<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, 1996.
( ) 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
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Texas 75-1653425
---------------------- ------------------------------------
(State of incorporation) (I.R.S. Employer Identification No.)
16660 Dallas Parkway, Suite 1100, Dallas, Texas 75248
----------------------------------------------- ----------
(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
------------ ------------
Number of shares outstanding of the issuer's common stock as of August 5, 1996,
5,191,185 shares of common stock, no par value.
Page 1 of 13 sequentially numbered pages.
<PAGE>
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, 1996, are not necessarily indicative of results of operations for
the entire year.
Page 2 of 13 sequentially numbered pages.
<PAGE>
PUBLISHERS EQUIPMENT CORPORATION
CONSOLIDATED BALANCE SHEET
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
June 30,
1996
----------
<S> <C>
ASSETS
------
Cash and cash equivalents................................. $ 148
Accounts receivable....................................... 940
Inventories............................................... 8,659
Other current assets...................................... 60
---------
Total current assets.................................. 9,807
Property, plant and equipment, net........................ 1,357
---------
TOTAL ASSETS.............................................. $ 11,164
=========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Accounts payable and accrued liabilities.................. $ 1,857
Accrued warranty expense.................................. 148
Customer deposits......................................... 2,606
Current portion of long-term debt......................... 3
Short term debt 2,245
---------
Total current liabilities............................. 6,859
Convertible subordinated note............................. 1,000
Other liabilities......................................... 177
Shareholders' equity:
Preferred stock....................................... 400
Common stock.......................................... 18,915
Treasury stock........................................ (168)
Retained deficit...................................... (16,019)
---------
Total shareholders' equity......................... 3,128
---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................ $ 11,164
=========
</TABLE>
See accompanying notes
Page 3 of 13 sequentially numbered pages.
<PAGE>
PUBLISHERS EQUIPMENT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands Except Share and Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues........................................ $ 2,404 $ 1,823 $ 7,590 $ 2,994
Cost of revenues................................ 1,744 1,576 6,050 2,485
---------- ---------- ---------- ----------
Gross profit.................................... 660 247 1,540 509
Selling, general and administrative expense..... 591 643 1,294 1,242
---------- ---------- ---------- ----------
Operating income (loss)......................... 69 (396) 246 (733)
Interest expense................................ (69) (101) (148) (201)
Interest income................................. 2 1 5 8
Other income (expense), net (Note 1)............ - 3 2 154
---------- ---------- ---------- ----------
Income (loss) before taxes...................... 2 (493) 105 (772)
Provision for income taxes (Note 2)............. - - - -
---------- ---------- ---------- ----------
Net income (loss)............................... $ 2 $ (493) $ 105 $ (772)
========== ========== ========== ==========
Net income (loss) per common share.............. $ - $ (0.10) $ 0.02 $ (0.15)
========== ========== ========== ==========
Weighted average common shares.................. 5,191,185 5,176,651 5,191,185 5,176,651
</TABLE>
See accompanying notes.
Page 4 of 13 sequentially pages
<PAGE>
PUBLISHERS EQUIPMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1996 1995
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) from operations..................................... $ 105 $ (772)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization................................. 113 113
Provision for losses on doubtful accounts..................... 15 15
Change in assets and liabilities:
Decrease (increase) in accounts receivable.................... (140) 886
Decrease (increase) in inventories............................ 684 (642)
Decrease in other current assets.............................. 87 50
Decrease in other assets...................................... - 75
Decrease in accounts payable and
accrued liabilities..................................... (599) (340)
Increase in customer deposits................................. 372 262
Increase (decrease) in accrued warranty expense............... 24 (18)
------- -------
Net cash provided by (used in) operations............................. 661 (371)
Cash flows from investing activities:
Additions to property, plant and equipment.................... (146) (11)
------- -------
Net cash used in investing activities................................. (146) (11)
Cash flow from financing activities:
Total borrowings................................................... 4,349 2,495
Total repayments................................................... (4,807) (2,042)
------- -------
Net cash provided by (used in) financing activities................... (458) 453
Net increase in cash and cash equivalents................................ 57 71
Cash and cash equivalents at beginning of period......................... 91 13
------- -------
Cash and cash equivalents at end of period............................... $ 148 $ 84
======= =======
</TABLE>
See accompanying notes.
Page 5 of 13 sequentially numbered pages.
<PAGE>
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. The income tax provision for the six month period ended June 30, 1996, of
$35,700 has been offset entirely by a corresponding tax benefit related to
the reversal of previously reserved temporary differences, primarily net
operating loss carryforwards.
Page 6 of 13 sequentially numbered pages.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
Results of Operations
---------------------
Three Months Ended June 30, 1996
- --------------------------------
REVENUES. Revenues of $2,404,000 for the second quarter of 1996 compare to
$1,823,000 for the second quarter of 1995, an increase of approximately 32
percent. Gains were realized in both domestic and foreign revenues in the
current quarter.
Revenues derived from sales to domestic customers increased approximately 23
percent in the second quarter of 1996 compared to the second quarter of 1995.
Domestic printing markets served by the Company are experiencing a slow and
irregular recovery from a deep recession, during which time print demand
declined as advertising expenditures by major business segments were reduced in
response to adverse business conditions. Advertising expenditures represent the
major source of income for the Company's customer base. As the level and trend
of advertising expenditures has gradually improved, the recovery of domestic
printing markets has been constrained by increasing newsprint costs. As print
demand increased, newsprint requirements exceeded available papermill capacity,
resulting in higher newsprint costs, the single largest component of a
newspapers production expense. During the first half of 1996 there has been an
easing of newsprint costs, which if sustained will create a more favorable
environment in domestic printing equipment markets.
Revenues derived from sales to foreign customers increased approximately 38
percent in the second quarter of 1996 compared to the second quarter 1995, and
accounted for approximately 62 percent of total revenues in the current quarter
compared to approximately 59 percent for the year earlier period. Included in
the second quarter 1996 revenues is equipment delivered to a customer in the Far
East and the second press order for a customer in the Netherlands, which joins
equipment delivered to this customer in the first quarter of 1996. Foreign
markets for printing equipment have been more active than domestic markets in
recent years, and the Company believes that the most rapidly emerging markets
for printing equipment lie overseas, principally in the Middle East, the Pacific
Rim and former East Block countries. The Company has focused increased
attention on international markets, with a resulting realignment and
strengthening of its international dealer network.
Page 7 of 13 sequentially numbered pages.
<PAGE>
Revenues derived from sales to foreign customers are expected to remain a
significant component of the Company's total revenues. The transactions
underlying these sales, however, are often subject to delays in contract award
resulting from a variety of factors that include economic uncertainties
affecting print demand and financing availability, selection of equipment
suppliers under very competitive conditions and, in some cases, the
privatization of related assets by governmental bodies.
GROSS PROFIT. Gross profit for the second quarter of 1996 of $660,000, or 27.5
percent of revenues, compares to $247,000, or 13.5 percent of revenues, for the
second quarter of 1995. The improvement in gross profit in the current quarter
is primarily the result of the higher level of revenues available to cover fixed
costs and an adjustment to the Company's warranty reserve to bring this reserve
in line with estimated requirement for equipment under warranty at the end of
the quarter. The Company warrants the performance of its products for a period
of one year against defects in both materials and workmanship. An addition to
the warranty reserve is made in connection with each sale of the Company's
products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense of $591,000, or 24.6 percent of revenues, for the second
quarter of 1996, compares to $643,000, or 35.3 percent of revenues, for the
second quarter of 1995. The reduction in selling, general and administrative
expense in the current quarter is the result of the continuation of cost
reduction measures taken by the Company in response to reduced business
activity.
OTHER INCOME (EXPENSE). Interest expense of $69,000 for the second quarter of
1996 compares to $101,000 for the second quarter of 1995, and is attributable
primarily to borrowings under the King Press Corporation revolving line of
credit. Interest income of $2,000 for the second quarter of 1996, compares to
$1,000 for the second quarter of 1995 and is attributable to short term money
market investments. The Company had net other income of $3,000 during the
second quarter of 1995.
NET INCOME. Net income of $2,000, or 0.1 percent of revenues, for the second
quarter of 1996, compares to a net loss of $493,000, or 27.0 percent of
revenues, for the second quarter of 1995.
Page 8 of 13 sequentially numbered pages.
<PAGE>
Six Months Ended June 30, 1996
- ------------------------------
REVENUES. Revenues of $7,590,000 for the first six months of 1996 compares to
$2,994,000 for the first six months of 1995, an increase of approximately 154
percent. Gains were realized in both domestic and foreign revenues in the first
half of 1996.
Revenues derived from sales to domestic customers increased almost three-fold in
the first six months of 1996 compared to the first six months of 1995. Included
in first half 1996 revenues is a large order for Gannett Company, a leading U.S.
newspaper group for equipment that provides versatile printing capability for
color circulars, inserts and other newspaper products. This equipment,
delivered in the first quarter of 1996, will supplement Gannett Company's large
newspaper press equipment for the production of these types of short run
products. In recent years, the production mix of most major newspapers has
included an increasing content of targeted market products. The Company
believes that the application of its single-width press equipment to more
efficiently produce these zoned products represents a very important new
business opportunity. The equipment delivered to Gannett Company had a
successful startup in February 1996 and was placed in production immediately
thereafter.
Revenues derived from sales to foreign customers increased more than two-fold in
the first six months of 1996 compared to the first six months of 1995.
Newspapers in many foreign markets are increasing the glossy, heatset page
content of their products, which must be produced on commercial press equipment.
The Company believes that this development in foreign markets offers a
significant business opportunity for its cost effective newspaper and commercial
press equipment, which can be sold separately or in combination. In January
1996, the Company was successful in booking a large order for combined newspaper
and commercial press equipment for delivery to a customer in the Middle East in
the fourth quarter of 1996.
The recession in domestic printing equipment markets resulted in an industry
restructuring that included business consolidations, failures and the down-
sizing of operations to match capacity with demand. The Company's operations
have been scaled back consistent with meeting contract commitments and providing
support for its worldwide equipment installations. This action, together with
the institution of other cost containment measures enabled the Company to manage
through the difficult period of 1990 through 1995 while maintaining its overall
competitiveness.
Page 9 of 13 sequentially numbered pages.
<PAGE>
The adverse market conditions of recent years not only affected equipment
suppliers, but also many in the Company's customer base whose financial strength
weakened as print demand declined. Increasingly, the Company's sales efforts
have become dependent upon its ability to provide assistance in arranging
equipment financing for both domestic and foreign customers. In the case of
domestic customers, this assistance generally involves a coordination of
activities with third party leasing companies. For foreign customers, this
assistance comes from the ability of the Company to arrange third party
financing through such institutions as the Export-Import Bank of the United
States. Such international financial arrangements are complex, involving both
foreign and domestic banks, and often impede equipment delivery schedules.
GROSS PROFIT. Gross profit for the first six months of 1996 of $1,540,000, or
20.3 percent of revenues, compares to $509,000, or 17.0 percent of revenues, for
the first six months of 1995. Gross profit expressed as a percentage of
revenues improved only nominally from the year earlier period due to the
strategic pricing of equipment delivered to Gannett Company in the first quarter
of 1996. This contract with Gannett Company, which accounted for over 40
percent of total first quarter 1996 revenues, was priced at a reduced gross
profit level for this new application of the Company's equipment.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense for the first six months of 1996 of $1,294,000, or 17.0
percent of revenues, compares to $1,242,000, or 41.5 percent of revenues, for
the first six months of 1995. The increase in selling, general and
administrative expense in the current period is due to increased commissions
paid to the Company's foreign sales representatives. All other components of
selling, general and administrative expense are lower in the first half of 1996
as compared to the first half of 1995 as a result of the Company's continuing
cost containment measures.
OTHER INCOME (EXPENSE). Interest expense of $148,000 for the first six months
of 1996 compares to $201,000 for the first six months of 1995, and is
attributable primarily to borrowings under the King Press Corporation revolving
line of credit. Interest income of $5,000 for the six months of 1996, derived
primarily from short term money market investments, compares to $8,000 for the
first six months of 1995, attributable primarily to a trade note payable to King
Press Corporation. Net other income for the first six months of 1996 of $2,000
compares to net other income $154,000 for the first six months of 1995. During
the first quarter of 1995, the Company sold shares held in an affiliated company
(See Note 1 of Notes to Consolidated Financial Statements).
Page 10 of 13 sequentially numbered pages.
<PAGE>
PROVISION FOR TAX. The Company utilized available net operating loss carry
forwards to offset federal and state income tax liabilities for the first six
months of 1996 (See Note 2 of Notes to Consolidated Financial Statements).
NET INCOME. Net income of $105,000, or 1.4 percent of revenues, for the first
six months of 1996 compares to a net loss of $772,000, or 25.8 percent of
revenues, for the first six months of 1995.
Financial Position and Liquidity
--------------------------------
The Company's wholly-owned operating subsidiary King Press Corporation is
supported by a secured $3,050,000 line of credit that expires March 31, 1997.
The loan agreement pertaining to the 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 in even quarterly increments from $3,050,000
at April 30, 1996, to $2,700,000 at February 1, 1997. At June 30, 1996, King
Press Corporation had $2,245,000 outstanding under the line of credit and was in
compliance with all financial covenants.
The Company's liquidity in 1996 is significantly improved from its position in
1995 because of increased backlog which totalled approximately $6,098,000
entering 1996, compared to approximately $3,151,000 at December 31, 1994.
Backlog was further increased to approximately $6,463,000 at March 31, 1996 and
at June 30, 1996 totals approximately $5,913,000. The Company believes the line
of credit will be sufficient to meet working capital needs in 1996.
Page 11 of 13 sequentially numbered pages.
<PAGE>
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 21,
1996. 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
-------- --------- -------------
<S> <C> <C>
Simon Bonnier 5,055,160 22,758
James K. Feeney 5,055,160 22,758
Robert S. Hamilton 5,054,378 23,540
Evans Kostas 5,054,453 23,465
Ole B. Rygh 5,055,160 22,758
Reinhart Siewert 5,055,160 22,758
</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.
<PAGE>
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 5, 1996 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-31-1996 DEC-31-1996
<PERIOD-START> APR-01-1996 JAN-01-1996
<PERIOD-END> JUN-30-1996 JUN-30-1996
<CASH> 148 0
<SECURITIES> 0 0
<RECEIVABLES> 940 0
<ALLOWANCES> 0 0
<INVENTORY> 8,659 0
<CURRENT-ASSETS> 9,807 0
<PP&E> 1,357 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 11,164 0
<CURRENT-LIABILITIES> 6,859 0
<BONDS> 0 0
0 0
400 0
<COMMON> 18,915 0
<OTHER-SE> (16,019) 0
<TOTAL-LIABILITY-AND-EQUITY> 11,164 0
<SALES> 0 0
<TOTAL-REVENUES> 2,404 7,590
<CGS> 1,744 6,050
<TOTAL-COSTS> 1,744 6,050
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 69 148
<INCOME-PRETAX> 2 105
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 2 105
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2 105
<EPS-PRIMARY> 0 0.02
<EPS-DILUTED> 0 0.02
</TABLE>
