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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the fiscal year ended: December 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 NUMBER: 0-9220
METATEC INTERNATIONAL, INC.
(Exact name of Registrant as specified in its charter)
OHIO 31-1647405
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
7001 Metatec Boulevard
Dublin, Ohio 43017
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
Registrant's telephone number, including area code: (614) 761-2000
Securities registered pursuant to Section 12(b) of the Act:
None
(Title of Class)
Securities registered pursuant to Section 12(g) of the Act:
Common Shares, without par value
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports 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 __
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the Common Shares held by nonaffiliates of
the Registrant as of March 21, 2002, was $2,169,240.
On March 11, 2002, the Registrant had 6,536,113 Common Shares outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's proxy statement for its annual meeting of
shareholders to be held on May 16, 2002, which proxy statement will be filed
with the Securities and Exchange Commission within 120 days of December 31,
2001, are incorporated by reference into Part III, Items 10, 11, 12, and 13 of
this Report.
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METATEC INTERNATIONAL, INC.
FORM 10-K
PART I
ITEM 1. BUSINESS
GENERAL
Metatec International, Inc. ("Metatec") is transitioning from a disc
manufacturing company to a supply chain solutions company that enables companies
to streamline the process of delivering products and information to market by
providing technology driven supply chain solutions that increase efficiencies
and reduce costs. Metatec assists its customers with a wide range of services
from preparing their products for market to delivering their finished product
into the distribution channel or directly to the end-users. The solution is
built on a solid technology foundation that includes both customized system
integration and a web-based reporting and tracking tool that makes real-time
information easily accessible. Technologies include CD-ROM (compact disc-read
only memory) and DVD (digital versatile disc) manufacturing services, and secure
Internet-based software distribution service. Metatec maintains operations in
Ohio and The Netherlands. Metatec and its subsidiaries are hereinafter
collectively referred to as the "Company."
Since its inception, Metatec has been recognized as a high quality provider
of CD-ROM manufacturing and packaging services. The Company is considered a
pioneer in optical disc technology, being one of the earliest companies to help
U.S. businesses utilize the vast data storage capacity of optical media. As its
core business, a majority of the Company's revenue continues to come from its
optical disc manufacturing services. In recent years, the Company has expanded
its core business offering by providing an expanded set of packaging and
fulfillment services to its customers. More recently, and in response to both
market conditions and customer need, the Company has begun transitioning into a
provider of supply chain solutions while continuing to provide its core CD-ROM
manufacturing capabilities as a component of the supply chain. For supply chain
customers, the Company can provide support for the procurement of raw materials,
packaging, warehousing, fulfillment, inventory management and returns
management. These services are managed and integrated by extensive information
technology that gives customers visibility into the supply chain to track the
flow of information and product from raw material through delivery.
The Company's information technology infrastructure integrates the systems
and applications of industry standard technology providers. These partnerships
allow for a reliable, end-to-end system for information integration and
exchange. The Company offers customized solution design services for customers
to electronically link information exchange and process flow. Additionally, the
Company's web-based tool, Metatec Exchange, is linked directly to the Company's
order entry, production, and warehouse management systems providing real-time
information about orders, inventory, and shipping status in a secure, online
environment.
Electronic software distribution management is developed and offered
through the Company's Metatec Express service and product support services. This
service provides secure, traceable and verifiable distribution of software and
information over the Internet, Extranets and Intranets. Metatec Express is a
hosted, managed service providing secure, same day delivery of software and
electronic documents anywhere in the world.
Prior to May 1999, the registrant was Metatec Corporation, a Florida
corporation that was incorporated on September 9, 1976. At the annual meeting of
shareholders in April 1999, the shareholders of Metatec Corporation approved a
proposal to change the registrant's state of incorporation from Florida to Ohio
through a merger of Metatec Corporation with and into its wholly owned
subsidiary Metatec International, Inc., an Ohio corporation which was
incorporated on March 8, 1999. The merger of Metatec Corporation into Metatec
International, Inc. became effective in April 1999. At that time, the registrant
became an Ohio corporation and its name changed to Metatec International, Inc.
The term "Company" includes Metatec Corporation as the predecessor to Metatec
International, Inc.
1
FINANCIAL INFORMATION ON INDUSTRY SEGMENTS
Financial information on industry segments as required by Item 101(b) of
Regulation S-K is set forth in Note 10 of the "Notes to the Consolidated
Financial Statements," which Note is part of the financial statements contained
in Item 8 of this Form 10-K, which Note is incorporated herein by reference.
INDUSTRY OVERVIEW
With increased competition, companies are seeking better methods to manage
costs and speed products to market. These events have given rise to a focus on
outsourcing critical non-core functions, such as supply chain management.
Companies are looking for help in compressing the supply chain with
single-source providers of services. The Company's history of providing CD-ROM
manufacturing, packaging and fulfillment services to software companies presents
an opportunity for growing the Company's business with focus on providing supply
chain solutions. The Company has signed significant new business focused
primarily on providing expanded supply chain services. Additionally, the Company
has leveraged the existing customer base of companies using Metatec's CD-ROM
manufacturing services by expanding the breadth of services provided. In some
cases, the Company does not manufacture optical discs as part of the offering
because the customer does not require optical discs or makes its product
available through a different medium, such as interactive game cartridges or
cell phones.
While use of optical discs is still a popular method for the distribution
of business information, the commoditization of the market along with the
continued development of Internet technology has significantly impacted the
potential for continued growth in optical disc technology. The Company will
continue to offer optical disc manufacturing services as a component of the
supply chain solution but will devote substantial resources to developing and
marketing supply chain solutions to industries with and without a need for
optical disc technology.
PRINCIPAL PRODUCTS AND SERVICES
The Company provides technology driven supply chain solutions to help
customers speed products to market. The Company's main revenue producing
component of the supply chain is CD-ROM and DVD manufacturing. Customers utilize
disc technology to distribute a wide array of time-sensitive information. Disc
technology is economical when compared to more traditional forms of
distribution, such as printing, and offers substantial capacity for large
quantities of information. Common uses of disc technology include software
distribution, catalogs, digital imagery and information containing
code-intensive audio, video and graphic presentations.
The supply chain solution offering supports both the business-to-business
and retail marketplaces. The Company markets its services through a direct sales
force, and targets customers who generally have time-sensitive and recurring
product and information distribution requirements.
The Company provides full-service supply chain solutions that include raw
material procurement through distribution into the channel and direct-to-user
product shipping. The Company has a 151,000 square foot distribution center at
its Dublin, Ohio location to support its supply chain offering. The continued
development and support of supply chain solutions will be the foundation for the
future growth of the Company.
The Company offers its customers direct visibility into the supply chain
through Metatec Exchange. Customers with access to the Internet can access a
secure online area to check packaging, monitor job progress through Metatec's
manufacturing plants and manage inventory levels. Metatec Exchange decreases
communication time and enhances the exchange of information between Metatec and
its customers. Additionally, customers can benefit from seamless information
exchange with customized system integration into their back office systems.
The Company's Internet product is called Metatec Express. Metatec Express
provides secure, traceable and verifiable transmission of software and
information over the Internet, Extranets and Intranets. Metatec Express is a
managed service providing secure same day delivery of software and electronic
documents anywhere in the world.
2
The Company's supply chain services, CD-ROM and DVD manufacturing services
and Internet services can be used individually or in an integrated fashion by
customers. For example, customers requiring software distribution through disc
manufacturing can also offer updates or immediate content availability online.
The Company operates manufacturing and fulfillment sites in Dublin, Ohio;
and Breda, The Netherlands. These state-of-the-art, ISO-9000 certified,
facilities permit the Company to offer quick-turn services to major population
centers and low-cost solutions to companies with geographically disbursed
distribution needs. The ISO-9000 quality system certification means that the
Company's manufacturing facilities meet worldwide standards for quality
practices. The Company utilizes certain patents and technology in its
manufacturing activities which it licenses from third parties and which the
Company believes to be generally available to other manufacturers.
The Company does not believe that compliance with federal, state, and local
provisions which have been enacted or adopted regulating the discharge of
materials into the environment, or otherwise relating to the protection of the
environment, has had or will have a material effect upon the capital
expenditures, earnings, or competitive position of the Company. The Company does
not anticipate any material capital expenditures for environmental control
facilities for 2002.
MARKETING
The Company markets it products and services through a direct sales force.
These associates are responsible for maintaining relationships with existing
customers, revenue growth within existing customers and developing new business
relationships. The associates are supported by customer service representatives
that are responsible for ensuring that each order is processed in a timely
manner and all required support materials are in place. The Company maintains
customer support operations at its manufacturing and distribution facilities.
The Company also makes use of a variety of marketing communications initiatives
such as news media relations, the creation and distribution of sales collateral
materials, online marketing communication programs, conferencing and
presentation services and news wires.
COMPETITION
The Company has a number of competitors, some of which are larger and have
greater financial resources than the Company. The Company believes that the
principal competitive factors in supply chain solutions marketplace consist of
service, quality, price, technology, industry expertise, and increasingly, is
measured by the ability to create overall value for the customer. The Company
believes that it competes favorably with respect to these factors in the supply
chain solutions arena and continues to develop its offering to differentiate
itself from the competition.
The Company differentiates itself from its competitors by providing an
integrated supply chain solution that includes scalability and flexibility,
personalized customer service, customized solution design, supply chain
visibility and control, e-business solutions and Internet-based distribution
solutions.
EMPLOYEES
The Company employed approximately 426 persons as of March 22, 2002.
Approximately 300 employees are directly involved in the manufacturing and
distribution process, and the remainder are involved in sales, administration,
and support. The Company believes that its relations with its employees is good.
ITEM 2. PROPERTIES
The Company owns a 346,000 square foot office, manufacturing, and
distribution and fulfillment facility situated on approximately 25 acres located
at 7001 Metatec Boulevard, Dublin, Ohio. The Company's principal executive
offices are located at this facility. This facility also includes sales,
administration, and customer support operations. A first mortgage on the real
estate and improvements at this location secures a credit facility of the
Company.
3
The Company leases approximately 25,000 square feet of manufacturing,
customer support, and distribution and fulfillment facilities in Breda, The
Netherlands.
ITEM 3. LEGAL PROCEEDINGS
The Company and numerous other parties have been named as defendants in a
court proceeding filed in the United States District Court for the District of
Arizona by the plaintiff, Lemelson Medical, Education & Research Foundation,
Limited Partnership. In that court proceeding, the plaintiff is alleging that
the defendants have infringed upon certain patents that allegedly are
enforceable by the plaintiff. This court proceeding has been stayed pending the
outcome of parallel litigation in Nevada that is challenging the validity of
plaintiff's patents. At this time, the Company is unable to determine the
likelihood of the outcome of either the Arizona or Nevada proceedings or whether
an unfavorable outcome will be material to the Company.
The Company is involved in various legal claims arising from the normal
course of business. While the ultimate liability, if any, from these proceedings
is presently indeterminable, in the opinion of management, these matters should
not have a material adverse effect on the consolidated financial statements of
the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the Company's fiscal year.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company and their respective ages and present
positions with the Company are as follows:
OFFICERS AGE PRESENT POSITION(S) WITH THE COMPANY
-------- --- ------------------------------------
Christopher A. Munro 41 President and Chief Executive Officer
Julia A. Pollner 39 Senior Vice President, Finance, Secretary and
Treasurer
Gary W. Qualmann 50 Chief Financial Officer
Martin G. Stokman 41 Vice President, Europe
Mr. Munro has been President and Chief Executive Officer of the Company
since December 7, 2001, and prior to that was Chief Operating Officer since
joining the Company in January 2001. Prior to joining the Company, Mr. Munro
held the position of senior vice president of strategy and development for Exel
Logistics, a worldwide supply chain company with global headquarters in London
UK. Mr. Munro was employed by Exel Logistics for over twenty years.
Ms. Pollner has been Senior Vice President, Finance, Treasurer, and
Secretary of the Company since May 1998, and has held various accounting and
finance positions with the Company since 1987.
Mr. Qualmann has been Chief Financial Officer of the Company since joining
the Company on February 13, 2002. Mr. Qualmann also provided financial
consulting services to the Company from October, 2001 until joining the Company.
From March 1996 until June 2001, Mr. Qualmann was chief financial officer,
treasurer, secretary and director of MindLeaders.com, Inc., an e-learning
company based in Columbus, Ohio. From May 1988 until July 1995, Mr. Qualmann
served as executive vice president and chief financial officer of Red Roof Inns,
Inc., a lodging company based in Hilliard, Ohio.
Mr. Stokman has been Vice President, Europe of the Company since January
1999. Mr. Stokman joined the Company in October 1998, in connection with the
Company's acquisition of the CD-ROM services business assets of Imation. From
1997 to 1998, Mr. Stokman was Imation's business manager for its CD-ROM services
business in Europe. From 1995 to 1997, Mr. Stokman was a manager of a European
distribution center for 3M, the former owner of Imation.
4
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Shares are currently traded on the Nasdaq National
Market system under the symbol META. Because the Company no longer meets the
continued listing requirements for the Nasdaq National Market, the Company
anticipates moving to the Over the Counter (OTC) Bulletin Board prior to the
middle of May, 2002. The following table reflects the range of reported high and
low last sales prices for the Common Shares for the periods indicated.
HIGH LOW
----- -----
For the quarter ended 2001
March 31.................................................. $1.56 $0.81
June 30................................................... $1.32 $0.56
September 30.............................................. $1.20 $0.66
December 31............................................... $0.79 $0.20
For the quarter ended 2000
March 31.................................................. $7.25 $2.66
June 30................................................... $3.88 $2.34
September 30.............................................. $3.38 $2.00
December 31............................................... $2.44 $0.81
As of March 22, 2002 there were 3,848 holders of record of the Common
Shares, and the last sales price per share on that date, as reported by the
Nasdaq National Market system, was $0.31.
The Company has never paid cash dividends on its Common Shares, and it does
not expect to pay cash dividends in the foreseeable future. The terms of the
Company's credit facilities prohibit it from paying cash dividends or making any
other distributions to shareholders without the prior consent of the
administrative agent of these credit facilities.
ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA
2001 2000 1999 1998 1997
------------ ------------ ------------ ------------ -----------
Sales................... $ 77,282,005 $104,231,047 $120,281,047 $ 80,919,128 $48,933,634
Earnings (loss) before
income taxes.......... $(29,931,839) $(18,362,618) $ (4,166,290) $ 2,684,769 $ 1,040,534
Net earnings (loss)..... $(29,973,839) $(17,532,618) $ (2,846,290) $ 1,422,769 $ 491,534
Earnings (loss) per
common share:
Basic and diluted..... $ (4.88) $ (2.88) $ (0.47) $ 0.23 $ 0.07
Weighted average number
of common shares
outstanding:
Basic................. 6,136,002 6,085,426 6,074,879 6,058,414 6,791,836
Diluted............... 6,136,002 6,085,426 6,074,879 6,115,084 7,189,266
Total assets............ $ 47,374,571 $ 77,332,873 $111,407,753 $105,442,814 $52,871,893
Long-term liabilities... $ 39,395,641 $ 35,920,386 $ 47,382,793 $ 41,031,569 $ 5,893,410
Shareholders' equity
(deficiency).......... $ (9,145,080) $ 20,171,877 $ 37,862,192 $ 41,949,897 $41,194,053
5
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires the
appropriate application of accounting policies, many of which require the
Company's management to make estimates and assumptions about future events and
their impact on amounts reported in the Company's financial statements and
related notes. Since future events and their impact cannot be determined with
certainty, actual results will inevitably differ from management's estimates.
Such differences could be material to the Company's financial statements.
Management believes that its application of accounting policies, and the
estimates inherently required therein, are reasonable. These accounting policies
and estimates are constantly reevaluated, and adjustments are made when facts
and circumstances dictate a change.
The Company's accounting policies are more fully described in Note 1 to the
consolidated financial statements included elsewhere in this Form 10-K (see Item
8 herein). Described below are certain critical accounting policies which
management believes are important to emphasize. These critical accounting
policies are not intended to be a comprehensive list of all the Company's
accounting policies. In many cases, the accounting treatment of a particular
transaction is specifically dictated by accounting principles generally accepted
in the United States of America, with no need for management's judgment in their
application. There are also areas in which management's judgment in selecting
other available alternatives would not produce a materially different result.
Long-lived assets. In evaluating the fair value and future benefits of
long-lived assets, management completes an analysis of the anticipated
undiscounted future net cash flows of the related long-lived assets and reduces
their carrying value by the excess, if any, as a result of such calculation.
Management believes that the long-lived assets' carrying values and useful lives
are appropriate.
Allowance for doubtful accounts. Management has attempted to reserve for
expected credit losses based on the Company's past experience with similar
accounts receivable, and it believes that the Company's reserves are adequate.
It is possible, however, that the accuracy of management's estimation process
could be materially impacted as the composition of this pool of accounts
receivable changes over time. Management continually reviews and refines the
estimation process to make it as reactive to these changes as possible.
Litigation. The Company and its legal counsel evaluate litigation and
review the likelihood of an outcome and the resulting materiality to the
Company. The Company is involved in various legal claims arising from the normal
course of its business. While the ultimate liability, if any, from these
proceedings is presently indeterminable, in the opinion of management, these
matters should not have a material adverse effect on the consolidated financial
statements of the Company.
Income taxes. The Company has a history of unprofitable operations. These
losses generated a sizeable federal tax net operating loss, or NOL, carryforward
of as of December 31, 2001. Accounting principles generally accepted in the
United States of America require the Company to record a valuation allowance
against the deferred tax asset associated with this NOL if it is "more likely
than not" that the Company will not be able to utilize the NOL to offset future
taxes. Due to the size of the NOL carryforward in relation to the Company's
history of unprofitable operations, management has not recognized any net
deferred tax asset in the Company's financial statements.
In the future the Company could achieve levels of profitability which could
cause management to conclude that it is more likely than not that the Company
will realize all or a portion of the NOL carryforward. Upon reaching such a
conclusion, the Company would record the estimated net realizable value of the
deferred tax asset at that time and would then provide for income taxes at a
rate equal to the Company's combined federal and state effective rates.
6
BUSINESS OF THE COMPANY
The Company is transitioning from a disc manufacturing company to a supply
chain solutions company that enables companies to streamline the process of
delivering products and information to market by providing technology driven
supply chain solutions that increase efficiencies and reduce costs. The Company
assists its customers with a wide range of services from preparing their product
for market to delivering their finished product into the distribution channel or
directly to the end-users. The solution is built on a solid technology
foundation that includes both customized system integration and a web-based
reporting and tracking tool that makes real-time information easily accessible.
Technologies include CD-ROM and DVD manufacturing services and secure
Internet-based software distribution service. The Company's core CD-ROM
manufacturing capabilities serve as a component of the supply chain. The Company
maintains operations in Ohio and The Netherlands. Revenues attributed to product
types are distinguished as CD-ROM sales and other sales.
RESULTS OF OPERATIONS -- 2001 COMPARED TO 2000
Net sales in 2001 were $77,282,000, a decrease of $26,949,000, or 26% from
2000. This decrease resulted primarily from CD-ROM manufacturing sales
decreasing $26,123,000 to $71,667,000 for 2001, or 27%. This decrease was due to
several factors. First, 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 into 2002. Second, the
demand for the Company's CD-ROM products and services declined due to several
factors, including a decline in general economic conditions compounded by the
events of September 11, 2001, the continued increase in customers using on-line
or electronic methods to distribute information, and the continued maturation of
the CD-ROM market. Finally, management made a decision in 2001 to reduce the
number of the Company's low-margin disc manufacturing customers. The Company
anticipates that these factors may continue to impact the demand for the
Company's CD-ROM products and services in 2002. Radio syndication sales
decreased $1,493,000, or 47%, to $1,660,000 in 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 $2,210,000 in 2001, as compared to
$1,973,000 in 2000.
Gross profit was 25% of net sales for 2001 and 28% of net sales for 2000.
This reduction was primarily caused by the reduced utilization of the Company's
manufacturing capacity and the continued decline of pricing for CD-ROM products
and services.
Selling, general and administrative expenses ("SG&A") decreased to
$25,246,000, or 33% of net sales, for 2001 as compared to $27,374,000, or 26% of
net sales, for 2000. The SG&A expense reduction in dollars was primarily
attributed to the restructuring and workforce reductions, which occurred in the
first, third, and fourth quarters of 2001, although the Company's decreased
sales caused SG&A expenses to increase as a percentage of net sales.
At each balance sheet date, a determination is made by management to
ascertain whether goodwill or any long-lived assets have been impaired based
upon several criteria, including, but not limited to, revenue trends,
undiscounted operating cash flows, and other operating factors. At the end of
2001, management evaluated these criteria and determined that certain goodwill
and long-lived assets associated with the Company's Dublin, Ohio and Breda, The
Netherlands operations, were impaired. Accordingly, in the fourth quarter of
2001, the Company recorded a $13.0 million write-down of the carrying value of
these impaired assets based on the discounted cash flows of the operations. In
addition the Company made the decision to discontinue its implementation of an
ERP system, which resulted in a charge of $2.5 million during 2001. In 2000, the
Company recorded a $15.6 million writedown of the carrying value of impaired
assets based on the discounted cash flows of the operations. At December 31,
2001, there is no remaining goodwill on the balance sheet as compared to $4.6
million at December 31, 2000.
Restructuring expenses of $2,041,000 were incurred during 2001, as compared
to restructuring expenses of $475,000 in 2000. The 2001 restructuring expenses
consisted primarily of severance and termination benefits related to a U.S. and
European workforce reduction of approximately 42% and separation benefits for an
executive as well as restructuring costs related to the closing of two sales
offices. The workforce reduction was
7
accomplished through attrition, unfilled vacancies, and layoffs of temporary and
some full time employees. See Note 2 of the Consolidated Financial Statements.
Additional restructuring charges of $3,068,000 were incurred during the
fourth quarter of 2001, related to the closure of the Company's Milpitas,
California ("Silicon Valley") manufacturing facility. In connection with this
restructuring, the Company completed the sale of its manufacturing assets
associated with the Silicon Valley facility and terminated the lease for this
facility. See Note 2 of the Consolidated Financial Statements.
Investment income was $51,000 for 2001 as compared to $33,000 for 2000. The
increase in investment income was a result of higher cash and cash equivalent
balances. Interest expense was $3,474,000 for 2001 as compared to $4,242,000 for
2000. The decrease in interest expense was the result of decreased borrowings
under the Company's credit facilities, as well as decreases in the interest
rate.
Income tax of $42,000 was incurred in 2001, or an effective tax rate of
..14% due to the Company recording a full valuation allowance on all net tax
assets. The income tax benefit was $830,000 in 2000, or an effective tax benefit
of 4.5%.
As a result of the foregoing, the net loss for 2001 was $29,973,839, or
basic and diluted losses per common share of $(4.88) as compared to the 2000 net
loss of $17,533,000, or basic and diluted losses per common share of $(2.88).
RESULTS OF OPERATIONS -- 2000 COMPARED TO 1999
Net sales in 2000 were $104,231,000, a decrease of $16,050,000, or 13% from
1999. This decrease resulted primarily from CD-ROM manufacturing sales
decreasing $14,959,000 to $97,790,000 for 2000, or 13%. This decrease was due to
several factors. In 2000, the pricing for CD-ROM products and services continued
to decline industry-wide due to excess manufacturing capacity. In addition, the
demand for the Company's CD-ROM products and services declined primarily due to
a decline in general economic conditions, the continued increase in customers
using on-line or electronic methods to distribute information, and the continued
maturation of the CD-ROM market. Radio syndication sales decreased $1,050,000,
or 25%, to $3,153,000 in 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 $1,973,000 in 2000, as compared to $751,000 in 1999.
Gross profit was 28% of net sales for 2000 and 1999.
Selling, general and administrative expenses ("SG&A") decreased to
$27,374,000, or 26% of net sales, for 2000 as compared to $32,911,000, or 27% of
net sales, for 1999. This reduction was primarily attributed to the
restructuring and workforce reductions, which occurred in the first and fourth
quarters of 2000.
At each balance sheet date, a determination is made by management to
ascertain whether goodwill or any fixed assets have been impaired based upon
several criteria, including, but not limited to, revenue trends, undiscounted
operating cash flows, and other operating factors. At the end of 2000,
management evaluated these criteria and determined that certain goodwill and
fixed assets associated with the Company's Milpitas, California ("Silicon
Valley") operations, which were acquired from Imation Corporation ("Imation") in
September 1998, were impaired. Accordingly, in the fourth quarter of 2000, the
Company recorded a $15.6 million writedown of the carrying value of these
impaired assets based on the discounted cash flows of the operations. At
December 31, 2000, the remaining goodwill on the balance sheet was $4.6 million
as compared to $18.3 million at December 31, 1999.
Restructuring expenses of $431,000 and $44,000 were incurred during the
first and fourth quarters of 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.
Investment income was $33,000 for 2000 as compared to $25,000 for 1999. The
increase in investment income was a result of higher cash and cash equivalent
balances.
8
Interest expense was $4,242,000 for 2000 as compared to $3,336,000 for
1999. The increase in interest expense was the result of increased borrowings
under the Company's credit facilities, as well as increases in the interest
rate.
The income tax benefit was $830,000 in 2000, or an effective tax benefit of
4.5%, as compared to an income tax benefit of $1,320,000 in 1999, or an
effective tax rate of 32%. The primary reason for the decrease was the recording
of a valuation allowance in connection with the writedown of the carrying value
of fixed assets and goodwill associated with the Silicon Valley operations
acquired from Imation, due to the uncertainty of realizing the value of such
benefit.
As a result of the foregoing, the net loss for 2000 was $17,533,000, or
basic and diluted losses per common share of $(2.88), as compared to the 1999
net loss of $2,846,000, or basic and diluted losses per common share of $(.47).
IMPACT OF INFLATION
Although inflation has an effect on salaries, employee benefits and other
operating expenses, after considering general inflationary trends, the Company's
operations were not significantly affected by inflation in 2001.
RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS
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 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.
Management does not believe the adoption of this statement will have an impact
on the Company's consolidated financial statements since the Company's goodwill
was fully impaired at December 31, 2001 and written off.
In August 2001, the FASB issued SFAS No. 144, "Accounting for Impairment or
Disposal of Long-Lived Assets." While this statement supercedes SFAS No. 121,
"Accounting for Impairment of Long-Lived Assets to Be Disposed Of" it retains
the fundamental provisions of SFAS No. 121 for recognition and impairments of
assets to be held and used, and assets to be disposed of by sale. This statement
is effective for the first quarter in the year ended December 31, 2002.
Management does not expect the adoption of this statement to have a material
effect on its consolidated financial statements.
FINANCIAL CONDITION -- LIQUIDITY AND CAPITAL RESOURCES
Source of Liquidity
The Company's principal source of liquidity in 2001 was cash flows
generated from operations. Cash flow from operating activities was $5,148,000,
$14,783,000, and $10,694,000 for 2001, 2000 and 1999, respectively. The Company
anticipates that cash flows generated from operations will continue to be its
principal source of liquidity during 2002.
Bank Financing Matters
The Company has a term loan facility and a revolving loan facility
(collectively, the "Credit Facility") with its banks. As of December 31, 2001,
its banks had declared the Company in default of the Credit Facilities due to
the Company's failure to satisfy a financial covenant contained in the loan
agreement for the Credit Facilities. As
9
of December 31, 2001, $9,326,000 and $9,605,000 were outstanding under the term
loan facility and the revolving loan facility, respectively.
On February 8, 2002, the Company entered into an amended and restated loan
agreement (the "Amended Loan Agreement") with its banks which replaced the
Company's prior agreement with its banks. Under the Amended Loan Agreement, the
Credit Facilities consist of three separate loans: (1) an asset based revolving
loan facility with a borrowing base as described below; (2) a term loan facility
in the principal amount of $9,326,250; and (3) a second term loan facility in
the original principal amount of $509,238, which principal amount may be
increased up to $1,000,000 by advances made to the Company through December 31,
2002. The borrowing base of the revolving loan facility is limited to the lesser
of (i) $12,490,762, or (ii) the sum of (A) 80% of eligible domestic accounts
receivable, plus (B) 30% of eligible domestic inventory, plus (C) 90% of
domestic machinery and equipment. The borrowing base is further reduced by the
aggregate amount of the Company's outstanding letters of credit and is
permanently reduced by the amount of any additional advances made to the company
under the second term loan facility.
The revolving loan and the term loans under the Credit Facilities mature on
April 1, 2004. Quarterly principal payments are required for the term loans
beginning in June 2002 if cashflows exceed certain specified targets over
designated periods of time. 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 the financial
and other covenants contained in the Amended Loan Agreement. The revolving loan
and the term loans accrue interest at a rate equal to 3.5% in excess of the
prime rate of the banks. Certain fees are required to be paid to the banks in
connection with the Credit Facilities. The Company expects that it will be able
to negotiate a new borrowing facility prior to April 1, 2004; however, there can
be no assurance that the Company will be able to do so.
The Company has a $19,000,000 term loan facility which was used to
permanently finance the Company's Dublin, Ohio distribution center completed in
1999 and to pay down other bank debt. The loan facility has an outstanding
principal balance of $18,685,285 as of December 31, 2001. This term loan
facility is payable in monthly principal and interest payments based upon a
thirty year amortization schedule, bears interest at a fixed rate of 8.2%, and
matures on September 1, 2009. This loan facility 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.
Other Liquidity Matters
The Company completed the sale of certain of its manufacturing assets
associated with its Silicon Valley facility on January 15, 2002 for
approximately $1.0 million. The sale transaction was effective as of December
31, 2001.
The Company and the landlord of its Silicon Valley facility agreed to
terminate the lease for this facility on January 15, 2002. The lease termination
agreement was effective as of December 31, 2001. The lease termination relieved
the Company of paying approximately $12.2 million in lease payments due over the
next seven years. In exchange for its agreement to terminate the lease, the
landlord received a $1.5 million unsecured, non-interest bearing promissory note
(discounted to $1,228,349 at 8.5%) due in four equal installments beginning in
January 2003, approximately $1.1 million in cash, and 300,000 shares of the
Company's common stock.
Recurring capital needs resulted in the purchase of $1,587,000 in property,
plant and equipment during 2001, as compared to $5,060,000 in 2000 and
$21,371,000 in 1999. In addition, during 2001 the Company bought out certain
equipment previously leased under operating leases totaling $948,000.
The Company did not carry any off-balance sheet derivative financial
instruments or have any off-balance sheet financial arrangements at December 31,
2001.
Plan to Improve Liquidity and Financial Condition
The Company had working capital of $700,000 as of December 31, 2001, as
compared to working capital of $605,000 as of December 31, 2000. The Company
incurred a net loss of $29,974,000 in 2001. Included in this loss were charges
resulting from the impairment of goodwill and long-lived assets and
restructuring charges
10
totaling $20,576,000. As a result of such loss, the Company had shareholders'
deficiency of $9,145,000 as of December 31, 2001, as compared to a shareholders'
equity of $20,172,000 as of December 31, 2000. These financial conditions
present both short-term and long-term liquidity issues for the Company.
Management is addressing, and has addressed, the short-term liquidity
situation in a number of ways. First, in response to declining pricing and
reduced demand for CD-ROM products, management is transitioning the Company from
a disc manufacturing company to a supply chain solutions company. Management is
also focusing on higher-margin customers in certain industries and reducing the
number of the Company's low-margin disc customers. Second, as discussed,
management has significantly reduced expenses in a number of ways, such as
implementing a 42% workforce reduction, closing the Company's Silicon Valley
facility in 2001 and terminating the related lease, and continuing to implement
cost saving measures. Finally, the maturity date of the Company's Credit
Facilities was extended until April 2004.
The Company has generated positive cash flows from operations in each of
the last three fiscal years. Management believes that the Company's current
focus on its core business customers, and continued cost saving measures will
allow it to generate sufficient cash flows to meet operational needs in 2002.
However, there can be no assurance that such measures will allow the Company to
generate sufficient cash flows in 2002. Furthermore, additional actions will
need to be taken to address then Company's long-term liquidity issues as a
result of the Company's shareholders' deficiency.
The Amended Loan Agreement with the banks includes financial covenants
which require the Company to meet specified cash flow thresholds over designated
periods of time. There can be no assurance that the Company will be able to meet
these cash flow thresholds over such periods of time. See also "Forward Looking
Statements; Risk Factors Affecting Future Results" which is part of this Item 7
for a further discussion of these and other risk factors which have affected and
in the future could affect the Company's financial performance.
STATEMENT OF MANAGEMENT RESPONSIBILITY
The consolidated financial statements of the Company are the responsibility
of management, and those statements have been prepared in accordance with
accounting principles generally accepted in the United Sates of America. All
available information and management's judgment of current conditions and
circumstances have been reflected. Management accepts full responsibility for
the accuracy, integrity and objectivity of the financial information included in
this report.
To provide reasonable assurance that assets are safeguarded against loss
from unauthorized use or disposition and that accounting records are reliable
for preparing financial statements, management maintains systems of accounting
and internal controls, including written policies and procedures, which are
communicated to all appropriate levels of the Company. Management believes that
the Company's accounting and internal control systems provide reasonable
assurance that assets are safeguarded and financial information is reliable.
Maintenance of sound internal control by division of responsibilities is
augmented by internal review programs and an Audit Committee of the Board of
Directors. The Audit Committee reviews the scope of the audits performed by the
independent public accountants, Deloitte & Touche LLP, together with their audit
report and any recommendations made by them. The independent accountants have
free access to meet with the Audit Committee and Board of Directors with or
without management representatives present.
Christopher A. Munro
President and
Chief Executive Officer
Gary W. Qualmann
Chief Financial Officer
11
FORWARD LOOKING STATEMENTS; RISK FACTORS AFFECTING FUTURE RESULTS
Statements contained in this Form 10-K 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. There can be no assurance that
management's expectations, beliefs or projections will result or be achieved or
accomplished. The following risk factors, among others, in some cases have
affected and in the future could affect the Company's actual financial
performance.
RISKS ASSOCIATED WITH COMPANY'S FINANCIAL CONDITION
For the years ended December 31, 2001, 2000, and 1999, the Company's net
losses were $29,970,000, $17,530,000, and $2,850,000, respectively. The Company
cannot assure shareholders when, or whether, the Company will become, or remain
profitable. The continued incurrence of losses will have a material adverse
effect on the Company's financial position and ability to continue operations.
As of December 31, 2001, the Company had a shareholders' deficiency of
$9,145,000. In the event of any sale or liquidation of the Company or its
assets, there can be no assurance that any value will be realized by the
Company's shareholders.
The Company's Amended Loan Agreement with its banks includes financial
covenants which require the Company to meet specified cash flow thresholds over
designated periods of time. There can be no assurance that the Company will be
able to meet these cash flow thresholds over such periods of time. The Company's
failure to meet these cash flow thresholds is an event of default under the
Amended Loan Agreement which would allow the banks to accelerate the payment of
the Credit Facilities and to exercise their other rights and remedies under the
Amended Loan Agreement, including the potential forced sale or liquidation of
the Company or its assets.
The Company's liquidity and its ability to meet its current and long-term
financial obligations as they become due will be dependent upon the Company's
financial performance and its ability to meet the cash flow thresholds required
by the Amended Loan Agreement. The Company's failure to meet these cash flow
thresholds would have a material adverse effect on the Company's financial
position and ability to continue operations.
PRODUCT CONCENTRATION; DEMAND FOR PRODUCTS
Revenues from CD-ROM manufacturing sales constituted substantially all of
the Company's revenues for 2001. Although the Company is implementing a plan to
increase revenues from its supply chain solution services, CD-ROM manufacturing
sales are expected to continue to account for substantially all of the Company's
revenues for the foreseeable future.
The Company experienced a material decrease in revenues in its CD-ROM
manufacturing sales in 2001. This decrease was caused, in part, by a decline in
the demand for the Company's CD-ROM products and services, which decline was
caused primarily by (i) a decline in general economic conditions, compounded by
the events of September 11, 2001, (ii) the continued increase in customers using
online and electronic methods to distribute information rather than CD-ROM, and
(iii) the continued maturation of the market for CD-ROM products. The Company
anticipates that these factors will continue to impact the demand for the
Company's CD-ROM products and services in 2002, which may cause a further
decline in CD-ROM manufacturing sales in 2002. The continued decrease in demand
for the Company's products and services would have a material adverse effect on
the Company's operating results.
Included in the Company's CD-ROM products and services are audio CDs for
the radio syndication programming services market. Radio syndication sales
significantly declined in 2001 and 2000 due to customers
12
choosing to use CD-Recordable as a distribution method for smaller size orders,
a trend that the Company believes will continue for the foreseeable future. Due
to this change in the distribution method, along with the maturity of the radio
syndication programming services market and the Company's existing share of
sales in that market, the Company believes that revenues from radio syndication
sales will continue to decline for the foreseeable future.
PRICING
In 2001, 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 into 2002. In prior years, market
growth offset increased manufacturing capacity in the CD-ROM industry. However,
this growth has ceased due to the maturation of this market. In addition, the
Company's pricing of its new products and services may not in all cases be
competitive with the other providers in the marketplace, and some new products
and services may not be profitable.
COMPETITION
The Company faces competition in the information distribution industry from
a number of sources, such as traditional print publishers, distributors of
information, CD-ROM manufacturers, and others. The Company's competitors vary by
market segment and include many companies which are larger, more established,
and have substantially more resources than the Company. The Company does not
benefit from patents or proprietary technology, and competition may increase in
the future.
TECHNOLOGICAL CHANGE
The market for information distribution services incorporating optical disc
technology is based upon a sophisticated technology and is subject to rapid
technological change. Current or new competitors may introduce new products,
features or services that could adversely affect the Company's competitive
position. Additionally, there can be no assurance that over time optical disc
technology will not be replaced by another form of information storage and
retrieval technology, such as electronic information services. The Company must
continue to improve its products and related services and develop and
successfully market new products and services in order to remain competitive.
There can be no assurance that it will be able to do so.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not use derivative financial instruments in its investment
portfolio except for forward contracts used to hedge the net receivable/payable
position arising from an intercompany note between the Company and its European
subsidiary. During the fourth quarter of 2001, the Company terminated these
forward contracts, with the proceeds reducing the Company's debt to one of its
lenders. The Company places its investments in instruments that meet high credit
quality standards. The Company does not expect any material loss with respect to
its investment portfolio.
The Company utilizes term and revolving bank debt with variable interest
rates of 3.5% above prime, and therefore, the Company is effected by changes in
market interest rates. The Company does not expect changes in interest rates to
have a material effect on income or cash flows in fiscal 2002, although there
can be no assurances that interest rates will not significantly change.
The effect of foreign exchange rate fluctuations on the Company's
statements of operations for the year's ended December 31, 2001 and 2000 were
not material. However, the Company could realize a significant effect of the
currency fluctuation, based on a dollar note its Dutch subsidiary holds. The
U.S. parent company is the holder of this note.
13
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of Metatec International, Inc.:
We have audited the accompanying consolidated balance sheets of Metatec
International, Inc. and subsidiaries as of December 31, 2001 and 2000, and the
related consolidated statements of operations, stockholders' equity
(deficiency), and cash flows for each of the three years in the period ended
December 31, 2001. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Metatec International, Inc. and
subsidiaries at December 31, 2001 and 2000, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 2001 in conformity with accounting principles generally accepted in the
United States of America.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
March 1, 2002
Columbus, Ohio
14
METATEC INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
AT DECEMBER 31,
-------------------------
2001 2000
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents................................. $ 1,981,184 $ 2,086,228
Accounts receivable
Trade, net of allowance for doubtful accounts of
$401,000 and $351,000................................. 12,006,645 15,146,714
Due from sale of assets................................ 1,000,000 0
Inventory................................................. 2,075,445 2,970,219
Prepaid expenses.......................................... 760,470 1,054,362
Deferred income taxes..................................... 0 588,107
----------- -----------
Total current assets................................... 17,823,744 21,845,630
Property, plant and equipment -- net........................ 29,381,661 50,455,317
Goodwill -- net............................................. 0 4,631,036
Other assets................................................ 169,166 296,890
Deferred income taxes....................................... 0 104,000
----------- -----------
TOTAL ASSETS................................................ $47,374,571 $77,332,873
=========== ===========
LIABILITIES & SHAREHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable.......................................... $ 5,088,149 $ 6,411,588
Accrued expenses:
Royalties.............................................. 5,468,135 3,712,796
Personal property taxes................................ 1,110,819 1,270,425
Payroll................................................ 911,014 1,193,054
Restructuring.......................................... 2,658,275 60,797
Other.................................................. 1,510,377 1,209,600
Unearned income........................................... 194,366 234,235
Current maturities of long-term real estate debt.......... 157,399 170,087
Current maturities of other long-term debt and capital
lease obligations...................................... 25,476 6,978,028
----------- -----------
Total current liabilities.............................. 17,124,010 21,240,610
Long-term real estate debt.................................. 18,527,886 18,623,708
Other long-term debt and capital lease obligations, less
current maturities........................................ 20,194,352 16,769,506
Other long-term liabilities................................. 673,403 527,172
----------- -----------
Total liabilities...................................... 56,519,651 57,160,996
----------- -----------
Commitments and contingencies (Notes 4, 5, and 6)
Shareholders' equity (deficiency):
Common stock, no par value; authorized 10,000,000 shares;
issued 2001 -- 7,217,855 shares; 2000 -- 7,177,855
shares................................................. 35,031,138 34,991,138
Accumulated deficit....................................... (37,547,201) (7,573,362)
Accumulated other comprehensive loss...................... (786,480) (1,423,362)
Treasury stock, at cost; 1,081,742 shares................. (5,822,537) (5,822,537)
Unamortized restricted stock.............................. (20,000) 0
----------- -----------
Total shareholders' equity (deficiency)................ (9,145,080) 20,171,877
----------- -----------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY (DEFICIENCY)....... $47,374,571 $77,332,873
=========== ===========
See notes to consolidated financial statements.
15
METATEC INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
------------------------------------------
2001 2000 1999
------------ ------------ ------------
NET SALES.......................................... $ 77,282,005 $104,231,047 $120,281,047
Cost of sales...................................... 57,969,326 74,897,674 87,174,319
------------ ------------ ------------
Gross profit....................................... 19,312,679 29,333,373 33,106,728
Selling, general and administrative expenses....... 25,245,823 27,374,306 32,910,549
Impairment of goodwill and assets and other
restructuring costs.............................. 20,575,956 16,112,287 1,050,722
------------ ------------ ------------
OPERATING LOSS..................................... (26,509,100) (14,153,220) (854,543)
Other income (expense):
Investment income............................. 50,910 32,844 24,520
Interest expense.............................. (3,473,649) (4,242,242) (3,336,267)
------------ ------------ ------------
LOSS BEFORE INCOME TAXES........................... (29,931,839) (18,362,618) (4,166,290)
Income taxes (benefit)............................. 42,000 (830,000) (1,320,000)
------------ ------------ ------------
NET LOSS........................................... $(29,973,839) $(17,532,618) $ (2,846,290)
============ ============ ============
NET LOSS PER COMMON SHARE:
Basic and diluted................................ $ (4.88) $ (2.88) $ (0.47)
============ ============ ============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Basic and diluted................................ 6,136,002 6,085,426 6,074,879
============ ============ ============
See notes to consolidated financial statements.
16
METATEC INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)
RETAINED ACCUMULATED
ADDITIONAL EARNINGS/ OTHER UNAMORTIZED
COMMON PAID-IN (ACCUMULATED COMPREHENSIVE TREASURY RESTRICTED
STOCK CAPITAL DEFICIT) INCOME (LOSS) STOCK STOCK TOTAL
----------- ----------- ------------ ------------- ----------- ----------- -----------
BALANCE AT DECEMBER 31,
1998....................... $ 715,348 $34,218,577 $12,805,546 $ 32,963 $(5,822,537) $ 0 $41,949,897
Comprehensive Loss:
Net loss................... (2,846,290) (2,846,290)
Foreign currency
translation adjustments.. (1,256,628) (1,256,628)
-----------
Comprehensive loss....... (4,102,918)
Stock options exercised...... 388 10,825 11,213
Tax benefit relating to stock
options.................... 4,000 4,000
Elimination of par value..... 34,233,402 (34,233,402)
----------- ----------- ------------ ----------- ----------- -------- -----------
BALANCE AT DECEMBER 31,
1999....................... 34,949,138 0 9,959,256 (1,223,665) (5,822,537) 0 37,862,192
Comprehensive Loss:
Net loss................... (17,532,618) (17,532,618)
Foreign currency
translation adjustments.. (199,697) (199,697)
-----------
Comprehensive loss....... (17,732,315)
Stock options exercised...... 32,000 32,000
Tax benefit relating to stock
options.................... 10,000 10,000
----------- ----------- ------------ ----------- ----------- -------- -----------
BALANCE AT DECEMBER 31,
2000....................... 34,991,138 0 (7,573,362) (1,423,362) (5,822,537) 0 20,171,877
Comprehensive Loss:
Net loss................... (29,973,839) (29,973,839)
Foreign currency
translation adjustments.. (311,579) (311,579)
Gain on termination of
forward contracts........ 948,461 948,461
-----------
Comprehensive loss....... (29,336,957)
Issuance of restricted
shares..................... 40,000 40,000
Amortization of restricted
stock...................... (20,000) (20,000)
----------- ----------- ------------ ----------- ----------- -------- -----------
BALANCE AT DECEMBER 31,
2001....................... $35,031,138 $ 0 $(37,547,201) $ (786,480) $(5,822,537) $(20,000) $(9,145,080)
=========== =========== ============ =========== =========== ======== ===========
See notes to consolidated financial statements.
17
METATEC INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
-----------------------------------------
2001 2000 1999
------------ ------------ -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................... $(29,973,839) $(17,532,618) $(2,846,290)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization................... 10,657,859 14,525,737 14,346,593
Write-down of fixed assets and goodwill......... 15,466,456 15,637,642 0
Deferred income tax expense (benefit)........... 692,107 (326,071) (1,691,000)
Tax benefit from stock options exercised........ 0 10,000 4,000
Net (gain) loss on sales of property, plant and
equipment..................................... 816,802 (139,879) (62,094)
Changes in assets and liabilities:
Accounts receivable........................... 3,027,769 5,326,390 606,178
Inventory..................................... 885,858 673,818 (535,012)
Prepaid expenses and other assets............. 296,248 278,908 105,334
Accounts payable and accrued expenses......... 3,309,267 (3,719,477) 708,606
Unearned income............................... (30,894) 48,933 57,617
------------ ------------ -----------
Net cash provided by operating
activities............................... 5,147,633 14,783,383 10,693,932
------------ ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment.......... (1,586,647) (5,060,166) (21,371,106)
Proceeds from the sales of property, plant and
equipment....................................... 53,990 314,893 267,668
Net cash used for acquisitions..................... 0 0 (314,212)
------------ ------------ -----------
Net cash used in investing activities........... (1,532,657) (4,745,273) (21,417,650)
------------ ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in long-term debt and capital lease
obligations..................................... 40,450,449 4,139,597 33,595,339
Payment of long-term debt and capital lease
obligations..................................... (44,154,272) (14,099,986) (23,680,182)
Stock options exercised............................ 0 32,000 11,213
------------ ------------ -----------
Net cash provided (used) by financing
activities.................................... (3,703,823) (9,928,389) 9,926,370
------------ ------------ -----------
Effect of exchange rate on cash.................... (16,197) 280,623 (63,989)
------------ ------------ -----------
Increase (decrease) in cash and cash equivalents..... (105,044) 390,344 (861,337)
Cash and cash equivalents at beginning of year....... 2,086,228 1,695,884 2,557,221
------------ ------------ -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR............. $ 1,981,184 $ 2,086,228 $ 1,695,884
============ ============ ===========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid...................................... $ 3,352,231 $ 4,250,213 $ 3,950,812
============ ============ ===========
Income taxes paid (refunded)....................... $ (667,375) $ (837,228) $ 34,249
============ ============ ===========
Assets purchased for the assumption of
liabilities..................................... $ 33,462 $ 237,738 $ 1,452,313
============ ============ ===========
Gain on termination of forward contracts........... $ 948,461 $ 0 $ 0
============ ============ ===========
Assets sold for the assumption of receivable....... $ 1,000,000 $ 0 $ 41,993
============ ============ ===========
Termination of capital lease....................... $ 1,160,742 $ 0 $ 0
============ ============ ===========
Note payable issued for capital lease
termination..................................... $ (1,228,347) $ 0 $ 0
============ ============ ===========
See notes to consolidated financial statements.
18
METATEC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation -- The consolidated financial statements include the accounts
of Metatec International, Inc., an Ohio corporation, and its wholly owned
subsidiaries (the "Company" or "Metatec"). All significant intercompany accounts
and transactions have been eliminated. Metatec's subsidiaries maintain separate
financial statements.
Use of Estimates -- The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the amounts
reported in the consolidated financial statements. Management believes those
estimates and assumptions utilized in preparing the financial statements are
reasonable. Actual results could differ from these estimates.
Nature of Operations -- The operations of the Company are in the
information industry primarily providing optical disc manufacturing, packaging
and distribution for specific customers, primarily in North America and Europe.
The Company maintains one manufacturing, sales, distribution and development
facility in the United States and one in Europe. The revenues from product sales
are recognized at the time the products are shipped. During 2000, the Company
began to shift its focus to supply chain solution services with its core CD-ROM
manufacturing capabilities serving as a component of the supply chain.
The Company incurred net losses of approximately $29,974,000, $17,533,000
and $2,846,000 in 2001, 2000 and 1999, respectively. Included in the losses are
non-recurring charges resulting from the impairment of goodwill and long-lived
assets and restructuring charges totaling approximately, $20,576,000,
$16,112,000 and $1,051,000 in 2001, 2000 and 1999, respectively. Also, as of
December 31, 2001, the Company had a shareholders' deficiency of $9,145,000.
However, the Company generated positive cash flows from operations in each of
these years. Additionally, the Company successfully amended certain terms and
financial covenants of its Bank Credit Facilities, extending the maturity date
to 2004. Management believes that the Company's current focus on its core
business customers, and continued cost saving measures will allow it to generate
sufficient cash flows to meet operational needs in 2002.
Cash and Cash Equivalents -- Cash and cash equivalents consist of highly
liquid instruments such as certificates of deposit, time deposits, treasury
notes and other money market instruments which generally have maturities of less
than three months. The carrying amounts reported in the balance sheets
approximate fair value. The Company holds cash primarily in one financial
institution.
Inventory -- Inventory consists primarily of raw materials and spare parts
and is valued at the lower of cost or market with cost determined by the
first-in, first-out method.
Property, Plant and Equipment -- Property, plant and equipment are recorded
at cost. The cost of maintenance and repairs is charged against results of
operations as incurred. Property, plant and equipment are depreciated using the
straight-line method over the estimated useful lives of the related assets which
range from three to thirty years. For income tax purposes, accelerated methods
are used for all eligible assets.
Goodwill -- Goodwill represented the excess of cost over net assets
acquired and was amortized using the straight-line method over estimated useful
lives ranging from 10 to 15 years. In accordance with the Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets," at each balance sheet date, a determination is made by
management to ascertain whether goodwill and other long-lived assets have been
impaired based on several criteria, including, but not limited to, revenue
trends, undiscounted operating cash flows and other operating factors. At the
end of 2001, management determined that certain assets were impaired (See Note
2). Accumulated amortization was $5,810,929 at December 31, 2000.
Income Taxes -- The Company accounts for income taxes in accordance with
SFAS No. 109, "Accounting for Income Taxes," which uses the liability method to
calculate deferred income taxes. This standard requires, among other things,
recognition of future tax benefits, measured by enacted tax rates, attributable
to deductible
19
METATEC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
temporary differences between the financial statement basis and income tax basis
of assets and liabilities and net operating loss carry forwards to the extent
realization is more likely than not.
Advertising -- The Company expenses advertising costs as incurred.
Advertising expense was $122,341, $10,153 and $8,711 for 2001, 2000 and 1999,
respectively.
Net Loss Per Common Share -- Basic net loss per common share is computed
based on the weighted average number of common shares outstanding during the
period. Diluted net loss per common share is computed similarly but includes the
dilutive effect of stock options. During 2001, 2000 and 1999, the effect of
stock options was anti-dilutive.
Comprehensive Income (Loss) -- SFAS No. 130, "Reporting Comprehensive
Income" requires the reporting and display of comprehensive income (loss) and
its components for all years presented. The Company had other comprehensive loss
related to foreign currency translation adjustments of $311,579 in 2001, and
$199,697 in 2000. During November, 2001, the Company terminated its forward
contracts. The related gain of $948,461 is shown as an offset to other
comprehensive income and is being accreted to net income over the remaining life
of the original contracts.
Financial Instruments -- The Company entered into a series of forward
contracts (against the Euro and U.S. Dollar) to hedge an intercompany note
between the Company and its European subsidiary. The Company is not a party to
leveraged derivatives and does not hold or issue financial instruments for
speculative purposes. The purpose of the Company's hedging is to protect it from
the risk that the eventual functional currency inflows resulting from the
intercompany payments will be adversely affected by changes in exchange rates.
The forward contracts were designed to correspond with the repayment schedule
contained within the intercompany note. While these hedging instruments are
subject to fluctuations in value, such fluctuations are generally offset by the
value of the underlying exposures being hedged. During the fourth quarter of
2001, the above noted forward contracts were terminated. The Company realized a
gain on the termination of these contracts of $948,461 which was used to pay
down an operating lease with one of its lenders. This gain was recorded in other
comprehensive income and is being accreted to net income over the remaining term
of the intercompany note.
The Company does not carry any off balance sheet derivative financial
instruments at December 31, 2001.
Foreign Currency Translation -- The assets and liabilities of the Company's
subsidiaries outside the United States are translated into U.S. dollars at the
rates of exchange in effect at the balance sheet dates. Income and expense items
are translated at the average exchange rates prevailing during the period. Gains
and losses resulting from foreign currency transactions are recognized currently
in net income and those resulting from translation of financial statements are
recognized currently in comprehensive income.
Impact of New Accounting Standards -- SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, is effective for all fiscal years
beginning after June 15, 2000. 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 Company adopted SFAS 133 effective
January 1, 2001. 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 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, including an annual
assessment of possible impairment. Management believes the adoption of this
statement will have no impact on the Company's consolidated financial statements
since the Company's goodwill was fully impaired at December 31, 2001 and written
off.
20
METATEC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In August 2001, the FASB issued SFAS No. 144, "Accounting for Impairment or
Disposal of Long-Lived Assets." While this statement supercedes SFAS No. 121,
"Accounting for Impairment of Long-Lived Assets to Be Disposed Of" it retains
the fundamental provisions of SFAS No. 121 for recognition and impairments of
assets to be held and used, and assets to be disposed of by sale. This statement
is effective for the first quarter in the year ended December 31, 2002.
Management does not expect the adoption of this statement to have a material
effect on its consolidated financial statements.
2. IMPAIRMENT OF ASSETS AND RESTRUCTURING CHARGES
LOSS ON
TERMINATION EXIT/OTHER WRITE-DOWN
DESCRIPTION BENEFITS COSTS OF ASSETS TOTAL
----------- ----------- ---------- ---------- --------
IN '000'S
Provision 1999........................... $ 488 $ 562 $ 1,050
Payments 1999............................ (199) (199)
------ ------ -------- --------
Accrued balance
December 31, 1999...................... $ 289 $ 562 $ 851
Provision 2000........................... 475 15,637 16,112
Payments 2000............................ (764) (412) (1,176)
Asset Write-offs 2000.................... (15,637) (15,637)
------ ------ -------- --------
Accrued balance
December 31, 2000...................... $ -- $ 150 $ -- $ 150
Provision 2001........................... 1,975 3,135 15,466 20,576
Payments 2001............................ (607) (184) (791)
Asset Write-offs 2001.................... (15,466) (15,466)
------ ------ -------- --------
Accrued balance
December 31, 2001...................... $1,368 $3,101 $ -- $ 4,469
====== ====== ======== ========
Accrued Restructuring -- Current......... $ 802 $1,856 $ -- $ 2,658
====== ====== ======== ========
During 2001, the Company made decisions to reduce selling, general and
administrative expenses by restructuring its support services through workforce
reductions in Dublin, Ohio ("Dublin"); Milpitas, California ("Silicon Valley");
and Breda, The Netherlands ("Breda") facilities.
Additional restructuring charges were incurred during the fourth quarter of
2001, related to the closure of the Company's Silicon Valley facility. In
relation to this restructuring, the Company completed the sale of its
manufacturing assets associated with Silicon Valley and terminated the lease on
this facility, all of which was effective December 31, 2001. In exchange for its
agreement to terminate the lease, the landlord received a $1.5 million
unsecured, non-interest bearing promissory note (discounted to $1,228,349 at
8.5%) due in four equal installments beginning in January 2003, approximately
$1.1 million in cash, and 300,000 shares of the Company's common stock (See Note
4). In addition, the Company took a write-off related to the closing of two
sales offices during 2001.
In December 2001, a determination was made by management that goodwill and
specific fixed assets associated with the Company's Dublin and Breda operations
were impaired. This decision was based upon an analysis of expected future cash
flows and required a writedown of these assets. Accordingly, a writedown of
goodwill ($3,838,548) and fixed assets ($9,172,764) totaling $13,011,312, was
recorded using discounted future cash flows to estimate fair value. In addition,
management made the decision that certain modules of the Company's ERP system
which were under development would not be completed and implemented, resulting
in a write-off of $2,455,144.
21
METATEC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During the first quarter of 2000, the Company made a decision to reduce
selling, general and administrative expenses by restructuring its support
services through a workforce reduction in Dublin and in Silicon Valley
facilities. At that time the Company incurred a restructuring charge of $430,561
primarily for severance and termination benefits. During the fourth quarter of
2000, the Company made another workforce reduction at the Silicon Valley
facility resulting in a restructuring charge of $44,084 primarily for severance
and termination benefits.
At the end of 2000, a determination was made by management that goodwill
and specific fixed assets associated with the Company's Silicon Valley
operations, which were acquired from Imation Corporation ("Imation") in
September 1998, were impaired. This decision was based upon an analysis of
expected future cash flows and required a writedown of these assets.
Accordingly, a writedown of goodwill ($11,695,618) and fixed assets ($3,942,024)
totaling $15,637,642, was recognized using discounted future cash flows to
estimate fair value.
During the fourth quarter of 1999, the Company made a decision to close its
Menomonie, Wisconsin client services center. As a result of this action, the
Company incurred restructuring charges of $488,255 primarily for severance and
termination benefits. In addition, the Company relocated its California facility
from Fremont to Silicon Valley during 1999, causing the Company to incur
restructuring charges of $562,467. These costs related primarily to estimated
lease costs, net of estimated sub-lease rentals of $1,067,000, which will be
incurred during the remainder of the Fremont lease term to 2003.
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at December 31:
2001 2000
------------ ------------
Land..................................................... $ 2,579,787 $ 2,579,787
Buildings and improvements............................... 22,481,432 29,839,604
Machinery and equipment.................................. 40,876,217 51,583,135
Furniture and fixtures................................... 4,402,960 6,138,325
Computer equipment and related software.................. 9,561,582 11,455,271
Equipment installation................................... 0 2,860,754
------------ ------------
Total.......................................... 79,901,978 104,456,876
Less accumulated depreciation and impairment............. (50,520,317) (54,001,559)
------------ ------------
Net property, plant and equipment........................ $ 29,381,661 $ 50,455,317
============ ============
4. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt and capital lease obligations consisted of the following at
December 31:
2001 2000
----------- -----------
Term debt.................................................. $ 9,835,488 $14,958,000
Revolving line of credit................................... 9,095,953 7,500,000
Real estate financing...................................... 18,685,285 18,793,796
Fleming Business Park...................................... 1,228,349 0
Capital lease obligations.................................. 60,038 1,289,534
----------- -----------
Total............................................ 38,905,113 42,541,330
Less current maturities.................................... (182,875) (7,148,115)
----------- -----------
Long-term debt and capital lease obligations............... $38,722,238 $35,393,215
=========== ===========
22
METATEC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's banks have provided a $37,000,000 term loan facility and a
$13,000,000 revolving loan facility to the Company (the "Credit Facilities").
The term loan facility and a portion of the revolving loan facility were used to
finance the 1998 Imation asset purchase. As of December 31, 2001, $9,326,250 and
$9,605,191 was outstanding under the term loan facility and the revolving loan
facility, respectively. The Company was not in compliance with certain of its
financial and other covenants as of December 31, 2001.
On February 8, 2002, the Company entered into an amended and restated loan
agreement (the "Amended Loan Agreement") with its banks which replaced the
Company's prior agreement with its banks. Under the Amended Loan Agreement, the
Credit Facilities consist of three separate loans: (1) an asset based revolving
loan facility with a borrowing base as described below; (2) a term loan facility
in the principal amount of $9,326,250; and (3) a second term loan facility in
the original principal amount of $509,238, which principal amount may be
increased up to $1,000,000 by advances made to the Company through December 31,
2002. The borrowing base of the revolving loan facility is limited to the lesser
of (i) $12,490,762, or (ii) the sum of (A) 80% of eligible domestic accounts
receivable, plus (B) 30% of eligible domestic inventory, plus (C) 90% of
domestic machinery and equipment. The borrowing base is further reduced by the
aggregate amount of the Company's outstanding letters of credit and is
permanently reduced by the amount of any additional advances made to the company
under the second term loan facility.
The revolving loan and the term loans mature on April 1, 2004. Quarterly
principal payments are required, beginning in June 2002 if cash flow, as
defined, exceeds certain predetermined targets. 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 the financial and other covenants contained in the Amended Loan
Agreement. The revolving loan and the term loans accrue interest at a rate equal
to 3.5% in excess of the prime rate of the banks. Certain fees are required to
be paid to the banks in connection with the Credit Facilities.
The Company has a $19,000,000 term loan facility which was used to
permanently finance the Company's Dublin, Ohio distribution center completed in
1999 and to pay down other bank debt. The loan facility has an outstanding
principal balance of $18,685,285 as of December 31, 2001. This term loan
facility is payable in monthly principal and interest payments based upon a
thirty year amortization schedule, bears interest at a fixed rate of 8.2%, and
matures on September 1, 2009. This loan facility 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.
The Company entered into a $1,500,000 long-term note with its former
landlord, Fleming Business Park, effective December 31, 2001 (See Note 2). This
is an unsecured, non-interest bearing note which was discounted at 8.5%, due in
four equal annual installments beginning in January 2003.
The estimated fair value of the Company's long-term obligations
approximated their carrying amount at December 31, 2001 and 2000, based on
current market prices for the same or similar issues.
The terms of the Company's credit facilities prohibit it from paying cash
dividends or making any other distributions to shareholders without the prior
consents of the administrative agent of these credit facilities.
Total long-term debt maturities from 2002 to 2006, assuming no additional
principal payments based on excess cashflow are as follows: $182,875, $464,111,
$19,417,800, $519,975, $565,040 respectively, and $17,755,312 thereafter.
5. LEASES
At December 31, 2001, the Company leased $77,729 of office equipment with
related accumulated depreciation of $18,234, under non-cancelable capital lease
agreements expiring at various dates through 2004. Maintenance, insurance, and
tax expenses are the responsibility of the Company under the agreements.
Operating lease expense was $1,921,966, $2,229,479 and $3,126,464 for 2001,
2000 and 1999, respectively.
23
METATEC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The future annual minimum lease payments under all capital leases, together
with the present value of the minimum lease payments, and the future minimum
rental payments required under all operating leases that have initial or
remaining lease terms in excess of one year are as follows:
CAPITAL LEASES OPERATING LEASES
-------------- ----------------
Year ending December 31:
2002.................................................. $29,782 $511,193
2003.................................................. 24,198 229,240
2004.................................................. 11,837 107,157
------- --------
Total minimum lease payments.................. 65,817 $847,590
======= ========
Less amount representing interest....................... (5,779)
-------
Present value of net minimum payments................... $60,038
=======
6. COMMITMENTS AND CONTINGENCIES
Self-Insurance -- The Company is self-insured with respect to medical and
dental claims for United States employees. The Company has obtained stop-loss
insurance for claims in excess of $100,000 per individual per year and
$1,000,000 lifetime maximum per individual. The Company has recorded an
estimated liability for self-insured claims incurred but not reported at
December 31, 2001 and 2000 of $270,000 and $350,000, respectively. The Company
is also self- insured with respect to short term disability claims.
Litigation -- The Company and numerous other parties have been named as
defendants in a court proceeding filed in the United States District Court for
the District of Arizona by the plaintiff, Lemelson Medical, Education & Research
Foundation, Limited Partnership. In that court proceeding, the plaintiff is
alleging that the defendants have infringed upon certain patents that allegedly
are enforceable by the plaintiff. This court proceeding has been stayed pending
the outcome of parallel litigation in Nevada that is challenging the validity of
plaintiff's patents. At this time, the Company is unable to determine the
likelihood of the outcome of either the Arizona or Nevada proceedings or whether
an unfavorable outcome will be material to the Company.
The Company is involved in various legal claims arising from the normal
course of business. While the ultimate liability, if any, from these proceedings
is presently indeterminable, in the opinion of management, these matters should
not have a material adverse effect on the consolidated financial statements of
the Company.
24
METATEC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. INCOME TAXES
The components of income tax expense (benefit) were as follows:
2001 2000 1999
------------ ----------- -----------
Federal:
Current..................................... $ (472,000) $ (638,000) $ 132,000
Deferred.................................... 89,000 9,000 (909,000)
------------ ----------- -----------
Total Federal............................ (383,000) (629,000) (777,000)
------------ ----------- -----------
State and Local:
Current..................................... (93,000) 72,000 444,000
Deferred.................................... 741,000 (230,000) (618,000)
------------ ----------- -----------
Total State and Local.................... 648,000 (158,000) (174,000)
Foreign
Current..................................... 9,000 (21,000) (205,000)
Deferred.................................... (232,000) (22,000) (164,000)
------------ ----------- -----------
Total Foreign............................ (223,000) (43,000) (369,000)
------------ ----------- -----------
Total......................................... $ 42,000 $ (830,000) $(1,320,000)
============ =========== ===========
Total loss before income tax expense in 2001 was comprised of $4,025,587 in
foreign losses and $25,906,252 in domestic losses. Total loss before income tax
benefit in 2000 was comprised of $167,475 in foreign losses and $18,195,143 in
domestic losses. Total loss before income tax benefit in 1999 was comprised of
$732,584 in foreign losses and $3,433,706 in domestic losses.
Significant differences between income tax expense (benefit) recorded for
financial reporting purposes and income taxes (benefit) calculated using the
Federal statutory rate of 34% are as follows:
2001 2000 1999
------------ ----------- -----------
Tax benefit at statutory rate................. $(10,177,000) $(6,244,000) $(1,417,000)
State and local tax expense (benefit), net of
federal benefit............................. 428,000 (104,000) 114,000
Non deductible goodwill....................... 153,000 161,000 156,000
Change in valuation reserve................... 9,605,000 5,317,000 0
Other......................................... 33,000 40,000 55,000
------------ ----------- -----------
Total......................................... $ 42,000 $ (830,000) $(1,320,000)
============ =========== ===========
25
METATEC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income taxes recorded in the consolidated balance sheets at
December 31, 2001 and 2000 consisted of the following:
2001 2000
----------- -----------
Deferred tax assets:
State tax credit (expires 2005)............................ $ 595,000 $ 687,000
Allowance for doubtful accounts............................ 139,000 116,000
Net operating loss carryforwards........................... 8,419,000 7,188,000
Restructuring charges...................................... 1,684,000 0
Impaired assets............................................ 6,974,000 0
Depreciation............................................... 1,692,000 0
Accrued medical insurance.................................. 120,000 156,000
Foreign currency........................................... 0 94,000
Other...................................................... 459,000 360,000
Valuation allowance........................................ (19,729,000) (5,317,000)
----------- -----------
Total deferred tax assets........................ 353,000 3,284,000
----------- -----------
Deferred tax liabilities:
Depreciation............................................... 0 2,047,000
Prepaid expenses........................................... 174,000 177,000
Foreign currency........................................... 162,000 0
Other...................................................... 17,000 368,000
----------- -----------
Total deferred tax liabilities................... 353,000 2,592,000
----------- -----------
Net deferred tax asset (liability)......................... $ 0 $ 692,000
=========== ===========
The Company has available net operating loss carry forwards for tax
purposes of approximately $17,830,000 expiring through 2016. The Company also
has available certain net operating loss carry forwards for tax purposes of
approximately $216,000 which expire in 2005 which may only be used to offset
certain operations of the Company. On March 9, 2002, the President signed the
Job Creation and Worker Assistance Act of 2002 into law. This law extended the
carry back period from two years to five years for net operating losses arising
in the 2001 and 2002 taxable years. The Company will record a benefit of
approximately $710,000 in 2002 related to this law.
A valuation allowance has been provided to offset the net deferred tax
assets due to the uncertainty surrounding the realizability of such assets.
At December 31, 2001 there were no unremitted earnings of subsidiaries
outside the United States, due to cumulative net losses in these subsidiaries.
Accordingly, no deferred income taxes for additional United States federal
income taxes from the distribution of foreign earnings is required.
8. BENEFIT PLANS
Substantially all U.S. associates are enrolled in a Company-sponsored
defined contribution plan established under Section 401(k) of the Internal
Revenue Code. The Company's contribution under the plan was approximately
$342,010, $641,900 and $703,300 for 2001, 2000 and 1999, respectively. During
2001, the Company's contribution remained at 75% of the associate's contribution
up to a maximum of 5% of the associate's annual compensation. The funds are
invested in mutual funds.
The Company initiated a performance sharing plan (Open Book Management
Plan) for employees during 1998. All employees are eligible for this plan after
a six-month waiting period. Each employee is assigned points at the beginning of
the year, and these points pay quarterly bonuses based on actual results as
compared to planned results. No performance sharing was recorded or distributed
for the year 2001 or 2000. The Company
26
METATEC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
recorded $427,028 in performance sharing bonuses earned for 1999, of which
$357,674 was paid as of December 31, 1999, with the remainder paid in 2000.
9. STOCK OPTION PLANS
The Company has a 1999 Directors' Stock Option Plan (the "1999 Directors
Plan") under which a maximum of 300,000 common shares may be issued. The 1999
Directors Plan replaced the Company's 1992 Directors' Stock Option Plan, and no
additional options will be issued under the 1992 plan. The 1999 Directors Plan
automatically grants 5,000 options to each non-employee director immediately
following the Company's annual meeting of shareholders. These options are fully
vested on the grant date. In addition, for each non-employee director, when they
first become a director, the 1999 Directors Plan automatically grants 10,000
one-time options. These one-time options vest in equal installments over a four
year period. As of December 31, 2001, there have been 100,000 options granted
under the 1999 Directors Plan, none of which were forfeited, none of which were
exercised, and all but 17,500 were exercisable. As of December 31, 2001, there
have been 164,925 options granted under the 1992 Director's Stock Option Plan,
110,080 of which were forfeited, 22,345 of which were exercised and 32,500 of
which are exercisable.
The option price of shares subject to an option for the directors stock
option plans is the fair market value of the shares at the time the option is
granted. No options issued are exercisable after five years from the date of
grant.
The Company has a 1990 Stock Option Plan under which a maximum of 1,610,000
Common Shares may be issued. This Plan is available to all full time employees
of the Company or its subsidiary corporations and, in the case of non-qualified
options, directors of subsidiaries of the Company (other than directors of such
subsidiaries who are also directors of the Company). As of December 31, 2001,
there have been 2,673,725 options granted under this plan, 1,305,300 of which
were forfeited, 261,950 of which were exercised and 702,550 of which are
exercisable.
The Company's Compensation Committee has the authority to grant incentive
options and non-qualified options. Only officers and other key employees of the
Company or its subsidiary corporations are eligible for grants of incentive
options.
At December 31, 2001, no incentive options had been granted. Both incentive
and non-qualified options vest over a period of from one to four years from the
date of grant, and are not exercisable after 10 years from the date of grant.
The option price of both incentive options and non-qualified options is equal to
the fair market value of the shares at the time the options are granted.
The following summarizes all stock option transactions from January 1, 1999
through December 31, 2001:
PER SHARE WEIGHTED AVERAGE
SHARES OPTION PRICE EXERCISE PRICE
--------- --------------- ----------------
Outstanding at December 31, 1998......... 1,062,075 $1.50 to $12.88 $5.58
Granted.................................. 299,500 $3.00 to $ 6.63 $5.02
Exercised................................ (3,875) $1.50 to $ 4.38 $2.89
Terminated............................... (84,875) $4.38 to $11.58 $8.82
---------
Outstanding at December 31, 1999......... 1,272,825 $1.50 to $12.88 $5.24
Granted.................................. 305,300 $1.03 to $ 3.19 $2.58
Exercised................................ (20,500) $1.50 to $ 1.75 $1.56
Terminated............................... (380,400) $3.00 to $ 6.00 $4.99
---------
Outstanding at December 31, 2000......... 1,177,225 $1.03 to $12.88 $4.67
Granted.................................. 181,375 $0.77 to $ 1.31 $0.98
Terminated............................... (119,625) $2.50 to $12.88 $4.87
---------
Outstanding at December 31, 2001......... 1,238,975 $0.77 to $11.50 $4.13
=========
27
METATEC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following presents information for common shares exercisable as of
December 31:
2001 2000 1999
-------- -------- --------
Weighted Average Exercise Price...................... $ 5.00 $ 5.52 $ 5.56
======== ======== ========
Common Shares Exercisable............................ 817,550 694,719 660,500
======== ======== ========
The following table summarizes information about options outstanding at
December 31, 2001:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------ -------------------------------------------------
WEIGHTED-AVERAGE
RANGE OF REMAINING WEIGHTED-AVERAGE WEIGHTED-AVERAGE
EXERCISE PRICES NUMBER CONTRACTUAL LIFE EXERCISE PRICE NUMBER EXERCISE PRICE
--------------- --------- ---------------- ---------------- ------- ----------------
$0.77 - $1.03 165,000 8.3 $ 0.94 31,250 $ 0.89
$1.19 - $1.75 21,375 6.8 $ 1.25 0 $ 0.00
$2.50 - $3.19 285,300 7.8 $ 2.63 92,575 $ 2.66
$3.88 - $5.31 396,600 6.0 $ 4.70 323,025 $ 4.71
$5.88 - $6.63 370,000 5.7 $ 6.17 370,000 $ 6.17
$11.50 700 2.3 $11.50 700 $11.50
--------- -------
1,238,975 $ 4.11 817,550 $ 5.00
========= =======
The weighted average fair value per share of options granted during 2001,
2000 and 1999 were $0.98, $2.58 and $5.02, respectively.
At December 31, 2001 options for 200,000 and 211,575 common shares (total
of 411,575) were reserved for future grant under the 1999 Directors Plan and the
1990 Stock Option Plan, respectively.
The Company applies APB Opinion No. 25 and related Interpretations in
accounting for its stock option plans. Accordingly, no compensation cost has
been recognized for its stock option plans. Had compensation costs for the
Company's stock-based compensation plans been determined based on the fair value
at the grant dates for awards under those plans consistent with the method of
SFAS No. 123, the Company's net loss) and net loss per common share, net of
related income tax benefits, would have resulted in the amounts as reported
below. In determining the estimated fair value of each option granted on the
date of grant, the Company uses the Black-Scholes option-pricing model with the
following weighted-average assumptions used for grants in the years ended
December 31, 2001, 2000 and 1999, respectively: dividend yield of 0%; expected
volatility of 85.19%, 83.16% and 62%; risk-free interest rates based on the
constant maturity rates for Treasuries that mature in accordance with the
vesting period of the options granted.
2001 2000 1999
------------ ------------ -----------
Net loss --
As reported................................ $(29,973,839) $(17,532,618) $(2,846,290)
Pro forma.................................. $(29,989,447) $(17,665,757) $(3,116,219)
Loss per share --
As reported
Basic and diluted.......................... $ (4.88) $ (2.88) $ (0.47)
Pro forma --
Basic and diluted.......................... $ (4.89) $ (2.90) $ (0.51)
The pro forma amounts are not representative of the effects on reported net
earnings or earnings per common share for future years.
28
METATEC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. SEGMENT, GEOGRAPHIC AND CUSTOMER INFORMATION
SFAS 131, "Disclosures About Segments of an Enterprise and Related
Information" established revised standards for public companies relating to the
reporting of financial information about operating segments. In accordance with
SFAS No. 131, the Company has determined that it has one reportable segment.
However, the Company does operate in two primary geographic areas and two
classes of products.
Revenues are attributed to specific geographical areas based on origin of
order generation. Geographic information for the years ended December 31 are as
follows:
U.S. EUROPE
------------ -----------
2001
Sales................................................... $ 67,514,000 $ 9,768,000
Long-lived assets....................................... $ 28,940,000 $ 611,000
2000
Sales................................................... $ 92,856,000 $11,375,000
Long-lived assets....................................... $ 50,836,000 $ 4,547,000
1999
Sales................................................... $107,644,000 $12,637,000
Long-lived assets....................................... $ 76,267,000 $ 6,075,000
Revenues attributed to product types are distinguished as CD-ROM sales and
other sales. Information for the years ended December 31 are as follows:
CD-ROM OTHER PRODUCTS
------------ --------------
2001
Sales.................................................. $ 71,667,000 $ 5,615,000
2000
Sales.................................................. $ 97,790,000 $ 6,441,000
1999
Sales.................................................. $112,749,000 $ 7,532,000
No customer accounted for greater than 10% of net sales for any of the
three years in the period ended December 31, 2001.
11. CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED)
QUARTER ENDED MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
------------- ----------- ----------- ------------ -----------
2001
Net Sales.............................. $21,048,545 $18,861,865 $17,478,841 $19,892,754
Gross Profit........................... 5,742,373 5,164,680 3,640,983 4,764,643
Net Loss............................... (1,926,600) (2,095,547) (3,482,773) (22,468,919)
Net Loss per common share:
Basic and diluted................... $ (0.31) $ (0.34) $ (0.57) $ (3.66)
2000
Net Sales.............................. $27,637,107 $26,178,157 $26,351,076 $24,064,708
Gross Profit........................... 8,158,795 7,318,880 6,908,390 6,947,308
Net Earnings(loss)..................... (168,239) 70,200 (886,626) (16,547,953)
Net Earnings(loss) per common share:
Basic and diluted................... $ (0.03) $ 0.01 $ (0.15) $ (2.71)
The quarter ended March 31, 2001 and September 30, 2001, included
restructuring charges of $109,564 and $415,577 respectively. The quarter ended
December 31, 2001 included a $20,050,814 charge of which
29
METATEC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$13,011,312 represents the write down of goodwill and long-lived assets
associated with the Dublin and Breda facilities. The remainder consisted of
costs associated with the closure of the Company's Silicon Valley facility and
severance and termination costs related to the Dublin facility.
The quarter ended March 31, 2000, included $430,561 of restructuring
charges. The quarter ended December 31, 2000 included a $15,681,726 charge of
which $15,637,642 represents the write down of goodwill and long-lived assets
associated with the Imation purchase of Silicon Valley assets.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
Information required under this Item with respect to directors will be
contained in the Company's proxy statement to be filed with the Securities and
Exchange Commission within 120 days of December 31, 2001, and is hereby
incorporated herein by reference. Information regarding the executive officers
of the Company may be found under the caption "Executive Officers of the
Company" in Part I and is also incorporated by reference into this Item 10.
ITEM 11. EXECUTIVE COMPENSATION
Information required under this Item will be contained in the Company's
proxy statement to be filed with the Securities and Exchange Commission within
120 days of December 31, 2001, and is hereby incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required under this Item will be contained in the Company's
proxy statement to be filed with the Securities and Exchange Commission within
120 days of December 31, 2001, and is hereby incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required under this Item will be contained in the Company's
proxy statement to be filed with the Securities and Exchange Commission within
120 days of December 31, 2001, and is hereby incorporated herein by reference.
30
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
The following financial statements of the Company are
included in Item 8:
Consolidated Balance Sheets as of December 31, 2001 and 2000
Consolidated Statements of Operations for the Years Ended
December 31, 2001, 2000 and 1999
Consolidated Statements of Shareholders' Equity for the
Years Ended December 31, 2001, 2000 and 1999
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2001, 2000 and 1999
Notes to Consolidated Financial Statements
Independent Auditors' Report
(a)(2) Financial Statement Schedules
The financial statement schedule for the years ended
December 31, 2001, 2000 and 1999 is included in this report
following the signatures and should be read in conjunction
with the Consolidated Financial Statements included in Item
8:
Schedule II -- Consolidated Valuation and Qualifying
Accounts and Reserves
All other financial statement schedules have been omitted
because they are not applicable or the required information
is included in the Company's consolidated financial
statements or notes thereto.
(a)(3) Listing of Exhibits
IF INCORPORATED BY REFERENCE,
EXHIBIT DOCUMENT WITH WHICH EXHIBIT WAS
NO. DESCRIPTION OF EXHIBIT PREVIOUSLY FILED WITH SEC
------- ---------------------- -------------------------------
3(a) Amended and Restated Articles of Registration Statement on Form S-8,
Incorporation of Metatec File No. 333-03125 (see Exhibit 4(a)
International, Inc. therein).
3(b) Code of Regulations of Metatec Registration Statement on Form S-8,
International, Inc. File No. 333-03125 (see Exhibit 4(b)
therein).
4 Form of Share Certificate Registration Statement on Form S-8,
File No. 333-03125 (see Exhibit 4(c)
therein).
10(a)* Amended and Restated Employment Annual Report on Form 10-K for the
Agreement dated March 23, 1993, fiscal year ended December 31, 1992
between Metatec International, Inc. (See Exhibit 10(h) therein).
and Jeffrey M. Wilkins
10(b)* First Amendment to Amended and Annual Report on Form 10-K for the
Restated Employment Agreement dated fiscal year ended December 31, 1995
March 21, 1996, between Metatec (See Exhibit 10(c) therein).
International, Inc. and Jeffrey M.
Wilkins
10(c)* Second Amendment to Amended and Annual Report on Form 10-K for the
Restated Employment Agreement dated fiscal year ended December 31, 1998
February 17, 1998, between Metatec (see Exhibit 10(d) therein).
International, Inc. and Jeffrey M.
Wilkins
10(d)* Metatec International, Inc. 1990 Annual Report on Form 10-K for the
Stock Option Plan fiscal year ended December 31, 1991
(see Exhibit 10(k) therein).
31
IF INCORPORATED BY REFERENCE,
EXHIBIT DOCUMENT WITH WHICH EXHIBIT WAS
NO. DESCRIPTION OF EXHIBIT PREVIOUSLY FILED WITH SEC
------- ---------------------- -------------------------------
10(e)* Amendment No. 1 to Metatec Registration Statement on Form S-8,
International, Inc. 1990 Stock Option File No. 33-48022 (see Exhibit 4(d)
Plan therein).
10(f)* Amendment No. 2 to Metatec Annual Report on Form 10-K for the
International, Inc. 1990 Stock Option fiscal year ended December 31, 1992
Plan (see Exhibit 10(k) therein).
10(g)* Amendment No. 3 to Metatec Annual Report on Form 10-K for the
International, Inc. 1990 Stock Option fiscal year ended December 31, 1993
Plan (see Exhibit 10(g) therein).
10(h)* Amendment No. 4 to Metatec Annual Report on Form 10-K for the
International, Inc. 1990 Stock Option fiscal year ended December 31, 1995
Plan (See Exhibit 10(h) therein).
10(i)* Amendment No. 5 to Metatec Annual Report on Form 10-K for the
International, Inc. 1990 Stock Option fiscal year ended December 31, 1997
Plan (See Exhibit 10(I) therein).
10(j)* Amendment No. 6 to Metatec Registration Statement on Form S-8,
International, Inc. 1990 Stock Option File No. 333-03125 (see Exhibit 4(i)
Plan therein).
10(k)* Metatec International, Inc. 1992 Registration Statement on Form S-8,
Directors' Stock Option Plan File No. 33-52700 (see Exhibit 4(c)
therein).
10(l)* Amendment No. 1 to Metatec Annual Report on Form 10-K for the
International, Inc. 1992 Directors' fiscal year ended December 31, 1993
Stock Option Plan (see Exhibit 10(i) therein).
10(m)* Amendment No. 2 to Metatec Annual Report on Form 10-K for the
International, Inc. 1992 Directors' fiscal year ended December 31, 1995
Stock Option Plan (see Exhibit 10(k) therein).
10(n)* Amendment No. 3 to Metatec Annual Report on Form 10-K for the
International, Inc. 1992 Directors' fiscal year ended December 31, 1995
Stock Option Plan (see Exhibit 10(i) therein).
10(o)* Amendment No. 4 to Metatec Annual Report on Form 10-K for the
International, Inc. 1992 Directors' fiscal year ended December 31, 1996
Stock Option Plan (see Exhibit 10(m) therein).
10(p)* Amendment No. 5 to Metatec Registration Statement on Form S-8,
International, Inc. 1992 Directors' File No. 333-31027 (see Exhibit 4
Stock Option Plan therein).
10(q)* Metatec International, Inc. 1999 Registration Statement on Form S-8,
Directors Stock Option Plan File No. 333-10442 (see Exhibit 4(d)
therein).
10(r)* Metatec International, Inc. Directors Annual Report on Form 10-K for the
Deferred Compensation Plan fiscal year ended December 31, 1997
(see Exhibit 10(p) therein).
10(s) Form of Indemnification Agreement Annual Report on Form 10-K for the
between Metatec International, Inc. fiscal year ended December 31, 1999
and each of its officers and (see Exhibit 10(t) therein).
directors
10(t) Patent License Agreement for Disc Amendment No. 1 to Registration
Products dated July 1, 1986, between Statement on Form S-1, File No.
Metatec/ Discovery Systems, Inc. and 33-60878 (see Exhibit 10(t) therein).
Discovision Associates
10(u) CD Disc License Agreement dated Amendment No. 1 to Registration
January 1, 1986, between U.S. Philips Statement on Form S-1, File No.
Corporation and Metatec/ Discovery 33-60878 (see Exhibit 10(u) therein).
Systems, Inc.
32
IF INCORPORATED BY REFERENCE,
EXHIBIT DOCUMENT WITH WHICH EXHIBIT WAS
NO. DESCRIPTION OF EXHIBIT PREVIOUSLY FILED WITH SEC
------- ---------------------- -------------------------------
10(v) Optical Disc Corporation NPR Amendment No. 1 to Registration
Technology License Agreement between Statement on Form S-1, File No.
Optical Disc Corp-oration and 33-60878 (see Exhibit 10(v) therein).
Metatec/Discovery Systems effective
March 2, 1992
10(w) Second Amended and Restated Loan Current Report on Form 8-K dated
Agreement dated as of February 8, February 14, 2002 (See Exhibit 10.1
2002, among Metatec International, therein).
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.
10(x) $19.0 million Promissory Note and Annual Report on Form 10-K for the
Mortgage, Assignment of Rents and fiscal year ended December 31, 1999
Security Agreement, each dated July (see Exhibit 10(y) therein).
28, 1999, between META Holdings, LLC
and Huntington Capital Corp.
10(y)* Employment Agreement dated November Annual Report on Form 10-K for the
22, 2000, between Metatec fiscal year ended December 31, 2000
International, Inc. and Christopher (see Exhibit 10(z) therein).
A. Munro
10(z)* First Amendment to Employment Contained herein.
Agreement dated as of March 26, 2002,
between Metatec International, Inc.
and Christopher A. Munro.
10(aa)* Restricted Share Agreement Effective Annual Report on Form 10-K for the
January 2, 2001, between Metatec fiscal year ended December 31, 2000
International, Inc. and Christopher (see Exhibit 10(aa) therein).
A. Munro.
10(bb)* First Amendment to Restricted Share Contained herein.
Agreement dated as of March 26, 2002,
between Metatec International, Inc.
and Christopher A. Munro.
10(cc)* Separation Agreement and Release Contained herein.
effective December 7, 2001, between
Metatec International, Inc. and
Jeffrey M. Wilkins.
10(dd)* Restricted Share Agreement dated as Contained herein.
of February 13, 2002, between Metatec
International, Inc. and Gary W.
Qualmann.
21 Subsidiaries of Metatec Contained herein.
International, Inc.
23 Consent of Deloitte & Touche LLP and Contained herein.
Report on Schedule.
24(a) Powers of Attorney for Joseph F. Contained herein.
Keeler, Jr., Peter J. Kight, David P.
Lauer, Jerry D. Miller, James V.
Pickett, Daniel D. Viren, and Jeffrey
M. Wilkins.
---------------
* Executive compensation plans and arrangements required to be filed pursuant to
Item 601(b)(10) of Regulation S-K.
33
(b) Reports on Form 8-K
On December 3, 2001, the Company filed a Current Report on
Form 8-K (dated November 20, 2001) under Item 5 reporting
the event that the Company had entered into a standstill
agreement between the Company and its banks following a
default by the Company under its credit facilities.
(c) Exhibits
The exhibits in response to this portion of Item 14 are
submitted following the signatures.
(d) Financial Statement Schedules
The financial statement schedule is submitted following the
signatures.
34
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
METATEC INTERNATIONAL, INC.
By /s/ CHRISTOPHER A. MUNRO
------------------------------------
Christopher A. Munro
President and Chief Executive
Officer
Date: March 29, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of Registrant
and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ CHRISTOPHER A. MUNRO President and Chief Executive March 29, 2002
------------------------------------------------ Officer (principal executive
Christopher A. Munro officer)
/s/ GARY W. QUALMANN Chief Financial Officer (principal March 29, 2002
------------------------------------------------ financial officer)
Gary W. Qualmann
/s/ JULIA A. POLLNER Senior Vice President, Finance, March 29, 2002
------------------------------------------------ Secretary, and Treasurer (principal
Julia A. Pollner accounting officer)
/s/ PETER J. KIGHT* Director March 29, 2002
------------------------------------------------
Peter J. Kight
/s/ JERRY D. MILLER* Director March 29, 2002
------------------------------------------------
Jerry D. Miller
/s/ DAVID P. LAUER* Director March 29, 2002
------------------------------------------------
David P. Lauer
/s/ JAMES V. PICKETT* Director March 29, 2002
------------------------------------------------
James V. Pickett
/s/ JOSEPH F. KEELER, JR.* Director March 29, 2002
------------------------------------------------
Joseph F. Keeler, Jr.
/s/ DANIEL D. VIREN* Director March 29, 2002
------------------------------------------------
Daniel D. Viren
/s/ JEFFREY M. WILKINS* Director March 29, 2002
------------------------------------------------
Jeffrey M. Wilkins
*Christopher A. Munro, by signing his name hereto, does sign this document
on behalf of the person indicated above pursuant to a Power of Attorney duly
executed by such person.
By /s/ CHRISTOPHER A. MUNRO March 29, 2002
-----------------------------------
Christopher A. Munro, Attorney In
Fact
35