-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GaSueCUIztQz6Pw38X3pnNizm7qSqzc+qlh0eXrLQNCtx5zWloLwedp7cvfRqSUV 2MV4meUQY1awXjoTISVyew== 0000904816-98-000006.txt : 19980812 0000904816-98-000006.hdr.sgml : 19980812 ACCESSION NUMBER: 0000904816-98-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980811 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRIMESOURCE CORP CENTRAL INDEX KEY: 0000904816 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-PROFESSIONAL & COMMERCIAL EQUIPMENT & SUPPLIES [5040] IRS NUMBER: 231430030 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-21750 FILM NUMBER: 98681887 BUSINESS ADDRESS: STREET 1: 4350 HADDONFIELD RD STREET 2: SUITE 222 CITY: PENNSAUKEN STATE: NJ ZIP: 08109 BUSINESS PHONE: 6094884888 MAIL ADDRESS: STREET 1: FAIRWAY CORPORATE CENTER SUITE 222 STREET 2: 4350 HADDONFIELD ROAD CITY: PENNSAUKEN STATE: NJ ZIP: 08109 FORMER COMPANY: FORMER CONFORMED NAME: PHILLIPS & JACOBS INC DATE OF NAME CHANGE: 19930514 10-Q 1 PRIMESOURCE CORP. 10-Q, QUARTER ENDED 6/30/98 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 JUNE 30, 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 August 7, 1998 - ----- ------------------------------ Common stock, par value $.01 6,526,269 shares PRIMESOURCE CORPORATION INDEX PART I - FINANCIAL STATEMENTS
Item 1 - Financial Statements Page No. -------- Consolidated Condensed Balance Sheets June 30, 1998 and December 31, 1997 3 Consolidated Condensed Statements of Income Three Months and Six Months Ended June 30, 1998 and 1997 4 Consolidated Condensed Statements of Cash Flows Six Months Ended June 30, 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 9 PART II - OTHER INFORMATION Item 4 - Submission of Matters to a Vote of Security Holders 12 Item 6 - Exhibits and Reports on Form 8-k 12 SIGNATURES 13
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. PART I. FINANCIAL INFORMATION Item 1. Financial Statements PRIMESOURCE CORPORATION CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited)
June 30, December 31, (Thousands of dollars) 1998 1997 - --------------------------------------------------------------------------- ASSETS Current Assets: Receivables ................................... $ 65,242 $ 60,536 Inventories ................................... 49,402 53,919 Other ......................................... 4,305 3,516 - ---------------------------------------------------------------------------- Total Current Assets ............................ 118,949 117,971 Property and equipment, net ..................... 12,251 12,315 Excess of cost over net assets of businesses acquired, net .................. 4,484 4,217 Other assets .................................... 3,467 3,988 - ---------------------------------------------------------------------------- Total Assets .................................... $139,151 $138,491 ============================================================================ LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Current portion of long-term obligations ...... $ 1,327 $ 1,362 Accounts payable .............................. 32,373 34,045 Book overdraft ................................ 5,293 5,609 Other accrued liabilities ..................... 8,359 7,804 - ---------------------------------------------------------------------------- Total Current Liabilities ....................... 47,352 48,820 Long-term obligations, net of current portion ... 33,168 32,788 Accrued pension liabilities and other liabilities 4,228 4,335 - ---------------------------------------------------------------------------- Total Liabilities ............................... 84,748 85,943 - ---------------------------------------------------------------------------- Commitments and contingencies Shareholders' Equity: Common stock, $.01 par value .................. 65 65 Additional paid in capital .................... 25,647 25,586 Retained earnings ............................. 28,691 26,897 - ---------------------------------------------------------------------------- Total Shareholders' Equity ...................... 54,403 52,548 - ---------------------------------------------------------------------------- Total Liabilities and Shareholders' Equity ...... $139,151 $138,491 ============================================================================ See notes to consolidated condensed financial statements.
PRIMESOURCE CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited)
Three Months Six Months Ended June 30, Ended June 30, (Thousands of dollars, ------------------------ ----------------------- except per share amounts) 1998 1997 1998 1997 - ---------------------------------------------------------------------------------------------------- Net sales .................................. $ 104,846 $ 103,170 $ 206,374 $ 206,558 Cost of sales .............................. 85,268 84,763 168,344 169,848 - ---------------------------------------------------------------------------------------------------- Selling, general and administrative expenses 16,734 15,627 32,709 31,398 - ---------------------------------------------------------------------------------------------------- Income from operations ..................... 2,844 2,780 5,321 5,312 Interest expense ........................... (774) (806) (1,454) (1,556) Other income ............................... 92 48 180 133 - ---------------------------------------------------------------------------------------------------- Income before provision for income taxes .......................... 2,162 2,022 4,047 3,889 Provision for income taxes ................. 892 846 1,665 1,608 - ---------------------------------------------------------------------------------------------------- Net income ................................. $ 1,270 $ 1,176 $ 2,382 $ 2,281 ==================================================================================================== Per share of common stock: Net income per basic and diluted share Basic ................................... $ .19 $ .18 $ .37 $ .35 Diluted ................................. .19 .18 .36 .35 Cash dividends ............................. .045 .045 .09 .09 ==================================================================================================== See notes to consolidated condensed financial statements.
PRIMESOURCE CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended June 30, (Thousands of dollars) 1998 1997 - ---------------------------------------------------------------------------------- Net income ........................................... $ 2,382 $ 2,281 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation ..................................... 937 1,019 Amortization ..................................... 186 229 Changes in assets and liabilities affecting operations (955) (6,120) - ---------------------------------------------------------------------------------- Net cash provided by (used in) operating activities .. 2,550 (2,591) - ---------------------------------------------------------------------------------- Investing Activities: Additions to property and equipment .................. (845) (911) Payment for acquisition .............................. (1,700) Net (increase) decrease in other assets .............. 493 (9) - ---------------------------------------------------------------------------------- Net cash used in investing activities ................ (2,052) (920) - ---------------------------------------------------------------------------------- Financing Activities: Proceeds from long-term obligations .................. 59,250 41,750 Repayment of long-term obligations ................... (58,905) (39,184) Increase (decrease) in book overdraft ................ (316) 1,638 Dividends paid ....................................... (588) (587) Purchase of common stock ............................. (106) Proceeds from exercise of stock options .............. 61 - ---------------------------------------------------------------------------------- Net cash provided by (used in) financing activities .. (498) 3,511 - ---------------------------------------------------------------------------------- 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 ........................................ $ 1,366 $ 1,665 Income taxes .................................... 2,140 2,137 ================================================================================== See notes to consolidated condensed financial statements.
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 June 30, 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:
Three Months Six Months Ended June 30, Ended June 30, ------------------------- ------------------------ 1998 1997 1998 1997 - --------------------------------------------------------------------------------------------------- Average shares of common stock outstanding used to compute basic earnings per share . 6,526,269 6,506,946 6,523,677 6,510,863 Dilutive effect of stock options ......... 145,483 73,889 161,904 84,620 - --------------------------------------------------------------------------------------------------- Average shares of common stock outstanding used to compute diluted earnings per share 6,671,752 6,580,835 6,685,581 6,595,483 - --------------------------------------------------------------------------------------------------- Net income per share: Basic .................................... $ .19 $ .18 $ .37 $ .35 Diluted .................................. .19 .18 .36 .35 ===================================================================================================
4. Acquisition In April 1998, the Company acquired the assets of Joseph Genstein, Inc. ("Genstein"), a printing products distributor in the Pittsburgh area. The business has been combined into the Company's existing Pittsburgh operation. The acquisition has been accounted for as a purchase and, accordingly, is included in the Company's operating results from the acquisition date. The pro forma results of this acquisition would not have had a significant impact on the Company's consolidated results of operations. 5. 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. This statement is effective for fiscal years beginning after December 15, 1997. The Company is in the process of evaluating the applicable disclosure requirements. The adoption of this statement is not expected to have any impact on the Company's consolidated results of operations, financial position or cash flows. 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. This statement is effective for fiscal years beginning after December 15, 1997. The Company is in the process of evaluating the applicable disclosure requirements. In June 1998, FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement establishes new procedures for accounting for derivatives and hedging activities and supersedes and amends a number of existing standards. This statement is effective for fiscal years beginning after June 15, 1999. The Company currently uses derivatives, 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 this statement. The adoption is not expected to have a material effect on the Company's consolidated results of operations, financial position or cash flows. In the first quarter of 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. 6. Reclassifications Certain reclassifications have been made to the 1997 consolidated condensed financial statements to conform to the 1998 presentation. 7. Subsequent Event In July 1998, the Company signed a letter of intent to acquire the graphics arts division of Bell Industries. The acquisition is anticipated to be completed before the end of the year. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Net income for the quarter ended June 30, 1998 was $1,270,000 ($.19 per diluted share) on sales of $104,846,000 compared to net income of $1,176,000 ($.18 per diluted share) on sales of $103,170,000 for the same period last year. For the six months ended June 30, 1998, net income was $2,382,000 ($.36 per diluted share) on sales of $206,374,000 compared to net income of $2,281,000 ($.35 per diluted share) on sales of $206,558,000 for the same period last year. Sales for the six-month period ended June 30, 1998 were level compared to the same period last year. Sales were down by approximately 2% in the first quarter with a corresponding increase in the second quarter. The first quarter decrease was primarily attributable to a weakness in the industry in consumable sales in the first two months of the quarter. During the second quarter, the Company's consumable sales showed modest increases over 1997 sales. In addition to improved consumable sales, the Company had increased digital printing sales over prior quarters. Gross profit as a percent of sales was 18.7% for the quarter and 18.4% for the six-month period ended June 30,1998 compared to 17.8% for the same periods last year. This increase is primarily the result of improved margins in system sales and digital printing sales which provide a higher margin. Selling, general and administrative expenses as a percent of sales were 16% for the quarter and 15.8% for the six-month period compared to 15.2% and 15.1%, respectively, for the same periods last year. This increase is primarily attributable to additional personnel costs within the systems group. These additional costs have been partially offset by improved margins in systems sales and the Company will need and anticipates increased sales to fully justify these costs. Interest expense was $774,000 and $1,454,000 for the three and six-month period ended June 30, 1998 compared to $806,000 and $1,556,000, respectively, for the same periods last year. The 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 and six-month period were 41.3% and 41.1%, respectively, compared to 41.8% and 41.3%, respectively, for the same periods last year. The difference between the effective tax rates and the federal statutory rate of 34% is attributable to the effect of state income taxes and non-deductible expenses, which also effect the rate differences between periods. Financial Condition and Liquidity Net cash provided by operating activities for the six months ended June 30, 1998 was $2,550,000 compared to net cash used of $2,591,000 for the same period last year. This improvement is attributable to improved management of working capital in 1998 compared to 1997. Net cash used in investing activities was $2,052,000 for the six months ended June 30, 1998 compared to $920,000 for the same period last year. The increase in 1998 is attributable to the acquisition of the assets of Genstein in April 1998. Additional capital expenditures for existing operations for the year, for which there are no material commitments, are anticipated to be approximately $1,100,000. Net cash used in financing activities was $498,000 for the six-month period ended June 30, 1998 compared to $3,511,000 provided from financing activities for the same period last year. Debt increased $345,000 during the six months ended June 30, 1998. The capital requirements during the period, including the Genstein acquisition, were primarily provided for with the cash produced from operating activities. For the same period last year, debt increased $2.6 million, which is primarily attributable to the cash used in operating activities. The Company's primary source of debt financing is a revolving credit agreement. In April 1998, the commitment under the agreement was increased from $50 million to $75 million of which $42.5 million was unused at June 30, 1998. In addition, the Company has $10 million available under an uncommitted line. The Company believes these facilities combined with future cash flow from operations will be adequate to meet the ongoing capital requirements of the Company and fund future acquisition needs. 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 has begun and is scheduled to be completed by late 1998 or early 1999. 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. This statement is effective for fiscal years beginning after December 15, 1997. The Company is in the process of evaluating the applicable disclosure requirements. The adoption of this statement is not expected to have any impact on the Company's consolidated results of operations, financial position or cash flows. 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. This statement is effective for fiscal years beginning after December 15, 1997. The Company is in the process of evaluating the applicable disclosure requirements. In June 1998, FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement establishes new procedures for accounting for derivatives and hedging activities and supersedes and amends a number of existing standards. This statement is effective for fiscal years beginning after June 15, 1999. The Company currently uses derivatives, 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 this statement. The adoption is not expected to have a material effect on the Company's consolidated results of operations, financial position or cash flows. PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders a. The Company's annual meeting of shareholders was held on May 12, 1998. b. Matters voted upon at the meeting and the results of those votes were as follows: Election of Directors
For Against Withheld --------------------------------------------------------- Gary MacLeod .......5,323,656 -- 229,287 James F. Mullan ....5,332,163 -- 220,780 Klaus D. Oebel .....5,327,269 -- 225,674
Other directors whose terms of office continued after the meeting are as follows: Fred C. Aldridge, Jr., Philip J. Baur, Jr., Richard E. Engebrecht, John H. Goddard, Jr., Edward N.Patrone and John M. Pettine
Approval of Independent Auditors For Against Abstain ------------------------------------------------------------------------------------- Approval of Coopers & Lybrand L.L.P., Certified Public Accountants, as independent public auditors for 1998............... 5,514,480 124,361 15,451
The foregoing matters are described in detail in the Company's proxy statement dated April 9, 1998. 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 June 30, 1998. 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 August 7, 1998 EX-27 2 FDS 6/30/98
5 1,000 6-MOS DEC-31-1998 JUN-30-1998 0 0 59,889 1,858 49,402 118,949 22,614 10,363 139,151 47,352 33,168 0 0 65 54,338 139,151 206,374 206,374 168,344 168,344 0 (57) 1,454 4,047 1,665 2,382 0 0 0 2,382 .37 .36
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