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 September 30, 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 November 5, 2003 there were 20,562,686 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 at
September 30, 2003 (unaudited) and December 31, 2002 3
Condensed Consolidated Statements of Operations (unaudited)
For the Three and Nine Months Ended September 30, 2003 and 2002 4
Condensed Consolidated Statements of Cash Flows (unaudited)
For the Nine Months Ended September 30, 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 13
Item 3. Quantitative and Qualitative Disclosures about Market Risk 21
Item 4. Controls and Procedures 21
Part II - Other Information
Item 1. Legal Proceedings 22
Item 2. Changes in Securities 22
Item 3. Defaults upon Senior Securities 22
Item 4. Submission of Matters to a Vote of Security Holders 24
Item 5. Other Information 24
Item 6. Exhibits and Reports on Form 8-K 24
Signatures 25
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
Metrologic Instruments, Inc.
Condensed Consolidated Balance Sheets
(Amounts in thousands, except share data)
September 30, December 31,
Assets 2003 2002
-------- --------
(Unaudited)
Current assets:
Cash and cash equivalents $ 1,360 $ 1,202
Restricted cash - 1,000
Accounts receivable, net of allowance 21,812 20,412
Inventory 16,505 14,039
Deferred income taxes 1,189 268
Other current assets 1,759 2,258
-------- --------
Total current assets 42,625 39,179
Property, plant and equipment, net 12,058 12,600
Patents and trademarks, net of amortization 5,080 4,688
Holographic technology, net of amortization 281 368
Advance license fee, net of amortization 1,206 1,294
Goodwill 16,640 15,175
Deferred income taxes - 190
Other assets 310 758
-------- --------
Total assets $ 78,200 $ 74,252
======== ========
Liabilities and shareholders' equity
Current liabilities:
Current portion of lines of credit $ 1,978 $ 1,347
Current portion of notes payable 2,124 4,708
Current portion of notes payable to officers 426 1,000
Accounts payable 6,363 8,719
Accrued expenses 12,921 9,389
Deferred contract revenue - 1,707
-------- --------
Total current liabilities 23,812 26,870
Lines of credit, net of current portion 1,366 -
Notes payable, net of current portion 2,939 14,431
Notes payable to officers, net of current portion 3,336 -
Deferred income taxes 598 -
Other liabilities 4,187 3,480
Shareholders' equity:
Preferred stock, $0.01 par value: 500,000 shares
authorized; none issued - -
Common stock, $0.01 par value: 30,000,000 shares
authorized; 17,097,386 and 16,417,666 shares
issued and outstanding at September 30, 2003
and December 31, 2002, respectively 171 164
Additional paid-in capital 20,477 17,579
Retained earnings 23,246 14,601
Accumulated other comprehensive loss (1,932) (2,873)
--------- --------
Total shareholders' equity 41,962 29,471
--------- --------
Total liabilities and shareholders' equity $ 78,200 $ 74,252
========= ========
See accompanying notes including Note 12 which contains a pro forma balance
sheet reflecting proceeds of $56 million from the Company's equity offering
that was consummated in October 2003.
Metrologic Instruments, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
(Amounts in thousands, except share and per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
Sales $32,587 $27,735 $96,309 $84,176
Cost of sales 18,803 17,101 56,352 54,009
------- ------- ------- -------
Gross profit 13,784 10,634 39,957 30,167
Selling, general and
administrative expenses 7,507 7,048 22,727 21,803
Research and development
expenses 1,686 1,754 5,210 5,287
Severance costs 40 251 71 602
------- ------- ------- -------
Operating income 4,551 1,581 11,949 2,475
Other income (expenses)
Interest income 13 15 25 70
Interest expense (348) (668) (1,092) (2,235)
Foreign currency transaction
gain (loss) 184 (530) 339 (306)
Gain on extinguishment of debt - - 2,200 -
Other, net (114) (34) (824) 20
------- ------- ------- -------
Total other (expenses) income (265) (1,149) 648 (2,451)
------- ------- ------- -------
Income before income
tax provision 4,286 432 12,597 24
Income tax provision 1,630 164 3,952 9
------- ------- ------- -------
Net income $ 2,656 $ 268 $ 8,645 $ 15
======= ======= ======= =======
Basic income per share:
Weighted average shares
outstanding 16,995,066 16,402,737 16,664,168 16,396,614
Basic income
per share $ 0.16 $ 0.02 $ 0.52 $ 0.00
Diluted income per share:
Weighted average shares
outstanding 16,995,066 16,402,737 16,664,168 16,396,614
Net effect of dilutive
securities 2,129,804 7,572 1,583,688 2,526
Total shares outstanding
used in computing diluted
income per share 19,124,870 16,410,309 18,247,856 16,399,140
Diluted income per
share $ 0.14 $ 0.02 $ 0.47 $ 0.00
See accompanying notes including Note 12 which contains a pro forma balance
sheet reflecting proceeds of $56 million from the Company's equity offering
that was consummated in October 2003.
Metrologic Instruments, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Amounts in thousands)
Nine Months ended
September 30,
2003 2002
-------- --------
Operating activities
Net cash provided by operating activities $ 7,083 $12,304
Investing activities
Restricted cash 1,000 2,200
Purchase of property, plant and equipment (1,166) (1,536)
Patents and trademarks (677) (733)
Purchase of minority interest in subsidiary (864) -
------- -------
Net cash provided used in investing activities (1,707) (69)
Financing activities
Proceeds from exercise of stock options and
employee stock purchase plan 2,658 40
Principal payments on notes payable (13,789) (12,155)
Proceeds from issuance of notes payable 4,141 105
Net proceeds from (payments on) lines of credit 2,014 (102)
Capital lease payments (45) (131)
Issuance of warrants 247 -
Increase in deferred financing costs (110) -
Net cash used in ------- -------
financing activities (4,884) (12,243)
Effect of exchange rates on cash (334) 502
------- -------
Net increase in cash and cash equivalents 158 494
Cash and cash equivalents at beginning of period 1,202 557
------- -------
Cash and cash equivalents at end of period $ 1,360 $ 1,051
======== =======
Supplemental Disclosure
Cash paid for interest $ 1,365 $ 2,178
======== =======
Cash paid for income taxes $ 1,962 $ 164
======== =======
Noncash investing and financing activities:
Equipment acquired through capital leases $ 287 $ -
======== =======
See accompanying notes including Note 12 which contains a pro forma balance
sheet reflecting proceeds of $56 million from the Company's equity offering
that was consummated in October 2003.
METROLOGIC INSTRUMENTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share and 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 one-dimensional and two-dimensional 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 Registration Statement on Form
S-3 filed on October 1, 2003, including the Consolidated Financial Statements
and the Notes to Consolidated Financial Statements for the year ended December
31, 2002 contained therein. In October 2003, the Company sold 1,725,000 newly
issued shares of its common stock in a public offering (see Note 12 -
Subsequent Events). The accompanying financial statements do not reflect the
impact of this public offering. The results of operations for the three and
nine months ended September 30, 2003 are not necessarily indicative of the
results to be expected for the full year.
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 September 30, 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 Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
---- ---- ---- ----
Net income (loss):
As reported $2,656 $ 268 $8,645 $ 15
Deduct: (total stock-based employee
compensation expense determined
under fair value based method, net of
related taxes) (121) (208) (396) (365)
------ ------ ------ ------
Pro forma $2,535 $ 60 $8,249 $ (350)
====== ====== ====== ======
Net income (loss) per share:
Basic:
As reported $ 0.16 $ 0.02 $ 0.52 $ -
Pro forma 0.15 - 0.50 (0.02)
Diluted:
As reported $ 0.14 $ 0.02 $ 0.47 $ -
Pro forma 0.13 - 0.45 (0.02)
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 nine months ended September 30, 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. Stock Splits
The Company effected a three-for-two stock split of its common stock through a
fifty percent (50%) stock dividend paid on July 3, 2003 to shareholders of
record at the close of business on June 23, 2003. The Company effected a
two-for-one stock split of its common stock through a one hundred percent
(100%) stock dividend paid on October 30, 2003 to shareholders of record at the
close of business on October 20, 2003.
The accompanying condensed consolidated financial statements have been restated
to reflect the effects of both stock splits as if they has happened on January
1, 2002.
4. 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:
September 30, December 31,
2003 2002
---- ----
Receivables assigned to factor $ 1,319 $1,645
Less advances from factor $(1,157) (1,091)
------- ------
Due from factor $ 162 $ 554
======= ======
5. Inventory
Inventory consists of the following:
September 30, 2003 December 31, 2002
------------------ ------------------
Raw materials $ 5,639 $ 5,788
Work-in-process 2,813 1,865
Finished goods 8,053 6,386
------ ------
16,505 14,039
------ ------
6. Comprehensive Income
The Company's total comprehensive income was as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
---- ---- ---- ----
Net income (loss) $ 2,656 $ 268 $ 8,645 $ 15
Other comprehensive income
(loss):
Change in equity due to
foreign currency
translation adjustments 128 (227) 941 901
------- ------- ------- -------
Comprehensive income $ 2,784 $ 41 $ 9,586 $ 916
======= ======= ======= =======
7. Business Segment Information
The Company generates its revenue from the sale of laser bar code scanners
primarily to distributors, value-added resellers, original equipment
manufacturers and directly to end users, in locations throughout the world. No
individual customer accounted for 10% or more of revenues in the three-month
and nine-month periods ended September 30, 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 as set forth in the following table.
Industrial/ Total
Optical POS/OEM Consolidated
------- --------- ---------
Three months ended September 30, 2003:
Sales $ 6,476 26,111 32,587
Income before provision
for income taxes $ 417 3,869 4,286
Identifiable assets $ 8,471 46,522 54,993
Three months ended September 30, 2002:
Sales $ 6,851 20,884 27,735
Income before
provision for income taxes $ 270 162 432
Identifiable assets $ 9,174 44,950 54,124
Nine months ended September 30, 2003:
Sales $17,009 79,300 96,309
Income (loss)
before (benefit) provision
for income taxes $ (113) 12,710 12,597
Identifiable assets $ 8,471 46,522 54,993
Nine months ended September 30, 2002
Sales $21,735 62,441 84,176
Income (loss)
before (benefit) provision
for income taxes $ (374) 398 24
Identifiable assets $ 9,174 44,950 54,124
8. Credit Facility
On January 31, 2003, the Company executed an Amendment (the "Amendment") to the
Amended and Restated Credit Agreement dated July 9, 2002. The Amendment, which
extended the Amended and Restated Credit Agreement until January 31, 2006,
provided for a $13,000 revolving credit facility and a $4,500 term loan.
Principal payments on the term loan were $94 a month commencing in March 2003
with the balance due at maturity. The interest rates under the Amendment were
prime plus .25% on borrowings under the revolving credit facility and prime
plus .75% on the Term Loan. The Amendment contained 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 Credit Agreement remained in
effect under the Amendment. In connection with the Amendment, the personal
guarantees of C. Harry Knowles, Chairman and Chief Executive Officer, and his
spouse, Janet Knowles, a Director and Vice President, Administration, were
released. Outstanding borrowings under the revolving credit facility were
$1,366 at September 30, 2003. All outstanding borrowings under the Amendment
were paid in October 2003 and the Agreement was terminated. As a result,
unamortized deferred financing costs of $86,000 will be recognized as a loss on
extinguishment in the fourth quarter of 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 order to provide the Company with sufficient subordinated financing within
the time period required to meet the terms of the Payoff Agreement which
provided a $2,200 gain, in January 2003, the Company issued a $4,260
subordinated note to C. Harry Knowles, its Chairman and Chief Executive
Officer, and his spouse, Janet H. Knowles, a Director and Vice President,
Administration. The subordinated note bore interest at 10.0% and required 60
monthly principal payments of $36 with the balance of $2,130 due in January
2008. In connection with this note, the Company issued a common stock purchase
warrant, expiring on January 31, 2013, to Mr. and Mrs. Knowles to purchase
195,000 shares of its common stock at an exercise price of $3.47 per share,
which was the fair market value on the date of issuance. These warrants were
valued at the time of issue at $247 in aggregate, and the resulting original
issue discount will be amortized into interest expense over the life of the
subordinated note. The subordinated note to Mr. and Mrs. Knowles was paid in
full in October 2003 and the unamortized original issue discount of $214,000
will be recognized as a loss on extinguishment in the fourth quarter of 2003.
9. 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 nine months ended September 30, 2003.
In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities. This interpretation clarifies the application of
Accounting Research Bulletin No. 51, Consolidated Financial statements, to
certain entities in which equity investors do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated financial
support from other parties. FIN 46 applies immediately to variable interest
entities created after January 31, 2003, and to variable interest entities in
which an enterprise obtains an interest after that date. The provisions of FIN
46, as amended, are effective for the first interim or annual period ending
after December 15, 2003 for those variable interests held prior to February 1,
2003. The Company is currently evaluating what impact, if any, adoption of FIN
46 will have on its consolidated financial position, consolidated results of
operations, or liquidity.
In May 2003, the FASB issued Statement No. 150, Accounting for Certain
Financial Interests with Characteristics of both Liabilities and Equity. This
statement requires liability classification for certain types of financial
instruments, many of which were previously classified as equity. The statement
was effective on July 1, 2003, however; FASB's adoption of certain provisions
has been deferred for an indefinite period. Adoption of FAS 150 did not have a
material impact on the Company's consolidated financial position at September
30, 2003, or the consolidated results of operations or liquidity for the three
months then ended.
10. Legal Matters
Symbol Technologies, Inc. v. Metrologic
On May 3, 2002, the Company was served with a lawsuit that was filed on April
12, 2002 by Symbol in the United States District Court for the Eastern District
of New York alleging that the Company is in breach of the terms of the License
Agreement between Symbol and the Company (the "Agreement"). The allegations of
breach relate to the dispute between the parties as to which products are
covered by the licenses under the Agreement. On May 30, 2002, the Company was
served with an amended complaint in this action. The amended complaint also
included 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 included claims for injunctive relief and a claim of
fraudulent transfer related to the transactions under the Amended Credit
Agreement.
The parties filed cross motions for summary judgment on the breach of contract
claims. 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 23, 2003. Symbol filed its notice of appeal in May 2003 with
the Court of Appeals for the Second Circuit. The parties have filed their
briefs with the Court and oral argument has been scheduled for December 16,
2003.
Management is of the opinion that there are no legal claims against the Company
that are expected to have a material adverse effect on the Company's
consolidated financial position, results of operations or cash flows.
11. Guarantees
The Company's borrowings under the Amendment were secured by a pledge of stock
in certain significant subsidiaries owned by and guaranteed by one of its
subsidiaries. The subsidiary would be required to perform under the guarantees
in the event that the Company failed to make principal or interest payments
under the Amendment. The Company's borrowings under the Amendment were $5,210
and $7,345 at September 30, 2003 and December 31, 2002, respectively. All
outstanding borrowings under the Amendment were repaid in October 2003 and the
agreement was terminated. If any subsidiary were to borrow under new credit
arrangements, the Company may be required to provide a similar guarantee with
respect to the subsidiary's borrowings.
12. Subsequent Events
In October 2003, the Company sold 1,725,000 newly issued shares of its common
stock in a public offering. Proceeds after deducting underwriting commissions
were $56,166. The proceeds were used to repay all outstanding borrowings under
the Amendment and the subordinated note to Mr. and Mrs. Knowles. The Company
will also purchase its headquarters and manufacturing facility from Mr. and
Mrs. Knowles during the quarter ending December 31, 2003 for $4,750, which is
less than the values determined by two independent appraisals.
The following proforma condensed consolidated balance sheet reflects the
financial position of the Company as if the public offering of the Company's
common stock had closed as of September 30, 2003 and the net proceeds were used
to purchase $4,750 for the Company's Blackwood, New Jersey facility, repay
$9,472 of bank and subordinated debt and write-off $300 of unamortized deferred
financing costs and the unamortized original issue discount on warrants.
Pro Forma Condensed Consolidated Balance Sheet
September 30, 2003
(amounts in thousands)
Assets
Current assets:
Cash and equivalents $ 42,090
Accounts receivable, net 21,812
Inventory 16,505
Other current assets 2,948
----------
Total current assets 83,355
Property, plant and equipment, net 16,808
Goodwill and other intangible assets 23,207
Other assets 224
----------
Total assets $ 123,594
==========
Liabilities and shareholders equity
Current liabilities:
Current portion of debt $ 2,477
Accounts payable 6,363
Accrued expenses 12,921
----------
Total current liabilities 21,761
Long-term debt 220
Other liabilities 4,785
Shareholder's equity 96,828
----------
Total liabilities and shareholder's equity $ 123,594
==========
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward Looking Statements; Certain Cautionary Language
Written and oral statements provided by us 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 we believe that the assumptions underlying such forward looking
information are reasonable based on present conditions, forward looking
statements made by us involve risks and uncertainties and are not guarantees of
future performance. Actual results may differ materially from those in our
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 us to business
failure risks of such parties, credit and collections exposure, and other
business concentration risks; (iv) the future health of the United States and
international economies and other economic factors that directly or indirectly
affect the demand for our 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 our 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
our 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 our requirements for raw material and
components; (x) the costs and potential outcomes of legal proceedings or
assertions by or against us relating to intellectual property rights and
licenses; (xi) our ability to successfully defend against challenges to our
patents and our ability to develop products which avoid infringement of third
parties' patents; (xii) occurrences affecting the slope or speed of decline of
the life cycle of our products, or affecting our 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 we assume no obligation to update any forward-looking
statements.
General
The following discussion of our results of operations and liquidity and capital
resources should be read in conjunction with our Condensed Consolidated
Financial Statements 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 our Registration Statement on Form S-3 filed on October 1, 2003.
The Condensed Consolidated Financial Statements for the three and nine months
ended September 30, 2003 and 2002 are unaudited.
Metrologic Instruments, Inc. and its subsidiaries (collectively, "we",
"us", "our" or the "Company") are experts in optical image capture and
processing solutions. We utilize our expertise to design, manufacture and
market sophisticated imaging and scanning solutions serving a variety of
point-of-sale, commercial and industrial applications. Our solutions utilize a
broad array of laser, holographic and vision-based technologies designed to
provide superior functionality and a compelling value proposition for our
customers.
The majority of our sales are derived from products that scan and
decode bar codes in retail environments. We believe we have been able to
increase our market share in our point-of-sale, commercial and industrial
markets by offering products with superior performance and features at price
points that are extremely competitive with the products offered by others.
Additionally, through our wholly-owned subsidiary, Adaptive Optics Associates,
Inc. ("AOA"), we have broadened our product offering to include laser beam
delivery and control products for semiconductor and fiber optic manufacturing
equipment, wavefront sensor products and adaptive optics systems for certain
government applications. AOA also adds significant capabilities and expertise
in vision, image processing, systems integration, adaptive optics and high-end
refractive optical disciplines.
Our business is divided into two major segments:
Point-of-Sale/Original Equipment Manufacturers, or POS/OEM, and Industrial
Scanning and Optical.
POS/OEM bar code scanners are typically either handheld scanners or
fixed projection scanners. Handheld bar code scanners are principally suited
for retail point-of-sale, document processing, library, healthcare and
inventory applications. Fixed projection scanners, which can be mounted on or
in a counter, are principally suited for supermarkets, convenience stores, mass
merchandisers, health clubs and specialty retailers.
Industrial Scanning and dimensioning products are comprised of fixed
position systems that are either laser or vision-based. These systems range
from simple, one-scanner solutions to complex, integrated systems incorporating
multi-scanner, image capture and dimensioning technologies. Adaptive optical
solutions are highly customized sophisticated, laser-based systems that correct
for the natural distortion of light as it exits a complex laser and travels
through the atmosphere or other transmission medium.
The following table sets forth certain information regarding our
revenues by our two business segments for the periods indicated.
Three Months Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
------------------- ------------------
(in Thousands)
POS/OEM $ 26,111 $ 20,884 $ 79,300 $ 62,441
Industrial & Optical:
Industrial 3,916 3,147 9,692 7,341
Optical 2,560 3,704 7,317 14,394
-------- -------- -------- --------
Total Industrial 6,476 6,851 17,009 21,735
-------- -------- -------- --------
Total Company $ 32,587 $ 27,735 $ 96,309 $ 84,176
======== ======== ======== ========
Results of Operations
Most of our 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 our products are manufactured in our
U.S. facility, and therefore, sales and results of operations are affected by
fluctuations in the value of the U.S. dollar relative to such foreign
currencies. We expect, however, that the manufacture of our point-of-sale
("POS") products in our Suzhou, China facility to increase in 2003, which will
result in reduced labor costs in our POS scanners. In the three and nine months
ended September 30, 2003, sales and gross profit were favorably affected by the
continuing decline in the value of the U.S. dollar in relation to certain
foreign currencies, especially the euro.
The following table sets forth certain information as to our sales by
geographical location:
Three Months Ended Nine Months Ended
September 30, September 30,
2003 % 2002 % 2003 % 2002 %
--------------------------- ------------------------------
($ in Thousands)
North America
POS/OEM $ 7,903 24.3% $ 6,006 21.7% $23,989 25.0% $19,129 22.7%
AOA 6,330 19.4% 6,821 24.5% 16,706 17.3% 21,437 25.5%
Europe 12,288 37.7% 9,703 35.0% 39,885 41.4% 30,129 35.8%
Rest of World 6,068 18.6% 5,205 18.8% 15,729 16.3% 13,481 16.0%
------- ------ ------- ------ ------- ------ ------- ------
Total $32,587 100.0% $27,735 100.0% $96,309 100.0% $84,176 100.0%
======= ====== ======= ====== ======= ====== ======= ======
Three Months Ended September 30, 2003 Compared with Three Months Ended
September 30, 2002
Sales increased 17.5% to $32.6 million in the three months ended September 30,
2003 from $27.7 million in the three months ended September 30, 2002. Sales of
our POS and original equipment manufacturers ("OEM") products increased by
25.0%, sales of industrial products increased by 24.4%, while sales of optical
systems decreased by 30.9%. Approximately $1.5 million of the increase in
POS/OEM sales resulted from the strengthening of the euro against the U.S.
dollar in the third quarter of 2003. POS/OEM sales increased approximately $5.1
million due to increased unit sales of handheld scanners, principally to major
retail customers. These factors were partially offset by a decrease of
approximately $1.2 million resulting from lower average selling prices.
The increase in industrial products sales is attributable to increased sales to
a large systems integrator for use in a new automated parcel and package system
for the U.S. Postal Service.
The decrease in optical systems sales reflects the termination of certain
optical projects at AOA in 2002. These projects included certain government
contracts related to programs that were cancelled or downsized by the
government as well as the cancellation of certain purchase orders from a
customer involved in the semiconductor manufacturing industry. Revenue from
these customers was $3.0 million in the three months ended September 30, 2002
as compared with $1.3 million in 2003. These purchase order cancellations were
the result of our customer's excess capacity due to an acquisition. We continue
to receive contracts from this customer.
International sales accounted for $18.4 million, or 56.3% of total sales, in
the three months ended September 30, 2003 and $14.9 million, or 53.8% of total
sales, in the three months ended September 30, 2002. The largest portion of the
growth in international sales was from increased sales in Europe. The increase
in European sales is attributable to increased unit volume plus the
strengthening of the euro against the U.S. dollar.
No individual customer accounted for 10.0% or more of sales in the three months
ended September 30, 2003 or 2002.
Cost of sales increased to $18.8 million in the three months ended September
30, 2003 from $17.1 million in the three months ended September 30, 2002. As a
percentage of sales, cost of sales decreased from 61.7% in 2002 to 57.7% in
2003. The decrease in the percentage of cost of sales was due to the following:
o The strengthening of the euro against the U.S. dollar, as discussed
above, net of the effect of decreases in average selling prices.
o Lower direct labor costs as a result of increased unit production in
our Suzhou, China facility.
o Decreased material costs due to engineering efforts to reduce bill of
material costs.
o More favorable product mix resulting from increased sales of certain
more profitable handheld scanners in 2003.
Selling, general and administrative ("SG&A") expenses increased 6.5% to $7.5
million in the three months ended September 30, 2003 from $7.0 million for the
three months ended September 30, 2002. As a percentage of sales, SG&A expenses
decreased from 25.4% of sales in the three months ended September 30, 2002 to
23.0% of sales in the corresponding period in 2003. The increase in SG&A
expenses was due to increased variable selling expenses associated with the
higher sales volume in 2003, the strengthening of the euro against the U.S.
dollar on euro denominated expenses, and increased incentive compensation
expense.
Severance costs of $251,000 in 2002 were due to workforce reductions in August
and September 2002.
Other income/expense reflects net other expense of $265,000 in 2003 compared
with net other expense of $1.1 million in 2002. The decrease in net other
expense is due to lower net interest expense as a result of lower outstanding
borrowings plus lower interest rates in 2003, and foreign currency transaction
losses of $530,000 in 2002 attributable to the weakening value of the Brazilian
real in relation to the U.S. dollar.
Net income was $2.7 million, or $0.14 per diluted share for the three months
ended September 30, 2003 compared with net income of $268,000 or $0.02 per
diluted share in 2002. Net income reflects a 38% effective tax rate for both
periods. The decrease in the value of the U.S. dollar relative to other foreign
currencies favorably affected diluted earnings per share by approximately $0.04
per diluted share as compared to the corresponding period in 2002.
Nine Months Ended September 30, 2003 Compared with Nine Months Ended
September 30, 2002
Sales increased 14.4% to $96.3 million in the nine months ended September 30,
2003 from $84.2 million in the nine months ended September 30, 2002. Sales of
our point-of-sale and OEM products increased by 27.0%, sales of industrial
products increased by 32.0%, while sales of optical systems decreased by 49.2%.
Approximately $5.8 million of the increase in POS/OEM sales resulted from the
strengthening of the euro against the U.S. dollar in the first nine months of
2003. POS/OEM sales increased approximately $16.5 million due to increased unit
sales of handheld scanners and portable data terminals principally to major
retail customers. These factors were partially offset by a decrease of
approximately $5.2 million resulting from lower average selling prices.
The increase in industrial products sales is attributable to increased sales to
a large systems integrator for use in a new automated parcel and package system
for the U.S. Postal Service.
The decrease in optical systems sales reflects the termination of certain
optical projects at AOA in 2002. These projects included certain government
contracts related to programs that were cancelled or downsized by the
government as well as purchase orders from a customer involved in the
semiconductor manufacturing industry. Revenue from these customers was $12.1
million including a $4.6 million negotiated settlement for cancellation of the
purchase orders by the customer in the first nine months of 2002 as compared
with $4.4 million in 2003. These purchase order cancellations were the result
of our customer's excess capacity due to an acquisition. We continue to receive
contracts from this customer.
International sales accounted for $55.6 million, or 57.7% of total sales, in
the nine months ended September 30, 2003 and $43.6 million or 51.8% of total
sales, in the nine months ended September 30, 2002. The largest portion of the
growth in international sales was from increased sales in Europe. The increase
in European sales is attributable to the strengthening of the euro against the
U.S. dollar plus increased unit volume.
No individual customer accounted for 10% or more of sales in the nine months
ended September 30, 2003 or 2002.
Cost of sales increased by $2.3 million to $56.3 million for the nine months
ended September 30, 2003 from $54.0 million for the corresponding period in
2002. As a percentage of sales, cost of sales was 58.5% in 2003 compared with
64.2% in 2002. The decrease in the percentage of cost of sales was due to the
following:
o The strengthening of the euro against the U.S. dollar, as discussed
above, net of the effect of decreases in average selling prices.
o Decreased direct labor costs as a result of increased unit production
in our Suzhou, China facility and workforce reductions in March and
April 2002.
o Decreased material costs due to engineering efforts to reduce bill of
material costs.
o More favorable product mix resulting from increased sales of certain
more profitable handheld scanners in 2003.
These factors were partially offset by increased sales of certain lower margin
products, including our portable data terminals, that are not manufactured by
us, but purchased from other sources. These items generally have margins 10-15%
lower than our own manufactured products.
SG&A expenses increased 4.2% to $22.7 million for the nine months ended
September 30, 2003 from $21.8 million for the nine months ended September 30,
2002. SG&A expenses in 2002 included $732,000 of non-recurring expenses
incurred prior to the finalization of the Amended and Restated Credit Agreement
that was completed on July 9, 2002. Excluding these expenses, SG&A expenses
were $21.1 million for the nine months ended September 30, 2002. As a
percentage of sales, SG&A expenses were 23.6% of sales in 2003 compared with
24.2% (excluding the non-recurring expenses of $732,000) in 2002. The increase
in SG&A expenses was due to increased variable selling expenses associated with
the higher sales volume in 2003, the strengthening of the euro against the U.S.
dollar on euro denominated expenses, increased marketing expenses and a
$548,000 increase in incentive compensation expense. These increases were
partially offset by lower personnel costs resulting from workforce reductions
in March, April, August and September 2002.
R&D expense remained relatively constant in dollars in the nine months ended
September 30, 2003 and 2002, although as a percentage of sales, R&D expenses
were 5.4% of sales in 2003 compared with 6.3% in 2002.
Severance costs were $602,000 in the nine months ended September 30, 2002. The
severance costs in 2002 were due to workforce reductions in March, April,
August and September 2002.
Other income/expense reflects net other income of $648,000 in the nine months
ended September 30, 2003 compared with net other expense of $2.5 million in the
corresponding period in 2002. Net other income in 2003 included a $2.2 million
gain on the early extinguishment of debt in connection with early repayment of
subordinated debt related to the acquisition of AOA. This debt was repaid in
full in the first quarter of 2003. Net interest expense decreased from $2.2
million to $1.1 million due to lower outstanding borrowings and lower interest
rates in 2003. Other expenses in 2003 include costs of $463,000 incurred in
connection with our efforts to refinance our bank debt and restructure our
overall debt position that enabled us to realize the gain on the early
extinguishment of debt.
Net income was $8.6 million, or $0.47 per diluted share, for the nine months
ended September 30, 2003 compared with net income of $15,000, or $0.00 per
diluted share, in 2002. Net income reflects a 31.4% effective income tax rate
for the nine months ended September 30, 2003 and a 38.0% effective tax rate in
2002. The decrease in the effective tax rate was a result of the $2.2 million
gain on early extinguishment of debt which, for tax purposes, will be treated
as a reduction of the 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 favorably affected diluted earnings per
share by approximately $0.16 per diluted share as compared to the corresponding
period in 2002.
Inflation and Seasonality
Inflation and seasonality have not had a material impact on our results of
operations. However, our sales are typically impacted by fluctuations in
seasonal demand from European customers in the quarter ending September 30 for
quarterly results of operations. See Supplementary Data following the Notes to
our Consolidated Financial Statements included in our Registration Statement on
Form S-3 filed on October 1, 2003.
Liquidity and Capital Resources
Operating activities
Net cash provided from operations was $7.1 million and $12.3 million for the
nine-month periods ended September 30, 2003 and 2002, respectively. Net cash
provided by operating activities for the nine months ended September 30, 2003
resulted primarily from (i) net income of $8.6 million plus (ii) $2.6 million
of depreciation and amortization and (iii) a $3.0 million increase in accrued
expenses offset by (iv) a $2.2 million gain on early extinguishment of debt (v)
increases of $600,000 in accounts receivable (vi) $1.9 million in inventory and
(vii) a $2.5 million decrease in accounts payable.
Our working capital increased $6.5 million or 52.8% to $18.8 million as of
September 30, 2003 from $12.3 million as of December 31, 2002 as a result of
our profitable operations, reduction in accounts receivable and the debt
restructuring discussed below. The significant balance sheet changes included
an (i) increase in inventory of $2.5 million as a result of a buildup in the
inventory levels resulting from longer delivery cycle of finished goods from
the Suzhou, China facility as we increase our production volume in Suzhou, (ii)
increase of $1.4 million in accounts receivable as a result of increased
revenue, (iii) decrease of $2.9 million in the current portion of notes payable
as a result of payment of subordinated promissory notes to UTOS, (iv) decrease
of $1.7 million in deferred contract revenue as a result of the recognition of
revenue for services performed on a specific contract that was recognized as
deferred contract revenue in 2002 and (v) a decrease of $1.0 million of cash
previously restricted according to the January 31, 2003 Amendment to the
Amended Credit Agreement.
Investing activities
Cash used in investing activities was $1.7 million and $69,000 for the
nine-month periods ended September 30, 2003 and 2002, respectively. The
increase in cash used by investing activities is primarily due to the first
installment of $864,000 to purchase the 49% minority interest of Metrologic
Eria Iberica and the release of $1.0 million of cash previously restricted
according to the January 31, 2003 Amendment to the Amended Credit Agreement.
The above increases are offset by a $400,000 reduction in cash used for
property, plant and equipment purchases. The credit facility and the subsequent
amendments and restructuring are more fully described below under outstanding
debt and financing arrangements.
Financing activities
Cash used in financing activities was $4.9 million and $12.2 million for the
nine-month periods ended September 30, 2003 and 2002, respectively. The
decrease in cash used by financing activities is primarily due to proceeds of
(i) $4.1 million from the issuance of notes payable, (ii) $2.0 million from
line of credit borrowings and (iii) $2.7 million from the exercise of stock
options and employee stock purchase plan. The above decreases are offset by
additional principal payments of $1.6 million on notes payable.
In October 2003, the Company sold 1,725,000 newly issued shares of its common
stock in a public offering. Proceeds after deducting underwriting commissions
were $56.2 million. The proceeds were used to repay all outstanding borrowings
under the Amended Credit Agreement and the subordinated note to Mr. and Mrs.
Knowles. The Company will also purchase its Blackwood, New Jersey headquarters
and manufacturing facility from Mr. and Mrs. Knowles during the quarter ending
December 31, 2003 for $4.75 million, which is less than the values determined
by two independent appraisals.
Outstanding debt and financing arrangements
On January 31, 2003, we executed an Amendment (the "Amendment") to the Amended
and Restated Credit Agreement dated July 9, 2002 (the "Agreement"). The
Amendment, which extended the Agreement until January 31, 2006, provided for a
$13 million revolving credit facility and a $4.5 million term loan. Principal
payments on the term loan were $94,000 a month commencing in March 2003 with
the balance due at maturity. The interest rates under the Amendment were prime
plus .25% on borrowings under the revolving credit facility and prime plus .75%
on the term loan. The Amendment contained various negative and positive
covenants including minimum tangible net worth requirements and fixed charge
coverage ratios. All outstanding borrowings under the Agreement were repaid in
October 2003 and the Agreement was terminated. As a result, unamortized
deferred financing costs of $86,000 will be recognized as a loss on
extinguishment in the fourth quarter of 2003.
In connection with the acquisition of AOA, we entered into Subordinated
Promissory Notes ("Subordinated Debt") aggregating $11.0 million with United
Technologies Optical Systems, Inc. ("UTOS"), the former parent of AOA. In
January 2003, we and UTOS entered into a Payoff Agreement to accelerate the
principal payments on the Subordinated Debt. In accordance with the Payoff
Agreement, we paid UTOS $5.0 million on January 31, 2003 and $3.8 million on
March 31, 2003 as payment in full of our obligation under the Subordinated
Debt. Accordingly, we have recorded a $2.2 million gain on the extinguishment
of the Subordinated Debt in March 2003.
In order to provide us with sufficient subordinated financing within the time
period required to meet the terms of the payoff agreement which provided a $2.2
million gain, in January 2003, we issued a $4.3 million subordinated note to C.
Harry Knowles, our Chairman and Chief Executive Officer, and his spouse, Janet
H. Knowles, a Director and Vice President, Administration. The subordinated
note bore interest at 10.0% and required 60 monthly principal payments of
$36,000 with the balance of $2.1 million due in January 2008. In connection
with this note, we issued a common stock purchase warrant, expiring on January
31, 2013, to Mr. and Mrs. Knowles to purchase 195,000 shares of our common
stock at an exercise price of $3.47 per share, which was the fair market value
on the date of issuance. These warrants were valued at the time of issue at
approximately $247,000, and the resulting original issue discount was being
amortized into interest expense over the life of the subordinated note. This
note was paid in full in October 2003 and the unamortized original issue
discount of $214,000 will be recognized as a loss on extinguishment in the
fourth quarter of 2003. The Board engaged Janney Montgomery Scott LLC ("JMS")
to assist it in connection with this transaction. Further, the disinterested
Board members concluded that the subordinated debt obtained from Mr. and Mrs.
Knowles was on terms at least as favorable to us as could have been obtained
from independent third parties with respect to interest rate, warrants and
payment terms. William Rulon-Miller, a Director of the Company, is Senior Vice
President of JMS. JMS received a fee of $225,000 for its work in connection
with the Amendment and the subordinated debt. The subordinated note to Mr. and
Mrs. Knowles was paid in full in October 2003.
In addition to the revolving credit facility the Company entered into recourse
factoring discounting agreements with various banks in Europe. At September 30,
2003, $1,978 was outstanding under such agreements.
Foreign Currency Exchange
Our 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, we have 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 our German subsidiary and
(ii) euro based loans, which act as a partial hedge against outstanding
intercompany receivables and the net assets of our European subsidiary, which
are denominated in euros. Additionally, our European subsidiary invoices and
receives payment in certain other major currencies, including the British
pound, which results in an additional mitigating measure that reduces our
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 September 30, 2003.
Acquisition of Interests in Joint Ventures
Our 51% joint venture interests in Metrologic Eria Iberica and Metrologic Eria
France contain options for us to purchase the remaining 49% minority interests.
The purchase option is calculated based on a twelve month multiple of sales and
provides us with a twelve month period in which to find a buyer or negotiate a
purchase price with a default minimum. The default minimum for Metrologic Eria
France is 2.9 million euros.
In August 2003, we entered into an agreement to purchase the 49% minority
interest of Metrologic Eria Iberica for approximately 5.9 million euros, or
$6.8 million at the exchange rate on September 30, 2003, over three years
commencing in August 2003. In August 2003, we purchased 5.76% of Metrologic
Eria Iberica for $790,000.
Critical Accounting Policies
For a discussion of our critical accounting policies and use of estimates,
please refer to Management's Discussion and Analysis of Financial Condition and
Results of Operations contained in our Registration Statement on Form S-3 filed
on August 1, 2003. The only change in critical accounting policies during the
three or nine month periods ended September 30, 2003 is the adoption of SFAS
145 during the first quarter of 2003, and the adoption of SFAS 150 during the
third quarter of 2003.
Disclosures about Contractual Obligations and Commercial Commitments(1)
Less
than 1 1-3 4-5 After
Contractual Obligations Total Year Years Years 5 Years
- ----------------------- ----- ---- ----- ----- -----
Long-Term Debt 8,506 2,435 4,013 2,058 -
Capital Lease Obligations 319 115 204 - -
Operating Leases(1) 13,361 2,457 5,690 1,421 3,793
Obligation to purchase
minority interest in
joint venture 5,974 2,257 3,717 - -
--------- ------- -------- ------- ---------
Total Contractual Cash
Obligations $ 28,160 $ 7,264 $ 13,624 $3,479 $ 3,793
========= ======= ======== ====== ========
Total Less
Amounts than 1 1-3 4-5 Over 5
Other Commercial Commitments Committed Year Years Years Years
- ---------------------------- --------- ---- ----- ----- -----
Revolving Credit Facility $ 3,344 $1,978 $1,366 $ - $ -
======== ====== ====== ===== =====
(1)Based on information as of September 30, 2003 except information regarding
operating leases, which is as of December 31, 2002.
Item 3- Quantitative and Qualitative Disclosures about Market Risk
The information contained in Quantitative and Qualitative Disclosures about
Market Risk contained in our Registration Statement on Form S-3 filed on
October 1, 2003 is hereby incorporated herein by reference.
Item 4- Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
The Company's management, with the participation of the Company's Chief
Executive Officer, Chief Operating Officer and Chief Financial Officer,
evaluated the effectiveness of the Company's disclosure controls and procedures
as of the end of the period covered by this report. Based on that evaluation,
the Chief Executive Officer, Chief Operating Officer, and Chief Financial
Officer concluded that the Company's disclosure controls and procedures as of
the end of the period covered by this report were designed and were functioning
effectively to ensure that the information required to be disclosed by the
Company in reports filed under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and forms. The Company believes that a control system, no matter
how well designed and operated, cannot provide absolute assurance that the
objectives of the control system are met, and no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within a company have been detected.
(b) Change in Internal Control over Financial Reporting
No change in the Company's internal control over financial reporting occurred
during the Company's most recent fiscal quarter that has materially affected,
or is reasonably likely to materially affect, the Company's internal control
over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We are currently involved in matters of litigation arising in the normal course
of business as well as the matters described below. The information below
updates disclosure contained in prior periodic reports. Management is of the
opinion that there are no legal claims against us, which are expected to have a
material adverse effect on our 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 parties submitted a joint post-trial
brief on June 30, 2003. It is expected that the judge will issue a final ruling
within the next several months, 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. The Court lifted the stay on July 18, 2003, and the
Court issued a decision on the Markman hearing entering its ruling on the
interpretation of the claims in suit. It is expected that the parties will
refile their motions for summary judgment during the next several months.
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 us, the Court dismissed certain
counts of Symbol's complaint, and granted us 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 filed
its notice of appeal in May 2003 with the Court of Appeals for the Second
Circuit. The parties have filed their briefs with the Court and oral argument
has been scheduled for December 16, 2003.
D. Metrologic v. Symbol Technologies, Inc.
On June 18, 2003, we filed suit against Symbol Technologies, Inc. in the U.S.
District Court for the District of New Jersey with claims for patent
infringement of certain of our patents by at least two (2) Symbol products. The
complaint also contains a claim for breach of the 1996 Cross License Agreement
between the parties (the "Agreement"). Symbol's answer to the complaint, filed
on July 30, 2003, included counterclaims requesting that a declaratory judgment
be entered that the patents in suit are invalid, or are not infringed by Symbol
and that Symbol is not in breach of the Agreement. The case is now in the early
stages of discovery.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
3.1 Certificate of Amendment to the Certificate of
Incorporation of Metrologic Instruments, Inc.
dated October 20, 2003 effecting the two for
one stock split.
31.1 Certification pursuant to Rule 13a-14(a) of the
Securities Exchange Act of 1934, as amended (the
"Exchange Act") executed by the Chief Executive
Officer of the Company.
31.2 Certification pursuant to Rule 13a-14(a) of the
Exchange Act executed by the President and Chief
Operating Officer of the Company.
31.3 Certification pursuant to Rule 13a-14(a) of the
Exchange Act executed by the Chief Financial Officer
of the Company.
32.1 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.
32.2 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.
32.3 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 July 3, 2003, we filed a Current Report on Form 8-K to
furnish certain information pursuant to Item 12 of Form 8-K
regarding our Results of Operations and Financial Condition.
On July 14, 2003, we filed a Current Report on Form 8-K
pursuant to Item 5 to report the Company's intent to offer
up to 1.5 million newly issued shares of common stock in a
public offering.
On July 30, 2003, we filed a Current Report on Form 8-K to
furnish certain information pursuant to Item 12 of Form
8-K regarding our Results of Operations and Financial
Condition.
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: November 14, 2003
- ----------------------- By:/s/C. Harry Knowles
----------------------------------------
C. Harry Knowles
Chairman of the Board and Chief Executive
Officer (Principal Executive Officer)
Date: November 14, 2003
- ----------------------- By:/s/Thomas E. Mills IV
----------------------------------------
Thomas E. Mills IV
President and Chief Operating Officer
Date: November 14, 2003
- ----------------------- By:/s/Kevin J. Bratton
----------------------------------------
Kevin J. Bratton
Chief Financial Officer (Principal
Financial and Accounting Officer)
Exhibit Index
Page Number
3.1 Certificate of Amendment to the Certificate of
Incorporation of Metrologic Instruments, Inc.
dated October 20, 2003 effecting the two for
one stock split.
31.1 Certification pursuant to Rule 13a-14(a) of the
Securities Exchange Act of 1934, as amended (the
"Exchange Act") executed by the Chief Executive
Officer of the Company. 24
31.2 Certification pursuant to Rule 13a-14(a) of the
Exchange Act executed by the President and Chief
Operating Officer of the Company. 25
31.3 Certification pursuant to Rule 13a-14(a) of the
Exchange Act executed by the Chief Financial Officer
of the Company. 26
32.1 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. 27
32.2 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. 28
32.3 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. 29
EXHIBIT 3.1
NEW JERSEY DEPARTMENT OF STATE
DIVISION OF COMMERCIAL RECORDING
CERTIFICATE OF AMENDMENT TO THE
CERTIFICATE OF INCORPORATION
OF
METROLOGIC INSTRUMENTS, INC.
Pursuant to the provisions of Section 14A:7-15.1, Corporations,
General, of the New Jersey Statutes, the undersigned corporation
executes the following Certificate of Amendment to its Certificate of
Incorporation:
1. The name of the Corporation is: Metrologic Instruments, Inc.
2. The following amendment (the "Amendment") to the Certificate of
Incorporation was approved by the directors of the corporation on the 7th day
of October, 2003:
RESOLVED, that Article FOURTH, paragraph (a) of the
Corporation's Certificate of Incorporation be amended to read
as follows:
"(a) 30,000,000 shares of Common Stock with a par value
of $.01 per share; and"
3. The Amendment to the Certificate of Incorporation will not adversely
affect the rights or preferences of the holders of outstanding shares of any
class or series of the Corporation and will not result in the percentage of
authorized shares of the Corporation that remains unissued after the share
dividend exceeding the percentage of authorized shares that was unissued before
the share dividend.
4. All shares of the Corporation's Common Stock issued and outstanding
on the date (the "Effective Date") this Amendment is filed with the New Jersey
Department of State and all shares of Common Stock reserved for issuance but
unissued pursuant to any Corporation stock option plan, other employee benefit
plan or security convertible into Common Stock on the Effective Date shall be
entitled to the dividend (collectively, the "Shares"). The Corporation shall
issue two shares of Common Stock for each such Share.
5. The dividend shall be payable on October 30, 2003.
METROLOGIC INSTRUMENTS, INC.
By: /s/ C. H. Knowles
----------------------------
Name: C. Harry Knowles
Title: Chief Executive Officer
Dated this 20th day of October, 2003
May be executed by the Chairman of the Board, or the President, or a Vice
President of the Corporation.
CERTIFICATION Exhibit 31.1
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 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 report;
3. Based on my knowledge, the financial statements, and other financial
information included in this 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 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-15(e) and 15d-15(e)) for the registrant and we have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's most
recent fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of
directors;
(a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
control over financial reporting.
Date: November 14, 2003 /s/C. Harry Knowles
------------------------
CERTIFICATION Exhibit 31.2
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 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 report;
3. Based on my knowledge, the financial statements, and other financial
information included in this 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 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-15(e) and 15d-15(e)) for the registrant and we have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's most
recent fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of
directors;
(a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
control over financial reporting.
Date: November 14, 2003 /s/Thomas E. Mills IV
---------------------
CERTIFICATION Exhibit 31.3
I, Kevin Bratton, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Metrologic Instruments,
Inc.;
2. Based on my knowledge, this 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 report;
3. Based on my knowledge, the financial statements, and other financial
information included in this 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 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-15(e) and 15d-15(e)) for the registrant and we have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's most
recent fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of
directors;
(a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
control over financial reporting.
Date: November 14, 2003 /s/Kevin J. Bratton
----------------------
EXHIBIT 32.1
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 ended September
30, 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
November 14, 2003
A signed original of this written statement required by Section 906, or other
document authenticating, acknowledging, or otherwise adopting the signature that
appears in typed form within the electronic version of this written statement
required by Section 906, has been provided to Metrologic Instruments, Inc. and
will be retained by Metrologic Instruments, Inc. and furnished to the Securities
and Exchange Commission or its staff upon request.
EXHIBIT 32.2
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 ended September
30, 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
November 14, 2003
A signed original of this written statement required by Section 906, or other
document authenticating, acknowledging, or otherwise adopting the signature that
appears in typed form within the electronic version of this written statement
required by Section 906, has been provided to Metrologic Instruments, Inc. and
will be retained by Metrologic Instruments, Inc. and furnished to the Securities
and Exchange Commission or its staff upon request.
EXHIBIT 32.3
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 ended September
30, 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
November 14, 2003
A signed original of this written statement required by Section 906, or other
document authenticating, acknowledging, or otherwise adopting the signature that
appears in typed form within the electronic version of this written statement
required by Section 906, has been provided to Metrologic Instruments, Inc. and
will be retained by Metrologic Instruments, Inc. and furnished to the Securities
and Exchange Commission or its staff upon request.