<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM l0-Q
(Mark One)
/ X / QUARTERLY REPORT PURSUANT TO SECTION l3 OR l5(d) OF THE SECURITIES
EXCHANGE ACT OF l934
For the period ended September 30, 2000
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-1359
PUBCO CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 53-0246410
(State of Incorporation) (I.R.S. Employer Identification No.)
3830 Kelley Avenue, Cleveland, Ohio 44114
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (216) 881-5300
NA
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (l) has filed all reports
required to be filed by Section l3 or l5(d) of the Securities Exchange
Act of l934 during the preceding l2 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
Number of Common Shares Outstanding as of November 6, 2000: 3,711,509.
<PAGE>
PUBCO CORPORATION
Page Number
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of
September 30, 2000 and December 31, 1999. . . . . . 3
Consolidated Statements of Income
for the Three and Nine Months Ended
September 30, 2000 and 1999 . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows
for the Nine Months Ended September 30,
2000 and 1999. . . . . . . . . . . . . . . . . . . . 6
Notes to Consolidated Financial Statements . . . . . 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations. . . . . . . . . . . . . . . . . . . . 11
PART II - OTHER INFORMATION . . . . . . . . . . . . . . . . . . 14
Item l. Legal Proceedings.
Item 2. Changes in Securities.
Item 3. Defaults Upon Senior Securities.
Item 4. Submission of Matters to a Vote
of Security Holders.
Item 5. Other Information.
Item 6. Exhibits and Reports on Form 8-K.
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . 16
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)--Note A.
PUBCO CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
($ in 000's)
September 30 December 31
2000 1999
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 4,790 $ 9,868
Marketable securities and other
investments available for sale 23,240 17,489
Trade receivables (less allowances of
$660 in 2000 and $772 in 1999) 8,572 7,890
Inventories 13,528 11,262
Deferred income taxes 1,642 1,600
Prepaid expenses and other current assets 3,088 2,465
-------- --------
TOTAL CURRENT ASSETS 54,860 50,574
PROPERTY AND EQUIPMENT (at cost
less accumulated depreciation
and amortization of $10,421 in 2000
and $12,224 in 1999) 6,662 6,096
INTANGIBLE ASSETS
(at cost less accumulated amortization of
$1,292 in 2000 and $1,132 in 1999) 3,387 3,547
OTHER ASSETS 33,435 34,213
-------- --------
TOTAL ASSETS $ 98,344 $ 94,430
======== ========
See notes to consolidated financial statements.
<PAGE>
PUBCO CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets--Continued
($ in 000's)
September 30 December 31
2000 1999
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 7,058 $ 5,977
Accrued liabilities 5,251 7,515
-------- --------
TOTAL CURRENT LIABILITIES 12,309 13,492
LONG-TERM DEBT 2,739 771
DEFERRED CREDITS AND NONCURRENT LIABILITIES 26,475 25,562
MINORITY INTEREST 831 711
STOCKHOLDERS' EQUITY
Preferred Stock:
Convertible Preferred Stock - par value $1;
20,000 shares authorized, none issued - -
Preferred Stock - par value $.01;
2,000,000 shares authorized, 70,000
Series A shares issued and outstanding
($7,000 aggregate liquidation preference) 1 1
Common Stock:
Common Stock - par value $.01; 5,000,000
shares authorized; 3,201,399 issued and
3,158,435 outstanding in 2000 and 3,201,276
issued and 3,189,112 outstanding in 1999 32 32
Class B Stock - par value $.01; 2,000,000
shares authorized, 553,074 issued and
outstanding in 2000 and 553,197 issued
and outstanding in 1999 6 6
Additional paid in capital 32,251 32,221
Retained earnings 24,015 21,175
Accumulated other comprehensive income 10 551
-------- --------
56,315 53,986
Treasury stock at cost,
42,964 shares in 2000
12,164 shares in 1999 (325) (92)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 55,990 53,894
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 98,344 $ 94,430
======== ========
See notes to consolidated financial statements.
<PAGE>
PUBCO CORPORATION AND SUBSIDIARIES
<TABLE>
Consolidated Statements of Income
($ in 000's except per share amounts)
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
2000 l999 2000 1999
<S> <C> <C> <C> <C>
Net sales $ 14,688 $ 17,389 $ 46,876 $ 53,478
Cost of sales 9,472 11,922 30,699 36,456
-------- -------- -------- --------
GROSS PROFIT 5,216 5,467 16,177 17,022
Costs and expenses:
Selling, general and
administrative expenses 4,035 5,186 12,305 14,424
Interest expense 73 27 150 80
Interest income (618) (482) (1,754) (1,641)
Other expense (income), net 75 12 (213) (26)
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES
AND MINORITY INTEREST 1,651 724 5,689 4,185
Provision for income taxes 575 286 2,073 1,494
-------- -------- -------- --------
INCOME BEFORE MINORITY INTEREST 1,076 438 3,616 2,691
Minority interest (33) (47) (120) (169)
-------- -------- -------- --------
NET INCOME $ 1,043 $ 391 $ 3,496 $ 2,522
======== ======== ======== ========
Preferred stock dividend requirements 218 206 656 617
-------- -------- -------- --------
NET INCOME APPLICABLE
TO COMMON STOCKHOLDERS $ 825 $ 185 $ 2,840 $ 1,905
======== ======== ======== ========
BASIC AND DILUTIVE EARNINGS PER SHARE $ .22 $ .05 $ .76 $ .51
======== ======== ======== ========
Weighted average number
of shares outstanding 3,711,509 3,752,473 3,724,330 3,752,473
========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
PUBCO CORPORATION AND SUBSIDIARIES
<TABLE>
Consolidated Statements of Cash Flows
($ in 000's)
<CAPTION>
Nine Months Ended
September 30
2000 1999
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 3,496 $ 2,522
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 799 771
Stock based compensation 30 -
Deferred income taxes 1,828 1,565
Net (gain) loss on sales of securities (451) 21
Net loss on disposal of fixed assets 44 11
Minority interest 120 169
Changes in operating assets and liabilities:
Trade receivables (682) (2,048)
Inventories (2,266) (219)
Accounts payable 1,081 2,523
Other current liabilities (2,264) (1,637)
Other, net (263) (616)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,472 3,062
INVESTING ACTIVITIES
Purchases of marketable securities (7,912) (27)
Proceeds from sale of marketable securities 2,106 1 142
Lending to Smith Corona Corporation (2,109) -
Repayments from Smith Corona Corporation 1,535 -
Purchases of fixed assets (1,249) (1,390)
Proceeds from the sale of fixed assets - 80
-------- --------
NET CASH (USED IN) INVESTING ACTIVITIES (7,629) (195)
FINANCING ACTIVITIES
Proceeds from long-term debt 20,947 17,988
Principal payments on long-term debt (18,979) (19,107)
Dividends paid (656) (617)
Purchase of treasury stock (233) -
-------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 1,079 (1,736)
-------- --------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (5,078) 1,131
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 9,868 9,816
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,790 $ 10,947
======== ========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
PUBCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in 000's except per share amounts)
September 30, 2000
NOTE A -- Basis of Presentation
The financial information presented herein should be read in conjunction
with the consolidated financial statements and footnotes included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1999.
The consolidated balance sheet as of December 31, 1999 has been derived from
the audited financial statements at that date.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments considered necessary for a fair presentation have been
included, all of which are of a normal recurring nature.
Earnings per common share has been computed by dividing net income after
preferred dividend requirements by the weighted average number of shares of
Common Stock and Class B Stock outstanding during the periods. The
Preferred Stock dividend requirement is an annual variable dividend,
currently $12.50 per share. The effect of the Company's stock options are
anti-dilutive for the periods presented.
The Company's financial instruments recorded on the balance sheet include
cash and cash equivalents. Because of their short maturity, the carrying
amount of cash and cash equivalents approximates fair value.
Off balance sheet financial instruments include foreign currency exchange
agreements. In the normal course of business, the Company's construction
products subsidiary purchases components from a German supplier and from
time to time, enters into foreign currency exchange contracts with banks in
order to fix its trade payables denominated in the Deutsche Mark. The
Company had $576 and $3,100 outstanding at September 30, 2000 and December
31, 1999, respectively.
As required, effective for the year beginning January 1, 2001, the Company
will adopt Financial Accounting Standards Board (FASB) Statement No. 133,
Accounting for Derivative Instruments and Hedging Activities. The Company
has not yet determined what the effect of Statement No. 133 will be on its
earnings and financial position. However, the Statement could increase
volatility in earnings and comprehensive income.
Certain prior year amounts have been reclassified to conform to the 2000
presentation.
<PAGE>
PUBCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in 000's except per share amounts)
September 30, 2000
NOTE B -- Inventories
The components of inventories consist of the following:
September 30 December 31
2000 1999
Raw materials and supplies $ 6,779 $ 5,838
Work in process 797 321
Finished goods 6,903 6,048
------- -------
14,479 12,207
Less inventory reserves (951) (945)
------- -------
$13,528 $11,262
======= =======
NOTE C -- Comprehensive Income
Total comprehensive income consists of the following:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Net Income $ 1,043 $ 391 $ 3,496 $ 2,522
Other Comprehensive Income:
Unrealized holding (losses) gains
on investments available for sale
arising during the period (369) (454) 133 476
Less reclassification adjustment
for losses (gains) on investments
available for sale - 116 (451) 20
Unrealized currency translation
adjustments arising during the period (11) 57 (71) (21)
Pension adjustment - - (152) -
------- ------- ------- -------
Total Other Comprehensive
(Loss) Income (380) (281) (541) 475
------- ------- ------- -------
Total Comprehensive Income $ 663 $ 110 $ 2,955 $ 2,997
======= ======= ======== =======
</TABLE>
<PAGE>
PUBCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in 000's except per share amounts)
September 30, 2000
NOTE D -- STOCKHOLDERS' EQUITY
At the close of business on November 10, 2000, the Company effected a cash
out of record stockholders holding fewer than 100 shares by way of a 1 for
100 reverse stock split followed by a 100 for 1 forward stock split of the
Company's Common and Class B Stock. The effect of the transaction was to
permit stockholders owning fewer than 100 shares of the Company's Common
Stock and Class B Stock to sell those shares directly to the Company at the
trading value of the Company's Common Stock. Stockholders owning 100 or
more shares of the Company's Common or Class B Stock are not affected by the
transaction.
On November 10, 2000, the total number of outstanding shares of the
Company's Common Stock and Class B Stock were reduced by a total of
approximately 140,000 shares, the number of shares held by the cashed out
stockholders immediately prior to the reverse split. The Company estimates
that cash payments to cashed-out stockholders will aggregate $1,050,000.
Par value of the Company's Common Stock and Class B Stock remained at $.01
per share after the stock splits.
<PAGE>
PUBCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in 000's except per share amounts)
September 30, 2000
NOTE E -- Industry Segment Information
Summarized industry segment information is as follows:
<TABLE>
<CAPTION>
Printer Construction
Supplies Products
Business Business Corporate Consolidated
<S> <C> <C> <C> <C>
Three months ended September 30, 2000
Net sales $ 8,861 $ 5,827 - $14,688
Income before income taxes and
minority interest 1,003 391 $257 1,651
Three months ended September 30, 1999
Net sales 9,996 7,393 - 17,389
Income before income taxes and
minority interest 206 573 (55) 724
Nine months ended September 30, 2000
Net sales $27,055 $19,821 - $46,876
Income before income taxes and
minority interest 2,994 1,443 $1,252 5,689
Nine months ended September 30, 1999
Net sales 30,007 23,471 - 53,478
Income before income taxes and
minority interest 1,914 2,078 193 4,185
</TABLE>
The Company's operations are classified into two reportable business
segments. The Company's two reporting business segments are managed
separately based upon fundamental differences in their operations.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
RESULTS OF OPERATIONS
Comparison of the Three and Nine Months Ended September 30, 2000 and 1999
Sales declined in 2000 from 1999 because of decreases in sales at both the
Company's construction products business and its printer supplies business
for both the three and nine month periods. The decrease in sales in the
construction products business is primarily attributable to a softening of
the construction products market. The decrease in sales in the printer
supplies business is primarily the result of the change in the Company's
focus to sales of higher margin but lower-priced printer supply products
which the Company manufactures rather than on resales of lower margin but
higher-priced branded printer supplies which the Company purchases from
third parties as well as the continuing decrease in sales of supplies for
impact printers.
The gross profit percentage increase in 2000 from 1999 in both the three and
nine month periods is primarily the result of an increase in gross profit
percentage at the Company's printer supplies business. Gross profit on
printer supplies manufactured by the Company is significantly higher than
the gross profit from resale supplies purchased by the Company. In
addition, the Company's printer supplies business introduced
direct-to-end-user catalogs in the first quarter of 2000 which has resulted
in higher gross profits on printer supplies sold. The printer supplies
business also closed its Wisconsin label coating plant in the first quarter
of 2000. The Company has been able to buy the substrates previously
processed in the Wisconsin plant from outside vendors, eliminating the cost
of running the Wisconsin plant.
The decrease in gross profit dollars in 2000 was more than offset by a
reduction in operating expenses in 2000. As a result, income before income
taxes and minority interest increased in the 2000 three and nine month
periods from the corresponding 1999 periods.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, the Company had $28,030,000 of cash, cash
equivalents, marketable securities and other short-term investments and
$2,739,000 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 market 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.
<PAGE>
The Company also has a $2,500,000 working capital line of credit for its
printer supplies business. At September 30, 2000, there were no borrowings
under this line of credit. The Company also has a $3,000,000 working
capital line of credit for its construction products business. At
September 30, 2000, borrowing under this line of credit was $2,739,000. The
Company also has a $10,000,000 line of credit which it uses for the issuance
of letters of credit and which can be used for other purposes, including
acquisitions. There were no borrowings under this line at September 30,
2000. At September 30, 2000, letters of credit with outstanding balances
aggregating approximately $3,415,000 had been issued, primarily to purchase
finished and raw material inventories from foreign vendors for the Company's
printer supplies business and to permit Smith Corona to purchase finished
inventories from its foreign vendors under the DIP lending arrangement
provided by the Company's financing subsidiary. Borrowings by Smith Corona
from the Company under this arrangement aggregated $574,000 at September 30,
2000.
On June 29, 2000, the Company announced that it had entered into an
Agreement with Smith Corona Corporation (OTC-SCCOE.OB), a marketer and
distributor of typewriters and typewriter supplies, which had filed for
protection under Chapter 11 of the U.S. Bankruptcy Code on May 23, 2000.
Under the Agreement, Smith Corona would be reorganized, all existing Smith
Corona stock would be cancelled, the Company would purchase approximately
49% of newly-issued reorganized Smith Corona's stock, and the remainder of
reorganized Smith Corona's stock would be issued to Smith Corona's existing
creditors and, to the extent, if any, provided for in the Plan of
Reorganization, to Smith Corona's existing stockholders. The Agreement is
subject to Bankruptcy Court confirmation of a Plan of Reorganization and
several other conditions estimated to occur sometime in February of 2001.
The Company agreed to pay a purchase price equal to a percentage of Smith
Corona's asset values on the closing date. If the Plan of Reorganization
can not be confirmed for any reason, the Company agreed to buy 100% of Smith
Corona's assets for a purchase price calculated using the same formula. Had
the Agreement been consumated on September 30, 2000, the purchase price
would have been approximately $3,600,000. The Company intends to utilize
certain of its cash, cash equivalents, marketable securities and other
short-term investments to fund the purchase price and working capital needs
of Smith Corona.
The Company has commitments for capital expenditures of approximately
$215,000, most of which is for equipment for the printer supplies business.
The Company will pay these amounts in 2000 primarily from existing funds.
In October, 1995, the Company announced that it would purchase, from time to
time, in the open market, up to 175,000 of its shares. Between October 31,
1995 and September 30, 2000, the Company purchased 42,964 shares at an
average price of approximately $7.577 per share for a total of $325,540.
On October 26, 2000, the Company's stockholders approved a proposal to cash
out holders with fewer than 100 shares of the Company's Common and Class B
Stock by way of a 1 for 100 reverse split followed by a 100 for 1 forward
split. The transaction was effective as of the close of business on
November 10, 2000 and will be funded during the fourth quarter of 2000 from
<PAGE>
the Company's existing funds. The Company estimates that approximately
140,000 shares of its outstanding Common and Class B Stock will be purchased
as a result of the transaction for an aggregate purchase price of
approximately $1,050,000.
Stockholders' equity of $55,990,000 at September 30, 2000 includes Common
and Preferred stockholders' equity. In order to calculate Common
stockholders' equity at September 30, 2000, the face value of the Preferred
Stock ($7,000,000) and any unpaid cumulative dividends on the Preferred
Stock must be subtracted from total stockholders' equity. There were no
unpaid cumulative preferred stock dividends outstanding at September 30,
2000.
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
On October 26, 2000, the Company's Kroy LLC subsidiary ("Kroy")
commenced an action in the United States District Court for the
Northern District of Ohio, Case No. 1:00CV2714 (the "Ohio
Action"), against Brother International Corporation and its
Japanese parent, Brother Industries, Ltd. (together, "Brother")
alleging that (i) Brother's label printers and label cartridges
violate two of Kroy's patents, (ii) Brother had committed certain
anti-trust violations, and (iii) Brother had otherwise unfairly
used its dominant position in the consumer market for such
products improperly. The Ohio Action was substantially identical
to an action Kroy had commenced against Brother and several
Virginia retailers of Brother products on September 21, 2000 in
the United States District Court, Eastern District of Virginia,
Richmond Division, Case No. 3:00CV604 (the "Virginia Action"), but
which Kroy voluntarily dismissed as to Brother on October 26, 2000
prior to filing the Ohio Action. The Virginia defendants remain
parties to the Virginia Action.
Also on October 26, 2000, but later that day, Brother filed a
Declaratory Judgment Action against Kroy asking the United States
District Court for the District of New Jersey, Case No. 00-5340
(AET) (the "First New Jersey Action") to declare that Kroy's
patents were invalid or that Brother was not infringing them, to
declare Brother was not violating antitrust laws and was not
unfairly using its market position, and affirmatively alleging
that Kroy was violating certain of Brother's patents with respect
to compatible cartridges Kroy is selling for Brother's label
printers.
On November 1, 2000, the Virginia Defendants filed a separate
Declaratory Judgment Action against Kroy in the United States
District Court for the District of New Jersey, Case No. 00-5374
(AET) (the "Second New Jersey Action") asking the court to declare
that Kroy's patents were invalid or that the Virginia Defendants
were not infringing them.
Due to the recent nature of the filings, none of the parties to
any of the actions have filed a response to the actions commenced
by the others. It is too early to predict the outcome of the
above litigation or its impact upon the Company.
Item 2. CHANGES IN SECURITIES. None
Item 3. DEFAULTS UPON SENIOR SECURITIES. None
<PAGE>
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On October 26, 2000, at the Company's Annual Meeting of
Stockholders, the Company's existing directors were reelected for
a one year term and the Stockholders approved a proposal to
cashout registered stockholders holding fewer than 100 shares of
the Company's stock by way of an amendment to the Company's
Certificate of Incorporation to effect a 1 for 100 reverse split
followed by a 100 for 1 forward split of the Company's Common
Stock and Class B Stock. The effect of the transaction will be to
permit stockholders owning less than 100 shares of the Company's
Common Stock and Class B Stock to sell those shares directly to
the Company at the trading value of the Company's Common Stock.
Stockholders owning less than 100 shares and desiring to remain
stockholders of the Company were given time to purchase sufficient
shares in the market to aggregate 100 shares or to put their
shares of the Company's Common Stock in street name. The proposal
was unanimously approved by the quorum attending the Meeting. The
transaction was effective as of the close of business on November
10, 2000.
Item 5. OTHER INFORMATION. None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Financial Data Schedule
(b) Reports on Form 8-K
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PUBCO CORPORATION
/s/ Robert H. Kanner
---------------------------
Robert H. Kanner
Chief Executive Officer
/s/ Maria Szubski
--------------------------
Maria Szubski
Chief Financial Officer
Dated: November 13, 2000
<PAGE>
EXHIBIT INDEX
Financial Data Schedule
