<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, 1998
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 April 30, 1998: 6,033,224
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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,
1998 (unaudited) and December 31, 1997 3
Condensed Consolidated Statements of Earnings
for the three months ended March 31, 1998
and 1997 (unaudited) 4
Condensed Consolidated Statement of Shareholders'
Equity for the three months ended
March 31, 1998 (unaudited) 5
Condensed Consolidated Statements of Cash Flows
for the three months ended March 31,
1998 and 1997 (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
Item 3 - Quantitative and Qualitative Disclosures about
Market Risk 9
Part II: Other Information
Items 1-6 10
Signatures 10
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PART I - FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
METATEC CORPORATION (Unaudited)
CONDENSED CONSOLIDATED BALANCE SHEETS March 31, December 31,
1998 1997
- ---------------------------------------------------------------------------------------- -------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 369,310 $ 1,381,057
Accounts receivable, net of allowance for doubtful accounts of $311,000 and $301,000 8,704,163 7,215,178
Inventory 1,326,518 1,155,519
Prepaid expenses 403,989 362,801
Current portion of long-term note receivable 364,087 364,087
Deferred income taxes 327,000 327,000
------------ ------------
Total current assets 11,495,067 10,805,642
Long-term note receivable, less current portion 183,125 186,562
Property, plant and equipment - net 38,595,105 38,629,006
Goodwill - net 3,136,173 3,250,683
------------ ------------
TOTAL ASSETS $ 53,409,470 $ 52,871,893
============ ============
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,535,056 $ 2,058,587
Accrued royalties 907,480 1,109,257
Accrued personal property taxes 1,016,574 809,399
Other accrued expenses 1,002,855 814,569
Accrued payroll 1,085,776 567,315
Accrued income taxes 355,758 249,747
Unearned income 104,744 73,778
Current maturities of long-term debt and capital lease obligations 101,778 101,778
------------ ------------
Total current liabilities 7,110,021 5,784,430
Long-term debt and capital lease obligations, less current maturities 4,054,105 4,578,410
Deferred income taxes 1,315,000 1,315,000
------------ ------------
Total liabilities 12,479,126 11,677,840
------------ ------------
Shareholders' equity:
Common stock, $.10 par value; authorized 10,083,500 shares;
issued 1998 - 7,108,479 shares; 1997 - 7,108,479 710,848 710,848
Additional paid-in capital 34,102,325 34,102,325
Retained earnings 11,909,706 11,382,777
Treasury stock, at cost; 1998 - 1,075,255 shares; 1997 - 912,755 shares (5,792,535) (5,001,897)
------------ ------------
Total shareholders' equity 40,930,344 41,194,053
------------ ------------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 53,409,470 $ 52,871,893
============ ============
</TABLE>
See notes to condensed consolidated financial statements
Page 3 of 10
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METATEC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------------
1998 1997
- -------------------------------------------------- -------------- -------------
<S> <C> <C>
NET SALES $ 14,717,057 $ 11,678,574
Cost of sales 9,923,356 8,052,587
------------ -----------
Gross profit 4,793,701 3,625,987
Selling, general and administrative expenses 3,876,568 3,713,535
Restructuring expenses 0 206,000
------------ -----------
OPERATING EARNINGS 917,133 (293,548)
Other income and (expense):
Investment income 14,626 10,762
Other - net 100,462 (39,041)
Interest expense (66,292) (2,184)
------------ -----------
EARNINGS BEFORE INCOME TAXES 965,929 (324,011)
Income taxes 439,000 (120,000)
------------ -----------
NET EARNINGS $ 526,929 $ (204,011)
============ ============
NET EARNINGS PER COMMON SHARE
Basic $ 0.09 $ (0.03)
============ ============
Diluted $ 0.09 $ (0.03)
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
Basic 6,069,980 7,022,354
============ ============
Diluted 6,113,884 7,054,567
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
Page 4 of 10
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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, 1997 $710,848 $34,102,325 $11,382,777 $(5,001,897) $41,194,053
Net earnings 526,929 526,929
Treasury shares acquired (790,638) (790,638)
----------- ----------- ----------- ------------ -----------
BALANCE AT MARCH 31, 1998 $710,848 $34,102,325 $11,909,706 $(5,792,535) $40,930,344
========== =========== ============ =========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
Page 5 of 10
<PAGE> 6
METATEC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
For the three months ended March 31, 1998 1997
- ------------------------------------------------------------- ------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 526,929 $ (204,011)
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization 2,098,695 1,926,227
Net loss on sales of property, plant and equipment 8,914 39,041
Changes in assets and liabilities:
Accounts receivable (1,488,979) 1,668,088
Inventory (170,998) (13,712)
Prepaid expenses and other assets (41,183) (287,487)
Accounts payable and accrued expenses 1,514,275 (968,169)
Unearned income 30,966 (107,170)
----------- -----------
Net cash provided by operating activities 2,478,619 2,052,807
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in long-term note receivable 3,436 2,141
Purchase of property, plant and equipment (2,179,158) (3,477,055)
Proceeds from the sales of property, plant and equipment 300 61,000
----------- -----------
Net cash used in investing activities (2,175,422) (3,413,914)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in long-term debt 0 178,576
Payment of long-term debt and capital lease obligations (524,306) (25,416)
Treasury stock acquired (790,638) (540,375)
Stock awards for employees 0 13,965
----------- -----------
Net cash used in financing activities (1,314,944) (373,250)
----------- -----------
Decrease in cash and cash equivalents (1,011,747) (1,734,357)
Cash and cash equivalents at beginning of period 1,381,057 2,214,755
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 369,310 $ 480,398
=========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid $ 56,355 $ 2,184
=========== ===========
Income taxes paid $ 365,989 $ 80,100
=========== ===========
Assets purchased for the assumption of a liability $ 185,467 $ 227,785
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
Page 6 of 10
<PAGE> 7
METATEC CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF PRESENTATION - The consolidated balance sheet as of March 31,
1998, the consolidated statements of earnings for the three months ended
March 31, 1998 and 1997, the consolidated statement of shareholders' equity
for the three months ended March 31, 1998, 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, 1997
annual report on Form 10-K. The results of operations for the period ended
March 31, 1998 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, 1998 are not reflected in the
consolidated financial statements. The unrecorded commitments amounted to
approximately $1,689,000 at March 31, 1998. This amount represents
manufacturing equipment on order.
3. RECENTLY ISSUED ACCOUNTING STANDARD - In June 1997, the FASB issued
Statement of Financial Accounting Standards No. 130 ("SFAS 130") "Reporting
Comprehensive Income," which is effective for periods beginning after
December 15, 1997. This new statement defines comprehensive income as "all
changes in equity during a period, with the exception of stock issuances and
dividends". Under SFAS 130 comprehensive income for March 31, 1998 is
$526,929 and a comprehensive loss for March 31, 1997 is $204,011.
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 December
31, 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.
RESULTS OF OPERATIONS
Net sales for the three months ended March 31, 1998 were $14,717,000, an
increase of $3,038,000, or 26% over the same period of the prior year. This
increase resulted from the Manufacturing Services Group, which includes CD-ROM,
DVD, and Radio Syndication manufacturing, increasing $3,436,000 for the three
months ended March 31, 1998, or 30% over the same period of the prior year. Net
sales for the Company's Access Services Group were $409,000 for the three months
ended March 31, 1997. Because the Company exited this business segment during
1997, there were no sales for this segment for the three months ended March 31,
1998. The 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 and DVD
market.
Gross profit was 33% of net sales for the three months ended March 31, 1998 as
compared to 31% of net sales for the same period of the prior year. This
increase is primarily attributed to improved manufacturing capacity utilization
during the three month period ended March 31, 1998.
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METATEC CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (CONTINUED)
Selling, general and administrative ("SG&A") expenses were $3,877,000, or 26% of
net sales, for the three months ended March 31, 1998 as compared to $3,714,000,
or 32% of net sales, for same period of the prior year. This improvement was
primarily due to the absorption of overhead expenses related to the business
segment which was exited during 1997.
The three months ended March 31, 1997 included a restructuring charge of
$206,000 relating to a reorganization and downsizing of the Access Services
Group. The Company exited the Access Services Group business segment during
1997.
Investment income was $15,000 and $11,000 for the three month periods ended
March 31, 1998 and 1997, respectively.
Interest expense for the three months ended March 31, 1998 was $66,000 as
compared to $2,000 for the same period of the prior year. The increase in
interest expense was due to borrowing under a revolving line of credit.
The income tax expense was $439,000 for the three months ended March 31, 1998,
or an effective tax rate of 45%, as compared to a tax benefit of $120,000 for
the same period of the prior year, or an effective tax benefit of 37%.
Net earnings for the three months ended March 31, 1998 were $527,000, or net
earnings per diluted common share of $.09, as compared to a net loss in the same
period of the prior year of $204,000, or net loss per diluted common share of
$.03. The net earnings increase was primarily a result of improved profit
margins because of exiting the Access Services Group business segment during
1997, as well as strong revenue growth in the core Manufacturing Services Group
during the three months ended March 31, 1998.
FINANCIAL CONDITION - LIQUIDITY AND CAPITAL RESOURCES
The Company financed its business during the three months ended March 31, 1998
through cash generated from operations and available cash balances. Cash flow
from operating activities was $2,479,000 for the three months ended March 31,
1998, as compared to $2,053,000 for the three months ended March 31, 1997.
The Company has commitments under contracts for the purchase of manufacturing
equipment on order. The unrecorded commitments amounted to approximately
$1,689,000 at March 31, 1998.
The Company has cash and cash equivalents of $369,000 as of March 31, 1998.
Additionally the Company has available $15,000,000 under its revolving line of
credit agreement, of which $4,000,000 was outstanding as of March 31, 1998.
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.
Page 8 of 10
<PAGE> 9
METATEC CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
YEAR 2000
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the year. Any of the Company's computer
programs that have date-sensitive software may recognize a date using "00" as
the year 1900 rather than 2000. This could result in a system failure or
miscalculations causing disruptions of uncertain duration in operations
including, among other things, a temporary inability to process transactions, or
engage in similar normal business activities.
The company created a task force during 1997 to address the Year 2000 issues. As
of December 31, 1997, all of the Company's in-house developed systems and
applications are Year 2000 compliant. The Company currently believes that all
systems will be Year 2000 compliant by December 31, 1998.
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, 1997. Actual
results may differ materially from management expectations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK. Disclosure
not currently required.
Page 9 of 10
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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 on to this report begin on page ______.
(b) No reports on Form 8-K have been filed during the quarter ended March
31, 1998.
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: April 30, 1998 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
<CIK> 0000203200
<NAME> METATEC CORP
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 369,310
<SECURITIES> 0
<RECEIVABLES> 9,015,163
<ALLOWANCES> 311,000
<INVENTORY> 1,326,518
<CURRENT-ASSETS> 11,495,067
<PP&E> 60,915,820
<DEPRECIATION> (22,320,715)
<TOTAL-ASSETS> 53,409,470
<CURRENT-LIABILITIES> 7,110,021
<BONDS> 5,369,105
0
0
<COMMON> 710,848
<OTHER-SE> 40,219,496
<TOTAL-LIABILITY-AND-EQUITY> 53,409,470
<SALES> 14,717,057
<TOTAL-REVENUES> 14,717,057
<CGS> 9,923,356
<TOTAL-COSTS> 13,799,924
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 80,000
<INTEREST-EXPENSE> 66,292
<INCOME-PRETAX> 965,929
<INCOME-TAX> 439,000
<INCOME-CONTINUING> 526,929
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
