-----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, GNs+EET5ByUK5zQBk+Xpty04aBbMU9SRSXvFLdQoYG5RNZTc8fj8FABhRVN9gB7X UsLD++0Wa3wtoa4rwpmL4g== /in/edgar/work/20000811/0000904816-00-000004/0000904816-00-000004.txt : 20000921 0000904816-00-000004.hdr.sgml : 20000921 ACCESSION NUMBER: 0000904816-00-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000811 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRIMESOURCE CORP CENTRAL INDEX KEY: 0000904816 STANDARD INDUSTRIAL CLASSIFICATION: [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: 695133 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 0001.txt FORM 10-Q FOR PRIMESOURCE CORP. 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, 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 ------------------------------------------------------ (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) (856) 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 10, 2000 - ----- ------------------------------ Common stock, par value $.01 6,411,106 shares PRIMESOURCE CORPORATION INDEX PART I - FINANCIAL STATEMENTS Item 1 - Financial Information Page No. -------- Condensed Balance Sheets June 30, 2000 and December 31, 1999 3 Condensed Statements of Income Three and Six Months Ended June 30, 2000 and 1999 4 Condensed Statements of Cash Flows Six Months Ended June 30, 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 4 - Submission of Matters to a Vote of Security Holders 11 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. PART I. FINANCIAL INFORMATION Item 1. Financial Statements
PRIMESOURCE CORPORATION CONDENSED BALANCE SHEETS (Unaudited) June 30, December 31, (Thousands of dollars) 2000 1999 - -------------------------------------------------------------------------------- ASSETS Current Assets: Receivables, net ................................... $ 88,907 $ 93,695 Inventories ........................................ 76,093 68,379 Other .............................................. 4,435 4,071 - -------------------------------------------------------------------------------- Total Current Assets ................................. 169,435 166,145 Property and equipment, net .......................... 9,593 12,063 Excess of cost over net assets of businesses acquired, net ....................... 15,985 16,427 Other assets ......................................... 1,881 2,172 - -------------------------------------------------------------------------------- Total Assets ......................................... $196,894 $196,807 ================================================================================ LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Current portion of long-term obligations ........... $ 63,104 $ 104 Notes payable ...................................... 953 Accounts payable ................................... 47,394 45,766 Book overdraft ..................................... 13,702 16,937 Other accrued liabilities .......................... 9,254 8,149 - -------------------------------------------------------------------------------- Total Current Liabilities ............................ 133,454 71,909 Long-term obligations, net of current portion ........ 62,500 Accrued pension liabilities and other liabilities .... 2,487 2,853 - -------------------------------------------------------------------------------- Total Liabilities .................................... 135,941 137,262 - -------------------------------------------------------------------------------- Commitments and contingencies Shareholders' Equity: Common stock, $.01 par value ....................... 64 65 Additional paid in capital ......................... 25,233 25,725 Retained earnings .................................. 35,656 33,755 - -------------------------------------------------------------------------------- Total Shareholders' Equity ........................... 60,953 59,545 - -------------------------------------------------------------------------------- Total Liabilities and Shareholders' Equity ........... $196,894 $196,807 ================================================================================ See notes to condensed financial statements.
PRIMESOURCE CORPORATION CONDENSED STATEMENTS OF INCOME (Unaudited) Three Months Six Months (Thousands of dollars, Ended June 30, Ended June 30, except per share amounts) 2000 1999 2000 1999 - --------------------------------------------------------------------------------------------- Net sales ................................ $ 135,191 $ 133,355 $ 276,196 $ 272,789 Cost of sales ............................ 111,566 110,051 229,135 226,013 - --------------------------------------------------------------------------------------------- Gross profit ............................. 23,625 23,304 47,061 46,776 Selling, administrative and other expenses 19,850 19,764 39,618 39,759 - --------------------------------------------------------------------------------------------- Income from operations ................... 3,775 3,540 7,443 7,017 Interest expense ......................... (1,443) (1,342) (2,879) (2,774) Other income, net ........................ 81 14 167 67 - --------------------------------------------------------------------------------------------- Income before provision for income taxes ........................ 2,413 2,212 4,731 4,310 Provision for income taxes ............... 1,016 917 1,973 1,780 - --------------------------------------------------------------------------------------------- Net income ............................... $ 1,397 $ 1,295 $ 2,758 $ 2,530 ============================================================================================= Per share of common stock: Net income per basic share ............... $ .22 $ .20 $ .43 $ .39 Net income per diluted share ............. .22 .20 .43 .39 Cash dividends ........................... .0475 .045 .095 .09 ============================================================================================= See notes to condensed financial statements.
PRIMESOURCE CORPORATION CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended June 30, (Thousands of dollars) 2000 1999 - -------------------------------------------------------------------------------- Operating Activities: Net income ........................................... $ 2,758 $ 2,530 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation ..................................... 967 1,066 Amortization ..................................... 442 543 Other ............................................ (35) Changes in assets and liabilities affecting operations (923) 8,750 - ------------------------------------------------------------------------------- Net cash provided by operating activities ............ 3,209 12,889 - ------------------------------------------------------------------------------- Investing Activities: Additions to property and equipment .................. (935) (665) Proceeds from sale of property and equipment ......... 2,473 Net decrease in other assets ......................... 291 312 - ------------------------------------------------------------------------------- Net cash provided by (used in) investing activities .. 1,829 (353) - ------------------------------------------------------------------------------- Financing Activities: Net decrease in short-term debt ...................... (953) (3,500) Proceeds from long-term obligations .................. 106,400 Repayment of long-term obligations ................... (105,900) (6,561) Decrease in book overdraft ........................... (3,235) (1,887) Dividends paid ....................................... (617) (588) Purchase of common stock ............................. (733) - ------------------------------------------------------------------------------- Net cash used in financing activities ................ (5,038) (12,536) - ------------------------------------------------------------------------------- Net change in cash ................................... -- -- Cash, beginning of year .............................. -- -- - ------------------------------------------------------------------------------- Cash, end of period .................................. $ -- $ -- =============================================================================== See notes to condensed financial statements.
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 six months ended June 30, 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 and six months ended June 30:
Three Months Six Months Ended June 30, Ended June 30, 2000 1999 2000 1999 - ---------------------------------------------------------------------------------------------- Average shares of common stock outstanding used to compute basic earnings per share . 6,428,739 6,536,014 6,468,841 6,536,015 Dilutive effect of stock options ......... 15,686 461 10,969 - ---------------------------------------------------------------------------------------------- Average shares of common stock outstanding used to compute diluted earnings per share 6,428,739 6,551,700 6,469,302 6,546,984 - ---------------------------------------------------------------------------------------------- Net income per share: Basic .................................... $ .22 $ .20 $ .43 $ .39 Diluted .................................. .22 .20 .43 .39 ==============================================================================================
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. Debt 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 June 30, 2000. This revolver expires in May, 2001. The Company is reviewing financing alternatives to determine the financing that will best serve its needs. Based on alternatives reviewed to date, the Company believes there is available financing at reasonable rates to meet the Company's finance requirements. 6. 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. In 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin #101, Revenue Recognition in Financial Statements (SAB 101). SAB 101 summarizes the staff's views in applying generally accepted accounting principles to revenue recognition in financial statements. SAB 101 is effective for the fourth quarter of 2000. The Company is currently evaluating the impact SAB 101 will have on its financial statements. 7. Subsequent Event Effective July 1, 2000, the Company entered into a joint venture with Xeikon to form Canopy LLC (Canopy). The Company's contribution to the venture is a net asset investment consisting primarily of inventory of $11.1 million. The Company's ownership share will be 74% with Xeikon owning 26%. Canopy's business will focus on the sales, installation, and ongoing service and support of digital color and monochrome printing systems in the U.S. and Canada. These systems are utilized primarily by commercial, database, packaging, and transactional printers. Canopy is a separate and distinct legal entity from the Company. For financial reporting purposes, Canopy's assets, liabilities and earnings will be consolidated with those of the Company, and Xeikon's interest in Canopy will be included in the Company's financial statements as minority interest. 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, 2000 was $1,397,000 ($.22 per diluted share) compared to net income of $1,295,000 ($.20 per share) for the same period last year. For the six months ended June 30, 2000, net income was $2,758,000 ($.43 per diluted share) compared to net income of $2,530,000 ($.39 per diluted share) for 1999. This 9% increase in net income is the result of modest improvements in sales and operating efficiencies. These results are records for the periods for both sales and income. Net sales increased slightly more than 1% for both the quarter and six-month period ended June 30, 2000 compared to the same periods last year. Gross profits for the six-month period increased from $46,776,000 in 1999 to 47,061,000 in 2000, an increase of .6%. The gross margin percent decreases from 17.1% in 1999 to 17% in 2000. Selling, administrative and other expenses as a percent of sales were 14.7% for the quarter and 14.3% for the six-months ended June 30, 2000, compared to 14.8% and 14.6%, respectively, for the same periods last year. This decrease reflects continued measures by the Company to control operating costs. Interest expense was $1,443,000 and 2,879,000 for the quarter and six-month period ended June 30, 2000 compared to $1,342,000 and $2,774,000, respectively, for the same periods last year. This increase is due to increased interest rates that were partially offset by decreased debt levels. The effective income tax rate increased from 41.5% to 42.1% for the six months ended June 30, 2000 and 1999, respectively. This increase is due to non-deductible expenses being a higher percent to income in 2000 compared to 1999. 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 June 30, 2000, the Company had acquired and retired 125,106 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 provided by operating activities for the six months ended June 30, 2000 was $3,209,000 compared to cash provided of $12,889,000 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. The Company does not anticipate it will be able to match the working capital improvements obtained in 1999, although it will continue to emphasize maximizing return on these assets. Excluding the effect of changes in assets and liabilities, the cash flow was $4,139,000 in 1999 to $4,132,000 in 2000. Net cash provided by investing activities was $1,829,000 for the six months ended June 30, 2000 compared to net cash used of $353,000 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 were $935,000 and $665,000 for the six-months ended June 30 2000 and 1999, respectively. Additional capital expenditures for the year, for which there are no material commitments, are anticipated to be approximately $1,000,000. Net cash used by financing activities was $5,038,000 and $12,536,000 for the six months ended June 30, 2000 and 1999, respectively. The cash used was provided by the net cash generated from the operating and investing activities. For 2000, total debt decreased by $453,000 compared to $10.1 million for 1999. The book overdraft decreased by $3.2 million and $1.9 million in 2000 and 1999, respectively. Expenditures for dividends increased from $588,000 to $617,000 as a result of the increase in the dividend rate and in 2000, the Company expended $733,000 for the repurchase of Company stock. 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 June 30, 2000. This revolver expires in May, 2001. The Company is reviewing financing alternatives to determine the financing that will best serve its needs. Based on alternatives reviewed to date, the Company believes there is available financing at reasonable rates to meet the Company's finance requirements. 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. 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. In 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin #101, Revenue Recognition in Financial Statements (SAB 101). SAB 101 summarizes the staff's views in applying generally accepted accounting principles to revenue recognition in financial statements. SAB 101 is effective for the fourth quarter of 2000. The Company is currently evaluating the impact SAB 101 will have on its financial statements. 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 9, 2000. b. Matters voted upon at the meeting and the results of those votes were as follows:
Election of Directors For Against Withheld ------------------------------------------------------------------------------------- Fred C. Aldridge, Jr. 5,482,735 --- 18,595 John H. Goddard, Jr. 5,483,393 --- 20,937 John M. Pettine 5,482,415 --- 18,915 Other directors whose terms of office continued after the meeting are as follows:Phillip J.Baur, Jr., Richard E.Engebrecht, Gary MacLeod, James F. Mullan, Klaus D. Oebel, Edward N. Patrone. Approval of Independent Auditors For Against Withheld ------------------------------------------------------------------------------------- Approval of PricewaterhouseCoopers LLP, Certified Public Accountants, as independent public auditors for 2000 5,340,288 155,505 5,536
The foregoing matters are described in detail in the Company's proxy statement dated April 10, 2000. 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 June 30, 2000. 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 10, 2000 EX-27 2 0002.txt FDS
5 1,000 6-MOS DEC-31-2000 JUN-30-2000 0 0 83,486 3,476 76,093 169,435 20,338 10,745 196,894 133,454 0 0 0 64 60,889 196,894 276,196 276,196 229,135 229,135 0 727 2,879 4,731 1,973 2,758 0 0 0 2,758 .43 .43
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