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, 2000
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
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(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
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(Address of principal executive offices) (Zip Code)
(856) 488-4888
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(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 2, 2000
- ----- --------------------------
Common stock, par value $.01 6,445,106 shares
<PAGE>
PRIMESOURCE CORPORATION
INDEX
PART I - FINANCIAL STATEMENTS
Item 1 - Financial Statements Page No.
--------
Condensed Balance Sheets
March 31, 2000 and December 31, 1999 3
Condensed Statements of Income
Three Months Ended March 31, 2000 and 1999 4
Condensed Statements of Cash Flows
Three Months Ended March 31, 2000 and 1999 5
Notes to 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 11
SIGNATURES 12
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,
impact of year 2000 issues, as well as 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
PRIMESOURCE CORPORATION
CONDENSED BALANCE SHEETS (Unaudited)
March 31, December 31,
(Thousands of dollars) 2000 1999
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ASSETS
Current Assets:
Receivables, net ................................... $ 98,221 $ 93,695
Inventories ........................................ 67,444 68,379
Other .............................................. 4,607 4,071
- --------------------------------------------------------------------------------
Total Current Assets ................................. 170,272 166,145
Property and equipment, net .......................... 9,627 12,063
Excess of cost over net assets
of businesses acquired, net ....................... 16,166 16,427
Other assets ......................................... 1,997 2,172
- --------------------------------------------------------------------------------
Total Assets ......................................... $198,062 $196,807
================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term obligations ........... $ 104 $ 104
Notes payable ...................................... 2,861 953
Accounts payable ................................... 45,307 45,766
Book overdraft ..................................... 15,965 16,937
Other accrued liabilities .......................... 8,021 8,149
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Total Current Liabilities ............................ 72,258 71,909
Long-term obligations, net of current portion ........ 63,000 62,500
Accrued pension liabilities and other liabilities .... 2,710 2,853
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Total Liabilities .................................... 137,968 137,262
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Commitments and contingencies
Shareholders' Equity:
Common stock, $.01 par value ....................... 65 65
Additional paid in capital ......................... 25,403 25,725
Retained earnings .................................. 34,626 33,755
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Total Shareholders' Equity ........................... 60,094 59,545
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Total Liabilities and Shareholders' Equity ........... $198,062 $196,807
================================================================================
See notes to condensed financial statements.
<PAGE>
PRIMESOURCE CORPORATION
CONDENSED STATEMENTS OF INCOME (Unaudited)
Three Months
(Thousands of dollars, Ended March 31,
except per share amounts) 2000 1999
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Net sales ............................................ $ 141,005 $ 139,434
Cost of sales ........................................ 117,569 115,962
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Gross profit ......................................... 23,436 23,472
Selling, general, administrative and other expenses .. 19,768 19,995
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Income from operations ............................... 3,668 3,477
Interest expense ..................................... (1,436) (1,432)
Other income, net .................................... 86 53
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Income before provision
for income taxes .................................... 2,318 2,098
Provision for income taxes ........................... 957 863
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Net income ........................................... $ 1,361 $ 1,235
===============================================================================
Per share of common stock:
Net income per basic and diluted share ............... $ .21 $ .19
Cash dividends ....................................... .0475 .045
===============================================================================
See notes to condensed financial statements.
<PAGE>
PRIMESOURCE CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended March 31,
(Thousands of dollars) 2000 1999
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Operating Activities:
Net income ........................................... $ 1,361 $ 1,235
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation ..................................... 488 537
Amortization ..................................... 261 256
Other ............................................ (46)
Changes in assets and liabilities affecting operations (4,857) 10,137
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Net cash provided by (used in) operating activities .. (2,793) 12,165
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Investing Activities:
Additions to property and equipment .................. (476) (462)
Proceeds from sale of property and equipment ......... 2,470
Net decrease in other assets ......................... 175 182
- -------------------------------------------------------------------------------
Net cash provided by (used in) investing activities .. 2,169 (280)
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Financing Activities:
Net increase (decrease) in short-term debt ........... 1,908 (3,500)
Proceeds from long-term obligations .................. 88,800
Repayment of long-term obligations ................... (88,300) (2,137)
Decrease in book overdraft ........................... (972) (5,954)
Dividends paid ....................................... (311) (294)
Purchase of common stock ............................. (501)
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Net cash provided by (used in) financing activities .. 624 (11,885)
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Net change in cash ................................... -- --
Cash, beginning of year .............................. -- --
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Cash, end of period .................................. $ -- $ --
===============================================================================
See notes to condensed financial statements.
<PAGE>
PRIMESOURCE CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited 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 1999 Annual Report on Form 10-K for further information.
The results of operations for the three months ended March 31, 2000 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:
2000 1999
- --------------------------------------------------------------------------------
Average shares of common stock outstanding
used to compute basic earnings per share ......... 6,508,943 6,536,016
Dilutive effect of stock options ................. 922 6,252
- --------------------------------------------------------------------------------
Average shares of common stock outstanding
used to compute diluted earnings per share ....... 6,509,865 6,542,268
- --------------------------------------------------------------------------------
Net income per share
Basic ............................................ $ .21 $ .19
Diluted .......................................... .21 .19
================================================================================
<PAGE>
4. Restructure and Other
In 1998, the Company incurred a restructure and other expense charge of
$1,050,000. At December 31, 1999, the remaining balance was a $430,000
write-down of a building to net realizable value. In February 2000, this
building was sold.
5. New Accounting Standards
In 1999, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 137, "Deferral of the Effective Date of SFAS
133" which defers the effective date of SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", to all fiscal quarters of all fiscal years
beginning after June 15, 2000. SFAS No. 133 establishes new procedures for
accounting for derivatives and hedging activities and supersedes and amends a
number of existing standards. The Company currently uses interest rate swap
agreements ("swaps") to effectively fix the interest rate on a portion of the
Company's floating rate debt. Under current accounting standards, no gain or
loss is recognized on changes in the fair value of these swaps. Under this
statement, gains or losses will be recognized based on changes in the fair value
of the swaps which generally occur as a result of changes in interest rates. The
Company is currently evaluating the financial impact of adoption of the
Statement. The adoption is not expected to have a material effect on the
Company's consolidated results of operations, financial position or cash flows.
<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, 1999 was $1,361,000 ($.21 per diluted
share) compared to net income of $1,235,000 ($.19 per diluted share) for the
same period last year.
Net sales for the quarter of $141 million were a record for the Company. It is a
1% increase over the same period last year which was consistent with the
Company's expectations.
Gross profit as a percent of sales was 16.6% for the quarter ended March 31,
2000 compared to 16.8% for the same quarter last year. This decrease is
primarily due to changes in product mix.
Selling, general, administrative and other expenses as a percent of sales
decreased from 14.3% in the first quarter of 1999 to 14% in 2000. This decrease
reflects the Company's continual effort to improve efficiency and reduce
expenses.
Interest expense remained relatively constant between the two quarters at
$1,436,000 and $1,432,000 for the quarters ending March 31, 2000 and 1999,
respectively. Average debt for the quarter ending March 31, 2000 decreased over
the same quarter last year, however, increased interest rates offset the reduced
debt levels.
The effective tax rates for the quarters ended March 31, 1999 and 2000, remained
relatively constant at 41.1% and 41.3%, respectively. The difference between the
effective tax rates and the federal statutory rate of 34% for both periods is
attributable to state income taxes and non-deductible expenses.
To increase shareholder value, the Company implemented a dividend increase and
stock buy-back program effective for 2000. Beginning with the first quarterly
dividend paid in 2000, the dividend per share was increased from $.045 to $.0475
per share. In addition, the Company's board of directors authorized a stock
repurchase program to acquire up to 325,000 shares of the Company's common
stock. As of March 31, 2000, the Company had acquired and retired approximately
81,000 of these shares. Based on the current stock price, the Company feels the
stock is substantially undervalued and represents a good investment for the
Company.
Financial Condition and Liquidity
- ---------------------------------
Net cash used in operating activities for the three months ended March 31, 2000
was $2,793,000 compared to net cash provided of $12,165,000 for the same period
last year. In 1999, the Company benefited from a substantial decrease in working
capital, whereas in 2000, the Company had an increase in working capital,
primarily from an increase in receivables. The Company does not anticipate it
will be able to match the working capital improvements obtained in 1999,
however, it does expect modest improvements for future periods. Excluding the
effect of changes in assets and liabilities, the cash flow increased from
$2,028,000 in 1999 to $2,064,000 in 2000.
<PAGE>
Net cash provided by investing activities was $2,169,000 for the three months
ended March 31, 2000 compared to net cash used of $280,000 for the same period
last year. The primary difference between the two years, was $2.5 million
received on the sale of property and equipment in 2000, consisting primarily of
proceeds from the sale of a facility in Minneapolis. Capital expenditures for
both periods were slightly less than $.5 million. Additional capital
expenditures for the year, for which there are no material commitments, are
anticipated to be approximately $1,500,000.
Net cash provided by financing activities was $624,000 for the three-month
period ended March 31, 2000 compared to cash used of $11,885,000 for the same
period last year. Debt increased $2.4 million during the quarter ended March 31,
2000. This increase reflects the net cash used from operating and investing
activities, plus debt used to pay dividends, and repurchase stock, and a
decrease in the book overdraft during the period. For 1999, debt decreased $5.6
million and the book overdraft decreased $6 million. This reduction, is
primarily the result of the cash generated from operating activities.
The Company's primary source of debt financing is a revolving credit agreement
with a commitment of $75 million of which $63 million was outstanding at March
31, 2000. In addition, the Company has $7.5 million available under short-term
lines with $2.9 million outstanding at March 31, 2000. The Company believes
these facilities combined with future cash flow from operations will be adequate
to meet the ongoing capital requirements of the Company.
Year 2000 Issues
- ----------------
The Company's business system required program modifications prior to the year
2000 for what is commonly referred to as the "Year 2000 Issue." Similar to other
systems, the Company's system had to be modified to change the date for years
from an abbreviated two-digit number to a four-digit number. Without this
modification, the abbreviated two-digit number would have caused many of the
functions within the system to operate improperly or malfunction in the year
2000.
To date, the Company has not identified any significant Year 2000 problems,
however it realizes problems could still arise during the year. With regard to
suppliers, customers and service providers, the Company does not presently plan
on any additional testing of their readiness throughout the remainder of the
year unless problems start to evolve or such companies indicate they have
concerns about their systems.
If claims related to equipment sold to customers were to occur, the Company
believes it would have several defenses to such claims, but it is presently
unable to estimate what the aggregate cost, if any, of defending and/or settling
any such claims would be.
<PAGE>
New Accounting Standards
- ------------------------
In 1999, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 137, "Deferral of the Effective Date of SFAS
133" which defers the effective date of SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", to all fiscal quarters of all fiscal years
beginning after June 15, 2000. SFAS No. 133 establishes new procedures for
accounting for derivatives and hedging activities and supersedes and amends a
number of existing standards. The Company currently uses interest rate swap
agreements ("swaps") to effectively fix the interest rate on a portion of the
Company's floating rate debt. Under current accounting standards, no gain or
loss is recognized on changes in the fair value of these swaps. Under this
statement, gains or losses will be recognized based on changes in the fair value
of the swaps which generally occur as a result of changes in interest rates. The
Company is currently evaluating the financial impact of adoption of the
Statement. The adoption is not expected to have a material effect 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
none
b. Reports on Form 8-K
The Registrant did not file a report on Form 8-K during the quarter
ended March 31, 2000.
<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 4, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 92,852
<ALLOWANCES> 3,239
<INVENTORY> 67,444
<CURRENT-ASSETS> 170,272
<PP&E> 20,254
<DEPRECIATION> 10,627
<TOTAL-ASSETS> 198,062
<CURRENT-LIABILITIES> 72,258
<BONDS> 63,000
0
0
<COMMON> 65
<OTHER-SE> 60,029
<TOTAL-LIABILITY-AND-EQUITY> 198,062
<SALES> 141,005
<TOTAL-REVENUES> 141,005
<CGS> 117,569
<TOTAL-COSTS> 117,569
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 320
<INTEREST-EXPENSE> 1,436
<INCOME-PRETAX> 2,318
<INCOME-TAX> 957
<INCOME-CONTINUING> 1,361
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,361
<EPS-BASIC> .21
<EPS-DILUTED> .21
</TABLE>
