UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE PERIOD ENDED MARCH 31, 1998
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____TO ______
Commission File Number 000-21750
PrimeSource Corporation
------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-1430030
- ------------ -----------
(State of incorporation) (I.R.S. Employer
Identification No.)
4350 Haddonfield Road, Suite 222, Pennsauken, NJ 08109
- ------------------------------------------------- ------
(Address of principal executive offices) (Zip Code)
(609) 488-4888
--------------
(Registrant's telephone number, including area code)
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes (X) No ( )
Indicate the number of shares outstanding of each of the issuer's classes of
common stock:
Class Outstanding at May 8, 1998
- ----- ---------------------------
Common stock, par value $.01 6,522,711 shares
<PAGE>
PRIMESOURCE CORPORATION
INDEX
PART I - FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Item 1 - Financial Statements Page No.
--------
Consolidated Condensed Balance Sheets
<S> <C>
March 31, 1998 and December 31, 1997 3
Consolidated Condensed Statements of Income
Three Months Ended March 31, 1998 and 1997 4
Consolidated Condensed Statements of Cash Flows
Three Months Ended March 31, 1998 and 1997 5
Notes to Consolidated Condensed Financial Statements 6
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-k 10
SIGNATURES 11
</TABLE>
Certain statements contained in this 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.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
PRIMESOURCE CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited)
<CAPTION>
March 31, December 31,
(Thousands of dollars) 1998 1997
- --------------------------------------------------------------------------
ASSETS
Current Assets:
<S> <C> <C>
Receivables ................................... $ 60,518 $ 60,536
Inventories ................................... 50,056 53,919
Other ......................................... 4,011 3,516
- ---------------------------------------------------------------------------
Total Current Assets ............................ 114,585 117,971
Property and equipment, net ..................... 12,338 12,315
Excess of cost over net assets
of businesses acquired, net .................. 4,138 4,217
Other assets .................................... 3,829 3,988
- ---------------------------------------------------------------------------
Total Assets .................................... $134,890 $138,491
===========================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term obligations ...... $ 1,355 $ 1,362
Accounts payable .............................. 31,574 34,045
Book overdraft ................................ 145 5,609
Other accrued liabilities ..................... 6,331 7,804
- ---------------------------------------------------------------------------
Total Current Liabilities ....................... 39,405 48,820
Long-term obligations, net of current portion ... 37,818 32,788
Accrued pension liabilities and other liabilities 4,262 4,335
- ---------------------------------------------------------------------------
Total Liabilities ............................... 81,485 85,943
- ---------------------------------------------------------------------------
Commitments and contingencies
Shareholders' Equity:
Common stock, $.01 par value .................. 65 65
Additional paid in capital .................... 25,625 25,586
Retained earnings ............................. 27,715 26,897
- ---------------------------------------------------------------------------
Total Shareholders' Equity ...................... 53,405 52,548
- ---------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity ...... $134,890 $138,491
===========================================================================
<FN>
See notes to consolidated condensed financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
PRIMESOURCE CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited)
<CAPTION>
Three Months
(Thousands of dollars, Ended March 31,
except per share amounts) 1998 1997
- ----------------------------------------------------------------------
<S> <C> <C>
Net sales .................................. $ 101,528 $ 103,388
Cost of sales .............................. 83,076 85,085
- ----------------------------------------------------------------------
Gross profit ............................... 18,452 18,303
Selling, general and administrative expenses 15,975 15,771
- ----------------------------------------------------------------------
Income from operations ..................... 2,477 2,532
Interest expense ........................... (680) (750)
Other income ............................... 88 85
- ----------------------------------------------------------------------
Income before provision
for income taxes .......................... 1,885 1,867
Provision for income taxes ................. 773 762
- ----------------------------------------------------------------------
Net income ................................. $ 1,112 $ 1,105
======================================================================
Per share of common stock:
Net income per basic and diluted share ..... $ .17 $ .17
Cash dividends ............................. .045 .045
======================================================================
<FN>
See notes to consolidated condensed financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
PRIMESOURCE CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
<CAPTION>
Three Months Ended March 31,
(Thousands of dollars) 1998 1997
- --------------------------------------------------------------------------------
Operating Activities:
<S> <C> <C>
Net income ............................................. $ 1,112 $ 1,105
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation ....................................... 468 518
Amortization ....................................... 93 114
Changes in assets and liabilities affecting operations . (631) (2,368)
- --------------------------------------------------------------------------------
Net cash provided by (used in) operating activities .... 1,042 (631)
- --------------------------------------------------------------------------------
Investing Activities:
Additions to property and equipment .................... (491) (500)
Net decrease in other assets ........................... 145 212
- --------------------------------------------------------------------------------
Net cash used in investing activities .................. (346) (288)
- --------------------------------------------------------------------------------
Financing Activities:
Proceeds from long-term obligations .................... 31,250 22,700
Repayment of long-term obligations ..................... (26,227) (18,880)
Decrease in book overdraft ............................. (5,464) (2,607)
Dividends paid ......................................... (294) (294)
Proceeds from exercise of stock options ................ 39
- --------------------------------------------------------------------------------
Net cash provided by (used in) financing activities .... (696) 919
- --------------------------------------------------------------------------------
Net change in cash ..................................... -- --
Cash, beginning of year ................................ -- --
- --------------------------------------------------------------------------------
Cash, end of period .................................... $ -- $ --
================================================================================
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest .......................................... $ 420 $ 689
Income taxes ...................................... 258 460
================================================================================
<FN>
See notes to consolidated condensed financial statements.
</FN>
</TABLE>
<PAGE>
PRIMESOURCE CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited consolidated condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information pursuant to the rules and regulations of the Securities
and Exchange Commission and instructions to Form 10-Q. While these statements
reflect all adjustments (which consist of normal recurring accruals) which are,
in the opinion of management, necessary to a fair presentation of the results
for the interim periods presented, they do not include all of the information
and disclosures required by generally accepted accounting principles for
complete financial statements. These statements should be read in conjunction
with the consolidated financial statements and footnotes thereto included in the
Company's 1997 Annual Report on Form 10-K for further information.
The results of operations for the three months ended March 31, 1998 are not
necessarily indicative of the results to be expected for the full year.
2. Inventory Pricing
Inventories consist primarily of purchased goods for sale. Inventories are
stated at the lower of cost or market. Cost is determined using the last-in,
first-out (LIFO) and first-in, first-out methods of accounting. Because the
inventory determination under the LIFO method can only be made at the end of
each fiscal year, interim financial results are based on estimated LIFO amounts
and are subject to final year-end LIFO inventory adjustments.
3. Income Per Common Share
The following is a reconciliation of the average shares of common stock used to
compute basic income per share to the shares used to compute diluted income per
share as shown on the consolidated condensed statements of income for the three
months ended March 31:
<TABLE>
<CAPTION>
1998 1997
- -----------------------------------------------------------------------------
Average shares of common stock outstanding
<S> <C> <C>
used to compute basic earnings per share .......... 6,521,084 6,514,779
Dilutive effect of stock options .................. 178,325 95,351
- -----------------------------------------------------------------------------
Average shares of common stock outstanding
used to compute diluted earnings per share ........ 6,699,409 6,610,130
- -----------------------------------------------------------------------------
Net income per share
Basic ............................................. .17 .17
Diluted ........................................... .17 .17
=============================================================================
</TABLE>
<PAGE>
4. New Accounting Standards
In June 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 131, "Disclosures about Segments of
an Enterprise and Related Information." This statement 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. It also establishes standards for related disclosures
about products and services, geographic areas and major customers. Financial
statement disclosures for prior periods are required to be restated.
In February 1998, FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits." This statement significantly
changes current financial statement disclosure requirements from those that were
required under SFAS No. 87, "Employers' Accounting for Pensions," SFAS No. 88,
"Employers' Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits," and SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." Some of the more
significant effects of SFAS No. 132 are that it: (i) standardizes the disclosure
requirements for pensions and other postretirement benefits and presents them in
one footnote; (ii) requires additional information be disclosed regarding
changes in the benefit obligation and fair values of plan assets; (iii)
eliminates certain disclosures that are no longer considered useful, including
general descriptions of the plans; (iv) permits the aggregation of information
about certain plans; (v) revises disclosures about defined contribution plans;
and (vi) changes disclosures relating to multi-employer plans. SFAS No. 132 does
not change the existing measurement or recognition provisions of SFAS Nos. 87,
88 or 106.
These statements are effective for fiscal years beginning after December 15,
1997. The Company is in the process of evaluating the applicable 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.
In 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income." The
adoption of this statement did not have any impact on the Company's consolidated
results of operations, financial position or cash flows.
5. Reclassifications
Certain reclassifications have been made to the 1997 consolidated condensed
financial statements to conform to the 1998 presentation.
6. Subsequent Event
In April 1998, the Company acquired Joseph Genstein, Inc., a printing products
distributor in the Pittsburgh area. The business will be combined into the
Company's existing Pittsburgh operation. This acquisition will be accounted for
as a purchase and, accordingly, will be included in the Company's operating
results from the acquisition date. The pro forma results of this acquisition
would not have a significant impact on the Company's consolidated results of
operations.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Net income for the quarter ended March 31, 1998 was $1,112,000 ($.17 per share)
on sales of $101,528,000 compared to net income of $1,105,000 ($.17 per share)
on sales of $103,388,000 for the same period last year.
Sales for the quarter decreased 2% compared to the same quarter last year.
Supply sales decreased by 3%, which were partially offset by a 9% increase in
system sales. The Company believes this decrease is due to an overall weakness
in the industry in the first two months of the quarter and normal business
disruptions incurred in the refocusing of the Company as a result of
establishing the systems group in the fourth quarter of 1997. The Company
believes this transition phase was substantially completed by the end of the
quarter.
Gross profit as a percent of sales was 18.2% for the quarter ended March 31,
1998 compared to 17.7% for the same quarter last year. This increase reflects
improved margins for system sales as a result of providing a better value matrix
to the customer.
Selling, general and administrative expenses as a percent of sales increased
from 15.3% in the first quarter of 1997 to 15.7% in 1998. This increase is
primarily due to additional personnel costs within the systems group. The
Company anticipates revenue increases associated with these personnel costs
during the remainder of the year.
Interest expense was $680,000 for the quarter ended March 31, 1998 compared to
$750,000 for the same period last year. This decrease is primarily attributable
to lower debt levels in 1998 as a result of proceeds from the sale of a capital
lease and other business assets in the fourth quarter of 1997.
The effective tax rates for the quarter ended March 31, 1998 was 41% compared to
40.8% for the same period last year. The higher rate in 1998 is primarily due to
non-deductible expenses being a higher percent to income.
Financial Condition and Liquidity
Net cash provided by operating activities for the three months ended March 31,
1998 was $1,042,000 compared to cash used of $631,000 for the same period last
year. This improvement is primarily attributable to a reduction of the increase
in net assets affecting operations in 1998 compared to 1997.
Net cash used in investing activities was $346,000 for the three months ended
March 31, 1998 compared to $288,000 for the same period last year. Capital
expenditures for the three months in 1998 were $491,000 compared to $500,000 for
the same period last year. Additional capital expenditures for the year, for
which there are no material commitments, are anticipated to be approximately
$1,500,000.
<PAGE>
Net cash used in financing activities was $696,000 for the three-month period
ended March 31, 1998 compared to $919,000 provided from financing activities for
the same period last year. During the quarter ended March 31, 1998, debt
increased $5.0 million, which is primarily attributable to a decrease in the
book overdraft level from the beginning of the year. For the same period last
year, debt increased $3.8 million, which reflects the cash used in operating and
investing activities and a reduction in the book overdraft level. The balance of
the cash used for both periods was primarily for dividend payments.
The Company's primary source of debt financing is a revolving credit agreement
with a commitment of $50 million of which $13.1 million was unused at March 31,
1998. The Company believes this facility combined with future cash flow from
operations will be adequate to meet the ongoing 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, 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 manufacturer 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.
New Accounting Standards
In June 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 131, "Disclosures about Segments of
an Enterprise and Related Information." This statement 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. It also establishes standards for related disclosures
about products and services, geographic areas and major customers. Financial
statement disclosures for prior periods are required to be restated.
In February 1998, FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits." This statement significantly
changes current financial statement disclosure requirements from those that were
required under SFAS No. 87, "Employers' Accounting for Pensions," SFAS No. 88,
"Employers' Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits," and SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." Some of the more
significant effects of SFAS No. 132 are that it: (i) standardizes the disclosure
requirements for pensions and other postretirement benefits and presents them in
one footnote; (ii) requires additional information be disclosed regarding
changes in the benefit obligation and fair values of plan assets; (iii)
eliminates certain disclosures that are no longer considered useful, including
general descriptions of the plans; (iv) permits the aggregation of information
about certain plans; (v) revises disclosures about defined contribution plans;
and (vi) changes disclosures relating to multi-employer plans. SFAS No. 132 does
not change the existing measurement or recognition provisions of SFAS Nos. 87,
88 or 106.
These statements are effective for fiscal years beginning after December 15,
1997. The Company is in the process of evaluating the applicable 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>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit 27 -- Financial Data Schedule
b. Reports on Form 8-K
The Registrant did not file a report on Form 8-K during the quarter
ended March 31, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PRIMESOURCE CORPORATION
(REGISTRANT)
BY /s/ WILLIAM A. DEMARCO
William A. DeMarco
Vice President of Finance and
Chief Financial Officer
(principal financial and accounting officer)
DATE May 8, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 55,097
<ALLOWANCES> 1,790
<INVENTORY> 50,056
<CURRENT-ASSETS> 114,585
<PP&E> 22,273
<DEPRECIATION> 9,935
<TOTAL-ASSETS> 134,890
<CURRENT-LIABILITIES> 39,405
<BONDS> 37,818
0
0
<COMMON> 65
<OTHER-SE> 53,340
<TOTAL-LIABILITY-AND-EQUITY> 134,890
<SALES> 101,528
<TOTAL-REVENUES> 101,528
<CGS> 83,076
<TOTAL-COSTS> 83,076
<OTHER-EXPENSES> 16,004
<LOSS-PROVISION> (29)
<INTEREST-EXPENSE> 680
<INCOME-PRETAX> 1,885
<INCOME-TAX> 773
<INCOME-CONTINUING> 1,112
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,112
<EPS-PRIMARY> .17
<EPS-DILUTED> .17
</TABLE>
