<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 March 31, 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
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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
- ------------------------------------------------ ----------
(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 May 10, 1996,
5,191,185 shares of common stock, no par value.
Page 1 of 12 sequentially numbered pages.
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PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
Index to Financial Statements
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Page
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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 March 31, 1996, are not necessarily indicative of results of operations
for the entire year.
Page 2 of 12 sequentially numbered pages.
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PUBLISHERS EQUIPMENT CORPORATION
CONSOLIDATED BALANCE SHEET
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
March 31,
1996
-----------
ASSETS
------
<S> <C>
Cash and cash equivalents................................. $ 145
Accounts receivable....................................... 1,867
Inventories............................................... 7,494
Other current assets...................................... 123
--------
Total current assets.................................... 9,629
Property, plant and equipment, net........................ 1,286
--------
TOTAL ASSETS.............................................. $ 10,915
========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Accounts payable and accrued liabilities.................. $ 2,216
Accrued warranty expense.................................. 214
Customer deposits......................................... 1,445
Current portion of long-term debt......................... 3
Short term debt........................................... 2,730
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Total current liabilities.............................. 6,608
Convertible subordinated note............................. 1,000
Other liabilities......................................... 181
Shareholders' equity:
Preferred stock......................................... 400
Common stock............................................ 18,915
Treasury stock.......................................... (168)
Retained deficit........................................ (16,021)
--------
Total shareholders' equity............................ 3,126
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................ $ 10,915
========
</TABLE>
See accompanying notes
Page 3 of 12 sequentially numbered pages.
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PUBLISHERS EQUIPMENT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATION
In Thousands Except Share and Per Share Amounts
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1995
--------------------------------
<S> <C> <C>
Revenues.............................. $ 5,186 $ 1,172
Cost of revenues...................... 4,307 910
--------- ---------
Gross profit.......................... 879 262
Selling, general and administrative
expense.............................. 703 599
--------- ---------
Operating income (loss)............... 176 (337)
Interest expense...................... (79) (100)
Interest income....................... 4 7
Other income (expense),
net (Note 1)......................... 2 151
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Income (loss) before taxes............ 103 (279)
Provision for income taxes (Note 2)... - -
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Net income (loss)..................... $ 103 $ (279)
========= =========
Net income (loss) per common share.... $ 0.02 (0.05)
========= =========
Weighted average common shares........ 5,191,185 5,176,651
</TABLE>
See accompanying notes.
Page 4 of 12 sequentially pages.
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PUBLISHERS EQUIPMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1995
----------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) form operations.................. $ 103 $ (279)
Adjustments TO reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization..................... 55 57
Provision for losses on doubtful accounts......... 8 8
Change in assets and liabilities.:
Decrease (increase ) in accounts receivable....... (1,060) 581
Decrease (increase) in inventories................ 1,849 (923)
Decrease (increase) in other current assets....... 24 (55)
Decrease in other assets.......................... - 74
Decrease in accounts payable and
accrued liabilities.............................. (236) (53)
Increase (decrease) in customer deposits.......... (789) 75
Increase (decrease) in accrued warranty expense... 90 (36)
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Net cash provided by (used in) operations.......... 44 (551)
Cash flows from investing activities:
Additions to property, plant and equipment........ (17) (11)
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Net cash used in investing activities............... (17) (11)
Cash flow from financing activities:
Total borrowings.................................. 2,174 1,485
Total repayments.................................. (2,147) (853)
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Net cash provided by financing activities.......... 27 632
Net increase in cash and cash equivalents........... 54 70
Cash and cash equivalents at beginning of period.... 91 13
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Cash and cash equivalents at end of period.......... $ 145 $ 83
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</TABLE>
See accompanying notes.
Page 5 of 12 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. The income tax provision for the three month period ended March 31, 1996,
of $35,000 has been offset entirely by a corresponding tax benefit related
to the reversal of previously unrecognized temporary differences, primarily
net operating loss carryforwards.
3. 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 tax 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 12 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 March 31, 1995
- ---------------------------------
REVENUES. Revenues of $5,186,000 for the first quarter of 1996 compares to
$1,172,000 for the first quarter of 1995, reflecting increases in both the
Company's domestic and foreign sales. Domestic revenues in the current quarter
include 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 single-width press equipment,
manufactured by the Company's wholly-owned subsidiary King Press Corporation,
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 at 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.
The use of single-width equipment to supplement large newspaper press room
equipment is a positive development in domestic printing markets which have
begun a slow and irregular recovery from one of the worst recessions ever
experienced by the 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 industry's customer base. In 1993, the trend in
domestic advertising expenditures began to show signs of a slow turnaround, and
in 1994 registered a clear increase, as reported in trade publications. These
improved market conditions continued through 1995 and into 1996, but domestic
press orders have been affected by many potential purchasers adopting a
cautious approach to equipment purchase decisions as the strength of the
recovery and the effect of increasing newsprint costs are assessed. Newsprint
cost is the single largest component of a newspapers production expense and has
a direct effect on equipment purchase decisions. As advertising levels
increased, newsprint demand grew to absorb papermill capacity, resulting in a
higher cost for newsprint. To a lesser extent, domestic sales activity has been
affected by the absorption of over capacity in certain market segments. In
early 1996, there are indications of an easing of newsprint costs. This
development, if sustained, and stable interest rates will create a more
favorable environment in domestic printing markets. The successful startup of
the Company's equipment at Gannett Company will provide an important showcase
for the Company's products as domestic market conditions improve.
Page 7 of 12 sequentially numbered pages.
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Revenues derived from sales to foreign customers accounted for approximately 38
percent of total revenues in the first quarter of 1996 compared to approximately
34 percent of total revenues for the first quarter of 1995. In recent years the
Company has focused increased attention on the expansion of its international
sales capabilities. This focus, which resulted in a realignment and
strengthening of the Company's international dealer network, was driven by a
belief that the most rapidly emerging markets for printing equipment lie
overseas, principally in the Middle East, the Pacific Rim and former East Bloc
countries. 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. 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 1995, the Company introduced the Commercial
2000 press package, a complete newspaper/commercial press consisting of its
Color King and Media King printing units. The Commercial 2000 press package is
offered to both foreign and domestic sales prospects.
Foreign markets for printing equipment are currently more active than domestic
markets. However, foreign orders are often subject to delays in contract award.
Such delays, which the Company believes affects all equipment suppliers, are
produced by a variety of factors that include economic uncertainties affecting
print demand and financing availability, selection of equipment supplier under
very competitive conditions and, in some cases, the privatization of related
assets by governmental bodies.
Also in the first quarter of 1996, the Company booked a second press order for a
customer in the Netherlands and received a commitment for a significant press
order from a new sales prospect in the Middle East. The second press order for
the Netherlands, scheduled for shipment in the second quarter of this year, will
join press equipment shipped to the customer in January 1996. Contract
arrangements being finalized with the new Middle East sales prospect will
provide for shipment of equipment in late 1996. These orders will join other
installations of the Company's equipment in key growth markets and provide
important showcases for other prospective purchasers of the Company's equipment.
The recession in domestic printing markets has 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
Page 8 of 12 sequentially numbered pages.
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cost containment measures, has enabled the Company to manage through the
difficult period of 1990 through 1995 while maintaining its over all
competitiveness.
The adverse market conditions of recent years has not only affected equipment
suppliers, but also many in the Company's customer base whose financial strength
has been weakened as printing demand declined. Increasingly, the Company 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 quarter of 1996 of $879,000, or 16.9
percent of revenues, compares to $262,000, or 22.4 percent of revenues, for the
first quarter of 1995. The reduction in gross profit expressed as a percentage
of revenues in the current quarter results primarily from the strategic pricing
of equipment delivered under contract to Gannett Company in January 1996(See
REVENUES). 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. The Company
believes that the successful startup and production performance of its equipment
at Gannett Company will result in additional contracts of sale of its equipment
as a cost effective solution to the growing demand for short press run products,
and that the gross margin to be earned on such sales will be closer to the
Company's historical experience.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense of $703,000, or 13.6 percent of revenues, for the first
quarter of 1996, compares to $599,000, or 51.1 percent of revenues, for the
first quarter of 1995. The reduction in selling, general and administrative
expense expressed as a percentage of revenues in the current quarter is
principally the result of cost containment measures taken by the Company in
response to reduced business activity.
OTHER INCOME (EXPENSE). Interest expense of $79,000 for the first quarter of
1996 compares to $100,000 for the first quarter of 1995, and is attributable
primarily to borrowings under the King Press Corporation revolving line of
credit. Interest income of $4,000 for the first quarter of 1996 compares to
$7,000 for the first quarter of 1995, and is attributable primarily to a trade
note payable to King Press Corporation. Net other income of $2,000 for the
first quarter of 1996 compares to net other income of $151,000 for the first
quarter
Page 9 of 12 sequentially numbered pages.
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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).
PROVISION FOR TAX. The Company utilized available net operating loss
carryforwards to offset federal and state income tax liabilities for the first
quarter of 1996 (See Note 2 of Notes to Consolidated Financial Statements).
NET INCOME. Net income of $103,000, or 2.0 percent of revenues, for the first
quarter of 1996, compares to a net loss $279,000, or 23.8 percent of revenues,
for the first quarter 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 March 31, 1996, King
Press Corporation had $2,730,000 outstanding under the line of credit and was in
compliance with all financial covenants.
The Company's liquidity entering 1996 is significantly improved from its
position entering 1995 because of increased backlog which totalled approximately
$6,098,000 at December 31, 1995, compared to approximately $3,151,000 at
December 31, 1994. Backlog was further increased to approximately $6,463,000 at
March 31, 1996. The Company believes the line of credit will be sufficient to
meet working capital needs in 1996.
Page 10 of 12 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.
Not Applicable
Item 5. Other Information.
Not Applicable.
Item 6. Exhibits and Reports on Form 8-K.
Not Applicable
Page 11 of 12 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
May 10, 1996 By: /s/ Roger R. Baier
-----------------------------
Roger R. Baier
Vice President Finance &
Treasurer
(Principal Financial Officer)
Page 12 of 12 sequentially numbered pages.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 145
<SECURITIES> 0
<RECEIVABLES> 1,867
<ALLOWANCES> 0
<INVENTORY> 7,494
<CURRENT-ASSETS> 9,629
<PP&E> 1,286
<DEPRECIATION> 0
<TOTAL-ASSETS> 10,915
<CURRENT-LIABILITIES> 6,608
<BONDS> 0
0
400
<COMMON> 18,915
<OTHER-SE> (16,021)
<TOTAL-LIABILITY-AND-EQUITY> 10,915
<SALES> 0
<TOTAL-REVENUES> 5,186
<CGS> 4,307
<TOTAL-COSTS> 4,307
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 79
<INCOME-PRETAX> 103
<INCOME-TAX> 0
<INCOME-CONTINUING> 103
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 103
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
</TABLE>
