<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM l0-K
(Mark One)
/ X / ANNUAL REPORT PURSUANT TO SECTION l3 OR l5(d) OF THE SECURITIES EXCHANGE
ACT OF l934
For the fiscal year ended December 31, 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
Securities registered pursuant to Section l2(b) of the Act:
Title of each class Name of each exchange on which registered
None None
Securities registered pursuant to Section l2(g) of the Act:
Common Stock, Par Value $.0l Per Share
Class B Stock, Par Value $.01 Per Share
Common Stock Purchase Rights
(Title of class)
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
At March 1, 1999, the aggregate market value of the common shares held by
non-affiliates of the registrant (based upon the closing price of the Common
Stock), was approximately $10,672,511.
As of March 1, l999, 3,752,473 common shares (Common Stock and Class B Stock)
were outstanding.
Documents Incorporated by Reference Form l0-K Reference
None
The exhibit index begins on page of this Form l0-K.
<PAGE>
PART I
ITEM l. BUSINESS
The Company conducts two lines of business: the manufacture and sale
of supplies for computer printers and labeling devices (and the
manufacture of such labeling devices) and the manufacture and sale of
construction products. See Note K of Notes to Consolidated Financial
Statements for further information on industry segment reporting. The
printer supplies business is conducted by the Company and its
wholly-owned subsidiaries under the "Buckeye", "Aspen" and "Kroy"
tradenames. The construction products business is conducted by an 85%
owned subsidiary of the Company under the "Allied" tradename.
The Company also owns the "Bobbie Brooks" trademarks which are
licensed through Garan, Inc., an unaffiliated apparel-manufacturing firm,
exclusively to Wal-Mart and vendors supplying Wal-Mart with apparel
merchandise. The Company also owns other income generating assets.
In this Form 10-K, the terms "Pubco" means Pubco Corporation and the
"Company" means Pubco together with all of its divisions and
majority-owned and wholly-owned subsidiaries.
Pubco was established in 1958 and is a Delaware corporation. As of
March 1, 1999, the Company employed approximately 350 persons.
2.
<PAGE>
Printer Supplies Business
The Company manufactures or resells computer ribbons, cartridge
ribbons, computer paper, pressure sensitive labels, laser toner,
remanufactured toner cartridges, thermal transfer ribbons, ink-jet
supplies, magnetic media and commercial and industrial label printers and
supplies. The Company purchases supplies and component parts from
various suppliers, some of whom produce component parts on molds owned by
the Company. Printers are manufactured by the Company and by
subcontractors who produce printers from tools and dies owned by the
Company. The Company also publishes and sells the AspenGuideR, the
definitive computer printer industry compatibility guide which provides
cross-reference information concerning ribbons, fax, laser and other
related supplies.
The Company markets its computer and data processing supplies
products through (i) an in-house telemarketing organization primarily to
end-users in the United States; (ii) dealers, and (iii) original
equipment manufacturers. Label printers and supplies are principally
marketed throughout North America and Western Europe through distributors
and wholesalers, original equipment manufacturers who sell products under
their own tradenames, office machine and office product dealers,
specialty retailers and catalog houses.
The Company's printer supplies businesss has approximately 12,000
accounts, none of which represents 10% of its business.
Principal raw materials used by the Company include (i) nylon
impression fabric which is primarily purchased from one weaving mill, but
is readily available from other sources, (ii) uncoated free sheet paper,
which is purchased primarily from two suppliers, but is also readily
available from numerous sources, (iii) plastic cartridge components,
which are purchased from numerous suppliers, (iv) microprocessors and
printed circuit boards, which are available from numerous sources, and
(v) coatings and heat shrinkable tubing, all of which materials are
available from a variety of suppliers.
The Company's label printers and supplies are covered by a variety of
US and European patents which protect the propriety of the Company's
label products. The "Kroy" trademark is registered in over 40
countries. "Aspen Ribbons", "AspenGuide" and "Laser I" are registered
trademarks in the United States.
There are no dominant suppliers of product in the computer printing
supplies market, which has numerous manufacturers and resellers. The
label printer and supplies market is dominated by a half dozen producers,
some of whom have significantly greater resources than the Company. Some
of these producers concentrate on the high volume mass merchant channel,
which the Company has not aggressively pursued.
3.
<PAGE>
Construction Products Business
The Company designs, manufactures, assembles and distributes products
for the construction, utility and mining industries. These operations
are also housed in the Company's Cleveland, Ohio facility. Construction
products are divided into (i) products which are mounted on excavators,
industrial tractors, loaders and other equipment, including (A) hydraulic
hammers used for breaking rock, concrete and similar materials, (B)
hydraulic mounted compactors used for soil compaction and pile and
sheeting driving applications, (C) grapples used for material handling
and demolition, (D) asphalt cutters, and (E) hydraulic pedestal boom
systems used for breaking oversize material at rock crushing operations
and for waste handling operations; and (ii) underground products,
including (A) pneumatic piercing tools used to make horizontal holes for
placement or repair of underground utility lines, and (B) aluminum trench
supports used to support the walls of open construction trenches.
The Company has a long-term contractual relationship with Krupp
Bautechnik GmbH, a German manufacturer of hammers and component parts.
The Company purchases component parts from Krupp, assembles its own
hammer products using these and other components purchased domestically,
and sells and distributes hammer products in the United States and Canada
under its "Allied" tradenames. Under the agreement, Krupp does not sell
competing products in Allied's markets.
Construction product components and materials are purchased from a
variety of metal products manufacturers, hydraulic system component
suppliers, and steel and aluminum suppliers, principally located in the
United States. One domestic supplier presently provides approximately 7%
of construction product components and materials. No other supplier
represents more than 5% of the construction product component and
material purchases. Raw materials are available from a variety of
sources and all of the domestic vendors are replaceable.
Approximately 60% of the annual sales in the construction products
business occurs during the first half of the year.
Construction products are sold to over 275 customers. One customer
accounts for approximately 5.2% of the sales of the construction product
business. No other customer represents more than 5% of the annual sales
of the construction products business.
Firm order backlog totalled approximately $4,200,000 as of
March 3, 1999 compared to approximately $3,900,000 at March 13, 1998.
Construction products are marketed principally through distributors.
There are approximately 15 other foreign and domestic manufacturers in
the mounted product market and approximately 10 other foreign and
domestic manufacturers in the underground product market. None of the
Company's competitors is believed to hold a dominant position although
some have greater financial resources than the Company.
4.
<PAGE>
Trademark Licensing
Since 1986, the Company has been licensing use of its "Bobbie Brooks"
related trademarks to Garan, Incorporated. Garan and its sublicensees,
including Wal-Mart, sell sportswear under these labels exclusively at
Wal-Mart Stores. Licensing fees are recorded within the Corporate
segment in Industry Segment Information at Note K.
5.
<PAGE>
ITEM 2. PROPERTIES
The Company owns or leases the following properties:
Owned or Square
Location Leased Footage Use
Cleveland, OH Leased 312,000 Printer supply operations;
construction products
operations; executive/
administrative facilities;
portion subleased to third
party
Scottsdale, AZ Leased 4,400 Kroy's administrative
offices; leased through
December, 1999
St Croix Falls, WI Leased 11,500 Kroy's coating plant and
storage; leased through
February, 2000
Scottsdale, AZ Leased 10,100 Kroy's sign Division; leased
through December, 2000
Reading, England Leased 11,300 Kroy's European operations;
leased through September,
2006
Louisville, CO Leased 1,500 Aspen's sales offices; leased
through September, 2000
St. Louis, MO Owned 100,000 Commercial printing/offices;
leased month to month to a
3rd party
Havana, IL Owned 25,000 Retail; leased to a 3rd
party through 2000
ITEM 3. LEGAL PROCEEDINGS
The Company is not involved in any material pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of the year ended December 3l, l998.
6.
<PAGE>
PART II
ITEM 5. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
(a) Market Information.
Pubco's Common Stock is traded over-the-counter and quoted on
NASDAQ's SmallCap Market under the symbol "PUBO". The following table
presents the high and low sales prices of Pubco's Common Stock as
reported by NASDAQ.
1997
First Quarter $ 8 3/8 $ 7
Second Quarter 8 5/8 7 3/4
Third Quarter 11 1/2 8 1/4
Fourth Quarter 11 5/8 10 3/8
1998
First Quarter $13 1/2 $10 1/4
Second Quarter 15 1/2 12
Third Quarter 12 3/8 9 1/4
Fourth Quarter 10 3/4 8 1/4
Transferability of Class B Stock is restricted to certain family
members and others who are "Permitted Transferees" (as defined) and
accordingly there is no market for Class B Stock. However, Class B Stock
is convertible into Common Stock on a share-for-share basis.
(b) Holders.
There were approximately 8,450 holders of Common Stock of record and
approximately 240 holders of Class B Stock of record, as of March 1, 1999.
(c) Dividends.
Pubco has never paid cash dividends on its Common Stock and Class B
Stock and does not anticipate paying dividends on its Common Stock or
Class B Stock in the forseeable future. In addition, no dividends may be
paid on the Common Stock or Class B Stock while there is any unpaid
dividend on the Preferred Stock. No preferred stock dividends are in
arrears at December 31, 1998. Subject to the foregoing, the payment of
dividends will depend, among other factors, on earnings, capital
requirements and the operating and financial condition of the Company.
7.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
(All numbers shown in 000's except share data and ratios)
Selected Statement of Operations Data
<TABLE>
<CAPTION>
Years Ended December 31
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Net Sales $ 68,660 $ 53,902 $ 51,069 $ 47,590 $ 46,016
Income from continuing
operations before income
taxes and minority interest 6,778 6,437 5,828 4,036 3,454
Net Income (Loss):
Continuing Operations (A) 7,338 10,224 6,291 3,953 3,380
Discontinued Operations (B) - - - 1,100 (13,588)
Net Income (Loss) 7,338 10,224 6,291 5,053 (10,208)
Net Income (Loss) Applicable
to Common Stockholders (C) 6,463 9,367 5,416 4,178 (10,908)
Income (Loss) Per Share:
Continuing Operations (C) 1.72 2.50 1.50 .89 .77
Discontinued Operations (B) - - - .32 (3.92)
Net Income (Loss)
per Common Share (A) $ 1.72 $ 2.50 $ 1.50 $ 1.21 $ (3.15)
Weighted Average
Number of Shares 3,752,473 3,752,473 3,610,278 3,463,387 3,463,727
Selected Balance Sheet Data
December 31
1998 1997 1996 1995 1994
Working Capital Ratio 3.3 to 1 2.6 to 1 2.8 to 1 2.3 to 1 1.3 to 1
Total Assets $ 85,359 $ 85,946 $ 64,523 $ 57,157 $ 50,902
Long-term Debt 1,689 - - 2,407 949
Stockholders' Equity 45,179 42,049 31,335 21,515 16,548
Common Stockholders'
Equity (D) 38,179 35,049 24,335 14,515 9,548
Per Common Share (D) $ 10.17 $ 9.34 $ 6.49 $ 4.19 $ 2.76
Shares Outstanding
at Year End 3,752,473 3,752,473 3,752,473 3,461,727 3,463,727
<FN>
(A) Income in 1998, 1997 and 1996 includes the benefit of recording an increase in the
Company's deferred tax asset of $954, $4,265 and $735, respectively. Refer to Note I.
(B) Includes the discontinuance of the apparel and retail segments in 1994.
(C) Net of Preferred Stock dividend requirements.
(D) Common Stockholders' Equity and Stockholders' Equity Per Common Share are computed net of
the face value of Preferred Stock.
</TABLE>
8.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Comparison of 1998 and 1997
Income before income taxes and minority interest increased in 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 1998 from 1997 primarily because of the inclusion of
Kroy.
Gross profit percentage increased in 1998 from 1997 primarily because of
the inclusion of Kroy.
Selling, general and administrative expenses increased in 1998 from 1997
primarily because of the inclusion of Kroy.
The decrease in interest income in 1998 from 1997 is primarily the result
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 decrease in
benefit in 1998 reflects the usage of a portion of the deferred tax asset
that was recognized at December 31, 1997 offset by a slight decrease in
the valuation allowance in 1998. Refer to Note I -- Income Taxes in the
Notes to Consolidated Financial Statements.
Comparison of 1997 and 1996
Income before income taxes and minority interest increased in 1997 from
1996 primarily because of an increase in income both at the Company's
construction products business and printer supplies business. The
increase in net income applicable to common stockholders in 1997 from
1996 is primarily the result of the increase in the recognition of the
benefits of deferred tax assets in 1997 ($4,265,000) from that of 1996
($735,000).
Sales increased in 1997 from 1996 primarily because the inclusion of Kroy
more than offset the decrease in sales at the Company's other businesses.
Gross profit percentage increased in 1997 from 1996 primarily because of
the inclusion of Kroy which maintains a higher gross profit percentage
than the Company's other businesses and the lower cost of sales at the
Company's construction products business arising from favorable currency
fluctuations.
Selling, general and administrative expenses increased in 1997 from 1996
because of the inclusion of Kroy.
9.
<PAGE>
The change in interest expense is primarily the result of lower borrowing
levels at the Company's construction products business during 1997
compared to 1996. Earnings from the Company's cash and cash equivalents
and marketable securities and other short term investments increased
because of increases in the amount of such assets during the year prior
to the acquisition of Kroy.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1998, the Company had $26,192,000 of cash, cash
equivalents, marketable securities and other short-term investments and
$1,689,000 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 the 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 has a $2,500,000 working capital line for its printer
supplies business. At December 31, 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 December 31,
1998, borrowing under this line of credit was $1,689,000. 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 December 31, 1998, letters of credit aggregating
$1,528,900 were outstanding, but there were no borrowings under this
line. The Company is continually reviewing business acquisition
opportunities.
At December 31, 1998, the Company had commitments for capital
expenditures of approximately $1,400,000, most of which were for
equipment purchased for the printer supplies business. The Company will
pay these amounts in 1999 primarily from existing funds.
Stockholders' equity of $45,179,000 at December 31, 1998 includes Common
and Preferred stockholders' equity. In order to calculate Common
stockholders' equity at December 31, 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
December 31, 1998.
10.
<PAGE>
In 1997, the Company reduced the valuation allowance by $5,065,000
resulting in a deferred tax benefit of $4,265,000. In 1998, the Company
reduced the valuation allowance by $2,700,000 resulting in a deferred tax
benefit of $954,000. The reductions recorded were based upon future
taxable income projections over the next several years made by management
of the Company. These projections take into consideration the recent
acquisition of Kroy and the taxable income generated by the Company over
the past three years. The Company will need to generate approximately
$15,000,000 of future taxable income in order to realize the deferred tax
assets recorded at December 31, 1998. This paragraph contains forward
looking statements. The level of taxable income generated by the Company
during the past three years is not necessarily indicative of the
Company's ability to generate taxable income in future years. In
addition, the Company's acquisition of Kroy does not assure profitability
of that or other Company operations. A number of factors could prevent
the Company from generating taxable income in the future or lower such
income, including changes in technology, competitive pressures, raw
material price increases, patent issues, and other factors which affect
businesses generally.
Year 2000
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 completed before the
end of 1999.
New Accounting Standards
Refer to Note A -- Significant Accounting Policies in the Notes to
Consolidated Financial Statements.
11.
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not hold or issue derivative financial instruments for
trading purposes.
Interest Rate Risk. The Company is exposed to market risk from changes in
interest rates on its borrowings and investing activities. The Company has
investments in various domestic and foreign debt securities which mature
between the year 2000 and 2009. These investments had a market value of
over $11,000,000 at December 31, 1998. Substantially all of these
investments are denominated in US dollars at fixed rates of interest.
Increases and decreases in prevailing interest rates generally translate to
decreases and increases in market value of those debt instruments. Based
upon recent interest rate fluctuations, the Company does not believe that
near term changes in interest rates will materially affect the Company's
consolidated financial position, results of operations or cash flows. In
addition, these instruments may be affected by the creditworthiness of the
issuer, prepayment options, relative values of alternative investments,
liquidity of the instruments, and other general market conditions. Interest
rates on lines of credit are variable, based upon prime or LIBOR rates.
Outstanding borrowings at December 31, 1998 were not significant.
Foreign Currency Risks. The Company is also exposed to foreign currency
exchange rate risk. The Company's European operations expose it to
translation risk when the local currency financial statements are translated
to US Dollars. These currency exchange rate fluctuations may affect
comparability of revenues and expenses from year to year. The European
subsidiary is not significant to the Company's consolidated operations and,
therefore, its operations do not result in any significant exposure to the
Company from foreign currency exchange rate fluctuations. In the normal
course of business, the Company's US operations make purchases that are
denominated in foreign currency. One of the Company's US based operations
enters into foreign currency exchange contracts with banks in order to fix
its trade payables denominated in foreign currency. There were no such
amounts outstanding at year end.
12.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
PUBCO CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1998
13.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Pubco Corporation
We have audited the accompanying consolidated balance sheets of Pubco
Corporation and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1998.
Our audits also included the financial statement schedule listed in the
index at Item 14(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Pubco Corporation and subsidiaries at December 31, 1998 and
1997, and the consolidated results of their operations and their cash
flows for each of the three years in the period ended December 31, 1998,
in conformity with generally accepted accounting principles. Also, in
our opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents
fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
-----------------------------
Ernst & Young LLP
Akron, Ohio
March 24, 1999
14.
<PAGE>
CONSOLIDATED BALANCE SHEETS
PUBCO CORPORATION AND SUBSIDIARIES
($ in 000's except share amounts)
December 3l
1998 1997
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 9,816 $ 1,720
Marketable securities and other
investments available for sale--Note D 16,376 25,661
Trade receivables (less allowances of
$848 in 1998 and $931 in 1997) 7,972 7,549
Inventories--Note H 11,625 11,000
Deferred income tax assets 1,600 2,400
Prepaid expenses and other current assets 1,449 1,570
-------- --------
TOTAL CURRENT ASSETS 48,838 49,900
PROPERTY AND EQUIPMENT--Note H 5,488 6,072
INTANGIBLE ASSETS ARISING FROM ACQUISITIONS
(at cost less accumulated amortization of
$1,294 in 1998 and $913 in 1997)--Note A 3,891 4,204
OTHER NONCURRENT ASSETS 27,142 25,770
-------- --------
TOTAL ASSETS $ 85,359 $ 85,946
======== ========
See notes to consolidated financial statements.
15.
<PAGE>
CONSOLIDATED BALANCE SHEETS--CONTINUED
PUBCO CORPORATION AND SUBSIDIARIES
($ in 000's except share amounts)
December 3l
1998 l997
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 6,118 $ 7,918
Accrued liabilities--Note H 8,492 11,505
-------- --------
TOTAL CURRENT LIABILITIES 14,610 19,423
LONG TERM DEBT--Note G 1,689 -
DEFERRED CREDITS AND NONCURRENT LIABILITIES 23,197 23,812
MINORITY INTERESTS 684 662
STOCKHOLDERS' EQUITY--Notes A, C and E
Preferred Stock:
Preferred Stock-par value $.01; 2,000,000
shares authorized, 70,000 shares issued
and outstanding in 1998 and 1997 ($7,000
aggregate liquidation preference) 1 1
Convertible preferred stock-par value $1;
20,000 shares authorized, none issued - -
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
Retained earnings 12,729 6,266
Accumulated other comprehensive income 243 3,576
-------- --------
45,191 42,061
Treasury stock at cost, 2,000 shares
in 1998 and 1997 (12) (12)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 45,179 42,049
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 85,359 $ 85,946
======== ========
See notes to consolidated financial statements.
16.
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
PUBCO CORPORATION AND SUBSIDIARIES
($ in 000's except share amounts)
<TABLE>
<CAPTION>
Year Ended December 3l
1998 1997 1996
<S> <C> <C> <C>
Net sales $ 68,660 $ 53,902 $ 51,069
Cost of sales 45,747 37,510 36,747
-------- -------- --------
GROSS PROFIT 22,913 16,392 14,322
Selling, general and administrative expenses 19,086 13,470 11,339
Interest expense 120 48 113
Interest income (2,370) (2,777) (2,400)
Other income, net (701) (786) (558)
-------- ------- --------
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST 6,778 6,437 5,828
(Benefit) for income taxes--Note I (696) (3,955) (534)
-------- ------- -------
INCOME BEFORE MINORITY INTEREST 7,474 10,392 6,362
Minority interest (136) (168) (71)
-------- ------- -------
NET INCOME 7,338 10,224 6,291
Preferred stock dividend requirements 875 857 875
-------- -------- --------
NET INCOME APPLICABLE TO COMMON STOCKHOLDERS $ 6,463 $ 9,367 $ 5,416
======== ======== ========
NET INCOME PER SHARE--Note A $ 1.72 $ 2.50 $ 1.50
======== ======== ========
Weighted average number of shares
outstanding--Notes A and E 3,752,473 3,752,473 3,610,278
========= ========= =========
<FN>
See notes to consolidated financial statements.
</TABLE>
17.
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
PUBCO CORPORATION AND SUBSIDIARIES
($ in 000's except share amounts)
<TABLE>
Three Years Ended December 3l, l998
<CAPTION>
Preferred Common Class B Accumulated
Stock Stock Stock Additional Retained Other
Par Par Par Paid In Earnings Comprehensive
Value Value Value Capital (Deficit) Income Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996 $ 1 $29 $ 6 $30,082 $ (9,392) $ 801 $21,527
Net income for 1996 6,291 6,291
Other comprehensive
Income--Note C 1,428 1,428
Total comprehensive -------
income 7,719
Preferred Stock
dividends paid at
$12.50 per share
--Note E (875) (875)
Shares issued
(290,746)--Note B 3 2,973 2,976
--- --- --- ------- -------- ------- -------
Balance at December 31,
1996 $ 1 $32 $ 6 $32,180 $ (3,101) $ 2,229 $31,347
Net income for 1997 10,224 10,224
Other comprehensive
Income--Note C 1,347 1,347
Total comprehensive -------
income 11,571
Preferred Stock
dividends paid at
$12.25 per share
--Note E (857) (857)
--- --- --- ------- -------- ------- -------
Balance at December 31, 1997 $ 1 $32 $ 6 $32,180 $ 6,266 $ 3,576 $42,061
Net income for 1998 7,338 7,338
Other comprehensive
Income--Note C (3,333) (3,333)
Total comprehensive -------
income 4,005
Preferred Stock
dividends paid at
$12.50 per share
--Note E (875) (875)
--- --- --- ------- -------- ------- -------
Balance at December 31, 1998 $ 1 $32 $ 6 $32,180 $ 12,729 $ 243 $45,191
=== === === ======= ======== ======= =======
<FN>
See notes to consolidated financial statements.
</TABLE>
18.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
PUBCO CORPORATION AND SUBSIDIARIES
($ in 000's except share amounts)
<TABLE>
<CAPTION>
Year Ended December 3l
1998 1997 1996
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 7,338 $ 10,224 $ 6,291
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,031 1,180 1,358
Deferred income taxes (800) (4,265) (735)
Net (gain) on sales of securities (595) (779) (51)
Net loss (gain) on disposal of fixed assets 1 71 (500)
Minority interest 22 54 (36)
Changes in operating assets and liabilities
net of acquisitions:
Trade receivables (423) 34 648
Inventories (625) (1,149) 766
Accounts payable (1,800) 387 486
Other current liabilities (3,013) (1,023) (380)
Other, net 274 422 (755)
--------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,410 5,156 7,092
INVESTING ACTIVITIES
Purchases of marketable securities (1,692) (9,971) (20,882)
Proceeds from sales of marketable securities 8,404 11,323 9,320
Purchases of fixed assets (851) (154) (173)
Proceeds from the sale of fixed assets 11 27 2,095
Acquisition of Kroy - (273) -
Purchase of subsidiaries' stock - - (43)
--------- -------- --------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 5,872 952 (9,683)
FINANCING ACTIVITIES
Net (repayments) on loans payable - - (289)
Proceeds from long-term debt 16,822 24,325 26,294
Principal payments on long-term debt (15,133) (29,395) (28,919)
Dividends paid on preferred stock (875) (857) (875)
--------- -------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 814 (5,927) (3,789)
--------- -------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 8,096 181 (6,380)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,720 1,539 7,919
--------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 9,816 $ 1,720 $ 1,539
<FN>
See notes to consolidated financial statements.
</TABLE>
19.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PUBCO CORPORATION AND SUBSIDIARIES
December 3l, l998
($ in 000's except share amounts)
NOTE A--SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The consolidated financial statements of Pubco
Corporation ("Company" or "Pubco") include the accounts of the Company and its
wholly-owned and majority-owned subsidiaries. Intercompany balances and
transactions have been eliminated in consolidation.
On October 20, 1997, Pubco acquired all of the outstanding stock of Kroy, Inc.
(which later became Kroy LLC). The operations of Kroy from the date of its
acquisition are included in the consolidated statements of operations and its
assets and liabilities are included in the consolidated balance sheets.
The Company includes its Buckeye Business Products, Inc. division ("Buckeye")
and its Aspen Imaging International, Inc. ("Aspen") subsidiary which
manufacture and market computer and data processing supplies, and Pubco owns
approximately 85% of Allied Construction Products, Inc. ("Allied"), which
manufactures and distributes products for the construction and related
industries. Pubco also owns other income producing assets.
Cash and Cash Equivalents: Cash equivalents are composed of all highly liquid
investments generally with a maturity of three months or less at the time of
purchase, carried at cost, which approximates fair value.
Marketable Securities and Other Investments: Marketable securities and other
investments are classified as available for sale and, accordingly, are stated
at fair value, with the unrealized gains and losses reported in a separate
component of stockholders' equity. Realized gains and losses, and declines in
value judged to be other-than-temporary, are included in "other income, net"
in the consolidated statements of operations. The cost of securities sold is
based on the specific identification method.
Inventories: Inventories are stated at the lower of cost (first-in,
first-out) or market.
Financial Instruments: The Company's financial instruments recorded on the
balance sheet include cash and cash equivalents and marketable securities,
other investments and long term debt. Long term debt is at market rates of
interest that adjust frequently. The carrying amount of long term debt
approximates fair value.
Off balance sheet financial instruments include foreign currency exchange
agreements. In the normal course of business, the Company's construction
20.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
PUBCO CORPORATION AND SUBSIDIARIES
NOTE A--SIGNIFICANT ACCOUNTING POLICIES--CONTINUED
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 Company had
no amounts outstanding at December 31, 1998 and 1997.
Long-lived Assets: Property and equipment are recorded at cost with
depreciation and amortization principally computed by the straight-line method
over the following estimated useful lives: buildings, 10 to 30 years;
machinery, equipment and fixtures, 5 to 10 years; and leasehold improvements,
5 to 10 years.
Intangible assets ("goodwill") represents the excess of the purchase price
over the fair value of the net assets of acquired businesses and is being
amortized by the straight-line method, in most cases over 10 to 20 years. The
carrying amount of goodwill is reviewed if facts and circumstances suggest
that it may be impaired. If this review indicates that goodwill will not be
recoverable, as determined based on the estimated undiscounted cash flows of
the entity acquired over the remaining amortization period, the carrying
amount of the goodwill is reduced by the estimated shortfall of cash flows.
Impairment of long-lived assets is recognized when events or changes in
circumstances indicate that the carrying amount of the asset or related groups
of assets may not be recoverable. Measurement of the amount of impairment may
be based on appraisal, market values of similar assets or estimated discounted
future cash flows resulting from use and ultimate disposition of the asset.
Revenue Recognition: Revenue is recognized generally upon shipment.
Research and Development Costs: The Company performs research and development
on present and future products and all costs are expensed as incurred. Total
expenditures amounted to $1,380, $638 and $385 for the years ended December
31, 1998, 1997 and 1996.
Per Common Share Amounts: Per common share amounts are computed after
preferred dividend requirements on the basis of the weighted average number of
shares of Common Stock outstanding. The Company had no dilutive securities
outstanding for any period presented. Accordingly, basic and diluted earnings
per share are the same.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
21.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
PUBCO CORPORATION AND SUBSIDIARIES
NOTE A--SIGNIFICANT ACCOUNTING POLICIES--CONTINUED
New Accounting Standards: In June, 1998, the Financial Accounting Standards
Board (FASB) issued Statement No. 133, Accounting for Derivative Instruments
and Hedging Activities, which is required to be adopted in years beginning
after June 15, 1999. The Statement permits early adoption as of the beginning
of any fiscal quarter after its issuance. The Statement will require the
Company to recognize all derivatives on the balance sheet at fair value.
Derivatives that are not hedges must be adjusted to fair value through
income. If the derivative is a hedge, depending on the nature of the hedge,
changes in the fair value of the derivative will either be offset against the
change in fair value of the hedged assets, liabilities, or firm commitments
through earnings or recognized in other comprehensive income until the hedged
item is recognized in earnings. The ineffective portion of a derivative's
change in fair value will be immediately recognized in earnings.
The Company has not yet determined what the effect of Statement No. 133 will
be on its earnings and financial position and has not yet determined the
timing or method of adoption. However, the Statement could increase
volatility in earnings and comprehensive income.
On April 3, 1998, the Accounting Standards Executive Committee of the AICPA
issued Statement of Position 98-5 -- Reporting on the Costs Of Start-Up
Activities (the "SOP"). The SOP is effective for the Company in 1999 and
would require the writeoff of any amounts deferred within the Balance Sheet
related to start-up activities, as defined within the SOP. The Company has
reviewed the provisions of the SOP and does not believe that its adoption will
have a material adverse impact on its earnings or financial condition.
Reclassifications: Certain amounts presented in prior years' financial
statements and the notes thereto have been reclassified to conform with the
1998 presentation.
22.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
PUBCO CORPORATION AND SUBSIDIARIES
NOTE B--BUSINESS COMBINATIONS
On October 20, 1997, Pubco purchased all of the stock of Kroy, Inc. and a
Company subsidiary acquired Kroy's bank debt for approximately $5,000. The
subsidiary now acts as Kroy's secured lender.
The acquisition has been accounted for as a purchase and, accordingly, the
operating results of Kroy have been included in the Company's consolidated
financial statements since the date of acquisition. The excess of the
aggregate purchase price over the fair market value of net assets acquired of
approximately $3,300 is being amortized over 20 years.
The following unaudited proforma consolidated results of operations for the
years ending December 31, 1997 and 1996 assume the Kroy acquisition occurred
as of January 1, 1996.
1997 1996
Net sales $72,822 $77,954
======= =======
Net income $ 8,547 $ 4,123
======= =======
Earnings per common share $ 2.28 $ .90
======= =======
23.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
PUBCO CORPORATION AND SUBSIDIARIES
NOTE C--OTHER COMPREHENSIVE INCOME
As required, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income" in 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
conform with these requirements.
Other comprehensive income consists of the following:
Year Ended December 31
l998 l997 1996
Other Comprehensive Income:
Unrealized holding gains (losses)
on investments available for sale
arising during the period $(2,728) $ 2,136 $ 1,479
Less reclassification adjustment
for gains on investments available
for sale (595) (779) (51)
Unrealized currency translation
adjustments arising during the period (10) (10) -
------- ------- -------
Total Other Comprehensive Income $(3,333) $ 1,347 $ 1,428
======= ======= =======
Accumulated Other Comprehensive Income:
Unrealized holding gains (losses)
on investments available for sale $ 263 $ 3,586 $ 2,229
Cumulative translation adjustment (20) (10) -
------- ------- -------
Total accumlated other comprehensive
income $ 243 $ 3,576 $ 2,229
======= ======= =======
24.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
PUBCO CORPORATION AND SUBSIDIARIES
NOTE D--MARKETABLE SECURITIES
The following is a summary of available for sale securities:
<TABLE>
<CAPTION>
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gains (Losses) Value
<S> <C> <C> <C> <C>
December 31, 1998
US Corporate Equity Securities $ 4,835 $ 1,124 $ (698) $ 5,261
US Corporate Debt Securities 5,716 132 (541) 5,307
Foreign Government Debt Securities 719 256 - 975
Foreign Corporate Debt Securities 4,688 145 - 4,833
-------- -------- -------- --------
$ 15,958 $ 1,657 $ (1,239) $ 16,376
======== ======== ======== ========
December 31, 1997
US Corporate Equity Securities $ 4,426 $ 991 $ (9) $ 5,408
US Corporate Debt Securities 10,444 1,274 (110) 11,608
Foreign Government Debt Securities 2,294 1,062 - 3,356
Foreign Corporate Debt Securities 4,911 420 (42) 5,289
-------- -------- -------- --------
$ 22,075 $ 3,747 $ (161) $ 25,661
======== ======== ======== ========
</TABLE>
The gross realized gains on sales of securities available for sale totaled
$998, $855 and $1,086 for 1998, 1997 and 1996, respectively. The gross
realized losses totaled $403, $76 and $1,035 in 1998, 1997 and 1996,
respectively.
The cost and estimated fair value of debt securities at December 31, 1998,
by estimated maturity, are shown below. Expected maturities may differ
from contractual maturities because the issuers of the securities may have
the right to prepay obligations without prepayment penalties.
Estimated
Cost Fair Value
Due in one year or less $ - $ -
Due after one year through three years 2,347 2,298
Due after three years 8,776 8,817
-------- --------
$ 11,123 $ 11,115
======== ========
25.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
PUBCO CORPORATION AND SUBSIDIARIES
NOTE E--STOCKHOLDERS' EQUITY
The Company's Common Stock has one vote per share and Class B Stock has ten
votes per share. Transferability of Class B Stock is restricted and,
accordingly, there is no market for Class B Stock. However, Class B Stock
is convertible into Common Stock on a share-for-share basis. Conversions
of Class B Stock were 260, 2,783 and 645 shares during 1998, 1997 and 1996,
respectively.
The Company's non-voting Preferred Stock Series A requires cumulative
annual dividends on the $100 face value per share at four percent above the
averaged base lending rate of three large commercial banks. No dividend
may be paid on Common Stock while there is any dividend arrearage on the
Preferred Stock. In 1998, the Company paid $875 ($12.50 per share) of
Preferred Stock Series A dividends. The Company's Preferred Stock is
subject to redemption, in whole or in part, at the Company's option at a
redemption price equal to the face value of the Preferred Stock (and any
unpaid cumulative dividends). As of December 31, 1998, there were no
undeclared and unpaid dividends on the Preferred Stock.
Stockholders' equity of $45,179 at December 31, 1998 includes Common and
Preferred stockholders' equity. In order to calculate Common stockholders'
equity at December 31, 1998, the face value of the Preferred Stock ($7,000)
and any unpaid cumulative dividends on the Preferred Stock must be
subtracted from total stockholders' equity.
The 1998 Equity Incentive Plan provides for the grant of (i) incentive and
non-statutory stock options, (ii) stock bonuses, (iii) rights to purchase
restricted stock, and (iv) stock appreciation rights, to key employees,
officers and consultants of the Company and its affiliates. The maximum
number of shares of Common Stock issuable under the Plan as approved by the
stockholders is 200,000. No stock awards were issued under the Plan during
1998. During 1999, the Board amended the Plan, subject to stockholder
approval within 12 months of the date of the amendment, to increase the
number of shares issuable under the Plan by 120,000 shares to 320,000
shares. Also in 1999, the Board issued non-statutory stock options to
purchase 220,000 shares at $9.00 per share, 20,000 of which are subject to
approval of the amendment by the stockholders. The options vest over four
years. None of such options are presently exercisable.
26.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
PUBCO CORPORATION AND SUBSIDIARIES
NOTE F--RETIREMENT PLANS
The Company maintains two discretionary non-qualified profit sharing plans
to provide retirement benefits for certain of its key employees. The
assets are segregated, and are included in Other Noncurrent Assets. The
liabilities associated with these plans are included in Other Liabilities.
In 1997, the Company adopted a 401(k) plan for its printer supplies
business and its corporate employees. The construction products business
also maintains a 401(k) plan. Kroy also maintains a 401(k) for its
employees. The Company partially matches employee deferrals under these
plans. Expenses under these various plans aggregated approximately $419,
$391 and $366 for the years ended December 3l, 1998, l997 and l996,
respectively.
The Company makes contributions to a collectively-bargained, multiemployer
defined benefit pension plan. The Company contributed and charged to
expense $77, $55 and $10 for the years ended December 3l, l998, l997 and
1996, respectively, for the plan. These contributions are determined in
accordance with the provisions of a negotiated labor contract and generally
are based on the amount of wages earned. Information as to the Company's
portion of the accumulated plan benefits, plan net assets and unfunded
vested benefits, if any, is not determinable. In the event of a withdrawal
from the plan, the Company may be subject to a withdrawal liability under
the provisions of the Multiemployer Pension Plan Amendments Act of 1980.
Management does not intend to take any action that would subject the
Company to any such liability under the plan.
The Company maintains a noncontributory defined benefit pension plan
covering employees who are under a collective bargaining agreement and
sponsors a pension plan for terminated employees of a former operation of a
predecessor company. The excess actuarial present value of accumulated
plan benefits over net assets available for benefits under these plans was
approximately $381 and $226 at December 31, 1998 and 1997, respectively,
which amounts have been reflected in the accompanying balance sheets.
Expenses under these plans were approximately $74, $73 and $62 for 1998,
1997 and 1996, respectively.
Since 1986, the Company's President has deferred his salary under the terms
of deferred compensation plans established for his benefit. As
compensation is earned by him, it is paid by the Company to deferred
compensation trusts and included in selling, general and administrative
expenses. Amounts are being distributed to him by the trusts in accordance
with the terms of the deferred compensation plans. The securities included
in these trusts are classified as trading and, accordingly, are stated at
fair value. Unrealized gains (losses) were ($3,313), ($1,055) and $1,564
for the years ended December 31, 1998, 1997 and 1996, respectively.
27.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
PUBCO CORPORATION AND SUBSIDIARIES
NOTE F--RETIREMENT PLANS--CONTINUED
Realized and unrealized gains and losses, interest, dividends and plan
expenses are reflected in other income, net, and total ($59), $4,615 and
$3,013 for the years ended December 31, 1998, 1997 and 1996, respectively.
There is no resulting effect on net income, because these are matched by
adjustments to deferred compensation expense, which are also included in
other income, net. The amounts of these charges were $59, ($4,615) and
($3,013) for the years ended December 31, 1998, 1997 and 1996, respectively.
The Company provides life insurance benefits and/or contributes to the cost
of medical insurance for certain retired salaried and commission basis
employees. The accumulated postretirement benefit obligation and related
expense recorded for each year are not material to the balance sheet or the
results of operations.
NOTE G--FINANCING ARRANGEMENTS
The Company has a $10,000 revolving credit facility at LIBOR plus 1.5% or
the lending bank's prime rate ("Prime"), at the Company's option, expiring
in 2000, with no outstanding borrowings at December 31, 1998. The Company
has a $2,500 demand credit facility at LIBOR plus 2% or Prime, at the
Company's option, with no outstanding balance at December 31, 1998. The
Company has a $3,000 revolving credit facility at LIBOR plus 2.5% or Prime,
at the Company's option, expiring in 2000, with $1,689 outstanding at
weighted average interest rate of 7.58% at December 31, 1998.
Total interest payments by the Company were $113, $59 and $120 for the
years ended December 31, 1998, 1997 and 1996, respectively.
28.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
PUBCO CORPORATION AND SUBSIDIARIES
NOTE H--OTHER INFORMATION
December 31
1998 1997
Inventories:
Raw materials and supplies $ 6,389 $ 5,585
Work in process 303 596
Finished goods 4,933 4,819
-------- --------
$ 11,625 $ 11,000
======== ========
Property and equipment:
Land and buildings $ 1,475 $ 1,475
Machinery, equipment and fixtures 12,344 12,427
Leasehold improvements 3,192 3,154
Construction in progress 237 188
-------- --------
17,248 17,244
Less accumulated depreciation and
amortization (11,760) (11,172)
-------- --------
$ 5,488 $ 6,072
======== ========
Other noncurrent assets:
Assets held for deferred compensation $ 19,394 $ 19,659
Deferred income tax assets 4,200 2,600
Other 3,548 3,511
-------- --------
$ 27,142 $ 25,770
======== ========
Accrued liabilities:
Payroll and other employee benefits $ 2,462 $ 3,552
Accrued taxes 1,687 1,659
Other 4,343 6,294
-------- --------
$ 8,492 $ 11,505
======== ========
Deferred credits and non-current
liabilities:
Deferred compensation liability $ 19,394 $ 19,659
Other 3,803 4,153
-------- --------
$ 23,197 $ 23,812
======== ========
Under current accounting rules, assets of the deferred compensation trusts
must be accounted for as if they are assets of the Company although the assets
are not available for general corporate use by the Company and could only be
available to creditors of the Company in the event of the Company's bankruptcy.
29.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
PUBCO CORPORATION AND SUBSIDIARIES
NOTE I--INCOME TAXES
Pubco and its consolidated subsidiaries file a consolidated federal income tax
return. The (benefit) provision for income taxes consists of the following
components:
Year Ended December 3l
1998 1997 1996
Federal provision-current $ 190 $ 199 $ 156
Deferred benefit (954) (4,265) (735)
State and local provision-current 68 111 45
------ ------ ------
$ (696) ($3,955) $ (534)
====== ====== ======
Income taxes paid by the Company were $258, $310 and $192 for the years ended
December 31, 1998, 1997 and 1996, respectively.
A reconciliation of the statutory federal income tax rate to the effective
rate is as follows:
Year Ended December 3l
1998 1997 1996
Statutory federal rate 34.0% 34.0% 34.0%
State and local tax, net of
federal tax benefit .3 1.0 .6
Reduction of valuation allowance
for deferred tax assets (39.8) (95.1) (33.6)
Other (4.8) (1.3) (10.2)
---- ---- ----
(10.3%) (61.4%) (9.2%)
==== ==== ===
At December 31, 1998, the Company had available net operating loss
carryforwards of approximately $3,900 for federal income tax purposes.
Approximately $656 are subject to limitations based on certain subsidiaries'
ability to generate future taxable income. The loss carryforwards, if not
used, will expire as follows: $140 in 2007, $260 in 2008 and $3,500 in 2009.
In addition, for tax purposes, the Company has investment tax credit
carryforwards of approximately $70 which expire between 1999 and 2000 and
alternative minimum tax credit carryforwards of approximately $1,040.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities, for financial
reporting purposes, and the amounts used for income tax purposes. Significant
30.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
PUBCO CORPORATION AND SUBSIDIARIES
NOTE I--INCOME TAXES--CONTINUED
components of the Company's federal and state deferred tax assets and
liabilities are as follows:
1998 1997
Deferred tax assets:
Net operating loss carryforwards
and credits $ 2,800 $ 4,700
Deferred compensation 7,200 6,100
Other 3,600 4,900
-------- --------
Total deferred tax assets 13,600 15,700
Deferred tax liabilities:
Tax over book depreciation 500 700
Other 200 200
-------- --------
Total deferred tax liabilities 700 900
-------- --------
Net deferred tax assets 12,900 14,800
Valuation allowance for
deferred tax assets (7,100) (9,800)
-------- --------
Net deferred taxes $ 5,800 $ 5,000
======== ========
The Company continually reviews the adequacy of the valuation allowance and is
recognizing these benefits only as reassessment indicates that it is more
likely than not that the benefits will be realized.
In 1997, the Company reduced the valuation allowance by $5,065 resulting in a
deferred tax benefit of $4,265. In 1998, the Company reduced the valuation
allowance by $2,700 resulting in a deferred tax benefit of $954. The
reductions recorded were based upon future taxable income projections over the
next several years made by management of the Company. These projections take
into consideration the recent acquisition of Kroy and the taxable income
generated by the Company over the past three years. The Company would need to
generate approximately $15,000 of future taxable income in order to realize
the net deferred taxes recordable at December 31, 1998.
31.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
PUBCO CORPORATION AND SUBSIDIARIES
NOTE J--LEASING ARRANGEMENTS
Pubco and certain of its subsidiaries are parties to separate leasing
arrangements for office and factory space in an approximately 312,000 square
foot building owned and operated by a partnership that is controlled by the
majority stockholder of the Company. The Company's printer supplies business
and construction products business conduct substantially all of their business
activities from this building. Pubco has its corporate offices at this
building. The leases expire in 2005. The leases require annual payments
aggregating $549. Rent expense associated with these leases was $549 for each
of the years ended December 31, 1998, 1997 and 1996.
The Company and its subsidiaries lease certain facilities and equipment under
non-cancellable leases for periods ranging from 1 to 10 years. Total rental
expense from continuing operations under all operating leases is summarized
below:
Year Ended December 31
1998 1997 1996
Minimum rentals $ 1,491 $ 867 $ 600
Sublease rental income (67) (66) (61)
------- ------- -------
$ 1,424 $ 801 $ 539
======= ======= =======
At December 3l, l998, the commitments under non-cancellable operating leases
are as follows:
Operating
Leases
l999 $ 1,083
2000 848
2001 672
2002 651
2003 650
Thereafter 532
-------
$ 4,436
=======
32.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
PUBCO CORPORATION AND SUBSIDIARIES
NOTE K--INDUSTRY SEGMENT INFORMATION
<TABLE>
<CAPTION>
Summarized industry segment information is as follows:
Printer Construction
Supplies Products
Business Business Corporate Consolidated
<S> <C> <C> <C> <C>
1998
Net sales $ 44,272 $ 24,388 $ - $ 68,660
Trade receivables 5,200 2,762 10 7,972
Income before income taxes and minority interest 4,655 1,577 546 6,778
Identifiable assets 19,846 10,210 55,303 85,359
Capital expenditures 579 225 47 851
Depreciation and amortization 401 373 257 1,031
1997
Net sales $ 29,373 $ 24,529 $ - $ 53,902
Trade receivables 4,969 2,460 120 7,549
Income before income taxes and minority interest 3,840 1,992 605 6,437
Identifiable assets 22,195 9,257 54,494 85,946
Capital expenditures 29 94 31 154
Depreciation and amortization 160 390 630 1,180
1996
Net sales $ 25,930 $ 25,139 $ - $ 51,069
Trade receivables 2,445 1,909 56 4,410
Income before income taxes and minority interest 3,344 1,624 860 5,828
Identifiable assets 10,610 8,528 45,385 64,523
Capital expenditures 45 57 71 173
Depreciation and amortization 348 381 629 1,358
</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.
The Company has a subsidiary which sells printer supplies in Europe and
contributes approximately 8% to the Company's consolidated sales and
represents approximately 3% of the Company's consolidated assets. Total
long-lived assets of this subsidiary are not material.
Corporate includes income producing assets, certain amounts related to the
previously discontinued segments and amounts held for deferred compensation
arrangements. The printer supplies business includes the operations of Kroy
which was acquired in October, 1997.
33.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
PUBCO CORPORATION AND SUBSIDIARIES
NOTE L--QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The Company's unaudited quarterly results of operations in 1998 and 1997 are set
forth below.
1998
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
Net sales $ 20,035 $ 17,286 $ 16,531 $ 14,808
======== ======== ======== ========
Gross profit $ 6,551 $ 5,712 $ 5,858 $ 4,792
======== ======== ======== ========
Net income $ 1,567 $ 1,281 $ 1,327 $ 3,163
======== ======== ======== ========
Income applicable to
Common Stockholders $ 1,348 $ 1,062 $ 1,109 $ 2,944
======== ======== ======== ========
Net income per
common share $ .36 $ .28 $ .30 $ .78
======== ======== ======== ========
1997
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
Net sales $ 13,705 $ 12,882 $ 12,161 $ 15,154
======== ======== ======== ========
Gross profit $ 3,821 $ 3,856 $ 3,594 $ 5,121
======== ======== ======== ========
Net income $ 2,007 $ 1,708 $ 1,380 $ 5,129
======== ======== ======== ========
Income applicable to
Common Stockholders $ 1,788 $ 1,489 $ 1,162 $ 4,928
======== ======== ======== ========
Net income per
common share $ .48 $ .39 $ .31 $ 1.32
======== ======== ======== ========
Net income in the 4th quarter of 1997 included an adjustment to recognize
deferred tax assets of $4,265. A change in the Company's effective tax rate in
the 4th quarter of 1998 resulted in a $2,610 adjustment to net income.
34.
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Identification of Directors and Executive Officers
Glenn E. Corlett, age 55, Director since February, 1997, has been
Dean of the Business School at Ohio University since July 1, 1997.
Between November, 1996 and June 30, 1997, Mr. Corlett was an independent
business consultant. Prior to November, 1996, Mr. Corlett was the
Executive Vice President and Chief Operating Officer of N.W. Ayer,
Incorporated, an advertising agency he joined in 1990.
William A. Dillingham, age 55, Director, has been President of the
Company's printer supplies business for more than the past five years.
Mr. Dillingham was appointed a Director of the Company in December, 1997.
Harold L. Inlow, age 65, Director, is an independent business
consultant who has consulted for the Company since 1995. Mr. Inlow was
President of the Company's former retail subsidiary prior to 1995. Mr.
Inlow was appointed a Director of the Company in December, 1997.
Stephen R. Kalette, age 48, has been a Director of Pubco since
December, 1983 and has been an executive officer of Pubco since April,
1984. Mr. Kalette currently serves as its Vice President,
Administration, General Counsel and Secretary.
Robert H. Kanner, age 51, has been a Director and executive officer
of Pubco since December, 1983. Mr. Kanner currently serves as its
Chairman, President and Chief Financial Officer.
Leo L. Matthews, age 59, has been President of the Company's
construction products business since it was acquired in March, 1993.
Between 1987 and 1993, Mr. Matthews provided consulting services in
strategic planning, marketing, management and finance.
Family Relationships
There are no familial relationships between any Director and
executive officer of Pubco.
35.
<PAGE>
Board of Directors
The Board of Directors establishes broad corporate policies which are
carried out by the officers of Pubco who are responsible for day-to-day
operations. In 1998, the Board held two meetings and took action by
unanimous written consent on two other occasions. No Director was absent
during the year from any of the meetings of the Board of Directors or of
any of the committees of the Board on which he served.
Committees of the Board of Directors
Pubco has a standing Audit Committee. The Audit Committee, which did
not meet in 1998, consists of Mr. Corlett and Mr. Inlow. The Audit
Committee (i) reviews the internal controls of Pubco and its financial
reporting; (ii) meets with the Chief Financial Officer and such other
officers as it, from time to time, deems necessary; (iii) meets with
Pubco's independent public auditors and reviews the scope and results of
auditing procedures, the degree of such auditors' independence, audit and
non-audit fees charged by such auditors, and the adequacy of the
Company's internal accounting controls; and (iv) recommends to the Board
the appointment of the independent auditors.
36.
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
<TABLE>
The following table discloses compensation paid or accrued, during each of the Company's last three
fiscal years, to the Company's Chief Executive Officer and to its other executive officers.
<CAPTION>
Long-Term Compensation
Annual Compensation Awards Payouts
Name and Other Annual Restricted LTIP All Other
Principal Bonus Compensation Stock Options Payouts Compensation
Position Year Salary($) ($) ($) Awards ($) SARs(#) ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert H. Kanner(1)
Chairman, CEO, 1998 $525,000 --- $74,710(2) --- --- --- $181,605(3,4,5)
President & 1997 525,000 --- 72,014 --- --- --- 184,691
CFO 1996 525,000 --- 64,917 --- --- --- 185,560
Stephen R. Kalette
VP-Admin., 1998 $330,000 --- $27,600(6) --- --- --- $ 35,757(4,5)
General Counsel 1997 330,000 --- 26,416 --- --- --- 35,799
& Secretary 1996 330,000 --- 25,022 --- --- --- 35,076
William A. Dillingham(7)
President of 1998 $450,000 --- $10,091(7) --- --- --- $ 31,000(5,8)
Buckeye Division 1997 450,000 --- 5,473 --- --- --- 31,000
1996 450,000 --- 7,284 --- --- --- 30,000
Leo L. Matthews(9)
President of 1998 $130,000 $ 70,000 $ 5,703(10) --- --- --- $ 11,000(11)
Allied 1997 130,000 90,900 5,163 --- --- --- 10,847
1996 120,000 85,055 5,459 --- --- --- 7,200
37.
<PAGE>
<FN>
(1) Mr. Kanner deferred his entire salary for each of the years reported under the terms
of deferred compensation plans established for his benefit. The amounts reported
for each year are the amounts deferred for that year. As compensation is earned by
Mr. Kanner, it is paid by the Company to deferred compensation trusts. These
amounts are being distributed to Mr. Kanner by the trusts in accordance with the
terms of the deferred compensation plans.
(2) Of the amount shown in the table, $70,258 in 1998, $67,620 in 1997 and $61,370 in
1996 represents the premiums on life insurance paid for by the Company on Mr.
Kanner's life, and for which the Company is not a beneficiary; and $4,452 in 1998,
$4,394 in 1997 and $3,547 in 1996 represents the cost of providing Mr. Kanner with
use of an automobile during the year.
(3) Of the amount reflected, $122,100 in 1998, $125,400 in 1997 and $127,900 in 1996
represents a payment by the Company toward the premium on split dollar life
insurance on Mr. Kanner's life and for which the Company is not the beneficiary.
The amounts will be repaid to the Company out of the death proceeds from such policy.
(4) In 1988, the Company adopted a non-qualified plan to provide retirement benefits for
executive officers and other key employees. The plan provides benefits upon
retirement, death or disability of the participant and benefits are subject to a
restrictive vesting schedule. $58,505 in 1998, $58,291 in 1997 and $57,660 in 1996
of the amounts shown in the table for Mr. Kanner and $34,757 in 1998, $34,799 in
1997 and $35,076 in 1996 of the amounts shown in the table for Mr. Kalette are
amounts contributed to such plan for the benefit of such executive officers with
respect to the years noted. Vesting of benefits under the plan is phased in over 20
years and only a portion of the amount contributed for each year has fully vested.
(5) In 1997, the Company adopted a 401-K plan to provide retirement benefits for
employees of Pubco and the Company's printer supplies business, including officers.
Participating employees make voluntary contributions to the Plan, a portion of which
the Company matches. Of the amounts shown in the 1998 and 1997 tables for Mr.
Kalette and Mr. Kanner, $1,000 was contributed by Pubco to such plan. Of the amount
shown in the 1998 and 1997 tables for Mr. Dillingham, $1,000 was contributed by
Buckeye to such plan. Vesting of benefits under the plan is phased in over six
years.
(6) Of the amount shown in the table, $23,085 in 1998, $22,210 in 1997 and $21,396 in
1996 represents the premiums on life insurance paid for by the Company on Mr.
Kalette's life, and for which the Company is not a beneficiary; and $4,057 in 1998,
$3,725 in 1997 and $3,154 in 1996 represents the cost of providing Mr. Kalette with
use of an automobile during the year
(7) All of the amounts shown as paid to or for Mr. Dillingham were paid by the Company's
printer supplies business. Of the amount shown in the table, $4,425 in 1998, $3,885
in 1997 and $3,535 in 1996 represents the premiums on life insurance paid for by the
Company's printer supplies business on Mr. Dillingham's life, and for which it is
not a beneficiary; and $5,666 in 1998, $1,588 in 1997 and $3,749 in 1996 represents
the cost of providing Mr. Dillingham with use of an automobile during the year.
(8) In 1988, the Company's printer supplies business adopted a non-qualified plan to
provide retirement benefits for executive officers and other key employees. The
plan provides benefits upon retirement, death or disability of the participant and
38.
<PAGE>
benefits are subject to arestrictive vesting schedule. Of the amount shown in the
table for Mr. Dillingham, $30,000 was contributed to such plan for the benefit of
such executive officer with respect to each of the years noted. Vesting of benefits
under the plan is phased in over 20 years and only a portion of the amount
contributed for each year has fully vested.
(9) All of the amounts shown as paid to or for Mr. Matthews were paid by the Company's
construction products business. Mr. Matthews has an employment agreement with such
business providing for a minimum $130,000 per year base salary; a share of Allied's
earnings in excess of its operating plan earnings, if any, and discretionary bonuses.
(10) Of the amount shown in the table, $1,710 in 1998, $1,710 in 1997 and $1,710 in 1996
represents the premiums on life insurance paid for by the construction products
business on Mr. Matthew's life, and for which it is not a beneficiary; and $3,993 in
1998, $3,453 in 1997 and $3,749 in 1996 represents the cost of providing Mr.
Matthews with use of an automobile during that year.
(11) In 1993, the Company's construction products business adopted a 401-K plan (with a
profit sharing component) to provide retirement benefits for its employees,
including officers. Participating employees make voluntary contributions to the
Plan, a portion of which such business matches. All of the amount shown in the
table for Mr. Matthews was contributed by Allied to such plan. Vesting of benefits
under the plan is phased in over three years.
</TABLE>
Unless covered by an employment agreement with the Company, officers
serve for one year terms or until their respective successors are duly
elected and qualified.
1998 Equity Incentive Plan
In July, 1998, the Board of Directors adopted the Company's 1998
Equity Incentive Plan, subject to approval by the Company's stockholders
which was obtained at the Annual Meeting of Stockholders held on
September 14, 1998. The Plan provides for the grant of (i) incentive and
non-statutory stock options, (ii) stock bonuses, (iii) rights to purchase
restricted stock, and (iv) stock appreciation rights, to key employees,
officers and consultants of the Company and its affiliates. The maximum
number of shares of Common Stock issuable under the Plan as approved by
the stockholders is 200,000. No stock awards were issued under the Plan
during 1998. During 1999, the Board amended the Plan, subject to
stockholder approval within 12 months of the date of the amendment, to
increase the number of shares issuable under the Plan by 120,000 shares
to 320,000 shares. Also in 1999, the Board issued non-statutory stock
options to purchase 220,000 shares, 20,000 of which are subject to
approval of the amendment by the stockholders. Mr. Dillingham and Mr.
Kalette were issued options to purchase 100,000 and 20,000 shares,
respectively, under the Plan. Other officers and non-officer employees
of the Company were issued options to purchase a total of 100,000
shares. None of such options are presently exercisable.
39.
<PAGE>
Compensation of Directors
The Company pays its outside Director an annual fee of $15,000,
payable monthly. The Company also reimburses its Directors for any
expense reasonably incurred while performing services for the Company.
Directors who are employees of the Company or otherwise receive
compensation from the Company do not receive any fee for acting as
Directors of the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As Directors of the Company, Mr. Kanner and Mr. Kalette participate
in Board of Directors' deliberations and decisions concerning executive
officer compensation. Mr. Kanner and Mr. Kalette are executive officers
of the Company.
40.
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of March 1, 1999 (i) the number of
shares of Pubco's stock owned, directly or indirectly, by each Director
and executive officer of the Company and by all Directors and officers as
a group, and (ii) the number of shares of Pubco's stock held by each
person who was known by Pubco to beneficially own more than 5% of Pubco's
stock:
<TABLE>
<CAPTION>
Common Stock Class B Stock Aggregate
Amount and Nature Amount and Nature Percent of
of Beneficial Percent of of Beneficial Percent of Voting
Name of Holder Ownership (1)(2) Class Ownership (1)(2) Class Power
<S> <C> <C> <C> <C> <C>
Glenn E. Corlett -- -- -- -- --
Harold L. Inlow -- -- -- -- --
Stephen R. Kalette 166 * 13,759 2.5 1.6
Robert H. Kanner(3) 2,066,894 64.6 514,044 92.9 82.5
William A. Dillingham 3,725 * -- -- *
Leo L. Matthews(4) -- -- -- -- --
3830 Kelley Avenue
Cleveland, OH 44114
All Directors and
officers as a group 2,070,785 64.7 527,903 95.4 84.2
(7 persons)(3)
FMR Corp. (5)
82 Devonshire Street
Boston, MA 02109 319,500 9.9 -- -- 3.7
<FN>
* indicates less than 1%.
</TABLE>
(1) Except as set forth below, each owner has sole voting and investment
power with respect to the shares beneficially owned by him.
(2) Class B Stock is convertible into Common Stock on a share for share
basis. Therefore, ownership of Class B Stock may also be deemed to
be beneficial ownership of the same number of shares of Common Stock.
(3) Does not include 800 shares of Common Stock owned by Mr. Kanner as
custodian for his children, as to which shares he disclaims
beneficial ownership.
(4) Mr. Matthews owns approximately 3.6% of the Common Stock of Allied.
(5) Information concerning FMR Corp. is based upon disclosure contained
in a Schedule 13(G) filed with the SEC and the Company as of February
1, 1999.
41.
<PAGE>
Warrants and Options to Purchase Securities
No warrants, options or rights to purchase the Company's Common Stock
were granted by the Company to, or exercised by, any officer or Director
of the Company during 1998. SEE ITEM 11, Executive Compensation - 1998
Equity Incentive Plan.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company leases a general purpose 312,000 square foot building in
Cleveland, Ohio (the "Building") on a triple net basis. The premises are
used for executive and administrative facilities, the manufacturing and
administrative operations of the Company's printer supplies business and
the manufacturing and administrative operations of the Company's
construction products business. Pubco subleases a portion of the
Building to an unrelated party. The annual rental for the Building is
approximately $548,700. The Partnership that owns the Building is 80%
owned and controlled by Mr. Kanner. Mr. Dillingham, Mr. Kalette and five
other individuals have a minority interest in the Partnership.
42.
<PAGE>
PART IV
ITEM l4. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) l. List of Financial Statements
Page Number
Consolidated Balance Sheets at
December 3l, l998 and l997........................ 14
Consolidated Statements of Income
for each of the three years in the
period ended December 3l, l998.................... 16
Consolidated Statements of Stockholders'
Equity for each of the three years in
the period ended December 3l, l998................ 17
Consolidated Statements of Cash Flows
for each of the three years in the
period ended December 3l, l998.................... 18
Notes to Consolidated Financial Statements........ 19
2. List of Financial Statement Schedules
Schedule II - Valuation and Qualifying
Accounts.......................................... S-1
All other schedules for which provision is made in the
applicable accounting regulations of the Securities and
Exchange Commission are not required under the related
instructions or are inapplicable and therefore have been
omitted.
3. List of Exhibits
Exhibit
No. Description
10.32 August 26, 1998 (Ninth) Amendment to Credit
Facility and Security Agreement dated March 1,
1993 between Allied Construction Products, Inc.
and KeyBank National Association.
43.
<PAGE>
21 Subsidiaries of the Registrant.
27 Financial Data Schedule.
The following exhibits were previously filed with the Commission as
indicated in the bracketed [] references and are hereby incorporated
by reference.
Exhibit
No. Description
2.1 Agreement and Plan of Merger dated April 26, 1996
between Pubco Corporation and Bobbie Brooks,
Incorporated [Registration Statement on Form S-4
No. 333-02951, Exhibit 2.1].
2.2 Sale and Liquidation Agreement dated April 26,
1996 between Pubco Corporation, PSI, Inc. and
Aspen Imaging International, Inc. [Registration
Statement on Form S-4 No. 333-02951, Exhibit 2.2].
3.1 Certificate of Incorporation of Pubco, as amended
[Form 10-K for year ended December 31, 1987,
Exhibit 3.1 and Information Statement dated June
27, 1990 for August 14, 1990 Annual Meeting of
Stockholders, Appendix I].
3.2 By-Laws of Pubco, as amended [Form 10-K for year
ended December 31, 1986, Exhibit 3.2(a)].
10.19 Credit Facility and Security Agreement dated
March 1, 1993 between Allied Construction
Products, Inc. and Society National Bank [Form
10-K for year ended December 31, 1993, Exhibit
10.19].
10.20 Amendments to Credit Facility and Security
Agreement dated March 1, 1993 between Allied
Construction Products, Inc. and Society National
Bank [Form 10-K for year ended December 31, 1994,
Exhibit 10.20].
10.21 June 30, 1995 (Fifth) Amendment to Credit
Facility and Security Agreement dated March 1,
1993 between Allied Construction Products, Inc.
and Society National Bank. [Form 10-K for year
ended December 31, 1995, Exhibit 10.21]
10.22 December 4, 1996 (Sixth) Amendment to Credit
Facility and Security Agreement dated March 1,
1993 between Allied Construction Products, Inc.
and KeyBank National Association. [Form 10-K for
year ended December 31, 1996, Exhibit 10.22]
44.
<PAGE>
10.25 Stock Purchase Agreement between Pubco and Kroy
Holding Company. [Form 8-K dated October 20,
1997, Exhibit 10.25]
10.26 Stock Purchase Agreement between Pubco and Marion
and Warren Pollock. [Form 8-K dated October 20,
1997, Exhibit 10.26]
10.27 Stock Purchase Agreement between Pubco and Quest
Equities Corp. [Form 8-K dated October 20, 1997,
Exhibit 10.27]
10.28 June 30, 1997 (Seventh) Amendment to Credit
Facility and Security Agreement dated March 1,
1993 between Allied Construction Products, Inc.
and KeyBank National Association. [Form 10-K for
year ended December 31, 1997, Exhibit 10.28]
10.29 July 11, 1997 (Eighth) Amendment to Credit
Facility and Security Agreement dated March 1,
1993 between Allied Construction Products, Inc.
and KeyBank National Association. [Form 10-K for
year ended December 31, 1997, Exhibit 10.29]
10.30 Amended and Restated Master Promissory Note,
Pledge and Security Agreement dated November 25,
1997, between Pubco Corporation and KeyBank
National Association. [Form 10-K for year ended
December 31, 1997, Exhibit 10.30]
10.31 Second Amended and Restated Master Promissory
Note and Security Agreement dated November 25,
1997, between Pubco Corporation and KeyBank
National Association for the Buckeye Business
Products, Inc. Division. [Form 10-K for year
ended December 31, 1997, Exhibit 10.31]
10.33 Pubco Corporation 1998 Equity Incentive Plan.
[Information Statement for September 14, 1998
Annual Meeting of Stockholders, Appendix A]
(b) Reports on Form 8-K Filed during Fourth Quarter
None
45.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section l3 or l5(d) of the Securities
Exchange Act of l934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
PUBCO CORPORATION
By: /s/ Robert H. Kanner
---------------------------------
Robert H. Kanner,
Chairman of the Board, President,
Chief Executive Officer and
Chief Financial Officer
Date: March 25, l999
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the Registrant, on the date indicated above:
/s/ Robert H. Kanner
-------------------------------
Robert H. Kanner, Director
/s/ Stephen R. Kalette
-------------------------------
Stephen R. Kalette, Director
/s/ Glenn E. Corlett
-------------------------------
Glenn E. Corlett, Director
/s/ William A. Dillingham
-------------------------------
William A. Dillingham, Director
/s/ Harold L. Inlow
-------------------------------
Harold L. Inlow, Director
46.
<PAGE>
PUBCO CORPORATION
AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(000's)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
Balance at Additions Balance at
Beginning Charged to: End of
Description of Period Cost/Expense Other Deductions Period
<S> <C> <C> <C> <C>
Allowance for doubtful
accounts-trade receivables
Year ended December 31, 1998 931 $ 42 $ - $ 125 (A) $ 848
Year ended December 31, 1997 $ 269 $ 17 $ 672 (B) $ 27 (A) $ 931
Year ended December 31, 1996 $ 279 $ 61 $ - $ 71 (A) $ 269
<FN>
(A) Bad-debt writeoffs.
(B) Allowances for doubtful accounts acquired.
</TABLE>
S-1
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
2.1 Agreement and Plan of Merger dated April 26, 1996
between Pubco Corporation and Bobbie Brooks,
Incorporated [Registration Statement on Form S-4 No.
333-02951, Exhibit 2.1].
2.2 Sale and Liquidation Agreement dated April 26, 1996
between Pubco Corporation, PSI, Inc. and Aspen Imaging
International, Inc. [Registration Statement on Form
S-4 No. 333-02951, Exhibit 2.2].
3.1 Certificate of Incorporation of Pubco, as amended
[Form 10-K for year ended December 31, 1987, Exhibit
3.1 and Information Statement dated June 27, 1990 for
August 14, 1990 Annual Meeting of Stockholders,
Appendix I].
3.2 By-Laws of Pubco, as amended [Form 10-K for year ended
December 31, 1986, Exhibit 3.2(a)].
10.19 Credit Facility and Security Agreement dated March 1,
1993 between Allied Construction Products, Inc. and
Society National Bank [Form 10-K for year ended
December 31, 1993, Exhibit 10.19].
10.20 Amendments to Credit Facility and Security Agreement
dated March 1, 1993 between Allied Construction
Products, Inc. and Society National Bank. [Form 10-K
for year ended December 31, 1994, Exhibit 10.20].
10.21 June 30, 1995 (Fifth) Amendment to Credit Facility and
Security Agreement dated March 1, 1993 between Allied
Construction Products, Inc. and Society National Bank.
[Form 10-K for year ended December 31, 1995, Exhibit
10.21]
10.22 December 4, 1996 (Sixth) Amendment to Credit Facility
and Security Agreement dated March 1, 1993 between
Allied Construction Products, Inc. and KeyBank
National Association.[Form 10-K for year ended
December 31, 1996, Exhibit 10.22]
10.25 Stock Purchase Agreement between Pubco and Kroy
Holding Company. [Form 8-K dated October 20, 1997,
Exhibit 10.25]
<PAGE>
10.26 Stock Purchase Agreement between Pubco and Marion and
Warren Pollock. [Form 8-K dated October 20, 1997,
Exhibit 10.26]
10.27 Stock Purchase Agreement between Pubco and Quest
Equities Corp. [Form 8-K dated October 20, 1997,
Exhibit 10.27]
10.28 June 30, 1997 (Seventh) Amendment to Credit Facility
and Security Agreement dated March 1, 1993 between
Allied Construction Products, Inc. and KeyBank
National Association. [Form 10-K for year ended
December 31, 1997, Exhibit 10.28]
10.29 July 11, 1997 (Eighth) Amendment to Credit Facility
and Security Agreement dated March 1, 1993 between
Allied Construction Products, Inc. and KeyBank
National Association. [Form 10-K for year ended
December 31, 1997, Exhibit 10.29]
10.30 Amended and Restated Master Promissory Note, Pledge
and Security Agreement dated November 25, 1997,
between Pubco Corporation and KeyBank National
Association. [Form 10-K for year ended December 31,
1997, Exhibit 10.30]
10.31 Second Amended and Restated Master Promissory Note and
Security Agreement dated November 25, 1997, between
Pubco Corporation and KeyBank National Association for
the Buckeye Business Products, Inc. Division. [Form
10-K for year ended December 31, 1997, Exhibit 10.31]
10.32 August 26, 1998 (Ninth) Amendment to Credit Facility
and Security Agreement dated March 1, 1993 between
Allied Construction Products, Inc. and KeyBank
National Association. [Form 10-K for year ended
December 31, 1997, Exhibit 10.32]
10.33 Pubco Corporation 1998 Equity Incentive Plan.
[Information Statement for September 14, 1998 Annual
Meeting of Stockholders, Appendix A]
21 Subsidiaries of the Registrant.
27 Financial Data Schedule
<PAGE>
NINTH AMENDMENT TO
CREDIT FACILITY AND SECURITY AGREEMENT ('Amendment')
WHEREAS, ALLIED CONSTRUCTION PRODUCTS, INC., a Delaware corporation,
(herein called the "Borrower") and KEY CORPORATE CAPITAL INC., a Michigan
corporation (herein referred to as the "Lender") by assignment from KeyBank
National Association (formerly known as Society National Bank), a national
banking association, entered into a Credit Facility and Security Agreement
dated March 1, 1993, which has previously been amended from time to time (as
amended, herein called the "Agreement"), and
WHEREAS, the Borrower and the Lender have agreed to further amend the
Agreement to extend the Termination Date of the Agreement and to adjust the
interest payable on the outstanding balance of the Revolving Credit Loan;
NOW, THEREFORE, for valuable consideration received to their mutual
satisfaction, the Borrower and the Lender hereby agree as follows:
1. The definitions of "Termination Date" appearing in Section 1.2 of the
Agreement is hereby amended by deleting such definition in its entirety and
substituting therefor the following:
"Termination Date" means June 30, 2000, or such earlier date on which
the commitment of the Lender to make Advances pursuant to Section 2.1
of this Agreement shall have been terminated pursuant to Sections 10
or 14 of this Agreement.
2. Section 2.1 of the Agreement is hereby amended by adding the following
definitions for "Applicable Interest Rate" and
"Applicable Interest Rate" means the interest rate in effect from time
to time hereunder equal to the sum of the percentage per annum (iden-
tified below in basis points) plus either the Prime Rate or the LIBOR
Rate, at Borrower's option, computed in accordance with the following
schedule:
Ratio of Adjusted Debt Revolving Loan Revolving Loan
to Tangible Net Worth (Prime Rate) (LIBOR Rate)
(Levels 1 and 2)
---------------------- -------------- ----------------
Level 1 - Greater than
or equal to 1.5 to 1.0 0 basis points 250 basis points
Level 2 - Less than
1.5 to 1.0 0 basis points 200 basis points
The applicable level of the ratio of Adjusted Debt to Tangible Net
Worth shall be calculated on a quarterly basis, and shall not be
otherwise adjusted during the year. The initial applicable level of
the foregoing ratio shall be Level 2. Quarterly adjustments to the
Applicable Interest Rate shall be effective fifteen (15) days after
<PAGE>
Lender's receipt of Borrower's financial statements, such adjustments
commencing with Lender's receipt of Borrower's June 30, 1998 financial
statements."
3. Section 2.1(b) of the Agreement is hereby amended by deleting such
Section in its entirety and substituting the following in place thereof:
"(b) As compensation for the Advances made by Lender, Borrower under-
takes and agrees to pay to Lender interest equal to the Applicable
Interest Rate upon the average daily balances in Borrower's Loan
Account during the preceding month with respect to all Advances.
Interest on Advances shall be payable monthly in arrears commencing
on the first day of the month following the month in which such
Advance is made and continuing on the first day of each consecutive
month thereafter by debiting the Operating Account. Lender shall
use its best efforts to give Borrower notice prior to debiting the
Operating Account."
4. Exhibit A-3 to the Agreement is hereby amended by deleting such
Exhibit in its entirety and substituting the form attached hereto as Exhibit
A-4. The Borrower hereby agrees that it will, contemporaneously with
the execution of this Amendment to the Agreement, execute and deliver to the
Lender a new Revolving Credit Promissory Note in the form of Exhibit A-4 to
replace the Revolving Credit Promissory Note currently held and owned by the
Lender representing the Borrower's borrowings under the Agreement.
5. This Amendment shall be effective as of Aug 1, 1998. Except
as previously amended or as herein specifically amended, directly or by
reference, all of the terms and conditions set forth in the Agreement are
confirmed and ratified, and shall remain as originally written. This
Amendment shall be construed in accordance with the laws of the State of
Ohio, without regard to principles of conflict of laws. The Agreement and
all other related loan documents executed in connection with the Agreement
shall remain in full force and effect in all respects as if the unpaid
balance of the principal outstanding, together with interest accrued
thereon, had originally been payable and secured as provided for therein,
as amended from time to time and as modified by this Amendment. Nothing
herein shall affect or impair any rights and powers which the Lender may
have under the Agreement and any and all related loan documents.
6. In consideration of this Amendment, the Borrower hereby
releases and discharges the Lender and its shareholders, directors,
officers, employees, attorneys, affiliates and subsidiaries from any and all
claims, demands, liability and causes of action whatsoever, now known or
unknown, arising prior to the date hereof out of or in any way related to
the extension or administration of the Obligations of the Borrower (as
defined in the Agreement), the Agreement or any mortgage or security
interest related thereto.
7. For purposes of this Amendment, the terms used in the Agreement
shall have the same meaning as used herein. The Borrower and the Lender
hereby agree to extend all liens and security interests securing the
Obligations, until said Obligations, as modified herein, and any and all
related promissory notes have been fully paid. The parties hereto further
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<PAGE>
agree that this Amendment shall in no manner affect or impair the liens and
security interests evidenced by the Agreement and/or any other instruments
evidencing, securing or related to the Obligations. The Borrower hereby
acknowledges that all liens and security interests securing the Obligations
are valid and subsisting.
8. The Borrower covenants and agrees (i) to pay the balance of any
principal, together with all accrued interest, as specified above in
connection with any promissory note executed and evidencing any indebtedness
incurred in connection with the Agreement, as modified by this Amendment,
and (ii) to perform and observe covenants, agreements, stipulations and
conditions on its part to be performed hereunder or under the Agreement and
all other related loan documents executed in connection herewith or thereof.
9. The Borrower hereby declares that the Borrower has no set offs,
counterclaims, defenses or other causes of action against the Lender arising
out of the Agreement or any related loan documents, and to the extent any
such set offs, counterclaims, defenses or other causes of action may exist,
whether known or unknown, such items are hereby waived by the Borrower.
10. This Amendment may be executed in counterparts and all such
counterparts shall constitute one agreement binding on all the parties,
notwithstanding that the parties are not signatories to the same
counterpart.
11. The Borrower hereby represents and warrants to the Lender that
(a) the Borrower has the legal power and authority to execute and deliver
this Amendment; (b) the officials executing this Amendment have been duly
authorized to execute and deliver the same and bind the Borrower with
respect to the provisions hereof; (c) the execution and delivery hereof by
the Borrower and the performance and observance by the Borrower of the
provisions hereof do not violate or conflict with the organizational
agreements of the Borrower or any law applicable to the Borrower or result
in a breech of any provisions of or constitute a default under any other
agreement, instrument or document binding upon or enforceable against the
Borrower; and (d) this Amendment constitutes a valid and binding obligation
upon the Borrower in every respect.
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
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<PAGE>
12. In consideration for entering into this Amendment, Borrower
agrees to pay Lender a renewal fee of One Thousand Dollars ($1,000.00)
payable on the date hereof. The Borrower further agrees to reimburse Lender
for any and all out-of-pocket costs, fees and expenses incurred in
connection with this Amendment, including, without limitation, attorney's
fees.
IN WITNESS WHEREOF, the Borrower and the Lender have caused this
Amendment to the Agreement to be executed by their duly authorized
officers as of the 26th day of August, 1998.
KEY CORPORATE CAPITAL INC., ALLIED CONSTRUCTION
a Michigan corporation, by assignment PRODUCTS, INC.,
from KeyBank National Association a Delaware corporation,
(formerly known as Society National Bank),
a national banking association
By: /s/ Jeffrey M. Evans By: /s/ Richard E. Hojnacki
------------------------------- -----------------------------
Name: Jeffrey M. Evans Name: Richard E. Hojnacki
------------------------------- -----------------------------
Its: Vice President Its: Vice President
------------------------------- -----------------------------
And By: /s/ Stephen R. Kalette
-----------------------------
Name: Stephen R. Kalette
-----------------------------
Its: Secretary
-----------------------------
<PAGE>
EXHIBIT A-4
REVOLVING CREDIT PROMISSORY NOTE
$3,000,000.00 August 26, 1998
Cleveland, Ohio
FOR VALUE RECEIVED, ALLIED CONSTRUCTION PRODUCTS, INC., a Delaware
corporation, (the "Borrower"), promises to pay to the order of KEY CORPORATE
CAPITAL INC. (the "Holder") on June 30, 2000, or sooner as hereinafter
provided, the principal amount of Three Million and no/100 Dollars
($3,000,000.00) or, if less, the aggregate unpaid principal amount from time
to time borrowed by the Borrower from the Holder pursuant to the Credit
Agreement (hereinafter defined). The unpaid principal balance outstanding
on this Revolving Credit Promissory Note from time to time (the "Outstanding
Principal Balance") shall be determined by the ledgers and records of the
Holder as accurately maintained.
This Revolving Credit Promissory Note is the "Revolving Note" defined
and referred to in, and is entitled to the benefits of, a certain Credit
Facility and Security Agreement dated March 1, 1993 (said Credit Facility
and Security Agreement as amended and including, as it may be from time to
time further amended, restated or otherwise modified, being herein called
the "Credit Agreement"), between the Borrower and the Holder, to which
reference is hereby made for a statement of the rights of the Holder and the
duties and obligations of the Borrower in relation thereto, but neither this
reference to the Credit Agreement nor any provision thereof shall affect or
impair the absolute and unconditional obligation of the Borrower to pay the
principal of and interest on this Revolving Credit Promissory Note when due.
Capitalized terms used in this Revolving Credit Promissory Note not defined
hereinafter shall have the respective meanings given to such items in the
Credit Agreement.
This Revolving Credit Promissory Note is being executed and delivered
in substitution for an existing Revolving Credit Promissory Note executed
by Borrower and dated July 11, 1997, and the execution and delivery of this
Revolving Credit Promissory Note shall not constitute a novation and shall
not terminate or otherwise affect the first lien and security interest of
the Holder in Borrower's property.
The Outstanding Principal Balance of this Revolving Credit Promissory
Note shall bear interest from and including the date hereof until the date
of payment in full at the rate per annum as set forth in the Credit
Agreement. All interest on this Revolving Credit Promissory Note shall be
paid in accordance with the terms of the Credit Agreement. Interest shall
be computed on the basis of a year of 360 days for the actual number of days
elapsed. All unpaid principal and interest on this Revolving Credit
Promissory Note shall be due on the maturity date hereof as set forth in the
Credit Agreement.
Reference is hereby made to the Credit Agreement which contains
provisions for the acceleration of the maturity hereof upon the happening
of certain stated events and for mandatory prepayments and voluntary
prepayments hereon. The term "Holder" includes the successors and assigns
of Holder.
<PAGE>
This Revolving Credit Promissory Note is secured by collateral
assigned, pledged or granted to the Holder; reference is made to the Credit
Agreement and the documents and instruments assigning, pledging or granting
said collateral for a description of the Holder's rights with respect
thereto.
Payment of the principal of and interest on this Revolving Credit
Promissory Note shall be made in lawful money of the United States of
America, by federal funds wire transfer to the main office of Holder, 127
Public Square, Cleveland, Ohio 44114-1306, or at such other place or in such
other manner of payment as Holder or any subsequent holder hereof shall have
designated to the Borrower in writing.
The Borrower waives demand, presentment for payment, notice of
dishonor, protest, and notice of protest and diligence in collection and
bringing suit and agrees that Holder may extend the time for payment, accept
partial payment, take security therefor, or exchange or release any
collateral, without discharging or releasing the Borrower.
This Revolving Credit Promissory Note was executed in Cleveland,
Cuyahoga County, Ohio. The construction, validity, and enforceability of
this Revolving Credit Promissory Note shall be governed by the laws of the
State of Ohio.
The Borrower authorizes any attorney at law to appear before any
court of record, state or federal, in the county where this Revolving Credit
Promissory Note was executed or where the Borrower resides or may be found,
after the unpaid principal balance of this Revolving Credit Promissory Note
becomes due, either by lapse of time or by operation of any provision for
acceleration of maturity contained in the Credit Agreement, and waive the
issuance and service of process, admit the maturity of this Revolving Credit
Promissory Note, by reason of acceleration or otherwise, and confess
judgment against the Borrower in favor of the holder of this Revolving
Credit Promissory Note for the amount then appearing due on this Revolving
Credit Promissory Note, together with interest thereon and costs of suit,
and thereupon to release all errors and to waive all rights of appeal and
stay of execution. The foregoing warrant of attorney shall survive any
judgment and may be used from time to time without exhausting the right to
further use the warrant of attorney and, if any judgment be vacated for any
reason, the holder of this Revolving Credit Promissory Note nevertheless may
use the foregoing warrant of attorney to obtain an additional judgment or
judgments against the Borrower. Borrower agrees that the holder's
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
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<PAGE>
attorney may confess judgment pursuant to the foregoing warrant of attorney.
Borrowers further agrees that the attorney confessing judgment pursuant to
the foregoing warrant of attorney may receive a legal fee or other
compensation from the holder.
WARNING: BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO
COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR
WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH
THE AGREEMENT, OR ANY OTHER CAUSE.
ALLIED CONSTRUCTION PRODUCTS,
INC., a Delaware corporation,
By:
-----------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
And By:
-----------------------------------
Name:
-----------------------------------
Its:
-----------------------------------
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<PAGE>
EXHIBIT 21
PUBCO CORPORATION
Subsidiaries of the Registrant
The Company directly or indirectly owns 100% of the capital stock of
the following significant subsidiaries:
Subsidiaries State of Incorporation
Buckeye Business Products, Inc., Division
Aspen Imaging International, Inc. Delaware
Kroy LLC Nevada
The Company owns an indirect 85% plus interest in Allied Construction
Products, Inc., a Delaware corporation.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
CONSOLIDATED BALANCE SHEET AT 12/31/98 AND CONSOLIDATED STATEMENT OF
INCOME FOR THE YEAR ENDED 12/31/98 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 9,816
<SECURITIES> 16,376
<RECEIVABLES> 8,820
<ALLOWANCES> 848
<INVENTORY> 11,625
<CURRENT-ASSETS> 48,838
<PP&E> 17,248
<DEPRECIATION> 11,760
<TOTAL-ASSETS> 85,359
<CURRENT-LIABILITIES> 14,610
<BONDS> 1,689
0
1
<COMMON> 38
<OTHER-SE> 45,140
<TOTAL-LIABILITY-AND-EQUITY> 85,359
<SALES> 68,660
<TOTAL-REVENUES> 68,660
<CGS> 45,747
<TOTAL-COSTS> 45,747
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 120
<INCOME-PRETAX> 6,778
<INCOME-TAX> (696)
<INCOME-CONTINUING> 7,474
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,338
<EPS-PRIMARY> 1.72
<EPS-DILUTED> 1.72
</TABLE>
