<PAGE>
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 JUNE 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 August 9,1996
- ----- ----------------------------
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
June 30, 1996 and December 31, 1995 3
Consolidated Condensed Statements of Operations
Three and Six Months Ended June 30, 1996 and 1995 4
Consolidated Condensed Statements of Cash Flows
Six Months Ended June 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>
June 30, December 31,
1996 1995
(Thousands of dollars) (Unaudited)
- --------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Current Assets:
Receivables ................................... $ 52,289 $ 57,474
Inventories ................................... 36,619 41,581
Other ......................................... 2,459 2,466
- --------------------------------------------------------------------------
Total Current Assets ............................ 91,367 101,521
Property and equipment, net ..................... 9,609 10,358
Excess of cost over net assets
of businesses acquired, net .................. 4,744 4,942
Other assets .................................... 3,009 2,983
- --------------------------------------------------------------------------
Total Assets .................................... $ 108,729 $ 119,804
==========================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term obligations ...... $ 1,214 $ 1,206
Accounts payable .............................. 23,636 28,624
Other accrued liabilities ..................... 6,919 6,523
- --------------------------------------------------------------------------
Total Current Liabilities ....................... 31,769 36,353
Long-term obligations, net of current portion ... 25,078 32,202
Accrued pension liabilities and other liabilities 5,032 5,677
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Total Liabilities ............................... 61,879 74,232
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Commitments and contingencies
Shareholders' Equity:
Common stock, $.01 par value .................. 65 65
Additional paid in capital .................... 25,651 25,543
Retained earnings ............................. 21,171 20,036
Unamortized restricted stock awards ........... (37) (72)
- --------------------------------------------------------------------------
Total Shareholders' Equity ...................... 46,850 45,572
- --------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity ...... $ 108,729 $ 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 Six Months
(Thousands of dollars, Ended June 30, Ended June 30,
except per share amounts) 1996 1995 1996 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales .................................. $ 87,898 $ 89,158 $ 174,857 $ 178,735
Cost of sales .............................. 72,322 73,099 144,099 146,806
- -------------------------------------------------------------------------------------------------------
Gross profit ............................... 15,576 16,059 30,758 31,929
Selling, general and administrative expenses 13,619 14,674 26,972 29,032
Restructure expense ........................ 1,315 1,315
- -------------------------------------------------------------------------------------------------------
Income from operations ..................... 1,957 70 3,786 1,582
Interest expense ........................... (423) (496) (943) (948)
Other income (expense), net ................ (18) (34) 78 (17)
- -------------------------------------------------------------------------------------------------------
Income (loss) before provision
(benefit) for income taxes ................ 1,516 (460) 2,921 617
Provision (benefit) for income taxes ....... 600 (175) 1,176 276
- -------------------------------------------------------------------------------------------------------
Net income (loss) .......................... $ 916 $ (285) $ 1,745 $ 341
=======================================================================================================
Average number of shares outstanding ....... 6,556,183 6,526,825 6,554,231 6,571,564
Per share of common stock:
Net income (loss) .......................... $ .14 $ (.04) $ .27 $ .05
Cash dividends ............................. $ .045 $ .1125 $ .09 $ .225
=======================================================================================================
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
PRIMESOURCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
(Thousands of dollars) 1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C>
Net income ........................................... $ 1,745 $ 341
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation ..................................... 991 978
Amortization ..................................... 302 303
Other ............................................ 19
Changes in assets and liabilities affecting operations 7,082 909
- -----------------------------------------------------------------------------
Net cash provided by operating activities ............ 10,139 2,531
- -----------------------------------------------------------------------------
Investing Activities:
Business acquisitions ................................ (2,417) (1,037)
Proceeds from sale of property and equipment ......... 64
Additions to property and equipment .................. (191) (624)
Net increase (decrease) in other assets .............. 160 (34)
- -----------------------------------------------------------------------------
Net cash used in investing activities ................ (2,384) (1,695)
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Financing Activities:
Net decrease in short-term borrowings ................ (3,000)
Proceeds from long-term obligations .................. 49,705 58,344
Repayment of long-term obligations ................... (56,821) (55,349)
Dividends paid ....................................... (589) (1,469)
Cost of shares reaquired ............................. (50)
Proceeds from exercise of stock options .............. 20
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Net cash used in financing activities ................ (7,755) (1,454)
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Net increase (decrease) in cash ...................... -- (618)
Cash, beginning of year .............................. 618
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Cash, end of period .................................. $ -- $ --
=============================================================================
Supplemental disclosures of cash flow information Cash paid (received)
during the period for:
Interest ............................................. $ 1,020 $ 991
Income taxes ......................................... 259 (153)
=============================================================================
</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 six months ended June 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. Acquisition
On May 28, 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.
The acquisition has been accounted for as a purchase, and, accordingly, the
consolidated financial statements include the operations since the acquisition
date. The pro-forma results of this acquisition would not have had a significant
impact on the Company's consolidated results of operations.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
- ---------------------
Net income for the quarter ended June 30, 1996 was $916,000 ($.14 per share) on
sales of $87,898,000 compared to a net loss of $285,000 ($.04 loss per share) on
sales of $89,158,000 for the same period last year. For the six months ended
June 30, 1996, net income was $1,745,000 ($.27 per share) on sales of
$174,857,000 compared to net income of $341,000 ($.05 per share) on sales of
$178,735,000 for the same period last year.
The net income (loss) for the quarter and six months ended June 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 quarter and six months ended June
30, 1995 would have been $509,000 ($.08 per share) and $1,135,000 ($.17 per
share), respectively.
Sales decreased 1% for the quarter and 2% for the six-month period ended June
30, 1996, compared to the same periods in 1995. This decrease is primarily due
to a decrease in sales in January, 1996 due to harsh weather in the Northeast
and Southeast United States and a decline in electronic prepress sales in the
second quarter.
Gross profit as a percent of sales was 17.7% for the quarter and 17.6% for the
six-month period ended June 30, 1996 compared to 18% and 17.9%, respectively,
for the same periods last year. This modest decrease was due primarily to
changes in product mix.
Selling, general, and administrative expenses as a percent of sales were 15.5%
for the quarter and 15.4% for the six-month period ended June 30, 1996 compared
to 16.5% and 16.2%, respectively, for the same periods last year. This decrease
is primarily due to the restructuring program described above, which was
completed in 1995, and ongoing programs to increase operating efficiencies.
Interest expense was $423,000 for the quarter and $943,000 for the six-month
period ended June 30, 1996 compared to $496,000 and $948,000 for the same
quarter and six-month period last year. During the period, the Company's debt
levels decreased, however the interest benefit of this decrease was partially
offset by increases in interest rates.
The effective tax rates for the quarter and six-month period ended June 30, 1996
were 39.6% and 40.3%, respectively, compared to 38% and 44.7%, respectively, for
the same periods last year. The lower rate for the six-month period in 1996 is
primarily due to non-deductible expenses being a lesser percent to income.
Similarly, the lower tax benefit for the quarter ended June 30, 1995 is also due
to the effect of non-deductible expenses.
<PAGE>
Financial Condition and Liquidity
- ---------------------------------
Net cash provided by operating activities for the six months ended June 30, 1996
was $10,139,000 compared to $2,531,000 for the same period last year. This
significant 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 $7,082,000 compared to
$909,000 in 1995. Excluding the effect of changes in assets and liabilities, the
cash provided was $3,057,000 in 1996 compared to $1,622,000 in 1995.
Net cash used in investing activities was $2,384,000 for the six months ended
June 30, 1996 compared to $1,695,000 for the same period last year. In 1996, the
Company expended $2,417,000 for the acquisition of the business assets of KPM.
Capital expenditures for the first six months in 1996 were $191,000. Additional
capital expenditures for the year, for which there are no material commitments,
are anticipated to be approximately $1 million. In addition, the Company's
business strategy includes continuing to acquire regional distributors within
the Company's current markets or companies that offer new products and services
to the printing and imaging industries.
Net cash used in financing activities was $7,755,000 for the six-month period
ended June 30, 1996 compared to $1,454,000 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 $7.1 million. The balance of the cash
used was for dividend payments. For the same period last year, the outflow was
primarily for dividend payments.
The Company has a strong and liquid balance sheet. At June 30, 1996, the
Company's current ratio was 2.9 to 1, with current assets, consisting primarily
of accounts receivable and branded inventory, representing over 80% of the total
assets. The debt to equity ratio was .56 to 1.
The Company's primary source of debt financing is three revolving credit
agreements with a total commitment of $27.5 million of which $6.8 million was
unused at June 30, 1996. In addition, the Company has uncommitted and short-term
lines of $15.7 million of which none was outstanding. The Company believes these
facilities combined with the cash flow from operations will be adequate to meet
the ongoing 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 June 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 August 12, 1996
EXHIBIT 11 -- COMPUTATION OF INCOME (LOSS) PER SHARE
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1996 1995 1996 1995
- -----------------------------------------------------------------------------------------------
PRIMARY
<S> <C> <C> <C> <C>
Average shares outstanding .......... 6,548,946 6,526,825 6,550,612 6,523,260
Net effect of dilutive stock options-
based on the treasury stock method
using average market price (1) ...... 7,237 3,619 48,304
- ----------------------------------------------------------------------------------------------
6,556,183 6,526,825 6,554,231 6,571,564
==============================================================================================
Net income (loss) (in thousands) ..... $ 916 $ (285) $ 1,745 $ 341
==============================================================================================
Per share amount .................... $ .14 $ (.04) $ .27 $ .05
==============================================================================================
</TABLE>
(1) Common stock equivalents have not been considered in computing losses per
share as the effect is anti-dilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 46,239
<ALLOWANCES> 1,600
<INVENTORY> 33,619
<CURRENT-ASSETS> 91,367
<PP&E> 17,934
<DEPRECIATION> 8,325
<TOTAL-ASSETS> 108,729
<CURRENT-LIABILITIES> 31,769
<BONDS> 0
0
0
<COMMON> 65
<OTHER-SE> 46,785
<TOTAL-LIABILITY-AND-EQUITY> 108,729
<SALES> 174,857
<TOTAL-REVENUES> 174,857
<CGS> 144,099
<TOTAL-COSTS> 144,099
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 373
<INTEREST-EXPENSE> 943
<INCOME-PRETAX> 2,921
<INCOME-TAX> 1,176
<INCOME-CONTINUING> 1,745
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,745
<EPS-PRIMARY> .27
<EPS-DILUTED> .27
</TABLE>
