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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission File No. 0-9220
METATEC CORPORATION
(Exact name of Registrant as specified in its charter)
FLORIDA 59-1698890
(State of Incorporation) (IRS Employer Identification No.)
7001 Metatec Boulevard
Dublin, Ohio 43017
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (614) 761-2000
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __
Number of Common Shares outstanding as of July 31, 1996: 7,065,229
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METATEC CORPORATION
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<TABLE>
<CAPTION>
INDEX PAGE
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<S> <C> <C>
Part I : Financial Information
Item 1 - Financial Statements
Consolidated Balance Sheets as of June 30,
1996 (unaudited) and December 31, 1995 3
Consolidated Statements of Earnings
for the three months ended June 30, 1996
and 1995 (unaudited) 4
Consolidated Statements of Earnings
for the six months ended June 30, 1996
and 1995 (unaudited) 5
Consolidated Statement of Shareholders'
Equity for the six months ended
June 30, 1996 (unaudited) 6
Consolidated Statements of Cash Flows
for the six months ended June 30,
1996 and 1995 (unaudited) 7
Notes to Consolidated Financial
Statements (unaudited) 8
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 9 -11
Part II: Other Information
Items 1-6 12
Signatures 12
</TABLE>
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METATEC CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
June 30, December 31,
1996 1995
- ----------------------------------------------------------------------------------- ------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,930,492 $ 5,898,928
Accounts receivable, net of allowance for doubtful accounts of $335,000 and $338,000 5,595,030 6,281,460
Inventory 802,773 885,107
Prepaid expenses 568,345 606,271
Deferred income taxes 200,000 674,000
Current portion of long-term note receivable 12,374 12,374
------------- -------------
Total current assets 13,109,014 14,358,140
Long-term note receivable, less current portion 208,792 213,851
Property, plant and equipment - net 32,604,243 31,337,322
Goodwill - net 3,937,743 4,166,763
------------- -------------
TOTAL ASSETS $ 49,859,792 $ 50,076,076
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,278,918 $ 2,328,255
Accrued royalties 1,062,967 1,173,252
Accrued personal property taxes 595,570 541,228
Other accrued expenses 334,124 530,728
Accrued payroll 375,511 465,371
Accrued income taxes 0 444,008
Unearned income 57,792 370,421
Current maturities of long-term debt and capital lease obligations 62,193 75,859
------------- -------------
Total current liabilities 3,767,075 5,929,122
Long-term debt and capital lease obligations, less current maturities 88,135 117,875
Deferred income taxes 1,007,000 728,000
------------- -------------
Total liabilities 4,862,210 6,774,997
------------- -------------
Shareholders' equity:
Common stock, $.10 par value; authorized 10,083,500 shares; issued 1996 - 7,067,984
shares; 1995 - 7,054,734 shares 706,799 705,474
Additional paid-in capital 33,883,611 33,781,631
Retained earnings 10,443,713 8,850,515
Treasury stock, at cost - 2,755 shares (36,541) (36,541)
------------- -------------
Total shareholders' equity 44,997,582 43,301,079
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 49,859,792 $ 50,076,076
============= =============
</TABLE>
See notes to consolidated financial statements.
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METATEC CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
<TABLE>
<CAPTION>
For The Three Months Ended June 30, 1996 1995
- --------------------------------------------------------- ------------ ------------
<S> <C> <C>
NET SALES $ 10,975,017 $ 8,754,016
Cost of sales 6,967,938 5,092,568
------------ ------------
Gross profit 4,007,079 3,661,448
Selling, general and administrative expenses 3,172,357 3,004,232
------------ ------------
OPERATING EARNINGS 834,722 657,216
Other income and (expense):
Investment income 97,836 53,353
Other - net 3,593 7,507
Interest expense (2,684) (123,581)
------------ ------------
EARNINGS BEFORE INCOME TAXES 933,467 594,495
Income taxes 384,000 226,600
------------ ------------
NET EARNINGS $ 549,467 $ 367,895
============ ============
NET EARNINGS PER COMMON SHARE $ 0.08 $ 0.06
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 7,197,148 6,130,347
============ ============
</TABLE>
See notes to consolidated financial statements.
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METATEC CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
<TABLE>
<CAPTION>
For The Six Months Ended June 30, 1996 1995
- ------------------------------------------------------ ------------- ------------
<S> <C> <C>
NET SALES 23,179,472 $ 17,932,638
Cost of sales 13,994,434 10,226,522
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Gross profit 9,185,038 7,706,116
Selling, general and administrative expenses 6,644,362 5,996,087
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OPERATING EARNINGS 2,540,676 1,710,029
Other income and (expense):
Investment income 166,183 75,002
Other - net (18,188) 3,134
Interest expense (5,473) (314,452)
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EARNINGS BEFORE INCOME TAXES 2,683,198 1,473,713
Income taxes 1,090,000 563,200
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NET EARNINGS $ 1,593,198 $ 910,513
============= ============
NET EARNINGS PER COMMON SHARE $ 0.22 $ 0.16
============= ============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 7,173,237 5,776,707
============= ============
</TABLE>
See notes to consolidated financial statements.
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METATEC CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
Additional
Common Paid-in Retained Treasury
Stock Capital Earnings Stock Total
- --------------------------------- --------- ------------ ------------ ---------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995 $ 705,474 $ 33,781,631 $ 8,850,515 $ (36,541) $ 43,301,079
Net earnings 1,593,198 1,593,198
Stock options exercised 1,325 101,980 103,305
--------- ------------ ------------ ---------- ------------
BALANCE AT JUNE 30, 1996 $ 706,799 $ 33,883,611 $ 10,443,713 $ (36,541) $ 44,997,582
========= ============ ============ ========== ============
</TABLE>
See notes to consolidated financial statements.
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METATEC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
For the six months ended June 30, 1996 1995
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 1,593,198 $ 910,513
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization 3,365,960 2,047,428
Deferred income taxes 753,000 12,000
Net loss on sales of property, plant and equipment 26,673 11,816
Changes in assets and liabilities:
Accounts receivable 686,430 138,624
Inventory 82,334 (250,705)
Prepaid expenses and other assets 37,926 (368,506)
Accounts payable and accrued expenses (1,835,752) (593,152)
Unearned income (312,629) (243,267)
------------ ------------
Net cash provided by operating activities 4,397,140 1,664,751
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in long-term note receivable 5,059 5,705
Purchase of property, plant and equipment (4,434,473) (4,683,529)
Proceeds from the sale of property, plant and equipment 3,939 298,300
------------ ------------
Net cash used in investing activities (4,425,475) (4,379,524)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of long-term debt and capital lease obligations (43,406) (8,383,117)
Proceeds from issuance of stock 0 17,914,782
Stock options exercised 103,305 46,300
------------ ------------
Net cash provided by financing activities 59,899 9,577,965
------------ ------------
Increase in cash and cash equivalents 31,564 6,863,192
Cash and cash equivalents at beginning of year 5,898,928 2,167,518
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,930,492 $ 9,030,710
============ ============
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid $ 5,473 $ 314,452
============ ============
Income taxes paid $ 1,043,083 $ 529,619
============ ============
</TABLE>
See notes to consolidated financial statements.
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METATEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF PRESENTATION - The consolidated balance sheet as of June 30,
1996, the consolidated statements of earnings for the three and six months
ended June 30, 1996 and June 30, 1995, the consolidated statement of
shareholders' equity for the six months ended June 30, 1996, and the
consolidated statements of cash flows for the six month periods then ended
have been prepared by the Company, without audit. In the opinion of
management, all adjustments, which consist solely of normal recurring
adjustments, necessary to present fairly, in accordance with generally
accepted accounting principles, the financial position, results of operations
and changes in cash flows for all periods presented have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. These consolidated
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's December 31,
1995 annual report on Form 10-K. The results of operations for the period
ended June 30, 1996 are not necessarily indicative of the results for the
full year.
2. PROPERTY, PLANT AND EQUIPMENT COMMITMENTS - The Company has commitments
under contracts for the purchase of property and equipment. Portions of such
contracts not completed as of June 30, 1996 are not reflected in the
consolidated financial statements. The unrecorded commitments amounted to
approximately $344,000 at June 30, 1996.
3. RECENTLY ISSUED ACCOUNTING STANDARD - In October 1995, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
(SFAS) No. 123, "Accounting for Stock-Based Compensation," which was
effective for the Company beginning January 1, 1996. SFAS No. 123 requires
expanded disclosures of stock-based compensation arrangements with employees
and encourages, but does not require, compensation costs to be measured based
on the fair value of the equity instrument awarded. Companies are permitted,
however, to continue to apply Accounting Principles Board (APB) Opinion No.
25, "Accounting for Stock Issued to Employees," which recognizes compensation
costs based on the intrinsic value of the equity instrument awarded. The
Company will continue to apply APB Opinion No. 25 to its stock based
compensation awards to employees and will disclose annually the required pro
forma effect on net earnings and earnings per share in a note to the
financial statements.
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METATEC CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net sales for the three months ended June 30, 1996 were $10,975,000, an increase
of $2,221,000, or 25% over the same period of the prior year. This increase
resulted primarily from the Manufacturing Services Group ("MSG"), which includes
CD-ROM and Radio Syndication manufacturing, increasing $2,674,000 to $9,930,000
for the three months ended June 30, 1996, or 37% over the same period of the
prior year. The CD-ROM sales within MSG accounted for 86% of MSG sales for the
three months ended June 30, 1996 as compared to 81% of MSG sales in the same
period of the prior year. The New Media Solutions Group, previously reported as
Software Services and Publishing Services separately, decreased $453,000 to
$1,045,000 for the three months ended June 30, 1996, or a 30% decrease as
compared to the same period of the prior year. This combined net sales increase
was primarily as a result of a continued growing CD-ROM manufacturing market
which resulted in an increase in volume. The Company continued its focus on the
business and information services CD-ROM market.
Net sales for the six months ended June 30, 1996 were $23,179,000, an increase
of $5,247,000, or 29% over the same period of the prior year. This increase
resulted primarily from the Manufacturing Services Group, which includes CD-ROM
and Radio Syndication manufacturing, increasing $5,593,000 to $20,538,000 for
the six months ended June 30, 1996, or 37% over the same period of the prior
year. The CD-ROM sales within MSG accounted for 87% of MSG sales for the six
months ended June 30, 1996 as compared to 82% of MSG sales in the same period of
the prior year. The New Media Solutions Group, previously reported as Software
Services and Publishing Services separately, decreased $346,000 to $2,641,000
for the six months ended June 30, 1996, or a 12% decrease as compared to the
same period of the prior year. This combined net sales increase was primarily as
a result of a continued growing CD-ROM manufacturing market which resulted in an
increase in volume.
Within the New Media Solutions Group the Company reports sales of NautilusCD, a
monthly CD-ROM multimedia magazine. As previously reported in the Form 10Q filed
for the quarterly period ended March 31, 1996, all of the current NautilusCD
subscribers were and continue to be of the Macintosh version. The number of
subscribers as of June 30, 1996 is under 3,000 and the Company has determined it
will no longer separately report the NautilusCD activity, as quarterly net sales
are less than $25,000.
Gross profit was 37% of net sales for the three months ended June 30, 1996 as
compared to 42% of net sales for the same period of the prior year and as
compared to 42% of net
Page 9 of 12
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METATEC CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (CONTINUED)
sales for the three months ended March 31, 1996. This decrease is primarily
attributed to an under utilization of manufacturing capacity during the three
month period ended June 30, 1996. This under utilization of capacity is a direct
result of a more than doubling in the capacity during the prior twelve months.
The Company increased capacity in the prior twelve months in anticipation of
increased volume in 1996, which is evidenced by the current growth in sales. The
Company operated at closer to capacity in the three months ended June 30, 1995
than in the three months ended June 30, 1996. This resulted in higher fixed
costs in relation to net sales during the three months ended June 30, 1996.
Gross profit for the six months ended June 30, 1996 was at 40%.
Selling, general and administrative ("SG&A") expenses increased to $3,172,000,
or 29% of net sales, for the three months ended June 30, 1996 as compared to
$3,004,000, or 34% of net sales, for same period of the prior year. This
increase of $168,000 is primarily attributed to increased personnel costs. SG&A
expenses increased to $6,644,000, or 29% of net sales, for the six months ended
June 30, 1996 as compared to $5,996,000, or 33% of net sales, for same period of
the prior year. This increase of $648,000 is primarily attributed to increased
personnel costs.
Investment income was $98,000 and $53,000 for the three month periods ended June
30, 1996 and 1995, respectively. Investment income was $166,000 and $75,000 for
the six month periods ended June 30, 1996 and 1995, respectively. The increases
were a result of additional investment income from higher cash and cash
equivalents balances. Other expense of $18,000 in the six months ended June 30,
1996 is as a result of losses on the sales of property, plant and equipment.
Interest expense for the three months ended June 30, 1996 was $3,000 as compared
to $124,000 for the same period of the prior year. Interest expense for the six
months ended June 30, 1996 was $5,000 as compared to $314,000 for the same
period of the prior year. During 1995 the Company paid off all of its long-term
bank debt utilizing $8,100,000 of the proceeds from the 1995 sale of common
shares. As a result, the only items bearing interest in 1996 are capital lease
obligations which have a balance of $150,000 as of June 30, 1996.
The income tax expense was $384,000 for the three months ended June 30, 1996, or
an effective tax rate of 41%, as compared to $227,000 for the same period of the
prior year, or an effective tax rate of 38%. The income tax expense was
$1,090,000 for the six months ended June 30, 1996, or an effective tax rate of
41%, as compared to $563,000 for
Page 10 of 12
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METATEC CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (CONTINUED)
the same period of the prior year, or an effective tax rate of 38%. The 1996
provision reflects the impact of non-deductible goodwill for tax purposes, which
resulted from the increase in goodwill related to the restricted shares earned
by an officer effective December 31, 1995.
Net earnings for the three months ended June 30, 1996 were $549,000, or net
earnings per common share of $.08, as compared to the same period of the prior
year of $368,000, or net earnings per common share of $.06. Net earnings for
the six months ended June 30, 1996 were $1,593,000, or net earnings per common
share of $.22, as compared to the same period of the prior year of $911,000,
or net earnings per common share of $.16. This improvement was primarily a
result of higher net sales and a reduction in the rate of growth in selling,
general and administrative expenses relative to net sales growth, partially
offset by a slightly higher effective tax rate.
FINANCIAL CONDITION - LIQUIDITY AND CAPITAL RESOURCES
The Company financed its business during the six months ended June 30, 1996
through cash generated from operations and available cash balances.
Historically, the Company also financed business needs through the issuance of
common stock and through the use of debt. Cash flow from operating activities
was $4,397,000 for the six months ended June 30, 1996, as compared to $1,665,000
for the six months ended June 30, 1995.
The Company, in the six month period ended June 30, 1996, continued to increase
its manufacturing capacity over the 1995 level. The capacity increase along with
recurring capital needs resulted in the purchase of $4,434,000 in property,
plant and equipment during the six months ended June 30, 1996. The Company will
continue to expand its operations during 1996 through the addition of
manufacturing and distribution equipment and, as announced in April, 1996, will
add an 80,000 square foot addition the Company's existing facility. It is
anticipated that this addition will be funded out of existing cash balances and
through funds generated from operations.
The Company has cash and cash equivalents of $5,930,000 as of June 30, 1996 and
additionally has available $5,000,000 under its revolving line of credit
agreement. Management believes that current cash balances, plus the funds
available from the revolving line of credit agreement, plus cash to be generated
from future operations and funds which may be obtained from future financing
activities should provide sufficient capital to meet the current business needs
of the Company.
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PART II - OTHER INFORMATION
---------------------------
Items 1-3. Inapplicable.
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Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
a,b & c) The results of the April 24, 1996 annual meeting of
shareholders were reported in the Form 10-Q filed for the quarterly period
ended March 31, 1996.
(d) Inapplicable.
-------------
Item 5. Inapplicable.
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Item 6. Exhibits and Reports on Form 8-K
---------------------------------
(a) No exhibits are filed as a part of this report on Form 10-Q.
(b) On April 18,1996, a current report on Form 8-K, dated April 18,
1996, was filed with the Securities and Exchange Commission reporting under
items 5 and 7.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Metatec Corporation
/s/ William H. Largent
BY: William H. Largent
Date: July 31, 1996 Executive Vice President,
and Chief Financial Officer
(authorized signatory-
principal financial and
accounting officer)
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 5,930,492
<SECURITIES> 0
<RECEIVABLES> 5,930,030
<ALLOWANCES> 335,000
<INVENTORY> 802,773
<CURRENT-ASSETS> 13,109,014
<PP&E> 45,553,794
<DEPRECIATION> (12,949,551)
<TOTAL-ASSETS> 49,859,792
<CURRENT-LIABILITIES> 3,767,075
<BONDS> 1,095,135
<COMMON> 706,799
0
0
<OTHER-SE> 44,290,783
<TOTAL-LIABILITY-AND-EQUITY> 49,859,792
<SALES> 23,179,472
<TOTAL-REVENUES> 23,179,472
<CGS> 13,994,434
<TOTAL-COSTS> 20,638,796
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 134,000
<INTEREST-EXPENSE> 5,473
<INCOME-PRETAX> 2,683,198
<INCOME-TAX> 1,090,000
<INCOME-CONTINUING> 1,593,198
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,593,198
<EPS-PRIMARY> .22
<EPS-DILUTED> .22
</TABLE>
