<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, 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 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 November 9, 1999: 3,752,473.
<PAGE>
PUBCO CORPORATION
Page Number
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of
September 30, 1999 and December 31, 1998 . . . . . 3
Consolidated Statements of Operations
for the Three and Nine Months Ended
September 30, 1999 and 1998. . . . . . . . . . . . 5
Consolidated Statements of Cash Flows
for the Nine Months Ended September 30,
1999 and 1998. . . . . . . . . . . . . . . . . . . . 6
Notes to Consolidated Financial Statements . . . . . 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations. . . . . . . . . . . . . . . . . . . . 10
PART II - OTHER INFORMATION . . . . . . . . . . . . . . . . . . 12
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. . . . . . . . . . . . . . . . . . . . . . . . . . . 13
<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
1999 1998
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 10,947 $ 9,816
Marketable securities and other
investments available for sale 16,028 16,376
Trade receivables (less allowances of
$783 in 1999 and $848 in 1998) 10,020 7,972
Inventories--Note B 11,844 11,625
Deferred income taxes 1,644 1,600
Prepaid expenses and other current assets 2,522 1,449
-------- --------
TOTAL CURRENT ASSETS 53,005 48,838
PROPERTY AND EQUIPMENT (at cost
less accumulated depreciation,
amortization of $12,113 in 1999
and $11,760 in 1998) 6,195 5,488
INTANGIBLE ASSETS
(at cost less accumulated amortization of
$1,078 in 1999 and $1,294 in 1998) 3,601 3,891
OTHER ASSETS 27,189 27,142
-------- --------
TOTAL ASSETS $ 89,990 $ 85,359
======== ========
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
1999 1998
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 8,641 $ 6,118
Accrued liabilities 6,855 8,492
-------- --------
TOTAL CURRENT LIABILITIES 15,496 14,610
LONG-TERM DEBT 570 1,689
DEFERRED CREDITS AND NONCURRENT LIABILITIES 25,511 23,197
MINORITY INTEREST 853 684
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) 1 1
Common Stock:
Common Stock - par value $.01; 5,000,000
shares authorized; 3,201,251 issued and
3,199,251 outstanding in 1999 and 3,201,131
issued and 3,199,131 outstanding in 1998 32 32
Class B Stock - par value $.01; 2,000,000
shares authorized, 553,222 issued and
outstanding in 1999 and 553,342 issued
and outstanding in 1998 6 6
Additional paid in capital 32,180 32,180
Unrealized gains on investments
available for sale 760 263
Cumulative translation adjustment (41) (20)
Retained earnings 14,634 12,729
-------- --------
47,572 45,191
Treasury stock at cost,
2,000 shares in 1999 and 1998 (12) (12)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 47,560 45,179
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 89,990 $ 85,359
======== ========
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
l999 l998 1999 1998
<S> <C> <C> <C> <C>
Net sales $ 17,389 $ 16,531 $ 53,478 $ 53,852
Cost of sales 11,922 10,673 36,456 35,731
--------- --------- --------- ---------
GROSS PROFIT 5,467 5,858 17,022 18,121
Costs and expenses:
Selling, general and
administrative expenses 5,186 4,723 14,424 14,453
Interest expense 27 45 80 79
Interest income (482) (588) (1,641) (1,789)
Other expense (income), net 12 (273) (26) (906)
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES
AND MINORITY INTEREST 724 1,951 4,185 6,284
Provision for income taxes 286 599 1,494 1,963
--------- --------- --------- ---------
INCOME BEFORE MINORITY INTEREST 438 1,352 2,691 4,321
Minority interest (47) (25) (169) (146)
--------- --------- --------- ---------
NET INCOME $ 391 $ 1,327 $ 2,522 $ 4,175
========= ========== ========= =========
Preferred stock dividend requirements 206 218 617 656
--------- ---------- --------- ---------
NET INCOME APPLICABLE
TO COMMON STOCKHOLDERS $ 185 $ 1,109 $ 1,905 $ 3,519
========= ========= ========= =========
NET INCOME PER SHARE $ .05 $ .30 $ .51 $ .94
========= ========= ========= =========
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
l999 1998
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 2,522 $ 4,175
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 771 823
Deferred income taxes 1,565 1,745
Net loss (gain) on sales of securities 21 (832)
Net loss on disposal of fixed assets 11 -
Minority interest 169 146
Changes in operating assets and liabilities:
Trade receivables (2,048) (1,326)
Inventories (219) (2,112)
Accounts payable 2,523 (565)
Other current liabilities (1,637) (1,283)
Other, net (616) 7
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,062 778
INVESTING ACTIVITIES
Purchases of marketable securities (27) (1,098)
Proceeds from sale of marketable securities 1,142 6,707
Purchases of fixed assets (1,390) (744)
Proceeds from the sale of fixed assets 80 -
-------- --------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (195) 4,865
FINANCING ACTIVITIES
Proceeds from long-term debt 17,988 11,868
Principal payments on long-term debt (19,107) (10,057)
Dividends paid (617) (656)
-------- --------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (1,736) 1,155
-------- --------
INCREASE IN CASH AND CASH EQUIVALENTS 1,131 6,798
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 9,816 1,720
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 10,947 $ 8,518
======== ========
<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, 1999
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, 1998.
The consolidated balance sheet as of December 31, 1998 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 $11.75 per share.
On April 3, 1998, the Accounting Standards Executive Committee of the AICPA
issued Statement of Position 98-5 -- Reporting on the Cost of Start-Up
Activities ("SOP") which requires that costs related to start-up activities
be expensed as incurred. The Company adopted the SOP effective January 1,
1999. The effect of adoption of the SOP was not material to the Company's
1999 earnings or financial condition.
The Company's financial instruments recorded on the balance sheet include
cash and cash equivalents. Because of their short maturity, the carrying
amount of cash and cash equivalents approximates fair value.
Off balance sheet financial instruments include foreign currency exchange
agreements. In the normal course of business, the Company's construction
products subsidiary purchases components from a German supplier and from
time to time, enters into foreign currency exchange contracts with banks in
order to fix its trade payables denominated in the Deutsche Mark. The
contract amounts outstanding and the net deferred gains or losses were not
significant at September 30, 1999 and December 31, 1998.
Certain prior year amounts have been reclassified to conform to the 1999
presentation.
<PAGE>
PUBCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in 000's except share amounts)
September 30, 1999
NOTE B -- Inventories
The components of inventories consist of the following:
September 30 December 31
1999 1998
Raw materials and supplies $ 5,855 $ 6,389
Work in process 588 303
Finished goods 5,401 4,933
------- -------
$11,844 $11,625
======= =======
NOTE C -- Comprehensive Income
Total comprehensive income consists of the following for the three and nine
months ended September 30, 1999:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 June 30
l999 l998 1999 1998
<S> <C> <C> <C> <C>
Net Income $ 391 $ 1,327 $ 2,522 $ 4,175
Other Comprehensive Income:
Unrealized holding (losses) gains
on investments available for sale
arising during the period (454) (1,916) 476 (2,589)
Less reclassification adjustment
for losses (gains) on investments
available for sale 116 (189) 20 (832)
Unrealized currency translation adjustments
arising during the period 57 45 (21) 98
------- ------- ------- -------
Total Other Comprehensive Income (281) (2,060) 475 (3,323)
------- ------- ------- -------
Total Comprehensive Income $ 110 $ (733) $ 2,997 $ 852
======= ======= ======= =======
</TABLE>
<PAGE>
PUBCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in 000's except share amounts)
September 30, 1999
NOTE D -- Industry Segment Information
Summarized industry segment information is as follows:
<TABLE>
<CAPTION>
Printer Construction
Supplies Products
Business Business Corporate Consolidated
<S> <C> <C> <C> <C>
Three months ended
September 30, 1999
Net sales 9,996 7,393 - 17,389
Income before income taxes and
minority interest 436 574 (286) 724
Three months ended
September 30, 1998
Net sales 11,186 5,345 - 16,531
Income before income taxes and
minority interest 1,573 302 76 1,951
Nine months ended
September 30, 1999
Net sales 30,007 23,471 - 53,478
Income before income taxes and
minority interest 2,539 2,078 (432) 4,185
Nine months ended
September 30, 1998
Net sales 33,688 20,164 - 53,852
Income before income taxes and
minority interest 4,233 1,748 303 6,284
</TABLE>
The Company's operations are classified into two reportable business
segments. The Company's two reporting business segments are managed
separately based upon fundamental differences in their operations.
<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, 1999 and 1998
During the third quarter of 1999, the Company completed the relocation of
the administrative and sales functions of the Company's Kroy label printer
and supplies operation from Scottsdale, AZ to Cleveland, OH, made provision
for the sale or disposition of Kroy's Wisconsin coating operation and
substantially completed the transition to offshore manufacturing of Kroy's
label printers. These activities, which are non-recurring, had an
unfavorable impact on the Company's results of operations in the three and
nine month periods.
The changes in sales in the 1999 three and nine month periods from the sales
in the comparable 1998 periods were primarily the result of an increase in
sales at the construction products business offset by a decrease in sales at
the Company's printer supplies business, which sells supplies for both
impact and non-impact printing devices as well as labeling supplies and
machines. The decrease in sales in the printer supplies business is
primarily attributable to the decline in sales of supplies for impact
printers. This decline is expected to continue as additional impact
printers in the market place are replaced by other printing devices. The
Company recently introduced new products for its printer supplies business
however, any impact on sales will not begin until the year 2000. No
assurance can be given that these new product introductions will be
successful. A number of factors could affect their success, including
changes in technology, competitive pressures, raw material costs, patent
issues and other factors which affect businesses generally.
The decrease in gross profit percentage in the three and nine month periods
is primarily the result of the change in the mix of the Company's
consolidated sales. The Company's construction products business generated
a larger percentage of total sales, but historically achieves a lower gross
profit. While sales in the construction products business increased in both
periods, the mix of sales weighted more heavily toward lower gross profit
products. An additional factor in the third quarter contributed to the
increase in cost of sales and corresponding decrease in gross profit. The
Company's move to offshore manufacturing of its proprietary thermal label
printers prompted the Company to write down existing printer inventories to
the prices available from such sources and to write down existing parts
inventories which will no longer be used.
The increase in selling, general and administrative expenses during the
third quarter reflects expenses incurred as a result of the relocation of
Kroy's selling and administrative functions from Scottsdale to Cleveland and
the anticipated disposition of the Kroy's Wisconsin coating operations, as
described above.
<PAGE>
Gains from sales of securities were $189,000 and $832,000 in the three and
nine month 1998 periods compared to losses from sales of securities of
$116,000 and $20,000 in the 1999 periods. This is reflected in other net.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1999, the Company had $26,975,000 of cash, cash
equivalents, marketable securities and other short-term investments and
$570,000 of long term debt. The Company's marketable securities and other
short term investments continue to be subject to risk of loss and
fluctuations in value. The income generated from 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 is continually reviewing business acquisition opportunities.
The Company also has a $2,500,000 working capital line for its printer
supplies business. At September 30, 1999, 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, 1999,
borrowing under this line of credit was $570,000. 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.
There were no borrowings under this line at September 30, 1999. At
September 30, 1999, letters of credit with outstanding balances aggregating
$2,920,900 had been issued, primarily to purchase finished and raw material
inventories from foreign vendors for the printer supplies business.
Regarding the functionality of the Company's computer systems for the year
2000, the systems utilized by the Company and its subsidiaries are currently
compliant.
Stockholders' equity of $47,560,000 at September 30, 1999 includes Common
and Preferred stockholders' equity. In order to calculate Common
stockholders' equity at September 30, 1999, 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,
1999.
<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 9,
1999. At the Meeting, Stockholders were asked to reelect all of the
Company's Directors, add one new Director, and approve an amendment
to the Company's 1998 Equity Incentive Plan to increase the number
of shares that may be suject of awards thereunder. All of the
matters for consideration by the Company's Stockholders were
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. Jack Howard was elected as a new Director. Each of
the Directors elected will serve as a Director until the next
annual meeting of Stockholders or until their successors are duly
elected and qualified. Each Director received 7,345,190 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 amendment to the Company's 1998
Equity Incentive Plan which increased the number of shares that may
be the subject of awards thereunder. The amendment to the Plan
received the favorable vote of all 7,345,190 votes represented at
the Meeting. There were no votes cast against the amendment to 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
/s/ Maria Szubski
------------------------------
Maria Szubski
Chief Financial Officer
Dated: November 15, 1999
<PAGE>
EXHIBIT INDEX
Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
CONSOLIDATED BALANCE SHEET AT 09/30/1999 AND CONSOLIDATED STATEMENT
OF OPERATIONS FOR THE NINE MONTHS ENDING 09/30/1999 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-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 10,947
<SECURITIES> 16,028
<RECEIVABLES> 10,803
<ALLOWANCES> 783
<INVENTORY> 11,844
<CURRENT-ASSETS> 53,005
<PP&E> 18,308
<DEPRECIATION> 12,113
<TOTAL-ASSETS> 89,990
<CURRENT-LIABILITIES> 15,496
<BONDS> 570
0
1
<COMMON> 38
<OTHER-SE> 47,521
<TOTAL-LIABILITY-AND-EQUITY> 89,990
<SALES> 53,478
<TOTAL-REVENUES> 53,478
<CGS> 36,456
<TOTAL-COSTS> 36,456
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 80
<INCOME-PRETAX> 4,185
<INCOME-TAX> 1,494
<INCOME-CONTINUING> 2,522
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,522
<EPS-BASIC> .51
<EPS-DILUTED> .51
</TABLE>
