UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE PERIOD ENDED SEPTEMBER 30, 1996
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- 21750
PrimeSource Corporation
-----------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-1430030
- ------------ ----------
(State of incorporation) (I.R.S. Employer
Identification No.)
4350 Haddonfield Road, Suite 222, Pennsauken, NJ 08109
- -------------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(609) 488-4888
--------------
(Registrant's telephone number, including area code)
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes (X) No ( )
Indicate the number of shares outstanding of each of the issuer's classes of
common stock:
Class Outstanding at November 12, 1996
- ----- --------------------------------
Common stock, par value $.01 6,530,779 shares
<PAGE>
PRIMESOURCE CORPORATION AND SUBSIDIARIES
INDEX
PART I - FINANCIAL STATEMENTS
Item 1 - Financial Statements Page No.
--------
Consolidated Condensed Balance Sheets
September 30, 1996 and December 31, 1995 3
Consolidated Condensed Statements of Operations
Three and Nine Months Ended September 30, 1996 and 1995 4
Consolidated Condensed Statements of Cash Flows
Nine Months Ended September 30, 1996 and 1995 5
Notes to Consolidated Condensed Financial Statements 6
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-k 9
SIGNATURES 10
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PRIMESOURCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
(Thousands of dollars) (Unaudited)
- --------------------------------------------------------------------------
ASSETS
Current Assets:
<S> <C> <C>
Receivables ................................... $ 52,646 $ 57,474
Inventories ................................... 37,717 41,581
Other ......................................... 2,496 2,466
- --------------------------------------------------------------------------
Total Current Assets ............................ 92,859 101,521
Property and equipment, net ..................... 9,541 10,358
Excess of cost over net assets
of businesses acquired, net .................. 4,677 4,942
Other assets .................................... 3,116 2,983
- --------------------------------------------------------------------------
Total Assets .................................... $ 110,193 $ 119,804
==========================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term obligations ...... $ 1,220 $ 1,206
Accounts payable .............................. 23,893 28,624
Other accrued liabilities ..................... 8,276 6,523
- --------------------------------------------------------------------------
Total Current Liabilities ....................... 33,389 36,353
Long-term obligations, net of current portion ... 24,780 32,202
Accrued pension liabilities and other liabilities 4,626 5,677
- --------------------------------------------------------------------------
Total Liabilities ............................... 62,795 74,232
- --------------------------------------------------------------------------
Commitments and contingencies
Shareholders' Equity:
Common stock, $.01 par value .................. 65 65
Additional paid in capital .................... 25,596 25,543
Retained earnings ............................. 21,757 20,036
Unamortized restricted stock awards ........... (20) (72)
- --------------------------------------------------------------------------
Total Shareholders' Equity ...................... 47,398 45,572
- --------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity ...... $ 110,193 $ 119,804
==========================================================================
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
PRIMESOURCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
(Thousands of dollars, Ended September 30, Ended September 30,
except per share amounts) 1996 1995 1996 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales .................................. $ 89,344 $ 88,156 $ 264,201 $ 266,891
Cost of sales .............................. 73,282 72,908 217,381 219,714
- -------------------------------------------------------------------------------------------------------
Gross profit ............................... 16,062 15,248 46,820 47,177
Selling, general and administrative expenses 14,220 13,955 41,192 42,987
Restructure expense ........................ 1,315
- -------------------------------------------------------------------------------------------------------
Income from operations ..................... 1,842 1,293 5,628 2,875
Interest expense ........................... (348) (611) (1,291) (1,559)
Other income (expense), net ................ 60 83 138 66
- -------------------------------------------------------------------------------------------------------
Income before provision
for income taxes .......................... 1,554 765 4,475 1,382
Provision for income taxes ................. 630 314 1,806 590
- -------------------------------------------------------------------------------------------------------
Net income ................................. $ 924 $ 451 $ 2,669 $ 792
=======================================================================================================
Average number of shares outstanding ....... 6,552,892 6,569,164 6,553,785 6,570,764
Per share of common stock:
Net income ................................. $ .14 $ .07 $ .41 $ .12
Cash dividends ............................. $ .045 $ .1125 $ .135 $ .3375
=======================================================================================================
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
PRIMESOURCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
(Thousands of dollars) 1996 1995
- ------------------------------------------------------------------------------
Operating Activities:
<S> <C> <C>
Net income ........................................... $ 2,669 $ 792
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation ..................................... 1,451 1,496
Amortization ..................................... 443 515
Changes in assets and liabilities affecting operations 5,795 1,655
- -----------------------------------------------------------------------------
Net cash provided by operating activities ............ 10,358 4,458
- -----------------------------------------------------------------------------
Investing Activities:
Business acquisitions ................................ (3,317) (1,037)
Proceeds from sale of business ....................... 2,235
Additions to property and equipment .................. (567) (1,085)
Net increase (decrease) in other assets .............. (269) 286
- -----------------------------------------------------------------------------
Net cash used in investing activities ................ (1,918) (1,836)
- -----------------------------------------------------------------------------
Financing Activities:
Net decrease in short-term borrowings ................ (3,000)
Proceeds from long-term obligations .................. 81,955 78,095
Repayment of long-term obligations ................... (89,363) (76,151)
Dividends paid ....................................... (883) (2,204)
Cost of shares reaquired ............................. (149)
Proceeds from exercise of stock options .............. 20
- -----------------------------------------------------------------------------
Net cash used in financing activities ................ (8,440) (3,240)
- -----------------------------------------------------------------------------
Net decrease in cash ................................. -- (618)
Cash, beginning of year .............................. 618
- -----------------------------------------------------------------------------
Cash, end of period .................................. $ -- $ --
=============================================================================
Supplemental disclosures of cash flow information Cash paid (received) during
the period for:
Interest $ 1,280 $ 1,488
Income taxes 1,158 (644)
=============================================================================
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
PRIMESOURCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. Adjustments
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information pursuant to the rules and regulations of the Securities
and Exchange Commission and instructions to Form 10-Q. While these statements
reflect all adjustments (which consist of normal recurring accruals) which are,
in the opinion of management, necessary to a fair presentation of the results
for the interim periods presented, they do not include all of the information
and disclosures required by generally accepted accounting principles for
complete financial statements. These statements should be read in conjunction
with the consolidated financial statements and footnotes thereto included in the
Company's 1995 Annual Report on Form 10-K for further information.
The results of operations for the three and nine months ended September 30, 1996
are not necessarily indicative of the results to be expected for the full year.
2. Inventory Pricing
Inventories consist primarily of purchased goods for sale. Inventories are
stated at the lower of cost or market. Cost is determined using the last-in,
first-out (LIFO) and first-in, first-out methods of accounting. Because the
inventory determination under the LIFO method can only be made at the end of
each fiscal year, interim financial results are based on estimated LIFO amounts
and are subject to final year-end LIFO inventory adjustments.
3. Acquisitions
In May 1996, the Company acquired the operating assets of KPM, a distributor of
photographic and graphic arts supplies and equipment in Michigan and portions of
northern Indiana, for approximately $2.4 million.
In August 1996, the Company acquired the operating assets (excluding accounts
receivable) of VGC Corporation's St. Louis, Missouri operation for approximately
$900,000. This operation, which is a distributor of photographic and graphic
arts supplies and equipment in the St. Louis area, was combined into the
Company's existing St. Louis operation.
These acquisitions have been accounted for as purchases, and, accordingly, the
consolidated financial statements include the operations since the acquisition
date. The pro-forma results of these acquisitions would not have had a
significant impact on the Company's consolidated results of operations.
4. Disposition
In July 1996, the Company sold substantially all the assets of its Rochester,
New York operation for approximately $2.2 million which approximated the
financial basis of the assets at the time of the sale. The pro-forma results of
operations, assuming the disposition had occurred at the beginning of the
period, would not have been materially effected by this disposition.
<PAGE>
5. Subsequent Events
On November 1, 1996, the Company acquired the operating assets (excluding
accounts receivable) of VGC Corporation's Minneapolis, Minnesota; Milwaukee,
Wisconsin; Des Moines, Iowa; and Omaha, Nebraska operations for approximately
$11.2 million. This acquisition will be accounted for as a purchase and will be
included in the Company's operating results from the date of the acquisition.
Historical annual sales of these operations are approximately $60 million.
On November 1, 1996, the Company entered into a three year revolving credit
agreement with a total commitment of $50 million. Borrowing rates available to
the Company under this agreement are at prime rate or less. In conjunction with
obtaining this facility, the Company terminated its prior three revolving credit
agreements which had a total commitment of $27.5 million.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
- ---------------------
Net income for the quarter ended September 30, 1996 was $924,000 ($.14 per
share) on sales of $89,344,000 compared to $451,000 ($.07 per share) on sales of
$88,156,000 for the same period last year. For the nine months ended September
30, 1996, net income was $2,669,000 ($.41 per share) on sales of $264,201,000
compared to net income of $792,000 ($.12 per share) on sales of $266,891,000 for
the same period last year.
The net income for the nine months ended September 30, 1995 included a one-time
restructuring charge of $1,315,000 ($794,000 after tax) relating to the
consolidation of five distribution centers, realigning two others, and the
centralizing of certain financial and information services. Excluding this
charge, the net income for the nine months ended September 30, 1995 would be
$1,586,000 ($.24 per share) .
Sales for the quarter increased 1% compared to the same quarter last year and
increased 2% over the immediately preceding quarter. Sales for the nine month
period decreased 1% compared to the same period last year. The increase for the
quarter, which reversed the modest declines reported in earlier quarters during
the year, was primarily due to increased sales in the midwest and west.
Gross profit as a percent of sales was 18% for the quarter and 17.7% for the
nine-month period ended September 30, 1996 compared to 17.3% and 17.7%,
respectively, for the same periods last year. The increase for the quarter was
primarily due to changes in product mix.
Selling, general, and administrative expenses as a percent of sales were 15.9%
for the quarter and 15.6% for the nine-month period ended September 30, 1996
compared to 15.8% and 16.1%, respectively, for the same periods last year. The
decrease for the nine-month period is primarily due to cost savings from the
restructuring program described above, which commenced during the third quarter
of 1995.
Interest expense was $348,000 for the quarter and $1,291,000 for the nine-month
period ended September 30, 1996 compared to $611,000 and $1,559,000 for the same
quarter and nine-month period last year. This decrease is due to a decline in
debt levels as a result of the working capital levels decreasing.
<PAGE>
The effective tax rates for the quarter and nine-month period ended September
30, 1996 were 40.5% and 40.4%, respectively, compared to 41% and 42.7%,
respectively, for the same periods last year. The lower rates in 1996 are
primarily due to non-deductible expenses being a lesser percent to income.
Financial Condition and Liquidity
- ---------------------------------
Net cash provided by operating activities for the nine months ended September
30, 1996 was $10,358,000 compared to $4,458,000 for the same period last year.
This increase in cash flow is due to both improvements in working capital levels
and cash generated from operating income. In 1996, decreases in working capital
resulted in an increase in cash flows of $5,795,000 compared to $1,655,000 in
1995. Excluding the effect of changes in assets and liabilities, the cash
provided was $4,563,000 in 1996 compared to $2,803,000 in 1995.
Net cash used in investing activities was $1,918,000 for the nine months ended
September 30, 1996 compared to $1,836,000 for the same period last year. In
1996, the Company incurred a net cash expenditure on the acquisition and sale of
businesses of $1,082,000. Capital expenditures for the nine months in 1996 were
$567,000. Additional capital expenditures for the year, for which there are no
material commitments, are anticipated to be approximately $900,000. In addition,
the Company will expend approximately $11.2 million for the acquisition of four
locations of VGC Corporation during the fourth quarter of 1996.
Net cash used in financing activities was $8,440,000 for the nine-month period
ended September 30, 1996 compared to $3,240,000 for the same period last year.
As a result of the significant funds generated from operating activities, the
Company was able to reduce debt by approximately $7.4 million during 1996. The
balance of the cash used was for dividend payments and the repurchase of the
Company's common stock. For the same period last year, the outflow was primarily
for dividend payments.
At September 30, 1996, the Company's primary source of debt financing was three
revolving credit agreements with a total commitment of $27.5 million of which
$20.7 million was outstanding. In November, 1996, the Company terminated these
agreements and executed a three-year revolving credit agreement for $50 million.
In addition, the Company has available $10.7 million in uncommitted lines of
which none was outstanding at September 30, 1996. The Company believes these
ongoing facilities combined with the cash flow from operations will be adequate
to meet the capital requirements of the Company.
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit 11 -- Earnings per share information.
Exhibit 27 -- Financial data schedule
b. Reports on Form 8-K
The Registrant did not file a report on Form 8-K during the quarter
ended September 30, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PRIMESOURCE CORPORATION
(REGISTRANT)
BY /s/ WILLIAM A. DEMARCO
----------------------
William A. DeMarco
Vice President of Finance and
Chief Financial Officer
(principal financial and accounting officer)
DATE November 12, 1996
EXHIBIT 11
<TABLE>
<CAPTION>
COMPUTATION OF INCOME PER SHARE
Three Months Nine Months
Ended September 30, Ended September 30,
1996 1995 1996 1995
- -----------------------------------------------------------------------------------------
PRIMARY
<S> <C> <C> <C> <C>
Average shares outstanding .......... 6,534,112 6,526,825 6,545,112 6,524,448
Net effect of dilutive stock options-
based on the treasury stock method
using average market price .......... 18,780 42,339 8,673 46,316
- -----------------------------------------------------------------------------------------
6,552,892 6,569,164 6,553,785 6,570,764
=========================================================================================
Net income (in thousands) ........... $ 924 $ 451 $ 2,669 $ 792
=========================================================================================
Per share amount .................... $ .14 $ .07 $ .41 $ .12
=========================================================================================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 49,185
<ALLOWANCES> 1,607
<INVENTORY> 37,717
<CURRENT-ASSETS> 92,859
<PP&E> 18,294
<DEPRECIATION> 8,753
<TOTAL-ASSETS> 110,193
<CURRENT-LIABILITIES> 33,389
<BONDS> 24,780
0
0
<COMMON> 65
<OTHER-SE> 47,333
<TOTAL-LIABILITY-AND-EQUITY> 110,193
<SALES> 264,201
<TOTAL-REVENUES> 264,201
<CGS> 217,381
<TOTAL-COSTS> 217,381
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 545
<INTEREST-EXPENSE> 1,291
<INCOME-PRETAX> 4,475
<INCOME-TAX> 1,806
<INCOME-CONTINUING> 2,669
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,669
<EPS-PRIMARY> .41
<EPS-DILUTED> .41
</TABLE>
