<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 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 November 11, 1996: 7,066,501
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METATEC CORPORATION
<TABLE>
<CAPTION>
INDEX PAGE
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<S> <C>
Part I : Financial Information
Item 1 - Financial Statements
Consolidated Balance Sheets as of September 30,
1996 (unaudited) and December 31, 1995 3
Consolidated Statements of Earnings
for the three months ended September 30, 1996
and 1995 (unaudited) 4
Consolidated Statements of Earnings
for the nine months ended September 30, 1996
and 1995 (unaudited) 5
Consolidated Statement of Shareholders'
Equity for the nine months ended
September 30, 1996 (unaudited) 6
Consolidated Statements of Cash Flows
for the nine months ended September 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)
SEPTEMBER 30, DECEMBER 31,
1996 1995
- -------------------------------------------------- ------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,505,284 $ 5,898,928
Accounts receivable, net of allowance for
doubtful accounts of $312,000 and $338,000 5,251,219 6,281,460
Inventory 991,796 885,107
Prepaid expenses 526,901 606,271
Deferred income taxes 211,000 674,000
Current portion of long-term note receivable 12,374 12,374
----------- -----------
Total current assets 11,498,574 14,358,140
Long-term note receivable, less current portion 204,646 213,851
Property, plant and equipment - net 35,261,602 31,337,322
Goodwill - net 3,823,233 4,166,763
----------- -----------
TOTAL ASSETS $50,788,055 $50,076,076
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,209,107 $ 2,328,255
Accrued royalties 800,552 1,173,252
Accrued personal property taxes 501,738 541,228
Other accrued expenses 223,716 530,728
Accrued payroll 552,131 465,371
Accrued income taxes 0 444,008
Unearned income 85,253 370,421
Current maturities of long-term debt and
capital lease obligations 59,460 75,859
----------- -----------
Total current liabilities 4,431,957 5,929,122
Long-term debt and capital lease obligations,
less current maturities 73,270 117,875
Deferred income taxes 1,142,000 728,000
----------- -----------
Total liabilities 5,647,227 6,774,997
----------- -----------
Shareholders' equity:
Common stock, $.10 par value; authorized
10,083,500 shares; issued 1996 -
7,069,256 shares; 1995 - 7,054,734 shares 706,927 705,474
Additional paid-in capital 33,895,249 33,781,631
Retained earnings 10,575,193 8,850,515
Treasury stock, at cost - 2,755 shares (36,541) (36,541)
----------- -----------
Total shareholders' equity 45,140,828 43,301,079
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $50,788,055 $50,076,076
=========== ===========
</TABLE>
See notes to consolidated financial statements.
Page 3 of 12
<PAGE> 4
METATEC CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
<TABLE>
<CAPTION>
For The Three Months Ended September 30, 1996 1995
- ---------------------------------------- ---- ----
<S> <C> <C>
NET SALES $10,804,766 $9,434,662
Cost of sales 7,313,126 5,690,866
----------- ----------
Gross profit 3,491,640 3,743,796
Selling, general and administrative expenses 3,353,586 2,866,952
----------- ----------
OPERATING EARNINGS 138,054 876,844
Other income and (expense):
Investment income 89,504 114,096
Other - net 3,642 38,334
Interest expense (10,720) (4,294)
----------- ----------
EARNINGS BEFORE INCOME TAXES 220,480 1,024,980
Income taxes 89,000 398,500
----------- ----------
NET EARNINGS $ 131,480 $ 626,480
=========== ==========
NET EARNINGS PER COMMON SHARE $ 0.02 $ 0.09
=========== ==========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 7,152,148 7,192,542
=========== ==========
</TABLE>
See notes to consolidated financial statements.
Page 4 of 12
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METATEC CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
<TABLE>
<CAPTION>
For the Nine Months Ended September 30, 1996 1995
- --------------------------------------------- ------------ ------------
<S> <C> <C>
NET SALES $ 33,984,238 $ 27,367,300
Cost of sales 21,307,560 15,917,388
------------ ------------
Gross profit 12,676,678 11,449,912
Selling, general and administrative expenses 9,997,948 8,863,039
------------ ------------
OPERATING EARNINGS 2,678,730 2,586,873
Other income and (expense):
Investment income 255,687 189,098
Other - net (14,546) 41,468
Interest expense (16,193) (318,746)
------------ ------------
EARNINGS BEFORE INCOME TAXES 2,903,678 2,498,693
Income taxes 1,179,000 961,700
------------ ------------
NET EARNINGS $ 1,724,678 $ 1,536,993
============ ============
NET EARNINGS PER COMMON SHARE $ 0.24 $ 0.25
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 7,166,207 6,261,198
============ ============
</TABLE>
See notes to consolidated financial statements.
Page 5 of 12
<PAGE> 6
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 1,724,678 1,724,678
Stock awards for employees 128 11,638 11,766
Stock options exercised 1,325 101,980 103,305
------------ ------------ ------------ ------------ ------------
BALANCE AT SEPTEMBER 30, 1996 $ 706,927 $ 33,895,249 $ 10,575,193 $ (36,541) $ 45,140,828
============ ============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
Page 6 of 12
<PAGE> 7
METATEC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
For the nine months ended September 30, 1996 1995
- --------------------------------------- ---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 1,724,678 $ 1,536,993
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization 5,143,929 3,229,865
Deferred income taxes 877,000 77,000
Net loss (gain) on sales of property, plant and equipment 27,154 (19,819)
Changes in assets and liabilities:
Accounts receivable 1,030,241 (579,528)
Inventory (106,689) (307,653)
Prepaid expenses and other assets 79,370 (223,998)
Accounts payable and accrued expenses (1,195,598) (172,219)
Unearned income (285,168) (475,810)
----------- -----------
Net cash provided by operating activities 7,294,917 3,064,831
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in long-term note receivable and other assets 9,205 112,227
Purchase of property, plant and equipment (8,755,772) (8,486,591)
Proceeds from the sale of property, plant and equipment 3,939 348,300
----------- -----------
Net cash used in investing activities (8,742,628) (8,026,064)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of long-term debt and capital lease obligations (61,004) (8,404,676)
Proceeds from issuance of stock 0 17,914,782
Stock awards for employees 11,766 0
Stock options exercised 103,305 78,467
----------- -----------
Net cash provided by financing activities 54,067 9,588,573
----------- -----------
Increase in cash and cash equivalents (1,393,644) 4,627,340
Cash and cash equivalents at beginning of year 5,898,928 2,167,518
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,505,284 $ 6,794,858
=========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid $ 16,193 $ 318,746
=========== ===========
Income taxes paid $ 1,148,357 $ 575,440
=========== ===========
</TABLE>
See notes to consolidated financial statements.
Page 7 of 12
<PAGE> 8
METATEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis of presentation - The consolidated balance sheet as of September 30,
1996, the consolidated statements of earnings for the three and nine months
ended September 30, 1996 and September 30, 1995, the consolidated statement of
shareholders' equity for the nine months ended September 30, 1996, and the
consolidated statements of cash flows for the nine 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 September 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, plant, and equipment. Portions
of such contracts not completed as of September 30, 1996 are not reflected in
the consolidated financial statements. The unrecorded commitments amounted to
approximately $7,199,000 at September 30, 1996. This amount represents
approximately $5,000,000 for the construction currently underway for an
approximate 80,000 square foot addition to our present facility and
approximately $2,199,000 for manufacturing equipment on order.
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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<PAGE> 9
METATEC CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net sales for the three months ended September 30, 1996 were $10,805,000, an
increase of $1,370,000, or 15% 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
$2,210,000 to $9,945,000 for the three months ended September 30, 1996, or 29%
over the same period of the prior year. The CD-ROM sales within MSG accounted
for 87% of MSG sales for the three months ended September 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 $840,000 to $860,000 for the three months ended
September 30, 1996, or a 49% 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 nine months ended September 30, 1996 were $33,984,000, an
increase of $6,617,000, or 24% 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 $7,803,000 to
$30,483,000 for the nine months ended September 30, 1996, or 34% over the same
period of the prior year. The CD-ROM sales within MSG accounted for 87% of MSG
sales for the nine months ended September 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 $1,186,000 to $3,501,000 for the nine months ended September 30,
1996, or a 25% 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.
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 September 30, 1996 is under 2,500 and the Company
has determined it will no longer separately report the NautilusCD activity.
Gross profit was 37% of net sales for the nine months ended September 30, 1996
as compared to 42% of net sales for the same period of the prior year and as
compared to 32% of net
Page 9 of 12
<PAGE> 10
METATEC CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (CONTINUED)
sales for the three months ended September 30, 1996. This decrease is
primarily attributed to an under utilization of manufacturing capacity during
the three month period ended September 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 September 30, 1995 than in the three months ended September 30,
1996. This resulted in higher fixed costs in relation to net sales during the
three months ended September 30, 1996. The company also experienced price
erosion and mix change which contributed to a lower gross profit percentage in
1996 as compared to 1995.
Selling, general and administrative ("SG&A") expenses increased to $3,354,000,
or 31% of net sales, for the three months ended September 30, 1996 as compared
to $2,867,000, or 30% of net sales, for same period of the prior year. This
increase of $487,000 is primarily attributed to increased personnel costs. SG&A
expenses increased to $9,998,000, or 29% of net sales, for the nine months
ended September 30, 1996 as compared to $8,863,000, or 32% of net sales, for
same period of the prior year. This increase of $1,135,000 is primarily
attributed to increased personnel costs.
Investment income was $90,000 and $114,000 for the three month periods ended
September 30, 1996 and 1995, respectively. This decrease is the result of
lower cash and cash equivalent balances and lower investment earnings rates on
those balances in 1996. Investment income was $256,000 and $189,000 for the
nine month periods ended September 30, 1996 and 1995, respectively. The
increases were a result of additional investment income from higher cash and
cash equivalents balances. Other expense of $15,000 in the nine months ended
September 30, 1996 is as a result of losses on the sales of property, plant and
equipment.
Interest expense for the three months ended September 30, 1996 was $11,000 as
compared to $4,000 for the same period of the prior year. Interest expense for
the nine months ended September 30, 1996 was $16,000 as compared to $319,000
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 $133,000 as of September 30,
1996.
The income tax expense was $89,000 for the three months ended September 30,
1996, or an effective tax rate of 40%, as compared to $399,000 for the same
period of the prior year, or an effective tax rate of 39%. The income tax
expense was $1,179,000 for the nine months ended September 30, 1996, or an
effective tax rate of 41%, as compared to $962,000 for
Page 10 of 12
<PAGE> 11
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 September 30, 1996 were $131,000, or
net earnings per common share of $.02, as compared to the same period of the
prior year of $626,000, or net earnings per common share of $.09. The primary
reason for the decrease in net earnings was due to the drop in the gross profit
percentage. Net earnings for the nine months ended September 30, 1996 were
$1,725,000, or net earnings per common share of $.24, as compared to the same
period of the prior year of $1,537,000, or net earnings per common share of
$.25.
FINANCIAL CONDITION - LIQUIDITY AND CAPITAL RESOURCES
The Company financed its business during the nine months ended September 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 $7,295,000 for the nine months ended September 30, 1996, as compared to
$3,065,000 for the nine months ended September 30, 1995.
The Company, in the nine month period ended September 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 $8,756,000 in
property, plant and equipment during the nine months ended September 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 to the Company's existing
facility. This addition is under construction and planned to be completed
during the first quarter of 1997. The projected cost of this addition is
$5,500,000. 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 $4,505,000 as of September 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.
Page 11 of 12
<PAGE> 12
PART II - OTHER INFORMATION
Items 1-5. Inapplicable.
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) No reports on Form 8-K have been filed during the quarter ended
September 30, 1996.
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: November 12, 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> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 4,505,284
<SECURITIES> 0
<RECEIVABLES> 5,563,219
<ALLOWANCES> 312,000
<INVENTORY> 991,796
<CURRENT-ASSETS> 11,498,574
<PP&E> 49,833,174
<DEPRECIATION> (14,571,572)
<TOTAL-ASSETS> 50,788,055
<CURRENT-LIABILITIES> 4,431,957
<BONDS> 1,215,270
0
0
<COMMON> 706,927
<OTHER-SE> 44,433,901
<TOTAL-LIABILITY-AND-EQUITY> 50,788,055
<SALES> 33,984,238
<TOTAL-REVENUES> 33,984,238
<CGS> 21,307,560
<TOTAL-COSTS> 31,305,508
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 114,000
<INTEREST-EXPENSE> 16,193
<INCOME-PRETAX> 2,903,678
<INCOME-TAX> 1,179,000
<INCOME-CONTINUING> 1,724,678
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,724,678
<EPS-PRIMARY> .24
<EPS-DILUTED> .24
</TABLE>
