<PAGE> 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, 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
--- ---
Number of Common Shares outstanding as of April 27, 2000: 6,080,613
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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,
2000 (unaudited) and December 31, 1999 3
Condensed Consolidated Statements of Operations
for the three months ended March 31, 2000
and 1999 (unaudited) 4
Condensed Consolidated Statement of Shareholders'
Equity for the three months ended
March 31, 2000 (unaudited) 5
Condensed Consolidated Statements of Cash Flows
for the three months ended March 31,
2000 and 1999 (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 9
Part II: Other Information
Items 1-6 10
Signatures 10
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PART I - FINANCIAL INFORMATION
Item I. Financial Statements
<TABLE>
METATEC INTERNATIONAL, INC.
- ------------------------------------------------------------------------
<CAPTION>
CONSOLIDATED BALANCE SHEETS At March 31, At December 31,
------------ ---------------
2000 1999
- ------------------------------------------------------------------------ ------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,232,546 $ 1,695,884
Accounts receivable, net of allowance for doubtful
accounts of $515,000 and $480,000 18,078,110 20,628,847
Inventory 3,649,006 3,671,639
Prepaid expenses 1,649,351 1,050,898
Prepaid income taxes -- 234,302
Deferred income taxes 1,739,000 1,784,000
------------ ------------
Total current assets 26,348,013 29,065,570
Property, plant and equipment - net 61,542,954 63,748,238
Goodwill - net 17,628,931 18,380,164
Other Assets 208,204 213,781
------------ ------------
TOTAL ASSETS $105,728,102 $111,407,753
============ ============
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 9,250,265 $ 12,663,558
Accrued royalties 1,838,804 1,749,508
Accrued personal property taxes 1,576,870 1,241,638
Other accrued expenses 2,112,129 1,927,464
Accrued payroll 622,679 1,384,775
Unearned income 294,291 195,975
Current maturities of long-term debt and capital lease obligations 6,983,495 6,999,850
------------ ------------
Total current liabilities 22,678,533 26,162,768
Long-term debt and capital lease obligations, less current maturities 43,691,232 45,501,868
Other long-term liabilities 420,805 450,925
Deferred income taxes 1,430,000 1,430,000
------------ ------------
Total liabilities 68,220,570 73,545,561
------------ ------------
Shareholders' equity:
Common stock - no par value; authorized 10,000,000 shares;
issued 2000 - 7,162,355, 1999 - 7,157,355 shares 34,956,638 34,949,138
Retained earnings 9,791,017 9,959,256
Accumulated other comprehensive loss (1,417,586) (1,223,665)
Treasury stock, at cost; 1,081,742 shares (5,822,537) (5,822,537)
------------ ------------
Total shareholders' equity 37,507,532 37,862,192
------------ ------------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $105,728,102 $111,407,753
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
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<TABLE>
METATEC INTERNATIONAL, INC.
- ---------------------------------------------------
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended March 31,
----------------------------
2000 1999
- --------------------------------------------------- ----------- -----------
<S> <C> <C>
NET SALES $27,637,107 $31,067,983
Cost of sales 19,478,312 21,000,320
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Gross profit 8,158,795 10,067,663
Selling, general and administrative expenses 6,987,223 7,823,529
Restructuring expenses 430,561 0
----------- -----------
OPERATING EARNINGS 741,011 2,244,134
Other income and (expense):
Investment income 11,171 13,669
Interest expense (1,056,421) (740,013)
----------- -----------
EARNINGS (LOSS) BEFORE INCOME TAXES (304,239) 1,517,790
Income taxes (benefit) (136,000) 660,000
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NET EARNINGS (LOSS) $ (168,239) $ 857,790
=========== ===========
NET EARNINGS (LOSS) PER COMMON SHARE
Basic and diluted $ (0.03) $ 0.14
=========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
Basic 6,077,206 6,072,677
=========== ===========
Diluted 6,077,206 6,163,098
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
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<TABLE>
METATEC INTERNATIONAL, INC.
- -------------------------------------------------
<CAPTION>
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 (168,239) (168,239)
Foreign currency translation adjustments (193,921) (193,921)
-----------
Comprehensive loss (362,160)
Stock options exercised 7,500 7,500
----------- ---------- ----------- ----------- -----------
BALANCE AT MARCH 31, 2000 $34,956,638 $9,791,017 $(1,417,586) $(5,822,537) $37,507,532
=========== ========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
Page 5 of 10
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<TABLE>
METATEC INTERNATIONAL, INC.
- ---------------------------------------------------------------
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the three months ended March 31, 2000 1999
- --------------------------------------------------------------- ------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ (168,239) $ 857,790
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization 3,666,331 3,476,369
Deferred income taxes 52,454 0
Net loss (gain) on sales of property, plant and equipment (4,196) 7,237
Changes in assets and liabilities:
Accounts receivable 2,486,124 184,964
Inventory 19,580 (255,532)
Prepaid expenses and other assets (382,944) 286,874
Accounts payable and accrued expenses (2,388,440) (1,468,337)
Unearned income 104,027 104,526
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Net cash provided by operating activities 3,384,697 3,193,891
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (2,170,973) (4,302,887)
Proceeds from the sales of property, plant and equipment 11,750 159,150
----------- -----------
Net cash used in investing activities (2,159,223) (4,143,737)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in long-term debt 750,000 2,115,759
Payment of long-term debt and capital lease obligations (2,576,992) (777,160)
Stock options exercised 7,500 11,213
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Net cash provided by (used in) financing activities (1,819,492) 1,349,812
----------- -----------
Effect of exchange rate on cash 130,680 (88,433)
Increase (decrease) in cash and cash equivalents (463,338) 311,533
Cash and cash equivalents at beginning of period 1,695,884 2,557,221
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,232,546 $ 2,868,754
=========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid $ 1,036,429 $ 903,066
=========== ===========
Income taxes paid $ 7,150 $ 64,999
=========== ===========
Assets purchased by the assumption of a liability $ 443,395 $ 895,468
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE> 7
METATEC INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis of presentation - The consolidated balance sheet as of March 31, 2000,
the consolidated statements of operations for the three months ended March 31,
2000 and 1999, the consolidated statement of shareholders' equity for the three
months ended March 31, 2000, and the 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
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 March 31, 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 THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED
MARCH 31, 1999
RESULTS OF OPERATIONS
Net sales for the three months ended March 31, 2000 were $27,637,000, a decrease
of $3,431,000, or 11% over the same period of the prior year. This decrease
resulted primarily from CD-ROM manufacturing sales decreasing $2,939,000 to
$25,979,000 for the three months ended, or 10%. This decrease was primarily the
result of the Company's January sales being lower than its historical sales
level for that month. January sales were negatively impacted by delayed software
releases caused by Y2K concerns and the anticipated release of Windows 2000 in
early 2000. Radio syndication sales decreased $148,000, or 15%, to $842,000 for
the three months ended March 31, 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 $489,000 during the three months ended March 31, 2000,
as compared to $128,000 for the same period in the prior year.
Gross profit was 30% of net sales for the three months ended March 31, 2000 as
compared to 32% of net sales for the same period of the prior year. This
reduction was primarily caused by lower January sales in 2000, and reduced
manufacturing capacity utilization.
Selling, general and administrative ("SG&A") expenses were $6,987,000, or 25% of
net sales, for the three months ended March 31, 2000 as compared to $7,824,000,
or 25% of net sales, for same period of the prior year.
Restructuring expenses of $431,000 were incurred during the three months ended
March 31, 2000. These restructuring expenses consisted primarily of severance
and termination benefits related to the completion of a U.S. workforce reduction
of approximately 12%. The workforce reduction was accomplished through
attrition, unfilled vacancies, and layoffs of temporary and some full time
employees.
Page 7 of 10
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Investment income was $11,000 and $14,000 for the three month periods ended
March 31, 2000 and 1999, respectively.
Interest expense for the three months ended March 31, 2000 was $1,056,000 as
compared to $740,000 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 benefit was $136,000 for the three months ended March 31, 2000,
or an effective tax benefit of 45%, as compared to $660,000 income tax expense
for the same period of the prior year, or an effective tax rate of 43%.
Based upon the foregoing, the net loss for the three months ended March 31, 2000
was $168,000, or net loss per diluted common share of $.03, as compared to a net
earnings in the same period of the prior year of $858,000, or net earnings per
diluted common share of $.14.
FINANCIAL CONDITION - LIQUIDITY AND CAPITAL RESOURCES
The Company financed its business during the three months ended March 31, 2000
through cash generated from operations, the use of debt, and the use of
available cash balances. Cash flow from operating activities was $3,385,000 for
the three months ended March 31, 2000, as compared to $3,194,000 for the three
months ended March 31, 1999. The Company has cash and cash equivalents of
$1,233,000 as of March 31, 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 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 March 31, 2000, $10,700,000 was outstanding under the
revolving loan facility. The revolving loan facility is payable September 11,
2003, and the term loan facility matures on March 31, 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 in
compliance with all of these covenants.
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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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 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.
Page 9 of 10
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PART II - OTHER INFORMATION
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Items 1-5. Inapplicable.
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Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
Exhibit No. 27 - Financial Data Schedule
(b) No reports on Form 8-K have been filed during the quarter ended
March 31, 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/ Daniel D. Viren
BY: Daniel D. Viren
Date: April 27, 2000 Senior Vice President and
Chief Financial Officer
(authorized signatory-
principal financial and
accounting officer)
Page 10 of 10
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Form 10-Q
Exhibit Index
Exhibit Number Exhibit Description Page Number
- -------------- ------------------- -----------
27 Financial Data Schedule --
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 1,232,546
<SECURITIES> 0
<RECEIVABLES> 18,078,110
<ALLOWANCES> 515,000
<INVENTORY> 3,649,006
<CURRENT-ASSETS> 26,348,013
<PP&E> 104,488,493
<DEPRECIATION> (42,945,539)
<TOTAL-ASSETS> 105,728,102
<CURRENT-LIABILITIES> 22,678,533
<BONDS> 45,542,037
0
0
<COMMON> 34,956,638
<OTHER-SE> 2,550,894
<TOTAL-LIABILITY-AND-EQUITY> 105,728,102
<SALES> 27,637,107
<TOTAL-REVENUES> 27,637,107
<CGS> 19,478,312
<TOTAL-COSTS> 26,896,096
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 61,068
<INTEREST-EXPENSE> 1,056,421
<INCOME-PRETAX> (304,239)
<INCOME-TAX> (136,000)
<INCOME-CONTINUING> (168,239)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (168,239)
<EPS-BASIC> (.03)
<EPS-DILUTED> (.03)
</TABLE>
