UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2005
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission file number 0-24712
Metrologic Instruments, Inc.
(Exact name of registrant as specified in its charter)
New Jersey 22-1866172
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
90 Coles Road, Blackwood, New Jersey 08012
(Address of principal executive offices) (Zip Code)
(856) 228-8100
(Registrant's telephone number,
including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes X No __
As of April 30, 2005, there were 22,143,246 shares of Common Stock, $.01 par
value per share, outstanding.
METROLOGIC INSTRUMENTS, INC.
INDEX
Page
No.
Part I - Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
March 31, 2005 (unaudited) and December 31, 2004 3
Condensed Consolidated Statements of Operations (unaudited)
-Three Months Ended March 31, 2005 and 2004 4
Condensed Consolidated Statements of Cash Flows (unaudited)
- Three Months Ended March 31, 2005 and 2004 5
Notes to Condensed Consolidated Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13
Item 3. Quantitative and Qualitative Disclosures about Market Risk 20
Item 4. Controls and Procedures 20
Part II - Other Information
Item 1. Legal Proceedings 21
Item 6. Exhibits 22
Signatures 23
Item 1. Financial Statements
Metrologic Instruments, Inc.
Condensed Consolidated Balance Sheets
(amounts in thousands except share data)
March 31, December 31,
2005 2004
---- ----
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 67,893 $ 64,715
Accounts receivable, net of allowances
of $547 and $544, respectively 37,468 35,153
Inventory, net 22,089 23,865
Deferred income taxes 692 692
Other current assets 3,855 3,677
--------- ---------
Total current assets 131,997 128,102
Property, plant and equipment, net 19,516 19,468
Goodwill 24,578 24,607
Computer software, net 10,739 11,221
Other intangibles, net 7,658 7,634
Deferred income taxes 1,327 1,332
Other assets 226 163
--------- ---------
Total assets $ 196,041 $ 192,527
========= =========
Liabilities and shareholders' equity
Current liabilities:
Lines of credit $ 17,015 $ 14,138
Current portion of notes payable 3,603 2,127
Accounts payable 7,619 10,734
Accrued expenses 16,552 16,278
Deferred contract revenue 1,174 1,507
--------- ---------
Total current liabilities 45,963 44,784
Notes payable, net of current portion 44 2,015
Deferred income taxes 5,055 5,055
Other liabilities 2,488 2,657
Shareholders' equity:
Preferred stock, $0.01 par value: 500,000
shares authorized; none issued - -
Common stock, $0.01 par value: 30,000,000
shares authorized; 22,045,811 and
21,782,276 shares issued and outstanding
on March 31, 2005 and December 31, 2004,
respectively 220 218
Additional paid-in capital 88,368 87,500
Retained earnings 55,063 51,162
Accumulated other comprehensive loss (1,160) (864)
---------- ---------
Total shareholders' equity 142,491 138,016
---------- ---------
Total liabilities and shareholders' equity $ 196,041 $ 192,527
========== =========
See accompanying notes.
Metrologic Instruments, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
(amounts in thousands except share and per share data)
Three Months Ended
March 31,
2005 2004
---- ----
Sales $ 46,851 $ 39,700
Cost of sales 26,733 20,049
---------- ----------
Gross profit 20,118 19,651
Selling, general and administrative
expenses 11,395 9,374
Research and development expenses 1,952 1,723
---------- ----------
Operating income 6,771 8,554
Other expenses
Interest income 285 110
Interest expense (263) (99)
Other expense, net (697) (326)
---------- ----------
Total other expenses (675) (315)
---------- ----------
Income before provision for
income taxes 6,096 8,239
Provision for income taxes 2,195 3,131
---------- ----------
Net income $ 3,901 $ 5,108
========== ==========
Basic earnings per share:
Weighted average shares
outstanding 21,907,265 21,150,698
========== ==========
Basic earnings per share $ 0.18 $ 0.24
========== ==========
Diluted earnings per share:
Weighted average shares
outstanding 21,907,265 21,150,698
Net effect of dilutive
securities 1,216,444 1,816,166
---------- ---------
Total shares outstanding
used in computing diluted
earnings per share 23,123,709 22,966,864
========== ==========
Diluted earnings per share $ 0.17 $ 0.22
========== ==========
See accompanying notes.
Metrologic Instruments, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(amounts in thousands)
Three Months Ended
March 31,
2005 2004
-------- --------
Operating activities
Net cash provided by
operating activities $ 634 $ 7,035
Investing activities
Purchase of property, plant and equipment (999) (615)
Purchase of minority interest in subsidiary (612) (4,963)
Patents and trademarks (260) (248)
Proceeds from sale of property - 23
------- -------
Net cash used in
investing activities (1,871) (5,803)
Financing activities
Proceeds from exercise of stock options and
employee stock purchase plan 870 1,953
Net borrowings (repayments) on
lines of credit 3,559 (1,242)
Principal payments on notes payable (487) (33)
Capital lease payments (36) (33)
Net cash provided by ------- -------
financing activities 3,906 645
Effect of exchange rates on cash 509 73
------- -------
Net increase in cash and
cash equivalents 3,178 1,950
Cash and cash equivalents at beginning of period 64,715 48,817
------- -------
Cash and cash equivalents at end of period $ 67,893 $50,767
======== =======
Supplemental Disclosure:
Cash paid for interest $ 151 $ 57
======== =======
Cash paid for income taxes $ 82 $ 23
======== =======
See accompanying notes.
METROLOGIC INSTRUMENTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005
(amounts in thousands except per share data)
(Unaudited)
1. Business
Metrologic Instruments, Inc. and its subsidiaries (collectively, the "Company")
design, manufacture and market bar code scanning and high-speed automated data
capture solutions using laser, holographic and vision-based technologies. The
Company offers expertise in one-dimensional and two-dimensional bar code
reading, portable data collection, optical character recognition, image lift,
and parcel dimensioning and singulation detection for customers in retail,
commercial, manufacturing, transportation and logistics, and postal and parcel
delivery industries. Additionally, through its wholly-owned subsidiary, Adaptive
Optics Associates, Inc. ("AOA"), the Company is engaged in developing,
manufacturing, marketing and distributing custom electro-optical and
opto-mechanical systems which include wavefront correction, industrial
inspection, and scanning and dimensioning systems for commercial and government
customers. The Company's products are sold in more than 110 countries worldwide
through the Company's sales, service and distribution offices located in North
and South America, Europe and Asia.
2. Accounting Policies
Interim Financial Information
The accompanying unaudited Condensed Consolidated Financial Statements have been
prepared in accordance with accounting principles generally accepted in the
United States for interim financial information and the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements. In the opinion
of management, all adjustments (consisting solely of normal recurring
adjustments) necessary for a fair presentation of the Condensed Consolidated
Financial Statements have been included. The results of the interim periods are
not necessarily indicative of the results to be obtained for a full fiscal year.
The Condensed Consolidated Financial Statements and these Notes should be read
in conjunction with Management's Discussion and Analysis of Financial Condition
and Results of Operations contained in this Quarterly Report on Form 10-Q and
the Company's Annual Report on Form 10-K for the year ended December 31, 2004,
including the Consolidated Financial Statements and the Notes to Consolidated
Financial Statements for the year ended December 31, 2004 contained therein.
Stock-Based Compensation
The Company follows Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB 25") and related interpretations in accounting
for stock options. Under APB 25, if the exercise price of the Company's stock
options equals or exceeds the market price of the underlying common stock on the
date of grant, no compensation expense is recognized. Had compensation expense
for the Company's stock option plan been determined based upon the fair value at
the grant date using the Black-Scholes pricing model prescribed under Statement
of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock Based
Compensation," the Company's net income and earnings per share would approximate
the pro-forma amounts as follows:
Three Months Ended
March 31,
2005 2004
---- ----
Net income:
As reported $ 3,901 $ 5,108
Deduct: (total stock-based employee
compensation expense determined
under fair value based method, net of
related taxes) (718) (40)
------- -------
Pro forma $ 3,183 $ 5,068
======= =======
Earnings per share:
Basic:
As reported $ 0.18 $ 0.24
Pro forma 0.15 0.24
Diluted:
As reported $ 0.17 $ 0.22
Pro forma 0.14 0.22
Use of Estimates
The preparation of the financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current
period presentation.
3. Inventory
Inventory consists of the following:
March 31, 2005 December 31, 2004
-------------- ------------------
Raw materials $ 7,837 $ 7,534
Work-in-process 2,009 2,320
Finished goods 12,243 14,011
------ ------
Total $ 22,089 $ 23,865
------ ------
4. Comprehensive Income
The Company's total comprehensive income was as follows:
Three Months Ended
March 31,
2005 2004
---- ----
Net income $ 3,901 $ 5,108
Other comprehensive loss:
Change in equity due to
foreign currency
translation adjustments (296) (221)
------- -------
Comprehensive income $ 3,605 $ 4,887
======= =======
Goodwill
The changes in the net carrying amount of goodwill for the three months ended
March 31, 2005 consist of the following:
Industrial
Data Automation/
Capture & Optical
Collection Systems Total
--------- ---------- ---------
Balance as of January 1, 2005 $ 13,929 $ 10,678 $ 24,607
Purchase of minority interest in
subsidiaries 463 - 463
Currency translation adjustments (492) - (492)
--------- --------- ---------
Balance as of March 31, 2005 $ 13,900 $ 10,678 $ 24,578
========= ========= =========
Other Intangibles
The Company had identifiable intangible assets with a net book value of $18,400
and $18,900 as of March 31, 2005 and December 31, 2004, respectively.
The following table reflects the components of identifiable intangible assets:
March 31, 2005 December 31, 2004
--------------------- ----------------------
Amortizable Gross Gross Gross Gross
Life Carrying Accumulated Carrying Accumulated
(years) Amount Amortization Amount Amortization
----------- --------------------- ----------------------
Patents and Trademarks 17 8,458 (2,519) 8,197 (2,400)
Holographic Technology 10 1,082 (975) 1,082 (946)
Advance license fee 17 2,000 (971) 2,000 (941)
Computer software 5 11,920 (1,181) 11,810 (589)
Covenants not to compete 3 700 (117) 700 (58)
------ ------ ------ ------
Total 24,160 (5,763) 23,789 (4,934)
====== ====== ====== ======
The Company has determined that the lives previously assigned to these
finite-lived assets are still appropriate and has recorded $829 and $163 of
amortization expense for the three months ended March 31, 2005 and 2004,
respectively.
6. Business Segment Information
The Company generates its revenue from the sale of laser bar code scanners
primarily to distributors, value-added resellers, original equipment
manufacturers and directly to end users, in locations throughout the world. No
individual customer accounted for 10% or more of revenues in the quarters ended
March 31, 2005 or 2004.
The Company manages its business on a business segment basis dividing the
business into two major segments: Data Capture and Collection and Industrial
Automation/Optical Systems. As a result of the growth of our product line,
service offerings and geographic reach, our target market segments and the
customer base into which we sell have grown. Examples include increased sales of
our handheld mobile computer, emerging wireless applications and the
introduction of handheld imaging products. Accordingly, in December 2004, we
adopted the segment title "Data Capture and Collection" to more accurately
reflect the suite of products and services offered within the segment
historically entitled "POS/OEM". The phrase Data Capture is fairly ubiquitous
within our industry. We believe this modification better represents the
Company's offerings to its customers and shareholders and better positions us to
grow in accordance with our strategic plan(s).
In December 2004 we also renamed our historical "Industrial/Optical Systems"
segment to "Industrial Automation / Optical Systems" to better reflect the
products and services we offer to our customer base in our industrial markets.
Additionally, we believe there is benefit to differentiating the more complex
systems sold into this market from certain of our Data Capture and Collection
products that may be sold to similar customers via our worldwide distribution
channels.
Sales for the three months ended March 31, 2005 and 2004 were as follows:
Three Months Ended
March 31,
2005 2004
---- ----
Business segment net sales:
Data Capture and Collection $ 36,528 31,105
Industrial Automation/Optical Systems 10,323 8,595
-------------------
Total 46,851 39,700
-------------------
Business segment gross profit:
Data Capture and Collection $ 17,263 16,744
Industrial Automation/Optocal Systems 2,855 2,907
-------------------
Total 20,118 19,651
-------------------
Business segment operating income:
Data Capture and Collection $ 5,924 7,240
Industrial Automation/Optical Systems 847 1,314
-------------------
Total 6,771 8,554
-------------------
Total other expenses $ (675) (315)
-------------------
Income before income taxes $ 6,096 8,239
--------------------
7. Acquisitions
Omniplanar, Inc.
On September 24, 2004, the Company acquired 100% of the common stock of
Omniplanar, Inc. ("Omniplanar"), an imaging software company, for $12,851, at
present value, including acquisition costs and assumed liabilities. The Company
paid $9,050 at closing and $650 in March 2005. The Company will pay an
additional $1,300 in September 2005 and $1,950 in March 2006. Omniplanar
supplies a complete package of bar code reading software for 2D imaging for
fixed position, conveyor belt and hand held readers which can be optimized for
specific hardware applications. The acquisition of Omniplanar represents a
significant addition to the Company's technology portfolio. The Company has
licensed the SwiftDecoder software since the year 2000 for use in its iQ(R) line
of industrial vision-based products. The Company intends to make use of this
software's unique decoding ability in other products as well. The assets
acquired have been recorded at their estimated fair values. The consolidated
statement of operations includes the results of Omniplanar for the three months
ended March 31, 2005. The results of operations for Omniplanar have been
included in the Industrial Automation/Optical Systems business segment. The pro
forma results of operations have not been provided because the effects were not
material.
In connection with the acquisition, the Company allocated $12,620 to
identifiable intangible assets comprising $11,920 of computer software which is
being amortized over 5 years and $700 to a non-compete agreement which is being
amortized over 3 years.
The following table summarizes the allocation of the purchase price of assets
recorded at the date of acquisition.
Assets:
Cash and cash equivalents $ 5
Accounts receivable 455
Deferred income taxes 555
Identifiable intangible assets 12,620
----------
Total assets acquired 13,635
----------
Liabilities:
Accrued expenses 88
Deferred contract revenue 141
Deferred income taxes 555
----------
Total liabilities assumed 784
----------
Total purchase price $ 12,851
==========
The Company accounted for this acquisition under the purchase method of
accounting.
Metrologic do Brasil
On February 4, 2003, the Company paid cash of $71 and signed three promissory
notes with a total discounted value of $204 for the remaining 49% interest in
Metrologic do Brasil. During the period ended March 31, 2005, the Company paid
the second promissory note in the amount of $75 with the remaining promissory
note payable on February 4, 2006.
The Company accounted for this acquisition under the purchase method of
accounting. The total purchase price and costs in excess of assets acquired
(goodwill) was $275.
Metrologic Eria Iberica ("MEI")
On August 5, 2003, the Company entered into an agreement to purchase the
remaining 49% interest in MEI for a purchase price of 5,900 euros. Payments are
being made in twelve quarterly installments over three years which commenced
August 5, 2003 and matures April 3, 2006. As of March 31, 2005, the Company had
purchased an additional 29.9%, of which 3.9% was purchased during the period
ended March 31, 2005 for approximately 500 euros, or $600 at the exchange rate
on March 31, 2005.
Metrologic Eria France ("MEF")
On March 19, 2004, the Company entered into an agreement to purchase the
remaining 49% minority interest of MEF for a purchase price of 3,600 euros, or
$4,300 at the exchange rate on March 31, 2004. As of March 31, 2004, the Company
owned 100% of MEF.
8. Recently Issued Accounting Standards
In November 2004, the FASB issued Statement No. 151, "Inventory Costs, an
amendment of ARB No. 43, Chapter 4" ("SFAS No. 151"). SFAS 151 amends the
guidance in ARB No. 43, Chapter 4, "Inventory Pricing," to clarify the
accounting for abnormal amounts of idle facility expense, handling costs and
wasted material (spoilage). Among other provisions, the new rule requires that
such items be recognized as current-period charges, regardless of whether they
meet the criterion of "so abnormal" as stated in ARB 43. SFAS 151 is effective
for fiscal years beginning after June 15, 2005. The Company does not expect the
adoption of this statement to have a material effect on its consolidated
financial position, consolidated results of operations or liquidity.
In December 2004, the FASB issued FASB Staff Position No. FAS 109-2 ("FSP No.
109-2"), "Accounting and Disclosure Guidance for the Foreign Earnings
Repatriation Provisions within the American Jobs Creation Act of 2004" (the Jobs
Act). FSP No. 109-2 provides guidance with respect to reporting the potential
impact of the repatriation provisions of the Jobs Act on an enterprise's income
tax expense and deferred tax liability. The Jobs Act was enacted on October 22,
2004, and provides for a temporary 85% dividends received deduction on certain
foreign earnings repatriated during a one-year period. The deduction would
result in an approximate 5.25% federal tax rate on the repatriated earnings. To
qualify for the deduction, the earnings must be reinvested in the United States
pursuant to a domestic reinvestment plan established by a company's chief
executive officer and approved by a company's board of directors. Certain other
criteria in the Jobs Act must be satisfied as well. Although the Jobs Act was
signed into law in October 2004, the practical application of a number of the
provisions of the repatriation provision remains unclear. Tax authorities are
expected to provide clarifying language on key elements of the repatriation
provision. The Company has conducted a preliminary identification of potential
repatriation and reinvestment opportunities; however, the clarifying language
may affect our evaluation of the economic value of implementing any individual
opportunity and its ability to meet the overall qualifying criteria. As a
result, the Company will be unable to complete a determination of the Jobs Act's
effect on our plan for reinvestment or repatriation of foreign earnings until
the clarifying language is released.
In December 2004, the FASB issued Statement No. 123 (revised 2004), "Share-Based
Payment" ("SFAS No. 123R"), which replaces SFAS 123 and supersedes APB Opinion
No. 25, "Accounting for Stock Issued to Employees." This Statement requires all
share-based payments to employees, including grants of employee stock options,
to be recognized in the financial statements based on their fair values. The pro
forma disclosures previously permitted under SFAS 123 no longer will be an
alternative to financial statement recognition. In accordance with a Securities
and Exchange Commission Rule issued in April 2005, companies will be allowed to
implement SFAS No. 123R as of the beginning of the first fiscal year beginning
after June 15, 2005. The Company currently expects that it will adopt the
provisions of SFAS No. 123R on January 1, 2006. Under SFAS No. 123R, the Company
must determine the appropriate fair value model to be used for valuing
share-based payments, the amortization method for compensation cost and the
transition method to be used at date of adoption. The permitted transition
methods include either retrospective or prospective adoption. Under the
retrospective option, prior periods may be restated either as of the beginning
of the year of adoption or for all periods presented. The prospective method
requires that compensation expense be recorded for all unvested stock options at
the beginning of the first quarter of adoption of SFAS No. 123R, while the
retrospective methods would record compensation expense for all unvested stock
options beginning with the first period presented. The Company is currently
evaluating the requirements of SFAS No. 123R and expects that the adoption of
SFAS No. 123R will have a material impact on its consolidated financial
position, consolidated results of operations and earnings per share. The Company
has not yet determined the method of adoption or effect of adopting SFAS No.
123R and has not determined whether the adoption will result in amounts that are
similar to the current pro forma disclosures under SFAS No. 123. See Note 2 of
the Notes to Consolidated Financial Statements.
In December 2004, the FASB issued Statement No. 153, "Exchanges of Nonmonetary
Assets, an amendment of APB Opinion No. 29, Accounting for Nonmonetary
Transactions". SFAS 153 eliminates the exception from fair value measurement for
nonmonetary exchanges of similar productive assets in paragraph 21 (b) of APB
Opinion No. 29, "Accounting for Nonmonetary Transactions," and replaces it with
an exception for exchanges that do not have commercial substance. SFAS 153
specifies that a nonmonetary exchange has commercial substance if the future
cash flows of the entity are expected to change significantly as a result of the
exchange. SFAS 153 is effective for periods beginning after June 15, 2005. The
Company does not expect the adoption of this statement to have a material effect
on its consolidated financial position, consolidated results of operations or
liquidity.
9. Legal Matters
Symbol Technologies, Inc. v. Metrologic
On May 3, 2002, we were served with a lawsuit that was filed on April 12, 2002
by Symbol Technologies, Inc., in the U.S. District Court for the Eastern
District of New York alleging that we were in breach of the terms of the License
Agreement between us and Symbol (the "Symbol Agreement"). The Complaint sought a
declaratory judgment from the Court that we were in breach of the Agreement. On
March 31, 2003, the Court entered its decision on the parties' respective
motions for summary judgment, and finding in our favor, the Court dismissed
certain counts of Symbol's complaint. On April 9, 2003, Symbol voluntarily
dismissed the remaining counts of the complaint. Symbol filed its Notice of
Appeal with the U.S. Court of Appeals for the Second Circuit on May 7, 2003. On
December 23, 2003, the Court of Appeals dismissed Symbol's appeal in this
matter. In the interim, Symbol decided to proceed with the arbitration for which
the Company had filed a Demand in June 2002, which had been stayed pending the
decision by the lower court. On June 26, 2003, Symbol filed an Amended Answer
and Counterclaims asserting that (a) eleven of Metrologic's products are royalty
bearing products, as defined under the Symbol Agreement, and (b) in the
alternative, those products infringe upon one or more of Symbol's patents. In
February 2005, the arbitrator entered an interim award, finding that eight of
the products are not royalty bearing products under the Symbol Agreement but
that three of the products are royalty bearing products. The Company has made a
motion for another interim award to review a portion of the arbitrator's
decision. This motion has been granted and on March 23, 2005 the arbitrator
reopened the hearing with regard to certain portions of his earlier decision.
The parties are now waiting for this decision.
To date, no final award of damages against the Company has been granted in this
matter. Symbol has made a request for a damage award in the amount of
approximately $10 million. The Company believes that Symbol's claims for damages
in this amount are wholly without merit and intends to vigorously defend against
it: however, if Symbol were to receive a final award in the amount of $10
million and such an award were not reversed on appeal it would have a material
adverse impact on the Company.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward Looking Statements; Certain Cautionary Language
Written and oral statements provided by us from time to time may contain certain
forward looking information, as that term is defined in the Private Securities
Litigation Reform Act of 1995 (the "Act") and in releases made by the Securities
and Exchange Commission ("SEC"). The cautionary statements which follow are
being made pursuant to the provisions of the Act and with the intention of
obtaining the benefits of the "safe harbor" provisions of the Act. While we
believe that the assumptions underlying such forward looking information are
reasonable based on present conditions, forward looking statements made by us
involve risks and uncertainties and are not guarantees of future performance.
Actual results may differ materially from those in our written or oral forward
looking statements as a result of various factors, including, but not limited
to, the following: (i) difficulties or delays in the development, production,
testing and marketing of products, including, but not limited to, a failure to
ship new products when anticipated, failure of customers to accept these
products when planned, any defects in products or a failure of manufacturing
efficiencies to develop as planned; (ii) continued or increased competitive
pressure which could result in reduced selling prices of products or increased
sales and marketing promotion costs; (iii) reliance on third party resellers,
distributors and OEMs which subject us to business failure risks of such
parties, credit and collections exposure, and other business concentration
risks; (iv) the future health of the U.S. and international economies and other
economic factors that directly or indirectly affect the demand for our products;
(v) foreign currency exchange rate fluctuations between the U.S. dollar and
other major currencies including, but not limited to, the euro, Singapore
dollar, Brazilian real, Chinese renminbi and British pound affecting our results
of operations; (vi) changes from the expected gross margin percentage due to a
number of factors including product mix; (vii) the effects of and changes in
trade, monetary and fiscal policies, laws, regulations and other activities of
government, agencies and similar organizations, including, but not limited to
trade restrictions or prohibitions, inflation, monetary fluctuations, import and
other charges or taxes, nationalizations and unstable governments; (viii)
continued or prolonged capacity constraints that may hinder our ability to
deliver ordered products to customers; (ix) a prolonged disruption of scheduled
deliveries from suppliers when alternative sources of supply are not available
to satisfy our requirements for raw material and components; (x) technological
changes in the data capture industry, including the adoption of vision-based
technologies and RFID; (xi) the costs and potential outcomes of legal
proceedings or assertions by or against us relating to intellectual property
rights and licenses; (xii) our ability to successfully defend against challenges
to our patents and our ability to develop products which avoid infringement of
third parties' patents; (xiii) occurrences affecting the slope or speed of
decline of the life cycle of our products, or affecting our ability to reduce
product and other costs and to increase productivity; and (xiv) the potential
impact of terrorism, international hostilities and possible natural disasters.
All forward-looking statements included herein are based upon information
presently available, and we assume no obligation to update any forward-looking
statements.
General
The following discussion of our results of operations and liquidity and capital
resources should be read in conjunction with our Condensed Consolidated
Financial Statements and the related Notes thereto appearing elsewhere in this
Quarterly Report on Form 10-Q and the Consolidated Financial Statements and the
Notes to Consolidated Financial Statements for the year ended December 31, 2004
contained in our Annual Report on Form 10-K for the year ended December 31,
2004. The Condensed Consolidated Financial Statements for the three months ended
March 31, 2005 and 2004 are unaudited.
Metrologic Instruments, Inc. and its subsidiaries (collectively, "we", "us",
"our" or the "Company") are experts in optical image capture and processing
solutions. We utilize our expertise to design, manufacture and market
sophisticated imaging and scanning solutions serving a variety of point-of-sale,
commercial and industrial applications. Our solutions utilize a broad array of
laser, holographic and vision-based technologies designed to provide superior
functionality and a compelling value proposition for our customers.
Executive Overview
We are experts in optical image capture and processing solutions. In recent
years, we have increased sales, cash flow from operations and net income
primarily through the introduction of new products, penetration into new markets
and a focus on cost reduction activities to maintain a competitive advantage.
Success factors critical to our business include sales growth through continued
penetration within our existing markets through new product introductions and
expanded sales efforts, entering into new markets, maintaining a highly
responsive and cost efficient infrastructure, achieving the financial
flexibility to ensure that we can respond to new market opportunities in order
to return value to our shareholders, and selectively pursuing strategic
acquisitions.
In order to continue our penetration into new and existing markets, our strategy
involves expanding our sales channels and expanding our product development
activities. We have concentrated our direct sales efforts to further penetrate
some of the largest retailers in the United States as well as focusing on the
early adoption of bar coding technology in the healthcare industry. During
fiscal 2004 and the first quarter of 2005, we continued to see increased orders
with key retail accounts which contributed to our quarter over quarter sales
growth. Another key factor in achieving this sales growth has been our ability
to continue our growth in eastern Europe and throughout Asia. We believe these
geographic areas will continue to be an opportunity for continued growth, as
evidenced by our investment in the expansion of our Suzhou manufacturing
facility which was completed in the third quarter of 2004 as well as the opening
of new sales offices in these territories. During the first quarter of 2005, we
added an office in Indonesia, a fifth sales office in China, and are scheduled
to open a new office in Taiwan in the second quarter of 2005. Our plans are to
open additional offices in the ASIA/Pacific region throughout the remainder of
2005. In addition, we continue to invest in developing new and improved products
to meet the changing needs of our existing customers. We are continuing to focus
on executing our core strategy of leveraging our engineering expertise to
produce new bar code scanners and industrial automation products that will allow
us to penetrate markets that we have not previously served and gain market share
in our existing markets. Furthermore, we currently have several promising new
products in the pipeline. We continue to believe sales for 2005 and beyond will
be positively affected as these new products either begin to ship or ship in
larger quantities.
To maintain a highly responsive and cost efficient infrastructure, our focus is
to maximize the efficiency of our organization through process improvements and
cost containment. We continue to focus on our strategy for margin expansion
through specific engineering initiatives to reduce product and manufacturing
costs. In addition, the expansion of our manufacturing facility in Suzhou, China
nearly doubled the size of the existing China operations and more importantly,
is providing cost efficiencies through lower direct labor costs as we continue
to produce more of our products in this facility. During fiscal 2004
approximately 65.2% of our data capture & collection products were manufactured
in our Suzhou, China manufacturing facility and we intend to expand our
manufacturing capabilities at our Suzhou, China facility in fiscal 2005 to
continue to take advantage of these cost efficiencies.
Closely linked to the success factors discussed above is our continued focus to
achieve financial flexibility. As of March 31, 2005, we had total debt of
approximately $20.7 million. Furthermore, we had cash and cash equivalents of
approximately $67.9 million as of March 31, 2005. We believe that our current
cash and working capital positions and expected operating cash flows will be
sufficient to fund our working capital, planned capital expenditures and debt
repayment requirements for the foreseeable future.
In addition to our internal development and organic growth, we may selectively
pursue strategic acquisitions that we believe will broaden or complement our
current technology base and allow us to serve additional end users and the
evolving needs of our existing customers. During September 2004, we acquired
100% of the common stock of Omniplanar Inc. ("Omniplanar"), an imaging software
company for approximately $13.0 million. Omniplanar supplies a complete package
of bar code reading software for 2D imaging for fixed position, conveyor belt
and hand held readers which can be optimized for specific hardware applications.
Our acquisition of Omniplanar broadened and strengthened our portfolio of
decoding software to include robust omnidirectional decoding of linear, matrix
and postal bar code images. Metrologic had licensed from Omniplanar the
SwiftDecoder software since the year 2000 for use in our iQ(R) line of
industrial vision-based products.
We also make use of the software in other products as well. By acquiring this
2D imaging technology, we have been able to reduce our licensing costs for our
current and future imaging-based products. We expect this acquisition to be
accretive to sales and earnings on a prospective basis.
Results of Operations
Our business is divided into two major segments: Data Capture & Collection, and
Industrial Automation and Optical Systems.
Bar code scanners are typically either handheld scanners or fixed projection
scanners. Handheld bar code scanners are principally suited for retail
point-of-sale, document processing, library, healthcare and inventory
applications. Fixed projection scanners, which can be mounted on or in a
counter, are principally suited for supermarkets, convenience stores, mass
merchandisers, health clubs and specialty retailers.
Industrial automation products are comprised of fixed position systems that are
either laser- or vision-based. These systems range from simple, one-scanner
solutions to complex, integrated systems incorporating multi-scanner, image
capture and dimensioning technologies. Optical Systems are comprised of advanced
electro-optical systems including wavefront sensors, adaptive optics systems and
custom instrumentation.
The following table sets forth certain information regarding our revenues by our
two business segments for the periods indicated.
Three Months Ended
March 31,
2005 2004
---- ----
($ in Thousands)
Data Capture & Collection $ 36,528 $ 31,105
Industrial Automation/Optical Systems
Industrial Automation 4,554 5,209
Optical Systems 5,769 3,386
-------- -------
Total Industrial Automation/
Optical Systems 10,323 8,595
-------- -------
Total Company $ 46,851 $ 39,700
======== =======
Most of our product sales in Western Europe, Brazil and Asia are billed in
foreign currencies and are subject to currency exchange rate fluctuations.
Currently, a significant percentage of our products are manufactured in our U.S.
facility, and therefore, sales and results of operations are affected by
fluctuations in the value of the U.S. dollar relative to such foreign
currencies. We expect, however, that the manufacture of our data capture and
collection products in our Suzhou, China facility will increase in 2005, which
will result in reduced labor and manufacturing costs in our data capture and
collection scanners. In the three months ended March 31, 2005, sales and gross
profit were favorably affected by the continuing decline in the value of the
U.S. dollar in relation to certain foreign currencies, especially the euro, when
compared to the comparable period in 2004.
The following table sets forth certain information as to our sales by
geographic location:
Three Months Ended
March 31,
2005 % 2004 %
---- ----
($ in Thousands)
The Americas 22,617 48.3% 19,300 48.6%
EMEA 18,866 40.3% 16,960 42.7%
Asia/Pacific 5,368 11.4% 3,440 8.7%
------- ----- ------- -----
Total $ 46,851 100.0% $39,700 100.0%
======== ===== ======= =====
Three Months Ended March 31, 2005 Compared with Three Months Ended March 31,
2004
Sales increased 18.0% to $46.9 million in the three months ended March 31, 2005
from $39.7 million in the three months ended March 31, 2004. Sales of our data
capture & collection products increased by 17.4%, sales of industrial automation
products decreased by 12.6% and sales of optical systems increased by 70.4%.
Approximately $0.8 million of the increase in the data capture & collection
sales resulted from the strengthening of the euro against the U.S. dollar. Data
capture & collection sales increased approximately $6.9 million due to increased
unit sales of handheld and in-counter scanners, including new product offerings.
These factors were partially offset by a decrease of approximately $2.3 million
resulting from lower average selling prices due to competitive pricing pressures
experienced in the retail sector, primarily in Europe.
The decrease in industrial automation products sales is attributable to a
contract with a major airline customer for bar code scanning equipment and
installation services in the first quarter of 2004 with no comparable amount in
the first quarter of 2005. Our Industrial Automation business has exhibited a
greater degree of volatility than our data capture & collection business due to
the timing and size related contracts in this business. The increase in optical
systems sales in the first quarter of 2005 reflects an increase in customer
funded research and development programs and the execution of contract backlog
accumulated over the past few quarters.
Sales to the "The Americas" region increased $3.3 million, or 17.2%, in 2005
when compared to the comparable period in 2004. This increase is primarily
attributed to ongoing penetration into new vertical markets, higher demand in
our South America markets, and consistent growth with our key distributors. EMEA
sales increased $1.9 million, or 11.2% in 2005 when compared with the comparable
period in 2004. Within this region, we experienced softer market conditions,
primarily in the United Kingdom and Poland regions, resulting in the lower than
historical growth performance. The increase in EMEA sales is attributable to
increased unit volume along with the strengthening of the euro against the U.S.
dollar, offset by lower average selling prices. Asia/Pacific sales increased
$1.9 million, or 56.0% in 2005 when compared with the comparable period in 2004.
We continue to experience sizable growth in this region as a result of continued
penetration into both new and existing key markets. During the first quarter of
2005 we added an office in Indonesia and a fifth sales office in China, partly
contributing the sales growth in this region. No individual customer accounted
for 10.0% or more of sales in the three months ended March 31, 2005 or 2004.
Cost of sales increased to $26.7 million in the three months ended March 31,
2005 from $20.0 million in the three months ended March 31, 2004. As a
percentage of sales, cost of sales increased to 57.1% in 2005 from 50.5% in
2004. The increase in the percentage of cost of sales can be primarily
attributed to the following key factors:
o Less favorable product mix in 2005 within our data capture and
collection business segment resulting from increased sales of certain
non-Metrologic manufactured products that have lower margins.
o Increase in the contribution of our Industrial Automation/Optical
Systems revenues to the total revenues, as well as the completion of
certain lower fixed price contracts.
o Delay in the award of a contract with a proprietary customer within the
optical systems business for which we had specifically hired a number
of new employees.
o Higher overhead costs, including higher freight costs associated with
the reorganization of our warehousing operations in EMEA.
The factors mentioned above were partially offset by the following key
factors:
o The strengthening of the euro against the U.S. dollar, as discussed
above, net of the effect of decreases in average selling prices.
o A decrease in direct labor and manufacturing costs as a percent of
sales as a result of increased unit production in our Suzhou, China
facility.
o A decrease in direct material costs as a percent of sales resulting
from product redesigns and our engineering efforts to reduce bill of
material costs.
o A decrease in royalty costs due to reduction in the number of products
covered by the agreement between Symbol Technologies and the Company
Selling, general and administrative ("SG&A") expenses increased 21.6% to $11.4
million in the three months ended March 31, 2005 from $9.4 million for the three
months ended March 31, 2004. As a percentage of sales, SG&A expenses increased
slightly from 23.6% of sales in the three months ended March 31, 2004 to 24.3%
of sales in the corresponding period in 2005. The increase in SG&A expenses was
due to increased variable selling expenses associated with the higher sales
volume than the comparable period in 2004, the strengthening of the euro against
the U.S. dollar on euro denominated expenses, increased legal and professional
service fees associated with ongoing litigation and Sarbanes-Oxley compliance
matters, and an increase in personnel costs resulting from our increase in
infrastructure needed to support the increased sales volume during 2005 and
beyond.
R&D expenses increased 13.3% to $1.9 million in the three months ended March 31,
2005 from $1.7 million in the corresponding period in 2004; however, as a
percent of sales, R&D expenses decreased to 4.2% of sales from 4.3% of sales.
The decrease in R&D expenses as a percent of sales can be attributed to more
engineers working specifically on customer funded research programs during 2005
and higher sales volume in 2005. Costs of the engineers working on such programs
are charged to costs of sales for the time spent on the programs.
Net interest income/expense reflects net interest income of $0.02 million for
the three months ended March 31, 2005 compared with net interest income of $0.01
million for the comparable period in 2004. The increase can be attributed to
higher interest income due to higher cash and cash equivalent balances,
partially offset by higher interest expense and related borrowings outstanding
under our European credit facilities in 2005.
Other income/expense reflects net other expense of $0.7 million for the three
months ended March 31, 2005 compared with net other expense of $0.3 million for
the comparable period in 2004. The change can be attributed to higher foreign
exchange losses in 2005 when compared with the comparable period in 2004 as a
result of volatility in the euro exchange rate.
Net income was $3.9 million, or $0.17 per diluted share for the three months
ended March 31, 2005 compared with net income of $5.1 million or $0.22 per
diluted share in 2004. Net income reflects a 36% effective tax rate for 2005 as
compared with an effective tax rate of 38% in 2004.
Inflation and Seasonality
Inflation and seasonality have not had a material impact on our results of
operations. However, our sales are typically impacted by fluctuation decreases
in seasonal demand from European customers in our third quarter. In addition,
our first quarter is also impacted by factors, such as: (i) the establishment of
new budgets, (ii) the expiration of legislative calendar-year programs and (iii)
start-up investment of pilot efforts.
Liquidity and Capital Resources
Operating activities
Net cash provided from operations was $0.6 million and $7.0 million for the
three-month periods ended March 31, 2005 and 2004, respectively. Net cash
provided by operating activities for the three months ended March 31, 2005 can
be attributed primarily to net income of $3.9 million and depreciation and
amortization of approximately $1.7 million, offset by a decrease in accounts
payable and an increase in accounts receivable.
Our working capital increased $2.7 million or 3.2% to $86.0 million as of March
31, 2005 from $83.3 million as of December 31, 2004. The key component of the
increase in working capital was an increase in accounts receivable of $2.3
million as a result of sales concentrations at the end of the quarter, as well
as seasonally slower collections in parts of Asia/Pacific.
Investing activities
Cash used in investing activities was $1.9 million for the three months ended
March 31, 2005 as compared to $5.8 million for the comparable period in 2004.
The decrease in cash used in investing activities is primarily due to (i) the
purchase of the remaining 49% interest in Metrologic Eria France in the first
quarter of 2004 (See "Acquisition of Minority Interests" below for additional
information), offset by (ii) an increase in cash used for property, plant and
equipment purchases of $0.4 million primarily for manufacturing expansion
related investments, as well as manufacturing automation and information
technology related equipment.
Financing activities
Cash provided by financing activities was $3.9 million for the three months
ended March 31, 2005 as compared to $0.6 million for the comparable period in
2004. Cash provided by financing activities for the three months ended March 31,
2005 consists primarily of (i) $0.9 million of proceeds from the exercise of
stock options and employee stock purchase plan, (ii) net borrowings on
outstanding lines of credit of $3.6 million, offset by (iii) net principal
payments of $0.5 million on outstanding notes payable.
Outstanding debt and financing arrangements
In connection with the acquisition of Omniplanar, the Purchase Agreement set
forth a schedule of payments over 18 months. We paid $9,050 at closing, $650 in
March 2005, and will pay an additional $1,300 in September 2005 and $1,950 in
March 2006.
Some of our European subsidiaries have entered into working capital and invoice
discounting agreements with HypoVereinsbank, Dresdner, Societe Generale and GE
Commercial Finance. Outstanding borrowings under the working capital agreement
with HypoVereinsbank have been guaranteed by Metrologic Instruments, Inc., the
parent company. These agreements provide the Company with availability of up to
$18.7 million, using March 31, 2005 exchange rates, at interest rates ranging
from 3.08% to 5.75%. In addition, our subsidiary Metrologic do Brasil has a
working capital agreement with Banco Bradesco SA with availability of up to 0.6
million real or $0.2 million, using March 31, 2005 exchange rates. At March 31,
2005, $17.0 million was outstanding under such agreements and accordingly is
included in lines of credit in our Condensed Consolidated Balance Sheet.
We believe that our current cash and working capital positions and expected
operating cash flows will be sufficient to fund our working capital, planned
capital expenditures and debt repayment requirements for the foreseeable future.
Foreign Currency Exchange
Our liquidity has been, and may continue to be, affected by changes in foreign
currency exchange rates, particularly the value of the U.S. dollar relative to
the euro, the Brazilian real, the Singapore dollar, and the Chinese renminbi. In
an effort to mitigate the financial implications of the volatility in the
exchange rate between the euro and the U.S. dollar, we may selectively enter
into derivative financial instruments to offset our exposure to foreign currency
risks. Derivative financial instruments may include (i) foreign currency forward
exchange contracts with our primary bank for periods not exceeding six months,
which partially hedge sales to our German subsidiary and (ii) euro based loans,
which act as a partial hedge against outstanding intercompany receivables and
the net assets of our European subsidiary, which are denominated in euros.
Additionally, our European subsidiary invoices and receives payment in certain
other major currencies, including the British pound, which results in an
additional mitigating measure that reduces our exposure to the fluctuation
between the euro and the U.S. dollar although it does not offer protection
against fluctuations of that currency against the U.S. Dollar. No derivative
instruments were outstanding at March 31, 2005.
Acquisition of Minority Interests
Our original 51.0% interest in Metrologic Eria Iberica contained an option for
us to purchase the remaining 49.0% interest. In 2003, we agreed to purchase the
49.0% of Metrologic Eria Iberica that we did not own for approximately 5.9
million euros. Payments will be made over 3 years and commenced in August 2003.
As of March 31, 2005, we had purchased an additional 29.9%, of which 3.9% was
purchased during the period ended March 31, 2005 for approximately 0.5 million
euros, or $0.6 million at the exchange rate on March 31, 2005.
In March 2004, we entered into an agreement to purchase the 49% minority
interest of Metrologic Eria France for approximately 3.6 million euros, or $4.3
million at the exchange rate on March 31, 2004. As of March 31, 2004, we owned
100% of Metrologic Eria France.
Impact of Recently Issued Accounting Standards
In November 2004, the FASB issued Statement No. 151, "Inventory Costs, an
amendment of ARB No. 43, Chapter 4" ("SFAS No. 151"). SFAS 151 amends the
guidance in ARB No. 43, Chapter 4, "Inventory Pricing," to clarify the
accounting for abnormal amounts of idle facility expense, handling costs and
wasted material (spoilage). Among other provisions, the new rule requires that
such items be recognized as current-period charges, regardless of whether they
meet the criterion of "so abnormal" as stated in ARB 43. SFAS 151 is effective
for fiscal years beginning after June 15, 2005. The Company does not expect the
adoption of this statement to have a material effect on its consolidated
financial position, consolidated results of operations or liquidity.
In December 2004, the FASB issued FASB Staff Position No. FAS 109-2 ("FSP No.
109-2"), "Accounting and Disclosure Guidance for the Foreign Earnings
Repatriation Provisions within the American Jobs Creation Act of 2004" (the Jobs
Act). FSP No. 109-2 provides guidance with respect to reporting the potential
impact of the repatriation provisions of the Jobs Act on an enterprise's income
tax expense and deferred tax liability. The Jobs Act was enacted on October 22,
2004, and provides for a temporary 85% dividends received deduction on certain
foreign earnings repatriated during a one-year period. The deduction would
result in an approximate 5.25% federal tax rate on the repatriated earnings. To
qualify for the deduction, the earnings must be reinvested in the United States
pursuant to a domestic reinvestment plan established by a company's chief
executive officer and approved by a company's board of directors. Certain other
criteria in the Jobs Act must be satisfied as well. Although the Jobs Act was
signed into law in October 2004, the practical application of a number of the
provisions of the repatriation provision remains unclear. Tax authorities are
expected to provide clarifying language on key elements of the repatriation
provision. The Company has conducted a preliminary identification of potential
repatriation and reinvestment opportunities; however, the clarifying language
may affect our evaluation of the economic value of implementing any individual
opportunity and its ability to meet the overall qualifying criteria. As a
result, the Company will be unable to complete a determination of the Jobs Act's
effect on our plan for reinvestment or repatriation of foreign earnings until
the clarifying language is released.
In December 2004, the FASB issued Statement No. 123 (revised 2004), "Share-Based
Payment" ("SFAS No. 123R"), which replaces SFAS 123 and supersedes APB Opinion
No. 25, "Accounting for Stock Issued to Employees." This Statement requires all
share-based payments to employees, including grants of employee stock options,
to be recognized in the financial statements based on their fair values. The pro
forma disclosures previously permitted under SFAS 123 no longer will be an
alternative to financial statement recognition. In accordance with a Securities
and Exchange Commission Rule issued in April 2005, companies will be allowed to
implement SFAS No. 123R as of the beginning of the first fiscal year beginning
after June 15, 2005. The Company currently expects that it will adopt the
provisions of SFAS No. 123R on January 1, 2006. Under SFAS No. 123R, the Company
must determine the appropriate fair value model to be used for valuing
share-based payments, the amortization method for compensation cost and the
transition method to be used at date of adoption. The permitted transition
methods include either retrospective or prospective adoption. Under the
retrospective option, prior periods may be restated either as of the beginning
of the year of adoption or for all periods presented. The prospective method
requires that compensation expense be recorded for all unvested stock options at
the beginning of the first quarter of adoption of SFAS No. 123R, while the
retrospective methods would record compensation expense for all unvested stock
options beginning with the first period presented. The Company is currently
evaluating the requirements of SFAS No. 123R and expects that the adoption of
SFAS No. 123R will have a material impact on its consolidated financial
position, consolidated results of operations and earnings per share. The Company
has not yet determined the method of adoption or effect of adopting SFAS No.
123R and has not determined whether the adoption will result in amounts that are
similar to the current pro forma disclosures under SFAS No. 123. See Note 2 of
the Notes to Consolidated Financial Statements.
In December 2004, the FASB issued Statement No. 153, "Exchanges of Nonmonetary
Assets, an amendment of APB Opinion No. 29, Accounting for Nonmonetary
Transactions," SFAS 153 eliminates the exception from fair value measurement for
nonmonetary exchanges of similar productive assets in paragraph 21 (b) of APB
Opinion No. 29, "Accounting for Nonmonetary Transactions," and replaces it with
an exception for exchanges that do not have commercial substance. SFAS 153
specifies that a nonmonetary exchange has commercial substance if the future
cash flows of the entity are expected to change significantly as a result of the
exchange. SFAS 153 is effective for periods beginning after June 15, 2005. The
Company does not expect the adoption of this statement to have a material effect
on its consolidated financial position, consolidated results of operations or
liquidity.
Item 3- Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes in our quantitative and qualitative
disclosure about market risk since the Company's Annual Report on Form 10-K for
the year ended December 31, 2004.
Item 4- Controls and Procedures
As required by Rule 13a-15(e) under the Exchange Act, as of the end of the
period covered by this report, we carried out an evaluation of the effectiveness
of the design and operation of our disclosure controls and procedures. This
evaluation was carried out under the supervision and with the participation of
our Management, including our principal executive officer and principal
financial officer. These officers concluded that these disclosure controls and
procedures are effective to provide that (a) material information relating to
the Company is made known to these officers by other employees of the Company,
particularly material information related to the period for which this periodic
report is being prepared; and (b) this information is recorded, processed,
summarized, evaluated and reported, as applicable, within the time periods
specified in the rules and forms promulgated by the Securities and Exchange
Commission.
There have been no changes in the Company's internal controls over financial
reporting during the period covered by this report that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We protect our technological position and new product development with domestic
and foreign patents. When we believe competitors are infringing on these
patents, we may pursue claims or other legal action against these parties.
Additionally, from time-to-time, we receive legal challenges to the validity of
our patents or allegations that our products infringe the patents of others.
We are currently involved in matters of litigation arising in the normal course
of business including the matters described below. We believe that such
litigation either individually or in the aggregate will not have a material
adverse effect on our consolidated financial position, results of operations or
cash flows, except as noted below.
A. Symbol Technologies, Inc. v. Metrologic
On May 3, 2002, we were served with a lawsuit that was filed on April 12, 2002
by Symbol Technologies, Inc., in the U.S. District Court for the Eastern
District of New York alleging that we were in breach of the terms of the License
Agreement between us and Symbol (the "Symbol Agreement"). The Complaint sought a
declaratory judgment from the Court that we were in breach of the Agreement. On
March 31, 2003, the Court entered its decision on the parties' respective
motions for summary judgment, and finding in our favor, the Court dismissed
certain counts of Symbol's complaint. On April 9, 2003, Symbol voluntarily
dismissed the remaining counts of the complaint. Symbol filed its Notice of
Appeal with the U.S. Court of Appeals for the Second Circuit on May 7, 2003. On
December 23, 2003, the Court of Appeals dismissed Symbol's appeal in this
matter. In the interim, Symbol decided to proceed with the arbitration for which
the Company had filed a Demand in June 2002, which had been stayed pending the
decision by the lower court. On June 26, 2003, Symbol filed an Amended Answer
and Counterclaims asserting that (a) eleven of Metrologic's products are royalty
bearing products, as defined under the Symbol Agreement, and (b) in the
alternative, those products infringe upon one or more of Symbol's patents. In
February 2005, the arbitrator entered an interim award, finding that 8 of the
products are not royalty bearing products under the Symbol Agreement but that 3
of the products are royalty bearing products. The Company has made a motion for
another interim award to review a portion of the arbitrator's decision. This
motion has been granted and on March 23, 2005 the arbitrator reopened the
hearing with regard to certain portions of his earlier decision. The parties are
now waiting for this decision.
To date, no final award of damages against the Company has been granted in this
matter. Symbol has made a request for a damage award in the amount of
approximately $10 million. The Company believes that Symbol's claims for damages
in this amount are wholly without merit and intends to vigorously defend against
it, however if Symbol were to receive a final award in the amount of $10 million
and such an award were not reversed on appeal it would have a material impact on
the Company.
Item 6. Exhibits
Exhibits:
31.1 Certification by Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification by Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 executed by the Chief Executive Officer
of the Company.
32.2 Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 executed by the Chief Financial Officer
of the Company.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
METROLOGIC INSTRUMENTS, INC.
Date: May 9, 2005 By:/s/ Benny A. Noens
----------------- ----------------------------------------
Benny A. Noens
Chief Executive Officer
(Principal Executive Officer)
Date: May 9, 2005 By:/s/ Kevin J. Bratton
----------------- -----------------------------------------
Kevin J. Bratton
Chief Financial Officer
(Principal Financial and Accounting Officer)
Exhibit Index Page Number
31.1 Certification by Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002. 25
31.2 Certification by Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002. 26
32.1 Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 executed by the Chief Executive Officer of
the Company. 27
32.2 Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 executed by the Chief Financial Officer of
the Company. 28
Exhibit 31.1
CERTIFICATION
I, Benny A. Noens, Chief Executive Officer and President of
Metrologic Instruments, Inc., certify that:
1. I have reviewed this report on Form 10-Q of Metrologic Instruments,
Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and we have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b. designed such internal control over financial reporting, or
caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
c. evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
d. disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during the registrant's
most recent fiscal quarter that has materially affected, or is reasonably likely
to materially affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent functions):
a. all significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record,
process, summarize, and report financial information; and
b. any fraud, whether or not material, that involves
management or other employees who have a significant role in the registrant's
internal control over financial reporting.
By: /s/Benny A. Noens
----------------------------------
Name: Benny A. Noens
Title: Chief Executive Officer and
President
Date: May 9, 2005
Exhibit 31.2
CERTIFICATION
I, Kevin J. Bratton, Chief Financial Officer of Metrologic
Instruments, Inc., certify that:
1. I have reviewed this report on Form 10-Q of Metrologic Instruments,
Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and we have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b. designed such internal control over financial reporting, or
caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
c. evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
d. disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during the registrant's
most recent fiscal quarter that has materially affected, or is reasonably likely
to materially affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent functions):
a. all significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record,
process, summarize, and report financial information; and
b. any fraud, whether or not material, that involves
management or other employees who have a significant role in the registrant's
internal control over financial reporting.
By: /s/Kevin J. Bratton
----------------------------------
Name: Kevin J. Bratton
Title: Chief Financial Officer
Date: May 9, 2005
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Report of Metrologic Instruments, Inc.
(the "Company") on Form 10-Q for the quarter ended March 31, 2005 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
Benny A. Noens, Chief Executive Officer of the Company, certify, pursuant to 18
U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of
2002, that:
1. The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
/s/Benny A. Noens
- ------------------------------------
Benny A. Noens
Chief Executive Officer
May 9, 2005
The foregoing certification is being furnished solely pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350 and shall not be deemed
filed by the Company for the purposes of Section 18 of the Securities Exchange
Act of 1934 (the "Exchange Act") or otherwise subject to liability under that
Section. This certification shall not be deemed to be incorporated by reference
into any filing under the Securities Act of 1933 or the Exchange Act except to
the extent that this certification is expressly incorporated by reference into
any such filing.
A signed original of this written statement required by 18 U.S.C. Section 1350
has been provided to the Company and will be retained by the Company and
furnished to the Securities and Exchange Commission or its staff upon request.
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Report of Metrologic Instruments, Inc.
(the "Company") on Form 10-Q for the quarter ended March 31, 2005 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
Kevin J. Bratton, Chief Financial Officer of the Company, certify, pursuant to
18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of
2002, that:
1. The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
/s/Kevin J. Bratton
- ------------------------------------
Kevin J. Bratton
Chief Financial Officer
May 9, 2005
The foregoing certification is being furnished solely pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350 and shall not be deemed
filed by the Company for the purposes of Section 18 of the Securities Exchange
Act of 1934 (the "Exchange Act") or otherwise subject to liability under that
Section. This certification shall not be deemed to be incorporated by reference
into any filing under the Securities Act of 1933 or the Exchange Act except to
the extent that this certification is expressly incorporated by reference into
any such filing.
A signed original of this written statement required by 18 U.S.C. Section 1350
has been provided to the Company and will be retained by the Company and
furnished to the Securities and Exchange Commission or its staff upon request.