UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to _____
Commission file number 0-24712
Metrologic Instruments, Inc.
(Exact name of registrant as specified in its charter)
New Jersey 22-1866172
(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification No.)
90 Coles Road, Blackwood, New Jersey 08012
(Address of principal executive offices) (Zip Code)
(856) 228-8100
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes __ No X
As of May 12, 2003 there were 5,489,619 shares of Common Stock, $.01 par
value per share, outstanding.
METROLOGIC INSTRUMENTS, INC.
INDEX
Page
No.
Part I - Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
March 31, 2003 (unaudited) and December 31, 2002 3
Condensed Consolidated Statements of Operations (unaudited)
-Three Months Ended March 31, 2003 and 2002 4
Condensed Consolidated Statements of Cash Flows (unaudited)
- Three Months Ended March 31, 2003 and 2002 5
Notes to Condensed Consolidated Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures about Market Risk 15
Item 4. Controls and Procedures 15
Part II - Other Information
Item 1. Legal Proceedings 16
Item 2. Changes in Securities and Use of Proceeds 16
Item 3. Defaults upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 18
Certifications 19
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
Metrologic Instruments, Inc.
Condensed Consolidated Balance Sheets
(amounts in thousands except share data)
March 31, December 31,
Assets 2003 2002
-------- --------
(Unaudited)
Current assets:
Cash and cash equivalents $ 923 $ 1,202
Restricted cash - 1,000
Accounts receivable, net of allowance 18,765 20,412
Inventory 14,630 14,039
Deferred income taxes 802 268
Other current assets 1,518 2,258
-------- --------
Total current assets 36,638 39,179
Property, plant and equipment, net 12,413 12,600
Patents and trademarks, net of amortization 4,813 4,688
Holographic technology, net of amortization 339 368
Advance license fee, net of amortization 1,265 1,294
Goodwill, net of amortization 15,606 15,175
Deferred income taxes - 190
Other assets 743 758
-------- --------
Total assets $ 71,817 $ 74,252
======== ========
Liabilities and shareholders' equity
Current liabilities:
Current portion of lines of credit $ 2,157 $ 1,347
Current portion of notes payable 1,952 5,708
Accounts payable 8,928 8,719
Accrued expenses 9,600 9,389
Deferred contract revenue 611 1,707
-------- --------
Total current liabilities 23,248 26,870
Lines of credit, net of current portion 2,726 -
Notes payable, net of current portion 7,518 14,431
Deferred income taxes 551 -
Other liabilities 3,963 3,480
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; 5,473,939 and 5,472,555 shares
issued and outstanding at March 31, 2003 and
December 31, 2002, respectively 55 55
Additional paid-in capital 17,941 17,688
Retained earnings 18,403 14,601
Accumulated other comprehensive loss (2,588) (2,873)
--------- --------
Total shareholders' equity 33,811 29,471
--------- --------
Total liabilities and shareholders' equity $ 71,817 $ 74,252
========= ========
See accompanying notes.
Metrologic Instruments, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
(amounts in thousands except share and per share data)
Three Months Ended
March 31,
2003 2002
---- ----
Sales $32,288 $27,529
Cost of sales 19,105 17,556
------- -------
Gross profit 13,183 9,973
Selling, general and
administrative expenses 7,797 7,280
Research and development
expenses 1,761 1,713
Severance costs 27 276
------- -------
Operating income 3,598 704
Other income (expenses)
Interest income 5 23
Interest expense (464) (696)
Other (expense)
income, net (555) 5
Gain on extinguishment
of debt 2,200 -
------- -------
Total other
income (expenses) 1,186 (668)
------- -------
Income before provision
for income taxes 4,784 36
Provision for income taxes 982 14
------- -------
Net income $ 3,802 $ 22
======= =======
Basic earnings per share
Weighted average shares
outstanding 5,472,555 5,463,431
Basic earnings per share $ 0.69 $ 0.00
Diluted earnings per share
Weighted average shares
outstanding 5,472,555 5,463,431
Net effect of dilutive
securities 215,230 -
Total shares outstanding
used in computing diluted
earnings per share 5,687,785 5,463,431
Diluted earnings per share $ 0.67 $ 0.00
See accompanying notes.
Metrologic Instruments, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(amounts in thousands)
Three Months Ended
March 31,
---------------------------
2003 2002
-------- --------
Operating activities
Net cash provided by
operating activities $ 6,518 $ 3,093
Investing activities
Restricted cash 1,000 -
Purchase of property, plant and equipment (374) (485)
Purchase of minority interest in subsidiary (70) -
Patents and trademarks (216) (214)
------- -------
Net cash provided by (used in)
investing activities 340 (699)
Financing activities
Proceeds from exercise of stock options and
employee stock purchase plan 6 16
Principal payments on notes payable (15,012) (762)
Proceeds from issuance of notes payable 4,137 -
Net proceeds from (payments on) lines of credit 3,536 (2,250)
Capital lease payments (6) (52)
Issuance of warrants 247 -
Increase in financing costs (110) -
Net cash used in ------- -------
financing activities (7,202) (3,048)
Effect of exchange rates on cash 65 97
------- -------
Net decrease in cash and
cash equivalents (279) (557)
Cash and cash equivalents at beginning of period 1,202 557
------- -------
Cash and cash equivalents at end of period $ 923 $ -
======== =======
Supplemental Disclosure
Cash paid for interest $ 813 $ 727
Cash paid for income taxes $ 0 $ 23
See accompanying notes.
METROLOGIC INSTRUMENTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2003
(Amounts in thousands except per share data)
(Unaudited)
1. Business
Metrologic Instruments, Inc. and its subsidiaries (collectively, the "Company")
design, manufacture and market bar code scanning and high-speed automated data
capture solutions using laser, holographic and vision-based technologies. The
Company offers expertise in 1D and 2D bar code reading, optical character
recognition, image lift, and parcel dimensioning and singulation detection for
customers in retail, commercial, manufacturing, transportation and logistics,
and postal and parcel delivery industries. Additionally, through its
wholly-owned subsidiary, Adaptive Optics Associates, Inc. ("AOA"), the Company
is engaged in developing, manufacturing, marketing and distributing custom
optical systems which include precision laser beam delivery, high speed imaging
control and data processing, industrial inspection, and scanning and
dimensioning systems for the aerospace and defense industry in the United
States and Canada. The Company's products are sold in more than 100 countries
worldwide through the Company's sales, service and distribution offices located
in North and South America, Europe and Asia.
2. Accounting Policies
Interim Financial Information
The accompanying unaudited Condensed Consolidated Financial Statements have
been prepared in accordance with accounting principles generally accepted in
the United States for interim financial information and the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by accounting principles
generally accepted in the United States for complete financial statements. In
the opinion of management, all adjustments (consisting solely of normal
recurring adjustments) necessary for a fair presentation of the Condensed
Consolidated Financial Statements have been included. The results of the
interim periods are not necessarily indicative of the results to be obtained
for a full fiscal year. The Condensed Consolidated Financial Statements and
these Notes should be read in conjunction with Management's Discussion and
Analysis of Financial Condition and Results of Operations contained in this
Quarterly Report on Form 10-Q and the Company's Annual Report on Form 10-K for
the year ended December 31, 2002, including the Consolidated Financial
Statements and the Notes to Consolidated Financial Statements for the year
ended December 31, 2002 contained therein.
Stock-Based Compensation
The Company accounts for stock options under SFAS No. 123, "Accounting for
Stock-Based Compensation", as amended by SFAS No. 148, which contains a fair
value-based method for valuing stock-based compensation that entities may use,
which measures compensation cost at the grant date based on the fair value of
the award. Compensation is then recognized over the service period, which is
usually the vesting period. Alternatively, SFAS No. 123 permits entities to
continue accounting for employee stock options and similar equity instruments
under Accounting Principles Board (APB) Opinion 25, "Accounting for Stock
Issued to Employees." Entities that continue to account for stock options using
APB Opinion 25 are required to make pro forma disclosures of net income and
earnings per share, as if the fair value-based method of accounting defined in
SFAS No. 123 had been applied.
At March 31, 2003, the Company had one stock-based employee compensation plan.
The Company accounts for the plan under the recognition and measurement
principles of APB No. 25, and related interpretations. Stock-based employee
compensation costs are not reflected in net earnings, as all options granted
under the plan had an exercise price equal to the market value of the
underlying common stock on the date of grant. The following table illustrates
the effect on net earnings and earnings per share if the Company had applied
the fair value recognition provisions of SFAS No. 123, to stock-based employee
compensation (in thousands, except per share amounts).
Three Months Ended
March 31,
2003 2002
---- ----
Net income:
As reported $ 3,802 $ 22
Deduct: (total stock-based employee
compensation expense determined
under fair value based method, net of
related taxes) (137) (87)
----- -----
Pro forma $ 3,665 $ (65)
===== =====
Net income (loss) per share:
Basic:
As reported $ 0.69 $ 0.00
Pro forma 0.67 (0.01)
Diluted:
As reported $ 0.67 $ 0.00
Pro forma 0.64 (0.01)
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes options-pricing model with the following weighted average
assumptions used for grants in 2002; expected volatility of 90%; risk-free
interest rate of 3.9%; and expected lives of 5 years. The estimated fair value
of the options is amortized to expense over the options' vesting period. No
options were granted during the three months ended March 31, 2003.
Use of Estimates
The preparation of the financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current
period 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%. The following amounts due from factor relating to non-recourse factoring
were included in accounts receivable:
March 31, December 31,
2003 2002
---- ----
Receivables assigned to factor $1,570 $1,645
Less advances from factor (995) (1,091)
------ ------
Due from factor $ 575 $ 554
====== ======
4. Inventory
Inventory consists of the following:
March 31, 2003 December 31, 2002
-------------- ------------------
Raw materials $ 5,578 $ 5,788
Work-in-process 2,110 1,865
Finished goods 6,942 6,386
------ ------
14,630 14,039
------ ------
5. Comprehensive Income (Loss)
The Company's total comprehensive income (loss) was as follows:
Three Months Ended
March 31,
2003 2002
---- ----
Net income (loss) $ 3,802 $ 22
Other comprehensive income
(loss):
Change in equity due to
foreign currency
translation adjustments 285 (72)
------- -------
Comprehensive income (loss) $ 4,087 $ (50)
======= =======
6. Business Segment Information
The Company generates its revenue from the sale of laser bar code scanners
primarily to distributors, value-added resellers, original equipment
manufacturers and directly to end users, in locations throughout the world. No
individual customer accounted for 10% or more of revenues in the quarters ended
March 31, 2003 or 2002.
The Company manages its business on a business segment basis dividing the
business into two major segments: Industrial scanning and Optical; and Point of
Sale ("POS")/Original Equipment Manufacturers ("OEM"). Sales were attributed to
business segments in the following table.
Industrial/ Total
Optical POS/OEM Consolidated
------- --------- ---------
Three months ended March 31, 2003:
Sales $ 5,058 27,230 32,288
Income (loss)
before (benefit) provision
for income
taxes $ (339) 5,123 4,784
Identifiable assets $16,352 55,465 71,817
Three months ended March 31, 2002:
Sales $ 6,406 21,123 27,529
Income (loss)
before (benefit) provision
for income
taxes $ (539) 575 36
Identifiable assets $20,810 68,289 89,099
7. Credit Facility
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
C. Harry Knowles, Chairman and Chief Executive Officer and his spouse, Janet
Knowles, Vice President, Administration, were released. Outstanding borrowings
under the revolving credit facility were $2,726 at March 31, 2003.
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 scheduled maturities of $9,000 in 2003 and $1,000 in 2004 and 2005.
Interest rates were 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 $3,800 on March 31, 2003 as payment in full
of its obligation under the Subordinated Debt. Accordingly, the Company has
recorded a $2,200 gain on the extinguishment of the Subordinated Debt in March
2003.
In January 2003, the Company entered into a $4,260 subordinated note payable
with its Chairman and CEO and his spouse, 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 $247 in total, and the resulting original issue discount will be
amortized into interest expense over the life of the subordinated note payable.
8. 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
rescinds FASB Statement No. 4, which required all gains and losses from
extinguishment of debt to be aggregated and, if material, classified as an
extraordinary item, net of tax. This provision is effective for fiscal years
beginning after May 15, 2002, with early adoption permitted. In accordance with
the provisions of SFAS 145, the Company has recorded the $2,200 gain on the
extinguishment of the Subordinated Debt in Other Income in the Consolidated
Statement of Operations for the three months ended March 31, 2003.
9. Legal Matters
Symbol Technologies, Inc. v. Metrologic
On May 3, 2002, the Company was served with a lawsuit that was filed on April
12, 2002 by Symbol in the United States District Court for the Eastern District
of New York alleging that the Company is in breach of the terms of the License
Agreement between Symbol and the Company (the "Agreement"). The allegations of
breach relate to the dispute between the parties as to which products are
covered by the licenses under the Agreement. On May 30, 2002, the Company was
served with an amended complaint in this action. The amended Complaint also
includes new claims of patent infringement from the date of the alleged breach
against the Company and C. Harry Knowles, the Company's Chairman and CEO. The
amended complaint further includes claims for injunctive relief and a claim of
fraudulent transfer related to the transactions under the Amended Credit
Agreement. The Company believes that Symbol's claims in the lawsuit are without
merit and intends to vigorously defend its rights.
The Company 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. In response, Symbol filed a motion to
stay the arbitration proceedings pending a decision by the court as to whether
the issues are subject to arbitration. 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.
On March 31, 2003, the Court entered its decision on the parties' respective
motions for summary judgment. In finding for the Company, the Court dismissed
certain counts of Symbol's complaint, and granted the Company's motion to
compel arbitration regarding certain matters. On April 9, 2003, Symbol
voluntarily dismissed the remaining counts of the complaint and requested that
the Court enter a final order in the case. The final order was entered on April
16, 2003. Symbol has until May 16, 2003 to file its notice of appeal.
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.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
The following discussion of the Company's results of operations and liquidity
and capital resources should be read in conjunction with the Condensed
Consolidated Financial Statements of the Company and the related Notes thereto
appearing elsewhere in this Quarterly Report on Form 10-Q and the Consolidated
Financial Statements and the Notes to Consolidated Financial Statements for the
year ended December 31, 2002 appearing in the Company's Annual Report on Form
10-K for the year ended December 31, 2002. The Condensed Consolidated Financial
Statements for the three months ended March 31, 2003 and 2002 are unaudited.
Metrologic Instruments, Inc. and its subsidiaries (collectively, the "Company")
design, manufacture and market bar code scanning and high-speed automated data
capture solutions using laser, holographic and vision-based technologies. The
Company offers expertise in 1D and 2D bar code reading, optical character
recognition, image lift, and parcel dimensioning and singulation detection for
customers in retail, commercial, manufacturing, transportation and logistics,
and postal and parcel delivery industries. Additionally, through its
wholly-owned subsidiary, Adaptive Optics Associates, Inc. ("AOA"), the Company
is engaged in developing, manufacturing, marketing and distributing custom
optical systems which include precision laser beam delivery, high speed imaging
control and data processing, industrial inspection, and scanning and
dimensioning systems for the aerospace and defense industry in the United
States and Canada. The Company's products are sold in more than 100 countries
worldwide through the Company's sales, service and distribution offices located
in North and South America, Europe and Asia.
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 potential impact on production
and sales resulting from the outbreak of Severe Acute Respiratory Syndrome
("SARS") in Asian and other markets; (vii) the effects of 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; (viii)
continued or prolonged capacity constraints that may hinder the Company's
ability to deliver ordered product to customers; (ix) 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; (x) the costs and potential outcomes of legal proceedings or
assertions by or against the Company relating to intellectual property rights
and licenses; (xi) 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; (xii) 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; and (xiii) 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
For a discussion of the Company's critical accounting policies and use of
estimates, please refer to Management's Discussion and Analysis of Financial
Condition and Results of Operations contained in the Company's Annual Report on
Form 10-K for the year ended December 31, 2002. The only change in critical
accounting policies during the three-month period ended March 31, 2003 is the
adoption of SFAS 145 during the first quarter of 2003.
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. Currently, a significant percentage of the Company's products are
manufactured in the Company's US facility, and therefore, sales and results of
operations are affected by fluctuations in the value of the US dollar relative
to such foreign currencies. The Company expects, however, that the manufacture
of its POS products in its Suzhou, China facility to increase in 2003, which
will partially mitigate the profit impact of foreign exchange rate fluctuation
with reduced labor costs in the Company's POS scanners. In the three months
ended March 31, 2003, sales and gross profit were favorably affected by the
continuing decline in the value of the US dollar in relation to certain foreign
currencies, especially the Euro. This favorable impact offsets the adverse
impact of the strengthening value of the US dollar on sales and gross profit in
the three months ended March 31, 2002. However, in the three months ended March
31, 2003, sales and gross profits were negatively affected by the strengthening
of the value of the US dollar in relation to the Brazilian real.
Three Months Ended March 31, 2003 Compared with Three Months Ended March 31,
2002 (dollars in thousands except per share information)
Sales increased 17.3% to $32,288 in the three months ended March 31, 2003 from
$27,529 in the three months ended March 31, 2002. Sales of Metrologic's
point-of-sale ("POS") and Original Equipment Manufacturers ("OEM") products
increased by 29.9%, sales of industrial products increased by 46.1% while sales
of optical systems decreased by 54%. The decrease in optical systems reflects
the completion of certain fixed price optical projects at AOA in 2002. Sales of
POS and OEM products in North America increased by 33.6% and sales of these
products in Europe increased by 32.1%. The Company benefited from the
strengthening of the euro against the US dollar in the first quarter of 2003.
Sales of products denominated in euros or pounds increased 4% in 2003, while
the increase in U.S. dollars for such sales approximated 28%.
International sales accounted for $17,768 (55.03% of total sales) in the three
months ended March 31, 2003 and $13,967 (50.7% of total sales) in the three
months ended March 31, 2002. No individual customer accounted for 10% or more
of sales in the three months ended March 31, 2003 or 2002.
Cost of sales increased 8.8% to $19,105 in the three months ended March 31,
2003 from $17,556 in the three months ended March 31, 2002, and decreased as a
percentage of sales to 59.2% from 63.8%. The decrease in the percentage of cost
of sales was due to increased unit production in the Company's Suzhou facility
resulting in reduced labor costs, reduced direct labor and labor related costs
as a result of workforce reductions in March and April 2002 and lower material
costs resulting from engineering efforts to reduce bill of material costs.
These factors were partially offset by increased sales of lower margin
non-Metrologic manufactured products.
Selling, general and administrative ("SG&A") expenses increased 7.1% to $7,797
in the three months ended March 31, 2003 from $7,280 in the three months ended
March 31, 2002 and decreased as a percentage of sales to 24.1% from 26.4%. The
increase in SG&A expenses was due to increased variable selling expenses
associated with the higher sales volume in 2003 and increased marketing and
promotional expenses in 2003, partially offset by lower personnel costs as a
result of the workforce reduction in March and April 2002.
Research and Development ("R&D") expenses increased 2.8% to $1,761 in the three
months ended March 31, 2003 from $1,713 in the three months ended March 31,
2002, and decreased as a percentage of sales to 5.5% from 6.2%. The increase in
2003 is attributable to product development costs associated with new products
introduced during the first quarter.
Severance costs decreased to $27 in the three months ended March 31, 2003 from
$276 in the three months ended March 31, 2002. The severance costs in 2002 were
due to a workforce reduction in March 2002.
Other income/expense reflect net other income of $1,186 in the three months
ended March 31, 2003 compared to net other expenses of $668 in the
corresponding period in 2002. Net other income for the three months ended March
31, 2003 included a $2,200 gain on an early extinguishment of debt in
connection with early repayment of Subordinated debt relating to the
acquisition of Adaptive Optics Associates, Inc. ("AOA"). This debt was repaid
in full in the first quarter of 2003. Net interest expenses decreased from $673
in 2002 to $459 in 2003 due to lower outstanding borrowings and lower interest
rates in 2003. Other expenses in 2003 include costs of $463 incurred in
connection with the Company's efforts to refinance its bank debt.
Net income was $3,802 in the three months ended March 31, 2003 compared with
$22 in the three months ended March 31, 2002. Net income reflects a 21%
effective income tax rate for the three months ended March 31, 2003 and 38% for
the same period in 2002. The decrease in the effective tax rate was a result of
the $2,200 gain on early extinguishment of debt which, for tax purposes, will
be treated as a reduction to purchase price of AOA, and as such will not be
subject to federal or state income tax. The decrease in the value of the U.S.
dollar relative to other foreign currencies positively affected diluted
earnings per share by approximately $0.18 as compared to the corresponding
period in 2002.
Inflation and Seasonality
Inflation and seasonality have not had a material impact on the Company's
results of operations. There can be no assurance, however, that the Company's
sales in future periods will not be impacted by fluctuations in seasonal demand
from European customers in its third quarter or from reduced production days in
the Company's fourth quarter.
Liquidity and Capital Resources (amounts in thousands except share and warrant
data)
The Company's working capital increased to $13,390 as of March 31, 2003 from
$12,309 as of December 31, 2002 as a result of the Company's profitable
operations, reduction in accounts receivable and the debt restructuring
discussed in Note 7 of the Notes to the Consolidated Financial Statements.
The Company's operating activities provided net cash of $6,518 and $2,384 for
the three months ended March 31, 2003 and 2002, respectively. Net cash provided
in operating activities for the three months ended March 31, 2003 resulted
primarily from net income of $3,802 plus reductions in accounts receivable and
increases in accrued expenses.
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 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 scheduled maturities of $9,000 in 2003 and $1,000 in 2004 and 2005.
Interest rates were 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 $3,800 on March 31, 2003 as payment in full
of its obligation under the Subordinated Debt. Accordingly, the Company has
recorded a $2,200 gain on the extinguishment of the Subordinated Debt in March
2003.
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 $247 in total, and the resulting original
issue discount will be amortized into interest expense over the life of the
subordinated note payable.
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 March 31, 2003.
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 contract is estimated at 5,300 euros or $5,724 at March 31,
2003. It is expected that payments will be made over 3 years commencing July 1,
2003. To date, no notice has been received concerning the option to purchase
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 9,398 1,924 5,228 2,246 -
Capital Lease Obligations 72 28 44 - -
Operating Leases* 13,361 2,457 5,690 1,421 3,793
Option to purchase minority
interest in joint venture 6,172 2,278 3,894 - -
--------- ------- -------- ------- ---------
Total Contractual Cash
Obligations $ 29,003 $ 6,687 $ 14,856 $3,667 $ 3,793
========= ======= ======== ====== ========
*Based on information as of December 31, 2002.
Total Less
Amounts than 1 1-3 4-5 Over 5
Other Commercial Commitments Committed Year Years Years Years
- ---------------------------- --------- ---- ----- ----- -----
Revolving Credit Facility $ 4,883 $2,157 $2,726 $ - $ -
======== ====== ====== ===== =====
Item 3- Quantitative and Qualitative Disclosures about Market Risk
(amounts in thousands)
The information contained in Item 7A of the Company's Annual Report on Form
10-K for the year ended December 31, 2002 is hereby incorporated herein by
reference.
Item 4- Controls and Procedures
As of May 13, 2003, the principal executive officer, chief operating officer
and principal 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 Company is made known to
these officers by other employees of the Company, 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.
There have been no significant changes in the Company's internal controls or in
other factors that could significantly affect these internal controls
subsequent to the date of their evaluation.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
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 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 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 27,
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 November 22, 2002, PSC filed for protection under Chapter 11 of the U.S.
Bankruptcy Code. The Court issued an automatic stay in this case while the
bankruptcy is pending.
C. Symbol Technologies, Inc. v. Metrologic
On March 31, 2003, the Court entered its decision on the parties' respective
motions for summary judgment. In finding for the Company, the Court dismissed
certain counts of Symbol's complaint, and granted the Company's motion to
compel arbitration regarding certain matters. On April 9, 2003, Symbol
voluntarily dismissed the remaining counts of the complaint and requested that
the Court enter a final order in the case. The final order was entered on April
16, 2003. Symbol has until May 16, 2003 to file its notice of appeal.
Item 2. Changes in Securities and Use of Proceeds
Not applicable.
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
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.
On February 4, 2003, the Company filed a current report on
Form 8-K to report the execution of Amendment No. 1 to the
Amended and Restated Credit Agreement dated July 9, 2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed by the undersigned
thereunto duly authorized.
METROLOGIC INSTRUMENTS, INC.
Date: May 15, 2003
- --------------------- By:/s/C. Harry Knowles
----------------------------------------
C. Harry Knowles
Chairman of the Board and Chief Executive
Officer (Principal Executive Officer)
Date: May 15, 2003
- --------------------- By:/s/Thomas E. Mills IV
----------------------------------------
Thomas E. Mills IV
President and Chief Operating Officer
Date: May 15, 2003
- --------------------- By:/s/Kevin J. Bratton
----------------------------------------
Kevin J. Bratton
Chief Financial Officer (Principal
Financial and Accounting Officer)
CERTIFICATIONS
I, C. Harry Knowles, certify that:
1. I have reviewed this quarterly report on Form 10-Q of
Metrologic Instruments, Inc.;
2. Based on my knowledge, this quarterly 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
quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly 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
quarterly 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 quarterly 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 quarterly report (the "Evaluation
Date"); and
(c) presented in this quarterly 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
function):
(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 quarterly 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.
Date: May 15, 2003 /s/C. Harry Knowles
----------------------------------
C. Harry Knowles
Chief Executive Officer
CERTIFICATIONS
I, Thomas E. Mills IV, certify that:
1. I have reviewed this quarterly report on Form 10-Q of
Metrologic Instruments, Inc.;
2. Based on my knowledge, this quarterly 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
quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly 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
quarterly 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 quarterly 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 quarterly report (the "Evaluation
Date"); and
(c) presented in this quarterly 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
function):
(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 quarterly 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.
Date: May 15, 2003 /s/Thomas E. Mills IV
----------------------------------
Thomas E. Mills IV
President and Chief Operating Officer
CERTIFICATIONS
I, Kevin J. Bratton, certify that:
1. I have reviewed this quarterly report on Form 10-Q of
Metrologic Instruments, Inc.;
2. Based on my knowledge, this quarterly 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
quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly 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
quarterly 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 quarterly 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 quarterly report (the "Evaluation
Date"); and
(c) presented in this quarterly 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
function):
(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 quarterly 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.
Date: May 15, 2003 /s/Kevin J. Bratton
----------------------------------
Kevin J. Bratton
Chief Financial Officer
Exhibit Index Page Number
99.1 Certification pursuant to 18 U.S.C. Section 1350, 23
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, 24
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, 25
as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 executed by the Chief Financial Officer of the
Company.
EXHIBIT 99.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Metrologic
Instruments, Inc. (the "Company") on Form 10-Q for the period ending March 31,
2003 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
May 15, 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 Quarterly Report of Metrologic
Instruments, Inc. (the "Company") on Form 10-Q for the period ending March 31,
2003 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
May 15, 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 Quarterly Report of Metrologic
Instruments, Inc. (the "Company") on Form 10-Q for the period ending March 31,
2003 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
May 15, 2003