DDA as set forth in the next paragraph. The amount credited or
debited to the Account from the DDA will not be less than the Transfer
Difference for the DDA. If the Final Available Balance in the DDA is plus or
minus the Target Balance by less than the Transfer Difference, there will be no
transfer of a Debit or Credit.
At the close of each Business Day, Bank will review the activity in the
Account. If there is a Credit in the Account, Bank is directed to apply the
amount of the Credit (a) first, to repay amounts outstanding under the Line of
Credit and (b) second, to debit any amount remaining and transmit such
remainder to the Borrower's Trust. If there is a Debit in the Account, Bank
shall direct Trustee to transfer to Bank, for credit to the Account, funds from
the Borrower's Trust in an amount equal to the Debit. Trustee shall not
transfer more than the Final Available Balance in the Borrower's Trust. If the
funds transferred to the Account from the Borrower's Trust are insufficient to
cover the Debit, Bank shall, on behalf of Borrower, make an advance under the
Line of Credit in an amount equal to the lesser of (a) the remaining amount of
the Debit, or (b) the amount, if any, available under the Line of Credit. All
advances under the Line of Credit shall be evidenced by the Note and shall be
deposited into the Account.
<PAGE>
2. INTEREST. Effective as of the date hereof, Bank has agreed that loans made
by Bank under the Line of Credit shall bear interest at a variable rate per
annum equal to the sum of the Index minus .75%. The Index is the rate of
interest per annum equal to the Prime Rate, which means the rate publicly
announced by Bank from time to time as its prime rate (the "Base Rate"). The
Prime Rate is not tied to any external rate or index and does not necessarily
reflect the lowest rate of interest actually charged by Bank to any particular
class or category of customers. The rate of interest charged shall be adjusted
when the Prime Rate changes without notice to Borrower, and shall be applicable
to the then outstanding balance under the Line of Credit from the effective
date of any such change. If the Base Rate applies, all calculations of interest
on the Line of Credit will be computed on the basis of a year of 365 or 366
days, as the case may be, and paid on the actual number of days elapsed.
3. PAYMENTS. Interest will be due and payable on or about the last day of each
month and will be charged to the Account. All fees and expenses due to Bank
will be charged to the Account. If there are insufficient funds in the Account
to pay interest and/or the fees and expenses due, Bank shall, on behalf of
Borrower, make an advance under the Line of Credit to the extent Borrower has
availability thereunder. Otherwise, any unpaid interest and fees and expenses
will be immediately due and payable by Borrower. At the end of any Business
Day, any Final Available Balance in the Account shall be automatically applied
to the repayment of the outstanding principal balance under the Line of Credit.
4. EVENT OF DEFAULT. Pursuant to the terms of the Loan Documents, Bank will not
be obligated to make any advance under the Line of Credit if any Event of
Default (as defined in the Loan Documents) or event which, with the passage of
time, provision of notice or both, would constitute an Event of Default shall
have occurred and be continuing.
5. BORROWER ACKNOWLEDGMENTS. Borrower acknowledges that Bank and Trustee are
acting solely as Borrower's agents in transferring funds between the Account
and the Borrower's Trust pursuant to the terms of this Working Cash Sweep
Rider. Trustee shall not have any liability to Bank for amounts owed Bank under
the Line of Credit.
6. STANDARD OF CARE AND LIMITATION OF LIABILITY. With respect to the
performance of services under this Working Cash Sweep Rider and in transferring
funds between the Account and the Borrower's Trust, Bank and Trustee will be
governed by a standard of ordinary care. In any event, Bank and Trustee shall
only be liable for Borrower's actual damages. Neither Bank nor Trustee shall be
liable for any consequential, incidental, special or indirect losses, damages
or expenses (including counsel fees) which Borrower may incur by reason of this
Working Cash Sweep Rider or the services provided hereunder. In no event will
either Bank or Trustee be liable for its inability to perform its obligations
hereunder if such inability arises out of causes beyond its control.
7. TERMINATION. This Working Cash Sweep Rider may be terminated by either party
upon written notice to the other. Notwithstanding the prior sentence, this
Working Cash Sweep Rider may be immediately terminated by Bank without notice
upon (i) the filing by or against Borrower of any proceeding in bankruptcy,
receivership, insolvency, reorganization, liquidation, conservatorship or
similar proceeding (and in the case of any such proceeding instituted against
Borrower, such proceeding is not dismissed or stayed within thirty (30) days of
the commencement thereof, provided that Bank shall not be obligated to advance
additional funds during such period); or (ii) any assignment by Borrower for
the benefit of creditors, or any levy, garnishment, attachment or similar
proceeding is instituted against any property of Borrower held by or deposited
with Bank.
If this Working Cash Sweep Rider is terminated, Bank shall in its discretion
direct Trustee to transfer to the Account all of the funds in the Borrower's
Trust which funds will used by the Bank to cover any negative balance in the
DDA or the Account and to repay amounts owed under the Line of Credit, in such
order as the Bank may determine. If the funds transferred from the Trust to the
Account are insufficient to cover any Debit, the amount of such Debit will be
immediately due and payable by Borrower. Following such transfer by the
Trustee, the transfer instructions set forth in Section 1 of this Working Cash
Sweep Rider and all other provisions stated herein shall no longer apply and
the terms of the Loan Documents (as in effect before the execution of this
Working Cash Sweep Rider) shall thereafter govern the Line of Credit.
<PAGE>
8. FEES. Bank will be compensated for its services relating to the Working Cash
Agreements initially in accordance with the fees set forth on the Schedule, as
such fees may be modified by Bank from time to time. Trustee will be
compensated for its services relating to the Working Cash Agreements in
accordance with its Schedule of Fees in effect from time to time. Borrower
acknowledges receipt and review of the current fee arrangements for each of
Bank and Trustee.
9. MISCELLANEOUS. No modification, amendment or waiver of any provision of any
of the Working Cash Agreements nor consent to any departure by Borrower
therefrom, will in any event be effective unless the same is in writing and
signed by Bank and Trustee, where appropriate, and then such amendment, waiver
or consent shall be effective only in the specific instance and for the purpose
for which given. No delay or omission of 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 or any acquiescence therein, nor shall the
action or inaction of Bank impair any such right or power. If any provision of
the Working Cash Agreements are found to be invalid by a court, all the other
provisions of the Working Cash Agreements will remain in full force and effect.
The Working Cash Agreements may be signed in any number of counterpart copies
and by the parties hereto on separate counterparts, but all such copies shall
constitute one and the same instrument.
10. ENTIRE AGREEMENT. The Working Cash Agreements and the Loan Documents and
all of the documents and instruments referred to therein constitute the entire
agreement and supersede all other prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter
hereof.
11. SUCCESSORS AND ASSIGNS. The Working Cash Agreements will be binding upon
and inure to the benefit of Borrower, Bank and Trustee and their respective
heirs, executors, administrators, successors and assigns; provided, however,
that Borrower may not assign any of the Working Cash Agreements in whole or in
part without the Bank's prior written consent; and Bank and Trustee may, at any
time, assign any of their respective rights and obligations under the Working
Cash Agreements in whole or in part.
12. DEFINITIONS. As used herein, (i) the term "Final Available Balance" shall
mean the collected balance after all items have been posted for the Business
Day; and (ii) "Business Day" shall mean any day other than a Saturday or Sunday
or a legal holiday on which commercial banks are authorized or required to be
closed for business in the cities in which Bank and Trustee are located.
Capitalized terms used herein without definition shall have the meanings given
to those terms in the Schedule.
<PAGE>
SCHEDULE
The commercial checking account ("DDA") listed below is considered related to
the Parent Account (the "Account") identified below and to the Working Cash
Agreements for the purpose of ascertaining the dollar amount to be transferred
on any Business Day to or from the Borrower's Trust created pursuant to the
Working Cash(R) Trust Agreement between Trustee and Borrower.
The DDA listed below will be governed by Bank's policies, procedures and fee
arrangements that are generally applicable to commercial demand deposit
accounts from time to time.
===============================================================================
PARENT ACCOUNT NUMBER AUTHORIZED BORROWER CONTACT (NAME)
===============================================================================
===============================================================================
CHECKING ACCOUNT (DDA) NO. TARGET BALANCE TRANSFER DIFFERENCE
===============================================================================
===============================================================================
MONTHLY FEE $
===============================================================================
===============================================================================
AUTHORIZED BORROWER CONTACT (NAME)
===============================================================================
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.
Bank: Borrower Name:
PNC BANK, NATIONAL ASSOCIATION METROLOGIC INSTRUMENTS, INC.
By: By:
Print Name: Print Name:
Title: Title:
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Metrologic do Brasil Ltda., a Brazil corporation
Metrologic Asia (PTE) Ltd., a Singapore corporation
Holoscan, Inc., a California corporation
MTLG Investments Inc., a Delaware corporation
Metrologic Instruments (Barbados) Inc., a Barbados corporation
Metrologic Instruments GmbH, a German corporation
Metro (Suzhou) Technologies Co., Ltd., a China corporation
Metrologic Eria Iberica SL, a Spain corporation
Metrologic Italia S.r.l., an Italy corporation
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement on
Form S-8 (Registration No. 33-89376) pertaining to Metrologic Instruments, Inc.
1994 Incentive Plan and the Registration Statement on Form S-8 (Registration
No. 33-86670) pertaining to Metrologic Instruments, Inc. Employee Stock
Purchase Plan of our report dated February 24, 2000 with respect to the
consolidated financial statements and schedule of Metrologic Instruments, Inc.
included in the Annual Report on Form 10-K for the year ended December 31,
1999.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
March 30, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
UNAUDITED FINANCIAL STATEMENTS FOR THE TWELVE MONTHS ENDED DECEMBER
31, 1999 AND 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<PERIOD-START> JAN-01-1999 JAN-01-1998
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-END> DEC-31-1999 DEC-31-1998
<CASH> 6,970,000 10,684,000
<SECURITIES> 0 0
<RECEIVABLES> 21,824,000 14,931,000
<ALLOWANCES> 350,000 389,000
<INVENTORY> 11,231,000 6,900,000
<CURRENT-ASSETS> 41,786,000 34,507,000
<PP&E> 15,922,000 12,080,000
<DEPRECIATION> 7,049,000 5,698,000
<TOTAL-ASSETS> 56,627,000 46,296,000
<CURRENT-LIABILITIES> 18,081,000 13,011,000
<BONDS> 0 0
0 0
0 0
<COMMON> 54,000 54,000
<OTHER-SE> 34,490,000 29,947,000
<TOTAL-LIABILITY-AND-EQUITY> 56,627,000 46,296,000
<SALES> 80,103,000 65,641,000
<TOTAL-REVENUES> 80,103,000 65,641,000
<CGS> 46,710,000 39,698,000
<TOTAL-COSTS> 72,368,000 59,392,000
<OTHER-EXPENSES> 202,000 (456,000)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 262,000 177,000
<INCOME-PRETAX> 7,533,000 6,705,000
<INCOME-TAX> 2,636,000 2,212,000
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 4,897,000 4,493,000
<EPS-BASIC> .90 .83
<EPS-DILUTED> .90 .82
</TABLE>
