-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CzebLI7yugfZrwUDYeRPe3n9HC2vnZjMaV9yxwNDxgXXgzWdLSmixWqDmg102LXX mcjyn1KLSVgGcDOIgFNO5A== 0000950152-99-003872.txt : 19990504 0000950152-99-003872.hdr.sgml : 19990504 ACCESSION NUMBER: 0000950152-99-003872 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990503 FILER: COMPANY DATA: COMPANY CONFORMED NAME: METATEC CORP CENTRAL INDEX KEY: 0000203200 STANDARD INDUSTRIAL CLASSIFICATION: PHONOGRAPH RECORDS & PRERECORDED AUDIO TAPES & DISKS [3652] IRS NUMBER: 591698890 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-09220 FILM NUMBER: 99609084 BUSINESS ADDRESS: STREET 1: 7001 METATEC BLVD CITY: DUBLIN STATE: OH ZIP: 43017 BUSINESS PHONE: 6147612000 MAIL ADDRESS: STREET 1: 7001 METATEC BLVD CITY: DUBLIN STATE: OH ZIP: 43017 FORMER COMPANY: FORMER CONFORMED NAME: SILCO INVESTORS CORP DATE OF NAME CHANGE: 19900801 10-Q 1 METATEC CORPORATION 10-Q 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 1 of 11 2 METATEC CORPORATION -------------------
INDEX PAGE ----- ---- 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
2 of 11 3 PART 1 - FINANCIAL INFORMATION ITEM I. FINANCIAL STATEMENTS
METATEC CORPORATION (Unaudited) CONDENSED CONSOLIDATED BALANCE SHEETS March 31, December 31, 1999 1998 - --------------------------------------------------------------------------------------- ------------- ------------- 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 ------------- ------------- 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 ------------- ------------- Total liabilities 62,496,013 63,492,917 ------------- ------------- 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 ------------- ------------- TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 105,120,893 $ 105,442,814 ============= =============
See notes to condensed consolidated financial statements. Page 3 of 11 4 METATEC CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
Three Months Ended March 31, ---------------------------- 1999 1998 - -------------------------------------------------- ------------ ------------ 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 ------------ ------------ OPERATING EARNINGS 2,244,134 1,110,576 Other income and (expense): Investment income 13,669 14,626 Interest expense (740,013) (66,292) ------------ ------------ EARNINGS BEFORE INCOME TAXES 1,517,790 1,058,910 Income taxes 660,000 480,841 ------------ ------------ 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 ============ ============
See notes to condensed consolidated financial statements. Page 4 of 11 5 METATEC CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
Additional Common Paid-in Retained Accumulated Other Treasury Stock Capital Earnings Comprehensive Income Stock Total - -------------------------------------- ------------ ------------ ------------ ------------ ------------ ------------- 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 ============ ============ ============ ============ ============ ============
See notes to consolidated financial statements. Page 5 of 11 6 METATEC CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the three months ended March 31, 1999 1998 - ------------------------------------------------------------- -------------------------- 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) ----------- ----------- 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 =========== ===========
See notes to condensed consolidated financial statements. Page 6 of 11 7 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. page 7 of 11 8 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. Page 8 of 11 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. Page 9 of 11 10 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. Page 10 of 11 11 PART II - OTHER INFORMATION --------------------------- Items 1-5. Inapplicable. ------------- 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) 11 of 11 12 Form 10-Q Exhibit Index Exhibit Number Exhibit Description Page Number - -------------- ------------------- ----------- 27 Financial Data Schedule -- EX-27 2 EXHIBIT 27
5 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 $2,868,754 $0 $21,719,192 $494,000 $3,462,798 $29,021,493 $88,029,708 $(31,971,790) $105,120,893 $20,094,041 $42,401,972 $0 $0 $715,736 $41,909,144 $105,120,893 $31,067,983 $31,067,983 $21,000,320 $28,823,849 $0 $137,127 $740,000 $1,517,790 $660,000 $857,790 $0 $0 $0 $0 $0 $0
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