<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>q22001.txt
<DESCRIPTION>FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 2001
<TEXT>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly
period ended June 30, 2001
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 0-24172
Metrologic Instruments, Inc.
(Exact name of registrant as specified in its charter)
New Jersey 22-1866172
(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification No.)
90 Coles Road, Blackwood, New Jersey 08012
(Address of principal executive offices) (Zip Code)
(856) 228-8100
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __
As of August 14, 2001 there were 5,458,629 shares of Common Stock, $.01 par
value per share, outstanding.
<PAGE>
METROLOGIC INSTRUMENTS, INC.
INDEX
Page
No.
Part I - Financial Information
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets -
June 30, 2001 and December 31, 2000 3
Condensed Consolidated Statements of Operations -
Three and Six Months Ended June 30, 2001 and 2000 4
Condensed Consolidated Statements of Cash Flows -
Six Months Ended June 30, 2001 and 2000 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 14
Part II - Other Information
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 17
Item 3. Defaults upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
Exhibit Index 19
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
Metrologic Instruments, Inc.
Consolidated Balance Sheets
(amounts in thousands except share data)
June 30, December 31,
Assets 2001 2000
-------- --------
(Unaudited)
Current assets:
Cash and cash equivalents $ 3,141 $ 2,332
Accounts receivable, net of allowance 24,776 26,593
Inventory 19,675 26,898
Deferred income taxes 1,025 1,356
Other current assets 1,874 4,025
-------- --------
Total current assets 50,491 61,204
Property, plant and equipment, net 13,874 10,459
Patents and trademarks, net of amortization 3,357 3,013
Holographic technology, net of amortization 542 600
Advance license fee, net of amortization 1,471 1,529
Goodwill, net of amortization 13,989 4,317
Other assets 1,066 701
-------- --------
Total assets $ 84,790 $ 81,823
======== ========
Liabilities and shareholders' equity
Current liabilities:
Current portion of lines of credit $ - $ 174
Current portion of notes payable 6,730 2,531
Accounts payable 6,256 5,188
Accrued expenses 8,662 11,739
-------- --------
Total current liabilities 21,648 19,632
Lines of credit, net of current portion 11,140 17,689
Notes payable, net of current portion 23,594 7,645
Deferred income taxes 573 565
Other liabilities 553 529
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; 5,456,365 and 5,451,092 shares
issued and outstanding in 2001 and 2000,
respectively 55 54
Additional paid-in capital 17,597 17,562
Retained earnings 13,722 20,703
Accumulated other comprehensive loss (4,092) (2,556)
-------- --------
Total shareholders' equity 27,282 35,763
-------- --------
Total liabilities and shareholders' equity $ 84,790 $ 81,823
======== ========
See accompaying notes.
<page>
Metrologic Instruments, Inc.
Condensed Consolidated Statements of Operations
(amounts in thousands except share and per share data)
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
2001 2000 2001 2000
(Unaudited) (Unaudited)
Sales $28,057 $23,128 $57,841 $45,460
Cost of sales 18,288 13,903 47,015 27,118
------- ------- ------- -------
Gross profit 9,769 9,225 10,826 18,342
Selling, general and
administrative expenses 8,289 6,080 15,832 11,850
Research and development
expenses 1,481 1,338 3,271 2,670
------- ------- ------- -------
Operating (loss) income (1) 1,807 (8,277) 3,822
Other (expenses) income
Interest income 16 74 96 145
Interest expense (1,021) (226) (2,202) (365)
Foreign currency transaction
(loss) gain (84) 205 (161) 218
Other, net (367) (101) (726) (168)
------- ------- ------- -------
Total other (expenses) (1,456) (48) (2,993) (170)
------- ------- ------- -------
(Loss) income before provision
for income taxes (1,457) 1,759 (11,270) 3,652
Provision for income taxes (550) 561 (4,289) 1,242
------- ------- ------- -------
Net (loss) income $ (907) $ 1,198 $(6,981) $ 2,410
======= ======= ======= =======
Basic (loss) earnings per share
Weighted average shares
outstanding 5,456,365 5,436,104 5,455,022 5,428,212
Basic (loss) earnings per
share $(0.17) $0.22 $ (1.28) $ 0.44
Diluted (loss) earnings per share
Weighted average shares
outstanding 5,456,365 5,436,104 5,455,022 5,428,212
Net effect of dilutive
securities - 250,425 - 205,908
Total shares outstanding
used in computing diluted
earnings per share 5,456,365 5,686,529 5,455,022 5,634,120
Diluted (loss) earnings
per share $(0.17) $0.21 $ (1.28) $ 0.43
See accompanying notes.
<page>
Metrologic Instruments, Inc.
Condensed Consolidated Statements of Cash Flows
(amounts in thousands)
Six Months Ended June 30,
---------------------------
2001 2000
-------- --------
(unaudited)
Operating activities
Net cash provided by (used in)
operating activities $ 8,296 $(9,200)
Investing activities
Purchase of property, plant and equipment (481) (1,862)
Patents and trademarks (467) (277)
Other intangibles 697 -
Cash paid for purchase of business,
net of cash acquired (19,739) (1,282)
------- -------
Net cash used in investing activities (19,990) (3,421)
Financing activities
Proceeds from exercise of stock options and
employee stock purchase plan 37 251
Proceeds from issuance of notes payable 20,557 2,498
Principal payments on notes payable (11,737) (425)
Net proceeds from line of credit 4,451 10,153
Capital lease payments (55) (46)
------- -------
Net cash provided by financing activities 13,253 12,431
Effect of exchange rates on cash (750) (748)
------- -------
Net increase (decrease) in cash and
cash equivalents 809 (938)
Cash and cash equivalents at beginning of period 2,332 6,970
------- -------
Cash and cash equivalents at end of period $ 3,141 $ 6,032
======== =======
Supplemental Disclosure
Cash paid for interest $ 1,737 $ 285
Cash paid for income taxes $ 112 $ 540
Tax benefit from stock options $ - $ 36
See accompanying notes.
<page>
METROLOGIC INSTRUMENTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands)
(Unaudited)
1. Business
Metrologic Instruments, Inc. and its subsidiaries (the "Company") designs,
manufactures and markets bar code scanning and high-speed automated data
capture solutions using laser, holographic and vision-based technologies.
Metrologic 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. In addition to its extensive line of
bar code scanning and vision system equipment, the company also provides laser
beam delivery and control systems to semi-conductor and fiber optic
manufacturers, as well as a variety of highly sophisticated optical systems.
Metrologic products are sold in more than 100 countries worldwide through
Metrologic's sales, service and distribution offices located in North and South
America, Europe and Asia.
2. Accounting Policies
Reclassifications
Results for the six months ended June 30, 2001 reflect certain
reclassifications of amounts previously reported in the three months ended
March 31, 2001 to conform to current period presentation.
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, 2000, including the Consolidated Financial
Statements and the Notes to Consolidated Financial Statements for the year
ended December 31, 2000 contained therein.
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.
Impact of Pending Adoption of Accounting Standards
In June 2001, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards No. 141, Business Combinations,
and No. 142, Goodwill and Other Intangible Assets, effective for fiscal years
beginning after December 15, 2001. Under the new rules, goodwill and intangible
assets deemed to have indefinite lives will no longer be amortized but will be
subject to annual impairment tests in accordance with the Statements. Other
intangible assets will continue to be amortized over their useful lives.
The Company will apply the new rules on accounting for goodwill and
other intangible assets beginning in the first quarter of 2002. Application of
the nonamortization provisions of the Statement is expected to result in an
increase in net income of approximately $800 ($0.15 per share) per year, not-
withstanding any further purchase price adjustments from the Company's purchase
of AOA. During 2002, the Company will perform the first of the required
impairment tests of goodwill and indefinite lived intangible assets as of
January 1, 2002 and has not yet determined what the effect of these tests will
be on the earnings and financial position of the Company.
<page>
3. Cost of Sales
Cost of sales for the six months ended June 30, 2001 included $10,040
of special charges and other costs incurred in the Company's first quarter
ended March 31, 2001 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.
4. Inventory
Inventory consists of the following:
June 30, 2001 December 31, 2000
------------------ ------------------
Raw materials $ 8,247 $ 9,694
Work-in-process 4,460 6,380
Finished goods 6,968 10,824
------ ------
19,675 26,898
------ ------
5. Comprehensive (Loss) Income
The Company's total comprehensive (loss) income were as follows:
Six Months Ended
June 30,
2001 2000
-------- --------
Net (loss) income $ (6,981) $ 2,410
Other comprehensive losses:
Change in equity due to foreign
currency translation adjustments (1,536) (1,568)
------ ------
Comprehensive (loss) income $ (8,517) $ 842
------ ------
<page>
6. Geographical Information
The Company generates its revenue from the sale of laser bar code scanners
primarily to distributors, value-added resellers, original equipment
manufacturers and directly to end users, in locations throughout the world. No
individual customer accounted for 10% or more of revenues in 2001 or 2000.
The Company manages its business on a geographic basis and has principal
operations in the United States and Europe. Sales were attributed to geographic
areas in the following table based on the location of the Company's customers.
United States Operations European
North Other Operations Total
America Europe Export Total Europe Consolidated
Three months ended June 30, 2001:
Sales $12,911 $ 635 $ 4,079 $ 17,625 $10,432 $ 28,057
Income (loss)
before provision
for income taxes $ (1,469) $ 13 $ (1,456)
Identifiable
assets - - - $ 67,795 $16,995 $ 84,790
Three months ended June 30, 2000:
Sales $12,486 $201 $ 1,918 $ 14,605 $ 8,523 $ 23,128
Income (loss)
before provision
for income taxes $ 1,607 $ 152 $ 1,759
Identifiable
assets - - - $ 58,734 $14,142 $ 72,876
Six months ended June 30, 2001:
Sales $28,918 $1,117 $ 7,637 $ 37,672 $20,169 $ 57,841
Loss before
provision
for income taxes - - $(10,627) $ (643) $(11,270)
Six months ended June 30, 2000:
Sales $24,129 $785 $ 3,992 $ 28,906 $16,554 $ 45,460
Income (loss)
before provision
for income taxes - - $ 3,847 $ (195) $ 3,652
7. Acquisition
On January 8, 2001, the Company acquired all of the outstanding stock of
Adaptive Optics Associates, Inc. ("AOA"), a developer and manufacturer of
custom optical systems which include precision laser beam delivery, high speed
imaging control and data processing, industrial inspections and scanning and
dimensioning systems for the aerospace and defense industry. The acquisition
was accounted for under the purchase method of accounting, and accordingly, the
results of AOA's operations from January 8, 2001 are reflected in the income
statement for the three and six months ended June 30, 2001. The excess purchase
price over the fair value of net assets acquired was approximately $10,671 and
is being amortized over a straight-line basis over 10 years.
The following unaudited pro forma condensed results of operations combine the
historical consolidated statements of operations for Metrologic and AOA for the
three and six months ended June 30, 2001 and June 30, 2000 as if the
acquisition was consummated on January 1, 2000.
<page>
The unaudited pro forma financial statements do not purport to represent what
Metrologic's financial position or results of operations would actually have
been if the acquisition of AOA occurred at such date or at the beginning of the
period indicated or to project Metrologic's financial position or results of
operations at any future date or for any future period, nor do these pro forma
combined financial statements give effect to any matters other than those
described in the notes thereto. The final purchase price is subject to
adjustment based upon a final determination of working capital. In addition,
the allocation of the purchase price to these assets and liabilities of AOA is
preliminary and the final allocations may differ from the amounts reflected
herein.
(amounts in thousands except share and per share data)
Pro Forma Pro Forma
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
2001 2000 2001 2000
--------- -------- --------- --------
Sales $ 28,057 $ 28,004 $ 58,300 $ 56,092
Operating (loss) income (1) 2,124 (8,593) 4,381
Net (loss) income (907) 921 (7,010) 1,812
(Loss) earnings
per share
Basic (0.17) 0.17 (1.29) 0.33
Diluted (0.17) 0.16 (1.29) 0.32
Weighted average
number of
shares outstanding
Basic 5,456,365 5,436,104 5,455,022 5,428,212
Diluted 5,456,365 5,686,529 5,455,022 5,634,120
8. Credit Facility
In connection with the acquisition of Adaptive Optics Associates, Inc. ("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 June 30, 2001, the balance
outstanding was $19,000.
Also under the Credit Facility, the Company secured a $25,000 revolving credit
line, which expires in January 2006. 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. 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. As of June 30, 2001, the balance
outstanding was $11,140.
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 $4,750 in 2002 and $6,250 in 2003. Interest rates are fixed
at 10%.
Under the Credit Facility, the Company is subject to affirmative and negative
covenants. The Company did not meet certain covenant requirements as of June
30, 2001, however, the Company obtained a waiver and plans to convert the
working capital revolving facility to an asset-based arrangement. The Company
believes that an asset-based arrangement would provide more flexibility to
finance the Company's working captial needs. The Company believes such an
asset-based arrangement to be in place before the end of the third quarter 2001.
<page>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion of the Company's results of operations and
liquidity and capital resources should be read in conjunction with the
unaudited Condensed Consolidated Financial Statements of the Company and the
related Notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q
and the Consolidated Financial Statements and the Notes to Consolidated
Financial Statements for the year ended December 31, 2000 appearing in the
Company's Annual Report on Form 10-K for the year ended December 31, 2000. The
Condensed Consolidated Financial Statements for the three and six months ended
June 30, 2001 and June 30, 2000 are unaudited.
The Company derives its revenues from sales of its scanners through
distributors, value-added resellers ("VARs") and original equipment
manufacturers ("OEMs") and directly to end-users in the United States and in
over 100 foreign countries.
Most of the Company's product sales in Western Europe, Asia and Brazil
are billed in foreign currencies and are subject to currency exchange rate
fluctuations. Substantially all of the Company's products are manufactured in
the Company's U.S. facility, and therefore, sales and results of operations are
affected by fluctuations in the value of the U.S. dollar relative to foreign
currencies. Accordingly, in the three and six months ended June 30, 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.
Three Months Ended June 30, 2001 Compared with Three Months Ended June 30, 2000
(amounts in thousands except per share information)
Sales increased 21.3% to $28,057 in the three months ended June 30,
2001 from $23,128 in the three months ended June 30, 2000, principally as a
result of the addition of sales of AOA. Sales in the three months ended June
30, 2001 were affected 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 quarterly European operation sales by approximately 7.0% and quarterly
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 3.9% as compared to the corresponding period in 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 $15,146 (53.9% of total sales) in
the three months ended June 30, 2001 and $13,016 (56.3% of total sales) in the
three months ended June 30, 2000. No individual customer accounted for 5% or
more of revenues in the three months ended June 30, 2001. Two customers
accounted for 7.5% and 7.4%, respectively of total revenues in the three months
ended June 30, 2000.
Cost of sales increased to $18,288 in the three months ended June 30,
2001 from $13,903 in the three months ended June 30, 2000. The increase in cost
of sales was due to the increased cost of sales associated with the acquisition
of AOA. Further, cost of sales during the three months ended June 30, 2001 was
negatively impacted by 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 36.3%
to $8,289 in the three months ended June 30, 2001 from $6,080 in the three
months ended June 30, 2000 and increased as a percentage of sales to 29.5% from
26.3%. 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 an increase to the allowance for uncollectible accounts.
Research and development ("R&D") expenses increased 10.7% to $1,481 in
the three months ended June 30, 2001 from $1,338 in the three months ended June
30, 2000, and decreased as a percentage of sales to 5.3% from 5.8%. The
increase in R&D expenses is due primarily to the addition of AOA expenses.
<page>
Operating (loss) income decreased 100% to $(1) in the three months
ended June 30, 2001 from $1,807 in the three months ended June 30, 2000, and
operating income as a percentage of sales decreased to 0% from 7.8%.
Other income/expenses reflect net other expenses of $1,456 in the
three months ended June 30, 2001 compared to net other expenses of $48 in the
corresponding period in 2000. Net other expenses for the three months ended
June 30, 2001 reflect higher interest and amortization expenses due to the
acquisition of AOA and associated debt, and higher foreign currency transaction
losses.
Net loss was $907 in the three months ended June 30, 2001 compared
with net income of $1,198 in the three months ended June 30, 2000. Net loss
reflects a 38% effective income tax rate for the three months ended June 30,
2001 compared to 32% for the corresponding period in 2000. The increased
effective income tax rate resulted from a higher effective state tax rate of
AOA. The increase in the value of the U.S. dollar relative to other foreign
currencies negatively affected diluted earnings per share by approximately $.11
as compared to the corresponding period in 2000.
Six Months Ended June 30, 2001 Compared with Six Months Ended June 30, 2000
(amounts in thousands except per share information)
Results for the six months ended June 30, 2001 reflect certain
reclassifications of amounts previously reported in the three months ended
March 31, 2001 to conform to current period presentation.
Sales increased 27.2% to $57,841 in the six months ended June 30, 2001
from $45,460 in the six months ended June 30, 2000, principally as a result of
the addition of sales of AOA. Sales in the six months ended June 30, 2001 were
affected 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 7.0% and year-to-date
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 3.3% as compared to the corresponding period in 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 $28,923 (50.0% of total sales) in
the six months ended June 30, 2001 and $25,692 (56.5% of total sales) in the
six months ended June 30, 2000. No individual customer accounted for 5% or more
of the Company's total revenues in the six months ended June 30, 2001. Two
customers accounted for 6.5% and 6.3%, respectively of total revenues in the
six months ended June 30, 2000.
Cost of sales increased to $47,015 in the six months ended June 30,
2001 from $27,118 in the six months ended June 30, 2000. In addition to the
increased costs of sales associated with the acquisition of AOA, cost of sales
for the six months ended June 30, 2001 included $10,040 of special charges and
other costs that are not expected to reoccur in subsequent quarters 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. Similar
costs are not anticipated to be included in costs of sales for the remaining
two quarters of 2001. Further, cost of sales as a percentage of sales during
the three months ended June 30, 2001 was negatively impacted by the increase in
the value of the U.S. dollar relative to other foreign currencies as compared
to the corresponding period in 2000.
SG&A expenses increased 33.6% to $15,832 in the six months ended June
30, 2001 from $11,850 in the six months ended June 30, 2000 and increased as a
percentage of sales to 27.4% from 26.1%. 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 an increase to the allowance for
uncollectible accounts.
Research and development ("R&D") expenses increased 22.5% to $3,271 in
the six months ended June 30, 2001 from $2,670 in the six months ended June 30,
2000, and decreased as a percentage of sales to 5.7% from 5.9%. The increase in
R&D expenses is due primarily to the addition of AOA expenses.
<page>
Operating income, excluding special charges and other costs, decreased
53.9% to $1,763 in the six months ended June 30, 2001 from $3,822 in the six
months ended June 30, 2000, and operating income as a percentage of sales
decreased to 3% from 8.4%. Operating losses including special charges and other
costs in the six months ended June 30, 2001 was $8,277.
Other income/expenses reflect net other expenses of $2,993 in the six
months ended June 30, 2001 compared to net other expenses of $170 in the
corresponding period in 2000. Net other expenses for the six months ended June
30, 2001 reflect higher interest and amortization expenses due to the
acquisition of AOA and associated debt, and higher foreign currency transaction
losses.
Net loss was $6,981 in the six months ended June 30, 2001 compared
with net income of $2,410 in the six months ended June 30, 2000. Net income
reflects a 38% effective income tax rate for the six months ended June 30, 2001
compared to 34% for the corresponding period in 2000. The increased effective
income tax rate resulted from a higher effective state tax rate of AOA. The
increase in the value of the U.S. dollar relative to other foreign currencies
negatively affected diluted earnings per share by approximately $.21 as
compared to the corresponding period in 2000.
Inflation and Seasonality
Inflation and seasonality have not had a material impact on the
Company's results of operations. There can be no assurance, however, that the
Company's sales in future periods will not be impacted by fluctuations in
seasonal demand from European customers in its third quarter or from reduced
production days in the Company's fourth quarter.
Liquidity and Capital Resources (amounts in thousands)
The Company's working capital decreased approximately 30.6% to $28,843
as of June 30, 2001 from $41,572 as of December 31, 2000, due primarily 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
classified in non-current liabilities.
The Company's operating activities provided net cash of $8,296
compared with net cash used of $9,200 for the six months ended June 30, 2001
and 2000, respectively. Net cash provided in operating activities for the six
months ended June 30, 2001 resulted primarily from reductions in accounts
receivable plus non-cash charges, offset by decreases in accrued expenses.
In connection with the acquisition of Adaptive Optics Associates, Inc.
("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 June 30, 2001, the
balance outstanding was $19,000.
Also under the Credit Facility, the Company secured a $25,000
revolving credit line, which expires in January 2006. 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. 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. As of June 30, 2001, the
balance outstanding was $11,140.
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 $4,750 in 2002 and $6,250 in 2003. Interest rates are
fixed at 10%.
Under the Credit Facility, the Company is subject to affirmative and
negative covenants. The Company did not meet certain covenant requirements as
of June 30, 2001, however, the Company obtained a waiver and plans to convert
the working capital revolving facility to an asset-based arrangement. The
Company believes that an asset-based arrangement would provide more flexibility
to finance the Company's working captial needs. The Company believes such an
asset-based arrangement to be in place before the end of the third quarter 2001.
Property, plant & equipment expenditures were $481 and $1,862 for the
six months ended June 30, 2001 and 2000, respectively. The Company's current
plans 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; (iii) additional Company
facilities; and (iv) enhancements to existing information systems, and
additional information systems.
<page>
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, the Japanese yen and the Chinese renminbi. In an effort to mitigate the
financial implications of the volatility in the exchange rate between foreign
currencies 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 through its primary bank for periods not exceeding
six months, which partially hedge sales to the Company's subsidiaries and (ii)
foreign currency based loans, which act as a partial hedge against outstanding
intercompany receivables and the net assets of its foreign subsidiaries.
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 believes that its current cash and cash equivalent
balances, along with cash generated from operations and availability under
revolving credit facilities, will be adequate to fund the Company's operations
through at least the next twelve months.
Forward Looking Statements; Certain Cautionary Language
Written and oral statements provided by the Company from time to time,
including those in this report, 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:
Reliance for sales 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; 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; 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 timing,
introduction and market acceptance of Metrologic's new products including the
iQ180; 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; the costs of legal proceedings or assertions by or against the
Company relating to intellectual property rights and licenses, and adoption of
new or changes in accounting policies and practices; availability of patent
protection for Metrologic's vision-based technologies, and other products;
general economic conditions; disposition of legal issues; 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 effects of and changes in trade, monetary
and fiscal policies, laws and 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; Metrologic's
ability to integrate AOA with other Metrologic subsidiaries, and realize
anticipated impact on results of operations; 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; the economic slowdown of foreign
nations other than those using may also adversely affect the Company's results
of operations; ability to comply with future bank covenants; 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.
<page>
All forward-looking statements included herein are based upon
information presently available, and the Company assumes no obligation to
update any forward-looking 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 can be made in the euro, and parties can 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 will
introduce euro notes and coins and withdraw all legacy currencies so that they
will no longer be available. The euro conversion may affect cross-border
competition by creating cross-border transparency. The Company is assessing its
pricing/marketing strategy in order to insure that it remains competitive in a
broader European market. The Company is also assessing its information
technology systems to allow for transactions to take place in both legacy
currencies and the euro and the eventual elimination of the legacy currencies,
and is reviewing whether certain existing contracts will need to be modified.
The Company's currency risk and risk management for operations in participating
countries may be reduced as the legacy currencies are converted to the euro.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The information contained in Item 7A of the Company's Annual Report on
Form 10-K for the year ended December 31, 2000 is hereby incorporated herein by
reference.
<page>
PART II. OTHER INFORMATION
Item 1 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 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.
<page>
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. The case is now in the early states of
discovery.
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 where in 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 agreed to hear the appeal. The hearing
on the appeal has not yet been scheduled.
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. The Court heard argument
on this motion on June 15, 2001. On July 12, 2001, the Court denied the Auto ID
companies' motion for partial summary judgment concluding that there were
triable issues of material fact and therefore summary judgment was not
appropriate. The Court also denied the Lemelson Partnership's cross-motion for
summary judgment on the same basis.
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 of the Lemelson partnership in their dealings
before the United States Patent and Trademark Office in obtaining the patents
in suit. This motion is now pending.
B. Metrologic v. PSC
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 and has made a
claim with its insurance carrier to pay for the defense of this claim.
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 still in discovery.
<page>
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Shareholders was held on June 21, 2001. At such
meeting, the following matters were voted upon by the shareholders, receiving
the number of affirmative, negative and withheld votes, as well as abstentions
and broker non-votes, set forth below each matter.
(1) The vote of the common shareholders for the election of Richard
Close, John H. Mathias and William Rulon-Miller as directors to serve a
three-year term ending in 2004 were as follows:
No. of Votes For Name
---------------- -----------------
5,250,438 Richard Close
5,250,438 John H. Mathias
5,250,438 William Rulon-Miller
(2) The vote of the common shareholders for the appointment of Ernst &
Young as the independent auditors for the Company for the fiscal year ending
December 31, 2001 was as follows:
5,274,053 For 580 Against 300 Abstain
--------- --- ---
The directors of the Company whose terms continue after the Annual
Meeting of Shareholders referenced above are C. Harry Knowles, Janet H.
Knowles, Stanton L. Meltzer, Thomas E. Mills IV, and Hsu Jau Nan.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
(b) Reports on Form 8-K.
During the quarter ended June 30, 2001 the Registrant did not
file any reports on Form 8-K:
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed by the undersigned
thereunto duly authorized.
METROLOGIC INSTRUMENTS, INC.
Date: August 14, 2001 By:/s/ C. Harry Knowles
---------------- -----------------------
C. Harry Knowles
Chairman of the Board
and Chief Executive Officer
(Principal Executive Officer)
Date: August 14, 2001 By:/s/Thomas E. Mills IV
---------------- --------------------------
Thomas E. Mills IV
President, Chief Operating
Officer and Chief Financial
Officer (Principal Financial and
Accounting Officer)
<PAGE>
EXHIBIT INDEX
Exhibit No. Page No.
</TEXT>
</DOCUMENT>