-----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, IT7Ye3eMPWXyupUiwBaO1c+ErEX1hecFC0SjXeAo9XOUI0JJpfeYrioqFXEr1Pke Ud32SF3IkzCF33FrPgU4Iw== 0000904816-99-000003.txt : 19990511 0000904816-99-000003.hdr.sgml : 19990511 ACCESSION NUMBER: 0000904816-99-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990510 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: 99615132 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 FOR 3-MOS ENDED MARCH 31, 1999 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, 1999 or ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO ______ Commission File Number 000-21750 PrimeSource Corporation ----------------------- (Exact name of registrant as specified in its charter) Pennsylvania 23-1430030 - ------------ ---------- (State of incorporation) (I.R.S. Employer Identification No.) 4350 Haddonfield Road, Suite 222, Pennsauken, NJ 08109 - -------------------------------------------------- ------ (Address of principal executive offices) (Zip Code) (609) 488-4888 -------------- (Registrant's telephone number, including area code) Indicate by a check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (X) No ( ) Indicate the number of shares outstanding of each of the issuer's classes of common stock: Class Outstanding at May 7, 1999 - ----- -------------------------- Common stock, par value $.01 6,536,014 shares PRIMESOURCE CORPORATION INDEX PART I - FINANCIAL STATEMENTS Item 1 - Financial Statements Page No. -------- Condensed Balance Sheets March 31, 1999 and December 31, 1998 3 Condensed Statements of Income Three Months Ended March 31, 1999 and 1998 4 Condensed Statements of Cash Flows Three Months Ended March 31, 1999 and 1998 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. PART I. FINANCIAL INFORMATION Item 1. Financial Statements PRIMESOURCE CORPORATION CONDENSED BALANCE SHEETS (Unaudited)
March 31, December 31, (Thousands of dollars) 1999 1998 - -------------------------------------------------------------------------------- ASSETS Current Assets: Receivables, net ................................... $ 94,449 $ 83,575 Inventories ........................................ 57,660 69,111 Other .............................................. 4,120 3,814 - -------------------------------------------------------------------------------- Total Current Assets ................................. 156,229 156,500 Property and equipment, net .......................... 13,048 13,123 Excess of cost over net assets of businesses acquired, net ....................... 17,399 17,526 Other assets ......................................... 3,712 3,898 - -------------------------------------------------------------------------------- Total Assets ......................................... $190,388 $191,047 ================================================================================ LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Current portion of long-term obligations ........... $ 1,092 $ 1,128 Notes payable ...................................... 3,500 Accounts payable ................................... 46,064 33,745 Book overdraft ..................................... 3,241 9,195 Other accrued liabilities .......................... 6,330 8,680 - -------------------------------------------------------------------------------- Total Current Liabilities ............................ 56,727 56,248 Long-term obligations, net of current portion ........ 73,104 75,205 Accrued pension liabilities and other liabilities .... 4,005 3,983 - -------------------------------------------------------------------------------- Total Liabilities .................................... 133,836 135,436 - -------------------------------------------------------------------------------- Commitments and contingencies Shareholders' Equity: Common stock, $.01 par value ....................... 65 65 Additional paid in capital ......................... 25,724 25,724 Retained earnings .................................. 30,763 29,822 - -------------------------------------------------------------------------------- Total Shareholders' Equity ........................... 56,552 55,611 - -------------------------------------------------------------------------------- Total Liabilities and Shareholders' Equity ........... $190,388 $191,047 ================================================================================ See notes to condensed financial statements.
PRIMESOURCE CORPORATION CONDENSED STATEMENTS OF INCOME (Unaudited)
Three Months (Thousands of dollars, Ended March 31, except per share amounts) 1999 1998 - -------------------------------------------------------------------------------- Net sales ............................................ $ 139,434 $ 101,528 Cost of sales ........................................ 115,962 83,076 - -------------------------------------------------------------------------------- Gross profit ......................................... 23,472 18,452 Selling, general, administrative and other expenses .. 19,995 15,975 - -------------------------------------------------------------------------------- Income from operations ............................... 3,477 2,477 Interest expense ..................................... (1,432) (680) Other income, net .................................... 53 88 - -------------------------------------------------------------------------------- Income before provision for income taxes .................................... 2,098 1,885 Provision for income taxes ........................... 863 773 - -------------------------------------------------------------------------------- Net income ........................................... $ 1,235 $ 1,112 ================================================================================ Per share of common stock: Net income per basic and diluted share ............... $ .19 $ .17 Cash dividends ....................................... .045 .045 ================================================================================ See notes to condensed financial statements.
PRIMESOURCE CORPORATION CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended March 31, (Thousands of dollars) 1999 1998 - -------------------------------------------------------------------------------- Operating Activities: Net income ........................................... $ 1,235 $ 1,112 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation ..................................... 537 468 Amortization ..................................... 256 93 Changes in assets and liabilities affecting operations 10,137 (631) - -------------------------------------------------------------------------------- Net cash provided by operating activities ............ 12,165 1,042 - -------------------------------------------------------------------------------- Investing Activities: Additions to property and equipment .................. (462) (491) Net decrease in other assets ......................... 182 145 - -------------------------------------------------------------------------------- Net cash used in investing activities ................ (280) (346) - -------------------------------------------------------------------------------- Financing Activities: Net decrease in short-term debt ...................... (3,500) Proceeds from long-term obligations .................. 31,250 Repayment of long-term obligations ................... (2,137) (26,227) Decrease in book overdraft ........................... (5,954) (5,464) Dividends paid ....................................... (294) (294) Proceeds from exercise of stock options .............. 39 - -------------------------------------------------------------------------------- Net cash used in financing activities ................ (11,885) (696) - -------------------------------------------------------------------------------- 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 ........................................ $ 1,442 $ 420 Income taxes .................................... 379 258 ================================================================================ 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 1998 Annual Report on Form 10-K for further information. The results of operations for the three months ended March 31, 1999 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:
1999 1998 - -------------------------------------------------------------------------------- Average shares of common stock outstanding used to compute basic earnings per share 6,536,016 6,521,084 Dilutive effect of stock options ............. 6,252 178,325 - -------------------------------------------------------------------------------- Average shares of common stock outstanding used to compute diluted earnings per share ... 6,542,268 6,699,409 - -------------------------------------------------------------------------------- Net income per share Basic ........................................ $.19 $.17 Diluted ...................................... .19 .17 ================================================================================
4. Business Acquisition In September 1998, the Company acquired the net assets of Bell Industries' Graphic Imaging Group ("Bell acquisition") with 13 locations in the West, Southwest and Midwest. Annual sales from this acquisition are expected to be approximately $135 million. 5. Restructure and Other In 1998, the Company reorganized the operations into three regions. This included integrating the Bell acquisition operations into the applicable regions and, where appropriate, combining Bell facilities with existing PrimeSource facilities in the area. In conjunction with this reorganization, the Company incurred a restructure and other expense charge of $1,050,000 of which $54,000 was expended in 1998. The following table sets forth the components of the accrual balance at December 31, 1998 and the expenditures through March 31, 1999.
Balance Balance December 31, Cash March 31, (Thousands of dollars) 1998 Expenditures 1999 - -------------------------------------------------------------------------------- Employee severance ............. $546 $472 $ 74 Lease obligations .............. 100 38 62 Asset write-downs .............. 350 350 - -------------------------------------------------------------------------------- Total ......................... $996 $510 $486 ================================================================================
6. New Accounting Standards In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." The Statement establishes new procedures for accounting for derivatives and hedging activities and supersedes and amends a number of existing standards. The Statement is effective for fiscal years beginning after June 15, 1999. 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. 7. Reclassifications Certain reclassifications have been made to the 1998 condensed financial statements to conform to the 1999 presentation. 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 $1,235,000 ($.19 per diluted share) compared to net income of $1,112,000 ($.17 per share) for the same period last year. Net sales reached a new high of $139,434,000 for the quarter, 37% above the $101,528,000 for the same quarter last year. This sales growth was due, in part, to acquisitions completed in 1998, as well as to internal growth in all aspects of the Company's business. Gross profit as a percent of sales was 16.8% for the quarter ended March 31, 1999 compared to 18.2% for the same quarter last year. This decrease is the result of changes in product mix, lower manufacturer rebates as a percent of sales and a reduction in purchase discounts as a result of decreasing inventory levels during the quarter. Selling, general, administrative and other expenses as a percent of sales decreased from 15.7% in the first quarter of 1998 to 14.3% in 1999. This decrease reflects the cost savings from the integration of the Bell acquisition operations and the cost reductions incurred in reorganizing the business into three regions. Interest expense was $1,432,000 for the quarter ended March 31, 1999 compared to $680,000 for the same period last year. This increase is primarily attributable to the Bell acquisition in September 1998. The effective tax rates for the quarters ended March 31, 1998 and 1999, remained relatively constant at 41% and 41.1%, 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. Financial Condition and Liquidity Net cash provided by operating activities for the three months ended March 31, 1999 was $12.165,000 compared to $1,042,000 for the same period last year. This increase is primarily attributable to improved management of working capital in 1999. Changes in assets and liabilities resulted in a $10.1 million inflow of cash in 1999 compared to an outflow of $.6 million in 1998. Excluding the effect of changes in assets and liabilities, the cash flow increased by 21% from $1,673,000 to $2,028,000. Net cash used in investing activities was $280,000 for the three months ended March 31, 1999 compared to $346,000 for the same period last year. Capital expenditures for the three months in 1999 were $462,000 compared to $491,000 for the same period last year. Additional capital expenditures for the year, for which there are no material commitments, are anticipated to be approximately $1,500,000. Net cash used in financing activities was $11,885,000 for the three-month period ended March 31, 1999 compared to $696,000 for the same period last year. During the quarter ended March 31, 1999, debt decreased $5.6 million and the book overdraft decreased $6 million. These decreases reflect the utilization of the cash generated from operations. For 1998, debt increased $5 million and the book overdraft decreased $5.5 million. For both periods, dividends were $294,000. The Company's primary source of debt financing is a revolving credit agreement with a commitment of $75 million of which $73 million was outstanding at March 31, 1999. In addition, the Company has an uncommitted credit line for $10 million with no outstanding balance at March 31, 1999. The Company believes these facilities combined with future cash flow from operations will be adequate to meet the ongoing capital requirements of the Company. 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 business system was initially installed in 1990. The system was acquired from a software manufacturer and was modified to meet certain Company requirements. Since the initial installation, the software manufacturer has made several upgrades to the product, including making the software Year 2000 compliant. Historically, the Company has elected not to install the available system upgrades because of the potential additional programming costs of making any required changes to the custom modifications previously made. To become Year 2000 compliant and, in addition, to take advantage of other enhancements in the software, the Company has decided to install the manufacturer's software upgrades. In addition, the Company has contracted with the manufacturer to make the necessary programming changes required as a result of the Company's separate custom modifications to the program. The manufacturer has completed the changes and the Company has completed the testing. In order to minimize potential computer down time, the Company has scheduled the conversion implementation for Memorial Day weekend (May 29-31, 1999), thus allowing for one additional nonbusiness day to complete the process. The Company believes it has allowed adequate time, including time for any potential delays, to complete the project prior to the year 2000. Accordingly, at this time, the Company has not made any formal contingency plans. The total cost of the system improvements, which incorporate the Year 2000 compliance, are estimated to be $300,000 of which substantially all has been expended. No other significant information system additions have been postponed as a result of this project. With regard to potential implications to the Company of suppliers not being Year 2000 compliant, the Company through questionnaires and direct contact with major suppliers, is in the process of reviewing the status of their compliance. At this time, the Company is not aware of any compliance problem with any of its significant suppliers and, in addition, the Company has access to competing products for nearly any customer's needs. With regard to the Company's customer base, the Company is not requesting any specific information from its customers. The Company has over 30,000 customers and does not feel the potential exposures justify the cost and problems associated with surveying this customer base. The Company does share information electronically with certain customers and is working with these customers with regard to potential transmission problems. The Company recognizes that some electronic equipment it sold in earlier years may not be Year 2000 compliant and could result in claims against the Company as well as the manufacturer of the equipment. The Company believes it would have several defenses to any such claims, but it is unable to estimate what the aggregate cost of defending and/or settling such claims would be. With regard to other areas of exposure, the Company's facilities consist primarily of leased warehouse facilities in large metropolitan areas using local utilities. With regard to communication lines, the business system lines are through a major supplier who has provided assurances they will be Year 2000 compliant. As the Company does not have any specific contract services with power companies or other utilities or sophisticated production equipment, it is not subject to many of the potential problems of manufacturing or certain service environments. However, due to the interdependence of telecommunication, power and other utility services and the other general uncertainties of this issue, the Company is unable to determine whether the consequences of Year 2000 failures will have a material impact on the Company's results of operations, liquidity or financial condition. New Accounting Standards In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." The Statement establishes new procedures for accounting for derivatives and hedging activities and supersedes and amends a number of existing standards. The Statement is effective for fiscal years beginning after June 15, 1999. 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. 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, 1999. 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 10, 1999 EX-27 2 FDS 3/31/99
5 1,000 3-MOS DEC-31-1999 MAR-31-1999 0 0 87,389 3,552 57,660 156,229 24,566 11,518 190,388 56,727 73,104 0 0 65 56,487 190,388 139,434 139,434 115,962 115,962 19,878 117 1,432 2,098 863 1,235 0 0 0 1,235 .19 .19
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