<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------
FORM 8-K/A
(Amendment No. 1)
Current Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 25, 1998
(September 11, 1998)
METATEC CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Florida 0-9220 59-1698890
- ------------------------------- ----------- -------------------
(State or other jurisdiction of (Commission (IRS Employer
incorporation) File Number) Identification No.)
7000 Metatec Boulevard, Dublin, Ohio 43017
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (614) 761-2000
No Change
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE> 2
METATEC CORPORATION
Form 8-K/A dated November 25, 1998
(Amendment No. 1), amending the
Current Report on Form 8-K dated September 11, 1998
Metatec Corporation, a Florida corporation (the "Company"), hereby
amends its Current Report on Form 8-K dated September 11, 1998, to include the
financial statements and pro forma financial information set forth below which
was omitted from the original filing pursuant to Items 7(a)(4) and 7(b)(2) of
Form 8-K.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Business Acquired.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
Imation Corp.
In our opinion, the accompanying balance sheets and the related statements of
operations and of cash flows present fairly, in all material respects, the
financial position of the CD-ROM Services Business of Imation Corp. ("the
Business") (as described in Note 1 to the financial statements) as of December
31, 1997 and 1996, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Business' management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As described in Note 1 to the financial statements, on July 29, 1998, Imation
Corp. and Metatec Corporation entered into an agreement for the sale of the
Business to Metatec Corporation.
PRICEWATERHOUSECOOPERS LLP
August 31, 1998
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<PAGE> 3
CD-ROM SERVICES BUSINESS OF IMATION CORP.
BALANCE SHEETS
(IN THOUSANDS)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AS OF
AS OF DECEMBER 31,
JUNE 30, ------------------
1998 1997 1996
(UNAUDITED)
ASSETS
<S> <C> <C> <C>
Current assets:
Accounts receivable, net $ 12,713 $ 10,588 $ 10,895
Inventories 2,162 1,909 2,477
Other current assets 1,018 572 686
----------- ----------- -----------
Total current assets 15,893 13,069 14,058
Property, plant and equipment, net 21,993 26,918 32,800
Deferred taxes 401 161
----------- ----------- -----------
Total assets $ 38,287 $ 40,148 $ 46,858
=========== =========== ===========
LIABILITIES AND NET INVESTMENT BY IMATION
Current liabilities:
Accounts payable $ 3,720 $ 3,944 $ 3,394
Accrued payroll 212 557 636
Other current liabilities 919 1,332 1,474
----------- ----------- -----------
Total current liabilities 4,851 5,833 5,504
Other liabilities 753 762 953
Commitments and contingencies
Net investment by Imation 32,683 33,553 40,401
----------- ----------- -----------
Total liabilities and net investment by Imation $ 38,287 $ 40,148 $ 46,858
=========== =========== ===========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
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<PAGE> 4
CD-ROM SERVICES BUSINESS OF IMATION CORP.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
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<TABLE>
<CAPTION>
SIX MONTHS ENDED YEARS ENDED
JUNE 30, DECEMBER 31,
------------------------ --------------------------------------
1998 1997 1997 1996 1995
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues $ 32,854 $ 28,496 $ 61,882 $ 56,602 $ 47,735
Cost of good sold 25,439 23,667 49,410 43,526 33,934
----------- ----------- ----------- ----------- -----------
Gross profit 7,415 4,829 12,472 13,076 13,801
Operating expenses:
Selling, general and administrative 4,442 5,536 11,203 11,371 9,718
Research and development 100 1,021 1,407 1,100 900
----------- ----------- ----------- ----------- -----------
4,542 6,557 12,610 12,471 10,618
Operating income (loss) 2,873 (1,728) (138) 605 3,183
Other, primarily foreign currency
gains and losses (115) (347) (453) (45) 2
----------- ----------- ----------- ----------- -----------
Income (loss) before tax 2,988 (1,381) 315 650 3,181
Income tax provision (benefit) 1,186 (535) 106 408 1,368
----------- ----------- ----------- ----------- -----------
Net income (loss) $ 1,802 $ (846) $ 209 $ 242 $ 1,813
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
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<PAGE> 5
CD-ROM SERVICES BUSINESS OF IMATION CORP.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
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<TABLE>
<CAPTION>
SIX MONTHS ENDED YEARS ENDED
JUNE 30, DECEMBER 31,
------------------------ ----------------------------------
1998 1997 1997 1996 1995
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,802 $ (846) $ 209 $ 242 $ 1,813
Non-cash items included in net
income (loss):
Depreciation 5,419 4,556 9,151 7,567 5,532
Deferred income taxes (342) (327) (652) (1,057) (453)
Changes in operating assets and liabilities:
Accounts receivable (2,125) 1,114 307 (1,664) 773
Inventories (253) 559 568 293 (316)
Other current assets (344) 38 76 261 (464)
Accounts payable and accrued
liabilities (991) 334 667 1,570 328
----------- ----------- ----------- ----------- -----------
Net cash provided by operating
activities 3,166 5,428 10,326 7,212 7,213
Cash flow from investing activities:
Capital expenditures (494) (1,615) (3,269) (8,550) (17,316)
----------- ----------- ----------- ----------- -----------
Net cash used in investing
activities (494) (1,615) (3,269) (8,550) (17,316)
Cash flows from financing activities:
Net cash (paid to) received from Imation (2,672) (3,813) (7,057) 1,338 10,103
----------- ----------- ----------- ----------- -----------
Net change in cash and equivalents $ - $ - $ - $ - $ -
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
-5-
<PAGE> 6
CD-ROM SERVICES BUSINESS OF IMATION CORP.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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1. BACKGROUND AND BASIS OF PRESENTATION
BACKGROUND
The CD-ROM Services Business of Imation Corp. (the "Business") provides
CD-ROM disc production services including mastering and replication,
packaging and kitting, distribution and total project management
primarily to OEM computer manufacturers. The Business has manufacturing
facilities in Fremont, California; Menomonie, Wisconsin; and Breda, The
Netherlands.
The Business is an operating unit of Imation Corp. ("Imation"). Imation
supplies a variety of products and services worldwide to the imaging and
information industry. The businesses comprising Imation, including the
Business, were operating units of Minnesota Mining and Manufacturing
Company ("3M") until July 1, 1996. On July 1, 1996, 3M spun off Imation
as an independent, publicly owned company. This transaction was effected
through the distribution of shares of Imation to 3M shareholders
effective on July 1, 1996 (the "Distribution"). 3M and Imation entered
into a number of agreements to facilitate the Distribution and the
transition of Imation to an independent business enterprise.
On July 29, 1998, Imation entered into an agreement with Metatec
Corporation ("Metatec") such that Metatec would purchase substantially
all of the assets the Business and assume certain liabilities of the
Business under the terms of the agreement. As part of the agreement,
Metatec would also purchase certain DVD-ROM assets from Imation which are
not considered part of the Business.
BASIS OF PRESENTATION
The financial statements have been prepared by Imation's management in
accordance with generally accepted accounting principles and include such
estimates and adjustments as deemed necessary to present fairly the
financial position, results of operations and cash flows of the Business
as of and for the periods presented. The financial statements include
substantially all of the assets, liabilities, revenues and expenses that
were directly related to the Business previously included in Imation's
consolidated financial statements. Regardless of the allocation of these
assets and liabilities, however, the statements of operations of the
Business are intended to include all of the related costs of doing
business including an allocation of certain general corporate expenses of
Imation which were not directly related to the Business. These costs
include corporate logistics, corporate research and development,
information technologies, finance, legal and corporate executives. These
allocations were based on a variety of factors including, for example,
personnel, space, time and effort, and sales volume.
Management believes these allocations were made on a reasonable basis.
Imation (post-Distribution) and 3M (pre-Distribution) use a centralized
approach to cash management and the financing of their operations. As a
result, cash and equivalents, debt and related investment income and
expense were not allocated to the Business in the financial statements.
The Business' financing requirements are represented by cash transactions
with Imation and are reflected in the "Net Investment by Imation" account
(see Note 5). Certain assets and liabilities of Imation, such as certain
employee benefit and income tax-related balances have not been allocated
to the Business and are included in the Net Investment by Imation
account. Activity in the Net Investment by Imation equity account relates
to net cash flows of the Business as well as changes in the assets and
liabilities not allocated to the Business.
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<PAGE> 7
CD-ROM SERVICES BUSINESS OF IMATION CORP.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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The financial information included herein may not necessarily be
indicative of the financial position, results of operations or cash flows
of the Business in the future or what the financial position, results of
operations or cash flows would have been if the Business had been a
separate, independent company during the periods presented.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INTERIM FINANCIAL DATA (UNAUDITED)
The financial information presented as of June 30, 1998 and for each of
the six month periods ended June 30, 1998 and 1997, including that set
forth in the notes to financial statements, is unaudited. In the opinion
of management, this financial information reflects the adjustments
necessary for a fair presentation of the financial information for such
periods. These adjustments consist of normal, recurring items. The
results of operations for the six month period ended June 30, 1998 should
not necessarily be taken as indicative of the results of operations that
may be expected for the entire year 1998.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates. Principal areas requiring the use of estimates include: the
allocation of financial statement amounts between the Business and
Imation, determination of allowances for uncollectible accounts
receivable and obsolete/excess inventories, and assessments of the
recoverability of deferred tax assets and certain long-lived assets.
FOREIGN CURRENCY TRANSLATION
The functional currency of the foreign operations is the U.S. dollar.
Certain financial statement amounts are carried at historical dollar
balances, with all other assets and liabilities denominated in foreign
currencies translated at year-end exchange rates. These translation
adjustments are reflected in the results of operations.
FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS
The Business' financial instruments consist of short-term trade
receivables and payables for which their current carrying amounts
approximate fair market value.
INVENTORIES
Inventories are stated at the lower of cost or market, with cost
generally determined on a first-in first-out basis.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Plant and equipment
are depreciated on a straight-line basis over their estimated useful
lives of three to twenty-five years. Maintenance and repairs are expensed
as incurred. Periodic reviews for impairment of the carrying value of
property, plant and equipment are made based on undiscounted future cash
flows.
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<PAGE> 8
CD-ROM SERVICES BUSINESS OF IMATION CORP.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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REVENUE RECOGNITION
Revenue is recognized upon shipment of goods to customers.
CONCENTRATIONS OF CREDIT RISK
The Business sells products to a number of customers around the world and
performs ongoing credit evaluations of its customers' financial
condition, and therefore believes there is no material concentration of
credit risk.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to expense as incurred.
ADVERTISING COSTS
Advertising costs are charged to expense as incurred and totaled $1,055,
$712 and $246 in 1997, 1996 and 1995, respectively.
INCOME TAXES
As an operating unit within Imation, the Business does not file separate
tax returns but rather is included in the income tax returns filed by
Imation and its subsidiaries in various domestic and foreign
jurisdictions. For purposes of the financial statements, the Business'
allocated share of Imation's income tax provision and other tax
attributes, such as net operating losses, were based on the "separate
return" method accounted for under the liability method in accordance
with Statement of Financial Accounting Standards No. 109 ("SFAS No.
109"), "Accounting for Income Taxes." Accrued current income taxes for
the Business' operations is included in the Net Investment by Imation
equity account because Imation pays all taxes and receives all tax
refunds on the Business' behalf. Deferred tax assets and liabilities are
determined based on the differences between the financial statement and
tax bases of assets and liabilities reduced by valuation allowances as
necessary. For purposes of these financial statements, the utilization of
net operating losses is recognized on a separate return basis.
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<PAGE> 9
CD-ROM SERVICES BUSINESS OF IMATION CORP.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
- ------------------------------------------------------------------------------
3. SUPPLEMENTAL BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997 1996
(UNAUDITED)
<S> <C> <C> <C>
Accounts receivable:
Accounts receivable $ 13,495 $ 11,278 $ 11,751
Less allowances 782 690 856
----------- ----------- -----------
$ 12,713 $ 10,588 $ 10,895
=========== =========== ===========
Inventories:
Finished goods $ 627 $ 588 $ 443
Raw materials and supplies 1,535 1,321 2,034
----------- ----------- -----------
$ 2,162 $ 1,909 $ 2,477
=========== =========== ===========
Other current assets:
Deferred taxes $ 427 $ 325 $ 363
Other 591 247 323
----------- ----------- -----------
$ 1,018 $ 572 $ 686
=========== =========== ===========
Property, plant and equipment:
Leasehold improvements $ 6,969 $ 6,919 $ 5,267
Machinery and equipment 56,930 56,447 50,002
Construction in progress 39 4,906
----------- ----------- -----------
63,899 63,405 60,175
Less accumulated depreciation 41,906 36,487 27,375
----------- ----------- -----------
$ 21,993 $ 26,918 $ 32,800
=========== =========== ===========
Other current liabilities:
Accrued license fees $ 148 $ 217 $ 339
Other 771 1,115 1,135
----------- ----------- -----------
$ 919 $ 1,332 $ 1,474
=========== =========== ===========
Other liabilities:
Deferred taxes $ 529
Other $ 753 $ 762 424
----------- ----------- -----------
$ 753 $ 762 $ 953
=========== =========== ===========
</TABLE>
-9-
<PAGE> 10
CD-ROM SERVICES BUSINESS OF IMATION CORP.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
- ------------------------------------------------------------------------------
4. INCOME TAXES
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Income (loss) before tax:
United States $ (79) $ 3,605 $ 5,100
International 394 (2,955) (1,919)
----------- ---------- ---------
Total $ 315 $ 650 $ 3,181
=========== ========== =========
Income tax provision (benefit):
Currently payable:
Federal $ 664 $ 1,282 $ 1,593
State 94 183 228
Deferred:
Federal (691) (20) 193
State (99) (3) 27
International 138 (1,034) (673)
----------- ---------- ---------
Total $ 106 $ 408 $ 1,368
=========== ========== =========
<CAPTION>
1997 1996
Components of net deferred tax assets and liabilities:
<S> <C> <C>
Receivables $ 257 $ 343
Inventories 5 20
Property, plant and equipment (1,407) (2,235)
Accrued liabilities 63
Net operating loss carryforward 1,568 1,706
----------- ----------
Net deferred tax asset (liability) $ 486 $ (166)
=========== ==========
<CAPTION>
Management believes the Business will generate sufficient taxable income
in future periods to recover fully the Business' deferred tax assets.
1997 1996 1995
<S> <C> <C> <C>
Reconciliation of effective income tax rate:
Tax at statutory United States tax rate $ 110 $ 228 $ 1,113
State income taxes, net of federal benefit (3) 117 166
Other (1) 63 89
----------- ---------- ---------
Income tax provision $ 106 $ 408 $ 1,368
=========== ========== =========
</TABLE>
The Business has net operating loss (NOL) carryforwards of approximately
$4,500 at December 31, 1997 which will be available to offset taxable
income of the Business' operations in the Netherlands in future years.
The NOL carryforward can be carried forward indefinitely. During 1997,
the Business utilized approximately $394 of the NOL carryforward.
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<PAGE> 11
CD-ROM SERVICES BUSINESS OF IMATION CORP.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
- ------------------------------------------------------------------------------
5. EQUITY
Changes in equity during each of the years ended December 31 were as
follows:
<TABLE>
<CAPTION>
NET
INVESTMENT
BY IMATION
<S> <C>
Balance at December 31, 1994 $ 26,905
Net income 1,813
Net amount received from Imation 10,103
-----------
Balance at December 31, 1995 38,821
Net income 242
Net amount received from Imation 1,338
-----------
Balance at December 31, 1996 40,401
Net income 209
Net amount paid to Imation (7,057)
-----------
Balance at December 31, 1997 $ 33,553
===========
</TABLE>
The Business had no adjustments to net income or loss in the periods
presented to arrive at comprehensive income or loss pursuant to SFAS No.
130 "Reporting Comprehensive Income."
6. SEGMENT INFORMATION
The Business operates in one industry segment, the production of CD-ROM
products on a made-to-order basis for the distribution of data and
software to the personal computer and mid-range markets. Geographic
information in the table below is presented on the same basis utilized by
the Business to manage its business. Export sales and certain income and
expense items are reported in the geographic area where the final sale to
customers is made, rather than where the transaction originates.
<TABLE>
<CAPTION>
UNITED TOTAL
STATES EUROPE BUSINESS
<S> <C> <C> <C> <C>
Net revenues to customers 1997 $ 52,570 $ 9,312 $ 61,882
1996 52,900 3,702 56,602
1995 47,600 135 47,735
Operating income (loss) 1997 $ (79) $ (59) $ (138)
1996 3,605 (3,000) 605
1995 5,100 (1,917) 3,183
Identifiable assets 1997 $ 28,188 $ 11,960 $ 40,148
1996 37,974 8,884 46,858
1995 35,510 9,258 44,768
</TABLE>
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<PAGE> 12
CD-ROM SERVICES BUSINESS OF IMATION CORP.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
- ------------------------------------------------------------------------------
Effective with year-end 1998 reporting, the Business will be subject to
the provisions of SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No.131 establishes standards
for the reporting of operating segment information in both annual reports
and interim financial reports issued to stockholders. Management believes
that the Business comprises one business segment under the provisions of
SFAS No.131.
7. RETIREMENT PLANS
Employees of the Business participate in Imation's various
non-contributory defined benefit employee pension plans covering
substantially all United States employees and certain employees outside
the United States. For the Unites States plan, employees are eligible to
participate at date of hire and are fully vested after five years of
service, including pension service time while employed by 3M. Benefits
are based primarily on employees' annual salary and annual interest
credits. For plans outside the United States, benefits are based
principally on years of service and compensation near retirement.
Imation's funding policy is to deposit with a trustee amounts at least
equal to those required by law. Pension investments consist primarily of
common stocks and fixed-income securities.
Prior to the Distribution, employees of the Business participated in
various 3M-sponsored retirement plans. For United States employees, 3M
has retained responsibility for the benefits earned under the 3M plan
prior to the Distribution. For plans outside the United States, Imation
generally assumed the assets and related liabilities.
For purposes of these financial statements, all employees are considered
to have participated in a multiemployer pension plan as defined in SFAS
No. 87, "Employer's Accounting for Pensions." For multiemployer plans,
employers are required to recognize, as net pension expense, total
contributions due for the period. For periods prior to the Distribution,
pension expense was allocated to Imation as part of 3M. Total pension
expense was $671, $932 and $948 in 1997, 1996 and 1995, respectively.
There were no due and unpaid contributions from the Business at December
31, 1997 and 1996.
8. EMPLOYEE SAVINGS AND STOCK OWNERSHIP PLANS
The employees of the Business participate in an Imation sponsored 401(k)
retirement savings plan under which eligible United States employees may
choose to save up to 15% of eligible compensation on a pre-tax basis,
subject to certain IRS limitations. Employee contributions are matched
100% on the first three percent of eligible compensation and 25% on the
next three percent of eligible compensation. Imation also sponsors a
variable compensation program, in which Imation will contribute up to
three percent of eligible employee compensation to employees' 401(k)
retirement accounts, depending upon Imation's performance.
Imation established an Employee Stock Ownership Plan ("ESOP") during 1996
as a cost-effective way of funding employee retirement savings benefits.
The ESOP borrowed $50.0 million from Imation in 1996 and used the
proceeds to purchase approximately 2.2 million shares of Imation's common
stock, with the ESOP shares pledged as collateral for the debt. Imation
makes monthly contributions to the ESOP equal to the debt service plus an
applicable amount so that the total
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<PAGE> 13
CD-ROM SERVICES BUSINESS OF IMATION CORP.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
- ------------------------------------------------------------------------------
contribution releases a number of shares equal to that required to
satisfy Imation's matching requirements. As the debt is repaid, shares
are released from collateral and allocated to employee accounts. Imation
reports compensation expense equal to the current market price of the
shares released.
Prior to July 1, 1996, United States employees of the Business
participated in a 3M-sponsored employee savings plan under Section 401(k)
of the Internal Revenue Code. 3M matched employee contributions of up to
six percent of compensation at rates ranging from 35 to 85 percent
depending upon financial performance. Total expense related to employee
savings and stock ownership plans was $345, $252 and $216 in 1997, 1996
and 1995, respectively.
9. EMPLOYEE STOCK PLANS
Certain of the Business employees participate in the Imation 1996
Employee Stock Incentive Program (the "Employee Plan"). The Employee Plan
was approved and adopted by 3M on June 18, 1996, as the sole stockholder
of Imation and became effective on July 1, 1996, at Distribution. The
total number of shares of common stock that may be issued or awarded
under the Employee Plan may not exceed 6,000,000. All shares subject to
awards under the Employee Plan that are forfeited or terminated will be
available again for issuance pursuant to awards under the Employee Plan.
Grant prices are equal to the fair market value of Imation's common stock
at date of grant. The options normally have a term of ten years and
generally become exercisable from one to five years after grant date.
As part of 3M, certain employees of Imation, including those involved
with the Business, were granted stock options prior to the Distribution
to purchase 3M common stock. Options granted to employees of the Business
were under 3M's General Employee Stock Purchase Plan and 3M's Management
Stock Option Plan. As part of the Distribution, options granted to the
employees of the Business, while part of 3M, have not been converted to
options to purchase shares of Imation common stock.
The Business adopted SFAS No. 123, "Accounting for Stock Based
Compensation," in 1997. As permitted by SFAS No. 123, the Business will
continue to measure compensation cost in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." If the fair value of options granted had been recognized as
compensation expense on a straight-line basis over the vesting periods in
accordance with the provisions of SFAS No. 123, pro forma net income in
1997, 1996 and 1995 would have been $133, $86 and $32 lower,
respectively. The stock options were allocated to the Business based upon
specific identification of the employees of the Business.
The weighted average fair values at date of grant for options granted by
Imation to employees of the Business in 1997 and 1996 were $9.55 and
$8.96, respectively. The weighted average fair value at the date of grant
for options granted to Imation employees while part of 3M in 1995 was
$8.60.
-13-
<PAGE> 14
The fair values at date of grant were estimated using the Black-Scholes
option pricing model with the following weighted average assumptions
(1995 grants reflect 3M assumptions):
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Volatility 40.00% 40.00% 40.00%
Risk free interest rate 6.47% 6.38% 5.90%
Expected life (months) 52 49 66
Dividend growth Zero Zero Zero
</TABLE>
10. COMMITMENTS AND CONTINGENCIES
The Business is the subject of various pending or threatened legal
actions and other claims in the ordinary course of its business. All such
matters are subject to many uncertainties and outcomes that are not
predictable with assurance. Management believes that the outcome of any
such uncertainties would not be material to the Business' financial
position, results of operations or cash flows.
Substantially all of the Business' assets are included as collateral
pursuant to Imation's revolving credit facility. The collateralization of
the Business' assets expires January 5, 1999.
The Business has non-cancelable operating leases for warehouse,
manufacturing and office facilities with terms ranging from one to six
years. Future minimum lease rentals under such leases were approximately
as follows as of December 31, 1997:
<TABLE>
<S> <C> <C>
1998 $ 708
1999 638
2000 552
2001 508
2002 459
Thereafter 186
-----------
$ 3,051
===========
</TABLE>
Rental expense under all leases for the years ended December 31, 1997,
1996 and 1995 approximated $618, $996 and $1,251, respectively.
-14-
<PAGE> 15
(b) Pro Forma Financial Information.
On September 11, 1998, the Company, through its wholly owned
subsidiaries, Metatec Acquisition Corp., an Ohio corporation, and Metatec
International B.V., a Netherlands corporation, purchased substantially all of
the assets used in the CD-ROM services business (the "CD-ROM Services Business")
of Imation Corp., a Delaware corporation ("Imation"), Imation International
B.V., a Netherlands corporation, and Imation Enterprises Corp., a Delaware
corporation, pursuant to an Asset Purchase Agreement dated July 29, 1998 (the
"Purchase Agreement"), among such parties.
The following unaudited condensed pro forma combined balance sheet at
June 30, 1998, and combined statements of earnings for the year ended December
31, 1997 and six-month period ended June 30, 1998, give effect to the purchase
of the CD-ROM Services Business of Imation. The unaudited pro forma financial
statements are not necessarily indicative of the results which would have been
obtained had the transaction occurred at January 1, 1997, nor are they necessary
indicative of future results. The pro forma information should be read in
conjunction with: the accompanying notes to unaudited condensed pro forma
combined financial statements; the audited annual and unaudited interim
financial statements of the CD-ROM Services Business of Imation included
elsewhere in this Form 8-K/A; the Company's Annual Report on Form 10-K for the
year ended December 31, 1997 and the Company's Quarterly Reports on Form 10-Q
for the quarters ended March 31, June 30 and September 30, 1998.
-15-
<PAGE> 16
ITEM VII. FINANCIAL STATEMENTS & EXHIBITS
(B) PRO FORMA FINANCIAL STATEMENTS
<TABLE>
METATEC CORPORATION & SUBSIDIARIES
CONDENSED PRO FORMA COMBINED BALANCE SHEETS (UNAUDITED)
<CAPTION>
June 30, 1998
-------------
Imation - CD Rom Pro Forma
Metatec Corp Services Business Adjustments Pro Forma Results
------------ ----------------- ----------- -----------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 344,717 $ -- $ $ 344,717
Accounts receivable, net of allowance for doubtful
accounts of $309,000 8,137,497 12,713,000 20,850,497
Inventory 1,354,551 2,162,000 3,516,551
Other Current Assets 1,106,261 1,419,000 (1,419,000)(1) 1,106,261
----------- ----------- ------------ -----------
Total current assets 10,943,026 16,294,000 (1,419,000) 25,818,026
Long-term note receivable, less current portion 179,633 179,633
Property, plant and equipment - net 41,071,124 21,993,000 (11,214,939)(1) 51,849,185
Goodwill - net 3,021,664 -- 18,025,184 (1) 21,046,848
----------- ----------- ------------ -----------
TOTAL ASSETS $55,215,447 $38,287,000 $ 5,391,245 $98,893,692
=========== =========== ============ ===========
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,359,649 $ 3,720,000 $(3,720,000)(1) $ 2,359,649
Accrued royalties 1,043,625 1,803,245 (2) 1,803,245
1,043,625
Other current liabilities 2,981,867 1,131,000 (1,131,000)(1) 2,981,867
----------- ----------- ------------ -----------
Total current liabilities 6,385,141 4,851,000 (3,047,755) 8,188,386
Long-term debt and capital lease obligations,
less current maturities 6,036,674 41,875,000 (3) 47,911,674
Other long-term liabilities 1,321,472 753,000 (753,000)(1) 1,321,472
Total liabilities 13,743,287 5,604,000 38,074,245 57,421,532
----------- ----------- ------------ -----------
Shareholders' equity:
Common stock, $.10 par value; authorized
10,083,500 shares; issued 1998 - 7,118,479 shares 711,848 711,848
Additional paid-in capital 34,116,325 34,116,325
Retained earnings 12,436,522 32,683,000 (32,683,000)(1) 12,436,522
Treasury stock, at cost; 1998 - 1,075,255 shares (5,792,535) (5,792,535)
----------- ----------- ------------ -----------
Total shareholders' equity 41,472,160 32,683,000 (32,683,000) 41,472,160
----------- ----------- ------------ -----------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $55,215,447 $38,287,000 $ 5,391,245 $98,893,692
=========== =========== ============ ===========
</TABLE>
See explanatory notes to condensed combined unaudited pro forma financial
statements.
-16-
<PAGE> 17
<TABLE>
METATEC CORPORATION & SUBSIDIARIES
CONDENSED PRO FORMA COMBINED STATEMENTS OF EARNINGS (UNAUDITED)
<CAPTION>
Year Ended December 31, 1997
----------------------------
Imation - CD Rom
Metatec Corp Services Business Pro Forma Adjustments Pro Forma Results
------------ ----------------- --------------------- -----------------
<S> <C> <C> <C> <C>
NET SALES $48,933,634 $61,882,000 $ 0 $110,815,634
Cost of sales 33,815,791 49,410,000 (6,456,485)(4) 76,769,306
----------- ----------- ----------- ------------
Gross profit 15,117,843 12,472,000 6,456,485 34,046,328
Selling, general and administrative expenses 13,974,357 12,610,000 (205,321)(5) 26,379,036
Restructuring expenses 206,000 0 0 206,000
----------- ----------- ----------- ------------
OPERATING EARNINGS 937,486 (138,000) 6,661,806 7,461,292
Other income and (expense):
Investment income 49,459 0 0 49,459
Other - net 127,329 453,000 0 580,329
Interest expense (73,740) 0 (2,870,000)(6) (2,943,740)
----------- ----------- ----------- ------------
EARNINGS BEFORE INCOME TAXES 1,040,534 315,000 3,791,806 5,147,340
Income taxes 549,000 106,000 1,661,000 2,316,000
----------- ----------- ----------- ------------
NET EARNINGS $ 491,534 $ 209,000 $ 2,130,806 $ 2,831,340
=========== =========== =========== ============
NET EARNINGS PER COMMON SHARE:
Basic $ 0.07 $ 0.03 $ 0.31 $ 0.42
=========== =========== =========== ============
Diluted $ 0.07 $ 0.03 $ 0.30 $ 0.39
=========== =========== =========== ============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Basic 6,791,836 6,791,836 6,791,836 6,791,836
=========== =========== =========== ============
Diluted 7,189,266 7,189,266 7,189,266 7,189,266
=========== =========== =========== ============
</TABLE>
See explanatory notes to condensed combined unaudited pro forma financial
statements.
-17-
<PAGE> 18
<TABLE>
METATEC CORPORATION & SUBSIDIARIES
CONDENSED PRO FORMA COMBINED STATEMENTS OF EARNINGS (UNAUDITED)
<CAPTION>
Six Months Ended June 30, 1998
------------------------------
Imation - CD Rom
Metatec Corp Services Business Pro Forma Adjustments Pro Forma Results
------------ ----------------- --------------------- -----------------
<S> <C> <C> <C> <C>
NET SALES $28,802,117 $32,854,000 $ 0 $61,656,117
Cost of sales 19,028,536 25,439,000 (4,071,742)(4) 40,395,794
----------- ----------- ----------- -----------
Gross profit 9,773,581 7,415,000 4,071,742 21,260,323
Selling, general and administrative expenses 7,885,407 4,542,000 500,839 (5) 12,928,246
Restructuring expenses 0 0 0 0
----------- ----------- ----------- -----------
OPERATING EARNINGS 1,888,174 2,873,000 3,570,903 8,332,077
Other income and (expense):
Investment income 24,980 0 0 24,980
Other - net 149,358 115,000 0 264,358
Interest expense (138,767) 0 (1,435,000)(6) (1,573,767)
----------- ----------- ----------- -----------
EARNINGS BEFORE INCOME TAXES 1,923,745 2,988,000 2,135,903 7,047,648
Income taxes 870,000 1,186,000 1,115,000 (7) 3,171,000
----------- ----------- ----------- -----------
NET EARNINGS $ 1,053,745 $ 1,802,000 $ 1,020,903 $ 3,876,648
=========== =========== =========== ===========
NET EARNINGS PER COMMON SHARE:
Basic $ 0.17 $ 0.30 $ 0.17 $ 0.64
=========== =========== =========== ===========
Diluted $ 0.17 $ 0.29 $ 0.17 $ 0.63
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Basic 6,055,008 6,055,008 6,055,008 6,055,008
=========== =========== =========== ===========
Diluted 6,110,375 6,110,375 6,110,375 6,110,375
=========== =========== =========== ===========
</TABLE>
See explanatory notes to condensed combined unaudited pro forma financial
statements.
-18-
<PAGE> 19
METATEC CORPORATION & SUBSIDIARIES
Explanatory Notes to the Condensed Pro Forma Combined Financial Statements
- --------------------------------------------------------------------------
(unaudited) adjustments:
- ------------------------
(1) Adjust Imation balance sheet items to fair value and record goodwill.
(2) Adjust accounts payable for transaction expenses not yet paid
(3) Debt incurred at closing.
(4) Depreciation expense adjusted due to write down of assets.
(5) Eliminated research & development expense of $1,407,000 in 1997, and
$100,000 during the six months ended June 30, 1998 from Imation's CD-ROM
Services Business. Goodwill amortization added.
(6) Interest expense on average of $41,000,000 debt, with average interest rate
of 7%.
(7) Income taxes adjusted to statutory rate of 45%.
-19-
<PAGE> 20
(c) Exhibits.
<TABLE>
<CAPTION>
Exhibit
No. Description of Exhibit
- --- ----------------------
<S> <C>
(2) Asset Purchase Agreement dated July 29, 1998, among Metatec
Corporation, Metatec Acquisition Corp., Metatec International
B.V., Imation Corp., Imation International B.V., and Imation
Enterprises Corp.
10(a) Loan Agreement dated September 11, 1998 among Metatec
Corporation, Bank One, NA, The Huntington National Bank, other
financial institutions from time to time party thereto, as
banks, and The Huntington National Bank, as administrative
agent for the banks.
23 Consent of PriceWaterhouseCoopers LLP
</TABLE>
-20-
<PAGE> 21
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 hereunto duly authorized.
METATEC CORPORATION
Date: November 25, 1998 By /s/ Jeffrey M. Wilkins
------------------------
Jeffrey M. Wilkins
Chief Executive Officer
-21-
<PAGE> 22
<TABLE>
EXHIBIT INDEX
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
If Incorporated by Reference,
Document with which Exhibit was
Exhibit No. Description of Exhibit Previously Filed with SEC
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
2 Asset Purchase Agreement dated July 29, 1998, among Metatec Current Report on Form 8-K dated
Corporation, Metatec Acquisition Corp., Metatec International September 11, 1998
B.V., Imation Corp., Imation International B.V., and Imation
Enterprises Corp.
- --------------------------------------------------------------------------------------------------------------------
10(a) Loan Agreement dated September 11, 1998 among Metatec Current Report on Form 8-K dated
Corporation, Bank One, NA, The Huntington National Bank, other September 11, 1998
financial institutions from time to time party thereto, as
banks, and The Huntington National Bank, as administrative
agent for the banks.
- --------------------------------------------------------------------------------------------------------------------
23 Consent of PricewaterhouseCoopers LLP Contained herein
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements of
Metatec Corporation on Form S-8 (Registration Nos. 33-48021, 33-52700,
33-80172, 33-84022, 33-71080, 33-80170, 333-03125 and 333-31027) and on Form
S-3 (Registration No. 333-03123), of our report dated August 31, 1998, on our
audits of the financial statements of the CD-ROM Services Business of Imation
Corp. as of December 31, 1997 and 1996, and for each of the three years in the
period ended December 31, 1997, which report is included in this Form 8-K/A
filing of Metatec Corporation dated November 25, 1998.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Minneapolis, Minnesota
November 25, 1998
