<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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 May 3, 1996: 7,065,229
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METATEC CORPORATION
-------------------
INDEX PAGE
----- ----
Part I: Financial Information
Item 1 - Financial Statements
Consolidated Balance Sheets as of March 31, 1996
(unaudited) and December 31, 1995 3
Consolidated Statements of Earnings for the three months
ended March 31, 1996 and 1995 (unaudited) 4
Consolidated Statement of Shareholders' Equity for the
three months ended March 31, 1996 (unaudited) 5
Consolidated Statements of Cash Flows for the three months
ended March 31, 1996 and 1995 (unaudited) 6
Notes to Consolidated Financial Statements (unaudited) 7
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-10
Part II: Other Information
Items 1-6 11
Signatures 11
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<PAGE> 3
METATEC CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
March 31, December 31,
1996 1995
- ----------------------------------------------------------------------------------------- ----------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,954,138 $ 5,898,928
Accounts receivable, net of allowance for doubtful accounts of $311,000 and $338,000 5,471,977 6,281,460
Inventory 951,219 885,107
Prepaid expenses 538,200 606,271
Deferred income taxes 294,000 674,000
Current portion of long-term note receivable 12,374 12,374
----------- -----------
Total current assets 14,221,908 14,358,140
Long-term note receivable, less current portion 210,832 213,851
Property, plant and equipment - net 31,806,699 31,337,322
Goodwill - net 4,052,254 4,166,763
----------- -----------
TOTAL ASSETS $50,291,693 $50,076,076
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,393,177 $ 2,328,255
Accrued royalties 975,144 1,173,252
Accrued personal property taxes 694,779 541,228
Other accrued expenses 520,916 530,728
Accrued payroll 723,632 465,371
Accrued income taxes 399,501 444,008
Unearned income 200,895 370,421
Current maturities of long-term debt and capital lease obligations 67,659 75,859
----------- -----------
Total current liabilities 4,975,703 5,929,122
Long-term debt and capital lease obligations, less current maturities 102,999 117,875
Deferred income taxes 858,000 728,000
----------- -----------
Total liabilities 5,936,702 6,774,997
----------- -----------
Shareholders' equity:
Common stock, $.10 par value; authorized 10,083,500 shares; issued 1996 - 7,059,234
shares; 1995 - 7,054,734 shares 705,924 705,474
Additional paid-in capital 33,791,362 33,781,631
Retained earnings 9,894,246 8,850,515
Treasury stock, at cost - 2,755 shares (36,541) (36,541)
----------- -----------
Total shareholders' equity 44,354,991 43,301,079
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $50,291,693 $50,076,076
=========== ===========
</TABLE>
See notes to consolidated financial statements.
Page 3 of 11
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METATEC CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
<TABLE>
<CAPTION>
For The Three Months Ended March 31, 1996 1995
- ---------------------------------------------------- ----------- ----------
<S> <C> <C>
NET SALES $12,204,455 $9,178,622
Cost of sales 7,026,496 5,133,954
----------- ----------
Gross profit 5,177,959 4,044,668
Selling, general and administrative expenses 3,472,005 2,991,855
----------- ----------
OPERATING EARNINGS 1,705,954 1,052,813
Other income and (expense):
Investment income 68,347 21,649
Other - net (21,781) (4,373)
Interest expense (2,789) (190,871)
----------- ----------
EARNINGS BEFORE INCOME TAXES 1,749,731 879,218
Income taxes 706,000 336,600
----------- ----------
NET EARNINGS $ 1,043,731 $ 542,618
=========== ==========
NET EARNINGS PER COMMON SHARE $ 0.15 $ 0.10
=========== ==========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 7,149,326 5,408,670
=========== ==========
</TABLE>
See notes to consolidated financial statements.
Page 4 of 11
<PAGE> 5
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 1,043,731 1,043,731
Stock options exercised 450 9,731 10,181
-------- ----------- ---------- -------- -----------
BALANCE AT MARCH 31, 1996 $705,924 $33,791,362 $9,894,246 $(36,541) $44,354,991
======== =========== ========== ======== ===========
</TABLE>
See notes to consolidated financial statements.
Page 5 of 11
<PAGE> 6
METATEC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
For the three months ended March 31, 1996 1995
- ----------------------------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 1,043,731 $ 542,618
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization 1,628,461 1,022,520
Deferred income taxes 510,000 10,000
Net loss on sales of property, plant and equipment 26,514 12,435
Changes in assets and liabilities:
Accounts receivable 809,483 16,051
Inventory (66,112) (184,143)
Prepaid expenses and other assets 68,071 (143,892)
Accounts payable and accrued expenses (775,693) (656,284)
Unearned income (169,526) (122,334)
----------- -----------
Net cash provided by operating activities 3,074,929 496,971
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in long-term note receivable 3,019 2,830
Purchase of property, plant and equipment (2,013,778) (1,927,763)
Proceeds from the sale of property, plant and equipment 3,935 297,200
----------- -----------
Net cash used in investing activities (2,006,824) (1,627,733)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of long-term debt and capital lease obligations (23,076) (233,505)
Stock options exercised 10,181 3,750
----------- -----------
Net cash (used in) financing activities (12,895) (229,755)
----------- -----------
Increase (decrease) in cash and cash equivalents 1,055,210 (1,360,517)
Cash and cash equivalents at beginning of year 5,898,928 2,167,518
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 6,954,138 $ 807,001
=========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid $ 2,789 $ 190,871
=========== ===========
Income taxes paid $ 285,507 $ 180,119
=========== ===========
</TABLE>
See notes to consolidated financial statements.
Page 6 of 11
<PAGE> 7
METATEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF PRESENTATION - The consolidated balance sheet as of March 31, 1996,
the consolidated statements of earnings for the three months ended March 31,
1996 and March 31, 1995, the consolidated statement of shareholders' equity for
the three months ended March 31, 1996, and the consolidated statements of cash
flows for the three month periods then ended have been prepared by the Company,
without audit. In the opinion of management, all adjustments, which consist
solely of normal recurring adjustments, necessary to present fairly, in
accordance with generally accepted accounting principles, the financial
position, results of operations and changes in cash flows for all periods
presented have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's December 31, 1995 annual
report on Form 10-K. The results of operations for the period ended March 31,
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 March 31, 1996 are not reflected in
the consolidated financial statements. The unrecorded commitments
amounted to approximately $574,000 at March 31, 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 March 31, 1996 were $12,204,000, an
increase of $3,025,000, or 33% 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 $2,919,000 to
$10,608,000 for the three months ended March 31, 1996, or 38% over the same
period of the prior year. The CD-ROM sales within MSG accounted for 88% of MSG
sales for the three months ended March 31, 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, increased
$106,000 to $1,596,000 for the three months ended March 31, 1996, or 7% over the
same period of the prior year. This combined net sales increase was primarily
as a result of continued strong market growth which resulted in a significant
increase in volume. The Company continued its focus on the business and
information services CD-ROM market.
Within the New Media Solutions Group the number of subscribers to NautilusCD,
the Company published CD-ROM monthly multimedia magazine, decreased from 17,800
as of March 31, 1995 to 3,800 as of March 31, 1996. All of the current
NautilusCD subscribers are of the Macintosh version. This decrease in
subscribers during the twelve month period ended March 31, 1996 was a result of
the PC/Windows version of NautilusCD being converted to a CD-ROM publication not
published by the Company. The Company continues to provide software development
and manufacturing services to the new publisher.
Gross profit was 42% of net sales for the three months ended March 31, 1996 as
compared to 44% of net sales for the same period of the prior year. This
decrease is primarily attributed to an under utilization of manufacturing
capacity during the three month period ended March 31, 1996, as compared to the
same period of the prior year. This under utilization of capacity is a direct
result of a more than doubling in the capacity during the prior nine months.
The Company increased capacity in the prior nine 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 March 31,
1995 than in the three months ended March 31, 1996. This resulted in higher
fixed costs in relation to net sales during the three months ended March 31,
1996.
Selling, general and administrative expenses increased to $3,472,000, or 28% of
net sales, for the three months ended March 31, 1996 as compared to $2,992,000,
or 33% of net sales, for same period of the prior year. This increase of
$480,000 is primarily attributed to increased personnel costs.
Page 8 of 11
<PAGE> 9
METATEC CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (CONTINUED)
Investment income was $68,000 and $22,000 for the three month periods ended
March 31, 1996 and 1995, respectively. The increase was a result of additional
investment income from higher cash and cash equivalents balances. Other expense
of $22,000 in the three months ended March 31, 1996 compares to other expense of
$4,000 in the same period of the prior year. These amounts are as a result of
losses on the sales of property, plant and equipment.
Interest expense for the three months ended March 31, 1996 was $3,000 as
compared to $191,000 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 are the capital lease obligations which have a balance of
$171,000 as of March 31, 1996.
The income tax expense was $706,000 for the three months ended March 31, 1996,
or an effective tax rate of 40%, as compared to $336,600 for 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/shareholder effective December 31, 1995.
Net earnings for three months ended March 31, 1996 were $1,044,000, or net
earnings per common share of $.15, as compared to the same period of the prior
year of $543,000, or net earnings per common share of $.10. 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 three months ended March 31, 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 $3,075,000 for the three months ended March 31, 1996, as compared to
$497,000 for the three months ended March 31, 1995.
Page 9 of 11
<PAGE> 10
METATEC CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION - LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The Company, in the three month period ended March 31, 1996, continued to
increase its manufacturing capacity over the 1995 level. The capacity increase
along with recurring capital needs resulted in the purchase of $2,014,000 in
property, plant and equipment during the three months ended March 31, 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.
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 $6,954,000 as of March 31, 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 10 of 11
<PAGE> 11
PART II - OTHER INFORMATION
Items 1-3. INAPPLICABLE
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The annual meeting of shareholders was held April 24, 1996.
(b) Jeffrey M. Wilkins and A. Grant Bowen were elected as Directors.
Gregory T. Tillar, William H. Largent, Jerry D. Miller, E. David
Crockett, Peter J. Kight and James V. Pickett continued as Directors.
(c) The proposal to amend the Company's 1990 Stock Option Plan was
adopted with 3,047,199 votes for, 387,424 votes against and
1,383,502 votes abstain/broker non-votes. The proposal to amend
the Company's 1992 Directors' Stock Option Plan was adopted with
4,419,405 votes for, 292,778 votes against and 105,942 votes
abstain/broker non-votes. The following two Directors were elected
to three year terms, Jeffrey M. Wilkins with 4,754,037 votes for
and 64,088 votes withheld and A. Grant Bowen with 4,752,687 votes
for and 65,438 votes withheld.
(d) Inapplicable.
Item 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) 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: May 7, 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 6,954,138
<SECURITIES> 0
<RECEIVABLES> 5,782,977
<ALLOWANCES> 311,000
<INVENTORY> 951,219
<CURRENT-ASSETS> 14,221,908
<PP&E> 43,151,665
<DEPRECIATION> (11,344,966)
<TOTAL-ASSETS> 50,291,693
<CURRENT-LIABILITIES> 4,975,703
<BONDS> 960,999
<COMMON> 705,924
0
0
<OTHER-SE> 43,649,067
<TOTAL-LIABILITY-AND-EQUITY> 50,291,693
<SALES> 12,204,455
<TOTAL-REVENUES> 12,204,455
<CGS> 7,026,496
<TOTAL-COSTS> 10,498,501
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 95,000
<INTEREST-EXPENSE> 2,789
<INCOME-PRETAX> 1,749,731
<INCOME-TAX> 706,000
<INCOME-CONTINUING> 1,043,731
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,043,731
<EPS-PRIMARY> 0.15
<EPS-DILUTED> 0.15
</TABLE>
