UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
Annual Report
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2002 Commission file number 0-24712
METROLOGIC INSTRUMENTS, INC.
A New Jersey Corporation
I.R.S. Employer Identification No. 22-1866172
90 Coles Road
Blackwood, New Jersey 08012
856-228-8100
Common stock traded on Nasdaq Stock Market 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. [ X ]
Indicate by check mark whether the Registrant is an accelerated filer
(as defined in Rule 126-2 of the Act). Yes [ ] No [ X]
The aggregate market value of the voting stock held by non-affiliates
of the Registrant as of June 28, 2002 was $13,630,000 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 14, 2003 there were 5,472,555 shares of Common Stock outstanding.
PART I
Item 1. Business
Company Profile
Metrologic Instruments, Inc. ("Metrologic" or the "Company") designs, markets,
and manufactures sophisticated imaging systems using laser, holographic and
vision-based technologies; high-speed automated data capture solutions, and bar
code scanners. The Company was incorporated in New Jersey in May 1969 as a
successor to a sole proprietorship, which began operations in 1968. Throughout
Metrologic's 34-year history the Company has been providing innovative, high
performance products incorporating leading-edge technology. For years the
majority of Metrologic's products were designed to perform the core functions
of scanning and decoding one-dimensional (linear) bar codes. In recent years,
however, Metrologic's capabilities have expanded to address more complex,
technically advanced functions including vision-based technologies,
two-dimensional bar code reading, optical character recognition-compatible
image lift, parcel dimensioning and singulation detection devices and systems.
Metrologic's acquisition of Adaptive Optics Associates, Inc. ("AOA") in January
2001 broadened its product offering and opened new market opportunities. AOA's
expertise in advanced optics brings highly sophisticated products and systems
such as laser beam delivery, conditioning, and controls for semiconductor and
fiber optic manufacturing equipment, wavefront sensors, and adaptive optics
systems to military, government, and scientific agencies. AOA also contributes
capabilities and expertise in vision-based systems, image processing, systems
integration, and high-end refractive optical disciplines.
The Company pioneered the development of helium-neon lasers, optics, and
electronic instruments for education purposes. Today, Metrologic continues to
produce and market lasers, kits, and accessories for the educational market.
As a vertically integrated company, Metrologic designs and manufactures its own
optics, optical coatings, magnetic and inductive electronic components and
fabricated parts. In 2002, the Company produced in excess of 500,000 finished
products.
Metrologic employs approximately 852 people worldwide and sells its products
and services in more than 100 countries through sales, service, and
distribution offices located in North America, South America, Europe, and Asia.
Corporate Headquarters
Since 1990, Metrologic's corporate headquarters have been located at 90 Coles
Road, Blackwood, New Jersey 08012, and its phone number is 856-228-8100. The
corporate internet address is: www.metrologic.com.
The Company's Products
Metrologic 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.
Metrologic's products can be classified into the following four categories:
Retail/Point of Sale ("POS") Bar Code Scanners
o Handheld scanners
o Fixed projection/hands free scanners
o Portable Data Collection Terminals ("PDT"'s)
Original Equipment Manufacturer ("OEM") Scan Engines
o Linear scanning engines
o Omnidirectional scanning engines
Industrial Products and Scanning Systems
o Laser-based scanners
o Vision-based image acquisition systems
o Parcel dimensioning, sortation, and tracking
o Multi-sided tunnel scanning systems
Advanced Optical Systems
o Laser beam delivery and conditioning systems
o Wavefront sensors
o Optical metrology systems
Retail/Point of Sale Bar Code Scanners
Handheld scanners
The Company produces a broad line of laser-based bar code scanners that are
predominantly used as handheld devices by their operators. Metrologic's line of
handheld products provide customers a range of "entry-level" models through
feature-rich higher-end models. The entry-level models offer exceptional
performance and value with features suited for basic and low-volume scanning
applications while the higher-end models offer the features, functionality, and
versatility for demanding scanning applications.
Metrologic's most popular handheld scanners are the MS9500 Voyager(R) Series of
single-line handheld laser bar code scanners. This line offers a variety of
mid-level to high-end scanner options. These scanners are equipped with
patented automatic trigger technology with an optional data transmission
feature called CodeGate(R) providing more advanced capability. The combined
technologies allow the Company to compete head-to-head in applications
previously dominated by manually triggered scanners. These applications include
retail point-of-sale, menu-scanning, document processing, library,
pharmaceutical, work-in-process, coupon processing, and inventory. The Voyager
Series currently includes the following models:
o MS9520 Voyager: single-line scanner with automatic trigger
o MS9540 VoyagerCG(R): single-line scanner with automatic trigger and
CodeGate data transmission
o MS9535 VoyagerBT(TM)(introduced in January 2003): wireless version
of Voyager using industry-standard Bluetooth(R) wireless
communication
o MS9524 VoyagerPDF(TM) (introduced in January 2003): Voyager model
with the added capability of reading PDF417 two-dimensional
("2D") bar codes.
o MS9544 VoyagerPDF(TM) (introduced in January 2003): VoyagerCG
model with the added capability of reading PDF417 2D bar codes.
Other Metrologic handheld scanners include:
o MS6720: omnidirectional scanner with fully adjustable stand for the
option of automatic hands-free scanning.
o MS5145 Eclipse(TM): mid-level single-line scanner with CodeGate data
transmission technology
o MS6220 Pulsar(R): entry-level single-line scanner designed to compete
with low-cost Charged Coupled Devices ("CCD"'s)
Sales of handheld scanners accounted for 38.5%, 36.0% and 44.4% of total
revenue in 2002, 2001 and 2000, respectively.
Fixed projection/Hands free scanners
Metrologic's line of laser-based bar code scanners referred to as fixed
projection, or "hands free", include scanners that allow operators to present a
bar code to the scanner in any orientation. The scanner typically rests upon a
counter top or surface or is mounted within a counter top. A variety of
scanners are included in this product grouping, each offering a different set
of features that allow customers to select the model that best fits the
specific need of their application. Markets characteristically utilizing hands
free scanners include supermarkets, warehouse clubs, grocery stores,
convenience stores, mass merchandisers, home centers, department stores,
pharmacies, liquor stores, health clubs, and specialty retailers.
The top selling product among the Company's hands free scanners is the MS7120
Orbit(R). The Orbit, as well as Metrologic's other hands free scanners,
generates multiple, intersecting scan lines known as an omnidirectional scan
pattern. Omnidirectional technology speeds scanning by eliminating or reducing
an operator's need to twist and turn bar codes within the scanner's scan range.
The Orbit features a compact size, rugged housing, and a scanning head that can
be tilted vertically for added scanning flexibility.
Other Metrologic omnidirectional hands free scanners include:
o MS2020 Stratos(TM) (introduced in January 2003): high-performance,
high-volume, bi-optic (two scanning planes), 6-sided, in-counter
scanner/scale
o MS6520 Cubit(R): mountable to wall or counter top, rugged protective
housing, small size
o MS7220 ArgusScan(R): large high speed scan area, available with four
stand configurations
o MS7320 InVista(TM): large, dynamic and aggressive scan volume,
mountable with or without a stand
o MS7600 Series Horizon(TM): in-counter scanner available with either a
stainless steel or plastic top plate
Sales of fixed projection/hands free scanners accounted for 15.2%, 17.6% and
20.9% of total revenue in 2002, 2001 and 2000, respectively.
Portable Data Collection Terminals ("PDT"'s)
PDT's are battery-powered handheld devices commonly incorporating a display
screen, an application software program, and one or more data input devices
such as a keypad, bar code scanning module, or touch pad. There are two primary
PDT classes: batch and radio frequency ("RF"). Batch models require downloading
of stored data while RF models transmit data in real time to a host device.
PDT's provide mobile data management for a variety of markets and a multitude
of applications including shelf price checks and audits, inventory/stock
control, shipping and receiving, document monitoring, as well as laboratory and
patient data management.
Metrologic markets and sells two PDT's both of which are batch devices:
o Navigator(TM) (introduced in January 2003): ultramodern design,
single handed operation incorporating a laser bar code scanning
module, unique high resolution LCD display screen located on the
bottom of the unit, 2MB of RAM, and easy to use application
generator software program.
o ScanPal(R) 2: small size, CCD or laser-based bar code scanning
engine, LCD display screen on the top of the unit, 1MB of RAM,
and comprehensive application generator software program
Original Equipment Manufacturer (OEM Scan Engines)
Metrologic produces laser-based scanning modules or "engines". These high
performance engines are considered components and are designed for integration
into a variety of OEM equipment. Some representative applications requiring
scan engines include lottery machines, customer price lookup/price checker
systems, pick and place devices, robotic arms, medical instruments, PDT's,
reverse vending machines and time/attendance equipment. Metrologic offers
several standard and custom scan engine models that vary in physical size, scan
pattern, decoding capabilities, and scan speed.
o IS4610 microQuest(TM) (introduced in January 2003): non-decoded
linear model, Metologic's smallest engine is built into a durable
die cast chassis and offers scan speeds capable of reading linear
and stacked 2D bar code symbologies.
o IS6520 Cubit(R): omnidirectional, high-speed automatic scanning
system, scans and decodes linear bar codes, small, easy-to-mount
housing
o IS4100 ScanQuest(R) Series: linear engine available in decoded
and non-decoded models, scans and decodes linear bar codes,
enclosed in a small metal housing that protects the optical and
electronic components.
Industrial Products and Scanning Systems
Metrologic brands and markets its line of laser and CCD camera Industrial
Products and Scanning Systems under the AOA name. Laser and camera technologies
are the two distinctive properties used in the AOA industrial products. CCD
camera based or vision technology is rapidly becoming the predominant system
sought by companies in many industries including pharmaceutical and parcel and
postal handling industries. Camera based systems offer more functionality and
features versus lasers including increased bar code read rates, capable of
decoding 1D and 2D bar codes, image capture and optical character recognition
("OCR") capability.
Laser-based scanners
o HoloTrak(R) Series: Two classes: IS8000 Series and the C Series
Penta(R), and several models of these scanners are available
offering customers a variety of features that best fit their
specific applications. Each model produces a different sized scan
area and scan pattern. Standard in all models is an
omnidirectional scan pattern and proprietary holographic
technology. The C Series Penta scanners offer more features and
functionality.
o IS8000 Series HoloTrak: used in markets including
manufacturing, distribution centers, and postal and
parcel handling. Typical uses include walk-under
scanning, shipping/receiving, order processing and
fulfillment, and slow to moderate speed conveyor
applications.
o C Series Penta HoloTrak: used by the same markets as the
IS8000 Series but include added functionality such as
higher-speed, high-volume, wider conveyor applications,
in addition to fully automated scanning tunnels that
offer optional weighing, dimensioning and parcel tracking
capabilities.
o TECH Series: available with either a raster or omnidirectional
scan pattern and use conventional laser based optics. TECH Series
scanners are generally used in slow speed conveyor belt or other
industrial applications requiring automated scanning capability.
There are three models, each offering a different depth-of-field.
Certain models are sold as OEM products.
CCD camera based image acquisition systems
The iQ(R) Series are high-speed, high-resolution linear CCD camera based
imaging systems. The iQ Series currently includes three models each
incorporating similar base functionality and a unique built in laser light
illumination source.
o iQ180: this all-in-one information acquisition system performs
multiple functions including scanning and decoding of 1D and 2D
bar code reading over a large depth of field, OCR-compatible
image lift, parcel dimensioning, and speed detection in a single,
self-contained unit. Applications include high speed conveyor
scanning commonly found in distribution centers, airport baggage
handling systems, parcel and postal handling, and third party
fulfillment centers.
o iQ170 (introduced in February 2003): a configurable fixed focus
camera system designed to read high density 1D and 2D bar codes
at extremely high speeds, close range scanning, cost effective,
flexible solution for a variety of industries including
pharmaceutical, automotive, and consumer products.
o iQ160 (introduced in February 2003): fixed focus or dynamic focus
option, mid-to-long range depth of field, high speed imaging over
a wide field of view, perfect for small parcel scanning and
sortation applications.
Parcel dimensioning, sortation, and tracking
o QTrace(R): an overhead mounted parcel dimensioning and
singulation detection system that measures length, width, height,
and volume of parcels. In addition to providing the iQ180 camera
based imaging system with parcel measurement data, QTrace also
provides conveyor belt speed data. The combination of parcel
dimensioning and scanning are typically integrated into an
overall conveyor/distribution system often requiring the tracking
and automated sortation of parcels. Our system offers a host of
benefits including low operating costs, compact size, high
performance, and reliability.
Multi-sided tunnel scanning system
Multiple scanners are configured in a manner that images and provides reading
of bar codes on two or more sides of a parcel. These systems are highly
customizable and are found in applications such as distribution/warehousing
conveyor scanning systems, parcel and postal handling, and airport baggage
handling. In addition to the scanning and parcel dimensioning, the Company
offers software, and technical expertise to accomplish this task. Further
services offered include customer site surveys, engineering consulting,
installation, frame fabrication, and service.
Advanced Optical Systems
Laser beam delivery and conditioning systems
o Laser beam delivery: systems dedicated to the high quality
transport and conditioning of light from its laser source to its
ultimate destination for example, as a lithography tool. These
beam delivery systems are custom designed according to a variety
of specifications including wavelength.
Wave front sensors
o Wavescope(R): wave front sensing product line used to measure
optical aberrations and has applications in atmospheric adaptive
optics, retinal imaging, and laser communications. There are
various versions depending on the application.
Optical metrology systems
o Monolithic Lenslet Modules ("MLM"): arrays of micro lenses, with
applications in atmospheric adaptive optics, retinal imaging, and
laser communications. Various MLMs are offered including standard
models as well as custom designed versions.
o Opto-mechanical and electro-optical design and production
services: for specialized systems that have both government and
commercial applications and include tactical missile defense,
fiber communications, metrology, atmospheric adaptive optics,
retinal imaging, and laser communications.
Sales of advanced optical systems accounted for 14.0% and 21.3% of the
Company's total revenue in 2002 and 2001, respectively.
Markets
The Company's automatic identification products and services as described above
serve customers in retail, commercial, manufacturing, transportation and
logistics, postal and parcel delivery industries, government and scientific
agencies.
Research and Product Development
The Company conducts its own engineering programs for the purposes of
developing new products, developing derivations of existing products, improving
its existing products' reliability, ergonomics, and performance and reducing
material, manufacturing and support costs. The Company is engaged in continuous
development programs in the areas of optics, holography, electronic imaging,
image processing, electronics, software, mechanics and automated manufacturing
methods.
Engineering efforts for the year 2002 were focused on:
Product introduction and production ramp-up of the following bar code scanners
and automatic identification products:
o MS7620 Horizon(R) in-counter omnidirectional POS bar code scanner
o MS7320 InVista(R) on-counter omnidirectional POS bar code scanner
o MS9500 Voyager(R) handheld scanner cost-reduction redesign
o iQ180(R) 3D image acquisition system
Development of the following bar code scanners and automatic identification
products:
o MS2020 Stratos(TM) 6-sided in-counter dual-plane scanner and
scanner/scale series
o MS9544 VoyagerPDF(TM) handheld scanner for reading PDF417
two-dimensional symbols.
o MS9535 VoyagerBT(TM) wireless handheld scanner using Bluetooth(TM)
wireless communication
o IS4610 mircroQuest(TM) miniature scanning engine
o SP2550 Navigator(TM) portable batch data collector
o iQ170(TM) short-range dynamic and fixed-focus high-speed image
acquisition system and bar code reader
o iQ160(TM) medium-range dynamic and fixed-focus high-speed image
acquisition system and bar code reader
Development of the following core technologies associated with bar code
scanning and automatic identification:
o Bluetooth wireless communication interface standard
o Portable computing platform and associated application generation
software
o PDF417 two-dimensional bar code decoding algorithms
o USB interface advances
o Miniaturization of electro-mechanical and optical scanning mechanisms
Development of the following advanced optical systems:
o New software release for Wavescope adding additional user capability.
o Material research for Micro Lenslet Modules
During 2002, 2001, and 2000, the Company incurred expenses of approximately
$6.9 million, $6.5 million, and $5.0 million, respectively, on costs associated
with research and development.
Sales and Marketing
The Company sells and markets its products and services on a global basis
through a network of distributors, value-added resellers ("VARs"), original
equipment manufacturers ("OEMs"), and direct sales force. The Company has
offices in 10 countries and sells its products in more than 100 countries.
Corporate Headquarters:
Metrologic Instruments, Inc
Located: Blackwood, NJ USA
North American Headquarters
Market: North America, Australia
Principal Subsidiaries:
Adaptive Optics Associates (AOA) Metrologic Eria Iberica, SL
A wholly owned subsidiary 51% owned
Located: Cambridge, MA USA Located: Madrid, Spain
Market: worldwide Market: Spain
Metro (Suzhou) Technologies Co., Ltd. Metrologic Instruments GmbH
A wholly owned subsidiary A wholly owned subsidiary
Located: Suzhou, China Located: near Munich, Germany
Market: China European, Middle East, and African (EMEA)
Headquarters
Market: Europe, Middle East, and Africa
Metrologic Japan Co., Ltd. Metrologic Italia S.r.l.
A wholly owned subsidiary A wholly owned subsidiary
Located: Tokyo, Japan Located: Ozzano dell'Emilia, Italy
Market: Japan Market: Italy
Metrologic Asia (Pte) Ltd. Metrologic Eria France SA
A wholly owned subsidiary 51% owned
Located: Singapore Located: Paris, France
Market: Asia (excluding China Market: France
and Japan)
Metrologic do Brasil Ltda* Metrologic Instruments UK Limited
A wholly owned subsidiary A wholly owned subsidiary
Located: Sao Paulo, Brazil Located: Basingstoke, England
Market: Brazil Market: United Kingdom
*A third party previously held a minority interest in Metrologic do Brasil
Ltda. Metrologic purchased this 49% minority interest ownership in February
2003.
The Company has an option to purchase the remaining 49% minority interest in
Metrologic Eria Iberica. The purchase option is calculated based on a twelve
month multiple of sales and provides the Company with a twelve month period in
which to find a buyer or negotiate a purchase price with a default minimum. In
February 2002, the minority shareholders provided notice of their intent to
sell their 49% interest and the estimated purchase price is approximately 5.3
million euros or $5.5 million at December 31, 2002. The Company expects to
purchase the shares from the minority shareholder in 2003 and believes payments
will be made over a three-year period.
The Company has an option to purchase the remaining 49% minority interest in
Metrologic Eria France. The purchase option is calculated based on a twelve
month multiple of sales and provides the Company with a twelve month period in
which to find a buyer or negotiate a purchase price with a default minimum.
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 following table sets forth certain information as to the Company's sales by
geographical location: (amounts in thousands)
Year Ended December 31,
--------------------------------
2002 2001 2000
---- ---- ----
North America $56,379 $ 50,764 $36,716
Europe 43,321 46,990 36,436
Rest of World 17,416 15,934 18,732
-------- -------- -------
Total $117,116 $113,688 $91,884
======== ======== =======
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 are
manufactured in the Company's U.S. facility and, therefore, sales and results
of operations are affected by fluctuations in the value of the U.S. dollar
relative to foreign currencies. Manufacture of the Company's POS products in
its Suzhou, China facility accounted for approximately 38% of POS unit sales in
2002. This percentage is expected to increase in 2003, which will partially
mitigate the negative impact on the Company's profits from foreign exchange rate
fluctuation and will result in reduced labor costs for the Company's POS
scanners. In 2001 and 2000, sales and gross profit were adversely affected by
the continuing rise in the value of the U.S. dollar in relation to foreign
currencies. In 2002, the strengthening of the euro against the U.S. dollar
favorably impacted sales and gross profit, most significantly in the fourth
quarter.
Backlog
As of December 31, 2002, the Company had approximately $17.9 million in backlog
orders. All except $4.2 million of such backlog orders are anticipated to be
filled prior to December 31, 2003. As of December 31, 2001, the Company had
approximately $9.1 million in backlog orders, of which substantially all were
filled during the 2002 fiscal year.
The Company performs ongoing credit evaluations of its customers' financial
condition, and except where risk warrants, requires no collateral. The Company
may, however, require letters of credit or prepayment terms for those customers
in lesser-developed countries.
Competition
The bar code scanning industry is highly competitive. The Company's scanners
compete primarily with those produced by US manufacturers Accu-Sort Systems,
Inc., Microscan Systems, Inc., NCR Corporation, PSC, Inc., Symbol Technologies,
Inc., Intermec (Unova), Hand Held Products, Inc. (a Welch Allyn affiliate);
European manufacturers Datalogic, Inc. located in Italy, Sick AG and Vitronics
located in Germany; and Asian manufacturers Nippondenso ID Systems, Opticon,
Inc., Densei and many others. While many of the Company's competitors are
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, value, 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
173 issued U.S. patents, which expire between 2003 and 2017, and 35 foreign
patents, which expire between 2005 and 2015. In addition, 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), ArgusScan(R), Bits 'n' Pieces(R), Codegate(R), Codesense(R),
Concert(R), Cubit(R), HandSet(R), HoloTrak(R), HoloSet(R), HoloTunnel(R),
Horizon(R), InVista(R), iQ(R), Mini-Slot(R), MetrOPOS(R), MetroSelect(R),
MetroSet(R), Liberty(R), Orbit(R), Penta(R), Pulsar(R), QTrace(R), QTrak(R),
QTroller(R), ScanGlove(R), ScanKey(R), ScanPal(R), ScanQuest(R), ScanSet(R),
Tech 7(R), Tech 8(R), Tech 10(R), VarSide(R), Voyager(R) and VoyagerCG(R). The
Company also has several registered trademarks in foreign countries. The
Company has filed additional trademark and service mark applications including
Backpack(TM), iQTroller(TM), Microquest(TM), Navigator(TM), Stratos(TM), and
for other marks it is using both in the United States and abroad. The Company
intends to continue to file applications for U.S. and foreign patents and
trademarks. Although management believes that its patents provide some
competitive advantage and market protection, the Company relies primarily upon
its proprietary know-how, innovative skills, technical competence and marketing
abilities for its success.
The Company regards its software as proprietary and attempts to safeguard it
with protection under copyright and trade secret law and nondisclosure
agreements. Despite this protection, it may be possible for competitors or
users to copy aspects of the Company's products or to obtain information which
the Company regards as trade secrets. Computer software generally has not been
patented and existing copyright laws afford only limited practical protection.
The laws of foreign countries generally do not protect the Company's
proprietary rights in its products to the same extent as the laws of the United
States. In addition, the Company may experience more difficulty in enforcing
its proprietary rights in certain foreign jurisdictions.
In December 1996, the Company and Symbol Technologies, Inc. ("Symbol") executed
an extensive cross-license of patents (the "Symbol Agreement") for which the
Company and Symbol pay royalties to each other under certain circumstances
effective January 1, 1996. In connection with the Symbol Agreement, the Company
paid Symbol an advance license fee of $1 million in December 1996 and another
$1 million in quarterly installments of $125,000 over the subsequent two years
ended November, 1998.
In April 1999, the Company and Symbol executed a second amendment to the Symbol
Agreement to provide for additional patent licenses for some of its existing
products.
On November 1, 1999, the Company and Symbol signed a third amendment to the
Symbol Agreement. Under the terms of the amendment, the Company obtained
royalty-bearing licenses for certain of its new products under Symbol's laser
scanning patents, and Symbol obtained royalty-bearing licenses for its products
under certain of the Company's patents. Under the terms of the amendment, both
parties will make recurring periodic royalty payments to each other.
In connection with the settlement of a December 1993 patent lawsuit with
Symbol, the Company agreed to make payments to Symbol through December 2004. As
a result of the patent lawsuit, the Company redesigned its handheld scanners to
convert them from a triggered version to a triggerless version. In connection
with the Symbol Agreement, Symbol and the Company amended the December 1993
settlement to reduce the maximum aggregate amount payable thereunder by the
Company from $7.5 million to approximately $5.1 million. The final payment in
connection with the settlement was made in August 1999. For additional
information concerning the settlement, see Note 11 of the Notes to Consolidated
Financial Statements.
The parties are currently involved in litigation to determine if there has been
a breach of the Symbol Agreement. For additional information on this
litigation, see Item 3. Legal Proceedings, below.
Manufacturing and Suppliers
The Company manufactures its products at its Blackwood, New Jersey and Suzhou,
China facilities. The manufacturing facilities are vertically integrated
enabling the Company to quickly adapt and enhance its products and services to
meet specific customer requirements. This capability reduces the length of its
new product development cycle, speeds the integration of new products into
manufacturing, and reduces the overall value stream time. Product quality
assurance is achieved by sound product designs, by extensive final and
in-process testing, and by an experienced workforce.
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.
Currently, the Company relies on a limited number of suppliers for several
components used in the manufacture of its products. The Company does not
believe that the loss of any one supplier would have a long-term adverse effect
on its business, although set-up costs and delays would likely result if the
Company were required to change any single supplier without adequate prior
notice.
Government Regulations
The Company and its products are subject to regulation by various agencies both
in the United States and in the countries in which its products are sold. The
Food & Drug Administration's Center for Devices and Radiological Health
regulates laser safety in the United States, and in Canada, laser safety is
regulated by Industry Canada. In addition, the Occupational Safety and Health
Administration and various state and municipal government agencies have
promulgated regulations concerning working condition safety standards in
connection with the use of lasers in the workplace. Radio emissions are the
subject of governmental regulation in all countries in which the Company
currently sells its products. The Company also submits its products for safety
certification throughout the world by recognized testing laboratories such as
the Underwriters Laboratories, Inc. and the Canadian Standards Association.
The European countries in which the Company's products are sold also have
standards concerning electrical and laser safety and electromagnetic
compatibility and emissions. The Company's products comply with the European
standards regarding electromagnetic compatibility, allowing these products to
bear the CE mark.
The Company believes that it is currently in compliance with all of the
regulations to which it and its products are subject. There can be no
assurance, however, that governmental agencies will not require the Company to
modify its products or working conditions and, if so required, that the Company
would be able to make such modifications. Failure by the Company to comply with
any regulation or standard could have a material adverse effect on the Company.
Employees
As of December 31, 2002, the Company had approximately 852 full-time employees
worldwide. None of the Company's employees are represented by a labor union.
Management believes that its relationships with its employees are good.
Website Access to Reports
The Company's website address is www.metrologic.com. The Company's annual
report on Form 10-K, quarterly reports on Form10-Q, current reports on Form 8-K
and any amendments to these reports are available free of charge on the
Investor Relations page of the Company's website as soon as reasonably
practicable after the reports are filed electronically with the Securities and
Exchange Commission. Information contained on the Company's website is not a
part of this report.
The general public may read and copy any materials the Company files with the
SEC at the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington,
DC 20549. The public may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. The Company is an
electronic filer, and the SEC maintains an Internet website that contains
reports, proxy and information statements, and other information regarding
issuers that file electronically with the SEC, including the Company. The
Internet address of the SEC's website is www.sec.gov.
Item 2. Properties (dollars in thousands)
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 and Chief Executive Officer of the Company, and
Janet H. Knowles, Vice President, Administration, Secretary, Treasurer and a
director of the Company. Under a lease agreement entered into on April 1, 1994,
the Company leased the building for a term of five years and renewed the lease
in 1999 for an additional five-year term. The building has approximately
116,000 square feet and is being leased from Mr. and Mrs. Knowles pursuant to
the terms of the April 1, 1994 lease. The lease for the real estate was
replaced in January 2003 with a new lease which expires in December 2012.
Future minimum lease payments required under the lease are approximately $811
in 2003, $826 in 2004, $842 in 2005, $859 in 2006, $876 in 2007 and $4,733
thereafter, excluding taxes and insurance. Under the terms of the Amended
Credit Agreement (see "Liquidity and Capital Resources" below) with its banks,
no rental payments were paid to Mr. and Mrs. Knowles during the term of the
Amended Credit Agreement. As of December 31, 2002, the unpaid, accrued portion
of lease payments due to Mr. and Mrs. Knowles was $340.
The Company's subsidiaries each lease office space from third parties. Future
minimum lease payments required under lease agreements as of December 31, 2002
are $2,457 in 2003, $2,286 in 2004, $1,942 in 2005, $1,462 in 2006, $1,421 in
2007 and $3,974 thereafter.
Item 3. Legal Proceedings
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.
The Company is currently involved in matters of litigation arising in the
normal course of business as well as the matters described below. Management is
of the opinion that such litigation either individually or in the aggregate
will not have a material adverse effect on the Company's consolidated financial
position, results of operations or cash flows. Further, management is of the
opinion that there are no legal claims against the Company which are expected
to 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 21, 1999, the Company and six other leading members (Accu-Sort Systems,
Inc., Intermec Technologies Corporation, a wholly-owned subsidiary of UNOVA,
Inc., PSC Inc., Psion Teklogix Corporation, Symbol Technologies, Inc., and
Zebra Technologies Corporation) of the Automatic Identification and Data
Capture Industry (the "Auto ID companies") jointly initiated a litigation
against the Lemelson Medical, Educational, & Research Foundation, Limited
Partnership (the "Lemelson Partnership"). The suit was commenced in the U.S.
District Court, District of Nevada in Reno, Nevada, and later transferred to
the District Court in Las Vegas, Nevada. In the litigation, the Auto ID
companies seek, among other remedies, a declaration that certain patents, which
have been asserted by the Lemelson Partnership against end users of bar code
equipment, are invalid, unenforceable and not infringed.
Symbol Technologies, Inc. has agreed to bear approximately one-half of the
legal and related expenses associated with the litigation, with the remaining
portion being borne by the Company and the other Auto ID companies. Although no
claim had been asserted by the Lemelson Partnership directly against the
Company or, to our knowledge, any other Auto ID company, the Lemelson
Partnership has contacted many of the Auto ID companies' customers demanding a
one-time license fee for certain so-called "bar code" patents transferred to
the Lemelson Partnership by the late Jerome H. Lemelson. The Company and the
other Auto ID companies have received many requests from their customers asking
that they undertake the defense of these claims using their knowledge of the
technology at issue. Certain of these customers have requested indemnification
against the Lemelson Partnership's claims from the Company and the other Auto
ID companies, individually and/or collectively with other equipment suppliers.
The Company, and to the Company's knowledge, the other Auto ID companies,
believe that generally they have no obligation to indemnify their customers
against these claims and that the patents being asserted by the Lemelson
Partnership against Auto ID companies customers with respect to bar code
equipment are invalid, unenforceable and not infringed. However, the Company
and the other Auto ID companies believe that the Lemelson claims do concern the
Auto ID industry at large and that it is appropriate for them to act jointly to
protect their customers against what they believe to be baseless claims being
asserted by the Lemelson Partnership.
In response to the suit, the Lemelson Partnership filed its motion to dismiss,
transfer and/or stay the Declaratory Judgment Action. On March 21, 2000, the
Court denied the Lemelson Partnership's motion, but struck one count in the
lawsuit (the prosecution laches count). On May 15, 2000, the Auto ID companies
filed a motion seeking permission to file an interlocutory appeal of the
Court's decision to strike the prosecution laches count. The motion was granted
by the Court on July 14, 2000. On January 24, 2002, the CAFC reversed the
decision by the lower court and confirmed the continued existence of the
prosecution laches defense. In response, the Lemelson Partnership filed a
Petition for Rehearing En Banc with the CAFC. The Petition was denied by the
CAFC on March 20, 2002. In June 2002, the Lemelson Partnership filed an appeal
with the United States Supreme Court requesting a reversal of the CAFC's
decision. On October 7, 2002, the U.S. Supreme Court denied the Lemelson
Partnership's Petition for Certiorari with respect to the CAFC's decision
upholding the prosecution laches defense. In accordance with the CAFC's
decision, the issue of prosecution laches was remanded to the District Court in
Nevada for consideration during trial.
On September 25, 2002, the District Court issued a trial order allocating
thirty-four (34) days for the trial on this matter commencing November 18,
2002. The trial was commenced on that date and continued through January 17,
2003. At the conclusion of the trial, the judge set a schedule for the
submission of post-trial briefs requiring all papers to be filed by May 16,
2003. It is expected that the judge will issue a final ruling within several
months thereafter, but no specific date for a ruling has been set.
B. Metrologic v. PSC Inc.
On October 13, 1999, the Company filed suit for patent infringement against PSC
Inc. (PSC) in United States District Court for the District of New Jersey. The
complaint asserts that at least seven of the Company's patents are infringed by
a variety of point-of-sale bar code scanner products manufactured and sold by
PSC. The patents cited in the complaint cover a broad range of bar code
scanning technologies important to scanning in a retail environment including
the configuration and structure of various optical components, scanner
functionalities and shared decoding architecture. The complaint seeks monetary
damages as well as a permanent injunction to prevent future sales of the
infringing products.
On December 22, 1999, PSC filed an answer to the complaint citing a variety of
affirmative defenses to the allegations of infringement asserted by the Company
in its complaint. PSC additionally asserted a counterclaim under the Lanham Act
claiming that the Company made false and misleading statements in its October
13, 1999 press release regarding the patent infringement suit against PSC. The
Company does not believe that this counterclaim has any merit.
The court ordered the case to mediation, and discovery was stayed pending the
outcome of the mediation. The mediation was terminated by the parties with no
result having been reached.
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 their claim interpretations of the
patents in suit. The Court has not yet issued its decision on the Markman
hearing.
On November 22, 2002, PSC filed for protection under Chapter 11 of the U.S.
Bankruptcy Code. The Court issued an automatic stay while the bankruptcy is
pending.
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 Complaint seeks
a declaratory judgment from the Court that the Company is in breach of the
Agreement and that Symbol is not in breach of the Agreement. Under the
Agreement, the Company had until May 28, 2002 to cure any breach by making a
payment of the royalties for the Fourth Quarter of 2001 that had been withheld
pending the resolution of a dispute between the parties regarding which
products are covered by the Agreement and the amount of royalties owed by each
party. The Company made this payment within the cure period. However, despite
Symbol's receipt and acceptance of the payment, on May 28, 2002, the Company
received a notice that Symbol was terminating the Agreement for material breach
due to non-payment of royalties.
As the Company made its royalty payments within the cure periods, the Company
believes any assertion of a material breach is incorrect. The Company also
received a notification from Symbol that Symbol was electing additional
licenses under the Agreement. To date, Symbol has made no payments of royalties
to the Company under the additional licenses.
On May 30, 2002, the Company was served with an amended Complaint in this
action. The amended Complaint restates the earlier claims for declaratory
judgement that the Company is in breach of the Agreement and that Symbol is not
in breach. The allegations of breach relate to the dispute between the parties
as to which products are covered by the licenses under the Agreement. The
amended Complaint also includes new claims of patent infringement from the date
of the alleged breach against 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.
In response to the amended Complaint, 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. On
October 4, 2002, the parties had a conference with the judge during which a
schedule was set for the filing of the parties' cross motions for summary
judgment. These motions are now pending before the court.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Executive Officers of the Registrant
The executive officers of the Company as of December 31, 2002 are as follows:
Name Age Position
C. Harry Knowles* 74 Chairman of the Board and Chief Executive Officer
Janet H. Knowles* 61 Director, Vice President, Administration, Secretary
and Treasurer
Thomas E. Mills IV 43 Director, President and Chief Operating Officer
Kevin J. Bratton 54 Chief Financial Officer
Dale M. Fischer 62 Vice President, International Sales
Benny A. Noens 55 Vice President, EMEA, and Managing Director,
Metrologic Instruments GmbH
John L. Patton 57 Director, Human Resources
Joseph Sawitsky 40 Vice President, Manufacturing
Mark C. Schmidt 32 Vice President, Marketing
Nancy A. Smith 36 Vice President, General Counsel
Jeffrey Yorsz 45 Vice President, Industrial Systems
- -----------------------------------
* 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 shareholders and serve at the discretion of the
Board of Directors.
C. Harry Knowles is the founder of the Company and has been Chairman of the
Board of Directors since the Company's inception in 1969. Mr. Knowles served as
President of the Company from its inception through 1982 and from 1985 until
1999. He has served as Chief Executive Officer since 1985. In addition, Mr.
Knowles served as chief technical officer with responsibility for all of the
Company's research and development activities from 1982 to 1985. Prior to
founding the Company, Mr. Knowles was the general manager of Westinghouse
Electric Corporation's integrated circuits division in Elkridge, Maryland.
Thomas E. Mills IV became President of the Company on February 9, 2000, a
director of the Company effective March 25, 1999, and has served as the
Company's Executive Vice President and Chief Operating Officer since April
1999, as the Company's Vice President, Finance from June 1995 until July 1,
2002 and as Chief Financial Officer from May 1994 until July 1, 2002. 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.
Kevin J. Bratton began serving as the Company's Chief Financial Officer on July
1, 2002. Mr. Bratton was employed as the Chief Financial Officer of The JPM
Company, a company that manufactured wire and cable assemblies at various
locations throughout the world, from June 2000 through June 2002. The JPM
Company filed a Chapter 11 petition in the United States Bankruptcy Court for
the District of Delaware on March 1, 2002. From July 1999 to May 2000, Mr.
Bratton was the Director of External Reporting at The JPM Company. Prior to
joining JPM, Mr. Bratton was a Vice President and Treasurer of IGI, Inc., a
manufacturer of poultry biologics and veterinary pharmaceuticals.
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.
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.
Benny A. Noens served as the Company's European Sales Manager from 1991 to 1993
and has served as Vice President, European Sales since 1994. In addition, Mr.
Noens has been Managing Director of Metrologic Instruments GmbH since 1994.
From 1980 until 1991, Mr. Noens held several positions with Data General
Corporation, including serving in Latin America as Marketing and Distribution
Manager. Prior to his employment at Data General, Mr. Noens managed a division
of C.T. Janer Co., an import/export company located in Rio de Janiero, Brazil.
John L. Patton served as the Company's Human Resources Manager from 1993 to
1996 and has served as Director, Human Resources since December 1996. From 1988
to 1993, he was employed as a Human Resources Consultant with the Gordon Wahls
Company and from 1984 to 1988, he was employed as Human Resources Manager at
TRW, IRC Division. From 1979 to 1984 he held the position of Personnel Manager
at Oral B Laboratories.
Joseph Sawitsky has served as the Company's Vice President, Manufacturing since
November 1999. He joined Metrologic in 1998 as the Production Manager. After
serving in the Nuclear Submarine Force, he worked at ICI Composites from 1990
to 1994 and manufactured specialty polymer materials for the aerospace and
industrial markets. From 1994 to 1998 he held several positions with Zenith
Electronic Corporation making consumer electronic equipment.
Mark C. Schmidt has served as the Company's Vice President, Marketing since
November 1999. He has been employed by Metrologic since 1992. During his
tenure, Mr. Schmidt has progressed from Optical Engineer to the position of POS
Product Manager in 1995, and Marketing Manager in 1997. Mr. Schmidt earned a
B.S. from Rowan University where he graduated summa cum laude in 1993.
Nancy A. Smith has served as the Company's Vice President, General Counsel
since March 2002. Ms. Smith joined the Company in 1996 as its Corporate Counsel
and patent attorney. Prior to joining Metrologic, Ms. Smith was employed as a
patent attorney for a private law firm in Baltimore, Maryland. Ms. Smith earned
her law degree from the University of Baltimore, where she graduated magna cum
laude in 1994.
Jeffrey Yorsz has served as the Vice President, Industrial Systems since March
2002. Mr. Yorsz also serves as President and General Manager of Adaptive Optics
Associates, Inc. , a wholly owned subsidiary of Metrologic Instruments, Inc.,
since its acquisition in January 2001. He joined AOA as an engineer in 1984 and
has held prior positions of Manager of Electrical Engineering and Assistant
General Manager of the company. Mr. Yorsz earned an E.E., B.S. and M.S. in
Electrical Engineering as well as a B.S. in Management, from M.I.T.
PART II
Item 5. Market for the Registrant's Common Equity and Related Shareholder
Matters
The common stock of the Company, par value $.01 per share ("Common Stock") is
traded on The NASDAQ Stock Market's National Market System under the symbol
"MTLG." The following table sets forth, for the indicated periods, the high and
low sales prices of the Company's Common Stock as reported by NASDAQ:
High Low
------- -----
January to March 2001 $ 11.63 $ 7.00
April to June 2001 $ 10.50 $ 7.95
July to September 2001 $ 10.20 $ 5.85
October to December 2001 $ 13.40 $ 6.00
January to March 2002 $ 8.65 $ 5.80
April to June 2002 $ 7.35 $ 5.90
July to September 2002 $ 6.38 $ 3.70
October to December 2002 $ 8.80 $ 4.71
On March 14, 2003 there were 142 shareholders of record of Common Stock.
The Company currently anticipates that it will retain all of its earnings to
finance the operation and expansion of its business. The Company has not paid
any cash dividends on its common stock during the past two years and does not
intend to do so 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.
EQUITY COMPENSATION PLAN INFORMATION
(As of December 31, 2002)
Plan category Number of Weighted-average Number of
securities to exercise price of securities
be issued outstanding options, remaining
upon exercise warrants and rights available for
of outstanding future issuance
options, under equity
warrants and compensation plans
rights (excluding
securities
reflected in
column (a))
(a) (b) (c)
- -------------------------------------------------------------------------------
Equity compensation
plans approved by
security holders 1,600,000 $9.04 329,000
Equity compensation
plans not approved
by security holders - - -
Total 1,600,000 $9.04 329,000
Item 6. Selected Consolidated Financial Data
(in thousands except share and per share data)
(certain reclassifications have been made to prior year balances in order to
conform to the 2002 presentation)
Year Ended December 31,
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
Statement of Operations Data:
Sales $ 65,641 $ 80,103 $ 91,884 $ 113,688 $ 117,116
Cost of sales 39,698 46,710 55,394 83,527 74,385
--------- -------- --------- --------- ---------
Gross profit 25,943 33,393 36,490 30,161 42,731
Selling, general and
administrative expenses 15,537 21,331 26,314 32,554 29,581
Research and development
expenses 4,157 4,327 4,975 6,563 6,929
Severance costs - - 160 - 602
--------- --------- --------- -------- ---------
Operating income (loss) 6,249 7,735 5,041 (8,956) 5,619
Other income (expense),
net 456 (202) (878) (3,596) (2,917)
--------- --------- --------- -------- ---------
Income (loss) before
provision (benefit)
for income taxes 6,705 7,533 4,163 (12,552) 2,702
Provision (benefit) for
income taxes 2,212 2,636 1,426 (4,775) 1,027
--------- --------- --------- --------- --------
Reported net income
(loss) $ 4,493 $ 4,897 $ 2,737 $ (7,777) $ 1,675
Add back: Goodwill
amortization 19 24 102 818 -
Adjusted net income
(loss) $ 4,512 $ 4,921 $ 2,839 $ (6,959) $ 1,675
========= ========= ========= ========= ========
Basic earnings (loss) per
share
Weighted average shares
outstanding used in
computing basic EPS 5,391,797 5,412,564 5,438,553 5,457,806 5,466,664
========= ========= ========= ========= =========
Basic earnings (loss) per share:
Reported net income
(loss) $ 0.83 $ 0.90 $ 0.50 $ (1.42) $ 0.31
Goodwill amortization 0.01 0.01 0.02 0.15 -
--------- --------- --------- --------- ---------
Adjusted net income
(loss) $ 0.84 $ 0.91 $ 0.52 $ (1.27) $ 0.31
========= ========= ========= ========= =========
Diluted earnings (loss)
per share
Weighted average shares
outstanding used in
computing diluted EPS 5,512,758 5,460,194 5,557,992 5,457,806 5,490,407
========= ========= ========= ========= =========
Diluted earnings (loss) per share:
Reported net income
(loss) $ 0.82 $ 0.90 $ 0.49 $ (1.42) $ 0.31
Goodwill amortization - - 0.02 0.15 -
--------- --------- --------- --------- ---------
Adjusted net income
(loss) $ 0.82 $ 0.90 $ 0.51 $ (1.27) $ 0.31
========= ========= ========= ========= =========
Year Ended December 31,
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
Balance Sheet Data:
Cash and cash equivalents $ 10,684 $ 6,970 $ 2,332 $ 557 $ 1,202
Working capital $ 22,272 $ 24,844 $ 42,472 $ 20,606 $ 12,309
Total assets $ 46,080 $ 56,375 $ 81,447 $ 85,773 $ 74,252
Long-term debt $ 2,608 $ 3,414 $ 25,334 $ 27,465 $ 14,431
Other long-term
obligations $ 1,452 $ 1,773 $ 1,994 $ 2,728 $ 3,480
Total liabilities $ 16,079 $ 21,831 $ 45,684 $ 59,512 $ 44,781
Common stock $ 54 $ 54 $ 54 $ 55 $ 55
Total shareholders'
equity $ 30,001 $ 34,544 $ 35,763 $ 26,261 $ 29,471
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
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.
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: (i) 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; (ii) continued or increased competitive pressure which
could result in reduced selling prices of products or increased sales and
marketing promotion costs; (iii) 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; (iv)
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; (v) 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, Chinese renminbi and British pound affecting
the Company's results of operations; (vi) the effects of and changes in trade,
monetary and fiscal policies, laws; regulations and other activities of
government; 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; (vii)
continued or prolonged capacity constraints that may hinder the Company's
ability to deliver ordered product to customers; (viii) 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; (ix) the costs and potential outcomes of legal proceedings or
assertions by or against the Company relating to intellectual property rights
and licenses; (x) the Company's ability to successfully defend against
challenges to its patents and the ability of the Company to develop products
which avoid infringement of third parties' patents; (xi) 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; (xii) and the potential impact of terrorism and
international hostilities.
All forward-looking statements included herein are based upon information
presently available, and the Company assumes no obligation to update any
forward-looking statements.
Critical Accounting Policies
The preparation of the Company's financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period.
On an on-going basis, management evaluates its estimates and judgments,
including those related to revenue recognition, asset impairment, intangible
assets and inventory and accounts receivable. Management bases its estimates
and judgments on historical experience and on various other factors that are
believed to be reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results
may differ from these estimates under different assumptions or conditions. Note
2 to the Company's consolidated financial statements, "Accounting Policies",
summarizes each significant accounting policy. Management believes the
following critical accounting policies, among others, affect its more
significant judgments and estimates used in the preparation of its consolidated
financial statements.
Revenue Recognition. Revenue related to sales of the Company's products and
systems is generally recognized when products are shipped or services are
rendered, the title and risk of loss has passed to the customer, the sales
price is fixed or determinable, and collectibility is reasonably assured. The
Company accrues related product return reserves and warranty expenses at the
time of sale. Additionally, the Company records estimated reductions to revenue
and charges to sales, general and administrative expenses for customer programs
and incentive offerings including special pricing agreements, price protection,
promotions and other volume-based incentives. The Company recognizes revenue
and profit as work progresses on long-term contracts using the percentage of
completion method, which relies on estimates of total expected contract revenue
and costs. Recognized revenues and profits are subject to revisions as the
contract progresses to completion. Revisions in profit estimates are charged to
income in the period in which the facts that give rise to the revision become
known.
Bad Debt. The Company maintains allowances for doubtful accounts for estimated
losses resulting from the inability of its customers to make required payments.
If the financial condition of the Company's customers were to deteriorate,
resulting in an impairment of their ability to make payments, additional
allowances may be required.
Inventory. The Company writes down its inventory for estimated obsolescence or
unmarketable inventory equal to the difference between the cost of the
inventory and the estimated market value, less disposal costs, based upon
assumptions about future demand and market conditions. If actual market
conditions are less favorable than those projected by management, additional
inventory writedowns may be required.
Goodwill. Goodwill represents the excess of the cost of businesses acquired
over the fair value of the related net assets at the date of acquisition. In
accordance with Statement of Financial Accounting Standards No. 142, "Goodwill
and Other Intangible Assets", the Company no longer amortizes goodwill, but
tests for impairment of goodwill using a discontinued cash flow analysis.
Long-Lived Assets. The Company assesses the impairment of its long-lived
assets, other than goodwill, including property, plant and equipment,
identifiable intangible assets and software development costs whenever events
or changes in circumstances indicate the carrying value may not be recoverable.
Factors the Company considers important which could trigger an impairment
review include significant changes in the manner of our use of the acquired
asset, changes in historical or projected operating performance and significant
negative economic trends.
Research and Development/Software Development Costs. The Company expenses all
research and development costs as incurred. Research and development expenses
may fluctuate due to the timing of expenditures for the varying states of
research and product development and the availability of capital resources. The
Company capitalizes costs incurred for internally developed product software
where economic and technological feasibility has been established and for
qualifying purchased product software. The Company assesses the recoverability
of its software development costs against estimated future revenue over the
remaining economic life of the software.
Impact of Recently Issued Accounting Standards. In April 2002, the FASB issued
Statement No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment
of FASB Statement No. 13, and Technical Corrections." In addition to other
technical provisions, this Statement requires all gains and losses from the
extinguishment of debt to be included as an item of income from continuing
operations. The provisions of this statement will be adopted by the Company on
January 1, 2003.
In July 2002, the FASB issued Statement No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". This statement nullifies EITF
Issue No. 94-3, "Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred
in a Restructuring)." SFAS 146 requires that a liability for a cost associated
with an exit or disposal activity be recognized when the liability is incurred.
Under Issue 94-3, certain liabilities were recognized at the date of an
entity's commitment to an exit plan. The provisions of this Statement will be
adopted by the Company for exit or disposal activities initiated after December
31, 2002.
Results of Operations
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 are
manufactured in the Company's U.S. facility and, therefore, sales and results
of operations are affected by fluctuations in the value of the U.S. dollar
relative to foreign currencies. Manufacture of the Company's POS products in
its Suzhou, China facility accounted for approximately 38% of POS unit sales in
2002. This percentage is expected to increase in 2003, which will partially
mitigate the negative impact on Company profits of foreign exchange rate
fluctuation with reduced labor costs for the Company's POS scanners. In 2001
and 2000, sales and gross profit were adversely affected by the continuing rise
in the value of the U.S. dollar in relation to foreign currencies. In 2002, the
strengthening of the euro against the U.S. dollar favorably impacted sales and
gross profit, most significantly in the fourth quarter.
Year Ended December 31, 2002 Compared with Year Ended December 31, 2001
(dollars in thousands except per share information)
Sales increased 3.0% to $117,116 in 2002 from $113,688 in 2001. The increase
was primarily attributable to higher sales of Metrologic's point-of-sale
("POS") and original equipment manufacturers ("OEM") products. Industrial
products revenues in 2002 approximated 2001 revenues for these products. Sales
of POS and OEM products in North America increased 25% in 2002 due primarily to
increased POS sales to major retail customers. Sales of POS and OEM products in
the Far East increased by 55% in 2002 due primarily to increased demand for the
Company's POS products in China. These increases, however, were partially
offset by decreased sales in Europe due to lower unit demand resulting from the
recession in Europe. The Company did benefit from the strengthening of the euro
against the U.S. dollar during 2002. Sales of products billed in euros were
down 15% from the prior year, while the decrease in dollars was 11%.
International sales accounted for $60,737 (51.9% of total sales) in 2002 and
$62,924 (55% of total sales) in 2001. No individual customer accounted for 10%
or more of revenues in 2002 or 2001.
Cost of sales decreased 10.9% to $74,385 in 2002 from $83,527 in 2001. As a
percentage of sales, cost of sales was 63.5% in 2002 compared with 73.5% in
2001. Cost of sales in 2001 included $10,040 of special charges and other costs
that are not expected to recur in subsequent periods 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
previously been capitalized by the Company. Cost of sales in 2002 compared to
2001, excluding the $10,040 of special charges and other costs, increased by
$898, or 1.2%. As a percentage of sales, costs of sales, excluding the special
charges, was 64.6% in 2001 as compared with 63.5% in 2002. The decrease is
attributable to increased unit production in the Company's Suzhou facility
resulting in reduced labor costs, reduced direct labor costs as a result of the
workforce reductions that occurred in March and April 2002, and lower freight
costs, partially offset by increased sales of lower margin non-Metrologic
manufactured products. The Company also incurred lower royalty costs in 2002
due to a reduction in the number of products covered by the agreement between
Symbol Technologies, Inc. and the Company. (See Note 11 to the Consolidated
Financial Statements, Commitments and Contingencies).
Selling, general and administrative ("SG&A") expenses decreased $2,973, or
9.1%, to $29,581 in 2002 from $32,554 in 2001. As a percentage of sales, SG&A
expenses were 25.3% in 2002 as compared with 28.6% in 2001. The decrease was
due primarily to reduced marketing and promotion expenses, lower personnel
costs as a result of workforce reductions, and the absence of goodwill
amortization expense in 2002 in accordance with Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets." The
reduction in 2002 was partially offset by increased legal expenses in 2002 and
$732 of expenses related to the Amended Credit Agreement. (See Liquidity and
Capital Resources, below).
Research and development ("R&D") expenses increased 5.6% to $6,929 in 2002 from
$6,563 in 2001, and increased as a percentage of sales to 5.9% from 5.8%. The
increase in R&D expenses was the result of expanded R&D efforts focused on the
development of the Company's iQ180 camera-based acquisition vision system.
Severance costs of $602 in 2002 were due to workforce reductions in March and
April and further workforce reductions in August and September 2002.
Net interest expense decreased by 29.6% from $3,890 in 2001 to $2,739 in 2002.
The decrease is due to lower outstanding borrowings in 2002. Interest expense
in 2002 includes $128 of additional 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.
Other income/expense reflects net other expenses of $178 in 2002 compared to
net other income of $294 in 2001. The increase in other expenses was due in
part to foreign currency transaction losses of $132 in 2002 as compared with
transaction gains of $432 in 2001.
Net income was $1,675 in 2002 compared with a net loss of $7,777 in 2001. Net
income (loss) reflects a 38% effective income tax rate in 2002 and 2001.
Year Ended December 31, 2001 Compared with Year Ended December 31, 2000
(dollars in thousands except per share information)
Sales increased 23.7% to $113,688 in 2001 from $91,884 in 2000, principally as
a result of the addition of sales of AOA. Sales in 2001 were adversely affected
by lower industrial scanner volume and by lower average unit selling prices on
certain POS products compared to the corresponding period in 2000, which were
mostly due to unfavorable foreign exchange fluctuations. The increase in the
value of the U.S. dollar relative to the euro negatively affected the recorded
U.S. dollar value of year-to-date European operation sales by approximately
3.3% and consolidated sales were affected by the increased value of the U.S.
dollar relative to other foreign currencies, namely the euro and Brazilian real
by approximately 2.6% as compared to 2000. In the first quarter of 2001, the
Company instituted a price increase in Europe to mitigate the unfavorable
foreign currency effect.
International sales accounted for $62,924 (55% of total sales) in 2001 and
$55,168 (60% of total sales) in 2000. No individual customer accounted for 10%
or more of revenues in 2001 or 2000.
Cost of sales increased 50.8% to $83,527 in 2001 from $55,394 in 2000, while
costs of sales as a percentage of sales increased to 73.5% from 60.3%. In
addition to the increased costs of sales associated with the acquisition of
AOA, cost of sales for 2001 included $10,040 of special charges and other costs
that are not expected to recur in subsequent years as discussed above. Further,
cost of sales as a percentage of sales during the year ended December 31, 2001
was negatively impacted by lower average unit selling prices due substantially
to the increase in the value of the U.S. dollar relative to other foreign
currencies as compared to the corresponding period in 2000.
Selling, general and administrative ("SG&A") expenses increased 23.7% to
$32,554 in 2001 from $26,314 in 2000 and remained constant as a percentage of
sales at 28.6%. The increase in SG&A expenses was due primarily to the addition
of AOA expenses, including related goodwill amortization, increased legal costs
associated with defending the Company's patents and charges for uncollectible
accounts receivable.
Research and development ("R&D") expenses increased 31.9% to $6,563 in 2001
from $4,975 in 2000, and increased as a percentage of sales to 5.8% from 5.4%.
The increase in R&D expenses is due primarily to the addition of AOA expenses.
Other income/expenses reflect net other expenses of $3,596 in 2001 compared to
$878 in 2000. Net other expenses for 2001 reflect higher net interest due to
the acquisition of AOA and associated debt.
Net loss was $7,777 in 2001 compared with net income of $2,737 in 2000. Net
loss reflects a 38% effective income tax rate for 2001 compared to 34% for
2000. The increased effective income tax rate resulted from a higher effective
state tax rate of AOA. As a result of the net operating losses incurred in 2001
an income tax receivable of $4,600 has been recorded as a result of the net
operating losses to previous years in which the Company reported taxable
income. The increase in the value of the U.S. dollar relative to other foreign
currencies compared to 2000 negatively affected diluted earnings per share by
approximately $.22 per share.
Inflation and Seasonality
Inflation and seasonality have not had a material impact on the Company's
results of operations. There can be no assurance, however, that the Company's
sales in future years will not be impacted by fluctuations in seasonal demand.
Liquidity and Capital Resources (amounts in thousands)
The Company's working capital decreased approximately 40.3% to $12,309 as of
December 31, 2002 from $20,606 as of December 31, 2001. The Company's operating
activities provided net cash of $19,997 in 2002 and $15,357 for 2001 for a
total of approximately $35,000 for the 24-month period. The Company's working
capital was impacted due to the generation of cash from operations, income tax
refunds and reduction of inventory levels and using those funds to pay down the
Company's revolving credit facility and term note.
In connection with the acquisition of AOA on January 8, 2001, the Company
entered into a $45,000 credit facility with its primary bank, as agent for
other bank parties. Under the terms of the Credit Facility, the Company secured
a $20,000 term loan with original maturities of $2,000 in 2001, $3,000 in 2002
and 2003, and $4,000 in 2004, 2005 and 2006, respectively. As of December 31,
2001, the balance outstanding was $18,000. In connection with the Credit
Facility, the Company secured a $25,000 revolving credit line, originally
expiring in January 2006. Proceeds from the Credit Facility were applied
towards the financing of the acquisition of AOA, paying down the existing term
loans and line of credit, and providing working capital for the Company and its
subsidiaries. As of December 31, 2001, the balance outstanding was $11,433. 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 Credit
Facility. A portion of the outstanding borrowings under the Credit Facility was
guaranteed by C. Harry and Janet Knowles.
On December 31, 2001, the Company was in violation of certain provisions and
covenants included in the Credit Facility and on April 9, 2002 the banks issued
a notice of default and increased the interest rate by 2% on the outstanding
debt in accordance with the agreement.
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 included the waiver of
all existing defaults under the Credit Facility and the withdrawal by the banks
of the notice of default that had been previously issued to the Company. The
Company granted a security interest in its assets and properties to the
Company's primary bank in favor of the banks as security for borrowings under
the Amended Credit Agreement. The Amended Credit Agreement contained various
negative and positive covenants, such as minimum tangible net worth
requirements, and a scheduled expiration date of May 31, 2003. Pursuant to the
terms of the Amended Credit Agreement, a portion of the outstanding borrowings
under the Amended Credit Agreement was guaranteed by C. Harry Knowles and Janet
Knowles.
The Amended Credit Agreement also included a revolving credit facility of
$14,000. Amounts available for borrowing under this facility were 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 expired on January 1, 2003. The Amended Credit Agreement
required the daily application of Company receipts as payments against the
revolving credit facility and daily borrowings to fund cash requirements.
Interest on outstanding borrowings was at the bank's prime rate plus 2.5%, and
the agreement provides for a commitment fee of .5% on the unused facility.
Additionally, in connection with the Amended Credit Agreement, certain
directors and executive officers made loans to the Company, which amounts were
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
bore interest at a rate of nine percent (9%) per annum and were repaid in full
by the Company in February 2003.
On January 31, 2003, the Company executed an Amendment (the "Amendment") to the
Amended Credit Agreement. The Amendment, which extends the Amended Credit
Agreement until January 31, 2006, provides for a $13,000 revolving credit
facility and a $4,500 term loan. Principal payments on the term loan are $94 a
month commencing in March 2003 with the balance due at maturity. The interest
rates under the Amendment are prime plus .25% on borrowings under the revolving
credit facility and prime plus .75% on the term loan. The Company has the
option to select LIBOR rate interest plus spreads ranging from 3.00% to 3.50%.
The Amendment lowers the commitment fee to .25% on the unused facility.
Beginning with the year ending December 31, 2003, the Company could be required
to make additional prepayments under the Amendment upon the occurrence of
certain events or if there is excess cash flow, both as defined in the
Amendment. The Amendment contains various negative and positive covenants
including minimum tangible net worth requirements and fixed charge coverage
ratios. The security interest in the Company's assets and properties granted to
the bank pursuant to the Amended Credit Agreement remains in effect under the
Amendment. The Amendment requires the daily application of Company receipts as
payments against the revolving credit facility and daily borrowings to fund
cash requirements. In connection with the Amendment, the personal guarantees of
the Knowles were released.
In addition to the revolving credit facility provided by the Amended Credit
Facility, in 2002 the Company entered into recourse factoring or invoice
discounting agreements with several local banks in Europe. These agreements
provide the Company with availability of up to $5,770, using December 31, 2002
exchange rates at interest rates ranging from 3.45% to 6.75%. At December 31,
2002, $1,331 was outstanding under such agreements and is included in lines of
credit.
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 $9,000 in 2003 and $1,000 in 2004 and 2005. Interest rates
are fixed at 10%. In January 2003, the Company and UTOS entered into a Payoff
Agreement to accelerate the principal payments on the Subordinated Debt. In
accordance with the Payoff Agreement, the Company paid UTOS $5,000 on January
31, 2003 and the Company will earn a $2,200 discount on the Subordinated Debt
if it pays an additional $3,800 to UTOS on or before April 1, 2003. Under the
terms of the Amended Credit Agreement and the Amendment, the Company cannot
make principal payments on the Subordinated Debt if such payment results in a
default under the Amended Credit Agreement.
In January 2003, the Company entered into a $4,260 subordinated note payable
with C. Harry Knowles, its Chairman and CEO and his spouse, Janet Knowles, a
Director and Vice President, Administration. The subordinated note bears
interest at 10% and requires 60 monthly principal payments of $36 with the
balance of $2,130 due in January 2008. In connection with this note, the
Company issued warrants to Mr. and Mrs. Knowles to purchase 65,000 shares of
its common stock at an exercise price of $10.41 expiring on January 31, 2013.
These warrants have been valued at approximately $250, and the resulting
original issue discount will be amortized into interest expense over the life
of the subordinated note payable.
Property, plant & equipment expenditures were $1,660 and $2,208 in 2002 and
2001, respectively. During 2002, the Company continued expenditures related to
manufacturing automation and capacity expansion. The Company's current plan for
future capital expenditures include: (i) investment and expansion of the
Company's Suzhou, China facility; (ii) continued investment in manufacturing
capacity expansion at the Blackwood, NJ headquarters; and (iii) additional
manufacturing automation equipment and IT related equipment.
The Company's liquidity has been, and may continue to be, adversely affected by
changes in foreign currency exchange rates, particularly the value of the U.S.
dollar relative to the Euro, 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. 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. No derivative
instruments were outstanding at December 31, 2002.
The Company's 51% joint venture interests in Metrologic Eria Iberica and
Metrologic Eria France contain options for the Company to purchase the
remaining 49% minority interests. The purchase option is calculated based on a
twelve month multiple of sales and provides the Company with a twelve month
period in which to find a buyer or negotiate a purchase price with a default
minimum. In March 2002, the minority shareholders in Metrologic Eria Iberica
provided notice of their intent to sell their 49% interests and the purchase
price under the default minimum is estimated at 5,300 euros or $5,511 at
December 31, 2002. It is expected that payments will be made over 3 years
commencing July 1, 2003. Notice has not been received concerning the minority
interest in France.
Disclosures about Contractual Obligations and Commercial Commitments
Less
than 1 1-3 4-5 After
Contractual Obligations Total Year Years Years 5 Years
- ----------------------- ----- ---- ----- ----- -----
Long-Term Debt 19,947 5,630 11,726 2,591 -
Capital Lease Obligations 192 78 114 - -
Operating Leases 13,361 2,457 5,690 2,808 2,406
Option to purchase minority
interest in joint venture 5,511 5,511 - - -
--------- ------- -------- ------- ---------
Total Contractual Cash
Obligations $ 39,011 $13,676 $ 17,530 $5,399 $ 2,406
========= ======= ======== ====== ========
Total Less
Amounts than 1 1-3 4-5 Over 5
Other Commercial Commitments Committed Year Years Years Years
- ---------------------------- --------- ---- ----- ----- -----
Lines of Credit $ 1,347 $1,347 $ - $ - $ -
======== ====== ====== ===== =====
Item 7a - Quantitative and Qualitative Disclosures about Market Risk
(amounts in thousands)
Market Risk Sensitive Instruments. The market risk inherent in the Company's
market risk sensitive instruments and position is the potential loss arising
from adverse changes in foreign currency exchange rates and interest rates.
Interest Rate Risk. The Company's bank loans expose earnings to changes in
short-term interest rates since interest rates on the underlying obligations
are either variable or fixed for such a short period of time as to effectively
become variable. The fair values of the Company's bank loans are not
significantly affected by changes in market interest rates. The impact on
earnings of a hypothetical 10% decrease in interest rates on the Company's
long-term debt would have been approximately $172 and $300 in 2002 and 2001,
respectively.
Foreign Exchange Risk. The Company enters into forward foreign exchange
contracts principally to hedge the currency fluctuations in transactions
denominated in foreign currencies, namely the Euro, thereby mitigating the
Company's risk that would otherwise result from changes in exchange rates.
Principal transactions hedged are intercompany sales and payments. Gains and
losses on forward foreign exchange contracts and the offsetting losses and
gains on hedged transactions are reflected in the Company's statement of
operations. A large percentage of the Company's foreign sales are transacted in
foreign local currencies. As a result, the Company's international operating
results are subject to foreign exchange rate fluctuations. A hypothetical 10%
percent strengthening or weakening of the U.S. dollar against the Euro could
have had an impact of $132 and $50 on the net earnings of the Company in 2002
and 2001, respectively. Actual results may differ.
The Company is subject to risk from fluctuations in the value of the Euro
relative to the U.S. dollar for its European subsidiaries, which uses the Euro
as its functional currency and translated into U.S. dollars in consolidation.
Such changes result in cumulative translation adjustments which are included in
other comprehensive income (loss). At December 31, 2002, the Company had
translation exposure. The potential effect on other comprehensive income (loss)
resulting from a hypothetical 10% change in the quoted Euro rate amounts to
$891 and $717 in 2002 and 2001, respectively. Actual results may differ.
In addition, the Company holds debt denominated in euros at December 31, 2002,
and recognizes foreign currency translation adjustments in net income. The
potential loss resulting from a hypothetical 10% adverse change on the quoted
euro rate is approximately $891 in 2002. Actual results may differ.
Item 8. Financial Statements and Supplementary Data
Index Pages
Report of Ernst & Young LLP, Independent Auditors F-1
Consolidated Balance Sheets at December 31, 2002 and 2001 F-2
Consolidated Statements of Operations for each of the three years
in the period ended December 31, 2002, 2001 and 2000 F-3
Consolidated Statements of Shareholders' Equity for each of the
three years in the period ended December 31, 2002, 2001 and 2000 F-4
Consolidated Statements of Cash Flows for each of the three
years in the period ended December 31, 2002, 2001 and 2000 F-5
Notes to Consolidated Financial Statements F-6
Supplementary Data F-25
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. F-27
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, 2002 and 2001, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 2002. Our audits also
included the financial statement schedule listed in the Index at Item 15(a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Metrologic
Instruments, Inc. at December 31, 2002 and 2001, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 2002, in conformity with accounting principles generally
accepted in the United States. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
As discussed in Note 2 to the consolidated financial statements, in 2002 the
Company changed its method of accounting for goodwill and its related
amortization.
/s/Ernst & Young LLP
Philadelphia, Pennsylvania
February 12, 2003, except for the fifth paragraph of
Note 8, and the second and last paragraphs of Note
10, as to which the date is February 28, 2003
Metrologic Instruments, Inc.
Consolidated Balance Sheets
(amounts in thousands except share data)
December 31,
2002 2001
---- ----
Assets
Current assets:
Cash and cash equivalents $ 1,202 $ 557
Restricted cash 1,000 3,200
Accounts receivable, net of allowance of
$341 and $422 in 2002 and
2001, respectively 20,412 20,401
Income tax refund receivable - 4,600
Inventory 14,039 18,385
Deferred income taxes 268 1,013
Other current assets 2,258 1,769
--------- --------
Total current assets 39,179 49,925
Property, plant and equipment, net 12,600 13,776
Patents and trademarks, net of amortization
of $1,573 and $1,239 in 2002 and 2001,
respectively 4,688 4,062
Holographic technology, net of amortization
of $714 and $598 in 2002 and 2001, respectively 368 484
Advance license fee, net of amortization of $706
and $588 in 2002 and 2001, respectively 1,294 1,412
Goodwill 15,175 15,249
Deferred income taxes 190 -
Other assets 758 865
-------- --------
Total assets $ 74,252 $ 85,773
======== ========
Liabilities and shareholders' equity Current liabilities:
Current portion of lines of credit $ 1,347 $ 2,433
Current portion of notes payable 5,708 10,833
Accounts payable 8,719 6,930
Accrued expenses 9,389 9,123
Deferred contract revenue 1,707 -
-------- --------
Total current liabilities 26,870 29,319
Lines of credit, net of current portion - 9,000
Notes payable, net of current portion 14,431 18,465
Deferred income taxes - 250
Other liabilities 3,480 2,478
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; 5,472,555 and 5,463,382
shares issued and outstanding in 2002
and 2001, respectively 55 55
Additional paid-in capital 17,688 17,634
Retained earnings 14,601 12,926
Accumulated other comprehensive loss (2,873) (4,354)
-------- --------
Total shareholders' equity 29,471 26,261
-------- --------
Total liabilities and shareholders' equity $ 74,252 $ 85,773
======== ========
See accompanying notes.
Metrologic Instruments, Inc.
Consolidated Statements of Operations
(amounts in thousands except share and per share data)
Year ended December 31,
2002 2001 2000
---- ---- ----
Sales $ 117,116 $ 113,688 $ 91,884
Cost of sales 74,385 83,527 55,394
--------- --------- ---------
Gross profit 42,731 30,161 36,490
Selling, general and
administrative expenses 29,581 32,554 26,314
Research and development expenses 6,929 6,563 4,975
Severance costs 602 - 160
--------- --------- ---------
Operating income (loss) 5,619 (8,956) 5,041
Other income (expenses)
Interest income 85 174 257
Interest expense (2,824) (4,064) (1,482)
Foreign currency transaction
(loss) gain (132) 432 530
Other, net (46) (138) (183)
--------- --------- ---------
Total other expenses (2,917) (3,596) (878)
--------- --------- ---------
Income (loss) before
income taxes 2,702 (12,552) 4,163
Provision (benefit) for income
taxes 1,027 (4,775) 1,426
--------- --------- ---------
Net income (loss) $ 1,675 $ (7,777) $ 2,737
========= ========= =========
Basic earnings (loss) per share:
Weighted average shares
outstanding 5,466,664 5,457,806 5,438,553
========= ========= =========
Basic earnings (loss) per
share 0.31 (1.42) 0.50
========= ========= =========
Diluted earnings (loss) per share
Weighted average shares
outstanding 5,466,664 5,457,806 5,438,553
Net effect of dilutive
securities 23,743 - 119,439
--------- --------- ---------
Total shares outstanding
used in computing diluted
earnings per share 5,490,407 5,457,806 5,557,992
========= ========= =========
Diluted earnings (loss) per
share 0.31 (1.42) 0.49
========= ========= =========
See accompanying notes.
Metrologic Instruments, Inc1ZZ.
Consolidated Statements of Shareholders' Equity
(amounts in thousands)
Accumulated
Additional Other
Common Paid-in Retained Comprehensive
Stock Capital Earnings Loss Total
------ --------- -------- ------------- ---------
Balances,
January 1, 2000 $ 54 $ 17,083 $ 17,966 $ (559) $ 34,544
Comprehensive income:
Net income - - 2,737 - 2,737
Other comprehensive
loss - foreign
currency translation
adjustment - (45) - (1,997) (2,042)
---------
Total comprehensive
income - - - - 695
---------
Exercise of stock
options - 324 - - 324
Stock issued through
employee stock purchase
plan - 200 0 - 200
------ --------- -------- --------- ---------
Balances,
December 31, 2000 $ 54 $ 17,562 $ 20,703 $ (2,556) $ 35,763
Comprehensive loss:
Net loss - - (7,777) - (7,777)
Other comprehensive
loss - foreign
currency translation
adjustment - - - (1,798) (1,798)
---------
Total comprehensive loss - - - - (9,575)
---------
Exercise of stock
options - - - - -
Stock issued through
employee stock purchase
plan 1 72 - - 73
------ --------- -------- --------- ---------
Balances,
December 31, 2001 $ 55 $ 17,634 $ 12,926 $ (4,354) $ 26,261
Comprehensive income:
Net income - - 1,675 - 1,675
Other comprehensive
income - foreign
currency translation
adjustment - - - 1,481 1,481
---------
Total comprehensive
income - - - - 3,156
---------
Stock issued through
employee stock purchase
plan - 54 - - 54
------ --------- -------- --------- ---------
Balances,
December 31, 2002 $ 55 $ 17,688 $ 14,601 $ (2,873) $ 29,471
====== ========= ======== ========= =========
See accompanying notes.
Metrologic Instruments, Inc.
Consolidated Statements of Cash Flows
(amounts in thousands)
Year ended December 31,
2002 2001 2000
---- ---- ----
Operating activities
Net income (loss) $ 1,675 $ (7,777) $ 2,737
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)
operating activities:
Depreciation 2,785 3,019 1,957
Amortization 570 2,044 594
Deferred income taxes (429) (4,619) (460)
Loss on disposal of property 164 143 112
Changes in operating assets
and liabilities:
Accounts receivable 550 10,089 (4,187)
Inventory 4,883 12,024 (11,628)
Other current assets 4,111 2,126 (2,487)
Other assets 107 86 217
Accounts payable 1,618 604 (3,457)
Accrued expenses 1,234 (3,432) 524
Other liabilities 2,709 1,050 (242)
--------- --------- ---------
Net cash provided by (used in)
operating activities 19,977 15,357 (16,320)
Investing activities
Purchase of property, plant
and equipment $ (1,660) $ (2,208) $ (3,479)
Patents and trademarks (962) (1,317) (750)
Decrease (increase) in
restricted cash 2,200 (3,200) -
Cash paid for purchase of business,
net of cash acquired - (10,393) (3,677)
Other intangibles - (253) (284)
--------- --------- --------
Net cash used in investing
activities (422) (17,371) (8,190)
Financing activities
Proceeds from exercise of
stock options and employee
stock purchase plan $ 54 $ 73 $ 479
Principal payments on
notes payable (18,712) (12,649) (1,287)
Proceeds from issuance of
notes payable 2,054 9,239 7,002
Net (repayments) or borrowings
on line of credit (2,429) 4,743 14,811
Capital lease payments (158) (80) (106)
--------- --------- --------
Net cash (used in) provided by
financing activities (19,191) 1,326 20,899
Effect of exchange rates on cash 281 (1,087) (1,027)
--------- --------- --------
Net increase (decrease) in cash
and cash equivalents 645 (1,775) (4,638)
Cash and cash equivalents
at beginning of year 557 2,332 6,970
--------- --------- --------
Cash and cash equivalents
at end of year $ 1,202 $ 557 $ 2,332
========= ========= ========
Supplemental Disclosure
Cash paid for interest 2,774 3,913 1,448
========= ========= ========
Cash paid for income taxes 194 112 1,243
========= ========= ========
Tax benefit from exercise
of stock options $ - $ - $ 120
========= ========= ========
See accompanying notes.
Metrologic Instruments, Inc.
Notes to Consolidated Financial Statements
December 31, 2002
(Dollars in Thousands, except per share data)
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
Basis of Consolidation
The accompanying consolidated financial statements include the accounts of
Metrologic Instruments, Inc., and its domestic and foreign subsidiaries. All
significant intercompany transactions and balances have been eliminated in
consolidation.
Use of Estimates
The preparation of the financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Revenue Recognition
Product sales revenue and any offsetting sales incentives are recognized upon
the transfer of title to goods, which is generally upon shipment of products.
Amounts charged to customers for shipping and handling are included in sales.
Shipping and handling amounts incurred by the Company are included in cost of
sales.
Revenue Recognition - Contracts
Revenue is recognized on a percentage of completion basis (generally measured
using the cost-to-cost method) for long-term contracts and upon delivery for
short-term contracts. Cost and profit estimates are reviewed periodically as
work progresses, and adjustments to revenue recognized, if needed, are
reflected in the period in which estimates are revised. Provisions for
estimated losses, if any, on uncompleted contracts are made in the periods in
which such losses become probable and can be reasonably estimated.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
Fair Values of Financial Instruments
The carrying amounts of cash equivalents, accounts receivable and accounts
payable approximate fair value because of their short-term nature. The carrying
amount of long-term debt approximates its fair value because the interest rate
is reflective of rates that the Company could currently obtain on debt with
similar terms and conditions. The Company records an allowance for doubtful
accounts when it becomes probable that a customer will be unable to make its
required payments. Accounts receivable are written off against the allowance
for doubtful accounts when all collection efforts have been abandoned.
Inventory
Inventory is stated at the lower of cost, determined on a first-in, first-out
basis, or market.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is determined on
the straight-line method for building and improvements over estimated useful
lives of 31 to 39 years and on an accelerated method for machinery and
equipment over estimated useful lives of 5 to 15 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. Amortization expense is estimated at $368 per year in
2003 to 2007.
Holographic Technology
Holographic Technology resulted from the acquisition of Holoscan, Inc. on March
1, 1996 and is being amortized over ten years. The Company was required to pay
the former shareholders of Holoscan, Inc. $194 in 1998, which was based on
sales of certain holographic laser scanners. Such amounts were considered
additions to holographic technology and are being amortized over the remainder
of the ten-year period. Amortization expense is estimated at $116 per year in
2003 to 2005 and $20 in 2006.
Software Development Costs
Costs incurred in the research and development of new software embedded in
products and enhancements to existing software products are expensed as
incurred until technological feasibility has been established. After
technological feasibility is established, any additional development costs are
capitalized in accordance with Statement of Financial Accounting Standards No.
86, Accounting for the Costs of Computer Software to be Sold, Leased, or
Otherwise Marketed ("SFAS 86"). Capitalization ceases when the product is
available for general release to customers.
Internal Use Software
Costs incurred in the development or purchase of internal use software, other
than those incurred during the application development stage, are expensed as
incurred. Costs incurred during the application development stage are
capitalized and amortized over the estimated useful life of the software. The
Company has capitalized $1,903 of software obtained for internal use through
December 31, 2002. Capitalized software costs are amortized on a straight-line
basis over seven years. Amortization related to the capitalized software was
$303, $265 and $308 for the years ended December 31, 2002, 2001 and 2000,
respectively.
Goodwill and Other Intangible Assets
Goodwill represents the excess of the cost of businesses acquired over the fair
value of the related net assets at the date of acquisition. On January 1, 2002,
the Company adopted the provisions of Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible Assets ("SFAS 142"). SFAS 142
provides guidance on accounting for goodwill and intangible assets with
indefinite useful lives and prohibits the amortization of these assets.
Intangible assets with finite lives will continue to be amortized over their
estimated useful lives. Upon adoption and annually thereafter, intangible
assets, including goodwill, that are not subject to amortization are required
to be tested for impairment and possible writedown. The Company will test
goodwill for impairment using the two-step process prescribed in SFAS 142. The
first step is a screen for potential impairment, while the second step measures
the amount of impairment, if any. The Company uses a discounted cash flow
analysis to complete the first step in the process. The Company completed its
transitional impairment test as of January 1, 2002 and its annual impairment
test as of October 1, 2002 and determined that there was no goodwill impairment
to be recognized. See Note 6 for further information on the impact of adopting
SFAS 142.
Long-Lived Assets
The Company evaluates impairment of its intangible and other long-lived assets,
other than goodwill, in accordance with Statement of Financial Accounting
Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets ("SFAS 144") which has been adopted by the Company as of January 1,
2002. SFAS 144 provides guidance on financial accounting and reporting for the
impairment or disposal of long-lived assets and supersedes Statement of
Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of, and the
accounting and reporting provisions of Accounting Principles Bulletin Opinion
No. 30, Reporting the Results of Operations - Reporting the Effects of Disposal
of a Segment of a Business, Extraordinary, Unusual and Infrequently Occurring
Events and Transactions. When indicators of impairment exist, the Company will
compare the estimated future cash flows, on an undiscounted basis, of the
underlying operations or assets with their carrying value to determine if any
impairment exists. If impairment exists, any adjustment will be determined by
comparing the carrying amount of the impaired asset to its fair value. The
Company considers all impaired assets "to be held and used" until such time as
management commits to a plan to dispose of the impaired asset. At that time,
the impaired asset is classified as "to be disposed of" and is carried at its
fair value less its cost of disposal. No assets were determined to be impaired
in 2002 and the adoption of SFAS 144 had no affect on the Company's financial
position or its results of operations.
Advance License Fee
The Company capitalized an advance license fee of $2,000 in December 1996. The
advance license fee is being amortized on a straight-line basis over the
17-year life of the cross-licensing agreement.
Foreign Currency Translation
The financial statements of Metrologic's foreign subsidiaries have been
translated into U.S. dollars in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 52, "Foreign Currency Translation." All
balance sheet accounts have been translated using the exchange rates in effect
at the balance sheet date. Income statement amounts have been translated using
the average exchange rate for the year. The gains and losses resulting from the
changes in exchange rates from year to year have been reported separately in
other comprehensive loss in the consolidated financial statements.
Earnings Per Share
Basic and diluted earnings per share are calculated in accordance with SFAS
128, "Earnings Per Share." Basic earnings per share is calculated by dividing
net income by the weighted average shares outstanding for the year and diluted
earnings per share is calculated by dividing net income by the weighted average
shares outstanding for the year plus the dilutive effect of stock options.
Concentrations of Credit Risk
The Company has operations, subsidiaries and affiliates in the United States,
Europe, Asia and South America. The Company performs ongoing credit evaluations
of its customers' financial condition, and except where risk warrants, requires
no collateral. The Company may require, however, letters of credit or
prepayment terms for those customers in lesser- developed countries.
Short-term cash investments are placed with high credit quality financial
institutions or in short-term high quality debt securities. The Company limits
the amount of credit exposure in any one institution or single investment.
Accounting for Stock Options
The Company follows Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB 25") and related interpretations in accounting
for stock options. Under APB 25, if the exercise price of the Company's stock
options equals or exceeds the market price of the underlying common stock on
the date of grant, no compensation expense is recognized. Note 14 to these
consolidated financial statements includes the required disclosures and pro
forma information provided for under SFAS 123, "Accounting for Stock-Based
Compensation."
Derivative Financial Instruments
On January 1, 2001, the Company adopted the provisions of SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities", as amended.
SFAS No. 133 requires the recognition of all derivative instruments as either
assets or liabilities in the consolidated balance sheet measured at fair value.
Changes in fair value are recognized immediately in earnings unless the
derivative qualifies as a hedge of future cash flows. For derivatives
qualifying as cash flow hedges, the effective portion of changes in fair value
of the derivative instrument is recorded as a component of other comprehensive
income and reclassified to earnings in the same period during which the hedged
transaction affects earnings. Any ineffective portion (representing the
remaining gain or loss on the derivative instrument in excess of the cumulative
change in the present value of future cash flows of the hedged transaction) is
recognized in earnings as it occurs.
The Company formally designates and documents each derivative financial
instrument as a hedge of a specific underlying exposure as well as the risk
management objectives and strategies for entering into the hedge transaction
upon inception. The Company also assesses whether the derivative financial
instrument is effective in offsetting changes in the fair value of cash flows
of the hedged item. The Company recognized no gain or loss related to hedge
ineffectiveness in 2002 or 2001.
The Company also utilizes derivative financial instruments to hedge the risk
exposures associated with foreign currency fluctuations for payments from the
Company's international subsidiaries denominated in foreign currencies. These
derivative instruments are designated as either fair value or cash flow hedges,
depending on the exposure being hedged, and have maturities of less than one
year. Gains and losses on these derivative financial instruments and the
offsetting losses and gains on hedged transactions are reflected in the
Company's statement of operations. The Company does not use these derivative
financial instruments for trading purposes. At December 31, 2002, the Company
had no derivative financial instruments outstanding.
Impact of Recently Issued Accounting Standards
In April 2002, the FASB issued Statement No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." In addition to other technical provisions, this Statement
requires all gains and losses from the extinguishment of debt to be included as
an item of income from continuing operations. The provisions of this statement
will be adopted by the Company on January 1, 2003.
In July 2002, the FASB issued Statement No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". This statement nullifies EITF
Issue No. 94-3, "Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred
in a Restructuring)." SFAS 146 requires that a liability for a cost associated
with an exit or disposal activity be recognized when the liability is incurred.
Under Issue 94-3, certain liabilities were recognized at the date of an
entity's commitment to an exit plan. The provisions of this Statement will be
adopted by the Company for exit or disposal activities initiated after December
31, 2002.
Reclassifications
Certain reclassifications have been made to prior year balances in order to
conform to the 2002 presentation.
3. Accounts Receivable
In 2002, Metrologic Instruments GmbH, the Company's German subsidiary, entered
into a factoring agreement with a local bank to provide local financing on a
non-recourse basis. The factoring charge ranges from .52% to .62% of the
receivables assigned to the bank and outstanding advances bear interest at
6.75%. At December 31, 2002, the following amounts relating to non-recourse
factoring were included in accounts receivable:
Receivables assigned to factor $ 1,645
Less advances from factor (1,091)
------
Due from factor $ 554
======
4. Inventory
Inventory consists of the following:
December 31,
2002 2001
---- ----
Raw materials $ 5,788 $ 7,271
Work-in-process 1,865 4,144
Finished goods 6,386 6,970
------ ------
$ 14,039 $ 18,385
====== ======
5. Property, Plant and Equipment
Property, plant and equipment consists of the following:
December 31,
2002 2001
---- ----
Buildings and improvements $ 5,482 $ 5,299
Machinery and equipment 19,347 17,918
Capitalized internal use software 1,903 1,781
Capitalized software development costs 546 546
------ ------
27,278 25,544
Less accumulated depreciation 14,678 11,768
------ ------
$ 12,600 $ 13,776
====== ======
Machinery and equipment included $104 and $487 under capital leases as of
December 31, 2002 and 2001. Accumulated depreciation on these assets was $15
and $351 as of December 31, 2002 and 2001, respectively.
6. Goodwill
As discussed in Footnote 2, the Company adopted Statement 142 on January 1,
2002. A reconciliation between reported net income (loss) to the adjusted net
income (loss) is as follows:
Year Ended December 31,
2002 2001 2000
---- ---- ----
Reported net income (loss) $ 1,675 $ (7,777) $ 2,737
Add back: Goodwill amortization $ - $ 818 $ 102
----- ------- -----
Adjusted net income (loss) $ 1,675 $ (6,959) $ 2,839
===== ======= =====
Basic earnings per share:
Reported net income (loss) $ 0.31 $ (1.42) $ 0.50
Goodwill amortization $ - $ 0.15 $ 0.02
----- ------- -----
Adjusted net income (loss) $ 0.31 $ (1.27) $ 0.52
===== ======= =====
Diluted earnings per share:
Reported net income (loss) $ 0.31 $ (1.42) $ 0.49
Goodwill amortization $ - $ 0.15 $ 0.02
----- ------- -----
Adjusted net income (loss) $ 0.31 $ (1.27) $ 0.51
===== ======= =====
The changes in the net carrying amount of goodwill for the years ended 2002 and
2001 consist of the following:
Industrial/
POS/OEM Optical Total
------- ------- -------
Balance as of January 1, 2001 $ 4,317 $ - $ 4,317
Goodwill acquired during the year - 12,465 12,465
Purchase price adjustments 13 - 13
Currency translation adjustments (227) - (227)
Amortization (242) (1,077) (1,319)
------- ------- -------
Balance as of December 31, 2001 3,861 11,388 15,249
Purchase price adjustments - (710) (710)
Currency translation adjustments 636 - 636
------- ------- -------
Balance as of December 31, 2002 $ 4,497 $10,678 $15,175
======= ======= =======
7. Accrued Expenses
Accrued expenses consist of the following:
December 31,
2002 2001
---- ----
Accrued compensation $ 1,850 $ 3,052
Accrued corporate taxes 1,297 -
Accrued marketing 1,125 1,503
Accrued commissions 669 837
Accrued rent 644 146
Accrued royalties 557 750
Product warranty 555 443
Accrued professional fees 518 909
Accrued miscellaneous taxes 437 139
Accrued interest 399 345
Other 1,338 999
----- ---
$ 9,389 $ 9,123
===== =====
8. Debt
Credit Facility
In connection with the acquisition of AOA on January 8, 2001, the Company
entered into a $45,000 credit facility with its primary bank as agent for other
bank parties. Under the terms of the Credit Facility, the Company secured a
$20,000 term loan with original maturities of $2,000 in 2001, $3,000 in 2002
and 2003, and $4,000 in 2004, 2005 and 2006, respectively. As of December 31,
2001, the balance outstanding was $18,000. In connection with the Credit
Facility, the Company secured a $25,000 revolving credit line, originally
expiring in January 2006. Proceeds from the Credit Facility were applied
towards the financing of the acquisition of AOA, paying down the existing term
loans and line of credit, and providing working capital for the Company and its
subsidiaries. As of December 31, 2001, the balance outstanding was $11,433. 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 Credit
Facility. A portion of outstanding borrowings under the Amended Credit
Agreement was guaranteed by C. Harry Knowles and Janet Knowles.
At December 31, 2001, the Company was in violation of certain provisions and
covenants included in the Credit Facility and on April 9, 2002, the banks
issued a notice of default and increased the interest rate by 2% on the
outstanding debt in accordance with the agreement.
On July 9, 2002, the Company replaced its former Credit Facility by executing
an Amended and Restated Credit Agreement (the "Amended Credit Agreement") with
its bank lenders. The key terms of the Amended Credit Agreement included the
waiver of all existing defaults under the Company's former Credit Facility and
the withdrawal by the banks of the notice of default that had been previously
issued to the Company. 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
contained various negative and positive covenants, such as minimum tangible net
worth requirements, and a scheduled expiration date of May 31, 2003. A portion
of outstanding borrowings under the Amended Credit Agreement were guaranteed by
C. Harry Knowles and Janet Knowles.
The Amended Credit Agreement also included a revolving credit facility of
$14,000. Amounts available for borrowing under this facility were equal to a
percentage of the total of eligible accounts receivable and inventories, as
defined in the agreement, plus an allowable over advance of $2,750. The over
advance allowance expired on January 1, 2003. The Amended Credit Agreement
required the daily application of the Company's receipts as payments against
the revolving credit facility and daily borrowings to fund cash requirements.
Interest on outstanding borrowings was at the banks' prime rate plus 2.5%, and
the agreement provided for a commitment fee of .5% on the unused facility.
In connection with the Amended Credit Agreement, certain directors and
executive officers made loans to the Company, which amounts were held as cash
collateral under the terms of the Amended Credit Agreement and have been
classified as restricted cash on the accompanying balance sheet. Specifically,
C. Harry Knowles and Janet H. Knowles, Dale M. Fischer and Hsu Jau Nan loaned
the Company $400, $125 and $475, respectively. The loans accrued interest at a
rate of nine percent (9%) per annum and were repaid in full on February 28,
2003.
On January 31, 2003, the Company executed an Amendment (the "Amendment") to the
Amended Credit Agreement. The Amendment, which extends the Amended Credit
Agreement until January 31, 2006, provides for a $13,000 revolving credit
facility and a $4,500 term loan. Principal payments on the term loan are $94 a
month commencing in March 2003 with the balance due at maturity. The interest
rates under the Amendment are prime plus .25% on borrowings under the revolving
credit facility and prime plus .75% on the Term Loan. The Company has the
option to select LIBOR rate interest plus spreads ranging from 3.00% to 3.50%.
The Amendment lowers the commitment fee to .25% on the unused facility.
Beginning with the year ending December 31, 2003, the Company could be required
to make additional prepayments under the Amendment upon the occurrence of
certain events or if there is excess cash flow, both as defined in the
Amendment. The Amendment contains various negative and positive covenants
including minimum tangible net worth requirements and fixed charge coverage
ratios. The security interest in the Company's assets and properties granted to
the bank pursuant to the Amended Credit Agreement remains in effect under the
Amendment. The Amendment requires the daily application of Company receipts as
payments against the revolving credit facility and daily borrowings to fund
cash requirements. In connection with the Amendment, the personal guarantees of
the Knowles' were released. Outstanding borrowings under the revolving credit
facility were $16 at December 31, 2002.
In addition to the revolving credit facility provided by the Amended Credit
Facility, in 2002, the Company entered into recourse factoring or invoice
discounting agreements with several local banks in Europe. These agreements
provide the Company with availability of up to $5,770, using December 31, 2002
exchange rates, at interest rates ranging from 3.45% to 6.75%. At December 31,
2002, $1,331 was outstanding under such agreements and is included in lines of
credit.
Subordinated Debt
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 $9,000 in 2003 and $1,000 in 2004 and 2005. Interest rates
are fixed at 10%. In January 2003, the Company and UTOS entered into a Payoff
Agreement to accelerate the principal payments on the Subordinated Debt. In
accordance with the Payoff Agreement, the Company paid UTOS $5,000 on January
31, 2003 and the Company will earn a $2,200 discount on the Subordinated Debt
if it pays an additional $3,800 to UTOS on or before April 1, 2003. Under the
terms of the Amended Credit Agreement and the Amendment, the Company cannot
make principal payments on the Subordinated Debt if such payment results in a
default under the Amended Credit Agreement.
In January 2003, the Company entered into a $4,260 subordinated note payable
with its Chairman and CEO and his spouse, Janet Knowles, a Director and Vice
President, Administration. The subordinated note bears interest at 10% and
requires 60 monthly principal payments of approximately $36 with the balance of
$2,130 due in January 2008. In connection with this note, the Company issued
warrants to Mr. and Mrs. Knowles to purchase 65,000 shares of its common stock
at an exercise price of $10.41 expiring on January 31, 2013. These warrants
have been valued at approximately $250, and the resulting original issue
discount will be amortized into interest expense over the life of the
subordinated note payable.
Notes payable consist of the following:
December 31,
2002 2001
---- ----
Term note $ 7,329 $ 18,000
Subordinated promissory notes 11,000 11,000
Capital lease obligations 78 131
Other 1,732 167
------ ------
20,139 29,298
Less: current maturities 5,708 10,833
------ ------
$ 14,431 $ 18,465
====== ======
The minimum annual principal payments of notes payable and capital lease
obligations at December 31, 2002 are:
2003 $ 5,708
2004 3,015
2005 2,586
2006 6,239
2007 426
Thereafter 2,165
------
20,139
======
9. 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 reporting 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,
2002 2001
---- ----
Deferred tax assets:
Net operating loss carryforwards $ 1,352 $ 1,471
Reserves on current assets 407 476
Inventory capitalization 109 108
Warranty reserve 220 50
Other accrued expenses 49 131
----- -----
2,137 2,236
----- -----
Deferred tax liability:
Advance license fee 517 563
Unrealized gain on foreign currency 942 723
Depreciation and amortization 220 187
----- -----
1,679 1,473
----- -----
Net deferred tax asset $ 458 $ 763
===== =====
Significant components of the provision (benefit) for income taxes are as
follows:
Year ended December 31,
2002 2001 2000
---- ---- ----
Current:
Federal $ - $ (5,142) $ 1,561
Foreign 1,274 354 194
State 182 32 131
----- ------ -----
Total current 1,456 (4,756) 1,886
Deferred:
Federal (413) (293) (398)
State (16) 274 (62)
----- ------ -----
Total deferred (429) (19) (460)
----- ------ -----
Provision (benefit)
for income taxes $ 1,027 $ (4,775) $ 1,426
===== ====== =====
The effective income tax rate of 38.0%, 38.0% and 34.25% for the years ended
December 31, 2002, 2001, and 2000, 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 and state and foreign
taxes. A reconciliation between the statutory provision and the provision for
financial reporting purposes is as follows:
December 31,
2002 2001 2000
---- ---- ----
Statutory federal tax provision (benefit) $ 919 $(4,268) $1,415
State income taxes, net of federal
income tax benefit 66 (443) 45
Foreign income tax benefit (33) (193) (86)
Other 75 129 52
----- ----- -----
Provision (benefit) for income taxes $ 1,027 $(4,775) $1,426
===== ===== =====
The Company has federal net operating loss carryforwards of $1,953. The federal
net operating loss carryforwards expire beginning in 2021. The Company has
state net operating loss carryforwards of $18,276 and they generally begin to
expire in 2010.
The Company's earnings in China are not subject to local income taxes in the
years 2002 through 2006. In addition, the Company will pay income taxes at 50%
of the local statutory rate for the years 2007 through 2011. The Company has
provided deferred income taxes on the income in China at U.S. statutory rates
as it is the Company's intention to repatriate such earnings.
The Company's cumulative undistributed earnings of foreign subsidiaries that
are expected to be reinvested indefinitely, for which no U.S. income or foreign
withholding taxes have been recorded, approximated $1,752 at December 31, 2002.
10. Related Party Transactions
The Company's principal shareholder, Chairman, and CEO, C. Harry Knowles and
his spouse, Janet H. Knowles, the Company's Vice President, Administration,
Secretary, Treasurer and a director, own and lease to the Company certain real
estate utilized in the operation of the Company's business. Lease payments made
to these related parties were approximately $526, $869, and $832, for the years
ended December 31, 2002, 2001, and 2000, respectively. Under the terms of the
Amended Credit Agreement, no rental payments were paid to Mr. and Mrs. Knowles
during the term of the Amended Credit Agreement. As of December 31, 2002, the
unpaid, accrued portion of lease payments due to those related parties was
$340. The lease for the real estate was replaced in January 2003 with a new
lease which expires in December 2012. Future minimum lease payments required
under the lease are approximately $811 in 2003, $826 in 2004, $842 in 2005,
$859 in 2006, $876 in 2007 and $4,733 thereafter, excluding taxes and
insurance.
Other current assets include a loan receivable from Janet H. Knowles, a
director and officer of the Company, who borrowed $75 from the Company under a
promissory note to be repaid on or about August 31, 2002 or the termination of
the Amended Credit Agreement, whichever is later. The Company made the loan to
Mrs. Knowles in December 2001 as a result of her pledge of cash collateral to
the banks in her capacity as guarantor for Company borrowings under its Credit
Facility. This loan was paid in full in February 2003.
The accounting firm in which Stanton L. Meltzer, a director and shareholder of
the Company, is a principal, charged fees of approximately $105, $73, and $49
for tax consulting services performed for the Company during the years ended
December 31, 2002, 2001, and 2000, respectively.
The investment banking company of Janney Montgomery Scott in which William
Rulon-Miller, a director, serves as Senior Vice President and Co-Director of
Investment Banking charged fees totaling approximately $50 in 2002 and $200 in
2001 in connection with assisting the Company with its plans to refinance the
Amended Credit Agreement and with the acquisition of AOA, respectively.
As discussed in Note 8, certain directors and executive officers made loans
aggregating $1,000 to the Company in July 2002 in connection with the Amended
Credit Agreement. The loan proceeds were held as cash collateral under the
terms of the Amended Credit Agreement. The loans accrued interest at an annual
rate of 9% and were repaid in full on February 28, 2003. Interest expense of
$49 was incurred during the year ended December 31, 2002 in connection with
these loans.
11. Commitments & Contingencies
Operating Leases
The Company has entered into operating lease agreements with unrelated
companies to lease manufacturing and office equipment and office space and
vehicles for its foreign subsidiaries.
Future minimum lease payments required under the lease agreements as of
December 31, 2002 are $2,457 in 2003, $2,286 in 2004, $1,942 in 2005, $1,462 in
2006, $1,421 in 2007 and $3,794 thereafter. Rental expenses paid to third
parties for 2002, 2001, and 2000 were approximately $2,022, $2,318, and $727,
respectively.
Cross-Licensing Agreement and Settlement of Patent Litigation
In December 1996, the Company and Symbol Technologies, Inc. ("Symbol") executed
an extensive cross-license of patents (the "Symbol Agreement") for which the
Company and Symbol pay royalties to each other under certain circumstances
effective January 1, 1996. In connection with the Symbol Agreement, the Company
paid Symbol an advance license fee of $1 million in December 1996 and another
$1 million in quarterly installments of $125 over the subsequent two years
ended December 1998. The Company has amended the Symbol Agreement providing for
additional patent licenses whereby the Company and Symbol make recurring
periodic royalty payments. Royalty payments under the Symbol Agreement amounted
to $1,573, $4,032, and $3,761 in 2002, 2001, and 2000, respectively. The
Company received royalty income from Symbol under the agreement of $1,006,
$875, and $760 in 2002, 2001 and 2000, respectively. The parties are currently
in litigation with respect to the Symbol Agreement. For further discussions on
the litigation, see Item C below in "Other Legal Matters."
Other 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.
The Company is currently involved in matters of litigation arising in the
normal course of business including matters described below. Management is of
the opinion that such litigation either individually or in the aggregate will
not have a material adverse effect on the Company's consolidated financial
position, results of operations or cash flows. Further, management is of the
opinion that there are no other legal claims against the Company which is
expected to 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 21, 1999 the Company and six other leading members (Accu-Sort Systems,
Inc., Intermec Technologies Corporation, a wholly-owned subsidiary of UNOVA,
Inc., PSC Inc., Psion Teklogix Corporation, Symbol Technologies, Inc., and
Zebra Technologies Corporation) of the Automatic Identification and Data
Capture Industry (the "Auto ID companies") jointly initiated a litigation
against the Lemelson Medical, Educational, & Research Foundation, Limited
Partnership (the "Lemelson Partnership"). The suit was commenced in the U.S.
District Court, District of Nevada in Reno, Nevada, and later transferred to
the District Court in Las Vegas, Nevada. In the litigation, the Auto ID
companies seek, among other remedies, a declaration that certain patents, which
have been asserted by the Lemelson Partnership against end users of bar code
equipment, are invalid, unenforceable and not infringed.
Symbol Technologies, Inc. has agreed to bear approximately half of the legal
and related expenses associated with the litigation, with the remaining portion
being borne by the Company and the other Auto ID companies. Although no claim
had been asserted by the Lemelson Partnership directly against the Company or,
to our knowledge, any other Auto ID company, the Lemelson Partnership has
contacted many of the Auto ID companies' customers demanding a one-time license
fee for certain so-called "bar code" patents transferred to the Lemelson
Partnership by the late Jerome H. Lemelson. The Company and the other Auto ID
companies have received many requests from their customers asking that they
undertake the defense of these claims using their knowledge of the technology
at issue. Certain of these customers have requested indemnification against the
Lemelson Partnership's claims from the Company and the other Auto ID companies,
individually and/or collectively with other equipment suppliers. The Company,
and to the Company's knowledge, the other Auto ID companies, believe that
generally they have no obligation to indemnify their customers against these
claims and that the patents being asserted by the Lemelson Partnership against
Auto ID companies customers with respect to bar code equipment are invalid,
unenforceable and not infringed. However, the Company and the other Auto ID
companies believe that the Lemelson claims do concern the Auto ID industry at
large and that it is appropriate for them to act jointly to protect their
customers against what they believe to be baseless claims being asserted by the
Lemelson Partnership.
In response to the suit, the Lemelson Partnership filed its motion to dismiss,
transfer and/or stay the Declaratory Judgment Action. On March 21, 2000, the
Court denied the Lemelson Partnership's motion, but struck one count in the
lawsuit (the prosecution laches count). On May 15, 2000, the Auto ID companies
filed a motion seeking permission to file an interlocutory appeal of the
Court's decision to strike the prosecution laches count. The motion was granted
by the Court on July 14, 2000. On January 24, 2002, the CAFC reversed the
decision by the lower court and confirmed the continued existence of the
prosecution laches defense. In response, the Lemelson Partnership filed a
Petition for Rehearing En Banc with the CAFC. The Petition was denied by the
CAFC on March 20, 2002. In June 2002, the Lemelson Partnership filed an appeal
with the United States Supreme Court requesting a reversal of the CAFC's
decision. On October 7, 2002, the U.S. Supreme Court denied the Lemelson
Partnership's Petition for Certiorari with respect to the CAFC's decision
upholding the prosecution laches defense. In accordance with the CAFC's
decision, the issue of prosecution laches was remanded to the District Court in
Nevada for consideration during trial.
On September 25, 2002, the District Court issued a trial order allocating
thirty-four (34) days for the trial on this matter commencing November 18,
2002. The trial was commenced on that date and continued through January 17,
2003. At the conclusion of the trial the judge set a schedule for the
submission of post-trial briefs requiring all papers to be filed by
May 16, 2003. It is expected that the judge will issue a final ruling within
several months thereafter, but no specific date for a ruling has been set.
B. Metrologic v. PSC Inc.
On October 13, 1999, the Company filed suit for patent infringement against PSC
Inc. (PSC) in United States District Court for the District of New Jersey. The
complaint asserts that at least seven of the Company's patents are infringed by
a variety of point-of-sale bar code scanner products manufactured and sold by
PSC. The patents cited in the complaint cover a broad range of bar code
scanning technologies important to scanning in a retail environment including
the configuration and structure of various optical components, scanner
functionalities and shared decoding architecture. The complaint seeks monetary
damages as well as a permanent injunction to prevent future sales of the
infringing products.
On December 22, 1999, PSC filed an answer to the complaint citing a variety of
affirmative defenses to the allegations of infringement asserted by the Company
in its complaint. PSC additionally asserted a counterclaim under the Lanham Act
claiming that the Company made false and misleading statements in its October
13, 1999 press release regarding the patent infringement suit against PSC. The
Company does not believe that this counterclaim has any merit.
The court ordered the case to mediation, and discovery was stayed pending the
outcome of the mediation. The mediation was terminated by the parties with no
result having been reached.
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 their claim interpretations of the
patents in suit. The Court has not yet issued its decision on the Markman
hearing.
On November 22, 2002, PSC filed for protection under Chapter 11 of the U.S.
Bankruptcy Code. The Court issued an automatic stay while the bankruptcy is
pending.
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 Complaint seeks
a declaratory judgment from the Court that the Company is in breach of the
Agreement and that Symbol is not in breach of the Agreement. Under the
Agreement, the Company had until May 28, 2002 to cure any breach by making a
payment of the royalties for the Fourth Quarter of 2001 that had been withheld
pending the resolution of a dispute between the parties regarding which
products are covered by the Agreement and the amount of royalties owed by each
party. The Company has made this payment. However, despite Symbol's receipt and
acceptance of the payment, on May 28, 2002, the Company received a notice that
Symbol was terminating the Agreement for material breach due to non-payment of
royalties.
As the Company made its royalty payments within the cure periods, the Company
believes any assertion of a material breach is incorrect. The Company also
received a notification from Symbol that Symbol was electing additional
licenses under the Agreement. To date, Symbol has made no payments of royalties
to the Company under the additional licenses.
On May 30, 2002, the Company was served with an amended Complaint in this
action. The amended Complaint restates the earlier claims for declaratory
judgement that the Company is in breach of the Agreement and that Symbol is not
in breach. The allegations of breach relate to the dispute between the parties
as to which products are covered by the licenses under the Agreement. The
amended Complaint also includes new claims of patent infringement from the date
of the alleged breach against 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
Credit Agreement. The Company believes that Symbol's claims in the lawsuit are
without merit and intends to vigorously defend its rights.
In response to the amended Complaint, 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. On October 4, 2002, the
parties had a conference with the judge during which a schedule was set for the
filing of the parties' cross motions for summary judgment. These motions are
now pending before the court.
12. Retirement Plans
The Company maintains a noncontributory defined contribution cash or deferred
profit sharing plan covering substantially all employees. Contributions are
determined by the Chief Executive Officer and are equal to a percentage of each
participant's compensation. The Company's contributions were $0 in 2002 and
2001 and $100 in 2000.
Additionally, the Company maintains an employee funded Deferred Compensation
Retirement 401(k) Plan as amended, contributions to which are partially matched
by the Company. In January 2001, the Company amended its Deferred Compensation
Retirement 401(k) Plan to increase the Company's matching contribution to a
rate of 60% on the first six percent of employee's earnings. Contribution
expenses were $402, $462, and $92 in 2002, 2001, and 2000, respectively.
13. Financial Reporting for Business Segments and Geographical Information
The Company generates its revenue from the sale of laser bar code scanners
primarily to distributors, value-added resellers, original equipment
manufacturers and directly to end users, in locations throughout the world. No
individual customer accounted for 10% or more of revenues in 2002, 2001 or
2000.
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. The amounts for 2001 and 2000 have
been restated to conform to the current year presentation.
Total
POS/OEM Industrial/Optical Consolidated
------- ------------------ ------------
Sales 2000 $ 82,984 8,900 91,884
2001 85,718 27,970 113,688
2002 90,033 27,083 117,116
Interest income 2000 $ 257 - 257
2001 167 7 174
2002 80 5 85
Interest expense 2000 $ 1,482 - 1,482
2001 2,343 1,721 4,064
2002 1,397 1,427 2,824
Depreciation and
Amortization 2000 $ 2,304 247 2,551
2001 2,920 2,143 5,063
2002 2,654 701 3,355
Income (loss) before
provision 2000 $ 3,595 568 4,163
for income taxes 2001 (13,286) 734 (12,552)
2002 1,910 792 2,702
The following table details the geographic distribution of the Company's sales
and long-lived assets.
2002 2001 2000
----------------- ------------------ ------------------
Long-Lived Long-Lived Long-Lived
Sales Assets (a) Sales Assets (a) Sales Assets (a)
----- ---------- ----- ---------- ----- ----------
United States 56,379 28,102 50,764 29,598 36,716 14,186
Europe 43,321 4,935 46,990 4,312 36,436 4,711
Other Export 17,416 1,088 15,934 1,073 18,732 1,021
------- ------ ------- ------ ------ ------
$117,116 $34,125 $113,688 $34,983 $91,884 $19,918
(a) Represents property, plant and equipment, net, and goodwill and other
intangible assets, net.
14. 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 board members. 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 329,000 shares were available for grant under the
Incentive Plan at December 31, 2002. Options granted under the Incentive Plan
become exercisable over periods ranging from one to seven years. Each option
shall expire four to ten years after becoming exercisable.
The Company has elected to follow APB 25 and related interpretations in
accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under SFAS 123 requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of the Company's
employee stock options equals the market price of the underlying common stock
on the date of grant, no compensation expense is recognized.
SFAS 123 requires pro forma information regarding net income and earnings per
share as if the Company had accounted for its employee stock options granted
subsequent to December 31, 1994 under the fair value method of SFAS 123. The
fair value of the options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions: risk-free interest rates of 3.9% in 2002 and 6.2% in 2001 and
2000; dividend yields of 0.0%; volatility factors of the expected market price
of the Company's common stock of 90%, 60%, and 50% for 2002, 2001, and 2000,
respectively, and a weighted-average expected life of the option of 5 years.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows (in thousands except for earnings per share
information):
2002 2001 2000
Net income (loss):
As reported $ 1,675 $(7,777) $ 2,737
Deduct: (total stock-based employee
compensation expense determined under
fair value based method, net of
related taxes) (818) (859) (1,410)
----- ----- -----
Pro forma $ 857 $(8,636) $ 1,327
===== ===== =====
Net (loss) income per share:
Basic:
As reported $ 0.31 $ (1.42) $ 0.50
Pro forma 0.16 (1.58) 0.24
Diluted:
As reported $ 0.31 $ (1.42) $ 0.49
Pro forma 0.16 (1.58) 0.24
A summary of the Company's stock option activity, and related information for
the years ended December 31, 2000, 2001, and 2002 follows:
Options Weighted-Average
(in thousands) Exercise Price
Outstanding - January 1, 2000 936 $ 11.79
Granted 65 12.50
Exercised (27) 11.77
Canceled (155) 11.91
Outstanding - December 31, 2000 819 $ 11.83
Granted 181 8.46
Exercised - -
Canceled (116) 11.34
Outstanding, December 31, 2001 884 $ 11.20
Granted 345 4.43
Exercised - -
Canceled (137) 11.42
----- -----
Exercisable at December 31, 2002 1,092 $ 9.04
===== =====
Weighted-average fair value of
options granted during 2002 $ 3.10
=====
The following table summarizes the status of stock options outstanding and
exercisable at December 31, 2002:
Options Outstanding Options Exercisable
------------------------------- -------------------
Weighted
Range of Exercise Average Weighted Weighted
prices per share Shares Remaining Average Shares Average
(in Contractual Exercise (in Exercise
thousands) Life Price thousands) Price
- -----------------
$ 0.00 to $ 4.43 345 9.69 $ 4.43 63 $ 4.43
$ 4.44 to $ 9.20 171 8.04 8.35 23 7.92
$ 9.21 to $10.31 234 6.83 10.31 186 10.31
$10.32 to $12.81 259 4.29 12.56 259 12.56
$12.82 to $16.13 83 5.98 14.99 78 14.98
----- ----- --- -----
1,092 $ 9.04 609 $ 11.16
===== ===== === =====
15. 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.
16. Acquisitions
Metrologic Eria Iberica ("MEI")
On January 26, 2000, the Company paid cash of $1,550 and assumed liabilities of
$893 for a 51% interest in a joint venture for the formation of MEI. The
results of operations of MEI have been included in the Company's statement of
operations since January 26, 2000.
The Company accounted for this acquisition under the purchase method of
accounting. The purchase price has been allocated to assets and liabilities
based on estimated fair values at the date of acquisition. The total purchase
price including transaction costs was $2,263 and costs in excess of assets
acquired (goodwill) were $1,329. Prior to the adoption of SFAS 142, on January
1, 2002, the related goodwill was being amortized over a straight-line basis
over 10 years.
The Company's 51% joint venture interest in MEI contains options for the
Company to purchase the remaining 49% minority interest. The purchase option is
calculated based on a twelve month multiple of sales and provides the Company
with a twelve month period in which to find a buyer or negotiate a purchase
price with a default minimum. In February 2002, the minority shareholders
provided notice of their intent to sell their 49% interest and the estimated
purchase price is approximately 5,300 euros or $5,511 at December 31, 2002. The
Company expects to purchase the shares from the minority shareholder in 2003.
It is expected that payments will be made over three years commencing in July
2003.
Metrologic Eria France ("MEF")
On July 18, 2000, the Company paid cash of $2,873 and assumed liabilities of
$2,207 for a 51% interest in a joint venture for the formation of MEF. The
results of operations of MEF have been included in the Company's 2000 statement
of operations since July 18, 2000.
The Company accounted for this acquisition under the purchase method of
accounting. The purchase price has been allocated to assets and liabilities
based on estimated fair values at the date of acquisition. The total purchase
price including transaction costs was $4,894 and costs in excess of assets
acquired (goodwill) were $2,767. Prior to the adoption of SFAS 142, on January
1, 2002, the related goodwill was being amortized over a straight-line basis
over 20 years.
The Company's 51% joint venture interest in MEF contains options for the
Company to purchase the remaining 49% minority interest. The purchase option is
calculated based on a twelve month multiple of sales and provides the Company
with a twelve month period in which to find a buyer or negotiate a purchase
price with a default minimum.
Adaptive Optics Associates, Inc. ("AOA")
On January 8, 2001, the Company acquired all of the outstanding stock of 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 $12,465 and was allocated to
goodwill. Prior to the adoption of SFAS 142, on January 1, 2002, the related
goodwill was being amortized over a straight-line basis and was allocated to
goodwill over 10 years.
Pro forma results of operations, assuming that the AOA acquisition was
consummated on January 1, 2001, would not be materially different from actual
results.
Supplementary Data
The following tables present unaudited quarterly operating results for the
Company for each quarter of 2002 and 2001. This information has been derived
from unaudited financial statements and includes all adjustments, consisting
only of normal recurring accruals, which the Company considers necessary for a
fair presentation of the results of operations for these periods. Such
quarterly operating results are not necessarily indicative of the Company's
future results of operations.
Quarterly Consolidated Operating Results (Unaudited)
(in thousands except share and per share data)
Three Months Ended
March 31, June 30, September 30, December 31,
2002 2002 2002 2002
--------- --------- --------- ---------
Sales $ 27,529 $ 29,412 $ 27,957 $ 32,218
Cost of sales 17,556 19,352 17,101 20,376
--------- --------- --------- ---------
Gross profit 9,973 10,060 10,856 11,842
Selling, general and
administrative expenses 7,280 7,975 7,270 7,056
Research and development
expenses 1,713 1,820 1,754 1,642
Severance costs 276 75 251 -
--------- --------- --------- ---------
Operating income (loss) 704 190 1,581 3,144
Other (expenses) income
Interest income 23 32 15 15
Interest expense (696) (871) (668) (589)
Foreign currency
transaction
(loss) gain (5) 229 (530) 174
Other, net 10 (24) 34 (66)
--------- --------- --------- ---------
Total other expenses (668) (634) (1,149) (466)
--------- --------- --------- ---------
Income (loss) before provision
(benefit) for income taxes 36 (444) 432 2,678
Provision (benefit) for
income taxes 14 (169) 164 1,018
--------- --------- --------- ---------
Net income (loss) $ 22 $ (275) $ 268 $ 1,660
========= ========= ========= =========
Basic (loss) earnings
per share
Weighted average
shares outstanding 5,463,431 5,465,605 5,467,579 5,470,039
========= ========= ========= =========
Basic (loss) earnings
per share $ - $ (0.05) $ 0.05 $ 0.30
========= ========= ========= =========
Diluted (loss) earnings
per share
Weighted average
shares outstanding 5,463,431 5,465,605 5,467,579 5,470,039
Net effect of dilutive
securities - - 2,524 91,411
--------- --------- --------- ---------
Total shares outstanding
used in computing diluted
earnings per share 5,463,431 5,465,605 5,470,103 5,561,450
========= ========= ========= =========
Diluted (loss) earnings per
share $ - $ (0.05) $ 0.05 $ 0.30
========= ========= ========= =========
Supplementary Data (Con't)
Quarterly Consolidated Operating Results (Unaudited)
(In thousands except share and per share data)
Three Months Ended
March 31, June 30, September 30, December 31,
2001 2001 2001 2001
--------- --------- --------- ---------
Sales $ 29,784 $ 28,057 $ 26,809 $ 29,038
Cost of sales 28,727 18,288 18,089 18,423
--------- --------- --------- ---------
Gross profit 1,057 9,769 8,720 10,615
Selling, general and
administrative expenses 7,873 8,617 7,806 8,258
Research and development
expenses 1,790 1,481 1,612 1,680
--------- --------- --------- ---------
Operating (loss) income (8,606) (329) (698) 677
Other (expenses) income
Interest income 121 16 10 27
Interest expense (1,211) (1,021) (953) (879)
Foreign currency
transaction
(loss) gain (77) (84) 337 256
Other, net (40) (39) (58) (1)
--------- --------- --------- ---------
Total other expenses (1,207) (1,128) (664) (597)
--------- --------- --------- ---------
(Loss) income before provision for
income taxes (9,813) (1,457) (1,362) 80
(Benefit) provision for
income taxes (3,740) (550) (517) 32
--------- --------- --------- ---------
Net (loss) income $ (6,073) $ (907) $ (845) $ 48
========= ========= ========= =========
Basic (loss) earnings
per share
Weighted average
shares outstanding 5,453,678 5,456,365 5,458,368 5,462,814
========= ========= ========= =========
Basic (loss) earnings
per share $ (1.11) $ (0.17) $ (0.15) $ 0.01
========= ========= ========= =========
Diluted (loss) earnings
per share
Weighted average
shares outstanding 5,453,678 5,456,365 5,458,368 5,462,814
Net effect of dilutive
securities - - - -
--------- --------- --------- ---------
Total shares outstanding
used in computing diluted
earnings per share 5,453,678 5,456,365 5,458,368 5,462,814
========= ========= ========= =========
Diluted (loss) earnings per
share $ (1.11) $ (0.17) $ (0.15) $ 0.01
========= ========= ========= =========
Schedule II - Valuation and Qualifying Accounts
Years ended December 31, 2002, 2001, and 2000
(All dollar amounts in thousands)
2002 2001 2000
---- ---- ----
Allowance for possible losses on
accounts and notes receivable:
Balance at beginning of year $ 422 $ 655 $ 350
Additions charged to expense 39 1,042 322
Write-offs (120) (1,275) (17)
--- ----- ---
Balance at end of year $ 341 $ 422 $ 655
=== ===== ===
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.
No change of accountants and/or disagreement on any matter of accounting
principles or financial statement disclosures has occurred within the last two
years.
PART III
The information called for by Item 10, Directors and Executive Officers of the
Registrant (except for the information regarding executive officers called for
by Item 401 of Regulation S-K, which is included in Part I hereof in accordance
with General Instruction G(3)), Item 11, Executive Compensation, Item 12,
Security Ownership of Certain Beneficial Owners and Management, and Item 13,
Certain Relationships and Related Transactions, is incorporated herein by
reference to the Registrant's definitive proxy statement for its 2003 Annual
Meeting of Shareholders which shall be filed with the Securities and Exchange
Commission within 120 days from the end of the Registrant's fiscal year ended
December 31, 2002.
Item 14. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Within 90 days prior to the filing date of this Annual Report, the chief
executive officer, chief operating officer and chief financial officer
evaluated the Company's controls and procedures related to its reporting
and disclosure obligations. These officers have concluded that these disclosure
controls and procedures are sufficient to provide that (a) material information
relating to the the Company is made known to these officers by other employees
of the Company, and its consolidated subsidiaries, particularly material
information related to the period for which this periodic report is being
prepared; and (b) this information is recorded, processed, summarized,
evaluated and reported, as applicable, within the time periods specified in the
rules and forms promulgated by the Securities and Exchange Commission
Changes in Internal Controls
There have been no significant changes in the Company's internal controls or,
to the knowledge of the Company's management, in other factors that could
significantly affect those controls subsequent to the date of management's last
evaluation.
PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1. Financial Statements
The Financial Statements listed below are filed as part of
this Annual Report on Form 10-K:
Report of Ernst & Young LLP, Independent Auditors.
Consolidated Balance Sheets at December 31, 2002 and 2001
Consolidated Statements of Operations for each of the
three years in the period ended December 31, 2002, 2001
and 2000
Consolidated Statements of Stockholders' Equity for each
of the three years in the period ended December 31, 2002,
2001 and 2000
Consolidated Statements of Cash Flows for each of the
three years in the period ended December 31, 2002, 2001
and 2000
Notes to Consolidated Financial Statements
Supplementary Data (Unaudited)
2. Financial statement schedules
Schedule II - Valuation and Qualifying Accounts is filed
herewith. All other schedules are omitted because they are
not applicable, not required, or because the required
information is included in the consolidated financial
statements or notes thereto.
3. Exhibits required to be filed by Item 601 of Regulation
S-K.
2.1 Option Agreement dated as of March 1, 1995 among
Metrologic Instruments, Inc. and the parties
listed on schedule A thereto (incorporated by
reference to Exhibit 2.3 to the Registrant's
Quarterly Report on Form 10-Q for the quarter
ended March 31, 1995).
3.1 Amended and Restated Certificate of Incorporation
of Metrologic Instruments, Inc. (incorporated by
reference to Exhibit 3.1 to the Registrant's
Annual Report on Form 10-K for the year ended
December 31, 1994).
3.2 Amended and Restated Bylaws of Metrologic
Instruments, Inc.(incorporated by reference to
Exhibit 3.02 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1994).
4.1 Specimen Stock Certificate (incorporated by
reference to Exhibit 4.1 to the Registrant's
Registration Statement on Form S-1 (Reg. No.
33-78358)).
10.1 Metrologic Instruments, Inc. 1994 Incentive Plan
(incorporated by reference to Exhibit 99 to the
Registrant's Registration Statement on Form S-8
(Reg. No. 33-89376)).
10.2 Metrologic Instruments, Inc. Employee Stock
Purchase Plan (incorporated by reference to
Exhibit 99 to the Registrant's Post-Effective
Amendment No. 1 to the Registration Statement on
Form S-8 (Reg. No. 33-86670) and Exhibit 10.1 to
the Registrant's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1995).
10.3 Agreement of Settlement between Symbol
Technologies, Inc. and Metrologic Instruments,
Inc. (incorporated by reference to Exhibit 10.5
to the Registrant's Registration Statement on
Form S-1 (Reg. No. 33-78358)).
10.4 Agreement and Release dated February 7, 1986
among Michael L. Sanyour, C. Harry Knowles, Janet
H. Knowles and Metrologic Instruments, Inc.
(incorporated by reference to Exhibit 10.6 to the
Registrant's Registration Statement on Form S-1
(Reg. No. 33-78358)).
10.5 Agreement dated January 6, 1995 between Michael
L. Sanyour, C. Harry Knowles, Janet H. Knowles
and Metrologic Instruments, Inc. (incorporated by
reference to Exhibit 10.6(a) to the Registrant's
Annual Report on Form 10-K for the year ended
December 31, 1994).
10.6 Promissory Note from Metrologic Instruments, Inc.
to C. Harry Knowles (incorporated by reference to
Exhibit 10.8 to the Registrant's Registration
Statement on Form S-1 (Reg. No. 33-78358)).
10.7 Indemnification Agreement between Metrologic
Instruments, Inc. and C. Harry Knowles and Janet
H. Knowles (incorporated by reference to Exhibit
10.9 to the Registrant's Registration statement
on Form S-1 (Reg. No. 33-78358)).
10.8 Agreement between Symbol Technologies, Inc. and
Metrologic Instruments, Inc. dated December 18,
1996 (incorporated by reference to Exhibit 10 to
the Registrant's Current Report on Form 8-K filed
on February 14, 1997).
10.9 First Amendment to Metrologic Instruments, Inc.
1994 Incentive Plan dated July 1, 1997
(incorporated by reference to Exhibit 10 to the
Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1997).
10.10 Agreement for Settlement, Dismissal of Claims and
Mutual Releases dated April 9, 1997 between
Metrologic Instruments, Inc. and PSC Inc.
(incorporated by reference to Exhibit 10.1 to the
Registrant's Current Report on Form 8-K filed
April 16, 1997).
10.11 Stipulation of Dismissal filed April 10, 1997 in
the United States District Court for the Western
District of New York (incorporated by reference
to Exhibit 10.2 to the Registrant's Current
Report on Form 8-K filed April 16, 1997).
10.12 Joint Venture Agreement between MTLG Investments
Inc. and CCH Automation Systems, Inc. dated
December 1997 (incorporated by reference to
Exhibit 10.24 to the Registrant's Annual Report
on Form 10-K for the year ended December 31,
1997).
10.13 Quotaholders' Agreement between MTLG Investments
Inc and CCH Automation Systems, Inc. dated
December 1997 (incorporated by reference to
Exhibit 10.25 to the Registrant's Annual Report
on Form 10-K for the year ended December 31,
1997).
10.14 Guarantee of Mr. Chaim Bulka and Mrs. Gilda Meire
Rosenberg Bulka in favor of MTLG Investments Inc.
dated December 12, 1997 (incorporated by
reference to Exhibit 10.26 to the Registrant's
Annual Report on Form 10-K for the year ended
December 31, 1997).
10.15 Stock Purchase Agreement dated December 22, 2000
by and among United Technologies Optical Systems,
Inc., Hamilton Sundstrand Corporation, MTLG
Investments Inc. and Metrologic Instruments, Inc.
(incorporated by reference to Exhibit 2 to the
Registrant's Current Report on Form 8-K filed
January 23, 2001).
10.16 Subordination, Nondisturbance and Attornment
Agreement dated January 8, 2001, by and among
Metrologic Instruments, Inc., C. Harry Knowles,
Janet Knowles, Metrologic Instruments, Inc. and
PNC Bank, National Association, as Agent
(incorporated by reference to Exhibit 99.4 to
the Registrant's Current Report on Form 8-K filed
January 23, 2001).
10.17 Security Agreement dated January 8, 2001, by and
among Metrologic Instruments, Inc., C. Harry
Knowles and Janet Knowles (incorporated by
reference to Exhibit 99.5 to the Registrant's
Current Report on Form 8-K filed January 23,
2001).
10.18 Employment Agreement dated January 8, 2001
between Metrologic Instruments, Inc. and C. Harry
Knowles (incorporated herein by reference to
Exhibit 10.1 to the Registrant's Quarterly Report
on Form 10-Q for the quarter ended March 31,
2001).
10.19 Employment Agreement dated January 8, 2001
between Metrologic Instruments, Inc. and Thomas
E. Mills IV (incorporated herein by reference to
Exhibit 10.2 to the Registrant's Quarterly Report
on Form 10-Q for the quarter ended March 31,
2001).
10.20 Subordinated Promissory Note in the amount of $11
million, dated November 16, 2001, executed by
MTLG Investments Inc. in favor of United
Technology Optical Systems, Inc. (incorporated by
reference to Exhibit 99.1 to the Registrant's
Current Report on Form 8-K filed December 2,
2001).
10.21 Employment Agreement dated as of May 13, 2002
between Metrologic Instruments, Inc. and Janet H.
Knowles (incorporated herein as exhibit 10.24 to
the Company's Annual Report on Form 10-K/A3 for
the period ended December 31, 2001).
10.22 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 herein as exhibit
10.25 to the Company's Annual Report on Form
10-K/A3 for the period ended December 31, 2001).
10.23 Landlord's Waiver dated July 9, 2002 between C.
Harry Knowles and Janet H. Knowles, and PNC Bank,
National Associates as Agent (incorporated herein
as exhibit 10.27 to the Company's Annual Report
on Form 10-K/A3 for the period ended December
31, 2001).
10.24 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 herein
as exhibit 10.28 to the Company's Annual Report
on Form 10-K/A3 for the period ended December 31,
2001).
10.25 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 herein as exhibit 10.29 to the
Company's Annual Report on Form 10-K/A3 for the
period ended December 31, 2001).
10.26 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 herein as exhibit 10.30
to the Company's Annual Report on Form 10-K/A3
for the period ended December 31, 2001).
10.27 Amendment No. 1 to Amended and Restated Credit
Agreement dated January 31, 2003 between
Metrologic Instruments, Inc., Adaptive Optics
Associates, Inc. and MTLG Investments Inc. and
PNC Bank, National Association (incorporated
herein as exhibit 99.1 to the Company's Form 8-K
for the period ending January 31, 2003).
10.28 Note Purchase Agreement dated January 31, 2003
between C. Harry Knowles and Janet Knowles and
Metrologic Instruments, Inc., Adaptive Optics
Associates, Inc. and MTLG Investments Inc.
(incorporated herein as exhibit 99.2 to the
Company's Form 8-K for the period ending January
31, 2003).
10.29 10% Secured Subordinated Note in the amount of
$4,260,000 due January 31, 2008 dated January 31,
2003 between Metrologic Instruments, Inc.,
Adaptive Optics Associates, Inc. and MTLG
Investments Inc. and C. Harry Knowles and Janet
Knowles (incorporated herein as exhibit 99.3 to
the Company's Form 8-K for the period ending
January 31, 2003).
10.30 Registration Rights Agreement dated January 31,
2003 between Metrologic Instruments, Inc. and C.
Harry Knowles and Janet Knowles (incorporated
herein as exhibit 99.5 to the Company's Form 8-K
for the period ending January 31, 2003).
10.31 Promissory Note Payoff Agreement dated January
13, 2003 between MTLG Investments Inc. and United
Technologies Optical Systems, Inc. (incorporated
herein as exhibit 99.6 to the Company's Form 8-K
for the period ending January 31, 2003).
10.32 Intercreditor and Subordination Agreement dated
January 31, 2003 between PNC Bank, National
Association, C. Harry Knowles and Janet Knowles,
Metrologic Instruments, Inc., Adaptive Optics
Associates, Inc. and MTLG Investments Inc.
(incorporated herein as exhibit 99.7 to the
Company's Form 8-K for the period ending January
31, 2003).
10.33 Amended Common Stock Purchase Warrant dated
February 5, 2003 in the amount of 65,000 shares
of Metrologic Instruments, Inc. common stock to
C. Harry Knowles and Janet Knowles.
10.34 Lease Agreement dated January 1, 2003 among C.
Harry Knowles, Janet H. Knowles and Metrologic
Instruments, Inc.
21 Subsidiaries of the Registrant
23.1 Consent of Ernst & Young LLP
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.
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.
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.
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
by the undersigned thereunto duly authorized.
METROLOGIC INSTRUMENTS, INC.
By:/s/ C. Harry Knowles
-----------------------------------
C. Harry Knowles
Chief Executive Officer
(Principal Executive Officer)
Dated: March 26, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934,
the report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ C. Harry Knowles Chairman of the Board and March 26, 2003
- ---------------------------------- Chief Executive Officer
C. Harry Knowles (Principal Executive Officer)
/s/ Thomas E. Mills IV Director, President, and March 26, 2003
- ---------------------------------- Chief Operating Officer
Thomas E. Mills IV
/s/Kevin Bratton Chief Financial Officer March 26, 2003
- ----------------------------------- (Principal Financial Officer
Kevin Bratton and Principal Accounting
Officer)
/s/ Richard Close Director March 26, 2003
- ----------------------------------
Richard Close
/s/ Janet H. Knowles Director, Vice President, March 26, 2003
- ---------------------------------- Administration, Secretary,
Janet H. Knowles and Treasurer
/s/ John H. Mathias Director March 26, 2003
- ----------------------------------
John H. Mathias
/s/ Stanton L. Meltzer Director March 26, 2003
- ----------------------------------
Stanton L. Meltzer
/s/ Hsu Jau Nan Director March 26, 2003
- ----------------------------------
Hsu Jau Nan
/s/ William Rulon-Miller Director March 26, 2003
- ----------------------------------
William Rulon-Miller
CERTIFICATIONS
I, C. Harry Knowles, certify that:
1. I have reviewed this annual report on Form 10-K of Metrologic
Instruments, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
(a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation
Date"); and
(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
/s/ C. Harry Knowles
Date: March 26, 2003 ----------------------------------
C. Harry Knowles
Chief Executive Officer
CERTIFICATIONS
I, Thomas E. Mills IV, certify that:
1. I have reviewed this annual report on Form 10-K of Metrologic
Instruments, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
(a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation
Date"); and
(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
/s/ Thomas E. Mills IV
Date: March 26, 2003 ----------------------------------
Thomas E. Mills IV
President and Chief Operating
Officer
CERTIFICATIONS
I, Kevin J. Bratton, certify that:
1. I have reviewed this annual report on Form 10-K of Metrologic
Instruments, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
(a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation
Date"); and
(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
/s/ Kevin J. Bratton
Date: March 26, 2003 ----------------------------------
Kevin J. Bratton
Chief Financial Officer
Exhibit Index
2.1 Option Agreement dated as of March 1, 1995 among
Metrologic Instruments, Inc. and the parties
listed on schedule A thereto (incorporated by
reference to Exhibit 2.3 to the Registrant's
Quarterly Report on Form 10-Q for the quarter
ended March 31, 1995).
3.1 Amended and Restated Certificate of Incorporation
of Metrologic Instruments, Inc. (incorporated by
reference to Exhibit 3.1 to the Registrant's
Annual Report on Form 10-K for the year ended
December 31, 1994).
3.2 Amended and Restated Bylaws of Metrologic
Instruments, Inc.(incorporated by reference to
Exhibit 3.02 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1994).
4.1 Specimen Stock Certificate (incorporated by
reference to Exhibit 4.1 to the Registrant's
Registration Statement on Form S-1 (Reg. No.
33-78358)).
10.1 Metrologic Instruments, Inc. 1994 Incentive Plan
(incorporated by reference to Exhibit 99 to the
Registrant's Registration Statement on Form S-8
(Reg. No. 33-89376)).
10.2 Metrologic Instruments, Inc. Employee Stock
Purchase Plan (incorporated by reference to
Exhibit 99 to the Registrant's Post-Effective
Amendment No. 1 to the Registration Statement on
Form S-8 (Reg. No. 33-86670) and Exhibit 10.1 to
the Registrant's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1995).
10.3 Agreement of Settlement between Symbol
Technologies, Inc. and Metrologic Instruments,
Inc. (incorporated by reference to Exhibit 10.5
to the Registrant's Registration Statement on
Form S-1 (Reg. No. 33-78358)).
10.4 Agreement and Release dated February 7, 1986
among Michael L. Sanyour, C. Harry Knowles, Janet
H. Knowles and Metrologic Instruments, Inc.
(incorporated by reference to Exhibit 10.6 to the
Registrant's Registration Statement on Form S-1
(Reg. No. 33-78358)).
10.5 Agreement dated January 6, 1995 between Michael
L. Sanyour, C. Harry Knowles, Janet H. Knowles
and Metrologic Instruments, Inc. (incorporated by
reference to Exhibit 10.6(a) to the Registrant's
Annual Report on Form 10-K for the year ended
December 31, 1994).
10.6 Promissory Note from Metrologic Instruments, Inc.
to C. Harry Knowles (incorporated by reference to
Exhibit 10.8 to the Registrant's Registration
Statement on Form S-1 (Reg. No. 33-78358)).
10.7 Indemnification Agreement between Metrologic
Instruments, Inc. and C. Harry Knowles and Janet
H. Knowles (incorporated by reference to Exhibit
10.9 to the Registrant's Registration statement
on Form S-1 (Reg. No. 33-78358)).
10.8 Agreement between Symbol Technologies, Inc. and
Metrologic Instruments, Inc. dated December 18,
1996 (incorporated by reference to Exhibit 10 to
the Registrant's Current Report on Form 8-K filed
on February 14, 1997).
10.9 First Amendment to Metrologic Instruments, Inc.
1994 Incentive Plan dated July 1, 1997
(incorporated by reference to Exhibit 10 to the
Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1997).
10.10 Agreement for Settlement, Dismissal of Claims and
Mutual Releases dated April 9, 1997 between
Metrologic Instruments, Inc. and PSC Inc.
(incorporated by reference to Exhibit 10.1 to the
Registrant's Current Report on Form 8-K filed
April 16, 1997).
10.11 Stipulation of Dismissal filed April 10, 1997 in
the United States District Court for the Western
District of New York (incorporated by reference
to Exhibit 10.2 to the Registrant's Current
Report on Form 8-K filed April 16, 1997).
10.12 Joint Venture Agreement between MTLG Investments
Inc. and CCH Automation Systems, Inc. dated
December 1997 (incorporated by reference to
Exhibit 10.24 to the Registrant's Annual Report
on Form 10-K for the year ended December 31,
1997).
10.13 Quotaholders' Agreement between MTLG Investments
Inc and CCH Automation Systems, Inc. dated
December 1997 (incorporated by reference to
Exhibit 10.25 to the Registrant's Annual Report
on Form 10-K for the year ended December 31,
1997).
10.14 Guarantee of Mr. Chaim Bulka and Mrs. Gilda Meire
Rosenberg Bulka in favor of MTLG Investments Inc.
dated December 12, 1997 (incorporated by
reference to Exhibit 10.26 to the Registrant's
Annual Report on Form 10-K for the year ended
December 31, 1997).
10.15 Stock Purchase Agreement dated December 22, 2000
by and among United Technologies Optical Systems,
Inc., Hamilton Sundstrand Corporation, MTLG
Investments Inc. and Metrologic Instruments, Inc.
(incorporated by reference to Exhibit 2 to the
Registrant's Current Report on Form 8-K filed
January 23, 2001).
10.16 Subordination, Nondisturbance and Attornment
Agreement dated January 8, 2001, by and among
Metrologic Instruments, Inc., C. Harry Knowles,
Janet Knowles, Metrologic Instruments, Inc. and
PNC Bank, National Association, as Agent
(incorporated by reference to Exhibit 99.4 to
the Registrant's Current Report on Form 8-K filed
January 23, 2001).
10.17 Security Agreement dated January 8, 2001, by and
among Metrologic Instruments, Inc., C. Harry
Knowles and Janet Knowles (incorporated by
reference to Exhibit 99.5 to the Registrant's
Current Report on Form 8-K filed January 23,
2001).
10.18 Employment Agreement dated January 8, 2001
between Metrologic Instruments, Inc. and C. Harry
Knowles (incorporated herein by reference to
Exhibit 10.1 to the Registrant's Quarterly Report
on Form 10-Q for the quarter ended March 31,
2001).
10.19 Employment Agreement dated January 8, 2001
between Metrologic Instruments, Inc. and Thomas E.
Mills IV (incorporated herein by reference to
Exhibit 10.2 to the Registrant's Quarterly Report
on Form 10-Q for the quarter ended March 31,
2001).
10.20 Subordinated Promissory Note in the amount of $11
million, dated November 16, 2001, executed by
MTLG Investments Inc. in favor of United
Technology Optical Systems, Inc. (incorporated by
reference to Exhibit 99.1 to the Registrant's
Current Report on Form 8-K filed December 2,
2001).
10.21 Employment Agreement dated as of May 13, 2002
between Metrologic Instruments, Inc. and Janet H.
Knowles (incorporated herein as exhibit 10.24 to
the Company's Annual Report on Form 10-K/A3 for
the period ended December 31, 2001).
10.22 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 herein as exhibit 10.25 to the
Company's Annual Report on Form 10-K/A3 for the
period ended December 31, 2001).
10.23 Landlord's Waiver dated July 9, 2002 between C.
Harry Knowles and Janet H. Knowles, and PNC Bank,
National Associates as Agent (incorporated herein
as exhibit 10.27 to the Company's Annual Report
on Form 10-K/A3 for the period ended December
31, 2001).
10.24 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 herein
as exhibit 10.28 to the Company's Annual Report
on Form 10-K/A3 for the period ended December 31,
2001).
10.25 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 herein as exhibit 10.29 to the
Company's Annual Report on Form 10-K/A3 for the
period ended December 31, 2001).
10.26 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 herein as exhibit 10.30
to the Company's Annual Report on Form 10-K/A3
for the period ended December 31, 2001).
10.27 Amendment No. 1 to Amended and Restated Credit
Agreement dated January 31, 2003 between
Metrologic Instruments, Inc., Adaptive Optics
Associates, Inc. and MTLG Investments Inc. and
PNC Bank, National Association (incorporated
herein as exhibit 99.1 to the Company's Form 8-K
for the period ending January 31, 2003).
10.28 Note Purchase Agreement dated January 31, 2003
between C. Harry Knowles and Janet Knowles and
Metrologic Instruments, Inc., Adaptive Optics
Associates, Inc. and MTLG Investments Inc.
(incorporated herein as exhibit 99.2 to the
Company's Form 8-K for the period ending January
31, 2003).
10.29 10% Secured Subordinated Note in the amount of
$4,260,000 due January 31, 2008 dated January 31,
2003 between Metrologic Instruments, Inc.,
Adaptive Optics Associates, Inc. and MTLG
Investments Inc. and C. Harry Knowles and Janet
Knowles (incorporated herein as exhibit 99.3 to
the Company's Form 8-K for the period ending
January 31, 2003).
10.30 Registration Rights Agreement dated January 31,
2003 between Metrologic Instruments, Inc. and C.
Harry Knowles and Janet Knowles (incorporated
herein as exhibit 99.5 to the Company's Form 8-K
for the period ending January 31, 2003).
10.31 Promissory Note Payoff Agreement dated January
13, 2003 between MTLG Investments Inc. and United
Technologies Optical Systems, Inc. (incorporated
herein as exhibit 99.6 to the Company's Form 8-K
for the period ending January 31, 2003).
10.32 Intercreditor and Subordination Agreement dated
January 31, 2003 between PNC Bank, National
Association, C. Harry Knowles and Janet Knowles,
Metrologic Instruments, Inc., Adaptive Optics
Associates, Inc. and MTLG Investments Inc.
(incorporated herein as exhibit 99.7 to the
Company's Form 8-K for the period ending January
31, 2003).
10.33 Amended Common Stock Purchase Warrant dated
February 5, 2003 in the amount of 65,000 shares
of Metrologic Instruments, Inc. common stock to
C. Harry Knowles and Janet Knowles.
10.34 Lease Agreement dated January 1, 2003 among C.
Harry Knowles, Janet H. Knowles and Metrologic
Instruments, Inc.
21 Subsidiaries of the Registrant
23.1 Consent of Ernst & Young LLP
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.
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.
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.
(b) Reports on Form 8-K
None
Exhibit 10.33
NEITHER THIS WARRANT NOR THE WARRANT SHARES (AS DEFINED HEREIN) ISSUABLE UPON
EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT") OR THE SECURITIES LAWS OF ANY STATE, AND
NEITHER MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED
UNLESS AND UNTIL REGISTERED UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE
SECURITIES LAWS OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL OR
OTHER EVIDENCE SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED.
METROLOGIC INSTRUMENTS, INC.
AMENDED AND RESTATED
COMMON STOCK PURCHASE WARRANT
Date of Issuance: January 31, 2003 (Void after January 31, 2013)
Amended and Restated: February 5, 2003
METROLOGIC INSTRUMENTS, INC., a New Jersey corporation (the
"Company"), for value received, hereby certifies and agrees that C. Harry
Knowles and Janet Knowles or their registered assigns (collectively, the
"Registered Holder"), is entitled, subject to the terms set forth below, to
purchase from the Company, at any time or from time to time on or before the
tenth (10th) anniversary of the Date of Issuance at not later than 5:00 p.m.
(such date and time, the "Expiration Time") Sixty-Five Thousand (65,000)
validly issued, fully paid and nonassessable shares of the Company's Common
Stock, par value $0.01 per share ("Common Stock"), at a purchase price equal to
$10.41 per share, which number of shares shall be subject to adjustment from
time to time pursuant to the provisions of this Warrant. The shares purchasable
upon exercise of this Warrant, and the purchase price per share, each as
adjusted from time to time pursuant to the provisions of this Warrant, are
hereinafter referred to as the "Warrant Shares" and the "Exercise Price,"
respectively. The term "Warrant" as used herein shall include this Warrant and
any other warrants delivered in substitution or exchange therefor, as provided
herein. Each Warrant not exercised prior to the Expiration Time shall be deemed
to have expired.
The sole intended effect of the February 5, 2003 amendment to
this Warrant is to delete provisions related to weighted-average anti-dilution
protection and to make corresponding changes to section numbering and for no
other purpose. The Date of Issuance, and any other dates calculated therefrom,
shall remain January 31, 2003.
1. Exercise.
(a) This Warrant may be exercised by the Registered Holder, in whole or in
part, pursuant to the following mechanisms:
(i) by surrendering this Warrant, with a Notice of Exercise in the
form of Annex A hereto (the "Notice of Exercise") duly executed by such
Registered Holder or by such Registered Holder's duly authorized
attorney-in-fact, at the principal office of the Company, or at such other
office or agency as the Company may designate in writing (the "Company's
Office"), accompanied by payment in full, in lawful money of the United States,
of the Exercise Price payable in respect of the number of shares of Warrant
Shares purchased upon such exercise; or
(ii) by surrendering this Warrant, with a Notice of Cashless Exercise
in the form of Annex B attached hereto (a "Cashless Exercise") duly executed by
such Registered Holder or by such Registered Holder's duly authorized
attorney-in-fact, at the Company's Office. Such presentation and surrender
shall be deemed a waiver of the Registered Holder's obligation to pay the
Exercise Price for the Warrant Shares. In the event of a Cashless Exercise, the
Registered Holder shall exchange this Warrant for that number of shares of
Common Stock equal to the number of Warrant Shares specified in such Notice of
Cashless Exercise multiplied by a fraction, the numerator of which shall be the
difference between the then current market value per share of Common Stock and
the Exercise Price, and the denominator of which shall be the then current
market value per share of Common Stock. For purposes of any computation under
this Warrant, the then current market price per share of Common Stock at any
date (the "Market Value") shall be deemed to be either (A) in the event the
Common Stock is admitted to trading or listed on a national securities exchange
or sold "over the counter," the average of the last reported sale price of the
Common Stock for the twenty (20) consecutive trading days immediately preceding
the date of the Cashless Exercise or, in case no such reported sales take place
or are available, the average of the last reported bid and asked prices of such
stock for the twenty (20) consecutive trading days immediately preceding, in
either case on the principal national securities exchange or "over the counter"
market on which such stock is admitted to trading or listed, or (B) in the
event the Common Stock is not admitted to trading or listed on any national
securities exchange, such reasonable fair market value, as shall be determined
in good faith by the Board of Directors of the Company.
(b) Each exercise of this Warrant shall be deemed to have been effected
immediately prior to the close of business on the day on which this Warrant
shall have been surrendered to the Company (as evidenced by the applicable
postmark or other evidence of transmittal) as provided in Section 1(a) hereof.
At such time, the person or persons in whose name or names any certificates for
Warrant Shares shall be issuable upon such exercise as provided in Section 1(c)
hereof shall be deemed to have become the holder or holders of record of the
Warrant Shares represented by such certificates.
(c) As soon as practicable after the exercise of this Warrant, in full or
in part, and in any event within ten (10) days thereafter, the Company, at its
expense, will cause to be issued in the name of, and delivered to, the
Registered Holder, or as such Registered Holder (upon payment by such
Registered Holder of any applicable transfer taxes) may direct:
(i) a certificate or certificates for the number of full Warrant
Shares to which such Registered Holder shall be entitled upon such exercise
plus, in lieu of any fractional share to which such Registered Holder would
otherwise be entitled, cash in an amount determined pursuant to Section 4
hereof; and
(ii) in case such exercise is in part only, a new warrant or warrants
(dated the date hereof) of like tenor, representing in the aggregate on the
face or faces thereof the number of Warrant Shares equal (without giving effect
to any adjustment therein) to the number of such shares called for on the face
of this Warrant minus the number of such shares purchased by the Registered
Holder upon such exercise as provided in Section 1(a) hereof.
2. Adjustments. The Exercise Price and the number of shares of Warrant Shares
issuable upon exercise of this Warrant are subject to adjustment from time to
time as follows:
(a) Stock Dividend, Split or Subdivision of Shares. If the number of
shares of Common Stock outstanding at any time after the date hereof is
increased or deemed increased by a stock dividend payable in shares of Common
Stock or by a subdivision or split-up of shares of Common Stock (other than a
change in par value, from par value to no par value or from no par value to par
value), then, following the effective date fixed for the determination of
holders of Common Stock entitled to receive such stock dividend, subdivision or
split-up, the Exercise Price shall be appropriately decreased (but in no event
shall the Exercise Price be decreased below the par value of the Common Stock
issuable upon exercise of this Warrant) and the number of shares of Common
Stock issuable on exercise of each Warrant shall be increased, without payment
of any additional consideration therefor, in proportion to such increase in
outstanding shares (on a fully diluted basis).
(b) Combination of Shares. If, at any time after the date hereof, the
number of shares of Common Stock outstanding is decreased by a combination of
the outstanding shares of Common Stock (other than a change in par value, from
par value to no par value or from no par value to par value), then, following
the record date fixed for such combination, the Exercise Price shall be
appropriately increased and the number of shares of Common Stock, issuable on
exercise of each Warrant shall be decreased in proportion to such decrease in
outstanding shares.
(c) Reorganizations, Consolidations, Etc. In the event, at any time after
the date hereof, of any capital reorganization, or any reclassification of the
capital stock of the Company (other than a change in par value or from par
value to no par value or from no par value to par value or as a result of a
stock dividend or subdivision, split-up or combination of shares), or the
consolidation or merger of the Company with or into another person (other than
consolidation or merger in which the Company is the continuing corporation and
which does not result in any change in the powers, designations, preferences
and rights (or the qualifications, limitations or restrictions, if any) of or
conversion of the capital stock of the Company as amended from time to time) or
of the sale or other disposition of all or substantially all the properties and
assets of the Company in its entirety to any other person (any such
transaction, an "Extraordinary Transaction"), then this Warrant shall be
exercisable for the kind and number of shares of stock or other securities or
property of the Company, or of the corporation resulting from or surviving such
Extraordinary Transaction, that a holder of the number of shares of Common
Stock, deliverable (immediately prior to the effectiveness of the Extraordinary
Transaction) upon exercise of this Warrant would have been entitled to receive
upon such Extraordinary Transaction if this Warrant had been exercised
immediately prior thereto. The provisions of this Section 2(c) shall similarly
apply to successive Extraordinary Transactions. If the per-share consideration
payable to the Registered Holder for shares in connection with any
Extraordinary Transaction is in a form other than cash or marketable
securities, then the value of such consideration shall be determined in good
faith by the Board of Directors of the Company. In all events, appropriate
adjustment (as determined in good faith by the Board of Directors of the
Company) shall be made in the application of the provisions of this Warrant
with respect to the rights and interests of the Registered Holder after the
Extraordinary Transaction, to the end that the provisions of this Warrant shall
be applicable after that event, as near as reasonably may be, in relation to
any shares or other property deliverable after that event upon exercise of this
Warrant.
(d) Excluded Stock. "Excluded Stock" shall mean:
(i) Common Stock issuable upon the exercise of any warrant
outstanding prior to the date hereof or issued as of the date hereof,
including, without limitation, this Warrant;
(ii) Common Stock issued to directors, officers, employees,
consultants and advisors who provide bona fide services to the Company,
pursuant to any grants, options to purchase or rights to subscribe for such
Common Stock granted pursuant to any award, option or rights plan, agreement or
arrangement approved by the Board of Directors of the Company;
(iii) Stock issued in transactions described in Section 2(a), (b) or
(c) hereof; or
(iv) Securities issued pursuant to the acquisition of another
corporation, partnership, company, joint venture, trust or other entity by the
Company by merger, consolidation, stock acquisition, reorganization, or
otherwise whereby the Company, or its stockholders or record immediately prior
to the effectiveness of such transaction, directly or indirectly own at least a
majority of the voting power of such other entity or the resulting or surviving
corporation immediately after such transaction.
(e) Calculations. All calculations under this Section 2 shall be made to
the nearest cent ($.01) or to the nearest share, as the case may be.
(f) Certificate as to Adjustments. Whenever the Exercise Price or the
number of Warrant Shares shall be adjusted as provided in this Section 2, the
Company shall file, at its principal office, at the office of the transfer
agent for the Common Stock, if any, or at such other place as may be designated
by the Company, a statement showing in detail the facts requiring such
adjustment and the Exercise Price or the number of Warrant Shares that shall be
in effect after such adjustment. The Company shall also cause a copy of such
statement to be sent by first-class, certified mail, return receipt requested,
postage prepaid, to the Registered Holder at such Registered Holder's address
appearing on the Company's records. Where appropriate, such copy may be given
in advance.
(g) Certain Events. If any event occurs of the type contemplated by the
provisions of this Section 2 but not expressly provided for by such provisions,
the Board of Directors of the Company shall make an appropriate adjustment to
the Exercise Price and the number of Warrant Shares as to protect the rights of
the Registered Holder; provided that no such adjustment shall increase the
Exercise Price and decrease the number of Warrant Shares, except as otherwise
determined pursuant to this Section 2.
3. Shares to be Fully Paid; Reservation of Shares; Free of Preemptive Rights.
The Company covenants and agrees that all shares of Common Stock which may be
issued upon the exercise of the rights represented by this Warrant will, upon
issuance by the Company, be validly issued, fully paid and nonassessable, and
free from preemptive rights and free from all taxes, liens and charges with
respect thereto. The Company further covenants and agrees that, during the
period within which the rights represented by this Warrant may be exercised,
the Company will at all times have authorized and reserved, free from
preemptive rights, out of its authorized but unissued shares of Common Stock,
solely for the purpose of effecting the exercise of this Warrant, a sufficient
number of shares of Common Stock to provide for the exercise of the rights
represented by this Warrant. The Company represents that this Warrant and any
shares of Common Stock issuable upon exercise hereof will be issued free and
clear of preemptive rights, rights of first refusal or similar rights entitling
others to purchase such securities other than contractual rights imposed by the
Registered Holder.
4. Fractional Shares. The Company shall not be required upon the exercise of
this Warrant to issue any fractional shares, but shall make an adjustment
therefor in cash on the basis of the Market Value for each fractional share of
the Company's Common Stock which would be issuable upon exercise of this
Warrant.
5. Requirements for Transfer.
(a) Transfer. Subject to the provisions of this Section 5 and the
restrictions on transfer under the Securities Act and applicable state
securities laws, this Warrant and all rights hereunder are transferable, in
whole or in part, upon the surrender of this Warrant with a properly executed
Assignment Form in substantially the form attached hereto as Annex C (the
"Assignment") at the principal office of the Company.
(b) Exchange of Warrant Upon a Transfer. On surrender of this Warrant for
exchange, properly endorsed on the Assignment and subject to the provisions of
this Warrant and with the limitations on assignments and transfers as contained
in this Section 5, the Company at its expense shall issue to or on the order of
the Registered Holder a new warrant or warrants of like tenor, in the name of
the Registered Holder or as the Registered Holder (on payment by the Registered
Holder of any applicable transfer taxes) may direct, for the number of shares
issuable upon exercise hereof.
6. No Impairment. The Company will not, by amendment of its charter or through
reorganization, consolidation, merger, dissolution, sale of assets or any other
voluntary action, avoid or seek to avoid the observance or performance of any
of the terms of this Warrant but will at all times carry out all such terms and
take all such action as may be reasonably necessary or appropriate in order to
protect the rights of the holder of this Warrant against impairment.
7. Notices of Record Date, Etc. In case:
(a) the Company shall take a record of the holders of its Common Stock (or
other stock or securities at the time deliverable upon the exercise of this
Warrant) for the purpose of entitling or enabling them to receive any dividend
or other distribution, or to receive any right to subscribe for or purchase any
shares of stock of any class or any other securities, or to receive any other
right; or
(b) of any capital reorganization of the Company, any reclassification of
the capital stock of the Company, any consolidation or merger of the Company
with or into another corporation (other than a consolidation or merger in which
the Company is the surviving entity), or any transfer of all or substantially
all of the assets of the Company; or
(c) of the voluntary or involuntary dissolution, liquidation or winding-up
of the Company, then, and in each such case, the Company will mail or cause to
be mailed to the Registered Holder of this Warrant a notice specifying, as the
case may be, (i) the date on which a record is to be taken for the purpose of
such dividend, distribution or right, and stating the amount and character of
such dividend, distribution or right, or (ii) the effective date on which such
reorganization, reclassification, consolidation, merger, transfer, dissolution,
liquidation or winding-up is to take place, and the time, if any is to be
fixed, as of which the holders of record of Common Stock (or such other stock
or securities at the time deliverable upon the exercise of this Warrant) shall
be entitled to exchange their shares of Common Stock (or such other stock or
securities) for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, transfer, dissolution,
liquidation or winding-up. Such notice shall be mailed at least ten (10) days
prior to the record date or effective date for the event specified in such
notice unless such prior notice is waived by the Registered Holder.
8. Replacement of Warrant. Upon receipt of evidence reasonably satisfactory to
the Company of the loss, theft, destruction or mutilation of this Warrant and
(in the case of loss, theft or destruction) upon delivery of an indemnity
agreement reasonably satisfactory to the Company, or (in the case of
mutilation) upon surrender and cancellation of this Warrant, the Company will
issue, in lieu thereof, a new Warrant of like tenor and amount.
9. Mailing of Notices, Etc. All notices and other communications from the
Company to the Registered Holder of this Warrant shall be delivered by (i)
courier, certified mail or hand delivery or (ii) facsimile, to the address
furnished to the Company in writing by the last Registered Holder of this
Warrant who shall have furnished an address to the Company in writing and will
be deemed to have been delivered upon receipt. All notices and other
communications from the Registered Holder of this Warrant or in connection
herewith to the Company shall be delivered by (i) courier, certified mail or
hand delivery or (ii) facsimile,, to the Company at its principal office set
forth below and will be deemed to have been delivered upon receipt. If the
Company should at any time change the location of its principal office to a
place other than as set forth below, then it shall give prompt written notice
to the Registered Holder of this Warrant and thereafter all references in this
Warrant to the location of its principal office at the particular time shall be
as so specified in such notice.
10. Change or Waiver. Any term of this Warrant may be changed or waived only by
an instrument in writing signed by the party against which enforcement of the
change or waiver is sought.
11. Headings. The headings in this Warrant are for purposes of reference only
and shall not limit or otherwise affect the meaning of any provision of this
Warrant.
12. Governing Law. This Warrant shall be governed by and construed in
accordance with the domestic substantive laws of the State of New Jersey,
without giving effect to any choice or conflict of law provision or rule that
would cause the application of the laws of any other jurisdiction.
[Signature page follows.]
IN WITNESS WHEREOF, METROLOGIC INSTRUMENTS, INC. has caused
this Amended and Restated Warrant to be signed by its duly authorized officer
under its corporate seal and to be dated on the day and year written above.
METROLOGIC INSTRUMENTS, INC.
By: /s/Thomas E. Mills IV
-----------------------------
Name: Thomas E. Mills IV
Title: President
Annex A
NOTICE OF EXERCISE FORM
To: ___________________________ Dated: ________________________________
The undersigned, pursuant to the provisions set forth in the
attached Warrant, hereby irrevocably elects to purchase ______________ shares
of Common Stock covered by such Warrant and herewith makes payment of $
____________, representing the full purchase price for shares at the exercise
price per share provided for in such Warrant.
Signature:_________________________
Address: __________________________
--------------------------
--------------------------
Annex B
NOTICE OF CASHLESS EXERCISE FORM
To: _____________________________ Dated: ______________________________
The undersigned, pursuant to the provisions set forth in the
attached Warrant, hereby irrevocably elects to exchange the Warrant for
________________ shares of Common Stock covered by such Warrant pursuant to the
Cashless Exercise provisions of the Warrant, in accordance with Section
1(a)(ii) of such Warrant.
Signature: _________________________
Address: __________________________
--------------------------
--------------------------
Annex C
ASSIGNMENT FORM
FOR VALUE RECEIVED,
___________________________________________ hereby sells, assigns and transfers
all of the rights of the undersigned under the attached Warrant with respect to
the number of shares of Common Stock covered thereby set forth below, unto:
Name of Assignee Address No. of Shares
Dated: ________________________ Signature: _________________________
Dated: ________________________ Witness: ___________________________
Exhibit 10.34
LEASE AGREEMENT
THIS LEASE AGREEMENT made this 1st day of January, 2003 by and
between C. Harry Knowles and Janet H. Knowles, residing at 425 East Linden
Street, Moorestown, New Jersey 08057 (hereinafter called "Landlord") and
Metrologic Instruments, Inc., a New Jersey corporation, having its principal
place of business at 90 Coles Road, Blackwood, New Jersey 08012 (hereinafter
called "Tenant").
I. PREMISES
In consideration of the rents, agreements, conditions and covenants
herein contained and on the part of the Tenant to be paid and performed,
Landlord hereby devises, rents, and lets to Tenant and Tenant takes and hires
from Landlord the following described premises (hereinafter called "Premises")
subject to all present and future restrictions, easements, and any and all
agreements affecting the Premises:
The entire property located at 90 Coles Road, Blackwood, New Jersey
(Tax Map Lots 49 & 50, Block 11001), including a building with 115,828 square
feet of office and manufacturing space and its surrounding parking lots and
grounds.
II. TERM
The term of this Lease shall be for a period of ten (10) years,
commencing on January 1, 2003 and ending on December 31, 2012.
III. OPTION TO RENEW
Landlord grants to Tenant the exclusive right and option to renew or
extend the term of this Lease for one period of five (5) years commencing at
the expiration of the original term on December 31, 2012. Written notice of the
exercise of this option shall be given to the Landlord by the Tenant not less
than six (6) months prior to the expiration of the original term. Such notice
shall be given personally or by certified mail, return receipt requested. It is
expressly agreed that time is of the essence in the giving of such notice.
Failure by Tenant to provide written notice of the exercise of this option in
the manner described shall result in the lapse of such option. Tenant shall not
sell, transfer, assign, mortgage or pledge this option to renew without the
prior written consent of the Landlord, and any attempt to do so shall render
this option to renew null and void. This option is subject to and conditioned
upon full performance and compliance by the Tenant of all terms, covenants and
conditions in this Lease, including, but not limited to, the payment of all
rent and other charges due hereunder.
In the event that Tenant exercises this option to renew, all the terms
and conditions of this Lease shall apply during the renewal term, and the rent
shall continue to increase annually in accordance with the provisions contained
in Article V.
IV. PURPOSE
The Tenant covenants and agrees to use the Premises for offices and
manufacturing. Tenant shall not use nor permit the Premises to be used for any
other purpose without the prior written consent of the Landlord.
V. RENT
The rent for the period from January 1, 2003 through December 31, 2003
shall be $810,796.00 per annum payable in equal monthly installments of
$67,566.33. Each monthly installment shall be payable in advance on the first
day of each month.
Starting on January 1, 2004, and on January 1 of each year thereafter,
the rent shall increase by 2% per year, and the monthly installments shall
increase accordingly.
In the event that the parties opt to renew this lease for the term
provided for in Section III above, the parties agree to discuss the amount of
the rent and future rent increases during the term and reach an agreement prior
to the start of any renewal term.
VI. ALTERATIONS AND IMPROVEMENTS
Tenant shall make no alterations, additions or improvements and shall
install no climate regulating, air-conditioning, cooling, heating or sprinkler
systems, television or radio antennas, heavy equipment, apparatus and fixtures,
without the written consent of the Landlord, which shall not be unreasonably
withheld. All such alterations, additions or improvements, when made, installed
in or attached to the Premises, shall belong to and become the property of the
Landlord and shall be surrendered with the Premises as part thereof upon the
termination of this Lease. Notwithstanding the foregoing, however, at the
termination of this Lease, Tenant may remove any fixtures which constitute
business equipment provided that Tenant shall restore the Premises to its
original condition, normal wear and tear excepted. Tenant shall not place nor
allow to be placed any signs of any kind whatsoever upon, in or about the
Premises, except as may be consented to by the Landlord in writing, which
consent shall not be unreasonably withheld. Any signs permitted by the Landlord
shall at all times conform with all municipal ordinances or other laws and
regulations applicable thereto. Landlord will assign to Tenant for the duration
of the Lease the benefit of all manufacturer warranties on all mechanical
systems.
VII. ACCEPTANCE OF PREMISES
By entry and commencement of use and occupancy of the Premises, Tenant
acknowledges that Tenant has examined the Premises, accepts the same "as is",
and has entered into this Lease without any representation on the part of the
Landlord as to the condition thereof. Landlord makes no warranties, expressed
or implied, regarding the condition of the Premises or its fitness for use of
any particular purpose.
VIII. INSURANCE
The Tenant shall obtain, pay for and keep in effect for the benefit
of Landlord property insurance for the Premises in case of loss from fire or
other casualty. The Tenant shall obtain, pay for and keep in effect for the
benefit of Landlord and Tenant Commercial General Liability insurance on the
Premises with an insurance company acceptable to the Landlord. The coverage
amounts for each such policy shall be as prescribed by Landlord from time to
time. Tenant shall name Landlord: (a) as a loss payee and an additional insured
on such property insurance policy; and (b) as an additional insured on all
Commercial General Liability insurance policies. Tenant shall provide Landlord
with a Certificate of Insurance showing the above for such insurance within
fifteen (15) days of the commencement date of this Lease.
IX. LIABILITY OF LANDLORD AND TENANT
Except where caused by Landlord's willful conduct or gross negligence,
Landlord shall not be held responsible for and is hereby expressly relieved
from any and all liability to Tenant or any other person by reason of any
injury, loss or damage to any person or property in or about the Premises
whether the same be due to fire, breakage, leakage, use, misuse, hatches,
openings, defective construction, failure to order supplies, light or power,
electric wiring, plumbing, machinery, wind, lightning, storm or any other cause
whatsoever. Tenant shall defend the Landlord from and reimburse Landlord for
all liability and costs resulting from any injury or damage due to the act or
neglect of the Tenant or the Tenant's employees.
X. UTILITIES AND SERVICE
The Tenant shall arrange and pay for all utilities and services
required for the Premises, including heat, cooling, hot and cold water,
electricity, gas, sewer, alarm systems and maintenance service contracts.
Tenant is responsible for the maintenance of any well and/or septic systems
servicing the premises, if applicable.
XI. MAINTENANCE AND REPAIRS
The Tenant shall maintain the Premises and all equipment and fixtures
used in connection therewith in good repair and appearance, including the
sprinkler systems, and any fire or burglar alarm systems. The Tenant shall make
all necessary repairs to the Premises (including the walks, driveway and
parking area) and all equipment and fixtures in it. The Tenant shall replace,
when necessary, equipment and fixtures servicing the Premises. The Tenant shall
maintain, repair and replace, when necessary, the roof and the plumbing,
cooling, heating and electrical systems servicing the Premises. The Tenant
shall maintain the grounds and keep the walks, driveway and parking area free
from trash, debris, snow and ice.
XII. ACCESS TO PREMISES
Landlord shall have the right at all reasonable times, including times
outside of regular business hours, and for emergency repairs, to enter the
Premises for the purpose of examining or inspecting the same, providing service
or maintenance, or making such repairs or alterations therein as Landlord shall
deem necessary. During the last 120 days of the Lease term, the Landlord may
exhibit the Premises to prospective new tenants. Tenant shall provide Landlord
with necessary keys for entry into the Premises.
XIII. RESTRICTION ON TENANT'S USE OF PREMISES
Tenant shall not do or permit anything to be done upon the Premises
which would:
(a) Impair the appearance of the Premises;
(b) Impair or interfere with the proper maintenance and service
of the Premises:
(c) Make void or voidable any insurance enforced upon the
Premises or increase the cost of any such insurance;
(d) Make it impossible to obtain insurance upon the Premises;
(e) Cause structural damage to the Premises or any part thereof;
(f) Constitute a public or private nuisance;
(g) Violate any present or future laws or regulations of any
governmental body.
XIV. DEFAULT AND REMEDIES
Tenant shall be in default hereunder if any of the following events
occur:
(a) Tenant fails to make any payment of rent of additional rent
on the due date thereof and fails to cure such delinquency
within ten (10) days after written notice thereof has been
given to Tenant by Landlord;
(b) Tenant fails to comply with any covenant or condition of
this Lease other than the covenant for the payment of rent
and fails to cure such noncompliance within thirty (30) days
after written notice thereof has been given to Tenant by
Landlord.
(c) Tenant vacates the Premises:
(d) Tenant is the subject of a legal proceeding which results in
a levy or a charging order against or the acquisition of its
leasehold interest by a trustee in bankruptcy, receiver,
assignee, or other legal officer appointed in any insolvency
or creditor's proceeding:
(e) Tenant uses or permits to be used for a purpose other than
those permitted under this Lease and fails to stop such
unpermitted use within ten (10) days after receipt of
written notice to do so from Landlord;
(f) Tenant subleases the Premises or any part thereof, or
assigns this Lease without receiving the prior written
consent of Landlord, which consent shall not be unreasonably
withheld or delayed.
In the event of such default, Landlord may terminate this Lease on not
less than three (3) days notice to Tenant and Tenant shall quit and surrender
the Premises to Landlord. Tenant shall remain liable as hereinafter provided.
If the Lease shall have been so terminated by Landlord, Landlord may at any
time thereafter resume possession of the Premises by any lawful means and
remove Tenant or other occupants and their effects.
Where Landlord has recovered possession of the Premises by reason of
Tenant's default, Landlord may, at Landlord's option, occupy the Premises or
cause the Premises to be redecorated, altered, divided, consolidated with other
adjoining premises, or otherwise changed or prepared for reletting, and may
relet the Premises or any part thereof as agent of Tenant or otherwise for a
term or terms to expire prior to, or at the same time as, or subsequent to, the
original expiration date of this Lease. Landlord may receive the rent thereof,
applying the same first to the payment of such expenses Landlord may have
incurred in connection with the recovery of possession, preparation for
reletting, and the reletting, including brokerage and reasonable attorneys
fees, and then to the payment of damages and amounts equal to the rent
hereunder and to the cost and expense of performance of the other covenants of
Tenant as herein provided. Tenant agrees, whether or not Landlord has relet, to
pay to Landlord damages equal to the rent and other sums herein agreed to be
paid by Tenant, less the net proceeds of reletting, if any, as ascertained from
time to time, and the same shall be payable by Tenant on the rental due dates
specified in Article V above. In reletting the Premises as aforesaid, Landlord
may grant rent concessions and Tenant shall not be credited therewith. No
reletting shall constitute a surrender and acceptance or be deemed evidence
thereof. Tenant shall not be entitled to any surplus accruing as a result of
any reletting. If Landlord elects pursuant hereto to occupy and use the
Premises or any part thereof during any part of the balance of the term as
originally fixed or extended, there shall be allowed against Tenant's
obligation for rent or damages as herein defined, during the period of
Landlord's occupancy, the reasonable value of such occupancy, not to exceed in
any event the rent herein reserved. Such occupancy shall not be construed as a
release of Tenant's liability hereunder. The failure of Landlord to insist upon
the strict performance of any of the terms, conditions and covenants herein
shall not be deemed a waiver of any subsequent breach or default in the terms,
conditions and covenants herein contained.
XV. LANDLORD'S OBLIGATIONS
Landlord's obligations hereunder shall be binding upon Landlord only
for the period of time that Landlord owns the Demised Premises. Upon
termination of that ownership, except as to any obligations which have then
matured, Tenant shall look solely to Landlord's successor in interest for the
satisfaction of obligations of Landlord hereunder.
XVI. REAL ESTATE TAXES
Tenant shall pay, on behalf of and for the benefit of Landlord, all
real estate taxes on the Premises directly to the appropriate taxing authority.
XVII. LATE PAYMENT
In the event that any payment required of the Tenant hereunder shall
not be paid within ten (10) days after the first day of the month, Tenant shall
upon demand pay a late charge to Landlord in an amount equal to five (5%)
percent of the amount overdue, per month, and such late charge shall be deemed
"rent" for all purposes under this Lease.
XVIII. WAIVER OF SUBROGATION
Tenant waives all right of recovery against the Landlord or Landlord's
agents, employees or other representatives, for any loss, damages or injury of
any nature whatsoever to property or persons for which the Tenant is insured;
provided, however, that this release shall be effective only with respect to
loss or damage occurring during such time as the appropriate policy of
insurance shall contain a clause to the effect that this waiver shall not
affect said policy or the right of the insured to recover thereunder.
XIX. FIRE OR OTHER CASUALTY
In the event the Premises are totally destroyed by fire or other
casualty or are damaged to such an extent that Landlord desires to raze or
remodel the Premises, then the term of the Lease hereby created shall end on
the date of such fire or casualty. Tenant shall pay the rent and other charges
for which it is responsible under this Lease apportioned to the time of such
fire or other casualty and shall surrender possession on the Premises. If,
however, the Premises, in the judgment of Landlord, can be repaired within a
period of sixty (60) days so as to be in as good condition as at the beginning
of the term, the Lease and the term herein created shall not be affected and
the repairs shall be made promptly by the Tenant.
XX. CONDEMNATION
Tenant agrees that if the Premises, or any part thereof, shall be
taken or condemned for a public or quasi-public use or purpose by any competent
authority, Tenant shall have no claim against the Landlord and shall not have
any claim or right to any portion of the amount that may be awarded as damages
or paid as a result of any such condemnation. All rights of the Tenant to
damages therefore, if any, are hereby assigned by the Tenant to the Landlord;
provided, however, that Tenant may make claim against the condemning authority
for relocation expenses. Upon such condemnation or taking, the term of this
Lease shall, at the option of landlord, cease and terminate from the date of
such governmental taking or condemnation, and Tenant shall have no claim
against the Landlord for the value of any unexpired term of this Lease.
XXI. GOVERNING LAW
This Lease shall be construed, governed and enforced in accordance
with the laws of the State of New Jersey.
XXII. SUBORDINATION
This Lease is subject to and subordinate to any and all mortgages now
or hereafter placed upon the Premises. As long as Tenant is not in default and
performs its obligations hereunder, Tenant shall not be disturbed in its
possession of the Premises and this Lease shall remain in full force and
effect. This subordination shall be self-executing, but Tenant nevertheless
agrees upon demand of Landlord to execute, acknowledge, and deliver such
instruments as shall be requested by any mortgagee or proposed mortgagee to
confirm such subordination. To this end, Tenant hereby appoints Landlord his
Attorney-in-Fact, irrevocably, to execute and deliver any such instrument on
Tenant's behalf.
XXIII. SEVERABILITY
In the event that any portion of this Lease shall be held
unenforceable or void, such determination shall not in any event affect the
provisions of enforceable or void, such determination shall not in any event
affect the provisions of enforceability of the remainder of this Lease.
XXIV. NOTICES
All notices provided for this Lease, whether stated to be given by
certified mail or otherwise, shall be required to be personally delivered or
sent by certified mail to the addresses appearing in the Preamble of this
Lease.
The entities and the addresses to which notices are to be directed may
from time to time be changed by either party hereto upon certified mail notice
to the other at least ten (10) days before such change of entity or address
shall be effective.
XXV. BINDING EFFECT
All rights and liabilities herein given to or imposed upon the
respective parties hereto shall extend to and bind the several and respective
heirs, executors, administrators, successors and assigns of said parties.
XXVI. REMEDIES NOT EXCLUSIVE
No right or remedy herein conferred upon or reserved to Landlord or
Tenant is intended to be exclusive of any other right or remedy, but each shall
be cumulative and in addition to every other right or remedy herein given or
now or hereafter existing at law or equity or by statute.
XXVII. ENTIRE AGREEMENT
It is expressly understood and agreed by and between the parties
hereto that this Lease, and any exhibits that may be attached hereto, set forth
all promises, agreements, conditions and understandings between Landlord or its
agents and Tenant relative to the Premises. There are no promises, agreements,
conditions or understandings, either oral or written, between them other than
are herein set forth. It is further understood and agreed that, except as
herein otherwise provided, no subsequent alteration, amendment, change or
addition to this Lease shall be binding upon Landlord or Tenant unless reduced
to writing and signed by both parties.
XXVIII. INTERPRETATION
In all references herein to any parties, persons, entities or
corporations the use of any particular gender or the plural or singular number
is intended to include the appropriate gender or number as the text of the
within instrument may require.
XXIX. SECURITY DEPOSIT
The Landlord acknowledges that Tenant gave to Landlord the sum of
$60,000.00 as a security deposit under the predecessor to this Lease Agreement
dated March 19, 1990. This security deposit shall continue to be the property
of the Landlord during the term of the Lease and need not be held in escrow or
otherwise segregated from Landlord's other assets. The Landlord may deduct from
the security deposit any expenses incurred in connection with the Tenant's
violation of any agreement in this Lease. If the Tenant does not leave the
Premises in good condition at the end of the Lease term, the security deposit
may be used to put the Premises in good condition. If the amount of damage
exceeds the security deposit, the Tenant shall be responsible for paying the
additional amount to the Landlord on demand.
If the Landlord uses the security deposit or any part of it during the
Lease term, theTenant shall on demand pay the Landlord for the amount spent.
The amount of the security deposit is to remain constant throughout the Lease
term. The security deposit is not to be used by the Tenant for the payment of
rent. The Landlord shall repay to the Tenant any balance remaining within a
reasonable time after the end of the Lease term. The Tenant shall not be
entitled to interest on the security deposit.
If the Landlord's interest in the Premises is transferred, the
Landlord shall turn over the security deposit to the new landlord. The Landlord
shall notify the Tenant of the name and address of the new landlord.
Notification must be given within five (5) days after the transfer by
registered or certified mail. The Landlord shall then no longer be responsible
to the Tenant for the repayment of the security deposit. The new landlord shall
be responsible to the Tenant for the return of the security deposit.
IN WITNESS WHEREOF, the parties hereto have caused this Lease to be
executed the day and year first above written.
LANDLORD: /s/C. H. Knowles
---------------------------------------
Witness: C. HARRY KNOWLES
/s/Nancy A. Smith
- ---------------------------------
/s/Janet H. Knowles
---------------------------------------
Witness: JANET H. KNOWLES
/s/Nancy A. Smith
- ---------------------------------
TENANT:
METROLOGIC INSTRUMENTS, INC.
By: /s/T.E. Mills
----------------------------------
Thomas E. Mills IV,
President and COO
CORPORATE SEAL
Attest:
/s/Janet H. Knowles
- ---------------------------------
Janet H. Knowles, Secretary
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
Metrologic do Brasil Ltda., a Brazil corporation
Metrologic Asia (PTE) Ltd., a Singapore corporation
MTLG Investments Inc., a Delaware corporation
Metrologic Instruments GmbH, a German corporation
Metro (Suzhou) Technologies Co., Ltd., a China corporation
Metrologic Eria Iberica SL, a Spain corporation
Metrologic Italia S.r.l., an Italy corporation
Metrologic Eria France S.A., a France corporation
Metrologic Instruments UK Limited, a United Kingdom corporation
MetroAsia Resources, Inc., a Taiwan corporation
Adaptive Optics Associates, Inc., a Delaware corporation
Metrologic Japan Co. Ltd., a Japan corporation
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-89376) pertaining to the Metrologic Instruments, Inc. 1994
Incentive Plan and the Registration Statement (Form S-8 No. 33-86670)
pertaining to the Metrologic Instruments, Inc. Employee Stock Purchase Plan of
our report dated February 12, 2003, except for the fifth paragraph of Note 8
and the second and last paragraphs of Note 10, as to which the date is
February 28, 2003, with respect to the consolidated financial statements and
schedule of Metrologic Instruments, Inc. included in this Annual Report
(Form 10-K) for the year ended December 31, 2002.
Philadelphia, Pennsylvania
March 25, 2003
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 Annual Report of Metrologic
Instruments, Inc. (the "Company") on Form 10-K for the Year ending December 31,
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. ss. 1350, as adopted pursuant to ss. 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 results of operations of the Company.
/s/C. Harry Knowles
- ------------------------------------
C. Harry Knowles
Chief Executive Officer
March 26, 2003
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 Annual Report of Metrologic
Instruments, Inc. (the "Company") on Form 10-K for the Year ending December 31,
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. ss. 1350, as adopted pursuant to
ss. 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 results of operations of the Company.
/s/Thomas E. Mills IV
- ------------------------------------
Thomas E. Mills IV
President and Chief Operating Officer
March 26, 2003
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 Annual Report of Metrologic
Instruments, Inc. (the "Company") on Form 10-K for the Year ending December 31,
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. ss. 1350, as adopted pursuant to ss. 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 results of operations of the Company.
/s/Kevin J. Bratton
- ------------------------------------
Kevin J. Bratton
Chief Financial Officer
March 26, 2003