1
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 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 No. 0-9220
METATEC INTERNATIONAL, INC.
(Exact name of Registrant as specified in its charter)
OHIO 31-1647405
(State of Incorporation) (IRS Employer Identification No.)
7001 Metatec Boulevard
Dublin, Ohio 43017
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (614) 761-2000
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, and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Number of Common Shares outstanding as of July 27, 2001: 6,136,113
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METATEC INTERNATIONAL, INC.
INDEX PAGE
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Part I : Financial Information
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets as of June 30,
2001 (unaudited) and December 31, 2000 3
Condensed Consolidated Statements of Operations
for the three months ended June 30, 2001
and 2000 (unaudited) 4
Condensed Consolidated Statements of Operations
for the six months ended June 30, 2001
and 2000 (unaudited) 5
Condensed Consolidated Statement of Shareholders'
Equity for the six months ended
June 30, 2001 (unaudited) 6
Consolidated Statements of Cash Flows
for the six months ended June 30,
2001 and 2000 (unaudited) 7
Notes to Condensed Consolidated Financial
Statements (unaudited) 8
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-11
Item 3 - Quantitative and Qualitative Disclosures about
Market Risk 11
Part II: Other Information
Items 1-6 12
Signatures 12
Page 2 of 12
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PART I - FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
METATEC INTERNATIONAL, INC. (Unaudited)
CONDENSED CONSOLIDATED BALANCE SHEETS June 30, At December 31,
2001 2000
------------------------------------------------------------------------------- ------------ -------------
ASSETS
Current assets:
Cash and cash equivalents $ 622,490 $ 2,086,228
Accounts receivable, net of allowance for doubtful accounts of $263,000 and $351,000 11,860,429 15,146,714
Inventory 2,929,081 2,970,219
Prepaid expenses 1,341,290 1,054,362
Deferred income taxes 588,107 588,107
------------ ------------
Total current assets 17,341,397 21,845,630
Property, plant and equipment - net 46,122,202 50,455,317
Goodwill - net 4,042,598 4,631,036
Other long term assets 265,943 296,890
Deferred income taxes 104,000 104,000
------------ ------------
TOTAL ASSETS $ 67,876,140 $ 77,332,873
============ ============
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,226,922 $ 6,472,385
Current maturities of long-term debt and capital lease obligations 19,082,326 6,978,028
Current maturities of long-term real estate debt 147,874 170,087
Accrued expenses:
Royalties 4,665,699 3,712,796
Personal property taxes 1,396,613 1,270,425
Payroll 946,630 1,193,054
Other 1,211,955 1,209,600
Unearned income 198,474 234,235
------------ ------------
Total current liabilities 31,876,493 21,240,610
Long-term real estate debt 18,604,941 18,623,708
Other long-term debt and capital lease obligations, less current maturities 1,122,928 16,769,506
Other long-term liabilities 611,401 527,172
------------ ------------
Total liabilities 52,215,763 57,160,996
------------ ------------
Shareholders' equity:
Common stock - no par value; authorized 10,000,000 shares;
issued 2001 - 7,217,855, 2000 - 7,177,855 shares 35,031,138 34,991,138
Accumulated deficit (11,595,506) (7,573,362)
Accumulated other comprehensive loss (1,922,718) (1,423,362)
Treasury stock, at cost - 1,081,742 shares (5,822,537) (5,822,537)
Unamortized restricted stock (30,000) --
------------ ------------
Total shareholders' equity 15,660,377 20,171,877
------------ ------------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 67,876,140 $ 77,332,873
============ ============
See notes to condensed consolidated financial statements.
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METATEC INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended June 30,
-------------------------------
2001 2000
----------------------------------------------- --------------- --------------
NET SALES $ 18,861,865 $ 26,178,157
Cost of sales 13,697,185 18,859,277
------------ ------------
Gross profit 5,164,680 7,318,880
Selling, general and administrative expenses 6,367,857 6,048,088
------------ ------------
OPERATING EARNINGS (LOSS) (1,203,177) 1,270,792
Other income and (expense):
Investment income 5,654 10,477
Interest expense (898,024) (1,152,069)
------------ ------------
EARNINGS (LOSS) BEFORE INCOME TAXES (2,095,547) 129,200
Income taxes 0 59,000
------------ ------------
NET EARNINGS (LOSS) $ (2,095,547) $ 70,200
============ ============
NET EARNINGS (LOSS) PER COMMON SHARE
Basic and diluted $ (0.34) $ 0.01
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
Basic 6,136,113 6,080,613
============ ============
Diluted 6,136,113 6,107,261
============ ============
See notes to condensed consolidated financial statements.
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METATEC INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Six Months Ended June 30,
----------------------------
2001 2000
------------ ------------
NET SALES $ 39,910,413 $ 53,815,261
Cost of sales 29,003,252 38,337,589
------------ ------------
Gross profit 10,907,161 15,477,672
Selling, general and administrative expenses 13,015,516 13,035,309
Restructuring expense 109,564 430,561
------------ ------------
OPERATING EARNINGS (LOSS) (2,217,919) 2,011,802
Other income and (expense):
Investment income 40,700 21,649
Interest expense (1,844,925) (2,208,490)
------------ ------------
LOSS BEFORE INCOME TAXES (4,022,144) (175,039)
Income taxes (benefit) 0 (77,000)
------------ ------------
NET LOSS $ (4,022,144) $ (98,039)
============ ============
NET LOSS PER COMMON SHARE
Basic and diluted $ (0.66) $ (0.02)
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
Basic and diluted 6,135,891 6,078,910
============ ============
See notes to condensed consolidated financial statements.
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METATEC INTERNATIONAL, INC.
----------------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
Accumulated Other Unamortized
Common Accumulated Comprehensive Treasury Restricted
Stock Deficit Loss Stock Stock Total
----------- ------------ ----------- ----------- -------- -----------
BALANCE AT DECEMBER 31, 2000 $34,991,138 $ (7,573,362) $(1,423,362) $(5,822,537) $ 0 $20,171,877
Comprehensive Loss :
Net loss (4,022,144) (4,022,144)
Foreign currency translation adjustments (499,356) (499,356)
-----------
Comprehensive loss (4,521,500)
Issuance of restricted shares 40,000 (40,000) 0
Amortization of restricted stock 10,000 10,000
----------- ------------ ----------- ----------- -------- -----------
BALANCE AT JUNE 30, 2001 $35,031,138 $(11,595,506) $(1,922,718) $(5,822,537) $(30,000) $15,660,377
=========== ============ =========== =========== ======== ===========
See notes to consolidated financial statements.
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METATEC INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the six months ended June 30, 2001 2000
---------------------------------------------------------- --------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(4,022,144) $ (98,039)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization 5,425,477 7,351,517
Deferred income taxes 30,434 0
Net loss on sales of property, plant and equipment 4,602 460
Changes in assets and liabilities:
Accounts receivable 3,040,204 3,696,853
Inventory 19,284 256,501
Prepaid expenses and other assets (315,213) (561,575)
Accounts payable and accrued expenses (1,264,439) (3,775,870)
Unearned income (19,993) 53,601
--------------------------
Net cash provided by operating activities 2,898,212 6,923,448
--------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (839,893) (3,256,692)
Proceeds from the sales of property, plant and equipment 7,200 11,750
----------- -----------
Net cash used in investing activities (832,693) (3,244,942)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in long-term debt 4,186,939 2,850,000
Payment of long-term debt and capital lease obligations (7,770,200) (7,344,817)
Stock options exercised 0 7,500
----------- -----------
Net cash used in financing activities (3,583,261) (4,487,317)
----------- -----------
Effect of exchange rate on cash 54,004 105,257
Decrease in cash and cash equivalents (1,463,738) (703,554)
Cash and cash equivalents at beginning of period 2,086,228 1,695,884
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 622,490 $ 992,330
=========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid $ 1,836,982 $ 2,177,648
=========== ===========
Income taxes paid/(refunds received) $ (122,267) $ 27,372
=========== ===========
Assets purchased by the assumption of a liability $ 290,452 $ 235,807
=========== ===========
See notes to condensed consolidated financial statements.
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METATEC INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF PRESENTATION - The consolidated balance sheet as of June 30, 2001,
the consolidated statements of operations for the three and six months ended
June 30, 2001 and 2000, the consolidated statement of shareholders' equity for
the six months ended June 30, 2001, and the consolidated statements of cash
flows for the six month periods then ended have been prepared by the Company,
without audit. In the opinion of management, all adjustments, which consist
solely of normal recurring adjustments, necessary to present fairly, in
accordance with accounting principles generally accepted in the United States of
America, the financial position, results of operations and changes in cash flows
for all periods presented have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America have been condensed or omitted. These condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
December 31, 2000 annual report on Form 10-K. The results of operations for the
period ended June 30, 2001 are not necessarily indicative of the results for the
full year.
2. ACCOUNTING PRONOUNCEMENTS - Derivative Instruments and Hedging Activities -
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 133
on January 1, 2001. SFAS 133, as amended, establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. Under SFAS 133, certain
contracts that were not formerly considered derivatives may now meet the
definition of a derivative. The adoption of SFAS 133 did not have a significant
impact on the financial position, results of operations, or cash flows of the
Company.
In July 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other
Intangibles." SFAS 142 is effective for all fiscal years beginning after
December 15, 2001, and requires changes in the amortization of certain goodwill
and intangible assets. These assets, which were previously being amortized, will
be assessed at least annually for impairment. The Company has not yet evaluated
the impact the adoption of SFAS 142 will have on its operations and financial
position.
3. LONG-TERM DEBT - The Company's credit facilities include a term note,
revolving line of credit and real estate debt. The term note and revolving line
of credit will mature March 31, 2002. The company is currently working to secure
extended debt facilities.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2001 COMPARED TO THREE MONTHS
ENDED JUNE 30, 2000 AND THE SIX MONTHS ENDED JUNE 30, 2001 COMPARED TO THE SIX
MONTHS ENDED JUNE 30, 2000
RESULTS OF OPERATIONS
Net sales for the three months ended June 30, 2001 were $18,862,000, a decrease
of $7,316,000, or 28% over the same period of the prior year. This decrease
resulted primarily from CD-ROM manufacturing sales decreasing $7,430,000 to
$17,451,000 for the three months ended, or 30%.
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This decrease was due to several factors. The pricing for CD-ROM products and
services continued to decline or remained at low levels industry-wide due to
excess manufacturing capacity, a trend the Company anticipates will continue for
the remainder of 2001. In addition, the demand for the Company's CD-ROM products
and services declined due to several factors, including a decline in general
economic conditions which caused many of the Company's software customers to
delay or reduce their software releases, the continued increase in customers
using on-line or electronic methods to distribute information, and the continued
maturation of the CD-ROM market. The Company anticipates that these factors may
continue to negatively impact the demand for the Company's CD-ROM products and
services for the remainder of 2001. DVD sales accounted for $514,000 during the
three months ended June 30, 2001, as compared to $456,000, or an increase of 13%
over the same period in the prior year. DVD sales at Metatec have shown slow but
steady growth in recent quarters. However, the slow down in computer hardware
sales has slowed the rate at which DVD drives are replacing CD-ROM drives in
computers, thereby slowing the market demand for DVD products.
Net sales for the six months ended June 30, 2001 were $39,910,000, a decrease of
$13,905,000, or 26% over the same period of the prior year. This decrease
resulted primarily from CD-ROM manufacturing sales decreasing $13,769,000 to
$37,091,000 for the six months ended, or 27%. This decrease was due to the
factors noted above.
Radio syndication sales decreased $522,000 to $906,000 for the six months
ended June 30, 2001, a decrease of 37% from the same period in the prior year,
primarily as a result of some customers choosing to use CD-Recordable as a
distribution method for smaller size orders. The Company expects this trend to
continue in the foreseeable future. DVD sales accounted for $1,139,000 during
the six months ended June 30, 2001, as compared to $945,000, or an increase of
20% over the same period in the prior year.
Gross profit was 27% of net sales for the three months ended June 30, 2001 as
compared to 28% of net sales for the same period of the prior year. This
reduction was primarily caused by reduced utilization of the Company's
manufacturing capacity. Gross profit was 27% of net sales for the six months
ended June 30, 2001 as compared to 29% of net sales for the same period of the
prior year.
Selling, general and administrative ("SG&A") expenses were $6,368,000, or 34%
of net sales, for the three months ended June 30, 2001 as compared to
$6,048,000, or 23% of net sales, for same period of the prior year. These
expense increases were primarily attributed to bank fees related to the
restructuring of the Company's debt. SG&A expenses were $13,016,000, or 33% of
net sales, for the six months ended June 30, 2001 as compared to $13,035,000,
or 24% of net sales, for same period of the prior year.
Investment income was $5,700 and $10,000 for the three month periods ended June
30, 2001 and 2000, respectively. Investment income was $41,000 and $22,000 for
the six month periods ended June 30, 2001 and 2000, respectively.
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Interest expense for the three months ended June 30, 2001 was $898,000 as
compared to $1,152,000 for the same period of the prior year. Interest expense
for the six months ended June 30, 2001 was $1,845,000 as compared to $2,208,000
for the same period of the prior year. The decrease in interest expense was due
to decreased debt balances under revolving loan and term loan facilities, as
well as decreases in interest rates.
No income tax benefit was realized for the six months ended June 30, 2001, due
to the uncertainty of realizing the value of such benefit. In the prior year a
$77,000 income tax benefit was realized resulting in an effective tax rate of
44%.
As a result of the foregoing, the net loss for the three months ended June 30,
2001 was $2,096,000,or net loss per common share of $.34, as compared to net
earnings in the same period of the prior year of $70,000, or net earnings per
common share of $.01. The net loss for the six months ended June 30, 2001 was
$4,022,000, or net loss per common share of $.66, as compared to net loss in the
same period of the prior year of $98,000, or net loss per common share of $.02.
FINANCIAL CONDITION - LIQUIDITY AND CAPITAL RESOURCES
The Company financed its business during the six months ended June 30, 2001
through cash generated from operations, the use of debt, and the use of
available cash balances. Cash flow from operating activities was $2,898,000 for
the six months ended June 30, 2001, as compared to $6,923,000 for the six months
ended June 30, 2000. The Company had cash and cash equivalents of $622,000 as of
June 30, 2001.
The Huntington National Bank and Bank One, NA have provided a $12,958,000 term
loan facility and a $13,000,000 revolving loan facility to the Company (the
"Credit Facilities") pursuant to an amended and restated loan agreement dated
as of March 31, 2001. The following is a summary of the terms of the Credit
Facilities. The revolving loan and the term loan will mature on April 1, 2002.
The revolving loan is an asset based lending arrangement wherein a $13,000,000
borrowing base limited by the amounts of any outstanding letters of credit and
80% of eligible domestic accounts receivable, 30% of eligible domestic
inventory, and 90% of domestic machinery and equipment. The Credit Facilities
are secured by a first lien on all non-real estate business assets of the
Company and a pledge of the stock of the Company's subsidiaries. The Company is
required to comply with certain financial and other covenants, which they are
in compliance with at June 30, 2001. In addition, interest accrues at 2% in
excess of the prime rate of the banks, and quarterly commitment fees are
required to be paid. As of June 30, 2001, $11,458,000 and $7,512,000 was
outstanding under the term loan facility and the revolving loan facility,
respectively. The Company expects that it will be able to negotiate a new
borrowing facility prior to April 1, 2002, however, there can be no assurance
that the Company will be able to do so.
The Company has a $19,000,000 loan facility with Huntington Capital Corp, which
is payable in monthly principal and interest payments based upon a thirty year
amortization schedule and bears interest at a fixed rate of 8.2%. This term loan
facility was used to permanently finance the Company's new Dublin, Ohio
distribution center and to pay down other bank debt. This loan facility is
payable in monthly installments over 10 years, with a 30 year amortization
period, and is secured by a first lien on all real property of the Company and
letters of credit in favor of the lender, in an aggregate amount of $1,650,000.
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Currently the Company has a working capital deficiency of $14,500,000, primarily
due to the restructuring of $18,970,000 of the term and revolving note, which
are currently due April 1, 2002. The Company continues to work with Huntington
to renegotiate these loan facilities. Management believes that current cash
balances, plus the funds available under its current credit facilities, plus
cash to be generated from future operations should provide sufficient capital to
meet the current business needs of the Company. The Company is currently
finalizing plans to implement significant additional cost reductions across the
company as part of our strict cost management activities.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Except for historical information, all other statements made in this report are
"forward-looking" within the meaning of the Private Securities Litigation Reform
Act of 1995. Such forward-looking statements are subject to certain risks and
uncertainties that could cause the Company's actual results to differ materially
from those projected. Such risks and uncertainties that might cause such a
difference include, but are not limited to, changes in general business and
economic conditions, changes in demand for CD-ROM products, excess capacity
levels in the CD-ROM industry, the introduction of new products by competitors,
increased competition (including pricing pressures), changes in manufacturing
efficiencies, changes in technology, and other risks indicated in the company's
filings with the Securities and Exchange Commission, including Form 10-K for
Metatec's year ended December 31, 2000.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
There is no change in the quantitative and qualitative disclosures about the
Company' market risk from the disclosures contained in the Company's Form 10-K
for its fiscal year ended December 31, 2000.
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PART II - OTHER INFORMATION
---------------------------
Items 1-3. INAPPLICABLE.
Items 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The annual meeting of shareholders was held May 15, 2001.
(b) Jerry D. Miller, James V. Pickett and Daniel D. Viren were elected
as Directors. David P. Lauer, Joseph F. Keeler, Peter J. Kight,
and Jeffrey M. Wilkins continued as Directors.
(c) The following three directors were elected to three-year terms:
Jerry D. Miller with 5,017,713 votes for and 142,247 votes
withheld; James V. Pickett with 5,028,085 votes for and 131,875
votes withheld; and Daniel D. Viren with 5,028,373 votes for and
131,587 votes withheld.
(d) Inapplicable.
Item 5. INAPPLICABLE.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
10.1 Amended and Restated Loan Agreement dated
as of March 31, 2001, among Metatec
International, Inc., Bank One, NA, The
Huntington National Bank, other financial
institutions from time to time party
thereto, as banks, and The Huntington
National Bank, as administrative agent
for the banks.
(b) No reports on Form 8-K were filed during the quarter ended June
30, 2001.
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.
Metatec International, Inc.
/s/ Julia A. Pollner
BY: Julia A. Pollner
Date: July 27, 2001 Senior Vice President, Finance
(authorized signatory-
principal financial and
accounting officer)
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Form 10-Q
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
10.1 Amended and Restated Loan Agreement dated as of
March 31, 2001, among Metatec International, Inc.,
Bank One, NA, The Huntington National Bank, other
financial institutions from time to time party
thereto, as banks, and The Huntington National
Bank, as administrative agent for the banks.