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, 2001 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
Securities registered pursuant to Section 12(b) of the Act: None
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. [ ]
The aggregate market value of the voting stock held by non-affiliates
of the Registrant as of April 12, 2002 was $18,862,362 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 April 15, 2002 there were 5,465,605 shares of Common Stock outstanding.
Documents Incorporated by Reference
Portions of the following documents are incorporated herein by reference:
Part III - The Registrant's definitive Proxy Statement for its 2002 Annual
Meeting of Stockholders, to be filed not later than 120 days after the close of
the fiscal year.
PART I
Item 1. Business
Introduction
Metrologic Instruments, Inc. ("Metrologic" or the "Company") designs, markets,
and manufactures sophisticated imaging systems using laser, holographic,
vision-based technologies; high-speed automated data capture solutions, and bar
code scanners. Metrologic's core technology includes the capability to scan and
decode one-dimensional (linear) bar codes. In recent years, Metrologic's
capabilities have expanded to include vision-based technologies providing
two-dimensional bar code reading and optical character recognition-compatible
image lift. Other significant products include parcel dimensioning and
singulation detection devices. The Company's automatic identification products
as described above serve customers in retail, commercial, manufacturing,
transportation and logistics, and postal and parcel delivery industries.
Metrologic's acquisition of Adaptive Optics Associates, Inc. ("AOA") in January
2001, has broadened the Company's product offering to include laser beam
delivery and control products for semiconductor and fiber optic manufacturing
equipment, wavefront sensor products and adaptive optics systems for certain
government applications. AOA also adds significant capabilities and expertise
in vision, image processing, systems integration, adaptive optics and high-end
refractive optical disciplines.
In addition to its extensive line of bar code scanning and vision system
equipment, the Company also provides a complete line of educational laser
products to schools and universities. The Company is vertically integrated;
designing and manufacturing its own optics, optical coatings, magnetic and
inductive electronic components and fabricated parts. The Company produced more
than 435,000 finished products in 2001.
Metrologic employs approximately 919 people worldwide (following a recent
reduction in workforce) and sells its products in more than 100 countries
through Metrologic's sales, service and distribution offices located in North
and South America, Europe and Asia. The Company's principal subsidiaries
include: AOA; Metrologic Instruments GmbH; Metrologic Asia (Pte) Ltd.;
Metrologic do Brasil Ltda (51% joint venture); Metro (Suzhou) Technologies Co.,
Ltd.; Metrologic Eria Iberica, SL (51% joint venture); Metrologic Italia
S.r.l.; Metrologic Eria France SA (51% joint venture); Metrologic Instruments
UK Limited; and Metrologic Japan Co., Ltd.
Metrologic was incorporated in New Jersey in May 1969 as a successor to a sole
proprietorship, which commenced operations in 1968. The Company's executive and
administrative offices are located at 90 Coles Road, Blackwood, New Jersey
08012. The Company's telephone number: 856-228-8100; web site:
www.metrologic.com.
The Company's Products
Metrologic bar code scanners use visible laser diodes, incorporating custom
integrated circuits and surface mount components for the majority of their
electronics. In addition, the Company's scanners use proprietary software,
including ScanSet(R), MetroSet(R) 2, and Bits `n' Pieces(R) configuration
utilities and ScanSelect(R) and MetroSelect(R) bar code configuration booklets
via bar code menus, which allow the end user to reconfigure and program the
scanners' performance characteristics. These programs also permit the scanner
to read commonly used bar codes and to perform a variety of other functions. In
addition, the Company's interpretive and decode software algorithms provide the
capability of high speed and aggressive decoding. The Company's scanners
interface into most computers, programmable logic controllers,
point-of-transaction devices (e.g., cash registers), mobile computing terminals
and internet-ready appliances.
Laser bar code scanners are the Company's predominant products and accounted
for 72.4%, 89.7%, and 92.7% of the Company's sales in 2001, 2000, and 1999,
respectively. The following laser bar code scanners have historically accounted
for a substantial portion of the Company's product revenues.
Retail Scanners: Hand-held
Since November 2001, the Company has offered the MS5145 Eclipse(TM) mid-level
hand-held scanner. Designed and developed by Metro (Suzhou) Technologies Co.,
Ltd., Eclipse's reduced-size form factor, feature set and price point is
designed to penetrate the demanding worldwide retail marketplace. Eclipse
incorporates Metrologic's patented CodeGate(R) data transmission technology for
total operator control of scanned barcodes.
Since January 2000, the Company has offered the Voyager(R) series of
single-line hand-held bar code scanners. These scanners are equipped with the
Company's patented automatic trigger technology; the MS9540 VoyagerCG(TM)
expanded on this technology with Metrologic's CodeGate data transmission. The
combined technologies allow the Company to compete head-to-head in applications
previously dominated by manually triggered scanners. These applications include
retail point-of-sale, menu-scanning, document processing, library,
pharmaceutical, pcb work-in-process, coupon processing and inventory.
Since January 2000, the Company has offered the MS6220 Pulsar(R) single-line
hand-held bar code scanner. This scanner represents the Company's entry-level
product and is designed to compete with low-cost Charged Coupled Devices
(CCD's). The product features the high-speed and accuracy of laser scanner with
the working range and cost of a typical CCD. The product is marketed for use in
large-retail applications.
Since September 1996, the Company has offered the MS6720 Omnidirectional
hand-held bar code scanner. This product is designed for use as both a
hand-held as well as a fixed scanner for applications such as specialty stores,
do-it-yourself stores, convenience stores and pharmacies.
Since February 1996, the Company has offered the MS6130 Wireless, hand-held bar
code scanner. This product is equipped with the patented automatic trigger and
can be used in a wide variety of applications including point-of-sale,
warehouse and inventory.
Since 1990, the Company has offered a wide variety of hand-held bar code
scanners incorporating a patented infrared sensor and control scheme for
automatically triggering a bar code scanner. This unique invention allows the
user to simply present bar codes to the product without the need to manually
activate the scanner.
Retail Scanners: Fixed Projection
In January 2002, the Company introduced the MS7320 InVista(TM) with shipments
beginning in the first quarter 2002. The InVista is a fixed omnidirectional
laser bar code scanner including an integrated Electronic Article Surveillance
(EAS) deactivation antenna, firmware updates via Flash ROM, field replaceable
window, user-replaceable cables and an auxiliary port for adding peripherals as
standard features. The MS7320 is designed to meet the demands of grocery store,
supermarket, convenience store, and specialty store environments.
In January 2002, the Company introduced the MS7600 Series Horizon(TM) with
shipments beginning in the first quarter of 2002. The Horizon is Metrologic's
next generation of in-counter scanners. These scanners produce a dense
omnidirectional scan pattern helping to provide fast, efficient throughput.
Horizon is available with either a stainless steel or a high impact plastic top
plate, both models come standard with an integrated EAS deactivation antenna,
durable die-cast construction, firmware updates via Flash ROM, field
replaceable window, user-replaceable cables and an auxiliary port for adding
peripherals as standard features. The MS7600 Series is designed for use in
grocery store, supermarket, retail and coupon redemption applications.
In January 2001, the Company introduced the MS7220 ArgusScan(TM), fixed
omnidirectional bar code scanner. For use in point-of-sale applications such as
grocery, pharmacy and specialty applications such as libraries and document
processing, the MS7220 ArgusScan's features include multiple mounting options,
a hand-held scanner port and multiple interfaces.
In January 2001, the Company introduced the MS6520 Cubit(R) fixed,
mini-omnidirectional bar code scanner. This product is the Company's
entry-level offering and is equipped with a durable housing for use in harsh
environments and many point-of-sale applications including convenience, apparel
and specialty stores.
Since October 1998, the Company has offered the MS7120 Orbit(R)
mini-omnidirectional bar code scanner. This product offers the high-speed and
performance of higher-end products, in a unique, ergonomic housing without
taking up valuable counterspace in convenience, apparel, liquor and specialty
stores. The MS7120 is designed as a fixed presentation scanner, but its
contoured housing allows it to be picked up for scanning bulky or heavy items.
Since September 1990, the Company has offered the MS700i Series of high
performance fixed projection scanners. By projecting an omnidirectional pattern
at high speeds, the MS700 is capable of reading bar codes in different
orientations and angles. The product is sold for use in applications requiring
high-speed, high-volume scanning, such as grocery stores, magazine distribution
and processing centers and discount warehouses. Since 1985, the Company has
offered in-counter Slot scanners. Since 1991, the Company has offered the MS860
Mini-Slot(R) scanner for use in supermarkets. The MS860 can be mounted easily
into countertops and integrated into scales for high-volume in-counter scanning
applications.
Original Equipment Manufacturer (OEM) Scanners
Since March 1999, the Company has offered the IS6520 Cubit line of
omnidirectional bar code scanning engines. This product is used in OEM
applications such as time/attendance, kiosks, price-lookup and reverse vending.
The scanner was designed with a high-speed automatic scanning system in a
small, easy-to-mount housing.
Since August 1994, the Company has offered the IS4120 ScanQuest(R) single-line
scan engine. The IS4120 is enclosed in a small metal housing that protects the
optical and electronic components that are typically exposed in competitive
type offerings. The product is equipped with a patented automatic trigger and
is used in applications such as mass-storage devices, kiosks, blood analyzation
devices and as the scanning component of a bar code scanner.
Industrial Scanners
Since February 2001, the Company has offered its iQ high-speed camera-based
industrial imaging systems, which are the predominant systems sought by
companies in the parcel postal handling industries. The iQ180 is an all-in-one
information acquisition system that offers linear and two-dimensional bar code
reading, OCR-compatible image lift, parcel dimensioning, and speed detection in
a single, self-contained unit. Applications include revenue recovery,
transportation logistics and route planning.
Since 1996, the Company has offered its HoloTrak(R) line of holographic
scanners, which utilize Metrologic's proprietary holographic technology,
offering increased scanning performance at a more affordable price than similar
fixed industrial-use omnidirectional scanners. HoloTrak's many different models
are used by manufacturers, distribution centers and parcel handling companies
to track work-in-process, assist with truckload planning and perform a variety
of related applications. The HoloTrak family contains the IS8000 Series for
walk-under and moderate speed conveyor applications and the C Series for
high-speed, high volume conveyor applications, in addition to fully automated
scanning tunnels that offer optional weighing, dimensioning and parcel tracking
capabilities.
Since 1991, the Company has offered its TECH Series of close-range industrial
scanners. Designed to withstand the rigors associated with equipment used in
industrial environments, and capable of being mounted in any orientation, TECH
Series scanners are generally used in conveyor belt or other industrial
applications requiring automated scanning capability. There are three models,
each offering a different depth-of-field.
Portable Data Terminal
Since September 2001, the Company has marketed ScanPal(R)2 a high performance,
entry level, batch portable data terminal (PDT) with integrated bar code
scanner. ScanPal 2 is suited for a diverse range of applications such as
inventory/stock control, parts tracking, shipping/receiving, and price
checking. Markets including retail, healthcare, manufacturing, and warehousing
are among those typically using PDT's.
Price Verifier
Since November 2001, the Company has offered the ScanVue(R) that brings
full-color graphical advertising and customer entertainment to an automated
in-store price check system. ScanVue has features such as a bright color LCD
screen, accurate price verification, a variety of mounting options and
customization options. The ScanVue provides the retailer with an opportunity to
increase consumer spending while at the same time receive revenue from
suppliers by charging for advertising space. ScanVue is appropriate for any
retail application including department stores, specialty stores, supermarkets,
home improvement centers and automotive stores.
Adaptive Optics Associates Product Line
AOA's capabilities are organized into two distinct strategic initiatives of
Industrial Scanning Systems and Optical Systems. Leadership responsibility for
these entities is based at Adaptive Optics Associates, in Cambridge, MA.
Industrial Scanning Systems includes the industrial products and systems,
including the HoloTrak holographic laser scanners, that were previously
organized, developed, marketed and sold by Metrologic prior to the acquisition
of AOA. Certain of the development and sales efforts will remain at the
Blackwood, NJ facility under the direction of AOA.
Industrial Scanning Systems
Since 1994, Industrial Scanning has provided custom designed products and
worldwide field service for specialized scanning, dimensioning, and sortation
control systems to Industrial Scanning customers.
Since February 2001, the Company has offered its iQ high-speed camera-based
industrial imaging systems. Imaging systems are rapidly becoming the
predominant systems sought by companies in the industrial parcel and postal
handling industries. The iQ180 is an all-in-one information acquisition system
that offers linear and two dimensional bar code reading, OCR-compatible image
lift, parcel dimensioning, and speed detection in a single, self-contained
unit. Applications include revenue recovery, transportation logistics, and
route planning.
Since 1996, the Company has offered its HoloTrak line of holographic scanners,
which utilizes Metrologic's proprietary holographic technology, offering
increased scanning performance at a more affordable price than similar fixed
industrial-use omnidirectional scanners. HoloTrak's many different models are
used by manufacturers, distribution centers, and parcel handling companies to
track work-in-process, assist with truckload planning, and perform a variety of
related applications. The HoloTrak family contains the IS8000 Series for
walk-under and moderate speed conveyor applications and the C Series for
high-speed, high volume conveyor applications, in addition to fully automated
scanning tunnels that offer optional weighing, dimensioning, and parcel
tracking capabilities.
Since 1991, the Company has offered its TECH Series of close-range scanners.
Designed to withstand the rigors associated with equipment used in industrial
environments, and capable of being mounted in any orientation, TECH Series
scanners are generally used in conveyor belt or other industrial applications
requiring automated scanning capability. There are three models, each offering
a different depth-of-field.
Optical Systems
Since 1998, Optical Systems has offered the Wavescope(R) wave front sensing
product line. Wavescope is a product used to measure optical aberrations and
has applications in atmospheric adaptive optics, retinal imaging, and laser
communications. There are various versions depending on the application.
Since 1990, Optical Systems has offered Monolithic Lenslet Modules (MLM),
arrays of micro lenses, with applications in atmospheric adaptive optics,
retinal imaging, and laser communications. Various MLMs are offered including
standard models as well as custom designed versions.
Since 1996, Optical Systems has provided laser beam delivery systems dedicated
to the high quality transport and conditioning of light from its laser source
to its ultimate destination at a tool. These beam delivery systems are custom
designed according to a variety of specifications including wavelength.
Since 1998, Optical Systems has provided opto mechanical and electro-optical
design and production services for specialized systems that have both
government and commercial applications and include tactical missile defense,
fiber communications, metrology, atmospheric adaptive optics, retinal imaging,
and laser communications.
Research and Product Development
The Company conducts its own engineering programs for the purposes of
developing new products, developing derivations of existing products, improving
its existing products' reliability, ergonomics, and performance and reducing
material, manufacturing and support costs. The Company is engaged in continuous
development programs in the areas of optics, holography, electronic imaging,
image processing, electronics, software, mechanics and automated manufacturing
methods.
The Company's research and development organization is made up of Advanced
Development, New Product Development and Optical Systems R&D.
During 2001, the Company continued to refine the roles and organizations of
Advanced Development and New Product Development and separated the management
of the respective personnel. Advanced Development is responsible for driving
technological breakthroughs and working on technologies, products and processes
not already marketed by the company. New Product Development is responsible for
the structured engineering and development required for timely introduction of
new products to the market.
Advanced Development efforts for the year 2001 were focused on the development
of vision-based technologies for the iQ series of products, advancing and
miniaturizing iQ laser illumination for use in products beyond iQ180, upgrading
technology in existing products and cost reductions.
New Product Development efforts for the year 2001 were focused in the following
areas: product introductions including the MS5145 Eclipse, MS7220 ArgusScan,
MS6520 Cubit enhancements, USB interface converter, QTrace(TM) parcel
dimensioner, QTroller(TM) industrial command center and iQ180 3D image
acquisition system; Metrologic's point-of-sale bar code scanners' support of
Checkpoint's(R) Electronic Article Surveillance system.
Optical Systems R&D efforts for the year 2001 were focused on new software
release for Wavescope adding additional user capability; and manufacturability
improvements for the laser Beam Delivery System.
During 2001, 2000, and 1999, the Company incurred expenses of approximately
$6.5 million, $5.0 million, and $4.3 million, respectively, on costs associated
with research and development.
Sales and Marketing
The Company sells its products through distributors, value-added resellers
("VARs"), original equipment manufacturers ("OEMs") and directly to end-users
located throughout the world. The Company also utilizes its subsidiaries and
affiliates to sell, distribute and service its products throughout major
markets of the world. Metrologic Instruments GmbH, a wholly owned subsidiary
located near Munich, Germany, provides sales, distribution and service to the
Company's European customers.
During 2001, the Company worked on strategies and logistics to relocate
Metrologic's offices in Brazil and Singapore. These facilities will be newer,
larger, and have the capability to expand Metrologic's manufacturing capacity.
In March 1998, the Company completed a joint venture agreement providing for a
51% equity interest in Metrologic do Brasil Ltda., located in Sao Paulo,
Brazil. Metrologic do Brasil Ltda. provides sales, distribution and service for
the Company's Brazilian customer base. Metrologic Instruments, South America
was relocated to Sao Paulo, Brazil in 1999 and remains the exclusive sales
office for the Company's South American customers outside of Brazil.
In July 1997, the Company established Metrologic Asia (Pte) Ltd., a
wholly-owned subsidiary located in Singapore which provides sales, distribution
and service to develop and support the Company's growing Asian customer base.
In November 1998, the Company established Metrologic Instruments Italia, S.r.l.
to serve the Italian market. In February 1999, the Company established an
engineering and manufacturing facility, Metro (Suzhou) Technologies Co., Ltd.,
located near Shanghai, China.
In January 2000, the Company completed a joint venture agreement providing for
a 51% equity interest in Metrologic Eria Iberica SL, ("MEI") located in Madrid,
Spain, to exclusively serve the Iberian market. In March 2002, MEI received a
notice from the minority shareholders of their intent to sell their collective
49% interest in MEI. Under the Shareholder's Agreement, the majority
shareholder has a 12-month period in which to find a buyer or negotiate a
purchase price for the 49% interest, with a default minimum.
In February 2000, the Company established Metrologic Instruments UK Limited to
better serve the northern European territories of the UK, Scandinavia and
Benelux.
In July 2000, the Company completed a joint venture agreement providing for a
51% equity interest in Metrologic Eria France SA, located in Roissy, France,
just outside of Paris to exclusively serve the French market.
On December 22, 2000, Metrologic initiated the acquisition of Adaptive Optics
Associates, Inc. (AOA); the acquisition was completed on January 8, 2001.
In January 2001, the Company established a sales, service and distribution
office, Metrologic Japan Co., Ltd., in Tokyo, Japan. The Japanese office,
working with Metrologic's Singapore office and Chinese facility, provides
customers throughout Asia with rapid responses to questions, prompt delivery of
products, and on-site customer service.
The Company has continued to strengthen its focus to better support sales to
distributors and resellers, sales to OEM's, and sales of holographic industrial
scanners including pre-sales application testing and support.
The Company has contractual relationships with numerous distributors and
dealers and a limited number of OEMs, VARs and end-users. OEMs purchase the
Company's products, incorporate them into their systems and sell them under
their own names. VARs purchase the Company's products and other peripheral
components needed for specific applications and sell them directly to
end-users. By utilizing multiple distribution channels, the Company has been
able to expand its market presence, broaden its distribution network and sell
to industries other than those serviced by the Company's direct sales force.
The following table sets forth certain information as to the Company's sales by
geographical location: (amounts in thousands)
Year Ended December 31,
--------------------------------
2001 2000 1999
---- ---- ----
North America $26,505 $36,716 $33,698
AOA 24,259 - -
Europe 46,990 36,436 33,906
Rest of World 15,934 18,732 12,499
-------- ------- -------
Total $113,688 $91,884 $80,103
======== ======= =======
Most of the Company's product sales in Western Europe, Brazil and Asia are
billed in foreign currencies and are subject to currency exchange rate
fluctuations. A significant percentage of the Company's products are
manufactured in the Company's U.S. facility in 2001, and therefore, sales and
results of operations are affected by fluctuations in the value of the U.S.
dollar relative to foreign currencies. In addition, manufacture of the
Company's POS products in its Suzhou, China facility is expected to increase in
2002, which will partially mitigate the profit impact of foreign exchange rate
fluctuation with reduced labor costs in the Company's POS scanners.
Accordingly, in 2001 and 2000, sales and gross profit were adversely affected
by the continuing rise in the value of the U.S. dollar in relation to foreign
currencies.
Backlog
As of December 31, 2001, the Company had approximately $9.1 million in backlog
orders. All such backlog orders are anticipated to be filled prior to December
31, 2002. As of December 31, 2000, the Company had approximately $3.3 million
in backlog orders, of which substantially all were filled during the 2001
fiscal year.
The Company performs ongoing credit evaluations of its customers' financial
condition, and except where risk warrants, requires no collateral. The Company
may, however, require letters of credit or prepayment terms for those customers
in lesser-developed countries.
Competition
The bar code scanning industry is highly competitive. The Company's scanners
compete primarily with those produced by US manufacturers Accu-Sort Systems,
Inc., Microscan Systems, Inc., NCR Corporation, PSC, Inc., Symbol Technologies,
Inc., Intermec (Unova), Hand Held Products, Inc. (a Welch Allyn affiliate);
European manufacturers Datalogic, Inc. located in Italy, Sick AG and Vitronics
located in Germany; and Asian manufacturers Nippondenso ID Systems, Opticon,
Inc., Densei and many others. While many of the Company's competitors are
larger and have greater financial, technical, marketing and other resources
than the Company, the Company believes that it competes on the basis of price,
quality, value, service and product performance.
Patent, Copyright and Trademark Matters
The Company files domestic and foreign patent applications to protect its
technological position and new product development. The Company currently has
133 issued U.S. patents, which expire between 2003 and 2017, and 27 foreign
patents, which expire between 2005 and 2015. In addition, the Company has filed
additional patent applications with the U.S. Patent and Trademark Office and
foreign patent offices with respect to products and improvements developed by
the Company. The Company owns U.S. trademark registrations covering
Metrologic(R), Bits 'n' Pieces(R), Codegate(R), Concert(R), Cubit(R),
HandSet(R), HoloTrak(R), HoloSet(R), HoloTunnel(R), Mini-Slot(R), MetrOPOS(R),
MetroSelect(R), MetroSet(R), Liberty(R), Orbit(R), OmniQuest(R), Penta(R),
Pulsar(R), ScanGlove(R), ScanKey(R), ScanPal(R), ScanQuest(R), ScanSet(R), Tech
7(R), Tech 8(R), Tech 10(R), VarSide(R) and Voyager(R). The Company also has
several registered trademarks in foreign countries. The Company has filed
additional trademark and service mark applications including ArgusScan(TM),
Horizon(TM), InVista(TM), iQ(TM), QTrace(TM), QTrak(TM), QTroller(TM),
SensiTrak(TM), SimulTrak(TM), Stratos(TM), and VoyagerCG(TM) for other marks it
is using both in the United States and abroad. The Company intends to continue
to file applications for U.S. and foreign patents and trademarks. Although
management believes that its patents provide some competitive advantage and
market protection, the Company relies primarily upon its proprietary know-how,
innovative skills, technical competence and marketing abilities for its
success.
The Company regards its software as proprietary and attempts to safeguard it
with protection under copyright and trade secret law and nondisclosure
agreements. Despite this protection, it may be possible for competitors or
users to copy aspects of the Company's products or to obtain information which
the Company regards as trade secrets. Computer software generally has not been
patented and existing copyright laws afford only limited practical protection.
The laws of foreign countries generally do not protect the Company's
proprietary rights in its products to the same extent as the laws of the United
States. In addition, the Company may experience more difficulty in enforcing
its proprietary rights in certain foreign jurisdictions.
In December 1996, the Company and Symbol Technologies, Inc. ("Symbol") executed
an extensive cross-license of patents (the "Symbol Agreement") for which the
Company and Symbol pay royalties to each other under certain circumstances
effective January 1, 1996. In connection with the Symbol Agreement, the Company
paid Symbol an advance license fee of $1 million in December 1996 and another
$1 million in quarterly installments of $125,000 over the subsequent two years
ended November, 1998.
In December 1998, the Company and Symbol amended the Symbol Agreement to
provide for the purchase of the Company's HoloTrak industrial holographic
scanners for resale by Symbol under Symbol's brand label. This replaces a prior
commitment of Symbol under the Symbol Agreement to purchase the Company's
products.
In April 1999, the Company and Symbol executed a second amendment to the Symbol
Agreement to provide for additional patent licenses for some of its existing
products.
On November 1, 1999, the Company and Symbol signed a third amendment to the
Symbol Agreement. Under the terms of the amended agreement, the Company
obtained a royalty-bearing license for certain of its new products under
Symbol's laser scanning patents, and Symbol obtained a royalty-bearing license
for its products under certain of the Company's patents. Under the terms of the
amendment, both parties will make recurring periodic royalty payments to each
other, effective on the date of signing the third amendment.
In connection with the settlement of a December 1993 patent lawsuit with
Symbol, the Company agreed to make payments to Symbol through December 2004. As
a result of the patent lawsuit, the Company redesigned its hand-held scanners
to convert them from a triggered version to a triggerless version. In
connection with the Symbol Agreement, Symbol and the Company amended the
December 1993 settlement to reduce the maximum aggregate amount payable
thereunder by the Company from $7.5 million to approximately $5.1 million. The
final payment in connection with the settlement was made in August 1999. For
additional information concerning the settlement, see Note 9 of the Notes to
Consolidated Financial Statements.
The parties have been discussing further amendments to the Symbol Agreement
which would cover current and future products of the Company and Symbol. During
these discussions, the Company had elected to make certain royalty payments
with respect to certain of its new products based on a provisional
understanding between the parties, however, at this point the parties have not
reached any agreement to further amend the Symbol Agreement. The parties have
continued their discussions, but in the event that the parties are unable to
reach a compromise to amend the Symbol Agreement, the parties have provided
each other with notice of termination under the Symbol Agreement. The Company
received notice that on April 12, 2002, Symbol filed a lawsuit in connection
with the termination notices. At this time, the Company has not been served
with the complaint, however, the Company believes that the claims set forth in
the suit are without merit and intends to vigorously defend against the suit if
it is served.
Manufacturing and Suppliers
The Company manufactures its products at its Blackwood and Thorofare, New
Jersey and Suzhou, China facilities. The manufacturing facilities are
vertically integrated enabling the Company to quickly adapt and enhance its
products and services to meet specific customer requirements. This capability
reduces the length of its new product development cycle, speeds the integration
of new products into manufacturing, and reduces the overall value stream time.
Product quality assurance is achieved by sound product designs, by extensive
final and in-process testing, and by an experienced workforce.
The Company has invested and will continue to invest in capital production
equipment and tooling that will automate production, increase capacity and
reduce direct labor costs.
Currently, the Company relies on a limited number of suppliers for several
components used in the manufacture of its products. The Company does not
believe that the loss of any one supplier would have a long term adverse effect
on its business, although set-up costs and delays would likely result if the
Company were required to change any single supplier without adequate prior
notice.
Government Regulations
The Company and its products are subject to regulation by various agencies both
in the United States and in the countries in which its products are sold. The
Food & Drug Administration's Center for Devices and Radiological Health
regulates laser safety in the United States, and in Canada, laser safety is
regulated by Industry Canada. In addition, the Occupational Safety and Health
Administration and various state and municipal government agencies have
promulgated regulations concerning working condition safety standards in
connection with the use of lasers in the workplace. Radio emissions are the
subject of governmental regulation in all countries in which the Company
currently sells its products. The Company also submits its products for safety
certification throughout the world by recognized testing laboratories such as
the Underwriters Laboratories, Inc. and the Canadian Standards Association.
The European countries in which the Company's products are sold also have
standards concerning electrical and laser safety and electromagnetic
compatibility and emissions. The Company's products comply with the European
standards regarding electromagnetic compatibility, allowing these products to
bear the CE mark.
The Company believes that it is currently in compliance with all of the
regulations to which it and its products are subject. There can be no
assurance, however, that governmental agencies will not require the Company to
modify its products or working conditions and, if so required, that the Company
would be able to make such modifications. Failure by the Company to comply with
any regulation or standard could have a material adverse effect on the Company.
Employees
As of April 12, 2002, the Company had approximately 919 full-time employees
worldwide. None of the Company's employees are represented by a labor union.
Management believes that its relationships with its employees are good.
Item 2. Properties
Since 1990, the Company's executive offices and manufacturing facilities have
been located in Blackwood, New Jersey and leased by the Company from C. Harry
Knowles, Chairman of the Board and Chief Executive Officer of the Company, and
Janet H. Knowles, Vice President, Administration, Secretary and Treasurer of
the Company. Under a lease agreement entered into on April 1, 1994, the Company
leased the building for a term of five years and has renewed the lease for an
additional five-year term. The building is approximately 113,000 square feet
and is being leased from Mr. and Mrs. Knowles pursuant to the terms of the
April 1, 1994 lease. The total lease rate as of April 1, 2001 is approximately
$76,500 per month and increases annually at a rate of 4.5%, excluding taxes and
insurance.
The Company's subsidiaries each lease office space from third parties. AOA's
future minimum lease payments required under its lease agreement as of December
31, 2001 are $1,380 in 2002, $1,363 in 2003, $1,394 in 2004, $1,386 in 2005,
$1,362 in 2006 and $4,831 thereafter.
Item 3. Legal Proceedings
The Company is currently involved in matters of litigation arising from the
normal course of business including matters described below. Management is of
the opinion that such litigation either individually or in the aggregate will
not have a material adverse effect on the Company's consolidated financial
position or results of operations.
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 a litigation against the Lemelson Medical, Educational, & Research
Foundation, Limited Partnership (the "Lemelson Partnership"). The suit, which
is entitled Symbol Technologies, Inc. et. al. v. Lemelson Medical, Educational
& Research Foundation, Limited Partnerships, was commenced in the U.S. District
Court, District of Nevada in Reno, Nevada. In the litigation, the Auto ID
companies seek, among other remedies, a declaration that certain patents, which
have been asserted by the Lemelson Partnership against end users of bar code
equipment, are invalid, unenforceable and not infringed. The other six Auto ID
companies who are plaintiffs in the lawsuit are Accu-Sort Systems, Inc.,
Intermec Technologies Corporation, a wholly-owned subsidiary of UNOVA, Inc.,
PSC Inc., Symbol Technologies, Inc., Teklogix Corporation, a wholly-owned U.S.
subsidiary of Teklogix International, Inc., and Zebra Technologies Corporation.
Symbol Technologies, Inc. has agreed to bear approximately half of the legal
and related expenses associated with the litigation, with the remaining portion
being borne by the Company and the other Auto ID companies.
Although no claim had been asserted by the Lemelson Partnership directly
against the Company or, to our knowledge, any other Auto ID company, the
Lemelson Partnership has contacted many of the Auto ID companies' customers
demanding a one-time license fee for certain so-called "bar code" patents
transferred to the Lemelson Partnership by the late Jerome H. Lemelson. The
Company and the other Auto ID companies have received many requests from their
customers asking that they undertake the defense of these claims using their
knowledge of the technology at issue. Certain of these customers have requested
indemnification against the Lemelson Partnership's claims from the Company and
the other Auto ID companies, individually and/or collectively with other
equipment suppliers. The Company, and to the Company's knowledge, the other
Auto ID companies, believe that generally they have no obligation to indemnify
their customers against these claims and that the patents being asserted by the
Lemelson Partnership against Auto ID companies customers with respect to bar
code equipment are invalid, unenforceable and not infringed. However, the
Company and the other Auto ID companies believe that the Lemelson claims do
concern the Auto ID industry at large and that it is appropriate for them to
act jointly to protect their customers against what they believe to be baseless
claims being asserted by the Lemelson Partnership.
In response to the action commenced by the Company and the other plaintiffs,
the Lemelson Partnership filed a motion to dismiss the lawsuit, or
alternatively, to stay the proceedings pending the outcome of other litigation
or transfer the case in its entirety to the U.S. District Court for Arizona
where several infringement suits filed by the Lemelson Partnership are pending
against other companies. The Lemelson Partnership has stated that the primary
grounds for its motion to dismiss are the lack of a legally justifiable case or
controversy between the parties because (1) the method claims asserted by the
Lemelson Partnership apply only to the "use" of bar code equipment by the
end-users and not the bar code equipment itself, and (2) the Lemelson
Partnership has never asserted claims of infringement against the Auto ID
companies.
On March 15, 2000, Judge Pro of the U.S. District Court for the District of
Nevada issued a ruling denying the Lemelson Foundation's motion (a) to dismiss
the lawsuit for lack of a legally justifiable case or controversy and (b)
transfer the case to the U.S. District Court for the District of Arizona.
However the Court granted the Lemelson Partnership's motion to dismiss our
claim that the patents are invalid due to laches in prosecution of the patents.
The court also ordered the action consolidated with an action against the
Lemelson Partnership brought by Cognex Corp. pending in the same court.
On March 30, 2000, the Lemelson Partnership filed a motion (a) to appoint a
permanent magistrate judge to the case and remove Magistrate Judge Atkins and
(b) to transfer the case from the court in Reno, Nevada, where it is currently
assigned to a court in Las Vegas, Nevada. The Auto ID Companies filed papers
opposing both motions. On April 10, 2000, Judge Pro again ruled against the
Lemelson Partnership on both motions.
On April 12, 2000, the Lemelson Partnership filed its Answer to the Complaint
in the Symbol et al. v. Lemelson Partnership case. In the Answer, the Lemelson
Partnership included a counterclaim against the Company and the other
plaintiffs seeking a dismissal of the case. Alternatively, the Lemelson
Partnership's counterclaim seeks a declaration that the Company and the other
plaintiffs have contributed to, or induced infringement of particular method
claims of the patents-in-suit by the plaintiffs' customers. The Company
believes there is no merit to the Lemelson Partnership's counterclaim.
On May 10, 2000, the Lemelson Partnership filed a second motion with the Court
to stay the Auto ID action pending the resolution of United States Metals
Refining Co. ("US Metals") v. Lemelson Medical, Education & Research
Foundation, LP et al., an action in Nevada state court wherein the plaintiff is
challenging the Lemelson Partnership's ownership of the patents at issue in the
Auto ID action. The Auto ID companies opposed the motion. Although the Court
has not yet ruled on this motion, the Nevada state court dismissed the
complaint of US Metals on July 5, 2000.
On May 15, 2000, the Auto ID companies filed a motion seeking permission to
file an interlocutory appeal of the Court's decision to strike the fourth count
of the complaint, which alleged that the Lemelson Partnership's delays in
obtaining its patents rendered them unenforceable for laches. The motion was
granted by the Court on July 14, 2000. On September 1, 2000 the United States
Court of Appeals for the Federal Circuit (the "CAFC") agreed to hear the
appeal. Oral argument on this issue was heard by the CAFC on October 4, 2001.
On January 24, 2002, the CAFC reversed the decision by the lower court and
confirmed the continued existence of the prosecution laches defense. In
response, the Lemelson Partnership filed a Petition for Rehearing En Banc with
the CAFC on February 6, 2002, and the Auto ID companies filed a response to the
petition on February 22, 2002. The Petition was denied by the CAFC on March 20,
2002.
On July 24, 2000, the Auto ID companies filed a motion for partial summary
judgment arguing that almost all of the claims of the Lemelson Partnership's
patents are invalid for lack of written description. On October 25, 2000, the
Lemelson Partnership filed its opposition to the above motion and also filed a
motion for partial summary judgment that many of the claims of the Lemelson
Partnership's patents satisfy the written description requirement. On July 12,
2001, the District Court denied the motions of both the Auto ID companies and
the Lemelson Partnership, holding that there are genuine issues regarding
material facts which preclude the granting of summary judgment for either
party.
On May 14, 2001, the Auto ID companies and Cognex Corp. filed a motion for
partial summary judgment arguing patent unenforceability due to inequitable
conduct on the part of Lemelson in his dealings before the United States Patent
and Trademark Office in obtaining the patents in suit. On June 19, 2001, the
Lemelson Partnership filed its opposition to the motion as well as a
cross-motion for summary judgment that no inequitable conduct occurred. A
hearing on this motion was held on November 9, 2001. In its decision, the
District Court denied the motions of both the Auto ID companies and the
Lemelson Partnership, holding that there are genuine issues regarding material
facts which preclude the granting of summary judgment for either party.
On July 25, 2001 the Court entered an order setting a schedule that concludes
with a trial date set for August 2002.
On August 1, 2001, the Auto ID companies filed another motion for partial
summary judgment arguing that the Lemelson Partnership is not entitled, as a
matter of law, to rely on a now-abandoned Lemelson patent application filed in
1954 to provide a filing date or disclosure for the claims of the
patents-in-suit. Oral argument on the motion was heard on November 9, 2001.
Again the District Court denied the motion of the Auto ID companies, holding
that there are genuine issues regarding material facts which preclude the
granting of summary judgment for either party.
B. Metrologic v. PSC Inc.
On October 13, 1999, the Company filed suit for patent infringement against PSC
Inc. (PSC) in United States District Court for the District of New Jersey. The
complaint asserts that at least seven of the Company's patents are infringed by
a variety of point-of-sale bar code scanner products manufactured and sold by
PSC. The patents cited in the complaint cover a broad range of bar code
scanning technologies important to scanning in a retail environment including
the configuration and structure of various optical components, scanner
functionalities and shared decoding architecture. The complaint seeks monetary
damages as well as a permanent injunction to prevent future sales of the
infringing products.
On December 22, 1999, PSC filed an answer to the complaint citing a variety of
affirmative defenses to the allegations of infringement asserted by the Company
in its complaint. PSC additionally asserted a counterclaim under the Lanham Act
claiming that the Company made false and misleading statements in its October
13, 1999 press release regarding the patent infringement suit against PSC. The
Company does not believe that this counterclaim has any merit.
The court ordered the case to mediation, and discovery was stayed pending the
outcome of the mediation. The mediation was terminated by the parties with no
result having been reached and the stay on discovery has been lifted by the
court. The case is now in the final stages of discovery. On February 28, 2002,
the court set a date for a Markman hearing in June 2002.
Management is of the opinion that there are no legal claims against the Company
which would have a material adverse effect on the Company's consolidated
financial position or results of operations.
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 April 15, 2002 are as follows:
Name Age Position
- ---------------- --- -------------------------------------------------
C. Harry Knowles* 73 Chairman of the Board and Chief Executive Officer
Janet H. Knowles* 60 Director, Vice President, Administration, Secretary
and Treasurer
Thomas E. Mills IV 42 Director, President, Chief Operating Officer, and
Chief Financial Officer
Dale M. Fischer 61 Vice President, International Sales
Benny A. Noens 55 Vice President, European Sales, and Managing
Director, Metrologic Instruments GmbH
John L. Patton 56 Director, Human Resources
Joseph Sawitsky 39 Vice President, Manufacturing
Mark C. Schmidt 31 Vice President, Marketing
Nancy A. Smith 35 Vice President, General Counsel
Jeffrey Yorsz 44 Vice President, Industrial Systems
- -----------------------------------
* Mr. and Mrs. Knowles are husband and wife.
The Company's executive officers are elected annually by the Board of Directors
following the annual meeting of shareholders and serve at the discretion of the
Board of Directors.
C. Harry Knowles is the founder of the Company and has been Chairman of the
Board of Directors since the Company's inception in 1969. Mr. Knowles served as
President of the Company from its inception through 1982 and from 1985 until
1999. He has served as Chief Executive Officer since 1985. In addition, Mr.
Knowles served as chief technical officer with responsibility for all of the
Company's research and development activities from 1982 to 1985. Since 1988,
Mr. Knowles has also served as a Managing Director of Metrologic Instruments
GmbH. Prior to founding the Company, Mr. Knowles was the general manager of
Westinghouse Electric Corporation's integrated circuits division in Elkridge,
Maryland.
Janet H. Knowles was a director of the Company from 1972 to 1984 and has served
as a director since 1986. Mrs. Knowles served as Vice President, Administration
from 1976 to 1983 and has served in that capacity and as Secretary since 1984,
and as Treasurer since 1994. Mrs. Knowles is responsible for the Company's
administrative matters.
Thomas E. Mills IV, became President of the Company on February 9, 2000, a
director of the Company effective March 25, 1999, and has served as the
Company's Executive Vice President and Chief Operating Officer since April
1999, as the Company's Vice President, Finance since June 1995 and as Chief
Financial Officer since May 1994. Mr. Mills was employed by Ferranti
International, Inc. from 1986 to April 1994 in various positions, most recently
as Senior Vice President, U.S. Operations.
Dale M. Fischer served as the Company's Director of International Marketing and
Sales from 1990 to 1993 and has served as Vice President, International Sales
since 1994. From 1989 to 1990, Mr. Fischer was Chairman of Great Valley
Corporation, a worldwide marketing and product development company. From 1967
until 1988, Mr. Fischer held several positions with TRW Electronics Component
Group ("TRW"), most recently as International Marketing, Sales and Licensing
Director. Mr. Fischer was responsible for marketing and sales of TRW products
in more than 50 countries and was responsible for the implementation of a joint
venture in Japan and the establishment of seven technology and manufacturing
licenses throughout the world. Mr. Fischer has also served as President of
Dalex International Corporation, a company devoted to export/import and
worldwide market development.
Benny A. Noens served as the Company's European Sales Manager from 1991 to 1993
and has served as Vice President, European Sales since 1994. In addition, Mr.
Noens has been Managing Director of Metrologic Instruments GmbH since 1994.
From 1980 until 1991, Mr. Noens held several positions with Data General
Corporation, including serving in Latin America as Marketing and Distribution
Manager. Prior to his employment at Data General, Mr. Noens managed a division
of C.T. Janer Co., an import/export company located in Rio de Janiero, Brazil.
John L. Patton served as the Company's Human Resources Manager from 1993 to
1996 and has served as Director, Human Resources since December 1996. From 1988
to 1993, he was employed as a Human Resources Consultant with the Gordon Wahls
Company and from 1984 to 1988, he was employed as Human Resources Manager at
TRW, IRC Division. From 1979 to 1984 he held the position of Personnel Manager
at Oral B Laboratories.
Joseph Sawitsky has served as the Company's Vice President, Manufacturing since
November 1999. He joined Metrologic in 1998 as the Production Manager. After
serving in the Nuclear Submarine Force, he worked at ICI Composites from 1990
to 1994 and manufactured specialty polymer materials for the aerospace and
industrial markets. From 1994 to 1998 he held several positions with Zenith
Electronic Corporation making consumer electronic equipment.
Mark C. Schmidt has served as the Company's Vice President, Marketing since
November 1999. He has been employed by Metrologic since 1992, most recently in
the position of Marketing Manager. During his tenure, Mr. Schmidt has
progressed from Optical Engineer to the position of POS Product Manager in
1995, and Marketing Manager in 1997. Mr. Schmidt earned a B.S. from Rowan
University where he graduated summa cum laude in 1993.
Nancy A. Smith has served as the Company's Corporate Counsel and patent
attorney since 1996. Ms. Smith now serves as the Company's Vice President,
General Counsel. Prior to joining Metrologic, Ms. Smith was employed as a
patent attorney for a private law firm in Baltimore, Maryland. Ms. Smith earned
her law degree from the University of Baltimore, where she graduated magna cum
laude in 1994.
Jeffrey Yorsz has served as the Vice President, Industrial Systems since March
2002. Mr. Yorsz also serves as President and General Manager of Adaptive Optics
Associates, Inc. , a wholly owned subsidiary of Metrologic Instruments, Inc.,
since its acquisition in January 2001. He joined AOA as an engineer in 1984 and
has held prior positions of Manager of Electrical Engineering and Assistant
General Manager of the company. Mr. Yorsz earned an E.E., B.S. and M.S. in
Electrical Engineering as well as a B.S. in Management, from M.I.T.
PART II
Item 5. Market for the Registrant's Common Equity and Related Shareholder
Matters
The common stock of the Company, par value $.01 per share ("Common Stock") is
traded on The NASDAQ Stock Market's National Market System under the symbol
"MTLG." The following table sets forth, for the indicated periods, the high and
low sales prices of the Company's Common Stock as reported by NASDAQ:
High Low
---- ----
January to March 2000 $ 19.00 $ 12.06
April to June 2000 $ 18.00 $ 13.63
July to September 2000 $ 17.50 $ 8.75
October to December 2000 $ 10.13 $ 5.06
January to March 2001 $ 11.63 $ 7.00
April to June 2001 $ 10.50 $ 7.95
July to September 2001 $ 10.20 $ 5.85
October to December 2001 $ 13.40 $ 6.00
On April 15, 2002 there were 150 shareholders of record of Common Stock.
The Company currently anticipates that it will retain all of its earnings to
finance the operation and expansion of its business. The Company has not paid
any cash dividends on our common stock during the past two years and does not
intend to do so in the future. Any determination to pay dividends is at the
discretion of the Company's Board of Directors and will depend upon the
Company's financial condition, results of operations, capital requirements,
limitations contained in loan agreements and such other factors as the Board of
Directors deems relevant.
Item 6. Selected Consolidated Financial Data
(in thousands except share and per share data)
Year Ended December 31,
1997 1998 1999 2000 2001
---- ---- ---- ---- ----
Statement of Operations Data:
Sales $ 53,495 $ 65,641 $ 80,103 $ 91,884 $ 113,688
Cost of sales 33,240 39,698 46,710 55,394 83,527
--------- -------- --------- --------- ---------
Gross profit 20,255 25,943 33,393 36,490 30,161
Selling, general and
administrative expenses 12,087 15,537 21,331 26,314 31,233
Research and development
expenses 3,359 4,157 4,327 4,975 6,563
Severance costs - - - 160 -
--------- -------- --------- --------- --------
Operating income (loss) 4,809 6,249 7,735 5,041 (7,635)
Other (expense) income,
net (156) 456 (202) (878) (4,917)
--------- -------- --------- --------- --------
Income (loss) before
provision (benefit)
for income taxes 4,653 6,705 7,533 4,163 (12,552)
Provision (benefit) for
income taxes 1,673 2,212 2,636 1,426 (4,775)
--------- -------- --------- --------- ---------
Net Income (loss) $ 2,980 $ 4,493 $ 4,897 $ 2,737 $ (7,777)
========= ======== ========= ========= =========
Basic earnings (loss) per
share
Weighted average shares
outstanding used in
computing basic EPS 5,330,596 5,391,797 5,412,564 5,438,553 5,457,806
========= ========= ========= ========= =========
Basic earnings (loss)
per share $ 0.56 $ 0.83 $ 0.90 $ 0.50 $ (1.42)
========= ========= ========= ========= =========
Diluted earnings (loss)
per share
Weighted average shares
outstanding used in
computing diluted EPS 5,447,277 5,512,758 5,460,194 5,557,992 5,457,806
========= ========= ========= ========= =========
Diluted earnings (loss)
per share $ 0.55 $ 0.82 $ 0.90 $ 0.49 $ (1.42)
======== ========= ========= ========= =========
Year Ended December 31,
1997 1998 1999 2000 2001
---- ---- ---- ---- ----
Balance Sheet Data:
Cash and cash equivalents $ 13,096 $ 10,684 $ 6,970 $ 2,332 $ 557
Working capital $ 18,599 $ 21,496 $ 23,659 $ 41,572 $ 2,355
Total assets $ 38,458 $ 46,296 $ 56,673 $ 81,823 $ 87,606
Long-term debt $ 1,496 $ 2,608 $ 3,414 $ 25,334 $ 11,135
Other long-term
obligations $ 1,329 $ 676 $ 588 $ 1,094 $ 1,508
Total liabilities $ 13,557 $ 16,295 $ 22,129 $ 46,060 $ 61,345
Common stock $ 54 $ 54 $ 54 $ 54 $ 55
Total shareholders'
equity $ 24,901 $ 30,001 $ 34,544 $ 35,763 $ 26,261
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
Metrologic Instruments, Inc. and its subsidiaries (collectively, the "Company")
design, manufacture and market bar code scanning and high-speed automated data
capture solutions using laser, holographic and vision-based technologies. The
Company offers expertise in 1D and 2D bar code reading, optical character
recognition, image lift, and parcel dimensioning and singulation detection for
customers in retail, commercial, manufacturing, transportation and logistics,
and postal and parcel delivery industries. Additionally, through its
wholly-owned subsidiary, Adaptive Optics Associates, Inc. ("AOA"), is engaged
in developing, manufacturing, marketing and distributing custom optical systems
which include precision laser beam delivery, high speed imaging control and
data processing, industrial inspection, and scanning and dimensioning systems
for the aerospace and defense industry in the United States and Canada. The
Company's products are sold in more than 100 countries worldwide through the
Company's sales, service and distribution offices located in North and South
America, Europe and Asia.
Forward Looking Statements; Certain Cautionary Language
Written and oral statements provided by the Company from time to time may
contain certain forward looking information, as that term is defined in the
Private Securities Litigation Reform Act of 1995 (the "Act") and in releases
made by the Securities and Exchange Commission ("SEC"). The cautionary
statements which follow are being made pursuant to the provisions of the Act
and with the intention of obtaining the benefits of the "safe harbor"
provisions of the Act. While the Company believes that the assumptions
underlying such forward looking information are reasonable based on present
conditions, forward looking statements made by the Company involve risks and
uncertainties and are not guarantees of future performance. Actual results may
differ materially from those in the Company's written or oral forward looking
statements as a result of various factors, including but not limited to, the
following:
The ability of the Company to refinance its credit facility and term loan on
acceptable terms; reliance on third party resellers, distributors and OEMs
which subject the Company to risks of business failure, credit and collections
exposure, and other business concentration risks; continued or increased
competitive pressure which could result in reduced selling prices of products
or increased sales and marketing promotion costs; a prolonged disruption of
scheduled deliveries from suppliers when alternative sources of supply are not
available to satisfy the Company's requirements for raw material and
components; continued or prolonged capacity constraints that may hinder the
Company's ability to deliver ordered product to customers; difficulties or
delays in the development, production, testing and marketing of products,
including, but not limited to, a failure to ship new products when anticipated,
failure of customers to accept these products when planned, any defects in
products or a failure of manufacturing efficiencies to develop as planned; the
costs of legal proceedings or assertions by or against the Company relating to
intellectual property rights and licenses, the Company's ability to
successfully negotiate and amend its licensing agreement with Symbol
Technologies; the Company's ability to successfully defend against challenges
to its patents; the ability of competitors to avoid infringement of the
Company's patents; the ability of the Company to develop products which avoid
infringement of third parties' patents; and adoption of new or changes in
accounting policies and practices; occurrences affecting the slope or speed of
decline of the life cycle of the Company's products, or affecting the Company's
ability to reduce product and other costs, and to increase productivity; the
impact of unusual items resulting from the Company's ongoing evaluation of its
business strategies, acquisitions, asset valuations and organizational
structures; the price and payment schedule the Company is able to negotiate for
the shares in its subsidiary, Metrologic Eria Iberica; the effects of and
changes in trade, monetary and fiscal policies, laws and the ability of the
Company to integrate AOA with other Company subsidiaries, and realize
anticipated impact on results of operations; the Company's ability to refinance
its debt with its banks, or successfully negotiate additional financing
arrangements; regulations and other activities of governments, agencies and
similar organizations, including but not limited to trade restrictions or
prohibitions, inflation, monetary fluctuations, import and other charges or
taxes, nationalizations and unstable governments; the future health of the U.S.
and international economies and other economic factors that directly or
indirectly affect the demand for the Company's products; foreign currency
exchange rate fluctuations between the U.S. Dollar and other major currencies
including, but not limited to, the Euro, Singapore Dollar, Brazilian Real, and
British Pound affecting the Company's results of operations; the economic
slowdown of foreign nations other than those using may also adversely affect
the Company's results of operations; issues that have not been anticipated in
the transition to the new European currency that may cause prolonged disruption
of the Company's business; and increased competition due to industry
consolidation or new entrants into the Company's existing markets.
All forward-looking statements included herein are based upon information
presently available, and the Company assumes no obligation to update any
forward-looking statements.
Critical Accounting Policies
The preparation of these financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period.
On an on-going basis, management evaluates its estimates and judgments,
including those related to revenue recognition, asset impairment, intangible
assets and derivative instrument valuation. Management bases its estimates and
judgments on historical experience and on various other factors that are
believed to be reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results
may differ from these estimates under different assumptions or conditions. Note
2 to the Company's consolidated financial statements "Accounting Policies"
summarizes each of its significant accounting policies. Management believes the
following critical accounting policies, among others, affect its more
significant judgments and estimates used in the preparation of its consolidated
financial statements.
Revenue Recognition. Revenue related to sales of the Company's products and
systems is generally recognized when products are shipped or services are
rendered, the title and risk of loss has passed to the customer, the sales
price is fixed or determinable, and collectibility is reasonably assured. The
Company accrues related product return reserves and warranty expenses at the
time of sale. Additionally, the Company records estimated reductions to revenue
and charges to sales, general and administrative expenses for customer programs
and incentive offerings including special pricing agreements, price protection,
promotions and other volume-based incentives. The Company recognizes revenue
and profit as work progresses on long term contracts using the percentage of
completion method, which relies on estimates of total expected contract revenue
and costs. Recognized revenues and profits are subject to revisions as the
contract progresses to completion. Revisions in profit estimates are charged to
income in the period in which the facts that give rise to the revision become
known.
Bad Debt. The Company maintains allowances for doubtful accounts for estimated
losses resulting from the inability of its customers to make required payments.
If the financial condition of the Company's customers were to deteriorate,
resulting in an impairment of their ability to make payments, additional
allowances may be required.
Inventory. The Company writes down its inventory for estimated obsolescence or
unmarketable inventory equal to the difference between the cost of the
inventory and the estimated market value 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.
Long-Lived Assets. The Company assesses the impairment of its long-lived
assets, including property, plant and equipment, identifiable intangible assets
and software development costs whenever events or changes in circumstances
indicate the carrying value may not be recoverable. Factors the Company
considers important which could trigger an impairment review include
significant changes in the manner of our use of the acquired asset, changes in
historical or projected operating performance and significant negative economic
trends.
Research and Development/Software Development Costs. The Company expenses all
research and development costs as incurred. Research and development expenses
may fluctuate due to the timing of expenditures for the varying states of
research and product development and the availability of capital resources. The
Company capitalizes costs incurred for internally developed product software
where economic and technological feasibility has been established and for
qualifying purchased product software. The Company assesses the recoverability
of its software development costs against estimated future revenue over the
remaining economic life of the software.
Results of Operations
Most of the Company's product sales in Western Europe, Brazil and Asia are
billed in foreign currencies and are subject to currency exchange rate
fluctuations. A significant percentage of the Company's products are
manufactured in the Company's U.S. facility in 2001, and therefore, sales and
results of operations are affected by fluctuations in the value of the U.S.
dollar relative to foreign currencies. In addition, manufacture of the
Company's POS products in its Suzhou, China facility is expected to increase in
2002, which will partially mitigate the profit impact of foreign exchange rate
fluctuation with reduced labor costs in the Company's POS scanners.
Accordingly, in 2001 and 2000, sales and gross profit were adversely affected
by the continuing rise in the value of the U.S. dollar in relation to foreign
currencies.
Year Ended December 31, 2001 Compared with Year Ended December 31, 2000
(amounts in thousands except per share information)
Sales increased 23.7% to $113,688 in 2001 from $91,884 in 2000, principally as
a result of the addition of sales of AOA. Sales in 2001 were adversely affected
by lower industrial scanner volume and by lower average unit selling prices on
certain POS products compared to the corresponding period in 2000, which were
mostly due to unfavorable foreign exchange fluctuations. The increase in the
value of the U.S. dollar relative to the euro negatively affected the recorded
U.S. dollar value of year-to-date European operation sales by approximately
3.3% and consolidated sales were affected by the increased value of the U.S.
dollar relative to other foreign currencies, namely the euro and Brazilian real
by approximately 2.6% as compared to 2000. In the first quarter of 2001, the
Company instituted a price increase in Europe to mitigate the unfavorable
foreign currency effect.
International sales accounted for $62,924 (55% of total sales) in 2001 and
$55,168 (60% of total sales) in 2000.
Three customers accounted for 6.7%, 5.6% and 5.0%, respectively, of the
Company's revenues in 2001. Two customers accounted for 7.7% and 5.2%,
respectively, of the Company's revenues in 2000.
Cost of sales increased 50.8% to $83,527 in 2001 from $55,394 in 2000, while
costs of sales as a percentage of sales increased to 73.5% from 60.3%. In
addition to the increased costs of sales associated with the acquisition of
AOA, cost of sales for 2001 included $10,040 of special charges and other costs
that are not expected to recur in subsequent years as follows: $4.5 million of
costs associated with products that are not anticipated to be included in the
prospective costs to manufacture similar products because of reductions in
material costs and manufacturing efficiencies; $3.5 million of similar costs
associated with a valuation charge taken on products included in inventory at
March 31, 2001 due to the related cost reductions noted above; $1.0 million of
costs associated with inventory deemed to be obsolete at March 31, 2001; and
$1.0 million of costs associated with the expensing of floor stock inventory
that had been previously capitalized by the Company. Further, cost of sales as
a percentage of sales during the year ended December 31, 2001 was negatively
impacted by lower average unit selling prices due substantially to the increase
in the value of the U.S. dollar relative to other foreign currencies as
compared to the corresponding period in 2000.
Selling, general and administrative ("SG&A") expenses increased 18.7% to
$31,233 in 2001 from $26,314 in 2000 and decreased as a percentage of sales to
27.5% from 28.6%. The increase in SG&A expenses was due primarily to the
addition of AOA expenses, increased legal costs associated with defending the
Company's patents and charges for uncollectible accounts receivable.
Research and development ("R&D") expenses increased 31.9% to $6,563 in 2001
from $4,975 in 2000, and increased as a percentage of sales to 5.8% from 5.4%.
The increase in R&D expenses is due primarily to the addition of AOA expenses.
Other income/expenses reflect net other expenses of $4,917 in 2001 compared to
$878 in 2000. Net other expenses for 2001 reflect higher net interest and
amortization expenses due to the acquisition of AOA and associated debt.
Net loss was $7,777 in 2001 compared with net income of $2,737 in 2000. Net
loss reflects a 38% effective income tax rate for 2001 compared to 34% for
2000. The increased effective income tax rate resulted from a higher effective
state tax rate of AOA. As a result of the net operating losses incurred in 2001
an income tax receivable of $4,600 has been recorded as a result of the net
operating losses to previous years in which the Company reported taxable
income. The increase in the value of the U.S. dollar relative to other foreign
currencies compared to 2000 negatively affected diluted earnings per share by
approximately $.22 per share.
Year Ended December 31, 2000 Compared with Year Ended December 31, 1999
(amounts in thousands except per share information)
Sales increased 14.7% to $91,884 in 2000 from $80,103 in 1999, principally as a
result of the continued increase in sales of the Company's point-of-sale
("POS") products and increased sales and marketing efforts. The increase in
sales volume in 2000 was offset by lower average unit selling prices on the
Company's POS products compared to the corresponding period in 1999, and
reflected unfavorable foreign currency exchange fluctuations. The increase in
the value of the U.S. dollar relative to other foreign currencies compared to
1999 negatively affected the recorded U.S. dollar value of European operation
sales by approximately 15.6% and consolidated sales by 13.4%.
International sales accounted for $55,168 (60% of total sales) in 2000 and
$46,405 (57.9% of total sales) in 1999. Two customers accounted for 7.7% and
5.2%, respectively, of the Company's revenues in 2000. Two customers accounted
for 5.9% and 5.1%, respectively, of the Company's revenues in 1999.
Cost of sales increased 18.6% to $55,394 in 2000 from $46,710 in 1999, while
costs of sales as a percentage of sales increased to 60.3% from 58.3%. The
increase in cost of sales as a percentage of sales was due primarily to lower
average unit selling prices primarily resulting from unfavorable foreign
exchange fluctuations as well as increased costs resulting from a limited
supply of electronic components purchased from vendors.
Selling, general and administrative expenses increased 23.4% to $26,314 in 2000
from $21,331 in 1999 and increased as a percentage of sales to 28.6% from
26.6%. The increase in SG&A expenses was due to: (i) increased marketing
efforts, which include costs associated with the Company's Concert(R) Program,
a business partner program used to market and promote the Company's products;
and (ii) expenses in connection with new European joint ventures.
Research and development expenses increased 15% to $4,975 in 2000 from $4,327
in 1999, and stayed the same as a percentage of sales at 5.4%. The increase is
due to increased research and development efforts of new POS and industrial
products and engineering enhancements to existing products.
Severance costs of $160 for the year ended December 31, 2000 were due to the
elimination of certain senior management positions resulting from planned
redundancies.
Other income/expenses reflect net other expenses of $878 in 2000 compared to
$202 in 1999. Net other expenses in 2000 reflects higher interest expense,
lower interest income and foreign currency transaction gains as compared to
foreign currency transaction losses in 1999.
Net income decreased 44.1% to $2,737 in 2000 from $4,897 in 1999. Net income
reflects a 34% effective income tax rate for 2000 compared to 35% in 1999. The
increase in the value of the U.S. dollar relative to other foreign currencies
compared to 1999 negatively affected diluted earnings per share by
approximately $0.42 per share.
Inflation and Seasonality
Inflation and seasonality have not had a material impact on the Company's
results of operations. There can be no assurance, however, that the Company's
sales in future years will not be impacted by fluctuations in seasonal demand.
Liquidity and Capital Resources (amounts in thousands)
The Company's working capital decreased approximately 29.1% to $2,355 as of
December 31, 2001 from $41,572 as of December 31, 2000. The Company's working
capital was impacted due to the generation of cash from reducing accounts
receivable and inventory levels and using those funds to pay down the Company's
revolving credit facility and term note. In addition, the Company has
reclassified its bank debt to current liabilities in connection with the
Company's default on certain covenants contained within the credit facility.
The Company's operating activities provided net cash of $15,357 in 2001
compared with net cash used of $16,320 for 2000. Net cash provided in operating
activities for 2001 resulted primarily from reductions in accounts receivable
and inventory plus non-cash charges, offset by decreases in accrued expenses.
In connection with the acquisition of AOA on January 8, 2001, the Company
entered into a $45,000 credit facility ("Credit Facility") with its primary
bank, as agent ("primary bank") for other bank parties. Under the terms of the
Credit Facility, the Company secured a $20,000 term loan with maturities of
$2,000 in 2001, $3,000 in 2002 and 2003, and $4,000 in 2004, 2005 and 2006,
respectively. As of December 31, 2001, the balance outstanding was $18,000. In
connection with the Credit Facility, the Company secured a $25,000 revolving
credit line, which expires in January 2006. Proceeds from the Credit Facility
were applied towards the financing of the acquisition of AOA, paying down the
existing term loans and line of credit, and providing working capital for the
Company and its subsidiaries. The Company has granted a security interest in
its assets and properties to the primary bank in favor of the banks as security
for borrowings under the Credit Facility.
As of December 31, 2001, the balance outstanding was $11,433. Under the Credit
Facility, interest rates are based on Libor or Prime-Rate Options based on the
discretion of the Company, plus spreads ranging from 1.00% to 3.75% as defined
in the Credit Facility.
Since September 30, the Company has been in discussion with its banks with
respect to modifying the credit facility. As reflected in the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 2001, the
Company and its primary bank reached an agreement in principle with regard to
converting the current revolving credit line to an asset based arrangement
together with a revised term note and revised covenants. Subsequent to reaching
an agreement in principle, the banks have requested additional terms. The
Company and the banks are still in negotiations with respect to the terms of
the new credit agreement and on April 9, 2002, the banks notified the Company
that it was in default under certain financial covenants contained in its
Credit Facility. As a result of the defaults, the Company has classified all of
its debt under the Credit Facility in the amount of approximately 29,433 as
current on its balance sheet dated December 31, 2001.
The Company expects either to enter into an agreement with the banks for an
asset-based arrangement or to enter into a forbearance agreement, which will
allow for sufficient time for the Company to seek more competitive credit
financing. To assist the Company in seeking alternative financing arrangements,
the Company has retained an investment bank and a consultant. While management
currently believes that it will be successful in either negotiating a new
arrangement with its existing banks or finding acceptable financing
alternatives, there can be no assurance that such arrangements will be obtained
on terms acceptable to the Company, if at all. If the Company is able to enter
into a new credit agreement or forbearance agreement, it expects to file an
amendment to the Form 10-K together with an unqualified audit opinion from its
auditors, and a reclassification of certain of its bank debt from short-term
liabilities to long-term liabilities in the amount of approximately 26,433.
Under the terms of the Credit Facility and based upon the Company's defaults
thereunder, the Company's current lenders have the authority to declare all of
the debt under the Credit Facility to be immediately due and payable.
Currently, the Company has insufficient liquid assets to satisfy the full
amount of the debt under the Credit Facility. If the Company is unable to reach
an agreement with its primary bank with respect to a new credit agreement or
forbearance agreement or to enter into a credit agreement with another lender
and its current lenders decide to declare the debt immediately due and payable,
the Company would be forced to sell Company assets in order to generate
sufficient cash to repay the debt. While management currently believes that any
sale of Company assets would generate sufficient cash to repay the debt, there
can be no assurance that such sales could be made in a timely manner or that
such sales would generate adequate amounts of cash to repay the Company's debt.
If the Company is not able to generate sufficient cash to repay the debt, the
banks could take possession of the collateral pledged as security for the debt
under the Credit Facility and otherwise exercise the remedies available to them
under the Credit Facility.
In April 2002, in order to reduce debt and increase future profitability, the
Company implemented a workforce reduction and identified additional cost
reductions that provided for annualized savings of approximately $3,000 in
overhead and operating expenses, and additional reductions in direct costs.
Also in connection with the acquisition of AOA, the Company entered into
Subordinated Promissory Notes ("Subordinated Debt") aggregating $11,000 with
United Technologies Optical Systems, Inc. ("UTOS"), the former parent of AOA,
with maturities of $0 in 2002, $9,000 in 2003 and $1,000 in 2004 and 2005.
Interest rates are fixed at 10%.
Property, plant & equipment expenditures were $2,208 and $3,479 in 2001 and
2000, respectively. During 2001, the Company continued expenditures related to
manufacturing automation and capacity expansion. The Company's current plan for
future capital expenditures include: (i) investment in the Company's Suzhou,
China facility; (ii) continued investment in manufacturing capacity expansion
at the Blackwood, NJ headquarters; and (iii) additional Company facilities.
The Company's liquidity has been, and may continue to be, adversely affected by
changes in foreign currency exchange rates, particularly the value of the U.S.
dollar relative to the Euro, the Brazilian real, the Singapore dollar, and the
Chinese renminbi. In an effort to mitigate the financial implications of the
volatility in the exchange rate between the Euro and the U.S. dollar, the
Company has selectively entered into derivative financial instruments to offset
its exposure to foreign currency risks. Derivative financial instruments may
include (i) foreign currency forward exchange contracts with its primary bank
for periods not exceeding six months, which partially hedge sales to the
Company's German subsidiary and (ii) Euro based loans, which act as a partial
hedge against outstanding intercompany receivables and the net assets of its
European subsidiary, which are denominated in Euros. Additionally, The
Company's European subsidiary invoices and receives payment in certain other
major currencies, including the British pound, which results in an additional
mitigating measure that reduces the Company's exposure to the fluctuation
between the Euro and the U.S. dollar although it does not offer protection
against fluctuations of that currency against the U.S. Dollar.
The Company's 51% joint venture interests in Metrologic Eria Iberica and
Metrologic Eria France contain options for the Company to purchase the
remaining 49% minority interests. The purchase option is calculated based on a
twelve month multiple of sales. In March 2002, the minority shareholders in
Metrologic Eria Iberica provided notice of their intent to sell their 49%
interests and the purchase price is estimated at $4,570.
Disclosures about Contractual Obligations and Commercial Commitments
Less
than 1 1-3 4-5 After
Contractual Obligations Total Year Years Years 5 Years
- ----------------------- ----- ---- ----- ----- -----
Long-Term Debt* 29,165 18,092 11,073 - -
Capital Lease Obligations 131 107 24 - -
Operating Leases 14,278 2,369 5,496 4,975 1,438
Option to purchase minority
interest in joint venture - - 4,570 - -
Total Contractual Cash
Obligations $ 43,574 $20,568 $ 16,593 $4,975 $ 1,438
========= ======= ======== ====== ========
*All of the Company's borrowings under its term note with its primary bank have
been classified as current liabilities on the Company's balance sheet dated
December 31, 2001. See "Liquidity and Capital Resources" and Note 6 to the
Company's consolidated financial statements.
Total Less
Amounts than 1 1-3 4-5 Over 5
Other Commercial Commitments Committed Year Years Years Years
- ---------------------------- --------- ---- ----- ----- -----
Lines of Credit** 11,433 11,433 - - -
------ ------
** All of the Company's borrowings under its term note with its primary bank
have been classified as current liabilities on the Company's balance sheet
dated December 31, 2001. See "Liquidity and Capital Resources" and Note 6 to
the Company's consolidated financial statements.
Euro Conversion.
On January 1, 1999, several member countries of the European Union established
fixed conversion rates between their existing sovereign currencies and adopted
the Euro as their new common legal currency. As of that date, the Euro traded
on currency exchanges and the legacy currencies remain legal tender in the
participating countries for a transition period between January 1, 1999 and
January 1, 2002. The countries that adopted the Euro on January 1, 1999 are
Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, The
Netherlands, Portugal, and Spain. During the transition period, non-cash
payments were made in the Euro, and parties could elect to pay for goods and
services and transact business using either the Euro or legacy currency.
Between January 1, 1999 and January 1, 2002 the participating countries
introduced Euro notes and coins and withdrew all legacy currencies. The Euro
conversion may affect cross-border competition by creating cross-border
transparency. The Company continues to evaluate its pricing/marketing strategy
in order to insure that it remains competitive in a broader European market.
Item 7a - Quantitative and Qualitative Disclosures about Market Risk (amounts
in thousands)
Market Risk Sensitive Instruments. The market risk inherent in the Company's
market risk sensitive instruments and positions is the potential loss arising
from adverse changes in foreign currency exchange rates and interest rates.
Interest Rate Risk. The Company's bank loans expose earnings to changes in
short-term interest rates since interest rates on the underlying obligations
are either variable or fixed for such a short period of time as to effectively
become variable. The fair values of the Company's bank loans are not
significantly affected by changes in market interest rates. The change in fair
value of the Company's long-term debt resulting from a hypothetical 10%
decrease in interest rates could have had an impact of approximately $300 on
the net earnings of the Company.
Foreign Exchange Risk. The Company enters into forward foreign exchange
contracts principally to hedge the currency fluctuations in transactions
denominated in foreign currencies, namely the Euro, thereby mitigating the
Company's risk that would otherwise result from changes in exchange rates.
Principal transactions hedged are intercompany sales and payments. Gains and
losses on forward foreign exchange contracts and the offsetting losses and
gains on hedged transactions are reflected in the Company's statement of
operations. A large percentage of the Company's foreign sales are transacted in
foreign local currencies. As a result, the Company's international operating
results are subject to foreign exchange rate fluctuations. A hypothetical five
percent strengthening or weakening of the U.S. dollar against the Euro could
have had an impact of $1,098 on the net earnings of the Company. Actual results
may differ.
The Company is subject to risk from fluctuations in the value of the Euro
relative to the U.S. dollar for its European subsidiary, which uses the Euro as
its functional currency and translated into U.S. dollars in consolidation. Such
changes result in cumulative translation adjustments which are included in
other comprehensive income (loss). At December 31, 2001, the Company had
translation exposure. The potential effect on other comprehensive income (loss)
resulting from a hypothetical 10% change in the quoted Euro rate amounts to
$717. Actual results may differ.
Item 8. Financial Statements and Supplementary Data
Index Pages
Consolidated Balance Sheets at December 31, 2001 and 2000 F-1
Consolidated Statements of Operations for each of the three years
in the period ended December 31, 2001, 2000 and 1999 F-2
Consolidated Statements of Shareholders' Equity for each of the
three years in the period ended December 31, 2001, 2000 and 1999 F-3
Consolidated Statements of Cash Flows for each of the three years
in the period ended December 31, 2001, 2000 and 1999 F-4
Notes to Consolidated Financial Statements F-5
Supplementary Data F-22
Financial statement schedules:
Schedule II - Valuation and Qualifying Accounts is filed herewith. All
other schedules are omitted because they are not applicable, not
required, or because the required information is included in the
consolidated financial statements or notes
Metrologic Instruments, Inc.
Consolidated Balance Sheets
(amounts in thousands except share data)
December 31,
2001 2000
---- ----
Assets
Current assets:
Cash and cash equivalents $ 557 $ 2,332
Restricted cash 3,200 -
Accounts receivable, net of allowance of
$422 and $655 in 2001 and
2000, respectively 20,401 26,593
Income tax refund receivable 4,600 -
Inventory 18,385 26,898
Deferred income taxes 1,535 1,356
Other current assets 2,379 4,025
--------- --------
Total current assets 51,057 61,204
Property, plant and equipment, net 13,776 10,459
Patents and trademarks, net of amortization
of $1,239 and $970 in 2001 and 2000,
respectively 4,062 3,013
Holographic technology, net of amortization
of $598 and $482 in 2001 and 2000, respectively 484 600
Advance license fee, net of amortization of $588
and $471 in 2001 and 2000, respectively 1,412 1,529
Goodwill, net of amortization of $1,533 and
$220 in 2001 and 2000, respectively 15,249 4,317
Deferred income taxes 701 -
Other assets 865 701
-------- --------
Total assets $ 87,606 $ 81,823
======== ========
Liabilities and shareholders' equity Current liabilities:
Current portion of lines of credit $ 11,433 $ 174
Current portion of notes payable 18,163 2,531
Accounts payable 6,930 5,188
Accrued expenses 12,176 11,739
-------- --------
Total current liabilities 48,702 19,632
Lines of credit, net of current portion - 17,689
Notes payable, net of current portion 11,135 7,645
Deferred income taxes 951 565
Other liabilities 557 529
Shareholders' equity:
Preferred stock, $0.01 par value:
500,000 shares authorized; none issued - -
Common stock, $0.01 par value: 10,000,000
shares authorized; 5,463,382 and 5,451,092
shares issued and outstanding in 2001
and 2000, respectively 55 54
Additional paid-in capital 17,634 17,562
Retained earnings 12,926 20,703
Accumulated other comprehensive loss (4,354) (2,556)
-------- --------
Total shareholders' equity 26,261 35,763
-------- --------
Total liabilities and shareholders' equity $ 87,606 $ 81,823
======== ========
See accompanying notes.
Metrologic Instruments, Inc.
Consolidated Statements of Operations
(amounts in thousands except share and per share data)
Year ended December 31,
2001 2000 1999
---- ---- ----
Sales $ 113,688 $ 91,884 $ 80,103
Cost of sales 83,527 55,394 46,710
--------- --------- ---------
Gross profit 30,161 36,490 33,393
Selling, general and
administrative expenses 31,233 26,314 21,331
Research and development expenses 6,563 4,975 4,327
Severance costs - 160 -
--------- --------- ---------
Operating (loss) income (7,635) 5,041 7,735
Other income (expenses)
Interest income 174 257 402
Interest expense (4,064) (1,482) (262)
Foreign currency transaction
gain (loss) 432 530 (342)
Other, net (1,459) (183) -
--------- --------- ---------
Total other expenses (4,917) (878) (202)
--------- --------- ---------
(Loss) income before provision for
income taxes (12,552) 4,163 7,533
(Benefit) provision for income
taxes (4,775) 1,426 2,636
--------- --------- ---------
Net (loss) income $ (7,777) $ 2,737 $ 4,897
========= ========= =========
Basic (loss) earnings per share
Weighted average shares
outstanding 5,457,806 5,438,553 5,412,564
========= ========= =========
Basic (loss) earnings per
share (1.42) 0.50 0.90
========= ========= =========
Diluted (loss) earnings per share
Weighted average shares
outstanding 5,457,806 5,438,553 5,412,564
Net effect of dilutive
securities - 119,439 47,630
--------- --------- ---------
Total shares outstanding
used in computing diluted
earnings per share 5,457,806 5,557,992 5,460,194
========= ========= =========
Diluted (loss) earnings per
share (1.42) 0.49 0.90
========= ========= =========
See accompanying notes.
Metrologic Instruments, Inc.
Consolidated Statements of Shareholders' Equity
(amounts in thousands)
Balances,
January 1, 1999 $ 54 $ 16,933 $ 13,069 $ (55) $ 30,001
Comprehensive loss:
Net income - - 4,897) - 4,897
loss - foreign
currency translation
adjustment - - - (504) (504)
Total comprehensive loss - - - - 4,393
Exercise of stock
options - 39 - - 39
Stock issued through
employee stock purchase
plan - 111 - - 111
------ --------- -------- --------- ---------
Balances,
December 31, 1999 $ 54 $ 17,083 $ 17,966 $ (559) $ 34,544
Comprehensive loss:
Net income - - 2,737 - 2,737
Other comprehensive
loss - foreign
currency translation
adjustment - (45) - (1,997) (2,042)
Total comprehensive loss - - - - 695
Exercise of stock
options - 324 - - 324
Stock issued through
employee stock purchase
plan - 72 200 - 200
------ --------- -------- --------- ---------
Balances,
December 31, 2000 $ 54 $ 17,562 $ 20,703 $ (2,556) $ 35,763
Comprehensive loss:
Net loss - - (7,777) - (7,777)
Other comprehensive
loss - foreign
currency translation
adjustment - - - (1,798) (1,798)
Total comprehensive loss - - - - (9,575)
Exercise of stock
options - - - - -
Stock issued through
employee stock purchase
plan 1 72 - - 73
Balances,
December 31, 2001 $ 55 17,634 $ 12,926 $ (4,354) $ 26,261
====== ========= ======== ========= =========
See accompanying notes.
Metrologic Instruments, Inc.
Consolidated Statements of Cash Flows
(amounts in thousands)
Year ended December 31,
2001 2000 1999
---- ---- ----
Operating activities
Net (loss) income $ (7,777) $ 2,737 $ 4,897
Adjustments to reconcile net
(loss) income to net cash
provided by (used in)
operating activities:
Depreciation 3,019 1,957 1,309
Amortization 2,044 594 431
Deferred income taxes (4,572) (507) 343
Loss on disposal of property 143 112 -
Changes in operating assets and liabilities:
Accounts receivable 10,089 (4,187) (7,815)
Inventory 12,024 (11,628) (4,494)
Other current assets 1,844 (2,816) (120)
Other assets 86 217 (157)
Accounts payable 604 (3,457) (414)
Accrued expenses (2,176) 615 3,029
Accrued legal settlement - - (688)
Other liabilities 29 43 -
--------- --------- ---------
Net cash provided by (used in)
operating activities 15,356 (16,320) (3,679)
Investing activities
Purchase of property, plant
and equipment $ (2,208) $ (3,479) $ (3,886)
Patents and trademarks (1,317) (750) (884)
Increase in restricted cash (3,200) - -
Cash paid for purchase of business,
net of cash acquired (10,393) (3,677) -
Other intangibles (253) (284) -
--------- --------- --------
Net cash used in investing
activities (17,371) (8,190) (4,770)
Financing activities
Proceeds from exercise of
stock options and employee
stock purchase plan $ 73 $ 479 $ 150
Principal payments on
notes payable (12,649) (1,287) (860)
Proceeds from issuance of
notes payable 9,239 7,002 2,458
Net proceeds from line
of credit 4,743 14,811 3,050
Capital lease payments (80) (106) (115)
--------- --------- --------
Net cash provied by
investing activities 1,326 20,879 4,683
Effect of exchange rates on cash (1,087) (1,027) 52
--------- --------- --------
Net decrease in cash and
cash equivalents (1,775) (4,638) (3,714)
Cash and cash equivalents
at beginning of year 2,332 6,970 10,684
--------- --------- --------
Cash and cash equivalents
at end of year $ 557 $ 2,332 $ 6,970
========= ========= ========
Supplemental Disclosure
Cash paid for interest 3,913 1,448 273
========= ========= ========
Cash paid for income taxes 112 1,243 1,875
========= ========= ========
Tax benefit from exercise
of stock options $ - $ 120 $ -
========= ========= ========
See accompanying notes.
Metrologic Instruments, Inc.
Notes to Consolidated Financial Statements
December 31, 2001
(Dollars in Thousands)
1. Business
Metrologic Instruments, Inc. and its subsidiaries (collectively, the
"Company") design, manufacture and market bar code scanning and high-speed
automated data capture solutions using laser, holographic and vision-based
technologies. The Company offers expertise in 1D and 2D bar code reading,
optical character recognition, image lift, and parcel dimensioning and
singulation detection for customers in retail, commercial, manufacturing,
transportation and logistics, and postal and parcel delivery industries.
Additionally, through its wholly-owned subsidiary, Adaptive Optics Associates,
Inc. ("AOA"), the Company is engaged in developing, manufacturing, marketing
and distributing custom optical systems which include precision laser beam
delivery, high speed imaging control and data processing, industrial
inspection, and scanning and dimensioning systems for the aerospace and defense
industry in the United States and Canada. The Company's products are sold in
more than 100 countries worldwide through the Company's sales, service and
distribution offices located in North and South America, Europe and Asia.
In connection with the acquisition of AOA on January 8, 2001, the Company
entered into a $45,000 credit facility ("Credit Facility") with its primary
bank, as agent (primary bank) for other bank parties. Under the terms of the
credit facility, the Company secured a $20,000 term loan and a $25,000
revolving credit line expiring in January 2006. Under the Credit Facility, the
Company is subject to affirmative and negative covenants. The Company has
granted a security interest in its assets and properties to the primary bank in
favor of the banks as security for borrowings under the Credit Facility.
Since September 30, the Company has been in discussion with its banks with
respect to modifying the credit facility. As reflected in the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 2001, the
Company and its primary bank reached an agreement in principle with regard to
converting the current revolving credit line to an asset based arrangement
together with a revised term note and revised covenants. Subsequent to reaching
an agreement in principle, the banks have requested additional terms. The
Company and the banks are still in negotiations with respect to the terms of
the new credit agreement and on April 9, 2002, the banks notified the Company
that it was in default under certain financial covenants contained in its
Credit Facility. As a result of the defaults, the Company has classified all of
its debt under the Credit Facility in the amount of approximately $29,433 as
current on its balance sheet dated December 31, 2001.
The Company expects to either enter into an agreement with the banks for an
asset-based arrangement or to enter into a forbearance agreement, which will
allow for sufficient time for the Company to seek more competitive credit
financing. To assist the Company in seeking alternative financing arrangements,
the Company has retained an investment bank and a consultant. If the Company is
able to enter into a new credit agreement or forbearance agreement, it expects
to file an amendment to the Form 10-K together with an unqualified audit
opinion from its auditors, and a reclassification of certain of its bank debt
from short-term liabilities to long-term liabilities in the amount of
approximately $26,433.
Under the terms of the Credit Facility and based upon the Company's defaults
thereunder, the Company's current lenders have the authority to declare all of
the debt under the Credit Facility to be immediately due and payable.
Currently, the Company has insufficient liquid assets to satisfy the full
amount of the debt under the Credit Facility. If the Company is unable to reach
an agreement with its primary bank with respect to a new credit agreement or
forbearance agreement or to enter into a credit agreement with another lender
and its current lenders decide to declare the debt immediately due and payable,
the Company would be forced to sell Company assets in order to generate
sufficient cash to repay the debt. While management currently believes that any
sale of Company assets would generate sufficient cash to repay the debt, there
can be no assurance that such sales could be made in a timely manner or that
such sales would generate adequate amounts of cash to repay the Company's debt.
If the Company is not able to generate sufficient cash to repay the debt, the
banks could take possession of the collateral pledged as security for the debt
under the Credit Facility and otherwise exercise the remedies available to them
under the Credit Facility.
In April 2002, in order to reduce debt and increase future profitability, the
Company implemented a workforce reduction and identified additional cost
reductions that provided for annualized savings of approximately $3,000 in
overhead and operating expenses, and additional reductions in direct costs.
2. Accounting Policies
Basis of Consolidation
The accompanying consolidated financial statements include the
accounts of Metrologic Instruments, Inc., and its domestic and foreign
subsidiaries. All significant intercompany transactions and balances have been
eliminated in consolidation.
Use of Estimates
The preparation of the financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported
in the financial statements and accompanying notes. Actual results could differ
from those estimates.
Revenue Recognition
Product sales revenue and any offsetting sales incentives are
recognized upon the transfer of title to goods, which is generally upon
shipment of products. Amounts charged to customers for shipping and handling
are included in sales. Shipping and handling amounts incurred by the Company
are included in cost of sales.
Revenue Recognition - Contracts
Revenue is recognized on a percentage of completion basis (generally
using the cost-to-cost method) for long-term contracts and upon delivery for
short-term contracts. Cost and profit estimates are reviewed periodically as
work progresses, and adjustments to revenue recognized, if needed, are
reflected in the period in which estimates are revised. Provisions for
estimated losses, if any, on uncompleted contracts are made in the periods in
which such losses become probable and can be reasonably estimated.
Cash and Cash Equivalents
The Company considers all highly-liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Fair Values of Financial Instruments
The carrying amounts of cash equivalents, accounts receivable and
accounts payable approximate fair value because of their short-term nature. The
carrying amount of long-term debt approximates its fair value because the
interest rate is reflective of rates that the Company could currently obtain on
debt with similar terms and conditions.
Inventory
Inventory is stated at the lower of cost, determined on a first-in,
first-out basis, or market.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is
determined on the straight-line method for building and improvements over
estimated useful lives of 31 to 39 years and on an accelerated method for
machinery and equipment over estimated useful lives of 5 to 7 years.
Patents and Trademarks
Patents and trademarks reflect application and testing costs for
products with respect to which the Company has applied for or received patent
and trademark protection. Costs expended for successful patent and trademark
applications are being amortized on a straight-line basis over their useful
lives, which generally are 17 years.
Holographic Technology
Holographic Technology resulted from the acquisition of Holoscan, Inc.
on March 1, 1996 and is being amortized over ten years. The Company was
required to pay the former shareholders of Holoscan, Inc. $194 in 1998, which
was based on sales of certain holographic laser scanners. Such amounts were
considered additions to holographic technology and are being amortized over the
remainder of the ten-year period.
Software Development Costs
Costs incurred in the research and development of new software
embedded in products and enhancements to existing software products are
expensed as incurred until technological feasibility has been established.
After technological feasibility is established, any additional development
costs are capitalized in accordance with Statement of Financial Accounting
Standards No. 86, Accounting for the Costs of Computer Software to be Sold,
Leased, or Otherwise Marketed ("SFAS 86"). Capitalization ceases when the
product is available for general release to customers.
Internal Use Software
Effective for fiscal years beginning after December 15, 1998, the
American Institute of Certified Public Accountants ("AICPA") issued Statement
of Position 98-1 ("SOP 98-1"), Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use." SOP 98-1 requires all costs related to
the development or purchase of internal use software, other than those incurred
during the application development stage, to be expensed as incurred. Costs
incurred during the application development stage are required to be
capitalized and amortized over the estimated useful life of the software. The
Company adopted SOP 98-1 on January 1, 1999 and has capitalized $1,781 of
software obtained for internal use through December 31, 2001. Capitalized
software costs are amortized on a straight-line basis over seven years.
Amortization related to the capitalized software was $265 and $308 for the year
ended December 31, 2001 and 2000, respectively.
Goodwill
Goodwill represents the excess of the cost of businesses acquired over
the fair value of the related net assets at the date of acquisition. Goodwill
is amortized using the straight-line method over their expected useful lives of
10 to 20 years.
Long-Lived Assets
The Company evaluates impairment of its intangible and other
long-lived assets, including goodwill, in accordance with Statement of
Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of ("SFAS 121"). In
making such determination, management compares 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 an impairment exists,
any adjustment is determined by comparing the carrying amount to the fair value
of the impaired asset. The Company considers all impaired assets "to be held
and use