UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
Annual Report
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2004
Commission file number 0-24712
METROLOGIC INSTRUMENTS, INC.
A New Jersey Corporation
I.R.S. Employer Identification No. 22-1866172
90 Coles Road
Blackwood, New Jersey 08012
856-228-8100
Common stock traded on Nasdaq Stock Market
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $.01 Per Share
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
Indicate by check mark whether the Registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act). Yes [ X ] No [ ]
The aggregate market value of the voting stock held by non-affiliates
of the Registrant as of the last business day of the Registrant's most recently
completed second fiscal quarter was approximately $223,814,000 calculated by
excluding all shares held by executive officers, directors and 5% stockholders
of the Registrant without conceding that all such persons are "affiliates" of
the Registrant for purposes of the federal securities laws.
As of March 1, 2005 there were 21,922,270 shares of Common Stock outstanding.
Documents Incorporated by Reference
Portions of the following documents are incorporated by reference:
Part III - The Registrant's definitive Proxy Statement for its 2005 Annual
Meeting of Stockholders, to be filed not later than 120 days after the close of
the fiscal year.
PART I
Item 1. Business
Overview
Metrologic Instruments, Inc. and its subsidiaries (referred to herein as "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. We believe that nearly half of our installed base of scanners are in use
in retail environments. In addition, we design and manufacture sophisticated
advanced optical systems for government and commercial customers. We believe we
have been able to increase our market share in our bar code scanner and
industrial automation markets by offering products with superior performance and
features at price points that are very competitive with the products offered by
others and by providing superior customer service.
Our business is divided into two major segments: (a) Data Capture & Collection
and (b) Industrial Automation & Optical Systems.
Data Capture & Collection
Our Data Capture and Collection products include, but are not limited
to, bar code scanners, OEM bar code reading engines and portable data
collection devices. 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. OEM bar code reading engines are
scanning modules for use in a variety of devices and machines like
mobile computing devices, PDAs, kiosks, and lottery terminals. Portable
data collection devices are rugged handheld computers which typically
employ a bar code reader and are used for in data management
applications such as supply chain inventory and price lookup.
Industrial Automation/Optical Systems
Industrial Automation systems are comprised of fixed position readers
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. Optical Systems are comprised of advanced electro-optical
systems including wavefront sensors, adaptive optics systems and custom
instrumentation.
Resulting from the growth of our product line, service offerings and
geographic reach, our target market segments and the customer base into
which we sell have grown comparably. Examples include increased sales
of our handheld mobile computer, emerging wireless applications and the
introduction of handheld imaging products. Accordingly, we have adopted
the segment title "Data Capture and Collection" to more accurately
reflect the suite of products and services offered within the segment
historically entitled "POS/OEM". The phrase Data Capture is fairly
ubiquitous within our industry. We believe this modification better
represents the company's offerings to its customers and better
positions us to grow in accordance with our strategic plan(s).
We have also refined our historical "Industrial/Optical Systems"
segment into "Industrial Automation/Optical Systems" to better reflect
the products and services we offer our customer base in our Industrial
markets. Additionally, we believe there is benefit to differentiating
the more complex systems sold into this market from certain of our Data
Capture and Collection products that may be sold into similar customers
via our worldwide distribution channels.
For additional information concerning our business segments, please refer to
Note 12, Financial Reporting For Business Segments and Geographical Information,
to our Consolidated Financial Statements.
Since 2001, we have increased sales, cash flow from operations and net income.
We have accomplished this primarily by applying our engineering expertise to
develop innovative products that have expanded our market opportunities and by
focusing on cost reduction to maintain a competitive advantage. Our commitment
to cost reduction has enabled us to focus on offering products with leading
technology at competitive prices. Additionally, we have decreased our overall
direct manufacturing costs as a percentage of sales from 60.3% in 2000 to 54.1%
in 2004.
We were founded over 36 years ago in 1968 by C. Harry Knowles, Chairman and
former Chief Executive Officer. We are a vertically integrated manufacturer,
producing most of our own optics, coatings and components in our manufacturing
and design facilities in the United States and China. We have developed a broad
portfolio of intellectual property that includes over 300 patents that we
aggressively protect. We employ a direct sales force and have a broad network of
distributors and value added resellers or VARs, to serve customers in over 110
countries through 17 offices worldwide.
Our Markets
Market Background
Automatic Identification and Data Capture, or AIDC, is the identification and
direct collection of data into a microprocessor-controlled device, such as a
computer system, without the use of a manual input device, such as a keyboard.
AIDC technologies accelerate the speed at which information is collected and
processed and eliminate errors associated with the collection of that
information. AIDC covers a compilation of technologies and services, including
bar code technologies, vision systems, radio frequency identification, or RFID,
optical character recognition, or OCR, biometrics and card-based technologies.
The largest segment of the AIDC industry is bar code related technology. In the
late 1960s, a concerted effort was undertaken to standardize and automate
point-of-sale transactions. In 1973, the grocery industry selected the Universal
Product Code, or UPC, as the industry standard. Today, there are a variety of
bar code formats, or symbologies, that are used in many applications and
industries. Bar codes are critical elements in conducting business in today's
global economy because of their ability to accelerate the flow of information
with timeliness and accuracy.
Markets Served
Customers in our markets demand innovative solutions that enable them to more
quickly and cost efficiently distribute, track and manage products and
information from the early stages of manufacturing to the ultimate purchase by
end users. Our industry addresses these needs with bar code scanners (including
handheld scanners, fixed position scanners, scan engines and industrial
readers), mobile computers, bar code printers and radio frequency identification
equipment. We serve primarily the bar code scanner hardware market. In addition,
we design and manufacture sophisticated advanced optical systems for government
and commercial customers.
Bar Code Scanners
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. The market for these
products is typically served by manufacturers like us, distributors or VARs,
depending upon the preference and needs of the end user. We believe that buying
decisions by end users are typically based first upon functionality and price,
then reliability and service. The sale of data capture & collection products and
service accounted for $140.2 million or 78.8% of our revenues in 2004.
Industrial Automation Products
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. Industrial scanning
and dimensioning systems are sophisticated solutions that often utilize
high-speed conveyor belt systems. Laser-based systems are primarily utilized by
the postal handling, transportation and logistics, retail distribution and
automotive industries. Vision-based systems, which use camera-based
technologies, are primarily used by the postal handling, transportation and
logistics and manufacturing industries. We believe end users purchase these
systems based first upon functionality and performance, then reliability,
service and price. Included in Industrial Automation sales are revenues from our
acquisition of Omniplanar in September 2004. The sale of industrial automation
products and service accounted for $18.5 million or 10.4% of our revenues in
2004.
Optical Systems
Optical systems are highly customized, sophisticated, electro-optical systems
used in government and commercial applications. Competitors in these markets
include government contractors and specialty research and manufacturing
companies in the commercial market. We believe contracts are awarded based
principally on capability and cost effectiveness. The sale of optical systems
accounted for $19.3 million or 10.8% of our revenues in 2004.
Our Competitive Strengths
We design, manufacture and market sophisticated imaging and scanning solutions
serving a variety of point-of-sale, commercial and industrial applications. Our
competitive strengths include:
Compelling Value Proposition
Through the combination of our ongoing investments in research and development
and our dedication to low-cost production disciplines, we are able to offer
feature-rich products at competitive prices.
Innovative Solutions Through Technological Leadership
We believe that we are recognized as a technological leader within our industry.
Our history of innovative solutions includes, among others, the development of
one of the earliest handheld bar code scanners, the development of the first bar
code scanner to utilize infrared trigger-less activation and the first use of
holographic technology with visible laser diodes.
Approximately one out of five of our employees are employed in an engineering
capacity, including our engineering team in Suzhou, China. We believe our
engineering expertise and ability to innovate enable us to provide and market a
broad range of superior bar code scanners and industrial automation solutions.
Additionally, we are focused on applying our innovative technologies to
production automation and cost reduction initiatives and to the development of
new solutions designed to expand our addressable markets.
Advanced Optical and Advanced Imaging Capabilities
We possess significant expertise in advanced optical and advanced imaging
systems for customized, high performance commercial and government applications.
Much of the core technology that we develop for these applications is funded
through government research and development programs. We have adapted this
technology to certain of our laser-based scanners and vision systems. We believe
that this technology provides us with an advantage relative to our competitors
in new product development. We intend to utilize these capabilities to further
penetrate existing markets and to enter new markets.
Intellectual Property Portfolio
Over the past five years, we have almost quadrupled our patent portfolio to over
300 issued patents and we currently have over 225 additional new patent
applications pending. We will continue to invest in patent applications and
aggressively protect our patent position from competitors who we believe
infringe our patents.
Multiple Distribution Channels Worldwide
We sell our products in over 110 countries through 17 direct sales offices
located around the world. We primarily sell our products through a growing
network of distributors and VARs. Our use of multiple distribution channels
worldwide allows us to expand our market presence and ultimately provide our
products to more end users. Our direct sales force concentrates on large retail
and OEM accounts in North America and, more recently, Europe and Asia.
Vertically Integrated Low-Cost Manufacturing
We have two primary manufacturing facilities, one in Blackwood, New Jersey and
one in Suzhou, China. While we outsource some of our component requirements, we
believe our ability to manufacture many key components of our products has led
to increased quality and lower manufacturing costs, enabling us to be more
competitive. The vertical integration of our manufacturing operations also aids
in new product development and enables a more rapid response to our end users'
application specific needs.
We design and manufacture an increasing number of our high volume products at
our facility in Suzhou, China. Our operations in China allow us to take
advantage of lower direct labor, manufacturing and research and development
costs. During 2004, the expansion of our manufacturing facility in Suzhou, China
was completed. This expansion nearly doubled the capacity of our China
operations.
Our Growth Strategy
Our goal is to increase sales and profits by increasing our market share in our
existing markets, by entering new markets in which we can apply our engineering
and manufacturing expertise, by reducing our costs and by making selective
strategic acquisitions.
Increase Our Share of Existing Markets through New Products and Expanded Sales
Efforts
We continually invest in developing new and improved products to meet the
changing needs of our existing customers. We have recently concentrated our
direct sales efforts to further penetrate some of the largest retailers in the
United States and Europe as well as focusing on the early adoption of bar coding
technology in healthcare. We have also expanded our international network of
distributors and VARs, and our relationships with OEMs. To better serve our
customers and distribution partners, we have increased our investments in
support and service capabilities, enhanced product availability and reliability,
and increased our custom product design and manufacturing capabilities.
Enter New Markets
A significant portion of our product development activities is focused on the
introduction of bar code scanners to open markets that we have not previously
served. For example, since 2000, we have introduced 16 new products, many of
which address new bar code scanner markets, effectively doubling our addressable
bar code scanner market. We believe that our combination of high quality
products, service and support at lower price points will enable us to
successfully continue to enter and compete in these markets.
Reduce Costs While Maintaining Our Technological Capabilities
Our customers seek low-cost yet reliable and full-featured products. We
continually strive to reduce our manufacturing costs through product engineering
and design efforts and development of cost-efficient manufacturing equipment and
processes. We intend to expand our design and manufacturing capabilities at our
Suzhou, China facility to further take advantage of cost efficiencies. Quality
and productivity initiatives are also important elements of our cost reduction
strategies.
Selectively Pursue Strategic Acquisitions
In addition to our internal development and organic growth, we may selectively
pursue strategic acquisitions that we believe will broaden or complement our
current technology base and allow us to serve additional end users and their
evolving needs. For example, our acquisition of Adaptive Optics Associates
("AOA") in 2001 enhanced our technical and engineering capabilities in
industrial and image acquisition applications. Our 2004 acquisition of
Omniplanar broadened and strengthened our portfolio of decoding software to
include robust omnidirectional decoding of linear, matrix and postal bar code
images.
Our Products
Our products include laser bar code scanners, industrial automation products and
advanced optical systems and are sold primarily to distributors, VARs, OEMs and
directly to end users in various industries, in locations throughout the world.
Our products are generally used as part of an integrated system and are
connected to a host device, such as a personal computer or electronic
point-of-sale equipment. Our products can be classified into one of the
following three categories:
o Data Capture and Collection Products;
o Industrial Automation readers including High Speed Vision and Scanning
Systems; and
o Advanced Optical Systems.
Data Capture and Collection Products
Single-line Handheld Bar Code Scanners
We produce a broad line of laser-based bar code scanners that produce a single
linear scan line and are predominantly used as handheld devices by their
operators. We believe customers choose single-line handheld scanners for their
relatively low-cost and portability. They are particularly suited for
applications where items vary significantly in size, bar codes are arranged in
lists or for reading exceptionally wide bar codes.
- ----------------------------------------------------------------------------
Products Key Features/Benefits Selected Applications
- ----------------------------------------------------------------------------
Pulsar Entry level laser
Shorter scan range
- --------------------------------------------------
Eclipse Mid-level priced laser Retail point-of-sale
Medium scan range Inventory management
- -------------------------------------------------- Library checkout
Hospital patient
Voyager Value-priced, high-end laser identification
Long scan range Document processing
Automatic trigger for presentation
scanning
VoyagerCG Voyager with CodeGate switch
VoyagerPDF Voyager with two-dimensional symbol
reading
VoyagerBT Voyager with Bluetooth wireless
communication
- -----------------------------------------------------------------------------
Combination Handheld/Presentation Bar Code Scanners
We produce a line of compact, laser-based scanners that generate a pattern of 20
intersecting scan lines for scanning bar codes independent of the bar code's
orientation to the scanner, also known as omnidirectional scanning. Given their
small size, light weight and omnidirectional capability, compact combination
scanners are well suited for applications that require occasional portability
given the size of objects being scanned or where counter space is limited.
- ----------------------------------------------------------------------------
Products Key Features/Benefits Selected Applications
- ----------------------------------------------------------------------------
MS6720 Separate scanner and stand for
portability
Fully adjustable stand
- --------------------------------------------------
Quantum T Omnidirectional w/selectable Convenience stores
single-line menu mode Pharmacy
Protective rubber surround Hardware stores
Small size Airline ticketing
- -------------------------------------------------- Apparel and specialty
retail
Cubit Protective rubber housing
Adjustable built-in stand
- --------------------------------------------------
Orbit Contoured, hand-supportable,
industrial design
Unique one-piece tilting scan head
scanning
- -----------------------------------------------------------------------------
High Speed Fixed Projection Bar Code Scanners
Our line of fixed projection, laser-based bar code scanners allow operators to
quickly sweep bar codes by the scanner in any orientation. This provides
easy-to-use, high speed scanning by eliminating or reducing an operator's need
to twist and turn bar codes within the scanner's working range. Fixed projection
scanners are particularly useful in applications that require high throughput, a
capability valued by our customers.
- ----------------------------------------------------------------------------
Products Key Features/Benefits Selected Applications
- ----------------------------------------------------------------------------
ArgusScan Four-position mounting stand
(Vertical Small footprint
scanner)
- --------------------------------------------------
InVista Large scan area Grocery
(Vertical User-replaceable window Mass merchandisers
scanner) Built-in Electronic Article Liquor stores
Surveillance antenna ATM/self-service
- -------------------------------------------------- Gated entry
Horizon User-replaceable window
(In-counter Scratch-resistant window options
scanner) Built-in Electronic Article
Surveillance antenna
- -------------------------------------------------
Stratos Bi-optic, 6-sided scanning
(Bi-optic Redundant scanning system
in-counter 10-minute field repair
scanner) Visual diagnostic indicator
- -----------------------------------------------------------------------------
Portable Data Collection Terminals
Our portable data collection terminal is a battery-powered handheld device
incorporating a scanning module, a keypad, an application software program and
memory. Portable data collection terminals are particularly useful in
applications that require mobile data management.
- ----------------------------------------------------------------------------
Products Key Features/Benefits Selected Applications
- ----------------------------------------------------------------------------
ScanPal 2 Long battery life Inventory management
Laser or linear imager options Price lookup
- -----------------------------------------------------------------------------
OEM Bar Code Scan Engines
We produce laser-based scanning modules, or engines, which are designed for
integration into a variety of OEM equipment. We offer several standard and
custom scan engine models that vary in physical size, scan pattern, decoding
capabilities and scan speed. We believe customers choose our scan engines for
their low-cost, ease of integration, robust scanning characteristics and, where
applicable, fully sealed construction.
- ----------------------------------------------------------------------------
Products Key Features/Benefits Selected Applications
- ----------------------------------------------------------------------------
MicroQuest 3V battery operation
(linear Extremely small size
engine) Very low power consumption
- --------------------------------------------------
ScanQuest Completely sealed module for easy
(linear handling
engine) Decoded and non-decoded models
Tight beam control for automated Portable scanning devices
applications Reverse vending
- -------------------------------------------------- Mass storage devices
Medical instrumentation
Cubit Completely sealed module for easy Interactive kiosks
(omni- handling
directional) Simple remote configuration
Superior up close scanning for
self-service devices
- ---------------------------------------------------
Quantum Visual and audible Scan Range
(omni- optimization
directional) Programmable single-line option
- ----------------------------------------------------------------------------
Industrial Automation Products
Our line of laser-and vision-based industrial products and scanning systems are
branded and marketed under the AOA name. Laser-based systems are typically
chosen for their lower cost and their ability to read one-dimensional bar codes.
We believe that vision-based technology is rapidly becoming the predominant
system sought by companies in many industries including transportation and
logistics, manufacturing, and parcel and postal handling. Vision-based systems
offer greater functionality than traditional laser scanning devices including
increased bar code read rates, two-dimensional bar code decoding, image capture
and OCR capability.
- ----------------------------------------------------------------------------
Products Key Features/Benefits Selected Applications
- ----------------------------------------------------------------------------
Tech Series Variety of models
HoloTrak One-dimensional bar code scanning Walk-under scanning,
Series Patented holographic technology order processing,
(Laser-Based (HoloTrak) moderate speed,
Scanning conveyor applications
Systems)
- ----------------------------------------------------------------------------
iQ Series Unique laser illumination High speed conveyor
(Vision-Based One-dimensional and two-dimensional scanning
Imaging bar code reading Pharmaceutical
Systems) Image lift and processing manufacturing
Parcel dimensioning Postal and parcel
Fixed focus and variable focus handling
models
- ----------------------------------------------------------------------------
Qtrace LDI Compact size High speed conveyor
(Laser-and High performance Dimensioning
Vision- Dimensions parcels Postal and parcel
Based Detects overlapping packages handling
Systems)
- ----------------------------------------------------------------------------
HoloTunnel Highly customizable Distribution/warehousing
iQ Tunnel One-dimensional and two-dimensional conveyor systems
(Multiple bar code reading and image Parcel and postal
Device acquisition handling
Laser- or Dimensioning Airport baggage handling
Vision-Based
Systems)
- -----------------------------------------------------------------------------
Advanced Optical Systems
We are a leading provider of high performance advanced optical systems to
government and commercial customers. Advanced optical systems are
sophisticated, electro-optical systems. Our systems are designed and developed
for highly advanced and customized applications that require the highest
standards of accuracy, reliability and performance. As part of our advanced
optics systems, we design and manufacture highly engineered components, wave
front sensors and monolithic lenslet modules, or MLMs. Wave front sensors
provide correction signals that control deformable mirrors. MLMs are arrays of
micro lenses that focus and shape laser beams and images. These advanced
components each have applications in the control and conditioning of lasers,
retinal imaging and laser communications. Our products are typically integrated
into larger, customized systems.
Research and Product Development
As of March 1, 2005, 173 of our employees were engineers, approximately 15% of
our employees, who participate in our product development programs. Our
engineers primarily develop new products, derivations of existing products and
improvements to our products' reliability, ergonomics and performance.
Approximately 23% of our engineers are located in Suzhou, China. Our acquisition
of AOA in 2001 significantly increased our engineering capabilities, especially
as they relate to optics and image capture. We strive to utilize these
capabilities wherever possible in our bar code scanners and industrial
automation products to maximize our products' functionality and facilitate new
product development.
Substantially all of our products are developed internally by our engineering
development programs. During 2002, 2003 and 2004, we incurred expenses of
approximately $6.9 million, $6.8 million and $7.5 million, respectively, on
research and development. We also participate in government and customer funded
research programs.
Manufacturing
We manufacture our products primarily at our Blackwood, New Jersey and Suzhou,
China facilities. Our China facility is strategically located approximately 60
miles from Shanghai, allowing us access to high quality engineers and factory
employees, and close proximity to ports for shipping and receiving goods. Our
Blackwood facility is vertically integrated, enabling us to quickly adapt and
enhance our products and services to meet specific customer requirements. This
capability reduces the length of our new product development cycle and our
products' overall time to market.
Our industrial automation products, along with many of our newer products, are
manufactured in our Blackwood, New Jersey facility, which is ISO 9001 certified.
ISO 9001 is a system of management standards promulgated by the International
Organization of Standardization that sets forth what a company must do to manage
processes effecting quality. We manufacture a majority of our handheld products,
which are lower cost, higher volume products, in our China facility. We intend
to increasingly add manufacturing of other low-cost, high volume products to
Suzhou, China to take advantage of lower costs. During 2004, the expansion of
our manufacturing facility in Suzhou, China was completed. This expansion nearly
doubled the capacity of our China operations.
We have invested and will continue to invest in capital production equipment and
tooling that will further automate production, increase capacity and reduce
costs.
Suppliers
Although we manufacture many key components of our products, we also use a
limited number of suppliers. We do not believe that the loss of any one supplier
would have a long-term adverse effect on our business, although set-up costs and
delays would likely result if we were required to change any single supplier
without adequate prior notice. We believe our relationships with our suppliers
are good.
Sales and Marketing
We market our products and services on a global basis direct to end users and
OEMs and through a network of distributors and VARs. We have offices in 17
countries and sell our products into more than 110 countries.
We have contractual relationships with numerous distributors and dealers and a
limited number of OEMs, VARs and end users. OEMs purchase our products,
incorporate them into their systems and sell them under their own names. VARs
purchase our products and other peripheral components needed for specific
applications and sell them directly to end users. By utilizing multiple
distribution channels, we have been able to expand our market presence, broaden
our distribution network and sell to industries other than those serviced by our
direct sales force. We provide training and technical support to our
distributors and resellers to assist them in marketing and servicing our
systems. We also encourage our resellers to become authorized service providers
so that they can provide repair services directly to their customers.
Our subsidiaries sell, distribute and service our products throughout major
markets of the world. In addition, the adaptive optical systems market is
served through our AOA subsidiary.
Customers and End Users
We sell indirectly through distributors and VARs and directly to end users and
OEMs. Our core markets include bar code scanner hardware, industrial automation
products and advanced optical systems.
Our customers and end users within the bar code scanner hardware market include:
department stores and chains, video rental chains, supermarkets, convenience
store chains, hospitals, pharmacies, banks and libraries among others. Within
our industrial automation market our customers and end users include: major
package handlers, worldwide transportation and logistics companies, postal
agencies, automotive and automotive component manufacturers, computer
manufacturers, large industrial prime contractors, airlines and pharmaceutical
manufacturers. In our advanced optical systems market our customers include
governmental contractors, specialty research agencies and manufacturing
companies.
The method by which we sell our products is typically dependent upon the nature
of the end market application. For example, the majority of our bar code
scanners are sold through indirect distribution channels. By contrast, the
majority of our sales in the industrial market are sold direct to key end users
and integrators, and the majority of our sales in the advanced optical market
are sold through large prime contractors.
Inventory and Backlog
We endeavor to produce products based upon a forecast derived from historical
sales, actual weekly shipments and regularly updated estimates of future demand.
Together with our vertical integration, this forecasting process allows us to
satisfy customers' shipment demands with limited inventory of completed products
and component parts.
As of December 31, 2004, we had approximately $19.3 million in backlog orders of
which $11.5 million is attributable to AOA contracts. All backlog orders are
anticipated to be filled prior to December 31, 2005. As of December 31, 2003, we
had approximately $22.4 million in backlog orders, of which approximately $12.8
million was attributable to AOA contracts. All but $1.6 million of such backlog
orders as of December 31, 2003 were completed by December 31, 2004.
Competition
Our industry is highly competitive. Our bar code scanners, including handheld
scanners and fixed projection scanners, compete primarily with those produced
by U.S. manufacturers Hand Held Products, Inc. (a Welch Allyn affiliate),
Intermec Technologies Corporation (a division of UNOVA Inc.), NCR Corporation,
PSC Inc., and Symbol Technologies, Inc.; European manufacturer Datalogic
S.p.A.; and Asian manufacturers Densei, Fujitsu Limited, Nippondenso ID System
and Opticon, Inc. Our industrial scanners primarily compete with those produced
by U.S. manufacturers Accu-Sort Systems, Inc., Microscan Systems, Inc.; and
European manufacturers Datalogic S.p.A., Sick AG and Opticon, Inc. in Asia.
While many of our competitors are larger and have greater financial, technical,
marketing and other resources than we do, we believe that we compete
successfully on the basis of price, quality, value, service and product
performance.
Intellectual Property
We file domestic and foreign patent applications to protect our technological
position and new product development. As of March 1, 2005, we owned 263 U.S.
patents, which expire between 2005 and 2022, and 53 foreign patents, which
expire between 2005 and 2019. In addition, we have over 225 patent applications
currently on file with the U.S. Patent and Trademark Office and foreign patent
offices with respect to certain products and improvements we have developed. We
own numerous U.S. and foreign trademark registrations. We intend to continue to
file applications for United States and foreign patents and trademarks. Although
we believe that our patents provide a competitive advantage, we also rely upon
our proprietary know-how, innovative skills, technical competence and marketing
abilities.
Government Regulations
Both we and our products are subject to regulation by various agencies both in
the United States and in the countries in which our products are sold. In the
United States, various federal agencies including the Food & Drug
Administration's Center for Devices and Radiological Health, Federal
Communications Commission, the Occupational Safety and Health Administration and
various state and municipal government agencies, have promulgated regulations
concerning laser safety and radio emissions standards. In Canada, laser safety
is regulated by Industry Canada. We also submit our products for safety
certification throughout the world by recognized testing laboratories such as
the Underwriters Laboratories, Inc. and the Canadian Standards Association. The
European countries in which our products are sold also have standards concerning
electrical and laser safety and electromagnetic compatibility and emissions.
Weighing systems used in conjunction with our Stratos scanner model are
regulated by various national and state organizations such as the Office of
Weights and Measures of the National Institute of Standards and Technology in
the United States and the International Organization of Legal Metrology.
We believe that all of our products are in material compliance with current
standards and regulations; however, regulatory changes in the United States and
other countries may require modifications to certain of our products in order
for us to continue to be able to manufacture and market these products.
Employees
As of March 1, 2005, we had approximately 1,175 full-time employees worldwide.
None of our employees currently are represented by a labor union. However, under
Chinese law, if we have over 200 employees in China, these employees will be
required to be represented by a union. We expect that by 2005, our employees in
Suzhou, China will be represented by a union in accordance with Chinese law.
Management believes that its relationships with its employees are good.
Financial Information about Geographic and Business Segment
We operate both domestically and internationally in two distinct business
segments. The financial information regarding our geographic and business
segments, which includes net revenues and gross profit for each of the years in
the three-year period ended December 31, 2004, and total long-lived assets as of
December 31, 2004, December 31, 2003 and December 31, 2002, is provided in Note
12 to the Consolidated Financial Statements.
Available Information
Our website address is www.metrologic.com. Our annual report on Form 10-K,
quarterly reports on Form10-Q, current reports on Form 8-K and any amendments to
these reports are available free of charge on the Investor Relations page of our
website as soon as reasonably practicable after the reports are filed
electronically with the Securities and Exchange Commission. Information
contained on our website is not a part of this report.
The general public may read and copy any materials we file with the SEC at the
SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, DC 20549. The
public may obtain information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. We are an electronic filer, and the SEC
maintains an Internet website that contains reports, proxy and information
statements, and other information regarding issuers that file electronically
with the SEC. The Internet address of the SEC's website is www.sec.gov.
Item 2. Properties
Our executive offices and U.S. manufacturing facilities are located in
Blackwood, New Jersey and until December 2003 were leased by us from C. Harry
Knowles, our Chairman of the Board and Director, and Janet H. Knowles, our Vice
President, Administration, Treasurer and Director. The building is approximately
116,000 square feet, of which approximately 82,000 square feet is dedicated to
manufacturing. In order to reduce our operating costs, we purchased this
facility in December 2003 for $4.79 million, which was less than the values
determined by two independent appraisals. Our facility in Suzhou, China was
leased by us until November 2004. Construction commenced in December 2003 to
double the size of the facility and upon completion of the construction, we
purchased the expanded facility and additional land for future expansion. The
final installment payments for the purchase will occur in fiscal 2005. The
facility is now approximately 46,000 square feet.
Our subsidiaries each lease office space from third parties. As of December 31,
2004 our aggregate floor space was approximately 354,000 square feet.
Item 3. Legal Proceedings
We protect our technological position and new product development with domestic
and foreign patents. When we believe competitors are infringing on these
patents, we may pursue claims or other legal action against these parties.
Additionally, from time-to-time, we receive legal challenges to the validity of
our patents or allegations that our products infringe the patents of others.
We are currently involved in matters of litigation arising in the normal course
of business including the matters described below. We believe that such
litigation either individually or in the aggregate will not have a material
adverse effect on our consolidated financial position, results of operations or
cash flows, except as noted below.
On July 21, 1999, we and six other leading members of the Automatic
Identification and Data Capture Industry (the "Auto ID companies") jointly
initiated litigation against the Lemelson Medical, Educational, & Research
Foundation, Limited Partnership (the "Lemelson Partnership"). The suit which was
commenced in the U.S. District Court, District of Nevada in Reno, Nevada, and
later transferred to the U.S. District Court in Las Vegas, Nevada, requested a
declaratory judgment that certain patents owned by the Lemelson Partnership were
not infringed, invalid and/or unenforceable for a variety of reasons. The trial
on this matter was held from November 2002 through January 2003. On January 23,
2004, the Judge issued a decision in favor of the Auto ID companies finding that
the patents in suit were not infringed, invalid and unenforceable. The Lemelson
Partnership has appealed this decision to the Court of Appeals for the Federal
Circuit and this appeal is now pending.
On October 13, 1999, we filed suit for patent infringement against PSC Inc.
("PSC') in the U.S. District Court for the District of New Jersey. The complaint
asserts that at least seven of our patents are infringed by a variety of
point-of-sale bar code scanner products manufactured and sold by PSC. The
complaint seeks monetary damages as well as a permanent injunction to prevent
future sales of the infringing products. 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 was pending. The stay was
lifted on July 18, 2003, and the Court issued a ruling on the Markman hearing on
August 26, 2003 entering a decision and order providing an interpretation of the
claims in suit. Certain pretrial motions are still pending before the Judge and
no date has been set for trial.
On May 3, 2002, we were served with a lawsuit that was filed on April 12, 2002
by Symbol Technologies, Inc., in the U.S. District Court for the Eastern
District of New York alleging that we were in breach of the terms of the License
Agreement between us and Symbol (the "Symbol Agreement"). The Complaint sought a
declaratory judgment from the Court that we were in breach of the Agreement. On
March 31, 2003, the Court entered its decision on the parties' respective
motions for summary judgment, and finding in our favor, the Court dismissed
certain counts of Symbol's complaint. On April 9, 2003, Symbol voluntarily
dismissed the remaining counts of the complaint. Symbol filed its Notice of
Appeal with the U.S. Court of Appeals for the Second Circuit on May 7, 2003. On
December 23, 2003, the Court of Appeals dismissed Symbol's appeal in this
matter. In the interim, Symbol decided to proceed with the arbitration for which
the Company had filed a Demand in June 2002, which had been stayed pending the
decision by the lower court. On June 26, 2003, Symbol filed an Amended Answer
and Counterclaims asserting that (a) eleven of Metrologic's products are royalty
bearing products, as defined under the Symbol Agreement, and (b) in the
alternative, those products infringe upon one or more of Symbol's patents. In
February 2005, the arbitrator entered an interim award, finding that 8 of the
products are not royalty bearing products under the Symbol Agreement but that 3
of the products are royalty bearing products. The Company has made a motion for
another interim award to review a portion of the arbitrator's decision. This
motion has been granted and on March 23, 2005 the arbitrator will reopen the
hearing with regard to certain portions of his earlier decision.
To date no final award of damages against the Company has been granted in this
matter. Symbol has made a request for a damage award in the amount of
approximately $10 million dollars. The Company believes that Symbol's claims for
damages in this amount are wholly without merit and intends to vigorously defend
against it, however if Symbol were to receive a final award in the amount of $10
million dollars and such an award were not reversed on appeal it would have a
material impact on the Company.
On June 18, 2003, the Company filed suit against Symbol Technologies, Inc. in
the U.S. District Court for the District of New Jersey alleging claims of patent
infringement of certain of our patents by at least two Symbol products. The
complaint also contains a claim for breach of the Symbol Agreement between the
parties. Symbol's answer to the complaint, filed on July 30, 2003, included
counterclaims requesting that a declaratory judgment be entered that patents in
suit are invalid, are not infringed by Symbol and that Symbol is not in breach
of the Cross License Agreement. This matter is still in discovery.
On May 17, 2004, PSC filed suit against the Company in the U.S. District Court
for the District of Oregon alleging claims of patent infringement of certain of
its patents by at least one Metrologic product. The Company believes that PSC's
claims are wholly without merit and intends to vigorously defend against them.
The Company has filed an answer and counterclaims to the complaint. This case in
now in the early stages of discovery.
We are not aware of any other legal claim or action against us, which could be
expected to have a material adverse effect on our consolidated financial
position, results of operations or cash flows.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Executive Officers of the Registrant
The executive officers of the Company as of December 31, 2004 were as follows:
Name Age Position
Benny A. Noens 57 Chief Executive Officer and President
Kevin J. Bratton 55 Chief Financial Officer
Gregory DiNoia 40 Vice President, The Americas
Dale M. Fischer 64 Vice President, International Sales
Janet H. Knowles 63 Director, Vice President, Administration,
and Treasurer
Joseph Sawitsky 42 Senior Vice President, Manufacturing
Mark C. Schmidt 34 Senior Vice President, Marketing
Nancy A. Smith 38 Vice President, General Counsel and
Secretary
Jeffrey Yorsz 47 Senior Vice President, Industrial Systems
The Company's executive officers are elected annually by the Board of Directors
following the annual meeting of shareholders and serve at the discretion of the
Board of Directors.
Benny A. Noens has served as the Company's Chief Executive Officer and President
since June 2004. Mr. Noens served as the Company's European Sales Manager from
1991 to 1993 and as Vice President, European Sales from 1994 to March 2004 and
was promoted to Senior Vice President, European Sales in March 2004. In
addition, Mr. Noens had been Managing Director of Metrologic Instruments GmbH
from 1994 until June 2004. From 1980 until 1991, Mr. Noens held several
positions with Data General Corporation, including serving in Latin America as
Marketing and Distribution Manager. Prior to his employment at Data General, Mr.
Noens managed a division of C.T. Janer Co., an import/export company located in
Rio de Janiero, Brazil.
Kevin J. Bratton has served as the Company's Chief Financial Officer since July
1, 2002. Mr. Bratton was employed as the Chief Financial Officer of The JPM
Company, a company that manufactured wire and cable assemblies at various
locations throughout the world, from June 2000 through June 2002. The JPM
Company filed a Chapter 11 petition in the United States Bankruptcy Court for
the District of Delaware on March 1, 2002. From July 1999 to May 2000, Mr.
Bratton was the Director of External Reporting at The JPM Company. Prior to
joining JPM, Mr. Bratton was a Vice President and Treasurer of IGI, Inc., a
manufacturer of poultry biologics and veterinary pharmaceuticals.
Gregory DiNoia has served as the Company's Vice President, North American Sales
since March 2004. In January 2005, he took over responsibility for South America
becoming Vice President, The Americas. Mr. DiNoia joined us in 1997 as the
Midwest Account Manager and has served as a Strategic Account Manager and was
promoted to Director of Strategic Retail & OEM Accounts in January 2001. Prior
to joining Metrologic, he held several positions in sales and contract
management.
Dale M. Fischer has served as the Company's Director of International Marketing
and Sales from 1990 to 1993 and has served as Vice President, International
Sales since 1994. From 1989 to 1990, Mr. Fischer was Chairman of Great Valley
Corporation, a worldwide marketing and product development company. From 1967
until 1988, Mr. Fischer held several positions with TRW Electronics Component
Group ("TRW"), most recently as International Marketing, Sales and Licensing
Director. Mr. Fischer was responsible for marketing and sales of TRW products in
more than 50 countries and was responsible for the implementation of a joint
venture in Japan and the establishment of seven technology and manufacturing
licenses throughout the world.
Janet H. Knowles was a director of the Company from 1972 to 1984 and has served
as a director since 1986. Mrs. Knowles served as Vice President, Administration
from 1976 to 1983 and has served in that capacity since 1984. Mrs. Knowles
served as Secretary from 1984 to July 2004, and as Treasurer since 1994. Mrs.
Knowles is the wife of the Chairman of the Board.
Joseph Sawitsky has served as the Company's Vice President, Manufacturing since
November 1999 and was promoted in March 2004 to Senior Vice President,
Manufacturing and Operations. He joined Metrologic in 1998 as the Production
Manager. After serving in the Nuclear Submarine Force, he worked at ICI
Composites from 1990 to 1994 and manufactured specialty polymer materials for
the aerospace and industrial markets. From 1994 to 1998 he held several
positions with Zenith Electronic Corporation making consumer electronic
equipment.
Mark C. Schmidt has served as the Company's Vice President, Marketing since
November 1999. He was promoted to Senior Vice President, Marketing in March
2004. He has been employed by Metrologic since 1992. During his tenure, Mr.
Schmidt has progressed from Optical Engineer to the position of POS Product
Manager in 1995, and Marketing Manager in 1997.
Nancy A. Smith has served as the Company's Vice President, General Counsel since
March 2002 and Secretary of the Company since July 2004. Ms. Smith joined the
Company in 1996 as its Corporate Counsel and patent attorney. Prior to joining
Metrologic, Ms. Smith was employed as a patent attorney for a private law firm
in Baltimore, Maryland.
Jeffrey Yorsz has served as the Vice President, Industrial Systems since March
2002. In March 2004, he was promoted to Senior Vice President, Industrial
Systems. Mr. Yorsz also serves as President and General Manager of Adaptive
Optics Associates, Inc., a wholly owned subsidiary of Metrologic Instruments,
Inc., since its acquisition in January 2001. He joined AOA as an engineer in
1984 and has held prior positions of Manager of Electrical Engineering and
Assistant General Manager of the company.
PART II
Item 5. Market for the Registrant's Common Equity and Related Shareholder
Matters
PRICE RANGE OF OUR COMMON STOCK
Our common stock is listed on the Nasdaq National Market and trades under
the symbol MTLG. On March 1, 2005, we had 21,922,270 shares of common stock
outstanding, which were held by approximately 185 holders of record. The
following table sets forth, for the fiscal periods indicated, the high and low
sales prices per share for our common stock on the Nasdaq National Market. Year
ended December 31, 2003 is adjusted to reflect the 3-for-2 stock split effected
July 3, 2003 and the two-for-one stock split effected October 30, 2003.
High Low
Year ended December 31, 2003
First Quarter $ 4.10 $ 2.50
Second Quarter 15.13 3.46
Third Quarter 22.75 10.33
Fourth Quarter 32.38 17.20
Year ended December 31, 2004
First Quarter $ 33.50 $ 20.68
Second Quarter 25.75 13.81
Third Quarter 20.15 13.00
Fourth Quarter 21.84 14.50
DIVIDEND POLICY
We have not paid cash dividends on our common stock since becoming a public
company, and we do not intend to pay cash dividends in the foreseeable future.
We currently intend to retain any earnings to further develop and grow our
business. While this dividend policy is subject to periodic review by our Board
of Directors, there can be no assurance that we will declare and pay dividends
in the future.
Item 6. Selected Consolidated Financial Data
(in thousands except per share data)
Year Ended December 31,
2000(1) 2001(1)(2)2002(3) 2003(4) 2004(5)
---- ---- ---- ---- ----
Statement of Operations Data:
Sales $ 91,884 $ 112,011 $ 115,806 $ 138,011 $ 177,955
Cost of sales 55,394 83,527 74,385 79,654 96,227
--------- -------- --------- --------- ---------
Gross profit 36,490 28,484 41,421 58,357 81,728
Selling, general and
administrative expenses 26,314 30,877 28,271 31,378 42,518
Research and development
expenses 4,975 6,563 6,929 6,764 7,521
Severance costs 160 - 602 71 -
--------- --------- --------- -------- ---------
Operating income (loss) 5,041 (8,956) 5,619 20,144 31,689
Other income (expense),
net (878) (3,596) (2,917) 897 2,159
--------- --------- --------- -------- ---------
Income (loss) before
income taxes 4,163 (12,552) 2,702 21,041 33,848
Provision (benefit) for
income taxes 1,426 (4,775) 1,027 7,160 11,168
--------- --------- --------- --------- --------
Net income (loss) $ 2,737 $ (7,777)$ 1,675 $ 13,881 $ 22,680
Add back: Goodwill
amortization 102 818 - - -
Adjusted net income
(loss) $ 2,839 $ (6,959)$ 1,675 $ 13,881 $ 22,680
========= ========= ========= ========= ========
Net income (loss) per
common share (6)
Basic $ 0.17 $ (0.47)$ 0.10 $ 0.79 $ 1.06
--------- --------- --------- --------- --------
Diluted $ 0.16 $ (0.47)$ 0.10 $ 0.72 $ 0.99
========= ========= ========= ========= ========
Weighted average number
of outstanding common
shares and equivalents(6)
Basic 16,316 16,373 16,400 17,597 21,472
========= ========= ========= ========= =========
Diluted 16,674 16,373 16,471 19,383 22,974
========= ========= ========= ========= =========
Year Ended December 31,
2000 2001 2002 2003 2004
---- ---- ---- ---- ----
(In thousands)
Balance Sheet Data:
Cash and cash equivalents $ 2,332 $ 557 $ 1,202 $ 48,817 $ 64,715
Working capital $ 42,472 $ 20,606 $ 13,407 $ 74,112 $ 83,318
Total assets $ 81,447 $ 85,773 $ 74,579 $ 139,900 $ 192,527
Long-term debt $ 25,334 $ 27,465 $ 14,431 $ 320 $ 2,015
Total debt $ 28,039 $ 40,731 $ 21,486 $ 5,527 $ 18,280
Total shareholders'
equity $ 35,763 $ 26,261 $ 29,471 $ 107,608 $ 138,016
(1) On January 26, 2000, we acquired a 51.0% interest in Metrologic Eria
Iberica ("MEI") and our results of operations include the results of
operations of MEI from that date forward. On July 18, 2000, we acquired a
51.0% interest in Metrologic Eria France ("MEF") and our results of
operations include the results of operations of MEF from that date
forward. On January 8, 2001, we completed the acquisition of AOA and our
results of operations include the results of operations of AOA from that
date forward.
(2) During the year ended December 31, 2001, cost of sales included special
charges and other costs of $10.0 million that are not expected to recur in
subsequent periods.
(3) On January 1, 2002, we adopted FAS 142 and discontinued the amortization
of goodwill. See Note 6 to our Consolidated Financial Statements.
(4) During the year ended December 31, 2003, we recorded a gain of $2.2
million on the early extinguishment of debt and expenses of $463 incurred
in connection with our efforts to refinance our bank debt.
(5) On September 24, 2004, we acquired Omniplanar, Inc. and our results of
of operations of Omniplanar, Inc. from that date forward.
(6) Weighted average number of common shares and per share amounts for
2000-2002 have been restated to reflect the 2003 stock splits.
Item 7. 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 U.S. 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) changes from the expected gross margin percentage due to a
number of factors including product mix; (vii) the effects of and changes in
trade, monetary and fiscal policies, laws, regulations and other activities of
government, agencies and similar organizations, including, but not limited to
trade restrictions or prohibitions, inflation, monetary fluctuations, import and
other charges or taxes, nationalizations and unstable governments; (viii)
continued or prolonged capacity constraints that may hinder our ability to
deliver ordered products 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;
(xiii) and the potential impact of terrorism, international hostilities and
possible natural disasters.
All forward-looking statements included herein are based upon information
presently available, and we assume no obligation to update any forward-looking
statements.
Critical Accounting Policies and Estimates
The preparation of our financial statements in conformity with generally
accepted accounting principles in the United States requires us to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period.
On an on-going basis, we evaluate our estimates and judgments, including those
related to revenue recognition, asset impairment, intangible assets and
inventory and accounts receivable. We base our estimates and judgments on
historical experience and on various other factors that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions. See Note 2 to our
consolidated financial statements, "Accounting Policies," for a summary of each
significant accounting policy. We believe the following critical accounting
policies and estimates, among others, affect our more significant judgments and
estimates used in the preparation of our consolidated financial statements.
Revenue Recognition. Revenue related to sales of our products and systems is
generally recognized when products are shipped or services are rendered, the
title and risk of loss has passed to the customer, the sales price is fixed or
determinable and collectibility is reasonably assured. We accrue related product
return reserves and warranty expenses at the time of sale. Additionally, we
record estimated reductions to revenue for customer programs and incentive
offerings including special pricing agreements, price protection, promotions and
other volume-based incentives. We recognize revenue and profit as work
progresses on long-term contracts using the percentage of completion method,
which relies on estimates of total expected contract revenue and costs.
Recognized revenues and profits are subject to revisions as the contract
progresses to completion. Revisions in profit estimates are charged to income in
the period in which the facts that give rise to the revision become known.
Bad Debts. We maintain allowances for doubtful accounts for estimated losses
resulting from the inability of our customers to make required payments. If the
financial condition of our customers were to deteriorate, resulting in an
impairment of their ability to make payments, additional allowances may be
required. If economic or political conditions were to change in the countries
where we do business, it could have a significant impact on the results of
operations, and our ability to realize the full value of our accounts
receivable. Furthermore, we are dependent on customers in the retail markets.
Economic difficulties experienced in those markets could have a significant
impact on our results of operations, and our ability to realize the full value
of our accounts receivable. In establishing the appropriate provisions for
customer receivable balances, we make assumptions with respect to their future
collectibility. Our assumptions are based on an individual assessment of a
customer's credit quality as well as subjective factors and trends, including
the aging of receivable balances. Once we consider all of these factors, a
determination is made as to the probability of default. An appropriate provision
is made, which takes into account the severity of the likely loss on the
outstanding receivable balance based on our experience in collecting these
amounts.
Inventory. We write down our inventory for estimated obsolescence or
unmarketable inventory equal to the difference between the cost of the inventory
and the estimated market value, less disposal costs and reasonable profit
margin, based upon assumptions about future demand and market conditions. If
actual market conditions are less favorable than those projected by management,
additional inventory writedowns may be required.
Goodwill. Goodwill represents the excess of the cost of businesses acquired over
the fair value of the related net identifiable assets at the date of
acquisition. In accordance with Statement of Financial Accounting Standards
("SFAS") No. 142, "Goodwill and Other Intangible Assets," we no longer amortize
goodwill, but test for impairment of goodwill using a discounted cash flow
analysis. The goodwill impairment test is a two-step process, which requires
management to make judgments in determining what assumptions to use in the
calculation. The first step of the process consists of estimating the fair value
of each reporting unit based on a discounted cash flow model using revenue and
profit forecasts and comparing those estimated fair values with the carrying
values, which includes the allocated goodwill. If the estimated fair value is
less than the carrying value, a second step is performed to compute the amount
of the impairment by determining an "implied fair value" of goodwill. The
determination of a reporting unit's "implied fair value" of goodwill requires us
to allocate the estimated fair value of the reporting unit to the assets and
liabilities of the reporting unit. Any unallocated fair value represents the
"implied fair value" of goodwill, which is compared to its corresponding
carrying value. We completed our annual impairment test as of October 1, 2004
and determined that there was no goodwill impairment to be recognized. The key
assumptions used to determine the fair value of our reporting units included (a)
cash flow periods of 5 years; (b) terminal values based upon a terminal growth
rate of 3%; and (c) a discount rate of 13.9%, which was based on the Company's
weighted average cost of capital adjusted for the risks associated with the
operations.
Long-Lived Assets. We assess the impairment of our long-lived assets, other than
goodwill, including property, plant and equipment, identifiable intangible
assets and software development costs whenever events or changes in
circumstances indicate the carrying value may not be recoverable. Factors we
consider important which could trigger an impairment review include significant
changes in the manner of our use of the acquired asset, changes in historical or
projected operating performance and significant negative economic trends.
Research and Development/Software Development Costs. We expense all research and
development costs as incurred. Research and development expenses may fluctuate
due to the timing of expenditures for the varying states of research and product
development and the availability of capital resources. We capitalize costs
incurred for internally developed product software where economic and
technological feasibility has been established and for qualifying purchased
product software. We assess the recoverability of our software development costs
against estimated future revenue over the remaining economic life of the
software.
Income Taxes We account for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes," which requires that deferred tax assets and
liabilities be recognized using enacted tax rates for the effect of temporary
differences between the book and tax bases of recorded assets and liabilities.
SFAS No. 109 also requires that deferred tax assets be reduced by a valuation
allowance if it is more likely than not that some portion or the entire deferred
tax asset will not be realized. We evaluate the realizability of our deferred
tax assets on an ongoing basis by assessing the valuation allowance and by
adjusting the amount of such allowance, if necessary. The factors used to assess
the likelihood of realization is our forecast of future taxable income and
available tax planning strategies that could be implemented to realize the net
deferred tax assets. Failure to achieve forecasted taxable income might affect
the ultimate realization of the net deferred tax assets. See the section on
Forward Looking Statements included at the beginning of this Item 7 on
Management's Discussion and Analysis for a listing of factors that may affect
the achievement of our forecasted taxable income.
The Company's annual provision for income taxes and the determination of the
resulting deferred tax assets and liabilities involve a significant amount of
management judgment. Our judgments, assumptions and estimates relative to the
current provision for income tax take into account current tax laws, our
interpretation of current tax laws and possible outcomes of current and future
audits conducted by foreign and domestic tax authorities. The Company operates
within federal, state and international taxing jurisdictions and is subject to
audit in these jurisdictions. These audits can involve complex issues, which may
require an extended period of time to resolve. The Company maintains reserves
for estimated tax exposures. Exposures are settled primarily through the
settlement of audits within these tax jurisdictions, but can also be affected by
changes in applicable tax law or other factors, which could cause management of
the Company to believe a revision of past estimates is appropriate. Management
believes that an appropriate liability has been established for estimated
exposures; however, actual results may differ materially from these estimates.
The liabilities are reviewed on an ongoing basis for their adequacy and
appropriateness. To the extent the audits or other events result in a material
adjustment to the accrued estimates, the effect would be recognized in the
provision for income taxes line in our Consolidated Statement of Operations in
the period of the event.
Impact of Recently Issued Accounting Standards
In April 2002, the Financial Accounting Standards Board ("FASB") issued
Statement No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment
of FASB Statement No. 13, and Technical Corrections." In addition to other
technical provisions, this statement requires all gains and losses from the
extinguishment of debt to be included as an item of income from continuing
operations. We adopted the provisions of this statement on January 1, 2003 and
have recorded a gain of $2.2 million on the extinguishment of the UTC
subordinated debt in other income (expense) in the consolidated statement of
operations during 2003.
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. The adoption of this statement had
no material impact on our consolidated financial position, consolidated results
of operations or liquidity.
In December 2003, the FASB issued Interpretation No. 46 (revised),
"Consolidation of Variable Interests Entities" ("FIN 46R"), which addresses how
a business enterprise should evaluate whether it has a controlling financial
interest in an entity through means other than voting rights and, accordingly,
should consolidate the variable interest entity ("VIE"). FIN 46R replaces FASB
Interpretation No. 46 that was issued in January 2003. Companies are required to
apply FIN 46R to VIEs generally as of March 31, 2004 and to special-purpose
entities as of December 31, 2003. For any VIEs that must be consolidated under
FIN 46R that were created before January 1, 2004, the assets, liabilities and
non-controlling interest of the VIE initially would be measured at their
carrying amounts, and any difference between the net amount added to the balance
sheet and any previously recognized interest would be recorded as a cumulative
effect of an accounting change. If determining the carrying amounts is not
practicable, fair value at the date FIN 46R first applies may be used to measure
the assets, liabilities and non-controlling interest of the VIE. The adoption of
FIN 46 and related revisions had no significant impact on our consolidated
financial position, consolidated results of operations or liquidity.
In November 2004, the FASB issued Statement No. 151, "Inventory Costs, an
amendment of ARB No. 43, Chapter 4" (SFAS No. 151). SFAS 151 amends the guidance
in ARB No. 43, Chapter 4, "Inventory Pricing," to clarify the accounting for
abnormal amounts of idle facility expense, handling costs and wasted material
(spoilage). Among other provisions, the new rule requires that such items be
recognized as current-period charges, regardless of whether they meet the
criterion of "so abnormal" as stated in ARB No. 43. SFAS 151 is effective for
fiscal years beginning after June 15, 2005. We do not expect the adoption of
this statement to have a material effect on our consolidated financial position,
consolidated results of operations or liquidity.
In December 2004, the FASB issued FASB Staff Position No. FAS 109-2 (FSP No.
109-2), "Accounting and Disclosure Guidance for the Foreign Earnings
Repatriation Provisions within the American Jobs Creation Act of 2004" (the Jobs
Act). FSP No. 109-2 provides guidance with respect to reporting the potential
impact of the repatriation provisions of the Jobs Act on an enterprise's income
tax expense and deferred tax liability. The Jobs Act was enacted on October 22,
2004, and provides for a temporary 85% dividends received deduction on certain
foreign earnings repatriated during a one-year period. The deduction would
result in an approximate 5.25% federal tax rate on the repatriated earnings. To
qualify for the deduction, the earnings must be reinvested in the United States
pursuant to a domestic reinvestment plan established by a company's chief
executive officer and approved by a company's board of directors. Certain other
criteria in the Jobs Act must be satisfied as well. Although the Act was signed
into law in October 2004, the practical application of a number of the
provisions of the repatriation provision remains unclear. Tax authorities are
expected to provide clarifying language on key elements of the repatriation
provision. We have conducted a preliminary identification of potential
repatriation and reinvestment opportunities; however, the clarifying language
may affect our evaluation of the economic value of implementing any individual
opportunity and its ability to meet the overall qualifying criteria. As a
result, we will be unable to complete a determination of the Act's effect on our
plan for reinvestment or repatriation of foreign earnings until the clarifying
language is released.
In December 2004, the FASB issued Statement No. 123 (revised 2004), "Share-Based
Payment" (SFAS No. 123R), which replaces SFAS 123 and supersedes APB Opinion No.
25, "Accounting for Stock Issued to Employees." This Statement requires all
share-based payments to employees, including grants of employee stock options,
to be recognized in the financial statements based on their fair values
beginning with the first interim period beginning after June 15, 2005. The pro
forma disclosures previously permitted under SFAS 123 no longer will be an
alternative to financial statement recognition. We are required to adopt SFAS
123R in the third quarter of 2005. Under SFAS 123R, the Company must determine
the appropriate fair value model to be used for valuing share-based payments,
the amortization method for compensation cost and the transition method to be
used at date of adoption. The permitted transition methods include either
retrospective or prospective adoption. Under the retrospective option, prior
periods may be restated either as of the beginning of the year of adoption or
for all periods presented. The prospective method requires that compensation
expense be recorded for all unvested stock options at the beginning of the first
quarter of adoption of SFAS 123R, while the retrospective methods would record
compensation expense for all unvested stock options beginning with the first
period presented. We are currently evaluating the requirements of SFAS 123R and
expect that the adoption of SFAS 123R will have a material impact on our
consolidated financial position, consolidated results of operations and earnings
per share. We have not yet determined the method of adoption or effect of
adopting SFAS 123R, and have not determined whether the adoption will result in
amounts that are similar to the current pro forma disclosures under SFAS 123.
See "Accounting for Stock Options" in Note 2 of the Notes to Consolidated
Financial Statements.
In December 2004, the FASB issued Statement No. 153, "Exchanges of Nonmonetary
Assets, an amendment of APB Opinion No. 29, Accounting for Nonmonetary
Transactions". SFAS 153 eliminates the exception from fair value measurement for
nonmonetary exchanges of similar productive assets in paragraph 21 (b) of APB
Opinion No. 29, "Accounting for Nonmonetary Transactions," and replaces it with
an exception for exchanges that do not have commercial substance. SFAS 153
specifies that a nonmonetary exchange has commercial substance if the future
cash flows of the entity are expected to change significantly as a result of the
exchange. SFAS 153 is effective for periods beginning after June 15, 2005. We do
not expect the adoption of this statement to have a material effect on our
consolidated financial position, consolidated results of operations or
liquidity.
Overview
We are experts in optical image capture and processing solutions. In recent
years, we have increased sales, cash flow from operations and net income
primarily through the introduction of new products, penetration into new markets
and a focus on cost reduction activities to maintain a competitive advantage.
Success factors critical to our business include sales growth through continued
penetration within our existing markets through new product introductions and
expanded sales efforts, entering into new markets, maintaining a highly
responsive and cost efficient infrastructure, achieving the financial
flexibility to ensure that we can respond to new market opportunities in order
to return value to our shareholders, and selectively pursuing strategic
acquisitions.
In order to continue our penetration into new and existing markets, our strategy
involves expanding our sales channels and expanding our product development
activities. We have concentrated our direct sales efforts to further penetrate
some of the largest retailers in the United States as well as focusing on the
early adoption of bar coding technology in the healthcare industry. During
fiscal 2004, we added several new key retail accounts which contributed to our
year over year sales growth of 28.9%. Another key factor in achieving this
double-digit sales growth has been our ability to continue our growth in eastern
Europe and throughout Asia. We believe these geographic areas will continue to
be an opportunity for continued growth, as evidenced by our investment in the
expansion of our Suzhou manufacturing facility which was completed in the third
quarter of 2004 as well as the opening of new sales offices in these
territories. In addition, we continue to invest in developing new and improved
products to meet the changing needs of our existing customers. We are continuing
to focus on executing our core strategy of leveraging our engineering expertise
to produce new bar code scanners and industrial automation products that will
allow us to penetrate new markets that we have not previously served and gain
market share in our existing markets. Furthermore, we currently have several
promising new products in the pipeline. We continue to believe sales for 2005
and beyond will be positively affected as these new products either begin to
ship or ship in larger quantities.
To maintain a highly responsive and cost efficient infrastructure, our focus is
to maximize the efficiency of our organization through process improvements and
cost containment. We continue to focus on our strategy for margin expansion
through specific engineering initiatives to reduce product and manufacturing
costs. During the year ended December 31, 2004, we continued to realize the
benefits of these process improvements. In addition, the expansion of our
manufacturing facility in Suzhou, China was completed during the third quarter
of 2004. This expansion nearly doubled the size of the existing China operations
and more importantly, is providing cost efficiencies through lower direct labor
costs as we continue to produce more of our products in this facility. During
fiscal 2004 approximately 65.2% of our data capture & collection products were
manufactured in our Suzhou, China manufacturing facility, an increase of
approximately 6.7% from fiscal 2003. We intend to expand our manufacturing
capabilities at our Suzhou, China facility in fiscal 2005 to continue to take
advantage of these cost efficiencies. The factors discussed above are key
contributors to the year over year growth of approximately 3.7% in our gross
margin percentage
Closely linked to the success factors discussed above is our continued focus to
achieve financial flexibility. In October 2003, we completed a follow-on public
offering, which provided us with net proceeds of $55.5 million. We used a
portion of those net proceeds to pay down existing indebtedness and purchase our
Blackwood, New Jersey facility. We are using the remaining net proceeds to fund
working capital requirements for continued growth of our business. As of
December 31, 2004, we had total debt of approximately $18.3 million.
Furthermore, we had cash and cash equivalents of approximately $64.7 million as
of December 31, 2004. We believe that our current cash and working capital
positions and expected operating cash flows will be sufficient to fund our
working capital, planned capital expenditures and debt repayment requirements
for the foreseeable future.
In addition to our internal development and organic growth, we may selectively
pursue strategic acquisitions that we believe will broaden or complement our
current technology base and allow us to serve additional end users and the
evolving needs of our existing customers. In March 2004, we purchased the
remaining 49% interest in Metrologic Eria France for approximately 3.6 million
euros, or $4.3 million at the exchange rate on March 31, 2004. During September
2004, we acquired 100% of the common stock of Omniplanar Inc. ("Omniplanar"), an
imaging software company for approximately $13.0 million. Omniplanar supplies a
complete package of bar code reading software for 2D imaging for fixed position,
conveyor belt and hand held readers which can be optimized for specific hardware
applications. Our acquisition of Omniplanar broadened and strengthened our
portfolio of decoding software to include robust omnidirectional decoding of
linear, matrix and postal bar code images. Metrologic has licensed from
Omniplanar the SwiftDecoder software since the year 2000 for use in our iQ(R)
line of industrial vision-based products. We also intend to make use of the
software in other products as well. By acquiring this 2D imaging technology, we
will be able to reduce our licensing costs for our current and future
imaging-based products. We expect this acquisition to be accretive to sales and
earnings on a prospective basis.
Forward-looking statements contained in this overview are highly dependent upon
a variety of important factors which could cause actual results to differ
materially from those reflected in such forward looking statements. For list of
the factors that could cause actual results to differ from expectations, refer
to the section on Forward Looking Statements included at the beginning of this
Item 7 on Management's Discussion and Analysis.
Results of Operations
The following table sets forth certain of our consolidated statement of
operations data as a percentage of revenues for the periods indicated. The
following discussion should be read in conjunction with our Consolidated
Financial Statements and the Notes to our Consolidated Financial Statements.
December 31,
2002 2003 2004
---- ---- ----
Sales 100.0% 100.0% 100.0%
Cost of sales 64.2% 57.7% 54.1%
Gross profit 35.8% 42.3% 45.9%
Operating expenses:
Selling, general and administrative expenses 24.4% 22.7% 23.9%
Research and development expenses 6.0% 4.9% 4.2%
Severance costs 0.5% 0.1% 0.0%
Total operating expenses 30.9% 27.7% 28.1%
Operating income 4.9% 14.6% 17.8%
Other income (expenses), net (2.5)% 0.6% 1.2%
Income before income taxes 2.3% 15.2% 19.0%
Provision for income taxes 0.9% 5.2% 6.3%
Net income 1.4% 10.1% 12.7%
Our business is divided into two major segments: Data Capture & Collection, and
Industrial Automation and Optical Systems.
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 automation 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. Optical Systems are comprised of advanced
electro-optical systems including wavefront sensors, adaptive optics systems and
custom instrumentation.
The following table sets forth certain information regarding our revenues by our
two business segments for the periods indicated.
Year Ended December 31,
--------------------------------
2002 2003 2004
---- ---- ----
(In thousands)
Data Capture & Collection $ 87,929 $ 112,817 $ 140,171
Industrial Automation/Optical Systems
Industrial Automation 11,499 13,712 18,475
Optical 16,378 11,482 19,309
--------- --------- ---------
Total Industrial Automation/
Optical Systems 27,877 25,194 37,784
--------- --------- ---------
Total Company $ 115,806 $ 138,011 $ 177,955
========= ========= =========
Most of our product sales in Western Europe, Brazil and Asia are billed in
foreign currencies and are subject to currency exchange rate fluctuations. A
significant percentage of 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 foreign currencies. Manufacture of our
point-of-sale products in our Suzhou, China facility accounted for approximately
65.2% and 58.5% of point-of-sale unit sales in 2004 and 2003, respectively. In
2004 and 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:
Year Ended December 31,
----------------------------------------------------------
2002 % 2003 % 2004 %
-------------- ---------------- -----------------
(Dollars in thousands)
North America $ 55,179 47.6% $ 58,149 42.1% $ 76,081 42.8%
Europe 43,057 37.2 57,474 41.7 70,819 39.8
Rest of World 17,570 15.2 22,388 16.2 31,055 17.4
--------- ----- ---------- ----- --------- -----
Total $ 115,806 100.0% $ 138,011 100.0% $ 177,955 100.0%
========= ===== ========== ===== ========= =====
We derive revenue from product sales, engineering development, system
maintenance and other services. Our cost of sales includes manufacturing costs,
labor costs related to service revenues, the costs associated with quality
control and the payment of royalties on license agreements. Selling, general and
administrative ("SG&A") expenses primarily consist of salaries, commissions and
related expenses for personnel engaged in sales, marketing and sales support
functions; costs associated with other marketing activities; salaries and
related expenses for executive, finance, accounting, legal and human resources
personnel; and professional fees and corporate expenses. Research and
development ("R&D") expenses primarily consist of salaries and expenses for
development and engineering and prototype costs. We also participate in
government and customer funded research programs. Costs of the engineers working
on such programs are charged to cost of sales for the time spent on the
programs. When the engineers are not working on these programs, they are
available to work on our own internal development projects and their costs are
included in research and development expense.
Year Ended December 31, 2004 Compared with Year Ended December 31, 2003
Sales increased 28.9 % to $ 178.0 million in 2004 from $138.0 million in 2003.
The increase was attributed to higher sales in both the data capture &
collection and industrial automation/optical systems business segments. Sales of
our data capture & collection products increased by 24.2 %, sales of industrial
automation products increased by 36.5 %, and sales of optical systems increased
by 65.7%. Approximately $6.6 million of the increase in data capture &
collection sales resulted from the strengthening of the euro against the U.S.
dollar in 2004. Data capture & collection sales increased approximately $31.2
million due to increased unit sales of our handheld scanners. These factors were
partially offset by a decrease of approximately $10.5 million resulting from
lower average selling prices due to competitive pricing pressures experienced in
the retail sector during 2004, in all geographic regions.
The increase in the industrial automation product sales is primarily due to
continued sales under a contract with a large systems integrator for use in a
new automated parcel and package system for the U.S. Postal Service, ongoing
integration services with regard to a contract with a major airline customer for
bar code scanning equipment and installation services to build and install
scanning stations and tunnels for use in baggage handling systems, and also the
sales contribution from our Omniplanar acquisition which closed at the end of
the third quarter of 2004.
The increase in optical system sales reflects an increase in ongoing customer
funded research and development programs, an increase in the scope of work of
selected cost plus type contracts during the year, and the completion of certain
short term fixed price contracts in 2004.
International sales accounted for $101.9 million or 57.2 % of total sales in
2004 and $79.9 million, or 57.9% of total sales in 2003. The increase in
international sales was from increased sales in our Europe and ROW geographic
regions. No individual customer accounted for 10% or more of revenues in 2004 or
2003. The increase in European sales can be attributed to increased unit volume
along with the strengthening of the euro against the U.S. dollar, offset by
lower average selling prices. The increase in our unit volume within Europe is
attributed to increased sales though our expansive distributor network coupled
with the addition of several new key end user accounts. The increase in our ROW
sales is primarily attributable to year over year growth due to continued
penetration into both new and existing key markets.
Cost of sales increased 20.8 % to $96.2 million in 2004 from $79.7 million in
2003. As a percentage of sales, cost of sales was 54.1% in 2004 compared with
57.7% in 2003. The decrease in the percentage of cost of sales in 2004 was due
to the following:
o The strengthening of the euro against the U.S. dollar, as discussed
above, net of the decreases in average selling prices.
o A decrease in direct labor costs as a percent of sales as a result of
increased unit production in our Suzhou, China facility during 2004.
o A decrease in direct material costs as a percent of sales resulting
from cost reduction initiatives, primarily product redesigns lowering
our bill of material costs.
o A decrease in royalty costs due to a reduction in the number of
products covered by the agreement between Symbol o Technologies and
the Company. (See Note 10 to the Consolidated Financial Statements,
"Commitments and Contingencies," located elsewhere in this document.)
o More favorable product mix resulting from increased sales of certain
more profitable handheld scanners in 2004.
o Lower overhead expenses, including a decrease in rent expense due to
the purchase of the Blackwood manufacturing o facility in December
2003 and a decrease in indirect labor attributed to efficiencies in
manufacturing engineering and product support efforts.
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 $11.1 million or 35.5%, to $42.5 million in 2004 from
$31.4 million in 2003. As a percentage of sales, SG&A expenses were 23.9% in
2004 as compared with 22.7% in 2003. The increase in SG&A expenses was due to
increased variable selling expenses associated with the higher sales volume in
2004, the strengthening of the euro against the U.S. dollar on euro denominated
expenses, increased professional service fees related to our Sarbanes-Oxley
section 404 compliance, an increase in legal costs associated with ongoing
litigation matters, and an increase in personnel costs as we started to increase
our infrastructure to support the increased sales levels during 2004 and beyond.
R&D expenses increased $0.8 million or 11.2%, to $7.5 million in 2004 from $6.8
million in 2003. As a percentage of sales, R&D expenses were 4.2% in 2004 as
compared with 4.9% in 2003. In absolute dollars, the increase in R&D expenses,
which consists primarily of higher salaries and R&D material costs, was the
result of ongoing new product development efforts including expanded efforts
focused on our development of the IQ camera-based vision system.
Net interest income/expense reflects $0.2 million of net interest income in 2004
compared to $1.3 million of net interest expense in 2003. The decrease can be
attributed to the following factors: (i) lower interest expense and related
outstanding borrowings in 2004 due to repayments and/or termination of
outstanding debt issuances during fiscal 2003 and (ii) higher interest income
due to higher cash and cash equivalent balances resulting from the proceeds
received from the follow-on public offering that closed in October 2003.
Interest expense in 2003 includes $0.2 million of unamortized original issue
discount associated with repayment of the subordinated note to Mr. and Mrs.
Knowles in October 2003.
Other income/expense reflects net other income of $2.0 million in 2004 compared
to net other income of $2.2 million in 2003. The decrease in other income was
due to (i) a $2.2 million gain on the early repayment of subordinated debt
related to the acquisition of AOA in 2003; offset by (ii) foreign exchange gains
of $2.3 million in 2004 as compared with foreign exchange gains of $0.8 million
in 2003; and (iii) $0.5 million of bank charges in 2003 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 early extinguishment of debt.
Net income was $22.7 million in 2004 as compared with $13.9 million in 2003. Net
income reflects a 33% and 34% effective income tax rate in 2004 and 2003,
respectively. The decrease in the effective income tax rate can be attributed to
the recognition of research & development tax credits.
Year Ended December 31, 2003 Compared with Year Ended December 31, 2002
Sales increased 19.2% to $138.0 million in 2003 from $115.8 million in 2002. The
increase was primarily attributable to higher sales of our data capture &
collection products. Sales of our data capture & collection products increased
by 28.3%, sales of industrial automation products increased by 19.2%, while
sales of optical systems decreased by 29.9%. Approximately $8.9 million of the
increase in data capture & collection sales resulted from the strengthening of
the euro against the U.S. dollar in 2003. Data capture & collection sales
increased approximately $21.9 million due to increased unit sales of our
handheld scanners, of which $1.1 million was attributed to the introduction of
new products in 2003. These factors were partially offset by a decrease of
approximately $5.8 million resulting from lower average selling prices due to
competitive pricing pressures experienced in the retail sector during 2003,
primarily in Europe.
The increase in the industrial automation product sales is primarily due to
increased sales attributable to (i) a contract with a large systems integrator
for use in a new automated parcel and package system for the U.S. Postal
Service; and (ii) a contract with a major airline customer for bar code scanning
equipment and installation services to build and install scanning stations and
tunnels for use in baggage handling systems.
The decrease in optical system 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 $7.3 million in 2003 as compared with
$13.6 million in 2002 which included a $4.6 million negotiated settlement for
purchase order cancellations from one customer. These purchase order
cancellations were the result of our customer's excess capacity due to an
acquisition.
International sales accounted for $79.9 million or 57.9% of total sales in 2003
and $60.6 million, or 52.4% of total sales in 2002. The largest portion of the
growth in international sales was from increased sales in Europe. No individual
customer accounted for 10% or more of revenues in 2003 or 2002. The increase in
European sales can be attributed to increased unit volume along with the
strengthening of the euro against the U.S. dollar, offset by lower average
selling prices.
Cost of sales increased 7.1% to $79.7 million in 2003 from $74.4 million in
2002. As a percentage of sales, cost of sales was 57.7% in 2003 compared with
64.2% in 2002. The decrease in the percentage of cost of sales in 2003 was due
to the following:
o The strengthening of the euro against the U.S. dollar, as discussed
above, net of the decreases in average selling prices.
o A decrease in direct labor costs as a percent of sales as a result of
increased unit production in our Suzhou, China facility and the
workforce reductions in 2002.
o A decrease in direct material costs as a percent of sales resulting
from product redesigns lowering our bill of material costs.
o A decrease in royalty costs due to a reduction in the number of
products covered by the agreement between Symbol Technologies and
the Company. (See Note 10 to the Consolidated Financial Statements,
"Commitments and Contingencies," located elsewhere in this document.)
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 $3.1 million or 11.0%, to $31.4 million in 2003 from
$28.3 million in 2002. As a percentage of sales, SG&A expenses were 22.7% in
2003 as compared with 24.4% in 2002. SG&A expenses in 2002 included $0.7 million
of expenses incurred prior to the finalization of the Amended and Restated
Credit Agreement that was executed on July 9, 2002. Excluding these expenses,
SG&A expenses were $27.5 million in 2002. As a percentage of sales, SG&A
expenses were 22.7% of sales in 2003 compared with 23.8% (excluding the
financing related expenses of $0.7 million) 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 an
increase in incentive compensation expense during 2003. These increases were
partially offset by lower personnel costs resulting from workforce reductions in
2002.
R&D expenses remained relatively flat in dollars at $6.8 million in 2003
compared to $6.9 million in 2002; however, as a percent of sales, R&D expenses
decreased to 4.9% of sales from 6.0% of sales. The decrease in R&D expenses was
the result of expanded R&D efforts focused on our development of the iQ180
camera-based acquisition vision system during 2002.
Severance costs in 2002 of $0.6 million is attributed to workforce reductions
in March, April, August, and September 2002.
Net interest expense decreased by 52.9% to $1.3 million in 2003 from $2.7
million in 2002. The decrease is due to lower outstanding borrowings and lower
interest rates in 2003. Interest expense in 2003 includes $0.2 million of
unamortized original issue discount associated with repayment of the
subordinated note to Mr. and Mrs. Knowles in October 2003. Interest expense in
2002 includes $0.1 million of additional interest expense that resulted from the
incremental 200 basis point default interest rate charged by our bank group from
April 12, 2002 to July 10, 2002.
Other income/expense reflects net other income of $2.2 million in 2003 compared
to net other expenses of $0.2 million in 2002. The increase in other income was
due to (i) a $2.2 million gain on the early repayment of subordinated debt
related to the acquisition of AOA; (ii) foreign exchange gains of $0.8 million
in 2003 as compared with foreign exchange losses of $0.1 million in 2002; and
(iii) $0.5 million of bank charges in 2003 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 early extinguishment of debt.
Net income was $13.9 million in 2003 as compared with $1.7 million in 2002. Net
income reflects a 34% and 38% effective income tax rate in 2003 and 2002,
respectively. The decrease in the effective income tax rate can be attributed to
the $2.2 million gain on early extinguishment of debt which, for tax purposes,
was treated as a reduction of the purchase price of AOA, and as such was not
subject to federal or state income tax.
Inflation and Seasonality
Inflation and seasonality have not had a material impact on our results of
operations. However, our sales are typically impacted by decreases in
seasonal demand from European customers in our third quarter. We have
historically experienced our strongest quarter during the fourth quarter of the
fiscal year. For quarterly results of operations, see Supplementary Data
following the Notes to our Consolidated Financial Statements.
Liquidity and Capital Resources
Operating Activities for the Period Ended December 31, 2004
Net cash provided from operations increased $15.9 million, or 130% from $12.2
million in 2003 to $28.1 million in 2004. Net cash provided by operating
activities in 2004 can be attributed primarily to net income of $22.7 million,
adjusted for depreciation and amortization of $4.8 million, increases in accrued
expenses and accounts payable of $11.8 million, offset by increases in inventory
and accounts receivable of $11.8 million.
Our working capital increased $9.2 million to $83.3 million as of December 31,
2004 from $74.1 million as of December 31, 2003 as a result of our profitable
operations and the following significant balance sheet changes:
o Inventory increased $6.9 million to $23.9 million as of December 31,
2004 from $17.0 million as of December 31, 2003. The increase is a
result of a buildup in the inventory levels resulting from longer
delivery cycles of finished goods as we increase our use of ocean
shipments to maximize logistic efficiencies as well as to improve
product availability throughout the world so that we may capitalize on
opportunities that require a timely delivery response.
o Accounts receivable, net increased $7.8 million to $35.2 million as of
December 31, 2004 from $27.4 million as of December 31, 2003. The
increase is primarily attributable to our increased sales volumes
especially near the end of the fourth quarter. Our days sales
outstanding ("DSO") increased slightly to 64 days in 2004 from 63
days in 2003.
o Cash and cash equivalents increased $15.9 million to $64.7 million as
of December 31, 2004 from $48.8 million as of December 31, 2003. The
increase is a result of the various factors discussed above.
o The current portion of lines of credit and notes payable increased
$11.1 million to $16.3 million as of December 31, 2004 from $5.2
million as of December 31, 2003. The increase is a result of notes
issued as a result of the Omniplanar acquisition in the third quarter
of 2004 as well as increased borrowings under our foreign lines of
credit which acts as a natural hedge against rapid and volatile
currency fluctuations.
o Deferred contract revenue increased $1.2 million to $1.5 million as of
December 31, 2004 from $0.3 million as of o December 31, 2003. The
increase is the result of the recognition of deferred revenue for a
contract in which cash received was in excess of the revenue earned
based on percentage completed.
o Accrued expenses increased $4.8 million to $16.3 million as of
December 31, 2004 from $11.5 million as of o December 31, 2003. The
increase is primarily attributable to higher accrued corporate taxes,
warranties and professional fees.
o Accounts payable increased $3.2 million to $10.7 million as of
December 31, 2004 from $7.5 million as of December 31, 2003. The
increase is a result of increased material purchases to meet higher
forecasted demand.
Operating Activities for the Year Ended December 31, 2003
Net cash provided from operations decreased $7.8 million, or 38.9% from $20.0
million in 2002 to $12.2 million in 2003. Net cash provided by operating
activities in 2003 can be attributed primarily to net income of $13.9 million,
increases in inventory, accounts receivable and accrued expenses offset by a
decrease in accounts payable.
Our working capital increased $60.7 million to $74.1 million as of December 31,
2003 from $13.4 million as of December 31, 2002 as a result of our profitable
operations, proceeds from our October 2003 follow-on public offering, increases
in inventory and accounts receivable and the debt restructuring discussed below.
The significant balance sheet changes were as follows:
o Inventory increased $3.0 million to $17.0 million as of December 31,
2003 from $14.0 million as of December 31, 2002. The increase is a
result of a buildup in the inventory levels resulting from the longer
delivery cycle of finished goods from our Suzhou, China facility as we
increase our production volume in Suzhou.
o Accounts receivable, net increased $7.0 million to $27.4 million as of
December 31, 2003 from $20.4 million as of December 31, 2002. The
increase is primarily attributable to our increased sales volumes
especially near the end of the fourth quarter. Our days sales
outstanding ("DSO") increased slightly to 71 days in 2003 from 64
days in 2002.
o The current portion of lines of credit and notes payable decreased
$1.9 million to $5.2 million as of December 31, 2003 from $7.1 million
as of December 31, 2002. The decrease is a result of the payment of
subordinated promissory notes due to United Technologies Optical
Systems, Inc. ("UTOS"), the former parent of AOA and the payment in
full of the term loan under our Amended Credit Facility.
o Deferred contract revenue decreased $1.4 million to $0.3 million as of
December 31, 2003 from $1.7 million as of December 31, 2002. The
decrease is a result of the recognition of revenue for work performed
on a specific contract that was recognized as deferred contract
revenue in 2002.
o Accrued expenses increased $2.7 million to $11.5 million as of
December 31, 2003 from $8.8 million as of December 31, 2002. The
increase is primarily attributable to accrued compensation and accrued
commissions as a result of higher sales volumes and related incentive
compensation, which was partially offset by a reduction in accrued
corporate taxes and accrued interest.
Investing activities
Cash used in investing activities was $21.7 million and $8.2 million for the
years ended December 31, 2004 and 2003, respectively. The increase in cash used
in investing activities is primarily due to the closing of the Omniplanar
acquisition resulting in a cash payment of approximately $9.1 million, increased
quarterly installments of approximately $1.0 million to purchase the remaining
49% minority interest in Metrologic Eria Iberica, and the purchase of the
remaining 49% interest in Metrologic Eria France in fiscal 2004 for
approximately $4.3 million. See "Acquisitions of Minority Interests" below for
additional information regarding these transactions.
Cash used in investing activities in 2003 reflected $6.9 for property, plant and
equipment purchases primarily related to the purchase of our Blackwood, NJ
facility and initial funding for the expansion of our Suzhou, China
manufacturing facility, quarterly installments of $1.4 million to purchase the
remaining 49% minority interest in Metrologic Eria Iberica, offset by the
release of $1.0 million of cash previously restricted according to the January
31, 2003 Amendment (the "Amendment") to the Amended Credit Agreement. The credit
facility and the subsequent amendments and restructuring are more fully
described below under "Outstanding debt and financing arrangements."
For 2005, we expect capital expenditures to be approximately $7.0 million. Our
current plans for future capital expenditures include: (i) continued investment
and expansion of our facilities; and (ii) additional manufacturing automation
equipment and information technology related equipment.
Financing activities
Cash provided by financing activities was $11.7 million and $44.5 million for
the years ended December 31, 2004 and 2003, respectively. This change is
primarily attributed to (i) proceeds of $55.5 million from the follow-on public
offering that closed in October 2003; (ii) $22.2 million of principal payments
on our revolving credit facility and term note during 2003; (iii) $4.2 million
proceeds from the issuance of notes payable during 2003; (iv) partially offset
by higher net borrowings of $5.2 million on lines of credit during 2004.
Outstanding debt and financing arrangements
In connection with the acquisition of AOA on January 8, 2001, we entered into a
$45.0 million credit facility with our primary bank, as agent for other bank
parties. Under the terms of the credit facility, we secured a $20.0 million term
loan and a $25.0 million revolving credit line. Proceeds from the credit
facility were applied toward the financing of the acquisition of AOA, paying
down our existing term loans and lines of credit and providing us and our
subsidiaries with working capital. We granted a security interest in our assets
and properties to our primary bank as agent for the banks as security for
borrowings under the credit facility.
On July 9, 2002, we replaced the credit facility by executing an Amended and
Restated Credit Agreement (the "Amended Credit Agreement") with our lenders. The
Amended Credit Agreement provided for a term loan in the amount of $9.2 million
and a revolving credit facility of $14.0 million.
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 were recognized as a charge to income 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 UTOS. 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 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 was
recognized as a charge to interest expense in the fourth quarter of 2003.
In connection with the acquisition of Omniplanar, we signed a promissory note
totaling $3.9 million. The note is payable in installments of $0.7 million in
March 2005, $1.3 million in September 2005 and $1.9 million in March 2006. The
notes were recorded at acquisition with a total discounted value of $3.8
million.
Some of our European subsidiaries have entered into working capital and invoice
discounting agreements with HypoVereinsbank, Dresdner, Societe Generale and GE
Commercial Finance. Outstanding borrowings under the working capital agreement
with HypoVereinsbank have been guaranteed by Metrologic Instruments, Inc., the
parent company. These agreements provide the Company with availability of up to
$16.3 million, using December 31, 2004 exchange rates, at interest rates ranging
from 3.12% to 6.25%. In addition, our subsidiary Metrologic do Brasil has a
working capital agreement with Banco Bradesco SA with availability of up to $0.6
million real or $0.2 million, using December 31, 2004 exchange rates. At
December 31, 2004, $14.1 million was outstanding under such agreements and
accordingly is included in lines of credit in our Consolidated Balance Sheet.
We believe that our current cash and working capital positions and expected
operating cash flows will be sufficient to fund our working capital, planned
capital expenditures, and debt repayment requirements for the foreseeable
future.
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 may selectively
enter into derivative financial instruments to offset our exposure to foreign
currency risks. Derivative financial instruments may include (i) foreign
currency forward exchange contracts with our 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 December 31, 2004.
Acquisition of Minority Interests
Our original 51.0% interest in Metrologic Eria Iberica contained an option for
us to purchase the remaining 49.0% interest. The purchase price under the 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. In 2003, we agreed to purchase the 49.0% of Metrologic Eria
Iberica that we did not own for approximately 5.9 million euros. Payments will
be made over 3 years commencing in August 2003. As of December 31, 2004, we had
purchased an additional 26%, of which 16.1% was purchased during the year ended
December 31, 2004 for approximately 1.9 million euros or $2.6 million at the
exchange rate on December 31, 2004.
Disclosures about Contractual Obligations and Commercial Commitments
Less
than 1 1-3 4-5 Over
Contractual Obligations Total Year Years Years 5 Years
(In thousands)
Long-Term Debt 4,051 2,026 2,025 - -
Capital Lease Obligations 208 133 75 - -
Operating Leases 12,920 2,750 4,542 3,658 1,970
Option to purchase minority
interest in MEI 3,720 2,508 1,212 - -
-------- -------- -------- -------- --------
Total Contractual Cash
Obligations $ 20,899 $ 7,417 $ 7,854 $ 3,658 $ 1,970
======== ======== ======== ======== ========
Total Less
Amounts than 1 1-3 4-5 Over 5
Other Commercial Committed Year Years Years Years
Commitments
(In thousands)
Revolving credit facility $ 14,138 $ 14,138 $ - $ - $ -
======== ========= ========== ========= ========
Item 7a - Quantitative and Qualitative Disclosures about Market Risk
Market Risk Sensitive Instruments. The market risk inherent in our market risk
sensitive instruments and position is the potential loss arising from adverse
changes in foreign currency exchange rates and interest rates.
Interest Rate Risk. Our bank loans expose our earnings to changes in short-term
interest rates, since interest rates on the underlying obligations are either
variable or fixed for such a short period of time as to effectively become
variable. The fair values of our bank loans are not significantly affected by
changes in market interest rates. The impact on earnings of a hypothetical 10%
change in interest rates on our outstanding debt would have been approximately
$0.04 million and $0.1 million in 2004 and 2003, respectively. Actual results
may differ.
Foreign Exchange Risk. We periodically enter into forward foreign exchange
contracts principally to hedge the currency fluctuations in transactions
denominated in foreign currencies, namely the euro, thereby mitigating our risk
that would otherwise result from changes in exchange rates. Principal
transactions hedged are intercompany sales and payments. A large percentage of
our foreign sales are transacted in foreign local currencies. As a result, our
international operating results are subject to foreign exchange rate
fluctuations. A hypothetical 10% percent strengthening or weakening of the U.S.
dollar against the euro could have had an impact of $0.1 million and $0.2
million on our net earnings in 2004 and 2003, respectively. Actual results may
differ.
We are subject to risk from fluctuations in the value of the euro relative to
the U.S. dollar for our European subsidiaries, which use the euro as their
functional currency and are translated into U.S. dollars in consolidation. Such
changes result in cumulative translation adjustments which are included in other
comprehensive income (loss). At December 31, 2004 and 2003, we had translation
exposure. The potential effect on other comprehensive income (loss) resulting
from a hypothetical 10% change in the quoted euro rate amounts to $0.4 million
in 2004 and 2003, respectively. Actual results may differ.
In addition, we held debt denominated in euros at December 31, 2004 and 2003,
and recognized foreign currency translation adjustments in net income. The
potential effect resulting from a hypothetical 10% adverse change on the quoted
euro rate amounts to $1.4 million and $0.5 million in 2004 and 2003,
respectively. Actual results may differ.
Item 8. Financial Statements and Supplementary Data
Index Pages
Report of Management on Internal Controls over Financial Reporting F-1
Report of Independent Registered Public Accounting Firm on Internal
Control over Financial Reporting F-2
Report of Independent Registered Public Accounting Firm
on Financial Statements and Schedule F-3
Consolidated Balance Sheets at December 31, 2004 and 2003 F-4
Consolidated Statements of Operations for each of the three years
in the period ended December 31, 2004, 2003 and 2002 F-5
Consolidated Statements of Shareholders' Equity for each of the
three years in the period ended December 31, 2004, 2003 and 2002 F-6
Consolidated Statements of Cash Flows for each of the three years
in the period ended December 31, 2004, 2003 and 2002 F-7
Notes to Consolidated Financial Statements F-8
Supplementary Data F-28
Financial statement schedule:
Schedule II - Valuation and Qualifying Accounts is filed herewith.
All other schedules are omitted because they are not applicable,
not required, or because the required information is included in the
consolidated financial statements or notes thereto. F-30
Report of Management on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal
control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f)
under the Securities Exchange Act of 1934, as amended. The Company's internal
control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with U.S. generally
accepted accounting principles. The Company's internal control over financial
reporting includes those policies and procedures that:
i. pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the
assets of the Company;
ii. provide reasonable assurance that transactions are recorded as
necessary to permit preparation of the financial statements in
accordance with U.S. generally accepted accounting principles, and
that receipts and expenditures of the Company are being made only in
accordance with authorizations of management and directors of the
Company; and
iii. provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use or disposition of the Company's
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies and procedures may deteriorate.
Management assessed the effectiveness of the Company's internal control over
financial reporting as of December 31, 2004, based on criteria for effective
internal control over financial reporting described in Internal Control -
Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on this assessment, management concluded that the
Company maintained effective internal control over financial reporting as of
December 31, 2004, based on the specified criteria.
Ernst & Young LLP, an Independent Registered Public Accounting Firm, has audited
the Company's consolidated financial statements and schedule and has issued an
attestation report on management's assessment of the Company's internal control
over financial reporting which appears on the following page.
/s/ Benny Noens /s/ Kevin Bratton
- ------------------------------------- -----------------------------------
Benny Noens Kevin Bratton
Chief Executive Officer and President Chief Financial Officer
Report of Independent Registered Public Accounting Firm on
Internal Control Over Financial Reporting
To the Board of Directors and Shareholders of Metrologic Instruments, Inc.
We have audited management's assessment, included in the accompanying Report of
Management on Internal Control over Financial Reporting, that Metrologic
Instruments, Inc. maintained effective internal control over financial reporting
as of December 31, 2004, based on criteria established in Internal
Control--Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria). Metrologic
Instruments, Inc.'s management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting. Our responsibility is to express an
opinion on management's assessment and an opinion on the effectiveness of the
company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, evaluating management's assessment, testing and evaluating
the design and operating effectiveness of internal control, and performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our opinion, management's assessment that Metrologic Instruments, Inc.
maintained effective internal control over financial reporting as of December
31, 2004, is fairly stated, in all material respects, based on the COSO
criteria. Also, in our opinion, Metrologic Instruments, Inc. maintained, in all
material respects, effective internal control over financial reporting as of
December 31, 2004, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheets of
Metrologic Instruments, Inc. as of December 31, 2004 and 2003, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the three years in the period ended December 31, 2004 of Metrologic
Instruments, Inc. and our report dated March 9, 2005 expressed an unqualified
opinion thereon.
Philadelphia, Pennsylvania /s/ Ernst & Young LLP
March 9, 2005
Report of Independent Registered Public Accounting Firm on Financial Statements
and Schedule
To the Board of Directors and Shareholders of Metrologic Instruments, Inc.
We have audited the accompanying consolidated balance sheets of Metrologic
Instruments, Inc. as of December 31, 2004 and 2003, and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the
three years in the period ended December 31, 2004. Our audits also included the
financial statement schedule listed in the Index at Item 15(a). These financial
statements and schedule are the responsibility of Metrologic Instruments, Inc.'s
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Metrologic
Instruments, Inc. at December 31, 2004 and 2003, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 2004, in conformity with U.S. generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of Metrologic
Instruments Inc.'s internal control over financial reporting as of December 31,
2004, based on criteria established in Internal Control--Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
and our report dated March 9, 2005 expressed an unqualified opinion thereon.
Philadelphia, Pennsylvania /s/ Ernst & Young LLP
March 9, 2005
Metrologic Instruments, Inc.
Consolidated Balance Sheets
(amounts in thousands except share data)
December 31,
-----------------------
2004 2003
Assets --------- ---------
Current assets:
Cash and cash equivalents $ 64,715 $ 48,817
Accounts receivable, net of allowance of
$544 and $485 in 2004 and 2003, respectively 35,153 27,369
Inventory, net 23,865 16,972
Deferred income taxes 692 1,758
Other current assets 3,677 3,692
--------- ---------
Total current assets 128,102 98,608
Property, plant and equipment, net 19,468 16,940
Goodwill 24,607 17,536
Computer software, net 11,221 -
Other intangibles, net 7,634 6,612
Deferred income taxes 1,332 -
Other assets 163 204
---------- ---------
Total assets $ 192,527 $ 139,900
========== =========
Liabilities and shareholders' equity
Current liabilities:
Lines of credit $ 14,138 $ 4,886
Current portion of notes payable 2,127 321
Accounts payable 10,734 7,482
Accrued expenses 16,278 11,518
Deferred contract revenue 1,507 289
---------- ---------
Total current liabilities 44,784 24,496
Notes payable, net of current portion 2,015 320
Deferred income taxes 5,055 3,515
Other liabilities 2,657 3,961
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; 21,782,276 and 20,807,884
shares issued and outstanding in 2004
and 2003, respectively 218 208
Additional paid-in capital 87,500 80,201
Retained earnings 51,162 28,482
Accumulated other comprehensive loss (864) (1,283)
----------- ---------
Total shareholders' equity 138,016 107,608
----------- ---------
Total liabilities and shareholders' equity $ 192,527 $ 139,900
=========== =========
See accompanying notes.
Metrologic Instruments, Inc.
Consolidated Statements of Operations
(amounts in thousands except share and per share data)
Year Ended December 31,
----------------------------------
2004 2003 2002
---------- ----------- -----------
Sales $ 177,955 $ 138,011 $ 115,806
Cost of sales 96,227 79,654 74,385
---------- ----------- -----------
Gross profit 81,728 58,357 41,421
Selling, general and administrative
expenses 42,518 31,449 28,271
Research and development expenses 7,521 6,764 6,929
Severance costs - - 602
---------- ----------- -----------
Operating income 31,689 20,144 5,619
Other income (expenses)
Interest income 624 123 85
Interest expense (441) (1,414) (2,824)
Foreign currency transaction
gain (loss) 2,258 805 (132)
Gain on extinguishment of debt - 2,200 -
Other, net (282) (817) (46)
---------- ----------- -----------
Total other income (expenses) 2,159 897 (2,917)
---------- ----------- -----------
Income before income taxes 33,848 21,041 2,702
Provision for income taxes 11,168 7,160 1,027
----------- ----------- -----------
Net income $ 22,680 $ 13,881 $ 1,675
=========== =========== ============
Basic earnings per share:
Weighted average shares outstanding 21,472,021 17,597,068 16,399,992
=========== =========== ===========
Basic earnings per share $ 1.06 $ 0.79 $ 0.10
=========== =========== ===========
Diluted earnings per share:
Weighted average shares outstanding 21,472,021 17,597,068 16,399,992
Net effect of dilutive securities 1,501,860 1,785,582 71,229
----------- ----------- ----------
Total shares outstanding used in
computing diluted earnings per share 22,973,881 19,382,650 16,471,221
=========== =========== ===========
Diluted earnings per share $ 0.99 $ 0.72 $ 0.10
=========== =========== ===========
See accompanying notes.
Metrologic Instruments, Inc.
Consolidated Statements of Shareholders' Equity
(amounts in thousands except share data)
Accumulated
Additional Other
Common Paid-in Retained Comprehensive
Stock Capital Earnings Loss Total
---- ------- -------- -------- --------
Balances, January 1, 2002 $164 $17,525 $ 12,926 $ (4,354) $ 26,261
Comprehensive income:
Net income - - 1,675 - 1,675
Other comprehensive income-
foreign currency
translation adjustment - - - 1,481 1,481
--------
Total comprehensive income - - - - 3,156
--------
Stock issued through employee stock
purchase plan - 54 - - 54
--------------------------------------------
Balances, December 31, 2002 $164 $17,579 $ 14,601 $ (2,873) $ 29,471
Comprehensive income:
Net income - - 13,881 - 13,881
Other comprehensive income -
foreign currency
translation adjustment - - - 1,590 1,590
--------
Total comprehensive income - - - - 15,471
--------
Issuance of 3,450,000 shares of
common stock 35 55,480 - - 55,515
Issuance of warrants - 247 - - 247
Exercise of stock options 9 3,354 - - 3,363
Tax benefit from exercise of stock
options - 3,488 - - 3,488
Stock issued through employee stock
purchase plan - 53 - - 53
--------------------------------------------
Balances, December 31, 2003 $208 $80,201 $ 28,482 $ (1,283) $107,608
Comprehensive income:
Net income - - 22,680 - 22,680
Other comprehensive income -
foreign currency
translation adjustment - - - 419 419
--------
Total comprehensive income - - - - 23,099
Exercise of stock options 10 3,082 - - 3,092
Tax benefit from exercise of stock
options - 4,107 - - 4,107
Stock issued through employee stock
purchase plan - 110 - - 110
--------------------------------------------
Balances, December 31, 2004 $218 $87,500 $ 51,162 $ (864) $138,016
--------------------------------------------
*Amounts denoted include the effect of the 2003 stock splits.
See accompanying notes.
Metrologic Instruments, Inc.
Consolidated Statements of Cash Flows
(amounts in thousands)
Year Ended December 31,
-------------------------------
2004 2003 2002
--------- -------- ---------
Operating activities
Net income $ 22,680 $ 13,881 $ 1,675
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 3,483 2,915 2,785
Amortization 1,321 620 570
Deferred income tax provision 1,274 1,634 152
Loss on disposal of property 110 109 164
Gain on extinguishment of debt - (2,200) -
Amortization of warrants and deferred
financing fees - 357 -
Changes in operating assets and liabilities:
Accounts receivable (6,106) (5,446) 550
Inventory (5,738) (1,829) 4,883
Other current assets 15 (1,434) 4,111
Other assets 41 554 107
Accounts payable 3,087 (1,480) 1,618
Accrued expenses 8,682 5,331 653
Other liabilities (735) (802) 2,709
--------- -------- ---------
Net cash provided by operating activities 28,114 12,210 19,977
Investing activities
Restricted cash - 1,000 2,200
Purchase of property, plant and equipment (4,934) (6,892) (1,660)
Patents and trademarks (1,054) (882) (962)
Cash paid for purchase of business, net of
cash acquired (9,087) - -
Purchase of minority interests in subsidiaries (6,726) (1,442) -
Proceeds from sale of property 53 - -
--------- -------- ----------
Net cash used in investing activities (21,748) (8,216) (422)
Financing activities
Proceeds from equity offering, net of
expenses - 55,515 -
Proceeds from exercise of stock options
and employee stock purchase plan 3,202 3,416 54
Proceeds from issuance of notes payable - 4,169 2,054
Principal payments on notes payable (134) (22,206) (18,712)
Net borrowings (repayments) on lines
of credit 8,779 3,576) (2,429
Capital lease payments (139) (77) (158)
Issuance of warrants - 247 -
Increase in deferred financing costs - (110) -
--------- -------- ----------
Net cash provided by (used in) financing
activities 11,708 44,530 (19,191)
Effect of exchange rates on cash (2,176) (909) 281
--------- -------- ----------
Net increase in cash and cash
equivalents 15,898 47,615 645
Cash and cash equivalents at beginning
of year 48,817 1,202 557
--------- --------- ----------
Cash and cash equivalents at end of year $ 64,715 $ 48,817 $ 1,202
========= ========= ==========
Supplemental Disclosures:
Cash paid during the year for interest $ 267 $ 1,469 $ 2,774
======== ========= ==========
Cash paid during the year for income taxes $ 2,709 $ 2,989 $ 194
======== ========= ==========
Noncash investing and financing activites:
Equipment acquired through capital leases $ 53 $ 287 $ -
======== ========= ==========
Tax benefit from exercise of stock options $ 4,107 $ 3,488 $ -
======== ========= ==========
See accompanying notes
Metrologic Instruments, Inc.
Notes to Consolidated Financial Statements
December 31, 2004
(dollars in thousands, except per share data)
1. Business
Metrologic Instruments, Inc. and its subsidiaries (collectively, the "Company")
design, manufacture and market bar code scanning and high-speed automated data
capture solutions using laser, holographic and vision-based technologies. The
Company offers expertise in 1D and 2D bar code reading, portable data
collection, 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. The
Company's products are sold in more than 110 countries worldwide through the
Company's sales, service and distribution offices located in North and South
America, Europe and Asia.
2. Accounting Policies
Basis of Consolidation
The accompanying consolidated financial statements include the accounts of
Metrologic Instruments, Inc., and its domestic and foreign subsidiaries. All
significant intercompany transactions and balances have been eliminated in
consolidation.
Use of Estimates
The preparation of the financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Shipping and Handling
Amounts charged to customers for shipping and handling are included in sales.
Shipping and handling amounts incurred by the Company are included in costs of
sales.
Revenue Recognition
Revenue is recognized when persuasive evidence of an arrangement exists,
delivery has occurred, the sales price is fixed or determinable, and
collectibility is reasonable assured.
Revenue from product sales is recognized upon shipment of products and passage
of title to customers. The Company has agreements with certain distributors that
provide limited rights of return. Allowances for product returns and allowances
are estimated based on historical experience and provisions are recorded at the
time of shipment.
Revenue is recognized on a percentage of completion basis (generally measured
using the cost-to-cost method) for long-term contracts for the sale of tangible
products and upon delivery for short-term contracts. Cost and profit estimates
are continually re-evaluated and revised, when necessary, throughout the life of
the contract. Any adjustments to revenue and profit due to changes in estimates
are accounted for in the period of the change in estimate. Provisions for
estimated losses, if any, on uncompleted contracts are made in the periods in
which such losses become probable and can be reasonably estimated.
Revenue for the sale of software licenses is recognized when: (1) the Company
enters into a legally binding arrangement with a customer for the license of
software; (2) the Company delivers the software; (3) customer payment is deemed
fixed or determinable and free of contingencies or significant uncertainties;
and (4) collection from the customer is probable. If the Company determines that
collection of a fee is not reasonably assured, the fee is deferred and revenue
is recognized at the time collection becomes reasonably assured. As it relates
to the general Post-Contract Customer Support ("PCS") clauses within each of the
contracts, we currently do not have any vendor specific objective evidence
("VSOE") of fair value to bifurcate the PCS from the license fee element. In
addition, we believe that we meet each of the 4 criteria which allows us to
recognize the revenue together with the license fee at the onset of the license
period, assuming delivery of the software has taken place.
Advertising Expenses
The Company expenses all advertising costs as incurred and classifies these
costs in selling, general and administrative expenses. Advertising expenses for
fiscal years 2004, 2003, and 2002 were $2.4 million, $2.0 million and $2.1
million, respectively.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
Fair Values of Financial Instruments
The carrying amounts of cash equivalents, accounts receivable and accounts
payable approximate fair value because of their short-term nature. The carrying
amount of long-term debt approximates its fair value because the interest rate
is reflective of rates that the Company could currently obtain on debt with
similar terms and conditions. The Company records an allowance for doubtful
accounts when it becomes probable that a customer will be unable to make its
required payments. Accounts receivable are written off against the allowance for
doubtful accounts when collection is deemed remote and all collection efforts
have been abandoned.
Inventory
Inventory is stated at the lower of cost, determined on a first-in, first-out
basis, or market.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is determined on
the straight-line method for building and improvements over estimated useful
lives of 31 to 40 years and on an accelerated method for machinery and equipment
over estimated useful lives of 3 to 15 years.
Software Development Costs
Costs incurred in the research and development of new software embedded in
products and enhancements to existing software products are expensed as incurred
until technological feasibility has been established. After technological
feasibility is established, any additional development costs are capitalized in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise
Marketed." Capitalization ceases when the product is available for general
release to customers.
Internal Use Software
Costs incurred in the development or purchase of internal use software, other
than those incurred during the application development stage, are expensed as
incurred. Costs incurred during the application development stage are
capitalized and amortized over the estimated useful life of the software. The
Company has capitalized $3,127 of software obtained for internal use through
December 31, 2004. Capitalized software costs are amortized on a straight-line
basis over seven years. Amortization related to the capitalized software was
$487, $339, and $303 for the years ended December 31, 2004, 2003 and 2002,
respectively.
Acquisitions
Acquisitions are accounted for using the purchase method. The purchase price is
allocated to the assets acquired and liabilities assumed based on their
estimated fair market values. Any excess purchase price over the fair market
value of the net assets acquired is recorded as goodwill. For all acquisitions,
operating results are included in the consolidated statement of operations from
the dates of the acquisitions.
Goodwill and Other Intangible Assets
Goodwill represents the excess of the cost of businesses acquired over the fair
value of the related net assets at the date of acquisition. The Company accounts
for goodwill in accordance with the provisions of SFAS No. 142, "Goodwill and
Other Intangible Assets". SFAS 142 provides guidance on accounting for goodwill
and intangible assets with indefinite useful lives and prohibits the
amortization of these assets. Intangible assets with finite lives continue to be
amortized over their estimated useful lives. Intangible assets, including
goodwill, that are not subject to amortization are tested for impairment and
possible writedown on an annual basis. The Company tests goodwill for impairment
using the two-step process prescribed in SFAS 142. The first step is a screen
for potential impairment, while the second step measures the amount of
impairment, if any. The Company uses a discounted cash flow analysis to complete
the first step in the process. The Company completed its annual impairment tests
in 2004, 2003 and 2002 and determined that there were no goodwill impairments to
be recognized.
Long-Lived Assets
The Company evaluates impairment of its intangible and other long-lived assets,
other than goodwill, in accordance with SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" which has been adopted by the
Company as of January 1, 2002. SFAS 144 provides guidance on financial
accounting and reporting for the impairment or disposal of long-lived assets and
supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of," and the accounting and reporting
provisions of Accounting Principles Bulletin Opinion No. 30, "Reporting the
Results of Operations - Reporting the Effects of Disposal of a Segment of a
Business, Extraordinary, Unusual and Infrequently Occurring Events and
Transactions." When indicators of impairment exist, the Company will compare the
estimated future cash flows, on an undiscounted basis, of the underlying
operations or assets with their carrying value to determine if any impairment
exists. If impairment exists, any adjustment will be determined by comparing the
carrying amount of the impaired asset to its fair value. The Company considers
all impaired assets "to be held and used" until such time as management commits
to a plan to dispose of the impaired asset. At that time, the impaired asset is
classified as "to be disposed of" and is carried at its fair value less its cost
of disposal. No assets were determined to be impaired in 2004, 2003 and 2002 and
the adoption of SFAS 144 had no effect on the Company's financial position or
its results of operations.
Foreign Currency Translation
The financial statements of Metrologic's foreign subsidiaries have been
translated into U.S. dollars in accordance with SFAS No. 52, "Foreign Currency
Translation." All balance sheet accounts have been translated using the exchange
rates in effect at the balance sheet date. Income statement amounts have been
translated using the average exchange rate for the year. The gains and losses
resulting from the changes in exchange rates from year to year have been
reported separately in other comprehensive loss in the consolidated financial
statements.
Income Taxes
The provision for income taxes is determined using the asset and liability
approach of accounting for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." Under this approach, deferred taxes represent the
future tax consequences expected to occur when the reported amounts of assets
and liabilities are recovered or paid. The provision for income taxes represents
income taxes paid or payable for the current year plus the change in deferred
taxes during the year. Deferred taxes result from differences between the
financial and tax bases of Metrologic's assets and liabilities and are adjusted
for changes in tax rates and tax laws when changes are enacted. Valuation
allowances are recorded to reduce deferred tax assets when it is more likely
than not that a tax benefit will not be realized.
Earnings Per Share
Basic and diluted earnings per share are calculated in accordance with SFAS No.
128, "Earnings Per Share." Basic earnings per share is calculated by dividing
net income by the weighted average shares outstanding for the year and diluted
earnings per share is calculated by dividing net income by the weighted average
shares outstanding for the year plus the dilutive effect of stock options.
Concentrations of Credit Risk
The Company has operations, subsidiaries and affiliates in the United States,
Europe, Asia and South America. The Company performs ongoing credit evaluations
of its customers' financial condition, and except where risk warrants, requires
no collateral. The Company may require, however, letters of credit or prepayment
terms for those customers in lesser-developed countries.
Short-term cash investments are placed with high credit quality financial
institutions or in short-term high quality debt securities. The Company limits
the amount of credit exposure in any one institution or single investment.
Accounting for Stock Options
The Company follows Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB 25") and related interpretations in accounting
for stock options. Under APB 25, if the exercise price of the Company's stock
options equals or exceeds the market price of the underlying common stock on the
date of grant, no compensation expense is recognized. Had compensation expense
for the Company's stock option plan been determined based upon the fair value at
the grant date using the Black Scholes pricing model prescribed under SFAS No.
123 "Accounting for Stock Based Compensation", the Company's net income and net
income per share would approximate the pro-forma amounts as follows:
2004 2003 2002
---- ---- ----
Net income:
As reported $22,680 $13,881 $ 1,675
Deduct: (total stock-based employee
compensation expense determined
under fair value based method, net of
related taxes) (741) (778) (818)
------- ------- -------
Pro forma $21,939 $13,103 $ 857
======= ======= =======
Net income per share:
Basic:
As reported $ 1.06 $ 0.79 $ 0.10
Pro forma 1.02 0.74 0.05
Diluted:
As reported $ 0.99 $ 0.72 $ 0.10
Pro forma 0.95 0.68 0.05
Derivative Financial Instruments
The Company recognizes all derivative instruments as either assets or
liabilities in the consolidated balance sheet measured at fair value. Changes in
fair value are recognized immediately in earnings unless the derivative
qualifies as a hedge of future cash flows. For derivatives qualifying as cash
flow hedges, the effective portion of changes in fair value of the derivative
instrument is recorded as a component of other comprehensive income and
reclassified to earnings in the same period during which the hedged transaction
affects earnings. Any ineffective portion (representing the remaining gain or
loss on the derivative instrument in excess of the cumulative change in the
present value of future cash flows of the hedged transaction) is recognized in
earnings as it occurs.
The Company formally designates and documents each derivative financial
instrument as a hedge of a specific underlying exposure as well as the risk
management objectives and strategies for entering into the hedge transaction
upon inception. The Company also assesses whether the derivative financial
instrument is effective in offsetting changes in the fair value of cash flows of
the hedged item. The Company recognized no gain or loss related to hedge
ineffectiveness in 2004, 2003 or 2002, respectively.
The Company has historically utilized derivative financial instruments to hedge
the risk exposures associated with foreign currency fluctuations for payments
from the Company's international subsidiaries denominated in foreign currencies.
These derivative instruments are designated as either fair value or cash flow
hedges, depending on the exposure being hedged, and have maturities of less than
one year. Gains and losses on these derivative financial instruments and the
offsetting losses and gains on hedged transactions are reflected in the
Company's statement of operations. The Company does not use these derivative
financial instruments for trading purposes. At December 31, 2004, the Company
had no derivative financial instruments outstanding.
Stock Splits
On June 6, 2003, the Board of Directors approved a three-for-two stock split of
the Company's common stock. The stock split was payable in the form of a 50%
stock dividend and entitled each stockholder of record at the close of business
on June 23, 2003 to receive three shares of common stock for every two
outstanding shares of common stock held on that date. The stock dividend was
payable on July 3, 2003.
On October 7, 2003, the Board of Directors approved a two-for-one stock split of
the Company's common stock. The stock split was payable in the form of a 100%
stock dividend and entitled each stockholder of record at the close of business
on October 20, 2003 to receive two shares of common stock for every outstanding
share of common stock held on that date. The stock dividend was payable on
October 30, 2003.
The capital stock accounts, all share data and earnings per share data in the
consolidated financial statements give effect to the stock splits, applied
retroactively, to all periods presented.
Impact of Recently Issued Accounting Standards
In April 2002, the Financial Accounting Standards Board ("FASB") issued
Statement No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment
of FASB Statement No. 13, and Technical Corrections." In addition to other
technical provisions, this statement requires all gains and losses from the
extinguishment of debt to be included as an item of income from continuing
operations. The Company adopted the provisions of this statement on January 1,
2003 and recorded a gain of $2.2 million on the extinguishment of the UTC
subordinated debt in other income (expense) in the consolidated statement of
operations during 2003.
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. The adoption of this statement had
no material impact on the Company's consolidated financial position,
consolidated results of operations or liquidity.
In December 2003, the FASB issued Interpretation No. 46 (revised),
"Consolidation of Variable Interests Entities" ("FIN 46R"), which addresses how
a business enterprise should evaluate whether it has a controlling financial
interest in an entity through means other than voting rights and, accordingly,
should consolidate the variable interest entity ("VIE"). FIN 46R replaces FASB
Interpretation No. 46 that was issued in January 2003. Companies are required to
apply FIN 46R to VIEs generally as of March 31, 2004 and to special-purpose
entities as of December 31, 2003. For any VIEs that must be consolidated under
FIN 46R that were created before January 1, 2004, the assets, liabilities and
non-controlling interest of the VIE initially would be measured at their
carrying amounts, and any difference between the net amount added to the balance
sheet and any previously recognized interest would be recorded as a cumulative
effect of an accounting change. If determining the carrying amounts is not
practicable, fair value at the date FIN 46R first applies may be used to measure
the assets, liabilities and non-controlling interest of the VIE. The adoption of
FIN 46 and related revisions had no significant impact on the Company's
consolidated financial position, consolidated results of operations or
liquidity.
In November 2004, the FASB issued Statement No. 151, "Inventory Costs, an
amendment of ARB No. 43, Chapter 4" ("SFAS No. 151"). SFAS 151 amends the
guidance in ARB No. 43, Chapter 4, "Inventory Pricing," to clarify the
accounting for abnormal amounts of idle facility expense, handling costs and
wasted material (spoilage). Among other provisions, the new rule requires that
such items be recognized as current-period charges, regardless of whether they
meet the criterion of "so abnormal" as stated in ARB 43. SFAS 151 is effective
for fiscal years beginning after June 15, 2005. The Company does not expect the
adoption of this statement to have a material effect on its consolidated
financial position, consolidated results of operations or liquidity.
In December 2004, the FASB issued FASB Staff Position No. FAS 109-2 ("FSP No.
109-2"), "Accounting and Disclosure Guidance for the Foreign Earnings
Repatriation Provisions within the American Jobs Creation Act of 2004" (the Jobs
Act). FSP No. 109-2 provides guidance with respect to reporting the potential
impact of the repatriation provisions of the Jobs Act on an enterprise's income
tax expense and deferred tax liability. The Jobs Act was enacted on October 22,
2004, and provides for a temporary 85% dividends received deduction on certain
foreign earnings repatriated during a one-year period. The deduction would
result in an approximate 5.25% federal tax rate on the repatriated earnings. To
qualify for the deduction, the earnings must be reinvested in the United States
pursuant to a domestic reinvestment plan established by a company's chief
executive officer and approved by a company's board of directors. Certain other
criteria in the Jobs Act must be satisfied as well. Although the Act was signed
into law in October 2004, the practical application of a number of the
provisions of the repatriation provision remains unclear. Tax authorities are
expected to provide clarifying language on key elements of the repatriation
provision. The Company has conducted a preliminary identification of potential
repatriation and reinvestment opportunities; however, the clarifying language
may affect our evaluation of the economic value of implementing any individual
opportunity and its ability to meet the overall qualifying criteria. As a
result, the Company will be unable to complete a determination of the Act's
effect on our plan for reinvestment or repatriation of foreign earnings until
the clarifying language is released.
In December 2004, the FASB issued Statement No. 123 (revised 2004), "Share-Based
Payment" (SFAS No. 123R), which replaces SFAS 123 and supersedes APB Opinion No.
25, "Accounting for Stock Issued to Employees." This Statement requires all
share-based payments to employees, including grants of employee stock options,
to be recognized in the financial statements based on their fair values
beginning with the first interim period beginning after June 15, 2005. The pro
forma disclosures previously permitted under SFAS 123 no longer will be an
alternative to financial statement recognition. The Company is required to adopt
SFAS 123R in the third quarter of 2005. Under SFAS 123R, the Company must
determine the appropriate fair value model to be used for valuing share-based
payments, the amortization method for compensation cost and the transition
method to be used at date of adoption. The permitted transition methods include
either retrospective or prospective adoption. Under the retrospective option,
prior periods may be restated either as of the beginning of the year of adoption
or for all periods presented. The prospective method requires that compensation
expense be recorded for all unvested stock options at the beginning of the first
quarter of adoption of SFAS 123R, while the retrospective methods would record
compensation expense for all unvested stock options beginning with the first
period presented. The Company is currently evaluating the requirements of SFAS
123R and expects that the adoption of SFAS 123R will have a material impact on
its consolidated financial position, consolidated results of operations and
earnings per share. The Company has not yet determined the method of adoption or
effect of adopting SFAS 123R and has not determined whether the adoption will
result in amounts that are similar to the current pro forma disclosures under
SFAS 123. See "Accounting for Stock Options" in Note 2 of the Notes to
Consolidated Financial Statements.
In December 2004, the FASB issued Statement No. 153, "Exchanges of Nonmonetary
Assets, an amendment of APB Opinion No. 29, Accounting for Nonmonetary
Transactions". SFAS 153 eliminates the exception from fair value measurement for
nonmonetary exchanges of similar productive assets in paragraph 21 (b) of APB
Opinion No. 29, "Accounting for Nonmonetary Transactions," and replaces it with
an exception for exchanges that do not have commercial substance. SFAS 153
specifies that a nonmonetary exchange has commercial substance if the future
cash flows of the entity are expected to change significantly as a result of the
exchange. SFAS 153 is effective for periods beginning after June 15, 2005. The
Company does not expect the adoption of this statement to have a material effect
on its consolidated financial position, consolidated results of operations or
liquidity.
Reclassifications
Certain reclassifications have been made to prior year balances in order to
conform to the 2004 presentation.
3. Inventory
Inventory consists of the following:
December 31,
2004 2003
---- ----
Raw materials $ 7,534 $ 6,444
Work-in-process 2,320 1,945
Finished goods 14,011 8,583
--------- --------
$ 23,865 $ 16,972
========= ========
4. Property, Plant and Equipment
Property, plant and equipment consists of the following:
December 31,
2004 2003
---- ----
Land $ 1,312 $ 569
Buildings and improvements 11,387 9,668
Machinery and equipment 23,477 21,824
Capitalized internal use software 3,127 2,256
Capitalized software development costs 546 546
-------- --------
39,849 34,863
Less accumulated depreciation 20,381 17,923
-------- --------
$ 19,468 $ 16,940
======== ========
Machinery and equipment included $438 and $389 under capital leases as of
December 31, 2004 and 2003, respectively. Accumulated depreciation on these
assets was $121 and $51 as of December 31, 2004 and 2003, respectively.
Depreciation expense on the Company's property, plant and equipment was
approximately $3,500, $2,900, and $2,800, for 2004, 2003, and 2002,
respectively.
5. Goodwill and Other Intangible Assets
Goodwill
The changes in the net carrying amount of goodwill for the years ended 2004,
2003 and 2002 consist of the following:
Data Industrial
Capture & Automation/
Collection Optical Total
-------- -------- --------
Balance as January 1, 2002 $ 3,861 $ 11,388 $ 15,249
Purchase price adjustments - (710) (710)
Currency translation adjustments 636 - 636
-------- -------- --------
Balance as of December 31, 2002 $ 4,497 $ 10,678 $ 15,175
Purchase of minority interest
in subsidiaries 1,548 - 1,548
Currency translation adjustments 813 - 813
-------- -------- --------
Balance as of December 31, 2003 $ 6,858 $ 10,678 $ 17,536
Purchase of minority interest
in subsidiaries 6,157 - 6,157
Currency translation adjustments 914 - 914
-------- -------- --------
Balance as of December 31, 2004 $ 13,929 $ 10,678 $ 24,607
======== ======== ========
Other Intangibles
The Company has other intangible assets with a net book value of $18.9 million
and $6.6 million as of December 31, 2004 and December 31, 2003, respectively.
The following table reflects the components of identifiable intangible assets:
December 31, 2004 December 31, 2003
--------------------- --------------------
Amortizable Gross Gross Gross Gross
Life Carrying Accumulated Carrying Accumulated
(years) Amount Amortization Amount Amortization
----------- --------------------- ---------------------
Patents and Trademarks 17 $ 8,197 $(2,400) $ 7,143 $(1,959)
Holographic Technology 10 1,082 (946) 1,082 (830)
Advanced license fee 17 2,000 (941) 2,000 (824)
Computer software 5 11,810 (589) - -
Covenants not to compete 3 700 (58) - -
------ ----- ----- -----
$23,789 $(4,934) $10,225 $(3,613)
====== ===== ===== =====
The Company has determined that the lives previously assigned to these
finite-lived assets are still appropriate, and has recorded $1,321, $620, and
$570 of amortization expense for 2004, 2003 and 2002, respectively.
Estimated amortization expense for each of the five succeeding years is
anticipated to be $3,300, $3,300, $3,200, $3,100 and $2,600, respectively.
6. Accrued Expenses
Accrued expenses consist of the following:
December 31,
2004 2003
---- ----
Accrued compensation $ 3,792 $ 3,129
Accrued marketing 1,168 1,467
Accrued commissions 1,377 1,138
Accrued other taxes 1,001 851
Product warranty 1,139 728
Accrued professional fees 1,321 727
Accrued rent 773 719
Accrued royalties 212 654
Accrued corporate taxes 1,848 -
Other 3,647 2,105
--------- --------
$ 16,278 $ 11,518
========= =========
7. Debt
Credit Facility
In connection with the acquisition of AOA on January 8, 2001, the Company
entered into a $45,000 credit facility with its primary bank as agent for other
bank parties. On July 9, 2002, the Company replaced its former Credit Facility
by executing an Amended and Restated Credit Agreement (the "Amended Credit
Agreement") with its bank lenders. The key terms of the Amended Credit Agreement
included the waiver of all existing defaults under the Company's former Credit
Facility and the withdrawal by the banks of the notice of default that had been
previously issued to the Company. The Company granted a security interest in its
assets and properties to the primary bank in favor of the banks as security for
borrowings under the Amended Credit Agreement. The Amended Credit Agreement
contained various negative and positive covenants, such as minimum tangible net
worth requirements, and a scheduled expiration date of May 31, 2003. A portion
of outstanding borrowings under the Amended Credit Agreement were guaranteed by
C. Harry Knowles and Janet Knowles.
The Amended Credit Agreement also included a revolving credit facility of
$14,000. Amounts available for borrowing under this facility were equal to a
percentage of the total of eligible accounts receivable and inventories, as
defined in the agreement, plus an allowable over advance of $2,750. The over
advance allowance expired on January 1, 2003. The Amended Credit Agreement
required the daily application of the Company's receipts as payments against the
revolving credit facility and daily borrowings to fund cash requirements.
Interest on outstanding borrowings was at the banks' prime rate plus 2.5%, and
the agreement provided for a commitment fee of 0.5% on the unused facility.
In connection with the Amended Credit Agreement, certain directors and executive
officers made loans to the Company, which amounts were held as cash collateral
under the terms of the Amended Credit Agreement. Specifically, C. Harry Knowles
and Janet H. Knowles, Dale M. Fischer and Hsu Jau Nan loaned the Company $400,
$125 and $475, respectively. The loans accrued interest at a rate of nine
percent (9%) per annum and were repaid in full on February 28, 2003.
On January 31, 2003, the Company executed an Amendment (the "Amendment") to the
Amended 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. All
outstanding borrowings under the Amendment were paid in October 2003 and the
Agreement was terminated. As a result, the Company recorded a charge to income
of $86 for unamortized deferred financing fee 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 was to 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 was recognized as a charge to
interest expense in the fourth quarter of 2003.
Lines of Credit
Certain of the Company's European subsidiaries have entered into working capital
and invoice discounting agreements with HypoVereinsbank, Dresdner, Societe
Generale and GE Commercial Finance. Outstanding borrowings under the working
capital agreement with HypoVereinsbank have been guaranteed by the parent
company. These agreements provide the Company with availability of up to $16.3
million, using December 31, 2004 exchange rates, at interest rates ranging from
3.12% to 6.25%. In addition, the Company's subsidiary Metrologic do Brasil has a
working capital agreement with Banco Bradesco SA with availability of up to $0.6
million real or $0.2 million, using December 31, 2004 exchange rates. At
December 31, 2004 and 2003, $14.1 and $4.9 million were outstanding under such
agreements, and accordingly, are included in lines of credit in our consolidated
balance sheets.
Other
In connection with the acquisition of Omniplanar, the Company signed a
promissory note totaling $3.9 million. The note is payable in installments of
$0.7 million in March 2005, $1.3 million in September 2005 and $1.9 million in
March 2006. The notes were recorded at acquisition with a total discounted value
of $3.8 million.
Notes payable consist of the following:
December 31,
2004 2003
---- ----
Promissory notes $ 3,933 $ 214
Capital lease obligations 209 288
Others - 139
------- ---------
4,142 641
Less: current maturities 2,127 321
------- ---------
$ 2,015 $ 320
======= =========
The minimum annual principal payments of notes payable and capital lease
obligations at December 31, 2004 were:
2005 $ 2,127
2006 2,012
2007 3
-------
$ 4,142
=======
8. Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax reporting purposes and are
disclosed in the consolidated balance sheets. Significant components of the
Company's deferred tax assets and liabilities are as follows:
December 31,
2004 2003
---- ----
Deferred tax assets:
Net operating loss carryforwards $ 376 $ 687
Tax credit carryovers 405 -
Reserves on current assets 688 461
Inventory capitalization 152 218
Warranty reserve 430 282
License reserve 667 -
Other 425 797
------- --------
3,143 2,445
------- --------
Deferred tax liability:
Advance license fee 396 458
Unrealized gain on foreign currency 482 854
Depreciation and amortization 955 1,118
U.S. taxes on unremitted earnings 4,261 1,772
Other 80 -
------- --------
6,174 4,202
------- --------
Net deferred tax liability $(3,031) $ (1,757)
======= ========
Significant components of the provision for income taxes are as follows:
Year ended December 31,
2004 2003 2002
---- ---- ----
Current:
Federal $ 7,942 $ 3,196 $ -
Foreign 1,989 920 693
State (37) 1,410 182
-------- --------- ---------
Total current 9,894 5,526 875
Deferred:
Federal 2,039 1,702 169
Foreign (90) - -
State (675) (68) (17)
-------- --------- ---------
Total deferred 1,274 1,634 152
-------- --------- ---------
Provision for income taxes $ 11,168 $ 7,160 $ 1,027
======== ========= =========
The effective income tax rate of 33.0%, 34.0% and 38.0% for the years ended
December 31, 2004, 2003, and 2002, respectively, differs from the federal
statutory rate of 34% because of the difference in treatment of certain expense
items for financial and income tax reporting purposes and state and foreign
taxes. A reconciliation between the statutory provision and the provision for
financial reporting purposes is as follows:
December 31,
2004 2003 2002
---- ---- ----
Statutory federal tax provision $ 11,508 $ 7,154 $ 919
State income taxes, net of
federal income tax benefit (470) 886 66
Foreign income tax rate differential (1,837) (1,443) (615)
US taxes provided on foreign income 2,720 1,191 582
Tax credits/carryforwards (473) - -
Gain on extinguishment of debt - (748) -
Other, net (280) 120 75
--------- -------- ---------
Provision for income taxes $ 11,168 $ 7,160 $ 1,027)
========= ======== ==========
The Company has state net operating loss carryforwards of $12,212 and they
generally begin to expire in 2010. The Company also has state tax credit
carryforwards of $614 that begin to expire in 2008.
The Company's earnings in China are not subject to local income taxes in the
years 2002 through 2006. In addition, the Company will pay income taxes at 50%
of the local statutory rate for the years 2007 through 2011. The Company has
provided deferred income taxes on $12,510 of income in China at U.S. statutory
rates as it is the Company's intention to repatriate such earnings.
The Company's cumulative undistributed earnings of foreign subsidiaries that are
expected to be reinvested indefinitely, for which no incremental U.S. income or
foreign withholding taxes have been recorded, approximated $8,500 at December
31, 2004.
9. Related Party Transactions
The Company's principal shareholder, Director and Chairman of the Board C. Harry
Knowles and his spouse, Janet H. Knowles, the Company's Vice President,
Administration, Treasurer and Director, owned and leased to the Company certain
real estate utilized in the operation of the Company's business. Lease payments
made to these related parties were approximately $1,209 and $526, for the years
ended December 31, 2003 and 2002, respectively. Under the terms of the Amended
Credit Agreement, no rental payments were paid to Mr. and Mrs. Knowles during
the term of the Amended Credit Agreement. The unpaid, accrued portion of the
rental payments were repaid to Mr. and Mrs. Knowles during 2003 after the
Amendment to the Amended Credit Agreement was executed. The lease for the real
estate was replaced in January 2003 with a new lease which was due to expire in
December 2012. In December 2003, the Company purchased the real estate from Mr.
& Mrs. Knowles for approximately $4.79 million, which was less than the fair
market values contained in two independent appraisals.
Other current assets at December 31, 2002 included a loan receivable from Janet
H. Knowles, a director and officer of the Company, who borrowed $75 from the
Company under a promissory note to be repaid upon the termination of the Amended
Credit Agreement. The Company made the loan to Mrs. Knowles in December 2001 as
a result of her pledge of cash collateral to the banks in her capacity as
guarantor for Company borrowings under its Credit Facility. This loan was paid
in full in February 2003.
The accounting firm in which Stanton L. Meltzer, a director of the Company, is a
principal, charged fees of approximately $4, $50 and $105 for tax consulting
services performed for the Company during the years ended December 31, 2004,
2003 and 2002, respectively. The 2004 payments were made prior to the Annual
Shareholders meeting in May 2004.
The investment banking company of Janney Montgomery Scott LLC ("JMS") in which
William Rulon-Miller, a director of the Company, serves as Senior Vice President
and Co-Director of Investment Banking charged fees totaling approximately $175
in 2003 and $50 in 2002 in connection with assisting the Company with its plans
to refinance its bank debt and restructure its overall debt position along with
the acquisition of AOA.
As discussed in Note 7, certain directors and executive officers made loans
aggregating $1,000 to the Company in July 2002 in connection with the Amended
Credit Agreement. The loan proceeds were held as cash collateral under the terms
of the Amended Credit Agreement. The loans accrued interest at an annual rate of
9% and were repaid in full on February 28, 2003.
10. Commitments & Contingencies
Operating Leases
The Company has entered into operating lease agreements with unrelated companies
to lease manufacturing and office equipment, office space and vehicles for its
foreign subsidiaries.
Future minimum lease payments required under the lease agreements as of December
31, 2004 are $2,750 in 2005, $2,347 in 2006, $2,195 in 2007, $1,991 in 2008,
$1,667 in 2009 and $1,970 thereafter. Rental expenses paid to third parties for
2004, 2003 and 2002 were approximately $2,992, $3,402, and $2,022, respectively.
Cross-Licensing Agreement and Settlement of Patent Litigation
In December 1996, the Company and Symbol Technologies, Inc. ("Symbol") executed
an extensive cross-license of patents (the "Symbol Agreement") for which the
Company and Symbol pay royalties to each other under certain circumstances
effective January 1, 1996. In connection with the Symbol Agreement, the Company
paid Symbol an advance license fee of $1 million in December 1996 and another $1
million in quarterly installments of $125 over the subsequent two years ended
December 1998. The Company has amended the Symbol Agreement providing for
additional patent licenses whereby the Company and Symbol make recurring
periodic royalty payments. Royalty payments under the Symbol Agreement amounted
to $1,942, $1,869, and $1,945 in 2004, 2003, and 2002, respectively. The Company
received royalty income from Symbol under the agreement of $1,330, $1,157, and
$1,006 in 2004, 2003 and 2002, respectively. The parties are currently in
litigation with respect to the Symbol Agreement. For further discussions on the
litigation, see Item C below in "Other Legal Matters."
Other Legal Matters
The Company files domestic and foreign patent applications to protect its
technological position and new product development. From time to time, the
Company receives legal challenges to the validity of its patents or allegations
that its products infringe the patents of others.
The Company is currently involved in matters of litigation arising in the normal
course of business including matters described below. Management is of the
opinion that such litigation either individually or in the aggregate will not
have a material adverse effect on the Company's consolidated financial position,
results of operations or cash flows. Further, management is of the opinion that
there are no other legal claims against the Company which are expected to have a
material adverse effect on the Company's consolidated financial position,
results of operations or cash flows, except as noted below.
A. Symbol Technologies, Inc. et. al. v. Lemelson Medical, Educational & Research
Foundation, Limited Partnerships
On July 21, 1999, the Company and six other leading members of the Automatic
Identification and Data Capture Industry (the "Auto ID companies") jointly
initiated litigation against the Lemelson Medical, Educational, & Research
Foundation, Limited Partnership (the "Lemelson Partnership"). The suit which was
commenced in the U.S. District Court, District of Nevada in Reno, Nevada, and
later transferred to the U.S. District Court in Las Vegas, Nevada, requested a
declaratory judgment that certain patents owned by the Lemelson Partnership were
not infringed, invalid and/or unenforceable for a variety of reasons. The trial
on this matter was held from November 2002 through January 2003. On January 23,
2004, the Judge issued a decision in favor of the Auto ID companies finding that
the patents in suit were not infringed, invalid and unenforceable. The Lemelson
Partnership has appealed this decision to the Court of Appeals for the Federal
Circuit and this appeal is now pending.
B. Metrologic v. PSC Inc.
On October 13, 1999, the Company filed suit for patent infringement against PSC
Inc. ("PSC") in the U.S. District Court for the District of New Jersey. The
complaint asserts that at least seven of our patents are infringed by a variety
of point-of-sale bar code scanner products manufactured and sold by PSC. The
complaint seeks monetary damages as well as a permanent injunction to prevent
future sales of the infringing products. 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 was pending. The stay was
lifted on July 18, 2003, and the Court issued a ruling on the Markman hearing on
August 26, 2003 entering a decision and order providing an interpretation of the
claims in suit. Certain pretrial motions are still pending before the Judge and
no date has been set for trial.
C. Symbol Technologies, Inc. v. Metrologic
On May 3, 2002, the Company was served with a lawsuit that was filed on April
12, 2002 by Symbol Technologies, Inc., in the U.S. District Court for the
Eastern District of New York alleging that we were in breach of the terms of the
License Agreement between us and Symbol (the "Symbol Agreement"). The Complaint
sought a declaratory judgment from the Court that we were in breach of the
Agreement. On March 31, 2003, the Court entered its decision on the parties'
respective motions for summary judgment, and finding in our favor, the Court
dismissed certain counts of Symbol's complaint. On April 9, 2003, Symbol
voluntarily dismissed the remaining counts of the complaint. Symbol filed its
Notice of Appeal with the U.S. Court of Appeals for the Second Circuit on May 7,
2003. On December 23, 2003, the Court of Appeals dismissed Symbol's appeal in
this matter. In the interim, Symbol decided to proceed with the arbitration for
which the Company had filed a Demand in June 2002, which had been stayed pending
the decision by the lower court. On June 26, 2003, Symbol filed an Amended
Answer and Counterclaims asserting that (a) eleven of Metrologic's products are
royalty bearing products, as defined under the Symbol Agreement, and (b) in the
alternative, those products infringe upon one or more of Symbol's patents. In
February 2005, the arbitrator entered an interim award, finding that 8 of the
products are not royalty bearing products under the Symbol Agreement but that 3
of the products are royalty bearing products. The Company has made a motion for
another interim award to review a portion of the arbitrator's decision. This
motion has been granted and on March 23, 2005 the arbitrator will reopen the
hearing with regard to certain portions of his earlier decision.
To date no final award of damages against the Company has been granted in this
matter. Symbol has made a request for a damage award in the amount of
approximately $10 million dollars. The Company believes that Symbol's claims for
damages in this amount are wholly without merit and intends to vigorously defend
against it; however, if Symbol were to receive a final award in the amount of
$10 million dollars and such an award were not reversed on appeal it would have
a material impact on the Company.
D. Metrologic v. Symbol Technologies, Inc.
On June 18, 2003, the Company filed suit against Symbol Technologies, Inc. in
the U.S. District Court for the District of New Jersey alleging claims of patent
infringement of certain of our patents by at least two Symbol products. The
complaint also contains a claim for breach of the Symbol Agreement between the
parties. Symbol's answer to the complaint, filed on July 30, 2003, included
counterclaims requesting that a declaratory judgment be entered that patents in
suit are invalid, are not infringed by Symbol and that Symbol is not in breach
of the Cross License Agreement. This matter is still in discovery.
E. PSC v. Metrologic
On May 17, 2004, PSC filed suit against the Company in the U.S. District Court
for the District of Oregon alleging claims of patent infringement of certain of
its patents by at least one Metrologic product. The Company believes that PSC's
claims are wholly without merit and intends to vigorously defend against them.
The Company has filed an answer and counterclaims to the complaint. This case in
now in the early stages of discovery.
11. Retirement Plans
The Company maintains a noncontributory defined contribution cash or deferred
profit sharing plan covering substantially all employees. Contributions are
determined by the Chief Executive Officer and are equal to a percentage of each
participant's compensation. No contributions were made to the Plan for the three
years ended December 31, 2004.
Additionally, the Company maintains an employee funded Deferred Compensation
Retirement 401(k) Plan, contributions to which are partially matched by the
Company at a rate of 60% on the first six percent of employee's earnings.
Contribution expenses were $423, $347, and $402 in 2004, 2003, and 2002,
respectively.
12. Financial Reporting for Business Segments and Geographical Information
The Company generates its revenue from the sale of laser bar code scanners
primarily to distributors, value-added resellers, original equipment
manufacturers and directly to end users, in locations throughout the world. No
individual customer accounted for 10% or more of revenues in 2004, 2003 or 2002.
The Company manages its business on a business segment basis dividing the
business into two major segments: Data Capture & Collection and Industrial
Automation/Scanning Systems. Resulting from the growth of our product line,
service offerings and geographic reach, our target market segments and the
customer base into which we sell have grown comparably. Examples include
increased sales of our handheld mobile computer, emerging wireless applications
and the introduction of handheld imaging products. Accordingly, we have adopted
the segment title "Data Capture and Collection" to more accurately reflect the
suite of products and services offered within the segment historically entitled
"POS/OEM". The phrase Data Capture is fairly ubiquitous within our industry. We
believe this modification better represents the company's offerings to its
customers and better positions us to grow in accordance with our strategic
plan(s).
We have also refined our historical "Industrial/Optical Systems" segment into
"Industrial Automation/Optical Systems" to better reflect the products and
services we offer our customer base in our Industrial markets. Additionally, we
believe there is benefit to differentiating the more complex systems sold into
this market from certain of our Data Capture and Collection products that may be
sold to similar customers via our worldwide distribution channels.
The accounting policies of the segments are the same as those described in the
summary of the significant accounting policies. A summary of the business
segment operations for 2004, 2003 and 2002 is included below:
2004 2003 2002
---- ---- ----
Business segment net sales:
Data Capture & Collection $ 140,171 112,817 87,929
Industrial Automation/Optical Systems 37,784 25,194 27,877
--------- ------- -------
Total 177,955 138,011 115,806
--------- ------- -------
Business segment gross profit:
Data Capture & Collection $ 69,814 49,954 31,964
Industrial Automation/Optical Systems 11,914 8,403 9,457
--------- ------- -------
Total 81,728 58,357 41,421
--------- ------- -------
Business segment operating income:
Data Capture & Collection $ 27,413 18,129 2,726
Industrial Automation/Optical Systems 4,276 2,015 2,893
--------- ------- -------
Total 31,689 20,144 5,619
--------- ------- -------
Total other income (expenses) $ 2,159 897 (2,917)
--------- ------- -------
Income before income taxes $ 33,848 21,041 2,702
--------- ------- -------
Business segment total assets:
Data Capture & Collection $ 147,963 116,631 53,219
Industrial Automation/Optical Systems 44,564 23,269 21,360
--------- ------- -------
Total $ 192,527 139,900 74,579
--------- ------- -------
Geographical Information
Geographic results are prepared on a "country of destination" basis, meaning
that net sales are included in the geographic area where the customer is
located. Assets are included in the geographic area in which the selling
entities are located.
The following table details the geographic distribution of the Company's sales
and long-lived assets.
2004 2003 2002
------------------ ------------------- ------------------
Long-Lived Long-Lived Long-Lived
Sales Assets(a) Sales Assets(a) Sales Assets(a)
-------- -------- -------- -------- -------- --------
North America 76,081 45,073 58,149 32,260 55,179 28,102
Europe 70,819 14,081 57,474 7,128 43,057 4,935
Rest of World 31,055 3,776 22,388 1,700 17,570 1,088
-------- -------- -------- -------- -------- --------
$177,955 $ 62,930 $138,011 $ 41,088 $115,806 $ 34,125
(a) Represents property, plant and equipment, net, and goodwill and other
intangible assets, net
13. Incentive Plan
During 2004, the Company's Board of Directors adopted the 2004 Equity Incentive
Plan as the 1994 Incentive Plan had expired. The Company's Board of Directors
have granted incentive and non-qualified stock options pursuant to the Company's
Incentive Plans to certain eligible employees and board members. The shares
issued will either be authorized and previously unissued common stock or issued
common stock reacquired by the Company. The total number of shares authorized
for issuance under the 2004 Equity Incentive Plan is 1,500,000. Shares canceled
for any reason without having been exercised shall again be available for
issuance under the Plan. An aggregate of 1,447,500 shares were available for
grant under the 2004 Equity Incentive Plan at December 31, 2004. Options granted
under the 2004 Equity Incentive Plan become exercisable over periods ranging
from one to four years. Each option shall expire no more than ten years after
becoming exercisable.
The Company has elected to follow APB 25 and related interpretations in
accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under SFAS 123 requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of the Company's
employee stock options equals the market price of the underlying common stock on
the date of grant, no compensation expense is recognized. The Black-Scholes
option valuation model was developed for use in estimating the fair value of
traded options which have no vesting restrictions and are fully transferable. In
addition, option valuation models require the input of highly subjective
assumptions including the expected stock price volatility. Because the Company's
employee stock options have characteristics significantly different from those
of traded options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of the fair value of
its employee stock options.
SFAS 123 requires pro forma information regarding net income and earnings per
share as if the Company had accounted for its employee stock options granted
subsequent to December 31, 1994 under the fair value method of SFAS 123. The
fair value of the options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions: risk-free interest rates of 4.25% in 2004 and 3.9% in 2002;
dividend yields of 0.0%; volatility factors of the expected market price of the
Company's common stock of 72% and 90% for 2004 and 2002, respectively, and a
weighted-average expected life of the option of 6.25 years for 2004 and 5 years
for 2002. No options were granted during 2003.
A summary of the Company's stock option activity, and related information for
the years ended December 31, 2002, 2003, and 2004 follows:
Options Weighted-Average
(in thousands) Exercise Price
Outstanding - January 1, 2002 2,652 $ 3.73
Granted 1,035 1.48
Exercised - -
Canceled (411) 3.81
------
Outstanding - December 31, 2002 3,276 $ 3.01
Granted - -
Exercised (933) 3.60
Canceled (22) 3.40
------
Outstanding, December 31, 2003 2,321 $ 2.78
Granted 353 20.08
Exercised (965) 3.21
Canceled (18) 1.48
------
Outstanding, December 31, 2004 1,691
======
Exercisable at December 31, 2004 944
======
Weighted-average fair value of
options granted during 2004 $ 20.08
=======
Approximately 3,333,500 shares of common stock have been reserved for future
issuance, consisting of 1,691,000 shares for outstanding options under the
Company's Incentive Plans, 1,447,500 shares available for grant under the
Company's 2004 Equity Incentive Plan and 195,000 shares for warrants issued to
Mr. and Mrs. Knowles.
The following table summarizes the status of stock options outstanding and
exercisable at December 31, 2004:
Options Outstanding Options Exercisable
----------------------------------- -----------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Exercise Contractual Exercise Exercise
prices per share Shares Life Price Shares Price
- -----------------------------------------------------------------------------
$ 1.48 - $ 1.48 687,969 7.69 $ 1.48 242,769 $ 1.48
$ 2.41 - $ 3.07 208,786 6.05 $ 2.79 199,786 $ 2.78
$ 3.07 - $ 3.44 218,420 4.81 $ 3.44 218,420 $ 3.44
$ 3.44 - $ 4.69 195,398 3.35 $ 4.33 195,398 $ 4.33
$ 4.69 - $20.00 227,350 8.78 $ 16.04 67,351 $ 12.43
$20.00 - $25.00 152,500 9.63 $ 23.38 20,000 $ 25.00
--------- ------- ---------- --------- ----------
$ 1.48 - $25.00 1,690,423 6.94 $ 6.159 943,724 $ 4.0788
14. Employee Stock Purchase Plan
The Company has an Employee Stock Purchase Plan whereby eligible employees have
the opportunity to acquire the Company's common stock quarterly through payroll
deductions, at 90% of the lower of (a) the fair market value of the stock on the
first day of the applicable quarterly offering period or (b) the fair market
value of the stock on the last day of the applicable quarterly offering period.
15. Acquisitions
Omniplanar, Inc.
On September 24, 2004, the Company acquired 100% of the common stock of
Omniplanar, Inc. ("Omniplanar"), an imaging software company, for $12,851
including acquisition costs and assumed liabilities. The Company paid $9,050 at
closing, and will pay $650 in March 2005, $1,300 in September 2005 and $1,950 in
March 2006. Omniplanar supplies a complete package of bar code reading software
for 2D imaging for fixed position, conveyor belt and hand held readers which can
be optimized for specific hardware applications. The acquisition of Omniplanar
represents a significant addition to the Company's technology portfolio. The
Company has licensed the SwiftDecoder software since the year 2000 for use in
its iQ(R) line of industrial vision-based products. The Company intends to make
use of this software's unique decoding ability in other products as well. The
assets acquired have been recorded at their estimated fair values. The
consolidated statement of operations for the year ended December 31, 2004
reflect the results of Omniplanar since the effective date of the acquisition.
The results of operations for Omniplanar have been included in the Industrial
Automation/Optical System business segment. The pro forma results of operations
have not been provided because the effects were not material.
In connection with the acquisition, the Company allocated $12,510 to
identifiable intangible assets comprising $11,810 of computer software which is
being amortized over 5 years and $700 to a non-compete agreement which is being
amortized over 3 years.
The following table summarizes the allocation of the purchase price of assets
recorded at the date of acquisition.
Assets:
Cash and cash equivalents $ 5
Accounts receivable 455
Deferred income taxes 555
Identifiable intangible assets 12,510
------
Total assets acquired 13,525
------
Liabilities:
Accrued expenses 23
Deferred contract revenue 96
Deferred income taxes 555
------
Total liabilities assumed 674
------
Net assets acquired $ 12,851
======
The Company accounted for this acquisition under the purchase method of
accounting.
Metrologic do Brasil
On February 4, 2003, the Company paid cash of $71 and signed three promissory
notes with a total discounted value of $204 for the remaining 49% interest in
Metrologic do Brasil. During the year ended December 31, 2004, the Company paid
one promissory note in the amount of $75 with the two remaining promissory notes
payable on February 4, 2005 and February 4, 2006, respectively.
The Company accounted for this acquisition under the purchase method of
accounting. The total purchase price and costs in excess of assets acquired
(goodwill) was $275.
Metrologic Eria Iberica ("MEI")
On August 5, 2003, the Company entered into an agreement to purchase the
remaining 49% interest in MEI for a purchase price of 5,900 euros. Payments are
being made in twelve quarterly installments over three years which commenced
August 5, 2003 and matures April 3, 2006. As of December 31, 2004, the Company
had purchased an additional 26%, of which 16.1% was purchased during the year
ended December 31, 2004 for approximately 1.9 million euros, or $2.6 million at
the exchange rate on December 31, 2004.
Metrologic Eria France ("MEF")
On March 19, 2004, the Company entered into an agreement to purchase the
remaining 49% minority interest of MEF for a purchase price of 3,600 euros, or
$4,300 at the exchange rate on March 31, 2004. As of December 31, 2004, the
Company owned 100% of MEF.
Supplementary Data
The following tables present unaudited quarterly operating results for the
Company for each quarter of 2004 and 2003. This information has been derived
from unaudited financial statements and includes all adjustments, consisting
only of normal recurring accruals, which the Company considers necessary for a
fair presentation of the results of operations for these periods. Such quarterly
operating results are not necessarily indicative of the Company's future results
of operations.
Quarterly Consolidated Operating Results (Unaudited)
(in thousands except per share data)
Three Months Ended
March 31, June 30, September 30, December 31,
2004 2004 2004 2004
--------- --------- --------- ---------
Sales $ 39,700 $ 40,990 $ 44,156 $ 53,109
Cost of sales 20,049 22,749 24,088 29,341
--------- --------- --------- ---------
Gross profit 19,651 18,241 20,068 23,768
Selling, general and
administrative expenses 9,374 9,099 10,997 13,048
Research and development
expenses 1,723 2,124 1,824 1,850
Severance costs - - - -
--------- --------- --------- ---------
Operating income 8,554 7,018 7,247 8,870
Other income (expenses)
Interest income 110 138 170 206
Interest expense (99) (114) (107) (121)
Foreign currency
transaction (loss) gain (238) (227) 330 2,393
Other, net (88) (72) (88) (34)
--------- --------- --------- ---------
Total other income (expenses) (315) (275) 305 2,444
--------- --------- --------- ---------
Income before provision
for income taxes 8,239 6,743 7,552 11,314
Provision for
income taxes 3,131 2,562 2,870 2,605
--------- --------- --------- ---------
Net income $ 5,108 $ 4,181 $ 4,682 $ 8,709
========= ========= ========= =========
Basic earnings
per share
Weighted average
shares outstanding 21,151 21,504 21,555 21,679
========= ========= ========= =========
Basic earnings
per share $ 0.24 $ 0.19 $ 0.22 $ 0.40
========= ========= ========= =========
Diluted earnings
per share
Weighted average
shares outstanding 21,151 21,504 21,555 21,679
Net effect of dilutive
securities 1,816 1,450 1,393 1,348
--------- --------- --------- ---------
Total shares outstanding
used in computing diluted
earnings per share 22,967 22,954 22,948 23,027
========= ========= ========= =========
Diluted earnings per
share $ 0.22 $ 0.18 $ 0.20 $ 0.38
========= ========= ========= =========
Supplementary Data (Con't)
Quarterly Consolidated Operating Results (Unaudited)
(In thousands except per share data)
Three Months Ended
March 31, June 30, September 30, December 31,
2003 2003 2003 2003
--------- --------- --------- ---------
Sales $ 31,871 $ 31,851 $ 32,587 $ 41,702
Cost of sales 19,105 18,444 18,803 23,302
--------- --------- --------- ---------
Gross profit 12,766 13,407 13,784 18,400
Selling, general and
administrative expenses 7,380 7,841 7,507 8,650
Research and development
expenses 1,761 1,763 1,686 1,554
Severance costs 27 4 40 -
--------- --------- --------- ---------
Operating income 3,598 3,799 4,551 8,196
Other income (expenses)
Interest income 5 8 13 97
Interest expense (464) (280) (348) (322)
Foreign currency
transaction gain 25 130 184 466
Gain on extinguishment
of debt 2,200 - - -
Other, net (580) (129) (114) 6
--------- --------- --------- ---------
Total other income (expenses) 1,186 (271) (265) 247
--------- --------- --------- ---------
Income before provision
for income taxes 4,784 3,528 4,286 8,443
Provision for
income taxes 982 1,341 1,630 3,207
--------- --------- --------- ---------
Net income $ 3,802 $ 2,187 $ 2,656 $ 5,236
========= ========= ========= =========
Basic earnings
per share
Weighted average
shares outstanding 16,418 16,580 16,995 20,390
========= ========= ========= =========
Basic earnings
per share $ 0.23 $ 0.13 $ 0.16 $ 0.26
========= ========= ========= =========
Diluted earnings
per share
Weighted average
shares outstanding 16,418 16,580 16,995 20,390
Net effect of dilutive
securities 645 1,975 2,130 2,219
--------- --------- --------- ---------
Total shares outstanding
used in computing diluted
earnings per share 17,063 18,555 19,125 22,609
========= ========= ========= =========
Diluted earnings per
share $ 0.22 $ 0.12 $ 0.14 $ 0.23
========= ========= ========= =========
Schedule II - Valuation and Qualifying Accounts
Years ended December 31, 2004, 2003, and 2002
(All dollar amounts in thousands)
2004 2003 2002
------ ------ ------
Allowance for possible losses on accounts and
notes receivable:
Balance at beginning of year $ 485 $ 341 $ 422
Additions charged to expense 135 123 39
Write-offs (99) (64) (147)
Currency translation and other 23 85 27
------ ------ ------
Balance at end of year $ 544 $ 485 $ 341
====== ====== ======
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.
No change of accountants and/or disagreement on any matter of accounting
principles or financial statement disclosures has occurred within the last two
years.
Item 9A. Controls and Procedures
As of the end of the period covered by this annual report, an evaluation was
performed under the supervision and with participation of the Company's
management, including our Chief Executive Officer and Chief Financial Officer,
of the effectiveness of the design and operation of the Company's disclosure
controls and procedures pursuant to the Securities Exchange Act of 1934, as
amended, Rules 13a-15 and 15d-15. Based on that evaluation, the Chief Executive
Officer and Chief Financial Officer have concluded that our disclosure controls
and procedures are effective to provide that material information relating to
us, including our consolidated subsidiaries, is (a) made known to them by our
other employees and the employees of our consolidated subsidiaries, particularly
material information related to the period for which this annual report is being
prepared; and (b) recorded, processed, summarized, evaluated, and reported, as
applicable, within the time period specified in the rules and forms promulgated
by the Securities and Exchange Commission.
Management's annual report on the Company's internal control over financial
reporting and the independent registered public accounting firm's attestation
report are included in the Company's 2004 Financial Statements in Item 8 of this
Annual Report on Form 10-K, under the headings "Report of Management on Internal
Control Over Financial Reporting" and "Report of Independent Registered Public
Accounting Firm on Internal Control Over Financial Reporting", respectively, and
is incorporated herein by reference.
During the fiscal quarter ended December 31, 2004, there have been no changes in
our internal control over financial reporting that have materially affected, or
are reasonably likely to materially affect, our internal control over financial
reporting.
PART III
The information called for by Item 10, Directors and Executive Officers of the
Registrant (except for the information regarding executive officers called for
by Item 401 of Regulation S-K, which is included in Part I hereof in accordance
with General Instruction G(3)), Item 11, Executive Compensation, Item 12,
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters, Item 13, Certain Relationships and Related Transactions,
and Item 14, Principal Accountant Fees and Services, is incorporated herein by
reference to the Registrant's definitive proxy statement for its 2005 Annual
Meeting of Shareholders which shall be filed with the Securities and Exchange
Commission within 120 days from the end of the Registrant's fiscal year ended
December 31, 2004.
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) 1. Financial Statements
The Financial Statements listed below are
filed as part of this Annual Report on Form 10-K:
Report of Management on Internal Control Over Financial
Reporting
Report of Independent Registered Public Accounting Firm on
Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm on
Financial Statements and Schedule
Consolidated Balance Sheets at December 31, 2004 and 2003
Consolidated Statements of Operations for
each of the three years in the period ended
December 31, 2004, 2003 and 2002
Consolidated Statements of Stockholders'
Equity for each of the three years in the
period ended December 31, 2004, 2003 and
2002
Consolidated Statements of Cash Flows for
each of the three years in the period ended
December 31, 2004, 2003 and 2002
Notes to Consolidated Financial Statements
Supplementary Data (Unaudited)
2. Financial statement schedule
Schedule II - Valuation and Qualifying
Accounts is filed herewith. All other
schedules are omitted because they are not
applicable, not required, or because the
required information is included in the
consolidated financial statements or notes
thereto.
3. Exhibits required to be filed by Item 601 of
Regulation S-K.
2.1 Option Agreement dated as of March 1,
1995 among Metrologic Instruments, Inc. and
the parties listed on schedule A thereto
(incorporated by reference to Exhibit 2.3 to
the Registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 1995).
3.1 Amended and Restated Certificate of
Incorporation of Metrologic Instruments,
Inc. (incorporated by reference to Exhibit
3.1 to the Registrant's Annual Report on
Form 10-K for the year ended December 31,
1994).
3.2 Amended and Restated Bylaws of Metrologic
Instruments, Inc. (incorporated by reference to
Exhibit 3.02 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1994).
3.3 Certificate of Amendment to the
Certificate of Incorporation of Metrologic
Instruments, Inc. dated October 20, 2003
effecting the two for one stock split
(incorporated by reference to Exhibit 3.1 to
the Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30,
2003).
3.4 Certificate of Amendment to the Certificate of
Incorporation of Metrologic Instruments,
Inc. dated June 6, 2003 effecting the three for
two stock split.
4.1 Specimen Stock Certificate (incorporated by
reference to Exhibit 4.1 to the Registrant's
Registration Statement on Form S-1 (Reg. No.
33-78358)).
10.1 Metrologic Instruments, Inc. 1994 Incentive Plan
(incorporated by reference to Exhibit 99
to the Registrant's Registration Statement on
Form S-8 (Reg. No. 33-89376)).
10.2 Metrologic Instruments, Inc. Employee Stock
Purchase Plan (incorporated by reference to
Exhibit 99 to the Registrant's Post-Effective
Amendment No. 1 to the Registration Statement on
Form S-8 (Reg. No. 33-86670) and Exhibit 10.1 to
the Registrant's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1995).
10.3 Agreement of Settlement between Symbol
Technologies, Inc. and Metrologic Instruments,
Inc. (incorporated by reference to Exhibit 10.5
to the Registrant's Registration Statement on
Form S-1 (Reg. No. 33-78358)).
10.4 Indemnification Agreement between Metrologic
Instruments, Inc. and C. Harry Knowles and
Janet H. Knowles (incorporated by reference to
Exhibit 10.9 to the Registrant's Registration
Statement on Form S-1 (Reg. No. 33-78358)).
10.5 Agreement between Symbol Technologies, Inc. and
Metrologic Instruments, Inc. dated December
18, 1996 (incorporated by reference to Exhibit 10
to the Registrant's Current Report on
Form 8-K filed on February 14, 1997).
10.6 First Amendment to Metrologic Instruments, Inc.
1994 Incentive Plan dated July 1, 1997
(incorporated by reference to Exhibit 10 to the
Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1997).
10.7 Stock Purchase Agreement dated December 22, 2000
by and among United Technologies Optical
Systems, Inc., Hamilton Sundstrand Corporation,
MTLG Investments Inc. and Metrologic Instruments,
Inc. (incorporated by reference to Exhibit 2 to
the Registrant's Current Report on Form 8-K filed
January 23, 2001).
10.8 Employment Agreement dated January 8, 2001 between
Metrologic Instruments, Inc. and C. Harry Knowles
(incorporated by reference to Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q for
the quarter ended March 31, 2001).
10.9 Employment Agreement dated as of May
13, 2002 between Metrologic Instruments,
Inc. and Janet H. Knowles (incorporated by
reference to Exhibit 10.24 to the Company's
Annual Report on Form 10-K/A3 for the period
ended December 31, 2001).
10.10 Registration Rights Agreement dated
January 31, 2003 between Metrologic
Instruments, Inc. and C. Harry Knowles and
Janet Knowles (incorporated by reference to
Exhibit 99.5 to the Company's Form 8-K for
the period ending January 31, 2003).
10.11 Amended Common Stock Purchase Warrant dated
February 5, 2003 in the amount of 65,000
shares of Metrologic Instruments, Inc.
common stock to C. Harry Knowles and Janet
Knowles (incorporated by reference to
Exhibit 10.31 to the Company's Form 10-K for
the year ending December 31, 2002).
10.12 Agreement of Sale dated December 22, 2003
between Metrologic Instruments, Inc. and C.
Harry and Janet H. Knowles (incorporated by
reference to Exhibit 10.13 to the Company's
Form 10-K for the year ending December 31,
2003).
10.13 Code of Ethics approved by the Board of
Directors of the Registrant at a meeting
held on December 11, 2003 (incorporated by
reference to Exhibit 14 to the Company's
Form 10-K for the year ending December 31,
2003).
10.14 Stock Purchase Agreement between Omniplanar,
Inc. and Metrologic Instruments, Inc. subsidiary
MTLG Investments Inc. dated September 24, 2004
(incorporated by reference to Exhibit 10.1 to the
Company's Form 10-Q dated September 30, 2004).
10.15 Executive Employment Agreement
effective July 1, 2004 and executed November
16, 2004 by and between Metrologic
Instruments, Inc. and Benny A. Noens,
President and Chief Executive Officer
(incorporated by reference to Exhibit 10.1
to the Company's Form 8-K/A dated November
16, 2004).
10.16 Metrologic Instruments, Inc. 2004 Equity
Incentive Plan (incorporated by reference to
Exhibit 4.1 to the Company's Form S-8 dated
December 3, 2004).
10.17 Metrologic Instruments, Inc. Form of
Option Agreement under the Registrant's 2004
Equity Incentive Plan dated December 2, 2004
(incorporated by reference to Exhibit 10.1
to the Company's Form 8-K dated December 22,
2004).
10.18 Compensation Arrangements for the named
Executive Officers.
21 Subsidiaries of the Registrant
23.1 Consent of Independent Registered Public
Accounting Firm
31.1 Rule 13a-14(a)/15d-14(a) Certification by
Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
31.2 Rule 13a-14(a)/15d-14(a) Certification by Chief
Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
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 Chief
Financial Officer of the Company.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
METROLOGIC INSTRUMENTS, INC.
By:/s/Benny Noens
--------------------------------
Benny Noens
Chief Executive Officer
(Principal Executive Officer)
Dated: March 15, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934,
the report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/S/Kevin Bratton
- -----------------------------
Kevin Bratton Chief Financial Officer March 15, 2005
(Principal Financial Officer
and Principal Accounting
Officer)
/s/Richard C. Close
- -----------------------------
Richard C. Close Director March 15, 2005
/s/C. Harry Knowles
- -----------------------------
C. Harry Knowles Chairman of the Board March 15, 2005
/s/Janet H. Knowles
- -----------------------------
Janet H. Knowles Director, Vice President, March 15, 2005
Administration, and Treasurer
/s/John H. Mathias
- -----------------------------
John H. Mathias Director March 15, 2005
/s/Stanton L. Meltzer
- -----------------------------
Stanton L. Meltzer Director March 15, 2005
/s/Hsu Jau Nan
- -----------------------------
Hsu Jau Nan Director March 15, 2005
/s/William Rulon-Miller
- -----------------------------
William Rulon-Miller Director March 15, 2005
/s/Benny A. Noens
- -----------------------------
Benny A. Noens Chief Executive Officer, March 15, 2005
President and Director
(Principal Executive Officer)
Exhibit Index
Exhibit
Number Item Page
- ------ -------------------------------------------------------------- -----
2.1 Option Agreement dated as of March 1, 1995 among Metrologic
Instruments, Inc. and the parties listed on schedule A thereto
(incorporated by reference to Exhibit 2.3 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended
March 31, 1995).
3.1 Amended and Restated Certificate of Incorporation of Metrologic
Instruments, Inc. (incorporated by reference to Exhibit 3.1 to
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994).
3.2 Amended and Restated Bylaws of Metrologic Instruments, Inc.
(incorporated by reference to Exhibit 3.02 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1994).
3.3 Certificate of Amendment to the Certificate of Incorporation of
Metrologic Instruments, Inc. dated October 20, 2003 effecting the
two for one stock split (incorporated by reference to Exhibit 3.1
to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 2003).
3.4 Certificate of Amendment to the Certificate of Incorporation of
Metrologic Instruments, Inc. dated June 6, 2003 effecting the
three for two stock split.
4.1 Specimen Stock Certificate (incorporated by reference to Exhibit
4.1 to the Registrant's Registration Statement on Form S-1
(Reg. No. 33-78358)).
10.1 Metrologic Instruments, Inc. 1994 Incentive Plan (incorporated
by reference to Exhibit 99 to the Registrant's Registration
Statement on Form S-8 (Reg. No. 33-89376)).
10.2 Metrologic Instruments, Inc. Employee Stock Purchase Plan
(incorporated by reference to Exhibit 99 to the Registrant's
Post-Effective Amendment No. 1 to the Registration Statement on
Form S-8 (Reg. No. 33-86670) and Exhibit 10.1 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended
March 31, 1995).
10.3 Agreement of Settlement between Symbol Technologies, Inc. and
Metrologic Instruments, Inc. (incorporated by reference to
Exhibit 10.5 to the Registrant's Registration Statement on
Form S-1 (Reg. No. 33-78358)).
10.4 Indemnification Agreement between Metrologic Instruments, Inc.
and C. Harry Knowles and Janet H. Knowles (incorporated by
reference to Exhibit 10.9 to the Registrant's Registration
Statement on Form S-1 (Reg. No. 33-78358)).
10.5 Agreement between Symbol Technologies, Inc. and Metrologic
Instruments, Inc. dated December 18, 1996 (incorporated by
reference to Exhibit 10 to the Registrant's Current Report on
Form 8-K filed on February 14, 1997).
10.6 First Amendment to Metrologic Instruments, Inc. 1994 Incentive
Plan dated July 1, 1997 (incorporated by reference to Exhibit 10
to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1997).
10.7 Stock Purchase Agreement dated December 22, 2000 by and among
United Technologies Optical Systems, Inc., Hamilton Sundstrand
Corporation, MTLG Investments Inc. and Metrologic Instruments,
Inc. (incorporated by reference to Exhibit 2 to the Registrant's
Current Report on Form 8-K filed January 23, 2001).
10.8 Employment Agreement dated January 8, 2001 between Metrologic
Instruments, Inc. and C. Harry Knowles (incorporated by
reference to Exhibit 10.1 to the Registrant's Quarterly Report
on Form 10-Q for the quarter ended March 31, 2001).
10.9 Employment Agreement dated as of May 13, 2002 between Metrologic
Instruments, Inc. and Janet H. Knowles (incorporated by reference
to Exhibit 10.24 to the Company's Annual Report on Form 10-K/A3
for the period ended December 31, 2001).
10.10 Registration Rights Agreement dated January 31, 2003 between
Metrologic Instruments, Inc. and C. Harry Knowles and Janet
Knowles (incorporated by reference to Exhibit 99.5 to the
Company's Form 8-K for the period ending January 31, 2003).
10.11 Amended Common Stock Purchase Warrant dated February 5, 2003
in the amount of 65,000 shares of Metrologic Instruments, Inc.
common stock to C. Harry Knowles and Janet Knowles (incorporated
by reference to Exhibit 10.31 to the Company's Form 10-K for
the year ending December 31, 2002).
10.12 Agreement of Sale dated December 22, 2003 between Metrologic
Instruments, Inc. and C. Harry and Janet H. Knowles (incorporated
by reference to Exhibit 10.13 to the Company's Form 10-K for the
year ending December 31, 2003).
10.13 Code of Ethics approved by the Board of Directors of the
Registrant at a meeting held on December 11, 2003 (incorporated
by reference to Exhibit 14 to the Company's Form 10-K for the
year ending December 31, 2003).
10.14 Stock Purchase Agreement between Omniplanar, Inc. and Metrologic
Instruments, Inc. subsidiary MTLG Investments Inc. dated
September 24, 2004 (incorporated by reference to Exhibit 10.1
to the Company's Form 10-Q dated September 30, 2004).
10.15 Executive Employment Agreement effective July 1, 2004 and
executed November 16, 2004 by and between Metrologic Instruments,
Inc. and Benny A. Noens, President and Chief Executive Officer
(incorporated by reference to Exhibit 10.1 to the Company's
Form 8-K/A dated November 16, 2004).
10.16 Metrologic Instruments, Inc. 2004 Equity Incentive Plan
(incorporated by reference to Exhibit 4.1 to the Company's
Form S-8 dated December 3, 2004).
10.17 Metrologic Instruments, Inc. Form of Option Agreement under the
Registrant's 2004 Equity Incentive Plan dated December 2, 2004
(incorporated by reference to Exhibit 10.1 to the Company's
Form 8-K dated December 22, 2004).
10.18 Compensation Arrangements for the named Executive Officers. 42
21 Subsidiaries of the Registrant 43
23.1 Consent of Independent Registered Public Account Firm 44
31.1 Rule 13a-14(a)/15d-14(a) Certification by Chief Executive
Officer pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002. 45
31.2 Rule 13a-14(a)/15d-14(a) Certification by Chief Financial
Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002. 46
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. 47
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 Chief Financial Officer of the Company. 48
EXHIBIT 10.18
Compensation Arrangements for the Named Executive Officers.
Set forth below is a summary of the compensation paid by the company to its
named Executive officers (defined in Regulation S-K Item 402(a)(3)) in their
current positions as of the date of filing of the Company's Annual Report on
Form 10-K for the year ended December 31, 2004 (the "Form 10-K"). Except for the
CEO all of the company's Executive Officers are at-will employees whose
compensation and employment status may be changed at any time in the discretion
of the Company's Board of Directors. The CEO has an employment contract which
was entered into on July 1, 2004 which was filed as Exhibit 10.1 to the
Company's Form 8-K/A dated November 16, 2004.
Base salary. Effective January 1, 2005 the named Executive Officers are
scheduled to receive the following annual base salaries in their current
positions:
Name Principal Position Salary($)
- --------------- ----------------------------------- ---------
Benny A. Noens Chief Executive Officer and President 300,000
Gregory DiNoia Vice President, The Americas 160,000
Dale M. Fischer Vice President, International Sales 160,000
Joseph Sawitsky Senior Vice President, Manufacturing 185,000
Mark Schmidt Senior Vice President, Marketing 185,000
Jeffrey Yorsz Senior Vice President, Industrial and
President of Adaptive Optics
Associates, Inc. 185,000
Annual Incentive Plans. In their current positions the named Executive
Officers are eligible to receive annual cash incentive awards
as follows:
Benny Noens, Chief Executive Officer and President is eligible to receive an
annual incentive compensation cash award that is based on a formula with respect
to the Company's actual consolidated net income as compared with the Company's
budgeted net income as set forth in his employment contract which was entered
into on July 1, 2004 and was filed as Exhibit 10.1 to the Company's Form 8-K/A
dated November 16, 2004.
Gregory DiNoia, Vice President, the Americas, is eligible to receive incentive
compensation awards that are based on a formula with respect to the Company's
revenues, margins and operating expenses for the Americas geographic region.
Dale M. Fischer, Vice President, International Sales, is eligible to receive
incentive compensation awards that are based on a formula with respect to the
Company's revenues, margins and operating expenses for the Asia Pacific
geographic region.
Joseph Sawitsky, Senior Vice President, Manufacturing is eligible to receive an
annual incentive compensation cash award that is based on a formula with respect
to the Company's annual revenues as compared with the Company's budgeted annual
revenues.
Mark Schmidt, Senior Vice President, Marketing is eligible to receive an annual
incentive compensation cash award that is based on a formula with respect to the
Company's annual revenues as compared with the Company's budgeted annual
revenues.
Jeffrey Yorsz, Senior Vice President, Industrial and President of Adaptive
Optics Associates, is eligible to receive incentive compensation awards that are
based on a formula with respect to the Company's revenues, margins and operating
expenses for the industrial automation and optical systems businesses.
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
MTLG Investments Inc., a Delware corporation
Adaptive Optics Associates, Inc., a Delaware corporation
Omniplanar, Inc.
Metrologic do Brasil Ltda., a Brazil corporation
Metro (Suzhou) Technologies Co., Ltd., a China corporation
Metrologic Instruments GmbH, a German corporation
Metrologic Eria France SA, a France corporation
Metrologic Instruments Italia srl, an Italy corporation
Metrologic Instruments Poland Sp.z o.o
Metrologic Russia
Metrologic Eria Iberica, SL, a Spain corporation
Metrologic Instruments UK Limited, a United Kingdom corporation
Metrologic Asia (Pte) Ltd., a Singapore corporation
MTLG Auto ID Instruments (Shanghai) Co. Ltd.
Metrologic Japan Co., Ltd., a Japan corporation
EXHIBIT 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-89376) pertaining to the Metrologic Instruments, Inc. 1994
Incentive Plan, Registration Statement (Form S-8 No. 333-120992) pertaining to
the Metrologic Instruments, Inc. 2004 Equity Incentive Plan and the
Registration Statement (Form S-8 No. 33-86670) pertaining to the Metrologic
Instruments, Inc. Employee Stock Purchase Plan of our reports dated March 9,
2005, with respect to the consolidated financial statements and schedule of
Metrologic Instruments, Inc., Metrologic Instruments, Inc. management's
assessment of the effectiveness of internal control over financial reporting,
and the effectiveness of internal control over financial reporting of
Metrologic Instruments, Inc., included in this Annual Report (Form 10-K) for
the year ended December 31, 2004.
Philadelphia, Pennsylvania /s/Ernst & Young LLP
March 9, 2005
EXHIBIT 31.1 Rule 13a-14(a)/15d-14(a) CERTIFICATION
I, Benny Noens, Chief Executive Officer of Metrologic
Instruments, Inc., certify that:
1. I have reviewed this annual report on Form 10-K of Metrologic
Instruments, Inc.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer 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)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
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 annual report is being prepared;
b. designed such internal control over financial reporting or
caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
c. evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this annual report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this annual report based on such evaluation; and
d. disclosed in this annual 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 officer 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 the
registrant's board of directors (or persons performing the equivalent
functions):
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.
By: /s/Benny Noens
-----------------------------
Name: Benny Noens
Title: Chief Executive Officer
Date: March 15, 2005
EXHIBIT 31.2 Rule 13a-14(a)/15d-14(a) CERTIFICATION
I, Kevin J. Bratton, Chief Financial Officer of Metrologic
Instruments, Inc., certify that:
1. I have reviewed this annual report on Form 10-K of Metrologic
Instruments, Inc.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer 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)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
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 annual report is being prepared;
b. designed such internal control over financial reporting or
caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
c. evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this annual report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this annual report based on such evaluation; and
d. disclosed in this annual 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 officer 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 the
registrant's board of directors (or persons performing the equivalent
functions):
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.
By: /s/Kevin J. Bratton
------------------------------
Name: Kevin J. Bratton
Title: Chief Financial Officer
Date: March 15, 2005
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 Annual Report of Metrologic
Instruments, Inc. (the "Company") on Form 10-K for the Year ending December 31,
2004 as filed with the Securities and Exchange Commission on the date hereof
(the "Report"), I, Benny Noens, 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/Benny Noens
- ------------------------------------
Benny Noens
Chief Executive Officer
March 15, 2005
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 Annual Report of Metrologic
Instruments, Inc. (the "Company") on Form 10-K for the Year ending December 31,
2004 as filed with the Securities and Exchange Commission on the date hereof
(the "Report"), I, Kevin J. Bratton, Chief Financial Officer of the Company,
certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the
Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of section 13
(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
/s/Kevin J. Bratton
- ------------------------------------
Kevin J. Bratton
Chief Financial Officer
March 15, 2005