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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[ 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, 1999
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 43017
Dublin, Ohio (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
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 9, 2000, was $24,191,103.
On March 9, 2000, the Registrant had 6,075,613 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, 2000, which proxy statement was filed with
the Securities and Exchange Commission on March 27, 2000, 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., an international information distribution
company ("Metatec"), helps customers utilize CD-ROM (compact disc-read only
memory), DVD-ROM (digital versatile disc-read only memory) and Internet
technologies to publish and distribute information and software. Metatec
operates ISO-9000 certified manufacturing and fulfillment sites in Ohio,
California and The Netherlands. Metatec offers its customers a variety of
services, including data preparation and mastering, optical disc replication and
printing, packaging, bulk distribution and individual fulfillment, inventory
management, project management, secure online transmission, and a variety of
electronic monitoring and tracking services. Metatec's customers represent a
host of industries and organizations, such as publishing firms, computer
hardware and software companies, government agencies, and professional
associations. Metatec and its subsidiaries are hereinafter collectively referred
to as the "Company."
CD-ROM technology combines audio, video, text, and graphics in one medium
with the capability to store, search, and retrieve large quantities of
information. One CD-ROM can contain up to 650 megabytes of data. The Company
believes that businesses and individuals are increasingly turning to CD-ROM
technology as a cost-effective means of organizing, storing, and disseminating
large quantities of information quickly to widely diversified groups of users.
DVD-ROM technology may represents a new type of optical disc which can hold
up to 18 gigabytes of information, or over twenty times the amount of the
current CD-ROM. It is projected that DVD-ROM will coexist and eventually replace
CD-ROM and expand the utilization of optical disc with greater graphic and video
applications. This expansion will first require new DVD-ROM drives to be
installed in order to have significant market penetration. DVD-ROM drives began
to be introduced during 1997.
Internet technologies are developed and offered through the Company's
Internet Products Group. This group provides secure, trackable and verifiable
transmission of software and information over the Internet, Extranets and
Intranets. Software and information distribution services are made available
through two offerings. The first, Metatec Express, is a hosted, managed service
providing secure, same day delivery of software and electronic documents
anywhere in the world. The second, Metatec Web Transporter(TM), is a product
that works with existing network technologies and companies' internal
distribution capabilities to manage, distribute, and track any type of
application or data.
Prior to May 1, 1999, the registrant was Metatec Corporation, a Florida
corporation which was incorporated on September 9, 1976. At the annual meeting
of shareholders on April 20, 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 on April 30, 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.
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 12 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.
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INDUSTRY OVERVIEW
Methods for the distribution of business information include print, optical
disc, and Internet services. CD-ROM, one form of optical disc technology, was
initially used for storing and searching vast quantities of data. Today, CD-ROM
is the primary method of software distribution for many business-to-business and
consumer software companies. CD-ROM is also a popular medium for marketing,
training, promotions, game distribution and other types of communication. With
the growing use of DVD, or digital versatile disc, optical disc technology has
the opportunity for increased penetration into business and consumer products
and services. DVD is predicted to eventually displace videotape as the primary
form of distributing popular movies. With DVD's vast storage, it is expected to
play an increasingly important role in corporate training and presentation
programs that require extensive use of graphics, audio, video and interactive
presentation capabilities. A major factor contributing to the successful
establishment of optical technology is the degree of standardization achieved in
the early stages of market development. Adherence to these standards has
significantly contributed to the growth of optical disc technology.
As a method of distributing business information, Internet
services -- sometimes called on-line services -- lend themselves to information
which requires frequent or continuous updating or requires rapid deployment. The
growing use of Extranets (businesses serving their clients through Internet
technology) and Intranets (businesses serving their employees or other divisions
of their company through Internet technology) provides an opportunity for the
rapid and secure distribution of software, electronic documents and other
information. While Internet services to consumers receive substantial attention
in the popular press, business-to-business services through Internet technology
hold more potential for growth and development as a method of commerce.
PRINCIPAL PRODUCTS AND SERVICES
The Company is an integrator of technologies and services to meet its
customers' information distribution needs. Metatec's expertise in quick-turn
optical disc replication is merging with e-business offerings to both the
business-to-business and retail marketplaces. The Company also offers logistics
services online and through a direct sales force that encompass packaging,
distribution, warehousing and fulfillment capabilities. The Company's strategy
targets customers which generally have time-sensitive and recurring information
distribution requirements, demand high quality disc manufacturing, and need
fulfillment and distribution services.
In optical disc production, the Company manufactures CD-ROMs and DVD-ROMs.
The Company offers its customers a variety of services including data
preparation and mastering, optical disc replication and printing, packaging,
bulk distribution and individual fulfillment, inventory management, project
management, and a variety of electronic monitoring and tracking services.
During 1999, the Company expanded its logistics, or packaging and
fulfillment services. The Company provides full-service disc packaging,
warehousing, and direct-to-user product shipping. The Company constructed a
151,000 square foot distribution center at its Dublin, Ohio location to expand
its packaging and fulfillment services and also offers similar services at its
Silicon Valley location. Logistics are a growth area for Metatec as more
companies require such value-added services beyond disc manufacturing.
The Company offers a suite of work monitoring and productivity tools called
Metatec Exchange. Customers with access to the Internet can access a secure
online area to check packaging inventory levels, monitor job progress through
Metatec's manufacturing plants and approve disc art work. Metatec Exchange
decreases communication time and enhances the exchange of information between
Metatec and its customers.
The Company's Internet products are developed and offered through Metatec
Internet Products. This group provides secure, trackable and verifiable
transmission of software and information over the Internet, Extranets and
Intranets. Software and information distribution services are made available
through two offerings. The Company's hosted offering is called Metatec Express.
It is a managed service providing secure, same day delivery of software and
electronic documents anywhere in the world. The second, Metatec Web
Transporter(TM), is a product that works with existing network technologies and
companies' internal distribution systems to manage, distribute and track any
type of application or data.
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The Company's optical disc manufacturing, e-business, logistics 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.
Also, customers might purchase certain Metatec services through the direct sales
force or have direct access through Internet-based e-commerce services.
The Company operates manufacturing and fulfillment sites in Dublin, Ohio;
Milpitas, California; and Breda, The Netherlands. These state-of-the-art,
ISO-9000 certified, facilities operate seven days a week, 24 hours per day,
permitting the Company to offer quick-turn services to major population centers
and low-cost solutions to companies with geographically disbursed information
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 2000.
MARKETING
The Company markets it products and services through its own sales force of
employed associates based in Breda, The Netherlands; Milpitas, CA; Chicago,
Washington, D.C., New York, Dallas, Boston, and Seattle, in addition to Dublin,
Ohio, where its principal offices are located. These associates are responsible
for maintaining relationships with existing customers and developing new
business relationships. The associates are supported by a customer service staff
that is 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 all of its manufacturing facilities. In addition, the
Company's products and services are marketed online through its web site and
through directory listings. The Company also makes use of a variety of marketing
communications initiatives such as news media relations, electronic chat boards,
online 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 the CD-ROM and DVD-ROM marketplace consist of
service, quality, and reliability for the timely delivery of products. The
Company believes it competes favorably with respect to these factors in the
CD-ROM and DVD-ROM market.
The Company differentiates itself from its competitors by providing a fully
integrated approach to information distribution that includes manufacturing
flexibility (including quick turnaround times), personalized customer service,
logistics services, e-business solutions and Internet-based distribution
solutions.
EMPLOYEES
The Company employed approximately 800 persons as of March 6, 2000.
Approximately 590 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
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operations. A first mortgage on the real estate and improvements at this
location secures a $19.0 million loan facility that was used, among other
things, to permanently finance a new distribution center at this location.
The Company currently leases approximately 104,400 square feet of
manufacturing, customer support, and distribution and fulfillment facilities in
Milpitas, California The Company also leases approximately 25,000 square feet of
manufacturing, customer support, and distribution and fulfillment facilities in
Breda, The Netherlands.
The Company also leases office space in Chicago, Washington, D.C., New
York, Dallas, Boston, Seattle, and Somerville, New Jersey for use as regional
sales offices.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceeding, nor to
the Company's knowledge, is any material legal proceeding threatened against it.
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
-------- --- ------------------------------------
Jeffrey M. Wilkins 55 Chairman of the Board, President and Chief
Executive Officer
Christopher L. Winslow 38 Executive Vice President and General Manager
of Media and Logistics Operations
Daniel D. Viren 53 Senior Vice President and Chief Financial
Officer
Julia A. Pollner 37 Senior Vice President, Finance, Secretary and
Treasurer
Alexander P. Deak 39 Vice President and Chief Information Officer
Christopher T. Haynor 35 Vice President, Sales
Tammi Nance Spayde 37 Vice President, Human Resources and
Organizational Development
Martin G. Stokman 39 Vice President, Europe
Jeffrey F. Tarplin 45 Vice President and General Manager, Internet
Products Group
Mr. Wilkins has been Chairman of the Board and Chief Executive Officer of
the Company since August 1989.
Mr. Winslow has been Executive Vice President and General Manager of Media
and Logistics Operations since October 1999. Mr. Winslow has held various
marketing and manufacturing positions with the Company since 1992.
Mr. Viren has been Chief Financial Officer since July, 1999. From 1988
until joining the Company, Mr. Viren was with R.G. Barry Corporation, a
manufacturer and marketer of home comfort footwear, last serving as a senior
vice president of that company.
Ms. Pollner has been Senior Vice President, Finance, Treasurer, and
Secretary since May 1998, and has held various accounting and finance positions
with the Company since 1987.
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Mr. Deak has been Vice President and Chief Information Officer of the
Company since December 1994, and has held various information services and
product management positions with the Company since 1990.
Ms. Spayde has been Vice President, Organizational Development of the
Company since August 1998. From 1984 until joining the Company, Ms. Spayde held
various human resource and administration positions with OhioHealth Corporation,
an integrated healthcare system.
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.
Mr. Tarplin has been Vice President and General Manager, Internet Products
Group since July, 1999. From 1996, until joining the Company, Mr. Tarplin was
president of Megasoft Online, Inc. an Internet software and services company.
From 1993 to 1999, Mr. Tarplin was senior vice president and director, Megasoft
Holdings, Inc., the parent corporation of Megasoft Online, Inc. and a holding
company for operating businesses involved in contract software manufacturing and
distribution services and Internet software products and services.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Shares are traded on the Nasdaq National Market system under
the symbol META. 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 1999
March 31............................................ $8.00 $4.00
June 30............................................. $6.25 $3.75
September 30........................................ $6.38 $3.06
December 31......................................... $4.50 $2.00
For the quarter ended 1998
March 31............................................ $5.00 $4.00
June 30............................................. $6.50 $4.63
September 30........................................ $5.81 $3.50
December 31......................................... $8.00 $3.38
As of March 6, 2000, there were 3,795 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 $4.25.
The Company has never paid cash dividends on its common shares. The payment
of dividends is within the discretion of the Company's board of directors and
depends upon the earnings, the capital requirements, and the operating and
financial condition of the Company, among other factors. The Company currently
expects to retain its earnings to finance the growth and development of its
business and does not expect to pay cash dividends in the foreseeable future.
In addition, the terms of the Company's credit facilities prohibit it from
paying cash dividends or making any other distributions of any kind to
shareholders without the prior consents of the administrative agent of these
credit facilities and the banks providing two-thirds of the funding for such
facilities.
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ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA
1999 1998 1997 1996 1995
------------ ------------ ----------- ----------- -----------
Sales................. $120,281,047 $ 80,919,128 $48,933,634 $46,150,105 $39,261,463
Earnings (loss) before
income taxes........ $ (4,166,290) $ 2,684,769 $ 1,040,534 $ 3,398,728 $ 4,140,980
Net earnings (loss)... $ (2,846,290) $ 1,422,769 $ 491,534 $ 2,040,728 $ 2,808,980
Earnings (loss) per
common share:
Basic............... $ (0.47) $ 0.23 $ 0.07 $ 0.29 $ 0.44
Diluted............. $ (0.47) $ 0.23 $ 0.07 $ 0.29 $ 0.44
Weighted average
number of common
shares outstanding:
Basic............... 6,074,879 6,058,414 6,791,836 7,064,194 6,333,706
Diluted............. 6,074,879 6,115,084 7,189,266 7,159,775 6,441,105
Total assets.......... $111,407,753 $105,442,814 $52,871,893 $52,517,477 $50,076,076
Long-term
liabilities......... $ 47,382,793 $ 41,031,569 $ 5,893,410 $ 1,335,105 $ 845,875
Shareholders'
equity.............. $ 37,862,192 $ 41,949,897 $41,194,053 $45,265,791 $43,301,079
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS -- 1999 COMPARED TO 1998
Net sales in 1999 were $120,281,000, an increase of $39,362,000, or 49%
over 1998. This increase resulted primarily from CD-ROM manufacturing sales
increasing $38,895,000 to $112,749,000 for 1999, or 53%. A significant portion
of this increase was attributable to the inclusion of a full year of sales from
the CD-ROM services business acquired from Imation Corporation ("Imation") in
September 1998. Radio syndication sales decreased $693,000, or 14%, to
$4,203,000 in 1999, primarily as a result of some customers choosing to use CD-
Recordable as a distribution method for smaller size orders. DVD sales accounted
for $751,000 in 1999, as compared to $190,000 in 1998.
Gross profit was 28% of net sales for 1999 as compared to 29% of net sales
for 1998. The decrease in gross profit percentage was primarily attributable to
the continuation of price erosion during 1999, albeit at a slower rate than in
prior years.
Selling, general and administrative expenses ("SG&A") increased to
$32,911,000, or 27% of net sales, for 1999 as compared to $18,980,000, or 23% of
net sales, for 1998. SG&A expenses increased in 1999 as a percentage of sales
due to the increased overhead needed to absorb the additional sites, employee
levels, and systems acquired in connection with the acquisition of Imation's
CD-ROM services business.
Restructuring expenses of $1,051,000 were incurred during the fourth
quarter of 1999. These restructuring expenses included approximately $488,000 of
severance and termination benefits related to the Company's decision to close
its Wisconsin client services center and approximately $563,000 associated with
consolidating manufacturing and packaging operations formerly located in
Fremont, California into a single facility in Milpitas, California. These costs
related primarily to estimated lease costs, net of estimated sub-lease rental
income, which will be incurred during the remainder of the Fremont lease term.
Restructuring expenses of $826,000 were incurred during 1998. The 1998
restructuring expenses primarily related to integration costs due to the Imation
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CD-ROM services business acquisition and certain rent, utilities and labor
expenses associated with closing a Wisconsin manufacturing facility acquired in
that acquisition.
Investment income was $25,000 for 1999 as compared to $35,000 for 1998. The
decrease in investment income was a result of lower cash and cash equivalent
balances. Interest expense for 1999 was $3,336,000 as compared to $1,186,000 for
1998. The increase in interest expense was the result of increased borrowings
under the Company's credit facilities.
Income tax benefit was $1,320,000 in 1999, or an effective tax benefit of
32%, as compared to an income tax expense of $1,262,000 in 1998, or an effective
tax rate of 47%. The 1999 income tax benefit was primarily the result of a loss
before income taxes of $4,166,000 in 1999, as compared to earnings before income
taxes of $2,685,000 in 1998.
The net loss for 1999 was $2,846,000, or basic and diluted losses per
common share of $(.47), as compared to 1998 net earnings of $1,423,000, or basic
and diluted earnings per common share of $.23. This decrease was primarily the
result of lower gross margins and increased SG&A expenses as a percentage of
sales.
RESULTS OF OPERATIONS -- 1998 COMPARED TO 1997
Net sales in 1998 were at a record level of $80,919,000, an increase of
$31,985,000, or 65% over 1997. This increase resulted primarily from CD-ROM
manufacturing sales increasing $31,834,000 to $73,854,000 for 1998, or 76%. A
significant portion of this increase was attributable to sales from the CD-ROM
services business acquired from Imation in September 1998. Radio syndication
sales decreased $751,000, or 13%, to $4,897,000 in 1998, primarily as a result
of some customers choosing to use CD-Recordable as a distribution method for
smaller size orders. DVD sales accounted for $190,000 in 1998, as compared to
$6,000 in 1997.
Gross profit was 29% of net sales for 1998 as compared to 31% of net sales
for 1997. This decrease is primarily attributed to additional costs incurred
related to the Wisconsin manufacturing facility that was closed in December
1998. In addition, sales price erosion continued during 1998, albeit at a slower
rate than in prior years.
SG&A expenses increased to $18,980,000, or 23% of net sales, for 1998 as
compared to $13,847,000, or 28% of net sales, for 1997. SG&A expenses decreased
in 1998 as a percentage of sales due to the leverage achieved on the
significantly increased sales dollars.
Restructuring expenses of $826,000 were incurred during 1998. These
expenses primarily related to integration costs due to the Imation CD-ROM
services business acquisition and certain rent, utilities and labor expenses
associated with closing the Wisconsin manufacturing facility acquired in that
acquisition.
Investment income was $35,000 for 1998 as compared to $49,000 for 1997. The
decrease in investment income was a result of lower cash and cash equivalent
balances. Interest expense for 1998 was $1,186,000 as compared to $74,000 for
1997. The increase in interest expense was the result of increased borrowings
under the Company's credit facilities, as more fully discussed in the Financial
Condition section.
Income tax expense was $1,262,000 in 1998, or an effective tax rate of 47%,
as compared to $549,000 in 1997, or an effective tax rate of 53%. The 1998
effective tax rate decreased due to the lessened effect of the non-
deductibility of certain goodwill for income tax purposes.
Net earnings for 1998 were $1,423,000, or basic and diluted earnings per
common share of $.23, as compared to 1997 net earnings of $492,000, or basic and
diluted earnings per common share of $.07. This increase was primarily a result
of increased sales, reduced SG&A expenses as a percentage of sales, and a lower
effective tax rate as noted above.
IMPACT OF INFLATION
The Company's operations are not significantly affected by inflationary
pressures. Although inflation does affect salaries, employee benefits and other
operating expenses, after considering general inflationary trends, total sales
of the Company produced growth in real terms in 1999 and 1998. Net sales
increased primarily due to increased sales of CD-ROM and related products,
rather than increases in inflation.
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RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This new statement requires companies to
recognize all derivatives as either assets or liabilities in the balance sheet
and measure such instruments at fair value. As amended by SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133," the provisions of SFAS No. 133 will
require adoption in 2000.
Adoption of this statement is not expected to have a material impact on the
Company's consolidated financial statements.
FINANCIAL CONDITION -- LIQUIDITY AND CAPITAL RESOURCES
The Company financed its business in 1999 through cash generated from
operations, the use of debt, and the use of available cash balances. Cash flow
from operating activities was $10,690,000, $19,292,000, and $8,197,000 for 1999,
1998 and 1997, respectively. The Company has cash and cash equivalents of
$1,696,000 as of December 31, 1999.
During 1999, the Company continued to increase its manufacturing capacity
over the 1998 levels. These additions, along with recurring capital needs,
resulted in the purchase of $22,823,000 in property, plant and equipment during
1999 as compared to $16,030,000 in 1998 and $8,933,000 in 1997.
The Company completed construction of its distribution center in October
1999. The Company financed the construction through cash generated through
operations and funds available under a $7,000,000 construction loan facility.
This construction loan was replaced in 1999 by a permanent loan facility,
discussed below. Total interest capitalized during 1999, related to the
distribution center, was $74,242.
The Huntington National Bank and Bank One, NA have provided a $30,000,000
term loan facility and a $20,000,000 revolving loan facility to the Company (the
"Credit Facilities"). All loans under the Credit Facilities are payable on
September 11, 2003. The following is a summary of the terms of the Credit
Facilities. The term loan facility is payable over five years in quarterly
principal payments which escalate over the term of the loan. The term loan
facility and a portion of the revolving loan facility were used to finance the
Imation asset purchase. As of December 31, 1999, $17,950,000 was outstanding
under the revolving loan facility. Borrowings under the Credit Facilities bear
interest, at the Company's option, at either the federal funds rate plus 50
basis points or prime rate (whichever of the two are higher) or the London
Interbank offered Rate (LIBOR) rate plus a margin based upon the Company's debt
coverage ratio (which ranges from not less than 75 basis points to not more than
150 basis points). The Credit Facilities are secured by a first lien on all
non-real estate business assets of the Company and a pledge of the stock of the
Company's subsidiaries. The Company is required to comply with certain financial
and other covenants. The Company was not in compliance with certain of its
financial covenants as of December 31, 1999, and the bank waived compliance with
these covenants through December 31, 1999. In March 2000, the bank modified the
financial covenants, and the Company anticipates being in compliance with the
revised covenants through the remainder of 2000. If such modified financial
covenants would have been in effect at December 31, 1999, the Company would have
been in compliance with them as of that date.
The Company has a $19,000,000 loan facility with Huntington Capital Corp
which is payable in monthly principal and interest payments based upon a thirty
year amortization schedule and bears interest at a fixed rate of 8.2%. This term
loan facility was used to permanently finance the Company's new Dublin, Ohio
distribution center and to pay down other bank debt. This loan facility is
payable in monthly installments over 10 years, with a 30 year amortization
period, and is secured by a first lien on all real property of the Company and
letters of credit in favor of the lender, in an aggregate amount of $1,650,000.
The Company anticipates incurring a restructuring expense of approximately
$450,000 in the first quarter of 2000. These costs will primarily consist of
severance and termination benefits related to the completion of a U.S. workforce
reduction of approximately 12%. The workforce reduction will be accomplished
through attrition, unfilled vacancies, and layoffs of temporary and some full
time employees.
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Management believes that current cash balances, plus the funds available
under its current and future credit facilities, plus cash to be generated from
future operations should provide sufficient capital to meet the current business
needs of the Company for the foreseeable future.
YEAR 2000
In prior years, the Company discussed the nature and progress of its plans
to become Year 2000 compliant. In the latter part of 1999, the Company completed
its remediation and testing of systems. As a result of those planning and
implementation efforts, the Company experienced no significant disruptions in
its information and non-information technology systems and believes those
systems successfully responded to the Year 2000 date change. The Company is not
aware of any material problems resulting from Year 2000 issues, either with its
internal systems or those of its third party vendors. The Company will continue
to monitor its computer applications throughout the current year to ensure that
any latent Year 2000 matters that may arise are addressed promptly. The Company
incurred nominal expenses during 1999 in connection with its Year 2000
compliance efforts.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Except for historical information, all other statements made in this report
are "forward-looking" within the meaning of the Private Securities Litigation
Reform Act of 1995. Such forward-looking statements are subject to certain risks
and uncertainties that could cause the Company's actual results to differ
materially from those projected. Such risks and uncertainties that might cause
such a difference include, but are not limited to, changes in general business
and economic conditions, changes in demand for CD-ROM products, excess capacity
levels in the CD-ROM industry, the introduction of new products by competitors,
increased competition (including pricing pressures), changes in manufacturing
efficiencies, changes in technology, and other risks indicated in the company's
filings with the Securities and Exchange Commission, including Form 10-K for
Metatec's year ended December 31, 1999.
STATEMENT OF MANAGEMENT RESPONSIBILITY
The consolidated financial statements of Metatec International are the
responsibility of management, and those statements have been prepared in
accordance with generally accepted accounting principles. 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.
9
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Maintenance of sound internal control by division of responsibilities is
augmented by internal review programs and an Audit Committee of the Board of
Directors comprised solely of directors independent of management. 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.
Jeffrey M. Wilkins
Chairman of the Board and
Chief Executive Officer
Daniel D. Viren
Senior Vice President and
Chief Financial Officer
FORWARD LOOKING STATEMENTS; CERTAIN 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. The following factors, among others, in some
cases have affected and in the future could affect the Company's actual
financial performance.
PRODUCT CONCENTRATION
Revenues from the sale of CD-ROM and DVD-ROM products and services
constituted substantially all of the Company's revenues for 1999, and such
products and services are expected to continue to account for substantially all
of the Company's revenues for the foreseeable future. A decline in the demand
for CD-ROM and DVD-ROM products and services, whether as a result of
competition, technological change or otherwise, 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. The Company does not anticipate revenue growth in its radio
syndication services because of the maturity of the market, the Company's
existing market share, and increased price competition.
COMPETITION
The Company faces competition in the information distribution industry from
a number of sources, such as traditional print publishers, on-line 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.
PRICING
The CD-ROM and audio CD industries have been characterized by new
manufacturers continually entering the market and by declining prices for CDs.
CD-ROM prices declined industry-wide in recent years, and this trend may
continue in the future. To date, continuing market growth has offset increased
manufacturing capacity in the CD-ROM industry. However, the addition of
manufacturing capacity to the industry has continued, and there can be no
assurance that market growth will continue at the same rate or that prices paid
to CD-ROM manufacturers will not continue to decline. 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.
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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 on-line information services. To date, the Company
has developed product and service enhancements to address customer requirements
and to respond to competitive conditions. However, 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.
DEPENDENCE ON KEY PERSONNEL
The Company is highly dependent upon the efforts of certain key personnel,
particularly Jeffrey M. Wilkins, its Chairman of the Board and Chief Executive
Officer. The loss of Mr. Wilkins' services to the Company could have an adverse
effect on the Company.
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 Metatec International and the
European subsidiary. 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 debt with variable interest rates
of 75 to 150 basis points above LIBOR, and therefore affected 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 2000, 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, 1999 and 1998 were
not material.
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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. (formerly Metatec Corporation) and subsidiaries as of
December 31, 1999 and 1998, and the related consolidated statements of
operations, shareholders' equity, and cash flows for each of the three years in
the period ended December 31, 1999. 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
its subsidiaries at December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999 in conformity with accounting principles generally accepted in
the United States of America.
DELOITTE & TOUCHE LLP
February 28, 2000
(March 22, 2000 as to the waiver and amendment of certain covenants in Note 5 to
the consolidated financial statements)
Columbus, Ohio
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
METATEC INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
AT DECEMBER 31,
----------------------------
1999 1998
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents................................. $ 1,695,884 $ 2,557,221
Accounts receivable, net of allowance for doubtful
accounts of $480,000 and $490,000...................... 20,628,847 21,635,889
Inventory................................................. 3,671,639 3,207,460
Prepaid expenses.......................................... 1,050,898 1,037,945
Prepaid income taxes...................................... 234,302 580,879
Deferred income taxes..................................... 1,784,000 143,000
------------ ------------
Total current assets.............................. 29,065,570 29,162,394
Property, plant and equipment -- net........................ 63,748,238 55,827,054
Goodwill -- net............................................. 18,380,164 20,453,366
Other Assets................................................ 213,781 --
------------ ------------
TOTAL ASSETS................................................ $111,407,753 $105,442,814
============ ============
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 12,663,558 $ 12,052,442
Accrued royalties......................................... 1,749,508 2,053,691
Accrued personal property taxes........................... 1,241,638 993,399
Other accrued expenses.................................... 1,927,464 2,526,684
Accrued payroll........................................... 1,384,775 1,598,507
Unearned income........................................... 195,975 156,440
Current maturities of long-term debt and capital lease
obligations............................................ 6,999,850 3,080,185
------------ ------------
Total current liabilities......................... 26,162,768 22,461,348
Long-term debt and capital lease obligations, less current
maturities................................................ 45,501,868 39,506,376
Other long-term liabilities................................. 450,925 45,193
Deferred income taxes....................................... 1,430,000 1,480,000
------------ ------------
Total liabilities................................. 73,545,561 63,492,917
------------ ------------
Commitments and contingencies (Notes 6, and 7)
Shareholders' equity:
Common stock, 1999 -- no par value, 1998 -- $.10 par
value; authorized 1999 -- 10,000,000 shares,
1998 -- 10,083,500; issued 1999 -- 7,157,355 shares,
1998 -- 7,153,480 shares............................... 34,949,138 715,348
Additional paid-in capital................................ -- 34,218,577
Retained earnings......................................... 9,959,256 12,805,546
Accumulated other comprehensive income (loss)............. (1,223,665) 32,963
Treasury stock, at cost; 1,081,742 shares................. (5,822,537) (5,822,537)
------------ ------------
Total shareholders' equity........................ 37,862,192 41,949,897
------------ ------------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY.................... $111,407,753 $105,442,814
============ ============
See notes to consolidated financial statements.
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METATEC INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
------------------------------------------
1999 1998 1997
------------ ----------- -----------
NET SALES.......................................... $120,281,047 $80,919,128 $48,933,634
Cost of sales...................................... 87,174,319 57,276,391 33,815,791
------------ ----------- -----------
Gross profit....................................... 33,106,728 23,642,737 15,117,843
Selling, general and administrative expenses....... 32,910,549 18,980,164 13,847,028
Restructuring expenses............................. 1,050,722 825,975 206,000
------------ ----------- -----------
OPERATING EARNINGS (LOSS).......................... (854,543) 3,836,598 1,064,815
Other income and (expense):
Investment income............................. 24,520 34,546 49,459
Interest expense.............................. (3,336,267) (1,186,375) (73,740)
------------ ----------- -----------
EARNINGS (LOSS) BEFORE INCOME TAXES................ (4,166,290) 2,684,769 1,040,534
Income taxes (benefit)............................. (1,320,000) 1,262,000 549,000
------------ ----------- -----------
NET EARNINGS (LOSS)................................ $ (2,846,290) $ 1,422,769 $ 491,534
============ =========== ===========
NET EARNINGS (LOSS) PER COMMON SHARE:
Basic and diluted................................ $ (0.47) $ 0.23 $ 0.07
============ =========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Basic............................................ 6,074,879 6,058,414 6,791,836
============ =========== ===========
Diluted.......................................... 6,074,879 6,115,084 7,189,266
============ =========== ===========
See notes to consolidated financial statements.
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METATEC INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
ACCUMULATED
ADDITIONAL OTHER
COMMON PAID-IN RETAINED COMPREHENSIVE TREASURY
STOCK CAPITAL EARNINGS INCOME (LOSS) STOCK TOTAL
----------- ----------- ----------- ------------- ----------- -----------
BALANCE AT DECEMBER 31,
1996...................... $ 707,336 $33,935,853 $10,891,243 $ 0 $ (268,641) $45,265,791
Net earnings................ 491,534 491,534
Treasury shares acquired.... (4,733,256) (4,733,256)
Stock awards for
employees................. 641 30,839 31,480
Stock options exercised..... 2,871 127,633 130,504
Tax benefit relating to
stock options............. 8,000 8,000
----------- ----------- ----------- ----------- ----------- -----------
BALANCE AT DECEMBER 31,
1997...................... 710,848 34,102,325 11,382,777 0 (5,001,897) 41,194,053
Comprehensive Income:
Net earnings.............. 1,422,769 1,422,769
Foreign currency
translation
adjustments............. 32,963 32,963
-----------
Comprehensive income.... 1,455,732
Treasury shares acquired.... (820,640) (820,640)
Stock options exercised..... 4,500 66,252 70,752
Tax benefit relating to
stock options............. 50,000 50,000
----------- ----------- ----------- ----------- ----------- -----------
BALANCE AT DECEMBER 31,
1998...................... 715,348 34,218,577 12,805,546 32,963 (5,822,537) 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) $37,862,192
=========== =========== =========== =========== =========== ===========
See notes to consolidated financial statements.
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METATEC INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
------------------------------------------
1999 1998 1997
----------- ------------ -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss).............................. $(2,846,290) $ 1,422,769 $ 491,534
Adjustments to reconcile net earnings (loss) to
net cash provided by operating activities:
Depreciation and amortization................. 14,346,593 9,976,282 7,914,342
Deferred income taxes (benefit)............... (1,691,000) 349,000 192,000
Stock awards for employees.................... 0 0 31,480
Net loss (gain) on sales of property, plant
and equipment............................... (62,094) 68,218 54,962
Changes in assets and liabilities:
Accounts receivable......................... 606,178 (3,494,680) (504,582)
Inventory................................... (535,012) 351,314 (206,781)
Prepaid expenses and other assets........... 105,334 (1,256,023) 97,929
Accounts payable and accrued expenses....... 708,606 11,792,093 257,285
Unearned income............................. 57,617 82,662 (131,365)
----------- ------------ -----------
Net cash provided by operating
activities............................. 10,689,932 19,291,635 8,196,804
----------- ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease (increase) in long-term note
receivable.................................... 0 550,649 (336,799)
Purchase of property, plant and equipment........ (21,371,106) (14,290,702) (8,566,133)
Proceeds from the sales of property, plant and
equipment..................................... 267,668 20,638 83,434
Net cash used for acquisitions................... (314,212) (41,635,504) 0
----------- ------------ -----------
Net cash used in investing activities.... (21,417,650) (55,354,919) (8,819,498)
----------- ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in long-term debt and capital lease
obligations................................... 33,595,339 46,332,261 4,500,000
Payment of long-term debt and capital lease
obligations................................... (23,680,182) (8,425,888) (116,252)
Stock options exercised, including tax benefit... 15,213 120,752 138,504
Treasury stock acquired.......................... 0 (820,640) (4,733,256)
----------- ------------ -----------
Net cash provided (used) by financing
activities............................. 9,930,370 37,206,485 (211,004)
----------- ------------ -----------
Effect of exchange rate on cash.................. (63,989) 32,963 0
Increase (decrease) in cash and cash equivalents... (861,337) 1,176,164 (833,698)
Cash and cash equivalents at beginning of year..... 2,557,221 1,381,057 2,214,755
----------- ------------ -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR........... $ 1,695,884 $ 2,557,221 $ 1,381,057
=========== ============ ===========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid.................................... $ 3,950,812 $ 429,606 $ 65,197
=========== ============ ===========
Income taxes paid................................ $ 34,249 $ 1,824,155 $ 64,785
=========== ============ ===========
Assets purchased for the assumption of
liabilities................................... $ 1,452,313 $ 1,739,058 $ 367,137
=========== ============ ===========
Acquisition of receivables and inventory for the
assumption of liabilities..................... $ 0 $ 497,028 $ 0
=========== ============ ===========
Assets sold for the assumption of receivable..... $ 41,993 $ 0 $ 0
=========== ============ ===========
See notes to consolidated financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation -- The consolidated financial statements include the accounts
of Metatec International, Inc. and its wholly owned subsidiaries (the "Company"
or "Metatec"). All significant intercompany accounts and transactions have been
eliminated. The Company's subsidiaries maintain separate financial statements.
Prior to May 1, 1999, the registrant was Metatec Corporation, a Florida
corporation. At the annual meeting of shareholders on April 20, 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 became effective on April 30,
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.
As part of the merger, the shareholders of the Company approved a
resolution which amended and restated the Company's Articles of Incorporation to
decrease the number of authorized shares of common stock from 10,083,500 shares,
par value $.10, to 10,000,000 shares, without par value. The additional paid-in
capital account has been combined with common stock as presented in the
Consolidated Statements of Shareholder's Equity.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the 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 and
distribution, for specific customers primarily in North America and Europe, with
a majority of the customers under contract. The Company maintains three
manufacturing, sales, distribution and development facilities with sales offices
located in nine different locations around the United States and Europe. The
revenues from product sales are recognized at the time the products are shipped.
For software development services, the Company recognizes profit using the
percentage of completion method, measured by the percentage of the cost of
services completed to date compared to total planned cost of services. Earned
revenue is determined on the basis of the profit recognized plus the contract
costs incurred during the period.
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.
Interest is capitalized in connection with the construction of major
facilities. The capitalized interest is recorded as part of the asset to which
it relates and is amortized over the asset's estimated useful life. In 1999
$74,242 of interest cost was capitalized. No interest was capitalized in 1998 or
1997.
Goodwill -- Goodwill represents the excess of cost over net assets acquired
and is being amortized using the straight-line method over periods ranging from
10 to 15 years. At September 12, 1998, goodwill increased $18,025,184 as part of
the purchase of the CD-ROM services business of Imation Corporation ("Imation").
This $18,025,184 in goodwill is being amortized using the straight-line method
through 2013. At July 2, 1999, goodwill increased $64,212 as part of the
purchase of a small software products and technology services firm called
SilverSpan. This additional $64,212 in goodwill is being amortized using the
straight-line method through 2002. Accumulated amortization was $3,549,801 and
$1,928,727 at December 31, 1999 and 1998, respectively.
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At each balance sheet date, a determination is made by management to
ascertain whether goodwill has been impaired based on several criteria,
including, but not limited to, revenue trends, undiscounted operating cash flows
and other operating factors. For the years presented there has been no
impairment of goodwill.
Income Taxes -- The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards ("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 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 $8,711, $15,508 and $26,963 for 1999, 1998 and 1997,
respectively.
Net Earnings Per Common Share -- Basic net earnings per common share is
computed based on the weighted average number of common shares outstanding
during the period. Diluted net earnings per common share is computed similarly
but includes the effect of stock options.
Comprehensive Income -- In June 1997, the Financial Accounting Standards
Board ("FASB") issued SFAS No. 130, "Reporting Comprehensive Income". This
statement requires the reporting and display of comprehensive income and its
components for all years presented. The Company had other comprehensive losses
related to foreign currency translation adjustments of $1,256,628 in 1999, and
income of $32,963 for 1998.
Financial Instruments -- The Company entered into a series of forward
contracts (against the Dutch guilder and U.S. Dollar) to hedge the new
receivable/payable position arising from an intercompany note between Metatec
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
have been 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.
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.
Recently Issued Financial Accounting Standards -- In June 1998, the FASB
issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities". This new statement requires companies to recognize all derivatives
as either assets or liabilities in the balance sheet and measure such
instruments at fair value. As amended by SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133," the provisions of SFAS No. 133 will require adoption
in 2000.
Adoption of this statement is not expected to have a material impact on the
Company's consolidated financial statements.
Reclassifications -- Certain reclassifications have been made to the prior
year financial statements to conform with the 1999 presentation.
2. BUSINESS COMBINATIONS
On July 2, 1999, the Company purchased the technology products and services
business of a company called SilverSpan for a purchase price of $314,212 which
included $64,212 in goodwill, plus an earn out to be paid over a 42 month
period.
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SilverSpan is a software products and technology services firm specializing
in secure, managed delivery of software, digital documents and information
products for business customers over the Internet, corporate Intranets, and
Extranets. The Company acquired the SilverSpan business through a court-approved
sale under Chapter 11 proceedings of Megasoft, SilverSpan's parent company. The
Company financed the purchase through funds borrowed under the Company's
existing revolving loan facility. The impact of the purchase of SilverSpan was
not material to the Company's 1999 results of operations.
During 1998, the Company purchased the CD-ROM services business assets of
Imation Corporation ("Imation") for $39.8 million, excluding professional
service fees, in a business combination accounted for under the purchase method.
Accordingly, the assets acquired were recorded at their fair values and included
goodwill of $18,025,184 which is being amortized over 15 years using the
straight-line method.
The asset purchase included Imation's plant operations in Fremont,
California, Breda; The Netherlands; and Menomonie, Wisconsin. The Menomonie
plant operations were transferred to Metatec's Dublin, Ohio, manufacturing plant
by the end of the fourth quarter of 1998 after completion of a transitional
operations period in Menomonie.
The purchase price for the Imation assets was $39.8 million. The Company
financed the asset purchase through a $30.0 million term loan facility and a
portion of a $20.0 million revolving loan facility.
The pro forma results of operations of the Company for 1998 and 1997,
assuming the Imation acquisition occurred at the beginning of each period
presented, are as follows:
1998 1997
------------ ------------
Net revenues............................................ $127,023,636 $110,815,634
Net Income.............................................. 5,725,750 2,831,340
Basic net earnings per share............................ 0.95 0.42
Diluted net earnings per share.......................... 0.94 0.39
3. RESTRUCTURING CHARGES
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, $198,622 of which had been paid as of December 31, 1999.
In addition, the Company relocated its California facility from Fremont to
Milpitas 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.
Restructuring charges of $825,975 were incurred during 1998. These expenses
primarily related to integration costs due to the Imation CD-ROM services
business acquisition and certain rent, utilities and labor expenses associated
with the closing of a Wisconsin manufacturing facility acquired in connection
with such acquisition. Approximately $368,000 of these expenses were paid in
1998 and the balance was paid in 1999.
During 1997 the Company made a decision to exit its business of providing
publishing tools and software development services. As a result of this action
the Company incurred restructuring charges of $206,000 primarily for severance
and termination benefits, all of which were paid in 1997.
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4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at December 31:
1999 1998
------------ ------------
Land............................................ $ 2,579,787 $ 2,579,787
Buildings and improvements...................... 29,659,406 18,098,312
Machinery and equipment......................... 52,279,812 49,014,899
Furniture and fixtures.......................... 5,930,555 3,970,336
Computer equipment and related software......... 10,124,108 7,436,858
Equipment installation and building in
progress...................................... 2,918,746 3,656,616
------------ ------------
Total................................. 103,492,414 84,756,808
Less accumulated depreciation................... (39,744,176) (28,929,754)
------------ ------------
Net property, plant and equipment............... $ 63,748,238 $ 55,827,054
============ ============
5. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt and capital lease obligations consisted of the following at
December 31:
1999 1998
----------- -----------
Term debt......................................... $14,250,000 $30,000,000
Revolving line of credit.......................... 17,950,000 12,500,000
Real estate financing............................. 18,950,535
Capital lease obligations......................... 1,351,183 86,561
Less current maturities........................... (6,999,850) (3,080,185)
----------- -----------
Long-term debt and capital lease obligations...... $45,501,868 $39,506,376
=========== ===========
The Company has an agreement with a bank that provides credit facilities
for a term loan and revolving loan. The revolving loan provides for advances of
up to $20,000,000 through September 10, 2003, of which $17,950,000 was
outstanding at December 31, 1999. The term loan was issued in a single advance
on September 11, 1998, in the amount of $30,000,000. The term loan is to be
repaid in installments with the total balance due September 11, 2003. Borrowings
under these credit facilities bear interest, at the Company's option, at either
the federal funds rate plus 50 basis points or prime rate (whichever of the two
are higher) or the London Interbank Offered Rate (LIBOR) plus a margin based
upon the Company's debt coverage ratio (which ranges from not less than 75 basis
points to not more than 150 basis points). The interest rates on the borrowings
at December 31, 1999 ranged from 7.68% to 8.5% (6.9% to 7.25% at December 31,
1998). These credit facilities are secured by a first lien on all non-real
estate business assets of the Company and a pledge of the stock of the Company's
subsidiaries. The Company is required to comply with certain financial and other
covenants.
The Company has a $19,000,000 loan facility with a lender which is payable
in monthly principal and interest payments based upon a thirty year amortization
schedule and bears interest at a fixed rate of 8.2%. This term loan facility was
used to permanently finance the Company's new Dublin, Ohio distribution center
and to pay down other bank debt. The loan 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.
At December 31, 1999, the Company had a $400,000 and a $1,650,000 letter of
credit outstanding which had not been drawn upon before year end.
The terms of the credit facilities provide for the maintenance of certain
financial covenants. Because of the operating loss reported by the Company for
the year ended December 31, 1999 the Company would not have been in compliance
with such covenants had the bank not granted a waiver extending through December
31, 1999. On March 22, 2000, the bank amended the covenants and the Company
anticipates being in compliance
20
22
with the amended covenants through the remainder of 2000. If such modified
financial covenants would have been in effect at December 31, 1999, the Company
would have been in compliance with them as of that date.
The estimated fair value of the Company's long-term obligations
approximated their carrying amount at December 31, 1999 and 1998, based on
current market prices for the same or similar issues.
In addition, the terms of the Company's credit facilities prohibit it from
paying cash dividends or making any other distributions of any kind to
shareholders without the prior consents of the administrative agent of these
credit facilities and the banks providing two-thirds of the funding for such
facilities.
Total long-term debt maturities in 2000 to 2004, are $6,999,850,
$6,274,360, $1,795,109, $18,272,401, $352,243 respectively, and $18,807,755
thereafter.
6. LEASES
At December 31, 1999, the Company leased $1,883,121 of office equipment and
building improvements, with related accumulated depreciation of $567,951, under
non-cancelable capital lease agreements expiring at various dates through 2009.
Maintenance, insurance, and tax expenses are the responsibility of the Company
under the agreements.
Operating lease expense was $3,126,464, $1,865,688 and $370,597 for 1999,
1998 and 1997, respectively.
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:
2000........................................... $ 227,341 $ 2,064,855
2001........................................... 220,944 1,893,532
2002........................................... 220,944 1,799,723
2003........................................... 220,944 1,719,713
2004........................................... 220,944 1,560,158
Thereafter..................................... 976,223 6,506,609
---------- -----------
Total minimum lease payments................... 2,087,340 $15,544,590
===========
Less amount representing interest.............. (736,157)
----------
Present value of net minimum payments.......... $1,351,183
==========
7. 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 $50,000 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, 1999 and 1998
of $450,000 and $331,000, respectively. The Company is also self insured with
respect to short term disability claims.
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8. INCOME TAXES
The components of income tax expense (benefit) were as follows:
1999 1998 1997
----------- ---------- --------
Federal:
Current............................... $ 132,000 $ 600,000 $279,000
Deferred.............................. (909,000) 272,000 101,000
----------- ---------- --------
Total Federal...................... (777,000) 872,000 380,000
----------- ---------- --------
State and Local:
Current............................... 444,000 160,000 78,000
Deferred.............................. (618,000) 77,000 91,000
----------- ---------- --------
Total State and Local.............. (174,000) 237,000 169,000
----------- ---------- --------
Foreign:
Current............................... (205,000) 153,000
Deferred.............................. (164,000)
----------- ---------- --------
Total Foreign...................... (369,000) 153,000
----------- ---------- --------
Total................................... $(1,320,000) $1,262,000 $549,000
=========== ========== ========
Total earnings before income taxes in 1999 is comprised of $732,584 foreign
losses and $3,433,706 domestic losses. Total earnings before income taxes in
1998 is comprised of $354,705 foreign earnings and $2,330,064 domestic earnings.
There were no foreign earnings in 1997.
Significant differences between income taxes recorded for financial
reporting purposes and income taxes (benefit) calculated using the Federal
statutory rate of 34% are as follows:
1999 1998 1997
----------- ---------- --------
Tax expense (benefit) at statutory
rate.................................. $(1,417,000) $ 913,000 $354,000
State and local tax expense (benefit),
net of federal benefit................ (114,000) 156,000 111,000
Non deductible goodwill................. 156,000 156,000 156,000
Other................................... 55,000 37,000 (72,000)
----------- ---------- --------
Total................................... $(1,320,000) $1,262,000 $549,000
=========== ========== ========
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Deferred income taxes recorded in the consolidated balance sheets at
December 31, 1999 and 1998 consist of the following:
1999 1998
---------- -----------
Deferred tax assets:
State tax credit (expires 2005).................... $ 409,000 $ 228,000
Allowance for doubtful accounts.................... 167,000 168,000
Net operating loss carryforwards................... 1,740,000 88,000
Accrued Medical Insurance.......................... 185,000 96,000
Other.............................................. 479,000 287,000
---------- -----------
Total deferred tax assets................ 2,980,000 867,000
---------- -----------
Deferred tax liabilities:
Depreciation....................................... 2,114,000 1,754,000
Prepaid Expenses................................... 234,000 288,000
Other.............................................. 278,000 162,000
---------- -----------
Total deferred tax liabilities........... 2,626,000 2,204,000
---------- -----------
Net deferred tax asset (liability)................. $ 354,000 $(1,337,000)
========== ===========
The Company has available net operating loss carry forwards for tax
purposes of approximately $4,000,000. Included in this balance are foreign net
operating loss carry forwards of approximately $675,000. The Company has
available net operating loss carry forwards for tax purposes of approximately
$216,000 which expire in 2005 which may only be used to offset future taxable
income of the Company.
Based on management's projection of income, the Company will more likely
than not realize such benefits of such tax credits carry forwards.
At December 31, 1999 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.
9. 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
$703,300, $284,100 and $170,300 for 1999, 1998 and 1997, respectively. During
1998, the Company increased its contribution to 75% of the associate's
contribution up to a maximum of 3.75% 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. The Company recorded $427,028 in performance
sharing bonuses earned for 1999, of which $357,674 was paid as of December 31,
1999. The Company recorded $1,106,756 in performance sharing bonuses earned for
1998, of which $438,293 was paid as of December 31, 1998.
The Company initiated a discretionary common stock award program for
employees during 1996. The value of the 1997 stock award was $31,480. The
program was discontinued at the end of 1997.
10. STOCK OPTION PLANS
In 1999, the Company's shareholders approved the 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
23
25
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, 1999, there have been 25,000 options granted under the 1999
Directors Plan, none of which were forfeited, none of which were exercised, and
all of which were exercisable. As of December 31, 1999, there have been 164,925
options granted under the 1992 Director's Stock Option Plan, 80,080 of which
were forfeited, 22,345 of which were exercised and 57,500 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, as amended, is available to officers and
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, 1999, there have been
2,262,050 options granted under this plan, 805,275 of which were forfeited,
271,450 of which were exercised and 578,000 of which are exercisable.
In February 1997, the Compensation Committee, which administers the plan,
approved a stock option exchange program for employees holding options
previously granted under the 1990 Stock Option Plan. Under this program,
employees were given the opportunity to exchange their options having exercise
prices above the then-current fair market value for the Company's common shares
(which was $4.38 at that time) for new options having an exercise price equal to
such current fair market value. However, all new options would be subject to a
four-year vesting schedule in which an equal number of options would vest each
year. The stock option exchange was contingent upon the grantee of the new
option terminating, effective as of the grant date, existing options for the
same number of common shares. Under this stock option exchange program, a total
of 350,000 new options were granted at an exercise price of $4.38 (subject to
the above-described vesting schedule), and the same number of existing options
were terminated.
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, 1999, 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.
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26
The following summarizes all stock option transactions from January 1, 1997
through December 31, 1999:
PER SHARE WEIGHTED AVERAGE
SHARES OPTION PRICE EXERCISE PRICE
--------- --------------- ----------------
Outstanding at January 1, 1997...... 645,866 $1.50 to $12.88 $8.97
Granted............................. 806,000 $ 4.13 to $6.00 $5.19
Exercised........................... (28,711) $ 1.75 to $5.50 $4.55
Terminated.......................... (520,000) $4.38 to $11.50 $9.03
---------
Outstanding at December 31, 1997.... 903,155 $1.50 to $12.88 $5.70
Granted............................. 412,200 $ 3.88 to $6.13 $4.96
Exercised........................... (45,000) $ 1.50 to $1.75 $1.57
Terminated.......................... (208,280) $4.25 to $12.88 $5.77
---------
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 $11.50 $8.82
---------
OUTSTANDING AT DECEMBER 31, 1999.... 1,272,825 $1.50 TO $12.88 $5.24
=========
The following presents information for common shares exercisable as of
December 31:
1999 1998 1997
------- ------- --------
Weighted Average Exercise Price.............. $ 5.56 $ 6.35 $ 6.68
======= ======= ========
Common Shares Exercisable.................... 660,500 510,800 186,455
======= ======= ========
The following table summarizes information about options outstanding at
December 31, 1999:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- - ---------------------------------------------------- -----------------------------------------------
WEIGHTED-AVERAGE
RANGE OF REMAINING WEIGHTED-AVERAGE WEIGHTED-AVERAGE
EXERCISE PRICES NUMBER CONTRACTUAL LIFE EXERCISE PRICE NUMBER EXERCISE PRICE
--------------- --------- ---------------- ---------------- ------- ----------------
$1.50 -- $1.75 20,500 0.9 $ 1.56 20,500 $ 1.56
$3.00 -- $4.50 512,225 8.2 $ 4.15 163,675 $ 4.22
$5.13 -- $6.00 596,700 7.7 $ 5.67 432,925 $ 5.80
$6.13 -- $11.00 132,500 7.3 $ 7.24 32,500 $ 9.13
$11.50 -- $12.88 10,900 1.6 $12.77 10,900 $12.77
--------- -------
1,272,825 $ 5.22 660,500 $ 5.56
========= =======
The weighted average fair value of options granted during 1999, 1998 and
1997 were $5.02, $4.96 and $4.03, respectively.
At December 31, 1999 options for 275,000 and 153,225 common shares (total
of 428,225) were reserved for future grant and 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
FASB Statement No. 123, the Company's net earnings and net earnings per common
share, net of related income tax benefits, would have resulted in the amounts as
25
27
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, 1999, 1998 and 1997, respectively: dividend yield of 0%;
expected volatility of 62%, 61% and 56%; risk-free interest rates based on the
constant maturity rates for Treasuries that mature in accordance with the
vesting period of the options granted.
1999 1998 1997
----------- ------------ ---------
Net earnings (loss) --
As reported........................................ $(2,846,290) $ 1,422,769 $ 491,534
Pro forma.......................................... $(3,116,219) $ 810,441 $(661,075)
Earnings per share --
As reported
Basic and diluted............................... $ (0.47) $ 0.23 $ 0.07
Pro forma --
Basic........................................... $ (0.51) $ 0.13 $ (0.10)
Diluted......................................... $ (0.51) $ 0.13 $ (0.09)
The pro forma amounts are not representative of the effects on reported net
earnings or earnings per common share for future years.
11. FINANCIAL INSTRUMENTS
Off balance sheet derivative financial instruments at December 31, 1999,
include a foreign currency forward contract.
The Company entered into a series of forward contracts (against the Dutch
guilder and U.S. Dollar) to hedge the new receivable/payable position arising
from an intercompany note between Metatec 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 have been 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.
Foreign currency forward contracts had contract values, and fair values of
$6,438,315 and $6,017,059, respectively, at December 31, 1999. No foreign
currency forward contracts existed at December 31, 1998.
12. SEGMENT, GEOGRAPHIC AND CUSTOMER INFORMATION
In June 1997 the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information" ("SFAS 131"). The new rules establish
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.
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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
------------ -----------
1999
Sales....................................................... $107,644,368 $12,636,679
Long-lived assets........................................... $ 76,267,397 $ 6,074,786
1998
Sales....................................................... $ 76,630,600 $ 4,288,528
Long-lived assets........................................... $ 69,634,124 $ 6,646,296
1997
Sales....................................................... $ 48,933,634 $ 0
Long-lived assets........................................... $ 41,879,689 $ 0
Revenues attributed to product types are distinguished as CD-ROM sales and
other sales. Segment information for the years ended December 31 are as follows:
CD-ROM OTHER PRODUCTS
------------ --------------
1999
Sales....................................................... $112,749,000 $7,532,000
1998
Sales....................................................... $ 73,854,000 $7,065,000
1997
Sales....................................................... $ 42,020,000 $6,914,000
No customer accounted for greater than 10% of net sales for any of the
three years in the period ended December 31, 1999.
13. CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED)
QUARTER ENDED MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
------------- ----------- ----------- ------------ -----------
1999
NET SALES........................... $31,067,983 $29,488,771 $28,152,547 $31,571,746
GROSS PROFIT........................ 10,067,663 7,556,234 6,849,548 8,633,283
NET EARNINGS (LOSS)................. 857,790 (556,620) (1,628,777) (1,518,683)
NET EARNINGS (LOSS) PER COMMON
SHARE:
BASIC............................ $ 0.14 $ (0.09) $ (0.27) $ (0.25)
DILUTED.......................... $ 0.14 $ (0.09) $ (0.27) $ (0.25)
1998
Net Sales........................... $14,717,057 $14,085,060 $18,981,471 $33,135,540
Gross Profit........................ 4,886,682 4,886,899 5,490,248 8,378,908
Net Earnings........................ 578,069 475,676 179,534 189,490
Net Earnings per common share:
Basic............................ $ 0.09 $ 0.08 $ 0.03 $ 0.03
Diluted.......................... $ 0.09 $ 0.08 $ 0.03 $ 0.03
The quarter ended December 31, 1999, also included an approximate $650,000
reduction of expenses for prior quarters of 1999 due to a change in estimate
related to manufacturing royalties. The quarter also included $1,050,722 of
restructuring charges.
The quarter ended December 31, 1998 included restructuring charges of
$825,975.
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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 is contained
in the Company's proxy statement which was filed with the Securities and
Exchange Commission on March 27, 2000, 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 is contained in the Company's proxy
statement which was filed with the Securities and Exchange Commission on March
27, 2000, and is hereby incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required under this Item is contained in the Company's proxy
statement which was filed with the Securities and Exchange Commission on March
27, 2000, and is hereby incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required under this Item is contained in the Company's proxy
statement which was filed with the Securities and Exchange Commission on March
27, 2000, and is hereby incorporated herein by reference.
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, 1999 and 1998
Consolidated Statements of Operations for the Years Ended December 31,
1999, 1998 and 1997
Consolidated Statements of Shareholders' Equity for the Years Ended
December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the Years Ended December 31,
1999, 1998 and 1997
Notes to Consolidated Financial Statements
Independent Auditors' Report
(a)(2) FINANCIAL STATEMENT SCHEDULES
The following independent auditors' report and financial statement schedule
for the years ended December 31, 1999, 1998 and 1997 are included in this report
following the signatures and should be read in conjunction with the Consolidated
Financial Statements included in Item 8:
Independent Auditors' Report on Financial Statement Schedule
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.
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30
(a)(3) LISTING OF EXHIBITS
IF INCORPORATED BY REFERENCE,
DOCUMENT WITH WHICH EXHIBIT WAS
EXHIBIT NO. DESCRIPTION OF EXHIBIT PREVIOUSLY FILED WITH SEC
- - ----------- ---------------------- -------------------------------
2 Asset Purchase Agreement dated July 29, 1998, Current Report on Form 8-K dated September 11,
among Metatec International, Inc., Metatec 1998 (See Exhibit 2 therein).
Acquisition Corp., Metatec International B.V.,
Imation Corp., Imation International B.V., and
Imation Enterprises Corp.
3(a) Amended and Restated Articles of Incorporation Registration Statement on Form S-8, File No.
of Metatec International, Inc. 333-03125 (see Exhibit 4(a) therein).
3(b) Code of Regulations of Metatec International, Registration Statement on Form S-8, File No.
Inc. 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 Agreement dated Annual Report on Form 10-K for the fiscal year
March 23, 1993, between Metatec International, ended December 31, 1992 (See Exhibit 10(h)
Inc. and Jeffrey M. Wilkins therein).
10(b)* First Amendment to Amended and Restated Annual Report on Form 10-K for the fiscal year
Employment Agreement dated March 21, 1996, ended December 31, 1995 (See Exhibit 10(c)
between Metatec International, Inc. and Jeffrey therein).
M. Wilkins
10(c)* Second Amendment to Amended and Restated Annual Report on Form 10-K for the fiscal year
Employment Agreement dated February 17, 1998, ended December 31, 1998 (see Exhibit 10(d)
between Metatec International, Inc. and Jeffrey therein).
M. Wilkins
10(d)* Metatec International, Inc. 1990 Stock Option Annual Report on Form 10-K for the fiscal year
Plan ended December 31, 1991 (see Exhibit 10(k)
therein).
10(e)* Amendment No. 1 to Metatec International, Inc. Registration Statement on Form S-8, File No.
1990 Stock Option Plan 33-48022 (see Exhibit 4(d) therein).
10(f)* Amendment No. 2 to Metatec International, Inc. Annual Report on Form 10-K for the fiscal year
1990 Stock Option Plan ended December 31, 1992 (see Exhibit 10(k)
therein).
10(g)* Amendment No. 3 to Metatec International, Inc. Annual Report on Form 10-K for the fiscal year
1990 Stock Option Plan ended December 31, 1993 (see Exhibit 10(g)
therein).
10(h)* Amendment No. 4 to Metatec International, Inc. Annual Report on Form 10-K for the fiscal year
1990 Stock Option Plan ended December 31, 1995 (See Exhibit 10(h)
therein).
10(i)* Amendment No. 5 to Metatec International, Inc. Annual Report on Form 10-K for the fiscal year
1990 Stock Option Plan ended December 31, 1997 (See Exhibit 10(I)
therein).
10(j)* Amendment No. 6 to Metatec International, Inc. Registration Statement on Form S-8, File No.
1990 Stock Option Plan 333-03125 (see Exhibit 4(i) therein).
10(k)* Metatec International, Inc. 1992 Directors' Registration Statement on Form S-8, File No.
Stock Option Plan 33-52700 (see Exhibit 4(c) therein).
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31
IF INCORPORATED BY REFERENCE,
DOCUMENT WITH WHICH EXHIBIT WAS
EXHIBIT NO. DESCRIPTION OF EXHIBIT PREVIOUSLY FILED WITH SEC
- - ----------- ---------------------- -------------------------------
10(l)* Amendment No. 1 to Metatec International, Inc. Annual Report on Form 10-K for the fiscal year
1992 Directors' Stock Option Plan ended December 31, 1993 (see Exhibit 10(i)
therein).
10(m)* Amendment No. 2 to Metatec International, Inc. Annual Report on Form 10-K for the fiscal year
1992 Directors' Stock Option Plan ended December 31, 1995 (see Exhibit 10(k)
therein).
10(n)* Amendment No. 3 to Metatec International, Inc. Annual Report on Form 10-K for the fiscal year
1992 Directors' Stock Option Plan ended December 31, 1995 (see Exhibit 10(i)
therein).
10(o)* Amendment No. 4 to Metatec International, Inc. Annual Report on Form 10-K for the fiscal year
1992 Directors' Stock Option Plan ended December 31, 1996 (see Exhibit 10(m)
therein).
10(p) Amendment No. 5 to Metatec International, Inc. Registration Statement on Form S-8, File No.
1992 Directors' Stock Option Plan 333-31027 (see Exhibit 4 therein).
10(q)* Metatec International, Inc. 1999 Directors Stock Registration Statement on Form S-8, File No.
Option Plan 333-10442 (see Exhibit 4(d) therein).
10(r)* Metatec International, Inc. Open Book Management Annual Report on Form 10-K for the fiscal year
Plan ended December 31, 1998 (see Exhibit 10(p)
therein).
10(s)* Metatec International, Inc. Directors Deferred Annual Report on Form 10-K for the fiscal year
Compensation Plan ended December 31, 1997 (see Exhibit 10(p)
therein).
10(t) Form of Indemnification Agreement between Contained herein.
Metatec International, Inc. and each of its
officers and directors
10(u) Patent License Agreement for Disc Products dated Amendment No. 1 to Registration Statement on
July 1, 1986, between Metatec/ Discovery Form S-1, File No. 33-60878 (see Exhibit 10(t)
Systems, Inc. and Discovision Associates therein).
10(v) CD Disc License Agreement dated January 1, 1986, Amendment No. 1 to Registration Statement on
between U.S. Philips Corporation and Metatec/ Form S-1, File No. 33-60878 (see Exhibit 10(u)
Discovery Systems, Inc. therein).
10(w) Optical Disc Corporation NPR Technology License Amendment No. 1 to Registration Statement on
Agreement between Optical Disc Corp-oration and Form S-1, File No. 33-60878 (see Exhibit 10(v)
Metatec/Discovery Systems effective March 2, therein).
1992
10(x) Loan Agreement dated September 11, 1998, among Current Report on Form 8-K dated September 11,
Metatec International, Inc., Bank One, NA, The 1998 (See Exhibit 10(a) therein).
Huntington National Bank, other financial
institutions from time to time a party thereto,
as banks, and The Huntington National Bank, as
administrative agent for the banks.
10(y) $19.0 million Promissory Note and Mortgage, Contained herein.
Assignment of Rents and Security Agreement, each
dated July 28, 1999, between META Holdings, LLC
and Huntington Capital Corp.
30
32
IF INCORPORATED BY REFERENCE,
DOCUMENT WITH WHICH EXHIBIT WAS
EXHIBIT NO. DESCRIPTION OF EXHIBIT PREVIOUSLY FILED WITH SEC
- - ----------- ---------------------- -------------------------------
21 Subsidiaries of Metatec International, Inc. Contained herein.
23 Consent of Deloitte & Touche LLP Contained herein.
24(a) Powers of Attorney for Peter J. Kight and A. Annual Report on Form 10-K for the fiscal year
Grant Bowen ended December 31, 1994 (see Exhibit 24
therein).
24(b) Powers of Attorney for Jerry D. Miller Annual Report on Form 10-K for the fiscal year
ended December 31, 1993 (see Exhibit 24
therein).
24(c) Power of Attorney for James V. Pickett Annual Report on Form 10-K for the fiscal year
ended December 31, 1995 (see Exhibit 24(c)
therein).
24(d) Power of Attorney for Joseph F. Keeler, Jr. Annual Report on Form 10-K for the fiscal year
ended December 31, 1997 (see Exhibit 24(d)
therein).
27 Financial Data Schedule Contained herein.
- - ---------------
* Executive compensation plans and arrangements required to be filed pursuant to
Item 601(b)(10) of Regulation S-K.
(b) REPORTS ON FORM 8-K
None
(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 and the independent auditors' report
thereon are submitted following the signatures.
31
33
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.
Date: March 27, 2000
By: /s/ JEFFREY M. WILKINS
-------------------------------------
Jeffrey M. Wilkins
Chairman of the Board
President, and Chief Executive
Officer
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/ JEFFREY M. WILKINS Chairman of the Board, Chief March 27, 2000
- - ------------------------------------------------ Executive Officer (principal
Jeffrey M. Wilkins executive officer) and Director
/s/ DANIEL D. VIREN Senior Vice President and Chief March 27, 2000
- - ------------------------------------------------ Financial Officer (principal
Daniel D. Viren financial officer and principal
accounting officer)
PETER J. KIGHT* Director March 27, 2000
- - ------------------------------------------------
Peter J. Kight
JERRY D. MILLER* Director March 27, 2000
- - ------------------------------------------------
Jerry D. Miller
A. GRANT BOWEN* Director March 27, 2000
- - ------------------------------------------------
A. Grant Bowen
JAMES V. PICKETT* Director March 27, 2000
- - ------------------------------------------------
James V. Pickett
JOSEPH F. KEELER, JR.* Director March 27, 2000
- - ------------------------------------------------
Joseph F. Keeler, Jr.
*Jeffrey M. Wilkins, 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/ JEFFREY M. WILKINS
--------------------------------------------------------
Jeffrey M. Wilkins, Attorney In Fact March 27, 2000
32
34
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of Metatec International, Inc.:
We have audited the consolidated financial statements of Metatec
International, Inc. (formerly Metatec Corporation) and subsidiaries as of
December 31, 1999 and 1998, and for each of the three years in the period ended
December 31, 1999, and have issued our report thereon dated February 28, 2000
(March 22, 2000 as to the waiver and amendment of certain covenants in Note 5 to
the consolidated financial statements); such report is included elsewhere in
this Form 10-K. Our audits also included the consolidated financial statement
schedule of Metatec International, Inc. and subsidiaries listed in Item 14. This
consolidated financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, such consolidated financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
February 28, 2000
(March 22, 2000 as to the waiver and amendment of certain covenants in Note 5 to
the consolidated financial statements)
Columbus, Ohio
35
METATEC INTERNATIONAL, INC. AND SUBSIDIARIES
SCHEDULE II CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS AND
RESERVES FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- - ---------------------------------------------------- ------------ ----------------------- -------------- ---------
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING OF COSTS AND OTHER AT END OF
DESCRIPTION YEAR EXPENSES ACCOUNTS DEDUCTIONS(A) YEAR
----------- ------------ ---------- ---------- -------------- ---------
1999
Allowance for doubtful accounts receivable.......... $490,000 $403,000 $413,000 $480,000
======== ======== ======== ========
1998
Allowance for doubtful accounts receivable.......... $301,000 $260,000 $ 71,000 $490,000
======== ======== ======== ========
1997
Allowance for doubtful accounts receivable.......... $321,000 $ 7,000 $ 27,000 $301,000
======== ======== ======== ========
- - ---------------
(A) Amount represents uncollectible accounts written off.
36
EXHIBIT INDEX
03/21/00
37
IF INCORPORATED BY REFERENCE,
EXHIBIT DOCUMENT WITH WHICH EXHIBIT WAS
NO. DESCRIPTION OF EXHIBIT PREVIOUSLY FILED WITH SEC
------- ----------------------------- -------------------------------
2 Asset Purchase Agreement Current Report on Form 8-K
dated July 29, 1998, among dated September 11, 1998 (See
Metatec International, Inc., Exhibit 2 therein).
Metatec Acquisition Corp.,
Metatec International B.V.,
Imation Corp., Imation
International B.V., and
Imation Enterprises Corp.
3(a) Amended and Restated Articles Registration Statement on Form
of Incorporation of Metatec S-8, File No. 333-03125 (see
International, Inc. Exhibit 4(a) therein).
3(b) Code of Regulations of Registration Statement on Form
Metatec International, Inc. S-8, 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 Annual Report on Form 10-K for
Employment Agreement dated the fiscal year ended December
March 23, 1993, between 31, 1992 (See Exhibit 10(h)
Metatec International, Inc. therein).
and Jeffrey M. Wilkins
10(b) First Amendment to Amended Annual Report on Form 10-K for
and Restated Employment the fiscal year ended December
Agreement dated March 21, 31, 1995 (See Exhibit 10(c)
1996, between Metatec therein).
International, Inc. and
Jeffrey M. Wilkins
10(c) Second Amendment to Amended Annual Report on Form 10-K for
and Restated Employment the fiscal year ended December
Agreement dated February 17, 31, 1998 (see Exhibit 10(d)
1998, between Metatec therein).
International, Inc. and
Jeffrey M. Wilkins
10(d) Metatec International, Inc. Annual Report on Form 10-K for
1990 Stock Option Plan the fiscal year ended December
31, 1991 (see Exhibit 10(k)
therein).
03/21/00
38
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
International, Inc. 1990 S-8, File No. 33-48022 (see
Stock Option Plan Exhibit 4(d) therein).
10(f) Amendment No. 2 to Metatec Annual Report on Form 10-K for
International, Inc. 1990 the fiscal year ended December
Stock Option Plan 31, 1992 (see Exhibit 10(k)
therein).
10(g) Amendment No. 3 to Metatec Annual Report on Form 10-K for
International, Inc. 1990 the fiscal year ended December
Stock Option Plan 31, 1993 (see Exhibit 10(g)
therein).
10(h) Amendment No. 4 to Metatec Annual Report on Form 10-K for
International, Inc. 1990 the fiscal year ended December
Stock Option Plan 31, 1995 (See Exhibit 10(h)
therein).
10(i) Amendment No. 5 to Metatec Annual Report on Form 10-K for
International, Inc. 1990 the fiscal year ended December
Stock Option Plan 31, 1997 (See Exhibit 10(I)
therein).
10(j) Amendment No. 6 to Metatec Registration Statement on Form
International, Inc. 1990 S-8, File No. 333-03125 (see
Stock Option Plan Exhibit 4(i) therein).
10(k) Metatec International, Inc. Registration Statement on Form
1992 Directors' Stock Option S-8, File No. 33-52700 (see
Plan Exhibit 4(c) therein).
10(l) Amendment No. 1 to Metatec Annual Report on Form 10-K for
International, Inc. 1992 the fiscal year ended December
Directors' Stock Option Plan 31, 1993 (see Exhibit 10(i)
therein).
10(m) Amendment No. 2 to Metatec Annual Report on Form 10-K for
International, Inc. 1992 the fiscal year ended December
Directors' Stock Option Plan 31, 1995 (see Exhibit 10(k)
therein).
10(n) Amendment No. 3 to Metatec Annual Report on Form 10-K for
International, Inc. 1992 the fiscal year ended December
Directors' Stock Option Plan 31, 1995 (see Exhibit 10(i)
therein).
10(o) Amendment No. 4 to Metatec Annual Report on Form 10-K for
International, Inc. 1992 the fiscal year ended December
Directors' Stock Option Plan 31, 1996 (see Exhibit 10(m)
therein).
10(p) Amendment No. 5 to Metatec Registration Statement on Form
International, Inc. 1992 S-8, File No. 333-31027 (see
Directors' Stock Option Plan Exhibit 4 therein).
03/21/00
39
IF INCORPORATED BY REFERENCE,
EXHIBIT DOCUMENT WITH WHICH EXHIBIT WAS
NO. DESCRIPTION OF EXHIBIT PREVIOUSLY FILED WITH SEC
------- ----------------------------- -------------------------------
10(q) Metatec International, Inc. Registration Statement on Form
1999 Directors Stock Option S-8, File No. 333-10442 (see
Plan Exhibit 4(d) therein).
10(r) Metatec International, Inc. Annual Report on Form 10-K for
Open Book Management Plan the fiscal year ended December
31, 1998 (see Exhibit 10(p)
therein).
10(s) Metatec International, Inc. Annual Report on Form 10-K for
Directors Deferred the fiscal year ended December
Compensation Plan 31, 1997 (see Exhibit 10(p)
therein).
10(t) Form of Indemnification Contained herein.
Agreement between Metatec
International, Inc. and each
of its officers and directors
10(u) Patent License Agreement for Amendment No. 1 to Registration
Disc Products dated July 1, Statement on Form S-1, File No.
1986, between Metatec/ 33-60878 (see Exhibit 10(t)
Discovery Systems, Inc. and therein).
Discovision Associates
10(v) CD Disc License Agreement Amendment No. 1 to Registration
dated January 1, 1986, Statement on Form S-1, File No.
between U.S. Philips 33-60878 (see Exhibit 10(u)
Corporation and therein).
Metatec/Discovery Systems,
Inc.
10(w) Optical Disc Corporation NPR Amendment No. 1 to Registration
Technology License Agreement Statement on Form S-1, File No.
between Optical Disc 33-60878 (see Exhibit 10(v)
Corporation and therein).
Metatec/Discovery Systems
effective March 2, 1992
10(x) Loan Agreement dated Current Report on Form 8-K
September 11, 1998, among dated September 11, 1998 (See
Metatec International, Inc., Exhibit 10(a) therein).
Bank One, NA, The Huntington
National Bank, other
financial institutions from
time to time a party thereto,
as banks, and The Huntington
National Bank, as
administrative agent for the
banks.
03/21/00
40
IF INCORPORATED BY REFERENCE,
EXHIBIT DOCUMENT WITH WHICH EXHIBIT WAS
NO. DESCRIPTION OF EXHIBIT PREVIOUSLY FILED WITH SEC
------- ----------------------------- -------------------------------
10(y) $19.0 million Promissory Note Contained herein.
and Mortgage, Assignment of
Rents and Security Agreement,
each dated July 28, 1999,
between META Holdings, LLC
and Huntington Capital Corp.
21 Subsidiaries of Metatec Contained herein.
International, Inc.
23 Consent of Deloitte & Touche Contained herein.
LLP
24(a) Powers of Attorney for Peter Annual Report on Form 10-K for
J. Kight and A. Grant Bowen the fiscal year ended December
31, 1994 (see Exhibit 24
therein).
24(b) Powers of Attorney for Jerry Annual Report on Form 10-K for
D. Miller the fiscal year ended December
31, 1993 (see Exhibit 24
therein).
24(c) Power of Attorney for James Annual Report on Form 10-K for
V. Pickett the fiscal year ended December
31, 1995 (see Exhibit 24(c)
therein).
24(d) Power of Attorney for Joseph Annual Report on Form 10-K for
F. Keeler, Jr. the fiscal year ended December
31, 1997 (see Exhibit 24(d)
therein).
27 Financial Data Schedule Contained herein.
03/21/00