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, 1997 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 13, 1997
- ------ ------------------------------
Common stock, par value $.01 6,500,779 shares
<PAGE>
PRIMESOURCE CORPORATION
INDEX
PART I - FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Item 1 - Financial Statements Page No.
--------
Consolidated Condensed Balance Sheets
<S> <C>
June 30, 1997 and December 31, 1996 .................................. 3
Consolidated Condensed Statements of Income
Three and Six Months Ended June 30, 1997 and 1996 .................... 4
Consolidated Condensed Statements of Cash Flows
Six Months Ended June 30, 1997 and 1996 .............................. 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
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
PRIMESOURCE CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
<CAPTION>
June 30, December 31,
1997 1996
(Thousands of dollars) (Unaudited)
- --------------------------------------------------------------------------------
ASSETS
Current Assets:
<S> <C> <C>
Receivables ........................................ $ 60,337 $ 60,656
Inventories ........................................ 52,147 48,741
Other .............................................. 3,115 2,653
- --------------------------------------------------------------------------------
Total Current Assets ................................. 115,599 112,050
Property and equipment, net .......................... 13,611 13,719
Excess of cost over net assets
of businesses acquired, net ....................... 4,622 4,487
Other assets ......................................... 3,599 3,919
- --------------------------------------------------------------------------------
Total Assets ......................................... $ 137,431 $ 134,175
================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term obligations ........... $ 1,528 $ 1,550
Accounts payable ................................... 35,321 33,628
Other accrued liabilities .......................... 6,816 9,832
- --------------------------------------------------------------------------------
Total Current Liabilities ............................ 43,665 45,010
Long-term obligations, net of current portion ........ 38,838 36,250
Accrued pension liabilities and other liabilities .... 5,122 4,732
- --------------------------------------------------------------------------------
Total Liabilities .................................... 87,625 85,992
- --------------------------------------------------------------------------------
Commitments and contingencies
Shareholders' Equity:
Common stock, $.01 par value ....................... 65 65
Additional paid in capital ......................... 25,479 25,533
Retained earnings .................................. 24,271 22,628
Unamortized restricted stock awards ................ (9) (43)
- --------------------------------------------------------------------------------
Total Shareholders' Equity ........................... 49,806 48,183
- --------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity ........... $ 137,431 $ 134,175
================================================================================
<FN>
See notes to consolidated condensed financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
PRIMESOURCE CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited)
<CAPTION>
Three Months Six Months
(Thousands of dollars, Ended June 30, Ended June 30,
except per share amounts) 1997 1996 1997 1996
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales .................................. $ 103,170 $ 87,898 $ 206,558 $ 174,857
Cost of sales .............................. 84,763 72,322 169,848 144,099
- --------------------------------------------------------------------------------------------------------
Gross profit ............................... 18,407 15,576 36,710 30,758
Selling, general and administrative expenses 15,627 13,619 31,398 26,972
- --------------------------------------------------------------------------------------------------------
Income from operations ..................... 2,780 1,957 5,312 3,786
Interest expense ........................... (806) (423) (1,556) (943)
Other income (expense), net ................ 48 (18) 133 78
- --------------------------------------------------------------------------------------------------------
Income before provision
for income taxes .......................... 2,022 1,516 3,889 2,921
Provision for income taxes ................. 846 600 1,608 1,176
- --------------------------------------------------------------------------------------------------------
Net income ................................. $ 1,176 $ 916 $ 2,281 $ 1,745
========================================================================================================
Average number of shares outstanding ....... 6,580,835 6,556,183 6,595,483 6,554,231
Per share of common stock:
Net income ................................. $ .18 $ .14 $ .35 $ .27
Cash dividends ............................. .045 .045 .09 .09
========================================================================================================
<FN>
See notes to consolidated condensed financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
PRIMESOURCE CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
<CAPTION>
Six Months Ended June 30,
(Thousands of dollars) 1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C>
Net income ........................................... $ 2,281 $ 1,745
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation ..................................... 1,019 991
Amortization ..................................... 229 302
Other ............................................ 19
Changes in assets and liabilities affecting operations (4,482) 7,082
- ------------------------------------------------------------------------------
Net cash provided by (used in) operating activities .. (953) 10,139
- ------------------------------------------------------------------------------
Investing Activities:
Business acquisitions ................................ (2,417)
Proceeds from sale of property and equipment ......... 64
Additions to property and equipment .................. (911) (191)
Net increase (decrease) in other assets .............. (9) 160
- ------------------------------------------------------------------------------
Net cash used in investing activities ................ (920) (2,384)
- ------------------------------------------------------------------------------
Financing Activities:
Proceeds from long-term obligations .................. 41,750 49,705
Repayment of long-term obligations ................... (39,184) (56,821)
Purchase of common stock ............................. (106) (50)
Dividends paid ....................................... (587) (589)
- ------------------------------------------------------------------------------
Net cash provided by (used in) financing activities .. 1,873 (7,755)
- ------------------------------------------------------------------------------
Net change in cash ................................... -- --
Cash, beginning of year .............................. -- --
- ------------------------------------------------------------------------------
Cash, end of period .................................. $ -- $ --
==============================================================================
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest ........................................ $ 1,665 $ 1,020
Income tax ...................................... 2,137 259
==============================================================================
<FN>
See notes to consolidated condensed financial statements.
</FN>
</TABLE>
<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 1996 Annual Report on Form 10-K for further information.
The results of operations for the three and six months ended June 30, 1997 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. Income Per Common Share
Income per common share is based on the weighted average number of common shares
and equivalent common shares outstanding during the period.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS 128). This
Statement establishes standards for computing and presenting earnings per share
(EPS) and applies to entities with publicly held common stock or potential
common stock. This Statement is effective for financial statements issued for
periods ending after December 15, 1997, earlier application is not permitted.
This statement requires restatement of all prior-period EPS data presented. The
Company is currently evaluating the impact, if any, adoption of SFAS 128 will
have on its financial statements.
<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, 1997 was $1,176,000 ($.18 per share)
on sales of $103,170,000 compared to $916,000 ($.14 per share) on sales of
$87,898,000 for the same period last year. For the six-month period ended June
30, 1997, net income was $2,281,000 ($.35 per share) on sales of $206,558,000
compared to net income of $1,745,000 ($.27 per share) on sales of $174,857,000
for the same period last year.
Sales increased 17.4% for the quarter and 18.1% for the six-month period ended
June 30, 1997. This increase is primarily the result of the acquisition of five
VGC Corporation locations, one in August 1996 and four in November 1996.
Excluding the effect of this acquisition, sales increased approximately 2% for
the periods. The gross profit as a percent of sales increased modestly for the
periods, from 17.7% to 17.8% for the quarter and 17.6% to 17.8% for the
six-month period.
Selling, general and administrative expenses as a percent of sales decreased
from 15.5% to 15.1% for the quarter and 15.4% to 15.2% for the six-month period.
This improvement reflects the benefit of the integration of the VGC operations
into the Company and the continuing improvement in operating efficiency.
Interest expense was $806,000 for the quarter and $1,556,000 for the six-month
period ended June 30, 1997 compared to $423,000 and $943,000 for the same
quarter and six-month period last year. This increase is due to increased debt
from the VGC acquisition.
The effective tax rates for the quarter and six-month period ended June 30, 1997
were 41.8% and 41.3%, respectively, compared to 39.6% and 40.3% for the same
periods last year. The higher rate in 1997 is primarily due to nondeductible
expenses being a higher percent to income.
Financial Condition and Liquidity
Net cash used in operating activities for the six months ended June 30, 1997 was
$953,000 compared to cash provided of $10,139,000 for the same period last year.
For the period ended June 30, 1997, increases in net asset levels decreased the
cash flow by approximately $4.5 million, while in the same period last year
decreases in net assets increased the cash flow by approximately $7 million. The
increase in 1997, in part, reflects the adjustment of working capital levels for
the VGC acquisition to ongoing operating levels. Excluding the effect of changes
in assets and liabilities, the cash provided was $3,529,000 in 1997 compared to
$3,057,000 in 1996.
Net cash used in investing activities was $920,000 for the six months ended June
30, 1997 compared to $2,384,000 for the same period last year. In the six-month
period ended June 30, 1996, the Company expended $2.4 million for the operating
assets of KPM, a graphics distributor in Michigan and northern Indiana. Capital
expenditures for the six months in 1997 were $911,000 compared to $191,000 for
the same period last year. Capital expenditures for the remainder of the year,
for which there are no material commitments, are anticipated to be approximately
$1,000,000.
Net cash provided from financing activities was $1,873,000 for the six-month
period ended June 30, 1997 compared to $7,755,000 used in financing activities
for the same period last year. During the period ended June 30, 1997, debt
increased $2.6 million, which is primarily attributable to the increase in
working capital during the period. For the same period last year, debt decreased
$7.1 million, which reflects the effect of cash generated from operating
activities. The balance of the cash used for both periods was primarily for
dividend payments.
<PAGE>
The Company's primary source of debt financing is a revolving credit agreement
with a commitment of $50 million of which $14.2 million was unused at June 30,
1997. The Company believes this facility combined with future cash flow from
operations will be adequate to meet the current capital requirements of the
Company.
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
a. The Company's annual meeting of shareholders was held on May 6, 1997.
b. Matters voted upon at the meeting and the results of those votes were as
follows:
Election of Directors
---------------------
For Against Withheld
--------- -------- --------
Fred C. Aldridge, Jr 4,528,362 -- 45,888
John H. Goddard, Jr . 4,525,216 -- 49,034
Klaus D. Oebel ...... 4,525,603 -- 48,647
John M. Pettine ..... 4,528,149 -- 46,101
Other directors whose terms of office continued after the meeting are
as follows: Philip J. Baur, Jr., Richard E. Engebrecht, Gary MacLeod,
James F. Mullan, and Edward N. Patrone.
Approval of Independent Auditors
--------------------------------
For Against Abstain
--------- --------- --------
Approval of Coopers & Lybrand L.L.P.,
Certified Public Accountants, as
independent public auditors for 1997 4,548,343 20,373 5,534
The foregoing matters are described in detail in the Company's proxy statement
dated April 7, 1997.
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, 1997.
<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 13, 1997
<TABLE>
COMPUTATION OF INCOME PER SHARE
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1997 1996 1997 1996
- -----------------------------------------------------------------------------------------
PRIMARY
<S> <C> <C> <C> <C>
Average shares outstanding .......... 6,506,946 6,548,946 6,510,862 6,550,612
Net effect of dilutive stock options-
based on the treasury stock method
using average market price .......... 73,889 7,237 84,621 3,619
- -----------------------------------------------------------------------------------------
6,580,835 6,556,183 6,595,483 6,554,231
=========================================================================================
Net income (in thousands) ........... $ 1,176 $ 916 $ 2,281 $ 1,745
=========================================================================================
Per share amount .................... $ .18 $ .14 $ .35 $ .27
=========================================================================================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-1-1997
<PERIOD-END> JUN-30-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 54,951
<ALLOWANCES> 1,717
<INVENTORY> 52,147
<CURRENT-ASSETS> 115,599
<PP&E> 23,600
<DEPRECIATION> 9,989
<TOTAL-ASSETS> 137,431
<CURRENT-LIABILITIES> 43,665
<BONDS> 38,838
0
0
<COMMON> 65
<OTHER-SE> 49,741
<TOTAL-LIABILITY-AND-EQUITY> 137,431
<SALES> 206,558
<TOTAL-REVENUES> 206,558
<CGS> 169,848
<TOTAL-COSTS> 169,848
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 168
<INTEREST-EXPENSE> 1,556
<INCOME-PRETAX> 3,889
<INCOME-TAX> 1,608
<INCOME-CONTINUING> 2,281
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,281
<EPS-PRIMARY> .35
<EPS-DILUTED> .35
</TABLE>
