<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM l0-Q
(Mark One)
/ X / QUARTERLY REPORT PURSUANT TO SECTION l3 OR l5(d) OF THE SECURITIES
EXCHANGE ACT OF l934
For the period ended September 30, 1998
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 number 0-1359
PUBCO CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 53-0246410
(State of Incorporation) (I.R.S. Employer Identification No.)
3830 Kelley Avenue, Cleveland, Ohio 44114
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (216) 881-5300
NA
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (l) has filed all reports
required to be filed by Section l3 or l5(d) of the Securities Exchange
Act of l934 during the preceding l2 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 Common Shares Outstanding as of October 30, 1998: 3,752,473.
<PAGE>
PUBCO CORPORATION
Page Number
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of
September 30, 1998 and December 31, 1997 . . . . . 3
Consolidated Statements of Operations
for the Three and Nine Months Ended
September 30, 1998 and 1997. . . . . . . . . . . . 5
Consolidated Statements of Cash Flows
for the Nine Months Ended September 30,
1998 and 1997. . . . . . . . . . . . . . . . . . . . 6
Notes to Consolidated Financial Statements . . . . . 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations. . . . . . . . . . . . . . . . . . . . 9
PART II - OTHER INFORMATION . . . . . . . . . . . . . . . . . . 11
Item l. Legal Proceedings.
Item 2. Changes in Securities.
Item 3. Defaults Upon Senior Securities.
Item 4. Submission of Matters to a Vote
of Security Holders.
Item 5. Other Information.
Item 6. Exhibits and Reports on Form 8-K.
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . 12
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)--Note A.
PUBCO CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
($ in 000's except share amounts)
September 30 December 31
1998 1997
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 8,518 $ 1,720
Marketable securities and other
investments available for sale 17,463 25,661
Trade receivables (less allowances of
$987 in 1998 and $931 in 1997) 8,875 7,549
Inventories--Note B 13,112 11,000
Deferred income taxes 2,400 2,400
Prepaid expenses and other current assets 1,235 1,570
-------- --------
TOTAL CURRENT ASSETS 51,603 49,900
PROPERTY AND EQUIPMENT (at cost
less accumulated depreciation,
amortization of $11,725 in 1998
and $11,172 in 1997) 6,282 6,072
INTANGIBLE ASSETS
(at cost less accumulated amortization of
$1,196 in 1998 and $913 in 1997) 3,971 4,204
OTHER ASSETS 23,907 25,770
-------- --------
TOTAL ASSETS $ 85,763 $ 85,946
======== ========
See notes to consolidated financial statements.
<PAGE>
PUBCO CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets--Continued
($ in 000's except share amounts)
September 30 December 31
1998 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 7,353 $ 7,918
Accrued liabilities 10,222 11,505
-------- --------
TOTAL CURRENT LIABILITIES 17,575 19,423
LONG-TERM DEBT 1,811 -
DEFERRED CREDITS AND NONCURRENT LIABILITIES 23,324 23,812
MINORITY INTEREST 808 662
STOCKHOLDERS' EQUITY
Preferred Stock:
Convertible Preferred Stock - par value $1;
20,000 shares authorized, none issued - -
Preferred Stock - par value $.01;
2,000,000 shares authorized, 70,000
Series A shares issued and outstanding
($7,000 aggregate liquidation preference
in 1998 and 1997) 1 1
Common Stock:
Common Stock - par value $.01; 5,000,000
shares authorized; 3,201,131 issued and
3,199,131 outstanding in 1998 and 3,200,871
issued and 3,198,871 outstanding in 1997 32 32
Class B Stock - par value $.01; 2,000,000
shares authorized, 553,342 issued and
outstanding in 1998 and 553,602 issued
and outstanding in 1997 6 6
Additional paid in capital 32,180 32,180
Unrealized gains on investments
available for sale 165 3,586
Cumulative translation adjustment 88 (10)
Retained earnings 9,785 6,266
-------- --------
42,257 42,061
Treasury stock at cost,
2,000 shares in 1998 and 1997 (12) (12)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 42,245 42,049
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 85,763 $ 85,946
======== ========
See notes to consolidated financial statements.
<PAGE>
PUBCO CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
($ in 000's except share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
l998 l997 1998 1997
<S> <C> <C> <C> <C>
Net sales $ 16,531 $ 12,161 $ 53,852 $ 38,748
Cost of sales 10,673 8,567 35,731 27,477
-------- -------- -------- --------
GROSS PROFIT 5,858 3,594 18,121 11,271
Costs and expenses:
Selling, general and
administrative expenses 4,723 2,864 14,453 8,380
Interest, net (543) (689) (1,710) (2,072)
-------- -------- -------- --------
4,180 2,175 12,743 6,308
Other income, net 273 61 906 516
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES
AND MINORITY INTEREST 1,951 1,480 6,284 5,479
Provision for income taxes 599 55 1,963 221
-------- -------- -------- --------
INCOME BEFORE MINORITY INTEREST 1,352 1,425 4,321 5,258
Minority interest (25) (45) (146) (163)
-------- -------- -------- --------
NET INCOME $ 1,327 $ 1,380 $ 4,175 $ 5,095
======== ======== ======== ========
Preferred stock dividend requirements 218 218 656 656
-------- -------- -------- --------
NET INCOME APPLICABLE
TO COMMON STOCKHOLDERS $ 1,109 $ 1,162 $ 3,519 $ 4,439
======== ======== ======== ========
NET INCOME PER SHARE $ .30 $ .31 $ .94 $ 1.18
======== ======== ======== ========
Weighted average number
of shares outstanding 3,752,473 3,752,473 3,752,473 3,752,473
========= ========= ========= =========
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
PUBCO CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
($ in 000's except share amounts)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
l998 1997
<S> <C> <C>
OPERATING ACTIVITIES
Net income from continuing operations $ 4,175 $ 5,095
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 823 854
Net (gain) on sales of securities (832) (459)
Net loss on disposal of fixed assets - 71
Minority interest 146 163
Changes in operating assets and liabilities:
Trade receivables (1,326) (1,524)
Inventories (2,112) (652)
Other assets 2,142 (4,461)
Accounts payable (565) 466
Other current liabilities (1,283) (1,002)
Deferred credits and noncurrent liabilities (390) 4,337
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 778 2,888
INVESTING ACTIVITIES
Purchases of marketable securities (1,098) (8,887)
Proceeds from sale of marketable securities 6,707 10,119
Purchases of fixed assets (744) (136)
Proceeds from the sale of fixed assets - 26
-------- --------
NET CASH PROVIDED BY INVESTING ACTIVITIES 4,865 1,122
FINANCING ACTIVITIES
Net borrowings on loans payable - 300
Proceeds from long-term debt 11,868 13,801
Principal payments on long-term debt (10,057) (13,689)
Dividends paid (656) (656)
-------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 1,155 (244)
-------- --------
INCREASE IN CASH AND CASH EQUIVALENTS 6,798 3,766
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,720 1,539
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 8,518 $ 5,305
======== ========
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
PUBCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in 000's except share amounts)
September 30, 1998
NOTE A -- Basis of Presentation
The financial information presented herein should be read in conjunction
with the consolidated financial statements and footnotes included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1997.
The consolidated balance sheet as of December 31, 1997 has been derived from
the audited financial statements at that date.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments considered necessary for a fair presentation have been
included, all of which are of a normal recurring nature.
Net income per common share has been computed by dividing net income after
preferred dividend requirements by the weighted average number of shares of
Common Stock and Class B Stock outstanding during the periods. The
Preferred Stock dividend requirement is an annual variable dividend,
currently $12.50 per share.
Financial Instruments: The Company's financial instruments recorded on the
balance sheet include cash and cash equivalents. Because of their short
maturity, the carrying amount of cash and cash equivalents approximates fair
value.
Off balance sheet financial instruments include foreign currency exchange
agreements. In the normal course of business, the Company's construction
products subsidiary purchases components from a German supplier and from
time to time, enters into foreign currency exchange contracts with banks in
order to fix its trade payables denominated in the Deutsche Mark. The
contract amounts outstanding and the net deferred gains or losses were not
significant at September 30, 1998 and December 31, 1997.
Certain prior year amounts have been reclassified to conform to the 1998
presentation.
<PAGE>
PUBCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in 000's except share amounts)
September 30, 1998
NOTE B -- Inventories
The components of inventories consist of the following:
September 30 December 31
1998 1997
Raw materials and supplies $ 6,953 $ 5,585
Work in process 879 596
Finished goods 5,280 4,819
------- -------
$13,112 $11,000
======= =======
NOTE C -- Comprehensive Income
As required, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income," in the first quarter of 1998. SFAS No. 130 established new rules
for the reporting and display of comprehensive income and its components.
This standard does not impact net income or total stockholders' equity.
SFAS No. 130 requires the Company's change in its unrealized gains on
investments available for sale and foreign currency translation adjustment
to be included in other comprehensive income. The prior period's financial
statements have been reclassified to these requirements.
Total comprehensive income consists of the following:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
l998 l997 1998 1997
<S> <C> <C> <C> <C>
Net Income $ 1,327 $ 1,380 $ 4,175 $ 5,095
------- ------- ------- -------
Other Comprehensive Income:
Unrealized holding gains (losses)
on investments available for sale
arising during the period (1,916) 722 (2,589) $ 2,149
Less reclassification adjustment
for gains on investments available
for sale (189) (35) (832) (459)
Unrealized currency translation adjustments
arising during the period 45 - 98 -
------- ------- ------- -------
Total Other Comprehensive Income (2,060) 687 (3,323) 1,690
------- ------- ------- -------
Total Comprehensive Income $( 733) $ 2,067 $ 852 $ 6,785
======= ======= ======= =======
</TABLE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
RESULTS OF OPERATIONS
Comparison of the Three and Nine Months Ended September 30, 1998 and 1997
Income before income taxes and minority interest increased in both the three
and nine month periods of 1998 from 1997 primarily because of an increase in
income at the Company's printer supplies business, which since October 20,
1997 has included Kroy, a producer of commercial and industrial labeling
equipment and supplies.
Sales increased in both the three and nine month periods of 1998 from 1997
primarily because of the inclusion of Kroy.
Gross profit percentage increased in both the three and nine month periods
of 1998 from 1997 primarily because of the inclusion of Kroy.
Selling, general and administrative expenses increased in both the three and
nine month periods of 1998 from 1997 primarily because of the inclusion of
Kroy.
The change in interest, net, in both the three and nine month periods of
1998 from 1997 is primarily the result of a decrease in interest income
because of the purchase and funding of Kroy.
In the year ended December 31, 1997, in accordance with SFAS No. 109,
"Accounting for Income Taxes", the Company's valuation allowance on its
deferred tax assets related to net operating loss carryforwards and certain
deductible temporary differences was reduced. The increase in the provision
for income taxes in both the three and nine month periods of 1998 reflects
the usage of a portion of the deferred tax asset that was recognized at
December 31, 1997.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1998, the Company had $25,981,000 of cash, cash
equivalents, marketable securities and other short-term investments and
$1,811,000 of long term debt. In October, 1997, the Company used
approximately $5,000,000 to purchase the Common Stock of Kroy and acquire
its bank debt. The Company's remaining marketable securities and other
short term investments continue to be subject to risk of loss and
fluctuations in value. The income generated from the remaining marketable
securities and other short-term investments may not be the same from year to
year or period to period. The Company will continue to buy, hold and sell
marketable securities and other short term investments to the extent funds
are not required to make additional acquisitions of operating businesses.
The Company also has a $2,500,000 working capital line for its printer
supplies business. At September 30, 1998, there were no borrowings under
this line of credit. The Company also has a $3,000,000 working capital line
of credit for its construction products business. At September 30, 1998,
borrowing under this line of credit was $1,811,000. The Company also has a
$10,000,000 line of credit which it uses for the issuance of letters of
credit and which can be used for other purposes, including acquisitions. At
September 30, 1998, letters of credit aggregating $2,161,400 were
outstanding, but there were no borrowings under this line. The Company is
continually reviewing business acquisition opportunities.
Regarding the functionality of the Company's computer systems for the year
2000, the systems utilized by the printer supplies business and Pubco
corporate (including stock transfer functions), are currently compliant.
All of such systems had been routinely acquired by the Company and were
already year 2000 compliant. Not all of the computer systems used by the
Company's construction products business are presently year 2000 compliant.
The construction products business expects that such systems will become
completely compliant at a cost not to exceed $350,000 and that such
compliance will be substantially completed by the end of 1999.
Stockholders' equity of $42,245,000 at September 30, 1998 includes Common
and Preferred stockholders' equity. In order to calculate Common
stockholders' equity at September 30, 1998, the face value of the Preferred
Stock ($7,000,000) and any unpaid cumulative dividends on the Preferred
Stock must be subtracted from total stockholders' equity. There were no
unpaid cumulative preferred stock dividends outstanding at September 30,
1998.
<PAGE>
PART II - OTHER INFORMATION
Item l. LEGAL PROCEEDINGS. Not Applicable
Item 2. CHANGES IN SECURITIES. None
Item 3. DEFAULTS UPON SENIOR SECURITIES. None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company held its Annual Meeting of Stockholders on September
14, 1998. At the Meeting, Stockholders were asked to reelect all of
the Company's Directors and to approve the Company's 1998 Equity
Incentive Plan, which had been described in detail in the Company's
Information Statement mailed to all Stockholders of record.
Glenn E. Corlett, William A. Dillingham, Harold L. Inlow, Stephen
R. Kalette and Robert H. Kanner were each reelected as Directors of
the Company to serve until the next annual meeting of Stockholders
or until their successors were duly elected and qualified. Each
Director received 7,345,024 votes, being all of the votes cast at
the Meeting. There were no votes cast against any Director nor
were there any abstensions.
The Stockholders also approved the Company's 1998 Equity Incentive
Plan. The Plan received the favorable vote of all 7,345,024 votes
represented at the Meeting. There were no votes cast against the
Plan nor were there any abstensions.
Item 5. OTHER INFORMATION. None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Financial Data Schedule
(b) Reports on Form 8-K
None
<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.
PUBCO CORPORATION
/s/ Robert H. Kanner
----------------------------
Robert H. Kanner
Chief Executive Officer and
Chief Financial Officer
Dated: November 2, 1998
<PAGE>
EXHIBIT INDEX
Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
CONSOLIDATED BALANCE SHEET AT 09/30/98 AND CONSOLIDATED STATEMENTS OF
OPERATIONS FOR THE 9-MONTHS ENDED 09/30/98 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 8,518
<SECURITIES> 17,463
<RECEIVABLES> 9,862
<ALLOWANCES> 987
<INVENTORY> 13,112
<CURRENT-ASSETS> 51,603
<PP&E> 18,007
<DEPRECIATION> 11,725
<TOTAL-ASSETS> 85,763
<CURRENT-LIABILITIES> 17,575
<BONDS> 1,811
0
1
<COMMON> 38
<OTHER-SE> 42,206
<TOTAL-LIABILITY-AND-EQUITY> 85,763
<SALES> 53,852
<TOTAL-REVENUES> 53,852
<CGS> 35,731
<TOTAL-COSTS> 35,731
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 6,284
<INCOME-TAX> 1,963
<INCOME-CONTINUING> 4,175
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,175
<EPS-PRIMARY> .94
<EPS-DILUTED> .94
</TABLE>
