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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------
FORM 10-K
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(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, 1997, or
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the transition period from
__________ to ________
Commission file number 0-24712
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)
(609) 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 23, 1998 was $22,431,184 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 23, 1998 there were 5,375,990 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 1998
Annual Meeting of Stockholders, to be filed not later than 120 days after the
close of the fiscal year.
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, 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 609-228-8100.
The Company's principal subsidiaries include: Metrologic Instruments GmbH;
Metrologic Asia (PTE) Ltd.; Metrologic do Brasil Ltda; and Holoscan, Inc.
("Holoscan"), and an affiliate, Metrologic, South America, an exclusive sales
office.
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, such as ScanSet(R) software and the ScanSelect(TM) bar code booklet
program, 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, cash registers and portable data terminals.
Bar code laser scanners are the Company's predominant products and accounted
for 92.8%, 92.0% and 93.5% of the Company's sales in 1997, 1996 and 1995,
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.
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 Scanners. In May 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 on the market. The
HoloTrak(R) line is designed to increase user efficiency and productivity in
high volume package-handling situations. The HoloTrak(R) scanners may be
mounted above work areas and loading doors to allow "walk-under scanning," or
utilized for hands-free unattended high-speed conveyor belt scanning in
industrial and package sortation 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, radio-frequency interfacing, automated manufacturing
methods and mechanics.
During 1997, the Company's research and development efforts were focused on new
product introductions for 1997 and 1998, which include hand held scanners,
fixed projection scanners, and holographic scanners. Introduced in March 1998,
the Company's holographic scanning solutions include a complex high speed
holographic scanner tunnel system, which combines cost-effective holographic
scanner technology with other technologies to provide a complete conveyor belt
scanning solution for a broad range of applications.
During 1997, 1996 and 1995, the Company spent approximately $3.4 million, $3.1
million and $3.0 million respectively, on research and development activities.
Sales and Marketing
The Company sells its products through distributors, value-added resellers
("VARs") and 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 1997, 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. Metrologic Instruments,
South America, an exclusive sales office located in Caracas, Venezuela provides
sales and service to the South American marketplace. In January, 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 will provide sales, distribution and service for its Brazilian customer
base.
During 1997, and continued through the first quarter of 1998, the Company has
significantly increased its North American sales force primarily to gain
marketshare in point-of-sale ("POS") scanner sales.
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.
The Company has also entered into brand label agreements for sales of its
HoloTrak industrial holographic scanners with companies in the industrial
controls and industrial scanner industries, including Rockwell Automation which
sells HoloTrak scanners under the AllenBradley name, Symbol Technologies, Inc.,
which will sell HoloTrak scanners under the Symbol brand name, and an exclusive
sales agreement for HoloTrak sales in Japan with Matsushita Inter-Techno Co. (a
company of the Panasonic Corporation). Additionally, the Company has developed
a separate VAR network for the sales, service and distribution of the
HoloTrak(R) scanners.
As of December 31, 1997, the Company had approximately $1.7 million in backlog
orders, including $0.6 million in backlog orders attributable to Metrologic
Instruments GmbH. All such backlog orders are anticipated to be filled prior to
December 31, 1998. As of December 31, 1996, the Company had approximately $5.1
million in backlog orders, including $1.8 million in backlog orders
attributable to Metrologic Instruments GmbH, all of which were filled during
the 1997 fiscal year.
The Company performs ongoing credit evaluations of its customer's 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.
The following table sets forth certain information as to the Company's sales
by geographical location: (amounts in thousands)
Year Ended December 31,
1995 1996 1997
North America $18,387 $17,445 $19,684
Europe 18,470 23,466 26,475
Rest of World 4,706 6,060 7,336
------- ------- -------
Total $41,563 $46,971 $53,495
======= ======= =======
For a discussion of additional financial information by geographical area, see
Note 12 of the Notes to Consolidated Financial Statements.
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, German marks, Singapore dollars and various other
European currencies 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.
Competition
The bar code scanning industry is highly competitive. The Company encounters
competition primarily from manufacturers in the United States, Japan, Taiwan,
Italy, and the Netherlands. The Company's scanners compete primarily with those
produced by Accu-Sort Systems, Inc., Intermec Corp., Microscan Systems, Inc.,
NCR Corporation, Norand Corporation, PSC, Inc., Symbol Technologies, 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. While many of the Company's competitors are much larger and have
greater financial, technical, marketing and other resources than the Company,
the Company believes that it competes on the basis of price, quality, service
and product performance.
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
33 issued U.S. patents, which expire between 1999 and 2014, and three foreign
patents, which expire between 2005 and 2012. In addition, the Company currently
has 13 U.S. allowed patent applications and four foreign 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), ScanSet(R), ScanGlove(R), ScanPal(R), Mini-Slot(R),
Liberty(R), ScanQuest(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
ScanKey(TM), HoloTrak(R), HoloSet(TM), HoloPrism(TM), Contour(TM), and
Concert(TM) and for other marks it is using in both 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.
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 agreed to
pay another $1 million in quarterly installments of $125,000, over two years
ending in December 1998. In December 1997, 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 under the Symbol Agreement to purchase
the Company's products.
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 dated December 1996, Symbol 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. For
additional information concerning the settlement, see Note 10 of the Notes to
Consolidated Financial Statements.
Manufacturing and Suppliers
The Company manufactures all of its products at its Blackwood, New Jersey
headquarters, 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 utilizes material
requirements planning and schedules its production to manage inventory levels
and meet customer delivery demands.
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 utilizes five computerized printed
circuit board surface mount component pick-and-place machines. The Company uses
a computer-based, high-speed coil winder and an automated soldering station for
the production of transformers, inductors and other magnetic components. The
Company uses seven computer-controlled machine tools for automated production
of machined components. The Company uses three computerized vacuum-deposition
chambers to coat its filters, mirrors and lenses, and high-speed robotic glass
cutting machines. Computer-operated equipment is used for testing printed
circuit assemblies as well as the final products to assure repeatable, reliable
performance and accurate data collection for monitoring and analysis. The
Company has in operation a holographic scanning disc engineering and production
facility with the capability to design and manufacture high volumes of
holographic scanners.
The Company believes that by forming long-term relationships with suppliers
that share its commitment to quality, on-time delivery, and cost effectiveness,
it has been able to increase its product value to its customers. The Company
does not believe that the loss of any one supplier would have a material
adverse effect on its business, although set-up costs and delays would result
if the Company were required to change any single supplier without adequate
prior notice.
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 Radiologic Health regulates
laser safety in the United States, and in Canada, laser safety is regulated by
the Health Protection Branch. 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 product
safety certification in the United States and Canada by the nationally
recognized testing laboratories, the Underwriters Laboratories, Inc. and/or 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, 1997, the Company had approximately 400 full-time employees.
None of the Company's employees is represented by a labor union. Management
believes that its relationships with its employees are good.
Item 2. Properties
Since 1990, the Company's executive offices and manufacturing facilities have
been located in Blackwood, New Jersey and leased by the Company from C. Harry
Knowles, Chairman of the Board, President and Chief Executive Officer of the
Company, and Janet H. Knowles, Vice President, Administration, Secretary and
Treasurer of the Company. Under a lease agreement entered into on April 1,
1994, the Company has leased the building for a term of five years and has an
option to renew the lease for an additional five-year term. The initial annual
rent under the lease for the first year was $356,440 and increases annually at
a rate of 4.5%. An expansion of the facilities consisting of an additional
51,000 square feet was completed in October 1995, which has increased the
Company's facility to an aggregate of 113,000 square feet. The expanded space
is being leased from Mr. and Mrs. Knowles pursuant to the terms of the April 1,
1994 lease. The total lease rate as of April 1, 1998 will be approximately
$64,000 per month, excluding taxes and insurance.
The Company owns a former office and factory in Bellmawr, New Jersey which is
no longer utilized for operations and is currently under lease with an option
for the lessee to purchase the building. The Company's wholly-owned
subsidiaries, Metrologic Instruments GmbH, Metrologic Asia (PTE) Ltd., and
Holoscan each lease office space from third parties. The sales office in
Venezuela is leased from a third party by an independent representative of the
Company. Metrologic do Brasil Ltda, a joint venture, leases office space from a
third party in Sao Paulo, Brazil.
Item 3. Legal Proceedings
Not applicable.
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 31, 1998 are as follows:
Name Age Position
C. Harry Knowles* 69 Chairman of the Board, President and
Chief Executive Officer
Janet H. Knowles* 56 Vice President, Administration,
Secretary and Treasurer
Dr. LeRoy D. Dickson 63 Vice President, Optical Engineering,
Metrologic Instruments, Inc. and
President and Chief Operating Officer,
Holoscan, Inc.
Dale M. Fischer 57 Vice President, International Sales
Joseph Milacci 54 Vice President, Industrial Automation
Thomas E. Mills, IV 38 Vice President, Finance and Chief Financial
Officer
Benny A. Noens 50 Vice President, European Sales, and
Managing Director, Metrologic
Instruments GmbH
John L. Patton 52 Director, Human Resources
William G. Smeader 59 Vice President, Manufacturing
Kevin P. Woznicki 44 Vice President, North American Sales
- -----------------------------------
* Mr. and Mrs. Knowles are husband and wife.
The Company's executive officers are elected annually by the Board of Directors
following the annual meeting of stockholders 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 its inception in 1969. Mr. Knowles served as President
of the Company from its inception through 1982 and has served as President and
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.
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 that was established in
1993 to develop holographic bar code scanners. Dr. Dickson served as Chairman,
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 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
1973-1977 as Operations Manager.
Thomas E. Mills IV is a certified public accountant and has been the Company's
Chief Financial Officer since May 1994 and Vice President, Finance since June
1995. 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. Prior to his employment with Ferranti International, Inc., Mr.
Mills was employed by KPMG Peat Marwick in various positions from 1981 to 1986,
most recently as Audit Manager.
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 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 February
1993 to 1996 and has served as Director, Human Resources since December 1996.
From 1988 to February 1993, he was employed as a human resources consultant
with the Gordon Walls 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.
William G. Smeader served as the Company's Director of Manufacturing from 1988
to 1993 and has served as its Vice President, Manufacturing since 1994. From
1964 to 1987, he was employed by Leeds and Northrup, a manufacturer of
industrial instrumentation controls and a unit of General Signal Corporation,
where he held several positions including Engineering Manager of New Product
Development, Manager of New Product Introductions, Purchasing Manager, Director
of Advanced Business Development and Director of Materials and MIS Systems.
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 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 Stockholder
Matters
The common stock of the Company, par value $.01 per share ("Common Stock") is
traded on The Nasdaq Stock Market 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 1996 $13 1/4 $ 9 3/8
April to June 1996 $13 $11
July to September 1996 $13 1/2 $11 1/4
October to December 1996 $16 1/2 $13 1/4
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
On March 23, 1998 there were 159 stockholders 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.
Item 6. Selected Consolidated Financial Data
(in thousdands, except share and per share data)
Year ended December 31,
1993 1994 1995 1996 1997
-------------------------------------------------
Statement of Operations Data:
Sales $ 23,682 $ 35,960 $ 41,563 $ 46,971 $ 53,495
Cost of sales 14,666 20,633 24,092 28,799 33,240
-------------------------------------------------
Gross profit 9,016 15,327 17,471 18,172 20,255
Selling, general and
administrative expenses 4,709 7,830 10,589 10,505 12,087
Research and development
expenses 1,516 1,765 3,024 3,110 3,359
-------------------------------------------------
Operating income 2,791 5,732 3,858 4,557 4,809
Settlement of patent litigation
and related legal costs (5,002) - - - -
Other income (expense), net (489) (242) 353 221 (156)
-------------------------------------------------
Income (loss) before (provision)
benefit for income taxes (2,700) 5,490 4,211 4,778 4,653
(Provision) benefit for income
taxes(1) 273 333 (1,669) (1,803) (1,673)
-------------------------------------------------
Net income (loss) $ (2,427) $ 5,823 $ 2,542 $ 2,975 $ 2,980
=================================================
Pro forma adjustment
(unaudited) (2) (Provision)
benefit for income taxes
as a C Corporation 791 (2,617) n/a n/a n/a
-------------------------------------------------
Pro forma net income
(loss) (2) $ (1,636) $ 3,206 n/a n/a n/a
=================================================
Basic earnings per share(3)
Weighted average shares
outstanding used in
computing basic EPS 3,499,998 3,898,899 5,238,112 5,255,275 5,330,596
=================================================
Basic earnings per share $ (0.69) $ 1.49 $ 0.49 $ 0.57 $ 0.56
=================================================
Pro forma basic earnings
(loss) per share (2) $ (0.47) $ 0.82 n/a n/a n/a
=================================================
Diluted earnings per share(3)
Weighted average shares
outstanding used in
computing diluted EPS 3,499,998 3,912,100 5,278,683 5,301,066 5,447,277
=================================================
Diluted earnings per share $ (0.69) $ 1.49 $ 0.48 $ 0.56 $ 0.55
=================================================
Pro forma diluted earnings
(loss) per share (2) $ (0.47) $ 0.82 n/a n/a n/a
=================================================
December 31,
1993 1994 1995 1996 1997
------------------------------------------------------
Balance Sheet Data:
Cash and cash
equivalents $ 346 $ 11,925 $ 12,065 $ 10,358 $ 13,096
Working capital $ 1,669 $ 14,942 $ 14,733 $ 15,200 $ 18,599
Total assets $ 9,268 $ 26,342 $ 31,401 $ 35,992 $ 38,458
Long-term debt $ 3,077 $ 803 $ 817 $ 1,764 $ 1,496
Other long-term
obligations $ 4,159 $ 3,718 $ 3,126 $ 2,033 $ 1,329
Total liabilities $12,069 $11,329 $13,475 $14,945 $13,557
Common stock $ 35 $ 52 $ 52 $ 53 $ 54
Total stockholders'
equity (deficit) $(2,801) $15,013 $17,926 $21,047 $24,901
Cash dividends declared
per common share $ 0.18 $ 0.83 $ - $ - $ -
(1) Benefit for income taxes for the year ended December 31, 1994 includes a
benefit of $1.7 million related to the change in the Company's federal
income tax status upon termination of its election to be treated as an S
Corporation.
(2) In connection with the consummation of the Company's initial public
offering in October 1994, the Company's status as an S Corporation
terminated, and the Company is now subject to corporate income taxes.
Accordingly, pro forma net income (loss) and pro forma net income (loss)
per share reflect a pro forma adjustment for corporate income taxes which
would have been recorded had the Company not been an S Corporation in the
periods presented.
(3) The earnings per share amounts prior to 1997 have been restated as required
to comply with Statement of Financial Accounting Standards No. 128,
Earnings Per Share. For further discussion of earnings per share, see
the notes to the consolidated financial statements beginning on page 20.
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, VARs and OEMs and directly to end-users in the United States and
in over 80 foreign countries. Since 1991, the Company has experienced a growth
in revenues with a significant percentage of its revenues derived from
international sales.
Results of Operations
Since the beginning of 1997 the Company has been exposed to overall unfavorable
foreign currency fluctuations due to the reduction in the value of the German
mark against the U.S. dollar. The exchange rate at January 1, 1997 was
approximately 1.54 German marks to one U.S. dollar compared to approximately
1.80 German marks to one U.S. dollar at December 31, 1997, a reduction in value
of approximately 16.9% since the beginning of the year, the effect of which was
partially offset by an increase in product sales prices in Europe as of April
1, 1997. During the third quarter of 1997, the exchange rate was as high as
1.875 German marks to one U.S. dollar. In accordance with generally accepted
accounting principles, the Company translates its Statement of Operations
utilizing average exchange rates for reported periods.
The Company's German subsidiary accounted for approximately 47.9% of the
Company's consolidated sales for the year ended December 31, 1997.
Substantially all of the German subsidiary's products are manufactured at the
Company's U.S. facility. Therefore, the subsidiary's product manufacturing
costs, which represent approximately 75.7% of the subsidiary's total costs for
the year ended December 31, 1997, are incurred by the Company in U.S. dollars.
As a result, the subsidiary's sales are significantly affected by fluctuations
in the exchange rate between the German mark and the U.S. dollar; however,
there is a minimal offsetting effect in the product costs of the subsidiary.
Accordingly, the Company's consolidated operating profit is significantly
affected by changes in the exchange rate between the German mark and U.S.
dollar. (See "Liquidity and Capital Resources" for a discussion of the
Company's derivative financial instruments utilized to mitigate such exposure.)
Notwithstanding the effect of the fluctuations in the exchange rate between the
German mark to the U.S. dollar, the Company's sales derived from its German
subsidiary denominated in German marks increased 38% for the year ended
December 31, 1997 over 1996.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996 (amounts
in thousands except per share information)
Sales increased 13.9% to $53,495 in 1997 from $46,971 in 1996, principally as a
result of the continued increase in market acceptance of the Company's
hand-held scanners, scan engines sold to OEM's, HoloTrak holographic industrial
scanners, and increased sales and marketing efforts. The increase in sales was
offset by lower average unit selling prices compared to the corresponding
period a year ago, primarily on certain of the Company's point-of-sale ("POS")
products, which average unit selling prices included significant unfavorable
foreign exchange fluctuations from the Company's German subsidiary. The
reduction in the value of the German mark against the U.S. dollar since the
beginning of 1997 negatively affected the recorded U.S. dollar value of sales
by approximately 12.5% or approximately $3,200 in the year ended December 31,
1997.
International sales accounted for $33,811 (63.2% of total sales) in 1997 and
$29,526 (62.9% of total sales) in 1996. Sales to one customer accounted for
approximately 5.9% of total sales in 1997. Amounts due from this customer
amounted to approximately $568 at December 31, 1997. The Company's sales to two
customers accounted for approximately 5.3% and 5.2%, respectively, of total
sales in 1996. During these periods, no other customer accounted
for more than 5.0% of sales.
Cost of sales increased 15.4% to $33,240 in 1997 from $28,799 in 1996, and cost
of sales as a percentage of sales increased to 62.1% from 61.3%. These
increases were due primarily to a reduction in the average selling prices on
certain of the Company's products, which average unit selling prices included
the unfavorable foreign currency fluctuations noted above. An additional factor
negatively affecting cost of sales includes initial production and setup costs
associated with HoloTrak industrial scanners for which sales levels had not yet
achieved sufficient levels to fully absorb these costs. The increases in cost
of sales were partly offset by reduced product costs resulting from engineering
enhancements to certain products and manufacturing efficiencies resulting from
greater unit volumes. If sales are adjusted to negate the effect of unfavorable
foreign currency fluctuations since the beginning of 1997, cost of sales as a
percentage of sales would have been 58.8% in 1997 compared with 61.3% in 1996.
Selling, general and administrative ("SG&A") expenses increased 15.1% to
$12,087 in 1997 from $10,505 in 1996 and increased as a percentage of sales to
22.6% from 22.4%. The increases were primarily due to increased salaries
resulting from the hiring of additional sales and marketing personnel
throughout North America, Europe and the rest of the world, and increased
salaries resulting from the hiring of additional administration personnel during
the year primarily due to the growth of the business. SG&A expenses were
positively affected by reductions in the value of the German mark against the
U.S. dollar. The positive impact of the reduced value of the German mark since
the beginning of 1997 on consolidated SG&A expenses was approximately 3.4% or
$413 in the year ended December 31, 1997.
Research and development ("R&D") expenses increased 8.0% to $3,359 in 1997 from
$3,110 in 1996, and decreased as a percentage of sales to 6.3% from 6.6%. The
increase in R&D expenses was primarily due to the hiring of additional research
and development personnel.
Operating income increased 5.5% to $4,809 in 1997 from $4,557 in 1996, and
operating income as a percentage of sales decreased to 9.0% from 9.7%.
Other expenses/income reflect a net expense of $156 in the year ended December
31, 1997 compared to net other income of $221 in the year ended December 31,
1996. Other expenses reflect higher foreign currency transaction losses and
interest expense compared to the corresponding period a year ago.
Net income increased 0.2% to $2,980 in 1997 from $2,975 in 1996. Net income
reflects a 36.0% effective income tax rate for the year ended December 31,
1997, compared with 37.7% in 1996. 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. Also, the Company has not incurred
income tax liability from any of its foreign subsidiaries in 1997. The
reduction in the value of the German mark against the U.S. dollar since the
beginning of 1997 negatively affected net income by approximately $0.37 per
share.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995 (amounts
in thousands)
Sales increased 13.0% to $46,971 in 1996 from $41,563 in 1995, principally as a
result of the continued increase in market acceptance of the Company's POS
laser scanners. The increase in sales was offset by lower average unit selling
prices in 1996, which included unfavorable foreign exchange fluctuations from
the Company's German subsidiary. International sales accounted for $29,526
(62.9% of total sales) in 1996 and $23,176 (55.8% of total sales) in 1995. The
Company's sales to two customers accounted for approximately 5.3% and 5.2% of
total sales, respectively, in 1996. Sales to one other customer accounted for
approximately 12.0% of total sales in 1995, however, this same customer
accounted for 4.2% of sales in 1996. During these periods, no other customer
accounted for more than 5% of sales.
Cost of sales increased 19.5% to $28,799 in 1996 from $24,092 in 1995, and cost
of sales as a percentage of sales increased to 61.3% from 58.0%. The increase
in cost of sales as a percentage of sales was due primarily to the reduction in
average unit selling prices as described above, increased royalties associated
with a cross-licensing agreement entered into in 1996 (See Item 1,
"Business-Patent, Copyright and Trademark Matters"), and initial production and
set-up costs on the new POS and industrial holographic laser scanners
introduced in 1996. The increase in cost of sales was partially mitigated by
cost reductions in certain component parts, higher production yields on
established products, and increased manufacturing efficiencies through higher
production volume on established products.
SG&A expenses decreased 0.8% to $10,505 in 1996 from $10,589 in 1995, and
decreased as a percentage of sales to 22.4% from 25.5%. SG&A expenses in 1996
included increased salary costs of employees hired during the year primarily
due to the growth of the business, however, SG&A expenses in 1995 contained
legal costs associated with certain patent litigation, which were not incurred
in 1996.
R&D expenses increased 2.8% to $3,110 in 1996 from $3,024 in 1995, and
decreased as a percentage of sales to 6.6% from 7.3%. The increase in R&D
expenses was due to the hiring of additional research and development personnel
including employees of Holoscan, which was acquired in March 1996. R&D
expenses in 1995, however, included expenditures associated with an agreement
to develop holographic scanners jointly with Holoscan which occurred prior to
the acquisition.
Operating income increased 18.1% to $4,557 in 1996 from $3,858 in 1995, and
operating income as a percentage of sales increased to 9.7% from 9.3%. These
increases reflect higher sales levels and decreased SG&A expenses and R&D
expenses as a percentage of revenue, offset slightly by higher costs of sales
as described above.
Other income decreased 37.4% to $221 in 1996 from $353 in 1995. Other income
decreased principally as a result of decreased interest income, partially
offset by decreased interest expense and foreign currency losses. Foreign
currency losses were primarily due to the strengthening of the US dollar
against the German mark.
Net income increased 17.0% to $2,975 in 1996 from $2,542 in 1995. Net income
reflects a 37.7% effective income tax rate in 1996 compared with 39.6% in 1995.
The reduced effective income tax rate resulted from the first full year of
incorporation 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.
Inflation and Seasonality
Inflation and seasonality have not had a material impact on the Company's
results of operations. There can be no assurance, however, that the Company's
sales in future years will not be impacted by fluctuations in seasonal demand
from European customers in its third quarter or from reduced production days in
its fourth quarter.
Liquidity and Capital Resources (amounts in thousands)
The Company's working capital increased approximately 22.4% to $18,599 as of
December 31, 1997 from $15,200 as of December 31, 1996.
The Company's operating activities provided net cash of $3,333 compared with
net cash provided of $620 for the prior year. Net cash provided from operating
activities for 1997 resulted primarily from net income plus non-cash charges of
approximately $2,030 and a reduction in inventory and other assets, offset by
an increase in accounts receivable and a decrease in both accrued expenses and
the 1993 accrued legal settlement.
The Company's total deferred income tax asset (current and long-term) of
$2,112, is based upon cumulative temporary differences as of December 31, 1997,
which provide approximately $5,289 of future income tax deductions against
future taxable income. The Company's total deferred tax liability (current and
long-term) of $571, is based upon cumulative temporary differences as of
December 31, 1997, which result in approximately $1,430 of future taxable
income. The deferred tax asset arises primarily from recording the December
1993 settlement of a patent lawsuit and certain accruals and reserves on
current assets as expenses for accounting purposes prior to receiving the
related tax benefit. The deferred tax liability arises primarily from recording
the advance license fee pursuant to the Symbol Agreement 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
with its primary bank, as amended, (the "Bank Agreement"), which provides for a
an unsecured line of credit in the amount of $7,500. The line of credit requires
the Company to comply with certain financial covenants and other restrictions.
As of December 31, 1997, the Company was in compliance with these financial
covenants and no amounts were outstanding under this line of credit. The Bank
Agreement expires on June 30, 1998. The Company expects to execute another
amendment which extends the Bank Agreement through June 30, 1999.
The Company also has a 500 German mark unsecured revolving credit facility with
a German bank in the name of its German subsidiary, Metrologic Instruments
GmbH. As of December 31, 1997, no amounts were outstanding under this revolving
credit facility.
The Company's current plans for capital expenditures for the next twelve months
potentially include the purchase of (i) the Company's office and manufacturing
facility currently being leased from the Company's principal stockholder,
Chairman, President, and CEO, and his spouse, the Company's Vice President,
Administration, Secretary and Treasurer, or other additional manufacturing
facilities; (ii) manufacturing automation equipment; (iii) office equipment;
and (iv) a new integrated management information system. Potential capital
expenditures amount to approximately $6,700. The purchase of the Company's
office and manufacturing facility could potentially save the Company
approximately $200 annually in rent expenses, net of depreciation and interest
expenses. The Company expects to finance such potential expenditures with a
combination of term notes, operating and capital leases, and a mortgage.
The Company's liquidity has been, and may continue to be, adversely affected by
changes in foreign currency exchange rates. Since December 31, 1996, the
Company and its German subsidiary have been exposed to unfavorable foreign
currency exchange fluctuations as a result of a decline in the value of the
German mark against the U.S. dollar. In an effort to mitigate the financial
implications of the volatility in the exchange rate between the German mark and
the U.S. dollar, the Company increased product sales prices in Europe as of
April 1, 1997, and has selectively entered into derivative financial
instruments to offset its exposure to foreign currency risks. Derivative
financial instruments currently include (i) foreign currency forward exchange
contracts with its primary bank for periods not exceeding six months, which
partially hedge sales to its German subsidiary, and (ii) a German mark based
term loan which acts as a partial hedge against outstanding intercompany
receivables and the net assets of its German subsidiary which are denominated
in German marks. Additionally, the German subsidiary invoices and receives
payment in certain other major European currencies, which results in an
additional mitigating measure that reduces the Company's exposure to the
fluctuation between the German mark and the U.S.
dollar.
The Company believes that its current cash and cash equivalent balances, along
with cash generated from operations and availability under its revolving credit
facilities, will be adequate to fund the Company's operations through at least
the next twelve months.
Impact of Year 2000
The Company's Management Information Systems (MIS) were written using two
digits, rather than four to define the applicable year. As a result, the
Company's computer system and programs have time-sensitive software that
recognize a date using "00" as the year 1900 rather than the year 2000. This
could cause a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business activities.
The Company is planning to replace its current MIS system with a new, Year 2000
compliant, fully integrated MIS system for itself, its subsidiaries, and other
affiliated companies. The total cost of the new MIS system will be
approximately $1,000, a substantial portion of which will be capitalized. The
new MIS system is estimated to be fully implemented by June 1999, which is
prior to any anticipated impact on its operating systems.
The costs of the new MIS system and the date on which the Company believes it
will complete its implementation are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources and other factors. There can be
no guarantee that these estimates will be achieved and actual results could
differ materially from those anticipated.
Forward-Looking Information
The discussion in this Form 10-K includes forward-looking statements based on
current management expectations. Factors which could cause the results to
differ from these expectations include the following: general economic
conditions; competitive factors and pricing pressures; technological changes in
the scanner industry; fluctuations in the exchange rate between the German mark
and the U.S. dollar; the Company's ability to enter into and settle forward
exchange contracts; availability of patent protection for the Company's
holographic scanners and other products; and market acceptance of the Company's
new products.
Impact of Recently Issued Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income" and SFAS No. 131, "Disclosure about Segments
of an Enterprise and Related Information". SFAS 130 establishes standards for
reporting comprehensive income. The Company adopted SFAS 130, which had no
impact on net income or shareholders equity, at December 31, 1997. SFAS 130
requires foreign currency translation adjustments, which prior to adoption were
reported separately in shareholders' equity, to be included in other
comprehensive income. Prior year financial statements have been reclassified to
conform with the requirements of SFAS 130.
SFAS 131 establishes standards for annual and interim disclosures of operating
segments, products and services, geographic areas and major customers. SFAS 131
is effective in 1998. The Company is in the process of evaluating the
disclosure requirements of SFAS 131, the adoption of which will have no impact
on the Company's results of operations or financial condition.
Item 8. Financial Statements and Supplementary Data
Index Pages
Report of Ernst & Young LLP, independent auditors 15
Consolidated Balance Sheets at December 31, 1997 and 1996 16
Consolidated Statements of Operations for each of the three years
in the period ended December 31, 1997 17
Consolidated Statements of Stockholders' Equity for
each of the three years in the period ended December 31, 1997 18
Consolidated Statements of Cash Flows for each of the three years
in the period ended December 31, 1997 19
Notes to Consolidated Financial Statements 20-31
Supplementary Data (Unaudited) 32-33
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.
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, 1997 and 1996, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1997. 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 generally accepted auditing
standards. 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, 1997 and 1996, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles. 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.
Philadelphia, Pennsylvania /s/Ernst & Young
February 26, 1998
Metrologic Instruments, Inc.
Consolidated Balance Sheets
(amounts in thousands except share data)
December 31,
Assets 1997 1996
-------- --------
Current assets:
Cash and cash equivalents $ 13,096 $ 10,358
Accounts receivable, net of allowance of $408 and
$493 in 1997 and 1996, respectively 9,249 8,035
Inventory 4,684 5,588
Deferred income taxes 1,698 1,848
Other current assets 604 519
-------- --------
Total current assets 29,331 26,348
Property, plant and equipment, net 4,625 4,692
Patents and trademarks, net of amortization
of $511 and $427 in 1997 and 1996, respectively 1,254 1,015
Holographic technology, net of amortization of $154
and $67 in 1997 and 1996, respectively 734 777
Deferred income taxes 414 655
Advance license fee, net of amortization of $118
in 1997 1,882 2,000
Security deposits and other assets 218 505
-------- --------
Total assets $ 38,458 $ 35,992
======== ========
Liabilities and shareholders' equity
Current liabilities:
Current portion of notes payable $ 543 $ 596
Accounts payable 2,859 2,607
Accrued expenses 6,505 7,040
Accrued legal settlement 825 905
-------- --------
Total current liabilities 10,732 11,148
Notes payable, net of current portion 1,496 1,764
Deferred income taxes 524 23
Accrued legal settlement 805 1,510
Other liabilities - 500
Shareholders' equity:
Preferred stock, $0.01 par value: 500,000 shares
authorized; none issued - -
Common stock, $0.01 par value: 10,000,000 shares
authorized; 5,369,090 and 5,274,351 shares
issued and outstanding in 1997 and 1996,
respectively 54 53
Additional paid-in capital 16,389 15,055
Retained earnings 8,576 5,596
Deferred compensation (2) (8)
Accumulated other comprehensive income (116) 351
-------- --------
Total shareholders' equity 24,901 21,047
-------- --------
Total liabilities and shareholders' equity $ 38,458 $ 35,992
======== ========
See accompanying notes.
Metrologic Instruments, Inc.
Consolidated Statements of Operations
(amounts in thousands except share and per share data)
Year ended December 31,
-------------------------------------
1997 1996 1995
--------- --------- ---------
Sales $ 53,495 $ 46,971 $ 41,563
Cost of sales 33,240 28,799 24,092
--------- --------- ---------
Gross profit 20,255 18,172 17,471
Selling, general and administrative
expenses 12,087 10,505 10,589
Research and development expenses 3,359 3,110 3,024
--------- --------- ---------
Operating income 4,809 4,557 3,858
Other (expenses) income
Interest income 460 431 481
Interest expense (175) (108) (155)
Foreign currency transaction loss (445) (101) 26
Other, net 4 (1) 1
--------- --------- ---------
Total other (expenses) income (156) 221 353
--------- --------- ---------
Income before provision for income taxes 4,653 4,778 4,211
Provision for income taxes 1,673 1,803 1,669
--------- --------- ---------
Net income $ 2,980 $ 2,975 $ 2,542
========= ========= =========
Basic earnings per share
Weighted average shares
outstanding 5,330,596 5,255,275 5,238,112
========= ========= =========
Basic earnings per share $ 0.56 $ 0.57 $ 0.49
========= ========= =========
Diluted earnings per share
Weighted average shares outstanding 5,330,596 5,255,275 5,238,112
Net effect of dilutive securities 116,681 45,791 40,571
--------- --------- ---------
Total shares outstanding used in
computing diluted earnings per
share 5,447,277 5,301,066 5,278,683
========= ========= =========
Diluted earnings per share $ 0.55 $ 0.56 $ 0.48
========= ========= =========
See accompanying notes.
Metrologic Instruments, Inc.
Consolidated Statements of Shareholders' Equity
(amounts in thousands)
Accumulated
Additional Other
Common Paid-in Deferred Retained Comprehensive
Stock Capital Compensation Earnings Income Total
Balances,
December 31, 1994 $ 52 $14,585 $ (85) $ 79 $ 382 $ 15,013
Comprehensive
income:
Net income - - - 2,542 - 2,542
Other
comprehensive
income -
foreign currency
translation
adjustment - - - - 101 101
Total comprehensive
income 2,643
Exercise of stock
options - 139 - - - 139
Stock issued through
employee stock
purchase plan - 83 - - - 83
Compensation expense
related to stock
awards - - 48 - - 48
----------------------------------------------------------
Balances,
December 31, 1995 52 14,807 (37) 2,621 483 17,926
Comprehensive
income:
Net income - - - 2,975 - 2,975
Other
comprehensive
income -
foreign currency
translation
adjustment - - - - (132) (132)
Total comprehensive
income 2,843
Exercise of stock
options 1 188 - - - 189
Stock issued through
employee stock
purchase plan - 60 - - - 60
Compensation expense
related to stock
awards - - 29 - - 29
----------------------------------------------------------
Balances,
December 31, 1996 53 15,055 (8) 5,596 351 21,047
Comprehensive
income:
Net income - - - 2,980 - 2,980
Other
comprehensive
income -
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
See accompanying notes
Metrologic Instruments, Inc.
Consolidated Statements of Cash Flows
(amounts in thousands)
Year ended December 31,
--------------------------------
Operating activities 1997 1996 1995
-------- -------- --------
Net income $ 2,980 $ 2,975 $ 2,542
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 843 885 624
Amortization 289 138 187
Compensation expense related to stock
awards and employee stock
purchase plan 6 38 56
Deferred income taxes 892 243 (541)
Changes in operating assets and
liabilities:
Accounts receivable (1,995) (1,302) (1,570)
Inventory 779 (2,194) 140
Other current assets (121) 88 88
Other assets 459 (46) (390)
Accounts payable 252 306 251
Accrued expenses (266) 673 1,932
Accrued legal settlement (785) (1,184) (375)
-------- -------- --------
Net cash provided by operating activities 3,333 620 2,944
Investing activities
Purchase of property, plant and equipment (544) (1,427) (1,823)
Patents and trademarks (323) (208) (363)
Advance license fee (500) (1,000) -
Purchase of Holoscan, Inc. and holographic
technology, net of cash acquired (44) (560) (360)
-------- -------- --------
Net cash used in investing activities (1,411) (3,195) (2,546)
Financing activities
Proceeds from exercise of stock options and
employee stock purchase plan 1,150 240 214
Principal payments on notes payable (332) (248) (111)
Proceeds from issuance of notes payable - 1,318 -
Net (payments) proceeds from line of credit - (168) 168
Payments of amounts due to former officer (84) (200) (200)
Capital lease payments (250) (151) (127)
-------- -------- --------
Net cash provided by (used in) financing
activities 484 791 (56)
Effect of exchange rates on cash 332 77 (202)
-------- -------- --------
Net increase (decrease) in cash and
cash equivalents 2,738 (1,707) 140
Cash and cash equivalents at beginning
of year 10,358 12,065 11,925
-------- -------- --------
Cash and cash equivalents at end of year $ 13,096 $ 10,358 $ 12,065
======== ======== ========
Supplemental Disclosure
Cash paid for interest $ 169 $ 125 $ 110
======== ======== ========
Cash paid for income taxes $ 96 $ 2,706 $ 1,687
======== ======== ========
Liability incurred for advance
license fee $ - $ 1,000 $ -
======== ======== ========
Capital lease obligations incurred $ 261 $ 233 $ 531
======== ======== ========
Tax benefit from stock options $ 185 $ - $ -
======== ======== ========
See accompanying notes
Metrologic Instruments, Inc.
Notes to Consolidated Financial Statements
December 31, 1997
(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.
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
generally accepted accounting principles 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.
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 would be able to 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 15 to 31 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.
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 subsidiary have been
translated into U.S. dollars in accordance with FASB Statement 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 comprehensive income as a component of
stockholders' equity.
Earnings Per Share
In 1997, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 128, Earnings per Share. SFAS 128 replaced
the calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of stock options. All earnings per
share amounts for all periods have been presented, and where appropriate,
restated to conform to the SFAS 128 requirements.
Concentrations of Credit Risk
Sales to one customer accounted for approximately 5.9% of total sales
in 1997. Amounts due from this customer amounted to approximately $568 at
December 31, 1997. The Company's sales to two customers accounted for
approximately 5.3% and 5.2%, respectively, of total sales in 1996. During these
periods, no other customer accounted for more than 5.0% of sales.
The Company has operations and affiliates in the United States,
Germany, Asia and South America. Sales to Europe, North America, and other
countries accounted for 49.5%, 36.8%, and 13.7% of total sales, respectively,
in 1997. 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 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 FASB Statement No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123").
Impact of Recently Issued Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income" and SFAS No. 131, "Disclosure about Segments
of an Enterprise and Related Information". SFAS 130 establishes standards for
reporting comprehensive income. The Company adopted SFAS 130, which had no
impact on net income or shareholders' equity, at December 31, 1997. SFAS 130
requires foreign currency translation adjustments, which prior to adoption were
reported separately in shareholders' equity, to be included in other
comprehensive income. Prior year financial statements have been reclassified to
conform with the requirements of SFAS 130.
SFAS 131 establishes standards for annual and interim disclosures of
operating segments, products and services, geographic areas and major
customers. SFAS 131 is effective in 1998. The Company is in the process of
evaluating the disclosure requirements of SFAS 131, the adoption of which will
have no impact on the Company's results of operations or financial condition.
Reclassification
Certain prior year balances have been reclassified to conform with
current year presentation.
3. Inventory
Inventory consists of the following:
December 31,
1997 1996
Raw materials $2,542 $2,644
Work-in-process 1,590 1,636
Finished goods 552 1,308
------ ------
$4,684 $5,588
====== ======
4. Property, Plant and Equipment
Property, plant and equipment consists of the following:
December 31,
1997 1996
Buildings and improvements $2,345 $2,285
Machinery and equipment 6,716 6,001
------ ------
9,061 8,286
Less accumulated depreciation 4,776 3,960
------ ------
4,285 4,326
Idle land and building, net of
depreciation 340 366
------ ------
$4,625 $4,692
====== ======
Machinery and equipment included $1,020 and $759 under capital leases as of
December 31, 1997 and 1996, respectively. Accumulated depreciation on these
assets was $388 and $218 as of December 31, 1997 and 1996, respectively.
Idle land and building consist of the Company's former office and factory in
Bellmawr, New Jersey, which is no longer utilized for operations and is
currently under lease with an option for the lessee to purchase the building.
The building is being depreciated over its estimated remaining life.
5. Accrued Expenses
Accrued expenses consist of the following:
December 31,
1997 1996
Accrued royalties $1,075 $ 914
Accrued compensation 913 965
Income taxes - 164
Product warranty 850 1,192
Profit sharing 300 302
Due to former officer - 84
Other 3,367 3,419
------ ------
$6,505 $7,040
====== ======
6. Notes Payable
Notes payable consist of the following:
December 31,
1997 1996
Term note (a) $1,086 $1,300
Note payable-shareholders (b) 446 558
Capital lease obligations (c) 497 486
Other 10 16
------ ------
2,039 2,360
Less: current maturities 543 596
------ ------
$1,496 $1,764
====== ======
The Company's primary debt facility consists of an Amended and Restated Loan &
Security Agreement dated November 1995 with its primary bank, subsequently
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 German mark based loan (Note 7). The
term note, due January 2002, is payable in monthly installments of
approximately $22 and bears interest at a variable German Euro-Rate
(3.75% at December 31, 1997), as defined, plus 1.75%.
(b) Note payable - shareholders, due September 2001, is payable in annual
installments of $112 and bears interest at the prime rate (8.5% as of
December 31, 1997), as defined, plus 0.5%.
(c) 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 maturities of notes payable and capital lease obligations at
December 31, 1997 are approximately as follows:
1998 $ 543
1999 473
2000 477
2001 489
2002 57
-------
$ 2,039
7. Financial Instruments
The Company has selectively entered into derivative financial instruments to
offset its exposure to foreign currency risks. These financial instruments
currently include (i) foreign currency forward exchange contracts with its
primary bank for periods not exceeding six months, which partially hedge sales
to the Company's German subsidiary, and (ii) the conversion of an existing term
loan from a U.S. dollar denominated loan to a German mark based loan in order
to create an external German mark denominated liability to act as a partial
hedge against outstanding intercompany receivables and the net assets of its
German subsidiary, which are denominated in German marks (Note 6). The
Company's forward exchange contracts do not subject the Company to risk from
exchange rate movements because gains and losses on such contracts offset
losses and gains, respectively, on the assets, liabilities, and intercompany
transactions being hedged. Forward exchange contracts are adjusted to market
value and the resulting gains and losses are reflected in income. At December
31, 1997, the Company had $1,446 of foreign currency forward exchange contracts
outstanding with a fair market value that approximated cost. The forward
exchange contracts generally require the Company to exchange German marks for
U.S. dollars at maturity, at rates agreed to at the inception of the contracts.
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,
1997 1996
------- -------
Deferred tax assets:
Reserves on current assets $ 379 $ 309
Inventory capitalization 121 112
Warranty reserve 141 181
Accrued legal settlement 564 885
Other accrued expenses 907 1,016
------ ------
$2,112 $2,503
====== ======
Deferred tax liability:
Advance license fee $ 552 $ -
Deferred gain on involuntary
conversion 19 23
------- --------
$ 571 $ 23
======= ========
Significant components of the provision for income taxes are as follows:
Year ended December 31,
1997 1996 1995
---- ---- ----
Current:
Federal $ 683 $1,432 $1,710
Foreign - (208) (60)
State 51 336 560
------ ------ ------
Total current 734 1,560 2,210
Deferred:
Federal 727 232 (427)
State 212 11 (114)
------ ------ ------
Total deferred 939 243 (541)
------ ------ ------
Provision for income taxes $1,673 $1,803 $1,669
====== ====== ======
The effective income tax rate of 36.0%, 37.7% and 39.6% for the years ended
December 31, 1997, 1996, and 1995, 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,
1997 1996 1995
---- ---- ----
Statutory federal tax provision $1,582 $1,625 $1,432
State income taxes, net of federal
income tax benefit 174 258 306
Foreign income taxes - (54) 263
Other (83) (26) (332)
------ ------ ------
Provision for income taxes $1,673 $1,803 $1,669
====== ====== ======
9. Related Party Transactions
The Company's principal shareholder, Chairman, President, and CEO and his
spouse, the Company's Vice President, Administration, Secretary, and Treasurer,
own and lease to the Company certain real estate utilized in the operation of
the Company's business. Lease payments made to related parties were
approximately $729, $699, and $434 for the years ended December 31, 1997, 1996
and 1995, respectively. The lease for the real estate expires in March 1999 and
includes an option to renew the lease for an additional five-year term. The
lessors expanded the facility during 1995 and the annual lease payments were
increased per the terms set forth regarding additional space in the lease dated
April 1, 1994. Future minimum lease payments required under the lease are
approximately $762 in 1998, and $192 in 1999, excluding taxes and insurance.
The notes payable - shareholders referred to in Note 6 include a loan payable
to the principal shareholder, Chairman, President and CEO. In 1997, the third
installment of the seven-year notes was paid to the principal shareholder in
the amount of $151, which included $46 of interest.
The Company incurred expenses of $75, $62, and $40 for tax services rendered by
an accounting firm during the years ended December 31, 1997, 1996 and 1995,
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 office space for its foreign subsidiary and vehicles.
Future minimum lease payments required under the lease agreements as of
December 31, 1997 are $199 in 1998, $95 in 1999, and $12 in 2000. Rental
expense for 1997, 1996 and 1995 was approximately $196, $200, and $157,
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 agreed to
pay another $1 million in quarterly installments of $125 over two years ending
December 1998. In December 1997, 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
arrangement replaces a prior commitment under the Symbol Agreement to purchase
the Company's products. Royalty expense under the Symbol Agreement amounted to
$2,108 and $1,513 in 1997 and 1996, respectively.
In December 1993, the Company entered into an agreement settling patent
litigation brought by Symbol and provided the Company future rights to use
certain technology. The agreement required the Company to pay annual amounts
for a 12-year period aggregating a minimum of $4,450 and a maximum of $7,500.
The Company accrued the $4,450 minimum obligation in 1993 to account for the
settlement of the patent litigation. In connection with the Symbol Agreement
dated December 1996, Symbol amended the December 1993 settlement to reduce the
maximum aggregate amount payable thereunder by the Company from $7,500 to
approximately $5,111. The result of the amended December 1993 settlement
amounted to a net reduction in expense for the year ended December 31, 1996 of
$287, which was recorded upon the signing of the Symbol Agreement in the fourth
quarter of 1996. Remaining aggregate amounts due under the December 1993
settlement were accrued as of December 31, 1996. Prior to 1996,
royalties in excess of the annual minimum obligations were being expensed in
the periods benefited to account for the current use of such technology. Such
expense amounted to $465 in 1995.
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.
Management is of the opinion that there are no material 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 $7,500, which bears interest at a rate
selected by the Company from interest rate options offered under the Bank
Agreement. Interest rate options consist of (i) the bank's prime rate (8.5% at
December 31, 1997) minus 0.25%, or (ii) the bank's Euro-Rate (5.7% at December
31, 1997) plus 1.75%. As of December 31, 1997, no amounts were outstanding
under the line of credit.
The Company also has a 500 German mark unsecured revolving line of credit with
a German bank in the name of its German subsidiary, Metrologic Instruments
GmbH. As of December 31, 1997, no amounts were outstanding under this revolving
credit facility.
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 President and Chief Executive Officer and are equal to a
percentage of each participant's compensation. The Company's contributions were
$300, $302, and $200 in 1997, 1996 and 1995, 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 $55, $48, and $41 in 1997, 1996 and 1995,
respectively.
12. Geographical Information
The Company has operations in the United States and Germany. The following is a
summary of operations by geographic region (in thousands).
United States Operations
North Other German Total
America Europe Export Total Subsidiary Consolidated
Sales 1995 $18,387 $1,986 $4,706 $25,079 $16,484 $41,563
1996 17,445 2,535 6,060 26,040 20,931 46,971
1997 19,684 855 7,336 27,875 25,620 53,495
Income (loss)
before provision
for income taxes
1995 $ 5,162 $ (951) $ 4,211
1996 5,236 (458) 4,778
1997 4,686 (33) 4,653
Identifiable
assets 1995 $27,059 $ 4,342 $31,401
1996 29,046 6,946 35,992
1997 31,091 7,367 38,458
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 1,034,000 shares were available for grant under the
Incentive Plan at December 31, 1997. Such options are exercisable 20% on the
date of grant and 20% per year, thereafter. 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.
Pro forma information regarding net income and earnings per share is required
by SFAS 123, which also requires that the information be determined 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 1997 and 1996:
risk-free interest rates of 6.2%; a dividend yield of 0.0%; volatility factors
of the expected market price of the Company's common stock of 50%; and a
weighted-average expected life of the option of 5 years. There were no options
issued in 1995.
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):
1997 1996
---- ----
Net income:
As reported $2,980 $2,975
Pro forma 2,391 2,352
Net income per share:
Basic:
As reported $ 0.56 $ 0.57
Pro forma 0.45 0.45
Diluted:
As reported $ 0.55 $ 0.56
Pro forma 0.44 0.44
Because SFAS 123 is applicable only to options granted subsequent to
December 31, 1994, its pro forma effect will not be fully reflected until the
year 2000 due to the four year vesting period of options granted in 1996, the
first year since implementation of SFAS 123 was a required disclosure.
During 1997, a total of 1,760 shares of restricted stock vested. The remaining
1,280 shares of restricted stock vest at various dates through September 29,
1998. The incentive and non-qualified stock options vest at various dates
through May 2001.
A summary of the Company's stock option activity, and related information for
the years ended December 31, 1995, 1996, and 1997 follows:
Options Weighted-Average
(in Exercise Price
thousands)
------------ ------------------
Outstanding - December 31, 1995 306 $11.93
Granted 251 11.38
Exercised (18) 11.69
Canceled (17) 12.07
------------ ------------------
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
============ ==================
Exercisable at December 31, 1997 228 11.75
============ ==================
Weighted-average fair value
of options granted during 1997 $10.95
Exercise prices for options outstanding as of December 31, 1997 ranged from
$11.00 to $16.13. The weighted-average remaining contractual life of those
options is 4 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.
15. Holoscan
The Company completed the purchase of all of the outstanding shares of common
stock of Holoscan on March 1, 1996 for $521, net of cash acquired. The
acquisition of Holoscan, Inc. was accounted for using the purchase method. A
substantial portion of the consideration paid by the Company for the
acquisition of Holoscan was allocated to holographic technology and is being
amortized over ten years. The Company has consolidated the assets and
liabilities at December 31, 1997 and 1996 and results of operations and cash
flows of Holoscan since March 1, 1996. The Company has not included pro forma
financial information with respect to the Holoscan acquisition since the
effects were not material.
Pursuant to an option agreement entered into in March 1995 among the Company,
Holoscan and the previous holders of all of Holoscan's outstanding common stock
and options and warrants to purchase common stock (collectively, the
"Holders"), the Company agreed to pay each Holder, through 1998, a payment
based on the Company's sales of certain holographic laser scanners. During the
years ended December 31, 1997 and 1996, $44 and $15, respectively ,had been
paid to the Holders. All such amounts incurred are considered additions to
holographic technology and are being amortized over the remainder of the
ten-year period.
16. Joint Venture
In January 1998, the Company completed the formation of a joint venture with a
Brazilian based company formerly doing business as a distributor of bar code
scanning equipment. The joint venture will be operating under the name of
Metrologic do Brasil Ltda and will provide sales, distribution, and service to
the Company's Brazilian customers. The Company paid $300 and has agreed to pay
$210 in two installments by December 1998 provided certain conditions are
maintained, for 51% ownership of the joint venture.
Supplementary Data
Quarterly Consolidated Operating Results (Unaudited)
The following tables present unaudited quarterly operating results for the
Company for each quarter of 1997 and 1996. 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. The 1996 and 1997 earnings per share amounts have
been restated to comply with SFAS 128.
Quarterly Consolidated Operating Results (Unaudited)
(In Thousdands except per share data)
Three months ended
March 31, June 30, September 30, December 31,
1997 1997 1997 1997
---------- ---------- ---------- ----------
Sales $ 12,762 $ 13,157 $ 13,047 $ 14,529
Cost of sales 7,967 8,438 8,134 8,701
-------- -------- -------- ---------
Gross profit 4,795 4,719 4,913 5,828
Selling, general and
administrative expenses 2,928 2,753 2,980 3,426
Research and development
expenses 808 814 828 909
-------- --------- --------- ----------
Operating income 1,059 1,152 1,105 1,493
Other (expenses) income
Interest income 92 111 115 142
Interest expense (42) (59) (42) (32)
Foreign currency transaction
loss (165) (76) (167) (37)
Other, net (3) 2 (5) 10
--------- --------- --------- ----------
Total other (expenses)
income (118) (22) (99) 83
--------- --------- --------- ----------
Income before provision for
income taxes 941 1,130 1,006 1,576
Provision for income taxes 357 430 382 504
--------- --------- --------- ---------
Net income $ 584 $ 700 $ 624 $ 1,072
========= ========= ========= =========
Basic earnings per share
Weighted average shares
outstanding 5,291,772 5,317,690 5,351,623 5,361,298
========== ========== ========== ==========
Basic earnings per
share $ 0.11 $ 0.13 $ 0.12 $ 0.20
========== ========== ========== ==========
Diluted earnings per share
Weighted average shares
outstanding 5,291,772 5,317,690 5,351,623 5,361,298
Net effect of dilutive
securities 135,173 156,335 101,076 74,141
---------- ---------- ---------- ----------
Total shares outstanding
used in computing
diluted earnings
per share 5,426,945 5,474,025 5,452,699 5,435,439
========== ========== ========== ==========
Diluted earnings per
share $ 0.11 $ 0.13 $ 0.11 $ 0.20
========== ========== ========== ==========
Supplementary Data (Con't)
Quarterly Consolidated Operating Results (Unaudited)
(In Thousdands except per share data)
Three months ended
----------------------------------------------
March 31, June 30, September 30, December 31,
1996 1996 1996 1996
---------- ---------- ---------- ----------
Sales $ 10,342 $ 11,757 $ 11,525 $ 13,347
Cost of sales 6,271 7,154 7,032 8,342
-------- -------- -------- ---------
Gross profit 4,071 4,603 4,493 5,005
Selling, general and
administrative expenses 2,559 2,730 2,502 2,714
Research and development
expenses 797 774 808 731
-------- --------- --------- ----------
Operating income 715 1,099 1,183 1,560
Other income (expense)
Interest income 130 98 94 109
Interest expense (29) (27) (29) (23)
Foreign currency transaction
gain (loss) (14) (65) (55) 33
Other, net - - - (1)
--------- --------- --------- ----------
Total other income 87 6 10 118
--------- --------- --------- ----------
Income before provision for
income taxes 802 1,105 1,193 1,678
Provision for income taxes 312 420 453 618
--------- --------- --------- ---------
Net income $ 490 $ 685 $ 740 $ 1,060
========= ========= ========= =========
Basic earnings per share
Weighted average shares
outstanding 5,249,186 5,250,816 5,252,933 5,268,163
========== ========== ========== ==========
Basic earnings per
share $ 0.09 $ 0.13 $ 0.14 $ 0.20
========== ========== ========== ==========
Diluted earnings per share
Weighted average shares
outstanding 5,249,186 5,250,816 5,252,933 5,268,163
Net effect of dilutive
securities 12,287 17,024 32,164 121,691
---------- ---------- ---------- ----------
Total shares outstanding
used in computing
diluted earnings
per share 5,261,473 5,267,840 5,285,097 5,389,854
========== ========== ========== ==========
Diluted earnings per
share $ 0.09 $ 0.13 $ 0.14 $ 0.20
========== ========== ========== =====