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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 March 31, 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 May 12, 1997: 6,930,688
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METATEC CORPORATION
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INDEX PAGE
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PART I : FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets as of March 31,
1997 (unaudited) and December 31, 1996 3
Condensed Consolidated Statements of Operations
for the three months ended March 31, 1997
and 1996 (unaudited) 4
Condensed Consolidated Statement of Shareholders'
Equity for the three months ended
March 31, 1997 (unaudited) 5
Condensed Consolidated Statements of Cash Flows
for the three months ended March 31,
1997 and 1996 (unaudited) 6
Notes to Condensed Consolidated Financial
Statements (unaudited) 7
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-9
PART II: OTHER INFORMATION
Items 1-6 10
Signatures 10
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<CAPTION>
METATEC CORPORATION
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CONDENSED CONSOLIDATED BALANCE SHEETS At March 31, At December 31,
- ----------------------------------------------------------------------------- 1997 1996
---------------- ------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 480,398 $ 2,214,755
Accounts receivable, net of allowance for doubtful accounts of
$291,000 and $321,000 5,042,508 6,710,596
Inventory 962,450 948,738
Prepaid expenses 557,838 435,451
Prepaid income taxes 190,379 25,279
Current portion of long-term note receivable 13,202 13,202
Deferred income taxes 499,000 484,000
---------------- ------------------
Total current assets 7,745,775 10,832,021
Long-term note receivable, less current portion 198,507 200,648
Property, plant and equipment - net 39,601,245 37,776,085
Goodwill - net 3,594,214 3,708,723
---------------- ------------------
TOTAL ASSETS $ 51,139,741 $ 52,517,477
================ ==================
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,067,670 $ 2,942,565
Accrued royalties 852,138 1,080,400
Accrued personal property taxes 884,720 659,879
Other accrued expenses 552,776 567,675
Accrued payroll 583,073 398,160
Unearned income 97,973 205,143
Current maturities of long-term debt and capital lease obligations 115,127 62,759
---------------- ------------------
Total current liabilities 5,153,477 5,916,581
Long-term debt and capital lease obligations, less current maturities 155,896 55,105
Deferred income taxes 1,295,000 1,280,000
---------------- ------------------
Total liabilities 6,604,373 7,251,686
---------------- ------------------
Shareholders' equity:
Common stock, $.10 par value; authorized 10,083,500 shares;
issued 1997 - 7,076,293 shares; 1996 - 7,073,353 707,630 707,336
Additional paid-in capital 33,949,522 33,935,853
Retained earnings 10,687,232 10,891,243
Treasury stock, at cost; 1997 - 146,855 shares; 1996 - 38,655 shares (809,016) (268,641)
---------------- ------------------
Total shareholders' equity 44,535,368 45,265,791
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TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 51,139,741 $ 52,517,477
================ ==================
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See notes to condensed consolidated financial statements.
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<CAPTION>
METATEC CORPORATION
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For the three months ended March 31, 1997 1996
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<S> <C> <C>
NET SALES $ 11,678,574 $ 12,204,455
Cost of sales 8,052,587 7,026,496
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Gross profit 3,625,987 5,177,959
Selling, general and administrative expenses 3,713,535 3,472,005
Restructuring expenses 206,000
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OPERATING EARNINGS (LOSS) (293,548) 1,705,954
Other income and (expense):
Investment income 10,762 68,347
Other - net (39,041) (21,781)
Interest expense (2,184) (2,789)
---------------- ----------------
EARNINGS (LOSS) BEFORE INCOME TAXES (324,011) 1,749,731
Income tax expense (benefit) (120,000) 706,000
---------------- ----------------
NET EARNINGS (LOSS) $ (204,011) $ 1,043,731
================ ================
NET EARNINGS (LOSS) PER COMMON SHARE $ (0.03) $ 0.15
================ ================
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 7,076,042 7,149,326
================ ================
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See notes to condensed consolidated financial statements.
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METATEC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
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Additional
Common Paid-in Retained Treasury
Stock Capital Earnings Stock Total
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<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 loss (204,011) (204,011)
Stock awards for employees 294 13,669 13,963
Treasury shares acquired (540,375) (540,375)
--------------- ----------------- ---------------- ------------- ------------------
BALANCE AT MARCH 31, 1997 $ 707,630 $ 33,949,522 $ 10,687,232 $ (809,016) $ 44,535,368
=============== ================= ================ ============= ==================
</TABLE>
See notes to condensed consolidated financial statements.
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METATEC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
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For the three months ended March 31, 1997 1996
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) earnings $ (204,011) $ 1,043,731
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization 1,926,227 1,628,461
Deferred income taxes 0 510,000
Net loss on sales of property, plant and equipment 39,041 26,514
Changes in assets and liabilities:
Accounts receivable 1,668,088 809,483
Inventory (13,712) (66,112)
Prepaid expenses and other assets (287,487) 68,071
Accounts payable and accrued expenses (968,169) (775,693)
Unearned income (107,170) (169,526)
---------------- ---------------
Net cash provided by operating activities 2,052,807 3,074,929
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CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in long-term note receivable 2,141 3,019
Purchase of property, plant and equipment (3,477,055) (2,013,778)
Proceeds from the sales of property, plant and equipment 61,000 3,935
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Net cash used in investing activities (3,413,914) (2,006,824)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in long-term debt 178,576 0
Payment of long-term debt and capital lease obligations (25,416) (23,076)
Stock options exercised, including tax benefit 0 10,181
Treasury stock acquired (540,375) 0
Stock awards for employees 13,965 0
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Net cash provided by financing activities (373,250) (12,895)
---------------- ---------------
Increase (decrease) in cash and cash equivalents (1,734,357) 1,055,210
Cash and cash equivalents at beginning of year 2,214,755 5,898,928
---------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 480,398 $ 6,954,138
================ ===============
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid $ 2,184 $ 2,789
================ ===============
Income taxes paid $ 80,100 $ 285,507
================ ===============
Assets purchased for the assumption of a liability $ 227,785 $ 0
================ ===============
</TABLE>
See notes to condensed consolidated financial statements.
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METATEC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis of presentation - The consolidated balance sheet as of March 31,
1997, the consolidated statements of earnings for the three months ended
March 31, 1997 and 1996, the consolidated statement of shareholders' equity
for the three months ended March 31, 1997, 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, 1996
annual report on Form 10-K. The results of operations for the period ended
March 31, 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 March 31, 1997 are not reflected in the
consolidated financial statements. The unrecorded commitments amounted to
approximately $2,598,000 at March 31, 1997. This amount represents
approximately $1,600,000 for the completion of an approximate 80,000 square
foot addition to our present facility and approximately $998,000 for
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 quarters ended
March 31, 1997 and 1996 are as follows:
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Three Months Ended March 31,
1997 1996
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Basic $ (.03) $ 0.15
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Diluted $ (.03) $ 0.15
======== ======
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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, 1997 were $11,679,000, a
decrease of $526,000, or 4% less than the same period of the prior year. This
reduction in revenue was a result of a change in product focus within the
Access Services Group. The Access Services Group, previously reported as the
New Media Solutions Group, decreased $1,187,000 to $409,000 for the three
months ended March 31, 1997, or a 74% decrease as compared to the same period
of the prior year. Revenues within the Manufacturing Services Group were
$11,270,000 for the period ended March 31, 1997, or an increase of 6%, compared
to $10,608,000 for the period ended March 31, 1996. The Company continued its
focus on the business and information services CD-ROM market.
Gross profit was 31% of net sales for the three months ended March 31, 1997 as
compared to 42% 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, 1997. 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 1997. This resulted
in higher fixed costs in relation to net sales during the three months ended
March 31, 1997. The company also experienced price erosion and mix change which
contributed to a lower gross profit percentage in 1997 as compared to 1996.
Selling, general and administrative ("SG&A") expenses increased to $3,714,000,
or 32% of net sales, for the three months ended March 31, 1997 as compared to
$3,472,000, or 28% of net sales, for same period of the prior year.
The period ended March 31, 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 $11,000 and $68,000 for the three month periods ended
March 31, 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 March 31, 1997 was $2,000 as
compared to $3,000 for the same period of the prior year. The only items
bearing interest in the quarter ended March 31, 1997 are capital lease
obligations.
The income tax benefit was $120,000 for the three months ended March 31, 1997,
or an effective tax benefit of 37%, as compared to a tax expense of $706,000
for the same period of the prior year, or an effective tax rate of 40%.
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METATEC CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (CONTINUED)
Net loss for the three months ended March 31, 1997 was $204,000, or net loss
per common share of $.03, as compared to net earnings in the same period of the
prior year of $1,044,000, or net earnings per common share of $.15. The net
earnings decrease was primarily a result of a restructuring charge of $206,000
taken during the period ended March 31, 1997, and 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 three months ended March 31, 1997
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 $2,313,000 for the three months ended March 31, 1997, as compared to
$3,075,000 for the three months ended March 31, 1996.
The Company, in the three month period ended March 31, 1997, continued to
increase its manufacturing capacity over the 1996 level. The capacity increase
along with recurring capital needs resulted in the purchase of $3,737,000 in
property, plant and equipment during the three months ended March 31, 1997. The
Company will continue to expand its operations during 1997 through the addition
of manufacturing and distribution equipment and the completion of an 80,000
square foot addition to the Company's existing facility. This addition is under
construction and planned to be completed during the second quarter of 1997. The
projected cost of this addition is $6,100,000. It is anticipated that this
addition will be funded out of existing cash balances, funds generated from
operations, and bank debt.
The Company has cash and cash equivalents of $ 480,000 as of March 31, 1997 and
additionally has available $15,000,000 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.
INFLATION
The Company's operations are not significantly affected by inflationary
pressures. Although inflation does have an influence on salaries, employee
benefits, and other operating expenses, the Company attempts to minimize or
offset the effects of inflation through increased productivity improvements,
and reduction of costs.
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 and other factors discussed from time to
time in the Company's Security and Exchange Commission filings, including the
Company's Form 10-K for the year ended December 31, 1996. Actual results may
differ materially from management expectations.
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PART II - OTHER INFORMATION
Items 1-5. INAPPLICABLE.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: the Exhibits to this report begin on page ___.
(b) No reports on Form 8-K have been filed during the quarter ended
March 31, 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: May 13, 1997 Vice President, Finance
and Treasurer
(authorized signatory-
principal financial and
accounting officer)
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Form 10-Q
Exhibit Index
Exhibit Number Exhibit Description Page Number
- -------------- ------------------- -----------
27 Financial Data Schedule -
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 480,398
<SECURITIES> 0
<RECEIVABLES> 5,333,508
<ALLOWANCES> 291,000
<INVENTORY> 962,450
<CURRENT-ASSETS> 7,745,775
<PP&E> 56,809,477
<DEPRECIATION> (17,208,232)
<TOTAL-ASSETS> 51,139,741
<CURRENT-LIABILITIES> 5,153,477
<BONDS> 1,450,896
0
0
<COMMON> 707,630
<OTHER-SE> 43,827,738
<TOTAL-LIABILITY-AND-EQUITY> 51,139,741
<SALES> 11,678,574
<TOTAL-REVENUES> 11,678,574
<CGS> 8,052,587
<TOTAL-COSTS> 11,972,122
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,000
<INTEREST-EXPENSE> 2,184
<INCOME-PRETAX> (324,011)
<INCOME-TAX> (120,000)
<INCOME-CONTINUING> (204,011)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (204,011)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
