<PAGE> 1
United States Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 28, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to __________________
Commission File Number 0-21677
PROSOURCE, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 65-0335019
(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
550 Biltmore Way, 10th Floor, Coral Gables, FL 33134
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (305)529-2500
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at December 20, 1996
Class A Common Stock, $.01 par value 3,400,000 shares
Class B Common Stock, $.01 par value 5,966,356 shares
<PAGE> 2
ProSource, Inc.
Index
<TABLE>
<CAPTION>
Page
Number
------
<S> <C> <C> <C>
Part I Financial Information
Item 1 Financial Statements
Consolidated Balance Sheets
as of December 30, 1995 and September 28, 1996 ......................1
Consolidated Statements of Operations
for the periods ended September 30, 1995 and
September 28, 1996...................................................2
Consolidated Statements of Cash Flows
for the periods ended September 30, 1995 and
September 28, 1996...................................................3
Notes to Consolidated Financial Statements ............................4
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations .............................................6
Part II Other Information
Item 1 Legal Proceedings............................................................12
Item 2 Changes in Securities........................................................12
Item 3 Defaults Upon Senior Securities..............................................12
Item 4 Submission of Matters to a Vote of Security Holders..........................12
Item 5 Other Information............................................................12
Item 6 Exhibits and Reports on Form 8-K.............................................12
</TABLE>
<PAGE> 3
PART I. Financial Information
Item 1. Financial Statements
ProSource, Inc.
Consolidated Balance Sheets
December 30, 1995 and September 28, 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
December 30, September 28,
1995 1996
------------ -------------
(Unaudited)
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,325 $ 3,179
Accounts receivable, net 230,089 200,584
Inventories 140,432 131,816
Deferred income taxes, net 4,298 10,958
Prepaid expenses and other current assets 10,736 10,552
--------- ---------
Total current assets 387,880 357,089
Property and equipment, net 52,507 44,131
Intangible assets, net 36,450 42,635
Deferred income taxes, net 3,901 11,727
Other assets 8,435 10,342
--------- ---------
Total assets $ 489,173 $ 465,924
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 242,645 $ 211,636
Accrued liabilities 27,819 34,052
Current portion of long-term senior debt 1,500 1,500
--------- ---------
Total current liabilities 271,964 247,188
Long-term senior debt, less current portion 132,011 139,183
Subordinated notes payable to Onex 19,791 18,754
Other subordinated notes payable 9,918 10,544
Other noncurrent liabilities 6,068 16,203
--------- ---------
Total liabilities 439,752 431,872
--------- ---------
Commitments and Contingencies
Stockholders' equity:
Preferred stock, $.01 par value -- --
Class A Common Stock, $.01 par value -- --
Class B Common Stock, $.01 par value 52 53
Additional paid-in capital 51,838 53,079
Accumulated deficit (2,540) (19,139)
Accumulated foreign currency translation adjustments 71 59
--------- ---------
Total stockholders' equity 49,421 34,052
--------- ---------
Total liabilities and stockholders' equity $ 489,173 $ 465,924
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE> 4
ProSource, Inc.
Consolidated Statements of Operations
For the periods ended September 30, 1995 and September 28, 1996
(Dollars in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-Nine Weeks Ended
---------------------------- ----------------------------
September 30, September 28, September 30, September 28,
1995 1996 1995 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 1,008,146 $ 1,053,537 $ 2,455,906 $ 3,068,010
Cost of sales 929,808 972,762 2,262,747 2,832,161
----------- ----------- ----------- -----------
Gross profit 78,338 80,775 193,159 235,849
Operating expenses 75,029 75,020 185,720 224,778
Loss on impairment of
long-lived assets -- -- -- 15,733
Restructuring charges 174 -- 242 10,866
----------- ----------- ----------- -----------
Earnings (loss) from operations 3,135 5,755 7,197 (15,528)
Interest expense (3,933) (3,789) (10,714) (11,941)
Interest income 403 398 934 1,264
----------- ----------- ----------- -----------
Earnings (loss) before income
taxes and extraordinary charge (395) 2,364 (2,583) (26,205)
Income tax (provision) benefit (339) (1,007) 625 9,605
----------- ----------- ----------- -----------
Earnings (loss) before
extraordinary charge (734) 1,357 (1,958) (16,600)
Extraordinary charge, net of income
tax benefit of $502 in 1995 -- -- 772 --
----------- ----------- ----------- -----------
Net earnings (loss) $ (734) $ 1,357 $ (2,730) $ (16,600)
=========== =========== =========== ===========
Net earnings (loss) per share:
Loss before extraordinary charge $ -- $ -- $ (0.18) $ --
----------- ----------- ----------- -----------
Net earnings (loss) $ (0.14) $ 0.25 $ (0.64) $ (3.13)
=========== =========== =========== ===========
Average outstanding shares used
in calculation (in thousands) 5,228 5,355 4,234 5,304
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 5
ProSource, Inc.
Consolidated Statements of Cash Flows
For the periods ended September 30, 1995
and September 28, 1996
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Thirty-Nine Weeks Ended
September 30, September 28,
1995 1996
---------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (2,730) $ (16,600)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization of property and equipment 5,514 5,298
Amortization of intangible assets and deferred debt issuance costs 3,659 2,847
Bad debt expense 1,180 1,352
Write-off of deferred loan fees 1,274 --
Loss on impairment of long-lived assets -- 15,733
Deferred income taxes (benefit) (5,232) (9,757)
Gain on sale of property and equipment (53) --
Changes in operating assets and liabilities, net of effects of companies
purchased:
Decrease in accounts receivable 24,041 28,153
Decrease in inventories 15,743 8,616
Increase in prepaid expenses and other current assets (2,233) (2,565)
(Increase) decrease in other assets 409 (12,848)
Decrease in accounts payable (9,942) (31,009)
Increase in accrued liabilities 7,148 6,233
Increase in other noncurrent liabilities 584 10,135
--------- ---------
Net cash provided by operating activities 39,362 5,588
--------- ---------
Cash flows from investing activities:
Capital expenditures (3,361)
Proceeds from sale of property and equipment 121 --
Payment for purchase of net assets acquired (173,121) --
--------- ---------
Net cash used in investing activities (176,361) (12,725)
--------- ---------
Cash flows from financing activities:
Repayments of long-term debt to Onex (2,085) (615)
Repayments of long-term debt to others (14,742) (1,550)
Borrowings on long-term debt to Onex 18,688 378
Borrowings on long-term debt to others 106,725 8,548
Proceeds from issuance of common stock to Onex 26,500 800
Proceeds from issuance of common stock to others 2,085 615
Payments to acquire and retire treasury stock (212) (173)
--------- ---------
Net cash provided by financing activities 136,959 8,003
--------- ---------
Effect of exchange rate changes on cash -- (12)
Net increase (decrease) in cash and cash equivalents (40) 854
Cash and cash equivalents at beginning of period 1,151 2,325
--------- ---------
Cash and cash equivalents at end of period $ 1,111 $ 3,179
========= =========
Supplemental disclosures of cash flow information: Cash paid during the period
for:
Interest to Onex $ 41 $ 1,904
========= =========
Interest to Others $ 7,957 $ 9,713
========= =========
Income taxes, net of refunds $ 87 $ 134
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 6
ProSource, Inc.
Notes to Consolidated Financial Statements
(1) Description of Business
ProSource, Inc. (the "Parent") and its subsidiaries (collectively, the
"Company") are engaged in the foodservice distribution business, specializing in
limited-menu quick service and casual dining restaurant customers, primarily
operating in the United States. The Company distributes to approximately 14,700
restaurants consisting primarily of Burger King, Arby's, Long John Silver's,
Sonic, Chick-fil-A, Wendy's, Red Lobster, Olive Garden, TGI Friday's, Chili's
and TCBY restaurant concepts.
The Parent operates through three subsidiaries, ProSource Services
Corporation ("PSC"), ProSource Distribution Services Limited ("ProSource
Canada") and BroMar Services, Inc. ("BroMar"). PSC commenced operations in July
1992. The consolidated financial statements include the results of the
operations of PSC from its inception and the results of operations of ProSource
Canada and BroMar (both of which were acquired by the Company on March 31, 1995
as part of the acquisition of the National Accounts Division ("NAD") of The
Martin-Brower Company ("Martin-Brower")), since the date of acquisition. The
Company is a subsidiary of Onex Corporation (collectively with its affiliates,
"Onex"), a company traded on the Toronto and Montreal stock exchanges.
The Company operates on a 52-to-53-week accounting year ending on the last
Saturday of each calendar year.
(2) Interim Financial Information
The unaudited consolidated balance sheet as of September 28, 1996, and the
unaudited consolidated statements of operations for the periods ended September
30, 1995 and September 28, 1996 and the unaudited consolidated statements of
cash flows for the thirty-nine weeks ended September 30, 1995 and September 28,
1996 include, in the opinion of management, all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the Company's
consolidated financial position, results of operations and cash flows. Operating
results for the thirteen and thirty-nine weeks ended September 28, 1996 are not
necessarily indicative of the results that may be expected for the fiscal year
ending December 28, 1996. These consolidated financial statements should be read
in conjunction with the audited financial statements and notes thereto included
in the Company's Registration Statement on Form S-1 (Registration No.
333-11499).
The consolidated financial statements have been prepared by the Company
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in the annual
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make the information presented not misleading.
(3) Stockholders' Equity
In November 1996, the Company changed its capital structure to 10,000,000
authorized shares of $.01 par value preferred stock, 50,000,000 authorized
shares of $.01 par value Class A Common Stock and 10,000,000 authorized shares
of $.01 par value Class B Common Stock, and all of the Company's then
outstanding shares of common stock were converted into Class B Common Stock. The
Company's Board of Directors also declared a 100-to-1 stock split. The Company's
additional paid-in capital account and the Class B Common Stock account have
been restated to retroactively reflect these actions.
4
<PAGE> 7
(4) Initial Public Offering
On November 15, 1996, the Company completed the issuance of 3,400,000
shares of Class A Common Stock (at a price of $14 per share) through an initial
public offering, resulting in net proceeds to the Company of approximately $43.5
million, after deducting underwriting discounts and commissions and other
offering costs. The net proceeds of the offering were used to prepay $25.3
million in outstanding indebtedness under subordinated notes payable and repay
$18.2 million of outstanding indebtedness under the Company's revolving credit
facility.
In connection with the initial public offering Onex converted $3.8 million of
principal and accrued interest under a convertible subordinated note into
379,242 shares of Class B Common Stock.
5
<PAGE> 8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
The following table sets forth, for the periods indicated, the components
of the Company's consolidated statements of operations expressed as a percentage
of net sales.
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-Nine Weeks Ended
------------------------------ ------------------------------
September 30, September 28, September 30, September 28,
1995 1996 1995 1996
------------- ------------- -------------------------------
<S> <C> <C> <C> <C>
Net sales 100.00% 100.00% 100.00% 100.00%
Cost of sales 92.23 92.33 92.14 92.31
------ ------ ------ ------
Gross profit 7.77 7.67 7.86 7.69
Operating expenses 7.44 7.12 7.56 7.33
Loss on impairment of long-lived assets -- -- -- 0.51
Restructuring charges 0.02 -- 0.01 0.35
------ ------ ------ ------
Earnings (loss) from operations 0.31 0.55 0.29 (0.50)
Interest expense, net (0.35) (0.32) (0.40) (0.35)
------ ------ ------ ------
Earnings (loss) before income taxes
and extraordinary charge (0.04) 0.23 (0.11) (0.85)
Income tax (provision) benefit (0.03) (0.10) 0.03 0.31
------ ------ ------ ------
Earnings (loss) before extraordinary
charge (0.07) 0.13 (0.08) (0.54)
Extraordinary charge, net -- -- (0.03) --
------ ------ ------ ------
Net earnings (loss) (0.07)% 0.13% (0.11)% (0.54)%
====== ====== ====== ======
</TABLE>
6
<PAGE> 9
Three Months Ended September 28, 1996 Compared to Three Months Ended September
30, 1995
Net sales increased 4.5% to $1,053.5 million in the three month (13 weeks)
fiscal period ended September 28, 1996 (the "1996 third quarter") from $1,008.1
million in the three month (13 weeks) fiscal period ended September 30, 1995
(the "1995 third quarter"). The increase in net sales is primarily attributable
to increased sales volume at existing restaurants.
Gross profit increased 3.1% to $80.8 million in the 1996 third quarter
period compared to $78.3 million in the 1995 third quarter period due to the
increase in net sales. As a percentage, gross profit decreased from 7.8% to 7.7%
due to changes in the mix of sales to customers.
Operating expenses were essentially unchanged in the 1996 third quarter
period compared to the 1995 third quarter period. Due to the increase in net
sales, operating expenses declined to 7.1% in the 1996 third quarter period from
7.4% in the 1995 third quarter period.
Earnings from operations increased 87.1% to $5.8 million in the 1996 third
quarter period from $3.1 million in the 1995 third quarter period. The
improvements in earnings from operations in the third quarter reflects the
higher gross profit without a corresponding increase in operating expenses,
primarily reflecting a favorable impact of the Company's continuing focus on
operating efficiencies.
Net interest expense decreased 3.9% to $3.4 million in the 1996 third
quarter period from $3.5 million in the 1995 third quarter period. Net interest
expense as a percentage of net sales decreased 8.6% from 0.35% to 0.32%. The
decrease in net interest expense was as a result of improved net operating asset
turnover.
The income tax provision for the 1996 third quarter period increased $0.7
million over the provision for the 1995 third quarter period. The increase in
the tax provision was attributable to the Company's greater pre-tax income in
the 1996 third quarter period. The effective rate of the Company's income tax
provision (expressed as a percentage of pre-tax earnings or loss) was 42.6% for
the 1996 third quarter period. The income tax provision for the 1995 third
quarter period includes adjustments necessary to reflect the annual effective
rate anticipated for fiscal 1995.
7
<PAGE> 10
Nine Months Ended September 28, 1996 Compared to Nine Months Ended September 30,
1995
Net sales increased 24.9% to $3,068.0 million in the nine month
(thirty-nine weeks) fiscal period ended September 28, 1996 ("1996 fiscal
period") from $2,455.9 million in the nine month (thirty-nine weeks) fiscal
period ended September 30, 1995 (the "1995 fiscal period"). The increase in net
sales is primarily attributable to the acquisition of NAD on March 31, 1995. Net
sales increased 2.7% in the 1996 fiscal period when compared to net sales for
the 1995 fiscal period presented on a pro forma basis, as adjusted to give
effect to the acquisition of NAD as if such acquisition had occurred on January
1, 1995. This increase in net sales is due to increased sales to customers as a
result of the addition of new restaurants and increased sales volume at existing
restaurants.
Gross profit increased 22.1% to $235.8 million in the 1996 fiscal period
compared to $193.2 million in the 1995 fiscal period primarily due to the
increase in net sales. The gross profit percentage decreased to 7.7% in the 1996
fiscal period compared to 7.9% in the 1995 fiscal period. The gross profit
percentage decrease is primarily attributable to the higher cost of the product
mix purchased by customers added through the acquisition of NAD (which customers
had a 6.9% gross profit margin for the 1996 fiscal period) and, to a lesser
extent, negotiation of new contracts with certain NAD customers which resulted
in lower distribution fees. In most cases, in consideration for the decrease in
distribution fees, the Company was able to secure a longer term contract and the
right to provide in-bound transportation and/or purchasing services for such
customers.
Operating expenses increased 21.0% to $224.8 million in the 1996 fiscal
period from $185.7 million in the 1995 fiscal period primarily due to the
increase in net sales. As a percentage of net sales, operating expenses declined
to 7.3% in the 1996 fiscal period from 7.6% in the 1995 fiscal period. This
decrease is primarily a result of the acquisition of NAD, which has a product
mix with a higher unit sales value.
Losses from operations in the 1996 fiscal period were $15.5 million (as
compared to earnings from operations of $7.2 million in the 1995 fiscal period),
as a result of restructuring charges of $10.9 million and a loss on impairment
in value of long-lived assets of $15.7 million. Both the restructuring charges
and impairment losses are related to a plan to consolidate and integrate the
Company's corporate and network operations following the NAD acquisition. Of the
restructuring charges, approximately $7.9 million relates to the termination of
existing facility leases, $1.2 million represents costs to be incurred after
cessation of operations in the closed facilities and $1.8 million represents all
other costs. The application of Statement of Financial Accounting Standards No.
121, which became effective on January 1, 1996 and requires that long-lived
assets be reviewed for impairment (measured based on the fair value of the
assets), required the Company to recognize a loss of approximately $7.3 million
on land and owned buildings and $4.3 million on furniture and equipment and
leasehold improvements it intends to hold and use through the completion of the
plan and $4.1 million of capitalized software costs which do not meet the
long-term information technology strategy of the Company. Earnings from
operations excluding restructuring charges and impairment losses were $11.1
million in the 1996 fiscal period compared to $7.4 million in the 1995 fiscal
period.
Net interest expense increased 9.2% to $10.7 million in the 1996 fiscal
period from $9.8 million in the 1995 fiscal period, primarily attributable to
the additional borrowings associated with the acquisition of NAD. Net interest
expense as a percentage of net sales decreased 12.5% from 0.40% to 0.35% as a
result of improved net operating asset turnover.
The income tax benefit for the 1996 fiscal period increased $9.0 million
over the benefit for the 1995 fiscal period. The increase in the tax benefit was
attributable to the Company's greater pre-tax loss in the 1996 fiscal period.
The effective rates of the Company's income tax benefit (expressed as a
percentage of pre-tax loss) were 36.7% for the 1996 fiscal period and 24.2% for
the 1995 fiscal period, which reflect the anticipated annual effective rates for
the respective fiscal years.
8
<PAGE> 11
The extraordinary charge in the 1995 fiscal period represents the write-off
of unamortized deferred debt issuance costs of $1.3 million, net of the related
tax benefit of $0.5 million, associated with debt that was refinanced as a
result of the NAD acquisition.
9
<PAGE> 12
Liquidity and Capital Resources
The Company historically has financed its operations and growth primarily
with cash flow from operations, borrowings under its credit facilities,
operating leases and normal vendor trade credit terms. The Company's cash flow
from operations was $5.6 million in the 1996 fiscal period and $39.4 million in
the 1995 fiscal period. The significant cash flow in 1995 was attributable to
the one time benefit of acquiring assets without assuming certain corresponding
operating liabilities in connection with the acquisition of NAD.
Cash used in investing activities was $12.7 million in the 1996 fiscal
period, all of which related to capital expenditures, primarily for cart
delivery equipment and computer systems upgrades. The Company anticipates
capital expenditures of approximately $15 to $20 million in each of the next
three to five years in connection with the implementation of its new
distribution network, including the expansion of warehousing facilities to
accommodate expected growth, continued investment in computer systems and the
further deployment of cart deliveries. However, there can be no assurance that
these capital projects will be completed within the time projected or that the
capital expenditures will not be higher than currently anticipated. The Company
intends to finance such capital expenditures with cash provided from operations,
borrowings under its credit facility and through operating leases. Cash used in
investing activities was $176.4 million in the 1995 fiscal period, primarily to
fund the NAD acquisition for $170.3 million and capital expenditures of $3.4
million (primarily for cart delivery equipment and computer systems upgrades).
The Company's financing activities include borrowings under, and
refinancing of various credit facilities and the issuance of equity securities
and subordinated notes principally to finance acquisitions. The Company's
financing activities resulted in net cash provided by financing activities of
$8.0 million in the 1996 fiscal period and net cash provided by financing
activities of $136.9 million in the 1995 fiscal period. In March 1995, the
Company entered into a $240 million loan agreement with NationsBank of Georgia,
N.A. and certain other financial institutions. Such agreement provides for a
revolving credit facility of up to $210 million and term loans aggregating $30
million. Such facility and term loans were used to finance the acquisition of
NAD and refinance certain of the Company's outstanding indebtedness.
Availability under the revolving credit facility may also be used to fund the
Company's working capital requirements. As of September 28, 1996, there was an
aggregate of $140.7 million outstanding under such loan agreement. The loan
agreement terminates on March 31, 2000 and, for most of the 1996 fiscal period,
the revolving credit facility and term loans bore interest at prime plus 0.5% or
the Eurodollar borrowing rate plus 2.75%. Effective September 1, 1996, the
interest rate on such borrowings was reduced to the Eurodollar borrowing rate
plus 2.00%. The revolving credit facility and term loans are secured by a lien
on substantially all of the Company's assets. In addition, the loan agreement
contains restrictions on, among other things, the Company's ability to pay
dividends, prepay subordinated indebtedness, dispose of assets, make future
capital expenditures and investments and make loans and other financial
accommodations to affiliates, as well as the flow of funds from the Company's
subsidiaries to the parent company.
On November 15, 1996 the Company completed an initial public offering of
3,400,000 shares of its Class A Common Stock. The net proceeds of the offering
of $43.5 million were used to prepay $25.3 million in outstanding indebtedness
under subordinated notes payable and repay $18.2 million of outstanding
indebtedness under the Company's revolving credit facility. The reduction of
outstanding indebtedness with the proceeds of the offering will result in a
reduction of interest expense.
10
<PAGE> 13
The Company is in discussions with several bank groups to refinance its
revolving credit facility and term loans with new bank financing and an
asset-backed securitization facility. Based on proposals received by the
Company, the Company believes that interest on the remaining outstanding amounts
could be reduced by 100-200 basis points by such refinancing. To the extent the
Company replaces its revolving credit facility, it expects to incur a pre-tax
extraordinary charge in the fourth quarter of 1996 of up to $10.0 million
associated with prepayment penalties of approximately $4.0 million and write-off
of the deferred financing costs. The Company believes a new credit facility will
also provide more flexibility in managing the Company's working capital
requirements. There can be no assurance that the Company will be successful in
refinancing its outstanding credit facility and term loans or consummating an
asset-backed securitization on terms currently anticipated or on terms that the
Company would find acceptable.
The Company will incur certain other non-recurring (pre-tax) charges to
operations in the fourth quarter of 1996 in connection with the offering. These
charges are summarized as follows:
o A non-cash charge of $1.2 million to record the effect of an amendment
to the Company's amended Management Option Plan (1995) prior to the
offering under which unvested options will vest according to a
specified time schedule. Such charge was equal to the aggregate
difference between the initial public offering price of the Class A
Common Stock and the exercise price for such options. This $1.2
million will be reflected as a charge to operations with a
corresponding increase in additional paid-in capital.
o A charge of $1.3 million for the termination of a consulting agreement
between the Company and certain former owners of Valley Food Services,
Inc., which agreement was due to expire on March 28, 1998.
o The issuance to Onex of $4.0 million in Class B Common Stock valued at
the initial public offering price in exchange for the agreement of
Onex to relinquish its right to receive an annual fee, payable in
cash, for management services rendered to the Company. This $4.0
million will be reflected as a charge to operations with a
corresponding increase in Common Stock and additional paid-in capital.
The Company believes that the combination of proceeds received from the
offering, cash flow generated from operations and borrowings available under its
current credit facility (or any refinancing thereof) are sufficient to satisfy
its anticipated working capital needs for at least 12 months. Management may
determine that it is necessary or desirable to obtain financing for growth
through additional bank borrowings or the issuance of new debt or equity
securities. The Company is a holding company with no independent operations or
assets other than investment in its operating subsidiaries, and, as such, it is
dependent on its operating subsidiaries to obtain cash flow. The Company's loan
agreement includes certain restrictive covenants which limit the flow of funds
from the Company's subsidiaries to the parent company. Such covenants are not
expected to have a material effect on the ability of the parent to meet its cash
obligations.
11
<PAGE> 14
PART II. Other Information
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11.1 Computation of Earnings Per Share
27.1 Financial Data Schedule
(b) Reports on Form 8-K
No current report on Form 8-K was filed by the Company during
the fiscal quarter ended September 28, 1996.
12
<PAGE> 15
SIGNATURES
Pursuant to the requirements 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.
ProSource, Inc.
Date: December 20, 1996 /s/ William F. Evans
-------------------------------------------------
William F. Evans
Executive Vice President, Chief Financial Officer
Date: December 20, 1996 /s/ Marcelino Iturrey
-------------------------------------------------
Marcelino Iturrey
Vice President-Controller, Chief Accounting Officer
13
<PAGE> 1
Exhibit 11.1
ProSource, Inc.
Computation of Earnings Per Share
For the periods ended September 30, 1995
and September 28, 1996
(Dollars in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-Nine Weeks Ended
---------------------------- -----------------------------
September 30, September 28, September 30, September 28,
1995(1) 1996(1) 1995(1) 1996(1)
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net earnings (loss) applicable to common stock $( 734) $ 1,357 $ (2,730) $(16,600)
======== ======== ======== ========
Weighted average common shares outstanding 5,228 5,310 4,234 5,304
Additional shares assuming exercise of stock
option and warrants -- 45 -- --
-------- -------- -------- --------
Shares used for primary earnings per share 5,228 5,355 4,234 5,304
======== ======== ======== ========
Earnings per share:
Net earnings (loss) $ (0.14) $ 0.25 $ (0.64) $ (3.13)
======== ======== ======== ========
</TABLE>
(1) Weighted average common shares outstanding have been restated to include the
effect of a 100-to-1 stock split declared in November 1996.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF PROSOURCE, INC. AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 12-MOS
<FISCAL-YEAR-END> DEC-28-1996 DEC-30-1995
<PERIOD-START> DEC-31-1995 JAN-01-1995
<PERIOD-END> SEP-28-1996 DEC-30-1995
<CASH> 3,179,000 2,325,000
<SECURITIES> 0 0
<RECEIVABLES> 200,584,000 230,089,000
<ALLOWANCES> 2,177,000 2,585,000
<INVENTORY> 131,816,000 140,432,000
<CURRENT-ASSETS> 357,089,000 387,880,000
<PP&E> 69,807,000 73,016,000
<DEPRECIATION> 25,676,000 20,509,000
<TOTAL-ASSETS> 465,924,000 489,173,000
<CURRENT-LIABILITIES> 247,188,000 271,964,000
<BONDS> 169,981,000 163,220,000
0 0
0 0
<COMMON> 53,000 52,000
<OTHER-SE> 33,999,000 49,369,000
<TOTAL-LIABILITY-AND-EQUITY> 465,924,000 489,173,000
<SALES> 3,068,010,000 3,461,837,000
<TOTAL-REVENUES> 3,068,010,000 3,461,837,000
<CGS> 2,832,161,000 3,193,270,000
<TOTAL-COSTS> 2,832,161,000 3,193,270,000
<OTHER-EXPENSES> 251,377,000 255,927,000
<LOSS-PROVISION> 1,352,000 1,845,000
<INTEREST-EXPENSE> 11,941,000 14,678,000
<INCOME-PRETAX> (26,205,000) (699,000)
<INCOME-TAX> 9,605,000 (85,000)
<INCOME-CONTINUING> (16,600,000) (784,000)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 (772,000)
<CHANGES> 0 0
<NET-INCOME> (16,600,000) (1,556,000)
<EPS-PRIMARY> (3.13) (0.35)
<EPS-DILUTED> 0 0
</TABLE>
