- - UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to _____
Commission file number 0-24172
Metrologic Instruments, Inc.
(Exact name of registrant as specified in its charter)
New Jersey 22-1866172
(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification No.)
90 Coles Road, Blackwood, New Jersey 08012
(Address of principal executive offices) (Zip Code)
(856) 228-8100
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __
As of August 12, 2002 there were 5,467,579 shares of Common Stock, $.01 par
value per share, outstanding.
METROLOGIC INSTRUMENTS, INC.
INDEX
Page
No.
Part I - Financial Information
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets -
June 30, 2002 and December 31, 2001 3
Condensed Consolidated Statements of Operations -
Three and Six Months Ended June 30, 2002 and 2001 4
Condensed Consolidated Statements of Cash Flows -
Six Months Ended June 30, 2002 and 2001 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 14
Part II - Other Information
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 17
Item 3. Defaults upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
Exhibit Index 19
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
Metrologic Instruments, Inc.
Condensed Consolidated Balance Sheets
(amounts in thousands except share data)
June 30, December 31,
Assets 2002 2001
-------- --------
(Unaudited)
Current assets:
Cash and cash equivalents $ 4,944 $ 557
Restricted cash 3,200 3,200
Accounts receivable, net of allowance 21,052 20,401
Income tax refund receivable 367 4,600
Inventory 17,032 18,385
Deferred income taxes 1,165 1,535
Other current assets 2,363 2,379
-------- --------
Total current assets 50,123 51,057
Property, plant and equipment, net 13,502 13,776
Patents and trademarks, net of amortization 4,406 4,062
Holographic technology, net of amortization 426 484
Advance license fee, net of amortization 1,353 1,412
Goodwill 14,980 15,249
Deferred income taxes 1,602 701
Other assets 774 865
-------- --------
Total assets $ 87,166 $ 87,606
======== ========
Liabilities and shareholders' equity
Current liabilities:
Current portion of lines of credit $ 10,533 $ 2,433
Current portion of notes payable 19,341 10,833
Accounts payable 6,774 6,930
Accrued expenses 13,286 12,176
-------- --------
Total current liabilities 49,934 32,372
Lines of credit, net of current portion - 9,000
Notes payable, net of current portion 8,400 18,465
Deferred income taxes 1,019 951
Other liabilities 647 557
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; 5,465,605 and 5,463,382 shares
issued and outstanding at June 30, 2002
and 2001, respectively 55 55
Additional paid-in capital 17,664 17,634
Retained earnings 12,673 12,926
Accumulated other comprehensive loss (3,226) (4,354)
--------- --------
Total shareholders' equity 27,166 26,261
--------- --------
Total liabilities and shareholders' equity $ 87,166 $ 87,606
========= ========
See Notes to Financial Statements
Metrologic Instruments, Inc.
Condensed Consolidated Statements of Operations
(amounts in thousands except share and per share data)
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
2002 2001 2002 2001
(Unaudited) (Unaudited)
Sales $29,412 $28,057 $56,941 $57,841
Cost of sales 19,352 18,288 36,908 47,015
------- ------- ------- -------
Gross profit 10,060 9,769 20,033 10,826
Selling, general and
administrative expenses 7,975 8,617 15,255 16,490
Research and development
expenses 1,820 1,481 3,533 3,271
Severance costs 75 - 351 -
------- ------- ------- -------
Operating income (loss) 190 (329) 894 (8,935)
Other income (expenses)
Interest income 32 16 55 137
Interest expense (871) (1,021) (1,567) (2,232)
Foreign currency transaction
gain (loss) 229 (84) 224 (161)
Other, net (24) (39) (14) (79)
------- ------- ------- -------
Total other expenses (634) (1,128) (1,302) (2,335)
------- ------- ------- -------
Loss before income
tax benefit (444) (1,457) (408) (11,270)
Income tax benefit (169) (550) (155) (4,289)
------- ------- ------- -------
Net loss $ (275) $ (907) $ (253) $(6,981)
======= ======= ======= =======
Basic loss per share
Weighted average shares
outstanding 5,465,605 5,456,365 5,464,518 5,455,022
Basic loss per
share $(0.05) $ (0.17) $ (.05) $ (1.28)
Diluted loss per share
Weighted average shares
outstanding 5,465,605 5,456,365 5,464,518 5,455,022
Net effect of dilutive
securities - - - -
Total shares outstanding
used in computing diluted
loss per share 5,465,605 5,456,365 5,464,518 5,455,022
Diluted loss per share $(0.05) $ (0.17) $ (.05) $ (1.28)
See Notes to Financial Statements
Metrologic Instruments, Inc.
Condensed Consolidated Statements of Cash Flows
(amounts in thousands)
Six Months Ended June 30,
---------------------------
2002 2001
-------- --------
(unaudited)
Operating activities
Net cash provided by
operating activities $ 8,278 $ 8,296
Investing activities
Purchase of property, plant and equipment (1,088) (481)
Patents and trademarks (507) (467)
Cash paid for purchase of business,
net of cash acquired - (19,739)
Other Intangibles - 697
------- -------
Net cash used in investing activities (1,595) (19,990)
Financing activities
Proceeds from exercise of stock options and
employee stock purchase plan 29 37
Principal payments on notes payable (1,527) (11,737)
Proceeds from issuance of notes payable 102 20,557
Net (payments) proceeds from line of credit (901) 4,451
Capital lease payments (131) (55)
Net cash (used in) provided by ------- -------
financing activities (2,428) 13,253
Effect of exchange rates on cash 132 (750)
------- -------
Net increase in cash and
cash equivalents 4,387 809
Cash and cash equivalents at beginning of period 557 2,332
------- -------
Cash and cash equivalents at end of period $ 4,944 $ 3,141
======== =======
Supplemental Disclosure
Cash paid for interest $ 1,400 $ 1,737
Cash paid for income taxes $ 26 $ 112
See Notes to Financial Statements
METROLOGIC INSTRUMENTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands)
(Unaudited)
1. Business
Metrologic Instruments, Inc. and its subsidiaries (collectively, the "Company")
design, manufacture and market bar code scanning and high-speed automated data
capture solutions using laser, holographic and vision-based technologies. The
Company offers expertise in 1D and 2D bar code reading, optical character
recognition, image lift, and parcel dimensioning and singulation detection for
customers in retail, commercial, manufacturing, transportation and logistics,
and postal and parcel delivery industries. Additionally, through its
wholly-owned subsidiary, Adaptive Optics Associates, Inc. ("AOA"), the Company
is engaged in developing, manufacturing, marketing and distributing custom
optical systems which include precision laser beam delivery, high speed imaging
control and data processing, industrial inspection, and scanning and
dimensioning systems for the aerospace and defense industry in the United
States and Canada. The Company's products are sold in more than 100 countries
worldwide through the Company's sales, service and distribution offices located
in North and South America, Europe and Asia.
2. Accounting Policies
Interim Financial Information
The accompanying unaudited Condensed Consolidated Financial Statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and the instructions to Form 10-Q and Article 10
of Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
solely of normal recurring adjustments) necessary for a fair presentation of
the Condensed Consolidated Financial Statements have been included. The results
of the interim periods are not necessarily indicative of the results to be
obtained for a full fiscal year. The Condensed Consolidated Financial
Statements and these Notes should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations
contained in this Quarterly Report on Form 10-Q and the Company's Annual Report
on Form 10-K/A No. 3 for the year ended December 31, 2001, which was filed on
July 25, 2002, including the Consolidated Financial Statements and the Notes to
Consolidated Financial Statements for the year ended December 31, 2001
contained therein.
Use of Estimates
The preparation of the financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Reclassifications
Certain 2001 amounts have been reclassified to conform to 2002 presentation.
3. Cost of Sales
Cost of sales for the six months ended June 30, 2001 included $10,040 of
special charges and other costs as follows: $4,500 of costs associated with
products that are not anticipated to be included in the prospective costs to
manufacture similar products because of reductions in material costs and
manufacturing efficiencies; $3,500 of similar costs associated with a valuation
charge taken on products included in inventory at March 31, 2001 due to the
related cost reductions noted above; $1,000 of costs associated with inventory
deemed to be obsolete at March 31, 2001; and $1,000 of costs associated with
the expensing of floor stock inventory that had been previously capitalized by
the Company.
4. Inventory
Inventory consists of the following:
June 30, 2002 December 31, 2001
------------------ ------------------
Raw materials $ 5,596 $ 7,271
Work-in-process 2,646 4,144
Finished goods 8,790 6,970
------ ------
17,032 18,385
------ ------
5. Goodwill
In the first quarter of 2002, the Company adopted the Provisions of SFAS No.
142. The Company has completed a transitional impairment test as of January 1,
2002, as prescribed in SFAS 142, during the second quarter ended June 30, 2002.
The Company has determined that there was no goodwill impairment to be
recognized as a result of its testing. Fair value of the reporting units was
determined using discounted cash flow analyses.
The Company adopted Statement 142 on January 1, 2002. A reconciliation between
reported net loss to the adjusted net loss is as follows:
Three Months Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
Reported net loss $ (275) $ (907) $ (253) $(6,981)
Add back: Goodwill
amortization - 203 - 408
------- ------- ------- -------
Adjusted net loss $ (275) $ (704) $ (253) $(6,573)
======= ======= ======= =======
Basic earnings per share:
Reported net loss $ (.05) $ (.17) $ (.05) $ (1.28)
Goodwill amortization $ - .04 - .07
------- ------- ------- -------
Adjusted net loss $ (.05) $ (.13) $ (.05) $ (1.21)
======= ======= ======= =======
Diluted earnings per share:
Reported net loss $ (.05) $ (.17) $ (.05) $ (1.28)
Goodwill amortization $ - .04 - .07
------- ------- ------- -------
Adjusted net loss $ (.05) $ (.13) $ (.05) $ (1.21)
======= ======= ======= =======
6. Comprehensive Loss
The Company's total comprehensive income (loss) were as follows:
Three Months Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
Net loss $ (275) $ (908) $ (253) $(6,981)
Other comprehensive income
(loss):
Change in equity due to
foreign currency
translation adjustments 1,200 (893) 1,128 (1,536)
------- ------- ------- -------
Comprehensive income (loss) $ 925 $(1,801) $ 875 $(8,517)
======= ======= ======= =======
7. Business Segment Information
The Company generates its revenue from the sale of laser bar code scanners
primarily to distributors, value-added resellers, original equipment
manufacturers and directly to end users, in locations throughout the world. One
customer accounted for 10% or more of revenues for the quarter ended June 30,
2002. No individual customer accounted for 10% or more of revenues in 2001.
The Company manages its business on a business segment basis dividing the
business into two major segments: Industrial scanning and Optical; and Point of
Sale ("POS")/Original Equipment Manufacturers ("OEM"). Sales were
attributed to business segments in the following table.
Industrial/ Total
Optical POS/OEM Consolidated
------- --------- ---------
Three months ended June 30, 2002:
Sales $ 8,093 21,319 29,412
Income (loss)
before provision
for income
taxes $ (401) (43) (444)
Identifiable
assets $21,006 66,160 87,166
Three months ended June 30, 2001:
Sales $ 6,228 21,829 28,057
Income (loss)
before benefit
for income
taxes $ 270 (1,727) (1,457)
Identifiable
assets $21,342 63,448 84,790
Six months ended June 30, 2002:
Sales $14,602 42,339 56,941
Income (loss)
before provision
for income
taxes $ (929) 521 (408)
Six months ended June 30, 2001:
Sales $13,841 44,000 57,841
Income (loss)
before benefit
for income
taxes $ 1,015 (12,285) (11,270)
8. Acquisition
On January 8, 2001, the Company acquired all of the outstanding stock of
Adaptive Optics Associates, Inc. ("AOA"), a developer and manufacturer of
custom optical systems which include precision laser beam delivery, high speed
imaging control and data processing, industrial inspections and scanning and
dimensioning systems for the aerospace and defense industry. The total purchase
price including transaction costs was $21,612. The acquisition was accounted
for under the purchase method of accounting, and accordingly, the results of
AOA's operations from January 8, 2001 are reflected in the 2001 statement of
operations. The excess purchase price over the fair value of net assets
acquired was approximately $11,755 and was being amortized over a straight-line
basis over 10 years through December 31, 2001.
Pro forma results of operations, assuming that the AOA acquisition was
consummated on January 1, 2001, would not be materially different from actual
results.
9. Credit Facility
At December 31, 2001, March 31, 2002 and June 30, 2002, the Company was in
violation of certain provisions and covenants included in its Credit Facility
and the banks issued a notice of default as of April 9, 2002 and increased the
interest rate by 2% on the outstanding debt in accordance with the agreement.
As reflected in the Company's prior periodic reports filed with the Securities
and Exchange Commission, the Company and its primary bank had been in
discussions with respect to modifying the Credit Facility. On July 9, 2002, the
Company replaced the Credit Facility by executing an Amended and Restated
Credit Agreement (the "Amended Credit Agreement") with its lenders. The key
terms of the Amended Credit Agreement include the waiver of all existing
defaults under the Credit Facility and the withdrawal by the banks of the
notice of default and an increase in the original interest rate of the term
note by .25% per annum. The Company granted a security interest in its assets
and properties to the primary bank in favor of the banks as security for
borrowings under the Amended Credit Agreement. The Amended Credit Agreement
contains various negative and positive covenants, such as minimum tangible net
worth requirements and expires on May 31, 2003. A portion of the outstanding
borrowing under the Amended Credit Agreement is guaranteed by C. Harry Knowles
and Janet Knowles. Additionally, the Company could be required to make
additional prepayments under the Amended Credit Agreement if there are excess
cash flows, as defined in the Amended Credit Agreement.
The Amended Credit Agreement also includes a revolving credit facility of
$14,000 that expires on May 31, 2003. Amounts available for borrowing under
this facility are equal to a percentage of the total of eligible accounts
receivable and inventories, as defined in the agreement, plus an allowable
overadvance of $2,750. The overadvance allowance expires on January 1, 2003.
The Amended Credit Agreement requires the daily application of Company receipts
as payments against the revolving credit facility and daily borrowings to fund
cash requirements. Interest on outstanding borrowings is at the bank's prime
rate plus 2.5%, and the agreement provides for a commitment fee of .5% on the
unused facility.
In connection with the Amended Credit Agreement, certain directors and
executive officers have made loans to the Company, which amounts will be held
as cash collateral under the terms of the Amended Credit Agreement.
Specifically, C. Harry Knowles and Janet H. Knowles, Dale M. Fischer and Hsu
Jau Nan have loaned the Company $400, $125 and $475, respectively. The loans
bear interest at a rate of nine percent (9%) per annum and will be repaid in
full upon the earliest of: (a) the Company's repayment in full of its
obligations under the Amended Credit Agreement or (b) the release of the
security interest held by the Company's primary bank in such cash being loaned
by the above mentioned directors and executive officers.
As the Amended Credit Agreement expires on May 31, 2003, all outstanding bank
borrowings are classified as current liabilities on the June 30, 2002 balance
sheet. Management plans to refinance this Amended Credit Agreement prior to
December 31, 2002 and replace it with longer term debt under terms more
favorable to the Company.
10. Legal Matters
Symbol Technologies, Inc. v. Metrologic
On May 3, 2002, the Company was served with a lawsuit that was filed on April
12, 2002 by Symbol in the United States District Court for the Eastern District
of New York alleging that the Company is in breach of the terms of the License
Agreement between Symbol and the Company (the "Agreement"). The allegations of
breach relate to the dispute between the parties as to which products are
covered by the licenses under the Agreement. On May 30, 2002, the Company was
served with an amended Complaint in this action. The amended Complaint also
includes new claims of patent infringement from the date of the alleged breach
against both the Company and C. Harry Knowles, the Company's Chairman and CEO.
The amended complaint further includes claims for injunctive relief and a claim
of fraudulent transfer related to the transactions under the Amended Credit
Agreement. The Company believes that Symbol's claims in the lawsuit are without
merit and intends to vigorously defend its rights.
The Company has filed a motion with the court to stay the infringement actions,
and to allow the parties to arbitrate those claims in accordance with the
procedures set forth in the Agreement. The Company has not yet filed its answer
to the Complaint. In response, Symbol filed a motion to stay the arbitration
proceedings pending a decision by the court as to whether the issues are
subject to arbitration. These motions are now pending before the court.
Management is of the opinion that there are no legal claims against the Company
which will have a material adverse effect on the Company's consolidated
financial position, results of operations or cash flows.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
The following discussion of the Company's results of operations and liquidity
and capital resources should be read in conjunction with the unaudited
Condensed Consolidated Financial Statements of the Company and the related
Notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q and the
Consolidated Financial Statements and the Notes to Consolidated Financial
Statements for the year ended December 31, 2001 appearing in the Company's
Annual Report on Form 10-K/A No. 3 for the year ended December 31, 2001, which
was filed on July 25, 2002. The Condensed Consolidated Financial Statements for
the three and six months ended June 30, 2002 and 2001 are unaudited.
Metrologic Instruments, Inc. and its subsidiaries (collectively, the "Company")
design, manufacture and market bar code scanning and high-speed automated data
capture solutions using laser, holographic and vision-based technologies. The
Company offers expertise in 1D and 2D bar code reading, optical character
recognition, image lift, and parcel dimensioning and singulation detection for
customers in retail, commercial, manufacturing, transportation and logistics,
and postal and parcel delivery industries. Additionally, through its
wholly-owned subsidiary, Adaptive Optics Associates, Inc. ("AOA"), the Company
is engaged in developing, manufacturing, marketing and distributing custom
optical systems which include precision laser beam delivery, high speed imaging
control and data processing, industrial inspection, and scanning and
dimensioning systems for the aerospace and defense industry in the United
States and Canada. The Company's products are sold in more than 100 countries
worldwide through the Company's sales, service and distribution offices located
in North and South America, Europe and Asia.
Most of the Company's product sales in Western Europe, Brazil and Asia are
billed in foreign currencies and are subject to currency exchange rate
fluctuations. A significant percentage of the Company's products were
manufactured in the Company's U.S. facility in 2002, and therefore, sales and
results of operations are affected by fluctuations in the value of the U.S.
dollar relative to foreign currencies. In addition, manufacture of the
Company's POS products in its Suzhou, China facility is expected to increase in
2002, which will partially mitigate the profit impact of foreign exchange rate
fluctuation with reduced labor costs in the Company's POS scanners.
Accordingly, in the three months ended June 30, 2002, sales and gross profit
were favorably affected by the continuing decline in the value of the US dollar
in relation to foreign currencies, especially the Euro. This favorable impact
offsets the adverse impact of the strengthening value of the US dollar in the
three months ended March 31, 2002.
Forward Looking Statements; Certain Cautionary Language
Written and oral statements provided by the Company from time to time may
contain certain forward looking information, as that term is defined in the
Private Securities Litigation Reform Act of 1995 (the "Act") and in releases
made by the Securities and Exchange Commission ("SEC"). The cautionary
statements which follow are being made pursuant to the provisions of the Act
and with the intention of obtaining the benefits of the "safe harbor"
provisions of the Act. While the Company believes that the assumptions
underlying such forward looking information are reasonable based on present
conditions, forward looking statements made by the Company involve risks and
uncertainties and are not guarantees of future performance. Actual results may
differ materially from those in the Company's written or oral forward looking
statements as a result of various factors, including but not limited to, the
following:
Metrologic's ability to comply with the terms of the credit facility so that it
is able to borrow funds in accordance with the terms of the facility; no
assurance that cost controls and working capital procedures will result in
reduced bank debt, increased operating profit or positive cash flow from
operations; the ability of the Company to refinance its credit facility and
term loan on more favorable terms; the resolution or outcome of litigation;
reliance on third party resellers, distributors and OEMs which subject the
Company to risks of business failure, credit and collections exposure, and
other business concentration risks; continued or increased competitive pressure
which could result in reduced selling prices of products or increased sales and
marketing promotion costs; a prolonged disruption of scheduled deliveries from
suppliers when alternative sources of supply are not available to satisfy the
Company's requirements for raw material and components; continued or prolonged
capacity constraints that may hinder the Company's ability to deliver ordered
product to customers; difficulties or delays in the development, production,
testing and marketing of products, including, but not limited to, a failure to
ship new products when anticipated, failure of customers to accept these
products when planned, any defects in products or a failure of manufacturing
efficiencies to develop as planned; the costs of legal proceedings or
assertions by or against the Company relating to intellectual property rights
and licenses, the Company's ability to successfully negotiate and amend its
licensing agreement with Symbol Technologies; the Company's ability to
successfully defend against challenges to its patents; the ability of
competitors to avoid infringement of the Company's patents; the ability of the
Company to develop products which avoid infringement of third parties' patents;
and adoption of new or changes in accounting policies and practices;
occurrences affecting the slope or speed of decline of the life cycle of the
Company's products, or affecting the Company's ability to reduce product and
other costs, and to increase productivity; the impact of unusual items
resulting from the Company's ongoing evaluation of its business strategies,
acquisitions, asset valuations and organizational structures; the price and
payment schedule the Company is able to negotiate for the shares in its
subsidiary, Metrologic Eria Iberica; the effects of and changes in trade,
monetary and fiscal policies, laws and the ability of the Company to integrate
AOA with other Company subsidiaries, and realize the anticipated impact on
results of operations; the Company's ability to refinance its debt with its
banks, or successfully negotiate additional financing arrangements; regulations
and other activities of governments, agencies and similar organizations,
including but not limited to trade restrictions or prohibitions, inflation,
monetary fluctuations, import and other charges or taxes, nationalizations and
unstable governments; the future health of the U.S. and international economies
and other economic factors that directly or indirectly affect the demand for
the Company's products; foreign currency exchange rate fluctuations between the
U.S. Dollar and other major currencies including, but not limited to, the Euro,
Singapore Dollar, Brazilian Real, and British Pound affecting the Company's
results of operations; the economic slowdown of foreign nations other than
those using may also adversely affect the Company's results of operations;
issues that have not been anticipated in the transition to the new European
currency that may cause prolonged disruption of the Company's business; and
increased competition due to industry consolidation or new entrants into the
Company's existing markets.
All forward-looking statements included herein are based upon information
presently available, and the Company assumes no obligation to update any
forward-looking statements.
Three Months Ended June 30, 2002 Compared with Three Months Ended June 30, 2001
(dollars in thousands except per share information)
Sales for the quarter ended June 30, 2002 increased by $1,355, or 4.8%, to
$29,412 compared with $28,057 for the same period in 2001. The increase was
primarily attributable to higher optical scanning revenues at AOA, including
termination charges related to the cancellation of certain fixed price
contracts. Sales of Metrologic's point-of-sale ("POS") and original equipment
manufacturers ("OEM") products in 2002 approximated 2001 sales of these
products. Sales of POS/OEM products in North America increased 21% in 2002,
however, this increase was mostly offset by decreased sales in Europe due to
lower unit demand. The Company did benefit from the strengthening of the euro
against the US dollar during the second quarter of 2002. Sales in euros were
down 15% from the prior year while in dollars, the decrease was 10%.
International sales were $14,326 (48.7% of total sales) in the three months
ended June 30, 2002 and $15,146 (53.9% of total sales) in the three months
ended June 30, 2001.One customer accounted for 10% or more of revenues in the
three months ended June 30, 2002. No individual customer accounted for 10% or
more of revenues in the three months ended June 30, 2001.
Cost of sales increased to $19,352 in the three months ended June 30, 2002 from
$18,288 in the three months ended June 30, 2001 as a result of the increased
revenues in 2002. As a percentage of sales, cost of sales increased from 65.2%
in 2001 to 65.8% in 2002 primarily as a result of lower average selling prices
on the Company's point-of-sale scanners. Cost of sales during the three months
ended June 30, 2002 was favorably impacted by the decrease in the value of the
US dollar to the euro as compared to the corresponding period in 2001.
Selling, general and administrative ("SG&A") expenses for the three months
ended June 30, 2002 were $7,975, including $732 of non-recurring expenses
related to the Amended and Restated Credit Agreement that was completed on July
9, 2002. Excluding such expenses, SG&A expenses were $7,243, or 24.6% of
sales, for the three months ended June 30, 2002 compared with $8,617, or 30.7%
for the corresponding period in 2001. The decrease was due primarily to reduced
marketing and promotion expenses, lower personnel costs as the result of the
workforce reduction in March and April 2002, and no goodwill amortization
expense in 2002 in accordance with Statement of Financial Accounting Standards
("SFAS") No. 142, "Goodwill and Other Intangible Assets", partially offset by
increased legal expenses.
Research and Development ("R&D") expenses increased 22.9% to $1,820 in the
three months ended June 30, 2002 from $1,481 in 2001. The increase primarily
was the result of expanded R&D efforts focused on the development of the
Company's iQ(tm)180 camera-based acquisition vision system.
Other income/expense reflect net other expenses of $634 in the three months
ended June 30, 2002 compared to net other expense of $1,128 in the
corresponding period in 2002. Interest expense in 2002 includes $128 of
non-recurring interest expense that resulted from the incremental 200 basis
point default interest rate charged by the Company's bank group from April 12,
2002 through the end of the quarter. The decrease in net other expense is
primarily due to lower interest expense as a result of lower borrowings in 2002
and foreign currency transaction gains of $229 in 2002 compared with
transaction losses of $84 in 2001.
Net loss was $275 in the three months ended June 30, 2002 compared with a net
loss of $907 in 2001.The net loss reflects a 38% effective income tax rate in
2002 and 2001. The decrease in the value of the US dollar relative to other
foreign currencies favorably affected diluted earnings per share by
approximately $0.05 as compared with the corresponding period in 2001.
Six Months Ended June 30, 2002 Compared with Six Months Ended June 30, 2001
(dollars in thousands except per share information)
Sales decreased 1.6% to $56,941 in the six months ended June 30, 2002 from
$57,841 in the six months ended June 30, 2001 primarily as a result of the
completion of certain fixed price projects at AOA during 2001. The reduction in
the value of the euro against the US dollar during the first three months of
2002 negatively affected the recorded U.S. dollar value of quarterly European
operation sales. Although the value of the euro strengthened during the three
months ended June 30, 2002, the net impact of the change in the value of the
euro compared to the US dollar for the six months ended June 30, 2002 was a
decrease of approximately $350 in the recorded U.S dollar value of European
operation sales compared to the same period in 2001.
International sales were $28,293 (49.7% of total sales) in the six months ended
June 30, 2002 and $28,923 (50.0% of total sales) in the three months ended June
30, 2001. No individual customer accounted for 10% or more of revenues in the
six months ended June 30, 2002 or 2001.
Cost of sales decreased by $10,107 to $36,908 for the six months ended June 30,
2002 from $47,015 for the corresponding period in 2001. As a percentage of
sales, cost of sales was 64.8% in 2002 compared with 81.3% of sales in 2001.
Cost of sales for the six months ended June 30, 2001 included $10,040 of
special charges and other costs that are not expected to reoccur in subsequent
quarters as follows: $4,500 of costs associated with products that are not
anticipated to be included in the prospective costs to manufacture similar
products because of reductions in material costs and manufacturing
efficiencies; $3,500 of similar costs associated with a valuation charge taken
on products included in inventory at March 31, 2001 due to the related cost
reductions noted above; $1,000 of costs associated with inventory deemed to be
obsolete at March 31, 2001; and $1,000 of costs associated with the expensing
of floor stock inventory that had been previously capitalized by the Company.
Cost of sales excluding the $10,040 of special charges and other costs
decreased by $67 in 2002 in comparison to 2001.
Selling, general and administrative ("SG&A") expenses for the six months ended
June 30, 2002 were $15,255, including $732 of non-recurring expenses related to
the Amended and Restated Credit Agreement that was completed on July 9, 2002.
Excluding such expenses, SG&A expenses were $14,523, or 25.5% of sales, for the
six months ended June 30, 2002 compared with $16,490, or 28.5% for the
corresponding period in 2001. The decrease was due primarily to reduced
marketing and promotion expenses, lower personnel costs as the result of the
workforce reduction in March and April 2002, and no goodwill amortization
expense in 2002 in accordance with Statement of Financial Accounting Standards
("SFAS") No. 142, "Goodwill and Other Intangible Assets", partially offset by
increased legal expenses.
Research and development ("R&D") expenses increased 8.0% to $3,533 in the six
months ended June 30, 2002 from $3,271. The increase is the result of expanded
R&D efforts focused on the development of the Company's iQ(tm)180 camera-based
acquisition vision system.
Other income/expense reflect net other expense of $1,302 in the six months
ended June 30, 2002 compared to net other expense of $2,335 in the
corresponding period in 2002. Interest expense in 2002 includes $128 of
non-recurring interest expense that resulted from the incremental 200 basis
point default interest rate charged by the Company's bank group from April 12,
2002 to July 10, 2002. The decrease in net other expense is due to lower
interest expense as a result of lower borrowings in 2002 and foreign currency
transaction gains of $224 in 2002 as compared with transaction losses of $161
in 2001.
Net loss was $253 in the six months ended June 30, 2002 compared with a net
loss of $6,981 in 2001.The net loss reflects a 38% effective income tax rate in
2002 and 2001. The decrease in the value of the US dollar relative to other
foreign currencies negatively affected diluted earnings per share by
approximately $.01 as compared with the corresponding period in 2001.
Inflation and Seasonality
Inflation and seasonality have not had a material impact on the Company's
results of operations. There can be no assurance, however, that the Company's
sales in future periods will not be impacted by fluctuations in seasonal demand
from European customers in its third quarter or from reduced production days in
the Company's fourth quarter.
Liquidity and Capital Resources (amounts in thousands)
The Company's working capital decreased to $189 as of June 30, 2002 from
$18,685 as of December 31, 2001 due primarily to the classification of all
outstanding borrowings under the Amended Credit Agreement as current
liabilities on the balance sheet as of June 30, 2002 as the Amended Credit
Agreement matures on May 31, 2003.
The Company's operating activities provided net cash of $8,278 and $8,296 for
the six months ended June 30, 2002 and 2001, respectively. Net cash provided
in operating activities for the six months ended June 30, 2002 resulted
primarily from reductions in accounts receivable and inventory, and receipt of
tax refunds of approximately $4,000.
At December 31, 2001, March 31, 2002 and June 30, 2002, the Company was in
violation of certain provisions and covenants included in its Credit Facility
and the banks issued a notice of default as of April 9, 2002 and increased the
interest rate by 2% on the outstanding debt in accordance with the agreement.
As reflected in the Company's prior periodic reports filed with the Securities
and Exchange Commission, the Company and its primary bank had been in
discussions with respect to modifying the Credit Facility. On July 9, 2002, the
Company replaced the Credit Facility by executing an Amended and Restated
Credit Agreement (the "Amended Credit Agreement") with its lenders. The key
terms of the Amended Credit Agreement include the waiver of all existing
defaults under the Credit Facility and the withdrawal by the banks of the
notice of default and an increase in the original interest rate of the term
note by .25% per annum. The Company granted a security interest in its assets
and properties to the primary bank in favor of the banks as security for
borrowings under the Amended Credit Agreement. The Amended Credit Agreement
contains various negative and positive covenants, such as minimum tangible net
worth requirements and expires on May 31, 2003. A portion of the outstanding
borrowing under the Amended Credit Agreement is guaranteed by C. Harry Knowles
and Janet Knowles. Additionally, the Company could be required to make
additional prepayments under the Amended Credit Agreement if there are excess
cash flows, as defined in the Amended Credit Agreement.
The Amended Credit Agreement also includes a revolving credit facility of
$14,000 that expires on May 31, 2003. Amounts available for borrowing under
this facility are equal to a percentage of the total of eligible accounts
receivable and inventories, as defined in the agreement, plus an allowable
overadvance of $2,750. The overadvance allowance expires on January 1, 2003.
The Amended Credit Agreement requires the daily application of Company receipts
as payments against the revolving credit facility and daily borrowings to fund
cash requirements. Interest on outstanding borrowings is at the bank's prime
rate plus 2.5%, and the agreement provides for a commitment fee of .5% on the
unused facility.
In connection with the Amended Credit Agreement, certain directors and
executive officers have made loans to the Company, which amounts will be held
as cash collateral under the terms of the Amended Credit Agreement.
Specifically, C. Harry Knowles and Janet H. Knowles, Dale M. Fischer and Hsu
Jau Nan have loaned the Company $400, $125 and $475, respectively. The loans
bear interest at a rate of nine percent (9%) per annum and will be repaid in
full upon the earliest of: (a) the Company's repayment in full of its
obligations under the Amended Credit Agreement or (b) the release of the
security interest held by the Company's primary bank in such cash being loaned
by the above mentioned directors and executive officers.
As the Amended Credit Agreement matures on May 31, 2003, all outstanding bank
borrowings are classified as current liabilities. Management plans to refinance
this Amended Credit Agreement prior to December 31, 2002 and replace it with
longer term debt under terms more favorable to the Company.
In April 2002, in order to reduce debt and increase future profitability, the
Company implemented a workforce reduction and identified additional cost
reductions representing estimated annualized savings of approximately $3,000 in
overhead and operating expenses, and additional reductions in direct costs.
Also in connection with the acquisition of AOA, the Company entered into
Subordinated Promissory Notes ("Subordinated Debt") aggregating $11,000 with
United Technologies Optical Systems, Inc. ("UTOS"), the former parent of AOA,
with maturities of $0 in 2002 and $9,000 in 2003 and $1,000 in 2004 and 2005.
Interest rates are fixed at 10%.
Property, plant & equipment expenditures were $1,088 and $481 for the six
months ended June 30, 2002 and 2001, respectively. The Company's current plans
for future capital expenditures include: (i) investment in the Company's
Suzhou, China facility; (ii) continued investment in manufacturing capacity
expansion at the Blackwood, NJ headquarters; (iii) additional Company
facilities; and (iv) enhancements to existing information systems, and
additional information systems.
The Company's liquidity has been, and may continue to be, affected by changes
in foreign currency exchange rates, particularly the value of the U.S. dollar
relative to the euro, the Brazilian real, the Singapore dollar, and the Chinese
renminbi. In an effort to mitigate the financial implications of the volatility
in the exchange rate between the euro and the U.S. dollar, the Company has
selectively entered into derivative financial instruments to offset its
exposure to foreign currency risks. Derivative financial instruments may
include (i) foreign currency forward exchange contracts with its primary bank
for periods not exceeding six months, which partially hedge sales to the
Company's German subsidiary and (ii) euro based loans, which act as a partial
hedge against outstanding intercompany receivables and the net assets of its
European subsidiary, which are denominated in euros. However, no derivative
instruments are outstanding at June 30, 2002. Additionally, the Company's
European subsidiary invoices and receives payment in certain other major
currencies, including the British pound, which results in an additional
mitigating measure that reduces the Company's exposure to the fluctuation
between the euro and the U.S. dollar although it does not offer protection
against fluctuations of that currency against the U.S. Dollar.
Euro Conversion.
On January 1, 1999, several member countries of the European Union established
fixed conversion rates between their existing sovereign currencies and adopted
the Euro as their new common legal currency. As of that date, the Euro traded
on currency exchanges and the legacy currencies remain legal tender in the
participating countries for a transition period between January 1, 1999 and
January 1, 2002. The countries that adopted the Euro on January 1, 1999 are
Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, The
Netherlands, Portugal, and Spain. During the transition period, non-cash
payments were made in the Euro, and parties could elect to pay for goods and
services and transact business using either the Euro or legacy currency.
Between January 1, 1999 and January 1, 2002 the participating countries
introduced Euro notes and coins and withdrew all legacy currencies. The Euro
conversion may affect cross-border competition by creating cross-border
transparency. The Company continues to evaluate its pricing/marketing strategy
in order to insure that it remains competitive in a broader European market.
Item 3- Quantitative and Qualitative Disclosures about Market Risk (amounts
in thousands)
The information contained in Item 7A of the Company's Annual Report on Form
10-K for the year ended December 31, 2001 is hereby incorporated herein by
reference.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is currently involved in matters of litigation arising from the
normal course of business including matters described below. Management is of
the opinion that there are no legal claims against the Company which will have
a material adverse effect on the Company's consolidated financial position,
results of operations or cash flows.
A. Symbol Technologies, Inc. et. al. v. Lemelson Medical, Educational &
Research Foundation, Limited Partnerships
On July 12, 2002, the Auto ID Companies filed three summary judgment motions,
one each directed to prosecution laches, non-infringement and invalidity with
regard to certain claims of the patents in suit. In response to these summary
judgment motions the Lemelson Partnership filed a motion to strike the motions
related to non-infringement and invalidity as being "untimely" and requested
that the Court reserve all three motions for trial. Alternatively, the Lemelson
Partnership asked the Court for a sixty-day extension to take discovery on the
prosecution laches issues and serve its opposition papers to all three motions.
These motions are now pending before the Court.
B. Metrologic v. PSC Inc.
In June 2002, both sides filed their motions for summary judgment and their
Markman briefs with the Court. On August 6-7, 2002 a Markman hearing was held
by the Court during which the parties argued claim interpretations of the
patents in suit. The parties are now waiting for the court's decision on the
Markman hearing.
C. Symbol Technologies, Inc. v. Metrologic
On May 3, 2002, the Company was served with a lawsuit that was filed on April
12, 2002 by Symbol in the United States District Court for the Eastern District
of New York alleging that the Company is in breach of the terms of the License
Agreement between Symbol and the Company (the "Agreement"). The allegations of
breach relate to the dispute between the parties as to which products are
covered by the licenses under the Agreement. On May 30, 2002, the Company was
served with an amended Complaint in this action. The amended Complaint also
includes new claims of patent infringement from the date of the alleged breach
against both the Company and C. Harry Knowles, the Company's Chairman and CEO.
The amended complaint further includes claims for injunctive relief and a claim
of fraudulent transfer related to the transactions under the Amended Credit
Agreement. The Company believes that Symbol's claims in the lawsuit are without
merit and intends to vigorously defend its rights.
The Company has filed a motion with the court to stay the infringement actions,
and to allow the parties to arbitrate those claims in accordance with the
procedures set forth in the Agreement. The Company has not yet filed its answer
to the Complaint. In response, Symbol filed a motion to stay the arbitration
proceedings pending a decision by the court as to whether the issues are
subject to arbitration. These motions are now pending before the court.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
3.1 Amended and Restated Certificate of Incorporation of
Metrologic Instruments, Inc. (incorporated by reference to
Exhibit 3.1 to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1994).
3.2 Amended and Restated Bylaws of Metrologic Instruments, Inc.
(incorporated by reference to Exhibit 3.02 to the Registrant's
Annual Report on Form 10-K for the year ended December 31,
1994).
4.1 Specimen Stock Certificate (incorporated by reference to
Exhibit 4.1 to the Registrant's Registration Statement on Form
S-1 (Reg. No. 33-78358)).
10.1 Employment Agreement dated as of May 13, 2002 between
Metrologic Instruments, Inc. and Janet H. Knowles
(incorporated hereto by reference to Exhibit 10.24 to the
Registrant's Annual Report on Form 10-K Amendment No. 3 filed
July 25, 2002).
10.2 Amended and Restated Credit Agreement dated July 9, 2002 by
and among Metrologic Instruments, Inc., Adaptive Optics
Associates, Inc., the Guarantors named therein, PNC Bank,
National Association, as agent to the Banks and the Banks
named therein (incorporated hereto by reference to Exhibit
10.25 to the Registrant's Annual Report on Form 10-K Amendment
No. 3 filed July 25, 2002).
10.3 Lease Modification Agreement dated July 9, 2002 between C.
Harry and Janet H. Knowles and Metrologic Instruments, Inc.
(incorporated hereto by reference to Exhibit 10.26 to the
Registrant's Annual Report on Form 10-K Amendment No. 3 filed
July 25, 2002).
10.4 Landlord's Waiver dated July 9, 2002 between C. Harry Knowles
and Janet H. Knowles, and PNC Bank, National Associates as
Agent (incorporated hereto by reference to Exhibit 10.27 to
the Registrant's Annual Report on Form 10-K Amendment No. 3
filed July 25, 2002).
10.5 Subordinated Promissory Note dated July 9, 2002 between
Metrologic Instruments, Inc., Adaptive Optics Associates, Inc.
and MTLG Investments Inc. (the "Borrowers") and C. Harry
Knowles and Janet H. Knowles (the "Lenders") (incorporated
hereto by reference to Exhibit 10.28 to the Registrant's
Annual Report on Form 10-K Amendment No. 3 filed July 25,
2002).
10.6 Subordinated Promissory Note dated July 9, 2002 between
Metrologic Instruments, Inc., Adaptive Optics Associates, Inc.
and MTLG Investments Inc. (the "Borrowers") and Hsu Jau Nan
(the "Lender") (incorporated hereto by reference to Exhibit
10.29 to the Registrant's Annual Report on Form 10-K Amendment
No. 3 filed July 25, 2002).
10.7 Subordinated Promissory Note dated July 9, 2002 between
Metrologic Instruments, Inc., Adaptive Optics Associates, Inc.
and MTLG Investments Inc. (the "Borrowers") and Dale M.
Fischer (the "Lender") (incorporated hereto by reference to
Exhibit 10.30 to the Registrant's Annual Report on Form 10-K
Amendment No. 3 filed July 25, 2002).
99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
executed by the Chief Executive Officer of the Company
attached hereto as Exhibit 99.1.
99.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
executed by the President and Chief Operating Officer of the
Company attached hereto as Exhibit 99.2
99.3 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
executed by the Chief Financial Officer of the Company
attached hereto as Exhibit 99.3
(b) Reports on Form 8-K.
The Registrant filed a report on Form 8-K dated April 25,
2002, and a report on Form 8-K/A dated June 30, 2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed by the undersigned
thereunto duly authorized.
METROLOGIC INSTRUMENTS, INC.
Date: August 14, 2002 By:/s/ C. Harry Knowles
---------------- -----------------------
C. Harry Knowles
Chairman of the Board
and Chief Executive Officer
(Principal Executive Officer)
Date: August 14, 2002 By:/s/Thomas E. Mills IV
---------------- --------------------------
Thomas E. Mills IV
President and Chief Operating Officer
Date: August 14, 2002 By:/s/Kevin J. Bratton
---------------- --------------------------
Kevin J. Bratton
Chief Financial Officer
(Principal Financial and
Accounting Officer)
EXHIBIT INDEX
Exhibit No. Page No.
99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted 21
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
executed by the Chief Executive Officer of the Company
attached hereto as Exhibit 99.1.
99.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted 22
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
executed by the President and Chief Operating Officer of the
Company attached hereto as Exhibit 99.2
99.3 Certification pursuant to 18 U.S.C. Section 1350, as adopted 23
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
executed by the Chief Financial Officer of the Company
attached hereto as Exhibit 99.3
EXHIBIT 99.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Metrologic Instruments, Inc.
(the "Company") on Form 10-Q for the period ending June 30, 2002 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
C. Harry Knowles, Chief Executive Officer of the Company, certify, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of the
Company.
/s/C. Harry Knowles
C. Harry Knowles
Chief Executive Officer
August 14, 2002
EXHIBIT 99.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Metrologic Instruments, Inc.
(the "Company") on Form 10-Q for the period ending June 30, 2002 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
Thomas E. Mills IV, President and Chief Operating Officer of the Company,
certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of the
Company.
/s/Thomas E. Mills IV
Thomas E. Mills IV
President and Chief
Operating Officer
August 14, 2002
EXHIBIT 99.3
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Metrologic Instruments, Inc.
(the "Company") on Form 10-Q for the period ending June 30, 2002 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
Kevin J. Bratton, Chief Financial Officer of the Company, certify, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of the
Company.
/s/Kevin J. Bratton
Kevin J. Bratton
Chief Financial Officer
August 14, 2002