<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, 1997
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 6, 1997: 6,418,923
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METATEC CORPORATION
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<TABLE>
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INDEX PAGE
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Part I : Financial Information
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets as of September 30,
1997 (unaudited) and December 31, 1996 3
Condensed Consolidated Statements of Earnings
for the three months ended September 30, 1997
and 1996 (unaudited) 4
Condensed Consolidated Statements of Earnings
for the nine months ended September 30, 1997
and 1996 (unaudited) 5
Condensed Consolidated Statement of Shareholders'
Equity for the nine months ended
September 30, 1997 (unaudited) 6
Condensed Consolidated Statements of Cash Flows
for the nine months ended September 30,
1997 and 1996 (unaudited) 7
Notes to Condensed Consolidated Financial
Statements (unaudited) 8
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-10
Item 3 - Quantitative and Qualitative Disclosures about
Market Risk 10
Part II: Other Information
Items 1-6 11
Signatures 11
</TABLE>
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<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
METATEC CORPORATION (Unaudited)
CONDENSED CONSOLIDATED BALANCE SHEETS September 30, December 31,
1997 1996
- --------------------------------------------------------------------------------------- ------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 185,027 $ 2,214,755
Accounts receivable, net of allowance for doubtful accounts of $297,000 and $321,000 6,013,358 6,710,596
Inventory 928,272 948,738
Prepaid expenses 345,949 435,451
Prepaid income taxes -- 25,279
Current portion of long-term note receivable 363,202 13,202
Deferred income taxes 500,000 484,000
----------- -----------
Total current assets 8,335,808 10,832,021
Long-term note receivable, less current portion 191,942 200,648
Property, plant and equipment - net 39,792,279 37,776,085
Goodwill - net 3,365,193 3,708,723
----------- -----------
TOTAL ASSETS $51,685,222 $52,517,477
=========== ===========
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,698,137 $ 2,942,565
Accrued royalties 885,638 1,080,400
Accrued personal property taxes 611,828 659,879
Other accrued expenses 705,646 567,675
Accrued payroll 653,682 398,160
Accrued income taxes 203,994
Unearned income 115,030 205,143
Current maturities of long-term debt and capital lease obligations 103,181 62,759
----------- -----------
Total current liabilities 5,977,136 5,916,581
Long-term debt and capital lease obligations, less current maturities 1,857,287 55,105
Deferred income taxes 1,300,000 1,280,000
----------- -----------
Total liabilities 9,134,423 7,251,686
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Shareholders' equity:
Common stock, $.10 par value; authorized 10,083,500 shares;
issued 1997 - 7,103,678 shares; 1996 - 7,073,353 710,369 707,336
Additional paid-in capital 34,083,300 33,935,853
Retained earnings 11,106,494 10,891,243
Treasury stock, at cost; 1997 - 605,755 shares; 1996 - 38,655 shares (3,349,364) (268,641)
----------- -----------
Total shareholders' equity 42,550,799 45,265,791
----------- -----------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $51,685,222 $52,517,477
=========== ============
</TABLE>
See notes to condensed consolidated financial statements.
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METATEC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------
1997 1996
- --------------------------------------------------- ----------- -----------
<S> <C> <C>
NET SALES $11,890,865 $10,804,766
Cost of sales 8,488,793 7,313,126
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Gross profit 3,402,072 3,491,640
Selling, general and administrative expenses 3,291,893 3,353,586
----------- -----------
OPERATING EARNINGS 110,179 138,054
Other income and (expense):
Investment income 12,925 89,504
Other - net 67,344 3,642
Interest expense (18,213) (10,720)
----------- -----------
EARNINGS BEFORE INCOME TAXES 172,235 220,480
Income taxes 120,500 89,000
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NET EARNINGS $ 51,735 $ 131,480
=========== ===========
NET EARNINGS PER COMMON SHARE $ 0.01 $ 0.02
=========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 6,773,821 7,152,148
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
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METATEC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1997 1996
- ---------------------------------------------- ----------- -----------
<S> <C> <C>
NET SALES $35,577,371 $33,984,238
Cost of sales 24,557,702 21,307,560
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Gross profit 11,019,669 12,676,678
Selling, general and administrative expenses 10,371,528 9,997,948
Restructuring expenses 206,000 0
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OPERATING EARNINGS 442,141 2,678,730
Other income and (expense):
Investment income 36,237 255,687
Other - net 23,725 (14,546)
Interest expense (29,852) (16,193)
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EARNINGS BEFORE INCOME TAXES 472,251 2,903,678
Income taxes 257,000 1,179,000
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NET EARNINGS $ 215,251 $ 1,724,678
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NET EARNINGS PER COMMON SHARE $ 0.03 $ 0.24
=========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 7,128,270 7,166,207
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
Page 5 of 11
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METATEC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS 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, 1996 $707,336 $33,935,853 $10,891,243 $ (268,641) $45,265,791
Net earnings 215,251 215,251
Stock options exercised 2,471 121,033 123,504
Stock awards for employees 562 26,414 26,976
Treasury shares acquired (3,080,723) (3,080,723)
-------- ----------- ----------- ----------- -----------
BALANCE AT SEPTEMBER 30, 1997 $710,369 $34,083,300 $11,106,494 $(3,349,364) $42,550,799
======== =========== =========== =========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
Page 6 of 11
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METATEC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
For the nine months ended September 30, 1997 1996
- ------------------------------------------------------------- ----------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 215,251 $ 1,724,678
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization 5,869,454 5,143,929
Deferred income taxes 4,000 877,000
Net loss on sales of property, plant and equipment 49,191 27,154
Changes in assets and liabilities:
Accounts receivable 697,238 1,030,241
Inventory 20,465 (106,689)
Prepaid expenses and other assets 114,781 79,370
Accounts payable and accrued expenses 450,423 (1,195,598)
Unearned income (90,114) (285,168)
----------- -----------
Net cash provided by operating activities 7,330,689 7,294,917
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CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease (increase) in long-term note receivable (341,294) 9,205
Purchase of property, plant and equipment (8,012,214) (8,755,772)
Proceeds from the sales of property, plant and equipment 80,734 3,939
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Net cash used in investing activities (8,272,774) (8,742,628)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in long-term debt 1,928,576 0
Payment of long-term debt and capital lease obligations (85,974) (61,004)
Stock options exercised, including tax benefit 123,504 103,305
Treasury stock acquired (3,080,724) 0
Stock awards for employees 26,975 11,766
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Net cash (used in) provided by financing activities (1,087,643) 54,067
----------- -----------
Decrease in cash and cash equivalents (2,029,728) (1,393,644)
Cash and cash equivalents at beginning of period 2,214,755 5,898,928
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 185,027 $ 4,505,284
=========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid $ 24,736 $ 16,193
=========== ===========
Income taxes paid $ 121,100 $ 1,148,357
=========== ===========
Assets purchased for the assumption of a liability $ 147,480 $ 0
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
Page 7 of 11
<PAGE> 8
METATEC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis of presentation - The consolidated balance sheet as of September 30,
1997, the consolidated statements of earnings for the three and nine months
ended September 30, 1997 and September 30, 1996, the consolidated statement of
shareholders' equity for the nine months ended September 30, 1997, 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, 1996 annual report on Form 10-K.
The results of operations for the period ended September 30, 1997 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, 1997 are not reflected in the
consolidated financial statements. The unrecorded commitments amounted to
approximately $2,468,000 at September 30, 1997. This amount represents
manufacturing equipment on order.
3. Recently Issued Accounting Standard - In February 1997, The Financial
Accounting Standards Board issued Statement of Financial Accounting Standard
(SFAS) No. 128, "Earnings Per Share," which is effective for periods ending
after December 15, 1997. SFAS No. 128 establishes new standards for computing
and presenting earnings per share. Under SFAS No. 128 basic and dilutive
earnings per share, as defined therein, for the three and nine month periods
ended September 30, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine months ended September 30,
1997 1996 1997 1996
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<S> <C> <C> <C> <C>
Basic $0.01 $0.02 $0.03 $0.24
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Diluted $0.01 $0.02 $0.03 $0.24
===== ===== ===== =====
</TABLE>
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130 ("SFAS 130"). "Reporting Comprehensive Income," which will require adoption
no later than the Company's fiscal quarter ended March 31, 1998. This new
statement defines comprehensive income as "all changes in equity during a
period, with the exception of stock issuances and dividends". The new
pronouncement establishes standards for the reporting and display of
comprehensive income and its components in the financial statements.
In June 1997, the FASB also issued Statement of Financial Accounting Standards
No. 131 ("SFAS 131"), "Disclosures about Segments of an Enterprise and Related
Information", which will require adoption no later than 1998. SFAS 131 requires
companies to report financial and descriptive information about its reportable
operating segments. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. Based on current
operations, the Company does not believe the Statement will be applicable.
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METATEC CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net sales for the three months ended September 30, 1997 were $11,891,000, an
increase of $1,086,000, or 10% 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 $1,576,000 to
$11,521,000 for the three months ended September 30, 1997, or 16% over the same
period of the prior year. Net sales for the Access Services Group, previously
reported as the New Media Solutions Group, decreased $490,000 to $370,000, or a
57% decrease from the three months ended September 30, 1996. 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, 1997 were $35,577,000, an
increase of $1,593,000, or 5% 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 $3,876,000 to
$34,359,000 for the nine months ended September 30, 1997, or 13% over the same
period of the prior year. Net sales for the Access Services Group, previously
reported as the New Media Solutions Group, decreased $2,283,000 to $1,218,000,
or a 65% decrease from the nine months ended September 30, 1996. 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.
Gross profit was 29% of net sales for the three months ended September 30, 1997
as compared to 32% of net sales for the same period of the prior year. This
decrease is primarily attributed to price erosion and mix change which
contributed to a lower gross profit percentage in 1997 as compared to 1996.
Gross profit was 31% of net sales for the nine months ended September 30, 1997
as compared to 37% of net sales for the same period of the prior year.
Selling, general and administrative ("SG&A") expenses increased to $3,292,000,
or 28% of net sales, for the three months ended September 30, 1997 as compared
to $3,354,000, or 31% of net sales, for same period of the prior year. SG&A
expenses increased to $10,372,000, or 29% of net sales, for the nine months
ended September 30, 1997 as compared to $9,998,000, or 29% of net sales, for
same period of the prior year.
The nine months ended September 30, 1997 included a restructuring charge of
$206,000 related to continuing operations. This charge related to a
reorganization and downsizing of the Access Services Group.
Investment income was $13,000 and $90,000 for the three month periods ended
September 30, 1997 and 1996, respectively. Investment income was $36,000 and
$256,000 for the nine month periods ended September 30, 1997 and 1996,
respectively. This decrease is the result of lower cash and cash equivalent
balances and lower investment earnings rates on those balances in 1997.
Interest expense for the three months ended September 30, 1997 was $18,000 as
compared to $11,000 for the same period of the prior year. Interest expense for
the nine months ended September 30, 1997 was $30,000 as compared to $16,000 for
the same period of the prior year. The increase in interest expense was due to
borrowing under a revolving line of credit.
Page 9 of 11
<PAGE> 10
METATEC CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (CONTINUED)
The income tax expense was $121,000 for the three months ended September 30,
1997, or an effective tax rate of 70%, as compared to a tax expense of $89,000
for the same period of the prior year, or an effective tax rate of 40%. The
income tax expense was $257,000 for the nine months ended September 30, 1997, as
compared to a tax expense of $1,179,000 for the same period of the prior year.
The 1997 provision reflects the impact of non-deductible goodwill for tax
purposes.
Net earnings for the three months ended September 30, 1997 were $52,000, or net
earnings per common share of $.01, as compared to net earnings in the same
period of the prior year of $131,000, or net earnings per common share of $.02.
Net earnings for the nine months ended September 30, 1997 were $215,000, or net
earnings per common share of $.03, as compared to net earnings in the same
period of the prior year of $1,725,000, or net earnings per common share of
$.24. The net earnings decrease was primarily a result of the change in product
focus, and resulting decreased revenues, within the Access Services Group.
FINANCIAL CONDITION - LIQUIDITY AND CAPITAL RESOURCES
The Company financed its business during the nine months ended September 30,
1997 through cash generated from operations and available cash balances and
through the use of debt. Cash flow from operating activities was $7,331,000 for
the nine months ended September 30, 1997, as compared to $7,295,000 for the nine
months ended September 30, 1996.
The Company, in the nine month period ended September 30, 1997, continued to
increase its manufacturing capacity over the 1996 level. The capacity increase
along with recurring capital needs resulted in cash paid for the purchase of
$8,012,000 in property, plant and equipment during the nine months ended
September 30, 1997. The Company has commitments under contracts for the purchase
of manufacturing equipment on order. The unrecorded commitments amounted to
approximately $2,468,000 at September 30, 1997.
During the three months ended September 30, 1997, the Company entered an
agreement to provide working capital financing to a key supplier.
The Company has cash and cash equivalents of $185,000 as of September 30, 1997.
Additionally the Company has available $15,000,000 under its revolving line of
credit agreement, of which $1,750,000 was outstanding as of September 30, 1997.
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 should provide sufficient capital to meet the current business needs
of the Company for the foreseeable future.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Except for the historical information in this report, this report includes
forward-looking statements that involve risks and uncertainties, including, but
not limited to, economic and competitive factors affecting the Company's
operations, markets, products, prices, technological changes, manufacturing
efficiencies, and other factors discussed from time to time in the Company's
Security and Exchange Commission filings, including the Company's Form 8-K filed
April 18, 1996, and it's Form 10-K for the year ended December 31, 1996. Actual
results may differ materially from management expectations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK. Disclosure
not currently required.
Page 10 of 11
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PART II - OTHER INFORMATION
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Items 1-5. Inapplicable.
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Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
The exhibits on to this report begin on page ______.
(b) No reports on Form 8-K have been filed during the quarter ended
September 30, 1997.
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/ Julia A. Pollner
BY: Julia A. Pollner
Date: November 6, 1997 Vice President, Finance
and Treasurer
(authorized signatory-
principal financial and
accounting officer)
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Form 10-Q
Exhibit Index
<TABLE>
<CAPTION>
Exhibit Number Exhibit Description Page Number
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<S> <C> <C>
27 Financial Data Schedule --
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 185,027
<SECURITIES> 0
<RECEIVABLES> 6,310,358
<ALLOWANCES> 297,000
<INVENTORY> 928,272
<CURRENT-ASSETS> 8,335,808
<PP&E> 59,959,027
<DEPRECIATION> (20,166,748)
<TOTAL-ASSETS> 51,685,222
<CURRENT-LIABILITIES> 5,977,136
<BONDS> 3,157,287
0
0
<COMMON> 710,369
<OTHER-SE> 41,840,430
<TOTAL-LIABILITY-AND-EQUITY> 51,685,222
<SALES> 35,577,371
<TOTAL-REVENUES> 35,577,371
<CGS> 24,557,702
<TOTAL-COSTS> 35,135,230
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (8,000)
<INTEREST-EXPENSE> 29,852
<INCOME-PRETAX> 472,251
<INCOME-TAX> 257,000
<INCOME-CONTINUING> 215,251
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 215,251
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.03
</TABLE>
