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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, 2000
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
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Number of Common Shares outstanding as of August 8, 2000: 6,082,113
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METATEC INTERNATIONAL, INC.
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INDEX PAGE
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Part I: Financial Information
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets as of
June 30, 2000 (unaudited) and December 31, 1999 3
Condensed Consolidated Statements of Operations
for the three months ended June 30, 2000
and 1999 (unaudited) 4
Condensed Consolidated Statements of Operations
for the six months ended June 30, 2000
and 1999 (unaudited) 5
Condensed Consolidated Statement of Shareholders'
Equity for the six months ended
June 30, 2000 (unaudited) 6
Consolidated Statements of Cash Flows for the six
months ended June 30, 2000 and 1999 (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
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<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
METATEC INTERNATIONAL, INC. (Unaudited)
CONDENSED CONSOLIDATED BALANCE SHEETS June 30, At December 31,
2000 1999
-------------------------------------------------------- ------------ ----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 992,330 $ 1,695,884
Accounts receivable, net of allowance for doubtful
accounts of $433,000 and $490,000 16,774,424 20,628,847
Inventory 3,394,923 3,671,639
Prepaid expenses 1,728,270 1,285,200
Deferred income taxes 1,739,000 1,784,000
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Total current assets 24,628,947 29,065,570
Property, plant and equipment - net 59,048,948 63,748,238
Goodwill - net 17,106,872 18,380,164
Other Assets 327,837 213,781
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TOTAL ASSETS $ 101,112,604 $ 111,407,753
============= =============
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 7,120,274 $ 12,663,558
Accrued royalties 2,752,275 1,749,508
Accrued personal property taxes 1,300,409 1,241,638
Other accrued expenses 1,534,181 1,927,464
Accrued payroll 967,420 1,384,775
Unearned income 237,615 195,975
Current maturities of long-term debt and capital
lease obligations 6,977,091 6,999,850
------------- -------------
Total current liabilities 20,889,265 26,162,768
Long-term debt and capital lease obligations, less
current maturities 41,029,811 45,501,868
Other long-term liabilities 471,741 450,925
Deferred income taxes 1,429,000 1,430,000
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Total liabilities 63,819,817 73,545,561
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Shareholders' equity:
Common stock - no par value; authorized 10,000,000 shares;
issued 2000 - 7,162,355, 1999 - 7,157,355 shares 34,956,637 34,949,138
Retained earnings 9,861,217 9,959,256
Accumulated other comprehensive loss (1,702,530) (1,223,665)
Treasury stock, at cost - 1,081,742 shares (5,822,537) (5,822,537)
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Total shareholders' equity 37,292,787 37,862,192
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TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 101,112,604 $ 111,407,753
============= =============
</TABLE>
See notes to condensed consolidated financial statements.
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<TABLE>
<CAPTION>
METATEC INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended June 30,
----------------------------------
2000 1999
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<S> <C> <C>
NET SALES $ 26,178,157 $ 29,488,771
Cost of sales 18,859,277 21,932,537
------------ ------------
Gross profit 7,318,880 7,556,234
Selling, general and administrative expenses 6,048,088 7,790,756
------------ ------------
OPERATING EARNINGS (LOSS) 1,270,792 (234,522)
Other income and (expense):
Investment income 10,477 8,004
Interest expense (1,152,069) (688,102)
------------ ------------
EARNINGS (LOSS) BEFORE INCOME TAXES 129,200 (914,620)
Income taxes (benefit) 59,000 (358,000)
------------ ------------
NET EARNINGS (LOSS) $ 70,200 $ (556,620)
============ ============
NET EARNINGS (LOSS) PER COMMON SHARE
Basic $ 0.01 $ (0.09)
============ ============
Diluted $ 0.01 $ (0.09)
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
Basic 6,080,613 6,075,613
============ ============
Diluted 6,107,261 6,116,622
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
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<TABLE>
<CAPTION>
METATEC INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Six Months Ended June 30,
----------------------------------
2000 1999
--------------------------------------------- ---------- ------------
<S> <C> <C>
NET SALES $ 53,815,261 $ 60,556,754
Cost of sales 38,337,589 42,932,857
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Gross profit 15,477,672 17,623,897
Selling, general and administrative expenses 13,035,309 15,614,285
Restructuring expenses 430,561 0
------------ ------------
OPERATING EARNINGS 2,011,802 2,009,612
Other income and (expense):
Investment income 21,649 21,673
Interest expense (2,208,490) (1,428,115)
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EARNINGS (LOSS) BEFORE INCOME TAXES (175,039) 603,170
Income taxes (benefit) (77,000) 302,000
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NET EARNINGS (LOSS) $ (98,039) $ 301,170
============ ============
NET EARNINGS (LOSS) PER COMMON SHARE
Basic $ (0.02) $ 0.05
============ ============
Diluted $ (0.02) $ 0.05
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
Basic 6,078,910 6,074,145
============ ============
Diluted 6,078,910 6,139,860
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
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<TABLE>
<CAPTION>
METATEC INTERNATIONAL, INC.
--------------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
Common Retained Accumulated Other Treasury
Stock Earnings Comprehensive Loss Stock Total
-------------------------------------------- ----------- ----------- ----------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1999 $34,949,138 $9,959,256 $(1,223,665) $(5,822,537) $37,862,192
Comprehensive Loss:
Net loss (98,039) (98,039)
Foreign currency translation adjustments (478,865) (478,865)
Comprehensive loss ------------
(576,904)
Stock options exercised 7,499 7,499
----------- ----------- ------------ ------------ ------------
BALANCE AT JUNE 31, 2000 $34,956,637 $9,861,217 $(1,702,530) $(5,822,537) $37,292,787
=========== =========== ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
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<TABLE>
<CAPTION>
METATEC INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the six months ended June 30, 2000 1999
------------------------------------------------- -----------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ (98,039) $ 301,170
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 7,351,517 6,975,453
Net loss on sales of property, plant
and equipment 460 127
Changes in assets and liabilities:
Accounts receivable 3,696,853 3,030,727
Inventory 256,501 (22,291)
Prepaid expenses and other assets (561,575) (319,113)
Accounts payable and accrued expenses (3,775,870) (3,798,911)
Unearned income 53,601 134,583
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Net cash provided by operating activities 6,923,448 6,301,745
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (3,256,692) (10,270,840)
Proceeds from the sales of property, plant
and equipment 11,750 198,750
------------ -----------
Net cash used in investing activities (3,244,942) (10,072,090)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in long-term debt 2,850,000 2,739,741
Payment of long-term debt and capital
lease obligations (7,344,817) (796,192)
Stock options exercised 7,500 11,213
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Net cash provided by (used in)
financing activities (4,487,317) 1,954,762
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Effect of exchange rate on cash 105,257 (78,141)
Decrease in cash and cash equivalents (703,554) (1,893,724)
Cash and cash equivalents at beginning of period 1,695,884 2,557,221
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 992,330 $ 663,497
============= ============
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid $ 2,177,648 $ 2,152,879
============= =============
Income taxes paid $ 27,372 $ 71,399
============= =============
Assets purchased by the assumption of a liability $ 235,807 $ 2,702,606
============= =============
</TABLE>
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, 2000,
the consolidated statements of operations for the three and six months ended
June 30, 2000 and 1999, the consolidated statement of shareholders' equity for
the six months ended June 30, 2000, 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 generally accepted accounting principles, 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 generally accepted accounting principles
have been condensed or omitted. These consolidated financial statements should
be read in conjunction with the consolidated financial statements and notes
thereto included in the Company's December 31, 1999 annual report on Form 10-K.
The results of operations for the period ended June 30, 2000 are not necessarily
indicative of the results for the full year.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS
ENDED JUNE 30, 1999 AND THE SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO THE SIX
MONTHS ENDED JUNE 30, 1999
RESULTS OF OPERATIONS
Net sales for the three months ended June 30, 2000 were $26,178,000, a decrease
of $3,311,000, or 11% over the same period of the prior year. This decrease
resulted primarily from CD-ROM manufacturing sales decreasing $2,689,000 to
$24,881,000 for the three months ended, or 10%. This decrease was primarily the
result of the Company's emphasis on higher margin product, and reduction in
lower margin sales. Radio syndication sales decreased $350,000, or 37%, to
$586,000 for the three months ended June 30, 2000, primarily as a result of some
customers choosing to use CD-Recordable as a distribution method for smaller
size orders. DVD sales accounted for $456,000 during the three months ended June
30, 2000, as compared to $64,000 for the same period in the prior year.
Net sales for the six months ended June 30, 2000 were $53,815,000, a decrease of
$6,741,000, or 11% over the same period of the prior year. This decrease
resulted primarily from CD-ROM manufacturing sales decreasing $5,628,000 to
$50,860,000 for the six months ended, or 10%. This decrease was primarily the
result of the Company's emphasis on higher margin product, and reduction in
lower margin sales, and, during early 2000, delayed software releases caused by
Y2K concerns and the anticipated release of Windows 2000. Radio syndication
sales decreased $498,000, to $1,428,000 for the six months ended June 30, 2000,
a decrease of 26% 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 $945,000 during the six months
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ended June 30, 2000, as compared to $193,000 for the same period in the prior
year.
Gross profit was 28% of net sales for the three months ended June 30, 2000 as
compared to 26% of net sales for the same period of the prior year. This
increase was primarily attributed to the reduction in lower margin sales. Gross
profit was 29% of net sales for the six months ended June 30, 2000 as compared
to 29% of net sales for the same period of the prior year.
Selling, general and administrative ("SG&A") expenses were $6,048,000, or 23% of
net sales, for the three months ended June 30, 2000 as compared to $7,791,000,
or 26% of net sales, for same period of the prior year. This expense reduction
was primarily attributed to restructuring and work force reductions which
occurred in the quarter ended March 31, 2000. SG&A expenses were $13,035,000, or
24% of net sales, for the six months ended June 30, 2000 as compared to
$15,614,000, or 26% of net sales, for same period of the prior year. This
expense reduction was primarily attributed to restructuring and work force
reductions which occurred in the quarter ended March 31, 2000.
Investment income was $10,000 and $8,000 for the three month periods ended June
30, 2000 and 1999, respectively. Investment income was $22,000 and $22,000 for
the six month periods ended June 30, 2000 and 1999, respectively.
Interest expense for the three months ended June 30, 2000 was $1,152,000 as
compared to $688,000 for the same period of the prior year. Interest expense for
the six months ended June 30, 2000 was $2,208,000 as compared to $1,428,000 for
the same period of the prior year. The increase in interest expense was due to
increased borrowings under revolving loan and term loan facilities, as well as
increases in interest rates.
The income tax expense was $59,000 for the three months ended June 30, 2000, or
an effective tax rate of 46%, as compared to a tax benefit of $358,000 for the
same period of the prior year, or an effective tax benefit of 39%. The income
tax benefit was $77,000 for the six months ended June 30, 2000, as compared to a
tax expense of $302,000 for the same period of the prior year.
As a result of the foregoing, net earnings for the three months ended June 30,
2000 were $70,000, or net earnings per common share of $.01, as compared to net
losses in the same period of the prior year of $557,000, or net losses per
common share of $.09. Net losses for the six months ended June 30, 2000 were
$98,000, or net losses per common share of $.02, as compared to net earnings in
the same period of the prior year of $301,000, or net earnings per common share
of $.05.
FINANCIAL CONDITION - LIQUIDITY AND CAPITAL RESOURCES
The Company financed its business during the six months ended June 30, 2000
through cash generated from operations, the use of debt, and the use of
available cash balances. Cash flow from operating activities was $6,923,000 for
the six months ended June 30, 2000, as compared to $6,302,000 for the six months
ended June 30, 1999. The Company had cash and cash equivalents of $992,000 as of
June 30, 2000.
The Company has a term loan facility and a revolving loan facility (the "Credit
Facilities") with Huntington National Bank and Bank One, N.A. In March 2000, the
Credit Facilities were
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modified, with the revolving loan facility being reduced from $20,000,000 to
$13,000,000 and the term loan facility being increased to $21,250,000. As of
June 30, 2000, $10,100,000 was outstanding under the revolving loan facility.
The revolving loan facility is payable September 11, 2003, and the term loan
facility matures on June 30, 2003. The following is a summary of the other terms
of the Credit Facilities. The term loan facility is payable in monthly principal
payments which escalate over the term of the loan. The term loan facility and a
portion of the revolving loan facility were used to finance the purchase of the
assets of the CD-ROM services business acquired from Imation Corporation.
Borrowings under the Credit Facilities bear interest, at the Company's option,
at either the federal funds rate plus 50 basis points or prime rate plus the
alternative base rate margin (whichever of the two is higher), or the London
Interbank Offered Rate (LIBOR) plus a margin based upon the Company's debt
coverage ratio (which ranges from not less than 100 basis points to not more
than 325 basis points). 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. The Company is currently not in compliance with one of its
financial covenants, and the bank has waived compliance with this covenant
through June 30, 2000. The banks have agreed to modify the financial covenants.
The Company anticipates being in compliance with the amended covenants through
the remainder of 2000.
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 for the foreseeable future.
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
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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, 1999.
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, 1999.
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PART II - OTHER INFORMATION
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Items 1-3. INAPPLICABLE.
Items 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The annual meeting of shareholders was held May 16, 2000.
(b) Joseph F. Keeler, Jr. and Peter J. Kight were elected as Directors.
Jerry D. Miller, James V. Pickett, A.Grant Bowen, and Jeffrey M.
Wilkins continued as Directors.
(c) The following two directors were elected to three year terms: Joseph
F. Keeler, Jr. with 4,992,139 votes for and 56,525 votes withheld;
Peter J. Kight with 4,991,379 votes for and 57,285 votes withheld.
(d) Inapplicable.
Item 5. INAPPLICABLE.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The exhibits on to this report begin on page ______.
(b) No reports on Form 8-K have been filed during the quarter ended June
30, 2000.
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: August 14, 2000 Senior Vice President, Finance
(authorized signatory-
principal financial and
accounting officer)
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Form 10-Q
Exhibit Index
EXHIBIT NUMBER EXHIBIT DESCRIPTION PAGE
NUMBER
27 Financial Data Schedule --
