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, 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 November 10, 1997
- ------ ----------------------------------
Common stock, par value $.01 6,503,720 shares
<PAGE>
PRIMESOURCE CORPORATION
INDEX
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Item 1 - Financial Statements Page No.
--------
Consolidated Condensed Balance Sheets
<S> <C>
September 30, 1997 and December 31, 1996 ............................. 3
Consolidated Condensed Statements of Income
Three and Nine Months Ended September 30, 1997 and 1996 .............. 4
Consolidated Condensed Statements of Cash Flows
Nine Months Ended September 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 ...................... 8
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-k ................................. 10
SIGNATURES ................................................................ 11
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
PRIMESOURCE CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited)
<CAPTION>
September 30, December 31,
(Thousands of dollars) 1997 1996
- -------------------------------------------------------------------------------------
ASSETS
Current Assets:
<S> <C> <C>
Receivables .............................................. $ 62,816 $ 60,656
Inventories .............................................. 50,828 48,741
Other .................................................... 2,437 2,653
------------------------------------------------------------------------------------
Total Current Assets ....................................... 116,081 112,050
Property and equipment, net ................................ 13,316 13,719
Excess of cost over net assets
of businesses acquired, net ............................. 4,540 4,487
Other assets ............................................... 4,032 3,919
- -------------------------------------------------------------------------------------
Total Assets ............................................... $ 137,969 $ 134,175
=====================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term obligations ................. $ 1,514 $ 1,550
Accounts payable ......................................... 33,337 33,628
Other accrued liabilities ................................ 8,700 9,832
- -------------------------------------------------------------------------------------
Total Current Liabilities .................................. 43,551 45,010
Long-term obligations, net of current portion .............. 38,470 36,250
Accrued pension and other liabilities ...................... 5,174 4,732
- -------------------------------------------------------------------------------------
Total Liabilities .......................................... 87,195 85,992
- -------------------------------------------------------------------------------------
Commitments and contingencies
Shareholders' Equity:
Common stock, $.01 par value, 24,000,000 shares authorized
6,503,720 and 6,514,779 issued, respectively .......... 65 65
Additional paid in capital ............................... 25,497 25,533
Retained earnings ........................................ 25,212 22,628
Unamortized restricted stock awards ...................... (43)
- -------------------------------------------------------------------------------------
Total Shareholders' Equity ................................. 50,774 48,183
- -------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity ................. $ 137,969 $ 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 Nine Months
(Thousands of dollars, Ended September 30, Ended September 30,
except per share amounts) 1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales .................................. $ 102,462 $ 89,344 $ 309,020 $ 264,201
Cost of sales .............................. 84,183 73,282 254,031 217,381
- -------------------------------------------------------------------------------------------------------
Gross profit ............................... 18,279 16,062 54,989 46,820
Selling, general and administrative expenses 15,560 14,220 46,958 41,192
- -------------------------------------------------------------------------------------------------------
Income from operations ..................... 2,719 1,842 8,031 5,628
Interest expense ........................... (779) (348) (2,335) (1,291)
Sale of assets ............................. 121 5 127 64
Other income (expense), net ................ 37 55 164 74
- -------------------------------------------------------------------------------------------------------
Income before provision
for income taxes .......................... 2,098 1,554 5,987 4,475
Provision for income taxes ................. 865 630 2,473 1,806
- -------------------------------------------------------------------------------------------------------
Net income ................................. $ 1,233 $ 924 $ 3,514 $ 2,669
=======================================================================================================
Average number of shares outstanding ....... 6,647,837 6,552,892 6,612,934 6,553,785
Per share of common stock:
Net income ................................. $ .19 $ .14 $ .53 $ .41
Cash dividends ............................. .045 .045 .135 .135
=======================================================================================================
<FN>
See notes to consolidated condensed financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
PRIMESOURCE CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
<CAPTION>
Nine Months Ended September 30,
(Thousands of dollars) 1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C>
Net income ........................................... $ 3,514 $ 2,669
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation ..................................... 1,551 1,451
Amortization ..................................... 333 443
Other ............................................ (127)
Changes in assets and liabilities affecting operations (5,012) 5,795
- -----------------------------------------------------------------------------
Net cash provided by operating activities ............ 259 10,358
- -----------------------------------------------------------------------------
Investing Activities:
Business acquisitions ................................ (3,317)
Proceeds from sale of business ....................... 2,235
Proceeds from sale of property and equipment ......... 547
Additions to property and equipment .................. (1,568) (567)
Net increase in other assets ......................... (456) (269)
- -----------------------------------------------------------------------------
Net cash used in investing activities ................ (1,477) (1,918)
- -----------------------------------------------------------------------------
Financing Activities:
Proceeds from long-term obligations .................. 61,700 81,955
Repayment of long-term obligations ................... (59,516) (89,363)
Purchase of common stock ............................. (106) (149)
Stock options exercised .............................. 19
Dividends paid ....................................... (879) (883)
- -----------------------------------------------------------------------------
Net cash provided by (used in) financing activities .. 1,218 (8,440)
- -----------------------------------------------------------------------------
Net change in cash ................................... -- --
Cash, beginning of year .............................. -- --
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Cash, end of period .................................. $ -- $ --
=============================================================================
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest ........................................ $ 2,465 $ 1,280
Income taxes .................................... 2,937 1,158
=============================================================================
<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 nine months ended September 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 periods.
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, including interim periods. This
statement requires restatement of all prior-period EPS data presented.
Although the Company is not permitted to adopt this statement in an earlier
period, pro-forma disclosures as if the Company had adopted the requirements
beginning in 1996 are presented below:
Three Months Nine Months
Ended September 30, Ended September 30,
1997 1996 1997 1996
- --------------------------------------------------------------------------------
Basic earnings per share ........ $ .19 $ .14 $ .54 $ .41
Dilutive:
Dilutive earnings per share ..... $ .19 $ .14 $ .53 $ .41
<PAGE>
4. Acquisitions
The Company acquired the operating assets of KPM in May 1996, and the operating
assets (excluding accounts receivable) of VGC Corporation's St. Louis, Missouri
operation in August 1996 for approximately $3.3 million. 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 operations, assuming the acquisitions had occurred at the beginning
of the period, would not have had a significant impact on the Company's
consolidated results of operations.
5. 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 had a significant impact on the Company's consolidated
results of operations.
6. Subsequent Events
In October 1997, the Company sold a capital lease in Cerritos, California at a
gain. In addition, the Company commenced disposing of other assets of the
business, consisting primarily of inventories associated with branch electronic
showrooms and certain other discontinued operations of the business, which the
Company believes were not providing an adequate return. The estimated net effect
of these transactions is expected to result in an increase to net income in the
fourth quarter of 1997 of approximately $500,000 or $.07 per share.
<PAGE>
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, 1997 was $1,233,000 ($.19 per
share) on sales of $102,462,000 compared to $924,000 ($.14 per share) on sales
of $89,344,000 for the same period last year. For the nine-month period ended
September 30, 1997, net income was $3,514,000 ($.53 per share) on sales of
$309,020,000 compared to net income of $2,669,000 ($.41 per share) on sales of
$264,201,000 for the same period last year.
Sales increased 14.7% for the quarter and 17.0% for the nine-month period ended
September 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 remained at approximately 1996
levels. The gross profit as a percent of sales remained relatively constant
between the periods at 17.8% for the three and nine-month period ended September
30, 1997 compared to 18.0% and 17.7%, respectively, for the same periods last
year.
Selling, general and administrative expenses as a percent of sales decreased
from 15.9% to 15.2% for the quarter and 15.6% to 15.2% for the nine-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 $779,000 for the quarter and $2,335,000 for the nine-month
period ended September 30, 1997 compared to $348,000 and $1,291,000 for the same
quarter and nine-month period last year. This increase is primarily due to
increased debt from the VGC acquisition.
The effective tax rates for the quarter and nine-month period ended September
30, 1997 were 41.2% and 41.3%, respectively, compared to 40.5% and 40.4% 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 provided by operating activities for the nine months ended September
30, 1997 was $259,000 compared to cash provided of $10,358,000 for the same
period last year. For the period ended September 30, 1997, increases in net
asset levels decreased the cash flow by approximately $5 million, while in the
same period last year decreases in net assets increased the cash flow by
approximately $5.8 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 $5,271,000 in 1997 compared to $4,563,000 in 1996.
Net cash used in investing activities was $1,477,000 for the nine months ended
September 30, 1997 compared to $1,918,000 for the same period last year. In the
nine-month period ended September 30, 1996, the Company expended $3.3 million
for the operating assets of KPM, a graphics distributor in Michigan and northern
Indiana, and VGC Corporation's St. Louis business. In addition, during this
period, the Company sold its Rochester, New York operation for approximately
$2.2 million. Capital expenditures for the nine months in 1997 were $1.6 million
compared to $.6 million 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 $400,000.
<PAGE>
Net cash provided from financing activities was $1,218,000 for the nine-month
period ended September 30, 1997 compared to $8,440,000 used in financing
activities for the same period last year. During the period ended September 30,
1997, debt increased $2.2 million, which is primarily attributable to the net
cash used in investing activities and dividend payments during the period. As
discussed above, significant increases in working capital resulted in minimal
cash being generated from operating activities for this period. For the same
period last year, debt decreased $7.4 million, which reflects the effect of cash
generated from operating activities.
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 September
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 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, 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 November 10, 1997
<TABLE>
COMPUTATION OF INCOME PER SHARE
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1997 1996 1997 1996
- -----------------------------------------------------------------------------------------
PRIMARY
<S> <C> <C> <C> <C>
Average shares outstanding .......... 6,503,470 6,534,112 6,508,398 6,545,112
Net effect of dilutive stock options-
based on the treasury stock method
using average market price .......... 144,367 18,780 104,536 8,673
- -----------------------------------------------------------------------------------------
6,647,837 6,552,892 6,612,934 6,553,785
=========================================================================================
Net income (in thousands) ........... $ 1,233 $ 924 $ 3,514 $ 2,669
=========================================================================================
Per share amount .................... $ .19 $ .14 $ .53 $ .41
=========================================================================================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-1-1997
<PERIOD-END> SEP-30-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 57,536
<ALLOWANCES> 1,770
<INVENTORY> 50,828
<CURRENT-ASSETS> 116,081
<PP&E> 23,342
<DEPRECIATION> 10,026
<TOTAL-ASSETS> 137,969
<CURRENT-LIABILITIES> 43,551
<BONDS> 38,470
0
0
<COMMON> 65
<OTHER-SE> 50,709
<TOTAL-LIABILITY-AND-EQUITY> 137,969
<SALES> 309,020
<TOTAL-REVENUES> 309,020
<CGS> 254,031
<TOTAL-COSTS> 254,031
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 385
<INTEREST-EXPENSE> 2,335
<INCOME-PRETAX> 5,987
<INCOME-TAX> 2,473
<INCOME-CONTINUING> 3,514
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,514
<EPS-PRIMARY> .53
<EPS-DILUTED> .53
</TABLE>
