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 March 31, 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 April 30, 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 March 31,
2001 (unaudited) and December 31, 2000 3
Condensed Consolidated Statements of Operations
for the three months ended March 31, 2001
and 2000 (unaudited) 4
Condensed Consolidated Statement of Shareholders'
Equity for the three months ended
March 31, 2001 (unaudited) 5
Condensed Consolidated Statements of Cash Flows
for the three months ended March 31,
2001 and 2000 (unaudited) 6
Notes to Condensed Consolidated Financial
Statements (unaudited) 7
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-9
Item 3 - Quantitative and Qualitative Disclosures about
Market Risk 10
Part II: Other Information
Items 1-6 11
Signatures 11
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PART I - FINANCIAL INFORMATION
ITEM I. CONDENSED FINANCIAL STATEMENTS
METATEC INTERNATIONAL, INC.
-------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS (UNAUDITED) At March 31, At December 31,
----------------- ----------------
2001 2000
------------------------------------------------------------------------------ ----------------- ----------------
ASSETS
Current assets:
Cash and cash equivalents $ 4,846,498 $ 2,086,228
Accounts receivable, net of allowance for doubtful
accounts of $279,000 and $351,000 12,598,567 15,146,714
Inventory 2,918,302 2,970,219
Prepaid expenses 1,454,835 1,054,362
Deferred income taxes 588,107 588,107
----------- ----------
Total current assets 22,406,309 21,845,630
Property, plant and equipment - net 48,197,691 50,455,317
Goodwill - net 4,288,978 4,631,036
Other assets 281,417 296,890
Deferred income taxes 104,000 104,000
----------- -----------
TOTAL ASSETS $75,278,395 $77,332,873
=========== ===========
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,740,556 $ 6,472,385
Accrued expenses:
Royalties 4,130,077 3,712,796
Personal property taxes 1,609,115 1,270,425
Payroll 586,340 1,193,054
Other 1,638,308 1,209,600
Unearned income 178,660 234,235
Current maturities of long-term real estate debt 173,598 170,087
Current maturities of other long-term debt and
capital lease obligations 15,928,028 6,978,028
----------- -----------
Total current liabilities 28,984,682 21,240,610
Long-term real estate debt 18,579,249 18,623,708
Other long-term debt and capital lease obligations,
less current maturities 9,243,846 16,769,506
Other long-term liabilities 567,381 527,172
----------- -----------
Total liabilities 57,375,158 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 (9,499,962) (7,573,362)
Accumulated other comprehensive loss (1,770,402) (1,423,362)
Treasury stock, at cost; 1,081,742 shares (5,822,537) (5,822,537)
Unamortized restricted stock (35,000) --
----------- -----------
Total shareholders' equity 17,903,237 20,171,877
----------- -----------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $75,278,395 $77,332,873
=========== ===========
See notes to consolidated financial statements.
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METATEC INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended March 31,
-------------------------------------
2001 2000
------------------------------------------------------------------------------- ----------- -----------
NET SALES $21,048,545 $27,637,107
Cost of sales 15,306,172 19,478,312
----------- -----------
Gross profit 5,742,373 8,158,795
Selling, general and administrative expenses 6,647,554 6,987,223
Restructuring expenses 109,564 430,561
------------ -----------
OPERATING EARNINGS (LOSS) (1,014,745) 741,011
Other income and (expense):
Investment income 35,046 11,171
Interest expense (946,901) (1,056,421)
------------ -----------
LOSS BEFORE INCOME TAXES (1,926,600) (304,239)
Income tax benefit 0 (136,000)
----------- -----------
NET LOSS $(1,926,600) $ (168,239)
=========== ===========
NET LOSS PER COMMON SHARE
Basic and diluted $ (0.31) $ (0.03)
=========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
Basic and diluted 6,135,669 6,077,206
=========== ===========
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 (1,926,600) (1,926,600)
Foreign currency translation adjustments (347,040) (347,040)
------------
Comprehensive loss (2,273,640)
Issuance of restricted shares 40,000 (40,000) 0
Amortization of restricted stock 5,000 5,000
----------- ------------ ------------ ------------ --------- ------------
BALANCE AT MARCH 31, 2001 $35,031,138 $(9,499,962) $(1,770,402) $(5,822,537) $(35,000) $17,903,237
=========== ============ ============ ============ ========= ============
See notes to consolidated financial statements.
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METATEC INTERNATIONAL, INC.
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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the three months ended March 31, 2001 2000
----------------------------------------------------------------- ----------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,926,600) $ (168,239)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization 2,778,346 3,666,331
Deferred income taxes 18,711 52,454
Net gain on sales of property, plant and equipment (1,852) (4,196)
Changes in assets and liabilities:
Accounts receivable 2,415,418 2,486,124
Inventory 40,114 19,580
Prepaid expenses and other assets (418,092) (382,944)
Accounts payable and accrued expenses (930,400) (2,388,440)
Unearned income (46,128) 104,027
----------------------------------
Net cash provided by operating activities 1,929,517 3,384,697
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (551,243) (2,170,973)
Proceeds from the sales of property, plant and equipment 3,000 11,750
----------------------------------
Net cash used in investing activities (548,243) (2,159,223)
----------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in long-term debt 3,450,000 750,000
Payment of long-term debt and capital lease obligations (2,066,608) (2,576,992)
Stock options exercised 0 7,500
----------------------------------
Net cash provided by (used in) financing activities 1,383,392 (1,819,492)
----------------------------------
Effect of exchange rate on cash (4,396) 130,680
Increase (decrease) in cash and cash equivalents 2,760,270 (463,338)
Cash and cash equivalents at beginning of period 2,086,228 1,695,884
----------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,846,498 $ 1,232,546
==================================
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid $ 854,645 $ 1,036,429
==================================
Income taxes paid/(refunds received) $ (122,267) $ 7,150
==================================
Assets purchased by the assumption of a liability $ 123,230 $ 443,395
==================================
Issuance of restricted stock $ 35,000
============
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 condensed consolidated balance sheet as of March
31, 2001, the condensed consolidated statements of operations for the three
months ended March 31, 2001 and 2000, the condensed consolidated statement of
shareholders' equity for the three months ended March 31, 2001, and the
condensed consolidated statements of cash flows for the three 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 March 31, 2001 are not necessarily indicative of the results for
the full year.
Income taxes - In 2001, a valuation allowance has been provided to offset a
portion of the net deferred tax assets due to the uncertainty surrounding the
realizability of such assets.
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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO THREE MONTHS ENDED
MARCH 31, 2000
RESULTS OF OPERATIONS
Net sales for the three months ended March 31, 2001 were $21,049,000, a decrease
of $6,589,000, or 24% over the same period of the prior year. This decrease
resulted primarily from CD-ROM manufacturing sales decreasing $6,328,000 to
$19,651,000 for the three months ended, or 24%. 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
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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. Radio syndication sales decreased $456,000, or 54%, to
$386,000 for the three months ended March 31, 2001, 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 for the
foreseeable future. DVD sales accounted for $613,000 during the three months
ended March 31, 2001, as compared to $489,000 for the same period in the prior
year.
Gross profit was 27% of net sales for the three months ended March 31, 2001 as
compared to 30% 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.
Selling, general and administrative ("SG&A") expenses were $6,648,000, or 32% of
net sales, for the three months ended March 31, 2001 as compared to $6,987,000,
or 25% of net sales, for same period of the prior year. The increase in SG&A
expenses as a percentage of net sales was primarily caused by the 24% decrease
in net sales in relation to a 5% decrease in SG&A expenses.
Restructuring expenses of $110,000 were incurred during the three months ended
March 31, 2001. These restructuring expenses consisted primarily of severance
and termination benefits related to the U.S. workforce reduction of
approximately 6%. The workforce reduction was accomplished through attrition,
unfilled vacancies, and layoffs of temporary and some full time employees.
Restructuring expenses of $430,000 related to U.S. workforce reductions of
approximately 12% were incurred for the same period in the prior year.
Investment income was $35,000 and $11,000 for the three month periods ended
March 31, 2001 and 2000, respectively.
Interest expense for the three months ended March 31, 2001 was $947,000 as
compared to $1,056,000 for the same period of the prior year. The decrease in
interest expense was due to decreased borrowings under revolving loan and term
loan facilities, as well as decreases in interest rates.
No income tax benefit was realized for the three months ended March 31, 2001,
due to the uncertainty of realizing the value of such benefit. In the prior year
a $136,000 income tax benefit was realized resulting in an effective tax rate of
45%.
Based upon the foregoing, the net loss for the three months ended March 31, 2001
was $1,927,000, or net loss per basic or diluted common share of $.31, as
compared to a net loss in the same period of the prior year of $168,000, or net
loss per basic or diluted common share of $.03.
FINANCIAL CONDITION - LIQUIDITY AND CAPITAL RESOURCES
The Company financed its business during the three months ended March 31, 2001
through cash generated from operations, the use of debt, and the use of
available cash balances. Cash flow from operating activities was $1,930,000 for
the three months ended March 31, 2001, as compared to $3,385,000 for the three
months ended March 31, 2000. The Company had cash and cash equivalents of
$4,846,000 as of March 31, 2001.
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The Huntington National Bank and Bank One, NA have provided a $37,000,000 term
loan facility and a $13,000,000 revolving loan facility to the Company (the
"Credit Facilities"). As of March 31, 2001, $12,958,000 and $10,950,000 was
outstanding under the term loan facility and the revolving loan facility,
respectively.
On April 2, 2001, the banks and the Company amended certain terms and financial
covenants of the Credit Facilities. The following is a summary of the terms of
the amended Credit Facilities. As part of the amended Credit Facilities, the
revolving loan and the term loan will mature on April 1, 2002. The revolving
loan has been changed to an asset based lending arrangement wherein a
$13,000,000 borrowing base will be limited by the amounts of any outstanding
letters of credit and 80% of eligible domestic accounts receivable, 80% of
eligible insured foreign accounts receivable, 30% of eligible domestic
inventory, and 20% of domestic machinery and equipment at net book value,
eligibility to be determined by the banks. 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 In addition, effective March 31,
2001, interest accrues at 2% in excess of the prime rate of the banks, and
quarterly commitment fees are required to be paid. 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.
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.
During the first quarter 2001, the Company's board of directors approved a plan
to restructure certain of the Company's operations. As part of the plan, the
Company implemented a workforce reduction for its Dublin facility during the
first quarter of 2001, and the Company expects to implement other portions of
this plan during the remainder of 2001.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Statements contained in this Form 10-Q or any other reports or documents
prepared by the Company or made by management of the Company may be
"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 operating results to differ
materially from those projected. Forward-looking statements include, by way of
example and without limitation, statements concerning plans, objectives, goals,
strategies, future events of performance and underlying assumptions and other
statements, which are other than statements of historical facts, and information
concerning future results of the operations of the Company. Forward-looking
statements may be identified, preceded by, followed by or otherwise include,
without limitation, words such as "believes," "expects," "anticipates,"
"intends," "estimates" or similar expressions. Such forward-looking statements
are subject to certain risks and uncertainties that could cause the Company's
actual results to differ materially from
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those projected. Such risks and uncertainties that might cause such a difference
include, but are not limited to, the Company's product concentration in CD-ROM
manufacturing sales, a decrease in the demand for the Company's products caused
by various factors, such as the continuation of customers increasing their
electronic methods to distribute information rather than CD-ROM and the
continuation of the maturing market for CD-ROM products, changes in general
business and economic conditions, 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 1-5. Inapplicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description of Exhibit
10.1 Letter agreement dated March 30, 2001, among
Metatec International, Inc., Metatec Worldwide, Inc.,
The Huntington National, Bank, and Bank One, NA.
(b) No reports on Form 8-K have been filed during the quarter ended
March 31, 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: April 30, 2001 Senior Vice President and
Secretary/Treasurer
(authorized signatory-
principal financial and
accounting officer)
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Form 10-Q
Exhibit Index
Exhibit Number Description of Exhibit
10.1 Letter agreement dated March 30, 2001, among Metatec
International, Inc., Metatec Worldwide, Inc.,
The Huntington National Bank, and Bank One, NA.