UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
- --------------------------------------------------------------------------------
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
- --------------------------------------------------------------------------------
For the year ended December 31, 1997 Commission file Number 0-21750
PRIMESOURCE CORPORATION
(Exact name of registrant as specified in its charter)
Pennsylvania 23-1430030
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
4350 Haddonfield Road, Suite 222, Pennsauken, N.J. 08109
(Address of Principal Executive Offices) (Zip Code)
(609)488-4888
Registrant's Telephone Number
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
Common Stock $.01 par value per share Nasdaq
Indicate by 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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ( X )
As of March 24, 1998 the aggregate market value of the voting stock held by
nonaffiliates was approximately $66.4 million.
As of March 24, 1998 there were 6,522,711 shares of common stock issued and
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The definitive Proxy Statement to be filed pursuant to Regulation 14A under the
Securities Exchange Act of 1934 (Item 10- Directors Only, and Items 11, 12 and
13 of Part III). The index of exhibits is located on page 35 of this document.
<PAGE>
PART I.
Certain statements contained in this annual report are forward-looking. Such
forward-looking statements are subject to a number of factors, including
material risks, uncertainties and contingencies, which could cause actual
results to differ materially from those set forth in the forward-looking
statements. These risks and uncertainties include, but are not limited to, the
Company's ability to successfully implement its business strategies including
successfully integrating business acquisitions, the effect of general economic
conditions and technological, competitive and other changes in the industry and
other risks and uncertainties as set forth in the Company's periodic reports and
other filings with the Securities and Exchange Commission.
ITEM I. BUSINESS
PrimeSource Corporation (the "Company") is a major national distributor and
systems integrator serving the printing, publishing and graphic arts industries.
For approximately 135 years, the Company or its unincorporated predecessor has
been servicing these industries. The Company, which was incorporated under the
laws of the Commonwealth of Pennsylvania in 1954, was acquired as a wholly-owned
subsidiary of Tasty Baking Company ("TBC"), Philadelphia, Pennsylvania in 1965.
On August 1, 1993, TBC spun-off 100% of the ownership of the Company in a
dividend distribution of the Company common stock to the shareholders of TBC. As
a result, the Company became an independent publicly-owned company whose shares
are traded on the Nasdaq Stock Market's National Market.
Subsequent to the spin-off from TBC, the Company has had two significant
business combinations. In 1994, Momentum Corporation with sales of approximately
$165 million merged into the Company. In 1996, the Company acquired five of VGC
Corporation's branch operations with sales of approximately $55 million. With
these acquisitions, the Company estimates it currently covers 75% of the United
States market. The Company believes there will be a continuing consolidation of
distributors in the industry and the Company's business strategy will continue
to include pursuing such acquisitions which will either expand the Company's
presence in key markets and/or offer new products and services to the printing
and imaging industries.
The Company is headquartered in Pennsauken, New Jersey and has one business with
two areas of focus, one servicing the digital electronic component of the market
providing system design, installation, servicing, training and technical support
as well as ongoing workflow and cost-support analyses and the other providing
supplies and traditional equipment to the market.
The Company maintains a decentralized management structure which allows the
operating divisions broad discretion in the conduct of their respective
businesses, including responsibility for management of their suppliers,
customers and employees. Management is evaluated against their financial and
non-financial goals which are established on an annual basis. The Company
emphasizes return on net assets and sales growth under its financial goals. In
order to provide shareholder value, the Company believes it must strive to
maximize its long-term return on the shareholders' investment. By quantifying
this objective and applying it at the operating level, the Company believes it
can best meet this goal. Management believes that this concept of fostering and
perpetuating the entrepreneurial drive of operating management will continue to
be a key factor in the Company's future success.
The Company presently represents over 500 suppliers, sells and supports more
than 50,000 products and has a customer base in excess of 25,000. No customer
accounted for more than 3% of the Company's net sales in 1997.
Consumable products, which include film, plates, proofing materials,
photographic chemicals, printing blankets and pressroom chemistry, presently
represent approximately 80% of total sales. The remaining 20% is derived from
sales of printing presses, electronic imaging equipment, desktop publishing,
electronic color proofing equipment, scanning systems, and other hardware and
software products. The industry is moving from an analog to a digital
environment. As a result of this transition, management expects sales of certain
types of sensitized film and paper products to continue trending down, while
sales of certain high-technology products and equipment used in the digital
process to increase.
<PAGE>
In addition, there has been and continues to be a consolidation of the customer
base. Many printing and imaging customers want a single source for design,
pre-press preparation, and printing. Consolidation eliminates duplicate overhead
costs and creates larger entities capable of supporting more sophisticated
management techniques, from strategic planning through actual production.
Management expects to continue to see this consolidation of customers into
larger more sophisticated operations offering more services to their customers.
While the Company sells primarily the same products as its competitors,
generally at similar prices, the Company attempts to differentiate itself by
focusing on providing training, technical support, and a value-added approach
with products which will make its customers more efficient and effective. In
addition, the Company's broad geographic presence provides an advantage in
servicing regional and national customers. Based on the changes which are
occurring in the industry, management believes this broad national presence,
combined with the emphasis on technical support, will provide significant
added-value to its customers.
There are over 300 independent dealers in the United States competing in this
industry with no dealer accounting for more than 15% of the total industry
sales. The Company believes that it is one of the largest dealers in terms of
annual sales and covers a broader range of geographical markets in the United
States than any of its competitors. The Company has minimal foreign sales or
income.
The Company owns several trademarks and tradenames. To the extent trademarks,
tradenames, or patents are significant to the Company's business, they are owned
by the manufacturers the Company represents.
The Company has minimal backlog. The nature of its business is such that it
maintains substantial inventories in order to supply its customers immediately
upon receipt of an order. Approximately 25% of the Company's inventories are
consigned at various customer locations. Usage of consigned inventories is
monitored at least monthly through a physical inventory taken by Company
personnel.
Company management does not believe that compliance with federal, state or local
laws relating to the protection of the environment will have a material adverse
effect on the Company's consolidated financial position or results of
operations.
The Company employed 657 employees at December 31, 1997.
<PAGE>
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS OF THE REGISTRANT
BUSINESS EXPERIENCE POSITION HELD
NAME AGE LAST FIVE YEARS SINCE
- --------------------------- ----- ------------------------------------------ -----------------
<S> <C> <C> <C>
James F. Mullan 58 President and Chief Executive 1991-Present
President and Officer of Registrant
Chief Executive Officer
John H. Goddard, Jr. 50 Executive Vice President September, 1994-
Executive Vice President of Registrant Present
President, Chief Executive Officer 1992-1994
of Momentum Corporation
William A. DeMarco 52 Vice President and Chief Financial Officer September, 1994-
Vice President and of Registrant Present
Chief Financial Officer Vice President of Finance, Treasurer, and 1993-1994
Secretary of Registrant
Vice President of Finance and Operations 1992-1993
of Phillips & Jacobs, Incorporated
Barry C. Maulding 52 Vice President, General Counsel September, 1994-
Vice President, and Corporate Secretary Present
General Counsel and of Registrant
Corporate Secretary Vice President Administration, 1993-1994
General Counsel and Corporate
Secretary of Momentum Corporation
General Counsel, Director of Administration and 1992-1993
Corporate Secretary of Momentum Corporation
</TABLE>
<PAGE>
ITEM 2. PROPERTIES
The locations and primary use of the physical properties of the Company are as
follows:
<TABLE>
<CAPTION>
Approximate
Square
Location Footage
- ----------------------------- -----------
Corporate Headquarters
<S> <C>
Pennsauken, NJ 7,400
Distribution/Sales Facilities
Atlanta, GA (Norcross) 23,200
Birmingham, AL 37,000
Boston, MA (Hingham) 13,500
Chicago, IL (Itasca) 49,600
Cincinnati, OH 35,000
Dallas, TX 17,500
Des Moines, IA (Ankeny) 14,000
Houston, TX 7,000
Jackson, MS 6,000
Kalamazoo, MI 20,000
Kansas City, KS 16,800
Lititz, PA 14,000
Los Angeles, CA (Cerritos) 9,900
Miami, FL (Miramar) 14,700
Milwaukee, WI (New Berlin) 16,300
Minneapolis, MN (Mendota Heights) 53,600
Mobile, AL 5,100
Nashville, TN 16,000
New Orleans, LA (Harahan) 8,800
Omaha, NE 10,000
Orlando, FL 14,400
Pennsauken, NJ 32,000
Pittsburgh, PA 10,500
Portland, OR 7,800
San Francisco, CA (South San Francisco) 10,000
Seattle, WA (Tukwila) 38,600
St. Louis, MO 22,000
</TABLE>
All of the properties are held under operating leases, except for the
Birmingham, Des Moines, Minneapolis, St. Louis and Seattle facilities which are
owned. Management believes that the Company's properties are generally well
maintained and adequate for current operations and foreseeable expansion. The
inability of the Company to renew any short-term real property lease would not
have a material effect on the Company's results of operations.
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company is from time to time involved in litigation incidental to the
conduct of its business. Management believes that none of the litigation in
which the Company is currently involved would, individually or in the aggregate,
have a material effect on the Company's consolidated financial position or
results of operations when resolved in a future period.
The Company, along with many other potentially responsible parties, is a
defendant in a declaratory action to determine an allocation of costs for the
investigation and remediation of two Superfund cleanup sites. The Company
believes its insurance will cover any costs incurred in these two matters. The
Company is also, in general, subject to possible loss contingencies pursuant to
federal or state environmental laws and regulations. Although these
contingencies could result in future expenses or judgments, such expenses or
judgments are not expected to have a material effect on the Company's
consolidated financial position or results of operations.
ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth quarter
of the year.
<PAGE>
PART II.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock trades on the Nasdaq Stock Market's National Market
under the symbol PSRC.
The following quarterly stock price and dividend information is provided for
1996 and 1997.
<TABLE>
<CAPTION>
Stock Price Cash Dividends
High Low Per Share
- -------------------------------------------------------------------------------
1996
<S> <C> <C> <C>
First Quarter $ 6.50 $ 5.00 $ .045
Second Quarter 7.50 5.00 .045
Third Quarter 7.50 5.75 .045
Fourth Quarter 8.13 6.00 .045
1997
First Quarter $ 8.75 $ 7.63 $ .045
Second Quarter 8.25 7.00 .045
Third Quarter 10.63 7.63 .045
Fourth Quarter 13.00 9.63 .045
</TABLE>
The payment of future cash dividends will depend on the level and growth of the
Company's earnings and the Company's needs for cash.
There were approximately 3,500 shareholders of record as of December 31, 1997.
For purposes of computing the aggregate market value of the voting stock of the
Company held by nonaffiliates, as shown on the cover page of this report, it has
assumed that all the outstanding shares were held by nonaffiliates except for
the shares held by directors and officers of the Company. However, this should
not be deemed to constitute an admission that all directors and officers of the
Company are, in fact, affiliates of the Company, or that there are not other
persons who may be deemed to be affiliates of the Company. Further information
concerning shareholdings of officers, directors and principal shareholders is
included in the Company's definitive proxy statement filed with the Securities
and Exchange Commission by April 30, 1998.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following selected historical consolidated financial data has been derived
from consolidated financial statements. On August 1, 1993, the Company was
spun-off from Tasty Baking Company ("TBC"). Accordingly, the historical data for
1993, which include the operations of the Company when it was a subsidiary of
TBC, may not necessarily reflect the results of operations or financial position
that would have been obtained had the Company been an independent publicly-held
company during the entire year. The operations of Momentum Corporation are
included from September 1, 1994, the date Momentum merged with the Company. This
information should be read in conjunction with the Company's consolidated
financial statements included herein.
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------------------
(in thousands, except per share amounts) 1997(1) 1996 1995(2) 1994 1993(3)
- ----------------------------------------------------------------------------------------------------------
Statement of Income Data
<S> <C> <C> <C> <C> <C>
Net sales ................................ $ 414,867 $ 366,657 $ 357,077 $ 238,154 $ 167,744
Cost of sales ........................... 343,116 301,428 293,790 194,346 135,094
- ----------------------------------------------------------------------------------------------------------
Gross profit ............................. 71,751 65,229 63,287 43,808 32,650
Operating expenses ....................... 63,257 57,033 58,615 37,362 26,572
- ----------------------------------------------------------------------------------------------------------
Income from operations ................... 8,494 8,196 4,672 6,446 6,078
Interest expense ......................... (2,913) (1,915) (2,235) (1,113) (531)
Gain on sale of capital lease ............ 3,658
Loss on business divestiture ............. (401)
Other income-net ......................... 515 421 441 408 251
- ----------------------------------------------------------------------------------------------------------
Income before provision for income
taxes and cumulative effect of changes
in accounting principles ............. 9,353 6,702 2,878 5,741 5,798
Provision for income taxes ............... 3,862 2,788 1,232 2,210 2,399
- ----------------------------------------------------------------------------------------------------------
Income before cumulative effect of
changes in accounting principles ..... 5,491 3,914 1,646 3,531 3,399
Cumulative effect on prior years of
changes in accounting principles ..... (1,306)
- ----------------------------------------------------------------------------------------------------------
Net income ............................... $ 5,491 $ 3,914 $ 1,646 $ 3,531 $ 2,093
==========================================================================================================
Per Share Data
Income before cumulative effect of
changes in accounting principles
Basic ................................ $ .84 $ .60 $ .25 $ .72 $ .83
Diluted .............................. .83 .60 .25 .71 .83
==========================================================================================================
Net income
Basic ................................ $ .84 $ .60 $ .25 $ .72 $ .51
Diluted .............................. .83 .60 .25 .71 .51
==========================================================================================================
Balance Sheet Data
Working capital .......................... $ 69,151 $ 67,040 $ 65,168 $ 60,987 $ 28,631
Total assets ............................. 138,491 134,175 119,804 120,760 52,427
Total long-term obligations .............. 32,788 36,250 32,202 29,094 12,747
Shareholders' equity ..................... 52,548 48,183 45,572 46,169 20,654
==========================================================================================================
<FN>
(1) Income for 1997, includes a charge to cost of sales for $2,300,000
($1,381,000 after tax) for the write-down of demonstration and other
digital electronic inventory, a $3,658,000 ($2,183,000 after tax) gain on
the sale of a capital lease and a $401,000 ($241,000 after tax) loss on a
business divestiture.
(2) Income for 1995, includes a one-time restructuring expense of $1,315,000
($794,000 after tax) relating to the consolidation of five distribution
centers, the realignment of two others, and the centralization of certain
financial and information services.
(3) Income for 1993, includes a one-time charge to operating expenses of
$609,000 ($519,000 after tax) resulting from costs associated with the
spin-off from TBC consisting primarily of legal, accounting and other
professional fees and an after tax charge of $1,306,000 for the
cumulative effect of changes in methods of accounting for income taxes
and postretirement benefits other than pensions. Per share information
for 1993 is based on the average number of shares of TBC common shares
outstanding for the year converted to Company shares using the spin-off
ratio of two Company shares for every three shares of TBC common stock.
</FN>
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
The following table sets forth for the years indicated certain items from the
accompanying Consolidated Statements of Income expressed as a percentage of net
sales.
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------
1997 1996 1995
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales .................................. 100.0% 100.0% 100.0%
Cost of sales .............................. 82.7 82.2 82.3
- --------------------------------------------------------------------------
Gross profit ............................... 17.3 17.8 17.7
Selling, general and administrative expenses 14.5 14.7 15.0
Depreciation and amortization .............. .6 .7 .7
Provision for doubtful accounts ............ .2 .2 .3
Restructure expense ........................ .4
- --------------------------------------------------------------------------
Income from operations ..................... 2.0 2.2 1.3
Interest expense ........................... (.7) (.5) (.6)
Gain on sale of capital lease .............. .9
Loss on business divestiture ............... (.1)
Other income-net ........................... .1 .1 .1
- --------------------------------------------------------------------------
Income before provision for income taxes ... 2.2 1.8 .8
Provision for income taxes ................. .9 .7 .3
- --------------------------------------------------------------------------
Net income ................................. 1.3% 1.1% .5%
==========================================================================
</TABLE>
COMPARISON OF 1997 TO 1996
Net income for 1997 was $5,491,000, or $.83 per diluted share compared to
$3,914,000, or $.60 per share in 1996. There were three significant items which
affected the results for 1997, a $2.3 million charge for demonstration and other
digital electronic inventory, a $3.7 million gain on the sale of a capital
lease, and a $.4 million loss on a business divestiture. Excluding these items,
which will be discussed later in further detail, the net income for 1997 would
have been $4,930,000 ($.74 per share), a 26% increase over 1996 net income.
Net sales in 1997 were $414,867,000 compared to $366,657,000 in 1996, an
increase of 13.1%. This sales increase is primarily the result of the
acquisition of five VGC Corporation locations in 1996, one in August 1996 and
four in November 1996. Excluding the impact of the VGC acquisition, sales
increased modestly, although there were fluctuations between geographic
locations.
In 1997, the Company established a systems group to service the digital
electronic component of the market. Although this group will work closely with
the local distribution centers, the group is structured based on distinct
products with a separate staff with technical expertise to provide workflow
analysis, and installation, training and service, to more effectively meet
customer requirements. Included in this reorganization is the centralization of
the electronics inventory in two primary locations, eliminating the duplication
of demonstration and other electronics inventory at each of the Company's
branches. In conjunction with this centralization and new distribution approach,
the Company expensed $2.3 million to cost of sales for the write-down of the
existing branch inventory to current market value. This charge to cost of sales
resulted in the gross profit percent decreasing from 17.8% in 1996 to 17.3% in
1997. Excluding this charge, the 1997 gross profit percent would have been
17.8%, the same as in 1996.
Selling, general and administrative expenses as a percent of sales decreased
from 14.7% in 1996 to 14.5% in 1997. The Company benefited by the economies of
merging the VGC business into the existing business, plus the continued efforts
to reduce costs within the Company. These gains were partially offset by
additional staffing required for the new Systems Division. The Company expects
increased sales and gross margins in 1998 to justify these additional expenses.
In 1997, the provision for doubtful accounts decreased to $694,000 from $865,000
in 1996. The Company has continued to benefit from more stringent credit
requirements which were initially implemented in 1995.
Interest expense increased from $1,915,000 in 1996 to $2,913,000 in 1997. This
increase is primarily due to the debt associated with the acquisition of VGC.
In 1997, the Company sold its interest in a capital lease in the Los Angeles,
California area for a gain of approximately $3.7 million. The lease rents were
significantly lower than the existing market, which resulted in the market value
for the lease. From a Company operating standpoint, the facility was
substantially larger than what was required for the Company's operations.
Subsequent to the sale, the Company moved its Los Angeles operations to a
facility of appropriate size for the areas operations.
In addition, in 1997, the Company sold its pressroom material converting
operation, which consisted primarily of inventory and machinery, to a national
converting company and simultaneously entered into a supplier agreement with the
buyer. The transaction allows the Company to focus its efforts on marketing and
selling the products and in developing an alliance with the largest converter in
the industry. The Company recorded a loss on the divestiture of $401,000.
The effective income tax rate decreased from 41.6% in 1996 to 41.3% in 1997. The
lower rate in 1997 is primarily due to non-deductible expenses being a lesser
percent of income in 1997 compared to 1996. The difference between the effective
tax rates and the federal statutory rate of 34% for both years is primarily
attributable to the effect of state income taxes and non-deductible expenses.
COMPARISON OF 1996 TO 1995
Net income for 1996 was $3,914,000, or $.60 per share compared to $1,646,000, or
$.25 per share for 1995. The results for 1995 include a one-time charge of
$1,315,000 ($794,000 after related tax benefit) for restructuring expenses.
Excluding this restructure expense, net income for 1995 would have been
$2,440,000 ($.37 per share).
Net sales in 1996 were $366,657,000 compared to $357,077,000 in 1995, an
increase of 3%. This sales increase is primarily the result of the VGC
acquisition. Excluding the impact of the VGC acquisition, sales were flat during
the year, with modest decreases in the first half of the year and modest
increases in the second half. Gross profit as a percent of sales remained stable
between the two years, at 17.8% in 1996 and 17.7% in 1995.
Selling, general, and administrative expenses as a percent of sales decreased
from 15.0% in 1995 to 14.7% in 1996. As previously indicated, in 1995, the
Company incurred a restructuring charge of $1,315,000. This expense was incurred
in the consolidation of five distribution centers, the realignment of two
others, and the centralization of certain financial and information services.
The efficiencies in aligning operations by geographical area and consolidating
duplicate facilities and functions, combined with other cost reduction programs
resulted in a containment of expenses in 1996.
Interest expense decreased from $2,235,000 in 1995 to $1,915,000 in 1996. Prior
to the acquisition of VGC in November, interest expense was lower during the
year due to decreased working capital levels. With the acquisition of VGC, the
debt levels increased with a corresponding increase in interest expense.
The effective income tax rate decreased from 42.8% in 1995 to 41.6% in 1996. The
lower rate in 1996 is primarily due to non-deductible expenses being a lesser
percent of income in 1996 compared to 1995.
Financial Condition and Liquidity
Cash used in operating activities was $1,795,000 in 1997. Cash provided by
operations was $7,701,000 and $3,024,000 in 1996 and 1995, respectively. The
substantial decrease in cash flow in 1997 compared to 1996 is primarily due to
increased working capital levels in 1997. This increase reflects the adjustment
of working capital levels for the VGC acquisition to ongoing operating levels
and temporary increases in inventory levels to ensure inventory availability
through the conversion of the Company to a single business system. The effect of
changes in asset levels decreased cash flow by $6.7 million in 1997, compared to
an increase in cash flows in 1996 of $.5 million. In addition, although the 1997
cash flow from operations excludes the pretax gain on the sale of the capital
lease, the related tax expense of approximately $1.5 million is reflected in the
outflow of cash.
Cash flow provided by investing activities was $3,650,000 in 1997, compared to
cash flows used by investing activities of $14,471,000 and $1,062,000 in 1996
and 1995, respectively. The cash generated in 1997 was primarily from the sale
of the capital lease and the pressroom material converting operation. The
primary expenditure in 1996, was for the VGC acquisition. In the three years,
property and equipment expenditures ranged between $1.5 and $2 million. The
Company had no material capital expenditure commitments at December 31, 1997.
Capital expenditures for 1998 are anticipated to be approximately $2 million. In
addition, the Company's business strategy is to continue to acquire regional
distributors within the Company's current markets or companies that offer new
products and services to the printing and imaging industries.
Cash flows from financing activities were $1,855,000 used in 1997, $6,770,000
provided in 1996, and $2,580,000 used in 1995. The cash used in 1997 was
primarily for the paydown of debt of $2,448,000 and was primarily provided from
the proceeds from the sale of the capital lease and the business divestiture. In
1996, the cash provided was from an increase in debt and an increase in the book
overdraft, and was used along with cash generated from operations for the VGC
acquisition. The other primary component of financing activities was dividend
payments of $1.2 million in 1997 and 1996 and $2.5 million in 1995.
The Company's primary source of debt financing is a revolving credit agreement
with a commitment of $50 million of which $18.5 million was available at
December 31, 1997. The Company believes this source of borrowing, combined with
cash from operations, is sufficient to support the current capital requirements
of the Company. For potential acquisitions which would exceed the current
financing levels, the Company believes based on the current capacity of the
balance sheet for additional debt, with a current debt to equity ratio of .65 to
1, and the Company's prior success in integrating new acquisitions, additional
debt capital would be available to the Company at favorable rates.
PROCEDURES FOR THE YEAR 2000 ISSUE
The Company's business system will require program modifications prior to the
year 2000, for what is commonly referred to as the "Year 2000 Issue". Similar to
other systems, the system currently abbreviates the year to a two-digit number.
As currently programmed, this abbreviation will cause many of the functions
within the system which are date sensitive to operate improperly or malfunction
in the year 2000. The Company has contracted with the software manufacture to
work with the Company's management information system department to make the
necessary programming changes to correct this problem. This work is scheduled
for the summer of 1998. The Company does not anticipate the cost of the
modifications will have a material impact on the Company's results of operations
or financial position. In addition, the Company is in the process of initiating
formal communications with its significant suppliers and customers to determine
the extent to which the Company might be impacted by those third parties'
failure to correct any year 2000 issues.
DERIVATIVE FINANCIAL INSTRUMENTS
In 1997, the Company began utilizing derivative financial instruments to reduce
interest rate risks. The Company does not hold or issue financial instruments
for trading or speculative purposes. The counterparty is a major commercial
bank. Management believes losses related to credit risk are remote.
<PAGE>
NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income,"
and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information." SFAS 130 establishes standards for reporting and display of
comprehensive income and its components in the financial statements. SFAS No.
131 establishes standards for the way public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports issued to shareholders. In addition, SFAS No. 131 also
establishes standards for related disclosures about products and services,
geographic areas and major customers. These statements are effective for fiscal
years beginning after December 15, 1997. Reclassification of financial
statements for earlier periods provided for comparative purposes is required.
The Company is in the process of evaluating these disclosure requirements. The
adoption of these statements is not expected to have any impact on the Company's
consolidated results of operations, financial position or cash flows.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
PRIMESOURCE CORPORATION
Consolidated Statements of Income
<CAPTION>
Years Ended December 31,
-----------------------------------
(Thousands of dollars, except per share amounts) 1997 1996 1995
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales ................................... $ 414,867 $ 366,657 $ 357,077
Cost of sales ............................... 343,116 301,428 293,790
- -----------------------------------------------------------------------------------
Gross profit ................................ 71,751 65,229 63,287
Selling, general, and administrative expenses 60,151 53,748 53,547
Depreciation and amortization ............... 2,412 2,420 2,663
Provision for doubtful accounts ............. 694 865 1,090
Restructure expense ......................... 1,315
- -----------------------------------------------------------------------------------
Income from operations ...................... 8,494 8,196 4,672
Interest expense ............................ (2,913) (1,915) (2,235)
Gain on sale of capital lease ............... 3,658
Loss on business divestiture ................ (401)
Other income-net ............................ 515 421 441
- -----------------------------------------------------------------------------------
Income before provision for income taxes .... 9,353 6,702 2,878
Provision for income taxes .................. 3,862 2,788 1,232
- -----------------------------------------------------------------------------------
Net income .................................. $ 5,491 $ 3,914 $ 1,646
===================================================================================
Net income per share
Basic ....................................... $ .84 $ .60 $ .25
Diluted ..................................... .83 .60 .25
===================================================================================
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
PRIMESOURCE CORPORATION
Consolidated Balance Sheets
<CAPTION>
December 31,
----------------------
(Thousands of dollars, except share information) 1997 1996
- --------------------------------------------------------------------------------------------
Assets
Current Assets
<S> <C> <C>
Trade receivables, less allowances of $1,913 and $1,787, respectively $ 53,861 $ 54,044
Other receivables ................................................... 6,675 6,612
Inventories ......................................................... 53,919 48,741
Deferred income taxes ............................................... 2,361 1,982
Other ............................................................... 1,155 671
- --------------------------------------------------------------------------------------------
Total Current Assets ............................................... 117,971 112,050
Property and equipment, net ......................................... 12,315 13,719
Excess of cost over net assets of businesses acquired,
net of accumulated amortization of $1,435 and $1,102, respectively 4,217 4,487
Deferred income taxes ............................................... 1,705 1,763
Long-term receivables ............................................... 824 895
Other assets ........................................................ 1,459 1,261
- --------------------------------------------------------------------------------------------
Total Assets ........................................................ $ 138,491 $ 134,175
============================================================================================
Liabilities and Shareholders' Equity
Current Liabilities
Current portion of long-term obligations ............................ $ 1,362 $ 1,550
Accounts payable .................................................... 34,045 29,781
Book overdraft ...................................................... 5,609 3,847
Accrued payroll and benefits ........................................ 3,434 2,587
Other accrued liabilities ........................................... 4,370 7,245
- --------------------------------------------------------------------------------------------
Total Current Liabilities ........................................... 48,820 45,010
Long-term obligations, net of current portion ....................... 32,788 36,250
Accrued pension and other liabilities ............................... 2,387 2,577
Postretirement benefits other than pension .......................... 1,948 2,155
- --------------------------------------------------------------------------------------------
Total Liabilities ................................................... 85,943 85,992
Commitments and Contingencies
Shareholders' Equity
Common stock, $.01 par value, 24,000,000 shares authorized
6,516,620 and 6,514,795 issued and outstanding, respectively ........ 65 65
Additional paid-in capital .......................................... 25,586 25,533
Retained earnings ................................................... 26,897 22,628
Unamortized restricted stock awards ................................. (43)
- --------------------------------------------------------------------------------------------
Total Shareholders' Equity ......................................... 52,548 48,183
- --------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity .......................... $ 138,491 $ 134,175
============================================================================================
<FN>
See accompanying notes to consolidated financial statements
</FN>
</TABLE>
<PAGE>
<TABLE>
PRIMESOURCE CORPORATION
Consolidated Statements of Cash Flows
<CAPTION>
Years Ended December 31,
-----------------------------------
(Thousands of dollars) 1997 1996 1995
- ----------------------------------------------------------------------------------------------
Operating Activities
<S> <C> <C> <C>
Net income ............................................. $ 5,491 $ 3,914 $ 1,646
Adjustments to reconcile net income to net
cash provided by (used in)operating activities:
Depreciation ........................................ 1,980 1,900 2,006
Amortization ........................................ 432 520 657
Provision for doubtful accounts ..................... 694 865 1,090
Gain on sale of capital lease ....................... (3,658)
Loss on business divestiture ........................ 401
Other ............................................... (391) 28 756
Changes in assets and liabilities, net of
effects from business combinations/divestitures:
Receivables ......................................... (574) (4,751) (6,658)
Inventories ......................................... (7,754) 1,485 2,499
Other current assets ................................ (484) 258 (173)
Income taxes ........................................ 100 1,768 2,064
Accounts payable and other accrued liabilities ...... 2,255 2,917 288
Pension and other postretirement benefits ........... (287) (1,203) (1,151)
- ----------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities ... (1,795) 7,701 3,024
Investing Activities
Proceeds from sales of property and equipment .......... 565 218 473
Proceeds from sale of capital lease .................... 3,151
Purchase of property and equipment ..................... (1,918) (1,530) (1,713)
Proceeds from business divestitures .................... 2,388 2,235
Payments for business combinations, net of cash acquired (14,394) (954)
(Increase) decrease in long-term receivables ........... 71 (33) 777
(Increase) decrease in other assets .................... (254) (732) 479
Other, net ............................................. (353) (235) (124)
- ----------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities ... 3,650 (14,471) (1,062)
Financing Activities
Net decrease in short-term borrowings .................. (3,000)
Proceeds from long-term obligations .................... 74,600 142,924 102,925
Repayment of long-term obligations ..................... (77,048) (138,532) (100,050)
Increase in book overdraft ............................. 1,762 3,847
Dividends paid ......................................... (1,172) (1,211) (2,497)
Purchase of common stock ............................... (106) (258)
Proceeds from exercise of stock options ................ 109 42
- ----------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities .... (1,855) 6,770 (2,580)
- ----------------------------------------------------------------------------------------------
Net decrease in cash ................................... --- --- (618)
Cash at beginning of year .............................. --- --- 618
- ----------------------------------------------------------------------------------------------
Cash at end of year .................................... $ --- $ --- $ ---
==============================================================================================
Net cash paid (received) during the year for:
Interest .......................................... $ 2,742 $ 1,826 $ 2,223
Income taxes ...................................... 3,878 2,314 (644)
==============================================================================================
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
PRIMESOURCE CORPORATION
Consolidated Statements of Shareholders' Equity
<CAPTION>
Unamortized
Common Stock Additional Restricted
(Thousands of dollars, ($.01 Par Value) Paid-in Retained Stock
except share information) Shares Amount Capital Earnings Awards Total
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995 ......... 6,508,630 $ 65 $ 25,359 $ 20,887 $ (142) $ 46,169
Net income ....................... 1,646 1,646
Cash dividends paid to
shareholders ($.3825 per share) (2,497) (2,497)
Shares issued under
noncompete agreement .......... 15,000 142 142
Restricted stock awards and
related amortization .......... 470 70 70
Stock options exercised and
related tax benefit ........... 3,195 42 42
- ---------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 ....... 6,527,295 65 25,543 20,036 (72) 45,572
Net income ....................... 3,914 3,914
Cash dividends paid to
shareholders ($.18 per share) . (1,211) (1,211)
Shares issued under
acquisition agreement ......... 25,000 137 137
Amortization of restricted
stock awards .................. 29 29
Purchase of common stock ......... (37,500) (147) (111) (258)
- ---------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 ....... 6,514,795 65 25,533 22,628 (43) 48,183
Net income ....................... 5,491 5,491
Cash dividends paid to
shareholders ($.18 per share) . (1,172) (1,172)
Stock options exercised and
related tax benefit ........... 15,837 109 109
Amortization of restricted
stock awards .................. 43 43
Purchase of common stock ......... (14,012) (56) (50) (106)
- ---------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 ....... 6,516,620 65 25,586 26,897 --- 52,548
=====================================================================================================================
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
PRIMESOURCE CORPORATION
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Basis of Consolidation
PrimeSource Corporation (the "Company") is a national distributor and
systems integrator serving the printing, publishing and graphics arts
industries. The Company was spun-off from Tasty Baking Company ("TBC")
on August 1, 1993. The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. All
significant intercompany transactions and accounts have been
eliminated.
Cash and Cash Equivalents
The Company considers all highly liquid temporary cash investments
purchased with a maturity of three months or less to be cash
equivalents. The Company's cash management program utilizes zero
balance accounts. Accordingly, in general, the Company has none or
minimal cash balances. Book overdraft balances have been reclassified
to a current liability in the accompanying Consolidated Balance Sheets.
Inventory Valuation
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
(FIFO) methods.
Property and Equipment
Property and equipment are carried at cost. Costs of major additions,
replacements and betterments are capitalized and maintenance and
repairs which do not extend the life of the respective assets are
expensed as incurred. When property is retired or otherwise disposed,
the cost of the property and the related accumulated depreciation are
removed from the accounts and any resulting gains or losses are
reflected in current operations. Depreciation is computed by the
straight-line method over the estimated useful lives of the assets
which range from three to ten years for machinery and equipment and ten
to thirty years for buildings and improvements.
Capital leases are included under property and equipment with the
corresponding amortization included in depreciation. The related
financial obligations under the capital leases are included in
long-term obligations. Capital leases are amortized over the useful
lives of the respective assets.
Long-lived assets are reviewed for impairment whenever events or
changes in circumstances indicate the carrying amount may not be
recoverable. If the sum of the expected future undiscounted cash flows
is less than the carrying amount of the asset, a loss is recognized for
the difference between the fair value and carrying value of the asset.
Excess of Cost Over Net Assets of Businesses Acquired
The excess of the total acquisition cost over the fair value of net
tangible assets acquired (the "goodwill acquired") is being amortized
by the straight-line method over periods ranging from fifteen to forty
years. The Company's policy is to record an impairment loss against the
goodwill acquired in the period when it is determined the carrying
amount of the net assets may not be recoverable. The Company performs
this evaluation on a quarterly basis. This determination includes
evaluation of factors such as current market value, future asset
utilization, business climate and future net cash flows (undiscounted
and without interest) expected to result from the use of the net
assets.
<PAGE>
Revenue Recognition
Revenue is recognized when products are shipped and title is passed to
the customer.
Derivative Financial Instruments
In 1997, the Company began utilizing derivative financial instruments
to reduce interest rate risks. The Company does not hold or issue
financial instruments for trading or speculative purposes. The
counterparty is a major commercial bank. Management believes losses
related to credit risk are remote. The instruments are accounted for on
an accrual basis. The net cash amounts paid or received under such
agreements are accrued and recognized as an adjustment to interest
expense.
Fair Value of Financial Instruments
The carrying value of the Company's short-term financial instruments
such as receivables and payables approximates their fair values, based
on the short-term maturities of these instruments. The carrying value
of long-term investments, consisting primarily of long-term notes
receivable, and long-term debt obligations, consisting primarily of
revolving credit debt with interest rates based on current short-term
market rates, approximates the market value based on the estimated
discounted value of future cash flows at December 31, 1997 and 1996.
The fair value of derivative financial instruments is based on the
quoted settlement cost on the balance sheet date.
Concentrations of Credit Risk
Concentrations of credit risk with respect to trade receivables are
limited due to a large customer base and its geographic dispersion.
Ongoing credit evaluations of customers' financial condition are
performed and, generally, no collateral is required. The Company
maintains reserves for potential credit losses and such losses have not
exceeded management's expectations.
Incentive Stock Awards
The Company applies the intrinsic value based method prescribed in
Accounting Principles Board Opinion No. 25 to account for options
granted to employees and directors to purchase common shares. Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" requires that companies electing to continue using the
intrinsic value method must make pro forma disclosures of net income
and earnings per share as if the fair-value-based method of accounting
had been applied. No compensation expense is recognized on the grant
date since, at that date, the option price equals the market price of
the underlying common shares.
Income Taxes
Income tax expense is based on pre-tax financial accounting income.
Deferred tax assets and liabilities are recognized for the expected tax
consequences of temporary differences between the tax basis of assets
and liabilities and their reported amounts.
Income Per Common Share
In March 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per
Share(EPS)" (SFAS No. 128). The Company adopted SFAS 128 in the fourth
quarter of 1997. All prior-period EPS data presented has been restated.
Adoption did not have a material effect on the Company's EPS.
Estimates and Assumptions
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Reclassifications
Certain reclassifications have been made to the 1996 consolidated
financial statements and related footnotes to conform to the 1997
presentations.
<PAGE>
2. Business Combinations
In 1996, the Company acquired the operating assets of KPM and VGC
Corporation's branch operations in St. Louis, Missouri; Minneapolis,
Minnesota; Milwaukee, Wisconsin; Des Moines, Iowa; and Omaha, Nebraska
for an aggregate purchase price of $14,394,000. In 1995, the Company
acquired substantially all of the operating assets of Turner Products,
Inc. and Litho Supply and Service Company's supply distribution
business for an aggregate purchase price of $1,010,000.
These business combinations have been accounted for as purchases and,
accordingly, are included in operations from their respective
acquisition dates. The excess of the acquisition costs over the net
tangible assets acquired is included in the Consolidated Balance Sheet
and is being amortized on a straight-line basis over 15 years. The
pro-forma results of these acquisitions would not have had a
significant impact on the Company's consolidated results of operations.
3. Sale of Capital Lease
In October 1997, the Company sold its rights to a building lease in the
Los Angeles California area, for $3,151,000. The lease had been
accounted for as a capital lease. The pretax gain on the sale after
eliminating the associated net financial basis of the lease assets of
$695,000 and the liability for future lease payments of $1,202,000, was
$3,658,000. Subsequent to the sale, the Company's operations previously
located in the facility were moved to a new leased facility in the
area.
4. Business Divestitures
Pressroom Material Converting Operation
In October 1997, the Company completed the sale of a pressroom material
converting operation. The pretax loss on the sale was $401,000. In
conjunction with the sale, the Company entered into a supplier
agreement with the buyer.
Onandaga Litho Supply
In October 1996, the Company sold substantially all of the assets of
its Rochester, New York subsidiary, Onandaga Litho Supply, Co., Inc.
There was no gain or loss on the sale.
5. Inventory Write-down to Market
In 1997, the Company established a systems group to better utilize the
Company's technical resources in providing solutions and on-going
support, including installation service and training, in the digital
electronics component of the market. Included in this reorganization is
the centralization of the electronics inventory, eliminating the
duplication of inventory at the Company's various branches. In
conjunction with this reorganization and new distribution approach, the
Company expensed $2.3 million in 1997 to write-down the existing branch
inventory to current market value based on its expected disposal value.
This amount has been recorded in cost of sales in the Consolidated
Income Statements.
<PAGE>
6. Inventories
Inventories, which are primarily finished goods, at December 31
consisted of:
<TABLE>
<CAPTION>
(Thousands of dollars) 1997 1996
-----------------------------------------------------------------------
<S> <C> <C>
Last-in, first-out (LIFO) .................... $30,168 $25,838
First-in, first-out (FIFO) ................... 23,751 22,903
-----------------------------------------------------------------------
Total inventories ............................ $53,919 $48,741
=======================================================================
</TABLE>
The current replacement costs of inventories exceeds LIFO values by
approximately $5,432,000 and $5,591,000 at December 31, 1997 and 1996,
respectively.
7. Property and Equipment
Property and equipment, net, at December 31 consisted of:
<TABLE>
<CAPTION>
(Thousands of dollars) 1997 1996
--------------------------------------------------------------------
<S> <C> <C>
Land ......................................... $ 1,354 $ 1,549
Buildings and improvements ................... 7,605 9,017
Leased property .............................. 399 1,418
Machinery, equipment and other ............... 12,460 10,883
--------------------------------------------------------------------
21,818 22,867
Less accumulated depreciation and amortization (9,503) (9,148)
--------------------------------------------------------------------
Property and equipment, net .................. $ 12,315 $ 13,719
====================================================================
</TABLE>
8. Long-term Obligations
The long-term obligations of the Company at December 31 consisted of:
<TABLE>
<CAPTION>
(Thousands of dollars) 1997 1996
-------------------------------------------------------------------------------------
<S> <C> <C>
Revolving credit agreement ................................... $ 31,500 $ 32,450
Term loan (interest rate of 6.03%), principal payments of
$167 plus interest due quarterly through December, 1999 .... 1,333 2,000
Term loan (interest rate of 6.03%), principal payments of
$134 plus interest due quarterly through December, 1999 .... 1,070 1,604
Capitalized lease obligation (imputed interest rate of 8.38%) 1,352
Capitalized lease obligation (imputed interest rate of 8.97%,
payable in monthly installments of $12 through July, 1999) 223 348
Other miscellaneous notes .................................... 24 46
-------------------------------------------------------------------------------------
34,150 37,800
Less current portion ......................................... (1,362) (1,550)
-------------------------------------------------------------------------------------
Net long-term obligations .................................... $ 32,788 $ 36,250
=====================================================================================
</TABLE>
Maturities of long-term obligations are $1,362,000 in 1998, $1,288,000
in 1999, $31,500,000 in 2000 and none thereafter.
The Company has an uncollateralized $50 million revolving credit
agreement which expires in January, 2000. Under the terms of the
agreement, which includes three banks, the Company can borrow at the
prime rate or the London Interbank Offered Rate (LIBOR) plus between
.75% to 1.05% depending on certain specified performance levels.
The loan agreements provide, among other terms, various requirements
for tangible net worth and leverage and fixed charge coverage ratios.
The Company was in compliance with these requirements at December 31,
1997.
In November 1997, the Company entered into an interest rate swap
agreement with a notional amount of $17 million. This swap agreement
effectively fixed the interest rate on a like amount of the Company's
floating rate debt at 6.16% plus the Company's LIBOR spread in effect
at the time. The effective rate was 7.06% at December 31, 1997. The
swap expires on November 6, 2001. The fair value of the swap agreement,
based on the quoted settlement cost to close the contract at December
31, 1997, is a liability of $145,000. The fair value of the swap
agreement is not recognized in the consolidated financial statements
since it is accounted for as a hedge.
Under terms of certain insurance policies and claims handling
agreements, the Company is required to maintain certain standby letters
of credit. At December 31, 1997 and 1996, these totaled $200,000 and
$300,000, respectively.
9. Provision for Income Taxes
The income tax provision for the years ended December 31 consisted of:
<TABLE>
<CAPTION>
(Thousands of dollars) 1997 1996 1995
----------------------------------------------------------
Current:
<S> <C> <C> <C>
Federal .................. $ 3,349 $ 2,571 $ 1,015
State .................... 791 586 143
----------------------------------------------------------
4,140 3,157 1,158
Deferred:
Federal .................. (229) (264) 58
State .................... (49) (105) 16
----------------------------------------------------------
(278) (369) 74
----------------------------------------------------------
Provision for income taxes $ 3,862 $ 2,788 $ 1,232
==========================================================
</TABLE>
Reconciliation of the provision for income taxes computed at the
federal statutory rate of 34% to the actual provision for income taxes
for the years ended December 31 consisted of:
<TABLE>
<CAPTION>
(Thousands of dollars) 1997 1996 1995
------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory tax provision .............................. $ 3,180 $ 2,279 $ 979
State income taxes, net of federal income tax benefit 490 334 95
Expenses for which there are no tax benefits ......... 172 154 178
Other, net ........................................... 20 21 (20)
------------------------------------------------------------------------------------
Provision for income taxes ........................... $ 3,862 $ 2,788 $ 1,232
====================================================================================
</TABLE>
<PAGE>
Deferred income taxes represent the future tax consequences of
differences between the tax basis of assets and liabilities and their
financial reporting amounts at each year end. Significant components of
the Company's deferred tax assets (liabilities) at December 31,
consisted of:
<TABLE>
<CAPTION>
(Thousands of dollars) 1997 1996
----------------------------------------------------------------
<S> <C> <C>
Pension and employee benefit costs ........ $ 772 $ 979
Inventory reserves ........................ 890 165
Postretirement benefits other than pensions 867 853
Vacation accrual .......................... 276 408
Provision for doubtful accounts ........... 677 634
Depreciation .............................. (408) (424)
Other, net ................................ 992 1,130
----------------------------------------------------------------
Total deferred tax assets ................. $ 4,066 $ 3,745
================================================================
</TABLE>
10. Earnings Per Share
The following is a reconciliation of the average shares of common stock
used to compute basic earnings per share to the shares used to compute
diluted earnings per share as shown on the Consolidated Statements of
Income for the years ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------------------------------------------------------------
Average shares of common stock outstanding
<S> <C> <C> <C>
used to compute basic earnings per share . 6,509,083 6,538,279 6,525,042
Dilutive effect of stock options ......... 126,751 19,710 42,024
------------------------------------------------------------------------------
Average shares of common stock outstanding
used to compute diluted earnings per share 6,635,834 6,557,989 6,567,066
Net income per share:
Basic .................................... $ .84 $ .60 $ .25
Diluted .................................. .83 .60 .25
==============================================================================
</TABLE>
11. Defined Benefit Pension Plans
Prior to January 1, 1997, the Company had two defined benefit pension
plans, the Momentum Retirement Plan (the "Momentum Plan") and the
PrimeSource Pension Plan (the "PrimeSource Plan"). The Momentum
Retirement Plan covered substantially all of the employees who were
employed by Momentum Corporation on September 1, 1994, the date
Momentum Corporation merged with the Company. Effective January 1,
1997, this plan was merged into the PrimeSource Plan. The PrimeSource
Plan, which previously covered substantially all of the employees not
covered by the Momentum Plan, effective with the merger of the Momentum
Plan, covers substantially all of the employees of the Company.
Benefits under the plans are generally based on the employees' years of
service and compensation during the years preceding retirement.
Contributions to the plans are based on funding standards established
by the Employee Retirement Income Security Act of 1974.
<PAGE>
The components of the net pension expense for both plans combined for
the years ended December 31, 1996 and 1995 and for the merged plan for
the year ended December 31, 1997 were:
<TABLE>
<CAPTION>
(Thousands of dollars) 1997 1996 1995
-------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost of benefits earned during the year $ 728 $ 1,000 $ 732
Interest cost on projected benefit obligation . 1,734 1,718 1,572
Actual return on plan assets ................. (5,272) (3,082) (5,118)
Net amortization and deferral ................. 2,620 821 3,297
-------------------------------------------------------------------------------
Net pension expense(benefit) .................. $ (190) $ 457 $ 483
===============================================================================
</TABLE>
The plans' funded status and the amounts recognized in the Company's
Consolidated Balance Sheets at December 31 were:
<TABLE>
<CAPTION>
PrimeSource Momentum
Plan Plan
--------------------- ---------
(Thousands of dollars) 1997 1996 1996
---------------------------------------------------------------------------------------
Actuarial present value of plan benefit obligations:
<S> <C> <C> <C>
Vested ............................................. $ 22,811 $ 5,931 $ 15,424
Non-vested ......................................... 663 74 361
---------------------------------------------------------------------------------------
Accumulated benefit obligation ..................... 23,474 6,005 15,785
Effect of future salary increases .................. 3,215 1,565 753
---------------------------------------------------------------------------------------
Projected benefit obligation ....................... 26,689 7,570 16,538
Plan assets at fair value .......................... 30,507 6,295 19,591
---------------------------------------------------------------------------------------
Plan assets in excess of (less than)
projected benefit obligation ....................... 3,818 (1,275) 3,053
Unrecognized prior service cost .................... (200) (205)
Unrecognized gain .................................. (5,096) (356) (2,903)
---------------------------------------------------------------------------------------
Net pension asset (liability) ...................... $ (1,478) $ (1,836) $ 150
=======================================================================================
</TABLE>
The actuarial present value of benefits and projected benefit
obligations were determined using a discount rate of 7%, 7.75% and
7.25% for the years ending December 31, 1997, 1996 and 1995,
respectively. The expected long-term rate of return on assets was 10%
and the rate of compensation increase used to measure the projected
benefit obligation was 4%.
The plan's assets are invested in undivided interests in several funds
structured to duplicate the performance of various stock and bond
indexes.
12. Defined Contribution Pension Plans
The Company sponsors a number of defined contribution pension plans in
the form of IRC 401(k) plans. Participation in one of these plans is
available to substantially all employees. Company contributions to
these plans are based on a percentage of the employee contributions not
to exceed certain maximum levels. The cost of these plans was $296,000,
$220,000 and $222,000 for the years 1997, 1996, and 1995, respectively.
<PAGE>
13. Postretirement Benefits Other Than Pensions
The Company has two retiree health benefit plans, the Phillips & Jacobs
Retiree Health Plan (the "P/J Retiree Plan") which primarily covers
retirees and employees who previously participated in the TBC Retiree
Medical Plan, and the Momentum Retiree Medical Plan (the "Momentum
Retiree Plan), which primarily covers retirees and employees who were
previously employed by Momentum Corporation prior to the merger with
the Company in 1994. Both plans provide health care benefits through a
health care administrator and contracts with health service providers.
In addition, the P/J Retiree Plan provides life insurance benefits
through an insurance company. The Company life insurance premium
contribution is limited to $20,000 of coverage per retiree, with the
retiree paying the premium for any coverage beyond the $20,000. The
Company's policy is to fund the plans as benefits are paid.
The plans are contributory with ceilings on the Company's contribution.
In addition, under the Momentum Retiree Plan, employees who were under
the age of 55 on December 31, 1992 receive no contribution from the
Company under the plan.
Net postretirement benefit expense (benefit) for the years ended
December 31 included the following components:
<TABLE>
<CAPTION>
(Thousands of dollars) 1997 1996 1995
-------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost of benefits earned during the year $ 16 $ 17 $ 19
Interest cost on projected benefit obligation . 89 86 106
Amortization of net gain ...................... (103) (107) (100)
-------------------------------------------------------------------------
Net expense (benefit) ......................... $ 2 $ (4) $ 25
=========================================================================
</TABLE>
The plans' funded status and the amounts recognized in the Company's
Consolidated Balance Sheets at December 31 were:
<TABLE>
<CAPTION>
(Thousands of dollars) 1997 1996
------------------------------------------------------------------
Actuarial present value of benefit obligations:
<S> <C> <C>
Fully eligible plan participants ............ $ (169) $ (146)
Other active plan participants .............. (89) (76)
Retirees and vested terminated employees .... (902) (830)
------------------------------------------------------------------
Accumulated postretirement benefit obligation (1,160) (1,052)
Unrecognized net gain ....................... (788) (1,103)
------------------------------------------------------------------
Postretirement benefit liability ............ $(1,948) $(2,155)
==================================================================
</TABLE>
The accumulated postretirement benefit obligation was determined using
a discount rate of 7.00%, 7.75% and 7.25% for the years ending December
31, 1997, 1996 and 1995, respectively. The health care cost trend rates
used were 7.67% (7.18% for health maintenance organizations(HMO's)),
8.12% (7.45% for HMO's), and 8.56% (7.73% for HMO's) for the years
1997, 1996, and 1995, respectively, gradually declining to 5% in 2003
(2005 for HMO's) and remaining at that level thereafter. Due to the
ceilings on Company contributions, the effect of increases in health
care cost trend rates do not have a material effect on the liability or
expense.
<PAGE>
14. Incentive Stock Awards
Stock Options
The Company's stock incentive plans provide for the awarding of stock
options to directors, officers and other key employees. All granted
options lapse at the earlier of the expiration of the option term (not
more than ten years from the grant date) or within three months
following the date on which employment with the Company or its
subsidiaries terminates.
Changes in options outstanding for the three years ended December 31,
1997 are:
<TABLE>
<CAPTION>
Option Prices
-------------------------
Weighted
Options Average Range
-----------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding at January 1, 1995 . 380,297 $ 10.35 $ 5.92-13.03
-----------------------------------------------------------------------
Granted ........................ 65,350 6.11 6.11
Exercised ...................... (3,195) 6.34 6.34
Canceled ....................... (19,009) 10.07 6.34-12.32
-----------------------------------------------------------------------
Outstanding at December 31, 1995 423,443 9.74 5.92-13.03
-----------------------------------------------------------------------
Granted ........................ 344,756 6.30 6.11- 6.97
Canceled ....................... (303,350) 11.04 5.92-13.03
-----------------------------------------------------------------------
Outstanding at December 31, 1996 464,849 6.34 6.11- 8.06
-----------------------------------------------------------------------
Granted ........................ 56,500 11.18 11.18
Exercised ...................... (15,853) 6.15 6.11- 6.97
Canceled ....................... (7,115) 6.15 6.11- 6.97
-----------------------------------------------------------------------
Outstanding at December 31, 1997 498,381 $ 6.89 $ 6.11-11.18
=======================================================================
</TABLE>
At December 31, 1997, there were 248,513 options exercisable with a
weighted-average option price of $6.40 and a range from $6.11 to $8.06,
and 93,000 options available for grant. The weighted-average remaining
contractual life of outstanding options at December 31, 1997 and 1996
was 7.7 and 8.3 years, respectively.
<PAGE>
The Company has not recognized compensation expense in connection with
stock option grants. Had compensation expense been determined based on
the fair value on the grant date of options granted after December 31,
1994, the Company's net income and earnings per share on a pro forma
basis would have been reduced for the years ended December 31 as
follows:
<TABLE>
<CAPTION>
(Thousands of dollars,
except per share data) 1997 1996 1995
----------------------------------------------------------
Net Income:
<S> <C> <C> <C>
As reported ............. $ 5,491 $ 3,914 $ 1,646
Pro forma ............... 5,360 3,813 1,631
==========================================================
Earnings Per Share:
As reported
Basic ................. $ .84 $ .60 $ .25
Diluted ............... .83 .60 .25
Pro forma
Basic ................. .82 .58 .25
Diluted ............... .81 .58 .25
==========================================================
</TABLE>
The weighted-average fair value per share for options granted was
$5.23, $2.51 and $1.92 for 1997, 1996 and 1995, respectively. The fair
value was estimated using the Black-Scholes option-pricing model. For
options granted in 1997, a dividend yield rate of 1.6%, expected stock
volatility of 45%, expected option life of seven years and risk-free
interest rate of 5.8% were used in estimating the value. For options
granted in 1996, a dividend yield rate of 2.6%, expected stock
volatility of 37%, expected option life of seven years and risk-free
interest rate of 6.75% were used in estimating the value. For options
granted in 1995, a dividend yield rate of 2.9%, expected stock
volatility of 34%, expected option life of seven years and risk-free
interest rate of 5.5% were used.
Restricted Stock Awards
The Company's stock incentive plans provide for the awarding of
restricted stock to officers and key employees. The fair market value
of the stock at the date of grant establishes the compensation amount
which is amortized to operations over the restriction period. At
December 31, 1997, all awards were fully amortized and an additional
61,880 shares were available for future awards.
<PAGE>
15. Leases
The Company leases certain distribution and office facilities,
machinery and equipment, and automotive equipment under various
noncancelable lease agreements. The Company expects that in the normal
course of business, leases that expire will be renewed or replaced by
other leases.
Minimum annual rentals payable under noncancelable operating leases
with a remaining term of more than one year from December 31, 1997 are
as follows:
<TABLE>
<CAPTION>
Years Ending December 31,
(Thousands of dollars)
----------------------------------------------
<S> <C> <C>
1998 ......................... $1,959
1999 ......................... 1,445
2000 ......................... 725
2001 ......................... 229
2002 ......................... 233
Thereafter ................... 33
-----------------------------------------------
Total minimum lease payments $4,694
===============================================
</TABLE>
Rent expense, net of noncancelable sublease income of none, $5,000 and
$98,000 in 1997, 1996, and 1995, respectively, was $2,219,000,
$2,182,000 and $2,382,000 for 1997, 1996, and 1995, respectively.
The Company leases a distribution facility from two employees. Rent
expense incurred in connection with this lease was $65,000, $63,000 and
$60,000 in 1997, 1996, and 1995, respectively.
16. Restructure Expense
The Company recognized a restructuring expense of $1,315,000 in 1995
relating to the consolidation of five distribution centers, the
realignment of two others, and the centralization of certain financial
and information services. The expense consisted of $875,000 for
employee severance compensation and $440,000 for costs associated with
the closure of facilities. Except for continuing lease commitments for
closed facilities, which fully terminated in 1997, substantially all of
the costs were paid in 1995.
17. New Accounting Standards
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income" (SFAS No. 130). This Statement establishes standards for
reporting and display of comprehensive income and its components in the
financial statements. SFAS No. 130 is effective for fiscal years
beginning after December 15, 1997. Reclassification of financial
statements for earlier periods provided for comparative purposes is
required. The Company is in the process of determining its preferred
format. The adoption of SFAS No. 130 is not expected to have any impact
on the Company's consolidated results of operations, financial position
or cash flows.
In June 1997, the FASB also issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." This Standard
establishes standards for the way that public business enterprises
report information about operating segments in annual financial
statements and requires that those enterprises report selected
information about operating segments in interim financial reports
issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas and major
customers. SFAS No. 131 is effective for financial statements for
fiscal years beginning after December 15, 1997. Financial statement
disclosures for prior periods are required to be restated. The Company
is in the process of evaluating the disclosure requirements. The
adoption of SFAS No. 131 is not expected to have any impact on the
Company's consolidated results of operations, financial position or
cash flows.
<PAGE>
18. Commitments and Contingencies
The Company is subject to various legal proceedings and claims which
have arisen in the ordinary course of its business. The Company does
not believe that the ultimate resolution of such matters will have a
material effect on the Company's consolidated financial position or
results of operations.
The Company has a commitment to purchase certain inventory from a
supplier through December 1999. This commitment is not expected to
surpass usage requirements through this period.
The Company, along with many other potentially responsible parties, is
a defendant in declaratory actions to determine the allocation of costs
for the investigation and remediation of two Superfund cleanup sites.
The Company believes its insurance will cover any costs incurred in
these two matters. The Company is also, in general, subject to possible
loss contingencies pursuant to federal or state environmental laws and
regulations. Although these contingencies could result in future
expenses or judgments, such expenses or judgments are not expected to
have a material effect on the Company's consolidated financial position
or results of operations.
19. Quarterly Financial Information (unaudited)
Summarized unaudited quarterly financial data for the years ended
December 31, 1997 and 1996 are:
<TABLE>
<CAPTION>
(Thousands of dollars
except per share data) First Second Third Fourth Total
-----------------------------------------------------------------------------------------
Year Ended December 31, 1997 (1)
<S> <C> <C> <C> <C> <C>
Net sales ...................... $103,388 $103,170 $102,462 $ 105,847 $ 414,867
Gross profit ................... 18,303 18,407 18,279 16,762 71,751
Net income ..................... 1,105 1,176 1,233 1,977 5,491
Net income per share
Basic ........................ $ .17 $ .18 $ .19 $ .30 $ .84
Diluted ...................... .17 .18 .19 .29 .83
Year Ended December 31, 1996 (2)
Net sales ...................... $ 86,959 $ 87,898 $ 89,344 $ 102,456 $ 366,657
Gross profit ................... 15,182 15,576 16,062 18,409 65,229
Net income ..................... 829 916 924 1,245 3,914
Net income per share
Basic ........................ $ .13 $ .14 $ .14 $ .19 $ .60
Diluted ...................... $ .13 $ .14 $ .14 $ .19 $ .60
<FN>
(1) Income for the quarter and year ended December 31, 1997, includes
$2,300,000 ($1,381,000 after tax) write-down of electronics
inventory to market, $3,658,000 ($2,183,000 after tax) gain on the
sale of a capital lease and $401,000 ($241,000 after tax) loss on
a business divestiture.
(2) The operations of the VGC acquisition are included from the August
1996 acquisition date for the St. Louis branch and the November
1996 acquisition date for the Minneapolis, Milwaukee, Des Moines
and Omaha branches.
</FN>
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and the Board of Directors
of PrimeSource Corporation
We have audited the accompanying consolidated balance sheets of PrimeSource
Corporation and its subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of income, shareholders' equity, and cash flows
for each of the three years in the period ended December 31, 1997. We have also
audited the financial statement schedule listed in Item 14(a)(2) of this Form
10-K. These financial statements and this financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and this financial statement schedule
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of PrimeSource
Corporation and its subsidiaries as of December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedule referred to above, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects, the information required to be included therein.
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 20, 1998
<PAGE>
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference from the definitive proxy statement to be filed with
the Securities and Exchange Commission by April 30, 1998, except information
regarding executive officers which appears under Part I.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference from the Registrants' definitive proxy statement to be
filed with the Securities and Exchange Commission by April 30, 1998.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference from the Registrants' definitive proxy statement to be
filed with the Securities and Exchange Commission by April 30, 1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference from the Registrants' definitive proxy statement to be
filed with the Securities and Exchange Commission by April 30, 1998.
<PAGE>
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
The following financial statements have been included as part of this
report:
<TABLE>
<CAPTION>
Form 10-K
Page
----------
<S> <C>
Consolidated Statements of Income ....................... 13
Consolidated Balance Sheets ............................. 14
Consolidated Statements of Cash Flows ................... 15
Consolidated Statements of Shareholders' Equity ......... 16
Notes to Consolidated Financial Statements .............. 17
Report of Independent Accountants ....................... 29
</TABLE>
(a)(2) Financial Statement Schedule
(a) The following financial statement schedule is submitted herewith:
-Schedule II Valuation of Qualifying Accounts and Reserves
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable, and
therefore have been omitted.
(a)(3) Exhibits
The required exhibits are included at the back of this Form 10-K and
are described in the Exhibit Index immediately preceding the first
exhibit.
(b) Reports on Form 8-K
The Registrant did not file a report on Form 8-K during the quarter
ended December 31, 1997.
<PAGE>
PRIMESOURCE CORPORATION AND SUBSIDIARIES
<TABLE>
SCHEDULE II -- VALUATION OF QUALIFYING ACCOUNTS AND RESERVES
<CAPTION>
Column A Column B Column C Column D Column E
- ----------------------------------- ------------ ----------------------------- ------------- -------------
Classification Balance at Charged to Balance
Beginning Charged to Other Deductions at End
(thousands of dollars) of Period Expenses Accounts Write-offs of Period
- --------------------------------------------------------------------------------------------------------------
For the year ended December 31, 1997
<S> <C> <C> <C> <C>
Allowance for doubtful accounts $ 1,787 $ 694 $ $ (568)(E) $ 1,913
Amortization of goodwill 1,102 333 1,435
Inventory reserves 3,172 2,602 (137)(A) (973)(F) 4,664
- --------------------------------------------------------------------------------------------------------------
6,061 3,629 (137) (1,541) 8,012
- --------------------------------------------------------------------------------------------------------------
For the year ended December 31, 1996
Allowance for doubtful accounts $ 1,372 $ 865 $ (450)(E) $ 1,787
Amortization of goodwill 825 316 (39)(B) 1,102
Inventory reserves 1,752 364 $ 1,754 (C) (698)(F) 3,172
- --------------------------------------------------------------------------------------------------------------
3,949 1,545 1,715 (1,148) 6,061
- --------------------------------------------------------------------------------------------------------------
For the year ended December 31, 1995
Allowance for doubtful accounts $ 1,457 $ 1,090 $ (1,175)(E) $ 1,372
Amortization of goodwill 519 306 825
Inventory reserves 1,563 561 624 (D) (996)(F) 1,752
- --------------------------------------------------------------------------------------------------------------
3,539 1,957 624 (2,171) 3,949
- --------------------------------------------------------------------------------------------------------------
<FN>
(A) Reserve disposed of with the sale of the pressroom material converting
operation.
(B) Reserve disposed of with the sale of the assets of Onandaga Litho Supply,
Inc.
(C) Related to the acquisition of VGC Corporation's branch operations in St.
Louis, Missouri; Minneapolis, Minnesota; Milwaukee, Wisconsin; Des Moines, Iowa;
and Omaha, Nebraska. (D) Related to the merger with Momentum Corporation.
(E) Doubtful accounts written off, net of any recoveries.
(F) The disposal of obsolete inventory, net of any recoveries.
</FN>
</TABLE>
<PAGE>
PRIMESOURCE CORPORATION AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated March 25, 1998
/s/ James F. Mullan
James F. Mullan
President and
Chief Executive Officer
(principal executive officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following person on the behalf of the registrant
and in the capacity and on the date indicated.
Dated March 25, 1998
/s/ William A. DeMarco
William A. DeMarco
Vice President, Chief Financial Officer
(principal financial and accounting officer)
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
- ------------------------------- ----------------------------- ---------------
<S> <C> <C>
/s/ Richard E. Engebrecht Chairman of the Board and March 3, 1998
Richard E. Engebrecht Director of PrimeSource
Corporation
/s/ Fred C. Aldridge, Jr. Director of PrimeSource March 3, 1998
Fred C. Aldridge, Jr. Corporation
/s/ Philip J. Baur, Jr. Director of PrimeSource March 3, 1998
Philip J. Baur, Jr. Corporation
/s/ John H. Goddard, Jr. Executive Vice President and March 3, 1998
John H. Goddard, Jr. Director of PrimeSource
Corporation
/s/ Gary MacLeod Director of PrimeSource March 3, 1998
Gary MacLeod Corporation
/s/ James F. Mullan President, Chief Executive March 3, 1998
James F. Mullan Officer and Director of
PrimeSource Corporation
/s/ Klaus D. Oebel Director of PrimeSource March 3, 1998
Klaus D. Oebel Corporation
/s/ Edward N. Patrone Director of PrimeSource March 3, 1998
Edward N. Patrone Corporation
/s/ John M. Pettine Director of PrimeSource March 3, 1998
John M. Pettine Corporation
</TABLE>
<PAGE>
EXHIBIT INDEX
Exhibit Number and Description
The following Exhibit Numbers refer to Regulation S-K, Item 601. All other
exhibits are omitted because they are inapplicable. (Exhibits identified in
parentheses are on file with the Securities and Exchange Commission and are
incorporated herein by reference as exhibits hereto.)
(2.1) Agreement and Plan of Reorganization dated as of May 27, 1994 by and
between MOMENTUM CORPORATION and PHILLIPS & JACOBS, INCORPORATED
(filed as Annex A to the Proxy/Prospectus included within
registration statement No. 33-54913 on Form S-4 filed by the
Registrant on August 4, 1994)
(2.2) Form of Plan of Merger (filed as Annex B to the Proxy/Prospectus
included within registration statement No. 33-54913 on Form S-4 filed
by the Registrant on August 4, 1994)
(2.3) Asset Purchase Agreement By And Among VGC Corp., VGC Holding USA,
Inc., NV Koninklijke KNP BT and PrimeSource dated November 1, 1996,
for the purchase of the operating assets (excluding accounts
receivable) of VGC Corporation's branch operations in Minneapolis,
Minnesota; Milwaukee, Wisconsin; Des Moines, Iowa; and Omaha,
Nebraska. (filed as exhibit 2 to Form 8-K dated November 13, 1996,
File No. 0-21750)
(2.4) Asset Purchase Agreement By And Among Momentum Corporation And TK
Gray, Inc. And Its Shareholders dated April 15, 1994, for the
purchase of substantially all of the assets and certain of the
liabilities of TK Gray, Inc. (filed as exhibit 2(i) to Form 8-K dated
May 2, 1994, File No. 0-18112)
(3.1) Amended and Restated Articles of Incorporation of the Registrant
(filed as Annex C to the Proxy/Prospectus included within
registration statement No. 33-54913 on Form S-4 filed by the
Registrant on August 4, 1994)
(3.2) Amended and Restated By-laws of the Registrant (filed as Annex D to
the Proxy/Prospectus included within registration statement No.
33-54913 on Form S-4 filed by the Registrant on August 4, 1994)
(3.3) Amendment to Amended and Restated By-laws of the Registrant effective
May 7, 1997. (filed as Exhibit 10.18 to Form 10-K, File No. 0-21750,
dated March 28, 1997)
(4.1) Form of Common Stock Certificate (filed with Form 10 filed by
Registrant on May 12, 1993, (File No. 0-21750 and as subsequently
amended on Form 8 filed on May 28, 1993, Form 8 filed on July 6, 1993
and Form 8 filed on July 13, 1993)
(4.2) Form of Common Stock Certificate, effective September 1, 1994 (filed
as Exhibit 4.2 to Form 10-K, File No. 0-21750, dated March 30, 1995)
(10.1) Form of Phillips & Jacobs, Inc. 1993 Long Term Incentive Plan (filed
as Exhibit 10.1 to Form 10-K, File No. 0-21750, dated March 30, 1995)
(10.2) Form of Phillips & Jacobs, Incorporated Indemnification Agreement
(filed with Form 10 filed by Registrant on May 12, 1993, (File No.
0-21750) and as subsequently amended on Form 8 filed on May 28, 1993,
Form 8 filed on July 6, 1993 and Form 8 filed on July 13, 1993)*
(10.3) Form of Supplemental Executive Retirement Plan Agreement (filed with
Form 10 filed by Registrant on May 12, 1993, (File No. 0-21750) and
as subsequently amended on Form 8 filed on May 28, 1993, Form 8 filed
on July 6, 1993 and Form 8 filed on July 13, 1993)*
<PAGE>
(10.4) Employment Agreement between Phillips & Jacobs, Incorporated and D.M.
Zewiske dated July 1, 1988 (filed with Form 10 filed by Registrant on
May 12, 1993, (File No. 0-21750) and as subsequently amended on Form
8 filed on May 28, 1993, Form 8 filed on July 6, 1993 and Form 8
filed on July 13, 1993)*
(10.5) Employment Agreement between the Registrant and W.A. DeMarco dated
December 31, 1996 (filed as Exhibit 10.5 to Form 10-K, File No.
0-21750, dated March 28, 1997)*
(10.6) Employment Agreement between the Registrant and J.F. Mullan dated
December 31, 1996 (filed as Exhibit 10.6 to Form 10-K, File No.
0-21750, dated March 28, 1997)*
(10.7) Form of Tax Matters Agreement (filed with Form 10 filed by Registrant
on May 12, 1993, (File No. 0-21750) and as subsequently amended on
Form 8 filed on May 28, 1993, Form 8 filed on July 6, 1993 and Form 8
filed on July 13, 1993)
(10.8) Amendment No. 1 to Agreement among Employers Participating in Certain
Qualified Plans (filed as Exhibit 10.14 to the Proxy/Prospectus
included within registration statement No. 33-54913 on Form S-4 filed
by the Registrant on August 4, 1994)*
(10.9) 1993 Replacement Option Plan (P&J Spin-off) for Directors (filed as
Annex I to the Proxy/Prospectus included within registration
statement No. 33-54913 on Form S-4 filed by the Registrant on August
4, 1994)*
(10.10) Phillips & Jacobs, Incorporated 401(k) Savings Plan and Trust
Agreement (filed as Exhibit 10.14 to Form 10-K, File No. 0-21750,
dated March 28, 1994)*
(10.11) 1989 Long-Term Incentive Stock Plan (filed with Registration
Statement on Form S-8 on December 8, 1994, File No. 33-87360)*
(10.12) Restated Momentum Distribution Inc. Supplemental Benefits Plan,
effective April 22, 1991 (filed as Exhibit 10.13 to Form 10-K, File
No. 0-18112 dated March 30 1993)*
(10.13) Momentum Retirement Plan (filed as Exhibit 10.18 to Form 10-K, File
No. 0-21750, dated March 30, 1995)*
(10.14) Employment Agreement between the Registrant and John H. Goddard, Jr.
dated December 24, 1996.*
(10.15) Form of Indemnification Agreement for Directors and certain officers
effective September 1, 1994 and executed in January, 1996 (filed as
Exhibit 10.22 to Form 10-K, File No. 0-21750, dated March 26, 1996)*
(10.16) PrimeSource Corporation Pension Plan (filed as Exhibit 10.23 to Form
10-K, File No. 0-21750, dated March 26, 1996)*
(10.17) Orlando, FL facility lease dated March 31, 1986 and August 14, 1995
Lease Extension between the Registrant and Dennis M. Zewiske as
co-lessor (filed as Exhibit 10.25 to Form 10-K, File No. 0-21750,
dated March 26, 1996)*
<PAGE>
(10.18) Credit Agreement dated as of November 1, 1996 by and among
PrimeSource Corporation, Dixie Type & Supply Company, Inc., Onondaga
Litho Supply Co., Inc. and The Banks Party Hereto and PNC Bank,
National Association, As Agent (filed as Exhibit 10.18 to Form 10-K,
File No. 0-21750, dated March 28, 1997)
10.19 Employment Agreement between the Registrant and Edward Padley dated
December 31, 1997.*
10.20 Employment Agreement between the Registrant and D. James Purcell
dated December 31, 1997.*
21.1 Subsidiaries of the Registrant
23.1 Consent of Coopers & Lybrand L.L.P., Independent Accountants
27 Financial Data Schedule for the year ended December 31, 1997
27.1 Restated Financial Data Schedule for the quarter ended March 31, 1997
27.2 Restated Financial Data Schedule for the quarter ended June 30, 1997
27.3 Restated Financial Data Schedule for the quarter ended September 31,
1997
27.4 Restated Financial Data Schedule for the year ended December 31, 1996
27.5 Restated Financial Data Schedule for the quarter ended March 31, 1996
27.6 Restated Financial Data Schedule for the quarter ended June 30, 1996
27.7 Restated Financial Data Schedule for the quarter ended September 30,
1996
99.1 Undertakings
*Management contracts and/or compensatory plans, contracts or
arrangements in which a director and/or a named executive officer
participates.
AGREEMENT
AGREEMENT made December 24, 1996, between PrimeSource Corporation, a
Pennsylvania corporation (the "Company") and John H. Goddard ("Executive").
WHEREAS, Executive is the duly elected Executive Vice President of the
Company and has made and is currently making a significant contribution to the
Company's business;
WHEREAS, the Board of Directors (the "Board") of the Company believe
that the continued services of Executive will be of great value and importance
to the Company and are desirous of ensuring the continuation of Executive's
services for a period of time; and
WHEREAS, Executive is willing to enter into an agreement with the
Company upon the terms and conditions set forth below;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and of the mutual benefits herein provided, and intending to be
legally bound hereby, the Company and Executive hereby agree as follows:
1. Term of Employment. The Company hereby employs Executive as
Executive Vice President and Executive accepts such employment by the Company on
the terms and conditions herein contained for a period commencing as of the date
hereof and subject to termination only as hereinafter provided (the period from
the date hereof through termination as hereinafter provided is referred to as
the "Employment Period").
2. Duties. During the Employment Period, Executive shall have such
duties, responsibility and authority and perform such services for the Company
as are consistent with Executive's background, training and experience as may
from time to time be assigned to Executive by the Board or the Chief Executive
Officer of the Company.
3. Compensation.
(a) Commencing as of the date hereof and thereafter during the
Employment Period, the Company shall pay Executive a base salary at the annual
rate of no less than $200,000, which amount may be increased from time to time
in accordance with the Company's policies regarding general increases and at the
discretion of the Board. Payment shall be made in accordance with the Company's
regular practice for senior executive employees as in effect from time to time.
(b) In addition to the Executive's base salary, Executive
shall be entitled to participate in the normal course of business in the annual
executive bonus program(s) of the Company and to receive such bonus payments as
are customarily granted for the purposes of providing additional compensation to
senior executives.
(c) A change-of-control of the Company is defined to be any of
the following: (a) the effective date of a Major Transaction which is subject to
and satisfies the special voting requirement set forth in Article VIII of the
Company's Amended and Restated Articles of Incorporation ("Articles"), (b) the
completion of a tender or exchange offer for Voting Stock (other than a tender
offer by the Company) which is accepted by the holders of 51% of the Voting
Power of the outstanding Voting Stock, (c) the effective date of a merger,
consolidation, or dissolution in which the Company is not the surviving entity,
or (d) the date on which there is a "Significant Change" in the membership of
the Company's Board occurring by the third annual meeting after the effective
date of a merger, consolidation, reorganization or a Major Transaction or the
date on which any Person becomes a 15% shareholder (each of which is referred to
as a "Significant Event"). A Significant Change in the Board shall be deemed to
have occurred if one-third or more of the directors are individuals who (i) are
or were Affiliates or Associates of the 15% shareholder or any party to the
Significant Event and (ii) were not Affiliates or Associates of the Company
prior to the Significant Event. A sale or series of sales or other disposition
of a subsidiary, division or other operating units, or the assets thereof, not
constituting a sale of substantially all of the assets of the Company, shall not
constitute a change-of-control. The definitions for Affiliates, Associates,
Major Transaction, Person, Voting Stock, and Voting Power are set out in Article
VII of the Articles.
In the event of a change-of-control, as defined in the prior paragraph,
and the termination of the Executive's employment, the Executive shall be
entitled to the continuation of his compensation and benefits for a total of two
(2) years from the date of such termination of employment at the rates set out
in 3(a) and (b) above, payable in equal payments at least monthly. A termination
of employment entitling the Executive to a continuation of compensation as set
out in this Section 3 shall be deemed to have occurred upon any resignation or
termination of the Executive's employment for any reason other than Cause as
defined in Section 5 (a) below during the two year period commencing with the
effective time of the first change-of-control event. For example, if the
change-of-control event occurred on March 1, 1997 and the Executive voluntarily
left the Company's employ on September 15, 1997, then he would continue to
receive payments from the Company each month through September 15, 1999 equal to
one twelfth (1/12) of the greater of (a) the Executive's total compensation
(salary plus bonus) for the prior calendar year or (b) the average annual
compensation (salary plus bonus) of the Executive for the prior two calendar
years. For calculation purposes, the bonus shall apply to the year for which it
was earned, which may not be the year in which it was actually paid.
Notwithstanding the foregoing, Executive shall not be entitled to such
continuation of compensation for any period after he (a) reaches age 66, (b)
dies, (c) is disabled and eligible to receive disability payments under the
Company's long term disability plan, or in the case of a termination not
preceeded by a change-of-control within the prior two years, (d) voluntarily
retires from the Company.
In addition to continuation of salary and bonus referenced above, for
the said two year period the Company shall also continue the Executive's normal
fringe benefits to the extent reasonably possible and shall fairly compensate
the Executive for the value of any fringe benefits it can not reasonably
continue.
In the event of a change-of-control and termination of employment, all
stock options held by the Executive shall be fully vested and immediately
exercisable during the normal post-employment option exercise period as set out
in the applicable stock option plan (but in no event for less than 90 days after
the employment relationship terminates).
4. Additional Terms.
(a) The Company will reimburse Executive for all reasonable
expenses properly incurred by Executive in the performance of Executive's duties
hereunder in accordance with established practices for senior executives of the
Company.
(b) During the Employment Period, Executive shall be entitled
to participate, in accord with the terms thereof, in any present of future
bonus, insurance, pension, SERP, Thrift, ESOP, stock option, or other employee
benefit, compensation or incentive plan adopted by the Company and applicable to
senior executives generally.
5. Termination of Employment.
(a) The Employment Period shall cease and terminate upon the
earliest to occur of the events specified below:
(i) The first anniversary of receipt of written notice by
Executive from the Company of the Company's intent to
terminate this Agreement.
(ii) The death of Executive. If Executive dies during the term
of this Agreement, Executive's salary for 30 days after the
date on which death occurs shall be paid to Executive's
estate.
(iii) The normal retirement date of Executive or upon
Executive's election of early retirement.
(iv) Termination of Executive's employment for Cause. For
these purposes "Cause" for termination of Executive shall be
limited to actions by Executive involving willful malfeasance
or gross negligence or failure to act by Executive involving
willful and material nonfeasance which, at the time of such
willful malfeasance or gross negligence or willful and
material nonfeasance, would tend to have a materially adverse
effect on the Company. Bad judgment or negligence shall not
constitute Cause nor shall any act or omission reasonably
believed by the Executive to have been in, or not opposed to,
the interests of the Company.
(b) In the event that Executive becomes "totally disabled"
within the meaning of the Company's Long Term Disability Plan, the Employment
Period shall be suspended (to resume following suspension unless otherwise
terminated under 5(a) above) during any period in which Executive is entitled to
receive long term disability payments under the Plan and, during such period of
suspension, Executive shall be entitled to the same benefits that any other
employee of the Company would enjoy under the Long Term Disability Plan.
(c) Except as to rights which have accrued hereunder, this
Agreement and all of the liabilities and obligations of the parties hereunder
shall cease and terminate effective upon the termination of the Employment
Period.
(d) If (i) Executive's employment hereunder is terminated by
the Company other than pursuant to Section 5(a) hereof, (ii) Executive
terminates his employment hereunder because his authority, duties or
responsibilities are altered so as to be inconsistent with Executive's
background, training and experience, or (iii) the Executive terminates his
employment hereunder because of the Company's continued failure to perform its
obligations hereunder, then the Executive shall be entitled to receive, in
addition to any other damages which Executive may suffer as a direct or indirect
result of the termination of Executive's employment by the Company, the
compensation and benefits which would otherwise have been payable to Executive
under Section 3 hereof through the remaining balance of the Employment Period
which would have pertained had the Company given Executive notice of intent to
terminate this Agreement on the date Executive's employment ceases, as provided
in Section 5(a) (i) above.
6. Non-Competition and Confidentiality. The Executive agrees that:
(a) The Company shall cease providing payments hereunder (other than
payments already earned or accrued) if, during the compensation period, the
Executive shall be employed by or otherwise engage in any business which is
competitive with any business of the Company, and
(b) during and after the compensation period, the Executive will not
divulge or appropriate to the Executive's own use or the use of others any
secret or confidential information or knowledge pertaining to the business of
the Company, or any of its subsidiaries, obtained during his employment by the
Company.
Executive agrees that the above covenant not to compete is fair and
reasonably necessary for the protection of the Company's confidential
information and business. In the event a court should decline to enforce any
part of this covenant, such covenant shall be deemed to be modified to restrict
Executive's competition with the Company to the maximum extent which the court
shall find enforceable.
The Board has determined, in its best judgment, that the payments to
the Executive hereunder are reasonable consideration for not competing as
defined in (a) and for maintaining the confidentiality of information as
provided for in (b) above.
7. Assignment. This Agreement shall not be assignable by the Company
except to a majority-owned subsidiary or parent entity of the Company or to a
successor to the Company and its business by way of merger, acquisition,
purchase of assets or otherwise and this Agreement is and shall be binding upon
and inure to the benefit of any such parent, subsidiary or successor. This
Agreement shall not be assignable by Executive but it shall be binding upon and
inure to the benefit of Executive's heirs, executors, administrators and legal
representatives.
8. Notices. All notices, requests, demands and other communications
hereunder must be in writing and shall be deemed to have been given if delivered
by hand or mailed by first class, certified or registered mail, return receipt
requested, postage and registry fees prepaid, and addressed as follows:
To the Company: President
PrimeSource Corporation
4350 Haddonfield Road, Suite 222
Pennsauken, NJ 08109-3377
To the Executive: John H. Goddard
2600 Fairview East
Floating Home #722
Seattle, WA 98102
Addresses may be changed by notice in writing to the other party.
9. Arbitration. Any dispute or disagreement arising between the parties
hereto with respect to this Agreement or its validity, construction or
performance shall be settled by binding arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association as amended
from time to time. The cost of arbitration shall be borne by the Company. Each
party shall, however, bear the cost of preparing and presenting its own case,
including counsel fees and expenses. Judgment upon the award of arbitrators may
be entered by either party in any court having jurisdiction.
10. Miscellaneous. This Agreement is the entire agreement and
understanding between the parties hereto and supersedes all prior agreements and
understandings, oral or written, relating to the subject matter hereof, and no
change, alteration or modification hereof may be made except in writing signed
by both parities hereto. The headings in this Agreement are for convenience of
reference only and shall not be considered as part of this Agreement nor limit
or otherwise affect the meaning hereof. This Agreement shall in all respects be
governed by and construed and enforced in accordance with the laws of the
Commonwealth of Pennsylvania.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
ATTEST: PRIMESOURCE CORPORATION
- ----------------------------- ------------------------------
Corporate Secretary President and Chief Executive Officer
------------------------------
John H. Goddard
AGREEMENT
AGREEMENT made December 31, 1997, between PrimeSource Corporation, a
Pennsylvania corporation (the "Company") and Edward Padley ("Executive").
WHEREAS, Executive is the duly elected Vice President and General
Manager of Prime Distribution West and has made and is currently making a
significant contribution to the Company's business;
WHEREAS, the Board of Directors (the "Board") of the Company believe
that the continued services of Executive will be of great value and importance
to the Company and are desirous of ensuring the continuation of Executive's
services for a period of time; and
WHEREAS, Executive is willing to enter into an agreement with the
Company upon the terms and conditions set forth below;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and of the mutual benefits herein provided, and intending to be
legally bound hereby, the Company and Executive hereby agree as follows:
1. Term of Employment. The Company hereby employs Executive as Vice
President and General Manager and Executive accepts such employment by the
Company on the terms and conditions herein contained for a period commencing as
of the date hereof and subject to termination only as hereinafter provided (the
period from the date hereof through termination as hereinafter provided is
referred to as the "Employment Period").
2. Duties. During the Employment Period, Executive shall have such
duties, responsibility and authority and perform such services for the Company
as are consistent with Executive's background, training and experience as may
from time to time be assigned to Executive by the Board or the Chief Executive
Officer of the Company.
3. Compensation.
(a) Commencing as of the date hereof and thereafter during the
Employment Period, the Company shall pay Executive a base salary at the annual
rate of no less than $135,000, which amount may be increased from time to time
in accordance with the Company's policies regarding general increases and at the
discretion of the Board. Payment shall be made in accordance with the Company's
regular practice for senior executive employees as in effect from time to time.
(b) In addition to the Executive's base salary, Executive
shall be entitled to participate in the normal course of business in the annual
executive bonus program(s) of the Company and to receive such bonus payments as
are customarily granted for the purposes of providing additional compensation to
senior executives.
(c) A change-of-control of the Company is defined to be any of
the following: (a) the effective date of a Major Transaction which is subject to
and satisfies the special voting requirement set forth in Article VIII of the
Company's Amended and Restated Articles of Incorporation ("Articles"), (b) the
completion of a tender or exchange offer for Voting Stock (other than a tender
offer by the Company) which is accepted by the holders of 51% of the Voting
Power of the outstanding Voting Stock, (c) the effective date of a merger,
consolidation, or dissolution in which the Company is not the surviving entity,
or (d) the date on which there is a "Significant Change" in the membership of
the Company's Board occurring by the third annual meeting after the effective
date of a merger, consolidation, reorganization or a Major Transaction or the
date on which any Person becomes a 15% shareholder (each of which is referred to
as a "Significant Event"). A Significant Change in the Board shall be deemed to
have occurred if one-third or more of the directors are individuals who (i) are
or were Affiliates or Associates of the 15% shareholder or any party to the
Significant Event and (ii) were not Affiliates or Associates of the Company
prior to the Significant Event. A sale or series of sales or other disposition
of a subsidiary, division or other operating units, or the assets thereof, not
constituting a sale of substantially all of the assets of the Company, shall not
constitute a change-of-control. The definitions for Affiliates, Associates,
Major Transaction, Person, Voting Stock, and Voting Power are set out in Article
VII of the Articles.
In the event of a change-of-control, as defined in the prior paragraph,
and the termination of the Executive's employment, the Executive shall be
entitled to the continuation of his compensation and benefits for a total of two
(2) years from the date of such termination of employment at the rates set out
in 3(a) and (b) above, payable in equal payments at least monthly. A termination
of employment entitling the Executive to a continuation of compensation as set
out in this Section 3 shall be deemed to have occurred upon any resignation or
termination of the Executive's employment for any reason other than Cause as
defined in Section 5 (a) below during the two year period commencing with the
effective time of the first change-of-control event. For example, if the
change-of-control event occurred on March 1, 1998 and the Executive voluntarily
left the Company's employ on September 15, 1998, then he would continue to
receive payments from the Company each month through September 15, 2000 equal to
one twelfth (1/12) of the greater of (a) the Executive's total compensation
(salary plus bonus) for the prior calendar year or (b) the average annual
compensation (salary plus bonus) of the Executive for the prior two calendar
years. For calculation purposes, the bonus shall apply to the year for which it
was earned, which may not be the year in which it was actually paid.
Notwithstanding the foregoing, Executive shall not be entitled to such
continuation of compensation for any period after he (a) reaches age 66, (b)
dies, (c) is disabled and eligible to receive disability payments under the
Company's long term disability plan, or in the case of a termination not
preceeded by a change-of-control within the prior two years, (d) voluntarily
retires from the Company.
In addition to continuation of salary and bonus referenced above, for
the said two year period the Company shall also continue the Executive's normal
fringe benefits to the extent reasonably possible and shall fairly compensate
the Executive for the value of any fringe benefits it can not reasonably
continue.
In the event of a change-of-control and termination of employment, all
stock options held by the Executive shall be fully vested and immediately
exercisable during the normal post-employment option exercise period as set out
in the applicable stock option plan (but in no event for less than 90 days after
the employment relationship terminates).
4. Additional Terms.
(a) The Company will reimburse Executive for all reasonable
expenses properly incurred by Executive in the performance of Executive's duties
hereunder in accordance with established practices for senior executives of the
Company.
(b) During the Employment Period, Executive shall be entitled
to participate, in accord with the terms thereof, in any present or future
bonus, insurance, pension, Thrift, ESOP, stock option, or other employee
benefit, compensation or incentive plan adopted by the Company and applicable to
senior executives generally.
5. Termination of Employment.
(a) The Employment Period shall cease and terminate upon the
earliest to occur of the events specified below:
(i) The first anniversary of receipt of written notice by
Executive from the Company of the Company's intent to
terminate this Agreement.
(ii) The death of Executive. If Executive dies during the term
of this Agreement, Executive's salary for 30 days after the
date on which death occurs shall be paid to Executive's
estate.
(iii) The normal retirement date of Executive or upon
Executive's election of early retirement.
(iv) Termination of Executive's employment for Cause. For
these purposes "Cause" for termination of Executive shall be
limited to actions by Executive involving willful malfeasance
or gross negligence or failure to act by Executive involving
willful and material nonfeasance which, at the time of such
willful malfeasance or gross negligence or willful and
material nonfeasance, would tend to have a materially adverse
effect on the Company. Bad judgment or negligence shall not
constitute Cause nor shall any act or omission reasonably
believed by the Executive to have been in, or not opposed to,
the interests of the Company.
(b) In the event that Executive becomes "totally disabled"
within the meaning of the Company's Long Term Disability Plan, the Employment
Period shall be suspended (to resume following suspension unless otherwise
terminated under 5(a) above) during any period in which Executive is entitled to
receive long term disability payments under the Plan and, during such period of
suspension, Executive shall be entitled to the same benefits that any other
employee of the Company would enjoy under the Long Term Disability Plan.
(c) Except as to rights which have accrued hereunder, this
Agreement and all of the liabilities and obligations of the parties hereunder
shall cease and terminate effective upon the termination of the Employment
Period.
(d) If (i) Executive's employment hereunder is terminated by
the Company other than pursuant to Section 5(a) hereof, (ii) Executive
terminates his employment hereunder because his authority, duties or
responsibilities are altered so as to be inconsistent with Executive's
background, training and experience, or (iii) the Executive terminates his
employment hereunder because of the Company's continued failure to perform its
obligations hereunder, then the Executive shall be entitled to receive, in
addition to any other damages which Executive may suffer as a direct or indirect
result of the termination of Executive's employment by the Company, the
compensation and benefits which would otherwise have been payable to Executive
under Section 3 hereof through the remaining balance of the Employment Period
which would have pertained had the Company given Executive notice of intent to
terminate this Agreement on the date Executive's employment ceases, as provided
in Section 5(a) (i) above.
6. Non-Competition and Confidentiality. The Executive agrees that:
(a) The Company shall cease providing payments hereunder (other than
payments already earned or accrued) if, during the compensation period, the
Executive shall be employed by or otherwise engage in any business which is
competitive with any business of the Company, and
(b) during and after the compensation period, the Executive will not
divulge or appropriate to the Executive's own use or the use of others any
secret or confidential information or knowledge pertaining to the business of
the Company, or any of its subsidiaries, obtained during his employment by the
Company.
Executive agrees that the above covenant not to compete is fair and
reasonably necessary for the protection of the Company's confidential
information and business. In the event a court should decline to enforce any
part of this covenant, such covenant shall be deemed to be modified to restrict
Executive's competition with the Company to the maximum extent which the court
shall find enforceable.
The Board has determined, in its best judgment, that the payments to
the Executive hereunder are reasonable consideration for not competing as
defined in (a) and for maintaining the confidentiality of information as
provided for in (b) above.
7. Assignment. This Agreement shall not be assignable by the Company
except to a majority-owned subsidiary or parent entity of the Company or to a
successor to the Company and its business by way of merger, acquisition,
purchase of assets or otherwise and this Agreement is and shall be binding upon
and inure to the benefit of any such parent, subsidiary or successor. This
Agreement shall not be assignable by Executive but it shall be binding upon and
inure to the benefit of Executive's heirs, executors, administrators and legal
representatives.
8. Notices. All notices, requests, demands and other communications
hereunder must be in writing and shall be deemed to have been given if delivered
by hand or mailed by first class, certified or registered mail, return receipt
requested, postage and registry fees prepaid, and addressed as follows:
To the Company: President
PrimeSource Corporation
4350 Haddonfield Road, Suite 222
Pennsauken, NJ 08109-3377
To the Executive: Edward Padley
1314 Marguette Ave. #2502
Minneapolis, MN 55403
Addresses may be changed by notice in writing to the other party.
9. Arbitration. Any dispute or disagreement arising between the parties
hereto with respect to this Agreement or its validity, construction or
performance shall be settled by binding arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association as amended
from time to time. The cost of arbitration shall be borne by the Company. Each
party shall, however, bear the cost of preparing and presenting its own case,
including counsel fees and expenses. Judgment upon the award of arbitrators may
be entered by either party in any court having jurisdiction.
10. Miscellaneous. This Agreement is the entire agreement and
understanding between the parties hereto and supersedes all prior agreements and
understandings, oral or written, relating to the subject matter hereof, and no
change, alteration or modification hereof may be made except in writing signed
by both parities hereto. The headings in this Agreement are for convenience of
reference only and shall not be considered as part of this Agreement nor limit
or otherwise affect the meaning hereof. This Agreement shall in all respects be
governed by and construed and enforced in accordance with the laws of the
Commonwealth of Pennsylvania.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
ATTEST: PRIMESOURCE CORPORATION
- ----------------------------- ------------------------------
Corporate Secretary President and Chief Executive Officer
------------------------------
Edward Padley
AGREEMENT
AGREEMENT made December 31, 1997, between PrimeSource Corporation, a
Pennsylvania corporation (the "Company") and Donald James Purcell ("Executive").
WHEREAS, Executive is the duly elected Vice President and General
Manager of Prime Distribution East and has made and is currently making a
significant contribution to the Company's business;
WHEREAS, the Board of Directors (the "Board") of the Company believe
that the continued services of Executive will be of great value and importance
to the Company and are desirous of ensuring the continuation of Executive's
services for a period of time; and
WHEREAS, Executive is willing to enter into an agreement with the
Company upon the terms and conditions set forth below;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and of the mutual benefits herein provided, and intending to be
legally bound hereby, the Company and Executive hereby agree as follows:
1. Term of Employment. The Company hereby employs Executive as Vice
President and General Manager and Executive accepts such employment by the
Company on the terms and conditions herein contained for a period commencing as
of the date hereof and subject to termination only as hereinafter provided (the
period from the date hereof through termination as hereinafter provided is
referred to as the "Employment Period").
2. Duties. During the Employment Period, Executive shall have such
duties, responsibility and authority and perform such services for the Company
as are consistent with Executive's background, training and experience as may
from time to time be assigned to Executive by the Board or the Chief Executive
Officer of the Company.
3. Compensation.
(a) Commencing as of the date hereof and thereafter during the
Employment Period, the Company shall pay Executive a base salary at the annual
rate of no less than $135,000, which amount may be increased from time to time
in accordance with the Company's policies regarding general increases and at the
discretion of the Board. Payment shall be made in accordance with the Company's
regular practice for senior executive employees as in effect from time to time.
(b) In addition to the Executive's base salary, Executive
shall be entitled to participate in the normal course of business in the annual
executive bonus program(s) of the Company and to receive such bonus payments as
are customarily granted for the purposes of providing additional compensation to
senior executives.
(c) A change-of-control of the Company is defined to be any of
the following: (a) the effective date of a Major Transaction which is subject to
and satisfies the special voting requirement set forth in Article VIII of the
Company's Amended and Restated Articles of Incorporation ("Articles"), (b) the
completion of a tender or exchange offer for Voting Stock (other than a tender
offer by the Company) which is accepted by the holders of 51% of the Voting
Power of the outstanding Voting Stock, (c) the effective date of a merger,
consolidation, or dissolution in which the Company is not the surviving entity,
or (d) the date on which there is a "Significant Change" in the membership of
the Company's Board occurring by the third annual meeting after the effective
date of a merger, consolidation, reorganization or a Major Transaction or the
date on which any Person becomes a 15% shareholder (each of which is referred to
as a "Significant Event"). A Significant Change in the Board shall be deemed to
have occurred if one-third or more of the directors are individuals who (i) are
or were Affiliates or Associates of the 15% shareholder or any party to the
Significant Event and (ii) were not Affiliates or Associates of the Company
prior to the Significant Event. A sale or series of sales or other disposition
of a subsidiary, division or other operating units, or the assets thereof, not
constituting a sale of substantially all of the assets of the Company, shall not
constitute a change-of-control. The definitions for Affiliates, Associates,
Major Transaction, Person, Voting Stock, and Voting Power are set out in Article
VII of the Articles.
In the event of a change-of-control, as defined in the prior paragraph,
and the termination of the Executive's employment, the Executive shall be
entitled to the continuation of his compensation and benefits for a total of two
(2) years from the date of such termination of employment at the rates set out
in 3(a) and (b) above, payable in equal payments at least monthly. A termination
of employment entitling the Executive to a continuation of compensation as set
out in this Section 3 shall be deemed to have occurred upon any resignation or
termination of the Executive's employment for any reason other than Cause as
defined in Section 5 (a) below during the two year period commencing with the
effective time of the first change-of-control event. For example, if the
change-of-control event occurred on March 1, 1998 and the Executive voluntarily
left the Company's employ on September 15, 1998, then he would continue to
receive payments from the Company each month through September 15, 2000 equal to
one twelfth (1/12) of the greater of (a) the Executive's total compensation
(salary plus bonus) for the prior calendar year or (b) the average annual
compensation (salary plus bonus) of the Executive for the prior two calendar
years. For calculation purposes, the bonus shall apply to the year for which it
was earned, which may not be the year in which it was actually paid.
Notwithstanding the foregoing, Executive shall not be entitled to such
continuation of compensation for any period after he (a) reaches age 66, (b)
dies, (c) is disabled and eligible to receive disability payments under the
Company's long term disability plan, or in the case of a termination not
preceeded by a change-of-control within the prior two years, (d) voluntarily
retires from the Company.
In addition to continuation of salary and bonus referenced above, for
the said two year period the Company shall also continue the Executive's normal
fringe benefits to the extent reasonably possible and shall fairly compensate
the Executive for the value of any fringe benefits it can not reasonably
continue.
In the event of a change-of-control and termination of employment, all
stock options held by the Executive shall be fully vested and immediately
exercisable during the normal post-employment option exercise period as set out
in the applicable stock option plan (but in no event for less than 90 days after
the employment relationship terminates).
4. Additional Terms.
(a) The Company will reimburse Executive for all reasonable
expenses properly incurred by Executive in the performance of Executive's duties
hereunder in accordance with established practices for senior executives of the
Company.
(b) During the Employment Period, Executive shall be entitled
to participate, in accord with the terms thereof, in any present or future
bonus, insurance, pension, Thrift, ESOP, stock option, or other employee
benefit, compensation or incentive plan adopted by the Company and applicable to
senior executives generally.
5. Termination of Employment.
(a) The Employment Period shall cease and terminate upon the
earliest to occur of the events specified below:
(i) The first anniversary of receipt of written notice by
Executive from the Company of the Company's intent to
terminate this Agreement.
(ii) The death of Executive. If Executive dies during the term
of this Agreement, Executive's salary for 30 days after the
date on which death occurs shall be paid to Executive's
estate.
(iii) The normal retirement date of Executive or upon
Executive's election of early retirement.
(iv) Termination of Executive's employment for Cause. For
these purposes "Cause" for termination of Executive shall be
limited to actions by Executive involving willful malfeasance
or gross negligence or failure to act by Executive involving
willful and material nonfeasance which, at the time of such
willful malfeasance or gross negligence or willful and
material nonfeasance, would tend to have a materially adverse
effect on the Company. Bad judgment or negligence shall not
constitute Cause nor shall any act or omission reasonably
believed by the Executive to have been in, or not opposed to,
the interests of the Company.
(b) In the event that Executive becomes "totally disabled"
within the meaning of the Company's Long Term Disability Plan, the Employment
Period shall be suspended (to resume following suspension unless otherwise
terminated under 5(a) above) during any period in which Executive is entitled to
receive long term disability payments under the Plan and, during such period of
suspension, Executive shall be entitled to the same benefits that any other
employee of the Company would enjoy under the Long Term Disability Plan.
(c) Except as to rights which have accrued hereunder, this
Agreement and all of the liabilities and obligations of the parties hereunder
shall cease and terminate effective upon the termination of the Employment
Period.
(d) If (i) Executive's employment hereunder is terminated by
the Company other than pursuant to Section 5(a) hereof, (ii) Executive
terminates his employment hereunder because his authority, duties or
responsibilities are altered so as to be inconsistent with Executive's
background, training and experience, or (iii) the Executive terminates his
employment hereunder because of the Company's continued failure to perform its
obligations hereunder, then the Executive shall be entitled to receive, in
addition to any other damages which Executive may suffer as a direct or indirect
result of the termination of Executive's employment by the Company, the
compensation and benefits which would otherwise have been payable to Executive
under Section 3 hereof through the remaining balance of the Employment Period
which would have pertained had the Company given Executive notice of intent to
terminate this Agreement on the date Executive's employment ceases, as provided
in Section 5(a) (i) above.
6. Non-Competition and Confidentiality. The Executive agrees that:
(a) The Company shall cease providing payments hereunder (other than
payments already earned or accrued) if, during the compensation period, the
Executive shall be employed by or otherwise engage in any business which is
competitive with any business of the Company, and
(b) during and after the compensation period, the Executive will not
divulge or appropriate to the Executive's own use or the use of others any
secret or confidential information or knowledge pertaining to the business of
the Company, or any of its subsidiaries, obtained during his employment by the
Company.
Executive agrees that the above covenant not to compete is fair and
reasonably necessary for the protection of the Company's confidential
information and business. In the event a court should decline to enforce any
part of this covenant, such covenant shall be deemed to be modified to restrict
Executive's competition with the Company to the maximum extent which the court
shall find enforceable.
The Board has determined, in its best judgment, that the payments to
the Executive hereunder are reasonable consideration for not competing as
defined in (a) and for maintaining the confidentiality of information as
provided for in (b) above.
7. Assignment. This Agreement shall not be assignable by the Company
except to a majority-owned subsidiary or parent entity of the Company or to a
successor to the Company and its business by way of merger, acquisition,
purchase of assets or otherwise and this Agreement is and shall be binding upon
and inure to the benefit of any such parent, subsidiary or successor. This
Agreement shall not be assignable by Executive but it shall be binding upon and
inure to the benefit of Executive's heirs, executors, administrators and legal
representatives.
8. Notices. All notices, requests, demands and other communications
hereunder must be in writing and shall be deemed to have been given if delivered
by hand or mailed by first class, certified or registered mail, return receipt
requested, postage and registry fees prepaid, and addressed as follows:
To the Company: President
PrimeSource Corporation
4350 Haddonfield Road, Suite 222
Pennsauken, NJ 08109-3377
To the Executive: Donald James Purcell
1900 Conway Hills Drive
Hebron, Kentucky 41048
Addresses may be changed by notice in writing to the other party.
9. Arbitration. Any dispute or disagreement arising between the parties
hereto with respect to this Agreement or its validity, construction or
performance shall be settled by binding arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association as amended
from time to time. The cost of arbitration shall be borne by the Company. Each
party shall, however, bear the cost of preparing and presenting its own case,
including counsel fees and expenses. Judgment upon the award of arbitrators may
be entered by either party in any court having jurisdiction.
10. Miscellaneous. This Agreement is the entire agreement and
understanding between the parties hereto and supersedes all prior agreements and
understandings, oral or written, relating to the subject matter hereof, and no
change, alteration or modification hereof may be made except in writing signed
by both parities hereto. The headings in this Agreement are for convenience of
reference only and shall not be considered as part of this Agreement nor limit
or otherwise affect the meaning hereof. This Agreement shall in all respects be
governed by and construed and enforced in accordance with the laws of the
Commonwealth of Pennsylvania.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
ATTEST: PRIMESOURCE CORPORATION
- ----------------------------- ------------------------------
Corporate Secretary President and Chief Executive Officer
------------------------------
Donald J. Purcell
There is no parent of the registrant.
The Registrant owns 100% of the outstanding capital stock of the following
subsidiaries:
Business Name of Corporation Jurisdiction of Incorporation
Dixie Type & Supply Company, Inc. Alabama
The aforementioned is included in the Consolidated Financial Statements of the
Registrant filed herewith.
We consent to the incorporation by reference in the Registration Statements of
PrimeSource Corporation and its subsidiaries on Forms S-8 (File Nos. 33-71638
and 33-87360) of our report dated February 20, 1998, on our audits of the
consolidated financial statements and financial statement schedule of
PrimeSource Corporation and its subsidiaries as of December 31, 1997 and 1996,
and for the three years in the period ended December 31, 1997, which reports are
included in this Annual Report on Form 10-K.
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
March 25, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 55,774
<ALLOWANCES> 1,913
<INVENTORY> 53,919
<CURRENT-ASSETS> 117,971
<PP&E> 21,818
<DEPRECIATION> 9,503
<TOTAL-ASSETS> 138,491
<CURRENT-LIABILITIES> 48,820
<BONDS> 32,788
0
0
<COMMON> 65
<OTHER-SE> 52,483
<TOTAL-LIABILITY-AND-EQUITY> 138,491
<SALES> 414,867
<TOTAL-REVENUES> 414,867
<CGS> 343,116
<TOTAL-COSTS> 343,116
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 694
<INTEREST-EXPENSE> 2,913
<INCOME-PRETAX> 9,353
<INCOME-TAX> 3,862
<INCOME-CONTINUING> 5,491
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,491
<EPS-PRIMARY> .84
<EPS-DILUTED> .83
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 54,662
<ALLOWANCES> 1,702
<INVENTORY> 50,238
<CURRENT-ASSETS> 113,142
<PP&E> 23,249
<DEPRECIATION> 9,548
<TOTAL-ASSETS> 134,940
<CURRENT-LIABILITIES> 41,126
<BONDS> 40,078
0
0
<COMMON> 65
<OTHER-SE> 48,946
<TOTAL-LIABILITY-AND-EQUITY> 134,940
<SALES> 103,388
<TOTAL-REVENUES> 103,388
<CGS> 85,085
<TOTAL-COSTS> 85,085
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 113
<INTEREST-EXPENSE> 750
<INCOME-PRETAX> 1,867
<INCOME-TAX> 762
<INCOME-CONTINUING> 1,105
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,105
<EPS-PRIMARY> .17
<EPS-DILUTED> .17
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<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>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<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>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 55,831
<ALLOWANCES> 1,787
<INVENTORY> 48,741
<CURRENT-ASSETS> 112,050
<PP&E> 22,867
<DEPRECIATION> 9,148
<TOTAL-ASSETS> 134,175
<CURRENT-LIABILITIES> 45,010
<BONDS> 36,250
0
0
<COMMON> 65
<OTHER-SE> 48,118
<TOTAL-LIABILITY-AND-EQUITY> 134,175
<SALES> 366,657
<TOTAL-REVENUES> 366,657
<CGS> 301,428
<TOTAL-COSTS> 301,428
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 865
<INTEREST-EXPENSE> 1,915
<INCOME-PRETAX> 6,702
<INCOME-TAX> 2,788
<INCOME-CONTINUING> 3,914
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,914
<EPS-PRIMARY> .60
<EPS-DILUTED> .60
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 50,520
<ALLOWANCES> 1,503
<INVENTORY> 39,052
<CURRENT-ASSETS> 95,501
<PP&E> 18,466
<DEPRECIATION> 8,478
<TOTAL-ASSETS> 113,663
<CURRENT-LIABILITIES> 33,808
<BONDS> 28,378
0
0
<COMMON> 66
<OTHER-SE> 46,196
<TOTAL-LIABILITY-AND-EQUITY> 113,663
<SALES> 86,959
<TOTAL-REVENUES> 86,959
<CGS> 71,777
<TOTAL-COSTS> 71,777
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 200
<INTEREST-EXPENSE> 520
<INCOME-PRETAX> 1,405
<INCOME-TAX> 576
<INCOME-CONTINUING> 829
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 829
<EPS-PRIMARY> .13
<EPS-DILUTED> .13
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<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> 28,378
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>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<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>
TO BE INCORPORATED BY REFERENCE INTO FORM S-8
REGISTRATION STATEMENTS NO. 33-71638 AND 33-87360
UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement: (i) To include
any prospectus required by section 10(a)(3) of the Securities Act of
1933; (ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represents a fundamental change in the information set forth
in the registration statement; (iii) To include any material
information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement; Provided, however, that
paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the registration
statement is on Form S-3 or Form S-8 and the information required to be
included in a post-effective amendment by those paragraphs is contained
in periodic reports filed by the registrant pursuant to section 13 or
section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
(b) Filings incorporating subsequent Exchange Act documents by reference
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing
of the registrant's annual report pursuant to section 13(a) or section
15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to
section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(f) Employee plans on Form S-8.
(1) The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus to each employee to whom the prospectus
is sent or given a copy of the registrant's annual report to
stockholders for its last fiscal year, unless such employee otherwise
has received a copy of such report, in which case the registrant shall
state in the prospectus that it will promptly furnish, without charge,
a copy of such report on written request of the employee. If the last
fiscal year of the registrant has ended within 120 days prior to the
use of the prospectus, the annual report of the registrant for the
preceding fiscal year may be so delivered, but within such 120 days
period the annual report for the last fiscal year will be furnished to
each such employee.
(2) The undersigned registrant hereby undertakes to transmit or cause to be
transmitted to all employees participating in the plan who do not
otherwise receive such material as stockholders of the registrant, at
the time and in the manner such material is sent to its stockholders,
copies of all reports, proxy statements and other communications
distributed to its stockholders generally.
(3) Where interests in a plan are registered herewith, the undersigned
registrant and plan hereby undertake to transmit or cause to be
transmitted promptly, without charge, to any participant in the plan
who makes a written request, a copy of the then latest annual report of
the plan filed pursuant to section 15(d) of the Securities Exchange Act
of 1934 (Form 11-K). If such report is filed as part of the
registrant's annual report on Form 10-K, that entire report (excluding
exhibits) shall be delivered upon written request. If such report is
filed as part of the registrant's annual report to stockholders
delivered pursuant to paragraph (1) or (2) of this undertaking,
additional delivery shall not be required.
(i) Acceleration of effectiveness.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other that the payment by the registrant of expenses incurred or paid
by a director, officer, or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by
such director, officer, or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.