<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, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission File No. 0-9220
METATEC CORPORATION
(Exact name of Registrant as specified in its charter)
FLORIDA 59-1698890
(State of Incorporation) (IRS Employer Identification No.)
7001 Metatec Boulevard
Dublin, Ohio 43017
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (614) 761-2000
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __
Number of Common Shares outstanding as of May 3, 1999: 6,075,613
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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 March 31,
1999 (unaudited) and December 31, 1998 3
Condensed Consolidated Statements of Earnings
for the three months ended March 31, 1999
and 1998 (unaudited) 4
Condensed Consolidated Statement of Shareholders'
Equity for the three months ended
March 31, 1999 (unaudited) 5
Condensed Consolidated Statements of Cash Flows
for the three months ended March 31,
1999 and 1998 (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
</TABLE>
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<PAGE> 3
PART 1 - FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
<TABLE>
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METATEC CORPORATION (Unaudited)
CONDENSED CONSOLIDATED BALANCE SHEETS March 31, December 31,
1999 1998
- --------------------------------------------------------------------------------------- ------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,868,754 $ 2,557,221
Accounts receivable, net of allowance for doubtful accounts of $494,000 and $490,000 21,225,192 21,635,889
Inventory 3,462,798 3,207,460
Prepaid expenses 1,321,749 1,037,945
Prepaid income taxes - 580,879
Deferred income taxes 143,000 143,000
------------- -------------
Total current assets 29,021,493 29,162,394
Property, plant and equipment - net 56,057,918 55,827,054
Goodwill - net 20,041,482 20,453,366
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TOTAL ASSETS $ 105,120,893 $ 105,442,814
============= =============
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 10,963,542 $ 12,052,442
Accrued royalties 1,296,848 2,053,691
Accrued personal property taxes 1,240,530 993,399
Other accrued expenses 1,459,567 2,526,684
Accrued payroll 1,814,586 1,598,507
Unearned income 259,566 156,440
Current maturities of long-term debt and capital lease obligations 3,059,402 3,080,185
------------- -------------
Total current liabilities 20,094,041 22,461,348
Long-term debt and capital lease obligations, less current maturities 40,865,759 39,506,376
Other long-term liabilities 56,213 45,193
Deferred income taxes 1,480,000 1,480,000
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Total liabilities 62,496,013 63,492,917
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Shareholders' equity:
Common stock, $.10 par value; authorized 10,083,500 shares;
issued 1999 - 7,157,355 shares; 1998 - 7,153,480 715,736 715,348
Additional paid-in capital 34,229,402 34,218,577
Accumulated other comprehensive income (161,057) 32,963
Retained earnings 13,663,336 12,805,546
Treasury stock, at cost - 1,081,742 shares (5,822,537) (5,822,537)
------------- -------------
Total shareholders' equity 42,624,880 41,949,897
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TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 105,120,893 $ 105,442,814
============= =============
</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 March 31,
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1999 1998
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<S> <C> <C>
NET SALES $ 31,067,983 $ 14,717,057
Cost of sales 21,000,320 9,830,375
------------ ------------
Gross profit 10,067,663 4,886,682
Selling, general and administrative expenses 7,823,529 3,776,106
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OPERATING EARNINGS 2,244,134 1,110,576
Other income and (expense):
Investment income 13,669 14,626
Interest expense (740,013) (66,292)
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EARNINGS BEFORE INCOME TAXES 1,517,790 1,058,910
Income taxes 660,000 480,841
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NET EARNINGS $ 857,790 $ 578,069
============ ============
NET EARNINGS PER COMMON SHARE
Basic $ 0.14 $ 0.09
============ ============
Diluted $ 0.14 $ 0.09
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
Basic 6,072,677 6,069,980
============ ============
Diluted 6,163,098 6,113,884
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
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METATEC CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
Additional
Common Paid-in Retained Accumulated Other Treasury
Stock Capital Earnings Comprehensive Income Stock Total
- -------------------------------------- ------------ ------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1998 715,348 $ 34,218,577 $ 12,805,546 $ 32,963 $ (5,822,537) $ 41,949,897
Net earnings 857,790 857,790
Accumulated other comprehensive income (194,020) (194,020)
------------
Comprehensive Income 663,770
Stock options exercised 388 10,825 11,213
------------ ------------ ------------ ------------ ------------ ------------
BALANCE AT MARCH 31, 1999 $ 715,736 $ 34,229,402 $ 13,663,336 $ (161,057) $ (5,822,537) $ 42,624,880
============ ============ ============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
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METATEC CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
For the three months ended March 31, 1999 1998
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 857,790 $ 578,069
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization 3,476,369 2,098,695
Net loss on sales of property, plant and equipment 7,237 8,914
Changes in assets and liabilities:
Accounts receivable 184,964 (1,488,979)
Inventory (255,532) (170,998)
Prepaid expenses and other assets 286,874 (41,183)
Accounts payable and accrued expenses (1,468,337) 1,463,135
Unearned income 104,526 30,966
--------------------------
Net cash provided by operating activities 3,193,891 2,478,619
--------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in long-term note receivable 0 3,436
Purchase of property, plant and equipment (4,302,887) (2,179,158)
Proceeds from the sales of property, plant and equipment 159,150 300
----------- -----------
Net cash used in investing activities (4,143,737) (2,175,422)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in long-term debt 2,115,759 0
Payment of long-term debt and capital lease obligations (777,160) (524,306)
Stock options exercised 11,213 0
Treasury stock acquired 0 (790,638)
Stock awards for employees 0 0
----------- -----------
Net cash used in financing activities 1,349,812 (1,314,944)
----------- -----------
Effect of exchange rate on cash (88,433) 0
Decrease in cash and cash equivalents 311,533 (1,011,747)
Cash and cash equivalents at beginning of period 2,557,221 1,381,057
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,868,754 $ 369,310
=========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid $ 903,066 $ 56,355
=========== ===========
Income taxes paid $ 64,999 $ 365,989
=========== ===========
Assets purchased by the assumption of a liability $ 895,468 $ 185,467
=========== ===========
</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, 1999,
the consolidated statements of earnings for the three months ended March 31,
1999 and 1998, the consolidated statement of shareholders' equity for the three
months ended March 31, 1999, 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, 1998 annual report on Form 10-K.
The results of operations for the period ended March 31, 1999 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, 1999 are not reflected in the
consolidated financial statements. The unrecorded commitments amounted to
approximately $591,000 at March 31, 1999. This amount represents manufacturing
equipment on order. The Company also has unrecorded commitments under contracts
of approximately $6,720,000 for a 151,000 square foot warehouse.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED
MARCH 31, 1998
Net sales for the three months ended March 31, 1999 were $31,068,000, an
increase of $16,351,000, or 111% over the same period of the prior year. This
increase resulted primarily from CD-ROM manufacturing sales increasing
$15,577,000 to $28,918,000 for the three months ended, or 117%. This increase
was primarily a result of significant sales attributable to the CD-ROM services
business acquired from Imation Corporation ("Imation") in September 1998, as
well as internal growth in its existing business. Radio syndication sales
decreased $304,000, or 23%, primarily as a result of some customers choosing to
use CD-Recordable as a distribution method for smaller size orders. DVD sales
accounted for $128,000, as compared to $71,000.
Gross profit was 32% of net sales for the three months ended March 31, 1999 as
compared to 33% of net sales for the same period of the prior year.
Selling, general and administrative ("SG&A") expenses were $7,824,000, or 25% of
net sales, for the three months ended March 31, 1999 as compared to $3,776,000,
or 26% of net sales, for same period of the prior year.
Investment income was $14,000 and $15,000 for the three month periods ended
March 31, 1999 and 1998, respectively.
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Interest expense for the three months ended March 31, 1999 was $740,000 as
compared to $66,000 for the same period of the prior year. The increase in
interest expense was due to borrowings under revolving loan and term loan
facilities used primarily for the acquisition of the CD-ROM services business of
Imation.
The income tax expense was $660,000 for the three months ended March 31, 1999,
or an effective tax rate of 44%, as compared to $481,000 for the same period of
the prior year, or an effective tax rate of 45%.
Net earnings for the three months ended March 31, 1999 were $858,000, or net
earnings per diluted common share of $.14, as compared to a net earnings in the
same period of the prior year of $578,000, or net earnings per diluted common
share of $.09. The net earnings increase was primarily a result of significant
increases in revenue due to the asset acquisition from Imation which occurred in
September 1998, as well as internal growth in its existing business.
FINANCIAL CONDITION - LIQUIDITY AND CAPITAL RESOURCES
The Company financed its business during the three months ended March 31, 1999
through cash generated from operations, the use of debt, and the use of
available cash balances. Cash flow from operating activities was $3,194,000 for
the three months ended March 31, 1999, as compared to $2,479,000 for the three
months ended March 31, 1998.
The Company has commitments under contracts for the purchase of manufacturing
equipment on order. These unrecorded commitments amounted to approximately
$591,000 at March 31, 1999. The Company also has unrecorded commitments under
contracts of approximately $6,720,000 for a 151,000 square foot distribution
center under construction in Dublin, Ohio. The Company began construction of the
distribution center in October 1998. The Company is currently financing the
construction through funds available under the Company's $7,000,000 construction
loan at LIBOR rate plus 165 basis points. The construction loan contains an
option to convert the principal balance to a 20 year term loan, at various
interest rate options. The construction loan is secured by a mortgage in the
real property, fixtures, and improvements located at the Dublin, Ohio site. The
Company is continuing to evaluate additional long term real estate financing
options.
The Company has cash and cash equivalents of $2,869,000 as of March 31, 1999. In
addition, the Company has a five year $20,000,000 revolving loan facility, of
which $14,000,000 was outstanding as of March 31, 1999. A portion of this
revolving loan facility, along with a five year $30,000,000 term loan facility,
was used to finance the Imation asset purchase. The remaining portion of the
revolving loan facility is available for general corporate purposes. Borrowing
under these credit facilities bear interest, at the Company's option, at either
the federal funds rate plus 50 basis points or prime rate (whichever of the two
are higher) or the London Interbank offered Rate (LIBOR) rate plus a margin
based upon the Company's debt coverage ratio (which ranges from not less than 75
basis points to not more than 150 basis points). These credit facilities are
secured by a first lien on all non-real estate business assets of the Company
and a pledge of the stock of the Company's subsidiaries. The Company is required
to comply with certain fianancial and other covenants.
Management believes that current cash balances, plus the funds available under
its current credit facilities, 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.
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<PAGE> 9
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 utilizes information technology ("IT") and non-IT systems which are
essential to its operations. Non-IT systems typically include embedded
technology, such as microcontrollers.
The Company created a task force during 1997 to address the Company's Year 2000
issues, and this task force has been actively assessing the Company's Year 2000
readiness since that time. As of December 31, 1998, all of the Company's
proprietary IT systems and applications were Year 2000 compliant. In addition,
non-proprietary IT systems utilized by the Company are either Year 2000
compliant or will be Year 2000 compliant upon installation of available patches
and upgrades. The Company currently believes that all of its IT systems will be
Year 2000 compliant by June 30, 1999. The Company also performed a Year 2000
readiness review of the CD-ROM services business assets acquired from Imation. A
sample of each type of manufacturing equipment in the Dublin facility has been
tested for continued operation with dates after January 1, 2000. Known problems
have been documented and suppliers notified. Testing of each production line in
Dublin is currently underway. Similar testing is underway for the manufacturing
equipment acquired from Imation. The Company expects testing to be completed and
all patches and upgrades to be in place by June 30, 1999. The Company's task
force is working with third party vendors with which it has significant
relationships to verify that they are Year 2000 compliant.
The Company currently believes that all Year 2000 issues will be resolved in a
timely manner and that costs associated with Year 2000 compliance issues will
not be material to the Company's financial position or results of operations.
However, there is a risk that third parties will not achieve Year 2000
compliance in a timely manner, which could have an adverse effect on the
Company's operations. The task force intends to develop appropriate contingency
plans as necessary to address Year 2000 compliance issues as they arise.
The Company currently believes that the only costs associated with Year 2000
compliance issues include in-house time associated with administration, review
and testing of systems. These costs have not been calculated, but the Company
believes the costs are not material.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Except for historical information, all other statements made in this report are
"forward-looking" within the meaning of the Private Securities Litigation Reform
Act of 1995. Such forward-looking statements are subject to certain risks and
uncertainties that could cause the Company's actual results to differ materially
from those projected. Such risks and uncertainties that might cause such a
difference include, but are not limited to, changes in general business and
economic conditions, changes in demand for CD-ROM products, excess capacity
levels in the CD-ROM industry, the introduction of new products by competitors,
increased competition (including pricing pressures), changes in manufacturing
efficiencies, changes in technology, failure to achieve Year 2000 compliance by
the Company or third party vendors with which it has significant relationships,
and other risks indicated in the company's filings with the Securities and
Exchange Commission, including Form 10-K for Metatec's year ended December 31,
1998.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
The Company does not use derivative financial instruments in its investment
portfolio. The Company places its investments in instruments that meet high
credit quality standards. The Company does not expect any material loss with
respect to its investment portfolio.
The effect of foreign exchange rate fluctuations on the Company for the three
months ended March 31, 1999 and 1998 was not material.
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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 for this report follow the signature page.
(b) No reports on Form 8-K have been filed during the quarter ended
March 31, 1999.
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 3, 1999 Senior 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
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27 Financial Data Schedule --
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> $2,868,754
<SECURITIES> $0
<RECEIVABLES> $21,719,192
<ALLOWANCES> $494,000
<INVENTORY> $3,462,798
<CURRENT-ASSETS> $29,021,493
<PP&E> $88,029,708
<DEPRECIATION> $(31,971,790)
<TOTAL-ASSETS> $105,120,893
<CURRENT-LIABILITIES> $20,094,041
<BONDS> $42,401,972
$0
$0
<COMMON> $715,736
<OTHER-SE> $41,909,144
<TOTAL-LIABILITY-AND-EQUITY> $105,120,893
<SALES> $31,067,983
<TOTAL-REVENUES> $31,067,983
<CGS> $21,000,320
<TOTAL-COSTS> $28,823,849
<OTHER-EXPENSES> $0
<LOSS-PROVISION> $137,127
<INTEREST-EXPENSE> $740,000
<INCOME-PRETAX> $1,517,790
<INCOME-TAX> $660,000
<INCOME-CONTINUING> $857,790
<DISCONTINUED> $0
<EXTRAORDINARY> $0
<CHANGES> $0
<NET-INCOME> $0
<EPS-PRIMARY> $0
<EPS-DILUTED> $0
</TABLE>
