<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
(x) Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the quarter ended June 30, 1995.
( ) Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the period from _________________ to ______________.
Commission file number: 0-11744
Publishers Equipment Corporation
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(Exact name of small business issuer as specified in its charter)
Texas 75-1653425
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(State of incorporation) (I.R.S. Employer Identification No.)
16660 Dallas Parkway, Suite 1100, Dallas, Texas 75248
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(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: 214-931-2312
Check whether the issuer (1) 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 (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
YES X NO
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Number of shares outstanding of the issuer's common stock as of August 8, 1995,
5,176,651 shares of common stock, no par value.
Page 1 of 13 sequentially numbered pages.
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PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
Index to Financial Statements
-----------------------------
Page
----
Publishers Equipment Corporation Consolidated
Balance Sheet 3
Publishers Equipment Corporation Consolidated
Statements of Operations 4
Publishers Equipment Corporation Consolidated
Statements of Cash Flows 5
Publishers Equipment Corporation Notes to
Consolidated Financial Statements 6
In the opinion of management, the financial statements contained herein include
all adjustments, which adjustments are of a normal recurring nature, necessary
for a fair presentation of the Company's consolidated financial position and
results of operations and cash flows. Results of operations for the period
ended June 30, 1995, are not necessarily indicative of results of operations for
the entire year.
Page 2 of 13 sequentially numbered pages.
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PUBLISHERS EQUIPMENT CORPORATION
CONSOLIDATED BALANCE SHEET
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
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June 30,
1995
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ASSETS
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<S> <C>
Cash and cash equivalents............................. $ 84
Accounts receivable................................... 393
Inventories........................................... 8,446
Other current assets.................................. 234
--------
Total current assets............................... 9,157
Property, plant and equipment, net.................... 1,421
--------
TOTAL ASSETS.......................................... $ 10,578
========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Accounts payable and accrued liabilities.............. $ 2,259
Accrued warranty expense.............................. 359
Customer deposits..................................... 267
Current portion of long-term debt..................... 3,500
--------
Total current liabilities.......................... 6,385
Convertible subordinated note......................... 1,000
Other liabilities..................................... 194
Shareholders' equity:
Preferred stock.................................... 500
Common stock....................................... 18,815
Treasury stock..................................... (168)
Retained deficit................................... (16,148)
--------
Total shareholders' equity....................... 2,999
--------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY......... $ 10,578
========
See accompanying notes.
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</TABLE>
Page 3 of 13 sequentially numbered pages.
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PUBLISHERS EQUIPMENT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands Except Share and Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
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Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
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<S> <C> <C> <C> <C>
Revenues............................ $ 1,823 $ 4,863 $ 2,994 $ 7,199
Cost of revenues ................... 1,576 3,718 2,485 5,556
---------- ---------- ---------- ----------
Gross profit ....................... 247 1,145 509 1,643
Selling, general and administrative
expense ........................... 643 846 1,242 1,472
---------- ---------- ---------- ----------
Operating income (loss) ............ (396) 299 (733) 171
Interest expense ................... (101) (100) (201) (184)
Interest income .................... 1 -- 8 2
Other income, net (Note 1) ......... 3 2 154 21
---------- ---------- ---------- ----------
Income (loss) before income taxes .. (493) 201 (772) 10
Provision for income taxes.......... -- -- -- --
---------- ---------- ---------- ----------
Net income (loss)................... $ (493) $ 201 $ (772) $ 10
---------- ---------- ---------- ----------
Net income (loss) per common share.. $ (0.10) $ 0.04 $ (0.15) $ --
========== ========== ========== ==========
Weighted average common shares...... 5,176,651 5,162,117 5,176,651 5,162,117
See accompanying notes.
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</TABLE>
Page 4 of 13 sequentially numbered pages.
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PUBLISHERS EQUIPMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
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Six Months Ended
June 30,
1995 1994
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<S> <C> <C>
Cash flows from operating activities:
Net income (loss) from operations................. $ (772) $ 10
Adjustments to reconcile net income (loss) to
net cash used by operating activities:
Depreciation and amortization................. 113 98
Provision for losses on doubtful accounts..... 15 15
Change in assets and liabilities:
Decrease (increase) in accounts receivable.... 886 (1,377)
Increase in inventories....................... (642) (100)
Decrease in other current assets.............. 50 34
Decrease (increase) in other assets........... 75 (94)
Increase (decrease) in accounts payable and
accrued liabilities........................ (340) 891
Increase in customer deposits................. 262 448
Decrease (increase) in accrued warranty
expense.................................... (18) 48
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Net cash used in operations....................... (371) (27)
Cash flows from investing activities:
Additions to property, plant and equipment.... (11) (86)
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Net cash used in investing activities............. (11) (86)
Cash flow from financing activities:
Total borrowings................................ 2,495 3,486
Total repayments................................ (2,042) (3,373)
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Net cash provided by financing activities......... 453 113
Net increase in cash and cash equivalents............ 71 --
Cash and cash equivalents at beginning of period..... 13 10
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Cash and cash equivalents at end of period........... $ 84 $ 10
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See accompanying notes.
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</TABLE>
Page 5 of 13 sequentially numbered pages.
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PUBLISHERS EQUIPMENT CORPORATION
Notes to Consolidated Financial Statements
------------------------------------------
(unaudited)
1. In January 1995, the Company sold common shares of KBA-Motter Corp.
representing a 7.0 percent equity interest in this affiliated company for
$150,000. As a result, at January 31, 1995, the Company had no equity
interest in KBA-Motter Corp. The Company wrote off its investment in KBA-
Motter Corp. at December 31, 1991.
2. Effective January 1, 1993, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes"
(SFAS No. 109). SFAS No. 109 requires recognition of deferred tax
liabilities and assets for the expected future consequences of events that
have been included in the financial statements or tax returns. Under this
method, deferred tax liabilities and assets are determined based on the
difference between the financial statement and bases of assets and
liabilities using enacted tax rates. The adoption of SFAS No. 109 had no
effect on the financial statements.
Page 6 of 13 sequentially numbered pages.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
Results of Operations
---------------------
Three Months Ended June 30, 1995
--------------------------------
REVENUES. Revenues of $1,823,000 for the second quarter of 1995 compares to
$4,863,000 for the second quarter of 1994, a decrease of approximately 63
percent. The reduction in revenues in the current quarter results primarily
from lower domestic sales, which decreased approximately 78 percent from the
year earlier period. The domestic markets for printing equipment are
experiencing a slow recovery from one of the worst recessions ever experienced
by the Company's industry. This recession began in 1990 when reductions in
printing demand occurred following a curtailment of advertising expenditures by
major domestic business segments. Advertising expenditures represent the major
source of income for the Company's customer base. The level of domestic
advertising revenues as reported in trade publications declined through 1992,
began a slow turn around in 1993, and registered a clear increase in 1994.
These improved market conditions have not translated immediately into equipment
orders because of the normal lag time of equipment expenditures behind increases
in printing demand, and also because many potential purchasers have adopted a
cautious approach to equipment purchase decisions as the strength of the
recovery in printing demand and the effects of increased interest rates and
newsprint costs are assessed. As printing demand has increased, newsprint
requirements have exceeded current papermill capacity and resulted in higher
newsprint costs. Newsprint cost is the single largest component of a newspapers
production expense, and the Company believes that increases in newsprint costs
have caused equipment purchases to be deferred by domestic printers. Also
contributing to the deferral of domestic orders, the Company believes, is
uncertainty among printers concerning the effect that "electronic highway"
technology may have on their operations.
The Company is currently completing negotiations for the sale of printing
equipment to a large domestic newspaper group, and expects to book this order
into backlog in the third quarter of 1995. The Company believes that there is
pent-up demand for printing equipment in domestic markets that will be released
with continued strength in printing demand and easing of newsprint costs.
Page 7 of 13 sequentially numbered pages.
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Revenues derived from sales to foreign customers, which accounted for
approximately 59 percent of total revenues in the second quarter of 1995,
decreased approximately 23 percent compared to the second quarter of 1994, when
foreign sales accounted for approximately 29 percent of total revenues. Foreign
sales have been the largest component of the Company's revenues in recent years,
and the Company expects these sales to remain a significant component of total
revenues in 1995. The increase in the Company's backlog at June 30, 1995
compared to December 31, 1994 (See "Financial Position and Liquidity") results
primarily from the booking of foreign orders.
The Company has focused increased attention on the expansion of its
international sales capabilities in the belief that the most rapidly expanding
markets for printing equipment lie overseas, principally in the Pacific Rim and
former East Bloc countries. This focus has resulted in a realigned and
strengthened dealer network, and increased awareness of the Company and its
products in international markets.
The level of sales quotations requested by prospective foreign customers
increased significantly following the Company's participation in the industry's
largest international trade show conducted in Dusseldorf, Germany in May of this
year. Competition for these orders among domestic and foreign equipment
suppliers will be intense, but the Company expects to compete effectively with
its product lines which it believes offer attractive price/performance
combinations.
GROSS PROFIT. Gross profit for the second quarter of 1995 of $247,000, or 13.5
percent of revenues, compares to $1,145,000, or 23.5 percent of revenues, for
the second quarter of 1994. The reduction in gross profit expressed as a
percent of revenues in the current quarter results primarily from less fixed
cost coverage provided by the lower level of revenues. In addition,
competitive pricing pressures in both domestic and foreign markets that emerged
in the period of slow market activity continue to have an adverse effect on the
Company's profit margins.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense of $643,000, or 35.3 percent of revenues, for the second
quarter of 1995 compares to $846,000, or 17.4 percent of revenues, for the
second quarter of 1994. The reduction in selling, general and administrative
expense in the current quarter results from a lower level of commissions paid on
sales to foreign customers and the cost reduction measures taken by the Company
in response to lower business activity.
Page 8 of 13 sequentially numbered pages.
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OTHER INCOME (EXPENSE). Interest expense of $101,000 for the second quarter of
1995, attributable primarily to borrowings under the King Press Corporation
revolving line of credit, compares to $100,000 for the second quarter of 1994.
Nominal amounts of interest income and net other income were earned in both the
second quarter of 1995 and the second quarter of 1994.
PROVISION FOR TAX. The Company utilized available net operating loss
carryforwards to offset federal and state income tax liabilities for the second
quarter of 1994.
NET LOSS. A net loss of $493,000, or 27.0 percent of revenues, for the second
quarter of 1995 compares net income of $201,000, or 4.1 percent of revenues, for
the second quarter of 1994.
Six Months Ended June 30, 1995
------------------------------
REVENUES. Revenues of $2,994,000 for the first six months of 1995 compares to
$7,199,000 for the first half of 1994, a decrease of approximately 58 percent.
Both domestic and foreign sales were lower in the first half of 1995 compared
to the first half of 1994. The Company attributes the reduction in domestic
revenues, which declined 61 percent in the first six months of 1995 compared
to the first six months of 1994, to increased newsprint costs and growing
uncertainty concerning the effect that the emerging "electronic highway" will
have on conventional printed product demand. Revenues derived from sales to
foreign customers, which accounted for approximately 49 percent of total
revenues for the first half of 1995, decreased approximately 55 percent
compared to the first half of 1994, when foreign sales accounted for
approximately 45 percent of total revenues.
GROSS PROFIT. Gross profit for the first six months of 1995 of $509,000, or
17.0 percent of revenues, compares to $1,643,000, or 22.8 percent of revenues,
for the first half of 1994. The reduction in gross profit expressed as a
percent of revenues in the first half of 1995 compared to the year earlier
period is primarily the result of less fixed cost coverage provided by the lower
level of revenues in 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense of $1,242,000, or 41.5 percent of revenues, for the first
six months of 1995 compares to $1,472,000, 20.4 percent of revenues, for the
first half of 1994. The reduction in selling, general and administrative
expense for the first six months of 1995 compared to the year earlier period is
a result of a lower level of commissions paid on sales to foreign customers and
the cost reduction measures taken by the Company in response to lower business
activity.
Page 9 of 13 sequentially numbered pages.
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OTHER INCOME (EXPENSE). Interest expense of $201,000 for the first six months
of 1995, attributable primarily to borrowings under the King Press Corporation
revolving line of credit, compares to $184,000 for the first half of 1994.
Interest income of $8,000 for the first half of 1995, derived primarily from
short term money market investments, compares to $2,000 for the first half of
1994. Net other income of $154,000 for the first six months of 1995 compares to
net other income of $21,000 for the first half of 1994. During the first
quarter of 1995, the Company sold shares held in an affiliated company (See Note
1 of Notes to Consolidated Financial Statements).
PROVISION FOR TAX. The Company utilized available net operating loss
carryforwards to offset federal and state income tax liabilities for the first
six months of 1994.
NET LOSS. A net loss of $772,000, or 25.8 percent of revenues, for the first
six months of 1995, compares to net income of $10,000, or 0.1 percent of
revenues, for the first six months of 1994.
Financial Position and Liquidity
--------------------------------
During the first half of 1995 the Company's wholly-owned operating subsidiary
King Press Corporation was supported by a secured $3,850,000 line of credit that
expired June 30, 1995. The line of credit was renewed effective June 30, 1995,
for a 7-month period ending January 31, 1996. The loan agreement pertaining to
the new revolving line of credit includes restrictions on indebtedness, liens,
and the disposal of assets; requires that certain financial ratios be
maintained; and reduces the principal amount available under the line of credit
to $2,950,000 in even monthly increments over the term of the line of credit.
At June 30, 1995, King Press Corporation had $3,497,000 outstanding under the
line of credit and was in compliance with all financial covenants.
The Company's liquidity in the first six months of 1995 has been adversely
affected by low order entry rates in the fourth quarter of 1994 and the first
quarter 1995 (See Results of Operations). The Company estimates that the King
Press Corporation line of credit will be sufficient to meet working capital
requirements through January 31, 1996, but is seeking alternative sources of
increased working capital. One alternative being pursued to increase working
capital is a restructuring of the line of credit to include a new lender to
extend credit secured by the Company's assets in conjunction with its present
lender. There can be no assurance that the Company will be successful in
securing such a refinancing.
Page 10 of 13 sequentially numbered pages.
<PAGE>
The Company has reduced manpower levels consistent with existing contract
commitments and reduced all discretionary spending, including capital
expenditures, to conserve working capital. Additional cost reduction steps will
be taken to maintain the viability of the Company in the event that working
capital required to maintain the Company's normal operations is not available.
Backlog at June 30, 1995, totalled approximately $3,391,000 compared to
approximately $1,351,000 at December 31, 1994.
Page 11 of 13 sequentially numbered pages.
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PART II -- OTHER INFORMATION
Item 1. Legal Proceedings.
The Company and its subsidiaries from time to time become involved in
various claims and lawsuits incidental to their businesses. In the
opinion of management of the Company, any ultimate liability arising
out of currently pending claims and lawsuits will not have a material
adverse effect on the consolidated financial condition or results of
operations of the Company.
Item 2. Changes in Securities.
Not Applicable.
Item 3. Defaults upon Senior Securities.
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
The Company's Annual Meeting of Shareholders was held on June 23,
1995. One proposal was acted on at the Meeting:
Election of Directors
---------------------
The result of the vote to elect six directors for a one year term was
as follows:
<TABLE>
<CAPTION>
Director Votes For Votes Against
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<S> <C> <C>
Simon Bonnier 4,160,842 27,581
James K. Feeney 4,162,842 25,581
Robert S. Hamilton 4,162,235 26,188
Evans Kostas 4,159,653 28,770
Ole B. Rygh 4,162,842 25,581
Reinhart Siewert 4,162,842 25,581
</TABLE>
Item 5. Other Information.
Not Applicable.
Item 6. Exhibits and Reports on Form 8-K.
Not Applicable
Page 12 of 13 sequentially numbered pages.
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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.
PUBLISHERS EQUIPMENT CORPORATION
August 8 , 1995 By: /s/ Roger R. Baier
-------------------------------
Roger R. Baier
Vice President Finance &
Treasurer
(Principal Financial Officer)
Page 13 of 13 sequentially numbered pages.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1995
<PERIOD-START> APR-01-1995 JAN-01-1995
<PERIOD-END> JUN-30-1995 JUN-30-1995
<CASH> 84 0
<SECURITIES> 0 0
<RECEIVABLES> 393 0
<ALLOWANCES> 0 0
<INVENTORY> 8,446 0
<CURRENT-ASSETS> 9,157 0
<PP&E> 1,421 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 10,578 0
<CURRENT-LIABILITIES> 6,385 0
<BONDS> 0 0
<COMMON> 18,815 0
0 0
500 0
<OTHER-SE> (16,148) 0
<TOTAL-LIABILITY-AND-EQUITY> 10,578 0
<SALES> 0 0
<TOTAL-REVENUES> 1,823 2,994
<CGS> 1,576 2,485
<TOTAL-COSTS> 1,576 2,485
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 101 201
<INCOME-PRETAX> (493) (772)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (493) (772)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (493) (772)
<EPS-PRIMARY> (0.10) (0.15)
<EPS-DILUTED> (0.10) (0.15)
</TABLE>
